First Citizens BancShares(US:FCNCA)2023-02-23 16:00PART I Business First Citizens BancShares, Inc. became a top 20 U.S. bank with $109.3 billion in assets post-CIT merger, operating in four segments and subject to enhanced prudential standards - BancShares completed its largest acquisition, the CIT Group Inc. merger, on January 3, 2022, adding approximately $53.2 billion in assets26 - The CIT Merger positioned FCB as a top 20 U.S. bank with over $100 billion in total assets, integrating retail and commercial banking operations27 - The company now operates through four segments: General Banking, Commercial Banking, Rail, and Corporate, with Commercial Banking and Rail primarily from the CIT acquisition28 Company Overview as of December 31, 2022 | Metric | Value | | :--- | :--- | | Total Consolidated Assets | $109.3 billion | | Total Branches | 550 | | States of Operation | 22 | | Total Employees | 10,684 | - With over $100 billion in total assets, BancShares is a Category IV banking organization subject to enhanced prudential standards, including capital and liquidity requirements4755 Risk Factors The company faces significant strategic, operational, credit, market, and compliance risks, exacerbated by post-merger integration and enhanced regulatory scrutiny - Strategic risks include potential difficulties in managing significantly expanded and more complex operations following the CIT Merger, which more than doubled the company's asset size101106 - Operational risks are significant, particularly from cyberattacks, information security breaches, or technology outages, which could disrupt business and cause harm101124 - Credit risks are inherent, with potential for insufficient allowance for credit losses and concentrations in specific industries like medical/dental and rail102149151 - Market risks stem from unfavorable economic conditions and interest rate volatility, potentially compressing net interest margins and affecting loan repayment ability102159160 - As a Category IV banking organization with over $100 billion in assets, the company is subject to enhanced prudential standards, increasing compliance costs and risks102172192 Properties The company's headquarters is an owned building in Raleigh, North Carolina, with 582 branches and offices comprising a mix of owned and leased properties - The company's headquarters is an owned, nine-story building in Raleigh, North Carolina209 - As of December 31, 2022, FCB operated 582 branches and offices, with a mix of owned and leased properties209 Legal Proceedings The company is involved in various legal actions arising from normal business activities, none of which management considers material to the consolidated financial statements - The company is involved in various legal actions from normal business activities, but management does not consider any to be material to the financial statements211 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock is listed on Nasdaq, while Class B is traded OTC, and a 1,500,000 share repurchase program for Class A stock was completed in 2022 - The company has two classes of common stock: Class A (FCNCA) with one vote per share, listed on Nasdaq, and Class B (FCNCB) with 16 votes per share, traded OTC with limited volume213 - A share repurchase program for up to 1,500,000 shares of Class A common stock, authorized on July 26, 2022, was completed during 2022217 Q4 2022 Share Repurchase Activity (Class A Common Stock) | Period | Total Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - 31, 2022 | 472,586 | $842.61 | | Nov 1 - 30, 2022 | — | $— | | Dec 1 - 31, 2022 | — | $— | | Total Q4 2022 | 472,586 | $842.61 | Management's Discussion and Analysis of Financial Condition and Results of Operations The CIT Merger significantly boosted 2022 financial results, driving substantial growth in net income, net interest income, and total assets, while increasing the provision for credit losses Selected Financial Data (Year ended December 31) | Metric (in millions, except per share) | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $2,946 | $1,390 | | Provision for Credit Losses | $645 | $(37) | | Noninterest Income | $2,136 | $508 | | Net Income | $1,098 | $547 | | Diluted EPS | $67.40 | $53.88 | | Total Assets (End of Period) | $109,298 | $58,309 | | Total Loans and Leases (End of Period) | $70,781 | $32,372 | | Total Deposits (End of Period) | $89,408 | $51,406 | - The significant increases in financial performance in 2022 are primarily attributable to the CIT Merger, which added substantial earning assets, deposits, and new revenue streams like rental income on operating leases228229239 - The provision for credit losses in 2022 included a one-time provision of $513 million for non-purchased credit deteriorated loans and unfunded commitments acquired in the CIT Merger (the "Day 2 provision")239251 - Noninterest income for 2022 includes a one-time gain on acquisition of $431 million and new rental income on operating lease equipment of $864 million, both resulting from the CIT Merger239253 Quantitative and Qualitative Disclosure about Market Risk The company's market risk profile significantly changed due to the CIT Merger, with management employing NII and EVE sensitivity analyses to monitor potential economic losses from market price and interest rate fluctuations - The company's market risk profile was significantly altered by the CIT Merger469 - Market risk is managed through analysis of Net Interest Income (NII) Sensitivity and Economic Value of Equity (EVE) Sensitivity, with further details provided in the MD&A and financial statement notes362364469 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022 and 2021, with KPMG LLP's report highlighting critical audit matters related to the allowance for credit losses and the valuation of acquired CIT assets - The report includes audited consolidated financial statements for the years ended December 31, 2022 and 2021, audited by KPMG LLP478 - The independent auditor's report identified three critical audit matters requiring complex judgment: 1) Allowance for credit losses (ACL) for legacy FCB loans, 2) ACL for loans acquired from CIT, and 3) Valuation of loans, rail equipment, and the core deposit intangible acquired from CIT482484488492 Consolidated Balance Sheet Highlights (December 31) | Account (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $109,298 | $58,309 | | Loans and leases, net | $69,859 | $32,194 | | Goodwill | $346 | $346 | | Total Deposits | $89,408 | $51,406 | | Total Liabilities | $99,636 | $53,571 | | Total Stockholders' Equity | $9,662 | $4,738 | Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during Q4 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022913 - Management assessed internal control over financial reporting using the COSO framework and believes it to be effective as of December 31, 2022916 PART III Principal Accounting Fees and Services KPMG LLP serves as the company's independent registered public accounting firm, with details on accounting fees and services incorporated by reference from the 2023 Proxy Statement - The company's independent registered public accounting firm is KPMG LLP920 - Details on accounting fees and services are incorporated by reference from the 2023 Proxy Statement921 PART IV Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K, including merger agreements, corporate governance documents, and executive certifications - This section contains the Exhibit Index, listing all documents filed with the report, such as merger agreements, corporate governance documents, and executive certifications924925