First Citizens BancShares(FCNCA) - 2022 Q1 - Quarterly Report

Part One — Financial Information Financial Statements 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] - 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][82] Note 2 — Business Combinations 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] 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] Note 4 — Loans and Leases 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] Note 5 — Allowance for Credit Losses 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][368] - 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][459] Note 22 — Business Segment Information 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] 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 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] Key Financial Impacts of CIT Merger in Q1 2022 - CECL Provision: $513 million pre-tax provision for acquired loans and unfunded commitments[355] - Gain on Acquisition: $431 million non-taxable preliminary gain[355] - Merger Expenses: $135 million in merger-related costs[355] - Debt Redemption Gain: $6 million gain from redeeming $2.9 billion of assumed CIT debt[355] - 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] - 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] Quantitative and Qualitative Disclosures about Market Risk 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] Controls and Procedures 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] - 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] Part Two — Other Information Legal Proceedings 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][326] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Other Information 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]