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 PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
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 telephone number, including area code)
________________________________________________________________________________________________________________
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $1
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual
Preferred Stock, Series A
5.625% Non-Cumulative Perpetual Preferred Stock, Series C
FCNCA
FCNCP
FCNCO
Nasdaq Global Select Market
Nasdaq Global Select Market
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 mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark 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 mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definition of
“large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the Registrant's common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the
Registrant's most recently completed second fiscal quarter was 7,873,632,647.
On February 17, 2023, there were 13,502,747 outstanding shares of the Registrant's Class A Common Stock and 1,005,185 outstanding shares of the Registrant's Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
CONTENTS
PART I
PART II
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
Item 8
Financial Statements and Supplementary 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, 2022 and 2021
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2022
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended
December 31, 2022
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period
ended December 31, 2022
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
2022
Notes to Consolidated Financial Statements
Changes in and Disagreements 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 Related 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
PART III
PART IV
(1) Financial Statements (see Item 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.
(3) The Exhibits listed on the Exhibit Index contained in this Form 10-K are filed with or furnished to the
Commission or incorporated by reference into this report and are available upon written request.
Item 16 Form 10-K Summary
Page
4
17
None
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36
N/A
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86
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87
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93
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None
172
172
None
N/A
*
*
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*
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None
* Information required by Item 10 is incorporated herein by reference to the information that appears under the headings or captions ‘Proposal 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’ and ‘Beneficial Ownership of Our Equity Securities —Delinquent Section 16(a) Reports’ from the Registrant’s Proxy Statement for the
2023 Annual Meeting of Stockholders (“2023 Proxy Statement”).
Information required by Item 11 is incorporated herein by reference to the information that appears under the headings or captions ‘Committees of our Board
—Compensation Committee Report;’ and ‘—Effect of Risk Management on Compensation;’ ‘Compensation Discussion and Analysis;’ ‘Executive
Compensation;’ and ‘Director Compensation’ of the 2023 Proxy Statement.
Information required by Item 12 is incorporated herein by reference to the information that appears under the captions ‘Beneficial Ownership of Our Equity
Securities—Directors and Executive Officers,’ ‘—Pledging Policy—Existing Pledge Arrangements,’ and ‘—Principal Stockholders’ of the 2023 Proxy
Statement. As of December 31, 2022, the Registrant did not have any compensation plans under which equity securities of the Registrant are authorized for
issuance to employees or directors to report in the Equity Compensation Plan Information table pursuant to Item 201(d) of Regulation S-K. As of December
31, 2022, the Registrant had restricted stock units (“RSUs”) outstanding covering an aggregate of 42,989 shares of its Class A common stock, which RSUs
were assumed in Registrant’s merger with CIT Group Inc.
Information required by Item 13 is incorporated herein by reference to the information that appears under the headings or captions ‘Corporate Governance—
Director Independence’ and ‘Transactions with Related Persons’ of the 2023 Proxy Statement.
Information required by Item 14 is incorporated by reference to the information that appears under the caption ‘Proposal 7: Ratification of Appointment of
Independent Accountants—Services and Fees During 2022’ of the 2023 Proxy Statement.
2
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
The fo11owing is a 1ist of certain abbreviations an9 acronyms we use throughout this 9ocument. You may fin9 it he1pfu1 to refer
back to this tab1e. We a1so inc1u9e a G1ossary of Key Terms in Item 7. Management’s Discussion an9 Ana1ysis of Financia1
Con9ition an9 Resu1ts of Operations.
Definition
Acronym
A11owance for Cre9it Losses
ACL
Avai1ab1e for Sa1e
AFS
Accumu1ate9 Other Comprehensive Income
AOCI
Accounting Stan9ar9s Co9ification
ASC
Accounting Stan9ar9s Up9ate
ASU
Bank Ho19ing Company
BHC
Bank Owne9 Life Insurance
BOLI
Basis point(s); 1 bp = 0.01%
bps
Community Association Banking
CAB
Corporate A1ternative Minimum Tax
CAMT
Comprehensive Capita1 Ana1ysis an9 Review
CCAR
Current Expecte9 Cre9it Losses
CECL
Consumer Financia1 Protection Bureau
CFPB
Deferre9 Purchase Agreement
DPA
Deferre9 Tax Assets
DTAs
ETR
Effective Tax Rate
EVE Sensitivity Economic Va1ue of Equity Sensitivity
Financia1 Accounting Stan9ar9s Boar9
FASB
First-Citizens Bank & Trust Company
FCB
Fe9era1 Deposit Insurance Corporation
FDIC
Fe9era1 Housing A9ministration
FHA
Financia1 Ho19ing Company
FHC
Fe9era1 Home Loan Bank
FHLB
Fe9era1 Open Market Committee
FOMC
Fe9era1 Reserve Bank
FRB
Accounting Princip1es Genera11y Accepte9 in the U.S.
GAAP
Gross Domestic Pro9uct
GDP
He19 for Investment
HFI
Home Owner’s Association
HOA
Definition
High Qua1ity Liqui9 Securities
He19 to Maturity
Insure9 Depository Institution
Lon9on Inter-Bank Offere9 Rate
Loss Given Defau1t
Lower of the Cost or Market Va1ue
Management’s Discussion an9 Ana1ysis
Mortgage Servicing Rights
North Caro1ina Commissioner of Banks
Net Interest Income
Acronym
HQLS
HTM
IDI
LIBOR
LGD
LOCOM
MD&A
MSRs
NCCOB
NII
NII Sensitivity Net Interest Income Sensitivity
NIM
NSF
OREO
PAA
PCA
PCAOB
PCD
PD
QM
ROU
RSU
SBA
SBA-PPP
SOFR
TDRs
UPB
VIE
Net Interest Margin
Nonsufficient Fun9s
Other Rea1 Estate Owne9
Purchase Accounting A9justments
Prompt corrective action
Pub1ic Company Accounting Oversight Boar9
Purchase9 Cre9it Deteriorate9
Probabi1ity of Ob1igor Defau1t
Qua1ifie9 Mortgage
Right of Use
Restricte9 Stock Unit
Sma11 Business A9ministration
Sma11 Business A9ministration Paycheck Protection P1an
Secure9 Overnight Financing Rate
Troub1e9 Debt Restructuring
Unpai9 Principa1 Ba1ance
Variab1e Interest Entity
3
PART I
Item 1. Business
General
First Citizens BancShares, Inc. (the “Parent Company” and when including all of its subsidiaries 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”), its banking subsidiary. FCB opened in 1898 as the
Bank of Smithfield in Smithfield, North Carolina, and later changed its name to First-Citizens Bank & Trust Company.
BancShares has expanded through de novo branching and acquisitions and as of December 31, 2022, operates 550 branches in
22 states, predominantly located in the Southeast, Mid-Atlantic, Midwest, and Western United States, providing a broad range
of financial services to individuals, businesses and professionals. At December 31, 2022, BancShares had total consolidated
assets of $109.3 billion.
Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding,
who came to control FCB during the 1920s. Robert P. Holding’s children and grandchildren have served as members of the
Board of Directors (the “Board”), as chief executive officers and in other executive management positions and, since
BancShares’ formation in 1986, have remained stockholders owning a large percentage of its common stock.
The Chairman of the Board and Chief Executive Officer, Frank B. Holding, Jr., is the grandson of Robert P. Holding. Hope
Holding Bryant, Vice Chairwoman of BancShares, is Robert P. Holding’s granddaughter. Peter M. Bristow, President of
BancShares, is the brother-in-law of Frank B. Holding, Jr. and Hope Holding Bryant.
BancShares provides financial services for a wide range of consumer and commercial clients. This includes retail and mortgage
banking, wealth management, commercial and middle market banking, factoring and leasing. In addition to our banking
operations, we provide various investment products and services through FCB’s wholly owned subsidiaries, First Citizens
Investor Services, Inc. (“FCIS”) and First Citizens Asset Management, Inc. (“FCAM”). As a registered broker-dealer, FCIS
provides a full range of investment products, including annuities, discount brokerage services and third-party mutual funds. As
registered investment advisors, FCIS and FCAM provide investment management services and advice.
As a result of BancShares’ merger (the “CIT Merger”) with CIT Group Inc. (“CIT”) and its subsidiary CIT Bank, N.A., a
national banking association (“CIT Bank”), BancShares acquired a registered broker-dealer, registered investment adviser, a
wide range of commercial lending, leasing, and deposit products, as well as ancillary services and products, that span various
industries. BancShares now also provides commercial factoring, receivables management and secured financing services to
businesses (generally manufacturers or importers of goods) that operate in various industries, including apparel, textile,
furniture, home furnishings and consumer electronics. In addition, BancShares owns a fleet of railcars and locomotives that are
leased to railroads and shippers.
BancShares delivers products and services to its customers through an extensive branch network and additionally operates a
nationwide digital bank. Services offered at most branches include accepting deposits, cashing checks and providing for
consumer and commercial cash needs. Consumer and business customers may also conduct banking transactions through
various digital channels.
Statistical information regarding our business activities is found in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Business Combinations
BancShares pursues growth through strategic mergers and acquisitions to enhance organizational value, strengthen its presence
in existing markets, as well as expand its footprint in new markets.
On January 3, 2022 (the “Merger Date”), BancShares completed its largest acquisition to date with the merger with CIT and
CIT Bank. CIT had consolidated total assets of approximately $53.2 billion at December 31, 2021. The merger with CIT is
described further in the “Business Combinations” discussion below and the “Business Combinations” section of Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Notes to Consolidated
Financial Statements, Note 2 — Business Combinations included in this Annual Report on Form 10-K.
4
As a result of the CIT Merger, FCB is now a top 20 U.S. bank based on asset size with more than $100 billion in total assets.
BancShares believes that the CIT Merger allowed for the combination of organizations with complementary strengths,
combining FCB’s robust retail franchise and full suite of banking products with CIT’s strong market position in nationwide
commercial lending and direct digital banking. The combined banking organization leverages the capabilities of both legacy
banks to serve a broader spectrum of businesses and individuals, while offering convenience, scale and value.
Business Segments
As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. BancShares
began reporting multiple segments during the first quarter of 2022 and now reports General Banking, Commercial Banking,
Rail, and Corporate segments. BancShares conformed the comparative prior periods presented to reflect the new segments. The
substantial majority of BancShares’ operations for historical periods prior to completion of the CIT Merger are included in the
General Banking segment. The Commercial Banking and Rail segments primarily relate to operations acquired in the CIT
Merger. Reportable segments are discussed further in the “Results by Business Segments” section of Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Notes to Consolidated Financial
Statements, Note 23 — Business Segment Information.
SEGMENT
General Banking
Commercial Banking
Rail
Corporate
MARKETS AND SERVICES
•
•
•
•
•
•
•
•
Delivers services to individuals and businesses through an extensive branch network and various digital channels,
including a full suite of deposit products, loans (primarily business/commercial loans and residential mortgages),
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.
Provides deposit, cash management and lending to homeowner associations and property management companies.
Provides lending, leasing, capital markets and other financial and advisory services, primarily to small and middle-
market companies across a variety of industries.
Provides asset-based lending, factoring, receivables management products and supply chain financing.
Provides equipment leasing and secured financing to railroads and shippers.
Earning assets primarily include investment securities and interest-earning deposits at banks.
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 brokered deposits
and corporate funding costs, mark-to-market adjustments on equity securities and foreign currency hedges, merger-
related expenses, intangible assets amortization expenses, as well as certain unallocated interest income and other
costs.
General Banking
Our General Banking segment delivers products and services to consumers and businesses through our extensive network of
branches and various digital channels. We offer a full suite of deposit products, loans, cash management, wealth, payments and
various other fee-based services. We offer conforming and jumbo residential mortgage loans throughout the United States
which are primarily originated through branches and retail referrals, employee referrals, internet leads, direct marketing and a
correspondent lending channel. The General Banking segment also includes our nationwide digital banking, which is largely
comprised of the internet banking platform we acquired in the CIT Merger (the “Direct Bank”), that delivers deposit products to
consumers. We additionally have a dedicated business line that supports deposit, cash management and lending to homeowner
associations and property management companies nationwide. Our General Banking segment is the primary deposit gathering
business of FCB.
Revenue is generated from interest earned on loans and from fees for banking and advisory services. We source our consumer
and business/commercial lending business through our branch network and industry referrals, as well as direct digital marketing
efforts. We periodically purchase loans on a whole-loan basis. We source our Small Business Administration (“SBA”) loans
through a network of SBA originators. We also make community development investments and loans that support the
construction of affordable housing in our communities in line with our CRA initiatives.
Commercial Banking
Our Commercial Banking segment provides a range of lending, leasing, capital markets, asset management and other financial
and advisory services primarily to small and middle market companies in a wide range of industries including aerospace and
defense, communication, power and energy, entertainment, gaming, healthcare, industrials, maritime, real estate, restaurants,
retail, services and technology. Loans offered are primarily senior secured loans collateralized by accounts receivable,
inventory, machinery and equipment, transportation equipment and/or intangibles, and are often used for working capital, plant
expansion, acquisitions or recapitalizations. These loans include revolving lines of credit and term loans and, depending on the
nature of the collateral, may be referred to as collateral-backed loans, asset-based loans or cash flow loans. We provide senior
secured loans to developers and other commercial real estate professionals. Additionally, we provide small business loans and
leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding
process.
5
We provide factoring, receivable management, and secured financing to businesses that operate in several industries, including
apparel, textile, furniture, home furnishings and consumer electronics. Factoring entails the assumption of credit risk with
respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that
have been factored (i.e., sold or assigned to the factor). A client is the counterparty on any factoring, financing, or receivables
purchasing agreement to sell trade receivables to us, and generally is a manufacturer or importer of goods. A customer is the
account debtor and obligor on trade accounts receivable that have been factored with and assigned to the factor.
Revenue is generated from interest earned on loans, rent on equipment leased, fees and other revenue from lending and leasing
activities, banking services, and capital markets transactions, along with commissions earned on factoring and related activities.
We source our commercial lending business primarily through direct marketing to borrowers, lessees, manufacturers, vendors
and distributors, and through referral sources and other intermediaries. We may periodically buy participations or syndications
of loans and lines of credit and purchase loans on a whole-loan basis.
Rail
Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers
throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic
pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service products;
open-top hopper cars for coal and aggregates; boxcars for paper and auto parts; and centerbeams and flat cars for lumber.
Revenue is generated primarily from rent on equipment leased.
Competition
The financial services industry is highly competitive. BancShares competes with 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 service providers are not subject to the same significant regulatory restrictions as traditional commercial banks. More
than ever, customers have the ability to select from a variety of traditional and nontraditional alternatives. Competition is based
on a number of factors including, among others, customer service, quality and range of products and services offered, price,
reputation, interest rates on loans and deposits and customer convenience.
As of December 31, 2021, FCB’s primary deposit markets were North Carolina and South Carolina, which represented
approximately 50.8% and 22.7%, respectively, of total FCB deposits. Deposits (based on branch location) as of December 31,
2022, in North Carolina and South Carolina represented approximately 39.7%, and 13.3%, respectively, of total deposits.
FCB’s deposit market share as of June 30, 2022 in North Carolina and South Carolina was 7.3% and 9.3%, respectively, which
makes FCB the fourth largest bank in both North Carolina and South Carolina based on the Federal Deposit Insurance
Corporation (“FDIC”) Deposit Market Share Report. The three banks larger than FCB based on deposits in North Carolina and
South Carolina were Bank of America, Truist Bank and Wells Fargo. These banks collectively controlled 72.5% and 44.2% of
North Carolina and South Carolina deposits, respectively. Additionally, the CIT Merger added deposits that were primarily
related to the Digital Bank of $16.47 billion or 18.4% of total FCB deposits as of December 31, 2022.
As of December 31, 2022, FCB had 582 total domestic branches and offices, which included 219 in North Carolina, 126 in
South Carolina and 68 in California.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the
“Executive Order”), which encouraged the federal banking agencies, to review the current framework for merger oversight
practices under the Bank Holding Company Act of 1956, as amended (“BHCA”) and the Bank Merger Act. The Executive
Order has received significant public support from members of Congress as well as from members of the board of the FDIC and
Federal Reserve and the Acting Comptroller of the Currency. The review is ongoing by the agencies, and no formal changes
have been announced. The adoption of more expansive or prescriptive standards could impact our future potential acquisitions.
Refer to Item 1A. Risk Factors below for additional information.
Geographic Locations
As of December 31, 2022, BancShares operated branches in Arizona, California, Colorado, Florida, Georgia, Hawaii, Kansas,
Maryland, Missouri, North Carolina, Nebraska, New Mexico, Nevada, Oklahoma, Oregon, South Carolina, Tennessee, Texas,
Virginia, Washington, Wisconsin and West Virginia.
6
Human Capital
As of December 31, 2022, BancShares employed approximately 10,375 full-time staff and approximately 309 part-time staff
for a total of 10,684 employees. Women and ethnically diverse associates make up approximately 61% and 33% of total
employees, respectively, and our Executive Leadership Team includes three women.
Our ability to attract, retain and develop associates who align with our purpose is key to our success. BancShares’ human
capital strategy is predicated on ensuring the organization has the right people with the right skills in the right places at the right
time for the right cost to fulfill its mandate and strategic objectives. Our human resources team works to formalize the process
of defining and deploying the mission-critical talent needed to align BancShares with the financial and strategic goals and
objectives. Key human capital initiatives include scaling and developing talent, enhancing performance management and
coaching, and accelerating inclusion, equity and diversity initiatives. The retention and integration of key CIT employees has
been a significant initiative. The Board monitors these initiatives and associated risks primarily through its Risk Committee.
To assist with these goals, we monitor and evaluate various metrics, specifically around attraction, retention and development
of talent. Our annual voluntary turnover is relatively low compared to the industry. We believe this reflects our strong corporate
culture, competitive compensation and benefit structures and commitment to career development.
Compensation and Benefits
We strive to provide robust compensation and benefits to our employees. In addition to salaries, compensation and benefit
programs include a 401(k) plan with employer matching opportunities, healthcare and insurance benefits, health savings and
flexible spending accounts, paid time off and other employee assistance programs.
Regulatory Considerations
Various laws and regulations administered by regulatory agencies affect BancShares’ corporate practices, including the
payment of dividends, the incurrence of debt, and the acquisition of financial institutions and other companies. Laws and
regulations also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, the
types of business conducted and the location of offices. Certain subsidiaries of the Parent Company and FCB are subject to
regulation, supervision, and examination by the Securities and Exchange Commission (“SEC”), the Financial Industry
Regulatory Authority (“FINRA”), state regulatory agencies, and other regulatory authorities as “regulated entities.” FCB’s
insurance activities are subject to licensing and regulation by state insurance regulatory agencies.
In general, numerous statutes and regulations also apply to and restrict the activities of BancShares, including limitations on the
ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on
transactions with related persons and entities controlled by related persons. The impact of these statutes and regulations is
discussed below and in the accompanying consolidated financial statements.
BancShares has over $100 billion in total consolidated assets, and is now subject to certain enhanced prudential standards and
enhanced oversight under the applicable transition provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) by the Federal Reserve Board (“Federal Reserve” or “FRB”), and the FDIC with respect to FCB.
As BancShares continues to grow, BancShares will become subject to additional regulatory requirements, based on the tailored
regulatory framework applicable to banking organizations with $100 billion or more in total assets, and adopted by the federal
banking agencies pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”).
In connection with the CIT Merger, FCB established as a wholly-owned subsidiary, FC International, Inc. (“FC International”),
which is a corporation chartered by the Federal Reserve pursuant to Section 25A of the Federal Reserve Act (“Edge Act”) and
the Federal Reserve’s Regulation K. Edge Act corporations are international banking organizations that are authorized to
engage in international banking and foreign financial transactions, and the U.S. activities of such corporations are generally
limited to those that are incidental to their foreign operations. FCB established FC International for the purpose of holding the
equity interests in the foreign nonbank subsidiaries (“foreign companies”) that FCB acquired in the CIT Merger. Certain of the
foreign companies have been, or are in the process of being, wound-down or dissolved. The other foreign companies acquired
by FCB support the railcar leasing business acquired from CIT in Canada and Mexico. FC International is subject to
supervision and regulation by the Federal Reserve, including examination, reporting, capital, and Bank Secrecy Act of 1970
(“BSA”) and anti-money laundering (“AML”) requirements, pursuant to the Edge Act and the Federal Reserve’s Regulation K.
Dodd-Frank Act. The Dodd-Frank Act, enacted in 2010, significantly restructured the financial services regulatory
environment; imposed significant regulatory and compliance changes on the financial services industry; increased capital,
leverage and liquidity requirements for banking organizations; and expanded the scope of oversight responsibility of certain
federal agencies through the creation of new oversight bodies. For example, the Dodd-Frank Act established the Consumer
Financial Protection Bureau (“CFPB”) with broad powers to supervise and enforce federal consumer financial protection laws.
7
EGRRCPA. Enacted in 2018, the EGRRCPA, while largely preserving the fundamental elements of the post-Dodd-Frank Act
regulatory framework, modified certain requirements of the Dodd-Frank Act as they applied to regional and community
banking organizations. Certain of the significant requirements of the Dodd-Frank Act are listed below with information
regarding how they apply to BancShares following the enactment of the EGRRCPA.
• Asset Threshold for Applicability of Dodd-Frank Act Enhanced Prudential Standards and Enhanced Supervision. The
Dodd-Frank Act mandated the applicability of enhanced prudential standards (including enhanced liquidity and capital
requirements, enterprise-wide risk management requirements, concentration limits, resolution plans and credit
exposure report requirements, etc.) and enhanced supervision of bank holding companies with $50 billion or more in
assets. The EGRRCPA raised the asset threshold for mandatory applicability of enhanced prudential standards to $250
billion or more in total consolidated assets, and gives the FRB the discretion to apply any enhanced prudential
standards to banking organizations with $100 billion or more in total assets on a tailored basis based on asset size and
other risk-related factors to prevent or mitigate risks to the financial stability of the United States or to promote the
safety and soundness of a bank holding company. In November 2019, the FRB, along with the FDIC and the Office of
the Comptroller of the Currency (the “OCC”), adopted a framework for tailoring the applicability of enhanced
prudential standards for banking organizations with $100 billion or more in assets (the “Tailoring Rules”). The
Tailoring Rules are further discussed below. Total assets are calculated based on a trailing four-quarter average.
BancShares first became subject to the enhanced prudential standards in connection with the CIT Merger, and now
BancShares is treated as a Category IV banking organization under the Tailoring Rules, as further discussed below.
• Capital Planning and Stress Testing. The Dodd-Frank Act mandated company-run stress tests be 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 economic and bank scenarios. The EGRRCPA gave immediate
relief from the Dodd-Frank Act and company-run stress testing for banking organizations with less than $250 billion in
total consolidated assets. Therefore, BancShares is not subject to Dodd-Frank Act company-run stress testing
(“DFAST”) until such time that it has $250 billion or more in total assets, based on a trailing four-quarter average.
Notwithstanding these amendments to the stress testing requirements, bank holding companies with $100 billion or
more in total consolidated assets are subject to supervisory stress testing by the FRB under the Federal Reserve’s
Comprehensive Capital Analysis and Review (“CCAR”). BancShares has over $100 billion in total consolidated
assets, and we are subject to biennial supervisory stress testing by the Federal Reserve under the CCAR process as a
Category IV banking organization in accordance with the applicable transition provisions. BancShares, as a Category
IV banking organization, is also required to develop, maintain, and submit an annual capital plan to the Federal
Reserve. BancShares has made substantial progress in developing policies, programs, and systems designed to comply
with capital planning and stress testing requirements.
•
• Resolution Planning. Under the Dodd-Frank Act, as amended by the EGRRCPA, bank holding companies with $250
billion or more in total consolidated assets are required to develop and maintain resolution plans (commonly referred
to as “Living Wills”) to support the orderly resolution of large banking organizations. Under the regulations
promulgated by the FRB and FDIC implementing the Living Wills requirement, currently only Category I, II, and III
banking organizations are required to submit resolution plans. Therefore, BancShares as a Category IV banking
organization is not required to submit a resolution plan under the Living Wills requirement. As further discussed
below, FCB is required to submit a resolution plan under the FDIC’s resolution plan requirement for insured
depository institutions (“IDIs”) with $50 billion or more in total consolidated assets under its covered insured
depository institution rule (“CIDI Rule”).
The Volcker Rule. The Volcker Rule was promulgated to implement provisions of the Dodd-Frank Act. It generally
prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds
and private equity funds, subject to certain exemptions. The EGRRCPA exempted many financial institutions with
total consolidated assets of less than $10 billion from the Volcker Rule, but it continues to apply to BancShares.
However, the Volcker Rule does not significantly impact our operations as we do not have any significant engagement
in such prohibited businesses.
• Ability-to-Repay and Qualified Mortgage Rule. Creditors are required to comply with mortgage reform provisions
prohibiting the origination of any residential mortgages that do not meet rigorous Qualified Mortgage (“QM”)
standards or Ability-to-Repay (“ATR”) standards. All mortgage loans originated by FCB meet ATR standards and a
substantial majority also meet QM standards. The EGRRCPA impact on the original ATR and QM standards is only
applicable to banks with less than $10 billion in total consolidated assets.
8
• Reciprocal Deposits are not treated as BroKered Deposits. Section 29 of the Federal Deposit Insurance Act (the “FDI
Act”) and the FDIC’s implementing regulations limit the ability of an IDI to accept brokered deposits unless the
institution is well-capitalized under the Prompt Corrective Action (the “PCA”) under the FDI Act, or the IDI is
adequately capitalized and obtains a waiver from the FDIC. IDIs that are less than well-capitalized are not able to
accept brokered deposits, and are subject to restrictions on the interest rates paid on deposits. In addition, deposits that
are considered “brokered” are subject to higher deposit assessments. EGRRCPA amended the FDI Act to add a limited
exception under which IDIs that are well-capitalized or adequately capitalized and meet certain other criteria are able
to exempt from treatment as “brokered” deposits 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 same maturity and in the same aggregate amount as deposits placed by the depository institution in
other network institutions). In addition, in December 2020, the FDIC amended its regulations governing “brokered
deposits” to clarify and modernize this regulatory framework. Notable aspects of the final rule include (1) the
establishment of bright-line standards for determining whether an entity meets the statutory definition of “deposit
broker”; (2) the identification of a number of business relationships that qualify for the “primary purpose” exception
for agents to avoid being deemed a “deposit broker” for the placement of funds with depository institutions; (3) the
establishment of a more transparent application process for entities that seek to rely upon the “primary purpose”
exception but do not qualify for one of the identified exceptions for business relationships deemed to satisfy the
“primary purpose” exception; and (4) the clarification that third parties that have an exclusive deposit-placement
arrangement with one IDI are not considered a “deposit broker.” The final rule became effective April 1, 2021, with
full compliance required by January 1, 2022.
First Citizens BancShares, lnc•
General. As a bank holding company registered under the BHCA, the Parent Company is subject to supervision, regulation and
examination by the Federal Reserve. As a “financial holding company” (“FHC”), the Parent Company may engage in or acquire
and retain the shares of a company engaged in activities that are “financial in nature” as long as the Parent Company continues
to meet the eligible requirements for FHC status, including that the Parent Company and FCB each remain “well-capitalized”
and “well-managed.” Activities that are “financial in nature” include securities underwriting, dealing and market making,
advising mutual funds and investment companies, insurance underwriting and agency, merchant banking, and any activities that
the Federal Reserve in consultation with the Secretary of the Treasury determines to be in “financial in nature,”
“complementary” or “incidental” to such financial activity. The Parent 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”).
Enhanced Prudential Standards and Enhanced Supervision. A bank holding company with total consolidated assets of $250
billion or more is subject to enhanced prudential standards under the Dodd-Frank Act, as amended by EGRRCPA, with the
requirements tailored based on risk-based factors identified by the federal banking agencies. Consistent with the authority of the
FRB under the Dodd-Frank Act, a bank holding company with $100 billion or more in assets, but less than $250 billion in
assets is subject to certain enhanced prudential standards as implemented by the Tailoring Rules. Under the Tailoring Rules,
banking organizations are grouped into four categories, based on asset size, off-balance sheet exposure, nonbank assets,
weighted short-term wholesale funding, and cross-jurisdictional activities. Category I banking organizations (i.e., U.S. GSIBs)
are subject to the most stringent enhanced prudential requirements, and Category IV banking organizations (i.e., between $100
billion and $250 billion in total consolidated assets, and less than $75 billion in nonbank assets, off-balance sheet exposure,
cross-jurisdictional activities, and weighted short-term wholesale funding) are subject to the least stringent requirements.
BancShares has between $100 billion and $250 billion in total consolidated assets and therefore, is required to comply with
certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition
periods. BancShares has developed policies, programs, and systems designed to meet such enhanced prudential standards,
including annual capital plan submissions and supervisory stress testing by the Federal Reserve under CCAR, enhanced
enterprise-wide risk management requirements, and enhanced liquidity management requirements, including liquidity stress
tests and liquidity buffer requirements. In the event BancShares’ assets grow to meet or exceed the thresholds for the asset size
or other risk-based factors, BancShares will be subject to other enhanced prudential standards on a tailored basis. For example,
if BancShares has $50 billion or more in weighted short-term wholesale funding, it will be subject to modified liquidity
coverage ratio (“LCR”) and net stable funding ratio (“NSFR”) requirements. In the event BancShares becomes a Category III
banking organization, BancShares will be subject to full or reduced LCR and NSFR requirements, annual company-run capital
stress testing, resolution planning requirements, annual supervisory capital stress testing under CCAR, additional risk-based
capital requirements (countercyclical buffer), the supplementary leverage ratio, and additional liquidity reporting requirements.
9
Permitted Activities. A bank holding company is limited to managing or controlling banks, furnishing services to or performing
services for its subsidiaries, and engaging in other activities the Federal Reserve determines 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 elect to be financial holding companies, such as the Parent Company, may engage in any activity, or
acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such
financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii)
complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions
or the financial system generally (as solely determined by the Federal Reserve), without prior approval of the Federal Reserve.
Activities financial in nature include securities underwriting and dealing, serving as an insurance agent and underwriter and
engaging in merchant banking.
Acquisitions. The Parent Company is subject to various laws that may require regulatory approval for acquisitions. For
example, under the BHCA, a bank holding company must obtain approval from the Federal Reserve prior to directly or
indirectly acquiring ownership or control of 5% of the voting shares or substantially all of the assets of another bank holding
company or bank or prior to merging or consolidating with another bank holding company. The BHCA and other federal laws
enumerate the factors the Federal Reserve must consider when reviewing the merger of bank holding companies, the acquisition
of banks or the acquisition of voting securities of a bank or bank holding company. These factors include the competitive
effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the
companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the
organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to
be served; and the records of performance under the Community Reinvestment Act of 1977 of the IDI involved in the
transaction.
Status Requirements. To maintain FHC status, a FHC and all of its depository institution subsidiaries must be well-capitalized
and well-managed. A depository institution subsidiary is considered to be well-capitalized if it satisfies the requirements for this
status under applicable Federal Reserve capital requirements. A depository institution subsidiary is considered well managed if
it received a composite rating and management rating of at least “satisfactory” in its most recent examination. As a Category IV
banking organization, BancShares will transition from the Federal Reserve’s RFI rating system to the rating system for large
financial institutions (“LFI”), referred to as the LFI rating system. Under the LFI rating system, the FRB assigns ratings based
on three supervisory components: (i) capital planning and positions, (ii) liquidity risk management and positions, and (iii)
governance and controls. The LFI rating system scale differs from the RFI rating system scale. The LFI rating system has a
four-category, non-numeric rating scale with no single composite rating or scoring. The four rating categories are “Broadly
Meets Expectations,” “Conditionally Meets Expectations,” “Deficient-1” and “Deficient-2.” A banking organization must
receive at least “Conditionally Meets Expectations” for each of the component ratings to be considered “well managed.” If a
FHC ceases to meet these capital and management requirements, the Federal Reserve may impose limitations or conditions on
the conduct of its activities.
Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA,
including a minimum leverage ratio and minimum ratios of “qualifying” capital to risk-weighted assets. The metrics utilized to
measure regulatory capital include the Tier 1 leverage ratio and the total, Tier 1, and common equity Tier 1 risk based capital
ratios (collectively, the “Regulatory Capital Ratios”). Federal banking agencies approved regulatory capital guidelines (“Basel
III”) aimed at strengthening previous capital requirements for banking organizations. Basel III became effective for BancShares
on January 1, 2015 and the associated capital conservation buffers of 2.5% were fully phased in by January 1, 2019. The capital
conservation buffer is designed to absorb losses during periods of economic stress. Additionally, federal banking agencies have
developed PCA well-capitalized thresholds for Regulatory Capital Ratios. The following table includes the Basel III
requirements and PCA well-capitalized thresholds for the Regulatory Capital Ratios.
Regulatory Capital Ratios
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage
Basel III
Minimums
Basel III
Conservation
Buffers
Basel III
Requirements
PCA Well-
Capitalized
Thresholds
8.00 %
6.00
4.50
4.00
2.50 %
2.50
2.50
—
10.50 %
8.50
7.00
4.00
10.00 %
8.00
6.50
5.00
10
Failure to meet regulatory capital requirements may result in certain actions by federal banking agencies that could have a direct
material effect on the consolidated financial statements of BancShares and constraints on capital distributions and discretionary
executive compensation. As of December 31, 2022, the Regulatory Capital Ratios of BancShares exceeded the applicable Basel
III requirements and the well-capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As a result of the CIT Merger, BancShares will be subject to the Federal Reserve’s stress capital buffer (“SCB”) requirement,
which is set through CCAR stress testing. On January 19, 2021, the Federal Reserve finalized regulatory amendments related to
the SCB requirements for Category IV banking organizations to be consistent with the Tailoring Rules. The SCB reflects losses
under the severely adverse scenario of the CCAR supervisory stress tests. The Federal Reserve calculates a SCB as the greater
of (i) the difference between the firm’s starting and minimum projected Common Equity Tier 1 (“CET1”) Risk-Based Capital
Ratio under the severely adverse scenario in the supervisory stress test, plus the sum of dollar amount of the firm’s planned
common stock dividends for each of the fourth through seventh quarters of the planning horizon as a percentage of risk-
weighted assets, or (ii) 2.5 percent. The SCB calculated by the Federal Reserve replaces the static 2.5 percent capital
conservation buffer required by Basel III. As noted above, the CCAR supervisory stress tests are distinct from DFAST, and
BancShares will not be subject to DFAST requirements until it has $250 billion or more in total consolidated assets, pursuant to
the EGRRCPA.
Source of Strength. Under the Dodd-Frank Act, bank holding companies are required to act as a source of financial and
managerial strength to their subsidiary banks. Under this requirement, the Parent Company is expected to commit resources to
support FCB, including times when the Parent Company may not be in a financial position to provide such resources. Any
capital loans made by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors
and to certain other 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 maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to priority of payment.
Safety and Soundness. The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness
standards. These guidelines establish general standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In
general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and
exposures specified in the guidelines. There are a number of obligations and restrictions imposed on bank holding companies
and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such
depository institutions and to the FDIC insurance fund in the event of a depository institution default. As noted above,
BancShares became a Category IV banking organization and is subject to enhanced prudential standards and enhanced
supervision under the Tailoring Rules subject to the applicable transition periods.
Limits on Dividends and Other Payments. The Parent Company is a legal entity, separate and distinct from its subsidiaries.
Revenues of the Parent Company primarily result from dividends received from FCB. There are various legal limitations
applicable to the payment of dividends by FCB to the Parent Company and to the payment of dividends by the Parent Company
to its stockholders. The payment of dividends by FCB or the Parent Company may be limited by certain factors, such as
requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit 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 FCB or the Parent Company, could be deemed to constitute such an unsafe or unsound
practice. BancShares became a Category IV banking organization and is required to submit a capital plan annually to the
Federal Reserve in accordance with the applicable transition provisions. The annual capital plan will include planned capital
distributions over a specified forecasting horizon. BancShares is subject to biennial supervisory capital stress testing under the
Federal Reserve’s CCAR process. The SCB would replace the static 2.5% component of the capital conservation buffer with a
capital buffer that is based on supervisory stress test results and the Parent Company’s planned capital distributions. As
discussed above, BancShares’ SCB would be calculated as the greater of (i) the difference between BancShares’ starting and
minimum projected CET1 capital ratios under the severely adverse scenario in the supervisory stress test plus four quarters of
planned common stock dividends as a percentage of risk-weighted assets and (ii) 2.5 percent. BancShares’ supervisory stress
testing results under CCAR could impact the ability of the Parent Company to declare dividends or make other capital
distributions, including common share repurchases.
11
Additionally, under the FDI Act, IDIs, such as FCB, are prohibited from making capital distributions, including the payment of
dividends, if, after making such distributions, the institution would become “undercapitalized” as such term is used in the
statute. Additionally, under Basel III capital guidelines, banking institutions with a Regulatory Capital Ratio above the Basel III
minimum, but below the Basel III requirement will face 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 material impact on its ability to receive dividends from FCB. The Parent Company’s non-bank
subsidiaries pay dividends to the Parent Company periodically on a non-regulated basis.
Crypto-Asset Related Activities. On August 16, 2022, the FRB released supervisory guidance (“SR 22-6”) encouraging all
banking organizations supervised by the agency to notify its lead supervisory point of contact at the Federal Reserve prior to
engaging in any crypto-asset related activity. Prior to engaging in any such activities, the banking organization is expected to
ensure that the activities are legally permissible under relevant state and federal laws, and ensure that the banking organization
has adequate systems, risk management, and controls to ensure that the activities are conducted in a safe and sound manner
consistent with applicable laws, including consumer protection laws. On April 7, 2022, the FDIC issued a financial institution
letter also requiring its supervised institutions to provide notice and obtain supervisory feedback prior to engaging in any
crypto-related activities. BancShares does not engage in any such activities.
Subsidiary Bank - FCB
General. FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting
requirements of, the FDIC and the NCCOB. Deposit obligations are insured by the FDIC to the maximum legal limits. As an
IDI with $100 billion or more in total consolidated assets, FCB is subject to certain additional requirements under the FDIC’s
regulations (e.g., Resolution Plans under the CIDI Rule, additional reporting in the Call Report using FFIEC Form 031 rather
than Form 041). FCB is also subject to enforcement, supervisory and examination authorities of the CFPB.
FDIC Deposit Insurance Assessment Rates. As an IDI, FCB is required to pay the FDIC premiums for deposit insurance. On
October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules by 2 points,
beginning in the first quarterly assessment period of 2023. This price increase will be instituted to account for extraordinary
growth in insured deposits during the first and second quarters of 2020 which caused the Depositors Insurance Fund (“DIF”)
reserve ratio to decline below the statutory minimum of 1.35%. The increased assessment rate schedules will remain in effect
until the reserve ratio meets or exceeds 2 percent, absent further action by the FDIC.
Capital Requirements. The Basel III and PCA well-capitalized thresholds for the Regulatory Capital Ratios are described above
in the Parent Company “Capital Requirements” discussion. Failure to meet regulatory capital requirements may result in certain
actions by federal banking agencies that could have a direct material effect on the consolidated financial statements of FCB. As
of December 31, 2022, the Regulatory Capital Ratios of FCB exceeded the applicable Basel III requirements and the well-
capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Although FCB is unable to control the external factors influencing its business, by maintaining high levels of balance sheet
liquidity, prudently managing interest rate exposures, ensuring capital positions remain strong and actively monitoring asset
quality, FCB seeks to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and to take
advantage of favorable economic conditions and opportunities when appropriate.
Covered Insured Depository Institution Contingency Planning Requirements. Under the FDIC’s CIDI Rule, an IDI with $50
billion or more in total assets is required to submit periodically to the FDIC a contingency plan for the resolution of the
institution in the event of its failure (“Resolution Plan”). The FDIC requires the Resolution Plan to ensure that the FDIC, as
receiver, would be able to resolve the institution pursuant to the receivership provisions of the FDI Act. In April 2019, the FDIC
issued an advance notice of proposed rulemaking to amend the CIDI Rule, and suspended the requirement to submit Resolution
Plans until further notice. In January 2021, the FDIC announced that it would resume Resolution Plan requirements for IDIs
with $100 billion in assets. On June 25, 2021, the FDIC issued a policy statement, describing a new framework for the
implementation of the CIDI Rule. The FDIC has stated that it will provide covered IDIs with 12 months advance notice prior to
the submission deadline of its Resolution Plan.
FCB has not previously submitted a Resolution Plan under the CIDI Rule. FCB has been informed by the FDIC that it will be
required to submit its first Resolution Plan under the CIDI Rule once notified by the FDIC.
12
Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act, Regulation W and Regulation O,
the authority of FCB to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan
transactions with an affiliate generally must be collateralized and certain transactions between FCB and its affiliates, including
the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the
same, or at least as favorable to FCB, as those prevailing for comparable nonaffiliated transactions. In addition, FCB generally
may not purchase securities issued or underwritten by affiliates.
FCB receives management fees from its subsidiaries and the Parent Company for expenses incurred for performing various
functions on their behalf. These fees are charged to each company based upon the estimated cost for usage of services by that
company. The fees are eliminated from the consolidated financial statements.
Community Reinvestment Act. FCB is subject to the requirements of the Community Reinvestment Act of 1977 (“CRA”). The
CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities,
including low- and moderate-income (“LMI”) neighborhoods. If FCB receives a rating from the Federal Reserve of less than
“satisfactory” under the CRA, restrictions would be imposed on our operating activities. In addition, in order for a FHC, like the
Parent Company, to commence any new activity permitted by the BHCA or to acquire any company engaged in any new
activity permitted by the BHCA, each IDI subsidiary of the FHC must have received a rating of at least “satisfactory” in its
most recent examination under the CRA. FCB currently has a “satisfactory” CRA rating.
On May 5, 2022, the FRB, FDIC, and OCC issued a joint notice of proposed rulemaking to revise the regulations implementing
the CRA. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and
communities in which they operate, and tailor CRA evaluations and data collection to bank size and type. Further, the agencies
would also emphasize smaller value loans and investments that can have high impact and be more responsive to the needs of
LMI communities, and would update CRA assessment areas to include activities associated with online and mobile banking,
branchless banking, and hybrid models. Additionally, the proposal would adopt a metrics-based approach to CRA evaluations
of retail lending and community development financing, including public benchmarks, and clarify eligible CRA activities, such
as affordable housing, that are focused on LMI, underserved, and rural communities.
As part of the CIT Merger, BancShares adopted a community benefit plan, developed in collaboration with representatives of
community reinvestment organizations, for the combined bank. Under the Community Benefit Plan, FCB will invest $16 billion
in the communities served by FCB, including $2.5 billion in home purchase mortgage loans focusing on LMI and minority
borrowers in majority-minority (“MM”) geographies and $5 million in discounts or subsidies on home purchase and home
improvement loans to borrowers in MM census tracts in the combined bank’s footprint in California.
Anti-Money Launderinf and the United States Department of the Treasury’s Office of Foreifn Asset Control (“OFAC”)
Refulation. Governmental policy in recent years has been aimed at combating money laundering and terrorist financing. The
BSA and subsequent laws and regulations require financial institutions to take steps to prevent the use of their systems to
facilitate the flow of illegal or illicit money or terrorist funds and to report certain activity to the government. 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 well as rules promoting cooperation among financial institutions, regulators and
law enforcement entities in identifying persons who may be involved in terrorism or money laundering. These rules were
expanded to require new customer due diligence and beneficial ownership requirements in 2018.
An institution subject to the BSA, such as FCB (and FC International), in addition to maintaining a written BSA/AML
compliance program, must also provide AML training to employees, designate an AML compliance officer and annually audit
the AML program to assess its effectiveness. The United States has imposed economic sanctions on transactions with certain
designated foreign countries, nationals and others. As these rules are administrated by OFAC, these are generally known as the
OFAC rules. Failure of a financial institution to maintain and implement adequate BSA, AML and OFAC programs, or to
comply with all the relevant laws and regulations, could have serious legal and reputational consequences, including material
fines and sanctions. FCB has implemented a program designed to facilitate compliance with the full extent of the applicable
BSA and OFAC related laws, regulations and related sanctions.
13
On January 1, 2021, Congress passed the National Defense Authorization Act, which enacted the most significant overhaul of
the BSA and related anti-money laundering laws since the Patriot Act. Notable amendments include (1) significant changes to
the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires
corporate entities (generally, any corporation, LLC, or other similar entity with 20 or fewer employees and annual gross income
of $5 million or less) to report beneficial ownership information to FinCEN (which will be maintained by FinCEN and made
available upon request to financial institutions); (2) enhanced 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 action brought by the Secretary of the Treasury or the Attorney General resulting in
monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or
compensation to victims) will receive not more than 30% of the monetary sanctions collected and will receive increased
protections; (3) increased penalties for violations of the BSA; (4) improvements to existing information sharing provisions that
permit financial institutions to share information relating to Suspicious Activity Reports (SARs) with foreign branches,
subsidiaries, and affiliates (except those located in China, Russia, or certain other 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 September 29, 2022, FinCEN issued final regulations implementing the amendments with
respect to beneficial ownership.
Consumer Laws and Regulations. FCB is also subject to certain laws and regulations designed to protect consumers in
transactions with banks. These laws include the Truth in Lending Act (“TILA”), the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act,
Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Housing Act
and the Servicemembers Civil Relief Act. The laws and related regulations mandate certain disclosures and regulate the manner
in which financial institutions transact business with certain customers. FCB must comply with these consumer protection laws
and regulations in its relevant lines of business.
To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services, the
CFPB is responsible for interpreting and enforcing federal consumer financial laws, as defined by the Dodd-Frank Act, that,
among other things, govern the provision of deposit accounts along with mortgage origination and servicing. Some federal
consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, TILA, the Truth in Savings Act, the
Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act (“RESPA”), the Fair Debt Collection Practices Act,
and the Fair Credit Reporting Act. The CFPB is also authorized to prevent any institution under its authority from engaging in
an unfair, deceptive, or abusive act or practice in connection with consumer financial products and services.
Under TILA, as implemented by Regulation Z, mortgage lenders are required to make a reasonable and good faith
determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable
ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of
two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making
the credit decision: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly
payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-
related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly DTI ratio or residual income; and
(8) credit history. Alternatively, the mortgage lender can originate QMs, which are entitled to a presumption that the creditor
making the loan satisfied the ATR requirements. In general, a QM is a mortgage loan without negative amortization, interest-
only payments, balloon payments, or terms exceeding 30 years. In addition, to be a QM the points and fees paid by a consumer
cannot exceed 3% of the total loan amount.
On December 10, 2020, the CFPB issued two final rules related to QM loans. The first rule replaces the strict 43% DTI
threshold for QM loans and provides that, in addition to existing requirements, a loan receives a conclusive presumption that
the consumer had the ability to repay if the APR does not exceed the average prime offer rate for a comparable transaction by
1.5 percentage points or more as of the date the interest rate is set. Further, a loan receives a rebuttable presumption that the
consumer had the ability to repay if the APR exceeds the average prime offer rate for a comparable transaction by 1.5
percentage points or more but by less than 2.25 percentage points. The second rule creates a new category of “seasoned” QMs
for loans that meet certain performance requirements. That rule allows a non-QM loan or a “rebuttable presumption” QM loan
to receive a safe harbor from ATR liability at the end of a “seasoning” period of at least 36 months as a “seasoned QM” if it
satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated
performance and portfolio requirements during the “seasoning period.” The mandatory compliance date under the first final rule
was July 1, 2021, but subsequently was delayed by the CFPB to October 1, 2022. The second final rule will apply to covered
transactions for which institutions receive an application after the compliance date for the first final rule.
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Additionally, the CFPB has the authority to take supervisory and enforcement action against banks and other financial services
companies under the agency’s jurisdiction that fail to comply with federal consumer financial laws. As an IDI with total assets
of more than $10 billion, FCB is subject to the CFPB’s supervisory and enforcement authorities. The Dodd-Frank Act also
permits states to adopt stricter consumer protection laws and state attorneys general to enforce consumer protection rules issued
by the CFPB. As a result of these aspects of the Dodd-Frank Act, FCB operates in a stringent consumer compliance
environment. The CFPB has been active in bringing enforcement actions against banks and other financial institutions to
enforce consumer financial laws. The federal financial regulatory agencies, including the FDIC and states attorneys general,
also have become increasingly active in this area with respect to institutions over which they 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 threatened conduct of such holding company poses a risk to the DIF, although
such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and
material risk to the DIF. The Dodd-Frank Act may have a material impact on BancShares’ operations, particularly through
increased compliance costs resulting from possible future consumer and fair lending regulations. Refer to Item 1A. Risk Factors
below for a more extensive discussion of this topic.
Other Regulations applicable to the Parent Company and FCB
Privacy, Data Protection, and Cybersecurity. We are subject to a number of U.S. federal, state, local and foreign laws and
regulations relating to consumer privacy and data protection. Under privacy protection provisions of the Gramm-Leach-Bliley
Act of 1999 (“GLBA”) and its implementing regulations and guidance, we are limited in our ability to disclose certain non-
public information about consumers to nonaffiliated third parties. Financial institutions, such as us, are required by statute and
regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent
disclosure of certain personal information to a nonaffiliated third party. In addition, such financial institutions must
appropriately safeguard their customers’ nonpublic, personal information.
Consumers must be notified in the event of a data breach under applicable state laws. The changing privacy laws in the United
States, Europe and elsewhere, including the California Consumer Privacy Act of 2018, (the “CCPA”), which became effective
on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data
collection thresholds. The CCPA gives consumers the right to request disclosure of information collected about them, and
whether that information has been sold or shared with others, the right to request deletion of personal information (subject to
certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated
against for exercising these rights. The CCPA contains several exemptions, including for information that is collected,
processed, sold or disclosed pursuant to the GLBA. In November 2020, voters in the State of California approved the California
Privacy Rights Act (“CPRA”), a ballot measure that amends and supplements the CCPA by creating the California Privacy
Protection Agency, a watchdog privacy agency with the authority to issue regulations and guidance and to enforce the CCPA.
The CPRA also modifies the CCPA by expanding both the scope of businesses covered by the law and certain rights relating to
personal information and its use, collection, and disclosure by covered businesses. The California Privacy Protection Agency
has issued proposed rules which would implement the CPRA but has not yet made them final or stated when final rules are
likely to be enacted. Similar laws have and may be adopted by other states where BancShares does business. For instance, on
October 25, 2022, the New York State Department of Financial Services issued a proposed rule that would, among other things,
amend its cybersecurity regulation to create new tiers of regulated entities with tailored regulatory requirements, establish
enhanced governance requirements, and require additional cybersecurity controls.
In addition, multiple other states, Congress and regulators outside the United States are considering similar laws or regulations
which could create new individual privacy rights and impose increased obligations on companies handling personal data. For
example, on November 23, 2021, the federal financial regulatory agencies published a final rule that will impose upon banking
organizations and their service providers new notification requirements for significant cybersecurity incidents (the
“Cybersecurity Rule”). Specifically, the Cybersecurity Rule requires banking organizations to notify their primary federal
regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the
level of a “notification incident” within the meaning attributed to those terms by the Cybersecurity Rule. Banks’ service
providers are required under the Cybersecurity Rule to notify any affected bank to or on behalf of which the service provider
provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades,
or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours. The
Cybersecurity Rule took effect on April 1, 2022 and banks and their service providers were required to be in compliance with
the rule by May 1, 2022.
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Federal banking agencies, including the FDIC, have adopted guidelines for establishing information security standards and
cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along
with related regulatory materials, increasingly focus on risk management and processes related to information technology and
the use of third parties in the provision of financial services.
Climate-Related Regulation and Risk Management. In recent years the federal banking agencies have increased their focus on
climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.
Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management
practices of larger banking organizations, such as BancShares, including by encouraging such banks to: ensure that
management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential
impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic
planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise
expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related
initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of
climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related
risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal reporting, monitoring and
escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy
and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
On October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risk as
an “emerging threat” to financial stability. On December 16, 2021, the OCC issued proposed principles for climate-related
financial risk management for national banks with more than $100 billion in total assets. On March 30, 2022 and December 2,
2022, the FDIC and FRB issued their own proposed principles, respectively, for climate risk management by larger banking
organizations. The regulators have also indicated that all banks, regardless of their size, may have material exposures to
climate-related financial and other risks that require prudent management. The FRB, as the last agency to issue proposed
guidance, indicated that it will work with the other two agencies in issuing any final guidance. The proposed principles in the
guidance would cover the following areas: strategic planning; governance; policies, procedures, and limits; data, risk
measurement and reporting; risk management; and scenario analysis. The proposed guidance would also suggest how climate-
related financial risks can be addressed in specific prudential risk areas including liquidity, credit, other financial risks,
operational, legal and compliance, and other non-financial risks. If adopted as final guidance, BancShares as a banking
organization with $100 billion or more in total assets will be expected to implement the principles under the guidance to
demonstrate to the FRB (and the FDIC) that BancShares and FCB are operating in a safe and sound manner. In addition, states
in which we conduct business have taken, or are considering taking, similar actions on climate-related financial risks.
Compensation. Our compensation practices are subject to oversight by the Federal Reserve and, with respect to some of our
subsidiaries, by other financial regulatory agencies. The federal banking regulators have issued joint guidance on executive
compensation designed to ensure that the incentive compensation policies of banking organizations take into account risk
factors and are consistent with the safety and soundness of the organization. The guidance also provides that supervisory
findings with respect to incentive compensation will be incorporated into the organization’s supervisory ratings, which can
affect its ability to make acquisitions or other corporate decisions. The guidance further provides that the regulators may pursue
enforcement actions against a banking organization if its incentive compensation and related risk management, control or
governance processes pose a risk to the organization’s safe and sound practices. In addition, the Dodd-Frank Act requires the
federal banking regulators and the SEC to issue regulations requiring covered financial institutions to prohibit incentive
compensation arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to
material financial loss to the institution. In October 2022, the SEC adopted final rules implementing the incentive-based
compensation recovery (“clawback”) provisions of the Dodd-Frank Act. The final rules direct stock exchanges to require listed
companies to implement clawback policies to recover incentive-based compensation from current or former executive officers
in the event of certain financial restatements and to disclose their clawback policies and their actions under those policies. It is
anticipated that most registrants will have until late 2023 or early 2024 to adopt and implement or adjust their policies as
applicable.
Other Regulated Subsidiaries
As noted above, certain subsidiaries of the Parent Company and FCB are subject to regulation, supervision, and examination by
the SEC, FINRA, state regulatory agencies, and other regulatory authorities as “regulated entities.”
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FCB’s insurance activities are subject to licensing and regulation by state insurance regulatory agencies. Each of CIT's
insurance subsidiaries acquired by FCB in the CIT Merger is also licensed and regulated in the states in which the subsidiaries
conduct insurance business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the
financial aspects and business conduct of insurers. State laws in the U.S. grant insurance regulatory authorities broad
administrative powers with respect to, among other things: licensing companies and agents to transact business; establishing
statutory capital and reserve requirements and the solvency standards that must be met and maintained; regulating certain
premium rates; reviewing and approving policy forms; regulating unfair trade and claims practices, including through the
imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; approving
changes in control of insurance companies; restricting the payment of dividends and other transactions between affiliates; and
regulating the types, amounts and valuation of investments. CIT’s Vermont insurance captive subsidiary (acquired in the CIT
Merger) is required to file reports, generally including detailed annual financial statements, with the insurance regulatory
authority, and its operations and accounts are subject to periodic examination by such authorities.
Specialty business operations that were under CIT’s Commercial Finance Division prior to the CIT Merger, and specifically the
Rail, Maritime, and other equipment financing operations, are subject to various laws, rules, and regulations administered by
authorities in jurisdictions where business is conducted. In the United States, equipment financing and leasing operations,
including for railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations,
maintenance, and mechanical standards promulgated by various federal and state agencies and industry organizations, including
the U.S. Department of Transportation, the Federal Railroad Administration, the Association of American Railroads, the
Maritime Administration, the U.S. Coast Guard, and the U.S. Environmental Protection Agency. In addition, state agencies
regulate some aspects of rail and maritime operations with respect to health and safety matters.
Available Information
The Parent Company does not have its own separate Internet website. However, on FCB’s investor relations website
(www.ir.firstcitizens.com), we make available BancShares’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports, free of charge, as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC. Interested parties may also directly access the SEC’s website (www.sec.gov),
which contains reports, proxy and information statements and other information electronically filed by BancShares. Except as
specifically incorporated by reference into this Annual Report on Form 10-K, information on those websites is not part of this
report.
Item 1A. Risk Factors
Risk Factor Summary
We are subject to a number of risks and uncertainties that could have a material impact on our business, financial condition and
results of operations and cash flows. As a financial services organization, certain elements of risk are inherent in our
transactions and operations and are present in the business decisions we make. We encounter risks as part of the normal course
of our business, and our success is dependent on our ability to identify, understand and manage the risks presented by our
business activities. We categorize risks into the following areas, and the principal risks and uncertainties that management
believes make an investment in us speculative or risky are summarized within their respective areas:
•
Strategic Risks: The risks to our earnings or capital arising from our business decisions or improper implementation
of those decisions.
▪ We may be adversely affected by risks associated with completed, pending or any potential future
▪ Our future results will suffer if we do not effectively manage our expanded operations following the CIT
acquisitions.
Merger.
• Operational Risks: The risks of loss resulting from inadequate or failed processes, people and systems or from
external events.
infrastructure and oversight.
▪ We face significant operational risks in our businesses and may fail to maintain appropriate operational
▪ A cyberattack, information or security breach, or a technology outage of ours or of a third party could
adversely affect our ability to conduct our business, manage our exposure to risk, result in the disclosure or
misuse of confidential customer or employee data or proprietary information, and increase our costs to
maintain and update our operational and security systems and infrastructure. This could adversely impact
our results of operations, liquidity and financial condition, as well as cause us legal or reputational harm.
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• Credit Risks: The risks that a borrower, obligor, or counterparty will fail to perform on an obligation or that our risk
management processes will fail or be insufficient.
If we fail to effectively manage credit risk, our business and financial condition will suffer.
▪
▪ Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolios.
• Market Risks: The risks to our financial condition resulting from adverse movements in domestic and international
macroeconomic and political conditions, as well as economic output levels, interest and inflation rates, employment
levels, prices of commodities, consumer confidence levels, and changes in consumer spending, international trade
policy, and fiscal and monetary policy.
▪ Unfavorable economic or political conditions, as considered through a range of metrics, have and could
continue to adversely affect our business.
▪ Failure to effectively manage our interest rate risk could adversely affect us.
• Liquidity Risks: The risks that we will be unable to meet our obligations as they come due because of an inability to
(i) liquidate assets or obtain adequate funding, or (ii) unwind or offset specific exposures without significantly
lowering market prices because of inadequate market depth or market disruptions, or that we will not meet the liquidity
management requirements applicable to us as a Category IV banking organization, subject to the applicable transition
periods.
▪
If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay
deposits and fund our operations.
▪ we are subject to enhanced liquidity risk management requirements as a Category Iv banking organization,
subject to the applicable transition periods, including reporting, liquidity stress testing, and a liquidity buffer,
as well as resolution planning at the bank level, and failure to meet these requirements could result in
regulatory and compliance risks, and possible restrictions on our activities.
• Capital Adequacy Risks: The risks that our capital levels become inadequate to preserve our safety and soundness,
support our ongoing business operations and strategies and provide us with support against unexpected or sudden
changes in the business/economic environment, or that we will not meet the capital adequacy requirements applicable
to us as a Category IV banking organization, subject to the applicable transition periods.
▪ Our ability to grow is contingent upon access to capital, which may not be readily available to us.
▪ we and FCB are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines,
our financial condition and ability to make capital distributions would be adversely affected.
• Compliance Risks: The risks of loss or reputational harm to us resulting from regulatory sanctions, fines, penalties or
losses due to our failure to comply with laws, rules, regulations or other supervisory requirements applicable to us.
▪ we operate in a highly regulated industry, and the laws and regulations that govern our operations, taxes,
corporate governance, executive compensation and financial accounting and reporting, including changes in
them or our failure to comply with them, may adversely affect us.
Information security and data privacy are areas of heightened legislative and regulatory focus.
▪
• Asset Risks: The risks that the value of our long-lived assets will be lower than expected, resulting in reduced income
over the remaining life of the asset or a lower sale value.
▪ we may not be able to realize our entire investment in the equipment that we lease to our customers.
• Financial Reporting Risks: The risks that our financial information is reported incorrectly or incompletely, including
through the improper application of accounting standards or other errors or omissions.
▪ Accounting standards may change and increase our operating costs or otherwise adversely affect our results.
▪ Our accounting policies and processes are critical to the reporting of our financial condition and results of
operations. They require management to make estimates about matters that are uncertain, and such estimates
may be materially different from actual results.
The risks and uncertainties that management believes are material to an investment in us are described below. Additional risks
and uncertainties that are not currently known to management or that management does not currently deem material could also
have a material adverse impact on our financial condition, the results of our operations or our business. If such risks and
uncertainties were to materialize or the likelihoods of the risks were to increase, we could be adversely affected, and the market
price of our securities could significantly decline.
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Strategic Risks
We may be adversely affected by risks associated with completed, pending or any potential future acquisitions.
We plan to continue to grow our business organically. However, we have pursued and expect to continue to pursue acquisition
opportunities that we believe support our business strategies and may enhance our profitability. For example, on January 3,
2022, we consummated the acquisition of CIT, which added $53.78 billion in total assets, $39.43 billion in deposits and
$32.71 billion in loans. We must generally satisfy a number of material conditions prior to consummating any acquisition
including, in many cases, federal and state regulatory approval. Among other things, our regulators will consider our capital,
liquidity, profitability, regulatory compliance and levels of goodwill when considering acquisition and expansion proposals. We
may fail to complete strategic and competitively significant business opportunities as a result of our inability to obtain required
regulatory approvals in a timely manner or at all, or the approval for such opportunity could include conditions imposing
additional costs or limitations that reduce the anticipated related benefits. On July 9, 2021, President Biden issued the Executive
Order, which encouraged federal banking agencies to review the framework for evaluating bank mergers and acquisitions under
the BHC Act and the Bank Merger Act. The Executive Order has received significant public support from members of
Congress as well as from members of the board of the FDIC and Federal Reserve and the Acting Comptroller of the Currency.
The Director of the CFPB” has publicly sought a greater role for the CFPB in the evaluation of bank merger proposals. Any
enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the regulatory framework for approval of bank
mergers could adversely affect the marketplace for bank merger transactions and could result in potential future acquisitions by
us being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial
institutions that we may be able to acquire in the future or alter the terms for such transactions.
We may be unsuccessful in identifying, consummating or integrating any potential acquisitions. Acquisitions of financial
institutions, assets of financial institutions or other operating entities involve operational risks and uncertainties. Acquired
companies or assets may have unknown or contingent liabilities, exposure to unexpected asset quality problems that require
write downs or write-offs, additional regulatory requirements or difficulty retaining key employees and customers.
Due to these and other issues relating to acquisitions, we may not be able to realize projected cost savings, synergies or other
benefits associated with any such acquisition. Failure to efficiently integrate any acquired entities or assets into our existing
operations could significantly increase our operating costs and consequently have material adverse effects on our financial
condition and results of operations.
Our future results will suffer if we do not effectively manage our expanded operations following the CIT Merger.
Following the CIT Merger, the size and geographic and operational scope of our business has increased significantly. The CIT
Merger more than doubled our asset size, increased the breadth and complexity of our business with the addition of new
business lines in which we have not previously engaged and expanded our geographic scope to new geographic areas. Our
future success depends, in part, upon the ability to manage this expanded business, which will pose substantial challenges for
management, including challenges related to the management and monitoring of new and expanded operations and associated
increased costs and complexity. We may be unsuccessful in this regard or fail to realize the expected operating efficiencies, cost
savings and other benefits currently anticipated from the CIT Merger.
We encounter significant competition that may reduce our market share and profitability.
We operate in a highly competitive industry and compete with other banks and specialized financial services providers in our
market areas. Our primary competitors include local, regional and national banks; credit unions; commercial finance
companies; leasing companies; various wealth management providers; independent and captive insurance agencies; mortgage
companies; and other non-bank providers of financial services. Some of our larger competitors, including certain banks with a
significant presence in our market areas, have the capacity to offer products and services we do not offer. Some of our non-bank
competitors operate in less stringent regulatory environments, and certain competitors are not subject to federal or state income
taxes. The fierce competitive pressures that we face adversely affect pricing for many of our products and services.
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Additionally, technology and other changes are allowing parties to complete financial transactions that historically have
involved banks through alternative methods without involving banks. For example, consumers can now maintain funds that
would have historically been held as bank deposits in brokerage accounts, mutual funds or virtual accounts. Consumers can also
complete transactions, such as paying bills or transferring funds directly without the assistance of banks. Transactions utilizing
digital assets, including cryptocurrencies, stablecoins and other similar assets, have increased substantially. Certain
characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to
transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions,
and the anonymous nature of the transactions, are appealing to certain consumers. Accordingly, digital asset service providers
—which, at present, are not subject to as extensive regulation as banking organizations and other financial institutions—have
become active competitors for our customers’ banking business and may have greater flexibility in competing for business. The
process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as
the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the
lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of
operations.
We may fail to realize all of the anticipated benefits of the CIT Merger, or those benefits may take longer to realize than
expected. We may also encounter difficulties in completing the integration of the acquired operations and may incur expenses
in excess of those forecasted in connection with the completion.
The success of the CIT Merger, including anticipated benefits and cost savings, depends, in substantial part, on our ability to
successfully complete the integration of the acquired operations in a manner that results in various benefits, such as anticipated
synergies and cost savings, and that does not materially disrupt existing customer relationships or result in decreased revenues
due to loss of customers. Although our merger integration is substantially complete, the process of integrating operations
resulted in a loss of key personnel, and we could still discover inconsistencies in standards, controls, procedures and policies,
which could adversely affect us. While we have attempted to accurately forecast a certain level of expense and expected cost
savings in connection with the integration, there are many factors beyond our control that could affect the total amount and the
timing of the integration expense and projected cost savings. In addition, the diversion of management’s attention and any
unexpected delays or difficulties encountered in completing the integration of the acquired operations could have an adverse
effect on our business, financial condition, operating results and prospects.
Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt
that a stockholder might consider to be in their best interests.
We are a banking holding company incorporated in the state of Delaware. Certain anti-takeover provisions under Delaware law
and certain provisions contained in our Amended and Restated Certificate of Incorporation (our “Certificate of Incorporation)
and Amended and Restated Bylaws (our “Bylaws”) could delay or prevent the removal of our directors and other management.
The provisions could also delay or make more difficult a tender offer, merger or proxy contest a stockholder might consider 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 shares without further stockholder approval;
limit who can call a special meeting of stockholders;
establish advance notice requirements for nominations for election to the Board and proposals of other business to be
considered at annual meetings of stockholders; and
authorize the issuance of two classes of common stock, one of which, Class B common stock, par value $1 per share
(“Class B common stock”), is entitled to cast 16 votes per share. As of December 31, 2022, approximately 34.1% of
the outstanding shares of Class B common stock were owned and entitled to be voted by our directors and executive
officers and certain of their affiliates.
These provisions, as well as provisions of the BHC Act and other relevant statutes and regulations that require advance notice
and applications for regulatory approval 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 price that could be received by our stockholders for
our common stock. Additionally, the fact that the Holding family and entities related to various family members hold or control
shares representing approximately 50%, and in the past have held or controlled shares representing more than 50%, of the
voting power of our common stock may discourage potential takeover attempts and bids for our common stock at a premium
over market price.
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Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the
State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders. This
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or
employees or agents.
Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the
State of Delaware will be the sole and exclusive forum for (i) any derivative action 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, other employees or stockholder
to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the General
Corporation Law of the State of Delaware or as to which the General Corporation Law of the State of Delaware confers
jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim against us governed by the
internal affairs doctrine. These choice of forum provisions do not preclude or contract 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 will not relieve us of our duties to comply with the federal
securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our
compliance with these laws, rules and regulations.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for
disputes with us or our directors, officers or other employees or agents, which may discourage lawsuits against us and our
directors, officers and other employees or agents.
If a court were to find the choice of forum provision contained in our Bylaws to be inapplicable or unenforceable in an action,
we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result
in substantial costs and be a distraction to management and other employees.
We rely on dividends from FCB for paying dividends on our common and preferred stock and servicing our debt obligations,
and FCB’s ability to pay us dividends is restricted.
As a FHC, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB.
These dividends are the primary source from which we pay dividends on our common and preferred stock and interest and
principal on our debt obligations. State and federal laws impose restrictions on the dividends that FCB may pay to us. In the
event FCB is unable to pay dividends to us for an extended period of time, we may not be able to service our debt obligations or
pay dividends on our common or preferred stock, and the inability to receive dividends from FCB could consequently have a
material adverse effect on our business, financial condition and results of operations.
Our financial performance depends upon our ability to attract and retain customers for our products and services, which may
be adversely impacted by weakened consumer or business confidence and by any inability on our part to predict and satisfy
customers’ needs and demands.
Our financial performance is subject to risks associated with the loss of customer confidence and demand. A fragile, weakening
or changing economy, or ambiguity surrounding the economic future, may lessen the demand for our products and services.
Our performance may also be negatively impacted if we fail to attract and retain customers because we are not able to
successfully anticipate, develop and market products and services that satisfy market demands. Such events could impact our
performance through fewer loans, reduced fee income and fewer deposits, each of which could result in reduced net income.
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New technologies, and our ability to efficiently and effectively implement, market and deliver new products and services to our
customers present competitive risks.
The financial services industry is continually undergoing rapid technological change with frequent introduction of new
technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions
to better serve customers and to reduce costs. The rapid growth of new digital technologies related to the digitization of banking
services and capabilities, including through internet services, smart phones and other mobile devices, requires us to
continuously evaluate our product and service offerings to ensure they remain competitive. These trends were accelerated by
the COVID-19 pandemic increasing demand for mobile banking solutions. Our success depends in part on our ability to adapt
and deliver our products and services in a manner responsive to evolving industry standards and consumer preferences. New
technologies by banks and non-bank service providers may create risks if our products and services are no longer competitive
with then-current standards, and could negatively affect our ability to attract or maintain a loyal customer base. We may not be
able to effectively implement new technology-driven products and services that allow us to remain competitive or be successful
in marketing these products and services to our customers. These risks may affect our ability to grow and could reduce our
revenue streams from certain products and services, while increasing expenses associated with developing more competitive
solutions, which could adversely affect our results of operations and financial condition.
Operational Risks
We face significant operational risks in our businesses and may fail to maintain appropriate operational infrastructure and
oversight.
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational
control infrastructure. Operational risk can arise in numerous ways, including, but not limited to, employee fraud, customer
fraud and control lapses in bank operations and information technology. Our dependence on our employees and internal and
third party automated systems and vendors to record and process transactions may further increase the risk that technical
failures or system-tampering will result in losses that are difficult to detect. Our internal controls that are intended to safeguard
and maintain our operational and organizational infrastructure and information have inherent limitations and may not be
successful. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond
our control. In addition, our railcars are used to transport a variety of products including, but not limited to, cement, energy
products, chemicals and coal. An accidental derailment of these railcars could result in personal injury and property damage,
which could be significant, as well as potential environmental remediation and restoration obligations and penalties. Failure to
maintain appropriate operational infrastructure and oversight or to safely operate our business can lead to loss of service to
customers, reputational harm, legal actions and noncompliance with various laws and regulations, all of which could have a
material adverse impact on our business, financial condition and results of operations.
A cyberattack, information or security breach, or a technology outage of ours or of a third party could adversely affect our
ability to conduct our business, manage our exposure to risk, result in the disclosure or misuse of confidential customer or
employee data or proprietary information, and increase our costs to maintain and update our operational and security systems
and infrastructure. This could adversely impact our results of operations, liquidity and financial condition, as well as cause us
legal or reputational harm.
Our businesses are highly dependent on the security and efficacy of our infrastructure, computer and data management systems,
as well as those of third parties with whom we interact or on whom we rely. Our businesses rely on the secure processing,
transmission, storage and retrieval of confidential, proprietary and other information in our computer and data management
systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access
our network, products and services, our customers and other third parties may use personal mobile devices or computing
devices that are outside of our network environment and are subject to their own cybersecurity risks, which may provide a point
of entry for adverse effects on our own network environment.
We, our customers, regulators and other third parties have been subject to, and are likely to continue to be the target of,
cyberattacks. These cyberattacks include computer viruses, malicious or destructive code, ransomware, phishing attacks, denial
of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse,
loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of third parties,
damages to systems, or other material disruption to our or our customers’ or other third parties’ network access or business
operations. As cyber threats continue to evolve, we have been and will likely continue to be required to expend significant
resources to continuously enhance our protective measures and may be required to expend significant resources to investigate
and remediate any information security vulnerabilities or incidents. We may not be able to anticipate all security breaches, nor
may we be able to implement guaranteed preventive measures against such security breaches. Additionally, a security breach
may be difficult to detect, even after it occurs, which may compound the issues related to such breach.
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Continued geographical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of
cyberattack and has created new risk for cybersecurity, and similar concerns. For example, the United States government has
warned that sanctions imposed against Russia by the United States in response to its conflict with Ukraine could motivate
Russia to engage in malicious cyber activities against the United States. If such cyberattacks occurred, it could result in severe
costs and disruptions to governmental entities and companies and their operations. The impact of the conflict and retaliatory
measures is continually evolving and cannot be predicted with certainty.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of
new technologies, the use of the internet to conduct financial transactions, and the increased sophistication and activities of
organized crime, hackers, terrorists, nation-states, activists and other external parties. These risks are expected to continue in the
future as that proliferation intensifies. For example, we will likely see an increase in cybersecurity risks in the future as we
continue to augment our mobile-payment and other internet-based product offerings and expand our internal usage of web-
based products and applications. In addition, financially motivated attacks remain a challenge from a cybercrime perspective
due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign
governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate
espionage. Even the most advanced internal control environment may be vulnerable to compromise. Additionally, the increase
of supply chain attacks including third parties with access to our data or those providing critical services, remain an emerging
operational issue which could adversely affect our business, customers, reputation and operations. As cyber threats continue to
evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or
to investigate and remediate any information security vulnerabilities.
Although to date we are not aware of any material losses or other material consequences relating to technology failure,
cyberattacks or other information or security breaches, whether directed at us or third parties, we may suffer such losses or
other consequences in the future.
We also face indirect technology, cybersecurity and operational risks relating to customers and other third parties with whom
we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial
intermediaries such as clearing agents, exchanges and clearing houses; vendors; regulators; and providers of critical
infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and
complexity of financial entities and technology systems, a technology failure, cyberattack or other information or security
breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a
material impact on counterparties or other market participants, including us. This consolidation interconnectivity and
complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be
integrated, often on an accelerated basis. Any third-party technology failure, cyberattack or other information or security
breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our
customers, manage our exposure to risk or expand our businesses.
Cyberattacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or
have material consequences. Furthermore, the public perception that a cyberattack on our systems has been successful, whether
or not this perception is correct, may damage our reputation with customers and third parties with whom we do business and
may encourage further cyberattacks. A successful penetration or circumvention of system security could cause us negative
consequences, including loss of customers and business opportunities, disruption to our operations and business,
misappropriation or destruction of our confidential information and that of our customers, or damage to our customers’ and
third parties’ computers or systems, and could result in a violation of applicable data privacy and protection laws and other
laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational
damage, reimbursement or other compensatory costs, and additional compliance costs, any of which could adversely impact our
results of operations, liquidity and financial condition.
The ongoing COVID-l9 pandemic, including its variant strains, may continue to adversely affect our business, financial
condition and results of operations.
The spread of COVID-19 created a global health-crisis that caused significant economic disruption and continues to cause
illness, quarantines, reduced attendance at events and reduced travel, reduced commercial and financial activity, and overall
economic and financial market instability. While the level of disruption caused by the COVID-19 pandemic has generally
lessened in 2022, there is no assurance that the pandemic will not worsen again, including as a result of the emergence of new
strains of the virus.
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Continuation of the COVID-19 pandemic, or a similar crisis, could negatively impact our capital, liquidity, and other financial
positions and our business, results of operations, and prospects. Economic factors stemming from the lasting effects of the
pandemic, including inflation risks, oil price volatility and changes in interest rates, have and may continue to destabilize
financial markets and negatively impact our customers’ business activities and operations, making it difficult for them to satisfy
existing debt obligations. Moreover, as economic conditions relating to the pandemic have improved and evolved, the Federal
Reserve has shifted its focus to limiting the inflationary and other potentially adverse effects of the extensive pandemic-related
government stimulus, which signals the potential for a continued period of economic uncertainty. The duration and severity of
the pandemic continues to be impossible to predict, as is the potential for a seasonal or other resurgence. The full extent of the
impact will depend on future developments that are highly uncertain including the duration and spread of any further outbreak,
its severity, vaccine effectiveness and acceptance, governmental actions to contain the virus (including its variants) and the
long-term economic impact, both globally, as well as in our banking markets, which includes the potential for further recession.
The effects of the COVID-19 pandemic heightened specific risk factors and could still impact substantially all risk factors
described herein.
We are subject to litigation and other legal liability risks, and our expenses related to such risks may adversely affect our
results.
We are subject to litigation risks in the ordinary course of our business. Claims and legal actions, including supervisory actions
by our regulators, that have been or may be initiated against us (including against entities that we acquire) from time to time
could involve large monetary sums and significant defense costs. During the last credit crisis, we saw the number of cases and
our expenses related to those cases increase and expect to see the same in future credit crises. The outcomes of such cases are
always uncertain until finally adjudicated or resolved.
In the course of our business, we may foreclose on and take title to real estate that contains or was used in the manufacture or
processing of hazardous materials or that is subject to other environmental risks. In addition, we may lease equipment to our
customers that is used to mine, develop, and process hazardous materials, and our railcars may be used to transport hazardous
materials. As a result, we could be subject to environmental liabilities or claims for negligence, property damage or personal
injury with respect to these properties or equipment. We may be held liable to a governmental entity or to third parties for
property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental
contamination, accidents or other hazardous risks, or may be required to investigate or clean up hazardous or toxic substances
or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In
addition, if we are the owner or former owner of a contaminated site or equipment involved in a hazardous incident, we may be
subject to common law claims by third parties based on damages and costs resulting from environmental contamination,
property damage, personal injury or other hazardous risks emanating from the property or related to the equipment.
We establish reserves for legal claims when payments associated with the claims become probable and our liability can be
reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the
actual amount paid in resolution of a legal claim may be substantially higher than any amounts reserved for the matter. The
ultimate resolution of a legal proceeding, depending on the remedy sought and any relief granted, could materially adversely
affect our results of operations and financial condition.
Substantial legal claims or significant regulatory action against us could have material adverse financial effects or cause
significant reputational harm to us, which in turn could seriously harm our business prospects. We may be exposed to
substantial uninsured legal liabilities and regulatory actions which could adversely affect our results of operations and financial
condition. For additional information, refer to the Notes to the Consolidated Financial Statements, Note 24 - Commitments and
Contingencies, in this Annual Report on Form 10-K.
We depend on qualified personnel for our success and may not be able to retain or attract such personnel.
As a human capital-intensive business, our success depends to a great extent on our ability to attract and retain highly skilled
and qualified executive officers and management, financial, compliance, technical, operations, sales, and support employees,
which has taken on heightened importance because of the significant expansion of the size and geographic and operational
scope of our business that occurred in connection with the CIT Merger. We face significant competition in the recruitment of
qualified executive officers and employees. Losses of, or changes in, our current executive officers or other personnel and their
expertise and services, or substantial increases in the costs of employee compensation or benefits, may disrupt our business and
could adversely affect our financial condition and results of operations. We have developed an executive officer succession
plan, but it may be ineffective, or we may fail in implementing it. We may be unsuccessful in retaining our current executive
officers or other key personnel, or hiring additional key personnel to assist in executing our growth, expansion and acquisition
strategies, all of which could cause those strategies to fail or be less successful than they would otherwise be.
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Our compensation practices are subject to review and oversight by the Federal Reserve, the FDIC and other regulators. The
federal banking agencies have issued joint guidance on executive compensation designed to help ensure that a banking
organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and
soundness of the organization. In addition, the Dodd-Frank Act required those agencies, along with the SEC, to adopt rules to
require reporting of incentive compensation and to prohibit certain compensation arrangements. Effective January 2023, the
SEC adopted final rules requiring national securities exchanges, including The Nasdaq Stock Market Stock Market LLC
(“Nasdaq”) where we are currently listed, to establish new listing standards relating to policies for the recovery of erroneously
awarded incentive-based compensation, which are often referred to as “clawback policies”. Among other requirements, these
new listing standards will obligate listed companies to recover incentive-based compensation paid to its current or former
executive officers in the event the company is required to make certain accounting restatements. If, as a result of complying
with the new rules, we are unable to attract and retain qualified employees, or do so at rates necessary to maintain our
competitive position, or if the compensation costs required to attract and retain employees become more significant, our
performance, including our competitive position, could be materially adversely affected.
We are exposed to losses related to fraud.
As technology continues to evolve, criminals are using increasingly more sophisticated techniques to commit and hide
fraudulent activity. Fraudulent activity that we have been and are likely to continue to be exposed to can come in many forms,
including debit card/credit card fraud, check fraud, wire fraud, electronic scanning devices attached to ATM machines, social
engineering, digital fraud and phishing attacks to obtain personal information and fraudulent impersonation of our customers
through the use of falsified or stolen credentials. We expect that combating fraudulent activities as they evolve will require
continued ongoing investments and attention in the future as significant fraud could cause us direct losses or impair our
customer relationships, among other potential consequences, adversely impacting our reputation or results of operation.
Our business and financial performance could be impacted by natural or man-made disasters, global pandemics, acts of war or
terrorist activities, climate change or other adverse external events.
Natural or man-made disasters (including, but not limited to, earthquakes, hurricanes, tornadoes, floods, fires, pollution, and
explosions), global pandemics, acts of war, terrorist activities, climate change or other adverse external events could hurt our
financial performance (i) directly through damage to our facilities or other impacts to our ability to conduct business in the
ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties. In
particular, a significant amount of our business is concentrated in North Carolina, South Carolina, California, Texas, New York
and Florida, including areas where our facilities and retail and commercial customers have been and in the future could be
impacted by hurricanes and flooding, earthquakes or wildfires. We also do business in Georgia, Virginia, Nebraska, Arizona,
New Jersey, Hawaii, Nevada, as well as in Canada, all of which also include areas significantly exposed to the foregoing risks.
We could also suffer adverse results to the extent that disasters, wars, terrorist activities, riots or civil unrest affect the broader
markets or economy or our operations specifically. Our ability to minimize the consequences of such events is in significant
measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events, and such quality
and ability may be inadequate.
There has been increasing political and social attention to the issue of climate change and related environmental sustainability
matters. Federal and state legislators and regulatory agencies have proposed and continue to advance numerous legislative and
regulatory initiatives seeking to mitigate the negative effects of climate change. On October 21, 2021, the Financial Stability
Oversight Council published a report identifying climate-related financial risk as an “emerging threat” to financial stability. On
December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with
more than $100 billion in total assets. On March 30, 2022 and December 2, 2022, the FDIC and Federal Reserve Board issued
their own proposed principles, respectively, for climate risk management by larger banking organizations. To the extent that
these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to us, we would expect to
experience increased compliance costs and other compliance-related risks. Such climate change-related measures may also
result in the imposition of taxes and fees, the required purchase of emission credits or the implementation of significant
operational changes, each of which may require us to expend significant capital and incur compliance, operating, maintenance
and remediation costs.
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We are unable to predict how climate change may impact our financial condition and operations; however, as a banking
organization, the physical effects of climate change may present certain unique risks to us, our customers or third parties on
which we rely. For example, an increase in the frequency or magnitude of natural disasters, shifts in local climates and other
disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish
the value of our loan portfolio. Such events may also cause reductions in regional and local economic activity that may have an
adverse effect on our customers. Consumers and businesses in communities that we serve may change their behavior and
preferences as a result of these issues and new climate change laws and regulations aimed at mitigating climate change. The
impact on our customers will likely vary depending on their specific attributes, including their reliance on or role in carbon
intensive activities and therefore, we could experience a drop in demand for our products and services, particularly in certain
sectors. We may also be subject to adverse action from our regulators or other third parties, such as environmental advocacy
organizations, in relation to how our business relates to or has addressed or failed to address climate change-related risks. Each
of these outcomes could have a material adverse effect on our financial condition and results of operations.
We rely on third party vendors to provide key components of our business infrastructure, and our vendors may be responsible
for or contribute to failures that adversely affect our operations.
Third party vendors provide key components of our business infrastructure, including certain data processing and information
services. Their services could be difficult to quickly replace in the event of failure or other interruption in service. Failures of
certain vendors to provide services could adversely affect our ability to deliver products and services to our customers. Third
party vendors also present information security risks to us, both directly and indirectly through our customers. Our monitoring
of significant vendor risks, including the financial stability of critical vendors, may be inadequate and incomplete. The lingering
effects of the COVID-19 pandemic and subsequent impacts from variant strains may continue to compound vendor risks, as
unexpected disruptions can impact a third party vendor’s operations with little warning. These effects include the direct impact
of disease as well as secondary effects on third party vendors, including pandemic-related changes to how vendors are engaged,
onboarded and monitored. The failure of a critical third party vendor to provide key components of our business infrastructure
could substantially disrupt our business and cause us to incur significant expense while harming our relationships with our
customers.
The quality of our data could deteriorate and cause financial or reputational harm to the Bank.
Our Data Governance program is reliant on the execution of procedures, process controls and system functionality, and errors
may occur. Incomplete, inconsistent, or inaccurate data could lead to non-compliance with regulatory requirements and result in
fines. Additionally, adverse impacts on customers could result in reputational harm and customer attrition. Inaccurate or
incomplete data presents the risk that business decisions relying on such data will prove inefficient, ineffective or harmful to us.
Additionally, information we provide to our investors and regulators may be negatively impacted by inaccurate or incomplete
data, which could have a wide range of adverse consequences such as legal liability and reputational harm.
Malicious action by an employee could result in harm to our customers or the Bank.
Several high-profile cases of employee misconduct have occurred at other financial institutions. Such an event may lead to large
regulatory fines, as well as an erosion in customer confidence, which could impact our financial and competitive position. Our
employee code of ethics and policies governing our compensation, conduct and sales practices may be inadequate to deter and
respond to potential employee misconduct.
Credit Risks
If we fail to effectively manage credit risk, our business and financial condition will suffer.
Effectively managing credit risks is essential for the operation of our business. There are credit risks inherent in making any
loan, including risks of repayment, risks with respect to the period of time over which the loan may be repaid, risks relating to
proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks in dealing with
individual borrowers and risks resulting from uncertainties as to the future value of collateral. Our loan approval procedures and
our credit risk monitoring may be or become inadequate to appropriately manage the inherent credit risks associated with
lending. Our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or other
conditions affecting customers and the quality of our loan portfolio. Any failure to manage such credit risks may materially
adversely affect our business, consolidated results of operations and financial condition because it may lead to loans that we
make not being paid back in part or in full on a timely basis or at all.
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Our allowance for credit losses may prove to be insufficient to absorb losses in our credit portfolios.
We maintain an allowance for credit losses (“ACL”) that is designed to cover expected credit losses on loans that borrowers
may not repay in their entirety. A reserve is also maintained in other liabilities to cover expected losses for unfunded
commitments. The ACL may not be sufficient to cover actual credit losses, and future provisions for credit losses could
materially and adversely affect our operating results. Accounting measurements related to asset impairment and the ACL
require significant estimates that are subject to uncertainty and revisions driven by new information and changing
circumstances. The significant uncertainties surrounding our borrowers’ abilities to conduct their businesses successfully
through changing economic environments, competitive challenges and other factors complicate our estimates of the risk and
amount of loss on any loan. Due to the degree of uncertainty and the susceptibility to change, the actual losses may vary
substantially from current estimates. We also expect fluctuations in the ACL due to economic changes nationally as well as
locally within the states in which we conduct business. This is especially true as the economy reacts to the continuation of and
potential recovery from the impacts from the COVID-19 pandemic and related variant strains. In addition, the reserve related to
unfunded commitments may not be sufficient to cover actual losses, and future provisions for such losses could also materially
and adversely affect our operating results and are also subject to significant uncertainties and fluctuations.
As an integral part of their examination process, our banking regulators periodically review the ACL and may require us to
increase it by recognizing additional provisions for credit losses charged to expense or to decrease the allowance by recognizing
loan charge-offs, net of recoveries. Any such required additional credit loss provisions or loan charge-offs could have a material
adverse effect on our financial condition and results of operations.
Our concentration of loans and leases to borrowers and lessees within the medical and dental industries, as well as the rail
business, could impair our earnings if those industries experience economic difficulties.
Statutory or regulatory changes relevant to the medical and dental industries, or economic conditions in the market generally,
could negatively impact these borrowers’ businesses and their ability to repay their loans with us, which could have a material
adverse effect on our financial condition and results of operations. Additionally, smaller practices such as those in the dental
industry generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, and generally
have a heightened vulnerability to negative economic conditions. Consequently, we could be required to increase our ACL
through additional provisions on our income statement, which would reduce reported net income.
Due to our substantial concentration in our rail business, if there is a significant downturn in shipping by railcar, it could have a
material adverse effect on our business and results of operations. The impacts from the COVID-19 pandemic and variant strains
has created volatility and uncertainty in the economy, which has and is expected to continue to adversely impact our rail
business. In addition, volatility in the price of, and demand for oil and gas may have negative effects on not only our loan
exposures in the exploration and production section, but may also lead to a decreased demand for our railcars.
Economic conditions in real estate markets impacting collateral values and our reliance on junior liens may adversely impact
our business and our results of operations.
Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on
loans that, while adequately collateralized at the time of origination, become inadequately collateralized over time. Our reliance
on junior liens is concentrated in our consumer revolving mortgage loan portfolio. Approximately two-thirds of the consumer
revolving mortgage portfolio is secured by junior lien positions, and lower real estate values for collateral underlying these
loans may cause the outstanding balance of the senior lien to exceed the value of the collateral, resulting in a junior lien loan
becoming effectively unsecured. Inadequate collateral values, rising interest rates and unfavorable economic conditions could
result in greater delinquencies, write-downs or charge-offs in future periods, which could have a material adverse impact on our
results of operations and capital adequacy.
Our financial condition could be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have
exposure to numerous financial services providers, including banks, securities brokers and dealers and other financial services
providers. Our monitoring of the financial conditions of financial institutions with which we have credit exposure is inherently
limited and may be inadequate, and transactions with those institutions expose us to credit risk through the possibility of
counterparty default.
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Market Risks
Unfavorable economic or political conditions, as considered through a range of metrics, have and could continue to adversely
affect our business.
Our business is subject to periodic fluctuations based on international, national, regional and local economic conditions. These
fluctuations are not predictable, cannot be controlled and have had and may continue to have or further have a material adverse
impact on our operations and financial condition. Our banking operations are primarily located within several states but are
locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same
geographic footprint. The markets in which we have the greatest presence are North Carolina, South Carolina, California,
Texas, New York, and Florida. We also do business in Canada, primarily related to our rail portfolio. Worsening economic
conditions within our markets, particularly within those with our greatest presence, could have a material adverse effect on our
financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local
business conditions, rail industry conditions and conditions in the local residential and commercial real estate markets we serve.
Unfavorable changes in unemployment, real estate values, interest rates, foreign currency exchange rate fluctuations and other
factors could weaken the economies of the communities we serve and otherwise adversely affect our business. Thus far, this
includes declines in fee income and impacts on the fair value of our equity securities, but could create additional adverse
impacts to provision for credit losses and declines in demand for our products and services.
We conduct limited business operations in certain foreign jurisdictions, and we engage in certain cross border lending and
leasing transactions. An economic recession or downturn or business disruption associated with the political or economic
environments in the international markets in which we operate could similarly adversely affect us.
In addition, the political environment, the level of United States debt and global economic conditions can have a destabilizing
effect on financial markets. Weakness in any of our market areas could have an adverse impact on our earnings, and
consequently, our financial condition and capital adequacy. For example, a U.S. government debt default, threatened default, or
downgrade of the sovereign credit ratings of the United States by credit rating agencies, could have an adverse impact on the
financial markets, interest rates and economic conditions in the United States and worldwide. The U.S. debt ceiling and budget
deficit concerns in recent years have increased the possibility of U.S. government shutdowns, forced federal spending
reductions, debt defaults, credit-rating downgrades and an economic slowdown or recession in the United States. Political
tensions may make it difficult for Congress to agree on any further increases to or suspension of the debt ceiling in a timely
manner or at all, which may lead to a default by the U.S. government or downgrades of its credit ratings. Many of the
investment securities held in FCB’s portfolio are issued by the U.S. government and government agencies and sponsored
entities, which are generally viewed as among the most conservative investment options. While the likelihood may be remote, a
government default or threat of default would impact the price and liquidity of U.S. government securities. A debt default or
further downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could also adversely affect
the ability of the U.S. government to support the financial stability of Fannie Mae, Freddie Mac, and the FHLBs. Since banks
are sensitive to the risk of downturns, the stock prices of all banks typically decline, sometimes substantially, if the market
believes that a downturn has become more likely or is imminent. This effect can and often does occur indiscriminately, initially
without much regard to different risk postures of different banks. Weakness in any of our market areas could have an adverse
impact on our earnings, and consequently, our financial condition and capital adequacy.
Failure to effectively manage our interest rate risk could adversely affect us.
Our results of operations and cash flows are highly dependent upon net interest income. Interest rates are highly sensitive to
many factors that are beyond our control, including general economic and market conditions and policies of various
governmental and regulatory agencies, particularly the actions of the Federal Reserve’s Federal Open Market Committee
(“FOMC”). Changes in monetary policy, including changes in interest rates, could influence interest income, interest expense,
and the fair value of our financial assets and liabilities. If changes in interest rates on our interest-earning assets are not equal to
the changes in interest rates on our interest-bearing liabilities, our net interest income and, therefore, our net income, could be
adversely impacted.
As interest rates rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our
performance and our financial condition. To the extent banks and other financial services providers compete for interest-bearing
deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates. If
we decide to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be
reduced, dependent on the timing and sensitivities of our interest-earning assets and interest-bearing liabilities. Additionally,
higher interest rates may impact our ability to originate new loans. Increases in interest rates could adversely affect the ability of
our borrowers to meet higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net
charge-offs.
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We cannot control or predict with certainty changes in interest rates. The forecasts of future net interest income by our interest
rate risk monitoring system are estimates and may be inaccurate. Actual interest rate movements may differ from our forecasts,
and unexpected actions by the FOMC may have a direct impact on market interest rates. The Federal Reserve announced in
January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds
rate over time. The FOMC since has increased the target range seven times throughout 2022. As of December 31, 2022, the
target range for the federal funds rate had been increased to 4.25% to 4.5% and the FOMC signaled that future increases may be
appropriate in order to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels. The higher
interest rates increased the cost of deposits and our other funding sources, and may continue to increase costs, dependent on the
Federal Reserve actions.
Accounting for acquired assets may result in earnings volatility.
Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on accounting
principles generally accepted in the United States (“GAAP”). The rate at which those discounts are accreted is unpredictable
and the result of various factors including prepayments and estimated credit losses. Post-acquisition credit deterioration results
in the recognition of provision expense. Volatility in earnings could unfavorably influence investor interest in our common
stock, thereby depressing the market value of our stock and the market capitalization of our company.
The performance of equity securities and corporate bonds in our investment securities portfolio could be adversely impacted by
the soundness and fluctuations in the market values of other financial institutions.
Our investment securities portfolio contains certain equity securities and corporate bonds of other financial institutions. As a
result, a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stability and
market value of other financial institutions, as well as interest rate sensitivity to economic and market conditions. Such
fluctuations could reduce the value of our investment securities portfolio and consequently have an adverse effect on our results
of operations. We have seen volatile earnings impacts related to the fair value of equity securities in recent periods.
We may be adversely impacted by the transition from LIBOR as a reference rate.
We have loans, borrowings and other financial instruments, including our Series B Preferred Stock, with attributes that are
either directly or indirectly dependent on the London Interbank Offered Rate (“LIBOR”). In 2017, the United Kingdom’s
Financial Conduct Authority (the “FCA”) announced that after 2021 it would no longer compel banks to submit the rates
required to calculate LIBOR. In November 2020, to facilitate an orderly LIBOR transition, the Office of the Comptroller of the
Currency, the FDIC and the Federal Reserve jointly announced that entering into new contracts using LIBOR as a reference rate
after December 31, 2021, would create a safety and soundness risk. On March 5, 2021, the FCA announced that all LIBOR
settings will either cease to be provided by any administrator or no longer be representative immediately after December 31,
2021, in the case of 1-week and 2-month United States dollar LIBOR, and immediately after June 30, 2023, in the case of the
remaining United States dollar LIBOR settings. In addition, on March 15, 2022, the U.S. Congress passed the Adjustable
Interest Rate (LIBOR) Act (the “LIBOR Act”) as part of the Consolidated Appropriations Act, 2022, which provides protection
for contracts without workable fallback provisions and includes safe-harbor provisions to shield parties from liability under
potential lawsuits due to the transition away from LIBOR. The final rule implementing the LIBOR Act was announced by the
FRB on December 16, 2022, which among other things, (i) identifies benchmark rates based on the Secured Overnight Funding
Rate (“SOFR”) to replace LIBOR settings in multiple categories of legacy contracts; (ii) specifies benchmark conforming
changes related to the calculation, administration and other implementing actions of such benchmark replacements; and (iii)
preempts state and local LIBOR replacement laws relating to the selection or use of a benchmark replacement or related
conforming changes. BancShares anticipates taking advantage of the safe harbors that are afforded under the LIBOR Act and
the implementing final rule.
In the United States, efforts to identify a set of alternative United States dollar reference interest rates are ongoing, and the
Alternative Reference Rate Committee (the “ARRC”) has recommended the use of SOFR. SOFR is different from LIBOR in
that it is a backward-looking secured rate rather than a forward-looking unsecured rate. These differences could lead to a greater
disconnect between the Bank’s costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, the ARRC
has also recommended Term SOFR, which is a forward-looking SOFR based on SOFR futures and may in part reduce
differences between SOFR and LIBOR. To further reduce differences between replacement indices and substitute indices, some
market practitioners have also gravitated towards credit sensitive alternative reference rates besides SOFR. At this time, it is not
possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR.
Similarly, there is still uncertainty around how quickly replacement reference rates will develop sufficient liquidity and
industry-wide usage, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed
financial instruments.
29
The transition from LIBOR is complex and is expected to create additional costs and risks. Since proposed replacement
reference rates, such as SOFR, are calculated differently, payments under contracts referencing such rates will differ from those
referencing LIBOR. We may incur significant expense in effecting the transition and may be subject to disputes or litigation
with our borrowers over the appropriateness or comparability to LIBOR of the replacement reference rates. Consequently,
failure to adequately manage this transition process with our customers could adversely impact our reputation and potentially
introduce additional legal risks. The replacement reference rates could also result in a reduction in our interest income. We may
also receive inquiries and other actions from regulators with respect to our preparation and readiness for the replacement of
LIBOR with replacement reference rates. The transition will change our market risk profiles, requiring changes to risk and
pricing models, systems, contracts, valuation tools and product design, and failure to adequately manage this transition process
could consequently have a material adverse effect on our business, financial condition and results of operations.
The value of our goodwill may decline in the future.
Our goodwill could become impaired in the future. At December 31, 2022, we had $346 million of goodwill recorded as an
asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting
unit with its net book value. We also test goodwill for impairment when certain events occur, such as a significant decline in
our expected future cash flows, a significant adverse change in the business climate or a sustained decline in the price of our
common stock. These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact
on our financial results.
The market price of our common stock may be volatile due to its relative illiquidity and other factors.
Although publicly traded, our common stock, particularly our Class B common stock, has less liquidity and public float than
many other large, publicly traded financial services companies. Lower liquidity increases the price volatility of our common
stock and could make it difficult for our stockholders to sell or buy our common stock at specific prices.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors,
including expectations of financial and operating results, actual operating results, actions of institutional stockholders,
speculation in the press or the investment community, market perception of acquisitions, including the CIT Merger, rating
agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to
the financial services industry and the potential impact of government actions affecting the financial services industry. For
example, the closing price per share of our Class A common stock, par value $1 per share (“Class A common stock”) on the
Nasdaq Global Select Market ranged from a low of $598.01 to a high of $947.71 during the year ended December 31, 2022.
Liquidity Risks
If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay deposits and fund
our operations.
Our deposit base represents our primary source of core funding and balance sheet liquidity. We typically have the ability to
stimulate core deposit growth through reasonable and effective pricing strategies. However, in circumstances where our ability
to generate needed liquidity is impaired, we need access to non-core funding such as borrowings from the Federal Home Loan
Bank and the Federal Reserve, Federal Funds purchased lines and brokered deposits. While we maintain access to these non-
core funding sources, some sources are dependent on the availability of collateral as well as the counterparty’s willingness and
ability to lend. Failure to access sources of liquidity may affect our ability to pay deposits and fund our operations.
We are subject to enhanced liquidity risk management requirements as a Category IV banking organization, subject to the
applicable transition periods, including reporting, liquidity stress testing, and liquidity buffer, as well as resolution planning at
the bank level, and failure to meet these requirements could result in regulatory and compliance risks, and possible restrictions
on our activities.
As a result of the CIT Merger, our total consolidated assets exceed $100 billion, and therefore we became subject to enhanced
liquidity risk management requirements as a Category IV banking organization, including reporting, liquidity stress testing, a
liquidity buffer and resolution planning, subject to the applicable transition periods. Were we to meet or exceed certain other
thresholds for asset size and other risk-based factors, we would become subject to additional requirements under the Tailoring
Rules. We expect to incur significant expense in continuing to develop policies, programs and systems designed to comply with
all such requirements applicable to us. Failure to develop and maintain an adequate liquidity risk management and monitoring
process may lead to adverse regulatory action (including possible restrictions on our activities).
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Fee revenues from overdraft and nonsufficient funds programs may be subject to increased supervisory scrutiny.
Revenues derived fr0m transacti0n fees ass0ciated With 0verdraft and n0nsufficient funds (“NSF”) pr0grams is included in n0n-
interest inc0me. In 2022, We c0llected appr0Ximately $48 milli0n in 0verdraft and NSF fees (d0Wn fr0m appr0Ximately $55
milli0n in 2021), due t0 the reducti0n in 0ur fees f0r 0verdrafts and eliminati0n 0f NSF fees ann0unced in January 2022. In
2021, certain members 0f C0ngress and the leadership 0f the CFPB eXpressed a heightened interest in bank 0verdraft and NSF
pr0grams. In December 2021, the CFPB published a rep0rt pr0viding data 0n banks’ 0verdraft and NSF fee revenues as Well as
0bservati0ns regarding c0nsumer pr0tecti0n issues relating t0 such pr0grams and in Oct0ber 2022, the CFPB published further
guidance c0ncerning unlaWful practices related t0 0verdraft fees. The CFPB has pursued enf0rcement acti0ns against banking
0rganizati0ns, and their eXecutives, that 0versee 0verdraft practices that are deemed t0 be unlaWful and has indicated that it Will
c0ntinue t0 d0 s0.
In resp0nse t0 this increased c0ngressi0nal and regulat0ry scrutiny, and in anticipati0n 0f enhanced supervisi0n and
enf0rcement 0f 0verdraft practices in the future, certain banking 0rganizati0ns have begun t0 m0dify their 0verdraft pr0grams.
In January 2022, We ann0unced an eliminati0n 0f NSF fees and a decrease in 0verdraft fees. C0ntinued c0mpetitive pressures
fr0m 0ur peers, as Well as any ad0pti0n by 0ur regulat0rs 0f neW rules 0r supervis0ry guidance 0r m0re aggressive eXaminati0n
and enf0rcement p0licies in respect 0f banks’ 0verdraft fee practices, c0uld cause us t0 further m0dify 0ur pr0gram and
practices in Ways that may have a negative impact 0n 0ur revenue and earnings, Which, in turn, c0uld have an adverse effect 0n
0ur financial c0nditi0n and results 0f 0perati0ns. In additi0n, as supervis0ry eXpectati0ns and industry practices regarding
0verdraft fee pr0grams change, 0ur c0ntinued charging 0f 0verdraft fees may result in negative public 0pini0n and increased
reputati0n risk.
CaPital AdeqUacy Risks
Our abi/ity to grow is contingent upon access to capita/, which may not be readi/y avai/ab/e to us.
Our primary capital s0urces have been retained earnings and debt issued thr0ugh b0th private and public markets. Rating
agencies regularly evaluate 0ur creditW0rthiness and assign credit ratings t0 us and FCB. The ratings 0f the agencies are based
0n a number 0f fact0rs, s0me 0f Which are 0utside 0ur c0ntr0l. In additi0n t0 fact0rs specific t0 0ur financial strength and
perf0rmance, the rating agencies als0 c0nsider c0nditi0ns generally affecting the financial services industry. We may n0t be
able t0 maintain 0ur current credit ratings. Rating reducti0ns c0uld adversely affect 0ur access t0 funding s0urces and increase
the c0st 0f 0btaining funding.
Based 0n eXisting capital levels, We and FCB are Well-capitalized under current leverage and risk-based capital standards. Our
ability t0 gr0W is c0ntingent 0n 0ur ability t0 generate 0r 0therWise access sufficient capital t0 remain Well-capitalized under
current and future capital adequacy guidelines.
We and FCB are subject to capita/ adequacy and /iquidity guide/ines and, if we fai/ to meet these guide/ines, our financia/
condition and abi/ity to make capita/ distributions wou/d be adverse/y affected.
Under regulat0ry capital adequacy guidelines and 0ther regulat0ry requirements, We, t0gether With FCB, must meet certain
capital and liquidity guidelines, subject t0 qualitative judgments by regulat0rs ab0ut c0mp0nents, risk Weightings and 0ther
fact0rs.
We and FCB are subject t0 capital rules issued by the federal banking agencies including required minimum capital and
leverage rati0s. These requirements, and any pr0p0sed changes in c0nnecti0n With the federal banking agencies’ plan t0
implement the final Basel III p0st-crisis ref0rm standards, c0uld adversely affect 0ur ability t0 pay dividends, restrict certain
business activities, including share repurchases, 0r c0mpel us t0 raise capital, each 0f Which may adversely affect 0ur results 0f
0perati0ns 0r financial c0nditi0n. Refer t0 the “Regulat0ry C0nsiderati0ns” secti0n in Item 1. Business 0f this Annual Rep0rt 0n
F0rm 10-K f0r additi0nal inf0rmati0n regarding the capital requirements under the D0dd-Frank Act and Basel III.
31
We are required to submit an annual capital plan to the Federal Reserve and to be subject to supervisory stress testing under the
Federal Reserve’s CCAR process on a biennial basis as a Category IV banking organization, subject to the applicable transition
periods. Under the CCAR process, the Federal Reserve will evaluate our planned capital distributions (e.g., dividends) included
in our capital plan over the planning horizon (i.e., nine consecutive quarters, beginning with the quarter preceding the quarter in
which the capital plan is submitted over which the relevant projections extend) to determine whether we will be able to meet
our ongoing capital needs under a range of different economic scenarios. Failure to obtain a non-objection on our capital plan
submitted to the Federal Reserve, or to demonstrate capital adequacy under the CCAR process, could result in restrictions in
our ability to declare and pay dividends, repurchase shares, or make other capital distributions. Refer to the “Regulatory
Considerations ” section of Item 1. Business of this Annual Report on Form 10-K for additional information regarding the
annual capital plan submission to the Federal Reserve and supervisory stress testing under the CCAR process.
Increases to our level of indebtedness could adversely affect our ability to raise additional capital and to meet our obligations.
Our existing debt, together with any future incurrence of additional indebtedness and preferred stock, could have consequences
that are materially adverse to our business, financial condition or results of operations. For example, it could: (i) limit our ability
to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general
corporate or other purposes; (ii) restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
(iii) restrict us from paying dividends to our stockholders; (iv) increase our vulnerability to general economic and industry
conditions; or (v) require a substantial portion of cash flow from operations to be dedicated to the payment of principal and
interest on our indebtedness and dividends on the preferred stock, thereby reducing our ability to use cash flows to fund our
operations, capital expenditures and future business opportunities. Refer to the “Borrowings ” sections of Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for additional
information regarding our borrowings.
ComPliance RiSkS
We operate in a highly regulated industry, and the laws and regulations that govern our operations, taxes, corporate
governance, executive compensation and financial accounting and reporting, including changes in them or our failure to
comply with them, may adversely affect us.
We operate in a highly 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 limited to, expectations relating to anti-money
laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices,
regulatory reporting, and community reinvestment,
In addition, we must comply with other regulations that protect the deposit insurance fund and the stability of the United States
financial system, including laws and regulations that, among other matters, prescribe minimum capital requirements, impose
limitations on our business activities and investments, limit the dividends or distributions that we can pay, restrict the ability of
our bank subsidiaries to guarantee our debt and impose certain specific accounting requirements that may be more restrictive
and may result in greater or earlier charges to earnings or reductions in our capital than GAAP. Compliance with laws and
regulations can be difficult and costly, and changes in laws and regulations often result in additional compliance costs.
We are subject to extensive federal and applicable state regulation and supervision, primarily through FCB and certain nonbank
subsidiaries. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the
banking system as a whole, not stockholders. These regulations affect our lending practices, capital structure, investment
practices, dividend policy, and growth, among other things. Congress 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 issued by the SEC and The Nasdaq, as well as numerous
other more recently enacted statutes and regulations, including the Dodd-Frank Act, EGRRCPA, and regulations promulgated
thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices,
including the costs of completing our external audit and maintaining our internal controls. Such additional regulation and
supervision may limit our ability to pursue business opportunities and result in a material adverse impact on our financial
condition and results of operations.
32
Changes to statutes, regulations, or regulatory policies, including changes in interpretation or iqpleqentation of statutes,
regulations, or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs,
liqit the types of financial services and products we qay offer, or increase the ability of nonbanks to offer coqpeting financial
services and products, aqong other things. Failure to coqply with laws, regulations, or policies could result in sanctions by
regulatory agencies (including potential liqitations on our future acquisitions or operations, or requireqents to forfeit assets),
civil qoney penalties, or reputation daqage.
Information security and data privacy are areas of heightened legislative and regulatory focus.
As inforqation security and data privacy risks for banking organizations and the broader financial systeq have significantly
increased in recent years, data privacy and security issues have becoqe the subject of increasing legislative and regulatory
focus. The federal bank regulatory agencies have proposed regulations that would enhance cyber risk qanageqent standards,
which would apply to a wide range of LFIs and their third-party service providers, including us and FCB, and would focus on
cyber risk governance and qanageqent, qanageqent of internal and external dependencies, and incident response, cyber
resilience, and situational awareness. Several states have also proposed or adopted inforqation security legislation and
regulations, which require, aqong other things, notification to affected individuals when there has been a security breach of
their personal data.
We receive, qaintain, and store non-public personal inforqation of our custoqers and counterparties, including, but not liqited
to, personally identifiable inforqation and personal financial inforqation. The collection, sharing, use, disclosure, and
protection of these types of inforqation are governed by federal and state law. Both personally identifiable inforqation and
personal financial inforqation are increasingly subject to legislation and regulation, the intent of which is to increase
transparency related to how personal inforqation is processed, choices individuals have to control how their inforqation is used
and to protect the privacy of such inforqation. For exaqple, in June of 2018, the Governor of California signed into law the
CCPA. The CCPA, which becaqe effective on January 1, 2020, and was aqended in Noveqber 2020 by the CPRA, applies to
for-profit businesses that conduct business in California and qeet certain revenue or data collection thresholds. The CPRA,
which becaqe effective on January 1, 2023, aqends the scope and several of the substantive requireqents of the CCPA, as well
as certain qechanisqs for adqinistration and enforceqent of the statute. Nuqerous other states have also enacted or are in the
process of enacting state-level privacy, data protection and/or data security laws and regulations.
We qay becoqe subject to new legislation or regulation concerning inforqation security and/or data privacy. If security, data
privacy, data protection, data transfer, or data retention laws are iqpleqented, interpreted, or applied in a qanner inconsistent
with our current practices, failure to adapt to changing requireqents qay subject us to fines, litigation, or regulatory
enforceqent actions. However, required changes to our business practices, policies, or systeqs qay also adversely iqpact our
operating results.
We face heightened compliance risks related to certain specialty commercial business lines.
Our rail business line is subject to various laws, rules and regulations adqinistered by authorities in various jurisdictions. In the
United States, our equipqent leasing operations, including for railcars, ships, and other equipqent, are subject to rules and
regulations relating to safety, operations, qaintenance and qechanical standards proqulgated by various federal and state
agencies and industry organizations, including the United States Departqent of Transportation, the Federal Railroad
Adqinistration, the Association of Aqerican Railroads, the Maritiqe Adqinistration, the United States Coast Guard, and the
United States Environqental Protection Agency. We are also subject to regulation by governqental agencies in foreign
countries in which we do business. Our business operations and our equipqent financing and leasing portfolios qay be
adversely iqpacted by rules and regulations proqulgated by governqental and industry agencies, which could require
substantial qodification, qaintenance, or refurbishqent of our railcars, ships or other equipqent, or could potentially qake
such equipqent inoperable or obsolete. Failure to coqply with these laws, rules and regulations could result in sanctions by
regulatory agencies (including potential liqitations on our future acquisitions or operations, or requireqents to forfeit assets),
civil qoney penalties, or reputation daqage. Additionally, we qay incur significant expenses in our efforts to coqply with
these laws, rules and regulations.
33
We are a Category IV banking organization and therefore subject to certain enhanced prudential standards and enhanced
supervision by the Federal Reserve under the Dodd-Frank Act, as amended by the EGRRCPA, and implemented by the federal
banking agencies’ Tailoring Rules, subject to the applicable transition periods.
After repOrtiNg tOtal cONsOlidated assets Of $100 billiON Or MOre, based ON a fOur-quarter trailiNg average, we becaMe subject tO
eNhaNced prudeNtial staNdards uNder SectiON 165 Of the DOdd-FraNk Act, as aMeNded by the EGRRCPA, aNd iMpleMeNted by
the federal baNkiNg ageNcies’ TailOriNg Rules, subject tO the applicable traNsitiON periOds. If we fail tO develOp aNd MaiNtaiN at
a reasONable cOst the systeMs aNd prOcesses Necessary tO cOMply with the staNdards aNd requireMeNts iMpOsed by these rules, it
cOuld have a Material adverse effect ON Our busiNess, fiNaNcial cONditiON Or results Of OperatiONs. AdditiONally, as we grOw, aNd
Our assets exceed certaiN threshOlds, regulatOry requireMeNts that we are subject tO, as well as Our cOMpliaNce expeNses, will
iNcrease. FOr exaMple, after repOrtiNg $50 billiON Or MOre iN weighted shOrt-terM whOlesale fuNdiNg, we will be subject tO
MOdified LCR aNd NSFR requireMeNts, aNd we will be subject tO full LCR aNd NSFR requireMeNts after repOrtiNg $75 billiON
Or MOre iN weighted shOrt-terM whOlesale fuNdiNg iN additiON tO Other eNhaNced prudeNtial staNdards as a CategOry III baNkiNg
OrgaNizatiON. Refer tO the “RegulatOry CONsideratiONs” sectiON Of IteM 1. BusiNess Of this ANNual RepOrt ON FOrM 10-K fOr
additiONal iNfOrMatiON regardiNg the eNhaNced prudeNtial staNdards that we are subject tO as a CategOry IV baNkiNg
OrgaNizatiON, aNd hOw Our regulatOry requireMeNts will chaNge based ON Our tOtal assets aNd Other risk-based factOrs uNder the
TailOriNg Rules.
The CFPB has reshaped the consumer financial laws through rulemaking and enforcement of the prohibitions against unfair,
deceptive and abusive business practices. Compliance with any such change may impact the business operations of depository
institutions offering consumer financial products or services, including FCB.
We are subject tO supervisiON aNd exaMiNatiON by the CFPB fOr cOMpliaNce with the CFPB’s regulatiONs aNd pOlicies. The
CFPB has brOad ruleMakiNg authOrity tO adMiNister aNd carry Out the prOvisiONs Of the DOdd-FraNk Act with respect tO
fiNaNcial iNstitutiONs that Offer cOvered fiNaNcial prOducts aNd services tO cONsuMers. The CFPB is respONsible fOr adOptiNg
rules ideNtifyiNg practices Or acts that are uNfair, deceptive Or abusive iN cONNectiON with aNy traNsactiON with a cONsuMer fOr a
cONsuMer fiNaNcial prOduct Or service, Or the OfferiNg Of a cONsuMer fiNaNcial prOduct Or service. The CFPB has iNitiated
eNfOrceMeNt actiONs agaiNst a variety Of baNk aNd NON-baNk Market participaNts with respect tO a NuMber Of cONsuMer fiNaNcial
prOducts aNd services that has resulted iN thOse participaNts expeNdiNg sigNificaNt tiMe, MONey aNd resOurces tO adjust tO the
iNitiatives beiNg pursued by the CFPB. The CFPB has pursued a MOre aggressive eNfOrceMeNt pOlicy iN respect Of a raNge Of
regulatOry cOMpliaNce Matters uNder the BideN AdMiNistratiON. CFPB eNfOrceMeNt actiONs May serve as precedeNt fOr hOw the
CFPB iNterprets aNd eNfOrces cONsuMer prOtectiON laws, iNcludiNg practices Or acts that are deeMed tO be uNfair, deceptive Or
abusive, with respect tO all supervised iNstitutiONs, iNcludiNg us. which May result iN the iMpOsitiON Of higher staNdards Of
cOMpliaNce with such laws. The liMitatiONs aNd restrictiONs that May be placed upON us by the CFPB with respect tO Our
cONsuMer prOduct OfferiNgs aNd services May prOduce sigNificaNt, Material effects ON Our prOfitability.
We may be adversely affected by changes in United States and foreign tax laws and other tax laws and regulations.
COrpOrate tax rates affect Our prOfitability aNd capital levels. We are subject tO the iNcOMe tax laws Of the UNited States, its
states aNd their MuNicipalities aNd tO thOse Of the fOreigN jurisdictiONs iN which we dO busiNess. These tax laws are cOMplex aNd
May be subject tO differeNt iNterpretatiONs. We Must Make judgMeNts aNd iNterpretatiONs abOut the applicatiON Of these tax laws
wheN deterMiNiNg Our prOvisiON fOr iNcOMe taxes, Our deferred tax assets aNd liabilities aNd Our valuatiON allOwaNce. ChaNges
tO the tax laws, adMiNistrative ruliNgs Or cOurt decisiONs cOuld iNcrease Our prOvisiON fOr iNcOMe taxes aNd reduce Our Net
iNcOMe. The UNited States cOrpOrate tax cOde May be refOrMed by the UNited States CONgress aNd additiONal guidaNce May be
issued by the UNited States DepartMeNt Of the Treasury. IN August 2022, CONgress eNacted the INflatiON ReductiON Act Of 2022
(the “INflatiON ReductiON Act”), which iNstituted, aMONg Other thiNgs, a 1% excise tax ON certaiN cOrpOrate stOck repurchases
which tOOk effect ON JaNuary 1, 2023. As a result, effective fOr tax years begiNNiNg after DeceMber 31, 2022, BaNcShares May
be subject tO a COrpOrate AlterNative MiNiMuM Tax (“CAMT”). BaNcShares will treat aNy CAMT that May be applicable tO tax
years begiNNiNg after DeceMber 31, 2022 as a periOd cOst. Further chaNges iN tax laws aNd regulatiONs, aNd iNcOMe tax rates iN
particular, cOuld have aN adverse iMpact ON Our fiNaNcial cONditiON aNd results Of OperatiONs. These chaNges cOuld alsO affect
Our regulatOry capital ratiOs as calculated iN accOrdaNce with the Basel III Rules.
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We are subject to ESG risks such as climate risk, hiring practices, diversity, racial and social justice issues, including in
relation to our counterparties, which may adversely affect our reputation and ability to retain employees and customers.
We are subject to a variety of risks arising from environmental, social and governance (“ESG”) matters. ESG matters include,
but are not limited to, climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving
our personnel, customers and third parties with whom we otherwise do business. Investors have begun to consider the steps
taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making
investment and operational decisions. If our ESG practices do not meet (or are viewed as not meeting) investor or other industry
stakeholder expectations and standards, which continue to evolve, our reputation and employee and customer retention may be
negatively impacted. The Biden Administration, through Executive Orders and leadership appointments at the federal agencies,
has communicated and sought to implement an agenda focused on oversight and legislative initiatives in a variety of areas
material to our business, including addressing climate-related risks, promoting diversity and equality within the banking
industry and addressing other ESG matters relevant to us.
We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices.
For example, in 2022, the SEC proposed new climate disclosure rules, which if adopted, would require new climate-related
disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about
climate-related targets and goals, transition plans, if any, and extensive attestation requirements. Further, we may be exposed to
negative publicity based on the identity and activities of those to whom we lend and with which we otherwise do business and
the public’s view of the approach and performance of our customers and business partners with respect to ESG matters.
Asset Risks
We may not be able to realize our entire investment in the equipment that we lease to our customers.
Our loans and leases include a significant portion of leased equipment, including, but not limited to, railcars and locomotives,
technology and office equipment and medical equipment. The realization of equipment values (residual 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 leased equipment based on our estimate of the future value of the equipment at the end
of the lease term or end of the equipment’s estimated useful life. If the market value of leased equipment decreases at a rate
greater than we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the
equipment, excessive use of the equipment, recession or other adverse economic conditions impacting supply and demand, it
could adversely affect the current values or the residual values of such equipment.
Financial Reporting Risks
Accounting standards may change and increase our operating costs or otherwise adversely affect our results.
The Financial Accounting Standards Board (“FASB”) and the SEC periodically modify the standards governing the preparation
of our financial statements. The nature of these changes is not predictable and has impacted and could further impact how we
record transactions in our financial statements, which has led to and could lead to material changes in assets, liabilities,
stockholders’ equity, revenues, expenses and net income. Implementation of new accounting rules or standards could
additionally require us to implement technology changes which could impact ongoing earnings.
Our accounting policies and processes are critical to the reporting of our financial condition and results of operations. They
require management to make estimates about matters that are uncertain, and such estimates may be materially different from
actual results.
Accounting policies and processes are fundamental to how we record and report our financial condition and results of
operations. Management must exercise judgment in selecting and applying many of these accounting policies and processes so
they comply with GAAP. In some cases, management must select the accounting policy or method to apply from two or more
alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting materially different results
than would have been reported under a different alternative.
Management has identified certain accounting policies as being critical because they require management to make difficult,
subjective or complex conclusions about matters that are uncertain. Materially different amounts could be reported under
different conditions or using different assumptions or estimates. Because of the uncertainty surrounding management’s
judgments and the estimates pertaining to these matters, we may be required to adjust accounting policies or restate prior period
financial statements. Refer to “Critical Accounting Estimates” included in Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations of this Annual Report on Form 10-K.
35
Our business is highly quantitative and requires widespread use of financial models for day-to-day operations; these models
may produce inaccurate predictions that significantly vary from actual results, and we may rely on these inaccurate predictions
in making decisions that ultimately adversely affect our business.
We rely on quantitative models to measure risks and to estimate certain financial values. Such models may be used in many
processes including, but not limited to, the pricing of various products and services, classifications of loans, setting interest rates
on loans and deposits, quantifying interest rate and other market risks, forecasting losses, measuring capital adequacy and
calculating economic and regulatory capital levels. Models may also be used to estimate the value of financial instruments and
balance sheet items. Inaccurate or erroneous models present the risk that business decisions relying on the models will prove
inefficient, ineffective or harmful to us. Additionally, information we provide to our investors and regulators may be negatively
impacted by inaccurately designed or implemented models. For further information on risk monitoring, refer to the “Risk
Management” section included in Item 7A. Quantitative and Qualitative Disclosure about Market Risk of this Annual Report on
Form 10-K.
We may fail to maintain an effective system of internal control over financial reporting, which could hinder our ability to
prevent fraud and provide reliable financial reports to key stakeholders.
We must have effective internal controls over financial reporting in order to provide reliable financial reports, to effectively
prevent fraud and to operate successfully as a public company. If we are unable to provide reliable financial reports or prevent
fraud, our reputation and operating results will be harmed and we may violate regulatory requirements or otherwise become
subject to legal liability. We may discover material weaknesses or significant deficiencies requiring remediation, which would
require additional expense and diversion of management attention, among other consequences. A “material weakness” is a
deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable
possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected
on a timely basis.
Any failure to maintain effective internal controls or to implement any necessary improvement of our internal controls in a
timely manner could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose
confidence in our reported financial information, each of which could have a material adverse effect on our results of operations
and financial condition and the market value of our common stock.
Item 2. Properties
We are headquartered in a nine-story building with approximately 163,000 square feet that is located in Raleigh, North
Carolina, which is owned by FCB. In addition, FCB owns and occupies two separate facilities in Raleigh as well as a facility in
Columbia, South Carolina, which serve as data and operations centers. The addition of CIT primarily increased leased space, as
CIT occupied office space and a branch network, the vast majority of which was leased. As of December 31, 2022, FCB
operated 582 branches and offices throughout the Southeast, Mid-Atlantic, Midwest and Western United States. FCB owns
many of our branch buildings and leases other facilities from third parties. We believe that these properties are in good
condition and well maintained, and are suitable and adequate for our business needs.
Additional information relating to leased office space is set forth in Note 6 — Leases, of BancShares’ Notes to Consolidated
Financial Statements. Additional information relating to premises and equipment is set forth in Note 7 — Premises and
Equipment, of BancShares’ Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
The Parent Company’s and various subsidiaries are named as defendants in various legal actions arising from our normal
business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect
to those matters cannot be determined, in the opinion of management, no legal actions exist that would be material to
BancShares’ consolidated financial statements. Additional information related to legal proceedings is set forth in Note 24 —
Commitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements.
36
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The Parent Company has two classes of common stock—Class A common stock and Class B common stock. Shares of Class A
common stock have one vote per share, while shares of Class B common stock have 16 votes per share. The Class A common
stock is listed on the Nasdaq Global Select Market under the symbol FCNCA. The Class B common stock is traded on the over-
the-counter market and quoted on the OTC Pink Market under the symbol FCNCB. As of February 17, 2023, there were
aggregates of 1,052 and 142 holders of record and individual participants in securities position listings with respect to the Class
A common stock and Class B common stock, respectively. The market volume for Class B common stock is extremely limited.
On many 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 stock represent inter-dealer prices without retail markup, markdown or
commissions, and may not represent actual transaction prices.
The average monthly trading volume for the Class A common stock was 2,235,497 shares during the fourth quarter of 2022 and
2,567,371 shares for the year ended December 31, 2022. The Class B common stock monthly trading volume averaged 617
shares during the fourth quarter of 2022 and 1,381 shares for the year ended December 31, 2022.
The table below summarizes our stock repurchase activity during the fourth quarter of 2022.
ISSUER PURCHASES OF EQUITY SECURITIES
Class A Common Stock
Repurchases from October 1 - 31, 2022
Repurchases from November 1 - 30, 2022
Repurchases from December 1 - 31, 2022
Total
Total Number of
Class A Shares
Repurchased
Average Price Paid
per Share
Total Number of
Shares
Repurchased as
Part of Publicly
Announced Plan
Maximum Number
of Shares that May
Yet be Repurchased
Under Plan
472,586 $
842.61
472,586
— $
— $
—
—
—
—
472,586 $
842.61
472,586
—
—
—
—
On July 26, 2022, the Board authorized a share repurchase program for up to 1,500,000 shares of Class A common stock for the
period commencing August 1, 2022 through July 28, 2023. Under the authorized share repurchase program, shares of Class A
common stock were authorized to be repurchased from time to time on the open market or in privately negotiated transactions,
including through a Rule 10b5-1 plan. All 1,500,000 shares of Class A common stock under the program were repurchased
during 2022, thereby completing the share repurchase program.
37
The graph and table below compare the cumulative total shareholder return (“CTSR”) of our Class A common stock to selected
industry and broad-market indices. The broad-market index comparison is to the Nasdaq US Benchmark Total Return Index
and the industry index comparison is to the KBW Nasdaq Bank Total Return Index, which is composed of the largest banking
companies and includes all money center banks and regional banks. Each trend line assumes $100 was invested on December
31, 2017, and dividends were reinvested for additional shares.
The performance graph represents past performance and should not be considered to be an indication of future performance.
CTSR Total Returns
e
u
1
a
V
x
e
d
n
I
$250
$200
$150
$100
$50
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
Period Ending
FCNCA
Nasdaq US Benchmark TR
KBW Nasdaq Bank TR
FCNCA
Nasdaq US Benchmark TR
KBW Nasdaq Bank Total Return Index
2017
2018
2019
2020
2021
2022
$
100 $
100
100
94 $
95
82
133 $
124
112
144 $
150
100
208 $
189
139
190
152
109
Item 6. [Reserved]
38
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussiOn and analysis (“MD&A”) Of earnings and related financial data is presented tO assist in understanding
BancShares’ financial cOnditiOn and results Of OperatiOns. Unless Otherwise nOted, the terms “we,” “us,” “Our,” and
“BancShares” in this MD&A refer tO Our cOnsOlidated financial cOnditiOn and results Of OperatiOns.
This MD&A is expected tO prOvide Our investOrs with a view Of Our financial cOnditiOn and results Of OperatiOns frOm Our
management’s perspective. This MD&A shOuld be read in cOnjunctiOn with the audited cOnsOlidated financial statements and
NOtes tO the COnsOlidated Financial Statements in Item 8. Financial Statements and Supplementary Data, Of this Annual RepOrt
On FOrm 10-K. ThrOughOut this MD&A, references tO a specific “NOte” refer tO NOtes tO the COnsOlidated Financial
Statements.
IntercOmpany accOunts and transactiOns have been eliminated. AlthOugh certain amOunts fOr priOr years have been reclassified
tO cOnfOrm tO statement presentatiOns fOr 2022, the reclassificatiOns had nO effect On stOckhOlders’ equity Or net incOme as
previOusly repOrted. Refer tO further detail in NOte 1 — Significant AccOunting POlicies and Basis Of PresentatiOn.
Management uses certain nOn-GAAP financial measures in its analysis Of the financial cOnditiOn and results Of OperatiOns Of
BancShares. See the "NOn-GAAP Financial Measurements" sectiOn Of this MD&A fOr a recOnciliatiOn Of these financial
measures tO the mOst directly cOmparable financial measures in accOrdance with GAAP.
On January 3, 2022, we cOmpleted the CIT Merger, Our largest acquisitiOn tO date. CIT had cOnsOlidated tOtal assets Of
apprOximately $53.24 billiOn as Of December 31, 2021. The CIT Merger is described further belOw in the “Significant Events in
2022” sectiOn Of this MD&A and in NOte 2 — Business COmbinatiOns.
BancShares’ financial data fOr periOds priOr tO the CIT Merger dOes nOt include CIT, and therefOre may nOt be directly
cOmparable tO data as Of Or fOr the year ended December 31, 2022. The CIT Merger is a primary reasOn fOr many Of the
increases in 2022 cOmpared tO 2021 as discussed belOw in the “Results Of OperatiOns” and “Balance Sheet” sectiOns Of this
MD&A.
Year-Over-year cOmparisOns Of the financial results fOr 2021 and 2020 are cOntained in Item 7. Of BancShares’ Annual RepOrt
On FOrm 10-K as Of and fOr the year ending December 31, 2021 filed with the SEC On February 25, 2022 and available thrOugh
FCB’s investOr relatiOns website www.ir.firstcitizens.cOm Or the SEC’s EDGAR database.
EXECUTIVE OVERVIEW
Key Strategic Objectives
Our Overall business strategy is tO acquire, expand, and retain client relatiOnships. FrOm a financial standpOint, lOng-term
sustainability is Our primary Objective. Our majOr areas Of fOcus are:
• Delivering value to our customers - We strive tO be custOmer-centric by prOviding sOlutiOns tO serve Our custOmers’
financial Objectives and needs.
• Growth - Our grOwth strategy fOcuses On Organic grOwth, supplemented by strategic acquisitiOns. We strive tO Optimize
allOcatiOn Of capital and investments tO fOcus On financial prOducts and services with higher returns and OppOrtunities. Our
gOal is tO cOntinue tO add lOwer cOst cOre depOsits tO help fund Our grOwth.
• Our people and associates - We seek tO attract, retain and develOp assOciates whO align with Our lOng-term directiOn and
• Operational efficiency - We aim tO expand revenue, reduce cOsts Of delivery, and maximize merger synergies, while
culture, while scaling fOr cOntinued grOwth.
effectively executing On Our Operating mOdel.
• Prudent and strong risk management - Our gOal is tO manage risk within Our defined risk appetite.
39
SiGniFiCAnt evEnts in 2022
CIT Merger
The CIT Merger closed on Januaru 3, 2022 as further discussed in Note 2 — Business Combinations. Significant items related
to the CIT Merger are as follows:
• The fair value of total assets acquired was $53.78 billion, which mainlu consisted of approximatelu $32.71 billion of loans,
approximatelu $7.84 billion of operating lease equipment and approximatelu $6.56 billion of investment securities. Loans
consisted of commercial and industrial loans, commercial real estate loans and finance leases, which are included in our
Commercial Banking segment, and consumer loans (primarilu residential mortgages), which are in our General Banking
segment. Acquired rail assets were mostlu operating lease equipment and reported in the Rail segment.
•
• The fair value of deposits acquired was approximatelu $39.43 billion, which included deposits derived from the Digital
Bank, Homeowners’ Association (“HOA”) deposits related to Communitu Association Banking (“CAB”), and commercial
deposits. The transaction also included approximatelu 80 bank branches, about 60 of which were in Southern California,
and the remaining primarilu in the Southwest, Midwest and Southeast.
FCB assumed certain issued and outstanding series of CIT debt securities with a fair value of approximatelu $4.54 billion
in connection with the CIT Merger. On Februaru 24, 2022, BancShares redeemed approximatelu $2.90 billion of senior
unsecured notes that were assumed in the CIT Merger.
• BancShares recorded a gain on acquisition of $431 million, representing the excess of the net assets acquired over the
purchase price, core deposit intangibles of $143 million, and an intangible liabilitu of $52 million for net below market
lessor lease contract rental rates related to the rail portfolio.
Share Repurchase Program
On Julu 26, 2022, our Board authorized a share repurchase program for up to 1,500,000 shares of BancShares’ Class A
common stock for the period commencing August 1, 2022 through Julu 28, 2023. All shares under the program were
repurchased during 2022, therebu completing the share repurchase program. See Item 5. Market for Registrant’s Common
Equitu, Related Stockholder Matters and Issuer Purchases of Equitu Securities of this Annual Report on Form 10-K for further
details on these purchases.
SEGmEnt UpDAtEs
As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. BancShares
began reporting multiple segments during the first quarter of 2022 and now reports General Banking, Commercial Banking,
Rail, and Corporate segments, as further discussed in Note 1 — Significant Accounting Policies and Basis of Presentation.
Information about our segments is included in Note 23 — Business Segment Information and in the section entitled “Results bu
Business Segments” later in this MD&A.
40
Financial Performance Summary
Table 1
Selected Financial Data
dollars in millions, except share data
SUMMARY OF OPERATIONS
Interest income
Interest expense
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
Net income available to common stockholders
PER COMMON SHARE DATA
Average diluted common shares
Net income available to common stockholders (diluted)
KEY PERFORMANCE METRICS
Return on average assets (ROA)
Net interest margin (NIM) (1)
SELECTED PERIOD AVERAGE BALANCES
Total investments
Total loans and leases (1)
Total operating lease equipment (net)
Total assets
Total deposits
Total stockholders’ equity
SELECTED PERIOD-END BALANCES
Total investments
Total loans and leases
Total operating lease equipment (net)
Total assets
Total deposits
Total stockholders’ equity
Loan to deposit ratio
Noninterest-bearing deposits to total deposits
CAPITAL RATIOS
Common equity tier 1 ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage capital ratio
$
$
$
$
$
ASSET QUALITY
Ratio of nonaccrual loans to total loans
Allowance for credit losses to loans ratio
Net charge off ratio
(l) Calculation is further discussed in Table 3 in the Results of Operations section of this MD&A.
41
2022
Year ended December 31
2021
2020
$
$
$
$
$
3,413
467
2,946
645
2,301
2,136
3,075
1,362
264
1,098
50
1,048
15,549,944
67.40
1.01 %
3.14 %
19,166
67,787
7,982
108,933
89,915
10,276
19,369
70,781
8,156
109,298
89,408
9,662
79.17 %
27.87 %
10.08 %
11.06 %
13.18 %
8.99 %
0.89 %
1.30 %
0.12 %
$
$
$
$
$
1,451
61
1,390
(37)
1,427
508
1,234
701
154
547
18
529
9,816,405
53.88
1.00 %
2.66 %
10,611
32,860
—
54,983
48,259
4,461
13,110
32,372
—
58,309
51,406
4,738
62.97 %
41.64 %
11.50 %
12.47 %
14.35 %
7.59 %
0.37 %
0.55 %
0.03 %
1,484
96
1,388
58
1,330
477
1,189
618
126
492
14
478
10,056,654
47.50
1.07 %
3.17 %
9,055
31,605
—
46,021
39,747
3,954
9,923
32,792
—
49,958
43,432
4,229
75.50 %
41.48 %
10.61 %
11.63 %
13.81 %
7.86 %
0.58 %
0.68 %
0.07 %
Year To DaTe Income STaTemenT HighlighTs
• Net income for the year ended December 31, 2022 was $1.10 billion, an increase of $551 million, or 101% compared to
2021. Net income available to common stockholders for the year ended December 31, 2022 was $1.05 billion, an increase
of $519 million, or 98% compared to 2021. Net income per diluted common share for the year ended December 31, 2022
was $67.40, an increase of 25% compared to 2021. The increases were primarily due to the CIT Merger.
• Return on average assets for the year ended December 31, 2022 was 1.01%, compared to 1.00% for 2021.
• Net interest income (“NII”) for the year ended December 31, 2022 was $2.95 billion, an increase of $1.56 billion, or 112%
compared to 2021. This increase was primarily due to the CIT Merger, loan growth and higher yields on interest-earning
assets, partially offset by higher rates paid on interest-bearing deposits and a decline in interest income on SBA-PPP loans.
• Net interest margin (“NIM”) for the year ended December 31, 2022 was 3.14%, an increase of 48 bps compared to 2.66%
in 2021. The increase in NIM was primarily due to the increase in yield on interest-earning assets, partially offset by an
increase in the cost of interest-bearing liabilities.
• Provision for credit losses for the year ended December 31, 2022 was $645 million, compared to a benefit of $37 million in
2021. The provision for credit losses in 2022 included a provision of $513 million for non-purchased credit deteriorated
(“Non-PCD”) loans, leases and unfunded commitments acquired in the CIT Merger (the “Day 2 provision for credit
losses”). The 2022 provision for credit losses reflects the CIT Merger, loan growth, and deterioration in the economic
outlook, partially offset by a change in portfolio mix. The net charge-off ratio for the year ended December 31, 2022 was
0.12%, compared to 0.03% for 2021.
• Noninterest income for the year ended December 31, 2022 was $2.14 billion, an increase of $1.63 billion compared to
$508 million for 2021. The year ended December 31, 2022 includes a gain on acquisition of $431 million. The remaining
increase was primarily due to the added activity from the CIT Merger, including rental income on operating lease
equipment of $864 million.
• Noninterest expense for the year ended December 31, 2022 was $3.08 billion, an increase of $1.84 billion compared to
$1.23 billion for 2021. The increase was primarily associated with the CIT Merger, including higher salaries and benefits
of $637 million primarily due to the increase in employees, $534 million of depreciation and maintenance costs associated
with operating lease equipment and an increase in merger-related expenses of $202 million.
Select significant items for the year ended December 31, 2022 follow:
• Day 2 provision for credit losses of $513 million;
• Gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets
•
acquired over the purchase price;
• Merger-related expenses of $231 million in noninterest expense;
• A reduction of $27 million in other noninterest expense related to the termination of certain post retirement plans
assumed in the CIT Merger; and
Income tax expense of $55 million related to the strategic decision to exit $1.25 billion of BOLI policies as discussed
further below in the “Fourth Quarter Analysis” section of this MD&A.
•
Balance SheeT HighlighTs
•
•
Total loans and leases at December 31, 2022 were $70.78 billion, an increase of $38.41 billion from December 31, 2021,
primarily reflecting the addition of $32.71 billion from the CIT Merger. In addition, during 2022 we continued to see
growth in our branch network, as well as growth in our Commercial Banking segment from a number of our industry
verticals, such as healthcare and technology, equipment financing, and growth in both commercial and consumer mortgage
loans.
Total deposits at December 31, 2022 were $89.41 billion, an increase of $38.00 billion from December 31, 2021, reflecting
the addition of $39.43 billion from the CIT Merger. Total deposits declined during the second and third quarters of 2022,
reflecting the most rate sensitive customers moving funds in response to increases in the target federal funds rate. This
decline in total deposits was primarily concentrated in branches acquired in the CIT Merger and the Commercial Banking
segment. Deposits increased during the fourth quarter of 2022, primarily related to the Direct Bank, and the Corporate
segment which includes brokered deposits. In the fourth quarter of 2022, increases in savings and time deposit accounts
offset declines in noninterest-bearing demand accounts and money market accounts.
• At December 31, 2022, BancShares remained well-capitalized with a total risk-based capital ratio of 13.18%, a Tier 1 risk-
based capital ratio of 11.06%, a common equity Tier 1 ratio of 10.08% and a Tier 1 leverage ratio of 8.99%.
42
Recent Economic and Industry Developments
Throughout 2022, the FOMC significantly raised its target for the federal funds rate in an effort to combat rising inflation. The
FOMC raised interest rates at its respective meetings during 2022, as follows:
Table 2
FOMC 2022 Interest Rate Increases
Month
March
May, December
June, July, September, November
25 basis point
increase
50 basis point
increase
75 basis point
increase
X
X
X
With the latest increase of 25 basis points at the January 2023 meeting, the FOMC raised their benchmark federal funds rate to
a range between 4.50% - 4.75% and signaled possible further increases in 2023. The FOMC’s effort to control inflation has
increased concerns over the possibility of a recession within the next twelve months. In addition, geopolitical events, including
the ongoing conflict between Russia and Ukraine and related events, are likely to create additional upward pressure on inflation
and weigh on economic activity. The timing and impact of inflation, continued volatility in the stock market, rising interest
rates and possible recession will depend on future developments, which are highly uncertain and difficult to predict.
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
NII is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. NII is
affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing
liabilities. The following table presents the average balances, yields on interest-earning assets, rates on interest-bearing
liabilities, and year-over-year changes in NII due to changes in: (i) volume (average balances of interest-earning assets and
interest-bearing liabilities) and (ii) yields or rates.
• The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the
prior year.
from the prior year.
• The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance
• The change in NII due to rate/volume change (i.e. portfolio mix) is calculated as the change in rate multiplied by the
change in volume. This component is allocated between the changes in NII due to volume and yield or rate based on
the ratio each component bears to the absolute value of their total.
• Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis.
43
Table 3
Average Balances and Rates
dollars in millions
Year ended December 31
Loans and leases (1)(2)
Total investment securities
Interest-earning deposits at banks
Total interest-earning assets (2)
Operating lease equipment, net
Cash and due from banks
Allowance for credit losses
All other noninterest-earning assets
Total assets
Interest-bearing deposits:
Checking with interest
Money market
Savings
Time deposits
Total interest-bearing deposits
Borrowings:
Securities sold under customer
repurchase agreements
Short-term FHLB borrowings
Short-term borrowings
Federal Home Loan Bank borrowings
Senior unsecured borrowings
Subordinated debt
Other borrowings
Long-term borrowings
Total borrowings
Total interest-bearing liabilities
Average
Balance
$ 66,634 $
19,166
7,726
$ 93,526 $
2022
Income /
Expense
2,953
354
106
3,413
Average
Balance
Yield /
Rate
4.41 % $ 32,860 $
1.85 %
1.38 %
3.63 % $ 51,820 $
10,611
8,349
2021
Income /
Expense
1,295
145
11
1,451
Yield /
Rate
3.91 % $
1.37 %
0.13 %
2.78 % $
Change in NII Due to:
Yield /
Rate(1)
Volume(1)
Total
Change
1,658
209
95
1,962
179 $
64
96
339 $
1,479 $
145
(1)
1,623 $
$
7,982
512
(875)
7,788
$ 108,933
$ 16,323 $
23,949
14,193
9,133
63,598
590
824
1,414
1,414
1,348
1,056
64
3,882
5,296
$ 68,894 $
$
—
350
(202)
3,015
$ 54,983
29
125
117
64
335
1
28
29
43
25
33
2
103
132
467
0.15 % $ 11,258 $
0.52 %
0.82 %
0.70 %
0.53 %
9,708
3,847
2,647
27,460
0.19 %
3.30 %
2.00 %
2.96 %
1.87 %
3.15 %
3.22 %
2.64 %
2.47 %
0.68 % $ 29,346 $
660
—
660
648
—
498
80
1,226
1,886
6
10
1
16
33
1
—
1
8
—
15
4
27
28
61
0.05 % $
0.10 %
0.03 %
0.63 %
0.12 %
0.20 %
— %
0.20 %
1.28 %
— %
3.35 %
1.23 %
2.12 %
1.45 %
0.21 % $
3 $
29
12
46
90
—
28
28
17
25
19
(3)
58
86
176 $
20 $
86
104
2
212
—
—
—
18
—
(1)
1
18
18
230 $
23
115
116
48
302
—
28
28
35
25
18
(2)
76
104
406
Noninterest-bearing deposits
Credit balances of factoring clients
Other noninterest-bearing liabilities
Stockholders' equity
Total liabilities and stockholders' equity
$ 26,318
1,153
2,292
10,276
$ 108,933
$ 20,798
—
378
4,461
$ 54,983
Interest rate spread (2)
Net interest income and net yield on
interest-earning assets (2)
(1) Loans and leases include Non-PCD and PCD loans, nonaccrual loans and held for sale. Interest income on loans and leases includes accretion income and
loan fees.
(2) The balance and rate presented is calculated net of average credit balances of factoring clients.
2.66 %
2.57 %
3.14 %
2.95 %
1,390
2,946
$
$
44
dollars in millions
Year ended December 31
Loans and 1eases (1)(2)
Tota1 investment securities
Interest-earning deposits at banks
Tota1 interest-earning assets (2)
Average
Balance
$ 32,860 $
10,611
8,349
$ 51,820 $
2021
Income /
EXpense
1,295
145
11
1,451
Average
Balance
Yield /
Rate
3.91 % $ 31,605 $
1.37 %
0.13 %
2.78 % $ 43,351 $
9,055
2,691
2020
Income /
EXpense
1,333
144
7
1,484
Yield /
Rate
4.18 % $
1.60 %
0.25 %
3.40 % $
Change in NII Due to:
Yield /
Rate(1)
Total
Change
Volume(1)
52 $
23
9
84 $
(90) $
(22)
(5)
(117) $
(38)
1
4
(33)
Operating 1ease equipment, net
Cash and due from banks
A11owance for credit 1osses
A11 other noninterest-earning assets
Tota1 assets
$
—
350
(202)
3,015
$ 54,983
Interest-bearing deposits:
Checking with interest
Money market
Savings
Time deposits
Tota1 interest-bearing deposits
Borrowings:
Securities so1d under customer
repurchase agreements
Short-term FHLB borrowings
Short-term borrowings
Federa1 Home Loan Bank borrowings
Senior unsecured borrowings
Subordinated debt
Other borrowings
Long-term borrowings
Tota1 borrowings
Tota1 interest-bearing 1iabi1ities
$ 11,258 $
9,708
3,847
2,647
27,460
660
—
660
648
—
498
80
1,226
1,886
$ 29,346 $
Noninterest-bearing deposits
Credit ba1ances of factoring c1ients
Other noninterest-bearing 1iabi1ities
Stockho1ders' equity
Tota1 1iabi1ities and stockho1ders' equity
$ 20,798
—
378
4,461
$ 54,983
$
—
345
(211)
2,536
$ 46,021
6
10
1
16
33
1
—
1
8
—
15
4
27
28
61
0.05 % $
0.10 %
0.03 %
0.63 %
0.12 %
8,923 $
7,821
2,937
3,344
23,025
0.20 %
— %
0.20 %
1.28 %
— %
3.35 %
1.23 %
2.12 %
1.45 %
0.21 % $ 24,894 $
632
50
682
642
—
446
99
1,187
1,869
6
23
1
37
67
1
1
2
9
—
16
2
27
29
96
0.07 % $
0.29 %
0.04 %
1.11 %
0.29 %
0.25 %
2.03 %
0.38 %
1.34 %
— %
3.60 %
1.75 %
2.22 %
1.55 %
0.38 % $
2 $
4
—
(7)
(1)
—
(1)
(1)
(1)
—
—
3
2
1
— $
(2) $
(17)
—
(14)
(33)
—
—
—
—
—
(1)
(1)
(2)
(2)
(35) $
—
(13)
—
(21)
(34)
—
(1)
(1)
(1)
—
(1)
2
—
(1)
(35)
$ 16,721
—
452
3,954
$ 46,021
Interest rate spread (2)
Net interest income and net yie1d on
interest-earning assets (2)
(1), (2) see footnotes to previous table.
2.57 %
3.02 %
$
1,390
2.66 %
$
1,388
3.17 %
Year to Date 2022 compared to 2021
•
NII for the year ended December 31, 2022 was $2.95 bi11ion, an increase of $1.56 bi11ion, or 112% compared to 2021.
This increase was primari1y due to the CIT Merger, 1oan growth and higher yie1ds on interest-earning assets, partia11y
offset by higher rates paid on interest-bearing deposits and a dec1ine in interest income on SBA-PPP 1oans.
° Interest income earned on 1oans and 1eases for the year ended December 31, 2022 was $2.95 bi11ion, an increase of
$1.66 bi11ion compared to 2021. The increase was primari1y due to the addition of $32.71 bi11ion of 1oans and 1eases
acquired in the CIT Merger, 1oan growth throughout the year as discussed further in the “Ba1ance Sheet” section of
this MD&A, and a higher yie1d, ref1ective of the higher rate environment.
° Interest income earned on investment securities for the year ended December 31, 2022 was $354 mi11ion, an increase
of $209 mi11ion compared to 2021. The increase was primari1y due to the addition of $6.56 bi11ion of investment
securities acquired in the CIT Merger and a higher yie1d, ref1ective of the higher rate environment.
° Interest income earned on interest-earning deposits at banks for the year ended December 31, 2022 was
$106 mi11ion, an increase of $95 mi11ion compared to 2021, primari1y ref1ecting higher interest rates.
45
° Interest expense on interest-bearing deposits for the year ended December 31, 2022 was $335 million, an increase of
$302 million compared to 2021. The increase was primarily due to the additional interest-bearing deposits assumed
in the CIT Merger, which carried a higher average rate than legacy FCB deposits, the rising interest rate
environment, and the need to offer competitive rates to maintain deposit levels.
° Interest expense on borrowings for the year ended December 31, 2022 was $132 million, an increase of $104 million
compared to 2021. The increase was primarily due to higher interest rates, additional FHLB borrowings, and the
assumed borrowings in the CIT Merger. During the first quarter of 2022, we redeemed approximately $2.90 billion
of the $4.54 billion debt assumed in the CIT Merger.
• NIM for the year ended December 31, 2022 was 3.14%, an increase of 48 bps from 2021, primarily due to the increase
in yield on interest-earning assets, partially offset by an increase in the cost of interest-bearing liabilities.
• Average interest-earning assets for the year ended December 31, 2022 were $93.53 billion, compared to $51.82 billion
in 2021. The change was primarily due to the interest-earning assets of $42.34 billion acquired in the CIT Merger and
the loan growth during the year.
• Average interest-bearing liabilities for the year ended December 31, 2022 were $68.89 billion. This was an increase
from $29.35 billion in 2021, primarily due to the addition of deposits and borrowings from the CIT Merger. In
addition, we increased FHLB borrowings during 2022 to supplement funding due to the decrease in deposits during the
second and third quarters. With the growth in deposits in the fourth quarter, we were able to rebalance our funding mix
of deposits and borrowings and reduced our FHLB borrowings. The rate paid on average interest-bearing liabilities for
the year ended December 31, 2022 was 0.68%. This 47 bps increase was primarily due to the impact of the higher rate
environment on both deposits and borrowings, and the higher costs of deposits and borrowings assumed in the CIT
Merger.
The following table includes average interest earning assets by category.
Table 4
Average Interest-earning Asset Mix
Loans and leases
Investment securities
Interest-earning deposits at banks
Total interest-earning assets
The following table shows our average funding mix.
Table 5
Average Interest-bearing Liability Mix
Total interest-bearing deposits
Short-term borrowings
Long-term borrowings
Total interest-bearing liabilities
PROVISION FOR CREDIT LOSSES
% of Total Interest-earning Assets
Year ended December 31
2021
2020
2022
71 %
21 %
8 %
100 %
63 %
21 %
16 %
100 %
73 %
21 %
6 %
100 %
% of Total Interest-bearing Liabilities
Year ended December 31
2021
2020
2022
92 %
2 %
6 %
100 %
94 %
2 %
4 %
100 %
92 %
3 %
5 %
100 %
The provision for credit losses for the year ended December 31, 2022 was $645 million, which included $551 million for loans
and leases and $94 million for unfunded commitments, compared to a benefit of $37 million in 2021. The increase in 2022 was
primarily due to the Day 2 provision for credit losses of $513 million, which was composed of a provision for loans and leases
of $454 million (the “Day 2 provision for loans and leases” ) and a provision for unfunded commitments of $59 million (the
“Day 2 provision for unfunded commitments” ), related to the CIT Merger. Loan growth during 2022 and deterioration in the
economic outlook also contributed to the increase as further discussed in the “Credit Risk Management - ACL” section of this
MD&A. The ACL is further discussed in the “Critical Accounting Estimates” and “Credit Risk Management - ACL” sections
of this MD&A and in Note 5 — Allowance for Credit Losses.
46
NONINTEREST INCOME
Noninterest Income
Noninterest income is an essential component of our total revenue. The primary sources of noninterest income consist of rental
income on operating leases, fee income and other service charges, wealth management services, fees and service charges
generated from deposit accounts, cardholder and merchant services, factoring commissions and mortgage lending and servicing.
Table 6
Noninterest Income
dollars in millions
Rental income on operating lease equipment
Other noninterest income:
Fee income and other service charges
Wealth management services
Service charges on deposit accounts
Factoring commissions
Cardholder services, net
Merchant services, net
Insurance commissions
Realized gain on sale of investment securities available for sale, net
Fair value adjustment on marketable equity securities, net
Bank-owned life insurance
Gain on sale of leasing equipment, net
Gain on acquisition
Gain on extinguishment of debt
Other noninterest income
Total other noninterest income
Total noninterest income
2022
Year ended December 31
2021
2020
$
864 $
163
142
100
104
102
35
47
—
(3)
32
15
431
7
97
1,272
2,136 $
$
— $
42
129
95
—
87
33
16
33
34
3
—
—
—
36
508
508 $
—
37
103
88
—
74
24
15
60
29
3
—
—
—
44
477
477
Rental Income on Operating Leases
Rental income from equipment we lease for the year ended December 31, 2022 was $864 million. Rental income is a new
revenue source for BancShares in 2022 due to the CIT Merger. Rental income is generated primarily in the Rail segment and, to
a lesser extent, in the Commercial Banking segment. Revenue is generally dictated by the size of the portfolio, utilization of the
railcars, re-pricing of equipment renewed upon lease maturities and pricing on new leases. Re-pricing refers to the rental rate in
the renewed equipment contract compared to the prior contract. Refer to the Rail discussion in the “Results by Business
Segment” section of this MD&A for further details.
47
Other Noninterest Income
Other noninterest income for the year ended December 31, 2022 was $1.27 billion, compared to $508 million in 2021. The
$431 million gain on acquisition related to the CIT Merger was a significant component of the increase as further discussed in
Note 2 — Business Combinations. The remaining increase was primarily due to the additional activity related to the CIT
Merger, both complimentary to existing BancShares services and products, as well as expanding offerings with new items such
as factoring services.
•
•
•
•
•
•
•
•
•
•
•
The comparison for the year ended December 31, 2022 to the year ended December 31, 2021 reflects increases and decreases
among various noninterest income accounts. The more significant variances are explained below.
•
Fee income and other service charges, consisting of items such as capital market-related fees, fees for lines and letters of
credit, and servicing fees, increased by $121 million, primarily reflecting the added CIT activity.
Wealth management services increased by $13 million, primarily due to increases in advisory and transactions fees and
assets under management.
Service charges on deposit accounts increased by $5 million. While the volume of transactions was higher compared to
2021, the modest increase in service charges on deposit accounts was reflective of our eliminating NSF fees and lowering
overdraft fees on consumer accounts beginning mid-year 2022.
Factoring commissions totaled $104 million during 2022 on factoring volume of $26.13 billion.
Cardholder services increased by $15 million and merchant services increased by $2 million, primarily due to increases in
the volume of transactions processed.
Insurance commissions increased by $31 million, reflecting activity related to the CIT Merger.
Realized gains on sale of investment securities decreased by $33 million.
The fair market value adjustment on marketable equity securities resulted in a $37 million decline in noninterest income,
reflecting lower stock prices on equity securities.
BOLI income increased by $29 million due to the added policies with the CIT Merger. However, management decided in
late 2022 to surrender $1.25 billion of BOLI policies early, and redeploy that cash into higher earning assets. Therefore,
BOLI income going forward will be lower than the 2022 level. A portion of the proceeds were collected in December,
with the remainder expected to be received throughout 2023. Income tax expense of $55 million was recognized related to
the early surrender of the BOLI policies. See Note 21 — Income Taxes and Note 10 — Other Assets.
Gain on sale of leasing equipment totaled $15 million during 2022, primarily related to equipment sold in the Commercial
Banking segment.
The gain on extinguishment of debt primarily related to the redemption of approximately $2.90 billion of borrowings
assumed in the CIT Merger, resulting in a $7 million gain.
Other noninterest income consisted of items such as gain on sales of other assets including OREO, fixed assets and loans
and non-marketable securities. The year ended December 31, 2022 included: $18 million of property tax income, net gain
of $15 million related derivatives and foreign currency exchange, $14 million gain on sale of OREO property, $6 million
gain on sale of a corporate aircraft acquired in the CIT Merger, and $5 million settlement gain related to returned leasing
equipment.
NONINTEREST EXPENSE
Table 7
Noninterest Expense
dollars in millions
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Operating expenses:
Salaries and benefits
Net occupancy expense
Equipment expense
Professional fees
Third-party processing fees
FDIC insurance expense
Marketing expense
Merger-related expenses
Intangible asset amortization
Other noninterest expense
Total operating expenses
Total noninterest expense
2022
Year ended December 31
2021
2020
$
$
345 $
189
1,396
194
216
57
103
31
53
231
23
237
2,541
3,075 $
— $
—
759
117
119
20
60
14
10
29
12
94
1,234
1,234 $
—
—
722
117
116
17
45
13
10
17
15
117
1,189
1,189
48
Depreciation on Operating Lease Equipment
Depreciation expense on operating lease equipment is primarily related to rail equipment and small and large ticket equipment
we own and lease to others. Periodically, depreciation expense could include adjustments to residual values. Operating lease
activity is in the Rail and Commercial Banking segments. The useful lives of rail equipment is generally longer in duration,
40-50 years, whereas small and large ticket equipment is generally 3-10 years. Refer to the Rail discussion in the section
entitled “Results by Business Segments” of this MD&A for further details.
Maintenance and Other Operating Lease Expenses
Our Rail segment provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible
for railcar maintenance and repair. Maintenance and other operating lease expenses is recorded when incurred and totaled
$189 million for the year ended December 31, 2022. Maintenance and other operating lease expenses relate to equipment
ownership and leasing costs associated with the Rail portfolio and tend to be variable. Maintenance and other operating lease
expenses includes repair costs for railcars put back on lease and storage costs for cars coming off lease. Refer to the Rail
discussion in the section entitled “Results by Business Segments” of this MD&A for further details.
•
•
Operating Expenses
The primary components of operating expenses are salaries and related employee benefits, occupancy, and equipment expense.
Operating expenses for the year ended December 31, 2022 were $2.54 billion, an increase of $1.31 billion compared to
$1.23 billion in 2021. The increase was primarily related to the CIT Merger due to factors such as higher employee headcount,
higher merger-related expenses, more branches and office space, and additional technology systems as further described below.
Salaries and benefits increased by $637 million, primarily reflecting higher salary expense due to the CIT Merger, as well
•
as new hires, promotions and other salary adjustments, higher costs for temporary workers, and higher revenue-based
incentive compensation, partially offset by lower employee benefit costs. The staff additions were the result of building
out teams to support our move to large bank compliance, as well as to backfill vacancies.
Net occupancy expense increased $77 million, reflecting added branches and office space from the CIT Merger. Net
occupancy expense includes rent expense on leased office space and depreciation on buildings we own.
Equipment expense increased $97 million, primarily reflecting the additional costs for the IT systems from the CIT
Merger.
Professional fees increased $37 million, primarily reflecting higher levels of accounting, consulting and legal costs
associated with being a larger company.
Third-party processing fees increased $43 million, primarily as a result of the CIT Merger and our continued investments
in digital and technology to support revenue-generating businesses and improve internal processes.
FDIC insurance expense increased $17 million, reflecting the additional deposits acquired in the CIT Merger.
•
• Marketing expense increased by $43 million, which includes marketing efforts related to the Direct Bank.
• Merger-related expenses increased by $202 million, and includes severance, retention, consulting and legal costs.
•
Intangible amortization increased $11 million, as a result of additional amortization on core deposit intangibles related to
the CIT Merger. See Note 2 — Business Combinations for additional information.
Other noninterest expense for the year ended December 31, 2022 was $237 million, an increase of $143 million. The
increase was primarily related to the impacts of the CIT Merger. Other expenses included costs related to insurance and
other taxes (e.g. property tax), telecommunications, travel, consulting, foreclosure, collections, and appraisals. Some of
the larger expense categories for the year ended December 31, 2022 included: insurance and taxes of $40 million,
telecommunication expenses of $23 million, property tax expenses of $20 million and travel expenses of $17 million.
•
•
•
INCOME TAXES
Table 8
Income Tax Data
dollars in millions
Income before income taxes
Income taxes
Effective tax rate
Year ended December 31
2021
2022
2020
$
$
1,362
264
19.4 %
$
701
154
22.0 %
618
126
20.4 %
49
BancShares’ global effective tax rate (“ETR”) was 19.4%, 22.0% and 20.4% for the years ended December 31, 2022, 2021 and
2020, respectively. The decrease in the income tax rate for the year ended December 31, 2022 from the year ended
December 31, 2021 was primarily due to the non-taxable nature of the bargain purchase gain from the CIT Merger, partially
offset by the surrender of certain BOLI policies. In the fourth quarter, BancShares made a strategic decision to exit $1.25 billion
of BOLI policies. The surrender of the policies resulted in a total tax charge of $55 million.
The ETR is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of
changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The ETR in future periods may vary from
the actual 2022 ETR due to changes in these factors.
BancShares monitors and evaluates the potential impact of current events on the estimates used to establish income tax expense
and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken
by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or
pending audits or assessments by tax auditors.
BancShares has determined that the Inflation Reduction Act signed into law on August 16, 2022 effective for tax years
beginning after December 31, 2022 is not expected to have a material impact on BancShares’ Consolidated Balance Sheets,
Statements of Income, and Statements of Changes of Cash Flows.
See Note 21 — Income Taxes for additional information.
RESULTS BY BUSINESS SEGMENT
Prior to the CIT Merger, BancShares operated with centralized management and combined reporting and, therefore, BancShares
operated as one consolidated reportable segment. BancShares began reporting multiple segments during the first quarter of
2022 and now reports General Banking, Commercial Banking, Rail, and Corporate segments. We conformed the comparative
prior periods presented to reflect the new segments. The substantial majority of BancShares’ operations for historical periods
prior to completion of the CIT Merger are included in the General Banking segment. The Commercial Banking and Rail
segments primarily relate to operations acquired in the CIT Merger.
For detailed descriptions of each of the segment’s products and services, refer to Item 1. Business of this Annual Report on
Form 10-K and Note 23 — Business Segments. Results in our segments reflect our funds transfer policy and allocation of
expenses. Items not allocated to any of the three operating segments and, when applicable, certain select items, are reflected in
the Corporate segment.
50
General Banking
The General Banking segment delivers products and services to consumers and businesses through our extensive network of
branches and various digital channels. We offer a full suite of deposit products, loans, cash management, wealth, payments and
various other fee-based services.
Table 9
General Banking: Financial Data and Metrics
dollars in millions
Earnings Summary
Net interest income
Provision (benefit) for credit losses
Net interest income after provision (benefit) for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Select Period End Balances
Loans and leases
Deposits
2022
Year ended December 31
2021
2020
1,942 $
11
1,931
472
1,570
833
204
629 $
1,447 $
(37)
1,484
433
1,179
738
162
576 $
42,930 $
84,361
31,820 $
51,344
1,391
58
1,333
379
1,146
566
116
450
32,235
43,391
$
$
$
Results for 2022 include additional activity from the CIT Merger.
The increase in net income for the year ended December 31, 2022 was due to higher NII and noninterest income, partially offset
by higher provision for credit losses and noninterest expense. NII increased due to the added earning assets from the CIT
Merger, as well as solid loan growth during the year. The increase in the provision for credit losses reflects the higher loans and
leases, due to the CIT Merger and growth, as well as moderate deterioration in the macroeconomic forecasts. Noninterest
expense increased reflecting the CIT Merger, and items discussed in the consolidated section entitled “Noninterest Expenses”
of this MD&A.
The increase in loans and leases at December 31, 2022 reflected the additional residential mortgages and consumer loans
acquired in the CIT Merger, partially offset by run-off of SBA-PPP loans. Subsequent to the CIT Merger, loans and leases
increased, reflecting strong demand through our branch network. Growth was primarily concentrated in commercial and
business loans. Our consumer mortgage loans grew modestly, reflecting lower prepayments and originating loans (primarily
adjustable rate mortgage products) that were held on-balance sheet.
Deposits include deposits from the branch, Direct Bank, and CAB channels. The additional branches acquired in the CIT
Merger were mostly in California. The increase in deposits at December 31, 2022 was reflective of deposits acquired in the CIT
Merger. Subsequent to the CIT Merger, deposits declined during the second and third quarters, reflecting lower money market
accounts, partially offset by an increase in savings accounts. Deposits grew in the fourth quarter of 2022, primarily due to
growth in savings accounts and time deposits, partially offset by a decline in noninterest checking.
For further information, refer to the discussions in the “Net Interest Income,” “Net Interest Margin” and “Balance Sheet
Analysis— Interest-Bearing Liabilities— Deposits” sections of this MD&A.
51
Commercial Banking
The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management and other financial
and advisory services primarily to small and middle market companies in a wide range of industries.
Table 10
Commercial Banking: Financial Data and Metrics
dollars in millions
Earnings Summary
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Select Period End Balances
Loans and leases
Deposits
2022
Year ended December 31
2021
2020
$
$
$
$
$
$
889
121
768
521
746
543
128
415
27,773
3,225
17 $
—
17
—
3
14
3
11
$
$
552
62
15
—
15
—
3
12
2
10
554
40
Results for 2022 primarily reflected activity from the legacy CIT commercial businesses.
The increase in net income for the year ended December 31, 2022 was due to higher NII and noninterest income, partially offset
by higher provision for credit losses and noninterest expense. The provision for credit losses reflects moderate deterioration in
the macroeconomic forecasts and loan portfolio growth. Net interest income increased due to the added earning assets from the
CIT Merger, as well as solid loan growth during the year. Noninterest income included rental income on operating lease
equipment acquired in the CIT Merger of $212 million. Noninterest expense included operating expenses, and depreciation on
operating lease equipment of $169 million for the year ended December 31, 2022. Operating expenses for the year ended
December 31, 2022 included items discussed previously in the “Noninterest Expense” section of this MD&A.
The increases in loans and leases and deposits at December 31, 2022 were primarily due to those acquired in the CIT Merger.
Subsequent to the CIT Merger, loans and leases increased, reflecting growth related to equipment finance, as well as from a
number of our industry verticals, such as healthcare and technology. This segment also includes our factoring business acquired
in the CIT Merger.
For further information, refer to the discussions in the “Net Interest Income,” “Net Interest Margin” and “Balance Sheet
Analysis—Interest-Bearing Liabilities—Deposits” sections of this MD&A.
52
Rail
Our Rail segment offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and
shippers throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products,
plastic pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service
products; open hopper cars for coal and aggregates; boxcars for paper and auto parts, and center beams and flat cars for lumber.
Revenues are primarily generated from rental income on operating leases.
Table 11
Rail: Financial Data and Metrics
dollars in millions
Earnings Summary
Rental income on operating lease equipment
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Adjusted rental income on operating lease equipment(1)
Interest expense, net
Noninterest income
Operating expenses
Income before income taxes
Income tax expense
Net income
2022
Year ended December 31
2021
2020
$
$
652 $
176
189
287
80
5
63
149
37
112 $
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
Select Period End Balances
Operating lease equipment, net
—
(l) Adjusted rental income on operating lease equipment is a non-GAAP measure. See the “Non-GAAP Financial Measures” section of this MD&A for a
reconciliation from the GAAP measure (segment net income) to the non-GAAP measure (adjusted rental income on operating lease equipment).
7,433 $
— $
$
Net income and adjusted rental income on operating lease equipment are utilized to measure the profitability of our Rail
segment. Adjusted rental income on operating lease equipment reflects rental income on operating lease equipment less
depreciation, maintenance and other operating lease expenses. Maintenance and other operating lease expenses relate to
equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable. Due to the nature of our
portfolio, which is essentially all operating lease equipment, certain financial measures commonly used by banks, such as NII,
are not as meaningful for this segment. NII is not used because it includes the impact of debt costs funding our operating lease
assets but excludes the associated net rental income.
Net income and adjusted rental income on operating lease equipment for the year ended December 31, 2022 was $112 million
and $287 million, respectively. Railcar depreciation is recognized on a straight-line basis over the estimated service life of the
asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease. Other noninterest income
included a $5 million settlement gain related to returned lease equipment.
Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 130% of the average prior or expiring
lease rate during the fourth quarter. Our railcar utilization, including commitments to lease, at December 31, 2022 was 97.7%.
53
Portfolio
Rail customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately
$500 million and greater), other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at
December 31, 2022 consisted of approximately 119,200 railcars, up slightly from approximately 118,700 railcars acquired in
the CIT Merger. The following table reflects the proportion of railcars by type based on units and net investment, respectively:
Table 12
Operating lease Railcar Portfolio by Type (units and net investment)
Railcar Type
Covered Hoppers
Tank Cars
Mill/Coil Gondolas
Coal
Boxcars
Other
Total
Table 13
Rail Operating Lease Equipment by Obligor Industry
dollars in millions
Manufacturing
Rail
Wholesale
Oil and gas extraction / services
Energy and utilities
Other
Total
December 31, 2022
Total Owned
Fleet - % Total
Units
Total Owned
Fleet - % Total
Net Investment
43 %
29 %
8 %
8 %
6 %
6 %
100 %
December 31, 2022
$
$
3,016
1,981
1,101
552
242
541
7,433
41 %
40 %
6 %
1 %
6 %
6 %
100 %
41 %
27 %
15 %
7 %
3 %
7 %
100 %
Corporate
Certain items that are not allocated to operating segments are included in the Corporate segment. For descriptions of items not
allocated, see Item 1 Business, and Note 23 — Business Segments.
Table 14
Corporate: Financial Data and Metrics
dollars in millions
Earnings Summary
Net interest income (expense)
Provision for credit losses
Net interest income (expense) after provision for credit losses
Noninterest income
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
2022
Year ended December 31
2021
2020
$
$
195 $
513
(318)
486
331
(163)
(105)
(58) $
(74) $
—
(74)
75
52
(51)
(11)
(40) $
(18)
—
(18)
98
40
40
8
32
Results for the year ended December 31, 2022 were primarily due to impacts from the CIT Merger, as well as net benefit from
rising rates on NII. Merger-related items included the Day 2 provision for credit losses of $513 million, a gain on acquisition of
$431 million in noninterest income, $231 million of merger-related expenses, a reduction of $27 million in other noninterest
expense related to the termination of certain post retirement plans assumed in the CIT Merger, and income tax expense of $55
million related to the strategic decision to surrender $1.25 billion of BOLI policies. The income tax rate also reflects the impact
of the non-taxable gain on acquisition.
54
BALANCE SHEET ANALYSIS
INTEREST-EARNING ASSETS
Interest-earning assets include interest-earning deposits at banks, investment securities, assets held for sale and loans and leases,
all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Higher risk
investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit risk. We strive to
maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.
Interest-earning Deposits at Banks
Interest-earning deposits at banks at December 31, 2022 totaled $5.03 billion. This was a decrease from $9.12 billion at
December 31, 2021. The decline related to loan growth, the decline in total deposits, and $1.24 billion used for share
repurchases. While the CIT Merger added approximately $2.87 billion of interest-earning deposits at banks as of the Merger
Date, that amount was offset by the use of cash for the redemption in February of approximately $2.90 billion of debt assumed
in the CIT Merger.
Investment Securities
The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities
that have minimal liquidity risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable
source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible
with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been
made under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result
from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury
services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into interest-earning
deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-
earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan growth. See Note
1 — Significant Accounting Policies and Basis of Presentation and Note 3 — Investment Securities for additional disclosures
regarding investment securities.
The carrying value of investment securities at December 31, 2022 totaled $19.37 billion. The increase from $13.11 billion at
December 31, 2021 primarily reflected the CIT Merger, which added $6.56 billion. The remaining activity during 2022
included purchases of $2.74 billion, maturities and paydowns of $2.07 billion, and other non-cash items, such as fair value
changes and amortization.
BancShares’ portfolio of investment securities available for sale consists of mortgage-backed securities issued by government
agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and
government sponsored entities and corporate bonds. Investment securities available for sale are reported at fair value and
unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of December 31, 2022, investment
securities available for sale had a net pre-tax unrealized loss of $972 million, compared to a net pre-tax unrealized loss of
$12 million as of December 31, 2021. The fair value of investment securities is impacted by interest rates, credit spreads,
market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest
rates increase or when credit spreads widen. Management evaluated the investment securities available for sale in an unrealized
loss position and concluded that the unrealized losses related to changes in interest rates relative to when the securities were
purchased, and that no ACL for investment securities available for sale was needed at December 31, 2022 and 2021.
BancShares’ portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury
Notes and government agency securities described above, as well as securities issued by the Supranational Entities and
Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. Given the consistently strong
credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no
credit losses on debt securities issued by government agencies and government sponsored entities, BancShares management
determined that no ACL was needed for investment securities held to maturity at December 31, 2022 and 2021.
55
Table 15 presents the major categories of investment securities at December 31, 2022, and 2021.
Table 15
Investment Securities
dollars in millions
Investment securities available for sale:
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total investment securities available for sale
Investment in marketable equity securities
Investment securities held to maturity:
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Supranational securities
Other
Total investment securities held to maturity
December 31, 2022
December 31, 2021
Composition(1)
Amortized
cost
Fair
value
Composition(1)
Amortized
cost
Fair
value
10.6 % $
0.9 %
26.8 %
9.0 %
3.0 %
50.3 % $
0.5 % $
2.4 % $
7.6 %
21.7 %
16.1 %
1.4 %
— %
49.2 % $
100.0 % $
2,035 $
164
5,424
1,774
570
9,967 $
75 $
474 $
1,548
4,605
3,355
295
2
10,279 $
20,321 $
1,898
162
4,795
1,604
536
8,995
95
424
1,362
3,882
2,871
254
2
8,795
17,885
15.4 % $
1.7 %
36.2 %
12.6 %
4.7 %
70.6 % $
0.7 % $
— % $
— %
17.7 %
11.0 %
— %
— %
28.7 % $
100.0 % $
2,007 $
221
4,757
1,648
582
9,215 $
73 $
— $
—
2,322
1,485
—
2
3,809 $
13,097 $
2,005
221
4,729
1,640
608
9,203
98
—
—
2,306
1,451
—
2
3,759
13,060
Total investment securities
(1) Calculated as a percentage of the total fair value of investment securities.
Table 16 presents the weighted average yields for investment securities available for sale and held to maturity at December 31,
2022, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is
calculated using security-level annualized yields.
Table 16
Weighted Average Yield on Investment Securities
Investment securities available for sale:
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total investment securities available for sale
Investment securities held to maturity:
Within
One Year
One to Five
Years
December 31, 2022
Five to 10
Years
After 10 Years
Total
3.50 %
3.86 %
1.65 %
3.75 %
5.00 %
3.72 %
0.96 %
3.62 %
2.38 %
3.55 %
6.73 %
1.43 %
— %
3.42 %
3.90 %
4.67 %
5.34 %
4.74 %
— %
3.80 %
1.83 %
2.56 %
4.67 %
2.00 %
1.00 %
3.45 %
1.87 %
2.74 %
5.47 %
2.08 %
U.S. Treasury
Government agency
Residential mortgage-backed securities(1)
Commercial mortgage-backed securities(1)
Supranational securities
Other
— %
1.38 %
1.49 %
0.44 %
1.90 %
— %
2.65 %
— %
1.56 %
— %
0.32 %
0.34 %
Total investment securities held to maturity
2.05 %
0.44 %
(1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity
groupings based on the contractual maturity at December 31, 2022. The expected life will differ from contractual maturities because borrowers have the right
to prepay the underlying loans.
1.37 %
1.38 %
8.44 %
— %
1.35 %
0.20 %
1.37 %
1.57 %
1.79 %
2.63 %
2.13 %
1.68 %
— %
1.76 %
— %
— %
1.90 %
2.65 %
— %
— %
2.21 %
56
Assets Held For Sale
Certain residential mortgage loans and commercial loans are originated with the intent to be sold to investors or lenders,
respectively, and are recorded in assets held for sale at fair value. In addition, BancShares may change its strategy for certain
loans initially held for investment and decide to sell them in the secondary market. At that time, portfolio loans are transferred
to loans held for sale at fair value.
Assets held for sale at December 31, 2022 were $60 million, a decrease of $39 million compared to $99 million at
December 31, 2021. The decrease is primarily related to the sale of residential mortgage loans held for sale during 2022,
partially offset by the increase in commercial loans held for sale.
Table 17
Assets Held For Sale
dollars in millions
Commercial
Consumer
Loans and leases
Operating lease equipment
Total assets held for sale
December 31, 2022
48
4
52
8
60
$
$
December 31, 2021
—
99
99
—
99
$
$
December 31, 2020
—
125
125
—
125
$
$
Loans and Leases
Loans and leases held for investment at December 31, 2022 were $70.78 billion, an increase of $38.41 billion from
$32.37 billion at December 31, 2021, primarily reflecting the addition of $32.71 billion from the CIT Merger. In addition,
during 2022 we continued to see loan growth in our branch network, as well as growth in our Commercial Banking segment
related to equipment finance, as well as from a number of our industry verticals, such as healthcare and technology, and growth
in both commercial mortgage loans and consumer mortgage loans.
Upon completion of the CIT Merger, we re-evaluated our loan classes to reflect the risk characteristics of the combined
portfolio. BancShares reports its commercial loan portfolio in the following classes: commercial construction, owner occupied
commercial mortgage, non-owner occupied commercial mortgage, commercial and industrial, and leases. The consumer
portfolio includes residential mortgage, revolving mortgage, consumer auto and consumer other. Commercial loans at
December 31, 2022 were $53.46 billion compared to $22.59 billion at December 31, 2021, representing 76% and 70% of total
loans and leases, respectively. Consumer loans at December 31, 2022 were $17.33 billion, compared to $9.79 billion at
December 31, 2021, representing 24% and 30% of total loans and leases, respectively.
Table 18
Loans and Leases
dollars in millions
Commercial:
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer:
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
Less allowance for credit losses
Net loans and leases
December 31, 2022
December 31, 2021
December 31, 2020
$
$
$
$
2,804 $
14,473
9,902
24,105
2,171
53,455 $
13,309
1,951
1,414
652
17,326 $
70,781
922
69,859 $
1,238 $
12,099
3,041
5,937
271
22,586 $
6,088
1,818
1,332
548
9,786 $
32,372
178
32,194 $
1,095
11,313
3,067
7,091
334
22,900
5,996
2,087
1,256
553
9,892
32,792
225
32,567
The unamortized discount related to acquired loans was $118 million and $40 million at December 31, 2022 and 2021,
respectively, as further discussed in Note 4 — Loans and Leases.
57
OPERATING LEASE EQUIPMENT, NET
As detailed in the following table, our operating lease portfolio is mostly comprised of rail assets. The operating lease portfolios
were acquired in the CIT Merger. See the Rail segment discussion in the section entitled “Results by Business Segment” of this
MD&A for further details on the rail portfolio.
Table 19
Operating Lease Equipment
dollars in millions
Railcars and locomotives(1)
Other equipment
Total(1)
(1)lncludes off-lease rail equipment of $457 million at December 31, 2022.
INTEREST-BEARING LIABILITIES
December 31, 2022
7,433
723
8,156
$
$
Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB
borrowings, subordinated debt, and other borrowings. Interest-bearing liabilities at December 31, 2022 totaled $71.13 billion,
compared to $31.79 billion at December 31, 2021. The increase from December 31, 2021 was mostly due to deposits and
borrowings from the CIT Merger and higher FHLB borrowings, partially offset by current year activity that included a decline
in total deposits and the redemption of assumed debt during the first quarter. See Note 2 — Business Combinations for details
on deposits and borrowings associated with the CIT Merger.
Deposits
Total deposits at December 31, 2022 were $89.41 billion, an increase of $38.00 billion compared to December 31, 2021,
reflecting the addition of $39.43 billion from the CIT Merger. Total deposits declined during the second quarter and third
quarters of 2022, reflecting the most rate sensitive customers moving funds in response to increases in the target federal funds
rate. This decline in total deposits was primarily concentrated in branches acquired in the CIT Merger and the Commercial
Banking segment. Deposits increased during the fourth quarter of 2022, primarily related to the Direct Bank and the Corporate
segment which includes brokered deposits. In the fourth quarter of 2022, increases in savings and time deposit accounts offset
declines in noninterest-bearing demand accounts and money market accounts.
Interest-bearing deposits totaled $64.49 billion and $30.00 billion at December 31, 2022 and 2021, respectively. Noninterest-
bearing deposits totaled $24.92 billion and $21.41 billion at December 31, 2022 and 2021, respectively.
The reduction in deposits since the CIT Merger were primarily concentrated in acquired higher cost channels. As part of the
CIT Merger, we acquired the Digital Bank and an HOA deposit channel.
Table 20
Deposits
dollars in millions
Noninterest-bearing demand
Checking with interest
Money market
Savings
Time
Total deposits
December 31, 2022
December 31, 2021
$
$
24,922 $
16,202
21,040
16,634
10,610
89,408 $
21,405 $
12,694
10,590
4,236
2,481
51,406 $
December 31, 2020
18,014
10,592
8,633
3,304
2,889
43,432
We strive to maintain a strong liquidity position, and therefore a focus on deposit retention remains a key business objective.
We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change,
we recognize that our liquidity position could be adversely affected if bank deposits are withdrawn. Our ability to fund future
loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable
cost.
Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is
estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate
total uninsured deposits were $29.13 billion and $22.95 billion at December 31, 2022 and 2021, respectively. Table 21 provides
the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of December 31, 2022.
58
Table 21
Maturities of Time Deposits In Excess of $250,000
dollars in millions
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, 2022
$
$
186
195
1,158
619
2,158
Borrowings
Total borrowings at December 31, 2022 were $6.65 billion, compared to $1.78 billion at December 31, 2021. The increase from
December 31, 2021 reflected $4.54 billion of debt assumed in the CIT Merger, partially offset by a debt redemption of
approximately $2.90 billion in February of 2022. The increase also reflected higher FHLB borrowings, which replaced net
declines in interest-bearing deposits in the second and third quarters of 2022, and helped fund loan growth. We made net
repayments of FHLB borrowings in the fourth quarter of 2022 following an increase in deposits. FHLB borrowings were $4.25
billion at December 31, 2022, including $1.75 billion in short-term borrowings and $2.50 billion in long-term borrowings. Total
FHLB borrowings increased $3.61 billion compared to $645 million at December 31, 2021. Refer to the “Liquidity Risk”
section below for more information on FHLB borrowings.
Table 22 presents borrowings, net of the respective unamortized purchase accounting adjustments and issuance costs.
Table 22
Borrowings
dollars in millions
Securities sold under customer repurchase agreements
Federal Home Loan Bank borrowings (1)
Floating rate notes due through September 2025
Fixed rate notes due through March 2032
Senior Unsecured Borrowings
3.929% fixed-to-floating rate notes due June 2024 (2)
2.969% fixed-to-floating rate notes due September 2025 (2)
6.000% fixed rate notes due April 2036 (2)
Subordinated debt
December 31, 2022
December 31, 2021 December 31, 2020
641
589 $
436 $
$
4,250
—
505
320
59
—
645
—
—
—
—
655
—
—
—
6.125% fixed rate notes due March 2028 (2)
4.125% fixed-to-fixed rate notes due November 2029 (2)
3.375% fixed-to-floating rate notes due March 2030
Macon Capital Trust I - floating rate debenture due March 2034
SCB Capital Trust I - floating rate debenture due April 2034
FCB/SC Capital Trust II - floating rate debenture due June 2034
FCB/NC Capital Trust III - floating rate debenture due June 2036
Other subordinated debt
—
—
347
14
10
18
88
28
Total subordinated debt
505
Other borrowings
89
1,890
Total borrowings
(1) Includes $1.75 billion in short-term borrowings and $2.50 billion in long-term borrowings at December 31, 2022. All FHLB borrowings outstanding at
December 31, 2021 and 2020 were in long-term borrowings.
(2) Denotes outstanding debt assumed in the CIT Merger.
—
—
347
14
10
18
88
—
477
73
1,784 $
469
102
348
14
10
18
88
—
1,049
26
6,645 $
$
See Note 13 — Borrowings for further information on the various components. Also see “Liquidity Risk” later in this MD&A.
59
RISK MANAGEMENT
Risk is inherent in any business. BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a
philosophy which does not preclude higher risk business activities commensurate with acceptable returns while meeting
regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework and Statement,
senior management has primary responsibility for day-to-day management of the risks we face with accountability of and
support from all associates. Senior management applies various strategies to reduce the risks to which BancShares may be
exposed, with effective challenge and oversight by management committees. Our Board strives to ensure that risk management
is a part of our business culture and that our policies and procedures for identifying, assessing, monitoring, and managing risk
are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Risk Management
Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through its Risk
Committee.
The Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-
related issues. The Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including Credit,
Market, Capital, Liquidity, Operational, Compliance, Asset, Strategic and Reputational risks; review, approve, and monitor
adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics; and evaluate,
monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework and
Statement. The Risk Committee also reviews reports of examination by and communications from regulatory agencies, the
results of internal and third party testing and qualitative and quantitative assessments related to risk management, and any other
matters within the scope of the Risk Committee’s oversight responsibilities. The Risk Committee monitors management’s
response to certain risk-related regulatory and audit issues. In addition, the Risk Committee may coordinate with the Audit
Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related
risks, compensation risk management and other areas of joint responsibility.
In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are conducted
within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued
operations during stressed periods.
BancShares monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the
federal regulators. Refer to the “ Regulatory Considerations” section of Item 1. Business included in this Annual Report on
Form 10-K for further discussion.
BancShares returned to business as usual operations and lifted internal COVID-19 related restrictions in early April of 2022.
Monitoring of associated credit and operational risks is integrated into normal risk monitoring activities.
BancShares has been assessing the emerging impacts of the international tensions that could impact the economy and
exacerbate headwinds of rising inflation, elevated market volatility, global supply chain disruptions, and recessionary pressures
as well as operational risks such as those associated with potential cyberattacks for FCB and third parties upon whom it relies.
Assessments have not identified material impacts to date, but those assessments will remain ongoing as the condition continues
to exist. BancShares is also assessing the potential risk of an economic slowdown or recession that could create increased credit
and market risk having downstream impacts on earnings, capital, and/or liquidity. Economic data has been mixed and markets
have experienced elevated levels of volatility in 2022. Key indicators will continue to be monitored and impacts assessed as
part of our ongoing risk management framework.
CREDIT RISK MANAGEMENT
Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment
securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject
to periodic ongoing reviews. Acquired loans, regardless of whether PCD or Non-PCD, are recorded at fair value as of the
acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review
function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and
to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location,
industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or
write-downs as appropriate and to maintain an appropriate ACL that accounts for expected losses over the life of the loan and
lease portfolios.
60
Our ACL estimate as of December 31, 2022, included extensive reviews of the changes in credit risk associated with the
uncertainties around economic forecasts. These loss estimates additionally considered BancShares industry risk, historically
strong credit quality and actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which
have not seen significant deterioration as of December 31, 2022. Our ACL methodology is discussed further in Note 1 —
Significant Accounting Policies and Basis of Presentation.
Commercial Lending and Leasing
BancShares employs a dual ratings system where each commercial loan is assigned a probability of default (“PD”) and loss
given default (“LGD”) rating using scorecards developed to rate each type of transaction incorporating assessments of both
quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated
periodically thereafter, a model is run to generate a preliminary risk rating. These models incorporate both internal and external
historical default and loss data to develop loss rates for each risk rating. The preliminary risk rating assigned by the model can
be adjusted as a result of borrower specific facts and circumstances, that in management’s judgment, warrant a modification of
the modeled risk rating to arrive at the final approved risk ratings.
Consumer Lending
Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards. Credit
decisions are made after analyzing quantitative and qualitative factors, including borrower’s ability to repay the loan, collateral
values, and considering the transaction from a judgmental perspective.
Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant.
Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable
pay history along with a quarterly assessment which incorporates current market conditions. Loans may also be monitored
during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of
the underlying collateral may be conducted.
Allowance for Credit Losses
The ACL at December 31, 2022 was $922 million, an increase of $744 million compared to $178 million at December 31,
2021. The ACL as a percentage of total loans and leases at December 31, 2022 was 1.30%, compared to 0.55% at December 31,
2021. The increase in the ACL is primarily due to the impact of the CIT Merger, including the initial ACL for PCD loans and
leases (the “Initial PCD ACL”) of $272 million and the Day 2 provision for loans and leases of $454 million related to Non-
PCD loans and leases. The increase was also related to loan growth and deterioration in the economic outlook that impacts the
macroeconomic variables utilized by our ACL models, including gross domestic product (“GDP”), home price index,
commercial real estate index, corporate profits, and credit spreads. In contemplation of additional uncertainty, primarily based
on the elevated levels of inflation and its impact on other macroeconomic variables such as interest rates, which could in turn
impact home prices, commercial real estate values, and other variables, we do not believe the current baseline scenario fully
incorporates the potential downside impacts of future macroeconomic deterioration, so an additional weighting on the downside
scenario was incorporated into the estimate. Our ACL methodology is discussed in Note 1 — Significant Accounting Policies
and Basis of Presentation.
The ACL for commercial and consumer loans and leases increased $709 million and $35 million, respectively, at
December 31, 2022 compared to December 31, 2021. The main reasons for the increases are addressed in the paragraph above.
61
Table 23
Allowance for Credit Losses
dollars In mIllIons
Balance at January 1, 2022
Initial PCD ACL(1)
Day 2 provision for loans and leases
Provision (benefit) for credit losses - loans and leases
Total provision for credit losses - loans and leases
Charge-offs(1)
Recoveries
Balance at December 31, 2022
Net charge-off ratio
Net charge-offs (recoveries)
Average loans
Percent of loans in each category to total loans
Balance at January 1, 2021
Benefit for credit losses - loans and leases
Charge-offs
Recoveries
Balance at December 31, 2021
Net charge-off ratio
Net charge-offs
Average loans
Percent of loans in each category to total loans
Balance at December 31, 2019
Adoption of ASC 326
Balance after adoption of ASC 326
Provision for credit losses - loans and leases
Initial balance on PCD loans
Charge-offs
Recoveries
$
$
$
$
$
$
$
Commercial
Year Ended December 31, 2022
Consumer
Total
80
258
432
101
533
(126)
44
789
82
$
$
$
98
14
22
(4)
18
(20)
23
133
(3)
$
$
$
$
76 %
24 %
178
272
454
97
551
(146)
67
922
0.12 %
79
67,730
100 %
Commercial
Year Ended December 31, 2021
Consumer
Total
92
(7)
(18)
13
80
5
$
$
$
133
(30)
(18)
13
98
5
$
$
$
$
70 %
30 %
225
(37)
(36)
26
178
0.03 %
10
32,750
100 %
Commercial
Year Ended December 31, 2020
Consumer
Total
$
$
150
(84)
66
34
1
(20)
11
92
75
46
121
24
1
(25)
12
133
225
(38)
187
58
2
(45)
23
225
0.07 %
22
31,417
Balance at December 31, 2020
Net charge-off ratio
Net charge-offs
Average loans
Percent of loans in each category to total loans
100 %
(1) The InItIal PCD ACL related to the CIT Merger was $272 mIllIon, net of an addItIonal $243 mIllIon for loans that CIT charged-off prIor to the Merger Date
(whether full or partIal), whIch met BancShares’ charge-off polIcy at the Merger Date.
30 %
70 %
$
$
13
$
$
$
9
$
$
Net charge-offs for the year ended December 31, 2022 and 2021 were $79 million (net charge-off ratio of 0.12%) and $10
million (net charge-off ratio of 0.03%), respectively. The increase in net charge-offs in 2022 was primarily related to the
Commercial Banking segment.
62
The following table presents trends in the ACL ratios.
Table 24
ACL Ratios
dollars in millions
Allowance for credit losses
Total loans and leases
December 31, 2022 December 31, 2021 December 31, 2020
$
$
225
32,792
922
70,781
178
32,372
$
$
$
$
Allowance for credit losses to total loans and leases:
Commercial loans and leases:
Allowance for credit losses - commercial
Commercial loans and leases
Commercial allowance for credit losses to commercial loans and leases:
Consumer loans:
Allowance for credit losses - consumer
Consumer loans
Consumer allowance for credit losses to consumer loans:
$
$
$
$
1.30 %
0.55 %
0.68 %
789
53,455
1.48 %
133
17,326
0.77 %
$
$
$
$
80
22,586
0.35 %
98
9,786
1.01 %
$
$
$
$
92
22,900
0.40 %
133
9,892
1.34 %
The reserve for unfunded loan commitments was $106 million at December 31, 2022, an increase of $94 million compared to
$12 million at December 31, 2021. The increase is primarily due to the Day 2 provision for unfunded commitments of
$59 million related to the CIT Merger. The increase is also due to an increase in off-balance sheet commitments and
deterioration in the economic outlook that impacts the macroeconomic variables utilized by our ACL models. The additional
off-balance sheet commitments primarily reflect loan commitments or lines of credit, and DPAs associated with factoring. See
Note 24 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 5 —
Allowance for Credit Losses for a roll forward of the ACL for unfunded commitments.
The following table presents the ACL by loan class for the years ending December 31, 2022, 2021, and 2020.
Table 25
ACL by Loan Class
dollars in millions:
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total Allowance for Credit Losses
$
December 31, 2022
December 31, 2021
December 31, 2020
Allowance
for Credit
Losses as a
Percentage
of Loans
Allowance
for Credit
Losses
Allowance
for Credit
Losses as a
Percentage
of Loans
Allowance
for Credit
Losses
Allowance
for Credit
Losses as a
Percentage
of Loans
Allowance
for Credit
Losses
$
40
61
181
476
31
789
74
13
5
41
133
922
1.43 % $
0.42
1.83
1.98
1.41
1.48
0.55
0.67
0.37
6.32
0.77
1.30 % $
5
28
16
29
2
80
39
18
5
36
98
178
0.44 % $
0.23
0.52
0.49
0.76
0.35
0.63
1.02
0.43
6.60
1.01
0.55 % $
8
32
24
26
2
92
55
29
9
40
133
225
0.69 %
0.28
0.79
0.37
0.61
0.40
0.92
1.38
0.75
7.13
1.34
0.68 %
63
Credit Metrics
Non-perform5ng Assets
Non-performing assets include non-accrual loans and leases and OREO. Non-performing assets at December 31, 2022 totaled
$674 million, compared to $161 million at December 31, 2021. The increase from December 31, 2021 was mostly due to the
non-owner occupied commercial real estate portfolio acquired in the CIT Merger.
Nonperforming assets include both Non-PCD and PCD loans. Non-PCD loans are generally placed on nonaccrual when
principal or interest becomes 90 days past due or when it is probable that principal or interest is not fully collectable. When
Non-PCD loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the
ongoing accrual of interest is discontinued. Non-PCD loans and leases are generally removed from nonaccrual status when they
become current for a sustained period of time as to both principal and interest and there is no longer concern as to the
collectability of principal and interest. Accretion of income for PCD loans is discontinued when we are unable to estimate the
amount or timing of cash flows. PCD loans may begin or resume accretion of income when information becomes available that
allows us to estimate the amount and timing of future cash flows.
OREO includes foreclosed property and branch facilities that we have closed but not sold. Net book values of OREO are
reviewed at least annually to evaluate reasonableness of the carrying value. The level of review is dependent on the value and
type of the collateral, with higher value and more complex properties receiving a more detailed review. Changes to the value of
the assets between scheduled valuation dates are monitored through communication with brokers and monthly reviews by the
asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources
to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new
appraisals are ordered to ensure the reported values reflect the most current information.
Since OREO is carried at the lower of cost or market value, less estimated selling costs, book value adjustments are only
recorded when fair values have declined. Decisions regarding write-downs are based on factors including appraisals, previous
offers received on the property, market conditions and the number of days the property has been on the market.
The following table presents total nonperforming assets.
Table 26
Non-Performing Assets
dollars 5n m5ll5ons
Non-accrual loans:
Commercial loans
Consumer loans
Total non-accrual loans
Other real estate owned
Total non-performing assets
Allowance for credit losses to total loans and leases
Ratio of total non-performing assets to total loans, leases and other real estate owned
Ratio of non-accrual loans and leases to total loans and leases
Ratio of allowance for credit losses to non-accrual loans and leases
December 31, 2022 December 31, 2021 December 31, 2020
$
$
529
98
627
47
674
$
$
1.30 %
0.95 %
0.89 %
146.88 %
45
76
121
40
161
$
$
0.55 %
0.49 %
0.37 %
148.37 %
70
121
191
51
242
0.68 %
0.74 %
0.58 %
117.15 %
Non-accrual loans and leases at December 31, 2022 were $627 million, an increase of $506 million since December 31, 2021.
The increases in non-accrual loans from December 31, 2021 was primarily due to non-owner occupied commercial real estate
portfolio and other loans acquired in the CIT Merger. The commercial non-accruals increased during the fourth quarter as a
result of an increase in the non-owner occupied commercial real estate portfolio, and more specifically related to general office
exposure in the Commercial Banking segment. See Note 4 — Loans and Leases for tabular presentation of non-accrual loans by
loan class. Non-accrual loans and leases as a percentage of total loans and leases was 0.89% and 0.37% at December 31, 2022
and December 31, 2021, respectively. OREO at December 31, 2022 totaled $47 million, representing an increase of $7 million
since December 31, 2021. Non-performing assets as a percentage of total loans, leases and OREO at December 31, 2022 was
0.95% compared to 0.49% at December 31, 2021.
Past Due Accounts
The percentage of loans 30 days or more past due at December 31, 2022 was 1.22% of loans, compared to 0.43% at
December 31, 2021. Delinquency status of loans is presented in Note 4 — Loans and Leases.
64
Troubled Debt Restructurings
A loan is considered a troubled debt restructuring (“TDR”) when both of the following occur: (1) a modification to a borrower’s
debt agreement is made and (2) a concession is granted for economic or legal reasons related to a borrower’s financial
difficulties that otherwise would not be granted. TDR concessions could include deferrals of interest, modifications of payment
terms, or, in certain limited instances, forgiveness of principal or interest. Acquired loans are classified as TDRs if a
modification is made subsequent to acquisition. We further classify TDRs as performing and nonperforming. Performing TDRs
accrue interest at the time of restructure and continue to perform based on the restructured terms. Nonperforming TDRs do not
accrue interest and are included with other nonperforming assets within nonaccrual loans and leases in Table 26 above.
We selectively agree to modify existing loan terms to provide relief to customers who are experiencing financial difficulties or
other circumstances that could affect their ability to meet debt obligations. Typical modifications include short-term deferral of
interest or modification of payment terms. TDRs not accruing interest at the time of restructure are included as nonperforming
loans. TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered
performing loans.
The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected
by the Coronavirus was published by banking regulators in April 2020 to clarify accounting and reporting expectations for loan
modifications in determining TDR designation for borrowers experiencing COVID-19-related financial difficulty. BancShares
applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of
COVID-19, and in most cases, did not record these as TDRs. Beginning January 1, 2022, this guidance was no longer applied.
Table 27
Troubled Debt Restructurings
dollars in millions
Accruing TDRs
Non-accruing TDRs
Total TDRs
Commercial
$
98 $
49
147
$
$
December 31, 2022
Consumer
Total
Commercial
December 31, 2021
Consumer
Total
52 $
22
74
$
150 $
71
221
$
97 $
21
118
$
49 $
25
74
$
146
46
192
In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02 Financial Instruments—Credit Losses (Topic
326): Troubled Debt Restructurings and Vintage Disclosures. This pronouncement eliminates the recognition and measurement
guidance on TDRs and is effective for BancShares as of January 1, 2023. See “Recent Accounting Pronouncements” in this
MD&A and Note 1 — Significant Accounting Policies and Basis of Presentation for further information.
Concentration Risk
We maintain a well-diversified loan and lease portfolio and seek to minimize the risks associated with large concentrations
within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of
our loan portfolio subject us to risk, such as our concentrations of real estate secured loans, revolving mortgage loans and
healthcare-related loans.
Commercial Concentrations
Geographic Concentrations
The following table summarizes state concentrations greater than 5.0% of our loans. Data is based on obligor location unless
secured by real estate, then data based on property location.
Table 28
Commercial Loans and Leases - Geography
dollars in millions
State
California
North Carolina
Texas
Florida
South Carolina
All other states
Total U.S.
Total International
Total
December 31, 2022
December 31, 2021
December 31, 2020
$
$
9,226
8,699
3,624
3,273
3,142
24,243
52,207
1,248
53,455
17.3 % $
16.3 %
6.8 %
6.1 %
5.9 %
45.4 %
97.8 %
2.2 %
100.0 % $
65
3,163
7,181
879
1,496
2,855
7,012
22,586
—
22,586
14.0 % $
31.8 %
3.9 %
6.6 %
12.6 %
31.1 %
100.0 %
— %
100.0 % $
2,940
7,649
816
1,478
2,944
7,073
22,900
—
22,900
12.8 %
33.4 %
3.6 %
6.5 %
12.9 %
30.8 %
100.0 %
— %
100.0 %
Industry Concentrations
The following table represents loans and leases by industry of obligor:
Table 29
Commercial Loans and Leases - Industry
dollars in millions
Real Estate
Healthcare
Business Services
Transportation, Communication, Gas, Utilities
Manufacturing
Service Industries
Retail
Wholesale
Finance and Insurance
Other
Total
December 31, 2022
December 31, 2021
December 31, 2020
$
$
11,684
8,146
5,518
5,002
4,387
4,213
3,462
2,605
2,604
5,834
53,455
21.9 % $
15.2 %
10.3 %
9.4 %
8.2 %
7.9 %
6.5 %
4.9 %
4.9 %
10.8 %
100.0 % $
4,279
6,997
2,307
774
1,347
722
1,301
882
1,361
2,616
22,586
18.9 % $
31.0 %
10.2 %
3.4 %
6.0 %
3.2 %
5.8 %
3.9 %
6.0 %
11.6 %
100.0 % $
4,348
6,381
2,175
596
1,101
686
1,310
875
1,251
4,177
22,900
19.0 %
27.9 %
9.5 %
2.6 %
4.8 %
3.0 %
5.7 %
3.8 %
5.5 %
18.2 %
100.0 %
We have historically carried a concentration of real estate secured loans, but actively mitigate exposure through underwriting
policies, which primarily rely on borrower cash flow rather than underlying collateral values. When we do rely on underlying
real property values, we favor financing secured by owner-occupied real property and, as a result, a large percentage of our real
estate secured loans are owner occupied. At December 31, 2022, commercial loans secured by real estate were $27.18 billion,
or 51%, of commercial loans and leases compared to $16.38 billion, or 73% at December 31, 2021. The change primarily
reflects the impact of the CIT Merger and respective loans acquired.
Loans and leases to borrowers in medical, dental or other healthcare fields were $8.15 billion as of December 31, 2022, which
represents 15.2% of commercial loans and leases, compared to $7.00 billion or 31.0% of commercial loans and leases at
December 31, 2021. The credit risk of this industry concentration is mitigated through our underwriting policies which
emphasize reliance on adequate borrower cash flow rather than underlying collateral value and our preference for financing
secured by owner-occupied real property.
Consumer Concentrations
Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The
following table summarizes state concentrations greater than 5.0% based on property address.
Table 30
Consumer Loans - Geography
dollars in millions
State
North Carolina
California
South Carolina
Other states
Total
December 31, 2022
December 31, 2021
December 31, 2020
$
$
5,702
4,014
3,001
4,609
17,326
32.9 % $
23.2 %
17.3 %
26.6 %
100.0 % $
4,931
161
2,626
2,068
9,786
50.4 % $
1.6 %
26.9 %
21.1 %
100.0 % $
4,741
141
2,533
2,477
9,892
47.9 %
1.4 %
25.6 %
25.1 %
100.0 %
Among consumer real estate secured loans, our revolving mortgage loans (“Home Equity Lines of Credit” or “HELOCs”)
present a heightened risk due to long commitment periods during which the financial position of individual borrowers or
collateral values may deteriorate significantly. In addition, a large percentage of our HELOCs are secured by junior liens.
Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. HELOCs secured by
real estate were $1.95 billion, or 11%, of total consumer loans at December 31, 2022, compared to $1.82 billion, or 19%, at
December 31, 2021. The CIT Merger had minimal impact on the outstanding balance, as the acquired consumer portfolio was
primarily residential mortgages.
66
Except for loans acquired 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 underwritten by us based on
our standard lending criteria. The HELOC portfolio consists of variable rate lines of credit which allow customer draws during
a specified period of the line of credit, with a portion switching to an amortizing term following the draw period.
Approximately 81.8% of the revolving mortgage portfolio relates to properties in North Carolina and South Carolina.
Approximately 32.3% of the loan balances outstanding are secured by senior collateral positions while the remaining 67.7% are
secured by junior liens.
We actively monitor the portion of our HELOCs in the interest-only period and when they will mature. When HELOCs switch
from interest-only to fully amortizing, including principal and interest, some borrowers may not be able to afford the higher
monthly payments. We have not experienced a significant increase in defaults as a result of these increased payments. In the
normal course of business, we will work with each borrower as they approach the revolving period maturity date to discuss
options for refinance or repayment.
Counterparty Risk
We enter into interest rate derivatives and foreign exchange forward contracts as part of our overall risk management practices
and also on behalf of our clients. We establish risk metrics and evaluate and manage the counterparty risk associated with these
derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework and
Statement.
Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to the ability of a
counterparty to perform its financial obligations under the derivative contract. We seek to control credit risk of derivative
agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures, which are
integrated with our cash and issuer related credit processes.
The applicable Chief Credit Officer, or delegate, approves each counterparty and establishes exposure limits based on credit
analysis of each counterparty. Derivative agreements for BancShares’ risk management purposes and for the hedging of client
transactions are executed with major financial institutions and are settled through the major clearing exchanges, which are rated
investment grade by nationally recognized statistical rating agencies. Credit exposure is mitigated via the exchange of collateral
between the counterparties covering mark-to-market valuations. Client related derivative transactions, which are primarily
related to lending activities, are incorporated into our loan underwriting and reporting processes.
ASSET RISK
Asset risk is a form of price risk and is a primary risk of our leasing businesses related to the risk to earning of capital arising
from changes in the value of owned leasing equipment. Reflecting the addition of operating lease equipment and additional
asset-based lending from the CIT Merger, we are subject to increased asset risk. Asset risk in our leasing business is evaluated
and managed in the divisions and overseen by risk management processes. In our asset-based lending business, we also use
residual value guarantees to mitigate or partially mitigate exposure to end of lease residual value exposure on certain of our
finance leases. Our business process consists of: (1) setting residual values at transaction inception, (2) systematic periodic
residual value reviews, and (3) monitoring levels of residual realizations. Residual realizations, by business and product, are
reviewed as part of the quarterly financial and asset quality review. Reviews for impairment are performed at least annually.
In combination with other risk management and monitoring practices, asset risk is monitored through reviews of the equipment
markets including utilization rates and traffic flows, the evaluation of supply and demand dynamics, the impact of new
technologies and changes in regulatory requirements on different types of equipment. At a high level, demand for equipment is
correlated with GDP growth trends for the markets the equipment serves, as well as the more immediate conditions of those
markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be
realized by these businesses. For instance, in the Rail business, BancShares seeks to mitigate these risks by maintaining a
relatively young fleet of assets, which can bolster attractive lease and utilization rates.
MARKET RISK
Interest rate risk management
BancShares is exposed to the risk that changes in market conditions may affect interest rates and negatively impact earnings.
The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes
in the level or shape of the yield curve. BancShares manages this inherent risk strategically based on prescribed guidelines and
approved limits.
67
Interest rate risk can arise from many of the BancShares’ business activities, such as lending, leasing, investing, deposit taking,
derivatives, and funding activities. We evaluate and monitor interest rate risk primarily through two metrics.
● Net Interest Income Sensitivity (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on
forecasted NII; and
● Economic Value of Equity Sensitivity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the
value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.
BancShares uses a holistic process to measure and monitor both short term and long term risks which includes, but is not
limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship
of various yield curves. NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the
longer-term risk of the existing balance sheet.
Our exposure to NII Sensitivity is guided by the Risk Appetite Framework and Statement and a range of risk metrics and
BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line
actions and actions within the investment, funding and derivative portfolios.
The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII
Sensitivity, whereby our assets will reprice faster than our liabilities, which is generally concentrated at the short end of the
yield curve.
Our funding sources consist primarily of deposits and we also support our funding needs through wholesale funding sources
(including unsecured and secured borrowings).
The deposit rates we offer are influenced by market conditions and competitive factors. Market rates are the key drivers of
deposit costs and we continue to optimize deposit costs by improving our deposit mix. Changes in interest rates, expected
funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing. We believe our
targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits. We
regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and
liabilities.
The following table below summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability
management system. These simulations assume static balance sheet replacement with like products and implied forward market
rates, but also incorporates additional assumptions, such as, but not limited to prepayment estimates, pricing estimates and
deposit behaviors. The below simulations assume an immediate 25, 100 and 200 bps parallel increase and 25 and 100 bps
decrease from the market-based forward curve for December 31, 2022 and 2021.
Table 31
Net Interest Income Sensitivity Simulation Analysis
Change in interest rate (bps)
-100
-25
+25
+100
+200
Estimated (Decrease) Increase in NII
December 31, 2022 December 31, 2021
(5.8)%
(1.2)%
1.1 %
3.2 %
6.3 %
(4.0)%
(0.9)%
0.8 %
3.4 %
6.7 %
NII Sensitivity metrics at December 31, 2022, compared to December 31, 2021, were primarily affected by a reduction in cash
as well as liability management actions which included borrowing FHLB advances to support loan growth and to offset deposit
runoff. BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted
earnings is largely due to the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as
well as estimates of modest cumulative future deposit betas. Approximately 45% of our loans have floating contractual
reference rates, indexed primarily to 1-month LIBOR, 3-month LIBOR, Prime and SOFR. Deposit betas for the combined
company are modeled to have a portfolio average of approximately 25% over the forecast horizon. Impacts to NII Sensitivity
may change due to actual results differing from modeled expectations.
68
As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon.
EVE Sensitivity measures the change in value of the economic value of equity reflecting changes in assets, liabilities, and off-
balance sheet instruments in response to a change in interest rates. EVE Sensitivity is calculated by estimating the change in the
net present value of assets, liabilities, and off-balance sheet items under various rate movements.
The following table presents the EVE profile as of December 31, 2022, and 2021.
Table 32
Economic Value of Equity Modeling Analysis
Change in interest rate (bps)
-100
-25
+100
+200
Estimated (Decrease) Increase in EVE
December 31, 2022 December 31, 2021
(13.7)%
— %
6.1 %
5.9 %
(5.3)%
(1.2)%
4.1 %
3.0 %
The economic value of equity metrics at December 31, 2022 compared to December 31, 2021 were primarily affected by
balance sheet composition changes as well as increasing market interest rates.
In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/
liability management system. Scenarios that impact management volumes, specific risk events, or the sensitivity to key
assumptions are also evaluated.
We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in
coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market
risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies
and product design for loans and deposits, our investment portfolio, funding portfolio, or by using off balance sheet derivatives
to mitigate earnings volatility.
The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in
credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for
other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ
materially from the estimated outcomes of our simulations. Further, the range of such simulations is not intended to represent
our current view of the expected range of future interest rate movements.
69
The following provides loan maturity distribution information by contractual maturity date.
Table 33
Loan Maturity Distribution
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
Within
One Year
At December 31, 2022, Maturing
Five to 15
Years
One to Five
Years
After 15
Years
$
$
$
$
600 $
719
2,283
6,804
779
11,185 $
275
86
12
332
705 $
11,890 $
1,326 $
4,159
5,293
13,490
1,352
25,620 $
1,096
149
693
163
2,101 $
27,721 $
765 $
9,140
2,012
3,617
40
15,574 $
3,584
67
709
119
4,479 $
20,053 $
113 $
455
314
194
—
1,076 $
8,354
1,649
—
38
10,041 $
11,117 $
Total
2,804
14,473
9,902
24,105
2,171
53,455
13,309
1,951
1,414
652
17,326
70,781
The following provides information regarding the sensitivity of loans and leases to changes in interest rates.
Table 34
Loan Interest Rate Sensitivity
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
Loans Maturing One Year or After with
Variable Interest
Rates
Fixed Interest
Rates
$
$
$
$
999 $
12,183
2,966
7,803
1,392
25,343 $
7,325
36
1,402
287
9,050 $
34,393 $
1,205
1,571
4,653
9,498
—
16,927
5,709
1,829
—
33
7,571
24,498
Reference Rate Reform
The administrator of LIBOR has announced that publication of the most commonly used tenors of U.S. Dollar LIBOR will
cease to be provided or cease to be representative after June 30, 2023. The U.S. federal banking agencies had also issued
guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in “new”
contracts by December 31, 2021 at the latest. Accordingly, prior to the CIT Merger, FCB and CIT had ceased originating new
products using LIBOR by the end of 2021.
70
In April 2018, the FRB of New York commenced publication of SOFR, which has been recommended as an alternative to U.S.
Dollar LIBOR by the Alternative Reference Rates Committee, a group of market and official sector participants. On March 15,
2022, the U.S. Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest (LIBOR) Act,
which provides certain statutory requirements and guidance for the selection and use of alternative reference rates in legacy
financial contracts governed by U.S. law that do not provide for the use of a clearly defined or practicable alternative reference
rate. On July 19, 2022, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking on a
proposed regulation to implement the LIBOR Act, as required by its terms. The LIBOR Act requires implementing regulations
be in place within 180 days of its enactment. The final rule was approved by the FRB on December 16, 2022 and will become
effective 30 days after it is published in the Federal Register. BancShares anticipates using Board-selected benchmark
replacements to take advantage of the safe harbors that are afforded in the rule.
BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR
as a benchmark rate. However, BancShares’ LIBOR exposure is primarily to tenures other than one week and two-month USD
LIBOR.
LIBOR is a benchmark interest rate for most of our floating rate loans and our Series B Preferred Stock, as well as certain
liabilities and off-balance sheet exposures. We continue to monitor industry and regulatory developments and have a well-
established transition program in place to manage the implementation of alternative reference rates as the market transitions
away from LIBOR. Coordination is being handled by a cross-functional project team governed by executive sponsors. Its
mission is to work with our businesses to ensure a smooth transition for BancShares and its customers to an appropriate LIBOR
alternative. Certain financial markets and products have already migrated to alternatives. The project team ensures that
BancShares is ready to move quickly and efficiently as consensus around LIBOR alternatives emerge. BancShares has
processes in place to complete its review of the population of legal contracts impacted by the LIBOR transition, and updates to
our operational systems and processes are substantially in place.
BancShares is utilizing SOFR as our preferred replacement index for LIBOR. As loans mature and new originations occur a
larger percentage of BancShares’ variable-rate loans are expected to reference SOFR in response to the discontinuation of
LIBOR. However, we are positioned to accommodate other alternative reference rates (e.g., credit sensitive rates) in response to
how the market evolves. Further, BancShares plans to move to SOFR for its Series B Preferred Stock since the dividends for
the Series B Preferred Stock after June 15, 2022 are based on a floating rate tied to three-month LIBOR.
For a further discussion of risks BancShares faces in connection with the replacement of LIBOR on its operations, see “Risk
Factors—Market Risks—We may be adversely impacted by the transition from LIBOR as a reference rate.” in Item 1A. Risk
Factors of this Annual Report on Form 10-K.
LIQUIDITY RISK
Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral
resources and funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure
appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent
with this strategy, we maintain sufficient amounts of Available Cash and High Quality Liquid Securities (“HQLS”). Additional
sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, brokered CD
issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.
We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity
conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across
different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts
to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid assets, and
contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in
identifying potential liquidity risk and stress events.
BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert
management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares
maintains a contingent funding plan which details protocols and potential actions to be taken under liquidity stress conditions.
Liquidity includes Available Cash and HQLS. At December 31, 2022 we had $18.24 billion of total Liquid Assets (16.7% of
total assets) and $13.52 billion of contingent liquidity sources available.
71
Table 35
Liquidity
dollars in millions
Available Cash
High Quality Liquid Securities
Liquid Assets
FHLB capacity(1)
FRB capacity
Line of credit
Total contingent sources
Total Liquid Assets and contingent sources
(1) See Table 36 for additional details.
December 31, 2022
4,894
$
13,350
18,244
$
$
$
$
9,218
4,203
100
13,521
31,765
We fund our operations through deposits and borrowings. Our primary source of liquidity is our branch-generated deposit
portfolio due to the generally stable balances and low cost. Deposits totaled $89.41 billion and $51.41 billion at December 31,
2022 and December 31, 2021, respectively. As needed, we use borrowings to diversify the funding of our business operations.
Borrowings totaled $6.65 billion and $1.78 billion at December 31, 2022 and 2021, respectively. Borrowings primarily consist
of FHLB advances, senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes.
A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions,
which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in
conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying
equipment. Certain related cash balances are restricted.
FHLB Advances
Table 36
FHLB Balances
dollars in millions
Total borrowing capacity
Less:
(1)
Advances
Letters of credit
Available capacity
Pledged Non-PCD loans (contractual balance)
Weighted Average Rate
(1)
Letters of credit were established with the FHLB to collateralize public funds.
December 31, 2022 December 31, 2021 December 31, 2020
Total
Total
Total
$
$
$
14,918
$
9,564
$
8,638
4,250
1,450
9,218
23,491
$
$
645
—
8,919
14,507
$
$
3.28 %
1.28 %
655
—
7,983
12,157
1.28 %
The increase in advances from December 31, 2021 reflected FHLB borrowings of $6.15 billion, partially offset by repayments
of $2.55 billion. FHLB borrowings remaining at December 31, 2022 consisted of $1.75 billion short-term and $2.50 billion
long-term. We grew FHLB advances during 2022 to supplement funding due to the decrease in deposits and increase in loans.
With the growth in deposits in the fourth quarter of 2022, we were able to rebalance our funding and we repaid $1.75 billion of
the outstanding FHLB advances in January 2023 and an additional $600 million in February 2023.
Under borrowing arrangements with the FRB of Richmond, FCB has access to an additional $4.20 billion on a secured basis.
There were no outstanding borrowings with the FRB Discount Window at December 31, 2022 and 2021.
Commitments and Contractual Obligations
Table 37 identifies significant obligations and commitments as of December 31, 2022, representing required and potential cash
outflows. See Note 24 — Commitments and Contingencies for additional information regarding commitments. Financing
commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily
reflect future cash outflows as many are expected to expire unused or partially used.
72
Table 37
Commitments and Contractual Obligations
dollars in millions
Type of Obligation
Less than 1 year
1-3 years
Payments Due by Period
4-5 years
Thereafter
Total
Contractual obligations:
Time deposits
Short-term borrowings
Long-term obligations
Total contractual obligations
Commitments:
Financing commitments
Letters of credit
Deferred purchase agreements
Purchase and funding commitments
Affordable housing partnerships(1)
Total commitments
$
(1) On-balance sheet commitments, included in other liabilities.
$
$
$
6,896 $
2,186
518
9,600 $
11,445 $
212
2,039
913
132
14,741 $
3,481 $
—
2,865
6,346 $
4,627 $
121
—
28
137
4,913 $
107 $
—
35
142 $
2,875 $
138
—
—
16
3,029 $
126 $
—
1,041
1,167 $
4,505 $
9
—
—
10
4,524 $
10,610
2,186
4,459
17,255
23,452
480
2,039
941
295
27,207
CRA Investment Commitment
As part of the CIT Merger, BancShares adopted a community benefit plan, developed in collaboration with representatives of
community reinvestment organizations. See further discussion on CRA, including details on investment commitments, in the
subsection “Subsidiary Bank - FCB” in Item 1. Business — Regulatory Considerations of this Annual Report on Form 10-K.
CAPITAL
Capital requirements applicable to BancShares are discussed in “Regulatory Considerations” section in Item 1. Business of this
Annual Report of Form 10-K.
BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and
warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning
indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in
both normal and stressed environments. The capital management framework requires contingency plans be defined and may be
employed at management’s discretion.
Share Repurchase Program
On July 26, 2022, the Board authorized a share repurchase program for up to 1,500,000 shares of BancShares’ Class A common
stock for the period commencing August 1, 2022 through July 28, 2023. We purchased 1,027,414 shares of Class A common
stock during the third quarter of 2022, and we repurchased the remaining 472,586 shares of Class A common stock during the
fourth quarter of 2022, thereby completing the share repurchase program. See Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities of this Annual Report on Form 10-K for further details
on purchases.
Common and Preferred Stock Dividends
During the first three quarters of 2022, we paid a quarterly dividend of $0.47 on the Class A common stock and Class B
common stock. On October 25, 2022, our Board of Directors declared a quarterly dividend increase on the Class A common
stock and Class B common stock to $0.75 per common share. The fourth quarter dividends were paid on December 15, 2022.
On January 24, 2023, our Board of Directors declared a quarterly dividend on the Class A common stock and Class B common
stock of $0.75 per common share. The dividends are payable on March 15, 2023 to stockholders of record as of February 28,
2023.
On January 24, 2023, our Board of Directors also declared dividends on our Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock. The dividends are payable on March 15, 2023. Dividend payment information on our Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is disclosed in Note 17 — Stockholders’ Equity.
73
Capital Composition and Ratios
In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6.1 million shares of its
Class A common stock. Additionally, shares of CIT Series A Preferred Stock were automatically converted into the right to
receive shares of BancShares Series B Preferred Stock and shares of CIT Series B Preferred Stock were automatically
converted into the right to receive shares of BancShares Series C Preferred Stock. In connection with the consummation of the
CIT Merger, the Parent Company issued (a) 325,000 shares of BancShares Series B Preferred Stock with a liquidation
preference of $1,000 per share, resulting in a total liquidation preference of $325 million, and (b) 8 million shares of
BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total liquidation preference of
$200 million.
The table below shows activities that caused the change in outstanding shares of Class A common stock for the year.
Table 38
Changes in Shares of Class A Common Stock Outstanding
Class A shares outstanding at beginning of period
Share issuance in conjunction with the CIT Merger
Restricted stock units vested, net of shares held to cover taxes
Shares purchased under authorized repurchase plan
Class A shares outstanding at end of period
Year Ended
December 31, 2022
8,811,220
6,140,010
49,787
(1,500,000)
13,501,017
We also had 1,005,185 shares of Class B common stock outstanding at December 31, 2022 and 2021.
We are committed to effectively managing our capital to protect our depositors, creditors and stockholders. We continually
monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by
regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the
regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies
that could have a material impact on our consolidated financial statements.
In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in
accumulated other comprehensive loss within stockholders’ equity. These amounts are excluded from regulatory in the
calculation of our regulatory capital ratios under current regulatory guidelines.
Table 39
Analysis of Capital Adequacy
dollars in millions
BancShares
Risk-based capital ratios
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage ratio
FCB
Risk-based capital ratios
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage ratio
Requirements
to be Well-
Capitalized
December 31, 2022
December 31, 2021
December 31, 2020
Amount
Ratio
Amount
Ratio
Amount
Ratio
10.00 % $
8.00 %
6.50 %
5.00 %
11,799
9,902
9,021
9,902
13.18 % $
11.06 %
10.08 %
8.99 %
10.00 % $
8.00 %
6.50 %
5.00 %
11,627
10,186
10,186
10,186
12.99 % $
11.38 %
11.38 %
9.25 %
5,042
4,380
4,041
4,380
4,858
4,651
4,651
4,651
14.35 % $
12.47 %
11.50 %
7.59 %
13.85 % $
13.26 %
13.26 %
8.07 %
4,577
3,856
3,516
3,856
4,543
4,277
4,277
4,277
13.81 %
11.63 %
10.61 %
7.86 %
13.72 %
12.92 %
12.92 %
8.72 %
74
At DECEmBEr 31, 2022, BAnCShArEs AnD FCB hAD risk-BAsED CApitAl rAtio ConsErvAtion BuffErs of 5.06% AnD 4.99%,
rEspECtivEly, whiCh ArE in ExCEss of thE BAsEl III ConsErvAtion BuffEr of 2.50%. At DECEmBEr 31, 2021, BAnCShArEs AnD FCB
hAD risk-BAsED CApitAl rAtio ConsErvAtion BuffErs of 6.35% AnD 5.85%, rEspECtivEly. ThE CApitAl rAtio ConsErvAtion BuffErs
rEprEsEnt thE ExCEss of thE rEgulAtory CApitAl rAtio As of DECEmBEr 31, 2022 AnD 2021 ovEr thE BAsEl III minimum for thE rAtio
thAt is thE BinDing ConstrAint. ADDitionAl TiEr 1 CApitAl for BAnCShArEs inCluDEs prEfErrED stoCk DisCussED furthEr in NotE 17 —
StoCkholDErs’ Equity. ADDitionAl TiEr 2 CApitAl for BAnCShArEs AnD FCB primArily Consists of quAlifying ACL AnD quAlifying
suBorDinAtED DEBt.
CRITICAL ACCOUNTING ESTIMATES
ThE ACCounting AnD rEporting poliCiEs of BAnCShArEs ArE in ACCorDAnCE with GAAP AnD ArE DEsCriBED in NotE 1 — SignifiCAnt
ACCounting PoliCiEs AnD BAsis of PrEsEntAtion. ThE prEpArAtion of finAnCiAl stAtEmEnts in Conformity with GAAP rEquirEs us to
ExErCisE juDgmEnt in DEtErmining mAny of thE EstimAtEs AnD Assumptions utiliZED to ArrivE At thE CArrying vAluE of AssEts AnD
liABilitiEs AnD Amounts rEportED for rEvEnuEs AnD ExpEnsEs. Our finAnCiAl position AnD rEsults of opErAtions CoulD BE mAtEriAlly
AffECtED By ChAngEs to thEsE EstimAtEs AnD Assumptions.
WE ConsiDEr ACCounting EstimAtEs to BE CritiCAl to rEportED finAnCiAl rEsults if (i) thE ACCounting EstimAtE rEquirEs mAnAgEmEnt
to mAkE Assumptions ABout mAttErs thAt ArE highly unCErtAin AnD (ii) DiffErEnt EstimAtEs thAt mAnAgEmEnt rEAsonABly CoulD hAvE
usED for thE ACCounting EstimAtE in thE CurrEnt pErioD, or ChAngEs in thE ACCounting EstimAtE thAt ArE rEAsonABly likEly to oCCur
from pErioD to pErioD, CoulD hAvE A mAtEriAl impACt on our finAnCiAl stAtEmEnts. ACCounting EstimAtEs rElAtED to BAnCShArEs’
ACL AnD CErtAin purChAsE ACCounting fAir vAluE EstimAtEs for thE CIT MErgEr rElAtED to loAns, CorE DEposit intAngiBlEs, AnD
opErAting lEAsE EquipmEnt in thE RAil sEgmEnt (“RAil AssEts”) ArE ConsiDErED to BE CritiCAl ACCounting EstimAtEs BECAusE
ConsiDErABlE juDgmEnt AnD EstimAtion is AppliED By mAnAgEmEnt.
ACL
ThE ACL rEprEsEnts mAnAgEmEnt’s BEst EstimAtE of CrEDit lossEs ExpECtED ovEr thE lifE of thE loAn or lEAsE, ADjustED for
ExpECtED ContrACtuAl pAymEnts AnD thE impACt of prEpAymEnt ExpECtAtions. EstimAtEs for loAn AnD lEAsE lossEs ArE DEtErminED
By AnAlyZing quAntitAtivE AnD quAlitAtivE ComponEnts prEsEnt As of thE EvAluAtion DAtE. ThE ACL is CAlCulAtED BAsED on A
vAriEty of ConsiDErAtions, inCluDing, But not limitED to ACtuAl nEt loss history of thE vArious loAn AnD lEAsE pools, DElinquEnCy
trEnDs, ChAngEs in forECAstED EConomiC ConDitions, loAn growth, EstimAtED loAn lifE, AnD ChAngEs in portfolio CrEDit quAlity.
LoAns AnD lEAsEs ArE sEgrEgAtED into pools with similAr risk ChArACtEristiCs AnD EACh hAvE A moDEl thAt is utiliZED to EstimAtE thE
ACL. ThE ACL moDEls utiliZE EConomiC vAriABlEs, inCluDing unEmploymEnt, GDP, homE priCE inDEx, CommErCiAl rEAl EstAtE
inDEx, CorporAtE profits, AnD CrEDit sprEADs. ThEsE EConomiC vAriABlEs ArE BAsED on mACroEConomiC sCEnArio forECAsts with A
forECAst horiZon thAt CovErs thE livEs of thE loAn portfolios.
WhilE mAnAgEmEnt utiliZEs its BEst juDgmEnt AnD informAtion AvAilABlE, thE ultimAtE ADEquACy of our ACL is DEpEnDEnt upon A
vAriEty of fACtors BEyonD our Control whiCh ArE inhErEntly DiffiCult to prEDiCt, thE most signifiCAnt BEing thE mACroEConomiC
sCEnArio forECAsts thAt DEtErminE thE EConomiC vAriABlEs utiliZED in thE ACL moDEls. DuE to thE inhErEnt unCErtAinty in thE
mACroEConomiC forECAsts, BAnCShArEs utiliZEs BAsElinE, upsiDE, AnD DownsiDE mACroEConomiC sCEnArios AnD wEights thE
sCEnArios BAsED on rEviEw of vAriABlE forECAsts for EACh sCEnArio AnD CompArison to ExpECtAtions. At DECEmBEr 31, 2022, ACL
EstimAtEs in thEsE sCEnArios rAngED from ApproximAtEly $685 million whEn wEighting thE upsiDE sCEnArio 100%, to
ApproximAtEly $1.23 Billion whEn wEighting thE DownsiDE sCEnArio 100%. BAnCShArEs mAnAgEmEnt DEtErminED thAt An ACL of
$922 million wAs AppropriAtE As of DECEmBEr 31, 2022.
CurrEnt EConomiC ConDitions AnD forECAsts CAn ChAngE whiCh CoulD AffECt thE AntiCipAtED Amount of EstimAtED CrEDit lossEs AnD
thErEforE thE AppropriAtEnEss of thE ACL. It is DiffiCult to EstimAtE how potEntiAl ChAngEs in Any onE EConomiC fACtor or input
might AffECt thE ovErAll ACL BECAusE A wiDE vAriEty of fACtors AnD inputs ArE ConsiDErED in EstimAting thE ACL AnD ChAngEs in
thosE fACtors AnD inputs ConsiDErED mAy not oCCur At thE sAmE rAtE AnD mAy not BE ConsistEnt ACross All proDuCt typEs.
ADDitionAlly, ChAngEs in fACtors AnD inputs mAy BE DirECtionAlly inConsistEnt, suCh thAt improvEmEnt in onE fACtor mAy offsEt
DEtEriorAtion in othErs.
ACCounting poliCiEs rElAtED to thE ACL ArE DisCussED in NotE 1 — SignifiCAnt ACCounting PoliCiEs AnD BAsis of PrEsEntAtion.
For morE informAtion rEgArDing thE ACL, rEfEr to thE CrEDit Risk MAnAgEmEnt — ACL sECtion of this MD&A AnD NotE 5 —
AllowAnCE for CrEDit LossEs.
75
Purchase Accounting Fair Value Estimates
Acquired assets and liabilities in a business combination are recorded at their fair values as of the date of acquisition. The
determination of estimated fair values required management to make certain estimates about discount rates, future expected
cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature and may
require adjustments. The fair values for these items are further discussed in Note 2 — Business Combinations.
Fair values of acquired loans and leases, core deposit intangibles recorded and Rail Assets associated with the CIT Merger are
considered critical accounting estimates and discussed further below.
Loans and Leases
Fair values for loans acquired in the CIT Merger were based on a discounted cash flow methodology that forecasts expected
credit and prepayment adjusted cash flows, which were discounted using market-based discount rates. This approach also
considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality
ratings or scores, and amortization status.
Selected larger, impaired loans were specifically reviewed to evaluate fair value. Loans with similar risk characteristics were
pooled together when applying various valuation techniques. The discount rates used for loans were based on an evaluation of
current market rates for new originations of comparable loans and required rates of return for market participants to purchase
similar assets, including adjustments for liquidity and credit quality when necessary. In our valuation analysis, the discount rate
had the most significant impact on the valuation. An increase of 0.25% to the discount rates used to derive the fair value of the
loans at the time of the merger would have reduced the approximate fair value by $201 million, whereas a decrease of 0.25% to
the discount rates would have increased the fair value by approximately $202 million.
Core Deposit Intangibles
Certain core deposits were acquired as part of the CIT Merger, which provide an additional source of funds for BancShares.
Core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds
elsewhere. The core deposit intangibles were recorded at fair value of $143 million. See Note 1 — Significant Accounting
Policies and Basis of Presentation for further accounting policy information and Note 8 — Goodwill and Other Intangibles.
Core deposit intangibles were valued using the income approach, after-tax cost savings method. This method estimates the fair
value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated
average remaining life. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net
deposit cost. The discounted cash flow methodology considered discount rate, client attrition rates, cost of the deposit base,
reserve requirements, net maintenance cost, and an estimate of the cost associated with alternative funding sources. In our
valuation analysis, the discount rate had the most significant impact on the valuation. An increase of 0.25% to the discount rates
used to derive the core deposit intangibles at the Merger Date would have decreased core deposit intangibles by approximately
$6 million, whereas a decrease to the discount rates of 0.25% would have increased core deposit intangibles by approximately
$8 million.
Rail Assets
Our Rail Assets consist of railcars and locomotives. Fair values for acquired Rail Assets were based primarily on a cost
approach under an in-use premise. The sales approach was used to value Rail Assets when market information was available. A
discount was recorded for Rail Assets to reduce the carrying value to fair value. Rail Assets are discussed further in the Rail
discussion in the section entitled “ Results by Business Segment” of this MD&A.
76
RECENT ACCOUNTING PRONOUNCEMENTS
The following ASUs issued by the FASB were adopted by BancShares as of January 1, 2023. There were no other recent
accounting pronouncements issued but not yet adopted by BancShares as of January 1, 2023.
Standard
Summary of Guidance
ASU 2022-01, Fair
Value Hedging -
P0rtf0li0 Layer
Meth0d
Issued March 2022
ASU 2022-02,
Tr0ubled Debt
Restructurings and
Vintage Discl0sures
Issued March 2022
The amendments in this Update allow entities to designate multiple
hedged layers of a single closed portfolio, and expands the scope of
the portfolio layer method to include non-prepayable financial assets.
Provides additional guidance on the accounting for and disclosure of
hedge basis adjustments under the portfolio layer method. In addition,
as of the adoption date the Update permits reclassification of debt
securities from the held-to-maturity category to the available-for-sale
category if the entity intends to include those securities in a portfolio
designated in a portfolio layer method hedge.
For creditors that have adopted CECL, the amendments in this ASU:
(i) eliminate the previous recognition and measurement guidance for
TDRs, (ii) require new disclosures for loan modifications when a
borrower is experiencing financial difficulty (the “Modification
Disclosures”) and (iii) require disclosures of current period gross
charge-offs by year of origination in the vintage disclosures (the
“Gross Charge-off Vintage Disclosures”)
The Modification Disclosures apply to the following modification
types: principal forgiveness, interest rate reductions, other-than-
insignificant payment delays, term extensions, or a combination
thereof. Creditors will be required to disclose the following by loan
class: (i) amounts and relative percentages of each modification type,
(ii) the financial effect of each modification type, including the
incremental effect of principal forgiveness or reduction in weighted
average interest rate, (iii) the performance of the loan in the 12
months following the modification and (iv) qualitative information
discussing how the modifications factored into the determination of
the ACL.
Effect on BancShares' Financial
Statements
BancShares adopted ASU 2022-01 as of
January 1, 2023.
Adoption of this ASU did not have a
material impact on BancShares'
consolidated financial statements and
disclosures as BancShares did not have any
hedged portfolios.
BancShares adopted ASU 2022-02 as of
January 1, 2023 and elected to apply the
modified retrospective transition method for
ACL recognition and measurement.
As a result of adopting this ASU,
BancShares does not expect a material
change to its ACL related to loans
previously modified as a TDR and,
therefore, does not expect a material
cumulative effect adjustment to retained
earnings as of January 1, 2023.
The Modification Disclosures and Gross
Charge-off Vintage Disclosures are
required to be applied prospectively,
beginning in BancShares' Quarterly Report
on Form 10-Q as of and for the three
months ending March 31, 2023.
The following ASUs related to reference rate reform can be applied through December 31, 2024:
Standard
Summary of Guidance
The amendments in these updates apply only to contracts, hedging
relationships, and other transactions that reference LIBOR or another
reference rate expected to be discontinued because of reference rate
reform.
Effect on BancShares' Financial
Statements
BancShares continues to assess the impact
of the optional expedients available through
December 31, 2024 for eligible contract
modifications and hedge relationships.
Allows entities to prospectively apply certain optional expedients for
contract modifications and removes the requirements to remeasure
contract modifications or de-designate hedging relationships. In
addition, potential sources of ineffectiveness as a result of reference
rate reform may be disregarded when performing certain
effectiveness assessments.
However, the reference rate reform optional
expedients have not yet been applied to any
contracts and adoption of this guidance has
not had, and is expected to continue to not
have, a material impact on the financial
statements.
The main purpose of the practical expedients is to ease the
administrative burden of accounting for contracts impacted by
reference rate reform.
ASU 2021-01 refines the scope of ASC 848 and clarifies which
optional expedients may be applied to derivative instruments that do
not reference LIBOR or a reference rate that is expected to be
discontinued, but that are being modified in connection with the
market-wide transition to new reference rates.
ASU 2022-06 extends the period of time entities can utilize the
reference rate reform relief guidance under ASU 2020-04 from
December 31, 2022 to December 31, 2024.
77
ASU 2020-04,
Reference Rate
Reform (Topic 848)
Facilitation of the
Effects of Reference
Rate Reform on
Financial Reporting
Issued March 2020
ASU 2021-01,
Reference Rate
Reform (Topic 848):
Scope
Issued January 2021
ASU 2022-06,
Reference Rate
Reform (Topic 848):
Deferral of the Sunset
Date of Topic 848
Issued December 2022
NON-GAAP FINANCIAL MEASUREMENTS
BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to
evaluate its operations. A non-GAAP financial measure is a numerical measure of a company's historical or future financial
performance or financial position that may either exclude or include amounts or is adjusted in some way to the effect of
including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance
with GAAP financial statements. BancShares believes that non-GAAP financial measures, when reviewed in conjunction with
GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and
financial position to its investors, analysts and management. These non-GAAP measures should be considered in addition to,
and not superior to or a substitute for, GAAP measures presented in BancShares' consolidated financial statements and other
publicly filed reports. In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial
measures used by other institutions.
Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable
financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation between the U.S. GAAP
financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we
believe the measure to be useful.
The following table provides a reconciliation of net income (GAAP) to net revenue on operating leases (non-GAAP) for the
Rail Segment.
Adjusted Rental Income on Operating Lease Equipment for Rail Segment
Adjusted rental income on operating lease equipment within the Rail segment is calculated as gross revenue earned on rail car
leases less depreciation and maintenance. This metric allows us to monitor the performance and profitability of the rail leases
after deducting direct expenses.
The table below presents a reconciliation of net income to adjusted rental income on operating lease equipment.
Table 40
Rail Segment
dollars in millions
Net income (GAAP)
Plus: Provision for income taxes
Plus: Other noninterest expense
Less: Other noninterest income
Plus: Interest expense, net
Adjusted rental income on operating lease equipment (non-GAAP)
2022
Year ended December 31
2021
2020
$
$
112 $
37
63
5
80
287 $
— $
—
—
—
—
— $
—
—
—
—
—
—
78
FOURTH QUARTER ANALYSIS
Table 41
Selected Financial Data
dollars in millions, except share data
SUMMARY OF OPERATIONS
Interest income
Interest expense
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Preferred stock dividends
Net income available to common stockholders
PER COMMON SHARE DATA
Average diluted common shares
Net income available to common stockholders (diluted)
KEY PERFORMANCE METRICS
Return on average assets (ROA)
Net interest margin (NIM) (1)
SELECTED QUARTERLY AVERAGE BALANCES
Total investments
Total loans and leases (1)
Total operating lease equipment (net)
Total assets
Total deposits
Total stockholders' equity
ASSET QUALITY
Ratio of nonaccrual loans to total loans
Allowance for credit losses to loans ratio
Net charge off ratio
(1) Calculation is further discussed below in Table 42 of this MD&A.
December 31, 2022
Three Months Ended
September 30, 2022 December 31, 2021
$
$
$
$
$
$
$
$
1,040
238
802
79
723
429
760
392
135
257
14
243
14,607,426
16.67
0.93 %
3.36 %
18,876
70,465
8,049
109,792
89,042
9,621
0.89 %
1.30 %
0.14 %
$
$
$
$
906
111
795
60
735
433
760
408
93
315
12
303
15,727,993
19.25
1.16 %
3.40 %
19,119
68,824
7,981
107,987
88,422
10,499
0.65 %
1.26 %
0.10 %
371
14
357
(5)
362
114
323
153
30
123
4
119
9,816,405
12.09
0.84 %
2.58 %
11,424
32,488
—
58,116
51,239
4,633
0.37 %
0.55 %
(0.01)%
For the three months ended December 31, 2022 compared to the three months ended September 30, 2022:
•
Net income for the three months ended December 31, 2022 was $257 million, a decrease of $58 million, or 18% compared
to the three months ended September 30, 2022. Net income available to common stockholders for the three months ended
December 31, 2022 totaled $243 million, a decrease of $60 million, or 20% compared to the linked quarter. Net income per
diluted common share for the three months ended December 31, 2022. was $16.67, a decrease of 13% from the linked
quarter. The decreases were primarily due to higher provision for income taxes, reflecting taxes on the early surrender of
BOLI contracts, and higher provision for credit losses.
°
Fourth quarter results were impacted by the strategic decision to exit $1.25 billion of BOLI policies. The surrender of
the policies resulted in a tax charge of $55 million. Favorable market conditions prompted us to exit this long-term,
illiquid asset. As we receive proceeds from the surrender, those will increase our capital and liquidity positions while at
the same time allow us to invest in highly liquid assets at higher yields.
•
•
•
Return on average assets for the three months ended December 31, 2022 was 0.93%, compared to 1.16% for the three
months ended September 30, 2022, impacted by the higher income taxes noted above.
NII for the three months ended December 31, 2022 was $802 million, an increase of $7 million, or 1% compared to the
three months ended September 30, 2022. See average balances and rates below for more detail.
NIM for the three months ended December 31, 2022 was 3.36%, a decrease of 4 bps from 3.40% for the three months
ended September 30, 2022. See average balances and rates below for more detail.
79
• Provision for credit losses for the three months ended December 31, 2022 was $79 million compared to a provision of
$60 million for the three months ended September 30, 2022. The increase was primarily due to changes in reserves on
individually evaluated loans, an increase in net charge-offs, loan growth and deterioration in the economic outlook,
partially offset by a change in portfolio mix. The net charge-off ratio for the three months ended December 31, 2022 was
0.14%, up from 0.10% for the three months ended September 30, 2022.
• Noninterest income for the three months ended December 31, 2022 was $429 million, a decrease of $4 million compared to
$433 million for the three months ended September 30, 2022. The change was primarily due to declines in other
noninterest income (spread among various accounts), partially offset by higher rental income on operating leases, factoring
commissions, service charges on deposit accounts and insurance commissions. Rental income on operating lease equipment
increased $5 million on a gross basis, reflecting continued improvement in utilization and a higher lease rate. Noninterest
income from fee generating lines of business including service charges on deposit accounts, factoring and insurance
commissions, card services and fee income and other service charges increased $8 million. All other noninterest income
declined by $17 million, spread among various accounts.
• Noninterest expense for the three months ended December 31, 2022 was $760 million, unchanged from the three months
ended September 30, 2022. While the total was unchanged over the prior quarter, there was a $6 million increase in
marketing costs, primarily related to the Direct Bank and a $3 million increase in net occupancy expense due to increased
repairs and utilities costs. These were offset by a $4 million decline in maintenance and depreciation expense on operating
lease equipment, a $4 million decline in merger-related expenses and a $1 million decline in other operating expenses
spread among various accounts.
Select items in the current and linked quarters include:
For the three months ended December 31, 2022:
•
• CIT Merger-related expenses of $29 million in noninterest expense.
• A provision for income taxes of $55 million related to the BOLI termination.
For the three months ended September 30, 2022:
• CIT Merger-related expenses of $33 million in noninterest expense.
•
•
For the three months ended December 31, 2022 compared to the three months ended December 31, 2021:
• Net income for the three months ended December 31, 2022 was $257 million, an increase of $134 million, or 108%
compared to the three months ended December 31, 2021. Net income available to common stockholders for the three
months ended December 31, 2022 totaled $243 million, an increase of $124 million, or 105% compared to the three
months ended December 31, 2021. Net income per diluted common share for the three months ended December 31, 2022
was $16.67, an increase of 38% over the three months ended December 31, 2021. The increases are primarily attributed to
the CIT Merger.
Select items for the three months ended December 31, 2022 are mentioned above.
•
• Return on average assets for the three months ended December 31, 2022 was 0.93%, compared to 0.84% in the same
quarter in 2021.
• NII was $802 million for the three months ended December 31, 2022, an increase of $445 million, or 124% compared to
the three months ended December 31, 2021. This was primarily due to the CIT Merger, as well as subsequent loan growth
and rising interest rates, partially offset by a decline in interest income on SBA-PPP loans.
• NIM was 3.36% for the three months ended December 31, 2022, an increase of 78 bps from 2.58% for the three months
ended December 31, 2021. The increase reflected the higher interest rate environment and the assets acquired and liabilities
assumed in the CIT Merger.
• Provision for credit losses for the three months ended December 31, 2022 was $79 million, compared to a benefit of
$5 million for the three months ended December 31, 2021. The increase primarily reflects the CIT Merger, as well as
deterioration in the macroeconomic forecasts used in the CECL forecasting process and loan growth. The net charge-off
ratio for the three months ended December 31, 2022 was 0.14%, compared to a net recovery of 0.01% for the three months
ended December 31, 2021.
• Noninterest income for the three months ended December 31, 2022 was $429 million, an increase of $315 million
compared to $114 million for the three months ended December 31, 2021. The increase was due primarily to the added
activity due to the CIT Merger, including rental income on operating leases totaling $224 million.
• Noninterest expense for the three months ended December 31, 2022 was $760 million, an increase of $437 million
compared to $323 million for the three months ended December 31, 2021. The increase is primarily associated with the
CIT Merger, including higher salaries and benefit costs of $159 million, primarily due to the increase in employees and
$135 million of depreciation and maintenance costs associated with the operating lease equipment.
80
Table 42
Average Balances and Rates
dollars in millions
Loans and leases (1)(2)
Total investment securities
Interest-earning deposits at banks
Total interest-earning assets (2)
Three Months Ended
December 31, 2022
Income /
Expense
892
92
56
1,040
Average
Balance
$ 69,290 $
18,876
6,193
$ 94,359 $
Average
Balance
Yield /
Rate
5.09 % $ 67,733 $
1.95
19,119
5,685
3.60
4.36 % $ 92,537 $
September 30, 2022
Income /
Expense
785
90
31
906
Yield /
Rate
4.58 % $
1.88
2.17
3.87 % $
Change in NII Due to:
Yield /
Rate(1)
Volume(1)
Total
Change
107
2
25
134
89 $
3
22
114 $
Operating lease equipment, net
Cash and due from banks
Allowance for credit losses
All other noninterest-earning assets
Total assets
$
8,049
500
(886)
7,770
$ 109,792
Interest-bearing deposits:
Checking with interest
Money market
Savings
Time deposits
Total interest-bearing deposits
Borrowings:
Securities sold under customer
repurchase agreements
Short-term FHLB borrowings
Short-term borrowings
Federal Home Loan Bank borrowings
Senior unsecured borrowings
Subordinated debt
Other borrowings
Long-term borrowings
Total borrowings
Total interest-bearing liabilities
$ 15,985 $
21,200
15,831
9,516
62,532
514
2,080
2,594
2,818
906
1,051
25
4,800
7,394
$ 69,926 $
13
60
69
34
176
—
20
20
28
4
9
1
42
62
238
$ 26,510
Noninterest-bearing deposits
1,174
Credit balances of factoring clients
2,561
Other noninterest-bearing liabilities
Stockholders' equity
9,621
Total liabilities and stockholders' equity $ 109,792
$
7,981
489
(851)
7,831
$ 107,987
0.24 % $ 16,160
1.13
22,993
1.73
1.42
1.12
61,545
13,956
8,436
617
1,784
1,805
1,188
0.27
3.72
3.04
3.85
2.03
3.38
6.57
3.42
3.28
5,608
1.35 % $ 67,153
3,803
1,054
898
67
$ 26,877
1,089
2,369
10,499
$ 107,987
$
$
7
32
28
11
78
1
8
9
11
5
8
—
24
33
111
0.14 % $
0.55
0.78
0.54
0.50
0.16
2.57
1.74
2.45
2.00
3.21
4.51
2.59
2.32
0.65 % $
18 $
(1)
3
20
$
— $
(3)
4
2
3
(1)
8
7
9
(1)
—
—
8
15
18 $
6 $
31
37
21
95
—
4
4
8
—
1
1
10
14
109 $
6
28
41
23
98
(1)
12
11
17
(1)
1
1
18
29
127
Interest rate spread (2)
Net interest income and net yield on
interest-earning assets (2)
3.36 %
(1) Loans and leases include Non-PCD and PCD loans, nonaccrual loans and held for sale. Interest income on loans and leases includes accretion income and
3.22 %
3.01 %
3.40 %
795
802
$
$
loan fees.
(2) The balance and rate presented is calculated net of average credit balances of factoring clients.
81
Fourth Quarter 2022 compared to Third Quarter 2022
• NII for the three months ended December 31, 2022 was $802 million, an increase of $7 million, or 1% compared to the
three months ended September 30, 2022. The increase was primarily due to a higher yield on earning assets and loan
growth, partially offset by higher funding costs and average balances.
•
Interest income earned on loans and leases for the three months ended December 31, 2022 was $892 million, an
increase of $107 million compared to the third quarter of 2022. The increase was primarily due to higher yields and
growth in the average loans and leases balance from $67.73 billion in the previous quarter to $69.29 billion in the
current quarter.
Interest income earned on investment securities for the three months ended December 31, 2022 was $92 million, an
increase of $2 million compared to the third quarter of 2022. The slight increase was primarily due to higher
reinvestment rates.
Interest income earned on interest earning deposits at banks for the three months ended December 31, 2022 was
$56 million, an increase of $25 million, primarily reflecting higher interest rates.
Interest expense on interest-bearing deposits for the three months ended December 31, 2022 was $176 million, an
increase of $98 million compared to the third quarter of 2022. The increase reflected higher deposit rates as well as the
higher average balance, with the increase primarily concentrated in time deposits and savings accounts.
Interest expense on borrowings for the three months ended December 31, 2022 was $62 million, an increase of
$29 million compared to the third quarter of 2022. The increase was due to higher average FHLB borrowings that
supplemented funding our loan growth. Due to the fourth quarter increase in deposits, we repaid some of the
borrowings in the fourth quarter.
•
•
•
•
• NIM for the three months ended December 31, 2022 was 3.36%, a decrease of 4 bps from 3.40% for the three months
ended September 30, 2022. The yield on earning assets increased by 49 basis points, but was offset by the increase to the
cost of funding them. The cost of funding earning assets increased due to higher rates paid on interest bearing deposits and
borrowings, as well as a mix shift between noninterest-bearing and interest-bearing deposits
• Average interest-earning assets for the three months ended December 31, 2022 were $94.36 billion. This is an increase
from $92.54 billion for the three months ended September 30, 2022, primarily reflecting higher average loans and leases.
• Average interest-bearing liabilities for the three months ended December 31, 2022 were $69.93 billion. This is an increase
from $67.15 billion for the three months ended September 30, 2022, primarily reflecting higher FHLB borrowings and
deposits. The average rate on interest-bearing liabilities for the three months ended December 31, 2022 was 1.35%. This is
an increase of 70 bps compared to the three months ended September 30, 2022, reflecting the higher interest rate
environment.
82
GLOSSARY OF KEY TERMS
To assist the users of this document, we have added the following Glossary of key terms:
Allowance for Credit Losses (“ACL”) reflects the estimated credit losses over the full remaining expected life of the portfolio.
See CECL below.
Assets Held for Sale include loans and operating lease equipment that we no longer have the intent or ability to hold until
maturity. As applicable, assets held for sale could also include a component of goodwill associated with portfolios or businesses
held for sale.
Available Cash consists of the unrestricted portions of ‘Cash and due from banks' and ‘Interest-bearing deposits at banks',
excluding cash not accessible for liquidity, such as vault cash and deposits in transit.
Available for Sale is a classification that pertains to debt securities. We classify debt securities as available for sale when they
are not considered trading securities, securities carried at fair value, or held-to-maturity securities. Available for sale securities
are included in investment securities in the balance sheet.
Average Interest-Earning Assets is a measure that is the sum of average loans and leases (as defined below, less the credit
balances of factoring clients), loans and leases held for sale, interest-bearing deposits at banks, and investment securities.
Average interest earning assets is computed using daily balances. We use this average for certain key profitability ratios,
including NIM (as defined below) for the respective period.
Average Loans and Leases is computed using daily balances and is used to measure the rate of return on loans and leases
(finance leases) and the rate of net charge-offs, for the respective period.
Capital Conservation Buffer (“CCB”) is the excess 2.5% of each of the capital tiers that banks are required to hold in
accordance with Basel III rules, above the minimum CET 1 Capital, Tier 1 capital and Total capital requirements, designed to
absorb losses during periods of economic stress.
Common Equity Tier 1 ("CET1"), Additional Tier 1 Capital, Tier 1 Capital, Tier 2 Capital, and Total Capital are regulatory
capital measures as defined in the capital adequacy guidelines issued by the Federal Reserve. CET1 is common stockholders'
equity reduced by capital deductions such as goodwill, intangible assets and DTAs that arise from net operating loss and tax
credit carryforwards and adjusted by elements of other comprehensive income and other items. Tier 1 Capital is Common
Equity Tier 1 Capital plus other Additional Tier 1 Capital instruments, including non-cumulative preferred stock. Total Capital
consists of Tier 1 Capital and Tier 2 Capital, which includes subordinated debt, and qualifying allowance for credit losses and
other reserves.
Current Expected Credit Losses (“CECL”) is a forward-looking “expected loss” model used to estimate credit losses over the
full remaining expected life of the portfolio. Estimates under the CECL model are based on relevant information about past
events, current conditions, and reasonable and supportable forecasts regarding the collectability of reported amounts. Generally,
the model requires that an ACL be estimated and recognized for financial assets measured at amortized cost within its scope.
Delinquent Loan categorization occurs when payment is not received when contractually due. Delinquent loan trends are used
as a gauge of potential portfolio degradation or improvement.
Derivative Contract is a contract whose value is derived from a specified asset or an index, such as an interest rate. As the value
of that asset or index changes, so does the value of the derivative contract.
Economic Value of Equity Sensitivity ("EVE Sensitivity") measures the net impact of hypothetical changes on the value of
equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.
Finance leases - lessor is an agreement in which the party who owns the property (lessor), which is BancShares as part of our
finance business, permits another party (lessee), which is our customer, to use the property with substantially all of the
economic benefits and risks of asset ownership passed to the lessee. Finance leases are commonly known as sales-type leases
and direct finance leases and are included in the consolidated balance sheet in the line “Loans and leases.”
83
High Quality Liquid Securities (“HQLS”) consist of readily-marketable, unpledged securities, as well as securities pledged but
not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and Agency securities held
outright or via reverse repurchase agreements.
Impaired Loan is a loan for which, based on current information and events, it is probable that BancShares will be unable to
collect all amounts due according to the contractual terms of the loan.
Interest income includes interest earned on loans, interest-bearing deposits at banks, debt investments and dividends on
investments.
Liquid Assets includes Available Cash and HQLS.
Loans and Leases include loans, finance lease receivables, and factoring receivables, and do not include amounts contained
within assets held for sale )unless otherwise noted) or operating leases.
Loan-to-Value Ratio ("LTV") is a calculation of a loan's collateral coverage that is used in underwriting and assessing risk in our
lending portfolio. LTV is calculated as the total loan obligations )unpaid principal balance) secured by collateral divided by the
fair value of the collateral.
Net Interest Income (“NII”) reflects Interest Income less interest expense on deposits and borrowings. When divided by
average interest earning assets, the quotient is defined as Net Interest Margin )"NIM").
Net Interest Income Sensitivity ("NII Sensitivity") measures the net impact of hypothetical changes in interest rates on forecasted
NII.
Net Operating Loss Carryforward / Carryback ("NOLs") is a tax concept, whereby tax losses in one year can be used to offset
taxable income in other years. The rules pertaining to the number of years allowed for the carryback or carryforward of an NOL
varies by jurisdiction.
Non-accrual Loans include loans greater than or equal to $500,000 that are individually evaluated and determined to be
impaired, as well as loans less than $500,000 that are delinquent )generally for 90 days or more), unless it is both well secured
and in the process of collection. Non-accrual loans also include loans with revenue recognition on a cash basis because of
deterioration in the financial position of the borrower.
Non-performing Assets include Non-accrual Loans, OREO, and repossessed assets.
Operating leases - lessor is a lease in which BancShares retains ownership of the asset )operating lease equipment, net), collects
rental payments, recognizes depreciation on the asset, and retains the risks of ownership, including obsolescence.
Other Noninterest Income includes )1) fee income and other service charges, )2) wealth management services, )3) service
charges on deposit accounts, )4) factoring commissions, )5) cardholder services, net, )6) merchant services, )7) insurance
commissions, )8) realized gains and losses on investment securities available for sale, net, )9) fair value adjustment on
marketable equity securities, net, )10) BOLI, )11) gains and losses on leasing equipment, net, )12) gain on acquisition, )13) gain
and losses on extinguishments of debt, and )14) other noninterest income.
Other Real Estate Owned ("OREO") is a term applied to real estate properties owned by a financial institution and are
considered non-performing assets.
Pledged Assets are those required under the collateral maintenance requirement in connection with borrowing availability at the
FHLB, which are comprised primarily of consumer and commercial real estate loans and also include certain HQLS that are
available for secured funding at the FHLB.
Purchase Accounting Adjustments (“PAA”) reflect the fair value adjustments to acquired assets and liabilities assumed in a
business combination.
Purchased Credit Deteriorated (“PCD”) financial assets are acquired individual financial assets )or acquired groups of
financial assets with similar risk characteristics) that as of the date of acquisition, have experienced a more-than-insignificant
deterioration in credit quality since origination, as determined by an acquirer’s assessment.
84
Regulatory Credit Classifications used by BancShares are as follows:
•
•
•
Pass — A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse
classification;
Special Mention — A special mention asset has potential weaknesses which deserve management’s close attention. If
left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position
at some future date. Special mention assets are not adversely classified and do not warrant adverse classification;
Substandard — A substandard asset is inadequately protected by the current net worth and paying capacity of the
borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness,
or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of
loss if the deficiencies are not corrected;
• Doubtful — An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the
added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on
the basis of currently existing facts, conditions and values; and
• Loss — Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as
an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is
not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Classified assets are rated as substandard, doubtful or loss based on the criteria outlined above. Classified assets can be accruing
or on non-accrual depending on the evaluation of the relevant factors. Classified loans plus special mention loans are considered
criticized loans.
Residual Values for finance leases represent the estimated value of equipment at the end of its lease term. For operating lease
equipment, it is the value to which the asset is depreciated at the end of lease term or at the end of estimated useful life.
Right of Use Asset (“ROU Asset”) represents our right, as lessee, to use underlying assets for the lease term, and lease liabilities
represent our obligation to make lease payments arising from the leases.
Risk Weighted Assets ("RWA") is the denominator to which CET1, Tier 1 Capital and Total Capital is compared to derive the
respective risk based regulatory ratios. RWA is comprised of both on-balance sheet assets and certain off-balance sheet items
(for example loan commitments, purchase commitments or derivative contracts). RWA items are adjusted by certain risk-
weightings as defined by the regulators, which are based upon, among other things, the relative credit risk of the counterparty.
Troubled Debt Restructuring ("TDR") occurs when a lender, for economic or legal reasons, grants a concession to the borrower
related to the borrower's financial difficulties that it would not otherwise consider.
Variable Interest Entity ("VIE") is a corporation, partnership, limited liability company, or any other legal structure used to
conduct activities or hold assets. These entities: lack sufficient equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support from other parties; have equity owners who either do not have
voting rights or lack the ability to make significant decisions affecting the entity's operations; and/or have equity owners that do
not have an obligation to absorb the entity's losses or the right to receive the entity's returns.
Yield-related Fees are collected in connection with our assumption of underwriting risk in certain transactions in addition to
interest income. We recognize yield-related origination fees in interest income over the life of the lending transaction and
recognize yield-related prepayment fees when the loan is prepaid.
85
Forward-Looking Statements
Statements in this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future
performance of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “predicts,” “forecasts,” “intends,”
“plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will,” “potential,” “continue,” “aims” or other similar
words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based
on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future
conditions.
Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties,
changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect
BancShares’ future financial results and performance and could cause the actual results, performance or achievements of
BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such
risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including the
military conflict between Russia and Ukraine) and market conditions, the impacts of the global COVID-19 pandemic on
BancShares’ business, and customers, the financial success or changing conditions or strategies of BancShares’ customers or
vendors, fluctuations in interest rates, actions of government regulators, including the recent and projected interest rate hikes by
the Board of Governors of the Federal Reserve Board (the “Federal Reserve”), the potential impact of decisions by the Federal
Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including the
significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of
implementation and compliance with current or proposed laws, regulations and regulatory interpretations, the availability of
capital and personnel, and the failure to realize the anticipated benefits of BancShares’ previously announced acquisition
transaction(s), including the recently-completed transaction with CIT, which acquisition risks include (1) disruption from the
transaction, or recently completed mergers, with customer, supplier or employee relationships, (2) the possibility that the
amount of the costs, fees, expenses and charges related to the transaction may be greater than anticipated, including as a result
of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties’ customers to the
transaction, (4) the risk that the cost savings and any revenue synergies from the transaction may not be realized or take longer
than anticipated to be realized, and (5) difficulties experienced in completing the integration of the businesses.
Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to
publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events
or developments.
Item 7A• Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result
in diminished current fair values of financial instruments or reduced NII in future periods. Changes in fair value that result from
movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market
rates will have on the fair values of financial instruments is uncertain.
As of December 31, 2022, BancShares’ market risk profile had changed since December 31, 2021, primarily due to the CIT
Merger.
Market risk information is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations within the “Risk Management” section and in Item 8. Notes to Consolidated Financial Statements within Note 1 —
Significant Accounting Policies and Basis of Presentation, Note 14 — Derivative Financial Instruments and Note 16 — Fair
Value.
86
Item 8. Financial Statements and Supplementary Data
REPORT OF PREDECESSOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors
First Citizens BancShares, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying statements of income, comprehensive income, changes in stockholders’ equity and cash
flows of First Citizens BancShares, Inc. and Subsidiaries (the "Company") for the year ended December 31, 2020, and the
related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31,
2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud.
Our audit included performing procedures to assess the risks of material 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 test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
(Formerly Dixon Hughes Goodman LLP)
We served as the Company’s auditor from 2004 to 2021.
Raleigh, North Carolina
February 24, 2021
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
87
KPMG LLP
4242 Six Forks Road
Suite 850
Raleigh, NC 27609
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
First Citizens BancShares, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of First Citizens BancShares, Inc. and subsidiaries (the
Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes
in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 24, 2023 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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.
88
Quantitative component of the allowance for credit losses for legacy First Citizens BancShares, Inc. loans and leases
evaluated on a collective basis
As discussed in Notes 1 and 5 to the consolidated financial statements, as of December 31, 2022, the Company had an
allowance for credit losses (ACL) of $922 million, which includes the quantitative component for loans evaluated on a
collective basis for legacy First Citizens BancShares, Inc. loans and leases (the FCB quantitative collective ACL). Loans and
leases are segregated into pools with similar risk characteristics, and each have a model that is utilized to estimate the
quantitative collective ACL. The FCB quantitative collective ACL models estimate the probability of default (PD) and loss
given default (LGD) for individual loans and leases within the risk pool based on historical loss experience, borrower
characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. Loan
and lease level undiscounted ACL is calculated by applying the modeled PD and LGD to forecasted loan and lease balances
which are adjusted for contractual payments, pre-payments, and prior defaults. The Company uses a life of loan reasonable
and supportable forecast period which incorporates macroeconomic forecasts at the time of the evaluation. The Company’s
ACL forecasts utilize scenario weighting of a range of economic scenarios, including baseline, upside and downside
scenarios. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not
captured within the models including credit quality, concentrations, and significant policy and underwriting changes.
We identified the assessment of the FCB quantitative collective ACL as a critical audit matter. A high degree of audit effort,
including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of
the FCB quantitative collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed
the evaluation of the methodology, including the models used to estimate the PD and LGD, the selection of the economic
scenarios, and the weighting of each economic scenario. The assessment also included an evaluation of the conceptual
soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the
sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the FCB quantitative
collective ACL including controls related to the:
•
•
•
•
•
development and approval of the ACL methodology
continued use and appropriateness of changes to the PD and LGD models, including the significant assumptions used in
the PD and LGD models
selection of the economic scenarios and the weighting of each economic scenario
performance monitoring of the PD and LGD models
analysis of the ACL results, trends, and ratios.
We evaluated the Company’s process to develop the FCB quantitative collective ACL by testing certain sources of data,
factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and
assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
evaluating the FCB quantitative collective ACL methodology for compliance with U.S. generally accepted accounting
principles
evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD
models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory
practices
assessing the conceptual soundness of the PD and LGD models by inspecting the model documentation to determine
whether the models are suitable for their intended use
evaluating the selection of the economic scenarios and the weighting applied to each economic scenario by comparing
them to the Company’s business environment and relevant industry practices
We also assessed the sufficiency of the audit evidence obtained related to the FCB quantitative collective ACL by evaluating
the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
potential bias in the accounting estimate.
89
Quantitative component of the allowance for credit losses for loans and leases evaluated on a collective basis acquired in
the merger with CIT as of the date of the merger and as of year-end
As discussed in Notes 1 and 5 to the consolidated financial statements, on January 3, 2022, First Citizens BancShares, Inc.
(the Company) closed on a merger transaction with CIT Group Inc. The Company’s allowance for credit losses (ACL) on
legal day one (LD1) for the CIT acquired loans and leases was $726 million, which includes the quantitative component for
loans and leases evaluated on a collective basis at January 3, 2022 (the LD1 CIT quantitative collective ACL). As discussed
in Notes 1 and 5 to the consolidated financial statements, as of December 31, 2022, the Company’s ACL was $922 million,
which includes the quantitative component for loans and leases evaluated on a collective basis for legacy CIT Group
(together with the LD1 CIT quantitative collective ACL, the CIT quantitative collective ACL). Loans and leases are
segregated into pools with similar risk characteristics, and each have a model that is utilized to estimate the quantitative
collective ACL. The CIT quantitative collective ACL models estimate the probability of default (PD) and loss given default
(LGD) for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type,
forecasts of relevant economic conditions, expected future recoveries, loan grades and other factors. Loan level
undiscounted ACL is calculated by applying the modeled PD and LGD to forecasted loan balances which are adjusted for
contractual payments, pre-payments, and prior defaults. The Company uses a life of loan reasonable and supportable
forecast period which incorporates macroeconomic forecasts at the time of the evaluation. The CIT quantitative collective
ACL forecasts utilize scenario weighting of a range of economic scenarios, including baseline, upside and downside
scenarios. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not
captured within the models including credit quality, concentrations, and significant policy and underwriting changes.
We identified the assessment of the CIT quantitative collective ACL as a critical audit matter. A high degree of audit effort,
including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment
due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the methodology,
including the methods and models used to estimate the PD and LGD, the selection of the economic scenarios, and the
weighting of each economic scenario. The assessment also included an evaluation of the conceptual soundness and
performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of the audit
evidence obtained.
The following are primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls related to the Company’s measurement of the CIT quantitative
collective ACL including controls related to the:
•
•
•
•
•
development and approval of the CIT quantitative collective ACL methodology
continued use and appropriateness of changes to the PD and LGD models, including the significant assumptions used in
the PD and LGD models
selection of the economic scenarios and the weighting of each economic scenario
performance monitoring of the PD and LGD models
analysis of the ACL results, trends and ratios
We evaluated the Company’s process to develop the CIT quantitative collective ACL by testing certain sources of data,
factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and
assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
evaluating the CIT quantitative collective ACL methodology for compliance with U.S. generally accepted accounting
principles.
evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD
models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory
practices.
assessing the conceptual soundness of the PD and LGD models by inspecting the model documentation to determine
whether the models are suitable for their intended use
evaluating the selection of the economic scenarios and the weighting applied to each economic scenario by comparing
them to the Company’s business environment and relevant industry practices
90
We also assessed the sufficiency of the audit evidence obtained related to the CIT quantitative collective ACL by evaluating
the:
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
potential bias in the accounting estimate
●
●
●
Valuation of loans and leases, rail operating lease equipment and the core deposit intangible acquired in the merger with
CIT
As discussed in Note 2 to the consolidated financial statements, on January 3, 2022, First Citizens BancShares, Inc. (the
Company) closed on a merger transaction with CIT Group Inc. (the Merger). The assets acquired and liabilities assumed are
required to be measured at fair value at the date of acquisition under the purchase method of accounting. The Company
acquired loans and leases with a fair value of $33 billion, rail operating lease equipment of $8 billion and established a core
deposit intangible (CDI) asset with a fair value of $143 million.
● The fair value of the acquired loans and leases is based on a discounted cash flow methodology that considered factors
including the type of loan and related collateral, fixed or variable interest rate, remaining term, and certain assumptions
including market implied credit losses (probability of default, loss given default), discount rates, and prepayment rates.
● The fair value of the rail operating lease equipment is based primarily on a cost approach that considers factors
including the railcar type, age, leasing status and certain assumptions including replacement cost, functional and
economic obsolescence and salvage values. For certain rail operating lease equipment, a market approach was used that
considers factors including railcar type, age and certain assumptions including estimated sales values and salvage
values.
● The fair value of the CDI asset is based on an income approach, after-tax savings method. This method estimates the
fair value by discounting to present value the favorable funding spread attributable to the core deposit balances. The
favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost whereby
projected net cash flow benefits are derived from estimating costs to carry deposits compared to alternative funding
costs, and certain assumptions including the discount rates, interest costs, deposit attrition rates, alternative costs of
funds, and net maintenance costs.
We identified the valuation of the acquired loans and leases, rail operating lease equipment and CDI asset in the Merger as a
critical audit matter. Specifically, the evaluation of the methodologies and the determination of certain assumptions used to
estimate the fair values involved a high degree of auditor judgment and specialized skills and knowledge. Such assumptions
included the market implied credit losses, discount rates, and prepayment rates for the loans and leases; the replacement
costs and the functional and economic obsolescence for the rail operating lease equipment; and the discount rate for the CDI
asset. These assumptions required subjective auditor judgment as changes in the assumptions could have a significant
impact on the estimated fair value.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the process to measure the estimate of fair values of the
acquired loans and leases, the rail operating lease equipment and the CDI asset, including controls over:
●
●
●
●
evaluating the fair value methodologies
determining the market implied credit losses, discount rates, and prepayment rates for the loans and leases
determining the replacement costs and the functional and economic obsolescence for the rail operating lease equipment
determining the discount rate for the CDI asset
We evaluated the Company’s process to develop the fair values of the acquired loans and leases, the rail operating lease
equipment and the CDI asset by testing certain sources of data and assumptions that the Company used and considered the
relevance and reliability of such data and assumptions. We involved valuation professionals with specialized skills and
knowledge, who assisted in evaluating the Company’s estimate of these fair values by:
●
evaluating the valuation methodologies used by the Company to estimate the fair values for reasonableness and
compliance with U.S. generally accepted accounting principles
91
Specific to the acquired loans and leases:
●
●
●
●
●
developing independent ranges of fair value for certain acquired loans and leases, including the development of
independent assumptions utilizing market data for implied credit loss, discount rate and prepayment rate assumptions
assessing the Company’s estimate of fair value for certain acquired loans and leases by comparing them to the
independently developed rangesSpecific to the rail operating lease equipment:
developing independent assumptions for replacement costs on rail operating lease equipment by assessing market
information from third-party sources
evaluating the Company’s process for developing the functional and economic obsolescence, including the criteria used
to determine extent of obsolescence, for reasonableness
developing independent ranges of fair value for certain acquired rail operating lease equipment using multiple
approaches and comparing the Company’s estimate to the independently developed estimates
Specific to the CDI asset:
●
evaluating the Company’s process for developing the discount rate, by assessing the approach used to derive the
assumption, reviewing the peer group used to determine the market beta for comparability, assessing market
information from third-party sources and developing the size premium and company specific risk premiums and
comparing to those selected by management
We have served as the Company’s auditor since 2021.
Raleigh, North Carolina
February 24, 2023
92
KPMG LLP
4242 Six Forks Road
Suite 850
Raleigh, NC 27609
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
First Citizens BancShares, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited First Citizens BancShares, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period
ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated
February 24, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are 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 that could have a material effect on the financial statements.
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.
93
Because of its inherent 1imitations, interna1 contro1 over financia1 reporting may not prevent or detect misstatements. A1so,
projections of any eva1uation of effectiveness to future periods are subject to the risk that contro1s may become inadequate
because of changes in conditions, or that the degree of comp1iance with the po1icies or procedures may deteriorate.
Ra1eigh, North Caro1ina
February 24, 2023
94
Fihst Citizens BancShahes, Inc. and Subsidiahies
Cknsklidated Balance Sheets
dollars in millions, except share data
Assets
Cash and due from banks
Interest-earning deposits at banks
Investment in marketable equity securities (cost of $75 at December 31, 2022 and $73 at December 31, 2021)
Investment securities available for sale (cost of $9,967 at December 31, 2022 and $9,215 at December 31, 2021)
Investment securities held to maturity (fair value of $8,795 at December 31, 2022 and $3,759 at December 31,
2021)
Assets held for sale
Loans and leases
Allowance for credit losses
Loans and leases, net of allowance for credit losses
Operating lease equipment, net
Premises and equipment, net
Goodwill
Other intangible assets
Other assets
Tktal assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Credit balances of factoring clients
Borrowings:
Short-term borrowings
Long-term borrowings
Total borrowings
Other liabilities
Tktal liabilities
Stkckhkldehs’ eiuity
Preferred stock - $0.01 par value (10,000,000 shares authorized at December 31, 2022 and December 31, 2021)
Common stock:
Class A - $1 par value (16,000,000 shares authorized; 13,501,017 and 8,811,220 shares issued and
outstanding at December 31, 2022 and December 31, 2021, respectively)
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at
December 31, 2022 and December 31, 2021)
Additional paid in capital
Retained earnings
Accumulated other comprehensive (loss) income
Tktal stkckhkldehs’ eiuity
Tktal liabilities and stkckhkldehs’ eiuity
See accompanying Notes to the Consolidated Financial Statements.
Decembeh 31, 2022 Decembeh 31, 2021
$
518 $
5,025
95
8,995
10,279
60
70,781
(922)
69,859
8,156
1,456
346
140
4,369
109,298 $
24,922 $
64,486
89,408
995
2,186
4,459
6,645
2,588
99,636
881
14
1
4,109
5,392
(735)
9,662
109,298 $
$
$
$
338
9,115
98
9,203
3,809
99
32,372
(178)
32,194
—
1,233
346
19
1,855
58,309
21,405
30,001
51,406
—
589
1,195
1,784
381
53,571
340
9
1
—
4,378
10
4,738
58,309
95
First Citizens BancShares, Inc● and Subsidiaries
Consolidated Statements of Income
dollars in millions, except share and per share data
Interest income
Interest and fees on loans
Interest on investment securities
Interest on deposits at banks
Total interest income
Interest expense
Deposits
Borrowings
Total interest expense
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Rental income on operating lease equipment
Fee income and other service charges
Wealth management services
Service charges on deposit accounts
Factoring commissions
Cardholder services, net
Merchant services, net
Insurance commissions
Realized gain on sale of investment securities available for sale, net
Fair value adjustment on marketable equity securities, net
Bank-owned life insurance
Gain on sale of leasing equipment, net
Gain on acquisition
Gain on extinguishment of debt
Other noninterest income
Total noninterest income
Noninterest expense
Depreciation on operating lease equipment
Maintenance and other operating lease expenses
Salaries and benefits
Net occupancy expense
Equipment expense
Professional fees
Third-party processing fees
FDIC insurance expense
Marketing expense
Merger-related expenses
Intangible asset amortization
Other noninterest expense
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
Net income available to common stockholders
Earnings per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
2022
Year ended December 31
2021
2020
$
2,953 $
354
106
3,413
335
132
467
2,946
645
2,301
864
163
142
100
104
102
35
47
—
(3)
32
15
431
7
97
2,136
345
189
1,396
194
216
57
103
31
53
231
23
237
3,075
1,362
264
1,098 $
50
1,048 $
67.47 $
67.40 $
$
$
$
$
1,295 $
145
11
1,451
33
28
61
1,390
(37)
1,427
—
42
129
95
—
87
33
16
33
34
3
—
—
—
36
508
—
—
759
117
119
20
60
14
10
29
12
94
1,234
701
154
547 $
18
529 $
53.88 $
53.88 $
1,333
144
7
1,484
67
29
96
1,388
58
1,330
—
37
103
88
—
74
24
15
60
29
3
—
—
—
44
477
—
—
722
117
116
17
45
13
10
17
15
117
1,189
618
126
492
14
478
47.50
47.50
15,531,924
15,549,944
9,816,405
9,816,405
10,056,654
10,056,654
See accompanying Notes to the Consolidated Financial Statements.
96
First Citizens BancShares, Inc● and Subsidiaries
Consolidated Statements of Comprehensive Income
dollars in millions
Net income
other comprehensive (loss) income, net of tax
Net unrealized (loss) gain on securities available for sale
Net change in unrealized loss on securities available for sale transferred to securities
held to maturity
Net change in defined benefit pension items
Other comprehensive (loss) income’ net of tax
Total comprehensive income
$
$
$
2022
Year ended December 31
2021
2020
1’098 $
(730)
1
(16)
(745) $
353 $
547 $
(88)
(11)
97
(2) $
545 $
492
73
4
62
139
631
See accompanying Notes to the Consolidated Financial Statements.
97
First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Preferred
Stock
Class A
Common
Stock
Class B
Common
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders'
Equity
dollars in millions, except share data
Balance at December 31, 2019
Cumulative effect of adoption of ASC 326
Net income
Other comprehensive loss, net of tax
Issuance of preferred stock
Repurchased 813,090 shares of Class A common stock
Cash dividends declared ($1.67 per common share):
Class A common stock
Class B common stock
Preferred stock dividends declared
Balance at December 31, 2020
Net income
Other comprehensive loss, net of tax
Cash dividends declared ($1.88 per common share):
Class A common stock
Class B common stock
Preferred stock dividends declared
Balance at December 31, 2021
Net income
Other comprehensive loss, net of tax
Issued in CIT Merger:
Common stock
Series B preferred stock
Series C preferred stock
Stock-based compensation
Repurchased 1,500,000 shares of Class A common stock
Cash dividends declared ($2.16 per common share):
Class A common stock
Class B common stock
Preferred stock dividends declared:
Series A
Series B
Series C
Balance at December 31, 2022
$
— $
—
—
—
340
—
10 $
—
—
—
—
(1)
1 $
—
—
—
—
—
—
—
—
340
—
—
—
—
—
340
—
—
—
334
207
—
—
—
—
—
—
—
9
—
—
—
—
—
9
—
—
6
—
—
—
(1)
—
—
—
—
—
1
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
881 $
—
—
—
14 $
$
—
—
—
1 $
Retained
Earnings
44 $ 3,658 $
—
—
—
—
(44)
37
492
—
—
(289)
—
—
—
—
—
—
—
—
—
—
—
—
5,273
—
—
75
(1,239)
—
—
—
—
—
(15)
(2)
(14)
3,867
547
—
(16)
(2)
(18)
4,378
1,098
—
—
—
—
—
—
(32)
(2)
(19)
(20)
(11)
4,109 $ 5,392 $
(127) $
—
—
139
—
—
—
—
—
12
—
(2)
—
—
—
10
—
(745)
—
—
—
—
—
—
—
—
—
—
(735) $
3,586
37
492
139
340
(334)
(15)
(2)
(14)
4,229
547
(2)
(16)
(2)
(18)
4,738
1,098
(745)
5,279
334
207
75
(1,240)
(32)
(2)
(19)
(20)
(11)
9,662
See accompanying Notes to Consolidated Financial Statements.
98
First Citizens BancShares, Inc● and Subsidiaries
Consolidated Statements of Cash Flows
dollars in millions
CASH FLOWS FROM OPERATING ACTIVITIES
2022
Year Ended December 31,
2021
2020
Net income
Adjustments to reconcile net income to cash provided by (used in) operating activities:
$
1,098 $
547 $
Provision (benefit) for credit losses
Deferred tax expense (benefit)
Depreciation, amortization, and accretion, net
Stock based compensation expense
Realized gain on sale of investment securities available for sale, net
Fair value adjustment on marketable equity securities, net
Gain on sale of loans, net
Gain on sale of operating lease equipment, net
Loss on sale of premises and equipment, net
(Gain) loss on other real estate owned, net
Gain on acquisition
Gain on extinguishment of debt
Origination of loans held for sale
Proceeds from sale of loans held for sale
Net change in other assets
Net change in other liabilities
Other operating activities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-earning deposits at banks
Purchase of marketable equity securities
Proceeds from sales of investments in marketable equity securities
Purchase of investment securities available for sale
Proceeds from maturities of investment securities available for sale
Proceeds from sale of investment securities available for sale
Purchase of investment securities held to maturity
Proceeds from maturities of investment securities held to maturity
Net change in loans
Proceeds from sale of loans
Net decrease in credit balances of factoring clients
Purchase of operating lease equipment
Proceeds from sale of operating lease equipment
Purchase of premises and equipment
Proceeds from sales of premises and equipment
Proceeds from sales of other real estate owned
Acquisition, net of cash acquired
Other investing activities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in time deposits
Net (decrease) increase in demand and other interest-bearing deposits
Net decrease in securities sold under customer repurchase agreements
Repayment of short-term borrowings
Proceeds from issuance of short-term borrowings
Repayment of long-term borrowings
Proceeds from issuance of long-term borrowings
Net proceeds from issuance of preferred stock
Repurchase of Class A common stock
Cash dividends paid
Other financing activities
Net cash (used in) provided by financing activities
Change in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
$
99
645
206
533
19
—
3
(22)
(15)
5
(14)
(431)
(7)
(499)
562
484
260
(36)
2,791
6,965
—
—
(1,985)
1,237
2
(755)
835
(5,344)
245
(538)
(771)
95
(155)
13
48
134
49
75
568
(2,259)
(153)
(1,355)
3,105
(5,099)
3,854
—
(1,240)
(83)
(24)
(2,686)
180
338
518 $
(37)
(8)
143
—
(33)
(34)
(33)
—
—
(1)
—
—
(1,123)
1,036
(733)
5
(13)
(284)
(4,767)
(2)
30
(6,375)
2,455
1,367
(1,401)
809
423
—
—
—
—
(107)
1
41
—
(42)
(7,568)
(406)
8,382
(52)
—
—
(54)
—
—
—
(42)
—
7,828
(24)
362
338 $
492
58
(26)
133
—
(60)
(29)
(38)
—
—
4
—
—
(1,042)
1,046
(135)
(15)
(12)
376
(3,204)
(333)
353
(8,667)
2,791
4,585
(1,633)
301
(3,850)
13
—
—
—
(133)
1
28
(60)
(100)
(9,908)
(1,010)
9,989
(97)
—
—
(87)
746
340
(334)
(30)
—
9,517
(15)
377
362
dollars in millions
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the period for:
Interest
Income taxes
Significant non-cash investing and financing activities:
Transfers of loans to other real estate
Transfers of premises and equipment to other real estate
Transfer of investment securities available for sale to held to maturity
Dividends declared but not paid
Transfer of assets from held for investment to held for sale
Transfer of assets from held for sale to held for investment
Loans held for sale exchanged for investment securities
Commitments extended during the period on affordable housing investment credits
Issuance of common stock as consideration for acquisition
Stock-based compensation as consideration for acquisition
Issuance of preferred stock as consideration for acquisition
2022
Year Ended December 31,
2021
2020
$
525 $
(551)
62 $
870
14
19
—
1
188
21
38
110
5,279
81
541
14
14
452
—
88
4
231
15
—
—
—
105
117
12
15
1,461
5
49
6
11
15
—
—
—
See accompanying Notes to the Consolidated Financial Statements.
100
First Citizens BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE l — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Nature of Operations
First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,”
“us,” “our,” “BancShares”) is a financial holding company organized under the laws of Delaware that conducts operations
through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB,” or the “Bank”), which is headquartered in
Raleigh, North Carolina. BancShares and its subsidiaries operate a network of over 500 branches in 22 states, predominantly
located in the Southeast, Mid-Atlantic, Midwest and Western United States. BancShares provides various types of commercial
and consumer banking services, including lending, leasing and wealth management services. Deposit services include checking,
savings, money market and time deposit accounts.
BASIS OF PRESENTATION
Principles of Consolidation and Basis of Presentation
The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and general practices within the banking industry.
The consolidated financial statements of BancShares include the accounts of BancShares and its subsidiaries, certain
partnership interests and variable interest entities (“VIEs”) where BancShares is the primary beneficiary, if applicable. All
significant intercompany accounts and transactions are eliminated upon consolidation. Assets held in agency or fiduciary
capacity are not included in the consolidated financial statements.
VIEs are legal entities that either do not have sufficient equity to finance their activities without the support from other parties
or whose equity investors lack a controlling financial interest. BancShares has investments in certain partnerships and limited
liability entities that have been evaluated and determined to be VIEs. Consolidation of a VIE is appropriate if a reporting entity
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 activities that most significantly
impact the VIEs’ economic performance. As such, assets and liabilities of these entities are not consolidated into the financial
statements of BancShares. The recorded investment in these entities is reported within other assets. See Note 10 — Other
Assets and Note 12 — Variable Interest Entities for additional information.
Reclassifications
In certain instances, amounts reported in the 2021 and 2020 consolidated financial statements have been reclassified to conform
to the 2022 financial statement presentation, primarily reflecting impacts from the CIT Merger (as defined below). Such
reclassifications had no effect on previously reported stockholders’ equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
impacting the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ
from those estimates. The significant estimates include the allowance for credit losses (“ACL”) and fair value estimates of
acquired loans and operating lease equipment and core deposit intangibles.
Business Combinations
BancShares accounts for business combinations using the acquisition method of accounting. Under this method, acquired assets
and assumed liabilities are included with the acquirer’s accounts at their estimated fair value as of the date of acquisition, with
any excess of purchase price over the fair value of the net tangible and intangible assets acquired recognized as goodwill. To the
extent the fair value of identifiable net assets acquired exceeds the purchase price, a gain on acquisition is recognized. Merger-
related costs are recognized as period expenses as incurred.
On January 3, 2022, BancShares completed its previously announced merger (the “CIT Merger”) with CIT Group Inc. (“CIT”),
pursuant to an Agreement and Plan of Merger, dated as of October 15, 2020, as amended by Amendment No. 1, dated as of
September 30, 2021 (as amended, the “Merger Agreement”). See Note 2 — Business Combinations for additional information.
101
Reportable Segments
As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. BancShares
began reporting multiple segments during the first quarter of 2022 and now reports General Banking, Commercial Banking,
Rail, and Corporate segments. BancShares conformed the comparative prior periods presented to reflect the new segments. The
substantial majority of BancShares’ operations for historical periods prior to completion of the CIT Merger are included in the
General Banking segment. The Commercial Banking and Rail segments primarily relate to operations acquired in the CIT
Merger. See Note 23 — Business Segment Information for additional information.
SIGNIFICANT ACCOUNTING POLICIES
Interest-Earning Deposits at Banks
Interest-earning deposits at banks are primarily comprised of interest-bearing deposits with banks and federal funds sold.
Interest-earning deposits at banks have initial maturities of three months or less. The carrying value of interest-earning deposits
at banks approximates its fair value due to its short-term nature.
Investments
Debt Securities
BancShares classifies debt securities as held to maturity (“HTM”) or available for sale (“AFS”). Debt securities are classified as
HTM when BancShares has the intent and ability to hold the securities to maturity. HTM securities are reported at amortized
cost. Other debt securities are classified as AFS and reported at estimated fair value, with unrealized gains and losses, net of
income taxes, reported in Accumulated Other Comprehensive Income (“AOCI”). Amortization of premiums and accretion of
discounts for debt securities are recorded in interest income. Realized gains and losses from the sale of debt securities are
included in noninterest income. BancShares performs pre-purchase due diligence and evaluates the credit risk of AFS and HTM
debt securities purchased directly into BancShares' portfolio or via acquisition. If securities have evidence of more than
insignificant credit deterioration since issuance, they are designated as purchased credit deteriorated (“PCD”).
For AFS debt securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently
in an unrealized loss position for potential credit-related 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 entirety of the unrealized loss is immediately
recorded in earnings to the extent that it exceeds the associated ACL previously established. For the remaining securities, an
analysis is performed to determine if any portion of the unrealized loss recorded relates to credit impairment. If credit-related
impairment exists, the amount is recorded through the ACL and related provision. This review includes indicators such as
changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer. BancShares determined
that there were no expected credit losses on the HTM or AFS portfolios.
Debt securities are also classified as past due when the payment of principal and interest based upon contractual terms is 30
days delinquent or greater. Missed interest payments on debt securities are rare. Management reviews all debt securities with
delinquent interest and immediately charges off any accrued interest determined to be uncollectible. See Note 3 — Investment
Securities for additional information.
Equity Securities
Investments in equity securities having readily determinable fair values are stated at fair value. Realized and unrealized gains
and losses on these securities are included in noninterest income. Non-marketable equity securities are securities with no readily
determinable fair values and are measured at cost. BancShares evaluates its equity securities for impairment and recoverability
of the recorded investment by considering positive and negative evidence, including the profitability and asset quality of the
issuer, dividend payment history and recent redemption experience. Impairment is assessed at each reporting period and if
identified, is recognized in other noninterest expense. See Note 10 — Other Assets for amounts of non-marketable equity
securities at December 31, 2022 and 2021.
Other Securities
Membership in the Federal Home Loan Bank (“FHLB”) network requires ownership of FHLB restricted stock. This stock is
restricted as it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at
cost, less any applicable impairment charges and is recorded within other assets. Additionally, BancShares holds shares of Visa
Inc. (“Visa”) Class B common stock. See Note 3 — Investment Securities and Note 10 — Other Assets for additional
information.
102
Investment in Qualified Affordable Housing Proiects
BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community
Reinvestment Act requirements and obtaining tax credits. These investments are accounted for using the proportional
amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment
is amortized in proportion to the tax credits and other tax benefits received, and the net investment performance is recognized in
the income statement as a component of income tax expense. All investments held in qualified affordable housing projects
qualify for the proportional amortization method. See Note 10 — Other Assets and Note 12 — Variable Interest Entities for
additional information.
Assets Held for Sale
Assets held for sale (“AHFS”) at December 31, 2022 consist of residential mortgage loans held for sale of $4 million carried at
fair value and commercial loans held for sale of $48 million carried at the lower of the cost or fair value (“LOCOM”). The
remainder related to operating lease equipment held for sale, which is carried at LOCOM. AHFS at December 31, 2021 consist
of residential mortgage loans held for sale of $99 million carried at fair value.
Loans and Leases
BancShares extends credit to commercial customers through a variety of financing arrangements including term loans,
revolving credit facilities, finance leases and operating leases. BancShares also extends credit through consumer loans,
including residential mortgages and auto loans.
We re-evaluated our loan classes to reflect the characteristics of BancShares’ portfolio. The changes to the loan classes
primarily include: (i) reclassifying Small Business Administration Paycheck Protection Program (“SBA-PPP”) loans into the
commercial and industrial class, (ii) identifying a separate loan class for leases, and (iii) no longer having PCD loans as a
separate loan class. Our loan classes as of December 31, 2022 are described below. Prior period disclosures have been
conformed to the current presentation.
Commercial Loans and Leases
Commercial Construction - Commercial construction consists of loans to finance land for commercial development of real
property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the
supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired
for development. Deterioration in demand could result in decreased collateral values, which could make repayments of
outstanding loans difficult.
Owner Occupied Commercial Mortgage - Owner occupied commercial mortgage consists of loans to purchase or refinance
owner occupied nonresidential properties. This includes office buildings, other commercial facilities and farmland. Commercial
mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results
consistent with those projected at loan origination. While these loans are collateralized by real property in an effort to mitigate
risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
Non-owner Occupied Commercial Mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or
refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated
parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial
mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to
service the debt. While these loans are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of
collateral will not fully satisfy the obligation.
Commercial and Industrial - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable,
inventory or other general business needs, and business credit cards. The primary risk associated with commercial and
industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to
achieve these projections presents risk that the borrower will be unable to service the debt consistent with the contractual terms
of the loan.
Factoring - We provide factoring, receivable management, and secured financing to businesses (our clients, who are generally
manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings
and consumer electronics. Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from
the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the
factor). The most prevalent risk in factoring transactions is customer credit risk, which relates to the financial inability of a
customer to pay undisputed factored trade accounts receivable. Factoring receivables are primarily included in the commercial
and industrial loan class.
Leases – Leases consists of finance lease arrangements for technology and office equipment and large and small industrial,
medical, and transportation equipment.
103
Consumer Loans
Residential Mortgage - Consumer mortgage consists of loans to purchase, construct, or refinance the borrower’s primary
dwelling, secondary residence or vacation home and are often secured by 1-4 family residential properties or undeveloped or
partially developed land in anticipation of completing construction of a 1-4 family residential property. Significant and rapid
declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.
Delays in construction and development projects can cause cost overruns exceeding the borrower’s financial ability to complete
the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.
Revolving Mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit or loans secured by
first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the
residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by
junior liens as a substantial decline in value could render the junior lien position effectively unsecured.
Consumer Auto - Consumer auto loans consist of installment loans to finance purchases of vehicles. These loans include direct
auto loans originated in bank branches, as well as indirect auto loans originated through agreements with auto dealerships. The
value of the underlying collateral within this class is at risk of potential rapid depreciation, which could result in unpaid
balances in excess of the collateral, if any.
Consumer Other - Other consumer loans consist of loans to finance unsecured home improvements, student loans, and
revolving lines of credit that can be secured or unsecured, including personal credit cards. The value of the underlying collateral
within this class is at risk of potential rapid depreciation, which could result in unpaid balances in excess of the collateral.
Originated loans for which management has the intent and ability to hold for the foreseeable future are classified as held for
investment (“HFI”) and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized
fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations are deferred and
recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fees and costs is amortized to interest
income over the contractual lives using methods that approximate a constant yield.
Acquired Loans and Leases
BancShares’ accounting methods for acquired loans and leases depends on whether or not the loans reflect more than
insignificant credit deterioration since origination at the date of acquisition.
Non-Purchased Credit Deteriorated Loans and Leases
Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases do not reflect more than insignificant credit deterioration
since origination at the date of acquisition. These loans are recorded at fair value and an increase to the ACL is recorded with a
corresponding increase to the provision for credit losses at the date of acquisition. The difference between the fair value and the
unpaid principal balance (“UPB”) at the acquisition date is amortized or accreted to interest income over the contractual life of
the loan using the effective interest method.
Purchased Credit Deteriorated Loans and Leases
Purchased loans and leases that reflect a more than insignificant credit deterioration since origination at the date of acquisition
are classified as PCD loans and leases. PCD loans and leases are recorded at acquisition-date amortized cost, which is the
purchase price or fair value in a business combination, plus BancShares' initial ACL, which results in a gross up of the loan
balance (the “PCD Gross-Up”). The initial ACL for PCD loans and leases is established through the PCD Gross-Up and there is
no corresponding increase to the provision for credit losses. The difference between the UPB and the acquisition date amortized
cost resulting from the PCD Gross-Up is amortized or accreted to interest income over the contractual life of the loan using the
effective interest method.
Past Due and Non-Accrual Loans and Leases
Loans and leases are classified as past due when the payment of principal and interest based upon contractual terms is 30 days
or greater delinquent. Loans and leases are generally placed on nonaccrual when principal or interest becomes 90 days past due
or when it is probable the principal or interest is not fully collectible. When loans are placed on nonaccrual, previously
uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. All payments
received thereafter are applied as a reduction of the outstanding balance until the account is collected, charged-off or returned to
accrual status. Loans and leases are generally removed from nonaccrual status when they become current for a sustained period
of time and there is no longer concern as to the collectability of principal and interest.
104
Troubled Debt Restructurings
A loan is considered a troubled debt restructuring (“TDR”) when both a modification to a borrower’s debt agreement is made
and a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not
be granted. TDR concessions could include short-term deferrals of interest, modifications of payment terms or, in certain
limited instances, forgiveness of principal or interest. Loans restructured as a TDR are treated and reported as such for the
remaining life of the loan. TDR loans can be nonaccrual or accrual, depending on the individual facts and circumstances of the
borrower. In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as
nonaccrual. Refer to further discussion in the “Recently Issued Accounting Standards” section of Note 1 — Significant
Accounting Policies and Basis of Presentation.
Loan Charge-Offs and Recoveries
Loan charge-offs are recorded after considering such factors as the borrower’s financial condition, the value of underlying
collateral, guarantees, and the status of collection activities. Loan balances considered uncollectible are charged-off against the
ACL and deducted from the carrying value of the related loans. Consumer loans are subject to mandatory charge-off at
specified delinquency dates in accordance with regulatory guidelines. The value of the underlying collateral for consumer loans
is considered when determining the charge-off amount if repossession is reasonably assured and in process. See Note 4 —
Loans and Leases for additional information. Realized recoveries of amounts previously charged-off are credited to the ACL.
Allowance for Credit Losses
Loans and Leases
The ACL represents management’s best estimate of credit losses expected over the life of the loan or lease, adjusted for
expected contractual payments and the impact of prepayment expectations. Estimates for loan and lease losses are determined
by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded
with a corresponding entry to the provision or benefit for credit losses in accordance with FASB Accounting Standard
Codification (“ASC”) 326 Financial Instruments- Credit Losses (“ASC 326”). ASC 326 introduced the current expected credit
losses methodology (“CECL”) for the measurement of credit losses on financial assets measured at amortized cost basis,
replacing the previous incurred loss methodology. BancShares adopted ASC 326 on January 1, 2020 and CECL is applied for
all periods presented in these consolidated financial statements.
The ACL is calculated based on a variety of considerations, including, but not limited to actual net loss history of the various
loan and lease pools, delinquency trends, changes in forecasted economic conditions, loan growth, estimated loan life, and
changes in portfolio credit quality. Loans and leases are segregated into pools with similar risk characteristics and each have a
model that is utilized to estimate the ACL. These ACL models estimate the probability of default (“PD”) and loss given default
(“LGD”) for individual loans and leases within each risk pool based on historical loss experience, borrower characteristics,
collateral type, forecasts of future economic conditions, expected future recoveries and other factors. The loan and lease level,
undiscounted ACL is calculated by applying the modeled PD and LGD to monthly forecasted loan and lease balances which are
adjusted for contractual payments, prior defaults, and prepayments. Prepayment assumptions were developed through a review
of BancShares’ historical prepayment activity and considered forecasts of future economic conditions. Forecasted LGDs are
adjusted for expected recoveries. Model outputs may be adjusted through a qualitative assessment to reflect trends not captured
within the models, which could include economic conditions, credit quality, concentrations, and significant policy and
underwriting changes. Risk pools for estimating the ACL are aggregated into commercial and consumer loan classes for
reporting purposes in Note 5 — Allowance for Credit Losses.
The ACL models utilize economic variables, including unemployment, gross domestic product (“GDP”), home price index,
commercial real estate index, corporate profits, and credit spreads. These economic variables are based on macroeconomic
scenario forecasts with a forecast horizon that covers the lives of the loan portfolios. Due to the inherent uncertainty in the
macroeconomic forecasts, BancShares utilizes baseline, upside, and downside macroeconomic scenarios and weights the
scenarios based on review of variable forecasts for each scenario and comparison to expectations.
When loans do not share risk characteristics similar to others in the pool, the ACL is evaluated on an individual basis. Given
that BancShares' CECL models are loan level models, the population of loans evaluated individually is not significant and
consists primarily of loans greater than $500 thousand. A specific ACL is established, or partial charge-off is recorded, for the
difference between the excess amortized cost of loan and the loan’s estimated fair value.
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Certain aspects of BancShares’ ACL methodology were changed during the first quarter of 2022 in order to integrate the
methodologies of BancShares and CIT. The changes include the following: (i) applying a forecast horizon that covers the lives
of the loan portfolios instead of using a two year reasonable and supportable period with a one year reversion period followed
by a historical long run average economic forecast for the remainder of the portfolio life; and (ii) implementing scenario
weighting of baseline, upside, and downside macroeconomic scenarios instead of utilizing just the consensus baseline scenario
as the basis of the quantitative ACL estimate.
Accrued Interest Receivable
BancShares' accounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off
against interest income in a timely manner. Therefore, BancShares elected to not measure an ACL for accrued interest
receivable and it is excluded from the amortized cost basis of loans and HTM debt securities.
Unfunded Commitments
A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines
of credit, deferred purchase agreements, commitments to extend future credit, as well as both standby and commercial letters of
credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable
(i.e. commitment cannot be canceled at any time). These unfunded commitments are assessed to determine both the probability
of funding as well as the expectation of future losses. BancShares estimates the expected funding amounts and applies its PD
and LGD models to those expected funding amounts to estimate the reserve for unfunded commitments. See Note 5 —
Allowance for Credit Losses for additional information.
Leases
Lessor Arrangements
BancShares did not have significant amounts of equipment related to operating leases prior to completion of the CIT Merger. At
December 31, 2022, BancShares has operating lease equipment of $8.16 billion, primarily related to the Rail segment.
Operating lease equipment is carried at cost less accumulated depreciation. Operating lease equipment is depreciated to its
estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Rail equipment
has estimated useful lives of 40-50 years and the useful lives of other equipment are generally 3-10 years.
Where management’s intention is to sell the operating lease equipment, it is marked to LOCOM and classified as AHFS.
Depreciation is no longer recognized, and the assets are evaluated for impairment, with any further marks to LOCOM recorded
in other noninterest income. Equipment received at the end of the lease to be sold, is marked to LOCOM with the adjustment
recorded in other noninterest income. Initial direct costs are amortized over the lease term.
Sales-type and direct financing leases are carried at the aggregate of lease payments receivable and estimated residual value of
the leased property, if applicable, less unearned income. Interest income is recognized over the term of the leases to achieve a
constant periodic rate of return on the outstanding investment. Our finance lease activity primarily relates to leasing of new
equipment with the equipment purchase price equal to fair value and therefore there is no selling profit or loss at lease
commencement.
Lease components are separated from non-lease components that transfer a good or service to the customer; and the non-lease
components in our lease contracts are accounted for in accordance with ASC 310 Receivables. BancShares utilizes the
operating lease practical expedient for its Rail portfolio leases to not separate non-lease components of railcar maintenance
services from associated lease components, and as a result rental income includes the maintenance non-lease component. This
practical expedient is available when both of the following are met: (i) the timing and pattern of transfer of the non-lease
components and associated lease component are the same and (ii) the lease component, if accounted for separately, would be
classified as an operating lease.
We manage and evaluate residual risk by performing periodic reviews of estimated residual values and monitoring levels of
residual realizations. A change in estimated operating lease residual values would result in a change in future depreciation
expense. A change in estimated finance lease residual values during the lease term impacts the ACL as the lessor considers both
the lease receivable and the unguaranteed residual asset when determining the finance lease net investment allowance.
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Impairment of Operating Lease Equipment
A review for impairment of our operating 1ease equipment is performed at 1east annua11y or when events or changes in
circumstances indicate that the carrying amount of these 1ong-1ived assets may not be recoverab1e. Impairment of 1ong-1ived
assets is determined by comparing the carrying amount to future undiscounted net cash f1ows expected to be generated. If a
1ong-1ived asset is impaired, the impairment is the amount by which the carrying amount exceeds the fair va1ue of the 1ong-1ived
asset. Fair va1ue is based upon discounted cash f1ow ana1ysis and avai1ab1e market data. Current 1ease renta1s, as we11 as
re1evant and avai1ab1e market information (inc1uding third party sa1es for simi1ar equipment and pub1ished appraisa1 data), are
considered both in determining undiscounted future cash f1ows when testing for the existence of impairment and in determining
estimated fair va1ue in measuring impairment. Depreciation expense is adjusted when the projected fair va1ue is be1ow the
projected book va1ue at the end of the depreciab1e 1ife.
Lessee Arrangements
BancShares 1eases certain branch 1ocations, administrative offices and equipment. Operating 1ease right of use assets (“ROU
assets”) are inc1uded in other assets and the associated 1ease ob1igations are inc1uded in other 1iabi1ities. Finance 1eases are
inc1uded in premises and equipment and other borrowings. See Note 13 — Borrowings for additiona1 information. Leases with
an initia1 term of 12 months or 1ess are not recorded on the Conso1idated Ba1ance Sheets; BancShares instead recognizes 1ease
expense for these 1eases on a straight-1ine basis over the 1ease term.
ROU assets represent BancShares' right to use an under1ying asset for the 1ease term and 1ease 1iabi1ities represent BancShares'
corresponding ob1igation to make 1ease payments arising from the 1ease. ROU assets and 1ease 1iabi1ities are recognized at
commencement date based on the present va1ue of 1ease payments over the 1ease term. ROU assets a1so inc1ude initia1 direct
costs and pre-paid 1ease payments made, exc1uding 1ease incentives. As most of BancShares' 1eases do not provide an imp1icit
rate, BancShares uses its incrementa1 borrowing rate based on the information avai1ab1e at commencement date in determining
the present va1ue of 1ease payments. The incrementa1 borrowing rate is determined using secured rates for new FHLB advances
under simi1ar terms as the 1ease at inception.
Most 1eases inc1ude one or more options to renew, with renewa1 terms that can extend the 1ease term from 1 to 25 years. The
exercise of 1ease renewa1 options is at BancShares' so1e discretion. When it is reasonab1y certain BancShares wi11 exercise its
option to renew or extend the 1ease term, the option is inc1uded in ca1cu1ating the va1ue of the ROU asset and 1ease 1iabi1ity. The
depreciab1e 1ife of assets and 1easeho1d improvements are 1imited by the expected 1ease term, un1ess there is a transfer of tit1e or
purchase option reasonab1y certain of exercise.
BancShares determines if an arrangement is a 1ease at inception. BancShares’ 1ease agreements do not contain any materia1
residua1 va1ue guarantees or materia1 restrictive covenants. BancShares does not 1ease any properties or faci1ities from any
re1ated party. As of December 31, 2022, there were no 1eases that have not yet commenced that wou1d have a materia1 impact
on BancShares’ conso1idated financia1 statements. See Note 6 — Leases for additiona1 information.
Goodwill and OtheR Intangible Assets
Goodwi11 represents the excess of the purchase price of an acquired entity over the fair va1ue of the identifiab1e assets acquired.
Goodwi11 is not amortized, but is eva1uated at 1east annua11y for impairment during the third quarter, or when events or changes
in circumstances indicate a potentia1 impairment exists. Other acquired intangib1e assets with finite 1ives, such as core deposit
intangib1es, are initia11y recorded at fair va1ue and are amortized over their average estimated usefu1 1ives. Intangib1e assets are
eva1uated for impairment when events or changes in circumstances indicate a potentia1 impairment exists. See Note 8 —
Goodwi11 and Other Intangib1es for additiona1 information.
OtheR Real Estate Owned
Other Rea1 Estate Owned (“OREO”) inc1udes forec1osed rea1 estate property and c1osed branch properties. Forec1osed rea1
estate property in OREO is initia11y recorded at the asset’s estimated fair va1ue 1ess costs to se11. Any excess in the recorded
investment in the 1oan over the estimated fair va1ue 1ess costs to se11 is charged-off against the ACL at the time of forec1osure. If
the estimated va1ue of the OREO exceeds the recorded investment of the 1oan, the difference is recorded as a gain within other
income.
OREO is subsequent1y carried at the 1ower of cost or market va1ue 1ess estimated se11ing costs and is eva1uated at 1east annua11y.
The periodic eva1uations are genera11y based on the appraised va1ue of the property and may inc1ude additiona1 adjustments
based upon management’s review of the va1uation estimate and specific know1edge of the property. Routine maintenance costs,
income and expenses re1ated to the operation of the forec1osed asset, subsequent dec1ines in market va1ue and net gains or 1osses
on disposa1 are inc1uded in co11ection and forec1osure-re1ated expense.
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Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Land is carried at cost. Depreciation expense is
generally computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements 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. BancShares reviews premises and equipment for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable, and when an impairment loss is recognized the adjusted carrying
amount will be its new cost basis to depreciate over the remaining useful life of the asset.
Derivative Financial Instruments
BancShares did not have any significant derivative financial instruments prior to completion of the CIT Merger. However,
BancShares acquired various derivative financial instruments in connection with the CIT Merger as further described in Note 14
— Derivative Financial Instruments. BancShares manages economic risk and exposure to interest rate and foreign currency risk
through derivative transactions in over-the-counter markets with other financial institutions. BancShares also offers derivative
products to its customers in order for them to manage their interest rate and currency risks. BancShares does not enter into
derivative financial instruments for speculative purposes.
Derivatives utilized by BancShares may include swaps, forward settlement contracts, options contracts and risk participations.
A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts,
assets and/or indices. Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index,
currency or commodity at a predetermined future date, and rate or price. An option contract is an agreement that gives the buyer
the right, but not the obligation, to buy or sell an underlying asset from or to another party at a predetermined price or rate over
a specific period of time. A risk participation is a financial guarantee, in exchange for a fee, that gives the buyer the right to be
made whole in the event of a predefined default event.
BancShares documents, at inception, all relationships between hedging instruments and hedged items, as well as the risk
management objectives and strategies for undertaking various hedges. Upon executing a derivative contract, BancShares
designates the derivative as either a qualifying hedge or non-qualifying hedge. The designation may change based upon
management’s reassessment of circumstances. BancShares does not have any qualifying fair value, cash flow or net investment
hedges as of December 31, 2022.
BancShares provides interest rate derivative contracts to support the business requirements of its customers. The derivative
contracts include interest rate swap agreements and interest rate cap and floor agreements wherein BancShares acts as a seller of
these derivative contracts to its customers. To mitigate the market risk associated with these customer derivatives, BancShares
enters into similar offsetting positions with broker-dealers.
BancShares has both bought and sold credit protection in the form of participations in interest rate swaps (risk participations).
These risk participations were entered into in the ordinary course of business to facilitate customer credit needs. Swap
participations where BancShares has sold credit protection have maturities ranging between 2023 and 2036 and may require
BancShares to make payment to the counterparty if the customer fails to make payment on any amounts due to the counterparty
upon early termination of the swap transaction.
BancShares uses foreign currency forward contracts, interest rate swaps, and options to hedge interest rate and foreign currency
risks arising from its asset and liability mix. These are treated as economic hedges.
All derivative instruments are recorded at their respective fair value. BancShares reports all derivatives on a gross basis in the
Consolidated Balance Sheets and does not offset derivative assets and liabilities and cash collateral under master netting
agreements except for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet. These swap contracts are
accounted as “settled-to-market” and cash variation margin paid or received is characterized as settlement of the derivative
exposure. Variation margin balances are offset against the corresponding derivative asset and liability balances on the balance
sheet. Nonqualifying hedges are presented in the Consolidated Balance Sheets in other assets or other liabilities, with their
resulting gains or losses recognized in other noninterest income. For non-qualifying derivatives with periodic interest
settlements, BancShares reports such settlements with other changes in fair value in other noninterest income.
Fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the
determination of fair value may require significant management judgment or estimation. Valuations of derivative assets and
liabilities reflect the value of the instrument including BancShares’ and the counterparty’s credit risk.
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BancShares is exposed to credit risk to the extent that the counterparty fails to perform under the terms of a derivative
agreement. Losses related to credit risk are reflected in other noninterest income. BancShares manages this credit risk by
requiring that all derivative transactions entered into as hedges be conducted with counterparties rated investment grade at the
initial transaction by nationally recognized rating agencies, and by setting limits on the exposure with any individual
counterparty. In addition, pursuant to the terms of the Credit Support Annexes between BancShares and its counterparties,
BancShares may be required to post collateral or may be entitled to receive collateral in the form of cash or highly liquid
securities depending on the valuation of the derivative instruments as measured on a daily basis. See Note 14 — Derivative
Financial Instruments for additional information.
Mortgage Servicing Rights
Mortgage servicing rights (“MSRs”) represent the right to provide servicing under various loan servicing contracts when
servicing is retained in connection with a loan sale or acquired in a business combination. MSRs are initially 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
reporting period, MSRs are evaluated for impairment based upon the fair value of the rights as compared to the carrying value.
See Note 9 — Mortgage Servicing Rights for additional information.
Fair Values
Fair Value Hierarchy
BancShares measures the fair value of its financial assets and liabilities in accordance with ASC 820 Fair Value Measurement,
which defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value
measurements. BancShares categorizes its financial instruments based on the significance of inputs to the valuation techniques
according to the following three-tier fair value hierarchy:
• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the
measurement date. Level 1 assets and liabilities include equity securities that are traded in an active exchange market.
• Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include certain commercial
loans, debt and equity securities with quoted prices that are traded less frequently than exchange-traded instruments,
borrowings, time deposits, securities sold under customer repurchase agreements and derivative contracts whose
values are determined using a pricing model with inputs that are observable in the market or can be derived principally
from or corroborated by observable market data.
• Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of
the assets or liabilities. Level 3 assets and liabilities include financial instruments such as collateral dependent
commercial and consumer loans, as well as loans held for sale, certain available for sale corporate securities and
derivative contracts whose values are determined using valuation models, discounted cash flow methodologies or
similar techniques, as well as instruments for which the determination of fair value requires significant management
judgment or estimation. See Note 16 — Fair Value for additional information.
Per Share Data
Earnings per common share is computed by dividing net income available to common stockholders by the weighted average
number of Class A Common Stock and Class B Common Stock outstanding during each period. Diluted earnings per common
share is computed by dividing net income available to common stockholders by the weighted-average number of common
shares outstanding increased by the weighted-average potential impact of dilutive shares. BancShares’ potential dilutive
instruments include unvested RSUs assumed in the CIT Merger. The dilutive effect is computed using the treasury stock
method, which assumes the conversion of these instruments. However, in periods when there is a net loss, these shares would
not be included in the diluted earnings per common share computation as the result would have an anti-dilutive effect.
BancShares had no potential dilutive common shares outstanding prior to the CIT Merger and did not report diluted earnings
per common share for prior periods. See Note 20 — Earnings Per Common Share for additional information.
Income Taxes
Income taxes are accounted for using the asset and liability approach as prescribed in ASC 740, Income Taxes. Under this
method, a deferred tax asset or liability is determined based on the currently enacted tax rates applicable to the period in which
the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to
be reported in BancShares’ income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in
the period which includes the enactment date.
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BancShares has unrecognized tax benefits related to the uncertain portion of tax positions BancShares has taken or expects to
take. The potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities is
continually monitored and evaluated. Income tax positions based on current tax law, positions taken by various tax auditors
within the jurisdictions where income tax returns are filed, as well as potential or pending audits or assessments by such tax
auditors are evaluated on a periodic basis. BancShares files a consolidated federal income tax return and various combined and
separate company state tax returns.
As a result of the Inflation Reduction Act of 2022, effective for tax years beginning after December 31, 2022, BancShares may
be subject to a Corporate Alternative Minimum Tax (“CAMT”). BancShares will treat any CAMT that may be applicable to tax
years beginning after December 31, 2022 as a period cost. Refer to Note 21 — Income Taxes, for additional disclosures.
Bank-Owned Life Insurance (“BOLI”)
Banks can purchase life insurance policies on the lives of certain officers and employees and are the owner and beneficiary of
the policies. These policies, known as BOLI, offset the cost of providing employee benefits. BancShares records BOLI at each
policy’s respective cash surrender value (“CSV”), with changes in the CSV recorded as noninterest income in the Consolidated
Statements of Income.
Stock-Based Compensation
BancShares did not have stock-based compensation awards prior to completion of the CIT Merger. Certain CIT employees
received grants of restricted stock unit awards (“CIT RSUs”) or performance stock unit awards (“CIT PSUs”). Upon
completion of the CIT Merger and pursuant to the terms of the Merger Agreement, (i) the CIT RSUs and CIT PSUs converted
into “BancShares RSUs” based on the 0.062 exchange ratio (the “Exchange Ratio”) and (ii) the BancShares RSUs became
subject to the same terms and conditions (including vesting terms, payment timing and rights to receive dividend equivalents)
applicable to the CIT RSUs and CIT PSUs, except that vesting for the converted CIT PSUs was no longer subject to any
performance goals or metrics. Upon completion of the CIT Merger, the fair value of the BancShares RSUs was determined
based on the closing share price of the Parent Company’s Class A Common Stock (the “Class A Common Stock”) on January
3, 2022. The fair value of the BancShares RSUs is (i) included in the purchase price consideration for the portion related to
employee services provided prior to completion of the CIT Merger and (ii) recognized in expenses for the portion related to
employee services to be provided after completion of the CIT Merger. For “graded vesting” awards, each vesting tranche of the
award is amortized separately as if each were a separate award. For “cliff vesting” awards, compensation expense is recognized
over the requisite service period. BancShares recognizes the effect of forfeitures in compensation expense when they occur. In
the event of involuntary termination of employees after the Merger Date (as defined below), vesting occurs on the employee
termination date for BancShares RSUs subject to change in control provisions. Expenses related to stock-based compensation
are included in merger-related expenses in the Consolidated Statements of Income. Stock-based compensation is discussed
further in Note 22 — Employee Benefit Plans.
Members of the CIT Board of Directors had RSU awards, stock settled annual awards, and deferred stock-settled annual awards
(collectively, the “CIT Director Equity Awards”), which vested immediately upon the completion of the CIT Merger. The fair
value of the CIT Director Equity Awards was determined based on the Exchange Ratio and the closing share price of the Class
A Common Stock on January 3, 2022, and was included in the purchase price consideration disclosed in Note 2 — Business
Combinations.
Defined Benefit Pension Plans and Other Postretirement Benefits
BancShares has both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain
employees. The calculation of the obligations and related expenses under the plans require the use of actuarial valuation
methods and assumptions. Actuarial assumptions used in the determination of future values of plan assets and liabilities are
subject to management judgment and may differ significantly if different assumptions are used. All assumptions are reviewed
annually for appropriateness. The discount rate assumption used to measure the plan 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
discounted based on this yield curve, and a single discount rate is calculated to achieve the same present value. The assumed
rate of future compensation increases is based on actual experience and future salary expectations. BancShares also estimates a
long-term rate of return on pension plan assets used to estimate the future value of plan assets. In developing the long-term rate
of return, BancShares considers such factors as the actual return earned on plan assets, historical returns on the various asset
classes in the plans and projections of future returns on various asset classes. In conjunction with the CIT Merger, BancShares
assumed the funded and unfunded noncontributory defined benefit pension and postretirement plans of CIT. The postretirement
plans acquired were terminated during the year. See Note 22 — Employee Benefit Plans for disclosures related to the plans.
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Revenue Recognition
Interest income on HFI loans is recognized using the effective interest method or on a basis approximating a level rate of return
over the life of the asset. Interest income includes components of accretion of the fair value discount on loans and lease
receivables recorded in connection with purchase accounting adjustments (“PAA”), which are accreted using the effective
interest method as a yield adjustment over the remaining contractual term of the loan and recorded in interest income. If the
loan is subsequently classified as held for sale, accretion (amortization) of the discount (premium) will cease. Interest income
on loans HFI and held for sale is included in interest and fees on loans in the Consolidated Statements of Income. Interest on
investment securities and interest on interest-earning deposits at banks is recognized in interest income on an accrual basis.
Amortization of premiums and accretion of discounts for investment securities are included in interest on investment securities.
Dividends received from marketable equity securities are recognized within interest on investment securities.
BancShares generally acts in a principal capacity, on its own behalf, in its contracts with customers. In these transactions,
BancShares recognizes revenues and the related costs to generate those revenues on a gross basis. In certain, circumstances,
BancShares acts in an agent capacity, on behalf of the customers with other entities, and recognizes revenues and the related
costs to provide BancShares' services on a net basis. BancShares acts as an agent when providing certain cardholder and
merchant, insurance, and brokerage services.
Descriptions of BancShares' noninterest revenue-generating activities are broadly segregated as follows:
Rental income on operating leases — Rental income is recognized on a straight-line basis over the lease term for lease contract
fixed payments and is included in noninterest income. Rental income also includes variable lease income which is recognized as
earned. The accrual of rental income on operating leases is suspended when the collection of substantially all rental payments is
no longer probable and rental income for such leases is recognized when cash payments are received. In the period we conclude
that collection of rental payments is no longer probable, accrued but uncollected rental revenue is reversed against rental
income.
Cardholder and Merchant Services — These represent interchange fees from customer debit and credit card transactions earned
when a cardholder engages in a transaction with a merchant as well as fees charged to merchants for providing them the ability
to accept and process the debit and credit card transaction. Revenue is recognized when the performance obligation has been
satisfied, which is upon completion of the card transaction. Additionally, as BancShares is acting as an agent for the customer
and transaction processor, costs associated with cardholder and merchant services transactions are netted against the fee
income.
Service charges on deposit accounts — These deposit account-related fees represent monthly account maintenance and
transaction-based service fees, such as overdraft fees, stop payment fees 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'
performance obligation has been satisfied. All other revenues from transaction-based services are recognized at a point in time
when the performance obligation has been completed.
Wealth management services — These primarily represent sales commissions on various product offerings, transaction fees and
trust and asset management fees. The performance obligation for wealth management services is the provision of services to
place annuity products issued by the counterparty to investors and the provision of services to manage the client’s assets,
including brokerage custodial and other 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.
Fees and other service charges — These include, but are not limited to, check cashing fees, international banking fees, internet
banking fees, wire transfer fees, safe deposit fees, as well as capital market-related fees and fees on lines and letters of credit.
The performance obligation is fulfilled and revenue is recognized at the point in time the requested service is provided to the
customer.
Insurance commissions — These represent commissions earned on the issuance of insurance products and services. The
performance 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 holder depending on whether the billing is performed by
BancShares or the carrier.
ATM income - These represent fees imposed on customers and non-customers for engaging in an ATM transaction. Revenue is
recognized at the time of the transaction as the performance obligation of rendering the ATM service has been met.
Factoring commissions — These are earned in the Commercial Banking segment and are driven by factoring volumes,
principally in the retail sectors. Factoring commissions are charged as a percentage of the invoice amount of the receivables
assigned to BancShares. The volume of factoring activity and the commission rates charged impact factoring commission
income earned. Factoring commissions are deferred and recognized as income over time based on the underlying terms of the
assigned receivables. See Commercial Loans and Leases section for additional commentary on factoring.
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Gains on leasing equipment — These are recognized upon completion of sale (sale closing) and transfer of title. The gain is
determined based on sales price less book carrying value (net of accumulated depreciation).
BOLI income — This reflects income earned on changes in the CSV of the BOLI policies.
Other — This consists of several forms of recurring revenue, such as FHLB dividends. For the remaining transactions, revenue is
recognized when, or as, the performance obligation is satisfied.
Newly Adopted Accounting Standards
The following pronouncements or ASUs were issued by the FASB and adopted by BancShares as of January 1, 2022.
ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity -
Issued August 2020
The amendments in this ASU reduce the number of models used to account for convertible instruments, amend diluted earnings
per share calculations for convertible instruments, amend the requirements for a contract (or embedded derivative) that is
potentially settled in an entity’s own shares to be classified in equity, and expand disclosure requirements for convertible
instruments. The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and
disclosures as BancShares does not have any convertible instruments within the scope of this ASU.
ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call
Options - Issued May 2021
The amendments in this ASU clarify an issuer's accounting for certain modifications or exchanges of freestanding equity-
classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU
requires that such modifications or exchanges be treated as an exchange of the original instrument for a new instrument. An
issuer should measure the effect of such modifications or exchanges based on analysis of the difference between the fair value
of the modified instrument and the fair value of that instrument immediately before modification or exchange. Recognition of a
modification or an exchange of a freestanding equity-classified written call option is then based upon the substance of the
transaction. The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and
disclosures as BancShares currently does not have any freestanding equity-classified written call options within the scope of
this ASU.
ASU 2021-05, Leases, (Topic 842), Lessors - Certain Leases with Variable Lease Payments - Issued July 2021
The amendments in this ASU improve lessor accounting for certain leases with variable lease payments so that lessors are no
longer required to recognize a day-one selling loss upon lease commencement when specified criteria are met. Specifically, this
ASU requires a lessor to classify a lease with variable payments that do not depend on a reference index or a rate as an
operating lease if classifying the lease as a sales-type lease or a direct financing lease would result in the recognition of a day-
one selling loss at lease commencement. A day-one selling loss is not recognized under operating lease accounting. The
adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as
BancShares has not originated finance leases which required a day-one selling loss at lease commencement.
Recently Issued Accounting Standards
ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures- Issued
March 2022
For creditors that have adopted CECL, the amendments in this ASU: (i) eliminate the previous recognition and measurement
guidance for TDRs, (ii) require new disclosures for loan modifications when a borrower is experiencing financial difficulty (the
“Modification Disclosures”) and (iii) require disclosures of current period gross charge-offs by year of origination in the
vintage disclosures (the “Gross Charge-off Vintage Disclosures”).
The Modification Disclosures apply to the following modification types: principal forgiveness, interest rate reductions, other-
than-insignificant payment delays, term extensions, or a combination thereof. Creditors will be required to disclose the
following by loan class: (i) amounts and relative percentages of each modification type, (ii) the financial effect of each
modification type, including the amount of principal forgiveness and reduction in weighted average interest rate, (iii) the
performance of the loan in the 12 months following the modification and (iv) qualitative information discussing how the
modifications factored into the determination of the ACL.
BancShares adopted ASU 2022-02 as of January 1, 2023 and elected to apply the modified retrospective transition method for
ACL recognition and measurement. As a result of adopting this ASU, BancShares does not expect a material change to its ACL
related to loans previously modified as a TDR and, therefore, does not expect a material cumulative effect adjustment to
retained earnings as of January 1, 2023. The Modification Disclosures and Gross Charge-off Vintage Disclosures are required
to be applied prospectively, beginning in BancShares’ Quarterly Report on Form 10-Q as of and for the three months ending
March 31, 2023.
112
NOTE 2 — BUSINESS COMBINATIONS
CIT Group Inc.
BancShares completed the CIT Merger on January 3, 2022 (the “Merger Date”). Pursuant to the Merger Agreement, each share
of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of
CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares of Class A Common
Stock, par value $1.00 per share, plus cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued
approximately 6.1 million shares of Class A Common Stock in connection with the consummation of the CIT Merger. The
closing share price of Class A Common Stock on the Nasdaq Global Select Market was $859.76 on January 3, 2022. The
purchase price consideration related to the issuance of Class A Common Stock was $5.3 billion. There were approximately
8,800 fractional shares for which the Parent Company paid cash of $7 million.
Pursuant to the terms of the Merger Agreement, each issued and outstanding share of fixed-to-floating rate non-cumulative
perpetual preferred stock, series A, par value $0.01 per share, of CIT (“CIT Series A Preferred Stock”) and each issued and
outstanding share of 5.625% non-cumulative perpetual preferred stock, series B, par value $0.01 per share, of CIT (“CIT Series
B Preferred Stock” and together with CIT Series A Preferred Stock, “CIT Preferred Stock”), converted into the right to receive
one share of a newly created series of preferred stock, series B, of the Parent Company (“BancShares Series B Preferred
Stock”) and one share of a newly created series of preferred stock, series C, of the Parent Company (“BancShares Series C
Preferred Stock” and together with the BancShares Series B Preferred Stock, the “New BancShares Preferred Stock”),
respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole,
that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and
limitations and restrictions, taken as a whole, of the CIT Series A Preferred Stock and the CIT Series B Preferred Stock,
respectively. The non-callable period for the New BancShares Preferred Stock is January 4, 2027, which is five years from the
original issuance date of the New BancShares Preferred Stock. There are 325,000 shares of BancShares Series B Preferred
Stock with a liquidation preference of $1,000 per share, resulting in a total liquidation preference of $325 million. There are 8
million shares of BancShares Series C Preferred Stock with a liquidation preference of $25 per share, resulting in a total
liquidation preference of $200 million. The New BancShares Preferred Stock qualifies as Tier 1 capital. The purchase price
consideration related to the fair value of the New BancShares Preferred Stock was $541 million.
CIT RSUs and PSUs converted to BancShares RSUs, and CIT Director Equity Awards immediately vested upon completion of
the CIT Merger, as further described in the “Stock-Based Compensation” discussion in Note 1 — Significant Accounting
Policies and Basis of Presentation. The aggregate purchase price consideration related to these compensation awards was $81
million.
The CIT Merger has been accounted for as a business combination under the acquisition method of accounting. Accordingly,
the assets acquired and liabilities assumed were recorded at their estimated fair values based on the acquisition date. The
determination of estimated fair values required management to make certain estimates about discount rates, future expected
cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature. Purchase
accounting could change until management finalized its analysis of the acquired assets and assumed liabilities, up to one year
from the Merger Date. As of December 31, 2022, fair value measurements were finalized.
113
The following table provides a purchase price allocation to the identifiable assets acquired and liabilities assumed at their
estimated fair values as of the Merger Date:
Purchase Price Consideration and Net Assets AcQuired
dollars in millions, except shares issued and price per share
Common share consideration
Shares of Class A Common Stock issued
Price per share on January 3, 2022
Common stock consideration
Preferred stock consideration
Stock-based compensation consideration
Cash in lieu of fractional shares and other consideration paid
Purchase price consideration
Assets
Cash and interest-earning deposits at banks
Investment securities
Assets held for sale
Loans and leases
Operating lease equipment
Bank-owned life insurance
Intangible assets
Other assets
Total assets acQuired
Liabilities
Deposits
Borrowings
Credit balances of factoring clients
Other liabilities
Total liabilities assumed
Fair value of net assets acquired
Gain on acQuisition
Purchase Price
Allocation
$
$
$
$
$
$
$
$
6,140,010
859.76
5,279
541
81
51
5,952
3,060
6,561
59
32,714
7,838
1,202
143
2,198
53,775
39,428
4,536
1,534
1,894
47,392
6,383
431
BancShares recorded a gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of
net assets acquired over the purchase price. The gain on acquisition is not taxable.
The following is a description of the methods used to determine the estimated fair values of significant assets acquired and
liabilities assumed as presented above.
cash and interest-earning deposits at banks
For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying
amounts approximate fair value.
Investment securities
Fair values for investment securities were based on quoted market prices, where available. If quoted market prices were not
available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted
market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable
inputs, fair value was estimated based on pricing models and/or discounted cash flows methodologies.
Assets held for sale and loans and leases
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and
related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, amortization status and current
discount rate. Selected larger, impaired loans were specifically reviewed to evaluate credit risk. Loans with similar risk
characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based
on an evaluation of current market rates for new originations of comparable loans and required rates of return for market
participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.
114
BancShares’ accounting methods for acquired loans and leases are discussed in Note 1 — Significant Accounting Policies and
Basis of Presentation. The following table presents the UPB and fair value of the loans and leases acquired by BancShares in
the CIT Merger. The UPB for PCD loans and leases includes the PCD Gross-Up of $272 million as discussed further in Note 4
— Loans and Leases.
Loans Acquired
dollars in millions
Non-PCD loans and leases
PCD loans and leases
Total loans and leases
Loans and Leases
UPB
Fair Value
29,542 $
3,550
33,092 $
29,481
3,233
32,714
$
$
Operating Lease Equipment
Operating lease equipment were comprised of two sub-groups: rail and non-rail equipment. Fair values for both were based on
the cost approach where market values were not available. The sales approach was used to value rail assets where market
information was available, or when replacement cost less depreciation was lower than the current market value. An intangible
liability was recorded for net below market lease contracts rental rates, for which fair value was estimated using the income
approach and market lease rates and other key inputs.
A discount was recorded for operating lease equipment, which includes railcars, locomotives and other equipment, to reduce it
to fair value. This adjustment will reduce depreciation expense over the remaining useful lives of the equipment on a straight-
line basis. The intangible liability (see Note 8 — Goodwill and Other Intangibles) will be amortized, thereby increasing rental
income (a component of noninterest income) over the remaining term of the lease agreements on a straight-line basis.
Bank Owned Life Insurance
The fair values of BOLI policies were determined by the policy administrator and calculated based on the net present value of
investment cash flows. Expected premium payments, death benefits and expected mortality were considered in the net present
value calculation. Based upon the administrator’s analysis and management’s review of the analysis, fair value was determined
to equate to book value as of the merger date.
Intangible assets
The following table presents the intangible asset recorded in conjunction with the CIT Merger related to the valuation of core
deposits:
Intangible Assets
dollars in millions
Core deposit intangibles
Fair Value
$
143
Estimated Useful
Life
10 years
Amortization
Method
Straight-line
Certain core deposits were acquired as part of the CIT Merger, which provide an additional source of funds for BancShares.
The core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the
funds elsewhere. This intangible was valued using the income approach, after-tax cost savings method. This method estimates
the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their
estimated average remaining life. The favorable funding spread is calculated as the difference in the alternative cost of funds
and the net deposit cost. Refer to Note 8 — Goodwill and Other Intangibles for further discussion.
115
Other assets
The following table details other assets acquired:
Other Assets
dollars in millions
Low-income housing tax credits and other investments
Right of use assets
Premises and equipment
Fair value of derivative financial instruments
Counterparty receivables
Other
Total other assets
Fair Value
777
327
230
209
133
522
2,198
$
$
The fair values of the tax credit investments considered the ongoing equity installments that are regularly allocated to each of
the underlying tax credit funds comprising the low-income housing tax credits investments, along with changes to projected tax
benefits and the impact this has on future capital contributions, and an appropriately determined discount rate. The fair value of
the investments in unconsolidated entities was valued using the income approach.
The right of use asset associated with real estate operating leases were measured at the same amount as the lease liability as
adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms. The lease liability was
measured at the present value of the remaining lease payments, as if the acquired lease were a new lease of the acquirer at the
acquisition date and using BancShares incremental borrowing rate. The lease term was determined for individual leases based
on management’s assessment of the probability of exercising the existing renewal, termination and/or purchase option.
Fair values for property, including leasehold improvements, furniture and fixtures, computer software and other digital
equipment were determined using the cost approach. Certain tangible assets that are expected to be sold in the short term were
reported at net book. Real estate property, such as land and buildings, was valued using the sales comparison approach, where
sales of comparable properties are adjusted for differences to estimate the value of each subject property.
The fair values of the derivative financial instruments, as well as counterparty receivables, were valued using prices of financial
instruments with similar characteristics and observable inputs.
Deposits
The fair values for time deposits were estimated using a discounted cash flow analysis whereby the contractual remaining cash
flows were discounted using market rates currently being offered for time deposits of similar maturities. For transactional
deposits, carrying amounts approximate fair value.
Borrowings
In connection with the CIT Merger, BancShares assumed the outstanding borrowings of CIT. The fair values of borrowings
were estimated based on readily observable prices using reliable market sources.
Credit balances of Factoring Clients
Credit balance amounts represent short-term payables that are tied to the factoring receivables. Due to the short-term nature of
these payables and given that amounts are settled at book value, it was determined that the carrying value is equivalent to fair
value.
Other Liabilities
Other liabilities include items such as accounts payable and accrued liabilities, lease liabilities, current and deferred taxes,
commitments to fund tax credit investments and other miscellaneous liabilities. The fair value of lease liabilities was measured
using the present value of remaining lease payments, using BancShares’ discount rate at the merger date. The fair value of the
remaining liabilities was determined to approximate book value. For all accrued liabilities and accounts payable, it was
determined that the carrying value equals book value.
116
Unaudited Pro Forma Information
The amount of interest income, noninterest income and net income of $1.75 billion, $1.24 billion and $587 million,
respectively, attributable to the acquisition of CIT were included in BancShares’ Consolidated Statement of Income for the year
ended December 31, 2022. CIT’s interest income, noninterest income and net income noted above reflect management’s best
estimates, based on information available at the reporting date.
The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the year ended
December 31, 2022 and 2021 as if CIT had been acquired on January 1, 2021. The unaudited estimated pro forma information
combines the historical results of CIT and BancShares and includes certain pro forma adjustments. The key pro forma
adjustments relate to the following items that were recognized in BancShares Consolidated Statement of Income for the year
ended December 31, 2022, but were reflected in 2021 for the pro forma financial information: (i) provision for credit losses of
$513 million related to the Non-PCD loans and leases and unfunded commitments; (ii) merger-related expenses of
$231 million; (iii) estimated PAA accretion and amortization related to fair value adjustments and intangibles associated with
the CIT Merger; and (iv) $431 million gain on acquisition. BancShares expects to achieve operating cost savings and other
business synergies as a result of the acquisition that are not reflected in the pro forma amounts that follow. The pro forma
information should not be relied upon as being indicative of the historical results of operations that would have occurred had the
acquisition taken place on January 1, 2021. Actual results may differ from the unaudited pro forma information presented below
and the differences could be significant.
Selected Unaudited Pro Forma Financial Information for Consolidated BancShares
dollars in millions
Interest income
Noninterest income
Net income
$
Year Ended December 31,
2021
2022
3,413 $
1,705
1,225
2,867
2,537
1,497
117
NOTE 3 — INVESTMENT SECURITIES
The following tables as of December 31, 2022 include the investment security balances acquired in the CIT Merger, which were
recorded at fair value on the acquisition date. The amortized cost and fair value of investment securities at December 31, 2022
and 2021, were as follows:
Amortized Cost and Fair Value - Debt Securities
dollars in millions
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total investment securities available for sale
Investment in marketable equity securities
Investment securities held to maturity
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Supranational securities
Other
Total investment securities held to maturity
Total investment securities
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed 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-backed securities
Commercial mortgage-backed securities
Other
Total investment securities held to maturity
Total investment securities
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized Cost
$
$
$
$
$
$
2,035 $
164
5,424
1,774
570
9,967 $
75 $
474 $
1,548
4,605
3,355
295
2
10,279 $
20,321 $
— $
—
1
—
—
1 $
21 $
— $
—
—
—
—
—
— $
22 $
(137) $
(2)
(630)
(170)
(34)
(973) $
(1) $
(50) $
(186)
(723)
(484)
(41)
—
(1,484) $
(2,458) $
1,898
162
4,795
1,604
536
8,995
95
424
1,362
3,882
2,871
254
2
8,795
17,885
December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized Cost
$
$
$
$
$
$
2,007 $
221
4,757
1,648
582
9,215 $
73 $
2,322 $
1,485
2
3,809 $
13,097 $
— $
1
8
9
27
45 $
25 $
6 $
—
—
6 $
76 $
(2) $
(1)
(36)
(17)
(1)
(57) $
— $
(22) $
(34)
—
(56) $
(113) $
2,005
221
4,729
1,640
608
9,203
98
2,306
1,451
2
3,759
13,060
Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. U.S. Treasury investments represents
T-bills and Notes issued by the U.S. Treasury. Investments in government agency securities represent securities issued by the
Small Business Association, FHLB and other agencies. Investments in supranational securities represent securities issued by the
Supranational Entities and Multilateral Development Banks. Investments in corporate bonds represent positions in debt
securities of other financial institutions. Investments in marketable equity securities represent positions in common stock of
publicly traded financial institutions. Other held to maturity investments include certificates of deposit with other financial
institutions.
118
BancShares also holds approximately 354,000 shares of Class B common stock of Visa. Until the resolution of certain
litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these
shares are only transferable to other stockholders of Visa Class B common stock. As a result, there is limited transfer activity in
private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the
likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A
common stock, these shares are not considered to have a readily determinable fair value and have no carrying value.
BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain
litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock.
Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for
credit losses. At December 31, 2022, accrued interest receivables for available for sale and held to maturity debt securities were
$33 million and $19 million, respectively. At December 31, 2021, accrued interest receivables for available for sale and held to
maturity debt securities were $22 million and $7 million, respectively. During the year ended December 31, 2022 and 2021,
there was no accrued interest that was deemed uncollectible and written off against interest income.
The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from
contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with
or without prepayment penalties. Residential and commercial mortgage-backed and government agency securities are stated
separately as they are not due at a single maturity date.
Maturities - Debt Securities
dollars in millions
inVestment securities aVailable for sale
Non-amortizing securities maturing in:
One year or less
After one through five years
After five through 10 years
After 10 years
Government agency
Residential mortgage-backed 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
After one through five years
After five through 10 years
Residential mortgage-backed securities
Commercial mortgage-backed securities
Total inVestment securities held to maturity
December 31, 2022
December 31, 2021
Cost
Fair Value
Cost
Fair Value
$
$
$
$
37 $
2,068
483
17
164
5,424
1,774
9,967 $
51 $
1,479
789
4,605
3,355
10,279 $
37 $
1,928
455
14
162
4,795
1,604
8,995 $
51 $
1,328
663
3,882
2,871
8,795 $
— $
2,049
523
17
221
4,757
1,648
9,215 $
2 $
—
—
2,322
1,485
3,809 $
—
2,048
548
17
221
4,729
1,640
9,203
2
—
—
2,306
1,451
3,759
119
The following table presents interest and dividend income on investment securities.
Interest and Dividends on Investment Securities
dollars in millions
Interest income - taxable investment securities
Dividend income - marketable equity securities
Interest on investment securities
2022
Year ended December 31
2021
2020
$
$
352 $
2
354 $
143 $
2
145 $
The following table provides the gross realized gains and losses on the sales of investment securities available for sale:
Realized Gains on Debt Securities Available For Sale
dollars in millions
2022
Year ended December 31
2021
2020
Gross realized gains on sales of investment securities available for sale
Gross realized losses on sales of investment securities available for sale
Net realized gains on sales of investment securities available for sale
$
$
— $
—
— $
33 $
—
33 $
The following table provides the fair value adjustment on marketable equity securities:
140
4
144
61
(1)
60
Fair Value Adjustment on Marketable Equity Securities
dollars in millions
2022
Year ended December 31
2021
2020
Fair value adjustment on marketable equity securities, net
$
(3) $
34
$
29
The following table provides information regarding investment securities available for sale with unrealized losses for which an
ACL has not been recorded:
Gross Unrealized Losses on Debt Securities Available For Sale
dollars in millions
Less than 12 months
Fair
Value
Unrealized
Losses
December 31, 2022
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total
$
$
$
$
403 $
65
1,698
836
499
3,501 $
(27) $
(1)
(165)
(53)
(30)
(276) $
1,495 $
62
3,001
752
37
5,347 $
(110) $
(1)
(465)
(117)
(4)
(697) $
1,898 $
127
4,699
1,588
536
8,848 $
(137)
(2)
(630)
(170)
(34)
(973)
Less than 12 months
Fair
Value
Unrealized
Losses
December 31, 2021
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
1,811 $
17
3,992
852
52
6,724 $
(2) $
—
(36)
(15)
(1)
(54) $
— $
79
1
111
—
191 $
— $
(1)
—
(2)
—
(3) $
1,811 $
96
3,993
963
52
6,915 $
(2)
(1)
(36)
(17)
(1)
(57)
120
As of December 31, 2022, there were 151 investment securities available for sale with continuous unrealized losses for more
than 12 months, of which 144 were government sponsored enterprise-issued mortgage-backed securities or government agency
securities and the remaining seven related to corporate bonds. None of the unrealized losses identified as of December 31, 2022
or December 31, 2021, relate to the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to
changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related
impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic
factors in this determination. As a result, none of the available for sale securities were deemed to require an ACL. BancShares
has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.
BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies
and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government
sponsored entities, securities issued by the Supranational Entities and Multilateral Development Banks and Federal Deposit
Insurance Corporation (“FDIC”) guaranteed CDs with other financial institutions. Given the consistently strong credit rating of
the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on
debt securities issued by government agencies and government sponsored entities, as of December 31, 2022 and 2021, no ACL
was required for held to maturity debt securities.
Investment securities having an aggregate carrying value of $4.2 billion at December 31, 2022, and $5.7 billion at
December 31, 2021, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for
other purposes as required by law.
A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no
securities past due as of December 31, 2022 and 2021.
There were no debt securities held to maturity on non-accrual status as of December 31, 2022 and 2021.
Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $197 million and $40
million at December 31, 2022 and 2021, respectively; these securities are recorded at cost. BancShares held $58 million and $1
million of nonmarketable securities without readily determinable fair values, which are measured at cost at December 31, 2022
and December 31, 2021, respectively. Investments in qualified affordable housing projects, all of which qualify for the
proportional amortization method, were $598 million and $157 million at December 31, 2022 and 2021, respectively.
121
NOTE 4 — LOANS AND LEASES
The following tables as of December 31, 2022 include loan and lease balances acquired in the CIT Merger, which were
recorded at fair value on the Merger Date. Refer to Note 2 — Business Combinations for further information and to Note 1 —
Significant Accounting Policies and Basis of Presentation for our accounting policies related to loans.
Unless otherwise noted, loans held for sale are not included in the following tables. Leases in the following tables include
finance leases, but exclude operating lease equipment.
Loans by Class
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
December 31, 2022 December 31, 2021
$
$
2,804 $
14,473
9,902
24,105
2,171
53,455
13,309
1,951
1,414
652
17,326
70,781 $
1,238
12,099
3,041
5,937
271
22,586
6,088
1,818
1,332
548
9,786
32,372
At December 31, 2022 and 2021, accrued interest receivable on loans included in other assets was $203 million and $87
million, respectively, and was excluded from the estimate of credit losses.
The following table presents selected components of the amortized cost of loans.
Components of Amortized Cost
dollars in millions
Deferred fees, including unearned fees and unamortized costs on Non-PCD loans
Net unamortized discount on purchased loans
Non-PCD
PCD
Total net unamortized discount
December 31, 2022 December 31, 2021
32
85 $
$
$
$
73 $
45
118 $
11
29
40
122
The aging of the outstanding loans and leases, by class, at December 31, 2022 and 2021 is provided in the tables below. Loans
and leases less than 30 days past due are considered current, as various grace periods allow borrowers to make payments within
a stated period after the due date and remain in compliance with the respective agreement.
Loans and Leases - Delinquency Status
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
30-59 Days
Past Due
60-89 Days
Past Due
December 31, 2022
Total
Past Due
90 Days or
Greater
Current
Total
$
$
50 $
29
76
173
59
387
73
9
7
4
93
480 $
— $
5
144
26
17
192
16
3
1
2
22
214 $
1 $
25
11
53
16
106
52
8
1
3
64
170 $
51 $
59
231
252
92
685
141
20
9
9
179
864 $
2,753 $
14,414
9,671
23,853
2,079
52,770
13,168
1,931
1,405
643
17,147
69,917 $
2,804
14,473
9,902
24,105
2,171
53,455
13,309
1,951
1,414
652
17,326
70,781
30-59 Days
Past Due
60-89 Days
Past Due
December 31, 2021
Total
Past Due
90 Days or
Greater
Current
Total
$
$
1 $
21
3
8
—
33
24
6
6
2
38
71 $
— $
1
—
3
1
5
6
2
1
2
11
16 $
2 $
9
2
5
1
19
23
6
1
1
31
50 $
3 $
31
5
16
2
57
53
14
8
5
80
137 $
1,235 $
12,068
3,036
5,921
269
22,529
6,035
1,804
1,324
543
9,706
32,235 $
1,238
12,099
3,041
5,937
271
22,586
6,088
1,818
1,332
548
9,786
32,372
123
The amortized cost, by class, of loans and leases on non-accrual status, and loans and leases greater than 90 days past due and
still accruing at December 31, 2022 and 2021 are presented below.
Loans on Non-Accrual Status (1) (2)
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
December 31, 2022
December 31, 2021
Non-Accrual
Loans
Loans >
90 Days and
Accruing
Non-Accrual
Loans
Loans >
90 Days and
Accruing
$
48 $
41
228
184
28
529
— $
2
—
41
7
50
4 $
18
5
15
3
45
—
5
—
1
—
6
—
—
—
1
1
7
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total loans and leases
(1) Accrued interest that was reversed when the loan went to non-accrual status was $4 million for the year ended December 31, 2022.
(2) Non-accrual loans for which there was no related ACL totaled $63 million at December 31, 2022 and $15 million at December 31, 2021.
75
18
4
1
98
627 $
10
—
—
3
13
63 $
54
18
3
1
76
121 $
$
OREO and repossessed assets were $47 million as of December 31, 2022 and $40 million as of December 31, 2021.
Credit quality indicators
Loans and leases are monitored for credit quality on a recurring basis. Commercial loans and leases and consumer loans have
different credit quality indicators as a result of the unique characteristics of the loan classes being evaluated. The credit quality
indicators for commercial loans and leases are developed through a review of individual borrowers on an ongoing basis.
Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. The indicators as of the
date presented are based on the most recent assessment performed and are defined below:
Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse
classification.
Special mention – A special mention asset has potential weaknesses which deserve management’s close attention. If
left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position
at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the
borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness,
or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of
loss if the deficiencies are not corrected.
Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the
added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on
the basis of currently existing facts, conditions and values.
Loss – Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as
an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is
not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Ungraded – Ungraded loans represent loans not included in the individual credit grading process due to their
relatively small balances or borrower type. The majority of ungraded loans at December 31, 2022 and 2021, relate to
business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past
due in the same manner as unsecured consumer lines of credit.
124
The credit quality indicator for consumer loans is based on delinquency status of the borrower as of the date presented. As the
borrower becomes more delinquent, the likelihood of loss increases. An exemption is applied to government guaranteed loans
as the principal repayments are insured by the Federal Housing Administration and U.S. Department of Veterans Affairs and
thus remain on accrual status regardless of delinquency status.
The following table summarizes the commercial loans disaggregated by year of origination and by risk rating. The consumer
loan delinquency status by year of origination is also presented below. The tables reflect the amortized cost of the loans and
include PCD loans.
Commercial Loans - Risk Classifications by Class
December 31, 2022
Risk Classification:
Term Loans by Origination Year
2022
2021
2020
2019
2018
2017 &
Prior
Revolving
Revolving
Converted
to Term
Loans
Total
dollars in millions
Commercial construction
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total commercial construction
Owner occupied commercial
mortgage
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total owner occupied
commercial mortgage
Non-owner occupied commercial
mortgage
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total non-owner occupied
commercial mortgage
Commercial and industrial
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total commercial and industrial
Leases
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total leases
Total commercial
$
1,140 $
4
2
—
—
1,146
759 $
—
—
—
—
759
511 $
18
—
—
—
529
157 $
18
43
3
—
221
27 $
—
—
—
—
27
75 $
—
5
—
—
80
42 $
—
—
—
—
42
— $
—
—
—
—
—
2,711
40
50
3
—
2,804
2,773
33
24
—
—
3,328
14
47
—
—
2,966
32
41
—
—
1,825
33
28
—
—
1,048
18
47
—
—
1,867
49
114
1
—
2,830
3,389
3,039
1,886
1,113
2,031
2,501
—
3
—
—
1,658
1
11
—
—
1,794
69
68
—
—
1,397
38
324
17
—
2,504
1,670
1,931
1,776
7,695
87
106
1
—
7,889
4,145
153
117
4
—
4,419
718
21
32
2
—
773
$ 15,142
466
22
32
3
—
523
$ 10,760
$
2,035
79
194
3
—
2,311
389
17
27
2
—
435
8,245
1,533
63
132
11
—
1,739
216
9
12
1
—
238
5,860 $
$
680
35
58
—
—
773
872
52
166
6
—
1,096
80
4
7
1
—
92
3,101
$
933
10
236
20
—
1,199
845
23
145
16
—
1,029
108
—
1
—
1
110
4,449
$
177
2
6
—
—
185
48
1
—
—
—
49
5,252
40
200
7
93
5,592
—
—
—
—
—
—
5,868
$
—
—
—
—
—
—
—
—
—
—
—
—
29
—
1
—
—
30
—
—
—
—
—
—
30
13,984
181
307
1
—
14,473
9,011
154
700
37
—
9,902
22,406
497
1,061
48
93
24,105
1,977
73
111
9
1
2,171
$ 53,455
125
Consumer Loans - Delinquency Status by Class
Days Past Due:
dollars in millions
Residential mortgage
Current
30-59 days
60-89 days
90 days or greater
Total residential mortgage
Revolving mortgage
Current
30-59 days
60-89 days
90 days or greater
Total revolving mortgage
Consumer auto
Current
30-59 days
60-89 days
90 days or greater
Total consumer auto
Consumer other
Current
30-59 days
60-89 days
90 days or greater
Total consumer other
Total consumer
$
December 31, 2022
Term Loans by Origination Year
2022
2021
2020
2019
2018
2017 &
Prior
Revolving
Revolving
Converted
to Term
Loans
Total
$
3,485 $
3
1
—
3,489
3,721 $
7
1
1
3,730
2,097 $
6
2
1
2,106
805 $
5
—
2
812
413 $
3
1
2
419
2,625 $
49
11
46
2,731
22 $
—
—
—
22
—
—
—
—
—
$ 13,168
73
16
52
13,309
—
—
—
—
—
599
1
—
—
600
—
—
—
—
—
398
2
1
1
402
—
—
—
—
—
216
2
—
—
218
—
—
—
—
—
111
1
—
—
112
—
—
—
—
—
59
1
—
—
60
—
—
—
—
—
22
—
—
—
22
1,839
5
2
5
1,851
—
—
—
—
—
92
4
1
3
100
—
—
—
—
—
1,931
9
3
8
1,951
1,405
7
1
1
1,414
160
—
—
—
160
4,249 $
82
—
—
—
82
4,214 $
13
—
—
—
13
2,337 $
6
—
—
—
6
930 $
2
—
—
—
2
481 $
19
1
1
1
22
2,775 $
361
3
1
2
367
2,240 $
643
—
4
—
2
—
3
—
652
—
100 $ 17,326
126
The following tables represent current credit quality indicators by origination year as of December 31, 2021.
Commercial Loans - Risk Classifications by Class
December 31, 2021
Risk Classification:
Term Loans by Origination Year
2021
2020
2019
2018
2017
2016 &
Prior
Revolving
Revolving
Converted
to Term
Loans
Total
dollars in millions
Commercial construction
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total commercial construction
Owner occupied commercial
mortgage
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total owner occupied
commercial mortgage
Non-owner occupied commercial
mortgage
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total non-owner occupied
commercial mortgage
Commercial and industrial
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total commercial and industrial
Leases
Pass
Special Mention
Substandard
Doubtful
Ungraded
Total leases
Total commercial
$
540 $
—
2
—
—
542
400 $
—
—
—
—
400
189 $
—
1
—
—
190
29 $
—
2
—
—
31
48 $
—
4
—
—
52
11 $
1
1
—
—
13
10 $
—
—
—
—
10
— $
—
—
—
—
—
1,227
1
10
—
—
1,238
3,045
3
31
—
—
3,022
35
16
—
—
1,873
37
18
—
—
1,194
22
12
—
—
3,079
3,073
1,928
1,228
644
1
9
—
—
654
2,107
9
20
—
—
2,136
737
—
11
—
—
748
1,018
7
7
—
—
1,032
578
—
24
—
—
602
599
20
3
—
—
622
263
3
12
—
—
278
257
2
4
—
—
263
963
13
18
—
—
994
266
3
7
1
—
277
149
4
2
—
—
155
1,572
33
56
—
—
1,661
412
10
22
—
—
444
281
5
2
—
—
288
125
5
6
—
—
136
37
—
1
—
—
38
1,342
5
16
—
72
1,435
—
—
—
—
—
—
—
—
—
—
—
—
5
—
1
—
—
6
11,794
148
157
—
—
12,099
2,937
17
86
1
—
3,041
5,758
52
55
—
72
5,937
93
—
2
—
—
95
6,506 $
68
1
1
—
—
70
5,323 $
38
—
—
—
—
38
3,380 $
42
—
1
—
—
43
1,843 $
17
—
—
—
—
17
1,495 $
8
—
—
—
—
8
2,414 $
—
—
—
—
—
—
1,619 $
$
—
266
—
1
—
4
—
—
—
—
271
—
6 $ 22,586
127
Consumer Loans - Delinquency Status by Class
Days Past Due:
dollars in millions
Residential mortgage
Current
30-59 days
60-89 days
90 days or greater
Total residential mortgage
Revolving mortgage
Current
30-59 days
60-89 days
90 days or greater
Total revolving mortgage
Consumer auto
Current
30-59 days
60-89 days
90 days or greater
Total consumer auto
Consumer other
Current
30-59 days
60-89 days
90 days or greater
Total consumer other
Total consumer
December 31, 2021
Term Loans by Origination Year
2021
2020
2019
2018
2017
2016 &
Prior
Revolving
Revolving
Converted
to Term
Loans
Total
$
2,139 $
2
—
1
2,142
1,663 $
3
—
1
1,667
627 $
2
—
1
630
368 $
2
1
2
373
349 $
1
1
1
352
867 $
14
4
17
902
22 $
—
—
—
22
— $
—
—
—
—
—
—
—
—
—
597
1
—
—
598
131
—
1
—
—
—
—
—
343
2
—
—
345
24
—
—
—
—
—
—
—
198
1
—
—
199
11
—
—
—
—
—
—
—
119
1
—
—
120
4
—
—
—
—
—
—
—
48
—
—
—
48
2
—
—
—
132
2,872 $
—
24
2,036 $
$
—
11
840 $
—
4
497 $
—
2
402 $
—
—
—
—
—
19
1
1
1
22
1,678
4
—
2
1,684
—
—
—
—
—
126
2
2
4
134
—
—
—
—
—
29
—
—
—
29
953 $
342
2
1
1
346
2,052 $
—
—
—
—
—
134 $
6,035
24
6
23
6,088
1,804
6
2
6
1,818
1,324
6
1
1
1,332
543
2
2
1
548
9,786
Purchased loans and leases
The following table summarizes PCD loans and leases that BancShares acquired in the CIT Merger.
PCD Loans and Leases - CIT Merger
dollars in millions
UPB
Initial PCD ACL
Fair value discount, net of the PCD Gross-Up
Purchase price
Total PCD from CIT
Merger
$
$
3,550
(272)
(45)
3,233
The recorded fair values of Non-PCD loans acquired in the CIT Merger as of the acquisition date was $29.5 billion, resulting in
a PAA discount of $61 million. BancShares’ accounting methods for acquired loans and leases are discussed in Note 1 —
Significant Accounting Policies and Basis of Presentation. See Note 2 — Business Combinations for further discussion of the
CIT Merger.
128
Troubled Debt Restructuring
As part of BancShares’ ongoing risk-management practices, BancShares attempts to work with borrowers when necessary to
extend or modify loan terms to better align with their current ability to repay. Extensions and modifications are made in
accordance with internal policies and guidelines to conform to regulatory guidance. BancShares accounts for certain loan
modifications or restructurings as TDRs. In general, a modification or restructuring of a loan is considered a TDR if, for
economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors
would not otherwise consider. BancShares may determine that a borrower is experiencing financial difficulty if the borrower is
currently in default on any of its debt, or if is probable that a borrower may default in the foreseeable future. Many aspects of a
borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.
Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. The assessments of
whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted,
are subjective in nature and management’s judgment is required when determining whether a modification is classified as a
TDR. In accordance with regulatory guidance discussed below, certain loan modifications that might ordinarily have qualified
as TDRs were not accounted for as TDRs.
The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected
by the Coronavirus (the “Interagency Statement”) was published by banking regulators in April 2020 to clarify expectations
around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and Interagency Statement offer some practical
expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic were TDRs. Any loan
modification that meets these practical expedients would not automatically be considered a TDR because the borrower is
presumed not to be experiencing financial difficulty at the time of the loan modification. BancShares applied this regulatory
guidance during its TDR identification process through January 1, 2022 for short-term loan forbearance agreements as a result
of COVID-19 and in most cases did not record these as TDRs.
Modified loans that meet the definition of a TDR are subject to BancShares’ individually reviewed loans policy. The following
table presents amortized cost of TDRs.
TDRs
dollars in millions
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total TDRs
Accruing
December 31, 2022
Non-Accruing
Total
$
$
2 $
46
24
26
—
98
33
17
2
—
52
150 $
1 $
9
30
8
1
49
17
5
—
—
22
71 $
3
55
54
34
1
147
50
22
2
—
74
221
129
Commercial
Commercial construction
Owner occupied commercial mortgage
Non-owner occupied commercial mortgage
Commercial and industrial
Leases
Total commercial
Consumer
Residential mortgage
Revolving mortgage
Consumer auto
Consumer other
Total consumer
Total TDRs
Accruing
December 31, 2021
Non-Accruing
Total
$
$
2 $
57
26
12
—
97
29
17
2
1
49
146
$
— $
8
3
9
1
21
18
7
—
—
25
46 $
2
65
29
21
1
118
47
24
2
1
74
192
The following table summarizes the loan restructurings during the years ended December 31, 2022, 2021, and 2020 that were
designated as TDRs. BancShares defines payment default as movement of the TDR to non-accrual status, which is generally 90
days past due, foreclosure or charge-off, whichever occurs first.
Restructurings
dollars in millions (except for number of loans)
Loans and leases
Interest only
Loan term ectension
Below market rates
Discharge from bankruptcy
Total
2022
Year ended December 31
2021
2020
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 $
128
86
106
337 $
39
26
9
5
79
20 $
129
177
128
454 $
18
16
20
10
64
37 $
92
254
216
599 $
32
11
40
9
92
There were $1.5 million, $0.4 million, and $0.2 million of commitments to lend additional funds to borrowers whose loan terms
have been modified in TDRs as of December 31, 2022, 2021, and 2020 respectively.
130
After a loan is determined to be a TDR, BancShares continues to track its performance under its most recent restructured terms.
TDRs that subsequently defaulted during the year ended December 31, 2022, 2021, and 2020 and were classified as TDRs
during the applicable 12-month period preceding December 31, 2022, 2021, and 2020 were as follows:
TDR Defaults
dollars in millions
TDR Defaults
Loans Pledged
December 31, 2022 December 31, 2021 December 31, 2020
9
$
6 $
8 $
The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of
Atlanta and the Federal Reserve Bank (“FRB”) as of December 31, 2022 and 2021:
Loans Pledged
dollars in millions
FHLB of Atlanta
Lendable collateral value of pledged Non-PCD loans
Less: Advances
Less: Letters of Credit
Available borrowing capacity
Pledged Non-PCD loans (contractual balance)
FRB
Lendable collateral value of pledged non-PCD loans
Less: Advances
Available borrowing capacity
Pledged Non-PCD loans (contractual balance)
December 31, 2022 December 31, 2021
$
$
$
$
$
$
14,918 $
4,250
1,450
9,218 $
23,491 $
4,203 $
—
4,203 $
5,697 $
9,564
645
—
8,919
14,507
3,951
—
3,951
4,806
131
NOTE 5 — ALLOWANCE FOR CREDIT LOSSES
The ACL for loans and leases is reported in the allowance for credit losses on the Consolidated Balance Sheets, while the ACL
for unfunded commitments is reported in other liabilities. The provision or benefit for credit losses related to both (i) loans and
leases and (ii) unfunded commitments is reported in the Consolidated Statements of Income as provision or benefit for credit
losses. The ACL methodology is discussed in Note 1 — Significant Accounting Policies and Basis of Presentation.
The initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”) of $272 million was established
through the PCD Gross-Up and there was no corresponding increase to the provision for credit losses. The PCD Gross-Up is
discussed further in Note 1 — Significant Accounting Policies and Basis of Presentation. The initial ACL for Non-PCD loans
and leases acquired in the CIT Merger was established through a corresponding increase of $454 million to the provision for
credit losses (the “Day 2 provision for loans and leases”). The ACL activity for loans and leases and the ACL for unfunded
commitments is summarized in the following tables. The increase in the ACL is primarily related to the CIT Merger, loan
growth, and deterioration in the economic outlook.
ACL for Loans and Leases
dollars in millions
Balance at December 31, 2021
Initial PCD ACL(1)
Day 2 provision for loans and leases
Provision (benefit) for credit losses - loans and leases
Total provision for credit losses- loans and leases
Charge-offs(1)
Recoveries
Balance at December 31, 2022
Balance at December 31, 2020
(Benefit) for credit losses - loans and leases
Charge-offs
Recoveries
Balance at December 31, 2021
$
$
$
$
Commercial
Year Ended December 31, 2022
Consumer
Total
80 $
258
432
101
533
(126)
44
789 $
98 $
14
22
(4)
18
(20)
23
133 $
Commercial
Year Ended December 31, 2021
Consumer
Total
92 $
(7)
(18)
13
80 $
133 $
(30)
(18)
13
98 $
Commercial
Year Ended December 31, 2020
Consumer
Total
178
272
454
97
551
(146)
67
922
225
(37)
(36)
26
178
Balance at December 31, 2019
Adoption of ASC 326
Balance after adoption of ASC 326
225
(38)
187
58
2
(45)
23
Balance at December 31, 2020
225
(1) The Initial PCD ACL related to the CIT Merger was $272 million, net of an additional $243 million for loans that CIT charged-off prior to the Merger Date
Provision for credit losses - loans and leases
Initial balance on PCD loans
Charge-offs
Recoveries
150 $
(84)
66
34
1
(20)
11
92 $
1
(25)
12
133
75 $
46
121
24
$
$
$
(whether full or partial) which met BancShares’ charge-off policy at the Merger Date.
ACL for Unfunded Commitments
dollars in millions
Beginning balance
Adoption of ASC 326
Balance after adoption of ASC 326
Provision (benefit) for credit losses - unfunded commitments (1)
$
Ending balance
(1) Includes the Day 2 provision for unfunded commitments of $59 million related to the CIT Merger.
$
Year Ended December 31,
2021
2020
2022
12 $
—
12
94
106 $
13 $
—
13
(1)
12 $
1
9
10
3
13
132
NOTE 6 — LEASES
Lessee
BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to
United States real estate leases under operating lease arrangements. Our real estate leases have remaining lease terms of up to
17 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when
it is determined that it is reasonably certain the option will be exercised.
The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount
rates.
Supplemental Lease Information
dollars in millions
ROU assets:
Operating leases
Finance leases
Total ROU assets
Lease liabilities:
Operating leases
Finance leases
Total lease liabilities
Weighted-average remaining lease terms:
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
The following table presents components of lease cost:
Classification
December 31, 2022 December 31, 2021
Other assets
Premises and equipment
Other liabilities
Other borrowings
$
$
$
$
345
7
352
352
7
359
$
$
$
$
9.6 years
4.1 years
2.19 %
2.34 %
64
4
68
64
4
68
8.9 years
3.5 years
3.00 %
3.12 %
Components of Net Lease Cost
dollars in millions
Lease cost
Operating lease cost(1)(2)
Finance lease cost
Amortization of leased assets
Interest on lease liabilities
Classification
2022
Year ended December 31
2021
2020
Occupancy expense
$
58 $
14 $
15
Variable lease cost
Sublease income
Net lease cost
(1) Includes short-term lease cost, which is not significant.
(2) In addition, approximately $6 million of costs related to leased branches to be closed or subleased was included in merger-related expenses in the
consolidated statements of income for the year ended December 31, 2022.
$
2
—
12
(2)
70 $
2
—
3
—
19 $
2
—
3
—
20
Equipment expense
Interest expense - other borrowings
Occupancy expense
Occupancy expense
Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased
premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental
payments adjusted periodically for inflation. While lease liabilities are not remeasured because of these changes, these
adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income
results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining
lease terms of up to 14 years.
133
The following table presents supplemental cash flow information related to leases:
Supplemental Cash Flow Information
dollars in millions
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
ROU assets obtained in exchange for new operating lease liabilities
ROU assets obtained in exchange for new finance lease liabilities
The following table presents lease liability maturities at December 31, 2022:
Year ended December 31
2021
2022
$
54 $
—
2
19
5
Maturity of Lease Liabilities
dollars in millions
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Difference between undiscounted cash flows and discounted cash flows
Lease liabilities, at present value
Operating Leases
Finance Leases
Total
$
$
$
48 $
50
44
42
39
168
391 $
39
352 $
2 $
2
2
1
—
—
7 $
—
7 $
13
—
2
7
—
50
52
46
43
39
168
398
39
359
Lessor
BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements. The majority of
operating lease equipment is long-lived rail equipment, which is typically leased several times over its life. We also lease
technology and office equipment, and large and small industrial, medical, and transportation equipment under both operating
leases and finance leases.
Our Rail operating leases typically do not include purchase options. Many of our finance leases, and other equipment operating
leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option and
many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing
beyond the initial contractual term. Our leases typically do not include early termination options; and continued rent payments
are due if leased equipment is not returned at the end of the lease.
The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $296 million
at December 31, 2022) by equipment type.
Operating Lease Equipment
dollars in millions
Railcars and locomotives(1)
Other equipment
Total(1)
(1) Includes off-lease rail equipment of $457 million at December 31, 2022.
December 31, 2022
7,433
$
723
8,156
$
134
The following table presents the components of the finance lease net investment on a discounted basis:
Components of Net Investment in Finance Leases
December 31, 2022 December 31, 2021
dollars in millions
246
$
Lease receivables
25
Unguaranteed residual assets
271
Total net investment in finance leases
Leveraged lease net investment(1)
—
Total
271
(1) Leveraged leases are reported net of non-recourse debt of $11 million at December 31, 2022. Our leveraged lease arrangements commenced before the ASC
842 effective date and continue to be reported under the leveraged lease accounting model. ASC 842 eliminated leveraged lease accounting for new leases and
for existing leases modified on or after the standard’s effective date.
1,786 $
317
2,103
68
2,171 $
$
The table that follows presents lease income related to BancShares’ operating and finance leases:
Lease Income
dollars in millions
2022
Year ended December 31
2021
2020
$
Lease income – Operating leases
Variable lease income – Operating leases(1)
Rental income on operating leases
Interest income - Sales type and direct financing leases
Variable lease income included in Other noninterest income(2)
Interest income - Leveraged leases
Total lease income
(1) Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.
(2) Includes leased equipment property tax reimbursements due from customers of $17 million for the year ended December 31, 2022 and revenue related to
insurance coverage on leased equipment of $33 million for the year ended December 31, 2022. There was no revenue related to property tax reimbursements
due from customers or insurance coverage on leased equipment during 2021 or 2020.
796 $
68
864
169
51
20
1,104 $
— $
—
—
18
—
—
18 $
—
—
—
23
—
—
23
$
The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance
leases at December 31, 2022. Excluded from these tables are variable lease payments, including rentals calculated based on
asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment
at lease expiration, all of which are components of lease profitability.
Maturity Analysis of Operating Lease Payments
dollars in millions
2023
2024
2025
2026
2027
Thereafter
Total
Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases
dollars in millions
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease receivables
Difference between undiscounted cash flows and discounted cash flows
Lease receivables, at present value
135
$
$
$
$
$
655
507
339
217
131
322
2,171
811
550
342
179
83
24
1,989
203
1,786
NOTE 7 — PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31, 2022 and 2021 are summarized as follows:
dollars in millions
Land
Premises and leasehold improvements
Furniture, equipment and software
Total
Less accumulated depreciation and amortization
Total premises and equipment
Useful Life (years)
indefinite
3 - 40
3- 10
2022
2021
$
$
352 $
1,458
840
2,650
1,194
1,456 $
334
1,308
671
2,313
1,080
1,233
Depreciation and amortization expense was $142 million, $107 million and $109 million for the years ended December 31,
2022, 2021 and 2020, respectively
NOTE 8 — GOODWILL AND OTHER INTANGIBLES
Goodwill
BancShares applied the acquisition method of accounting for the CIT Merger. The fair value of the net assets acquired exceeded
the purchase price. Consequently, there was a gain on acquisition (and no goodwill) related to the CIT Merger as discussed
further in Note 2 — Business Combinations.
BancShares’ annual impairment test, conducted as of July 31 each year, or more frequently if events occur or circumstances
change that may trigger a decline in the value of the reporting unit or otherwise indicate that 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 annual tests.
BancShares had goodwill of $346 million at December 31, 2022 and 2021. The entire amount of goodwill relates to business
combinations that BancShares completed prior to the CIT Merger and is reported in the General Banking segment. There was
no goodwill impairment during 2022, 2021 or 2020.
The following table presents the changes in the carrying amount of goodwill for the years ending December 31, 2022 and 2021:
dollars in millions
Balance at January 1
Other adjustment
Balance at December 31
Year ended December 31
2021
2022
$
$
346 $
—
346 $
350
(4)
346
Core Deposit Intangibles
Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. Core
deposit intangibles are being amortized over their estimated useful life. The following tables summarize the activity for core
deposit intangibles for the year ended December 31, 2022.
Core Deposit Intangibles
dollars in millions
Balance, net of accumulated amortization at January 1
Core deposit intangibles related to the CIT Merger
Amortization for the period
Balance at December 31, net of accumulated amortization
Core Deposit Intangible Accumulated Amortization
dollars in millions
Gross balance
Accumulated amortization
Balance, net of accumulated amortization
136
Year ended December 31
2021
2022
$
$
19 $
143
(22)
140 $
30
—
(11)
19
December 31, 2022 December 31, 2021
128
271 $
$
(109)
(131)
19
140 $
$
The following table summarizes the expected amortization expense as of December 31, 2022 in subsequent periods for core
deposit intangibles.
Core Deposit Intangible Expected Amortization
dollars in millions
2023
2024
2025
2026
2027
Thereafter
Total
$
$
19
17
16
15
15
58
140
Intangible Liability
An intangible liability of $52 million was recorded in other liabilities for net below market lessor lease contract rental rates
related to the rail portfolio as a result of the CIT Merger. This lease intangible is being amortized on a straight-line basis over
the lease term, thereby increasing rental income (a component of noninterest income) over the remaining term of the lease
agreements.
The following tables summarize the activity for the intangible liability for the year ended December 31, 2022.
Intangible Liability
dollars in millions
Balance at January 1
Acquired in CIT Merger
Amortization for the period
Balance at December 31, net of accumulated amortization
2022
—
52
(16)
36
$
$
The following table summarizes the expected amortization as of December 31, 2022 in subsequent periods for the intangible
liability.
Intangible Liability
dollars in millions
2023
2024
2025
2026
2027
Thereafter
Total
$
$
12
6
4
3
2
9
36
137
NOTE 9 — MORTGAGE SERVICING RIGHTS
BancShares originates certain residential mortgages loans to sell in the secondary market. BancShares’ portfolio of residential
mortgage loans serviced for third parties was approximately $3.7 billion and $3.4 billion for the year ended December 31, 2022
and 2021, respectively. For certain loans, the originated loans are sold to third parties on a non-recourse basis with servicing
rights retained. The retained servicing rights are recorded as a servicing asset and are reported in other assets. The associated
amortization expense and any changes in the valuation allowance recognized were included as a reduction of mortgage income.
MSRs are initially recorded at fair value and then carried at the lower of amortized cost or fair value.
Contractually specified mortgage servicing fees, late fees and ancillary fees earned are reported in mortgage income and were
$10 million, $9 million, and $9 million for the year ended December 31, 2022, 2021, and 2020 respectively.
The following table presents changes in the servicing asset during the year ended December 31, 2022 and 2021:
Servicing Asset
dollars in millions
Beginning balance
Servicing rights originated
Servicing rights obtained in CIT Merger
Amortization
Valuation allowance benefit (provision)
Ending balance
2022
Year Ended December 31,
2021
2020
$
$
23 $
4
3
(6)
1
25 $
18 $
11
—
(9)
3
23 $
The following table presents the activity in the servicing asset valuation allowance:
Servicing Asset Valuation Allowance
dollars in millions
Beginning balance
Valuation allowance (benefit) provision
Ending balance
2022
Year Ended December 31,
2021
2020
$
$
1 $
(1)
— $
4 $
(3)
1 $
23
8
—
(9)
(4)
18
—
4
4
MSRs valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together
and evaluated using discounted cash flows to estimate the present value of future earnings. Key economic assumptions used to
value MSRs were as follows:
MSRs Valuation Assumptions
Discount rate
Weighted average constant prepayment rate
Weighted average cost to service a loan
December 31, 2022 December 31, 2021
8.55 %
15.69 %
88
9.62 %
6.76 %
81
$
$
The fair value of MSRs are sensitive to changes in assumptions and is determined by estimating the present value of the asset’s
future cash flows by utilizing discount rates, prepayment rates, and other inputs. The discount rates applied to the cash flows in
the valuation of MSRs are market-based and provided on a pretax basis. The prepayment rate is derived from dynamic
modeling, which is compared to actual prepayment rates annually for reasonableness. The average cost to service a loan is
based on the number of loans serviced and the total costs to service the loans.
138
NOTE 10 — OTHER ASSETS
The following table includes the components of other assets. The increases from December 31, 2021 primarily reflect the other
assets acquired in the CIT Merger.
Other Assets
dollars in millions
Affordable housing tax credit and other unconsolidated investments (1)
Income tax receivable
Bank-owned life insurance (2)
Right of use assets for operating leases, net
Pension assets
Accrued interest receivable
Counterparty receivables
Federal Home Loan Bank stock
Fair value of derivative financial instruments
Nonmarketable equity securities
Other real estate owned
Mortgage servicing assets
Other (2)
Total other assets
(1) Refer to Note 12 — Variable Interest Entities for additional information.
(2) In December of 2022, BancShares made the strategic decision to surrender $1.25 billion of BOLI policies. The balance sheet treatment at December 31,
2022 for the surrendered BOLI policies is as follows: $483 million is in BOLI as these policies had not terminated or cash-settled; $607 million is in “Other”
as these policies had terminated, but not cash-settled; and $157 million of these policies had terminated and cash-settled.
December 31, 2022 December 31, 2021
169
762 $
$
799
275
116
586
64
345
289
343
134
329
—
98
40
197
3
159
58
1
40
47
23
25
177
1,145
1,855
4,369 $
$
NOTE 11 — DEPOSITS
The following table provides detail on deposit types. The deposit balances as of December 31, 2022 reflect those acquired in the
CIT Merger, as described in Note 2 — Business Combinations.
Deposit Types
dollars in millions
Noninterest-bearing demand
Checking with interest
Money market
Savings
Time
Total deposits
At December 31, 2022, the scheduled maturities of time deposits were:
Deposit Maturities
dollars in millions
Year Ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total time deposits
December 31, 2022 December 31, 2021
21,405
$
12,694
10,590
4,236
2,481
51,406
24,922 $
16,202
21,040
16,634
10,610
89,408 $
$
$
$
6,896
2,935
546
73
34
126
10,610
Time deposits with a denomination of $250,000 or more were $2.22 billion and $593 million at December 31, 2022 and 2021,
respectively. As of December 31, 2021, FCB’s primary deposit markets were North Carolina and South Carolina, which
represent approximately 50.8% and 22.7%, respectively, of total FCB deposits. Deposits (based on branch location) as of
December 31, 2022, in North Carolina and South Carolina represented approximately 39.7% and 13.3%, respectively, of total
deposits. Additionally, the CIT Merger added deposits that were primarily related to the Digital Bank of $16.47 billion or
18.4% of total FCB deposits as of December 31, 2022.
139
NOTE 12 — VARIABLE INTEREST ENTITIES
Variable Interest Entities
Described below are the results of BancShares’ assessment of its variable interests in order to determine its current status with
regard to being the VIE primary beneficiary. Refer to Note 1 — Significant Accounting Policies and Basis of Presentation for
additional information on accounting for VIEs and investments in qualified affordable housing projects.
Consolidated VIEs
At December 31, 2022 and 2021, there were no consolidated VIEs.
Unconsolidated VIEs
Unconsolidated VIEs include limited partnership interests and joint ventures where BancShares’ involvement is limited to an
investor interest and BancShares does not have the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance or obligation to absorb losses or the right to receive benefits that could potentially be significant
to the VIE.
The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of
BancShares’ interests and any associated collateral declines to zero and assuming no recovery or offset from any economic
hedges. BancShares believes the possibility is remote under this hypothetical scenario; accordingly, this disclosure is not an
indication of expected loss.
Unconsolidated VIEs Carrying Value
December 31, 2022 December 31, 2021
dollars in millions
Investment in qualified affordable housing projects (1)
157
598 $
$
Other tax credit equity investments
—
5
Total tax credit equity investments
157
603 $
Other unconsolidated investments
12
159
Total assets (maximum loss exposure) (2)
169
762 $
Liabilities for commitments to tax credit investments(3)
43
295 $
(1) These investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. During 2022, 2021 and 2020,
BancShares recorded $60 million, $22 million and $19 million, respectively, in tax provisions under the proportional amortization method. During 2022, 2021
and 2020, BancShares recognized total tax benefits of $77 million, $26 million and $23 million, which included tax credits of $60 million, $22 million and $19
million, respectively, recorded in income taxes. See Note 1 — Significant Accounting Policies and Basis of Presentation for additional information.
(2) Included in other assets in Note 10 — Other Assets.
(3) Represents commitments to invest in qualified affordable housing investments, and other investments qualifying for community reinvestment tax credits.
These commitments are payable on demand and are included in other liabilities in Note 15 — Other Liabilities.
$
$
$
140
NOTE 13 — BORROWINGS
Short -term Borrowings
Short-term borrowings at December 31, 2022 and 2021 include:
dollars in millions
Securities sold under customer repurchase agreements
Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.19% to 0.20%.
Total short-term borrowings
December 31, 2022 December 31, 2021
589
436 $
$
—
589
1,750
2,186 $
$
Securities Sold under Agreements to Repurchase
At December 31, 2022, BancShares held $436 million of securities sold under agreements to repurchase, with overnight
contractual maturities, that are collateralized by government agency securities. At December 31, 2021, BancShares held $589
million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, of
which $508 million were collateralized by government agency securities and $81 million were collateralized by commercial
mortgage-backed securities.
BancShares utilizes securities sold under agreements to repurchase to facilitate the needs for collateralization of commercial
customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a
counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates BancShares to
repurchase the security at an agreed upon date, repurchase price and interest rate. These agreements are recorded at the amount
of cash received in connection with the transactions and are reflected as securities sold under customer repurchase agreements.
BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing
the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets
in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is
market risk associated with the investments securing the transactions, as additional collateral may be required based on fair
value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with
safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $496
million and $619 million at December 31, 2022 and 2021, respectively.
141
Long-term Borrowings
Long-term borrowings at December 31, 2022 and 2021 include:
dollars in millions
Parent Company:
Senior:
Maturity
December 31, 2022 December 31, 2021
Unsecured term loan at 1-month LIBOR plus 1.10%
September 2022
$
— $
350
20
88
500
315
51
400
100
14
10
68
350
20
88
—
—
—
—
—
14
10
—
645
—
4
(2)
(2)
1,195
Subordinated:
Fixed-to-Floating subordinated notes at 3.375%
Junior subordinated debenture at 3-month LIBOR plus 2.25%
(FCB/SC Capital Trust II)
Junior subordinated debenture at 3-month LIBOR plus 1.75%
(FCB/NC Capital Trust III)
March 2030
June 2034
June 2036
June 2024
September 2025
April 2036
March 2028
November 2029
March 2034
April 2034
Subsidiaries:
Senior:
Senior unsecured fixed to floating rate notes at 3.929%(1)
Senior unsecured fixed to floating rate notes at 2.969%(1)
Fixed senior unsecured notes at 6.00%(1)
Subordinated:
Fixed subordinated notes at 6.125%(1)
Fixed-to-Fixed subordinated notes at 4.125%(1)
Junior subordinated debentures at 3-month LIBOR plus 2.80%
(Macon Capital Trust I)
Junior subordinated debentures at 3-month LIBOR plus 2.85%
(SCB Capital Trust I)
Secured:
Notes payable to FHLB of Atlanta at overnight SOFR plus
spreads ranging from 0.24% to 0.34%.
Fixed notes payable to FHLB of Atlanta
Other secured financings(1)
Capital lease obligations
UnamortiZed issuance costs
UnamortiZed purchase accounting adjustments(2)
Total long-term borrowings
Maturities through September 2025
Maturities through March 2032
Maturities through January 2024
Maturities through June 2027
2,500
—
18
7
(1)
87
4,459 $
$
(1) Reflects the remaining outstanding debt securities assumed by the BancShares in connection with the ClT Merger. On February 24, 2022, BancShares
redeemed all of the outstanding (i) 5.00% senior unsecured notes due 2022, (ii) 5.00%, senior unsecured notes due 2023; (iii) 4.750% senior unsecured notes
due 2024; and (iv) 5.250% senior unsecured notes due 2025 that it had assumed in the ClT Merger.
(2) At December 31, 2022 and December 31, 2021, unamortized purchase accounting adjustments were $69 million and $2 million, respectively, for
subordinated debentures.
Long-term borrowings maturing in each of the five years subsequent to December 31, 2022 and thereafter include:
Long-term Borrowings Maturities
dollars in millions
Year Ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total long-term borrowings
$
$
518
1,535
1,330
16
19
1,041
4,459
142
Senior Unsecured Notes
Senior unsecured notes included the following as of December 31, 2022:
•
Fixed-rate senior unsecured notes outstanding totaled $866 million with a weighted average coupon rate of 3.70%. These
notes were assumed by FCB as part of the CIT Merger. On February 24, 2022, FCB completed a redemption of
approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger, resulting in a gain of
approximately $6 million.
Subordinated Unsecured Notes
Subordinated unsecured notes included the following as of December 31, 2022:
•
•
•
$350 million aggregate principal amount of its 3.375% fixed-to-floating rate subordinated notes due March 2030 and
redeemable at the option of BancShares starting with the interest payment due March 15, 2025.
$400 million aggregate principal amount of 6.125% fixed rate subordinated notes with a maturity date of March 2028 and
$100 million aggregate principal amount of 4.125% fixed-to-fixed rate subordinated notes with a maturity date of
November 2029, which were assumed by BancShares as part of the CIT Merger.
$132 million in junior subordinated debentures representing obligations to Macon Capital Trust I, SCB Capital Trust I,
FCB/SC Capital Trust II, and FCB/NC Capital Trust III special purpose entities and grantor trusts (the “ Trusts”) for trust
preferred securities. The Trusts had outstanding trust preferred securities of $128 million at December 31, 2022 and 2021,
which mature in 2034, 2034, 2034 and 2036, respectively, and may be redeemed at par in whole or in part at any time.
BancShares has guaranteed all obligations of the Trusts.
Secured Borrowings
At December 31, 2022, BancShares had pledged $29.2 billion of loans to several financing facilities.
Notes Payable to FHLB
As a member of the FHLB, FCB can access financing based on an evaluation of its creditworthiness, statement of financial
position, size and eligibility of collateral. Pledged assets related to these financings totaled $23.5 billion at December 31, 2022.
FCB may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral,
provided that FCB is in compliance with the collateral maintenance requirement immediately following such disposition.
Other Secured Financings
Other secured (other than FHLB) financings were not significant and totaled $18 million at December 31, 2022. Pledged assets
related to these financings totaled $18 million. These transactions do not meet accounting requirements for sales treatment and
are recorded as secured borrowings.
At December 31, 2022, BancShares had other unused credit lines allowing contingent access to borrowings of up to $100
million on an unsecured basis.
Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional $4.2 billion on a secured
basis. There were no outstanding borrowings with the FRB Discount Window at December 31, 2022 and December 31, 2021.
Assets pledged to the FRB of Richmond totaled $5.7 billion at December 31, 2022.
143
NOTE 14 — DERIVATIVE FINANCIAL INSTRUMENTS
BancShares acquired various derivative financial instruments in the CIT Merger. The following table presents notional amount
and fair value of derivative financial instruments on a gross basis. At December 31, 2022, BancShares’ derivatives are not
designated as hedging instruments.
Notional Amount and Fair Value of Derivative Financial Instruments
dollars in millions
December 31, 2022
Notional Amount
Asset Fair Value
Liability Fair
Value
$
$
18,173 $
125
507
18,805
Derivatives not designated as hedging instruments (Non-qualifying hedges)
Interest rate contracts(1)(3)
Foreign exchange contracts
Other contracts(2)
Total derivatives not designated as hedging instruments
Gross derivatives fair values presented in the Consolidated Balance Sheets
Less: Gross amounts offset in the Consolidated Balance Sheets
Net amount presented in the Consolidated Balance Sheets
Less: Amounts subject to master netting agreements(4)
Less: Cash collateral pledged(received) subject to master netting agreements(5)
Total net derivative fair value
(1) Fair value balances include accrued interest.
(2) Other derivative contracts not designated as hedging instruments include risk participation agreements.
(3) BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market’’. As a result, variation margin
payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market
balances. Gross amounts of recognized assets and liabilities were lowered by $376 million and $19 million, respectively, at December 31, 2022.
(4) BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA’’) agreements that allow for net settlements of certain
payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. BancShares
believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.
(5) In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange
of cash depending on change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances
upon an event of default of one of the counterparties. Collateral pledged or received is included in other assets or other liabilities, respectively.
158 $
1
—
159
159
—
159
(13)
(124)
(482)
(4)
—
(486)
(486)
—
(486)
13
—
(473)
22 $
$
Non-Qualifying Hedges
The following table presents gains related to non-qualifying hedges recognized on the Consolidated Statements of Income:
Gains on Non-Qualifying Hedges
dollars in millions
Interest rate contracts
Foreign currency forward contracts
Other contracts
Total non-qualifying hedges - income statement impact
Amounts Recognized
Other noninterest income
Other noninterest income
Other noninterest income
$
$
2022
Year ended December 31
2021
2020
12 $
20
1
33 $
— $
—
—
— $
—
—
—
—
NOTE 15 — OTHER LIABILITIES
The following table presents the components of other liabilities. The increases from December 31, 2021 primarily reflect the
other liabilities assumed in the CIT Merger.
Other Liabilities
dollars in millions
Accrued expenses and accounts payable
Lease liabilities
Fair value of derivative financial instruments
Commitments to fund tax credit investments
Deferred taxes
Reserve for off-balance sheet credit exposure
Incentive plan liabilities
Accrued interest payable
Other
Total other liabilities
December 31, 2022 December 31, 2021
5
313 $
$
64
352
—
486
43
295
33
286
12
106
84
267
57
8
132
426
381
2,588 $
$
144
NOTE 16 — FAIR VALUE
Fair Value Hierarchy
BancShares measures certain financial assets and liabilities at fair value. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure
fair value into three levels.
Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. See Note 1 —
Significant Accounting Policies and Basis of Presentation for detailed descriptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes BancShares’ assets and liabilities measured at estimated fair value on a recurring basis.
Assets and Liabilities Measured at Fair Value - Recurring Basis
dollars in millions
Total
Level 1
Level 2
Level 3
December 31, 2022
Assets
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total investment securities available for sale
Marketable equity securities
Loans held for sale
Derivative assets(1)
Interest rate contracts — non-qualifying hedges
Other derivative — non-qualifying hedges
Total derivative assets
Liabilities
Derivative liabilities(1)
Interest rate contracts — non-qualifying hedges
Other derivative— non-qualifying hedges
Total derivative liabilities
Assets
Investment securities available for sale
U.S. Treasury
Government agency
Residential mortgage-backed securities
Commercial mortgage-backed securities
Corporate bonds
Total investment securities available for sale
Marketable equity securities
Loans held for sale
(l) Derivative fair values include accrued interest.
1,898 $
162
4,795
1,604
536
8,995 $
95
4
158 $
1
159 $
482 $
4
486 $
— $
—
—
—
—
— $
32
—
— $
—
— $
— $
—
— $
1,898 $
162
4,795
1,604
362
8,821 $
63
4
158 $
1
159 $
482 $
4
486 $
Total
Level 1
Level 2
Level 3
December 31, 2021
2,005 $
221
4,729
1,640
608
9,203 $
98
99
— $
—
—
—
—
— $
34
—
2,005 $
221
4,729
1,640
401
8,996 $
64
99
—
—
—
—
174
174
—
—
—
—
—
—
—
—
—
—
—
—
207
207
—
—
$
$
$
$
$
$
$
$
145
The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a
recurring basis are as follows:
Investment securities available for sale. The fair value of U.S. Treasury, government agency, mortgage-backed securities, and a
portion of the corporate bonds are generally estimated using a third-party pricing service. To obtain an understanding of the
processes and methodologies used, management reviews correspondence from the third-party pricing service. Management also
performs a price variance analysis process to corroborate the reasonableness of prices. The third-party provider evaluates
securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of
inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These
securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on
indicative bids from broker-dealers using inputs that are not directly observable. These securities are classified as Level 3.
Marketable equity securities. Equity securities are measured at fair value using observable closing prices. The valuation also
considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as
Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.
Loans held for sale. Certain residential real estate loans originated for sale to investors are carried at fair value based on quoted
market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate
loans held for sale are considered Level 2 inputs.
Derivative Assets and Liabilities. Derivatives were valued using models that incorporate inputs depending on the type of
derivative. Other than the fair value of credit derivatives, which were estimated using Level 3 inputs, most derivative
instruments were valued using Level 2 inputs based on observed pricing for similar assets and liabilities and model-based
valuation techniques for which all significant assumptions are observable in the market. See Note 14 — Derivative Financial
Instruments for notional amounts and fair values.
The following tables summarize information about significant unobservable inputs related to BancShares’ categories of Level 3
financial assets and liabilities measured on a recurring basis.
Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis
dollars in millions
Financial Instrument
December 31, 2022
Assets
Estimated
Fair Value
Valuation
Technique(s)
Significant Unobservable Inputs
Corporate bonds
$
174
Indicative bid provided by broker
December 31, 2021
Assets
Corporate bonds
$
207
Indicative bid provided by broker
Multiple factors, including but not limited to, current operations,
financial condition, cash flows, and recently executed financing
transactions related to the issuer.
Multiple factors, including but not limited to, current operations,
financial condition, cash flows, and recently executed financing
transactions related to the issuer.
The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value
on a recurring basis using significant unobservable inputs (Level 3).
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities - Recurring Basis
dollars in millions
Year Ended December 31, 2022
Beginning balance
Purchases
Included in earnings
Included in comprehensive income
Transfers out
Maturity and settlements
Ending balance
Other Derivative
Liabilities — Non-
Qualifying
Corporate Bonds
$
207 $
—
—
(19)
(14)
—
174 $
$
146
Year Ended
December 31, 2021
Corporate Bonds
— $
1
(1)
—
—
—
— $
317
31
2
6
(102)
(47)
207
Fair Value Option
The following table summarizes the difference between the aggregate fair value and the UPB for residential real estate loans
originated for sale measured at fair value as of December 31, 2022 and 2021.
dollars in millions
December 31, 2022
Unpaid Principal
Balance
Fair Value
Difference
Originated loans held for sale
Originated loans held for sale
$
$
4 $
4 $
—
December 31, 2021
Unpaid Principal
Balance
Difference
Fair Value
99 $
96 $
3
BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain
timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a
business perspective. The changes in fair value were recorded as a component of mortgage income and included a loss of $3
million in each of the year ended December 31, 2022 and 2021. Interest earned on loans held for sale is recorded within interest
income on loans and leases in the Consolidated Statements of Income.
No originated loans held for sale were 90 or more days past due or on non-accrual status as of December 31, 2022 or 2021.
Assets Measured at Estimated Fair Value on a Non-recurring Basis
Certain assets or liabilities are required to be measured at estimated fair value on a non-recurring basis subsequent to initial
recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. The following table
presents carrying value of assets measured at estimated fair value on a non-recurring basis for which gains and losses have been
recorded in the periods. The gains and losses reflect amounts recorded for the respective periods, regardless of whether the asset
is still held at period end.
Assets Measured at Fair Value - Non-recurring Basis
dollars in millions
December 31, 2022
Assets held for sale - loans
Loans - collateral dependent loans
Other real estate owned
Mortgage servicing rights
Total
December 31, 2021
Loans - collateral dependent loans
Other real estate owned
Mortgage servicing rights
Total
Fair Value Measurements
Total
Level 1
Level 2
Level 3
Total Gains
(Losses)
$
$
$
$
23 $
149
43
—
215 $
3 $
34
22
59
$
— $
—
—
—
— $
— $
—
—
— $
— $
—
—
—
— $
— $
—
—
— $
23 $
149
43
—
215 $
3 $
34
22
59
$
(1)
(24)
14
1
(10)
(2)
(4)
3
(3)
Certain other assets are adjusted to their fair value on a non-recurring basis, including certain loans, OREO, and goodwill,
which are periodically tested for impairment, and MSRs, which are carried at the lower of amortized cost or market. Most loans
held for investment, deposits, and borrowings are not reported at fair value.
147
The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a
non-recurring basis are as follows:
Assets held for sale - loans. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost
or market. When available, the fair values for the transferred loans are based on quoted prices from the purchase commitments
for the individual loans being transferred and are considered Level 1 inputs. The fair value of Level 2 assets was primarily
estimated based on prices of recent trades of similar assets. For other loans held for sale, the fair value of Level 3 assets was
primarily measured under the income approach using the discounted cash flow model based on Level 3 inputs including
discount rate or the price of committed trades.
Loans - collateral dependent loans. The population of Level 3 loans measured at fair value on a non-recurring basis includes
collateral-dependent loans evaluated individually. Collateral values are determined using appraisals or other third-party value
estimates of the subject property discounted based on estimated selling costs, and adjustments for other external factors that
may impact the marketability of the collateral.
Other real estate owned. OREO is carried at LOCOM. OREO asset valuations are determined by using appraisals or other
third-party value estimates of the subject property with discounts, generally between 6% and 15%, applied for estimated selling
costs and other external factors that may impact the marketability of the property. At December 31, 2022 and 2021, the
weighted average discount applied was 9.31% and 8.79%, respectively. Changes to the value of the assets between scheduled
valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager
assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new
appraisals are ordered to ensure the reported values reflect the most current information.
Mortgage servicing rights. MSRs are carried at the lower of amortized cost or market and are, therefore, carried at fair value
only when fair value is less than amortized cost. The fair value of MSRs is determined using a pooling methodology. Similar
loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates,
and the weighted average cost to service the loans, is used to determine the fair value.
148
Financial Instruments Fair Value
The table below presents the carrying values and estimated fair values for financial instruments, excluding leases and certain
other assets and liabilities for which these disclosures are not required.
Carrying Values and Fair Values of Financial Assets and Liabilities
dollars in millions
December 31, 2022
Estimated Fair Value
Carrying
Value
Level 1
Level 2
Level 3
Total
Financial Assets
Cash and due from banks
Interest earning deposits at banks
Investment in marketable equity securities
Investment securities available for sale
Investment securities held to maturity
Loans held for sale
Net loans
Accrued interest receivable
Federal Home Loan Bank stock
Mortgage and other servicing rights
Derivative assets
Financial Liabilities
Deposits with no stated maturity
Time deposits
Credit balances of factoring clients
Securities sold under customer repurchase agreements
Other short-term borrowings
Long-term borrowings
Accrued interest payable
Derivative liabilities
Financial Assets
Cash and due from banks
Interest earning deposits at banks
Investment in marketable equity securities
Investment securities available for sale
Investment securities held to maturity
Loans held for sale
Net loans
Accrued interest receivable
Federal Home Loan Bank stock
Mortgage and other servicing rights
Financial Liabilities
Deposits with no stated maturity
Time deposits
Securities sold under customer repurchase agreements
Long-term borrowings
Accrued interest payable
$
518 $
518 $
5,025
95
8,995
10,279
52
67,720
329
197
25
159
78,798
10,610
995
436
1,750
4,452
57
486
5,025
32
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
63
8,821
8,795
4
1,679
329
197
—
159
78,798
10,504
—
436
1,750
4,312
57
486
— $
—
—
174
—
45
62,633
—
—
47
—
—
—
995
—
—
18
—
—
518
5,025
95
8,995
8,795
49
64,312
329
197
47
159
78,798
10,504
995
436
1,750
4,330
57
486
December 31, 2021
Estimated Fair Value
Carrying
Value
Level 1
Level 2
Level 3
Total
— $
—
64
8,996
3,759
99
—
134
40
—
48,925
2,471
589
1,222
8
— $
—
—
207
—
—
31,890
—
—
23
—
—
—
—
—
338
9,115
98
9,203
3,759
99
31,890
134
40
23
48,925
2,471
589
1,222
8
$
338 $
338 $
9,115
34
—
—
—
—
—
—
—
—
—
—
—
—
9,115
98
9,203
3,809
99
32,193
134
40
23
48,925
2,481
589
1,195
8
149
The methods and assumptions used to estimate the fair value of each class of financial instruments not discussed elsewhere are
as follows:
Net /oans. The carrying value of net loans is net of the ACL. Loans are generally valued by discounting expected cash flows
using market inputs with adjustments based on cohort level assumptions for certain loan types as well as internally developed
estimates at a business segment level. Due to the significance of the unobservable market inputs and assumptions, as well as the
absence of a liquid secondary market for most loans, these loans are classified as Level 3. Certain loans are measured based on
observable market prices sourced from external data providers and classified as Level 2. Nonaccrual loans are written down and
reported at their estimated recovery value which approximates their fair value and classified as Level 3.
lnvestment securities he/d to maturity. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed
securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by
government agencies and government sponsored entities, securities issued by the Supranational Entities and Multilateral
Development Banks and FDIC guaranteed CDs with other financial institutions. We primarily use prices obtained from pricing
services to determine the fair value of securities, which are Level 2 inputs.
FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily
marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers
positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent
redemption experience, when determining the ultimate recoverability of the par value. BancShares investment in FHLB stock is
ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.
Mortgage and other servicing rights. Mortgage and other servicing rights are initially recorded at fair value and subsequently
carried at the lower of amortized cost or market. Therefore, servicing rights are carried at fair value only when fair value is less
than the amortized cost. The fair value of mortgage and other servicing rights is determined using a pooling methodology.
Similar loans are pooled together and a model which relies on discount rates, estimates of prepayment rates and the weighted
average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage
and other servicing rights are considered Level 3 inputs.
Deposits. The estimated fair value of deposits with no stated maturity, such as demand deposit accounts, money market
accounts, and savings accounts was the amount payable on demand at the reporting date. The fair value of time deposits was
estimated based on a discounted cash flow technique using Level 2 inputs appropriate to the contractual maturity.
Credit ba/ances of factoring c/ients. The impact of the time value of money from the unobservable discount rate for credit
balances of factoring clients is inconsequential due to the short term nature of these balances, therefore, the fair value
approximated carrying value, and the credit balances were classified as Level 3
Short-term borrowed funds. Includes federal funds purchased, repurchase agreements and certain other short-term borrowings
and payables. The fair value approximates carrying value and are classified as Level 2.
Long-term Borrowings. For certain long-term senior and subordinated unsecured borrowings, the fair values are sourced from a
third-party pricing service. The fair value of other long-term borrowings are determined by discounting future cash flows using
current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings,
senior and subordinated debentures, and other borrowings are classified as Level 2. The fair value of other secured borrowings
are estimated based on unobservable inputs and therefore classified as Level 3.
For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of
December 3l, 2022 and 202l. The carrying value and fair value for these assets and liabilities are equivalent because they are
relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the
carrying value. Cash and due from banks, and interest earning deposits at banks, are classified on the fair value hierarchy as
Level l. Accrued interest receivable and accrued interest payable are classified as Level 2.
l50
NOTE 17 - STOCKHOLDERS' EQUITY
The common stock activity for the year ended December 31, 2022 is presented in the following table. There was no common
stock activity for the year ended December 31, 2021.
Number of Shares of Common Stock
Common stock at December 31, 2021
Common stock issued in CIT Merger
Restricted stock units vested, net of shares held to cover taxes
Shares purchased under authorized repurchase plan
Common stock at December 31, 2022
Outstanding
Class A
Class B
8,811,220
6,140,010
49,787
(1,500,000)
13,501,017
1,005,185
-
-
-
1,005,185
Common Stock
The Parent Company has Class A Common Stock and Class B Common Stock. Shares of Class A Common Stock have one
vote per share, while shares of Class B Common Stock have 16 votes per share. In connection with the consummation of the
CIT Merger, the Parent Company issued approximately 6.1 million shares of Class A Common Stock as further discussed in
Note 2 - Business Combinations.
Restricted Stock Units
Refer to Note 22 - Employee Benefit Plans for discussion of the BancShares RSUs.
Non-Cumulative Perpetual Preferred Stock
On March 12, 2020, BancShares issued and sold an aggregate of 13,800,000 depositary shares (the "Depositary Shares"), each
representing a 1/40th interest in a share of 5.375% non-cumulative perpetual preferred stock, series A ("BancShares Series A
Preferred Stock") (equivalent to $1,000 per share of the BancShares Series A Preferred Stock) for a total of $345 million. As
part of the CIT Merger, each issued and outstanding share of CIT Series A Preferred Stock and CIT Series B Preferred Stock
automatically converted into the right to receive one share of BancShares Series B Preferred Stock and BancShares Series C
Preferred Stock, respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions,
taken as a whole, that were not materially less favorable to the holders thereof than the rights, preferences, privileges and voting
powers, and limitations and restrictions, taken as a whole, of the CIT Series A Preferred Stock and the CIT Series B Preferred
Stock, respectively. The following table summarizes BancShares' non-cumulative perpetual preferred stock.
dollars in millions, except per share and par value data
Preferred
Stock
Series A March 12, 2020 March 15, 2025 $
Issuance Date
Par
Value
0.01
Earliest
Redemption
Date
Shares
Authorized,
Issued and
Outstanding
Liquidation
Preference
Per Share
345,000 $
1,000 $
Total
Liquidation
Preference
345
Series B
January 3, 2022
January 4, 2027
0.01
325,000
1,000
325
Dividend
5.375%
5.8%, converted
to LIBOR +
3.972% beginning
June 15, 2022
Series C
January 3, 2022
January 4, 2027
0.01
8,000,000
25
200
5.625%
Dividend Payment
Dates
Quarterly in arrears
Semi-annually during
the fixed rate period,
then quarterly in
arrears, as of June 15,
2022
Quarterly in arrears, as
of March 15, 2022
Dividends on BancShares Series A, B, and C Preferred Stock (together, "BancShares Preferred Stock") will be paid when, as,
and if declared by the Board of Directors of the Parent Company, or a duly authorized committee thereof, to the extent that the
Parent Company has lawfully available funds to pay dividends. If declared, dividends with respect to the BancShares Series A
Preferred Stock and BancShares Series C Preferred Stock will accrue and be payable quarterly in arrears on March 15, June 15,
September 15, and December 15 of each year. Dividends on the BancShares Series B Preferred Stock initially accrued and were
payable on a semi-annual basis during the fixed rate period. Upon expiration of the fixed rate period on June 15, 2022,
dividends with respect to the BancShares Series B Preferred Stock, if declared, now accrue and are payable quarterly in arrears
on March 15, June 15, September 15, and December 15 of each year. Dividends on the BancShares Preferred Stock will not be
cumulative.
151
The Parent Company may redeem the BancShares Preferred Stock at its option, and subject to any required regulatory approval,
at a redemption price equal to the "Liquidation Preference Per Share" in the table above, plus any declared and unpaid
dividends to, but excluding, the redemption date, (i) in whole or in part, from time to time, on any dividend payment date on or
after the "Earliest Redemption Date" in the table above, or (ii) in whole but not in part, at any time within 90 days following a
regulatory capital treatment event.
NOTE 18 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table details the components of accumulated other comprehensive (loss) income:
Components of Accumulated Other Comprehensive (Loss) Income
dollars in millions
Unrealized loss on securities available for sale
Unrealized loss on securities available for sale transferred to
securities held to maturity
Defined benefit pension items
Total accumulated other comprehensive (loss) income
December 31, 2022
December 31, 2021
Pretax
Income
Taxes
Net of
Income
Taxes
Pretax
Income
Taxes
Net of
Income
Taxes
$
(972) $
233 $
(739) $
(12) $
(8)
13
(967) $
2
(3)
232 $
(6)
10
(735) $
$
(9)
34
13 $
3 $
2
(8)
(3) $
(9)
(7)
26
10
The following table details the changes in the components of accumulated other comprehensive (loss) income, net of income
tax:
Changes in Components of Accumulated Other Comprehensive (Loss) Income, net of income tax
dollars in millions
Balance as of December 31, 2021
AOCI activity before reclassifications
Amounts reclassified from AOCI
Other comprehensive (loss) income for the period
Balance as of December 31, 2022
Balance as of December 31, 2020
AOCI activity before reclassifications
Amounts reclassified from AOCI
Other comprehensive (loss) income for the period
Balance as of December 31, 2021
Unrealized (loss)
gain on securities
available for sale
transferred to
securities held to
maturity
Net change in
defined benefit
pension items
Total
accumulated
other
comprehensive
(loss) income
(7) $
_
1
1
(6) $
$
4
(10)
(1)
(11)
(7) $
26 $
(25)
9
(16)
10 $
(71) $
76
21
97
26 $
10
(755)
10
(745)
(735)
12
4
(6)
(2)
10
Unrealized (loss)
gain on securities
available for sale
$
(9) $
(730)
_
(730)
(739) $
$
79
(62)
(26)
(88)
(9) $
$
$
$
152
Other Comprehensive (Loss) Income
The amounts included in the Consolidated Statements of Comprehensive Income are net of income taxes. The following table
presents the pretax and after-tax components of other comprehensive income.
Components of Other Comprehensive (Loss) Income
dollars in millions
Year ended December 31
2022
Income
Taxes
Pretax
Net of
Income
Taxes
Pretax
2021
Income
Taxes
Net of
Income
Taxes
Income Statement
Line Item
Defined benefit pension items
Actuarial (loss) gain
Amounts reclassified from AOCI
Other comprehensive (loss) income for defined
benefit pension items
Unrealized loss on securities available for sale
transferred to securities held to maturity
Amounts reclassified from AOCI
Reclassifications out of AOCI
Other comprehensive income (loss) on securities
available for sale transferred to securities held to
maturity
Unrealized loss on securities available for sale
$
$
(33) $
8 $
(25) $
98 $
(22) $
12
(3)
9
27
(6)
(21) $
5 $
(16) $
125 $
(28) $
76
21
97
Other noninterest
expense
$
$
$
$
(13) $
3 $
(10)
1
1
(1)
Interest on
investment
securities
(1)
$
1
$
$
1
$
(14) $
3 $
(11)
AOCI activity before reclassification
$
(960) $
230 $
(730) $
(81) $
19 $
(62)
Amounts reclassified from AOCI
Other comprehensive loss on securities available
for sale
Total other comprehensive loss
$
$
(960) $
(980) $
230 $
235 $
(730) $
(745) $
(114) $
(3) $
26 $
1 $
(33)
7
Realized gain on
sale of investment
securities available
for sale, net
(26)
(88)
(2)
NOTE 19 _ REGULATORY CAPITAL
BancShares and FCB are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the BancShares' Consolidated Financial Statements. Certain activities,
such as the ability to undertake new business initiatives, including acquisitions, the access to and cost of funding for new
business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit
insurance costs, and the level and nature of regulatory oversight, largely depend on a financial institution's capital strength.
Federal banking agencies approved regulatory capital guidelines ("Basel III") aimed at strengthening previous capital
requirements for banking organizations and the associated capital conservation buffers are 2.50%. The following table includes
the Basel III requirements for regulatory capital ratios.
Regulatory capital ratios
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage
Basel III
Minimums
Basel III
Conservation
Buffers
Basel III
Requirements
8.00 %
6.00
4.50
4.00
2.50 %
2.50
2.50
10.50 %
8.50
7.00
4.00
153
The FDIC also has Prompt Corrective Action ("PCA") thresholds for regulatory capital ratios. The regulatory capital ratios for
BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital
ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of December 31,
2022 and 2021 as summarized in the following table.
dollars in millions
December 31, 2022
December 31, 2021
Basel III
Requirements
PCA well-
capitalized
thresholds
Amount
Ratio
Amount
Ratio
BancShares
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage
FCB
Total risk-based capital
Tier 1 risk-based capital
Common equity Tier 1
Tier 1 leverage
10.50 %
8.50
7.00
4.00
10.50 %
8.50
7.00
4.00
10.00 % $
8.00
6.50
5.00
10.00 % $
8.00
6.50
5.00
11,799
9,902
9,021
9,902
11,627
10,186
10,186
10,186
13.18 % $
11.06
10.08
8.99
12.99 % $
11.38
11.38
9.25
5,042
4,380
4,041
4,380
4,858
4,651
4,651
4,651
14.35 %
12.47
11.50
7.59
13.85 %
13.26
13.26
8.07
At December 31, 2022, BancShares and FCB had risk-based capital ratio conservation buffers of 5.06% and 4.99%,
respectively, which are in excess of the Basel III conservation buffer of 2.50%. At December 31, 2021, BancShares and FCB
had risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively. The capital ratio conservation buffers
represent the excess of the regulatory capital ratio as of December 31, 2022 and 2021 over the Basel III minimum for the ratio
that is the binding constraint.
Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 17 _ Stockholders' Equity.
Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.
Dividend Restrictions
Dividends paid from FCB to the Parent Company are the primary source of funds available to the Parent Company for payment
of dividends to its stockholders. The Board of Directors of FCB may approve distributions, including dividends, as it deems
appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions
do not reduce the regulatory capital ratios below the applicable requirements. FCB could have paid additional dividends to the
Parent Company in the amount of $2.7 billion while continuing to meet the requirements for well-capitalized banks at
December 31, 2022. Dividends declared by FCB and paid to the Parent Company amounted to $1.4 billion for the year ended
December 31, 2022. Payment of dividends is made at the discretion of FCB's Board of Directors and is contingent upon
satisfactory earnings as well as projected capital needs.
NOTE 20 _ EARNINGS PER COMMON SHARE
The following table sets forth the computation of the basic and diluted earnings per common share:
Earnings per Common Share
dollars in millions, except per share data
Net income
Preferred stock dividends
Net income available to common stockholders
Weighted average common shares outstanding
Basic shares outstanding
Stock-based awards
Diluted shares outstanding
Earnings per common share
Basic
Diluted
BancShares RSUs are discussed in Note 22 _ Employee Benefit Plans.
154
Year ended December 31
2021
2020
2022
1,098 $
50
1,048 $
547 $
18
529 $
492
14
478
15,531,924
18,020
15,549,944
9,816,405
_
9,816,405
10,056,654
_
10,056,654
67.47 $
67.40 $
53.88 $
53.88 $
47.50
47.50
$
$
$
$
NOTE 21 _ INCOME TAXES
The provision (benefit) for income taxes for the year ended December 31, 2022, 2021 and 2020 is comprised of the following:
Provision (Benefit) for Income Taxes
dollars in millions
Current U.S. federal income tax provision
Deferred U.S. federal income tax provision / (benefit)
Total federal income tax provision
Current state and local income tax provision
Deferred state and local income tax provision / (benefit)
Total state and local income tax provision
Total non-U.S. income tax provision
Total provision for income taxes
2022
Year ended December 31
2021
2020
$
$
58 $
170
228
4
23
27
9
264 $
140 $
(6)
134
21
(1)
20
_
154 $
137
(29)
108
15
3
18
_
126
A reconciliation from the U.S. Federal statutory rate to BancShares' actual effective income tax rate for the year ended
December 31, 2022, 2021 and 2020 is the following:
Percentage of Pretax Income
dollars in millions
2022
Income
Tax
Expense
(Benefit)
Pretax
Income
Percentage
of Pretax
Income
Pretax
Income
Effective Tax Rate
2021
Income
Tax
Expense
(Benefit)
Percentage
of Pretax
Income
2020
Income
Tax
Expense
(Benefit)
Percentage
of Pretax
Income
Pretax
Income
$
53
286
3.9 %
701 $
1,362 $
21.0 % $
(105)
(20)
(7.7)%
(1.5)%
Federal income taxes
and rate
Increase (decrease) due
to:
State and local income
taxes, net of federal
income tax benefit
Non-taxable bargain
purchase gain (1)
Domestic tax credits
Effect of BOLI
surrender (1)
Deferred tax liability
adjustment
Difference in tax rates
applicable to non-U.S.
earnings
Repayment of claim of
right income
Valuation allowances
Other
Provision for income
taxes and effective tax
rate
( 1) Income tax expense (benefit) includes, if applicable, federal, state, foreign and penalty taxes.
_ %
(0.4)%
1.1 %
_
(5)
14
19.4 %
3.5 %
0.1 %
(0.6)%
264
(8)
48
1
$
$
147
21.0 % $
618 $
130
21.0 %
16
_
(5)
_
_
_
(2)
_
(2)
2.2 %
_ %
(0.7)%
_ %
_ %
_ %
(0.3)%
_ %
(0.2)%
14
_
(5)
_
_
_
(14)
_
1
2.2 %
_ %
(0.9)%
_ %
_ %
_ %
(2.2)%
_ %
0.3 %
154
22.0 %
$
126
20.4 %
Income tax expense for 2021 and 2020 was favorably impacted by $2 million and $14 million respectively, due to BancShares'
decision in the second quarter of 2020 to utilize an allowable alternative for computing its 2021 and 2020 federal income tax
liability. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year
deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally
subjected to tax.
As a result of the CIT Merger, BancShares permanently reinvested eligible earnings of certain foreign subsidiaries and
accordingly, does not accrue any U.S. or foreign taxes that would be due if those earnings were repatriated. As of December 31,
2022, this assertion resulted in an unrecognized net deferred tax liability of $18 million on reinvested earnings of $665 million.
155
The tax effects of temporary differences that give rise to deferred income tax assets and liabilities at December 31, 2022 and
2021 are presented below:
Components of Deferred Income Tax Assets and Liabilities
dollars in millions
Deferred Tax Assets:
Net operating loss (NOL) carry forwards
Basis difference in loans
Allowance for credit losses
Accrued liabilities and reserves
Deferred compensation
Right of use - lease liability
Domestic tax credits
Mark to market adjustments
Capitalized costs
Unrealized net loss on securities AFS
Other
Total gross deferred tax assets
Deferred Tax Liabilities:
Operating leases
Right of use - lease asset
Loans and direct financing leases
Deferred BOLI Gain
Pension
Prepaid expenses
Market discount accretion
Other
Total deferred tax liabilities
Total net deferred tax liability before valuation allowances
Less: valuation allowances
Net deferred tax liability after valuation allowances
2022
2021
$
$
358 $
57
252
37
51
92
176
28
15
275
48
1,389
(1,311)
(86)
(43)
(15)
(54)
(14)
(35)
(47)
(1,605)
(216)
(70)
(286) $
8
_
40
6
19
14
_
_
_
5
17
109
_
(14)
(8)
_
(64)
_
_
(56)
(142)
(33)
_
(33)
Net Operating Loss Carryforwards and Valuation Adjustments
As a result of the CIT Merger, BancShares' net deferred tax liabilities increased by approximately $300 million. That amount
included an increase to deferred tax assets ("DTAs") primarily from net operating losses, capitalized costs and tax credits net of
deferred tax liabilities, primarily from operating leases.
As of December 31, 2022, BancShares has DTAs totaling $358 million on its global NOLs. This includes: (1) a DTA of
$192 million relating to its cumulative U.S. federal NOLs of $913 million; (2) DTAs of $150 million relating to cumulative
state NOLs of $2.8 billion, including amounts of reporting entities that file in multiple jurisdictions, and (3) DTAs of
$16 million relating to cumulative non-U.S. NOLs of $68 million. The U.S. federal NOLs will begin to expire in 2030 and state
NOLs will begin to expire in 2024.
As of December 31, 2022, BancShares has deferred tax assets of $176 million from its domestic tax credits. This includes: (1)
DTAs of $167 million from federal tax credits and (2) DTAs of $9 million from state tax credits. The federal tax credits begin
to expire in 2032 and the state tax credits have an indefinite carryforward.
During 2022, Management updated BancShares' long-term forecast of future U.S. federal taxable income. The updated forecast
continues to support the realization of the U.S. federal DTAs on NOLs and therefore no valuation allowance is necessary.
However, a valuation allowance of $67 million was retained on U.S. state DTAs relating to certain state NOLs as of
December 31, 2022.
BancShares maintained a valuation allowance of $3 million against certain non-U.S. reporting entities' net DTAs at
December 31, 2022. There was no valuation allowance at December 31, 2021. The increase is mainly related to the CIT
Merger. BancShares' ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events
that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize our DTAs, the
respective valuation allowance may be adjusted accordingly.
156
Liabilities for Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits ("UTBs") is as follows:
Unrecognized Tax Benefits (1)
Liabilities for
Unrecognized Tax
Benefits
Interest / Penalties
dollars in millions
Balance at December 31, 2021
Effect of CIT Merger
Additions for tax positions related to prior years
Reductions for tax positions of prior years
Expiration of statutes of limitations
Settlements
Balance at December 31, 2022
(1) Tabular rollforward does not present the comparable data for the prior years, as activity in the prior years was not material.
30 $
4
1
(5)
27 $
(1)
(2)
$
$
1 $
2
_
_
_
_
3 $
Total
31
6
1
(2)
(1)
(5)
30
BancShares recognizes tax benefits when it is more likely than not that the position will prevail, based solely on the technical
merits under the tax law of the relevant jurisdiction. BancShares will recognize the tax benefit if the position meets this
recognition threshold determined based on the largest amount of the benefit that is more than likely to be recognized.
As a result of the CIT Merger, BancShares' liabilities for unrecognized tax benefits, including interest and penalties, increased
by $6 million. During the year ended December 31, 2022, BancShares recorded a net decrease in UTBs, including interest and
penalties. The net decrease primarily related to settlements, partially offset by the increase resulting from the CIT Merger.
As of December 31, 2022, the accrued liability for interest and penalties is $3 million. BancShares recognizes accrued interest
and penalties on UTBs in income tax expense.
BancShares has UTBs relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax
filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the consolidated financial
statements. It is reasonably possible that these uncertain tax positions may be settled or resolved in the next twelve months. No
reasonable estimate of the settlement or resolution can be made.
The entire $30 million of UTBs including interest and penalties at December 31, 2022, would lower BancShares' effective tax
rate, if realized. Management believes that it is reasonably possible the total potential liability before interest and penalties may
be increased or decreased by $10 million within the next twelve months of the reporting date because of anticipated settlement
with taxing authorities, resolution of open tax matters, and the expiration of various statutes of limitations.
Income Tax Audits
BancShares is subject to examinations by the U.S. Internal Revenue Service ("IRS") and other taxing authorities in jurisdictions
where BancShares has significant business operations. The tax years under examination vary by jurisdiction. BancShares does
not expect completion of those audits to have a material impact on the firm's financial condition, but it may be material to
operating results for a particular period, depending, in part, on the operating results for that period.
The table below presents the earliest tax years that remain subject to examination by major jurisdiction.
Jurisdiction
U.S. Federal
New York State and City
North Carolina
California
Canada
December 31, 2022
2019
2015
2019
2017
2015
BancShares and its subsidiaries are subject to examinations by the IRS and other taxing authorities in jurisdictions where
BancShares has business operations for years ranging from 2012 through 2022. Management does not anticipate that the
completion of these examinations will have a material impact on the firm's financial condition, but it may be material to
operating results for a particular period, depending, in part, on the operating results for that period.
157
NOTE 22 _ EMPLOYEE BENEFIT PLANS
BancShares sponsors benefit plans for its qualifying employees and former employees of Bancorporation, Inc.
("Bancorporation'). The benefit plans include noncontributory defined benefit pension plans and 401(k) savings plans, which
are qualified under the Internal Revenue Code. BancShares also maintains agreements with certain executives providing
supplemental benefits paid upon death or separation from service at an agreed-upon age.
Certain benefit plans of CIT were assumed by BancShares upon closing of the CIT Merger. CIT sponsored both funded and
unfunded noncontributory defined benefit pension and postretirement plans, executive retirement plans, and a 401(k) savings
plan covering certain employees as further discussed below.
Retirement and Post-Retirement Plans
Pension Plans
BancShares sponsors three qualified noncontributory defined benefit pension plans (the "Pension Plans'), including the FCB-
North Pension Plan (the "BancShares Pension Plan'), FCB-South ("Bancorporation') Pension Plan (the "Bancorporation
Pension Plan'), and a plan assumed upon completion of the CIT Merger (the "CIT Pension Plan').
BancShares employees who were hired prior to April 1, 2007 and qualified under length of service and other requirements are
covered by the BancShares Pension Plan, which was closed to new participants as of April 1, 2007. There was no discretionary
contribution made to the BancShares Pension Plan during 2022, while discretionary contributions of $32 thousand were made
during 2021.
Certain legacy Bancorporation employees that qualified under length of service and other requirements are covered by the
Bancorporation Pension Plan, which was closed to new participants as of September 1, 2007. There were no discretionary
contributions made to the Bancorporation Pension Plan during 2022 or 2021.
Participants in the BancShares Pension Plan and Bancorporation Pension Plan were fully vested after five years of service.
Retirement benefits are based on years of service and highest annual compensation for five consecutive years during the last ten
years of employment. BancShares assumed the CIT Pension Plan upon completion of the CIT Merger. There was no
discretionary contribution made to the CIT Pension Plan during 2022.
BancShares makes contributions to the Pension Plans in amounts between the minimum required for funding and the maximum
amount deductible for federal income tax purposes. Management evaluates the need for its contributions to these plans on a
periodic basis based upon numerous factors including, but not limited to, funded status, returns on plan assets, discount rates
and the current economic environment.
Supplemental and Executive Retirement Plans
Upon completion of the CIT Merger, BancShares assumed a frozen U.S. non-contributory supplemental retirement plan (the
"Supplemental Retirement Plan') and an additional retirement plan for certain executives (the "Executive Retirement Plan'),
which had been closed to new participants since 2006 and whose participants were all inactive. There were no discretionary
contributions made to the Executive Retirement Plan or the Supplemental Retirement Plan in 2022. Accumulated balances
under the Executive Retirement Plan and the Supplemental Retirement Plan continue to receive periodic interest, subject to
certain government limits. The interest credit was 1.9% for the year ended December 31, 2022.
Postretirement Benefit Plans
Upon completion of the CIT Merger, BancShares assumed four postretirement benefit plans (the "Postretirement Plans') that
provided healthcare and life insurance benefits to eligible retired employees. For most eligible retirees, healthcare was
contributory and life insurance was non-contributory. The Postretirement Plans were funded on a "pay-as-you-go' basis.
Certain Postretirement Plans were terminated during the first quarter of 2022. BancShares recognized a reduction in other
noninterest expense of approximately $27 million in the first quarter of 2022 related to obligations previously accrued.
158
Funding for Retirement and Postretirement Plans
The funding policy for the Pension Plans is to contribute an amount each year to meet all Employee Retirement Income
Security Act ("ERISA") minimum requirements, including amounts to meet quarterly funding requirements, avoid "at-risk"
status and avoid any benefit restrictions. BancShares may also contribute additional voluntary amounts each year (up to the
maximum tax-deductible amount) in order to achieve certain target funding levels in the plans, with consideration also given to
current and future cash flow and tax positions. No contributions are currently expected for the year ending December 31, 2023.
The tables and disclosures below address the following: (i) the Pension Plans, the Supplemental Retirement Plan, and the
Executive Retirement Plan (the "Retirement Plans") and (ii) the Postretirement Plans (collectively with the Retirement Plans,
the "Plans"). The Supplemental and Executive Retirement Plans are unfunded. Therefore, the tables and disclosures below
regarding plan assets apply to the Pension Plans, which are funded.
Obligations and Funded Status
The following table provides the changes in benefit obligations, assets and the funded status of the Plans at December 31, 2022
and 2021.
Obligations and Funded Status
dollars in millions
Change in benefit obligation
Projected benefit obligation at January 1
Projected benefit obligation of acquired plans
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Plan termination
Projected benefit obligation at December 31
Change in plan assets
Fair value of plan assets at January 1
Fair value of plan assets of acquired plans
Actual (loss) return on plan assets
Benefits paid
Fair value of plan assets at December 31
Funded status at December 31
Information for pension plans with a benefit obligation in excess of plan assets
Projected and accumulated benefit obligations
Retirement Plans
2022
2021
Postretirement
Plans
2022
$
1,056 $
389
14
43
(324)
(63)
_
1,115
1,345
386
(270)
(57)
1,404
$
$
289 $
54 $
$
1,078
_
15
30
(31)
(36)
_
1,056
1,236
_
145
(36)
1,345
289
$
_ $
_
28
_
_
_
(1)
(27)
_
_
_
_
_
_
_
_
The Consolidated Balance Sheets include $343 million and $289 million in other assets related to the Pension Plans at
December 31, 2022 and 2021, respectively. The Consolidated Balance Sheet includes $54 million in other liabilities at
December 31, 2022 for the unfunded Supplemental Retirement and Executive Retirement Plans.
159
The following table details the amounts recognized in accumulated other comprehensive income, before income taxes, at
December 31, 2022 and 2021. See Note 18 _ Accumulated Other Comprehensive (Loss) Income for additional information.
dollars in millions
Net actuarial gain
Retirement Plans
2022
2021
Postretirement
Plans
2022
$
13 $
34
$
_
The accumulated benefit obligation for the Plans at December 31, 2022 and 2021 was $1.1 billion and $973 million,
respectively. The Plans use a measurement date of December 31.
The following table shows the components of periodic benefit cost related to the Plans and changes in assets and benefit
obligations of the Plans recognized in other comprehensive income, before income taxes, for the years ended December 31,
2022, 2021 and 2020. See Note 18 _ Accumulated Other Comprehensive (Loss) Income for additional information.
Net Periodic Benefit Costs and Other Amounts
Retirement Plans
dollars in millions
Service cost
Interest cost
Expected return on assets
Net prior service credit amortization
Amortization of net actuarial loss
Total net periodic (benefit) cost
Current year actuarial loss (gain)
Amortization of actuarial loss
Current year amortization of prior service cost
Amortization of prior service cost
Net loss (gain) recognized in other comprehensive income
Total recognized in net periodic benefit cost and other comprehensive income
$
$
Year ended December 31
2021
2020
2022
14 $
43
(87)
_
12
(18)
33
(12)
_
_
21
3 $
15 $
30
(78)
_
27
(6)
(98)
(27)
_
_
(125)
(131) $
Postretirement
Plans
Year ended
December 31
2022
14 $
34
(65)
_
25
8
(55)
(25)
_
_
(80)
(72) $
_
_
_
(27)
_
(27)
_
_
27
(27)
_
(27)
The actuarial loss in 2022 was primarily due to lower than expected return on assets and higher interest crediting rate, partially
offset by increased discount rates. Actuarial gains in 2021 and 2020 were primarily due to return on assets greater than
expected, partially offset by the impact of a decreased discount rate.
Service costs and the amortization of prior service costs are recorded in personnel expense, while interest cost, expected return
on assets and the amortization of actuarial gains or losses are recorded in other noninterest expense.
160
The assumptions used to determine the benefit obligations at December 31, 2022 and 2021 are as follows:
Weighted Average Assumptions
Discount rate
Rate of compensation increase
Interest crediting rate(1)
(1) Specific to cash investments in the CIT Pension Plan.
Retirement Plans
2022
2021
5.57 %
5.60
4.25
3.04 %
5.60
N/A
Postretirement
Plans
2022
N/A
N/A
N/A
The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2022, 2021 and 2020, are as
follows:
Weighted Average Assumptions
Discount rate
Rate of compensation increase
Expected long-term return on plan assets
Interest crediting rate(1)
(1) Specific to cash investments in the CIT Pension Plan.
2022
Retirement Plans
2021
2020
3.03 %
5.60
5.87
1.50
2.76 %
5.60
7.50
N/A
3.46 %
5.60
7.50
N/A
Postretirement
Plans
2022
3.02 %
N/A
N/A
N/A
The estimated discount rate, which represents the interest rate that could be obtained for a suitable 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 discounted based on this yield curve and a single discount rate is calculated to
achieve the same present value. The increase in discount rate from the prior year is reflective of the current market conditions.
The weighted average expected long-term rate of return on Pension Plans' assets represents the average rate of return expected
to be earned on the Pension Plans' assets over the period the benefits included in the benefit obligation are to be paid. In
developing the expected rate of return on the Pension Plans' assets, historical and current returns, as well as investment
allocation strategies, are considered.
Assets of the Pension Plans
For the Pension Plans, our primary total return objective is to achieve returns over the long term that will fund retirement
liabilities and provide desired benefits of the Pension Plans in a manner that satisfies the fiduciary requirements of the ERISA.
The Pension Plans' assets have a long-term time horizon that runs concurrent with the average life expectancy of the
participants. As such, the Pension Plans can assume a time horizon that extends well beyond a full market cycle and can assume
a reasonable level of risk. It is expected, however, that both professional investment management and sufficient portfolio
diversification will smooth volatility and help generate a consistent level of return. The investments are broadly diversified
across global, economic and market risk factors in an attempt to reduce volatility and target multiple return sources. Within
approved guidelines and restrictions, the investment manager has discretion over the timing and selection of individual
investments. The assets of the BancShares Pension Plan and Bancorporation Pension Plan are held by the BancShares' trust
department. Assets of the CIT Pension Plan were held by a third party servicer during 2022.
Equity securities are measured at fair value using observable closing prices. These securities are classified as Level 1 as they are
traded in an active market. Fixed income securities are generally estimated using a third party pricing service. The third party
provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models
which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as
needed. These securities are generally classified as Level 2. In the following table, assets of the CIT Pension Plan are primarily
included in the Common Collective Trust. These investments have been measured using the net asset value per share practical
expedient and are not required to be classified in the fair value hierarchy.
161
The following tables summarize the fair values and fair value hierarchy for the assets of the Pension Plans at December 31,
2022 and 2021.
Fair Value Measurements
December 31, 2022
dollars in millions
Cash and equivalents
Equity securities
Common and preferred stock
Mutual funds
Exchange traded funds
Fixed income
U.S. government and government agency
securities
Corporate bonds
Alternative investments
Common collective trust, measured at NAV
Limited partnerships
Total pension assets
Market
Value
Level 1
Level 2
Level 3
$
25 $
25 $
_ $
_ $
Not
Classified(1)
_
88
181
376
198
233
302
1
$ 1,404 $
88
181
376
_
_
_
_
_
198
233
_
_
_
_
_
_
_
670 $
_
_
431 $
_
_
_ $
_
_
_
_
_
302
1
303
eighted
Average
Target
Allocation
Pension Plans
0 - 5%
25 - 60%
Actual %
of Plans'
Assets
2 %
46 %
25 - 60%
31 %
0 - 30%
21 %
100 %
(1) These investments have been measured using the net asset value per share practical expedient and are not required to be classified in the table above.
December 31, 2021
Market
Value
Level 1
Level 2
Level 3
Cash and equivalents
Equity securities
Common and preferred stock
Mutual funds
Exchange traded funds
Fixed income
$
17 $
17 $
_ $
76
482
263
76
482
263
_
_
_
U.S. government and government agency
securities
Corporate bonds
Total pension assets
228
279
$ 1,345 $
_
3
841 $
228
276
504 $
_
_
_
_
_
_
_
Target
Allocation
0 - 5%
30 - 70%
Actual %
of Plan
Assets
1 %
61 %
15 - 45%
38 %
100 %
There were no direct investments in equity securities of BancShares included in the Pension Plans' assets in any of the years
presented.
Cash Flows
The following table presents estimated future benefits projected to be paid for the next ten years from the Pension Plans' assets
or from the Company's general assets calculated using current actuarial assumptions. Actual benefit payments may differ from
projected benefit payments.
Projected Benefits
dollars in millions
2023
2024
2025
2026
2027
2028-2032
Retirement Plans
72
$
74
77
79
82
420
162
401(k) Savings Plans
Certain employees enrolled in the BancShares or Bancorporation Pension Plans are also eligible to participate in a 40l(k)
savings plan (the "40l(k) Plan') through deferral of portions of their salary. For employees who participate in the 40l(k) Plan
who also continue to accrue additional years of service under the BancShares or Bancorporation Pension Plans, BancShares
makes a matching contribution equal to l00% of the first 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, employees were given the option to continue to accrue additional years of service under the BancShares or
Bancorporation Pension Plans or to elect to join an enhanced 40l(k) savings plan (the "Enhanced 40l(k) Plan'). Under the
Enhanced 40l(k) Plan, BancShares matches participants' contributions in an amount equal to l00% of the first 6% of the
participant's eligible compensation. The matching contribution immediately vests. In addition to the employer match of the
employee contributions, the Enhanced 40l(k) Plan provides a required employer non-elective contribution equal to 3% of the
compensation of a participant who remains employed at the end of the calendar year. Effective January l, 2023 this non-
elective contribution will be discretionary. This employer contribution vests after three years of service. Employees who elected
to enroll in the Enhanced 40l(k) Plan discontinued the accrual of additional years of service under the BancShares or
Bancorporation Pension Plans and became enrolled in the Enhanced 40l(k) Plan effective January l, 2008. Eligible employees
hired after January l, 2008, are eligible to participate in the Enhanced 40l(k) Plan.
CIT sponsored a 40l(k) plan (the "CIT 40l(k) Plan'), which was assumed by BancShares upon completion of the CIT Merger.
Under the CIT 40l(k) Plan, BancShares matched l00% of the participants' contributions up to 4% of the participant's eligible
compensation. In January 2023, the CIT 40l(k) Plan was merged into the Enhanced 40l(k) Plan.
BancShares recognized expense related to contributions to all 40l(k) plans of $55 million, $36 million, and $36 million during
2022, 202l and 2020, respectively.
Additional Benefits for Executives, Directors, and Officers
BancShares has entered into contractual agreements with certain executives providing payments for a period of no more than
ten years following separation from service occurring no earlier than an agreed-upon age. These agreements also provide a
death benefit in the event a participant dies prior to separation from service or during the payment period following separation
from service. BancShares has also assumed liability for contractual obligations to directors and officers of previously acquired
entities.
The following table provides the accrued liability as of December 3l, 2022 and 202l, and the changes in the accrued liability
during the years then ended:
dollars in millions
Accrued liability as of January l
Accrued liability of acquired banks
Discount rate adjustment
Benefit expense and interest cost
Benefits paid
Benefits forfeited
Accrued liability as of December 3l
Discount rate at December 3l
$
$
2022
2021
$
$
39
2
(2)
2
(5)
_
36
4.67 %
43
_
(l)
2
(5)
_
39
3.04 %
l63
Other Compensation Plans
BancShares offers various short-term and long-term incentive plans for certain employees. Compensation awarded under these
plans may be based on defined formulas, performance criteria, or at the discretion of management. The incentive compensation
programs were designed to motivate employees through a balanced approach of risk and reward for their contributions toward
BancShares' success. As of December 31, 2022 and 2021, the accrued liability for incentive compensation was $267 million
and $84 million, respectively.
CIT had compensation awards that either converted to BancShares RSUs or immediately vested at completion of the CIT
Merger as further described in the "Stock-Based Compensation" discussion in Note 1 _ Significant Accounting Policies and
Basis of Presentation. In February 2016, CIT adopted the CIT Group Inc. 2016 Omnibus Incentive Plan (the "2016 Plan"),
which provided for grants of stock-based awards to employees, executive officers, and directors. The BancShares RSUs are the
only outstanding awards subject to the terms of the 2016 Plan and no further awards will be made under the 2016 Plan.
Compensation expense is recognized over the vesting period or the requisite service period, which is generally three years for
BancShares RSUs, under the graded vesting method, whereby each vesting tranche of the award is amortized separately as if
each were a separate award.
The following table presents the unvested BancShares RSUs at December 31, 2022, which have vesting periods through 2024.
There were no grants of stock-based compensation awards during 2022. The fair value of RSUs that vested and settled in stock
during 2022 was $64 million.
Stock-Settled Awards Outstanding
share amounts in whole dollars
Stock-Settled Awards
Number of Shares
Weighted Average
Grant Date Value (1)
_
859.76
859.76
859.76
859.76
859.76
_ $
116,958
10,678
(5,194)
(79,453)
42,989 $
Unvested BancShares at December 31, 2021
Unvested CIT RSUs converted to BancShares RSUs at Merger Date
Unvested CIT PSUs converted to BancShares RSUs at Merger Date
Forfeitures
Vested / settled awards
Unvested BancShares RSUs at December 31, 2022
(1) Represents the share price of BancShares as of the CIT Merger Date.
164
NOTE 23 _ BUSINESS SEGMENT INFORMATION
BancShares began reporting multiple segments during the first quarter of 2022 and now reports General Banking, Commercial
Banking, Rail, and Corporate segments, as further discussed in Note 1 _ Significant Accounting Policies and Basis of
Presentation. Each of the segments are described below.
General Banking
General Banking delivers products and services to consumers and businesses through an extensive network of branches and
various digital channels, including a full suite of deposit products, loans (primarily residential mortgages and business/
commercial loans), and various fee-based services. General Banking also provides a variety of wealth management products
and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. In addition,
General Banking has a dedicated business line that supports deposit, cash management and lending to homeowner associations
and property management companies nationwide. Revenue is primarily generated from interest earned on loans and fees for
banking and advisory services. General Banking segment is the primary deposit gathering business of FCB.
Commercial Banking
Commercial Banking provides a range of lending, leasing, capital markets, asset management and other financial and advisory
services primarily to small and middle market companies in a wide range of industries. Loans offered are primarily senior
secured loans collateralized by accounts receivable, inventory, machinery and equipment, transportation equipment and/or
intangibles, and are often used for working capital, plant expansion, acquisitions or recapitalizations. These loans include
revolving lines of credit and term loans and, depending on the nature of the collateral, may be referred to as collateral-backed
loans, asset-based loans or cash flow loans. Commercial Banking provides senior secured loans to developers and other
commercial real estate professionals, and also provides small business loans and leases, including both capital and operating
leases, through a highly automated credit approval, documentation and funding process. Commercial Banking provides
factoring, receivable management, and secured financing to businesses that operate in various industries.
Revenue is primarily generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending
and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and
related activities.
Rail
Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers
throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic
pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service products;
open hopper cars for coal and aggregates; boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenue
is primarily from operating lease income.
Corporate
Certain items that are not allocated to operating segments are included in the Corporate segment. Some of the more significant
and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate
funding costs (including brokered deposits), income on BOLI (other noninterest income), merger-related costs, as well as
certain unallocated costs and intangible asset amortization expense (operating expenses). Corporate also includes certain
significant items that are infrequent, such as: the Initial Non-PCD Provision for loans and leases and unfunded commitments;
and the gain on acquisition, each of which are related to the CIT Merger.
165
Segment Net Income (Loss) and Select Period End Balances
The following table presents the condensed income statements and select period end balances for each segment.
dollars in millions
Net interest income (expense)
Provision for credit losses
Net interest income (expense) after provision for credit losses
Noninterest income
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Select Period End Balances
Loans and leases
Deposits
Operating lease equipment, net
Net interest income (expense)
Benefit for credit losses
Net interest income (expense) after benefit for credit losses
Noninterest income
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Select Period End Balances
Loans and leases
Deposits
Net interest income (expense)
Provision for credit losses
Net interest income (expense) after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Select Period End Balances
Loans and leases
Deposits
$
$
$
$
$
$
$
$
$
Year Ended December 31, 2022
General
Banking
Commercial
Banking
Rail
Corporate
1,942 $
11
1,931
472
1,570
833
204
629 $
889 $
121
768
521
746
543
128
415 $
(80) $
_
(80)
657
428
149
37
112 $
Total
BancShares
2,946
645
2,301
2,136
3,075
1,362
264
1,098
195 $
513
(318)
486
331
(163)
(105)
(58) $
42,930 $
84,361
_
27,773 $
3,225
723
78 $
15
7,433
_ $
1,807
_
70,781
89,408
8,156
Year Ended December 31, 2021
General
Banking
Commercial
Banking
Rail
Corporate
Total
BancShares
1,390
(37)
1,427
508
1,234
701
154
547
(74) $
_
(74)
75
52
(51)
(11)
(40) $
_ $
_
32,372
51,406
Total
BancShares
1,388
58
1,330
477
1,189
618
126
492
(18) $
_
(18)
98
40
40
8
32 $
3 $
1
32,792
43,432
Year Ended December 31, 2020
General
Banking
Commercial
Banking
Rail
Corporate
1,447 $
(37)
1,484
433
1,179
738
162
576 $
31,820 $
51,344
17 $
_
17
_
3
14
3
11 $
552 $
62
_ $
_
_
_
_
_
_
_ $
_ $
_
1,391 $
58
1,333
379
1,146
566
116
450 $
32,235 $
43,391
15 $
_
15
_
3
12
2
10 $
554 $
40
_ $
_
_
_
_
_
_
_ $
_ $
_
166
NOTE 24 _ COMMITMENTS AND CONTINGENCIES
Commitments
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet
risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend
credit and standby letters of credit.
The accompanying table summarizes credit-related commitments and other purchase and funding commitments:
dollars in millions
Financing Commitments
Financing assets (excluding leases)
Letters of Credit
Standby letters of credit
Other letters of credit
Deferred Purchase Agreements
Purchase and Funding Commitments (1)
December 31, 2022 December 31, 2021
$
23,452 $
13,011
436
44
2,039
92
24
_
Lessor commitments (1)
_
(l) BancShares' purchase and funding commitments relate to the equipment leasing businesses' commitments to fund finance leases and operating leases, and
Rail's railcar manufacturer purchase and upgrade commitments.
941
Financing Commitments
Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed
expiration dates or other termination clauses and may require payment of fees. Established credit standards control the credit
risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the
commitment, including cash deposits, securities and other assets.
Financing commitments, referred to as loan commitments or lines of credit, primarily reflect BancShares' agreements to lend to
its customers, subject to the customers' compliance with contractual obligations. At December 31, 2022, substantially all
undrawn financing commitments were senior facilities. Most of the undrawn and available financing commitments are in the
Commercial Banking segment. Financing commitments also include approximately $66 million related to off-balance sheet
commitments to fund equity investments. Commitments to fund equity investments are contingent on events that have yet to
occur and may be subject to change.
As financing commitments may not be fully drawn, may expire unused, may be reduced or canceled at the customer's request,
and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect
actual future cash flow requirements.
The table above excludes uncommitted revolving credit facilities extended by Commercial Services to its clients for working
capital purposes. In connection with these facilities, Commercial Services has the sole discretion throughout the duration of
these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any
specific advance requests made by its clients under these credit facilities.
Letters of Credit
Standby letters of credit are commitments to pay the beneficiary thereof if drawn upon by the beneficiary upon satisfaction of
the terms of the letter of credit. Those commitments are primarily issued to support public and private borrowing arrangements.
To mitigate its risk, BancShares' credit policies govern the issuance of standby letters of credit. The credit risk related to the
issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are
collateralized when necessary. These financial instruments generate fees and involve, to varying degrees, elements of credit risk
in excess of amounts recognized in the Consolidated Balance Sheets.
167
Deferred Purchase Agreements (❝DPA❞)
A DPA is provided in conjunction with factoring, whereby a client is provided with credit protection for trade receivables
without purchasing the receivables. The trade receivables terms generally require payment in 90 days or less. If the client's
customer is unable to pay an undisputed receivable solely as the result of credit risk, BancShares is then required to purchase
the receivable from the client, less any borrowings for such client based on such defaulted receivable. The outstanding amount
in the table above, less $186 million at December 31, 2022 of borrowings for such clients, is the maximum amount that
BancShares would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to
DPAs default in the manner described above, thereby requiring BancShares to purchase all such receivables from the DPA
clients.
The table above includes $1.9 billion of DPA exposures at December 31, 2022, related to receivables on which BancShares has
assumed the credit risk. The table also includes $138 million available under DPA credit line agreements provided at
December 31, 2022. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and
are cancellable by us only after a notice period, which is typically 90 days or less.
Litigation and other Contingencies
The Parent Company and certain of its subsidiaries have been named as a defendant in legal actions arising from its normal
business activities in which damages in various amounts are claimed. BancShares is also exposed to litigation risk relating to
the prior business activities of banks from which assets were acquired and liabilities assumed.
As part of the CIT Merger, BancShares assumed litigation in which CIT and CIT Bank, N.A. d/b/a OneWest Bank
("OneWest") were named as defendants in a then existing lawsuit brought as a qui tam (i.e., whistleblower) action by a former
OneWest employee on behalf of the U.S. Government. The lawsuit asserted claims related to OneWest's participation in the
Home Affordable Modification Program ("HAMP") administered by the United States Treasury Department, as well as Federal
Housing Administration ("FHA") and Veterans Administration ("VA") programs. On October 15, 2019, the plaintiff filed a
second amended complaint in the United States District Court for the Eastern District of Texas alleging that, beginning in 2009,
CIT (and its predecessor, OneWest) falsely certified its compliance with HAMP, submitted false claims for incentive payments
for loan modifications, submitted false claims for FHA and VA insurance payments, and failed to self-report these violations.
Plaintiff sought the return of all U.S. Government payments to CIT under the HAMP, FHA, and VA programs. CIT has
received approximately $93 million in servicer incentives under HAMP, and the U.S. Government has paid more than
$440 million in the aggregate in borrower, servicer, and investor incentives in connection with loans modified by OneWest or
CIT under HAMP. OneWest and CIT denied all allegations of liability. The Department of Justice declined to intervene in the
case.
On July 26, 2022, the parties settled all claims for $18.5 million and pursuant to the terms of the settlement, the parties filed a
joint stipulation of dismissal with prejudice. The settlement payment of $18.5 million was paid on August 4, 2022 and on
August 29, 2022, the Court entered an Order dismissing the case.
BancShares is also involved, and from time to time in the future may be involved, in a number of pending and threatened
judicial, regulatory, and arbitration proceedings as well as proceedings, investigations, examinations and other actions brought
or considered by governmental and self-regulatory agencies. These matters arise in connection with the ordinary conduct of
BancShares' business. At any given time, BancShares may also be in the process of responding to subpoenas, requests for
documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing
collectively being referred to as "Litigation"). While most Litigation relates to individual claims, BancShares may be subject to
putative class action claims and similar broader claims and indemnification obligations.
In light of the inherent difficulty of predicting the outcome of Litigation matters and indemnification obligations, particularly
when such matters are in their early stages or where the claimants seek indeterminate damages, BancShares cannot state with
confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these
matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with
applicable accounting guidance, BancShares' establishes reserves for Litigation when those matters present loss contingencies
as to which it is both probable that a loss will occur and the amount of such loss can reasonably be estimated. Based on
currently available information, BancShares believes that the outcome of Litigation that is currently pending will not have a
material adverse effect on BancShares' financial condition, but may be material to BancShares' operating results or cash flows
for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters
may be substantially higher than the amounts reserved.
168
For certain Litigation matters in which BancShares is involved, BancShares is able to estimate a range of reasonably possible
losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible,
such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management
currently estimates an aggregate range of reasonably possible losses of up to $10 million in excess of any established reserves
and any insurance we reasonably believe we will collect related to those matters. This estimate represents reasonably possible
losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently
indeterminable number of years, and is based on information currently available as of December 31, 2022. The Litigation
matters underlying the estimated range will change from time to time, and actual results may vary significantly from this
estimate.
Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably
possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not
represent BancShares' maximum loss exposure.
The foregoing statements about BancShares' Litigation are based on BancShares' judgments, assumptions, and estimates and
are necessarily subjective and uncertain. In the event of unexpected future developments, it is possible that the ultimate
resolution of these cases, matters, and proceedings, if unfavorable, may be material to BancShares' consolidated financial
position in a particular period.
NOTE 25 _ CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CIT Northbridge Credit LLC ("Northbridge") is an asset-based-lending joint venture between FCB (as successor to CIT Bank)
and Allstate Insurance Company and its subsidiary ("Allstate") that extends credit in asset-based lending middle-market loans.
FCB holds a 20% equity investment in Northbridge, and CIT Asset Management LLC, a non-bank subsidiary of FCB, acts as
an investment advisor and servicer of the loan portfolio. Allstate is an 80% equity investor. FCB's investment was $43 million
at December 31, 2022, with the expectation of additional investment as the joint venture grows. Management fees were earned
on loans under management. BancShares accounts for Northbridge under the equity method and recognized $4 million in the
Consolidated Statement of Income for the year ended December 31, 2022 for its proportion of Northbridge's net income.
BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community
Reinvestment Act requirements and obtaining tax credits. These investments are accounted for using the proportional
amortization method. BancShares also has investments in various trusts, partnerships, and limited liability corporations
established in conjunction with structured financing transactions of equipment, power and infrastructure projects and workout
transactions. BancShares' interests in these entities were entered into in the ordinary course of business that are accounted for
under the equity or cost methods. Refer to Note 10 - Other Assets and Note 12 - Variable Interest Entities for additional
information.
The combination of investments in and loans to unconsolidated entities represents BancShares' maximum exposure to loss, as
BancShares does not provide guarantees or other forms of indemnification to unconsolidated entities.
BancShares has, and expects to have in the future, banking transactions in the ordinary course of business with directors,
officers and their associates ("Related Persons") and entities controlled by Related Persons.
For those identified as Related Persons as of December 31, 2022, the following table provides an analysis of changes in the
loans outstanding during 2022 and 2021:
dollars in thousands
Balance at January 1
New loans
Repayments
Balance at December 31
Year ended December 31
2021
2022
$
$
122 $
61
(12)
171 $
117
21
(16)
122
The amounts presented exclude loans to Related Persons for credit card lines of $15,000 or less, overdraft lines of $5,000 or
less, and intercompany transactions between the Parent Company and FCB. Unfunded loan commitments available to Related
Persons were $2.6 million and $2.7 million as of December 31, 2022 and 2021, respectively.
169
December 31, 2022 December 31, 2021
$
$
$
$
119 $
3
93
9,935
34
48
10,232 $
454 $
60
_
56
570
9,662
10,232 $
Parent Company
Condensed Statements of Income
2022
Year ended December 31
2021
2020
NOTE 26 _ PARENT COMPANY FINANCIAL STATEMENTS
Parent Company
Condensed Balance Sheets
(dollars in millions)
Assets
Cash and due from banks
Interest-earning deposits at banks
Investment in marketable equity securities
Investment in banking subsidiary
Investment in other subsidiaries
Other assets
Total assets
Liabilities and Stockholders' Equity
Subordinated debt
Borrowings due to banking subsidiary
Other borrowings
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
(dollars in millions)
Income
Dividends from banking subsidiary
Other (loss) income
Total income
Expenses
Interest expense
Other expenses
Total expenses
Income before income taxes and equity in undistributed net income of
subsidiaries
Income tax expense
Income before equity in undistributed net income of subsidiaries
Equity in (distributed) undistributed net income of subsidiaries
Net income
Preferred stock dividends
Net income available to common stockholders
174
6
98
4,987
_
44
5,309
453
40
68
11
572
4,737
5,309
230
33
263
17
12
29
234
1
233
259
492
14
478
$
$
1,410 $
(2)
1,408
19
26
45
1,363
44
1,319
(221)
1,098
50
1,048 $
173 $
36
209
17
11
28
181
2
179
368
547
18
529 $
170
Parent Company
Condensed Statements of Cash Flows
2022
Year ended December 31
2021
2020
$
1,098 $
547 $
221
48
1
6
19
_
(3)
(2)
1,388
3
_
_
_
_
(51)
(48)
_
(68)
_
20
_
(1,240)
(83)
(24)
(1,395)
(55)
174
119
$
18 $
(536)
(368)
_
1
(34)
_
4
7
3
160
(4)
(2)
30
2
_
_
26
_
(20)
_
_
_
_
(42)
_
(62)
124
50
174
$
17 $
810
492
(259)
_
1
(29)
_
(3)
(3)
(1)
198
1
(333)
353
1
(423)
_
(401)
(40)
(33)
346
_
340
(334)
(31)
_
248
45
5
50
13
107
(dollars in millions)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Distributed (undistributed) net income of subsidiaries
Deferred tax expense
Net amortization of premiums and discounts
Fair value adjustment on marketable equity securities, net
Stock based compensation expense
Net change in due to/from subsidiaries
Net change in other assets
Net change in other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES
Net decrease (increase) in interest-earning deposits at banks
Purchase of marketable equity securities
Proceeds from sales of marketable equity securities
Proceeds from sales, calls, and maturities of investment securities
Investment in subsidiaries
Net cash paid in acquisition
Net cash (used in) provided by investing activities
FINANCING ACTIVITIES
Repayment of short-term borrowings
Repayment of other borrowings
Net proceeds from issuance of subordinated debt
Proceeds from borrowings due to banking subsidiary
Net proceeds from issuance of preferred stock
Repurchase of Class A common stock
Cash dividends paid
Other financing activities
Net cash (used in) provided by financing activities
Net change in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
CASH PAYMENTS (REFUNDS) FOR:
Interest
(Refunds) payments for income taxes
$
$
171
Item 9A. Controls and Procedures
BancShares' management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of BancShares' disclosure controls and procedures as of the end of the period covered
by this Annual Report, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 ('Exchange Act"). Based upon
the evaluation, as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer
concluded BancShares' disclosure controls and procedures were effective to provide reasonable assurance it is able to record,
process, summarize and report information required to be disclosed in the reports it files under the Exchange Act in a timely
and accurate manner.
There have been no changes in BancShares' internal control over financial reporting during the fourth quarter of 2022 which
have materially affected, or are reasonably likely to materially affect, BancShares' internal control over financial reporting.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of First Citizens BancShares, Inc. ('BancShares") is responsible for establishing and maintaining adequate
internal control over financial reporting. BancShares' internal control system was designed to provide reasonable assurance to
the company's management and Board of Directors regarding the preparation and fair presentation of published financial
statements.
BancShares' management assessed the effectiveness of the company's internal control over financial reporting as of
December 31, 2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission ('COSO") in Internal Control-Integrated Framework (2013). Based on that assessment,
BancShares' management believes, as of December 31, 2022, BancShares' internal control over financial reporting is effective.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. A control
deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control
deficiency, or combination of control deficiencies, in internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting. A
material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, in
internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's
annual or interim financial statements will not be prevented or detected on a timely basis.
BancShares' independent registered public accounting firm has issued an audit report on the company's internal control over
financial reporting. This report appears under 'Report of Independent Registered Public Accounting Firm on Internal Control
over Financial Reporting" in Item 8. Financial Statements and Supplementary Data.
172
Item 14. Principal Accounting Fees and Sercices
PART III
Our independent registered public accounting firm is KPMG LLP, Raleigh, NC, PCAOB Firm ID: 185.
Our predecessor independent registered public accounting firm was FORVIS, LLP, (formerly Dixon Hughes Goodman LLP),
Tysons, VA, PCAOB Firm ID No. 686.
The other information required by this Item 14 is incorporated herein by reference from the "Proposal 7: Ratification of
Appointment of Independent Accountants" section of the definitive Proxy Statement for the 2023 Annual Meeting of
Stockholders.
173
Item 15. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
PART IV
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
*10.2
*10.3
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
Agreement and Plan of Merger, dated October 15, 2020, by and among CIT Group Inc., First Citizens BancShares, Inc., First-Citizens Bank
& Trust Company, and FC Merger Subsidiary IX, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K dated October
20, 2020)
Amendment No. 1, dated September 30, 2021, to the Agreement and Plan of Merger dated October 15, 2020, by and among CIT Group Inc.,
First Citizens BancShares, Inc., First-Citizens Bank & Trust Company, and FC Merger Subsidiary IX, Inc. (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated September 30, 2021)
Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-K for the
year ended December 31, 2014)
Certificate of Designation of 5.375% Non-Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form 8-A, filed on March 12, 2020)
Restated Certificate of Designation of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 10-K for the year ended December 31, 2021)
Restated Certificate of Designation of 5.625% Non-Cumulative Perpetual Preferred Stock, Series C (incorporated by reference to Exhibit
3.4 to the Registrant's Form 10-K for the year ended December 31, 2021)
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K dated January 24,
2023)
Specimen of Registrant's Class A Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Form 10-K for the
year ended December 31, 2008)
Specimen of Registrant's Class B Common Stock certificate (incorporated by reference to Exhibit 4.2 to the Registrant's Form 10-K for the
year ended December 31, 2008)
Specimen of Registrant's 5.375% Non-Cumulative Perpetual Preferred Stock, Series A Certificate (incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form 8-A, filed on March 12, 2020)
Specimen of Registrant's Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B (incorporated by reference to Exhibit
4.2 to Amendment No. 1 of the Registrant's Form S-4 Registration Statement (333-250131) filed on December 21, 2020)
Specimen of Registrant's 5.625% Non-Cumulative Perpetual Preferred Stock, Series C, Certificate (incorporated by reference 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 Corporate Issuer Solutions, Inc., as depositary, and the
holders from time to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form 8-A, filed on March 12, 2020)
Form of Depositary Receipt (included as Exhibit A in Exhibit 4.6 hereto)
Description of the Registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by
reference to Exhibit 4.8 to the Registrant's Form 10-K for the year ended December 31, 2021)
Instruments defining the rights of holders of long-term debt will be furnished to the SEC upon request.
Amended and Restated Trust Agreement of FCB/NC Capital Trust III (incorporated by reference to Exhibit 4.1 to the Registrant's Form 10-
Q for the quarter ended June 30, 2006)
Guarantee Agreement relating to Registrant's guarantee of the capital securities of FCB/NC Capital Trust III (incorporated by reference to
Exhibit 4.2 to the Registrant's Form 10-Q for the quarter ended June 30, 2006)
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant's subsidiary First-Citizens Bank & Trust
Company and Frank B. Holding, Jr. (incorporated by reference to Exhibit 9.1 to the Registrant's Form 8-K dated February 18, 2011)
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant's subsidiary First-Citizens Bank & Trust
Company and Hope Holding Bryant (incorporated by reference to Exhibit 9.5 to the Registrant's Form 8-K dated February 18, 2011)
Employee Consultation, Post-Retirement, Non-Competition and Death Benefit Agreement between Registrant's subsidiary, First-Citizens
Bank & Trust Company, as successor by merger to First Citizens Bank and Trust Company, Inc., and Peter M. Bristow. (incorporated by
reference to Exhibit 10.10 to the Registrant's Form 10-K for the year ended December 31, 2014)
Employee Consultation, Post-Retirement, Non-Competition and Death Benefit Agreement between Registrant's subsidiary, First-Citizens
Bank & Trust Company as successor by merger to First Citizens Bank and Trust Company, Inc., and Craig L. Nix. (incorporated by
reference to Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 2014)
Executive Consultation, Separation from Service and Death Benefit Agreement between Registrant's subsidiary First-Citizens Bank & Trust
Company and Jeffery L. Ward (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K for the year ended December 31,
2020)
Employment Letter Agreement between Registration and Ellen R. Alemany dated October 15, 2020 (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q for the quarter ended March 31, 2022)
Retention Letter Agreement between Registrant and Marisa Harney dated October 15, 2020 (incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended March 31, 2022)
409A Deferred 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 Exhibit 10.12 to the Registrant's Form 10-K for the year ended
December 31, 2014)
Deferred 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 Exhibit 10.13 to the Registrant's Form 10-K for the year ended December 31,
2014)
174
*10.10
*10.11
*10.12
*10.13
*10.14
21
23.1
23.2
24
31.1
31.2
32.1
32.2
**101.INS
**101.SCH
**101.CAL
**101.LAB
**101.PRE
**101.DEF
**104
*
**
Amended and Restated Long-Term Incentive Plan of Registrant's subsidiary, First-Citizens Bank & Trust Company (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K dated January 25, 2022)
Form of Long-Term Incentive Plan Award Agreement (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-K for the year
ended December 31, 2020)
Form of Long-Term Incentive Plan Award Agreement (for awards beginning in 2022) (incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31, 2021)
Nonqualified Deferred Compensation Plan of Registrant's subsidiary, First-Citizens Bank & Trust Company (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K dated February 24, 2021)
Merger Performance Plan of Registrant's subsidiary, First Citizen's Bank & Trust Company (incorporated by reference to Exhibit 10.4 to
the Registrant's Form 10-Q for the quarter ended March 31, 2022)
Subsidiaries of the Registrant (filed herewith)
Consent of Independent Registered Public Accounting Firm, KPMG LLP (filed herewith)
Consent of Independent Registered Public Accounting Firm, FORVIS, LLP (filed herewith)
Power of Attorney (filed herewith)
Certification of Chief Executive Officer (filed herewith)
Certification of Chief Financial Officer (filed herewith)
Certification of Chief Executive Officer (filed herewith)
Certification of Chief Financial Officer (filed herewith)
Inline XBRL Instance Document (filed herewith)
Inline XBRL Taxonomy Extension Schema (filed herewith)
Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
Inline XBRL Taxonomy Definition Linkbase (filed herewith)
Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
Management contract or compensatory plan or arrangement.
Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18
of the Securities Exchange Act of 1934, as amended.
175
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: February 24, 2023
FIRST CITIZENS BANCSHARES, INC. (Registrant)
/S/ FRANK B. HOLDING, JR.
Frank B. Holding, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons, on behalf of the Registrant and in the capacities indicated on February 24, 2023.
Signature
Title
Date
/s/ FRANK B. HOLDING, JR.
Chairman and Chief Executive Officer
February 24, 2023
Frank B. Holding, Jr.
/s/ CRAIG L. NIX
Craig L. Nix
Chief Financial Officer (principal financial
officer and principal accounting officer)
February 24, 2023
/s/ ELLEN R. ALEMANY *
Director
February 24, 2023
Ellen R. Alemany
/s/ JOHN M. ALEXANDER, JR. *
Director
February 24, 2023
John M. Alexander, Jr.
/s/ VICTOR E. BELL, III *
Director
February 24, 2023
Victor E. Bell, III
/s/ PETER M. BRISTOW *
Director
February 24, 2023
Peter M. Bristow
/s/ HOPE HOLDING BRYANT *
Director
February 24, 2023
Hope Holding Bryant
/s/ MICHAEL A. CARPENTER *
Director
February 24, 2023
Michael A. Carpenter
/s/ H. LEE DURHAM, JR. *
Director
February 24, 2023
H. Lee Durham, Jr.
/s/ EUGENE FLOOD, JR. *
Director
February 24, 2023
Eugene Flood, Jr.
176
Signature
Title
Date
/s/ ROBERT R. HOPPE *
Director
February 24, 2023
Robert R. Hoppe
/s/ FLOYD L. KEELS *
Director
February 24, 2023
Floyd L. Keels
/s/ ROBERT E. MASON, IV *
Director
February 24, 2023
Robert E. Mason, IV
/s/ ROBERT T. NEWCOMB *
Director
February 24, 2023
Robert T. Newcomb
/s/ JOHN R. RYAN *
Director
February 24, 2023
John R. Ryan
Craig L. Nix hereby signs this Annual Report on Form 10-K on February 24, 2023, on behalf of each of the
indicated persons for whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.
/S/ CRAIG L. NIX
Craig L. Nix
As Attorney-In-Fact
*
By:
177