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, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 001-16715 | --- | --- | --- | |----------------------------------- ...

Financial Data and Key Metrics Changes - GAAP net income for Q3 2022 was $315 million or $19.25 per common share, with an annualized ROE of 12.49% and an ROA of 1.16% [20] - Adjusted net income was $338 million or $20.77 per common share, yielding an annualized ROE of 13.47% and an ROA of 1.24% [20] - Pre-provision net revenue increased by 21.3% over the second quarter, indicating significant margin expansion and solid fee income growth [11][24] - Net interest income totaled $795 million, up 13.6% over the second quarter [28] Business Line Data and Key Metrics Changes - Loans grew at an annualized rate of 12% during the quarter, with broad growth across commercial and general bank segments [15][44] - General Bank loans grew at an annualized rate of 12.8%, primarily in business and commercial loans [45] - Non-interest income increased by 20% compared to the linked quarter, driven by higher capital markets income [35] Market Data and Key Metrics Changes - Total deposits declined by $1.8 billion or 7.9% on an annualized basis from the linked quarter, primarily due to reductions in interest-bearing deposits [50] - Non-interest bearing deposits grew by $11 million since the end of the second quarter, attributed to client relationship development [51] Company Strategy and Development Direction - The company is focused on merger optimization efforts, aiming for $250 million in cost savings [11] - Plans to resume share repurchases in the second half of 2023, contingent on capital plan considerations [19] - The company is committed to growing its deposit base to support loan growth despite rising deposit cost pressures [63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory despite economic headwinds and potential recession risks [7] - The outlook for loan growth is expected to moderate to mid to high single-digit percentage points in Q4 2022 and mid-single-digit growth for 2023 [62][49] - Management anticipates net charge-offs to return to pre-pandemic levels, projecting 15 to 25 basis points for Q4 and 20 to 30 basis points for 2023 [65] Other Important Information - The company repurchased 99.4% of the 1.5 million shares authorized for repurchase, representing approximately 10% of Class A common shares [9][10] - The efficiency ratio improved to 53%, reflecting effective expense management despite inflationary pressures [12][39] Q&A Session Summary Question: Buyback plans for the second half of next year - Management indicated that if projections hold, a sizable buyback could be contemplated in the second half of next year [76] Question: Strategic updates on unique CIT businesses - Management expressed satisfaction with the performance of rail factoring and equipment finance, indicating strong industry positions [78] Question: Funding expectations and broker deposits - Management clarified that there is no preference for direct bank deposits over acquired branches; both channels are important [82] Question: Capital planning and CCAR process - Management confirmed that capital planning will consider the CCAR process, which is significant for future share repurchase sizes [86] Question: EPS guidance and reserve builds - Management indicated a mild recession is embedded in the EPS guidance, with expected reserve builds correlating to increased charge-offs [90] Question: Trends in classified and criticized loans - Management reported improving credit quality metrics, with no significant deterioration observed in portfolios [100]

First Citizens BancShares, Inc. Third Quarter 2022 Earnings Conference Call October 27, 2022 2 Agenda | --- | --- | |-----------------------------------------------------|---------| | | Page(s) | | Section I – Third Quarter 2022 Overview | 4 – 6 | | Section II – Third Quarter 2022 Financial Results | 7 – 27 | | Financial Highlights | 8 | | Earnings Highlights | 9 – 10 | | Notable Items | 11 | | Net interest income and margin 12 – 14 | | | Deposit Betas | 15 | | Noninterest income and expense 16 – 18 | | | B ...

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 June 30, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 001-16715 | --- | --- | --- | |---------------------------------------- ...

Financial Data and Key Metrics Changes - The company reported a GAAP net income of $255 million, or $14.86 per share, with adjusted net income of $287 million, or $16.86 per share, yielding an annualized ROE of 11.9% and an ROA of 1.07% [35][36] - Pre-provision net revenue (PPNR) grew by 17.1% over the linked quarter and by 38.5% year-over-year, with positive operating leverage of 6.9% and 12.8% for the linked and comparable quarters respectively [30][31] - Net interest income increased by 7.9% over the linked quarter and by 14.4% year-over-year, with net interest margin expanding by 31 basis points from 2.73% to 3.04% [31][40] Business Line Data and Key Metrics Changes - The Commercial Bank saw strong performance with loan growth at an annualized rate of 8.4%, driven by business and commercial loans [62] - The General Bank experienced an annualized loan growth rate of 18.4%, primarily from the branch network [61] - The leasing organization, Business Capital, reported strong originations and portfolio performance, despite economic uncertainty [18] Market Data and Key Metrics Changes - Total loans increased by $2.2 billion over the linked quarter, or by 13.5% on an annualized basis, exceeding mid-single-digit guidance [61] - Deposits declined by $2.3 billion, or 9.9% on an annualized basis, primarily due to a reduction in interest-bearing deposits [65] - Noninterest-bearing deposits grew by $747 million, or an 11.6% annualized rate, attributed to strong client relationships [66] Company Strategy and Development Direction - The company is focused on optimizing processes and operations post-merger, with a target of achieving $250 million in cost savings by the end of 2023 [11][12] - A share repurchase program was approved, allowing the company to repurchase up to 1.5 million shares, representing approximately 9.4% of total common shares outstanding [9] - The company aims to enhance its capabilities across various business lines to recognize revenue synergies as a combined entity [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's direction despite economic uncertainties, noting that customer portfolios are performing well [8] - The outlook for loan growth is expected to moderate in the third quarter, with a forecast of mid-single-digit growth due to rising interest rates [72] - Management remains confident in credit quality, with net charge-offs projected to return to pre-pandemic levels [75] Other Important Information - The company completed the merger integration with CIT Group and is now focusing on optimizing operations [10] - The efficiency ratio improved to 57.55%, indicating strong net revenue growth and recognition of merger cost savings [58] - The company expects to continue facing inflationary pressures, particularly in wages and professional services, but aims to offset these through cost savings [59] Q&A Session Summary Question: When does the company expect to begin the share repurchase plan? - The company plans to start the share repurchase program on August 1 [82] Question: What led to the change in deposit guidance to a low to mid single-digit decline? - The deposit runoff in the second quarter was slightly above projections, influenced by seasonal factors and higher cost deposits [83][84] Question: How did loan growth perform across legacy markets versus new markets? - Loan growth was strong across the board, with significant contributions from commercial and business loans, as well as the branch network [86]

Part One — Financial Information [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The first quarter 2022 financial statements reflect the significant impact of the CIT Group Inc. merger, nearly doubling total assets and increasing net income due to an acquisition gain offset by a substantial provision for credit losses Consolidated Balance Sheet Highlights (Unaudited) | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $108,597 | $58,309 | +86.2% | | Loans and leases, net | $64,676 | $32,194 | +100.9% | | Total Deposits | $91,597 | $51,406 | +78.2% | | Total Stockholders' Equity | $10,570 | $4,738 | +123.1% | Consolidated Income Statement Highlights (Unaudited) | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $649 | $340 | +90.9% | | Provision for Credit Losses | $464 | $(11) | N/A | | Noninterest Income | $850 | $137 | +520.4% | | Net Income | $271 | $147 | +84.4% | | Diluted EPS | $16.70 | $14.53 | +14.9% | - The significant increase in assets, liabilities, and equity is primarily due to the completion of the merger with CIT Group Inc. on January 3, 2022, with Q1 2022 results reflecting the combined entity's activity[33](index=33&type=chunk) - A preliminary non-taxable gain on acquisition of **$431 million** was recognized in noninterest income, representing the excess of the fair value of net assets acquired from CIT over the purchase price[13](index=13&type=chunk)[82](index=82&type=chunk) [Note 2 — Business Combinations](index=17&type=section&id=Note%202%20%E2%80%94%20Business%20Combinations) BancShares completed its merger with CIT Group Inc. on January 3, 2022, with a **$5.95 billion** purchase price, resulting in a **$431 million** preliminary non-taxable gain due to acquired net assets exceeding the consideration - The merger with CIT Group Inc. was completed on January 3, 2022, with each share of CIT common stock converted into 0.062 shares of BancShares Class A Common Stock, resulting in the issuance of approximately **6.1 million** shares valued at **$5.3 billion**[76](index=76&type=chunk) Preliminary Purchase Price Allocation (in millions) | Component | Amount | | :--- | :--- | | **Purchase Price Consideration** | **$5,952** | | Common stock consideration | $5,279 | | Preferred stock consideration | $541 | | Stock-based compensation & other | $132 | | **Assets Acquired** | **$53,775** | | Loans and leases | $32,714 | | Operating lease equipment | $7,838 | | Investment securities | $6,561 | | **Liabilities Assumed** | **$47,392** | | Deposits | $39,428 | | Borrowings | $4,536 | | **Fair value of net assets acquired** | **$6,383** | | **Preliminary gain on acquisition** | **$431** | - Key assets acquired included **$32.7 billion** in loans and leases, **$7.8 billion** in operating lease equipment (primarily rail), and **$6.6 billion** in investment securities, while key liabilities assumed included **$39.4 billion** in deposits[82](index=82&type=chunk) [Note 4 — Loans and Leases](index=30&type=section&id=Note%204%20%E2%80%94%20Loans%20and%20Leases) Total loans and leases increased to **$65.5 billion** at March 31, 2022, primarily due to the **$32.7 billion** portfolio acquired from CIT, with non-accrual loans also rising to **$538 million** Loan and Lease Composition (in millions) | Loan Class | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Commercial** | **$50,101** | **$22,586** | | Commercial and industrial | $22,402 | $5,937 | | Owner occupied commercial mortgage | $13,553 | $12,099 | | Non-owner occupied commercial mortgage | $9,293 | $3,041 | | Leases | $2,220 | $271 | | Commercial construction | $2,633 | $1,238 | | **Total Consumer** | **$15,423** | **$9,786** | | Residential mortgage | $11,711 | $6,088 | | Revolving mortgage | $1,840 | $1,818 | | Consumer auto | $1,320 | $1,332 | | Consumer other | $552 | $548 | | **Total Loans and Leases** | **$65,524** | **$32,372** | - Non-accrual loans and leases increased to **$538 million** as of March 31, 2022, from **$121 million** at December 31, 2021, with the increase largely attributable to the CIT merger[134](index=134&type=chunk) [Note 5 — Allowance for Credit Losses](index=40&type=section&id=Note%205%20%E2%80%94%20Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses (ACL) significantly increased to **$848 million** due to the CIT merger, which included establishing an initial ACL of **$284 million** for PCD loans and a **$454 million** provision for non-PCD loans ACL Roll-Forward for Loans and Leases (Q1 2022, in millions) | Description | Amount | | :--- | :--- | | **Balance at Dec 31, 2021** | **$178** | | Initial PCD ACL (from CIT Merger) | $284 | | Provision for credit losses | $401 | | Net Charge-offs | $(15) | | **Balance at March 31, 2022** | **$848** | - The provision for credit losses for the quarter included a **$454 million** initial provision for non-PCD loans acquired from CIT and a **$59 million** provision for acquired unfunded commitments[167](index=167&type=chunk)[368](index=368&type=chunk) - The ACL as a percentage of total loans and leases increased to **1.29%** at March 31, 2022, from **0.55%** at December 31, 2021, reflecting the merger[453](index=453&type=chunk)[459](index=459&type=chunk) [Note 22 — Business Segment Information](index=69&type=section&id=Note%2022%20%E2%80%94%20Business%20Segment%20Information) Following the CIT merger, BancShares transitioned to three new operating segments: General Banking, Commercial Banking, and Rail, with Q1 2022 net income of **$126 million**, **$121 million**, and **$32 million** respectively - BancShares transitioned from a single-segment structure to four segments in Q1 2022: General Banking, Commercial Banking, Rail, and Corporate, with Commercial Banking and Rail primarily consisting of operations acquired in the CIT Merger[304](index=304&type=chunk) Segment Net Income (Loss) for Q1 2022 (in millions) | Segment | Net Income (Loss) | | :--- | :--- | | General Banking | $126 | | Commercial Banking | $121 | | Rail | $32 | | Corporate | $(8) | | **Total BancShares** | **$271** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=76&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights the transformative impact of the CIT merger, driving an **84%** increase in net income to **$271 million** for Q1 2022, alongside significant provisions, acquisition gains, and merger-related costs - The financial data for periods prior to the CIT Merger are not directly comparable to the three months ended March 31, 2022, due to the significant scale and scope added by the acquisition[340](index=340&type=chunk) Key Financial Impacts of CIT Merger in Q1 2022 - **CECL Provision**: **$513 million** pre-tax provision for acquired loans and unfunded commitments[355](index=355&type=chunk) - **Gain on Acquisition**: **$431 million** non-taxable preliminary gain[355](index=355&type=chunk) - **Merger Expenses**: **$135 million** in merger-related costs[355](index=355&type=chunk) - **Debt Redemption Gain**: **$6 million** gain from redeeming **$2.9 billion** of assumed CIT debt[355](index=355&type=chunk) - Net interest margin (NIM) decreased by **6 basis points** to **2.73%** compared to Q1 2021, reflecting the impact of lower SBA-PPP income and higher rates on acquired deposits, which offset higher yields on the investment portfolio[364](index=364&type=chunk) - Total deposits increased by **$40.2 billion** to **$91.6 billion**, and total loans and leases increased by **$32.5 billion** to **$65.5 billion** from December 31, 2021, primarily reflecting the CIT merger[355](index=355&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=98&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's market risk profile has changed since December 31, 2021, primarily due to the CIT Merger, with detailed discussion provided in the Risk Management section of the MD&A - As of March 31, 2022, BancShares' market risk profile has changed since December 31, 2021, primarily due to the CIT Merger[579](index=579&type=chunk) [Controls and Procedures](index=99&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with changes in internal control primarily related to the ongoing integration of CIT's operations - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2022[581](index=581&type=chunk) - Changes in internal control over financial reporting during the quarter were mainly due to the acquisition of CIT, with the evaluation and integration of its controls, processes, and systems currently underway[582](index=582&type=chunk) Part Two — Other Information [Legal Proceedings](index=99&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, including a lawsuit assumed from the CIT merger related to HAMP, which has reached an agreement in principle to settle for **$18.5 million** - As part of the CIT Merger, BancShares assumed a lawsuit related to OneWest Bank's participation in HAMP, which on May 5, 2022, reached an agreement in principle to settle all claims for **$18.5 million**, materially consistent with existing accruals[323](index=323&type=chunk)[326](index=326&type=chunk) [Risk Factors](index=99&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K have occurred, as previously disclosed risks already contemplated the anticipated effects of the CIT Merger - No material changes in risk factors have occurred since those reported in the 2021 Annual Report, which had already considered the anticipated effects of the CIT Merger[585](index=585&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=99&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any of its common stock during the quarter ended March 31, 2022 - There were no repurchases of common stock during the first quarter of 2022[586](index=586&type=chunk) [Other Information](index=99&type=section&id=Item%205.%20Other%20Information) On May 5, 2022, the company adopted the First-Citizens Bank & Trust Company Merger Performance Plan to incentivize employees involved in merger integration based on achieving specific milestones - On May 5, 2022, the company adopted a Merger Performance Plan to provide cash-based incentive awards to key employees involved in merger integration, based on achieving conversion and financial milestones[587](index=587&type=chunk)

Merger and Integration - First Citizens anticipates finalizing CIT merger conversions by the second half of 2023[31] - Merger cost savings are expected to be fully realized by the end of 2023[33] - The CIT to FCB payroll conversion was completed[12] Financial Performance (Q1 2022) - Net interest income increased by $30 million compared to 4Q21 and $42 million compared to 1Q21[43, 46] - Noninterest income increased by $16 million compared to 4Q21 and $36 million compared to 1Q21[44, 46] - Pre-provision net revenue grew by $315 million (84%) compared to 4Q21 and $228 million (49%) compared to 1Q21[40] - The net interest margin (NIM) expanded to 2.73% in 1Q22[38] Balance Sheet - Total deposits were $91.6 billion, an increase of $833 million (0.9%) from 4Q21 and $2.2 billion (2.5%) from 1Q21[77, 88] - Loans and leases totaled $65.5 billion, increasing by $313 million (0.5%) compared to 4Q21[77] - Borrowings decreased by $2.743 billion (45.5%) from 4Q21 to $3.292 billion[77] Credit Quality and Capital - The net charge-off ratio was 0.09%[38] - The allowance for credit losses (ACL) to total loans and leases was 1.29%[78] - The common equity Tier 1 (CET1) capital ratio was 11.34%[78] Financial Outlook - The company expects mid-single-digit percentage loan growth for 2022[118] - The company anticipates low to mid-teens percentage growth in net interest income for 2022[118]

Financial Data and Key Metrics - Core deposit growth was strong with noninterest-bearing deposits growing by $1.2 billion since year-end, an annualized growth rate of 20% [17] - Net interest margin expanded by 17 basis points over the linked-quarter, with only 6 basis points attributable to purchase accounting [17] - Pre-provision net revenue increased by 8% over the linked quarter and by 18% over the comparable quarter a year ago [19] - GAAP net income was $264 million or $16.70 per share, yielding an annualized ROE of 11.18% and an ROA of 1% [22] - Adjusted net income was $299 million or $18.95 per share, yielding an annualized ROE of 12.68% and an ROA of 1.12% [22] Business Line Performance - Loan portfolio grew due to strong growth in the branch network and residential mortgages [17] - Positive momentum in fee income-producing lines of business such as rail, card, merchant, and wealth [18] - Core noninterest income increased by $16 million or about 6% over the linked-quarter, driven by higher rental income on operating leases and card/merchant income [37] - Mortgage income was negatively impacted by higher interest rates and reduced refinance activity [38] Market Performance - Total loans increased by $313 million over the linked-quarter or by 1.9% on an annualized basis [45] - Deposits grew at an annualized rate of approximately 4% or about $833 million, driven by a $1.2 billion increase in noninterest-bearing checking accounts [48] - Cost of deposits declined to 17 basis points during the quarter, down 6 basis points from the linked-quarter and 16 basis points from the first quarter of last year [48] Company Strategy and Industry Competition - Focus on timely and successful integration with CIT, with $200 million in cost savings expected to be in the run rate by the end of the year [12] - Shift from integration focus to execution, capturing synergistic value from the CIT merger on both revenue and expense sides [14] - Expect mid-single-digit percentage increase in loans for the full year 2022, with growth led by the branch network [47] Management Commentary on Operating Environment and Future Outlook - Despite geopolitical and macroeconomic uncertainties, the company remains optimistic about growth prospects [14] - Expect net interest margin to continue expanding, with loan growth and fee income generating lines of business showing momentum [9] - Inflation and wage pressures are being felt, but cost savings initiatives are expected to help neutralize expense growth [43] Other Important Information - Credit quality remained strong with a net charge-off ratio of 9 basis points [20] - The company ended the quarter with strong capital and liquidity, supporting the resumption of share repurchases in the second half of the year [20] - The combined ACL was $890 million at the end of 2021, with a day 1 combined ACL of $916 million post-CIT merger [52] Q&A Session Summary Question: Share Repurchase Plan - The company plans a robust stock repurchase plan in the second half of the year, with excess capital estimated at $1.1 billion at the end of Q1 and $1.6 billion by year-end [66][67] Question: Excess Liquidity Deployment - The company aims to redeploy excess liquidity into loans, which could be accretive to margin by 10 to 15 basis points and boost net interest income by $95 million to $143 million [69] Question: PPP Fees and Accretable Yield - SBA-PPP income in Q1 was $9.5 million, with $6 million in fee income [72] Question: Legacy CIT Portfolio and CECL Modeling - The legacy CIT portfolio is performing well, with credit quality back to or better than pre-pandemic levels [76][78] - The ACL is conservative, with 14.3 times coverage of annualized net charge-offs [53] Question: Investment Strategy - The company prioritizes lending over investing in securities, focusing on shorter-duration government-backed or sponsored mortgage-backed securities to reduce volatility in a rising rate environment [81][83] Question: Regional Performance and Customer Behavior - Strong markets across the country, with larger metropolitan areas showing more robust growth [85] - Loan rates are expected to stabilize and increase as higher-rate loans replace lower-rate ones [87]

Part I [Business](index=3&type=section&id=Item%201.%20Business) First Citizens BancShares, Inc. is a financial holding company whose primary subsidiary, FCB, became a top 20 U.S. bank with over $100 billion in assets after merging with CIT Group Inc. in January 2022, now operating across General Banking, Commercial Banking, and Rail segments [General Overview and Business Combinations](index=3&type=section&id=General%20Overview%20and%20Business%20Combinations) First Citizens BancShares operates through its banking subsidiary, FCB, offering a wide range of retail and commercial banking services, significantly expanding its asset base and service offerings through the transformative merger with CIT Group Inc - As of December 31, 2021, BancShares had total consolidated assets of **$58.31 billion**[8](index=8&type=chunk) - On January 3, 2022, BancShares completed its merger with CIT Group Inc. ("CIT"), which had consolidated total assets of approximately **$53.2 billion** at December 31, 2021, positioning the combined entity as a **top 20 U.S. bank with over $100 billion in assets**[8](index=8&type=chunk)[17](index=17&type=chunk) - Following the CIT Merger, the company plans to report financial results in three new operating segments: General Banking, Commercial Banking, and Rail, in addition to a Corporate non-operating segment, with the majority of historical operations reflected in the General Banking segment[19](index=19&type=chunk)[20](index=20&type=chunk) [Competition, Geographic Locations, and Human Capital](index=4&type=section&id=Competition%2C%20Geographic%20Locations%2C%20and%20Human%20Capital) The company faces intense competition in its primary markets of North and South Carolina, where it holds the fourth-largest deposit market share, and expanded its branch network and employee base significantly post-CIT merger - FCB's primary deposit markets are North Carolina (**50.8% of total deposits**) and South Carolina (**22.7%**), where it was the **fourth largest bank** by deposit market share as of June 30, 2021[22](index=22&type=chunk) - As of December 31, 2021, BancShares operated **529 branches**, with the CIT Merger adding approximately **80 branches**, mainly in Southern California, bringing the total to **609 domestic offices** as of January 3, 2022[26](index=26&type=chunk)[24](index=24&type=chunk) Employee Statistics (as of Dec 31, 2021) | Metric | Count/Percentage | | :--- | :--- | | Total Employees | 6,846 | | Full-time Staff | ~6,578 | | Part-time Staff | ~268 | | Women Employees | ~67% | | Ethnically Diverse Employees | ~28% | - Post-CIT Merger, total employees increased to approximately **10,300**[27](index=27&type=chunk) [Regulatory Considerations](index=5&type=section&id=Regulatory%20Considerations) As a financial holding company with over $100 billion in assets post-merger, BancShares is subject to enhanced prudential standards and extensive oversight from multiple regulatory agencies, including stricter requirements for capital planning, stress testing, and liquidity management - Following the CIT Merger, with assets exceeding **$100 billion**, BancShares is now subject to enhanced prudential standards as a **Category IV banking organization**, entailing stricter requirements for capital planning, supervisory stress testing (CCAR), and liquidity management[35](index=35&type=chunk)[41](index=41&type=chunk)[48](index=48&type=chunk) Basel III Capital Requirements & PCA Well-Capitalized Thresholds | Regulatory Capital Ratios | Basel III Minimums | Basel III Requirements (with buffer) | PCA Well-Capitalized Thresholds | | :--- | :--- | :--- | :--- | | Total risk-based capital | 8.00% | 10.50% | 10.00% | | Tier 1 risk-based capital | 6.00% | 8.50% | 8.00% | | Common equity Tier 1 | 4.50% | 7.00% | 6.50% | | Tier 1 leverage | 4.00% | 4.00% | 5.00% | - As of December 31, 2021, both BancShares and its subsidiary FCB exceeded all Basel III and well-capitalized thresholds[53](index=53&type=chunk)[62](index=62&type=chunk) - As part of the CIT Merger, BancShares adopted a community benefit plan to invest **$16 billion** in communities served by FCB, including specific targets for low- and moderate-income and minority borrowers[70](index=70&type=chunk) - The company is subject to new cybersecurity rules requiring notification to its primary federal regulator no later than **36 hours** after discovering a significant "computer-security incident," with compliance required by May 1, 2022[84](index=84&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including strategic challenges from the CIT Merger integration, significant operational threats, credit risks, market risks from economic conditions and interest rate fluctuations, and substantial compliance burdens from an evolving regulatory landscape [Strategic and Operational Risks](index=16&type=section&id=Strategic%20and%20Operational%20Risks) Strategic risks are dominated by the successful integration of CIT Group, with potential challenges in realizing synergies and managing expanded operations, while operational risks include significant threats from cyber-attacks, information security breaches, and the ongoing economic impacts of the COVID-19 pandemic - A primary strategic risk is the failure to realize all anticipated benefits of the CIT Merger, which depends on successfully integrating operations without disrupting customer relationships or losing key personnel[95](index=95&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - The company faces significant operational risk from potential cyber-attacks, information breaches, or technology failures, which could disrupt business, result in misuse of confidential data, and cause legal or reputational harm[96](index=96&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) - The economic impacts of the COVID-19 pandemic continue to pose a risk, potentially affecting borrowers' creditworthiness, demand for loans, and increasing collection risk[96](index=96&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk) [Credit and Market Risks](index=25&type=section&id=Credit%20and%20Market%20Risks) Credit risk is a core concern, with potential for losses if the company fails to effectively manage its loan portfolio or if its allowance for credit losses proves insufficient, while market risks stem from unfavorable economic conditions, interest rate fluctuations, and the transition away from LIBOR - The allowance for credit losses (ACL) may be insufficient to cover actual losses, as it relies on significant estimates that are subject to uncertainty from changing economic conditions, particularly in the wake of the COVID-19 pandemic[97](index=97&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk) - The company has significant loan concentrations in the medical and dental industries, as well as in the rail business, which could lead to impaired earnings if these sectors face economic difficulties[180](index=180&type=chunk)[181](index=181&type=chunk) - Failure to effectively manage interest rate risk could adversely affect net interest income, as rising rates could increase interest expense and negatively impact borrowers' ability to meet payment obligations[98](index=98&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk) - The transition from LIBOR to alternative reference rates like SOFR is complex and presents risks, including potential disputes with borrowers, increased costs, and changes to market risk profiles[202](index=202&type=chunk)[203](index=203&type=chunk) [Liquidity, Capital, and Compliance Risks](index=28&type=section&id=Liquidity%2C%20Capital%2C%20and%20Compliance%20Risks) Liquidity risk centers on the ability to meet obligations, with the company's deposit base as its primary funding source, while capital adequacy risks include maintaining access to capital and meeting stringent regulatory guidelines, and compliance risks are substantial due to operating in a highly regulated industry - As a Category IV banking organization, the company is subject to enhanced liquidity risk management requirements, including liquidity stress testing and maintaining a liquidity buffer[99](index=99&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) - The company is subject to capital adequacy guidelines and expects to submit an annual capital plan to the Federal Reserve and undergo biennial supervisory stress testing under CCAR, which could impact its ability to make capital distributions[100](index=100&type=chunk)[221](index=221&type=chunk)[224](index=224&type=chunk) - Operating in a highly regulated industry presents significant compliance risks, as changes in laws governing operations, taxes, and corporate governance could adversely affect the company[101](index=101&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The acquisition of CIT's specialty commercial business lines, particularly the rail business, introduces new compliance risks related to safety, operations, and maintenance standards from various federal and state agencies[101](index=101&type=chunk)[234](index=234&type=chunk) [Unresolved Staff Comments](index=14&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[5](index=5&type=chunk) [Properties](index=32&type=section&id=Item%202.%20Properties) The company is headquartered in a nine-story, 163,000 square foot building in Raleigh, North Carolina, owned by its subsidiary FCB, which also operates 529 branch offices across multiple states - The company is headquartered in a building owned by FCB in Raleigh, North Carolina[256](index=256&type=chunk) - As of December 31, 2021, FCB operated **529 branch offices** across the Southeast, Mid-Atlantic, Midwest, and Western United States[256](index=256&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company and its subsidiaries are defendants in various legal actions arising from normal business activities, but management believes no existing legal actions are expected to be material to the consolidated financial statements - Management believes that no ongoing legal actions would be material to BancShares' consolidated financial statements[258](index=258&type=chunk) [Mine Safety Disclosures](index=2&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[5](index=5&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company has two classes of common stock, Class A (FCNCA) and Class B (FCNCB), with differing voting rights, and suspended its share repurchase program after July 31, 2020, with no repurchases made in 2021 - The company has two classes of common stock: Class A (FCNCA) with **one vote per share** and Class B (FCNCB) with **16 votes per share**[261](index=261&type=chunk) - Share repurchase activity was suspended after July 31, 2020, and no share repurchases occurred during 2021[263](index=263&type=chunk) Cumulative Total Shareholder Return (2016-2021) | Year | FCNCA | Nasdaq US Benchmark TR | KBW Nasdaq Bank Total Return Index | | :--- | :--- | :--- | :--- | | 2016 | $100 | $100 | $100 | | 2017 | $114 | $121 | $119 | | 2018 | $107 | $115 | $98 | | 2019 | $151 | $151 | $133 | | 2020 | $163 | $183 | $119 | | 2021 | $236 | $230 | $165 | [Reserved](index=34&type=section&id=Item%206.%20Reserved) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=34&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, net income available to common shareholders increased to $528.9 million, driven by a benefit for credit losses, stable net interest income, and growth in noninterest income, while total assets grew to $58.31 billion, with the CIT merger expected to substantively change future results Financial Performance Summary (2021 vs. 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income (Common) | $528.9M | $477.7M | +10.7% | | Diluted EPS | $53.88 | $47.50 | +13.4% | | Net Interest Income | ~$1.39B | ~$1.39B | +0.2% | | (Benefit) Provision for Credit Losses | ($36.8M) | $58.4M | Favorable | | Noninterest Income | $508.0M | $476.8M | +6.6% | | Noninterest Expense | $1.23B | $1.19B | +3.8% | - The taxable-equivalent net interest margin decreased by **51 basis points** to **2.66%** in 2021, primarily due to changes in earning asset mix and a decline in the yield on interest-earning assets[305](index=305&type=chunk) - Total deposits grew by **$7.97 billion (18.4%)** to **$51.41 billion**, driven by increases in demand deposits, checking with interest, and money market accounts from commercial customers[313](index=313&type=chunk) - Total loans decreased by **1.3%** to **$32.37 billion**, mainly due to a **$1.91 billion** decline in SBA-PPP loans from forgiveness, which was largely offset by growth in commercial mortgages and commercial & industrial loans[311](index=311&type=chunk) - The company announced plans to eliminate NSF fees and significantly lower overdraft fees on consumer accounts starting mid-year 2022, which is expected to reduce future noninterest income[303](index=303&type=chunk)[215](index=215&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=58&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The company manages risk through a comprehensive framework with a moderate risk appetite, overseeing credit, market, and liquidity risks, with significant loan concentrations in real estate and medical/dental industries, and an asset-sensitive position to interest rate fluctuations - The company has a significant concentration of loans secured by real estate, which constituted **75.0% of total loans and leases** at December 31, 2021, with collateral geographically concentrated in North Carolina (**35.9%**) and South Carolina (**15.6%**)[438](index=438&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) - Loans to borrowers in the medical and dental fields represented another concentration, totaling **$7.09 billion**, or **21.9% of total loans and leases**, as of December 31, 2021[445](index=445&type=chunk) Net Interest Income Sensitivity Analysis (as of Dec 31, 2021) | Change in Interest Rate (bps) | Estimated % Change in NII (24 months) | | :--- | :--- | | -100 | (6.97)% | | +100 | 6.68% | | +200 | 12.87% | - Primary sources of liquidity include a branch-generated deposit portfolio, cash, and unencumbered securities totaling **$16.41 billion**, with contingent liquidity including **$8.92 billion** in FHLB borrowing capacity[460](index=460&type=chunk) [Financial Statements and Supplementary Data](index=64&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2021, including reports from KPMG LLP and Dixon Hughes Goodman LLP, with detailed notes covering accounting policies, the CECL adoption, and the material subsequent event of the CIT merger - The report includes an unqualified opinion on the consolidated financial statements from the independent registered public accounting firm, KPMG LLP[486](index=486&type=chunk) - KPMG identified the quantitative component of the allowance for credit losses (ACL) for loans evaluated on a collective basis as a Critical Audit Matter, due to the high degree of subjective and complex judgment involved in estimating probability of default (PD) and loss given default (LGD)[490](index=490&type=chunk)[491](index=491&type=chunk)[494](index=494&type=chunk) - The financial statements reflect the adoption of ASU 2016-13 (CECL) for credit losses effective January 1, 2020, which resulted in a net decrease to the ACL of **$37.9 million** upon adoption[481](index=481&type=chunk)[692](index=692&type=chunk) - Note W, Subsequent Events, details the closing of the CIT Group Inc. merger on January 3, 2022, which is not reflected in the December 31, 2021 financial statements but will materially impact future periods, outlining the conversion of CIT common and preferred stock and the assumption of CIT's debt[859](index=859&type=chunk)[861](index=861&type=chunk)[862](index=862&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=5&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure - None reported[5](index=5&type=chunk) [Controls and Procedures](index=132&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[869](index=869&type=chunk) - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2021[872](index=872&type=chunk) [Other Information](index=133&type=section&id=Item%209B.%20Other%20Information) On February 22, 2022, the company filed Restated Certificates of Designation for its Series B and Series C Preferred Stock, created in connection with the CIT merger - The company filed Restated Certificates of Designation for the new BancShares Series B and Series C Preferred Stock on February 22, 2022[875](index=875&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspection](index=5&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspection) This item is not applicable to the company - Not applicable[5](index=5&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=2&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the 2022 Proxy Statement[5](index=5&type=chunk) [Executive Compensation](index=2&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the 2022 Proxy Statement[5](index=5&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=2&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the 2022 Proxy Statement[5](index=5&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=2&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the 2022 Proxy Statement[5](index=5&type=chunk) [Principal Accounting Fees and Services](index=133&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The company's independent registered public accounting firm is KPMG LLP, with Dixon Hughes Goodman LLP as the predecessor firm, and further information regarding fees and services is incorporated by reference from the 2022 Proxy Statement - The current independent registered public accounting firm is KPMG LLP, with Dixon Hughes Goodman LLP as the predecessor firm[876](index=876&type=chunk) - Detailed information on fees and services is incorporated by reference from the 2022 Proxy Statement[877](index=877&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=133&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section provides an index of exhibits filed with or furnished to the SEC as part of the Form 10-K, with all required financial statement schedules omitted as they are not applicable - All financial statement schedules normally required are omitted as they are not applicable[5](index=5&type=chunk) - The exhibits listed in the Exhibit Index are filed with or furnished to the Commission or incorporated by reference[5](index=5&type=chunk) [Form 10-K Summary](index=5&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary was provided in this report - None provided[5](index=5&type=chunk)

Financial Data and Key Metrics - Q4 2021 net income was $123.3 million, down $800,000 from Q3 2021 and $14.8 million from Q4 2020 [16] - Return on average assets (ROAA) was 0.84% and return on average equity (ROAE) was 10.96% for Q4 2021 [16] - Full-year 2021 net income was $547.5 million, an 11.3% increase from 2020, with ROAA of 1% and ROAE of 12.84% [18] - Net interest income increased by 3% in Q4 2021, driven by higher SBA-PPP income and loan/investment balances, partially offset by lower yields [19] - Net interest margin declined by 3 basis points in Q4 2021 due to excess liquidity [21] - Noninterest income in Q4 2021 was $114.3 million, down $8.7 million from Q3 2021 and $12.5 million from Q4 2020 [26] Business Line Performance - Excluding PPP loans, organic loan growth was 5.7% annualized in Q4 2021, driven by commercial and industrial loans and owner-occupied commercial real estate loans [20][32] - Wealth management and payments-related businesses showed strong performance, with higher assets under management and increased service charges and card income [26] - Mortgage income declined due to higher mortgage rates and reduced refinance activity [26] - Service charge revenue is expected to decline by 35%-40% due to changes in NSF and overdraft fees, with a 2022 impact estimated at $15 million-$20 million [27][28] Market and Regional Performance - Deposit growth was strong in Q4 2021, with an annualized growth rate of 10.6% and year-over-year growth of 18.4% [36] - Over two-thirds of 2021 deposit growth came from core checking accounts, indicating strong customer retention and acquisition [37] - The company expects deposit growth to moderate in 2022 but remain elevated, supporting the balance sheet and margin even as interest rates rise [37] Strategic Direction and Industry Competition - The merger with CIT creates a top 20 U.S. financial institution with over $110 billion in assets, positioning the company for long-term growth and value creation [6][7] - The company is focused on integrating CIT, with OneWest Bank conversion expected in Q3 2022 and legacy Mutual of Omaha in Q4 2022 [12] - Strategic priorities include optimizing the balance sheet, reducing higher debt costs, and leveraging excess cash from deposit growth [24][25] - The company is investing in digital transformation and expanding its sales force in wealth management and high-growth markets [30] Management Commentary on Operating Environment and Outlook - Management highlighted strong credit quality, with a net recovery of 1 basis point in Q4 2021 and a nonperforming assets ratio of 0.50%, the lowest since Q2 2019 [34] - Macroeconomic improvements led to a $45.8 million reserve release in 2021, compared to a $35.9 million reserve build in 2020 [17][35] - The company expects net interest income ex-PPP to grow in 2022, but net interest margin may decline moderately due to excess liquidity and reduced SBA-PPP income [25] - Low single-digit percentage growth in core noninterest income is expected in 2022, driven by wealth and payments businesses offsetting lower mortgage and service charge income [28] Other Important Information - The company plans to redeem $2.9 billion of senior unsecured debt assumed in the CIT merger, with a weighted average coupon rate of 5% [24] - Changes to NSF and overdraft fees will reduce service charge revenue, with a full impact estimated at $35 million-$40 million annually [27][28] - The CET1 ratio was 11.50% and the total risk-based capital ratio was 14.35% at the end of Q4 2021, with strong earnings offsetting deposit growth impacts [38] Q&A Session Summary Question: Plans for deploying excess liquidity and increasing the securities portfolio [48] - The company plans to redeploy excess cash into investments and loans, targeting higher-cost deposits for replacement with lower-cost core deposits [49] Question: Timing for share buybacks post-merger integration [50] - Share buybacks will resume after demonstrating successful integration and building capital, with no specific timeframe provided [51] Question: Updates on the combined company's financial forecast and integration progress [53] - Pro forma financial information will be shared by early March 2022, with credit quality improvements being a key positive factor [54] Question: Impact of potential Fed rate hikes on net interest margin [55] - The company expects margin improvement in the second half of 2022 as rate hikes take effect, with PPP-adjusted net interest income bottoming out in Q1 2022 [56] Question: Share buyback strategy and capital ratio targets [59] - The company aims to remain active in buybacks but will consider price sensitivity and tangible book value payback periods [60] - The target CET1 ratio remains 9%-11%, with significant excess capital expected post-merger [61][63] Question: Loan growth expectations for the combined company [63] - Mid-single-digit loan growth is aspirational but challenging for the combined company, with further analysis needed on CIT's business units [64]