UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ TRANSITION REPORT PURSUAN T TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Commission File Number: 001-16715 ____________________________________________________ FIRST CITIZENS BANCSHARES, INC. (Exact name of Registrant as specified in its charter) _________________________________________________________________________________________________________________ Delaware (State or other jurisdiction of incorporation or organization) 4300 Six Forks Road, Raleigh, North Carolina (Address of principle executive offices) 56-1528994 (I.R.S. Employer Identification Number) 27609 (Zip code) (919) 716-7000 (Registrant’s telephon e number, includin g area code) ________________________________________________________________________________________________________________ Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of each class Trading Symbol Name of each exchange on whic h registered Class A Common Stock, Par Value $1 Depositar y Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A FCNCA FCNCP Nasdaq Global Select Market Nasdaq Global Select Market 5.625% Non-Cumulative Perpetual Preferre d Stock, Series CNCO CF 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 (Title of class) _________________________________________________________________________________________________________________ Indicate by check mar k if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mar k if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mar k whether the Registrant (1 ) has filed all report s require d to be filed by Section 13 or 15(d) of the Securities Exchange Ac t of 1934 during the preceding twelve months (o r for such shorter period that the Registrant was required to file suc h reports), and (2 ) has bee n subject to suc h filing requirements fo r the past ninety days. Yes ☒ No ☐ Indicate by check mark whether the Registrant has submitted electronically ever y Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (o r for such shorte r period that the Registrant was required to submit suc h files). Yes ☒ No ☐ Indicate by check mar k whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerate d filer, a smalle r reporting company or emerging growth company. See definition of “large accelerated filer,” “accelerate d filer,” “non-accelerate d 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 chec k mar k if the registrant has elected not to use the extended transition period fo r complying with any new or revised financia l accounting standards provide d pursuant to Section 13(a ) of the Exchange Act. ☐ Indicate by check mar k whethe r the registrant ha s filed a report on an d attestation to its management’s assessment of the effectiveness of its interna l control ove r financial reporting under Section 404(b) of the Sarbanes-Oxley Ac t (15 U.S.C. 7262(b)) by the registere d public accounting firm tha t prepared or issue d its audit report. ☒ Indicate by check mar k whethe r the Registrant is a shell company (a s define d in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate marke t value of the Registrant’s common equity held by non-affiliate s computed by reference to the pric e at which the common equity wa s las t sold as of the last busines s day of the Registrant’s mos t recently completed second fiscal quarter wa s $4,789,537,671. On February 22, 2022, there wer e 14,972,989 outstanding shares of the Registrant’s Clas s A Common Stoc k and 1,005,185 outstanding shares of the Registrant’s Clas s B Common Stock. Portions of the Registrant’s definitive Proxy Statement for the 2022 Annual Meeting of Shareholder s are incorporated by referenc e into Par t III of this report. DOCUMENTS INCORPORATED BY REFERENCE CROSS REFERENCE INDEX PART I PART II PART III PART IV Business Item 1 Item 1A Risk Factors Item 1B Unresolved Staff Comments Item 2 Item 3 Item 4 Mine Safety Disclosures Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Properties Legal Proceedings Securities Reserved Item 6 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosure about Market Risk Financial Statements and Supplementary Data Item 8 Annual Financial Summary Selected Quarterl y Data Report of Predecessor Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Consolidated Balance Sheets at December 31, 2021 and 2020 Consolidated Statements of Income for each of the years in the three-yea r period ended December 31, 2021 Consolidated Statements of Comprehensive Income for eac h of the years in the three-year period ended December 31, 2021 Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31, 2021 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2021 Notes to Consolidated Financial Statements Changes in and Disagreement s with Accountants on Accounting and Financial Disclosure Item 9 Item 9A Controls and Procedures Management’s Annual Report on Internal Control over Financial Reporting Item 9B Other Information Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspection Item 10 Directors, Executive Officers and Corporate Governance Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Relate d Stockholder Matters Item 13 Certain Relationships and Related Transactions and Director Independence Item 14 Principal Accounting Fees and Services Item 15 Exhibits, Financial Statement Schedules (1) Financial Statements (see Ite m 8 for reference) (2) All Financial Statement Schedules normally required for Form 10-K are omitted since they are not applicable, except as referred to in Item 8. Page 3 14 None 32 32 N/A 33 34 34 58 64 65 67 68 70 71 72 73 74 75 77 None 133 133 133 N/A * * * * 133 Item 16 Form 10-K Summary (3) The Exhibits listed on the Exhibit Index contained in thi s Form 10-K are filed with or furnished to the Commission or incorporate d by reference into this report and are availabl e upon written request. 134 None * Information required by Item 10 is incorporate d herein by referenc e to the information tha t appear s under the headings or captions ‘Proposa l 1: Election of Directors,’ ‘Corporate Governance —Service on other Public Company Boards’ and ‘-Code of Ethics;’ ‘Committees of our Boards—Audit Committee;’ and ‘Executive Officers’from the Registrant’ s Proxy Statement for the 2022 Annual Meeting of Shareholder s (“2022 Proxy Statement”). Information required by Item 11 is incorporated herein by reference to the information that appear s under the headings or captions ‘Committees of our Board —Compensation Committee Report;’ and ‘—Effect of Risk Management on Compensation;’ ‘Compensation Discussion an d Analysis;’ ‘Executive Compensation;’ and ‘Director Compensation’ of the 2022 Proxy Statement. Information required by Item 12 is incorporated herein by reference to the information that appear s under the captions ‘Beneficial Ownership of Our Common Stock—Directors and Executive Officers,’ ‘—Existing Pledge Arrangements,’ an d ‘—Principa l Shareholders’ of the 2022 Proxy Statement. As of December 31, 2021, the Registrant did not have an y compensation plans under which equity securities of the Registrant ar e authorize d for issuance to employee s or directors. Information required by Item 13 is incorporated herein by reference to the information that appear s under the headings or captions ‘Corporate Governance— Director Independence’ and ‘Transactions with Related Persons’ of the 2022 Prox y Statement. Information required by Item 14 is incorporated by reference to the information that appear s under the caption ‘Proposal 3: Ratification of Appointment of Independent Accountants—Services and Fees During 2021’ of the 2022 Proxy Statement. 2 Ite m 1. Business General Par t I Firs t Citizen s BancShares , Inc. (the “Parent Company” and whe n including al l of its subsidiarie s on a consolidated basis, “BancShares,” “we,” “us,” or “our” ) was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company (“FCB,” or the “Bank”), it s banking subsidiary. FC B opene d in 1898 as the Bank of Smithfiel d in Smithfield, North Carolina, and late r changed it s nam e to First-Citizens Bank & Trust Company. As of Decembe r 31, 2021, BancShares has expande d through de novo branching and acquisitions and operate s in 19 states, providing a broad range of financial services to individuals, businesse s and professionals. At December 31, 2021, BancShares had total consolidated assets of $58.31 billion. On January 3, 2022, BancShares completed it s largest acquisition to dat e with the merger with CIT Group Inc. (“CIT” ) and it s subsidiary CIT Bank, N.A., a nationa l banking association (“CIT Bank”). CIT had consolidated total assets of approximately $53.2 billion at December 31, 2021. The merger with CIT (the “CIT Merger” ) is described furthe r in the “Business Combinations” discussion below and the “Business Combinations” section of Ite m 7. Management’s Discussion and Analysis of Financia l Condition and Result s of Operations included in thi s Annual Report on Form 10-K. Throughout it s history, the operations of BancShares have bee n significantl y influenced by descendant s of Robert P. Holding, who came to control FC B during the 1920s. Robert P. Holding’s children and grandchildren have served as member s of the Board of Directors (the “Board”), as chie f executive officers and in othe r executive managemen t positions and, since BancShares ’ formation in 1986, have remained shareholders owning a large percentage of it s common stock. The Chairma n of the Board and Chie f Executive Officer, Frank B. Holding, Jr., is the grandson of Robert P. Holding. Hope Holding Bryant , Vice Chairma n of BancShares , is Robert P. Holding’s granddaughter. Pete r M. Bristow, President of BancShares , is the brother-in-law of Frank B. Holding, Jr. and Hope Holding Bryant. BancShares seeks to meet th e financia l needs of both individuals and commercial entities in it s market area s through a wide range of retai l and commercial banking services. Loa n services include various type s of commercial , busines s and consumer lending. Deposi t services include checking, savings , mone y market and time deposit accounts. Our subsidiarie s als o provide mortgage lending, a full-servic e trust department , wealth management services for businesses and individuals, and other activitie s incidenta l to commercial banking. FCB’s wholly owned subsidiaries, First Citizen s Investor Services, Inc. (“FCIS”) and First Citizen s Asset Management, Inc. (“FCAM”), provide various investment product s and services. As a registered broker-dealer, FCIS provide s a full range of investment products, including annuities, discount brokerage services and third- part y mutual funds. As registere d investment advisors, FCIS and FCAM provide investment managemen t services and advice. As a result of BancShares ’ merge r with CIT and CIT Bank (the “CIT Merger”), BancShare s acquired a registere d broker-dealer, registere d investment adviser, a wide range of commercial lending, leasing, and deposit products, as wel l as ancillary services and products, tha t spans severa l industries, including aerospace and defense, communication, power and energy, entertainment, gaming, healthcare, industrials, maritime, rail, rea l estate , restaurants, retail, services and technology. In addition, BancShares now provide s commercial factoring, receivables managemen t and secure d financing services to businesses (generally manufacturers or importers of goods) tha t operate in severa l industries, including apparel , textile , furniture, home furnishings and consumer electronics. BancShares deliver s product s and services to it s customers through an extensive branc h network as wel l as digita l banking, telephone banking and various ATM networks. Services offere d at most offices include the taking of deposits, the cashin g of checks and providing for individua l and commercial cash needs . Busines s customers ma y conduct banking transactions through the use of remote image technology. Statistica l information regarding our busines s activitie s is found in Ite m 7. Management’s Discussion and Analysis of Financial Condition an d Result s of Operations. Business Combinations BancShares pursues growth through strategi c mergers and acquisitions to enhance organizational value, strengthe n its presence in existing markets, as wel l as expand it s footprint in new markets. In 2020, BancShares completed the acquisition of Communit y Financia l Holding Company, Inc. for tota l cash consideration of $2.3 million. 3 On January 3, 2022, BancShares close d the CIT Merger. Pursuant to the terms and subject to the conditions se t forth in the Agreement and Pla n of Merger (as amended, the “Merger Agreement”) by and among the Parent Company, FCB, FC Merger Subsidiary IX, Inc., a direct , wholly owne d subsidiary of FC B (“Merger Sub”), and CIT, CIT and CIT Bank have merged into FCB. Immediatel y prior to and in connection with the effectiveness of such mergers , BancShares acquire d from CIT its registere d broker-dealer, CIT Capita l Securities, LLC, and certain othe r nonbank subsidiarie s of CIT tha t hold noncontrolling equity investments. Thes e entities are nonbank subsidiarie s of the Parent Company. As a result of the consummation of the CIT Merger, FC B is now a top 20 U.S. bank based on asse t size wit h more tha n $100 billion in total assets. BancShares believes that th e CIT Merger allowed for the combination of organizations with complementary strengths, with FCB’s robust retai l franchise an d full suit e of banking product s with CIT’s strong market position in nationwide commercia l lending and direct digital banking. The combine d banking organization intends to leverage the capabilities of both legac y banks to serve a broade r spectrum of businesses and individuals, while offering convenience, scal e and value. Additional information relating to busines s combinations is se t forth in Ite m 7. Management’s Discussion and Analysis of Financia l Condition and Result s of Operations, under the caption “Busines s Combinations,” and Ite m 8. Notes to Consolidated Financia l Statements, Not e B, Business Combinations and Note W, Subsequent Events, in this Annua l Report on Form 10-K. As of Decembe r 31, 2021, we manage d our busines s and reported our financial results as a single segment. Due to the CIT Merger, we intend to begi n reporting multiple segments in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022. As summarized below, BancShares plans to report financial results in thre e operating segments: General Banking, Commercia l Banking, and Rail, and a non-operating segment, Corporate. We also intend to conform prior period comparisons to any new segment presentation. Based on the planned approach for segment disclosures to be implemented during the firs t quarter of 2022, the substantia l majority of BancShares ’ operations for historica l periods prior to the CIT Merger will be reflecte d in the General Banking segment. • • • • • • • • SEGMENT General Banking Commercial Banking Rail Corporate Competition MARKETS AND SERVICES Delivers services to individuals and businesses through an extensive branch network, digital banking, telephone banking and various ATM networks, including a full suite of deposit products, loans (primarily residential mortgages and commercial loans), and various fee-based services. Provides a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. Also provides deposit, cash management and lending to homeowner associations and property management companies. Provides lending, leasing and other financial and advisory services, primarily to small and middle-market companies across select industries. Provides asset-based lending, factoring, receivables management products and supply chai n financing. Rail provides equipment leasing and secured financing to railroads and shippers. Earning assets primarily include investment securities and interest-bearing cash. Certain items are not allocated to operating segments and are included in Corporate. Some of the more significant and recurring items that are not allocated to operating segments include interest income on investment securities, income on bank owned life insurance (“BOLI”), a portion of interest expense primarily related to corporate funding costs, mark-to-market adjustments on equity securities and foreign currency hedges, restructuring charges, intangible assets amortization expenses, as well as certain unallocated interest incom e and other costs. The financial services industry is highl y competitive . BancShares competes wit h national, regional and local financial services providers. In recent years, the ability of non-bank financial entities to provide services has intensified competition . Non-bank financial servic e providers are not subject to the sam e significant regulatory restrictions as traditional commercia l banks. More tha n ever, customers have th e ability to select from a variet y of traditiona l and nontraditiona l alternatives. Competition is based on a numbe r of factors including, among others, custome r service, qualit y and range of product s and services offered, price, reputation, interest rate s on loans and deposit s and custome r convenience. As of Decembe r 31, 2021, FCB’s primary deposit market s are North Carolina and South Carolina, whic h represent approximately 50.8% and 22.7%, respectively, of total FC B deposits. FCB’s deposit market share in North Carolina and South Carolina was 4.9% and 9.3%, respectively, as of June 30, 2021, whic h makes FC B the fourth largest bank in both North Carolina and South Carolina based on the Federa l Deposit Insurance Corporation (“FDIC”) Deposit Market Share Report. The thre e banks larger tha n FCB base d on deposits in North Carolina and South Carolina as of June 30, 2021 include Bank of America, Truist Bank and Well s Fargo. These banks collectively controlled 74.2% and 45.4% of North Carolina and South Carolina deposits, respectivel y as of June 30, 2021. 4 Subsequent to the CIT Merger, the branches that were previously owne d and controlled by CI T Ban k are now owne d and controlled by FCB. As of January 3, 2022, FC B had 609 total domesti c offices, which include d 227 in North Carolina , 126 in South Carolina and 86 in California. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy, encouraging the U.S. Attorne y Genera l along with the federa l banking agencies, to review the current framework for merger oversight practice s under the Bank Holding Company Ac t of 1956, as amended (“BHCA” ) and the Bank Merger Act. The revie w is ongoing by the agencies, and no forma l changes have bee n announced. The adoption of more expansive or prescriptive standards could impact our future potential acquisitions. Refe r to Ite m 1A. Risk Factor s below for additional information. Geographi c Locations As of Decembe r 31, 2021, BancShares operate d a total of 529 branches whic h include s branches in Arizona , California, Colorado, Florida , Georgia , Kansas, Maryland, Missouri , North Carolina , New Mexico, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsi n and West Virginia. The CIT Merger adde d approximately 80 branches, which ar e primaril y located in Southern California, to our branc h network. Human Capital As of Decembe r 31, 2021, BancShares employed approximately 6,578 full-time staff and approximately 268 part-time staff for a tota l of 6,846 employees. Women and ethnically diverse associate s mak e up approximately 67% and 28% of total employees, respectively, and our Executive Leadership Team includes two women. After the CIT Merger, BancShares ’ has approximately 10,300 total employees and our Executive Leadership Team expande d to three women. Our ability to attract , retai n and develop associate s who align with our purpose is key to our success. BancShares ’ human capital strategy is predicate d on ensuring the organization has the right people wit h the right skills in the right place s at the right time for the right cost to fulfill it s mandat e and strategi c objectives. Our huma n resource s tea m works to formalize the process of defining and deploying the mission-critica l talen t needed to align BancShares wit h the financial and strategi c goal s and objectives. Key huma n capital initiatives include scaling and developing talent, enhancing performanc e management and coaching, and accelerating inclusion, equity and diversity initiatives. The retentio n and integration of key CIT employees will be a significant initiative. Th e Board monitors thes e initiatives and associate d risks primaril y through it s Risk Committee. To assist wit h these goals, we monitor and evaluate various metrics, specifically around attraction, retention and development of talent. Our annua l voluntary turnove r is relatively lo w compare d to the industry. We believ e this reflects ou r strong corporate culture , competitive compensation an d benefit structures and commitment to caree r development. Compensation and Benefits We strive to provide robust compensation and benefit s to our employees. In addition to salaries, compensation and benefit program s include a 401(k) pla n with employe r matching opportunities, healthcare and insuranc e benefits, healt h savings and flexibl e spending accounts, paid time off an d othe r employe e assistanc e programs. COVID-19 Pandemic The health an d wellness of our employees is also critica l to our success. In an effort to kee p our employees safe during the COVID-19 pandemic, we implemented a numbe r of health-related measures , including protocols governing the use of face masks and hand sanitizer, a flexibl e work-from-home policy, enhance d cleaning procedures at our corporate and branc h offices, social-distancing protocol s and limitations on in-person meeting an d othe r gatherings. Regulatory Considerations Various laws and regulations administered by regulatory agencies affec t BancShares ’ corporate practices, including the payment of dividends, the incurrence of debt , and the acquisition of financial institutions and othe r companies. Laws and regulations also affec t busines s practices, such as the payment of interest on deposits, the charging of interest on loans, the type s of busines s conducte d and the location of offices. Certai n subsidiarie s of the Parent Company and FC B are subject to regulation, supervision, and examination by the Securities and Exchange Commission (“SEC”) , the Financia l Industry Regulatory Authorit y (“FINRA”), stat e regulatory agencies, and othe r regulatory authoritie s as “regulate d entities.” FCB’s insurance activitie s are subjec t to licensing and regulation by stat e insurance regulatory agencies. In general, numerous statute s and regulations also appl y to and restrict the activitie s of BancShares, including limitations on the ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on 5 transactions with related persons and entitie s controlled by related persons. The impac t of these statute s and regulations is discusse d below and in th e accompanying consolidated financia l statements. As a result of the consummation of the CIT Merger, BancShares has over $100 billion in total consolidate d assets, and is expected to be subjec t to certain enhance d prudentia l standards and enhance d oversight under the applicable transition provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Ac t (the “Dodd-Frank Act” ) by the Federal Reserv e Board (“Federa l Reserve ” or “FRB”), and the FDIC wit h respect to FCB. As BancShares continues to grow, BancShares and FC B could become subject to additional regulatory requirements, based on the tailore d regulatory framework applicabl e to banking organizations with $100 billion or more in total assets, and adopted by the federal banking agencies pursuant to the Economi c Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”). In connection with the CIT Merger, FC B established as a wholly-owned subsidiary, FC International, Inc. (“FC International”), which is a corporation chartered by the Federa l Reserv e pursuant to Section 25A of the Federa l Reserv e Act (“Edge Act” ) and the Federa l Reserve’ s Regulation K. Edge Act corporations are internationa l banking organizations tha t are authorize d to engage in international banking and foreign financial transactions. FC B established FC Internationa l for the purpose of holding the equit y interests in the foreign nonbank subsidiarie s (“foreign companies”) tha t FCB acquire d in the CIT Merger. Certain of the foreign companies are in the process of being wound-down or dissolved. The othe r foreign companies acquire d by FCB support the railcar leasing busines s acquire d from CIT in Canada and Mexico. FC Internationa l is subject to supervision and regulation by the Federa l Reserve, including examination, reporting, capital , and Bank Secrecy Act of 1970 (“BSA” ) and anti- mone y laundering (“AML”) requirements, pursuant to the Edge Act and the Federa l Reserve’ s Regulation K. FC International’s home offic e is the same as the home offic e the Parent Company and FCB. FC Internationa l will not have a physica l presence outside of the United States and therefore BancShares is evaluatin g whethe r FC Internationa l will be subject to any regulatory requirement s wit h respect to it s direct ownershi p of the equity interests of the foreign companies. . The Dodd-Frank Act, enacted in 2010, significantl y restructure d the financial services regulatory Dodd-Frank Act environment; imposed significant regulatory and complianc e changes; increased capital , leverage and liquidity requirements; and expanded the scope of oversight responsibilit y of certain federal agencie s through the creation of new oversight bodies. For example, the Dodd-Frank Act established the Consumer Financia l Protection Burea u (“CFPB”) with broad powers to supervise and enforce consume r financial protection laws. EGRRCPA. Enacted in 2018, the EGRRCPA, while largel y preserving the fundamental element s of the post-Dodd-Frank Act regulatory framework, modifie d certain requirement s of the Dodd-Frank Act as they applie d to regional and community banking organizations. Certai n of the significant requirement s of the Dodd-Frank Act are listed below wit h information regarding how the y appl y to BancShares following the enactment of th e EGRRCPA. • Asse t Threshold for Applicability of Dodd-Frank Ac t Enhanced Prudential Standards and Enhanced Supervision. The Dodd-Frank Act mandated the applicabilit y of enhance d prudentia l standards (including enhance d liquidity and capital requirements, enterprise-wide risk management requirements, concentration limits, resolution plans and credit exposure report requirements, etc.) and enhance d supervision of bank holding companies wit h $50 billion or more in assets. The EGRRCPA raised the asse t threshold for mandatory applicability of enhance d prudentia l standards to $250 billion or more in total consolidate d assets, and give s the Federa l Reserv e Board th e discretion to appl y any enhance d prudentia l standards to banking organizations with $100 billion or more in total assets on a tailored basis based on asse t size and othe r risk- relate d factors to prevent or mitigate risks to th e financial stability of the United State s or to promot e the safety and soundness of a bank holding company. In Novembe r 2019, the Federal Reserv e Board , along with the FDIC and the Office of the Comptroller of the Currenc y (the “OCC”), adopted a framework for tailoring the applicabilit y of enhance d prudential standards for banking organizations with $100 billion or more in assets (the “Tailoring Rules”). The Tailorin g Rule s are furthe r discusse d below. 6 • Capital Planning and Stress Testing. The Dodd-Frank Ac t mandated stres s tests be develope d and performed by banking organizations with $10 billion or more in total assets to ensure financial institutions have sufficient capital to absorb losses and support operations during multiple economi c and bank scenarios. The EGRRCPA gave immediate relief from Dodd- Frank Act and company-run stres s testing for banking organizations with less tha n $250 billion in total consolidate d assets. Therefore , BancShares is not subjec t to Dodd-Frank Act company-run stres s testing unti l such time that it has $250 billion or more in total assets. Notwithstanding these amendments to the stress testin g requirements, the federal banking agencies indicated, through inter-agenc y guidance , the capital planning and risk management practice s of institutions wit h total assets less than $250 billion would continue to be reviewed through the regula r supervisory process, including through the Federa l Reserve’s Comprehensive Capital Analysis and Review (“CCAR”) fo r banking organizations with $100 billion or more in total assets. As a result of the consummation of the CIT Merger, BancShares has over $100 billion in total consolidated assets, and we expec t to be subjec t to supervisory stres s testing by the Federal Reserv e under the CCAR process as a Category IV banking organization in accordance wit h the applicabl e transition provisions . BancShares has mad e substantia l progress in developing policies, programs, and system s designe d to comply with capital planning and stres s testing requirements. • The Volcke r Rule. The Volcker Rule wa s promulgated to implement provisions of the Dodd-Frank Act. It prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds. The EGRRCPA exempted many financial institutions with total consolidate d assets of less tha n $10 billion from the Volcke r Rule , but it continues to appl y to BancShares . However, the Volcker Rule does not significantl y impac t our operations as we do not have an y significant engagement in the businesses it prohibits. • Ability-to-Repay and Qualifie d Mortgage Rule. Creditors are required to comply with mortgage reform provisions prohibiting the origination of any residential mortgages that do not meet rigorous Qualifie d Mortgage standards or Ability- to-Repa y standards. All mortgage loans originated by FC B mee t Ability-to-Repa y standards and a substantia l majority also meet Qualified Mortgage standards. The EGRRCPA impac t on the original Ability-to-Repa y and Qualifie d Mortgage standards is onl y applicabl e to banks with less than $10 billion in total consolidated assets. • Reciprocal Deposit s are not treated as Brokered Deposits. Section 29 of the Federal Deposit Insuranc e Act (the “FDI Act”) and the FDIC’s implementing regulations limit th e ability of an insured depository institution to accept brokere d deposits unless the institution is well-capitalize d under the prompt corrective action under the FDI Act, or the insured depository institution is adequately capitalized and obtains a waiver from the FDIC . Insured depository institutions that are less than well-capitalized are not abl e to accep t brokere d deposits, and are subject to restrictions on the interest rates pai d on deposits. In addition, deposit s tha t are considere d “brokered” are subjec t to highe r deposit assessments. EGRRCPA amende d the FDI Act to add a limited exception under which insured depository institutions that are well-capitalized or adequatel y capitalized and meet certain othe r criteri a are able to exempt from treatment as “brokered” deposit s up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (defined generally as deposits received by a depository institution through a deposit placement network with the sam e maturity an d in the sam e aggregate amount as deposit s place d by the depository institution in othe r network institutions). In addition, in Decembe r 2020, the FDIC amende d its regulations governing “brokered deposits” to clarify and moderniz e thi s regulatory framework. Notable aspects of the fina l rul e include (1) the establishment of bright-line standards for determining whethe r an entit y meets the statutory definition of “deposit broker” ; (2) the identification of a numbe r of busines s relationships that qualify for the “primary purpose” exception for agents to avoi d being deeme d a “deposit broker” for the placement of funds with depository institutions; (3) the establishment of a more transparent application process for entitie s tha t seek to rel y upon the “primary purpose” exception but do not qualify for one of the identified exceptions for busines s relationships deemed to satisf y the “primary purpose” exception; and (4) the clarificatio n that thir d partie s tha t have an exclusive deposit-placement arrangement wit h one insured depository institution are not considered a “deposit broker.” The fina l rul e becam e effective April 1, 2021, with full complianc e require d by January 1, 2022. 7 First Citizen s BancShares, Inc. General. As a bank holding company registered under the BHCA, the Parent Compan y is subject to supervision, regulation and examination by the Federa l Reserve. As a “financial holding company” (“FHC”), the Parent Company ma y engage in or acquire and retai n the share s of a company engaged in activitie s tha t are “financial in nature” as long as the Parent Company continues to meet the eligible requirements for FHC status, including tha t the Parent Company and FC B eac h remai n “well-capitalized” and “well-managed.” Activitie s tha t are “financial in nature” include securities underwriting, dealing and market making, advising mutual funds and investment companies, insuranc e underwriting and agency, merchant banking, and any activitie s that in nature,” the Federal Reserv e in consultation with the Secretary of the Treasury determine s to be in “financia l “complementary” or “incidental ” to such financial activity . The Paren t Company is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (“NCCOB”). holding company with total consolidate d assets of $250 Enhanced Prudential Standards and Enhanced Supervision. A bank billion or more is subjec t to enhance d prudentia l standards under the Dodd-Frank Act, as amended by EGRRCPA. A bank holding company with $100 billion or more in assets, but less tha n $250 billion in assets is subjec t to certain enhanced prudentia l standards based on the Tailoring Rules. Under the Tailoring Rules, banking organizations are grouped int o four categories, based on asse t size , off-balanc e sheet exposure, nonbank assets, weighted short-term wholesal e funding, and cross- jurisdictiona l activities. Category I banking organizations (i.e., large banks that have bee n designate d as global systemically important banks) are subject to the most stringent enhanced prudentia l requirements, and Category IV banking organizations (i.e., between $100 billion and $250 billion in total consolidate d assets, and less tha n $75 billion in nonbank assets, off-balance sheet exposure, cross-jurisdictional activities , and weighted short-term wholesal e funding) are subject to the least stringent requirements. As a result of the CIT Merger, BancShares has total consolidate d assets in excess of $100 billion and therefore , expect s to be required to comply with certain enhance d prudentia l standards applicabl e to Category IV banking organizations, subjec t to the applicabl e transition periods. In planning for the CIT Merger, BancShares developed policies, programs, and system s designed to meet such enhance d prudentia l standards, including annua l capital pla n submissions and supervisory stres s testing by the Federa l Reserve under CCAR , enhance d enterprise-wide risk management requirements, and enhance d liquidity management requirements, including liquidity stres s tests and liquidity buffer requirements. In the event BancShares’ asset s grow to meet or excee d the thresholds for the asse t size or othe r risk-based factors, BancShares wil l be subjec t to othe r enhance d prudential standards on a tailored basis . For example, if BancShares has $50 billion or more in weighted short-term wholesal e funding, it will be subject to modifie d liquidity coverage ratio (“LCR”) an d net stabl e funding ratio (“NSFR”) requirements. In the event BancShares become s a Category III banking organization, BancShares wil l be subjec t to full or reduced LC R and NSFR requirements, annua l company-run capital stres s testing, resolution planning requirements, annua l supervisory capital stress testin g under CCAR , additional risk-based capital requirements (countercyclica l buffer), the supplementary leverage ratio, and additional liquidity reporting requirements. Permitted Activities . A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for it s subsidiaries, and engaging in othe r activitie s the Federa l Reserv e determine s by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, bank holding companies that qualify and elec t to be financial holding companies, such as the Parent Company, ma y engage in any activity, or acquire and retai n the share s of a company engaged in any activity, tha t is either (i) financial in nature or incidenta l to such financial activity (as determine d by the Federa l Reserv e in consultation with the Secretar y of the Treasury) or (ii) complementary to a financial activity an d does not pose a substantia l risk to the safet y and soundness of depository institutions or the financial syste m generally (as solely determine d by the Federa l Reserve) , without prior approva l of the Federa l Reserve. Activities financial in nature include securities underwriting and dealing, serving as an insuranc e agent and underwriter and engaging in merchant banking. Acquisitions. A bank holding company must obtain approva l from the Federa l Reserv e prior to directly or indirectl y acquiring ownershi p or control of 5% of the voting shares or substantiall y all of the assets of another bank holding company or bank or prior to merging or consolidating with anothe r bank holding company. 8 Status Requirements. To maintai n financial holding company status, a financial holding company and al l of its depository institution subsidiarie s must be well-capitalized and well-managed. A depository institution subsidiary is considered to be well- capitalized if it satisfies th e requirements fo r thi s status under applicabl e Federa l Reserve capital requirements. A depository institution subsidiary is considered well manage d if it received a composite ratin g and management rating of at least “satisfactory ” in its most recen t examination. If a financial holding company ceases to meet these capital and management requirements, the Federal Reserve ma y impose limitations or conditions on the conduc t of its activities. Capita l Requirements. The Federa l Reserv e imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighte d assets. These requirements are described below under “Subsidiary Bank - FCB. ” As of Decembe r 31, 2021, the tota l risk-based capital , Tie r 1 risk-based capital , common equity Tier 1 risk based capital , and Tier 1 leverage ratios (collectively “Regulatory Capita l Ratios”) of BancShares were 14.35%, 12.47% 11.50%, and 7.59%, respectively, and each capital ratio listed above exceeded the applicable Basel II I (as defined below) minimums and the well-capitalize d thresholds as furthe r addresse d under “Shareholders’ Equity and Capita l Adequacy” in Ite m 7. Management’s Discussion and Analysis of Financia l Condition and Result s of Operations. Subjec t to its capital requirements and certain othe r restrictions, the Parent Company is able to borrow mone y to mak e capital contributions to FC B and such loans ma y be repaid from dividends pai d by FCB to th e Paren t Company. As a result of the CIT Merger, BancShares expects to be a Category IV banking organization and expect s to be required to submit an annua l capital pla n to the Federa l Reserv e in accordance wit h the applicable transition provisions . BancShares wil l also be subject to biennial supervisory stres s testing under the Federa l Reserve’ s CCAR process, and the stres s capital buffer calculate d by the Federal Reserv e under CCAR will replac e the stati c 2.5% percent component of our capita l conservation buffer. The CCAR supervisory stres s tests are distinc t from Dodd-Frank Act company-run stres s testing (“DFAST”), and BancShares will not be subjec t to DFAST requirements unti l it has $250 billion or more in total consolidate d assets, pursuant to the EGRRCPA. Source of Strength. Under the Dodd-Frank Act, bank holding companies are required to ac t as a source of financial and manageria l strengt h to their subsidiary banks. Under thi s requirement , the Parent Company is expecte d to commi t resource s to support FCB, including time s when the Parent Company ma y not be in a financial position to provide such resources. Any capital loans made by a bank holding company to any of it s subsidiary banks are subordinat e in right of payment to depositors and to certain othe r indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintai n the capital of a subsidiary bank will be assumed by th e bankruptc y truste e and entitle d to priorit y of payment. Safety and Soundness . The federal bank regulatory agencies have adopte d guidelines prescribing safet y and soundness standards. These guidelines establish general standards relatin g to interna l controls and information systems, interna l audit systems, loa n documentation, credit underwriting, interest rat e exposure, asse t growth and compensation, fee s and benefits. In general , the guidelines require , among othe r things, appropriat e system s and practice s to identify and manage the risk and exposures specified in the guidelines. There are a numbe r of obligations and restrictions imposed on bank holding companies and their subsidiary banks by la w and regulatory policy tha t are designed to minimiz e potential loss to the depositors of such depository institutions and to the FDIC insurance fund in the event of a depository institution default . As note d above, BancShares expects to be a Category IV banking organization and expect s to be subjec t to enhance d prudentia l standards and enhance d supervision unde r the Tailoring Rule s subjec t to the applicabl e transition periods. Limits on Dividends and Other Payments. The Parent Company is a legal entity , separate an d distinct from it s subsidiaries. Revenues of the Parent Company primarily result from dividends received from FCB. There are various legal limitations applicabl e to the payment of dividends by FC B to the Parent Company and to the payment of dividends by the Parent Company to it s shareholders. The payment of dividends by FC B or the Parent Company ma y be limited by certain factors, such as requirement s to maintai n capital above regulatory guidelines. Bank regulatory agencies have the authorit y to prohibi t FCB or the Parent Company from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of FC B or the Parent Company, coul d be deeme d to constitut e such an unsafe or unsound practice . BancShares expects to be a Category IV banking organization and expect s to be required to submit a capital plan annuall y to the Federa l Reserv e in accordance wit h the applicable transition provisions . The annual capital pla n will include planned capital distribution s over a specifie d forecasting horizon. BancShares expects to be subjec t to biennia l supervisory capital stres s testin g under the Federa l Reserve’ s CCAR process. The stres s capital buffer would replac e the static 2.5% component of the capital conservation buffer with a capital buffer tha t is based on supervisory stres s tes t results an d the Parent Company’s planned capital distributions. BancShares’ supervisory stres s testing result s under CCAR could impac t the ability of the Parent Company to declare dividends or make other capita l distributions, including common shar e repurchases. Additionally, under the FDI Act, insured depository institutions, such as FCB , are prohibite d from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” as such 9 ter m is use d in the statute. Additionally, under Base l III capital guidelines , banking institutions with a Regulatory Capita l Ratio above the Basel III minimum, but below the Basel II I requirement will fac e constraints on dividends, equity repurchases and compensation based on the amount of the shortfall . Based on FCB’s current financial condition, the Parent Company currently does not expect these provisions to have any materia l impac t on its ability to receive dividends from FCB. The Parent Company’s non-bank subsidiarie s pay dividends to th e Parent Company periodically on a non-regulated basis. Subsidiary Bank - FCB General. FCB is a state-chartered bank, subjec t to supervision and examination by, and the regulations and reporting requirement s of, the FDIC and the NCCOB. Deposit obligations are insured by the FDIC to the maximum legal limits . As a subsidiary of a Category IV banking organization, we expec t FCB will be subjec t to enhance d prudentia l standards for insured depository subsidiarie s under the FDIC’s regulations in accordance with th e applicable transition provisions. Capital Requirements. Federal banking agencies approved regulatory capital guidelines (“Base l III”) aimed at strengthening previous capital requirements for banking organizations. Basel III becam e effective for BancShares on January 1, 2015 and the associate d capital conservation buffers of 2.5% were full y phased in by January 1, 2019. The capital conservation buffer is designe d to absorb losse s during periods of economi c stress. Additionally, federal banking agencies have develope d Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. Th e following table includes the Basel III requirement s and PC A well-capitalized thresholds for the Regulatory Capita l Ratios. Basel III Minimums Basel III Conservation Buffers Basel III Requirements PCA Well- Capitalized Thresholds Regulatory Capital Ratios Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverag .00 .50 .50 8.00 6.00 4 e 4 0.50 % 2 % 2.50 2.50 — .00 1 8.50 7.00 4 %1 0.00 % 8.00 6.50 5.00 Failure to meet regulatory capital requirements ma y result in certain actions by regulators tha t coul d have a direct material effect on FCB’s consolidated financial statements. As of Decembe r 31, 2021, FC B exceeded the applicable Basel III requirements and the well-capitalize d thresholds as furthe r addresse d under “Shareholders’ Equity and Capital Adequacy” in Ite m 7. Management’s Discussion and Analysi s of Financial Condition and Result s of Operations. Although FC B is unabl e to control the external factor s influencing it s business, by maintaining high level s of balanc e sheet liquidity, prudently managing interest rat e exposures, ensuring capital positions remai n strong and activel y monitoring asset quality, FC B seeks to minimiz e the potentially adverse risks of unforesee n and unfavorable economi c trends and to take advantage of favorabl e economic conditions and opportunitie s when appropriate. Covere d Insure d Depository Institution Contingency Planning Requirements. Under the FDIC’s “covere d insure d depository institution” rule (the “CID I Rule”), an insure d depository institution wit h $50 billion or more in total assets is required to submi t periodically to the FDIC a contingenc y pla n for the resolutio n of the institution in the event of it s failure (“Resolution Plan”). The FDIC require s the Resolutio n Pla n to ensure tha t the FDIC , as receiver , woul d be abl e to resolve the institution pursuant to the receivership provisions of the FDI Act. In April 2019, the FDIC issued an advance notice of proposed rule making to amend the CID I Rule, and suspended the requirement to submit Resolutio n Plans unti l furthe r notice . In January 2021, the FDIC announce d tha t it would resume Resolutio n Pla n requirement s for insured depository institutions wit h $100 billion in assets. On June 25, 2021, the FDIC issued a policy statement, describing a new framework for the implementatio n of the CID I Rule . The FDIC has state d that it will provide covere d insured depository institutions with 12 months advance notice prior to the submission deadline of it s Resolution Plan. FC B has not previously submitted a Resolution Pla n under the CID I Rule. As an insure d depository institution with more than $100 billion in total assets, FC B will be expecte d to submi t its first Resolution Pla n under the CID I Rul e once notifie d by the FDIC. Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act, Regulation W and Regulation O, the authority of FC B to engage in transactions wit h related partie s or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliat e generally must be collateralize d and certain transactions between FC B and it s affiliates, including the sal e of assets, the payment of mone y or the provision of services, must be on terms and conditions tha t are substantiall y the 10 same , or at least as favorabl e to FCB , as those prevailing for comparable nonaffiliated transactions. In addition, FC B generally may no t purchas e securities issued or underwritten by affiliates. FC B receives managemen t fees from it s subsidiarie s and the Parent Compan y for expense s incurred for performing various functions on their behalf. These fee s are charged to each company based upon the estimate d cos t for usage of services by that company. Th e fee s are eliminate d from th e consolidated financia l statements. Community Reinvestment Act. FCB is subjec t to the requirements of the Communit y Reinvestment Ac t of 1977 (“CRA”). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the loca l communities, a rating from the Federa l Reserv e of les s than including low-and-moderate-income neighborhoods. If FC B receives “satisfactory” under the CRA, restrictions would be imposed on our operating activities. In addition, in order for a financial holding company, like the Parent Company, to commence any new activity permitted by the BHC A or to acquire any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a ratin g of at least “satisfactory ” in its most recen t examination under the CRA. FCB currently has a “satisfactory ” CRA rating. As part of the CIT Merger, BancShares adopte d a community benefit plan, develope d in collaboration with representatives of community reinvestment organizations, for the combined bank. Under the Communit y Benefit Plan, FCB wil l invest $16 billion in the communitie s served by FCB, including $2.5 billion in home purchase mortgage loans focusing on low- and moderate-incom e and minorit y borrowers in majority-minority (“MM” ) geographie s and $5 million in discount s or subsidie s on home purchase and hom e improvement loans to borrowers in MM census tracts in th e combined bank’s footprint in California. Anti-Mone y Laundering and the United States Department of the Treasury’s Office of Foreign Asse t Control (“OFAC”) Regulation. Governmenta l policy in recent years has bee n aimed at combatin g mone y laundering and terrorist financing. The BSA and subsequent laws and regulations require financial institutions to take steps to prevent the use of their system s to facilitat e the flow of illegal or illici t mone y or terrorist funds. The USA Patriot Act of 2001 (“Patriot Act”) significantly expanded AML and financial transparency laws and regulations by imposing new compliance and due diligence obligations, including standards for verifying customer identification at account opening and maintaining expanded records, as wel l as rules promoting cooperation among financial institutions, regulators and la w enforcement entities in identifying persons who ma y be involved in terrorism or mone y laundering. These rule s were expanded to require new custome r due diligence and beneficial ownershi p requirement s in 2018. An institution subjec t to the BSA, such as FCB, must additionall y provide AML training to employees, designate an AML complianc e officer and annuall y audi t the AML program to assess it s effectiveness. The United States has imposed economic sanctions on transactions wit h certain designated foreign countries, nationals and others. As these rule s are administrate d by OFAC , these are generally known as the OFAC rules. Failure of a financial institution to maintain and implement adequate BSA , AML an d OFAC programs , or to comply with al l the relevant law s and regulations, could have serious legal and reputational consequences, including materia l fine s and sanctions. FCB has implemented a program designed to facilitate compliance with th e full extent of the applicabl e BSA and OFAC relate d laws, regulations and relate d sanctions. On January 1, 2021, Congress passe d the National Defense Authorization Act, whic h enacte d the most significant overhaul of the BSA and relate d anti-money laundering laws since the Patriot Act. Notabl e amendments include (1) significant changes to the collection of beneficia l ownershi p information and the establishment of a beneficia l ownershi p registry, whic h requires corporat e entitie s (generally, any corporation, LLC, or othe r simila r entit y with 20 or fewe r employee s and annua l gross income of $5 million or less) to report beneficia l ownershi p information to FinCEN (which will be maintained by FinCEN and made availabl e upon request to financial institutions); (2) enhance d whistleblower provisions , which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the AML laws in any judicial or administrative actio n brought by the Secretar y of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture , restitution, or compensatio n to victims) wil l receive not more than 30% of the monetary sanctions collected and wil l receive increased protections; (3) increased penaltie s for violations of the BSA; (4) improvements to existing information sharing provisions that permi t financia l institutions to share information relating to Suspicious Activity Report s (SARs ) wit h foreign branches, subsidiaries, and affiliate s (except those located in China , Russia, or certain othe r jurisdictions) for the purpose of combating illicit finance risks ; and (5) expanded duties and powers of FinCEN. Many of the amendments require the Treasury Department and FinCEN to promulgate rules. On December 8, 2021, FinCEN issue d proposed regulations tha t would implement the amendments with respec t to beneficia l ownership. 11 Consume r Laws and Regulations. FCB is also subject to certain laws and regulations designe d to protect consumers in transactions with banks . These laws include the Truth in Lending Ac t (“TILA”), the Truth in Savings Act, th e Electroni c Funds Transfe r Act , the Expedite d Funds Availability Act, the Equal Credi t Opportunit y Act , Rea l Estat e Settlement Procedure s Act, Home Mortgage Disclosure Act, th e Fair Credi t Reporting Act, the Fai r Deb t Collectio n Practices Act, th e Fair Housing Act and the Servicemembers Civil Relief Act. Th e law s and related regulations mandat e certain disclosure s and regulat e the manner in which financial institutions transact busines s with certain customers. FC B must compl y with these consumer protection laws and regulations in it s relevant lines of business. the To promot e fairness and transparenc y for mortgages, credit cards, and othe r consume r financial product s and services, CFP B is responsible for interpreting and enforcing federal consumer financial laws , as defined by the Dodd-Frank Act, that, among othe r things, govern the provision of deposit accounts along with mortgage origination and servicing. Some federal consume r financial laws enforce d by the CFPB include the Equal Credi t Opportunit y Act, TILA, the Truth in Savings Act , the Home Mortgage Disclosur e Act, th e Rea l Estate Settlemen t Procedure s Act (RESPA), the Fai r Deb t Collectio n Practices Act, and the Fai r Credi t Reporting Act. The CFPB is also authorized to prevent any institution under it s authorit y from engaging in an unfair, deceptive, or abusive ac t or practice in connection with consumer financia l products and services. Under TILA, as implemented by Regulation Z, mortgage lenders are required to make a reasonable and good faith determination based on verifie d and documented information tha t a consume r applying for a mortgage loan has a reasonable ability to repa y the loan according to it s terms. Mortgage lenders are required to determine consumers ’ ability to repa y in one of two ways. The firs t alternative require s the mortgage lender to conside r the following eight underwriting factors when making the credi t decision: (1) current or reasonably expected income or assets; (2) current employment status; (3 ) the monthly payment on the covered transaction; (4) the monthl y payment on any simultaneous loan; (5) the monthly payment for mortgage- related obligations; (6) current debt obligations, alimony, and child support; (7) the monthl y DTI ratio or residua l income ; and (8) credit history. Alternatively, the mortgage lender ca n originat e Qualifie d Mortgage s (“QMs”), which are entitled to a presumption tha t the creditor making the loan satisfied the ability-to-repay (“ATR”) requirements. In general , a QM is a mortgage loan without negativ e amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a QM the points and fees pai d by a consumer cannot excee d 3% of the total loa n amount. On Decembe r 10, 2020, the CFPB issue d two fina l rule s related to QM loans. The firs t rule replaces th e strict 43% DTI threshold for QM loans and provide s that, in addition to existing requirements, a loa n receives a conclusive presumption that the consumer had the abilit y to repa y if the APR does not excee d the average prim e offer rat e for a comparable transaction by 1.5 percentage point s or more as of the dat e the interest rate is set . Further , a loa n receives a rebuttabl e presumption tha t the consume r had the abilit y to repa y if the APR exceeds the average prim e offer rat e for a comparable transaction by 1.5 percentage point s or more but by less tha n 2.25 percentage points. The second rule create s a new category of “seasoned” QMs for loans tha t mee t certain performanc e requirements. Tha t rule allows a non-QM loa n or a “rebuttabl e presumption” QM loan to receive a safe harbor from ATR liability at th e end of a “seasoning” period of at least 36 months as a “seasoned QM” if it satisfies certain product restrictions, points-and-fee s limits, and underwriting requirements, and the loan meet s the designated performanc e and portfolio requirement s during the “seasoning period.” The mandatory complianc e dat e under the firs t final rule was July 1, 2021, but subsequently was delaye d by the CFPB to Octobe r 1, 2022. The secon d fina l rule wil l apply to covered transactions for which institutions receive an application after th e compliance dat e for th e first fina l rule. Additionally, the CFPB has th e authorit y to tak e supervisory and enforcement actio n against banks and othe r financial services companies under the agency’s jurisdiction tha t fai l to comply with federal consumer financial laws . As an insured depository institution with total assets of more than $10 billion, FC B is subjec t to the CFPB’s supervisory and enforcement authorities. The Dodd-Frank Act also permit s states to adopt stricte r consumer protection laws and stat e attorneys general to enforce consume r protection rule s issue d by the CFPB . As a result of these aspect s of the Dodd-Frank Act, FC B operate s in a stringent consume r complianc e environment. The CFPB has bee n activ e in bringing enforcement actions against banks and other financial institutions to enforc e consume r financial laws . The federa l financial regulatory agencies, including the FDIC and states attorney s general , als o have become increasingly active in thi s are a with respec t to institutions over which the y have jurisdiction. Pursuant to the Dodd-Frank Act, the FDIC has backup enforcement authority over a depository institution holding company, such as the Parent Company, if the conduct or threatene d conduc t of such holding company poses a risk to the Depositors Insurance Fund (“DIF”), although such authorit y may not be used if the holding company is generally in sound condition and does not pose a foreseeabl e and materia l risk to the DIF. The Dodd-Frank Act ma y have a material impact on BancShares’ operations, particularly through increased complianc e costs resulting from possible future consumer and fai r lending regulations. Refe r to Ite m 1A. Ris k Factors below for a more extensive discussion of thi s topic. 12 Other Regulations applicable to th e Parent Company and FCB Privacy , Data Protection, and Cybersecurity. We are subject to a numbe r of U.S. federal , state , local and foreign laws and regulations relating to consume r privacy and dat a protection. Unde r privacy protection provisions of the Gramm-Leach-Bliley Ac t of 1999 (“GLBA” ) and it s implementing regulations and guidance , we are limite d in our ability to disclose certain non- publi c information about consumers to nonaffiliated third parties. Financial institutions, such as us, are require d by statute and regulation to notify consumers of their privacy policies and practice s and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. In addition, such financial institutions must appropriatel y safeguard their customers’ nonpublic, personal information. Consumers must be notifie d in the event of a dat a breach under applicabl e state laws . The changing privacy laws in the United States, Europe and elsewhere, including the California Consume r Privacy Act of 2018, (the “CCPA”) , which becam e effective on January 1, 2020, applie s to for-profit businesse s tha t conduc t business in California and meet certain revenue or data collection thresholds. The CCPA give s consumers the right to request disclosure of information collected about them , and whethe r tha t information has bee n sold or shared with others, the right to request deletio n of personal information (subjec t to certain exceptions), the right to opt out of the sal e of the consumer’s personal information, and the right not to be discriminated against for exercising these rights . The CCPA contains severa l exemptions, including for information tha t is collected, processed, sold or disclosed pursuant to the GLBA. In Novembe r 2020, voters in the Stat e of Californi a approve d the California Privac y Right s Act (“CPRA”), a ballot measure tha t amends and supplement s the CCPA by creating the California Privacy Protection Agency, a watchdog privacy agency to be appointe d shortly after the CPRA’s enactment. The CPR A als o modifies the CCPA by expanding both the scope of businesses covered by the la w and certain right s relating to personal information and it s use, collection, and disclosure by covered businesses. Simila r law s have and ma y be adopted by othe r states where BancShares does business. In addition, multiple othe r states , Congress and regulators outside the Unite d States are considering simila r law s or regulations which coul d creat e new individual privacy right s and impose increased obligations on companies handling personal data. For example, on Novembe r 23, 2021, the federal financia l regulatory agencies published a fina l rule that wil l impose upon banking organizations and their servic e providers new notification requirement s for significant cybersecurity incidents (the “Cybersecurit y Rule”). Specifically, the Cybersecurit y Rule require s banking organizations to notify their primary federal regulator as soon as possible and no late r tha n 36 hours after the discovery of a “computer-securit y incident” that rises to the level of a “notification incident” within th e meaning attribute d to those terms by the Cybersecurit y Rule . Banks ’ service providers are require d under the Cybersecurit y Rule to notify any affected bank to or on behalf of which the servic e provider provide s services “a s soon as possible ” after determining tha t it has experienced an incident tha t materiall y disrupts or degrades, or is reasonabl y likel y to materiall y disrupt or degrade, covered services provide d to such bank for as much as four hours. The Cybersecurit y Rule wil l tak e effect on April 1, 2022 and banks and their servic e providers must be in complianc e with the requirement s by May 1, 2022. We are activel y working on updating processe s to ensure compliance. Federa l banking agencies, including the FDIC , have adopte d guidelines for establishing information security standards and cybersecurity program s for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processe s related to information technology and the use of third partie s in the provision of financial services. In Octobe r 2016, the federal banking agencies issue d an advance notice of proposed rulemaking on enhance d cybersecurity risk-management and resilience standards tha t would apply to large and interconnecte d banking organizations and to services provide d by third partie s to these firms. If adopted, these enhanced standards will appl y to depository institutions and depository institution holding companie s with tota l consolidate d asset s of $50 billion or more , whic h include s the Parent Company and FCB. Climate-Related Regulation and Ris k Management. In recent years the federa l banking agencies have increase d thei r focus on climate-related risks impacting the operations of banks, the communitie s the y serve and the broade r financial system. Accordingly, the agencie s have begun to enhance thei r supervisory expectations regarding the climate ris k management practice s of larger banking organizations, such as BancShares, including by encouraging such banks to: ensure that managemen t of climate-relate d risk exposure s has bee n incorporated int o existing governance structures; evaluate the potential impact of climate-relate d risks on the bank’ s financial condition, operations and business objectives as part of it s strategic planning process; account for the effects of climate change in stress testing scenarios and systemi c ris k assessments ; revise expectations for credit portfolio concentrations based on climate-relate d factors; conside r investment s in climate-related initiatives and lending to communitie s disproportionately impacte d by the effects of climat e change; evaluat e the impac t of climat e change on the bank’s borrowers and conside r possible change s to underwriting criteria to account for climate-related risks to mortgage d properties; incorporate climate-related financial risk into th e bank’s interna l reporting, monitoring and escalation processes; and prepar e for the transition risks to the bank associate d with the adjustment to a low-carbon economy and related change s in laws, regulations, governmenta l policies, technology, an d consume r behavior and expectations. 13 On Octobe r 21, 2021, the Financial Stability Oversight Counci l publishe d a report identifying climate-relate d financial ris k as an “emerging threat ” to financial stability. On December 16, 2021, the OC C issue d propose d principles for climate-related financial ris k managemen t for nationa l banks wit h more tha n $100 billion in total assets. The OC C has also indicated tha t all banks, regardless of their size , may have material exposures to climate-relate d financial and othe r risks tha t require prudent management. The federal banking agencies, eithe r independentl y or on an interagenc y basis , are expecte d to adopt a more forma l climate risk management framework for larger banking organizations in the coming months. In addition, states in which we conduc t business have taken, or are considering taking, simila r actions on climate-related financia l risks. Othe r Regulated Subsidiaries As note d above , certain subsidiarie s of the Parent Company and FC B are subjec t to regulation, supervision, and examination by the SEC , FINRA, stat e regulatory agencies, and othe r regulatory authoritie s as “regulated entities.” FCB’s insuranc e activitie s are subject to licensing and regulation by stat e insuranc e regulatory agencies. Each of CIT's insuranc e subsidiarie s acquire d by FCB in th e CIT Merger is also licensed an d regulated in the state s in which the subsidiaries conduc t insuranc e business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspect s and busines s conduc t of insurers . Stat e law s in the U.S. grant insurance regulatory authoritie s broad administrative powers with respec t to, among othe r things: licensing companies and agents to transact business; establishing statutory capital and reserve requirements and the solvency standards tha t must be me t and maintained; regulating certain premium rates; reviewing and approving policy forms; regulating unfai r trade and claims practices, including through the imposition of restrictions on marketing and sale s practices, distribution arrangement s and payment of inducements; approving changes in control of insuranc e companies; restricting the paymen t of dividends and othe r transactions betwee n affiliates; and regulating the types, amounts and valuation of investments. CIT’s Vermont insuranc e captive subsidiary (acquire d in the CIT Merger ) is require d to fil e reports , generally including detaile d annua l financial statements, with th e insurance regulatory authority, and it s operations and accounts are subjec t to periodic examination by such authorities. Specialty busines s operations that wer e under CIT’ s Commercia l Financ e Division prior to the CIT Merger, an d specificall y the Rail, Maritime, an d othe r equipment financing operations, are subjec t to various laws, rules , and regulations administered by authoritie s in jurisdictions where busines s is conducted. In the United States, equipment financing and leasing operations, including for railcars, ships, and othe r equipment, are subject to rule s and regulations relating to safety, operations, maintenance , and mechanical standards promulgated by various federal and stat e agencies and industry organizations, including the U.S. Department of Transportation, the Federal Railroa d Administration, the Association of American Railroads, the Maritim e Administration, the U.S. Coas t Guard, and the U.S. Environmenta l Protection Agency. In addition, state agencies regulat e some aspects of rail and maritime operations with respect to health an d safety matters. Available Information The Parent Company does not have it s own separate Internet website . However, FCB’s websit e (www.firstcitizens.com) include s a hyperlink to the SEC website where the publi c may obtain copies of BancShares ’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendment s to those reports, free of charge, as soon as reasonably practicable afte r the y are electronically filed with or furnished to the SEC . Intereste d partie s may also directly access the SEC’s website (www.sec.gov), whic h contains reports, proxy and information statements and othe r information electronicall y filed by BancShares . Except as specifically incorporated by referenc e int o thi s Annual Report on Form 10-K, information on those websites is not part of this report. Ite m 1A. Ris k Factors Ris k Factor Summary We are subjec t to a numbe r of risks and uncertaintie s tha t coul d have a material impact on our business, financial condition and result s of operations and cash flows. As a financial services organization, certain element s of risk are inherent in our transactions and operations and are present in the busines s decisions we make. We encounte r risks as part of the norma l course of our business, and our success is dependent on our ability to identify, understand and manage the risks presented by our busines s activities. We categorize risks int o the following areas, and the principa l risks and uncertaintie s tha t management believes make an investment in us speculative or risky are summarized within thei r respective areas: • Strategi c Risks: The risks to our earnings or capital arising from our busines s decisions or improper implementation of those decisions. ◦ We may be adversely affecte d by risks associated wit h completed, pending or any potential future acquisitions. 14 ◦ We may fail to realize all of the anticipate d benefits of the CIT Merger , or those benefits ma y tak e longe r to realize than expected. We may also encounte r significant difficulties in integrating with the acquired operations. • Operational Risks: The risk s of loss resultin g from inadequate or faile d processes, peopl e and system s or from externa l events, including, but not limite d to, th e COVID-19 pandemic. ◦ We fac e significant operational risks in our businesse s and may fail to maintain appropriate operational infrastructure and oversight. ◦ A cyber attack , information or securit y breach, or a technology failure of ours or of a third party could adversely affec t our abilit y to conduc t our business, manage our exposure to risk, result in the disclosure or misuse of confidential customer or employee data or proprietary information, increas e our cost s to maintain and update our operational and securit y systems and infrastructure. This could adversely impac t our results of operations, liquidity and financial condition, as well as cause us legal or reputational harm. The continue d economic impacts of the COVID-19 pandemic are expected to continue to affec t our business, financial condition and result s of operations. ◦ • Credi t Risks: The risks that a borrower wil l fai l to perform on an obligation or tha t our risk management processes wil l fai l or be insufficient. If we fail to effectivel y manage credit risk, our business and financial condition will suffer. ◦ ◦ Our allowance for credi t losse s may prove to be insufficient to absor b losses in our loan portfolio. • Market Risks: The risks to our financial condition resulting from adverse movement s in market rates or prices, including, but not limite d to, interest rates, foreign exchange rate s or equit y prices. ◦ Unfavorable economic or political conditions, as considered through a range of metrics , have and could continue to adversely affec t our business. ◦ Failure to effectivel y manage our interes t rat e risk coul d adversely affec t us. • Liquidity Risks: The risks that we wil l be unabl e to mee t our obligations as the y com e due because of an inabilit y to (i) liquidate assets or obtain adequat e funding, or (ii ) unwind or offset specific exposures without significantly lowering market prices because of inadequat e marke t depth or marke t disruptions , or tha t we wil l not meet the liquidity management requirement s we expec t to be applicabl e to us as a Category IV banking organization, subjec t to the applicabl e transition periods. ◦ If our current leve l of balanc e sheet liquidity were to experience pressure , it could affec t our abilit y to pay deposit s and fund our operations. ◦ We expec t to be subjec t to enhanced liquidity ris k management requirement s as a Category IV banking organization, subjec t to the applicabl e transition periods , including reporting, liquidity stres s testing, and a liquidity buffer, and failure to meet these requirement s coul d resul t in regulatory and compliance risks , and possible restrictions on our activities. • Capital Adequac y Risks: The risks that our capital level s are inadequate to preserve our safet y and soundness, support our ongoing busines s operations and strategies and provide us with support against unexpected or sudden changes in th e business/economi c environment. ◦ Our ability to grow is contingent upon access to capital , whic h may not be readil y available to us. ◦ We are subject to capital adequac y and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected. • Compliance Risks: The risks of loss or reputationa l harm to us resulting from regulatory sanctions, fines, penaltie s or losse s due to our failure to comply wit h laws, rules, regulations or othe r supervisory requirement s applicable to us. ◦ We operate in a highl y regulated industry, and the laws and regulations that govern our operations, taxes, corporat e governance, executive compensation and financial accounting and reporting, including change s in the m or our failure to comply with them, may adversely affec t us. ◦ We face compliance risk s related to the specialt y commercial busines s line s acquired from CIT. • Asse t Risks: The risks that th e value of our long-live d assets wil l be lower tha n expected, resulting in reduced income or depreciation ove r the remaining life of the asse t or a lower sale value. ◦ We may not be abl e to realize our entire investment in th e equipment that we lease to our customers. 15 • Financial Reporting Risks: The risks tha t our financial information is reported incorrectl y or incompletely, including through th e imprope r application of accounting standards or othe r errors or omissions. ◦ Accounting standards may change and increase our operating costs or otherwise adversely affec t our results. ◦ Our accounting policies and processe s are critical to the reporting of our financial condition and results of operations. They requir e management to make estimates about matters that are uncertain, and such estimates may be incorrect. The risks an d uncertaintie s tha t management believes are materia l to an investment in us are described below. Additional risks an d uncertaintie s tha t are not currentl y known to management or tha t management does not currentl y dee m materia l coul d also have a material adverse impac t on our financial condition, the results of our operations or our business. If such risks and uncertaintie s were to materialize or the likelihoods of the risks wer e to increase, we could be adversely affected, and the market pric e of our securitie s could significantly decline. Strategi c Risks We may be adversely affecte d by risks associated with completed, pending or any potential future acquisitions. We pla n to continue to grow our busines s organically. However, we have pursued and expect to continue to pursue acquisition opportunities that we believe support our busines s strategies and ma y enhance our profitability. We must generally satisfy a numbe r of materia l conditions prior to consummating any acquisition including, in many cases, federal and stat e regulatory approval. We ma y fail to complete strategi c and competitively significant busines s opportunities as a result of our inabilit y to obtain required regulatory approvals in a timel y manner or at all, or the approval for such opportunity coul d include conditions imposing additional costs or limitations tha t reduc e the anticipated related benefits. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the America n Economy encouraging the United States Attorney General along with the federal banking agencies to review the framework for evaluating bank mergers and acquisitions under the BHC Act and the Bank Merger Act. Additionally, the Directo r of the CFPB has publicl y sought a greate r role for the CFPB in the evaluation of bank merger proposals . Any enhance d regulatory scrutiny of bank mergers and acquisitions and revision of the regulatory framework for approva l of bank mergers could adversely affect the marketplace for bank merger transactions and coul d result in potential future acquisitions by us being delayed, impede d or restricted in certain respects and result in new rules tha t possibly limi t the size of financial institutions tha t we may be abl e to acquire in the future or alte r the terms for such transactions. We ma y be unsuccessful in identifying, consummating or integrating any potential acquisitions. Acquisitions of financial institutions, assets of financial institutions or othe r operating entitie s involve operational risks and uncertainties, and acquired companies or assets ma y have unknown or contingent liabilities, exposure to unexpected asse t qualit y problems that require write downs or write-offs, additiona l regulatory requirements or difficulty retaining key employee s and customers. Due to these and othe r issue s relating to acquisitions, we ma y not be abl e to realize projected cost savings , synergie s or other benefit s associate d with any such acquisition. Failure to efficiently integrate any acquire d entitie s or assets into our existing operations coul d significantl y increase our operating costs and consequentl y have material adverse effect s on our financial condition and results of operations. We may fail to realize all of the anticipate d benefits of th e CIT Merger, or those benefits may tak e longe r to realize than expected. We may also encounter significant difficultie s in integrating wit h the acquired operations. The success of the CIT Merger, including anticipate d benefit s and cost savings , will depend, in substantia l part , on our ability to successfully integrate the acquire d operations in a manner tha t result s in various benefits, such as anticipated synergie s or cost savings , and tha t does not materiall y disrupt existing customer relationship s or resul t in decreased revenues due to loss of customers. The process of integrating operations has resulted in a loss of key personne l and could cause an interruption of, or loss of momentum in, the activities of our business. Inconsistencie s in standards, controls, procedures and policie s could adversely affect us. The diversio n of management’s attentio n and any delays or difficultie s encountered in connection wit h the integration of the acquire d operations could have an adverse effect on our business, financia l condition, operating results and prospects. If we experienc e difficulties in the integration process, including those listed above , we may fai l to realize th e anticipated benefit s of the CIT Merger in a timel y manner or at all. In particular, the impacts of the pandemic caused by COVID-19 and its variant s may make the integration more costly or more difficul t to effect , which, in turn, ma y mak e it more difficult for us to realize anticipate d synergie s or cost savings in th e amount s estimated or in the time frame contemplate d or at all. 16 We have incurre d and expec t to continue to incur substantial expenses related to the integration of the operations acquire d in connection with the CIT Merger. There are a large numbe r of processes, policies , procedures , operations, technologie s and system s tha t must be integrate d in connection with the consummation of the CIT Merger, and integration remains in process and is expecte d to continue for some time . While we have attempted to accurately forecast a certain level of expenses tha t will be incurred in connection with such integration, there are many factors beyond our control tha t have affecte d and coul d continue to affect the total amount and the timing of the integration expenses. Moreover, many of the integration expenses tha t will be incurred are, by their nature, difficul t to estimate accurately . Thes e expenses could materiall y excee d our current estimate s and, consequently, could materiall y adversely affec t our future earnings. Our future result s will suffer if we do not effectivel y manage our expanded operations following th e CIT Merger. Following the consummation of the CIT Merger, the siz e and geographic and operational scope of our busines s has increased significantly. The CIT Merger more than double d our asse t size , increased the breadth and complexit y of our busines s with the addition of new busines s lines in which we have not previously engaged and expanded our geographic scope to new geographic areas. Our future success depends, in part , upon the abilit y to manage this expande d business, which will pose substantial challenge s for management, including challenge s related to the managemen t and monitoring of new and expanded operations and associate d increased costs and complexity. We ma y be unsuccessful in thi s regard or fai l to realize the expected operating efficiencies, cost savings and other benefits currentl y anticipate d from th e CIT Merger. We encounter significant competition that may reduce our market share and profitability. We compete wit h othe r banks and specialized financial services providers in our market areas. Our primary competitors include local , regional and nationa l banks; credit unions; commercial finance companies; leasin g companies; various wealth management providers; independent and captive insuranc e agencies; mortgage companies; and othe r non-bank providers of financial services. Some of our larger competitors, including certain banks wit h a significant presenc e in our market areas, have the capacity to offer product s and services we do not offer. Some of our non-bank competitors operate in less stringent regulatory environments, and certain competitors are not subjec t to federal or stat e income taxes . The fierce competitive pressure s that we fac e adversel y affect pricing for many of our products and services. Additionally, technology and othe r changes are allowing partie s to complete financial transactions tha t historicall y have involved banks through alternative methods without involving banks. For example, consumers ca n now maintai n funds that would have historically bee n held as bank deposit s in brokerage accounts, mutual funds or virtual accounts. Consumers ca n also complete transactions, such as paying bills or transferring funds directly without the assistanc e of banks. Transactions utilizing digita l assets, including cryptocurrencies, stablecoins and othe r simila r assets, have increased substantially. Certain characteristics of digita l asse t transactions, such as the speed with which such transactions ca n be conducted, the abilit y to transact without the involvement of regulated intermediaries, the abilit y to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions--, are appealing to certain consumers. Accordingly, digita l asse t servic e providers —which, at present , are not subjec t to as extensive regulation as banking organizations and othe r financial institutions—have become activ e competitors fo r our customers’ banking business. The process of eliminating banks as intermediaries, known as “disintermediation,” coul d result in the loss of fee income, as wel l as the los s of customer deposit s and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposit s as a source of funds coul d have a material adverse effect on our financial condition and results of operations. Certain provisions in our Certificat e of Incorporation and Bylaw s may prevent a change in management or a takeover attempt a shareholde r might consider to be in thei r best interests. Certai n provisions containe d in our Amende d and Restate d Certificate of Incorporation (our “Certificate of Incorporation) and Amende d and Restate d Bylaws (our “Bylaws” ) coul d delay or prevent the removal of our directors and othe r management. The provisions could also delay or make more difficul t a tender offer, merger or proxy contest a shareholder might conside r to be in their best interests. For example , our Certificate of Incorporation and Bylaws: • • • allow the Board to issue and set the terms of preferred share s without furthe r shareholder approval; limi t who ca n cal l a specia l meeting of shareholders; and establish advance notice requirements for nominations for election to the Board and proposals of othe r busines s to be considered at annual meetings of shareholders. 17 These provisions, as well as provisions of the BHC A and othe r relevant statutes and regulations that require advanc e notice and applications for regulatory approva l of changes in control of banks and bank holding companies , may discourage bids for our common stock at a premium over market price, adversely affecting the pric e tha t coul d be received by our shareholders for our common stock. Additionally, the fac t that th e Holding famil y holds or controls share s representing approximately 50%, and in the pas t hav e hel d or controlled shares representing more than 50%, of the voting power of our common stock ma y discourage potential takeove r attempt s and bids for our common stoc k at a premium ove r market price. Our Bylaw s provide that, unless we consent in writing to the selectio n of an alternative forum, the Court of Chancery of the Stat e of Delaware will be the sole and exclusive forum for substantiall y all disputes betwee n us and our shareholders. This coul d limit our shareholders’ abilit y to obtai n a favorable judicial forum for disputes with us or our directors, officers, or employee s or agents. Our Bylaws provide that , unless we consent in writing to the selectio n of an alternative forum, the Court of Chancery of the Stat e of Delaware will be th e sol e and exclusive forum for (i) any derivative actio n or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, othe r employees or shareholder to us or our shareholders; (iii) any action asserting a claim against us arising pursuant to any provision of the General Corporation La w of the State of Delaware or as to which the Genera l Corporation La w of the Stat e of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim against us governe d by the interna l affairs doctrine . These choic e of forum provisions do not preclude or contrac t the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. Accordingly, our choice of forum provisions wil l not relieve us of our duties to comply with the federal securitie s law s and the rule s and regulations thereunder, and our shareholders wil l not be deeme d to have waived our complianc e wit h these laws, rules and regulations. These choic e of forum provisions ma y limit a shareholder’s ability to bring a claim in a judicial forum of it s choosing for dispute s with us or our directors, officers or othe r employees or agents, which ma y discourage lawsuits against us and our directors, officers and othe r employees or agents. If a court were to fin d the choic e of forum provision contained in our Bylaws to be inapplicable or unenforceable in an action, we ma y incur additional costs associate d with resolving such action in othe r jurisdictions, which coul d harm our business, result s of operations, and financial condition. Eve n if we are successful in defending against these claims, litigatio n coul d result in substantia l costs an d be a distraction to management an d othe r employees. We rel y on dividends from FC B for paying dividends on our common and preferre d stock and servicing our debt obligations, and FCB’s abilit y to pay us dividends is restricted. As a financial holding company, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends pai d by FCB. These dividends are the primary source from which we pay dividends on our common and preferred stock and interest and principa l on our debt obligations. Stat e and federal laws impose restrictions on the dividends tha t FCB may pay to us. In the event FC B is unabl e to pay dividends to us for an extende d period of time , we may not be abl e to service our debt obligations or pay dividends on our common or preferred stock, and the inability to receive dividends from FC B could consequentl y have a material adverse effect on our business, financia l condition an d result s of operations. Our financial performance depends upon our abilit y to attract and retai n customers for our products and services, whic h may be adversely impacte d by weakene d consume r or busines s confidence and by any inability on our part to predic t and satisfy customers’ needs and demands. Our financial performanc e is subjec t to risks associate d with the loss of customer confidenc e and demand. A fragile, weakening or changing economy, or ambiguity surrounding the economi c future , may lesse n the demand for our product s and services. Our performance ma y also be negativel y impacte d if we fai l to attrac t and retai n customers because we are not abl e to successfully anticipate , develop and market product s and services that satisfy market demands. Such events could impac t our performance through fewer loans, reduced fee incom e and fewer deposits, each of which coul d resul t in reduced net income. The COVID-19 pandemic, while disruptive to our customers and the economy, has not le d to a significant decline in our product s and services to date , but it could if it s impact on us and our customers continue s or increases in the future. 18 New technologies , and our abilit y to efficiently and effectivel y implement , market and deliver new products and services to our customers present competitive risks. The financial services industry is continually undergoing rapi d technological change wit h frequent introduction of new technology-drive n product s and services. The effective use of technology increases efficienc y and enable s financial institutions to bette r serve customers and to reduc e costs . The rapi d growth of new digital technologies related to the digitizatio n of banking services and capabilities, including through interne t services, smart phones and othe r mobile devices, require s us to continuously evaluate our product and servic e offerings to ensure the y remai n competitive . These trends were accelerated by the COVID-19 pandemi c increasing demand for mobile banking solutions. Our success depends in part on our ability to adapt and delive r our product s and services in a manner responsive to evolving industry standards and consume r preferences. New technologie s by banks and non-bank servic e providers ma y creat e risks if our product s and services are no longe r competitive with then-current standards, and coul d negativel y affect our ability to attract or maintai n a loya l customer base. We ma y not be abl e to effectively implement new technology-driven product s and services that allo w us to remai n competitive or be successful in marketing these product s and services to our customers. These risks may affec t our ability to grow and coul d reduc e our revenue streams from certain product s and services, while increasing expenses associate d with developing more competitive solutions, which could adversel y affect our result s of operations and financia l condition. Operational Risks We fac e significant operational risk s in our businesses and may fail to maintai n appropriate operational infrastructur e and oversight. Safel y conducting and growing our busines s requires that we creat e and maintai n an appropriat e operational and organizational control infrastructure. Operationa l risk ca n arise in numerous ways, including employe e fraud, customer fraud and control lapses in bank operations and information technology. Our dependenc e on our employees and interna l and third party automate d system s to record and process transactions ma y furthe r increase the risk tha t technica l failure s or system-tampering will result in losses that are difficul t to detect. We may be subject to disruptions of our operating system s arising from events tha t are wholl y or partiall y beyond our control. Failure to maintai n appropriat e operational infrastructure and oversight ca n lead to loss of servic e to customers, legal actions and noncomplianc e with various laws and regulations, al l of which coul d have a material adverse impac t on our business, financial condition and result s of operations. Our interna l controls that are intende d to safeguard and maintai n our operational and organizational infrastructure and information have inherent limitations and ma y not be successful. A cyber attack , information or securit y breach, or a technology failure of ours or of a third party coul d adversely affec t our abilit y to conduc t our business, manage our exposure to risk , resul t in the disclosur e or misuse of confidential custome r or employee data or proprietary information, increase our costs to maintai n and update our operational and securit y systems and infrastructure. This coul d adversely impact our results of operations, liquidity and financial condition, as well as cause us legal or reputational harm. Our businesse s are highly dependent on the security and efficac y of our infrastructure , computer and data management systems, as wel l as those of third parties wit h whom we interac t or on whom we rely. Our businesses rel y on the secur e processing, transmission, storage and retrieval of confidential, proprietary and othe r information in our computer and dat a management systems and networks, and in the computer and dat a management system s and networks of third parties. In addition, to access our network, product s and services, our customers and othe r third partie s may use personal mobil e device s or computing devices tha t are outside of our network environment and are subjec t to their own cybersecurity risks, whic h may provide a point of entry fo r adverse effects on our own network environment. We , our customers, regulators and othe r third parties have bee n subjec t to, and are likely to continue to be the target of, cyber attacks. These cybe r attacks include computer viruses, malicious or destructive code , ransomware , phishing attacks, denial of service or information or othe r securit y breache s tha t coul d resul t in the unauthorize d release , gathering, monitoring, misuse, loss or destruction of confidential, proprietary and othe r information of ours, our employees, our customers or of third parties, damages to systems, or othe r materia l disruption to our or our customers’ or othe r third parties’ network access or business operations. As cybe r threat s continue to evolve, we have bee n and will likel y continue to be require d to expend significant resource s to continuously enhance our protective measures and ma y be required to expend significant resources to investigate and remediat e any information security vulnerabilities or incidents. We ma y not be abl e to anticipate al l security breaches, nor ma y we be abl e to implemen t guaranteed preventive measures against such securit y breaches. Additionally, a securit y breach ma y be difficult to detect, even afte r it occurs, which ma y compound th e issue s relate d to suc h breach. 19 Cybersecurit y risks for banking organizations have significantl y increase d in recent years in part becaus e of the proliferation of new technologies and the use of the internet to conduc t financial transactions. These risks are expecte d to continue in the future as that proliferation intensifies. For example, we wil l likely see an increase in cybersecurity risks in the future as we continue to augment our mobile-payment and othe r internet-based product offerings and expand our interna l usage of web-based products and applications. In addition, financially motivate d attacks remai n a challenge from a cybercrime perspectiv e due to the increased sophistication and activitie s of organize d crime groups, hackers, terrorist organizations, hostil e foreign governments, disgruntled employees or vendors, activists and othe r externa l parties, including those involved in corporate espionage . Even the most advanced interna l control environment ma y be vulnerabl e to compromise. Additionally, the increase of supply chain attacks including third partie s with access to our dat a or those providing critica l services, remai n an emerging operational issue which could adversel y affect our business, customers, reputation and operations. Although to dat e we are not aware of any materia l losse s or othe r materia l consequence s relating to technology failure , cyber attacks or othe r information or security breaches, whethe r directed at us or third parties, we ma y suffer such losse s or other consequence s in the future. We also face indirect technology, cybersecurity and operational risks relatin g to the customers and othe r third partie s with whom we do busines s or upon whom we rely to facilitat e or enable our busines s activities, including financial counterparties; financial intermediarie s such as clearing agents, exchange s and clearing houses; vendors; regulators; and providers of critical infrastructure such as internet access and electrica l power. As a result of increasing consolidation, interdependence and complexit y of financial entities and technology systems, a technology failure , cybe r attac k or othe r information or security breach tha t significantl y degrades, deletes or compromises the system s or dat a of one or more financial entities could have a material impact on counterparties or othe r market participants, including us. Thi s consolidation interconnectivit y and complexit y increases the ris k of operational failure , on both individua l and industry-wide bases , as disparate system s nee d to be integrated, ofte n on an accelerated basis . Any third-part y technology failure , cybe r attac k or othe r information or security breach, termination or constraint could, among othe r things, adversely affect our ability to effect transactions, servic e our customers, manage our exposure to risk or expand our businesses. Cyber attacks or othe r information or security breaches, whethe r directed at us or third parties, ma y result in a materia l loss or have material consequences. Furthermore, the publi c perception tha t a cybe r attac k on our system s has bee n successful , whether or not thi s perception is correct, ma y damage our reputation with customers and third partie s with whom we do busines s and ma y encourage furthe r cybe r attacks. A successful penetratio n or circumvention of system security could cause us negative consequences, including loss of customers and busines s opportunities, disruption to our operations and business, misappropriation or destruction of our confidentia l information and tha t of our customers, or damage to our customers’ and third parties’ computers or systems, and coul d result in a violation of applicabl e dat a privacy and protection laws and other laws, litigation exposure, regulatory fines, penaltie s or intervention, loss of confidenc e in our security measures , reputational damage , reimbursement or othe r compensatory costs , and additional compliance costs, any of which coul d adversely impac t our result s of operations, liquidity an d financial condition. The continued economic impacts of the COVID-19 pandemi c are expecte d to continue to affect our business, financial condition and results of operations. Beginning in early 2020, COVID-19 spread across most of the world, including the United States. The COVID-19 pandemic, sustained by the sprea d of new, more-transmissible coronavirus variants, has continued to cause severe disruptions to the Unite d States economy, regional quarantines, busines s and school shutdowns, high unemployment , disruptions to supply chains and overall economic instability, which has adversel y impacte d the operations, activitie s and busines s of our customers. Effects have generally been felt across all industries, including financial services. In response to the national publi c healt h crisis, federal , stat e and local government s have imposed and continue to impose an array of restrictions on the way we conduct our operations and on our customers, busines s partners, vendors and employees. These restrictions, along with othe r economi c factors including inflation risks, oil pric e volatility and changes in interest rates have and ma y continue to destabiliz e financial market s and negativel y impac t our customers’ busines s activitie s and operations, making it difficul t for them to satisfy existing debt obligations. The y als o have le d to periods of elevate d unemployment and slowe r consumer spending, which, in turn, has previously temporaril y increased our collection risk as deteriorating economic conditions correlate wit h lower credit quality metrics and highe r custome r default s on loans. Economi c pressure s and uncertaint y have and ma y continue to change consume r and busines s behaviors, which, in the short and long term, coul d affect borrowers’ creditworthiness and the demand for loans and othe r products and service s we offer. We are actively monitoring the loa n portfoli o to identify changes in credit ris k within a specific geography, loa n class, or withi n a particula r industry concentration; provision expense could increase as we incorporate these change s int o our estimat e on the allowance fo r credit losses. 20 Additionally, our operations have experienced modification as we continue to operate in a primarily remote working environment for many corporate employee s and as we have adjusted branc h operations and corporate processes. With continued uncertaint y around outbreak severity and vaccine effectivenes s and acceptance , particularly in regards to coronavirus variants, ther e may be increased absenteeism and lost productivity as a result of the remote workforce. We hav e see n an increased incidence of cybersecurity threat s and fraud as cyber-criminals look to profit from the disruption and potential strain on information technology relating to a regularl y remote working environment. The COVID-19 pandemi c has significantl y reduced demand for goods and servic e for many customers and othe r businesses in sectors tha t we service. In the retai l sector, our exposure is primarily in the factoring business, principall y in trade receivables, and to a lesser extent in the commercia l rea l estate business. In the hospitality and transportation sectors, we have loan exposures to the restaurant, lodging, gaming, maritime, aviation and rai l industries. The significant declines in the pric e of, or demand for, oil and gas ma y have negative effect s on not only our loa n exposures in the exploration and production sector, but ma y als o lea d to a decreased demand for our railcars, and coul d have a significant adverse effec t on the demand for ships that are collatera l for our loans. Further, we have exposure to smal l businesses through both equipment loans and leases and through SB A loans, which coul d be adversely affected by the extensive closure of businesses in many states during the COVID-19 pandemic. We also have exposure to single famil y residentia l mortgages, which coul d be adversely affected by job losse s due to the economi c dislocation resulting from the COVID-19 pandemic. Further, during the COVID-19 pandemi c we implemented several form s of temporary relie f to our consume r and commercial customers, including payment deferrals , suspension of foreclosures and evictions, and fee waivers for AT M transactions, overdrafts, and early withdrawal of certificates of deposit, which ma y adversely affect our revenue and result s of operations or result in highe r rates of default and increased credit losses in future periods. The effects of the COVID-19 pandemi c on economi c and market conditions have increase d demands on credit facilitie s that we provide to our customers, which could have an adverse impac t on our liquidity. Market volatility and general uncertaint y in the capital market s relate d to the COVID-19 pandemi c may also impac t our business. Our access to capital and liquidity coul d be limited by market disruptions, which coul d be exacerbated by delays in customer payment s or significant withdrawals from customer deposit accounts. In addition, the fai r valu e of our assets and liabilities have been and will continue to be impacte d by the changing market environment . Thi s coul d als o increase liquidity and capita l adequacy risks, as well as long-live d asse t impairment risk. As the government and it s regulatory bodie s respond to the COVID-19 pandemic, it increases the burden on our associate s to quickly process and respond to changing regulatory guidance . Thi s increases the ris k of noncompliance, which coul d expose us to liabilit y or othe r adverse effects. The effects of the COVID-19 pandemi c will heighte n specific ris k factors an d coul d impac t substantiall y all risk factors described herein. Those effect s will adversel y affect our busines s operations and result s at least unti l the outbreak has subsided to a manageabl e level , and the negativ e effect s on the economy, our customers and our busines s and result s likel y will continue to be fel t for some time afterwards. The full extent of the impac t wil l depend on future developments that are highl y uncertain including the duration and spread of the outbreak, it s severity, vaccine effectiveness and acceptance , governmental actions to contai n the virus (including it s variants) and the long-term economi c impact, both globally, as wel l as in our banking markets, which includes the potential for furthe r recession. We are subject to litigation and othe r legal liabilit y risks, and our expenses relate d to such risk s may adversely affec t our results. We are subjec t to litigation risks in the ordinary course of our business. Claim s and legal actions, including supervisory actions by our regulators, tha t have bee n or may be initiated against us (including against entitie s tha t we acquire ) from time to time coul d involve large monetary sums and significant defense costs. During the last credi t crisis, we saw th e numbe r of cases and our expenses related to those cases increase and expect to see the sam e in future credit crises. The outcome s of such cases are always uncertai n unti l finally adjudicate d or resolved. In the course of our business, we ma y foreclose on and take titl e to rea l estate that contains or was used in the manufacture or processing of hazardous materials or tha t is subject to othe r environmenta l risks. In addition, we ma y lease equipment to our customers that is used to mine, develop, process or transport hazardous materials. As a result , we could be subjec t to environmenta l liabilities or claims for negligence , propert y damage or personal injury with respec t to these propertie s or equipment. We ma y be hel d liabl e to a governmental entity or to third partie s for propert y damage , personal injury, investigation and clean-up costs incurre d by these parties in connection with environmenta l contamination, accident s or other hazardous risks , or may be required to investigate or clea n up hazardous or toxi c substances or chemica l releases at a property. The costs associate d with investigation or remediation activitie s coul d be substantial. In addition, if we are the owner or former 21 owne r of a contaminate d sit e or equipment involved in a hazardous incident , we may be subject to common la w claim s by third partie s based on damage s and costs resulting from environmenta l contamination, propert y damage , personal injury or other hazardous risks emanating from the propert y or related to the equipment. We establish reserve s for legal claims when payment s associate d with the claims become probabl e and our liability ca n be reasonably estimated. We ma y still incu r legal costs fo r a matte r eve n if we have not established a reserve . In addition, the actua l amount pai d in resolution of a legal clai m may be substantiall y highe r tha n any amounts reserved for the matter . The ultimat e resolution of a legal proceeding, depending on the remedy sought and any relie f granted, coul d materiall y adversely affect our result s of operations and financia l condition. Substantia l legal claims or significant regulatory action against us coul d have material adverse financial effects or cause significant reputationa l harm to us, which in turn coul d seriously harm our busines s prospects. We ma y be exposed to substantia l uninsured legal liabilities an d regulatory actions which coul d adversely affect our result s of operations and financial condition. For additional information, refe r to the Note s to the Consolidate d Financia l Statements, Note T, Commitments and Contingencies, in thi s Annual Report on Form 10-K. We depend on qualifie d personne l for our success and may not be able to retain or attract such personnel. Our success depends to a grea t extent on our ability to attract and retai n highl y skilled and qualified executive officers and management, financial , compliance, technical, operations, sales, and support employees, which has taken on heightened importance becaus e of the significant expansion of the siz e and geographic and operational scope of our busines s tha t occurred in connection with the CIT Merger. We fac e significant competition in the recruitment of qualified executive officers and employees. Losse s of, or changes in, our current executive officers or othe r personnel and their expertise and services, or substantia l increases in the costs of employe e compensation or benefits, ma y disrupt our busines s and coul d adversely affect our financial condition and result s of operations. We have develope d an executive officer succession plan, but it ma y be ineffective, or we may fai l in implementin g it. We ma y be unsuccessful in retaining our current executive officers or othe r key personnel , or hiring additional key personnel to assist in executing our growth, expansion and acquisition strategies, al l of which coul d cause those strategie s to fai l or be les s successful tha n the y would otherwise be. Our compensation practice s are subject to review and oversight by the Federal Reserve, th e FDIC and othe r regulators. The federal banking agencies have issued joint guidance on executive compensation designe d to hel p ensure tha t a banking organization’s incentive compensation policies do not encourage imprudent ris k takin g and are consistent wit h the safet y and soundness of the organization. In addition, the Dodd-Frank Act required those agencies, along with the SEC , to adopt rule s to require reporting of incentive compensation and to prohibi t certain compensation arrangements. In Octobe r 2021, the SEC signaled a renewed interest in it s incentive compensation rulemaking initiative by re-opening th e comment period on a proposed rule regarding “clawbacks ” of incentive-based executive compensation. If as a resul t of complying with such rule s we are unabl e to attract and retai n qualified employees, or do so at rates necessar y to maintai n our competitive position, or if the compensation costs require d to attract and retai n employees become more significant, our performance , including our competitive position, coul d be materially adversel y affected. We are exposed to losse s related to fraud. As technology continues to evolve , criminal s are using increasingl y more sophisticated technique s to commi t and hide fraudulent activity. Fraudulent activity that we are exposed to ca n com e in man y forms, including debit card/credi t card fraud, check fraud, wire fraud, electroni c scanning devices attache d to ATM machines, socia l engineering, digital fraud an d phishing attack s to obtain personal information an d fraudulent impersonation of our customers through th e use of falsified or stolen credentials . We expec t that combating fraudulent activities as the y evolve will requir e continued ongoing investment s and attention in th e futur e as significant fraud coul d caus e us direct losse s or impair our custome r relationships, among other potential consequences, adversely impacting our reputation or results of operation. Our business and financial performance could be impacte d by natural or man-made disasters , global pandemics, acts of war or terrorist activities, climate change or othe r adverse external events. Natura l or man-made disasters (including, but not limite d to, earthquakes, hurricanes, tornadoes, floods, fires, pollution, and explosions), globa l pandemics, acts of war, terrorist activities, climat e change or othe r adverse external events could hurt our financial performanc e (i) directly through damage to our facilitie s or othe r impacts to our ability to conduc t busines s in the ordinary course, and (ii ) indirectl y through such damage or impacts to our customers, suppliers or othe r counterparties. In particular, a significant amount of our busines s is concentrate d in North Carolina, South Carolina, California , Texas, New York and Florida, including areas where our facilitie s and retail and commercia l customers have bee n and in the future could be 22 impacted by hurricane s and flooding, earthquakes or wildfires. We also do business in Georgia , Virginia, Nebraska, Arizona, Ne w Jersey , Hawaii, Nevada , as well as in Canada , all of whic h als o include area s significantly exposed to the foregoing risks. We could also suffe r adverse results to th e extent that disasters, wars, terroris t activities, riot s or civil unres t affect the broader market s or economy or our operations specifically. Our ability to minimiz e the consequences of such events is in significant measure reliant on the qualit y of our disaste r recovery planning and our ability, if any, to forecast the events, and such quality and abilit y may be inadequate. There has bee n increasing politica l and socia l attention to the issue of climat e change. Federa l and stat e legislators and regulatory agencies have propose d and continue to advance numerous legislative and regulatory initiative s seeking to mitigate the negativ e effect s of climate change. To the extent tha t these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to us, we would expect to experience increased complianc e costs and othe r compliance-related risks. Such climat e change-relate d measures ma y als o result in th e imposition of taxes and fees, the require d purchase of emission credit s or the implementatio n of significant operational changes, each of which ma y require us to expend significant capital and incur compliance , operating, maintenance and remediation costs. We are unabl e to predict how climat e change ma y impac t our financial condition and operations; however, as a banking organization, the physica l effect s of climate change ma y present certain unique risks to us. For example, an increase in the frequency or magnitude of natural disasters , shift s in loca l climate s and othe r disruptions related to climat e change may adversely affect the value of rea l propertie s securing our loans, which coul d diminish the value of our loa n portfolio. Such events ma y also cause reductions in regional and local economi c activit y tha t may have an adverse effec t on our customers. Consumers and businesses in communities that we serve ma y change their behavior and preferences as a result of these issues and new climate change laws and regulations aime d at mitigatin g climate change. The impac t on our customers will likely vary depending on their specific attributes, including their reliance on or role in carbon intensive activities ; however, we could experience a drop in demand for our product s and services , particularly in certain sectors. We ma y als o be subject to adverse action from our regulators or othe r third parties, suc h as environmental advocacy organizations, in relation to how our business relates to or has addresse d or faile d to address climat e change-relate d risks . Eac h of these outcome s coul d have a material advers e effec t on our financia l condition an d result s of operations. We rely on third party vendors to provide ke y components of our business infrastructure, and our vendors may be responsible for or contribut e to failure s that adversely affec t our operations. Third part y vendors provide key components of our business infrastructure, including certain dat a processing and information services. Their services could be difficul t to quickly replac e in the event of failure or othe r interruption in service. Failures of certain vendors to provide services could adversely affect our ability to delive r product s and services to our customers. Third part y vendors also present information security risks to us, both directly and indirectl y through our customers. Our monitoring of significant vendor risks, including the financial stabilit y of critica l vendors, ma y be inadequate and incomplete. Vendor risks in particula r are compounde d by the COVID-19 pandemic, as unexpected disruptions ca n impac t a third part y vendor’s operations with little warning. The failure of a critica l third part y vendor to provide key components of our business infrastructure coul d substantiall y disrupt our busines s and cause us to incur significant expense whil e harming our relationships with our customers. The quality of our data could deteriorat e and cause financial or reputational harm to th e Bank. Our Data Governance program is reliant on the execution of procedures, process controls and system functionality, and errors ma y occur. Incomplete , inconsistent , or inaccurat e dat a coul d lea d to non-complianc e with regulatory requirement s and result in fines. Additionally, adverse impacts on customers could result in reputationa l harm and customer attrition. Inaccurate or incomplet e dat a present s the ris k that busines s decisions relying on such dat a will prove inefficient, ineffective or harmful to us. Additionally, information we provide to our investors and regulators ma y be negativel y impacte d by inaccurat e or incomplete data, whic h coul d have a wide range of adverse consequence s such as legal liability an d reputationa l harm. Malicious action by an employe e could result in harm to our customers or th e Bank. Severa l high-profil e cases of employe e misconduc t hav e occurre d at othe r financial institutions. Suc h an event ma y lea d to large regulatory fines, as wel l as an erosion in customer confidence, which coul d impac t our financial and competitive position. Our employe e code of ethic s and policies governing our compensation, conduc t and sale s practice s may be inadequate to deter and respond to potentia l employee misconduct. 23 Credit Risks If we fail to effectivel y manage credi t risk, our busines s and financial condition will suffer. Effectively managing credit risks is essential for the operation of our business. There are credi t risks inherent in making any loan, including risks of repayment, risks with respec t to the period of time over which the loan ma y be repaid, risks relating to proper loa n underwriting and guidelines, risks resulting from changes in economi c and industry conditions, risks in dealing with individua l borrowers and risks resulting from uncertaintie s as to the future value of collateral . Our loa n approva l procedures and our credit ris k monitoring ma y be or become inadequat e to appropriatel y manage the inherent credi t risks associate d with lending. Our credit administration personnel , policies and procedures ma y not adequatel y adapt to changes in economi c or other conditions affecting customers and the qualit y of our loa n portfolio. Any failure to manage such credit risks may materially adversel y affect our business, consolidated result s of operations and financial condition because it ma y lea d to loans tha t we make not being pai d bac k in par t or in full on a timel y basis or at all. Our allowance for credi t losse s may prove to be insufficient to absorb losse s in our credit portfolios. We maintain an allowanc e for credit losse s (“ACL” ) tha t is designed to cove r expected credit losse s on loans tha t borrowers ma y not repa y in their entirety. A reserve is also maintained in othe r liabilities to cove r expected losse s for unfunded commitments. The AC L may not be sufficient to cove r actua l credit losses, and future provisions for credit losse s could materiall y and adversely affect our operating results. Accounting measurement s related to asse t impairment and the ACL requir e significant estimate s tha t are subject to uncertaint y and revisions drive n by new information and changing circumstances. The significant uncertaintie s surrounding our borrowers’ abilities to conduc t their businesses successfully through changing economi c environments, competitive challenges and othe r factors complicat e our estimate s of the ris k and amount of loss on any loan. Due to the degree of uncertaint y and the susceptibility to change, the actual losses may vary substantiall y from current estimates. We also expec t fluctuations in the AC L due to economi c changes nationally as wel l as locally within th e states in which we conduct business. Thi s is especially true as the economy react s to the continuation of and potential recovery from the COVID-19 pandemic. The reserve related to unfunded commitment s may not be sufficient to cover actua l losses, and future provisions for such losse s coul d als o materiall y and adversely affect our operating result s and are also subject to significant uncertaintie s and fluctuations, particularl y in light of the COVID-19 pandemic. As an integra l part of their examination process, our banking regulators periodically review the AC L and ma y require us to increase it by recognizing additional provisions for credit losse s charged to expense or to decrease the allowanc e by recognizing loa n charge-offs, net of recoveries. Any such required additional credi t loss provisions or loa n charge-offs coul d have a material adverse effec t on our financia l condition an d result s of operations. Our concentration of loans to borrowers within the medical and dental industries, as wel l as the rail business, coul d impair our earnings if those industries experience economic difficulties. Statutory or regulatory changes relevant to the medical and dental industries, or economi c conditions in the market generally, coul d negativel y impac t these borrowers’ businesses and their ability to repa y their loans with us, which coul d have a material adverse effect on our financial condition and result s of operations. Additionally, smalle r practice s such as those in the dental industry generally have fewer financial resource s in terms of capital or borrowing capacit y tha n larger entities, and generally have a heightened vulnerability to negative economi c conditions. Consequently, we could be required to increase our ACL through additiona l provisions on our incom e statement, whic h would reduc e reporte d net income. Due to our substantia l concentration in our rai l business, if there is a significant downturn in shipping by railcar, it could have a material adverse effect on our busines s and result s of operations. The COVID-19 pandemi c has create d volatility and uncertaint y in the economy, which has and is expecte d to continue to adversely impac t our rai l business. As describe d above, the significant decline s in the pric e of, an d demand for, oi l and gas ma y lea d to a decreased demand for our railcars. Economic conditions in real estat e market s impacting collateral values and our reliance on junior liens may adversely impact our business and our results of operations. Real property collateral value s may be impacted by economi c conditions in the rea l estate market and ma y resul t in losse s on loans that, while adequately collateralize d at the time of origination, become inadequately collateralized over time . Our reliance on junior liens is concentrate d in our consumer revolving mortgage loa n portfolio. Approximatel y two-thirds of the consumer revolving mortgage portfolio is secured by junior lien positions, and lower rea l estate value s for collateral underlying these loans ma y cause the outstanding balance of the senior lien to excee d the value of the collateral , resulting in a junior lien loan becoming effectively unsecured. Inadequate collateral values, rising interest rates and unfavorable economi c conditions could 24 result in greate r delinquencies, write-downs or charge-offs in future periods, whic h coul d have a material advers e impac t on our result s of operations an d capital adequacy. Our financial condition coul d be adversely affecte d by the soundnes s of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and othe r relationships . We have exposure to numerous financial services providers, including banks , securities brokers and dealers and othe r financial services providers. Our monitoring of the financial conditions of financial institutions with which we have credit exposure is inherently limite d and ma y be inadequate , and transactions wit h those institutions expose us to credit ris k through the possibilit y of counterparty default. Market Risks Unfavorable economic or political conditions, as considered through a range of metrics, have and coul d continue to adversely affec t our business. Our busines s is subject to periodic fluctuations based on international , national, regional and local economi c conditions. These fluctuations are not predictable, cannot be controlled and have had and ma y continue to have or furthe r have a material adverse impac t on our operations and financial condition. Our banking operations are primarily located withi n severa l states but are locally oriente d and community-based. Our retai l and commercial banking activitie s are primarily concentrated withi n the same geographic footprint. The market s in which we have the greatest presenc e are North Carolina , South Carolina , California, Texas, New York, Florida and Canada. Worsening economi c conditions withi n our markets, particularly withi n those with our greatest presence, coul d have a material adverse effect on our financial condition, result s of operations and cash flows. Accordingly, we expec t to continue to be dependent upon local busines s conditions, rai l industry conditions and conditions in the loca l residential and commercial rea l estate market s we serve. Unfavorabl e changes in unemployment , rea l estate values, interest rates , foreign currency exchange rat e fluctuations and othe r factors could weake n the economies of the communitie s we serve and otherwise adversel y affect our business. Thus far, this includes declines in fee income an d impacts on the fai r valu e of our equity securities, but coul d creat e additional adverse impacts to provision for credit losse s and declines in demand for our product s and services. We conduct limited busines s operations in certain foreign jurisdictions, and we engage in certain cross border lending and leasing transactions. An economi c recession or downturn or busines s disruption associate d with the politica l environments in the international market s in which we operat e could similarl y adversely affec t us. In addition, the politica l environment, the level of Unite d States debt and globa l economi c conditions ca n have a destabilizing effect on financial markets. Weakness in any of our market area s coul d have an adverse impac t on our earnings, and consequently, our financial condition and capita l adequacy. Failure to effectivel y manage our interes t rate risk coul d adversely affec t us. Our result s of operations and cash flows are highly dependent upon net interest income . Interest rates are sensitive to economic and market conditions that are beyond our control, including the actions of the Federa l Reserve’ s Federal Open Market Committee (“FOMC”). Change s in monetary policy coul d influenc e interest income, interest expense, and the fai r valu e of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equa l to the change s in interest rates on our interest-bearing liabilities, our net interest incom e and, therefore , our net income , coul d be adversel y impacted. As interest rates rise, our interest expens e will increase and our net interest margins ma y decrease, negatively impactin g our performanc e and our financial condition. To the extent banks and othe r financial services providers compet e for interest-bearing deposit accounts through highe r interest rates, our deposit bas e could be reduced if we are unwilling to pay those highe r rates. If we decid e to compete wit h those higher interest rates, our cost of funds coul d increase and our net interest margins could be reduced. Additionally, highe r interest rates ma y impac t our ability to originat e new loans . Increases in interest rates could adversely affect the ability of our borrowers to meet higher payment obligations. If thi s occurred, it could cause an increase in nonperforming assets and ne t charge-offs. The forecasts of future net interest incom e by our interest rat e ris k monitoring system are estimate s and ma y be inaccurate. Actua l interest rat e movement s may diffe r from our forecasts , and unexpected actions by the FOMC ma y hav e a direct impact on market interest rates. In response to the economi c conditions resulting from the outbreak of the COVID-19 pandemic, the Federa l Reserve’s target federal funds rat e has bee n reduce d nearly to 0%. Stimulus payments related to th e COVID-19 pandemi c mad e by the federal government to businesses, non-profit organizations, taxpayers and others have had the incidental 25 effect of adding to inflationary pressures. In an effort to counteract such pressures, the Federa l Reserv e has signaled it s intent to raise interest rate s in 2022. Increase d interest rate s may increase th e cost of deposit s and our othe r funding sources. Accounting fo r acquire d assets ma y result in earnings volatility. Fai r value discounts tha t are recorded at th e time an asset is acquire d are accreted into interest incom e based on accounting principles generally accepted in th e Unite d State s (“GAAP”). The rat e at which those discounts are accrete d is unpredictable and the resul t of various factors including prepayments and estimate d credit losses. Post-acquisition credit deterioration results in the recognition of provision expense. Additionally, the incom e statement impac t of adjustments to the indemnification asset recorded in certain FDIC-assisted transactions ma y occur over a shorter period of time than the adjustment s to the covered assets. Fair value discount accretion, post-acquisition impairment and adjustments to the indemnification asse t may result in significant volatility in our earnings. Volatilit y in earnings could unfavorably influenc e investor interest in our common stock, thereby depressing the market value of our stoc k and th e marke t capitalization of our company. The performance of equity securities and corporat e bonds in our investment securities portfolio coul d be adversely impacte d by the soundness and fluctuations in th e market values of other financial institutions. Our investment securities portfolio contains certain equity securities and corporate bonds of othe r financial institutions. As a result , a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stabilit y and market value of othe r financial institutions, as wel l as interes t rate sensitivity to economi c and market conditions. Such fluctuations coul d reduc e the value of our investment securities portfolio and consequentl y have an adverse effec t on our results of operations. We have see n volatile earnings impacts related to the fai r value of equit y securities in recent periods. We may be adversely impacted by the transition from LIBOR as a reference rate. We have loans, borrowings and othe r financial instruments wit h attribute s tha t are either directly or indirectl y dependent on the London Interbank Offered Rat e (“LIBOR”). In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) announced tha t after 2021 it would no longe r compel banks to submit the rates require d to calculate LIBOR . In November 2020, to facilitat e an orderl y LIBOR transition, the Offic e of the Comptroller of the Currency, the FDIC and the Federal Reserv e jointly announce d tha t entering int o new contract s using LIBOR as a referenc e rat e after Decembe r 31, 2021, would creat e a safet y and soundness risk. On March 5, 2021, the FC A announce d tha t all LIBOR settings will either ceas e to be provide d by any administrator or no longe r be representative immediately after Decembe r 31, 2021, in the case of 1-week and 2-mont h Unite d States dollar LIBOR , and immediately after June 30, 2023, in the case of the remaining Unite d States dollar LIBOR settings. In the United States, effort s to identify a set of alternative United States dollar referenc e interest rates are ongoing, and the Alternative Reference Rate Committee (the “ARRC”) has recommended the use of a Secure d Overnight Funding Rat e (“SOFR”). SOFR is different from LIBOR in tha t it is a backward-looking secure d rat e rather tha n a forward- looking unsecure d rate. These difference s coul d lea d to a greate r disconnect between th e Bank’s costs to raise funds for SOFR as compared to LIBOR . For cash product s and loans, the ARRC has also recommended Term SOFR , which is a forward- looking SOFR based on SOFR future s and ma y in part reduce difference s between SOFR and LIBOR . To furthe r reduce differences between replacemen t indices and substitute indices, some market practitioners have also gravitate d towards credit sensitive alternative referenc e rate s besides SOFR . At this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculatio n of LIBOR . Similarly, there is still uncertaint y around how quickly replacement referenc e rate s will develop sufficient liquidity and industry-wide usage, or what the effec t of any such changes in views or alternatives ma y be on the markets for LIBOR-indexed financia l instruments. The transition from LIBOR is comple x and is expecte d to creat e additional costs and risks. Since proposed replacement referenc e rates, such as SOFR , are calculated differently, payment s under contracts referencin g such rates wil l diffe r from those referencing LIBOR . If LIBOR rates are no longe r available, and we are required to implement replacement referenc e rate s for the calculatio n of interest rates under our loa n agreement s with borrowers, we ma y incur significant expense in effecting the transition and ma y be subjec t to dispute s or litigation with our borrowers over the appropriateness or comparabilit y to LIBOR of the replacement reference rates. Consequently, failure to adequatel y manage this transition process with our customers could adversely impac t our reputation and potentially introduce additiona l legal risks . The replacement referenc e rates could also result in a reduction in our interes t income . We may also receiv e inquiries and othe r actions from regulators wit h respect to our preparation and readiness for the replacement of LIBOR wit h replacemen t reference rates. The transition wil l change our market risk profiles, requiring changes to risk and pricing models, systems, contracts, valuation tool s and product design, and 26 failure to adequatel y manage this transition process coul d consequentl y have a material advers e effect on our business, financial condition and result s of operations. The value of our goodwil l may decline in the future. At Decembe r 31, 2021, we had $346.1 million of goodwil l recorded as an asset on our balanc e sheet. We test goodwil l for impairment at least annually, comparing the estimate d fai r value of a reporting unit wit h its net book value. We also test goodwil l for impairment whe n certain events occur, such as a significant declin e in our expected future cash flows , a significant adverse change in the business climat e or a sustained decline in the pric e of our common stock. These test s may result in a write-off of goodwill deeme d to be impaired, which coul d have a significant impact on our financial results. The marke t pric e of our common stock may be volatil e due to it s relativ e illiquidity and othe r factors. Although publicl y traded, our common stock, particularly our Class B common stock, has less liquidity and publi c floa t than many othe r large, publicl y traded financial services companies. Lower liquidity increases the pric e volatility of our common stock an d coul d mak e it difficult for our shareholders to sell or buy our common stock at specifi c prices. Excluding the impac t of liquidity, the market pric e of our common stock ca n fluctuate widely in response to othe r factors, including expectations of financial and operating results, actua l operating results, actions of institutiona l shareholders, speculation in the press or the investment community, market perceptio n of acquisitions, including the CIT Merger, rating agency upgrade s or downgrades , stock prices of othe r companies that are simila r to us, general market expectations related to the financial services industry and the potential impac t of government actions affecting the financial services industry. For example, the closing pric e per share of our Class A common stock on the Nasdaq Globa l Select Market ranged from a low of $568.46 to a high of $907.04 during the yea r ende d Decembe r 31, 2021. Liquidit y Risks If our current leve l of balanc e sheet liquidity were to experience pressure , it could affec t our abilit y to pay deposit s and fund our operations. Our deposit bas e represents our primary source of core funding and balanc e 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 generat e needed liquidity is impaired, we nee d acces s to non-core funding such as borrowings from the Federa l Hom e Loan Ban k and the Federa l Reserve, Federal Funds purchased lines and brokere d deposits. While we maintain acces s to these non- core funding sources , some sources are dependent on the availabilit y of collateral as well as the counterparty’s willingness and ability to lend. Failure to access sources of liquidity ma y affec t our abilit y to pay deposit s and fund our operations. We expec t to be subjec t to enhanced liquidity ris k management requirement s as a Category IV banking organization, subjec t to the applicabl e transition periods , including reporting, liquidity stres s testing, and a liquidity buffer, and failure to meet these requirement s could result in regulatory and complianc e risks, and possible restrictions on our activities. As a result of the consummation of the CIT Merger, our total consolidate d assets exceed $100 billion, and therefore we expect to be subjec t to enhance d liquidity risk management requirement s as a Category IV banking organization, including reporting, liquidity stres s testing and a liquidity buffer, subjec t to the applicable transition periods. Were we to meet or excee d certain thresholds for asse t size and othe r risk-based factors, we would become subject to additional requirements under the Tailoring Rules . We expec t to incur significant expense in continuing to develop policies, program s and system s designe d to comply with al l such requirement s applicabl e to us. Failure to develop and maintai n an adequat e liquidity risk management and monitoring process ma y lea d to adverse regulatory action (including possible restrictions on our activities). Fe e revenues from overdraf t and nonsufficient funds programs constitut e a significant portion of our non-interes t income and may be subject to increased supervisory scrutiny. Revenues derived from transaction fee s associate d with overdraft and nonsufficient funds (“NSF” ) programs represent a significant portion of our non-interest income. In 2021, we collecte d approximately $54.9 million in overdraft and NSF fees, although we expec t thi s amount to be reduced significantl y in 2022 due to the reduction in our fee s for overdrafts and elimination of NSF fee s announced in January 2022. In 2021, certain members of Congress and the leadership of the CFPB expresse d a heightened interes t in bank overdraft and NSF programs . In Decembe r 2021, the CFPB published a report providing dat a on banks’ overdraft and NSF fee revenues as well as observations regarding consumer protection issue s relating 27 to such program s and in January 2022, the CFPB publishe d an initiative seeking publi c input on experience s wit h respec t to suc h fees, among others. The CFPB has indicated tha t it intends to pursue enforcement actions against banking organizations, and thei r executives, tha t overse e overdraft practice s tha t are deemed to be unlawful. In response to thi s increased congressional and regulatory scrutiny, and in anticipation of enhance d supervision and enforcement of overdraft practice s in the future , certain banking organizations have begun to modify their overdraft programs. In January 2022, we announce d an elimination of NSF fee s and a decrease in overdraft fees. Continue d competitive pressures from our peers, as well as any adoption by our regulators of new rule s or supervisory guidance or more aggressive examination and enforcement policies in respec t of banks’ overdraft fee practices, coul d cause us to furthe r modify our program and practice s in way s tha t may have a negativ e impact on our revenue and earnings, which, in turn, coul d have an adverse effec t on our financial condition and result s of operations. In addition, as supervisory expectations and industry practice s regarding overdraft fee program s change, our continue d charging of overdraft fee s may result in negative publi c opinion and increased reputation risk. Capital Adequacy Risks Our ability to grow is contingent upon access to capital, whic h may not be readil y available to us. Our primary capital source s have bee n retained earnings and debt issue d through both private and publi c markets. Rating agencies regularly evaluate our creditworthiness and assign credit ratings to us and FCB. The ratings of the agencie s are based on a numbe r of factors, some of which are outside our control. In addition to factors specifi c to our financial strength and performance, the ratin g agencies also consider conditions generally affecting the financial services industry. We ma y not be abl e to maintai n our current credit ratings. Rating reductions coul d adversely affect our access to funding sources and the cost of obtaining funding. Based on existing capital levels, we an d FCB are well-capitalized under current leverage and risk-based capital standards. Our ability to grow is contingent on our ability to generat e or otherwise access sufficien t capital to remain well-capitalize d under current an d future capital adequac y guidelines. We are subject to capital adequac y and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected. Under regulatory capital adequacy guidelines and othe r regulatory requirements, we, togethe r with FCB, must meet certain capital and liquidity guidelines, subjec t to qualitative judgments by regulators about components, risk weightings and other factors. We are subjec t to capital rule s issue d by the Federal Reserv e including required minimum capital and leverage ratios. These requirement s coul d adversely affect our ability to pay dividends, restrict certain busines s activitie s or compel us to raise capital, each of which ma y adversely affect our result s of operations or financial condition. Refe r to the “Regulatory Considerations” section in Ite m 1. Business of thi s Annual Report on Form 10-K for additional information regarding the capital requirements under th e Dodd-Frank Act an d Basel III. We expec t to be required to submit an annua l capital pla n to the Federal Reserv e and to be subjec t to supervisory stres s testing under the Federa l Reserve’ s CCAR process on a biennia l basis as a Category IV banking organization, subjec t to the applicable transition periods. Under the CCAR process, the Federa l Reserv e wil l evaluat e our planned capital distributions (e.g., dividends) include d in our capital pla n over the planning horizon (i.e., nine consecutive quarters, beginning with the quarter preceding the quarter in which the capital pla n is submitted over which the relevant projections extend) to determine whether we wil l be abl e to mee t our ongoing capital needs under a range of different economi c scenarios. Failure to obtain a non- objection on our capital pla n submitted to the Federa l Reserve, or to demonstrat e capital adequacy under the CCAR process, coul d result in restrictions in our ability to make dividends or othe r capital distributions. Refe r to the “Regulatory Considerations” sectio n of Ite m 1. Business of thi s Annual Report on Form 10-K for additional information regarding the annua l capita l pla n submission to th e Federal Reserve and supervisory stress testing under th e CCAR process. 28 In connection with the CIT Merger , we assume d CIT’s outstanding debt obligations and preferre d stock, and our resulting level of indebtedness could adversely affec t our abilit y to raise additional capital and to meet our obligations under our existing indebtedness. In connection wit h the CIT Merger, we assume d certain of CIT’s outstanding indebtedness and CIT’s obligations related to its outstanding preferred stock. In February 2022, we redeemed approximately $2.9 billion of outstanding senior unsecure d notes tha t we assumed in the CIT Merger. Our existing debt , togethe r wit h any future incurrence of additional indebtedness, and the assumption of CIT’s outstanding note s and preferred stock, coul d have consequence s tha t are materially adverse to our business, financial condition or result s of operations. For example, it could: (i) limit our ability to obtain additional financing for working capital , capital expenditures, debt servic e requirements, acquisitions and general corporat e or othe r purposes; (ii) restrict us from making strategic acquisitions or cause us to make non-strategi c divestitures; (iii) restrict us from paying dividends to our shareholders; (iv) increase our vulnerability to general economi c and industry conditions; or (v) require a substantia l portion of cash flow from operations to be dedicate d to the payment of principa l 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 busines s opportunities. Refe r to the “Business Combinations” and “Borrowings” sections of Ite m 7. Management’s Discussion and Analysis of Financia l Condition and Result s of Operations of thi s Annual Report on Form 10-K for further discussion of the debt we assumed in the CIT Merger, conversion of CIT Preferre d Stock int o BancShares Preferred Stock, and the redemption of approximatel y $2.9 billion of debt tha t we assumed in the CIT Merger. Compliance Risks We operate in a highl y regulated industry, and the laws and regulations that govern our operations, taxes, corporate governance, executive compensation and financial accounting and reporting, including change s in the m or our failure to comply wit h them, may adversely affec t us. We operate in a highl y regulated industry and are subject to many laws, rules, and regulations at both the federal and state levels. These broad-based laws, rules, and regulations include, but are not limite d to, expectations relatin g to anti-money laundering, lending limits, client privacy, fai r lending, prohibitions against unfair, deceptive or abusive acts or practices, regulatory reporting, an d community reinvestment, In addition, we must compl y with othe r regulations that protect the deposit insurance fund and the stability of the United States financial system , including laws and regulations that , among othe r matters, prescribe minimum capital requirements, impose limitations on our busines s activitie s and investments, limi t the dividends or distributions tha t we can pay, restrict th e ability of our bank subsidiarie s to guarante e our debt and impose certain specifi c accounting requirement s tha t may be more restrictive and ma y result in greate r or earlier charges to earnings or reductions in our capital than GAAP. Compliance wit h laws and regulations ca n be difficult and costly, an d changes in laws an d regulations ofte n result in additiona l compliance costs. We are subjec t to extensive federal and applicabl e stat e regulation and supervision, primarily through FC B and certain nonbank subsidiaries. Banking regulations are primarily intende d to protect depositors ’ funds, federal deposit insuranc e funds, and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among othe r things. Congres s and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. The Sarbanes-Oxley Act of 2002 and the related rules and regulations issue d by the SEC and The Nasdaq Stock Market LLC (“Nasdaq”), as wel l as numerous othe r more recently enacte d statute s and regulations, including the Dodd-Frank Act, EGRRCPA, and regulations promulgated thereunder, have increased the scope, complexit y and cost of corporate governance and reporting and disclosure practices, including the costs of completing our externa l audi t and maintaining our internal controls. Such additional regulation and supervision ma y limit our ability to pursue busines s opportunities and result in a materia l adverse impact on our financial condition and results of operations. Change s to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, coul d affect us in substantia l and unpredictabl e ways. Such changes could subjec t us to additional costs, limi t the types of financial services and product s we may offer, or increase the ability of nonbanks to offer competing financial services and products, among othe r things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies (including potential limitations on our future acquisitions or operations, or requirement s to forfeit assets), civil mone y penalties, or reputation damage. 29 We face compliance risks related to the specialt y commercial business lines acquire d from CIT. In connection wit h the CIT Merger, we acquire d new business lines tha t are subject to new compliance risks. Our new rail business line is subject to various laws, rule s and regulations administered by authoritie s in jurisdictions that were not applicabl e to us prior to the CIT Merger. In the United States, our equipment leasing operations, including for railcars, ships, and othe r equipment, are subject to rule s and regulations relatin g to safety, operations, maintenance and mechanical standards promulgated by various federal and stat e agencies and industry organizations, including the United States Departmen t of Transportation, the Federal Railroad Administration, the Association of America n Railroads, the Maritime Administration, the Unite d States Coas t Guard, and the United States Environmental Protection Agency. We are also subjec t to regulation by governmental agencie s in foreign countrie s in which we do busines s as a resul t of the CIT Merger. Our busines s operations and our equipment financing and leasing portfolios ma y be adversel y impacte d by rule s and regulations promulgated by governmental and industry agencies, which coul d require substantia l modification, maintenance , or refurbishment of our railcars, ships or othe r equipment, or coul d potentially make such equipment inoperabl e or obsolete. Failure to comply with these laws , rul e and regulations could result in sanctions by regulatory agencies (including potential limitations on our future acquisitions or operations, or requirement s to forfei t assets), civil money penalties, or reputation damage . Additionally, we may incu r significant expenses in our efforts to compl y with these laws, rules and regulations, and these laws, rules and regulations. We expec t to be a Category IV banking organization and therefor e we expec t to be subjec t to enhanced prudential standards and enhanced supervision under the Dodd-Frank Act, as amended by the EGRRCPA , and implemente d by the Tailoring Rules, subjec t to the applicabl e transition periods. As a result of consummation of the CIT Merger, our total consolidate d assets exceed $100 billion, and therefore we expec t to be subjec t to enhance d prudentia l standards under Section 165 of the Dodd-Frank Act, as amended by the EGRRCPA, and implemente d by the Tailoring Rules, subjec t to the applicable transition periods. If we fai l to develo p and maintai n at a reasonable cost the system s and processe s necessary to comply with the standards and requirement s imposed by these rules, it coul d have a material adverse effect on our business, financial condition or result s of operations. Additionally, as we grow, and our assets exceed certain thresholds, regulatory requirement s tha t we are subjec t to, as wel l as our complianc e expenses, will increase. Refe r to the “Regulatory Considerations” sectio n of Ite m 1. Business of thi s Annual Report on Form 10-K for additional information regarding the Tailoring Rules. The CFPB has reshape d the consume r financial law s through rulemaking and enforcement of th e prohibitions against unfair, deceptiv e and abusive busines s practices. Complianc e wit h any such change may impact the busines s operations of depository institutions offering consume r financial products or services, including FCB. The CFPB has broad rulemaking authorit y to administer and carry out the provisions of the Dodd-Frank Act with respec t to financial institutions tha t offer covered financial product s and services to consumers. The CFPB is responsible for adopting rule s identifying practice s or act s that are unfair, deceptive or abusive in connection with any transaction with a consume r for a consume r financial product or service, or the offering of a consume r financial product or service. The CFP B has initiated enforcemen t actions against a variet y of bank and non-bank market participants wit h respec t to a numbe r of consume r financial product s and services that has resulte d in thos e participants expending significant time , mone y and resource s to adjust to the initiative s being pursued by the CFPB . The CFPB has pursued a more aggressive enforcement policy in respec t of a range of regulatory complianc e matters under the Biden Administration. CFPB enforcement actions ma y serve as precedent for how the CFP B interpret s and enforces consumer protection laws, including practice s or act s that are deeme d to be unfair, deceptive or abusive , with respec t to all supervised institutions, which ma y result in the imposition of highe r standards of complianc e with such laws. Moreover, we are subjec t to supervision and examination by the CFPB for complianc e with the CFPB’s regulations and policies. The limitations and restrictions that ma y be place d upon us by the CFPB wit h respect to our consume r product offerings and services ma y produce significant, material effect s on our profitability. We may be adversely affecte d by changes in United State s and foreign ta x laws and other tax law s and regulations. Corporat e tax rates affec t our profitability and capital levels. We ar e subjec t to the incom e tax laws of the United States, its states and their municipalitie s and to those of the foreign jurisdictions in which we do business. These ta x laws are comple x and ma y be subjec t to different interpretations. We must make judgments and interpretations about the application of these ta x laws when determining our provision for income taxes , our deferred ta x assets and liabilities and our valuation allowance. Changes to the ta x laws , administrativ e rulings or court decisions coul d increase our provision for income taxes and reduc e our net income . The United States corporat e tax code ma y be reformed by the United States Congres s and additional guidance ma y be issued by the United States Departmen t of the Treasury. Change s in tax laws and regulations, and income ta x rates in particular, 30 could have an adverse impac t on our financial condition and result s of operations. These change s coul d als o affect our regulatory capital ratios as calculate d in accordanc e with th e Base l III Rules. We are subject to ESG risks such as climate risk, hiring practices, diversity , racial and social justic e issues, including in relation to our counterparties, which may adversely affec t our reputation and ability to retain employees and customers. We are subjec t to a variet y of risks arising from environmental, socia l and governance (“ESG”) matters. ESG matters include, but are not limite d to, climat e risk, hiring practices, the diversity of our work force , and racia l and socia l justice issue s involving our personnel , customers and third partie s with whom we otherwise do business. Investors have begun to conside r the steps taken an d resource s allocate d by financial institutions and other commercial organizations to address ESG matters when making investment and operational decisions. If our ESG practice s do not meet (or are viewed as not meeting) investor or othe r industry stakeholde r expectations and standards, which continue to evolve, our reputation and employe e and customer retention ma y be negativel y impacted. The Biden Administration, through Executive Orders and leadership appointment s at the federal agencies, has communicated and sought to implement an agenda focused on oversight and legislative initiative s in a variet y of areas materia l to our business, including addressing climate-relate d risks, promoting diversity and equality withi n the banking industry and addressing othe r ESG matters relevant to us. We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices. Further, we ma y be expose d to negative publicity based on the identity and activitie s of those to whom we lend and with which we otherwise do busines s and the public’s vie w of the approach an d performanc e of our customers and business partners with respect to ES G matters. Asse t Risks We may not be abl e to realize our entire investment in th e equipment that we lease to our customers. Our loans and leases include a significant portion of leased equipment, including, but not limite d to, railcars and locomotives, technology and offic e equipment and medical equipment . The realizatio n of equipment values (residua l values) during the life and at the end of the term of a lease is an important element in the profitability of our leasing business. At the inception of each lease, we record a residual value for the lease d equipment based on our estimate of the future value of the equipment at th e end of the lease ter m or end of the equipment’s estimate d useful life. If the market value of leased equipment decreases at a rate greate r tha n we projected, whethe r due to rapi d technological or economi c obsolescence , unusual wear and tear on the equipment, excessive use of the equipment , recession or othe r adverse economi c conditions impacting supply and demand, it coul d adversely affec t the current values or the residua l value s of such equipment. Financial Reporting Risks Accounting standards may change and increase our operating costs or otherwise adversely affec t our results. FASB and the SEC periodicall y modify the standards governing the preparation of our financia l statements. Th e nature of these changes is not predictable and has impacte d and coul d furthe r impac t how we record transactions in our financial statements, which had led to and coul d lea d to materia l changes in assets, liabilities, shareholders’ equity, revenues, expenses and net income . For example, ASU 2016-13 Measurement of Credit Losse s on Financia l Instruments, became effective Januar y 1, 2020, and substantiall y changed the accounting for credi t losse s on loans and othe r financia l assets. In some cases , we could be required to apply new or revised standards retroactively, resulting in changes to previously reported financial results or a cumulative adjustment to retaine d earnings. Implementation of new accounting rule s or standards could additionall y require us to implemen t technology change s whic h could impact ongoing earnings. Our accounting policie s and processes are critical to the reporting of our financial condition and result s of operations. They require management to make estimate s about matters that ar e uncertain, and suc h estimate s may be incorrect. Accounting policie s and processe s are fundamenta l to how we record and report our financia l condition an d results of operations. Management must exercise judgment in selecting an d applying many of these accounting policie s and processe s so the y compl y with GAAP. In some cases, management must select th e accounting policy or method to apply from two or more alternatives, any of whic h may be reasonable under the circumstances, yet ma y result in us reporting materially different results tha n would have been reporte d under a different alternative. Management has identifie d certain accounting policie s as being critical because they requir e management to make difficult, subjective or complex conclusions about matters tha t are uncertain. Materiall y different amounts coul d be reporte d under different conditions or using different assumptions or estimates. Because of the uncertaint y surrounding management’s 31 judgments and the estimate s pertaining to these matters, we may be require d to adjust accounting policies or restate prior period financial statements. Refer to “Critical Accounting Estimates” include d in Ite m 7. Management’s Discussion and Analysis of Financial Condition an d Result s of Operations of thi s Annual Report on Form 10-K. Our business is highl y quantitativ e and require s widespread use of financial models for day-to-day operations; these models may produce inaccurate predictions that significantl y vary from actual results, and we may rel y on these inaccurate predictions in making decisions that ultimately adversely affec t our business. We rel y on quantitative model s to measure risks and to estimate certain financial values. Such models ma y be used in many processe s including, but not limite d to, the pricing of various products and services, classifications of loans, setting interest rates on loans and deposits, quantifying interest rat e and othe r market risks, forecasting losses, measuring capital adequacy and calculating economi c and regulatory capital levels. Model s may also be used to estimate the value of financial instruments and balanc e sheet items. Inaccurate or erroneous models present the risk tha t busines s decisions relying on the model s will prove inefficient, ineffective or harmful to us. Additionally, information we provide to our investors and regulators ma y be negatively impacte d by inaccuratel y designe d or implemente d models. For furthe r information on risk monitoring, refe r to the “Risk Management” sectio n include d in Ite m 7A. Quantitative and Qualitative Disclosure about Market Risk of thi s Annual Report on Form 10-K. We may fail to maintai n an effective system of internal control ove r financial reporting, whic h coul d hinde r our abilit y to prevent fraud and provide reliable financial reports to ke y stakeholders. We must have effectiv e internal control s over financial reporting in order to provide reliable financia l reports, to effectively prevent fraud and to operate successfully as a publi c company. If we are unabl e to provide reliable financia l report s or prevent fraud, our reputation and operating result s will be harmed and we ma y violat e regulatory requirement s or otherwise become subject to legal liability . We may discover materia l weaknesse s or significant deficiencie s requiring remediation, which would require additional expense and diversion of management attention, among othe r consequences. A “material weakness” is a deficiency, or a combination of deficiencies, in interna l controls over financial reporting such tha t there is a reasonable possibilit y tha t a materia l misstatement of a company’s annual or interi m financial statements will not be prevente d or detected on a timel y basis. Any failure to maintai n effective internal control s or to implement any necessary improvement of our interna l controls in a timely manner could, among othe r things, result in losse s from fraud or error, harm our reputation or cause investors to lose confidenc e in our reported financial information, each of which coul d have a material adverse effect on our result s of operations and financia l condition an d the market value of our common stock. Item 2. Properties We are headquartere d in a nine-story building with approximately 163,000 square fee t tha t is locate d in Raleigh, North Carolina , which is owned by FCB. In addition, FC B owns and occupie s two separate facilities in Raleig h as well as a facility in Columbia , South Carolina , which serve as dat a and operations centers. As of Decembe r 31, 2021, FC B operate d 529 branch offices throughout the Southeast, Mid-Atlantic, Midwest and Western Unite d States. FC B owns many of our branc h buildings and leases other facilities from third parties. Additional information relating to premises , equipment and lease commitment s is set fort h in Note F, Premises and Equipment, of BancShares ’ Notes to Consolidate d Financia l Statements. Item 3. Legal Proceedings The Parent Company’s and various subsidiarie s are named as defendant s in various legal actions arising from our normal busines s activitie s in which damage s in various amounts are claimed. Although the amount of any ultimat e liability with respect to those matters cannot be determined, in the opinion of management, no legal actions exist that would be materia l to BancShares ’ consolidated financial statements . Additiona l information related to legal proceedings is set forth in Note T, Commitment s and Contingencies, of BancShares ’ Notes to Consolidate d Financia l Statements. 32 Part II Item 5. Market for Registrant’s Common Equity, Relate d Stockholder Matters and Issue r Purchase s of Equity Securities The Parent Company has two classes of common stock—Class A common and Class B common. Share s of Class A common have one vote per share , whil e shares of Class B common have 16 vote s per share. The Class A common stoc k is liste d on the Nasdaq Globa l Selec t Market under the symbol FCNCA . The Class B common stoc k is traded on the over-the-counte r market and quote d on the OTC Pink Market under the symbol FCNCB. As of February 22, 2022, there wer e aggregates of 1,089 and 149 holders of record and individua l participants in securitie s position listings wit h respec t to the Class A common stoc k and Class B common stock, respectively. The market volum e for Class B common stoc k is extremel y limited . On man y days there is no trading and, to the extent there is trading, it is generally low volume. Over-the-counter market quotations for BancShares Class B common stoc k represent inter-dealer prices without retai l markup, markdown or commissions, and ma y not represent actua l transaction prices. The average monthly trading volum e for the Class A common stoc k was 1,386,962 shares during the fourth quarter of 2021 and 1,203,060 shares for the yea r ended Decembe r 31, 2021. The Class B common stoc k monthly trading volum e average d 2,539 shares during th e fourt h quarter of 2021 an d 1,316 shares for the yea r ende d December 31, 2021. Following the expiration of our latest share repurchas e authorization on July 31, 2020, share repurchas e activit y was suspended, and there were no share repurchases for the remainder of 2020 an d during 2021. The graph and table below compare the cumulative total shareholde r return (“CTSR”) of our Class A common stock to selected industry and broad-marke t indices. As a result of a change in the tota l return dat a mad e availabl e through our vendor provider, our performanc e graphs going forward will be using indice s comparable to those utilize d in the immediately preceding fiscal year. The broad-marke t inde x is transitioning from the Nasda q US Index to the Nasda q US Benchmark Total Retur n Index. The industry inde x is transitioning from the Nasdaq Bank Index to the KB W Nasdaq Bank Total Retur n Index, which is composed of the largest banking companies and include s all mone y cente r banks and regional banks. The Parent Company has decide d to begi n to use the KB W Nasdaq Bank Total Retur n Index sinc e it is utilize d by a numbe r of the Parent Company’s industrial peers. Each trend line assumes $100 was invested on Decembe r 31, 2016, and dividends were reinveste d for additional shares. The performanc e graph represents past performance and should not be considere d to be an indication of future performance. CTSR Total Returns e u l a V x e d n I $300 $250 $200 $150 $100 $50 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 Period Ending FCNCA Nasdaq - Banks Nasdaq - U.S. Nasdaq US Benchmark TR KBW Nasdaq Bank TR 2016 2017 2018 2019 2020 2021 FCNCA Nasdaq - U.S. Nasdaq - Banks Nasdaq US Benchmark TR KBW Nasdaq Bank Total Return Inde 00 $ 14 00 $ 1 1 100 100 100 x1 $ 1 07 129 107 121 119 $ 1 51 127 88 115 98 $ 1 63 173 111 151 133 $ 2 36 249 104 183 119 230 165 33 Ite m 6. [Reserved] Ite m 7. Management’s Discussion and Analysis of Financial Condition an d Result s of Operations Management’s discussion and analysi s (“MD&A”) of earnings and related financial dat a is presented to assist in understanding the financial condition and result s of operations of Firs t Citizen s BancShares , Inc. (the “Parent Company” and whe n including al l of its subsidiarie s on a consolidated basis, “BancShares”, “we,” “us,” or “our” ) and it s banking subsidiary, First-Citizens Bank & Trus t Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares ” in thi s sectio n refer to th e consolidated financia l position and consolidated result s of operations for BancShares. Thi s MD&A is expected to provide our investors wit h a vie w of BancShares’ financial condition and result s of operations from our management’s perspective. This MD&A should be rea d in conjunction wit h the audited consolidated financial statements an d related note s presented in thi s Annual Report on Form 10-K. Intercompany account s and transactions have bee n eliminated. Refer to furthe r detai l in Note A, Accounting Policies and Basis of Presentation, of the Note s to the Consolidated Financial Statements included in thi s Annual Report on Form 10-K. Although certain amounts for prior years have bee n reclassified to conform to statement presentations for 2021, the reclassifications had no effect on shareholders’ equity or net incom e as previously reported. On January 3, 2022, BancShares completed it s largest acquisition to dat e with the merger with CIT Group Inc. (“CIT” ) and its subsidiary CIT Bank, N.A., a nationa l banking association (“CIT Bank”) pursuant to the terms and subject to the conditions set forth in th e Agreement and Pla n of Merger (as amended, the “Merger Agreement”). CIT had consolidated total assets of approximately $53.2 billion at December 31, 2021. We expec t substantive change s to our future results due to the merger with CIT (the “CIT Merger”). Some key anticipate d reporting impacts related to the CIT Merger include , but are not limite d to: (i) increases in our interest incom e from the loans acquire d in the CIT Merger and expected originations and funding of similar type s of loans, (ii ) increases in interest expense from deposit s and debt assumed from CIT, (iii) highe r non-interest income generated from the legac y CIT activity, plus an adde d revenue strea m from the operating lease equipment, (iv) highe r non- interest expenses related to the added employees as well as the depreciatio n and maintenance costs on the operating lease portfolio, and (v) highe r net charge-offs due to the loans acquire d in the CIT Merger and expected originations and funding of simila r type s of loans. We also expec t changes in our regulatory capital ratio s due to (i) increases in risk weighted assets from the assets acquire d in the CIT Merger and (ii ) increases in regulatory capital , primarily related the conversion of common and preferred stock and the assumption of subordinated debt in connection with the CIT Merger. The CIT Merger is described furthe r in the “Business Combinations” section of thi s MD&A and in Ite m 1. Business include d in thi s Annual Report on Form 10-K. Year-over-yea r comparisons of the financial results fo r 2020 and 2019 are containe d in Ite m 7. of BancShares ’ Annual Report on Form 10-K for 2020 filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 and available through FCB’s website www.firstcitizens.com or th e SEC’s EDGAR database. FORWARD-LOOKING STATEMENTS Statement s in thi s Annual Report on Form 10-K ma y contai n “forward-looking statements” within th e meaning of the Private Securities Litigatio n Reform Act of 1995 regarding the financial condition, result s of operations, busines s plans and future performanc e of BancShares . Words such as “anticipates, ” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may, ” “should,” “will” or othe r simila r words and expressions are intended to identify these forward-looking statements. These forward-looking statement s are based on BancShares ’ current expectations and assumptions regarding BancShares ’ business, the economy, and other future conditions. to predict Because forward-looking statement s relat e to future results and occurrences, the y are subject to inherent risks, uncertainties, changes in circumstances and othe r factors that are difficul t . Many possible event s or factors could affect BancShares ’ future financial results an d performanc e and coul d cause the actua l results, performanc e or achievement s of BancShares to diffe r materiall y from any anticipate d result s expresse d or implied by such forward-looking statements. Such risks and uncertaintie s include , among others, general competitive, economic, political, and market conditions, the impacts of the global COVID-1 9 pandemi c on BancShares ’ business, and customers, the financial succes s or changing conditions or strategies of BancShares ’ customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel , the failure to realize the anticipate d benefit s of BancShares ’ previously announced acquisition transaction(s), including the recently-completed CIT Merger discussed furthe r in the “Business Combinations” section of this MD&A, and the risks discussed in Ite m 1A. Ris k Factors of thi s Annual Report on Form 10-K and othe r development s or changes in our business that we do not expect. 34 Excep t to the extent require d by applicabl e law or regulation, BancShares disclaims an y obligation to updat e such factors or to publicl y announc e the results of any revisions to any of the forward-looking statements included herein to reflec t future events or developments. CRITICAL ACCOUNTING ESTIMATES The accounting and reporting policies of BancShare s are in accordance wit h accounting principles generally accepte d in the Unite d State s of America (“GAAP”) and are described in Note A, Accounting Policies and Basis of Presentation, of the Notes to the Consolidate d Financia l Statements. The preparation of financial statements in conformity with GAAP requires us to exercise judgment in determining many of the estimates and assumptions utilize d to arrive at the carrying value of assets and liabilities and amounts reporte d for revenues and expenses. Our financial position and result s of operations coul d be materially affected by change s to these estimate s and assumptions. We consider accounting estimate s to be critica l to reported financial results if (i) the accounting estimate require s management to make assumptions about matter s that are highl y uncertain and (ii ) different estimates that managemen t reasonabl y coul d have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likel y to occur from period to period, coul d have a material impact on our financial statements. Accounting policies related to the allowance fo r credi t losses (“ACL” ) are considere d to be critica l accounting estimate s as thes e policies involve considerable judgment and estimation by management. The AC L represent s management’s bes t estimat e of credit losse s expected over the life of the loan, adjusted for expected contractua l payment s and the impac t of prepayment expectations. Prepayment assumptions were develope d through a review of BancShares ’ historica l prepayment activit y and considered forecasts of relevant economi c conditions, as well as prepayment assumptions utilize d in othe r modeling activities. Estimate s for loa n losse s are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the AC L are recorded wit h a corresponding entry to provision for credit losses. Loa n balances considere d uncollectibl e are charged-off against the ACL. Forecaste d loss given default s (LGDs) are adjuste d for expected recoveries and realize d recoveries of amounts previously charged-off are credite d to the ACL. While managemen t utilize s its best judgment and information available, the ultimate adequacy of our AC L is dependent upon a variet y of factors beyond our control which are inherentl y difficul t to predict , the most significant being the economi c scenario forecast used in the models. Our AC L forecast considers a range of economi c scenarios from an upside scenario to a severely adverse scenari o and the December 31 , 2021 AC L forecast was calculate d using the consensus baseline scenario. Results ranged from approximately $170 million in the upside scenario to approximately $260 million in the severely adverse scenario. Our recorde d ACL at December 31, 2021 totale d $178.5 million. Significant macroeconomic factors used in estimating the expecte d losse s include unemployment , gross domestic product, home pric e inde x and commercial rea l estate index. Current economi c conditions and forecasts ca n change whic h coul d affect the anticipated amount of estimate d credit losse s and therefore the appropriateness of the ACL. It is difficul t to estimate how potential change s in any one economi c factor or input might affect the overall AC L because a wide variet y of factors and inputs are considere d in estimating the AC L and changes in those factors and input s considered ma y not occur at the same rat e and ma y not be consistent across al l product types. Additionally, changes in factors and input s may be directionall y inconsistent, such tha t improvement in one factor ma y offset deterioration in others. Refe r to Note A, Accounting Policie s and Basis of Presentation, in the Note s to Consolidate d Financia l Statements for discussion of our accounting policies for the AC L and the implementatio n impac t of ASC 326. Refer to Note E, Allowanc e for Credi t Losses, in the Notes to Consolidate d Financia l Statements for additional disclosures. 35 CURRENT ACCOUNTING PRONOUNCEMENTS Table 1 belo w lists th e Accounting Standard Update s (“ASUs” ) issued by the Financial Accounting Standards Board (“FASB”) tha t wer e recently adopted by BancShares . Refer to Note A, Accounting Policies and Basis of Presentation, in the Note s to the Consolidated Financial Statements for furthe r discussion. Table 1 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS Standar ate of Adoption FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. - Clarifying the Interactions between Investments-Equity Securities (Topic 321), Investments- ASU 2020-01 Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) FASB ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ASU 2020-10, Codification Improvements EXECUTIVE OVERVIEW d D January 1, 2021 January 1, 2021 January 1, 2021 January 1, 2021 The Parent Company conducts it s banking operations through FCB, a state-chartered bank organize d under the laws of the state of North Carolina. Our earnings and cash flows are primarily derived from our commercial and retai l banking activities. We gather deposits from retai l and commercial customers and we secure funding through various non-deposit sources. We inves t the liquidity generated from these funding sources in interest-earning assets, including loans, investment securitie s and overnight investments. We also invest in bank premises, compute r hardware and software and furniture and equipment used to conduc t our commercial and retai l banking business. We provide treasury management services, cardholde r and merchant services, wealth management services and othe r product s and services typically offere d by commercial banks. The fee s generated from these product s and services are a primary source of noninterest incom e and an essential component of our total revenue. Our strong financial position enable s us to pursue growth through strategi c acquisitions to enhance organizational value by providing opportunities to grow capital and increase earnings. These transactions allow us to strengthen our presenc e in existing market s as wel l as expand our footprint into ne w markets. With interest rates nea r historical lows , our ability to generat e earnings and shareholder value has bee n challenging. While our balanc e sheet is asse t sensitive overall , we seek to reduc e volatility and minimiz e the ris k to earnings from interest rate movement s in eithe r direction. Additionally, our initiative s focus on growth of noninterest incom e sources, management of noninterest expenses, optimization of our branch network and further enhancement s to our technology and delivery channels. In lending, we continue to focus our activitie s withi n our core competencies of retail, smal l business, medical , commercial and commercial rea l estate lending to buil d a diversifie d portfolio. Our low to moderat e risk appetite continues to govern al l lending activities. We also pursue noninterest incom e through enhance d credit card offerings and wealth management and merchant services. We have recentl y redesigned our credit card program s to offer more competitive products, intende d to both increase the numbe r of account s and frequency of card usage. Enhancements include more comprehensive reward program s and improved card benefits. In wealth management, we have broadened our product s and services to bette r align with the specialize d needs and desire s of those customers. Services include holistic financial planning, busines s owner advisory services and enhance d private banking offerings. Our goal s are to increase efficiencies and control costs whil e effectively executing an operating mode l tha t best serves our customers’ needs. We see k the appropriat e footprint and staffing level s to tak e advantage of the revenue opportunities in each of our markets. Management is pursuing opportunities to improve operational efficiency and increase profitability through expense control , while continuing enterprise sustainability project s to improve the operating environment. Such initiatives include the automation of certain manual processes , elimination of duplicate d and outdate d systems, enhancements to existing technology, implementation of new digita l technologies, outsourcing to third part y servic e providers and activel y managing personnel expenses and discretionary spending. We routinel y review vendor agreement s and third part y contracts for cost savings. 36 Th e CIT Merger is addresse d in the “Business Combinations” section of this MD&A. Economic and Industry Updates The COVID-19 pandemi c tha t bega n in 2020 has caused significant disruptions to the domestic and globa l economies which continue to date. In response to the outbreak, government s impose d restrictions resultin g in busines s shutdowns, regional quarantines, disruptions of supply chains, changes in consume r behavior an d overall economi c instability. Indicators of economi c activit y have begun to return to pre-pandemic levels, but as 2021 progressed variant s to COVID-19 led to a significant rise in cases. Thi s uncertaint y contributed to continue d volatility in the financial markets, and supply and demand imbalance s relate d to the pandemic and th e reopening of the economy have continued to contribut e to elevate d level s of inflation. For a discussion of the risks we face wit h respec t to the COVID-19 pandemic, the associate d economi c uncertainty, the steps taken to mitigate th e pandemic and the resultin g economi c contraction, refe r to Ite m 1A. Ris k Factors include d in this Annual Report on Form 10-K. Various external factors influence the focus of our busines s effort s and the results of our operations ca n change significantly based on those externa l factors. Based on the rea l gross domestic product (“GDP” ) information availabl e (Burea u of Economic Analysis (“BEA” ) release, January 2022), the BEA’s revised estimate for GDP showe d an annua l rat e increase of 6.9% percent in the fourth quarter of 2021, in contrast to a decrease of 4.0% percent in 2020. In accordance wit h this BEA release, the increase in rea l GDP primarily reflecte d increases in private inventory investment, exports, personal consumption expenditures, and nonresidential fixe d investment . Imports, which are a subtraction in the calculatio n of GDP, increased. The fourth quarter GDP continue d to reflec t the ongoing impac t of the COVID-19 pandemic, including continue d restrictions and disruptions in operations of businesses in certain areas of the United States. In the fourth quarter of 2021, government assistanc e payment s in the form of forgivable loans to businesses, grant s to stat e and local governments, and socia l benefit s to households al l decreased as provisions of several federal programs expire d or tapere d off. The full economi c effect s of the COVID-19 pandemi c were not quantified in the GDP estimate for the fourth quarter because the impacts ar e generally embedde d in source dat a and cannot be separately identified. The U.S. unemployment rat e decreased from 6.7% in Decembe r 2020 to 3.9% in Decembe r 2021. According to the U.S. Department of Labor, nonfarm payroll employment increased 6.5 million in 2021, compare d to decline of 9.2 million in 2020. During the firs t quarter of 2020, the FOMC lowered the federal funds rat e to a target range of 0.00% to 0.25%. The FOMC cite d the effects of COVID-19 on economi c activit y and the risks posed to the economi c outlook. In it s release in January 2022, the FOMC sai d it seeks to achieve maximum employment and inflation at the rat e of 2 percent over the longer run. In support of these goals, the FOMC kept th e target range for the federal funds rat e at 0.00% to 0.25%. The release stated that , with inflation well above 2 percent and a strong labor market , the FOMC expects it wil l soon be appropriat e to raise the target range for the federal funds rate. The U.S. Census Burea u and the Departmen t of Housing and Urban Development’s lates t estimate fo r sales of new single- famil y home s in Decembe r 2021 was at a seasonally adjusted annua l rat e of 811,000, down 14% from the December 2020 estimate of 943,000. Purchases of existing homes in 2021 ar e up 8.5% from a yea r ago. COVID-19 Monitoring and Response Throughout the outbreak of the “COVID-19” pandemic, we remained in a strong capital and liquidity position providing stability to our employees, customers and shareholders. Our leadership team worked quickly to identify and enact appropriate measures in an effort to protect the welfare of our employees and soundness of the organization, while continuing to support our customers. 37 Th e Smal l Business Administration Paychec k Protection Progra m (“SBA-PPP” ) is one of the centerpiece s of the Coronavirus Aid Relie f and Economi c Security Ac t (the “CARES Act”), which was passe d on March 27, 2020 in response to COVID-19 and wa s supplemented with subsequent legislation. Overseen by the U.S. Treasury Department, the SBA-PPP offere d cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020 (“Round 1”). Borrowers are eligible fo r forgiveness of principa l and accrue d interest on SBA-PPP loans to the extent tha t the proceeds were used to cove r eligible payrol l costs , interest costs, rent , and utility costs over a period of between eight and 24-weeks afte r the loan was made as long as the borrowe r retains it s employees and their compensation levels. The CARES Ac t authorized the SB A to temporarily guarante e these loans . The SB A bega n processing forgiveness payment s during the fourth quarter of 2020. The Consolidate d Appropriations Ac t 2021 was signed int o law during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans (“Round 2”). BancShares originated a total of $3.2 billion of Round 1 loans and $1.2 billion of Round 2 loans. As of Decembe r 31, 2021, the tota l remaining balanc e of SBA-PP P loans was $493.8 million, net of deferred fees, primarily due to $3.9 billion of forgiveness. To date, we have not seen declines in overall credi t quality, though the impacts of these actions and othe r government stimulu s could be delaying signs of credi t deterioration Strong Liquidity and Capital Position We maintain a strong level of liquidity. As of Decembe r 31, 2021, liquid assets (available cas h and unencumbered high quality liquid assets at market value) totaled approximately $16.41 billion, representing 28.1% of consolidated assets as of Decembe r 31, 2021. In addition to liquid assets, we had contingent source s of liquidity totaling approximately $13.43 billion in the form of Federa l Home Loa n Bank (“FHLB”) borrowing capacity, Federa l Reserve Discount Window availability, federal funds lines and a committed line of credit . At December 31, 2021, our regulatory capital ratio s wer e wel l in excess of Basel III requirement s as further addresse d in the Shareholders’ Equit y and Capita l Adequacy discussion in this MD&A. Change s to Approach for Nonsufficient Funds and Overdraft Fees As previously announced, we pla n to change our approach for nonsufficient fund (“NSF” ) and overdraft fees. Beginning mid- yea r 2022, we pla n to eliminate our NSF fee s and significantl y lower our overdraft fee s from $36 to $10 on consume r accounts. We believe these change s are necessary to remain competitive in the current marketplace. FINANCIA L PERFORMANCE SUMMARY Income Statement Highlights For the yea r ended Decembe r 31, 2021, net incom e availabl e to common shareholders was $528.9 million, or $53.88 per share, compare d to $477.7 million, or $47.50 per share, during 2021. The return on average assets was 1.00% during 2021, compared to 1.07% during 2020. The return on average common shareholders’ equity was 12.84% and 12.96% for 2021 and 2020, respectively. The $51.2 million, or 10.7% increase in net incom e availabl e to common shareholders was primarily the resul t of the net effect of the following: • Net interest incom e for the yea r ended Decembe r 31, 2021 increased $2.2 million, or by 0.2%, compare d to the year ended Decembe r 31, 2020. While tota l net interest income did not fluctuate significantl y yea r over year, there were individua l component s tha t did fluctuate . The item s positivel y impacting net interest income included increased loan, investment and overnight balances, as well as lower deposit rates and an increase in SBA-PPP income . These increases were largely offset by a decline in th e yield on interest-earning assets. • The taxable-equivalent net interest margin was 2.66% for the yea r ended Decembe r 31, 2021, a decrease of 51 basis point s from the yea r ended Decembe r 31, 2020. The margin decline was primarily due to changes in earning asse t mix and a decline in the yield on interest-earning assets, partiall y offset by lower rates pai d on interest-bearing deposit s and increased fee income from SBA-PPP loans. • The benefit for credit losse s was $36.8 million for the yea r ending Decembe r 31, 2021, compare d to a provision for credit losse s of $58.4 million for 2020. Credi t losse s in 2021 were favorably impacte d by a $45.8 million reserve release, primarily drive n by improvement in macroeconomic factors , continued strong credit performance, and low net charge- offs, while 2020 include d a $35.9 million reserve build, primarily related to uncertaintie s surrounding the COVID-19 pandemic. Th e net charge-off to average loans ratio was 0.03% for 2021, down 4 basi s points from 0.07% in 2020. • Noninterest incom e for the yea r ended Decembe r 31, 2021 was $508.0 million, an increase of $31.3 million, or 6.6%, from 2020. The favorabl e changes from the prior yea r were primarily drive n by improvement s in revenue related to 38 wealth, card, and merchant, partiall y offse t by lowe r realize d gains on sales of availabl e for sale securities and a decline in mortgage income. • Noninteres t expense wa s $1.23 billion for the yea r ended Decembe r 31, 2021, compare d to $1.19 billion for 2020. This increase wa s primarily attributable to highe r personnel expenses and othe r operating expense s such as processing fee s to third parties, and merger-relate d expenses. Thes e increases were partiall y offse t by declines in othe r expense categories, such as collection an d foreclosure-relate d expenses. • Incom e tax expense wa s $154.2 million and $126.2 million for the years ended Decembe r 31, 2021 and 2020, respectively, representing effective ta x rates of 22.0% and 20.4%, respectively. Balance Shee t Highlights • Tota l loans were $32.37 billion as of Decembe r 31, 2021, a decrease of $420.5 million or 1.3% compare d to $32.79 billion as of Decembe r 31, 2020. The decrease wa s primaril y due to declines of $1.91 billion or 79.5% in SBA-PPP loans, which were primarily due to forgiveness of approximately $3.9 billion, partiall y offset by originations and recognition of deferred fees. The decrease in SBA-PP P loans wa s largel y offset by increases of $827.6 million in owner occupied commercial mortgages and $697.0 million in commercial and industrial . These increases are primarily due to growth in commercial lines, equipment leasing, and our government lending portfolios. • The allowanc e for credit losse s as a percentage of total loans wa s 0.55% as of Decembe r 31, 2021, compare d to 0.68% as loans and othe r rea l estate owned (“OREO”). of Decembe r 31, 2020. Nonperforming assets include nonaccrua l Nonperforming assets decreased $82.7 million to $159.6 million, or 0.49% of total loans, as of Decembe r 31, 2021 from $242.4 million, or 0.74% of tota l loans, as of Decembe r 31, 2020. • Total deposit s increased by $7.97 billion, or 18.4%, to $51.41 billion as of Decembe r 31, 2021 from $43.43 billion as of Decembe r 31, 2020. The increases were primaril y composed of $3.39 billion in demand deposits, $2.10 billion in checking with interest, an d $1.96 billion in money market. Th e growth in deposit s is composed of a mix of new clients and existing clients and is generall y from our commercia l customers. Capita l Highlights • For the yea r ended Decembe r 31, 2021, we returned $37.0 million of capital to shareholders through the distribution of cash dividends to common an d preferred shareholders. • Tota l shareholders’ equity increased $508.0 million or 12.0% to $4.74 billion as of Decembe r 31, 2021 from $4.23 billion as of Decembe r 31, 2020. The increase was primarily due to net income, partiall y offset by common and preferred dividends during th e year. • Under Basel III capital requirements, BancShares remained well-capitalize d at Decembe r 31, 2021, with a total risk-based capital ratio of 14.35%, Tier 1 risk-based capital ratio of 12.47%, common equity Tier 1 risk-based ratio of 11.50%, and Tier 1 leverage ratio of 7.59%. 39 BUSINESS COMBINATIONS CI T Group Inc. On January 3, 2022, BancShares completed the CIT Merger pursuant to the Merger Agreement . The CIT Merger brings togethe r FCB’s retai l franchise and full suit e of banking product s with CIT’s nationwide commercial lending and direct digital banking. Due to the timin g of the CIT Merger, the balance s and result s of operations of CIT are not include d in BancShares’ reported financial results in this Annual Report on Form 10-K. Refe r to furthe r discussion in Note W, Subsequent Events, in the Notes to th e Consolidate d Financia l Statements and Item 1. Business included in thi s Annual Report on Form 10-K. The CIT Merger will be accounte d for as a busines s combination. The assets and liabilities of CIT will be recorded at fai r value. Due to th e timin g of the CIT Merger, the fai r valu e estimates of CIT’s assets and liabilities are not availabl e to disclose in this Annual Report on Form 10-K as of and for the yea r ended Decembe r 31, 2021. At December 31, 2021, the book value of CIT’s total assets was approximatel y $53.2 billion, which primarily consiste d of approximately $32.8 billion of loans, $8.0 billion of operating lease assets, $6.8 billion of investment securities and $3.0 billion of cash. At December 31, 2021, the book value of CIT’s tota l liabilities was approximatel y $46.9 billion, which primarily consiste d of approximately $39.4 billion of deposits, $3.7 billion senior unsecured notes and $495 millio n subordinated unsecured notes. Pursuant to the Merger Agreement , the Boards of Directors of the Parent Company and FC B now consis t of 14 directors, (i) 11 of whom were member s of the legac y Board of Directors of the Parent Company, and (ii ) thre e of whom were selected from among the forme r Board of Directors of CIT, including Elle n R. Alemany, forme r Chairwoman and Chie f Executive Officer of CIT , Michael A. Carpenter, and Vic e Admiral John R. Ryan, US N (Ret.). Common Stock Conversion Pursuant to the Merger Agreement , eac h 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 converte d int o the right to receive 0.062 shares (the “Exchange Ratio” and such shares , the “Merger Consideration”) of the Parent Company’s Class A Commo n Stock, par value $1.00 per share (“Class A Common Stock”), plus, cash in lieu of fractional share s of Class A Common Stock. The Parent Company issue d approximately 6.1 million shares of it s Class A Common Stock in connection with the consummation of the CIT Merger. The closing share pric e of the Class A Commo n Stock on the Nasdaq Globa l Select Market was $859.76 on January 3, 2022. There were approximately 8,800 fractional share s for which the Parent Company paid cash of approximatel y $7.2 million. Preferre d Stoc k Conversion Pursuant to the terms of the Merger Agreement , eac h issue d and outstanding share of fixed-to-floating rat e non-cumulative perpetua l preferred stock, serie s A, par value $0.01 per share, of CIT (“CIT Serie s A Preferre d Stock” ) and each issue d and outstanding share of 5.625% non-cumulative perpetua l preferred stock, serie s B, par value $0.01 per share, of CIT (“CIT Series B Preferred Stock”), converte d int o the right to receive one share of a newly created serie s of preferred stock, serie s B, of the Parent Company (“BancShares Series B Preferred Stock” ) and one share of a newly created serie s of preferred stock, serie s C, of the Parent Company (“BancShares Series C Preferred Stock” and togethe r with the BancShares Series B Preferred Stock, the “New BancShares Preferre d Stock”), respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole , tha t are not materiall y les s favorable to the holders thereof tha n the rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole , of the CIT Serie s A Preferred Stock and the CIT Serie s B Preferred Stock, respectively. The non-callabl e period for the New BancShares Preferred Stock was extended for five years to January 4, 2027. There are 325,000 shares of BancShares Series B Preferre d Stock with a liquidation preferenc e of $1,000 per share, resulting in a total liquidation preferenc e of $325 million. There are 8 million shares of BancShares Series C Preferred Stock with a liquidation preferenc e of $25 per share, resulting in a total liquidation preference of $200 million. Th e New BancShare s Preferre d Stock qualifie s as Tie r 1 capital. Restricted Stock Conversion Pursuant to the terms of the Merge r Agreement, (i) each restricted stock unit (“RSU”) award or performance stoc k unit (“PSU”) award in respec t of shares of CIT Common Stock, including any deferred RSU award (each, a “CI T Award”) outstanding, other tha n a CIT Director RSU Award (defined below), automaticall y converte d int o a RSU in respec t of a numbe r of shares of Class A Common Stock (a “BancShares Award”) equal to (a) the numbe r of shares of CIT Common Stoc k subject to such CIT Award based on target level performance multiplie d by (b) the Exchange Ratio, subjec t to the sam e terms an d conditions applicable to the existing CIT Award (except , in the case of PSU awards , for any performance goal s or metrics), and (ii ) eac h RSU award in respec t of shares of CIT Common Stock tha t (a) was outstanding and unvested, (b) was hel d by a membe r of the Board of 40 Directors of CIT , (c) automaticall y veste d upon close of the CIT Merger in accordance wit h its terms , and (d) wa s not subjec t to a deferral electio n (each, a “CI T Director RS U Award”) automaticall y converte d int o the right to receive the applicable Merger Consideration. Assumption of Debt Securities In connection wit h the CIT Merger, FC B assume d the following issued and outstanding serie s of CIT debt securities: (i) $1.25 billion 5.00% Senior Unsecure d Note s due 2022 (the “2022 Notes”), (ii ) $750 million 5.00% Senior Unsecure d Note s due 2023 (the “2023 Notes”); (iii) $500 million 4.750% Senior Unsecure d Note s due 2024 (the “2024 Notes”); (iv) $500 million 3.929% Senior Unsecure d Fixed-to-Floating Rate Note s due 2024; (v) $500 million 5.250% Senior Unsecure d Notes due 2025 (the “2025 Notes”); (vi) $550 million 2.969% Senior Unsecure d Fixed-to-Floating Rate Note s due 2025; (vii ) $500 million 6.00% Senior Note s due 2036; (viii) $400 million 6.125% Subordinate d Note s due 2028; and (ix) $100 million 4.125% Fixed-to- Floating Rate Subordinate d Note s due 2029. Redemption of Assume d Senior Unsecured Notes As part of it s liability management to reduc e highe r debt costs , on January 24, 2022 BancShares announce d FCB’s intention, and on February 24, 2022, completed, a redemption of approximately $2.9 billion of senior unsecure d note s tha t wer e assumed in th e CIT Merger. Using excess liquidity, FC B redeemed al l of the outstanding $1.1 billion aggregat e principa l amount of the 2022 Notes , $750 million aggregat e principa l amount of the 2023 Notes , $500.0 million aggregat e principa l amount of the 2024 Notes , and $500 millio n aggregat e principal amount of th e 2025 Notes. Expecte d Impact to Segment Reporting As of Decembe r 31, 2021, we manage our busines s and report our financial results as a single segment . Due to the CIT Merger, we intend to begi n reporting multiple segment s in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022. We pla n to report financial result s in thre e operating segments: Genera l Banking, Commercia l Banking, and Rail, and a non-operating segment, Corporate. We wil l also conform prior period comparisons to the new segmen t presentation. Based on the planned approach for segment disclosures to be implemente d during the firs t quarter of 2022, the substantia l majority of BancShares ’ operations for historica l periods prior to the CIT Merger will be reflected in the General Banking segment. Thi s is furthe r addresse d in the “Business Combinations” sectio n of Ite m 1. Busines s in thi s Annual Report on Form 10-K. Community Financial Holding Co. Inc. On February 1, 2020, we completed the merger of Duluth, Georgia-based Communit y Financia l Holding Company, Inc. (“Communit y Financial” ) and it s bank subsidiary, Gwinnet t Communit y Bank, int o FCB. Under the terms of the agreement, total cash consideration of $2.3 million was pai d to the shareholders of Communit y Financial. The merger allowed us to expand our presenc e and enhance banking effort s in Georgia . The merger contributed $221.4 million in consolidated assets (when including purchase accounting adjustments), which include d $686 thousand of goodwill , $134.0 million in loans, and $209.3 million in deposits. Refe r to Note B, Busines s Combinations, in th e Note s to Consolidate d Financia l Statements for additional disclosures. FDIC-ASSISTED TRANSACTIONS BancShares completed fourteen FDIC-assisted transactions between 2009 and 2017. Nine of the fourteen FDIC-assisted transactions included shared-loss agreement s which, for their terms, protected us from a substantia l portion of the credi t and asse t quality risk we would otherwise have incurred. FDIC-assisted transactions ma y include provisions related to payment s owed to the FDIC at th e terminatio n of the agreements if actua l cumulative losse s on covered assets are lower tha n originally estimate d by the FDIC at th e time of acquisition (“Clawback Liability”). There was no Clawback Liability remaining at Decembe r 31, 2021 as FC B remitted th e fina l payment of $16.1 million to the FDIC during th e first quarter of 2021. 41 Table 2 provide s change s in the FDIC Clawbac k Liability for th e years ende d December 31, 2021 and 2020. Table 2 FDIC CLAWBACK LIABILITY (Dollars in thousands) Beginning balance Accretion Payments to FDIC for settlement of shared-loss agreements Ending balance Table 3 AVERAG E BALANCE SHEETS 5,601 $ 1 $ 2021 2020 12,395 $ 1 502 (16,103) — $ 5,601 2,674 (99,468) 1 (Dollars in thousands, taxable equivalent) Assets Loans and leases(1)(2) Investment securities(2) : U.S. Treasury Government agency Mortgage-backed securities Corporate bonds Other investments Total investment securities Overnight investment Total interest-earning assets Cash and due from banks Premises and equipment Allowance for credit losses Other real estate owned Other assets Total assets ,348,903 Liabilities Interest-bearing deposits: Checking with interest Savings Money market account Time deposits ,707,747 Total interest-bearing deposits Securities sold under customer repurchase agreements Other short-term borrowings Long-term obligations Total interest-bearing liabilities Demand deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Interest rate spread Average Balance 2021 Interest I Income/ Expense Yield/ Rate Average Balance 2020 Interest I Income/ Expense Yield/ Rate $ 32,860,019 $ 1,297,012 3.91 % $ 31,605,090 $ 1,335,008 235,849 822,177 8,833,957 608,299 110,468 10,610,750 s 8 51,819,672 $ 1,453,384 1,573 7,323 103,534 30,940 2,005 145,375 10,997 0.67 0.89 1.17 5.09 1.82 1.37 0.13 2.78 % 43,351,119 432,938 665,318 7,414,661 397,322 144,694 9,054,933 2,691,096 3,103 8,457 108,604 20,349 4,254 144,767 6,847 $ 1,486,622 4.18 % 0.72 1.27 1.46 5.12 2.94 1.60 0.25 3.40 % 349,721 1,243,052 (202,260) 44,252 1,728,384 $ 54,982,821 $ 11,257,713 $ 5 ,645 3,846,732 s 9 2,647,697 27,459,889 660,288 — 1,225,661 29,345,838 20,798,697 377,564 4,460,722 $ 54,982,821 1,291 9,722 16,582 33,240 1,312 — 26,124 60,676 344,938 1,259,325 (211,413) 53,137 1,224,332 $ 46,021,438 ,913 0.05 % $ 8,922,902 0.03 0.10 0.63 0.12 2,936,593 7,821,266 3,344,492 23,025,253 0.20 — 2.12 0.21 2.57 632,362 5 0,549 1,186,145 24,894,309 16,721,363 451,759 3,954,007 $ 46,021,438 .02 % $ 5 1,217 22,504 37,001 66,635 1,610 1,054 26,558 95,857 0.07 % 0.04 0.29 1.11 0.29 0.25 2.05 2.20 0.38 % 3 Net interest income and net yield on interest-earning assets 3.17 % (1) Loans and lease s include non-PCD and PCD loans, nonaccrua l loans and loans held for sale . Interes t income on loans and leases includes accretion income and loan fees. Loan fees were $110.1 million , $85.7 million , and $9.7 million for the years ended 2021, 2020, and 2019, respectively. (2) Yields relate d to loans, lease s and securities exempt from both federa l and state income taxes, federa l income taxe s only, or state income taxes only are stated on a taxable- equivalent basis assuming statutory federal income tax rates of 21.0% for 2021, 2020, and 2019, as well as state income tax rates of 3.3%, 3.5%, and 3.9% for the years ended 2021, 2020, and 2019, respectively. The taxable-equivalent adjustment was $2.4 million , $2.6 million , and $3.6 million , for the years ended 2021, 2020, and 2019, respectively. (3) The rate/volume variance is allocated proportionally betwee n the change s in volume an d rate. 1,390,765 $ 1,392,708 2.66 % $ 42 Tabl e 3 AVERAGE BALANC E SHEETS (continued) 2019 Interest Income/ Expense Average Balance 2021 Change from previous year du e to: 2020 Change from previous year du e to: Yield/ Rate Volume Yield/Rate Total Change(3) Volume Yield/Rate Total Change(3) $ 26,656,048 $ ,219,825 1 4.54 % $ 44,393 $ 82,389) ( 37,996) $ ( 32,399 $ 2 117,216) $ ( $ 15,183 1 22,235 14,308 114,819 7,945 2,205 161,512 26,245 ,407,582 1 2.35 2.91 2.21 5.16 1.69 2.33 2.03 4.01 % $ (1,408) 1,994 20,629 10,805 (1,039) 30,981 14,425 (122) (3,128) (25,699) (214) (1,210) (30,373) (10,275) (1,530) (1,134) (5,070) 10,591 (2,249) 608 4,150 (12,058) 5,080 51,357 12,575 209 57,163 28,418 (7,074) (10,931) (57,572) (171) 1,840 (73,908) (47,816) (19,132) (5,851) (6,215) 12,404 2,049 (16,745) (19,398) 89,799 $ 123,037) ( $ 33,238) ( 17,980 $ 3 $ 238,940) ( 9,040 $ 7 945,094 491,001 5,198,884 153,841 130,249 6,919,069 1,291,617 34,866,734 $ 271,466 1,218,611 (226,600) 45,895 985,613 $ 37,161,719 $ 7,503,325 ,018 $ 6 2,604,217 6,025,740 3,315,478 19,448,760 530,818 23,087 392,150 20,394,815 12,769,776 445,347 3,551,781 $ 37,161,719 1,700 23,315 45,221 76,254 1,995 671 13,722 92,642 0.08 % $ 0.07 0.39 1.36 0.39 0.38 2.87 3.45 0.45 1,816 $ 381 5,455 (7,663) (11) 75 (1,054) (1,297) (2,287) 3.56 % 2,084) ( $ ( 268) (307) (18,237) (12,756) (33,384) (373) — 863 (32,894) 1,054) $ 1 ,122 74 (12,782) (20,419) (33,395) (298) ( (434) (35,181) 1,227) $ ( 214 6,886 295 8,517 377 788 27,393 37,075 $ ( 105) (697) (7,697) (8,515) (18,136) (762) (405) (14,557) (33,860) (483) (811) (8,220) (9,619) (385) 383 12,836 3,215 $ ,314,940 1 3.74 % $ 92,086 $ 90,143) ( ,943 $ 1 80,905 $ 2 $ 205,080) ( 5,825 $ 7 43 RESULTS OF OPERATIONS Ne t Interest Margi n and Income (Taxable Equivalent Basis) Taxable-equivalent net interes t income wa s $1.39 billion for the yea r ended Decembe r 31, 2021, an increase of $1.9 million compare d to 2020. Interest incom e decreased by $33.2 millio n and interes t expense decreased by $35.2 million. Interes t income earned on loans and leases wa s $1.30 billion for the yea r ended Decembe r 31, 2021, a decrease of $38.0 million compare d to 2020. The decrease wa s primarily due to lower loa n yields drive n by a full yea r of a lower rat e environment, partiall y offse t by growth in loans, excluding SBA-PPP loans, and an increase in SBA-PPP interest an d fee income. Interest income earned on investment securities wa s $145.4 million and $144.8 million for the yea r ending Decembe r 31, 2021 and 2020, respectively. The increase was primarily due to the higher average investment balances, partiall y offset by a decline in th e overal l portfoli o yield. During 2021, excess liquidit y was use d to invest in $2.0 billion of US Treasury securities. Interest expense on interest-bearing deposit s was $33.2 million for the yea r ended Decembe r 31, 2021, a decrease of $33.4 million compare d to 2020, primarily due to lower rates pai d on mone y market and time deposits . We wer e able to maintain competitiv e rates, whil e also growing our mone y market deposits. Interes t expense on borrowings was $27.4 million for the yea r ende d Decembe r 31, 2021, a decrease of $1.8 millio n compare d to 2020, primaril y due to a decrease in the rat e paid. The taxabl e equivalent net interest margin for the yea r ended Decembe r 31, 2021 was 2.66%, compare d to 3.17% for the year ending Decembe r 31, 2020. The margin decline of 51 basis point s was primarily due to changes in the earning asse t mix as a result of excess liquidity, (primarily resulting from deposit inflows) being maintained in overnight investments whic h decreased the margin by 37 basis points, a decline in the yield on loans which decreased the margin by 23 basis points, and a decline in the yield on investment securities and overnight investments whic h decreased the margin by 6 basis points. These declines in margin were partiall y offset by lower rates pai d on interest-bearing deposit s which increased the margin by 9 basis point s and increased fee recognition from SBA-PPP loans which increased the margin by 5 basis points. During the yea r ended December 31, 2021, yields on loans, investment securities and overnight investments decreased 27 basis point s to 3.91%, 23 basis points to 1.37% an d 12 basis point s to 0.13%, respectively, compare d to 2020. Average interest-earning assets increased $8.47 billion or 19.5% for the yea r ended Decembe r 31, 2021 compare d to 2020. Growt h in average interest-earning assets during 2021 was primarily due to increases in average balance s of overnight investments, investment securities, and loans. The taxable-equivalent yield on interest-earning assets was 2.78% for the year ended December 31, 2021, a decline of 62 basis points compare d to 3.40% for 2020. Average interest-bearing liabilities for the yea r ended Decembe r 31, 2021 were $29.35 billion, an increase of $4.45 billion compare d to $24.89 billion for 2020. The increase is primarily due to growth in interest-bearing deposits. The average rat e paid on interest-bearing liabilities was 0.21% for the yea r ended Decembe r 31, 2021, a decrease of 17 basis point s compare d to 0.38% for 2020. Credit Losses The benefit for credit losse s was $36.8 million for the yea r ending Decembe r 31, 2021, compare d to a provision for credi t losses of $58.4 million for 2020. Credi t losse s in 2021 were favorably impacte d by a $45.8 million reserve release, primarily drive n by improvement in macroeconomic factors , continued strong credit performance , and low net charge-offs , while 2020 include d a $35.9 million reserve build, primarily related to uncertaintie s surrounding the COVID-19 pandemic. Net charge-offs for the yea r ending Decembe r 31, 2021 were $9.0 million, a decrease of $13.5 million compare d to $22.4 million in 2020. The net charge-off to average loans ratio was 0.03% for the yea r ending Decembe r 31, 2021, a decline of 4 basis point s from 0.07% for 2020. 44 Noninterest Income Table 4 NONINTERES T INCOME (Dollars in thousands) Wealth management services Service charges on deposi t accounts Cardholder services, net Other service charges and fees Merchant services, net Mortgage income Insurance commissions ATM income Marketable equit y securities gains, net Realized gains on investment securities availabl e for sale , net Other Total noninterest income Year ende d Decembe r 31 2020 2019 2021 $ 128,788 $ 102,776 $ 99,241 94,756 86,68 35,923 33,140 30,508 15,556 6,002 34,081 33,119 9,445 4,291 87,662 4 7 30,911 24,122 39,592 14,544 5,758 29,395 60,253 7,446 105,191 69,078 31,644 24,304 21,126 12,810 6,296 20,625 7,115 18,431 $ 508,002 $ 476,750 $ 415,861 For the yea r ended Decembe r 31, 2021, total noninterest income wa s $508.0 million, compare d to $476.8 million for 2020, an increase of $31.3 million, or 6.6%. Th e increases were primaril y attributable to th e following: • • • • Wealth managemen t services incom e increased by $26.0 million, primarily due to growth in assets under management resulting in highe r advisory and transaction fees. Servic e charges on deposit accounts increased by $7.1 million and othe r servic e charges and fee s increased $5.0 million as impacts from the COVID-19 pandemi c abate d and servic e charges trende d bac k toward pre-pandemic levels. We recently announce d our intent to eliminate our NSF fee s and significantl y lower our overdraft fee s from $36 to $10 on consume r account s beginning mid-yea r 2022. Thi s coul d reduc e our income from servic e charges on deposit accounts. Cardholde r services incom e increased $12.4 million, primarily due to an increase in the volum e of transactions processed, which reflected improve d consume r sentiment in 2021 as the impac t of COVID-19 subsided. Merchan t services increased by $9.0 million, primarily due to an increase in volume, as wel l as a decrease in processing rates pai d as a result of change s in servic e providers. $4.7 million favorable change related to gains on sale s and the fai r market value adjustment of marketabl e equity • A securities. The increases in noninterest incom e were partiall y offset by a $27.1 million decrease in realize d gains on sale s of availabl e for sale securities, primarily due to lower sale s volum e and the interest rat e environment, and a $9.1 million decline in mortgage income , primarily due to lower production volume drive n by highe r mortgage rates and increased competition. 45 Noninterest Expense Table 5 NONINTERES T EXPENSE (Dollars in thousands) Salaries and wages Employee benefit Occupancy expense Equipment expense Processing fees pai d to third parties Merger-related expenses Core deposit intangibl e amortization Collection and foreclosure-related expenses Consultant expense FDIC insurance expense Telecommunications expense Advertising expense Other Total noninterest expense Year ende d Decembe r 31 2020 590,020 2019 551,112 $ $ $ 2021 623,194 s135,659 117,180 119,171 59,74 29,463 10,948 5,442 12,507 14,132 12,714 9,763 83,594 $ 1,233,510 132,244 117,169 115,535 34 4,791 17,450 14,255 13,658 12,751 12,701 12,179 10,010 95,922 $ 1,188,685 120,501 111,179 112,290 29,552 17,166 16,346 11,994 12,801 10,664 9,391 11,437 89,308 $ 1,103,741 For the yea r ending Decembe r 31, 2021, total noninterest expens e was $1.23 billion, an increas e of $44.8 millio n or 3.8%, compare d to $1.19 billion for 2020. Th e change wa s primaril y attributable to th e following: • • Personnel expense, which include s salaries, wages and employe e benefits, increased by $36.6 million, primarily due to an increase in salarie s and wages as a result of annua l merit increases , increases in revenue-driven incentives, and an increase in temporary personnel costs, largel y attributable to transitioning customers to the new business online banking platform. Processing fee s pai d to third partie s increased $15.0 million primarily drive n by our continue d investments in digital and technology to support revenue-generating businesses an d improve internal processes. • Merger-relate d expenses increased $12.0 million associate d with the CIT Merger, primarily due to legal and other professional fees. • These increases were partiall y offset by decreases totaling $15.6 million. The decreases wer e largel y attributable to a decline of $14.2 millio n in net periodi c benefi t cost related to the defined benefi t pension plans. Income Taxes Incom e tax expense was $154.2 million and $126.2 million for the years ended Decembe r 31, 2021 and 2020, respectively, representing effective ta x rates of 22.0% and 20.4%, respectively. Incom e tax expense for 2021 and 2020 was favorably impacte d by $2.3 million and $13.9 million, respectively, due to BancShares ’ decision in the second quarter of 2020 to utilize an allowabl e alternative for computing it s 2021 and 2020 federal income ta x liability . The allowable alternative provide s BancShares the ability to use the federal income ta x rate fo r certain curren t yea r deductible amounts related to prior yea r FDIC-assiste d acquisitions tha t was applicabl e when these amounts were originally subjecte d to tax. INTEREST-EARNING ASSETS Interest-earning assets include overnight investments, investment securitie s and loans and leases , all of which reflec t varying interest rates based on the risk level and repricing characteristic s of the underlying asset. Higher risk investment s typicall y carry a highe r interest rate, but expose us to highe r level s 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 asset s totaled $54.70 billion and $47.19 billion at December 31, 2021 and Decembe r 31, 2020, respectively. The $7.51 billion increase was primarily composed of a $4.77 billion increase in overnight investment s and a $3.19 billion increase in investment securities, partiall y offset by a $420 million decrease in loans and leases. 46 Investment Securities The primary objective of the investment portfolio is to generat e incremental incom e by deploying exces s funds int o securities tha t have minimal liquidity risk and low to moderat e interest rat e risk and credit risk. Other objective s include acting as a stable source of liquidity, serving as a tool for asse t and liability management and maintaining an interest rat e risk profil e compatible with BancShares ’ objectives. Additionally, purchases of equities and corporate bonds in othe r financial institutions have been made largel y under a long-term earnings optimization strategy. Change s in the tota l balanc e of our investment securities portfolio result from trends in balanc e sheet funding and market performance . Generally , whe n inflows arising from deposit and treasury services product s excee d loa n and lease demand, we inves t excess funds int o the securitie s portfolio or int o overnight investments. Conversely, when loa n demand exceeds growth in deposit s and short-term borrowings, we allow any overnight investments to decline and use proceeds from maturing securities and prepayments to fund loa n demand. Refe r to Note A, Accounting Policie s and Basis of Presentation, and Note C, Investments, in the Note s to Consolidate d Financia l Statement s for additional disclosures regarding investment securities. The carrying value of total investment securitie s was $13.11 billion at Decembe r 31, 2021, an increase of $3.19 billion compare d to $9.92 billion at Decembe r 31, 2020. The increase in the portfolio was primarily attributable to purchases totaling $7.78 billion, partiall y offset by maturities and paydowns of $3.26 billion and sale s of $1.40 billion. Thi s increase was due to excess liquidit y generated by significant deposit growth during th e year. At December 31, 2021, investment securities available for sale had a net pre-tax unrealize d loss of $11.8 million, compare d to a net pre-tax unrealize d gai n of $102.3 million at Decembe r 31, 2020. After evaluating the investment securitie s with unrealized losses, management conclude d tha t no credit-related impairment existed as of Decembe r 31, 2021. Investment securities classified as availabl e for sale are reported at fai r valu e and unrealize d gains and losse s are included as a component of accumulate d othe r comprehensive incom e (“AOCI”), ne t of deferre d taxes. On Octobe r 1, 2021, mortgage-backed securities wit h an amortize d cost of $451.7 million were transferred from investment securities available for sale to the hel d to maturity portfolio. At the time of transfer, the mortgage-backe d securities had a fair value of $439.02 million and a weighted average contractual maturity of approximately 5 years. The unrealize d loss on these securities at the dat e of transfer was $12.7 million, or $9.7 million net of tax, and was reported as a component of AOCI. This unrealize d loss is amortized ove r the remaining expecte d lif e of the securitie s as an adjustment of yield. On Novembe r 1, 2020, mortgage-backed securities wit h an amortize d cost of $1.46 billion were transferred from investment securities available for sale to the hel d to maturity portfolio. At the time of transfer, the mortgage-backe d securities had a fair value of $1.47 billion and a weighted average contractual maturity of 18 years. The unrealize d gai n on these securitie s at the dat e of transfer was $5.9 million, or $4.5 million net of tax, and was reported as a component of AOCI. Thi s unrealize d gai n is accrete d over th e remaining expected life of the securities as an adjustment of yield. Table 6 present s the investment securities portfolio by majo r category at Decembe r 31, 2021 and December 31, 2020. Tabl e 6 INVESTMENT SECURITIES (Dollars in thousands) Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backed securities Commercial mortgage-backed securities Corporate bonds State, county and municipal Total investment securities available for sale Investment in marketable equity securities Investment securities held to maturity Residential mortgage-backed securities Commercial mortgage-backed securities Other Total investment securities held to maturity December 31, 2021 December 31, 2020 Composition(1) Cost 15.4 % $ 2,006,788 6.1 36.2 8.1 4.7 — 70.5 0.7 797,725 4,756,977 1,071,309 582,420 — 9,215,219 72,894 17.6 11.1 0.1 28.8 100.0 % $ 13,097,566 2,322,529 1,484,916 2,008 3,809,453 Fair Value $ 2,004,970 798,760 4,728,413 1,062,749 608,535 — 9,203,427 97,528 2,306,262 1,451,380 2,008 3,759,650 $ 13,060,605 Composition(1) Cost 5.0 % $ 499,832 7.0 44.5 7.9 6.1 — 70.5 0.9 706,241 4,369,130 745,892 590,870 — 6,911,965 84,837 Fair Value $ 499,933 701,391 4,438,103 771,537 603,279 — 7,014,243 91,680 19.1 9.4 0.1 28.6 100.0 % $ 9,813,784 1,877,692 937,034 2,256 2,816,982 1,895,381 940,862 2,256 2,838,499 9,944,422 $ Total investment securities (1) Calculated as a percent of the total fair value of investment securities. 47 Table 7 present s the weighte d average taxable-equivalent yields for investment securities hel d to maturity by major category at Decembe r 31, 2021 with range s of contractua l maturities. The weighte d average yield on the portfolio is calculate d using security-leve l annualized yields. Table 7 WEIGHTED AVERAG E YIELD ON INVESTMENT SECURITIES Investment securities held to maturity Residential mortgage-backe d securities(1) Commercial mortgage-backed securities(1) Other investments Within One Year One to Five Years Decembe r 31, 2021 Five to 10 Years After 10 Years — % — 0.94 — % — — — % — — 1.23 1.47 — Total .23 % % 1 1.47 0.94 Total investment securities held to maturity (1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturit y date, have been included in maturity groupings based on the contractual maturity. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. 1.33 % .33 % % — 0.94 — % % 1 Loan s and Leases Loans hel d for sale were $98.7 million as of Decembe r 31, 2021, a net decrease of $26.1 million compare d to $124.8 million as of Decembe r 31, 2020. The decrease is primarily due to sale s of $1.00 billion, loans hel d for sale exchanged for investment securities of $230.5 million, partiall y offse t by originations of $1.12 billion and transfers from loans hel d for investment to loans held for sale of $87.8 million. Total loans were $32.37 billion as of Decembe r 31, 2021, a decrease of $420.5 millio n or 1.3% compare d to $32.79 billion as of Decembe r 31, 2020. The decrease wa s primarily due to declines of $1.91 billion or 79.5% in SBA-PPP loans, which were primarily due to forgiveness of approximately $3.9 billion, partiall y offse t by originations and recognition of deferred fees. The decrease in SBA-PPP loans was largel y offset by increases of $827.6 million in owner occupie d commercial mortgages and $697.0 million in commercial and industrial . These increases are primarily due to growth in commercial lines , equipment leasing, an d our government lending portfolios. Loans and leases hel d for investment are classifie d differently, dependent on whethe r the y are originated or purchased, and if purchased, whethe r or not the loans reflec t more than insignificant credi t deterioration since origination as of the dat e of acquisition. Non-purchased credit deteriorated (“non-PCD”) loans consis t of loans which were originated by us or purchased from othe r institutions that did not reflec t more than insignificant credi t deterioration at acquisition. Purchased credit deteriorated (“PCD”) loans are purchased loans which reflec t a more than insignificant credi t deterioration since origination as of the dat e of acquisition. The net decrease of $125.3 million in PC D loans as of Decembe r 31, 2021 compare d to December 31, 2020 was primaril y due to pay downs an d payoffs. We report non-PC D and PC D loa n portfolios separately , wit h the non-PC D portfolio furthe r divided int o commercial and consume r segments. Non-PC D loans and leases at December 31, 2021 were $32.03 billion compare d to $32.33 billion at Decembe r 31, 2020, representing 99.0% and 98.6% of total loans, respectively. PC D loans at Decembe r 31, 2021 were $337.6 million, compared to $462.9 million at December 31, 2020, representing 1.0% an d 1.4% of loans, respectively. The discount related to acquire d non-PC D loans and leases at December 31, 2021 and Decembe r 31, 2020 was $11.4 million and $19.5 million, respectively. The discount related to PC D loans at Decembe r 31, 2021 and Decembe r 31, 2020 was $29.0 million an d $45.3 million, respectively. Th e primary drive r of the decrease in PC D discount wa s loa n payoffs. During the yea r ended Decembe r 31, 2021 and 2020, accretion income on purchased non-PC D loans and leases was $8.0 million and $11.3 million, respectively. During the yea r ended Decembe r 31, 2021 and 2020, interest and accretion income on purchased PC D loans and leases wa s $44.3 million and $59.7 million, respectively. 48 Table 8 provide s the composition of ne t loans and leases for the past thre e years. Table 8 LOANS AND LEASES (Dollars in thousands) Non-PCD loans and leases: Commercial: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans Total non-PCD loans and leases PCD loans Total loans and leases Less allowance for credi t losses Net loans and leases (Dollars in thousands) Non-PCI loans and leases: Commercial: Construction and land development Commercial mortgage Other commercia l real estate Commercial and industrial and leases Other Total commercial loans Noncommercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total noncommercial loans Total non-PCI loans and leases PCI loans Total loans and leases Less allowance for credi t losses Net loans and leases Decembe r 31 2020 2021 $ ,111,797 $ 9 85,424 1 11,992,625 2,971,393 5,710,652 493,821 22,280,288 5,679,919 1,795,005 399,570 1,331,388 547,728 9,753,610 32,033,898 337,624 32,371,522 (178,493) 11,165,012 2,987,689 5,013,644 2,406,291 22,558,060 5,561,686 2,052,854 348,123 1,255,402 552,968 9,771,033 32,329,093 462,882 32,791,975 (224,314) $ 2,193,029 3 2,567,661 $ 3 Decembe r 31 2019 ,013,454 $ 1 12,282,635 542,028 4,403,792 310,093 18,552,002 5,293,917 2,339,072 357,385 1,780,404 9,770,778 28,881,496 (225,141) $ 2 8,322,780 $ 5 58,716 8,656,355 $ 2 49 Allowance for Credit Losses During January 2020, we adopte d ASU 2016-13 Financial Instruments—Credi t Losse s (Topi c 326): Measurement of Credit Losse s on Financial Instruments (“ASC 326”), which changed the methodology, accounting policies , and input s use d in determining the ACL. Refer to Note A, Accounting Policies and Basis of Presentation, in the Note s to Consolidate d Financial Statements for a discussion of the methodology used in th e determination of th e ACL. The AC L was $178.5 million at December 31, 2021, compare d to $224.3 million and $225.1 million at December 31, 2020 and 2019, respectively. The AC L as a percentage of total loans and leases was 0.55% at December 31, 2021, compare d to 0.68% and 0.78% at December 31, 2020 and 2019, respectively. The decrease in th e ACL as of Decembe r 31, 2021 compare d to Decembe r 31, 2020 was primarily drive n by continue d strong credit performance, low net charge-offs, and improvement in macroeconomic factors. The AC L is calculated using a variet y of factors, including, but not limite d to, charge-off and recovery activity, loa n growth, changes in macroeconomic factors , collateral type, estimate d loa n lif e and changes in credit quality. Forecasted economic conditions are developed using third part y macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, BancShares uses a 12-mont h straight-line reversion period to historica l averages for mode l inputs; however for the consumer other, consume r car d and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomi c factors used in estimating the expected losses include unemployment , gross domestic product , home pric e inde x and commercial rea l estate index. BancShares ’ ACL forecasts consider a range of economi c scenarios from an upside scenario to a severely adverse scenario, but the December 31, 2021 AC L forecast was calculate d using the consensus baseline scenario. Thi s scenari o showed improvement s in the most significant economi c factors compare d to what was used to generat e the December 31, 2020 ACL. These loss estimate s were also influenced by our strong credit qualit y and lo w net charge-offs. As of Decembe r 31, 2021, the baseline forecast utilize d the following significant input s over the two-year reasonable and supportabl e forecast period: Unemployment - Expected to improve to below 4% by the end of 2022, slightly increasing to just above 4% in the first quarter of 2023, stabilizing below 4% through th e remainde r of 2023 GDP Growt h - Peak quarter over quarter annualize d growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in th e second hal f of 2022 and thereafter Home Pricing Index - Year over yea r growth rates of approximately 7% during 2022, declining to below 3% by the second half of 2023 Commercial Real Estate Index - Slight downturn in yea r over yea r change in the second quarter of 2022, relatively flat throughout the rest of 2022, followed by continued growth reaching 9% in the second an d third quarters of 2023. At December 31, 2021, the AC L allocated to non-PC D loans and leases wa s $163.7 million, or 0.51% of non-PC D loans and leases , compare d to $200.3 million, or 0.62%, at December 31, 2020, and $217.6 million, or 0.77%, at December 31, 2019. Aside from SBA-PPP loans, which have no allowance, the decrease at December 31, 2021 compare d to Decembe r 31, 2020 was primarily due to continue d strong credit performance, low net charge-offs, and improvement in macroeconomic factors. The AC L as a percentage of non-PC D loans and leases excluding SBA-PPP loans was 0.52% at December 31, 2021 compared to 0.67% at December 31, 2020. At December 31, 2021, the AC L on PCD loans totaled $14.8 million compare d to $24.0 million at December 31, 2020 and $7.5 million, at December 31, 2019. The decrease at December 31, 2021 compare d to Decembe r 31, 2020 was primarily due to a $9.2 million reserve release for the yea r ende d Decembe r 31, 2021, drive n primarily by continue d strong credit performance, lo w net charge-offs, improvement in macroeconomi c factors, and lower PC D loan balances. At December 31, 2021, the AC L on unfunded commitment s was $11.8 million compare d to $12.8 million at December 31, 2020 and $1.1 million, at Decembe r 31, 2019. 50 Table 9 provide s details of the ACL, provision components an d net charge-off rati o by loa n class for the past thre e years. Table 9 ALLOWANCE FO R CREDI T LOSSES Commercial Year Ended December 31, 2021 PCD Consumer 80,842 (1,228) (15,924) 7,523 $ 1,213 7 $ 2,478 119,485 (21,278) (17,181) 11,452 9 23,987 (14,329) (2,317) 7,461 $ 4,802 1 $ 78,493 1 0.04 ,048 22,550,607 .06 $ 7 % % 0 5,144) 9,797,112 1.28)% $ ( ( ,986 402,277 (Dollars in thousands) Allowance for credit losses: Balance at Januar y 1, 2021 Benefit for credit losses Charge-offs Recoveries Balance at December 31, 2021 Net charge-off (recovery) ratio ,401 Net charge-offs (recoveries) Average loans Balance at December 31, 2019 42,369 Adoption of ASC 326 Balance at Januar y 1, 2020 Provision (benefit) Initial allowance on PCD Charge-offs Recoveries 0,842 Balance at December 31, 2020 Net charge-off (recovery) ratio 1,736 Net charge-offs (recoveries) Average loans (Dollars in thousands) Balance at Januar y 1, 2019 Provision (benefit) Charge-offs Recoveries 39,043 Balance at December 31, 2019 42,369 Net charge-off ratio Net charge-offs Average loans $ 8 $ 1 $ 8 $ 1 $ 1 $ 1 $ $ 7 $ 1 .15 $ 1 $ 7 Commercial 5,236 (87,554) 54,815 37,763 — (17,586) 5,850 19,485 0.06 4,171 21,282,535 Commercial 5,525 13,386 (14,744) 4,684 5,236 , 0.06 $ 0,060 1 16,875,800 $ 8 $ 2 $ 2 $ 2 Year Ended December 31, 2020 PCD Consumer ,536 30,629 105,865 27,791 — (24,219) 10,048 3,987 % 0 3,459) 9,617,600 % $ 7 $ 2 0.67)% $ ( 25,141 19,001 26,537 (7,202) 1,193 (3,300) 6,759 24,314 ( 2,448 517,121 Year Ended December 31, 2019 PCI Consumer 19,663 (28,283) 8,331 ,536 , %0 1 9,182,570 % $ 7 % $ $ 7 $ .22 $ 9,952 9,144 (1,608) — — 25,141 — — 537,131 43,027) 3,015 $ 2 .11 % $ 0,012 Total 224,314 (36,835) (35,422) 26,436 0.03 % 32,749,996 Total (37,924) 187,217 58,352 1,193 (45,105) 22,657 0.07 % 31,417,256 Total 223,712 31,441 ( 1 0 3 26,595,501 Table 10 provide s trends of the AC L ratio s for the past three years. Table 10 ALLOWANCE FO R CREDIT LOSSE S RATIOS (Dollars in thousands) Allowance for credit losses to total loans and leases: Allowance for credit losses Total loans and leases Allowance for credit losses to non-PCD loans and leases: Allowance for credit losses on non-PCD loans and leases Total non-PCD loans and leases Allowance for credit losses to PCD loans: Allowance for credit losses on PCD loans Total PCD loans 51 2021 0.55 $ 178,493 32,371,522 0.51 $ 163,691 32,033,898 4.38 $ 14,802 2020 % 0 .68 $ 224,314 % 2019 0 .78 % $ 225,141 32,791,975 % 0 .62 $ 200,327 32,329,093 % 5 .18 $ 23,987 28,881,496 % .77 % $ 217,605 0 28,322,780 .35 % % ,536 $ 7 1 337,624 462,882 558,716 Table 11 details the allocatio n of the AC L among the various loa n types. See Note E, Allowance for Credit Losses, in the Notes to Consolidated Financia l Statement s for additiona l disclosure s regarding the ACL. Table 11 ALLOCATION OF ALLOWANCE FO R CREDI T LOSSES (dollars in thousands) Non-PCD loans and leases Commercial: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans and leases Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans Total non-PCD loans and leases PCD loans Total loans and leases (dollars in thousands) Non-PCI loans and leases Commercial: Construction and land development Commercial mortgage Other commercia l real estate Commercial and industrial and leases Other Total commercial loans and leases Noncommercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total noncommercial loans Total non-PCI loans and leases PCI loans Total loans and leases December 31 2021 2020 Allowance for credit losses Percent of loans to total loans Allowance for loan and lease losses Percent of loans to total loans $ ,465 4 21,964 14,149 30,635 — 71,213 .5 32,865 16,750 976 5,762 36,125 92,478 163,691 14,802 78,493 1 $ 3.4 % $ 37.0 9.2 17.7 1 68.8 6,746 23,665 22,652 27,779 — 80,842 .3 17.5 5.6 1.2 4.1 1.7 30.1 98.9 1.1 100.0 % $ 44,098 24,757 1,731 9,460 39,439 119,485 200,327 23,987 224,314 3.0 % 34.0 9.1 15.3 7 68.7 17.0 6.3 1.1 3.8 1.7 29.9 98.6 1.4 100.0 % December 31 2019 Allowance for loan and lease losses Percent of loans to total loans 3,213 $ 3 45,335 2,211 59,374 2,236 142,369 18,232 19,702 2,709 34,593 75,236 217,605 7,536 $ 25,141 2 3.5 % 42.5 1.9 15.3 1.1 64.3 18.3 8.1 1.2 6.2 33.8 98.1 1.9 100.0 % 52 Nonperforming Assets Nonperforming assets include nonaccrua l loans and OREO resultin g from both non-PC D and PC D loans. Non-PC D loans are generally place d on nonaccrua l when principa l or interest become s 90 days pas t due or whe n it is probabl e tha t principa l or interest is not full y collectable. Whe n non-PC D loans are place d on nonaccrual, al l previously uncollected accrue d interest is reversed from interest incom e and the ongoing accrua l of interest is discontinued. Non-PC D loans and leases are generally removed from nonaccrua l status when the y become current for a sustained period of time as to both principa l and interest and there is no longe r concern as to the collectabilit y of principa l and interest. Accretion of income for PC D loans is discontinued when we are unabl e to estimate th e amount or timing of cash flows . PCD loans may begi n or resume accretion of income when information becomes availabl e that allows us to estimate the amount an d timin g of future cash flows. OREO includes foreclosed propert y and branc h facilitie s tha t we have closed but not sold. Net book values of OREO are reviewed at least annually to evaluate if write-downs are required. The level of review is dependent on the value and type of the collateral , with highe r value and more complex propertie s receiving a more detaile d review . Changes to the value of the assets between scheduled valuation dates are monitore d through communication with brokers and monthly reviews by the asset manage r assigned to each asset. The asset manage r uses the information gathere d from brokers and othe r market source s to identify any significant changes in the market or the subject propert y as they occur. Valuations are then adjusted or new appraisal s are ordered to ensure th e reporte d values reflec t the most current information. Since OREO is carrie d at the lower of cost or market value, less estimated sellin g costs , book value adjustments are only recorded when fai r values have declined. Decisions regarding write-downs are based on factors including appraisals, previous offers received on th e property, marke t conditions and th e number of days the property ha s been on th e market. Table 12 provide s detail s on nonperforming assets and other risk elements. Table 12 NONPERFORMING ASSETS (Dollars in thousands, except ratios) Nonaccrual loans and leases: Non-PCD PCD Total nonaccrua l loans Other real estate owned Total nonperforming assets Accruing loans and leases 90 days or more past due: Non-PCD PCD 2021 December 31 2020 2019 0,690 $ 9 36,544 $ 1 14,946 $ 1 29,616 120,306 39,328 59,634 $ 1 42,373 $ 2 54,939 191,483 50,890 6,743 121,689 46,591 68,280 1 $ ,382 $ 6 $ ,507 5 $ ,291 543 0.49 0.37 148.4 355 0.74 0.58 117.1 3 24,257 0.58 0.42 185.0 Ratio of total nonperforming assets to total loans, leases and other real estate owned Ratio of nonaccrual loans and leases to total loans and leases Ratio of allowance for credit losses to nonaccrual loans and leases Troubled Debt Restructurings A loan is considere d a troubled debt restructuring (“TDR”) when both of the following occur: (1) a modification to a borrower’s debt agreement is made and (2) a concession is granted for economi c or legal reasons related to a borrower’s financial difficulties that otherwis e would not be granted. TDR concessions could include deferrals of interest, modifications of payment terms, or, in certain limite d instances, forgiveness of principa l or interest. Acquire d loans are classifie d as TDR s if a modification is made subsequent to acquisition. We furthe r classify TDRs as performing and nonperforming. Performing TDRs accrue interest at th e tim e of restructure and continue to perform based on the restructured terms. Nonperforming TDR s do not accrue interest an d are include d with other nonperforming assets within nonaccrual loans and leases in Tabl e 12 above. 53 Th e Interagency Statemen t on Loa n Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus wa s publishe d by banking regulators in Apri l 2020 to clarify expectations around loa n modifications and the determination of TDRs for borrowers experiencing COVID-19-relate d financial difficulty. BancShares applied thi s regulatory guidance during it s TDR identification process for short-term loa n forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs. Refe r to Note A, Accounting Policie s and Basis of Presentation, in the Note s to Consolidate d Financia l Statements for discussion of our accounting policie s for TDRs. We selectively agre e to modify existing loa n terms to provide relie f to customers who are experiencing financial difficulties or othe r circumstances that could affect thei r ability to meet debt obligations. Typica l modifications include short-term deferral of interest or modification of payment terms . TDR not accruing interest at the time of restructure are include d as nonperforming loans. TDR s accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans. Table 13 provide s further detail s on performing and nonperforming TDRs for the last thre e years. Table 13 TROUBLE D DEBT RESTRUCTURINGS (Dollars in thousands) Accruing TDRs: Non-PCD PCD Total accruing TDRs Nonaccruing TDRs: Non-PCD PCD Total nonaccruing TDRs All TDRs: Non-PCD PCD Total TDRs 2021 December 31 2020 2019 17,380 $ 1 46,781 $ 1 $ 39,747 1 11,676 $ 1 29,401 57,364 $ 1 17,617 28,750 $ 1 37,832 9,935 43,470 7,346 7,767 $ 4 0,816 $ 5 2,442 $ 4 17,074 42,331 111 155,212 39,336 183,217 24,963 154,007 17,185 94,548 $ 1 08,180 $ 2 71,192 $ 1 INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securitie s sold under customer repurchase agreements, FHLB borrowings, subordinated debt , and othe r borrowings. Interest-bearing liabilities totale d $31.78 billion at December 31, 2021, compare d to $27.31 billion at December 31, 2020. The $4.48 billion increase wa s primarily due to an increase in interest- bearing deposit s of $4.58 billion, partially offset by a decrease in total borrowings of $106.2 million. Deposits We strive to maintai n a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective . We believ e traditional bank deposit product s remai n an attractive option for many customers , as evidence d by the significant deposit growth the industry has experienced over the pas t 18 months. As economi c conditions improve, we recogniz e tha t our liquidity position coul d be adversely affected as bank deposit s are withdrawn. Our ability to fund future loan growth is significantl y dependent on our success at retaining existing deposits and generating new deposit s at a reasonable cost. Total deposits increased by $7.97 billion, or 18.4%, to $51.41 billion as of Decembe r 31, 2021 from $43.43 billion as of Decembe r 31, 2020. The increases were primarily due to increases of $3.39 billion in demand deposits, $2.10 billion in checking with interest, and $1.96 billion in mone y market . The growth in deposit s is coming from a mix of new clients and existing client s and is generally from our commercial customers. 54 Table 14 provide s deposit balances as of Decembe r 31, 2021 and 2020. Table 14 DEPOSITS (Dollars in thousands) Demand Checking with interest Money market Savings Time Total deposits December 31 2021 2020 1,404,808 $ 2 8,014,029 $ 1 12,694,389 10,590,106 4,235,824 2,480,967 10,591,687 8,632,713 3,304,167 2,889,013 1,406,094 $ 5 3,431,609 $ 4 Table 15 provide s the expecte d maturity of time deposit s in excess of $250 thousand, the FDIC insurance limit, as of Decembe r 31, 2021. Table 15 MATURITIE S OF TIME DEPOSITS IN EXCESS OF $250,000 (Dollars in thousands) Time deposits maturing in: Three months or less Over three months through six months Over six months through 12 months More than 12 months Total December 31 2021 2020 24,156 $ 2 36,200 $ 1 115,507 84,996 154,862 118,496 86,260 311,956 79,521 $ 5 52,912 $ 6 We estimate total uninsure d deposit s wer e $22.95 billion an d $18.02 billion at Decembe r 31, 2021 and 2020, respectively. Borrowings At Decembe r 31, 2021, total borrowings were $1.78 billion compare d to $1.89 billion at December 31, 2020. The $106.2 million decrease wa s primarily due to a decrease of $52.4 million in securities sold under customer repurchase agreement s and a decrease of $27.0 millio n in tota l subordinate d debt. Table 16 BORROWINGS (Dollars in thousands) Securities sold under customer repurchase agreements Federal Home Loan Bank borrowings Subordinated debt ,817 SCB Capital Trust I FCB/SC Capital Trust II FCB/NC Capital Trust III Macon Capital Trust 3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030 Other subordinated debt Total subordinated debt 4,433 Other borrowings Total borrowings 89,101 $ 5 December 31 2021 2020 41,487 $ 6 644,659 9 17,798 88,145 I1 347,371 — 477,564 72,155 ,889,650 7,956 $ 1 ,783,479 $ 1 55 655,175 9,779 17,664 88,145 14,433 346,541 2 504,518 88,470 Th e Parent Company owns four special purpose entities – SCB Capita l Trus t I, FCB/SC Capita l Trus t II, FCB/N C Capital Trust III and Macon Capital Trus t I (the “Trusts”), whic h mature in 2034, 2034, 2036, and 2034, respectively. Subordinate d debt include d junior subordinate d debenture s representing obligations to the Trusts, whic h may be redeemed at par in whole or in part at any time . BancShare s has guaranteed al l obligations of th e Trusts. On March 4, 2020, we completed a publi c offering of $350 million aggregat e principa l amount of our 3.375% Fixed-to-Floating Rate Subordinate d Note s due 2030, whic h are redeemable startin g wit h the interest payment due March 15, 2025, subjec t to obtaining the prior approva l of the Federal Reserv e to the extent such approva l is the n required under the rule s of the Federal Reserve, or earlier upo n the occurrenc e of certai n events. In conjunction with the CIT Merger, FC B assumed approximately $3.7 billion senior unsecure d note s (principa l balance) and $500 million subordinated unsecure d note s (principa l balance). On February 24, 2022, FC B redeeme d approximatel y $2.9 billion of senior unsecure d notes, leaving approximately $900 million of senior unsecure d debt and $500 million of subordinated unsecure d debt outstanding. Refe r to Note W, Subsequent Events, in the Note s to Consolidated Financial Statement s for further discussion of the redemption of this debt. Commitments and Contractual Obligations Table 17 identifie s significant obligations and commitment s as of Decembe r 31, 2021 representing required and potential cash outflows. See Note T, Commitments and Contingencies, for additional information regarding total commitments. Loan commitment s and standby letters of credit are presented at contractual amounts and do not necessaril y reflec t future cash outflows as many ar e expecte d to expire unused or partiall y used. Table 17 COMMITMENT S AND CONTRACTUAL OBLIGATIONS Typ e of obligation (Dollars in thousands) Contractual obligations: Time deposits Short-term borrowings Long-term obligations Total contractual obligations Commitments: Loan commitments Standby letters of credi 00,520 Affordable housing partnerships Total commitments CRA Investment Commitment Less than 1 year 1-3 years Thereafter Total Payments due by period 3-5 years $ ,937,216 1 06,928 $ 3 589,101 82,735 $ ,609,052 2 38,199 $ 4 $ 5 6,970 — 131,271 9,619 $ 5 79,853 $ 1 — 2,649 ,480,967 $ 2 — 977,723 589,101 1,194,378 ,157,576 $ 1 ,264,446 $ 4 $ 6 ,391,757 t 1 28,407 ,086,781 $ 2 69,469 $ 7 ,763,147 $ 3 15,916 13,658 212 556 $ 13,011,154 16,648 1 43,416 — 795 $ ,520,684 6 $ ,116,355 2 70,237 $ 7 ,763,942 $ 3 $ 13,171,218 Prior to the CIT Merger, CIT announce d a Community Benefits Pla n develope d in collaboration with the California Reinvestment Coalition (“CRC”) and the National Communit y Reinvestment Coalition (“NCRC”). Through the plan, CI T Bank agreed to fund $7.75 billion in CR A qualified lending and investment s over a four-yea r term, covering the period of January 1, 2020 through Decembe r 31, 2023. Of the $7.75 billion commitment , $6.5 billion over the four-yea r pla n period will be within Californi a for statewide CR A lending and investments, with sub-targets for specifie d multi-family, smal l busines s and mortgage lending. Outside of California, CIT Bank had committed $1.25 billion over the four-yea r ter m in CRA qualified lending and investments to communities where it will have physica l branches. In conjunction with the CIT Merger, BancShares agree d to honor the CR A commitments. SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY We are committed to effectively managing our capital to protect our depositors, creditors and shareholders. We continually monitor the capital level s and ratios for BancShares and FC B to ensure the y excee d the requirements imposed by regulatory authoritie s and to ensure the y are appropriate , give n growth projections, risk profil e and potential change s in the regulatory environment. Failure to meet certain capital requirements ma y resul t in actions by regulatory agencies, which coul d have a material impact on our consolidated financia l statements. 56 During 2021, the Parent Compan y did not repurchas e any Clas s A common stock. During 2020, the Parent Company repurchased a total of 813,090 share s of Class A common stock, or 8.4% of outstanding Clas s A shares as of Decembe r 31, 2019, for $333.8 million at an average cos t per share of $410.48. There were no repurchase s of Class B common stoc k or preferred stoc k during the yea r ended Decembe r 31, 2021 or 2020. All shar e repurchases were executed under previously approve d authorities. Upon expiration of the most recent share repurchase authorization on July 31, 2020, shar e repurchas e activit y ende d and will be reevaluated in subsequent periods. During 2020 and 2019, the share repurchases included 45,000 and 100,000 shares, respectively, of Class A common stock purchased from Ella Anna Holding, as trustee of her revocabl e trust . Mrs. Holding is the widow of the Parent Company’s forme r Executive Vice Chairman , Fran k B. Holding, and the mothe r of Frank B. Holding, Jr. and Hope H. Bryant , our Chairman an d Chief Executive Officer an d Vic e Chairman, respectively. In connection wit h the consummation of the CIT Merger, the Parent Compan y issued approximately 6.1 million shares of its Class A Common Stock. The closing share pric e of the Class A Commo n Stoc k on the Nasdaq Globa l Selec t Market was $859.76 on January 3, 2022. Additionally, CIT Serie s A and B Preferre d Stoc k was converte d int o the rights to receive BancShares Serie s B and C Preferre d Stock, respectively. In connection with the consummation of the CIT Merger, the Parent Company issue d (a) 325,000 shares of BancShares Serie s B Preferred Stock with a liquidation preferenc e of $1,000 per share, resulting in a total liquidation preferenc e of $325 million, and (b) 8 million shares of BancShares Serie s C Preferred Stock with a liquidation preferenc e of $25 per share, resulting in a total liquidation preferenc e of $200 million. The issuance of Class A Common Stock and the conversion of preferred stock is furthe r discussed in the “Business Combinations” section of this MD&A. 57 Table 18 provide s information on capital adequac y for BancShares and FC B as of December 31, 2021 and 2020. Table 18 ANALYSIS OF CAPITAL ADEQUACY (Dollars in thousands) BancShares Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverag .00 .00 FCB Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverag .00 .00 Basel III Requirements PCA well- capitalized thresholds Amount Ratio Amount Ratio December 31, 2021 December 31, 2020 10.50 8.50 7 4 e 10.50 8.50 7 4 e 0.00 % 1 % $ 5,041,686 8.00 6.50 5.00 8.00 6.50 5.00 4,380,452 4,040,515 4,380,452 4,857,960 4,651,226 4,651,226 4,651,226 0.00 % 1 14.35 % $ 4,577,212 12.47 11.50 7.59 3,856,086 3,516,149 3,856,086 13.85 13.26 13.26 8.07 4,543,496 4,276,870 4,276,870 4,276,870 13.81 % 11.63 10.61 7.86 13.72 12.92 12.92 8.72 Federa l banking agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening previous capital requirement s for banking organizations. Base l III becam e effective for BancShares on January 1, 2015 and the associated capital conservation buffers of 2.5% were full y phased in by January 1, 2019. The capital conservation buffer is designe d to absorb losses during periods of economi c stress. Additionally, federal banking agencies have develope d Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. Failure to meet regulatory capital requirements ma y result in certain actions by regulators which coul d have a direct material effect on our consolidated financial statements. Table 18 demonstrates tha t the regulatory capital ratio s for BancShares an d FCB exceed the Basel II I requirements and the PC A well-capitalized thresholds as of Decembe r 31, 2021 and 2020. At December 31, 2021, BancShares and FC B had tota l risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively, which are in excess of the full y phased in Basel III conservation buffer of 2.50%. The capital rati o conservation buffers represent th e excess of the regulatory capital ratio as of Decembe r 31, 2021 over the Basel II I minimum. Th e Basel III minimums, conservation buffers, and requirement s are discussed furthe r in the “Capita l Requirements” section in Ite m 1. Busines s included in thi s Annual Report on Form 10-K. At December 31, 2021 and 2020, BancShares had additiona l Tie r 1 Capita l of $339.9 million, which consists of 5.375% non- cumulative perpetua l preferred stock, serie s A. BancShares had Tier 2 capital totalin g $661.2 million and $721.1 million at Decembe r 31, 2021 and 2020, respectively. FC B had Tier 2 capital totaling $206.7 million and $266.6 million at Decembe r 31, 2021 and 2020, respectively. Tier 2 capital consists of the allowance for credi t losses (up to 1.25% of risk weighted assets), trust preferred securities, and qualifying subordinate d debt . Under Basel III regulations, when subordinated debt is withi n five years of it s scheduled maturity date, issuers must discount the amount include d in Tie r 2 capital by 20% each yea r unti l the debt matures. Once the subordinate d debt is within one yea r of its scheduled maturity date, none of the subordinate d debt qualifies as Tier 2 capital. Item 7A. Quantitative and Qualitative Disclosur e abou t Market Risk RISK MANAGEMENT Risk is inherent in any business. BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a philosophy whic h does not preclude higher risk business activitie s balanced wit h acceptable returns while meetin g regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we fac e wit h accountability of and support from all associates. Senior management applie s various strategies to reduc e the risks to which BancShares ma y be exposed, with effective challenge and oversight by management committees. In addition, our Board of Directors (the “Board”) strive s to ensure the busines s culture is integrated with the Risk Management program and policies, procedures and metrics for identifying, assessing, monitoring and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integra l part of our overall Risk Managemen t Framework and Ris k Appetite Framework. The Board administers it s risk oversight function primaril y through th e Board Risk Committee. 58 Th e Board Risk Committee structure is designe d to allow for information flow , effective challenge and timely escalation of risk-related issues . The Board Risk Committee is directed to monitor and advise the full Board regarding ris k exposures, including Credit, Market , Capital , Liquidity, Operational, Compliance, Asset, Strategic and Reputational risks ; review, approve, and monitor adherenc e to the Risk Appetit e Statement and supporting risk tolerance level s via a series of establishe d metrics; and evaluate , monitor and oversee the adequac y and effectiveness of the Risk Managemen t Framework and Ris k Appetite Framework. The Board Ris k Committe e als o reviews: reports of examination by and communications from regulatory agencies; the results of interna l and third part y testing and qualitative and quantitative assessment s related to risk management; and any othe r matters within the scope of the Board Ris k Committee’s oversight responsibilities. The Board Ris k Committe e monitors management’s response to certain risk-related regulatory and audi t issues. In addition, the Board Ris k Committe e may coordinat e with the Audit Committe e and the Compensation, Nominations and Governanc e Committe e for the review of financial statement s and related risks, compensation risk management an d othe r areas of joint responsibility. In combination with othe r risk management and monitoring practices, enterprise-wide stres s testing activitie s are part of the Risk Management Framework and conducte d withi n a defined framework. Stres s tests are performed for various risks to ensure the financial institution ca n support continued operations during stresse d periods. Enactment of the EGRRCPA significantl y altered severa l provisions of the Dodd-Frank Act, including how stres s tests are run. BancShares wil l continue to monitor and stres s tes t its capital an d liquidity consistent with the safety an d soundness expectations of the federal regulators. Refe r to the “Regulatory Considerations” sectio n of Ite m 1. Business include d in this Annual Report on Form 10-K for further discussion. Credit risk management Credi t risk is the risk of not collecting payment s pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originat e are underwritte n in accordance wit h our credit policies and procedures and are subject to periodic ongoing reviews. Acquire d loans, regardless of whethe r PCD or non-PCD, are recorded at fai r value as of the acquisition dat e and are subject to periodic reviews to identify any furthe r credit deterioration. Our independent credit review function conducts ris k review s and analyses of both originated and acquire d loans to ensure complianc e with credit policies and to monitor asse t qualit y trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product . We striv e to identify potential proble m loans as early as possible , to record charge-offs or write-downs as appropriate and to maintai n an appropriat e ACL that account s for expected credit losse s in the loan and lease portfolio. Our AC L estimate as of Decembe r 31, 2021, include d extensive reviews of the change s in credit ris k associate d with the uncertaintie s around economi c forecasts and the overall economi c impac t of COVID-19. Expected loss estimate s withi n each portfolio considered the potential impac t of economi c activity, as wel l as potential mitigatin g impac t from the government stimulus and loa n modification programs. These loss estimate s additionally considered BancShares industry risk, historically strong credit qualit y and actua l net losse s incurred during prior periods of economi c stress, as wel l as recent credi t trends, which have not see n significant deterioration as of Decembe r 31, 2021. We maintain a well-diversifie d loa n and lease portfolio and seek to minimiz e the risks associated with large concentrations withi n specific geographi c areas, collateral types or industries. Despite our focus on diversification, severa l characteristics of our loa n portfolio subjec t us to significant risk, such as our concentrations of rea l estate secured loans, revolving mortgage loans and medical - and dental-relate d loans. We have historicall y carrie d a significant concentration of rea l estate secured loans, but activel y mitigat e exposure through underwriting policies whic h primarily rel y on borrower cash flow rather than underlying collateral values. Whe n we do rely on underlying rea l propert y values, we favor financing secure d by owner-occupie d rea l property and, as a result, a larg e percentage of our rea l estate secured loans are owner occupied. At December 31, 2021, loans secure d by rea l estate were $24.28 billion, or 75.0%, of total loans and leases compared to $23.56 billion, or 71.8% at December 31, 2020, and $22.38 billion, or 77.5%, at Decembe r 31, 2019. Simila r to our branc h footprint, the collatera l of loans secure d by rea l estate is concentrated withi n North Carolina and South Carolina . At December 31, 2021, rea l estate locate d in North Carolina and South Carolina represented 35.9% and 15.6%, respectively, of al l rea l estate used as collateral. 59 Table 19 provide s the geographic distribution of real estate collateral by state. Table 19 GEOGRAPHIC DISTRIBUTION OF REAL ESTATE COLLATERAL Collateral location North Carolina South Carolina California Florida Georgia Virginia Washington Texas Tennessee All other locations December 31, 2021 Percent of real estate secured loans with collateral located in the state 35.9 15.6 11.8 7.0 6.5 6.3 3.7 3.1 1.5 8.6 Among rea l estate secured loans, our revolving mortgage loans (“Hom e Equit y Lines of Credit” or “HELOCs” ) present a heightened risk due to long commitment periods during which the financial position of individua l borrowers or collateral values ma y deteriorate significantly. In addition, a large percentage of our HELOCs are secured by junior liens. Substantia l declines in collateral values could cause junior lien positions to become effectivel y unsecured. HELOCs secure d by rea l estate wer e $1.82 billion, or 5.6%, of total loans at December 31, 2021, compare d to $2.09 billion, or 6.4%, at December 31, 2020, and $2.38 billion, or 8.2%, at Decembe r 31, 2019. Except for loans acquire d through mergers and acquisitions, we have not purchased HELOCs in the secondary market , nor have we originated these loans to customers outside of our market areas. All originated HELOCs were underwritte n by us based on our standard lending criteria . The HELOC portfolio consists of variabl e rat e lines of credit whic h allow custome r draw s during a portion switching to an amortizing term following the draw period. a specifie d period of the line of credit Approximately 83.1% of the revolving mortgage portfolio relates to propertie s in North Carolina and South Carolina. Approximately 36.6% of the loan balances outstanding are secured by senior collateral positions while the remaining 63.4% are secure d by junior liens. , with We actively monitor the portion of our HELOCs in the interest-onl y period and when the y will mature. Approximatel y 89.4% of outstanding balances at December 31, 2021, require interest-only payments, while the remaining require monthly payments equa l to the greate r of 1.5% of the outstanding balance, or $100. Whe n HELOCs switc h from interest-only to full y amortizing, including principa l and interest, some borrowers ma y not be abl e to afford the higher monthly payments. We have not experience d a significant increase in default s as a resul t of these increased payments. In the norma l course of business, we will wor k with eac h borrower as the y approach th e revolving period maturity date to discuss options for refinanc e or repayment. Loans and leases to borrowers in medical, dental or related fields were $7.09 billion as of Decembe r 31, 2021, which represents 21.9% of total loans and leases , compare d to $5.54 billion or 16.9% of total loans and leases at December 31, 2020, and $5.16 billion or 17.9% of total loans and leases at December 31, 2019. The credi t risk of thi s industry concentration is mitigated through our underwriting policies whic h emphasiz e reliance on adequat e borrower cash flow rather than underlying collateral value and our preferenc e for financing secure d by owner-occupie d rea l property. Except for thi s single concentration, no other industry represented more than 10% of tota l loans and leases outstanding at Decembe r 31, 2021. Interest rate risk management Interest rat e risk (“IRR”) result s principally from: assets and liabilities maturing or repricing at different point s in time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term interest rates changing in different magnitudes. We assess our short-term IRR by forecasting net interest income over 24 months under various interest rat e scenarios and comparing those result s to forecaste d net interest income , assuming stabl e rates. IRR scenario s modele d include , but are not limited to, immediate , parallel rat e shocks, interest rat e ramps , change s in the shape of the yield curve and changes in the relationships of our rates to marke t rates. 60 a net asset-sensitive position, Th e composition of our interest rat e sensitiv e assets and liabilities generally results in concentrated in the middle of the yield curve, mostly drive n by move s in the federal funds rate, whereby our assets will reprice faste r than our liabilities. Interest rat e sensitive assets generally consist of interest-bearing cash, investment securities, and commercial and consumer loans. Approximatel y 27% of our commercial and consumer loans have floating contractual referenc e rates. These floating rat e loans are indexe d to the following rates (wit h approximate percentage s of eac h floating rate loa n portfolio relative to the tota l floating rat e loa n portfolio include d in parenthesis), Prim e (41%), LIBOR (34%), Secured Overnight Financing Rate (“SOFR”) (12%) an d US Treasury (13%). Table 20 provide s the impac t on net interest incom e over 24 months resulting from various instantaneous interest rat e shock scenarios as of Decembe r 31, 2021 and 2020. Table 20 NE T INCOME SENSITIVIT Y SIMULATION ANALYSIS Change in interest rate (basis points) -100 +100 +200 Estimated (decrease) increase in net interest income December 31, 2020 December 31, 2021 (6.97)% 6.68 12.87 (6.24)% 8.09 14.57 Ne t interes t incom e sensitivity metric s at Decembe r 31, 2021 remai n largel y unchanged whe n compared to Decembe r 31, 2020. Long-term interes t rat e risk exposure is measured using the economi c value of equity (“EVE”) sensitivit y analysis to study the impac t of long-term cash flows on earnings and capital. EVE represent s the differenc e between the sum of the present value of al l asse t cas h flows and the sum of the present value of the liability cash flows . EVE sensitivity analysis involves discounting cash flows under different interest rat e scenarios. The base-case measurement and it s sensitivity to shifts in th e yield curve allow management to measure longer-term repricing an d option risk in the balanc e sheet. Table 21 present s the EVE profile as of Decembe r 31, 2021 and 2020. Table 21 ECONOMIC VALUE OF EQUIT Y MODELING ANALYSIS Change in interest rate (basis points) -100 +100 +200 Estimated (decrease) increase in EVE December 31, 2021 December 31, 2020 (13.68)% 6.10 5.93 (21.20)% 12.18 15.71 The EV E metrics at December 31, 2021, compare d to December 31, 2020, were primarily affected by ongoing growt h in non- maturity deposit s during 2021, coupled wit h the interest rate environment. We do not typically utilize interest rat e swaps, floors , collars or othe r derivative financial instruments to attempt to hedge our overall balanc e sheet rate sensitivity an d interest rat e risk. Our simulations do not account for othe r busines s developments, including the CIT Merger, tha t coul d affect net interest incom e and EVE, or for management actions tha t coul d affect net interest incom e and EVE or tha t coul d be taken to change our risk profile. Accordingly, we ca n give no assurance that actual results would not diffe r materiall y from th e estimated outcomes of our simulations. 61 Table 22 provide s loa n maturity distribution information. Table 22 LOAN MATURIT Y DISTRIBUTION (Dollars in thousands) Commercial: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP 47,315 $ 1 Total commercial loans and leases Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans and leases Within One Year At December 31, 2021, maturing Five to 15 Years One to Five Years After 15 years Total 95,055 $ 3 71,156 $ 4 8,271 $ 9 ,111,797 $ 1 503,491 234,654 1,231,000 43,116 2,159,576 84,375 113,575 16,623 9,784 305,972 530,329 32,719 3,194,733 1,343,459 2,861,414 450,705 8,245,366 391,917 211,084 104,655 625,953 121,327 1,454,936 95,715 7,924,721 1,359,985 1,563,114 — 11,318,976 1,543,399 91,455 18,104 695,651 74,655 2,423,264 139,102 369,680 33,295 55,124 — 556,370 3,660,228 1,378,891 260,188 — 45,774 5,345,081 70,088 11,992,625 2,971,393 5,710,652 493,821 22,280,288 5,679,919 1,795,005 399,570 ,331,388 1 547,728 9,753,610 337,624 ,722,624 $ 2 ,796,017 $ 9 $ 13,881,342 ,971,539 $ 5 $ 32,371,522 Table 23 provide s information regarding th e sensitivity of loans and leases to change s in interes t rates. Table 23 LOAN INTERES T RAT E SENSITIVITY (Dollar s in thousands) Commercial: Construction and land development Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans and leases Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans and leases Liquidity risk management Loan s maturing after one year with Fixed interest rates Variabl e interest rates 75,787 $ 5 $ 3 88,695 10,638,067 2,369,125 3,844,074 450,705 17,877,758 2,761,276 32,766 103,947 1,321,604 194,726 4,414,319 138,614 851,067 367,614 635,578 — 2,242,954 2,834,268 1,648,664 279,000 — 47,030 4,808,962 166,291 2,430,691 $ 2 $ ,218,207 7 Liquidity risk is the risk an institution is unabl e to generat e or obtain sufficient cash or it s equivalent s on a cost-effective basis to meet commitments as the y fal l due. The most common sources of liquidity risk arise from mismatches in the timing and value of on-balanc e sheet and off-balanc e sheet cash inflows and outflows. In general , on-balanc e sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities. A commonl y cited exampl e of a balanc e sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities). Other forms of liquidity risk include market constraints on the abilit y to convert assets into cash at expecte d levels, an inability to access funding sources at sufficien t levels at a reasonabl e cost and changes in economi c conditions or exposure to credit, market , operational, legal and reputation risks affecting an institution’s liquidit y risk profile. 62 We utilize various limit-based measures to monitor, measure an d control liquidit y risk across three different type s of liquidity: • • • Tactical - Measures the risk of a negative cash flow position whereby cash outflows excee d cas h inflows over a short- term horizon out to nine weeks; Structural - Measures the amount by which illiqui d asset s are supporte d by long-term funding; and Contingent - Measures the ris k of having insufficient liquidity source s to support cash needs under potential future stresse d market conditions or having an inability to acces s wholesal e funding source s in a timel y and cost effective manner. We ai m to maintain a diverse mix of liquidity source s to support the liquidity management function, while aimin g to avoid funding concentrations by diversifying our externa l funding wit h respect to maturities, counterparties and nature. Our primary source of liquidity is our branch-generated deposi t portfolio due to the generally stable balances and low cost. Additional sources include cash at the Federal Reserve Bank and various othe r correspondent bank account s and unencumbered securities, whic h totaled $16.41 billion at December 31, 2021, compare d to $9.63 billion at December 31, 2020. Anothe r source of available funds is advances from the FHLB of Atlanta . Outstanding FHL B advance s were $644.7 million as of Decembe r 31, 2021, and we had sufficient collateral pledged to secure $8.92 billion of additional borrowings. Further, in the current year, $4.81 billion in non-PC D loans with a lendabl e collateral value of $3.95 billion were used to creat e additional borrowing capacit y at the Federa l Reserve Bank. We also maintain Federal Funds and othe r credit lines , whic h had $556.0 million of available capacity at December 31, 2021. FOURT H QUARTER ANALYSIS For the quarter ende d Decembe r 31, 2021, net incom e was $123.3 million compare d to $138.1 million for the corresponding quarter of 2020, a decrease of $14.8 million or 10.7%. The decrease wa s primarily the resul t of lower net interest income , lower noninterest incom e and highe r noninterest expenses, partially offset by lower provision expense. Earnings per share were $12.09 for the fourth quarte r of 2021 compare d to $13.59 for th e sam e period a yea r ago. Net interest incom e was $357.4 million, a decrease of $1.3 million, or 0.4%, compare d to the fourth quarter of 2020. Thi s was primarily due to a decline in the yield on loans and a decrease in interest and fee incom e on SBA-PP P loans, largel y offset by organi c loa n growth, highe r investment and overnight balances and yields, as well as lower rates on interest-bearing deposits. SBA-PPP loans contributed $26.5 million in interest and fee incom e for the fourth quarter of 2021 compare d to $42.2 million for the same quarter in 2020. The taxable-equivalent net interest margin for the fourth quarter of 2021 was 2.58%, a decrease of 44 basis point s from 3.02% in the sam e quarter in the prior year. The margin decline was primarily due to changes in earning asse t mix drive n by excess liquidity and highe r balances in overnight investments, a decline in the yield on loans and lower income on SBA-PPP loans. These declines were partially offset by lower rate s paid on interest-bearing deposit s and highe r investment yields. Incom e tax expense was $30.3 million in the fourth quarter of 2021, compare d to $36.6 million in the fourth quarter of 2020. The effective ta x rates were 19.7% an d 21.0% during each of these respective periods. Provision for credit losse s was a net benefit of $5.1 million during the fourth quarter of 2021, compare d to $5.4 million in expense for the fourth quarter of 2020. The $10.5 million decrease was favorably impacted by a $4.7 million reserve release drive n primarily by continue d strong credit performance, low net charge-offs and improvement in macroeconomic factors . The net recovery rati o was 0.01% for th e fourt h quarter of 2021, compared to 0.06% for the fourth quarte r of 2020. Noninterest income was $114.3 million for the fourth quarter of 2021, a decrease of $12.5 million from the sam e period of 2020. Contributing to the declin e was a $15.9 million reduction in fai r market value adjustment s on marketabl e equity securities, a $6.0 million decrease in mortgage incom e due to reductions in gai n on sale and production volum e drive n by highe r mortgage rates and increased competition and a $5.3 million decline in realize d gains on available for sale securities. These declines wer e partially offset by a $5.3 million increase in wealth management services due to growth in assets under management resulting in highe r advisory and transaction fees, a $3.6 million increase in servic e charges on deposit accounts, a $2.6 million increase in cardholde r services, net , and a $1.2 million increase in both merchant services, net and othe r service charges and fees. Noninterest expense was $323.2 million for the fourth quarter of 2021, an increase of $17.8 million from the sam e quarter last year. Thi s was primarily due to increases of $9.9 million in salarie s and wages (resulting from annua l merit and highe r revenue- based incentives), $4.5 million in CIT merger-relate d expenses, $3.7 million in processing fee s pai d to third partie s (resulting from our continue d investments in digita l and technology to support revenue-generating businesses and improve internal processes), and temporary personnel costs. 63 Ite m 8. Financial Statements and Supplementary Data Table 24 FINANCIA L SUMMARY AND SELECTED AVERAG E BALANCE S AND RATIOS (Dollars in thousands, except share data) SUMMARY OF OPERATIONS Interest income Interest expense Net interest income (Benefit) provision for credit losses Net interest income after provision for credit losses Gain on acquisitions Noninterest income excluding gain on acquisitions Noninterest expense Income before income taxes Income taxes Net income Net income available to common shareholders Net interest income, taxabl e equivalent (1) PE R SHARE DATA Net income Cash dividends Market price at period end (Class A) Book value at period end SELECTED PERIOD AVERAGE BALANCES Total assets Investment securities Loans and leases (2) Interest-earning assets Deposits Interest-bearing liabilities Securities sold under customer repurchase agreements Other short-term borrowings Long-term borrowings Common shareholders’ equity Shareholders’ equity Shares outstanding SELECTED PERIOD-EN D BALANCES Total assets Investment securities Loans and leases Deposits Securities sold under customer repurchase agreements Other short-term borrowings Long-term borrowings Shareholders’ equity Shares outstanding SELECTED RATIOS AND OTHE R DATA 2021 2020 2019 2018 2017 $ 1,451,010 $ 1,484,026 $ 1,404,011 $ 1,245,757 $ 1,103,690 60,676 1,390,334 (36,835) 1,427,169 — 508,002 1,233,510 701,661 154,202 547,459 95,857 1,388,169 58,352 1,329,817 — 476,750 1,188,685 617,882 126,159 491,723 92,642 1,311,369 31,441 1,279,928 — 415,861 1,103,741 592,048 134,677 457,371 36,857 1,208,900 28,468 1,180,432 — 400,149 1,076,971 503,610 103,297 400,313 43,794 1,059,896 25,692 1,034,204 134,745 387,218 1,012,469 543,698 219,946 323,752 $ 528,915 $ 1,392,708 $ 477,661 $ 1,390,765 $ 457,371 $ 1,314,940 $ 400,313 $ 1,212,280 $ 323,752 $ 1,064,415 $ 3.88 5 $ 7.50 4 $ 1.05 4 $ 3.53 3 $ 6.96 2 1.88 829.84 447.95 $ 54,982,821 10,610,750 32,860,019 51,819,672 48,258,586 29,345,838 660,288 — 1,225,661 4,120,785 $ 4,460,722 9,816,405 $ 58,308,140 13,110,408 32,371,522 51,406,094 589,101 — 1,194,378 $ 4,737,241 9,816,405 1.67 574.27 396.21 $ 46,021,438 9,054,933 31,605,090 43,351,119 39,746,616 24,894,309 632,362 5 0,549 1,186,145 3,684,889 $ 3,954,007 10,056,654 $ 49,957,680 9,922,905 32,791,975 43,431,609 641,487 — 1,248,163 $ 4,229,268 9,816,405 1.60 532.21 337.38 $ 37,161,719 6,919,069 26,656,048 34,866,734 32,218,536 20,394,815 530,818 23,087 392,150 3,551,781 $ 3,551,781 11,141,069 $ 39,824,496 7,173,003 28,881,496 34,431,236 442,956 295,277 588,638 $ 3,586,184 10,629,495 1.45 377.05 300.04 $ 34,879,912 7,074,929 24,483,719 32,847,661 30,165,249 18,995,727 555,555 58,686 304,318 3,422,941 $ 3,422,941 11,938,439 $ 35,408,629 6,834,362 25,523,276 30,672,460 543,936 28,351 319,867 $ 3,488,954 11,628,405 1.25 403.00 277.60 $ 34,302,867 7,036,564 22,725,665 32,213,646 29,119,344 19,576,353 649,252 77,680 842,863 3,206,250 $ 3,206,250 12,010,405 $ 34,527,512 7,180,256 23,596,825 29,266,275 586,256 107,551 870,240 $ 3,334,064 12,010,405 .51 Rate of return on average assets Rate of return on average common shareholders’ equity Average equity to average assets ratio Net yield on interest-earning assets (taxable equivalent) Allowance for credit losses to total loans and leases: PCD Non-PC Total Ratio of total nonperforming assets to total loans, leases and other real estate owned Total risk-based capital ratio Tier 1 risk-based capital ratio Common equity Tier 1 ratio Leverage capital ratio Dividend payout ratio Average loans and leases to average deposits % .94 % .07 1.00 12.84 8.11 2.66 4.38 D 0 0.55 0.49 14.35 12.47 11.50 7.59 3.49 68.09 % .23 % 1 12.96 8.59 3.17 5.18 0.62 0.68 0.74 13.81 11.63 10.61 7.86 3.52 79.52 % .15 1 12.88 9.56 3.74 1.35 0.77 0.78 0.58 12.12 10.86 10.86 8.81 3.90 82.74 1 11.69 9.81 3.66 1.51 0.86 0.88 0.52 13.99 12.67 12.67 9.77 4.32 81.17 0 10.10 9.35 3.28 1.31 0.93 0.94 0.61 14.21 12.88 12.88 9.47 4.64 78.04 (1) The taxable-equivalent adjustment was $2.4 million , $2.6 million , $3.6 million , $3.4 million and $4.5 million for the years 2021, 2020, 2019, 2018, and 2017, respectively. (2) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases. 64 Tabl e 25 SELECTED QUARTERLY DATA 14,605 357,402 (5,138) Fourth Quarter 2.09 $ 1 0,329 $ 372,007 362,540 114,259 323,188 153,611 3 s 123,282 (Dollar s in thousands, except share dat a and ratios) SUMMAR Y OF OPERATIONS Interest income Interest expense Net interest income (Benefit) provision for credit losses Net interest income after provision for credit losses Noninterest income Noninterest expense Income before income taxes Income taxe Net income Net income available to common shareholders $ 118,646 Net interest income , taxable equivalent $ 357,950 PER COMMON SHAR E DATA Net income Cash dividends on common shares 0.47 Market price at period end (Class A) 829.84 Book value per share at period-end 447.95 SELECTED QUARTERLY AVERAGE BALANCES $ 58,115,943 Total assets 11,424,103 Investment securities Loans an d leases(1) 32,488,033 54,601,810 Interest-earning assets 51,238,517 Deposits 30,876,506 Interest-bearing liabilities Securities sold under customer repurchase agreements Other short-term borrowings Long-term borrowings Common shareholders' equity Shareholders' equity Common shares outstanding CES SELECTED QUARTER-END BALANCES $ 58,308,140 Total assets 13,110,408 Investment securities s Loans an d lease 3 Deposits 51,406,094 Securities sold under customer repurchase agreements Other short-term borrowings Long-term borrowings Shareholders' equity Common shares outstanding TA SELECTED RATIOS AND OTHER DATA Rate of return on average assets (annualized) Rate of return on average shareholders’ equity (annualized) Net yield on interest-earning assets (taxable equivalent) Allowanc e for credit losses to total loans an d leases: 650,123 — 1,217,099 4,292,981 589,101 — 1,194,378 $ 4,632,918 $ 4,737,241 9,816,405 2,371,522 9,816,405 10.96 0.84 2.58 PCD Non-PCD Total Ratio of total nonperforming assets to total loans, leases and othe r real estate owned Total risk-based capita l ratio Tier 1 risk-based capital ratio Common equity Tier 1 ratio Tier 1 leverage capita l ratio Dividend payout ratio Average loans and lease s to average deposits 4.38 0.51 0.55 0.49 14.3 12.47 11.50 7.59 3.89 63.41 4.30 2021 2020 Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter $ 361,855 $ 361,825 $ 355,323 $ 376,876 $ 374,334 $ 363,257 $ 369,559 14,968 346,887 (1,120) 348,007 122,944 312,818 158,133 34,060 124,073 15,432 346,393 (19,603) 365,996 134,150 301,578 198,568 45,780 152,788 15,671 339,652 (10,974) 350,626 136,649 295,926 191,349 44,033 147,316 18,160 358,716 5,403 353,313 126,765 305,373 174,705 36,621 138,084 20,675 353,659 4,042 349,617 120,572 291,662 178,527 35,843 142,684 25,863 337,394 20,552 316,842 165,402 291,679 190,565 36,779 153,786 31,159 338,400 28,355 310,045 64,011 299,971 74,085 16,916 57,169 $ 119,437 $ 347,451 $ 148,152 $ 347,035 $ 142,680 $ 340,271 $ 133,448 $ 359,370 $ 138,048 $ 354,256 $ 148,996 $ 337,965 $ 57,169 $ 339,174 2.17 $ 1 5.09 $ 1 4.53 $ 1 3.59 $ 1 4.03 $ 1 4.74 $ 1 0.47 843.17 432.07 0.47 832.74 421.39 0.47 835.77 405.59 0.47 574.27 396.21 0.40 318.78 380.43 0.40 405.02 367.57 $ 55,922,358 10,707,519 32,707,591 52,371,165 49,107,087 29,662,791 672,114 — 1,222,452 4,196,655 $ 54,399,331 10,534,348 33,166,049 51,519,684 47,751,103 28,909,320 677,451 — 1,227,755 4,058,236 $ 51,409,634 9,757,650 33,086,656 48,715,279 44,858,198 27,898,525 641,236 — 1,235,576 3,935,267 $ 49,557,803 9,889,124 32,964,390 46,922,823 43,123,312 26,401,222 684,311 — 1,250,682 3,786,158 $ 48,262,155 9,930,197 32,694,996 45,617,376 41,905,844 25,591,707 710,237 — 1,256,331 3,679,138 $ 45,553,502 8,928,467 31,635,958 42,795,781 39,146,415 24,407,285 659,244 45,549 1,275,928 3,648,284 $ .46 5 0.40 332.87 351.90 $ 40,648,806 7,453,159 29,098,101 38,004,341 34,750,061 23,153,777 474,231 157,759 961,132 3,625,975 $ 4,536,592 $ 4,398,173 $ 4,275,204 $ 4,126,095 $ 4,019,075 9,816,405 9,816,405 9,816,405 9,816,405 9,836,629 $ 3,988,225 10,105,520 $ 3,682,634 10,473,119 $ 56,901,977 10,875,354 32,516,189 50,065,762 $ 55,175,318 10,894,227 32,689,652 48,410,596 $ 53,908,606 10,222,107 33,180,851 47,330,997 $ 49,957,680 9,922,905 32,791,975 43,431,609 $ 48,666,873 9,860,594 32,845,144 42,250,606 $ 47,866,194 9,508,476 32,418,425 41,479,245 663,575 — 1,219,229 692,604 — 1,224,488 680,705 — 1,230,326 641,487 — 1,248,163 693,889 — 1,252,016 740,276 — 1,258,719 $ 4,581,295 $ 4,476,490 $ 4,321,400 $ 4,229,268 $ 4,074,414 $ 3,991,444 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,934,105 $ 41,594,453 8,845,197 29,240,959 35,346,711 540,362 105,000 1,297,132 $ 3,957,520 10,280,105 .88 % 0 % .13 1 % .16 1 % .11 1 % .18 1 % .36 1 % .57 % 0 11.29 2.61 4.94 0.51 0.56 0.63 1 5 12.32 11.34 7.68 3.86 66.60 14.64 2.68 4.73 0.53 0.58 0.71 14.15 12.13 11.14 7.67 3.11 69.46 14.70 2.80 5.30 0.57 0.63 0.73 14.14 12.02 11.00 7.84 3.23 73.76 14.02 3.02 5.18 0.62 0.68 0.74 13.81 11.63 10.61 7.86 3.46 76.44 14.93 3.06 5.07 0.61 0.68 0.73 13.70 11.48 10.43 7.80 2.85 78.02 16.43 3.14 5.07 0.61 0.69 0.77 13.63 11.38 10.32 8.07 2.71 80.81 6.34 3.55 4.80 0.64 0.72 0.79 13.65 11.43 10.36 8.98 7.33 83.74 (1) Average loan an d lease balance s include PCI loans, non-PCI loans an d leases, loans held for sale an d nonaccrual loans and leases. 65 Tabl e 26 CONSOLIDATED TAXABLE EQUIVALEN T RATE/VOLUM E VARIANCE ANALYSIS - FOURTH QUARTER (Dollars in thousands, taxable equivalent) Assets Loans and leases(1)(2) Investment securities:(2) U.S. Treasury Government agency Mortgage-backed securities Corporate bonds Other investments Total investment securities Overnight investments Total interest-earning assets Cash and due from banks Premises and equipment Allowance for credit losses Other real estate owned Other assets Total assets Liabilities Interest-bearing deposits: Checking with interest Savings Money market accounts Time deposits Total interest-bearing deposits Securities sold under customer repurchase agreement 50,123 Other short-term borrowings Long-ter m borrowings Total interest-bearing liabilities Demand deposits Other liabilities Shareholders' equity Total liabilities and shareholders' equity Interest rate spread 2021 Interest Income/ Expense Average Balance Yield/ Rate Average Balance 2020 Interest Income/ Expense Increase (decrease) due to: Yield/ Rate Volume Yield/ Rate Total Change $ 32,488,033 $ 328,781 3.98 % $ 32,964,390 $ 345,300 4.12 % $ (15,137) $ (1,382) $ (16,519) 1,401 560,737 1,381 832,821 28,597 9,300,971 7,782 620,341 563 109,233 39,724 11,424,103 10,689,674 4,050 54,601,810 $ 372,555 0.99 0.66 1.23 5.02 2.04 1.39 0.15 2.69 336,715 1,239,037 (183,810) 41,673 2,080,518 526,072 695,757 7,981,834 591,780 93,681 9,889,124 4,069,309 % 46,922,823 325,890 1,262,831 (225,339) 50,949 1,220,649 $ 58,115,943 $ 49,557,803 $ 11,993,935 $ 1,382 324 2,223 3,903 7,832 260 — 6,513 14,605 4,140,161 10,357,923 2,517,265 29,009,284 s 6 — 1,217,099 30,876,506 22,229,233 377,286 4,632,918 0.05 % $ 9,688,744 0.03 0.09 0.62 0.11 3,230,625 8,529,816 3,017,044 24,466,229 0.16 — 2.12 0.19 684,311 — 1,250,682 26,401,222 18,657,083 373,403 4,126,095 250 1,574 21,130 7,657 600 31,211 1,019 $ 377,530 17 0.19 310 0.90 3,523 1.06 370 5.18 102 2.55 4,322 1.26 0.10 1,664 3.17 % $ (9,151) ,176 $ 4 1,134 (503) 3,944 (245) (139) 4,191 1,367 1,151 (193) 7,467 125 (37) 8,513 3,031 $ (4,975) $ 1,533 306 3,242 5,976 11,057 374 — 6,729 18,160 0.06 % $ 0.04 0.15 0.79 0.18 365 516) $ ( 86 695 (990) 156 0.22 — 2.13 0.27 (18) — (134) 4 3,559) (68) (1,714) (1,083) (3,381) (96) — (82) ( $ 151) ( 18 (1,019) (2,073) (3,225) (114) — (216) (3,555) $ 58,115,943 $ 49,557,803 .90 % 2.50 % 2 Net interest income and net yield on interest-earning assets (1) Loans and leases include PCI loans and non-PCI loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were $32.5 million and $39.8 million for the three months ended December 31, 2021 , and 2020, respectively. (2) Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 21.0% as well as state income tax rates of 3.3% and 3.5% for the three months ended December 31, 2021, and 2020, respectively. The taxable-equivalent adjustment was $548 thousand and $654 thousand for the three months ended December 31, 2021 , and 2020, respectively. 3.02 % $ (9,155) $ 357,950 359,370 $ (1,420) ,735 $ 7 2.58 $ % 66 REPORT OF PREDECESSOR INDEPENDENT REGISTERE D PUBLIC ACCOUNTING FIRM To th e Board of Directors an d Shareholders of First Citizens BancShares , Inc. Opinion on the Consolidate d Financial Statements We have audited the accompanying consolidated balanc e sheet s of First Citizens BancShares, Inc. and Subsidiarie s (the "Company") as of Decembe r 31, 2020, the related consolidated statements of income , comprehensive income , changes in shareholders’ equity, and cash flows for each of the two years in the period ende d Decembe r 31, 2020, and the related notes (collectively referred to as the "consolidate d financial statements") . In our opinion, the consolidate d financial statements present fairly, in al l materia l respects, the financial position of the Company as of Decembe r 31, 2020 and the results of it s operations and it s cas h flows for each of the two years in the period ende d Decembe r 31, 2020, in conformit y with U.S. generally accepted accounting principles. Adoption of New Accounting Standard As discussed in Notes A and E to the consolidate d financial statements, th e Company changed it s method of accounting for credit losse s effective January 1, 2020 due to the adoption of Accounting Standards Codification (ASC ) Topi c 326 Financial Instruments – Credit Losses. Basis for Opinion These consolidate d financial statements ar e the responsibilit y of the Company's management. Our responsibilit y is to express an opinion on the Company's consolidated financial statements based on our audits. We are a publi c accounting firm registered wit h the PCAOB an d are require d to be independent with respec t to the Company in accordance wit h the U.S. federal securities law s and th e applicable rules and regulations of the Securities and Exchange Commission and th e PCAOB. We conducted our audits in accordance wit h the standards of the PCAOB . Those standards require that we pla n and perform the audi t to obtain reasonable assurance about whethe r the financial statements ar e fre e of materia l misstatement , whethe r due to error or fraud. Our audits included performing procedures to assess the risks of materia l misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a tes t basis, evidenc e regarding the amounts and disclosures in the financial statements. Ou r audits also included evaluating the accounting principles used and significant estimate s mad e by management, as wel l as evaluating the overall presentation of the financial statements. We believ e that our audits provide a reasonabl e basis for our opinion. /s/ Dixon Hughe s Goodman LLP We served as the Company’s auditor from 2004 to 2021. Raleigh, North Carolina February 24, 2021 67 KPMG LLP 4242 Six Forks Road Suite 850 Raleigh, NC 27609 REPORT OF INDEPENDENT REGISTERE D PUBLIC ACCOUNTING FIRM To th e Board of Directors an d Shareholders Firs t Citizens BancShares, Inc.: Opinion on th e Consolidate d Financial Statements We have audite d the accompanying consolidated balance sheet of Firs t Citizens BancShares, Inc. and subsidiaries (the Company) as of Decembe r 31, 2021, the related consolidated statement s of income , comprehensive income, change s in shareholders ’ equity, an d cas h flows for th e yea r then ended, an d the related notes (collectively, th e consolidate d financial statements). In our opinion, th e consolidate d financial statements present fairly, in al l materia l respects, the financia l position of the Company as of Decembe r 31, 2021, and th e results of it s operations and it s cas h flows for th e yea r then ended, in conformit y with U.S. generall y accepte d accounting principles. We also have audited, in accordance with th e standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control ove r financial reporting as of Decembe r 31, 2021, based on criteri a established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission , and our report date d February 25, 2022 expresse d an unqualifie d opinion on the effectiveness of th e Company’s interna l control over financia l reporting. Basis for Opinion These consolidated financial statements are the responsibilit y of the Company’s management . Our responsibilit y is to express an opinion on these consolidate d financial statements base d on our audit. We ar e a publi c accounting firm registere d with the PCAOB and ar e require d to be independent wit h respec t to the Company in accordanc e wit h the U.S. federa l securities law s and the applicable rules and regulations of the Securitie s and Exchange Commission and th e PCAOB. We conducte d our audi t in accordance with th e standards of the PCAOB . Those standards require that we pla n and perform the audi t to obtain reasonabl e assurance about whethe r the consolidated financial statements are free of materia l misstatement, whethe r due to error or fraud. Our audit include d performing procedure s to assess th e risks of material misstatemen t of the consolidated financial statements, whethe r due to error or fraud, and performing procedures tha t respond to thos e risks. Such procedures include d examining, on a tes t basis, evidenc e regarding the amounts and disclosures in th e consolidate d financial statements. Our audit also included evaluating th e accounting principles use d and significant estimates made by management, as well as evaluating the overall presentation of th e consolidate d financial statements. We believe tha t our audit provide s a reasonable basis for our opinion. Critica l Audi t Matter The critical audit matter communicated below is a matte r arising from th e current period audi t of the consolidate d financial statements that was communicated or required to be communicate d to the audit committee and that : (1) relate s to accounts or disclosures that are material to the consolidated financial statements and (2) involve d our especiall y challenging, subjective, or comple x judgments. The communication of a critica l audit matter does not alte r in any way our opinion on the consolidated financial statements, take n as a whole , and we ar e not , by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on th e accounts or disclosures to which it relates. Quantitative component of th e allowance for credi t losse s for loans evaluate d on a collectiv e basis As discusse d in Note s A and E to the consolidated financial statements, as of Decembe r 31, 2021 the Company had an allowanc e for credit losse s (ACL) of $178.5 million, whic h include s the quantitative component for loans evaluate d on a collective basi s (the quantitative collective ACL). Loans are segregate d int o pools with similar risk characteristics and each have a mode l that is utilized to estimate the quantitative collective ACL. Th e quantitative collective ACL model s estimat e the KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 68 probabilit y of default (PD) an d los s given default (LGD) for individual loans withi n the risk pool base d on historical loss experience, borrowe r characteristics, collateral type, forecasts of relevant economi c conditions, expecte d future recoveries and othe r factors. Loa n level undiscounte d ACL is calculated by applying the modele d PD and LGD to quarterl y forecasted loa n balances, whic h are adjuste d for contractua l payments, pre-payments, an d prior defaults. Th e Company uses a two-year reasonable and supportable forecast period whic h incorporate s macroeconomi c forecasts at th e tim e of the evaluation. The Company’s ACL forecasts conside r a range of economi c scenarios from an upside scenario to a severely adverse scenario, but th e Decembe r 31, 2021 ACL forecast wa s calculated using th e consensus baseline scenario. A twelve-mont h straight-line reversion period to historica l averages is used for model inputs, however for th e commercia l card an d certain consumer portfolios immediat e reversion to historical net loss rates is utilized. Model output s may be adjusted through a qualitative assessment to reflect economi c conditions an d trends not captured within th e model s including credit quality, concentrations, and significant policy an d underwriting changes. We identifie d the assessment of the quantitative collective AC L as a critica l audit matter. A high degree of audi t effort, including specialized skills and knowledge, an d subjective an d comple x auditor judgment was involved in the assessment of the quantitative collective AC L due to significant measurement uncertainty. Specifically, th e assessment encompasse d the evaluation of the methodology, including the methods and model s used to estimat e the PD an d LGD, as well as the selection of the economi c scenari o and relate d economi c input variables. The assessment also included an evaluation of the conceptual soundness an d performanc e of the PD an d LGD models. In addition, auditor judgment was require d to evaluat e the sufficienc y of audi t evidence obtained. The following are the primary procedure s we performed to address this critica l audit matter. We evaluated th e design and tested th e operating effectiveness of certai n interna l control s relate d to the Company’s measurement of th e quantitative collective AC L including control s relate d to the: • • • • • • development an d approva l of the AC L methodology continued use an d appropriateness of change s to the PD and LGD models selectio n of the economi c scenari o and relate d economi c input variable s utilized in the models determinatio n and measurement of th e factors and assumptions used in th e PD and LGD models performance monitoring of th e PD and LGD models analysis of th e ACL results , trends, and ratios. We evaluate d the Company’s proces s to develop th e quantitative collective AC L by testing certain source s of data , factors, and assumptions that the Company used, and considere d the relevance and reliability of such data , factors, and assumptions. In addition, we involved credi t ris k professional s wit h specialize d skill s and knowledge , who assisted in: • evaluating th e Company’s quantitative collective AC L methodology for compliance with U.S. generall y accepted accounting principles • • evaluating judgments made by th e Company relative to th e assessment and performance testing of th e PD and LGD models by comparing the m to relevant Company-specific metrics and trends and th e applicable industry an d regulatory practices assessing the conceptual soundness of th e PD and LGD model s including th e selection and use of th e economic scenario and relate d economi c input variable s by inspecting th e model documentation to determine whethe r the models are suitable for their intended use. We also assesse d the sufficienc y of the audi t evidence obtaine d related to the quantitative collective AC L by evaluating the: • • • cumulative result s of the audit procedures qualitative aspects of the Company’s accounting practices potential bia s in the accounting estimate. /s/ KPMG LLP We have served as the Company’s auditor since 2021. Raleigh , North Carolina February 25, 2022 69 KPMG LLP 4242 Six Forks Road Suite 850 Raleigh, NC 27609 REPORT OF INDEPENDENT REGISTERE D PUBLIC ACCOUNTING FIRM To th e Board of Directors an d Shareholders Firs t Citizens BancShares, Inc.: Opinion on Internal Control Over Financial Reporting We have audite d First Citizens BancShares , Inc. an d subsidiaries' (the Company) interna l control over financia l reporting as of Decembe r 31, 2021, based on criteri a establishe d in Interna l Control – Integrated Framework (2013) issue d by the Committee of Sponsoring Organizations of th e Treadwa y Commission. In our opinion, the Company maintained, in al l materia l respects, effective interna l control over financia l reporting as of Decembe r 31, 2021, based on criteri a established in Interna l Control – Integrated Framework (2013) issue d by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with th e standards of the Publi c Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of Decembe r 31, 2021, the related consolidate d statement s of income , comprehensive income, change s in shareholders’ equity, an d cas h flows for th e yea r then ended, an d the related notes (collectively, th e consolidate d financial statements), and our report dated February 25, 2022 expressed an unqualifie d opinion on those consolidate d financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control ove r financial reporting an d for its assessment of the effectiveness of internal control ove r financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financia l Reporting. Our responsibility is to express an opinion on the Company’s interna l control over financia l reporting based on our audit . We are a public accounting firm registered wit h the PCAOB and are required to be independent with respect to th e Company in accordanc e wit h the U.S. federa l securities law s and the applicable rule s and regulations of the Securities and Exchange Commission and th e PCAOB. We conducte d our audi t in accordance with th e standards of the PCAOB . Those standards require that we pla n and perform the audi t to obtain reasonabl e assurance about whethe r effective interna l control over financia l reporting was maintaine d in all material respects. Our audit of interna l control over financia l reporting included obtaining an understanding of internal control over financia l reporting, assessing the risk tha t a material weakness exists , and testing and evaluating th e design and operating effectiveness of internal control based on the assesse d risk. Our audit also included performing such othe r procedures as we considered necessary in th e circumstances. We believe tha t our audit provide s a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control ove r financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting an d the preparation of financial statements for external purposes in accordanc e wit h generally accepte d accounting principles. A company’s internal control ove r financial reporting includes thos e policie s and procedures tha t (1) pertain to the maintenance of records that , in reasonabl e detail, accurately an d fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance tha t transactions are recorde d as necessary to permit preparation of financial statements in accordanc e wit h generally accepted accounting principles, and that receipts and expenditures of the company ar e being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets tha t could have a materia l effec t on the financia l statements. Because of it s inherent limitations, internal control ove r financial reporting ma y not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subjec t to the risk tha t controls ma y become inadequate because of changes in conditions, or tha t the degree of compliance wit h the policie s or procedures ma y deteriorate. Raleigh, North Carolina February 25, 2022 /s/ KPMG LLP KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. 70 Firs t Citizens BancShares, Inc . and Subsidiaries Consolidate d Balanc e Sheets 37,814 (Dollars in thousands, except share data) Assets Cash and due from banks Overnight investments Investment in marketable equity securities (cost of $72,894 at December 31, 2021 and $84,837 at December 31, 2020) Investment securities availabl e for sale (cost of $9,215,219 at December 31, 2021 and $6,911,965 at December 31, 2020) Investment securities held to maturity (fair value of $3,759,650 at December 31, 2021 and $2,838,499 at December 31, 2020) Loans held for sale Loans and leases Allowance for credit losses Net loans and leases Premises and equipment Other real estat e owned Income earned not collected Goodwill Other intangible assets Other assets 8,308,140 $ 5 Decembe r 31, 2021 Decembe r 31, 2020 $ 3 $ 62,048 3 9,114,660 97,528 9,203,427 3,809,453 98,741 32,371,522 (178,493) 32,193,029 1,233,418 39,32 134,237 346,064 43,085 1,657,356 0,890 4,347,336 91,680 7,014,243 2,816,982 124,837 32,791,975 (224,314) 32,567,661 1,251,283 8 5 145,694 350,298 50,775 783,953 $ 9,957,680 4 Total assets Liabilities Deposits: Noninterest-bearing Interest-bearing Total deposits Securities sol d under customer repurchase agreements Federal Home Loan Bank borrowings Subordinated debt Other borrowings FDIC shared-loss payable Other liabilities Total liabilities Shareholders’ equity Common stock: $ 1,404,808 2 30,001,286 51,406,094 589,101 644,659 477,564 72,155 — 381,326 53,570,899 $ 8,014,029 1 25,417,580 43,431,609 641,487 655,175 504,518 88,470 1 391,552 45,728,412 5,601 Class A -$1 par value (16,000,000 shares authorized; 8,811,220 shares issued and outstanding at December 31, 2021 and December 31, 2020) Clas s B -$1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at December 31, 2021 and December 31, 2020) Preferred stock - $0.01 par value and liquidation preference of $1,000 per share (10,000,000 shares authorized; 345,000 shares issued and outstanding at December 31, 2021 and December 31, 2020) Retained earnings Accumulated other comprehensive income Tota l shareholders’ equity Total liabilities and shareholders’ equity 8,811 1,005 8,811 1,005 339,937 4,377,712 9,776 4,737,241 8,308,140 5 339,937 3,867,252 12,263 4,229,268 9,957,680 4 $ $ Refer to the accompanying Notes to Consolidated Financia l Statements. 71 Firs t Citizen s BancShares, Inc . and Subsidiaries Consolidate d Statements of Income (Dollars in thousands, except share and pe r share data) Interest income Loans and leases Investment securities interest and dividend income Overnight investments Total interest income Interest expense Deposits Securities sold under customer repurchase agreements Federal Home Loan Bank borrowings Subordinated debt Other borrowings Total interest expense Net interest income (Benefit) provision for credi t losses Net interest income after (benefit) provision for credit losses Noninterest income Wealth management services Service charges on deposit accounts Cardholder services, net Other service charges and fees Merchant services, net Mortgage income Insurance commissions ATM income Marketable equit y securities gains, net Realized gains on investment securities available for sale, net Other Total noninterest income Noninterest expense Salaries and wages Employee benefits Occupancy expense Equipment expense Processing fees paid to third parties FDIC insurance expense Collection an d foreclosure-related expenses Merger-related expenses Other Total noninterest expense Income before incom e taxes Income taxes Net income Preferred stock dividends Net income available to common shareholders Weighted average common shares outstanding Earnings per common share Dividends declared per common share Year ended December 31 2020 2019 2021 $ 1,294,813 $ 1,332,720 145,200 10,997 1,451,010 33,240 1,312 8,410 16,709 1,005 60,676 1,390,334 (36,835) 1,427,169 128,788 94,756 86,684 35,923 33,140 30,508 15,556 6,002 34,081 33,119 9,445 508,002 623,194 135,659 117,180 119,171 59,743 14,132 5,442 29,463 129,526 1,233,510 701,661 154,202 $ 144,459 6,847 1,484,026 66,635 1,610 9,763 16,074 1,775 95,857 1,388,169 58,352 1,329,817 102,776 87,662 74,291 30,911 24,122 39,592 14,544 5,758 29,395 60,253 7,446 476,750 590,020 132,244 117,169 115,535 44,791 12,701 13,658 17,450 145,117 1,188,685 617,882 126,159 1,217,306 160,460 26,245 1,404,011 76,254 1,995 5,472 7,099 1,822 92,642 1,311,369 31,441 1,279,928 99,241 105,191 69,078 31,644 24,304 21,126 12,810 6,296 20,625 7,115 18,431 415,861 551,112 120,501 111,179 112,290 29,552 10,664 11,994 17,166 139,283 1,103,741 592,048 134,677 57,371 4 — 57,371 4 11,141,069 1.05 4 .60 1 47,459 $ 5 91,723 $ 4 18,544 $ 28,915 5 3.88 .88 $ 5 $ 1 9,816,405 7.50 .67 14,062 $ 77,661 4 10,056,654 $ 4 $ 1 $ $ $ $ Refer to the accompanying Notes to Consolidated Financia l Statements. 72 Firs t Citizen s BancShares, Inc . and Subsidiaries Consolidate d Statements of Comprehensive Income (Dollars in thousands) Net income Other comprehensive income (loss) Unrealized (losses) gains on securities available for sale: Year ended December 31 2020 2019 2021 $ 547,459 $ 491,723 $ 457,371 Unrealized (losses) gains on securities available for sal e arising during the period Tax effect Reclassification adjustment for realized gains on securities available for sale included in income before incom e taxes Tax effect Unrealized (losses) gains on securities available for sal e arising during the period, net of tax (80,951) 18,619 (33,119) 7,617 155,009 (35,652) (60,253) 13,858 64,644 (14,868) (7,115) 1,636 (87,834) 72,962 44,297 Unrealized (losses) gains on securities available for sal e transferred to hel d to maturity: Unrealized (losses) gains on securities available for sal e transferred to hel d to maturity Tax effect Reclassification adjustment for (amortization) accretion of unrealized (losses) gains on securities availabl e for sale transferred to hel d to maturity Tax effect Total change in unrealized (losses) gains on securities available for sale transferred to held to maturity, net of tax Defined benefit pension items: Actuarial gains (loss) arising during the period Tax effect Amortization of actuarial gains (losses) and prior service cost Tax effect Total change from defined benefit plans, net of tax Other comprehensive (loss) income Total comprehensive income (12,659) 2,912 (1,475) 339 5,894 (1,356) (495) 114 (10,883) 4,157 97,880 (22,512) 27,093 (6,231) 96,230 (2,487) 55,023 (12,656) 25,324 (5,824) 61,867 138,986 72,512 (16,678) 19,889 (4,574) 71,149 (20,049) 4,611 10,981 (2,525) (6,982) 108,464 $ 544,972 $ 630,709 $ 565,835 Refer to the accompanying Notes to Consolidated Financia l Statements. 73 Firs t Citizen s BancShares, Inc . and Subsidiaries Consolidate d Statements of Change s in Shareholders’ Equity Class A Common Stock Class B Common Stock Preferred Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity (Dollars in thousands, except shar e and per share data) Balance at December 31, 2018 0,623 $ 1 ,005 $ 1 $ Net income Other comprehensive income, net of tax — Repurchas e of 998,910 share s of Class A common stock Cas h dividends declare d ($1.60 per common share) Clas s A common stock Clas s B common stock Balance at December 31, 2019 Cumulative effect of adoption of ASC 326 Net income Other comprehensive income, net of tax — Issuance of preferred stock Repurchas e of 813,090 share s of Class A common stock Cas h dividends declare d ($1.67 per common share) Clas s A common stock Clas s B common stock Preferre d stock dividend s declared ($40.76 per preferred share) — (999) — — 9,624 — — — (813) — — — — — — — — 1,005 — — — — — — — — — — — $ 493,962 — — — (449,881) $ 3,218,551 235,187) $ ( 457,371 — — ,488,954 $ 3 — 57,371 4 108,464 108,464 — (450,880) 4,081 4 — — — — — — 339,937 — — — — — — (16,117) (1,608 3,658,197 36,94 — 491,723 — — — 16,117) ( )— (126,723) 3 (1,608) 3,586,184 36,943 — 91,723 4 138,986 138,986 — 39,937 3 — (44,081) (288,861) — 333,755) ( — — — — — — (15,010) (1,678 — (14,062) — 15,010) ) — 14,062) ( ( (1,678) Balance at December 31, 2020 8,811 1,005 339,937 — ,867,252 3 12,263 4,229,268 Ne t income Other comprehensive loss , net of tax Cas h dividends declare d ($1.88 per common share) Clas s A common stock Clas s B common stock Preferre d stock dividend s declared ($53.75 per preferred share) — — — — — — — — — — — — — — — Balance at December 31, 2021 ,811 $ 8 ,005 $ 1 $ 339,937 $ — — — — — — 547,459 — 47,459 5 — 2,487) ( (2,487) (16,565) (1,890 — (18,544) ,776 $ 4,377,712 $ 9 — 16,565) ( ) (1,890) — 18,544) ( ,737,241 $ 4 Refer to the accompanying Notes to Consolidated Financia l Statements. 74 Firs t Citizen s BancShares, Inc . and Subsidiaries Consolidate d Statements of Cash Flows Year ended December 31 2020 2019 2021 47,459 $ 5 91,723 $ 4 57,371 $ 4 (Dollars in thousands) CAS H FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to cash provided by operating activities: (Benefit) provision for credit losses on loans and leases Deferred tax (benefit) expense Net increase in prepai d and current tax receivable Depreciation and amortization Net (decrease) increase in accrued interest payable Net decrease (increase) in income earned not collected Contribution to pension plans Realized gains on investment securities available for sale , net Marketable equity securities gains, net Origination of loans held for sale Proceeds from sale of loans held for sale Gain on sale of loans Net (gains) losses on other real estat e owned Net amortization (accretion) of premiums and discounts Amortization of intangible assets Origination of mortgage servicing rights, net of change in valuation allowance Net increase in other assets Net increase (decrease) in other liabilities Net cash (used in) provided by operating activities CAS H FLOWS FROM INVESTING ACTIVITIES Net decrease (increase) in loans outstanding Purchases of investment securities available for sale Purchases of investment securities held to maturity Purchases of marketable equity securities Proceeds from maturities, calls, and principal repayments of investment securities held to maturity Proceeds from maturities, calls, and principal repayments of investment securities available for sale Proceeds from sales of investment securities available for sale Proceeds from sales of marketable equity securities Net increase in overnight investments Proceeds from sales of loans held for investment Cash paid to FDIC for settlement of shared-loss agreement Proceeds from sales of othe r real estate owned Proceeds from sales of premises and equipment Purchases of premises and equipment Other investing activities Business acquisitions, net of cash acquired Net cash used in investing activities CAS H FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in time deposits Net increase in demand and other interest-bearing deposits Net decrease in short-term borrowings Repayment of long-term obligations Origination of long-term obligations Net proceeds from subordinated note s issuance Net proceeds from preferred stock issuance Repurchase of common stock Cash dividends paid Net cash provided by financing activities Change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period (36,835) (7,586) (731,741) 106,585 (1,493) 11,457 (32) (33,119) (34,081) (1,123,312) 1,035,822 (32,719) (1,207) 11,151 25,582 (13,658) (12,910) 6,854 (283,783) 423,257 (6,375,349) (1,401,220) (1,563) 809,421 2,454,722 1,366,909 29,796 (4,767,324) — (16,103) 40,524 1,194 (107,367) (25,323) — (7,568,426) (406,226) 8,382,531 (52,386) (54,332) — — — — (41,612) 7,827,975 (24,234) 362,048 58,352 (25,535) (5,894) 108,641 (8,683) (21,982) (100,000) (60,253) (29,395) (1,042,292) 1,045,937 (37,594) 4,056 (8,513) 32,801 (12,149) (7,286) (6,115) 375,819 (3,850,129) (8,667,406) (1,633,165) (333,140) 301,347 2,791,291 4,585,002 352,835 (3,204,363) 1 (99,468) 28,280 1,369 (133,384) — ( (9,907,562) 3,368 59,999) (1,010,190) 9,989,107 (96,746) (86,737) 00,000 4 45,849 3 3 39,937 333,755) ( (30,393) 9,517,072 (14,671) 376,719 31,441 54,598 (19,564) 103,828 14,412 (4,151) (3,592) (7,115) (20,625) (698,044) 731,803 (15,183) 2,664 (27,263) 23,861 (5,927) (24,274) (15,992) 578,248 (1,320,851) (4,705,038) (223,598) (26,166) 341,077 2,345,512 2,308,856 56,749 (65,181) 24,247 — 25,918 132 (121,077) — (236,728) (1,596,148) 284,611 1,154,815 (27,703) (73,284) 200,000 — — (453,123) (18,137) 1,067,179 49,279 327,440 37,814 $ 3 62,048 $ 3 76,719 $ 3 75 (Dollars in thousands) SUPPLEMENTAL DISCLOSURE OF CAS H FLOW INFORMATION Cash paid during the period for: Interest Income taxes Significant noncash investing and financing activities: Transfers of loans to other real estate Dividends declared but not paid Transfer of loans held for sale to loans held for investment Loans held for sale exchanged for investment securities Transfer of loans held for investment to loans held for sale Transfer of investment securities available for sale to (from ) held to maturity Transfers of premises and equipment to other real estate Year ended December 31 2020 2019 2021 2,169 $ 6 04,567 $ 1 8,230 $ 7 870,467 116,583 83,038 ,613 13,979 — 3,574 230,537 87,814 451,684 13,776 11,635 4 5,950 11,137 48,628 1,460,745 15,187 14,639 4,256 — — 60,005 (2,080,617) 7,045 Refer to the accompanying Notes to Consolidated Financial Statements. 76 Firs t Citizens BancShares , Inc. and Subsidiaries Note s to Consolidate d Financial Statements NOTE A ACCOUNTING POLICIE S AND BASIS OF PRESENTATION Natur e of Operations Firs t Citizen s BancShares, Inc. (the “Parent Company” and, whe n including al l of its subsidiarie s on a consolidated basis, “BancShares”) is a financial holding company organize d under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trus t Company (“FCB,” or the "Bank”), which is headquartere d in Raleigh, North Carolina. BancShare s and it s subsidiarie s operate 529 branches in 19 states predominantly located in the Southeast, Mid- Atlantic, Midwest and Western Unite d States (the “U.S.”). BancShares seeks to meet the financial needs of individuals and commercial entities in it s market area s through a wide range of retai l and commercial banking services. Loa n services include various type s of commercial , busines s and consume r lending. Deposi t services include checking, savings , mone y market and time deposit accounts. First Citizen s Wealth Managemen t provide s holistic , goals-base d advisory services encompassing a broad range of client deliverables. These deliverable s include wealth planning, discretionary investment advisory services, insurance, brokerage, defined benefit and defined contribution services, private banking, trust, fiduciary, philanthropy and special asse t services. Principles of Consolidation and Basi s of Presentation The accounting and reporting policies of BancShares are in accordance wit h accounting principles generally accepte d in the Unite d States of America (“GAAP” ) and genera l practices withi n the banking industry. The consolidate d financial statements of BancShares include the accounts of BancShares , certain partnership interests and variabl e interest entities. All significant intercompany account s and transactions are eliminate d upon consolidation. BancShares operate s with centralize d management and combine d reporting; therefore, BancShares does not have multipl e reportable segments. Variable interest entities (“VIE” ) are legal entities that either do not have sufficient equity to finance thei r activitie s without the support from othe r partie s or whose equit y investors lack a controlling financial interest. BancShares has investment s in certain partnerships and limited liability entities tha t have bee n evaluated and determined to be VIEs. Consolidation of a VIE is appropriat e if a reporting entit y holds a controlling financial interest in the VIE and is the primary beneficiary. BancShares is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activitie s tha t most significantly impac t the VIEs’ economi c performance. As such, assets and liabilities of these entities are not consolidated int o the financial statements of BancShares . The recorded investment in these entities is reported withi n other assets. Reclassifications In certain instances, amounts reporte d in prior years’ consolidated financial statements have bee n reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires managemen t to mak e estimates an d assumptions impacting the amounts reported. Actua l result s coul d diffe r from those estimates. BancShares considers the allowanc e for credit losse s to be a significant estimate. Business Combinations BancShares accounts for al l busines s combinations using the acquisition method of accounting. Under thi s method, acquired assets and assumed liabilities are included wit h the acquirer’s accounts as of the dat e of acquisition, with an y excess of purchase pric e over the fai r valu e of the net assets acquire d recognized as either finite lived intangibles or capitalized as goodwill . In addition, acquisition-related and restructuring costs are recognized as period expenses as incurred. Refe r to Note B, Business Combinations, for additional information. On January 3, 2022, BancShares completed it s previously announced merger (the “CIT Merger” ) wit h CIT Group Inc. (“CIT”), pursuant to an Agreement and Pla n of Merger, dated as of Octobe r 15, 2020, as amended by Amendment No. 1, dated as of Septembe r 30, 2021 (as amended, the “Merge r Agreement”). Refe r to Not e W, Subsequent Events, for furthe r information. 77 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Overnight Investments Overnight investment s primarily comprise of interest-bearing deposit s wit h banks and federal funds sold. Interest-bearing cash hel d at the Federa l Reserve at December 31, 2021 and Decembe r 31, 2020 wa s $9.03 billion and $4.27 billion, respectively. Overnight investment s have initia l maturities of thre e months or less. The carrying value of overnight investment s approximates it s fair value due to it s short-term nature. Debt Securities BancShares classifies debt securities as hel d to maturity (“HTM” ) or availabl e for sale (“AFS”). Debt securitie s are classifie d as HTM whe n BancShares has th e intent and ability to hold the securities to maturity. HTM securities are reported at amortized cost. Othe r debt securitie s are classifie d as AFS and reported at estimated fai r value, with unrealize d gains and losses, net of income taxes , reporte d in Accumulate d Other Comprehensive Incom e (“AOCI”). Amortization of premium s and accretion of discounts for debt securities ar e recorded in interest income . Realize d gains and losses from the sale of debt securities are determined by specific identification on a trade date basis an d are include d in noninterest income. BancShares performs pre-purchase due diligence and evaluate s the credi t risk of AFS and HTM debt securities purchased directly int o BancShares' portfolio or via acquisition. If securities have evidenc e of more than insignificant credit deterioration sinc e issuance, the y are designated as purchased credit deteriorate d (“PCD”) . PCD debt securitie s are recorded at fair value at th e dat e of acquisition, which include s an associate d allowanc e for credit losse s (“ACL”) tha t is added to the purchase pric e or fai r value to arrive at the Day 1 amortize d cost basis . Excluding the ACL, the differenc e between the purchase pric e and the Day 1 amortize d cost is amortized or accrete d to interest incom e over the contractual life of the securities using the effective interest method. For AFS debt securities , managemen t perform s a quarterl y analysis of the investment portfolio to evaluate securities currently in an unrealize d loss position for potential credit-relate d impairment. If BancShares intends to sell a security, or does not have the intent and ability to hold a security before recovering the amortized cost, the entiret y of the unrealize d loss is immediately recorded in earnings to the extent tha t it exceeds the associate d allowanc e for credit losse s previously established. For the remaining securities, an analysis is performed to determine if any portion of the unrealize d loss recorded relates to credit impairment. If credit-related impairment exists, the amount is recorded through the AC L and related provision. Thi s review include s indicators such as change s in credit rating, delinquency, bankruptcy or othe r significant news event impacting the issuer. BancShares’ portfolio of HTM debt securities is made up of mortgage-backed securities issue d by government agencie s and government sponsore d entities. Given the historically strong credit ratin g of the U.S. Treasury and the long history of no credit losses on debt securities issue d by government agencie s and government sponsore d entities, BancShares determined zero expecte d credit losse s on the HT M portfolio. Equit y Securities Investment s in equity securities having readil y determinable fai r values ar e stated at fair value. Realized an d unrealize d gains and losse s on these securities ar e determined by specific identification and are included in noninterest income. Non-marketable equity securities are securities wit h no readil y determinable fai r values an d are measured at cost. BancShares evaluates it s non- marketable equity securities for impairment and recoverabilit y of the recorded investment by considering positive and negative evidence, including the profitability and asse t qualit y of the issuer, dividend payment history and recent redemptio n experience. Impairment is assesse d at eac h reporting period and if identified, is recognized in noninterest expense. Non-marketable equity securities were $9.6 millio n and $11.6 million at Decembe r 31, 2021 and 2020, respectively, an d are include d in other assets. Other Securities Membership in the Federal Home Loan Ban k (“FHLB”) network requires ownershi p of FHLB restricted stock . This stock is restricted as it ma y only be sold to the FHLB and al l sale s must be at par. Accordingly, the FHLB restricte d stock is carrie d at cost, less any applicable impairment charges and is recorded within othe r assets. FHL B restricted stock was $40.5 million and $45.4 million at Decembe r 31, 2021 and 2020, respectively. Additionally, BancShares holds 353,577 shares of Visa Class B commo n stock. Visa Clas s B shares are not considere d to hav e a readil y determinable fai r value an d are recorded at $0. 78 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments in Qualifie d Affordabl e Housing Projects BancShares has investment s in qualified affordable housing project s primarily for the purpose s of fulfilling Community Reinvestment Ac t requirements and obtaining ta x credits. These investment s are accounte d for using the proportional amortization method if certain conditions ar e met . Under the proportional amortization method, th e initia l cost of the investment is amortized in proportion to the ta x credits and othe r tax benefit s received, and the net investment performanc e is recognized in the incom e statement as a component of income ta x expense. All investments hel d in qualified affordable housing projects qualify for the proportional amortizatio n method and totaled $156.6 million and $163.9 million at December 31, 2021 and 2020, respectively, and ar e included in othe r assets. Loans Held For Sale BancShares elected to appl y the fai r valu e option for residential mortgage loans originated to be sold to investors. Gains and losse s on sale s of mortgage loans are recognized withi n mortgage income. Interest on loans hel d for sale is recorded within interest income on loans and leases on the Consolidate d Statement s of Income. Loans and Leases BancShares ’ accounting methods for loans and leases depends on whethe r the y are originated or purchased, and if purchased, whethe r or not th e loans reflec t more than insignificant credi t deterioration since origination as of the date of acquisition. Non-Purchased Credi t Deteriorated Loans Non-Purchased Credit Deteriorated (“Non-PCD” ) loans consist of loans originated by BancShare s and loans purchased from other institutions that do not reflect more tha n insignificant credi t deterioration at acquisition. Originate d loans for whic h management has the intent and ability to hold for the foreseeabl e future are classifie d as hel d for investment and carrie d at the principa l amount outstanding net of any unearned income , charge-offs and unamortized fee s and costs . Nonrefundabl e fee s collected and certain direct costs incurred related to loa n originations are deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fee s and costs is amortized to interes t incom e ove r the contractua l live s using methods that approximate a constant yield. Purchased loans which do not reflec t more than insignificant credit deterioratio n at acquisition are classifie d as non- PC D loans. These loans are recorded at fai r valu e at the dat e of acquisition and an initial allowance is recorded on these assets as provision expense at the dat e of acquisition. The difference between th e fai r value and the unpaid principa l balanc e at the acquisition dat e is amortize d or accrete d to interest incom e over the contractual life of the loan using the effective interest method. Purchased Credi t Deteriorated Loans Purchased loans whic h reflec t a more than insignificant credit deterioration sinc e origination as of the dat e of acquisition are classifie d as PCD and are recorded at acquisition-dat e amortize d cost, which is the purchase pric e or fai r value in a business combination, plus BancShares ' initial AC L whic h results in a gross up of the loan balance. Excluding the ACL, the differenc e between the unpai d principa l balanc e and the acquisition dat e amortize d cos t is amortized or accrete d to interes t incom e ove r the contractua l life of the loa n using th e effective interes t method. The performanc e of all loans within the BancShares portfolio is subject to a numbe r of externa l risks, including but not limited to changes in the overall health of the economy, declines in rea l estat e or othe r collateral values , change s in the demand for product s and services and personal events, suc h as death , disability or change in marital status. BancShares evaluates and report s its non-PC D and PC D loa n portfolios separately, and each non-PC D portfolio is furthe r divided int o commercial and consume r segment s based on the type of borrower, purpose , collateral and/or BancShares ' underlying credit management processes. Additionally, non-PC D commercial and consume r loans are assigned to loa n classes, whic h furthe r disaggregat e the loa n portfolio. PC D loans are reported as a single loa n segment an d class. 79 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Upon adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC ” or the “Codification”) 326, owne r occupie d and non-owne r occupie d commercial rea l estate wer e segregated int o separate classes withi n the commercia l segment . Similarly , consume r aut o was segregate d int o its own class withi n the consumer segment. These enhancement s wer e mad e to capture the unique credi t characteristics used in BancShares ' current expected credit loss (“CECL” ) models. Information for reporting periods beginning on or after January 1, 2020 are presented in accordance with ASC 326 and reflec t changes to the respectiv e classes , while prior period amounts continue to be reported in accordance with previously applicable GAAP an d have not been reclassifie d to conform to the current financia l statement presentation. Small Business Administration Paychec k Protection Program The Small Busines s Administration Paychec k Protection Progra m (“SBA-PPP” ) is one of the centerpiece s of the Coronavirus Aid Relie f and Economi c Security Ac t (the “CARES Act”) , which wa s passe d on March 27, 2020 in response to the outbreak of coronavirus (“COVID-19”) and wa s supplemented with subsequent legislation. Overseen by the U.S. Treasury Department, the SBA-PPP offere d cash-flow assistanc e to nonprofit and smal l busines s employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020 (“Round 1”). Borrowers are eligible fo r forgiveness of principa l and accrue d interest on SBA-PPP loans to the extent tha t the proceeds were used to cove r eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks afte r the loan was made as long as the borrowe r retains its employees and their compensation levels. The CARES Act authorized the SB A to temporarily guarante e these loans . The SBA bega n processing forgiveness payments during th e fourt h quarter of 2020. The Consolidated Appropriations Ac t 2021 was signed into la w during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans (“Round 2”). BancShares originated a total of $3.2 billion of Round 1 loans and $1.2 billion of Round 2 loans. As of Decembe r 31, 2021, the tota l remaining balanc e of SBA-PP P loans was $493.8 million, net of deferred fees, compare d to $2.41 billion as of Decembe r 31, 2020. Forgiveness for SBA-PPP loans was approximately $3.93 billion for the yea r ende d Decembe r 31, 2021. Due to the unique nature of these provisions , SBA-PP P loans have bee n disclosed as a separate loan class. Origination fees received from the SB A are capitalized into th e carrying amount of the loans. The deferred fee income, net of origination costs, is recognized ove r the life of th e loan as an adjustment to yield using th e effective interest method. The following represent BancShares ' classe s of loans beginning January 1, 2020 upon adoption of ASC 326 (with the exception of SBA-PPP, which was adde d during second quarter 2020): Commercial loans and leases Construction and land development - Construction and land development consists of loans to finance land for commercial development of rea l propert y and construction of multifamil y apartment s or othe r commercial properties. These loans are highl y dependent on the supply and demand for commercial rea l estate as wel l as the demand for newly constructe d residential home s and lot s acquire d for development. Deterioration in demand coul d result in decreased collateral values, which could make repayments of outstanding loans difficult for customers. Owne r occupied commercial mortgage - Owne r occupie d commercial mortgages consists of loans to purchase or refinanc e owner occupie d nonresidential properties. Thi s include s offic e buildings, othe r commercial facilities and farmland. Commercial mortgage s secure d by owner occupie d propertie s are primarily dependent on the abilit y of borrowers to achieve busines s result s consistent with those projected at loan origination. While these loans and leases are collateralized by rea l propert y in an effort to mitigate risk, it is possible the liquidation of collateral wil l not fully satisfy the obligation. Non-owne r occupied commercial mortgage - Non-owner occupie d commercial mortgage consists of loans to purchase or refinanc e investment nonresidential properties. Thi s include s offic e buildings and othe r facilitie s rented or leased to unrelated parties, as wel l as farmland and multifamil y properties. The primary risk associate d with income producing commercial mortgage loans is the ability of the income-producing propert y tha t collateralizes the loa n to produce adequate cash flo w to servic e the debt . Whil e these loans and leases are collateralized by rea l propert y in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation. Commercial and industrial and leases - Commercial and industrial loans consist of loans or lines of credit to finance account s receivable, inventory or othe r general busines s needs, busines s credit cards, and lease financing agreements for equipment, vehicles, or othe r assets. The primary risk associate d with commercial and industrial and lease financing loans is the ability of borrowers to achieve busines s result s consistent with those projected at origination. 80 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Failure to achieve these projections present s risk the borrowe r wil l be unabl e to servic e the debt consistent with the contractua l term s of the loan or lease. SBA-PPP - Thes e loans were originated as part of the SBA-PPP to finance payrol l and othe r costs for nonprofit and small businesse s impacte d by the COVID-19 pandemic. These loans are guaranteed by the SB A and borrowers have the ability to qualify for loan forgiveness through the U.S. Treasury. Consume r loans Residential mortgage - Residential mortgage consist s of loans to purchase or refinanc e the borrower’s primary dwelling, secondary residence or vacation home and are ofte n secured by 1-4 famil y residential properties. Significant and rapi d declines in rea l estat e values ca n resul t in borrowers having debt level s in exces s of the current market value of the collateral. Revolving mortgage - Revolving mortgage consists of home equit y lines of credit and othe r lines of credit or loans secure d by first or second liens on the borrower’s primary residence . These loans are secure d by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values . Thi s ris k is elevated for loans secure d by junior lines as a substantia l decline in value coul d rende r the junior lien position effectively unsecured. Construction and land development - Construction and land development consist s of loans to construc t a borrower’s primary or secondary residence or vacant land upon which the owner intends to construc t a dwelling at a future date. These loans are typically secure d by undevelope d or partially develope d lan d in anticipation of completing construction of a 1-4 famil y residential property. There is ris k these construction and development project s can experience delays and cost overruns exceeding the borrower’s financial abilit y to complete the project . Such cost overruns ca n result in foreclosure of partially complete d and unmarketable collateral. Consume r auto loans - Consume r aut o loans consis t of installment loans to finance purchases of vehicles. These loans include direct aut o loans originated in bank branches, as wel l indirect auto loans originated through agreements with aut o dealerships. The value of the underlying collateral within this class is at ris k of potential rapi d depreciation which could result in unpai d balances in excess of th e collateral. Other consume r -Other consumer loans consis t of loans to finance unsecure d home improvements, student loans and revolving lines of credit that ca n be secured or unsecured, including personal credi t cards. The value of the underlying collateral withi n thi s class is at risk of potential rapi d depreciatio n which coul d resul t in unpaid balance s in excess of the collateral. Loans and Leases - (Prior to Adoption of ASC 326) Prior to the adoption of ASC 326 on Januar y 1, 2020, BancShares’ accounting methods for loans and lease s depended on whethe r the y were originated or purchased, and if purchased, whethe r or not the loans reflecte d credit deterioratio n at the date of acquisition. Non-Purchased Credit Impaire d (“Non-PCI”) Loans Non-PC I loans consisted of loans originated by BancShares or loans purchase d from othe r institutions that did not reflec t credi t deterioration at acquisition. Originate d loans for which management had the intent and ability to hold for the foreseeabl e future were classifie d as hel d for investment and carrie d at the principa l amount outstanding net of any unearned income , charge-offs and unamortized fee s and costs . Nonrefundabl e fee s collected and certain direct costs incurred related to loa n originations were deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fee s and costs was amortized to interest income over th e contractual lives using methods tha t approximated a constant yield. Purchased loans which did not reflec t credit deterioratio n at acquisition were classifie d as non-PC I loans. These loans were recorded at fai r valu e at the dat e of acquisition. The difference between th e fai r value and the unpai d principal balanc e at the acquisition dat e was amortized or accrete d to interest incom e over the contractual life of the loan using the effective interest method. 81 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased Credi t Impaired (“PCI”) Loans Purchased loans whic h reflecte d credit deterioratio n sinc e origination, such tha t it was probabl e at acquisition that BancShares would be unabl e to collect al l contractually required payments, were classified as PC I loans. PC I loans were recorded at fai r value at th e dat e of acquisition. If the timin g and amount of the future cash flows could be reasonably estimated, any exces s of cas h flows expecte d at acquisition over the estimated fai r value were recognized as interes t income over the life of the loans using the effective yield method. Subsequent to the acquisition date, increases in cash flows over those expecte d at the acquisition dat e wer e recognized prospectively as interes t income. Decreases in expected cash flows due to credit deterioration were recognized by recording an allowanc e for loan losses. In the event of prepayment, the remaining unamortized amount was recognized in interest income. To the extent possible , PCI loans were aggregated int o pools based upon common risk characteristics and each pool was accounted for as a single unit. The performanc e of all loans withi n the BancShares portfolio was subjec t to a numbe r of externa l risks, including changes in the overall health of the economy, declines in rea l estate values , change s in the demand for product s and services and personal events, such as death , disability or change in marital status. BancShares evaluated an d reported it s non-PC I and PC I loan portfolios separately , and each portfolio was furthe r divided int o commercial and non-commercial segments based on the type of borrower, purpose , collateral and/or BancShares ' underlying credit management processes. Nonperforming Assets and Troubled Debt Restructurings Nonperforming Assets Nonperforming assets (“NPAs” ) include nonaccrua l loans, pas t due debt securities and other real estate owned. All loans are classifie d as past due when the payment of principa l and interest based upon contractua l terms is 30 days or greate r delinquent. Loans are generally place d on nonaccrua l when principa l or interest become s 90 days pas t due or when it is probabl e the principa l or interest is not full y collectible. Whe n loans are place d on nonaccrual, al l previously uncollected accrue d interest is reversed from interest incom e and the ongoing accrua l of interest is discontinued. All payment s received thereafte r are applied as a reduction of the remaining principa l balanc e as long as doubt exists as to the ultimate collection of the principal. Loans and leases are generally removed from nonaccrua l status when the y become current for a sustained period of time and there is no longe r concern as to the collectability of principal and interest. Debt securities are also classifie d as pas t due when the payment of principa l and interest based upon contractua l terms is 30 days delinquent or greater. Misse d interest payments on debt securities are rare . Management reviews al l debt securities with delinquent interest an d immediately charge off any accrued interest determined to be uncollectible. Troubled Debt Restructurings A loa n is considere d a troubled debt restructuring (“TDR”) when both a modification to a borrower’s debt agreement is made and a concession is granted for economi c or legal reasons related to a borrower’s financial difficulties that otherwis e woul d not be granted. TDR concessions coul d include short-term deferrals of interest, modifications of payment terms or, in certain limited instances, forgiveness of principa l or interest. Loans restructure d as a TDR are treated and reported as such for the remaining life of the loan. TDR loans ca n be nonaccrua l or accrual, depending on the individual facts an d circumstances of the borrower. In circumstances where a portion of the loan balanc e is charged-off, the remaining balanc e is typically classifie d as nonaccrual. 82 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Allowance for Credit Losses Loans Loans within the various reporting classe s are segregated int o pools wit h similar risk characteristics and each have a model that is utilized to estimate th e ACL . These loan level AC L model s estimate th e probability of default (“PD”) and loss give n default (“LGD” ) for individua l loans withi n the ris k pool based on historica l loss experience , borrowe r characteristics, collateral type, forecasts of relevant economi c conditions, expected future recoveries and othe r factors. Loa n level , undiscounted AC L is calculate d by applying the modeled PD and LGD to quarterl y forecaste d loa n balances whic h are adjuste d for contractual payments, prepayments and prior defaults. Pools for estimating the AC L are aggregate d int o loa n classes, as described above, which roll up int o commercial and consume r loa n segments. Non-PC D and PC D loans are modeled togethe r withi n the loan level model s using acquire d and PC D indicator variables to provide differentiation of individua l loa n risk. BancShares uses a two-yea r reasonable and supportabl e forecast period which incorporates economi c forecasts at th e time of evaluation. For most pools, BancShares uses a 12-mont h straight-line reversion period to historica l average s for mode l inputs, however for the commercial card and certai n consume r portfolios, immediate reversion to historical net loss rate s is utilized. The AC L for SBA-PPP loans originated during 2021 and 2020 are separately evaluated give n the explici t government guarantee. BancShares determined SBA-PP P loans have zero expected credit losse s and as such these are exclude d from ACL disclosures in Note E, Allowanc e for Credi t Losses. The AC L represent s management’s bes t estimat e of credit losse s expected over the life of the loan, adjusted for expected contractua l payment s and the impac t of prepayment expectations. Prepayment assumptions were develope d through a review of BancShares ’ historica l prepayment activity and considered forecasts of relevant economi c conditions, as wel l as prepayment assumptions utilized in othe r modeling activities. Estimates for loa n losse s are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the AC L are recorded wit h a corresponding entry to provision for credit losses. Loa n balances considere d uncollectibl e are charged-off against the ACL. Forecaste d LGDs are adjusted for expecte d recoveries and realized recoveries of amount s previously charged-off are credited to the ACL. A primary component of determining the AC L on loans is the actua l net loss history of the various loa n pools. For commercial pools, key factors utilized in th e model s include delinquenc y trends as wel l as macroeconomi c variables such as unemployment and commercial rea l estate pric e index. For consume r pools, key factors include delinquency trends and the borrower’s original credit score, as well as othe r macroeconomic variables such as unemployment, gross domestic product , home pric e index, and commercial rea l estate index. As the model s project losse s over the life of the loans, prepayment assumptions also serve as inputs. Model output s may be adjusted through a qualitative assessment to reflec t economi c conditions and trends not captured withi n the models including credit quality, concentrations, and significant policy an d underwriting changes. Withi n BancShares ’ ACL model, TDR s mee t the definition of default and are give n a 100% probability of default rating. TDRs are not individually evaluated unless determined to be collateral-dependent. Whe n loans do not share risk characteristics similar to others in the pool, the AC L is evaluated on an individua l basis . Given tha t BancShares ' CEC L models are loa n level models, the population of loans evaluate d individuall y is minimal and consists primarily of loans greate r tha n $500 thousand and determined to be collateral-dependent. BancShares elected th e practical expedient allowed under ASC 326 to assess the collectability of these loans , where repayment is expecte d to be provided substantiall y through operation or sale of collateral , based on the fai r valu e of the underlying collateral. The fai r valu e of the collatera l is estimated using appraise d and market value s (appropriately adjuste d for an assessment of the sales and marketing costs when applicable). A specific allowance is established, or partial charge-off is recorded , for the difference between the excess amortized cost of loa n and th e collateral’s estimated fai r value. Accrued Interest Receivable BancShare s has elected not to measure an ACL for accrue d interest receivabl e and has excluded it from the amortized cost basis of loans and hel d to maturity debt securities as BancShares ' accounting policies and credit monitoring provide that uncollectible accrue d interest is reversed or written off against interest income in a timel y manner. Unfunded Commitments A reserve for unfunded commitment s is established for off-balance shee t exposures such as unfunded balances for existing lines of credit, commitment s to extend future credit , as well as both standby and commercia l letters of credit when there is a contractua l obligation to extend credit and when thi s extension of credi t is not unconditionall y cancellable (i.e . commitment cannot be canceled at any time) . These unfunded commitments are assessed to determine both the probability of funding as well 83 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) th e expectation of future losses. The expecte d funding balanc e is used in the PD and LGD model s to determine the reserve . The reserve for unfunded commitment s was $11.8 million at December 31, 2021, and is recorded withi n othe r liabilities with changes recorded through othe r noninterest expense. Allowance for Loan and Leas e Losse s (Prior to Adoptio n of ASC 326) Prior to adoption of ASC 326 on January 1, 2020, management calculate d estimate d loa n losse s through the allowance fo r loan and lease losse s (“ALLL”). The ALLL represented management’s bes t estimat e of inherent credi t losse s withi n the loan and lease portfolio at the balanc e sheet date. Managemen t determined the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loa n losse s were determined by analyzing quantitative and qualitative components, such as: economic conditions, historica l loa n losses, historica l loa n migration to charge-off experience , current trends in delinquencies and charge- offs, expected cash flows on PC I loans, current assessment of impaired loans, and changes in the size, composition and/or risk withi n the loan portfolio. Adjustments to the ALLL were recorded wit h a corresponding entry to provision for loa n and lease losses. Loa n balances considere d uncollectibl e were charged-off against the ALLL . Recoveries of amounts previously charged- off were generall y credited to the ALLL. A primary component of determining the allowance on non-PC I loans collectively evaluate d was the actual loss history of the various loa n classes. Loa n loss factors were based on historica l experience and, when necessary, were adjusted for significant factors, tha t in management’s judgment, affect the collectability of principa l and interest at the balanc e sheet date. Loan loss factors were monitored quarterl y and, when necessary, adjusted based on changes in the level of historica l net charge-offs and updates by management, such as the numbe r of periods include d in the calculatio n of loss factors, loss severity, loss emergence period and portfolio attrition. For commercial non-PC I loans, management incorporated historica l net loss dat a to develop the applicable loan loss factors. Genera l reserve s for collective impairment were based on incurred loss estimates for the loan class based on average loss rates by credit qualit y indicators, which were estimated using historica l loss experience and credit ris k ratin g migrations. Credit qualit y indicators include borrower classification code s and facility risk ratings. Incurre d loss estimates were adjusted through a qualitative assessment to reflec t current economi c conditions and portfolio trends including credit quality, concentrations, aging of the portfolio an d significant polic y and underwriting changes. For noncommercial non-PC I loans, management incorporated specific loan class and delinquency status trends int o the loan loss factors. Genera l reserve estimates of incurred losse s were based on historica l loss experience and the migration of loans through th e various delinquency pools applied to the current risk mix. Non-PC I loans were considered to be impaired when, based on current information and events, it was probabl e tha t a borrower would be unabl e to pay al l amounts due according to the contractual terms of the loan agreement . Generally, management considered the following loans to be impaired: al l TDR loan s and al l loa n relationships whic h were on nonaccrua l or 90+ days past due and greate r tha n $500,000. Non-PC I impaired loans greate r tha n $500,000 were evaluate d individuall y for impairment while others were evaluated collectively. The impairment assessment and determination of the related specifi c reserve for each impaired loa n was based on the loan’s characteristics. Impairment measurement for loans dependent on borrower cash flow for repayment was based on the present value of expected cash flows discounted at the interest rat e implici t in the original loan agreement . Impairment measurement for most rea l estate loans, particularly when a loa n was considered to be a probabl e foreclosure, was based on the fai r valu e of the underlying collateral . Collateral was appraised and market value (appropriately adjusted for an assessment of the sales and marketing costs) wa s used to calculat e a fai r value estimate. A specific valuation allowance was established or partial charge-off was recorded for the difference between th e excess recorded investment in the loan and the loan’s estimated fai r value less costs to sell. The ALLL fo r PCI loans was estimated based on the expecte d cas h flows over the life of the loan. BancShares estimated and updated cash flows expected to be collected on individua l loans or pools of loans sharing common risk characteristics. BancShares compared the carrying value of al l PCI loans to the present value at each balanc e sheet date . If the present value was less than the carrying value , the shortfall reduce d the remaining credit discount and if it was in excess of the remaining credit discount, an ALL L was recorded through the recognition of provision expense. The ALLL fo r PCI loans with subsequent increases in expecte d cas h flows to be collected was reduce d and any remaining excess was recorded as an adjustment to the accretable yiel d ove r the loan’s or pool’s remaining life. 84 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Othe r Rea l Estate Owned Other Real Estate Owne d (“OREO” ) include s foreclose d rea l estat e propert y and close d branc h properties. Foreclose d real estate propert y in ORE O is initially recorded at the asset’s estimated fai r value less costs to sell . Any exces s in the recorded investment in the loan over the estimated fai r value less costs to sell is charged-off against the AC L at the time of foreclosure. If the estimated value of the OREO exceeds th e recorded investment of the loan, the difference is recorded as a gain within other income. OREO is subsequently carrie d at the lower of cost or market value les s estimated sellin g costs and is evaluate d at least annually. The periodic evaluations are generally based on the appraised value of the propert y and ma y include additiona l adjustments based upon management’s review of the valuation estimate and specific knowledge of the property. Routine maintenance costs, income and expenses related to the operation of the foreclosed asset, subsequent declines in marke t value and ne t gains or losses on disposa l are included in collection an d foreclosure-relate d expense. Payable to the Federal Deposi t Insurance Corporation for Shared-Loss Agreements The purchase and assumption agreement s for certain Federa l Deposi t Insurance Corporation (“FDIC”) assisted transactions include payment s that may be owed to the FDIC at th e terminatio n of the shared-loss agreements. The payment is due to the FDIC if actua l cumulative losse s on acquire d covered assets are lower tha n the cumulative losse s originally estimated by the FDIC at th e time of acquisition. The liability is calculate d by discounting estimated future payment s and is reporte d as FDIC shared-loss payable . The ultimate settlement amount of the payment is dependent upon the performanc e of the underlying covered loans, recoveries, the passage of time an d actua l claim s submitte d to the FDIC. Premises and Equipment Premises and equipment are carried at cos t less accumulated depreciation. Land is carrie d at cost . Depreciatio n expense is generally compute d using the straight-line method over the estimated useful lives of the assets. Leasehol d improvement s and capitalized leases are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the assets. Goodwill and Othe r Intangible Assets Goodwill represents th e excess of th e purchase pric e of an acquire d entit y over the fai r valu e of the identifiabl e assets acquired. Goodwill is not amortized, but is evaluated at least annually for impairment during the third quarter, or when events or changes in circumstance s indicat e a potential impairment exists. Other acquire d intangible assets wit h finit e lives, such as core deposit intangibles, are initiall y recorded at fai r valu e and are amortize d on an accelerated basis typically between five to twelve years over their estimated useful lives. Intangibl e assets are evaluate d for impairment when event s or change s in circumstances indicate a potentia l impairment exists. Mortgage Servicing Rights Mortgage servicing right s (“MSRs”) represent the right to provide servicing under various loa n servicing contracts when servicing is retained in connection with a loa n sale or acquire d in a busines s combination. MSR s are initiall y recorded at fair value and amortized in proportion to, and over the period of, the future net servicing income of the underlying loan. At each reportin g period, MSRs ar e evaluate d for impairment based upon the fai r value of the right s as compared to th e carrying value. Fai r Values The fair value of financia l instruments and th e methods and assumptions used in estimating fair value amount s and financial assets and liabilities for which fai r value was electe d are detailed in Note P, Estimated Fai r Values. Income Taxes Income taxe s are accounte d for using the asse t and liabilit y approach as prescribe d in ASC 740, Income Taxes. Under this method, a deferred ta x asset or liabilit y is determined based on the currentl y enacted ta x rates applicable to the period in which the differences between th e financial statemen t carryin g amounts and ta x basis of existing assets and liabilitie s are expecte d to be reporte d in BancShares’ income ta x returns. The effect on deferred taxes of a change in ta x rate s is recognized in income in the period whic h include s the enactment date. The potential impac t of current events on the estimates used to establish income ta x expenses and incom e tax liabilities is 85 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) continually monitore d and evaluated. Incom e tax positions base d on current ta x law , positions taken by various ta x auditors withi n the jurisdictions where income ta x return s are filed, as well as potential or pending audits or assessment s by such tax auditors are evaluate d on a periodi c basis. BancShares has unrecognized ta x benefit s related to the uncertain portion of ta x positions BancShares has taken or expect s to take. A liability ma y be created or an amount refundable ma y be reduce d for the amount of unrecognized ta x benefits. These uncertaintie s result from the application of comple x tax laws, rules, regulations and interpretations, primarily in stat e taxing jurisdictions. Unrecognize d tax benefit s are assesse d quarterl y and ma y be adjusted through current income ta x expense in future periods based on changing facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on uncertai n tax positions are recognize d in incom e tax expense. BancShares files a consolidate d federal incom e tax return and various combine d and separate company stat e tax returns. Refer to Note O, Income Taxes, for additional disclosures. Pe r Shar e Data Earnings per common share is computed by dividing net incom e availabl e to common shareholders by the weighte d average numbe r of both classe s of common shares outstanding during each period. BancShares had no potential dilutive commo n shares outstanding in any period an d did not report dilute d earnings per common share. Cash dividends per share appl y to bot h Class A and Class B common stock. Shares of Class A common stock carry one vote per share, whil e share s of Clas s B common stoc k carry 16 vote s per share. Defined Benefi t Pension Plans BancShares maintain s noncontributory defined benefit pension plans covering certain qualifying employees. The calculatio n of the obligations and related expenses under the plans require the use of actuaria l valuation methods and assumptions. Actuarial assumptions used in the determinatio n of future values of pla n assets and liabilities are subjec t to management judgment and ma y diffe r significantl y if different assumptions are used. All assumptions are reviewe d annually for appropriateness. The discount rat e assumption used to measure the pla n obligations is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum . The projected cash flows of the pension plans are discounte d based on thi s yield curve, and a single discount rat e is calculated to achieve the sam e present value. The assumed rat e of future compensation increases is based on actua l experience and future salary expectations. BancShares also estimates a long-term rat e of return on pension plan assets used to estimate the future value of pla n assets. In developing the long-term rat e of return, BancShare s considers such factors as the actual return earned on pla n assets, historica l returns on the various asse t classe s in the plans and projections of future returns on various asse t classes. Refe r to Note Q, Employe e Benefit Plans , for disclosures relate d to BancShares’ defined benefit pension plans. Leases BancShare s leases certai n branch locations, administrative offices and equipment. Operating lease ROU assets are included in othe r assets and the associated lease obligations are include d in othe r liabilities. Sales-type and direct financing lease s are include d in premises and equipment and othe r borrowings. Lease s with an initial term of 12 months or less are not recorded on the Consolidate d Balance Sheets; BancShares instead recognize s lease expense for these leases on a straight-line basis over the lease term. ROU assets represen t BancShares' right to use an underlying asse t for the leas e term an d lease liabilities represen t BancShares' corresponding obligation to make leas e payments arising from the lease. Operatin g and finance leas e ROU assets and liabilities are recognize d at commencemen t dat e base d on the present value of lease payments over the leas e term . The operating and finance leas e ROU asse t also includes initial direct costs an d pre-paid lease payments made, excluding lease incentives. As most of BancShares' lease s do not provide an implicit rate, BancShares uses it s incremental borrowing rat e based on the information available at commencemen t date in determining the present value of lease payments. The incremental borrowing rat e is determined using secured rates for new FHLB advances under similar terms as the leas e at inception. BancShares utilizes th e implicit or incremental borrowing rat e at the effective dat e of a modification not accounted for as a separate contract or a change in the lease terms to determine the presen t value of lease payments. For operating leases commencing prior to January 1, 2019, BancShares use d the incremental borrowing rate as of that date. Most leases includ e one or more options to renew, wit h renewal term s tha t can exten d the leas e term from 1 to 25 years. The exercise of lease renewa l options is at BancShares' sole discretion. Whe n it is reasonably certain BancShares wil l exercise its option to rene w or extend the leas e term , the option is include d in calculating the value of the ROU asse t and lease liability . The 86 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) depreciabl e lif e of asset s and leasehol d improvement s are limited by the expecte d lease term, unless there is a transfer of titl e or purchase option reasonably certai n of exercise. BancShare s determine s if an arrangement is a lease at inception. BancShares ’ lease agreement s do not contai n any material residua l value guarantees or material restrictive covenants. BancShares does not leas e any propertie s or facilitie s from any related party. As of Decembe r 31, 2021, there were no leases that have not yet commenced tha t would have a material impact on BancShares ’ consolidated financia l statements. Sales-type and direct financing leases are carrie d at the aggregat e of lease payment s receivabl e and estimated residua l value of the lease d property, if applicable, less unearned income . Interest income is recognized over the term of the leases. Refer to Note R, Leases , for additional disclosures. Revenue Recognition BancShares generally acts in a principa l capacity, on it s own behalf, in it s contracts wit h customers. In these transactions, BancShares recognizes revenues and the related cost s to generat e those revenues on a gross basis . In certain, circumstances, BancShares acts in an agent capacity, on behalf of the customers with othe r entities, and recogniz e revenues and the related costs to provide BancShares ' services on a net basis . BancShares acts as an agent when providing certain cardholde r and merchant, insurance, and brokerage services. Descriptions of BancShares ' noninterest revenue-generating activitie s are broadly segregate d as follows: Cardholder and Merchant Services - These represent interchange fee s from customer debi t and credit card transactions earned when a cardholde r engages in a transaction with a merchant as wel l as fees charged to merchants for providing the m the ability to accept and process the debi t and credit card transaction. Revenue is recognized when the performanc e obligation has been satisfied , which is upon completion of the card transaction. Additionally, as BancShare s is actin g as an agent for the customer and transaction processor, costs associate d with cardholde r and merchant services transactions are netted against the fee income. Service charges on deposit accounts - These deposit account-relate d fee s represent monthly account maintenance and transaction-based servic e fees, such as overdraft fees, stop payment fee s and charges for issuing cashier’s checks and money orders. For account maintenance services, revenue is recognized at the end of the statement period when BancShares' performanc e obligation has bee n satisfied . All other revenues from transaction-based services are recognized at a point in time when the performanc e obligation has bee n completed. Wealth management services - These primarily represent sale s commissions on various product offerings, transaction fee s and trust and asse t management fees. The performanc e obligation for wealth management services is the provision of services to place annuit y product s issue d by the counterpart y to investors and the provision of services to manage the client’s assets, including brokerage custodial and othe r management services. Revenue from wealth management services is recognized over the period in which services are performed, and is based on a percentage of the value of the assets under management/ administration. Other service charges and fees - These include , but are not limited to, check cashing fees, international banking fees, internet banking fees, wire transfer fee s and safe deposit fees. The performanc e obligation is fulfilled and revenue is recognized, at the point in time th e requeste d servic e is provided to the customer. Insuranc e commissions - These represent commissions earned on the issuance of insuranc e product s and services. The performanc e obligation is generally satisfied upon the issuance of the insurance policy and revenue is recognized when the commission payment is remitted by the insurance carrier or policy holde r depending on whethe r the billin g is performed by BancShares or the carrier. ATM income - These represent fee s imposed on customers and non-customers for engaging in an ATM transaction. Revenue is recognized at th e tim e of the transaction as the performanc e obligation of rendering th e ATM servic e has been met. Other - This consists of severa l forms of recurring revenue, such as FHL B dividends and income earned on changes in the cash surrender value of bank-owned life insurance. For the remaining immaterial transactions, revenue is recognized when, or as, the performanc e obligation is satisfied . Refer to Note N, Other Noninterest Incom e and Other Noninterest Expense, for additional disclosures on other noninterest income. 87 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recently Adopted Accountin g Pronouncements The following pronouncements or Accounting Standard Update s (“ASUs” ) wer e issued by the FASB and adopted by BancShares as of January 1, 2021. FASB ASU 2019-12, Incom e Taxes (Topic 740): Simplifying th e Accounting for Income Taxes The amendments in thi s ASU add new guidance to simplify accounting for income taxes , change the accounting for certain income ta x transactions and make minor improvement s to the Codification. BancShare s adopted thi s ASU as of January 1, 2021 and th e adoption did not have a material impac t on its consolidated financia l statement s or disclosures. FASB ASU 2020-01 - Clarifying the Interactions between Investments-Equit y Securitie s (Topic 321), Investments-Equity Method and Joint Venture s (Topic 323), and Derivatives and Hedging (Topi c 815) The amendments in thi s ASU clarify certain interactions between the guidance to account for certain equity securities under ASC 321, the guidance to account for investment s under the equit y method of accounting in ASC 323, and the guidance in ASC 815, which coul d change how an entit y account s for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that , upon settlement of the forward contrac t or exercise of the purchased option, would be accounted for under the equit y method of accounting or the fai r valu e option in accordance wit h ASC 825, Financial Instruments. BancShares adopte d thi s ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements or disclosures. FASB ASU 2020-08, Codification Improvement s to Subtopic 310-20, Receivable s - Nonrefundabl e Fee s and Other Costs The amendments in thi s ASU shorte n the amortizatio n period for certain callabl e debt securities hel d at a premium . Under the new guidance , premium s on callabl e debt securities that have explicit, non-contingent call feature s that are callable at fixed prices and on preset dates must be amortize d to the earliest call date, rather tha n the maturity date. The new guidance does not require an accounting change for securities hel d at a discount; the discount continue s to be amortize d to maturity. BancShares adopted thi s ASU as of January 1, 2021 and the adoption did not have a material impact on it s consolidated financial statements or disclosures. ASU 2020-10, Codification Improvements The amendments in thi s ASU improve the Codification by ensuring tha t all guidance that require s or provide s an option for an entit y to provide information in the note s to financial statements is codifie d in the Disclosure Sectio n of the Codification. Certain amendment s in thi s ASU are varied in nature and clarifie s the previously issued guidance , in cases where it ma y have bee n unclear. BancShare s adopted thi s ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statement s and disclosures. 88 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE B BUSINESS COMBINATIONS Each business combination is accounted for under the acquisition method of accounting and, accordingly, assets acquire d and liabilities assumed are recorded at their estimated fai r values on the acquisition date. Fair values are subjec t to refinement for up to one yea r after the closing dat e of the acquisition as additiona l information regarding closing dat e fai r value becomes available. As part of the accounting for each acquisition, BancShares performs an analysis of the acquire d bank’s loan portfolio and based on such credit factors as past due status, nonaccrua l status, life-to-dat e charge-offs and othe r quantitative and qualitative considerations segregat e the acquire d loans int o PCD loans and non-PC D loans. Additionally, BancShares performs an analysis of the acquire d bank’s portfolio of debt securitie s to determine if an y debt securities shoul d be designated PCD. CIT Group Inc. On January 3, 2022, BancShares complete d the CIT Merger. Refe r to Not e W, Subsequent Events, for furthe r information. Community Financial Holdin g Company, Inc. On February 1, 2020, BancShare s complete d the merger of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Communit y Financial”) and it s bank subsidiary, Gwinnet t Community Bank. BancShare s conclude d the completed business combination of Community Financial wa s not materia l to BancShares’ consolidated financial statements, individually or in aggregate, and therefore , pro forma financial dat a has not bee n included. The transaction wa s accounted for under the acquisition method of accounting and, accordingly, asset s acquire d and liabilities assumed were recorded at thei r estimate d fair values on the acquisition date. Fair values were subject to refinement for up to one yea r after the closing dat e of the acquisition. The measurement period ende d on December 30, 2020. The fai r value of th e assets acquire d was $221.4 million, including $110.6 million in non-PC D loans, $23.4 million in PCD loans, net of an AC L of $1.2 million, and $536 thousand in a core deposit intangible . No debt securities purchased in the transaction were designate d PCD. Liabilities assumed were $219.8 million, of which $209.3 million were deposits. As a result of the transaction, BancShare s recorded $686 thousand of goodwill . The amount of goodwill represents the exces s purchase pric e over the estimated fai r value of the net assets acquired. The premium pai d reflects th e increased market share and related synergie s expected to result from the acquisition. None of the goodwill wa s deductible for income ta x purposes as the merger was accounte d for as a qualifie d stock purchase. The Communit y Financia l transaction resulted in merger-relate d expenses of $3.5 million for the yea r ended Decembe r 31, 2020. Additionally, loan-related interest incom e generated was approximately $5.3 million from the acquisition dat e through Decembe r 31, 2020. The ongoing contribution of thi s transaction to BancShares ’ financial statements is not considered material, an d therefore pro forma financial dat a is not included. 89 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE C INVESTMENTS The amortized cos t and fai r value of investment and marketable equity securities at December 31, 2021 and 2020, were as follows: (Dollars in thousands) Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Corporate bonds Total investment securities available for sale Investment in marketable equity securities Investment securities held to maturity Residential mortgage-backe d securities Commercial mortgage-backed securities Other Total investment securities held to maturity Total investment securities Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Corporate bonds Total investment securities available for sale Investment in marketable equity securities Investment securities held to maturity Residential mortgage-backe d securities Commercial mortgage-backed securities Other Total investment securities held to maturity December 31, 2021 Gross Gross unrealized unrealized losses gains Fair value $ 1 ,924 $ 1 $ 2,004,970 4,659 8,229 5,364 26,648 45,006 24,879 5,690 32 — 5,722 3,624 36,793 13,924 533 56,798 245 21,957 33,568 — 55,525 798,760 4,728,413 1,062,749 608,535 9,203,427 97,528 2,306,262 1,451,380 2,008 3,759,650 $ 13,060,605 $ 112,568 Cost $ 2,006,788 06 797,725 4,756,977 1,071,309 582,420 9,215,219 72,894 2,322,529 1,484,916 2,008 3,809,453 $ 13,097,566 5,607 $ 7 December 31, 2020 Gross Gross unrealized unrealized losses gains Fair value $ 1 $ — $ 499,933 723 70,283 25,645 14,437 111,189 8,654 17,689 3,884 — 21,573 5,573 1,310 — 2,028 8,911 1,811 701,391 4,438,103 7 71,537 603,279 7,014,243 91,680 — 56 — 56 ,895,381 1 940,862 2,256 2,838,499 Cost $ 499,832 01 706,241 4,369,130 745,892 590,870 6,911,965 84,837 1,877,692 937,034 2,256 2,816,982 Total investment securities On Octobe r 1, 2021, mortgage-backed securities with an amortized cos t of $451.7 million were transferred from investment securities available for sale to the hel d to maturity portfolio. At the time of transfer, the mortgage-backe d securities had a fair value of $439.0 million and a weighted average remaining contractua l maturity of approximately 28 years. The unrealize d loss on these securitie s at the dat e of transfe r was $12.7 million, or $9.7 million net of tax, and wa s reported as a component of AOCI. Thi s unrealized loss is amortized ove r the remaining expecte d lif e of the securitie s as an adjustment of yield. $ 9,813,784 $ 141,416 $ 9,944,422 0,778 $ 1 On Novembe r 1, 2020, mortgage-backed securities wit h an amortize d cost of $1.46 billion were transferred from investment securities available for sale to the hel d to maturity portfolio. At the time of transfer, the mortgage-backe d securities had a fair value of $1.47 billion and a weighte d average remaining contractual maturity of approximately 18 years. The unrealize d gain on these securitie s at the dat e of transfer was $5.9 million, or $4.5 million net of tax, and was reported as a component of AOCI. Thi s unrealized gain is accreted ove r the remaining expecte d lif e of the securitie s as an adjustment of yield. 90 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federa l National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issue d by the SBA. Investments in corporate bonds represent positions in debt securitie s 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 deposi t wit h othe r financial institutions. BancShares also holds approximately 354,000 shares of Class B common stock of Visa , Inc. (“Visa”). Until the resolution of certain litigation, at whic h tim e the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these share s are only transferabl e to othe r shareholders of Visa Class B common stock. As a result , there is limite d transfer activity in private transactions between buyers and sellers. Given thi s limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timin g and eventual exchange rat e for shares of Visa Class B common stock int o shares of Visa Class A common stock, these share s are not considered to have a readily determinabl e fair value and have no carrying value. BancShares continues to monitor the trading activity in Visa Class B common stock and the statu s of the resolution of certain litigation matters at Visa that would trigger the conversion of the Vis a Clas s B commo n stock int o Visa Class A common stock. BancShares hel d FHLB stock of $40.5 millio n and $45.4 millio n and other non-marketable equity securities of $9.6 million and $11.6 million at December 31, 2021 an d December 31, 2020, respectively. These securities are recorded at cost withi n other assets. As of December 31, 2021 and December 31, 2020, no ACL was required for available for sale and hel d to maturity debt securities. At December 31, 2021, accrued interest receivable for available fo r sal e and hel d to maturity debt securitie s were $22.3 million and $6.6 million, respectively, and were excluded from the estimate of credit losses. At December 31, 2020, accrued interest receivable for available fo r sal e and hel d to maturity debt securitie s wer e $17.6 million and $5.4 million, respectively, and were excluded from the estimate of credit losses. During the years ended December 31, 2021 and December 31, 2020, no accrued interest wa s deemed uncollectible and writte n off against interest income. The following table provide s the amortize d cost and fai r value by contractual maturity. Expected maturities wil l diffe r from contractual maturities on certain securities because borrowers and issuers ma y have the right to call or prepa y obligations with or without prepayment penalties. Residential and commercial mortgage-backed and government agenc y securities are stated separately as they ar e not due at a single maturity date. (Dollars in thousands) Investment securities available for sale Non-amortizing securities maturing in: One year or less One through five years Five through 10 years Over 10 years Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Total investment securities available for sale Investment securities held to maturity Non-amortizing securities maturing in: One year or less One through five years Residential mortgage-backe d securities Commercial mortgage-backed securities Total investment securities held to maturity December 31, 2021 December 31, 2020 Amortized cost Fair value Amortized cost Fair value 00,846 02 $ 5 2 $ 2,048,259 547,912 17,132 798,760 4,728,413 1,062,749 ,203,427 9 $ 72,565 508,320 8,971 706,241 4,369,130 745,892 ,911,965 6 $ ,014,243 7 00,954 5 73,881 519,570 8,807 701,391 4,438,103 771,537 ,008 $ 1 ,507 2 — 2,306,262 1,451,380 ,759,650 3 ,816,982 $ 2 $ 749 1,877,692 937,034 1 ,507 749 1,895,381 940,862 $ ,838,499 2 00 $ 2 2,049,068 523,290 16,650 797,725 4,756,977 1,071,309 ,215,219 9 $ ,008 $ 2 — 2,322,529 1,484,916 ,809,453 $ 3 $ $ $ $ 91 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For eac h yea r presented, realized gains on investment securities availabl e for sale included th e following: (Dollars in thousands) Gross gains on retirement/sales of investment securities availabl e for sale Gross losses on sales of investment securities available for sale Realized gains on investment securities available for sale, net 2021 3 3,133 $ Year ended December 31 2020 6 0,932 $ $ 2019 ,993 (14) (679) $ 3,119 3 $ 0,253 6 $ ,115 8 (1,878) 7 For eac h yea r presented, realized an d unrealized gains or losses on marketable equit y securities included the following: (Dollars in thousands) Marketable equit y securities gains (losses), net Less net gains recognize d on marketable equity securitie s sold Unrealized gains (losses) recognized on marketable equity securities hel $ d $ 4,081 2021 3 16,261 17,820 $ Year ended December 31 2020 2 44,550 ( 15,155) 9,395 $ $ $ 2019 2 16,344 4 0,625 ,281 The following table provide s information regarding investment securities with unrealized losses as of December 31, 2021 and 2020: (Dollars in thousands) Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Corporate bonds Total Investment securities available for sale Government agency Residential mortgage-backe d securities Corporate bonds Total Less than 12 months Fair Value Unrealized Losses December 31, 2021 12 months or more Fair Value Unrealized Losses Total Fair Value Unrealized Losses $ 1,810,924 ,924 $ 1 $ — $ — $ 1,810,924 ,924 $ 1 222,401 3,992,305 647,101 52,331 1,516 36,769 13,924 533 189,935 1,351 — — 2,108 24 — — 412,336 3,993,656 647,101 52,331 3,624 36,793 13,924 533 $ 6,725,062 $ 54,666 $ 191,286 ,132 $ 2 $ 6,916,348 $ 56,798 Less than 12 months Fair Value Unrealized Losses December 31, 2020 12 months or more Fair Value Unrealized Losses Total Fair Value Unrealized Losses $ 268,622 ,197 $ 3 $ 328,777 ,376 $ 2 $ 597,399 ,573 $ 5 433,816 57,715 1,241 2,028 23,064 — 69 — 456,880 57,715 $ 760,153 ,466 $ 6 $ 351,841 ,445 $ 2 $ 1,111,994 $ 1,310 2,028 ,911 8 There were 37 and 39 investment securities available for sale with continuous losses for more than 12 months as of December 31, 2021 and December 31, 2020, respectively, al l of which are government sponsored, enterprise-issued mortgage- backed securities or government agenc y securities. None of the unrealized losse s identified as of December 31 , 2021 or December 31, 2020 relate to the issuer’s ability to honor redemption obligations. Rather, th e unrealized losse s relate to change s in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considere d othe r factors including changes in credit ratings, delinquencies, and othe r macroeconomic factors in thi s determination. As a result , none of the securities wer e deemed to require an allowance for credit losses. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Investment securitie s havin g an aggregat e carrying value of $5.74 billion at Decembe r 31, 2021 and $4.64 billion at December 31, 2020, were pledged as collateral to secure publi c funds on deposit and certain short-term borrowings, and for othe r purposes as require d by law. 92 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BancShares’ portfolio of hel d to maturity debt securitie s consists of mortgage-backed securities issued by government agencies and government sponsore d entities. Give n the consistentl y strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencie s and government sponsore d entities, no allowanc e for credit losses has bee n recorded on these securities. In the event there are downgrades to the credi t rating of the U.S. Treasury or losses reported on securities issued by government agencie s and government sponsore d entities, BancShares wil l reevaluate its determination of zero expected credi t losse s on hel d to maturity debt securities. There wer e no debt securities hel d to maturit y on non-accrua l statu s as of December 31, 2021 or Decembe r 31, 2020. A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities pas t due as of Decembe r 31, 2021 or Decembe r 31, 2020. NOT E D LOANS AN D LEASES BancShares ’ accounting methods for loans and leases depends whethe r the y are originated or purchased, and if purchased, whethe r or not the loans reflec t more than insignificant credi t deterioration since origination, which is determined as of the acquisition date. Non-PC D loans consis t of loans originated by BancShares and loans purchased from othe r institutions that do not reflec t more than insignificant credi t deterioration at acquisition and are reporte d by loa n segments as defined in Note A, Accounting Policie s and Basis of Presentation. Purchased loans which reflec t more than insignificant credi t deterioration are classifie d as PCD an d reported as a single loan segment or class. At the dat e of acquisition, al l acquire d loans are recorded at fair value. Loans and leases outstanding include th e following at December 31, 2021 an d 2020: (Dollars in thousands) Commercial: Construction and land development Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans and leases Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans Total non-PCD loans and leases PCD loans Total loans and leases December 31, 2021 December 31, 2020 ,111,797 $ 1 $ 9 85,424 11,992,625 2,971,393 5,710,652 493,821 22,280,288 5,679,919 1,795,005 399,570 1,331,388 547,728 9,753,610 32,033,898 337,624 11,165,012 2,987,689 5,013,644 2,406,291 22,558,060 5,561,686 2,052,854 348,123 1,255,402 552,968 9,771,033 32,329,093 462,882 2,371,522 $ 3 2,791,975 $ 3 93 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Certain residentia l rea l estate loans are originated to be sold to investors and are recorde d in loans hel d for sale at fai r value. Loans hel d for sale totale d $98.7 million and $124.8 million at December 31, 2021 and 2020, respectively. We may change our strategy for certain portfolio loans and sell them in the secondary market . At that time , portfolio loans are transferre d to loans hel d for sale at the lowe r of cos t or marke t value. During 2021, total proceeds from sale s of residential mortgage loans were $1.04 billion. During 2020, total proceeds from sales of residential mortgage loans were $1.05 billion, the majority of which were originated to be sold. An additional $7.6 million related to sale s of portfoli o loans, which were sold at par. The following tabl e presents selected component s of the amortize d cost of loans. (Dollars in thousands) Deferred fees, including unearned fees and unamortized costs on non-PCD loans December 31, 2021 December 31, 2020 Net deferred fees related to SBA-PPP loans Net deferred fees related to other portfolios ed fees Total net d eferr Net unamortized discount on purchased loans Non-PCD PCD Total $ $ $ $ 14,882 $ 16,903 31,785 $ 11,428 $ 29,008 40,436 $ 41,064 9,153 50,217 19,473 45,254 64,727 Loans and leases to borrowers in medical, dental or related fields were $7.09 billion as of Decembe r 31, 2021, which represente d 21.9% of total loans and leases , compare d to $5.54 billion or 16.9% of total loans and leases at December 31, 2020. The credi t risk of thi s industry concentration is mitigated through our underwriting policies, which emphasiz e reliance on adequat e borrowe r cas h flow, rather tha n underlying collateral value, and our preferenc e for financing secure d by owner- occupie d rea l property. Except for thi s single concentration, no other industry represente d more than 10% of total loans and leases outstanding at December 31, 2021 or 2020. Similar to FCB’s branc h footprint, the collateral of loans secure d by real estate is concentrated withi n North Carolina and South Carolina. At December 31, 2021, rea l estate locate d in North Carolina and South Carolina represente d 35.9% and 15.6%, respectively, of al l rea l estat e used as collateral. 94 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e aging of the outstanding loans and leases , by class , at December 31, 2021 and 2020, is provide d in the tables below. Loans and leases 30 days or less pas t due are considered current, as various grac e periods allow borrowers to make payments withi n a state d period after th e due dat e and still remain in compliance wit h the loa n agreement. (Dollars in thousands) Commercial: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans and leases (Dollars in thousands) Commercial: Construction and land development Owner occupied commercial mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases SBA-PPP Total commercial loans Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans and leases 30-59 days past due 60-89 days past due December 31, 2021 Total past due 90 days or greater Current Total loans and leases $ $ 56 4 18,073 1,335 7,909 — 27,773 — $ 2 ,099 517 33 3,714 — 4,264 18,585 5,446 388 5,628 2,335 32,382 10,898 4,066 2,086 — 1,134 2,013 9,299 2,899 6,929 2,217 6,238 — 17,483 14,205 4,612 41 1,214 1,154 21,226 13,160 $ 2 ,555 25,519 3,585 17,861 — 49,520 $ 1,109,242 11,967,106 2,967,808 5,692,791 493,821 22,230,768 $ 1,111,797 11,992,625 2,971,393 5,710,652 493,821 22,280,288 29 36,856 12,144 4 7,976 5,502 62,907 26,957 5,643,063 1,782,861 399,141 1,323,412 542,226 9,690,703 310,667 $ 32,232,138 5,679,919 1,795,005 399,570 1,331,388 547,728 9,753,610 337,624 $ 32,371,522 $ 71,053 $ 16,462 $ 51,869 $ 139,384 30-59 days past due 60-89 days past due December 31, 2020 Total past due 90 days or greater Current Total loans and leases $ 5 $ ,973 1 ,603 14,082 5 3,243 — 24,901 $ 3 ,086 25,071 18,343 20,617 — 67,117 $ 982,338 11,139,941 2,969,346 4,993,027 2,406,291 22,490,943 $ 985,424 11,165,012 2,987,689 5,013,644 2,406,291 22,558,060 $ 56 9 27 8,757 12,370 14,532 — 36,615 43,218 11,977 932 6,825 3,610 66,562 18,322 2,232 — 2,842 — 5,601 8,364 2,626 77 1,835 1,464 14,366 6,076 31,690 7,415 330 1,076 1,505 42,016 31,026 83,272 22,018 1,339 9,736 6,579 122,944 55,424 5,478,414 2,030,836 346,784 1,245,666 546,389 9,648,089 407,458 $ 32,546,490 5,561,686 2,052,854 348,123 1,255,402 552,968 9,771,033 462,882 $ 32,791,975 $ 121,499 $ 26,043 $ 97,943 $ 245,485 95 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e amortized cost , by class , of loans and leases on nonaccrual status, and loans and leases greater tha n 90 days pas t due and stil December 31, 2021 and at December ccruing l a 3 1, 2020, were December 31, 2021 as follows: December 31, 2020 (Dollars in thousands) Commercial: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases Total commercial loans Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans and leases Credit quality indicators Nonaccrual loans and leases $ 2 ,128 11,355 4,420 17,384 35,287 35,395 15,882 482 3,089 555 55,403 29,616 Loans and leases > 90 days and accruing Nonaccrual loans and leases Loans and leases > 90 days and accruing $ ,661 — $ 1 $ 4,573 197 661 5,431 — — — 951 951 543 23,103 7,932 10,626 43,322 6 — 2 6,345 2,236 52 ,166 6 3 823 93,222 54,939 — 3,625 147 540 4,312 — — — — 1,195 1,195 355 $ 1 20,306 ,925 $ 6 $ 191,483 ,862 $ 5 Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credi t quality indicators as a result of the unique characteristic s of the loan segments being evaluated. The credit quality indicators for non-PC D 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 dat e presente d are based on th e most recent assessment performed an d are defined below: Pass – A pass rated asset is not adversely classified because it does not displa y any of the characteristic s for adverse classification. Special mention – A special mention asse t has potential weaknesse s which deserve management’s clos e attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospect s or collateral position at some future date. Special mention assets are not adversel y classifie d and do not warrant adverse classification. Substandard – A substandard asse t 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, tha t jeopardize the liquidation of the debt . These assets are characterized by the distinc t possibilit y of loss if the deficiencies are not corrected. Doubtful – An asse t classifie d as doubtful has al l the weaknesse s inherent in an asse t classifie d substandard with the adde d characteristi c tha t the weaknesse s mak e 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 considere d uncollectible and of such little value it is inappropriate to be carried as an asset. Thi s 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 ma y be affected in the future. Ungraded – Ungrade d loans represent loans not included in the individual credi t grading process due to their relatively smal l balances or borrower type . The majority of ungrade d loans at Decembe r 31, 2021 and 2020, relate to busines s credit cards. Business credit card loans are subject to automatic charge-off when the y become 120 days past due in the sam e manner as unsecure d consume r lines of credit. The remaining balance is comprised of a smal l amount of commercial mortgage, lease financing an d othe r commercial rea l estat e loans. 96 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e credi t quality indicators for consume r and PC D loans are based on delinquency status of the borrowe r as of the date presented. As the borrowe r becomes more delinquent, the likelihood of loss increases. The following tables represen t current credi t quality indicators by origination year as of December 31 , 2021. Commercial Loans Amortized Cost Basis by Origination Year 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total Classification: (Dollars in thousands) Construction and land development 2021 Pas $ 467,540 Specia l Mention 75 Substandar 68,533 Tota s $ 374,206 $ 18 d 9 l4 152 35 374,393 178,035 28 61 178,379 Owner occupie d commercial mortgage $ 23,546 $ 43,541 ,419 $ 8 ,491 $ 9 $ 3 — 1,439 24,985 45 4,00 47,588 — 2 9 8,428 ,042,301 Pas Specia l Mention Substandar Total 8,456 s 3 3,016,53 ,868,940 2 1 1,193,12 60,346 6 9 1,538,98 25,025 4 1 2,924 d 2 35,390 6,239 3,058,161 35,949 14,817 22,247 10,590 11,399 17,362 1,919,70 ,225,96 6 1 89,107 3 9 20,233 31,565 1,590,782 3,073,681 Non-owner occupie d commercial mortgage — — 9,491 4,598 5,417 — — — — $ 1,104,778 98 4 6,521 ,111,797 1 11 70 — 5 11,745,369 132,810 14,446 1 135,04 85 0 1 11,992,625 28,953 Pas Specia l Mention Substandard Doubtful Tota 35,569 s 6 l 6 1,252 5,364 — 734,538 — 10,36 — 744,905 Commercial and industrial and leases 577,953 2 62 2,754 7 2 — 600,969 ,767,047 Pas Specia l Mention Substandard Doubtful Ungraded Total SBA-PPP s 1 1,042,73 36,334 0 6 2,455 15,752 — — 1,785,254 7,859 6,57 ,111 — — 1,057,168 20,225 9 3 — — 659,670 261,504 2,602 9,106 — 273,212 298,326 2,493 4,000 — — 304,819 261,946 32 6,973 1,400 270,351 165,371 3,769 1,642 — — 170,782 388,956 5,08 16,502 — 410,541 289,044 3,517 2,679 — — 295,240 35,297 3 — 54 — 35,846 1,338,162 5,455 15,911 1 72,047 1,431,576 — — 9 — — — ,889,147 2 9 ,231 71,615 ,400 1 ,971,393 2 4,98 29 86 — — 6,143 3 5 ,541,997 6,069 6 4 0,538 4 5 1 2,047 7 5,710,652 Pas 50,550 Total commercial s 4 $ 6,413,587 43,271 $ 5,277,898 — $ 3,358,724 — $ 1,828,979 — $ 1,477,828 — $ 2,304,991 — $ 1,611,953 ,328 $ 6 — 493,821 $22,280,288 97 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consumer an d PCD Loans Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total Days Pas t Due: (Dollars in thousands) Residential mortgage Current 30-59 days 60-89 days 90 days or greater ,967,306 Tota Revolving mortgage Current 30-59 days 60-89 days 90 days or greate Total $ 1,964,807 1,809 465 22 l1 $ 1,561,214 2,011 26 28 54 1,563,67 — — — r— — — — — — — Construction and land development Current 30-59 days 60-89 days 90 days or greate Total Consumer auto Current 30-59 days 60-89 days 90 days or greater Tota 98,560 Consumer other Current 30-59 days 60-89 days 90 days or greate Tota Total consumer 33,349 PC D loans Current 30-5 9 day 60-89 days 90 days or greater Total PCD Total loans and leases 241,692 55 — r— 241,747 596,617 1,331 184 42 l 5 132,402 205 697 r4 5 l1 2,940,962 — s — — — — $ 9,354,549 122,259 285 — 122,544 343,230 1,570 429 82 345,526 — 97 23,856 125 20 7 1 24,008 2,055,757 2,154 2 798 3 4 02 83 3,737 2 $ 7,357,392 $ 607,551 $ 359,581 $ 339,318 $ $ 20,822 $ 2,045 67 681 1,866 649 1,998 1,385 507 74 10,344 9 6 364,09 41,954 4 3 789,770 9,46 2,352 0,12 4 1 811,72 9 0,822 0 2 — 9— — — — — — $ 5,643,063 18,585 4,066 14,205 — ,679,919 5 ,75 1,671,148 3,68 256 1,957 1,677,049 111,71 8 1 8 1,830 2,655 3 1 ,782,861 ,446 5 2,086 4,612 117,95 ,795,005 6 1 — — — — — 4,83 11 — — 4,84 48,405 9 4 48 87 — — — — — 10 — 41 ,630 51 ,681 61 18,16 174 30 18 48,94 8,387 9 1 09 1,278 — — — 1,278 5 — — — — — 8,099 22 2,36 — — — 25 1 — 2,36 398,111 8,125 2 2 859,913 ,956 ,259 340,086 1 1 1,100 344,401 2,043,550 1,73 6 2 9 2 00,915 164 22 403 8 2 8 $ 1,898,267 2,32 9,173 2,196 10,697 22,981 2 $ 3,387,885 10,070 — 86 — 28 10,098 $ 3,665,601 15,72 140,007 $ — — — — — — — — — — — — — — — 117,956 14,40 1 78 1,05 99,141 3 99,570 3 388 — 41 1,323,412 5,628 1,134 1,214 1,331,388 42,226 5 ,335 ,013 ,154 47,728 5 2 2 1 9,753,610 10,667 7 3 10,898 ,899 2 3,160 2 1 37,624 3 3 $32,371,522 — — — — — — — — — — 20,78 ,665 26 27 — — 20,809 198,455 1,265 296 156 200,172 11,019 23 36 11,079 842,404 20,896 98 143 222 21,359 $ 4,222,487 — — — 6,665 118,540 87 147 228 119,794 4,402 1 — 1 4,404 494,957 20,48 479 158 275 21,39 $ 2,345,334 98 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table s represen t current credi t quality indicators by origination year as of December 31, 2020. Commercial Loans Amortized Cost Basis by Origination Year 2019 2018 2017 2016 Prior Revolving loans converted to term loans Revolving loans Total Classification: (Dollars in thousands) Construction and land development 2020 Pas Specia l Mention 29 Substandar Total s $ 342,183 246 d2 342,658 Owner occupie d commercial mortgage Pas ,183,467 Specia l Mention Substandar 0,280 6,274 d 1 Total 3,200,021 Non-owner occupie d commercial mortgage Pas 65,514 Special Mention Substandar ,899 Total s 8 569 d 2 868,982 Commercial and industrial and leases 20,702 19,052 2,240,919 609,975 905 18,546 629,426 $ 341,233 $ ,421 — 629 341,862 190,429 6 1,450 198,300 $ 50,776 $ 23,969 $ 11,306 $ 10,969 $ 5,342 — 56,11 3,97 8 2 — 8 7 — 81 153 — 1,387 1 11,12 — s 3 2,201,16 ,625,141 51 1,301,412 12,387 2 2 0,928 1,049,858 17,699 13,73 1,454,020 25,693 ,438 3 6 4 1,30 36,739 9,84 1,671,722 1,334,727 1,081,293 1,521,016 101,556 5,11 8 115,109 — — — 2 133 5 7 — 20 2 $ 970,865 1 2,162 2,397 985,424 10,916,752 1 24,681 23,579 1 5 1 1,165,012 378,136 10,794 12,29 401,226 ,764 331,800 1,808 68 342,372 282,81 91,51 0 3 2,14 7 3 5,12 14,08 302,01 ,279 1 3 5,427 7 1 10,22 84 3,44 3 3 48 — 810 9 2 — 2,891,901 3 — 2,829 22,959 7 — 2,987,689 Pas ,620,622 Specia l Mention Substandard Ungraded Total SBA-PPP s 1 983,85 04,46 2 5 3 10,46 3 8 34,73 2 5 86,99 2 6 99,97 8 ,520 8 5 4,846,634 3,146 17,811 — 1,641,579 17,065 4,09 ,370 — 1,005,012 7,265 5 4 — 516,098 5,39 ,307 4,257 — 320,118 33 2,54 — 4,91 ,152 ,801 8 3 2 9 22,38 56,33 83 18 49 2— — 9 240,59 95,70 02 87,84 9 ,692 6 6 0,429 9 5 60,249 56,332 5,013,644 Pas ,406,291 Total commercial s 2 $ 8,459,531 — $ 4,217,219 — $ 2,787,346 — $ 2,053,335 — $ 1,647,878 — $ 2,238,335 — $ 1,147,519 ,897 $ 6 — 2,406,291 $22,558,060 99 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consumer an d PCD Loans Amortized Cost Basis by Origination Year 2020 2019 2018 2017 2016 Prior Revolving loans Revolving loans converted to term loans Total $ 978,298 $ 655,798 $ 596,309 $ 461,719 4,573 100 ,831 2 4 987,80 11,463 1,246 3,150 3,772 1,44 4,01 71,657 26 605,54 8,613 9 8 34 ,689 76,855 5 4 55 $ 878,634 12,29 $ 24,973 20 4,705 13,72 909,36 5,193 1 2 $ 9 2 — 3— — — — — — $ 5,478,414 4 3,218 8,364 1,690 3 ,561,686 5 — — — — — — — — — — 24,86 0,269 01 — — — — — 370 9 — — — — — — 6,093 — — — 10,64 ,093 8 6 104,280 842 351 57 105,53 0,62 49,872 544 109 102 7 0 5 — — — — — 2,218 21 68 330 2,637 9,60 134 45 3 ,786 9 Days Pas t Due: (Dollars in thousands) Residential mortgage Current 30-59 days 60-89 days 90 days or greater Tota Revolving mortgage Current 30-59 days 60-89 days 90 days or greate Total $ 1,882,683 2,278 30 28 l1 ,885,273 — — — r— — Construction and land development Current 30-59 days 60-89 days 90 days or greater Total Consumer auto Current 30-59 days 60-89 days 90 days or greater Total Consumer other Current 30-59 days 60-89 days 90 days or greater Total Total consumer PC D loans Current 30-5 9 days 60-89 days 90 days or greater Total PCD Total loans and leases 215,112 — 20 — — 215,112 521,719 2,175 329 17 524,393 27 85,707 4 — — 86,127 340,594 1,873 689 0 5 343,683 53,842 322 102 5 3 54,319 2,679,097 27,117 114 20 8 4 27,335 1,444,947 31,475 999 447 721 33,642 25,425 925 81 2,325 28,756 $11,172,270 $ 5,690,922 121 — — 24,981 219,597 1,257 312 217 221,383 10,911 77 13 8 11,009 929,030 27,183 801 312 4,75 33,05 $ 3,749,427 1,879,968 8,24 ,73 527 2,301 1,891,037 150,86 6 1 3 2,099 5,114 8 2 ,030,836 1,977 1 2,626 7,415 161,81 ,052,854 7 2 2,52 — — — 2,52 4— — — — — — 5— — — — 5— — — — — 346,784 932 77 330 348,123 1,245,666 6,825 1,835 1,076 1,255,402 — — — 46,389 5 ,610 ,464 0 — 52,968 5 3 1 1,505 161,817 9,771,033 21,02 07,458 7 4 745 3 1,046 23,15 18,322 6,076 31,026 62,882 54 $ 191,869 $32,791,975 13,212 156 9 37 11 3 1 13,488 $ 3,500,512 7,159 18 18 — 7,195 728,91 36,569 8 5 2,98 9,336 02 11 3 — 415,044 3 1 1,36 — 7 ,061 ,285 23 — 2,99 9,366 42 951,150 420,750 2,339,505 27,95 8,99 5 2 5 32,186 2 718 695 ,208 0,576 5 1 13 $ 2,812,829 1,341 97 89 31,33 12,637 4,098 9,96 7 1 68,884 0 2 $ 2,215,777 $ 3,458,369 100 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table provide s information regarding loans pledged as collatera l for borrowing capacit y through the FHL B of Atlanta and th e Federal Reserve Bank (“FRB” ) as of December 31, 2021 and 2020: (Dollars in thousands) FHLB of Atlanta Lendable collateral value of pledged non-PCD loans Less: advances Available borrowing capacity Pledged non-PCD loans FRB Lendable collateral value of pledge d non-PCD loans Less: advances Available borrowing capacity Pledged non-PCD loans NOTE E ALLOWANCE FO R CREDI T LOSSES December 31, 2021 December 31, 2020 ,563,947 $ 9 ,919,288 $ 8 4,507,109 $ 1 ,950,649 $ 3 ,950,649 ,806,443 $ 3 $ 4 ,637,844 644,659 ,985,169 $ 8 $ 7 $ 2,157,153 1 652,675 $ ,321,762 — 3 — ,321,762 ,104,866 $ 3 $ 4 As note d in Note A, Accounting Police s and Basis of Presentation, BancShares determined SBA-PP P loans have zero expected credit losses and as suc h these are exclude d from th e following AC L disclosures. Upon adoption of ASC 326 on January 1, 2020, BancShare s recorded a net decrease of $37.9 million in the ACL, which include d a decrease of $56.9 million in the AC L on non-PC D loans, offse t by an increase of $19.0 million in the AC L on PCD loans. The largest changes as a result of adoption were decreases in the AC L on commercial loan segments as these portfolios have exhibite d strong historica l credit performanc e and have relativel y short average lives . The reduction in AC L on these segments wa s partially offse t by increases in AC L on our consume r loa n segments primarily due to their longe r average lives. The increase in the AC L on PCD loans was primarily the resul t of reallocating credit discount from loa n balances into ACL. The remaining non-credi t related discount continue s to amortize int o interest. The AC L is calculated using a variet y of factors, including, but not limited to, charge-off and recovery activity, loa n growth, changes in macroeconomic factors, collatera l type, estimated loa n lif e and changes in credit quality. The decrease in the AC L as of Decembe r 31, 2021 compare d to Decembe r 31, 2020 was primarily drive n by continue d strong credit performance , low net charge-offs , and improvement in macroeconomic factors. Forecasted economi c conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, BancShares uses a 12-mont h straight-line reversion period to historica l average s for mode l inputs; however for the consumer other, consume r car d and commercial card pools, immediate reversion to historica l net loss rates is utilized. Significant macroeconomic factors used in estimating the expecte d losse s include unemployment, gross domestic product , home price inde x and commercial rea l estate index. BancShares ’ ACL forecasts consider a range of economi c scenarios from an upside scenario to a severely adverse scenario, but the Decembe r 31, 2021 AC L forecast was calculate d using the consensus baseline scenario. Thi s scenario showe d improvement s in the most significant economi c factors compared to what was used to generate the Decembe r 31, 2020 ACL. These loss estimates were also influenced by BancShares ’ strong credit qualit y and low net charge-offs. Refe r to Note A, Accounting Policie s and Basis of Presentation, for discussion of the accounting treatment of the allowance for loan losses prior to adoption of ASC 326. 101 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following tables summarize activity in the allowance for credi t losses for the years ended December 31, 2021 and 2020 and the allowance for loa n losses for the yea r ende d December 31, 2019. (Dollars in thousands) Balance at Januar y 1 Benefit Charge-offs Recoveries Balance at December 31 (Dollars in thousands) Balance at Januar y 1 Adoption of ASC 326 Balance at Januar y 1 Provision (benefit) Initial allowance on PCD loans Charge-offs Recoveries Balance at December 31 (Dollars in thousands) Balance at January 1 Provision (benefit) Charge-offs Recoveries Balance at December 31 $ Commercial 8 0,842 (1,228) (15,924) 7,523 $ 1,213 7 Commercial 1 42,369 (87,554) 54,815 37,763 — (17,586) 5,850 8 0,842 $ $ $ Year ended December 31, 2021 Consumer 1 19,485 (21,278) (17,181) 11,452 9 PCD 2 (14,329) (2,317) 7,461 3,987 2,478 4,802 1 $ $ Total 2 24,314 (36,835) (35,422) 26,436 $ 78,493 1 $ $ ,536 Year ended December 31, 2020 Consumer 7 5,236 30,629 105,865 27,791 — (24,219) 10,048 19,485 1 PCD 7 19,001 26,537 (7,202) 1,193 (3,300) 6,759 3,987 $ 2 $ Total 2 25,141 (37,924) 187,217 58,352 1,193 (45,105) 22,657 24,314 2 $ $ $ $ $ Commercial 139,043 $ 13,386 (14,744) 4,684 $ 42,369 1 5,236 $ 7 $ 9 PCI Year ended December 31, 2019 Consumer ,144 5,525 7 19,663 (28,283) 8,331 ,536 (1,608) — — $ 7 $ Total 23,712 2 31,441 ( 1 25,141 2 43,027) 3,015 $ BancShares records an allowance for credi t losses on unfunded commitments within othe r liabilities. Activity in th e allowance for credi t losses for unfunded commitments is summarized as follows: (Dollars in thousands) Allowance for credit losses: Beginning balance Adoption of ASC 326 Adjusted beginning balance (Benefit) provision December 31, 2021 , December 31, 2020 , 2,814 2,814 ,055 $ 1 $ 1 — $ 1 ,885 $ ,940 (999) 11,815 8 9 2,874 12,814 Ending balance BancShares individually review s loans greater tha n $500 thousand tha t are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fai r valu e of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by busines s assets, while the remaining loan classes are collateralized by rea l property. The following table present s information on collateral-dependent loans by class and includes the amortized cos t of collateral- dependent loans and leases , the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of December 31, 2021 and 2020. 102 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands) Commercial loans: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases Total commercial loans Consumer: Residential mortgage Total non-PCD loans PCD Total collateral-dependent loans (Dollars in thousands) Commercial loans: Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Total commercial loans Consumer: Residential mortgage Total non-PCD loans PCD Total collateral-dependent loans December 31, 2021 Collateral- Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses ,424 $ 1 $ 1 ,964 3,461 2,056 2,665 9,606 5,323 14,929 4,864 4,370 2,118 5,208 13,660 7,353 21,013 21,099 9,793 $ 1 2,112 $ 4 137.9 % $ 126.3 103.0 195.4 142.2 138.1 140.8 433.8 212.8 % $ — — — 941 941 — 941 — 941 December 31, 2020 Collateral- Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses ,424 $ 1 $ 1 ,795 9,792 5,556 16,772 23,011 39,783 19,042 14,253 7,577 23,625 29,775 53,400 27,872 8,825 $ 5 1,272 $ 8 126.1 % $ 145.6 136.4 140.9 129.4 134.2 146.4 138.2 % $ — — — — 131 131 — 131 Collateral-dependent nonaccrual loans wit h no recorded allowance totaled $14.8 millio n and $57.5 millio n as of December 31, 2021 and 2020, respectively. All othe r nonaccrual loans have a recorde d allowance. Non-PCI impaired loans less than $500,000 tha t were collectively evaluated was $41.0 million at December 31, 2019. Th e following tabl e shows the average non-PCI impaired loan balance and th e interest incom e recognize d by loa n class for the years ende d December 31, 2019. (Dollars in thousands) Non-PCI impaired loans and leases: Commercial: Construction and land development Commercial mortgage Other commercia l real estate Commercial and industrial and leases Other Total commercial Noncommercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total noncommercial Total non-PCI impaired loans and leases 103 2019 Average Balance Interest Income Recognized ,915 $ 3 $ 53 64,363 919 11,884 396 81,477 52,045 29,516 3,589 3,311 88,461 69,938 $ 1 $ ,410 2,188 27 482 11 2,761 1,386 1,009 116 138 2,649 5 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Troubled Deb t Restructurings BancShares accounts for certain loa n modifications or restructurings as TDRs. In general, the modification or restructuring of a loa n is considered a TDR if , for economic or legal reasons related to a borrower’s financial difficulties , a concession is granted to the borrowe r tha t creditors would not otherwis e consider. Concessions ma y relate to the contractual interes t rate, maturity date, payment structure or othe r actions. Within BancShares’ AC L los s models, TDRs are not individually evaluated unless determined to be collateral-dependent. Consume r TDRs ar e included in the definitio n of default whic h provide s for a 100% probability of default applied withi n the models. As a result , subsequent change s in credit quality metrics do not impact the calculation of the AC L on consume r TDRs. Fo r commercial TDRs , the TDR distinctio n does impact the calculatio n of ACL , as the standard definition of default is utilized. The Interagency Statement on Loa n Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loa n modifications and the determination of TDRs for borrowers experiencing COVID-19. BancShare s applied thi s regulatory guidance during it s TDR identificatio n process for short-term loa n forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs. The following tables provide s a summary of tota l TDR s by accrua l status. (Dollars in thousands) Commercial loans: December 31, 2021 December 31, 2020 Accruing Nonaccruing Total Accruing Nonaccruing Total Construction and land development Owner occupied commercia l mortgage Non-owner occupied commercial mortgage Commercial and industrial and leases Total commercial loans 28 $ 3 Consumer: Residential mortgage Revolving mortgage Construction and land development Consumer auto Consumer other Total consumer loans PCD loans Total loans (Dollars in thousands) Commercial loans: Construction and land development Commercial mortgage Other commercia l real estate Commercial and industrial and leases Other Total commercial loans Noncommercial: Residential mortgage Revolving mortgage Construction and land development Consumer Total noncommercial loans Total loans 9 43,593 21,278 11,723 76,922 20,635 16,322 961 1,827 713 40,458 29,401 $ 2 $ 6,231 2,741 9,384 18,385 12,262 6,395 259 455 76 19,447 9,935 $ 5 357 78 49,824 24,019 21,107 95,307 32,897 22,717 1,220 2,282 789 59,905 39,336 4 37,574 18,336 29,131 85,619 29,458 20,124 1,573 2,018 955 54,128 17,617 $ 5 $ 632 10,889 1,649 3,528 16,120 19,380 7,128 9 696 137 27,350 7,346 48,463 19,985 32,659 101,739 ,582 48,838 27,252 1 2,714 1,092 81,478 24,963 $ 146,781 7,767 $ 4 $ 194,548 $ 157,364 0,816 $ 5 $ 208,180 December 31, 2019 Accruing Nonaccruing Total 87 $ 4 ,279 $ 2 50,819 571 9,430 320 61,627 41,813 21,032 1,452 2,826 67,123 $ 128,750 $ 4 2,442 11,116 — 2,409 105 15,909 16,048 7,367 2,430 688 26,533 $ 71 ,766 2 61,935 5 11,839 425 77,536 57,861 28,399 3,882 3,514 93,656 $ 171,192 104 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table summarizes the loan restructurings as of December 31, 2021, 2020 and 2019 tha t wer e designated as TDRs. BancShares defines payment default as movement of the TDR to nonaccrua l status, which is generally 90 days pas t due, foreclosure or charge-off, whichever occurs first. (Dollars in thousands) Loans and leases Interest only period provided Commercial loans Consumer loans Total interest only Loan term extension Commercial loans Consumer loans Total loan term extension Below market interest rate Commercial loans Consumer loans Total below market interest rate Discharged from bankruptcy Commercial loans Consumer loans Total discharged from bankruptcy Total restructurings 2021 2020 2019 Restructurings Restructurings Restructurings Number of loans Amortized cost at period end Number of loans Amortized cost at period end Number of loans Amortized cost at period end $ 17,847 19 1 20 97 2 18,144 23 106 129 97 80 177 32 96 128 454 6,717 8,803 15,520 17,082 3,188 20,270 5,955 3,675 9,630 $ 63,564 $ 28,145 ,169 31 6 37 26 66 92 98 156 254 30 186 216 599 $ 92,688 4 32,314 5,444 5,689 11,133 33,870 6,074 39,944 1,168 8,129 9,297 ,595 $ 1 ,018 11 7 18 16 2 18 42 90 176 266 25 178 203 505 $ 52,169 4 5,613 3,904 3 4,246 13,932 12,458 26,390 5,571 10,349 15,920 As of December 31, 2021, 2020 and 2019, the pre-modification and post-modification outstanding amortized cos t of loans modified as TDRs wer e not materially different. 105 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE F PREMISE S AND EQUIPMENT Major classifications of premise s and equipment at December 31, 2021 an d 2020 are summarized as follows: (Dollars in thousands) Land Premises and leasehol d improvements Furniture, equipment and software Total Less accumulated depreciation and amortization Total premises and equipment 021 Useful Life ( years) indefinite 3 -40 3 -10 2 $ 34,375 $ ,233,418 36,258 3 1,307,502 671,172 2,313,049 1,079,631 1 2020 $ 3 1,286,092 639,109 2,261,459 1,010,176 1 $ ,251,283 Depreciation and amortization expense wa s $106.6 million, $108.6 million and $103.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOTE G OTHE R REAL ESTATE OWNED The following table explains change s in other real estate owne d (“OREO” ) for the years ended Decembe r 31, 2021 an d 2020. (Dollars in thousands) Balance at January Additions Acquired in business combinations Sales Write-downs/losses Balance at December 31 1$ $ 9,328 2021 6,591 50,890 $ 4 27,755 — (35,703) (3,614) 3 $ ,813 0,890 2020 26,822 9 (26,726) (5,610) 5 At December 31, 2021 and 2020, BancShares had $2.3 million and $5.8 million, respectively, of foreclose d residential real estat e propert y in OREO. The recorded investment in consume r mortgage loans collateralized by residential rea l estate property in the process of foreclosure was $15.0 million and $29.4 million at Decembe r 31, 2021, and 2020, respectively. Gains recorded on the sal e of ORE O were $4.7 million, $1.6 million, and $1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOT E H GOODWIL L AND OTHE R INTANGIBLE ASSETS Goodwill BancShares ’ annua l impairment test, conducte d as of July 31 each year, or more frequently if events occur or circumstances change tha t may trigger a decline in the value of the reporting unit or otherwise indicate tha t a potential impairment exists, resulted in no indication of goodwill impairment. Subsequent to the annual impairment test, there were no events or changes in circumstances that would indicate goodwill should be tested for impairment during the interim period between annua l tests. No goodwill impairment was recorded during 2021 or 2020. The following table present s the change s in the carrying amount of goodwill for the years ending December 31, 2021 an d 2020: (Dollars in thousands) Balance at Januar y 1 Recognized in the Communit y Financial acquisition Measurement period adjustments(1) Other adjustment(2) Balance at December 31 (1) Adjustments relate d to Entegra PC D loans and divested deposits as well as th e deferred tax assets related to these items. (2) Immateria l adjustment related to deferred taxes associated with pensions. Year ended December 31 2021 $ 50,298 $ 46,064 3 3 2020 49,398 $ 86 14 — — (4,234) $ 50,298 3 3 6 2 — 106 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Othe r Intangible Assets Other intangible assets include mortgage servicing right s (“MSRs”) on loans sold to third parties wit h servicing retained, core deposit intangibles, which represent the estimated fai r value of acquired core deposit s and othe r customer relationships, and othe r intangible assets acquired, suc h as othe r servicing rights an d noncompete agreements. Mortgage Servicing Rights Our portfolio of residential mortgage loans serviced for third parties was $3.39 billion, $3.31 billion and $3.38 billion as of Decembe r 31, 2021, 2020 and 2019, respectively. The majority of these loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing right s retained. At December 31, 2020, a portion of the MSR s wer e related to originations by Entegra Financial Corp. an d its subsidiarie s (collectively, “Entegra”) prior to acquisition. These retained servicing right s are recorded as a servicing asset and reported in othe r intangible assets. The mortgage servicing right s are initially recorded at fai r valu e and the n carrie d at the lower of amortized cost or fai r market value. The amortization expense related to mortgage servicing right s is included as a reduction of mortgage income. The weighte d average expected lif e of the mortgage servicing rights established during 2021 is 5.6 years. The activity of the mortgage servicing asse t for the years ended December 31, 2021, 2020 and 2019 is presented in the following table: (Dollars in thousands) Balance at January Servicing rights originated Servicing rights acquired in Entegra transaction Amortization Valuation allowance decrease (increase) 2021 2020 2019 1$ 18,426 $ 2 2,963 10,556 — (8,727) 3,102 1,396 $ 2 8,006 — (8,400) (4,143) 18,426 6,149 1,873 (6,233) (222) Balance at December 31 The following table present s the activity in the servicing asse t valuation allowance for the years ended December 31, 2021, 2020 and 2019: 3,357 $ 2 2,963 2 $ $ (Dollars in thousands) Beginning balance Valuation allowance (decrease) increase Ending balance $ $ 2021 4 (3,102) 1 ,365 ,263 2020 2019 $ 22 $ ,365 2 4,143 4 $ $ 22 — 222 2 Valuation of mortgage servicing right s is performed using a pooling methodology. Similar loans are poole d togethe r and evaluated on a discounte d earnings basis to determine the present value of future earnings. Contractually specified mortgage servicing fees, late fee s and ancillary fee s earned for the years ended December 31, 2021, 2020 and 2019, were $8.6 million, $8.5 millio n and $7.9 million, respectively, and reported in mortgage income. Ke y economi c assumptions use d to value mortgage servicing rights as of December 31, 2021 and 2020, were as follows: 2021 2020 Discount rate - conventional fixed loans Discount rat e - all loans excluding conventional fixed loans Weighted average constant prepayment rate Weighted average cost to service a loan The discount rat e is based on the 10-yea r U.S. Treasur y rat e plus 700 basi s point s for conventional fixe d loans and 800 basis point s for al l othe r loans. The 700 and 800 basis point s are used as a risk premium when calculating the discount rate. The prepayment rat e is derived from the Publi c Securities Association Standard Prepayment model , which is compared to actual prepayment rates annually for reasonableness. The average cos t to servic e a loa n is based on the numbe r of loans serviced and the total costs to service the loans. .9 2 % .9 2 % 0.62 % 7.58 $ 8.51 9.51 15.69 8 % 7 % 8 % 2 8 7.58 $ Cor e Deposit Intangibles Core deposit intangibles represent the estimated fai r valu e of core deposit s and othe r customer relationships acquired. The y are being amortized on an accelerated basis over thei r estimated useful lives. 107 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following information relates to core deposit intangible assets, which are being amortized over thei r estimated useful lives: (Dollars in thousands) Balance at January Acquired in Community Financial transaction Amortization Balance at December 31 2021 2020 1 $ $ 8,719 29,667 $ — (10,948) 1 $ 9,667 43,386 536 (14,255) 2 The gross amount of core deposit intangible assets an d accumulated amortization as of Decembe r 31, 2021 and 2020, are: (Dollars in thousands) Gross balance Accumulated amortization Carrying value 2021 2020 $ 27,842 $ 8,719 1 (109,123) 1 $ 27,842 $ 9,667 1 (98,175) 2 Base d on current estimated useful lives and carrying values , BancShares anticipates amortization expense for core deposit intangibles in subsequent periods will be: (Dollars in thousands) 2022 2023 2024 2025 2026 and subsequent NOTE I DEPOSITS Deposit s at December 31, 2021 an d 2020 were as follows: $ 7 ,743 5,129 2,659 1,374 1,814 $ 8,719 1 thousands) with market interest accounts (Dollars in Demand Checking Money Savings Time Total deposits $ $ 1,404,808 8,014,029 2021 2 12,694,389 10,590,106 4,235,824 2,480,967 5 $ $ 2020 1 10,591,687 8,632,713 3,304,167 2,889,013 4 1,406,094 3,431,609 Time deposit s with a denomination of $250,000 or more were $593.0 million and $670.4 million at December 31, 2021 and 2020, respectively. At December 31, 2021, the scheduled maturities of tim e deposits were: in thousands) (Dollars 2022 2023 2024 2025 2026 and thereafter Total time deposits Year ended December 31 1,937,216 $ 225,370 81,558 56,970 179,853 2,480,967 $ As of December 31, 2021, FCB’s primary deposit markets are North Carolina and South Carolina, which represent approximately 50.8% an d 22.7%, respectively, of total FCB deposits. 108 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE J BORROWINGS Short-ter m Borrowings Short-term borrowings at December 31, 2021 an d 2020 are as follows: (Dollars in thousands) Securities sold under customer repurchase agreements 2021 2020 $ 41,487 5 89,101 $ 6 At December 31, 2021, BancShares had unuse d credit lines allowing contingent access to overnight borrowings of up to $556.0 million on an unsecure d basis. Additionally, under borrowing arrangements wit h the FR B of Richmond and FHL B of Atlanta, BancShares has access to an additional $12.87 billion on a secure d basis. Repurchas e Agreements BancShares utilizes securities sold under agreements to repurchas e to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShare s 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 pric e and interest rate. Thes e agreements are recorded at the amount of cash received in connection wit h the transaction an d are reflected as securities sol d under custome r repurchase agreements. BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable securit y and the counterparty’s fractional interest in tha t security, and segregates the securit y from general assets in accordance wit h regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market ris k associated with the investments securing the transactions, as additional collateral ma y be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintaine d with safekeepin g agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $619.1 million an d $689.3 million at December 31, 2021 an d December 31, 2020, respectively. At December 31, 2021, BancShares hel d $589.1 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $508.4 million collateralized by government agenc y securities and $80.7 million collateralized by commercial mortgage-backed securities. At December 31, 2020, BancShares hel d $641.5 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $432.8 million collateralized by government agenc y securities and $208.7 million collateralized by commercial mortgage-backed securities. Long-term Borrowings Long-term borrowings at December 31, 2021 an d 2020 include: subordinated subordinated subordinated subordinated subordinated subordinated payabl e to FHLBs March at (Dollars thousands) in Fixed-to-Floating Junior Junior Junior Junior Junior Junior Notes maturing Unsecured Obligations Unamortized Unamortized Other through term under issuance purchase debt long-term loan 3.375% notes at subordinated LIBOR 3-month at debenture LIBOR 3-month at debenture 3-month at debenture LIBOR 3-mont h LIBOR at debentures maturing 7.00% at debentures maturing 6.50% at debentures of Chicago and Atlanta 2032 1-month LIBOR maturing 1.75% plus 2.25% plus 2.85% plus plus 2.80% December October rates with plus extending maturing 1.10% to December leases capitalized costs accounting adjustments 2,283) March 2030 15, maturing maturing maturing maturing 31, 2026(2) 1, 2025(3) ranging 30, 2036(1) 15, 2034(1) 7, 2034(1) June June April March 30, 2034(1) from 0.75% to 2.99% and September 5, 2022 2050 2021 2020 50,000 $ 3 50,000 $ 3 88,145 19,588 10,310 14,433 — — 0,000 ,500 644,659 67,825 4,311 (2,629) ( 19 88,145 19,588 10,310 14,433 2 7 655,175 82,125 6,308 (3,459) (1,999) 37 Total long-term obligations (1) Obligations to capital and grantor trusts for trust preferred securities (2) Assumed in HomeBancorp acquisition. (3) Assumed in Biscayne BancShares acquisition. 109 ,194,378 $ 1 $ ,248,163 1 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On March 4, 2020, BancShares completed it s publi c offering of $350 million aggregat e principa l amount of it s 3.375% Fixed- to-Floating Rate Subordinate d Notes due 2030 and redeemabl e at the option of BancShares starting with the interes t payment due March 15, 2025, subjec t to obtaining the prior approva l of the Federal Reserv e to the extent such approva l is then required under th e rules of the Federa l Reserve , or earlier upon th e occurrence of certain events. At December 31, 2021 and 2020, BancShares hel d $132.5 million in junior subordinated debenture s representing obligations to FCB/N C Capital Trust III, FCB/S C Capital Trust II, SC B Capital Trust I and Macon Capita l Trust I special purpose entities and grantor trusts (the “Trusts” ) for trust preferred securities. The Trusts had outstanding trust preferred securities of $128.1 million and $128.5 million at Decembe r 31, 2021 and 2020 respectively, which ma y be redeemed at par in whole or in part at any time, in accordance wit h the applicabl e transaction documents. BancShares has guaranteed al l obligations of it s subsidiaries, FCB Capita l Trust III and FCB/S C Capital Trust II. FC B has guaranteed al l obligations of it s trust subsidiaries, SC B Capital Trust I and Macon Capita l Trust I, which was acquire d from Entegra during the fourth quarter of 2019 and has a related obligation of $14.4 million. Long-term borrowings maturing in each of th e fiv e years subsequent to December 31, 2021 an d thereafte r include: thousands) in (Dollars 2022 2023 2024 2025 2026 Thereafter Total long-term borrowings NOTE K FDIC SHARED-LOSS PAYABLE 2,735 Year ended December 31 $ 8 125,500 5,771 — 2,649 977,723 $ ,194,378 1 Prior to 2020, certain consume r loans were “covere d loans” for whic h BancShares wa s eligible fo r reimbursement for a portion of certain future losses wit h indemnifications provide d by the FDIC under loss share agreements (“LSAs”). The LSA s for two FDIC-assiste d transactions included provisions related to payment s owe d to the FDIC at the termination of the agreements if actua l cumulative losses on covered assets are lower tha n originally estimate d by the FDIC at the time of acquisition (“Clawback Liability”). Al l of the LSA s relate to transactions tha t occurre d prior to 2020 and have since expired. There was no Clawback Liability remaining at December 31, 2021 as FC B remitted th e fina l payment of $16.1 million to the FDIC during the firs t quarter of 2021. At Decembe r 31, 2020, the estimated Clawback Liability wa s $15.6 million following a payment of $99.5 million to the FDIC during th e first quarter of 2020. The following table include s the changes in th e FDIC shared-loss payabl e for th e years ende d December 31, 2021 and 2020. in thousands) balance (Dollars Beginning Accretion Payment made to the FDIC to settle shared-loss agreement Ending balance 2021 2020 5,601 $ 1 $ 12,395 $ 1 502 (16,103) — $ 1 2,674 (99,468) 5,601 NOTE L REGULATORY REQUIREMENTS, DIVIDENDS FROM SUBSIDIARIES BancShare s and FC B are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet capital requirements ca n initiat e certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, coul d have a direct material effect on the BancShares ’ Consolidate d Financia l Statements. Certai n activities, such as the ability to undertake new busines s initiatives, including acquisitions, the access to and cost of funding for new busines s initiatives, the abilit y to pay dividends, the abilit y to repurchase shares or othe r capital instruments, the level of deposit insuranc e costs, an d the level and nature of regulatory oversight , largel y depend on a financia l institution’s capita l strength. Federa l banking agencies approved regulatory capital guidelines (“Base l III”) aimed at strengthening previous capital requirement s for banking organizations. Basel III becam e effective for BancShares on January 1, 2015 and the associated 110 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) capital conservation buffers of 2.5% were full y phased in by January 1, 2019. The following table includes the Base l III requirement s for regulatory capita l ratios. Basel III Minimums Basel III Conservation Buffers Basel III Requirements Regulatory capital ratios Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverage .50 .50 8.00 6.00 4 4.00 0.50 % 1 %2 % 2.50 2.50 — .00 8.50 7.00 4 The FDIC also has Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios . The regulatory capital ratios for BancShare s and FC B are calculate d in accordance with the guidelines of the federal banking authorities. The regulatory capital ratio s for BancShares an d FCB exceed the Basel II I requirements and the PC A well-capitalize d thresholds as of Decembe r 31, 2021 and 2020 as summarized in the following table. (Dollars in thousands) BancShares Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverage .00 FCB Total risk-based capital Tier 1 risk-based capital Common equity Tier 1 Tier 1 leverage .00 Basel III Requirements PCA well- capitalized thresholds Amount Ratio Amount Ratio December 31, 2021 December 31, 2020 10.50 8.50 7 4.00 10.50 8.50 7 4.00 0.00 % % 1 $ 5,041,686 8.00 6.50 5.00 8.00 6.50 5.00 0.00 % 1 4,380,452 4,040,515 4,380,452 4,857,960 4,651,226 4,651,226 4,651,226 14.35 % $ 4,577,212 12.47 11.50 7.59 3,856,086 3,516,149 3,856,086 13.85 13.26 13.26 8.07 4,543,496 4,276,870 4,276,870 4,276,870 13.81 % 11.63 10.61 7.86 13.72 12.92 12.92 8.72 At December 31, 2021, BancShare s and FC B had total risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively, which are in excess of the full y phased in Basel III conservation buffer of 2.50%. The capital ratio conservation buffers represent th e excess of the regulatory capita l ratio as of Decembe r 31, 2021 over th e Basel III minimum. At December 31, 2021, Tier 2 capital of BancShares included $128.1 million of trust preferred capital securitie s and $350.0 million of qualifying subordinated debentures, compare d to $128.5 million of trust preferred capital securitie s and $377.5 million of qualifying subordinated debenture s included at December 31, 2020. BancShares has Class A and Class B common stock. Class A common shares have one vote per share , while Class B common shares have 16 vote s per share. Preferred Stock On March 12, 2020, the Parent Company issue d and sold an aggregat e of 13,800,000 depositary shares (the “Depositary Shares”), each representing a 1/40t h interest in a share of 5.375% Non-Cumulative Perpetual Preferred Stock, Serie s A, par value $0.01 per share (the “Serie s A Preferre d Stock”), with a liquidation preferenc e of $25 per Depositary Share (equivalent to $1,000 per share of the Series A Preferred Stock) for a total of $345 million. The Series A Preferred Stock qualifies as Tier 1 regulatory capital. Dividends on the Series A Preferred Stock will be pai d when, as, and if declared by the Board of Directors of the Parent Company, or a duly authorized committee thereof, to the extent tha t the Parent Company has lawfull y available funds to pay dividends. If declared, dividends wil l accrue and be payable from the dat e of issuance at a rate of 5.375% per annum , payable quarterl y in arrears on March 15, June 15, Septembe r 15, and Decembe r 15 of eac h year, beginning on June 15, 2020. Dividends on the Series A Preferre d Stock will not be cumulative. BancShares ma y redeem th e Series A Preferred Stock at it s option, and subjec t to any required regulatory approval, at a redemption pric e equa l to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpai d dividends to, but excluding, the redemption date, (i) in whole or in part , from time to time , on any dividend payment dat e on or after March 111 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15, 2025, or (ii ) in whole but not in part , at any time withi n 90 days following a regulatory capital treatment event (as defined in the Certificat e of Designation for the Serie s A Preferre d Stock). Dividends FCB to the Parent Company Dividends pai d from FC B to the Parent Company are the primary sourc e of funds availabl e to the Parent Company for payment of dividends to it s shareholders . The Board of Directors of FC B may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provide d tha t the distributions do not reduc e the regulatory capital ratio s below the applicable requirements. FC B coul d have pai d additiona l dividends to the Parent Company in the amount of $1.35 billion while continuing to meet the requirement s for well-capitalized banks at December 31, 2021. Dividends declared by FC B and pai d to the Parent Company amounte d to $173.1 million in 2021, $229.7 million in 2020 and $149.8 million in 2019. Payment of dividends is made at the discretion of FCB’s Board of Directors and is contingent upon satisfactory earnings as well as projected capita l needs. Restrictions on Cash and Overnigh t Investments Effective March 26, 2020, the Federa l Reserv e Board suspended the cash reserve requirement. BancShares’ overnight investment s of $75 million in U.S. Bank Money Marke t accounts require a 30-da y notice for withdrawal. NOT E M ACCUMULATED OTHE R COMPREHENSIVE INCOME (LOSS) Accumulate d othe r comprehensive income (loss ) include d the following at Decembe r 31, 2021 and 2020: December 31, 2021 December 31, 2020 Accumulated other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax Accumulated other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax $ 11,792) $ ( (Dollars in thousands) Unrealized (losses) gains on securities available for sale Unrealized (losses) gains on securities available for sale transferred to held to maturity Defined benefit pension items Total The following table highlights changes in accumulate d othe r comprehensive incom e (loss ) by component for the years ended Decembe r 31, 2021 and 2020: 4,157 (70,648) 2,263 1 (6,726) 25,582 9 5,399 (91,751) 1,242 (21,103) (8,735) 33,223 (2,009) 7,641 9,080) ( 02,278 $ 1 5,926 $ 1 8,754 $ 7 2,712) ( 3,524 $ 2 $ 2 ,663 ,920 ,776 2,696 $ 1 $ $ 3 $ $ (Dollars in thousands) Balance at Januar y 1, 2020 Net unrealized gains arising during period Amounts reclassified from accumulated other comprehensive loss Net current period othe r comprehensive income Balance at December 31, 2020 Net unrealized (losses) gains arising during the period Amounts reclassified from accumulated other comprehensive income Net current period othe r comprehensive (loss) income Unrealized gains (losses) on securities available-for- sale(1) 5 119,357 ,792 $ Unrealized gains (losses) on securities available for sale transferred to held to maturity(1)(2) $ — $ 4,538 (46,395) 72,962 78,754 (62,332) (381) 4,157 4,157 (9,747) (25,502) (87,834) 9,080) ( (1,136) (10,883) ( Defined benefit pension items(1) 132,515) ( Total $ (126,723) 42,367 166,262 19,500 61,867 (70,648) 75,368 20,862 96,230 (27,276) 138,986 12,263 3,289 (5,776) (2,487) Balance at December 31, 2021 (1) All amounts are net of tax. Amounts in parentheses indicate other comprehensive losses, which are debits or decreases to equity. (2) Unrealized gains (losses) related to the reclassification of investment securities from available for sale to held to maturity. Refe r to Note C, Investments, for additional information. 5,582 $ 2 6,726) ,776 $ 9 $ $ 112 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table present s the amounts reclassified from accumulated othe r comprehensive income (loss) and the line item affected in the Consolidated Statements of Incom e for years ende d December 31, 2021 and 2020: (Dollars in thousands) Year ended December 31, 2021 Amount reclassified from accumulated other comprehensive income (loss)(1) Affected lin e ite m in the Consolidated Statements of Income Details abou t accumulated other comprehensive income (loss) Unrealized gains on available for sale securities Net accretion of unrealized gains (losses) on securities available for sale transferred to held to maturity $ 3,119 $ 5,502 $ ,475 $ ,136 Amortization of actuarial losses on define d benefit pension items 27,093) $ ( Realized gains on investment securities available for sale, net 3 (7,617) Income taxes 2 Net interest income 1 (339) Income taxes 1 Other noninterest expense Income taxes 6,231 Total reclassifications for the period $ $ 20,862) ,776 ( 5 Details abou t accumulated other comprehensive (loss) income Unrealized gains on available for sale securities Amortization of unrealized losses on securities available for sale transferred to held to maturity Amortization of defined benefit pension items Actuarial losses Year ended December 31, 2020 Amount reclassified from accumulated other comprehensive income (loss)(1) Affected lin e ite m in the statement where net income is presented $ 0,253 $ 6,395 $ 95 $ 81 Realized gains on investment securities available for sale, net 6 (13,858) Income taxes 4 Net interest income 4 (114) Income taxes 3 (25,324) Other noninterest expense Income taxes 5,824 Total reclassifications for the period (1) Amounts in parentheses represent decreases to net income. $ $ 19,500) 7,276 ( 2 NOTE N OTHE R NONINTEREST INCOM E AND OTHER NONINTERES T EXPENSE Other noninterest income for the years ended December 31, 2021, 2020 and 2019 wa s $9.4 million, $7.4 million and $18.4 million, respectively. Prior to the adoption of ASC 326 on January 1, 2020, the most significant item in othe r noninterest income was recoveries on PC I loans previously charged-off. BancShares recorded the portion of recoveries related to loans and lease s written off prior to the closing of an acquisition as noninterest income rather than as an adjustment to the allowance for loan losses. These recoveries were $17.4 million for the yea r ended December 31, 2019. Following the adoption of ASC 326, these recoveries are recorded as an adjustment to the ACL. Othe r noninterest income also includes income from bank owned life insurance , FHLB dividends and othe r various income items. 113 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other noninterest expens e for th e years ende d December 31, 2021, 2020 and 2019 included th e following: (Dollars in thousands) Core deposit intangible amortization Consultant expense Advertising expense Telecommunications expense Other Total other noninterest expense 0,948 $ 1 2021 2020 2019 $ 1 4,255 12,507 9,763 12,714 83,594 $ 1 6,346 12,751 10,010 12,179 95,922 12,801 11,437 9,391 89,308 29,526 $ 1 45,117 $ 1 39,283 $ 1 Other expens e consists of miscellaneous expenses including travel, postage, supplies , appraisa l expense an d othe r operational losses. Advertising expense related to non-direc t response advertisements ar e expensed as incurred. NOT E O INCOME TAXES At December 31, 2021, 2020 and 2019 incom e tax expense consisted of th e following: (Dollars in thousands) Current tax expense Federal State Total current tax expense Deferred tax (benefit) expense Federal State Total deferred tax (benefit) expense Total incom e tax expense 2021 2020 2019 $ 1 40,405 21,383 161,788 $ 37,162 1 $ 8,984 14,532 151,694 (6,234) (1,352) (7,586) (28,535) 3,000 (25,535) 26,159 1 $ $ 54,202 1 $ 34,677 1 6 11,095 80,079 50,522 4,076 54,598 Incom e tax expense differed from the amounts computed by applying the statutory federal income tax rate of 21% to pretax income as a result of th e following: (Dollars in thousands) Income taxes at federal statutory rates Increase (reduction) in income taxes resulting from: Nontaxable incom e on loans, leases and investments, net of nondeductible expenses Excess tax benefits of compensation State and loca l income taxes, including any change in valuation allowance, net of federal income tax benefit Tax credits net of amortization Repayment of claim of right income Other, net Total incom e tax expense 2021 47,349 1 $ 29,755 $ 1 2020 2019 24,330 1 $ (1,523) 1,507 15,825 (5,078) (2,254) (1,624) (1,581) 1,146 13,850 (5,367) (13,926) 2,282 (1,639) 1,070 11,985 (4,474) — 3,405 $ 54,202 1 $ 26,159 1 $ 34,677 1 114 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e net deferred ta x liability included the following components at December 31, 2021, and 2020: (Dollars in thousands) Allowance for credit losses Operating lease liabilities Executive separation from service agreements Net operating loss carryforwards Net unrealized loss included in accumulated other comprehensive income (loss) Accelerated depreciation Employee compensation Other reserves Other Deferred tax asset 9,759 Accelerated depreciation Lease financing activities Operating lease assets Net unrealized gain on securities included in accumulated other comprehensive income (loss) Net deferred loan fees and costs Intangible assets Security, loan and debt valuations FDIC assisted transactions timing differences Pension assets Other Deferred tax liability Net deferred tax liability $ 2021 2020 $ 3 $ 5 2,293 14,267 7,835 7,843 4,630 3,645 18,860 6,135 5,845 108,819 — 7,725 13,996 — 14,662 14,257 5,960 — 64,068 20,998 141,666 32,847) ( 15,737 8,989 9,545 — — 16,083 5,376 6,898 114,921 1 15,265 15,670 2 13,975 13,012 2,051 2 44,549 10,193 156,949 42,028) ( 4,984 4,857 ,393 $ At December 31, 2021, the gross ta x benefit related to net operating loss carryforwards wa s $34.7 million and $15.9 million related to federal and state taxes , respectively . The carryforwards expire in years beginning in 2030 and 2024 for federal and state taxes , respectively. The net operating losses were obtained through various acquisitions and are subject to the annual limitations set forth by Internal Revenue Code Section 382. No valuation allowance was necessary as of December 31, 2021 or 2020 to reduce BancShares’ gross deferre d tax asset to the amount more likely than not to be realized. Incom e tax expense for 2021 and 2020 was favorably impacted by $2.3 million and $13.9 million, respectively, due to BancShares ’ decision in the second quarter of 2020 to utilize an allowable alternative for computing it s 2021 and 2020 federal income ta x liability . The allowable alternative provide s BancShares the ability to use the federal income ta x rate fo r certain curren t yea r deductible amounts related to prior yea r FDIC-assiste d acquisitions tha t was applicable when these amounts were originally subjected to tax. BancShares regularly adjusts its net deferred tax liability as a resul t of changes in tax rates in the state s where it file s tax returns. These changes in ta x rates did not have a materia l impact on ta x expense in 2021, 2020 or 2019. BancShares federal income ta x return s for 2018 through 2020 remain open for examination by the Internal Revenue Service. Generally, BancShares is no longe r subjec t to examination by state and loca l taxing authorities for taxable years prior to 2016. The following table provide s a roll forward of BancShares ’ gross unrecognized ta x benefits, excluding interest and penalties, during th e years ende d December 31, 2021, 2020 and 2019: (Dollars in thousands) Unrecognized tax benefits at the beginning of the year Additions (reductions) related to tax positions taken in prior year Additions related to tax positions taken in current year Settlements Reductions related to lapse of statute of limitations 1,375 $ 3 $ 3 2,226 (321) 1,373 (1,601) (394) Unrecognized tax benefits at the end of the year $ 0,432 3 $ 1,375 Al l of the unrecognized tax benefits, if recognized, would affec t BancShares’ effective ta x rate. 115 2021 2020 2019 8,255 153 1,295 (1,516) (783) 2,226 3 $ 2 $ 3 (683) 6,554 — (1,900) FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BancShare s has unrecognized ta x benefit s relating to uncertain state ta x positions in North Carolina and othe r state jurisdictions resulting from ta x filings submitted to the states. No ta x benefit has bee n recorded for these uncertain ta x positions in the consolidated financial statements . It is reasonabl y possible that thes e uncertain state ta x positions will be either settled or resolve d in the next twelve months. A range of the reasonabl y possible change cannot be made. BancShares recognizes accrue d interest and penalties related to unrecognized ta x benefit s in income ta x expense . Accruals and releases of interest and penalties resulte d in a benefit of $381 thousand and $135 thousand for the years ended December 31, 2021 and 2019, respectively, and an expense of $467 thousand for the yea r ended December 31, 2020. BancShares had $515 thousand and $896 thousand accrued for th e payment of interest and penalties as of Decembe r 31, 2021 and 2020, respectively. NOT E P ESTIMATED FAI R VALUES Fai r value represent s the pric e tha t would be received to sel l an asset or pai d to transfe r a liability in an orderl y transaction between market participants as of the measurement date. BancShares estimates fai r value using discounte d cas h flows or other valuation techniques when there is no active market for a financial instrument . Inputs used in these valuatio n techniques are subjective in nature, involve uncertaintie s and require judgment . Therefore , the derived fai r valu e estimates presented below are not necessaril y indicative of th e amount s BancShares would realize in a current marke t exchange. Assets and liabilities are recorded at fai r valu e accordin g to a fai r value hierarchy comprised of thre e levels. The level s are based on the market s in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fai r valu e hierarchy for an asse t or liability is based on the lowest level of input significant to the fair value measurement wit h Level 1 input s considered highest and Level 3 inputs considere d lowest. A brie f description of each input level follows: • Level 1 input s are quoted price s in activ e markets for identica l assets and liabilities. • • Level 2 input s are quote d prices for simila r assets or liabilities in active markets, quote d prices for identical or similar assets or liabilities in market s tha t are not active and input s othe r tha n quote d prices observabl e for the assets or liabilities and marke t corroborated inputs. Level 3 input s are unobservabl e input s for the asse t or liability. These unobservabl e input s and assumptions reflec t the estimates marke t participants would use in pricing the asse t or liability. BancShares ’ management reviews any changes to it s valuation methodologies to ensure the y are appropriate and supportable, and refines valuation methodologies as more market-based dat a become s available. Transfers between level s of the fai r value hierarchy are recognized at th e end of the reporting period. The methodologie s used to estimat e the fair value of financial assets and financia l liabilitie s are discusse d below. Investment securitie s availabl e for sale . The fai r valu e of U.S. Treasury, government agency, mortgage-backed and municipal securities and a portion of our corporate bonds are generally estimated using a third-part y pricing service. To obtain an understanding of the processe s and methodologies used, management reviews correspondence from the third-party pricing service. Management also perform s a pric e varianc e analysis process to corroborate the reasonableness of prices. The third- part y provide r evaluate s securities based on comparable investment s with trades and market dat a and will utilize pricing models which use a variet y of inputs, such as benchmark yields, reporte d trades, issuer spreads, benchmark securities, bids and offers as needed. These securities ar e generally classifie d as Level 2. The remaining corporate bonds hel d are generally measured at fair value based on indicative bids from broker-dealers using input s tha t are not directly observable. These securities ar e considered Level 3. Marketable equit y securities. Equit y securities are measured at fai r valu e using observabl e closing prices. The valuatio n also considers the amount of market activity by examining the trade volum e of eac h security. Equity securitie s are classifie d as Level 1 if they ar e trade d in an activ e marke t and as Level 2 if the observable closing pric e is from a less than active market. Loans hel d for sale. Certain residentia l rea l estate loans originated to be sold to investors are carrie d at fai r value based on quote d market prices for simila r type s of loans. Accordingly, the inputs used to calculate fai r valu e of originated residentia l real estate loans hel d for sal e are considered Level 2 inputs. Loans held for investment subsequentl y transferre d to hel d for sal e are carrie d at the lowe r of cost or market. The fai r values fo r the transferred loans are based on quote d prices from the purchase commitment s for th e individua l loans being transferred an d are considere d Level 1 inputs. 116 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net loans and lease s (Non-PC D and PCD). Fai r value is estimated based on discounted future cash flows using the current interest rates at which loans wit h similar terms would be made to borrowers of simila r credit quality. The inputs use d in the fair value measurements for loans and leases are considered Leve l 3 inputs. FHLB stock. The carrying amount of FHL B stock is a reasonable estimat e of fai r value, as thes e securities are not readily marketabl e and are evaluated for impairment based on the ultimate recoverabilit y of the par value. BancShare s considers positive and negative evidence, including the profitability and asse t qualit y of the issuer, dividend payment history and recent redemption experience , when determining the ultimate recoverabilit y of the par value. BancShares’ investment in FHL B stock is ultimatel y recoverable at par. Th e inputs use d in the fair value measurement for FHL B stock ar e considere d Level 2 inputs. Mortgage and othe r servicing rights. Mortgage and othe r servicing right s are initiall y recorded and fai r value and subsequently carrie d at the lower of amortize d cost or market . Therefore , servicing right s are carried at fair value only when fai r value is less than th e amortize d cost. The fai r valu e of mortgage and othe r servicing right s is performed using a pooling methodology. Simila r loans are poole d togethe r and a mode l which relie s on discount rates, estimates of prepayment rates and the weighted average cost to servic e the loans is used to determine the fai r value. The inputs used in the fai r valu e measurement for mortgage and other servicing right s are considere d Level 3 inputs. Deposits. For deposit s with no stated maturity, the carrying value is a reasonabl e estimate of fai r value. The fai r valu e of time deposit s is estimated by discounting future cash flows using the interest rates currently offere d for deposit s of simila r remaining maturities. The input s used in th e fai r value measurement for deposit s are considere d Level 2 inputs. Borrowings. For borrowings, the fai r values ar e determine d based on recent trade s or sale s of the actual security, if available. Otherwise, fai r values are estimate d by discounting future cash flows using current interest rates for simila r financial instruments. The inputs used in the fai r valu e measurement for FHL B borrowings, subordinated debentures, and other borrowings ar e considere d Level 2 inputs. Payable to the FDIC for shared-loss agreements. The fai r value of the payable to th e FDIC for shared-loss agreement s is determine d by the projected cash flows based on expected payment s to the FDIC in accordance wit h the shared-loss agreements. Cas h flows are discounte d using current discount rates to reflec t the timin g of the estimated amounts due to the FDIC . The input s used in th e fai r value measurement for the payable to th e FDIC are considered Leve l 3 inputs. Off-balance-sheet commitment s and contingencies. Carrying amounts are reasonable estimates of the fai r values fo r such financia l instruments. Carrying amounts include unamortize d fee incom e and, in some cases, reserve s for any credit losse s from those financia l instruments. These amounts are not material to BancShares ’ financial position. For al l othe r financial assets and financial liabilities , the carrying value is a reasonabl e estimate of the fai r valu e as of Decembe r 31, 2021 and 2020. The carrying value and fai r value for these assets and liabilities are equivalent becaus e they are relatively short-term in nature and there is no interest rat e or credit ris k that would cause the fai r value to diffe r from the carrying value. Cas h and due from banks is classifie d on the fai r valu e hierarchy as Level 1. Overnight investments, income earned not collected an d accrue d interest payable are considered Leve l 2. 117 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e table below present s the carrying values and estimate d fai r values for financial instruments as of Decembe r 31, 2021 and 2020. (Dollars in thousands) Assets Cash and due from banks Overnight investments Investment securities available for sale Investment securities held to maturity Investment in marketable equity securities Loans held for sale Net loans and leases Income earned not collected Federal Home Loan Bank stock Mortgage and other servicing rights Liabilities Deposits with no stated maturity Time deposits Securities sold under customer repurchase agreements Federal Home Loan Bank borrowings Subordinated debt Other borrowings FDIC shared-loss payable Accrued interest payable December 31, 2021 December 31, 2020 Carrying value Fair value Carrying value Fair value 37,814 $ 3 37,814 $ 3 62,048 $ 3 62,048 $ 3 9,114,660 9,203,427 3,809,453 97,528 98,741 32,193,029 134,237 40,450 23,797 48,925,127 2,480,967 589,101 644,659 477,564 72,155 — 7,922 9,114,660 9,203,427 3,759,650 97,528 98,741 31,889,594 134,237 40,450 23,784 48,925,127 2,471,116 589,101 654,694 495,483 72,476 — 7,922 4,347,336 7,014,243 2,816,982 91,680 124,837 32,567,661 145,694 45,392 19,628 40,542,596 2,889,013 641,487 655,175 504,518 88,470 15,601 9,414 4,347,336 7,014,243 2,838,499 91,680 124,837 33,298,166 145,694 45,392 20,283 40,542,596 2,905,577 641,487 677,579 525,610 89,263 15,843 9,414 118 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Among BancShares ’ asset s and liabilities , investment securitie s available for sale, marketable equity securities and loans held for sale are reported at thei r fai r values on a recurring basis. For assets and liabilities carrie d at fair value on a recurring basis, the following table provide s fair value information as of Decembe r 31, 2021 and 2020. (Dollars in thousands) Assets measured at fair value Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Corporate bonds Total investment securities available for sale Marketable equit y securities Loans held for sale 8,741 $ $ $ Fair value December 31, 2021 Fair value measurements using: L evel 3 evel L 2 Level 1 2 ,004,970 $ 798,760 4,728,413 1,062,749 608,535 9,203,427 $ $ 7,528 9 9 7 4 ,004,970 — $ 2 98,760 — ,728,413 4 — ,062,749 1 — 01,133 — — $ 8 ,996,025 $ 8,741 — 4,006 6 9 $ $ — — — — 207,402 2 07,402 $ — — 3,522 3 Assets measured at fair value Investment securities available for sale U.S. Treasury Government agency Residential mortgage-backe d securities Commercial mortgage-backed securities Corporate bonds Total investment securities available for sal Marketable equit y securities 24,837 Loans held for sale Fair value 99,933 $ 4 e $ $ 9 1,680 $ 701,391 4,438,103 771,537 603,279 7,014,243 $ $ 3 2,855 1 December 31, 2020 Fair value measurements using: 2L el evel 3 ev L Level 1 99,933 — $ 4 — 01,391 — ,438,103 4 — 71,537 — 86,655 ,697,619 — $ 6 $ 5 8,825 24,837 — 7 7 2 1 $ 16,624 $ 3 $ — — — — 316,624 — — During the yea r ended Decembe r 31, 2021, $102.1 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availabilit y of additional observabl e input s for those securities. During the yea r ended Decembe r 31, 2020, $1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lac k of observable input s and trade activity for those securities. The following table summarizes activity for Level 3 assets for the years ended December 31, 2021 an d 2020: 2021 2020 Corporate bonds Corporate bonds 16,624 $ 3 9,685 $ 6 30,878 6,391 2,555 — (102,065) ( 07,402 2 $ ,782 $ 16,624 3 242,595 2,898 (336) 1 — — (Dollars in thousands) Beginning balance Purchases Unrealized net losses (gains) included in other comprehensive income Amount s included in net income Transfers in Transfers out Sales / Calls Ending balance 46,981) 119 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table present s quantitative information about Level 3 fai r value measurements for fair value on a recurring basis at Decembe r 31, 2021. (Dollars in thousands) Level 3 assets Valuation technique Corporate bonds Indicative bid provided by broker Fai r Value Option Decembe r 31, 2021 Significant unobservabl e input Multipl e factors, including but not limited to, current operations, 07,402 financial condition, cash flows, and recentl y executed financing transactions relate d to the issuer $ 2 Fai r Value BancShare s has electe d the fai r value option for residential rea l estate loan s originated for sale . Thi s electio n reduces certain timing differences in the Consolidated Statements of Incom e and bette r aligns with the management of the portfolio from a busines s perspective. The change s in fai r value are recorded as a component of mortgage incom e and were losse s of $3.0 million for the yea r ended Decembe r 31, 2021, and gains of $3.9 million and $289 thousand for the years ended Decembe r 31, 2020 and 2019, respectively. The following table summarizes the differenc e betwee n the aggregat e fai r value and th e unpaid principal balanc e for residential rea l estat e loans originated for sale measure d at fai r value as of Decembe r 31, 2021 and 2020. (Dollars in thousands) Originated loans held for sal e $ Fai r Value 5,852 98,741 $ 9 Decembe r 31, 2021 Unpai d Principal Balance ,889 Originated loans held for sal 18,902 e$ Fai r Value $ 1 124,837 December 31, 2020 Unpai d Principal Balance Difference $ 2 Difference $ 5 ,935 N o originated loans hel d for sale were 90 or more days past due or on non-accrua l status as of Decembe r 31, 2021 or Decembe r 31, 2020. Certain othe r asset s are adjusted to their fai r value on a non-recurring basis, including certain loans, OREO , and goodwill, whic h are periodically teste d for impairment, and mortgage servicing rights, whic h are carried at the lower of amortize d cos t or market . Most loans hel d for investment , deposits, an d borrowings are not reported at fair value. Following the adoption of ASC 326 on January 1, 2020, the population of loans measured at fai r valu e on a non-recurring basis has greatl y diminished and is limite d to collateral-dependent loans evaluated individually. Collatera l values are determined using appraisal s or othe r third-part y value estimate s of the subject propert y discounted based on estimate d selling costs, typicall y between 5% and 10%, and immateria l adjustments for othe r externa l factors that ma y impact th e marketability of the collateral . At Decembe r 31, 2021, the weighted average discount for estimated selling costs applie d was 9.00%. OREO is carrie d at the lower of cost or fai r value. OREO asse t valuations are determine d by using appraisal s or othe r third- part y value estimate s of the subject propert y with discounts, generally between 6% and 15%, applie d for estimate d selling costs and othe r externa l factors that ma y impact th e marketability of the property. At December 31, 2021, the weighte d average discount applied was 8.79%. Change s to the value of the assets betwee n schedule d valuation dates are monitore d through continue d communication with brokers and monthly reviews by the asset manage r assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordere d to ensure the reported value s reflect the most current information. Mortgage servicing right s are carrie d at the lower of amortize d cost or market and are , therefore , carrie d at fair value only when fai r value is less than amortize d cost. The fai r valu e of mortgage servicing right s is determined using a pooling methodology. Simila r loans are poole d togethe r and a discounted cash flow model , which takes into consideration discount rates , prepayment rates, and th e weighte d average cost to servic e the loans, is used to determine th e fai r value. 120 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For financial assets carrie d at fair value on a non-recurring basis, the following table provide s fai r value information as of Decembe r 31, 2021 and December 31, 2020. Decembe r 31, 2021 ,, Fair value measurements using: L 1 L Level 2 evel — $ 3 ,099 — — 3 34,211 21,731 Decembe r 31, 2020 , Fair value measurements using: L 1 L 2 Level evel — $ — — evel — $ — — evel 3 — $ 1 1,779 — — (Dollars in thousands) Collateral-dependent loans Other real estate remeasured during the year Mortgage servicing rights Fair value ,099 $ 3 $ 34,211 21,731 Fair value Collateral-dependent loans Other real estate remeasured during the year Mortgage servicing rights No financia l liabilitie s wer e carried at fair value on a non-recurring basis as of Decembe r 31, 2021 and Decembe r 31, 2020. 40,115 16,966 40,115 16,966 1,779 $ 1 $ NOTE Q EMPLOYE E BENEFIT PLANS sponsors benefit plans for it BancShare s s qualifying employees and forme r employees of Bancorporation, Inc. (“Bancorporation”). The plans include noncontributory defined benefit pension plans, a 401(k) savings pla n and an enhanced 401(k) savings plan. These plans are qualified under the Internal Revenue Code . BancShare s als o maintains agreement s with certain executives providing supplemental benefit s paid upon deat h or separation from service at an agreed-upon age. Defined Benefi t Pension Plans BancShares employee s who wer e hire d prior to April 1, 2007 and qualified under length of servic e and othe r requirement s are covered by the FCB-North Pension Pla n (the “BancShares Pension Plan”), which wa s closed to new participant s as of April 1, 2007. Discretionary contributions of $32 thousand were made to the BancShare s Pension Pla n in 2021, while discretionary contributions of $80 million were made in 2020. Certain legacy Bancorporation employee s tha t qualifie d under lengt h of servic e and othe r requirement s are covere d by the FCB- South Pension Pla n (the “Bancorporation Pension Plan” and togethe r wit h the BancShare s Pensio n Plan, the “Plans”), which was closed to new participant s as of Septembe r 1, 2007. There were no discretionary contributions made to the legacy Bancorporation Pension Plan for 2021, while discretionary contributions were $20 million in 2020. Participant s in the Plans were full y vested afte r five years of service. Retirement benefit s are based on years of servic e and highest annua l compensation for five consecutive years during the last ten years of employment . BancShares makes contributions to the Plans in amounts between the minimum required for funding and the maximum amount deductible for federal incom e tax purposes. Management evaluate s the nee d for it s contributions to the Plans on a periodic basis based upon numerous factors including, but not limite d to, funded status, returns on pla n assets, discount rates an d the current economic environment. The following table s and disclosures are on a combined basis as the Plans have th e sam e term s in both form and substance. 121 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Obligations and Funded Status The following table provide s the change s in benefit obligation and pla n asset s and the funded status of the Plans at December 31, 2021 and 2020. (Dollars in thousands) Change in benefit obligation Projected benefit obligation at January 1 Service cost Interest cost Actuarial (gains)/losses Benefits paid Projected benefit obligation at December 31 Change in plan assets Fair value of plan asset s at January 1 Actual return on pla n assets Employer contributions Benefits paid Fair value of plan asset s at December 31 Funded status at December 31 2021 2020 ,077,653 $ 1 15,35 29,864 (30,591) (35,967) 1,056,310 $ 4,279 90,406 9 1 1 34,197 72,080 (33,309) 1,077,653 1,235,555 145,720 32 (35,967) 1,345,340 976,072 192,792 100,000 (33,309) 1,235,555 $ 89,030 2 $ 57,902 1 The amounts recognized in othe r asset s at December 31, 2021 and Decembe r 31, 2020 were $289.0 million and $157.9 million, respectively. The following table details the amounts recognized in accumulate d othe r comprehensive incom e at December 31, 2021 and 2020. (Dollars in thousands) Net actuarial (gain) loss The accumulate d benefit obligation for the Plans at December 31, 2021 and 2020, wa s $972.7 million and $985.0 million, respectively. The Plans use a measurement date of Decembe r 31. 33,223) $ ( 1,751 $ 2020 9 2021 The following table shows the components of periodic benefit cos t related to the Plans and changes in pla n asset s and benefit obligations recognize d in other comprehensive incom e for th e years ended December 31 , 2021, 2020 an d 2019. Year ende d Decembe r 31 2020 2021 4,279 $ 1 5,351 $ 1 (Dollars in thousands) Service cost Interest cost Expected return on assets Amortization of prior service cost Amortization of net actuarial loss Total net periodic benefit cost (income) Current year actuarial (gain) loss Amortization of actuarial loss Amortization of prior service cost Net (gain) loss recognized in other comprehensive income Total recognized in net periodi c benefit cost and other comprehensive income $ ( Actuaria l gains in 2021 and 2020 were primarily drive n by return on asset s greate r tha n expected, partiall y offse t by the impact of a decreased discount rate. 2019 1 37,260 (62,590) 57 10,924 (1,582) 20,049 (10,924) (57) 9,068 7 29,864 (78,430) — 27,093 (6,122) (97,880) (27,093) — (124,973) 34,197 (65,689) — 25,324 8,111 (55,023) (25,324) — (80,347) 131,095) 72,236) $ ( 2,767 ,486 $ $ Servic e costs an d the amortization of prior service costs ar e recorde d in personnel expense, whil e interest cost, expected return on pla n assets and th e amortization of actuarial (gains)losse s are recorde d in other noninterest expense. 122 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e assumptions use d to determine th e benefi t obligations at Decembe r 31, 2021 and 2020 ar e as follows: 2021 2020 % 2 .7 6 % Discount rate Rate of compensation increase The assumptions use d to determine the net periodic benefit cos t for the years ended Decembe r 31, 2021, 2020 and 2019, are as follows: 5.60 3.04 5.60 Discount rate Rate of compensation increase Expected long-term return on plan assets The estimate d discount rate, whic h represents the interes t rat e tha t coul d be obtaine d for a suitabl e investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum . The projected cash flows of the pension plans are discounte d based on thi s yield curve and a single discount rat e is calculated to achieve th e sam e present value. %3.4 6 % 5.60 7.50 4.38 % 5.60 7.50 2.76 5.60 7.50 2021 2020 2019 The weighte d average expecte d long-term rat e of return on the Plans ’ assets represent s the average rat e of return expected to be earned on the Plans ’ assets over the period the benefit s included in the benefit obligation are to be paid. In developing the expected rat e of return, historica l and current returns, as wel l as investment allocatio n strategies, on the Plans ’ assets are considered. Plan Assets For the Plans , our primary total return objective is to achieve returns over the long term tha t will fund retirement liabilities and provide desired pla n benefit s in a manner tha t satisfies the fiduciary requirement s of the Employee Retirement Income Security Act. The Plans ’ assets have a long-term time horizon tha t runs concurrent wit h the average life expectancy of the participants. As such, the Plans ca n assum e a tim e horizon tha t extends wel l beyond a full market cycl e and ca n assume a reasonable level of risk. It is expected, however, tha t both professional investment management an d sufficient portfolio diversification will smooth volatility and hel p generat e a consistent level of return. The investment s are broadl y diversifie d across global, economi c and market risk factors in an attempt to reduc e volatility and target multipl e return sources . Withi n approve d guidelines and restrictions, the investment manage r has discretion over the timing an d selectio n of individua l investments. The Plans ’ assets are currentl y hel d by the BancShares trust department. Equity securitie s are measured at fai r value using observable closing prices. These securities are classifie d as Level 1 as the y are traded in an active market . Fixed income securitie s are generally estimate d using a third part y pricing service. The third party provide r evaluate s securities based on comparable investment s with trades and market dat a and will utilize pricing models which use a variety of inputs, such as benchmark yields, reporte d trades, issuer spreads, benchmark securities, bids and offers as needed. These securitie s are generall y classifie d as Level 2. 123 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e fair values of pension plan assets at December 31, 2021 an d 2020, by asse t class are as follows: December 31, 2021 (Dollars in thousands) Cash and equivalent Equity securities Common and preferred stock Mutual funds Exchange traded funds Fixed income U.S. government and government agency securities Corporate bonds Total pension assets Cash and equivalent Equity securities Common and preferred stock Mutual funds Exchange traded funds Fixed income U.S. government and government agency securities Corporate bonds Total pension assets Market Value s$ 16,674 $ Level 1 6,674 evel 1 L 2 $ evel 3 — $ L — — — 76,240 481,630 263,072 228,399 279,325 76,240 481,630 263,072 — 2,902 $ 1,345,340 $ 40,518 8 $ 28,399 2 276,423 04,822 5 $ December 31, 2020 Market Value $ s 37,913 $ Level evel 7,913 $ 3 1 L 2 L evel 3 — $ 144,924 559,472 248,819 — — — $ 1,235,555 $ 91,128 9 0,292 — — 54,135 44,427 $ 2 9 1 $ 144,924 559,472 248,819 90,292 154,135 Target Allocation 0 - 5 30 - 70% Actual % of Plan Assets % 1 61 % % 15 - 45% 38 % 100 % Target Allocation 0 - 5 30 - 70% Actual % of Plan Assets % 3 77 % % 15 - 45% 20 % 100 % — — — — — — — — — — — — — — There were no direct investment s in equity securities of BancShares included in pension pla n asset s in any of the years presented. Cas h Flows The following ar e estimate d payment s to pension plan participant s in the indicated periods: (Dollars in thousands) 2022 2023 2024 2025 2026 2027-2031 401(k) Savings Plans $ Estimate d Payments 1,051 4 43,686 46,266 48,548 50,756 280,173 Certain employees enrolled in the defined benefit pla n are also eligible to participate in a 401(k) savings pla n through deferral of portions of their salary. For employees who participate in the 401(k) savings pla n who also continue to accrue additional years of servic e under the defined benefit plans, BancShares makes a matchin g contribution equa l to 100% of the firs t 3% and 50% of the next 3% of the participant’ s deferral up to and including a maximum contribution of 4.5% of the participant’s eligible compensation. The matching contribution immediately vests. At the end of 2007, current employees were give n the option to continue to accrue additiona l years of servic e under the defined benefit plans or to elec t to joi n an enhance d 401(k) savings plan. Under the enhanced 401(k) savings plan, BancShares matches 124 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) up to 100% of the participant’ s deferral s not to excee d 6% of the participant’ s eligible compensation. The matching contribution immediately vests. In addition to the employer matc h of the employee contributions, the enhanced 401(k) savings pla n provide s a required employe r non-elective contribution equa l to 3% of the compensation of a participant who remains employe d at the end of the calendar year. Thi s employe r contribution vests afte r thre e years of service. Employees who elected to enrol l in the enhanced 401(k) savings pla n discontinued the accrual of additional years of servic e under the defined benefit plans and becam e enrolle d in the enhanced 401(k) savings pla n effective January 1, 2008. Eligible employee s hire d after January 1, 2008, are eligible to participate in th e enhance d 401(k) savings plan. BancShares recognized expense related to contributions to th e 401(k) plans of $36.2 million, $35.6 millio n and $30.8 millio n during 2021, 2020 an d 2019, respectively. Additional Benefits for Executives , Directors, and Officers BancShares has entere d into contractua l agreement s with certain executive s providing payment s for a period of no more than te n years following separation from servic e occurring no earlier tha n an agreed-upon age . These agreements also provide a death benefit in the event a participan t die s prior to separation from servic e or during the payment period following separation from service. BancShares has also assumed liability for contractua l obligations to directors and officers of previously acquired entities. The following table provide s the accrued liability as of Decembe r 31, 2021 and 2020, and the change s in the accrued liability during th e years the n ended: (Dollars in thousands) Accrued liability as of January 1 Discount rate adjustment Benefit expense and interest cost Benefit s paid Accrued liability as of December 31 Discount rate at December 31 Othe r Compensation Plans $ $ 2021 42,655 (680) 2,015 (5,244) 8,746 3 3.04 2020 5,295 $ 4 1,719 3,503 (7,862) 2 % 2,655 $ 4 .7 6 % BancShare s offers various short-term and long-term incentive plans for certain employees . Compensation awarde d under these plans ma y be based on defined formulas , performanc e criteria , or at the discretion of management. The incentive compensation program s wer e designe d to motivate employee s through a balanced approach of risk and reward for their contributions toward BancShares ’ success. As of Decembe r 31, 2021 and 2020, the accrued liability for incentive compensation was $84.0 million and $68.2 million, respectively. 125 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE R LEASES Lease s unde r whic h BancShares is a Lessee The following table present s lease assets an d liabilities as of Decembe r 31, 2021 and 2020: (Dollars in thousands) Assets: Operating Finance Total leased assets Liabilities: Operating Finance Total lease liabilities Classification December 31, 2021 December 31, 2020 Other assets Premises and equipment Other liabilities Other borrowings $ 3,207 $ 7,517 $ 4,431 $ 8,742 6 4,310 6 $ 8,048 $ 4,526 6 6 4,311 $ $ 6 6,478 7 68,343 6,308 74,651 The following table present s lease costs for the years ended Decembe r 31, 2021 and 2020. Variable leas e cos t primarily represents variabl e payment s such as common are a maintenance and utilities recognized in the period in which the expens e was incurred. Certai n of our lease agreement s als o include rental payment s adjusted periodically for inflation. While lease liabilities ar e not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in whic h the expense is incurred. (Dollars in thousands) Lease cost: Operating lease cost (1) Finance lease cost: Amortization of leased assets Interest on lease liabilities Classification 2021 2020 Occupancy expense $ 3,993 1 $ 5,023 1 Variable lease cost Sublease income Net lease cost (1) Operating lease cost include s short-term leas e cost, which is immaterial. Equipment expense Interest expense - Other borrowings Occupancy expense Occupancy expense 2,168 162 3,110 (355) 2,168 220 3,231 (350) $ 9,078 1 $ 0,292 2 The following table present s lease liabilit y maturities in the next five years and thereafter: (Dollars in thousands) 2022 2023 2024 2025 2026 Thereafter Total lease payments Less: Interest Present value of lease liabilities gg Operating Leases pp 2,840 $ 1 11,162 9,356 6,462 5,450 29,236 7 10,075 6 Finance Leases ,876 1 $ $ Total 4,716 993 617 635 431 — 241 4 4 9,236 $ 9,058 $ 8,742 $ ,552 $ ,311 1 12,155 9,973 7,097 5,881 2 7 10,316 6 $ 4,506 $ 4,431 The following table present s the remaining weighted average leas e term s and discount rates as of Decembe r 31, 2021: Weighted average remaining lease term (years): Operating Finance Weighted average discount rate: Operating Finance December 31, 2021 8.9 3.5 3.00 % 3.12 126 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Th e following table present s supplemental cash flow information relate d to lease s for the years ende d December 31, 2021 and 2020: (Dollars in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for new operating lease liabilities Year ended December 31 2021 2020 $ 3,054 1 $ 4,237 1 162 1,997 6,535 220 1,922 4,595 Lease s unde r whic h BancShare s is a Lessor BancShares provide s equipment financing using a variet y of loa n and leas e structures. Typica l items finance d and leased include commercia l equipment and vehicles. The following table present s the components of the investment in direct or sales type financing leases , include d in loans in th e consolidate d balanc e sheets as of Decembe r 31, 2021 and 2020: (Dollars in thousands) Year ended December 31 Total minimum lease payment to be receive Estimated unguaranteed residual value of leased assets Gross investment in direct or sales type financing leases Unearned income Initial direct costs Total net investment d$ $ $ 68,462 261,469 $ 24,472 285,941 (18,262) 783 , 2 $ $ 2021 2020 3 35,385 19,428 354,813 (23,970) 548 , 3 31,391 At Decembe r 31, 2021, future minimum leas e payment s to be received unde r direct or sale s type financing leases were as follows: Years ending December 31 2022 2023 2024 2025 2026 Thereafter Future minimum lease payments NOTE S TRANSACTION S WIT H RELATED PERSONS 6,974 $ 9 61,469 $ 2 $ 70,635 46,407 28,065 13,630 5,758 , BancShares has , and expect s to have in the future , banking transactions in the ordinary cours e of business with directors, officers and thei r associates (“Related Persons” ) and entities controlled by Relate d Persons. For those identifie d as Related Persons as of Decembe r 31, 2021, the following table provide s an analysi s of changes in the loans outstanding during 2021 an d 2020: (dollars in thousands) Balance at Januar y 1 New loans Repayments Balance at December 31 Year ended December 31 2021 2020 $ 17 $ 22 1 21 (16) 1 $ 45 $ 17 1 19 (47) 1 The amounts presented exclude loans to Relate d Persons for credit card lines of $15,000 or less, overdraft lines of $5,000 or less and intercompany transactions between th e Parent Company an d FCB. Unfunded loa n commitment s availabl e to Related Persons wer e $2.7 million and $2.6 million as of Decembe r 31, 2021 and 2020, respectively. 127 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the yea r ended Decembe r 31, 2020, the Parent Company repurchased 45,000 shares of it s outstanding Clas s A common stoc k from Ella Anna Holding, as trustee of her revocabl e trust . Mrs. Holding is the widow of the Parent Company’s former Executive Vic e Chairman, Fran k B. Holding, and the mothe r of Frank B. Holding, Jr. and Hope H. Bryant , BancShares’ Chairma n and Chief Executive Officer and Vice Chairman, respectively. No shares wer e repurchased during the yea r ended Decembe r 31, 2021. NOT E T COMMITMENT S AND CONTINGENCIES To meet the financing needs of it s customers, BancShares has financia l instrument s with off-balanc e sheet risk. These financial instruments include commitment s to extend credit and standby letters of credit . These instruments involve elements of credit, interest rat e or liquidit y risk. Commitments to extend credit are legally binding agreement s to len d to customers. These commitments generally have fixed expiration dates or othe r termination clauses and ma y require payment of fees. Sinc e man y of the commitments are expected to expire without being drawn upon, the tota l commitment amounts do not necessaril y represent future liquidity requirements. Established credit standards control the credit ris k exposure associate d with these commitments. In some cases, BancShares requires collateral be pledge d to secure th e commitment, including cash deposits, securities and other assets. Standby letters of credit are commitment s guaranteeing performanc e of a customer to a third party. These commitments are primarily issue d to support publi c and private borrowing arrangements, and their fai r value is not material. To mitigat e its risk, BancShares ’ credit policies govern th e issuance of standby letter s of credit. Th e credi t ris k relate d to the issuance of these letters of credit is essentially the sam e as those involve d in extending loans to clients and, therefore , these letter s of credit are collateralized when necessary. The following table present s the commitments to extend credit and unfunde d commitment s as of Decembe r 31, 2021 and 2020: (Dollars in thousands) Unused commitment s to extend credit Standby letters of credit 2021 3,011,154 1 $ 2,098,417 $ 1 2020 116,648 129,819 BancShares has investment s in qualified affordable housing project s primarily for the purpose s of fulfilling Community Reinvestment Ac t requirements and obtaining ta x credits. Unfunde d commitment s to fund future investment s in affordable housing project s totaled $43.4 million and $53.7 million as of Decembe r 31, 2021 and 2020, respectively, and were recorded within other liabilities. The Parent Company and certain of it s subsidiarie s have bee n named as a defendant in legal actions arising from it s normal business activitie s in which damage s in various amounts are claimed. BancShare s is als o exposed to litigation risk relating to the prior busines s activitie s of banks from which assets were acquire d and liabilities assumed in merger transactions. Although the amount of any ultimat e liability with respec t to such matters cannot be determined, in the opinion of management, any such liability wil l not have a material effect on BancShares ’ consolidated financia l statements. 128 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE U PARENT COMPANY FINANCIAL STATEMENTS Parent Company Condense d Balanc e Sheets (Dollars in thousands) Assets Cash and due from banks Overnight investments Investments in marketable equity securities Investment securities availabl e for sale Investment in banking subsidiaries Investment in other subsidiaries Due from subsidiaries Other asset Total asset 1,874 Liabilities and Shareholders’ Equity Subordinated debentures Other borrowings Due to subsidiaries Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Decembe r 31, 2021 December 31, 2020 $ 73,719 9,716 1 $ 4 5,716 97,528 — 4,987,350 3,237 — ,010 86 s4 ,819,307 5,309,424 $ 4 4 52,350 107,825 2,829 8,216 4,737,241 ,819,307 5 $ 4 $ 4 s$ $ 53,313 $ ,309,424 1,607 91,680 2 4,621,676 3,241 7 48,591 128,125 — 9,564 4,229,268 Parent Company Condense d Income Statements $ 2 ,011 (Dollars in thousands) Interest and dividend income Interest expense Net interest loss Dividends from banking subsidiaries Marketable equit y securities gains, net Other income Other operating expense Income before incom e tax benefit and equity in undistributed net income of subsidiaries Income tax expense Income before equit y in undistributed net income of subsidiaries Equit y in undistributed net income of subsidiaries Net income Preferred stock dividends Yea r ende d Decembe r 31 2020 2019 2021 $ 3 ,952 16,578 (14,567) 173,091 34,081 66 11,275 181,396 2,089 179,307 368,152 547,459 18,544 $ 1 ,327 16,817 (12,865) 229,685 29,395 574 13,168 233,621 879 232,742 258,981 491,723 14,062 7,187 (5,860) 149,819 20,625 257 9,497 155,344 892 154,452 302,919 457,371 — Net income availabl e to common shareholders 28,915 $ 5 77,661 $ 4 $ 57,371 4 129 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands) OPERATING ACTIVITIES Net income Adjustments Paren t Company Condense d Statements of Cash Flows 2021 Year ende d Decembe r 31 2020 2019 $ 47,459 5 $ 91,723 4 57,371 $ 4 Undistributed net income of subsidiaries Net amortization of premiums and discounts Marketable equity securities gains, net Realized gains on investment securities availabl e for sale, net Net change in due to/from subsidiaries Change in other assets Change in other liabilities Ne t cash provided by operating activities INVESTING ACTIVITIES Net change in loans Net change in overnight investments Purchases of marketable equity securities Proceeds from sales of marketable equity securities Proceeds from sales, calls, and maturities of securities Investment in subsidiaries Net cash provided by (used in) investing activities FINANCING ACTIVITIES Net change in short-term borrowings Repayment of long-term obligations Origination of long-term obligations Net proceeds from subordinated notes issuance Net proceeds from preferred stock issuance Repurchase of common stock Cash dividends paid Net cash provided by (used in) financing activities Net change in cash Cash balance at beginning of year Cash balance at end of year CAS H PAYMENTS FOR: Interest Income taxes NOTE V OTHE R ASSETS $ $ 24 (368,152) 96 (34,081) — 3,615 6,722 3,265 159,791 (258,981) 3 8 (29,395) — (2,456) (3,074) (694) 197,947 — (4,109) (1,563) 29,796 2,000 — 26,124 422,500) 40,277) 45,849 39,937 333,755) ,162 — 94 (333,140) 352,835 1,000 ( (400,865) ( (33,300) — 3 3 ( — (20,300) — — — — (41,612) (61,912) 124,003 49,716 73,719 1 6,579 1 810,116 (30,393) 248,061 45,143 4,573 4 9,716 3,338 1 106,618 $ $ $ ,573 $ ,187 The following table present s the primary components of other assets as of Decembe r 31, 2021 and 2020: (Dollars in thousands) Income taxes receivable Pension assets Investment in low-income housing tax credits Cash surrender value of life insurance Right of use assets for operating leases, net of accumulated amortization Federal Home Loan Bank stoc 0,450 Prepaid expenses Other 2021 $ 98,640 December 31 2020 $ 6,465 7 289,030 156,588 113,391 63,207 k4 37,660 158,390 Total other assets $ ,657,356 1 $ 83,953 130 (302,919) 119 (20,625) (20) (2,185) (2,001) 981 130,721 100,000 0 2 (26,166) 56,749 3,477 — 136,222 40,277 (3,575) 165,000 — — (453,123) (18,137) (269,558) (2,615) 7,188 4 7 78,345 6 157,902 163,866 111,671 68,048 45,392 40,489 130,119 7 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE W SUBSEQUEN T EVENTS On January 3, 2022, BancShares close d the CIT Merger pursuant to the Merger Agreement . The CIT Merger will be accounted for as a business combination. The assets and liabilities of CIT will be recorded at fai r value. As discusse d in Note B, Business Combinations, fai r values are subject to refinement for up to one yea r after the closing dat e of the acquisition as additional information regarding closing dat e fai r value become s available. Due to the timin g of the CIT Merger, the fai r valu e estimates of CIT’s assets and liabilities are not availabl e to disclose in these Consolidated Financial Statements as of and for the year ended Decembe r 31, 2021. Pursuant to the Merger Agreement , the Boards of Directors of the Parent Compan y and FC B now consist of 14 directors, (i) 11 of whom were legacy member s of the Board of Directors of the Parent Company, and (ii ) thre e of whom were selected from the forme r Board of Directors of CIT. Common Stoc k Conversion Pursuant to the Merger Agreement , eac h share of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stoc k owne d by CIT or BancShares , was converte d int o the right to receive 0.062 shares (the “Exchange Ratio” and such shares , the “Merger Consideration”) of the Parent Company’s Class A Commo n Stock, par value $1.00 per share (“Class A Common Stock”), plus, cash in lieu of fractional share s of Class A Common Stock. The Parent Company issue d approximately 6.1 million shares of it s Class A Common Stock in connection with the consummation of the CIT Merger. The closing share pric e was $859.76 on the Nasdaq Global Selec t Market on January 3, 2022. There were approximately 8,800 fractional share s for which the Parent Company pai d cas h of approximately $7.2 million. Preferred Stoc k Conversion Pursuant to the terms of the Merger Agreement , eac h issue d and outstanding share of fixed-to-floating rat e non-cumulative perpetua l preferred stock, serie s A, par value $0.01 per share, of CIT (“CIT Serie s A Preferre d Stock” ) and each issue d and outstanding share of 5.625% non-cumulative perpetua l preferred stock, serie s B, par value $0.01 per share, of CIT (“CIT Series B Preferred Stock”), converte d int o the right to receive one share of a newly created serie s of preferred stock, serie s B, of the Parent Company (“BancShares Serie s B Preferred Stock” ) and one share of a newly created serie s of preferred stock, serie s C, of the Parent Company (“BancShares Serie s C Preferred Stock” and togethe r with the BancShares Series B Preferred Stock, the “New BancShares Preferre d Stock”), respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole , tha t are not materiall y les s favorable to the holders thereof tha n the rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole , of the CIT Serie s A Preferred Stock and the CIT Serie s B Preferred Stock, respectively. The non-callabl e period for the New BancShares Preferre d Stock was extende d for five years to January 4, 2027. There are 325,000 shares of BancShares Serie s B Preferred Stock with a liquidation preferenc e of $1,000 per share, resulting in a total liquidation preferenc e of $325 million. There are 8 million shares of BancShares Serie s C Preferred Stock with a liquidation preferenc e of $25 per share, resulting in a total liquidation preferenc e of $200 million. Th e New BancShares Preferre d Stock qualifie s as Tie r 1 capital. Restricted Stoc k Conversion Pursuant to the terms of the Merger Agreement , (i) each restricted stock unit (“RSU”) award or performanc e stock unit (“PSU”) award in respec t of shares of CIT Common Stock, including any deferred RSU award (each, a “CI T Award”) outstanding, other tha n a CIT Director RSU Award (defined below), automaticall y converte d int o a RSU in respec t of a numbe r of shares of Class A Common Stock (a “BancShares Award”) equa l to (a) the numbe r of shares of CIT Common Stock subjec t to such CIT Award based on target level performanc e multiplied by (b) the Exchange Ratio, subjec t to the sam e terms an d conditions applicabl e to the existing CIT Award (except , in the case of PSU awards , for any performanc e goal s or metrics), and (ii ) eac h RSU award in respec t of shares of CIT Common Stock tha t (a) was outstanding and unvested, (b) was hel d by a membe r of the Board of Directors of CIT, (c) automaticall y veste d upon close of the CIT Merger in accordance wit h its terms, an d (d) was not subjec t to a deferral electio n (each, a “CI T Director RSU Award”) automaticall y converte d int o the right to receive the applicable Merger Consideration. Update s to Operating Segments As of Decembe r 31, 2021, BancShares manage d its busines s and reported it s financial results as a single segment. Due to the CIT Merger, BancShares wil l begi n reporting multiple segments during the firs t quarter of 2022. BancShares plans to report 131 FIRST CITIZEN S BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) financial results in thre e operating segments: Genera l Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. BancShares wil l als o conform prior period comparisons to any new segment presentation. Based on the planned approach for segment disclosure s to be implemente d during the firs t quarter of 2022, the substantia l majority of BancShares’ operations for historical periods prior to th e CIT Merge r will be reflected in the Genera l Banking segment. Assumption of Debt Securities In connection with the CIT Merger, FC B assumed the following issue d and outstanding serie s of CIT debt securities : (i) $1.25 billion 5.00% Senior Unsecure d Notes due 2022 (the “2022 Notes”), (ii) $750 millio n 5.00% Senior Unsecure d Notes due 2023 (the “2023 Notes”); (iii) $500 million 4.750% Senior Unsecure d Notes due 2024 (the “2024 Notes”); (iv) $500 million 3.929% Senior Unsecure d Fixed-to-Floating Rat e Notes due 2024; (v) $500 million 5.250% Senior Unsecure d Notes due 2025 (the “2025 Notes”); (vi) $550 million 2.969% Senior Unsecure d Fixed-to-Floating Rat e Notes due 2025; (vii ) $500 million 6.00% Senior Notes due 2036; (viii) $400 million 6.125% Subordinated Notes due 2028; and (ix) $100 million 4.125% Fixed- to-Floating Rat e Subordinate d Notes due 2029. Redemption of Assume d Senior Unsecure d Notes As part of it s liability management to reduc e highe r debt costs, on January 24, 2022 BancShare s announced FCB’s intention, and on February 24, 2022, completed, a redemption of approximately $2.9 billion of senior unsecure d note s tha t wer e assumed in th e CIT Merger. Using excess cash from deposit growth, FC B redeemed al l of the outstanding $1.1 billion aggregate principa l amount of the 2022 Notes , $750 million aggregat e principa l amount of the 2023 Notes , $500.0 million aggregate principa l amount of the 2024 Notes , and $500 millio n aggregat e principal amount of th e 2025 Notes. 132 Ite m 9A. Controls an d Procedures BancShares ’ management, wit h the participatio n of its Chief Executive Officer and Chie f Financia l Officer, has evaluated the effectivenes s of the design and operation of BancShares ’ disclosure control s and procedures as of the end of the period covered by thi s Annual Report, in accordance wit h Rule 13a-15 of the Securities Exchange Ac t of 1934 (“Exchange Act”). Based upon the evaluation, as of the end of the period covered by thi s report , the Chie f Executive Officer and the Chie f Financia l Officer conclude d BancShares’ disclosure controls and procedures were effective to provide reasonabl e assurance it is able to record, process, summariz e and report information required to be disclose d in the reports it files under the Exchange Ac t in a timely and accurat e manner. There have bee n no changes in BancShares ’ interna l control over financial reporting during the fourth quarter of 2021 which have materiall y affected, or ar e reasonabl y likel y to materially affect, BancShares ’ interna l control over financia l reporting. MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVE R FINANCIAL REPORTING The managemen t of First Citizen s BancShares, Inc. (“BancShares”) is responsible for establishing and maintaining adequate interna l control over financial reporting. BancShares ’ interna l control system was designe d to provide reasonabl e assurance to the company’s management and Board of Directors regarding the preparation and fai r presentation of published financial statements. BancShares ’ management assesse d the effectiveness of the company’s interna l control over financial reporting as of Decembe r 31, 2021. In making thi s assessment , it used the criteri a set forth by the Committe e of Sponsoring Organizations of in Interna l Control-Integrate d Framework (2013). Based on tha t assessment, the Treadway Commission (“COSO” ) BancShares ’ management believes, as of December 31, 2021, BancShares ’ interna l control over financia l reporting is effective. All interna l control systems, no matter how well designed, have inherent limitations. Therefore , eve n those system s determined to be effective ca n provide only reasonable assurance wit h respect to financial statemen t preparation and presentation. A control deficienc y exists when the design or operation of a control does not allow managemen t or employees, in the norma l course of performing their assigned functions, to prevent or detec t misstatement s on a timel y basis . A significant deficienc y is a control deficiency, or combination of control deficiencies, in interna l control over financial reporting tha t is less severe than a material weakness, yet important enough to merit attentio n by those responsible for oversight of the company’s financial reporting. A materia l weakness in interna l control over financial reporting is a control deficiency, or combination of control deficiencies, in interna l control over financial reporting such tha t there is a reasonabl e possibilit y tha t a materia l misstatement of a company’s annua l or interim financial statement s wil l not be prevente d or detecte d on a timel y basis. BancShares ’ independent registere d publi c accounting firm has issued an audi t report on the company’s internal control over financial reporting. Thi s report appears under “Report of Independent Registere d Public Accounting Firm on Internal Control over Financial Reporting” in Item 8, Financia l Statements and Supplementary Data. Item 9B . Other Information On February 22, 2022, the Parent Company filed Restate d Certificate s of Designation for the BancShare s Series B Preferred Stoc k and BancShares Serie s C Preferred Stock. Copie s of the Restated Certificates of Designation for the Series B Preferred Stock and th e Series C Preferred Stock are attached hereto as Exhibit s 3.3 and 3.4, respectively, and are incorporate d in this Ite m 9B by reference. Item 14. Principal Accounting Fees and Services Our independent registered publi c accounting firm is KPMG LLP, Raleigh, NC , PCAOB Firm ID : 185. Our predecessor independent registered publi c accounting firm was Dixon Hughes Goodma n LLP , Raleigh, NC , PCAOB Firm I D No. 57. The information require d by thi s Ite m 14 is incorporate d herein by referenc e from the “Proposa l 3: Ratification of Appointment of Independent Accountants” sectio n of the definitive Proxy Statement for the 2022 Annual Meetin g of Shareholders. 133 Ite m 15. Exhibit s and Financial Statemen t Schedules EXHIBIT INDEX 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 *10.1 Purchas e and Assumption Agreement between Registrant’s subsidiary First-Citizens Bank & Trus t Company and Federa l Deposit Insurance Corporation date d January 29, 2010 (incorporate d by referenc e to Exhibit 2.1 to the Registrant’s Form 8-K/A date d January 29, 2010 an d filed Jun e 9, 2010) Purchas e and Assumption Agreement between Registrant’s subsidiary First-Citizen s Bank & Trus t Company and Federa l Deposit Insurance Corporation date d January 21, 2011 (incorporate d by referenc e to Exhibit 2.1 to the Registrant’s Form 8-K date d January 21, 2011) Agreement and Plan of Merger, dated April 23, 2019, by and among First Citizens BancShares, Inc., First Citizens Bank & Trus t Company, FC Merger Subsidiary VII , Inc., an d Entegra Financial Corp. (incorporated by referenc e to Exhibit 2.1 to th e Registrant’s For m 8-K dated April 23, 2019) Agreement and Plan of Merger, dated October 15, 2020, by an d among CIT Group Inc., Firs t Citizens BancShares, Inc., First-Citizens Bank & Trust Company, and FC B Merge r Subsidiary IX, Inc. (incorporated by referenc e to Exhibit 2.1 to th e Registrant’s For m 8-K dated October 20, 2020) Amendment No. 1, date d September 30, 2021, to the Agreement and Plan of Merge r dated October 15, 2020, by and among CI T Group Inc., First Citizens BancShares, Inc., First-Citizens Bank & Trus t Company, and FCB Merger Subsidiary IX , Inc. (incorporate d by referenc e to Exhibit 2.1 to th e Registrant’s Current Report on Form 8-K date d September 30, 2021) Certificat e of Incorporation of th e Registrant, as amended (incorporate d by referenc e to Exhibit 3.1 to the Registrant’s Form 10-K for th e yea r ended Decembe r 31, 2014) Certificat e of Designation of 5.375% Non-Cumulative Perpetual Preferre d Stock, Serie s A (incorporate d by referenc e to Exhibit 3.2 to th e Registrant’s Registration Statement on Form 8-A, file d on March 12, 2020) Restate d Certificat e of Designation of Fixed-to-Floating Rate Non-Cumulative Perpetua l Preferred Stock, Series B (filed herewith) Restate d Certificat e of Designation of 5.625% Non-Cumulative Perpetual Preferre d Stock, Serie s C (fil ed herewith) Bylaws of the Registrant , as amende d (incorporated by reference to Exhibi t 3.1 to the Registrant’s Form 8-K dated Jul y 28, 2015) Specime n of Registrant’s Class A Common Stoc k certificat e (incorporate d by referenc e to Exhibit 4.1 to the Registrant’s Form 10-K for th e yea r ended Decembe r 31, 2008) Specime n of Registrant’s Class B Common Stock certificate (incorporated by reference to Exhibi t 4.2 to the Registrant’s Form 10-K for th e yea r ended Decembe r 31, 2008) Specime n of Registrant's 5.375% Non-Cumulative Perpetual Preferre d Stock, Serie s A Certificate (incorporated by referenc e to Exhibit 4.1 to th e Registrant's Registration Statement on Form 8-A, file d on March 12, 2020) Specime n of Registrant’s Fixed-to-Floating Rate Non-Cumulative Perpetual Preferre d Stock, Series B (incorporated by reference to Exhibi t 4.2 to Amendment No. 1 of the Registrant's Form S-4 Registration Statement (333-250131) file d on December 21, 2020) Specime n of Registrant’s 5.625% Non-Cumulative Perpetual Preferre d Stock, Serie s C, Certificate (incorporated by referenc e to Exhibit 4.4 to Amendment No. 1 of the Registrant's Form S-4 Registration Statement (333-250131) filed on December 21, 2020) Deposit Agreement , dated as of March 12, 2020, among Registrant, Broadridge Corporat e Issuer Solutions, Inc., as depositary, an d the holders from time to time of th e depositary receipt s describe d therei n (incorporated by referenc e to Exhibit 4.2 to th e Registrant's Registration Statement on Form 8-A, file d on March 12, 2020) Form of Depositary Receip t (included as Exhibit A in Exhibi t 4.6 hereto) Description of th e Registrant’s securitie s registere d pursuant to Section 12 of the Securitie s Exchange Ac t of 1934 (filed herewith) Instruments defining the right s of holders of long-term debt wil l be furnished to the SEC upon request. Amende d and Restated Trust Agreement of FCB/NC Capital Trust III (incorporate d by referenc e to Exhibit 4.1 to th e Registrant’s For m 10-Q for the quarter ended Jun e 30, 2006) Guarantee Agreement relating to Registrant’s guarantee of the capital securitie s of FCB/NC Capita l Trus t III (incorporated by reference to Exhibi t 4.2 to the Registrant’s Form 10-Q for th e quarte r ende d June 30, 2006) Executive Consultation, Separation from Servic e and Deat h Benefi t Agreement betwee n Registrant’s subsidiary First-Citizens Bank & Trust Company and Frank B. Holding, Jr. (incorporate d by referenc e to Exhibit 9.1 to the Registrant’s Form 8-K date d February 18, 2011) 134 *10.2 *10.3 *10.4 *10.5 *10.6 *10.7 *10.8 *10.9 *10.10 *10.11 16 Executive Consultation, Separation from Servic e and Deat h Benefi t Agreement betwee n Registrant’s subsidiary First-Citizens Bank & Trust Company and Hop e Holding Bryant (incorporate d by referenc e to Exhibit 9.5 to the Registrant’s Form 8-K date d February 18, 2011) Employe e Consultation, Post-Retirement, Non-Competition an d Death Benefit Agreement betwee n Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merge r to First Citizens Bank an d Trust Company, Inc., and Peter M. Bristow . (incorporated by reference to Exhibi t 10.10 to the Registrant’s Form 10-K for the yea r ende d December 31, 2014) Employe e Consultation, Post-Retirement, Non-Competition an d Death Benefit Agreement betwee n Registrant’s subsidiary, First-Citizens Bank & Trust Company as successor by merge r to First Citizens Bank an d Trust Company, Inc., and Crai g L. Nix . (incorporate d by referenc e to Exhibit 10.11 to th e Registrant’s Form 10-K for the yea r ende d December 31, 2014) Executive Consultation, Separation from Servic e and Deat h Benefi t Agreement betwee n Registrant’s subsidiary First-Citizens Bank & Trust Company and Jeffery L. Ward (incorporate d by referenc e to Exhibit 10.5 to the Registrant's Form 10-K for th e yea r ended Decembe r 31, 2020) 409A Deferre d Compensation Plan of Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merge r to First Citizens Bank an d Trus t Company, Inc. (incorporate d by referenc e to Exhibit 10.12 to th e Registrant’s For m 10-K for the yea r ende d December 31, 2014) Deferre d Compensation Plan of Registrant’s subsidiary, First-Citizens Bank & Trust Company, as successor by merger to First-Citizens Bank and Trust Company, Inc . (incorporated by reference to Exhibi t 10.13 to the Registrant’s Form 10-K for th e yea r ended Decembe r 31, 2014) Amende d and Restated Long-Term Incentive Plan of Registrant’s subsidiary, First-Citizen s Bank & Trust Company (incorporate d by referenc e to Exhibit 10.1 to th e Registrant’s For m 8-K dated January 25, 2022) Form of Long-Term Incentive Plan Award Agreement (incorporated by reference to Exhibi t 10.9 to the Registrant's Form 10-K for th e yea r ended Decembe r 31, 2020) Form of Long-Term Incentive Plan Award Agreement (for awards beginning in 2022) (filed herewith) Nonqualifie d Deferre d Compensation Plan of Registrant’s subsidiary, First-Citizens Bank & Trus t Company (incorporated by reference to Exhibi t 10.1 to the Registrant’s Form 8-K date d February 24, 2021) Copy of letter from Dixon Hughes Goodma n LLP dated February 24, 2021 (incorporate d by referenc e to Exhibit 16.1 to th e Registrant’s For m 8-K dated February 24, 2021) Subsidiarie s of the Registrant (filed herewith) Consent of Independent Registere d Publi c Accounting Firm , KPMG LL P (file d herewith) Consent of Independent Registere d Publi c Accounting Firm , Dixon Hughes Goodma n LLP (file d herewith) Powe r of Attorne y (filed herewith) Certification of Chie f Executive Office r (filed herewith) Certification of Chie f Financial Office r (filed herewith) Certification of Chie f Executive Office r (filed herewith) Certification of Chie f Financial Office r (filed herewith) Inline XBRL Instance Document (file d herewith) 21 23.1 23.2 24 31.1 31.2 32.1 32.2 *101.INS *101.SC H I nline XBRL Taxonom y Extension Schem a (file d herewith) *101.CA L I nline XBRL Taxonom y Extension Calculation Linkbase (filed herewith) *101.LAB *101.PR *101.DEF *104 Inline XBRL Taxonom y Extension Labe l Linkbase (filed herewith) E Inline XBRL Taxonom y Extension Presentation Linkbase (filed herewith) Inline XBRL Taxonom y Definition Linkbase (file d herewith) Cover Page Interactive Dat a Fil e (embedded within th e Inline XBRL document file d as Exhibit 101) * anagemen t contract or compensatory pla n or arrangement. M ** Interactive data files are furnished but not file d for purposes of Sections 11 and 12 of th e Securitie s Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended. 135 SIGNATURES Pursuant to the requirement s of Sectio n 13 or 15(d) of th e Securities Exchange Ac t of 1934, th e Registrant has duly caused this Annua l Report to be signe d on its behal f by the undersigned, thereunt o duly authorized. Dated: February 25, 2022 FIRST CITIZENS BANCSHARES, INC . (Registrant) /S/ FRANK B. HOLDING, JR. Fran k B. Holding, Jr. Chairman and Chief Executive Officer Pursuant to the requirement s of the Securitie s Exchange Ac t of 1934, this report ha s bee n signe d below by the following persons, on behal f of the Registrant and in the capacitie s indicate d on February 25, 2022. Signature /s/ FRANK B. HOLDING, JR. Fran k B. Holding, Jr. /s/ CRAIG L. NIX Craig L. Nix Title Date Chairman an d Chief r Executive Office ebruary 25, 2022 F Chief Financial Office r (principa l financial officer an d principa l accounting officer) February 25, 2022 /s/ ELLEN R. ALEMANY * Director February 25, 2022 Ellen R. Alemany /s/ JOHN M. ALEXANDER, JR. * Director February 25, 2022 John M. Alexander, Jr. /s/ VICTOR E. BELL, III * Director February 25, 2022 Victor E. Bell, III /s/ PETER M. BRISTOW * Director February 25, 2022 Peter M. Bristow /s/ HOPE HOLDING BRYANT * Director February 25, 2022 Hope Holding Bryant /s/ MICHAEL A. CARPENTER * Director February 25, 2022 Michael A. Carpenter /s/ H. LEE DURHAM, JR. * Director February 25, 2022 H. Lee Durham, Jr. /s/ DANIEL L. HEAVNER * Director February 25, 2022 Daniel L. Heavner 136 Signature Title Date /s/ ROBERT R. HOPPE * Director February 25, 2022 Robert R. Hoppe /s/ FLOYD L. KEELS * Director February 25, 2022 Floyd L. Keels /s/ ROBERT E. MASON, I V * Director February 25, 2022 Robert E. Mason , IV /s/ ROBERT T. NEWCOMB * Director February 25, 2022 Robert T. Newcomb /s/ JOHN R. RYAN * Director February 25, 2022 John R. Ryan * Craig L. Nix hereby signs this Annual Report on Form 10-K on February 25, 2022, on behal f of eac h of the indicate d persons for whom he is attorney-in-fac t pursuant to a Power of Attorne y filed herewith. By: /S/ CRAIG L. NIX Craig L. Nix As Attorney-In-Fact 137