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FIRST CITIZENS BANCSHARES INC /DE/ - Quarter Report: 2023 September (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2023
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-16715
First Citizens BancShares, Inc.
(Exact name of Registrant as specified in its charter)
Delaware56-1528994
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4300 Six Forks RoadRaleighNorth Carolina27609
(Address of principle executive offices)(Zip code)
(919)716-7000
(Registrant’s telephone number, including area code)
____________________________________________________
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, Par Value $1FCNCA
Nasdaq Global Select Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Non-Cumulative Perpetual Preferred Stock, Series AFCNCP
Nasdaq Global Select Market
5.625% Non-Cumulative Perpetual Preferred Stock, Series CFCNCO
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
Class B Common Stock, Par Value $1
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Class A Common Stock— 13,514,918 shares
Class B Common Stock—1,005,185 shares
(Number of shares outstanding, by class, as of October 31, 2023)




CONTENTS
Part One — Financial Information:
Item 1.
Item 2.
Item 3.
Item 4.
Part Two — Other Information:
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.


2


GLOSSARY OF ABBREVIATIONS AND ACRONYMS
The following is a list of certain abbreviations and acronyms used throughout this document. You may find it helpful to refer back to this table.

AcronymDefinitionAcronymDefinition
AFSAvailable for SaleHFIHeld for Investment
AHFSAssets Held for SaleHQLSHigh Quality Liquid Securities
ALLLAllowance for Loan and Lease LossesHTMHeld to Maturity
AOCIAccumulated Other Comprehensive IncomeIPOInitial Public Offering
ASCAccounting Standards CodificationISDAInternational Swaps and Derivatives Association
ASUAccounting Standards UpdateLIBORLondon Inter-Bank Offered Rate
BHCBank Holding CompanyLGDLoss Given Default
BOLIBank Owned Life InsuranceLOCOMLower of the Cost or Market Value
bpsBasis point(s); 1 bp = 0.01%MD&AManagement’s Discussion and Analysis
C&ICommercial and IndustrialMSRsMortgage Servicing Rights
CABCommunity Association BankingNCCOBNorth Carolina Commissioner of Banks
CCARComprehensive Capital Analysis and ReviewNIINet Interest Income
CECLCurrent Expected Credit LossesNII SensitivityNet Interest Income Sensitivity
CRECommercial Real EstateNIMNet Interest Margin
DPADeferred Purchase AgreementNPRNotice of Proposed Rulemaking
DTAsDeferred Tax AssetsOREOOther Real Estate Owned
EADExposure at DefaultPAAPurchase Accounting Adjustments
ETREffective Tax RatePCAPrompt Corrective Action
EVE SensitivityEconomic Value of Equity SensitivityPCDPurchased Credit Deteriorated
FASBFinancial Accounting Standards BoardPDProbability of Obligor Default
FCBFirst-Citizens Bank & Trust CompanyR&SReasonable and Supportable
FDICFederal Deposit Insurance CorporationPPPPaycheck Protection Program
FHAFederal Housing AdministrationROURight of Use
FHCFinancial Holding CompanySBASmall Business Administration
FHLBFederal Home Loan BankSOFRSecured Overnight Financing Rate
FOMCFederal Open Market CommitteeTDRsTroubled Debt Restructuring
FRBFederal Reserve BankUPBUnpaid Principal Balance
GAAPAccounting Principles Generally Accepted in the U.S.VIEVariable Interest Entity
GDPGross Domestic Product

3


PART I

Item 1. Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)


dollars in millions, except share dataSeptember 30, 2023December 31, 2022
Assets
Cash and due from banks$791 $518 
Interest-earning deposits at banks36,704 5,025 
Securities purchased under agreements to resell549 — 
Investment in marketable equity securities (cost of $75 at September 30, 2023 and $75 at December 31, 2022)
75 95 
Investment securities available for sale (cost of $17,836 at September 30, 2023 and $9,967 at December 31, 2022), net of allowance for credit losses
16,661 8,995 
Investment securities held to maturity (fair value of $8,152 at September 30, 2023 and $8,795 at December 31, 2022)
10,082 10,279 
Assets held for sale58 60 
Loans and leases133,202 70,781 
Allowance for loan and lease losses(1,673)(922)
Loans and leases, net of allowance for loan and lease losses131,529 69,859 
Operating lease equipment, net8,661 8,156 
Premises and equipment, net1,768 1,456 
Goodwill346 346 
Other intangible assets329 140 
Other assets6,212 4,369 
Total assets$213,765 $109,298 
Liabilities
Deposits:
Noninterest-bearing$43,141 $24,922 
Interest-bearing103,092 64,486 
Total deposits146,233 89,408 
Credit balances of factoring clients1,282 995 
Borrowings:
Short-term borrowings453 2,186 
Long-term borrowings37,259 4,459 
Total borrowings37,712 6,645 
Other liabilities8,149 2,588 
Total liabilities193,376 99,636 
Stockholders’ equity
Preferred stock - $0.01 par value (20,000,000 and 10,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively)
881 881 
Common stock:
Class A - $1 par value (32,000,000 and 16,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; 13,514,918 and 13,501,017 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)
14 14 
Class B - $1 par value (2,000,000 shares authorized; 1,005,185 shares issued and outstanding at September 30, 2023 and December 31, 2022)
Additional paid in capital4,106 4,109 
Retained earnings16,267 5,392 
Accumulated other comprehensive loss(880)(735)
Total stockholders’ equity20,389 9,662 
Total liabilities and stockholders’ equity$213,765 $109,298 
See accompanying Notes to the Unaudited Consolidated Financial Statements.

4


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
dollars in millions, except share and per share data2023202220232022
Interest income
Interest and fees on loans$2,426 $785 $5,796 $2,061 
Interest on investment securities180 90 407 262 
Interest on deposits at banks504 31 1,071 50 
Total interest income3,110 906 7,274 2,373 
Interest expense
Deposits769 78 1,632 159 
Borrowings351 33 841 70 
Total interest expense1,120 111 2,473 229 
Net interest income1,990 795 4,801 2,144 
Provision for credit losses192 60 1,126 566 
Net interest income after provision for credit losses1,798 735 3,675 1,578 
Noninterest income
Rental income on operating lease equipment248 219 719 640 
Fee income and other service charges70 41 185 112 
Client investment fees52 — 106 — 
Wealth management services49 35 140 107 
International fees34 71 
Service charges on deposit accounts44 21 112 76 
Factoring commissions21 24 60 78 
Cardholder services, net41 25 103 76 
Merchant services, net12 36 27 
Insurance commissions13 11 40 34 
Realized loss on sale of investment securities available for sale, net(12)— (26)— 
Fair value adjustment on marketable equity securities, net(1)(2)(20)(5)
Bank-owned life insurance25 
Gain on sale of leasing equipment, net10 18 13 
Gain on acquisition12 — 9,891 431 
Gain on extinguishment of debt— — 
Other noninterest income 21 37 89 79 
Total noninterest income615 433 11,532 1,707 
Noninterest expense
Depreciation on operating lease equipment95 87 275 257 
Maintenance and other operating lease expenses51 52 163 142 
Salaries and benefits727 353 1,922 1,054 
Net occupancy expense65 47 179 143 
Equipment expense117 55 308 161 
Professional fees12 11 44 34 
Third-party processing fees54 27 138 77 
FDIC insurance expense36 76 26 
Marketing expense25 15 81 32 
Acquisition-related expenses121 33 354 202 
Intangible asset amortization17 40 17 
Other noninterest expense96 70 263 170 
Total noninterest expense1,416 760 3,843 2,315 
Income before income taxes997 408 11,364 970 
Income tax expense245 93 412 129 
Net income$752 $315 $10,952 $841 
Preferred stock dividends15 12 44 36 
Net income available to common stockholders$737 $303 $10,908 $805 
Earnings per common share
Basic$50.71 $19.27 $750.79 $50.76 
Diluted$50.67 $19.25 $750.19 $50.70 
Weighted average common shares outstanding
Basic14,528,31015,711,97614,527,71815,849,219
Diluted14,539,13315,727,99314,539,38315,867,314
See accompanying Notes to the Unaudited Consolidated Financial Statements.
5


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)


Three Months Ended September 30,Nine Months Ended September 30,
dollars in millions2023202220232022
Net income$752 $315 $10,952 $841 
Other comprehensive loss, net of tax
Net unrealized loss on securities available for sale(108)(266)(150)(747)
Net change in unrealized loss on securities available for sale transferred to securities held to maturity— — 
Net change in defined benefit pension items— 
Other comprehensive loss, net of tax$(108)$(264)$(145)$(739)
Total comprehensive income$644 $51 $10,807 $102 
See accompanying Notes to the Unaudited Consolidated Financial Statements.


6


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Three Months Ended September 30,
dollars in millions, except share dataPreferred StockClass A Common StockClass B Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at June 30, 2023$881 $14 $$4,106 $15,541 $(772)$19,771 
Net income— — — — 752 — 752 
Other comprehensive loss, net of tax— — — — — (108)(108)
Stock based compensation— — — — — — — 
Cash dividends declared ($0.75 per common share):
Class A common stock— — — — (10)— (10)
Class B common stock— — — — — — — 
Preferred stock dividends declared:
Series A— — — — (5)— (5)
Series B— — — — (8)— (8)
Series C— — — — (3)— (3)
Balance at September 30, 2023$881 $14 $$4,106 $16,267 $(880)$20,389 
Balance at June 30, 2022$881 $15 $$5,345 $4,865 $(465)$10,642 
Net income— — — — 315 — 315 
Other comprehensive loss, net of tax— — — — — (264)(264)
Stock based compensation— — — — — 
Repurchased 1,027,414 shares of Class A common stock
— (1)— (841)— — (842)
Cash dividends declared ($0.47 per common share):
Class A common stock— — — — (7)— (7)
Class B common stock— — — — (1)— (1)
Preferred stock dividends declared
Series A— — — — (5)— (5)
Series B— — — — (5)— (5)
Series C— — — — (2)— (2)
Balance at September 30, 2022$881 $14 $$4,506 $5,160 $(729)$9,833 
7


Nine Months Ended September 30,
dollars in millions, except share dataPreferred StockClass A Common StockClass B Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
Balance at December 31, 2022$881 $14 $$4,109 $5,392 $(735)$9,662 
Net income— — — — 10,952 — 10,952 
Other comprehensive loss, net of tax— — — — — (145)(145)
Stock based compensation— — — (3)— — (3)
Cash dividends declared ($0.75 per common share):
Class A common stock— — — — (31)— (31)
Class B common stock— — — — (2)— (2)
Preferred stock dividends declared:
Series A— — — — (14)— (14)
Series B— — — — (22)— (22)
Series C— — — — (8)— (8)
Balance at September 30, 2023$881 $14 $$4,106 $16,267 $(880)$20,389 
Balance at December 31, 2021$340 $$$— $4,378 $10 $4,738 
Net income— — — — 841 — 841 
Other comprehensive loss, net of tax— — — — — (739)(739)
Issued in CIT Merger:
Common stock— — 5,273 — — 5,279 
Series B preferred stock334 — — — — — 334 
Series C preferred stock207 — — — — — 207 
Stock based compensation— — — 74 — — 74 
Repurchased 1,027,414 shares of Class A common stock
— (1)— (841)— — (842)
Cash dividends declared ($0.47 per common share):
Class A common stock— — — — (21)— (21)
Class B common stock— — — — (2)— (2)
Preferred stock dividends declared
Series A— — — — (14)— (14)
Series B— — — — (14)— (14)
Series C— — — — (8)— (8)
Balance at September 30, 2022$881 $14 $$4,506 $5,160 $(729)$9,833 

See accompanying Notes to the Unaudited Consolidated Financial Statements.
8


First Citizens BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
dollars in millions20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$10,952 $841 
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses1,126 566 
Deferred tax expense110 80 
Depreciation, amortization, and accretion, net(12)399 
Stock based compensation expense17 
Realized loss on sale of investment securities available for sale, net26 — 
Fair value adjustment on marketable equity securities, net20 
Loss (gain) on sale of loans, net(6)
Gain on sale of operating lease equipment, net(18)(13)
Gain on sale of premises and equipment, net— (6)
Gain on other real estate owned, net(3)(13)
Gain on acquisition(9,891)(431)
Gain on extinguishment of debt— (7)
Origination of loans held for sale(503)(428)
Proceeds from sale of loans held for sale475 487 
Software impairment21 — 
Net change in other assets(410)59 
Net change in other liabilities(130)216 
Other operating activities(11)(29)
Net cash provided by operating activities1,759 1,737 
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-earning deposits at banks2,322 5,817 
Purchases of investment securities available for sale(8,415)(1,813)
Proceeds from maturities of investment securities available for sale774 952 
Proceeds from sales of investment securities available for sale245 — 
Purchases of investment securities held to maturity(213)— 
Proceeds from maturities of investment securities held to maturity434 699 
Net increase in securities purchased under agreements resell(549)— 
Net decrease (increase) in loans6,215 (4,257)
Proceeds from sales of loans290 182 
Net increase (decrease) in credit balances of factoring clients287 (386)
Purchases of operating lease equipment(815)(464)
Proceeds from sales of operating lease equipment178 58 
Purchases of premises and equipment(197)(81)
Proceeds from sales of premises and equipment— 13 
Proceeds from sales of other real estate owned15 38 
Cash acquired, net of cash paid as consideration for acquisition810 134 
Other investing activities1,406 (87)
Net cash provided by investing activities2,787 805 
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in time deposits6,238 (1,741)
Net decrease in demand and other interest-bearing deposits(5,658)(1,831)
Net change in securities sold under customer repurchase agreements(11)
Repayment of short-term borrowings(2,250)(450)
Proceeds from issuance of short-term borrowings500 3,000 
Repayment of long-term borrowings(13,016)(3,745)
Proceeds from issuance of long-term borrowings9,990 3,253 
Repurchase of Class A common stock— (792)
Cash dividends paid(78)(58)
Other financing activities(6)(24)
Net cash used in financing activities(4,273)(2,399)
Change in cash and due from banks273 143 
Cash and due from banks at beginning of period518 338 
Cash and due from banks at end of period$791 $481 
9



Nine Months Ended September 30,
dollars in millions20232022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the period for:
Interest$2,443 $315 
Income taxes429 (12)
Significant non-cash investing and financing activities:
Transfers of loans to other real estate20 13 
Transfers of premises and equipment to other real estate18 
Dividends declared but not paid— 
Transfer of assets from held for investment to held for sale309 101 
Transfer of assets from held for sale to held for investment14 21 
Loans held for sale exchanged for investment securities— 38 
Commitments extended during the period on affordable housing investment credits81 55 
Issuance of common stock as consideration for CIT Merger— 5,279 
Stock based compensation as consideration for CIT Merger— 81 
Issuance of preferred stock as consideration for CIT Merger— 541 
Purchase Money Note as consideration for SVBB Acquisition35,808 — 
See accompanying Notes to the Unaudited Consolidated Financial Statements.

10



Notes to the Unaudited Consolidated Financial Statements

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Nature of Operations
First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” “BancShares”) is a financial holding company organized under the laws of Delaware that conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB,” or the “Bank”), which is headquartered in Raleigh, North Carolina. BancShares and its subsidiaries operate a network of more than 500 branches and offices in 30 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States. BancShares provides various types of commercial and consumer banking services, including lending, leasing and wealth management services. Deposit services include checking, savings, money market and time deposit accounts.

BASIS OF PRESENTATION

Principles of Consolidation and Basis of Presentation
These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Interim results are not necessarily indicative of results for a full year.

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

Reclassifications
In certain instances, amounts reported in the 2022 consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions impact the amounts reported in the consolidated financial statements and accompanying notes and the disclosures provided, and actual results could differ from those estimates. The significant estimates related to the determination of the allowance for loan and lease losses (“ALLL”) and fair values of loans acquired in and the core deposit intangibles associated with a business combination are considered critical accounting estimates.

Business Combinations
BancShares accounts for all business combinations using the acquisition method of accounting. Under this method, acquired assets and assumed liabilities are included with the acquirer’s accounts at their estimated fair value as of the date of acquisition, with any excess of purchase price over the fair value of the net tangible and intangible assets acquired recognized as goodwill. To the extent the fair value of identifiable net assets acquired exceeds the purchase price, a gain on acquisition is recognized. Acquisition-related costs are recognized as period expenses as incurred.

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

On January 3, 2022 (the “CIT Merger Date”), BancShares completed its merger (the “CIT Merger”) with CIT Group Inc. (“CIT”), pursuant to an Agreement and Plan of Merger, dated as of October 15, 2020, as amended by Amendment No. 1, dated as of September 30, 2021 (as amended, the “CIT Merger Agreement”). Refer to Note 2—Business Combinations for additional information.
11



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

ACCOUNTING POLICIES

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

Securities Purchased Under Agreement to Resell
Securities purchased under agreement to resell are accounted for as collateralized financing transactions as the terms of such purchase agreements do not qualify for sale accounting and are therefore recorded at the amount of cash advanced. Accrued interest receivables are recorded in other assets. Interest earned is recorded in interest income.

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

Loans and Leases
BancShares extends credit to commercial customers through a variety of financing arrangements including term loans, revolving credit facilities, finance leases and operating leases. BancShares also extends credit through consumer loans, including residential mortgages and auto loans. Our loan classes are further described in Note 1 — Significant Accounting Policies and Basis of Presentation in the 2022 Form 10-K.

SVB Loan Classes
SVB loan classes were added to reflect the loans acquired in the SVBB Acquisition. The SVB loan classes are described below.

Global Fund Banking – Global fund banking is the largest class of SVB loans and consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in funds managed by certain private equity and venture capital firms.

Investor Dependent – The investor dependent class includes loans made primarily to technology and life science/healthcare companies. These borrowers typically have modest or negative cash flows and rarely have an established record of profitable operations. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an initial public offering (“IPO”). The investor dependent loans are disaggregated into two classes:
Early Stage – These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million.
Growth Stage – These include loans to growth stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid stage, and companies with revenues in excess of $15 million are considered to be later stage.

Cash Flow Dependent and Innovation Commercial and Industrial (“C&I”) – Cash flow dependent and innovation C&I loans are made primarily to technology and life science/healthcare companies that are not investor dependent. Repayment of these loans is not dependent on additional equity financing, a successful sale or an IPO.
Cash Flow Dependent – Cash flow dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, are larger in size and repayment is generally dependent upon the cash flows of the combined entities. Acquired companies are typically established, later-stage businesses of scale, and characterized by reasonable levels of leverage with loan structures that include meaningful financial covenants. The sponsor’s equity contribution is often 50 percent or more of the acquisition price.
12



Innovation C&I – These include loans in innovation sectors such as technology and life science/healthcare industries. Innovation C&I loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash flow dependent loans require the borrower to maintain cash flow from operations that is sufficient to service all debt. Borrowers must demonstrate normalized cash flow in excess of all fixed charges associated with operating the business. Balance sheet dependent loans include asset-backed loans and are structured to require constant current asset coverage (e.g., cash, cash equivalents, accounts receivable and, to a much lesser extent, inventory) in an amount that exceeds the outstanding debt. The repayment of these arrangements is dependent on the financial condition, and payment ability, of third parties with whom our clients do business.

Private Bank – Private banking includes loans to clients who are primarily private equity/venture capital professionals and executives in the innovation companies, as well as high net worth clients. We offer a customized suite of private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, personal capital call lines of credit, lines of credit against liquid assets and other secured and unsecured lending products. In addition, we provide owner occupied commercial mortgages and real estate secured loans.

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

Other – The remaining smaller acquired portfolios are aggregated into this category. These include other C&I, premium wine and other acquired portfolios.
Other C&I loans include working capital and revolving lines of credit, as well as term loans for equipment and fixed assets. These loans are primarily to clients that are not in the technology and life sciences/healthcare industries. Additionally, other C&I loans contain commercial tax-exempt loans to not-for-profit private schools, colleges, public charter schools and other not-for-profit organizations.
Premium wine loans are made to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of these loans are secured by real estate collateral such as vineyards and wineries.
Other acquired portfolios consist primarily of construction and land loans for financing new developments as well as financing for improvements to existing buildings. These also include community development loans made as part of our responsibilities under the Community Reinvestment Act of 1977, and a small amount of Paycheck Protection Program (“PPP”) loans, which are loans guaranteed by the SBA that were issued through the PPP.

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

Non-Purchased Credit Deteriorated Loans and Leases
Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases do not reflect more than insignificant credit deterioration since origination at the date of acquisition. These loans are recorded at fair value and an increase to the ALLL is recorded with a corresponding increase to the provision for credit losses at the date of acquisition. The difference between 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 ALLL, which results in a gross up of the loan balance (the “PCD Gross-Up”). The initial ALLL for PCD loans and leases is established through the PCD Gross-Up and there is no corresponding increase to the provision for credit losses. The difference between the UPB and the acquisition date amortized cost resulting from the PCD Gross-Up is amortized or accreted to interest income over the contractual life of the loan using the effective interest method. Refer to Note 5—Allowance for Loan and Lease Losses for additional information.


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

Derivative Assets and Liabilities

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

Equity Warrant Assets
In connection with negotiating credit facilities and certain other services, FCB may obtain rights that include an option to purchase a position in a client company's stock in the form of equity warrant assets in primarily private, venture-backed companies in the technology and life science/healthcare industries. These are generally categorized as Level 3 on the fair value hierarchy due to lack of direct observable pricing and a general lack of liquidity due to the private nature of the associated underlying company.

Noninterest Income
Refer to Note 1 — Significant Accounting Policies and Basis of Presentation in the 2022 Form 10-K for a discussion on revenue recognition and description of noninterest revenue-generating activities. Descriptions of significant noninterest income new to BancShares due to the SVBB Acquisition are summarized below.

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

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

Newly Adopted Accounting Standards
BancShares adopted the following accounting standards as of January 1, 2023:
ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures - Issued March 2022 (“ASU 2022-02”)
The amendments in this ASU: (i) eliminate the previous recognition and measurement guidance for TDRs, (ii) require new disclosures for loan modifications when a borrower is experiencing financial difficulty (the “Modification Disclosures”) and (iii) require disclosures of current period gross charge-offs by year of origination in the vintage disclosures (the “Gross Charge-off Vintage Disclosures”).
The Modification Disclosures apply to the following modification types: principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or a combination thereof. Creditors are required to disclose the following by loan class: (i) amounts and relative percentages of each modification type, (ii) the financial effect of each modification type, (iii) the performance of the loan in the 12 months following the modification and (iv) qualitative information discussing how the modifications factored into the determination of the ALLL.
BancShares elected to apply the modified retrospective transition method for ALLL recognition and measurement. The adoption of this ASU did not result in a cumulative effect adjustment to retained earnings. The Modification Disclosures and Gross Charge-off Vintage Disclosures are applied prospectively starting in the period of adoption and are presented in Note 4—Loans and Leases.

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ASU 2022-01, Fair Value Hedging - Portfolio Layer Method - Issued March 2022
The amendments in this ASU allow entities to designate multiple hedged layers of a single closed portfolio and expands the scope of the portfolio layer method to include non-prepayable financial assets. The ASU provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method. In addition, upon adoption the update permits a one-time reclassification of certain debt securities from the held-to-maturity category to the available-for-sale category if the portfolio layer hedging method is applied to those securities. Upon adoption, we did not make any one-time reclassifications. Adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares did not have any hedged portfolios.



NOTE 2 — BUSINESS COMBINATIONS

Silicon Valley Bridge Bank Acquisition
FCB completed the SVBB Acquisition on the SVBB Acquisition Date and acquired substantially all loans and certain other assets and assumed all customer deposits and certain other liabilities of SVBB in an FDIC-assisted transaction.

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

FCB and the FDIC are awaiting conclusion of the customary final settlement process to determine whether certain assets and liabilities of SVBB will remain with the FDIC or be acquired or assumed by FCB (“Final Settlement”). While substantial progress has been made since the SVBB Acquisition Date, certain items remain pending as of September 30, 2023. The pending items primarily include certain intangible assets of a SVBB subsidiary.

We continue to review information relating to events or circumstances existing at the SVBB Acquisition Date that could impact the preliminary fair value estimates. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the SVBB Acquisition Date (the “Measurement Period”). We believe the preliminary fair value estimates of assets acquired and liabilities assumed, including the affects of Measurement Period adjustments through September 30, 2023, provide a reasonable basis for determining the preliminary gain on acquisition. The fair value measurements of loans, core deposit intangibles, low-income housing tax credits, unfunded commitments, premises and equipment, and intangibles related to the Shared-Loss Agreement (as defined below) are preliminary at September 30, 2023 as we identify and assess information regarding the nature of these assets and liabilities and review the associated valuation assumptions and methodologies. Further, as described above, whether certain assets and liabilities are acquired or assumed by FCB is subject to the conclusion of Final Settlement. The tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the SVBB Acquisition Date. As such, the amounts recorded for tax assets and liabilities are considered provisional as we continue to evaluate the nature and extent of permanent and temporary differences between the book and tax bases of the acquired assets and liabilities assumed, as well as the tax impact on the preliminary gain on acquisition.

Pursuant to the terms of the SVBB Purchase Agreement, FCB acquired assets with an estimated total fair value of approximately $107.54 billion as of the SVBB Acquisition Date, primarily including $68.47 billion of loans, net of the initial ALLL for PCD loans, and $35.31 billion of cash and interest-earning deposits at banks. FCB also assumed liabilities with an estimated total fair value of approximately $61.34 billion, primarily including $56.01 billion of customer deposits. The deposits were acquired without a premium and the assets were acquired at a discount of approximately $16.45 billion pursuant to the terms of the SVBB Purchase Agreement. Further details regarding the fair values of the acquired assets and assumed liabilities are provided in the “Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed” table below.

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In connection with the SVBB Acquisition, FCB issued a five-year note of approximately $36 billion payable to the FDIC (the “Purchase Money Note”). The Purchase Money Note will be primarily secured by all loans (other than certain consumer loans and related collateral) and certain real estate and bank premises acquired by FCB from the FDIC, as well as certain other assets acquired, including specified rights under the SVBB Purchase Agreement and Shared-Loss Agreement. The interest rate is 3.50% per annum. FCB may prepay the principal of the Purchase Money Note at any time, without premium or penalty, upon notice to the FDIC. The principal amount of the Purchase Money Note is based on the book value of net assets acquired less the asset discount of $16.45 billion pursuant to the terms of the SVBB Purchase Agreement. The principal amount of the Purchase Money Note is subject to change upon Final Settlement (as defined and described above).

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

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

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


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The following tables provide the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the SVBB Acquisition Date. The amounts below reflect Measurement Period adjustments made since the SVBB Acquisition Date, which increased the preliminary after tax gain on acquisition by $67 million. These Measurement Period adjustments primarily relate to refined fair value estimates for acquired affordable housing tax credit investments, loans, and assets and liabilities of acquired SVBB subsidiaries.

Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed
dollars in millionsFair Value Purchase Price Allocation as of March 27, 2023
Purchase price consideration
Purchase Money Note (1)
$35,808
Value Appreciation Instrument500
Purchase price consideration$36,308
Assets
Cash and due from banks$1,310 
Interest-earning deposits at banks34,001 
Investment securities385 
Loans and leases, net of PCD ALLL68,468 
Affordable housing tax credit investments1,273 
Premises and equipment308 
Core deposit intangibles230 
Other assets1,564 
Total assets acquired$107,539 
Liabilities
Deposits$56,014 
Borrowings10 
Deferred tax liabilities3,281 
Other liabilities2,035 
Total liabilities assumed$61,340 
Fair value of net assets acquired46,199 
Preliminary gain on acquisition, after income taxes (2)
$9,891 
Preliminary gain on acquisition, before income taxes (2)
$13,172 
(1) The principal amount of the Purchase Money Note is the book value of net assets acquired of approximately $52.522 billion less the asset discount of $16.450 billion pursuant to the SVBB Purchase Agreement. The $35.808 billion above is net of a fair value discount of approximately $264 million.
(2) The difference between the preliminary gain on acquisition before and after taxes reflects the deferred tax liabilities recorded in the SVBB Acquisition, as presented above.

The preliminary gain on acquisition of $9.89 billion included in noninterest income represents the excess of the fair value of net assets acquired over the purchase price. The following is a description of the methods used to determine the estimated fair values of the Purchase Money Note and significant assets acquired and liabilities assumed, as presented above.

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

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

Investment Securities
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.
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Loans
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, remaining term of loan, credit quality ratings or scores, amortization status and current discount rate. Loans with similar risk characteristics were pooled together and treated in aggregate when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.

BancShares’ accounting methods for acquired Non-PCD and PCD loans and leases are discussed in Note 1—Significant Accounting Policies and Basis of Presentation. The following table presents the UPB and fair value of the loans and leases acquired by BancShares in the SVBB Acquisition as of the SVBB Acquisition Date. The fair value of Non-PCD loans and leases was $66.42 billion, compared to the UPB of $68.72 billion, resulting in a discount of $2.30 billion that will be accreted into income over the contractual life of the applicable loan using the effective interest method.

Loans and Leases Acquired
dollars in millionsLoans and Leases
UPBFair Value
Non-PCD loans and leases$68,719 $66,422 
PCD loans and leases2,568 2,046 
Total loans and leases, before PCD gross-up$71,287 $68,468 

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

PCD Loans and Leases
dollars in millionsTotal PCD from SVBB Acquisition
UPB$2,568 
Fair value2,046 
Total fair value discount$522 
     Less: discount for loans with $0 fair value at SVBB Acquisition Date
26 
     Less: PCD gross-up220 
PCD discount (1)
$276 
(1) The PCD discount of $276 million will be accreted into income over the contractual life of the applicable loan using the effective interest method.

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

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

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

Intangible Asset
dollars in millionsFair ValueEstimated Useful LifeAmortization Method
Core deposit intangibles$230 8 yearsEffective Yield
Certain core deposits were acquired as part of the SVBB Acquisition, which provide an additional source of funds for BancShares. The core deposit intangible represents the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. This intangible was valued using the after tax cost savings method under the income approach. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The valuation considered a dynamic approach to interest rates and alternative cost of funds. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. Refer to further discussion in Note 7—Goodwill and Core Deposit Intangibles.
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Other assets
The following table details other assets acquired:

Other Assets
dollars in millionsFair Value
Accrued interest receivable$431
Federal Home Loan Bank stock / Federal Reserve Bank stock320
Fair value of derivative financial instruments, net458
Other355 
Total other assets$1,564

The fair values of the derivative assets in the table above and derivative liabilities in the table below were valued using prices of financial instruments with similar characteristics and observable inputs. The fair value of accrued interest receivable and the remaining other assets was determined to approximate book value. Refer to further discussion in Note 12—Derivative Financial Instruments and Note 14—Fair Value.
Deposits
Acquired deposits were essentially all transactional deposits. Thus, we determined carrying amounts approximate fair value.

Deferred Tax liability
The SVBB Acquisition is an asset acquisition for tax purposes and is therefore considered a taxable transaction. The deferred tax liability for the SVBB Acquisition was calculated by applying FCB’s deferred tax rate to the book and tax basis differences on the SVBB Acquisition Date for acquired assets and assumed liabilities. Deferred taxes were not recorded for the affordable housing tax credit investments in accordance with the proportional amortization method.

Other liabilities
The following table details other liabilities assumed:

dollars in millionsFair Value
Commitments to fund tax credit investments$715
Fair value of derivative financial instruments, net497 
Accrued expenses and accounts payable262 
Reserve for off-balance sheet credit exposures253 
Accrued interest payable109 
Other199 
Total other liabilities$2,035

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

Shared-Loss Agreement Intangibles
Preliminary estimates indicate there is no material value to attribute to the loss indemnification asset or true-up liability. This is primarily based on evaluation of historical loss experience and the credit quality of the portfolio.

Unaudited Pro Forma Information - SVBB Acquisition
The amount of net interest income, noninterest income and net income of $1,335 million, $334 million and $381 million, respectively, attributable to the SVBB Acquisition were included in BancShares’ Consolidated Statement of Income for the nine months ended September 30, 2023. SVBB’s net interest income, noninterest income and net income noted above reflect management’s best estimates, based on information available at the reporting date.

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


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

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

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

Purchase Price Consideration and Net Assets Acquired
dollars in millions, except shares issued and price per share Purchase Price Allocation
Common share consideration
     Shares of Class A Common Stock issued6,140,010 
     Price per share on January 3, 2022$859.76 
          Common stock consideration$5,279 
Preferred stock consideration541 
Stock-based compensation consideration81 
Cash in lieu of fractional shares and other consideration paid51 
Purchase price consideration$5,952 
Assets
Cash and interest-earning deposits at banks$3,060 
Investment securities6,561 
Assets held for sale59 
Loans and leases32,714 
Operating lease equipment7,838 
Bank-owned life insurance1,202 
Intangible assets143 
Other assets2,198 
Total assets acquired$53,775 
Liabilities
Deposits$39,428 
Borrowings4,536 
Credit balances of factoring clients1,534 
Other liabilities1,894 
Total liabilities assumed$47,392 
Fair value of net assets acquired6,383 
Gain on acquisition$431 

BancShares recorded a gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price. The gain on acquisition was not taxable.

For a description of the fair value and UPB of loans from the CIT Merger, as well as the methods used to determine the fair values of significant assets and liabilities, see Note 2 — Business Combinations in Item 8 of our 2022 Form 10-K.
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NOTE 3 — INVESTMENT SECURITIES

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

Amortized Cost and Fair Value - Investment Securities
dollars in millions September 30, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Investment securities available for sale
U.S. Treasury$8,765 $— $(118)$8,647 
Government agency132 — (3)129 
Residential mortgage-backed securities6,352 — (752)5,600 
Commercial mortgage-backed securities2,042 — (245)1,797 
Corporate bonds535 — (57)478 
Municipal bonds10 — — 10 
Total investment securities available for sale$17,836 $— $(1,175)$16,661 
Investment in marketable equity securities$75 $11 $(11)$75 
Investment securities held to maturity
U.S. Treasury$478 $— $(53)$425 
Government agency1,504 — (196)1,308 
Residential mortgage-backed securities4,296 — (866)3,430 
Commercial mortgage-backed securities3,505 — (769)2,736 
Supranational securities297 — (46)251 
Other— — 
Total investment securities held to maturity$10,082 $— $(1,930)$8,152 
Total investment securities$27,993 $11 $(3,116)$24,888 
December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Investment securities available for sale
U.S. Treasury$2,035 $— $(137)$1,898 
Government agency164 — (2)162 
Residential mortgage-backed securities5,424 (630)4,795 
Commercial mortgage-backed securities1,774 — (170)1,604 
Corporate bonds570 — (34)536 
Total investment securities available for sale$9,967 $$(973)$8,995 
Investment in marketable equity securities$75 $21 $(1)$95 
Investment securities held to maturity
U.S. Treasury$474 $— $(50)$424 
Government agency1,548 — (186)1,362 
Residential mortgage-backed securities4,605 — (723)3,882 
Commercial mortgage-backed securities3,355 — (484)2,871 
Supranational securities295 — (41)254 
Other— — 
Total investment securities held to maturity$10,279 $— $(1,484)$8,795 
Total investment securities$20,321 $22 $(2,458)$17,885 

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

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

Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At September 30, 2023, accrued interest receivables for available for sale and held to maturity debt securities were $67 million and $17 million, respectively. At December 31, 2022, accrued interest receivables for available for sale and held to maturity debt securities were $33 million and $19 million, respectively. During the three and nine months ended September 30, 2023 and 2022, there was no accrued interest that was deemed uncollectible and written off against interest income.

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

Maturities - Debt Securities
dollars in millionsSeptember 30, 2023December 31, 2022
CostFair ValueCostFair Value
Investment securities available for sale
Non-amortizing securities maturing in:
One year or less$4,829 $4,802 $37 $37 
After one through five years4,036 3,937 2,068 1,928 
After five through 10 years419 374 483 455 
After 10 years26 22 17 14 
Government agency132 129 164 162 
Residential mortgage-backed securities6,352 5,600 5,424 4,795 
Commercial mortgage-backed securities2,042 1,797 1,774 1,604 
Total investment securities available for sale$17,836 $16,661 $9,967 $8,995 
Investment securities held to maturity
Non-amortizing securities maturing in:
One year or less$$$51 $51 
After one through five years1,609 1,440 1,479 1,328 
After five through 10 years670 544 789 663 
Residential mortgage-backed securities4,296 3,430 4,605 3,882 
Commercial mortgage-backed securities3,505 2,736 3,355 2,871 
Total investment securities held to maturity$10,082 $8,152 $10,279 $8,795 

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

Interest and Dividends on Investment Securities
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest income - taxable investment securities$178 $89 $402 $260 
Interest income - nontaxable investment securities— — 
Dividend income - marketable equity securities— 
Interest on investment securities$180 $90 $407 $262 

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The following table presents the gross realized losses on the sales of investment securities available for sale, including the current quarter loss on sale of municipal bonds that were acquired in the SVBB Acquisition.

Realized Losses on Debt Securities Available For Sale
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Gross realized gains on sales of investment securities available for sale$— $— $— $— 
Gross realized losses on sales of investment securities available for sale(12)— (26)— 
Net realized losses on sales of investment securities available for sale$(12)$— $(26)$— 

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

Fair Value Adjustment on Marketable Equity Securities
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Fair value adjustment on marketable equity securities, net$(1)$(2)$(20)$(5)

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

Gross Unrealized Losses on Debt Securities Available For Sale
dollars in millionsSeptember 30, 2023
Less than 12 months12 months or moreTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Investment securities available for sale
U.S. Treasury$6,322 $(6)$1,887 $(112)$8,209 $(118)
Government agency26 — 103 (3)129 (3)
Residential mortgage-backed securities1,465 (28)4,030 (724)5,495 (752)
Commercial mortgage-backed securities331 (3)1,364 (242)1,695 (245)
Corporate bonds96 (12)382 (45)478 (57)
Total$8,240 $(49)$7,766 $(1,126)$16,006 $(1,175)
December 31, 2022
Less than 12 months12 months or moreTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Investment securities available for sale
U.S. Treasury$403 $(27)$1,495 $(110)$1,898 $(137)
Government agency65 (1)62 (1)127 (2)
Residential mortgage-backed securities1,698 (165)3,001 (465)4,699 (630)
Commercial mortgage-backed securities836 (53)752 (117)1,588 (170)
Corporate bonds499 (30)37 (4)536 (34)
Total$3,501 $(276)$5,347 $(697)$8,848 $(973)

As of September 30, 2023, there were 482 investment securities available for sale with continuous unrealized losses for more than 12 months, of which 415 were government sponsored enterprise-issued mortgage-backed securities, government agency securities, or U.S. treasury securities and the remaining 67 were corporate bonds. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of September 30, 2023, no allowance for credit loss was required. For corporate bonds and municipal bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired, and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond carries an insignificant credit-related loss as of September 30, 2023, which is reflected in the provision for credit losses.

23



BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, and securities issued by the Supranational Entities and Multilateral Development Banks. Given the consistently strong credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of September 30, 2023, no allowance for credit loss was required for held to maturity debt securities.

Investment securities having an aggregate carrying value of $3.66 billion at September 30, 2023, and $4.20 billion at December 31, 2022, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

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

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

Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $19 million and $197 million at September 30, 2023 and December 31, 2022, respectively; these securities are recorded at cost. BancShares held $95 million and $58 million of nonmarketable securities without readily determinable fair values, which are measured at cost at September 30, 2023 and December 31, 2022, respectively. Investments in qualified affordable housing projects, all of which are accounted for under the proportional amortization method were $1.81 billion and $598 million at September 30, 2023 and December 31, 2022, respectively.
























24



NOTE 4 — LOANS AND LEASES

Unless otherwise noted, loans held for sale are not included in the following tables. Leases in the following tables include finance leases, but exclude operating lease equipment. As disclosed in Note 2—Business Combinations the following tables and text data as of September 30, 2023 include loans acquired in the SVBB Acquisition.

Loans by Class
dollars in millionsSeptember 30, 2023December 31, 2022
Commercial
Commercial construction$3,382 $2,804 
Owner occupied commercial mortgage15,230 14,473 
Non-owner occupied commercial mortgage10,941 9,902 
Commercial and industrial26,389 24,105 
Leases2,108 2,171 
Total commercial58,050 53,455 
Consumer
Residential mortgage14,287 13,309 
Revolving mortgage1,909 1,951 
Consumer auto1,411 1,414 
Consumer other681 652 
Total consumer18,288 17,326 
SVB
Global fund banking27,516 — 
Investor dependent - early stage1,718 — 
Investor dependent - growth stage3,948 — 
Innovation C&I and cash flow dependent8,724 — 
Private Bank9,648 — 
CRE2,629 — 
Other2,681 — 
Total SVB56,864 — 
Total loans and leases$133,202 $70,781 

At September 30, 2023 and December 31, 2022, accrued interest receivable on loans included in other assets was $620 million and $203 million, respectively, and was excluded from the estimate of credit losses.

There was a discount on acquired loans because the fair value was lower than the UPB as further discussed in Note 2—Business Combinations. The discount on acquired loans is accreted to interest income over the contractual life of the loan using the effective interest method as further discussed in Note 1—Significant Accounting Policies and Basis of Presentation. Accretion for the discount on acquired loans was $275 million and $535 million for the three and nine months ended September 30, 2023, respectively, and primarily related to the SVBB Acquisition.

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

Components of Amortized Cost
dollars in millionsSeptember 30, 2023December 31, 2022
Deferred (fees) costs, including unamortized costs and unearned fees on non-PCD loans$(39)$34
Net unamortized discount on acquired loans
Non-PCD$1,986$73
PCD21145 
Total net unamortized discount$2,197$118
25




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

Loans and Leases - Delinquency Status
dollars in millionsSeptember 30, 2023
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
Greater
Total
Past Due
CurrentTotal
Commercial
Commercial construction$17 $11 $12 $40 $3,342 $3,382 
Owner occupied commercial mortgage29 44 77 15,153 15,230 
Non-owner occupied commercial mortgage45 329 375 10,566 10,941 
Commercial and industrial107 53 75 235 26,154 26,389 
Leases43 16 12 71 2,037 2,108 
Total commercial197 129 472 798 57,252 58,050 
Consumer
Residential mortgage95 22 52 169 14,118 14,287 
Revolving mortgage13 25 1,884 1,909 
Consumer auto12 1,399 1,411 
Consumer other672 681 
Total consumer120 29 66 215 18,073 18,288 
SVB
Global fund banking— — — — 27,516 27,516 
Investor dependent - early stage18 1,700 1,718 
Investor dependent - growth stage17 23 3,925 3,948 
Innovation C&I and cash flow dependent19 37 58 8,666 8,724 
Private Bank10 14 32 9,616 9,648 
CRE10 — — 10 2,619 2,629 
Other12 2,669 2,681 
Total SVB52 73 28 153 56,711 56,864 
Total loans and leases$369 $231 $566 $1,166 $132,036 $133,202 
December 31, 2022
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
Greater
Total
Past Due
CurrentTotal
Commercial
Commercial construction$50 $— $$51 $2,753 $2,804 
Owner occupied commercial mortgage29 25 59 14,414 14,473 
Non-owner occupied commercial mortgage76 144 11 231 9,671 9,902 
Commercial and industrial173 26 53 252 23,853 24,105 
Leases59 17 16 92 2,079 2,171 
Total commercial387 192 106 685 52,770 53,455 
Consumer
Residential mortgage73 16 52 141 13,168 13,309 
Revolving mortgage20 1,931 1,951 
Consumer auto1,405 1,414 
Consumer other643 652 
Total consumer93 22 64 179 17,147 17,326 
Total loans and leases$480 $214 $170 $864 $69,917 $70,781 

26



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 September 30, 2023 and December 31, 2022 are presented below.

Loans on Non-Accrual Status (1) (2)
dollars in millionsSeptember 30, 2023December 31, 2022
Non-Accrual LoansLoans >
90 Days and
Accruing
Non-Accrual LoansLoans >
90 Days and
Accruing
Commercial
Commercial construction$$10 $48 $— 
Owner occupied commercial mortgage57 41 
Non-owner occupied commercial mortgage334 67 228 — 
Commercial and industrial213 184 41 
Leases31 28 
Total commercial637 96 529 50 
Consumer
Residential mortgage76 75 10 
Revolving mortgage18 — 18 — 
Consumer auto— — 
Consumer other
Total consumer99 11 98 13 
SVB
Global fund banking— — — — 
Investor dependent - early stage30 — — — 
Investor dependent - growth stage42 — — — 
Innovation C&I and cash flow dependent18 — — — 
Private Bank29 — — — 
CRE43 — — — 
Other— — 
Total SVB163 — — 
Total loans and leases$899 $111 $627 $63 
(1)    Accrued interest that was reversed when the loan went to non-accrual status was $8 million for the nine months ended September 30, 2023 and $4 million for the year ended December 31, 2022.
(2)    Non-accrual loans for which there was no related ALLL totaled $154 million at September 30, 2023 and $63 million at December 31, 2022.

Other real estate owned (“OREO”) and repossessed assets were $62 million as of September 30, 2023 and $47 million as of December 31, 2022.


27



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 September 30, 2023 and December 31, 2022, relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit.

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

28



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

Commercial Loans - Risk Classifications by Class
September 30, 2023
Risk Classification:Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202320222021202020192018 & PriorRevolvingTotal
Commercial construction
Pass$694 $1,305 $688 $264 $95 $58 $78 $— $3,182 
Special Mention— 58 — 60 30 — — — 148 
Substandard14 31 — — — 52 
Doubtful— — — — — — — — — 
Ungraded— — — — — — — — — 
Total commercial construction695 1,364 702 355 125 63 78 — 3,382 
Owner occupied commercial mortgage
Pass1,701 2,775 3,179 2,770 1,625 2,275 165 — 14,490 
Special Mention29 55 52 30 45 102 — 320 
Substandard37 90 73 42 167 — 420 
Doubtful— — — — — — — — — 
Ungraded— — — — — — — — — 
Total owner occupied commercial mortgage1,736 2,867 3,321 2,873 1,712 2,544 177 — 15,230 
Non-owner occupied commercial mortgage
Pass1,740 2,567 1,668 1,418 1,003 1,254 54 — 9,704 
Special Mention— 31 161 129 65 — — 394 
Substandard22 15 82 363 308 — — 791 
Doubtful— — — — 33 19 — — 52 
Ungraded— — — — — — — — — 
Total non-owner occupied commercial mortgage1,749 2,589 1,714 1,661 1,528 1,646 54 — 10,941 
Commercial and industrial
Pass6,742 4,882 3,266 1,536 1,116 1,142 5,607 24,295 
Special Mention113 148 137 96 38 22 200 — 754 
Substandard65 181 96 197 122 243 223 1,129 
Doubtful10 28 22 20 — 88 
Ungraded— — — — — — 123 — 123 
Total commercial and industrial6,921 5,221 3,505 1,830 1,304 1,429 6,173 26,389 
Leases
Pass601 547 333 249 116 64 — — 1,910 
Special Mention13 22 22 — — 72 
Substandard21 34 24 21 — — 117 
Doubtful— — — 
Ungraded— — — — — — — — — 
Total leases636 606 382 278 131 75 — — 2,108 
Total commercial$11,737 $12,647 $9,624 $6,997 $4,800 $5,757 $6,482 $$58,050 










29



SVB - Risk Classifications by Class
September 30, 2023
Risk Classification:Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202320222021202020192018 & PriorRevolvingTotal
Global fund banking
Pass$316 $226 $42 $42 $26 $$26,786 $57 $27,498 
Special Mention— — — — — — — 
Substandard— — — — 13 
Doubtful— — — — — — — — — 
Ungraded— — — — — — — — — 
Total global fund banking316 228 51 43 26 26,792 57 27,516 
Investor dependent - early stage
Pass457 703 136 — 134 1,443 
Special Mention— — — — — — — 
Substandard16 119 65 — — 44 — 249 
Doubtful13 — — — — 25 
Ungraded— — — — — — — — — 
Total investor dependent - early stage474 832 214 13 — 180 1,718 
Investor dependent - growth stage
Pass1,145 1,420 502 88 11 211 3,386 
Special Mention78 15 — — — — 101 
Substandard52 189 77 63 — 37 — 419 
Doubtful12 18 — — — — 42 
Ungraded— — — — — — — — — 
Total investor dependent - growth stage1,205 1,699 604 166 12 253 3,948 
Innovation C&I and cash flow dependent
Pass1,712 2,305 860 275 147 33 2,508 — 7,840 
Special Mention38 51 36 51 — — 40 — 216 
Substandard62 128 222 48 26 15 154 — 655 
Doubtful— — — — — 11 — 13 
Ungraded— — — — — — — — — 
Total innovation C&I and cash flow dependent1,812 2,484 1,120 374 173 48 2,713 — 8,724 
Private bank
Pass991 2,328 2,169 1,381 758 1,145 804 11 9,587 
Special Mention— — — 19 
Substandard— — — 31 41 
Doubtful— — — — — — — 
Ungraded— — — — — — — — — 
Total private bank993 2,330 2,171 1,384 762 1,183 812 13 9,648 
CRE
Pass293 531 251 177 192 835 94 2,378 
Special Mention— — 21 — — 36 
Substandard— 18 26 73 51 — — 174 
Doubtful— — — — 28 11 — 41 
Ungraded— — — — — — — — — 
Total CRE293 545 269 204 299 918 96 2,629 
Other
Pass207 546 477 281 182 381 374 67 2,515 
Special Mention— 13 — 10 — 35 
Substandard— 42 16 31 25 — 131 
Doubtful— — — — — — — — — 
Ungraded— — — — — — — — — 
Total Other207 595 497 302 191 422 400 67 2,681 
Total SVB$5,300 $8,713 $4,926 $2,486 $1,466 $2,579 $31,246 $148 $56,864 
30



Consumer Loans - Delinquency Status by Class
September 30, 2023
Days Past Due:Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202320222021202020192018 & PriorRevolvingTotal
Residential mortgage
Current$1,676 $3,538 $3,551 $1,942 $716 $2,687 $$— $14,118 
30-59 days67 — — 95 
60-89 days— — 14 — — 22 
90 days or greater40 — — 52 
Total residential mortgage1,679 3,548 3,567 1,954 723 2,808 — 14,287 
Revolving mortgage
Current— — — — — — 1,805 79 1,884 
30-59 days— — — — — — 13 
60-89 days— — — — — — 
90 days or greater— — — — — — 
Total revolving mortgage— — — — — — 1,820 89 1,909 
Consumer auto
Current385 470 290 149 68 37 — — 1,399 
30-59 days— — — 
60-89 days— — — — — — 
90 days or greater— — — — — — 
Total consumer auto386 474 294 151 69 37 — — 1,411 
Consumer other
Current117 115 59 17 350 — 672 
30-59 days— — — — — — 
60-89 days— — — — — — 
90 days or greater— — — — — — 
Total consumer other117 115 59 20 356 — 681 
Total consumer$2,182 $4,137 $3,920 $2,114 $797 $2,865 $2,184 $89 $18,288 
 

31



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

Commercial Loans - Risk Classifications by Class
December 31, 2022
Risk Classification:Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202220212020201920182017 & PriorRevolvingTotal
Commercial construction
Pass$1,140 $759 $511 $157 $27 $75 $42 $— $2,711 
Special Mention— 18 18 — — — — 40 
Substandard— — 43 — — — 50 
Doubtful— — — — — — — 
Ungraded— — — — — — — — — 
Total commercial construction1,146 759 529 221 27 80 42 — 2,804 
Owner occupied commercial mortgage
Pass2,773 3,328 2,966 1,825 1,048 1,867 177 — 13,984 
Special Mention33 14 32 33 18 49 — 181 
Substandard24 47 41 28 47 114 — 307 
Doubtful— — — — — — — 
Ungraded— — — — — — — — — 
Total owner occupied commercial mortgage2,830 3,389 3,039 1,886 1,113 2,031 185 — 14,473 
Non-owner occupied commercial mortgage
Pass2,501 1,658 1,794 1,397 680 933 48 — 9,011 
Special Mention— 69 38 35 10 — 154 
Substandard11 68 324 58 236 — — 700 
Doubtful— — — 17 — 20 — — 37 
Ungraded— — — — — — — — — 
Total non-owner occupied commercial mortgage2,504 1,670 1,931 1,776 773 1,199 49 — 9,902 
Commercial and industrial
Pass7,695 4,145 2,035 1,533 872 845 5,252 29 22,406 
Special Mention87 153 79 63 52 23 40 — 497 
Substandard106 117 194 132 166 145 200 1,061 
Doubtful11 16 — 48 
Ungraded— — — — — — 93 — 93 
Total commercial and industrial7,889 4,419 2,311 1,739 1,096 1,029 5,592 30 24,105 
Leases
Pass718 466 389 216 80 108 — — 1,977 
Special Mention21 22 17 — — — 73 
Substandard32 32 27 12 — — 111 
Doubtful— — — 
Ungraded— — — — — — — 
Total leases773 523 435 238 92 110 — — 2,171 
Total commercial$15,142 $10,760 $8,245 $5,860 $3,101 $4,449 $5,868 $30 $53,455 

 
32



Consumer Loans - Delinquency Status by Class
December 31, 2022
Days Past Due:Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202220212020201920182017 & PriorRevolvingTotal
Residential mortgage
Current$3,485 $3,721 $2,097 $805 $413 $2,625 $22 $— $13,168 
30-59 days49 — — 73 
60-89 days— 11 — — 16 
90 days or greater— 46 — — 52 
Total residential mortgage3,489 3,730 2,106 812 419 2,731 22 — 13,309 
Revolving mortgage
Current— — — — — — 1,839 92 1,931 
30-59 days— — — — — — 
60-89 days— — — — — — 
90 days or greater— — — — — — 
Total revolving mortgage— — — — — — 1,851 100 1,951 
Consumer auto
Current599 398 216 111 59 22 — — 1,405 
30-59 days— — — 
60-89 days— — — — — — — 
90 days or greater— — — — — — — 
Total consumer auto600 402 218 112 60 22 — — 1,414 
Consumer other
Current160 82 13 19 361 — 643 
30-59 days— — — — — — 
60-89 days— — — — — — 
90 days or greater— — — — — — 
Total consumer other160 82 13 22 367 — 652 
Total consumer$4,249 $4,214 $2,337 $930 $481 $2,775 $2,240 $100 $17,326 


33



Gross Charge-offs

Gross charge-off vintage disclosures by origination year and loan class are summarized in the following table for the nine months ended September 30, 2023:

Gross Charge-offs
Nine Months Ended September 30, 2023
Term Loans by Origination YearRevolving Converted to Term Loans
dollars in millions202320222021202020192018 & PriorRevolvingTotal
Commercial
Owner occupied commercial mortgage$— $— $— $— $— $— $$— $
Non-owner occupied commercial mortgage— — — — 48 12 — — 60 
Commercial and industrial53 23 11 27 131 
Leases— — 17 
Total commercial60 27 10 53 24 28 209 
Consumer
Residential mortgage— — — — — — — 
Consumer auto— — — — — — 
Consumer other— — — — 16 
Total consumer— — 20 
SVB
Investor dependent - early stage17 18 — — 10 — 49 
Investor dependent - growth stage24 40 17 13 — — — 95 
Innovation C&I and cash flow dependent— — 40 — — 17 — 64 
Total SVB32 57 35 56 — — 28 — 208 
Total loans and leases$43 $119 $63 $67 $53 $26 $65 $$437 

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

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



















34



The following tables present loan modifications made to debtors experiencing financial difficulty, disaggregated by class and type of loan modification. The tables also include the weighted average term extensions, as well as the modification total relative to the total period-end amortized cost basis of loans in the respective loan class.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty (three months ended September 30, 2023)

dollars in millions
Term Extension(1)
Other Than Insignificant Payment DelayInterest Rate Reduction
Amortized CostWeighted Average Term Extension (Months)Amortized CostWeighted Average Payment Delay (Months)Amortized CostWeighted Average Interest Rate Reduction
Commercial
Commercial construction$13 3$— — $— — %
Owner occupied commercial mortgage19— — — 4.25 
Non-owner occupied commercial mortgage137 6— — — — 
Commercial and industrial41 1413 7— — 
Total commercial192 813 7— 4.25 
Consumer
Residential mortgage106— — — — 
Revolving mortgage— 60— — — — 
Consumer other— — — — — 8.35 
Total consumer103— — — 8.35 
SVB
Investor dependent - early stage312 5— — 
Investor dependent - growth stage1114 5— — 
Innovation C&I and cash flow dependent20 4— — — — 
Private Bank11— — — — 
CRE14 9— — — — 
Other6— — — — 
Total SVB52 726 5— — 
Total loans and leases$247 9$39 6$ 7.69 %


dollars in millions
Term Extension(1) and Interest Rate Reduction
Term Extension(1) and Other Than Insignificant Payment Delay
Total
Amortized CostWeighted Average Term Extension (Months)Weighted Average Interest Rate ReductionAmortized CostWeighted Average Term Extension (Months)Weighted Average Payment Delay (Months)Amortized CostTotal as a % of Loan and Lease Class
Commercial
Commercial construction$— — — %$— — — $13 0.40 %
Owner occupied commercial mortgage— — — — — — 0.01 
Non-owner occupied commercial mortgage— — — — — — 137 1.25 
Commercial and industrial222.11 — — — 57 0.22 
Total commercial222.11 — — — 208 0.36 
Consumer— 
Residential mortgage— 485.25 — — — 0.02 
Revolving mortgage— 573.40 — — — — 0.02 
Consumer other— 360.25 — — — — 0.01 
Total consumer— 563.44 — — — 0.02 
SVB
Investor dependent - early stage121.00 — — — 20 1.17 
Investor dependent - growth stage— — — — — — 23 0.58 
Innovation C&I and cash flow dependent— — — — — — 20 0.23 
Private Bank— — — — — — 0.04 
CRE— — — — — — 14 0.54 
Other— — — — — — 0.10 
Total SVB121.00 — — — 84 0.15 
Total loans and leases$9 171.45 %$   $295 0.22 %
35



Loan Modifications Made to Borrowers Experiencing Financial Difficulty (nine months ended September 30, 2023)

dollars in millions
Term Extension(1)
Other Than Insignificant Payment DelayInterest Rate Reduction
Amortized CostWeighted Average Term Extension (Months)Amortized CostWeighted Average Payment Delay (Months)Amortized CostWeighted Average Interest Rate Reduction
Commercial
Commercial construction$14 4$— — $— — %
Owner occupied commercial mortgage23 14— — 3.63 
Non-owner occupied commercial mortgage309 11— — — — 
Commercial and industrial103 2028 6— 14.40 
Total commercial449 1328 63.63 
Consumer
Residential mortgage91— — — — 
Revolving mortgage— 60— — — — 
Consumer auto— 18— — — — 
Consumer other— 60— — — 8.86 
Total consumer89— — — 8.86 
SVB
Investor dependent - early stage418 5— — 
Investor dependent - growth stage1114 5— — 
Innovation C&I and cash flow dependent79 4— — — — 
Private Bank11— — — — 
CRE14 9— — — — 
Other7— — — — 
Total SVB112 632 5— — 
Total loans and leases$566 12$60 6$2 4.01 %


dollars in millions
Term Extension(1) and Interest Rate Reduction
Term Extension(1) and Other Than Insignificant Payment Delay
Total
Amortized CostWeighted Average Term Extension (Months)Weighted Average Interest Rate ReductionAmortized CostWeighted Average Term Extension (Months)Weighted Average Payment Delay (Months)Amortized CostTotal as a % of Loan and Lease Class
Commercial
Commercial construction$— — — %$— — — $14 0.41 %
Owner occupied commercial mortgage— 362.00 — — — 25 0.16 
Non-owner occupied commercial mortgage— — — — — — 309 2.82 
Commercial and industrial232.25 — — — 134 0.51 
Total commercial232.24 — — — 482 0.83 
Consumer— 
Residential mortgage623.52 — — — 0.06 
Revolving mortgage— 542.44 — — — — 0.03 
Consumer auto— 310.70 — — — — 0.01 
Consumer other— 360.25 — — — — 0.02 
Total consumer613.38 — — — 0.05 
SVB
Investor dependent - early stage121.00 — — — 27 1.59 
Investor dependent - growth stage— — — — — — 23 0.58 
Innovation C&I and cash flow dependent— — — — — — 79 0.90 
Private Bank— — — — — — 0.04 
CRE— — — — — — 14 0.54 
Other— — — — — — 0.10 
Total SVB121.00 — — — 150 0.26 
Total loans and leases$12 281.98 %$   $640 0.48 %
(1) Term extensions include loans where the balloon payment has been deferred to a later date or is amortizing over an extended period.




36



Borrowers experiencing financial difficulties are typically identified in our credit risk management process before loan modifications occur. An assessment of whether a borrower is experiencing financial difficulty is reassessed or performed on the date of a modification. Since the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ALLL because of the measurement methodologies used to estimate the allowance, a change to the ALLL is generally not recorded upon modification. Upon BancShares’ determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off.

At September 30, 2023, there were $21 million of modified loans which defaulted subsequent to modification. Of this amount, $15 million related to one borrower within the Innovation and cash flow dependent loan class and $3 million related to one borrower within the Investor dependent - early stage loan class.

The following tables present the amortized cost and performance of modified loans to borrowers experiencing financial difficulties. The period of delinquency is based on the number of days the scheduled payment is contractually past due.

Modified Loans Payment Status (three months ended September 30, 2023)
dollars in millionsCurrent30–59 Days Past Due60–89 Days Past Due90 days or greater Past DueTotal
Commercial
Commercial construction$13 $— $— $— $13 
Owner occupied commercial mortgage— — — 
Non-owner occupied commercial mortgage137 — — — 137 
Commercial and industrial57 — — — 57 
Total commercial208 — — — 208 
Consumer
Residential mortgage— — 
Total consumer— — 
SVB
Investor dependent - early stage20 — — — 20 
Investor dependent - growth stage20 — — 23 
Innovation C&I and cash flow dependent20 — — — 20 
Private Bank— — — 
CRE14 — — — 14 
Other— — — 
Total SVB81 — — 84 
Total loans and leases$291 $$$— $295 
37




Modified Loans Payment Status (nine months ended September 30, 2023)
dollars in millionsCurrent30–59 Days Past Due60–89 Days Past Due90 days or greater Past DueTotal
Commercial
Commercial construction$14 $— $— $— $14 
Owner occupied commercial mortgage25 — — — 25 
Non-owner occupied commercial mortgage272 — — 37 309 
Commercial and industrial134 — — — 134 
Total commercial445 — — 37 482 
Consumer
Residential mortgage— — 
Revolving mortgage— — — — — 
Total consumer— — 
SVB
Investor dependent - early stage24 — — 27 
Investor dependent - growth stage20 — — 23 
Innovation C&I and cash flow dependent63 16 — — 79 
Private Bank— — — 
CRE14 — — — 14 
Other— — — 
Total SVB128 16 — 150 
Total loans and leases$580 $17 $$37 $640 

At September 30, 2023, there were $25 million of commitments to lend additional funds to debtors experiencing financial difficulty for which the terms of the loan were modified.

Prior Period Troubled Debt Restructuring
The following includes disclosures for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”) for historical periods prior to adoption of ASU 2022-02. In general, a modification or restructuring of a loan was considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

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

38



The following table presents amortized cost of TDRs:

TDRs
dollars in millionsDecember 31, 2022
AccruingNon-AccruingTotal
Commercial
Commercial construction$$$
Owner occupied commercial mortgage46 55 
Non-owner occupied commercial mortgage24 30 54 
Commercial and industrial26 34 
Leases— 
Total commercial98 49 147 
Consumer
Residential mortgage33 17 50 
Revolving mortgage17 22 
Consumer auto— 
Consumer other— — — 
     Total consumer52 22 74 
Total TDRs$150 $71 $221 
The following table summarizes the loan restructurings during the three and nine months ended September 30, 2022 that were designated as TDRs. BancShares defines payment default as movement of the TDR to non-accrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.

Restructurings
dollars in millions (except for number of loans)Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
Number of LoansAmortized Cost at Period EndNumber of LoansAmortized Cost at Period End
Loans and leases
Interest only$31 13 $37 
Loan term extension35 30 110 51 
Below market rates17 62 
Discharge from bankruptcy36 78 
Total93 $67 263 $100 

There were $1.5 million commitments to lend additional funds to borrowers whose loan terms were modified in TDRs as of December 31, 2022.

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

TDR Defaults
dollars in millionsThree Months EndedNine Months Ended
September 30, 2022September 30, 2022
TDR Defaults$$




39



Loans Pledged

The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of September 30, 2023 and December 31, 2022.

Loans Pledged
dollars in millionsSeptember 30, 2023December 31, 2022
FHLB of Atlanta
Lendable collateral value of pledged non-PCD loans$14,975 $14,918 
Less: Advances— 4,250 
Less: Letters of Credit1,450 1,450 
Available borrowing capacity$13,525 $9,218 
Pledged non-PCD loans (contractual balance)$24,498 $23,491 
FRB
Lendable collateral value of pledged non-PCD loans$4,989 $4,203 
Less: Advances— — 
Available borrowing capacity$4,989 $4,203 
Pledged non-PCD loans (contractual balance)$6,164 $5,697 

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



NOTE 5 — ALLOWANCE FOR LOAN AND LEASE LOSSES

The ALLL is reported as a separate line item on the Consolidated Balance Sheets, while the reserve for off-balance sheet credit exposure is included in other liabilities as further discussed in Note 13—Other Liabilities. The provision or benefit for credit losses related to (i) loans and leases (ii) off-balance sheet credit exposure, and (iii) investment securities available for sale is reported in the Consolidated Statements of Income as provision or benefit for credit losses.

The initial ALLL for PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger (the “Initial PCD ALLL”) were established through a PCD Gross-Up and there were no corresponding increases to the provision for credit losses. The PCD Gross-Ups are discussed further in Note 1—Significant Accounting Policies and Basis of Presentation. The initial ALLL for Non-PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger were established through corresponding increases to the provision for credit losses (the “day 2 provision for loan and lease losses”). The initial reserve for off-balance sheet credit exposure acquired in the SVBB Acquisition and the CIT Merger were established through a corresponding increase to the provision for off-balance sheet credit exposure (the “day 2 provision for off-balance sheet credit exposure”).

40


The ALLL activity for loans and leases is summarized in the following table.

Allowance for Loan and Lease Losses
dollars in millionsThree Months Ended September 30, 2023Nine Months Ended September 30, 2023
CommercialConsumerSVBTotalCommercialConsumerSVBTotal
Balance at beginning of period$915 $156 $566 $1,637 $789 $133 $— $922 
Initial PCD ALLL— — — — — — 220 220 
Day 2 provision for loan and lease losses— — — — — — 462 462 
Provision (benefit) for loan and lease losses
149 (11)74 212 379 18 55 452 
Total provision (benefit) for loan and lease losses149 (11)74 212 379 18 517 914 
Charge-offs
(85)(7)(107)(199)(209)(20)(208)(437)
Recoveries12 23 32 11 11 54 
Balance at September 30, 2023$991 $142 $540 $1,673 $991 $142 $540 $1,673 
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
CommercialConsumerSVBTotalCommercialConsumerSVBTotal
Balance at beginning of period$740 $110 $— $850 $80 $98 $— $178 
Initial PCD ALLL— — — — 258 14 — 272 
Day 2 provision for loan and lease losses— — — — 432 22 — 454 
Provision (benefit) for loan and lease losses
43 — 50 53 (20)— 33 
Total provision for loan and lease losses43 — 50 485 — 487 
Charge-offs(28)(5)— (33)(92)(15)— (107)
Recoveries11 — 15 35 17 — 52 
Balance at September 30, 2022$766 $116 $— $882 $766 $116 $— $882 

The following table presents the components of the provision for credit losses:

Provision for Credit Losses
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Day 2 provision for loan and lease losses$— $— $462 $454 
Provision for loan and lease losses
212 50 452 33 
Total provision for loan and lease losses212 50 914 487 
Day 2 provision for off-balance sheet credit exposure— — 254 59 
(Benefit) provision for off-balance sheet credit exposure(17)10 (42)20 
Total (benefit) provision for off-balance sheet credit exposure(17)10 212 79 
Benefit for investment securities available for sale credit losses(3)— — — 
Provision for credit losses$192 $60 $1,126 $566 












41


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 34 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 millionsClassificationSeptember 30, 2023December 31, 2022
Lease assets:
Operating lease ROU assetsOther assets$403 $345 
Finance leasesPremises and equipment
Total lease assets$412 $352 
Lease liabilities:
Operating leasesOther liabilities$411 $352 
Finance leasesOther borrowings
Total lease liabilities$420 $359 
Weighted-average remaining lease terms:
Operating leases8.4 years9.6 years
Finance leases15.1 years4.1 years
Weighted-average discount rate:
Operating leases2.70 %2.19 %
Finance leases3.48 2.34 

The following table presents components of lease cost:

Components of Net Lease Cost
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
Classification2023202220232022
Lease cost
Operating lease cost (1)
Occupancy Expense$18 $14 $46 $44 
Finance lease cost
Amortization of leased assetsEquipment expense
Variable lease costOccupancy Expense16 
Sublease incomeOccupancy Expense(1)(1)(2)(2)
Net lease cost$26 $17 $61 $53 
(1) Includes short-term lease cost, which is not significant.

Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured because of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 13 years.
The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information
dollars in millionsNine Months Ended September 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$45 $40 
Financing cash flows from finance leases
ROU assets obtained in exchange for new operating lease liabilities69 17 
ROU assets obtained in exchange for new finance lease liabilities
42


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

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

Lease Income
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Lease income – Operating leases$229 $201 $664 $592 
Variable lease income – Operating leases (1)
19 18 55 48 
Rental income on operating leases248 219 719 640 
Interest income - Sales type and direct financing leases43 43 127 127 
Variable lease income included in Other noninterest income (2)
15 13 44 37 
Interest income - Leveraged leases11 14 
Total lease income$308 $280 $901 $818 
(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 $5 million and $12 million for the three and nine months ended September 30, 2023, respectively, and revenue related to insurance coverage on leased equipment of $11 million and $31 million for the three and nine months ended September 30, 2023, respectively. Includes leased equipment property tax reimbursements due from customers of $4 million and $13 million for the three and nine months ended September 30, 2022, respectively, and revenue related to insurance coverage on leased equipment of $9 million and $24 million for the three and nine months ended September 30, 2022, respectively.



NOTE 7 — GOODWILL AND CORE DEPOSIT INTANGIBLES

Goodwill
BancShares applied the acquisition method of accounting for the SVBB Acquisition and the CIT Merger. The fair value of the net assets acquired exceeded the purchase prices for both acquisitions. Consequently, there was a gain on acquisition (and no goodwill) as discussed further in Note 2—Business Combinations. BancShares had goodwill of $346 million at September 30, 2023 and December 31, 2022 that relates to business combinations completed prior to the SVBB Acquisition and the CIT Merger. All of the goodwill relates to the General Banking reporting segment. There was no goodwill impairment during the nine months ended September 30, 2023 or 2022.

Core Deposit Intangibles
Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. Core deposit intangibles are being amortized over their estimated useful life. The following tables summarize the activity for core deposit intangibles during the nine months ended September 30, 2023.

Core Deposit Intangibles
dollars in millions2023
Balance, net of accumulated amortization at January 1$140 
Core deposit intangibles related to the SVBB Acquisition230 
Amortization for the period(41)
Balance at September 30, net of accumulated amortization$329 

Core Deposit Intangible Accumulated Amortization
dollars in millionsSeptember 30, 2023December 31, 2022
Gross balance$501 $271 
Accumulated amortization(172)(131)
Balance, net of accumulated amortization$329 $140 


43


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

Core Deposit Intangible Expected Amortization
dollars in millions
Remainder 2023$17 
202463 
202554 
202646 
202739 
202834 
Thereafter76 
Balance, net of accumulated amortization$329 



NOTE 8 — VARIABLE INTEREST ENTITIES

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

Consolidated VIEs
At September 30, 2023 and December 31, 2022, there were no consolidated VIEs.

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

The table below provides a summary of the assets and liabilities included on the Consolidated Balance Sheets associated with unconsolidated VIEs. The table also presents our maximum exposure to loss which consists of outstanding book basis and unfunded commitments for future investments, and represents potential losses that would be incurred under hypothetical circumstances, such that the value of BancShares’ interests and any associated collateral declines to zero and assuming no recovery. BancShares believes the possibility is remote under this hypothetical scenario; accordingly, this disclosure is not an indication of expected loss. As disclosed in Note 2—Business Combinations, the following tables as of September 30, 2023 include VIEs acquired in the SVBB Acquisition.

Unconsolidated VIEs Carrying Value
dollars in millionsSeptember 30, 2023December 31, 2022
Investment in qualified affordable housing projects$1,806 $598 
Other tax credit equity investments
Total tax credit equity investments$1,810 $603 
Other unconsolidated investments163 159 
Total assets (maximum loss exposure) (1)
$1,973 $762 
Liabilities for commitments to tax credit investments (2)
$901 $295 
(1)    Included in other assets.
(2)    Represents commitments to invest in qualified affordable housing investments and other investments qualifying for community reinvestment tax credits. These commitments are payable on demand and are included in other liabilities.








44


NOTE 9 — OTHER ASSETS

The following table includes the components of other assets. The increases from December 31, 2022 primarily reflect other assets acquired in conjunction with the SVBB Acquisition, as described in Note 2—Business Combinations.

Other Assets
dollars in millionsSeptember 30, 2023December 31, 2022
Affordable housing tax credit and other unconsolidated investments (1)
$1,973 $762 
Right of use assets for operating leases, net403 345 
Pension assets364 343 
Accrued interest receivable833 329 
Income tax receivable518 275 
Federal Home Loan Bank stock19 197 
Fair value of derivative financial instruments904 159 
Bank-owned life insurance104 586 
Counterparty receivables74 98 
Nonmarketable equity securities95 58 
Other real estate owned60 47 
Mortgage servicing rights25 25 
Other (2)
840 1,145 
Total other assets$6,212 $4,369 
(1)    Refer to Note 8—Variable Interest Entities for additional information.
(2)    The balance at December 31, 2022 included $607 million in “Other” related to bank-owned life insurance policies that had terminated, but not cash-settled. These items cash-settled during 2023.




NOTE 10 — DEPOSITS

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

Deposit Types
dollars in millionsSeptember 30, 2023December 31, 2022
Noninterest-bearing demand$43,141 $24,922 
Checking with interest23,461 16,202 
Money market30,082 21,040 
Savings32,513 16,634 
Time17,036 10,610 
Total deposits$146,233 $89,408 

At September 30, 2023, the scheduled maturities of time deposits were:

Deposit Maturities
dollars in millions
Twelve months ended September 30,
2024$15,251 
20251,307 
2026395 
202765 
202818 
Thereafter— 
Total time deposits$17,036 

Time deposits with a denomination of $250,000 or more were $4.23 billion and $2.22 billion at September 30, 2023 and December 31, 2022, respectively.


45


NOTE 11 — BORROWINGS

Short-term Borrowings

Short-term borrowings at September 30, 2023 and December 31, 2022 include:
dollars in millions September 30, 2023December 31, 2022
Securities sold under customer repurchase agreements$453 $436 
Notes payable to FHLB of Atlanta at overnight SOFR plus 0.28%.
— 1,750 
Total short-term borrowings$453 $2,186 

Securities Sold under Agreements to Repurchase
BancShares held $453 million and $436 million at September 30, 2023 and December 31, 2022, respectively, of securities sold under agreements to repurchase that have overnight contractual maturities and are collateralized by government agency securities.

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

BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $470 million and $496 million at September 30, 2023 and December 31, 2022, respectively.

46


Long-term Borrowings
Long-term borrowings at September 30, 2023 and December 31, 2022 include:

Long-term Borrowings
dollars in millionsMaturitySeptember 30, 2023December 31, 2022
Parent Company:
Subordinated:
Fixed-to-Floating subordinated notes at 3.375%
March 2030350 350 
Junior subordinated debentures at 3-month LIBOR plus 2.25% (FCB/SC Capital Trust II)
June 203420 20 
Junior subordinated debentures at 3-month LIBOR plus 1.75% (FCB/NC Capital Trust III)
June 203688 88 
Subsidiaries:
Senior:
Senior unsecured fixed-to-floating rate notes at 3.929%
June 2024— 500 
Senior unsecured fixed-to-floating rate notes at 2.969%
September 2025315 315 
Fixed senior unsecured notes at 6.00%
April 203651 51 
Subordinated:
Fixed subordinated notes at 6.125%
March 2028400 400 
Fixed-to-Fixed subordinated notes at 4.125%
November 2029100 100 
Junior subordinated debentures at 3-month LIBOR plus 2.80% (Macon Capital Trust I)
March 203414 14 
Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I)
April 203410 10 
Secured:
Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.32% to 0.36%.
Maturities through September 2025— 2,500 
Purchase Money Note to FDIC fixed at 3.50% (1)
March 202836,072 — 
Other secured financingsMaturities through January 2024— 18 
Capital lease obligationsMaturities through May 2057
Unamortized issuance costs(1)(1)
Unamortized purchase accounting adjustments (2)
(169)87 
Total long-term borrowings$37,259 $4,459 
(1)    Issued in connection with the SVBB Acquisition and will be secured by acquired loans. See below and Note 2—Business Combinations for further information.
(2)    At September 30, 2023 and December 31, 2022, unamortized purchase accounting adjustments were $59 million and $69 million, respectively, for subordinated debentures.

Pledged Assets
At September 30, 2023, BancShares had pledged $30.7 billion of loans to the FHLB and FRB.

As a member of the FHLB, FCB can access financing based on an evaluation of its creditworthiness, statement of financial position, size and eligibility of collateral. Pledged assets related to these financings totaled $24.5 billion at September 30, 2023. FCB may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that FCB is in compliance with the collateral maintenance requirement immediately following such disposition.

Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional $5.0 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at September 30, 2023 and December 31, 2022. Assets pledged to the FRB of Richmond totaled $6.2 billion at September 30, 2023.

In connection with the SVBB Acquisition, FCB and the FDIC entered into a Purchase Money Note, which is primarily secured by all loans acquired and related commitments that subsequently were drawn and outstanding as of September 30, 2023.

At September 30, 2023, BancShares had a credit line allowing contingent access to borrowings on an unsecured basis of up to $100 million, all of which was unused and available.






47


NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS

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

Notional Amount and Fair Value of Derivative Financial Instruments
dollars in millionsSeptember 30, 2023December 31, 2022
Notional AmountAsset Fair ValueLiability Fair ValueNotional AmountAsset Fair ValueLiability Fair Value
Derivatives not designated as hedging instruments (Non-qualifying hedges)
Interest rate contracts (1) (4)
$23,544 $748 $(781)$18,173 $158 $(482)
Foreign exchange contracts (2)
10,094 151 (130)125 (4)
Other contracts (3)
870 (1)507 — — 
Total derivatives not designated as hedging instruments$34,508 904 (912)$18,805 159 (486)
Gross derivatives fair values presented in the Consolidated Balance Sheets904 (912)159 (486)
Less: Gross amounts offset in the Consolidated Balance Sheets— — — — 
Net amount presented in the Consolidated Balance Sheets904 (912)159 (486)
Less: Amounts subject to master netting agreements (5)
(72)72 (13)13 
Less: Cash collateral pledged(received) subject to master netting agreements (6)
(783)(124)— 
Total net derivative fair value$49 $(834)$22 $(473)
(1)    Fair value balances include accrued interest.
(2)    The foreign exchange contracts exclude foreign exchange spot contracts. The notional amounts of these contracts were $242 million as of September 30, 2023, and $0 million as of December 31, 2022.
(3)    Other derivative contracts not designated as hedging instruments include risk participation agreements and equity warrants.
(4)    BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market”. As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances. Gross amounts of recognized assets and liabilities were lowered by $106 million and $22 million, respectively, at September 30, 2023, and $376 million and $19 million, respectively at December 31, 2022.
(5)    BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA”) agreements that allow for net settlements of certain payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. BancShares believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.
(6)    In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange of cash depending on change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties. Collateral pledged or received is included in other assets or deposits, respectively.

Non-Qualifying Hedges
The following table presents gains of non-qualifying hedges recognized on the Consolidated Statements of Income:

Gains on Non-Qualifying Hedges
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
Amounts Recognized2023202220232022
Interest rate contractsOther noninterest income$$$37 $11 
Foreign currency forward contractsOther noninterest income11 20 10 26 
Other contractsOther noninterest income— — 
Total non-qualifying hedges - income statement impact$20 $25 $48 $37 











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NOTE 13 — OTHER LIABILITIES

The following table includes the components of other liabilities. The increases from December 31, 2022 primarily reflect other liabilities assumed in conjunction with the SVBB Acquisition, as described in Note 2—Business Combinations.

Other Liabilities
dollars in millionsSeptember 30, 2023December 31, 2022
Fair value of derivative financial instruments$912 $486 
Lease liabilities411 352 
Accrued expenses and accounts payable462 275 
Commitments to fund tax credit investments901 295 
Deferred taxes3,627 286 
Reserve for off-balance sheet credit exposure318 106 
Incentive plan liabilities518 267 
Accrued interest payable146 57 
Other854 464 
Total other liabilities$8,149 $2,588 




NOTE 14 — FAIR VALUE

Fair Value Hierarchy
BancShares measures certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels.

Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows:
Level 1 inputs are quoted prices in active markets for identical assets and liabilities.
Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs.
Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability.

49


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 millionsSeptember 30, 2023
TotalLevel 1Level 2Level 3
Assets
Investment securities available for sale
U.S. Treasury$8,647 $— $8,647 $— 
Government agency129 — 129 — 
Residential mortgage-backed securities5,600 — 5,600 — 
Commercial mortgage-backed securities1,797 — 1,797 — 
Corporate bonds478 — 326 152 
Municipal bonds10 — 10 — 
Total investment securities available for sale$16,661 $— $16,509 $152 
Marketable equity securities75 31 44 — 
Loans held for sale22 — 22 — 
Derivative assets (1)
Interest rate contracts — non-qualifying hedges$748 $— $747 $
Foreign exchange contracts — non-qualifying hedges151 — 151 — 
Other derivative contracts — non-qualifying hedges— — 
Total derivative assets$904 $— $898 $
Liabilities
Derivative liabilities (1)
Interest rate contracts — non-qualifying hedges$781 $— $781 $— 
Foreign exchange contracts — non-qualifying hedges130 — 130 — 
Other derivative contracts — non-qualifying hedges— — 
Total derivative liabilities$912 $— $911 $

December 31, 2022
TotalLevel 1Level 2Level 3
Assets
Investment securities available for sale
U.S. Treasury$1,898 $— $1,898 $— 
Government agency162 — 162 — 
Residential mortgage-backed securities4,795 — 4,795 — 
Commercial mortgage-backed securities1,604 — 1,604 — 
Corporate bonds536 — 362 174 
Total investment securities available for sale$8,995 $— $8,821 $174 
Marketable equity securities95 32 63 — 
Loans held for sale— — 
Derivative assets (1)
Interest rate contracts — non-qualifying hedges$158 $— $158 $— 
Foreign exchange contracts — non-qualifying hedges— — 
Total derivative assets$159 $— $159 $— 
Liabilities
Derivative liabilities (1)
Interest rate contracts — non-qualifying hedges$482 $— $482 $— 
Foreign exchange contracts — non-qualifying hedges— — 
Total derivative liabilities$486 $— $486 $— 
(1)     Derivative fair values include accrued interest.


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

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

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

Loans held for sale. Certain residential real estate loans originated for sale to investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are considered Level 2 inputs.

Derivative Assets and Liabilities. Derivatives were valued using models that incorporate inputs depending on the type of derivative. Other than the fair value of equity warrants and credit derivatives, which were estimated using Level 3 inputs, most derivative instruments were valued using Level 2 inputs based on observed pricing for similar assets and liabilities and model-based valuation techniques for which all significant assumptions are observable in the market. See Note 12—Derivative Financial Instruments for notional amounts and fair values.

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

Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis
dollars in millions
Financial InstrumentEstimated
Fair Value
Valuation
Technique(s)
Significant Unobservable Inputs
September 30, 2023
Assets
Corporate bonds$152 Indicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer.
Interest rate & other derivative — non-qualifying hedges$Internal valuation modelNot material
Liabilities
Interest rate & other derivative — non-qualifying hedges$Internal valuation modelNot material
December 31, 2022
Assets
Corporate bonds$174 Indicative bid provided by brokerMultiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer.

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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 millionsNine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Corporate BondsOther Derivative Assets — Non-QualifyingOther Derivative Liabilities — Non-QualifyingCorporate BondsOther Derivative Assets — Non-QualifyingOther Derivative Liabilities — Non-Qualifying
Beginning balance$174 $— $— $207 $— $— 
Purchases— — — — — 
Changes in FV included in earnings— — — (1)
Changes in FV included in comprehensive income(13)— — (17)— — 
Transfers in— — — — — 
Transfers out— — — (14)— — 
Maturity and settlements(9)— — — — — 
Ending balance$152 $$$176 $$— 

Fair Value Option
The following table summarizes the difference between the aggregate fair value and the UPB for residential real estate loans originated for sale measured at fair value as of September 30, 2023 and December 31, 2022:

Aggregate Fair Value and UPB - Residential Real Estate Loans
dollars in millionsSeptember 30, 2023
Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$22 $22 $ 
December 31, 2022
Fair ValueUnpaid Principal BalanceDifference
Originated loans held for sale$$$— 

BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included $0 million and a loss of $1 million for the three months ended September 30, 2023 and 2022, respectively, and $0 million and a loss of $3 million for the nine months ended September 30, 2023 and 2022, respectively. Interest earned on loans held for sale is recorded within interest income on loans and leases in the Consolidated Statements of Income.

No originated loans held for sale were 90 or more days past due or on non-accrual status as of September 30, 2023 or December 31, 2022.

Assets Measured at Estimated Fair Value on a Non-recurring Basis
Certain assets or liabilities are required to be measured at estimated fair value on a non-recurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. The following table presents carrying value of assets measured at estimated fair value on a non-recurring basis for which gains and losses have been recorded in the periods. The gains and losses reflect amounts recorded for the respective periods, regardless of whether the asset is still held at period end.
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Assets Measured at Fair Value - Non-recurring Basis
dollars in millionsFair Value Measurements
TotalLevel 1Level 2Level 3Total Gains (Losses)
September 30, 2023
Assets held for sale - loans$22 $— $— $22 $(5)
Loans - collateral dependent loans249 — — 249 (96)
Other real estate owned15 — — 15 
Total$286 $— $— $286 $(99)
December 31, 2022
Assets held for sale - loans$23 $— $— $23 $(1)
Loans - collateral dependent loans149 — — 149 (24)
Other real estate owned43 — — 43 14 
Mortgage servicing rights— — — — 
Total$215 $— $— $215 $(10)

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

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

Assets held for sale - loans. Loans held for investment subsequently transferred to held for sale are carried at the LOCOM. When available, the fair values for the transferred loans are based on quoted prices from the purchase commitments for the individual loans being transferred and are considered Level 1 inputs. The fair value of Level 2 assets was primarily estimated based on prices of recent trades of similar assets. For other loans held for sale, the fair value of Level 3 assets was primarily measured under the income approach using the discounted cash flow model based on Level 3 inputs including discount rate or the price of committed trades.

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

Other real estate owned. OREO is carried at LOCOM. OREO asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts, generally between 6% and 11%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At September 30, 2023 and December 31, 2022, the weighted average discount applied was 8.52% and 9.31%, respectively. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.

Mortgage servicing rights. MSRs are 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 MSRs is determined using a pooling methodology. Similar loans are pooled together and a model which relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for MSRs are considered Level 3 inputs.
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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 millionsSeptember 30, 2023
Estimated Fair Value
Carrying ValueLevel 1Level 2Level 3Total
Financial Assets
Cash and due from banks$791 $791 $— $— $791 
Interest earning deposits at banks36,704 36,704 — — 36,704 
Securities purchased under agreements to resell549 — 549 — 549 
Investment in marketable equity securities75 31 44 — 75 
Investment securities available for sale16,661 — 16,509 152 16,661 
Investment securities held to maturity10,082 — 8,152 — 8,152 
Loans held for sale54 — 22 32 54 
Net loans129,466 — 1,506 124,367 125,873 
Accrued interest receivable833 — 833 — 833 
Federal Home Loan Bank stock19 — 19 — 19 
Mortgage servicing rights25 — — 47 47 
Derivative assets904 — 898 904 
Financial Liabilities
Deposits with no stated maturity129,197 — 129,197 — 129,197 
Time deposits17,036 — 16,990 — 16,990 
Credit balances of factoring clients1,282 — — 1,282 1,282 
Securities sold under customer repurchase agreements453 — 453 — 453 
Long-term borrowings37,250 — 36,296 — 36,296 
Accrued interest payable146 — 146 — 146 
Derivative liabilities912 — 911 912 
December 31, 2022
Estimated Fair Value
Carrying ValueLevel 1Level 2Level 3Total
Financial Assets
Cash and due from banks$518 $518 $— $— $518 
Interest earning deposits at banks5,025 5,025 — — 5,025 
Investment in marketable equity securities95 32 63 — 95 
Investment securities available for sale8,995 — 8,821 174 8,995 
Investment securities held to maturity10,279 — 8,795 — 8,795 
Loans held for sale52 — 45 49 
Net loans67,720 — 1,679 62,633 64,312 
Accrued interest receivable329 — 329 — 329 
Federal Home Loan Bank stock197 — 197 — 197 
Mortgage servicing rights25 — — 47 47 
Derivative assets159 — 159 — 159 
Financial Liabilities
Deposits with no stated maturity78,798 — 78,798 — 78,798 
Time deposits10,610 — 10,504 — 10,504 
Credit balances of factoring clients995 — — 995 995 
Securities sold under customer repurchase agreements436 — 436 — 436 
Other short-term borrowings1,750 — 1,750 — 1,750 
Long-term borrowings4,452 — 4,312 18 4,330 
Accrued interest payable57 — 57 — 57 
Derivative liabilities486 — 486 — 486 


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

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

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

Investment securities held to maturity. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, and securities issued by the Supranational Entities and Multilateral Development Banks. 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.

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

Credit balances of factoring clients. The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances, therefore, the fair value approximated carrying value, and the credit balances were classified as Level 3.

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

Long-term borrowings. 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 September 30, 2023 and December 31, 2022. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks, and interest earning deposits at banks, are classified on the fair value hierarchy as Level 1. Accrued interest receivable and accrued interest payable are classified as Level 2.
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NOTE 15 — STOCKHOLDERS' EQUITY

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

Number of Shares of Common Stock
Outstanding
Class AClass B
Common stock - June 30, 202313,514,849 1,005,185 
Restricted stock units vested, net of shares held to cover taxes69 — 
Common stock - September 30, 202313,514,918 1,005,185 
Common stock - December 31, 202213,501,017 1,005,185 
Restricted stock units vested, net of shares held to cover taxes13,901 — 
Common stock - September 30, 202313,514,918 1,005,185 

Common Stock
The Parent Company has Class A Common Stock and Class B Common stock, par value $1 (“Class B Common Stock”). Class A Common Stock have one vote per share, while shares of Class B Common Stock have 16 votes per share.

Non-Cumulative Perpetual Preferred Stock
The following table summarizes BancShares’ non-cumulative perpetual preferred stock.

Preferred Stock
dollars in millions, except per share and par value data
Preferred StockIssuance DateEarliest Redemption DatePar ValueShares Issued and OutstandingLiquidation Preference Per ShareTotal Liquidation PreferenceDividendDividend Payment Dates
Series AMarch 12, 2020March 15, 2025$0.01 345,000$1,000 3455.375%Quarterly in arrears on March 15, June 15, September 15, and December 15
Series B (1)
January 3, 2022January 4, 2027$0.01 325,000$1,000 325
SOFR + 3.972%
Series CJanuary 3, 2022January 4, 2027$0.01 8,000,000$25 2005.625%
(1) Beginning July 1, 2023, BancShares has moved to Term SOFR plus a credit spread adjustment for its Series B Preferred Stock. The final dividend payment based on a LIBOR accrual occurred September 15, 2023.

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

Authorized Shares
On April 25, 2023 the Parent Company’s stockholders approved amendments to the Restated Certificate of Incorporation to increase the number of authorized shares of the Class A Common Stock from 16,000,000 shares to 32,000,000 shares and to increase the number of authorized shares of the Preferred Stock from 10,000,000 shares to 20,000,000.




NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

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

Components of Accumulated Other Comprehensive (Loss) Income
dollars in millionsSeptember 30, 2023December 31, 2022
PretaxIncome
Taxes
Net of Income TaxesPretaxIncome
Taxes
Net of Income Taxes
Unrealized loss on securities available for sale$(1,175)$286 $(889)$(972)$233 $(739)
Unrealized loss on securities available for sale transferred to held to maturity(7)(5)(8)(6)
Defined benefit pension items18 (4)14 13 (3)10 
Total accumulated other comprehensive loss$(1,164)$284 $(880)$(967)$232 $(735)

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

Changes in Accumulated Other Comprehensive (Loss) Income by Component
dollars in millionsUnrealized (loss) gain on securities available for saleUnrealized (loss) gain on securities available for sale transferred to held to maturityNet change in defined benefit pension itemsTotal accumulated other comprehensive (loss) income
Balance as of December 31, 2022$(739)$(6)$10 $(735)
AOCI activity before reclassifications(169)— (165)
Amounts reclassified from AOCI to earnings19 — 20 
Other comprehensive (loss) income for the period(150)(145)
Balance as of September 30, 2023$(889)$(5)$14 $(880)
Balance as of December 31, 2021$(9)$(7)$26 $10 
AOCI activity before reclassifications(747)— — (747)
Amounts reclassified from AOCI to earnings— 
Other comprehensive (loss) income for the period(747)(739)
Balance as of September 30, 2022$(756)$(6)$33 $(729)

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

Other Comprehensive Income (Loss) by Component
dollars in millionsThree Months Ended September 30,
20232022
PretaxIncome
Taxes
Net of Income TaxesPretaxIncome
Taxes
Net of Income TaxesIncome Statement Line Items
Unrealized loss on securities available for sale:
AOCI activity before reclassifications$(155)$40 $(115)$(348)$82 $(266)
Amounts reclassified from AOCI to earnings(2)— — — 
$12 realized loss on sales of investment securities available for sale, net; $(3) provision for credit losses
Other comprehensive loss on securities available for sale$(146)$38 $(108)$(348)$82 $(266)
Unrealized loss on securities available for sale transferred to held to maturity:
AOCI activity before reclassifications$— $— $— $— $— $— 
Amounts reclassified from AOCI to earnings— — — — — — Interest on investment securities
Other comprehensive income on securities available for sale transferred to held to maturity$— $— $— $— $— $— 
Defined benefit pension items:
Actuarial loss$— $— $— $— $— $— 
Amounts reclassified from AOCI to earnings— — — — Other noninterest expense
Other comprehensive income for defined benefit pension items$— $— $— $$— $
Total other comprehensive loss$(146)$38 $(108)$(346)$82 $(264)

57


dollars in millionsNine Months Ended September 30,
20232022
PretaxIncome
Taxes
Net of Income TaxesPretaxIncome
Taxes
Net of Income TaxesIncome Statement Line Items
Unrealized loss on securities available for sale:
AOCI activity before reclassifications$(229)$60 $(169)$(983)$236 $(747)
Amounts reclassified from AOCI to earnings26 (7)19 — — — 
$26 realized loss on sales of investment securities available for sale
Other comprehensive loss on securities available for sale$(203)$53 $(150)$(983)$236 $(747)
Unrealized loss on securities available for sale transferred to held to maturity:
AOCI activity before reclassifications$— $— $— $— $— $— 
Amounts reclassified from AOCI to earnings— — Interest on investment securities
Other comprehensive income on securities available for sale transferred to held to maturity$$— $$$— $
Defined benefit pension items:
Actuarial loss$$(1)$$— $— $— 
Amounts reclassified from AOCI to earnings— — — (2)Other noninterest expense
Other comprehensive income for defined benefit pension items$$(1)$$$(2)$
Total other comprehensive loss$(197)$52 $(145)$(973)$234 $(739)




NOTE 17 — REGULATORY CAPITAL

BancShares and FCB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on 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. The following table includes the Basel III requirements for regulatory capital ratios.
Basel III MinimumsBasel III Conservation BuffersBasel III Requirements
Regulatory capital ratios
Total risk-based capital8.00 %2.50 %10.50 %
Tier 1 risk-based capital6.00 2.50 8.50 
Common equity Tier 14.50 2.50 7.00 
Tier 1 leverage4.00 — 4.00 

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The FDIC also has Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. The regulatory capital ratios for BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of September 30, 2023 and December 31, 2022 as summarized in the following table.

dollars in millionsSeptember 30, 2023December 31, 2022
Basel III RequirementsPCA well-capitalized thresholdsAmountRatioAmountRatio
BancShares
Total risk-based capital10.50 %10.00 %$23,351 15.64 %$11,799 13.18 %
Tier 1 risk-based capital8.50 8.00 20,643 13.83 9,902 11.06 
Common equity Tier 17.00 6.50 19,762 13.24 9,021 10.08 
Tier 1 leverage4.00 5.00 20,643 9.73 9,902 8.99 
FCB
Total risk-based capital10.50 %10.00 %$22,927 15.36 %$11,627 12.99 %
Tier 1 risk-based capital8.50 8.00 20,673 13.85 10,186 11.38 
Common equity Tier 17.00 6.50 20,673 13.85 10,186 11.38 
Tier 1 leverage4.00 5.00 20,673 9.75 10,186 9.25 

At September 30, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of 7.64% and 7.36%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB had risk-based capital ratio conservation buffers of 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of September 30, 2023 and December 31, 2022 over the Basel III minimum for the ratio that is the binding constraint.

Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 15—Stockholders' Equity. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ALLL 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 $8.00 billion while continuing to meet the requirements for well-capitalized banks at September 30, 2023. Dividends declared by FCB and paid to the Parent Company amounted to $367 million for the nine months ended September 30, 2023. Payment of dividends is made at the discretion of FCB’s Board of Directors and is contingent upon satisfactory earnings as well as projected capital needs.



NOTE 18 — EARNINGS PER COMMON SHARE

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

Earnings per Common Share
dollars in millions, except per share data
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income$752 $315 $10,952 $841 
Preferred stock dividends15 12 44 36 
Net income available to common stockholders$737 $303 $10,908 $805 
Weighted average common shares outstanding
Basic shares outstanding14,528,310 15,711,976 14,527,718 15,849,219 
Stock-based awards10,823 16,017 11,665 18,095 
Diluted shares outstanding14,539,133 15,727,993 14,539,383 15,867,314 
Earnings per common share
Basic$50.71 $19.27 $750.79 $50.76 
Diluted$50.67 $19.25 $750.19 $50.70 
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NOTE 19 — INCOME TAXES

BancShares’ global effective income tax rates were 24.6% and 3.6% for the three and nine months ended September 30, 2023, respectively, and 22.9% and 13.3% for the three and nine months ended September 30, 2022, respectively. The increase in the effective tax rates from 22.9% in the prior year to 24.6% for the three months ended September 30, 2023 was primarily driven by the increase in the state and local taxes resulting from the SVBB Acquisition. The decrease in the effective tax rates from 13.3% in the prior year to 3.6% for the nine months ended September 30, 2023 was primarily due to the preliminary gain on acquisition relating to the SVBB Acquisition.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate (“ETR”). This annual ETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The ETR each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted ETR may vary from the actual year-end 2023 ETR due to the changes in these factors.

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

Net Operating Loss Carryforwards and Valuation Adjustments
As a result of the SVBB Acquisition, BancShares’ net deferred tax liabilities increased by approximately $3.28 billion, primarily related to acquired loans and other assets.

BancShares’ ability to recognize deferred tax assets (“DTAs”) is evaluated on a quarterly basis to determine if there are any significant events that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize its DTAs, adjustments to the valuation allowance adjustments may be required. As a result of further assessment of information received during the second quarter related to the SVBB Acquisition, BancShares released approximately $12 million in the second quarter of the $70 million valuation allowance recorded at December 31, 2022. In the three months ended September 30, 2023, BancShares converted one of its subsidiaries to a LLC, and as a result of the conversion BancShares released an additional $18 million of the $70 million valuation allowance recorded at December 31, 2022.



NOTE 20 — EMPLOYEE BENEFIT PLANS

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

The components of net periodic benefit cost are as follows:
dollars in millionsThree Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Service cost$$$$10 
Interest cost15 11 45 33 
Expected return on assets(21)(22)(64)(65)
Amortization of prior service cost— — — — 
Amortization of net actuarial loss— — 
Net periodic benefit$(4)$(5)$(12)$(13)









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NOTE 21 — BUSINESS SEGMENT INFORMATION

BancShares’ segments include General Banking, Commercial Banking, Rail, Corporate, and Silicon Valley Banking, which is a new segment that includes the operating results for the SVBB Acquisition, . 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. Net interest income is primarily generated from interest earned on loans and noninterest income is mainly derived from fees for banking and advisory services.
Commercial Banking
Commercial Banking provides a range of lending, leasing, capital markets, asset management and other financial and advisory services primarily to small and middle market companies in a wide range of industries. Loans offered are primarily senior secured loans collateralized by accounts receivable, inventory, machinery and equipment, transportation equipment and/or intangibles, and are often used for working capital, plant expansion, acquisitions or recapitalizations. These loans include revolving lines of credit and term loans and, depending on the nature of the collateral, may be referred to as collateral-backed loans, asset-based loans or cash flow loans. Commercial Banking provides senior secured loans to developers and other commercial real estate professionals, and also provides small business loans and leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding process. Commercial Banking also provides factoring, receivable management, and secured financing to businesses that operate in various industries.
Revenue is primarily generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities.
Silicon Valley Banking
Silicon Valley Banking offers products and services to commercial clients in key innovation markets, such as healthcare and technology industries, as well as private equity and venture capital firms. The segment provides solutions to the financial needs of commercial clients through credit, treasury management, foreign exchange, trade finance and other services such as capital call lines of credit. In addition, the segment offers private banking and wealth management and provides a range of personal financial solutions for consumers. Private banking and wealth management clients consist of private equity/venture capital professionals and executive leaders of the innovation companies they support and premium wine clients. The segment offers a customized suite of private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, other secured and unsecured lending products and vineyard development loans, as well as planning-based financial strategies, wealth management, family office, financial planning, tax planning and trust services.
Revenue is primarily generated from interest earned on loans, and fees and other revenue from lending activities and banking services.
Deposit products include business and analysis checking accounts, money market accounts, multi-currency accounts, bank accounts, sweep accounts and positive pay services. Services are provided through online and mobile banking platforms, as well as branch locations.
Rail
Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement, tank cars for energy products and chemicals, gondolas for coal, steel coil and mill service products, open hopper cars for coal and aggregates, boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenue is primarily from operating lease income.







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Corporate
Certain items that are not allocated to operating segments are included in the Corporate segment, inclusive of similar items related to Silicon Valley Banking. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate funding costs (including brokered deposits), income on BOLI (other noninterest income), acquisition-related costs, as well as certain unallocated costs and certain intangible asset amortization expense (operating expenses). Corporate also includes certain significant items that are infrequent, such as the preliminary gain on acquisition, day 2 provision for loan and lease losses, and day 2 provision for off-balance sheet credit exposure. Corporate also includes certain purchase accounting adjustment accretion, such as the accretion of the fair value adjustment associated with the acquired loans in the SVBB Acquisition.

Segment Net Income (Loss) and Select Period End Balances

The following table presents the condensed income statement by segment:
dollars in millionsThree Months Ended September 30, 2023
General BankingCommercial BankingSilicon Valley BankingRailCorporateTotal BancShares
Net interest income (expense)$625 $249 $635 $(40)$521 $1,990 
Provision (benefit) for credit losses132 56 — (3)192 
Net interest income (expense) after provision for credit losses618 117 579 (40)524 1,798 
Noninterest income125 139 151 194 615 
Noninterest expense411 205 514 116 170 1,416 
Income before income taxes332 51 216 38 360 997 
Income tax expense91 14 59 10 71 245 
Net income$241 $37 $157 $28 $289 $752 
Select Period End Balances
Loans and leases$46,077 $30,220 $56,864 $41 $— $133,202 
Deposits101,021 3,370 39,970 12 1,860 146,233 
Operating lease equipment, net— 739 — 7,922 — 8,661 
Three Months Ended September 30, 2022
General BankingCommercial BankingSilicon Valley BankingRailCorporateTotal BancShares
Net interest income (expense)$495 $230 $— $(20)$90 $795 
Provision for credit losses58 — — — 60 
Net interest income (expense) after provision for credit losses493 172 — (20)90 735 
Noninterest income118 133 — 170 12 433 
Noninterest expense400 186 — 110 64 760 
Income (loss) before income taxes211 119 — 40 38 408 
Income tax expense55 24 — 10 93 
Net income (loss)$156 $95 $— $30 $34 $315 
Select Period End Balances
Loans and leases$41,693 $28,023 $— $74 $— $69,790 
Deposits82,731 3,682 — 14 1,126 87,553 
Operating lease equipment, net— 736 — 7,248 — 7,984 

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Nine Months Ended September 30, 2023
General BankingCommercial BankingSilicon Valley BankingRailCorporateTotal BancShares
Net interest income (expense)$1,790 $744 $1,335 $(101)$1,033 $4,801 
Provision for credit losses48 353 — 716 1,126 
Net interest income (expense) after provision for credit losses1,742 391 1,326 (101)317 3,675 
Noninterest income362 420 334 549 9,867 11,532 
Noninterest expense1,192 615 1,139 357 540 3,843 
Income before income taxes912 196 521 91 9,644 11,364 
Income tax expense (benefit)228 55 140 23 (34)412 
Net income$684 $141 $381 $68 $9,678 $10,952 
Nine Months Ended September 30, 2022
General BankingCommercial BankingSilicon Valley BankingRailCorporateTotal BancShares
Net interest income (expense)$1,400 $641 $— $(58)$161 $2,144 
(Benefit) provision for credit losses(7)60 — — 513 566 
Net interest income (expense) after provision for credit losses1,407 581 — (58)(352)1,578 
Noninterest income371 376 — 493 467 1,707 
Noninterest expense1,192 555 — 320 248 2,315 
Income (loss) before income taxes586 402 — 115 (133)970 
Income tax expense (benefit)143 90 — 28 (132)129 
Net income (loss)$443 $312 $— $87 $(1)$841 




NOTE 22 — COMMITMENTS AND CONTINGENCIES

Commitments
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit. The below balances for September 30, 2023 include balances related to the SVBB Acquisition. The balances acquired are included in Financing Commitments and Letters of Credit.

The accompanying table summarizes credit-related commitments and other purchase and funding commitments:
dollars in millionsSeptember 30, 2023December 31, 2022
Financing Commitments
Financing assets (excluding leases)$62,689 $23,452 
Letters of Credit
Standby letters of credit2,721 436 
Other letters of credit114 44 
Deferred Purchase Agreements2,087 2,039 
Purchase and Funding Commitments (1)
1,014 941 
(1)    BancShares’ purchase and funding commitments relate to the equipment leasing businesses’ commitments to fund finance leases and operating leases, and Rail’s railcar manufacturer purchase and upgrade commitments.

Financing Commitments
Commitments to extend credit are 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.

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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 September 30, 2023 and December 31, 2022, substantially all undrawn financing commitments were senior facilities. The undrawn and available financing commitments are primarily in the Silicon Valley Banking and Commercial Banking segments. Financing commitments also include approximately $68 million and $66 million at September 30, 2023 and December 31, 2022, respectively, related to off-balance sheet commitments to fund equity investments. Commitments to fund equity investments are contingent on events that have yet to occur and may be subject to change.

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

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

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

Deferred Purchase Agreements (“DPA”)
A DPA is provided in conjunction with factoring, whereby a client is provided with credit protection for trade receivables without purchasing the receivables. The trade receivables terms generally require payment in 90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, BancShares is then required to purchase the receivable from the client, less any borrowings for such client based on such defaulted receivable. The outstanding amount in the table above, less $189 million and $186 million at September 30, 2023 and December 31, 2022, respectively, of borrowings for such clients, is the maximum amount that BancShares would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring BancShares to purchase all such receivables from the DPA clients.
The table above includes $1.94 billion and $1.90 billion of DPA exposures at September 30, 2023 and December 31, 2022, respectively, related to receivables on which BancShares has assumed the credit risk. The table also includes $150 million and $138 million available under DPA credit line agreements provided at September 30, 2023 and December 31, 2022, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period, which is typically 90 days or less.

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

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

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

For certain Litigation matters in which BancShares is involved, BancShares is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates an aggregate range of reasonably possible losses of up to $10 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of September 30, 2023. The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.

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

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

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

Management’s discussion and analysis (“MD&A”) of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” or “BancShares”) and its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.

This MD&A is expected to provide our investors with a view of our financial condition and results of operations from our management’s perspective. This MD&A should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q, along with our consolidated financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Throughout this MD&A, references to a specific “Note” refer to Notes to the Unaudited Consolidated Financial Statements.

Intercompany accounts and transactions have been eliminated. Although certain amounts for the prior year have been reclassified to conform to statement presentations for 2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported. Refer to further detail in Note 1—Significant Accounting Policies and Basis of Presentation.

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

EXECUTIVE OVERVIEW

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

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

In addition, BancShares owns a fleet of railcars and locomotives that are leased to railroads and shippers. We also provide various investment products and services through FCB’s wholly owned subsidiaries, First Citizens Investor Services, Inc. (“FCIS”) and First Citizens Asset Management, Inc. (“FCAM”). As a registered broker-dealer, FCIS provides a full range of investment products, including annuities, discount brokerage services and third-party mutual funds. As registered investment advisors, FCIS and FCAM provide investment management services and advice. BancShares delivers products and services to its customers through an extensive branch network and additionally operates a nationwide direct bank (the “Direct Bank”). Services offered at most branches include accepting deposits, cashing checks and providing for consumer and commercial cash needs. Consumer and business customers may also conduct banking transactions through various digital channels.

The SVBB Acquisition (as defined and described below) expanded our client base to serve private equity and venture capital clients and also complimented our existing wealth management business by adding enhanced digital capabilities. The SVBB Acquisition further diversified our loan portfolio and business mix, particularly across technology and life sciences and healthcare industries, and wealth clients.

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

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Significant Events in 2023

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

Significant items related to the SVBB Acquisition are summarized below. 
The fair value of total assets acquired was $107.54 billion, which mainly consisted of approximately $68.47 billion of loans and $35.31 billion of cash and interest-earning deposits at banks.
The fair value of deposits assumed was $56.01 billion.
The core deposit intangible was $230 million.
The preliminary after tax gain on acquisition was $9.89 billion for the nine months ended September 30, 2023, representing the excess of the net assets acquired over the purchase price. This includes increases of $12 million (net of tax) in the current quarter and $55 million (net of tax) during the second quarter. These reflect refined fair value estimates for acquired affordable housing tax credit investments, loans, and assets and liabilities of acquired SVBB subsidiaries. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the SVBB Acquisition Date (the “Measurement Period”).
The purchase price consideration included a Purchase Money Note (as defined and described below) from the FDIC with an estimated fair value of $35.81 billion.

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

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

Recent Economic and Industry Developments
During 2023, the Federal Reserve’s Federal Open Market Committee (“FOMC”) continued to raise its target for the federal funds rate in an effort to combat inflation. The FOMC raised interest rates at its January, March, May and July meetings by 25 basis points each, but did not raise the interest rate during its June and September meetings. The FOMC benchmark federal funds rate was maintained at a range between 5.25% - 5.50%.

The FOMC stands ready in its efforts to control inflation and said it will monitor economic and financial-market developments and the effects of their earlier rate increases in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time. Although the FOMC has made some progress combating inflation, efforts to control inflation have raised concerns over the possibility of a recession within the next twelve months. In addition, geopolitical events, including the ongoing conflicts in Ukraine, Israel and the Gaza Strip, are likely to maintain upward pressure on inflation and weigh on economic activity. Also, mortgage rates continued to rise in 2023 and mortgage demand from homebuyers softened. The timing and impact of inflation, volatility in the stock market, rising interest rates, and possible recession will depend on future developments, which are highly uncertain and difficult to predict.

Earlier this year, the banking industry experienced increased volatility due to the failure of multiple high-profile banking institutions. These failures have increased industry concerns related to capital and liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on securities. Due to the noted uncertainties and related bank failures, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Federal Banking Agencies”) have issued several notices of proposed rulemaking (“NPR”), that if and/or when finalized, may impact BancShares and FCB.

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FDIC Special Assessment
On May 22, 2023 the FDIC issued an NPR. The NPR included an annual special assessment rate of approximately 12.5 basis points (“bps”) to an assessment base that would equal an insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, with the first $5 billion in estimated uninsured deposits excluded from the assessment base. The assessment would be accrued at the time of adoption, then paid in eight quarterly installments, potentially beginning in the first quarter of 2024. The exact timing and assessment calculation is still to be determined and will be published by the FDIC upon final adoption. We are in the process of evaluating this NPR and assessing its potential impact, but based on preliminary estimates, we anticipate a one-time FDIC assessment fee of approximately $30 million. Refer to the “Funding, Liquidity and Capital Overview” discussion below in the “Financial Performance Summary” section of this MD&A.

Enhanced Capital Requirements
On July 27, 2023, the Federal Banking Agencies released an NPR to implement the final components of the Basel III agreement, also known as the Basel III endgame. The proposal would also modify capital requirements for large banks with total assets of $100 billion or more, including BancShares.

The NPR would replace internal-models-based capital requirements for credit and operational risk currently included in Category I or II capital standards with new, risk-sensitive standardized requirements (the “expanded risk-based approach”) that would apply to all banking organizations with $100 billion or more in total assets (banking organizations subject to Category I, II, III, or IV capital standards). The proposal would maintain the capital rule’s dual-requirement structure and require large banking organizations to calculate risk-weighted asset amounts under the current standardized approach and the expanded risk-based approach and use the higher of the two risk-weighted asset amounts to satisfy minimum capital requirements. The NPR also requires all banking organizations with $100 billion or more in total assets to calculate regulatory capital in a consistent manner, including by reflecting unrealized gains and losses on available-for-sale securities in regulatory capital to better reflect actual loss-absorbing capacity. Additionally, the proposal would require all banking organizations with $100 billion or more in total assets to meet the supplementary leverage ratio requirement and apply the countercyclical capital buffer, if activated.

The NPR included a July 1, 2025 effective date, with certain aspects subject to a three-year phase-in period. However, on October 20, 2023, the Federal Banking Agencies extended the comment period for this NPR from November 30, 2023 to January 16, 2024. We are in the process of evaluating this NPR and assessing its potential impact.

Long-term Debt Requirement
On August 29, 2023, the Federal Banking Agencies released an NPR that requires large banks with total assets of $100 billion or more to maintain a minimum amount of long-term debt that can be used, in the instance of a bank’s failure, to absorb losses and increase options to resolve the failed bank.

Large banks would be required to maintain a minimum amount of eligible long-term debt equal to the greater of 6 percent of risk weighted assets, 3.5 percent of average total consolidated assets, and for banks subject to the supplementary leverage ratio, 2.5 percent of total leverage exposure under the supplementary leverage ratio. Additionally, the proposal would prohibit large banks from engaging in certain activities that could complicate their resolution and discourage banks from holding long-term debt issued by other banks to reduce interconnectedness.

The proposal includes transition provisions to give banks sufficient time to adapt to the changes while minimizing any potential adverse impact. Covered institutions would have to comply with the new requirements through a phased-in approach over a three-year period, during which they would need to meet 25% of their long-term requirements by one year after effectiveness of the rule, 50% after two years, and 100% after three years. It would also allow banks to count, as part of the required amounts, certain existing long-term debt. We are in the process of evaluating this NPR and assessing its potential impact, but we expect we will need to raise additional long-term debt to satisfy these requirements.

Financial Performance Summary

The following tables in this MD&A compare financial data for the three months ended September 30, 2023 (the “current quarter”) to financial data for the three months ended June 30, 2023 (the “linked quarter”) and September 30, 2022 (the “prior year quarter”), and for the nine months ended September 30, 2023 (“current YTD”) to the nine months ended September 30, 2022 (“prior YTD”). In accordance with Item 303(c) of Regulation S-K, we focus on the linked quarter and prior YTD for the narrative discussion and analysis of our results of operations as we believe this provides investors and other users of our data with the most relevant information. We focus our discussion on our financial position by primarily comparing balances as of September 30, 2023 to December 31, 2022, while the tables also provide balances as of June 30, 2023.

Our results of operations include SVB beginning on the SVBB Acquisition Date, and therefore, comparisons to the prior year
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quarter and prior YTD will highlight the impact of including SVB. Financial position balances as of September 30, 2023 and June 30, 2023 include the assets acquired and liabilities assumed in the SVBB Acquisition.

The following table summarizes BancShares’ results in accordance with GAAP, unless otherwise noted. Refer to the section entitled “Non-GAAP Financial Measurements” at the end of this MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Table 1
Selected Quarterly Data
dollars in millions, except share dataThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
SUMMARY OF OPERATIONS
Interest income$3,110 $2,953 $906 $7,274 $2,373 
Interest expense1,120 992 111 2,473 229 
Net interest income1,990 1,961 795 4,801 2,144 
Provision for credit losses192 151 60 1,126 566 
Net interest income after provision for credit losses1,798 1,810 735 3,675 1,578 
Noninterest income615 658 433 11,532 1,707 
Noninterest expense1,416 1,572 760 3,843 2,315 
Income before income taxes997 896 408 11,364 970 
Income tax (benefit) expense245 214 93 412 129 
Net income752 682 315 10,952 841 
Preferred stock dividends15 15 12 44 36 
Net income available to common stockholders$737 $667 $303 $10,908 $805 
PER COMMON SHARE DATA
Average diluted common shares14,539,133 14,537,938 15,727,993 14,539,383 15,867,314 
Earnings per common share (diluted)$50.67 $45.87 $19.25 $750.19 $50.70 
KEY PERFORMANCE METRICS
Return on average assets (ROA)1.41 %1.31 %1.16 %7.81 %1.04 %
Net interest margin (NIM) (1)
4.07 4.10 3.42 3.94 3.08 
SELECTED QUARTERLY AVERAGE BALANCES
Investment securities$24,388 $19,806 $19,119 $21,222 $19,264 
Total loans and leases (2)
133,248 134,696 68,822 114,496 66,885 
Operating lease equipment, net8,617 8,405 7,981 8,421 7,960 
Total assets211,994 209,309 107,969 187,429 108,625 
Total deposits144,043 137,438 88,422 125,290 90,209 
Total stockholders’ equity20,116 19,521 10,499 17,002 10,497 
SELECTED QUARTER-END BALANCES
Investment securities$26,818 $22,171 $18,841 
Total loans and leases133,202 133,015 69,790 
Operating lease equipment, net8,661 8,531 7,984 
Total assets213,765 209,502 109,310 
Total deposits146,233 141,164 87,553 
Total stockholders’ equity20,389 19,771 9,833 
Loan to deposit ratio91.09 %94.23 %79.71 %
Noninterest-bearing deposits to total deposits29.50 31.56 30.37 
CAPITAL RATIOS
Common equity Tier 113.24 %13.38 %13.46 %
Tier 1 risk-based capital13.83 14.00 11.36 
Total risk-based capital15.64 15.84 10.37 
Tier 1 leverage9.73 9.50 9.31 
ASSET QUALITY
Ratio of nonaccrual loans to total loans0.68 %0.70 %0.65 %
Allowance for loan and lease losses to loans ratio1.26 1.23 1.26 
Net charge off ratio0.53 0.47 0.10 0.45 0.11 
(1)     The rate presented is calculated net of credit balances of factoring clients.
(2)     Average loan balances include held for sale and non-accrual loans.
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Third Quarter Income Statement Highlights
Net income for the current quarter was $752 million, an increase of $70 million or 10% from $682 million for the linked quarter. Net income available to common stockholders for the current quarter was $737 million, an increase of $70 million or 11% from $667 million for the linked quarter. The increases were primarily related to lower noninterest expenses, which offset higher provision for credit losses. Net interest income improved and included purchase accounting accretion for loans of $275 million compared to $243 million in the linked quarter. Net income per diluted common share for the current quarter was $50.67, an increase from $45.87 for the linked quarter.
The current quarter included the following select items:
an increase of $12 million (net of tax) in the preliminary gain on acquisition for Measurement Period adjustments,
a pre-tax loss of $12 million, primarily on the sale of municipal bonds acquired in the SVBB Acquisition, and
acquisition-related expenses of $121 million.
The linked quarter included the following select items:
an increase of $55 million (net of tax) in the preliminary gain on acquisition for Measurement Period adjustments, and
acquisition-related expenses of $205 million.
Return on average assets for the current quarter was 1.41% compared to 1.31% for the linked quarter.
Net interest income (“NII”) for the current quarter was $1.99 billion, an increase of $29 million or 2% from $1.96 billion for the linked quarter. This increase included higher interest income on loans, including a $32 million increase in purchase accounting accretion, higher yield and loan growth in General Banking and Commercial Banking, and an increase in interest on investment securities, which were partially offset by higher costs for deposits.
Net interest margin (“NIM”) for the current quarter was 4.07%, a decrease of 3 bp from 4.10% for the linked quarter.
Provision for credit losses for the current quarter was $192 million, an increase of $41 million or 27% from $151 million for the linked quarter. The increase reflected deterioration in macroeconomic factors and higher net charge-offs in the current quarter, as further discussed in the “Allowance for Loan and Lease Losses (“ALLL”) section of this MD&A.
Noninterest income for the current quarter was $615 million, a decrease of $43 million or 7% from $658 million for the linked quarter. The decrease reflects the lower adjustment to the preliminary gain on acquisition of $12 million compared to $55 million in the linked quarter. The $12 million realized loss from the sale of the municipal bond portfolio acquired in the SVBB Acquisition was offset by increases of $10 million in rental income on operating lease equipment and $2 million in fee income and other service charges.
Noninterest expense for the current quarter was $1.42 billion, a decrease of $156 million or 10% from $1.57 billion for the linked quarter. The decrease was largely related to lower acquisition-related costs, salaries and benefits, and equipment costs, partially offset by higher FDIC insurance expense.

Year to Date Income Statement Highlights
Net income for the current YTD was $10.95 billion, an increase of $10.11 billion from $841 million for the prior YTD. Net income available to common stockholders for the current YTD was $10.91 billion, an increase of $10.10 billion from $805 million for the prior YTD. The increases were primarily related to the preliminary gain on the SVBB Acquisition, which was $9.46 billion higher than the gain on our merger with CIT Group Inc. (“CIT Merger”), and higher NII. The increases were partially offset by the provision for non-purchased credit deteriorated (“Non-PCD”) loans and leases and off-balance sheet credit exposures acquired in the SVBB Acquisition (collectively, the “day 2 provision for credit losses”), which were $203 million higher in the SVBB Acquisition compared to the CIT Merger, and higher noninterest expenses and income tax expense. Net income per diluted common share for the current YTD was $750.19, an increase from $50.70 for the prior YTD.
The current YTD included the following select items:
a preliminary after tax gain on acquisition of $9.89 billion for the SVBB Acquisition,
a pre-tax loss of $12 million, primarily on the sale of municipal bonds acquired in the SVBB Acquisition,
day 2 provision for credit losses of $716 million for the SVBB Acquisition, and
acquisition-related expenses of $354 million.
The prior YTD included the following select items:
a gain on acquisition of $431 million for the CIT Merger,
day 2 provision for credit losses of $513 million for the CIT Merger,
acquisition-related expenses of $202 million, and
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a reduction in other noninterest expense of $27 million for the termination of certain legacy CIT retiree benefits, reflecting amounts previously accrued.
Return on average assets for the current YTD was 7.81% compared to 1.04% for the prior YTD. The increase was related to the increases in net income described above, partially offset by the increases in average assets, primarily from the SVBB Acquisition.
NII for the current YTD was $4.80 billion, an increase of $2.66 billion or 124% from $2.14 billion for the prior YTD. This increase was primarily related to the loans and interest-earning deposits at banks acquired in the SVBB Acquisition, higher purchase accounting accretion, higher interest income from organic loan growth, and higher yields from multiple interest rate increases since September 30, 2022. The increases in interest income were partially offset by interest expense for the Purchase Money Note, higher rates on deposits and debt, inclusion of SVB deposits, and deposit growth in the Direct Bank.
NIM for the current YTD was 3.94%, an increase of 86 bps compared to 3.08% for the prior YTD. The increase in NIM was related to the increases in NII discussed above.
Provision for credit losses for the current YTD was $1.13 billion, an increase of $560 million or 99% from $566 million for the prior YTD. The increase was primarily related to the day 2 provision for credit losses, which were $203 million higher in the SVBB Acquisition compared to the CIT Merger, higher loan and lease balances, and increases to the provision for loans and leases as a result of higher current YTD net charge-offs, as further discussed in the ALLL section of this MD&A.
Noninterest income for the current YTD was $11.53 billion, an increase of $9.83 billion from $1.71 billion for the prior YTD. The increase was primarily related to the higher preliminary gain on acquisition as previously discussed. Increases in client investment fees, international fees, and fee income and other service charges were primarily a result of the SVBB Acquisition. Service charges on deposit accounts also increased, mainly from continued deposit growth.
Noninterest expense for the current YTD was $3.84 billion, an increase of $1.53 billion or 66% from $2.32 billion for the prior YTD. The increase was primarily related to higher salary and benefit costs, acquisition-related costs and equipment costs resulting from the SVBB Acquisition.

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

Balance Sheet Highlights
Total loans and leases at September 30, 2023 were $133.20 billion, an increase of $62.42 billion or 88% from $70.78 billion at December 31, 2022 and an increase of $187 million from $133.02 billion at June 30, 2023. The increase from December 31, 2022 was primarily related to SVB loans of $56.86 billion as of September 30, 2023 and organic loan growth in the General and Commercial Banking segments. SVB loans declined by $1.94 billion from June 30, 2023, mostly concentrated in the Global Fund Banking portfolio, offset by growth of $1.10 billion in the General Banking segment in business and commercial loans and broad-based growth of $1.05 billion in the Commercial Bank in various industry verticals.
Total investment securities at September 30, 2023 were $26.82 billion, an increase of $7.45 billion or 39% from $19.37 billion at December 31, 2022 and an increase of $4.65 billion from $22.17 billion at June 30, 2023. The increases were primarily due to purchases of short-duration U.S. Treasuries and U.S. agency mortgage-backed investment securities available for sale.
Total deposits at September 30, 2023 were $146.23 billion, an increase of $56.83 billion or 64% from $89.41 billion at December 31, 2022 and $5.07 billion or 4% from $141.16 billion at June 30, 2023. The increase from December 31, 2022 included $39.97 billion of SVB deposits as of September 30, 2023 and solid deposit growth in our Direct Bank. The $5.07 billion increase from June 30, 2023 was mostly due to an increase of $5.70 billion in the General Banking segment, which includes the Direct Bank. Deposits in the Silicon Valley Banking segment totaled $39.97 billion at September 30, 2023 compared to $40.86 billion at June 30, 2023. See discussion below regarding deposits.
Total borrowings at September 30, 2023 were $37.71 billion, an increase of $31.07 billion from $6.65 billion at December 31, 2022 and a decrease of $2.43 billion or 6.0% from $40.14 billion at June 30, 2023. The increase from December 31, 2022 was primarily due to the Purchase Money Note of $35.83 billion as of September 30, 2023 payable to the FDIC related to the SVBB Acquisition as further discussed in Note 2—Business Combinations. The decrease from June 30, 2023 reflected repayments of FHLB borrowings.
At September 30, 2023, BancShares remained well capitalized with a total risk-based capital ratio of 15.64%, a Tier 1 risk-based capital ratio of 13.83%, a common equity Tier 1 ratio of 13.24% and a Tier 1 leverage ratio of 9.73%.


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Funding, Liquidity and Capital Overview

Deposit Composition
We fund our business primarily through deposits. Deposits represent approximately 80% of total funding at September 30, 2023. The following table summarizes the composition, average size and uninsured percentages of our deposits.

Table 2
Select Deposit Data
Deposits as of September 30, 2023
Ending Balance (in millions)Average Size (in thousands)Uninsured %
General Banking segment$101,021 $3824 %
Commercial Banking segment3,370 28587
SVB segment39,970 31472
Other business segments1,872 n/m6
Total$146,233 5338

The General Banking segment includes deposits from our branch network, which deploys a relationship-based approach to deposit gathering. The remaining deposits in the General Banking segment are primarily related to the Direct Bank, which enables us to increase deposits to meet the needs of our business, albeit at a higher incremental cost compared to the branch network. The Commercial Banking segment includes deposits of commercial customers, and the SVB segment includes deposits related to the SVBB Acquisition. Other business segments primarily include brokered deposits of $1.86 billion in the Corporate segment, and the remaining $12 million relates to the Rail segment.

As displayed in the table above, the average size of deposits varies across our business segments. The uninsured data represents the percentage of deposits in the respective business segments. At September 30, 2023, total uninsured deposits were approximately $55.77 billion or 38% of total deposits. The increase in uninsured deposits from $29.13 billion or 33% of total deposits at December 31, 2022 was due to deposits in the SVB segment, which have higher average customer balances.

Deposit Trends
Table 3
Deposit Trends
(dollars in millions)Deposit Balance
Acquisition Date
September 30, 2023June 30, 2023April 28, 2023April 14, 2023March 31, 2023March 27, 2023December 31, 2022
SVB segment$39,970 $40,860 $41,425 $41,336 $49,259 $56,014 $— 
General Banking, Commercial Banking, Rail and Corporate segments106,263 100,304 92,447 92,149 90,791 — 89,408 
Total deposits$146,233 $141,164 $133,872 $133,485 $140,050 $89,408 

SVB deposits declined from $56.01 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. SVB deposits further declined to $39.97 billion at September 30, 2023. As shown in the table above, SVB deposits began to stabilize early during the second quarter. The table above also indicates that aggregate deposits for the General Banking, Commercial Banking, Rail and Corporate segments increased during 2023, primarily from deposit growth in the Direct Bank, which is included in the General Banking segment.

Liquidity Position
We strive to maintain a strong liquidity position, and our risk appetite for liquidity is low. At September 30, 2023, liquidity metrics remained strong as we had $57.02 billion in liquid assets consisting of $35.90 billion in cash and interest-earning deposits at banks (primarily held at the Federal Reserve Bank) and $21.12 billion in high-quality liquid securities. We have unused borrowing capacity with the FHLB and Federal Reserve Bank of $13.53 billion and $4.99 billion, respectively. Further, in conjunction with the SVBB Acquisition, we entered into binding terms and conditions for a five year, up to $70.00 billion line of credit with the FDIC. Refer to the “Liquidity Risk” section of this MD&A for further discussion.

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Investment Securities Duration
At September 30, 2023, our investment securities portfolio primarily consisted of debt securities available for sale and debt securities held to maturity as summarized below. The duration of our investment securities is approximately 3.1 years. The investment securities available for sale portfolio has an average duration of 2.3 years and the held to maturity portfolio has an average duration of 4.8 years. Refer to the “Interest-earning Assets - Investment securities” section of this MD&A and Note 3—Investment Securities for further information.

Table 4
Investment Securities
dollars in millionsSeptember 30, 2023
Composition(1)
Amortized cost
Fair value
Fair value to cost
Total investment securities available for sale66.8 %$17,836 $16,661 93.4 %
Total investment securities held to maturity32.9 10,082 8,152 80.9 
Investment in marketable equity securities0.3 75 75 100.0 
Total investment securities100 %$27,993 $24,888 
(1) Calculated as a percentage of the total fair value of investment securities.

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


RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

NII is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The following tables present the average balances, yields on interest-earning assets, rates on interest-bearing liabilities, and changes in NII due to changes in: (i) volume (average balances of interest-earning assets and interest-bearing liabilities) and (ii) yields or rates.
The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the prior period.
The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance from the prior period.
The change in NII due to rate/volume change (i.e., portfolio mix) is calculated as the change in rate multiplied by the change in volume. This component is allocated between the changes in NII due to volume and yield or rate based on the ratio each component bears to the absolute value of their total.
Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis.
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Table 5
Average Balances and Rates
dollars in millionsThree Months Ended
September 30, 2023June 30, 2023Change in NII Due to:
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
Volume(1)
Yield /Rate(1)
Total Change
Loans and leases (1)(2)
$131,926 $2,426 7.29 %$133,407 $2,353 7.07 %$(19)$92 $73 
Investment securities24,388 177 2.90 19,806 117 2.36 31 29 60 
Securities purchased under agreements to resell223 5.28 191 4.92 — — — 
Interest-earning deposits at banks37,456 504 5.34 38,014 480 5.07 (6)30 24 
Total interest-earning assets (2)
$193,993 $3,110 6.36 %$191,418 $2,953 6.18 %$$151 $157 
Operating lease equipment, net$8,617 $8,405 
Cash and due from banks911 1,161 
Allowance for loan and lease losses(1,714)(1,600)
All other noninterest-earning assets10,187 9,925 
Total assets$211,994 $209,309 
Interest-bearing deposits
Checking with interest$24,600 $134 2.10 %$24,164 $118 1.92 %$$13 $16 
Money Market29,684 179 2.40 29,066 148 2.04 28 31 
Savings29,988 303 4.01 21,979 188 3.44 79 36 115 
Time deposits16,686 153 3.64 14,958 121 3.24 15 17 32 
Total interest-bearing deposits100,958 769 3.02 90,167 575 2.56 100 94 194 
Borrowings:
Securities sold under customer repurchase agreements454 — 0.35 456 0.31 (1)— (1)
ST FHLB Borrowings— — — 110 5.17 (1)— (1)
Short-term borrowings454 — 0.35 566 1.26 (2)— (2)
Federal Home Loan Bank borrowings444 5.47 5,558 74 5.35 (70)(68)
Senior unsecured borrowings382 2.46 798 2.11 (3)(2)
Subordinated debt1,042 10 3.65 1,045 10 3.59 — — — 
Other borrowings35,831 333 3.68 35,168 327 3.74 (3)
Long-term borrowings37,699 351 3.69 42,569 415 3.91 (64)— (64)
Total borrowings38,153 351 3.65 43,135 417 3.88 (66)— (66)
Total interest-bearing liabilities$139,111 $1,120 3.19 %$133,302 $992 2.99 %$34 $94 $128 
Noninterest-bearing deposits$43,085 $47,271 
Credit balances of factoring clients1,209 1,168 
Other noninterest-bearing liabilities8,473 8,047 
Stockholders' equity20,116 19,521 
Total liabilities and stockholders’ equity$211,994 $209,309 
Interest rate spread (2)
3.17 %3.19 %
Net interest income and net yield on interest-earning assets (2)
$1,990 4.07 %$1,961 4.10 %
(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 credit balances of factoring clients.


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Current quarter compared to linked quarter
NII for the current quarter was $1.99 billion, an increase of $29 million or 2% from $1.96 billion for the linked quarter. This increase included higher average investment securities, higher yields on loans and investment securities, and higher purchase accounting accretion for loans, all of which resulted in higher interest income on our interest-earning assets. The increase in interest income was partially offset by higher costs for deposits.
Interest income earned on loans and leases for the current quarter was $2.43 billion, an increase of $73 million or 3% from $2.35 billion for the linked quarter. The increase was primarily due a $32 million increase in purchase accounting accretion for loans, reflecting acceleration due to loan repayments in the SVB portfolio and higher yields on loans. The decline in average loans reflected the noted repayments in the SVB portfolio, partially offset by loan growth in the General Bank and Commercial Bank portfolios. At September 30, 2023, period end loans and leases were up slightly compared to June 30, 2023.
Interest income earned on investment securities for the current quarter was $177 million, an increase of $60 million or 52% from $117 million for the linked quarter. The increase was a result of a higher average balance due to purchases of short duration U.S. Treasuries and agency mortgage-backed securities and a higher yield.
Interest income earned on securities purchased under agreements to resell was $3 million, essentially unchanged from the linked quarter.
Interest income earned on interest-earning deposits at banks for the current quarter was $504 million, an increase of $24 million or 5% from $480 million for the linked quarter, reflecting higher yields, which offset a lower average balance.
Interest expense on interest-bearing deposits for the current quarter was $769 million, an increase of $194 million or 34% from $575 million for the linked quarter, primarily reflecting higher deposit rates as we remain competitively priced, and higher average balances of deposits in our Direct Bank.
Interest expense on borrowings for the current quarter was $351 million, a decrease of $66 million or 16% from $417 million for the linked quarter, primarily due to lower average FHLB borrowings as these were repaid during the quarter. Refer to the “Interest-Bearing Liabilities – Borrowings” section in this MD&A for further discussion of FHLB borrowings.
NIM for the current quarter was 4.07%, a decrease of 3 bp from 4.10% for the linked quarter. The modest decline in NIM during the quarter was due to higher deposit balances as well as a higher rate paid and lower average loans, partially offset by higher yields on investments and loans and the repayment of FHLB borrowings.
Average interest-earning assets for the current quarter were $193.99 billion, an increase of $2.58 billion or 1% from $191.42 billion for the linked quarter, reflecting higher average investment securities.
Average interest-bearing liabilities for the current quarter were $139.11 billion, an increase of $5.81 billion or 4% from $133.30 billion for the linked quarter, reflecting higher average balances for deposits. The average rate on interest-bearing liabilities for the current quarter was 3.19%, an increase of 20 bps from 2.99% for the linked quarter, reflecting the higher interest rate environment.


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Table 6
Average Balances and Rates
dollars in millionsThree Months Ended
September 30, 2023September 30, 2022Change in NII Due to:
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
Volume(1)
Yield /Rate(1)
Total Change
Loans and leases (1)(2)
$131,926 $2,426 7.29 %$67,413 $785 4.63 %$1,016 $625 $1,641 
Investment securities24,388 177 2.90 19,119 90 1.88 29 58 87 
Securities purchased under agreements to resell223 5.28 — — — — 
Interest-earning deposits at banks37,456 504 5.34 5,685 31 2.17 375 98 473 
Total interest-earning assets (2)
$193,993 $3,110 6.36 %$92,217 $906 3.90 %$1,423 $781 $2,204 
Operating lease equipment, net$8,617 $7,981 
Cash and due from banks911 489 
Allowance for loan and lease losses(1,714)(851)
All other noninterest-earning assets10,187 8,133 
Total assets$211,994 $107,969 
Interest-bearing deposits
Checking with interest$24,600 $134 2.10 %$16,160 $0.14 %$$121 $127 
Money Market29,684 179 2.40 22,993 32 0.55 11 136 147 
Savings29,988 303 4.01 13,956 28 0.78 59 216 275 
Time deposits16,686 153 3.64 8,436 11 0.54 21 121 142 
Total interest-bearing deposits100,958 769 3.02 61,545 78 0.50 97 594 691 
Borrowings:
Securities sold under customer repurchase agreements454 — 0.35 617 0.16 (1)— (1)
ST FHLB Borrowings— — — 1,188 2.60 (8)— (8)
Short-term borrowings454 — 0.35 1,805 1.77 (9)— (9)
Federal Home Loan Bank borrowings444 5.47 1,784 11 2.48 (12)(5)
Senior unsecured borrowings382 2.46 898 2.05 (4)(3)
Subordinated debt1,042 10 3.65 1,054 3.21 
Other borrowings35,831 333 3.68 67 — 4.47 333 — 333 
Long-term borrowings37,699 351 3.69 3,803 24 2.62 318 327 
Total borrowings38,153 351 3.65 5,608 33 2.34 309 318 
Total interest-bearing liabilities$139,111 $1,120 3.19 %$67,153 $111 0.66 %$406 $603 $1,009 
Noninterest-bearing deposits$43,085 $26,877 
Credit balances of factoring clients1,209 1,089 
Other noninterest-bearing liabilities8,473 2,351 
Stockholders' equity20,116 10,499 
Total liabilities and stockholders’ equity$211,994 $107,969 
Interest rate spread (2)
3.17 %3.24 %
Net interest income and net yield on interest-earning assets (2)
$1,990 4.07 %$795 3.42 %
(1), (2) See footnotes to Table 5 – Average Balances and Rates.

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dollars in millionsNine Months Ended
September 30, 2023September 30, 2022Change in NII Due to:
Average
Balance
Income /
Expense
Yield /
Rate
Average
Balance
Income /
Expense
Yield /
Rate
Volume(1)
Yield /Rate(1)
Total Change
Loans and leases (1)(2)
$113,189 $5,796 6.84 %$65,411 $2,061 4.21 %$2,013 $1,722 $3,735 
Investment securities21,222 401 2.52 19,264 262 1.81 28 111 139 
Securities purchased under agreements to resell139 5.12 — — — — 
Interest-earning deposits at banks27,794 1,071 5.15 8,242 50 0.81 315 706 1,021 
Total interest-earning assets (2)
$162,344 $7,274 5.98 %$92,917 $2,373 3.41 %$2,362 $2,539 $4,901 
Operating lease equipment, net$8,421 $7,960 
Cash and due from banks891 517 
Allowance for loan and lease losses(1,420)(871)
All other noninterest-earning assets17,193 8,102 
Total assets$187,429 $108,625 
Interest-bearing deposits
Checking with interest$21,783 $274 1.63 %$16,437 $16 0.11 %$$250 $258 
Money Market26,686 407 2.04 24,875 65 0.35 337 342 
Savings23,208 601 3.46 13,640 48 0.47 54 499 553 
Time deposits14,606 350 3.20 9,004 30 0.45 29 291 320 
Total interest-bearing deposits86,283 1,632 2.53 63,956 159 0.33 96 1,377 1,473 
Borrowings:
Securities sold under customer repurchase agreements455 0.32 615 0.16 (1)— 
ST FHLB Borrowings145 4.79 400 2.60 (7)(3)
Short-term borrowings600 1.40 1,015 1.12 (8)(3)
Federal Home Loan Bank borrowings3,084 120 5.22 941 15 2.10 63 42 105 
Senior unsecured borrowings686 11 2.16 1,497 21 1.85 (13)(10)
Subordinated debt1,045 29 3.59 1,057 24 3.07 
Other borrowings24,450 675 3.69 79 2.87 673 674 
Long-term borrowings29,265 835 3.81 3,574 61 2.30 724 50 774 
Total borrowings29,865 841 3.76 4,589 70 2.04 716 55 771 
Total interest-bearing liabilities$116,148 $2,473 2.85 %$68,545 $229 0.45 %$812 $1,432 $2,244 
Noninterest-bearing deposits$39,007 $26,253 
Credit balances of factoring clients1,129 1,146 
Other noninterest-bearing liabilities14,143 2,184 
Stockholders' equity17,002 10,497 
Total liabilities and stockholders’ equity$187,429 $108,625 
Interest rate spread (2)
3.13 %2.96 %
Net interest income and net yield on interest-earning assets (2)
$4,801 3.94 %$2,144 3.08 %
(1), (2) See footnotes to Table 5 – Average Balances and Rates.

Year to Date 2023 compared to 2022
NII for the current YTD was $4.80 billion, an increase of $2.66 billion or 124% from $2.14 billion for the prior YTD. As discussed below, this increase was primarily due to the SVBB Acquisition as well as the higher rate environment.
Interest income earned on loans and leases for the current YTD was $5.80 billion, an increase of $3.74 billion or 181% from $2.06 billion for the prior YTD. The increase was balanced between the impact of the average loan balance increase and the rising interest rate environment. The average loan balance increase reflected the SVBB Acquisition and loan growth in the General and Commercial Banking segments. The higher yield was due to multiple interest rate increases since last year. In addition, purchase accounting accretion was higher in the current YTD.
Interest income earned on investment securities for the current YTD was $401 million, an increase of $139 million or 53% from $262 million for the prior YTD. The increase was primarily due to higher reinvestment rates.
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Interest income earned on securities purchased under agreements to resell was $6 million.
Interest income earned on interest-earning deposits at banks for the current YTD was $1.07 billion, an increase of $1.02 billion from $50 million for the prior YTD. Even though the average balance was up substantially, the increase primarily reflected a higher Fed Funds rate. The higher average balance reflected the impact of the SVBB Acquisition.
Interest expense on interest-bearing deposits for the current YTD was $1.63 billion, an increase of $1.47 billion from $159 million for the prior YTD, reflecting higher deposit rates across all our product lines as we maintained competitive rates offered to customers, and higher average balances from the SVBB Acquisition and organic growth, mainly in higher-cost savings and time deposits.
Interest expense on borrowings for the current YTD was $841 million, an increase of $771 million from $70 million for the prior YTD, primarily due to the impact of the Purchase Money Note related to the SVBB Acquisition and higher average FHLB borrowings. In March we increased FHLB borrowings to improve liquidity in light of market conditions that led to bank failures. We repaid all outstanding advances in the second and third quarters as we continuously rebalanced our funding profile to match our funding needs. Refer to the “Interest-Bearing Liabilities – Borrowings” section in this MD&A for further discussion of FHLB borrowings.
NIM for the current YTD was 3.94%, an increase of 86 bps from 3.08% for the prior YTD. The benefit of the rising interest rate environment on our interest-earning assets exceeded the impacts of higher rates paid on interest-bearing deposits and borrowings.
Average interest-earning assets for the current YTD were $162.34 billion, an increase of $69.43 billion or 75% from $92.92 billion for the prior YTD, primarily reflecting increases in average loans and leases and interest-earning deposits at banks of $47.78 billion and $19.55 billion, respectively.
Average interest-bearing liabilities for the current YTD were $116.15 billion, an increase of $47.60 billion or 69% from $68.55 billion for the prior YTD, reflecting higher average balances for both deposits and borrowings. The average rate paid on interest-bearing liabilities for the current YTD was 2.85%, an increase of 240 bps from 0.45% for the prior YTD, reflecting the higher interest rate environment and the weighting of the Purchase Money Note.

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

Table 7
Average Interest-earning Asset Mix
% of Total Interest-earning Assets
Three Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Loans and leases68 %70 %73 %70 %70 %
Investment securities13 10 21 13 21 
Interest-earning deposits at banks19 20 17 
Total interest earning assets100 %100 %100 %100 %100 %

The following table shows our average funding mix:

Table 8
Average Funding Mix
% of Total Interest-bearing Liabilities
Three Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Total interest-bearing deposits73 %68 %92 %75 %93 %
Securities sold under customer repurchase agreements— — — 
Other short-term borrowings— — — — 
Long-term borrowings27 32 25 
Total interest-bearing liabilities100 %100 %100 %100 %100 %
The above average mix tables include SVB average balances for the entire current and linked quarters and since the acquisition on March 27, 2023 for the current YTD.


    
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PROVISION FOR CREDIT LOSSES

As presented in the following table, the provision for credit losses for the current quarter was $192 million, an increase of $41 million or 27% from $151 million for the linked quarter. The $41 million increase was primarily due to an increase in the ALLL driven by deterioration in macroeconomic factors, credit quality, and higher net charge-offs. Both the current quarter and linked quarter provision for credit losses include a benefit for losses for off-balance sheet credit exposure of $17 million.

The provision for credit losses for the current YTD was $1.13 billion, an increase of $560 million or 99% from $566 million for the prior YTD. The provision for credit losses includes the day 2 provision for credit losses of $716 million related to the SVBB Acquisition, which included $462 million for acquired loans and leases (the “day 2 provision for loans and leases”) and $254 million for acquired off-balance sheet credit exposures (the “day 2 provision for off-balance sheet credit exposure”). The day 2 provision for credit losses were higher for the SVBB Acquisition in the current YTD than for the CIT Merger in the prior YTD. The remaining increases are due to the reasons discussed above.

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

Table 9
Provision for Credit Losses
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Day 2 provision for loan and lease losses$— $— $— $462 $454 
Provision for loan and lease losses
212 169 50 452 33 
Total provision for loan and lease losses212 169 50 914 487 
Day 2 provision for off-balance sheet credit exposure— — — 254 59 
(Benefit) provision for off-balance sheet credit exposure(17)(17)10 (42)20 
Total (benefit) provision for off-balance sheet credit exposure(17)(17)10 212 79 
Benefit for investment securities available for sale credit losses(3)(1)— — — 
Provision for credit losses$192 $151 $60 $1,126 $566 


NONINTEREST INCOME

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

The 2023 periods include noninterest income related to the SVBB Acquisition, which was completed on March 27, 2023. We added client investment and international fees as new categories of noninterest income as a result of the SVBB Acquisition. Client investment fees are earned from discretionary investment management services for managing clients’ portfolios based on their investment policies, strategies and objectives. International fees primarily include foreign exchange fees that represent the income differential between purchases and sales of foreign currency on behalf of our clients, primarily from spot contracts. The remaining noninterest income from SVB was aligned into pre-existing categories and primarily included items such as fee income and other service charges, wealth management services, service charges on deposit accounts, and other noninterest income.
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Table 10
Noninterest Income
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Rental income on operating lease equipment$248 $238 $219 $719 $640 
Other noninterest income:
Fee income and other service charges70 68 41 185 112 
Client investment fees52 52 — 106 — 
Wealth management services49 51 35 140 107 
International fees34 33 71 
Service charges on deposit accounts44 44 21 112 76 
Factoring commissions21 20 24 60 78 
Cardholder services, net41 41 25 103 76 
Merchant services, net12 14 36 27 
Insurance commissions13 14 11 40 34 
Realized loss on sale of investment securities available for sale, net(12)— — (26)— 
Fair value adjustment on marketable equity securities, net(1)(10)(2)(20)(5)
Bank-owned life insurance25 
Gain on sale of leasing equipment, net10 18 13 
Gain on acquisition12 55 — 9,891 431 
Gain on extinguishment of debt— — — 
Other noninterest income 21 32 37 89 79 
Total other noninterest income367 420 214 10,813 1,067 
Total noninterest income$615 $658 $433 $11,532 $1,707 

Rental Income on Operating Lease Equipment
Rental income from equipment we lease was $248 million for the current quarter, an increase of $10 million or 4% from $238 million for the linked quarter. Rental income from equipment we lease was $719 million for the current YTD, an increase of $79 million or 12% from $640 million for the prior YTD. Both current year periods benefited from growth in assets as well as higher re-pricing and strong utilization rates. Rental income is generated primarily in the Rail segment and, to a lesser extent, in the Commercial Banking segment. Revenue is generally dictated by the size of the portfolio, utilization of the railcars, re-pricing of equipment renewed upon lease maturities and pricing on new leases. Re-pricing refers to the rental rate in the renewed equipment contract compared to the prior contract. Refer to the Rail discussion in the “Results by Business Segment” section of this MD&A for further details.

Other Noninterest Income
Other noninterest income for the current quarter was $367 million, a decrease of $53 million or 13% from $420 million for the linked quarter. The decrease mostly reflects a lower preliminary gain on acquisition. The remaining changes in other noninterest income compared to the linked quarter reflect increases and decreases among various noninterest income accounts, with the main items described as follows:
The realized loss on sale of investment securities available for sale was primarily associated with our strategic decision to sell the municipal bonds acquired in the SVBB Acquisition.
The current and linked quarters include additional preliminary gains on acquisition of $12 million and $55 million, respectively, due to Measurement Period adjustments as discussed in the “Executive Overview – Significant Events in 2023” section of this MD&A.
Other noninterest income consisted of items such as derivative gains and losses, gains or losses on sales of other assets including OREO, fixed assets and loans. The decrease in other noninterest income reflected lower derivative income.

Other noninterest income for the current YTD was $10.81 billion, an increase of $9.74 billion from $1.07 billion for the prior YTD. The increase was primarily due to the preliminary gain on the SVBB Acquisition. The remaining changes compared to the prior YTD reflect increases and decreases among various noninterest income accounts and generally trend as described above, with the following additional comments:
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 $73 million, primarily reflecting higher fees for lines and letters of credit due to the additional SVBB Acquisition activity and higher capital markets fees.
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Client investment fees, a revenue stream added with the SVBB Acquisition, consist of fees that are earned for managing off-balance sheet client funds. Refer to the description above and in Note 1—Significant Accounting Policies and Basis of Presentation.
Wealth management services increased by $33 million due to additional client and services acquired in the SVBB Acquisition activity and higher assets under management.
International fees, a revenue stream added with the SVBB Acquisition, relate to commissions on customer foreign currency transactions. Refer to the description above and in Note 1—Significant Accounting Policies and Basis of Presentation.
Service charges on deposit accounts increased by $36 million, primarily reflecting additional income from the SVBB Acquisition.
Factoring commissions decreased $18 million, reflecting lower factoring volumes and surcharges.
Cardholder services increased by $27 million, primarily reflecting additional income from the SVBB Acquisition.
Fair value adjustments on marketable equity securities reflect changes in market prices of underlying portfolio investments.
The realized loss on sale of investment securities available for sale was due to the noted sale in the current quarter of municipal bonds along with the sale of a single corporate bond of a distressed entity in the first half of the year.
BOLI income was down, reflecting our decision in 2022 to terminate a significant portion of the contracts.
Other noninterest income consisted of items such as derivative gains and losses, gain on sales of other assets including OREO, fixed assets and loans, and non-marketable securities. Other noninterest income increased by $10 million, primarily due to higher derivative income.

NONINTEREST EXPENSE

The 2023 periods include noninterest expenses related to the SVBB Acquisition, which was completed on March 27, 2023. Noninterest expenses from SVB were aligned into pre-existing operating expense categories with salaries and benefits and acquisition-related expenses impacted the most.

Table 11
Noninterest Expense
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Depreciation on operating lease equipment$95 $91 $87 $275 $257 
Maintenance and other operating lease expenses51 56 52 163 142 
Operating expenses:
Salaries and benefits727 775 353 1,922 1,054 
Net occupancy expense65 64 47 179 143 
Equipment expense117 133 55 308 161 
Professional fees12 21 11 44 34 
Third-party processing fees54 54 27 138 77 
FDIC insurance expense36 22 76 26 
Marketing expense25 41 15 81 32 
Acquisition-related expenses121 205 33 354 202 
Intangible asset amortization17 18 40 17 
Other noninterest expense96 92 70 263 170 
Total operating expenses1,270 1,425 621 3,405 1,916 
Total noninterest expense$1,416 $1,572 $760 $3,843 $2,315 

Depreciation on Operating Lease Equipment
Depreciation expense on operating lease equipment is primarily related to rail equipment and small and large ticket equipment we own and lease to others. Operating lease activity is in the Rail and Commercial Banking segments. The useful lives of rail equipment is generally longer in duration, 40-50 years, whereas small and large ticket equipment is generally 3-10 years. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details.
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Maintenance and Other Operating Lease Expenses
Rail provides railcars primarily pursuant to full-service lease contracts under which Rail, as lessor, is responsible for railcar maintenance and repair. Maintenance and other operating lease expenses for the current quarter were $51 million, down from $56 million in the linked quarter. Maintenance and other operating lease expenses for the current YTD were $163 million, an increase of $21 million or 15% from $142 million for the prior YTD. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable due to timing and number of railcars coming on or off lease and the asset condition. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details.

Operating Expenses
The primary components of operating expenses are salaries and benefits and occupancy and equipment expenses. Operating expenses for the current quarter were $1.27 billion, a decrease of $155 million or 11% from $1.43 billion in the linked quarter.

The main components of the decrease in operating expenses for the current quarter compared to the linked quarter are summarized below:
Salaries and benefits decreased by $48 million, reflecting lower headcount and lower benefit costs as certain payroll taxes reach the maximum limits.
Equipment expense decreased $16 million as we continue to progress our cost savings initiatives associated with the SVBB Acquisition.
Professional fees decreased $9 million, mostly reflecting lower costs associated with the SVBB Acquisition.
FDIC insurance increased $14 million due to a higher assessment rate charged to financial institutions and higher deposit balances.
Marketing costs decreased by $16 million, primarily reflecting the timing of our advertising related to marketing efforts for the Direct Bank to support deposit growth in the linked quarter.
Acquisition-related expenses decreased $84 million, primarily due to lower severance and personnel costs related to the SVBB Acquisition.
Other expenses consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, consulting, telecommunications, and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. Changes in these individual items were not material.

Operating expenses for the current YTD were $3.41 billion, an increase of $1.49 billion or 78% compared to $1.92 billion in the prior YTD. Operating expenses for the current YTD compared to the prior YTD increased primarily due to the SVBB Acquisition. In addition, refer to the “Executive Overview – Recent Economic and Industry Developments” section of this MD&A for a discussion regarding a potential special assessment proposed by the FDIC.


INCOME TAXES

Table 12
Income Tax Data
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Income before income taxes$997 $896 $408 $11,364 $970 
Income tax (benefit) expense$245 $214 $93 $412 $129 
Effective tax rate24.6 %23.9 %22.9 %3.6 %13.3 %

The effective tax rate (“ETR”) was 24.6% for the current quarter, an increase from 23.9% for the linked quarter. The increase in the ETR was primarily related to the effects of the non-taxable nature of the preliminary gain on acquisition for the SVBB Acquisition in the linked quarter. The ETR was 3.6% for the current YTD compared to 13.3% in the prior YTD. The decrease in the ETR for the current YTD was primarily driven by the effects of the non-taxable nature of the preliminary gain on acquisition for the SVBB Acquisition.

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

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

RESULTS BY BUSINESS SEGMENT

Refer to Note 21—Business Segment Information for related disclosures on the segments and details on segment products and services. During the first quarter of 2023, we updated our segment disclosures to include SVB.

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

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

Table 13
General Banking: Financial Data and Metrics
dollars in millionsThree Months EndedNine Months Ended
Earnings SummarySeptember 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net interest income$625 $603 $495 $1,790 $1,400 
Provision (benefit) for credit losses30 48 (7)
Net interest income after provision for credit losses618 573 493 1,742 1,407 
Noninterest income125 120 118 362 371 
Noninterest expense411 390 400 1,192 1,192 
Income before income taxes332 303 211 912 586 
Income tax expense91 73 55 228 143 
Net income$241 $230 $156 $684 $443 
Select Period End Balances
Loans and leases$46,077 $44,978 $41,693 
Deposits101,021 95,321 82,731 

The increase in net income for the current quarter compared to the linked quarter was due to higher NII and lower provision for credit losses, partially offset by higher noninterest expense. NII increased, reflecting growth in the loan portfolio, which offset higher deposit costs. The provision for credit losses reflects a smaller ALLL build, partially offset by loan growth and deterioration in macroeconomic factors. Noninterest expense for the current quarter increased compared to the linked quarter and is discussed in the section entitled “Noninterest Expense” of this MD&A. Segment net income for the current YTD increased from the prior YTD, reflecting higher NII due to higher yields resulting from the increased rate environment and portfolio growth that outpaced rising deposit costs.

The increase in loans and leases during 2023 reflected continued demand through our branch network. Growth in the current quarter was primarily concentrated in commercial and business loans. Our consumer mortgage loans also increased, reflecting lower prepayments and originating loans that were held on-balance sheet, which offset lower origination activity due to the high rate environment.

Deposits include deposits from the branch network, Direct Bank and community association bank (“CAB”) channels. The increase in deposits during 2023 was primarily in our Direct Bank in products such as time and savings accounts, which partially offset decreases in checking and money market accounts. Refer to consolidated discussions in the sections entitled “Net Interest Income and Net Interest Margin” and “Balance Sheet Analysis—Deposits” of this MD&A for additional information.

Commercial Banking
The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management, and other financial and advisory services, primarily to small and middle market companies in a wide range of industries.
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Table 14
Commercial Banking: Financial Data and Metrics
dollars in millionsThree Months EndedNine Months Ended
Earnings SummarySeptember 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net interest income$249 $257 $230 $744 $641 
Provision for credit losses132 168 58 353 60 
Net interest income after provision for credit losses117 89 172 391 581 
Noninterest income139 138 133 420 376 
Noninterest expense205 200 186 615 555 
Income before income taxes51 27 119 196 402 
Income tax expense14 11 24 55 90 
Net income$37 $16 $95 $141 $312 
Select Period End Balances
Loans and leases$30,220 $29,170 $28,023 
Deposits3,370 3,066 3,682 
Operating lease equipment, net739 741 736 

The increase in net income for the current quarter compared to the linked quarter was due to lower provision for credit losses, partially offset by lower NII. The provision for credit losses decrease was mainly due to a smaller ALLL build, partially offset by higher net charge-offs, loan growth and deterioration in macroeconomic factors. The reserve build remained focused in real estate finance and concentrated in the general office portfolio. NII decreased, primarily due to higher deposit costs that offset portfolio growth. Noninterest income and noninterest expense for the current quarter were essentially unchanged from the linked quarter and are discussed in the sections entitled “Noninterest Income” and “Noninterest Expense” of this MD&A. Noninterest expenses for this segment also include depreciation on operating lease equipment, which totaled $46 million for the current quarter and $44 million for the linked quarter. Current YTD depreciation totaled $133 million, an increase of $8 million from $125 million in the prior YTD. Segment net income for the current YTD decreased from the prior YTD, primarily reflecting the higher provision for credit losses due to loan growth and a reserve build as a result of higher charge-offs and unfavorable trends in certain macroeconomic variables, including the CRE Price Index. The reserve build was focused in real estate finance, concentrated in the general office portfolio, and commercial finance. The increase in provision for credit losses was partially offset by an increase in NII, reflecting portfolio growth, higher yields that offset higher interest costs, and higher noninterest income due to higher rental income on operating lease equipment, capital markets income and interest rate derivative income.

The increase in loans and leases during the current quarter reflected growth in a number of industry verticals, such as energy and healthcare along with the technology, media and telecommunication verticals, and a seasonal increase in factoring.

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

Table 15
Silicon Valley Banking: Financial Data and Metrics
dollars in millionsThree Months EndedNine Months Ended
Earnings SummarySeptember 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net interest income$635 $635 $— $1,335 $— 
Provision (benefit) for credit losses56 (47)— — 
Net interest income after benefit for credit losses579 682 — 1,326 — 
Noninterest income151 169 — 334 — 
Noninterest expense514 592 — 1,139 — 
Income before income taxes216 259 — 521 — 
Income tax expense59 70 — 140 — 
Net income$157 $189 $— $381 $— 
Select Period End Balances
Loans and leases$56,864 $58,803 $— 
Deposits39,970 40,860 — 

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Results of operations include activity of the SVBB Acquisition since March 27, 2023. The results exclude the preliminary gain on acquisition, day 2 provision for credit losses, purchase discount accretion, and acquisition-related expenses, all of which are included in the Corporate segment.

NII for the current quarter was unchanged from the linked quarter. The increase in the provision for credit losses for the current quarter was mostly due to the impact of charge-offs and deterioration in macroeconomic factors, partially offset by the decline in the acquired loan portfolio and lower unfunded commitments. Noninterest income includes various commercial banking products, primarily client investment fees and international fees. Noninterest expenses were mostly salary and benefits related costs.

Loans totaled $56.86 billion at September 30, 2023, $58.80 billion at June 30, 2023, and $68.47 billion at the SVBB Acquisition Date. The acquired balance reflected customers who had drawn on their lines of credit during the uncertainty in the banking industry in March. Most of the subsequent declines have been in Global Fund Banking loans. The declines include the run-off of certain foreign operations, lower new fundings due to impacts of the slowdown in the private equity and venture capital environment, and the impacts of prepayments.

Deposits declined from $56.01 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. SVB deposits further declined to $39.97 billion at September 30, 2023, but began to stabilize early in the second quarter. For additional information on deposit trends refer to the “Funding, Liquidity and Capital Overview” discussion in the “Financial Performance Summary” section of this MD&A.

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

Table 16
Rail: Financial Data and Metrics
dollars in millionsThree Months EndedNine Months Ended
Earnings SummarySeptember 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Rental income on operating leases$190 $180 $165 $545 $485 
Depreciation on operating lease equipment49 47 44 142 132 
Maintenance and other operating lease expenses51 56 52 163 142 
Adjusted rental income on operating lease equipment(1)
90 77 69 240 211 
Interest expense, net40 33 20 101 57 
Other noninterest (expense) income(2)
Operating expenses16 18 15 52 47 
Income before income taxes38 24 40 91 115 
Income tax expense10 10 23 28 
Net income$28 $18 $30 $68 $87 
Select Period End Balances
Operating lease equipment, net$7,922 $7,790 $7,248 
(1)    Adjusted rental income on operating lease equipment is a non-GAAP measure. See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (rental income on operating leases) to the non-GAAP measure (adjusted rental income on operating lease equipment).

Net income, rental income on operating leases, 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 reduced by 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.

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Net income, rental income on operating leases and adjusted rental income on operating leases for the current quarter were $28 million, $190 million, and $90 million, respectively, each increased from the linked quarter. Rental income on operating leases increased $10 million and adjusted rental income on operating leases for the current quarter increased $13 million compared to the linked quarter, largely as a result of higher rental income from the increased number of rail cars owned and leased, higher utilization and strong re-pricing. Railcar depreciation is recognized on a straight-line basis over the estimated useful life of the asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease. The increase in noninterest income reflects a net gain on sale of equipment. Segment net income for the current YTD decreased from the prior YTD, as the higher interest expense offset the higher adjusted rental income, which benefited from improved utilization, higher re-lease rates, and portfolio growth.

Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 138.0% of the average prior or expiring lease rate during the quarter. Our railcar utilization, including commitments to lease, was 98.7% at September 30, 2023.

Portfolio
Rail customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater) and other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at September 30, 2023 consisted of approximately 122,500 railcars and locomotives. The following tables reflect the proportion of railcars by type based on units and net investment, and rail operating lease equipment by obligor industry:

Table 17
Operating lease Railcar Portfolio by Type (units and net investment)
September 30, 2023June 30, 2023December 31, 2022
Railcar TypeTotal Owned
Fleet - % Total Units
Total Owned
Fleet - % Total
Net Investment
Total Owned
Fleet - % Total Units
Total Owned
Fleet - % Total
Net Investment
Total Owned
Fleet - % Total Units
Total Owned
Fleet - % Total
Net Investment
Covered Hoppers44 %42 %44 %42 %43 %41 %
Tank Cars28 38 28 38 29 40 
Mill/Coil Gondolas
Coal
Boxcars
Other
Total100 %100 %100 %100 %100 %100 %

Table 18
Rail Operating Lease Equipment by Obligor Industry
dollars in millions September 30, 2023June 30, 2023December 31, 2022
Manufacturing$3,194 40 %$3,117 40 %$3,016 41 %
Rail1,940 25 1,960 25 1,981 27 
Wholesale1,202 15 1,171 15 1,101 15 
Oil and gas extraction / services605 596 552 
Energy and utilities232 235 242 
Other 749 710 541 
Total$7,922 100 %$7,789 100 %$7,433 100 %

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

Table 19
Corporate: Financial Data and Metrics
dollars in millions Three Months EndedNine Months Ended
Earnings SummarySeptember 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Net interest income$521 $499 $90 $1,033 $161 
(Benefit) provision for credit losses(3)— — 716 513 
Net interest income (expense) after provision for credit losses524 499 90 317 (352)
Noninterest income53 12 9,867 467 
Noninterest expense170 269 64 540 248 
Income (loss) before income taxes360 283 38 9,644 (133)
Income tax expense (benefit)71 54 (34)(132)
Net income (loss)$289 $229 $34 $9,678 $(1)

Net income for Corporate for the current quarter was up from the linked quarter due to lower noninterest expense and higher accretion on acquired loans. NII in the current and linked quarter benefited from accretion of $266 million and $233 million, respectively, for the loan purchase accounting adjustment related to the SVBB Acquisition. The benefit for credit losses reflects the reversal of the provision for credit losses for investment securities available for sale previously recorded in the first quarter of 2023. The adjustment to the preliminary gain on acquisition in noninterest income was $12 million in the current quarter and $55 million in the linked quarter. The current quarter also included a decrease in noninterest expense, reflecting acquisition-related expenses of $121 million compared to $205 million in the linked quarter.

Segment net income for the current YTD increased from the prior YTD, reflecting the more significant impacts from the SVBB Acquisition including an initial preliminary gain on acquisition of $9.89 billion and noted loan accretion, partially offset by the day 2 provision for credit losses of $716 million, compared to the impacts of the CIT Merger. The income tax rate for the each of the years was impacted of the preliminary gain on acquisition, resulting in the respective benefits. Refer to the “Income Taxes” section of this MD&A for further discussion.

BALANCE SHEET ANALYSIS

INTEREST-EARNING ASSETS

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

Interest-earning Deposits at Banks
Interest-earning deposits at banks at September 30, 2023 totaled $36.70 billion, an increase of $31.68 billion from $5.03 billion at December 31, 2022 and a decrease of $1.14 billion from $37.85 billion at June 30, 2023. The increase from December 31, 2022 primarily related to $34.00 billion acquired in the SVBB Acquisition, plus holding additional liquidity. Subsequent to the SVBB Acquisition Date, interest-earning deposits at banks decreased due to the decline in SVB deposits. The trend in deposits is further addressed in the “Funding, Liquidity and Capital Overview” section of this MD&A.

Securities Purchased Under Agreement to Resell
Securities Purchased Under Agreement to Resell at September 30, 2023 totaled $549 million, an increase of $251 million from $298 million at June 30, 2023.

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

The carrying value of investment securities at September 30, 2023 totaled $26.82 billion, an increase of $7.45 billion or 39% from $19.37 billion at December 31, 2022, and $4.65 billion or 21% from $22.17 billion at June 30, 2023. The increases from December 31, 2022 and June 30, 2023 primarily reflected investment security purchases. During the nine months ended September 30, 2023, securities purchases totaled $8.63 billion, including $5.32 billion during the quarter ended September 30, 2023, most of which were U.S. Treasuries with an average duration of less than one year, and acquired investment securities of $385 million in the SVBB Acquisition. The increase was partially offset by maturities, paydowns and cash sales of $1.45 billion, including $659 million during the quarter ended September 30, 2023. Other items that impact the change are non-cash in nature, such as fair value changes, amortization and non-settled transactions. The acquired investments in the SVBB Acquisition were municipal bonds, which were sold during the current quarter, and mortgage-backed securities.

BancShares’ portfolio of investment securities available for sale consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, corporate bonds, and municipal bonds. Investment securities available for sale are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of September 30, 2023, investment securities available for sale had a net pre-tax unrealized loss of $1.18 billion, compared to a net pre-tax unrealized loss of $972 million as of December 31, 2022. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest rates increase or when credit spreads widen. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of September 30, 2023, no ALLL was required. For corporate bonds and municipal bonds we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired and considered other factors, including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond carries credit-related losses of an insignificant amount as of September 30, 2023.

BancShares’ portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury Notes and government agency securities described above, as well as securities issued by the Supranational Entities and Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury and 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 ALLL was needed for investment securities held to maturity at September 30, 2023 and December 31, 2022.
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The following table presents the investment securities portfolio at September 30, 2023, June 30, 2023 and December 31, 2022, segregated by major category:

Table 20
Investment Securities
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Composition(1)
Amortized cost
Fair value
Composition(1)
Amortized cost
Fair value
Composition(1)
Amortized cost
Fair value
Investment securities available for sale:
U.S. Treasury34.7 %$8,765 $8,647 22.5 %$4,763 $4,634 10.6 %$2,035 $1,898 
Government agency0.5 132 129 0.7 143 140 0.9 164 162 
Residential mortgage-backed securities22.5 6,352 5,600 23.3 5,443 4,810 26.8 5,424 4,795 
Commercial mortgage-backed securities7.2 2,042 1,797 7.6 1,776 1,577 9.0 1,774 1,604 
Corporate bonds1.9 535 478 2.3 538 476 3.0 570 536 
Municipal bonds— 10 10 1.2 260 257 — — — 
Total investment securities available for sale66.8 %$17,836 $16,661 57.6 %$12,923 $11,894 50.3 %$9,967 $8,995 
Investment in marketable equity securities0.3 %$75 $75 0.4 %$75 $76 0.5 %$75 $95 
Investment securities held to maturity:
U.S. Treasury1.7 $478 $425 2.1 $476 $426 2.4 $474 $424 
Government agency5.4 1,504 1,308 6.5 1,502 1,328 7.6 1,548 1,362 
Residential mortgage-backed securities13.8 4,296 3,430 18.0 4,406 3,716 21.7 4,605 3,882 
Commercial mortgage-backed securities11.0 3,505 2,736 14.2 3,518 2,923 16.1 3,355 2,871 
Supranational securities1.0 297 251 1.2 297 257 1.4 295 254 
Other— — — 
Total investment securities held to maturity32.9 %$10,082 $8,152 42.0 %$10,201 $8,652 49.2 %$10,279 $8,795 
Total investment securities100.0 %$27,993 $24,888 100.0 %$23,199 $20,622 100.0 %$20,321 $17,885 
(1) Calculated as a percentage of the total fair value of investment securities.

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The following table presents the weighted average yields for investment securities available for sale and held to maturity at September 30, 2023, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio was calculated using security-level annualized yields.

Table 21
Weighted Average Yield on Investment Securities
September 30, 2023
Within One YearOne to Five YearsFive to 10 YearsAfter 10 YearsTotal
Investment securities available for sale:
U.S. Treasury4.76 %3.73 %— %— %4.30 %
Government agency4.73 4.55 5.08 5.56 5.09 
Residential mortgage-backed securities5.63 3.65 4.72 2.54 2.60 
Commercial mortgage-backed securities— 4.17 5.72 3.12 3.40 
Corporate bonds5.96 6.44 5.37 4.67 5.54 
Municipal bonds— — — 5.06 5.06 
Total investment securities available for sale4.77 %3.83 %5.22 %2.66 %3.63 %
Investment securities held to maturity:
U.S. Treasury— %1.37 %1.57 %— %1.38 %
Government agency— 1.40 1.84 — 1.53 
Residential mortgage-backed securities (1)
— 8.51 2.66 1.90 1.90 
Commercial mortgage-backed securities (1)
— 2.44 1.96 2.74 2.73 
Supranational Securities— 1.35 1.68 — 1.56 
Other1.94 — — — 1.94 
Total investment securities held to maturity1.94 %1.39 %1.78 %2.27 %2.10 %
(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 September 30, 2023. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

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

Assets held for sale at September 30, 2023 were $58 million, a decrease of $2 million or 3% from $60 million at December 31, 2022 and a decrease of $59 million or 51% from $117 million at June 30, 2023.

Table 22
Assets Held for Sale
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Loans and leases:
Commercial$32$62$48
Consumer22424
SVB11
Loans and leases5411552
Operating lease equipment428
Total assets held for sale$58$117$60

Loans and Leases
Loans and leases held for investment at September 30, 2023 were $133.20 billion, an increase of $62.42 billion or 88% from $70.78 billion at December 31, 2022 and an increase of $187 million from $133.02 billion at June 30, 2023. The increase from December 31, 2022 reflects approximately $56.86 billion of SVB loans as of September 30, 2023 and growth in commercial and consumer loans. The increase from June 30, 2023 reflected growth in the commercial and consumer loans, mostly offset by a decline in the SVB loans. As shown in the table below, commercial loans continued to grow during the current quarter in a number of industry verticals such as energy and healthcare, along with technology, media and telecommunication verticals, and seasonal increases in factoring, and growth in our branch network. Most of the decline in the SVB portfolio was in Global Fund Banking loans, reflecting run-off of certain foreign operations, lower new fundings due to impacts of the slowdown in the private equity and venture capital environment, and the impacts of prepayments.
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The following table presents loans and leases by loan segment and loan class, and the respective proportion to total loans:

Table 23
Loans and Leases
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Balance% to Total LoansBalance% to Total LoansBalance% to Total Loans
Commercial:
Commercial construction$3,382 %$3,182 %$2,804 %
Owner occupied commercial mortgage15,230 11 14,748 11 14,473 20 
Non-owner occupied commercial mortgage10,941 10,733 9,902 14 
Commercial and industrial26,389 20 25,376 19 24,105 34 
Leases2,108 2,130 2,171 
Total commercial$58,050 43 %$56,169 42 %$53,455 75 %
Consumer:
Residential mortgage$14,287 11 %$14,065 11 %$13,309 19 %
Revolving mortgage1,909 1,900 1,951 
Consumer auto1,411 1,425 1,414 
Consumer other681 657 652 
Total consumer$18,288 14 %$18,047 14 %$17,326 25 %
Silicon Valley Banking:
Global fund banking$27,516 21 %$29,333 22 %$— — %
Investor dependent - early stage1,718 1,840 — — 
Investor dependent - growth stage3,948 4,052 — — 
Innovation C&I and cash flow dependent8,724 8,905 — — 
Private Bank9,648 9,580 — — 
CRE2,629 2,530 — — 
Other2,681 2,559 — — 
Total Silicon Valley Banking$56,864 43 %$58,799 44 %$— — %
Total loans and leases$133,202 100 %$133,015 100 %$70,781 100 %
Allowance for loan and lease losses(1,673)(1,637)(922)
Net loans and leases$131,529 $131,378 $69,859 

The unamortized discount related to acquired loans was $2.20 billion at September 30, 2023, an increase of $2.08 billion from $118 million at December 31, 2022 and a decrease of $281 million from $2.48 billion at June 30, 2023. The increase from December 31, 2022 reflects the discount on loans acquired in the SVBB Acquisition while the decline from June 30, 2023 was due to accretion recognized during the quarter.

OPERATING LEASE EQUIPMENT, NET

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

Table 24
Operating Lease Equipment
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Railcars and locomotives$7,922 $7,790 $7,433 
Other equipment739 741 723 
Total (1)
$8,661 $8,531 $8,156 
(1)    Includes off-lease Rail equipment of $257 million at September 30, 2023, $338 million at June 30, 2023 and $457 million at December 31, 2022.

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INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, senior and subordinated debt, and other borrowings. Interest-bearing liabilities at September 30, 2023 totaled $140.80 billion, an increase of $69.67 billion or 98% from $71.13 billion at December 31, 2022 and an increase of $4.05 billion or 3% from $136.76 billion at June 30, 2023. The increase from December 31, 2022 was primarily due to deposits assumed in the SVBB Acquisition and the Purchase Money Note, as well as deposit growth in the General Banking Segment, which includes the Direct Bank and CAB, partially offset by a net decrease in FHLB borrowings. The increase from June 30, 2023 reflected growth in interest-bearing deposits, which offset repayments of FHLB borrowings.

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

Total deposits at September 30, 2023 were $146.23 billion, an increase of $56.83 billion or 64% from $89.41 billion at December 31, 2022 and $5.07 billion or 4% from $141.16 billion at June 30, 2023. The increase from December 31, 2022 primarily reflects $39.97 billion of SVB deposits as of September 30, 2023. The remaining increase from December 31, 2022 and the increase from June 30, 2023 reflect solid deposit growth in our Direct Bank, partially offset by the decline in SVB deposits.

As summarized from the following table, interest-bearing deposits totaled $103.09 billion, $96.62 billion and $64.49 billion at September 30, 2023, June 30, 2023 and December 31, 2022, respectively. Noninterest-bearing deposits totaled $43.14 billion, $44.55 billion and $24.92 billion at September 30, 2023, June 30, 2023 and December 31, 2022, respectively.

Table 25
Deposits
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Noninterest-bearing demand$43,141 $44,547 $24,922 
Checking with interest23,461 24,809 16,202 
Money market30,082 29,149 21,040 
Savings32,513 26,389 16,634 
Time17,036 16,270 10,610 
Total deposits$146,233 $141,164 $89,408 
Noninterest-bearing deposits to total deposits29.5 %31.6 %27.9 %

We strive to maintain a strong liquidity position, and therefore, a focus on deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change, we recognize that our liquidity position could be adversely affected if bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost.

Deposits (based on branch location) as of September 30, 2023 in North Carolina and South Carolina represented approximately 25.6% and 7.8%, respectively, of total deposits. The Direct Bank includes $35.65 billion or 24.4% of total deposits as of September 30, 2023. SVB deposits as of September 30, 2023 were $39.97 billion or 27.3% of total deposits and are primarily concentrated in online banking and California.

Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate total uninsured deposits were $55.77 billion, which represents approximately 38.1% of total deposits at September 30, 2023, compared to $29.13 billion or 32.6% of total deposits at December 31, 2022. The increase in the amount of uninsured deposits from December 31, 2022 reflects the inclusion of SVB deposits.

92


The following table provides the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of September 30, 2023:

Table 26
Maturities of Time Deposits In Excess of $250,000
dollars in millionsSeptember 30, 2023
Time deposits maturing in:
Three months or less$1,274 
Over three months through six months1,321 
Over six months through 12 months1,285 
More than 12 months145 
Total$4,025 

Borrowings
Total borrowings at September 30, 2023 were $37.71 billion, an increase of $31.07 billion from $6.65 billion at December 31, 2022 and a decrease of $2.43 billion from $40.14 billion at June 30, 2023. The increase from December 31, 2022 to September 30, 2023 primarily related to the Purchase Money Note of approximately $35.83 billion payable to the FDIC, as discussed in Note 2—Business Combinations, partially offset by repayments of FHLB borrowings, as discussed below, and a $500 million senior unsecured note.

There were no FHLB borrowings outstanding at September 30, 2023, a decrease of $4.25 billion compared to December 31, 2022 and $2.43 billion compared to June 30, 2023. The decline from December 31, 2022 reflected $7.00 billion of advances taken in March 2023 to enhance available liquidity and $3.48 billion of advances in the linked quarter, all of which were repaid by the end of July 2023. Refer to the “Liquidity Risk” section below for more information on FHLB borrowings.

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

Table 27
Borrowings
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Securities sold under customer repurchase agreements$453 $454 $436 
Federal Home Loan Bank borrowings
   Floating rate notes due through September 2025— 2,425 4,250 
Federal Deposit Insurance Corporation
   3.500% fixed rate note due March 2028 (1)
35,833 35,817 — 
Senior Unsecured Borrowings
   3.722% fixed line of credit due September 2023— 15 — 
   3.929% fixed-to-floating rate notes due June 2024
— — 505 
   2.969% fixed-to-floating rate notes due September 2025
318 319 320 
   6.000% fixed rate notes due April 203659 59 59 
Subordinated debt
6.125% fixed rate notes due March 2028460 463 469 
4.125% fixed-to-fixed rate notes due November 2029101 102 102 
3.375% fixed-to-floating rate notes due March 2030349 349 348 
Macon Capital Trust I - floating rate debentures due March 203414 14 14 
SCB Capital Trust I - floating rate debentures due April 203410 10 10 
FCB/SC Capital Trust II - floating rate debentures due June 203418 18 18 
FCB/NC Capital Trust III - floating rate debentures due June 203688 88 88 
Total subordinated debt1,040 1,044 1,049 
Other borrowings26 
Total borrowings$37,712 $40,139 $6,645 
(1)    Purchase Money Note issued in connection with the SVBB Acquisition.

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

As we balance our liquidity requirements and simplify our debt structure, we may periodically repay borrowings prior to their respective maturity dates.
93


RISK MANAGEMENT

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

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

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

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

BancShares monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to the “Regulatory Considerations” section of Item 1. Business included in the 2022 Form 10-K for further discussion.

BancShares has been assessing the emerging impacts of the international tensions that could impact the economy and exacerbate headwinds of rising inflation, elevated market volatility, global supply chain disruptions, and recessionary pressures as well as operational risks such as those associated with potential cyberattacks for FCB and third parties upon whom it relies. Assessments have not identified material impacts to date, but those assessments will remain ongoing as the conditions continue 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. While economic data continues to be mixed, baseline economic forecasts currently reflect a more marked decline in commercial real estate properties due to rising interest rates that impacted the allowance for loan and lease loss forecasts. Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. BancShares continues to integrate SVB into its existing risk management processes and procedures.


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CREDIT RISK

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

Our ALLL estimate as of September 30, 2023 included extensive reviews of the changes in credit risk associated with the uncertainties around macroeconomic forecasts. These loss estimates consider industry risk and the actual net losses incurred during prior periods of economic stress as well as recent credit trends.

A reserve for off-balance sheet credit exposures is established for unfunded commitments. 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 probability of default (“PD”) and loss given default (“LGD”) models to those expected funding amounts to estimate the reserve.

Our ALLL and reserve for off-balance sheet credit exposures methodologies was discussed in Note 1—Significant Accounting Policies and Basis of Presentation of our 2022 Form 10-K.

Commercial Lending and Leasing
BancShares employs a dual ratings system where each commercial loan is assigned a PD and LGD rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. These models incorporate both internal and external historical default and loss data to develop loss rates for each risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts and circumstances, that in management’s judgment, warrant a modification of the modeled risk rating to arrive at the final approved risk ratings.

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

Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant. Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions. Loans may also be monitored during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of the underlying collateral may be conducted.

Silicon Valley Banking Loans
During integration related to the SVBB Acquisition, ratings and ALLL forecasting models will be re-considered and/or re-developed in order to align loans with common risk characteristics to common rating and loss forecasting methodologies. While FCB assesses ratings processes and ALLL models during integration, Silicon Valley Bank’s existing ratings and ALLL models will be maintained. The methodology for estimating the ALLL is the sum of two main components: (i) modeled ALLL assessed on a collective basis for pools of loans that share similar risk characteristics that includes a quantitative adjustment to account for portfolio risk not captured in the models and may include a qualitative adjustment based on management’s assessment of the risks and (ii) ALLL assessed for individual loans that do not share similar risk characteristics with other loans.

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

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

Allowance for Loan and Lease Losses
The ALLL at September 30, 2023 was $1.67 billion, representing an increase of $751 million from $922 million at December 31, 2022 and an increase of $36 million from $1.64 billion at June 30, 2023. The ALLL as a percentage of total loans and leases at September 30, 2023 was 1.26%, compared to 1.30% at December 31, 2022 and 1.23% at June 30, 2023.

The $751 million increase in the ALLL compared to December 31, 2022 was primarily due to the impact of the SVBB Acquisition, including the initial ALLL for PCD loans and leases (the “Initial PCD ALLL”) of $220 million and the day 2 provision for loans and leases of $462 million. The $36 million increase compared to June 30, 2023 was a result of deteriorating macroeconomic forecasts, specifically related to declining corporate profits and deterioration in the commercial real estate portfolio, which includes general office. These increases were partially offset by lower specific reserves and lower loan balances in the SVB segment. In the current quarter, the ALLL on commercial loans increased $76 million, partially offset by an ALLL decrease of $14 million for consumer loans and $26 million for SVB loans.

While management utilizes its best judgment and information available, the ultimate adequacy of our ALLL 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 ALLL 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 September 30, 2023, ALLL estimates in these scenarios ranged from approximately $1.31 billion, when weighting the upside scenario 100%, to approximately $2.15 billion when weighting the downside scenario 100%. BancShares management determined that an ALLL of $1.67 billion was appropriate as of September 30, 2023.

96


Table 28
ALLL for Loans and Leases
dollars in millionsThree Months Ended September 30, 2023
CommercialConsumerSVBTotal
Balance at June 30, 2023$915 $156 $566 $1,637 
Initial PCD ALLL— — — — 
Provision (benefit) for loan and lease losses149 (11)74 212 
Charge-offs
(85)(7)(107)(199)
Recoveries12 23 
Balance at September 30, 2023$991 $142 $540 $1,673 
Annualized net charge-off ratio0.53 %
Net charge-offs$73 $$100 $176 
Average loans133,173 
Percent of loans in each category to total loans43 %14 %43 %100 %
Three Months Ended June 30, 2023
CommercialConsumerSVBTotal
Balance at March 31, 2023$800 $143 $662 $1,605 
Initial PCD ALLL— — 20 20 
Provision (benefit) for loan and lease losses172 16 (19)169 
Charge-offs
(69)(6)(101)(176)
Recoveries12 19 
Balance at June 30, 2023$915 $156 $566 $1,637 
Annualized net charge-off ratio0.47 %
Net charge-offs$57 $$97 $157 
Average loans134,634 
Percent of loans in each category to total loans42 %14 %44 %100 %
Three Months Ended September 30, 2022
CommercialConsumerSVBTotal
Balance at June 30, 2022$740 $110 $— $850 
Benefit for loan and lease losses43 — 50 
Charge-offs(28)(5)— (33)
Recoveries11 — 15 
Balance at September 30, 2022$766 $116 $— $882 
Annualized net charge-off ratio0.10 %
Net charge-offs$17 $$— $18 
Average loans68,793 
Percent of loans in each category to total loans76 %24 %— %100 %

dollars in millionsNine Months Ended September 30, 2023Nine Months Ended September 30, 2022
CommercialConsumerSVBTotalCommercialConsumerSVBTotal
Balance at beginning of period$789 $133 $— $922 $80 $98 $— $178 
Initial PCD ALLL— — 220 220 258 14 — 272 
Day 2 provision for loan and lease losses— — 462 462 432 22 — 454 
Provision (benefit) for loan and lease losses379 18 55 452 53 (20)— 33 
Total provision for loans and lease losses379 18 517 914 485 — 487 
Charge-offs(209)(20)(208)(437)(92)(15)— (107)
Recoveries32 11 11 54 35 17 — 52 
Balance at end of period$991 $142 $540 $1,673 $766 $116 $— $882 
Annualized net charge-off ratio0.45 %0.11 %
Net charge-offs (recoveries)$177 $$197 $383 $57 $(2)$— $55 
Average loans114,436 66,816 
Percent of loans in each category to total loans43 %14 %43 %100 %76 %24 %— %100 %

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Net charge-offs during the current quarter were $176 million, an increase of $19 million from $157 million during the linked quarter. On an annualized basis, the net charge-off ratio was 0.53% and 0.47% for the current and linked quarters, respectively. The increase in net charge-offs compared to the linked quarter primarily reflects charge-offs related to commercial loans and SVB loans. Net charge-offs in the current quarter in the commercial portfolio were primarily in the large office real estate and small ticket equipment leasing portfolios. Within the SVB segment, net charge-offs for the current quarter were concentrated in investor dependent loans with charge-offs totaling $88 million compared to $49 million in the linked quarter.

Net charge-offs for the current YTD of $383 million increased from $55 million during the prior YTD, reflecting the net charge-offs in the SVB portfolio, and higher commercial loan charge-offs, in certain portfolios within the equipment finance and real estate finance businesses. On an annualized basis, the net charge-off ratio was 0.45% and 0.11% for the current YTD and prior YTD, respectively.

The following table provides trends in the ALLL ratios.

Table 29
ALLL Ratios
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Allowance for loan and lease losses$1,673 $1,637 $922 
Total loans and leases133,202 133,015 70,781 
Allowance for loan and lease losses to total loans and leases1.26 %1.23 %1.30 %
Commercial loans and leases:
Allowance for loan and lease losses - commercial$991 $915 $789 
Commercial loans and leases58,050 56,169 53,455 
Commercial allowance for loan and lease losses to commercial loans and leases1.71 %1.63 %1.48 %
Consumer loans:
Allowance for loan losses - consumer$142 $156 $133 
Consumer loans18,288 18,047 17,326 
Consumer allowance for loan losses to consumer loans0.77 %0.86 %0.77 %
SVB loans:
Allowance for loan losses - SVB$540 $566 $— 
SVB loans56,864 58,799 — 
SVB allowance for loan losses to SVB loans0.95 %0.97 %— %

The reserve for off-balance sheet credit exposures was $318 million at September 30, 2023, an increase of $212 million compared to $106 million at December 31, 2022 and a decrease of $17 million compared to $335 million at June 30, 2023. The increase from December 31, 2022 primarily reflects the $254 million day 2 provision for off-balance sheet credit exposures related to the SVBB Acquisition, partially offset by subsequent declines in the SVB portfolio. Refer to Note 22—Commitments and Contingencies for information relating to off-balance sheet commitments.

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The following table presents the ALLL by loan class:

Table 30
ALLL by Loan Class
dollars in millions:September 30, 2023June 30, 2023December 31, 2022
Allowance for Loan and Lease LossesAllowance for Loan and Lease Losses as a Percentage of LoansAllowance for Loan and Lease LossesAllowance for Loan and Lease Losses as a Percentage of LoansAllowance for Loan and Lease LossesAllowance for Loan and Lease Losses as a Percentage of Loans
Commercial
Commercial construction$47 1.40 %$45 1.42 %$40 1.43 %
Owner occupied commercial mortgage47 0.31 50 0.34 61 0.42 
Non-owner occupied commercial mortgage244 2.23 247 2.30 181 1.83 
Commercial and industrial608 2.30 533 2.10 476 1.98 
Leases45 2.14 40 1.86 31 1.41 
Total commercial991 1.71 915 1.63 789 1.48 
Consumer
Residential mortgage79 0.55 90 0.64 74 0.55 
Revolving mortgage14 0.75 18 0.91 13 0.67 
Consumer auto0.32 0.33 0.37 
Consumer other44 6.37 43 6.56 41 6.32 
Total consumer142 0.77 156 0.86 133 0.77 
SVB
Global fund banking70 0.25 73 0.25 — — 
Investor dependent - early stage103 6.00 106 5.79 — — 
Investor dependent - growth stage147 3.73 175 4.31 — — 
Innovation and cash flow dependent130 1.49 141 1.59 — — 
Private Bank22 0.23 21 0.22 — — 
CRE47 1.81 28 1.10 — — 
Other21 0.77 22 0.88 — — 
Total SVB540 0.95 566 0.97 — — 
Total Allowance for Loan and Lease Losses$1,673 1.26 %$1,637 1.23 %$922 1.30 %

Credit Metrics

Non-performing Assets
Non-performing assets include non-accrual loans and leases, OREO and repossessed assets.

The following table presents total nonperforming assets:

Table 31
Non-Performing Assets
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Non-accrual loans:
Commercial loans$637 $622 $529 
Consumer loans99 94 98 
SVB loans163 213 — 
Total non-accrual loans899 929 627 
Other real estate owned and repossessed assets62 64 47 
Total non-performing assets$961 $993 $674 
Allowance for loan and lease losses to total loans and leases:1.26 %1.23 %1.30 %
Ratio of total non-performing assets to total loans, leases, other real estate owned and repossessed assets0.72 0.75 0.95 
Ratio of non-accrual loans and leases to total loans and leases0.68 0.70 0.89 
Ratio of allowance for loan and lease losses to non-accrual loans and leases186.07 176.33 146.88 

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Non-accrual loans and leases at September 30, 2023 were $899 million, an increase of $272 million from $627 million at December 31, 2022 and a decrease of $30 million from $929 million at June 30, 2023. The increase from December 31, 2022 was primarily due to the SVBB Acquisition, resulting in the addition of $163 million non-accrual loans. These are mostly in the investor dependent and real estate classes. The modest decline from June 30, 2023 was due to lower non-accrual loans in the SVB portfolios, as net charge-offs outpaced loan migration to non-accrual status. Refer to Note 4—Loans and Leases for tabular presentation of non-accrual loans by loan class.

OREO and repossessed assets at September 30, 2023 was $62 million, compared to $47 million at December 31, 2022 and $64 million at June 30, 2023. Non-performing assets as a percentage of total loans, leases, OREO and repossessed assets at September 30, 2023 was 0.72% compared to 0.95% at December 31, 2022 and 0.75% at June 30, 2023.

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

Commercial Real Estate Portfolio

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

Table 32
Commercial Real Estate Portfolio
dollars in millionsSeptember 30, 2023June 30, 2023
Net
Investment
% of Total
Loans and Leases
Net
Investment
% of
Total
Multi-Family$4,390 3.30 %$4,170 3.14 %
General Office2,888 2.17 2,800 2.11 
Medical Office3,290 2.47 2,814 2.12 
Industrial / Warehouse2,509 1.88 2,297 1.73 
Retail1,669 1.25 1,562 1.17 
Hotel/Motel766 0.57 765 0.58 
Other4,339 3.26 2,664 2.00 
Total$19,851 14.90 %$17,072 12.83 %

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

Table 33
Select General Office Loan Metrics
dollars in millionsSeptember 30, 2023June 30, 2023
% of total loans and leases2.17  %2.11  %
% of commercial real estate loans14.55  %16.40  %
Average loan balance$$
Net charge-offs (%)4.30  %0.61  %
Delinquencies as a % of total CRE loans7.63  %7.38  %
Non-performing loans as a % of CRE loans11.95  %8.96  %
ALLL ratio4.00  %4.44  %

100


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

Commercial Loans Concentrations

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

Table 34
Commercial Loans and Leases - Geography
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
State
California$9,891 17.0 %$9,553 17.0 %$9,226 17.3 %
North Carolina9,356 16.1 9,138 16.3 8,699 16.3 
Texas4,203 7.2 3,899 6.9 3,624 6.8 
Florida3,636 6.3 3,566 6.3 3,273 6.1 
South Carolina3,228 5.6 3,170 5.7 3,142 5.9 
All other states26,065 44.9 25,203 44.9 24,243 45.4 
Total U.S.$56,379 97.1 %$54,529 97.1 %$52,207 97.8 %
Total International1,671 2.9 1,640 2.9 1,248 2.2 
Total$58,050 100.0 %$56,169 100.0 %$53,455 100.0 %

Industry Concentrations
The following table represents loans by industry of obligor:

Table 35
Commercial Loans and Leases - Industry
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
Real Estate$13,428 23.1 %$12,600 22.4 %$11,684 21.9 %
Healthcare8,688 15.0 8,434 15.0 8,146 15.2 
Business Services6,890 11.9 6,041 10.8 5,518 10.3 
Transportation, Communication, Gas, Utilities5,627 9.7 5,375 9.6 5,002 9.4 
Manufacturing4,304 7.4 4,505 8.0 4,387 8.2 
Retail3,908 6.7 3,470 6.2 3,462 6.5 
Wholesale3,486 6.0 2,581 4.6 2,605 4.9 
Service Industries2,703 4.7 4,257 7.6 4,213 7.9 
Finance and Insurance2,345 4.0 2,494 4.4 2,604 4.9 
Other6,671 11.5 6,412 11.4 5,834 10.8 
Total$58,050 100.0 %$56,169 100.0 %$53,455 100.0 %


101


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

Table 36
Consumer Loans - Geography
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
State
North Carolina$6,183 33.8 %$6,030 33.4 %$5,702 32.9 %
California4,102 22.4 4,142 23.0 4,014 23.2 
South Carolina3,234 17.7 3,144 17.4 3,001 17.3 
Other states4,769 26.1 4,731 26.2 4,609 26.6 
Total $18,288 100.0 %$18,047 100.0 %$17,326 100.0 %
Silicon Valley Banking Loans
SVB loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions.

The table below details SVB loans that are secured by real estate, at amortized cost:

Table 37
Silicon Valley Banking Loans Secured by Real Estate
dollars in millionsSeptember 30, 2023June 30, 2023
Private bank:
Loans for personal residence$7,536 $7,398 
Loans to eligible employees536 526 
Home equity lines of credit128 143 
Other101 107 
Total private bank loans secured by real estate8,301 8,174 
Commercial real estate ("CRE"):
Multifamily and residential investment868 844 
Retail444 421 
Office and medical500 492 
Manufacturing, industrial and warehouse567 538 
Hospitality151 138 
Other98 97 
Total CRE loans secured by real estate2,628 2,530 
Premium wine892 874 
Other674 619 
Total real estate secured loans$12,495 $12,197 

The SVB loan portfolio is focused on three primary markets: (i) Global Fund Banking, (ii) Technology and Life Science/Healthcare and (iii) Private Banking. The remainder of the portfolio is made up of CRE and Other loans.

Global Fund Banking
The Global Fund Banking loan portfolio includes loans to clients in the private equity/venture capital community. Global Fund Banking represented 48% and 21% of SVB loans and total loans at September 30, 2023, respectively. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds’ remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.


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Technology and Life Science/Healthcare
The Technology and Life Science/Healthcare loan portfolios include loans to clients at the various stages of their life cycles. The classes of financing receivables for our technology and life science/healthcare market segments are classified as Investor Dependent - Early Stage, Investor Dependent - Growth Stage, and Innovation C&I and Cash Flow Dependent for reporting purposes.

Investor Dependent - Early Stage loans represented 3% and 1% of SVB loans and total loans at September 30, 2023, respectively. These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an initial public offering (“IPO”).

Investor Dependent - Growth Stage loans represented 7% and 3% of SVB loans and total loans at September 30, 2023, respectively. These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid stage, and companies with revenues in excess of $15 million are considered to be later stage.

Innovation C&I and Cash Flow Dependent loans represented 15% and 7% of SVB loans and total loans at September 30, 2023, respectively. This portfolio is comprised of two types of loans, Innovation C&I and Cash Flow Dependent. Innovation C&I includes loans in innovation sectors such as technology and life science/healthcare industries. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash Flow Dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities.

Private Banking
Private Banking clients consist of executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients. Lending to Private Banking clients represented 17% and 7% of SVB loans and total loans at September 30, 2023, respectively. Many Private Banking products are secured by real estate. These products include mortgage loans, owner-occupied commercial mortgage loans, home equity lines of credit, and other secured lending products. The remaining balance of the Private Banking portfolio consists of personal capital call lines of credit, restricted and private stock loans and other secured and unsecured lending products.

CRE
The CRE class represented 5% and 2% of SVB loans and total loans at September 30, 2023, respectively. This class consists generally of acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space. All CRE products are secured by real estate collateral.

Other
The Other class includes Premium Wine, Other C&I and Other portfolios, which represented 5% and 2% of SVB loans and total loans at September 30, 2023. Premium wine loans are to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of premium wine loans are secured by real estate collateral. Other C&I loans include tax-exempt commercial loans to not-for-profit private schools, colleges, public charter schools and other not-for-profit organizations as well as commercial loans to clients that are not in technology and life sciences/healthcare industries. Our Other class of loans is primarily comprised of construction and land loans for financing new developments or financing improvements to existing buildings, as well as loans made as part of our responsibilities under the Community Reinvestment Act of 1977.


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

Table 38
Silicon Valley Banking Loans by Size and Class
dollars in millionsLess Than $5 Million$5 to < $10 Million$10 to < $20 Million$20 to < $30 Million> $30 MillionTotal SVB Loans
Global fund banking$1,073 $1,249 $2,549 $2,751 $19,894 $27,516 
Investor dependent - early stage1,072 399 120 23 107 1,721 
Investor dependent - growth stage689 1,085 933 460 782 3,949 
Innovation C&I and cash flow dependent256 264 719 1,330 6,161 8,730 
Private Bank7,307 923 812 221 385 9,648 
CRE701 502 699 426 302 2,630 
Other486 559 654 613 358 2,670 
Total(1)
$11,584 $4,981 $6,486 $5,824 $27,989 $56,864 
(1) Included in total loans at amortized cost is approximately $11 million in PPP loans. The PPP loans consist of loans across all of our classes of financing receivables.

SVB Loans - State Concentrations
The following table summarizes state concentrations greater than 5.0% within the SVB loans portfolio at September 30, 2023 and June 30, 2023, based on borrower location:

Table 39
Silicon Valley Banking Loans - Geography
dollars in millionsSeptember 30, 2023June 30, 2023
State
California$17,961 31.7 %$18,169 30.8 %
Massachusetts8,435 14.8 8,831 15.0 
New York7,762 13.6 8,640 14.7 
Texas4,463 7.8 4,207 7.2 
Connecticut4,124 7.3 4,221 7.2 
All other states12,122 21.3 12,331 21.0 
Total U.S.54,867 96.5 56,399 95.9 
Total International1,997 3.5 2,400 4.1 
Total$56,864 100.0 %$58,799 100.0 %


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MARKET RISK
Interest rate risk management

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

Interest rate risk can arise from many of 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 SVBB Acquisition significantly increased our balance sheet and changed our rate sensitivity. At the time of the SVBB Acquisition, we assumed $56.01 billion of deposits, entered into a $36.07 billion fixed-rate Purchase Money Note payable to the FDIC, acquired $68.47 billion of loans, most of which have variable rates, and $35.31 billion of cash and interest-bearing deposits at banks.

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

The following table 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 September 30, 2023, June 30, 2023, and December 2022.

Table 40
Net Interest Income Sensitivity Simulation Analysis
Estimated (Decrease) Increase in NII
Change in interest rate (bps)September 30, 2023June 30, 2023December 31, 2022
-100(9.4) %(9.7) %(4.0) %
-25(2.3)(2.4)(0.9)
+252.3 2.4 0.8 
+1009.2 9.5 3.4 
+20018.3 18.9 6.7 

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

As of September 30, 2023, BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings was largely driven by the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as estimates of modest future deposit betas. Approximately 65%-70% of our loans have floating contractual reference rates, indexed primarily to Prime, Secured Overnight Financing Rate (“SOFR”) and LIBOR. Deposit betas are modeled to have a portfolio average of approximately 35%-40% over the forecast horizon. Deposit beta is the portion of a change in the fed funds rate that is passed on to the deposit rate. Actual deposit betas may be different than modeled, depending on various factors, including liquidity requirements, deposit mix and competitive pressures. Impacts to NII Sensitivity may change due to actual results differing from modeled expectations.

As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon. EVE Sensitivity measures the change in the economic value of equity driven by changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates. EVE Sensitivity was 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 September 30, 2023, June 30, 2023, and December 31, 2022:

Table 41
Economic Value of Equity Modeling Analysis
Estimated (Decrease) Increase in EVE
Change in interest rate (bps)September 30, 2023June 30, 2023December 31, 2022
-100(3.5) %(5.0) %(5.3) %
-25(0.8)(1.1)(1.2)
+1003.0 4.2 4.1 
+2005.5 7.8 3.0 

The economic value of equity metrics at September 30, 2023 compared to June 30, 2023 were primarily affected by compositional changes in deposits, funding and investments. The economic value of equity metrics at September 30, 2023 compared to December 31, 2022 were primarily affected by the balance sheet changes noted earlier due to the SVBB Acquisition.

In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system. Scenarios that impact management volumes, specific risk events, or the sensitivity to key assumptions are also evaluated.

We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using off-balance sheet derivatives to mitigate earnings volatility.

The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations.

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The following table provides loan maturity distribution information:

Table 42
Loan Maturity Distribution
dollars in millionsAt September 30, 2023, Maturing
Within
One Year
One to Five
Years
Five to 15
Years
After 15 YearsTotal
Commercial
Commercial construction$942 $1,642 $724 $74 $3,382 
Owner occupied commercial mortgage676 4,714 9,243 597 15,230 
Non-owner occupied commercial mortgage2,427 6,088 1,969 457 10,941 
Commercial and industrial7,149 15,561 3,452 227 26,389 
Leases709 1,365 34 — 2,108 
Total commercial11,903 29,370 15,422 1,355 58,050 
Consumer
Residential mortgage122 619 2,334 11,212 14,287 
Revolving mortgage49 130 37 1,693 1,909 
Consumer auto12 746 653 — 1,411 
Consumer other315 201 123 42 681 
Total consumer498 1,696 3,147 12,947 18,288 
SVB
Global fund banking25,868 1,526 122 — 27,516 
Investor dependent - early stage189 1,463 66 — 1,718 
Investor dependent - growth stage576 3,270 102 — 3,948 
Innovation and cash flow dependent1,109 7,321 294 — 8,724 
Private Bank171 537 974 7,966 9,648 
CRE314 1,566 691 58 2,629 
Other469 787 864 561 2,681 
Total SVB28,696 16,470 3,113 8,585 56,864 
Total loans and leases$41,097 $47,536 $21,682 $22,887 $133,202 

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

Table 43
Loan Interest Rate Sensitivity
dollars in millionsLoans Maturing One Year or After with
Fixed Interest RatesVariable Interest Rates
Commercial
Commercial construction$914 $1,525 
Owner occupied commercial mortgage13,040 1,513 
Non-owner occupied commercial mortgage3,665 4,850 
Commercial and industrial8,831 10,409 
Leases1,382 18 
Total commercial27,832 18,315 
Consumer
Residential mortgage7,504 6,661 
Revolving mortgage32 1,828 
Consumer auto1,399 — 
Consumer other339 27 
Total consumer9,274 8,516 
SVB
Global fund banking1,641 
Investor dependent - early stage23 1,507 
Investor dependent - growth stage3,370 
Innovation and cash flow dependent— 7,615 
Private Bank1,963 7,513 
CRE1,085 1,230 
Other1,455 757 
Total SVB4,535 23,633 
Total loans and leases$41,641 $50,464 
Reference Rate Reform
U.S. Dollar LIBOR officially ceased reporting at close of business June 30, 2023. The U.K. Financial Conduct Authority at such time announced that U.S. Dollar LIBOR is “Not Representative” going forward.

In April 2018, the FRB of New York commenced publication of SOFR, which has been recommended as an alternative to U.S. Dollar LIBOR by the Alternative Reference Rates Committee, a group of market and official sector participants. On March 15, 2022, the U.S. Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest Act (“LIBOR Act”), which provides certain statutory requirements and guidance for the selection and use of alternative reference rates in legacy financial contracts governed by U.S. law that do not provide for the use of a clearly defined or practicable alternative reference rate. On July 19, 2022, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking on a proposed regulation to implement the LIBOR Act, as required by its terms. The LIBOR Act requires implementing regulations be in place within 180 days of its enactment. The final rule was approved by the FRB on December 16, 2022 and became effective February 27, 2023. The Consumer Financial Protection Bureau issued an interim final rule, effective May 15, 2023. This further addresses the planned cessation of most U.S. Dollar LIBOR tenors after June 30, 2023, by incorporating the Board selected benchmark replacement for consumer loans into Regulation Z open-end and closed-end credit provisions. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the LIBOR Act. BancShares has adopted Board-selected benchmark replacements to take advantage of the safe harbors, where applicable, that are afforded in the rule.

BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR as a benchmark rate. However, BancShares’ LIBOR exposure is primarily to tenors other than one week and two-month USD LIBOR.

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All consumer and commercial clients with contracts providing FCB with unilateral lender discretion were notified in April 2023 of LIBOR’s cessation and FCB’s selected replacement index. During the second quarter of 2023, IT/Operations added replacement indices to all impacted systems. The remaining servicing task for both General Banking and Commercial Banking is to link transactions to the new index as the index becomes effective (next reset date). In the months leading up to the cessation of LIBOR, Commercial Banking engaged in a proactive exercise to amend existing contracts where it would provide a positive client experience. As of September 30, 2023, all amendments had been completed. Synthetic LIBOR for 1, 3 and 6 month tenors will be reported through the end of September 2024 and is calculated based on CME Term SOFR plus the relevant ISDA fixed spread adjustments.

BancShares is utilizing SOFR as our preferred replacement index for LIBOR. As loans mature and new originations occur a larger percentage of BancShares’ variable-rate loans are expected to reference SOFR in response to the discontinuation of LIBOR. However, we are positioned to accommodate other alternative reference rates (e.g., credit sensitive rates) in response to how the market evolves. Further, BancShares has moved to Term SOFR plus the Alternative Reference Rate Committee recommended credit spread adjustment for its Series B Preferred Stock since the dividends were previously based on a floating rate tied to three-month LIBOR. The last dividend payment based on a LIBOR accrual occurred on September 15, 2023.

Some acquired assets, such as loans and derivatives as well as derivative liabilities, from the SVBB Acquisition have LIBOR settings. Processes and procedures are in place to have these LIBOR exposures reference alternative rates, such as Term SOFR and Daily SOFR, in advance of LIBOR’s unavailability.

For a further discussion of risks BancShares faces in connection with the replacement of LIBOR on its operations, see “Risk Factors—Market Risks—We may be adversely impacted by the transition from LIBOR as a reference rate.” in Item 1A. Risk Factors of our 2022 Form 10-K.

LIQUIDITY RISK

Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent with this strategy, we maintain sufficient amounts of Available Cash and High Quality Liquid Securities (“HQLS”). Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, brokered CD issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.

We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid assets, and contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events.

BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares maintains a contingent funding plan, which details protocols and potential actions to be taken under liquidity stress conditions.

Liquidity includes Available Cash and HQLS. At September 30, 2023 we had $57.02 billion of total Liquid Assets (26.7% of total assets) and $88.61 billion of contingent liquidity sources available.

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Table 44
Liquidity
dollars in millionsSeptember 30, 2023
Available Cash
$35,896 
High Quality Liquid Securities (1)
21,123 
Liquid Assets$57,019 
FDIC Credit Facility (2)
$70,000 
FHLB capacity (3)
13,525 
FRB capacity4,989 
Line of credit100 
Total contingent sources$88,614 
Total Liquid Assets and contingent sources$145,633 
(1)    Consist of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and Agency securities held outright or via reverse repurchase agreements.
(2)    Credit facility obtained in connection with SVBB Acquisition. See below for additional details and limits on use.
(3)    See following table for additional details.

We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our various deposit channels, including our branch network and Direct Bank. Total deposits at September 30, 2023 were $146.23 billion, an increase of $56.83 billion from $89.41 billion at December 31, 2022 and an increase of $5.07 billion from $141.16 billion at June 30, 2023. The increase in deposits from December 31, 2022 primarily reflected additional deposits from the SVBB Acquisition, and growth in the Direct Bank. We use borrowings to diversify the funding of our business operations. Total borrowings at September 30, 2023 were $37.71 billion, an increase of $31.07 billion from $6.65 billion at December 31, 2022 and a decrease of $2.43 billion from $40.14 billion at June 30, 2023. The increase in borrowings from December 31, 2022 primarily reflected the Purchase Money Note (see Note 2—Business Combinations), partially offset by FHLB repayments. In addition to the Purchase Money Note and FHLB advances, borrowings also include senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes. Refer to the respective “Deposits” and “Borrowings” sections for further details.

FHLB Capacity
A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment. Certain related cash balances are restricted.

Table 45
FHLB Balances
dollars in millionsSeptember 30, 2023June 30, 2023December 31, 2022
TotalTotalTotal
Total borrowing capacity$14,975 $14,999 $14,918 
Less:
Advances— 2,425 4,250 
Letters of credit (1)
1,450 1,450 1,450 
Available capacity$13,525 $11,124 $9,218 
Pledged non-PCD loans (contractual balance)$24,498 $23,969 $23,491 
Weighted Average Rate2.00 %5.40 %3.28 %
(1)    Letters of credit were established with the FHLB to collateralize public funds.

FRB Capacity
Under borrowing arrangements with the FRB of Richmond, FCB has access to $4.99 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at September 30, 2023 and December 31, 2022.

In March 2023, following the failures of Silicon Valley Bank and Signature Bank, the FRB created a new Bank Term Funding Program as an additional source of liquidity against high-quality securities in order to make additional funding available to eligible depository institutions. This program offers loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral, provided that such collateral was owned by the borrower as of March 12, 2023. These pledged assets will be valued at par under the Program. Eligible institutions can request advances under the Program at least through March 11, 2024. As of September 30, 2023, we did not have any securities pledged or amounts advanced related to this program.
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FDIC Credit Facility
FCB and the FDIC entered into binding terms and conditions for a five-year, up to $70 billion line of credit to FCB (the “Credit Facility”) provided by the FDIC. During the two-year period following the SVBB Acquisition, FCB may draw on the Credit Facility to support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired pursuant to the SVBB Acquisition. Interest on outstanding principal will accrue at a variable rate equal to the SOFR plus 25 basis points (but in no event less than 0.00%).

The Credit Facility will be primarily secured by all loans acquired in the SVBB Acquisition and related commitments that are subsequently drawn and outstanding as of September 30, 2023.

Contractual Obligations and Commitments
The following table includes significant contractual obligations and commitments as of September 30, 2023, representing required and potential cash outflows, including impacts from purchase accounting adjustments and deferred fees. See Note 22—Commitments and Contingencies for additional information regarding commitments. Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows, as many are expected to expire unused or partially used.

Table 46
Contractual Obligations and Commitments
dollars in millionsPayments Due by Period
Less than 1 year1-3 years4-5 yearsThereafterTotal
Contractual obligations:
Time deposits (1)
$15,251 $1,702 $83 $— $17,036 
Short-term borrowings453 — — — 453 
Long-term borrowings (1)(2)
(34)242 36,414 637 37,259 
Total contractual obligations$15,670 $1,944 $36,497 $637 $54,748 
Commitments:
Financing commitments
$36,863 $14,828 $5,079 $5,919 $62,689 
Letters of credit
2,251 408 172 2,836 
Deferred purchase agreements2,087 — — — 2,087 
Purchase and funding commitments1,014 — — — 1,014 
Affordable housing partnerships (1)
258 581 21 41 901 
Total commitments$42,473 $15,817 $5,272 $5,965 $69,527 
(1)    Time deposits and long-term borrowings are presented net of purchase accounting adjustments of $16 million and $169 million, respectively. On-balance sheet commitments are included in other liabilities and presented net of a purchase accounting adjustment of $62 million .
(2)    Less than 1 year balance represents the estimated amortization of the purchase accounting adjustment and deferred costs in excess of scheduled repayments.

CAPITAL

Capital requirements applicable to BancShares are discussed in the “Regulatory Considerations” section in Item 1. Business Regulation of our 2022 Form 10-K. The SVBB Acquisition was the primary cause of increase in BancShares’ total assets, from $109.30 billion at December 31, 2022 to $213.77 billion at September 30, 2023. BancShares’ total consolidated assets remains between $100 billion and $250 billion, and, as such, BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods, as detailed in our 2022 Form 10-K. However, the proposed interagency rulemaking recently announced by the FDIC, the Federal Reserve and the OCC could alter the capital framework for banks with total assets of $100 billion. We are continuing to monitor these proposed rules. See further discussion in the section entitled “Executive Overview – Recent Economic and Industry Developments” above.

BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments. The capital management framework requires contingency plans be defined and may be employed at management’s discretion.

Common and Preferred Stock Dividends
During the first, second and third quarters of 2023, we paid a quarterly dividend of $0.75 on the Class A Common Stock and Class B Common Stock. On October 24, 2023, our Board of Directors declared a quarterly dividend on the Class A Common Stock and Class B Common Stock of $1.64 per common share, an increase of 219% from the prior quarter distribution. The dividends are payable on December 15, 2023 to stockholders of record as of November 30, 2023.
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On October 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 December 15, 2023 to stockholders of record as of November 30, 2023. Dividend payment information on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is disclosed in Note 15—Stockholders' Equity.

Capital Composition and Ratios
The table below shows activities that caused the change in outstanding Class A Common Stock during 2023:

Table 47
Changes in Shares of Class A Common Stock Outstanding
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Class A shares outstanding at beginning of period13,514,849 13,501,017 
Restricted stock units vested, net of shares held to cover taxes69 13,901 
Class A shares outstanding at end of period13,514,918 13,514,918 

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

On April 25, 2023 the Parent Company’s stockholders approved amendments to the Restated Certificate of Incorporation to increase the number of authorized shares of the Class A Common Stock from 16,000,000 shares to 32,000,000 shares and to increase the number of authorized shares of the Preferred Stock from 10,000,000 shares to 20,000,000.

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 the calculation of our regulatory capital ratios under current regulatory guidelines.

Table 48
Analysis of Capital Adequacy
dollars in millionsRequirements to be Well-CapitalizedSeptember 30, 2023June 30, 2023December 31, 2022
AmountRatioAmountRatioAmountRatio
BancShares
Risk-based capital ratios
Total risk-based capital10.00 %$23,351 15.64 %$22,504 15.84 %$11,799 13.18 %
Tier 1 risk-based capital8.00 20,643 13.83 19,898 14.00 9,902 11.06 
Common equity Tier 16.50 19,762 13.24 19,017 13.38 9,021 10.08 
Tier 1 leverage ratio5.00 20,643 9.73 19,898 9.50 9,902 8.99 
FCB
Risk-based capital ratios
Total risk-based capital10.00 %$22,927 15.36 %$22,292 15.69 %$11,627 12.99 %
Tier 1 risk-based capital8.00 20,673 13.85 20,142 14.18 10,186 11.38 
Common equity Tier 16.50 20,673 13.85 20,142 14.18 10,186 11.38 
Tier 1 leverage ratio5.00 20,673 9.75 20,142 9.62 10,186 9.25 

As of September 30, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of 7.64% and 7.36%, respectively, which are in excess of the Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB risk-based capital ratio conservation buffers were 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratios as of September 30, 2023 and December 31, 2022 over the Basel III minimum for the ratio that is the binding constraint. Additional Tier 1 capital for BancShares includes perpetual preferred stock. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ALLL and qualifying subordinated debt.

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CRITICAL ACCOUNTING ESTIMATES

As further described in our 2022 Form 10-K, the ALLL and fair values of loans acquired in and the core deposit intangibles associated with a business combination are considered critical accounting estimates. The ALLL as of September 30, 2023 is discussed in Note 5—Allowance for Loan and Lease Losses and in the “Credit Risk” section above.
Fair values of loans acquired in and the core deposit intangibles associated with the SVBB Acquisition are considered critical accounting estimates. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition and other future events that are highly subjective in nature and may require adjustments. The fair values for these items are further discussed in Note 2—Business Combinations.
RECENT ACCOUNTING PRONOUNCEMENTS
The following accounting pronouncements were issued by the FASB but are not yet effective for BancShares.

StandardSummary of Guidance
Effect on BancShares’ Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Issued March 2020

ASU 2021-01, Reference Rate Reform (Topic 848): Scope
Issued January 2021

ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
Issued December 2022
The amendments in these updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.
                                                                                                                                              
Allows entities to prospectively apply certain optional expedients for contract modifications and removes the requirements to remeasure contract modifications or de-designate hedging relationships. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing certain effectiveness assessments.

The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform.

ASU 2021-01 refines the scope of ASC 848 and clarifies which optional expedients may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified in connection with the market-wide transition to new reference rates.

ASU 2022-06 extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024.

BancShares continues to assess the impact of the optional expedients available through December 31, 2024 for eligible contract modifications and hedge relationships.

This guidance has not had, and is not expected to have, a material impact on the financial statements.
ASU 2023-02 –
Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
Issued March 2023
The amendments in this update allow entities to elect to account for qualifying tax equity investments using the proportional amortization method (“PAM”), regardless of the program giving rise to the related income tax credits. PAM accounting had been available only for qualifying investments in qualified affordable housing projects. The guidance also requires disclosure of the nature of the investor’s tax equity investments and the effect of income tax credits and other income tax benefits from tax equity investments on the investor’s balance sheet and income statement.Effective for BancShares as of January 1, 2024. Early adoption is permitted.

BancShares does not expect the adoption of the update to have a material impact on our consolidated financial statements.
ASU 2022-03 -
Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
Issued June 2022
The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also require specific disclosures for equity securities subject to contractual sale restrictions. Effective for BancShares as of January 1, 2024. Early adoption is permitted.

BancShares does not expect the adoption of the update to have a material impact on our consolidated financial statements and related disclosures.


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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 GAAP, along with a reconciliation between the GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful.

Adjusted Rental Income on Operating Lease Equipment for Rail Segment

Adjusted rental income on operating lease equipment within the Rail segment is calculated as gross revenue earned on rail car leases less depreciation and maintenance. This metric allows us to monitor the performance and profitability of the rail leases after deducting direct expenses.

The table below presents a reconciliation of rental income on operating leases to adjusted rental income on operating lease equipment.

Table 49
Rail Segment
dollars in millionsThree Months EndedNine Months Ended
September 30, 2023June 30, 2023September 30, 2022September 30, 2023September 30, 2022
Rental income on operating leases (GAAP)$190 $180 $165 $545 $485 
Less: Depreciation on operating lease equipment49 47 44 142 132 
Less: Maintenance and other operating lease expenses51 56 52 163 142 
Adjusted rental income on operating lease equipment (non-GAAP)$90 $77 $69 $240 $211 

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Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans, asset quality, and future performance and other strategic goals of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “predicts,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will,” “potential,” “continue,” “aims” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including conflicts in Ukraine, Israel and the Gaza Strip) and market conditions, including changes in competitive pressures among financial institutions and the impacts related to or resulting from recent bank failures and other volatility, the financial success or changing conditions or strategies of BancShares’ vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, changes in the quality or composition of BancShares’ loan or investment portfolio, actions of government regulators, including the recent and projected interest rate hikes by the Board of Governors of the Federal Reserve Board (the “Federal Reserve”), changes to estimates of future costs and benefits of actions taken by BancShares, BancShares’ ability to maintain adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including the significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including the interagency proposed rule on regulatory capital, along with the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares’ previous acquisition transactions, including the SVBB Acquisition and the previously completed transaction with CIT, which acquisition risks include (1) disruption from the transactions with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the transactions may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties’ customers to the transactions, (4) the risk that the cost savings and any revenue synergies from the transactions may not be realized or take longer than anticipated to be realized, (5) difficulties experienced in completing the integration of the businesses, (6) the ability to retain customers following the transactions and (7) adjustments to BancShares’ estimated purchase accounting impacts of the SVBB Acquisition.

Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional factors which could affect the forward-looking statements can be found in the 2022 Form 10-K, its Quarterly Reports on Form 10-Q for the periods ended March 31, 2023 and June 30, 2023, and its other filings with the Securities and Exchange Commission.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced NII in future periods. As of September 30, 2023, BancShares’ market risk profile has changed since December 31, 2022, primarily due to the SVBB Acquisition. See Market Risk within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of changes. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.

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Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as of September 30, 2023. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we are able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports we file under the Exchange Act.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We review our internal controls over financial reporting on an ongoing basis and make changes intended to ensure the quality of our financial reporting. During the first quarter of 2023, as the result of the SVBB Acquisition, we commenced the evaluation of the acquired entities controls, and designed and implemented new controls as needed. The evaluation of the changes to processes, information technology systems and other components of internal control over financial reporting related to the SVBB Acquisition is ongoing. Otherwise, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.

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Part II

Item 1. Legal Proceedings

The Parent Company and various subsidiaries are named as defendants in various legal actions arising from our normal business activities in which damages in various amounts were claimed. Although the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions currently exist that would be material to BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note 22 — Commitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements.


Item 1A. Risk Factors

Except for the new and updated risk factors related to the SVBB Acquisition that were disclosed in our Form 10-Q for the quarter ended March 31, 2023, there have been no material changes in the risk factors during 2023 from those reported in our 2022 Form 10-K. For a discussion of the risks and uncertainties that management believes are material to an investment in us in addition to those listed below, refer to Part I, Item 1A. Risk Factors, of our 2022 Form 10-K, and Forward-Looking Statements of this Quarterly Report on Form 10-Q. Additional risks and uncertainties that are not currently known to management or that management does not currently deem material could also have a material adverse impact on our financial condition, the results of our operations or our business. If such risks and uncertainties were to materialize or the likelihoods of the risks were to increase, we could be adversely affected, and the market price of our securities could significantly decline.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) There were no repurchases of our stock during the three months ended September 30, 2023.


Item 5. Other Information

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


Item 6. Exhibits
31.1
31.2
32.1
32.2
*101.INSInline XBRL Instance Document (filed herewith)
*101.SCHInline XBRL Taxonomy Extension Schema (filed herewith)
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
*101.LABInline XBRL Taxonomy Extension Label Linkbase (filed herewith)
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
*101.DEFInline XBRL Taxonomy Definition Linkbase (filed herewith)
*104Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
*Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
Date:November 3, 2023FIRST CITIZENS BANCSHARES, INC.
(Registrant)
By: /s/ Craig L. Nix
Craig L. Nix
Chief Financial Officer

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