~~0000798941fcnca:AOCIAccumulatedGainLossDebtSecuritiesAvailableForSaleExcludingTransfersParentMember2023-03-31~~0000798941us-gaap:AssetPledgedAsCollateralMemberus-gaap:FinancialAssetAcquiredAndNoCreditDeteriorationMemberfcnca:FederalReserveBankMember2022-12-31

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,~~June 30, 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— ~~13,514,808~~13,514,849 shares

Class B Common Stock—1,005,185 shares

(Number of shares outstanding, by class, as of ~~April 30,~~July 31, 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

1011

Item 2.

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

6065

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

~~102~~113

Item 4.

Controls and Procedures

~~103~~114

Part Two — Other Information:

Item 1.

Legal Proceedings

~~103~~114

Item 1A.

Risk Factors

~~103~~114

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~106~~114

Item 5.

Item 6.

~~107~~115

~~107~~116

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.


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~~ISDA	~~London Inter-Bank Offered Rate~~International Swaps and Derivatives Association
ASU	Accounting Standards Update	LIBOR	London Inter-Bank Offered Rate
BHC	Bank Holding Company	LGD	Loss Given Default
~~BHC~~BOLI	Bank ~~Holding Company~~Owned Life Insurance	LOCOM	Lower of the Cost or Market Value
~~BOLI~~bps	~~Bank Owned Life Insurance~~Basis point(s); 1 bp = 0.01%	MD&A	Management’s Discussion and Analysis
~~bps~~C&I	~~Basis point(s); 1 bp = 0.01%~~Commercial and Industrial	MSRs	Mortgage Servicing Rights
CAB	Community Association Banking	NCCOB	North Carolina Commissioner of Banks
CCAR	Comprehensive Capital Analysis and Review	NII	Net Interest Income
CECL	Current Expected Credit Losses	NII Sensitivity	Net Interest Income Sensitivity
DPA	Deferred Purchase Agreement	NIM	Net Interest Margin
DTAs	Deferred Tax Assets	OREO	Other Real Estate Owned
EAD	Exposure at Default	PAA	Purchase Accounting Adjustments
ETR	Effective Tax Rate	~~PAA~~PCA	~~Purchase Accounting Adjustments~~Prompt corrective action
EVE Sensitivity	Economic Value of Equity Sensitivity	~~PCA~~PCAOB	~~Prompt corrective action~~Public Company Accounting Oversight Board
FASB	Financial Accounting Standards Board	~~PCAOB~~PCD	~~Public Company Accounting Oversight Board~~Purchased Credit Deteriorated
FCB	First-Citizens Bank & Trust Company	~~PCD~~PD	~~Purchased Credit Deteriorated~~Probability of Obligor Default
FDIC	Federal Deposit Insurance Corporation	PDR&S	~~Probability of Obligor Default~~Reasonable and Supportable
FHA	Federal Housing Administration	PPP	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 Bank	SOFR	Secured Overnight Financing Rate
GAAP	Accounting Principles Generally Accepted in the U.S.	TDRs	Troubled Debt Restructuring
GDP	Gross Domestic Product	UPB	Unpaid Principal Balance
HFI	Held for Investment	VIE	Variable Interest Entity

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, 2023		December 31, 2022		dollars in millions, except share data	June 30, 2023		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	1,598	$	518	Cash and due from banks	$	917	$	518
Interest-earning deposits at banks	Interest-earning deposits at banks	38,522		5,025		Interest-earning deposits at banks	37,846		5,025

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		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)		10,381		10,279
Securities purchased under agreements to resell						Securities purchased under agreements to resell	298		—
Investment in marketable equity securities (cost of $75 at June 30, 2023 and $75 at December 31, 2022)						Investment in marketable equity securities (cost of $75 at June 30, 2023 and $75 at December 31, 2022)	76		95
Investment securities available for sale (cost of $12,923 at June 30, 2023 and $9,967 at December 31, 2022), net of allowance for credit losses						Investment securities available for sale (cost of $12,923 at June 30, 2023 and $9,967 at December 31, 2022), net of allowance for credit losses	11,894		8,995
Investment securities held to maturity (fair value of $8,652 at June 30, 2023 and $8,795 at December 31, 2022)						Investment securities held to maturity (fair value of $8,652 at June 30, 2023 and $8,795 at December 31, 2022)	10,201		10,279
Assets held for sale	Assets held for sale	94		60		Assets held for sale	117		60
Loans and leases	Loans and leases	138,288		70,781		Loans and leases	133,015		70,781
Allowance for credit losses	Allowance for credit losses	(1,605)		(922)		Allowance for credit losses	(1,637)		(922)
Loans and leases, net of allowance for credit losses	Loans and leases, net of allowance for credit losses	136,683		69,859		Loans and leases, net of allowance for credit losses	131,378		69,859
Operating lease equipment, net	Operating lease equipment, net	8,331		8,156		Operating lease equipment, net	8,531		8,156
Premises and equipment, net	Premises and equipment, net	1,743		1,456		Premises and equipment, net	1,782		1,456
Goodwill	Goodwill	346		346		Goodwill	346		346
Other intangible assets	Other intangible assets	364		140		Other intangible assets	347		140
Other assets	Other assets	7,450		4,369		Other assets	5,769		4,369
Total assets	Total assets	$	214,658	$	109,298	Total assets	$	209,502	$	109,298
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	54,649	$	24,922	Noninterest-bearing	$	44,547	$	24,922
Interest-bearing	Interest-bearing	85,401		64,486		Interest-bearing	96,617		64,486
Total deposits	Total deposits	140,050		89,408		Total deposits	141,164		89,408
Credit balances of factoring clients	Credit balances of factoring clients	1,126		995		Credit balances of factoring clients	1,067		995
Borrowings:	Borrowings:					Borrowings:

Short-term borrowings	Short-term borrowings	1,009		2,186		Short-term borrowings	454		2,186

Long-term borrowings	Long-term borrowings	45,085		4,459		Long-term borrowings	39,685		4,459
Total borrowings	Total borrowings	46,094		6,645		Total borrowings	40,139		6,645
Other liabilities	Other liabilities	8,172		2,588		Other liabilities	7,361		2,588
Total liabilities	Total liabilities	195,442		99,636		Total liabilities	189,731		99,636
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock - $0.01 par value (10,000,000 shares authorized at March 31, 2023 and December 31, 2022)		881		881
Preferred stock - $0.01 par value (20,000,000 and 10,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively)						Preferred stock - $0.01 par value (20,000,000 and 10,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively)	881		881
Common stock:	Common stock:					Common stock:
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)		1		1
Class A - $1 par value (32,000,000 and 16,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 13,514,849 and 13,501,017 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively)						Class A - $1 par value (32,000,000 and 16,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively; 13,514,849 and 13,501,017 shares issued and outstanding at June 30, 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 June 30, 2023 and December 31, 2022)						Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at June 30, 2023 and December 31, 2022)	1		1
Additional paid in capital	Additional paid in capital	4,104		4,109		Additional paid in capital	4,106		4,109
Retained earnings	Retained earnings	14,885		5,392		Retained earnings	15,541		5,392
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(669)		(735)		Accumulated other comprehensive loss	(772)		(735)
Total stockholders’ equity	Total stockholders’ equity	19,216		9,662		Total stockholders’ equity	19,771		9,662
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	214,658	$	109,298	Total liabilities and stockholders’ equity	$	209,502	$	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 June 30,				Six Months Ended June 30,
dollars in millions, except share and per share data	dollars in millions, except share and per share data	2023		2022			dollars in millions, except share and per share data	2023		2022		2023		2022
Interest income	Interest income						Interest income
Interest and fees on loans	Interest and fees on loans	$	1,017	$	621		Interest and fees on loans	$	2,353	$	655	$	3,370	$	1,276
Interest on investment securities	Interest on investment securities	107		83			Interest on investment securities	120		89		227		172
Interest on deposits at banks	Interest on deposits at banks	87		6			Interest on deposits at banks	480		13		567		19
Total interest income	Total interest income	1,211		710			Total interest income	2,953		757		4,164		1,467
Interest expense	Interest expense						Interest expense
Deposits	Deposits	288		39			Deposits	575		42		863		81
Borrowings	Borrowings	73		22			Borrowings	417		15		490		37
Total interest expense	Total interest expense	361		61			Total interest expense	992		57		1,353		118
Net interest income	Net interest income	850		649			Net interest income	1,961		700		2,811		1,349
Provision for credit losses	Provision for credit losses	783		464			Provision for credit losses	151		42		934		506
Net interest income after provision for credit losses	Net interest income after provision for credit losses	67		185			Net interest income after provision for credit losses	1,810		658		1,877		843
Noninterest income	Noninterest income						Noninterest income
Rental income on operating lease equipment	Rental income on operating lease equipment	233		208			Rental income on operating lease equipment	238		213		471		421
Fee income and other service charges	Fee income and other service charges	50		36			Fee income and other service charges	69		37		116		71
Client investment fees							Client investment fees	52		—		54		—
Wealth management services	Wealth management services	42		35			Wealth management services	51		37		91		72
International fees							International fees	32		2		36		4
Service charges on deposit accounts	Service charges on deposit accounts	24		27			Service charges on deposit accounts	44		28		68		55
Factoring commissions	Factoring commissions	19		27			Factoring commissions	20		27		39		54
Cardholder services, net	Cardholder services, net	21		25			Cardholder services, net	41		26		62		51
Merchant services, net	Merchant services, net	10		10			Merchant services, net	14		9		24		19
Insurance commissions	Insurance commissions	13		12			Insurance commissions	14		11		27		23
Realized loss on sale of investment securities available for sale, net	Realized loss on sale of investment securities available for sale, net	(14)		—			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			Fair value adjustment on marketable equity securities, net	(10)		(6)		(19)		(3)
Bank-owned life insurance	Bank-owned life insurance	5		8			Bank-owned life insurance	2		9		7		17
Gain on sale of leasing equipment, net	Gain on sale of leasing equipment, net	4		6			Gain on sale of leasing equipment, net	4		5		8		11
Gain on acquisition	Gain on acquisition	9,824		431			Gain on acquisition	55		—		9,879		431
Gain on extinguishment of debt	Gain on extinguishment of debt	—		6			Gain on extinguishment of debt	—		—		—		6
Other noninterest income	Other noninterest income	37		16			Other noninterest income	32		26		68		42
Total noninterest income	Total noninterest income	10,259		850			Total noninterest income	658		424		10,917		1,274
Noninterest expense	Noninterest expense						Noninterest expense
Depreciation on operating lease equipment	Depreciation on operating lease equipment	89		81			Depreciation on operating lease equipment	91		89		180		170
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	56		43			Maintenance and other operating lease expenses	56		47		112		90
Salaries and benefits	Salaries and benefits	420		356			Salaries and benefits	775		345		1,195		701
Net occupancy expense	Net occupancy expense	50		48			Net occupancy expense	64		48		114		96
Equipment expense	Equipment expense	58		52			Equipment expense	133		54		191		106
Professional fees	Professional fees	12		12			Professional fees	21		11		32		23
Third-party processing fees	Third-party processing fees	29		24			Third-party processing fees	54		26		84		50
FDIC insurance expense	FDIC insurance expense	18		12			FDIC insurance expense	22		9		40		21
Marketing expense	Marketing expense	15		8			Marketing expense	41		9		56		17
Acquisition-related expenses	Acquisition-related expenses	28		135			Acquisition-related expenses	205		34		233		169
Intangible asset amortization	Intangible asset amortization	5		6			Intangible asset amortization	18		6		23		12
Other noninterest expense	Other noninterest expense	75		33			Other noninterest expense	92		67		167		100
Total noninterest expense	Total noninterest expense	855		810			Total noninterest expense	1,572		745		2,427		1,555
Income before income taxes	Income before income taxes	9,471		225			Income before income taxes	896		337		10,367		562
Income tax (benefit) expense		(47)		(46)
Income tax expense							Income tax expense	214		82		167		36
Net income	Net income	$	9,518	$	271		Net income	$	682	$	255	$	10,200	$	526
Preferred stock dividends	Preferred stock dividends	14		7			Preferred stock dividends	15		17		29		24
Net income available to common stockholders	Net income available to common stockholders	$	9,504	$	264		Net income available to common stockholders	$	667	$	238	$	10,171	$	502
Earnings per common share	Earnings per common share						Earnings per common share
Basic	Basic	$	654.22	$	16.70		Basic	$	45.90	$	14.87	$	700.10	$	31.52
Diluted	Diluted	$	653.64	$	16.70		Diluted	$	45.87	$	14.86	$	699.53	$	31.48
Weighted average common shares outstanding	Weighted average common shares outstanding						Weighted average common shares outstanding
Basic	Basic	14,526,693		15,779,153			Basic	14,528,134		16,023,613		14,527,417		15,918,978
Diluted	Diluted	14,539,709		15,779,153			Diluted	14,537,938		16,035,090		14,539,176		15,937,826

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,				Three Months Ended June 30,				Six Months Ended June 30,
dollars in millions	dollars in millions	2023		2022			dollars in millions	2023		2022		2023		2022
Net income	Net income	$	9,518	$	271		Net income	$	682	$	255	$	10,200	$	526
Other comprehensive income (loss), net of tax
Net unrealized gain (loss) on securities available for sale		58		(318)
Other comprehensive loss, net of tax							Other comprehensive loss, net of tax
Net unrealized loss on securities available for sale							Net unrealized loss on securities available for sale	(100)		(163)		(42)		(481)
Net change in unrealized loss on securities available for sale transferred to securities held to maturity	Net change in unrealized loss on securities available for sale transferred to securities held to maturity	—		1			Net change in unrealized loss on securities available for sale transferred to securities held to maturity	1		—		1		1
Net change in defined benefit pension items	Net change in defined benefit pension items	8		2			Net change in defined benefit pension items	(4)		3		4		5

Other comprehensive income (loss), net of tax		$	66	$	(315)
Total comprehensive income (loss)		$	9,584	$	(44)
Other comprehensive loss, net of tax							Other comprehensive loss, net of tax	$	(103)	$	(160)	$	(37)	$	(475)
Total comprehensive income							Total comprehensive income	$	579	$	95	$	10,163	$	51

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,															Three Months Ended June 30,
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 (Loss) Income		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		Total Stockholders' Equity
Balance at December 31, 2022		$	881	$	14	$	1	$	4,109	$	5,392	$	(735)	$	9,662
Balance at March 31, 2023																Balance at March 31, 2023	$	881	$	14	$	1	$	4,104	$	14,885	$	(669)	$	19,216
Net income	Net income	—		—		—		—		9,518		—		9,518		Net income	—		—		—		—		682		—		682
Other comprehensive (loss) income, net of tax		—		—		—		—		—		66		66
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—		—		—		—		—		(103)		(103)

Stock based compensation	Stock based compensation	—		—		—		(5)		—		—		(5)		Stock based compensation	—		—		—		2		—		—		2

Cash dividends declared ($0.75 per common share):	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 A common stock	—		—		—		—		(10)		—		(10)
Class B common stock	Class B common stock	—		—		—		—		(1)		—		(1)		Class B common stock	—		—		—		—		(1)		—		(1)
Preferred stock dividends declared:	Preferred stock dividends declared:															Preferred stock dividends declared:
Series A	Series A	—		—		—		—		(4)		—		(4)		Series A	—		—		—		—		(5)		—		(5)
Series B	Series B	—		—		—		—		(7)		—		(7)		Series B	—		—		—		—		(7)		—		(7)
Series C	Series C	—		—		—		—		(3)		—		(3)		Series C	—		—		—		—		(3)		—		(3)
Balance at March 31, 2023		$	881	$	14	$	1	$	4,104	$	14,885	$	(669)	$	19,216
Balance at June 30, 2023																Balance at June 30, 2023	$	881	$	14	$	1	$	4,106	$	15,541	$	(772)	$	19,771

Balance at December 31, 2021		$	340	$	9	$	1	$	—	$	4,378	$	10	$	4,738
Balance at March 31, 2022																Balance at March 31, 2022	$	881	$	15	$	1	$	5,344	$	4,634	$	(305)	$	10,570
Net income	Net income	—		—		—		—		271		—		271		Net income	—		—		—		—		255		—		255
Other comprehensive (loss) income, net of tax		—		—		—		—		—		(315)		(315)
Issued in CIT Merger:
Common stock		—		6		—		5,273		—		—		5,279
Series B preferred stock		334		—		—		—		—		—		334
Series C preferred stock		207		—		—		—		—		—		207
Other comprehensive loss, net of tax																Other comprehensive loss, net of tax	—		—		—		—		—		(160)		(160)

Stock based compensation	Stock based compensation	—		—		—		71		—		—		71		Stock based compensation	—		—		—		1		—		—		1
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	—		—		—		—		(7)		—		(7)		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															Preferred stock dividends declared
Series A	Series A	—		—		—		—		(5)		—		(5)		Series A	—		—		—		—		(5)		—		(5)
Series B																Series B	—		—		—		—		(9)		—		(9)
Series C	Series C	—		—		—		—		(3)		—		(3)		Series C	—		—		—		—		(3)		—		(3)
Balance at March 31, 2022		$	881	$	15	$	1	$	5,344	$	4,634	$	(305)	$	10,570
Balance at June 30, 2022																Balance at June 30, 2022	$	881	$	15	$	1	$	5,345	$	4,865	$	(465)	$	10,642


	Six Months Ended June 30,
dollars in millions, except share data	Preferred Stock		Class A Common Stock		Class B Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
Balance at December 31, 2022	$	881	$	14	$	1	$	4,109	$	5,392	$	(735)	$	9,662
Net income	—		—		—		—		10,200		—		10,200
Other comprehensive loss, net of tax	—		—		—		—		—		(37)		(37)
Stock based compensation	—		—		—		(3)		—		—		(3)
Cash dividends declared ($0.75 per common share):
Class A common stock	—		—		—		—		(20)		—		(20)
Class B common stock	—		—		—		—		(2)		—		(2)
Preferred stock dividends declared:
Series A	—		—		—		—		(9)		—		(9)
Series B	—		—		—		—		(14)		—		(14)
Series C	—		—		—		—		(6)		—		(6)
Balance at June 30, 2023	$	881	$	14	$	1	$	4,106	$	15,541	$	(772)	$	19,771

Balance at December 31, 2021	$	340	$	9	$	1	$	—	$	4,378	$	10	$	4,738
Net income	—		—		—		—		526		—		526
Other comprehensive loss, net of tax	—		—		—		—		—		(475)		(475)
Issued in CIT Merger:
Common stock	—		6		—		5,273		—		—		5,279
Series B preferred stock	334		—		—		—		—		—		334
Series C preferred stock	207		—		—		—		—		—		207
Stock based compensation	—		—		—		72		—		—		72
Cash dividends declared ($0.47 per common share):
Class A common stock	—		—		—		—		(14)		—		(14)
Class B common stock	—		—		—		—		(1)		—		(1)
Preferred stock dividends declared
Series A	—		—		—		—		(9)		—		(9)
Series B	—		—		—		—		(9)		—		(9)
Series C	—		—		—		—		(6)		—		(6)
Balance at June 30, 2022	$	881	$	15	$	1	$	5,345	$	4,865	$	(465)	$	10,642

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,					Six Months Ended June 30,
dollars in millions	dollars in millions	2023		2022		dollars in millions	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	9,518	$	271	Net income	$	10,200	$	526
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Adjustments to reconcile net income to cash provided by operating activities:						Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses	Provision for credit losses	783		464		Provision for credit losses	934		506
Deferred tax benefit		(69)		(61)
Deferred tax (benefit) expense						Deferred tax (benefit) expense	(404)		14
Depreciation, amortization, and accretion, net	Depreciation, amortization, and accretion, net	124		114		Depreciation, amortization, and accretion, net	90		263
Stock based compensation expense	Stock based compensation expense	1		12		Stock based compensation expense	3		14
Realized loss on sale of investment securities available for sale, net	Realized loss on sale of investment securities available for sale, net	14		—		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)		Fair value adjustment on marketable equity securities, net	19		3
Gain on sale of loans, net		(1)		(3)
Loss (gain) on sale of loans, net						Loss (gain) on sale of loans, net	1		(6)
Gain on sale of operating lease equipment, net	Gain on sale of operating lease equipment, net	(4)		(6)		Gain on sale of operating lease equipment, net	(8)		(11)
Loss on sale of premises and equipment, net		—		1
Gain on sale of premises and equipment, net						Gain on sale of premises and equipment, net	—		(4)
Gain on other real estate owned, net	Gain on other real estate owned, net	—		(2)		Gain on other real estate owned, net	(2)		(6)
Gain on acquisition	Gain on acquisition	(9,824)		(431)		Gain on acquisition	(9,879)		(431)

Gain on extinguishment of debt	Gain on extinguishment of debt	—		(6)		Gain on extinguishment of debt	—		(6)
Origination of loans held for sale	Origination of loans held for sale	(82)		(235)		Origination of loans held for sale	(286)		(342)
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	67		248		Proceeds from sale of loans held for sale	227		386
Net change in other assets	Net change in other assets	(486)		343		Net change in other assets	(70)		358
Net change in other liabilities	Net change in other liabilities	(347)		(118)		Net change in other liabilities	(274)		(11)
Other operating activities	Other operating activities	(65)		(11)		Other operating activities	(11)		(22)
Net cash (used in) provided by operating activities		(362)		577
Net cash provided by operating activities						Net cash provided by operating activities	554		1,231
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-earning deposits at banks		(88)		2,705
Net decrease in interest-earning deposits at banks						Net decrease in interest-earning deposits at banks	1,110		5,514

Purchases of investment securities available for sale	Purchases of investment securities available for sale	(125)		(810)		Purchases of investment securities available for sale	(3,095)		(1,284)
Proceeds from maturities of investment securities available for sale	Proceeds from maturities of investment securities available for sale	227		330		Proceeds from maturities of investment securities available for sale	486		676
Proceeds from sales of investment securities available for sale	Proceeds from sales of investment securities available for sale	1		—		Proceeds from sales of investment securities available for sale	1		—
Purchases of investment securities held to maturity	Purchases of investment securities held to maturity	(212)		—		Purchases of investment securities held to maturity	(213)		—
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 held to maturity	307		526

Net decrease in loans		1,060		107
Net increase in securities purchased under agreements resell						Net increase in securities purchased under agreements resell	(298)		—
Net decrease (increase) in loans						Net decrease (increase) in loans	6,284		(2,153)
Proceeds from sales of loans	Proceeds from sales of loans	113		53		Proceeds from sales of loans	263		116
Net increase (decrease) in credit balances of factoring clients		131		(383)
Net decrease (increase) in credit balances of factoring clients						Net decrease (increase) in credit balances of factoring clients	72		(463)
Purchases of operating lease equipment	Purchases of operating lease equipment	(288)		(226)		Purchases of operating lease equipment	(586)		(339)
Proceeds from sales of operating lease equipment	Proceeds from sales of operating lease equipment	33		19		Proceeds from sales of operating lease equipment	76		40
Purchases of premises and equipment	Purchases of premises and equipment	(44)		(15)		Purchases of premises and equipment	(128)		(39)

Proceeds from sales of premises and equipment						Proceeds from sales of premises and equipment	—		12

Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	3		11		Proceeds from sales of other real estate owned	10		22
Acquisition, net of cash acquired		1,347		134
Cash acquired, net of cash paid as consideration for acquisition						Cash acquired, net of cash paid as consideration for acquisition	879		134
Other investing activities	Other investing activities	353		(13)		Other investing activities	1,373		(70)
Net cash provided by investing activities	Net cash provided by investing activities	2,628		2,195		Net cash provided by investing activities	6,541		2,692
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in time deposits	Net increase (decrease) in time deposits	2,124		(823)		Net increase (decrease) in time deposits	5,466		(1,676)
Net (decrease) increase in demand and other interest-bearing deposits		(7,570)		1,275
Net decrease in demand and other interest-bearing deposits						Net decrease in demand and other interest-bearing deposits	(9,780)		(110)
Net change in securities sold under customer repurchase agreements	Net change in securities sold under customer repurchase agreements	63		27		Net change in securities sold under customer repurchase agreements	9		57
Repayment of short-term borrowings	Repayment of short-term borrowings	(1,750)		—		Repayment of short-term borrowings	(2,250)		—
Proceeds from issuance of short-term borrowings	Proceeds from issuance of short-term borrowings	500		—		Proceeds from issuance of short-term borrowings	500		—
Repayment of long-term borrowings	Repayment of long-term borrowings	(1,021)		(3,031)		Repayment of long-term borrowings	(10,573)		(3,542)
Proceeds from issuance of long-term borrowings	Proceeds from issuance of long-term borrowings	6,500		1		Proceeds from issuance of long-term borrowings	9,990		1,652

Cash dividends paid	Cash dividends paid	(26)		(14)		Cash dividends paid	(52)		(38)
Other financing activities	Other financing activities	(6)		(22)		Other financing activities	(7)		(21)
Net cash used in financing activities	Net cash used in financing activities	(1,186)		(2,587)		Net cash used in financing activities	(6,697)		(3,678)

Change in cash and due from banks	Change in cash and due from banks	1,080		185		Change in cash and due from banks	398		245
Cash and due from banks at beginning of period	Cash and due from banks at beginning of period	518		338		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	$	1,598	$	523	Cash and due from banks at end of period	$	917	$	583


		Three Months Ended March 31,					Six Months Ended June 30,
dollars in millions	dollars in millions	2023		2022		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	$	366	$	146	Interest	$	1,367	$	209
Income taxes	Income taxes	—		(1)		Income taxes	427		(2)
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		Transfers of loans to other real estate	20		2
Transfers of premises and equipment to other real estate	Transfers of premises and equipment to other real estate	1		4		Transfers of premises and equipment to other real estate	4		12

Dividends declared but not paid	Dividends declared but not paid	—		1		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	115		25		Transfer of assets from held for investment to held for sale	261		55
Transfer of assets from held for sale to held for investment	Transfer of assets from held for sale to held for investment	1		12		Transfer of assets from held for sale to held for investment	11		21
Loans held for sale exchanged for investment securities	Loans held for sale exchanged for investment securities	—		38		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	3		—		Commitments extended during the period on affordable housing investment credits	40		20
Issuance of common stock as consideration for CIT Merger	Issuance of common stock as consideration for CIT Merger	—		5,278		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		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		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		—		Purchase Money Note as consideration for SVBB Acquisition	35,808		—
Value Appreciation Instrument as consideration for SVBB Acquisition		500		—

See accompanying Notes to the Unaudited Consolidated Financial Statements.

910

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 that conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB,” or the “Bank”), which is headquartered in Raleigh, North Carolina. BancShares and its subsidiaries operate a network of more than ~~550~~560 branches in 23 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United 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, 2022 (the “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, 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 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 based on available information. These estimates and assumptions impact the amounts reported in the consolidated financial statements and accompanying notes and the disclosures provided, and actual results could differ from those estimates. The significant estimates ~~relate~~related to the determination of the allowance for credit losses (“ACL”) and fair values of loans acquired in and the core deposit intangibles associated with a 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 goodwill. To the extent the fair value of identifiable net assets acquired exceeds the purchase price, a gain on acquisition is recognized. Acquisition-related 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 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 “CIT Merger Agreement”).

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 2022 Form 10-K. We have further described relevant updates to the significant accounting policies presented below.

Securities Purchased Under Agreement to Resell

Securities purchased under agreement to resell (“reverse repos”) are accounted for as collateralized financing transactions as the terms of such purchase ~~agreement~~agreements do not qualify for sale accounting and are therefore recorded at the amount of cash advanced. Accrued interest receivables are recorded in other assets. Interest earned is recorded in interest income.

Assets Held for Sale

Assets held for sale (“AHFS”) primarily consists of commercial loans carried at the lower of the cost or fair value (“LOCOM”) and residential mortgage loans carried at fair value. AHFS also includes operating lease equipment held for sale carried at LOCOM.

Loans and Leases

BancShares extends credit to commercial customers through a variety of financing 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 1 — Significant Accounting Policies and Basis of Presentation in the 2022 Form 10-K.

SVB Loan Classes

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

Global Fund Banking – Global fund banking is the largest class of SVB loans and 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 funds managed by certain private equity and venture capital firms.

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:

•Early-Stage – 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.

•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 excess of $15 million are considered to be later stage.

Cash Flow Dependent and 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 successful sale or an IPO.

•Cash Flow Dependent – Cash flow dependent loans are typically used to 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 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 more of the acquisition price.

1112

•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 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. 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 repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.

Private Bank – Private banking includes loans to clients who are 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 private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, personal capital call lines of credit, lines of credit against liquid assets and other secured and unsecured lending products. In addition, we provide owner occupied commercial mortgages and real estate secured loans.

Commercial Real Estate (“CRE”) – CRE consists generally of acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space.

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

•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 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 (“PPP”) loans, which are loans guaranteed by the SBA that were issued through the PPP.

Acquired Loans and Leases

BancShares’ accounting methods for acquired loans and leases depends on whether or not the loans reflect more than insignificant credit deterioration since origination at the date of acquisition.

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 credit losses at the date of acquisition. 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 loan using the effective interest method.

Purchased Credit Deteriorated Loans and Leases

Purchased loans and leases that reflect a more than insignificant credit deterioration since origination 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 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. Refer to Note 5 – Allowance for Credit Losses for additional information.

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~~FCB may obtain rights that ~~gave~~include 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~~are 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~~

Noninterest Income

Refer to Note 1 — Significant Accounting Policies and Basis of Presentation in the ~~SVBB Acquisition. FCB may obtain equity warrant assets~~2022 Form 10-K for ~~certain loans originated or funded after~~a discussion on revenue recognition and description of noninterest revenue-generating activities. Descriptions of significant noninterest income new to BancShares due to the SVBB Acquisition ~~Date.~~are summarized below.

Client investment fees

Client investment fees are earned from discretionary investment management and related transaction-based services. For discretionary investment management services, revenue is recognized monthly based on the clients’ assets under management. Transaction-based fees are earned on fixed income securities and repurchase agreements when transactions are executed. Amounts paid to third-party providers are not reflected in the transaction price because FCB is an agent for such services.

International fees

International fees primarily include foreign exchange fees. Foreign exchange fees represent the difference between foreign currency's purchase and sale price in spot contracts. These fees are recognized when contracts are executed with our clients. Fees related to other foreign exchange contracts are recognized outside the scope of Accounting Standards Codification (“ASC 606”) because they are considered derivatives.

Newly Adopted Accounting Standards

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

ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures- Issued March 2022 (“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 certain other assets and assumed all customer deposits and certain other liabilities of SVBB in an FDIC-assisted transaction.

BancShares has determined that the SVBB Acquisition constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) 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.

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”). As a result of progress toward Final Settlement made during the second quarter of 2023, we acquired additional net assets with book values of $702 million, primarily consisting of investment securities and cash, and reflected a corresponding increase to the principal amount of the Purchase Money Note (as defined and described below). While substantial progress was made during the second quarter of 2023, certain items remain pending as of June 30, 2023. The pending items primarily include certain intangible assets of a SVBB subsidiary and remaining options for leased bank premises and related furniture and equipment. These pending items are not reflected in the “Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed” table below.

We continue to review information relating to events or circumstances existing at the SVBB Acquisition Date that could impact the preliminary fair value estimates. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the SVBB Acquisition Date (the “Measurement Period”). We believe the preliminary fair value estimates of assets acquired and liabilities assumed, including the affects of Measurement Period adjustments through June 30, 2023, provide a reasonable basis for determining the preliminary gain on acquisition. The 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 (as defined below) are preliminary at June 30, 2023 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.

Pursuant to the terms of the SVBB Purchase Agreement, FCB acquired assets with an estimated total fair value of approximately ~~$106.60~~$107.26 billion as of the SVBB Acquisition Date, primarily including ~~$68.50~~$68.46 billion of loans, net of the initial ACL for PCD loans, and ~~$35.28~~$35.31 billion of cash and interest-earning deposits at banks. FCB also assumed liabilities with an estimated total fair value of approximately ~~$61.13~~$61.07 billion, primarily including ~~$55.96~~$55.90 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~~$36 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).~~Agreement. 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)~~above).

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 the settlement amount does not 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 (“SOFR”) plus 25 basis points (but in no event less than 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.

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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~~tables provide the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the SVBB Acquisition ~~Date:~~Date. The amounts below reflect Measurement Period adjustments made during the second quarter of 2023, which increased the preliminary after tax gain on acquisition by $55 million. These Measurement Period adjustments primarily relate to refined fair value estimates for acquired affordable housing tax credit investments, loans, and assets and liabilities of acquired SVBB subsidiaries.

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


dollars in millions	dollars in millions	Fair Value Purchase Price Allocation as of March 27, 2023		dollars in millions	Fair Value Purchase Price Allocation as of March 27, 2023
Purchase price consideration	Purchase price consideration			Purchase price consideration
Purchase Money Note (1)	Purchase Money Note (1)	$	35,150	Purchase Money Note (1)	$	35,808
Value Appreciation Instrument	Value Appreciation Instrument	500		Value Appreciation Instrument	500
Purchase price consideration	Purchase price consideration	$	35,650	Purchase price consideration	$	36,308
Assets	Assets			Assets
Cash and due from banks	Cash and due from banks	1,347		Cash and due from banks	1,379
Interest-earning deposits at banks	Interest-earning deposits at banks	33,932		Interest-earning deposits at banks	33,932
Investment securities	Investment securities	122		Investment securities	385

Loans and leases		68,503
Loans and leases, net of PCD ACL				Loans and leases, net of PCD ACL	68,460
Affordable housing tax credit investments	Affordable housing tax credit investments	1,134		Affordable housing tax credit investments	1,273

Premises and equipment				Premises and equipment	310
Core deposit intangibles	Core deposit intangibles	230		Core deposit intangibles	230
Other assets	Other assets	1,332		Other assets	1,286
Total assets acquired	Total assets acquired	$	106,600	Total assets acquired	$	107,255
Liabilities	Liabilities			Liabilities
Deposits	Deposits	55,959		Deposits	55,899
Borrowings	Borrowings	10		Borrowings	10
Deferred tax liabilities	Deferred tax liabilities	3,310		Deferred tax liabilities	3,277
Other liabilities	Other liabilities	1,847		Other liabilities	1,882
Total liabilities assumed	Total liabilities assumed	$	61,126	Total liabilities assumed	$	61,068
Fair value of net assets acquired	Fair value of net assets acquired	45,474		Fair value of net assets acquired	46,187
Preliminary gain on acquisition, after income taxes (2)	Preliminary gain on acquisition, after income taxes (2)	$	9,824	Preliminary gain on acquisition, after income taxes (2)	$	9,879
Preliminary gain on acquisition, before income taxes (2)	Preliminary gain on acquisition, before income taxes (2)	$	13,134	Preliminary gain on acquisition, before income taxes (2)	$	13,156

(1) The principal amount of the Purchase Money Note is the book value of net assets acquired of approximately ~~$51.82~~$52.522 billion less the asset discount of ~~$16.45~~$16.450 billion pursuant to the SVBB Purchase Agreement. The ~~$35.15~~$35.808 billion above is net of a fair value discount of approximately ~~$220~~$264 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~~The preliminary gain on acquisition of ~~$9.82~~$9.88 billion included in noninterest income ~~representing~~represents 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 SVBB ~~Acquisition.~~Acquisition as of the SVBB Acquisition Date. The fair value of Non-PCD loans and leases was $66.42 billion, compared to the UPB ~~for PCD loans includes~~of $68.73 billion, resulting in a discount of $2.31 billion that will be accreted into income over the ~~PCD Gross-Up~~contractual life of ~~$200 million as discussed further in Note 4 — Loans and Leases.~~the loan using the effective interest method.

Loans and Leases Acquired


dollars in millions	dollars in millions	Loans and Leases				dollars in millions	Loans and Leases
		UPB		Fair Value			UPB		Fair Value
Non-PCD loans and leases	Non-PCD loans and leases	$	68,742	$	66,473	Non-PCD loans and leases	$	68,729	$	66,424
PCD loans and leases	PCD loans and leases	2,529		2,030		PCD loans and leases	2,558		2,036
Total loans and leases	Total loans and leases	$	71,271	$	68,503	Total loans and leases	$	71,287	$	68,460

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

PCD Loans and Leases


dollars in millions	Total PCD from SVBB Acquisition
UPB	$	2,558
Fair value	2,036
Fair value discount	522

PCD gross-up	(220)
Non-credit discount (1)	$	302

(2) The non-credit discount of $302 million will be accreted into income over the contractual life of the loan using the effective interest method.

Affordable housing tax credit investments

The fair values of the affordable housing tax credit investments were determined based on discounted cash flows. The cash flow projections considered tax credits and net cash flows from operating losses and tax depreciation. The discount rate was determined using observable market data points for similar investments.

Premises and equipment

Fair values for furniture and fixtures, computer software and other equipment were determined using the cost approach.

Core deposit intangibles

The following table presents the intangible asset recorded related to the valuation of core deposits:

Intangible Asset

dollars in millions

Fair Value

Estimated Useful Life

Amortization Method

Core deposit intangibles

230

8 years

Effective Yield

Certain core deposits were acquired as part of the SVBB Acquisition, which provide an additional source of funds for BancShares. The core deposit intangible represents the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. This intangible 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. Refer to further discussion in Note 7 — Goodwill and Core Deposit Intangibles.

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Other assets ~~and liabilities~~

The following table details other assets acquired:

Other Assets


dollars in millions	dollars in millions	Fair Value		dollars in millions	Fair Value
Accrued interest receivable	Accrued interest receivable	$	412	Accrued interest receivable	$	428
Federal Home Loan Bank stock / Federal Reserve Bank stock				Federal Home Loan Bank stock / Federal Reserve Bank stock	320
Fair value of derivative financial instruments, net	Fair value of derivative financial instruments, net	197		Fair value of derivative financial instruments, net	197
Premises and equipment		286

Other	Other	437		Other	341
Total other assets	Total other assets	$	1,332	Total other assets	$	1,286

The fair values of the derivative 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

Acquired deposits were essentially all transactional deposits. Thus, we determined carrying amounts approximate fair value.

Deferred Tax liability

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 proportional amortization method.

Other liabilities

The following table details other liabilities assumed:


dollars in millions	dollars in millions	Fair Value		dollars in millions	Fair Value

Commitments to fund tax credit investments				Commitments to fund tax credit investments	$	715
Fair value of derivative financial instruments, net	Fair value of derivative financial instruments, net	$	333	Fair value of derivative financial instruments, net	336

Accrued expenses and accounts payable				Accrued expenses and accounts payable	262
Reserve for off-balance sheet credit exposures				Reserve for off-balance sheet credit exposures	253
Accrued interest payable	Accrued interest payable	113		Accrued interest payable	113
Commitments to fund tax credit investments		716
Other	Other	685		Other	203
Total other liabilities	Total other liabilities	$	1,847	Total other liabilities	$	1,882

The fair value of the 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 attribute to the loss indemnification asset or true-up liability. This is primarily based on evaluation of historical loss experience and the credit quality of the portfolio.

Unaudited Pro Forma Information - SVBB Acquisition

The amount of net interest income, noninterest income and net income of ~~$65~~$700 million, ~~$14~~$183 million and ~~$35~~$224 million, respectively, attributable to the SVBB Acquisition were included in BancShares’ Consolidated Statement of Income for the ~~three~~six months ended ~~March 31,~~June 30, 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 SVBB and 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~~as of 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 gain on acquisition was not taxable.

For a description of the fair value and unpaid principal balance of loans from the CIT Merger, as well as the methods used to determine the fair values of significant assets and liabilities, see Note 2 — Business Combinations in Item 8 of our 2022 Form 10-K.

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NOTE 3 — INVESTMENT SECURITIES

The following tables include the amortized cost and fair value of investment securities at ~~March 31,~~June 30, 2023 and December 31, 2022.

Amortized Cost and Fair Value - ~~Debt~~Investment Securities

dollars in millions March 31, 2023
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Investment securities available for sale
U.S. Treasury $ 2,091 $ — $ (113) $ 1,978
Government agency 152 — (2) 150
Residential mortgage-backed securities 5,415 3 (570) 4,848
Commercial mortgage-backed securities 1,755 — (170) 1,585
Corporate bonds(1)
542 — (42) 500
Total investment securities available for sale(1)
$ 9,955 $ 3 $ (897) $ 9,061
Investment in marketable equity securities $ 75 $ 14 $ (4) $ 85
Investment securities held to maturity
U.S. Treasury $ 475 $ — $ (42) $ 433
Government agency 1,550 — (163) 1,387
Residential mortgage-backed securities 4,511 2 (655) 3,858
Commercial mortgage-backed securities 3,547 1 (497) 3,051
Supranational securities 296 — (34) 262
Other 2 — — 2
Total investment securities held to maturity $ 10,381 $ 3 $ (1,391) $ 8,993
Total investment securities(1)
$ 20,411 $ 20 $ (2,292) $ 18,139
(1) Balances presented net of allowance for credit losses of $4 million
December 31, 2022
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Investment securities available for sale
U.S. Treasury $ 2,035 $ — $ (137) $ 1,898
Government agency 164 — (2) 162
Residential mortgage-backed securities 5,424 1 (630) 4,795
Commercial mortgage-backed securities 1,774 — (170) 1,604
Corporate bonds 570 — (34) 536
Total investment securities available for sale $ 9,967 $ 1 $ (973) $ 8,995
Investment in marketable equity securities $ 75 $ 21 $ (1) $ 95
Investment securities held to maturity
U.S. Treasury $ 474 $ — $ (50) $ 424
Government agency 1,548 — (186) 1,362
Residential mortgage-backed securities 4,605 — (723) 3,882
Commercial mortgage-backed securities 3,355 — (484) 2,871
Supranational securities 295 — (41) 254
Other 2 — — 2
Total investment securities held to maturity $ 10,279 $ — $ (1,484) $ 8,795
Total investment securities $ 20,321 $ 22 $ (2,458) $ 17,885


dollars in millions	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
U.S. Treasury	$	4,763	$	—	$	(129)	$	4,634
Government agency	143		—		(3)		140
Residential mortgage-backed securities	5,443		—		(633)		4,810
Commercial mortgage-backed securities	1,776		—		(199)		1,577
Corporate bonds (1)	538		—		(62)		476
Municipal bonds	260		—		(3)		257

Total investment securities available for sale (1)	$	12,923	$	—	$	(1,029)	$	11,894
Investment in marketable equity securities	$	75	$	10	$	(9)	$	76
Investment securities held to maturity
U.S. Treasury	$	476	$	—	$	(50)	$	426
Government agency	1,502		—		(174)		1,328
Residential mortgage-backed securities	4,406		—		(690)		3,716
Commercial mortgage-backed securities	3,518		—		(595)		2,923

Supranational securities	297		—		(40)		257
Other	2		—		—		2
Total investment securities held to maturity	$	10,201	$	—	$	(1,549)	$	8,652
Total investment securities(1)	$	23,199	$	10	$	(2,587)	$	20,622
(1) Balances presented net of allowance for credit losses of $3 million.
	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale
U.S. Treasury	$	2,035	$	—	$	(137)	$	1,898
Government agency	164		—		(2)		162
Residential mortgage-backed securities	5,424		1		(630)		4,795
Commercial mortgage-backed securities	1,774		—		(170)		1,604
Corporate bonds	570		—		(34)		536

Total investment securities available for sale	$	9,967	$	1	$	(973)	$	8,995
Investment in marketable equity securities	$	75	$	21	$	(1)	$	95
Investment securities held to maturity
U.S. Treasury	$	474	$	—	$	(50)	$	424
Government agency	1,548		—		(186)		1,362
Residential mortgage-backed securities	4,605		—		(723)		3,882
Commercial mortgage-backed securities	3,355		—		(484)		2,871

Supranational securities	295		—		(41)		254
Other	2		—		—		2
Total investment securities held to maturity	$	10,279	$	—	$	(1,484)	$	8,795
Total investment securities	$	20,321	$	22	$	(2,458)	$	17,885

Investments in residential and commercial mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. U.S. Treasury investments represents T-bills and Notes issued by the U.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 corporate bonds represent positions in debt securities of other financial institutions. Municipal bonds are general obligation bonds that were acquired in the SVBB Acquisition. Investments in supranational securities represent securities issued by the 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.

1921

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.

Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At ~~March 31,~~June 30, 2023, accrued interest receivables for available for sale and held to maturity debt securities were ~~$30~~$35 million and ~~$17~~$18 million, respectively. At December 31, 2022, accrued interest receivables for available for sale and held to maturity debt securities were $33 million and $19 million, respectively. During the three and six months ended ~~March 31,~~June 30, 2023 and 2022, 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


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022				dollars in millions	June 30, 2023				December 31, 2022
		Cost		Fair Value		Cost		Fair Value			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	$	34	$	33	$	37	$	37	One year or less	$	2,987	$	2,975	$	37	$	37
After one through five years	After one through five years	2,120		2,004		2,068		1,928		After one through five years	1,910		1,787		2,068		1,928
After five through 10 years	After five through 10 years	463		427		483		455		After five through 10 years	510		457		483		455
After 10 years	After 10 years	16		14		17		14		After 10 years	154		148		17		14

Government agency	Government agency	152		150		164		162		Government agency	143		140		164		162
Residential mortgage-backed securities	Residential mortgage-backed securities	5,415		4,848		5,424		4,795		Residential mortgage-backed securities	5,443		4,810		5,424		4,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,755		1,585		1,774		1,604		Commercial mortgage-backed securities	1,776		1,577		1,774		1,604

Total investment securities available for sale(1)	Total investment securities available for sale(1)	$	9,955	$	9,061	$	9,967	$	8,995	Total investment securities available for sale (1)	$	12,923	$	11,894	$	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	$	51	$	51	$	51	$	51	One year or less	$	2	$	2	$	51	$	51
After one through five years	After one through five years	1,579		1,440		1,479		1,328		After one through five years	1,581		1,426		1,479		1,328
After five through 10 years	After five through 10 years	693		593		789		663		After five through 10 years	694		585		789		663

Residential mortgage-backed securities	Residential mortgage-backed securities	4,511		3,858		4,605		3,882		Residential mortgage-backed securities	4,406		3,716		4,605		3,882
Commercial mortgage-backed securities	Commercial mortgage-backed securities	3,547		3,051		3,355		2,871		Commercial mortgage-backed securities	3,518		2,923		3,355		2,871

Total investment securities held to maturity	Total investment securities held to maturity	$	10,381	$	8,993	$	10,279	$	8,795	Total investment securities held to maturity	$	10,201	$	8,652	$	10,279	$	8,795

(1) Balances as of ~~March 31,~~June 30, 2023are presented net of the allowance for credit losses of $4$3 million.

The following table presents interest and dividend income on investment securities:

Interest and Dividends on Investment Securities


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022					2023		2022		2023		2022
Interest income - taxable investment securities	Interest income - taxable investment securities	$	106	$	82			Interest income - taxable investment securities	$	118	$	89	$	224	$	171
Interest income - nontaxable investment securities								Interest income - nontaxable investment securities	2		—		2		—
Dividend income - marketable equity securities	Dividend income - marketable equity securities	1		1				Dividend income - marketable equity securities	—		—		1		1
Interest on investment securities	Interest on investment securities	$	107	$	83			Interest on investment securities	$	120	$	89	$	227	$	172

2022

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

Realized Losses on Debt Securities Available For Sale


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022					2023		2022		2023		2022
Gross realized gains on sales of investment securities available for sale	Gross realized gains on sales of investment securities available for sale	$	—	$	—			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	(14)		—				Gross realized losses on sales of investment securities available for sale	—		—		(14)		—
Net realized losses on sales of investment securities available for sale	Net realized losses on sales of investment securities available for sale	$	(14)	$	—			Net realized losses on sales of investment securities available for sale	$	—	$	—	$	(14)	$	—

The following table provides the fair value adjustment on marketable equity securities:

Fair Value Adjustment on Marketable Equity Securities


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022					2023		2022		2023		2022

Fair value adjustment on marketable equity securities, net	Fair value adjustment on marketable equity securities, net	$	(9)	$	3			Fair value adjustment on marketable equity securities, net	$	(10)	$	(6)	$	(19)	$	(3)

The following table provides information regarding investment securities available for sale with unrealized losses:

Gross Unrealized Losses on Debt Securities Available For Sale


dollars in millions	dollars in millions	March 31, 2023												dollars in millions	June 30, 2023
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
		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	$	28	$	(1)	$	1,889	$	(112)	$	1,917	$	(113)	U.S. Treasury	$	2,760	$	(2)	$	1,874	$	(127)	$	4,634	$	(129)
Government agency	Government agency	75		(1)		75		(1)		150		(2)		Government agency	51		(1)		89		(2)		140		(3)
Residential mortgage-backed securities	Residential mortgage-backed securities	656		(26)		3,955		(544)		4,611		(570)		Residential mortgage-backed securities	896		(33)		3,854		(600)		4,750		(633)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	568		(13)		1,003		(157)		1,571		(170)		Commercial mortgage-backed securities	564		(17)		999		(182)		1,563		(199)
Corporate bonds(1)	Corporate bonds(1)	360		(25)		140		(17)		500		(42)		Corporate bonds (1)	216		(19)		260		(43)		476		(62)
Municipal bonds														Municipal bonds	248		(3)		—		—		248		(3)
Total(1)	Total(1)	$	1,687	$	(66)	$	7,062	$	(831)	$	8,749	$	(897)	Total (1)	$	4,735	$	(75)	$	7,076	$	(954)	$	11,811	$	(1,029)

		December 31, 2022													December 31, 2022
		Less than 12 months				12 months or more				Total					Less than 12 months				12 months or more				Total
		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	$	403	$	(27)	$	1,495	$	(110)	$	1,898	$	(137)	U.S. Treasury	$	403	$	(27)	$	1,495	$	(110)	$	1,898	$	(137)
Government agency	Government agency	65		(1)		62		(1)		127		(2)		Government agency	65		(1)		62		(1)		127		(2)
Residential mortgage-backed securities	Residential mortgage-backed securities	1,698		(165)		3,001		(465)		4,699		(630)		Residential mortgage-backed securities	1,698		(165)		3,001		(465)		4,699		(630)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	836		(53)		752		(117)		1,588		(170)		Commercial mortgage-backed securities	836		(53)		752		(117)		1,588		(170)
Corporate bonds	Corporate bonds	499		(30)		37		(4)		536		(34)		Corporate bonds	499		(30)		37		(4)		536		(34)
Municipal bonds														Municipal bonds	—		—		—		—		—		—
Total	Total	$	3,501	$	(276)	$	5,347	$	(697)	$	8,848	$	(973)	Total	$	3,501	$	(276)	$	5,347	$	(697)	$	8,848	$	(973)

(1) Balances as of ~~March 31,~~June 30, 2023 are presented net of the allowance for credit losses of $4$3 million.

As of ~~March 31,~~June 30, 2023, there were ~~337~~389 investment securities available for sale with continuous unrealized losses for more than 12 months, of which ~~315~~345 were government sponsored enterprise-issued mortgage-backed securities, government agency securities, or U.S. treasury securities and the remaining 2244 were 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,~~June 30, 2023, no ACL was required. For corporate bonds and municipal bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired, and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that ~~one~~three corporate ~~bond had a~~bonds carry credit-related ~~loss~~losses of $4$3 million as of ~~March 31,~~June 30, 2023, which is reflected in the provision for credit losses as ~~further discussed~~presented in Note 5 — Allowance for Credit Losses.

2123

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,~~June 30, 2023, no ACL was required for held to maturity debt securities.

Investment securities having an aggregate carrying value of ~~$4.16~~$4.03 billion at ~~March 31,~~June 30, 2023, and $4.20 billion at December 31, 2022, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities past due as of ~~March 31,~~June 30, 2023 or December 31, 2022.

There were no debt securities held to maturity on non-accrual status as of ~~March 31,~~June 30, 2023 or December 31, 2022.

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of ~~$393~~$119 million and $197 million at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively; these securities are recorded at cost. BancShares held ~~$62~~$58 million and $58 million of nonmarketable securities without readily determinable fair values, which are measured at cost at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively. Investments in qualified affordable housing projects, all of which ~~qualify~~are accounted for under the proportional amortization method were ~~$1.66~~$1.81 billion and $598 million at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

2224

NOTE 4 — LOANS AND LEASES

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 and text data as of ~~March 31,~~June 30, 2023 include loans acquired in the SVBB Acquisition.

Loans by Class


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Commercial	Commercial					Commercial
Commercial construction	Commercial construction	$	2,971	$	2,804	Commercial construction	$	3,182	$	2,804
Owner occupied commercial mortgage	Owner occupied commercial mortgage	14,456		14,473		Owner occupied commercial mortgage	14,748		14,473
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	10,292		9,902		Non-owner occupied commercial mortgage	10,733		9,902
Commercial and industrial	Commercial and industrial	24,508		24,105		Commercial and industrial	25,376		24,105
Leases	Leases	2,163		2,171		Leases	2,130		2,171
Total commercial	Total commercial	54,390		53,455		Total commercial	56,169		53,455
Consumer	Consumer					Consumer
Residential mortgage	Residential mortgage	13,727		13,309		Residential mortgage	14,065		13,309
Revolving mortgage	Revolving mortgage	1,916		1,951		Revolving mortgage	1,900		1,951
Consumer auto	Consumer auto	1,452		1,414		Consumer auto	1,425		1,414
Consumer other	Consumer other	632		652		Consumer other	657		652
Total consumer	Total consumer	17,727		17,326		Total consumer	18,047		17,326
SVB	SVB					SVB
Global fund banking	Global fund banking	36,097		—		Global fund banking	29,333		—
Investor dependent - early stage	Investor dependent - early stage	1,994		—		Investor dependent - early stage	1,840		—
Investor dependent - growth stage	Investor dependent - growth stage	4,418		—		Investor dependent - growth stage	4,052		—
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent	9,193		—		Innovation C&I and cash flow dependent	8,905		—
Private Bank	Private Bank	9,476		—		Private Bank	9,580		—
CRE	CRE	2,444		—		CRE	2,530		—
Other	Other	2,549		—		Other	2,559		—
Total SVB	Total SVB	66,171		—		Total SVB	58,799		—
Total loans and leases	Total loans and leases	$	138,288	$	70,781	Total loans and leases	$	133,015	$	70,781

At ~~March 31,~~June 30, 2023 and December 31, 2022, accrued interest receivable on loans included in other assets was ~~$643~~$601 million and $203 million, respectively, and was excluded from the estimate of credit losses.

There was a discount on acquired loans because the fair value was lower than the UPB as further discussed in Note 2 — Business Combinations. The discount on acquired loans is accreted to interest income over the contractual life of the loan using the effective interest method as further discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. Accretion for the discount on acquired loans was $243 million and $260 million for the three and six months ended June 30, 2023, respectively.

The following table presents selected components of the amortized cost of ~~loans:~~loans, including the unamortized discount on acquired loans.

Components of Amortized Cost


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Deferred costs, including unamortized costs and unearned fees on non-PCD loans		$	26	$	34
Deferred (fees) costs, including unamortized costs and unearned fees on non-PCD loans						Deferred (fees) costs, including unamortized costs and unearned fees on non-PCD loans	$	(17)	$	34

Net unamortized discount on purchased loans
Net unamortized discount on acquired loans						Net unamortized discount on acquired loans
Non-PCD	Non-PCD	$	2,337	$	73	Non-PCD	$	2,202	$	73
PCD	PCD	337		45		PCD	276		45
Total net unamortized discount	Total net unamortized discount	$	2,674	$	118	Total net unamortized discount	$	2,478	$	118

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

2325

Loans and Leases - Delinquency Status


dollars in millions	dollars in millions	March 31, 2023												dollars in millions	June 30, 2023
		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	$	9	$	1	$	—	$	10	$	2,961	$	2,971	Commercial construction	$	—	$	9	$	1	$	10	$	3,172	$	3,182
Owner occupied commercial mortgage	Owner occupied commercial mortgage	30		—		34		64		14,392		14,456		Owner occupied commercial mortgage	20		9		39		68		14,680		14,748
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	165		67		190		422		9,870		10,292		Non-owner occupied commercial mortgage	38		115		260		413		10,320		10,733
Commercial and industrial	Commercial and industrial	158		30		61		249		24,259		24,508		Commercial and industrial	84		38		83		205		25,171		25,376
Leases	Leases	55		13		14		82		2,081		2,163		Leases	32		19		14		65		2,065		2,130
Total commercial	Total commercial	417		111		299		827		53,563		54,390		Total commercial	174		190		397		761		55,408		56,169
Consumer	Consumer													Consumer
Residential mortgage	Residential mortgage	77		17		46		140		13,587		13,727		Residential mortgage	113		21		46		180		13,885		14,065
Revolving mortgage	Revolving mortgage	10		3		8		21		1,895		1,916		Revolving mortgage	12		2		8		22		1,878		1,900
Consumer auto	Consumer auto	7		2		1		10		1,442		1,452		Consumer auto	8		1		1		10		1,415		1,425
Consumer other	Consumer other	4		2		3		9		623		632		Consumer other	3		2		3		8		649		657
Total consumer	Total consumer	98		24		58		180		17,547		17,727		Total consumer	136		26		58		220		17,827		18,047
SVB	SVB													SVB
Global fund banking	Global fund banking	37		—		—		37		36,060		36,097		Global fund banking	6		—		—		6		29,327		29,333
Investor dependent - early stage	Investor dependent - early stage	17		3		2		22		1,972		1,994		Investor dependent - early stage	3		3		21		27		1,813		1,840
Investor dependent - growth stage	Investor dependent - growth stage	25		8		—		33		4,385		4,418		Investor dependent - growth stage	—		8		12		20		4,032		4,052
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent	27		11		—		38		9,155		9,193		Innovation C&I and cash flow dependent	15		2		19		36		8,869		8,905
Private Bank	Private Bank	39		1		17		57		9,419		9,476		Private Bank	9		10		17		36		9,544		9,580
CRE	CRE	4		1		—		5		2,439		2,444		CRE	1		2		—		3		2,527		2,530
Other	Other	10		—		4		14		2,535		2,549		Other	5		2		4		11		2,548		2,559
Total SVB	Total SVB	159		24		23		206		65,965		66,171		Total SVB	39		27		73		139		58,660		58,799
Total loans and leases	Total loans and leases	$	674	$	159	$	380	$	1,213	$	137,075	$	138,288	Total loans and leases	$	349	$	243	$	528	$	1,120	$	131,895	$	133,015

		December 31, 2022													December 31, 2022
		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	$	50	$	—	$	1	$	51	$	2,753	$	2,804	Commercial construction	$	50	$	—	$	1	$	51	$	2,753	$	2,804
Owner occupied commercial mortgage	Owner occupied commercial mortgage	29		5		25		59		14,414		14,473		Owner occupied commercial mortgage	29		5		25		59		14,414		14,473
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	76		144		11		231		9,671		9,902		Non-owner occupied commercial mortgage	76		144		11		231		9,671		9,902
Commercial and industrial	Commercial and industrial	173		26		53		252		23,853		24,105		Commercial and industrial	173		26		53		252		23,853		24,105
Leases	Leases	59		17		16		92		2,079		2,171		Leases	59		17		16		92		2,079		2,171
Total commercial	Total commercial	387		192		106		685		52,770		53,455		Total commercial	387		192		106		685		52,770		53,455
Consumer	Consumer													Consumer
Residential mortgage	Residential mortgage	73		16		52		141		13,168		13,309		Residential mortgage	73		16		52		141		13,168		13,309
Revolving mortgage	Revolving mortgage	9		3		8		20		1,931		1,951		Revolving mortgage	9		3		8		20		1,931		1,951
Consumer auto	Consumer auto	7		1		1		9		1,405		1,414		Consumer auto	7		1		1		9		1,405		1,414
Consumer other	Consumer other	4		2		3		9		643		652		Consumer other	4		2		3		9		643		652
Total consumer	Total consumer	93		22		64		179		17,147		17,326		Total consumer	93		22		64		179		17,147		17,326

Total loans and leases	Total loans and leases	$	480	$	214	$	170	$	864	$	69,917	$	70,781	Total loans and leases	$	480	$	214	$	170	$	864	$	69,917	$	70,781

2426

The amortized cost by class of loans and leases on non-accrual status, and loans and leases greater than 90 days past due and still accruing at ~~March 31,~~June 30, 2023 and December 31, 2022 are presented below.

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


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022				dollars in millions	June 30, 2023				December 31, 2022
		Non-Accrual Loans		Loans > 90 Days and Accruing		Non-Accrual Loans		Loans > 90 Days and Accruing			Non-Accrual Loans		Loans > 90 Days and Accruing		Non-Accrual Loans		Loans > 90 Days and Accruing
Commercial	Commercial									Commercial
Commercial construction	Commercial construction	$	2	$	—	$	48	$	—	Commercial construction	$	4	$	—	$	48	$	—
Owner occupied commercial mortgage	Owner occupied commercial mortgage	46		8		41		2		Owner occupied commercial mortgage	51		8		41		2
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	219		114		228		—		Non-owner occupied commercial mortgage	318		1		228		—
Commercial and industrial	Commercial and industrial	214		20		184		41		Commercial and industrial	216		30		184		41
Leases	Leases	29		4		28		7		Leases	33		3		28		7
Total commercial	Total commercial	510		146		529		50		Total commercial	622		42		529		50
Consumer	Consumer									Consumer
Residential mortgage	Residential mortgage	71		8		75		10		Residential mortgage	72		7		75		10
Revolving mortgage	Revolving mortgage	18		—		18		—		Revolving mortgage	17		—		18		—
Consumer auto	Consumer auto	4		—		4		—		Consumer auto	4		—		4		—
Consumer other	Consumer other	1		3		1		3		Consumer other	1		3		1		3
Total consumer	Total consumer	94		11		98		13		Total consumer	94		10		98		13
SVB	SVB									SVB
Global fund banking	Global fund banking	—		—		—		—		Global fund banking	—		—		—		—
Investor dependent - early stage	Investor dependent - early stage	56		—		—		—		Investor dependent - early stage	26		3		—		—
Investor dependent - growth stage	Investor dependent - growth stage	60		—		—		—		Investor dependent - growth stage	100		—		—		—
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent	78		—		—		—		Innovation C&I and cash flow dependent	43		13		—		—
Private Bank	Private Bank	27		—		—		—		Private Bank	29		2		—		—
CRE	CRE	2		—		—		—		CRE	14		—		—		—
Other	Other	1		4		—		—		Other	1		4		—		—
Total SVB	Total SVB	224		4		—		—		Total SVB	213		22		—		—
Total loans and leases	Total loans and leases	$	828	$	161	$	627	$	63	Total loans and leases	$	929	$	74	$	627	$	63

(1) Accrued interest that was reversed when the loan went to non-accrual status was $1$5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and $4 million for the year ended December 31, 2022.

(2) Non-accrual loans for which there was no related ACL totaled ~~$59~~$74 million at ~~March 31,~~June 30, 2023 and $63 million at December 31, 2022.

Other real estate owned (“OREO”) and repossessed assets were ~~$47~~$64 million as of ~~March 31,~~June 30, 2023 and $47 million as of December 31, 2022.

2527

Credit Quality Indicators

Loans and leases are monitored for credit quality on a recurring basis. Commercial loans and leases and consumer loans have different credit quality indicators as a result of the unique characteristics of the loan 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,~~June 30, 2023 and December 31, 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 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 and U.S. Department of Veterans Affairs and thus remain on accrual status regardless of delinquency status.

2628

The following 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, 2023
June 30, 2023																						June 30, 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	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Commercial construction	Commercial construction																							Commercial construction
Pass	Pass	$	187	$	1,226	$	772	$	384	$	119	$	96	$	60	$	—		$	2,844		Pass	$	369		$	1,260		$	775		$	374		$	99		$	60		$	85	$	—		$	3,022
Special Mention	Special Mention	—		4		—		48		40		—		—		—			92			Special Mention	—			58			—			49			30			—			—		—			137
Substandard	Substandard	1		1		—		—		28		5		—		—			35			Substandard	1			2			14			—			1			5			—		—			23
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			—			—			—			—			—		—			—
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total commercial construction	Total commercial construction	188		1,231		772		432		187		101		60		—			2,971			Total commercial construction	370			1,320			789			423			130			65			85		—			3,182
Owner occupied commercial mortgage	Owner occupied commercial mortgage																					Owner occupied commercial mortgage
Pass	Pass	393		2,709		3,292		2,877		1,767		2,728		165		—			13,931			Pass	981			2,740			3,221			2,808			1,699			2,497			167		—			14,113
Special Mention	Special Mention	—		40		20		46		30		72		1		—			209			Special Mention	7			49			13			25			21			69			8		—			192
Substandard	Substandard	5		22		47		52		29		154		6		—			315			Substandard	6			35			98			70			43			185			6		—			443
Doubtful	Doubtful	—		—		—		—		—		1		—		—			1			Doubtful	—			—			—			—			—			—			—		—			—
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total owner occupied commercial mortgage	Total owner occupied commercial mortgage	398		2,771		3,359		2,975		1,826		2,955		172		—			14,456			Total owner occupied commercial mortgage	994			2,824			3,332			2,903			1,763			2,751			181		—			14,748
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage																					Non-owner occupied commercial mortgage
Pass	Pass	612		2,500		1,666		1,772		1,202		1,456		49		—			9,257			Pass	1,182			2,575			1,660			1,669			1,119			1,349			47		—			9,601
Special Mention	Special Mention	—		—		—		79		130		81		—		—			290			Special Mention	7			—			—			95			111			74			—		—			287
Substandard	Substandard	—		4		13		67		312		313		—		—			709			Substandard	1			2			12			92			382			301			—		—			790
Doubtful	Doubtful	—		—		—		—		26		10		—		—			36			Doubtful	—			—			—			—			46			9			—		—			55
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total non-owner occupied commercial mortgage	Total non-owner occupied commercial mortgage	612		2,504		1,679		1,918		1,670		1,860		49		—			10,292			Total non-owner occupied commercial mortgage	1,190			2,577			1,672			1,856			1,658			1,733			47		—			10,733
Commercial and industrial	Commercial and industrial																					Commercial and industrial
Pass	Pass	3,482		5,434		3,890		1,863		1,342		1,529		5,125		28			22,693			Pass	5,139			5,141			3,512			1,706			1,233			1,285			5,421		4			23,441
Special Mention	Special Mention	52		84		120		93		47		54		100		—			550			Special Mention	58			114			135			91			52			40			110		—			600
Substandard	Substandard	24		103		135		175		148		272		239		1			1,097			Substandard	44			142			123			204			131			261			232		1			1,138
Doubtful	Doubtful	—		4		5		1		14		30		10		—			64			Doubtful	—			8			6			1			23			24			20		—			82
Ungraded	Ungraded	—		—		—		—		—		—		104		—			104			Ungraded	—			—			—			—			—			—			115		—			115
Total commercial and industrial	Total commercial and industrial	3,558		5,625		4,150		2,132		1,551		1,885		5,578		29			24,508			Total commercial and industrial	5,241			5,405			3,776			2,002			1,439			1,610			5,898		5			25,376
Leases	Leases																					Leases
Pass	Pass	235		648		425		338		177		152		—		—			1,975			Pass	415			595			387			292			146			105			—		—			1,940
Special Mention	Special Mention	5		21		20		14		8		3		—		—			71			Special Mention	10			23			12			10			6			2			—		—			63
Substandard	Substandard	5		35		28		23		10		6		—		—			107			Substandard	14			34			26			22			9			11			—		—			116
Doubtful	Doubtful	—		3		3		2		1		1		—		—			10			Doubtful	—			4			3			2			1			1			—		—			11
Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total leases	Total leases	245		707		476		377		196		162		—		—			2,163			Total leases	439			656			428			326			162			119			—		—			2,130
Total commercial	Total commercial	$	5,001	$	12,838	$	10,436	$	7,834	$	5,430	$	6,963	$	5,859	$	29		$	54,390		Total commercial	$	8,234		$	12,782		$	9,997		$	7,510		$	5,152		$	6,278		$	6,211	$	5		$	56,169

2729

SVB - Risk Classifications by Class


March 31, 2023
June 30, 2023																						June 30, 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	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Global fund banking	Global fund banking																							Global fund banking
Pass	Pass	$	78	$	191	$	134	$	103	$	44	$	9	$	35,453	$	75		$	36,087		Pass	$	168		$	180		$	129		$	96		$	42		$	8		$	28,646	$	39		$	29,308
Special Mention	Special Mention	—		—		—		—		—		—		—		—			—			Special Mention	—			—			—			—			—			—			14		—			14
Substandard	Substandard	—		—		—		—		—		—		10		—			10			Substandard	—			—			—			—			—			—			11		—			11
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			—			—			—			—			—		—			—

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total global fund banking	Total global fund banking	78		191		134		103		44		9		35,463		75			36,097			Total global fund banking	168			180			129			96			42			8			28,671		39			29,333
Investor dependent - early stage	Investor dependent - early stage																					Investor dependent - early stage
Pass	Pass	76		848		406		115		48		10		169		—			1,672			Pass	115			893			298			83			33			6			142		2			1,572
Special Mention	Special Mention	—		15		1		1		—		—		3		—			20			Special Mention	2			1			—			—			—			—			—		—			3
Substandard	Substandard	—		61		89		38		8		2		47		—			245			Substandard	1			69			85			19			7			2			55		—			238
Doubtful	Doubtful	—		27		20		4		2		—		4		—			57			Doubtful	—			16			3			2			—			—			6		—			27

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total investor dependent - early stage	Total investor dependent - early stage	76		951		516		158		58		12		223		—			1,994			Total investor dependent - early stage	118			979			386			104			40			8			203		2			1,840
Investor dependent - growth stage	Investor dependent - growth stage																					Investor dependent - growth stage
Pass	Pass	206		1,372		1,137		512		145		186		314		5			3,877			Pass	333			1,219			988			460			119			145			233		5			3,502
Special Mention	Special Mention	—		8		15		17		—		—		—		—			40			Special Mention	—			19			55			19			—			1			—		—			94
Substandard	Substandard	3		76		150		120		20		38		35		—			442			Substandard	5			119			100			78			8			19			28		—			357
Doubtful	Doubtful	—		5		42		1		9		2		—		—			59			Doubtful	—			36			34			10			8			6			5		—			99

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total investor dependent - growth stage	Total investor dependent - growth stage	209		1,461		1,344		650		174		226		349		5			4,418			Total investor dependent - growth stage	338			1,393			1,177			567			135			171			266		5			4,052
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent																					Innovation C&I and cash flow dependent
Pass	Pass	129		1,684		1,191		1,309		586		669		2,948		—			8,516			Pass	406			1,527			1,112			1,123			594			479			2,682		—			7,923
Special Mention	Special Mention	41		—		—		26		28		—		15		—			110			Special Mention	—			85			37			—			27			49			72		—			270
Substandard	Substandard	—		37		133		117		7		34		160		—			488			Substandard	47			110			115			114			11			38			234		—			669
Doubtful	Doubtful	—		—		2		61		—		—		16		—			79			Doubtful	—			—			1			17			—			—			25		—			43

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total innovation C&I and cash flow dependent	Total innovation C&I and cash flow dependent	170		1,721		1,326		1,513		621		703		3,139		—			9,193			Total innovation C&I and cash flow dependent	453			1,722			1,265			1,254			632			566			3,013		—			8,905
Private bank	Private bank																					Private bank
Pass	Pass	398		2,379		2,332		1,443		788		1,171		889		14			9,414			Pass	696			2,298			2,205			1,411			789			1,218			899		9			9,525
Special Mention	Special Mention	—		—		2		—		—		9		2		—			13			Special Mention	—			2			2			—			—			6			6		—			16
Substandard	Substandard	—		—		13		1		3		20		2		—			39			Substandard	—			—			—			—			2			9			4		—			15
Doubtful	Doubtful	—		—		—		—		1		9		—		—			10			Doubtful	—			—			—			1			1			22			—		—			24

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total private bank	Total private bank	398		2,379		2,347		1,444		792		1,209		893		14			9,476			Total private bank	696			2,300			2,207			1,412			792			1,255			909		9			9,580
CRE	CRE																					CRE
Pass	Pass	53		516		260		194		195		889		98		5			2,210			Pass	171			543			251			182			196			876			85		5			2,309
Special Mention	Special Mention	—		3		10		—		3		27		—		—			43			Special Mention	—			3			11			3			3			17			—		—			37
Substandard	Substandard	—		—		4		18		102		65		2		—			191			Substandard	—			1			2			21			98			46			2		—			170
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			2			—			1			11			—		—			14

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total CRE	Total CRE	53		519		274		212		300		981		100		5			2,444			Total CRE	171			547			266			206			298			950			87		5			2,530
Other	Other																					Other
Pass	Pass	43		419		416		356		163		625		364		64			2,450			Pass	97			456			416			311			139			543			372		65			2,399
Special Mention	Special Mention	—		—		2		11		—		11		2		—			26			Special Mention	—			13			8			13			—			16			5		—			55
Substandard	Substandard	—		10		6		7		8		29		13		—			73			Substandard	—			25			9			10			6			29			26		—			105
Doubtful	Doubtful	—		—		—		—		—		—		—		—			—			Doubtful	—			—			—			—			—			—			—		—			—

Ungraded	Ungraded	—		—		—		—		—		—		—		—			—			Ungraded	—			—			—			—			—			—			—		—			—
Total Other	Total Other	43		429		424		374		171		665		379		64			2,549			Total Other	97			494			433			334			145			588			403		65			2,559
Total SVB	Total SVB	$	1,027	$	7,651	$	6,365	$	4,454	$	2,160	$	3,805	$	40,546	$	163		$	66,171		Total SVB	$	2,041		$	7,615		$	5,863		$	3,973		$	2,084		$	3,546		$	33,552	$	125		$	58,799

2830

Consumer Loans - Delinquency Status by Class


March 31, 2023
June 30, 2023																						June 30, 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	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Residential mortgage	Residential mortgage																							Residential mortgage
Current	Current	$	726	$	3,527	$	3,681	$	2,043	$	774	$	2,819	$	17	$	—		$	13,587		Current	$	1,221		$	3,513		$	3,615		$	1,984		$	740		$	2,804		$	8	$	—		$	13,885
30-59 days	30-59 days	—		5		9		6		2		55		—		—			77			30-59 days	3			15			11			7			6			71			—		—			113
60-89 days	60-89 days	—		—		2		2		1		12		—		—			17			60-89 days	—			2			5			2			1			11			—		—			21
90 days or greater	90 days or greater	—		1		1		3		1		40		—		—			46			90 days or greater	—			1			1			2			—			42			—		—			46
Total residential mortgage	Total residential mortgage	726		3,533		3,693		2,054		778		2,926		17		—			13,727			Total residential mortgage	1,224			3,531			3,632			1,995			747			2,928			8		—			14,065
Revolving mortgage	Revolving mortgage																					Revolving mortgage
Current	Current	—		—		—		—		—		—		1,803		92			1,895			Current	—			—			—			—			—			—			1,792		86			1,878
30-59 days	30-59 days	—		—		—		—		—		—		7		3			10			30-59 days	—			—			—			—			—			—			9		3			12
60-89 days	60-89 days	—		—		—		—		—		—		1		2			3			60-89 days	—			—			—			—			—			—			1		1			2
90 days or greater	90 days or greater	—		—		—		—		—		—		5		3			8			90 days or greater	—			—			—			—			—			—			4		4			8
Total revolving mortgage	Total revolving mortgage	—		—		—		—		—		—		1,816		100			1,916			Total revolving mortgage	—			—			—			—			—			—			1,806		94			1,900
Consumer auto	Consumer auto																					Consumer auto
Current	Current	165		565		360		193		95		64		—		—			1,442			Current	276			514			324			171			81			49			—		—			1,415
30-59 days	30-59 days	—		2		2		1		1		1		—		—			7			30-59 days	1			2			2			1			1			1			—		—			8
60-89 days	60-89 days	—		1		1		—		—		—		—		—			2			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	165		568		364		194		96		65		—		—			1,452			Total consumer auto	277			517			327			172			82			50			—		—			1,425
Consumer other	Consumer other																					Consumer other
Current	Current	30		142		73		12		5		20		341		—			623			Current	74			128			65			10			5			19			348		—			649
30-59 days	30-59 days	—		1		—		—		—		1		2		—			4			30-59 days	—			—			—			—			—			1			2		—			3
60-89 days	60-89 days	—		—		—		—		—		—		2		—			2			60-89 days	—			—			—			—			—			1			1		—			2
90 days or greater	90 days or greater	—		—		—		—		—		1		2		—			3			90 days or greater	—			—			—			—			—			1			2		—			3
Total consumer other	Total consumer other	30		143		73		12		5		22		347		—			632			Total consumer other	74			128			65			10			5			22			353		—			657
Total consumer	Total consumer	$	921	$	4,244	$	4,130	$	2,260	$	879	$	3,013	$	2,180	$	100		$	17,727		Total consumer	$	1,575		$	4,176		$	4,024		$	2,177		$	834		$	3,000		$	2,167	$	94		$	18,047

2931

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

Commercial Loans - Risk Classifications by Class


December 31, 2022
Risk Classification:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2022		2021		2020		2019		2018		2017 & Prior		Revolving				Total
Commercial construction
Pass	$	1,140	$	759	$	511	$	157	$	27	$	75	$	42	$	—	$	2,711
Special Mention	4		—		18		18		—		—		—		—		40
Substandard	2		—		—		43		—		5		—		—		50
Doubtful	—		—		—		3		—		—		—		—		3
Ungraded	—		—		—		—		—		—		—		—		—
Total commercial construction	1,146		759		529		221		27		80		42		—		2,804
Owner occupied commercial mortgage
Pass	2,773		3,328		2,966		1,825		1,048		1,867		177		—		13,984
Special Mention	33		14		32		33		18		49		2		—		181
Substandard	24		47		41		28		47		114		6		—		307
Doubtful	—		—		—		—		—		1		—		—		1
Ungraded	—		—		—		—		—		—		—		—		—
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
Pass	2,501		1,658		1,794		1,397		680		933		48		—		9,011
Special Mention	—		1		69		38		35		10		1		—		154
Substandard	3		11		68		324		58		236		—		—		700
Doubtful	—		—		—		17		—		20		—		—		37
Ungraded	—		—		—		—		—		—		—		—		—
Total non-owner occupied commercial mortgage	2,504		1,670		1,931		1,776		773		1,199		49		—		9,902
Commercial and industrial
Pass	7,695		4,145		2,035		1,533		872		845		5,252		29		22,406
Special Mention	87		153		79		63		52		23		40		—		497
Substandard	106		117		194		132		166		145		200		1		1,061
Doubtful	1		4		3		11		6		16		7		—		48
Ungraded	—		—		—		—		—		—		93		—		93
Total commercial and industrial	7,889		4,419		2,311		1,739		1,096		1,029		5,592		30		24,105
Leases
Pass	718		466		389		216		80		108		—		—		1,977
Special Mention	21		22		17		9		4		—		—		—		73
Substandard	32		32		27		12		7		1		—		—		111
Doubtful	2		3		2		1		1		—		—		—		9
Ungraded	—		—		—		—		—		1		—		—		1
Total leases	773		523		435		238		92		110		—		—		2,171
Total commercial	$	15,142	$	10,760	$	8,245	$	5,860	$	3,101	$	4,449	$	5,868	$	30	$	53,455

3032

Consumer Loans - Delinquency Status by Class


December 31, 2022
Days Past Due:	Term Loans by Origination Year														Revolving Converted to Term Loans
dollars in millions	2022		2021		2020		2019		2018		2017 & Prior		Revolving				Total
Residential mortgage
Current	$	3,485	$	3,721	$	2,097	$	805	$	413	$	2,625	$	22	$	—	$	13,168
30-59 days	3		7		6		5		3		49		—		—		73
60-89 days	1		1		2		—		1		11		—		—		16
90 days or greater	—		1		1		2		2		46		—		—		52
Total residential mortgage	3,489		3,730		2,106		812		419		2,731		22		—		13,309
Revolving mortgage
Current	—		—		—		—		—		—		1,839		92		1,931
30-59 days	—		—		—		—		—		—		5		4		9
60-89 days	—		—		—		—		—		—		2		1		3
90 days or greater	—		—		—		—		—		—		5		3		8
Total revolving mortgage	—		—		—		—		—		—		1,851		100		1,951
Consumer auto
Current	599		398		216		111		59		22		—		—		1,405
30-59 days	1		2		2		1		1		—		—		—		7
60-89 days	—		1		—		—		—		—		—		—		1
90 days or greater	—		1		—		—		—		—		—		—		1
Total consumer auto	600		402		218		112		60		22		—		—		1,414
Consumer other
Current	160		82		13		6		2		19		361		—		643
30-59 days	—		—		—		—		—		1		3		—		4
60-89 days	—		—		—		—		—		1		1		—		2
90 days or greater	—		—		—		—		—		1		2		—		3
Total consumer other	160		82		13		6		2		22		367		—		652
Total consumer	$	4,249	$	4,214	$	2,337	$	930	$	481	$	2,775	$	2,240	$	100	$	17,326

3133

Gross Charge-offs

Gross ~~Charge-off Vintage Disclosures~~charge-off vintage disclosures by origination year and loan class are summarized in the following table for the ~~three~~six months ended ~~March 31,~~June 30, 2023:

Gross Charge-offs


Three Months Ended March 31, 2023
Six Months Ended June 30, 2023																						Six Months Ended June 30, 2023
		Term Loans by Origination Year														Revolving Converted to Term Loans							Term Loans by Origination Year																				Revolving Converted to Term Loans
dollars in millions	dollars in millions	2023		2022		2021		2020		2019		2018 & Prior		Revolving				Total	dollars in millions		2023				2022			2021			2020			2019			2018 & Prior			Revolving					Total
Commercial	Commercial																							Commercial

Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	$	—	$	—	$	—	$	—	$	—	$	12	$	—	$	—		$	12		Non-owner occupied commercial mortgage	$	—		$	—		$	—		$	—		$	17		$	12		$	—	$	—		$	29
Commercial and industrial	Commercial and industrial	—		14		9		4		2		1		8		—			38			Commercial and industrial	3			31			16			5			3			10			16		—			84
Leases	Leases	—		2		1		1		—		—		—		—			4			Leases	—			5			3			1			1			1			—		—			11
Total commercial	Total commercial	—		16		10		5		2		13		8		—			54			Total commercial	3			36			19			6			21			23			16		—			124
Consumer	Consumer																					Consumer
Residential mortgage	Residential mortgage	—		—		—		—		—		2		—		—			2			Residential mortgage	—			—			—			—			—			2			—		—			2

Consumer auto																						Consumer auto	—			1			—			—			—			—			—		—			1
Consumer other	Consumer other	—		—		—		—		—		—		3		—			3			Consumer other	3			1			—			—			—			—			6		—			10
Total consumer	Total consumer	—		—		—		—		—		2		3		—			5			Total consumer	3			2			—			—			—			2			6		—			13
SVB	SVB																					SVB

Investor dependent - early stage																						Investor dependent - early stage	12			13			5			—			—			—			—		—			30
Investor dependent - growth stage																						Investor dependent - growth stage	1			5			10			3			1			—			4		—			24
Innovation C&I and cash flow dependent																						Innovation C&I and cash flow dependent	—			—			—			42			—			—			5		—			47

Total SVB	Total SVB	—		—		—		—		—		—		—		—			—			Total SVB	13			18			15			45			1			—			9		—			101
Total loans and leases	Total loans and leases	$	—	$	16	$	10	$	5	$	2	$	15	$	11	$	—		$	59		Total loans and leases	$	19		$	56		$	34		$	51		$	22		$	25		$	31	$	—		$	238

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 credit risk management practices, BancShares attempts to work with borrowers when necessary to extend or modify loan terms to better align with borrowers current ability to repay. 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.

The following ~~table presents~~tables present loan modifications made to debtors experiencing financial difficulty, disaggregated by class and type of loan modification. The ~~table~~tables also ~~includes~~include 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,~~June 30, 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 %


dollars in millions	Term Extension(1)			Other Than Insignificant Payment Delay			Interest Rate Reduction
	Amortized Cost		Weighted Average Term Extension (Months)	Amortized Cost		Weighted Average Payment Delay (Months)	Amortized Cost		Weighted Average Interest Rate Reduction
Commercial
Commercial construction	$	—	47	$	—	—	$	—	—	%
Owner occupied commercial mortgage	12		13	—		—	1		3.50
Non-owner occupied commercial mortgage	161		15	—		—	—		—
Commercial and industrial	57		24	6		6	—		14.40

Total commercial	230		17	6		6	1		3.50
Consumer
Residential mortgage	2		90	—		—	—		—
Revolving mortgage	—		55	—		—	—		—
Consumer auto	—		19	—		—	—		—
Consumer other	—		60	—		—	—		9.21
Total consumer	2		84	—		—	—		9.21
SVB

Investor dependent - early stage	2		6	6		4	—		—

Innovation C&I and cash flow dependent	42		3	23		7	—		—



Total SVB	44		3	29		6	—		—
Total loans and leases	$	276	16	$	35	6	$	1	3.70	%


dollars in millions	Term Extension(1) and Interest Rate Reduction					Term Extension(1) and Other Than Insignificant Payment Delay				Total
	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	$	—	—	—	%	$	—	—	—	$	—	0.01	%
Owner occupied commercial mortgage	—		—	—		—		—	—	13		0.09
Non-owner occupied commercial mortgage	—		—	—		—		—	—	161		1.50
Commercial and industrial	—		28	5.18		—		—	—	63		0.25

Total commercial	—		28	5.18		—		—	—	237		0.42
Consumer								—
Residential mortgage	3		60	3.44		—		—	—	5		0.03
Revolving mortgage	—		44	0.41		—		—	—	—		0.01
Consumer auto	—		31	0.70		—		—	—	—		0.01
Consumer other	—		—	—		—		—	—	—		0.01
Total consumer	3		59	3.35		—		—	—	5		0.03
SVB

Investor dependent - early stage	—		—	—		—		—	—	8		0.41

Innovation C&I and cash flow dependent	—		—	—		—		—	—	65		0.73



Total SVB	—		—	—		—		—	—	73		0.12
Total loans and leases	$	3	58	3.43	%	$	—	0	0	$	315	0.24	%

Loan Modifications Made to Borrowers Experiencing Financial Difficulty (six months ended June 30, 2023)


dollars in millions	Term Extension(1)			Other Than Insignificant Payment Delay			Interest Rate Reduction
	Amortized Cost		Weighted Average Term Extension (Months)	Amortized Cost		Weighted Average Payment Delay (Months)	Amortized Cost		Weighted Average Interest Rate Reduction
Commercial
Commercial construction	$	1	22	$	—	—	$	—	—	%
Owner occupied commercial mortgage	22		12	—		—	2		3.63
Non-owner occupied commercial mortgage	212		13	—		—	—		—
Commercial and industrial	67		22	6		6	—		14.40

Total commercial	302		15	6		6	2		3.62
Consumer
Residential mortgage	3		62	—		—	—		—
Revolving mortgage	—		56	—		—	—		—
Consumer auto	—		19	—		—	—		—
Consumer other	—		60	—		—	—		9.33
Total consumer	3		61	—		—	—		9.33
SVB

Investor dependent - early stage	2		6	6		4	—		—

Innovation C&I and cash flow dependent	49		4	23		7	—		—


Other	—		17	—		—	—		—
Total SVB	51		4	29		6	—		—
Total loans and leases	$	356	13	$	35	6	$	2	3.86	%


dollars in millions	Term Extension(1) and Interest Rate Reduction					Term Extension(1) and Other Than Insignificant Payment Delay				Total
	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	0.03	%
Owner occupied commercial mortgage	—		36	2.00		—		—	—	24		0.16
Non-owner occupied commercial mortgage	—		—	—		—		—	—	212		1.97
Commercial and industrial	—		30	4.61		3		8	2	76		0.30

Total commercial	—		32	3.68		3		8	2	313		0.56
Consumer								—
Residential mortgage	3		60	3.44		—		—	—	6		0.04
Revolving mortgage	—		53	0.40		—		—	—	—		0.02
Consumer auto	—		31	0.70		—		—	—	—		0.01
Consumer other	—		—	—		—		—	—	—		0.01
Total consumer	3		59	3.31		—		—	—	6		0.04
SVB

Investor dependent - early stage	—		—	—		—		—	—	8		0.41

Innovation C&I and cash flow dependent	—		—	—		—		—	—	72		0.81


Other	—		—	—		—		—	—	—		—
Total SVB	—		—	—		—		—	—	80		0.14
Total loans and leases	$	3	57	3.34	%	$	3	8	2	$	399	0.30	%

(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~~and second quarters of 2023.

3336

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

Modified Loans Payment Status (three months ended June 30, 2023)


dollars in millions	dollars in millions	Current		30–59 Days Past Due		60–89 Days Past Due		90 days or greater Past Due		Total		dollars in millions	Current		30–59 Days Past Due		60–89 Days Past Due		90 days or greater Past Due		Total
Commercial	Commercial											Commercial
Commercial construction	Commercial construction	$	1	$	—	$	—	$	—	$	1	Commercial construction	$	—	$	—	$	—	$	—	$	—
Owner occupied commercial mortgage	Owner occupied commercial mortgage	10		—		—		—		10		Owner occupied commercial mortgage	13		—		—		—		13
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	53		—		—		—		53		Non-owner occupied commercial mortgage	126		—		—		35		161
Commercial and industrial	Commercial and industrial	21		—		—		—		21		Commercial and industrial	63		—		—		—		63

Total commercial	Total commercial	85		—		—		—		85		Total commercial	202		—		—		35		237
Consumer	Consumer											Consumer
Residential mortgage	Residential mortgage	1		—		—		—		1		Residential mortgage	5		—		—		—		5

Total consumer	Total consumer	1		—		—		—		1		Total consumer	5		—		—		—		5
SVB	SVB											SVB

Investor dependent - early stage												Investor dependent - early stage	5		—		—		3		8

Investor dependent - growth stage		6		—		—		—		6

Innovation C&I and cash flow dependent												Innovation C&I and cash flow dependent	59		—		—		6		65

Total SVB	Total SVB	6		—		—		—		6		Total SVB	64		—		—		9		73
Total loans and leases	Total loans and leases	$	92	$	—	$	—	$	—	$	92	Total loans and leases	$	271	$	—	$	—	$	44	$	315

Modified Loans Payment Status (six months ended June 30, 2023)


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	24		—		—		—		24
Non-owner occupied commercial mortgage	177		—		—		35		212
Commercial and industrial	76		—		—		—		76

Total commercial	278		—		—		35		313
Consumer
Residential mortgage	6		—		—		—		6



Total consumer	6		—		—		—		6
SVB

Investor dependent - early stage	5		—		—		3		8

Innovation C&I and cash flow dependent	66		—		—		6		72



Total SVB	71		—		—		9		80
Total loans and leases	$	355	$	—	$	—	$	44	$	399

At ~~March 31,~~June 30, 2023, there were ~~no significant~~$12 million of 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 was 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. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

Concessions may have related to the contractual interest rate, maturity date, payment structure or other actions. The assessments of whether a borrower was experiencing (or is likely to experience) financial difficulty, and whether a concession had been granted, were subjective in nature and management’s judgment was required when determining whether a modification was classified as a TDR. Modified loans that met the definition of a TDR were subject to BancShares’ individually reviewed loans policy.

The following table presents amortized cost of TDRs:

TDRs


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

The following table summarizes the loan restructurings during the three and six months ended ~~March 31,~~June 30, 2022 that were designated as TDRs. BancShares defines payment default as movement of the TDR to non-accrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.

Restructurings


dollars in millions (except for number of loans)	dollars in millions (except for number of loans)		Three Months Ended March 31,			dollars in millions (except for number of loans)	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
		2022
			Number of Loans	Amortized Cost at Period End			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	$	—	Interest only	6	$	6	8	$	6
Loan term extension	Loan term extension		35	20		Loan term extension	41	4		76	23
Below market rates	Below market rates		20	2		Below market rates	25	3		45	5
Discharge from bankruptcy	Discharge from bankruptcy		24	2		Discharge from bankruptcy	18	2		42	4
Total	Total		81	$	24	Total	90	$	15	171	$	38

There were $1.5 million of commitments to lend additional funds to borrowers whose loan terms ~~that~~ were modified in TDRs as of December 31, 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 and six months ended ~~March 31,~~June 30, 2022, and were classified as TDRs during the applicable 12-month period preceding ~~March 31,~~June 30, 2022 were as follows:

TDR Defaults


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


dollars in millions	Three Months Ended		Six Months Ended
	June 30, 2022		June 30, 2022
TDR Defaults	$	1	$	3

~~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.

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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,~~June 30, 2023 and December 31, 2022.

Loans Pledged


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 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	$	14,662	$	14,918	Lendable collateral value of pledged non-PCD loans	$	14,999	$	14,918
Less: Advances	Less: Advances	8,500		4,250		Less: Advances	2,425		4,250
Less: Letters of Credit	Less: Letters of Credit	1,450		1,450		Less: Letters of Credit	1,450		1,450
Available borrowing capacity	Available borrowing capacity	$	4,712	$	9,218	Available borrowing capacity	$	11,124	$	9,218
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	23,743	$	23,491	Pledged non-PCD loans (contractual balance)	$	23,969	$	23,491

FRB	FRB					FRB
Lendable collateral value of pledged non-PCD loans	Lendable collateral value of pledged non-PCD loans	$	4,676	$	4,203	Lendable collateral value of pledged non-PCD loans	$	4,817	$	4,203
Less: Advances	Less: Advances	—		—		Less: Advances	—		—
Available borrowing capacity	Available borrowing capacity	$	4,676	$	4,203	Available borrowing capacity	$	4,817	$	4,203
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	5,864	$	5,697	Pledged non-PCD loans (contractual balance)	$	5,995	$	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 SVB loans acquired and related commitments that subsequently were drawn and ~~outstanding as of March 31, 2023.~~outstanding. 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 (i) loans and leases (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 initial ACL for PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger (the “Initial PCD ACL”) were established through a PCD Gross-Up and there were no corresponding increases to the provision for credit losses. The PCD Gross-Ups are discussed further in Note 1 — 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 were established through corresponding increases to the provision for credit losses (the “day 2 provision for loans and leases”). The initial ACL for unfunded commitments acquired in the SVBB Acquisition and the CIT Merger were established through a corresponding increase to the provision for unfunded commitments (the “day 2 provision for unfunded commitments”).

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

ACL for Loans and Leases


dollars in millions	dollars in millions	Three Months Ended March 31, 2023					dollars in millions	Three Months Ended June 30, 2023										Six Months Ended June 30, 2023
			Commercial		Consumer				SVB		Total			Commercial		Consumer		SVB		Total		Commercial		Consumer		SVB		Total
Balance at beginning of period	Balance at beginning of period		$	789	$	133			$	—	$	922	Balance at beginning of period	$	800	$	143	$	662	$	1,605	$	789	$	133	$	—	$	922
Initial PCD ACL	Initial PCD ACL		—		—				200		200		Initial PCD ACL	—		—		20		20		—		—		220		220
Day 2 provision for loans and leases	Day 2 provision for loans and leases		—		—				462		462		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
Provision (benefit) for credit losses - loans and leases													Provision (benefit) for credit losses - loans and leases	172		16		(19)		169		230		29		(19)		240
Total provision (benefit) for credit losses- loans and leases													Total provision (benefit) for credit losses- loans and leases	172		16		(19)		169		230		29		443		702
Charge-offs	Charge-offs		(55)		(7)				—		(62)		Charge-offs	(69)		(6)		(101)		(176)		(124)		(13)		(101)		(238)
Recoveries	Recoveries		8		4				—		12		Recoveries	12		3		4		19		20		7		4		31

Balance at March 31, 2023			$	800	$	143			$	662	$	1,605
Balance at June 30, 2023													Balance at June 30, 2023	$	915	$	156	$	566	$	1,637	$	915	$	156	$	566	$	1,637

		Three Months Ended March 31, 2022						Three Months Ended June 30, 2022										Six Months Ended June 30, 2022
			Commercial		Consumer				SVB		Total			Commercial		Consumer		SVB		Total		Commercial		Consumer		SVB		Total
Balance at beginning of period	Balance at beginning of period		$	80	$	98			$	—	$	178	Balance at beginning of period	$	743	$	105	$	—	$	848	$	80	$	98	$	—	$	178
Initial PCD ACL	Initial PCD ACL		270		14				—		284		Initial PCD ACL	(12)		—		—		(12)		258		14		—		272
Day 2 provision for loans and leases	Day 2 provision for loans and leases		432		22				—		454		Day 2 provision for loans and leases	—		—		—		—		432		22		—		454
Benefit for credit losses - loans and leases			(23)		(30)				—		(53)
Provision (benefit) for credit losses - loans and leases													Provision (benefit) for credit losses - loans and leases	33		3		—		36		10		(27)		—		(17)
Total provision (benefit) for credit losses- loans and leases	Total provision (benefit) for credit losses- loans and leases		409		(8)				—		401		Total provision (benefit) for credit losses- loans and leases	33		3		—		36		442		(5)		—		437
Charge-offs	Charge-offs		(28)		(5)				—		(33)		Charge-offs	(36)		(5)		—		(41)		(64)		(10)		—		(74)
Recoveries	Recoveries		12		6				—		18		Recoveries	12		7		—		19		24		13		—		37
Balance at March 31, 2022			$	743	$	105			$	—	$	848
Balance at June 30, 2022													Balance at June 30, 2022	$	740	$	110	$	—	$	850	$	740	$	110	$	—	$	850

ACL for Unfunded Commitments


dollars in millions	dollars in millions	Three Months Ended March 31,			dollars in millions	Three Months Ended June 30,						Six Months Ended June 30,
			2023				2022			2023		2022		2023		2022
Beginning balance	Beginning balance		$	106			$	12	Beginning balance	$	352	$	75	$	106	$	12
Day 2 provision for unfunded commitments	Day 2 provision for unfunded commitments		254				59		Day 2 provision for unfunded commitments	—		—		254		59
(Benefit) provision for unfunded commitments	(Benefit) provision for unfunded commitments		(8)				4		(Benefit) provision for unfunded commitments	(17)		6		(25)		10
Total provision for credit losses - unfunded commitments			246				63
Total (benefit) provision for credit losses - unfunded commitments									Total (benefit) provision for credit losses - unfunded commitments	(17)		6		229		69
Ending balance	Ending balance		$	352			$	75	Ending balance	$	335	$	81	$	335	$	81

ACL for Investment Securities


dollars in millions	dollars in millions	Three Months Ended March 31,			dollars in millions	Three Months Ended June 30,						Six Months Ended June 30,
			2023				2022			2023		2022		2023		2022
Beginning balance	Beginning balance		$	—			$	—	Beginning balance	$	4	$	—	$	—	$	—
Provision for credit losses - investment securities available for sale			4				—
(Benefit) provision for credit losses - investment securities available for sale									(Benefit) provision for credit losses - investment securities available for sale	(1)		—		3		—
Ending balance	Ending balance		$	4			$	—	Ending balance	$	3	$	—	$	3	$	—

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NOTE 6 — LEASES

Lessee

BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our real estate leases have remaining lease terms of up to 16 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, 2023			December 31, 2022			dollars in millions	Classification	June 30, 2023			December 31, 2022
ROU assets:	ROU assets:								ROU assets:
Operating leases	Operating leases	Other assets	$	337		$	345		Operating leases	Other assets	$	360		$	345
Finance leases	Finance leases	Premises and equipment	7			7			Finance leases	Premises and equipment	6			7
Total ROU assets	Total ROU assets		$	344		$	352		Total ROU assets		$	366		$	352
Lease liabilities:	Lease liabilities:								Lease liabilities:
Operating leases	Operating leases	Other liabilities	$	345		$	352		Operating leases	Other liabilities	$	368		$	352
Finance leases	Finance leases	Other borrowings	7			7			Finance leases	Other borrowings	6			7
Total lease liabilities	Total lease liabilities		$	352		$	359		Total lease liabilities		$	374		$	359
Weighted-average remaining lease terms:	Weighted-average remaining lease terms:								Weighted-average remaining lease terms:
Operating leases	Operating leases		9.4 years			9.6 years			Operating leases		9.0 years			9.6 years
Finance leases	Finance leases		3.8 years			4.1 years			Finance leases		3.6 years			4.1 years
Weighted-average discount rate:	Weighted-average discount rate:								Weighted-average discount rate:
Operating leases	Operating leases		2.22		%	2.19		%	Operating leases		2.42		%	2.19		%
Finance leases	Finance leases		2.34		%	2.34		%	Finance leases		2.33			2.34

The following table presents components of lease cost:

Components of Net Lease Cost


dollars in millions	dollars in millions		Three Months Ended March 31,				dollars in millions		Three Months Ended June 30,				Six Months Ended June 30,
		Classification	2023		2022			Classification	2023		2022		2023		2022
Lease cost	Lease cost						Lease cost
Operating lease cost(1)	Operating lease cost(1)	Occupancy Expense	$	13	$	16	Operating lease cost (1)	Occupancy Expense	$	15	$	15	$	28	$	30
Finance lease cost	Finance lease cost						Finance lease cost
Amortization of leased assets	Amortization of leased assets	Equipment expense	—		1		Amortization of leased assets	Equipment expense	—		1		1		1
Interest on lease liabilities		Interest expense - other borrowings	—		—

Variable lease cost	Variable lease cost	Occupancy Expense	4		3		Variable lease cost	Occupancy Expense	4		3		7		6
Sublease income	Sublease income	Occupancy Expense	(1)		(1)		Sublease income	Occupancy Expense	(1)		(1)		(1)		(1)
Net lease cost	Net lease cost		$	16	$	19	Net lease cost		$	18	$	18	$	35	$	36

(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 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 13 years.

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

Supplemental Cash Flow Information


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Six Months Ended June 30,
		2023		2022			2023		2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	13	$	14	Operating cash flows from operating leases	$	28	$	26

Financing cash flows from finance leases						Financing cash flows from finance leases	1		1
ROU assets obtained in exchange for new operating lease liabilities	ROU assets obtained in exchange for new operating lease liabilities	4		8		ROU assets obtained in exchange for new operating lease liabilities	10		15

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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.

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

Lease Income


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022					2023		2022		2023		2022
Lease income – Operating leases	Lease income – Operating leases	$	214	$	195			Lease income – Operating leases	$	221	$	196	$	435	$	391
Variable lease income – Operating leases(1)	Variable lease income – Operating leases(1)	19		13				Variable lease income – Operating leases (1)	17		17		36		30
Rental income on operating leases	Rental income on operating leases	233		208				Rental income on operating leases	238		213		471		421
Interest income - Sales type and direct financing leases	Interest income - Sales type and direct financing leases	41		42				Interest income - Sales type and direct financing leases	43		42		84		84
Variable lease income included in Other noninterest income(2)	Variable lease income included in Other noninterest income(2)	15		11				Variable lease income included in Other noninterest income (2)	14		13		28		23
Interest income - Leveraged leases	Interest income - Leveraged leases	5		5				Interest income - Leveraged leases	4		5		9		9
Total lease income	Total lease income	$	294	$	266			Total lease income	$	299	$	273	$	592	$	537

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

(2) Includes leased equipment property tax reimbursements due from customers of $4$3 million and $3$8 million for the three and six months ended ~~March 31,~~June 30, 2023, ~~and 2022,~~ respectively, and revenue related to insurance coverage on leased equipment of $10 million and $7$21 million for the three and six months ended ~~March 31,~~June 30, 2023, respectively. Includes leased equipment property tax reimbursements due from customers of $5 million and $8 million for the three and six months ended June 30, 2022, respectively, and revenue related to insurance coverage on leased equipment of $8 million and $15 million for the three and six months ended June 30, 2022, respectively.

NOTE 7 — GOODWILL AND 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 prices for both acquisitions. Consequently, there was a gain on acquisition (and no goodwill) as discussed further in Note 2 — Business Combinations. BancShares had goodwill of $346 million at ~~March 31,~~June 30, 2023 and December 31, 2022 that relates to business combinations 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 ~~three~~six months ended ~~March 31,~~June 30, 2023 or 2022.

Core Deposit Intangibles

Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. Core deposit intangibles are being amortized over their estimated useful life. The following tables summarize the activity for core deposit intangibles during the ~~quarter ending March 31,~~six months ended June 30, 2023.

Core Deposit Intangibles


dollars in millions	2023
Balance, net of accumulated amortization at January 1	$	140
Core deposit intangibles related to the SVBB Acquisition	230
Amortization for the period	~~(6)~~(23)
Balance at ~~March 31,~~June 30, net of accumulated amortization	$	~~364~~347

Core Deposit Intangible Accumulated Amortization


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Gross balance	Gross balance	$	501	$	271	Gross balance	$	501	$	271
Accumulated amortization	Accumulated amortization	(137)		(131)		Accumulated amortization	(154)		(131)
Balance, net of accumulated amortization	Balance, net of accumulated amortization	$	364	$	140	Balance, net of accumulated amortization	$	347	$	140

3942

The following table summarizes the expected amortization expense as of ~~March 31,~~June 30, 2023 in subsequent periods for core deposit intangibles.

Core Deposit Intangible Expected Amortization


dollars in millions	dollars in millions			dollars in millions
Remainder 2023	Remainder 2023	$	52	Remainder 2023	$	34
2024	2024	63		2024	63
2025	2025	54		2025	54
2026	2026	46		2026	46
2027	2027	39		2027	39
2028	2028	34		2028	35
Thereafter	Thereafter	76		Thereafter	76
Balance, net of accumulated amortization	Balance, net of accumulated amortization	$	364	Balance, net of accumulated amortization	$	347

NOTE 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 primary beneficiary. Refer to Note 1 — Significant Accounting Policies and Basis of Presentation for additional information on accounting for VIEs and investments in qualified housing projects.

Consolidated VIEs

At ~~March 31,~~June 30, 2023 and December 31, 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 provides a summary of the assets and liabilities included on the Consolidated Balance Sheets associated with unconsolidated VIEs. The table also presents our maximum exposure to loss which consists of outstanding book basis and unfunded commitments for future investments, and represents potential losses that would be incurred under hypothetical circumstances, such that the value of BancShares’ interests and any associated collateral declines to zero and assuming no ~~recovery or offset from any economic hedges.~~recovery. 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,~~June 30, 2023 include VIEs acquired in the SVBB Acquisition.

Unconsolidated VIEs Carrying Value


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Investment in qualified affordable housing projects	Investment in qualified affordable housing projects	$	1,662	$	598	Investment in qualified affordable housing projects	$	1,808	$	598
Other tax credit equity investments	Other tax credit equity investments	5		5		Other tax credit equity investments	4		5
Total tax credit equity investments	Total tax credit equity investments	$	1,667	$	603	Total tax credit equity investments	$	1,812	$	603
Other unconsolidated investments	Other unconsolidated investments	166		159		Other unconsolidated investments	161		159
Total assets (maximum loss exposure)(1)	Total assets (maximum loss exposure)(1)	$	1,833	$	762	Total assets (maximum loss exposure) (1)	$	1,973	$	762
Liabilities for commitments to tax credit investments~~(3)~~(2)	Liabilities for commitments to tax credit investments~~(3)~~(2)	$	991	$	295	Liabilities for commitments to tax credit investments~~(3)~~(2)	$	926	$	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 included in other liabilities.

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

4043

NOTE 9 — OTHER ASSETS

The ~~below~~following table ~~reflects~~includes the ~~impact~~components of ~~approximately $2.18 billion of miscellaneous~~other assets. The increases from December 31, 2022 primarily reflect other 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~~Acquisition as further discussed in Note 2 — Business ~~Combinations for further discussion. The following table includes the components of other assets:~~Combinations.

Other Assets


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Affordable housing tax credit and other unconsolidated investments (1)	Affordable housing tax credit and other unconsolidated investments (1)	$	1,869	$	762	Affordable housing tax credit and other unconsolidated investments (1)	$	2,010	$	762
Right of use assets for operating leases, net	Right of use assets for operating leases, net	337		345		Right of use assets for operating leases, net	360		345
Pension assets	Pension assets	359		343		Pension assets	359		343
Accrued interest receivable	Accrued interest receivable	772		329		Accrued interest receivable	732		329
Income tax receivable	Income tax receivable	284		275		Income tax receivable	208		275
Federal Home Loan Bank stock	Federal Home Loan Bank stock	393		197		Federal Home Loan Bank stock	119		197
Fair value of derivative financial instruments	Fair value of derivative financial instruments	547		159		Fair value of derivative financial instruments	758		159
Bank-owned life insurance	Bank-owned life insurance	530		586		Bank-owned life insurance	104		586
Counterparty receivables	Counterparty receivables	171		98		Counterparty receivables	113		98
Nonmarketable equity securities	Nonmarketable equity securities	62		58		Nonmarketable equity securities	58		58
Other real estate owned	Other real estate owned	46		47		Other real estate owned	62		47
Mortgage servicing assets		25		25
Mortgage servicing rights						Mortgage servicing rights	25		25
Other (2)	Other (2)	2,055		1,145		Other (2)	861		1,145
Total other assets	Total other assets	$	7,450	$	4,369	Total other assets	$	5,769	$	4,369

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

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

NOTE 10 — DEPOSITS

The following table provides detail on deposit types. The deposit balances as of ~~March 31,~~June 30, 2023 include those acquired in the SVBB Acquisition, as described in Note 2 — Business Combinations.

Deposit Types


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Noninterest-bearing demand	Noninterest-bearing demand	$	54,649	$	24,922	Noninterest-bearing demand	$	44,547	$	24,922
Checking with interest	Checking with interest	23,743		16,202		Checking with interest	24,809		16,202
Money market	Money market	30,598		21,040		Money market	29,149		21,040
Savings	Savings	17,932		16,634		Savings	26,389		16,634
Time	Time	13,128		10,610		Time	16,270		10,610
Total deposits	Total deposits	$	140,050	$	89,408	Total deposits	$	141,164	$	89,408

At ~~March 31,~~June 30, 2023, the scheduled maturities of time deposits were:

Deposit Maturities


dollars in millions	dollars in millions			dollars in millions
Twelve months ended March 31,
Twelve months ended June 30,				Twelve months ended June 30,
2024	2024	$	9,199	2024	$	13,744
2025	2025	3,281		2025	2,042
2026	2026	437		2026	286
2027	2027	55		2027	50
2028	2028	31		2028	23
Thereafter	Thereafter	125		Thereafter	125
Total time deposits	Total time deposits	$	13,128	Total time deposits	$	16,270

Time deposits with a denomination of $250,000 or more were ~~$3.74~~$4.95 billion and $2.22 billion at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

NOTE 11 — BORROWINGS

Short-term Borrowings

Short-term borrowings at ~~March 31,~~June 30, 2023 and December 31, 2022 include:


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	$	509	$	436	Securities sold under customer repurchase agreements	$	454	$	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		Notes payable to FHLB of Atlanta at overnight SOFR plus 0.28%.	—		1,750

Total short-term borrowings	Total short-term borrowings	$	1,009	$	2,186	Total short-term borrowings	$	454	$	2,186

Securities Sold under Agreements to Repurchase

BancShares held ~~$509~~$454 million and $436 million at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively, of securities sold under agreements to repurchase that have overnight contractual maturities and are collateralized by government agency 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 ~~$545~~$508 million and $496 million at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

4245

Long-term Borrowings

Long-term borrowings at ~~March 31,~~June 30, 2023 and December 31, 2022 include:

Long-term Borrowings


dollars in millions	dollars in millions	Maturity	March 31, 2023		December 31, 2022		dollars in millions	Maturity	June 30, 2023		December 31, 2022
Parent Company:	Parent Company:						Parent Company:
Senior:							Senior:

Senior unsecured fixed line of credit at 3.722%							Senior unsecured fixed line of credit at 3.722%	September 2023	$	15	$	—
Subordinated:	Subordinated:						Subordinated:

Fixed-to-Floating subordinated notes at 3.375%	Fixed-to-Floating subordinated notes at 3.375%	March 2030	$	350	$	350	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)	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 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)	Junior subordinated debentures at 3-month LIBOR plus 1.75% (FCB/NC Capital Trust III)	June 2036	88		88		Junior subordinated debentures at 3-month LIBOR plus 1.75% (FCB/NC Capital Trust III)	June 2036	88		88
Subsidiaries:	Subsidiaries:						Subsidiaries:
Senior:	Senior:						Senior:
Senior unsecured fixed-to-floating rate notes at 3.929%	Senior unsecured fixed-to-floating rate notes at 3.929%	June 2024	500		500		Senior unsecured fixed-to-floating rate notes at 3.929%	June 2024	—		500
Senior unsecured fixed-to-floating rate notes at 2.969%	Senior unsecured fixed-to-floating rate notes at 2.969%	September 2025	315		315		Senior unsecured fixed-to-floating rate notes at 2.969%	September 2025	315		315
Fixed senior unsecured notes at 6.00%	Fixed senior unsecured notes at 6.00%	April 2036	51		51		Fixed senior unsecured notes at 6.00%	April 2036	51		51
Subordinated:	Subordinated:						Subordinated:
Fixed subordinated notes at 6.125%	Fixed subordinated notes at 6.125%	March 2028	400		400		Fixed subordinated notes at 6.125%	March 2028	400		400
Fixed-to-Fixed subordinated notes at 4.125%	Fixed-to-Fixed subordinated notes at 4.125%	November 2029	100		100		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)	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 2.80% (Macon Capital Trust I)	March 2034	14		14
Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I)	Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I)	April 2034	10		10		Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I)	April 2034	10		10
Secured:	Secured:						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
Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.32% to 0.36%.							Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.32% to 0.36%.	Maturities through September 2025	2,425		2,500
Purchase Money Note to FDIC fixed at 3.50%(1)	Purchase Money Note to FDIC fixed at 3.50%(1)	March 2028	35,370		—		Purchase Money Note to FDIC fixed at 3.50% (1)	March 2028	36,072		—
Other secured financings	Other secured financings	Maturities through January 2024	—		18		Other secured financings	Maturities through January 2024	—		18
Capital lease obligations	Capital lease obligations	Maturities through June 2027	7		7		Capital lease obligations	Maturities through June 2027	6		7
Unamortized issuance costs	Unamortized issuance costs		(1)		(1)		Unamortized issuance costs		(1)		(1)
Unamortized purchase accounting adjustments(2)	Unamortized purchase accounting adjustments(2)		(139)		87		Unamortized purchase accounting adjustments (2)		(180)		87
Total long-term borrowings	Total long-term borrowings		$	45,085	$	4,459	Total long-term borrowings		$	39,685	$	4,459

(1)Issued in connection with the SVBB Acquisition and will be secured by acquired loans. See below and Note 2 — Business Combinations for further information.

(2) At ~~March 31,~~June 30, 2023 and December 31, 2022, unamortized purchase accounting adjustments were ~~$65~~$62 million and $69 million, respectively, for subordinated debentures.

Pledged Assets

At ~~March 31,~~June 30, 2023, BancShares had pledged ~~$29.6~~$30.0 billion of loans to the FHLB and FRB.

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 ~~$23.7~~$24.0 billion at ~~March 31,~~June 30, 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.

Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional ~~$4.7~~$4.8 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at ~~March 31,~~June 30, 2023 and December 31, 2022. Assets pledged to the FRB of Richmond totaled ~~$5.9~~$6.0 billion at ~~March 31,~~June 30, 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,~~June 30, 2023.

At ~~March 31,~~June 30, 2023, BancShares had ~~other unused~~a credit ~~lines~~line allowing contingent access to borrowings on an unsecured basis of up to $100 million, ~~on an unsecured basis.~~of which $85 million was unused and available.

4346

NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS

The following table presents notional amount and fair value of derivative financial instruments on a gross basis. At ~~March 31,~~June 30, 2023, and December 31, 2022 BancShares’ derivatives are not designated as hedging instruments.

Notional Amount and Fair Value of Derivative Financial Instruments


dollars in millions	dollars in millions	March 31, 2023						December 31, 2022						dollars in millions	June 30, 2023						December 31, 2022
		Notional Amount		Asset Fair Value		Liability Fair Value		Notional Amount		Asset Fair Value		Liability Fair Value			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)		$	23,557	$	285	$	(535)	$	18,173	$	158	$	(482)
Interest rate contracts (1) (4)														Interest rate contracts (1) (4)	$	24,597	$	553	$	(624)	$	18,173	$	158	$	(482)
Foreign exchange contracts(2)	Foreign exchange contracts(2)	18,419		262		(255)		125		1		(4)		Foreign exchange contracts(2)	12,847		203		(200)		125		1		(4)
Other contracts~~(2)~~(3)	Other contracts~~(2)~~(3)	713		—		(1)		507		—		—		Other contracts~~(2)~~(3)	826		2		(1)		507		—		—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	42,689	547		(791)		$	18,805	159		(486)		Total derivatives not designated as hedging instruments	$	38,270	758		(825)		$	18,805	159		(486)
Gross derivatives fair values presented in the Consolidated Balance Sheets	Gross derivatives fair values presented in the Consolidated Balance Sheets			547		(791)				159		(486)		Gross derivatives fair values presented in the Consolidated Balance Sheets			758		(825)				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 Sheets	Net amount presented in the Consolidated Balance Sheets			547		(791)				159		(486)		Net amount presented in the Consolidated Balance Sheets			758		(825)				159		(486)
Less: Amounts subject to master netting agreements~~(4)~~(5)	Less: Amounts subject to master netting agreements~~(4)~~(5)			(179)		179				(13)		13		Less: Amounts subject to master netting agreements~~(4)~~(5)			(110)		110				(13)		13
Less: Cash collateral pledged(received) subject to master netting agreements~~(5)~~(6)	Less: Cash collateral pledged(received) subject to master netting agreements~~(5)~~(6)			(255)		16				(124)		—		Less: Cash collateral pledged(received) subject to master netting agreements~~(5)~~(6)			(533)		39				(124)		—
Total net derivative fair value	Total net derivative fair value			$	113	$	(596)			$	22	$	(473)	Total net derivative fair value			$	115	$	(676)			$	22	$	(473)

(1) Fair value balances include accrued interest.

(2) The foreign exchange contracts exclude foreign exchange spot contracts. The notional amounts of these contracts were $161 million as of June 30, 2023, and $0 million as of December 31, 2022.

(3) Other derivative contracts not designated as hedging instruments include risk participation ~~agreements.~~agreements and equity warrants.

~~(3)~~(4) 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 ~~$324~~$154 million and ~~$24~~$33 million, respectively, at ~~March 31,~~June 30, 2023, and $376 million and $19 million, respectively at December 31, 2022.

~~(4)~~(5) 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)~~(6) 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 of non-qualifying hedges recognized on the Consolidated Statements of Income:

Gains on Non-Qualifying Hedges


dollars in millions	dollars in millions		Three Months Ended March 31,				dollars in millions		Three Months Ended June 30,			Six Months Ended June 30,
		Amounts Recognized	2023		2022				Amounts Recognized	2023		2022		2023		2022
Interest rate contracts	Interest rate contracts	Other noninterest income	$	21	$	4		Interest rate contracts	Other noninterest income	$	8	$	2	$	29	$	6
Foreign currency forward contracts	Foreign currency forward contracts	Other noninterest income	(2)		—			Foreign currency forward contracts	Other noninterest income	1		6		(1)		6

Total non-qualifying hedges - income statement impact	Total non-qualifying hedges - income statement impact		$	19	$	4		Total non-qualifying hedges - income statement impact		$	9	$	8	$	28	$	12

4447

NOTE 13 ~~—OTHER~~— OTHER LIABILITIES

~~We assumed approximately $1.85 billion~~The following table includes the components of other liabilities. The increases from December 31, 2022 primarily reflect other liabilities assumed 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 toas further discussed in Note 2 — Business ~~Combinations for further discussion. The following table presents the components of other liabilities:~~Combinations.

Other Liabilities


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Fair value of derivative financial instruments	Fair value of derivative financial instruments	$	791	$	486	Fair value of derivative financial instruments	$	825	$	486
Lease liabilities	Lease liabilities	345		352		Lease liabilities	368		352
Accrued expenses and accounts payable	Accrued expenses and accounts payable	476		275		Accrued expenses and accounts payable	391		275
Commitments to fund tax credit investments	Commitments to fund tax credit investments	991		295		Commitments to fund tax credit investments	926		295
Deferred taxes	Deferred taxes	3,551		286		Deferred taxes	3,147		286
ACL for unfunded commitments	ACL for unfunded commitments	352		106		ACL for unfunded commitments	335		106
Incentive plan liabilities	Incentive plan liabilities	156		267		Incentive plan liabilities	369		267
Accrued interest payable	Accrued interest payable	150		57		Accrued interest payable	121		57
Other ~~(1)~~	Other ~~(1)~~	1,360		464		Other ~~(1)~~	879		464
Total other liabilities	Total other liabilities	$	8,172	$	2,588	Total other liabilities	$	7,361	$	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 14 — 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.

4548

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:

Assets and Liabilities Measured at Fair Value - Recurring Basis


dollars in millions	dollars in millions	March 31, 2023								dollars in millions	June 30, 2023
		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	$	1,978	$	—	$	1,978	$	—	U.S. Treasury	$	4,634	$	—	$	4,634	$	—
Government agency	Government agency	150		—		150		—		Government agency	140		—		140		—
Residential mortgage-backed securities	Residential mortgage-backed securities	4,848		—		4,848		—		Residential mortgage-backed securities	4,810		—		4,810		—
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,585		—		1,585		—		Commercial mortgage-backed securities	1,577		—		1,577		—
Corporate bonds	Corporate bonds	500		—		340		160		Corporate bonds	476		—		325		151
Municipal bonds										Municipal bonds	257		—		257		—

Total investment securities available for sale	Total investment securities available for sale	$	9,061	$	—	$	8,901	$	160	Total investment securities available for sale	$	11,894	$	—	$	11,743	$	151
Marketable equity securities	Marketable equity securities	85		29		56		—		Marketable equity securities	76		24		52		—
Loans held for sale	Loans held for sale	9		—		9		—		Loans held for sale	42		—		42		—
Derivative assets(1)	Derivative assets(1)									Derivative assets (1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	$	285	$	—	$	284	$	1	Interest rate contracts — non-qualifying hedges	$	553	$	—	$	552	$	1
Foreign exchange contracts — non-qualifying hedges	Foreign exchange contracts — non-qualifying hedges	262		—		262		—		Foreign exchange contracts — non-qualifying hedges	203		—		203		—
Other derivative contracts — non-qualifying hedges	Other derivative contracts — non-qualifying hedges	—		—		—		—		Other derivative contracts — non-qualifying hedges	2		—		—		2
Total derivative assets	Total derivative assets	$	547	$	—	$	546	$	1	Total derivative assets	$	758	$	—	$	755	$	3
Liabilities	Liabilities									Liabilities
Derivative liabilities(1)	Derivative liabilities(1)									Derivative liabilities (1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	$	535	$	—	$	535	$	—	Interest rate contracts — non-qualifying hedges	$	624	$	—	$	624	$	—
Foreign exchange contracts — non-qualifying hedges	Foreign exchange contracts — non-qualifying hedges	255		—		255		—		Foreign exchange contracts — non-qualifying hedges	200		—		200		—
Other derivative contracts — non-qualifying hedges	Other derivative contracts — non-qualifying hedges	1		—		—		1		Other derivative contracts — non-qualifying hedges	1		—		—		1
Total derivative liabilities	Total derivative liabilities	$	791	$	—	$	790	$	1	Total derivative liabilities	$	825	$	—	$	824	$	1

		December 31, 2022									December 31, 2022
		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	$	1,898	$	—	$	1,898	$	—	U.S. Treasury	$	1,898	$	—	$	1,898	$	—
Government agency	Government agency	162		—		162		—		Government agency	162		—		162		—
Residential mortgage-backed securities	Residential mortgage-backed securities	4,795		—		4,795		—		Residential mortgage-backed securities	4,795		—		4,795		—
Commercial mortgage-backed securities	Commercial mortgage-backed securities	1,604		—		1,604		—		Commercial mortgage-backed securities	1,604		—		1,604		—
Corporate bonds	Corporate bonds	536		—		362		174		Corporate bonds	536		—		362		174
Municipal bonds										Municipal bonds	—		—		—		—

Total investment securities available for sale	Total investment securities available for sale	$	8,995	$	—	$	8,821	$	174	Total investment securities available for sale	$	8,995	$	—	$	8,821	$	174
Marketable equity securities	Marketable equity securities	95		32		63		—		Marketable equity securities	95		32		63		—
Loans held for sale	Loans held for sale	4		—		4		—		Loans held for sale	4		—		4		—
Derivative assets(1)	Derivative assets(1)									Derivative assets (1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	$	158	$	—	$	158	$	—	Interest rate contracts — non-qualifying hedges	$	158	$	—	$	158	$	—
Foreign exchange contracts — non-qualifying hedges	Foreign exchange contracts — non-qualifying hedges	1		—		1		—		Foreign exchange contracts — non-qualifying hedges	1		—		1		—
Other derivative contracts — non-qualifying hedges	Other derivative contracts — non-qualifying hedges	—		—		—		—		Other derivative contracts — non-qualifying hedges	—		—		—		—
Total derivative assets	Total derivative assets	$	159	$	—	$	159	$	—	Total derivative assets	$	159	$	—	$	159	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities(1)	Derivative liabilities(1)									Derivative liabilities (1)
Interest rate contracts — non-qualifying hedges	Interest rate contracts — non-qualifying hedges	$	482	$	—	$	482	$	—	Interest rate contracts — non-qualifying hedges	$	482	$	—	$	482	$	—
Foreign exchange contracts — non-qualifying hedges	Foreign exchange contracts — non-qualifying hedges	4		—		4		—		Foreign exchange contracts — non-qualifying hedges	4		—		4		—
Other derivative contracts — non-qualifying hedges	Other derivative contracts — non-qualifying hedges	—		—		—		—		Other derivative contracts — non-qualifying hedges	—		—		—		—
Total derivative liabilities	Total derivative liabilities	$	486	$	—	$	486	$	—	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, municipal bonds, 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 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 equity warrants and 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 12 — Derivative Financial Instruments for notional amounts and fair values.

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

Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis

dollars in millions

Financial Instrument

Estimated
Fair Value

Valuation
Technique(s)

Significant Unobservable Inputs

~~March 31,~~June 30, 2023

Assets

Corporate bonds

~~160~~151

Indicative bid provided by broker

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

Interest rate & other derivative — non-qualifying hedges

Internal valuation model

Not material

Liabilities

Interest rate & other derivative — non-qualifying hedges

Internal valuation model

Not material

December 31, 2022

Assets

Corporate bonds

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.

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

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


dollars in millions	dollars in millions	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022						dollars in millions	Six Months Ended June 30, 2023						Six Months Ended June 30, 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			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	$	174	$	—	$	—	$	207	$	—	$	—	Beginning balance	$	174	$	—	$	—	$	207	$	—	$	—
Purchases	Purchases	—		—		—		—		—		1		Purchases	—		—		—		—		—		1
Changes in FV included in earnings	Changes in FV included in earnings	—		1		—		—		1		—		Changes in FV included in earnings	—		3		—		—		1		(1)
Changes in FV included in comprehensive income	Changes in FV included in comprehensive income	(5)		—		—		(7)		—		—		Changes in FV included in comprehensive income	(14)		—		—		(13)		—		—
Transfers in	Transfers in	—		—		1		—		—		—		Transfers in	—		—		1		—		—		—
Transfers out	Transfers out	—		—		—		(14)		—		—		Transfers out	—		—		—		(14)		—		—
Maturity and settlements	Maturity and settlements	(9)		—		—		—		—		—		Maturity and settlements	(9)		—		—		—		—		—
Ending balance	Ending balance	$	160	$	1	$	1	$	186	$	1	$	1	Ending balance	$	151	$	3	$	1	$	180	$	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,~~June 30, 2023 and December 31, 2022:

Aggregate Fair Value and UPB - Residential Real Estate Loans


dollars in millions	dollars in millions	March 31, 2023						dollars in millions	June 30, 2023
		Fair Value		Unpaid Principal Balance		Difference			Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	Originated loans held for sale	$	9	$	9	$	—	Originated loans held for sale	$	42	$	42	$	—

		December 31, 2022							December 31, 2022
		Fair Value		Unpaid Principal Balance		Difference			Fair Value		Unpaid Principal Balance		Difference
Originated loans held for sale	Originated loans held for sale	$	4	$	4	$	—	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 $0 million and a ~~loss~~gain of $3$1 million for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $0 million and a loss of $2 million for the six months ended June 30, 2023 and 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,~~June 30, 2023 or December 31, 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 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.~~

4851

Assets Measured at Fair Value - Non-recurring Basis


dollars in millions	dollars in millions	Fair Value Measurements										dollars in millions	Fair Value Measurements
		Total		Level 1		Level 2		Level 3		Total Gains (Losses)			Total		Level 1		Level 2		Level 3		Total Gains (Losses)
March 31, 2023
June 30, 2023												June 30, 2023
Assets held for sale - loans	Assets held for sale - loans	$	9	$	—	$	—	$	9	$	—	Assets held for sale - loans	$	13	$	—	$	—	$	13	$	(6)
Loans - collateral dependent loans	Loans - collateral dependent loans	87		—		—		87		(15)		Loans - collateral dependent loans	199		—		—		199		(71)
Other real estate owned	Other real estate owned	36		—		—		36		—		Other real estate owned	26		—		—		26		2

Total	Total	$	132	$	—	$	—	$	132	$	(15)	Total	$	238	$	—	$	—	$	238	$	(75)
December 31, 2022	December 31, 2022											December 31, 2022
Assets held for sale - loans	Assets held for sale - loans	$	23	$	—	$	—	$	23	$	(1)	Assets held for sale - loans	$	23	$	—	$	—	$	23	$	(1)
Loans - collateral dependent loans	Loans - collateral dependent loans	149		—		—		149		(24)		Loans - collateral dependent loans	149		—		—		149		(24)
Other real estate owned	Other real estate owned	43		—		—		43		14		Other real estate owned	43		—		—		43		14
Mortgage servicing rights	Mortgage servicing rights	—		—		—		—		1		Mortgage servicing rights	—		—		—		—		1
Total	Total	$	215	$	—	$	—	$	215	$	(10)	Total	$	215	$	—	$	—	$	215	$	(10)

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,~~mortgage servicing rights (“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 adjustments for other external factors that may impact the marketability of the collateral.

Other real estate owned. OREO is carried at 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 11%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At ~~March 31,~~June 30, 2023 and December 31, 2022, the weighted average discount applied was ~~8.48%~~8.68% and 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.

4952

Financial Instruments Fair Value

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

Carrying Values and Fair Values of Financial Assets and Liabilities


dollars in millions	dollars in millions	March 31, 2023										dollars in millions	June 30, 2023
				Estimated Fair Value											Estimated Fair Value
		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	$	1,598	$	1,598	$	—	$	—	$	1,598	Cash and due from banks	$	917	$	917	$	—	$	—	$	917
Interest earning deposits at banks	Interest earning deposits at banks	38,522		38,522		—		—		38,522		Interest earning deposits at banks	37,846		37,846		—		—		37,846
Securities purchased under agreements to resell												Securities purchased under agreements to resell	298		—		298		—		298
Investment in marketable equity securities	Investment in marketable equity securities	85		29		56		—		85		Investment in marketable equity securities	76		24		52		—		76
Investment securities available for sale	Investment securities available for sale	9,061		—		8,901		160		9,061		Investment securities available for sale	11,894		—		11,743		151		11,894
Investment securities held to maturity	Investment securities held to maturity	10,381		—		8,993		—		8,993		Investment securities held to maturity	10,201		—		8,652		—		8,652
Loans held for sale	Loans held for sale	90		—		9		81		90		Loans held for sale	115		—		42		73		115
Net loans	Net loans	134,556		—		1,576		130,572		132,148		Net loans	129,288		—		1,552		125,261		126,813
Accrued interest receivable	Accrued interest receivable	772		—		772		—		772		Accrued interest receivable	732		—		732		—		732
Federal Home Loan Bank stock	Federal Home Loan Bank stock	393		—		393		—		393		Federal Home Loan Bank stock	119		—		119		—		119
Mortgage and other servicing rights		25		—		—		45		45
Mortgage servicing rights												Mortgage servicing rights	25		—		—		47		47
Derivative assets	Derivative assets	547		—		546		1		547		Derivative assets	758		—		755		3		758
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits with no stated maturity	Deposits with no stated maturity	126,922		—		126,922		—		126,922		Deposits with no stated maturity	124,894		—		124,894		—		124,894
Time deposits	Time deposits	13,128		—		13,055		—		13,055		Time deposits	16,270		—		16,220		—		16,220
Credit balances of factoring clients	Credit balances of factoring clients	1,126		—		—		1,126		1,126		Credit balances of factoring clients	1,067		—		—		1,067		1,067
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	509		—		509		—		509		Securities sold under customer repurchase agreements	454		—		454		—		454
Other short-term borrowings		500		—		500		—		500

Long-term borrowings	Long-term borrowings	45,078		—		45,048		—		45,048		Long-term borrowings	39,679		—		39,011		—		39,011
Accrued interest payable	Accrued interest payable	150		—		150		—		150		Accrued interest payable	121		—		121		—		121
Derivative liabilities	Derivative liabilities	791		—		790		1		791		Derivative liabilities	825		—		824		1		825

		December 31, 2022											December 31, 2022
				Estimated Fair Value											Estimated Fair Value
		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	$	518	$	518	$	—	$	—	$	518	Cash and due from banks	$	518	$	518	$	—	$	—	$	518
Interest earning deposits at banks	Interest earning deposits at banks	5,025		5,025		—		—		5,025		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 in marketable equity securities	95		32		63		—		95
Investment securities available for sale	Investment securities available for sale	8,995		—		8,821		174		8,995		Investment securities available for sale	8,995		—		8,821		174		8,995
Investment securities held to maturity	Investment securities held to maturity	10,279		—		8,795		—		8,795		Investment securities held to maturity	10,279		—		8,795		—		8,795
Loans held for sale	Loans held for sale	52		—		4		45		49		Loans held for sale	52		—		4		45		49
Net loans	Net loans	67,720		—		1,679		62,633		64,312		Net loans	67,720		—		1,679		62,633		64,312
Accrued interest receivable	Accrued interest receivable	329		—		329		—		329		Accrued interest receivable	329		—		329		—		329
Federal Home Loan Bank stock	Federal Home Loan Bank stock	197		—		197		—		197		Federal Home Loan Bank stock	197		—		197		—		197
Mortgage and other servicing rights		25		—		—		47		47
Mortgage servicing rights												Mortgage servicing rights	25		—		—		47		47
Derivative assets	Derivative assets	159		—		159		—		159		Derivative assets	159		—		159		—		159
Financial Liabilities	Financial Liabilities											Financial Liabilities
Deposits with no stated maturity	Deposits with no stated maturity	78,798		—		78,798		—		78,798		Deposits with no stated maturity	78,798		—		78,798		—		78,798
Time deposits	Time deposits	10,610		—		10,504		—		10,504		Time deposits	10,610		—		10,504		—		10,504
Credit balances of factoring clients	Credit balances of factoring clients	995		—		—		995		995		Credit balances of factoring clients	995		—		—		995		995
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	436		—		436		—		436		Securities sold under customer repurchase agreements	436		—		436		—		436
Other short-term borrowings	Other short-term borrowings	1,750		—		1,750		—		1,750		Other short-term borrowings	1,750		—		1,750		—		1,750
Long-term borrowings	Long-term borrowings	4,452		—		4,312		18		4,330		Long-term borrowings	4,452		—		4,312		18		4,330
Accrued interest payable	Accrued interest payable	57		—		57		—		57		Accrued interest payable	57		—		57		—		57
Derivative liabilities	Derivative liabilities	486		—		486		—		486		Derivative liabilities	486		—		486		—		486

5053

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.

Securities Purchased Under Agreement to Resell. The fair value of securities purchased under agreement to resell equal the carrying value due to the short term nature, generally overnight, and therefore present an insignificant risk of change in fair value due to changes in market interest rate, and classified as Level 2.

Investment securities held to maturity. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, and securities issued by the Supranational Entities and Multilateral Development ~~Banks and FDIC guaranteed CDs with other financial institutions.~~Banks. 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~~MSRs 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~~MSRs 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~~MSRs 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.

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.~~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,~~June 30, 2023 and December 31, 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. Accrued interest receivable and accrued interest payable are classified as Level 2.

5154

NOTE 15 — STOCKHOLDERS' EQUITY

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

Number of Shares of Common Stock


		Outstanding			Outstanding
		Class A	Class B		Class A	Class B
Common stock - December 31, 2022		13,501,017	1,005,185
Common stock - March 31, 2023				Common stock - March 31, 2023	13,514,808	1,005,185

Restricted stock units vested, net of shares held to cover taxes	Restricted stock units vested, net of shares held to cover taxes	13,791	—	Restricted stock units vested, net of shares held to cover taxes	41	—
Common stock - March 31, 2023		13,514,808	1,005,185
Common stock - June 30, 2023				Common stock - June 30, 2023	13,514,849	1,005,185

Common stock - December 31, 2022				Common stock - December 31, 2022	13,501,017	1,005,185
Restricted stock units vested, net of shares held to cover taxes				Restricted stock units vested, net of shares held to cover taxes	13,832	—
Common stock - June 30, 2023				Common stock - June 30, 2023	13,514,849	1,005,185

Common Stock

The Parent Company has Class A Common Stock and Class B common stock (“Class B Common Stock”). Class A Common Stock have one vote per share, while shares of Class B Common Stock have 16 votes per share.

Non-Cumulative Perpetual Preferred Stock

The following table summarizes BancShares’ non-cumulative perpetual preferred stock.

Preferred Stock


dollars in millions, except per share and par value data	dollars in millions, except per share and par value data									dollars in millions, except per share and par value data
Preferred Stock	Preferred Stock	Issuance Date	Earliest Redemption Date	Par Value		Authorized Shares	Liquidation Preference Per Share		Total Liquidation Preference		Dividend	Dividend Payment Dates	Preferred Stock	Issuance Date	Earliest Redemption Date	Par Value		Shares Issued and Outstanding	Liquidation Preference Per Share		Total Liquidation Preference	Dividend	Dividend Payment Dates
Series A	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 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(1)	Series B(1)	January 3, 2022	January 4, 2027	$	0.01	325,000	$	1,000	325		LIBOR + 3.792%		Series B(1)	January 3, 2022	January 4, 2027	$	0.01	325,000	$	1,000	325	LIBOR + 3.792%
Series C	Series C	January 3, 2022	January 4, 2027	$	0.01	8,000,000	$	25	200		5.625%		Series C	January 3, 2022	January 4, 2027	$	0.01	8,000,000	$	25	200	5.625%

(1) Beginning July 1, 2023, BancShares has moved to Term SOFR plus a credit spread adjustment for its Series B Preferred Stock. The final dividend payment based on a LIBOR accrual will occur September 15, 2023.

For further description of BancShares’ non-cumulative perpetual preferred stock, refer to Note 17 — Stockholders’ Equity in Item 8 of our 2022 Form 10-K.

Authorized Shares

On April 25, 2023 the Parent Company’s 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.

NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

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

Components of Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~

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)


dollars in millions	June 30, 2023						December 31, 2022
	Pretax		Income Taxes		Net of Income Taxes		Pretax		Income Taxes		Net of Income Taxes
Unrealized loss on securities available for sale	$	(1,029)	$	248	$	(781)	$	(972)	$	233	$	(739)
Unrealized loss on securities available for sale transferred to held to maturity	(7)		2		(5)		(8)		2		(6)
Defined benefit pension items	18		(4)		14		13		(3)		10


Total accumulated other comprehensive loss	$	(1,018)	$	246	$	(772)	$	(967)	$	232	$	(735)

5255

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

Changes in Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~ by Component


dollars in millions	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		dollars in millions	Unrealized (loss) gain on securities available for sale		Unrealized (loss) gain on securities available for sale transferred to held to maturity		Net change in defined benefit pension items		Total accumulated other comprehensive (loss) income
Balance as of December 31, 2022	Balance as of December 31, 2022	$	(739)	$	(6)	$	10	$	(735)	Balance as of December 31, 2022	$	(739)	$	(6)	$	10	$	(735)
AOCI activity before reclassifications	AOCI activity before reclassifications	45		—		8		53		AOCI activity before reclassifications	(54)		—		4		(50)
Amounts reclassified from AOCI		13		—		—		13
Other comprehensive income for the period		58		—		8		66
Balance as of March 31, 2023		$	(681)	$	(6)	$	18	$	(669)
Amounts reclassified from AOCI to earnings										Amounts reclassified from AOCI to earnings	12		1		—		13
Other comprehensive (loss) income for the period										Other comprehensive (loss) income for the period	(42)		1		4		(37)
Balance as of June 30, 2023										Balance as of June 30, 2023	$	(781)	$	(5)	$	14	$	(772)

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	(481)		—		—		(481)
Amounts reclassified from AOCI		—		1		2		3
Amounts reclassified from AOCI to earnings										Amounts reclassified from AOCI to earnings	—		1		5		6
Other comprehensive (loss) income for the period	Other comprehensive (loss) income for the period	(318)		1		2		(315)		Other comprehensive (loss) income for the period	(481)		1		5		(475)
Balance as of March 31, 2022		$	(327)	$	(6)	$	28	$	(305)
Balance as of June 30, 2022										Balance as of June 30, 2022	$	(490)	$	(6)	$	31	$	(465)

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:

Other Comprehensive Income (Loss) by Component

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)


dollars in millions	Three Months Ended June 30,
	2023						2022
	Pretax		Income Taxes		Net of Income Taxes		Pretax		Income Taxes		Net of Income Taxes		Income Statement Line Items
Unrealized loss on securities available for sale:
AOCI activity before reclassifications	$	(134)	$	35	$	(99)	$	(216)	$	53	$	(163)
Amounts reclassified from AOCI to earnings	$	(1)	$	—	$	(1)	$	—	$	—	$	—	Provision for credit losses
Other comprehensive loss on securities available for sale	$	(135)	$	35	$	(100)	$	(216)	$	53	$	(163)

Unrealized loss on securities available for sale transferred to held to maturity:
AOCI activity before reclassifications	$	—	$	—	$	—	$	—	$	—	$	—
Amounts reclassified from AOCI to earnings	1		—		1		—		—		—		Interest on investment securities
Other comprehensive income on securities available for sale transferred to held to maturity	$	1	$	—	$	1	$	—	$	—	$	—

Defined benefit pension items:
Actuarial loss	$	(5)	$	1	$	(4)	$	—	$	—	$	—
Amounts reclassified from AOCI to earnings	—		—		—		4		(1)		3		Other noninterest expense
Other comprehensive (loss) income for defined benefit pension items	$	(5)	$	1	$	(4)	$	4	$	(1)	$	3










Total other comprehensive loss	$	(139)	$	36	$	(103)	$	(212)	$	52	$	(160)

5356


dollars in millions	Six Months Ended June 30,
	2023						2022
	Pretax		Income Taxes		Net of Income Taxes		Pretax		Income Taxes		Net of Income Taxes		Income Statement Line Items
Unrealized loss on securities available for sale:
AOCI activity before reclassifications	$	(74)	$	20	$	(54)	$	(635)	$	154	$	(481)
Amounts reclassified from AOCI to earnings	$	17	$	(5)	$	12	$	—	$	—	$	—	$14 realized loss on sales of investment securities available for sale, net; $3 provision for credit losses
Other comprehensive loss on securities available for sale	$	(57)	$	15	$	(42)	$	(635)	$	154	$	(481)

Unrealized loss on securities available for sale transferred to held to maturity:
AOCI activity before reclassifications	$	—	$	—	$	—	$	—	$	—	$	—
Amounts reclassified from AOCI to earnings	1		—		1		1		—		1		Interest on investment securities
Other comprehensive income on securities available for sale transferred to held to maturity	$	1	$	—	$	1	$	1	$	—	$	1

Defined benefit pension items:
Actuarial loss	$	5	$	(1)	$	4	$	—	$	—	$	—
Amounts reclassified from AOCI to earnings	—		—		—		7		(2)		5		Other noninterest expense
Other comprehensive income for defined benefit pension items	$	5	$	(1)	$	4	$	7	$	(2)	$	5










Total other comprehensive loss	$	(51)	$	14	$	(37)	$	(627)	$	152	$	(475)

NOTE 17 — 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 2.50% 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,~~June 30, 2023 and December 31, 2022 as summarized in the following table.

dollars in millions March 31, 2023 December 31, 2022
Basel III Requirements PCA well-capitalized thresholds Amount Ratio Amount Ratio
BancShares
Total risk-based capital 10.50 % 10.00 % $ 21,764 14.86 % $ 11,799 13.18 %
Tier 1 risk-based capital 8.50 8.00 19,225 13.13 9,902 11.06
Common equity Tier 1 7.00 6.50 18,344 12.53 9,021 10.08
Tier 1 leverage 4.00 5.00 19,225 16.72 9,902 8.99
FCB
Total risk-based capital 10.50 % 10.00 % $ 21,578 14.74 % $ 11,627 12.99 %
Tier 1 risk-based capital 8.50 8.00 19,495 13.32 10,186 11.38
Common equity Tier 1 7.00 6.50 19,495 13.32 10,186 11.38
Tier 1 leverage 4.00 5.00 19,495 16.97 10,186 9.25


dollars in millions					June 30, 2023				December 31, 2022
	Basel III Requirements		PCA well-capitalized thresholds		Amount		Ratio		Amount		Ratio
BancShares
Total risk-based capital	10.50	%	10.00	%	$	22,504	15.84	%	$	11,799	13.18	%
Tier 1 risk-based capital	8.50		8.00		19,898		14.00		9,902		11.06
Common equity Tier 1	7.00		6.50		19,017		13.38		9,021		10.08
Tier 1 leverage	4.00		5.00		19,898		9.50		9,902		8.99
FCB
Total risk-based capital	10.50	%	10.00	%	$	22,292	15.69	%	$	11,627	12.99	%
Tier 1 risk-based capital	8.50		8.00		20,142		14.18		10,186		11.38
Common equity Tier 1	7.00		6.50		20,142		14.18		10,186		11.38
Tier 1 leverage	4.00		5.00		20,142		9.62		10,186		9.25

At ~~March 31,~~June 30, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of ~~6.86%~~7.84% and ~~6.74%~~7.69%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB had risk-based capital ratio conservation buffers of 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of ~~March 31,~~June 30, 2023 and December 31, 2022 over the Basel III minimum for the ratio that is the binding constraint.

Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 15 — 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 ~~$6.94~~$8.09 billion while continuing to meet the requirements for well-capitalized banks at ~~March 31,~~June 30, 2023. Dividends declared by FCB and paid to the Parent Company amounted to ~~$52~~$117 million for the ~~three~~six months ended ~~March 31,~~June 30, 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 18 — 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,			dollars in millions, except per share data	Three Months Ended June 30,						Six Months Ended June 30,
			2023				2022			2023		2022		2023		2022
Net income	Net income		$	9,518			$	271	Net income	$	682	$	255	$	10,200	$	526
Preferred stock dividends	Preferred stock dividends		14				7		Preferred stock dividends	15		17		29		24
Net income available to common stockholders	Net income available to common stockholders		$	9,504			$	264	Net income available to common stockholders	$	667	$	238	$	10,171	$	502
Weighted average common shares outstanding	Weighted average common shares outstanding								Weighted average common shares outstanding
Basic shares outstanding	Basic shares outstanding		14,526,693				15,779,153		Basic shares outstanding	14,528,134		16,023,613		14,527,417		15,918,978
Stock-based awards	Stock-based awards		13,016				—		Stock-based awards	9,804		11,477		11,759		18,848
Diluted shares outstanding	Diluted shares outstanding		14,539,709				15,779,153		Diluted shares outstanding	14,537,938		16,035,090		14,539,176		15,937,826
Earnings per common share	Earnings per common share								Earnings per common share
Basic	Basic		$	654.22			$	16.70	Basic	$	45.90	$	14.87	$	700.10	$	31.52
Diluted	Diluted		$	653.64			$	16.70	Diluted	$	45.87	$	14.86	$	699.53	$	31.48

NOTE 19 — INCOME TAXES

BancShares’ global effective income tax ~~rate was (0.5)%~~rates were 23.9% and ~~(20.4)%~~1.6% for the three and six months ended June 30, 2023, respectively, and 24.2% and 6.3% for the three and six months ended June 30, 2022, respectively. While the effective tax rates for the three months ended ~~March 31,~~June 30, 2023 and 2022 ~~respectively. The increase~~were relatively consistent, the decrease from 6.3% in the ~~income tax rate~~prior year to 1.6% for the ~~three~~six months ended ~~March 31,~~June 30, 2023 ~~compared to the three months ended March 31, 2022~~ was primarily due to the ~~bargain purchase~~preliminary gain on acquisition relating to the SVBB Acquisition.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate (“ETR”). This annual ETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The 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 ETR may vary from the actual year-end 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 SVBB Acquisition, BancShares’ net deferred tax liabilities increased by approximately ~~$3.31~~$3.28 billion, primarily related to acquired loans and other assets.

BancShares’ ability to recognize ~~DTAs~~deferred tax assets (“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~~its DTAs, adjustments to the valuation allowance adjustments may be required. As a result of further assessment of information received during the second quarter related to the SVBB Acquisition, BancShares released approximately $12 million in the quarter of the $70 million valuation allowance recorded at December 31, 2022.

NOTE 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.

The components of net periodic benefit cost are as follows:


dollars in millions	dollars in millions	Three Months Ended March 31,				dollars in millions	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022			2023		2022		2023		2022
Service cost	Service cost	$	2	$	3	Service cost	$	3	$	4	$	5	$	7
Interest cost	Interest cost	15		11		Interest cost	15		11		30		22
Expected return on assets	Expected return on assets	(21)		(22)		Expected return on assets	(22)		(22)		(43)		(44)
Amortization of prior service cost	Amortization of prior service cost	—		—		Amortization of prior service cost	—		—		—		—
Amortization of net actuarial loss	Amortization of net actuarial loss	—		3		Amortization of net actuarial loss	—		3		—		6
Net periodic benefit	Net periodic benefit	$	(4)	$	(5)	Net periodic benefit	$	(4)	$	(4)	$	(8)	$	(9)

NOTE 21 — BUSINESS SEGMENT INFORMATION

BancShares’ segments include General Banking, Commercial Banking, a new segment Silicon Valley Banking that includes the operating results for the SVBB Acquisition, as well as Rail and Corporate. Each of the segments are described below.

General Banking

General Banking delivers products and services to consumers and businesses through an extensive network of branches and various 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 a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. In addition, General Banking has a dedicated business line that supports deposit, cash management and lending to homeowner associations and property management companies nationwide. Revenue is primarily generated from interest earned on 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 companies 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 factoring, receivable management, and 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, tank cars for energy products and chemicals, gondolas for coal, steel coil and mill service products, open hopper cars for coal and aggregates, boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenue is primarily from operating lease income.

Corporate

Certain items that are not allocated to operating segments are included in the Corporate 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), acquisition-related costs, as well as certain unallocated costs and certain 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 gain on acquisition. Corporate also includes certain purchase accounting adjustment accretion, such as the accretion of the fair value adjustment associated with the acquired loans in the SVBB Acquisition.

Segment Net Income (Loss) and Select Period End Balances

The following table presents the condensed income statement by segment:


dollars in millions	dollars in millions	Three Months Ended March 31, 2023												dollars in millions	Three Months Ended June 30, 2023
		General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares			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	Net interest income (expense)	$	603	$	258	$	635	$	(33)	$	498	$	1,961
Provision for credit losses		14		49		—		—		720		783
Provision (benefit) for credit losses														Provision (benefit) for credit losses	29		170		(47)		—		(1)		151
Net interest income (expense) after provision for credit losses	Net interest income (expense) after provision for credit losses	546		191		65		(28)		(707)		67		Net interest income (expense) after provision for credit losses	574		88		682		(33)		499		1,810
Noninterest income	Noninterest income	116		143		14		177		9,809		10,259		Noninterest income	119		139		169		178		53		658
Noninterest expense	Noninterest expense	395		211		33		120		96		855		Noninterest expense	393		188		592		121		278		1,572
Income before income taxes	Income before income taxes	267		123		46		29		9,006		9,471		Income before income taxes	300		39		259		24		274		896
Income tax expense (benefit)		65		29		11		7		(159)		(47)
Income tax expense														Income tax expense	73		11		70		6		54		214
Net income	Net income	$	202	$	94	$	35	$	22	$	9,165	$	9,518	Net income	$	227	$	28	$	189	$	18	$	220	$	682
Select Period End Balances	Select Period End Balances													Select Period End Balances
Loans and leases	Loans and leases	$	43,353	$	28,684	$	66,171	$	80	$	—	$	138,288	Loans and leases	$	44,719	$	29,433	$	58,799	$	64	$	—	$	133,015
Deposits	Deposits	85,982		3,045		49,259		14		1,750		140,050		Deposits	95,323		3,064		40,860		11		1,906		141,164
Operating lease equipment, net	Operating lease equipment, net	—		719		—		7,612		—		8,331		Operating lease equipment, net	—		741		—		7,790		—		8,531

		Three Months Ended March 31, 2022													Three Months Ended June 30, 2022
		General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares			General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares
Net interest income (expense)	Net interest income (expense)	$	437	$	207	$	—	$	(19)	$	24	$	649	Net interest income (expense)	$	467	$	204	$	—	$	(18)	$	47	$	700
(Benefit) provision for credit losses		(15)		(34)		—		—		513		464
Net interest income (expense) after benefit for credit losses		452		241		—		(19)		(489)		185
Provision for credit losses														Provision for credit losses	7		35		—		—		—		42
Net interest income (expense) after provision for credit losses														Net interest income (expense) after provision for credit losses	460		169		—		(18)		47		658
Noninterest income	Noninterest income	123		112		—		162		453		850		Noninterest income	125		130		—		160		9		424
Noninterest expense	Noninterest expense	409		191		—		100		110		810		Noninterest expense	390		180		—		111		64		745
Income (loss) before income taxes	Income (loss) before income taxes	166		162		—		43		(146)		225		Income (loss) before income taxes	195		119		—		31		(8)		337
Income tax expense (benefit)		40		41		—		11		(138)		(46)
Income tax expense														Income tax expense	40		24		—		7		11		82
Net income (loss)	Net income (loss)	$	126	$	121	$	—	$	32	$	(8)	$	271	Net income (loss)	$	155	$	95	$	—	$	24	$	(19)	$	255
Select Period End Balances	Select Period End Balances													Select Period End Balances
Loans and leases	Loans and leases	$	38,528	$	26,922	$	—	$	67	$	7	$	65,524	Loans and leases	$	40,159	$	27,505	$	—	$	71	$	—	$	67,735
Deposits	Deposits	85,458		4,698		—		13		1,428		91,597		Deposits	83,518		4,466		—		11		1,334		89,329
Operating lease equipment, net	Operating lease equipment, net	—		721		—		7,251		—		7,972		Operating lease equipment, net	—		724		—		7,247		—		7,971

5761


	Six Months Ended June 30, 2023
	General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares
Net interest income (expense)	$	1,163	$	498	$	700	$	(61)	$	511	$	2,811
Provision (benefit) for credit losses	43		219		(47)		—		719		934
Net interest income (expense) after provision for credit losses	1,120		279		747		(61)		(208)		1,877
Noninterest income	235		282		183		355		9,862		10,917
Noninterest expense	788		399		625		241		374		2,427
Income before income taxes	567		162		305		53		9,280		10,367
Income tax expense (benefit)	138		40		81		13		(105)		167
Net income	$	429	$	122	$	224	$	40	$	9,385	$	10,200

	Six Months Ended June 30, 2022
	General Banking		Commercial Banking		Silicon Valley Banking		Rail		Corporate		Total BancShares
Net interest income (expense)	$	904	$	411	$	—	$	(37)	$	71	$	1,349
(Benefit) provision for credit losses	(8)		1		—		—		513		506
Net interest income (expense) after provision for credit losses	912		410		—		(37)		(442)		843
Noninterest income	248		242		—		322		462		1,274
Noninterest expense	799		371		—		211		174		1,555
Income (loss) before income taxes	361		281		—		74		(154)		562
Income tax expense (benefit)	80		65		—		18		(127)		36
Net income (loss)	$	281	$	216	$	—	$	56	$	(27)	$	526

NOTE 22 — 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,~~June 30, 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, 2023		December 31, 2022		dollars in millions	June 30, 2023		December 31, 2022
Financing Commitments	Financing Commitments					Financing Commitments
Financing assets (excluding leases)	Financing assets (excluding leases)	$	74,507	$	23,452	Financing assets (excluding leases)	$	69,292	$	23,452
Letters of Credit	Letters of Credit					Letters of Credit
Standby letters of credit	Standby letters of credit	3,928		436		Standby letters of credit	3,090		436
Other letters of credit	Other letters of credit	111		44		Other letters of credit	107		44
Deferred Purchase Agreements	Deferred Purchase Agreements	1,707		2,039		Deferred Purchase Agreements	1,531		2,039
Purchase and Funding Commitments(1)	Purchase and Funding Commitments(1)	869		941		Purchase and Funding Commitments (1)	672		941

(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,~~June 30, 2023 and December 31, 2022, substantially all undrawn financing commitments were senior facilities. The undrawn and available financing commitments are primarily in the Silicon Valley Banking and Commercial Banking segments. Financing commitments also include approximately ~~$74~~$69 million and $66 million at ~~March 31,~~June 30, 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 ~~$170~~$136 million and $186 million at ~~March 31,~~June 30, 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 ~~$1.60~~$1.35 billion and $1.90 billion of DPA exposures at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively, related to receivables on which BancShares has assumed the credit risk. The table also includes ~~$110~~$186 million and $138 million available under DPA credit line agreements provided at ~~March 31,~~June 30, 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.

BancShares is 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,~~June 30, 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.

5964

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 our financial condition and results of operations from our management’s perspective. This 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, 2022 (the “2022 Form 10-K”). Throughout this MD&A, references to a specific “Note” refer to Notes to the ~~unaudited~~Unaudited Consolidated Financial Statements.

Intercompany accounts and transactions have been eliminated. Although certain amounts for the prior year have been reclassified to conform to statement presentations for 2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported. Refer to further detail in 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 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”). The SVBB Acquisition is briefly described below and further discussed in Note 2 — Business Combinations.

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 SVBB Acquisition (i.e., periods in 2022) does not include SVB, and therefore may not be directly comparable to financial data for periods in 2023.

EXECUTIVE OVERVIEW

The Parent Company is a bank holding company ("BHC") and Financial Holding Company (“FHC”). 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. 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 (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.~~Federal Deposit Insurance Corporation (the “FDIC”).

BancShares provides financial services for a wide range of consumer and commercial clients. This includes retail and mortgage banking, wealth management, commercial and middle market banking, 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 also provide various investment products and services through FCB’s wholly owned subsidiaries, First Citizens Investor Services, Inc. (“FCIS”) and 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 third-party mutual funds. As registered investment advisors, FCIS and FCAM provide investment management services and advice. BancShares delivers products and services to its customers through an extensive branch network and additionally operates a nationwide direct bank (the “Direct Bank”). Services offered at most branches include accepting deposits, cashing checks and providing for consumer and commercial cash needs. Consumer and business customers may also conduct banking transactions through various digital channels.

The ~~recently completed~~ SVBB Acquisition ~~adds a global fund banking business~~(as defined and described below) expanded our client base to serve private equity and venture capital clients and also compliments ~~BancShares’~~our existing wealth management business by adding enhanced digital capabilities. The SVBB Acquisition further diversifies our loan portfolio and business mix, particularly across technology and life sciences and healthcare industries, and wealth clients.

Refer to ~~our~~the 2022 Form 10-K for a discussion of our strategy.

Significant Events in 2023

SVBB Acquisition

~~As discussed in Note 2 — Business Combinations, the SVBB Acquisition closed on~~On March 27, 2023 (the “SVBB Acquisition Date”), 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 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”).

Significant items related to the SVBB Acquisition are ~~as follows:~~summarized below.

•The fair value of total assets acquired was ~~$106.60~~$107.26 billion, which mainly ~~consists~~consisted of approximately ~~$68.50~~$68.46 billion of loans and ~~$35.28~~$35.31 billion of cash and interest-earning deposits at banks.

•The fair value of deposits assumed was ~~$55.96~~$55.90 billion.

•~~FCB recorded a~~The core deposit intangible was $230 million.

•The preliminary after tax gain on acquisition ~~of $9.82~~was $9.88 billion ~~(net of tax),~~for the six months ended June 30, 2023, representing the excess of the net assets acquired over the purchase price. This includes a net increase of $55 million recognized during the second quarter of 2023, primarily related to refined fair value estimates for acquired affordable housing tax credit investments, loans, and assets and liabilities of acquired SVBB subsidiaries. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the SVBB Acquisition Date (the “Measurement Period”).

•The purchase price consideration included a Purchase Money Note (as defined and ~~recorded a $230 million core deposit intangible.~~described below) from the FDIC with an estimated fair value of $35.81 billion.

The SVBB Acquisition is further discussed in Note 2 — Business Combinations.

Segment Updates

As of December 31, 2022, BancShares managed its business and reported its financial results asin General Banking, Commercial Banking, Rail, and Corporate segments. In conjunction with the SVBB Acquisition, BancShares added a new business segment, ~~SVB.~~Silicon Valley Banking (“SVB”). Prior periods were not impacted by this update. Information about our segments is included in Note 21 — Business Segment Information and in the section entitled “Results by Business Segment” in this MD&A.

Recent Economic and Industry Developments

~~The~~During 2023, 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, May and ~~May~~July meetings by 25 basis points ~~each.~~each, but did not raise the interest rate during its June meeting. With ~~these latest increases,~~the most recent increase, the FOMC raised their benchmark federal funds rate to a range between ~~5.00%~~5.25% - ~~5.25%~~5.50%.

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 capital and liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on securities. Due to the ~~recent uncertainty~~noted uncertainties and related bank failures, ~~there has been ongoing discussions that banking agencies may propose certain actions, including reforms that will require higher capital~~the FDIC and ~~increased requirements~~Federal Banking Agencies have issued notice of proposed rulemaking (“NPR”) related 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,~~Fund and ~~any others, is unknown at this time.~~one that will require higher capital.

On May 22, 2023 the FDIC issued a NPR. The NPR included an annual special assessment rate of approximately 12.5 basis points (“bps”) to an assessment base that would equal an insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, with the first $5 billion in estimated uninsured deposits excluded from the assessment base. The assessment would be accrued at the time of adoption, then paid in eight quarterly installments, potentially beginning in the first quarter of 2024. The exact timing and assessment calculation is still to be determined and will be published by the FDIC upon final adoption. Refer to the “Funding, Liquidity and Capital Overview” discussion below in the “Financial Performance Summary” section of this MD&A.

On July 27, 2023, the Federal Banking Agencies released an NPR to revise the Basel III Capital Rules, which would be applicable to BancShares and FCB. We are in the process of evaluating this NPR and assessing its potential impact.

Financial Performance Summary

The following tables in this MD&A compare financial data for the three months ended ~~March 31,~~June 30, 2023 (the “current quarter”) to financial data for the three months ended ~~December~~March 31, ~~2022~~2023 (the “linked quarter”) and ~~March 31,~~June 30, 2022 (the “prior year quarter”), and for the six months ended June 30, 2023 (“current YTD”) to the six months ended June 30, 2022 (“prior YTD”). In accordance with Item 303(c) of Regulation S-K, we focus on the linked quarter and prior YTD 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~~We focus our discussion on our financial position by primarily comparing balances as of June 30, 2023 to December 31, 2022, while the ~~following~~ tables ~~compare~~also provide balances as of March 31, ~~2023 to December 31, 2022.~~ 2023.

Our results of operations include SVB beginning on the SVBB Acquisition ~~Date.~~Date, and therefore, many comparisons will highlight the impact of including SVB for the entire current quarter compared to five days in the linked quarter. Financial position balances as of June 30, 2023 and March 31, 2023 include the assets acquired and liabilities assumed in the SVBB Acquisition.

The following table summarizes BancShares’ results in accordance with U.S. GAAP, unless otherwise noted. Refer to the section entitled “Non-GAAP Financial Measurements” at the end of this MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Table 1

Selected Quarterly Data


dollars in millions, except share data	dollars in millions, except share data	Three Months Ended									dollars in millions, except share data	Three Months Ended								Six Months Ended
		March 31, 2023			December 31, 2022			March 31, 2022						June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
SUMMARY OF OPERATIONS	SUMMARY OF OPERATIONS												SUMMARY OF OPERATIONS
Interest income	Interest income	$	1,211		$	1,040		$	710				Interest income	$	2,953		$	1,211		$	757		$	4,164		$	1,467
Interest expense	Interest expense	361			238			61					Interest expense	992			361			57			1,353			118
Net interest income	Net interest income	850			802			649					Net interest income	1,961			850			700			2,811			1,349
Provision (benefit) for credit losses		783			79			464
Provision for credit losses													Provision for credit losses	151			783			42			934			506
Net interest income after provision for credit losses	Net interest income after provision for credit losses	67			723			185					Net interest income after provision for credit losses	1,810			67			658			1,877			843
Noninterest income	Noninterest income	10,259			429			850					Noninterest income	658			10,259			424			10,917			1,274
Noninterest expense	Noninterest expense	855			760			810					Noninterest expense	1,572			855			745			2,427			1,555
Income before income taxes	Income before income taxes	9,471			392			225					Income before income taxes	896			9,471			337			10,367			562
Income tax (benefit) expense	Income tax (benefit) expense	(47)			135			(46)					Income tax (benefit) expense	214			(47)			82			167			36
Net income	Net income	9,518			257			271					Net income	682			9,518			255			10,200			526
Preferred stock dividends	Preferred stock dividends	14			14			7					Preferred stock dividends	15			14			17			29			24
Net income available to common stockholders	Net income available to common stockholders	$	9,504		$	243		$	264				Net income available to common stockholders	$	667		$	9,504		$	238		$	10,171		$	502

PER COMMON SHARE DATA	PER COMMON SHARE DATA												PER COMMON SHARE DATA
Average diluted common shares	Average diluted common shares	14,539,709			14,607,426			15,779,153					Average diluted common shares	14,537,938			14,539,709			16,035,090			14,539,176			15,937,826
Earnings per common share (diluted)	Earnings per common share (diluted)	$	653.64		$	16.67		$	16.70				Earnings per common share (diluted)	$	45.87		$	653.64		$	14.86		$	699.53		$	31.48

KEY PERFORMANCE METRICS	KEY PERFORMANCE METRICS												KEY PERFORMANCE METRICS
Return on average assets (ROA)	Return on average assets (ROA)	33.23		%	0.93		%	1.00		%			Return on average assets (ROA)	1.31		%	33.23		%	0.95		%	12.62		%	0.97		%
Net interest margin (NIM)(1)	Net interest margin (NIM)(1)	3.41			3.36			2.73					Net interest margin (NIM) (1)	4.10			3.41			3.04			3.86			2.89

SELECTED QUARTERLY AVERAGE BALANCES	SELECTED QUARTERLY AVERAGE BALANCES												SELECTED QUARTERLY AVERAGE BALANCES
Investment securities	Investment securities	$	19,416		$	18,876		$	19,492				Investment securities	$	19,806		$	19,416		$	19,185		$	19,612		$	19,338
Total loans and leases(2)	Total loans and leases(2)	74,907			70,465			65,303					Total loans and leases (2)	134,696			74,907			66,487			104,966			65,899
Operating lease equipment, net	Operating lease equipment, net	8,236			8,049			7,924					Operating lease equipment, net	8,405			8,236			7,973			8,321			7,949
Total assets	Total assets	116,164			109,792			110,394					Total assets	209,309			116,164			107,575			162,994			108,977
Total deposits	Total deposits	93,844			89,042			91,620					Total deposits	137,408			93,839			90,621			115,743			91,119
Total stockholders’ equity	Total stockholders’ equity	11,369			9,621			10,423					Total stockholders’ equity	19,521			11,369			10,567			15,445			10,495

SELECTED QUARTER-END BALANCES	SELECTED QUARTER-END BALANCES												SELECTED QUARTER-END BALANCES
Investment securities	Investment securities	$	19,527		$	19,369		$	19,469				Investment securities	$	22,171		$	19,527		$	19,136
Total loans and leases	Total loans and leases	138,288			70,781			65,524					Total loans and leases	133,015			138,288			67,735
Operating lease equipment, net	Operating lease equipment, net	8,331			8,156			7,972					Operating lease equipment, net	8,531			8,331			7,971
Total assets	Total assets	214,658			109,298			108,597					Total assets	209,502			214,658			107,673
Total deposits	Total deposits	140,050			89,408			91,597					Total deposits	141,164			140,050			89,329
Total stockholders’ equity	Total stockholders’ equity	19,216			9,662			10,570					Total stockholders’ equity	19,771			19,216			10,642
Loan to deposit ratio	Loan to deposit ratio	98.74		%	79.17		%	71.53		%			Loan to deposit ratio	94.23		%	98.74		%	75.83		%
Noninterest-bearing deposits to total deposits	Noninterest-bearing deposits to total deposits	39.02			27.87			28.24					Noninterest-bearing deposits to total deposits	31.56			39.02			29.75

CAPITAL RATIOS	CAPITAL RATIOS												CAPITAL RATIOS
Common equity Tier 1	Common equity Tier 1	12.53		%	10.08		%	11.34		%			Common equity Tier 1	13.38		%	12.53		%	11.35		%
Tier 1 risk-based capital	Tier 1 risk-based capital	13.13			11.06			12.39					Tier 1 risk-based capital	14.00			13.13			12.37
Total risk-based capital	Total risk-based capital	14.86			13.18			14.47					Total risk-based capital	15.84			14.86			14.46
Tier 1 leverage	Tier 1 leverage	16.72			8.99			9.55					Tier 1 leverage	9.50			16.72			9.85

ASSET QUALITY	ASSET QUALITY												ASSET QUALITY
Ratio of nonaccrual loans to total loans	Ratio of nonaccrual loans to total loans	0.60		%	0.89		%	0.82		%			Ratio of nonaccrual loans to total loans	0.70		%	0.60		%	0.76		%
Allowance for credit losses to loans ratio	Allowance for credit losses to loans ratio	1.16			1.30			1.29					Allowance for credit losses to loans ratio	1.23			1.16			1.26
Net charge off ratio	Net charge off ratio	0.27			0.14			0.09					Net charge off ratio	0.47			0.27			0.13			0.39			0.11

(1) The rate presented is calculated net of average credit balances of factoring clients.

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

6268

~~First~~Second Quarter Income Statement Highlights

•Net income for the ~~three months ended March 31, 2023~~current quarter was $682 million, a decrease of $8.84 billion or 93% from $9.52 billion ~~an increase of $9.26 billion from $257 million~~ for the ~~three months ended December 31, 2022.~~linked quarter. Net income available to common stockholders for the ~~three months ended March 31, 2023~~current quarter was $667 million, a decrease of $8.84 billion or 93% from $9.50 billion ~~an increase of $9.26 billion from $243 million~~ for the ~~three months ended December 31, 2022.~~linked quarter. The ~~increases~~decreases were primarily ~~due~~related to the ~~$9.82 billion~~ preliminary after tax gain on ~~acquisition,~~the SVBB Acquisition of $9.82 billion, partially offset by the $716 million provision for non-purchased credit deteriorated (“Non-PCD”) loans and leases and the unfunded commitments acquired in the SVBB Acquisition ~~(the~~(collectively, the “day 2 provision for credit losses”)~~. Results~~ in the linked quarter. The current quarter also reflected higher NII (as defined below), along with higher noninterest expenses ~~discussed below~~ and income tax expense. Purchase accounting accretion for loans increased $226 million, reflecting a ~~lower provision for income taxes.~~full quarter impact of the SVBB Acquisition. Net income per diluted common share for the ~~three months ended March 31, 2023~~current quarter was ~~$653.64, an increase~~$45.87, a decrease from ~~$16.67~~$653.64 for the ~~three months ended December 31, 2022.~~linked quarter.

•~~Select items in the~~The current quarter ~~and linked quarter are summarized below:~~included the following select items:

◦~~For~~an increase of $55 million in the ~~three months ended March 31, 2023:~~preliminary after tax gain on acquisition for the Measurement Period adjustments discussed above, and

▪◦~~Preliminary~~acquisition-related expenses of $205 million.

•The linked quarter included the following select items:

◦the preliminary after tax gain on acquisition of $9.82 billion, ~~(net of tax) for the SVBB Acquisition in other noninterest income.~~

▪◦~~Day~~day 2 provision for credit losses of $716 million ~~related to~~for the SVBB ~~Acquisition.~~Acquisition, and

▪◦~~Acquisition-related~~acquisition-related expenses of $28 ~~million in noninterest expense.~~

◦~~For the three months ended December 31, 2022:~~

▪~~CIT Merger-related expenses of $29 million in noninterest expense.~~

▪~~Income tax expense of $55 million related to the strategic decision to exit $1.25 billion of BOLI policies.~~million.

•Return on average assets for the ~~three months ended March 31, 2023~~current quarter was ~~33.23%~~1.31%, compared to ~~0.93%~~33.23% for the ~~three months ended December 31, 2022.~~linked quarter. The decrease was related to the lower net income described above and the increases in average assets, primarily from the SVBB Acquisition.

•Net interest income (“NII”) for the ~~three months ended March 31, 2023~~current quarter was ~~$850 million,~~$1.96 billion, an increase of ~~$48~~$1.11 billion or 131% from $850 million ~~or 6% compared to~~for the ~~three months ended December 31, 2022.~~linked quarter. This increase was primarily ~~due~~related to inclusion of loans and interest-earning deposits at banks acquired in the SVBB Acquisition for the entire current quarter, a $226 million increase in purchase accounting accretion for loans, and higher yields ~~resulting~~which resulted in higher interest income on our ~~earning assets, along with higher~~interest-earning assets. The increases in interest income ~~from organic loan growth as well as SVB loans,~~were partially offset by higher costs onfor borrowings and interest-bearing deposits, which were primarily related to the Purchase Money Note and ~~borrowings.~~SVB deposits being included for the entire current quarter.

•Net interest margin (“NIM”) for the ~~three months ended March 31, 2023~~current quarter was ~~3.41%~~4.10%, an increase of ~~5 basis points (“bps”) compared to 3.36%~~69 bps from 3.41% for the ~~three months ended December 31, 2022, as~~linked quarter. The increase in NIM was related to the ~~rising interest rate environment benefits on our~~increases in NII discussed above and partially offset by the increases in average interest-earning assets, ~~exceeded~~reflecting inclusion of SVB for the ~~impacts of higher rates paid on interest-bearing deposits and borrowings.~~entire current quarter.

•Provision for credit losses for the ~~three months ended March 31, 2023~~current quarter was ~~$783~~$151 million, ~~compared to $79~~a decrease of $632 million or 81% from $783 million for the ~~three months ended December 31, 2022.~~linked quarter. The ~~increase~~decrease was primarily ~~due to~~from the day 2 provision for credit losses of $716 million ~~related~~in the linked quarter, partially offset by an increase to the ~~SVBB Acquisition, which included $462 million for acquired loans and leases (the “day 2~~ provision for loans and ~~leases”) and $254 million~~leases as a result of higher net charge-offs in the current quarter, as further discussed in the “Allowance for ~~acquired unfunded commitments (the “day 2 provision for unfunded commitments”~~Credit Losses (“ACL”)~~. The net charge-off ratio for the three months ended March 31, 2023 was 0.27%, compared to 0.14% for the three months ended December 31, 2022.~~” section of this MD&A.

•Noninterest income for the ~~three months ended March 31, 2023~~current quarter was $658 million, a decrease of $9.60 billion or 94% from $10.26 billion ~~an increase of $9.83 billion compared to $429 million~~ for the ~~three months ended December 31, 2022.~~linked quarter. The ~~increase~~decrease was primarily ~~due~~related to the preliminary after tax gain on acquisition of $9.82 ~~billion.~~billion in the linked quarter. The remaining changes reflect a net increase, ~~reflected~~primarily including the previously discussed increase of $55 million in the preliminary after tax gain on acquisition, and higher ~~rental income~~client investment fees, international fees, and service charges on ~~operating lease equipment and wealth management fees, partially offset by a $14 million loss on sale~~deposit accounts, all of ~~one investment security and lower factoring income.~~which included SVB for the entire current quarter.

•Noninterest expense for the ~~three months ended March 31, 2023~~current quarter was $1.57 billion, an increase of $717 million or 84% from $855 million for the linked quarter. The increase was primarily related to higher salaries and benefits, reflecting a full quarter impact from the SVBB Acquisition, higher acquisition-related costs and higher equipment costs.

Year to Date Income Statement Highlights

•Net income for the current YTD was $10.20 billion, an increase of $9.67 billion from $526 million for the prior YTD. Net income available to common stockholders for the current YTD was $10.17 billion, an increase of $9.67 billion from $502 million for the prior YTD. The increases were primarily related to the preliminary after tax gain on the SVBB Acquisition, which was $9.45 billion higher than the gain on our merger with CIT Group Inc. (“CIT Merger”), and higher NII. The increases were partially offset by the day 2 provision for credit losses, which were $195 million higher in the SVBB Acquisition compared to the CIT Merger, and higher noninterest expenses and income tax expense. Net income per diluted common share for the current YTD was $699.53, an increase from $31.48 for the prior YTD.

•The current YTD included the following select items:

◦a preliminary after tax gain on acquisition of $9.88 billion for the SVBB Acquisition,

◦day 2 provision for credit losses of $716 million for the SVBB Acquisition, and

◦acquisition-related expenses of $233 million.

•The prior YTD included the following select items:

◦a gain on acquisition of $431 million for the CIT Merger,

◦day 2 provision for credit losses of $513 million for the CIT Merger,

◦acquisition-related expenses of $169 million, and

◦a reduction in other noninterest expense of $27 million for the termination of certain legacy CIT retiree benefits, reflecting amounts previously accrued.

•Return on average assets for the current YTD was 12.62%, compared to 0.97% for the prior YTD. The increase was related to the increases in net income described above, partially offset by the increases in average assets, primarily from the SVBB Acquisition.

•NII for the current YTD was $2.81 billion, an increase of $1.46 billion or 108% from $1.35 billion for the prior YTD. This increase was primarily related to the loans and interest-earning deposits at banks acquired in the SVBB Acquisition, higher purchase accounting accretion, higher interest income from organic loan growth, and higher yields from multiple interest rate increases since June 30, 2022. The increases in interest income were partially offset by interest expense for the Purchase Money Note, higher rates on deposits and debt, inclusion of SVB deposits, and deposit growth in the Direct Bank.

•NIM for the current YTD was 3.86%, an increase of 97 bps compared to 2.89% for the prior YTD. The increase in NIM was related to the increases in NII discussed above.

•Provision for credit losses for the current YTD was $934 million, an increase of ~~$95~~$428 million ~~compared to $760~~or 84% from $506 million for the ~~three months ended December 31, 2022.~~prior YTD. The increase was primarily ~~due~~related to the day 2 provision for credit losses, which were $195 million higher in the SVBB Acquisition compared to the CIT Merger, higher loan and lease balances, and increases to the provision for loans and leases as a result of higher current YTD net charge-offs, as further discussed in the ACL section of this MD&A.

•Noninterest income for the current YTD was $10.92 billion, an increase of $9.64 billion from $1.27 billion for the prior YTD. The increase was primarily related to the higher gain on acquisition as previously discussed. Primarily as a result of the SVBB Acquisition, client investment fees, international fees, and fee income and other service charges were higher. Service charges on deposit accounts also increased, mainly from continued deposit growth in the Digital Bank.

•Noninterest expense for the current YTD was $2.43 billion, an increase of $872 million or 56% from $1.56 billion for the prior YTD. The increase was primarily related to higher salary and benefit costs, ~~which included higher incentive awards (these are traditionally paid in the first quarter),~~acquisition-related costs and ~~the restart of annual benefit~~equipment costs ~~such as Federal Insurance Contributions Act (“FICA”), and salary costs~~resulting from the SVBB Acquisition. ~~The increase in noninterest expense also included higher FDIC insurance expense and operating lease maintenance expenses.~~

Refer to the “Results of Operations” section of this MD&A for further discussion.

Balance Sheet Highlights

•Total loans and leases at ~~March 31,~~June 30, 2023 were ~~$138.29~~$133.02 billion, an increase of ~~$67.51~~$62.23 billion or 88% from $70.78 billion at December 31, ~~2022. The increase was primarily due to SVB loans~~2022 and a decrease of ~~$66.17~~$5.27 billion or 4% from $138.29 billion at March 31, 2023. ~~Loans~~The increase from ~~our branch network~~December 31, 2022 was primarily related to SVB loans of $58.80 billion as of June 30, 2023 and organic loan growth in the General and Commercial Banking segments. SVB loans declined by $7.37 billion from March 31, 2023, primarily related to the Global Fund Banking portfolio, partially offset by growth of $1.37 billion in the General Banking segment ~~increased $432 million. Loans~~in business and commercial loans and growth of $749 million in the Commercial ~~Banking segment increased $902 million, primarily related to growth~~Bank in many of our industry ~~verticals, such as real estate, maritime and healthcare.~~verticals.

•Total deposits at ~~March 31,~~June 30, 2023 were ~~$140.05~~$141.16 billion, an increase of ~~$50.64~~$51.76 billion or 58% from $89.41 billion at December 31, 2022 and $1.11 billion from ~~December 31, 2022. The increase was primarily due to SVB deposits of $49.26~~$140.05 billion at March 31, 2023. The ~~remaining~~ increase from December 31, 2022 included $40.86 billion of ~~$1.38 billion was primarily related to~~SVB deposits as of June 30, 2023 and solid deposit growth in ~~the~~our Direct Bank ~~which~~and community association banking (“CAB”). The $1.11 billion increase from March 31, 2023 is ~~included~~due to an increase of $9.34 billion in the General Banking ~~segment.~~segment which includes the Direct Bank, partially offset by the decline of $8.40 billion in SVB deposits. As further discussed below, SVB deposits began to stabilize early in the second quarter.

•Total borrowings at ~~March 31,~~June 30, 2023 were ~~$46.09~~$40.14 billion, an increase of ~~$39.45~~$33.49 billion from $6.65 billion at December 31, 2022 and a decrease of $5.96 billion from $46.09 billion at March 31, 2023. The increase from December 31, ~~2022. The increase~~2022 was primarily due to the Purchase Money Note ~~(as defined and described below)~~ of ~~$35.15~~$35.82 billion payable as of June 30, 2023 to the FDIC related to the SVBB Acquisition as further discussed in Note 2 — Business Combinations. The ~~remaining increase was~~decrease from March 31, 2023 primarily ~~due to advances from the Federal Home Loan Bank (“FHLB”) that were drawn to improve our cash position.~~reflects repayments of FHLB borrowings.

•At ~~March 31,~~June 30, 2023, BancShares remained well capitalized with a total risk-based capital ratio of ~~14.86%~~15.84%, a Tier 1 risk-based capital ratio of ~~13.13%~~14.00%, a common equity Tier 1 ratio of ~~12.53%~~13.38% and a Tier 1 leverage ratio of ~~16.72%~~9.50%.

Funding, Liquidity and Capital Overview

Deposit Composition

We fund our business primarily through deposits. Deposits represent approximately ~~75%~~78% of total funding at ~~March 31,~~June 30, 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						Deposits as of June 30, 2023
		Ending Balance (in millions)		Average Size (in thousands)		Uninsured %		Ending Balance (in millions)		Average Size (in thousands)		Uninsured %
General Banking segment	General Banking segment	$	85,982	$	36	29%	General Banking segment	$	95,323	$	38	25	%
Commercial Banking segment	Commercial Banking segment	3,045		212		86%	Commercial Banking segment	3,064		255		87
SVB segment	SVB segment	49,259		360		86%	SVB segment	40,860		314		72
Other business segments	Other business segments	1,764		n/m		7%	Other business segments	1,917		n/m		3
Total	Total	$	140,050	55		50%	Total	$	141,164	53		40

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~~$1.91 billion in the Corporate segment, and the remaining ~~$14~~$11 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,~~June 30, 2023, total uninsured deposits were approximately ~~$69.96~~$56.39 billion or ~~50%~~40% 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)	(dollars in millions)	Deposit Balance										(dollars in millions)	Deposit Balance
				Acquisition Date																	Acquisition Date
		December 31, 2022		March 27, 2023		March 31, 2023		April 14, 2023		April 28, 2023			June 30, 2023		April 28, 2023		April 14, 2023		March 31, 2023		March 27, 2023		December 31, 2022
SVB segment	SVB segment	$	—	$	55,959	$	49,259	$	41,336	$	41,425	SVB segment	$	40,860	$	41,425	$	41,336	$	49,259	$	55,899	$	—
General Banking, Commercial Banking, Rail and Corporate segments	General Banking, Commercial Banking, Rail and Corporate segments	89,408		—		90,791		92,149		92,447		General Banking, Commercial Banking, Rail and Corporate segments	100,304		92,447		92,149		90,791		—		89,408
Total deposits	Total deposits	$	89,408	$	55,959	$	140,050	$	133,485	$	133,872	Total deposits	$	141,164	$	133,872	$	133,485	$	140,050			$	89,408

SVB deposits declined from ~~$55.96~~$55.90 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 further declined to ~~$41.43~~$40.86 billion ~~as of April 28, 2023,~~at June 30, 2023. As noted in the ~~pace of the decline slowed and deposit amounts leveled off~~table above, SVB deposits began to ~~approximately $41 billion~~stabilize early during the ~~last two weeks of April.~~current quarter. 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~~from 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,~~June 30, 2023, liquidity metrics remained strong as we had ~~$51.42~~$53.42 billion in liquid assets consisting of ~~$37.67~~$37.15 billion in cash and interest-earning deposits at banks and ~~$13.75~~$16.27 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~~$11.12 billion and ~~$4.68~~$4.82 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.

6471

Investment Securities Duration

At ~~March 31,~~June 30, 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~~2.7 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	dollars in millions	March 31, 2023						dollars in millions	June 30, 2023
		Composition(1)		Amortized cost		Fair value				Fair value to cost			Composition(1)		Amortized cost		Fair value		Fair value to cost
Total investment securities available for sale	Total investment securities available for sale	49.9	%	$	9,955	$	9,061			91.0	%	Total investment securities available for sale	57.6	%	$	12,923	$	11,894	92.0	%
Total investment securities held to maturity	Total investment securities held to maturity	49.6	%	10,381		8,993				86.6	%	Total investment securities held to maturity	42.0		10,201		8,652		84.8
Investment in marketable equity securities	Investment in marketable equity securities	0.5	%	75		85				113.3	%	Investment in marketable equity securities	0.4		75		76		101.3
Total investment securities	Total investment securities	100	%	$	20,411	$	18,139					Total investment securities	100	%	$	23,199	$	20,622
(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.							(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 is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The following 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 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 due to volume and yield or rate based on the ratio each component bears to the absolute value of their total.

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

6572

Table 5

Average Balances and Rates


dollars in millions	dollars in millions	Three Months Ended																		dollars in millions	Three Months Ended
		March 31, 2023						December 31, 2022						Change in NII Due to:							June 30, 2023						March 31, 2023						Change in NII Due to:
		Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change			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)	$	73,900	$	1,017	5.57	%	$	69,290	$	892	5.10	%	$	52	$	73	$	125	Loans and leases (1)(2)	$	133,528	$	2,353	7.06	%	$	73,900	$	1,017	5.57	%	$	1,003	$	333	$	1,336
Total investment securities		19,416		107		2.21		18,876		92		1.95		3		12		15

Investment securities																				Investment securities	19,806		117		2.36		19,416		107		2.21		2		8		10
Securities purchased under agreements to resell																				Securities purchased under agreements to resell	191		3		4.92		—		—		—		3		—		3
Interest-earning deposits at banks	Interest-earning deposits at banks	7,585		87		4.61		6,193		56		3.60		14		17		31		Interest-earning deposits at banks	38,014		480		5.07		7,585		87		4.61		389		4		393
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	Total interest-earning assets (2)	$	191,539	$	2,953	6.18	%	$	100,901	$	1,211	4.85	%	$	1,397	$	345	$	1,742

Operating lease equipment, net	Operating lease equipment, net	$	8,236					$	8,049											Operating lease equipment, net	$	8,405					$	8,236
Cash and due from banks	Cash and due from banks	595						500												Cash and due from banks	1,161						595
Allowance for credit losses	Allowance for credit losses	(936)						(886)												Allowance for credit losses	(1,600)						(936)
All other noninterest-earning assets	All other noninterest-earning assets	7,368						7,770												All other noninterest-earning assets	9,804						7,368
Total assets	Total assets	$	116,164					$	109,792											Total assets	$	209,309					$	116,164

Interest-bearing deposits:
Interest-bearing deposits																				Interest-bearing deposits
Checking with interest	Checking with interest	$	16,499	$	22	0.50	%	$	15,985	$	13	0.24	%	$	—	$	9	$	9	Checking with interest	$	24,164	$	118	1.92	%	$	16,494	$	22	0.50	%	$	13	$	83	$	96
Money market		21,216		80		1.53		21,200		60		1.13		—		20		20
Money Market																				Money Market	29,066		148		2.04		21,216		80		1.53		36		32		68
Savings	Savings	17,521		110		2.54		15,831		69		1.73		8		33		41		Savings	21,979		188		3.44		17,521		110		2.54		32		46		78
Time deposits	Time deposits	12,126		76		2.55		9,516		34		1.42		11		31		42		Time deposits	14,958		121		3.24		12,126		76		2.55		21		24		45
Total interest-bearing deposits	Total interest-bearing deposits	67,362		288		1.73		62,532		176		1.12		19		93		112		Total interest-bearing deposits	90,167		575		2.56		67,357		288		1.73		102		185		287
Borrowings:	Borrowings:																			Borrowings:
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	455		—		0.30		514		—		0.27		—		—		—		Securities sold under customer repurchase agreements	456		1		0.31		455		—		0.30		1		—		1
Short-term FHLB Borrowings		323		4		4.67		2,080		20		3.77		(19)		3		(16)
Short-term FHLB borrowings																				Short-term FHLB borrowings	110		1		5.17		328		4		4.67		(3)		—		(3)
Short-term borrowings	Short-term borrowings	778		4		2.23		2,594		20		3.04		(19)		3		(16)		Short-term borrowings	566		2		1.26		783		4		2.13		(2)		—		(2)
Federal Home Loan Bank borrowings		3,284		40		4.96		2,818		28		3.90		4		8		12
FHLB borrowings																				FHLB borrowings	5,558		74		5.35		3,284		40		4.96		30		4		34
Senior unsecured borrowings	Senior unsecured borrowings	883		5		2.06		906		4		2.08		1		—		1		Senior unsecured borrowings	798		4		2.11		883		5		2.06		(1)		—		(1)
Subordinated debt	Subordinated debt	1,048		9		3.54		1,051		9		3.38		—		—		—		Subordinated debt	1,045		10		3.59		1,048		9		3.54		—		1		1
Other borrowings	Other borrowings	1,978		15		2.95		25		1		5.76		14		—		14		Other borrowings	35,168		327		3.74		1,978		15		2.95		307		5		312
Long-term borrowings	Long-term borrowings	7,193		69		3.84		4,800		42		3.45		19		8		27		Long-term borrowings	42,569		415		3.91		7,193		69		3.84		336		10		346
Total borrowings	Total borrowings	7,971		73		3.68		7,394		62		3.32		—		11		11		Total borrowings	43,135		417		3.88		7,976		73		3.68		334		10		344
Total interest-bearing liabilities	Total interest-bearing liabilities	$	75,333	$	361	1.94	%	$	69,926	$	238	1.35	%	$	19	$	104	$	123	Total interest-bearing liabilities	$	133,302	$	992	2.98	%	$	75,333	$	361	1.94	%	$	436	$	195	$	631

Noninterest-bearing deposits	Noninterest-bearing deposits	$	26,482					$	26,510											Noninterest-bearing deposits	$	47,241					$	26,482
Credit balances of factoring clients	Credit balances of factoring clients	1,007						1,174												Credit balances of factoring clients	1,168						1,007
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	1,973						2,561												Other noninterest-bearing liabilities	8,077						1,973
Stockholders' equity	Stockholders' equity	11,369						9,621												Stockholders' equity	19,521						11,369
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	116,164					$	109,792											Total liabilities and stockholders’ equity	$	209,309					$	116,164

Interest rate spread (2)	Interest rate spread (2)					2.91	%					3.02	%							Interest rate spread (2)					3.20	%					2.91	%
Net interest income and net yield on interest-earning assets (2)	Net interest income and net yield on interest-earning assets (2)			$	850	3.41	%			$	802	3.36	%							Net interest income and net yield on interest-earning assets (2)			$	1,961	4.10	%			$	850	3.41	%

(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.

Current quarter compared to linked quarter

•NII for the ~~three months ended March 31, 2023~~current quarter was ~~$850 million,~~$1.96 billion, an increase of ~~$48~~$1.11 billion or 131% from $850 million ~~compared to~~for the ~~three months ended December 31, 2022.~~linked quarter. This increase was primarily due to higher ~~yields on~~average loans, purchase accounting accretion and interest-earning deposits at banks, ~~and~~reflecting the SVBB Acquisition, along with organic loan growth and higher yields, partially offset by higher costs on borrowings and interest-bearing ~~deposits and borrowings.~~deposits. The SVBB Acquisition impacted average balances and NII and NIM for the entire current quarter, whereas the linked quarter was impacted 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~~current quarter was ~~$1.02~~$2.35 billion, an increase of ~~$125 million compared to~~$1.34 billion or 131% from $1.02 billion for the ~~three months ended December 31, 2022.~~linked quarter. The increase was primarily due to higher ~~yields~~average loans and ~~higher average balances related to~~purchase accounting accretion, reflecting the SVBB Acquisition, and loan growth in the General Bank and Commercial ~~Banking segments,~~Bank portfolios, as well as higher yields. Purchase accounting accretion for loans increased $226 million, reflecting a full quarter impact of the SVBB Acquisition.

◦Interest income earned on investment securities for the ~~three months ended March 31, 2023~~current quarter was ~~$107~~$117 million, an increase of ~~$15~~$10 million ~~compared~~or 9% from $107 million for to the ~~three months ended December 31, 2022.~~linked quarter. The increase was primarily due to higher reinvestment rates.

◦Interest income earned on securities purchased under agreements to resell was $3 million, related to assets acquired in the SVBB Acquisition.

◦Interest income earned on interest-earning deposits at banks for the ~~three months ended March 31, 2023~~current quarter was ~~$87~~$480 million, an increase of ~~$31~~$393 million ~~compared to~~from $87 million for the ~~three months ended December 31, 2022,~~linked quarter, 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.~~Acquisition and higher Fed Funds.

◦Interest expense on interest-bearing deposits for the ~~three months ended March 31, 2023~~current quarter was ~~$288~~$575 million, an increase of ~~$112~~$287 million ~~compared to~~or 100% from $288 million for the ~~three months ended December 31, 2022,~~linked quarter, primarily reflecting higher ~~deposit rates and higher~~ average balances ~~(mainly~~from the SVBB Acquisition and increased deposits in ~~higher-cost savings and time deposits as we maintain competitive rates offered to customers).~~our Direct Bank, along with higher deposit rates.

◦Interest expense on borrowings for the ~~three months ended March 31, 2023~~current quarter was ~~$73~~$417 million, an increase of ~~$11~~$344 million from $73 million for the linked quarter, primarily due to a full quarter impact of the Purchase Money Note related to the SVBB Acquisition, and by higher average FHLB borrowings. The increase was also due to higher average FHLB borrowings during the current quarter. In March we increased FHLB borrowings to improve liquidity in light of market conditions that led to bank failures. We repaid the new advances in the current quarter as we continuously rebalance our funding profile to match our funding needs. Refer to “Interest-Bearing Liabilities – Borrowings in this MD&A for further discussion of FHLB borrowings.

•NIM for the current quarter was 4.10%, an increase of 69 bps from 3.41% for the linked quarter. NIM improved due to the reasons explained above, the inclusion of the SVB loans and higher purchase accounting accretion, higher interest earning deposits at banks and higher yields offset the impacts of higher rates paid on and level of interest-bearing deposits and higher average balance of borrowings.

•Average interest-earning assets for the current quarter were $191.54 billion, an increase of $90.64 billion or 90% from $100.90 billion for the linked quarter, reflecting increases in average loans and leases and interest-earning deposits at banks of $59.63 billion and $30.43 billion, respectively, primarily due to the SVBB Acquisition.

•Average interest-bearing liabilities for the current quarter were $133.30 billion, an increase of $57.97 billion or 77% from $75.33 billion for the linked quarter, reflecting higher average balances for deposits and borrowings, primarily reflecting the SVBB Acquisition. The average rate on interest-bearing liabilities for the current quarter was 2.98%, an increase of 104 bps from 1.94% for the linked quarter, reflecting the weighting of the Purchase Money Note and the higher interest rate environment.

Table 6

Average Balances and Rates


dollars in millions	Three Months Ended
	June 30, 2023						June 30, 2022						Change in NII Due to:
	Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
Loans and leases (1)(2)	$	133,528	$	2,353	7.06	%	$	65,298	$	655	4.03	%	$	985	$	713	$	1,698
Investment securities	19,806		117		2.36		19,185		89		1.85		3		25		28
Securities purchased under agreements to resell	191		3		4.92		—		—		—		3		—		3
Interest-earning deposits at banks	38,014		480		5.07		7,629		13		0.72		187		280		467
Total interest-earning assets (2)	$	191,539	$	2,953	6.18	%	$	92,112	$	757	3.28	%	$	1,178	$	1,018	$	2,196

Operating lease equipment, net	$	8,405					$	7,973
Cash and due from banks	1,161						524
Allowance for credit losses	(1,600)						(849)
All other noninterest-earning assets	9,804						7,815
Total assets	$	209,309					$	107,575

Interest-bearing deposits
Checking with interest	$	24,164	$	118	1.92	%	$	16,503	$	4	0.12	%	$	4	$	110	$	114
Money Market	29,066		148		2.04		25,468		18		0.28		3		127		130
Savings	21,979		188		3.44		13,303		11		0.34		12		165		177
Time deposits	14,958		121		3.24		8,796		9		0.38		9		103		112
Total interest-bearing deposits	90,167		575		2.56		64,070		42		0.26		28		505		533
Borrowings:
Securities sold under customer repurchase agreements	456		1		0.31		627		—		0.16		—		1		1
Short-term FHLB borrowings	110		1		5.17		—		—		—		1		—		1
Short-term borrowings	566		2		1.26		627		—		0.16		1		1		2
FHLB borrowings	5,558		74		5.35		386		2		1.64		62		10		72
Senior unsecured borrowings	798		4		2.11		894		4		2.05		—		—		—
Subordinated debt	1,045		10		3.59		1,057		8		3.06		—		2		2
Other borrowings	35,168		327		3.74		83		1		2.37		326		—		326
Long-term borrowings	42,569		415		3.91		2,420		15		2.43		388		12		400
Total borrowings	43,135		417		3.88		3,047		15		1.96		389		13		402
Total interest-bearing liabilities	$	133,302	$	992	2.98	%	$	67,117	$	57	0.34	%	$	417	$	518	$	935

Noninterest-bearing deposits	$	47,241					$	26,551
Credit balances of factoring clients	1,168						1,189
Other noninterest-bearing liabilities	8,077						2,151
Stockholders' equity	19,521						10,567
Total liabilities and stockholders’ equity	$	209,309					$	107,575

Interest rate spread (2)					3.20	%					2.94	%
Net interest income and net yield on interest-earning assets (2)			$	1,961	4.10	%			$	700	3.04	%

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


dollars in millions	Six Months Ended
	June 30, 2023						June 30, 2022						Change in NII Due to:
	Average Balance		Income / Expense		Yield / Rate		Average Balance		Income / Expense		Yield / Rate		Volume(1)		Yield /Rate(1)		Total Change
Loans and leases (1)(2)	$	103,878	$	3,370	6.53	%	$	64,724	$	1,276	3.96	%	$	1,013	$	1,081	$	2,094
Investment securities	19,612		224		2.29		19,338		172		1.78		2		50		52
Securities purchased under agreements to resell	96		3		4.92		—		—		—		3		—		3
Interest-earning deposits at banks	22,884		567		4.99		9,542		19		0.40		60		488		548
Total interest-earning assets (2)	$	146,470	$	4,164	5.72	%	$	93,604	$	1,467	3.14	%	$	1,078	$	1,619	$	2,697

Operating lease equipment, net	$	8,321					$	7,949
Cash and due from banks	880						530
Allowance for credit losses	(1,270)						(882)
All other noninterest-earning assets	8,593						7,776
Total assets	$	162,994					$	108,977

Interest-bearing deposits
Checking with interest	$	20,350	$	140	1.35	%	$	16,578	$	9	0.11	%	$	3	$	128	$	131
Money Market	25,162		228		1.82		25,832		33		0.26		(1)		196		195
Savings	19,762		298		3.04		13,480		20		0.30		14		264		278
Time deposits	13,550		197		2.93		9,293		19		0.40		12		166		178
Total interest-bearing deposits	78,824		863		2.21		65,183		81		0.25		28		754		782
Borrowings:
Securities sold under customer repurchase agreements	456		1		0.31		614		—		0.16		—		1		1
Short-term FHLB borrowings	218		5		4.79		—		—		—		5		—		5
Short-term borrowings	674		6		1.76		614		—		0.16		5		1		6
FHLB borrowings	4,427		114		5.20		513		4		1.41		81		29		110
Senior unsecured borrowings	840		9		2.09		1,801		16		1.80		(9)		2		(7)
Subordinated debt	1,047		19		3.57		1,059		16		3.01		—		3		3
Other borrowings	18,665		342		3.70		84		1		2.20		340		1		341
Long-term borrowings	24,979		484		3.90		3,457		37		2.12		412		35		447
Total borrowings	25,653		490		3.85		4,071		37		2.12		417		36		453
Total interest-bearing liabilities	$	104,477	$	1,353	2.61	%	$	69,254	$	118	0.34	%	$	445	$	790	$	1,235

Noninterest-bearing deposits	$	36,919					$	25,936
Credit balances of factoring clients	1,088						1,175
Other noninterest-bearing liabilities	5,065						2,117
Stockholders' equity	15,445						10,495
Total liabilities and stockholders’ equity	$	162,994					$	108,977

Interest rate spread (2)					3.11	%					2.80	%
Net interest income and net yield on interest-earning assets (2)			$	2,811	3.86	%			$	1,349	2.89	%

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

Year to Date 2023 compared to 2022

•NII for the ~~three months ended December 31, 2022,~~current YTD was $2.81 billion, an increase of $1.46 billion or 108% from $1.35 billion for the prior YTD. As discussed below, this increase was primarily due to the SVBB Acquisition, as well as the higher rate environment.

◦Interest income earned on loans and leases for the current YTD was $3.37 billion, an increase of $2.09 billion or 164% from $1.28 billion for the prior YTD. The increase was balanced between the impact of the rising interest rate environment and the average loan balance increase. The average loan balances increase reflected the SVBB Acquisition and loan growth in the General and Commercial Banking segments. The higher yield was due to multiple interest rate increases since last year. In addition, purchase accounting accretion was up in the current YTD.

◦Interest income earned on investment securities for the current YTD was $224 million, an increase of $52 million or 30% from $172 million for the prior YTD. The increase was primarily due to higher reinvestment rates.

◦Interest income earned on securities purchased under agreements to resell was $3 million, related to assets acquired in the SVBB Acquisition.

◦Interest income earned on interest-earning deposits at banks for the current YTD was $567 million, an increase of $548 million from $19 million for the prior YTD. Even though the average balance was up substantially, the increase primarily reflects higher Fed Funds rate. The higher average balance was due to the impact of the SVBB Acquisition and maintaining a higher level of liquidity due to the market uncertainty.

◦Interest expense on interest-bearing deposits for the current YTD was $863 million, an increase of $782 million from $81 million for the prior YTD, reflecting higher deposit rates across all our product lines, as we maintain competitive rates offered to customers, and higher average balances from the SVBB Acquisition and organic growth, mainly in higher-cost savings and time deposits.

◦Interest expense on borrowings for the current YTD was $490 million, an increase of $453 million from $37 million for the prior YTD, primarily due to the impact of the Purchase Money Note related to the SVBB Acquisition, ~~partially offset by lower~~and higher 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~~current YTD was ~~3.41%~~3.86%, an increase of 597 bps ~~compared to~~from 2.89% for the ~~three months ended December 31, 2022.~~prior YTD. The benefit of the rising interest rate environment on our interest-earning assets exceeded the impacts of higher ~~yields~~rates paid on ~~earning assets were partially offset by the increasing costs of our~~ interest-bearing deposits and ~~higher borrowing costs.~~borrowings.

•Average interest-earning assets for the ~~three months ended March 31, 2023~~current YTD were ~~$100.90 billion. This is~~$146.47 billion, an increase of ~~$6.54~~$52.87 billion or 56% from ~~$94.36~~$93.60 billion for the ~~three months ended December 31, 2022,~~prior YTD, primarily reflecting increases in average loans and leases and interest-earning deposits at banks ~~and investment securities~~ of ~~$4.61 billion, $1.39~~$39.15 billion and ~~$540 million,~~$13.34 billion, respectively.

•Average interest-bearing liabilities for the ~~three months ended March 31, 2023~~current YTD were ~~$75.33 billion. This is~~$104.48 billion, an increase of ~~$5.41~~$35.22 billion or 51% from ~~$69.93~~$69.25 billion for the ~~three months ended December 31, 2022,~~prior YTD, reflecting higher ~~rates and~~ average balances for both deposits and borrowings. The average rate on interest-bearing liabilities for the ~~three months ended March 31, 2023~~current YTD was ~~1.94%. This is~~2.61%, an increase of 59227 bps ~~compared to~~from 0.34% for the ~~three months ended December 31, 2022,~~prior YTD, reflecting the higher interest rate ~~environment.~~environment and the weighting of the Purchase Money Note.

~~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.~~

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

Table 7

Average Interest-earning Asset Mix
% 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 %


	% of Total Interest-earning Assets
	Three Months Ended						Six Months Ended
	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Loans and leases	70	%	73	%	71	%	71	%	69	%
Investment securities	10		19		21		13		21
Securities purchased under agreements to resell	—		—		—		—		—
Interest-earning deposits at banks	20		8		8		16		10
Total interest earning assets	100	%	100	%	100	%	100	%	100	%

The following table shows our average funding mix:

Table 8

Average Funding Mix
% of Total Interest-bearing Liabilities
Three Months Ended
March 31, 2023 December 31, 2022 March 31, 2022
Total interest-bearing deposits 89 % 89 % 93 %
Short-term borrowings 1 % 4 % 1 %
Long-term borrowings 10 % 7 % 6 %
100 % 100 % 100 %


	% of Total Interest-bearing Liabilities
	Three Months Ended						Six Months Ended
	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Total interest-bearing deposits	68	%	89	%	95	%	75	%	94	%
Short-term borrowings	—		1		1		1		1

Long-term borrowings	32		10		4		24		5
	100	%	100	%	100	%	100	%	100	%

The above average mix tables include SVB average balances for an entire current quarter and only five days during the ~~current~~linked 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

As presented in the following table, the provision for credit losses for the ~~three months ended March 31, 2023~~current quarter was ~~$783~~$151 million, ~~compared to $79~~a decrease of $632 million or 81% from $783 million for the ~~three months ended December 31, 2022.~~linked quarter. The ~~$704~~$632 million ~~increase~~decrease is primarily due to the day 2 provision for credit losses of $716 million related to the SVBB Acquisition in the linked quarter, which ~~includes the~~included $462 million ~~day~~for acquired loans and leases (the “day 2 provision for loans and ~~leases~~leases”) and ~~the~~ $254 million for acquired unfunded commitments (the “day 2 provision for unfunded commitments”).

Absent the day 2 provision for ~~unfunded commitments.~~

~~In addition to the day 2 provision, the increase in provision for~~ credit losses, ~~on loans and leases~~there was related to portfolio growth, mild credit quality deterioration, and higher specific reserves partially offset by improvement in the macroeconomic forecasts. The provision for credit losses activity also reflected a declinean increase in the provision for credit losses ~~on unfunded commitments~~for loans and ~~a $4 million~~leases compared to the linked quarter. This reflected increases in charge-offs and specifically reserved loans and unfavorable trends in certain macroeconomic variables, most notably the CRE Price Index.

The provision for ~~investment securities available~~credit losses for ~~sale related~~the current YTD was $934 million, an increase of $428 million or 84% from $506 million for the prior YTD. As previously discussed, the provision for credit losses includes the day 2 provision for credit losses, which were higher for the SVBB Acquisition in the current YTD than for the CIT Merger in the prior YTD. The remaining increases are due to ~~one corporate bond.~~ the reasons discussed above.

The ACL is further discussed in the “Critical Accounting Estimates” and “Credit Risk Management ~~- ACL”~~– Credit Risk – Allowance for Credit Losses” sections of this MD&A and in Note 5 — Allowance for Credit Losses.

Table 9

Provision for Credit Losses


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
		March 31, 2023		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Day 2 provision for loans and leases	Day 2 provision for loans and leases	$	462	$	—	$	454	Day 2 provision for loans and leases	$	—	$	462	$	—	$	462	$	454
Provision (benefit) for credit losses - loans and leases	Provision (benefit) for credit losses - loans and leases	71		64		(53)		Provision (benefit) for credit losses - loans and leases	169		71		36		240		(17)
Total provision for credit losses- loans and leases	Total provision for credit losses- loans and leases	533		64		401		Total provision for credit losses- loans and leases	169		533		36		702		437
Day 2 provision for unfunded commitments	Day 2 provision for unfunded commitments	254		—		59		Day 2 provision for unfunded commitments	—		254		—		254		59
(Benefit) provision for unfunded commitments	(Benefit) provision for unfunded commitments	(8)		15		4		(Benefit) provision for unfunded commitments	(17)		(8)		6		(25)		10
Total provision for credit losses - unfunded commitments		246		15		63
Provision for credit losses - investment securities available for sale		4		—		—
Total (benefit) provision for credit losses - unfunded commitments								Total (benefit) provision for credit losses - unfunded commitments	(17)		246		6		229		69
(Benefit) provision for credit losses - investment securities available for sale								(Benefit) provision for credit losses - investment securities available for sale	(1)		4		—		3		—
Provision for credit losses	Provision for credit losses	$	783	$	79	$	464	Provision for credit losses	$	151	$	783	$	42	$	934	$	506

NONINTEREST INCOME

Noninterest Income

Noninterest income is an essential component of our total revenue. The primary sources of noninterest income consist of rental income on operating lease equipment, fee income and other service charges, client investment fees, wealth management services, service charges generated from deposit accounts, cardholder and merchant services, international fees, factoring commissions, and mortgage lending and servicing.

The current quarter includes a full quarter of noninterest income related to SVB ~~for~~while the prior quarter includes only five days, as the SVBB Acquisition was completed on March 27, 2023. ~~Noninterest~~We added client investment and international fees as new categories of noninterest income as a result of the SVBB Acquisition. Client investment fees are earned from discretionary investment management services for managing clients’ portfolios based on their investment policies, strategies and objectives. International fees primarily include foreign exchange fees that represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. The remaining 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	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
		March 31, 2023		December 31, 2022		March 31, 2022					June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Rental income on operating lease equipment	Rental income on operating lease equipment	$	233	$	224	$	208			Rental income on operating lease equipment	$	238	$	233	$	213	$	471	$	421
Other noninterest income:	Other noninterest income:									Other noninterest income:
Fee income and other service charges	Fee income and other service charges	50		46		36				Fee income and other service charges	69		47		37		116		71
Client investment fees										Client investment fees	52		2		—		54		—
Wealth management services	Wealth management services	42		35		35				Wealth management services	51		40		37		91		72
International fees										International fees	32		4		2		36		4
Service charges on deposit accounts	Service charges on deposit accounts	24		22		27				Service charges on deposit accounts	44		24		28		68		55
Factoring commissions	Factoring commissions	19		26		27				Factoring commissions	20		19		27		39		54
Cardholder services, net	Cardholder services, net	21		26		25				Cardholder services, net	41		21		26		62		51
Merchant services, net	Merchant services, net	10		8		10				Merchant services, net	14		10		9		24		19
Insurance commissions	Insurance commissions	13		13		12				Insurance commissions	14		13		11		27		23
Realized loss on sale of investment securities available for sale, net	Realized loss on sale of investment securities available for sale, net	(14)		—		—				Realized loss on sale of investment securities available for sale, net	—		(14)		—		(14)		—
Fair value adjustment on marketable equity securities, net	Fair value adjustment on marketable equity securities, net	(9)		2		3				Fair value adjustment on marketable equity securities, net	(10)		(9)		(6)		(19)		(3)
Bank-owned life insurance	Bank-owned life insurance	5		7		8				Bank-owned life insurance	2		5		9		7		17
Gain on sale of leasing equipment, net	Gain on sale of leasing equipment, net	4		2		6				Gain on sale of leasing equipment, net	4		4		5		8		11
Gain on acquisition	Gain on acquisition	9,824		—		431				Gain on acquisition	55		9,824		—		9,879		431
Gain on extinguishment of debt	Gain on extinguishment of debt	—		—		6				Gain on extinguishment of debt	—		—		—		—		6
Other noninterest income	Other noninterest income	37		18		16				Other noninterest income	32		36		26		68		42
Total other noninterest income	Total other noninterest income	10,026		205		642				Total other noninterest income	420		10,026		211		10,446		853
Total noninterest income	Total noninterest income	$	10,259	$	429	$	850			Total noninterest income	$	658	$	10,259	$	424	$	10,917	$	1,274

Rental Income on Operating Lease Equipment

Rental income from equipment we lease was $238 million for the ~~three months ended March 31, 2023 was $233 million,~~current quarter, an increase of $9$5 million ~~compared to three months ended December 31, 2022.~~or 2% from the linked quarter. Rental income from equipment we lease was $471 million for the current YTD, an increase of $50 million or 12% from $421 million for the prior YTD. 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 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 by Business Segment” section of this MD&A for further details.

Other Noninterest Income

Other noninterest income for the ~~three months ended March 31, 2023~~current quarter was $420 million, a decrease of $9.61 billion or 96% from $10.03 billion ~~compared to $205 million~~ for the ~~three months ended December 31, 2022. The increase~~linked quarter. As presented above, the decrease was primarily due to the ~~$9.82 billion~~ preliminary gain on ~~acquisition.~~acquisition in the linked quarter. The current quarter includes an additional preliminary gain on acquisition of $55 million due to Measurement Period adjustments as discussed in the Significant Events section of this MD&A. The remaining changes in other noninterest income represent a net increase compared to the ~~three months ended December 31, 2022~~linked quarter and reflect increases and decreases among various noninterest income ~~accounts. The more significant variances follow:~~accounts as summarized below.

•Fee income and other service charges, consisting of items such as capital market-related fees, fees for lines and letters of credit, and servicing fees, increased by ~~$4 million.~~$22 million, primarily reflecting additional activity from the SVBB Acquisition, in addition to a modest increase in capital markets fees.

•Client investment fees, a revenue stream added with the SVBB Acquisition, consist of fees that are earned for managing off-balance sheet client funds. Refer to the description above and in Note 1 — Significant Accounting Policies and Basis of Presentation.

•Wealth management services increased by $7$11 million, primarily reflecting additional activity from SVBB Acquisition, which resulted in higher assets under management led by our trust and brokerage channels. ~~In brokerage, the income was driven by increases in structured notes and fixed products.~~

•~~Factoring~~International fees, a revenue stream added with the SVBB Acquisition, relate to commissions ~~decreased $7~~on customer foreign currency transactions. Refer to the description above and in Note 1 — Significant Accounting Policies and Basis of Presentation.

•Service charges on deposit accounts increased by $20 million, primarily reflecting ~~seasonally stronger fourth quarter factoring~~additional volume ~~and slowing customer orders as they work down current inventory levels, as well as lower surcharge income.~~from the SVBB Acquisition.

•Cardholder services ~~decreased $5~~increased by $20 million, mostly reflecting additional amounts from the SVBB Acquisition, along with an increase in existing programs, a ~~decline in~~higher volume of transactions and higher reward ~~expense.~~expenses.

•The realized loss on sale of investment securities available for sale in the linked quarter was due to athe sale of a single corporate bond of a distressed entity.

70•Other noninterest income consisted of items such as derivative gains and losses, gains or losses on sales of other assets including OREO, fixed assets and loans. The additional miscellaneous income from the SVBB Acquisition was offset by lower derivative income.

Other noninterest income for the current YTD was $10.45 billion, an increase of $9.59 billion from $853 million for the prior YTD. The increase was primarily due to the preliminary gain on acquisition. The remaining changes compared to the prior YTD reflect increases and decreases among various noninterest income accounts and generally trend as described above, with the following additional comments:

•Factoring commissions decreased $15 million, reflecting lower factoring volumes and surcharges.

•Fair value adjustments on marketable equity securities reflect changes in market prices of underlying portfolio investments.

•BOLI income was down, reflecting our decision in 2022 to terminate a significant portion of the contracts.

•Other noninterest income consisted of items such as derivative gains and losses, gain on sales of other assets including OREO, fixed assets and loans, and non-marketable securities. Other noninterest income increased by ~~$19~~$26 million, primarily due to additional miscellaneous income from the SVBB Acquisition and net positive marks on derivatives.

NONINTEREST EXPENSE

The current quarter includes a full quarter of noninterest expense related to SVB ~~for~~while the prior quarter includes only five days, as the SVBB Acquisition was completed on March 27, 2023. Noninterest expense from SVB was aligned into pre-existing operating expense categories, with salaries and benefits and acquisition-related expenses impacted the most.

Table 11

Noninterest Expense


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
		March 31, 2023		December 31, 2022		March 31, 2022					June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Depreciation on operating lease equipment	Depreciation on operating lease equipment	$	89	$	88	$	81			Depreciation on operating lease equipment	$	91	$	89	$	89	$	180	$	170
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	56		47		43				Maintenance and other operating lease expenses	56		56		47		112		90
Operating expenses:	Operating expenses:									Operating expenses:
Salaries and benefits	Salaries and benefits	420		354		356				Salaries and benefits	775		420		345		1,195		701
Net occupancy expense	Net occupancy expense	50		48		48				Net occupancy expense	64		50		48		114		96
Equipment expense	Equipment expense	58		55		52				Equipment expense	133		58		54		191		106
Professional fees	Professional fees	12		11		12				Professional fees	21		11		11		32		23
Third-party processing fees	Third-party processing fees	29		26		24				Third-party processing fees	54		30		26		84		50
FDIC insurance expense	FDIC insurance expense	18		5		12				FDIC insurance expense	22		18		9		40		21
Marketing expense	Marketing expense	15		21		8				Marketing expense	41		15		9		56		17
Acquisition-related expenses	Acquisition-related expenses	28		29		135				Acquisition-related expenses	205		28		34		233		169
Intangible asset amortization	Intangible asset amortization	5		6		6				Intangible asset amortization	18		5		6		23		12
Other noninterest expense	Other noninterest expense	75		70		33				Other noninterest expense	92		75		67		167		100
Total operating expenses	Total operating expenses	710		625		686				Total operating expenses	1,425		710		609		2,135		1,295
Total noninterest expense	Total noninterest expense	$	855	$	760	$	810			Total noninterest expense	$	1,572	$	855	$	745	$	2,427	$	1,555

Depreciation on Operating Lease Equipment

Depreciation expense on operating lease equipment is 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 section entitled “Results by Business Segment” of this MD&A for further details.

Maintenance and Other Operating Lease Expenses

Rail provides railcars primarily pursuant to full-service lease contracts under which Rail, as lessor, is responsible for railcar maintenance and repair. Maintenance and other operating lease expenses for the ~~three months ended March 31, 2023 was~~current quarter were $56 million, ~~compared to $47~~unchanged from the linked quarter. Maintenance and other operating lease expenses for the current YTD were $112 million, an increase of $22 million or 25% from $90 million for the ~~three months ended December 31, 2022.~~prior YTD. 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~~variable, due to timing and number of railcars coming on or off lease and the ~~prior quarter reflects higher maintenance costs related to readying tank cars for service.~~asset condition. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details.

Operating Expenses

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

expenses. Operating expenses for the ~~three months ended March 31, 2023~~current quarter were ~~$710~~$1.43 billion, an increase of $715 million ~~compared to $625~~or 101% from $710 million in the ~~three months ended December 31, 2022.~~linked quarter, and were generally higher due to a full quarter of increased operations resulting from the SVBB Acquisition.

~~Operating~~The main components of the increase in operating expenses for the ~~three months ended March 31, 2023 increased by $85 million~~current quarter compared to the ~~three months ended December 31, 2022, primarily comprised of the following:~~linked quarter are summarized below.

•Salaries and benefits increased by ~~$66~~$355 million, ~~primarily due to~~mainly from a full quarter impact of the added ~~costs related to salaries as a result of~~ employees from the SVBB ~~Acquisition, plus higher benefit plan expense, merit increases in compensation associated with our annual review process, and the annual restart of payroll taxes.~~Acquisition.

•~~FDIC insurance~~Net occupancy costs increased ~~$13~~$14 million, ~~due to a~~reflecting the additional office space and other rental fees resulting from the SVBB Acquisition.

•Equipment expense increased $75 million, mostly reflecting higher ~~assessment rate charged to financial institutions,~~hardware and ~~a higher deposit balance.~~software-related costs resulting from the SVBB Acquisition.

71•Professional fees increased $10 million, mostly reflecting additional costs resulting from the SVBB Acquisition.

•

Third-party processing fees increased $24 million, reflecting additional costs resulting from the SVBB Acquisition.

•Marketing costs ~~decreased~~increased by $6$26 million, primarily reflecting the timing of our advertising relating to marketing efforts for the Direct ~~Bank.~~Bank to support deposit growth.

•Acquisition-related expenses ~~decreased $1~~increased $177 million, primarily due to ~~lower CIT Merger costs. The current quarter includes~~severance and personnel costs ~~associated with the SVBB Acquisition of approximately $8 million. We expect acquisition-related expenses attributable~~related to the SVBB ~~Acquisition~~Acquisition.

•Intangible asset amortization increased $13 million, reflecting the amortization for the core deposit intangible related to ~~increase beginning in~~ the ~~second quarter of 2023.~~SVBB Acquisition.

•Other expenses consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, consulting, telecommunications, and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. Changes in these individual items were not material.

Operating expenses for the current YTD were $2.14 billion, an increase of $840 million or 65% compared to $1.30 billion in the prior YTD. Operating expenses for the current YTD compared to the prior YTD reflected similar trends as noted above. In addition, FDIC insurance increased $19 million due to a higher assessment rate charged to financial institutions and higher deposit balances. Refer to the “Recent Economic and Industry Developments” discussion in the “Significant Events” section of this MD&Aregarding a potential special assessment proposed by the FDIC.

INCOME TAXES

Table 12

Income Tax Data


dollars in millions	dollars in millions	Three Months Ended									dollars in millions	Three Months Ended								Six Months Ended
		March 31, 2023			December 31, 2022			March 31, 2022						June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Income before income taxes	Income before income taxes	$	9,471		$	392		$	225				Income before income taxes	$	896		$	9,471		$	337		$	10,367		$	562
Income tax (benefit) expense	Income tax (benefit) expense	$	(47)		$	135		$	(46)				Income tax (benefit) expense	$	214		$	(47)		$	82		$	167		$	36
Effective tax rate	Effective tax rate	(0.5)		%	34.6		%	(20.4)		%			Effective tax rate	23.9		%	(0.5)		%	24.2		%	1.6		%	6.3		%

The effective tax rate (“ETR”) was 23.9% for the current quarter, an increase from (0.5)% for the ~~three months~~linked quarter. The increase in the ETR from (0.5)% for the quarter ended March 31, 2023 ~~compared~~ to ~~34.6%~~23.9% 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~~current quarter was primarily ~~driven by~~related to the effects of the non-taxable nature of the preliminary gain on acquisition for the SVBB ~~Acquisition.~~Acquisition in the linked quarter. The ETR was 1.6% for the current YTD, compared to 6.3% in the prior YTD. The decrease in the ETR for the current YTD was primarily driven by the effects of the non-taxable nature of the preliminary gain on acquisition for the 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 periods may vary from the actual 2023 ETR due to changes in these factors.

BancShares monitors and 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~~ Refer to Note 19 — Income Taxes for additional information.

RESULTS BY BUSINESS SEGMENT

Refer to Note 21 — Business Segment Information for related disclosures on the 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 select items are reflected in Corporate.

General Banking

The General Banking segment delivers products and services to consumers and businesses through our extensive network of branches and various digital ~~channels.~~channels, including the Direct Bank. We offer a full suite of deposit products, loans, cash management, wealth, payments and various other fee-based services.

Table 13

General Banking: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
Earnings Summary	Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022				Earnings Summary	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net interest income	Net interest income	$	560	$	546	$	437			Net interest income	$	603	$	560	$	467	$	1,163	$	904
Provision (benefit) for credit losses	Provision (benefit) for credit losses	14		15		(15)				Provision (benefit) for credit losses	29		14		7		43		(8)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	546		531		452				Net interest income after provision for credit losses	574		546		460		1,120		912
Noninterest income	Noninterest income	116		111		123				Noninterest income	119		116		125		235		248
Noninterest expense	Noninterest expense	395		360		409				Noninterest expense	393		395		390		788		799
Income before income taxes	Income before income taxes	267		282		166				Income before income taxes	300		267		195		567		361
Income tax expense	Income tax expense	65		70		40				Income tax expense	73		65		40		138		80
Net income	Net income	$	202	$	212	$	126			Net income	$	227	$	202	$	155	$	429	$	281
Select Period End Balances	Select Period End Balances									Select Period End Balances
Loans and leases	Loans and leases	$	43,353	$	42,921	$	38,528			Loans and leases	$	44,719	$	43,353	$	40,159	$	44,719	$	40,159
Deposits	Deposits	85,982		84,361		85,458				Deposits	95,323		85,982		83,518		95,323		83,518

The ~~decrease~~increase in net income for the ~~three months ended March 31, 2023~~current quarter compared to the ~~three months ended December 31, 2022~~linked quarter was due to higher ~~noninterest expenses,~~NII, which offset a higher ~~NII and noninterest income.~~provision for credit losses. NII increased, ~~mostly due to higher yields and~~reflecting growth in the loan portfolio, which offset higher deposit costs. The provision for credit losses increased, mainly due to loan growth and unfavorable trends in certain macroeconomic variables that are inputs to the ACL models, most notably the CRE Price Index. Noninterest income and noninterest expenses for the ~~three months ended March 31, 2023 increased~~current quarter were relatively flat 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 salarylinked quarter and ~~benefit costs and other items~~are discussed ~~previously~~ in the ~~section~~sections entitled “Noninterest Income” and “Noninterest Expense” of this MD&A. Segment net income for the current YTD increased from the prior YTD, reflecting higher NII, as higher yields, resulting from the increased rate environment, and portfolio growth outpaced rising deposit costs.

The increase in loans and leases ~~at March 31,~~during 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 origination activity due to the high rate environment.

Deposits include deposits from the branch network, Direct Bank and CAB channels. The increase in deposits ~~at March 31,~~during 2023 ~~compared to December 31, 2022~~ was primarily in our Direct Bank, in products such as time and savings accounts, which partially offset ~~by a decrease~~decreases in checking and money market accounts. Refer to consolidated discussions in the sections entitled “Net Interest Income and Net Interest Margin” and “Balance Sheet Analysis—Deposits” of this MD&A for additional 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 companies in a wide range of industries.

Table 14

Commercial Banking: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
Earnings Summary	Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022				Earnings Summary	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net interest income	Net interest income	$	240	$	244	$	207			Net interest income	$	258	$	240	$	204	$	498	$	411
Provision (benefit) for credit losses		49		59		(34)
Provision for credit losses										Provision for credit losses	170		49		35		219		1
Net interest income after provision for credit losses	Net interest income after provision for credit losses	191		185		241				Net interest income after provision for credit losses	88		191		169		279		410
Noninterest income	Noninterest income	143		141		112				Noninterest income	139		143		130		282		242
Noninterest expense	Noninterest expense	211		188		191				Noninterest expense	188		211		180		399		371
Income before income taxes	Income before income taxes	123		138		162				Income before income taxes	39		123		119		162		281
Income tax expense	Income tax expense	29		39		41				Income tax expense	11		29		24		40		65
Net income	Net income	$	94	$	99	$	121			Net income	$	28	$	94	$	95	$	122	$	216
Select Period End Balances	Select Period End Balances									Select Period End Balances
Loans and leases	Loans and leases	$	28,684	$	27,782	$	26,922			Loans and leases	$	29,433	$	28,684	$	27,505	$	29,433	$	27,505
Deposits	Deposits	3,045		3,225		4,698				Deposits	3,064		3,045		4,466		3,064		4,466
Operating lease equipment, net	Operating lease equipment, net	719		723		721				Operating lease equipment, net	741		719		724		741		724

The decrease in net income for the ~~three months ended March 31, 2023~~current quarter compared to the ~~three months ended December 31, 2022~~linked quarter was mostly due to higher ~~noninterest expenses, which offset lower~~provision for credit losses. The provision for credit losses increase was mainly due to loan growth and ~~taxes.~~a reserve build as a result of higher charge-offs and unfavorable trends in certain macroeconomic variables, including the CRE Price Index. The reserve build was focused in real estate finance, concentrated in the general office portfolio, and commercial finance. NII ~~decreased,~~increased primarily due to growth and higher yields for loans and leases, which offset higher deposit ~~costs that offset growth in the loan portfolio. The decrease in the provision for credit losses reflects a lower provision for unfunded commitments.~~costs. Noninterest income and noninterest expenses for the ~~three months ended March 31, 2023 increased~~current quarter were down compared to the three months ended December 31, 2022, reflecting positive marks on 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 salarylinked quarter and ~~benefit costs and other items~~are discussed ~~previously~~ in the ~~section~~sections entitled “Noninterest Income” and “Noninterest Expense” of this MD&A. Noninterest expenses for this segment also ~~includes~~include depreciation on operating lease equipment, which totaled $44 million for the current quarter and $43 million for ~~each~~the linked quarter. Current YTD depreciation totaled $87 million, an increase of $5 million from $82 million in the ~~three months ended March 31, 2023~~prior YTD. Segment net income for the current YTD decreased from the prior YTD, primarily reflecting the higher provision for credit losses, partially offset by an increase in noninterest income due to higher rental income on operating lease equipment, capital markets income and ~~December 31, 2022.~~interest rate derivative income.

The increase in loans and leases ~~at March 31,~~during 2023 ~~compared to December 31, 2022~~ reflected growth in a number of our industry verticals, such as ~~real estate,~~ maritime, healthcare and ~~healthcare, as well as commercial mortgages.~~energy.

Silicon Valley Banking

The SVB segment products and services are provided to clients primarily in the 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~~

~~Provision (benefit) for credit losses~~

—

~~Net interest income after provision for credit losses~~

~~Noninterest income~~

~~Noninterest expense~~

~~Income before income taxes~~

~~Income tax expense~~

~~Net income~~

~~Select Period End Balances~~

~~Loans and leases~~

~~66,171~~

~~Deposits~~

~~49,259~~


dollars in millions	Three Months Ended						Six Months Ended
Earnings Summary	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net interest income	$	635	$	65	$	—	$	700	$	—
Benefit for credit losses	(47)		—		—		(47)		—
Net interest income after benefit for credit losses	682		65		—		747		—
Noninterest income	169		14		—		183		—
Noninterest expense	592		33		—		625		—
Income before income taxes	259		46		—		305		—
Income tax expense	70		11		—		81		—
Net income	$	189	$	35	$	—	$	224	$	—
Select Period End Balances
Loans and leases	$	58,799	$	66,171	$	—	$	58,799	$	—
Deposits	40,860		49,259		—		40,860		—

The current quarter ~~includes~~included results of operations related to SVB for the entire period compared to only five days for the three months ended March 31, 2023, 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, purchase discount accretion 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. The benefit related to the provision for credit loss for the current quarter reflects the decline in the acquired loan portfolio and lower unfunded commitments. There was no provision for credit losses during the linked quarter due to the timing of SVBB Acquisition. Noninterest income ~~was earned primarily from~~includes various commercial banking ~~products.~~products, two of which are client investment fees and international fees. Noninterest expenses were mostly ~~compensation~~salary and benefits related costs.

Loans totaled $58.80 billion at June 30, 2023, a decline of $7.37 billion from $66.17 billion at March 31, 2023, most of which ~~declined from~~was in Global Fund Banking loans. The decline included elevated paydowns, as customers had drawn on their lines of credit during the ~~SVBB Acquisition Date balance~~uncertainty in the banking industry in March, along with impacts of ~~$68.50 billion. The decrease was primarily related to maturities~~the slowdown in the private equity and ~~paydowns.~~venture capital environment on new loan volumes.

~~SVB deposits~~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 further declined to ~~$41.43~~$40.86 billion ~~as of April 28,~~at June 30, 2023, but began to stabilize early in the ~~pace of the decline slowed and~~second quarter. For additional information on deposit ~~amounts leveled off to approximately $41 billion during the last two weeks of April. Refer~~trends, 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 center beams and flat cars for lumber. Revenues are primarily generated from rental income on operating leases.

Table 16

Rail: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
Earnings Summary	Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022				Earnings Summary	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Rental income on operating leases	Rental income on operating leases	$	176	$	168	$	159			Rental income on operating leases	$	180	$	176	$	160	$	355	$	319
Depreciation on operating lease equipment	Depreciation on operating lease equipment	46		45		41				Depreciation on operating lease equipment	47		46		47		94		88
Maintenance and other operating lease expenses	Maintenance and other operating lease expenses	56		47		43				Maintenance and other operating lease expenses	56		56		47		112		90
Adjusted rental income on operating lease equipment(1)	Adjusted rental income on operating lease equipment(1)	74		76		75				Adjusted rental income on operating lease equipment(1)	77		74		66		149		141
Interest expense, net	Interest expense, net	28		23		19				Interest expense, net	33		28		18		61		37
Noninterest income		1		(5)		3
Other noninterest (expense) income										Other noninterest (expense) income	(2)		1		—		(1)		3
Operating expenses	Operating expenses	18		15		16				Operating expenses	18		18		17		34		33
Income before income taxes	Income before income taxes	29		33		43				Income before income taxes	24		29		31		53		74
Income tax expense	Income tax expense	7		9		11				Income tax expense	6		7		7		13		18
Net income	Net income	$	22	$	24	$	32			Net income	$	18	$	22	$	24	$	40	$	56
Select Period End Balances	Select Period End Balances									Select Period End Balances
Operating lease equipment, net	Operating lease equipment, net	$	7,612	$	7,433	$	7,251			Operating lease equipment, net	$	7,790	$	7,612	$	7,247	$	7,790	$	7,247

(1)Adjusted rental income on operating 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 (Adjusted rental income on operating lease equipment).

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

Net income and adjusted ~~net revenue~~rental income on operating leases for the ~~three months ended March 31, 2023~~current quarter were ~~$22~~$18 million and ~~$74~~$77 million, ~~respectively, both down slightly from the three months ended December 31, 2022.~~respectively. Adjusted ~~net revenue~~rental income on operating leases was ~~down as~~up slightly on higher rental income from the increased number of rail cars owned and ~~higher re-lease rates was offset by higher maintenance costs, mostly due to readying tank cars for service.~~leased. Railcar depreciation is recognized on a straight-line basis over the estimated ~~service~~useful life of the asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease. The decrease in noninterest income reflects a net loss on sale of equipment due to a strategic action to reduce exposure to certain rail assets. Segment net income for the current YTD decreased from the prior YTD, as the higher interest expense offset the higher adjusted rental income, benefiting from improved utilization, re-lease rates and portfolio growth.

Our fleet is diverse, and the average re-pricing of equipment upon lease maturities was ~~137.0%~~124.0% of the average prior or expiring lease rate during the quarter. Our railcar utilization, including commitments to lease, ~~improved to 97.9%~~was 98.3% at ~~March 31, 2023 from 97.7% at December 31, 2022.~~June 30, 2023.

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), and other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at ~~March 31,~~June 30, 2023 consisted of approximately ~~119,700~~121,000 railcars ~~up from approximately 119,200 at December 31, 2022.~~and locomotives. The following ~~table reflects~~tables reflect the proportion of railcars by type based on units and net ~~investment:~~investment, and rail operating lease equipment by obligor industry:

Table 17

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


		March 31, 2023				December 31, 2022					June 30, 2023				March 31, 2023				December 31, 2022
Railcar Type	Railcar Type	Total Owned Fleet - % Total Units		Total Owned Fleet - % Total Net Investment		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		Total Owned Fleet - % Total Units		Total Owned Fleet - % Total Net Investment
Covered Hoppers	Covered Hoppers	44	%	42	%	43	%	41	%	Covered Hoppers	44	%	42	%	44	%	42	%	43	%	41	%
Tank Cars	Tank Cars	29	%	39	%	29	%	40	%	Tank Cars	28		38		29		39		29		40
Mill/Coil Gondolas	Mill/Coil Gondolas	8	%	6	%	8	%	6	%	Mill/Coil Gondolas	8		7		8		6		8		6
Coal	Coal	8	%	1	%	8	%	1	%	Coal	8		1		8		1		8		1
Boxcars	Boxcars	6	%	6	%	6	%	6	%	Boxcars	6		6		6		6		6		6
Other	Other	5	%	6	%	6	%	6	%	Other	6		6		5		6		6		6
Total	Total	100	%	100	%	100	%	100	%	Total	100	%	100	%	100	%	100	%	100	%	100	%

Table 18

Rail Operating Lease Equipment by Obligor Industry


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022				dollars in millions	June 30, 2023				March 31, 2023				December 31, 2022
Manufacturing	Manufacturing	$	3,073	40	%	$	3,016	41	%	Manufacturing	$	3,117	40	%	$	3,073	40	%	$	3,016	41	%
Rail	Rail	1,958		26	%	1,981		27	%	Rail	1,960		25		1,958		26		1,981		27
Wholesale	Wholesale	1,137		15	%	1,101		15	%	Wholesale	1,171		15		1,137		15		1,101		15
Oil and gas extraction / services	Oil and gas extraction / services	593		8	%	552		7	%	Oil and gas extraction / services	596		8		593		8		552		7
Energy and utilities	Energy and utilities	242		3	%	242		3	%	Energy and utilities	235		3		242		3		242		3
Other	Other	609		8	%	541		7	%	Other	710		9		609		8		541		7
Total	Total	$	7,612	100	%	$	7,433	100	%	Total	$	7,789	100	%	$	7,612	100	%	$	7,433	100	%

Corporate

Certain items that are not allocated to operating segments are included in the Corporate segment. For descriptions of items not allocated, see Note 21 — Business Segment Information.

Table 19

Corporate: Financial Data and Metrics


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
Earnings Summary	Earnings Summary	March 31, 2023		December 31, 2022		March 31, 2022				Earnings Summary	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net interest income	Net interest income	$	13	$	35	$	24			Net interest income	$	498	$	13	$	47	$	511	$	71
Provision for credit losses		720		5		513
Net interest (expense) income after provision for credit losses		(707)		30		(489)
(Benefit) provision for credit losses										(Benefit) provision for credit losses	(1)		720		—		719		513
Net interest income (expense) after provision for credit losses										Net interest income (expense) after provision for credit losses	499		(707)		47		(208)		(442)
Noninterest income	Noninterest income	9,809		14		453				Noninterest income	53		9,809		9		9,862		462
Noninterest expense	Noninterest expense	96		105		110				Noninterest expense	278		96		64		374		174
(Loss) income before income taxes		9,006		(61)		(146)
Income tax (benefit) expense		(159)		17		(138)
Income (loss) before income taxes										Income (loss) before income taxes	274		9,006		(8)		9,280		(154)
Income tax expense (benefit)										Income tax expense (benefit)	54		(159)		11		(105)		(127)
Net income (loss)	Net income (loss)	$	9,165	$	(78)	$	(8)			Net income (loss)	$	220	$	9,165	$	(19)	$	9,385	$	(27)

~~Results~~Net income for Corporate for the ~~three months ended March 31, 2023 were primarily impacted by a~~current quarter was down from the linked quarter, which included an initial preliminary gain on acquisition of $9.82 billion and the day 2 provision for credit losses of $716 million related to the SVBB Acquisition. The preliminary gain on acquisition increased $55 million in the current quarter as previously discussed.

The current quarter benefited from higher net interest income that included accretion of $233 millionforthe loan purchase accounting adjustment related to the SVBB Acquisition. The current quarter also included an increase in noninterest expenses, reflecting acquisition-related expenses of $205 million compared to $28 million in the linked quarter. The income tax rate ~~also~~for the linked quarter reflects the impact of the preliminary gain on ~~acquisition. Similar transactions were recorded~~acquisition, resulting in a benefit. Refer to the ~~three months ended March 31, 2022~~“Income Taxes” section of this MD&A for further discussion. Segment net income for the ~~CIT Merger.~~

~~In addition~~current YTD increased from the prior YTD, reflecting the more significant impacts from the SVBB Acquisition compared to the ~~above noted items,~~impacts of 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.

CIT Merger.

BALANCE SHEET ANALYSIS

INTEREST-EARNING ASSETS

Interest-earning assets include interest-earning deposits at banks, securities purchased under agreement to resell, investment securities, assets held for sale, and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. 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-earning deposits at banks at ~~March 31,~~June 30, 2023 totaled ~~$38.52 billion. This was~~$37.85 billion, an increase of $32.82 billion from $5.03 billion at December 31, ~~2022.~~2022 and a decrease of $676 million from $38.52 billion at March 31, 2023. The increase from December 31, 2022 primarily related to $33.93 billion acquired in the SVBB Acquisition, plus holding additional ~~liquidity reflecting higher FHLB borrowings.~~liquidity. 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 Capital Overview” section of this MD&A.

Securities Purchased Under Agreement to Resell

Securities Purchased Under Agreement to Resell at June 30, 2023 totaled $298 million and were acquired in the SVBB Acquisition.

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 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 interest-earning deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan growth. Refer to Note 3 — 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 at ~~March 31,~~June 30, 2023 totaled ~~$19.53 billion. This was up slightly~~$22.17 billion, an increase of $2.80 billion or 15% from $19.37 billion at December 31, 2022, ~~reflecting~~and $2.64 billion or 14% from $19.53 billion at March 31, 2023. The increase from December 31, 2022 reflected investment security purchases of ~~$337 million,~~$3.31 billion, most of which were U.S. Treasuries purchased in the current quarter with an average duration of less than one year, and acquired investment securities of ~~$122~~$385 million in the SVBB Acquisition. The increase was partially offset by maturities, paydowns and cash sales of ~~$345~~$794 million, and included other non-cash items, such as fair value changes, amortization and ~~amortization. We~~non-settled transactions. The acquired ~~certain mortgage-backed securities as part of~~investments in the SVBB ~~Acquisition.~~Acquisition were municipal bonds and mortgage-backed securities.

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, corporate bonds and ~~corporate~~municipal 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,~~June 30, 2023, investment securities available for sale had a net pre-tax unrealized loss of ~~$894 million,~~$1.03 billion, compared to a net pre-tax unrealized loss of $972 million as of December 31, 2022. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest rates increase or when credit spreads widen. 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,~~June 30, 2023, no ACL was required. For corporate bonds and municipal bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired, and considered other factors, including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that ~~one~~three corporate ~~bond had a~~bonds carry credit-related ~~loss of $4~~losses, which was $3 million as of ~~March 31, 2023~~June 30, 2023.

BancShares’ portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury Notes and government agency securities described above, as well as securities issued by the 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 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,~~June 30, 2023 and December 31, 2022.

The following table presents the investment securities portfolio at June 30, 2023, March 31, 2023 and December 31, 2022, segregated by major category:

Table 20

Investment Securities


dollars in millions	dollars in millions	March 31, 2023						December 31, 2022				dollars in millions	June 30, 2023								March 31, 2023						December 31, 2022
		Composition(1)		Amortized cost		Fair value				Composition(1)				Amortized cost		Fair value			Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value		Composition(1)		Amortized cost		Fair value
Investment securities available for sale:	Investment securities available for sale:																	Investment securities available for sale:
U.S. Treasury	U.S. Treasury	10.9	%	$	2,091	$	1,978			10.6	%			$	2,035	$	1,898	U.S. Treasury	22.5	%	$	4,763	$	4,634	10.9	%	$	2,091	$	1,978	10.6	%	$	2,035	$	1,898
Government agency	Government agency	0.8	%	152		150				0.9	%			164		162		Government agency	0.7		143		140		0.8		152		150		0.9		164		162
Residential mortgage-backed securities	Residential mortgage-backed securities	26.7	%	5,415		4,848				26.8	%			5,424		4,795		Residential mortgage-backed securities	23.3		5,443		4,810		26.7		5,415		4,848		26.8		5,424		4,795
Commercial mortgage-backed securities	Commercial mortgage-backed securities	8.7	%	1,755		1,585				9.0	%			1,774		1,604		Commercial mortgage-backed securities	7.6		1,776		1,577		8.7		1,755		1,585		9.0		1,774		1,604
Corporate bonds	Corporate bonds	2.8	%	542		500				3.0	%			570		536		Corporate bonds	2.3		538		476		2.8		542		500		3.0		570		536
Municipal bonds																		Municipal bonds	1.2		260		257		—		—		—		—		—		—

Total investment securities available for sale	Total investment securities available for sale	49.9	%	$	9,955	$	9,061			50.3	%			$	9,967	$	8,995	Total investment securities available for sale	57.6	%	$	12,923	$	11,894	49.9	%	$	9,955	$	9,061	50.3	%	$	9,967	$	8,995
Investment in marketable equity securities	Investment in marketable equity securities	0.5	%	$	75	$	85			0.5	%			$	75	$	95	Investment in marketable equity securities	0.4	%	$	75	$	76	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	%	$	475	$	433			2.4	%			$	474	$	424	U.S. Treasury	2.1		$	476	$	426	2.4		$	475	$	433	2.4		$	474	$	424
Government agency	Government agency	7.7	%	1,550		1,387				7.6	%			1,548		1,362		Government agency	6.5		1,502		1,328		7.7		1,550		1,387		7.6		1,548		1,362
Residential mortgage-backed securities	Residential mortgage-backed securities	21.3	%	4,511		3,858				21.7	%			4,605		3,882		Residential mortgage-backed securities	18.0		4,406		3,716		21.3		4,511		3,858		21.7		4,605		3,882
Commercial mortgage-backed securities	Commercial mortgage-backed securities	16.8	%	3,547		3,051				16.1	%			3,355		2,871		Commercial mortgage-backed securities	14.2		3,518		2,923		16.8		3,547		3,051		16.1		3,355		2,871

Supranational securities	Supranational securities	1.4	%	296		262				1.4	%			295		254		Supranational securities	1.2		297		257		1.4		296		262		1.4		295		254
Other	Other	—	%	2		2				—	%			2		2		Other	—		2		2		—		2		2		—		2		2
Total investment securities held to maturity	Total investment securities held to maturity	49.6	%	$	10,381	$	8,993			49.2	%			$	10,279	$	8,795	Total investment securities held to maturity	42.0	%	$	10,201	$	8,652	49.6	%	$	10,381	$	8,993	49.2	%	$	10,279	$	8,795
Total investment securities	Total investment securities	100	%	$	20,411	$	18,139			100	%			$	20,321	$	17,885	Total investment securities	100.0	%	$	23,199	$	20,622	100.0	%	$	20,411	$	18,139	100.0	%	$	20,321	$	17,885
(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.								(1) Calculated as a percentage of the total fair value of investment securities.

The following table presents the weighted average yields for investment securities available for sale and held to maturity at ~~March 31,~~June 30, 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 21

Weighted Average Yield on Investment Securities


		March 31, 2023											June 30, 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	3.57	%	1.09	%	—	%	—	%	1.12	%	U.S. Treasury	4.97	%	0.98	%	—	%	—	%	3.46	%
Government agency	Government agency	4.36	%	4.56	%	4.51	%	4.93	%	4.53	%	Government agency	3.83		4.92		4.90		5.39		4.93
Residential mortgage-backed securities	Residential mortgage-backed securities	1.82	%	4.08	%	4.19	%	1.88	%	1.95	%	Residential mortgage-backed securities	3.80		3.67		4.25		1.99		2.04
Commercial mortgage-backed securities	Commercial mortgage-backed securities	2.46	%	3.59	%	5.74	%	2.81	%	2.95	%	Commercial mortgage-backed securities	3.60		3.95		6.13		2.88		3.11
Corporate bonds	Corporate bonds	5.00	%	6.29	%	5.39	%	4.67	%	5.46	%	Corporate bonds	5.00		6.49		5.38		4.67		5.50
Municipal bonds												Municipal bonds	2.58		2.48		2.61		3.23		2.91

Total investment securities available for sale	Total investment securities available for sale	3.26	%	1.57	%	5.02	%	2.09	%	2.18	%	Total investment securities available for sale	4.95	%	1.71	%	4.91	%	2.20	%	2.91	%

Investment securities held to maturity:	Investment securities held to maturity:											Investment securities held to maturity:
U.S. Treasury	U.S. Treasury	—	%	1.37	%	1.57	%	—	%	1.38	%	U.S. Treasury	—	%	1.37	%	1.57	%	—	%	1.38	%
Government agency	Government agency	0.44	%	1.39	%	1.84	%	—	%	1.49	%	Government agency	—		1.39		1.84		—		1.53
Residential mortgage-backed securities(1)	Residential mortgage-backed securities(1)	—	%	—	%	2.64	%	1.90	%	1.90	%	Residential mortgage-backed securities (1)	—		—		2.62		1.89		1.89
Commercial mortgage-backed securities(1)	Commercial mortgage-backed securities(1)	—	%	2.43	%	2.04	%	2.84	%	2.84	%	Commercial mortgage-backed securities (1)	—		2.44		2.00		2.79		2.78

Supranational Securities	Supranational Securities	—	%	1.35	%	1.68	%	—	%	1.56	%	Supranational Securities	—		1.35		1.68		—		1.56
Other	Other	0.34	%	0.20	%	—	%	—	%	0.32	%	Other	1.52		—		—		—		1.52
Total investment securities held to maturity	Total investment securities held to maturity	0.44	%	1.39	%	1.79	%	2.31	%	2.12	%	Total investment securities held to maturity	1.52	%	1.39	%	1.78	%	2.29	%	2.11	%

(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 at ~~March 31,~~June 30, 2023. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

Assets Held for Sale

Certain residential 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 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,~~June 30, 2023 were ~~$94~~$117 million, an increase of ~~$34~~$57 million ~~compared to~~or 96% from $60 million at December 31, ~~2022. The net~~2022 and an increase ~~was primarily related to loans held for sale in the SVB portfolio, partially offset by sales~~ of ~~commercial loans.~~$23 million or 25% from $94 million at March 31, 2023.

Table 22

Assets Held for Sale


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		March 31, 2023		December 31, 2022
Loans and leases:	Loans and leases:					Loans and leases:
Commercial	Commercial	$	33	$	48	Commercial	$	62	$	33	$	48
Consumer	Consumer	9		4		Consumer	42		9		4
SVB	SVB	48		—		SVB	11		48		—
Loans and leases	Loans and leases	90		52		Loans and leases	115		90		52
Operating lease equipment	Operating lease equipment	4		8		Operating lease equipment	2		4		8
Total assets held for sale	Total assets held for sale	$	94	$	60	Total assets held for sale	$	117	$	94	$	60

Loans and Leases

Loans and leases held for investment at ~~March 31,~~June 30, 2023 were ~~$138.29~~$133.02 billion, an increase of ~~$67.51~~$62.23 billion or 88% from $70.78 billion at December 31, ~~2022.~~2022 and a decrease of $5.27 billion or 4% from $138.29 billion at March 31, 2023. The increase from December 31, 2022 reflects approximately ~~$66.17~~$58.80 billion of SVB loans ~~at March 31, 2023. In addition,~~ as of June 30, 2023 and growth in commercial and consumer loans, partially offset by run-off during the current quarter of certain acquired portfolios in the SVB segment. As shown in the table below, commercial loans continued to grow during the current quarter in a number of industry verticals with in commercial and industrial, such as ~~real estate,~~ maritime, ~~and~~ healthcare and energy, and modest growth in our branch network. Most of the decline in the SVB portfolio was in Global Fund Banking loans. The ~~current quarter also~~decline included ~~growth~~elevated paydowns, as customers had drawn on their lines of credit during the uncertainty in ~~both commercial mortgage loans~~the banking industry in March, along with a combination of balance sheet management and ~~consumer mortgage loans.~~impacts of the high rate environment on new loan volumes.

~~Commercial loans at March 31, 2023 were $54.39 billion compared to $53.46 billion at December 31, 2022, representing 39% and 75% of total~~The following table presents loans and leases ~~respectively. Consumer loans at March 31, 2023 were $17.73 billion, compared~~by loan segment and loan class, and the respective proportion to ~~$17.33 billion at December 31, 2022, representing 13% and 25% of~~ total ~~loans and leases, respectively. SVB loans at March 31, 2023 were $66.17 billion, representing 48% of total loans and leases.~~loans:

Table 23

Loans and Leases


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022				dollars in millions	June 30, 2023				March 31, 2023				December 31, 2022
		Balance		% to Total Loans		Balance		% to Total Loans			Balance		% to Total Loans		Balance		% to Total Loans		Balance		% to Total Loans
Commercial:	Commercial:									Commercial:
Commercial construction	Commercial construction	$	2,971	2	%	$	2,804	4	%	Commercial construction	$	3,182	2	%	$	2,971	2	%	$	2,804	4	%
Owner occupied commercial mortgage	Owner occupied commercial mortgage	14,456		10	%	14,473		20	%	Owner occupied commercial mortgage	14,748		11		14,456		10		14,473		20
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	10,292		7	%	9,902		14	%	Non-owner occupied commercial mortgage	10,733		8		10,292		7		9,902		14
Commercial and industrial	Commercial and industrial	24,508		18	%	24,105		34	%	Commercial and industrial	25,376		19		24,508		18		24,105		34
Leases	Leases	2,163		2	%	2,171		3	%	Leases	2,130		2		2,163		2		2,171		3
Total commercial	Total commercial	$	54,390	39	%	$	53,455	75	%	Total commercial	$	56,169	42	%	$	54,390	39	%	$	53,455	75	%
Consumer:	Consumer:									Consumer:
Residential mortgage	Residential mortgage	13,727		10	%	13,309		19	%	Residential mortgage	$	14,065	11	%	$	13,727	10	%	$	13,309	19	%
Revolving mortgage	Revolving mortgage	1,916		1	%	1,951		3	%	Revolving mortgage	1,900		1		1,916		1		1,951		3
Consumer auto	Consumer auto	1,452		1	%	1,414		2	%	Consumer auto	1,425		1		1,452		1		1,414		2
Consumer other	Consumer other	632		1	%	652		1	%	Consumer other	657		1		632		1		652		1
Total consumer	Total consumer	$	17,727	13	%	$	17,326	25	%	Total consumer	$	18,047	14	%	$	17,727	13	%	$	17,326	25	%
Silicon Valley Banking:	Silicon Valley Banking:									Silicon Valley Banking:
Global fund banking	Global fund banking	36,097		26	%	—		—	%	Global fund banking	$	29,333	22	%	$	36,097	26	%	$	—	—	%
Investor dependent - early stage	Investor dependent - early stage	1,994		1	%	—		—	%	Investor dependent - early stage	1,840		1		1,994		1		—		—
Investor dependent - growth stage	Investor dependent - growth stage	4,418		3	%	—		—	%	Investor dependent - growth stage	4,052		3		4,418		3		—		—
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent	9,193		7	%	—		—	%	Innovation C&I and cash flow dependent	8,905		7		9,193		7		—		—
Private Bank	Private Bank	9,476		7	%	—		—	%	Private Bank	9,580		7		9,476		7		—		—
CRE	CRE	2,444		2	%	—		—	%	CRE	2,530		2		2,444		2		—		—
Other	Other	2,549		2	%	—		—	%	Other	2,559		2		2,549		2		—		—
Total Silicon Valley Banking	Total Silicon Valley Banking	$	66,171	48	%	$	—	—	%	Total Silicon Valley Banking	$	58,799	44	%	$	66,171	48	%	$	—	—	%
Total loans and leases	Total loans and leases	138,288		100	%	70,781		100	%	Total loans and leases	$	133,015	100	%	$	138,288	100	%	$	70,781	100	%
Less allowance for credit losses	Less allowance for credit losses	(1,605)				(922)				Less allowance for credit losses	(1,637)				(1,605)				(922)
Net loans and leases	Net loans and leases	$	136,683			$	69,859			Net loans and leases	$	131,378			$	136,683			$	69,859

The unamortized discount related to acquired loans was ~~$2.67~~$2.48 billion ~~and~~at June 30, 2023, an increase of $2.36 billion from $118 million at ~~March 31, 2023 and~~ December 31, 2022 ~~respectively.~~and a decrease of $196 million from $2.67 billion at March 31, 2023. The increase from December 31, 2022 reflects the discount on loans acquired in the SVBB ~~Acquisition.~~Acquisition, while the decline from March 31, 2023 was due to accretion recognized during the quarter.

OPERATING LEASE EQUIPMENT, NET

As detailed in the following table, our operating lease portfolio is mostly comprised of rail assets. 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 24

Operating Lease Equipment


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		March 31, 2023		December 31, 2022
Railcars and locomotives	Railcars and locomotives	$	7,612	$	7,433	Railcars and locomotives	$	7,790	$	7,612	$	7,433
Other equipment	Other equipment	719		723		Other equipment	741		719		723
Total(1)	Total(1)	$	8,331	$	8,156	Total (1)	$	8,531	$	8,331	$	8,156

(1)Includes off-lease Rail equipment of $338 million at June 30, 2023, $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,~~June 30, 2023 totaled ~~$131.50~~$136.76 billion, ~~compared to~~an increase of $65.63 billion or 92% from $71.13 billion at December 31, ~~2022.~~2022 and an increase of $5.26 billion or 4% from $131.50 billion at March 31, 2023. 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,~~CAB, 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,~~June 30, 2023 were ~~$140.05~~$141.16 billion, an increase of ~~$50.64~~$51.76 billion ~~compared to~~from $89.41 billion at December 31, ~~2022.~~2022 and $1.11 billion from $140.05 billion at March 31, 2023. The increase from December 31, 2022 primarily reflects ~~$49.26~~$40.86 billion of SVB deposits atas of June 30, 2023. The increase from March 31, 2023 ~~plus~~includes solid deposit growth ~~during the current quarter~~ in our Direct Bank and ~~community association banking.~~CAB, mostly offset by the decline in SVB deposits.

~~Interest-bearing~~As summarized from the following table, interest-bearing deposits totaled $96.62 billion, $85.40 billion and $64.49 billion at June 30, 2023, March 31, 2023 and December 31, 2022, respectively. Noninterest-bearing deposits totaled $44.55 billion, $54.65 billion and $24.92 billion at June 30, 2023, March 31, 2023 and December 31, 2022, respectively.

Table 25

Deposits


dollars in millions	dollars in millions	March 31, 2023			December 31, 2022			dollars in millions	June 30, 2023			March 31, 2023			December 31, 2022
Noninterest-bearing demand	Noninterest-bearing demand	$	54,649		$	24,922		Noninterest-bearing demand	$	44,547		$	54,649		$	24,922
Checking with interest	Checking with interest	23,743			16,202			Checking with interest	24,809			23,743			16,202
Money market	Money market	30,598			21,040			Money market	29,149			30,598			21,040
Savings	Savings	17,932			16,634			Savings	26,389			17,932			16,634
Time	Time	13,128			10,610			Time	16,270			13,128			10,610
Total deposits	Total deposits	$	140,050		$	89,408		Total deposits	$	141,164		$	140,050		$	89,408
Noninterest-bearing deposits to total deposits	Noninterest-bearing deposits to total deposits	39.0		%	27.9		%	Noninterest-bearing deposits to total deposits	31.6		%	39.0		%	27.9		%

We strive to maintain a strong liquidity position, and therefore a focus on deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change, we recognize that our liquidity position could be adversely affected if 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,~~June 30, 2023, in North Carolina and South Carolina represented approximately ~~25.3%~~25.0% and ~~8.4%~~8.2%, respectively, of total deposits. The Direct Bank includes ~~$18.80~~$29.23 billion or ~~13.4%~~20.7% of total deposits as of ~~March 31,~~June 30, 2023. SVB deposits as of ~~March 31,~~June 30, 2023 were ~~$49.26~~$40.86 billion or ~~35.2%~~28.9% 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 ~~$69.96~~$56.39 billion, which represents approximately ~~50%~~40% of total deposits at ~~March 31,~~June 30, 2023, compared to $29.13 billion or 33% of total deposits at December 31, 2022. The increase in amount of uninsured deposits from December 31, 2022 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,~~June 30, 2023:

Table 26

Maturities of Time Deposits In Excess of $250,000


dollars in millions	~~March 31,~~June 30, 2023
Time deposits maturing in:
Three months or less	$	~~260~~394
Over three months through six months	~~385~~1,457
Over six months through 12 months	~~1,877~~2,033
More than 12 months	~~1,218~~890
Total	$	~~3,740~~4,774

Borrowings

Total borrowings at ~~March 31,~~June 30, 2023 were ~~$46.09~~$40.14 billion, ~~compared to~~an increase of $33.49 billion from $6.65 billion at December 31, ~~2022.~~2022 and a decrease of $5.96 billion from $46.09 billion at March 31, 2023. The increase from December 31, 2022 to June 30, 2023 primarily related to the Purchase Money Note of approximately ~~$35.15~~$35.81 billion payable to the FDIC, as ~~further~~ discussed in Note 2 — Business Combinations, ~~and~~partially offset by a net ~~increases~~decrease in FHLB borrowings, ~~during~~as discussed below, and the ~~current quarter.~~repayment of a $500 million senior unsecured note.

FHLB borrowings were ~~$8.50~~$2.43 billion at ~~March 31,~~June 30, 2023, ~~including $500 million in short-term borrowings and $8.00~~a decrease of $1.82 billion ~~in long-term borrowings. FHLB borrowings increased~~ from $4.25 billion at December 31, 2022 ~~reflecting~~and a decrease of $6.07 billion from $8.50 billion at March 31, 2023. The decline from December 31, 2022 reflected $7.00 billion of advances taken in March 2023 to enhance available liquidity ~~partially~~and $3.48 billion of advances in the current quarter, offset by first quarter repayments of $2.75 billion and second quarter repayments of ~~repayments. Prior to the March advances, we were repaying~~$9.55 billion. We continued repayments of FHLB borrowings ~~due~~in July, to ~~deposit growth.~~end the month with only a nominal amount outstanding. Refer to the “Liquidity Risk” section below for more information on FHLB borrowings.

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

Table 27

Borrowings


dollars in millions	dollars in millions	March 31, 2023		December 31, 2022		dollars in millions	June 30, 2023		March 31, 2023		December 31, 2022
Securities sold under customer repurchase agreements	Securities sold under customer repurchase agreements	$	509	$	436	Securities sold under customer repurchase agreements	$	454	$	509	$	436
Federal Home Loan Bank borrowings(1)	Federal Home Loan Bank borrowings(1)					Federal Home Loan Bank borrowings (1)
Floating rate notes due through September 2025	Floating rate notes due through September 2025	8,500		4,250		Floating rate notes due through September 2025	2,425		8,500		4,250
Federal Deposit Insurance Corporation	Federal Deposit Insurance Corporation					Federal Deposit Insurance Corporation
3.500% fixed rate note due March 2028(2)	3.500% fixed rate note due March 2028(2)	35,151		—		3.500% fixed rate note due March 2028 (2)	35,817		35,151		—
Senior Unsecured Borrowings	Senior Unsecured Borrowings					Senior Unsecured Borrowings
3.722% fixed line of credit due September 2023						3.722% fixed line of credit due September 2023	15		—		—
3.929% fixed-to-floating rate notes due June 2024	3.929% fixed-to-floating rate notes due June 2024	502		505		3.929% fixed-to-floating rate notes due June 2024	—		502		505
2.969% fixed-to-floating rate notes due September 2025	2.969% fixed-to-floating rate notes due September 2025	320		320		2.969% fixed-to-floating rate notes due September 2025	319		320		320
6.000% fixed rate notes due April 2036	6.000% fixed rate notes due April 2036	59		59		6.000% fixed rate notes due April 2036	59		59		59
Subordinated debt	Subordinated debt					Subordinated debt
6.125% fixed rate notes due March 2028	6.125% fixed rate notes due March 2028	466		469		6.125% fixed rate notes due March 2028	463		466		469
4.125% fixed-to-fixed rate notes due November 2029	4.125% fixed-to-fixed rate notes due November 2029	102		102		4.125% fixed-to-fixed rate notes due November 2029	102		102		102
3.375% fixed-to-floating rate notes due March 2030	3.375% fixed-to-floating rate notes due March 2030	348		348		3.375% fixed-to-floating rate notes due March 2030	349		348		348
Macon Capital Trust I - floating rate debentures due March 2034	Macon Capital Trust I - floating rate debentures due March 2034	14		14		Macon Capital Trust I - floating rate debentures due March 2034	14		14		14
SCB Capital Trust I - floating rate debentures due April 2034	SCB Capital Trust I - floating rate debentures due April 2034	10		10		SCB Capital Trust I - floating rate debentures due April 2034	10		10		10
FCB/SC Capital Trust II - floating rate debentures due June 2034	FCB/SC Capital Trust II - floating rate debentures due June 2034	18		18		FCB/SC Capital Trust II - floating rate debentures due June 2034	18		18		18
FCB/NC Capital Trust III - floating rate debentures due June 2036	FCB/NC Capital Trust III - floating rate debentures due June 2036	88		88		FCB/NC Capital Trust III - floating rate debentures due June 2036	88		88		88
Total subordinated debt	Total subordinated debt	1,046		1,049		Total subordinated debt	1,044		1,046		1,049
Other borrowings	Other borrowings	7		26		Other borrowings	6		7		26
Total borrowings	Total borrowings	$	46,094	$	6,645	Total borrowings	$	40,139	$	46,094	$	6,645

(1) Includes $0, $500 million and $1.75 billion in short-term borrowings and $2.43 billion, $8.00 billion and $2.50 billion in long-term borrowings at June 30, 2023, March 31, 2023 and December 31, 2022, respectively.

(2) Purchase Money Note issued in connection with the SVBB Acquisition.

Refer to Note 11 — Borrowings for further information on the various components. Also see “Liquidity Risk” in this MD&A.

RISK MANAGEMENT

BancShares provided detail risk management information in our 2022 Form 10-K. There were no significant changes to those disclosures. The following is a summary of those disclosures.

Risk is inherent in any business. BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a philosophy ~~which~~that 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. Our Board strives to ensure that risk management is a part of our business culture and that our policies and 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 its Risk Committee.

8292

The Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The 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 and Statement. The Risk Committee also reviews reports of examination by and communications from regulatory agencies, the results of internal and third party testing and qualitative and quantitative assessments related to risk management, and any other matters within the scope of the Risk Committee’s oversight responsibilities. The Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the 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 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 monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to the “Regulatory Considerations” section of Item 1. Business included in the 2022 Form 10-K for further discussion.

BancShares has been assessing the emerging impacts of the 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 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~~While economic data ~~has been~~continues to be mixed, ~~and markets continue~~baseline economic forecasts currently reflect a more marked decline in commercial real estate properties due to ~~experience elevated levels of volatility in 2023.~~rising interest rates that impacted the allowance for credit loss forecasts. 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~~continues to integrate SVB into its existing risk management processes and procedures.

CREDIT RISK

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

Our ACL estimate as of ~~March 31,~~June 30, 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,~~June 30, 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

BancShares employs a dual ratings system where each commercial loan is assigned a probability of default (“PD”) and loss given default (“LGD”) rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. 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.

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. Loans may also be monitored during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of the underlying collateral may be conducted.

Silicon Valley Banking Loans

~~Due~~During integration related to ~~the close proximity of~~ the SVBB Acquisition, ~~Date~~ratings and ACL forecasting models will be re-considered and/or re-developed in order to ~~March 31, 2023, the acquired~~align loans ~~all of which are included within the SVB segment, are graded according~~with common risk characteristics to acommon rating ~~system that was used by~~and loss forecasting methodologies. While FCB assesses ratings processes and ACL models during integration, Silicon Valley ~~Bank prior to the SVBB Acquisition.~~Bank’s existing ratings and ACL models will be maintained. 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 and Exposure 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~~which 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 at ~~March 31,~~June 30, 2023 was ~~$1.61~~$1.64 billion, ~~compared to~~representing an increase of $715 million from $922 million at December 31, ~~2022.~~2022 and an increase of $32 million from $1.61 billion at March 31, 2023. The ACL as a percentage of total loans and leases at ~~March 31,~~June 30, 2023 was ~~1.16%~~1.23%, compared to 1.30% at December 31, ~~2022.~~2022 and 1.16% at March 31, 2023.

The ~~$683~~$715 million increase in the ACL iscompared to December 31, 2022 was primarily due to the impact of the SVBB Acquisition, including the initial ACL for PCD loans and leases (the “Initial PCD ACL”) of ~~$200~~$220 million and the day 2 provision for loans and leases of $462 million. The $32 million increase compared to March 31, 2023 was ~~also~~primarily related to ~~portfolio~~increases in net charge-offs discussed below, unfavorable trends in the CRE Price Index, loan growth ~~mild credit quality deterioration,~~in the General and ~~higher specific reserves~~Commercial Banking segments, partially offset by ~~improvement~~declines in the ~~macroeconomic forecasts.~~SVB Global Fund Banking portfolio. In the ~~three months ended March 31, 2023,~~current quarter, the ACL on commercial loans and consumer loans increased ~~$11~~$115 million and ~~the~~$13 million, respectively, partially offset by an ACL ~~on consumer portfolios increased $10~~decrease of $96 million ~~with the remaining change due to the ACL on the acquired~~for SVB loans.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACL is dependent upon a variety of factors beyond our control which are inherently difficult to predict, the most significant being the macroeconomic scenario forecasts that determine the economic variables utilized in the 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,~~June 30, 2023, ACL estimates in these scenarios ranged from approximately ~~$1.21~~$1.30 billion, when weighting the upside scenario 100%, to approximately ~~$1.99~~$2.14 billion when weighting the downside scenario 100%. BancShares management determined that an ACL of ~~$1.61~~$1.64 billion was appropriate as of ~~March 31,~~June 30, 2023.

8594

Table 28

~~Allowance~~ACL for ~~Credit Losses~~Loans and Leases


dollars in millions	dollars in millions	Three Months Ended March 31, 2023												dollars in millions	Three Months Ended June 30, 2023
															Commercial			Consumer			SVB			Total
Balance at March 31, 2023														Balance at March 31, 2023	$	800		$	143		$	662		$	1,605
Initial PCD ACL														Initial PCD ACL	—			—			20			20

Provision for credit losses - loans and leases														Provision for credit losses - loans and leases	172			16			(19)			169

Charge-offs														Charge-offs	(69)			(6)			(101)			(176)
Recoveries														Recoveries	12			3			4			19

Balance at June 30, 2023														Balance at June 30, 2023	$	915		$	156		$	566		$	1,637
Annualized net charge-off ratio														Annualized net charge-off ratio										0.47		%
Net charge-offs														Net charge-offs	$	57		$	3		$	97		$	157
Average loans														Average loans										$	134,634
Percent of loans in each category to total loans														Percent of loans in each category to total loans	42		%	14		%	44		%	100		%

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

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

		Three Months Ended December 31, 2022													Three Months Ended June 30, 2022
		Commercial			Consumer			SVB			Total				Commercial			Consumer			SVB			Total
Balance at September 30, 2022		$	766		$	116		$	—		$	882
Balance at March 31, 2022														Balance at March 31, 2022	$	743		$	105		$	—		$	848
Initial PCD ACL														Initial PCD ACL	(12)			—			—			(12)

Benefit for credit losses - loans and leases														Benefit for credit losses - loans and leases	33			3			—			36

Total provision for credit losses- loans and leases		48			16			—			64
Charge-offs	Charge-offs	(34)			(5)			—			(39)			Charge-offs	(36)			(5)			—			(41)
Recoveries	Recoveries	9			6			—			15			Recoveries	12			7			—			19

Balance at December 31, 2022		$	789		$	133		$	—		$	922
Balance at June 30, 2022														Balance at June 30, 2022	$	740		$	110		$	—		$	850
Annualized net charge-off ratio	Annualized net charge-off ratio										0.14		%	Annualized net charge-off ratio										0.13		%
Net charge-offs (recoveries)	Net charge-offs (recoveries)	$	25		$	(1)		$	—		$	24		Net charge-offs (recoveries)	$	24		$	(2)		$	—		$	22
Average loans	Average loans										$	70,441		Average loans										$	66,431
Percent of loans in each category to total loans	Percent of loans in each category to total loans	76		%	24		%	—		%	100		%	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		%


dollars in millions	Six Months Ended June 30, 2023												Six Months Ended June 30, 2022
	Commercial			Consumer			SVB			Total			Commercial			Consumer			SVB			Total
Balance at beginning of period	$	789		$	133		$	—		$	922		$	80		$	98		$	—		$	178
Initial PCD ACL	—			—			220			220			258			14			—			272
Day 2 provision for loans and leases	—			—			462			462			432			22			—			454
Provision for credit losses - loans and leases	230			29			(19)			240			10			(27)			—			(17)
Total provision for credit losses- loans and leases	230			29			443			702			442			(5)			—			437
Charge-offs	(124)			(13)			(101)			(238)			(64)			(10)			—			(74)
Recoveries	20			7			4			31			24			13			—			37

Balance at end of period	$	915		$	156		$	566		$	1,637		$	740		$	110		$	—		$	850
Annualized net charge-off ratio										0.39		%										0.11		%
Net charge-offs (recoveries)	$	104		$	6		$	97		$	207		$	40		$	(3)		$	—		$	37
Average loans										$	104,913											$	65,810
Percent of loans in each category to total loans	42		%	14		%	44		%	100		%	76		%	24		%	—		%	100		%

Net charge-offs during the ~~three months ended March 31, 2023~~current quarter were ~~$50~~$157 million, ~~compared to $24~~an increase of $107 million from $50 million during the ~~three months ended December 31, 2022.~~linked quarter. On an annualized basis, the net charge-off ratio was ~~0.27%~~0.47% and ~~0.14%~~0.27% for the ~~three months ended March 31, 2023~~current and ~~December 31, 2022,~~linked quarters, respectively. The increase in net charge-offs compared to the ~~three months ended December 31, 2022~~linked quarter primarily reflects ~~higher~~ charge-offs related to SVB loans, along with a modest increase in our commercial loans, mostly in equipment finance and real estate finance businesses. The three largest SVB charge-offs totaled $70 million with $45 million in the Innovation C&I and cash flow dependent portfolios, and the remaining were in the early and growth-stage investor dependent portfolios.

Net charge-offs for the current YTD of $207 million increased from $37 million during the prior YTD, reflecting the current quarter net charge-offs in the SVB portfolio, and higher commercial loan charge-offs, in certain portfolios within the equipment finance and real estate finance businesses. On an annualized basis, the net charge-off ratio was 0.39% and 0.11% for the current YTD and prior YTD, respectively. The following table provides trends in the ACL ~~ratios:~~ratios.

Table 29

~~Allowance~~ACL for ~~Credit Losses~~Loans and Leases Ratios


dollars in millions	dollars in millions	March 31, 2023			December 31, 2022			dollars in millions	June 30, 2023			March 31, 2023			December 31, 2022
Allowance for credit losses	Allowance for credit losses	$	1,605		$	922		Allowance for credit losses	$	1,637		$	1,605		$	922
Total loans and leases	Total loans and leases	$	138,288		$	70,781		Total loans and leases	133,015			138,288			70,781
Allowance for credit losses to total loans and leases	Allowance for credit losses to total loans and leases	1.16		%	1.30		%	Allowance for credit losses to total loans and leases	1.23		%	1.16		%	1.30		%
Commercial loans and leases:	Commercial loans and leases:							Commercial loans and leases:
Allowance for credit losses - commercial	Allowance for credit losses - commercial	$	800		$	789		Allowance for credit losses - commercial	$	915		$	800		$	789
Commercial loans and leases	Commercial loans and leases	$	54,390		$	53,455		Commercial loans and leases	56,169			54,390			53,455
Commercial allowance for credit losses to commercial loans and leases	Commercial allowance for credit losses to commercial loans and leases	1.47		%	1.48		%	Commercial allowance for credit losses to commercial loans and leases	1.63		%	1.47		%	1.48		%
Consumer loans:	Consumer loans:							Consumer loans:
Allowance for credit losses - consumer	Allowance for credit losses - consumer	$	143		$	133		Allowance for credit losses - consumer	$	156		$	143		$	133
Consumer loans	Consumer loans	$	17,727		$	17,326		Consumer loans	18,047			17,727			17,326
Consumer allowance for credit losses to consumer loans	Consumer allowance for credit losses to consumer loans	0.80		%	0.77		%	Consumer allowance for credit losses to consumer loans	0.86		%	0.80		%	0.77		%
SVB loans:	SVB loans:							SVB loans:
Allowance for credit losses - SVB	Allowance for credit losses - SVB	$	662		$	—		Allowance for credit losses - SVB	$	566		$	662		$	—
SVB loans	SVB loans	$	66,171		$	—		SVB loans	58,799			66,171			—
SVB allowance for credit losses to SVB loans	SVB allowance for credit losses to SVB loans	1.00		%	—		%	SVB allowance for credit losses to SVB loans	0.97		%	1.00		%	—		%

The reserve for unfunded loan commitments was ~~$352~~$335 million at June 30, 2023, an increase of $229 million compared to $106 million at December 31, 2022 and ~~$106~~decrease of $17 million compared to $352 million at March 31, ~~2023 and~~2023. The increase from December 31, 2022 ~~respectively. The increase~~ primarily reflects the $254 million day 2 provision for unfunded commitments related to the SVBB Acquisition. Refer to Note 22 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 5 — Allowance for Credit Losses for a roll forward of the ACL for unfunded commitments. The benefit of $17 million in the current quarter was primarily related to decreases in the outstanding commitment amounts for the SVB portfolio.

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

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 %


dollars in millions:	June 30, 2023				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		Allowance for Credit Losses		Allowance for Credit Losses as a Percentage of Loans
Commercial
Commercial construction	$	45	1.42	%	$	36	1.22	%	$	40	1.43	%
Owner occupied commercial mortgage	50		0.34		56		0.39		61		0.42
Non-owner occupied commercial mortgage	247		2.30		182		1.77		181		1.83
Commercial and industrial	533		2.10		490		2.00		476		1.98
Leases	40		1.86		36		1.69		31		1.41
Total commercial	915		1.63		800		1.47		789		1.48
Consumer
Residential mortgage	90		0.64		81		0.59		74		0.55
Revolving mortgage	18		0.91		16		0.84		13		0.67
Consumer auto	5		0.33		5		0.35		5		0.37
Consumer other	43		6.56		41		6.42		41		6.32
Total consumer	156		0.86		143		0.80		133		0.77
SVB
Global fund banking	73		0.25		91		0.25		—		—
Investor dependent - early stage	106		5.79		130		6.53		—		—
Investor dependent - growth stage	175		4.31		175		3.97		—		—
Innovation and cash flow dependent	141		1.59		171		1.85		—		—
Private Bank	21		0.22		44		0.47		—		—
CRE	28		1.10		26		1.07		—		—
Other	22		0.88		25		0.98		—		—
Total SVB	566		0.97		662		1.00		—		—
Total Allowance for Credit Losses	$	1,637	1.23	%	$	1,605	1.16	%	$	922	1.30	%

Credit Metrics

Non-performing Assets

Non-performing assets include non-accrual loans and leases, ~~and~~ other real estate owned (“OREO”)~~. Non-performing assets at March 31, 2023 totaled $875 million, compared to $674 million at December 31, 2022.~~ and repossessed assets.

The following table presents total nonperforming assets:

Table 31

Non-Performing Assets


dollars in millions	dollars in millions	March 31, 2023			December 31, 2022			dollars in millions	June 30, 2023			March 31, 2023			December 31, 2022
Non-accrual loans:	Non-accrual loans:							Non-accrual loans:
Commercial loans	Commercial loans	$	510		$	529		Commercial loans	$	622		$	510		$	529
Consumer loans	Consumer loans	94			98			Consumer loans	94			94			98
SVB loans	SVB loans	224			—			SVB loans	213			224			—
Total non-accrual loans	Total non-accrual loans	828			627			Total non-accrual loans	929			828			627
Other real estate owned		47			47
Other real estate owned and repossessed assets								Other real estate owned and repossessed assets	64			47			47
Total non-performing assets	Total non-performing assets	$	875		$	674		Total non-performing assets	$	993		$	875		$	674

Allowance for credit losses to total loans and leases:	Allowance for credit losses to total loans and leases:	1.16		%	1.30		%	Allowance for credit losses to total loans and leases:	1.23		%	1.16		%	1.30		%
Ratio of total non-performing assets to total loans, leases and other real estate owned		0.63		%	0.95		%
Ratio of total non-performing assets to total loans, leases, other real estate owned and repossessed assets								Ratio of total non-performing assets to total loans, leases, other real estate owned and repossessed assets	0.75			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	0.60		%	0.89		%	Ratio of non-accrual loans and leases to total loans and leases	0.70			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	193.76		%	146.88		%	Ratio of allowance for credit losses to non-accrual loans and leases	176.33			193.76			146.88

Non-accrual loans and leases at ~~March 31,~~June 30, 2023 were ~~$828~~$929 million, an increase of ~~$201~~$302 million ~~since~~from $627 million at December 31, ~~2022.~~2022 and an increase of $101 million from $828 million at March 31, 2023. The increase from December 31, 2022 is primarily due to the SVBB Acquisition, resulting in addition of ~~$224~~$213 million non-accrual loans and leases. ~~The commercial non-accruals loans decreased during the first quarter as a result of lower non-accruals~~These are mostly in the ~~commercial construction~~Investor Dependent and ~~non-owner occupied commercial mortgage classes partially offset by an increase~~Innovation C&I and Cash Flow Dependent classes. Commercial loan non-accruals increased in the ~~commercial and industrial class.~~second quarter, primarily due to the addition of a large real estate loan. 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 were 0.60% and 0.89% at March 31, 2023 and December 31, 2022, respectively.~~

OREO and repossessed assets at June 30, 2023 was $64 million, compared to $47 million at December 31, 2022 and $47 million at March 31, ~~2023 was $47 million, no change since December 31, 2022.~~2023. Non-performing assets as a percentage of total loans, leases, OREO and ~~OREO~~repossessed assets at ~~March 31,~~June 30, 2023 was ~~0.63%~~0.75% compared to 0.95% at December 31, ~~2022.~~2022 and 0.63% at March 31, 2023. The ~~lower percentage~~increase during the current quarter was driven by ~~the increased loan balance due~~a transfer of one real estate account to ~~the SVBB Acquisition.~~OREO.

Past Due Accounts

The percentage of loans 30 days or more past due at ~~March 31,~~June 30, 2023 was ~~0.88%~~0.84% of total loans, compared to 1.22% at December 31, ~~2022.~~2022 and 0.88% at March 31, 2023. Delinquency status of loans is presented in Note 4 — Loans and Leases.

Commercial Real Estate Portfolio

Our commercial real estate portfolio is diversified across various property types. The following table provides an overview of the property type exposures within our commercial real estate portfolio.

Table 32

Commercial Real Estate Portfolio


dollars in millions	June 30, 2023
	Net Investment		% of Total Loans and Leases
Multi-Family	$	4,170	3.14	%
General Office	2,800		2.11
Medical Office	2,814		2.12
Industrial / Warehouse	2,297		1.73
Retail	1,562		1.17
Hotel / Motel	765		0.58
Other	2,664		2.00
Total	$	17,072	12.83	%

Evolving macroeconomic and social conditions (including the increase in remote working in connection with the COVID pandemic) may result in changes for general office demand moving forward. Select metrics specific to our general office loan portfolio are as follows:

Table 33

Select General Office Loan Metrics


dollars in millions	June 30, 2023
% of total loans and leases	2.11		%
% of commercial real estate loans	16.40		%
Average loan balance	$	2
Net charge-offs (%)	0.61		%
Delinquencies as a % of total CRE loans	7.38		%
Non-performing loans as a % of CRE loans	8.96		%
ACL ratio	4.44		%

Concentration Risk

We 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 3234

Commercial Loans and Leases - Geography


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022			dollars in millions	June 30, 2023						March 31, 2023				December 31, 2022
State	State												State
California	California	$	9,279	17.1	%		$	9,226			17.3	%	California	$	9,553	17.0	%	$	9,279	17.1	%	$	9,226	17.3	%
North Carolina	North Carolina	8,795		16.2	%		8,699				16.3	%	North Carolina	9,138		16.3		8,795		16.2		8,699		16.3
Texas	Texas	3,586		6.6	%		3,624				6.8	%	Texas	3,899		6.9		3,586		6.6		3,624		6.8
Florida	Florida	3,398		6.2	%		3,273				6.1	%	Florida	3,566		6.3		3,398		6.2		3,273		6.1
South Carolina	South Carolina	3,076		5.7	%		3,142				5.9	%	South Carolina	3,170		5.7		3,076		5.7		3,142		5.9
All other states	All other states	24,796		45.6	%		24,243				45.4	%	All other states	25,203		44.9		24,796		45.6		24,243		45.4
Total U.S.	Total U.S.	$	52,930	97.4	%		$	52,207			97.8	%	Total U.S.	$	54,529	97.1	%	$	52,930	97.4	%	$	52,207	97.8	%
Total International	Total International	1,460		2.6	%		1,248				2.2	%	Total International	1,640		2.9		1,460		2.6		1,248		2.2
Total	Total	$	54,390	100.0	%		$	53,455			100.0	%	Total	$	56,169	100.0	%	$	54,390	100.0	%	$	53,455	100.0	%

Industry Concentrations

The following table represents loans by industry of obligor:

Table 3335

Commercial Loans and Leases - Industry


dollars in millions	dollars in millions	March 31, 2023				December 31, 2022			dollars in millions	June 30, 2023						March 31, 2023				December 31, 2022
Real Estate	Real Estate	$	12,179	22.4	%		$	11,684			21.9	%	Real Estate	$	12,600	22.4	%	$	12,179	22.4	%	$	11,684	21.9	%
Healthcare	Healthcare	8,264		15.2	%		8,146				15.2	%	Healthcare	8,434		15.0		8,264		15.2		8,146		15.2
Business Services	Business Services	5,656		10.4	%		5,518				10.3	%	Business Services	6,041		10.8		5,656		10.4		5,518		10.3
Transportation, Communication, Gas, Utilities	Transportation, Communication, Gas, Utilities	5,120		9.4	%		5,002				9.4	%	Transportation, Communication, Gas, Utilities	5,375		9.6		5,120		9.4		5,002		9.4
Manufacturing	Manufacturing	4,400		8.1	%		4,387				8.2	%	Manufacturing	4,505		8.0		4,400		8.1		4,387		8.2
Service Industries	Service Industries	4,118		7.6	%		4,213				7.9	%	Service Industries	4,257		7.6		4,118		7.6		4,213		7.9
Retail	Retail	3,639		6.7	%		3,462				6.5	%	Retail	3,470		6.2		3,639		6.7		3,462		6.5
Wholesale													Wholesale	2,581		4.6		2,507		4.6		2,605		4.9
Finance and Insurance	Finance and Insurance	2,521		4.6	%		2,604				4.9	%	Finance and Insurance	2,494		4.4		2,521		4.6		2,604		4.9
Wholesale		2,507		4.6	%		2,605				4.9	%
Other	Other	5,986		11.0	%		5,834				10.8	%	Other	6,412		11.4		5,986		11.0		5,834		10.8
Total	Total	$	54,390	100.0	%		$	53,455			100.0	%	Total	$	56,169	100.0	%	$	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 on property address:

Table 3436

Consumer Loans - Geography

dollars in millions March 31, 2023 December 31, 2022
Net
Investment % of
Total Net
Investment % of
Total
State
North Carolina $ 5,830 32.9 % $ 5,702 32.9 %
California 4,001 22.6 % 4,014 23.2 %
South Carolina 3,079 17.3 % 3,001 17.3 %
Other states 4,817 27.2 % 4,609 26.6 %
Total $ 17,727 100.0 % $ 17,326 100.0 %


dollars in millions	June 30, 2023				March 31, 2023				December 31, 2022
	Net Investment		% of Total		Net Investment		% of Total		Net Investment		% of Total
State
North Carolina	$	6,030	33.4	%	$	5,830	32.9	%	$	5,702	32.9	%
California	4,142		23.0		4,001		22.6		4,014		23.2
South Carolina	3,144		17.4		3,079		17.3		3,001		17.3
Other states	4,731		26.2		4,817		27.2		4,609		26.6
Total	$	18,047	100.0	%	$	17,727	100.0	%	$	17,326	100.0	%

Silicon Valley Banking Loans

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.

The table below details SVB loans that are secured by real estate, at amortized ~~cost as of March 31, 2023.~~cost:

Table 3537

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~~


dollars in millions	June 30, 2023		March 31, 2023
Private bank:
Loans for personal residence	$	7,398	$	7,355
Loans to eligible employees	526		519
Home equity lines of credit	143		130
Other	107		117
Total private bank loans secured by real estate	8,174		8,121
Commercial real estate ("CRE"):
Multifamily and residential investment	844		843
Retail	421		412
Office and medical	492		483
Manufacturing, industrial and warehouse	538		489
Hospitality	138		109
Other	97		108
Total CRE loans secured by real estate	2,530		2,444
Premium wine	874		913
Other	619		505
Total real estate secured loans	$	12,197	$	11,983

The SVB loan portfolio is focused on three primary markets: (i) Global Fund Banking, (ii) Technology and 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%~~50% and ~~26%~~22% of SVB loans and total loans at ~~March 31,~~June 30, 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.

100

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,~~June 30, 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,~~June 30, 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%~~15% and 7% of SVB loans and total loans at ~~March 31,~~June 30, 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%~~16% and 7% of SVB loans and total loans at ~~March 31,~~June 30, 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,~~June 30, 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,~~June 30, 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 responsibilities under the Community Reinvestment Act of 1977.

101

The following table provides a summary of SVB loans by size and class. The breakout below is based on total client balances (individually or in the aggregate) as of ~~March 31,~~June 30, 2023:

Table 3638

Silicon Valley Banking Loans by Size and Class


dollars in millions	dollars in millions	Less Than $5 Million		$5 to < $10 Million		$10 to < $20 Million		$20 to < $30 Million		> $30 Million		Total SVB Loans		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	Global fund banking	$	1,275	$	1,572	$	3,394	$	2,948	$	26,908	$	36,097	Global fund banking	$	1,133	$	1,541	$	2,623	$	2,769	$	21,267	$	29,333
Investor dependent - early stage	Investor dependent - early stage	1,141		548		214		—		91		1,994		Investor dependent - early stage	1,104		459		117		23		137		1,840
Investor dependent - growth stage	Investor dependent - growth stage	746		949		1,326		534		863		4,418		Investor dependent - growth stage	753		1,088		1,058		479		674		4,052
Innovation C&I and cash flow dependent	Innovation C&I and cash flow dependent	341		322		843		1,301		6,386		9,193		Innovation C&I and cash flow dependent	333		256		780		1,327		6,209		8,905
Private Bank	Private Bank	6,887		1,007		848		309		425		9,476		Private Bank	7,201		977		744		257		401		9,580
CRE	CRE	724		504		666		336		214		2,444		CRE	691		488		705		402		244		2,530
Other	Other	538		491		749		518		253		2,549		Other	482		489		741		609		238		2,559
Total	Total	$	11,652	$	5,393	$	8,040	$	5,946	$	35,140	$	66,171	Total	$	11,697	$	5,298	$	6,768	$	5,866	$	29,170	$	58,799

SVB Loans - State Concentrations

The following table summarizes state concentrations greater than 5.0% within the SVB loans portfolio at June 30, 2023 and March 31, 2023, based on borrower location:

Table 3739

Silicon Valley Banking Loans - Geography


dollars in millions	dollars in millions	March 31, 2023				dollars in millions	June 30, 2023				March 31, 2023
State	State					State
California	California	$	19,936	30.1	%	California	$	18,169	30.8	%	$	19,936	30.1	%
Massachusetts						Massachusetts	8,831		15.0		9,658		14.6
New York	New York	10,094		15.3	%	New York	8,640		14.7		10,094		15.3
Massachusetts		9,658		14.6	%
Connecticut						Connecticut	4,221		7.2		4,520		6.8
Texas	Texas	4,578		6.9	%	Texas	4,207		7.2		4,578		6.9
Connecticut		4,520		6.8	%
All other states	All other states	14,375		21.7	%	All other states	12,331		21.0		14,375		21.7
Total U.S.	Total U.S.	63,161		95.4	%	Total U.S.	56,399		95.9		63,161		95.4
Total International	Total International	3,010		4.6	%	Total International	2,400		4.1		3,010		4.6
Total	Total	$	66,171	100.0	%	Total	$	58,799	100.0	%	$	66,171	100.0	%

MARKET RISK

Interest rate risk management

BancShares is exposed to the risk that changes in market conditions 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 (“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 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 portfolios.

102

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 deposits and 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~~$55.90 billion of deposits, entered into a ~~$35.15~~$36.07 billion fixed-rate Purchase Money Note payable to the FDIC, acquired ~~$68.50~~$68.46 billion of loans, most of which have variable rates, and ~~$35.28~~$35.31 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.

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 ~~systems.~~system. These simulations assume static balance sheet replacement with like products and implied forward market rates, but also incorporates additional assumptions, such as, but not limited to prepayment estimates, pricing estimates and deposit behaviors. The below simulations assume an immediate 25, 100 and 200 bps parallel increase and 25 and 100 bps decrease from the market-based forward curve for June 30, 2023, March 31, 2023, and December 2022.

Table 3840

Net Interest Income Sensitivity Simulation Analysis


		Estimated (Decrease) Increase in NII			Estimated (Decrease) Increase in NII
Change in interest rate (bps)	Change in interest rate (bps)	March 31, 2023		December 31, 2022		Change in interest rate (bps)	June 30, 2023		March 31, 2023		December 31, 2022
-100	-100	(11.1)	%	(4.0)	%	-100	(9.7)	%	(11.1)	%	(4.0)	%
-25	-25	(2.8)	%	(0.9)	%	-25	(2.4)		(2.8)		(0.9)
+25	+25	2.8	%	0.8	%	+25	2.4		2.8		0.8
+100	+100	11.1	%	3.4	%	+100	9.5		11.1		3.4
+200	+200	22.0	%	6.7	%	+200	18.9		22.0		6.7

NII Sensitivity metrics at June 30, 2023, compared to March 31, 2023, were primarily affected by compositional changes in deposits, funding and investments. NII Sensitivity metrics at June 30, 2023, compared to December 31, 2022, were primarily affected by the addition of the acquired loans and assumed deposits as part of the SVBB Acquisition, as well as the Purchase Money Note and the higher cash balance to manage liquidity risk from the acquired portfolios.

As of June 30, 2023, BancShares continues to have an asset sensitive interest rate risk profile and the potential 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 estimates of modest future deposit betas. Approximately 65%-70% of our loans have floating contractual reference rates, indexed primarily to Prime, ~~SOFR~~Secured Overnight Financing Rate (“SOFR”) and LIBOR. Deposit betas are up for the combined company, and are modeled to have a portfolio average of approximately ~~30%-35%~~35%-40% over the forecast horizon. Deposit beta is the portion of a change in the 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 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 sheet items under various rate movements.

103

The following table presents the EVE profile as of June 30, 2023, March 31, 2023, and December 31, 2022:

Table 3941

Economic Value of Equity Modeling Analysis


		Estimated (Decrease) Increase in EVE			Estimated (Decrease) Increase in EVE
Change in interest rate (bps)	Change in interest rate (bps)	March 31, 2023		December 31, 2022		Change in interest rate (bps)	June 30, 2023		March 31, 2023		December 31, 2022
-100	-100	(6.1)	%	(5.3)	%	-100	(5.0)	%	(6.1)	%	(5.3)	%
-25	-25	(1.4)	%	(1.2)	%	-25	(1.1)		(1.4)		(1.2)
+100	+100	5.3	%	4.1	%	+100	4.2		5.3		4.1
+200	+200	10.0	%	3.0	%	+200	7.8		10.0		3.0

The economic value of equity metrics at June 30, 2023 compared to March 31, 2023 were primarily affected by compositional changes in deposits, funding and investments. The economic value of equity metrics at June 30, 2023 compared to December 31, 2022 were primarily affected by the 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.

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.

104

The following table provides loan maturity distribution information:

Table 4042

Loan Maturity Distribution


dollars in millions	dollars in millions	At March 31, 2023, Maturing										dollars in millions	At June 30, 2023, Maturing
		Within One Year		One to Five Years		Five to 15 Years		After 15 Years		Total			Within One Year		One to Five Years		Five to 15 Years		After 15 Years		Total
Commercial	Commercial											Commercial
Commercial construction	Commercial construction	$	806	$	1,305	$	757	$	103	$	2,971	Commercial construction	$	856	$	1,482	$	768	$	76	$	3,182
Owner occupied commercial mortgage	Owner occupied commercial mortgage	647		4,331		9,039		439		14,456		Owner occupied commercial mortgage	653		4,454		9,068		573		14,748
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	2,159		5,759		2,029		345		10,292		Non-owner occupied commercial mortgage	2,277		6,027		2,004		425		10,733
Commercial and industrial	Commercial and industrial	6,767		13,921		3,612		208		24,508		Commercial and industrial	6,644		14,831		3,671		230		25,376
Leases	Leases	758		1,364		41		—		2,163		Leases	737		1,356		37		—		2,130
Total commercial	Total commercial	11,137		26,680		15,478		1,095		54,390		Total commercial	11,167		28,150		15,548		1,304		56,169
Consumer	Consumer											Consumer
Residential mortgage	Residential mortgage	320		676		2,398		10,333		13,727		Residential mortgage	116		595		2,331		11,023		14,065
Revolving mortgage	Revolving mortgage	73		143		56		1,644		1,916		Revolving mortgage	61		133		47		1,659		1,900
Consumer auto	Consumer auto	11		703		738		—		1,452		Consumer auto	12		715		698		—		1,425
Consumer other	Consumer other	306		167		123		36		632		Consumer other	310		187		123		37		657
Total consumer	Total consumer	710		1,689		3,315		12,013		17,727		Total consumer	499		1,630		3,199		12,719		18,047
SVB	SVB											SVB
Global fund banking	Global fund banking	33,636		2,330		131		—		36,097		Global fund banking	27,366		1,846		121		—		29,333
Investor dependent - early stage	Investor dependent - early stage	234		1,728		32		—		1,994		Investor dependent - early stage	293		1,480		67		—		1,840
Investor dependent - growth stage	Investor dependent - growth stage	405		3,885		128		—		4,418		Investor dependent - growth stage	362		3,578		112		—		4,052
Innovation and cash flow dependent	Innovation and cash flow dependent	1,608		7,217		368		—		9,193		Innovation and cash flow dependent	1,492		7,017		396		—		8,905
Private Bank	Private Bank	283		524		905		7,764		9,476		Private Bank	257		516		985		7,822		9,580
CRE	CRE	286		1,293		817		48		2,444		CRE	285		1,432		751		62		2,530
Other	Other	480		685		800		584		2,549		Other	423		757		835		544		2,559
Total SVB	Total SVB	36,932		17,662		3,181		8,396		66,171		Total SVB	30,478		16,626		3,267		8,428		58,799
Total loans and leases	Total loans and leases	$	48,779	$	46,031	$	21,974	$	21,504	$	138,288	Total loans and leases	$	42,144	$	46,406	$	22,014	$	22,451	$	133,015

94105

The following table provides information regarding the sensitivity of loans and leases to changes in interest rates:

Table 4143

Loan Interest Rate Sensitivity


dollars in millions	dollars in millions	Loans Maturing One Year or After with				dollars in millions	Loans Maturing One Year or After with
		Fixed Interest Rates		Variable Interest Rates			Fixed Interest Rates		Variable Interest Rates
Commercial	Commercial					Commercial
Commercial construction	Commercial construction	$	940	$	1,225	Commercial construction	$	942	$	1,384
Owner occupied commercial mortgage	Owner occupied commercial mortgage	12,312		1,497		Owner occupied commercial mortgage	12,570		1,525
Non-owner occupied commercial mortgage	Non-owner occupied commercial mortgage	3,251		4,882		Non-owner occupied commercial mortgage	3,479		4,977
Commercial and industrial	Commercial and industrial	8,007		9,734		Commercial and industrial	8,498		10,234
Leases	Leases	1,405		—		Leases	1,385		8
Total commercial	Total commercial	25,915		17,338		Total commercial	26,874		18,128
Consumer	Consumer					Consumer
Residential mortgage	Residential mortgage	7,302		6,105		Residential mortgage	7,506		6,443
Revolving mortgage	Revolving mortgage	35		1,808		Revolving mortgage	33		1,806
Consumer auto	Consumer auto	1,441		—		Consumer auto	1,413		—
Consumer other	Consumer other	298		28		Consumer other	320		27
Total consumer	Total consumer	9,076		7,941		Total consumer	9,272		8,276
SVB	SVB					SVB
Global fund banking	Global fund banking	8		2,453		Global fund banking	16		1,951
Investor dependent - early stage	Investor dependent - early stage	22		1,738		Investor dependent - early stage	23		1,524
Investor dependent - growth stage	Investor dependent - growth stage	9		4,004		Investor dependent - growth stage	6		3,684
Innovation and cash flow dependent	Innovation and cash flow dependent	—		7,585		Innovation and cash flow dependent	—		7,413
Private Bank	Private Bank	1,984		7,209		Private Bank	1,893		7,430
CRE	CRE	928		1,230		CRE	1,001		1,244
Other	Other	1,370		699		Other	1,426		710
Total SVB	Total SVB	4,321		24,918		Total SVB	4,365		23,956
Total loans and leases	Total loans and leases	$	39,312	$	50,197	Total loans and leases	$	40,511	$	50,360

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~~officially ceased reporting at close of business June 30, 2023. The ~~U.S. federal banking agencies had also issued guidance strongly encouraging banking organizations to cease using the~~U.K. Financial Conduct Authority at such time announced that U.S. Dollar LIBOR ~~as a reference rate in “new” contracts by December 31, 2021 at the latest. Accordingly, we ceased originating new products using LIBOR by the end of 2021.~~is “Not Representative” going forward.

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. On March 15, 2022, the U.S. Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest ~~(LIBOR)~~ Act (“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 Consumer Financial Protection Bureau issued an interim final rule, effective May 15, 2023. This further addresses the planned cessation of most U.S. Dollar LIBOR tenors after June 30, 2023, by incorporating the Board selected benchmark replacement for consumer loans into Regulation Z open-end and closed-end credit provisions. 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 LIBOR Act. BancShares ~~anticipates using~~has adopted Board-selected benchmark replacements to take advantage of the 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~~tenors other than one week and two-month USD LIBOR.

95106

~~LIBOR~~All consumer and commercial clients with contracts providing FCB with unilateral lender discretion were notified in April 2023 of LIBOR’s cessation and FCB’s selected replacement index. During the quarter, IT/Operations added replacement indices to all impacted systems. The remaining servicing task for both General Banking and Commercial Banking 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~~link transactions to ~~manage~~ the ~~implementation of alternative reference rates~~new index as the ~~market transitions away from LIBOR. Coordination~~index becomes effective (next reset date). In the months leading up to the cessation of LIBOR, Commercial Banking engaged in a proactive exercise to amend existing contracts where it would provide a positive client experience. As of June 30, 2023, substantially all amendments had been completed. Synthetic LIBOR for 1, 3 and 6 month tenors will be reported through the end of September 2024 and 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 ofcalculated based on CME Term SOFR plus the ~~population of legal contracts impacted by the LIBOR transition, and updates to our operational systems and processes are substantially in place.~~relevant ISDA fixed spread adjustments.

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~~has moved to Term SOFR plus the Alternative Reference Rate Committee recommended credit spread adjustment for its Series B Preferred Stock since the dividends ~~are currently~~were previously based on a floating rate tied to three-month LIBOR.The last dividend payment based on a LIBOR accrual will occur September 15, 2023.

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

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 sufficient amounts of Available Cash and High Quality Liquid Securities (“HQLS”). Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, 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 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 HQLS. At ~~March 31,~~June 30, 2023 we had ~~$51.42~~$53.42 billion of total Liquid Assets ~~(24.0%~~(25.5% of total assets) and ~~$79.49~~$86.03 billion of contingent liquidity sources available.

96107

Table 4244

Liquidity


dollars in millions	~~March 31,~~June 30, 2023
Available Cash	$	~~37,670~~37,152
High Quality Liquid Securities(1)	~~13,745~~16,269
Liquid Assets	$	~~51,415~~53,421

~~FHLB capacity~~FDIC Credit Facility (2)	$	~~4,712~~70,000
FHLB capacity (3)	11,124
FRB capacity	~~4,676~~
~~FDIC Credit Facility(3)~~	~~70,000~~4,817
Line of credit	~~100~~85
Total contingent sources	$	~~79,488~~86,026
Total Liquid Assets and contingent sources	$	~~130,903~~139,447

(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 following table for additional details.~~

~~(2)~~Credit facility obtained in connection with SVBB Acquisition. See below for additional details and limits on use.

(3) See following table for additional details.

We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our various deposit channels, including our branch network and Direct Bank. ~~Deposits totaled~~Total deposits at June 30, 2023 were $141.16 billion, an increase of $51.76 billion from $89.41 billion at December 31, 2022 and an increase of $1.11 billion from $140.05 ~~billion and $89.41~~ billion at March 31, ~~2023, and December 31, 2022, respectively.~~2023. The increase in deposits from December 31, 2022 primarily reflected additional deposits from the SVBB Acquisition, and ~~organic growth.~~growth in the Direct Bank. We use borrowings to diversify the funding of our business operations. ~~Borrowings totaled~~Total borrowings at June 30, 2023 were $40.14 billion, an increase of $33.49 billion from $6.65 billion at December 31, 2022 and a decrease of $5.96 billion from $46.09 ~~billion and $6.65~~ billion at March 31, ~~2023, and December 31, 2022, respectively.~~2023. The increase in borrowings from December 31, 2022 primarily reflected the Purchase Money Note (see Note 2 — Business Combination), ~~and net new borrowings of~~while the decrease reflected 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.repayments. In addition to the Purchase Money Note and FHLB advances, borrowings also include senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes. Refer to the respective “Deposits” and “Borrowings” sections for further discussion on changes in balances.

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.

Table 4345

FHLB Balances


dollars in millions	dollars in millions	March 31, 2023			December 31, 2022			dollars in millions	June 30, 2023			March 31, 2023			December 31, 2022
		Total			Total				Total			Total			Total
Total borrowing capacity	Total borrowing capacity	$	14,662		$	14,918		Total borrowing capacity	$	14,999		$	14,662		$	14,918
Less:	Less:							Less:
Advances	Advances	8,500			4,250			Advances	2,425			8,500			4,250
Letters of credit(1)	Letters of credit(1)	1,450			1,450			Letters of credit (1)	1,450			1,450			1,450
Available capacity	Available capacity	$	4,712		$	9,218		Available capacity	$	11,124		$	4,712		$	9,218
Pledged non-PCD loans (contractual balance)	Pledged non-PCD loans (contractual balance)	$	23,743		$	23,491		Pledged non-PCD loans (contractual balance)	$	23,969		$	23,743		$	23,491
Weighted Average Rate	Weighted Average Rate	5.21		%	3.28		%	Weighted Average Rate	5.40		%	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 ~~$4.68~~$4.82 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at ~~March 31,~~June 30, 2023 and December 31, 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,~~June 30, 2023, we did not have any securities pledged or amounts advanced related to this program.

97108

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”).~~Acquisition. Interest on outstanding principal will accrue at a variable rate equal to the ~~Secured Overnight Financing Rate~~SOFR 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,~~June 30, 2023.

Contractual Obligations and Commitments

The following table ~~identifies~~includes significant contractual obligations and commitments as of ~~March 31,~~June 30, 2023, representing required and potential cash ~~outflows.~~outflows, including impacts from purchase accounting adjustments and deferred fees. See Note 22 — 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 4446

Contractual Obligations and Commitments


dollars in millions	dollars in millions	Payments Due by Period										dollars in millions	Payments Due by Period
		Less than 1 year		1-3 years		4-5 years		Thereafter		Total			Less than 1 year		1-3 years		4-5 years		Thereafter		Total
Contractual obligations:	Contractual obligations:											Contractual obligations:
Time deposits(1)	Time deposits(1)	$	9,199	$	3,718	$	86	$	125	$	13,128	Time deposits (1)	$	13,744	$	2,328	$	73	$	125	$	16,270
Short-term borrowings	Short-term borrowings	1,009		—		—		—		1,009		Short-term borrowings	454		—		—		—		454
Long-term obligations(1)		476		8,259		35,708		642		45,085
Long-term borrowings (1)(2)												Long-term borrowings (1)(2)	(23)		2,665		36,405		638		39,685
Total contractual obligations	Total contractual obligations	$	10,684	$	11,977	$	35,794	$	767	$	59,222	Total contractual obligations	$	14,175	$	4,993	$	36,478	$	763	$	56,409
Commitments:	Commitments:											Commitments:
Financing commitments	Financing commitments	$	48,696	$	14,112	$	5,656	$	6,043	$	74,507	Financing commitments	$	44,669	$	13,554	$	5,342	$	5,727	$	69,292
Letters of credit	Letters of credit	3,614		295		118		12		4,039		Letters of credit	2,733		328		130		6		3,197
Deferred purchase agreements	Deferred purchase agreements	1,707		—		—		—		1,707		Deferred purchase agreements	1,531		—		—		—		1,531
Purchase and funding commitments	Purchase and funding commitments	869		—		—		—		869		Purchase and funding commitments	672		—		—		—		672
Affordable housing partnerships(1)	Affordable housing partnerships(1)	385		547		19		40		991		Affordable housing partnerships (1)	305		549		21		51		926
Total commitments	Total commitments	$	55,271	$	14,954	$	5,793	$	6,095	$	82,113	Total commitments	$	49,910	$	14,431	$	5,493	$	5,784	$	75,618

(1)Time deposits and long-term borrowings are presented net of purchase accounting adjustments of ~~$27~~$21 million and ~~$139~~$180 million, respectively. On-balance sheet commitments are included in other liabilities and presented net of a purchase accounting adjustment of ~~$70~~$65 million.

(2) Less than 1 year balance represents the estimated amortization of the purchase accounting adjustment and deferred costs in excess of scheduled repayments.

CAPITAL

Capital requirements applicable to BancShares are discussed in “Regulatory Considerations” section in Item 1. Business — Regulation of our 2022 Form 10-K. The SVBB Acquisition ~~increased~~was the primary cause of increase in BancShares’ total assets, from $109.30 billion at December 31, 2022 to ~~$214.66~~$209.50 billion at ~~March 31,~~June 30, 2023. ~~Therefore, as detailed in our 2022 Form 10-K,~~ BancShares’ total consolidated assets ~~remain~~remains between $100 billion and $250 billion, and, as such, BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition ~~periods.~~periods, as detailed in our 2022 Form 10-K. However, the proposed interagency rulemaking recently announced by the FDIC, the Federal Reserve and the OCC could alter the capital framework for banks with total assets of $100 billion. We are continuing to monitor these proposed rules.

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.~~discretion.

Common and Preferred Stock Dividends

During the first ~~quarter~~and second quarters of 2023, we paid a quarterly dividend of $0.75 on the Class A ~~common stock~~Common Stock and Class B ~~common stock.~~Common Stock. On ~~April~~July 25, 2023, our Board of Directors declared a quarterly dividend on the Class A ~~common stock~~Common Stock and Class B ~~common stock~~Common Stock of $0.75 per common share. The dividends are payable on ~~June~~September 15, 2023 to stockholders of record as of ~~May~~August 31, 2023.

98109

On ~~April~~July 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~~September 15, 2023 to stockholders of record as of ~~May~~August 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

The table below shows activities that caused the change in outstanding Class A Common Stock ~~for the quarter:~~during 2023:

Table 4547

Changes in Shares of Class A Common Stock Outstanding

~~Three Months Ended March 31, 2023~~

~~Class A shares outstanding at beginning of period~~

~~13,501,017~~

~~Restricted stock units vested, net of shares held to cover taxes~~

~~13,791~~

~~Class A shares outstanding at end of period~~

~~13,514,808~~


	Three Months Ended June 30, 2023	Six Months Ended June 30, 2023
Class A shares outstanding at beginning of period	13,514,808	13,501,017

Restricted stock units vested, net of shares held to cover taxes	41	13,832

Class A shares outstanding at end of period	13,514,849	13,514,849

We also had 1,005,185 Class B Common Stock outstanding at ~~March 31,~~June 30, 2023 and December 31, 2022.

On April 25, 2023 ~~Bancshares’~~the Parent Company’s 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 4648

Analysis of Capital Adequacy


dollars in millions	dollars in millions	Requirements to be Well-Capitalized			March 31, 2023					December 31, 2022					dollars in millions	Requirements to be Well-Capitalized					June 30, 2023								March 31, 2023								December 31, 2022
				Amount			Ratio				Amount			Ratio				Requirements to be Well-Capitalized						Amount				Ratio				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	%		$	21,764		14.86	%			$	11,799				13.18		%	Total risk-based capital		10.00		%		$	22,504			15.84		%		$	21,764			14.86		%		$	11,799			13.18		%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%		19,225			13.13	%			9,902					11.06	%	Tier 1 risk-based capital		8.00				19,898				14.00				19,225				13.13				9,902				11.06
Common equity Tier 1	Common equity Tier 1	6.50	%		18,344			12.53	%			9,021					10.08	%	Common equity Tier 1		6.50				19,017				13.38				18,344				12.53				9,021				10.08
Tier 1 leverage ratio	Tier 1 leverage ratio	5.00	%		19,225			16.72	%			9,902					8.99	%	Tier 1 leverage ratio		5.00				19,898				9.50				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	%		$	21,578		14.74	%			$	11,627				12.99	%	Total risk-based capital		10.00		%		$	22,292			15.69		%		$	21,578			14.74		%		$	11,627			12.99		%
Tier 1 risk-based capital	Tier 1 risk-based capital	8.00	%		19,495			13.32	%			10,186					11.38	%	Tier 1 risk-based capital		8.00				20,142				14.18				19,495				13.32				10,186				11.38
Common equity Tier 1	Common equity Tier 1	6.50	%		19,495			13.32	%			10,186					11.38	%	Common equity Tier 1		6.50				20,142				14.18				19,495				13.32				10,186				11.38
Tier 1 leverage ratio	Tier 1 leverage ratio	5.00	%		19,495			16.97	%			10,186					9.25	%	Tier 1 leverage ratio		5.00				20,142				9.62				19,495				16.97				10,186				9.25

As of ~~March 31,~~June 30, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of ~~6.86%~~7.84% and ~~6.74%~~7.69%, respectively, which are in excess of the Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB risk-based capital ratio conservation buffers were 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratios as of ~~March 31,~~June 30, 2023 and December 31, 2022 over the Basel III 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.

99110

CRITICAL ACCOUNTING ESTIMATES

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. The ACL as of ~~March 31,~~June 30, 2023 is discussed in Note 5 — Allowance for Credit Losses and the Credit Risk discussion in the section entitled “Risk Management” above.

Fair values of loans acquired in and the core deposit intangibles associated with the 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 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. ASU 2022-06 extends the period of 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, 2024 for eligible contract modifications and hedge relationships. The reference rate reform optional expedients have not 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 2023-02 – Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued March 2023	The amendments in this update allow entities to elect to account for qualifying tax equity investments using the proportional amortization method (“PAM”), regardless of the program giving rise to 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 investor’s balance sheet and income statement.	Effective for BancShares as of January 1, 2024. Early adoption is permitted. BancShares ~~is currently evaluating timing of~~does not expect the adoption of ~~this guidance and~~ the update to have a material impact ~~of the guidance~~ on ~~its~~our consolidated financial ~~statements and disclosures.~~statements.
ASU 2022-03 - Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued June 2022	The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also require specific disclosures for equity securities subject to contractual sale restrictions.	Effective for BancShares as of January 1, 2024. Early adoption is permitted. BancShares does not expect the adoption of the update to have a material impact on our consolidated financial statements and related disclosures.

~~100~~111

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.

Adjusted Rental Income on Operating Lease Equipment for Rail Segment

Adjusted rental income on operating 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 adjusted rental income on operating lease equipment.

Table 4149

Rail Segment


dollars in millions	dollars in millions	Three Months Ended						dollars in millions	Three Months Ended						Six Months Ended
		March 31, 2023		December 31, 2022		March 31, 2022			June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net income (GAAP)	Net income (GAAP)	$	22	$	24	$	32	Net income (GAAP)	$	18	$	22	$	24	$	40	$	56
Plus: Provision for income taxes	Plus: Provision for income taxes	7		9		11		Plus: Provision for income taxes	6		7		7		13		18
Plus: Other noninterest expense	Plus: Other noninterest expense	18		15		16		Plus: Other noninterest expense	18		18		17		34		33
Less: Other noninterest income	Less: Other noninterest income	1		(5)		3		Less: Other noninterest income	(2)		1		—		(1)		3
Plus: Interest expense, net	Plus: Interest expense, net	28		23		19		Plus: Interest expense, net	33		28		18		61		37
Adjusted rental income on operating lease equipment (non-GAAP)	Adjusted rental income on operating lease equipment (non-GAAP)	$	74	$	76	$	75	Adjusted rental income on operating lease equipment (non-GAAP)	$	77	$	74	$	66	$	149	$	141

~~101~~112

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q 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,” “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 related to or resulting from recent bank failures and other volatility, the financial success or changing conditions or strategies of BancShares’ vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, 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 interagency proposed rule on regulatory capital, along with 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 transactions, including the SVBB Acquisition and the previously completed transaction with CIT, which acquisition risks include (1) disruption from the transactions with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the 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 transactions, (4) the risk that the cost savings and any revenue synergies from the transactions may not be realized or take longer than anticipated to be realized, (5) difficulties experienced in completing the integration of the 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 the 2022 Form 10-K, its Quarterly Report on Form 10-Q for the period ended March 31, 2023, 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,~~June 30, 2023, BancShares’ market risk profile has changed since December 31, 2022, primarily due to the 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~~113

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,~~June 30, 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 2023, as the result of the 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 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 three months ended ~~March 31,~~June 30, 2023 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.

Part II

Item 1. Legal Proceedings

The Parent Company and various subsidiaries 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 would be material to BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note 22 — Commitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements.

Item 1A. Risk Factors

Except for the new and updated risk factors related to the SVBB Acquisition ~~set forth below,~~that were disclosed in our Form 10-Q for the quarter ended March 31, 2023, there have been no material changes in the risk factors during 2023 from those reported in our 2022 Form 10-K. For a discussion of the risks and uncertainties that management believes are material to an investment in us in addition to those listed below, refer to Part I, Item 1A. Risk Factors, of our 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 stock during the three months ended ~~March 31,~~June 30, 2023.

Item 5. Other Information

During the second quarter of 2023, none of the Company’s directors or officers adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

~~106~~114

Item 6. Exhibits


2.1						Extensions of Time to the Purchase and Assumption Agreement All Deposits dated March 27, 2023, by and 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)~~
~~3.1~~						~~Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.01 to the Registrant’s 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/A filed March 31, 2023)
~~10.2~~						~~First 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)
*						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.

115

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,~~August 4, 2023

FIRST CITIZENS BANCSHARES, INC.

(Registrant)

By:

/s/ Craig L. Nix

Craig L. Nix

Chief Financial Officer

~~107~~116


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	%