0000798941fcnca:AOCIAccumulatedGainLossDebtSecuritiesAvailableForSaleExcludingTransfersParentMember2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended March 31, ~~2022~~2023
			or
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-16715

First Citizens BancShares, Inc.

(Exact name of Registrant as specified in its charter)


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

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

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


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Class A Common Stock— ~~14,996,414~~13,514,808 shares

Class B Common Stock— 1,005,185 shares

(Number of shares outstanding, by class, as of April 30, ~~2022)~~2023

CONTENTS

Part One — Financial Information:

Item 1.

Financial Statements

Consolidated Balance Sheets (Unaudited)

Consolidated Statements of Income (Unaudited)

Consolidated Statements of Comprehensive Income (Unaudited)

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Consolidated Statements of Cash Flows (Unaudited)

Notes to the Unaudited Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6460

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

98102

Item 4.

Controls and Procedures

99103

Part Two — Other Information:

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

99106

~~Item 4.~~

~~Mine Safety Disclosures~~

~~N/A~~

~~Item 5.~~

O ~~ther~~ ~~Info~~r ~~mation~~

Item 6.

Exhibits

~~100~~107

Signatures

~~101~~107

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

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	HOA	Home Owner’s Association
AFS	Available for Sale	HQLS	High Quality Liquid Securities
AOCI	Accumulated Other Comprehensive Income	HTM	Held to Maturity
ASC	Accounting Standards Codification	LIBOR	London Inter-Bank Offered Rate
~~AOCI~~ASU	~~Accumulated Other Comprehensive Income~~Accounting Standards Update	LGD	Loss Given Default
BHC	Bank Holding Company	LOCOM	Lower of the Cost or Market Value
~~ASU~~BOLI	~~Accounting Standards Update~~Bank Owned Life Insurance	MD&A	Management’s Discussion and Analysis
~~BHC~~bps	~~Bank Holding Company~~Basis point(s); 1 bp = 0.01%	MSRs	Mortgage Servicing Rights
~~BOLI~~CAB	~~Bank Owned Life Insurance~~Community Association Banking	NCCOB	North Carolina Commissioner of Banks
~~bps~~CCAR	~~Basis point(s); 1bp=0.01%~~Comprehensive Capital Analysis and Review	NII	Net Interest Income
~~CARES Act~~CECL	~~The Coronavirus Aid, Relief, and Economic Security Act~~Current Expected Credit Losses	NII Sensitivity	Net Interest Income Sensitivity
~~CAB~~DPA	~~Community Association Banking~~Deferred Purchase Agreement	NIM	Net Interest Margin
~~CECL~~DTAs	~~Current Expected Credit Losses~~Deferred Tax Assets	OREO	Other Real Estate Owned
~~DPA~~ETR	~~Deferred Purchase Agreement~~Effective Tax Rate	PAA	Purchase Accounting Adjustments
~~DTAs~~	~~Deferred Tax Assets~~	PB	~~Primary Beneficiary~~
~~ETR~~	~~Effective Tax Rate~~	~~PCA~~	~~Prompt corrective action~~
EVE Sensitivity	Economic Value of Equity Sensitivity	~~PCD~~PCA	~~Purchased Credit Deteriorated~~Prompt corrective action
FASB	Financial Accounting Standards Board	PDPCAOB	~~Probability of Obligor Default~~Public Company Accounting Oversight Board
FCB	First-Citizens Bank & Trust Company	~~RMG~~PCD	~~Risk Management Group~~Purchased Credit Deteriorated
FDIC	Federal Deposit Insurance Corporation	~~ROU~~PD	~~Right~~Probability of ~~Use~~Obligor Default
FHA	Federal Housing Administration	~~RSU~~PPP	~~Restricted Stock Unit~~Paycheck Protection Program
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 ~~System~~Bank	~~SBA-PPP~~SOFR	~~Small Business Administration Paycheck Protection Plan~~Secured Overnight Financing Rate
GAAP	Accounting Principles Generally Accepted in the U.S.	~~SOFR~~TDRs	~~Secured Overnight Financing Rate~~Troubled Debt Restructuring
GDP	Gross Domestic Product	~~TDRs~~	~~Troubled Debt Restructuring~~
~~HAMP~~	~~Home Affordable Modification Program~~	UPB	Unpaid Principal Balance
~~HOA~~HFI	~~Home Owner’s Association~~	VA	~~Veteran’s Administration~~
~~HQSL~~	~~High Quality Liquid Securities~~Held for Investment	VIE	Variable Interest Entity
~~IRC~~	~~Internal Revenue Code~~

PART I

Item 1. Financial Statements

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)


dollars in millions, except share data	dollars in millions, except share data	March 31, 2022		December 31, 2021		dollars in millions, except share data	March 31, 2023		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	523	$	338	Cash and due from banks	$	1,598	$	518
Interest-earning deposits at banks	Interest-earning deposits at banks	9,285		9,115		Interest-earning deposits at banks	38,522		5,025

Investments in marketable equity securities (cost of $73 million at March 31, 2022 and $73 million at December 31, 2021)		100		98
Investment securities available for sale (cost of $9,726 million at March 31, 2022 and $9,215 million at December 31, 2021)		9,295		9,203
Investment securities held to maturity (fair value of $9,457 million at March 31, 2022 and $3,759 million at December 31, 2021)		10,074		3,809
Investment in marketable equity securities (cost of $75 at March 31, 2023 and $75 at December 31, 2022)						Investment in marketable equity securities (cost of $75 at March 31, 2023 and $75 at December 31, 2022)	85		95
Investment securities available for sale (cost of $9,955 at March 31, 2023 and $9,967 at December 31, 2022), net of allowance for credit losses						Investment securities available for sale (cost of $9,955 at March 31, 2023 and $9,967 at December 31, 2022), net of allowance for credit losses	9,061		8,995
Investment securities held to maturity (fair value of $8,993 at March 31, 2023 and $8,795 at December 31, 2022)						Investment securities held to maturity (fair value of $8,993 at March 31, 2023 and $8,795 at December 31, 2022)	10,381		10,279
Assets held for sale	Assets held for sale	83		99		Assets held for sale	94		60
Loans and leases	Loans and leases	65,524		32,372		Loans and leases	138,288		70,781
Allowance for credit losses	Allowance for credit losses	(848)		(178)		Allowance for credit losses	(1,605)		(922)
Loans and leases, net of allowance for credit losses	Loans and leases, net of allowance for credit losses	$	64,676	$	32,194	Loans and leases, net of allowance for credit losses	136,683		69,859
Operating lease equipment, net	Operating lease equipment, net	7,972		—		Operating lease equipment, net	8,331		8,156
Premises and equipment		1,431		1,233
Bank owned life insurance		1,326		116
Premises and equipment, net						Premises and equipment, net	1,743		1,456
Goodwill	Goodwill	346		346		Goodwill	346		346
Other intangible assets	Other intangible assets	156		19		Other intangible assets	364		140
Other assets	Other assets	3,330		1,739		Other assets	7,450		4,369
Total assets	Total assets	$	108,597	$	58,309	Total assets	$	214,658	$	109,298
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest-bearing		$	25,898	$	21,405
Noninterest-bearing						Noninterest-bearing	$	54,649	$	24,922
Interest-bearing	Interest-bearing	65,699		30,001		Interest-bearing	85,401		64,486
Total deposits	Total deposits	$	91,597	$	51,406	Total deposits	140,050		89,408
Credit balances of factoring clients	Credit balances of factoring clients	1,150		—		Credit balances of factoring clients	1,126		995
Securities sold under customer repurchase agreements		616		589
Borrowings:						Borrowings:

Federal Home Loan Bank borrowings		639		645
Senior unsecured borrowings		895		—
Subordinated debt		1,058		478
Other borrowings		84		72

Short-term borrowings						Short-term borrowings	1,009		2,186

Long-term borrowings						Long-term borrowings	45,085		4,459
Total borrowings						Total borrowings	46,094		6,645
Other liabilities	Other liabilities	1,988		381		Other liabilities	8,172		2,588
Total liabilities	Total liabilities	$	98,027	$	53,571	Total liabilities	195,442		99,636
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock - $0.01 par value (10,000,000 shares authorized at March 31, 2022 and December 31, 2021)		$	881	$	340
Preferred stock - $0.01 par value (10,000,000 shares authorized at March 31, 2023 and December 31, 2022)						Preferred stock - $0.01 par value (10,000,000 shares authorized at March 31, 2023 and December 31, 2022)	881		881
Common stock:	Common stock:					Common stock:
Class A - $1 par value (16,000,000 shares authorized; 14,996,325 and 8,811,220 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)		15		9
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2022 and December 31, 2021)		1		1
Class A - $1 par value (16,000,000 shares authorized at March 31, 2023; 13,514,808 and 13,501,017 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)						Class A - $1 par value (16,000,000 shares authorized at March 31, 2023; 13,514,808 and 13,501,017 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)	14		14
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2023 and December 31, 2022)						Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at March 31, 2023 and December 31, 2022)	1		1
Additional paid in capital	Additional paid in capital	5,344		—		Additional paid in capital	4,104		4,109
Retained earnings	Retained earnings	4,634		4,378		Retained earnings	14,885		5,392
Accumulated other comprehensive (loss) income		(305)		10
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(669)		(735)
Total stockholders’ equity	Total stockholders’ equity	$	10,570	$	4,738	Total stockholders’ equity	19,216		9,662
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	108,597	$	58,309	Total liabilities and stockholders’ equity	$	214,658	$	109,298

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
dollars in millions, except share and per share data	dollars in millions, except share and per share data	2022		2021		dollars in millions, except share and per share data	2023		2022
Interest income	Interest income					Interest income
Interest and fees on loans	Interest and fees on loans	$	621	$	323	Interest and fees on loans	$	1,017	$	621
Interest on investment securities	Interest on investment securities	83		30		Interest on investment securities	107		83
Other interest and dividends		6		2
Interest on deposits at banks						Interest on deposits at banks	87		6
Total interest income	Total interest income	$	710	$	355	Total interest income	1,211		710
Interest expense	Interest expense					Interest expense
Deposits	Deposits	39		9		Deposits	288		39

Borrowings	Borrowings	22		6		Borrowings	73		22
Total interest expense	Total interest expense	$	61	$	15	Total interest expense	361		61
Net interest income	Net interest income	649		340		Net interest income	850		649
Provision (benefit) for credit losses		464		(11)
Provision for credit losses						Provision for credit losses	783		464
Net interest income after provision for credit losses	Net interest income after provision for credit losses	$	185	$	351	Net interest income after provision for credit losses	67		185
Noninterest income	Noninterest income					Noninterest income
Rental income on operating leases		208		—
Fee income and other revenue		33		9
Rental income on operating lease equipment						Rental income on operating lease equipment	233		208
Fee income and other service charges						Fee income and other service charges	50		36
Wealth management services	Wealth management services	35		32		Wealth management services	42		35
Gains on leasing equipment, net		6		—
Service charges on deposit accounts	Service charges on deposit accounts	28		22		Service charges on deposit accounts	24		27
Factoring commissions	Factoring commissions	27		—		Factoring commissions	19		27
Cardholder services, net	Cardholder services, net	25		20		Cardholder services, net	21		25
Merchant services, net	Merchant services, net	10		9		Merchant services, net	10		10
Realized gains on investment securities available for sale, net		—		9
Marketable equity securities gains, net		3		16
Insurance commissions						Insurance commissions	13		12
Realized loss on sale of investment securities available for sale, net						Realized loss on sale of investment securities available for sale, net	(14)		—
Fair value adjustment on marketable equity securities, net						Fair value adjustment on marketable equity securities, net	(9)		3
Bank-owned life insurance						Bank-owned life insurance	5		8
Gain on sale of leasing equipment, net						Gain on sale of leasing equipment, net	4		6
Gain on acquisition	Gain on acquisition	431		—		Gain on acquisition	9,824		431
Gain on extinguishment of debt	Gain on extinguishment of debt	6		—		Gain on extinguishment of debt	—		6
Other noninterest income	Other noninterest income	38		20		Other noninterest income	37		16
Total noninterest income	Total noninterest income	$	850	$	137	Total noninterest income	10,259		850
Noninterest expense	Noninterest expense					Noninterest expense
Depreciation on operating lease equipment	Depreciation on operating lease equipment	81		—		Depreciation on operating lease equipment	89		81
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	43		—		Maintenance and other operating lease expenses	56		43
Salaries and benefits	Salaries and benefits	352		184		Salaries and benefits	420		356
Net occupancy expense	Net occupancy expense	49		30		Net occupancy expense	50		48
Equipment expense	Equipment expense	52		30		Equipment expense	58		52
Professional fees						Professional fees	12		12
Third-party processing fees	Third-party processing fees	24		14		Third-party processing fees	29		24
FDIC insurance expense	FDIC insurance expense	12		3		FDIC insurance expense	18		12
Merger-related expenses		135		7
Marketing expense						Marketing expense	15		8
Acquisition-related expenses						Acquisition-related expenses	28		135
Intangible asset amortization	Intangible asset amortization	6		3		Intangible asset amortization	5		6
Other noninterest expense	Other noninterest expense	56		26		Other noninterest expense	75		33
Total noninterest expense	Total noninterest expense	$	810	$	297	Total noninterest expense	855		810
Income before income taxes	Income before income taxes	225		191		Income before income taxes	9,471		225
Income tax (benefit) expense	Income tax (benefit) expense	(46)		44		Income tax (benefit) expense	(47)		(46)
Net income	Net income	$	271	$	147	Net income	$	9,518	$	271
Preferred stock dividends	Preferred stock dividends	7		4		Preferred stock dividends	14		7
Net income available to common stockholders	Net income available to common stockholders	$	264	$	143	Net income available to common stockholders	$	9,504	$	264
Earnings per common share	Earnings per common share					Earnings per common share
Basic	Basic	$	16.70	$	14.53	Basic	$	654.22	$	16.70
Diluted	Diluted	$	16.70	$	14.53	Diluted	$	653.64	$	16.70
Weighted average common shares outstanding	Weighted average common shares outstanding					Weighted average common shares outstanding
Basic	Basic	15,779,153		9,816,405		Basic	14,526,693		15,779,153
Diluted	Diluted	15,779,153		9,816,405		Diluted	14,539,709		15,779,153

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended March 31,
dollars in millions 2022 2021
Net income $ 271 $ 147
Other comprehensive income (loss), net of tax
Net unrealized losses on securities available for sale (317) (51)
Net change in pension obligations 2 5
Other comprehensive loss, net of tax $ (315) $ (46)
Total comprehensive (loss) income $ (44) $ 101


	Three Months Ended March 31,
dollars in millions	2023		2022
Net income	$	9,518	$	271
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on securities available for sale	58		(318)
Net change in unrealized loss on securities available for sale transferred to securities held to maturity	—		1
Net change in defined benefit pension items	8		2


Other comprehensive income (loss), net of tax	$	66	$	(315)
Total comprehensive income (loss)	$	9,584	$	(44)

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


																	Three Months Ended March 31,
dollars in millions, except share data	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		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 December 31, 2022																Balance at December 31, 2022	$	881	$	14	$	1	$	4,109	$	5,392	$	(735)	$	9,662
Net income																Net income	—		—		—		—		9,518		—		9,518
Other comprehensive (loss) income, net of tax																Other comprehensive (loss) income, net of tax	—		—		—		—		—		66		66

Stock based compensation																Stock based compensation	—		—		—		(5)		—		—		(5)

Cash dividends declared ($0.75 per common share):																Cash dividends declared ($0.75 per common share):
Class A common stock																Class A common stock	—		—		—		—		(10)		—		(10)
Class B common stock																Class B common stock	—		—		—		—		(1)		—		(1)
Preferred stock dividends declared:																Preferred stock dividends declared:
Series A																Series A	—		—		—		—		(4)		—		(4)
Series B																Series B	—		—		—		—		(7)		—		(7)
Series C																Series C	—		—		—		—		(3)		—		(3)
Balance at March 31, 2023																Balance at March 31, 2023	$	881	$	14	$	1	$	4,104	$	14,885	$	(669)	$	19,216

Balance at December 31, 2021	Balance at December 31, 2021	$	340	$	9	$	1	$	—	$	4,378	$	10	$	4,738	Balance at December 31, 2021	$	340	$	9	$	1	$	—	$	4,378	$	10	$	4,738
Net income	Net income	—		—		—		—		271		—		271		Net income	—		—		—		—		271		—		271
Other comprehensive loss, net of tax		—		—		—		—		—		(315)		(315)
Other comprehensive (loss) income, net of tax																Other comprehensive (loss) income, net of tax	—		—		—		—		—		(315)		(315)
Issued in CIT Merger:	Issued in CIT Merger:															Issued in CIT Merger:
Common stock	Common stock	—		6		—		5,273		—		—		5,279		Common stock	—		6		—		5,273		—		—		5,279
Series B preferred stock	Series B preferred stock	334		—				—		—		—		334		Series B preferred stock	334		—		—		—		—		—		334
Series C preferred stock	Series C preferred stock	207		—		—		—		—		—		207		Series C preferred stock	207		—		—		—		—		—		207

Stock based compensation	Stock based compensation	—		—		—		71		—		—		71		Stock based compensation	—		—		—		71		—		—		71
Cash dividends declared ($0.47 per common share)
Class A common stock		—		—		—		—		(7)		—		(7)
Class B common stock		—		—		—		—		—		—		—
Preferred stock dividends declared:
Series A ($13.44 per share)		—		—		—		—		(5)		—		(5)

Series C ($0.35 per share)		—		—		—		—		(3)		—		(3)
Balance at March 31, 2022		$	881	$	15	$	1	$	5,344	$	4,634	$	(305)	$	10,570

Balance at December 31, 2020		$	340	$	9	$	1	$	—	$	3,867	$	12	$	4,229
Net income		—		—		—		—		147		—		147
Other comprehensive loss, net of tax		—		—		—		—		—		(46)		(46)
Cash dividends declared ($0.47 per common share)
Cash dividends declared ( $0.47 per common share):																Cash dividends declared ( $0.47 per common share):
Class A common stock	Class A common stock	—		—		—		—		(4)		—		(4)		Class A common stock	—		—		—		—		(7)		—		(7)
Class B common stock	Class B common stock	—		—		—		—		—		—		—		Class B common stock	—		—		—		—		—		—		—
Preferred stock dividends declared	Preferred stock dividends declared	—		—		—		—		(5)		—		(5)		Preferred stock dividends declared
Balance at March 31, 2021		$	340	$	9	$	1	$	—	$	4,005	$	(34)	$	4,321
Series A																Series A	—		—		—		—		(5)		—		(5)
Series C																Series C	—		—		—		—		(3)		—		(3)
Balance at March 31, 2022																Balance at March 31, 2022	$	881	$	15	$	1	$	5,344	$	4,634	$	(305)	$	10,570

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
dollars in millions	dollars in millions	2022		2021		dollars in millions	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	271	$	147	Net income	$	9,518	$	271
Adjustments to reconcile net income to cash provided by operating activities:
Provision (benefit) for credit losses		464		(11)
Deferred tax (benefit) expense		(61)		9
Adjustments to reconcile net income to cash provided by (used in) operating activities:						Adjustments to reconcile net income to cash provided by (used in) operating activities:
Provision for credit losses						Provision for credit losses	783		464
Deferred tax benefit						Deferred tax benefit	(69)		(61)
Depreciation, amortization, and accretion, net	Depreciation, amortization, and accretion, net	126		34		Depreciation, amortization, and accretion, net	124		114
Stock based compensation expense	Stock based compensation expense	12		—		Stock based compensation expense	1		12
Realized gains on investment securities available for sale, net		—		(9)
Marketable equity securities gains, net		(3)		(16)
Net gain on sales of loans		(8)		(9)
Gain on sales of premises and equipment		(1)		—
Net gains on other real estate owned		(2)		(1)
Realized loss on sale of investment securities available for sale, net						Realized loss on sale of investment securities available for sale, net	14		—
Fair value adjustment on marketable equity securities, net						Fair value adjustment on marketable equity securities, net	9		(3)
Gain on sale of loans, net						Gain on sale of loans, net	(1)		(3)
Gain on sale of operating lease equipment, net						Gain on sale of operating lease equipment, net	(4)		(6)
Loss on sale of premises and equipment, net						Loss on sale of premises and equipment, net	—		1
Gain on other real estate owned, net						Gain on other real estate owned, net	—		(2)
Gain on acquisition	Gain on acquisition	(431)		—		Gain on acquisition	(9,824)		(431)

Gain on extinguishment of debt	Gain on extinguishment of debt	(6)		—		Gain on extinguishment of debt	—		(6)
Net change in assets held for sale		(183)		(15)
Origination of loans held for sale						Origination of loans held for sale	(82)		(235)
Proceeds from sale of loans held for sale						Proceeds from sale of loans held for sale	67		248
Net change in other assets	Net change in other assets	365		42		Net change in other assets	(486)		343
Net change in other liabilities	Net change in other liabilities	66		(38)		Net change in other liabilities	(347)		(118)
Other operating activities	Other operating activities	(209)		(7)		Other operating activities	(65)		(11)
Net cash provided by operating activities		$	400	$	126
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(362)		577
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		$	(295)	$	(404)
Net (increase) decrease in interest-earning deposits at banks						Net (increase) decrease in interest-earning deposits at banks	(88)		2,705

Purchases of investment securities available for sale	Purchases of investment securities available for sale	(810)		(1,738)		Purchases of investment securities available for sale	(125)		(810)
Proceeds from maturities of investment securities available for sale						Proceeds from maturities of investment securities available for sale	227		330
Proceeds from sales of investment securities available for sale						Proceeds from sales of investment securities available for sale	1		—
Purchases of investment securities held to maturity	Purchases of investment securities held to maturity	—		(207)		Purchases of investment securities held to maturity	(212)		—
Proceeds from maturities of investment securities held to maturity						Proceeds from maturities of investment securities held to maturity	117		283

Proceeds from maturities of investment securities available for sale		330		1,079
Proceeds from maturities of investment securities held to maturity		283		206
Proceeds from sales of investment securities available for sale		—		352
Proceeds from sales of marketable equity securities		—		1
Net decrease (increase) in interest earning deposits at banks		2,705		(3,241)
Net change in securities purchased under resale agreements		—		—
Net decrease in loans						Net decrease in loans	1,060		107
Proceeds from sales of loans						Proceeds from sales of loans	113		53
Net increase (decrease) in credit balances of factoring clients						Net increase (decrease) in credit balances of factoring clients	131		(383)
Purchases of operating lease equipment						Purchases of operating lease equipment	(288)		(226)
Proceeds from sales of operating lease equipment						Proceeds from sales of operating lease equipment	33		19
Purchases of premises and equipment						Purchases of premises and equipment	(44)		(15)

Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	11		10		Proceeds from sales of other real estate owned	3		11
Proceeds from sales of loans		260		—
Proceeds from sales of premises and equipment		19		1
Purchases of premises and equipment		(241)		(25)
Acquisition, net of cash acquired	Acquisition, net of cash acquired	134		—		Acquisition, net of cash acquired	1,347		134

Other investing activities	Other investing activities	(14)		(24)		Other investing activities	353		(13)
Net cash (used in) provided by investing activities		$	2,382	$	(3,990)
Net cash provided by investing activities						Net cash provided by investing activities	2,628		2,195
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net change in time deposits		$	(833)	$	(159)
Net change in demand and other interest-bearing deposits		1,275		4,059
Net increase in short-term borrowings		27		39
Net increase (decrease) in time deposits						Net increase (decrease) in time deposits	2,124		(823)
Net (decrease) increase in demand and other interest-bearing deposits						Net (decrease) increase in demand and other interest-bearing deposits	(7,570)		1,275
Net change in securities sold under customer repurchase agreements						Net change in securities sold under customer repurchase agreements	63		27
Repayment of short-term borrowings						Repayment of short-term borrowings	(1,750)		—
Proceeds from issuance of short-term borrowings						Proceeds from issuance of short-term borrowings	500		—
Repayment of long-term borrowings	Repayment of long-term borrowings	(3,031)		(18)		Repayment of long-term borrowings	(1,021)		(3,031)
Proceeds from issuance of long-term borrowings	Proceeds from issuance of long-term borrowings	1		—		Proceeds from issuance of long-term borrowings	6,500		1

Cash dividends paid	Cash dividends paid	(14)		(9)		Cash dividends paid	(26)		(14)
Other financing activities	Other financing activities	(22)		—		Other financing activities	(6)		(22)
Net cash (used in) provided by financing activities		$	(2,597)	$	3,912
Net cash used in financing activities						Net cash used in financing activities	(1,186)		(2,587)

Change in cash and due from banks	Change in cash and due from banks	185		48		Change in cash and due from banks	1,080		185
Cash and due from banks at beginning of period	Cash and due from banks at beginning of period	338		362		Cash and due from banks at beginning of period	518		338
Cash and due from banks at end of period	Cash and due from banks at end of period	$	523	$	410	Cash and due from banks at end of period	$	1,598	$	523


		Three Months Ended March 31,					Three Months Ended March 31,
dollars in millions	dollars in millions	2022		2021		dollars in millions	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the period for:	Cash paid (refunded) during the period for:					Cash paid (refunded) during the period for:
Interest	Interest	$	122	$	20	Interest	$	366	$	146
Income taxes	Income taxes	(1)		—		Income taxes	—		(1)
Significant non-cash investing and financing activities:	Significant non-cash investing and financing activities:					Significant non-cash investing and financing activities:
Transfers of loans to other real estate	Transfers of loans to other real estate	1		2		Transfers of loans to other real estate	—		1
Transfers of premises and equipment to other real estate	Transfers of premises and equipment to other real estate	4		5		Transfers of premises and equipment to other real estate	1		4

Dividends declared but not paid	Dividends declared but not paid	1		5		Dividends declared but not paid	—		1
Transfer of assets from held for investment to held for sale	Transfer of assets from held for investment to held for sale	22		44		Transfer of assets from held for investment to held for sale	115		25
Transfer of assets from held for sale to held for investment	Transfer of assets from held for sale to held for investment	1		—		Transfer of assets from held for sale to held for investment	1		12
Loans held for sale exchanged for investment securities	Loans held for sale exchanged for investment securities	38		64		Loans held for sale exchanged for investment securities	—		38
Commitments extended during the period on affordable housing investment credits	Commitments extended during the period on affordable housing investment credits	—		4		Commitments extended during the period on affordable housing investment credits	3		—
Issuance of common stock as consideration for acquisition		5,279		—
Issuance of common stock for stock based compensation		71		—
Issuance of preferred stock as consideration for acquisition		541		—
Issuance of common stock as consideration for CIT Merger						Issuance of common stock as consideration for CIT Merger	—		5,278
Stock based compensation as consideration for CIT Merger						Stock based compensation as consideration for CIT Merger	—		81
Issuance of preferred stock as consideration for CIT Merger						Issuance of preferred stock as consideration for CIT Merger	—		541
Purchase Money Note as consideration for SVBB Acquisition						Purchase Money Note as consideration for SVBB Acquisition	35,150		—
Value Appreciation Instrument as consideration for SVBB Acquisition						Value Appreciation Instrument as consideration for SVBB Acquisition	500		—

See accompanying Notes to the Unaudited Consolidated Financial Statements.

Notes to the Unaudited Consolidated Financial Statements

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Nature of Operations

First Citizens BancShares, Inc. (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,” or ~~“the Bank”~~the “Bank”), which is headquartered in Raleigh, North Carolina. BancShares and its subsidiaries operate ~~over 600~~a network of more than 550 branches ~~and serve 22~~in 23 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United ~~States (the “U.S.”).~~States. BancShares provides various types of commercial and consumer banking services, including lending, leasing and wealth management services. Deposit services include checking, savings, money market and time deposit accounts.

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, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”). Interim results are not necessarily indicative of results for a full year.

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. All significant intercompany accounts and transactions are eliminated upon consolidation. Assets held in agency or fiduciary capacity are not included in the consolidated financial statements.

Reclassifications

In certain instances, amounts reported in ~~prior years’~~the 2022 consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported 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 ~~impacting~~based on available information. These estimates and assumptions impact the amounts ~~reported. Actual~~reported in the consolidated financial statements and accompanying notes and the disclosures provided, and actual results could differ from those estimates. ~~BancShares considers~~The significant estimates relate to the determination of the allowance for credit losses (“ACL”) ~~to be~~and fair values of loans acquired in and the core deposit intangibles associated with a ~~significant estimate.~~business combination are considered critical accounting estimates.

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 as of the date of acquisition, with any excess of purchase price over the fair value of the net tangible and intangible assets acquired recognized ~~as either finite lived intangibles or capitalized~~ as goodwill. To the extent the fair value of identifiable net assets acquired ~~including other identifiable assets,~~ exceeds the purchase price, a gain on acquisition is recognized. Acquisition-related ~~and restructuring~~ costs are recognized as period expenses as incurred.

On March 27, 2023, FCB acquired substantially all loans and certain other assets and assumed all customer deposits and certain other liabilities, of Silicon Valley Bridge Bank, N.A. (“SVBB”) from the Federal Deposit Insurance Corporation (the “FDIC”) pursuant to the terms of a purchase and assumption agreement (the “SVBB Purchase Agreement”) by and among FCB, the FDIC and the FDIC, as receiver of SVBB (the “SVBB Acquisition”).

On January 3, 2022 (the “CIT Merger Date”), BancShares completed its ~~previously announced~~ merger (the “CIT Merger”) with CIT Group Inc. (“CIT”), pursuant to an Agreement and Plan of Merger, dated as of October 15, 2020, as amended by Amendment No. 1, dated as of September 30, 2021 (as amended, the ~~“Merger~~“CIT Merger Agreement”). ~~Results as of and for the three months ended March 31, 2022 include activity of the combined entity. See Note 2 — Business Combinations, for additional information.~~

Refer to Note 2 — Business Combinations for additional information.

Reportable Segments

As of December 31, 2022, BancShares reported its financial results in the following reportable segments: General Banking, Commercial Banking, Rail, and Corporate segments. During the first quarter of 2023, BancShares added the Silicon Valley Banking (“SVB”) reportable segment, which includes the assets acquired, liabilities assumed and related operations from the SVBB Acquisition.

ACCOUNTING POLICIES

Significant accounting policies are described in the ~~2021~~2022 Form 10-K. We have further described relevant updates to the significant accounting policies presented below.

~~Reportable Segments~~Securities Purchased Under Agreement to Resell

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 2022. BancShares now has 3 operating segments: General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. BancShares conformed the comparative prior periods presentedSecurities purchased under agreement to reflect the new segments. The substantial majority of BancShares’ 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 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 BancShares’ portfolio. The changes to the loan classes primarily include: (i) reclassifying Small Business Administration Paycheck Protection Programresell (“~~SBA-PPP”) loans into the commercial and industrial class, (ii) identifying a separate loan class for leases, and (iii) purchased credit deteriorated loans (“PCD”~~reverse repos”) are ~~no longer a separate loan class. The following represent our classes of loans~~accounted for as ~~of March 31, 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 wellcollateralized financing transactions 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 and leases are collateralized by real property in an effort to mitigate risk, it is 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 income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans and leases 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 and lease financing 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 loan.~~

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 thepurchase agreement do not qualify for sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the factor). The most prevalent risk in factoring transactions is customer credit risk, which relates to the financial inability of a customer to pay undisputed factored trade accounts receivable.

~~Leases~~ – ~~Leases consists of 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~~accounting and are ~~often secured by 1-4 family residential properties or undeveloped or partially developed land~~therefore recorded at the amount of cash advanced. Accrued interest receivables are recorded in ~~anticipation of completing construction of a 1-4 family residential property. Significant and rapid declines~~other assets. Interest earned is recorded 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.interest income.

Assets Held for Sale

Assets held for sale (“AHFS”) primarily ~~consist~~consists of ~~residential mortgage loans held for sale of $65 million carried at fair value and~~ commercial loans ~~held for sale of $16 million~~ carried at the lower of the cost or fair ~~market~~ value ~~less disposal costs~~ (“LOCOM”). and residential mortgage loans carried at fair value. AHFS also includes operating lease equipment held for sale carried at LOCOM.

~~Goodwill~~Loans and Leases

BancShares ~~applied the acquisition method~~extends credit to commercial customers through a variety 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 discussedfinancing arrangements including term loans, revolving credit facilities, finance leases and operating leases. BancShares also extends credit through consumer loans, including residential mortgages and auto loans. Our loan classes are further described in Note 21 — ~~Business Combinations. BancShares had goodwill~~Significant Accounting Policies and Basis of ~~$346 million at March 31,~~Presentation in the 2022 ~~and December 31, 2021.~~Form 10-K.

SVB Loan Classes

SVB loan classes were added to reflect the loans acquired in the SVBB Acquisition. 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.~~SVB loan classes are described below. There was no ~~goodwill impairment during~~impact to our prior period disclosures.

Global Fund Banking – Global fund banking is the ~~first quarter~~largest class of ~~2022. Goodwill~~SVB loans and ~~other intangibles are discussed further~~consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in ~~Note 7~~ – ~~Goodwill~~funds managed by certain private equity and ~~Other Intangibles.~~venture capital firms.

~~Derivative Financial Instruments~~Investor Dependent – The investor dependent class includes loans made primarily to technology and life science/healthcare companies. These borrowers typically have modest or negative cash flows and rarely have an established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an initial public offering (“IPO”). The investor dependent loans are disaggregated into two classes:

~~BancShares did not have any significant derivative financial instruments prior~~•Early-Stage – These include loans to ~~completion~~pre-revenue, development-stage companies and companies that are in the early phases of ~~the CIT Merger. BancShares has derivative financial instruments at March 31, 2022 as further described~~commercialization, with revenues of up to $5 million.

•Growth Stage – These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid stage, and companies with revenues in ~~Note 13 — Derivative Financial Instruments. BancShares manages economic risk and exposure~~excess of $15 million are considered 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.be later stage.

~~Derivatives utilized by BancShares may include swaps, forward settlement contracts~~Cash Flow Dependent and ~~options contracts. A swap agreement~~Innovation Commercial and Industrial (“C&I”) – Cash flow dependent and innovation C&I loans are made primarily to technology and life science/healthcare companies that are not investor dependent. Repayment of these loans is not dependent on additional equity financing, a ~~contract between two parties~~successful sale or an IPO.

•Cash Flow Dependent – Cash flow dependent loans are typically used to ~~exchange~~assist a select group of private equity sponsors with the acquisition of businesses, are larger in size and repayment is generally dependent upon the cash flows ~~based on specified underlying notional amounts, assets and/~~of the combined entities. Acquired companies are typically established, later-stage businesses of scale, and characterized by reasonable levels of leverage with loan structures that include meaningful financial covenants. The sponsor’s equity contribution is often 50 percent or ~~indices. Forward settlement contracts are agreements to buy or sell a quantity~~more of ~~a financial instrument, index, currency or commodity at a predetermined future date, and rate or~~the acquisition 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 March 31, 2022.

1211

~~BancShares provides interest rate derivative contracts~~•Innovation C&I – These include loans in innovation sectors such as technology and life science/healthcare industries. Innovation C&I loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash flow dependent loans require the borrower to ~~support~~maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed charges associated with operating the ~~business requirements of its customers (“customer-related positions”).~~business. Balance sheet dependent loans include asset-backed loans and are structured to require constant current asset coverage (e.g., cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. The ~~derivative contracts include interest rate swap agreements and interest rate cap and floor agreements wherein BancShares acts as a seller~~repayment 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 does not offset derivative assets and liabilities and cash collateral under master netting agreements and reports all derivatives on a gross basis in the Consolidated Balance Sheets. 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~~arrangements 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 credit risk to the extent that the counterparty fails to 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 by setting limitsdependent on the ~~exposure~~financial condition, and payment ability, of third parties 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 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 certain officers and employees and are the owner and beneficiary of the policies. These policies, known as BOLI, offset the cost of providing employee benefits. BancShares had BOLI of $1.3 billion and $116 million at March 31, 2022 and December 31, 2021, respectively. BancShares acquired BOLI of $1.2 billion in the CIT Merger. BancShares records BOLI as a separate line item in the Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded as other 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. BancShares has operating lease equipment of approximately $8.0 billion, primarily related to the Rail segment, at March 31, 2022. 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 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 fair value of 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 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 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 Stock on January 3, 2022 and was included in the purchase price consideration as discussed further in Note 2 — Business Combinations.

~~Per Share Data~~

Earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of BancShares’ Class A and Class B common shares 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 securities. BancShares’ potential dilutive instruments primarily include unvested RSUs assumed in the CIT Merger. The dilutive effect is computed using the 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 U.S. and non-U.S. employees, each of 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. We provide factoring 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 bywhom our clients ~~to their customers (generally retailers) that have been factored (i.e.~~, sold or assigned to the factor). 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.do business.

~~Gains on leasing equipment~~Private Bank – Private banking includes loans to clients who are ~~recognized upon completion~~primarily private equity/venture capital professionals and executives in the innovation companies, as well as high net worth clients. We offer a customized suite of ~~sale (sale closing)~~private banking services, including mortgages, home equity lines of credit, restricted and ~~transfer~~private stock loans, personal capital call lines of ~~title. The gain is determined based on sales price less book carrying value (net~~credit, lines of ~~accumulated depreciation).~~credit against liquid assets and other secured and unsecured lending products. In addition, we provide owner occupied commercial mortgages and real estate secured loans.

~~BOLI income~~Commercial Real Estate (“CRE”) ~~reflects income earned on changes in the cash surrender value~~– CRE consists generally of ~~the BOLI.~~acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space.

Other ~~Newly Adopted Accounting Standards~~– The remaining smaller acquired portfolios are aggregated into this category. These include other C&I, premium wine and other acquired portfolios.

~~The following pronouncements~~•Other C&I loans include working capital and revolving lines of credit, as well as term loans for equipment and fixed assets. These loans are primarily to clients that are not in the technology and life sciences/healthcare industries. Additionally, other C&I loans contain commercial tax-exempt loans to not-for-profit private schools, colleges, public charter schools and other not-for-profit organizations.

•Premium wine loans are made to wine producers, vineyards and wine industry or ~~Accounting Standards Updates~~hospitality businesses across the Western United States. A large portion of these loans are secured by real estate collateral such as vineyards and wineries.

▪Other acquired portfolios consist primarily of construction and land loans for financing new developments as well as financing for improvements to existing buildings. These also include community development loans made as part of our responsibilities under the Community Reinvestment Act of 1977, and a small amount of Paycheck Protection Program (“~~ASUs”~~PPP”) loans, which are loans guaranteed by the SBA that were issued bythrough the ~~Financial Accounting Standards Board (“FASB”) and adopted by BancShares as of January 1, 2022:~~

~~ASU 2020-06,~~ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity - Issued August 2020PPP.

~~The amendments in this ASU reduce~~Acquired Loans and Leases

BancShares’ accounting methods for acquired loans and leases depends on whether or not the ~~number~~loans reflect more than insignificant credit deterioration since origination at the date of models used to account for convertible instruments, amend diluted earnings per share calculations for convertible instruments, amend the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity, and expand disclosure requirements for convertible instruments. The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares does not have any convertible instruments within the scope of this ASU.acquisition.

~~ASU 2021-04, Issuer’s Accounting~~Non-Purchased Credit Deteriorated Loans and Leases

Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases do not reflect more than insignificant credit deterioration since origination at the date of acquisition. These loans are recorded at fair value and an increase to the ACL is recorded with a corresponding increase to the provision for ~~Certain Modifications or Exchanges~~credit losses at the date of ~~Freestanding Equity-Classified Written Call Options - Issued May 2021~~

acquisition. The amendments in this ASU clarifies an issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU requires that such modifications or exchanges be treated as an exchange of the original instrument for a new instrument. An issuer should measure the effect of such modifications or exchanges based on analysis of the difference between the fair value and the unpaid principal balance (“UPB”) at the acquisition date is amortized or accreted to interest income over the contractual life of the ~~modified instrument and~~loan using the fair value of that instrument immediately before modification or exchange. Recognition of a modification or an exchange of a freestanding equity-classified written call option is then based upon the substance of the transaction. The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares currently does not have any freestanding equity-classified written call options within the scope of this ASU.effective interest method.

~~ASU 2021-05,~~Purchased Credit Deteriorated Loans and Leases ~~(Topic 842), Lessors - Certain Leases with Variable Lease Payments - Issued July 2021~~

The amendments in this ASU improve lessor accounting for certain leases with variable lease payments so that lessors are no longer required to recognize a day-one selling loss upon lease commencement when specified criteria are met. Specifically, this ASU requires a lessor to classify a lease with variable payments that do not depend on a reference index or a rate as an operating lease if classifying the lease as a sales-type lease or a direct financing lease would result in the recognition of a day-one selling loss at lease commencement. A day-one selling loss is not recognized under operating lease accounting. The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares has not originated finance leases which required a day-one selling loss at lease commencement.

~~NOTE 2 — BUSINESS COMBINATIONS~~

~~CIT Group Inc.~~

BancShares completed the CIT Merger on January 3, 2022 (the “Merger Date”). Pursuant to the Merger Agreement, each share of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares of Class A Common Stock, par value $1.00 per share, plus, cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued approximately 6.1 million shares of its Class A Common Stock in connection with the consummation of the CIT Merger. The closing share price of Class A Common Stock on the Nasdaq Global Select Market was $859.76 on January 3, 2022. The purchase price consideration related to the issuance of Class A Common Stock was $5.3 billion. There were approximately 8,800 fractional shares for which the Parent Company paid cash of $7 million.

Pursuant to the terms of the Merger Agreement, each issued and outstanding share of fixed-to-floating rate non-cumulative perpetual preferred stock, series A, par value $0.01 per share, of CIT (“CIT Series A Preferred Stock”) and each issued and outstanding share of 5.625% non-cumulative perpetual preferred stock, series B, par value $0.01 per share, of CIT (“CIT Series B Preferred Stock” and together with CIT Series A Preferred Stock, “CIT Preferred Stock”), converted into the right to receive 1 share of a newly created series of preferred stock, series B, of the Parent Company (“BancShares Series B Preferred Stock”) and 1 share of a newly created series of preferred stock, series C, of the Parent Company (“BancShares Series C Preferred Stock” and together with the BancShares Series B Preferred Stock, the “New BancShares Preferred Stock”), respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, of the CIT Series A Preferred Stock and the CIT Series B Preferred Stock, respectively. The non-callable period for the New BancShares Preferred Stock is January 4, 2027, which is five years from the original issuance date of the New BancShares Preferred Stock. There are 325,000 shares of BancShares Series B Preferred Stock with a liquidation preference of $1,000 per share, resulting in a total liquidation preference of $325 million. There are 8 million shares of BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total liquidation preference of $200 million. The New BancShares Preferred Stock qualifies as Tier 1 capital. The purchase price consideration related to the fair value of the New BancShares Preferred Stock was $541 million.

CIT RSUs and PSUs converted to BancShares RSUs and CIT Director Awards and immediately vested upon completion of the CIT Merger as further described in the “Stock-Based Compensation” discussion in Note 1 — Accounting Policies and Basis of Presentation. The aggregate purchase price consideration related to these compensation awards was $81 million.

The CIT Merger has been accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values based on initial valuations as of January 3, 2022. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature and may require adjustments.

As of March 31, 2022, the fair value measurements remain preliminary due to the timing of the Merger Date and BancShares’ Quarterly Report on Form 10-Q. While BancShares believes that the information available on January 3, 2022 provided a reasonable basis for estimating fair value, BancShares continues to review information relating to events or circumstances existing at the Merger Date. Purchase accounting could change until management finalizes its analysis of the acquired assets and assumed liabilities, up to one year from the Merger Date. Management anticipates that this review could result in adjustments to the Merger Date valuation amounts presented herein.

~~The following table provides a preliminary purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the Merger Date:~~

~~Purchase Price Consideration and Net Assets Acquired~~


~~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~~
~~Consideration for common stock~~	~~5,279~~
~~Fair value consideration for preferred stock~~	~~541~~
~~Consideration for stock-based compensation~~	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~~

BancShares recorded a 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. The preliminary gain on acquisition is not taxable.

~~The following is a description of the methods used to determine the estimated fair values of significant assets acquired and liabilities assumed as presented above.~~

~~Cash and interest-bearing deposits~~

~~For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value.~~

~~Investment securities~~

Fair values for investment securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value was estimated based on pricing models and/or discounted cash flows methodologies.

~~Loans held for sale and portfolio loans~~

Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, amortization status and current discount rate. Selected larger, impaired loans were specifically reviewed to evaluate credit risk. Loans with similar risk characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.

Purchased loans and leases ~~which~~that reflect a more than insignificant credit deterioration since origination ~~as of~~at the date of acquisition are classified as PCD loans and leases. PCD loans and leases are recorded at acquisition-date amortized cost, which is the purchase price or fair value in a business combination, plus BancShares' initial ACL, which results in a gross up of the loan balance (the “PCD Gross-Up”). The initial ACL for PCD loans and leases is established through the PCD Gross-Up and there is no corresponding increase to the provision for credit losses. The difference between the ~~unpaid principal balance (“UPB”)~~UPB and the acquisition date amortized cost resulting from the PCD Gross-Up is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.

~~Non-Purchased~~

Goodwill

BancShares applied the acquisition method of accounting for the SVBB Acquisition and CIT Merger. The fair value of the net assets acquired exceeded the purchase price for each transaction. Consequently, there was a gain on acquisition (and no goodwill) related to the SVBB Acquisition and the CIT Merger. Refer to further discussion in Note 2 — Business Combinations and Note 7 — Goodwill and Core Deposit Intangibles.

Derivative Assets and Liabilities

Foreign Exchange Contracts

SVB has foreign exchange forwards and swaps contracts with clients involved in foreign activities, either as the purchaser or seller, depending upon the clients’ needs. These are structured as back-to-back contracts to mitigate the risk of fluctuations in currency rates. The foreign exchange forward contracts are with correspondent banks to economically reduce our foreign exchange exposure related to certain foreign currency denominated instruments.

Equity Warrant Assets

In connection with negotiating credit facilities and certain other services, SVB often obtained rights that gave an option to purchase a position in a client company's stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. These were generally categorized as Level 3 on the fair value hierarchy due to lack of direct observable pricing and a general lack of liquidity due to the private nature of the associated underlying company. FCB did not acquire equity warrant assets in the SVBB Acquisition. FCB may obtain equity warrant assets for certain loans originated or funded after the SVBB Acquisition Date.

Newly Adopted Accounting Standards

BancShares adopted the following accounting standards as of January 1, 2023:

ASU 2022-02 Financial Instruments—Credit ~~Deteriorated~~Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures- Issued March 2022 (“~~Non-PCD”~~ASU 2022-02”)

The amendments in this ASU: (i) eliminate the previous recognition and measurement guidance for TDRs, (ii) require new disclosures for loan modifications when a borrower is experiencing financial difficulty (the “Modification Disclosures”) and (iii) require disclosures of current period gross charge-offs by year of origination in the vintage disclosures (the “Gross Charge-off Vintage Disclosures”).

The Modification Disclosures apply to the following modification types: principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or a combination thereof. Creditors are required to disclose the following by loan class: (i) amounts and relative percentages of each modification type, (ii) the financial effect of each modification type, (iii) the performance of the loan in the 12 months following the modification and (iv) qualitative information discussing how the modifications factored into the determination of the ACL.

BancShares elected to apply the modified retrospective transition method for ACL recognition and measurement. The adoption of this ASU did not result in a cumulative effect adjustment to retained earnings. The Modification Disclosures and Gross Charge-off Vintage Disclosures are applied prospectively starting in the period of adoption and are presented in Note 4 — Loans and Leases.

ASU 2022-01, Fair Value Hedging - Portfolio Layer Method - Issued March 2022

The amendments in this ASU 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. The ASU provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method. In addition, upon adoption the update permits a one-time reclassification of certain debt securities from the held-to-maturity category to the available-for-sale category if the portfolio layer hedging method is applied to those securities. Upon adoption, we did not make any one-time reclassifications. Adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares did not have any hedged portfolios.

NOTE 2 — BUSINESS COMBINATIONS

Silicon Valley Bridge Bank Acquisition

FCB completed the SVBB Acquisition on March 27, 2023 (the “SVBB Acquisition Date”) and acquired substantially all loans and ~~leases consist~~certain other assets and assumed all customer deposits and certain other liabilities of SVBB in an FDIC-assisted transaction. Pursuant to the terms of the SVBB Purchase Agreement, FCB acquired assets with an estimated total fair value of approximately $106.60 billion, primarily including $68.50 billion of loans and $35.28 billion of cash and interest-earning deposits at banks. FCB also assumed liabilities with an estimated total fair value of approximately $61.13 billion, primarily including $55.96 billion of customer deposits. The deposits were acquired without a premium and the assets were acquired at a discount of approximately $16.45 billion pursuant to the terms of the SVBB Purchase Agreement. Further details regarding the fair values of the acquired assets and assumed liabilities are provided in the “Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed” table below.

In connection with the SVBB Acquisition, FCB issued a five-year note of approximately $35 billion payable to the FDIC (the “Purchase Money Note”). The Purchase Money Note will be primarily secured by all loans (other than certain consumer loans and related collateral) and certain real estate and bank premises acquired by FCB from the FDIC, as well as certain other assets acquired, including specified rights under the SVBB Purchase Agreement and Shared-Loss Agreement (as defined below). The interest rate is 3.50% per annum. FCB may prepay the principal of the Purchase Money Note at any time, without premium or penalty, upon notice to the FDIC. The principal amount of the Purchase Money Note is based on the book value of net assets acquired less the asset discount of approximately $16.45 billion pursuant to the terms of the SVBB Purchase Agreement. The principal amount of the Purchase Money Note is subject to change upon Final Settlement (as defined and described below).

In addition, as part of the consideration for the SVBB Acquisition, BancShares issued a Cash Settled Value Appreciation Instrument to the FDIC (the “Value Appreciation Instrument”) in which FCB agreed to make a cash payment to the FDIC equal to the product of (i) 5 million and (ii) the excess amount by which the average volume weighted price of one share of BancShares’ Class A common stock, par value $1 (“Class A Common Stock”), over the two Nasdaq trading days immediately prior to the date on which the Value Appreciation Instrument is exercised exceeds $582.55; provided that dothe settlement amount does not ~~reflect more~~exceed $500 million. The Value Appreciation Instrument was exercisable by the holder thereof, in whole or in part, from and including March 27, 2023 to April 14, 2023. The FDIC exercised its right under the Value Appreciation Instrument on March 28, 2023 and a $500 million payment was made on April 4, 2023.

FCB and the FDIC also entered into terms and conditions for a five-year, up to $70 billion line of credit to FCB (the “Credit Facility”) provided by the FDIC. During the two-year period following the SVBB Acquisition Date, FCB may draw on the Credit Facility to support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired in the SVBB Acquisition (the “Acquired Unfunded Commitments”). The Credit Facility is secured by the commercial loans and other extensions of commercial credit acquired pursuant to the SVBB Acquisition, including Acquired Unfunded Commitments subsequently funded by FCB. Interest on outstanding principal will accrue at a variable rate equal to the Secured Overnight Financing Rate plus 25 basis points (but in no event less than ~~insignificant credit deterioration since origination~~0.00%).

In connection with the SVBB Purchase Agreement, FCB also entered into a commercial shared loss agreement with the FDIC (the “Shared-Loss Agreement”). The Shared-Loss Agreement covers an estimated $60 billion of commercial loans (collectively, the “Covered Assets”). The FDIC will reimburse FCB for 0% of losses of up to $5 billion with respect to Covered Assets and 50% of losses in excess of $5 billion with respect to Covered Assets (“FDIC Loss Sharing”) and FCB will reimburse the FDIC for 50% of recoveries related to such Covered Assets (“FCB reimbursement”). The Shared-Loss Agreement provides for FDIC loss sharing for five years and FCB reimbursement for eight years. The Shared-Loss Agreement extends to loans funded after the SVBB Acquisition Date that were unfunded commitments to loans at the SVBB Acquisition Date for a period of one year after the SVBB Acquisition Date. If certain conditions are met pursuant to the Shared-Loss Agreement, FCB has agreed to pay to the FDIC, 45 days after March 31, 2031 (or, if earlier, the time of disposition of all acquired assets pursuant to the Shared-Loss Agreement), a true-up amount up to $1.5 billion calculated using a formula set forth in the Shared-Loss Agreement.

FCB and the FDIC are awaiting conclusion of the customary final settlement process to determine whether certain assets and liabilities of SVBB will remain with the FDIC or be acquired or assumed by FCB (“Final Settlement”). Final Settlement is expected to occur in the second quarter of 2023. Final Settlement primarily relates to: (i) FCB’s option to purchase SVBB branches, office buildings and certain other premises and equipment and (ii) certain subsidiaries of SVBB. These pending items are not reflected in the “Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed” table below.

BancShares has determined that the SVBB Acquisition constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values based on preliminary valuations as of March 27, 2023. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the SVBB Acquisition and other future events that are highly subjective in nature and may require adjustments.

We believe the preliminary fair value estimates of assets acquired and liabilities assumed provide a reasonable basis for determining the preliminary gain on acquisition. We continue to review information relating to events or circumstances existing at the SVBB Acquisition Date that could impact the preliminary fair value estimates. The preliminary gain on acquisition could change until management finalizes its fair value estimates for the acquired assets and assumed liabilities, up to one year from the SVBB Acquisition Date. As of March 31, 2023, fair value measurements of loans, core deposit intangibles, low-income housing tax credits, unfunded commitments, premises and equipment, and intangibles related to the Shared-Loss Agreement are preliminary as we identify and assess information regarding the nature of these assets and liabilities and review the associated valuation assumptions and methodologies. Further, as described above, whether certain assets and liabilities are acquired or assumed by FCB is subject to the conclusion of Final Settlement. The tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the SVBB Acquisition Date. As such, the amounts recorded for tax assets and liabilities are considered provisional as we continue to evaluate the nature and extent of permanent and temporary differences between the book and tax bases of the acquired assets and liabilities assumed, as well as the tax impact on the preliminary gain on acquisition.

The following table provides the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the SVBB Acquisition Date:

Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed


dollars in millions	Fair Value Purchase Price Allocation as of March 27, 2023
Purchase price consideration
Purchase Money Note (1)	$	35,150
Value Appreciation Instrument	500
Purchase price consideration	$	35,650
Assets
Cash and due from banks	1,347
Interest-earning deposits at banks	33,932
Investment securities	122

Loans and leases	68,503
Affordable housing tax credit investments	1,134

Core deposit intangibles	230
Other assets	1,332
Total assets acquired	$	106,600
Liabilities
Deposits	55,959
Borrowings	10
Deferred tax liabilities	3,310
Other liabilities	1,847
Total liabilities assumed	$	61,126
Fair value of net assets acquired	45,474
Preliminary gain on acquisition, after income taxes (2)	$	9,824
Preliminary gain on acquisition, before income taxes (2)	$	13,134

(1) The principal amount of the Purchase Money Note is the book value of net assets acquired of approximately $51.82 billion less the asset discount of $16.45 billion pursuant to the SVBB Purchase Agreement. The $35.15 billion above is net of a fair value discount of approximately $220 million.

(2) The difference between the preliminary gain on acquisition before and after taxes reflects the deferred tax liabilities recorded in the SVBB Acquisition, as presented above.

BancShares recorded a preliminary gain on acquisition of $9.82 billion in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price. The following is a description of the methods used to determine the estimated fair values of the Purchase Money Note and significant assets acquired and liabilities assumed, as presented above.

Purchase Money Note

The fair value of the Purchase Money Note was estimated based on the income approach, which includes: (i) projecting cash flows over a certain discrete projection period and (ii) discounting those projected cash flows to present value at a rate of return that considers the relative risk of the cash flows and the time value of money.

Cash and interest-earning deposits at banks

For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value.

Investment Securities

Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.

Loans

Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, remaining term of loan, credit quality ratings or scores, amortization status and current discount rate. Loans with similar risk characteristics were pooled together and treated in aggregate when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.

BancShares’ accounting methods for acquired Non-PCD and PCD loans and leases are discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. The following table presents the UPB and fair value of the loans ~~and leases~~ acquired by BancShares in the ~~CIT Merger.~~SVBB Acquisition. The UPB for PCD loans ~~and leases~~ includes the PCD Gross-Up of ~~$284~~$200 million as discussed further in Note 4 — Loans and Leases.

Loans Acquired


		Loans and Leases
dollars in millions	dollars in millions	UPB		Fair Value		dollars in millions	Loans and Leases
							UPB		Fair Value
Non-PCD loans and leases	Non-PCD loans and leases	$	29,542	$	29,481	Non-PCD loans and leases	$	68,742	$	66,473
PCD loans and leases	PCD loans and leases	3,562		3,233		PCD loans and leases	2,529		2,030
Total loans and leases	Total loans and leases	$	33,104	$	32,714	Total loans and leases	$	71,271	$	68,503

~~Operating Lease Equipment~~

Operating lease equipment were comprised of two sub-groups: rail and non-rail equipment. Fair values for both were based on the cost approach where market values were not available. The sales approach was used to value rail assets where market information was available, or when replacement cost less depreciation was lower than the current market value. An intangible liability was recorded for net above and below market lease contracts, for which fair value was estimated using the income approach and contemplated market lease rates and other key inputs.

A discount was recorded for net operating lease equipment, which includes railcars and locomotives and other equipment, to reduce it to fair value. This adjustment will reduce depreciation expense over the remaining useful lives of the equipment on a straight line basis. These adjustments (net) will be amortized, thereby increasing rental income (a component of noninterest income) over the remaining lives of the lease agreements on a straight line basis.

~~Bank Owned Life Insurance~~Affordable housing tax credit investments

The fair values of ~~BOLI policies~~the affordable housing tax credit investments were determined ~~by the policy administrator and calculated~~ based on ~~the net present value of investment~~discounted cash flows. ~~Expected premium payments, death benefits~~The cash flow projections considered tax credits and ~~expected mortality were considered in the~~ net ~~present value calculation. Based upon the administrator’s analysis~~cash flows from operating losses and ~~management’s review of the analysis, fair value~~tax depreciation. The discount rate was determined ~~to equate to book value as of the merger date.~~using observable market data points for similar investments.

~~Intangible assets~~Core deposit intangibles

The following table presents the intangible asset recorded ~~in conjunction with the CIT Merger~~ related to the valuation of core deposits:

Intangible ~~Assets~~Asset

dollars in millions

Fair Value

Estimated Useful Life

Amortization Method

Core deposit intangibles

$~~143~~

230

108 years

~~Straight-line~~Effective Yield

Certain core deposits were acquired as part of the ~~CIT Merger,~~SVBB Acquisition, which provide an additional source of funds for BancShares. The core deposit ~~intangibles represent~~intangible represents the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. This intangible was valued using the ~~income approach,~~ after-tax cost savings ~~method.~~method under the income approach. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The valuation considered a dynamic approach to interest rates and alternative cost of funds. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. Refer to further discussion in Note 7 — Goodwill and ~~Other Intangibles for further discussion.~~Core Deposit Intangibles.

1816

Other assets and liabilities

The following table details other assets acquired:

Other Assets
dollars in millions Fair Value
Low-income housing tax credit and other equity method 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

The fair values of the tax credit investments considered the ongoing equity installments that are regularly allocated to each of the underlying tax credit funds comprising the low income housing tax credits investments, along with changes to projected tax benefits and the impact this has on future capital contributions, and an appropriately determined discount rate. The fair value of the investments in unconsolidated entities was valued using the income approach.

The right of use asset associated with real estate operating leases were measured at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms. The lease liability was measured at the present value of the remaining lease payments, as if the acquired lease were a new lease of the acquirer at the acquisition date and using BancShares incremental borrowing rate. The lease term was determined for individual leases based on management’s assessment of the probability of exercising the existing renewal, termination and/or purchase option.

Fair values for property, including leasehold improvements, furniture and fixtures, computer software and other digital equipment were determined using the cost approach. Certain tangible assets, that are expected to be sold in the short term were reported at net book, while real estate property such as land and buildings was valued using the sales comparison approach, where sales of comparable properties are adjusted for differences to estimate the value of each subject property.


dollars in millions	Fair Value
Accrued interest receivable	$	412
Fair value of derivative financial instruments, net	197
Premises and equipment	286


Other	437
Total other assets	$	1,332

The fair values of the derivative ~~financial instruments, as well as counterparty receivables,~~assets in the table above and derivative liabilities in the table below were valued using prices of financial instruments with similar characteristics and observable inputs. The fair value of accrued interest receivable and the remaining other assets was determined to approximate book value. Refer to further discussion in Note 12 — Derivative Financial Instruments and Note 14 — Fair Value.

Deposits

~~The fair values for time~~Acquired deposits were ~~estimated using a discounted cash flow analysis whereby the contractual remaining cash flows were discounted using market rates currently being offered for time deposits of similar maturities. For~~essentially all transactional ~~deposits,~~deposits. Thus, we determined carrying amounts approximate fair value.

~~Borrowings~~Deferred Tax liability

~~In connection~~The SVBB Acquisition is an asset acquisition for tax purposes and is therefore considered a taxable transaction. The deferred tax liability (“DTL”) for the SVBB Acquisition was calculated by applying FCB’s deferred tax rate to the book and tax basis differences on the SVBB Acquisition Date for acquired assets and assumed liabilities. Deferred taxes were not recorded for the affordable housing tax credit investments in accordance with the ~~CIT Merger, BancShares assumed the outstanding borrowings of CIT. The fair values of borrowing were estimated based on readily observable prices using reliable market sources.~~

~~Credit balances of Factoring Clients~~

Credit balance amounts represent short-term payables that are tied to the factoring receivables. Due to the short-term nature of these payables and given that amounts are settled at book value, it was determined that the carrying value is equivalent to fair value.proportional amortization method.

Other ~~Liabilities~~liabilities

~~Other~~The following table details other liabilities include items such as accounts payable and accrued liabilities, lease liabilities, current and deferred taxes, commitments to fund tax credit investments and other miscellaneous liabilities. The fair value of lease liabilities was measured using the present value of remaining lease payments, using BancShares’ discount rate at the merger date. assumed:


dollars in millions	Fair Value

Fair value of derivative financial instruments, net	$	333

Accrued interest payable	113
Commitments to fund tax credit investments	716
Other	685
Total other liabilities	$	1,847

The fair value of the ~~remaining liabilities~~liability representing our commitment for future capital contributions to the affordable housing tax credit investments was determined based on discounted cash flows. Projected cash flows for future capital contributions were discounted at a rate that represented FCB’s cost of debt.

Shared-Loss Agreement Intangibles

Preliminary estimates indicate there is no material value to ~~approximate book value. For all accrued liabilities~~attribute to the loss indemnification asset or true-up liability. This is primarily based on evaluation of historical loss experience and ~~accounts payable, it was determined that~~ the ~~carrying value equals book value.~~credit quality of the portfolio.

Unaudited Pro Forma Information - SVBB Acquisition

The amount of net interest income, noninterest income and net income of ~~$351~~$65 million, ~~$297~~$14 million and ~~$330~~$35 million, respectively, attributable to the ~~acquisition of CIT~~SVBB Acquisition were included in BancShares’ Consolidated Statement of Income for the three months ended March 31, ~~2022. CIT’s~~2023. SVBB’s net interest income, noninterest income and net income noted above reflect management’s best estimates, based on information available at the reporting date.

SVBB was only in operation from March 10 to March 27, 2023 and does not have historical financial information on which we could base pro forma information. Additionally, we did not acquire all assets or assume all liabilities of SVBBand an essential part of the SVBB Acquisition is the federal assistance governed by the SVBB Purchase Agreement and Shared-Loss Agreement, which is not reflected in the previous operations of SVBB. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the SVBB Acquisition in accordance with ASC 805-10-50-2.

CIT Group Inc.

BancShares completed the CIT Merger on January 3, 2022 (the “Merger Date”). Pursuant to the CIT Merger Agreement, each share of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares of Class A Common Stock, plus cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued approximately 6.1 million shares of Class A Common Stock in connection with the consummation of the CIT Merger.

The CIT Merger has been accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values based on the Merger Date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature and may require adjustments.

The following table provides the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the Merger Date:

Purchase Price Consideration and Net Assets Acquired


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
Gain on acquisition	$	431

BancShares recorded a gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price. The ~~following table presents certain unaudited pro forma financial information for illustrative purposes only, for~~gain on acquisition was not taxable.

For a description of the ~~three months ended March 31, 2022~~fair value and ~~2021 as if CIT had been acquired on January 1, 2021. The unaudited estimated pro forma information combines the historical results~~unpaid principal balance of ~~CIT with the BancShares’ consolidated historical results and includes certain adjustments for the respective periods. The following key adjustments were made to reflect the pro forma results as if~~loans from the CIT Merger, ~~was completed on January 1, 2021: (i) provision for credit losses~~as well as the methods used to determine the fair values of ~~$513 million related to the Non-PCD loans~~significant assets and ~~leases and unfunded commitments; (ii) merger and integration costs~~liabilities, see Note 2 — Business Combinations in Item 8 of $135 million; (iii) estimated purchase accounting adjustment (“PAA”) accretion and amortization related to fair value adjustments and intangibles associated with the CIT Merger; and (iv) $431 million preliminary gain on acquisition. BancShares expects to achieve operating cost savings and other business synergies as a result of the acquisition that are not reflected in the pro forma amounts that follow. The pro forma information should not be relied upon as being indicative of the historical results of operations that would have occurred had the acquisition taken place on January 1, 2021. Actual results may differ from the unaudited pro forma information presented below and the differences could be significant.

~~Selected Unaudited Pro Forma Financial Information for Consolidated BancShares~~

Three months ended March 31,
dollars in millions 2022 2021
Interest income $ 710 $ 726
Noninterest income 418 1,001
Net income 335 417

our 2022 Form 10-K.

2018

NOTE 3 — INVESTMENT SECURITIES

The following tables ~~as of~~ ~~March 31, 2022~~include the ~~investment security balances acquired in the CIT Merger, which were recorded at fair value on the acquisition date.~~ ~~The~~ amortized cost and fair value of investment securities at March 31, ~~2022~~2023 and December 31, ~~2021, were as follows:~~2022.

Amortized Cost and Fair Value - Debt Securities


		March 31, 2022
dollars in millions	dollars in millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value		dollars in millions	March 31, 2023
											Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
U.S. Treasury	U.S. Treasury	$	2,014	$	—	$	(83)	$	1,931	U.S. Treasury	$	2,091	$	—	$	(113)	$	1,978
Government agency	Government agency	206		1		(1)		206		Government agency	152		—		(2)		150
Residential mortgage-backed securities	Residential mortgage-backed securities	5,340		—		(288)		5,052		Residential mortgage-backed securities	5,415		3		(570)		4,848
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,584		2		(66)		1,520		Commercial mortgage-backed securities	1,755		—		(170)		1,585
Corporate bonds		582		8		(4)		586
Corporate bonds(1)										Corporate bonds(1)	542		—		(42)		500

Total investment securities available for sale(1)	Total investment securities available for sale(1)	$	9,726	$	11	$	(442)	$	9,295	Total investment securities available for sale(1)	$	9,955	$	3	$	(897)	$	9,061
Investment in marketable equity securities	Investment in marketable equity securities	$	73	$	27	$	—	$	100	Investment in marketable equity securities	$	75	$	14	$	(4)	$	85
Investment securities held to maturity	Investment securities held to maturity									Investment securities held to maturity
U.S. Treasury	U.S. Treasury	$	471	$	—	$	(24)	$	447	U.S. Treasury	$	475	$	—	$	(42)	$	433
Government agency	Government agency	1,541		—		(78)		1,463		Government agency	1,550		—		(163)		1,387
Residential mortgage-backed securities	Residential mortgage-backed securities	4,776		—		(315)		4,461		Residential mortgage-backed securities	4,511		2		(655)		3,858
Commercial mortgage-backed securities	Commercial mortgage-backed securities	2,988		—		(183)		2,805		Commercial mortgage-backed securities	3,547		1		(497)		3,051
Supranational securities	Supranational securities	294		—		(17)		277		Supranational securities	296		—		(34)		262
Other	Other	4		—		—		4		Other	2		—		—		2
Total investment securities held to maturity	Total investment securities held to maturity	$	10,074	$	—	$	(617)	$	9,457	Total investment securities held to maturity	$	10,381	$	3	$	(1,391)	$	8,993
Total investment securities		$	19,873	$	38	$	(1,059)	$	18,852
Total investment securities(1)										Total investment securities(1)	$	20,411	$	20	$	(2,292)	$	18,139
(1) Balances presented net of allowance for credit losses of $4 million										(1) Balances presented net of allowance for credit losses of $4 million
											December 31, 2022
		December 31, 2021									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
dollars in millions		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair value
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
U.S. Treasury	U.S. Treasury	$	2,007	$	—	$	(2)	$	2,005	U.S. Treasury	$	2,035	$	—	$	(137)	$	1,898
Government agency	Government agency	221		1		(1)		221		Government agency	164		—		(2)		162
Residential mortgage-backed securities	Residential mortgage-backed securities	4,757		8		(36)		4,729		Residential mortgage-backed securities	5,424		1		(630)		4,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,648		9		(17)		1,640		Commercial mortgage-backed securities	1,774		—		(170)		1,604
Corporate bonds	Corporate bonds	582		27		(1)		608		Corporate bonds	570		—		(34)		536
State, county and municipal		—		—		—		—

Total investment securities available for sale	Total investment securities available for sale	$	9,215	$	45	$	(57)	$	9,203	Total investment securities available for sale	$	9,967	$	1	$	(973)	$	8,995
Investment in marketable equity securities	Investment in marketable equity securities	$	73	$	25	$	—	$	98	Investment in marketable equity securities	$	75	$	21	$	(1)	$	95
Investment securities held to maturity	Investment securities held to maturity									Investment securities held to maturity
U.S. Treasury										U.S. Treasury	$	474	$	—	$	(50)	$	424
Government agency										Government agency	1,548		—		(186)		1,362
Residential mortgage-backed securities	Residential mortgage-backed securities	$	2,322	$	6	$	(22)	$	2,306	Residential mortgage-backed securities	4,605		—		(723)		3,882
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,485		—		(34)		1,451		Commercial mortgage-backed securities	3,355		—		(484)		2,871
Supranational securities										Supranational securities	295		—		(41)		254
Other	Other	2		—		—		2		Other	2		—		—		2
Total investment securities held to maturity	Total investment securities held to maturity	$	3,809	$	6	$	(56)	$	3,759	Total investment securities held to maturity	$	10,279	$	—	$	(1,484)	$	8,795
Total investment securities	Total investment securities	$	13,097	$	76	$	(113)	$	13,060	Total investment securities	$	20,321	$	22	$	(2,458)	$	17,885

Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. USU.S. Treasury investments represents T-bills and Notes issued by the USU.S. Treasury. Investments in government agency securities represent securities issued by the Small Business Association (“SBA”), Federal Home Loan Bank (“FHLB”) and other agencies. Investments in supranational securities represent securities issued by the ~~World Bank.~~Supranational Entities and Multilateral Development Banks. Investments in corporate bonds represent positions in debt securities of other financial institutions. Investments in marketable equity securities represent positions in common stock of publicly traded financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions.

2119

BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other stockholders of Visa Class B common stock. As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and have no carrying value. BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock.

~~As of March 31, 2022 and December 31, 2021, no ACL was required for available for sale or held to maturity debt securities.~~ Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At March 31, ~~2022,~~2023, accrued interest ~~receivable~~receivables for available for sale and held to maturity debt securities were ~~$26~~$30 million and ~~$16~~$17 million, respectively. At December 31, ~~2021,~~2022, accrued interest ~~receivable~~receivables for available for sale and held to maturity debt securities were ~~$22~~$33 million and $7$19 million, respectively. During the three months ended March 31, 2023 and 2022, ~~and 2021,~~there was no accrued interest that was deemed uncollectible and written off against interest income.

The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.

Maturities - Debt Securities


		March 31, 2022				December 31, 2021
dollars in millions	dollars in millions	Cost		Fair value		Cost		Fair value		dollars in millions	March 31, 2023				December 31, 2022
											Cost		Fair Value		Cost		Fair Value
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
Non-amortizing securities maturing in:	Non-amortizing securities maturing in:									Non-amortizing securities maturing in:
One year or less	One year or less	$	9	$	9	$	—	$	—	One year or less	$	34	$	33	$	37	$	37
After one through five years	After one through five years	2,055		1,972		2,049		2,048		After one through five years	2,120		2,004		2,068		1,928
After five through 10 years	After five through 10 years	515		520		523		548		After five through 10 years	463		427		483		455
After 10 years	After 10 years	17		16		17		17		After 10 years	16		14		17		14

Government agency	Government agency	206		206		221		221		Government agency	152		150		164		162
Residential mortgage-backed securities	Residential mortgage-backed securities	5,340		5,052		4,757		4,729		Residential mortgage-backed securities	5,415		4,848		5,424		4,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,584		1,520		1,648		1,640		Commercial mortgage-backed securities	1,755		1,585		1,774		1,604
Total investment securities available for sale(1)	Total investment securities available for sale(1)	$	9,726	$	9,295	$	9,215	$	9,203	Total investment securities available for sale(1)	$	9,955	$	9,061	$	9,967	$	8,995
Investment securities held to maturity	Investment securities held to maturity									Investment securities held to maturity
Non-amortizing securities maturing in:	Non-amortizing securities maturing in:									Non-amortizing securities maturing in:
One year or less	One year or less	$	4	$	4	$	2	$	2	One year or less	$	51	$	51	$	51	$	51
After one through five years	After one through five years	873		836		—		—		After one through five years	1,579		1,440		1,479		1,328
After five through 10 years	After five through 10 years	1,433		1,351		—		—		After five through 10 years	693		593		789		663

Residential mortgage-backed securities	Residential mortgage-backed securities	4,776		4,461		2,322		2,306		Residential mortgage-backed securities	4,511		3,858		4,605		3,882
Commercial mortgage-backed securities	Commercial mortgage-backed securities	2,988		2,805		1,485		1,451		Commercial mortgage-backed securities	3,547		3,051		3,355		2,871

Total investment securities held to maturity	Total investment securities held to maturity	$	10,074	$	9,457	$	3,809	$	3,759	Total investment securities held to maturity	$	10,381	$	8,993	$	10,279	$	8,795

(1)

Balances as of March 31, 2023 are presented net of the allowance for credit losses of $4 million.

The following table presents interest and dividend income on ~~investments and other interest-bearing assets:~~investment securities:

~~Other~~ Interest and ~~Dividend Income~~Dividends on Investment Securities

Three months ended March 31,
dollars in millions 2022 2021
Interest income - taxable debt securities $ 83 $ 30
Interest income - interest-bearing cash 5 1
Dividend income - marketable equity securities 1 1
Total other interest and dividend income $ 89 $ 32


dollars in millions	Three Months Ended March 31,
	2023		2022
Interest income - taxable investment securities	$	106	$	82
Dividend income - marketable equity securities	1		1
Interest on investment securities	$	107	$	83

The following table ~~provides~~presents the gross realized ~~gains and~~ losses on the sales of investment securities available for sale:

Realized ~~Gains~~Losses on Debt Securities Available For Sale


		Three months ended March 31,
dollars in millions	dollars in millions	2022		2021		dollars in millions	Three Months Ended March 31,
							2023		2022
Gross realized gains on sales of investment securities available for sale	Gross realized gains on sales of investment securities available for sale	$	—	$	9	Gross realized gains on sales of investment securities available for sale	$	—	$	—
Gross realized losses on sales of investment securities available for sale	Gross realized losses on sales of investment securities available for sale	—		—		Gross realized losses on sales of investment securities available for sale	(14)		—
Net realized gains on sales of investment securities available for sale		$	—	$	9
Net realized losses on sales of investment securities available for sale						Net realized losses on sales of investment securities available for sale	$	(14)	$	—

The following table provides the ~~realized and unrealized gains and losses~~fair value adjustment on marketable equity securities:

~~Realized and Unrealized Gains~~Fair Value Adjustment on Marketable Equity Securities

Three months ended March 31,
dollars in millions 2022 2021
Marketable equity securities gains, net $ 3 $ 16
Unrealized gains recognized on marketable equity securities held for sale $ 3 $ 16


dollars in millions	Three Months Ended March 31,
	2023		2022


Fair value adjustment on marketable equity securities, net	$	(9)	$	3

The following table provides information regarding investment securities available for sale with unrealized ~~losses for which an ACL has not been recorded:~~losses:

Gross Unrealized Losses on Debt Securities Available For Sale


dollars in millions														dollars in millions	March 31, 2023
															Less than 12 months				12 months or more				Total
															Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment securities available for sale														Investment securities available for sale
U.S. Treasury														U.S. Treasury	$	28	$	(1)	$	1,889	$	(112)	$	1,917	$	(113)
Government agency														Government agency	75		(1)		75		(1)		150		(2)
Residential mortgage-backed securities														Residential mortgage-backed securities	656		(26)		3,955		(544)		4,611		(570)
Commercial mortgage-backed securities														Commercial mortgage-backed securities	568		(13)		1,003		(157)		1,571		(170)
Corporate bonds(1)														Corporate bonds(1)	360		(25)		140		(17)		500		(42)
Total(1)														Total(1)	$	1,687	$	(66)	$	7,062	$	(831)	$	8,749	$	(897)

		March 31, 2022													December 31, 2022
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
dollars in millions		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
															Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Investment securities available for sale	Investment securities available for sale													Investment securities available for sale
U.S. Treasury	U.S. Treasury	$	1,931	$	(83)	$	—	$	—	$	1,931	$	(83)	U.S. Treasury	$	403	$	(27)	$	1,495	$	(110)	$	1,898	$	(137)
Government agency	Government agency	21		—		74		(1)		95		(1)		Government agency	65		(1)		62		(1)		127		(2)
Residential mortgage-backed securities	Residential mortgage-backed securities	4,247		(239)		670		(49)		4,917		(288)		Residential mortgage-backed securities	1,698		(165)		3,001		(465)		4,699		(630)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	744		(42)		485		(24)		1,229		(66)		Commercial mortgage-backed securities	836		(53)		752		(117)		1,588		(170)
Corporate bonds	Corporate bonds	187		(4)		—		—		187		(4)		Corporate bonds	499		(30)		37		(4)		536		(34)
Total	Total	$	7,130	$	(368)	$	1,229	$	(74)	$	8,359	$	(442)	Total	$	3,501	$	(276)	$	5,347	$	(697)	$	8,848	$	(973)

		December 31, 2021
		Less than 12 months				12 months or more				Total
dollars in millions		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Investment securities available for sale
U.S. Treasury		$	1,811	$	(2)	$	—	$	—	$	1,811	$	(2)
Government agency		17		—		79		(1)		96		(1)
Residential mortgage-backed securities		3,992		(36)		1		—		3,993		(36)
Commercial mortgage-backed securities		852		(15)		111		(2)		963		(17)
Corporate bonds		52		(1)		—		—		52		(1)
Total		$	6,724	$	(54)	$	191	$	(3)	$	6,915	$	(57)

(1) Balances as of March 31, 2023 are presented net of the allowance for credit losses of $4 million.

As of March 31, ~~2022,~~2023, there were 55337 investment securities available for sale with continuous unrealized losses for more than 12 months, of which ~~all~~315 were government sponsored enterprise-issued mortgage-backed securities, or government agency ~~securities.~~

~~None of~~securities, or U.S. treasury securities and the unrealized losses identified as of March 31, 2022, or December 31, 2021, relate to the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securitiesremaining 22 were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, none of the securities were deemed to require an ACL.corporate bonds. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of March 31, 2023, no ACL was required. For corporate bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond had a credit-related loss of $4 million as of March 31, 2023, which is reflected in the provision for credit losses as further discussed in Note 5 — Allowance for Credit Losses.

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, and securities issued by the Supranational Entities and Multilateral Development Banks. Given the consistently strong credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of March 31, 2023, no ACL was required for held to maturity debt securities.

Investment securities having an aggregate carrying value of ~~$5.9~~$4.16 billion at March 31, ~~2022,~~2023, and ~~$5.7~~$4.20 billion at December 31, ~~2021,~~2022, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, US Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and Federal Deposit Insurance Corporation (“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, no ACL has been recorded on these securities. In the event there are downgrades to the credit rating of the U.S. Treasury or the World Bank or losses reported on securities issued by government agencies and government sponsored entities, BancShares will reevaluate its determination of zero expected credit losses on held to maturity debt securities.

A security is considered past due once it is 30 days contractually past due under the terms of the agreement. ~~The carrying value was zero for~~There were no securities past due as of March 31, ~~2022 and~~2023 or December 31, ~~2021.~~2022.

There were no debt securities held to maturity on non-accrual status as of March 31, ~~2022 and~~2023 or December 31, ~~2021.~~2022.

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of ~~$39~~$393 million and ~~$40~~$197 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively; these securities are recorded at cost. BancShares held ~~$67~~$62 million and ~~$10~~$58 million of ~~non-marketable~~nonmarketable securities without readily determinable fair values, which are measured ~~under the measurement exception~~at cost at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~All investments held~~Investments in qualified affordable housing projects, all of which qualify for the proportional amortization method were $1.66 billion and ~~totaled $533 million and $156~~$598 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

2422

NOTE 4 — LOANS AND LEASES

The following tables as of March 31, 2022 include loan and lease balances acquired in the CIT Merger, which were recorded at fair value on the Merger Date. Refer to Note 2 — Business Combinations for further information. Refer to Note 1 — Accounting Policies and Basis of Presentation for updates to our accounting policies related to loans.

Unless otherwise noted, loans held for sale are not included in the following tables. Leases in the following tables include finance leases, but exclude operating lease equipment. As disclosed in Note 2 — Business Combinations, the following tables as of March 31, 2023 include loans acquired in the SVBB Acquisition.

Loans by Class


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Commercial	Commercial					Commercial
Commercial construction	Commercial construction	$	2,633	$	1,238	Commercial construction	$	2,971	$	2,804
Owner occupied commercial mortgage	Owner occupied commercial mortgage	13,553		12,099		Owner occupied commercial mortgage	14,456		14,473
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	9,293		3,041		Non-owner occupied commercial mortgage	10,292		9,902
Commercial and industrial	Commercial and industrial	22,402		5,937		Commercial and industrial	24,508		24,105
Leases	Leases	2,220		271		Leases	2,163		2,171
Total commercial	Total commercial	50,101		22,586		Total commercial	54,390		53,455
Consumer	Consumer					Consumer
Residential mortgage	Residential mortgage	11,711		6,088		Residential mortgage	13,727		13,309
Revolving mortgage	Revolving mortgage	1,840		1,818		Revolving mortgage	1,916		1,951
Consumer auto	Consumer auto	1,320		1,332		Consumer auto	1,452		1,414
Consumer other	Consumer other	552		548		Consumer other	632		652
Total consumer	Total consumer	15,423		9,786		Total consumer	17,727		17,326
SVB						SVB
Global fund banking						Global fund banking	36,097		—
Investor dependent - early stage						Investor dependent - early stage	1,994		—
Investor dependent - growth stage						Investor dependent - growth stage	4,418		—
Innovation C&I and cash flow dependent						Innovation C&I and cash flow dependent	9,193		—
Private Bank						Private Bank	9,476		—
CRE						CRE	2,444		—
Other						Other	2,549		—
Total SVB						Total SVB	66,171		—
Total loans and leases	Total loans and leases	$	65,524	$	32,372	Total loans and leases	$	138,288	$	70,781

At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, accrued interest receivable on loans included in other assets was ~~$135~~$643 million and ~~$87~~$203 million, respectively, and was excluded from the estimate of credit losses.

The following table presents selected components of the amortized cost of ~~loans.~~loans:

Components of Amortized Cost


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Deferred fees, including unearned fees and unamortized costs on non-PCD loans		$	38	$	32
Deferred costs, including unamortized costs and unearned fees on non-PCD loans						Deferred costs, including unamortized costs and unearned fees on non-PCD loans	$	26	$	34

Net unamortized discount on purchased loans	Net unamortized discount on purchased loans					Net unamortized discount on purchased loans
Non-PCD	Non-PCD	$	75	$	11	Non-PCD	$	2,337	$	73
PCD	PCD	67		29		PCD	337		45
Total net unamortized discount	Total net unamortized discount	$	142	$	40	Total net unamortized discount	$	2,674	$	118

The aging of the outstanding loans and leases, by class, at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 is provided in the tables below. Loans and leases less than 30 days ~~or less~~ past due are considered current, as various grace periods allow borrowers to make payments within a stated period after the due date and ~~still~~ remain in compliance with the respective agreement.

Loans and Leases - Delinquency Status


		March 31, 2022
dollars in millions	dollars in millions	30-59 days past due		60-89 days past due		90 days or greater		Total Past Due		Current		Total		dollars in millions	March 31, 2023
															30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total
Commercial	Commercial													Commercial
Commercial construction	Commercial construction	$	55	$	—	$	2	$	57	$	2,576	$	2,633	Commercial construction	$	9	$	1	$	—	$	10	$	2,961	$	2,971
Owner occupied commercial mortgage	Owner occupied commercial mortgage	22		16		13		51		13,502		13,553		Owner occupied commercial mortgage	30		—		34		64		14,392		14,456
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	20		—		60		80		9,213		9,293		Non-owner occupied commercial mortgage	165		67		190		422		9,870		10,292
Commercial and industrial	Commercial and industrial	73		15		23		111		22,291		22,402		Commercial and industrial	158		30		61		249		24,259		24,508
Leases	Leases	40		13		13		66		2,154		2,220		Leases	55		13		14		82		2,081		2,163
Total commercial loans		210		44		111		365		49,736		50,101
Total commercial														Total commercial	417		111		299		827		53,563		54,390
Consumer	Consumer													Consumer
Residential mortgage	Residential mortgage	63		12		59		134		11,577		11,711		Residential mortgage	77		17		46		140		13,587		13,727
Revolving mortgage	Revolving mortgage	6		2		9		17		1,823		1,840		Revolving mortgage	10		3		8		21		1,895		1,916
Consumer auto	Consumer auto	6		1		1		8		1,312		1,320		Consumer auto	7		2		1		10		1,442		1,452
Consumer other	Consumer other	2		2		1		5		547		552		Consumer other	4		2		3		9		623		632
Total consumer loans		77		17		70		164		15,259		15,423
Total consumer														Total consumer	98		24		58		180		17,547		17,727
SVB														SVB
Global fund banking														Global fund banking	37		—		—		37		36,060		36,097
Investor dependent - early stage														Investor dependent - early stage	17		3		2		22		1,972		1,994
Investor dependent - growth stage														Investor dependent - growth stage	25		8		—		33		4,385		4,418
Innovation C&I and cash flow dependent														Innovation C&I and cash flow dependent	27		11		—		38		9,155		9,193
Private Bank														Private Bank	39		1		17		57		9,419		9,476
CRE														CRE	4		1		—		5		2,439		2,444
Other														Other	10		—		4		14		2,535		2,549
Total SVB														Total SVB	159		24		23		206		65,965		66,171
Total loans and leases	Total loans and leases	$	287	$	61	$	181	$	529	$	64,995	$	65,524	Total loans and leases	$	674	$	159	$	380	$	1,213	$	137,075	$	138,288

		December 31, 2021													December 31, 2022
dollars in millions		30-59 days past due		60-89 days past due		90 days or greater		Total Past Due		Current		Total
															30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater		Total Past Due		Current		Total
Commercial	Commercial													Commercial
Commercial construction	Commercial construction	$	1	$	—	$	2	$	3	$	1,235	$	1,238	Commercial construction	$	50	$	—	$	1	$	51	$	2,753	$	2,804
Owner occupied commercial mortgage	Owner occupied commercial mortgage	21		1		9		31		12,068		12,099		Owner occupied commercial mortgage	29		5		25		59		14,414		14,473
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	3		—		2		5		3,036		3,041		Non-owner occupied commercial mortgage	76		144		11		231		9,671		9,902
Commercial and industrial	Commercial and industrial	8		3		5		16		5,921		5,937		Commercial and industrial	173		26		53		252		23,853		24,105
Leases	Leases	—		1		1		2		269		271		Leases	59		17		16		92		2,079		2,171
Total commercial loans		33		5		19		57		22,529		22,586
Total commercial														Total commercial	387		192		106		685		52,770		53,455
Consumer	Consumer													Consumer
Residential mortgage	Residential mortgage	24		6		23		53		6,035		6,088		Residential mortgage	73		16		52		141		13,168		13,309
Revolving mortgage	Revolving mortgage	6		2		6		14		1,804		1,818		Revolving mortgage	9		3		8		20		1,931		1,951
Consumer auto	Consumer auto	6		1		1		8		1,324		1,332		Consumer auto	7		1		1		9		1,405		1,414
Consumer other	Consumer other	2		2		1		5		543		548		Consumer other	4		2		3		9		643		652
Total consumer loans		38		11		31		80		9,706		9,786
Total consumer														Total consumer	93		22		64		179		17,147		17,326

Total loans and leases	Total loans and leases	$	71	$	16	$	50	$	137	$	32,235	$	32,372	Total loans and leases	$	480	$	214	$	170	$	864	$	69,917	$	70,781

2624

The amortized cost, by class, of loans and leases on ~~nonaccrual~~non-accrual status, and loans and leases greater than 90 days past due and still accruing at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 are presented below.

Loans on Non-Accrual Status (1) (2)


		March 31, 2022				December 31, 2021
dollars in millions	dollars in millions	Non-Accrual Loans		Loans > 90 days and Accruing		Non-Accrual Loans		Loans > 90 days and Accruing		dollars in millions	March 31, 2023				December 31, 2022
											Non-Accrual Loans		Loans > 90 Days and Accruing		Non-Accrual Loans		Loans > 90 Days and Accruing
Commercial	Commercial									Commercial
Commercial construction	Commercial construction	$	21	$	—	$	4	$	—	Commercial construction	$	2	$	—	$	48	$	—
Owner occupied commercial mortgage	Owner occupied commercial mortgage	30		6		18		5		Owner occupied commercial mortgage	46		8		41		2
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	122		—		5		—		Non-owner occupied commercial mortgage	219		114		228		—
Commercial and industrial	Commercial and industrial	229		9		15		1		Commercial and industrial	214		20		184		41
Leases	Leases	24		5		3		—		Leases	29		4		28		7
Total commercial	Total commercial	426		20		45		6		Total commercial	510		146		529		50
Consumer	Consumer									Consumer
Residential mortgage	Residential mortgage	86		13		54		—		Residential mortgage	71		8		75		10
Revolving mortgage	Revolving mortgage	22		—		18		—		Revolving mortgage	18		—		18		—
Consumer auto	Consumer auto	3		—		3		—		Consumer auto	4		—		4		—
Consumer other	Consumer other	1		1		1		1		Consumer other	1		3		1		3
Total consumer	Total consumer	112		14		76		1		Total consumer	94		11		98		13
SVB										SVB
Global fund banking										Global fund banking	—		—		—		—
Investor dependent - early stage										Investor dependent - early stage	56		—		—		—
Investor dependent - growth stage										Investor dependent - growth stage	60		—		—		—
Innovation C&I and cash flow dependent										Innovation C&I and cash flow dependent	78		—		—		—
Private Bank										Private Bank	27		—		—		—
CRE										CRE	2		—		—		—
Other										Other	1		4		—		—
Total SVB										Total SVB	224		4		—		—
Total loans and leases	Total loans and leases	$	538	$	34	$	121	$	7	Total loans and leases	$	828	$	161	$	627	$	63

(1)Accrued interest that was reversed when the loan went to non-accrual status was $1 million for the three months ended March 31, 2023 and $4 million for the year ended December 31, 2022.

(2)Non-accrual loans for which there was no related ACL totaled ~~$35~~$59 million at March 31, ~~2022~~2023 and ~~$15~~$63 million at December 31, ~~2021.~~2022.

Other real estate owned (“OREO”) and repossessed assets were ~~$43~~$47 million as of March 31, ~~2022~~2023 and ~~$40~~$47 million as of December 31, ~~2021.~~2022.

Credit ~~quality indicators~~Quality Indicators

Loans and leases are monitored for credit quality on a recurring basis. Commercial loans and leases and consumer loans ~~and leases~~ have different credit quality indicators as a result of the unique characteristics of the loan ~~segments~~classes being evaluated. The credit quality indicators for Non-PCD commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below:

Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.

Special mention – A special mention asset has potential weaknesses which deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.

Loss – Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.

Ungraded – Ungraded loans represent loans not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. ~~The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans.~~

The credit quality indicator for consumer loans is based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases. An exemption is applied to government guaranteed loans as the principal repayments are insured by the Federal Housing Administration ~~(“FHA”)~~ and U.S. Department of Veterans Affairs and thus remain on accrual status regardless of delinquency status.

The following ~~table summarizes~~tables summarize the commercial and SVB loans disaggregated by year of origination and by risk rating. The consumer loan delinquency status by year of origination is also presented below. The tables reflect the amortized cost of the loans and include PCD loans.

Commercial Loans - Risk Classifications by Class


March 31, 2022
March 31, 2023																						March 31, 2023
Risk Classification:	Risk Classification:	Term Loans by Origination Year														Revolving Converted to Term Loans						Risk Classification:	Term Loans by Origination Year																				Revolving Converted to Term Loans
dollars in millions	dollars in millions	2022		2021		2020		2019		2018		2017 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Commercial construction	Commercial construction																							Commercial construction
Pass	Pass	$	300	$	775	$	790	$	439	$	102	$	85	$	15	$	—		$	2,506		Pass	$	187		$	1,226		$	772		$	384		$	119		$	96		$	60	$	—		$	2,844
Special Mention	Special Mention	2		—		30		25		28		—		—		—			85			Special Mention	—			4			—			48			40			—			—		—			92
Substandard	Substandard	1		1		—		30		2		5		—		—			39			Substandard	1			1			—			—			28			5			—		—			35
Doubtful	Doubtful	—		—		—		3		—		—		—		—			3			Doubtful	—			—			—			—			—			—			—		—			—
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total commercial construction	Total commercial construction	303		776		820		497		132		90		15		—			2,633			Total commercial construction	188			1,231			772			432			187			101			60		—			2,971
Owner occupied commercial mortgage	Owner occupied commercial mortgage																					Owner occupied commercial mortgage
Pass	Pass	642		3,311		3,176		2,080		1,213		2,499		143		—			13,064			Pass	393			2,709			3,292			2,877			1,767			2,728			165		—			13,931
Special Mention	Special Mention	3		3		44		37		19		74		4		—			184			Special Mention	—			40			20			46			30			72			1		—			209
Substandard	Substandard	2		26		37		37		74		124		4		—			304			Substandard	5			22			47			52			29			154			6		—			315
Doubtful	Doubtful	—		—		—		—		—		1		—		—			1			Doubtful	—			—			—			—			—			1			—		—			1
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total owner occupied commercial mortgage	Total owner occupied commercial mortgage	647		3,340		3,257		2,154		1,306		2,698		151		—			13,553			Total owner occupied commercial mortgage	398			2,771			3,359			2,975			1,826			2,955			172		—			14,456
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage																					Non-owner occupied commercial mortgage
Pass	Pass	532		1,731		1,844		1,953		936		1,510		39		—			8,545			Pass	612			2,500			1,666			1,772			1,202			1,456			49		—			9,257
Special Mention	Special Mention	—		1		—		95		3		37		—		—			136			Special Mention	—			—			—			79			130			81			—		—			290
Substandard	Substandard	2		16		26		324		60		166		1		—			595			Substandard	—			4			13			67			312			313			—		—			709
Doubtful	Doubtful	—		—		—		5		—		12		—		—			17			Doubtful	—			—			—			—			26			10			—		—			36
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total non-owner occupied commercial mortgage	Total non-owner occupied commercial mortgage	534		1,748		1,870		2,377		999		1,725		40		—			9,293			Total non-owner occupied commercial mortgage	612			2,504			1,679			1,918			1,670			1,860			49		—			10,292
Commercial and industrial	Commercial and industrial																					Commercial and industrial
Pass	Pass	3,525		5,292		2,865		2,244		1,277		1,389		4,100		50			20,742			Pass	3,482			5,434			3,890			1,863			1,342			1,529			5,125		28			22,693
Special Mention	Special Mention	32		19		117		113		103		38		52		—			474			Special Mention	52			84			120			93			47			54			100		—			550
Substandard	Substandard	26		63		109		181		162		239		247		1			1,028			Substandard	24			103			135			175			148			272			239		1			1,097
Doubtful	Doubtful	—		3		1		2		14		36		18		—			74			Doubtful	—			4			5			1			14			30			10		—			64
Ungraded	Ungraded	—		—		—		—		—		—		84		—			84			Ungraded	—			—			—			—			—			—			104		—			104
Total commercial and industrial	Total commercial and industrial	3,583		5,377		3,092		2,540		1,556		1,702		4,501		51			22,402			Total commercial and industrial	3,558			5,625			4,150			2,132			1,551			1,885			5,578		29			24,508
Leases	Leases																					Leases
Pass	Pass	182		635		581		355		168		146		—		—			2,067			Pass	235			648			425			338			177			152			—		—			1,975
Special Mention	Special Mention	2		15		15		13		8		3		—		—			56			Special Mention	5			21			20			14			8			3			—		—			71
Substandard	Substandard	3		28		22		21		12		4		—		—			90			Substandard	5			35			28			23			10			6			—		—			107
Doubtful	Doubtful	—		3		1		1		1		1		—		—			7			Doubtful	—			3			3			2			1			1			—		—			10
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total leases	Total leases	187		681		619		390		189		154		—		—			2,220			Total leases	245			707			476			377			196			162			—		—			2,163
Total commercial	Total commercial	$	5,254	$	11,922	$	9,658	$	7,958	$	4,182	$	6,369	$	4,707	$	51		$	50,101		Total commercial	$	5,001		$	12,838		$	10,436		$	7,834		$	5,430		$	6,963		$	5,859	$	29		$	54,390

SVB - Risk Classifications by Class


March 31, 2023
Risk Classification:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total
Global fund banking
Pass	$	78	$	191	$	134	$	103	$	44	$	9	$	35,453	$	75	$	36,087
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		10		—		10
Doubtful	—		—		—		—		—		—		—		—		—

Ungraded	—		—		—		—		—		—		—		—		—
Total global fund banking	78		191		134		103		44		9		35,463		75		36,097
Investor dependent - early stage
Pass	76		848		406		115		48		10		169		—		1,672
Special Mention	—		15		1		1		—		—		3		—		20
Substandard	—		61		89		38		8		2		47		—		245
Doubtful	—		27		20		4		2		—		4		—		57

Ungraded	—		—		—		—		—		—		—		—		—
Total investor dependent - early stage	76		951		516		158		58		12		223		—		1,994
Investor dependent - growth stage
Pass	206		1,372		1,137		512		145		186		314		5		3,877
Special Mention	—		8		15		17		—		—		—		—		40
Substandard	3		76		150		120		20		38		35		—		442
Doubtful	—		5		42		1		9		2		—		—		59

Ungraded	—		—		—		—		—		—		—		—		—
Total investor dependent - growth stage	209		1,461		1,344		650		174		226		349		5		4,418
Innovation C&I and cash flow dependent
Pass	129		1,684		1,191		1,309		586		669		2,948		—		8,516
Special Mention	41		—		—		26		28		—		15		—		110
Substandard	—		37		133		117		7		34		160		—		488
Doubtful	—		—		2		61		—		—		16		—		79

Ungraded	—		—		—		—		—		—		—		—		—
Total innovation C&I and cash flow dependent	170		1,721		1,326		1,513		621		703		3,139		—		9,193
Private bank
Pass	398		2,379		2,332		1,443		788		1,171		889		14		9,414
Special Mention	—		—		2		—		—		9		2		—		13
Substandard	—		—		13		1		3		20		2		—		39
Doubtful	—		—		—		—		1		9		—		—		10

Ungraded	—		—		—		—		—		—		—		—		—
Total private bank	398		2,379		2,347		1,444		792		1,209		893		14		9,476
CRE
Pass	53		516		260		194		195		889		98		5		2,210
Special Mention	—		3		10		—		3		27		—		—		43
Substandard	—		—		4		18		102		65		2		—		191
Doubtful	—		—		—		—		—		—		—		—		—

Ungraded	—		—		—		—		—		—		—		—		—
Total CRE	53		519		274		212		300		981		100		5		2,444
Other
Pass	43		419		416		356		163		625		364		64		2,450
Special Mention	—		—		2		11		—		11		2		—		26
Substandard	—		10		6		7		8		29		13		—		73
Doubtful	—		—		—		—		—		—		—		—		—

Ungraded	—		—		—		—		—		—		—		—		—
Total Other	43		429		424		374		171		665		379		64		2,549
Total SVB	$	1,027	$	7,651	$	6,365	$	4,454	$	2,160	$	3,805	$	40,546	$	163	$	66,171

Consumer Loans - Delinquency Status by Class


March 31, 2022
March 31, 2023																						March 31, 2023
Days Past Due:	Days Past Due:	Term Loans by Origination Year														Revolving Converted to Term Loans						Days Past Due:	Term Loans by Origination Year																				Revolving Converted to Term Loans
dollars in millions	dollars in millions	2022		2021		2020		2019		2018		2017 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Residential mortgage	Residential mortgage																							Residential mortgage
Current	Current	$	783	$	3,819	$	2,325	$	943	$	531	$	3,156	$	20	$	—		$	11,577		Current	$	726		$	3,527		$	3,681		$	2,043		$	774		$	2,819		$	17	$	—		$	13,587
30-59 days	30-59 days	2		11		4		4		5		37		—		—			63			30-59 days	—			5			9			6			2			55			—		—			77
60-89 days	60-89 days	—		1		1		—		2		8		—		—			12			60-89 days	—			—			2			2			1			12			—		—			17
90 days or greater	90 days or greater	—		1		1		4		4		49		—		—			59			90 days or greater	—			1			1			3			1			40			—		—			46
Total residential mortgage	Total residential mortgage	785		3,832		2,331		951		542		3,250		20		—			11,711			Total residential mortgage	726			3,533			3,693			2,054			778			2,926			17		—			13,727
Revolving mortgage	Revolving mortgage																					Revolving mortgage
Current	Current	—		—		—		—		—		—		1,680		143			1,823			Current	—			—			—			—			—			—			1,803		92			1,895
30-59 days	30-59 days	—		—		—		—		—		—		3		3			6			30-59 days	—			—			—			—			—			—			7		3			10
60-89 days	60-89 days	—		—		—		—		—		—		1		1			2			60-89 days	—			—			—			—			—			—			1		2			3
90 days or greater	90 days or greater	—		—		—		—		—		—		2		7			9			90 days or greater	—			—			—			—			—			—			5		3			8
Total revolving mortgage	Total revolving mortgage	—		—		—		—		—		—		1,686		154			1,840			Total revolving mortgage	—			—			—			—			—			—			1,816		100			1,916
Consumer auto	Consumer auto																					Consumer auto
Current	Current	145		540		305		171		100		51		—		—			1,312			Current	165			565			360			193			95			64			—		—			1,442
30-59 days	30-59 days	—		2		1		1		1		1		—		—			6			30-59 days	—			2			2			1			1			1			—		—			7
60-89 days	60-89 days	—		—		1		—		—		—		—		—			1			60-89 days	—			1			1			—			—			—			—		—			2
90 days or greater	90 days or greater	—		—		1		—		—		—		—		—			1			90 days or greater	—			—			1			—			—			—			—		—			1
Total consumer auto	Total consumer auto	145		542		308		172		101		52		—		—			1,320			Total consumer auto	165			568			364			194			96			65			—		—			1,452
Consumer other	Consumer other																					Consumer other
Current	Current	36		116		20		10		4		29		332		—			547			Current	30			142			73			12			5			20			341		—			623
30-59 days	30-59 days	—		—		—		—		—		—		2		—			2			30-59 days	—			1			—			—			—			1			2		—			4
60-89 days	60-89 days	—		—		—		—		—		—		2		—			2			60-89 days	—			—			—			—			—			—			2		—			2
90 days or greater	90 days or greater	—		—		—		—		—		—		1		—			1			90 days or greater	—			—			—			—			—			1			2		—			3
Total consumer other	Total consumer other	36		116		20		10		4		29		337		—			552			Total consumer other	30			143			73			12			5			22			347		—			632
Total consumer	Total consumer	$	966	$	4,490	$	2,659	$	1,133	$	647	$	3,331	$	2,043	$	154		$	15,423		Total consumer	$	921		$	4,244		$	4,130		$	2,260		$	879		$	3,013		$	2,180	$	100		$	17,727

The following tables represent current credit quality indicators by origination year as of December 31, ~~2021.~~2022:

Commercial Loans - Risk Classifications by Class


December 31, 2021
December 31, 2022																						December 31, 2022
Risk Classification:	Risk Classification:	Term Loans by Origination Year														Revolving Converted to Term Loans						Risk Classification:	Term Loans by Origination Year																				Revolving Converted to Term Loans
dollars in millions	dollars in millions	2021		2020		2019		2018		2017		2016 & Prior		Revolving				Total	dollars in millions		2022				2021			2020			2019			2018			2017 & Prior			Revolving					Total
Commercial construction	Commercial construction																							Commercial construction
Pass	Pass	$	540	$	400	$	189	$	29	$	48	$	11	$	10	$	—		$	1,227		Pass	$	1,140		$	759		$	511		$	157		$	27		$	75		$	42	$	—		$	2,711
Special Mention	Special Mention	—		—		—		—		—		1		—		—			1			Special Mention	4			—			18			18			—			—			—		—			40
Substandard	Substandard	2		—		1		2		4		1		—		—			10			Substandard	2			—			—			43			—			5			—		—			50
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			—			3			—			—			—		—			3
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—��			Ungraded	—			—			—			—			—			—			—		—			—
Total commercial construction	Total commercial construction	542		400		190		31		52		13		10		—			1,238			Total commercial construction	1,146			759			529			221			27			80			42		—			2,804
Owner occupied commercial mortgage	Owner occupied commercial mortgage																					Owner occupied commercial mortgage
Pass	Pass	3,045		3,022		1,873		1,194		963		1,572		125		—			11,794			Pass	2,773			3,328			2,966			1,825			1,048			1,867			177		—			13,984
Special Mention	Special Mention	3		35		37		22		13		33		5		—			148			Special Mention	33			14			32			33			18			49			2		—			181
Substandard	Substandard	31		16		18		12		18		56		6		—			157			Substandard	24			47			41			28			47			114			6		—			307
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			—			—			—			1			—		—			1
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total owner occupied commercial mortgage	Total owner occupied commercial mortgage	3,079		3,073		1,928		1,228		994		1,661		136		—			12,099			Total owner occupied commercial mortgage	2,830			3,389			3,039			1,886			1,113			2,031			185		—			14,473
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage																					Non-owner occupied commercial mortgage
Pass	Pass	644		737		578		263		266		412		37		—			2,937			Pass	2,501			1,658			1,794			1,397			680			933			48		—			9,011
Special Mention	Special Mention	1		—		—		3		3		10		—		—			17			Special Mention	—			1			69			38			35			10			1		—			154
Substandard	Substandard	9		11		24		12		7		22		1		—			86			Substandard	3			11			68			324			58			236			—		—			700
Doubtful	Doubtful	—		—		—		—		1		—		—		—			1			Doubtful	—			—			—			17			—			20			—		—			37
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total non-owner occupied commercial mortgage	Total non-owner occupied commercial mortgage	654		748		602		278		277		444		38		—			3,041			Total non-owner occupied commercial mortgage	2,504			1,670			1,931			1,776			773			1,199			49		—			9,902
Commercial and industrial	Commercial and industrial																					Commercial and industrial
Pass	Pass	2,107		1,018		599		257		149		281		1,342		5			5,758			Pass	7,695			4,145			2,035			1,533			872			845			5,252		29			22,406
Special Mention	Special Mention	9		7		20		2		4		5		5		—			52			Special Mention	87			153			79			63			52			23			40		—			497
Substandard	Substandard	20		7		3		4		2		2		16		1			55			Substandard	106			117			194			132			166			145			200		1			1,061
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	1			4			3			11			6			16			7		—			48
Ungraded	Ungraded	—		—		—		—		—		—		72		—			72			Ungraded	—			—			—			—			—			—			93		—			93
Total commercial and industrial	Total commercial and industrial	2,136		1,032		622		263		155		288		1,435		6			5,937			Total commercial and industrial	7,889			4,419			2,311			1,739			1,096			1,029			5,592		30			24,105
Leases	Leases																					Leases
Pass	Pass	93		68		38		42		17		8		—		—			266			Pass	718			466			389			216			80			108			—		—			1,977
Special Mention	Special Mention	—		1		—		—		—		—		—		—			1			Special Mention	21			22			17			9			4			—			—		—			73
Substandard	Substandard	2		1		—		1		—		—		—		—			4			Substandard	32			32			27			12			7			1			—		—			111
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	2			3			2			1			1			—			—		—			9
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			1			—		—			1
Total leases	Total leases	95		70		38		43		17		8		—		—			271			Total leases	773			523			435			238			92			110			—		—			2,171
Total commercial	Total commercial	$	6,506	$	5,323	$	3,380	$	1,843	$	1,495	$	2,414	$	1,619	$	6		$	22,586		Total commercial	$	15,142		$	10,760		$	8,245		$	5,860		$	3,101		$	4,449		$	5,868	$	30		$	53,455

Consumer Loans - Delinquency Status by Class


December 31, 2021
December 31, 2022																						December 31, 2022
Days Past Due:	Days Past Due:	Term Loans by Origination Year														Revolving Converted to Term Loans						Days Past Due:	Term Loans by Origination Year																				Revolving Converted to Term Loans
dollars in millions	dollars in millions	2021		2020		2019		2018		2017		2016 & Prior		Revolving				Total	dollars in millions		2022				2021			2020			2019			2018			2017 & Prior			Revolving					Total
Residential mortgage	Residential mortgage																							Residential mortgage
Current	Current	$	2,139	$	1,663	$	627	$	368	$	349	$	867	$	22	$	—		$	6,035		Current	$	3,485		$	3,721		$	2,097		$	805		$	413		$	2,625		$	22	$	—		$	13,168
30-59 days	30-59 days	2		3		2		2		1		14		—		—			24			30-59 days	3			7			6			5			3			49			—		—			73
60-89 days	60-89 days	—		—		—		1		1		4		—		—			6			60-89 days	1			1			2			—			1			11			—		—			16
90 days or greater	90 days or greater	1		1		1		2		1		17		—		—			23			90 days or greater	—			1			1			2			2			46			—		—			52
Total residential mortgage	Total residential mortgage	2,142		1,667		630		373		352		902		22		—			6,088			Total residential mortgage	3,489			3,730			2,106			812			419			2,731			22		—			13,309
Revolving mortgage	Revolving mortgage																					Revolving mortgage
Current	Current	—		—		—		—		—		—		1,678		126			1,804			Current	—			—			—			—			—			—			1,839		92			1,931
30-59 days	30-59 days	—		—		—		—		—		—		4		2			6			30-59 days	—			—			—			—			—			—			5		4			9
60-89 days	60-89 days	—		—		—		—		—		—		—		2			2			60-89 days	—			—			—			—			—			—			2		1			3
90 days or greater	90 days or greater	—		—		—		—		—		—		2		4			6			90 days or greater	—			—			—			—			—			—			5		3			8
Total revolving mortgage	Total revolving mortgage	—		—		—		—		—		—		1,684		134			1,818			Total revolving mortgage	—			—			—			—			—			—			1,851		100			1,951
Consumer auto	Consumer auto																					Consumer auto
Current	Current	597		343		198		119		48		19		—		—			1,324			Current	599			398			216			111			59			22			—		—			1,405
30-59 days	30-59 days	1		2		1		1		—		1		—		—			6			30-59 days	1			2			2			1			1			—			—		—			7
60-89 days	60-89 days	—		—		—		—		—		1		—		—			1			60-89 days	—			1			—			—			—			—			—		—			1
90 days or greater	90 days or greater	—		—		—		—		—		1		—		—			1			90 days or greater	—			1			—			—			—			—			—		—			1
Total consumer auto	Total consumer auto	598		345		199		120		48		22		—		—			1,332			Total consumer auto	600			402			218			112			60			22			—		—			1,414
Consumer other	Consumer other																					Consumer other
Current	Current	131		24		11		4		2		29		342		—			543			Current	160			82			13			6			2			19			361		—			643
30-59 days	30-59 days	—		—		—		—		—		—		2		—			2			30-59 days	—			—			—			—			—			1			3		—			4
60-89 days	60-89 days	1		—		—		—		—		—		1		—			2			60-89 days	—			—			—			—			—			1			1		—			2
90 days or greater	90 days or greater	—		—		—		—		—		—		1		—			1			90 days or greater	—			—			—			—			—			1			2		—			3
Total consumer other	Total consumer other	132		24		11		4		2		29		346		—			548			Total consumer other	160			82			13			6			2			22			367		—			652
Total consumer	Total consumer	$	2,872	$	2,036	$	840	$	497	$	402	$	953	$	2,052	$	134		$	9,786		Total consumer	$	4,249		$	4,214		$	2,337		$	930		$	481		$	2,775		$	2,240	$	100		$	17,326

~~Purchased loans and leases~~

~~The following table summarizes PCD loans and leases that BancShares acquired in the CIT Merger.~~

Gross Charge-offs

~~PCD Loans~~Gross Charge-off Vintage Disclosures by origination year and ~~Leases - CIT Merger~~


~~dollars in millions~~	~~Total PCD from CIT Merger~~
~~UPB~~	$	~~3,562~~
~~Initial PCD ACL~~	~~(284)~~
~~Fair value discount, net of the PCD Gross-Up~~	~~(45)~~
~~Purchase price~~	$	~~3,233~~

loan class are summarized in the following table for the three months ended March 31, 2023:

~~The recorded fair values of Non-PCD loans acquired in the CIT Merger as of the acquisition date was $29.5 billion, resulting in a PAA discount of $61 million.~~Gross Charge-offs


Three Months Ended March 31, 2023
	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total
Commercial


Non-owner occupied commercial mortgage	$	—	$	—	$	—	$	—	$	—	$	12	$	—	$	—	$	12
Commercial and industrial	—		14		9		4		2		1		8		—		38
Leases	—		2		1		1		—		—		—		—		4
Total commercial	—		16		10		5		2		13		8		—		54
Consumer
Residential mortgage	—		—		—		—		—		2		—		—		2


Consumer other	—		—		—		—		—		—		3		—		3
Total consumer	—		—		—		—		—		2		3		—		5
SVB







Total SVB	—		—		—		—		—		—		—		—		—
Total loans and leases	$	—	$	16	$	10	$	5	$	2	$	15	$	11	$	—	$	59

~~Troubled Debt Restructuring~~Loan Modifications for Borrowers Experiencing Financial Difficulties

On January 1, 2023, we adopted ASU 2022-02 as further discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. The Modification Disclosures required by ASU 2022-02 are included below.

As part of BancShares’ ongoing ~~risk-management~~credit risk management practices, BancShares attempts to work with borrowers when necessary to extend or modify loan terms to better align with ~~their~~borrowers current ability to repay. ~~Extensions and~~BancShares’ modifications granted to debtors experiencing financial difficulties typically take the form of term extensions, interest rate reductions, other-than-insignificant payment delays, principal forgiveness, or a combination thereof. Modifications are made in accordance with internal policies and guidelines to conform to regulatory guidance. ~~BancShares accounts~~

The following table presents loan modifications made to debtors experiencing financial difficulty, disaggregated by class and type of loan modification. The table also includes the weighted average term extensions, as well as the modification total

relative to the total period-end amortized cost basis of loans in the respective loan class.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty (three months ended March 31, 2023)


dollars in millions	Term Extension(1)			Term Extension and Interest Rate Reduction					Term Extension and Other Than Insignificant Payment Delay				Total
	Amortized Cost		Weighted Average Term Extension (Months)	Amortized Cost		Weighted Average Term Extension (Months)	Weighted Average Interest Rate Reduction		Amortized Cost		Weighted Average Term Extension (Months)	Weighted Average Payment Delay (Months)	Amortized Cost		Total as a % of Loan and Lease Class
Commercial
Commercial construction	$	1	9	$	—	—	—	%	$	—	—	—	$	1	0.02	%
Owner occupied commercial mortgage	10		11	—		36	2.00	%	—		—	—	10		0.07	%
Non-owner occupied commercial mortgage	53		3	—		—	1.10	%	—		—	—	53		0.51	%
Commercial and industrial	12		6	6		3	1.17	%	3		8	8	21		0.09	%

Total commercial	76		5	6		4	1.19	%	3		8	8	85		0.16	%
Consumer
Residential mortgage	1		29	—		—	—	%	—		—	—	1		0.01	%



Total consumer	1		29	—		60	0.39	%	—		—	—	1		0.01	%
SVB


Investor dependent - growth stage	6		6	—		—	—	%	—		—	—	6		0.14	%




Total SVB	6		6	—		—	—	%	—		—	—	6		0.01	%
Total loans and leases	$	83	5	$	6	4	1.18	%	$	3	8	8	$	92	0.07	%

(1)Term extensions include loans where the balloon payment has been deferred to a later date or is amortizing over an extended period.

Borrowers experiencing financial difficulties are typically identified in our credit risk management process before loan modifications occur. An assessment of whether a borrower is experiencing financial difficulty is reassessed or performed on the date of a modification. Since the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Upon BancShares’ determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. There were no significant amounts of modified loans that subsequently defaulted during the first quarter of 2023.

The following table presents the amortized cost and performance of modified loans to borrowers experiencing financial difficulties in the three months ended March 31, 2023. The period of delinquency is based on the number of days the scheduled payment is contractually past due.

Modified Loans Payment Status


dollars in millions	Current		30–59 Days Past Due		60–89 Days Past Due		90 days or greater Past Due		Total
Commercial
Commercial construction	$	1	$	—	$	—	$	—	$	1
Owner occupied commercial mortgage	10		—		—		—		10
Non-owner occupied commercial mortgage	53		—		—		—		53
Commercial and industrial	21		—		—		—		21

Total commercial	85		—		—		—		85
Consumer
Residential mortgage	1		—		—		—		1



Total consumer	1		—		—		—		1
SVB


Investor dependent - growth stage	6		—		—		—		6




Total SVB	6		—		—		—		6
Total loans and leases	$	92	$	—	$	—	$	—	$	92

At March 31, 2023, there were no significant commitments to lend additional funds to debtors experiencing financial difficulty for which the terms of the loan were modified.

Prior Period Troubled Debt Restructuring

The following includes disclosures for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). for historical periods prior to adoption of ASU 2022-02. In general, a modification or restructuring of a loan iswas 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~~have related to the contractual interest rate, maturity date, payment structure or other actions. The assessments of whether a borrower iswas experiencing (or is likely to experience) financial difficulty, and whether a concession ~~has~~had been granted, ~~are~~were subjective in nature and management’s judgment iswas required when determining whether a modification iswas classified as a TDR. ~~In accordance with regulatory guidance discussed below, certain loan modifications that might ordinarily have qualified as TDRs were not accounted for as TDRs.~~

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 at the time of the loan modification. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs.

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

The following table presents amortized cost of ~~TDRs.~~TDRs:

TDRs

March 31, 2022
dollars in millions Accruing Non-Accruing Total
Commercial
Commercial construction $ 2 $ 1 $ 3
Owner occupied commercial mortgage 54 9 63
Non-owner occupied commercial mortgage 24 4 28
Commercial and industrial 23 13 36
Leases — 1 1
Total commercial 103 28 131
Consumer
Residential mortgage 28 18 46
Revolving mortgage 17 6 23
Consumer auto 2 — 2
Consumer other 1 — 1
Total consumer 48 24 72
Total TDRs $ 151 $ 52 $ 203

December 31, 2021
dollars in millions 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


dollars in millions	December 31, 2022
	Accruing		Non-Accruing		Total
Commercial
Commercial construction	$	2	$	1	$	3
Owner occupied commercial mortgage	46		9		55
Non-owner occupied commercial mortgage	24		30		54
Commercial and industrial	26		8		34
Leases	—		1		1
Total commercial	98		49		147
Consumer
Residential mortgage	33		17		50
Revolving mortgage	17		5		22
Consumer auto	2		—		2
Consumer other	—		—		—
Total consumer	52		22		74
Total TDRs	$	150	$	71	$	221

3234

The following table summarizes the loan restructurings during the ~~quarters~~three months ended March 31, 2022 ~~and 2021~~ that were designated as TDRs. BancShares defines payment default as movement of the TDR to ~~nonaccrual~~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)									dollars in millions (except for number of loans)				Three Months Ended March 31,
											2022
		Three months ended March 31,								Number of Loans		Amortized Cost at Period End
		2022			2021
dollars in millions (except for number of loans)		Number of loans	Amortized cost at period end			Number of loans	Amortized cost at period end
Loans and leases	Loans and leases								Loans and leases
Interest only	Interest only	2	$	—		6	$	7	Interest only				2	$	—
Loan term extension	Loan term extension	35	20			25	4		Loan term extension				35	20
Below market rates	Below market rates	20	2			53	8		Below market rates				20	2
Discharge from bankruptcy	Discharge from bankruptcy	24	2			45	4		Discharge from bankruptcy				24	2
Total	Total	81	$	24		129	$	23	Total				81	$	24

There were ~~$1 million and $0.4~~$1.5 million of commitments to lend additional funds to borrowers whose loan terms ~~have been~~that were modified in TDRs as of ~~March 31, 2022 and~~ December 31, ~~2021, respectively.~~2022.

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 months ended March 31, 2022, and ~~2021, and~~ were classified as TDRs during the applicable 12-month period preceding March 31, 2022 ~~and 2021~~ were as follows:

TDR Defaults

Three months ended March 31,
dollars in millions 2022 2021
TDR Defaults $ 2 $ 3


dollars in millions	Three Months Ended March 31,
	2022
TDR Defaults	$	2

Purchased loans and leases

The following table summarizes PCD loans and leases that BancShares acquired in the SVBB Acquisition.

PCD Loans and Leases - SVBB Acquisition


	Total PCD from SVBB Acquisition
UPB	$	2,529
Initial PCD ACL	(200)
Fair value discount, net of the PCD Gross-Up	(299)
Purchase price	$	2,030

The recorded fair values of Non-PCD loans acquired in the SVBB Acquisition as of the acquisition date was $66.47 billion, resulting in a purchase accounting adjustment discount of $2.27 billion. BancShares’ accounting methods for acquired loans are discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. See Note 2 — Business Combinations for further discussion of the SVBB Acquisition.

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 March 31, ~~2022~~2023 and December 31, ~~2021:~~2022.

Loans Pledged


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
FHLB of Atlanta	FHLB of Atlanta					FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans	Lendable collateral value of pledged non-PCD loans	$	13,782	$	9,564	Lendable collateral value of pledged non-PCD loans	$	14,662	$	14,918
Less: Advances	Less: Advances	639		645		Less: Advances	8,500		4,250
Less: Letters of Credit						Less: Letters of Credit	1,450		1,450
Available borrowing capacity	Available borrowing capacity	$	13,143	$	8,919	Available borrowing capacity	$	4,712	$	9,218
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	19,889	$	14,507	Pledged non-PCD loans (contractual balance)	$	23,743	$	23,491

FRB	FRB					FRB
Lendable collateral value of pledged non-PCD loans	Lendable collateral value of pledged non-PCD loans	$	4,242	$	3,951	Lendable collateral value of pledged non-PCD loans	$	4,676	$	4,203
Less: Advances	Less: Advances	—		—		Less: Advances	—		—
Available borrowing capacity	Available borrowing capacity	$	4,242	$	3,951	Available borrowing capacity	$	4,676	$	4,203
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	4,982	$	4,806	Pledged non-PCD loans (contractual balance)	$	5,864	$	5,697

In connection with the SVBB Acquisition, FCB and the FDIC entered into terms and conditions for a five-year, up to $70 billion line of credit to FCB provided by the FDIC and a Purchase Money Note, both of which are or will be primarily secured by all loans acquired and related commitments that subsequently were drawn and outstanding as of March 31, 2023. See Note 2 — Business Combinations for further discussion of the facility and note.

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 and (iii) investment securities available for sale 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.

Due to completion of the CIT Merger, BancShares changed certain aspects of its methodology used to determine the ACL during the period ending March 31, 2022. BancShares made these changes to integrate the ACL methodologies of CIT and BancShares. The most significant changes in the ACL methodology utilized to determine the ACL at March 31, 2022 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 results of these changes increased the ACL for total commercial loans by approximately $13.5 million and decreased the ACL for total consumer loans by approximately $18.7 million at March 31, 2022.

The initial ACL for PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger (the “Initial PCD ACL”) ~~was $284 million. The Initial PCD ACL was~~were established through ~~the~~a PCD Gross-Up and there ~~was~~were no corresponding ~~increase~~increases to the provision for credit losses. The PCD ~~Gross-Up is~~Gross-Ups are discussed further in Note 21 — ~~Business Combinations.~~Significant Accounting Policies and Basis of Presentation. The initial ACL for Non-PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger ~~was~~were established through a corresponding ~~increase of $454 million~~increases to the provision for credit losses (the ~~“Initial Non-PCD Provision”~~“day 2 provision for loans and leases”). ~~For the period ended March 31, 2022, the~~The initial ACL ~~increase since December 31, 2021 was primarily driven by the Initial PCD ACL and Initial Non-PCD ACL discussed above, partially offset by improvements in macroeconomic factors~~for unfunded commitments acquired in the ~~scenarios used~~SVBB Acquisition and the CIT Merger were established through a corresponding increase to ~~determine~~ the ACL. The scenarios showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2021 ACL and estimate the Initial PCD ACL and Initial Non-PCD Provision at the Merger Date. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs.

provision for unfunded commitments (the “day 2 provision for unfunded commitments”).

3436

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

ACL for Loans and Leases

dollars in millions Commercial Consumer Total
Balance at December 31, 2021 $ 80 $ 98 $ 178
Initial PCD ACL(1)
270 14 284
Balance at Initial Non-PCD Provision 432 22 454
Benefit for credit losses - loans and leases (23) (30) (53)
Balance at Total provision (benefit) for credit losses- loans and leases 409 (8) 401
Charge-offs(1)
(28) (5) (33)
Balance at Recoveries 12 6 18
Balance at Other — — —
Balance at March 31, 2022 $ 743 $ 105 $ 848
Balance at December 31, 2020 $ 92 $ 133 $ 225
Benefit for credit losses - loans and leases (3) (8) (11)
Charge-offs (4) (5) (9)
Recoveries 2 4 6
Other — — —
Balance at March 31, 2021 $ 87 $ 124 $ 211


dollars in millions	Three Months Ended March 31, 2023
		Commercial		Consumer		SVB		Total
Balance at beginning of period		$	789	$	133	$	—	$	922
Initial PCD ACL		—		—		200		200
Day 2 provision for loans and leases		—		—		462		462
Provision for credit losses - loans and leases		58		13		—		71
Total provision for credit losses- loans and leases		58		13		462		533
Charge-offs		(55)		(7)		—		(62)
Recoveries		8		4		—		12

Balance at March 31, 2023		$	800	$	143	$	662	$	1,605

	Three Months Ended March 31, 2022
		Commercial		Consumer		SVB		Total
Balance at beginning of period		$	80	$	98	$	—	$	178
Initial PCD ACL		270		14		—		284
Day 2 provision for loans and leases		432		22		—		454
Benefit for credit losses - loans and leases		(23)		(30)		—		(53)
Total provision (benefit) for credit losses- loans and leases		409		(8)		—		401
Charge-offs		(28)		(5)		—		(33)
Recoveries		12		6		—		18
Balance at March 31, 2022		$	743	$	105	$	—	$	848

~~(1)~~ The Initial PCD ACL related to the CIT Merger was $284 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.

ACL for Unfunded Commitments


		Three months ended March 31,
dollars in millions	dollars in millions	2022		2021		dollars in millions	Three Months Ended March 31,
								2023		2022
Beginning balance	Beginning balance	$	12	$	13	Beginning balance		$	106	$	12
Provision (benefit) for credit losses - unfunded commitments		63		(1)
Day 2 provision for unfunded commitments						Day 2 provision for unfunded commitments		254		59
(Benefit) provision for unfunded commitments						(Benefit) provision for unfunded commitments		(8)		4
Total provision for credit losses - unfunded commitments						Total provision for credit losses - unfunded commitments		246		63
Ending balance	Ending balance	$	75	$	12	Ending balance		$	352	$	75

~~For the period ended March 31, 2022, the increase in the~~ ACL for ~~unfunded commitments compared to March 31, 2021 primarily reflected the additional commitments acquired in the CIT Merger.~~Investment Securities


dollars in millions	Three Months Ended March 31,
		2023		2022
Beginning balance		$	—	$	—
Provision for credit losses - investment securities available for sale		4		—
Ending balance		$	4	$	—

3537

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 ~~lessee finance leases are not significant. Our~~ real estate leases have remaining lease terms of up to 1716 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	dollars in millions	Classification	March 31, 2022			December 31, 2021			dollars in millions	Classification	March 31, 2023			December 31, 2022
ROU assets:	ROU assets:								ROU assets:
Operating leases	Operating leases	Other assets	$	384		$	64		Operating leases	Other assets	$	337		$	345
Finance leases	Finance leases	Premises and equipment	4			4			Finance leases	Premises and equipment	7			7
Total ROU assets	Total ROU assets		$	388		$	68		Total ROU assets		$	344		$	352
Lease liabilities:	Lease liabilities:								Lease liabilities:
Operating leases	Operating leases	Other liabilities	$	385		$	65		Operating leases	Other liabilities	$	345		$	352
Finance leases	Finance leases	Other borrowings	4			4			Finance leases	Other borrowings	7			7
Total lease liabilities	Total lease liabilities		$	389		$	69		Total lease liabilities		$	352		$	359
Weighted-average remaining lease terms
Weighted-average remaining lease terms:									Weighted-average remaining lease terms:
Operating leases	Operating leases		9.9 Years			8.9 Years			Operating leases		9.4 years			9.6 years
Finance leases	Finance leases		3.4 Years			3.5 Years			Finance leases		3.8 years			4.1 years
Weighted-average discount rate
Weighted-average discount rate:									Weighted-average discount rate:
Operating leases	Operating leases		2.07		%	3.00		%	Operating leases		2.22		%	2.19		%
Finance leases	Finance leases		3.11		%	3.12		%	Finance leases		2.34		%	2.34		%

The following table presents components of ~~operating~~ lease ~~expense, which are included in operating expenses:~~cost:

Components of ~~Operating~~Net Lease ~~Expense~~Cost


			Three months ended March 31,
dollars in millions	dollars in millions	Classification	2022		2021		dollars in millions		Three Months Ended March 31,
								Classification	2023		2022
Lease cost	Lease cost						Lease cost
Operating lease cost(1)	Operating lease cost(1)	Occupancy Expense	$	16	$	4	Operating lease cost(1)	Occupancy Expense	$	13	$	16
Finance lease cost	Finance lease cost						Finance lease cost
Amortization of leased assets	Amortization of leased assets	Equipment expense	1		1		Amortization of leased assets	Equipment expense	—		1
Interest on lease liabilities	Interest on lease liabilities	Interest expense - Other borrowings	—		—		Interest on lease liabilities	Interest expense - other borrowings	—		—
Variable lease cost	Variable lease cost	Occupancy Expense	3		1		Variable lease cost	Occupancy Expense	4		3
Sublease income	Sublease income	Occupancy Expense	(1)		—		Sublease income	Occupancy Expense	(1)		(1)
Net lease cost	Net lease cost		$	19	$	6	Net lease cost		$	16	$	19

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

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 ~~as a result~~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 1413 years.

The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information

Three months ended March 31,
dollars in millions 2022 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 14 $ 3
Operating cash flows from finance leases — —
Financing cash flows from finance leases — —
ROU assets obtained in exchange for new lease liabilities 8 3


dollars in millions	Three Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	13	$	14


ROU assets obtained in exchange for new operating lease liabilities	4		8

~~The following table presents lease liability maturities in the next five years and thereafter at March 31, 2022:~~

~~Maturity of Lease Liabilities~~

dollars in millions
Twelve months ended March 31, Operating Leases Finance Leases Total
2023 $ 52 $ 2 $ 54
2024 52 1 53
2025 49 1 50
2026 44 — 44
2027 42 — 42
Thereafter 189 — 189
Total undiscounted lease payments $ 428 $ 4 $ 432
Difference between undiscounted cash flows and discounted cash flows 43 — 43
Lease liabilities, at present value $ 385 $ 4 $ 389

Lessor

BancShares leases equipment to commercial end-users under operating lease and 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 $67 million at March 31, 2022 by equipment type.~~

~~Operating Lease Equipment~~


~~dollars in millions~~	~~March 31, 2022~~
~~Railcars and locomotives~~	$	~~7,251~~
~~Other equipment~~	~~721~~
~~Total(1)~~	$	~~7,972~~

~~(1)Includes off-lease rail equipment of $504 million at March 31, 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 March 31, 2022 December 31, 2021
Lease receivables $ 1,882 $ 246
Unguaranteed residual assets 283 25
Total net investment in finance leases 2,165 271
Leveraged lease net investment(1)
55 —
Total $ 2,220 $ 271

~~(1)~~Leveraged leases are reported net of non-recourse debt of $24 million at March 31, 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


		Three months ended March 31,
dollars in millions	dollars in millions	2022		2021		dollars in millions	Three Months Ended March 31,
							2023		2022
Lease income – Operating leases	Lease income – Operating leases	$	195	$	—	Lease income – Operating leases	$	214	$	195
Variable lease income – Operating leases (1)	Variable lease income – Operating leases (1)	13		—		Variable lease income – Operating leases(1)	19		13
Rental income on operating leases	Rental income on operating leases	208		—		Rental income on operating leases	233		208
Interest income - Sales type and direct financing leases	Interest income - Sales type and direct financing leases	42		5		Interest income - Sales type and direct financing leases	41		42
Variable lease income included in Other noninterest income (2)	Variable lease income included in Other noninterest income (2)	11		—		Variable lease income included in Other noninterest income(2)	15		11
Leveraged lease income		5		—
Interest income - Leveraged leases						Interest income - Leveraged leases	5		5
Total lease income	Total lease income	$	266	$	5	Total lease income	$	294	$	266

(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 ~~$3.2~~$4 million and $3 million for the three months ended March 31, 2023 and 2022, respectively and ~~an insignificant amount for the three months ended March 31, 2021. Also includes~~ revenue related to insurance coverage on leased equipment of ~~$7.5~~$10 million and $7 million for the three months ended March 31, ~~2022. There was no revenue related to insurance coverage on leased equipment for the three months ended March 31, 2021.~~2023 and 2022, respectively.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at March 31, 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
Twelve months ended March 31,
2023 $ 636
2024 479
2025 323
2026 196
2027 118
Thereafter 262
Total $ 2,014

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

dollars in millions
Twelve months ended March 31,
2023 $ 899
2024 588
2025 346
2026 179
2027 75
Thereafter 12
Total undiscounted lease receivables $ 2,099
Difference between undiscounted cash flows and discounted cash flows 217
Lease receivables, at present value $ 1,882

NOTE 7 –— GOODWILL AND ~~OTHER~~CORE DEPOSIT INTANGIBLES

Goodwill

BancShares applied the acquisition method of accounting for the SVBB Acquisition and the CIT Merger. The fair value of the net assets acquired exceeded the purchase ~~price.~~prices for both acquisitions. 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 March 31, ~~2022~~2023 and December 31, ~~2021. The entire amount of goodwill~~2022 that relates to business combinations ~~that BancShares~~ completed prior to the SVBB Acquisition and the CIT Merger. All of the goodwill relates to the General Banking reporting segment. There was no goodwill impairment during the ~~first quarter of~~three months ended March 31, 2023 or 2022.

~~Other Intangible Assets~~

~~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 March 31, 2022.

Core Deposit Intangibles


dollars in millions	~~2022~~2023
Balance, net of accumulated amortization at January 1	$	19140
Core deposit intangibles related to the ~~CIT Merger~~SVBB Acquisition	~~143~~230
Amortization for the period	(6)
Balance at March 31, net of accumulated amortization	$	~~156~~364

Core Deposit Intangible Accumulated Amortization


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Gross balance	Gross balance	$	271	$	128	Gross balance	$	501	$	271
Accumulated amortization	Accumulated amortization	(115)		(109)		Accumulated amortization	(137)		(131)
Balance, net of accumulated amortization	Balance, net of accumulated amortization	$	156	$	19	Balance, net of accumulated amortization	$	364	$	140

The following table summarizes the expected amortization expense as of March 31, 2023 in subsequent periods for core deposit intangibles.

Core Deposit Intangible Expected Amortization

dollars in millions
Twelve months ended March 31,
2023 $ 21
2024 19
2025 16
2026 16
2027 15
Thereafter 69
Total $ 156

~~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 accreted on a straight-line over the lease term, thereby increasing rental income (a component of noninterest income) over the remaining lives of the lease agreements.

~~The following tables summarize the activity for the intangible liability during the quarter ending March 31, 2022.~~

~~Intangible Liability~~


~~dollars in millions~~	~~2022~~
~~Balance at January 1~~	$	—
~~Acquired in CIT Merger~~	52
~~Amortization~~	~~(4)~~
~~Balance at March 31, net of accumulated amortization~~	$	48

~~Intangible Liability Accumulated Amortization~~


~~dollars in millions~~	~~March 31, 2022~~
~~Gross balance~~	$	52
~~Accumulated amortization~~	~~(4)~~
~~Balance, net of accumulated amortization~~	$	48

~~The following table summarizes the expected accretion in subsequent periods for the intangible liability.~~

~~Intangible Liability~~


dollars in millions	dollars in millions			dollars in millions
Twelve months ended March 31,
2023		$	15
Remainder 2023				Remainder 2023	$	52
2024	2024	11		2024	63
2025	2025	5		2025	54
2026	2026	3		2026	46
2027	2027	3		2027	39
2028				2028	34
Thereafter	Thereafter	11		Thereafter	76
Total		$	48
Balance, net of accumulated amortization				Balance, net of accumulated amortization	$	364

~~NOTE 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 approximately $3.4 billion as of March 31, 2022 and December 31, 2021. For certain loans, the originated 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 assets. The associated amortization expense and any changes in the valuation allowance recognized 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 million for the three month periods ending March 31, 2022 and 2021.~~

~~The following table presents changes in the servicing asset during the three months ended March 31, 2022 and 2021:~~

~~Servicing Asset~~

Three months ended March 31,
dollars in millions 2022 2021
Beginning balance $ 23 $ 18
Servicing rights originated 2 4
Servicing rights obtained in CIT Merger 3 —
Amortization (1) (2)
Valuation allowance decrease 1 3
Ending balance $ 28 $ 23

~~The following table presents the activity in the servicing asset valuation allowance:~~

~~Servicing Asset Valuation Allowance~~

Three months ended March 31,
dollars in millions 2022 2021
Beginning balance $ 1 $ 4
Valuation allowance decrease (1) (3)
Ending balance $ — $ 1

MSRs valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to value MSRs were as follows:

~~MSRs Valuation Assumptions~~

March 31, 2022 December 31, 2021
Discount rate - conventional fixed loans 9.30 % 8.51 %
Discount rate - all loans excluding conventional fixed loans 10.61 % 9.51 %
Weighted average constant prepayment rate 9.56 % 15.69 %
Weighted average cost to service a loan $ 90.57 $ 87.58

The fair value of MSRs are sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rate is based on the 10-year U.S. Treasury rate plus 700 basis points (“bps”) for conventional fixed loans and 800 bps for all other loans. The 700 and 800 bps are used as a risk premium when calculating the discount rate. The prepayment rate is derived from the Public Securities Association Standard Prepayment model, which is compared to actual prepayment rates annually for reasonableness. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans.

NOTE ~~9 – OTHER ASSETS~~

~~The following table includes the components of other assets. The increases from December 31, 2021 primarily reflect the other assets acquired in the CIT Merger.~~

~~Other Assets~~

dollars in millions March 31, 2022 December 31, 2021
Federal Home Loan Bank stock $ 39 $ 40
Low-income housing tax credit and other equity method investments 702 156
Counterparty receivables 106 —
Fair value of derivative financial instruments 110 —
Right of use assets 384 64
Pension assets 297 289
Income taxes receivable 834 799
Other real estate owned 43 40
Mortgage servicing rights 28 23
Accrued interest receivable 247 134
Other 540 194
Total other assets $ 3,330 $ 1,739

~~NOTE 10 — DEPOSITS~~

~~The following table provides detail on deposit types. The deposit balances as of March 31, 2022 reflect those acquired in the CIT Merger, as described in Note 2 — Business Combinations.~~

~~Deposit Types~~

dollars in millions March 31, 2022 December 31, 2021
Non-interest-bearing demand $ 25,898 $ 21,405
Checking with interest 16,702 12,694
Money market 26,249 10,590
Savings 13,506 4,236
Time 9,242 2,481
Total deposits $ 91,597 $ 51,406

~~At March 31, 2022, the scheduled maturities of time deposits were:~~

~~Deposit Maturities~~

dollars in millions
Twelve months ended March 31,
2023 $ 6,765
2024 1,223
2025 695
2026 369
2027 67
Thereafter 123
Total time deposits $ 9,242

~~Time deposits with a denomination of $250,000 or more were $1.6 billion and $593 million at March 31, 2022 and December 31, 2021, respectively.~~

As of December 31, 2021, FCB’s primary deposit markets were North Carolina and South Carolina, which represent approximately 50.8% and 22.7%, respectively, of total FCB deposits. The CIT Merger added deposits that were primarily in California (which also includes its internet banking). Deposits (based on branch location) as of March 31, 2022, in California, North Carolina and South Carolina represented approximately 41.2%, 29.2% and 13.1%, respectively, of total deposits.

~~NOTE 11~~8 — VARIABLE INTEREST ENTITIES

Variable Interest Entities

Described below are the results of BancShares’ assessment of its variable interests in order to determine its current status with regard to being the VIE ~~PB.~~primary beneficiary. Refer to Note 1 — Significant Accounting Policies and Basis of Presentation for additional information on accounting for ~~VIEs.~~VIEs and investments in qualified housing projects.

Consolidated VIEs

At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, there were no consolidated VIEs.

Unconsolidated VIEs

Unconsolidated VIEs include limited partnership interests and joint ventures where BancShares’ involvement is limited to an investor interest and BancShares does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance or obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of ~~its~~BancShares’ interests and any associated collateral declines to zero and assuming no recovery or offset from any economic hedges. BancShares believes the possibility is remote under this hypothetical scenario; accordingly, this disclosure is not an indication of expected loss. As disclosed in Note 2 — Business Combinations, the following tables as of March 31, 2023 include VIEs acquired in the SVBB Acquisition.

Unconsolidated VIEs Carrying Value

dollars in millions March 31, 2022 December 31, 2021
Tax credit equity investments $ 539 $ 157
Equity investments 178 12
Total assets $ 717 $ 169
Commitments to tax credit investments(1)
$ 242 $ 43
Total liabilities $ 242 $ 43
Maximum loss exposure $ 717 $ 169


dollars in millions	March 31, 2023		December 31, 2022
Investment in qualified affordable housing projects	$	1,662	$	598
Other tax credit equity investments	5		5
Total tax credit equity investments	$	1,667	$	603
Other unconsolidated investments	166		159
Total assets (maximum loss exposure)(1)	$	1,833	$	762
Liabilities for commitments to tax credit investments(2)(3)	$	991	$	295

(1)Included in other assets. Balance presented net of purchase accounting adjustments of $273 million at March 31, 2023.

(2) Represents commitments to invest in qualified affordable housing investments, and other investments qualifying for community reinvestment tax credits. These commitments are payable on demand and are ~~recorded~~included in other liabilities.

(3) Balance presented net of purchase accounting adjustment of $70 million at March 31, 2023.

NOTE 9 — OTHER ASSETS

The below table reflects the impact of approximately $2.18 billion of miscellaneous assets acquired in conjunction with the SVBB Acquisition. These consisted primarily of affordable housing tax credit investments, accrued interest receivable, derivative assets, and other miscellaneous assets. Refer to Note 2 — Business Combinations for further discussion. The following table includes the components of other assets:

Other Assets


dollars in millions	March 31, 2023		December 31, 2022
Affordable housing tax credit and other unconsolidated investments (1)	$	1,869	$	762
Right of use assets for operating leases, net	337		345
Pension assets	359		343
Accrued interest receivable	772		329
Income tax receivable	284		275
Federal Home Loan Bank stock	393		197
Fair value of derivative financial instruments	547		159
Bank-owned life insurance	530		586
Counterparty receivables	171		98
Nonmarketable equity securities	62		58
Other real estate owned	46		47
Mortgage servicing assets	25		25
Other (2)	2,055		1,145
Total other assets	$	7,450	$	4,369

(1) Refer to Note 8 — Variable Interest Entities for additional information.

(2) The balances at March 31, 2023 and December 31, 2022 include $428 million and $607 million, respectively, in “Other” related to bank-owned life insurance policies that had terminated, but not cash-settled as further discussed in the 2022 Form 10-K.

NOTE 10 — DEPOSITS

The following table provides detail on deposit types. The deposit balances as of March 31, 2023 include those acquired in the SVBB Acquisition, as described in Note 2 — Business Combinations.

Deposit Types


dollars in millions	March 31, 2023		December 31, 2022
Noninterest-bearing demand	$	54,649	$	24,922
Checking with interest	23,743		16,202
Money market	30,598		21,040
Savings	17,932		16,634
Time	13,128		10,610
Total deposits	$	140,050	$	89,408

At March 31, 2023, the scheduled maturities of time deposits were:

Deposit Maturities


dollars in millions
Twelve months ended March 31,
2024	$	9,199
2025	3,281
2026	437
2027	55
2028	31
Thereafter	125
Total time deposits	$	13,128

Time deposits with a denomination of $250,000 or more were $3.74 billion and $2.22 billion at March 31, 2023 and December 31, 2022, respectively.

NOTE 1211 — BORROWINGS

Short-term Borrowings

Short-term borrowings ~~are as follows:~~at March 31, 2023 and December 31, 2022 include:


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	$	616	$	589	Securities sold under customer repurchase agreements	$	509	$	436

Notes payable to FHLB of Atlanta at overnight SOFR plus 0.28%.						Notes payable to FHLB of Atlanta at overnight SOFR plus 0.28%.	500		1,750

Total short-term borrowings	Total short-term borrowings	$	616	$	589	Total short-term borrowings	$	1,009	$	2,186

Securities Sold under Agreements to Repurchase

AtBancShares held $509 million and $436 million at March 31, 2023 and December 31, 2022, ~~BancShares held $616 million~~respectively, of securities sold under agreements to repurchase ~~with~~that have overnight contractual maturities ~~consisting of $538 million~~and are collateralized by government agency securities and $78 million collateralized by commercial mortgage-backed securities. At December 31, 2021, BancShares held $589 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $508 million collateralized by government agency securities and $81 million collateralized by commercial mortgage-backed securities.

BancShares utilizes securities sold under agreements to repurchase to facilitate the needs for collateralization of commercial customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price and interest rate. These agreements are recorded at the amount of cash received in connection with the transactions and are reflected as securities sold under customer repurchase agreements.

BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was ~~$638~~$545 million and ~~$619~~$496 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Long-term Borrowings

Long-term borrowings at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 include:

dollars in millions Maturity March 31, 2022 December 31, 2021
Parent Company:
Senior:
Unsecured term loan at 1-month LIBOR plus 1.10% September 2022 $ 64 $ 68
Subordinated:
Fixed-to-Floating subordinated notes at 3.375% March 2030 350 350
Junior subordinated debenture at 3-month LIBOR plus 2.25% June 2034 20 20
Junior subordinated debenture at 3-month LIBOR plus 1.75% 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:
Junior subordinated debentures at 3-month LIBOR plus 2.80% March 2034 14 14
Junior subordinated debentures at 3-month LIBOR plus 2.85% April 2034 10 10
Fixed subordinated notes at 6.125%(1)
March 2028 400 —
Fixed-to-Fixed subordinated notes at 4.125%(1)
November 2029 100 —
Secured:
Notes payable to FHLB of Atlanta with rates ranging from 0.75% to 2.99% Maturities through March 2032 639 645
Other secured financings(1)
Maturities through January 2024 16 —
Capital lease obligations Maturities through August 2026 4 4
Unamortized issuance costs (2) (2)
Unamortized purchase accounting adjustments(2)
107 (2)
Total long-term borrowings $ 2,676 $ 1,195

Long-term Borrowings


dollars in millions	Maturity	March 31, 2023		December 31, 2022
Parent Company:


Subordinated:


Fixed-to-Floating subordinated notes at 3.375%	March 2030	$	350	$	350
Junior subordinated debentures at 3-month LIBOR plus 2.25% (FCB/SC Capital Trust II)	June 2034	20		20
Junior subordinated debentures 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%	June 2024	500		500
Senior unsecured fixed-to-floating rate notes at 2.969%	September 2025	315		315
Fixed senior unsecured notes at 6.00%	April 2036	51		51
Subordinated:
Fixed subordinated notes at 6.125%	March 2028	400		400
Fixed-to-Fixed subordinated notes at 4.125%	November 2029	100		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 0.48%.	Maturities through September 2025	8,000		2,500
Purchase Money Note to FDIC fixed at 3.50%(1)	March 2028	35,370		—
Other secured financings	Maturities through January 2024	—		18
Capital lease obligations	Maturities through June 2027	7		7
Unamortized issuance costs		(1)		(1)
Unamortized purchase accounting adjustments(2)		(139)		87
Total long-term borrowings		$	45,085	$	4,459

(1)~~Reflects the remaining outstanding debt securities assumed by the BancShares~~ Issued in connection with the ~~CIT Merger.On February 24, 2022, BancShares redeemed all of the outstanding (i) 5.00% senior unsecured notes due 2022, (ii) 5.00%, senior unsecured notes due 2023; (iii) 4.750% senior unsecured notes due 2024;~~SVBB Acquisition and ~~(iv) 5.250% senior unsecured notes due 2025 that it had assumed in the CIT Merger.~~will be secured by acquired loans. See below and Note 2 — Business Combinations for further information.

(2)At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, unamortized purchase accounting adjustments were ~~$78~~$65 million and $2$69 million, respectively, for subordinated debentures.

~~Long-term borrowings maturing in each of the five years subsequent to March 31, 2022 and thereafter include:~~

~~Long-term Borrowings Maturities~~

dollars in millions
Twelve months ended March 31,
2023 $ 94
2024 166
2025 517
2026 330
2027 17
Thereafter 1,552
Total long-term borrowings $ 2,676

~~Senior Unsecured Notes~~

~~Senior unsecured notes included the following as of March 31, 2022:~~

•~~Variable-rate senior unsecured notes totaled $64 million at 1-month LIBOR plus 1.10%.~~

•~~Fixed-rate senior unsecured notes outstanding totaled $866 million and the weighted average coupon rate was 3.70%. These notes were assumed by FCB as part of the CIT Merger.On February 24, 2022, FCB completed a redemption of approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger, resulting in a gain of approximately $6 million.~~

~~Subordinated Unsecured Notes~~

~~Subordinated unsecured notes included the following as of March 31, 2022:~~

•$350 million aggregate principal amount of its 3.375% fixed-to-floating rate subordinated notes due 2030 and redeemable at the option of BancShares starting with the interest payment due March 15, 2025.

•$400 million aggregate principal amount of 6.125% fixed rate subordinated notes with a maturity date of March 9, 2028 and $100 million aggregate principal amount of 4.125% fixed-to-fixed rate subordinated notes with a maturity date of November 13, 2029, which were assumed by BancShares as part of the CIT Merger.

•$132 million in junior subordinated debentures representing obligations to FCB/NC Capital Trust III, FCB/SC Capital Trust II, SCB Capital Trust I and Macon Capital Trust I special purpose entities and grantor trusts (the “Trusts”) for trust preferred securities. The Trusts had outstanding trust preferred securities of $128 million at March 31, 2022 and December 31, 2021, which mature in 2036, 2034, 2034 and 2034, respectively, and may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of FCB/NC Capital Trust III, FCB/SC Capital Trust II, SCB Capital Trust I and Macon Capital Trust I.

~~Secured Borrowings~~Pledged Assets

At March 31, ~~2022,~~2023, BancShares had pledged ~~$24.9~~$29.6 billion of ~~consumer~~ loans to ~~several financing facilities.~~the FHLB and FRB.

~~Notes Payable to FHLB~~

As a member of the FHLB, FCB can access financing based on an evaluation of its creditworthiness, statement of financial position, size and eligibility of collateral. Pledged assets related to these financings totaled ~~$19.9~~$23.7 billion at March 31, ~~2022.~~2023. FCB may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that FCB is in compliance with the collateral maintenance requirement immediately following such disposition.

~~Other Secured Financings~~

Other secured (other than FHLB) financings were not significant and totaled $15 million at March 31, 2022. Pledged assets related to these financings totaled $15 million. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.

~~At March 31, 2022, BancShares had other unused credit lines allowing contingent access to borrowings of up to $75 million on an unsecured basis.~~

Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional ~~$4.2~~$4.7 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. Assets pledged to the FRB of Richmond totaled $5.9 billion at March 31, 2023.

In connection with the SVBB Acquisition, FCB and the FDIC entered into a Purchase Money Note, which is primarily secured by all loans acquired and related commitments that subsequently were drawn and outstanding as of March 31, 2023.

At March 31, 2023, BancShares had other unused credit lines allowing contingent access to borrowings of up to $100 million on an unsecured basis.

4443

NOTE 1312 — DERIVATIVE FINANCIAL INSTRUMENTS

~~BancShares acquired various derivative financial instruments in the CIT Merger.~~ The following table presents notional amount and fair value of derivative financial instruments on a gross basis. At March 31, 2023, and December 31, 2022 BancShares’ derivatives are not designated as hedging instruments.

Notional Amount and Fair Value of Derivative Financial Instruments


		March 31, 2022
dollars in millions	dollars in millions	Notional Amount		Asset Fair Value		Liability Fair Value		dollars in millions	March 31, 2023						December 31, 2022
									Notional Amount		Asset Fair Value		Liability Fair Value		Notional Amount		Asset Fair Value		Liability Fair Value

Derivatives not designated as hedging instruments (Non-qualifying hedges)	Derivatives not designated as hedging instruments (Non-qualifying hedges)							Derivatives not designated as hedging instruments (Non-qualifying hedges)
Interest rate contracts(1)(3)	Interest rate contracts(1)(3)	$	20,211	$	106	$	(199)	Interest rate contracts(1)(3)	$	23,557	$	285	$	(535)	$	18,173	$	158	$	(482)
Foreign exchange contracts	Foreign exchange contracts	181		4		(4)		Foreign exchange contracts	18,419		262		(255)		125		1		(4)
Other contracts(2)	Other contracts(2)	822		—		(1)		Other contracts(2)	713		—		(1)		507		—		—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	21,214		110		(204)		Total derivatives not designated as hedging instruments	$	42,689	547		(791)		$	18,805	159		(486)
Gross derivatives fair values presented in the Consolidated Balance Sheets	Gross derivatives fair values presented in the Consolidated Balance Sheets	$	21,214	110		(204)		Gross derivatives fair values presented in the Consolidated Balance Sheets			547		(791)				159		(486)
Less: Gross amounts offset in the Consolidated Balance Sheets	Less: Gross amounts offset in the Consolidated Balance Sheets			—		—		Less: Gross amounts offset in the Consolidated Balance Sheets			—		—				—		—
Net amount presented in the Consolidated Balance Sheet				110		(204)
Net amount presented in the Consolidated Balance Sheets								Net amount presented in the Consolidated Balance Sheets			547		(791)				159		(486)
Less: Amounts subject to master netting agreements(4)	Less: Amounts subject to master netting agreements(4)			(13)		13		Less: Amounts subject to master netting agreements(4)			(179)		179				(13)		13
Less: Cash collateral pledged(received) subject to master netting agreements(5)	Less: Cash collateral pledged(received) subject to master netting agreements(5)			(29)		2		Less: Cash collateral pledged(received) subject to master netting agreements(5)			(255)		16				(124)		—
Total net derivative fair value	Total net derivative fair value			$	68	$	(189)	Total net derivative fair value			$	113	$	(596)			$	22	$	(473)

(1)Fair value balances include accrued interest.

(2)Other derivative contracts not designated as hedging instruments include risk participation agreements.

(3)BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market”. As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances. Gross amounts of recognized assets and liabilities were lowered by ~~$191~~$324 million and ~~$60~~$24 million, respectively, at March 31, 2023, and $376 million and $19 million, respectively at December 31, 2022.

(4)BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA”) agreements that allow for net settlements of certain payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. BancShares believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.

(5)In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange of cash depending on change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties. Collateral pledged or received is included in other assets or other liabilities, respectively.

Non-Qualifying Hedges

The following table presents gains ~~(losses)~~ of non-qualifying hedges recognized on the ~~Condensed~~ Consolidated Statements of Income:

Gains ~~(Losses)~~ on Non-Qualifying Hedges


			Three Months Ended March 31,
dollars in millions	dollars in millions	Amounts Recognized	2022		2021		dollars in millions		Three Months Ended March 31,
								Amounts Recognized	2023		2022
Interest rate contracts	Interest rate contracts	Other noninterest income	$	4	$	—	Interest rate contracts	Other noninterest income	$	21	$	4
Foreign currency forward contracts							Foreign currency forward contracts	Other noninterest income	(2)		—

Other contracts		Other noninterest income	—		—
Total non-qualifying hedges - income statement impact	Total non-qualifying hedges - income statement impact		$	4	$	—	Total non-qualifying hedges - income statement impact		$	19	$	4

NOTE ~~14 — OTHER~~13 —OTHER LIABILITIES

We assumed approximately $1.85 billion of other liabilities in conjunction with the SVBB Acquisition, comprised of commitments to fund tax credit investments, derivative liabilities, accrued interest payable and other miscellaneous liabilities. In addition, we recorded $3.31 billion of deferred tax liabilities, primarily related to the purchase of the acquired assets. Refer to Note 2 — Business Combinations for further discussion. The following table presents the components of other ~~liabilities. The increases from December 31, 2021 primarily reflect the other liabilities assumed in the CIT Merger.~~liabilities:

Other Liabilities


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Fair value of derivative financial instruments						Fair value of derivative financial instruments	$	791	$	486
Lease liabilities						Lease liabilities	345		352
Accrued expenses and accounts payable	Accrued expenses and accounts payable	$	534	$	5	Accrued expenses and accounts payable	476		275
Reserve for off-balance sheet credit exposure		75		12
Lease liabilities		385		65
Commitments to fund investments in tax credits		242		43
Fair value of derivative financial instruments		204		—
Commitments to fund tax credit investments						Commitments to fund tax credit investments	991		295
Deferred taxes						Deferred taxes	3,551		286
ACL for unfunded commitments						ACL for unfunded commitments	352		106
Incentive plan liabilities						Incentive plan liabilities	156		267
Accrued interest payable	Accrued interest payable	24		8		Accrued interest payable	150		57
Deferred taxes		160		33
Other		364		215
Other (1)						Other (1)	1,360		464
Total other liabilities	Total other liabilities	$	1,988	$	381	Total other liabilities	$	8,172	$	2,588

(1) The balance at March 31, 2023 includes $500 million payable to the FDIC for the Value Appreciation Instrument discussed further in Note 2 — Business Combinations.

NOTE 1514 — FAIR VALUE

Fair Value Hierarchy

BancShares measures certain financial assets and liabilities at fair value. Fair value 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 at the measurement date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels.

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 lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows:

•Level 1 inputs are quoted prices in active markets for identical assets and liabilities.

•Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs.

•Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability.

4645

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes BancShares’ assets and liabilities measured at estimated fair value on a recurring ~~basis.~~basis:

Assets and Liabilities Measured at Fair Value - Recurring Basis~~(dollars in millions)~~


		March 31, 2022
dollars in millions	dollars in millions	Total		Level 1		Level 2		Level 3		dollars in millions	March 31, 2023
											Total		Level 1		Level 2		Level 3
Assets	Assets									Assets
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
U.S. Treasury	U.S. Treasury	$	1,931	$	—	$	1,931	$	—	U.S. Treasury	$	1,978	$	—	$	1,978	$	—
Government agency	Government agency	206		—		206		—		Government agency	150		—		150		—
Residential mortgage-backed securities	Residential mortgage-backed securities	5,052		—		5,052		—		Residential mortgage-backed securities	4,848		—		4,848		—
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,520		—		1,520		—		Commercial mortgage-backed securities	1,585		—		1,585		—
Corporate bonds	Corporate bonds	586		—		400		186		Corporate bonds	500		—		340		160

Total investment securities available for sale	Total investment securities available for sale	$	9,295	$	—	$	9,109	$	186	Total investment securities available for sale	$	9,061	$	—	$	8,901	$	160
Marketable equity securities	Marketable equity securities	100		33		67		—		Marketable equity securities	85		29		56		—
Loans held for sale	Loans held for sale	65		—		65		—		Loans held for sale	9		—		9		—
Derivative assets(1)	Derivative assets(1)									Derivative assets(1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	106		—		105		1		Interest rate contracts — non-qualifying hedges	$	285	$	—	$	284	$	1
Other derivative — non-qualifying hedges		4		—		4		—
Foreign exchange contracts — non-qualifying hedges										Foreign exchange contracts — non-qualifying hedges	262		—		262		—
Other derivative contracts — non-qualifying hedges										Other derivative contracts — non-qualifying hedges	—		—		—		—
Total derivative assets	Total derivative assets	$	110	$	—	$	109	$	1	Total derivative assets	$	547	$	—	$	546	$	1
Liabilities	Liabilities									Liabilities
Derivative liabilities(1)	Derivative liabilities(1)									Derivative liabilities(1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	$	199	$	—	$	199	$	—	Interest rate contracts — non-qualifying hedges	$	535	$	—	$	535	$	—
Other derivative— non-qualifying hedges		5		—		4		1
Foreign exchange contracts — non-qualifying hedges										Foreign exchange contracts — non-qualifying hedges	255		—		255		—
Other derivative contracts — non-qualifying hedges										Other derivative contracts — non-qualifying hedges	1		—		—		1
Total derivative liabilities	Total derivative liabilities	$	204	$	—	$	203	$	1	Total derivative liabilities	$	791	$	—	$	790	$	1

		December 31, 2021									December 31, 2022
dollars in millions		Total		Level 1		Level 2		Level 3
											Total		Level 1		Level 2		Level 3
Assets	Assets									Assets
Investment securities available for sale	Investment securities available for sale									Investment securities available for sale
U.S. Treasury	U.S. Treasury	$	2,005	$	—	$	2,005	$	—	U.S. Treasury	$	1,898	$	—	$	1,898	$	—
Government agency	Government agency	221		—		221		—		Government agency	162		—		162		—
Residential mortgage-backed securities	Residential mortgage-backed securities	4,729		—		4,729		—		Residential mortgage-backed securities	4,795		—		4,795		—
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,640		—		1,640		—		Commercial mortgage-backed securities	1,604		—		1,604		—
Corporate bonds	Corporate bonds	608		—		401		207		Corporate bonds	536		—		362		174

Total investment securities available for sale	Total investment securities available for sale	$	9,203	$	—	$	8,996	$	207	Total investment securities available for sale	$	8,995	$	—	$	8,821	$	174
Marketable equity securities	Marketable equity securities	98		34		64		—		Marketable equity securities	95		32		63		—
Loans held for sale	Loans held for sale	99		—		99		—		Loans held for sale	4		—		4		—
Derivative assets(1)										Derivative assets(1)
Interest rate contracts — non-qualifying hedges										Interest rate contracts — non-qualifying hedges	$	158	$	—	$	158	$	—
Foreign exchange contracts — non-qualifying hedges										Foreign exchange contracts — non-qualifying hedges	1		—		1		—
Other derivative contracts — non-qualifying hedges										Other derivative contracts — non-qualifying hedges	—		—		—		—
Total derivative assets										Total derivative assets	$	159	$	—	$	159	$	—
Liabilities										Liabilities
Derivative liabilities(1)										Derivative liabilities(1)
Interest rate contracts — non-qualifying hedges										Interest rate contracts — non-qualifying hedges	$	482	$	—	$	482	$	—
Foreign exchange contracts — non-qualifying hedges										Foreign exchange contracts — non-qualifying hedges	4		—		4		—
Other derivative contracts — non-qualifying hedges										Other derivative contracts — non-qualifying hedges	—		—		—		—
Total derivative liabilities										Total derivative liabilities	$	486	$	—	$	486	$	—

(1)Derivative fair values include accrued interest.

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

Investment securities available for sale. The fair value of U.S. Treasury, government agency, mortgage-backed securities, and a portion of the corporate bonds are generally estimated using a 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 provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, 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 using inputs that are not directly observable. These securities are classified as Level 3.

Marketable equity securities. Equity securities are measured at fair value using observable closing prices. The valuation also considers the amount of market 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. Certain residential real estate loans originated ~~to be sold~~for sale to 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 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 1312 — 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.~~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

Range of
Inputs

Weighted
Average

March 31, ~~2022~~2023

Assets

Corporate bonds

~~186~~160

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~~issuer.

Interest rate & other derivative — non-qualifying hedges

Internal valuation model

Not material

~~Not material~~

Liabilities

Interest rate & other derivative — non-qualifying hedges

Internal valuation model

Not material

~~Not material~~

December 31, ~~2021~~2022

Assets

Corporate bonds

~~207~~174

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~~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


		Three months ended March 31, 2022						Three months ended March 31, 2021
dollars in millions	dollars in millions	Corporate Bonds		Other Derivative Assets — Non-Qualifying		Other Derivative Liabilities — Non-Qualifying		Corporate Bonds		dollars in millions	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
											Corporate Bonds		Other Derivative Assets — Non-Qualifying		Other Derivative Liabilities — Non-Qualifying		Corporate Bonds		Other Derivative Assets — Non-Qualifying		Other Derivative Liabilities — Non-Qualifying
Beginning balance	Beginning balance	$	207	$	—	$	—	$	317	Beginning balance	$	174	$	—	$	—	$	207	$	—	$	—
Purchases	Purchases	—		—		1		—		Purchases	—		—		—		—		—		1
Included in earnings		—		1		—		—
Included in comprehensive income		(7)		—		—		2
Changes in FV included in earnings										Changes in FV included in earnings	—		1		—		—		1		—
Changes in FV included in comprehensive income										Changes in FV included in comprehensive income	(5)		—		—		(7)		—		—
Transfers in	Transfers in	—		—		—		—		Transfers in	—		—		1		—		—		—
Transfers out	Transfers out	(14)		—		—		—		Transfers out	—		—		—		(14)		—		—
Maturity and settlements	Maturity and settlements	—		—		—		(1)		Maturity and settlements	(9)		—		—		—		—		—
Ending balance	Ending balance	$	186	$	1	$	1	$	318	Ending balance	$	160	$	1	$	1	$	186	$	1	$	1

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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022:

March 31, 2022
dollars in millions Fair Value Unpaid Principal Balance Difference
Originated loans held for sale $ 65 $ 65 $ —
December 31, 2021
Fair Value Unpaid Principal Balance Difference
Originated loans held for sale $ 99 $ 96 $ 3

Aggregate Fair Value and UPB - Residential Real Estate Loans


dollars in millions	March 31, 2023
	Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	$	9	$	9	$	—

	December 31, 2022
	Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	$	4	$	4	$	—

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 $3~~$0 million and a loss of $3 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. 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 March 31, ~~2022~~2023 or December 31, ~~2021.~~2022.

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. Gains and losses related to assets held for sale and OREO for the three months ended March 31, 2023 were not significant.

Assets Measured at Fair Value - Non-recurring Basis


		Fair Value Measurements
dollars in millions	dollars in millions	Total		Level 1		Level 2		Level 3		Total Gains (Losses)		dollars in millions	Fair Value Measurements
March 31, 2022
													Total		Level 1		Level 2		Level 3		Total Gains (Losses)
March 31, 2023												March 31, 2023
Assets held for sale - loans												Assets held for sale - loans	$	9	$	—	$	—	$	9	$	—
Loans - collateral dependent loans												Loans - collateral dependent loans	87		—		—		87		(15)
Other real estate owned												Other real estate owned	36		—		—		36		—

Total												Total	$	132	$	—	$	—	$	132	$	(15)
December 31, 2022												December 31, 2022
Assets held for sale - loans	Assets held for sale - loans	$	2	$	—	$	—	$	2	$	—	Assets held for sale - loans	$	23	$	—	$	—	$	23	$	(1)
Loans - collateral dependent loans	Loans - collateral dependent loans	109		—		—		109		(8)		Loans - collateral dependent loans	149		—		—		149		(24)
Other real estate owned	Other real estate owned	39		—		—		39		2		Other real estate owned	43		—		—		43		14
Mortgage servicing rights	Mortgage servicing rights	1		—		—		1		1		Mortgage servicing rights	—		—		—		—		1
Total	Total	$	151	$	—	$	—	$	151	$	(5)	Total	$	215	$	—	$	—	$	215	$	(10)
December 31, 2021
Other real estate owned		$	34	$	—	$	—	$	34	$	(4)
Loans - collateral dependent loans		3		—		—		3		(2)
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. When available, the fair values for the transferred loans are based on quoted prices from the purchase 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 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.~~LOCOM. 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%~~11%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the weighted average discount applied was ~~8.13%~~8.48% and ~~8.79%~~9.31%, 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 used to determine the fair value.

5049

Financial Instruments Fair Value

The table below presents the carrying values and estimated fair values for financial ~~instruments. The carrying values and estimated fair values of financial~~ instruments, ~~exclude~~excluding leases and certain other assets and liabilities for which ~~were~~these disclosures are not ~~required for disclosure.~~required.

Carrying Values and Fair Values of Financial Assets and Liabilities


dollars in millions												dollars in millions	March 31, 2023
															Estimated Fair Value
		March 31, 2022											Carrying Value		Level 1		Level 2		Level 3		Total
				Estimated Fair Value
dollars in millions		Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets											Financial Assets
Cash and due from banks	Cash and due from banks	$	523	$	523	$	—	$	—	$	523	Cash and due from banks	$	1,598	$	1,598	$	—	$	—	$	1,598
Interest earning deposits at banks	Interest earning deposits at banks	9,285		9,285		—		—		9,285		Interest earning deposits at banks	38,522		38,522		—		—		38,522
Investment in marketable equity securities												Investment in marketable equity securities	85		29		56		—		85
Investment securities available for sale	Investment securities available for sale	9,295		—		9,109		186		9,295		Investment securities available for sale	9,061		—		8,901		160		9,061
Investment securities held to maturity	Investment securities held to maturity	10,074		—		9,457		—		9,457		Investment securities held to maturity	10,381		—		8,993		—		8,993
Investment in marketable equity securities		100		33		67		—		100
Loans held for sale	Loans held for sale	81		—		65		16		81		Loans held for sale	90		—		9		81		90
Net loans	Net loans	62,489		—		1,574		59,757		61,331		Net loans	134,556		—		1,576		130,572		132,148
Income earned not collected		247		—		247		—		247
Accrued interest receivable												Accrued interest receivable	772		—		772		—		772
Federal Home Loan Bank stock	Federal Home Loan Bank stock	39		—		39		—		39		Federal Home Loan Bank stock	393		—		393		—		393

Mortgage and other servicing rights	Mortgage and other servicing rights	28		—		—		35		35		Mortgage and other servicing rights	25		—		—		45		45
Derivative assets	Derivative assets	110		—		109		1		110		Derivative assets	547		—		546		1		547
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits		91,597		—		91,572		—		91,572
Deposits with no stated maturity												Deposits with no stated maturity	126,922		—		126,922		—		126,922
Time deposits												Time deposits	13,128		—		13,055		—		13,055
Credit balances of factoring clients												Credit balances of factoring clients	1,126		—		—		1,126		1,126
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	616		—		616		—		616		Securities sold under customer repurchase agreements	509		—		509		—		509

Other short-term borrowings												Other short-term borrowings	500		—		500		—		500
Long-term borrowings	Long-term borrowings	2,672		—		2,606		15		2,621		Long-term borrowings	45,078		—		45,048		—		45,048
Credit balances of factoring clients		1,150		—		—		1,150		1,150
Accrued interest payable	Accrued interest payable	24		—		24		—		24		Accrued interest payable	150		—		150		—		150
Derivative liabilities	Derivative liabilities	204		—		203		1		204		Derivative liabilities	791		—		790		1		791

		December 31, 2021											December 31, 2022
				Estimated Fair Value											Estimated Fair Value
dollars in millions		Carrying Value		Level 1		Level 2		Level 3		Total
													Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets											Financial Assets
Cash and due from banks	Cash and due from banks	$	338	$	338	$	—	$	—	$	338	Cash and due from banks	$	518	$	518	$	—	$	—	$	518
Interest earning deposits at banks	Interest earning deposits at banks	9,115		9,115		—		—		9,115		Interest earning deposits at banks	5,025		5,025		—		—		5,025
Investment in marketable equity securities												Investment in marketable equity securities	95		32		63		—		95
Investment securities available for sale	Investment securities available for sale	9,203		—		8,996		207		9,203		Investment securities available for sale	8,995		—		8,821		174		8,995
Investment securities held to maturity	Investment securities held to maturity	3,809		—		3,759		—		3,759		Investment securities held to maturity	10,279		—		8,795		—		8,795
Investment in marketable equity securities		98		34		64		—		98
Loans held for sale	Loans held for sale	99		—		99		—		99		Loans held for sale	52		—		4		45		49
Net loans	Net loans	32,193		—		—		31,890		31,890		Net loans	67,720		—		1,679		62,633		64,312
Income earned not collected		134		—		134		—		134
Accrued interest receivable												Accrued interest receivable	329		—		329		—		329
Federal Home Loan Bank stock	Federal Home Loan Bank stock	40		—		40		—		40		Federal Home Loan Bank stock	197		—		197		—		197

Mortgage and other servicing rights	Mortgage and other servicing rights	23		—		—		23		23		Mortgage and other servicing rights	25		—		—		47		47
Derivative assets												Derivative assets	159		—		159		—		159
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits with no stated maturity	Deposits with no stated maturity	48,925		—		48,925		—		48,925		Deposits with no stated maturity	78,798		—		78,798		—		78,798
Time deposits	Time deposits	2,481		—		2,471		—		2,471		Time deposits	10,610		—		10,504		—		10,504
Credit balances of factoring clients												Credit balances of factoring clients	995		—		—		995		995
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	589		—		589		—		589		Securities sold under customer repurchase agreements	436		—		436		—		436

Other short-term borrowings												Other short-term borrowings	1,750		—		1,750		—		1,750
Long-term borrowings	Long-term borrowings	1,195		—		1,222		—		1,222		Long-term borrowings	4,452		—		4,312		18		4,330

Accrued interest payable	Accrued interest payable	8		—		8		—		8		Accrued interest payable	57		—		57		—		57
Derivative liabilities												Derivative liabilities	486		—		486		—		486

5150

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 is 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 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 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, USU.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the ~~World Bank~~Supranational Entities and Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. We primarily use prices obtained from pricing services to determine the fair value of securities, which are Level 2 inputs.

FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares 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.

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. Therefore, servicing rights are carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is determined using a pooling methodology. Similar loans are pooled together and a model 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. The estimated fair value of deposits 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.

~~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. The fair value of other secured borrowings was estimated based on unobservable inputs and are classified as Level 3.

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 inconsequential due to the short term nature of these balances, therefore, the fair value approximated carrying value, and the credit balances were classified as Level 3.

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

Long-term Borrowings. For certain long-term senior and subordinated unsecured borrowings, the fair values are sourced from a third-party pricing service. The fair value of other long-term borrowings are determined 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 classified as Level 2. The fair value of other secured borrowings are estimated based on unobservable inputs and therefore classified as Level 3.

For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks, and interest earning deposits at banks, are classified on the fair value hierarchy as Level 1. ~~Income earned not collected~~Accrued interest receivable and accrued interest payable are classified as Level 2.

5251

NOTE 1615 — STOCKHOLDERS' EQUITY

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

Number of Shares of Common Stock

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 45,095 —
Common stock - March 31, 2022 14,996,325 1,005,185


	Outstanding
	Class A	Class B
Common stock - December 31, 2022	13,501,017	1,005,185

Restricted stock units vested, net of shares held to cover taxes	13,791	—
Common stock - March 31, 2023	13,514,808	1,005,185

Common Stock

The Parent Company has Class A Common Stock and Class B common stock (“Class B Common ~~Stock.~~Stock”). Class A ~~common shares~~Common Stock have 1one vote per share, while shares of Class B ~~common shares~~Common Stock have 16 votes per share. ~~In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6 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. ~~CIT Preferred Stock was converted into New BancShares Preferred Stock on the Merger Date as further discussed in Note 2 — Business Combinations.~~ The following table summarizes BancShares’ non-cumulative perpetual preferred stock.

dollars in millions, except share and per share 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
Preferred Stock


dollars in millions, except per share and par value data
Preferred Stock	Issuance Date	Earliest Redemption Date	Par Value		Authorized Shares	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 on March 15, June 15, September 15, and December 15
Series B	January 3, 2022	January 4, 2027	$	0.01	325,000	$	1,000	325	LIBOR + 3.792%
Series C	January 3, 2022	January 4, 2027	$	0.01	8,000,000	$	25	200	5.625%

~~As part~~For further description of ~~the CIT Merger, each issued and outstanding share~~BancShares’ non-cumulative perpetual preferred stock, refer to Note 17 — Stockholders’ Equity in Item 8 of CIT Series A Preferred Stock and CIT Series B Preferred Stock automatically converted into the right to receive 1 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.

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 and dividends with respect to the BancShares Series B Preferred Stock will initially accrue and be payable on a semi-annual basis during the fixed rate period, and then quarterly in arrears beginning after June 15, 2022. 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.our 2022 Form 10-K.

NOTE ~~17 –~~16 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

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

Components of Accumulated Other Comprehensive Income (Loss)

March 31, 2022 December 31, 2021
dollars in millions Gross
Unrealized Income
Taxes Net
Unrealized Gross
Unrealized Income
Taxes Net
Unrealized
Unrealized (losses) gains on securities available for sale $ (431) $ 104 $ (327) $ (12) $ 3 $ (9)
Unrealized (losses) gains on securities available for sale transferred to held to maturity (8) 2 (6) (9) 2 (7)
Defined benefit pension items 37 (9) 28 34 (8) 26
Foreign currency translation adjustments — — — — — —
Gains (losses) on hedge derivatives — — — — — —
Total accumulated other comprehensive income (loss) $ (402) $ 97 $ (305) $ 13 $ (3) $ 10


dollars in millions	March 31, 2023						December 31, 2022
	Gross Unrealized		Income Taxes		Net Unrealized		Gross Unrealized		Income Taxes		Net Unrealized
Unrealized loss on securities available for sale	$	(894)	$	213	$	(681)	$	(972)	$	233	$	(739)
Unrealized loss on securities available for sale transferred to securities held to maturity	(8)		2		(6)		(8)		2		(6)
Defined benefit pension items	23		(5)		18		13		(3)		10


Total accumulated other comprehensive loss	$	(879)	$	210	$	(669)	$	(967)	$	232	$	(735)

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	dollars in millions	Unrealized (losses) gains on securities available for sale		Unrealized net gains (losses) on Available for Sale Securities transferred to Held to Maturity Securities		Net change in Defined Benefit Pension Items		Total AOCI		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, 2022										Balance as of December 31, 2022	$	(739)	$	(6)	$	10	$	(735)
AOCI activity before reclassifications										AOCI activity before reclassifications	45		—		8		53
Amounts reclassified from AOCI										Amounts reclassified from AOCI	13		—		—		13
Other comprehensive income for the period										Other comprehensive income for the period	58		—		8		66
Balance as of March 31, 2023										Balance as of March 31, 2023	$	(681)	$	(6)	$	18	$	(669)

Balance as of December 31, 2021	Balance as of December 31, 2021	$	(9)	$	(7)	$	26	$	10	Balance as of December 31, 2021	$	(9)	$	(7)	$	26	$	10
AOCI activity before reclassifications	AOCI activity before reclassifications	(318)		—		—		(318)		AOCI activity before reclassifications	(318)		—		—		(318)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	—		1		2		3		Amounts reclassified from AOCI	—		1		2		3
Net current period AOCI		(318)		1		2		(315)
Other comprehensive (loss) income for the period										Other comprehensive (loss) income for the period	(318)		1		2		(315)
Balance as of March 31, 2022	Balance as of March 31, 2022	$	(327)	$	(6)	$	28	$	(305)	Balance as of March 31, 2022	$	(327)	$	(6)	$	28	$	(305)

Balance as of December 31, 2020		$	79	$	4	$	(71)	$	12
AOCI activity before reclassifications		(44)		—		—		(44)
Amounts reclassified from AOCI		(7)		—		5		(2)
Net current period AOCI		(51)		—		5		(46)
Balance as of March 31, 2021		$	28	$	4	$	(66)	$	(34)

Other Comprehensive Income

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

Other Comprehensive Income (Loss) by Component

Three Months Ended March 31,
2022 2021
dollars in millions Gross Amount Tax Net Amount Gross Amount Tax Net Amount Income Statement Line Item
Net change in pension obligations
Reclassifications out of AOCI $ 3 $ (1) $ 2 $ 7 $ (2) $ 5 Other noninterest
expense
Net Change $ 3 $ (1) $ 2 $ 7 $ (2) $ 5
Unrealized net gains on securities Available for Sale
AOCI activity before reclassification $ (419) $ 101 $ (318) $ (57) $ 13 $ (44)
Reclassifications out of AOCI 1 — 1 (9) 2 (7) Realized gains on investment securities available for sale, net
Net Change $ (418) $ 101 $ (317) $ (66) $ 15 $ (51)
Net current period AOCI $ (415) $ 100 $ (315) $ (59) $ 13 $ (46)


dollars in millions	Three Months Ended March 31,
	2023						2022
	Gross Amount		Tax		Net Amount		Gross Amount		Tax		Net Amount		Income Statement Line Items





Defined benefit pension items
Actuarial (loss) gain	$	10	$	(2)	$	8	$	—	$	—	$	—
Amounts reclassified from AOCI	—		—		—		3		(1)		2		Other noninterest expense
Other comprehensive (loss) income for defined benefit pension items	$	10	$	(2)	$	8	$	3	$	(1)	$	2

Unrealized loss on securities available for sale transferred to securities held to maturity
Amounts reclassified from AOCI	$	—	$	—	$	—	$	—	$	—	$	—
Reclassifications out of AOCI	—		—		—		1		—		1		Interest on investment securities
Other comprehensive income (loss) on securities available for sale transferred to securities held to maturity	$	—	$	—	$	—	$	1	$	—	$	1

Unrealized loss on securities available for sale
AOCI activity before reclassification	$	60	$	(15)	$	45	$	(419)	$	101	$	(318)
Reclassifications out of AOCI	18		(5)		13		—		—		—		$14 realized loss on sales of investment securities available for sale, net; $4 provision for credit losses
Other comprehensive loss on securities available for sale	$	78	$	(20)	$	58	$	(419)	$	101	$	(318)
Total other comprehensive loss	$	88	$	(22)	$	66	$	(415)	$	100	$	(315)

NOTE 1817 — 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 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%~~2.50% 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 as summarized in the following table.


						March 31, 2022				December 31, 2021
dollars in millions	dollars in millions	Basel III Requirements		PCA well-capitalized thresholds		Amount		Ratio		Amount		Ratio		dollars in millions					March 31, 2023				December 31, 2022
															Basel III Requirements		PCA well-capitalized thresholds		Amount		Ratio		Amount		Ratio
BancShares	BancShares													BancShares
Total risk-based capital	Total risk-based capital	10.50	%	10.00	%	$	12,117	14.47	%	$	5,042	14.35	%	Total risk-based capital	10.50	%	10.00	%	$	21,764	14.86	%	$	11,799	13.18	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.50		8.00		10,377		12.39		4,380		12.47		Tier 1 risk-based capital	8.50		8.00		19,225		13.13		9,902		11.06
Common equity Tier 1	Common equity Tier 1	7.00		6.50		9,496		11.34		4,041		11.50		Common equity Tier 1	7.00		6.50		18,344		12.53		9,021		10.08
Tier 1 leverage	Tier 1 leverage	4.00		5.00		10,377		9.55		4,380		7.59		Tier 1 leverage	4.00		5.00		19,225		16.72		9,902		8.99
FCB	FCB													FCB
Total risk-based capital	Total risk-based capital	10.50	%	10.00	%	$	11,925	14.25	%	$	4,858	13.85	%	Total risk-based capital	10.50	%	10.00	%	$	21,578	14.74	%	$	11,627	12.99	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.50		8.00		10,641		12.71		4,651		13.26		Tier 1 risk-based capital	8.50		8.00		19,495		13.32		10,186		11.38
Common equity Tier 1	Common equity Tier 1	7.00		6.50		10,641		12.71		4,651		13.26		Common equity Tier 1	7.00		6.50		19,495		13.32		10,186		11.38
Tier 1 leverage	Tier 1 leverage	4.00		5.00		10,641		9.81		4,651		8.07		Tier 1 leverage	4.00		5.00		19,495		16.97		10,186		9.25

At March 31, ~~2022,~~2023, BancShares and FCB had ~~total~~ risk-based capital ratio conservation buffers of ~~6.47%~~6.86% and ~~6.25%~~6.74%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. At December 31, ~~2021,~~2022, BancShares and FCB had ~~total~~ risk-based capital ratio conservation buffers ~~were 6.35%~~of 5.06% and ~~5.85%.~~4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 over the Basel III ~~minimum.~~minimum for the ratio that is the binding constraint.

Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 1615 — 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 ~~$3.6~~$6.94 billion while continuing to meet the requirements for well-capitalized banks at March 31, ~~2022.~~2023. Dividends declared by FCB and paid to the Parent Company amounted to ~~$30~~$52 million for the three months ended March 31, ~~2022.~~2023. 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 1918 — EARNINGS PER COMMON SHARE

The following 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						dollars in millions, except per share data	Three Months Ended March 31,
		Three months ended March 31,						2023		2022
dollars in millions, except share and per share data		2022		2021
Net income	Net income	$	271	$	147	Net income		$	9,518	$	271
Preferred stock dividends	Preferred stock dividends	7		4		Preferred stock dividends		14		7
Net income available to common stockholders	Net income available to common stockholders	$	264	$	143	Net income available to common stockholders		$	9,504	$	264
Weighted Average Common Shares Outstanding
Weighted average common shares outstanding						Weighted average common shares outstanding
Basic shares outstanding	Basic shares outstanding	15,779,153		9,816,405		Basic shares outstanding		14,526,693		15,779,153
Stock-based awards	Stock-based awards	—		—		Stock-based awards		13,016		—
Diluted shares outstanding	Diluted shares outstanding	15,779,153		9,816,405		Diluted shares outstanding		14,539,709		15,779,153
Basic income per common share		$	16.70	$	14.53
Diluted income per common share		$	16.70	$	14.53
Earnings per common share						Earnings per common share
Basic						Basic		$	654.22	$	16.70
Diluted						Diluted		$	653.64	$	16.70

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

NOTE 2019 — INCOME TAXES

BancShares’ global effective income tax rate was (0.5)% and (20.4)% for the three months ended March 31, 2023 and 2022, ~~and 23.0%~~respectively. The increase in the income tax rate for the three months ended March 31, ~~2021. The decrease in~~2023 compared to the ~~rate from the year-ago quarter~~three months ended March 31, 2022 was primarily ~~driven by the non-taxable nature of~~due to the bargain purchase gain ~~arising from~~relating to the ~~CIT Merger.~~SVBB Acquisition.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax ~~rate.~~rate (“ETR”). This annual ~~effective tax rate~~ETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The ~~effective tax rate~~ETR each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted ~~effective tax rate~~ETR may vary from the actual year-end ~~2022 effective tax rate~~2023 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 result of the ~~CIT Merger,~~SVBB Acquisition, BancShares’ net deferred tax liabilities increased by approximately ~~$297 million. That amount included an increase~~$3.31 billion, primarily related to ~~deferred tax assets (“DTAs”) primarily from net operating losses, capitalized costs~~acquired loans and ~~tax credits net of deferred tax liabilities primarily from operating leases.~~other assets.

BancShares’ ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize our DTAs, adjustments to the valuation allowance adjustments may be ~~adjusted accordingly.~~required.

NOTE ~~21 –~~20 — EMPLOYEE BENEFIT PLANS

BancShares sponsors 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 months ended March 31, 2022 and 2021, the~~The components of net periodic benefit cost are as follows:

Three months ended March 31,
dollars in millions 2022 2021
Service cost $ 3 $ 4
Interest cost 11 7
Expected return on assets (22) (20)
Amortization of prior service cost — —
Amortization of net actuarial loss 3 7
Net periodic benefit $ (5) $ (2)

No discretionary contribution was made to the pension plans during the three months ended March 31, 2022. The funding policy of the pension plans is to contribute an amount each year to meet all Employee Retirement Income Security Act minimum requirements, including amounts to meet quarterly funding requirements, avoid “at-risk” status and avoid any benefit restrictions. BancShares may also contribute additional voluntary amounts each year (up to the maximum tax-deductible amount) in order to achieve certain target funding levels in the plans, with consideration also given to current and future cash flow and tax positions. No contributions are currently expected for the year ending December 31, 2022.

~~Certain retirement benefit plans and stock-based awards of CIT Group Inc. were acquired by BancShares upon the closing of the CIT Merger.~~

CIT had both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain U.S. and non-U.S. employees, each of which was designed in accordance with the practices and regulations in the related countries. CIT maintained a frozen U.S. non-contributory pension plan (the "Plan") qualified under the Internal Revenue Code (“IRC”). CIT also maintained a frozen U.S. non-contributory supplemental retirement plan (the "Supplemental Plan”), and an Executive Retirement Plan, which had been closed to new members since 2006, and whose participants were all inactive. Accumulated balances under the Plan and the Supplemental Plan continue to receive periodic interest, subject to certain government limits. Fair value of the plan assets and benefit obligation at December 31, 2021 were $387 million and $409 million, respectively.

CIT provided healthcare and life insurance benefits to eligible retired employees. For most eligible retirees, healthcare was contributory and life insurance was non-contributory. All postretirement benefit plans were funded on a pay-as-you-go basis. These plans were terminated in the first quarter of 2022, effective April 1, and BancShares recognized a reduction in other noninterest expenses of approximately $27 million in the first quarter of 2022 related to amounts previously accrued.

CIT had a defined contribution retirement plan covering certain of its U.S. employees that qualifies under section 401(k) of the IRC, and was assumed by BancShares. Under this plan employees may contribute a portion of their eligible compensation, as defined, subject to regulatory limits and plan provisions, and BancShares matches these contributions up to a threshold. Participants are also eligible for an additional discretionary company contribution.

In February 2016, CIT adopted the CIT Group Inc. 2016 Omnibus Incentive Plan (the "2016 Plan"), which provided for grants of stock-based awards to employees, executive officers and directors. The BancShares RSUs are the only outstanding awards subject to the terms of the 2016 Plan and no further awards will be made under the 2016 Plan. Compensation expense is recognized over the vesting period or the requisite service period, which is generally three years for BancShares RSUs, under the graded vesting method, whereby each vesting tranche of the award is amortized separately as if each were a separate award.

CIT had compensation awards that either converted to BancShares RSUs or immediately vested at completion of the CIT Merger as further described in the “Stock-Based Compensation” discussion in Note 1 — Accounting Policies and Basis of Presentation. The following table presents the unvested BancShares RSUs at March 31, 2022, which have vesting periods through 2024. There were no grants of stock-based compensation awards during the quarter ended March 31, 2022.

~~Stock-Settled Awards Outstanding~~

Stock-Settled Awards
per share amounts in whole dollars 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 (411) 859.76
Vested / settled awards (71,171) 859.76
Vested / unsettled awards (95) 859.76
Unvested BancShares RSUs at March 31, 2022 55,959 $ 859.76


dollars in millions	Three Months Ended March 31,
	2023		2022
Service cost	$	2	$	3
Interest cost	15		11
Expected return on assets	(21)		(22)
Amortization of prior service cost	—		—
Amortization of net actuarial loss	—		3
Net periodic benefit	$	(4)	$	(5)

NOTE 2221 — BUSINESS SEGMENT INFORMATION

~~As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. BancShares began reporting multiple~~BancShares’ segments ~~during the first quarter of 2022. BancShares now has 3 operating segments:~~include General Banking, Commercial Banking, ~~and~~a new segment Silicon Valley Banking that includes the operating results for the SVBB Acquisition, as well as Rail and ~~a non-operating segment,~~ Corporate. BancShares conformed the comparative prior periods presented to reflect the new segments. The substantial majority of BancShares’ 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 CIT Merger. BancShares' reportable segments are primarily based upon industry categories, target markets, distribution channels and customers served, and, to a lesser extent, the core competencies relating to product origination, operations and servicing and the nature of their regulatory environment. Segment reporting is reflective of BancShares' internal reporting structure and is consistent with the presentation of financial information to the chief operating decision maker. Each of the segments are described below.

General Banking

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

Commercial Banking

Commercial Banking provides a range of lending, leasing, capital markets, asset management and other financial and advisory services primarily to small and ~~middle-market~~middle market companies ~~across select~~in a wide range of industries. Loans offered are primarily senior secured loans collateralized by accounts receivable, inventory, machinery and equipment, transportation equipment and/or intangibles, and are often used for working capital, plant expansion, acquisitions or recapitalizations. These loans include revolving lines of credit and term loans and, depending on the nature of the collateral, may be referred to as collateral-backed loans, asset-based loans or cash flow loans. Commercial Banking provides senior secured loans to developers and other commercial real estate professionals, and also provides small business loans and leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding process. Commercial Banking also provides ~~asset-based lending,~~ factoring, ~~receivables~~receivable management, ~~products~~ and ~~supply chain financing.~~ secured financing to businesses that operate in various industries.

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.

Silicon Valley Banking

Silicon Valley Banking offers products and services to commercial clients in key innovation markets, such as healthcare and technology industries, as well as private equity and venture capital firms. The segment provides solutions to the financial needs of commercial clients through credit, treasury management, foreign exchange, trade finance and other services. In addition, the segment offers private banking and wealth management and provides a range of personal financial solutions for consumers. Private banking and wealth management clients consist of private equity/venture capital professionals and executive leaders of the innovation companies they support and premium wine clients. The segment offers a customized suite of private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, capital call lines of credit, other secured and unsecured lending products and vineyard development loans, as well as planning-based financial strategies, wealth management, family office, financial planning, tax planning and trust services.

Revenue is primarily generated from interest earned on loans, and fees and other revenue from lending activities and banking services.

Deposit products include business and analysis checking accounts, money market accounts, multi-currency accounts, bank accounts, sweep accounts and positive pay services. Services are provided through online and mobile banking platforms, as well as branch locations.

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;~~cement, tank cars for energy products and ~~chemicals;~~chemicals, gondolas for coal, steel coil and mill service ~~products;~~products, open hopper cars for coal and ~~aggregates;~~aggregates, boxcars for paper and auto parts, and ~~centerbeams~~center beams and flat cars for lumber. Revenue is primarily from operating lease income.

Corporate

Certain items that are not allocated to operating segments ~~and~~ are included in the Corporate ~~segment.~~segment, inclusive of similar items related to Silicon Valley Banking. 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~~acquisition-related costs, as well as certain unallocated costs and intangible asset amortization expense (operating expenses). Corporate also includes certain significant items that are infrequent, such ~~as:~~as the Initial Non-PCD Provision for loans and leases and unfunded ~~commitments;~~commitments and ~~the preliminary~~ gain on ~~acquisition, each of which are related to the CIT Merger.~~acquisition.

Segment ~~Profit~~Net Income (Loss) and Select Period End Balances

The following table presents the condensed income statement by ~~segment.~~segment:


		Three months ended March 31, 2022
dollars in millions	dollars in millions	General Banking		Commercial Banking		Rail		Corporate		Total BancShares		dollars in millions	Three Months Ended March 31, 2023
Net interest income		$	437	$	207	$	(19)	$	24	$	649
Provision (benefit) for credit losses		(15)		(34)		—		513		464
Net interest income after provision for credit losses		452		241		(19)		(489)		185
													General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares
Net interest income (expense)												Net interest income (expense)	$	560	$	240	$	65	$	(28)	$	13	$	850
Provision for credit losses												Provision for credit losses	14		49		—		—		720		783
Net interest income (expense) after provision for credit losses												Net interest income (expense) after provision for credit losses	546		191		65		(28)		(707)		67
Noninterest income	Noninterest income	123		112		162		453		850		Noninterest income	116		143		14		177		9,809		10,259
Noninterest expenses		409		191		100		110		810
Income (loss) before income taxes		166		162		43		(146)		225
Provision (benefit) for income taxes		40		41		11		(138)		(46)
Net income (loss)		$	126	$	121	$	32	$	(8)	$	271
Noninterest expense												Noninterest expense	395		211		33		120		96		855
Income before income taxes												Income before income taxes	267		123		46		29		9,006		9,471
Income tax expense (benefit)												Income tax expense (benefit)	65		29		11		7		(159)		(47)
Net income												Net income	$	202	$	94	$	35	$	22	$	9,165	$	9,518
Select Period End Balances	Select Period End Balances											Select Period End Balances

Loans and leases	Loans and leases	$	38,778	$	26,672	$	67	$	7	$	65,524	Loans and leases	$	43,353	$	28,684	$	66,171	$	80	$	—	$	138,288
Deposits	Deposits	85,469		4,687		13		1,428		91,597		Deposits	85,982		3,045		49,259		14		1,750		140,050
Operating lease equipment, net	Operating lease equipment, net	—		721		7,251		—		7,972		Operating lease equipment, net	—		719		—		7,612		—		8,331

		Three months ended March 31, 2021											Three Months Ended March 31, 2022
dollars in millions		General Banking		Commercial Banking		Rail		Corporate		Total BancShares
Net interest income		$	344	$	4	$	—	$	(8)	$	340
Benefit for credit losses		(11)		—		—		—		(11)
Net interest income (loss) after benefit for credit losses		355		4		—		(8)		351
													General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares
Net interest income (expense)												Net interest income (expense)	$	437	$	207	$	—	$	(19)	$	24	$	649
(Benefit) provision for credit losses												(Benefit) provision for credit losses	(15)		(34)		—		—		513		464
Net interest income (expense) after benefit for credit losses												Net interest income (expense) after benefit for credit losses	452		241		—		(19)		(489)		185
Noninterest income	Noninterest income	110		—		—		27		137		Noninterest income	123		112		—		162		453		850
Noninterest expenses		290		1		—		6		297
Income before income taxes		175		3		—		13		191
Provision for income taxes		40		1		—		3		44
Net income		$	135	$	2	$	—	$	10	$	147
Noninterest expense												Noninterest expense	409		191		—		100		110		810
Income (loss) before income taxes												Income (loss) before income taxes	166		162		—		43		(146)		225
Income tax expense (benefit)												Income tax expense (benefit)	40		41		—		11		(138)		(46)
Net income (loss)												Net income (loss)	$	126	$	121	$	—	$	32	$	(8)	$	271
Select Period End Balances	Select Period End Balances											Select Period End Balances

Loans and leases	Loans and leases	$	32,580	$	601	$	—	$	—	$	33,181	Loans and leases	$	38,528	$	26,922	$	—	$	67	$	7	$	65,524
Deposits	Deposits	47,277		53		—		1		47,331		Deposits	85,458		4,698		—		13		1,428		91,597
Operating lease equipment, net	Operating lease equipment, net	—		—		—		—		—		Operating lease equipment, net	—		721		—		7,251		—		7,972

NOTE 2322 — COMMITMENTS AND CONTINGENCIES

Commitments

To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit. The below balances for March 31, 2023 include balances related to the SVBB Acquisition. The balances acquired are included in Financing Commitments and Letters of Credit.

The accompanying table summarizes credit-related commitments and other purchase and funding commitments:


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023		December 31, 2022
Financing Commitments	Financing Commitments					Financing Commitments
Financing assets (excluding leases)	Financing assets (excluding leases)	$	21,807	$	13,011	Financing assets (excluding leases)	$	74,507	$	23,452
Letters of credit
Letters of Credit						Letters of Credit
Standby letters of credit	Standby letters of credit	325		92		Standby letters of credit	3,928		436
Other letters of credit	Other letters of credit	41		24		Other letters of credit	111		44
Deferred purchase agreements		2,097		—
Deferred Purchase Agreements						Deferred Purchase Agreements	1,707		2,039
Purchase and Funding Commitments(1)	Purchase and Funding Commitments(1)					Purchase and Funding Commitments(1)	869		941
Lessor commitments(1)		513		—

(1)BancShares’ purchase and funding commitments relate to the equipment leasing businesses’ commitments to fund finance leases and operating leases, and Rail’s railcar manufacturer purchase and upgrade commitments.

Financing Commitments

Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets.

Financing commitments, referred to as loan commitments or lines of credit, primarily reflect BancShares’ agreements to lend to its customers, subject to the customers’ compliance with contractual obligations. At March 31, 2023 and December 31, 2022, substantially all undrawn financing commitments were senior facilities. ~~Most of the~~The undrawn and available financing commitments are primarily in the Silicon Valley Banking and Commercial Banking ~~segment.~~segments. Financing commitments also include approximately $74 million and $66 million at March 31, 2023 and December 31, 2022, respectively, related to off-balance sheet commitments to fund equity investments. Commitments to fund equity investments are contingent on events that have yet to occur and may be subject to change.

As financing commitments may not be fully drawn, may expire unused, may be reduced or canceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.

The table above excludes uncommitted revolving credit facilities extended by Commercial Services to its clients for working capital purposes. In connection with these facilities, Commercial Services has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.

Letters of Credit

Standby letters of credit are commitments to pay the beneficiary thereof if drawn upon by the beneficiary upon satisfaction of the terms of the letter of credit. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are collateralized when necessary. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheets.

Deferred Purchase Agreements (“DPA”)

A DPA is provided in conjunction with factoring, whereby a client is provided with credit protection for trade receivables without purchasing the receivables. The trade receivables terms generally require payment in 90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, BancShares is then required to purchase the receivable from the client, less any borrowings for such client based on such defaulted receivable. The outstanding amount in the table above, less ~~$161~~$170 million and $186 million at March 31, 2023 and December 31, 2022, respectively, of borrowings for such clients, is the maximum amount that BancShares would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring BancShares to purchase all such receivables from the DPA clients.

The table above includes ~~$2.0~~$1.60 billion and $1.90 billion of DPA exposures at March 31, 2023 and December 31, 2022, respectively, related to receivables on which BancShares has assumed the credit risk. The table also includes ~~$115~~$110 million and $138 million available under DPA credit line agreements provided at March 31, ~~2022.~~2023 and December 31, 2022, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period, which is typically 90 days or less.

Litigation and other Contingencies

The Parent Company and certain of its subsidiaries have been named as a defendant in legal actions arising from its normal business activities in which damages in various amounts are claimed. BancShares is also exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed.

As part of the CIT Merger, BancShares assumed litigation in which CIT and CIT Bank were named as defendants in an existing lawsuit brought as a qui tam (i.e., whistleblower) action by a former OneWest Bank N.A. (“One-West”) employee on behalf of the U.S. government. The lawsuit asserts claims related to OneWest’s participation in the Home Affordable Modification Program (“HAMP”) administered by the United States Treasury Department, as well as FHA and Veterans Administration (“VA”) programs. On October 15, 2019, the plaintiff filed a second amended complaint in the United States District Court for the Eastern District of Texas alleging that, beginning in 2009, CIT (and its predecessor, OneWest) falsely certified its compliance with HAMP, submitted false claims for incentive payments for loan modifications, submitted false claims for FHA and VA insurance payments, and failed to self-report these violations. Plaintiff seeks the return of all U.S. government payments to CIT under the HAMP, FHA, and VA programs. CIT has received approximately $93 million in servicer incentives under HAMP, and the government has paid more than $440 million in the aggregate in borrower, servicer, and investor incentives in connection with loans modified by OneWest or CIT under HAMP. The Department of Justice has declined to intervene in this case. CIT has filed motions for summary judgment seeking dismissal of the HAMP and FHA claims. The

Court has denied those motions. CIT also has filed a motion for summary judgment seeking a dismissal of the VA claim, which the Court has not yet decided. A Final Pretrial Conference has been rescheduled for June 15, 2022, with a jury trial to commence on June 20, 2022. On May 5, 2022, the parties reached an agreement in principle to settle all claims for $18.5 million, subject to required approvals by the United States Government and memorializing the agreement in a formal writing (the “Agreement in Principle”). Based upon the Agreement in Principle, the parties also made a motion to vacate the existing pretrial conference date and trial date so that the parties can devote resources to the completion of the steps necessary to execute a formal settlement agreement. The existing accruals in BancShares’ consolidated financial statements as of and for the three month period ending March 31, 2022 include estimates that were materially consistent with the amount of $18.5 million included in the Agreement in Principle.

BancShares is ~~also~~ involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings as well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies. These matters arise in connection with the ordinary conduct of BancShares’ business. At any given time, BancShares may also be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing collectively being referred to as “Litigation”). While most Litigation relates to individual claims, BancShares may be subject to putative class action claims and similar broader claims and indemnification obligations.

In light of the inherent difficulty of predicting the outcome of Litigation matters and indemnification obligations, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, BancShares cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, BancShares’ establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can reasonably be estimated. Based on currently available information, BancShares believes that the outcome of Litigation that is currently pending will not have a material adverse effect on BancShares’ financial condition, but may be material to BancShares’ operating results or cash flows for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.

For certain Litigation matters in which BancShares is involved, BancShares is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates an aggregate range of reasonably possible losses of up to $10 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, ~~2022.~~2023. The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.

Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent BancShares’ maximum loss exposure.

The foregoing statements about BancShares’ Litigation are based on BancShares’ judgments, assumptions, and estimates and are necessarily subjective and uncertain. In the event of 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.

6259

~~NOTE 24 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTION~~

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 $31 million at March 31, 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 invests 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 entered into in the ordinary course of business. Other assets included $702 million at March 31, 2022 and $156 million at December 31, 2021, of tax credit investments and investments in non-consolidated entities relating to such transactions that are accounted for under the equity or cost methods.

The combination of investments in and loans to non-consolidated entities represents BancShares’ maximum exposure to loss, as BancShares does not provide guarantees or other forms of indemnification to non-consolidated entities.

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 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 banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.

This MD&A is expected to provide our investors with a view of ~~BancShares’~~our financial condition and results of operations from our management’s perspective. This ~~discussion and analysis~~MD&A 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 consolidated 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, ~~2021 (“2021 Annual Report”~~2022 (the “2022 Form 10-K”). Throughout this MD&A, references to a specific “Note” refer to Notes to the unaudited Consolidated Financial Statements.

Intercompany accounts and transactions have been eliminated. Although certain amounts for the prior ~~years~~year have been reclassified to conform to statement presentations for ~~2022,~~2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported.

~~Throughout this MD&A we reference specific "Notes"~~ Refer to ~~our financial statements. These are Notes to the consolidated financial statements~~further detail in ~~Part One, Item 1. Financial Statements.~~Note 1 — Significant Accounting Policies and Basis of Presentation.

Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of BancShares. See the "Non-GAAP Financial Measurements" section of this MD&A for 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~~March 27, 2023, FCB acquired substantially all loans and certain other assets and assumed all customer deposits and certain other liabilities, of Silicon Valley Bridge Bank, N.A. (“SVBB”) from the ~~merger with CIT Group Inc. (“CIT”~~Federal Deposit Insurance Corporation (the “FDIC”) ~~and its subsidiary CIT Bank, N.A., a national banking association (“CIT Bank”),~~ pursuant to the terms of a purchase and ~~subject to the conditions set forth in the Agreement and Plan of Merger (as amended, the “Merger~~assumption agreement (the “SVBB Purchase Agreement”) ~~(such acquisition,~~by and among FCB, the ~~CIT Merger)~~FDIC, and the FDIC, as receiver of SVBB (the “SVBB Acquisition”). ~~CIT had consolidated total assets of approximately $53.2 billion as of December 31, 2021.~~ The ~~CIT Merger~~SVBB Acquisition is briefly described ~~further~~ below and further discussed in Note 2 — Business Combinations. ~~Financial~~

In conjunction with the SVBB Acquisition, we added a new business segment, Silicon Valley Banking (“SVB”), as further discussed below. BancShares’ financial data for periods prior to the ~~CIT Merger do~~SVBB Acquisition (i.e., periods in 2022) does not include ~~any CIT related data,~~SVB, and therefore ~~are~~may not be directly comparable to ~~the three months ended March 31, 2022.~~financial data for periods in 2023.

EXECUTIVE OVERVIEW

The Parent Company is a bank holding company ("BHC") and Financial Holding Company (“FHC”). ~~BancShares~~The Parent Company 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~~The Parent Company 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”~~(the “NCCOB”). BancShares conducts its banking operations through its wholly-owned subsidiary, 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 ~~“FDIC”.~~FDIC.

~~BancShares’ earnings~~BancShares provides financial services for a wide range of consumer and ~~cash flows are primarily derived from its~~commercial clients. This includes retail and mortgage banking, wealth management, commercial and ~~retail~~middle market banking, ~~activities.~~factoring, and leasing. BancShares provides commercial factoring, receivables management and secured financing services to businesses (generally manufacturers or importers of goods) that operate in various industries, including apparel, textile, furniture, home furnishings, and consumer electronics.

In addition, BancShares owns a fleet of railcars and locomotives that are leased to railroads and shippers. We ~~expanded our~~also provide various investment products and services ~~with the CIT Merger,~~through FCB’s wholly owned subsidiaries, First Citizens Investor Services, Inc. (“FCIS”) and ~~now have leased assets, primarily rail-related,~~First Citizens Asset Management, Inc. (“FCAM”). As a registered broker-dealer, FCIS provides a full range of investment products, including annuities, discount brokerage services and ~~offer factoring services. We gather deposits from retail~~third-party mutual funds. As registered investment advisors, FCIS 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,~~FCAM provide investment securities and 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~~advice. BancShares delivers products and services ~~typically~~to its customers through an extensive branch network and additionally operates a nationwide direct bank (the “Direct Bank”). Services offered ~~by banks. The fees~~at most branches include accepting deposits, cashing checks and ~~service charges generated from these products~~providing for consumer and ~~services are primary sources of noninterest income, which is an essential component of our total revenue.~~commercial cash needs. Consumer and business customers may also conduct banking transactions through various digital channels.

~~We are focused on expanding~~

The recently completed SVBB Acquisition adds a global fund banking business to serve private equity and venture capital clients and also compliments BancShares’ existing wealth management business by adding enhanced digital capabilities. The SVBB Acquisition further diversifies our ~~position in legacy~~loan portfolio and ~~target markets through organic growth~~business mix, particularly across technology and ~~strategic acquisitions. We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards,~~life sciences and ~~our people.~~healthcare industries, and wealth clients.

Refer to our ~~2021 Annual Report~~2022 Form 10-K for ~~further~~a discussion of our strategy.

Significant Events in ~~2022~~2023

SVBB Acquisition

As discussed ~~in detail~~ in Note 2 — Business Combinations, the ~~CIT Merger~~SVBB Acquisition closed on ~~January 3, 2022.~~ March 27, 2023 (the “SVBB Acquisition Date”).

Significant items related to the ~~CIT Merger~~SVBB Acquisition are as follows:

•The fair value of total assets acquired was ~~$53.8~~$106.60 billion, which mainly ~~consisted~~consists of approximately ~~$32.7~~$68.50 billion of loans ~~$7.8~~and $35.28 billion of ~~operating lease equipment~~cash 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 that are in the new Rail segment.interest-earning deposits at banks.

•The fair value of deposits ~~acquired~~assumed was $39.4 billion that included deposits derived from online banking and HOA deposits related to 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.$55.96 billion.

•FCB recorded a preliminary gain on acquisition of ~~$431 million,~~$9.82 billion (net of tax), representing the excess of the net assets acquired over the purchase price, and recorded a ~~$143~~$230 million core deposit ~~intangible and a $52 million intangible liability~~ intangible.f~~or net below market lessor lease contract rental rates related to the rail portfolio.~~

Segment Updates

As of December 31, ~~2021,~~2022, BancShares managed its business and reported its financial results as ~~a single segment. BancShares began reporting multiple segments during the first quarter of 2022. BancShares now has three operating segments:~~ General Banking, Commercial Banking, ~~and~~ Rail, and Corporate segments. In conjunction with the SVBB Acquisition, BancShares added a ~~non-operating~~new business segment, ~~Corporate. BancShares conformed the comparative prior~~SVB. Prior periods presented to reflect the new segments. The substantial majority of BancShares’ 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 CIT Merger.

were not impacted by this update. Information about our segments is included in Note 2221 — Business Segment Information and in ~~Results~~the section entitled “Results by Business ~~Segments, later~~Segment” in this MD&A.

Recent Economic and Industry Developments

The Federal Reserve’s Federal Open Market Committee (“FOMC”) continued to raise its target for the federal funds rate in an effort to combat inflation. The FOMC raised interest rates at its January, March and May meetings by 25 basis points each. With these latest increases, the FOMC raised their benchmark federal funds rate to a range between 5.00% - 5.25%.

The FOMC stands ready in its efforts to control inflation and said it will monitor economic and financial-market developments and the effects of their earlier rate increases in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time. 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 are likely to maintain 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.

In recent months, the banking industry has experienced increased volatility due to the failure of multiple high-profile banking institutions. These failures have increased industry concerns related to liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on securities. Due to the recent uncertainty and related bank failures, there has been ongoing discussions that banking agencies may propose certain actions, including reforms that will require higher capital and increased requirements to issue long term debt, as well as special assessments to repay losses to the FDIC’s Deposit Insurance Fund. The impact of these potential actions, and any others, is unknown at this time.

Refer to the “Funding, Liquidity and Capital Overview” discussion below in the “Financial Performance Summary” section of this MD&A.

Financial Performance Summary

The following tables in this MD&A compare financial data for the three months ended March 31, 2023 (the “current quarter”) to financial data for the three months ended December 31, 2022 (the “linked quarter”) and March 31, 2022 (the “prior year quarter”). In accordance with Item 303(c) of Regulation S-K, we focus on the linked quarter for the narrative discussion and analysis of our results of operations as we believe this provides investors and other users of our data with the most relevant information. For our financial position, the following tables compare balances as of March 31, 2023 to December 31, 2022. Our results of operations include SVB beginning on the SVBB Acquisition Date. Financial position balances as of March 31, 2023 include the assets acquired and liabilities assumed in the SVBB Acquisition.

The following table summarizes ~~the~~ BancShares’ results in accordance with U.S. GAAP, unless otherwise noted. Refer to the ~~Non-GAAP~~section entitled “Non-GAAP Financial ~~Measurements section~~Measurements” at the end of ~~the~~this MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. ~~Additionally, due to the CIT Merger, current quarter ending and average balances are not comparable to the prior periods. Further discussions are included in the remaining sections of this MD&A.~~

Table 1

Selected Quarterly Data


		Three Months Ended March 31,
dollars in millions, except share data	dollars in millions, except share data	2022			2021			dollars in millions, except share data	Three Months Ended
									March 31, 2023			December 31, 2022			March 31, 2022
SUMMARY OF OPERATIONS	SUMMARY OF OPERATIONS							SUMMARY OF OPERATIONS
Interest income	Interest income	$	710		$	355		Interest income	$	1,211		$	1,040		$	710
Interest expense	Interest expense	61			15			Interest expense	361			238			61
Net interest income	Net interest income	649			340			Net interest income	850			802			649
Provision (benefit) for credit losses	Provision (benefit) for credit losses	464			(11)			Provision (benefit) for credit losses	783			79			464
Net interest income after provision for credit losses	Net interest income after provision for credit losses	185			351			Net interest income after provision for credit losses	67			723			185
Noninterest income	Noninterest income	850			137			Noninterest income	10,259			429			850
Noninterest expense	Noninterest expense	810			297			Noninterest expense	855			760			810
Income before income taxes	Income before income taxes	225			191			Income before income taxes	9,471			392			225
Income taxes		(46)			44
Income tax (benefit) expense								Income tax (benefit) expense	(47)			135			(46)
Net income	Net income	271			147			Net income	9,518			257			271
Preferred stock dividends	Preferred stock dividends	7			4			Preferred stock dividends	14			14			7
Net income available to common stockholders	Net income available to common stockholders	$	264		$	143		Net income available to common stockholders	$	9,504		$	243		$	264

PER COMMON SHARE DATA	PER COMMON SHARE DATA							PER COMMON SHARE DATA
Average diluted common shares	Average diluted common shares	15,779,153			9,816,405			Average diluted common shares	14,539,709			14,607,426			15,779,153
Net income available to common stockholders (diluted)		$	16.70		$	14.53

Book value per common share		605.48			405.59

Earnings per common share (diluted)								Earnings per common share (diluted)	$	653.64		$	16.67		$	16.70

KEY PERFORMANCE METRICS	KEY PERFORMANCE METRICS							KEY PERFORMANCE METRICS
Return on average assets (ROA)	Return on average assets (ROA)	1.00		%	1.16		%	Return on average assets (ROA)	33.23		%	0.93		%	1.00		%

Return on average common stockholders' equity (ROE)		11.18		%	14.70		%

Net interest margin (NIM)(1)	Net interest margin (NIM)(1)	2.73		%	2.79		%	Net interest margin (NIM)(1)	3.41			3.36			2.73

SELECTED QUARTERLY AVERAGE BALANCES	SELECTED QUARTERLY AVERAGE BALANCES							SELECTED QUARTERLY AVERAGE BALANCES
Total investments		$	19,492		$	9,757
Investment securities								Investment securities	$	19,416		$	18,876		$	19,492
Total loans and leases(2)	Total loans and leases(2)	64,144			33,087			Total loans and leases(2)	74,907			70,465			65,303
Total operating lease equipment (net)		7,924			—
Operating lease equipment, net								Operating lease equipment, net	8,236			8,049			7,924
Total assets	Total assets	109,234			51,409			Total assets	116,164			109,792			110,394
Total deposits	Total deposits	91,574			44,858			Total deposits	93,844			89,042			91,620
Total common stockholders' equity		9,560			3,935

Total stockholders’ equity								Total stockholders’ equity	11,369			9,621			10,423

SELECTED QUARTER-END BALANCES	SELECTED QUARTER-END BALANCES							SELECTED QUARTER-END BALANCES
Total investments		$	19,469		$	10,222
Investment securities								Investment securities	$	19,527		$	19,369		$	19,469
Total loans and leases	Total loans and leases	65,524			33,181			Total loans and leases	138,288			70,781			65,524
Total operating lease equipment (net)		7,972			—
Operating lease equipment, net								Operating lease equipment, net	8,331			8,156			7,972
Total assets	Total assets	108,597			53,909			Total assets	214,658			109,298			108,597
Total deposits	Total deposits	91,597			47,331			Total deposits	140,050			89,408			91,597
Total common stockholders' equity		9,689			4,321

Total stockholders’ equity								Total stockholders’ equity	19,216			9,662			10,570
Loan to deposit ratio	Loan to deposit ratio	71.53		%	70.10		%	Loan to deposit ratio	98.74		%	79.17		%	71.53		%
Noninterest-bearing deposits to total deposits	Noninterest-bearing deposits to total deposits	28.27		%	43.34		%	Noninterest-bearing deposits to total deposits	39.02			27.87			28.24

CAPITAL RATIOS	CAPITAL RATIOS							CAPITAL RATIOS
Common equity tier 1 ratio		11.34		%	12.02		%
Tier 1 risk-based capital ratio		12.39		%	14.14		%
Total risk-based capital ratio		14.47		%	11.00		%
Tier 1 leverage capital ratio		9.55		%	7.84		%

Common equity Tier 1								Common equity Tier 1	12.53		%	10.08		%	11.34		%
Tier 1 risk-based capital								Tier 1 risk-based capital	13.13			11.06			12.39
Total risk-based capital								Total risk-based capital	14.86			13.18			14.47
Tier 1 leverage								Tier 1 leverage	16.72			8.99			9.55

ASSET QUALITY	ASSET QUALITY							ASSET QUALITY
Ratio of nonaccrual loans to total loans	Ratio of nonaccrual loans to total loans	0.82		%	0.59		%	Ratio of nonaccrual loans to total loans	0.60		%	0.89		%	0.82		%
Allowance for credit losses to loans ratio	Allowance for credit losses to loans ratio	1.29		%	0.63		%	Allowance for credit losses to loans ratio	1.16			1.30			1.29
Net charge off ratio	Net charge off ratio	0.09		%	0.03		%	Net charge off ratio	0.27			0.14			0.09

(1)~~See “Non-GAAP Financial Measures” section for reconciliation~~The rate presented is calculated net of ~~NIM presented to unadjusted NIM (GAAP).~~average credit balances of factoring clients.

(2)Average loan balances include held for sale and non-accrual loans.

6662

First Quarter Income Statement Highlights

•Net income for the ~~first quarter of 2022~~three months ended March 31, 2023 was ~~$271 million,~~$9.52 billion, an increase of ~~$124~~$9.26 billion from $257 million ~~or 84% compared to~~for the ~~same quarter in 2021.~~three months ended December 31, 2022. Net income available to common stockholders ~~totaled $264~~for the three months ended March 31, 2023 was $9.50 billion, an increase of $9.26 billion from $243 million for the ~~first quarter of 2022, an increase of $121 million, or 85% compared~~three months ended December 31, 2022. The increases were primarily due to the ~~same quarter in 2021. Net income per common share increased $2.17, or 15%, to $16.70 in~~$9.82 billion preliminary gain on acquisition, partially offset by the ~~first quarter of 2022, from $14.53 per share during the same quarter in 2021. The increases are primarily attributed to the CIT Merger.~~

•~~Certain notable items and approximate after-tax amounts and impacts on earnings per share included:~~

◦~~Current expected~~$716 million provision for non-purchased credit ~~losses~~deteriorated (“~~CECL”~~Non-PCD”) ~~day 2 provision for~~ loans and leases and the unfunded commitments ~~of $513 million ($387 million after tax, $24.50~~acquired in the SVBB Acquisition (the “day 2 provision for credit losses”). Results also reflected higher noninterest expenses discussed below and a lower provision for income taxes. Net income per diluted common ~~share).~~share for the three months ended March 31, 2023 was $653.64, an increase from $16.67 for the three months ended December 31, 2022.

•Select items in the current quarter and linked quarter are summarized below:

◦For the three months ended March 31, 2023:

▪Preliminary gain on acquisition of ~~$431 million (non-taxable, $27.34 per common share)~~$9.82 billion (net of tax) for the SVBB Acquisition in other noninterest ~~income, representing~~income.

▪Day 2 provision for credit losses of $716 million related to the ~~excess~~SVBB Acquisition.

▪Acquisition-related expenses of ~~the fair value of net assets acquired over the purchase price.~~$28 million in noninterest expense.

◦~~Gain on debt redemptions in other noninterest income of $6 million ($5 million after tax, $0.29 per common share) from approximately $2.9 billion of borrowings assumed in~~For the ~~CIT Merger.~~three months ended December 31, 2022:

◦▪~~Merger related~~CIT Merger-related expenses of ~~$135~~$29 million ~~($102 million after tax, $6.45 per common share)~~ in ~~other~~ noninterest ~~expenses.~~expense.

◦▪~~A reduction in other noninterest expenses~~Income tax expense of ~~approximately $27~~$55 million ~~($20 million after tax, $1.28 per common share)~~ related to the ~~termination~~strategic decision to exit $1.25 billion of ~~certain healthcare and life insurance plans of legacy CIT, reflecting amounts previously accrued.~~BOLI policies.

•Return on average assets for the ~~first quarter of 2022~~three months ended March 31, 2023 was ~~1.00%~~33.23%, compared to ~~1.16% in~~0.93% for the ~~first quarter of 2021.~~three months ended December 31, 2022.

•Net interest income (“NII”) ~~was $649 million~~ for the ~~first quarter of 2022,~~three months ended March 31, 2023 was $850 million, an increase of ~~$309~~$48 million, or ~~91%~~6% compared to the ~~same quarter in 2021.~~three months ended December 31, 2022. This increase was primarily due to ~~the CIT Merger,~~higher yields resulting in higher interest income on our earning assets, along with higher interest income from organic loan growth as well as SVB loans, partially offset by ~~lower~~higher costs on interest-bearing deposits and borrowings.

•Net interest ~~and fee income on SBA-PPP loans. The net interest~~ margin (“NIM”) ~~was 2.73%~~ for the ~~first quarter~~three months ended March 31, 2023 was 3.41%, an increase of ~~2022, a decrease of 6 bps from 2.79%~~5 basis points (“bps”) compared to 3.36% for the ~~first quarter in 2021.~~three months ended December 31, 2022, as the rising interest rate environment benefits on our interest-earning assets exceeded the impacts of higher rates paid on interest-bearing deposits and borrowings.

•Provision for credit losses for the three months ended March 31, 2023 was ~~$464~~$783 million compared to $79 million for the ~~first quarter~~three months ended December 31, 2022. The increase was primarily due to the day 2 provision for credit losses of ~~2022 compared~~$716 million related to ~~a benefit of $11~~the SVBB Acquisition, which included $462 million for ~~the same quarter in 2021. While still low,~~acquired loans and leases (the “day 2 provision for loans and leases”) and $254 million for acquired unfunded commitments (the “day 2 provision for unfunded commitments”). The net charge-off ratio ~~was 0.09%~~ for the ~~first quarter of 2022, up from 0.03%~~three months ended March 31, 2023 was 0.27%, compared to 0.14% for the ~~first quarter of 2021.~~three months ended December 31, 2022.

•Noninterest income for the three months ended March 31, 2023 was ~~$850~~$10.26 billion, an increase of $9.83 billion compared to $429 million for the ~~first quarter of 2022, compared~~three months ended December 31, 2022. The increase was primarily due to ~~$137 million for~~ the ~~same quarter of 2021, benefiting from the CIT Merger. The current quarter includes a~~ preliminary gain on acquisition of ~~$431 million and~~$9.82 billion. The remaining increase reflected higher rental income on operating ~~leases~~lease equipment and wealth management fees, partially offset by a $14 million loss on sale of ~~$208 million. The remaining increase was driven by the added activity due to the CIT Merger.~~one investment security and lower factoring income.

•Noninterest expense for the three months ended March 31, 2023 was ~~$810~~$855 million, an increase of $95 million compared to $760 million for the ~~first quarter of 2022, compared to $297 million in the same quarter of 2021.~~three months ended December 31, 2022. The increase iswas primarily ~~associated with the CIT Merger, reflecting~~due to higher ~~salaries~~salary and benefit costs, which included higher incentive awards (these are traditionally paid in the first quarter), and the restart of ~~$168 million due to~~annual benefit costs, such as Federal Insurance Contributions Act (“FICA”), and salary costs from the SVBB Acquisition. The increase in ~~employees, $124 million of depreciation~~noninterest expense also included higher FDIC insurance expense and ~~maintenance costs associated with the~~ operating lease ~~portfolio and higher merger costs of $128 million.~~maintenance expenses.

Balance Sheet Highlights

•Total loans and leases at March 31, 2023 were $138.29 billion, an increase of ~~$65.5 billion increased $32.5~~$67.51 billion from December 31, ~~2021, reflecting~~2022. The increase was primarily due to SVB loans of $66.17 billion at March 31, 2023. Loans from our branch network in the ~~addition of $32.7 billion from~~General Banking segment increased $432 million. Loans in the ~~CIT Merger.~~Commercial Banking segment increased $902 million, primarily related to growth in industry verticals, such as real estate, maritime and healthcare.

•Total deposits at March 31, 2023 were $140.05 billion, an increase of ~~$91.6 billion increased $40.2~~$50.64 billion from December 31, ~~2021, reflecting~~2022. The increase was primarily due to SVB deposits of $49.26 billion at March 31, 2023. The remaining increase of $1.38 billion was primarily related to deposit growth in the ~~addition~~Direct Bank, which is included in the General Banking segment.

•Total borrowings at March 31, 2023 were $46.09 billion, an increase of ~~$39.4~~$39.45 billion from December 31, 2022. The increase was primarily due to the ~~CIT Merger.~~Purchase Money Note (as defined and described below) of $35.15 billion payable to the FDIC related to the SVBB Acquisition as further discussed in Note 2 — Business Combinations. The remaining increase was primarily due to advances from the Federal Home Loan Bank (“FHLB”) that were drawn to improve our cash position.

•At March 31, ~~2022,~~2023, BancShares remained well capitalized with a total risk-based capital ratio of ~~14.47%~~14.86%, a Tier 1 risk-based capital ratio of ~~12.39%~~13.13%, a common equity Tier 1 ratio of ~~11.34%~~12.53% and a leverage ratio of ~~9.55%~~16.72%.

Funding, Liquidity and Capital Overview

Deposit Composition

We fund our business primarily through deposits. Deposits represent approximately 75% of total funding at March 31, 2023. The following table summarizes the composition, average size and uninsured percentages of our deposits.

Table 2

Select Deposit Data


	Deposits as of March 31, 2023
	Ending Balance (in millions)		Average Size (in thousands)		Uninsured %
General Banking segment	$	85,982	$	36	29%
Commercial Banking segment	3,045		212		86%
SVB segment	49,259		360		86%
Other business segments	1,764		n/m		7%
Total	$	140,050	55		50%

The General Banking segment includes deposits from our branch network, which deploys a relationship-based approach to deposit gathering. The remaining deposits in the General Banking segment are primarily related to the Direct Bank, which enables us to increase deposits to meet the needs of our business, albeit at a higher cost compared to the branch network. The Commercial Banking segment includes deposits of commercial customers and the SVB segment includes deposits related to the SVBB Acquisition. Other business segments primarily include brokered deposits of $1.75 billion in the Corporate segment and the remaining $14 million relates to the Rail segment.

As displayed in the table above, the average size of deposits varies across our business segments. The uninsured data represents the percentage of deposits in the respective business segments. At March 31, 2023, total uninsured deposits were approximately $69.96 billion or 50% of total deposits. The increase in uninsured deposits from of $29.13 billion or 33% of total deposits at December 31, 2022 is due to deposits in the SVB segment, which have higher average customer balances.

Deposit Trends

Table 3

Deposit Trends


(dollars in millions)	Deposit Balance
			Acquisition Date
	December 31, 2022		March 27, 2023		March 31, 2023		April 14, 2023		April 28, 2023
SVB segment	$	—	$	55,959	$	49,259	$	41,336	$	41,425
General Banking, Commercial Banking, Rail and Corporate segments	89,408		—		90,791		92,149		92,447
Total deposits	$	89,408	$	55,959	$	140,050	$	133,485	$	133,872

SVB deposits declined from $55.96 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. While SVB deposits declined to $41.43 billion as of April 28, 2023, the pace of the decline slowed and deposit amounts leveled off to approximately $41 billion during the last two weeks of April. The table above also indicates that aggregate deposits for the General Banking, Commercial Banking, Rail and Corporate segments increased during the current quarter and in April of 2023, primarily due to deposit growth in the Direct Bank, which is included in the General Banking segment.

Liquidity Position

We strive to maintain a strong liquidity position and our risk appetite for liquidity is low. At March 31, 2023, liquidity metrics remained strong as we had $51.42 billion in liquid assets consisting of $37.67 billion in cash and interest-earning deposits at banks and $13.75 billion in high-quality liquid securities. To further enhance our liquidity position, we increased our FHLB borrowings to $8.50 billion at March 31, 2023 and increased our remaining FHLB borrowing capacity by pledging an additional $4 billion of investment securities held to maturity. We have unused borrowing capacity with the FHLB and Federal Reserve Bank of $4.71 billion and $4.68 billion, respectively. Further, in conjunction with the SVBB Acquisition, we entered into binding terms and conditions for a five year, up to $70.00 billion line of credit with the FDIC. Refer to the “Liquidity Risk” section of this MD&A for further discussion.

Investment Securities Duration

At March 31, 2023, our investment securities portfolio primarily consisted of debt securities available for sale and debt securities held to maturity as summarized below. The available for sale securities portfolio has an average duration of 3.4 years and the debt securities held to maturity portfolio has an average duration of 4.9 years. Refer to the “Interest-earning Assets - Investment securities” section of this MD&A and Note 3 — Investment Securities for further information.

Table 4

Investment Securities


dollars in millions	March 31, 2023
	Composition(1)		Amortized cost		Fair value		Fair value to cost
Total investment securities available for sale	49.9	%	$	9,955	$	9,061	91.0	%
Total investment securities held to maturity	49.6	%	10,381		8,993		86.6	%
Investment in marketable equity securities	0.5	%	75		85		113.3	%
Total investment securities	100	%	$	20,411	$	18,139
(1) Calculated as a percentage of the total fair value of investment securities.

Capital Position

Our capital position remains strong and all regulatory capital ratios for BancShares and FCB significantly exceed the Prompt Corrective Action (“PCA”) well-capitalized thresholds and Basel III Requirements as further discussed in the “Capital” section of this MD&A and Note 17 — Regulatory Capital.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

NII ~~reflects our~~is the difference between interest income ~~less~~on interest-earning assets and interest expense on interest-bearing liabilities. NII is affected by changes in interest rates and ~~is included as a line item on the Consolidated Statements of Income. NII was $649 million for the three months ended March 31, 2022, up from $340 million~~changes in the ~~year-ago quarter.~~

amount and composition of interest-earning assets and interest-bearing liabilities. The following ~~table presents~~tables present the average balances, yields on interest-earning assets, rates on interest-bearing liabilities, and changes in NII due to changes in: (i) volume (average balances of interest-earning assets and interest-bearing liabilities) and (ii) yields or rates.

•The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the prior period.

•The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance ~~sheet and related rates, along with disaggregated quarter-over-quarter~~from the prior period.

•The change in NII due to rate/volume change (i.e., portfolio mix) is calculated as the change in rate multiplied by the change in volume. This component is allocated between the changes in NII ~~between~~due to volume ~~(level~~and yield or rate based on the ratio each component bears to the absolute value of lending or borrowing) and rate (rates charged to customers 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. their total.

•Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis.

Table 25

Average Balances and Rates


dollars in millions																				dollars in millions	Three Months Ended
																					March 31, 2023						December 31, 2022						Change in NII Due to:
		Three Months Ended																			Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
		March 31, 2022						March 31, 2021						Change in NII Due to:
dollars in millions		Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
Loans and leases (1)(2)	Loans and leases (1)(2)	$	64,144	$	621	3.88	%	$	33,087	$	323	3.92	%	$	301	$	(3)	$	298	Loans and leases (1)(2)	$	73,900	$	1,017	5.57	%	$	69,290	$	892	5.10	%	$	52	$	73	$	125

Total investment securities	Total investment securities	19,492		83		1.71		9,757		31		1.27		26		26		52		Total investment securities	19,416		107		2.21		18,876		92		1.95		3		12		15

Interest-earning deposits at banks	Interest-earning deposits at banks	11,476		6		0.19		5,871		1		0.10		4		1		5		Interest-earning deposits at banks	7,585		87		4.61		6,193		56		3.60		14		17		31
Total adjusted interest earning assets(2)		$	95,112	$	710	2.99	%	$	48,715	$	355	2.92	%	$	331	$	24	$	355
Total interest-earning assets (2)																				Total interest-earning assets (2)	$	100,901	$	1,211	4.85	%	$	94,359	$	1,040	4.37	%	$	69	$	102	$	171

Operating lease equipment, net (including held for sale)		7,924						—
Operating lease equipment, net																				Operating lease equipment, net	$	8,236					$	8,049
Cash and due from banks	Cash and due from banks	536						333												Cash and due from banks	595						500
Allowance for credit losses	Allowance for credit losses	(907)						(224)												Allowance for credit losses	(936)						(886)
All other noninterest bearing assets		6,569						2,585
All other noninterest-earning assets																				All other noninterest-earning assets	7,368						7,770
Total assets	Total assets	$	109,234					$	51,409											Total assets	$	116,164					$	109,792

Interest-bearing deposits:	Interest-bearing deposits:																			Interest-bearing deposits:
Checking with interest	Checking with interest	$	16,605	$	5	0.10	%	$	10,746	$	1	0.05	%	$	3	$	1	$	4	Checking with interest	$	16,499	$	22	0.50	%	$	15,985	$	13	0.24	%	$	—	$	9	$	9
Money market	Money market	26,199		15		0.24		9,008		3		0.11		9		3		12		Money market	21,216		80		1.53		21,200		60		1.13		—		20		20
Savings	Savings	13,659		9		0.26		3,462		—		0.04		7		2		9		Savings	17,521		110		2.54		15,831		69		1.73		8		33		41
Time deposits	Time deposits	9,794		10		0.43		2,805		5		0.66		7		(2)		5		Time deposits	12,126		76		2.55		9,516		34		1.42		11		31		42
Total interest-bearing deposits	Total interest-bearing deposits	66,257		39		0.24		26,021		9		0.14		26		4		30		Total interest-bearing deposits	67,362		288		1.73		62,532		176		1.12		19		93		112
Borrowings:																				Borrowings:
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	600		—		0.16		641		—		0.21		—		—		—		Securities sold under customer repurchase agreements	455		—		0.30		514		—		0.27		—		—		—
Borrowings:
Short-term FHLB Borrowings																				Short-term FHLB Borrowings	323		4		4.67		2,080		20		3.77		(19)		3		(16)
Short-term borrowings																				Short-term borrowings	778		4		2.23		2,594		20		3.04		(19)		3		(16)
Federal Home Loan Bank borrowings	Federal Home Loan Bank borrowings	641		2		1.27		651		2		1.28		—		—		—		Federal Home Loan Bank borrowings	3,284		40		4.96		2,818		28		3.90		4		8		12
Senior unsecured borrowings	Senior unsecured borrowings	2,719		12		1.71		—		—		—		12		—		12		Senior unsecured borrowings	883		5		2.06		906		4		2.08		1		—		1
Subordinated debt	Subordinated debt	1,060		8		2.96		497		4		3.37		4		—		4		Subordinated debt	1,048		9		3.54		1,051		9		3.38		—		—		—
Other borrowings	Other borrowings	85		—		1.95		88		—		1.22		—		—		—		Other borrowings	1,978		15		2.95		25		1		5.76		14		—		14
Long-term borrowings																				Long-term borrowings	7,193		69		3.84		4,800		42		3.45		19		8		27
Total borrowings	Total borrowings	4,505		22		1.95		1,236		6		2.12		16		—		16		Total borrowings	7,971		73		3.68		7,394		62		3.32		—		11		11
Total interest-bearing liabilities	Total interest-bearing liabilities	$	71,362	$	61	0.35	%	$	27,898	$	15	0.23	%	$	42	$	4	$	46	Total interest-bearing liabilities	$	75,333	$	361	1.94	%	$	69,926	$	238	1.35	%	$	19	$	104	$	123

Noninterest-bearing deposits	Noninterest-bearing deposits	25,317						18,837												Noninterest-bearing deposits	$	26,482					$	26,510
Credit balances of factoring clients																				Credit balances of factoring clients	1,007						1,174
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	2,132						399												Other noninterest-bearing liabilities	1,973						2,561
Stockholders' equity	Stockholders' equity	10,423						4,275												Stockholders' equity	11,369						9,621
Total liabilities and stockholders' equity		$	109,234					$	51,409
Total liabilities and stockholders’ equity																				Total liabilities and stockholders’ equity	$	116,164					$	109,792

Interest rate spread (2)	Interest rate spread (2)					2.64	%					2.69	%							Interest rate spread (2)					2.91	%					3.02	%
Net interest income and net yield on interest-earning assets (2)	Net interest income and net yield on interest-earning assets (2)			$	649	2.73	%			$	340	2.79	%							Net interest income and net yield on interest-earning assets (2)			$	850	3.41	%			$	802	3.36	%

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

(2)The balance and rate presented is calculated net of average credit balances of factoring clients. ~~See “Non-GAAP Financial Measures” section~~

Current quarter compared to linked quarter

•NII for ~~description~~the three months ended March 31, 2023 was $850 million, an increase of ~~adjusted interest~~$48 million compared to the three months ended December 31, 2022. This increase was primarily due to higher yields on loans and interest-earning deposits at banks and loan growth, partially offset by higher costs on interest-bearing deposits and borrowings. The SVBB Acquisition impacted average balances and NII and NIM for only five days during the current quarter as the acquisition was completed on March 27, 2023. We expect the impacts of the SVBB Acquisition to be more prominent beginning in the second quarter of 2023 as the impacts of interest-earning deposits at banks, loans, deposits, and borrowings related to the SVBB Acquisition will be for a full quarter.

◦Interest income earned on loans and leases for the three months ended March 31, 2023 was $1.02 billion, an increase of $125 million compared to the three months ended December 31, 2022. The increase was primarily due to higher yields and higher average balances related to loan growth in the General and Commercial Banking segments, as well as the SVBB Acquisition.

◦Interest income earned on investment securities for the three months ended March 31, 2023 was $107 million, an increase of $15 million compared to the three months ended December 31, 2022. The increase was primarily due to higher reinvestment rates.

◦Interest income earned on interest-earning deposits at banks for the three months ended March 31, 2023 was $87 million, an increase of $31 million compared to the three months ended December 31, 2022, reflecting higher Fed Funds rates and a higher average balance of interest-earning deposits at banks, as we increased liquidity due to the market uncertainty in March, and the impact of the SVBB Acquisition.

◦Interest expense on interest-bearing deposits for the three months ended March 31, 2023 was $288 million, an increase of $112 million compared to the three months ended December 31, 2022, primarily reflecting higher deposit rates and higher average balances (mainly in higher-cost savings and time deposits as we maintain competitive rates offered to customers).

◦Interest expense on borrowings for the three months ended March 31, 2023 was $73 million, an increase of $11 million compared to the three months ended December 31, 2022, primarily due to the impact of the Purchase Money Note related to the SVBB Acquisition, partially offset by lower average FHLB borrowings. We repaid FHLB borrowings in January and February, but we increased FHLB borrowings in March to improve liquidity in light of market conditions that led to bank failures. As a result, the FHLB borrowings balance at March 31, 2023 was higher than our average balance for the current quarter.

•NIM for the three months ended March 31, 2023 was 3.41%, an increase of 5 bps compared to the three months ended December 31, 2022. The higher yields on earning assets were partially offset by the increasing costs of our interest-bearing deposits and ~~why these~~higher borrowing costs.

•Average interest-earning assets for the three months ended March 31, 2023 were $100.90 billion. This is an increase of $6.54 billion from $94.36 billion for the three months ended December 31, 2022, reflecting increases in average loans and leases, interest-earning deposits at banks and investment securities of $4.61 billion, $1.39 billion and $540 million, respectively.

•Average interest-bearing liabilities for the three months ended March 31, 2023 were $75.33 billion. This is an increase of $5.41 billion from $69.93 billion for the three months ended December 31, 2022, reflecting higher rates and average balances ~~are shown net~~for deposits and borrowings. The average rate on interest-bearing liabilities for the three months ended March 31, 2023 was 1.94%. This is an increase of ~~credit balances of factoring clients.~~59 bps compared to the three months ended December 31, 2022, reflecting the higher interest rate environment.

Table 6

Average Balances and Rates


dollars in millions	Three Months Ended
	March 31, 2023						March 31, 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)	$	73,900	$	1,017	5.57	%	$	64,144	$	621	3.92	%	$	106	$	290	$	396
Total investment securities	19,416		107		2.21		19,492		83		1.71		—		24		24

Interest-earning deposits at banks	7,585		87		4.61		11,476		6		0.19		(2)		83		81
Total interest-earning assets (2)	$	100,901	$	1,211	4.85	%	$	95,112	$	710	3.02	%	$	104	$	397	$	501

Operating lease equipment, net	$	8,236					$	7,924
Cash and due from banks	595						536
Allowance for credit losses	(936)						(914)
All other noninterest-earning assets	7,368						7,736
Total assets	$	116,164					$	110,394

Interest-bearing deposits:
Checking with interest	$	16,499	$	22	0.50	%	$	16,614	$	5	0.10	%	$	1	$	16	$	17
Money market	21,216		80		1.53		26,199		15		0.24		(3)		68		65
Savings	17,521		110		2.54		13,659		9		0.26		4		97		101
Time deposits	12,126		76		2.55		9,794		10		0.43		3		63		66
Total interest-bearing deposits	67,362		288		1.73		66,266		39		0.24		5		244		249
Borrowings:
Securities sold under customer repurchase agreements	455		—		0.30		600		—		0.16		—		—		—
Short-term FHLB Borrowings	323		4		4.67		—		—		—		4		—		4
Short-term borrowings	778		4		2.23		600		—		0.16		4		—		4
Federal Home Loan Bank borrowings	3,284		40		4.96		641		2		1.29		22		16		38
Senior unsecured borrowings	883		5		2.06		2,719		12		1.71		(9)		2		(7)
Subordinated debt	1,048		9		3.54		1,060		8		2.96		(1)		2		1
Other borrowings	1,978		15		2.95		85		—		1.85		15		—		15
Long-term borrowings	7,193		69		3.84		4,505		22		1.95		27		20		47
Total borrowings	7,971		73		3.68		5,105		22		1.74		31		20		51
Total interest-bearing liabilities	$	75,333	$	361	1.94	%	$	71,371	$	61	0.35	%	$	36	$	264	$	300

Noninterest-bearing deposits	$	26,482					$	25,354
Credit balances of factoring clients	1,007						1,160
Other noninterest-bearing liabilities	1,973						2,086
Stockholders' equity	11,369						10,423
Total liabilities and stockholders’ equity	$	116,164					$	110,394

Interest rate spread (2)					2.91	%					2.67	%
Net interest income and net yield on interest-earning assets (2)			$	850	3.41	%			$	649	2.73	%

(1), (2) See footnotes to previous table.

~~First Quarter 2022 compared to First Quarter 2021~~

•NII was $649 million for the three months ended March 31, 2022, an increase of $309 million compared to the first quarter of 2021, primarily due to the CIT Merger, as well as loan growth absent the decline in SBA-PPP loans, partially offset by a decline in interest and fee income on SBA-PPP loans and lower yields on other interest-earning assets.

◦Interest income earned on loans and leases was $621 million for the three months ended March 31, 2022, an increase of $298 million compared to 2021. The increase was primarily due to the addition of $32.7 billion of loans acquired in the CIT Merger along with growth in loans, excluding SBA-PPP loans. Partially offsetting was lower SBA-PPP interest and fee income. SBA-PPP loans contributed $9 million in interest and fee income during the first quarter of 2022 compared to $31 million in the first quarter of 2021.

◦Interest income earned on investment securities was $83 million for the three months ended March 31, 2022, an increase of $53 million compared to 2021. The increase was primarily due to the addition of $6.6 billion of securities acquired in the CIT Merger and higher portfolio yield, reflecting the mix of acquired investments and a higher rate environment.

◦Interest expense on interest-bearing deposits was $39 million for the three months ended March 31, 2022, an increase of $30 million compared to 2021. The increase was primarily due to the additional interest-bearing deposits acquired in the CIT Merger, which also carried a higher average rate. Interest expense on borrowings was $22 million for the three months ended March 31, 2022, an increase of $16 million compared to 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 quarter.

•NIM was 2.73% in the first quarter of 2022, a decrease of 6 bps from the comparable quarter in the prior year. The margin decline reflected higher yield on our investment portfolio, offset by lower SBA-PPP income and purchase accounting accretion, which reduced the loan portfolio yield, and higher rates on deposits.

•Average interest-earning assets increased to $95.1 billion for the first quarter of 2022, compared to $48.7 billion in the first quarter of 2021. The primary driver for this change was the added assets from the CIT Merger. The following table details the average interest earning ~~asset~~assets by ~~category.~~category:

Table 37

Average Interest-earning Asset Mix

% of Total Interest-earning Assets
Three months ended
March 31, 2022 March 31, 2021
Loans and leases 67 % 68 %
Investment securities 21 % 20 %
Interest-bearing cash 12 % 12 %
Total interest earning assets 100 % 100 %


	% of Total Interest-earning Assets
	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Loans and leases	73	%	73	%	67	%
Investment securities	19	%	20	%	21	%

Interest-earning deposits at banks	8	%	7	%	12	%
Total interest earning assets	100	%	100	%	100	%

•~~Average interest-bearing liabilities increased to $71.4 billion compared to $27.9 billion the first quarter of 2021, reflecting the addition of deposits and borrowings from the CIT Merger.~~ The following table shows our average funding ~~mix.~~mix:

Table 48

Average Funding Mix


		% of Total Interest-bearing Liabilities					% of Total Interest-bearing Liabilities
		Three months ended					Three Months Ended
		March 31, 2022		March 31, 2021			March 31, 2023		December 31, 2022		March 31, 2022
Total interest-bearing deposits	Total interest-bearing deposits	93	%	93	%	Total interest-bearing deposits	89	%	89	%	93	%
Securities sold under customer repurchase agreements		1	%	2	%
Short-term borrowings						Short-term borrowings	1	%	4	%	1	%

Long-term borrowings	Long-term borrowings	6	%	5	%	Long-term borrowings	10	%	7	%	6	%
		100	%	100	%		100	%	100	%	100	%

The above average mix tables include SVB average balances for only five days during the current quarter as the acquisition was completed on March 27, 2023. We expect average balances next quarter to be more aligned with current period end balances. Refer to “Interest-earning Assets” and “Interest-bearing Liabilities” sections of this MD&A for discussion of period end balances.

PROVISION FOR CREDIT LOSSES

•~~Rates on interest-bearing liabilities increased by 12 bps~~As presented in the following table, the provision for credit losses for the three months ended March 31, 2023 was $783 million, compared to ~~0.35%,~~$79 million for the three months ended December 31, 2022. The $704 million increase is primarily due to the day 2 provision for credit losses of $716 million related to the SVBB Acquisition, which includes the $462 million day 2 provision for loans and leases and the $254 million day 2 provision for unfunded commitments.

In addition to the day 2 provision, the increase in provision for credit losses on loans and leases was related to portfolio growth, mild credit quality deterioration, and higher ~~rates on the deposits and borrowings acquired~~specific reserves partially offset by improvement in the ~~CIT Merger.~~macroeconomic forecasts. The provision for credit losses activity also reflected a decline in the provision for credit losses on unfunded commitments and a $4 million provision for investment securities available for sale related to one corporate bond. The ACL is further discussed in the “Critical Accounting Estimates” and “Credit Risk Management - ACL” sections of this MD&A and in Note 5 — Allowance for Credit Losses.

Table 9

Provision for Credit Losses


dollars in millions	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Day 2 provision for loans and leases	$	462	$	—	$	454
Provision (benefit) for credit losses - loans and leases	71		64		(53)
Total provision for credit losses- loans and leases	533		64		401
Day 2 provision for unfunded commitments	254		—		59
(Benefit) provision for unfunded commitments	(8)		15		4
Total provision for credit losses - unfunded commitments	246		15		63
Provision for credit losses - investment securities available for sale	4		—		—
Provision for credit losses	$	783	$	79	$	464

~~PROVISION FOR CREDIT LOSSES~~

The provision for credit losses was $464 million for the first quarter of 2022, compared to a benefit of $11 million for the same quarter in 2021. The increase of $475 million was primarily due to the impact of the CIT Merger. The initial ACL for Non-Purchased Credit Deteriorated (“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 provision for credit losses for unfunded commitments increased to $63 million for the first quarter of 2022 compared to a benefit of $1 million for the first quarter of 2021. The increase of $64 million was primarily due to the $59 million provision for unfunded commitments recognized on the Merger Date related to off balance sheet exposures acquired in the CIT Merger. The noted increases to the provision for credit losses of $513 million related to the CIT Merger were partially offset by a benefit of $53 million, primarily related to improvements in the most significant economic factors used to determine the ACL as of March 31, 2022 compared to the economic factors used to determine the ACL as of the Merger Date. The ACL is further discussed in Risk Management - Credit Risk Management below.

NONINTEREST INCOME

~~Table 5~~

~~Noninterest Income~~

Three Months Ended
dollars in millions March 31, 2022 March 31, 2021
Rental income on operating leases $ 208 $ —
Other noninterest income
Fee income and other revenue 33 9
Wealth management services 35 32
Gains on leasing equipment, net 6 —
Service charges on deposit accounts 28 22
Factoring commissions 27 —
Cardholder services, net 25 20
Merchant services, net 10 9
Realized gains on investment securities available for sale, net — 9
Marketable equity securities gains, net 3 16
Gain on acquisition 431 —
Gain (loss) on extinguishment of debt 6 —
Other noninterest income 38 20
Total other noninterest income $ 642 $ 137

Noninterest Income

Noninterest income is an essential component of our total revenue. The primary sources of noninterest income consist of rental income on operating ~~leases,~~lease equipment, 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. ~~A primary driver of the increases from the first~~

The current quarter ~~of 2021 to the first quarter of 2022 was the addition of~~includes noninterest income related to SVB for five days as the ~~CIT Merger.~~SVBB Acquisition was completed on March 27, 2023. Noninterest income from SVB was aligned into pre-existing categories and primarily included items such as fee income and other service charges, wealth management services, and service charges on deposit accounts, and other noninterest income.

Table 10

Noninterest Income


dollars in millions	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Rental income on operating lease equipment	$	233	$	224	$	208
Other noninterest income:
Fee income and other service charges	50		46		36
Wealth management services	42		35		35
Service charges on deposit accounts	24		22		27
Factoring commissions	19		26		27
Cardholder services, net	21		26		25
Merchant services, net	10		8		10
Insurance commissions	13		13		12
Realized loss on sale of investment securities available for sale, net	(14)		—		—
Fair value adjustment on marketable equity securities, net	(9)		2		3
Bank-owned life insurance	5		7		8
Gain on sale of leasing equipment, net	4		2		6
Gain on acquisition	9,824		—		431
Gain on extinguishment of debt	—		—		6
Other noninterest income	37		18		16
Total other noninterest income	10,026		205		642
Total noninterest income	$	10,259	$	429	$	850

Rental Income on Operating Lease Equipment

Rental income from equipment we lease for the three months ended March 31, 2023 was $233 million, an increase of $9 million compared to three months ended December 31, 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 renewed 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 ~~Results~~“Results by Business ~~Segment~~Segment” section of this MD&A for further details.

Other Noninterest Income

Other noninterest income for the ~~first quarter of 2022~~three months ended March 31, 2023 was ~~$642 million,~~$10.03 billion, compared to ~~$137~~$205 million for the ~~same period in 2021.~~three months ended December 31, 2022. The ~~increase for the comparable period was primarily due to the preliminary estimated gain on acquisition related to the CIT Merger. See Note 2 — Business Combinations for details. The remaining~~ increase was primarily due to the ~~following:~~$9.82 billion preliminary gain on acquisition. The remaining changes compared to the three months ended December 31, 2022 reflect increases and decreases among various noninterest income accounts. The more significant variances follow:

•Fee income and other ~~revenue,~~service charges, consisting of items such as capital market-related fees, fees onfor lines and letters of credit, ~~agent~~ and ~~advisory fees,~~ servicing ~~and insurance~~ fees, increased by ~~$24~~$4 million.

•Wealth management services increased by $7 million, reflecting higher assets under management led by our trust and brokerage channels. In brokerage, the ~~added CIT activity.~~income was driven by increases in structured notes and fixed products.

•Factoring commissions ~~totaled $27~~decreased $7 million, ~~during the~~reflecting seasonally stronger fourth quarter on factoring volume ~~of $6.4 billion. See Results By Business Segment - Commercial Banking below for a brief discussion on the factoring business.~~and slowing customer orders as they work down current inventory levels, as well as lower surcharge income.

•Cardholder services ~~and merchant services increased by $6~~decreased $5 million, ~~primarily due to an increase~~reflecting a decline in ~~the~~ volume of transactions ~~processed.~~and higher reward expense.

•~~Service charges~~The realized loss on ~~deposit accounts increased by $6 million, primarily~~sale of investment securities available for sale was due to additional customer deposit balances acquired in the CIT Merger. In January, we announced our intent to eliminate our NSF fees and significantly lower our overdraft fees from $36 to $10 on consumer accounts beginning mid-year 2022.a sale of a single corporate bond of a distressed entity.

•~~Wealth management services increased by $3 million, primarily due to increases in advisory and transactions fees, assets under management and annuity fees.~~

•~~Gains on equipment sales were $6 million during the quarter and are recognized on operating lease equipment sold, primarily related to rail equipment.~~

•~~During the quarter, we redeemed approximately $2.9 billion of borrowings assumed in the CIT Merger, resulting in a $6 million gain in debt extinguishment.~~

•~~Realized gains on sales of investment securities declined by $9 million.~~

•~~The fair market~~Fair value ~~adjustment~~adjustments on marketable equity securities ~~declined by $13 million.~~reflect changes in market prices of underlying portfolio investments.

•Other noninterest income ~~increased by $18 million and primarily~~ consisted of ~~insurance commissions, bank owned life insurance (“BOLI”) income,~~items such as derivative gains and losses, gain on sales of other assets including OREO, fixed assets and loans, and ~~OREO.~~non-marketable securities. Other noninterest income ~~also includes derivative-related gains and losses, ATM fees, and other various income items.~~increased by $19 million, primarily due to net positive marks on derivatives.

NONINTEREST EXPENSE

~~Table 6~~The current quarter includes noninterest expense related to SVB for five days as the SVBB Acquisition was completed on March 27, 2023. Noninterest expense from SVB was aligned into pre-existing categories, with salaries and benefits impacted the most.

Table 11

Noninterest Expense


		Three Months Ended
dollars in millions	dollars in millions	March 31, 2022		March 31, 2021		dollars in millions	Three Months Ended
							March 31, 2023		December 31, 2022		March 31, 2022
Depreciation on operating lease equipment	Depreciation on operating lease equipment	$	81	$	—	Depreciation on operating lease equipment	$	89	$	88	$	81
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	43		—		Maintenance and other operating lease expenses	56		47		43
Operating expenses
Operating expenses:						Operating expenses:
Salaries and benefits	Salaries and benefits	352		184		Salaries and benefits	420		354		356
Net occupancy expense	Net occupancy expense	49		30		Net occupancy expense	50		48		48
Equipment expense	Equipment expense	52		30		Equipment expense	58		55		52
Professional fees						Professional fees	12		11		12
Third-party processing fees	Third-party processing fees	24		14		Third-party processing fees	29		26		24
FDIC insurance expense	FDIC insurance expense	12		3		FDIC insurance expense	18		5		12
Merger-related expenses		135		7
Marketing expense						Marketing expense	15		21		8
Acquisition-related expenses						Acquisition-related expenses	28		29		135
Intangible asset amortization	Intangible asset amortization	6		3		Intangible asset amortization	5		6		6
Other		56		26
Other noninterest expense						Other noninterest expense	75		70		33
Total operating expenses	Total operating expenses	$	686	$	297	Total operating expenses	710		625		686
Total noninterest expense						Total noninterest expense	$	855	$	760	$	810

Depreciation on Operating Lease Equipment

Depreciation expense on operating lease equipment is ~~driven by~~primarily related to rail equipment and small and large ticket equipment we own and lease to others. 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 ~~Results~~section entitled “Results by Business ~~Segments section~~Segment” of this MD&A for further details.

Maintenance and Other Operating Lease Expenses

Maintenance and other operating lease expenses of $43 million for the three months ended March 31, 2022 related to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable. 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 March 31, 2023 was $56 million, compared to $47 million for the three months ended December 31, 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 maintenance costs related to readying tank cars for service. Refer to the Rail discussion in the ~~Results~~section entitled “Results by Business ~~Segmentsection~~Segment” of this MD&A for further details.

Operating Expenses

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

Operating expenses for the three months ended March 31, 2023 were $710 million compared to $625 million in the three months ended December 31, 2022.

Operating expenses ~~were $686~~for the three months ended March 31, 2023 increased by $85 million ~~during the first quarter of 2022. The increase~~ compared to the ~~same quarter in 2021 was~~three months ended December 31, 2022, primarily ~~driven by the CIT Merger. The most significant components~~comprised of the ~~change were as follows:~~following:

•Salaries and benefits ~~which includes salaries, wages and employee benefits, were up $168~~increased by $66 million, primarily ~~reflecting the~~due to added ~~headcount.~~

•~~Net occupancy expense includes rent expense on leased office space and depreciation on buildings we own. The $19 million increase reflects the added branches and office space from the CIT Merger.~~

•~~Equipment expense increased $22 million, reflecting the additional~~ costs ~~for the IT systems from the CIT Merger.~~

•~~Third-party processing fees increased $10 million~~related to salaries as a result of employees from the ~~CIT Merger~~SVBB Acquisition, plus higher benefit plan expense, merit increases in compensation associated with our annual review process, and ~~our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.~~the annual restart of payroll taxes.

•~~Merger-related expenses increased by $128 million, driven by expenses related to the CIT Merger, including severance, retention, consulting and legal costs.~~

•~~The $9 million increase in~~ FDIC insurance ~~expense reflects the additional deposits acquired in the CIT Merger.~~increased $13 million due to a higher assessment rate charged to financial institutions, and a higher deposit balance.

•~~Intangible amortization was up $3~~Marketing costs decreased by $6 million, reflecting the ~~additional amortization on~~timing of our advertising relating to marketing efforts for the ~~core deposit intangible asset recorded~~Direct Bank.

•Acquisition-related expenses decreased $1 million due to lower CIT Merger costs. The current quarter includes costs associated with the SVBB Acquisition of approximately $8 million. We expect acquisition-related expenses attributable to the SVBB Acquisition to increase beginning in the ~~CIT Merger. See Note 2 — Business Combinations for additional information.~~second quarter of 2023.

•Other ~~expense increased by $30 million and~~expenses consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, ~~advertising,~~ consulting, telecommunications, and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. ~~The first quarter of 2022 included a $27 million reversal of an accrual related to legacy CIT postretirement plans that~~Changes in these items were ~~terminated after the acquisition date. See Note 21 — Employee Benefit Plans.~~not material.

INCOME TAXES

Table 712

Income Tax Data


		Three Months Ended
dollars in millions	dollars in millions	March 31, 2022			March 31, 2021			dollars in millions	Three Months Ended
									March 31, 2023			December 31, 2022			March 31, 2022
Income before income taxes	Income before income taxes	$	225		$	191		Income before income taxes	$	9,471		$	392		$	225
Income taxes		(46)			44
Income tax (benefit) expense								Income tax (benefit) expense	$	(47)		$	135		$	(46)
Effective tax rate	Effective tax rate	(20.4)		%	23.0		%	Effective tax rate	(0.5)		%	34.6		%	(20.4)		%

The effective tax rate (“ETR”) was ~~(20.4)~~(0.5)% ~~in the current quarter, compared to 23.0% in the year-ago quarter. The effective rate~~ for the three months ended March 31, 2023, compared to 34.6% for the three months ended December 31, 2022. The decrease in the ETR from 34.6% for the three months ended December 31, 2022 to (0.5)% for the three months ended March 31, 2023 was primarily driven by the ~~non-taxable nature~~effects of the preliminary ~~bargain purchase~~ gain ~~arising from~~on acquisition for the ~~CIT Merger.~~SVBB Acquisition.

The ETR each quarter is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The ETR in future ~~period’s ETR~~periods may vary from the actual ~~2022~~2023 ETR due to changes in these factors.

~~We monitor~~BancShares monitors and ~~evaluate~~evaluates the potential impact of current events on the estimates used to establish income tax 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 2019 — Income Taxes for additional information.

RESULTS BY BUSINESS SEGMENT

~~Prior~~Refer to the CIT Merger, BancShares operated with centralized management and combined reporting, thus, BancShares operated as one consolidated reportable segment. Due to 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 2221 — Business ~~Segments~~Segment Information for related disclosures on the ~~segments.~~segments and detail on segment products and services. During the first quarter of 2023, we updated our segment disclosures to include SVB. There was no impact to prior period disclosures.

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

General Banking

The General Banking segment delivers products and services to ~~individuals~~consumers and businesses through anour extensive ~~branch~~ network ~~digital banking, telephone banking~~of branches and various ~~ATM networks, including~~digital channels. We offer a full suite of deposit products, loans, ~~(primarily residential mortgages and commercial loans),~~cash management, wealth, payments and various other 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 homeowner associations 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 813

General Banking: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended
Earnings Summary	Earnings Summary	2022		2021		Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022
Net interest income	Net interest income	$	437	$	344	Net interest income	$	560	$	546	$	437
Benefit for credit losses		(15)		(11)
Net interest income after benefit for credit losses		452		355
Provision (benefit) for credit losses						Provision (benefit) for credit losses	14		15		(15)
Net interest income after provision for credit losses						Net interest income after provision for credit losses	546		531		452
Noninterest income	Noninterest income	123		110		Noninterest income	116		111		123
Noninterest expense	Noninterest expense	409		290		Noninterest expense	395		360		409
Segment income before income taxes		166		175
Provision for income taxes		40		40
Segment net income		$	126	$	135
Income before income taxes						Income before income taxes	267		282		166
Income tax expense						Income tax expense	65		70		40
Net income						Net income	$	202	$	212	$	126
Select Period End Balances	Select Period End Balances					Select Period End Balances
Loans and leases	Loans and leases	$	38,778	$	32,580	Loans and leases	$	43,353	$	42,921	$	38,528
Deposits	Deposits	85,469		47,277		Deposits	85,982		84,361		85,458

~~Results for the quarter reflect the additional activity from the CIT Merger, driving the increase~~The decrease in ~~NII. Noninterest~~net income is driven by fees from services we provide to our customers, such as wealth management and cardholder, plus service charges on deposits. Noninterest expense was higher, primarily due to the additional costs associated with the larger business and additional employees. The results for the three months ended March 31, ~~2021 reflect~~2023 compared to the ~~vast majority~~three months ended December 31, 2022 was due to higher noninterest expenses, which offset higher NII and noninterest income. NII increased, mostly due to higher yields and growth in the loan portfolio, which offset higher deposit costs. Noninterest income for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, reflecting higher wealth management fees. Noninterest expenses for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, mostly reflecting higher salary and benefit costs and other items discussed previously in the section entitled “Noninterest Expense” of ~~the historic operating activity for BancShares only.~~this MD&A.

~~Loans~~The increase in loans and leases at March 31, 2023 compared to December 31, 2022 reflected continued demand through our branch network. Growth was primarily concentrated in commercial and business loans. Our consumer mortgage loans also increased, reflecting lower prepayments and originating loans that were held on-balance sheet, which offset lower activity due to the ~~additional residential mortgages and consumer loans acquired in the CIT Merger, partially offset by run-off of SBA-PPP loans.~~ high rate environment.

Deposits include deposits from the branch ~~online~~network, Direct Bank and ~~community association banking channels, most of which were acquired~~CAB channels. The increase in deposits at March 31, 2023 compared to December 31, 2022 was primarily in our Direct Bank, in products such as time and savings accounts, partially offset by a decrease in money market accounts. Refer to consolidated discussions in the ~~CIT Merger. See discussions in~~ sections entitled “Net Interest Income and Net Interest ~~Income~~Margin” and ~~Deposits~~ ~~sections. The~~“Balance Sheet Analysis—Deposits” of this MD&A for additional ~~branches acquired in the CIT Merger were mostly in California.~~information.

Commercial Banking

The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management, and other financial and advisory services primarily to small and ~~middle-market~~middle market companies ~~across~~in a wide range of 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.

Table 914

Commercial Banking: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended
Earnings Summary	Earnings Summary	2022		2021		Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022
Net interest income	Net interest income	$	207	$	4	Net interest income	$	240	$	244	$	207
Benefit for credit losses		(34)		—
Net interest income after benefit for credit losses		241		4
Provision (benefit) for credit losses						Provision (benefit) for credit losses	49		59		(34)
Net interest income after provision for credit losses						Net interest income after provision for credit losses	191		185		241
Noninterest income	Noninterest income	112		—		Noninterest income	143		141		112
Noninterest expense	Noninterest expense	191		1		Noninterest expense	211		188		191
Segment income before income taxes		162		3
Provision for income taxes		41		1
Segment net income		$	121	$	2
Income before income taxes						Income before income taxes	123		138		162
Income tax expense						Income tax expense	29		39		41
Net income						Net income	$	94	$	99	$	121
Select Period End Balances	Select Period End Balances					Select Period End Balances
Loans and leases	Loans and leases	$	26,672	$	601	Loans and leases	$	28,684	$	27,782	$	26,922
Deposits	Deposits	4,687		54		Deposits	3,045		3,225		4,698
Factoring volume		6,433		—
Operating lease equipment, net						Operating lease equipment, net	719		723		721

~~Results~~The decrease in net income for the ~~current quarter~~three months ended March 31, 2023 compared to the three months ended December 31, 2022 was mostly due to higher noninterest expenses, which offset lower provision for credit losses and taxes. NII decreased, primarily ~~reflect activity from the former CIT businesses which are not included~~due to higher deposit costs that offset growth in the ~~year-ago activity.~~loan portfolio. The decrease in the provision for credit losses reflects a lower provision for unfunded commitments. Noninterest income ~~primarily includes rental income~~for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, reflecting positive marks on ~~operating lease equipment~~derivatives, partially offset by lower factoring commissions. Noninterest expenses for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, mostly reflecting higher salary and benefit costs and other items discussed previously in the section entitled “Noninterest Expense” of ~~$49 million and factoring commissions of $27 million, plus other fee and income items.~~this MD&A. Noninterest ~~expense reflects normal operating costs and~~expenses for this segment also includes depreciation on operating lease equipment, which totaled $43 million for each of ~~$40 million.~~the three months ended March 31, 2023 and December 31, 2022.

The increase in loans and leases ~~and deposits for the three months ended~~at March 31, 2023 compared to December 31, 2022 ~~reflect those acquired~~reflected growth in a number of our industry verticals, such as real estate, maritime and healthcare, as well as commercial mortgages.

Silicon Valley Banking

The SVB segment products and services are provided to clients primarily in the ~~CIT Merger.~~healthcare and technology industries, as well as private equity and venture capital firms. Financial solutions are provided to commercial clients through credit, treasury management, foreign exchange, trade finance and other financial products and services.

Table 15

Silicon Valley Banking: Financial Data and Metrics


dollars in millions	Three Months Ended
Earnings Summary	March 31, 2023
Net interest income	$	65
Provision (benefit) for credit losses	—
Net interest income after provision for credit losses	65
Noninterest income	14
Noninterest expense	33
Income before income taxes	46
Income tax expense	11
Net income	$	35
Select Period End Balances
Loans and leases	$	66,171
Deposits	49,259

The current quarter includes results of operations related to SVB for only five days as the SVBB Acquisition was completed on March 27, 2023. Therefore, the results of operations for SVB in the current quarter (or extrapolations thereof) are not indicative of expected results of operations for subsequent periods.

The results exclude the preliminary gain on acquisition, day 2 provision for credit losses and acquisition-related expenses, all of which are included in the Corporate segment. NII reflects interest income on loans (including discount accretion), partially offset by deposit costs. There was no provision for credit losses due to the timing of SVBB Acquisition. Noninterest income was earned primarily from commercial banking products. Noninterest expenses were mostly compensation related costs.

Loans totaled $66.17 billion at March 31, 2023, which declined from the SVBB Acquisition Date balance of $68.50 billion. The decrease was primarily related to maturities and paydowns.

SVB deposits declined from $55.96 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. While SVB deposits declined to $41.43 billion as of April 28, 2023, the pace of the decline slowed and deposit amounts leveled off to approximately $41 billion during the last two weeks of April. Refer to the “Funding, Liquidity and Capital Overview” discussion in the “Financial Performance Summary” section of this MD&A.

Rail

Our Rail segment 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 ~~centerbeams~~center beams and flat cars for lumber. Revenues are primarily generated from rental income on operating ~~lease income.~~leases.

Table 1016

Rail: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended
Earnings Summary	Earnings Summary	2022		2021		Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022
Rental income on operating leases	Rental income on operating leases	$	159	$	—	Rental income on operating leases	$	176	$	168	$	159
Depreciation on operating lease equipment	Depreciation on operating lease equipment	41		—		Depreciation on operating lease equipment	46		45		41
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	43		—		Maintenance and other operating lease expenses	56		47		43
Net revenue on operating leases(1)		75		—
Adjusted rental income on operating lease equipment(1)						Adjusted rental income on operating lease equipment(1)	74		76		75
Interest expense, net	Interest expense, net	19		—		Interest expense, net	28		23		19
Noninterest income	Noninterest income	3		—		Noninterest income	1		(5)		3
Noninterest expense		16		—
Segment income before income taxes		43		—
Provision for income taxes		11		—
Segment net income		$	32	$	—
Operating expenses						Operating expenses	18		15		16
Income before income taxes						Income before income taxes	29		33		43
Income tax expense						Income tax expense	7		9		11
Net income						Net income	$	22	$	24	$	32
Select Period End Balances	Select Period End Balances					Select Period End Balances
Operating lease equipment, net	Operating lease equipment, net	$	7,251	$	—	Operating lease equipment, net	$	7,612	$	7,433	$	7,251

(1)~~Net revenue~~ Adjusted rental income on operating ~~leases~~lease equipment 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~~(Adjusted rental income on operating ~~leases)~~lease equipment).

Net income and ~~net revenue~~adjusted rental income on operating ~~leases~~lease equipment are utilized to measure the profitability of our Rail segment. NAdjusted rental income~~et revenue~~ on operating ~~leases~~lease equipment reflects rental income on operating lease equipment less depreciation, ~~on operating lease equipment and~~ 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.~~segment. NII is not used because it includes the impact of debt costs offunding our operating lease assets but excludes the associated net rental income.

Net income and adjusted net revenue on operating leases for the three months ended March 31, ~~2022,~~2023 were ~~$32~~$22 million and ~~$75~~$74 million, ~~respectively.~~ respectively, both down slightly from the three months ended December 31, 2022. Adjusted net revenue on operating leases was down as higher rental income from the increased number of rail cars and higher re-lease rates was offset by higher maintenance costs, mostly due to readying tank cars for service. Railcar depreciation is recognized on a straight-line basis over the estimated service life of the asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease.

Our fleet is diverse and ~~pricing on new leases averaged 108%~~the average re-pricing of equipment upon lease maturities was 137.0% of the ~~previous~~average prior or expiring lease rate ~~strengthened by various railcar types~~ during the quarter. Our railcar utilization, including commitments to lease, ~~was 95.5%~~improved to 97.9% at March 31, ~~2022, representing improvement in many railcar types.~~

Depreciation is recognized on railcars. Maintenance and other operating lease expenses tend to be variable. Maintenance costs relate to freight and storage costs, reflecting railcars returned, and costs to put cars back on lease.2023 from 97.7% at December 31, 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. ~~At March 31, 2022 our~~Our total operating lease fleet at March 31, 2023 consisted of approximately ~~119,600 railcars.~~119,700 railcars, up from approximately 119,200 at December 31, 2022. The following table reflects the proportion of railcars by type based on units and net ~~investment, respectively:~~

investment:

Table 1117

Operating lease Railcar Portfolio by Type ~~as of March 31, 2022~~ (units and net investment)


							March 31, 2023				December 31, 2022
Railcar Type	Railcar Type	Total Owned Fleet - % Total Units		Total Owned Fleet - % Total Net Investment		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	Covered Hoppers	42	%	40	%	Covered Hoppers	44	%	42	%	43	%	41	%
Tank Cars	Tank Cars	30	%	41	%	Tank Cars	29	%	39	%	29	%	40	%
Mill/Coil Gondolas	Mill/Coil Gondolas	8	%	6	%	Mill/Coil Gondolas	8	%	6	%	8	%	6	%
Coal	Coal	8	%	1	%	Coal	8	%	1	%	8	%	1	%
Boxcars	Boxcars	6	%	7	%	Boxcars	6	%	6	%	6	%	6	%
Other	Other	6	%	5	%	Other	5	%	6	%	6	%	6	%
Total	Total	100	%	100	%	Total	100	%	100	%	100	%	100	%

Table 1218

Rail Operating Lease Equipment by Obligor Industry


dollars in millions	dollars in millions	March 31, 2022				dollars in millions	March 31, 2023				December 31, 2022
Manufacturing	Manufacturing	$	2,879	40	%	Manufacturing	$	3,073	40	%	$	3,016	41	%
Rail	Rail	2,306		32	%	Rail	1,958		26	%	1,981		27	%
Wholesale	Wholesale	945		13	%	Wholesale	1,137		15	%	1,101		15	%
Oil and gas extraction / services	Oil and gas extraction / services	447		6	%	Oil and gas extraction / services	593		8	%	552		7	%
Energy and utilities	Energy and utilities	224		3	%	Energy and utilities	242		3	%	242		3	%
Other	Other	450		6	%	Other	609		8	%	541		7	%
Total	Total	$	7,251	100	%	Total	$	7,612	100	%	$	7,433	100	%

Corporate

Certain items that are not allocated to operating segments ~~and~~ are included in the Corporate segment. ~~Some~~For descriptions 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 costs, 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, each of which are related to the CIT Merger.not allocated, see Note 21 — Business Segment Information.

Table 1319

Corporate: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended
Earnings Summary	Earnings Summary	2022		2021		Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022
Net interest income (expense)		$	24	$	(8)
Net interest income						Net interest income	$	13	$	35	$	24
Provision for credit losses	Provision for credit losses	513		—		Provision for credit losses	720		5		513
Net interest expense after provision for credit losses		(489)		(8)
Net interest (expense) income after provision for credit losses						Net interest (expense) income after provision for credit losses	(707)		30		(489)
Noninterest income	Noninterest income	453		27		Noninterest income	9,809		14		453
Noninterest expense	Noninterest expense	110		6		Noninterest expense	96		105		110
Segment (loss) income before income taxes		(146)		13
(Benefit) provision for income taxes		(138)		3
Segment net (loss) income		$	(8)	$	10
(Loss) income before income taxes						(Loss) income before income taxes	9,006		(61)		(146)
Income tax (benefit) expense						Income tax (benefit) expense	(159)		17		(138)
Net income (loss)						Net income (loss)	$	9,165	$	(78)	$	(8)

Results for the three months ended March 31, ~~2022~~2023 were ~~driven~~primarily impacted by ~~impacts from the CIT Merger. Results in the current quarter included notable items of $513 million related to the Initial Non-PCD Provision,~~ a preliminary gain on acquisition of ~~$431~~$9.82 billion and the day 2 provision for credit losses of $716 million ~~(noninterest income) and $135 million~~related to the SVBB Acquisition. The income tax rate also reflects the impact of ~~merger related expenses.~~the preliminary gain on acquisition. Similar transactions were recorded in the three months ended March 31, 2022 for the CIT Merger.

In addition to the above noted items, the three months ended March 31, 2023 also reflect lower NII due to rising brokered deposit funding costs. Included in noninterest expense were $28 million and $29 million of acquisition-related expenses, for the three months ended March 31, 2023 and December 31, 2022, respectively. For the three months ended December 31, 2022 income tax expense included $55 million related to the strategic decision to surrender $1.25 billion of BOLI policies.

BALANCE SHEET ANALYSIS

~~Interest-earning Assets~~

INTEREST-EARNING ASSETS

Interest-earning assets include ~~interest-bearing cash,~~interest-earning deposits at banks, investment securities, ~~loans and leases,~~assets held for sale, and loans and leases, ~~held for sale,~~ all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Higher risk investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit risk. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.

Interest-earning Deposits at Banks

~~Interest-bearing cash totaled $9.3 billion~~Interest-earning deposits at banks at March 31, ~~2022, up~~2023 totaled $38.52 billion. This was an increase from ~~$9.1~~$5.03 billion at December 31, ~~2021,~~2022. The increase primarily related to $33.93 billion acquired in the SVBB Acquisition, plus holding additional liquidity reflecting ~~lending~~higher FHLB borrowings. Subsequent to the SVBB Acquisition Date, interest-earning deposits at banks decreased due to the decline in SVB deposits. The trend in deposits is further addressed in the “Funding, Liquidity and ~~deposit levels, and the timing~~Capital Overview” section of ~~investment maturities. While the CIT Merger added nearly $2.9 billion at the time of the merger, that was offset by the use of cash for the redemption of approximately $2.9 billion of assumed debt.~~this MD&A.

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made ~~largely~~ under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into ~~overnight investments.~~interest-earning deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow ~~any overnight investments~~interest-earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan ~~demand. See Note 1 — Accounting Policies and Basis of Presentation, and~~growth. Refer to Note 3 — ~~Investments,~~Investment Securities and the “Funding, Liquidity and Capital Overview” section of this MD&A for additional disclosures regarding investment securities.

The carrying value of investment securities ~~totaled $19.5 billion~~ at March 31, ~~2022, an increase of $6.4~~2023 totaled $19.53 billion. This was up slightly from $19.37 billion ~~compared to~~at December 31, ~~2021, primarily~~2022, reflecting ~~the CIT Merger, which added $6.6 billion at the time~~investment security purchases of $337 million, acquired investment securities of $122 million, maturities, paydowns and sales of $345 million, and other non-cash items, such as fair value changes and amortization. We acquired certain mortgage-backed securities as part of the ~~merger. The remaining activity in the portfolio included investment securities purchases of $0.8 billion, partially offset by maturities and paydowns of $0.6 billion.~~SVBB Acquisition.

~~Available~~BancShares’ portfolio of investment securities available for sale 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 and corporate bonds. Investment securities available for sale are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of March 31, ~~2022,~~2023, investment securities available for sale had a net pre-tax unrealized loss of ~~$431~~$894 million, compared to a net pre-tax unrealized loss of ~~$12~~$972 million as of December 31, ~~2021. Management evaluated the available for sale~~2022. The fair value of investment securities ~~in an unrealized loss position and concluded that the unrealized losses related to changes in~~is impacted by interest rates, ~~relative to~~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. Given the ~~securities were purchased,~~consistently strong credit rating of the U.S. Treasury, and ~~therefore,~~the long history of no ~~ACL was needed at March 31, 2022.~~

~~BancShares’ portfolio of held to maturity~~credit losses on debt ~~securities consists of mortgage-backed~~ securities issued by government agencies and government sponsored entities, USas of March 31, 2023, no ACL was required. For corporate bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased and considered other factors, including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond had a credit-related loss of $4 million as of March 31, 2023

BancShares’ portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury ~~notes, unsecured bonds issued by government agencies~~Notes and government ~~sponsored entities,~~agency securities described above, as well as securities issued by the ~~World Bank~~Supranational Entities and Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury, the ~~World Bank~~Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, BancShares’ management determined that no ACL was needed for investment securities held to maturity at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

7677

~~Table 14~~The following table presents the investment securities portfolio at March 31, ~~2022~~2023, and December 31, ~~2021,~~2022, segregated by major ~~category.~~category:

Table 1420

Investment Securities


		March 31, 2022						December 31, 2021
dollars in millions	dollars in millions	Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value		dollars in millions	March 31, 2023						December 31, 2022
Investment securities available for sale
															Composition(1)		Amortized cost		Fair value			Composition(1)		Amortized cost		Fair value
Investment securities available for sale:														Investment securities available for sale:
U.S. Treasury	U.S. Treasury	10.2	%	$	2,014	$	1,931	15.4	%	$	2,007	$	2,005	U.S. Treasury	10.9	%	$	2,091	$	1,978		10.6	%	$	2,035	$	1,898
Government agency	Government agency	1.1	%	206		206		1.7	%	221		222		Government agency	0.8	%	152		150			0.9	%	164		162
Residential mortgage-backed securities	Residential mortgage-backed securities	26.8	%	5,340		5,052		36.2	%	4,757		4,728		Residential mortgage-backed securities	26.7	%	5,415		4,848			26.8	%	5,424		4,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	8.1	%	1,584		1,520		12.6	%	1,648		1,640		Commercial mortgage-backed securities	8.7	%	1,755		1,585			9.0	%	1,774		1,604
Corporate bonds	Corporate bonds	3.1	%	582		586		4.7	%	582		608		Corporate bonds	2.8	%	542		500			3.0	%	570		536

Total investment securities available for sale	Total investment securities available for sale	49.3	%	$	9,726	$	9,295	70.6	%	$	9,215	$	9,203	Total investment securities available for sale	49.9	%	$	9,955	$	9,061		50.3	%	$	9,967	$	8,995
Investment in marketable equity securities	Investment in marketable equity securities	0.5	%	$	73	$	100	0.7	%	$	73	$	98	Investment in marketable equity securities	0.5	%	$	75	$	85		0.5	%	$	75	$	95
Investment securities held to maturity
Investment securities held to maturity:														Investment securities held to maturity:
U.S. Treasury	U.S. Treasury	2.4	%	$	471	$	447	—	%	$	—	$	—	U.S. Treasury	2.4	%	$	475	$	433		2.4	%	$	474	$	424
Government agency	Government agency	7.8	%	1,541		1,463		—	%	—		—		Government agency	7.7	%	1,550		1,387			7.6	%	1,548		1,362
Residential mortgage-backed securities	Residential mortgage-backed securities	23.6	%	4,776		4,461		17.7	%	2,323		2,307		Residential mortgage-backed securities	21.3	%	4,511		3,858			21.7	%	4,605		3,882
Commercial mortgage-backed securities	Commercial mortgage-backed securities	14.9	%	2,988		2,805		11.0	%	1,485		1,451		Commercial mortgage-backed securities	16.8	%	3,547		3,051			16.1	%	3,355		2,871
Supranational securities	Supranational securities	1.5	%	294		277		—	%	—		—		Supranational securities	1.4	%	296		262			1.4	%	295		254
Other investments		—	%	4		4		—	%	2		2
Other														Other	—	%	2		2			—	%	2		2
Total investment securities held to maturity	Total investment securities held to maturity	50.2	%	$	10,074	$	9,457	28.7	%	$	3,810	$	3,760	Total investment securities held to maturity	49.6	%	$	10,381	$	8,993		49.2	%	$	10,279	$	8,795
Total investment securities	Total investment securities	100	%	$	19,873	$	18,852	100	%	$	13,098	$	13,061	Total investment securities	100	%	$	20,411	$	18,139		100	%	$	20,321	$	17,885
(1) Calculated as a percent of the total fair value of investment securities.
(1) Calculated as a percentage of the total fair value of investment securities.														(1) Calculated as a percentage of the total fair value of investment securities.

~~Table 15~~The following table presents the weighted average yields for investment securities available for sale and held to maturity at March 31, ~~2022,~~2023, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields.

Table 1521

Weighted Average Yield on Investment Securities


		March 31, 2022											March 31, 2023
		Within One Year		One to Five Years		Five to 10 Years		After 10 Years		Total			Within One Year		One to Five Years		Five to 10 Years		After 10 Years		Total
Investment securities available for sale
Investment securities available for sale:												Investment securities available for sale:
U.S. Treasury	U.S. Treasury	0.11	%	0.96	%	—	%	—	%	0.96	%	U.S. Treasury	3.57	%	1.09	%	—	%	—	%	1.12	%
Government agency	Government agency	—	%	3.44	%	2.78	%	2.81	%	2.79	%	Government agency	4.36	%	4.56	%	4.51	%	4.93	%	4.53	%
Residential mortgage-backed securities	Residential mortgage-backed securities	1.70	%	1.84	%	2.18	%	1.50	%	1.51	%	Residential mortgage-backed securities	1.82	%	4.08	%	4.19	%	1.88	%	1.95	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—	%	3.16	%	4.02	%	2.17	%	2.20	%	Commercial mortgage-backed securities	2.46	%	3.59	%	5.74	%	2.81	%	2.95	%
Corporate bonds	Corporate bonds	3.54	%	5.88	%	5.43	%	5.28	%	5.46	%	Corporate bonds	5.00	%	6.29	%	5.39	%	4.67	%	5.46	%

Total investment securities available for sale	Total investment securities available for sale	0.19	%	1.12	%	4.52	%	1.66	%	1.77	%	Total investment securities available for sale	3.26	%	1.57	%	5.02	%	2.09	%	2.18	%

Investment securities held to maturity
Investment securities held to maturity:												Investment securities held to maturity:
U.S. Treasury	U.S. Treasury	—	%	1.19	%	1.44	%	—	%	1.38	%	U.S. Treasury	—	%	1.37	%	1.57	%	—	%	1.38	%
Government agency	Government agency	—	%	1.26	%	1.70	%	—	%	1.49	%	Government agency	0.44	%	1.39	%	1.84	%	—	%	1.49	%
Residential mortgage-backed securities(1)	Residential mortgage-backed securities(1)	—	%	3.36	%	7.67	%	1.74	%	1.74	%	Residential mortgage-backed securities(1)	—	%	—	%	2.64	%	1.90	%	1.90	%
Commercial mortgage-backed securities(1)	Commercial mortgage-backed securities(1)	—	%	—	%	2.37	%	1.84	%	1.84	%	Commercial mortgage-backed securities(1)	—	%	2.43	%	2.04	%	2.84	%	2.84	%
Supranational Securities	Supranational Securities	—	%	1.23	%	1.64	%	—	%	1.56	%	Supranational Securities	—	%	1.35	%	1.68	%	—	%	1.56	%
Other investments		0.59	%	—	%	—	%	—	%	0.59	%
Other												Other	0.34	%	0.20	%	—	%	—	%	0.32	%
Total investment securities held to maturity	Total investment securities held to maturity	0.59	%	1.25	%	1.63	%	1.78	%	1.71	%	Total investment securities held to maturity	0.44	%	1.39	%	1.79	%	2.31	%	2.12	%

(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.~~maturity at March 31, 2023. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

7778

Assets Held for Sale

Assets held for sale were $83 million at March 31, 2022, of which $81 million related to loans and remainder to non-interest earning operating lease equipment. The decrease since December 31, 2021 is primarily due to loan sales, partially offset by assets acquired in the CIT Merger and originations.

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

Assets held for sale at March 31, 2023 were $94 million, an increase of $34 million compared to $60 million at December 31, 2022. The net increase was primarily related to loans held for sale in the SVB portfolio, partially offset by sales of commercial loans.

Table 22

Assets Held for Sale


dollars in millions	March 31, 2023		December 31, 2022
Loans and leases:
Commercial	$	33	$	48
Consumer	9		4
SVB	48		—
Loans and leases	90		52
Operating lease equipment	4		8
Total assets held for sale	$	94	$	60

Loans and Leases

Loans and leases held for investment ~~were $65.5 billion~~ at March 31, ~~2022,~~2023 were $138.29 billion, an increase of ~~$32.5~~$67.51 billion ~~since~~from $70.78 billion at December 31, ~~2021, primarily related to the $32.7~~2022. The increase reflects approximately $66.17 billion of SVB loans ~~acquired~~at March 31, 2023. In addition, as ~~part~~shown in the table below, commercial loans continued to grow during the current quarter in a number of ~~the CIT Merger~~industry verticals, such as real estate, maritime and ~~partially offset by a reduction~~healthcare, and growth in ~~SBA-PPP~~our branch network. The current quarter also included growth in both commercial mortgage loans and consumer mortgage loans.

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 reflects residential mortgage, revolving mortgage, consumer auto and consumer other. Commercial loans at March 31, ~~2022~~2023 were ~~$50.1~~$54.39 billion compared to ~~$22.6~~$53.46 billion at December 31, ~~2021,~~2022, representing ~~76%~~39% and ~~70%~~75% of total loans and leases, respectively. Consumer loans at March 31, ~~2022~~2023 were ~~$15.4~~$17.73 billion, compared to ~~$9.8~~$17.33 billion at December 31, ~~2021,~~2022, representing ~~24%~~13% and ~~30%~~25% of total loans and leases, respectively. SVB loans at March 31, 2023 were $66.17 billion, representing 48% of total loans and leases.

Table 1623

Loans and Leases


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023				December 31, 2022
							Balance		% to Total Loans		Balance		% to Total Loans
Commercial:	Commercial:					Commercial:
Commercial construction	Commercial construction	$	2,633	$	1,238	Commercial construction	$	2,971	2	%	$	2,804	4	%
Owner occupied commercial mortgage	Owner occupied commercial mortgage	13,553		12,099		Owner occupied commercial mortgage	14,456		10	%	14,473		20	%
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	9,293		3,041		Non-owner occupied commercial mortgage	10,292		7	%	9,902		14	%
Commercial and industrial	Commercial and industrial	22,402		5,937		Commercial and industrial	24,508		18	%	24,105		34	%
Leases	Leases	2,220		271		Leases	2,163		2	%	2,171		3	%
Total commercial	Total commercial	$	50,101	$	22,586	Total commercial	$	54,390	39	%	$	53,455	75	%
Consumer:	Consumer:					Consumer:
Residential mortgage	Residential mortgage	11,711		6,088		Residential mortgage	13,727		10	%	13,309		19	%
Revolving mortgage	Revolving mortgage	1,840		1,818		Revolving mortgage	1,916		1	%	1,951		3	%
Consumer auto	Consumer auto	1,320		1,332		Consumer auto	1,452		1	%	1,414		2	%
Consumer other	Consumer other	552		548		Consumer other	632		1	%	652		1	%
Total consumer	Total consumer	$	15,423	$	9,786	Total consumer	$	17,727	13	%	$	17,326	25	%
Silicon Valley Banking:						Silicon Valley Banking:
Global fund banking						Global fund banking	36,097		26	%	—		—	%
Investor dependent - early stage						Investor dependent - early stage	1,994		1	%	—		—	%
Investor dependent - growth stage						Investor dependent - growth stage	4,418		3	%	—		—	%
Innovation C&I and cash flow dependent						Innovation C&I and cash flow dependent	9,193		7	%	—		—	%
Private Bank						Private Bank	9,476		7	%	—		—	%
CRE						CRE	2,444		2	%	—		—	%
Other						Other	2,549		2	%	—		—	%
Total Silicon Valley Banking						Total Silicon Valley Banking	$	66,171	48	%	$	—	—	%
Total loans and leases	Total loans and leases	65,524		32,372		Total loans and leases	138,288		100	%	70,781		100	%
Less allowance for credit losses	Less allowance for credit losses	848		178		Less allowance for credit losses	(1,605)				(922)
Net loans and leases	Net loans and leases	$	64,676	$	32,194	Net loans and leases	$	136,683			$	69,859

~~Non-PCD and PCD loans were $62.1 billion and $3.4 billion at March 31, 2022, respectively, compared to $32.0 billion and $0.3 billion at December 31, 2021, respectively.~~ The unamortized discount related to acquired ~~non-PCD~~ loans was ~~$74.7 million~~$2.67 billion and ~~$11.4~~$118 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The increase reflects the discount ~~related to PCD~~on loans ~~was $66.9 million and $29.0 million at March 31, 2022 and December 31, 2021, respectively.~~acquired in the SVBB Acquisition.

OPERATING LEASE EQUIPMENT, NET

As detailed in the following table, our operating lease portfolio is mostly comprised of rail assets. ~~See~~Refer to the Rail segment discussion in the section entitled “Results by Business Segment” of this MD&A for further details on the rail portfolio.

Table 1724

Operating Lease Equipment


~~dollars in millions~~	~~March 31, 2022~~
~~Railcars and locomotives~~	$	~~7,251~~
~~Other equipment~~	~~721~~
~~Total(1)~~	$	~~7,972~~


dollars in millions	March 31, 2023		December 31, 2022
Railcars and locomotives	$	7,612	$	7,433
Other equipment	719		723
Total(1)	$	8,331	$	8,156

(1)Includes off-lease Rail equipment of ~~$504 million.~~$409 million at March 31, 2023 and $457 million at December 31, 2022.

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, senior and subordinated debt, and other borrowings. Interest-bearing liabilities at March 31, 2023 totaled ~~$69.0~~$131.50 billion compared to $71.13 billion at December 31, 2022. The increase from December 31, 2022 was primarily due to deposits assumed in the SVBB Acquisition, the Purchase Money Note, as well as deposit growth in the General Banking Segment which includes the Direct Bank and community association banking, and a net increase in FHLB borrowings.

Deposits

Refer to the “Funding, Liquidity and Capital Overview” section of this MD&A for discussion of deposit composition and recent deposit trends.

Total deposits at March 31, 2023 were $140.05 billion, an increase of $50.64 billion compared to December 31, 2022. The increase primarily reflects $49.26 billion of SVB deposits at March 31, 2023, plus solid deposit growth during the current quarter in our Direct Bank and community association banking.

Interest-bearing deposits totaled $85.40 billion and $64.49 billion at March 31, 2023 and December 31, 2022, ~~compared to $31.8~~respectively. Noninterest-bearing deposits totaled $54.65 billion and $24.92 billion at March 31, 2023 and December 31, 2021. The increase was mostly due to deposits and borrowings from the CIT Merger, partially offset by the redemption of assumed debt during the quarter. See Note 2 — Business Combinations for details on deposits and borrowings associated with the CIT Merger.

~~Deposits~~

~~At March 31,~~ 2022, total deposits were $91.6 billion, an increase of $40.2 billion since December 31, 2021, driven by the $39.4 billion of deposits from the CIT Merger. As part of the CIT Merger, we acquired CIT’s online banking platform and a leading HOA deposit channel.respectively.

Table 1825

Deposits


dollars in millions	dollars in millions	March 31, 2022		December 31, 2021		dollars in millions	March 31, 2023			December 31, 2022
Demand		$	25,898	$	21,405
Noninterest-bearing demand						Noninterest-bearing demand	$	54,649		$	24,922
Checking with interest	Checking with interest	16,702		12,694		Checking with interest	23,743			16,202
Money market	Money market	26,249		10,590		Money market	30,598			21,040
Savings	Savings	13,506		4,236		Savings	17,932			16,634
Time	Time	9,242		2,481		Time	13,128			10,610
Total deposits	Total deposits	$	91,597	$	51,406	Total deposits	$	140,050		$	89,408
Noninterest-bearing deposits to total deposits						Noninterest-bearing deposits to total deposits	39.0		%	27.9		%

We strive to maintain a strong liquidity position, and therefore a focus on ~~core~~ deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many ~~customers, as evidenced by the significant deposit growth the industry has experienced over the past 18 months.~~customers. As economic conditions ~~improve,~~change, we recognize that our liquidity position could be adversely affected asif bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost.

Deposits (based on branch location) as of March 31, 2023, in North Carolina and South Carolina represented approximately 25.3% and 8.4%, respectively, of total deposits. The Direct Bank includes $18.80 billion or 13.4% of total deposits as of March 31, 2023. SVB deposits as of March 31, 2023 were $49.26 billion or 35.2% of total deposits and are primarily concentrated in online banking and California.

Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate total uninsured deposits were ~~$31.3~~$69.96 billion, ~~and $23.0 billion~~which represents approximately 50% of total deposits at March 31, ~~2022 and~~2023, compared to $29.13 billion or 33% of total deposits at December 31, ~~2021, respectively. Table 20~~2022. The increase in amount of uninsured deposits reflects the inclusion of SVB deposits.

The following table provides the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of March 31, ~~2022.~~2023:

Table 1926

Maturities of Time Deposits In Excess of $250,000


dollars in millions	March 31, ~~2022~~2023
Time deposits maturing in:
Three months or less	$	~~470~~260
Over three months through six months	~~346~~385
Over six months through 12 months	~~456~~1,877
More than 12 months	~~319~~1,218
Total	$	~~1,591~~3,740

Borrowings

AtTotal borrowings at March 31, ~~2022, total borrowings~~2023 were ~~$3.3~~$46.09 billion compared to ~~$1.8~~$6.65 billion at December 31, ~~2021.~~2022. The ~~$1.5 billion~~ increase ~~was due~~from December 31, 2022 primarily related to the ~~$4.5~~Purchase Money Note of approximately $35.15 billion ~~debt assumed~~payable to the FDIC, as further discussed in Note 2 — Business Combinations, and net increases in FHLB borrowings during the CIT Merger. As part of liability management and to reduce higher debt costs, on February 24, 2022, BancShares redeemed approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger. This included all of the outstanding approximately $1.1 billion aggregate principal amount of the 5.000% Senior Unsecured Notes due 2022, $750 million aggregate principal amount of the 5.000% Senior Unsecured Notes due 2023, $500 million aggregate principal amount of the 4.750% Senior Unsecured Notes due 2024, and $500 million aggregate principal amount of the 5.250% Senior Unsecured Notes due 2025.

current quarter.

7981

~~Table 20~~FHLB borrowings were $8.50 billion at March 31, 2023, including $500 million in short-term borrowings and $8.00 billion in long-term borrowings. FHLB borrowings increased from $4.25 billion at December 31, 2022, reflecting $7.00 billion of advances taken in March 2023 to enhance available liquidity, partially offset by $2.75 billion of repayments. Prior to the March advances, we were repaying FHLB borrowings due to deposit growth. Refer to the “Liquidity Risk” section below for more information on FHLB borrowings.

The following table presents borrowings, ~~including~~net of the respective unamortized purchase accounting adjustments and issuance ~~costs.~~costs:

Table 2027

Borrowings

dollars in millions March 31, 2022 December 31, 2021
Securities sold under customer repurchase agreements $ 616 $ 589
Federal Home Loan Bank borrowings 639 645
Senior Unsecured Borrowings
3.929% fixed-to-floating rate notes due June 2024(1)
513 —
2.969% fixed-to-floating rate notes due September 2025(1)
322 —
6.000% fixed rate notes due April 2036(1)
60 —
Subordinated debt
SCB Capital Trust I - floating rate debenture due April 2034 10 11
FCB/SC Capital Trust II - floating rate debenture due June 2034 18 18
FCB/NC Capital Trust III - floating rate debenture due June 2036 88 88
Macon Capital Trust I - floating rate debenture due March 2034 14 14
3.375 % fixed-to-floating rate notes due March 2030 347 347
6.125% fixed rate notes due March 2028(1)
478 —
4.125% fixed-to-fixed rate notes due November 2029(1)
103 —
Total subordinated debt 1,058 478
Other borrowings 84 72
Total borrowings $ 3,292 $ 1,784


dollars in millions	March 31, 2023		December 31, 2022
Securities sold under customer repurchase agreements	$	509	$	436
Federal Home Loan Bank borrowings(1)
Floating rate notes due through September 2025	8,500		4,250
Federal Deposit Insurance Corporation
3.500% fixed rate note due March 2028(2)	35,151		—
Senior Unsecured Borrowings
3.929% fixed-to-floating rate notes due June 2024	502		505
2.969% fixed-to-floating rate notes due September 2025	320		320
6.000% fixed rate notes due April 2036	59		59
Subordinated debt
6.125% fixed rate notes due March 2028	466		469
4.125% fixed-to-fixed rate notes due November 2029	102		102
3.375% fixed-to-floating rate notes due March 2030	348		348
Macon Capital Trust I - floating rate debentures due March 2034	14		14
SCB Capital Trust I - floating rate debentures due April 2034	10		10
FCB/SC Capital Trust II - floating rate debentures due June 2034	18		18
FCB/NC Capital Trust III - floating rate debentures due June 2036	88		88
Total subordinated debt	1,046		1,049
Other borrowings	7		26
Total borrowings	$	46,094	$	6,645

(1)~~Debt assumed~~Includes $500 million and $1.75 billion in short-term borrowings, and $8.00 billion and $2.50 billion in long-term borrowings, at March 31, 2023 and December 31, 2022, respectively.

(2) Purchase Money Note in connection with the ~~CIT Merger.~~SVBB Acquisition.

~~BancShares owns four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III, and Macon Capital Trust I (the “Trusts”), which mature~~Refer to Note 11 — Borrowings for further information on the various components. Also see “Liquidity Risk” in 2034, 2034, 2036, and 2034, respectively. Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time. BancShares has guaranteed all obligations of SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III, and Macon Capital Trust I.this MD&A.

RISK MANAGEMENT

BancShares provided detail risk management information in our ~~2021~~2022 Form 10-K. There were no significant changes to those disclosures. The following is a summary of those ~~disclosures or updates to those disclosures, primarily due to the CIT Merger.~~disclosures.

Risk is inherent in any business. BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a philosophy which does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework and Statement, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge and oversight by management committees. ~~In addition, our~~Our Board ~~of Directors (the “Board”)~~ strives to ensure ~~the~~that risk management is a part of our business culture ~~is integrated with the Risk Management program~~ and that our policies ~~procedures~~ and ~~metrics~~procedures for identifying, assessing, monitoring, and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through ~~the Board~~its Risk Committee.

The ~~Board~~ Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The ~~Board~~ Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including Credit, Market, Capital, Liquidity, Operational, Compliance, Asset, Strategic and Reputational risks; review, approve, and monitor adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite ~~Framework.~~Framework and Statement. The ~~Board~~ Risk Committee also ~~reviews:~~reviews reports of examination by and communications from regulatory ~~agencies;~~agencies, the results of internal and third party testing and qualitative and quantitative assessments related to risk ~~management;~~management, and any other matters within the scope of the ~~Board~~ Risk Committee’s oversight responsibilities. The ~~Board~~ Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the ~~Board~~ Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, compensation risk management and other areas of joint responsibility.

In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are ~~part of the Risk Management Framework and~~ conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.

BancShares ~~is subject~~monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to ~~a variety~~the “Regulatory Considerations” section of ~~risks that may arise through its business activities. As identified~~Item 1. Business included in ~~our 2021~~the 2022 Form 10-K ~~our primary risks are credit, market, capital, liquidity, operational, compliance, strategic and reputational risks.~~for further discussion.

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 associated credit and operational risks has now been integrating into normal risk monitoring activities.

~~Since the filing of our 2021 Annual Report on 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~~cyberattacks 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. BancShares is also assessing the potential risk of an economic slowdown or recession that could create increased credit and market risk having downstream impacts on earnings, capital, and/or liquidity. Economic data has been mixed and markets continue to experience elevated levels of volatility in 2023. Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. BancShares is in the process of integrating SVB into its existing risk management processes and procedures.

~~Due to the CIT Merger, we included additional information on added risks, Asset Risk (due to the operating lease portfolio) and Counterparty Risk (due to the increased use of derivatives).~~

CREDIT RISK ~~MANAGEMENT~~

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or ~~non-PCD,~~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 appropriate ACL that accounts for expected losses ~~inherent in~~over the life of the loan and lease ~~portfolio.~~portfolios.

Our ACL estimate as of March 31, 2023 included extensive reviews of the changes in credit risk associated with the uncertainties around economic forecasts. These loss estimates additionally considered BancShares industry risk, and the actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which have not seen significant deterioration as of March 31, 2023. Our ACL methodology was discussed in Note 1 — Significant Accounting Policies and Basis of Presentation of our 2022 Form 10-K.

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~~BancShares employs a ~~rating~~dual ratings system ~~that was used by CIT prior to the merger with respect to~~where each commercial loan is assigned a probability of ~~obligor~~ default (“PD”) and loss given default ~~(severity) based on various risk~~(“LGD”) rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. ~~The PD and severity are derived through historical observations of default and subsequent losses within each risk grading.~~ When ~~these~~commercial loans and leases ~~were~~are graded atduring underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. ~~The model incorporates~~These models incorporate both internal and external historical default and loss data to develop loss rates for each risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts and circumstances, that in management’s judgment, warrant a modification of the 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 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~~Loans may also be monitored ~~by way of a~~during quarterly ~~review~~reviews 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 loan-to-value of the underlying ~~collateral’s loan-to-value~~collateral may be conducted.

Silicon Valley Banking Loans

Due to the close proximity of the SVBB Acquisition Date to March 31, 2023, the acquired loans, all of which are included within the SVB segment, are graded according to a rating system that was used by Silicon Valley Bank prior to the SVBB Acquisition. The methodology for estimating the ACL is the sum of two main components: (i) modeled ACL assessed on a collective basis for pools of loans that share similar risk characteristics that includes a quantitative adjustment to account for portfolio risk not captured in the models and may include a qualitative adjustment based on management’s assessment of the risks and (ii) ACL assessed for individual loans that do not share similar risk characteristics with other loans.

For loans that share similar risk characteristics, the process derives an estimated ACL assumption from a non-discounted cash flow approach based on portfolio classes. This approach incorporates a calculation of three predictive metrics: PD, LGD andExposure at Default (“EAD”), over the estimated life of the exposure. Similar to the FCB process for other segments, PD and LGD assumptions are developed based on quantitative models and inherent risk of credit loss, both of which involve significant judgment. Renewals and extensions within our control are not considered in the estimated contractual term of a loan. BancShares moved SVB from a three year Reasonable and Supportable (“R&S”) period utilized by Silicon Valley Bank to a life of loan R&S period to ensure consistency with the existing Bancshares assumptions.Silicon Valley Bank and FCB were using similar scenario weighting processes, but BancShares moved SVB to the FCB scenario weights for the ACL estimate as of March 31, 2023. A qualitative adjustment may be applied to account for risk not captured by the models or emerging risks that may not yet be captured.

For loans that do not share similar risk characteristics, the ACL is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows and the amortized cost basis of the loan. When a loan is collateral-dependent and the repayment is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral.

Allowance for Credit Losses

The ACL ~~was $848 million~~ at March 31, ~~2022,~~2023 was $1.61 billion, compared to ~~$178~~$922 million at December 31, ~~2021.~~2022. The ACL as a percentage of total loans and leases ~~was 1.29%~~ at March 31, ~~2022,~~2023 was 1.16%, compared to ~~0.55%~~1.30% at December 31, ~~2021.~~ 2022.

The $683 million increase in the ACL ~~was~~is primarily due to the impact of the ~~CIT Merger. The~~SVBB Acquisition, including the initial ACL for PCD loans and leases ~~acquired in the CIT Merger~~ (the “Initial PCD ACL”) ~~was $284 million. The Initial PCD ACL was established through~~of $200 million and the ~~PCD Gross-Up and there was no corresponding increase to the~~day 2 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~~of $462 million. The increase was ~~established through a corresponding increase of $454 million~~also related to ~~the provision for~~portfolio growth, mild credit ~~losses for the “Initial Non-PCD Provision”.~~

~~The ACL is calculated using a variety of factors, including, but not limited to, charge-off~~quality deterioration, and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended March 31, 2022, the ACL increase since December 31, 2021 was primarily driven by the Initial PCD ACL and Initial Non-PCD ACL discussed above,higher specific reserves partially offset by improvements in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios and may be adjusted based on management’s expectations over the life of the portfolio. 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 March 31, 2022 ACL forecast was calculated using scenario weighting of a range of economic scenarios, including a baseline, an upside, and a downside scenario. The scenarios showed improvementsimprovement in the most significant economic factors compared to what was used to generate the December 31, 2021 ACL and estimate the Initial PCD ACL and Initial Non-PCD Provision at the Merger Date. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs. BancShares determined that an ACL of $848 million was appropriate as of March 31, 2022.macroeconomic forecasts. In the three months ended March 31, ~~2022,~~2023, the ACL on commercial ~~portfolios~~loans increased ~~$663~~$11 million and the ACL on consumer portfolios increased $7$10 million, ~~reflecting~~with the ~~CIT Merger.~~remaining change due to the ACL on the acquired loans.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACL is dependent upon a variety of factors ~~that~~beyond our control which are inherently difficult to predict, the most significant being the ~~factors~~macroeconomic scenario forecasts that determine the economic variables utilized in the ~~economic scenarios.~~ACL models. Due to the inherent uncertainty in the macroeconomic forecasts, BancShares utilizes baseline, upside, and downside macroeconomic scenarios and weights the scenarios based on review of variable forecasts for each scenario and comparison to expectations. At March 31, 2023, ACL estimates in these scenarios ranged from approximately ~~$625 million~~$1.21 billion to approximately ~~$1.1 billion.~~$1.99 billion when weighting the downside scenario 100%. BancShares management determined that an ACL of ~~$848 million~~$1.61 billion was appropriate as of March 31, ~~2022.~~2023.

8285

Table 2128

Allowance for Credit Losses

Three months ended March 31, 2022
dollars in millions Commercial Consumer Total
Balance at December 31, 2021 $ 80 $ 98 $ 178
Initial PCD ACL(1)
270 14 284
Initial Non-PCD Provision 432 22 454
Benefit for credit losses - loans and leases (23) (30) (53)
Total provision (benefit) for credit losses- loans and leases $ 409 $ (8) $ 401
Charge-offs(1)
(28) (5) (33)
Recoveries 12 6 18
Balance at March 31, 2022 $ 743 $ 105 $ 848
Annualized net charge-off ratio 0.09 %
Net charge-offs (recoveries) $ 16 $ (1) $ 15
Average loans $ 65,182
Percent of loans in each category to total loans 76 % 24 % 100 %
Three months ended March 31, 2021
dollars in millions Commercial Consumer Total
Balance at December 31, 2020 $ 92 $ 133 $ 225
Benefit for credit losses - loans and leases (3) (8) (11)
Charge-offs (4) (5) (9)
Recoveries 2 4 6
Balance at March 31, 2021 $ 87 $ 124 $ 211
Annualized net charge-off ratio 0.03 %
Net charge-offs $ 2 $ 1 $ 3
Average loans $ 32,970
Percent of loans in each category to total loans 70 % 30 % 100 %

~~(1)~~The Initial PCD ACL related to the CIT Merger was $284 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.


dollars in millions	Three Months Ended March 31, 2023
	Commercial			Consumer			SVB			Total
Balance at December 31, 2022	$	789		$	133		$	—		$	922
Initial PCD ACL	—			—			200			200
Day 2 provision for loans and leases	—			—			462			462
Provision for credit losses - loans and leases	58			13			—			71
Total provision for credit losses - loans and leases	58			13			462			533
Charge-offs	(55)			(7)			—			(62)
Recoveries	8			4			—			12

Balance at March 31, 2023	$	800		$	143		$	662		$	1,605
Annualized net charge-off ratio										0.27		%
Net charge-offs (recoveries)	$	46		$	4		$	—		$	50
Average loans										$	74,862
Percent of loans in each category to total loans	39		%	13		%	48		%	100		%

	Three Months Ended December 31, 2022
	Commercial			Consumer			SVB			Total
Balance at September 30, 2022	$	766		$	116		$	—		$	882



Total provision for credit losses- loans and leases	48			16			—			64
Charge-offs	(34)			(5)			—			(39)
Recoveries	9			6			—			15

Balance at December 31, 2022	$	789		$	133		$	—		$	922
Annualized net charge-off ratio										0.14		%
Net charge-offs (recoveries)	$	25		$	(1)		$	—		$	24
Average loans										$	70,441
Percent of loans in each category to total loans	76		%	24		%	—		%	100		%

	Three Months Ended March 31, 2022
	Commercial			Consumer			SVB			Total
Balance at December 31, 2021	$	80		$	98		$	—		$	178
Initial PCD ACL	270			14			—			284
Initial Non-PCD Provision	432			22			—			454
Benefit for credit losses - loans and leases	(23)			(30)			—			(53)
Total provision for credit losses - loans and leases	409			(8)			—			401
Charge-offs	(28)			(5)			—			(33)
Recoveries	12			6			—			18

Balance at March 31, 2022	$	743		$	105		$	—		$	848
Annualized net charge-off ratio										0.09		%
Net charge-offs	$	16		$	(1)		$	—		$	15
Average loans										$	65,182
Percent of loans in each category to total loans	76		%	24		%	—		%	100		%

Net charge-offs during the three months ended March 31, 2023 were ~~$15~~$50 million, compared to $24 million during the ~~first quarter of 2022, compared to $3 million during the first quarter of 2021.~~three months ended December 31, 2022. On an annualized basis, ~~total~~the net charge-off ratio was 0.27% and 0.14% for the three months ended March 31, 2023 and December 31, 2022, respectively. The increase in net charge-offs ~~as a percentage of total average loans~~compared to the three months ended December 31, 2022 reflects higher charge-offs in our equipment finance and ~~leases was 0.09% and 0.03% for the first quarter of 2022 and 2021, respectively.~~real estate finance businesses.

The following table provides trends in the ACL ~~ratios.~~ratios:

Table 2229

Allowance for Credit Losses Ratios


dollars in millions	dollars in millions	March 31, 2022			December 31, 2021			dollars in millions	March 31, 2023			December 31, 2022
Allowance for credit losses to total loans and leases:		1.29		%	0.55		%
Allowance for credit losses	Allowance for credit losses	$	848		$	178		Allowance for credit losses	$	1,605		$	922
Total loans and leases	Total loans and leases	$	65,524		$	32,372		Total loans and leases	$	138,288		$	70,781
Commercial Loans:
Commercial allowance for credit losses to commercial loans and leases:		1.48		%	0.35		%
Allowance for credit losses to total loans and leases								Allowance for credit losses to total loans and leases	1.16		%	1.30		%
Commercial loans and leases:								Commercial loans and leases:
Allowance for credit losses - commercial	Allowance for credit losses - commercial	$	743		$	80		Allowance for credit losses - commercial	$	800		$	789
Commercial loans and leases	Commercial loans and leases	$	50,101		$	22,586		Commercial loans and leases	$	54,390		$	53,455
Consumer Loans:
Consumer allowance for credit losses to consumer loans and leases:		0.69		%	1.01		%
Commercial allowance for credit losses to commercial loans and leases								Commercial allowance for credit losses to commercial loans and leases	1.47		%	1.48		%
Consumer loans:								Consumer loans:
Allowance for credit losses - consumer	Allowance for credit losses - consumer	$	105		$	98		Allowance for credit losses - consumer	$	143		$	133
Consumer loans and leases		$	15,423		$	9,786
Consumer loans								Consumer loans	$	17,727		$	17,326
Consumer allowance for credit losses to consumer loans								Consumer allowance for credit losses to consumer loans	0.80		%	0.77		%
SVB loans:								SVB loans:
Allowance for credit losses - SVB								Allowance for credit losses - SVB	$	662		$	—
SVB loans								SVB loans	$	66,171		$	—
SVB allowance for credit losses to SVB loans								SVB allowance for credit losses to SVB loans	1.00		%	—		%

The reserve for unfunded loan commitments was ~~$75~~$352 million and ~~$12~~$106 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The increase ~~was driven by~~primarily reflects the ~~additional~~$254 million day 2 provision for unfunded commitments ~~from~~related to the ~~CIT Merger. The additional off-balance sheet commitments primarily reflect loan commitments or lines of credit and DPAs. See~~SVBB Acquisition. Refer to Note 2322 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 15 — ~~Accounting Policies and Basis~~Allowance for Credit Losses for a roll forward of ~~Presentation for discussion on~~ the ACL for unfunded commitments.

The following table presents the ACL by loan class at March 31, 2023 and December 31, 2022:

Table 30

ACL by Loan Class


dollars in millions:	March 31, 2023				December 31, 2022
	Allowance for Credit Losses		Allowance for Credit Losses as a Percentage of Loans		Allowance for Credit Losses		Allowance for Credit Losses as a Percentage of Loans
Commercial
Commercial construction	$	36	1.22	%	$	40	1.43	%
Owner occupied commercial mortgage	56		0.39		61		0.42
Non-owner occupied commercial mortgage	182		1.77		181		1.83
Commercial and industrial	490		2.00		476		1.98
Leases	36		1.69		31		1.41
Total commercial	800		1.47		789		1.48
Consumer
Residential mortgage	81		0.59		74		0.55
Revolving mortgage	16		0.84		13		0.67
Consumer auto	5		0.35		5		0.37
Consumer other	41		6.42		41		6.32
Total consumer	143		0.80		133		0.77
SVB
Global fund banking	91		0.25		—		—
Investor dependent - early stage	130		6.53		—		—
Investor dependent - growth stage	175		3.97		—		—
Innovation and cash flow dependent	171		1.85		—		—
Private Bank	44		0.47		—		—
CRE	26		1.07		—		—
Other	25		0.98		—		—
Total SVB	662		1.00		—		—
Total Allowance for Credit Losses	$	1,605	1.16	%	$	922	1.30	%

Credit Metrics

Non-performing Assets

~~Nonperforming~~Non-performing assets include non-accrual loans and leases and ~~OREO. At~~other real estate owned (“OREO”). Non-performing assets at March 31, ~~2022, BancShares’ nonperforming assets~~2023 totaled ~~$581~~$875 million, ~~an increase of $420~~compared to $674 million ~~since~~at December 31, ~~2021, reflecting the added balances of the CIT Merger portfolio.~~2022.

The following table presents total nonperforming ~~assets.~~assets:

Table 2331

Non-Performing Assets


dollars in millions	dollars in millions	March 31, 2022			December 31, 2021			dollars in millions	March 31, 2023			December 31, 2022
Non-accrual loans:	Non-accrual loans:							Non-accrual loans:
Commercial loans	Commercial loans	$	426		$	45		Commercial loans	$	510		$	529
Consumer loans	Consumer loans	112			76			Consumer loans	94			98
SVB loans								SVB loans	224			—
Total non-accrual loans	Total non-accrual loans	$	538		$	121		Total non-accrual loans	828			627
Other real estate owned	Other real estate owned	43			40			Other real estate owned	47			47
Total non-performing assets	Total non-performing assets	$	581		$	161		Total non-performing assets	$	875		$	674

Allowance for credit losses to total loans and leases:	Allowance for credit losses to total loans and leases:	1.29		%	0.55		%	Allowance for credit losses to total loans and leases:	1.16		%	1.30		%
Ratio of total nonperforming assets to total loans, leases and other real estate owned		0.89		%	0.49		%
Ratio of total non-performing assets to total loans, leases and other real estate owned								Ratio of total non-performing assets to total loans, leases and other real estate owned	0.63		%	0.95		%
Ratio of non-accrual loans and leases to total loans and leases	Ratio of non-accrual loans and leases to total loans and leases	0.82		%	0.37		%	Ratio of non-accrual loans and leases to total loans and leases	0.60		%	0.89		%
Ratio of allowance for credit losses to non-accrual loans and leases	Ratio of allowance for credit losses to non-accrual loans and leases	157.55		%	148.37		%	Ratio of allowance for credit losses to non-accrual loans and leases	193.76		%	146.88		%

Non-accrual loans and leases at March 31, ~~2022~~2023 were ~~$538~~$828 million, ~~reflecting~~ an increase of ~~$417~~$201 million since December 31, ~~2021.~~2022. The increase is due to the SVBB Acquisition, resulting in addition of $224 million non-accrual loans and leases. The commercial non-accruals loans decreased during the first quarter as a result of lower non-accruals in the commercial construction and non-owner occupied commercial mortgage classes partially offset by an increase in the commercial and industrial class. Refer to Note 4 — Loans and Leases for tabular presentation of non-accrual loans by loan class. Non-accrual loans and leases as a percentage of total loans and leases ~~was 0.82%~~were 0.60% and ~~0.37%~~0.89% at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~The increases were driven by the CIT Merger. The increase in consumer non-accrual loans primarily reflects the addition of a legacy CIT single family residential loan portfolio. At~~

OREO at March 31, ~~2022, OREO totaled $43~~2023 was $47 million, ~~representing an increase of $3 million~~no change since December 31, ~~2021. Nonperforming~~2022. Non-performing assets as a percentage of total loans, leases and OREO ~~was 0.89% as of~~at March 31, ~~2022~~2023 was 0.63% compared to ~~0.49% as of~~0.95% at December 31, ~~2021.~~2022. The lower percentage was driven by the increased loan balance due to the SVBB Acquisition.

Past Due Accounts

The percentage of loans 30 days or more past due ~~was 0.81% of loans~~ at March 31, ~~2022 and 0.43%~~2023 was 0.88% of total loans, compared to 1.22% at December 31, ~~2021.~~2022. Delinquency status of loans is presented in Note 4 — Loans and ~~Leases~~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 applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19, and in most cases, is not recording these as TDRs.

~~Table 24~~

~~Troubled Debt Restructurings~~

March 31, 2022 December 31, 2021
dollars in millions Commercial Consumer Total Commercial Consumer Total
Accruing TDRs $ 103 $ 48 $ 151 $ 97 $ 49 $ 146
Nonaccruing TDRs 28 24 52 21 25 46
Total TDRs $ 131 $ 72 $ 203 $ 118 $ 74 $ 192

Concentration Risk

We ~~maintain a well-diversified loan portfolio and seek~~strive to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to risk, such as our concentrations of real estate secured loans, revolving mortgage loans and healthcare-related loans. Additionally, SVB loans are concentrated in loans with large balances and loans in certain industries and customer groups, including private equity and venture capital. The following discussions present concentration data along our portfolio classes, Commercial, Consumer, and SVB.

Commercial Loans 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 2532

Commercial Loans and Leases - Geography


dollars in millions	dollars in millions	March 31, 2022				December 31, 2021				dollars in millions	March 31, 2023				December 31, 2022
State	State									State
California	California	$	8,701	17.4	%	$	3,163	14.0	%	California	$	9,279	17.1	%		$	9,226	17.3	%
North Carolina	North Carolina	7,973		15.9	%	7,181		31.8	%	North Carolina	8,795		16.2	%		8,699		16.3	%
Texas	Texas	3,235		6.5	%	879		3.9	%	Texas	3,586		6.6	%		3,624		6.8	%

Florida	Florida	3,020		6.0	%	1,496		6.6	%	Florida	3,398		6.2	%		3,273		6.1	%
South Carolina	South Carolina	2,969		5.9	%	2,855		12.6	%	South Carolina	3,076		5.7	%		3,142		5.9	%
All other states	All other states	22,784		45.5	%	7,012		31.1	%	All other states	24,796		45.6	%		24,243		45.4	%
Total U.S.	Total U.S.	$	48,682	97.2	%	$	22,586	100.0	%	Total U.S.	$	52,930	97.4	%		$	52,207	97.8	%

Total International	Total International	1,419		2.8	%	—		—	%	Total International	1,460		2.6	%		1,248		2.2	%
Total	Total	$	50,101	100.0	%	$	22,586	100.0	%	Total	$	54,390	100.0	%		$	53,455	100.0	%

Industry Concentrations

The following table represents loans by industry of obligor:

Table 2633

Commercial Loans and Leases - Industry


dollars in millions	dollars in millions	March 31, 2022				December 31, 2021				dollars in millions	March 31, 2023				December 31, 2022

Real Estate	Real Estate	$	11,233	22.4	%	$	4,279	18.9	%	Real Estate	$	12,179	22.4	%		$	11,684	21.9	%
Healthcare	Healthcare	8,311		16.6	%	6,997		31.0	%	Healthcare	8,264		15.2	%		8,146		15.2	%
Transportation, communication, gas, utilities		4,156		8.3	%	774		3.4	%
Business Services										Business Services	5,656		10.4	%		5,518		10.3	%
Transportation, Communication, Gas, Utilities										Transportation, Communication, Gas, Utilities	5,120		9.4	%		5,002		9.4	%
Manufacturing	Manufacturing	4,092		8.2	%	1,347		6.0	%	Manufacturing	4,400		8.1	%		4,387		8.2	%

Business Services		4,053		8.1	%	2,307		10.2	%
Service Industries										Service Industries	4,118		7.6	%		4,213		7.9	%
Retail	Retail	3,832		7.6	%	1,301		5.8	%	Retail	3,639		6.7	%		3,462		6.5	%

Finance and insurance		3,228		6.4	%	1,361		6.0	%
Service industries		3,199		6.4	%	722		3.2	%
Finance and Insurance										Finance and Insurance	2,521		4.6	%		2,604		4.9	%
Wholesale	Wholesale	2,198		4.4	%	882		3.9	%	Wholesale	2,507		4.6	%		2,605		4.9	%

Other	Other	5,799		11.6	%	2,615		11.6	%	Other	5,986		11.0	%		5,834		10.8	%
Total	Total	$	50,101	100.0	%	$	22,585	100.0	%	Total	$	54,390	100.0	%		$	53,455	100.0	%

Consumer Loans 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 ~~upon~~on property ~~address.~~address:

Table 2734

Consumer Loans ~~Geographic Concentrations~~- Geography


		March 31, 2022				December 31, 2021
dollars in millions	dollars in millions	Net Investment		% of Total		Net Investment		% of Total		dollars in millions	March 31, 2023				December 31, 2022
											Net Investment		% of Total			Net Investment		% of Total
State	State									State
North Carolina	North Carolina	$	5,013	32.5	%	$	4,931	50.4	%	North Carolina	$	5,830	32.9	%		$	5,702	32.9	%
California	California	3,616		23.4	%	161		1.6	%	California	4,001		22.6	%		4,014		23.2	%
South Carolina	South Carolina	2,682		17.4	%	2,626		26.9	%	South Carolina	3,079		17.3	%		3,001		17.3	%

Other states	Other states	4,112		26.7	%	2,068		21.1	%	Other states	4,817		27.2	%		4,609		26.6	%
Total loans		$	15,423	100.0	%	$	9,786	100.0	%
Total										Total	$	17,727	100.0	%		$	17,326	100.0	%

Silicon Valley Banking Loans

~~Counterparty Risk~~SVB loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions.

~~We enter into interest rate derivatives~~

The table below details SVB loans that are secured by real estate, at amortized cost as of March 31, 2023.

Table 35

Silicon Valley Banking Loans Secured by Real Estate


dollars in millions	March 31, 2023
Private bank:
Loans for personal residence	$	7,355
Loans to eligible employees	519
Home equity lines of credit	130
Other	117
Total private bank loans secured by real estate	8,121
Commercial real estate ("CRE"):
Multifamily and residential investment	843
Retail	412
Office and medical	483
Manufacturing, industrial and warehouse	489
Hospitality	109
Other	108
Total CRE loans secured by real estate	2,444
Premium wine	913
Other	505
Total real estate secured loans	$	11,983

The SVB loan portfolio is focused on three primary markets: (i) Global Fund Banking, (ii) Technology and ~~foreign exchange forward contracts~~Life Science/Healthcare and (iii) Private Banking. The remainder of the portfolio is made up of CRE and Other loans.

Global Fund Banking

The Global Fund Banking loan portfolio includes loans to clients in the private equity/venture capital community. Global Fund Banking represented 55% and 26% of SVB loans and total loans at March 31, 2023, respectively. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds’ remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.

Technology and Life Science/Healthcare

The Technology and Life Science/Healthcare loan portfolios include loans to clients at the various stages of their life cycles. The classes of financing receivables for our technology and life science/healthcare market segments are classified as Investor Dependent - Early Stage, Investor Dependent - Growth Stage, and Innovation C&I and Cash Flow Dependent for reporting purposes.

Investor Dependent - Early Stage loans represented 3% and 1% of SVB loans and total loans at March 31, 2023, respectively. These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an initial public offering (“IPO”).

Investor Dependent - Growth Stage loans represented 7% and 3% of SVB loans and total loans at March 31, 2023, respectively. These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid stage, and companies with revenues in excess of $15 million are considered to be later stage.

Innovation C&I and Cash Flow Dependent loans represented 14% and 7% of SVB loans and total loans at March 31, 2023, respectively. This portfolio is comprised of two types of loans, Innovation C&I and Cash Flow Dependent. Innovation C&I include loans in innovation sectors such as technology and life science/healthcare industries. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash Flow Dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities.

Private Banking

Private Banking clients consist of executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients. Lending to Private Banking clients represented 14% and 7% of SVB loans and total loans at March 31, 2023, respectively. Many Private Banking products are secured by real estate. These products include mortgage loans, owner-occupied commercial mortgage loans, home equity lines of credit and other secured lending products. The remaining balance of the Private Banking portfolio consists of personal capital call lines of credit, restricted and private stock loans and other secured and unsecured lending products.

CRE

The CRE class represented 4% and 2% of SVB loans and total loans at March 31, 2023, respectively. This class consists generally of acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space. All CRE products are secured by real estate collateral.

Other

The Other class includes Premium Wine, Other C&I and Other portfolios which represented 4% and 2% of SVB loans and total loans at March 31, 2023. Premium wine loans are to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of premium wine loans are secured by real estate collateral. Other C&I loans include tax-exempt commercial loans to non-for-profit private schools, college, public charter schools and other not-for-profit organizations as well as commercial loans to clients that are not in technology and life sciences/healthcare industries. Our Other class of loans is primarily comprised of construction and land loans for financing new developments or financing improvements to existing buildings, as well as loans made as part of our ~~overall risk management practices~~responsibilities under the Community Reinvestment Act of 1977.

The following table provides a summary of SVB loans by size and ~~also~~class. The breakout below is based on ~~behalf~~total client balances (individually or in the aggregate) as of ~~our clients. We establish risk metrics~~March 31, 2023:

Table 36

Silicon Valley BankingLoans by Size and ~~evaluate and manage the counterparty risk associated with these derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework.~~Class


dollars in millions	Less Than $5 Million		$5 to < $10 Million		$10 to < $20 Million		$20 to < $30 Million		> $30 Million		Total SVB Loans
Global fund banking	$	1,275	$	1,572	$	3,394	$	2,948	$	26,908	$	36,097
Investor dependent - early stage	1,141		548		214		—		91		1,994
Investor dependent - growth stage	746		949		1,326		534		863		4,418
Innovation C&I and cash flow dependent	341		322		843		1,301		6,386		9,193
Private Bank	6,887		1,007		848		309		425		9,476
CRE	724		504		666		336		214		2,444
Other	538		491		749		518		253		2,549
Total	$	11,652	$	5,393	$	8,040	$	5,946	$	35,140	$	66,171

~~Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to~~SVB Loans - State Concentrations

The following table summarizes state concentrations greater than 5.0% within 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.SVB loans portfolio at March 31, 2023, based on borrower location:

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.Table 37

Silicon Valley Banking Loans - Geography


dollars in millions	March 31, 2023
State
California	$	19,936	30.1	%
New York	10,094		15.3	%
Massachusetts	9,658		14.6	%
Texas	4,578		6.9	%
Connecticut	4,520		6.8	%
All other states	14,375		21.7	%
Total U.S.	63,161		95.4	%
Total International	3,010		4.6	%
Total	$	66,171	100.0	%

~~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 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 primarily through two metrics.

•Net Interest Income ~~Sensitivity~~ (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; and

•Economic Value of Equity Sensitivity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.

BancShares uses a holistic process to measure and monitor both short term and long term risks which includes, but is not limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship of various yield curves. NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet.

Our exposure to NII Sensitivity is guided by ~~BancShares risk appetite framework~~the Risk Appetite Framework and Statement and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line actions and actions within the investment, funding and derivative ~~activities.~~portfolios.

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~~we also support our funding needs through wholesale funding sources (including unsecured and secured borrowings). The SVBB Acquisition significantly increased our balance sheet and changed our rate sensitivity. At the time of the SVBB Acquisition, we assumed $55.96 billion of deposits, entered into a $35.15 billion fixed-rate Purchase Money Note payable to the FDIC, acquired $68.50 billion of loans, most of which have variable rates, and $35.28 billion of cash and interest-bearing deposits at banks.

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~~For this analysis that includes the initial impacts from the assets acquired and liabilities assumed in the SVBB Acquisition, we are running scenarios for both BancShares (without SVB) and SVB and then merging those results, as there are multiple systems involved. The following table below summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management ~~system.~~systems. 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 March 31, ~~2022~~2023, and December ~~2021.~~2022.

Table 2838

Net Interest Income Sensitivity Simulation Analysis


		Estimated (decrease) increase in net interest income					Estimated (Decrease) Increase in NII
Change in interest rate (basis points)		March 31, 2022		December 31, 2021
Change in interest rate (bps)						Change in interest rate (bps)	March 31, 2023		December 31, 2022
-100	-100	(6.10)	%	(5.77)	%	-100	(11.1)	%	(4.0)	%
-25	-25	(1.50)	%	(1.15)	%	-25	(2.8)	%	(0.9)	%
+25	+25	1.60	%	1.05	%	+25	2.8	%	0.8	%
+100	+100	6.10	%	3.21	%	+100	11.1	%	3.4	%
+200	+200	12.20	%	6.30	%	+200	22.0	%	6.7	%

NII Sensitivity metrics at March 31, ~~2022,~~2023, compared to December 31, ~~2021,~~2022, were primarily affected by the addition of ~~CIT assets~~the acquired loans and ~~liabilities,~~assumed deposits as part of the SVBB Acquisition, as well as the Purchase Money Note and ~~subsequent debt redemptions.~~the higher cash balance to manage liquidity risk from the acquired portfolios. BancShares continues to have an asset sensitive interest rate risk ~~profile. The~~profile and the potential ~~upside~~exposure to forecasted earnings is largely driven by the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as ~~modest~~ estimates of modest future deposit betas. Approximately ~~45%~~65%-70% of our loans have floating contractual reference rates, indexed primarily to ~~1-month LIBOR, 3-month LIBOR,~~ Prime, SOFR and ~~Secured Overnight Financing Rate (“SOFR”).~~LIBOR. Deposit betas up for the combined company, and are modeled ~~and~~to have a portfolio average of ~~20%-25%, which blends~~approximately 30%-35% over the ~~lower~~forecast horizon. Deposit beta ~~deposits~~is the portion of ~~legacy FCB with~~a change in the ~~higher betas from legacy CIT.~~fed funds rate that is passed on to the deposit rate. 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 driven by changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates. EVE Sensitivity is calculated by estimating the change in the net present value of assets, liabilities, and ~~off balance~~off-balance sheet items under various rate movements.

~~Table 29~~The following table presents the EVE profile as of March 31, ~~2022~~2023, and December 31, ~~2021.~~2022:

Table 2939

Economic Value Ofof Equity Modeling Analysis


		Estimated (decrease) increase in EVE					Estimated (Decrease) Increase in EVE
Change in interest rate (basis points)		March 31, 2022		December 31, 2021
Change in interest rate (bps)						Change in interest rate (bps)	March 31, 2023		December 31, 2022
-100	-100	(7.90)	%	(13.68)	%	-100	(6.1)	%	(5.3)	%
-25	-25	(1.80)	%	—	%	-25	(1.4)	%	(1.2)	%
+100	+100	6.40	%	6.10	%	+100	5.3	%	4.1	%
+200	+200	8.40	%	5.93	%	+200	10.0	%	3.0	%

The economic value of equity metrics at March 31, ~~2022~~2023 compared to December 31, ~~2021,~~2022 were primarily affected by the ~~CIT Merger, coupled with increasing market interest rates.~~balance sheet changes noted earlier due to the SVBB Acquisition.

In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system. Scenarios that impact management volumes, specific risk events, or the sensitivity to key assumptions are also evaluated.

8793

We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using off balance sheet derivatives to mitigate earnings volatility.

The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, the range of such simulations is not intended to represent our current view of the expected range of future interest rate movements.

~~Table 30~~The following table provides loan maturity distribution ~~information.~~information:

Table 3040

Loan Maturity Distribution


		At March 31, 2022, maturing
dollars in millions	dollars in millions	Within One Year		One to Five Years		Five to 15 Years		After 15 years		Total		dollars in millions	At March 31, 2023, Maturing
													Within One Year		One to Five Years		Five to 15 Years		After 15 Years		Total
Commercial	Commercial											Commercial
Commercial construction	Commercial construction	$	563	$	1,368	$	605	$	97	$	2,633	Commercial construction	$	806	$	1,305	$	757	$	103	$	2,971
Owner occupied commercial mortgage	Owner occupied commercial mortgage	549		3,886		8,623		496		13,554		Owner occupied commercial mortgage	647		4,331		9,039		439		14,456
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	2,133		4,966		1,934		259		9,292		Non-owner occupied commercial mortgage	2,159		5,759		2,029		345		10,292
Commercial and industrial	Commercial and industrial	6,550		12,362		3,373		117		22,402		Commercial and industrial	6,767		13,921		3,612		208		24,508
Leases	Leases	742		1,427		51		—		2,220		Leases	758		1,364		41		—		2,163
Total commercial	Total commercial	$	10,537	$	24,009	$	14,586	$	969	$	50,101	Total commercial	11,137		26,680		15,478		1,095		54,390
Consumer	Consumer											Consumer
Residential mortgage	Residential mortgage	275		1,085		3,456		6,895		11,711		Residential mortgage	320		676		2,398		10,333		13,727
Revolving mortgage	Revolving mortgage	114		222		95		1,410		1,841		Revolving mortgage	73		143		56		1,644		1,916
Consumer auto	Consumer auto	10		627		683		—		1,320		Consumer auto	11		703		738		—		1,452
Consumer other	Consumer other	296		129		88		38		551		Consumer other	306		167		123		36		632
Total consumer	Total consumer	$	695	$	2,063	$	4,322	$	8,343	$	15,423	Total consumer	710		1,689		3,315		12,013		17,727
SVB												SVB
Global fund banking												Global fund banking	33,636		2,330		131		—		36,097
Investor dependent - early stage												Investor dependent - early stage	234		1,728		32		—		1,994
Investor dependent - growth stage												Investor dependent - growth stage	405		3,885		128		—		4,418
Innovation and cash flow dependent												Innovation and cash flow dependent	1,608		7,217		368		—		9,193
Private Bank												Private Bank	283		524		905		7,764		9,476
CRE												CRE	286		1,293		817		48		2,444
Other												Other	480		685		800		584		2,549
Total SVB												Total SVB	36,932		17,662		3,181		8,396		66,171
Total loans and leases	Total loans and leases	$	11,232	$	26,072	$	18,908	$	9,312	$	65,524	Total loans and leases	$	48,779	$	46,031	$	21,974	$	21,504	$	138,288

~~Table 31~~

The following table provides information regarding the sensitivity of loans and leases to changes in interest ~~rates.~~rates:

Table 3141

Loan Interest Rate Sensitivity

Loans maturing one year or after with
dollars in millions Fixed interest rates Variable interest rates
Commercial
Commercial construction $ 853 $ 1,217
Owner occupied commercial mortgage 11,353 1,592
Non-owner occupied commercial mortgage 2,608 4,552
Commercial and industrial 6,933 8,979
Leases 1,477 —
Total commercial $ 23,224 $ 16,340
Consumer
Residential mortgage 6,912 4,524
Revolving mortgage 38 1,688
Consumer auto 1,311 —
Consumer other 215 40
Total consumer $ 8,476 $ 6,252
Total loans and leases $ 31,700 $ 22,592


dollars in millions	Loans Maturing One Year or After with
	Fixed Interest Rates		Variable Interest Rates
Commercial
Commercial construction	$	940	$	1,225
Owner occupied commercial mortgage	12,312		1,497
Non-owner occupied commercial mortgage	3,251		4,882
Commercial and industrial	8,007		9,734
Leases	1,405		—
Total commercial	25,915		17,338
Consumer
Residential mortgage	7,302		6,105
Revolving mortgage	35		1,808
Consumer auto	1,441		—
Consumer other	298		28
Total consumer	9,076		7,941
SVB
Global fund banking	8		2,453
Investor dependent - early stage	22		1,738
Investor dependent - growth stage	9		4,004
Innovation and cash flow dependent	—		7,585
Private Bank	1,984		7,209
CRE	928		1,230
Other	1,370		699
Total SVB	4,321		24,918
Total loans and leases	$	39,312	$	50,197

Reference Rate Reform

The administrator of LIBOR has announced that publication of the most commonly used tenors of U.S. Dollar LIBOR will cease to be provided or cease to be representative after June 30, 2023. ~~The publication of all other LIBOR settings ceased to be provided or ceased to be representative on December 31, 2021.~~ The U.S. federal banking agencies had also issued guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021 at the latest. ~~As a result, prior to the CIT Merger, FCB and CIT had~~Accordingly, we ceased originating new products using LIBOR by the end of 2021.

In April 2018, the FRB of New York commenced publication of SOFR, which has been recommended as an alternative to U.S. Dollar LIBOR by the Alternative Reference Rates Committee, a group of market and official sector participants. ~~However, uncertainty remains~~On March 15, 2022, the U.S. Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest (LIBOR) Act, which provides certain statutory requirements and guidance for the selection and use of alternative reference rates in legacy financial contracts governed by U.S. law that do not provide for the use of a clearly defined or practicable alternative reference rate. On July 19, 2022, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking on a proposed regulation to implement the LIBOR Act, as required by its terms. The LIBOR Act requires implementing regulations be in place within 180 days of its enactment. The final rule was approved by the FRB on December 16, 2022 and became effective February 27, 2023. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the ~~transition process and acceptance~~LIBOR Act. BancShares anticipates using Board-selected benchmark replacements to take advantage of ~~SOFR as~~ the ~~primary alternative to LIBOR.~~safe harbors, where applicable, that are afforded in the rule.

BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR as a benchmark rate. However, BancShares’ LIBOR exposure is primarily to tenures other than one week and two-month USD LIBOR.

LIBOR is a benchmark interest rate for most of our floating rate loans and our Series B Preferred Stock, as well as certain liabilities and off-balance sheet exposures. We continue to monitor industry and regulatory developments and have a well-established transition program in place to manage the implementation of alternative reference rates as the market transitions away from LIBOR. Coordination is being handled by a cross-functional project team governed by executive sponsors. Its mission is to work with our businesses to ensure a smooth transition for BancShares and its customers to an appropriate LIBOR alternative. Certain financial markets and products have already migrated to alternatives. The project team ensures that BancShares is ready to move quickly and efficiently as consensus around LIBOR alternatives emerge. BancShares has processes in place to complete its review of the population of legal contracts impacted by the LIBOR transition, and updates to our operational systems and processes are substantially in place.

BancShares is utilizing SOFR as our preferred replacement index for LIBOR. As loans mature and new originations occur a larger percentage of BancShares’ variable-rate loans are expected to reference SOFR in response to the discontinuation of LIBOR. However, we are positioned to accommodate other alternative reference rates (e.g., credit sensitive rates) in response to how the market evolves. Further, BancShares plans to move to Term SOFR plus the Alternative Reference Rate Committee recommended credit spread adjustment for its Series B Preferred Stock since the dividends are currently based on a floating rate tied to three-month LIBOR.

Some acquired assets, such as loans and derivatives as well as derivative liabilities, from the SVBB Acquisition have LIBOR settings. Processes and procedures are in place to have these LIBOR exposures reference alternative rates, such as Term SOFR and Daily SOFR, in advance of LIBOR’s unavailability.

For a further discussion of risks BancShares faces in connection with the replacement of LIBOR on its operations, see “Risk Factors—Market Risks—We may be adversely impacted by the transition from LIBOR as a reference rate.” in Item 1A. Risk Factors of our 2022 Form 10-K.

LIQUIDITY RISK ~~MANAGEMENT~~

Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent with this strategy, we maintain ~~significant~~sufficient amounts of Available Cash and ~~High-Quality~~High Quality Liquid ~~Securities.~~Securities (“HQLS”). Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, ~~Brokered~~brokered CD issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.

We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid ~~asset,~~assets, and contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events.

BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares maintains a contingent funding plan which details protocols and potential actions to be taken under liquidity stress conditions.

Liquidity includes Available Cash and ~~High Quality Liquid Securities.~~HQLS. At March 31, ~~2022~~2023 we had ~~$21.5~~$51.42 billion of total Liquid Assets ~~(20%~~(24.0% of total assets) and ~~$17.5~~$79.49 billion of contingent liquidity sources available.

8996

Table 3242

Liquidity


dollars in millions	March 31, ~~2022~~2023
Available Cash	$	~~9,075~~37,670
High Quality Liquid Securities(1)	~~12,457~~13,745
Liquid Assets	$	~~21,532~~51,415

FHLB capacity~~(1)~~(2)	$	~~13,143~~4,712
FRB capacity	~~4,242~~4,676
FDIC Credit Facility(3)	70,000
Line of credit ~~with bank~~	75100
Total contingent sources	$	~~17,460~~79,488
Total Liquid Assets and contingent sources	$	~~38,992~~130,903

~~(1)~~(1) Consist of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and Agency securities held outright or via reverse repurchase agreements.

(2)See ~~Table 33~~following table for additional details.

(2) Credit facility obtained in connection with SVBB Acquisition. See below for additional details and limits on use.

We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our ~~branch-generated~~various deposit ~~portfolio due to the generally stable balances~~channels, including our branch network and ~~low cost.~~Direct Bank. Deposits totaled ~~$91.6~~$140.05 billion and ~~$51.4~~$89.41 billion at March 31, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively. The increase in deposits from December 31, 2022 primarily reflected additional deposits from the SVBB Acquisition, and organic growth. We use borrowings to diversify the funding of our business operations. Borrowings totaled ~~$3.3~~$46.09 billion and ~~$1.8~~$6.65 billion at March 31, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively. ~~Borrowings consist~~The increase in borrowings from December 31, 2022 primarily reflected the Purchase Money Note (see Note 2 — Business Combination), and net new borrowings of ~~long-term debt,~~FHLB borrowings. In January and February, we had been repaying outstanding FHLB borrowings as our deposit base grew. In March, due to the Banking uncertainty associated with the regional bank failures we borrowed $7.00 billion. In addition to the Purchase Money Note and FHLB advances, ~~and~~borrowings also include senior unsecured notes, securities sold under customer repurchase ~~agreements.~~agreements, and subordinated notes.

FHLB Capacity

A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment. Certain related cash balances are restricted.

~~FHLB Advances~~

Table 3343

FHLB Balances


		March 31, 2022			December 31, 2021
dollars in millions	dollars in millions	Total			Total			dollars in millions	March 31, 2023			December 31, 2022
									Total			Total
Total borrowing capacity	Total borrowing capacity	$	13,782		$	9,564		Total borrowing capacity	$	14,662		$	14,918
Less:	Less:							Less:
Advances	Advances	639			645			Advances	8,500			4,250
Letters of credit(1)								Letters of credit(1)	1,450			1,450
Available capacity	Available capacity	$	13,143		$	8,919		Available capacity	$	4,712		$	9,218
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	19,889		$	14,507		Pledged non-PCD loans (contractual balance)	$	23,743		$	23,491
Weighted Average Rate	Weighted Average Rate	1.27		%	1.28		%	Weighted Average Rate	5.21		%	3.28		%

(1) Letters of credit were established with the FHLB to collateralize public funds.

FRB Capacity

Under borrowing arrangements with the FRB of Richmond, FCB has access to an additional ~~$4.2~~$4.68 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

In March 2023, following the failures of Silicon Valley Bank and Signature Bank, the FRB created a new Bank Term Funding Program as an additional source of liquidity against high-quality securities in order to make additional funding available to eligible depository institutions. This program offers loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral, provided that such collateral was owned by the borrower as of March 12, 2023. These pledged assets will be valued at par under the Program. Eligible institutions can request advances under the Program at least through March 11, 2024. As of March 31, 2023, we did not have any securities pledged or amounts advanced related to this program.

FDIC Credit Facility

FCB and the FDIC entered into binding terms and conditions for a five-year, up to $70 billion line of credit to FCB (the “Credit Facility”) provided by the FDIC. During the two-year period following the SVBB Acquisition, FCB may draw on the Credit Facility to support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired pursuant to the SVBB Acquisition (the “Unfunded Commitments”). Interest on outstanding principal will accrue at a variable rate equal to the Secured Overnight Financing Rate plus 25 basis points (but in no event less than 0.00%).

The Credit Facility is primarily secured by all loans acquired in the SVBB Acquisition and related commitments that are subsequently drawn and outstanding as of March 31, 2023.

~~Commitments~~Contractual Obligations and ~~Contractual Obligations~~Commitments

~~Table 34~~The following table identifies significant contractual obligations and commitments as of March 31, ~~2022,~~2023, representing required and potential cash outflows. See Note 2322 — Commitments and Contingencies for additional information regarding commitments. Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows, as many are expected to expire unused or partially used.

Table 44

~~Table 34~~

~~Commitments and~~ Contractual Obligations and Commitments


Type of obligation		Payments due by period
dollars in millions	dollars in millions	Less than 1 year		1-3 years		4-5 years		Thereafter		Total		dollars in millions	Payments Due by Period
													Less than 1 year		1-3 years		4-5 years		Thereafter		Total
Contractual obligations:	Contractual obligations:											Contractual obligations:
Time deposits(1)	Time deposits(1)	$	6,765	$	1,918	$	436	$	123	$	9,242	Time deposits(1)	$	9,199	$	3,718	$	86	$	125	$	13,128
Short-term borrowings	Short-term borrowings	616		—		—		—		616		Short-term borrowings	1,009		—		—		—		1,009
Long-term obligations(1)	Long-term obligations(1)	94		683		347		1,552		2,676		Long-term obligations(1)	476		8,259		35,708		642		45,085
Total contractual obligations	Total contractual obligations	$	7,475	$	2,601	$	783	$	1,675	$	12,534	Total contractual obligations	$	10,684	$	11,977	$	35,794	$	767	$	59,222
Commitments:	Commitments:											Commitments:
Financing commitments	Financing commitments	$	11,051	$	4,724	$	1,983	$	4,049	$	21,807	Financing commitments	$	48,696	$	14,112	$	5,656	$	6,043	$	74,507
Letters of credit	Letters of credit	169		98		76		23		366		Letters of credit	3,614		295		118		12		4,039
Deferred purchase agreements	Deferred purchase agreements	2,097		—		—		—		2,097		Deferred purchase agreements	1,707		—		—		—		1,707
Lessor commitments		513		—		—		—		513
Purchase and funding commitments												Purchase and funding commitments	869		—		—		—		869
Affordable housing partnerships(1)	Affordable housing partnerships(1)	84		137		14		7		242		Affordable housing partnerships(1)	385		547		19		40		991
Total commitments	Total commitments	$	13,914	$	4,959	$	2,073	$	4,079	$	25,025	Total commitments	$	55,271	$	14,954	$	5,793	$	6,095	$	82,113

(1) Time deposits and long-term borrowings are presented net of purchase accounting adjustments of $27 million and $139 million, respectively. On-balance sheet commitments are included in other ~~liabilities.~~liabilities and presented net of a purchase accounting adjustment of $70 million.

CAPITAL

Capital requirements applicable to ~~BancShares’~~BancShares are discussed in “Regulatory Considerations” section in Item 1. Business -— Regulation ~~subsections “Regulatory Considerations”~~ of our ~~2021 Annual Report.~~2022 Form 10-K. The SVBB Acquisition increased BancShares’ total assets from $109.30 billion at December 31, 2022 to $214.66 billion at March 31, 2023. Therefore, as detailed in our 2022 Form 10-K, BancShares’ total consolidated assets remain between $100 billion and $250 billion, and BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods.

BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments. The capital management framework requires contingency plans be defined and may be employed at management’s discretion.

Common and Preferred Stock Dividends

During the first quarter of 2023, we paid a quarterly dividend of $0.75 on the Class A common stock and Class B common stock. On April 25, 2023, our Board of Directors declared a quarterly dividend on the Class A common stock and Class B common stock of $0.75 per common share. The dividends are payable on June 15, 2023 to stockholders of record as of May 31, 2023.

On April 25, 2023, our Board of Directors also declared dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. The dividends are payable on June 15, 2023 to stockholders of record as of May 31, 2023. Dividend payment information on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is disclosed in Note 15 — Stockholders’ Equity.

Capital Composition and Ratios

In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6.1 million shares of its Class A Common Stock. Additionally, CIT Series A and B Preferred Stock was converted into the rights to receive BancShares Series B and C Preferred Stock, respectively. In connection with the consummation of the CIT Merger, the Parent Company issued (a) 325,000 shares of BancShares Series B Preferred Stock with a liquidation preference of $1,000 per share, resulting in a total liquidation preference of $325 million, and (b) 8 million shares of BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total liquidation preference of $200 million.

The table below shows activities that caused the change in outstanding Class A Common Stock for the ~~quarter.~~quarter:

Table 3545

Changes in Shares of Class A Common Stock Outstanding

Three ~~months ended~~Months Ended March 31, ~~2022~~2023

Class A shares outstanding at beginning of period

~~8,811,220~~13,501,017

~~Share issuance in conjunction with the CIT Merger~~

~~6,140,010~~

Restricted stock units vested, net of shares held to cover taxes

~~45,095~~13,791

Class A shares outstanding at end of period

~~14,996,325~~13,514,808

We also had 1,005,185 Class B Common Stock outstanding at March 31, ~~2022~~2023 andDecember 31, ~~2021.~~2022.

On April 25, 2023 Bancshares’ stockholders approved amendments to the Restated Certificate of Incorporation to increase the number of authorized shares of the Class A Common Stock from 16,000,000 shares to 32,000,000 shares and to increase the number of authorized shares of the Preferred Stock from 10,000,000 shares to 20,000,000.

We are committed to effectively managing our capital to protect our depositors, creditors and stockholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements.

In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within stockholders’ equity. These amounts are excluded from regulatory in the calculation of our regulatory capital ratios under current regulatory guidelines.

Table 3646

Analysis of Capital Adequacy


		Requirements to be Well-Capitalized		March 31, 2022				December 31, 2021
dollars in millions	dollars in millions			Amount		Ratio		Amount		Ratio		dollars in millions	Requirements to be Well-Capitalized			March 31, 2023					December 31, 2022
															Amount			Ratio				Amount			Ratio
BancShares	BancShares											BancShares
Risk-based capital ratios	Risk-based capital ratios											Risk-based capital ratios
Total risk-based capital	Total risk-based capital	10.00	%	$	12,117	14.47	%	$	5,042	14.35	%	Total risk-based capital	10.00	%		$	21,764		14.86	%			$	11,799		13.18	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%	10,377		12.39	%	4,380		12.47	%	Tier 1 risk-based capital	8.00	%		19,225			13.13	%			9,902			11.06	%
Common equity Tier 1	Common equity Tier 1	6.50	%	9,496		11.34	%	4,041		11.50	%	Common equity Tier 1	6.50	%		18,344			12.53	%			9,021			10.08	%
Tier 1 leverage ratio	Tier 1 leverage ratio	5.00	%	10,377		9.55	%	4,380		7.59	%	Tier 1 leverage ratio	5.00	%		19,225			16.72	%			9,902			8.99	%

FCB	FCB											FCB
Risk-based capital ratios	Risk-based capital ratios											Risk-based capital ratios
Total risk-based capital	Total risk-based capital	10.00	%	$	11,925	14.25	%	$	4,858	13.85	%	Total risk-based capital	10.00	%		$	21,578		14.74	%			$	11,627		12.99	%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%	10,641		12.71	%	4,651		13.26	%	Tier 1 risk-based capital	8.00	%		19,495			13.32	%			10,186			11.38	%
Common equity Tier 1	Common equity Tier 1	6.50	%	10,641		12.71	%	4,651		13.26	%	Common equity Tier 1	6.50	%		19,495			13.32	%			10,186			11.38	%
Tier 1 leverage ratio	Tier 1 leverage ratio	5.00	%	10,641		9.81	%	4,651		8.07	%	Tier 1 leverage ratio	5.00	%		19,495			16.97	%			10,186			9.25	%

As of March 31, ~~2022,~~2023, BancShares and FCB ~~continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines. At March 31, 2022, BancShares and FCB~~ had ~~total~~ risk-based capital ratio conservation buffers of ~~6.47%~~6.86% and ~~6.25%~~6.74%, respectively, which are in excess of the ~~fully phased in~~ Basel III conservation buffer of 2.50%. At December 31, ~~2021,~~2022, BancShares and FCB ~~had total~~ risk-based capital ratio conservation buffers were ~~6.35%~~5.06% and ~~5.85%.~~4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ~~ratio~~ratios as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 over the Basel III ~~minimum.~~minimum for the ratio that is the binding constraint. Additional Tier 1 capital for BancShares includes perpetual preferred stock. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.

CRITICAL ACCOUNTING ESTIMATES

~~Accounting policies related to~~As further described in our 2022 Form 10-K, the ACL and fair values of loans acquired in and the core deposit intangibles associated with a business combination are considered critical accounting ~~estimates as described in our 2021 Annual Report.~~estimates. The ACL as of March 31, ~~2022~~2023 is discussed in Note 5 — Allowance for ~~credit~~Credit Losses and the Credit Risk ~~Management~~discussion in the section ~~of Item II in this Quarterly Report on Form 10-Q.~~

entitled “Risk Management” above.

Fair values of loans acquired in and the core deposit intangibles associated with the ~~CIT Merger~~SVBB Acquisition are considered critical accounting estimates. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the ~~merger~~acquisition and other future events that are highly subjective in nature and may require adjustments. The fair values for these items are further discussed in Note 2 — Business Combinations.

RECENT ACCOUNTING PRONOUNCEMENTS

The following accounting pronouncements were issued by the FASB but are not yet effective for BancShares.


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 ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 Issued December 2022	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. The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform. 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~~ ASU 2022-06 extends the period of ~~March 12, 2020~~time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024.	BancShares continues to assess the impact of the optional expedients available 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 applicable2024 for eligible contract modifications and ~~any~~ hedge relationships. ~~However, we do~~ The reference rate reform optional expedients have not ~~expect~~yet been applied to any contracts and adoption of this guidance has not had, and is not expected to have, a material impact on the financial statements.
ASU ~~2022-01,~~ ~~Fair Value Hedging - Portfolio Layer~~2023-02 – Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued March ~~2022~~ 2023	The amendments in this ~~Update allows~~update allow entities to ~~designate multiple hedged layers of a single closed portfolio, and expands~~elect to account for qualifying tax equity investments using the ~~scope~~proportional amortization method (“PAM”), regardless of the ~~portfolio layer method~~program giving rise to ~~include non-prepayable financial assets.~~ ~~Provides additional~~the related income tax credits. PAM accounting had been available only for qualifying investments in qualified affordable housing projects. The guidance also requires disclosure of the nature of the investor’s tax equity investments and the effect of income tax credits and other income tax benefits from tax equity investments on the ~~accounting for~~investor’s balance sheet 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.~~ income statement.	Effective for BancShares as of January 1, ~~2023.~~2024. 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.


ASU ~~No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures~~ 2022-03 - Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued ~~March~~June 2022 ~~Issued March 2022~~			The amendments in this ~~ASU eliminates~~update clarify that a contractual restriction on the ~~recognition~~sale of an equity security is not considered part of the unit of account of the equity security and, ~~measurement guidance~~therefore, is not considered in measuring fair value. The amendments also require specific disclosures for ~~TDRs for creditors that have adopted the CECL model and enhances disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.~~ equity securities subject to contractual sale restrictions. ~~The guidance also requires disclosure of current-period gross write-offs by year of origination in the vintage disclosure.~~			Effective for BancShares as of January 1, ~~2023.~~2024. Early adoption is permitted. ~~Provides~~ BancShares does not expect the ~~option to early adopt the amendments related to TDRs separately from the amendments related to vintage disclosures.~~ ~~Allows~~ adoption ~~using either a prospective or modified retrospective transition methods. Under prospective method, entities are permitted to apply this guidance to modifications occurring after the first day~~ of the ~~fiscal year of adoption. If the modified retrospective transition method is elected,~~update to have a cumulative effect adjustment to retained earnings is recorded in the period of adoption to recognize any change in the allowance for credit losses that had been recognized for receivables previously modified in a TDR. ~~BancShares is currently evaluating the transition methods and timing of adoption, along with the~~material impact on ~~its~~our consolidated financial statements and related disclosures.

100

~~GLOSSARY OF KEY TERMS~~

To ~~assist the users of this document, we have added the following~~ ~~Glossary~~ ~~of key terms:~~

~~Adjusted Interest-Earnings Assets~~ is a non-GAAP measure that is the sum of loans and leases (as defined below, less the credit balances of factoring clients), loans and leases held for sale, interest-bearing cash, investment securities, and securities purchased under agreements to resell.

~~Allowance for Credit Losses (“ACL”)~~ ~~reflects the estimated credit losses over the full remaining expected life of the portfolio. See~~ ~~CECL~~ ~~below.~~

~~Assets Held for Sale~~ include loans and operating lease equipment that we no longer have the intent or ability to hold until maturity. As applicable, assets held for sale could also include a component of goodwill associated with portfolios or businesses held for sale.

~~Available Cash~~ consists of the unrestricted portions of ‘Cash and due from banks’ and ‘Interest-bearing deposits at banks’, excluding cash not accessible for liquidity, such as vault cash and deposits in transit.

~~Available for sale~~ is a classification that pertains to debt securities. We classify debt securities as available for sale when they are not considered trading securities, securities carried at fair value, or held-to-maturity securities. Available for sale securities are included in investment securities in the balance sheet.

~~Average Interest-Earning Assets~~ ~~is a non-GAAP measure that is computed using daily balances of~~ ~~Interest-Earning Assets. We use this average for certain key profitability ratios, including NIM (as defined below) for the respective period.~~

~~Average Loans and Leases~~ ~~is computed using daily balances and is used to measure the rate of return on loans and leases (finance leases) and the rate of net charge-offs, for the respective period.~~

~~Capital Conservation Buffer (“CCB”)~~ is the excess 2.5% of each of the capital tiers that banks are required to hold in accordance with Basel III rules, above the minimum CET 1 Capital, Tier 1 capital and Total capital requirements, designed to absorb losses during periods of economic stress.

~~Common Equity Tier 1 ("CET1"), Additional Tier 1 Capital, Tier 1 Capital, Tier 2 Capital, and Total Capital~~ are regulatory capital measures as defined in the capital adequacy guidelines issued by the Federal Reserve. CET1 is common stockholders' equity reduced by capital deductions such as goodwill, intangible assets and DTAs that arise from net operating loss and tax credit carryforwards and adjusted by elements of other comprehensive income and other items. Tier 1 Capital is Common Equity Tier 1 Capital plus other Additional Tier 1 Capital instruments, including non-cumulative preferred stock. Total Capital consists of Tier 1 Capital and Tier 2 Capital, which includes subordinated debt, and qualifying allowance for credit losses and other reserves.

~~Current Expected Credit Losses (“CECL”)~~ is a forward-looking “expected loss” model used to estimate credit losses over the full remaining expected life of the portfolio. Estimates under the CECL model are based on relevant information about past events, current conditions, and reasonable and supportable forecasts regarding the collectability of reported amounts. Generally, the model requires that an ACL be estimated and recognized for financial assets measured at amortized cost within its scope.

~~Delinquent Loan~~ ~~categorization occurs when payment is not received when contractually due. Delinquent loan trends are used as a gauge of potential portfolio degradation or improvement.~~

~~Derivative Contract~~ is a contract whose value is derived from a specified asset or an index, such as an interest rate or a foreign currency exchange rate. As the value of that asset or index changes, so does the value of the derivative contract.

~~Economic Value of Equity ("EVE")~~ ~~measures the net impact of hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.~~

~~High Quality Liquid Securities(“HQLS”)~~ consist of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and Agency securities held outright or via reverse repurchase agreements.

~~Impaired Loan~~ ~~is a loan for which, based on current information and events, it is probable that BancShares will be unable to collect all amounts due according to the contractual terms of the loan.~~

~~Interest income~~ ~~includes interest earned on loans, interest-bearing cash balances, debt investments and dividends on investments.~~

~~Lease — finance~~ is an agreement in which the party who owns the property (lessor), which is BancShares as part of our finance business, permits another party (lessee), which is our customer, to use the property with substantially all of the economic benefits and risks of asset ownership passed to the lessee. Finance leases are commonly known as sales-type leases and direct finance leases.

~~Lease — operating~~ is a lease in which BancShares retains ownership of the asset (operating lease equipment, net), collects rental payments, recognizes depreciation on the asset, and retains the risks of ownership, including obsolescence.

~~Liquid Assets~~ ~~includes Available Cash and HQLS.~~

~~Loansand Leases~~ ~~include loans, finance lease receivables, and factoring receivables, and do not include amounts contained within assets held for sale (unless otherwise noted) or operating leases.~~

~~Loan-to-Value Ratio("LTV")~~ is a calculation of a loan's collateral coverage that is used in underwriting and assessing risk in our lending portfolio. LTV is calculated as the total loan obligations (unpaid principal balance) secured by collateral divided by the fair value of the collateral.

~~Net Interest Income (“NII”)~~ reflects interest and fees on loans, interest on interest-bearing cash, and interest/dividends on investments less interest expense on deposits and borrowings. When divided by average adjusted interest earning assets, the quotient is defined as Net Interest Margin ("NIM").

~~Net Interest Income Sensitivity("NII Sensitivity")~~ ~~measures the net impact of hypothetical changes in interest rates on forecasted NII.~~

~~Net Operating Loss Carryforward / Carryback("NOLs")~~ is a tax concept, whereby tax losses in one year can be used to offset taxable income in other years. The rules pertaining to the number of years allowed for the carryback or carryforward of an NOL varies by jurisdiction.

~~Non-accrual Loans~~ include loans greater than or equal to $500,000 that are individually evaluated and determined to be impaired, as well as loans less than $500,000 that are delinquent (generally for 90 days or more), unless it is both well secured and in the process of collection. Non-accrual loans also include loans with revenue recognition on a cash basis because of deterioration in the financial position of the borrower.

~~Non-performing Assets~~ ~~include~~ ~~Non-accrual Loans~~, ~~OREO,~~ ~~and repossessed assets.~~

~~Other Noninterest Income~~ includes (1) fee income and other revenue, (2) wealth management services, (3) gains and losses on leasing equipment, net, (4) Service charges on deposit accounts, (5) factoring commissions, (6) cardholder services, net, (7) merchant services, (8) realized gains and losses on investment securities available for sale, net, (9) marketable equity securities gains and losses, net, (10) gain on acquisition, (11) gain and losses on extinguishments of debt, and (12) other income.

~~Other Real Estate Owned ("OREO")~~ ~~is a term applied to real estate properties owned by a financial institution and are considered non-performing assets.~~

~~Pledged Assets~~ are those required under the collateral maintenance requirement in connection with borrowing availability at the FHLB, which are comprised primarily of consumer and commercial real estate loans and also include certain HQL securities that are available for secured funding at the FHLB.

~~Purchase Accounting Adjustments(“PAA”)~~ ~~reflect the fair value adjustments to acquired assets and liabilities assumed in a business combination.~~

~~Purchased Credit Deteriorated (“PCD”) financial assets~~ are acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment.

~~Regulatory Credit Classifications~~ ~~used by BancShares are as follows:~~

•~~Pass — A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification;~~

•Special Mention — A special mention asset has potential weaknesses which deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification;

•Substandard — A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected;

•Doubtful — An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values; and

•Loss — Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.

Classified assets are rated as substandard, doubtful or loss based on the criteria outlined above. Classified assets can be accruing or on non-accrual depending on the evaluation of the relevant factors. Classified loans plus special mention loans are considered criticized loans.

~~Residual Values~~ for finance leases represent the estimated value of equipment at the end of its lease term. For operating lease equipment, it is the value to which the asset is depreciated at the end of lease term or at the end of estimated useful life.

~~Right of Use Asset (“ROU Asset”)~~ ~~represents our right, as lessee, to use underlying assets for the lease term, and lease liabilities represent our obligation to make lease payments arising from the leases.~~

~~Risk Weighted Assets("RWA")~~ is the denominator to which CET1, Tier 1 Capital and Total Capital is compared to derive the respective risk based regulatory ratios. RWA is comprised of both on-balance sheet assets and certain off-balance sheet items (for example loan commitments, purchase commitments or derivative contracts). RWA items are adjusted by certain risk-weightings as defined by the regulators, which are based upon, among other things, the relative credit risk of the counterparty.

~~Troubled Debt Restructuring("TDR")~~ ~~occurs when a lender, for economic or legal reasons, grants a concession to the borrower related to the borrower's financial difficulties that it would not otherwise consider.~~

~~Variable Interest Entity("VIE")~~ is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets. These entities: lack sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties; have equity owners who either do not have voting rights or lack the ability to make significant decisions affecting the entity's operations; and/or have equity owners that do not have an obligation to absorb the entity's losses or the right to receive the entity's returns.

~~Yield-related Fees~~ are collected in connection with our assumption of underwriting risk in certain transactions in addition to interest income. We recognize yield-related origination fees in interest income over the life of the lending transaction and recognize yield-related prepayment fees when the loan is prepaid.

NON-GAAP FINANCIAL MEASUREMENTS

BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts or is adjusted in some way to the effect of including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements. BancShares believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and financial position to its investors, analysts and management. These non-GAAP measures should be considered in addition to, and not superior to or a substitute for, GAAP measures presented in BancShares’ consolidated financial statements and other publicly filed reports. In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial measures used by other institutions.

Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation between the U.S. GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful.

~~The following tables provide: (1) a reconciliation of net income (GAAP) to net revenue~~Adjusted Rental Income on ~~operating leases (non-GAAP)~~Operating Lease Equipment for ~~the~~ Rail Segment ~~and (2) a computation of adjusted interest-earning assets (non-GAAP).~~

~~Net Revenue on Operating Leases for Rail Segment~~

~~Net revenue~~Adjusted rental income on operating ~~leases~~lease equipment within the Rail segment is calculated as gross revenue earned on rail car leases less depreciation and maintenance. This metric allows us to monitor the performance and profitability of the rail leases after deducting direct expenses.

The table below presents a reconciliation of net income to ~~net revenue~~adjusted rental income on operating ~~leases.~~lease equipment.

Three Months Ended March 31,
dollars in millions 2022 2021
Net income (GAAP measure) $ 32 $ —
Plus: Provision for income taxes 11 —
Plus: Noninterest expense 16 —
Less: Noninterest income 3 —
Plus: Interest expense, net 19 —
Net revenue on operating leases (non-GAAP measure) $ 75 $ —

Table 41

Rail Segment


dollars in millions	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
Net income (GAAP)	$	22	$	24	$	32
Plus: Provision for income taxes	7		9		11
Plus: Other noninterest expense	18		15		16
Less: Other noninterest income	1		(5)		3
Plus: Interest expense, net	28		23		19
Adjusted rental income on operating lease equipment (non-GAAP)	$	74	$	76	$	75

97101

Forward-Looking Statements

~~Adjusted Interest-earning Assets~~

Interest-earning assets (period end balances) (GAAP) displayed in the table below are directly derived from the following line items in the Consolidated Balance Sheets or footnotes thereto: (i) interest-earning deposits at banks; (ii) investment securities; (iii) assets held for sale; and (iv) loans and leases. These represent interest income generating assets and the average of which provides a basis for management performance calculations, such as NII and NIM. We net the liabilities related to the factoring clients as the correlating receivable, which is included in loans and leases, generate commission income, which is noninterest income.
Three Months Ended March 31, 2022
dollars in millions Average
Balance Period End Balance
Interest earning assets (GAAP measure) $ 96,272 $ 94,361
Less: credit balances for factoring clients (1,160) (1,150)
Adjusted interest earning assets, net of credit balances of factoring clients (non-GAAP measure) $ 95,112 $ 93,211

Three Months Ended March 31, 2022
dollars in millions Yield on Interest Earning Assets Interest Rate Spread Net Interest Margin
Unadjusted (GAAP measure) 2.95 % 2.60 % 2.69 %
Impact of credit balances for factoring clients 0.04 % 0.04 % 0.04 %
Adjusted (non-GAAP measure) 2.99 % 2.64 % 2.73 %

~~Forward-Looking Statements~~

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

Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including the military conflict between Russia and Ukraine) and market conditions, including changes in competitive pressures among financial institutions and the impacts ~~of the global COVID-19 pandemic on BancShares’ business,~~related to or resulting from recent bank failures and ~~customers,~~other volatility, the financial success or changing conditions or strategies of BancShares’ vendors or customers, ~~or vendors,~~including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, ~~rising inflation,~~changes in the quality or composition of BancShares’ loan or investment portfolio, actions of government regulators, including the recent and projected interest rate hikes by the Board of Governors of the Federal Reserve Board (the “Federal Reserve”), changes to estimates of future costs and benefits of actions taken by BancShares, BancShares’ ability to maintain adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including the significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares’ previously announced acquisition ~~transaction(s),~~transactions, including the ~~recently-completed~~SVBB Acquisition and the previously completed transaction with CIT, which acquisition risks include (1) disruption from the ~~transaction, or recently completed mergers,~~transactions with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the ~~transaction~~transactions may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties’ customers to the ~~transaction,~~transactions, (4) the risk that the cost savings and any revenue synergies from the ~~transaction~~transactions may not be realized or take longer than anticipated to be realized, ~~and~~ (5) difficulties experienced in completing the integration of the ~~businesses.~~ businesses, (6) the ability to retain customers following the transactions and (7) adjustments to BancShares’ estimated purchase accounting impacts of the SVBB Acquisition.

Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional factors which could affect the forward-looking statements can be found in ~~BancShares’ Annual Report on~~the 2022 Form 10-K ~~for the fiscal year ended December 31, 2021~~ and its other filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced NII in future periods. As of March 31, ~~2022,~~2023, BancShares’ market risk profile has changed since December 31, ~~2021,~~2022, primarily due to the ~~CIT Merger.~~SVBB Acquisition. See Risk Management within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of changes. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.

102

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as of March 31, ~~2022.~~2023. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we are able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports we file under the Exchange Act.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We review our internal controls over financial reporting on an ongoing basis and make changes intended to ensure the quality of our financial reporting. During the first quarter of ~~2022,~~2023, as the result of the ~~acquisition of CIT,~~SVBB Acquisition, we commenced the evaluation of the acquired entities controls, and designed and implemented new controls as needed. The evaluation of the changes to processes, information technology systems and other components of internal control over financial reporting related to ~~our acquisition of CIT,~~the SVBB Acquisition is ongoing. Otherwise, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) during the ~~quarter~~three months ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial ~~reporting).~~reporting.

Part II

Item 1. Legal Proceedings

The Parent Company and various subsidiaries ~~have been~~are named as defendants in various legal actions arising from our normal business activities in which damages in various amounts were claimed. Although the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions currently exist that ~~are expected~~would be material to ~~have a material effect on~~ BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note 2322 — Commitments and Contingencies, ~~which is incorporated by reference into this item.~~of BancShares’ Notes to Consolidated Financial Statements.

Item 1A. Risk Factors

~~There~~

Except for the new and updated risk factors related to the SVBB Acquisition set forth below, there have been no material changes in the risk factors during ~~2022~~2023 from those reported in our ~~2021 Annual Report, which had contemplated anticipated changes due to the CIT Merger.~~2022 Form 10-K. For a discussion of the risks and uncertainties that management believes are material to an investment in us ~~see~~in addition to those listed below, refer to Part I, Item 1A. Risk Factors, of our ~~2021 Annual Report,~~2022 Form 10-K, and Forward-Looking Statements of this Quarterly Report on Form 10-Q. Additional risks and uncertainties that are not currently known to management or that management does not currently deem material could also have a material adverse impact on our financial condition, the results of our operations or our business. If such risks and uncertainties were to materialize or the likelihoods of the risks were to increase, we could be adversely affected, and the market price of our securities could significantly decline.

103

Strategic Risks

Our recently announced FDIC-assisted acquisition of Silicon Valley Bridge Bank could present additional risks to our business.

We have historically acquired, and may in the future continue to acquire, the assets and liabilities of failed banks in FDIC-assisted transactions. The SVBB Acquisition, like other FDIC-assisted transactions, presents general risks inherent in all acquisitions, as well as risks specific to FDIC-assisted transactions. For example, because these acquisitions provide for limited due diligence and negotiation of terms, these transactions may pose risks not present in more traditional transactions. In addition, the SVBB Acquisition is subject to a customary final settlement with the FDIC, and as of the date of this Form 10-Q, we are still awaiting conclusion of this process with the FDIC. To mitigate certain of those risks, including credit risks of acquired loans, FDIC-assisted transactions typically provide for FDIC-assistance, including potential loss-sharing. Although loss sharing agreements reduce the credit risks of, and capital required for, FDIC-assisted transactions, these transactions often require additional resources and time to service acquired problem loans, costs related to integration of personnel and operating systems, and the establishment of processes and internal controls to service acquired assets in accordance with applicable FDIC standards. A failure to manage these risks could result in a material adverse effect on our business, financial condition, results of operations and prospects.

Loans acquired in the SVBB Acquisition may not be covered by the commercial shared loss agreement if the FDIC determines that we have not adequately managed these loans.

In connection with the SVBB Acquisition, FCB entered into a commercial shared loss agreement with the FDIC pursuant to which the FDIC is obligated to reimburse FCB for (i) 0% of losses on the first $5 billion of covered loans and (ii) 50% of losses in excess of $5 billion on covered loans. In addition, FCB agreed to reimburse the FDIC for 50% of recoveries related to covered loans. The commercial shared loss agreement will remain in effect for five years, and the loss recovery provisions to the FDIC will remain in effect for eight years, each from March 27, 2023 (the “SVBB Acquisition Date”). Although the FDIC has agreed to reimburse FCB for a substantial portion of losses on covered loans, the FDIC has the right to refuse or delay payment for loan losses if we do not manage covered loans in accordance with the commercial shared loss agreement. In addition, reimbursable losses are based on the book value of the relevant loans as determined by the FDIC as of the effective date of the transaction. The amount that we realize on these loans could differ materially from the carrying value that will be reflected in our consolidated financial statements, based upon the timing and amount of collections on the covered loans in future periods. Any losses we experience on the assets acquired in the SVBB Acquisition that are not covered under the commercial shared loss agreement could have an adverse effect on our business, financial condition, results of operations and prospects.

In addition, in accordance with the commercial shared loss agreement, we may be required to make a “true-up” payment to the FDIC, approximately eight years following the SVBB Acquisition Date. The “true-up” payment is calculated using a defined formula set forth in the commercial shared loss agreement.

We may fail to realize all of the anticipated benefits and may incur unanticipated losses related to the SVBB Acquisition.

Achieving the anticipated benefits of the SVBB Acquisition will depend, in part, on our ability to successfully integrate our collective operations in an efficient and effective manner. As with any acquisition involving a financial institution, there may be business disruptions that result in the loss of customers or cause customers to remove their accounts and move their business to competing financial institution. It is possible that the integration could result in higher than expected deposit attrition, loss of key employees, disruption of our business or otherwise adversely affect our ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition.

Further, we did not acquire any assets from SVB Financial Group nor did we acquire all of its subsidiaries. As a result, we do not have access to all of the employees, contractual relationships, and third party vendors providing administrative and operational support for the legacy Silicon Valley Bank business. Our access to these resources is further limited by SVB Financial Group filing a voluntary petition under Chapter 11 in the United States Bankruptcy Court for the Southern District of New York on March 17, 2023. If we are unable to effectively and efficiently replace these functions previously provided or facilitated by SVB Financial Group and certain of its subsidiaries, we could face additional disruptions in our operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment and third party vendor costs.

Any inability to realize the full extent, or any, of the anticipated benefits of the SVBB Acquisition could have an adverse effect on our business, financial condition, results of operations and prospects.

104

Our future results will suffer if we do not effectively manage our expanded operations and strengthen our reputation among legacy SVB clients following the SVBB Acquisition.

Following the consummation of the SVBB Acquisition, the size and geographic and operational scope of our business has increased significantly. The SVBB Acquisition substantially increased our asset size from total consolidated assets of approximately $109.30 billion at December 31, 2022 to approximately $214.66 billion at March 31, 2023, increased the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged and expanded our geographic scope to new geographic areas. Further, legacy SVB’s client were concentrated within the certain industries, including technology, life science and healthcare, private equity and venture capital and premium wine. Our future success depends, in part, upon the ability to manage this expanded business while strengthening our reputation among the venture capital and private equity communities, and other participants in the industries that legacy SVB served, which will pose substantial challenges for management, including challenges related to the management and monitoring of new and expanded operations and associated increased costs and complexity. We may be unsuccessful in this regard or fail to realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the SVBB Acquisition.

Credit Risks

Our concentration of loans and leases in certain industries increases the risk for losses and could impair our earnings if these industries experience economic difficulties.

Prior to the SVBB Acquisition, we had a substantial concentration of loans and leases in the medical and dental industries, as well as the rail business. A significant portion of the loans acquired in the SVBB Acquisition were concentrated in the technology, life science and healthcare sectors, as well as loans to former global private equity and venture capital clients of legacy SVB. Prior to the SVBB Acquisition, we did not have significant exposure to these industries. Although we believe our current loan portfolio is well-diversified, borrowers in certain industries may have a heightened vulnerability to negative economic conditions. For example, statutory or regulatory changes relevant to the medical and dental industries, or economic conditions in the market generally, could negatively impact these borrowers’ businesses and their ability to repay their loans with us. Additionally, smaller practices such as those in the dental industry generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally have a heightened vulnerability to negative economic conditions. Repayment of loans in the portfolios for early-stage and mid-stage privately held companies, including those acquired in the SVBB Acquisition, may depend upon receipt by those borrowers of additional financing from venture capitalists or others, or, in some cases, a successful sale to a third party, public offering or other form of liquidity event. In addition, decreases in the amount of equity capital available to early-stage and mid-stage companies, including through a decrease in merger and acquisition activity, could adversely impact the ability of borrowers to repay our loans in these industries. If such events occur, our levels of non-performing assets and charge offs may increase, and we may be required to increase our ACL through additional provisions on our income statement, which would reduce reported net income and could have an adverse effect on our business, financial condition, results of operations and prospects.

Due to our substantial concentration in our rail business, if there is a significant downturn in shipping by railcar, it could have a material adverse effect on our business and results of operations. In addition, volatility in the price of, and demand for oil and gas may have negative effects on not only our loan exposures in the exploration and production section, but may also lead to a decreased demand for our railcars.

Market Risks

Recent bank failures have created significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system.

The recent failures of several high-profile banking institutions have caused significant market volatility, regulatory uncertainty, and decreased confidence in the U.S. banking system. These recent bank failures occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and more competition for bank deposits, and may increase the risk of a potential economic recession in the United States. Given the current environment, we may experience more deposit volatility as customers react to adverse events or market speculation involving financial institutions.

In response to the bank failures, the United States government may adopt a variety of measures and new regulations designed to strengthen capital levels, liquidity standards, and risk management practices and otherwise restore confidence in financial institutions. Any reforms, if adopted, could have a significant impact on banks and BHCs, including us. We may also be subject to any special assessment that the FDIC adopts to recover the loss to the Deposit Insurance Fund, and such assessment, if significant, could have an adverse effect on our business, financial condition, results of operations and prospects.

105

Liquidity Risks

If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay deposits and fund our operations.

Our deposit base represents our primary source of core funding and balance sheet liquidity. We typically have the ability to stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability to generate needed liquidity is impaired, we need access to non-core funding such as borrowings from the FHLB and the Federal Reserve, Federal Funds purchased lines and brokered deposits. In connection with the SVBB Acquisition, we also entered into binding terms and conditions pursuant to which the FDIC is providing a five-year, up to $70 billion line of credit. During the two-year period following the SVBB Acquisition Date, we may draw on the FDIC Credit Facility to support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired in connection with the SVBB Acquisition. While we maintain access to these non-core funding sources, including the FDIC Credit Facility, some sources are dependent on the availability of collateral as well as the counterparty’s willingness and ability to lend. Failure to access sources of liquidity may affect our ability to pay deposits and fund our operations.

Capital Adequacy Risks

Increases to our level of indebtedness could adversely affect our ability to raise additional capital and to meet our obligations.

In connection with the SVBB Acquisition, as initial payment under the Purchase Agreement, FCB issued a five-year Purchase Money Note of approximately $35.0 billion payable to the FDIC. Our existing debt, together with any future incurrence of additional indebtedness and preferred stock, including under the FDIC Credit Facility, could have consequences that are materially adverse to our business, financial condition or results of operations. For example, it could: (i) limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; (ii) restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; (iii) restrict us from paying dividends to our stockholders; (iv) increase our vulnerability to general economic and industry conditions; or (v) require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness and dividends on the preferred stock, thereby reducing our ability to use cash flows to fund our operations, capital expenditures and future business opportunities. Refer to the “Borrowings” sections of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q for additional information regarding our borrowings.

Financial Reporting Risks

The SVBB Acquisition has been accounted for under the purchase method of accounting and is based upon a preliminary valuation that involves significant estimates that are subject to change.

As required by U.S. GAAP, the SVBB Acquisition was accounted for under the purchase method of accounting and is based upon a preliminary valuation that involves significant estimates that are subject to change. The opening balances of acquired assets and assumed liabilities in connection with the SVBB Acquisition have not been audited and have been recorded at estimated fair value based on information currently available to the Company. In developing these fair value estimates, management was required to make significant estimates involving, among other things, the assigned risk ratings to loans based on credit quality, appraisals and estimated collateral values, estimated expected cash flows and appropriate liquidity and coupon discounts. The loans purchased in connection with the SVBB Acquisition have credit profiles that differ from most banking companies. For example, many of the legacy SVB loans acquired were made to early-stage, privately held companies with modest or negative cash flows and/or no established record of profitable operations. In addition, a significant portion of the loans were comprised of larger loans equal to or greater than $20 million, and collateral for many of the legacy SVB loans in the technology, life science and healthcare industries include intellectual property and other intangible assets, which are difficult to value and not readily salable in the case of default. Furthermore, the receivables from the FDIC for the commercial shared loss agreement involve significant estimates that involve uncertainty. In addition, the core deposit intangibles was valued using the after-tax cost savings method under the income approach. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The valuation considered a dynamic approach to interest rates and alternative cost of funds. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. The estimates used in creating the preliminary fair value estimates of the assets acquired and liabilities assumed may change as additional information becomes available, which could lead to changes in the Company’s fair value estimates. As such, we may experience more adverse outcomes than originally estimated, and the ACL may need to be revised.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)There were no repurchases of our ~~common~~ stock during the ~~quarter~~three months ended March 31, ~~2022.~~

~~Item 5. Other~~

~~MERGER PERFORMANCE PLAN~~

On May 5, 2022, First Citizens BancShares, Inc. (“BancShares”) adopted the First-Citizens Bank & Trust Company Merger Performance Plan (the “Merger Performance Plan”). The purpose of the Merger Performance Plan is to motivate and reward eligible employees of BancShares’ wholly owned subsidiary First-Citizens Bank & Trust Company (the “Bank”) or an affiliate thereof (collectively, the “Company”) with significant involvement in merger integration work following the Company’s acquisition of another financial institution by making a portion of their annual cash compensation dependent on the achievement of conversion and financial milestones, as well as Company and individual performance.

2023.

99106

The joint Compensation, Nominations and Governance Committee of BancShares and the Bank (the “CNG Committee”) is responsible for administering the Merger Performance Plan and has authority to make any determination or take any action it deems necessary or advisable for the administration of the Merger Performance Plan, including delegating its authority under the Merger Performance Plan. The CNG Committee designates participants in the Merger Performance Plan, who will be executive-level employees and other employees playing a key role in merger integration, and establishes performance criteria and goals for the earning of cash awards under the Merger Performance Plan with respect to a performance period. Performance criteria selected by the CNG Committee may include company performance metrics, including successful completion of merger integration or business unit integration, achievement of financial and conversion milestones, and individual performance metrics, including individual performance during the performance period relative to others in the business unit, or a combination thereof. Incentive awards, if any, are expected to be paid following the CNG Committee’s determination of the extent to which performance goals have been achieved for the applicable performance period, in cash in a lump sum, less required withholding, with the last payroll in February of the year following the performance period. Generally, participants will need to be actively employed on the date of payment to receive an award, subject to certain exceptions specified in the Merger Performance Plan. The maximum amount that may be paid under the Merger Performance Plan to any one participant in any fiscal year will not exceed $5,000,000. Awards paid to participants will be subject to the provisions of any clawback policy implemented by the Company, including, without limitation, the Company’s Incentive Compensation Policy.

The foregoing description of the Merger Performance Plan is qualified in its entirety by reference to the full text of the Merger Performance Plan, which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

~~2022 AWARDS~~

Also on May 5, 2022, the CNG Committee approved incentive award opportunities for 2022 for the Company’s named executive officers under the Merger Performance Plan. These incentive award opportunities range by named executive officer up to 400% of base salary (subject to the $5,000,000 limit described above), based on the degree to which applicable performance goals with respect to mergers completed in 2022 are achieved.

Item 6. Exhibits


*10.12.1						~~Employment Letter~~Purchase and Assumption Agreement ~~between Registration~~All Deposits dated March 27, 2023, by and ~~Ellen R. Alemany dated October 15, 2020 (filed herewith)~~among the Federal Deposit Insurance Corporation, received of Silicon Valley Bridge Bank, N.A., the Federal Deposit Insurance Corporation and First-Citizens Bank & Trust Company (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K/A filed March 31, 2023)
*10.2						~~Retention Letter Agreement between Registrant and Marisa Harney dated October 15, 2020 (filed herewith)~~
*10.33.1						Amended and Restated ~~Long-Term Incentive Plan~~Certificate of Incorporation (incorporated by reference to Exhibit 3.01 to the Registrant’s ~~subsidiary,~~Form 8-K filed May 1, 2023)
4.1						Purchase Money Note issued on March 27, 2023 (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K/A filed March 31, 2023)
10.1						Commercial Shared-Loss Agreement dated March 27, 2023, by and among the Federal Deposit Insurance Corporation and First-Citizens Bank & Trust Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form ~~8-K dated January 25, 2022)~~8-K/A filed March 31, 2023)
*10.410.2						~~Merger Performance Plan of Registrant’s subsidiary,~~ First ~~Citizen’s Bank & Trust Company~~Citizens Cash-Settled Value Appreciation Instrument (filed herewith)
31.1						Certification of Chief Executive Officer (filed herewith)
31.2						Certification of Chief Financial Officer (filed herewith)
32.1						Certification of Chief Executive Officer (filed herewith)
32.2						Certification of Chief Financial Officer (filed herewith)
**101.INS						Inline XBRL Instance Document (filed herewith)
**101.SCH						Inline XBRL Taxonomy Extension Schema (filed herewith)
**101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
**101.LAB						Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
**101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
**101.DEF						Inline XBRL Taxonomy Definition Linkbase (filed herewith)
**104						Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
*						~~Management contract or compensatory plan or arrangement.~~
**						Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

~~100~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:

May 10, ~~2022~~2023

FIRST CITIZENS BANCSHARES, INC.

(Registrant)

By:

/s/ ~~CRAIG~~Craig L. ~~NIX~~Nix

Craig L. Nix

Chief Financial Officer

~~101~~107


dollars in millions	Fair Value
Low-income housing tax credit and other equity method 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


	March 31, 2022			December 31, 2021
Discount rate - conventional fixed loans	9.30		%	8.51		%
Discount rate - all loans excluding conventional fixed loans	10.61		%	9.51		%
Weighted average constant prepayment rate	9.56		%	15.69		%
Weighted average cost to service a loan	$	90.57		$	87.58


	Stock-Settled Awards
per share amounts in whole dollars	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	(411)	859.76
Vested / settled awards	(71,171)	859.76
Vested / unsettled awards	(95)	859.76
Unvested BancShares RSUs at March 31, 2022	55,959	$	859.76


	Three Months Ended March 31, 2022
dollars in millions	Yield on Interest Earning Assets		Interest Rate Spread		Net Interest Margin
Unadjusted (GAAP measure)	2.95	%	2.60	%	2.69	%
Impact of credit balances for factoring clients	0.04	%	0.04	%	0.04	%
Adjusted (non-GAAP measure)	2.99	%	2.64	%	2.73	%