First Citizens BancShares(FCNCA) - 2023 Q1 - Quarterly Report

Part One — Financial Information Item 1. Financial Statements This section presents the company's unaudited consolidated financial statements for the quarter ended March 31, 2023 Consolidated Balance Sheets (Unaudited) The balance sheets show a significant increase in assets, loans, and deposits driven by the SVBB acquisition | Metric | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Total Assets | $214,658 | $109,298 | +$105,360 | | Loans and leases, net | $136,683 | $69,859 | +$66,824 | | Total Deposits | $140,050 | $89,408 | +$50,642 | | Total Borrowings | $46,094 | $6,645 | +$39,449 | | Total Stockholders' Equity | $19,216 | $9,662 | +$9,554 | Consolidated Statements of Income (Unaudited) The income statements reflect a substantial increase in net income due to a significant gain on acquisition | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Total Interest Income | $1,211 | $710 | +$501 | | Total Interest Expense | $361 | $61 | +$300 | | Net Interest Income | $850 | $649 | +$201 | | Provision for Credit Losses | $783 | $464 | +$319 | | Total Noninterest Income | $10,259 | $850 | +$9,409 | | Total Noninterest Expense | $855 | $810 | +$45 | | Income Before Income Taxes | $9,471 | $225 | +$9,246 | | Net Income | $9,518 | $271 | +$9,247 | | Net Income Available to Common Stockholders | $9,504 | $264 | +$9,240 | | Basic EPS | $654.22 | $16.70 | +$637.52 | | Diluted EPS | $653.64 | $16.70 | +$636.94 | - The significant increase in Net Income and EPS was primarily driven by a $9,824 million gain on acquisition in 2023, compared to $431 million in 2022[15] Consolidated Statements of Comprehensive Income (Unaudited) Total comprehensive income increased substantially due to high net income and unrealized gains on securities | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Net Income | $9,518 | $271 | +$9,247 | | Net Unrealized Gain (Loss) on Securities Available for Sale | $58 | $(318) | +$376 | | Other Comprehensive Income (Loss), Net of Tax | $66 | $(315) | +$381 | | Total Comprehensive Income (Loss) | $9,584 | $(44) | +$9,628 | Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Stockholders' equity grew significantly, driven by net income and other comprehensive income | Metric | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $19,216 | $9,662 | +$9,554 | | Retained Earnings | $14,885 | $5,392 | +$9,493 | | Accumulated Other Comprehensive Loss | $(669) | $(735) | +$66 | - Net income of $9,518 million and other comprehensive income of $66 million contributed to the increase in stockholders' equity for the three months ended March 31, 2023[20] Consolidated Statements of Cash Flows (Unaudited) Cash flows show a net increase in cash, with significant cash provided by investing activities | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(362) | $577 | $(939) | | Net Cash Provided by Investing Activities | $2,628 | $2,195 | +$433 | | Net Cash Used in Financing Activities | $(1,186) | $(2,587) | +$1,401 | | Change in Cash and Due from Banks | $1,080 | $185 | +$895 | | Cash and Due from Banks at End of Period | $1,598 | $523 | +$1,075 | - Significant non-cash investing activities in 2023 included a $35,150 million Purchase Money Note and a $500 million Value Appreciation Instrument as consideration for the SVBB Acquisition[24] Notes to the Unaudited Consolidated Financial Statements This section provides detailed disclosures for the unaudited consolidated financial statements NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION - First Citizens BancShares, Inc (BancShares) is a financial holding company operating through its banking subsidiary, First-Citizens Bank & Trust Company (FCB), with over 550 branches in 23 states[26] - The consolidated financial statements are presented in accordance with Form 10-Q and Article 10 of Regulation S-X, and should be read with the 2022 Form 10-K[27] - BancShares accounts for business combinations using the acquisition method, recognizing a gain on acquisition if the fair value of identifiable net assets exceeds the purchase price[31] - On March 27, 2023, FCB acquired substantially all loans and certain assets, and assumed all customer deposits and certain liabilities of Silicon Valley Bridge Bank, N.A (SVBB Acquisition)[32] - During Q1 2023, BancShares added the Silicon Valley Banking (SVB) reportable segment, which includes operations from the SVBB Acquisition[35] - New SVB loan classes include Global Fund Banking, Investor Dependent (Early-Stage, Growth Stage), Innovation Commercial & Industrial (C&I), Cash Flow Dependent, Private Bank, Commercial Real Estate (CRE), and Other[40][41][42][43] - BancShares adopted ASU 2022-02 (eliminating TDR recognition guidance and requiring new loan modification disclosures) and ASU 2022-01 (expanding portfolio layer method for fair value hedging) as of January 1, 2023[50][53] NOTE 2 — BUSINESS COMBINATIONS - FCB acquired SVBB on March 27, 2023, in an FDIC-assisted transaction, acquiring assets with an estimated fair value of $106.60 billion (including $68.50 billion in loans and $35.28 billion in cash) and assuming liabilities of $61.13 billion (primarily $55.96 billion in customer deposits)[55] - BancShares recorded a preliminary gain on acquisition of $9.82 billion (net of income taxes) due to the fair value of net assets acquired exceeding the purchase price[63] - Consideration for the SVBB Acquisition included a $35.15 billion Purchase Money Note payable to the FDIC and a $500 million Value Appreciation Instrument[56][57] - FCB also entered into a five-year, up to $70 billion Credit Facility with the FDIC and a commercial Shared-Loss Agreement covering an estimated $60 billion of commercial loans[58][59] | Item | Fair Value Purchase Price Allocation as of March 27, 2023 (millions) | | :--- | :--- | | Purchase Price Consideration | $35,650 | | Total Assets Acquired | $106,600 | | Total Liabilities Assumed | $61,126 | | Fair Value of Net Assets Acquired | $45,474 | | Preliminary Gain on Acquisition (after taxes) | $9,824 | - The CIT Merger was completed on January 3, 2022, resulting in BancShares issuing approximately 6.1 million shares of Class A Common Stock and recording a gain on acquisition of $431 million[79][81] NOTE 3 — INVESTMENT SECURITIES | Category | March 31, 2023 (Fair Value, millions) | December 31, 2022 (Fair Value, millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Investment securities available for sale | $9,061 | $8,995 | +$66 | | Investment securities held to maturity | $8,993 | $8,795 | +$198 | | Investment in marketable equity securities | $85 | $95 | $(10) | | Total Investment Securities | $18,139 | $17,885 | +$254 | | Metric | Three Months Ended March 31, 2023 (millions) | Three Months Ended March 31, 2022 (millions) | | :--- | :--- | :--- | | Interest Income - Taxable Investment Securities | $106 | $82 | | Dividend Income - Marketable Equity Securities | $1 | $1 | | Net Realized Losses on Sales of AFS Securities | $(14) | $0 | | Fair Value Adjustment on Marketable Equity Securities, Net | $(9) | $3 | - As of March 31, 2023, investment securities available for sale had gross unrealized losses of $897 million, with 337 securities having continuous unrealized losses for more than 12 months[84][91] - A credit-related loss of $4 million was recognized for one corporate bond as of March 31, 2023[91] NOTE 4 — LOANS AND LEASES | Loan Class | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Commercial | $54,390 | $53,455 | +$935 | | Consumer | $17,727 | $17,326 | +$401 | | SVB | $66,171 | $0 | +$66,171 | | Total Loans and Leases | $138,288 | $70,781 | +$67,507 | - The significant increase in total loans and leases is primarily due to the acquisition of $66.17 billion in SVB loans[98] | Delinquency Status | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | 30-59 Days Past Due | $674 | $480 | +$194 | | 60-89 Days Past Due | $159 | $214 | $(55) | | 90 Days or Greater | $380 | $170 | +$210 | | Total Past Due | $1,213 | $864 | +$349 | | Non-Accrual Status | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Commercial | $510 | $529 | $(19) | | Consumer | $94 | $98 | $(4) | | SVB | $224 | $0 | +$224 | | Total Non-Accrual Loans | $828 | $627 | +$201 | - Gross charge-offs for the three months ended March 31, 2023, totaled $59 million, with $54 million from commercial loans and $5 million from consumer loans[121] - Loan modifications for borrowers experiencing financial difficulties totaled $92 million in amortized cost for the three months ended March 31, 2023, primarily term extensions[126] - PCD loans acquired in the SVBB Acquisition had a UPB of $2,529 million and a purchase price of $2,030 million, with an initial PCD ACL of $200 million[141] | Pledged Loans | March 31, 2023 (millions) | December 31, 2022 (millions) | | :--- | :--- | :--- | | FHLB of Atlanta (Lendable Collateral) | $14,662 | $14,918 | | FRB (Lendable Collateral) | $4,676 | $4,203 | NOTE 5 — ALLOWANCE FOR CREDIT LOSSES | Metric | March 31, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | ACL for Loans and Leases | $1,605 | $922 | +$683 | | ACL for Unfunded Commitments | $352 | $106 | +$246 | | ACL for Investment Securities | $4 | $0 | +$4 | | Total Provision for Credit Losses (Q1 2023) | $783 | $79 (Q4 2022) | +$704 | - The increase in ACL for loans and leases is primarily due to the SVBB Acquisition, including an Initial PCD ACL of $200 million and a Day 2 provision for loans and leases of $462 million[148] - The increase in ACL for unfunded commitments is primarily due to a Day 2 provision of $254 million related to the SVBB Acquisition[149] NOTE 6 — LEASES | Metric | March 31, 2023 (millions) | December 31, 2022 (millions) | | :--- | :--- | :--- | | Operating Lease ROU Assets | $337 | $345 | | Operating Lease Liabilities | $345 | $352 | | Weighted-Average Remaining Lease Term (Operating) | 9.4 years | 9.6 years | | Weighted-Average Discount Rate (Operating) | 2.22% | 2.19% | | Lease Income (millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Operating Leases | $233 | $208 | | Finance Leases | $46 | $47 | | Total Lease Income | $294 | $266 | NOTE 7 — GOODWILL AND CORE DEPOSIT INTANGIBLES - BancShares had goodwill of $346 million at March 31, 2023, related to business combinations prior to the SVBB Acquisition and CIT Merger, with no goodwill impairment during the quarter[159] | Core Deposit Intangibles (millions) | 2023 | | :--- | :--- | | Balance, net of accumulated amortization at January 1 | $140 | | Core deposit intangibles related to SVBB Acquisition | $230 | | Amortization for the period | $(6) | | Balance at March 31, net of accumulated amortization | $364 | | Expected Amortization (millions) | Amount | | :--- | :--- | | Remainder 2023 | $52 | | 2024 | $63 | | 2025 | $54 | | 2026 | $46 | | 2027 | $39 | | 2028 | $34 | | Thereafter | $76 | NOTE 8 — VARIABLE INTEREST ENTITIES - BancShares had no consolidated VIEs at March 31, 2023, but held unconsolidated VIEs primarily in qualified affordable housing projects[166][167] | Unconsolidated VIEs (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets (maximum loss exposure) | $1,833 | $762 | | Liabilities for commitments to tax credit investments | $991 | $295 | NOTE 9 — OTHER ASSETS | Other Assets (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Other Assets | $7,450 | $4,369 | | Affordable housing tax credit and other unconsolidated investments | $1,869 | $762 | | Accrued interest receivable | $772 | $329 | | Fair value of derivative financial instruments | $547 | $159 | - The increase in other assets is primarily due to approximately $2.18 billion of miscellaneous assets acquired in the SVBB Acquisition[170] NOTE 10 — DEPOSITS | Deposit Type (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Noninterest-bearing demand | $54,649 | $24,922 | | Interest-bearing | $85,401 | $64,486 | | Total Deposits | $140,050 | $89,408 | - The increase in deposits is primarily due to the SVBB Acquisition, which added $49.26 billion in deposits[171] | Time Deposit Maturities (millions) | Amount | | :--- | :--- | | 2024 | $9,199 | | 2025 | $3,281 | | 2026 | $437 | | 2027 | $55 | | 2028 | $31 | | Thereafter | $125 | | Total Time Deposits | $13,128| NOTE 11 — BORROWINGS | Borrowing Type (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Short-term Borrowings | $1,009 | $2,186 | | Long-term Borrowings | $45,085 | $4,459 | | Total Borrowings | $46,094 | $6,645 | - The significant increase in long-term borrowings is primarily due to the $35,150 million Purchase Money Note to the FDIC related to the SVBB Acquisition[178] - FHLB borrowings increased to $8,500 million at March 31, 2023, from $4,250 million at December 31, 2022, to enhance liquidity[178] - BancShares pledged $29.6 billion of loans to the FHLB and FRB at March 31, 2023[179] NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS | Derivative Type (millions) | March 31, 2023 (Notional) | March 31, 2023 (Asset Fair Value) | March 31, 2023 (Liability Fair Value) | | :--- | :--- | :--- | :--- | | Interest Rate Contracts | $23,557 | $285 | $(535) | | Foreign Exchange Contracts | $18,419 | $262 | $(255) | | Other Contracts | $713 | $0 | $(1) | | Total Derivatives | $42,689 | $547 | $(791) | - BancShares' derivatives are not designated as hedging instruments[185] | Gains on Non-Qualifying Hedges (millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Interest Rate Contracts | $21 | $4 | | Foreign Currency Forward Contracts | $(2) | $0 | | Total | $19 | $4 | NOTE 13 —OTHER LIABILITIES | Other Liabilities (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Other Liabilities | $8,172 | $2,588 | | Deferred Taxes | $3,551 | $286 | | Commitments to fund tax credit investments | $991 | $295 | | Fair value of derivative financial instruments | $791 | $486 | | ACL for unfunded commitments | $352 | $106 | - The increase in other liabilities is primarily due to approximately $1.85 billion of other liabilities assumed in the SVBB Acquisition and $3.31 billion in deferred tax liabilities[188] - The balance at March 31, 2023, includes $500 million payable to the FDIC for the Value Appreciation Instrument[188] NOTE 14 — FAIR VALUE - BancShares measures certain financial assets and liabilities at fair value, categorized into a three-level hierarchy based on input observability (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs)[189][190][191] | Recurring Fair Value Measurements (millions) | March 31, 2023 (Total) | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Investment securities available for sale | $9,061 | $0 | $8,901 | $160 | | Marketable equity securities | $85 | $29 | $56 | $0 | | Loans held for sale | $9 | $0 | $9 | $0 | | Derivative assets | $547 | $0 | $546 | $1 | | Derivative liabilities | $791 | $0 | $790 | $1 | - Corporate bonds and certain derivative instruments are classified as Level 3 due to unobservable inputs[193][196] | Non-Recurring Fair Value Measurements (millions) | March 31, 2023 (Total) | Level 3 | Total Gains (Losses) | | :--- | :--- | :--- | :--- | | Assets held for sale - loans | $9 | $9 | $0 | | Loans - collateral dependent loans | $87 | $87 | $(15) | | Other real estate owned | $36 | $36 | $0 | | Total | $132 | $132 | $(15) | - Net loans are generally valued using discounted cash flow models with unobservable market inputs, classifying them as Level 3[211] NOTE 15 — STOCKHOLDERS' EQUITY | Common Stock (Shares) | December 31, 2022 | March 31, 2023 | | :--- | :--- | :--- | | Class A | 13,501,017 | 13,514,808 | | Class B | 1,005,185 | 1,005,185 | - Class A Common Stock has one vote per share, while Class B Common Stock has 16 votes per share[220] | Preferred Stock Series | Liquidation Preference (millions) | Dividend Rate | | :--- | :--- | :--- | | Series A | $345 | 5.375% | | Series B | $325 | LIBOR + 3.792%| | Series C | $200 | 5.625% | NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME | AOCI Component (millions) | March 31, 2023 (Net Unrealized) | December 31, 2022 (Net Unrealized) | | :--- | :--- | :--- | | Unrealized loss on securities available for sale | $(681) | $(739) | | Unrealized loss on securities available for sale transferred to securities held to maturity | $(6) | $(6) | | Defined benefit pension items | $18 | $10 | - Total accumulated other comprehensive loss improved from $(735) million at December 31, 2022, to $(669) million at March 31, 2023, primarily due to a $58 million net unrealized gain on available-for-sale securities[223][224] NOTE 17 — REGULATORY CAPITAL | Regulatory Capital Ratio | Basel III Requirements | PCA Well-Capitalized Thresholds | BancShares (March 31, 2023) | FCB (March 31, 2023) | | :--- | :--- | :--- | :--- | :--- | | Total Risk-Based Capital | 10.50% | 10.00% | 14.86% | 14.74% | | Tier 1 Risk-Based Capital | 8.50% | 8.00% | 13.13% | 13.32% | | Common Equity Tier 1 | 7.00% | 6.50% | 12.53% | 13.32% | | Tier 1 Leverage | 4.00% | 5.00% | 16.72% | 16.97% | - BancShares and FCB significantly exceed all Basel III requirements and PCA well-capitalized thresholds as of March 31, 2023[229] - FCB could have paid an additional $6.94 billion in dividends to the Parent Company while remaining well-capitalized at March 31, 2023[232] NOTE 18 — EARNINGS PER COMMON SHARE | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Income Available to Common Stockholders (millions) | $9,504 | $264 | | Basic Shares Outstanding | 14,526,693 | 15,779,153 | | Diluted Shares Outstanding | 14,539,709 | 15,779,153 | | Basic EPS | $654.22 | $16.70 | | Diluted EPS | $653.64 | $16.70 | NOTE 19 — INCOME TAXES | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Income Before Income Taxes (millions) | $9,471 | $225 | | Income Tax (Benefit) Expense (millions) | $(47) | $(46) | | Effective Tax Rate | (0.5)% | (20.4)% | - The increase in the effective tax rate for Q1 2023 was primarily due to the bargain purchase gain relating to the SVBB Acquisition[234] - Net deferred tax liabilities increased by approximately $3.31 billion due to the SVBB Acquisition, primarily related to acquired loans and other assets[237] NOTE 20 — EMPLOYEE BENEFIT PLANS | Net Periodic Benefit Cost (millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Service Cost | $2 | $3 | | Interest Cost | $15 | $11 | | Expected Return on Assets | $(21) | $(22) | | Amortization of Net Actuarial Loss | $0 | $3 | | Total Net Periodic Benefit | $(4) | $(5) | NOTE 21 — BUSINESS SEGMENT INFORMATION - BancShares' segments include General Banking, Commercial Banking, Silicon Valley Banking (new in Q1 2023), Rail, and Corporate[242] - Silicon Valley Banking (SVB) was added in Q1 2023, focusing on healthcare and technology industries, private equity/venture capital firms, and private banking[246] | Segment Net Income (millions) | Three Months Ended March 31, 2023 | | :--- | :--- | | General Banking | $202 | | Commercial Banking | $94 | | Silicon Valley Banking | $35 | | Rail | $22 | | Corporate | $9,165 | | Total BancShares | $9,518 | | Segment Loans and Leases (millions) | March 31, 2023 | | :--- | :--- | | General Banking | $43,353 | | Commercial Banking | $28,684 | | Silicon Valley Banking | $66,171 | | Rail | $80 | | Total BancShares | $138,288 | | Segment Deposits (millions) | March 31, 2023 | | :--- | :--- | | General Banking | $85,982 | | Commercial Banking | $3,045 | | Silicon Valley Banking | $49,259 | | Rail | $14 | | Corporate | $1,750 | | Total BancShares | $140,050 | NOTE 22 — COMMITMENTS AND CONTINGENCIES | Commitments (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Financing Commitments | $74,507 | $23,452 | | Letters of Credit | $4,039 | $480 | | Deferred Purchase Agreements | $1,707 | $2,039 | | Purchase and Funding Commitments | $869 | $941 | - Financing commitments significantly increased due to the SVBB Acquisition, with undrawn and available commitments primarily in Silicon Valley Banking and Commercial Banking segments[255] - Management estimates an aggregate range of reasonably possible losses from litigation of up to $10 million in excess of established reserves and insurance as of March 31, 2023[264] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results of operations EXECUTIVE OVERVIEW - BancShares is a bank holding company regulated by the Federal Reserve System and the North Carolina Commissioner of Banks, conducting banking operations through its subsidiary FCB[273] - The SVBB Acquisition adds a global fund banking business, diversifies the loan portfolio across technology and life sciences, and enhances wealth management capabilities[276] Significant Events in 2023 - The SVBB Acquisition closed on March 27, 2023, acquiring $106.60 billion in assets and assuming $55.96 billion in deposits, resulting in a $9.82 billion preliminary gain on acquisition (net of tax) and a $230 million core deposit intangible[278][284] - A new business segment, Silicon Valley Banking (SVB), was added in conjunction with the SVBB Acquisition[279] Recent Economic and Industry Developments - The Federal Open Market Committee (FOMC) continued to raise interest rates by 25 basis points in January, March, and May 2023, bringing the federal funds rate to 5.00%-5.25% to combat inflation[280] - The banking industry experienced increased volatility due to high-profile bank failures, raising concerns about liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on securities[282] - Potential regulatory actions, including higher capital requirements and special assessments to repay FDIC losses, are being discussed in response to recent bank failures[282] Financial Performance Summary | Metric | Q1 2023 (millions) | Q4 2022 (millions) | Q1 2022 (millions) | | :--- | :--- | :--- | :--- | | Net Income | $9,518 | $257 | $271 | | Net Income Available to Common Stockholders | $9,504 | $243 | $264 | | Diluted EPS | $653.64 | $16.67 | $16.70 | | Return on Average Assets (ROA) | 33.23% | 0.93% | 1.00% | | Net Interest Margin (NIM) | 3.41% | 3.36% | 2.73% | | Provision for Credit Losses | $783 | $79 | $464 | | Noninterest Income | $10,259 | $429 | $850 | | Noninterest Expense | $855 | $760 | $810 | - Net income for Q1 2023 increased significantly by $9.26 billion from Q4 2022, primarily due to a $9.82 billion preliminary gain on acquisition, partially offset by a $716 million provision for Non-PCD loans and unfunded commitments from the SVBB Acquisition[289] - Total loans and leases increased by $67.51 billion to $138.29 billion at March 31, 2023, mainly due to $66.17 billion in SVB loans[289] - Total deposits increased by $50.64 billion to $140.05 billion at March 31, 2023, primarily from $49.26 billion in SVB deposits[289] - Total borrowings increased by $39.45 billion to $46.09 billion, mainly due to a $35.15 billion Purchase Money Note to the FDIC related to the SVBB Acquisition[289] - BancShares remained well capitalized with a total risk-based capital ratio of 14.86% at March 31, 2023[290] Funding, Liquidity and Capital Overview - Deposits represent approximately 75% of total funding at March 31, 2023[291] | Segment | Deposits as of March 31, 2023 (millions) | Uninsured % | | :--- | :--- | :--- | | General Banking | $85,982 | 29% | | Commercial Banking | $3,045 | 86% | | SVB Segment | $49,259 | 86% | | Total Uninsured Deposits | $69,960 | 50% | - SVB deposits declined from $55.96 billion at acquisition to $49.26 billion at March 31, 2023, and further to $41.43 billion by April 28, 2023, due to banking industry uncertainty[294] - At March 31, 2023, liquid assets totaled $51.42 billion, with additional contingent liquidity sources of $79.49 billion, including a $70 billion FDIC Credit Facility[295] | Investment Securities (millions) | Amortized Cost | Fair Value | | :--- | :--- | :--- | | Available for Sale | $9,955 | $9,061 | | Held to Maturity | $10,381 | $8,993 | | Marketable Equity | $75 | $85 | | Total | $20,411 | $18,139 | - The available for sale securities portfolio has an average duration of 3.4 years, and held to maturity has an average duration of 4.9 years[296] RESULTS OF OPERATIONS NET INTEREST INCOME AND NET INTEREST MARGIN | Metric | Q1 2023 (millions) | Q4 2022 (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Net Interest Income (NII) | $850 | $802 | +$48 | | Net Interest Margin (NIM) | 3.41% | 3.36% | +5 bps | | Total Interest Income | $1,211 | $1,040 | +$171 | | Total Interest Expense | $361 | $238 | +$123 | | Average Interest-Earning Assets | $100,901 | $94,359 | +$6,542 | | Average Interest-Bearing Liabilities | $75,333 | $69,926 | +$5,407 | - The increase in NII was primarily due to higher yields on loans and interest-earning deposits, and loan growth, partially offset by higher costs on interest-bearing deposits and borrowings[303] - The SVBB Acquisition impacted average balances and NII/NIM for only five days in Q1 2023, with more prominent impacts expected in Q2 2023[303] | Average Interest-Earning Asset Mix | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Loans and leases | 73% | 73% | 67% | | Investment securities | 19% | 20% | 21% | | Interest-earning deposits at banks | 8% | 7% | 12% | | Average Funding Mix | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Total interest-bearing deposits | 89% | 89% | 93% | | Short-term borrowings | 1% | 4% | 1% | | Long-term borrowings | 10% | 7% | 6% | PROVISION FOR CREDIT LOSSES | Provision for Credit Losses (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Day 2 provision for loans and leases | $462 | $0 | $454 | | Provision (benefit) for credit losses - loans and leases | $71 | $64 | $(53) | | Day 2 provision for unfunded commitments | $254 | $0 | $59 | | (Benefit) provision for unfunded commitments | $(8) | $15 | $4 | | Provision for credit losses - investment securities available for sale | $4 | $0 | $0 | | Total Provision for Credit Losses | $783 | $79 | $464 | - The $704 million increase in provision for credit losses from Q4 2022 to Q1 2023 was primarily due to a $716 million day 2 provision related to the SVBB Acquisition[309] NONINTEREST INCOME | Noninterest Income (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Rental income on operating lease equipment | $233 | $224 | $208 | | Gain on acquisition | $9,824 | $0 | $431 | | Realized loss on sale of investment securities available for sale, net | $(14) | $0 | $0 | | Factoring commissions | $19 | $26 | $27 | | Wealth management services | $42 | $35 | $35 | | Total Noninterest Income | $10,259 | $429 | $850 | - Total noninterest income increased by $9.83 billion from Q4 2022 to Q1 2023, primarily due to the $9.82 billion preliminary gain on acquisition[317] - Factoring commissions decreased by $7 million due to seasonally stronger Q4 volume and slowing customer orders[317] NONINTEREST EXPENSE | Noninterest Expense (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Salaries and benefits | $420 | $354 | $356 | | Maintenance and other operating lease expenses | $56 | $47 | $43 | | FDIC insurance expense | $18 | $5 | $12 | | Acquisition-related expenses | $28 | $29 | $135 | | Total Noninterest Expense | $855 | $760 | $810 | - Total noninterest expense increased by $95 million from Q4 2022 to Q1 2023, primarily due to higher salary and benefit costs (including SVBB Acquisition employees, incentive awards, and payroll taxes) and increased FDIC insurance expense[322][323] INCOME TAXES | Income Tax Data (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Income before income taxes | $9,471 | $392 | $225 | | Income tax (benefit) expense | $(47) | $135 | $(46) | | Effective tax rate | (0.5)% | 34.6% | (20.4)% | - The effective tax rate decreased to (0.5)% in Q1 2023 from 34.6% in Q4 2022, primarily due to the preliminary gain on acquisition from the SVBB Acquisition[324] RESULTS BY BUSINESS SEGMENT General Banking | Metric (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net Income | $202 | $212 | $126 | | Loans and leases | $43,353 | $42,921 | $38,528 | | Deposits | $85,982 | $84,361 | $85,458 | - Net income decreased slightly from Q4 2022 due to higher noninterest expenses, despite increased NII and noninterest income[330] - Loan growth was concentrated in commercial and business loans, and consumer mortgage loans increased due to lower prepayments[331] - Deposit growth was primarily in the Direct Bank, specifically in time and savings accounts[332] Commercial Banking | Metric (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net Income | $94 | $99 | $121 | | Loans and leases | $28,684 | $27,782 | $26,922 | | Deposits | $3,045 | $3,225 | $4,698 | - Net income decreased from Q4 2022 due to higher noninterest expenses, partially offset by lower provision for credit losses[335] - Loan growth was observed in real estate, maritime, healthcare, and commercial mortgages[336] Silicon Valley Banking | Metric (millions) | Q1 2023 (5 days) | | :--- | :--- | | Net Income | $35 | | Loans and leases | $66,171 | | Deposits | $49,259 | - Q1 2023 results for SVB reflect only five days of operations post-acquisition and are not indicative of future performance[338] - SVB loans declined from $68.50 billion at acquisition to $66.17 billion at March 31, 2023, due to maturities and paydowns[340] - SVB deposits declined from $55.96 billion at acquisition to $49.26 billion at March 31, 2023, due to banking industry uncertainty[341] Rail | Metric (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net Income | $22 | $24 | $32 | | Rental income on operating leases | $176 | $168 | $159 | | Adjusted rental income on operating lease equipment (non-GAAP) | $74 | $76 | $75 | | Operating lease equipment, net | $7,612 | $7,433 | $7,251 | - Net income and adjusted rental income on operating leases slightly decreased from Q4 2022 due to higher maintenance costs, despite increased rental income from more railcars and higher re-lease rates[344] - Average re-pricing of equipment upon lease maturities was 137.0% of the prior lease rate, and railcar utilization improved to 97.9% at March 31, 2023[345] - The total operating lease fleet increased to approximately 119,700 railcars at March 31, 2023[346] Corporate | Metric (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net Income (Loss) | $9,165 | $(78) | $(8) | | Net interest income | $13 | $35 | $24 | | Provision for credit losses | $720 | $5 | $513 | | Noninterest income | $9,809 | $14 | $453 | | Noninterest expense | $96 | $105 | $110 | - Q1 2023 results were significantly impacted by a $9.82 billion preliminary gain on acquisition and a $716 million day 2 provision for credit losses related to the SVBB Acquisition[350] - Q4 2022 income tax expense included $55 million related to the strategic decision to surrender $1.25 billion of BOLI policies[351] BALANCE SHEET ANALYSIS INTEREST-EARNING ASSETS - Interest-earning deposits at banks increased to $38.52 billion at March 31, 2023, from $5.03 billion at December 31, 2022, primarily due to $33.93 billion acquired in the SVBB Acquisition and increased liquidity[353] - The carrying value of investment securities increased slightly to $19.53 billion at March 31, 2023, from $19.37 billion at December 31, 2022[355] - Investment securities available for sale had a net pre-tax unrealized loss of $894 million at March 31, 2023, improving from $972 million at December 31, 2022[356] - Assets held for sale increased to $94 million at March 31, 2023, from $60 million at December 31, 2022, primarily due to SVB portfolio loans[362] | Loans and Leases (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Loans and Leases | $138,288 | $70,781 | | Commercial | $54,390 | $53,455 | | Consumer | $17,727 | $17,326 | | Silicon Valley Banking | $66,171 | $0 | - The increase in loans and leases is primarily due to $66.17 billion of SVB loans acquired[364] OPERATING LEASE EQUIPMENT, NET | Operating Lease Equipment (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Railcars and locomotives | $7,612 | $7,433 | | Other equipment | $719 | $723 | | Total | $8,331 | $8,156 | INTEREST-BEARING LIABILITIES | Deposits (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Deposits | $140,050 | $89,408 | | Noninterest-bearing demand | $54,649 | $24,922 | | Interest-bearing | $85,401 | $64,486 | - Total deposits increased by $50.64 billion, primarily due to $49.26 billion of SVB deposits and growth in the Direct Bank and community association banking[370] - Estimated uninsured deposits were $69.96 billion (50% of total deposits) at March 31, 2023, up from $29.13 billion (33%) at December 31, 2022, reflecting SVB deposits[374] | Borrowings (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Borrowings | $46,094 | $6,645 | | Federal Deposit Insurance Corporation (Purchase Money Note) | $35,151 | $0 | | Federal Home Loan Bank borrowings | $8,500 | $4,250 | - The increase in borrowings is primarily due to the $35.15 billion Purchase Money Note from the SVBB Acquisition and net increases in FHLB borrowings[376] RISK MANAGEMENT CREDIT RISK - Credit risk is managed through underwriting, periodic reviews, and maintaining an appropriate Allowance for Credit Losses (ACL)[386] - SVB loans are graded using a rating system from Silicon Valley Bank, with ACL estimated based on PD, LGD, and EAD over the exposure's life, and qualitative adjustments for uncaptured risks[391][392] | ACL (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total ACL | $1,605 | $922 | | ACL as % of Total Loans | 1.16% | 1.30% | | SVB ACL | $662 | $0 | - The $683 million increase in ACL is primarily due to the SVBB Acquisition, including a $200 million Initial PCD ACL and a $462 million Day 2 provision for loans and leases[395] | Non-Performing Assets (millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Non-Performing Assets | $875 | $674 | | Non-Accrual Loans | $828 | $627 | | OREO | $47 | $47 | | Ratio of Non-Performing Assets to Total Loans, Leases and OREO | 0.63% | 0.95% | - Non-accrual loans increased by $201 million due to $224 million from the SVBB Acquisition[403] - SVB loans are concentrated in Global Fund Banking (55% of SVB loans), Technology and Life Science/Healthcare (25% of SVB loans), and Private Banking (14% of SVB loans)[415][417][418][419] | SVB Loans - State Concentrations | March 31, 2023 (% of Total) | | :--- | :--- | | California | 30.1% | | New York | 15.3% | | Massachusetts | 14.6% | | Texas | 6.9% | | Connecticut | 6.8% | MARKET RISK - BancShares is exposed to interest rate risk, managed through NII Sensitivity (short-term earnings) and EVE Sensitivity (long-term equity value)[424][425][426] - The SVBB Acquisition significantly increased the balance sheet and changed rate sensitivity, with most acquired loans having variable rates and a fixed-rate Purchase Money Note[429] | NII Sensitivity Simulation Analysis | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | -100 bps change | (11.1)% | (4.0)% | | +100 bps change | 11.1% | 3.4% | | +200 bps change | 22.0% | 6.7% | - BancShares maintains an asset-sensitive interest rate risk profile, with approximately 65%-70% of loans having floating contractual reference rates[432] | EVE Sensitivity Modeling Analysis | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | -100 bps change | (6.1)% | (5.3)% | | +100 bps change | 5.3% | 4.1% | | +200 bps change | 10.0% | 3.0% | - BancShares is transitioning from LIBOR to SOFR as its preferred replacement index for floating-rate instruments, with processes in place to manage the transition[444][445][446] LIQUIDITY RISK - BancShares maintains a strong liquidity position with $51.42 billion in liquid assets and $79.49 billion in contingent liquidity sources at March 31, 2023[451] | Liquidity Sources (millions) | March 31, 2023 | | :--- | :--- | | Available Cash | $37,670 | | High Quality Liquid Securities | $13,745 | | FHLB Capacity | $4,712 | | FRB Capacity | $4,676 | | FDIC Credit Facility | $70,000 | - FHLB borrowings increased to $8.50 billion at March 31, 2023, from $4.25 billion at December 31, 2022, to enhance liquidity during banking uncertainty[454] - The FDIC Credit Facility provides up to $70 billion for liquidity support, including deposit withdrawal or runoff and funding unfunded commercial lending commitments acquired in the SVBB Acquisition[457] | Contractual Obligations (millions) | Less than 1 year | 1-3 years | 4-5 years | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Time deposits | $9,199 | $3,718 | $86 | $125 | $13,128 | | Long-term obligations | $476 | $8,259 | $35,708 | $642 | $45,085 | | Total Contractual Obligations | $10,684 | $11,977 | $35,794 | $767 | $59,222 | | Commitments (millions) | Less than 1 year | 1-3 years | 4-5 years | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Financing commitments | $48,696 | $14,112 | $5,656 | $6,043 | $74,507 | | Letters of credit | $3,614 | $295 | $118 | $12 | $4,039 | | Deferred purchase agreements | $1,707 | $0 | $0 | $0 | $1,707 | | Total Commitments | $55,271 | $14,954 | $5,793 | $6,095 | $82,113 | CAPITAL - The SVBB Acquisition increased BancShares' total assets from $109.30 billion at December 31, 2022, to $214.66 billion at March 31, 2023, requiring compliance with enhanced prudential standards for Category IV banking organizations[461] - BancShares paid a quarterly dividend of $0.75 per common share in Q1 2023 and declared the same for Q2 2023[463] | Capital Ratio | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Risk-Based Capital | 14.86% | 13.18% | | Tier 1 Risk-Based Capital | 13.13% | 11.06% | | Common Equity Tier 1 | 12.53% | 10.08% | | Tier 1 Leverage Ratio | 16.72% | 8.99% | - BancShares' stockholders approved increasing authorized shares of Class A Common Stock from 16 million to 32 million and Preferred Stock from 10 million to 20 million[466] CRITICAL ACCOUNTING ESTIMATES - The Allowance for Credit Losses (ACL) and fair values of acquired loans and core deposit intangibles from business combinations are considered critical accounting estimates[470][471] - Fair value estimates for the SVBB Acquisition involved significant management judgment regarding discount rates, future cash flows, and market conditions, which are subject to change[471] RECENT ACCOUNTING PRONOUNCEMENTS - ASU 2020-04, ASU 2021-01, and ASU 2022-06 (Reference Rate Reform) provide optional expedients for contract modifications and hedging relationships related to LIBOR transition, with the sunset date extended to December 31, 2024[473] - ASU 2023-02 (Investments—Equity Method and Joint Ventures) allows entities to elect the proportional amortization method (PAM) for qualifying tax equity investments, effective January 1, 2024[473] - ASU 2022-03 (Fair Value Measurement) clarifies that contractual sale restrictions on equity securities are not considered in fair value measurement, effective January 1, 2024[473] NON-GAAP FINANCIAL MEASUREMENTS - BancShares provides non-GAAP financial measures to offer additional data for evaluating operations, believing they provide transparency and an alternate means of assessing results[474] - Adjusted rental income on operating lease equipment for the Rail segment is a non-GAAP measure calculated as gross revenue less depreciation and maintenance, used to monitor segment profitability[476] | Rail Segment Adjusted Rental Income (millions) | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net income (GAAP) | $22 | $24 | $32 | | Adjusted rental income on operating lease equipment (non-GAAP) | $74 | $76 | $75 | Forward-Looking Statements - The report contains forward-looking statements subject to inherent risks and uncertainties, including competitive, economic, political, and market conditions, interest rate fluctuations, and regulatory actions[480][481] - Risks related to the SVBB Acquisition include integration challenges, potential loss of customers or key employees, and unanticipated costs[481] Item 3. Quantitative and Qualitative Disclosures about Market Risk The market risk profile has changed due to the SVBB Acquisition, with details discussed in Item 2 - BancShares' market risk profile changed significantly since December 31, 2022, primarily due to the SVBB Acquisition[483] - Market risk is the potential economic loss from changes in market prices and interest rates, affecting fair values of financial instruments or net interest income[483] Item 4. Controls and Procedures Disclosure controls were effective, and evaluation of internal controls for the SVBB Acquisition is ongoing - Disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance for timely and accurate financial reporting[484] - The evaluation of changes to internal control over financial reporting related to the SVBB Acquisition is ongoing, with new controls designed and implemented as needed[485] - No other material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[485] Part Two — Other Information Item 1. Legal Proceedings Management believes no current legal actions would materially affect the consolidated financial statements - BancShares is a defendant in various legal actions, including those from acquired banks, but management believes no current actions are material to the consolidated financial statements[487] - Further details on legal proceedings are provided in Note 22 — Commitments and Contingencies[487] Item 1A. Risk Factors This section outlines new and updated risk factors related to the SVBB Acquisition and industry volatility - New and updated risk factors are primarily related to the SVBB Acquisition and recent banking industry volatility[488] - Strategic risks include challenges in integrating SVBB operations, potential loss of customers or key employees, and the possibility of not realizing anticipated benefits from the acquisition[490][493][494] - Credit risks are heightened by concentrations in certain industries (technology, life science, healthcare, private equity, venture capital, rail) and the potential for losses not fully covered by the Shared-Loss Agreement[491][498][499] - Market risks include significant market volatility, regulatory uncertainty, and decreased confidence in the U.S banking system due to recent bank failures, potentially leading to deposit volatility and special FDIC assessments[500][501][502] - Liquidity risks involve potential pressure on balance sheet liquidity and reliance on non-core funding sources, including the FDIC Credit Facility, which are dependent on collateral availability and counterparty willingness[503][504] - Capital adequacy risks include increased indebtedness from the $35 billion Purchase Money Note, which could limit additional financing, restrict dividends, and increase vulnerability to economic conditions[506] - Financial reporting risks stem from the preliminary valuation of the SVBB Acquisition, which involves significant estimates subject to change, particularly for acquired loans with unique credit profiles and intangible assets[508] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no repurchases of BancShares' stock during the three months ended March 31, 2023 - No repurchases of BancShares' stock occurred during the three months ended March 31, 2023[509] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements and certifications - Key exhibits include the Purchase and Assumption Agreement, Purchase Money Note, and Commercial Shared-Loss Agreement related to the SVBB Acquisition[510] - Certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are filed herewith[510] - Inline XBRL Instance Document and Taxonomy Extension files are furnished[510] Signatures This section contains the signature of the registrant confirming the filing of the report - The report is signed by Craig L Nix, Chief Financial Officer of First Citizens BancShares, Inc, on May 10, 2023[512]