# FIRST CITIZENS BANCSHARES INC /DE/ (FCNCA) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from FIRST CITIZENS BANCSHARES INC /DE/'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/798941/000079894124000018/fcnca-20231231.htm Accession: 0000798941-24-000018 Filing date: 2024-02-23 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/FCNCA/ All MD&A years: /company/FCNCA/mda/ Previous year: /company/FCNCA/mda/fy2022/ (FY 2022) Next year: /company/FCNCA/mda/fy2024/ (FY 2024) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis (“MD&A”) of earnings and related financial data is presented to assist in understanding BancShares’ financial condition and results of operations. Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this MD&A refer to our consolidated financial condition and results of operations. This MD&A is expected to provide our investors with a view of our financial condition and results of operations from our management’s perspective. This MD&A should be read in conjunction with the audited consolidated financial statements and Notes to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Throughout this MD&A, references to a specific “Note” refer to Notes to the Consolidated Financial Statements. Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform with financial statement presentations for 2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported. Refer to Note 1—Significant Accounting Policies and Basis of Presentation. Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of BancShares. See the "Non-GAAP Financial Measurements" section of this MD&A for a reconciliation of these financial measures to the most directly comparable financial measures in accordance with GAAP. On March 27, 2023, we completed the SVBB Acquisition. The SVBB Acquisition is described further below in the “Significant Events in 2023” section of this MD&A and in Note 2—Business Combinations. BancShares’ financial data for periods prior to the SVBB Acquisition does not include any amounts related to SVBB and, therefore, may not be directly comparable to financial data as of or for the year ended December 31, 2023. The SVBB Acquisition is a primary reason for many of the increases in 2023 compared to 2022 as discussed below in the “Results of Operations” and “Balance Sheet” sections of this MD&A. Comparisons of the financial data as of and for the years ended December 31, 2022 and 2021 are contained in Item 7. of BancShares’ Annual Report on Form 10-K as of and for the year ended December 31, 2022 filed with the SEC on February 24, 2023 and available through FCB’s investor relations website www.ir.firstcitizens.com or the SEC’s EDGAR database. EXECUTIVE OVERVIEW Key Strategic Objectives BancShares defines strategic priorities to further our vision and align goals to drive productivity throughout the organization. Our strategic priorities center around the themes summarized below. •Client-focused business model ◦Maximize growth opportunities in our primary lines of business and optimize funding through core deposit growth. ◦Deliver specialized business solutions to our customers. ◦Remain a key partner to the innovation economy. •Talent and culture ◦Attract, retain and develop associates who align with our long-term direction and culture, while scaling for continued growth. ◦Continue to build a leading culture based on behaviors that demonstrate our values. •Operational efficiency ◦Execute integration related to the SVBB Acquisition to optimize revenue and deliver synergies, while retaining and growing our client base. ◦Remain focused on balance sheet management to optimize our long-term liquidity position. •Regulatory readiness ◦Support regulatory readiness and successfully address enhanced regulatory requirements. ◦Continue to enhance the compliance program to support compliance and position BancShares for future growth. 47 Significant Events in 2023 SVBB Acquisition Significant financial impacts of the SVBB Acquisition are summarized below:  •The fair value of total assets acquired was $107.54 billion, which mainly consisted of approximately $68.47 billion of loans and $35.31 billion of cash and interest-earning deposits at banks. •The fair value of deposits assumed was $56.01 billion. •The core deposit intangible was $230 million. •The preliminary after tax gain on acquisition was $9.81 billion, representing the excess of the net assets acquired over the purchase price. •The purchase price consideration included the Purchase Money Note payable to the FDIC with an estimated fair value of $35.81 billion, which represents the book value of net assets acquired less the asset discount of $16.45 billion and the fair value discount of $264 million on the Purchase Money Note. The SVBB Acquisition is further discussed in Note 2—Business Combinations. Segment Updates In conjunction with the SVBB Acquisition, BancShares added the SVB segment. Prior periods were not impacted by this update. Information about our segments is included in Note 23—Business Segment Information and in the section entitled “Results by Business Segment” in this MD&A. Recent Economic and Industry Developments During the first half of 2023, the FOMC continued to raise its target for the federal funds rate in an effort to combat inflation. The FOMC raised interest rates at each of its January, March, May and July meetings by 25 bps. However, the FOMC did not raise interest rates during its June, September and December meetings, and the benchmark federal funds rate was maintained at a range between 5.25% - 5.50%. Although future rate hikes are possible, there is optimism that the FOMC’s interest rate is likely at or near its peak for this tightening cycle, and the Federal Reserve has signaled it may cut rates in 2024. The FOMC reported that it will continue to monitor economic and financial market developments and the effects of their earlier rate increases in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time. Although the FOMC has made progress combating inflation, efforts to control inflation have raised concerns over the possibility of a recession. In addition, geopolitical events, including the ongoing conflicts in Ukraine and the Middle East are likely to maintain upward pressure on inflation and weigh on economic activity. Also, mortgage rates increased during 2023 and mortgage demand from homebuyers softened. The timing and impact of inflation, volatility in the stock market, rising interest rates, and a possible recession will depend on future developments, which are highly uncertain and difficult to predict. Early in 2023, the banking industry experienced increased volatility, resulting in the failure of multiple regional banking institutions. These failures have increased industry concerns related to capital and liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on investment securities. More recently, there is growing concern in the banking industry about the exposure to certain sectors of CRE, and credit trends in these exposures may deteriorate. The federal banking agencies issued several notices of proposed rulemaking (“NPR”), that if and/or when finalized, may impact BancShares and FCB. The FDIC finalized an NPR covering a special assessment to recover losses associated with protecting uninsured depositors following the closures of Silicon Valley Bank, Signature Bank, and First Republic Bank. The federal banking agencies issued an NPR covering enhanced capital requirements and one discussing the requirement to maintain a certain level of long-term debt. These NPRs are discussed above in Item 1. Business of this Annual Report on Form 10-K, in the section entitled “Regulatory Considerations.” Financial Performance Summary The following tables in this MD&A include financial data for the years ended December 31, 2023 (the “current year”), December 31, 2022 (the “prior year”), and December 31, 2021. Financial position data includes balances as of December 31, 2023, 2022, and 2021. As mentioned above, we focus our discussion on trends for 2023 compared to 2022. The SVBB Acquisition is a primary reason for many of the increases in 2023 compared to 2022 as discussed below and in the “Results of Operations” and “Balance Sheet” sections of this MD&A. 48 The following table summarizes BancShares’ results in accordance with GAAP, unless otherwise noted. Refer to the section entitled “Non-GAAP Financial Measurements” at the end of this MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Table 1 Selected Financial Data [[GREPCENT_TABLE]] [["dollars in millions, except share data","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Results of Operations:"],["Interest income","","","","","","","$","10,391","","","$","3,413","","","$","1,451"],["Interest expense","","","","","","","3,679","","","467","","","61"],["Net interest income","","","","","","","6,712","","","2,946","","","1,390"],["Provision (benefit) for credit losses","","","","","","","1,375","","","645","","","(37)"],["Net interest income after provision for credit losses","","","","","","","5,337","","","2,301","","","1,427"],["Noninterest income","","","","","","","12,075","","","2,136","","","508"],["Noninterest expense","","","","","","","5,335","","","3,075","","","1,234"],["Income before income taxes","","","","","","","12,077","","","1,362","","","701"],["Income tax expense","","","","","","","611","","","264","","","154"],["Net income","","","","","","","11,466","","","1,098","","","547"],["Preferred stock dividends","","","","","","","59","","","50","","","18"],["Net income available to common stockholders","","","","","","","$","11,407","","","$","1,048","","","$","529"],["Per Common Share Information:"],["Average diluted common shares outstanding","","","","","","","14,539,613","","","15,549,944","","","9,816,405"],["Earnings per diluted common share","","","","","","","$","784.51","","","$","67.40","","","$","53.88"],["Key Performance Metrics:"],["Return on average assets","","","","","","","5.90","%","","1.01","%","","1.00","%"],["Net interest margin (1)","","","","","","","3.92","","","3.16","","","2.68"],["Select Average Balances:"],["Investment securities","","","","","","","$","23,112","","","$","19,166","","","$","10,611"],["Total loans and leases (2)","","","","","","","119,234","","","67,787","","","32,860"],["Operating lease equipment, net","","","","","","","8,495","","","7,982","","","\u2014"],["Total assets","","","","","","","194,281","","","108,915","","","54,983"],["Total deposits","","","","","","","130,590","","","89,916","","","48,258"],["Total stockholders\u2019 equity","","","","","","","17,937","","","10,276","","","4,461"],["Select Ending Balances:"],["Investment securities","","","","","","","$","29,999","","","$","19,369","","","$","13,110"],["Total loans and leases","","","","","","","133,302","","","70,781","","","32,372"],["Operating lease equipment, net","","","","","","","8,746","","","8,156","","","\u2014"],["Total assets","","","","","","","213,758","","","109,298","","","58,309"],["Total deposits","","","","","","","145,854","","","89,408","","","51,406"],["Total stockholders\u2019 equity","","","","","","","21,255","","","9,662","","","4,738"],["Loan to deposit ratio","","","","","","","91.39","%","","79.17","%","","62.97","%"],["Noninterest-bearing deposits to total deposits","","","","","","","27.29","","","27.87","","","41.64"],["Capital Ratios:"],["Common equity Tier 1","","","","","","","13.36","%","","10.08","%","","11.50","%"],["Tier 1 risk-based capital","","","","","","","13.94","","","11.06","","","12.47"],["Total risk-based capital","","","","","","","15.75","","","13.18","","","14.35"],["Tier 1 leverage","","","","","","","9.83","","","8.99","","","7.59"],["Asset Quality:"],["Ratio of nonaccrual loans to total loans","","","","","","","0.73","%","","0.89","%","","0.37","%"],["Allowance for loan and lease losses to loans ratio","","","","","","","1.31","","","1.30","","","0.55"],["Net charge off ratio","","","","","","","0.47","","","0.12","","","0.03"]] [[/GREPCENT_TABLE]] (1)     Calculated net of average credit balances and deposits of factoring clients. (2)     Average loan balances include loans held for sale and nonaccrual loans. 49 Income Statement Highlights •Net income for the current year was $11.47 billion, an increase of $10.37 billion from $1.10 billion for the prior year. Net income available to common stockholders for the current year was $11.41 billion, an increase of $10.36 billion from $1.05 billion for the prior year. The increases were primarily related to the preliminary gain on the SVBB Acquisition, which was $9.38 billion higher than the gain on the CIT Merger, and higher net interest income. The increases were partially offset by higher noninterest expense, income tax expense, and the provision for Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases (the “day 2 provision for loan and lease losses”) and the provision for off-balance sheet credit exposures acquired in the SVBB Acquisition (the “day 2 provision for off-balance sheet credit exposure” and, collectively with the day 2 provision for allowance and lease losses, the “day 2 provisions for credit losses”). Net income per diluted common share for the current year was $784.51, an increase from $67.40 for the prior year. •The current year included the following select items: ◦a preliminary after tax gain of $9.81 billion on the SVBB Acquisition, ◦day 2 provisions for credit losses of $716 million related to the SVBB Acquisition, ◦acquisition-related expenses of $470 million, and ◦an FDIC insurance special assessment of $64 million. •The prior year included the following select items: ◦a gain of $431 million on the CIT Merger, ◦day 2 provisions for credit losses of $513 million related to the CIT Merger, ◦acquisition-related expenses of $231 million, and ◦a reduction in other noninterest expense of $27 million for the termination of certain legacy CIT retiree benefits, reflecting amounts previously accrued. •Return on average assets for the current year was 5.90% compared to 1.01% for the prior year. The increase was primarily related to higher net income described above. •Net interest income (“NII”) for the current year was $6.71 billion, an increase of $3.77 billion or 128% from $2.95 billion for the prior year. This increase was primarily related to the loans and interest-earning deposits at banks acquired in the SVBB Acquisition, higher purchase accounting accretion for loans, higher interest income from organic loan growth and a larger investment portfolio, and higher yields from interest rate increases. The increases in interest income were partially offset by higher deposit costs, reflecting increased rates and a higher average balance (due to the SVBB Acquisition and deposit growth in the Direct Bank), and higher borrowing costs (primarily due to the Purchase Money Note). •Net interest margin (“NIM”) for the current year was 3.92%, an increase of 76 bps compared to 3.16% for the prior year. The increase in NIM was related to the increases in NII discussed above. •Provision for credit losses for the current year was $1.38 billion, an increase of $730 million or 113% from $645 million for the prior year. The increase was primarily related to the provision for loans and leases as a result of higher net charge-offs, as further discussed in the ALLL section of this MD&A, higher loan and lease balances, and the day 2 provisions for credit losses (which were $203 million higher in the SVBB Acquisition compared to the CIT Merger). •Noninterest income for the current year was $12.08 billion, an increase of $9.94 billion from $2.14 billion for the prior year. The increase was primarily related to the higher preliminary gain on acquisition discussed above and increases in client investment fees, international fees, and fee income and other service charges as a result of the SVBB Acquisition. Service charges on deposit accounts also increased, mainly due to deposit growth. •Noninterest expense for the current year was $5.34 billion, an increase of $2.26 billion or 74% from $3.08 billion for the prior year. The increase was primarily related to higher salaries and benefits and acquisition-related expenses resulting from the SVBB Acquisition. Refer to the “Results of Operations” section of this MD&A for further discussion. 50 Balance Sheet Highlights •Total loans and leases at December 31, 2023 were $133.30 billion, an increase of $62.52 billion or 88% from $70.78 billion at December 31, 2022. The increase was primarily related to SVB segment loans of $55.01 billion as of December 31, 2023, along with organic loan growth in the General and Commercial Banking segments. While SVB segment loans declined subsequent to the SVBB Acquisition, mostly concentrated in the Global Fund Banking loan portfolio, this was offset by business and commercial loan growth in the General Banking segment and growth in the Commercial Banking segment across certain industry verticals. •Total investment securities at December 31, 2023 were $30.00 billion, an increase of $10.63 billion or 55% from $19.37 billion at December 31, 2022. The increase was primarily due to purchases of short-duration U.S. Treasuries and U.S. agency mortgage-backed investment securities available for sale. •Total deposits at December 31, 2023 were $145.85 billion, an increase of $56.45 billion or 63% from $89.41 billion at December 31, 2022. The increase from December 31, 2022 included $38.48 billion of SVB segment deposits as of December 31, 2023 and strong deposit growth in the Direct Bank, which is reported in the General Banking segment. Trends in SVB segment deposits are discussed below. •Total borrowings at December 31, 2023 were $37.65 billion, an increase of $31.01 billion from $6.65 billion at December 31, 2022. The increase was mainly due to the Purchase Money Note of $35.85 billion as of December 31, 2023 as discussed in Note 2—Business Combinations, partially offset by repayments of FHLB borrowings. •At December 31, 2023, BancShares remained well capitalized with a total risk-based capital ratio of 15.75%, a Tier 1 risk-based capital ratio of 13.94%, a common equity Tier 1 ratio of 13.36% and a Tier 1 leverage ratio of 9.83%. Funding, Liquidity and Capital Overview Deposit Composition We fund our business primarily through deposits. Deposits represented approximately 79.5% of total funding at December 31, 2023. The following table summarizes the composition, average size and uninsured percentages of our deposits. Table 2 Select Deposit Data [[GREPCENT_TABLE]] [["","Deposits as of December 31, 2023"],["","Ending Balance (in millions)","","Average Size (in thousands)","","Uninsured %"],["General Banking segment","$","102,647","","","$","38","","24","%"],["Commercial Banking segment","3,228","","","272","","86"],["SVB segment","38,477","","","308","","71"],["Rail segment and Corporate","1,502","","","n/m","","4"],["Total","$","145,854","","","52","","37"]] [[/GREPCENT_TABLE]] The General Banking segment includes deposits from our branch network, which deploys a relationship-based approach to deposit gathering. The remaining deposits in the General Banking segment are primarily related to the Direct Bank, a nationwide digital bank, which enables us to increase deposits to meet the needs of our business, albeit at a higher incremental cost compared to the branch network. The Commercial Banking segment includes deposits of commercial customers, and the SVB segment includes deposits related to the SVBB Acquisition. The remainder of deposits primarily include brokered deposits of $1.49 billion in Corporate and $13 million of deposits in the Rail segment. As displayed in the table above, the average size of deposits varies across our business segments. The uninsured data represents the percentage of deposits in the respective segments and Corporate. At December 31, 2023, total uninsured deposits were approximately $54.15 billion or 37% of total deposits. This represents an increase in uninsured deposits from $29.13 billion or 33% of total deposits at December 31, 2022 due to deposits in the SVB segment, which have higher average account balance. 51 Deposit Trends Table 3 Deposit Trends [[GREPCENT_TABLE]] [["(dollars in millions)","Deposit Balance"],["","","","","","","","","","","","","","Acquisition Date"],["","December 31, 2023","","September 30, 2023","","June 30, 2023","","April 28, 2023","","April 14, 2023","","March 31, 2023","","March 27, 2023","","December 31, 2022"],["SVB segment","$","38,477","","","$","39,970","","","$","40,860","","","$","41,425","","","$","41,336","","","$","49,259","","","$","56,014","","","$","\u2014"],["General Banking, Commercial Banking, and Rail segments and Corporate","107,377","","","106,263","","","100,304","","","92,447","","","92,149","","","90,791","","","\u2014","","","89,408"],["Total deposits","$","145,854","","","$","146,233","","","$","141,164","","","$","133,872","","","$","133,485","","","$","140,050","","","","","$","89,408"]] [[/GREPCENT_TABLE]] SVB deposits declined from $56.01 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023. As shown in the table above, SVB deposits began to stabilize in the second quarter. The table above also indicates that aggregate deposits for the General Banking, Commercial Banking, and Rail segments and Corporate increased during 2023, primarily from deposit growth in the Direct Bank, which is included in the General Banking segment. Liquidity Position We strive to maintain a strong liquidity position, and our risk appetite for liquidity is low. At December 31, 2023, liquidity metrics remained strong as we had $57.28 billion in liquid assets consisting of $32.69 billion in cash and interest-earning deposits at banks (primarily held at the Federal Reserve) and $24.59 billion in high-quality liquid securities. We have unused borrowing capacity with the FHLB and Federal Reserve of $13.62 billion and $5.12 billion, respectively. FCB and the FDIC, as lender and as collateral agent, also entered into the Advance Facility Agreement, dated as of March 27, 2023, and effective as of November 20, 2023, providing total advances available through March 27, 2025 of up to $70 billion, subject to limits subsequently described in this MD&A as referenced below, solely to provide liquidity to offset deposit withdrawal or runoff of former SVBB deposit accounts and to fund the unfunded commercial lending commitments acquired in the SVBB Acquisition. The immediate available capacity of the Advance Facility Agreement was $15.11 billion at December 31, 2023. Refer to the “Liquidity Risk” section of this MD&A for further discussion. Investment Securities Duration At December 31, 2023, our investment securities portfolio primarily consisted of debt securities available for sale and held to maturity as summarized below. The duration of our investment securities was approximately 2.9 years at December 31, 2023. The investment securities available for sale portfolio had an average duration of 2.2 years and the held to maturity portfolio had an average duration of 4.4 years. Refer to the “Interest-earning Assets - Investment securities” section of this MD&A and Note 3—Investment Securities for further information. Table 4 Investment Securities [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023"],["","Composition(1)","","Amortized cost","","Fair value","","","","","","","","Fair value to cost"],["Total investment securities available for sale","69.8","%","","$","20,688","","","$","19,936","","","","","","","","","96.4","%"],["Total investment securities held to maturity","29.9","","","9,979","","","8,503","","","","","","","","","85.2"],["Investment in marketable equity securities","0.3","","","75","","","84","","","","","","","","","112.0"],["Total investment securities","100","%","","$","30,742","","","$","28,523"],["(1) Calculated as a percentage of the total fair value of investment securities."]] [[/GREPCENT_TABLE]] Capital Position Our capital position remains strong, and all Regulatory Capital Ratios for BancShares and FCB significantly exceed the PCA well capitalized thresholds and Basel III Requirements as further discussed in the “Capital” section of this MD&A and Note 19—Regulatory Capital. 52 RESULTS OF OPERATIONS NET INTEREST INCOME AND NET INTEREST MARGIN NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The following tables present the average balances, yields on interest-earning assets, rates on interest-bearing liabilities, and changes in NII due to changes in: (i) volume (average balances of interest-earning assets and interest-bearing liabilities) and (ii) yields or rates. •The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the prior period. •The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance from the prior period. •The change in NII due to rate/volume change (i.e., portfolio mix) is calculated as the change in rate multiplied by the change in volume. This component is allocated between the changes in NII due to volume and yield or rate based on the ratio each component bears to the absolute value of their total. •Tax equivalent NII was not materially different from NII, therefore we present NII in our analysis. 53 Table 5 Average Balances and Rates [[GREPCENT_TABLE]] [["dollars in millions","Year Ended"],["","December 31, 2023","","December 31, 2022","","Change in NII Due to:"],["","Average Balance","","Income / Expense","","Yield / Rate","","Average Balance","","Income / Expense","","Yield / Rate","","Volume(1)","","Yield /Rate(1)","","Total Change"],["Loans and leases (1)(2)","$","117,708","","","$","8,187","","","6.95","%","","$","66,303","","","$","2,953","","","4.45","%","","$","3,035","","","$","2,199","","","$","5,234"],["Investment securities","23,112","","","640","","","2.77","","","19,166","","","354","","","1.85","","","84","","","202","","","286"],["Securities purchased under agreements to resell","161","","","8","","","5.20","","","\u2014","","","\u2014","","","\u2014","","","8","","","\u2014","","","8"],["Interest-earning deposits at banks","29,790","","","1,556","","","5.22","","","7,726","","","106","","","1.38","","","733","","","717","","","1,450"],["Total interest-earning assets (2)","$","170,771","","","$","10,391","","","6.08","%","","$","93,195","","","$","3,413","","","3.66","%","","$","3,860","","","$","3,118","","","$","6,978"],["Operating lease equipment, net","$","8,495","","","","","","","$","7,982"],["Cash and due from banks","879","","","","","","","512"],["Allowance for loan and lease losses","(1,495)","","","","","","","(875)"],["All other noninterest-earning assets","15,631","","","","","","","8,101"],["Total assets","$","194,281","","","","","","","$","108,915"],["Interest-bearing deposits"],["Checking with interest","$","22,296","","","$","402","","","1.80","%","","$","16,323","","","$","29","","","0.18","%","","$","14","","","$","359","","","$","373"],["Money market","27,567","","","618","","","2.24","","","23,949","","","125","","","0.52","","","22","","","471","","","493"],["Savings","26,121","","","963","","","3.69","","","14,392","","","117","","","0.81","","","158","","","688","","","846"],["Time deposits","14,946","","","514","","","3.44","","","8,934","","","64","","","0.72","","","68","","","382","","","450"],["Total interest-bearing deposits","90,930","","","2,497","","","2.75","","","63,598","","","335","","","0.53","","","262","","","1,900","","","2,162"],["Borrowings:"],["Securities sold under customer repurchase agreements","455","","","2","","","0.35","","","590","","","1","","","0.19","","","\u2014","","","1","","","1"],["Short-term FHLB borrowings","108","","","5","","","4.79","","","824","","","28","","","3.35","","","(32)","","","9","","","(23)"],["Short-term borrowings","563","","","7","","","1.20","","","1,414","","","29","","","2.03","","","(32)","","","10","","","(22)"],["Federal Home Loan Bank borrowings","2,307","","","120","","","5.22","","","1,414","","","43","","","3.01","","","35","","","42","","","77"],["Senior unsecured borrowings","608","","","14","","","2.21","","","1,348","","","25","","","1.89","","","(15)","","","4","","","(11)"],["Subordinated debt","1,043","","","39","","","3.65","","","1,056","","","33","","","3.15","","","\u2014","","","6","","","6"],["Other borrowings","27,322","","","1,002","","","3.67","","","64","","","2","","","3.22","","","1,000","","","\u2014","","","1,000"],["Long-term borrowings","31,280","","","1,175","","","3.75","","","3,882","","","103","","","2.66","","","1,020","","","52","","","1,072"],["Total borrowings","31,843","","","1,182","","","3.71","","","5,296","","","132","","","2.49","","","988","","","62","","","1,050"],["Total interest-bearing liabilities","$","122,773","","","$","3,679","","","3.00","%","","$","68,894","","","$","467","","","0.68","%","","$","1,250","","","$","1,962","","","$","3,212"],["Noninterest-bearing deposits","$","39,660","","","","","","","$","26,318"],["Credit balances of factoring clients","1,166","","","","","","","1,153"],["Other noninterest-bearing liabilities","12,745","","","","","","","2,274"],["Stockholders' equity","17,937","","","","","","","10,276"],["Total liabilities and stockholders\u2019 equity","$","194,281","","","","","","","$","108,915"],["Interest rate spread (2)","","","","","3.08","%","","","","","","2.98","%"],["Net interest income and net yield on interest-earning assets (2)","","","$","6,712","","","3.92","%","","","","$","2,946","","","3.16","%"]] [[/GREPCENT_TABLE]] (1)     Loans and leases include Non-PCD and Purchase Credit Deteriorated (“PCD”) loans, nonaccrual loans, and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. (2)    The balance and rate presented is calculated net of average credit balances and deposits of factoring clients. 54 2023 compared to 2022 •NII for the current year was $6.71 billion, an increase of $3.77 billion or 128% from $2.95 billion for the prior year. As discussed below, this increase was primarily due to the SVBB Acquisition as well as the higher rate environment. ◦Interest income earned on loans and leases for the current year was $8.19 billion, an increase of $5.23 billion or 177% from $2.95 billion for the prior year. The increase included a higher average loan and lease balance and benefited from the rising interest rate environment during 2023. The average loan balance increase reflected the SVBB Acquisition and loan growth in the General and Commercial Banking segments. The higher yield was due to multiple interest rate increases during 2023. In addition, purchase accounting accretion for loans was $733 million in the current year compared to $27 million in the prior year. ◦Interest income earned on investment securities for the current year was $640 million, an increase of $286 million or 81% from $354 million for the prior year. The increase was due to higher reinvestment rates and a higher average balance. ◦Interest income earned on interest-earning deposits at banks for the current year was $1.56 billion, an increase of $1.45 billion from $106 million for the prior year. The increase was fairly balanced between the impact from the higher average balance and from the higher federal funds rate. The higher average balance reflected the impact of the SVBB Acquisition. ◦Interest expense on interest-bearing deposits for the current year was $2.50 billion, an increase of $2.16 billion from $335 million for the prior year, reflecting higher deposit rates as we maintained competitive rates offered to customers, higher average balances due to the SVBB Acquisition, and organic growth, primarily in savings accounts in the Direct Bank. ◦Interest expense on borrowings for the current year was $1.18 billion, an increase of $1.05 billion from $132 million for the prior year, primarily due to the impact of the Purchase Money Note related to the SVBB Acquisition and higher rates for FHLB borrowings. In March of 2023, we increased FHLB borrowings to improve liquidity in light of market conditions that led to bank failures. We repaid all outstanding FHLB advances in the second and third quarters of 2023 as we continuously rebalanced our funding profile to match our funding needs. Refer to the “Interest-Bearing Liabilities – Borrowings” section in this MD&A for further discussion of FHLB borrowings. •NIM for the current year was 3.92%, an increase of 76 bps from 3.16% for the prior year. As discussed above, the benefit of the rising interest rate environment on our interest-earning assets and higher loan accretion exceeded the impacts of higher interest expense on interest-bearing deposits and borrowings. •Average interest-earning assets for the current year were $170.77 billion, an increase of $77.58 billion from $93.20 billion for the prior year, primarily reflecting increases noted above in average loans and leases, investment securities, and interest-earning deposits at banks. •Average interest-bearing liabilities for the current year were $122.77 billion, an increase of $53.88 billion from $68.89 billion for the prior year, reflecting higher average balances for both deposits and borrowings. The average rate paid on interest-bearing liabilities for the current year was 3.00%, an increase of 232 bps from 0.68% for the prior year, reflecting the higher interest rate environment and the Purchase Money Note. 55 Table 6 Average Balances and Rates [[GREPCENT_TABLE]] [["dollars in millions","Year Ended"],["","December 31, 2022","","December 31, 2021","","Change in NII Due to:"],["","Average Balance","","Income / Expense","","Yield / Rate","","Average Balance","","Income / Expense","","Yield / Rate","","Volume(1)","","Yield /Rate(1)","","Total Change"],["Loans and leases (1)(2)","$","66,303","","","$","2,953","","","4.45","%","","$","32,860","","","$","1,295","","","3.94","%","","$","1,470","","","$","188","","","$","1,658"],["Investment securities","19,166","","","354","","","1.85","","","10,611","","","145","","","1.37","","","145","","","64","","","209"],["Interest-earning deposits at banks","7,726","","","106","","","1.38","","","8,349","","","11","","","0.13","","","(1)","","","96","","","95"],["Total interest-earning assets (2)","$","93,195","","","$","3,413","","","3.66","%","","$","51,820","","","$","1,451","","","2.80","%","","$","1,614","","","$","348","","","$","1,962"],["Operating lease equipment, net","$","7,982","","","","","","","$","\u2014"],["Cash and due from banks","512","","","","","","","350"],["Allowance for loan and lease losses","(875)","","","","","","","(202)"],["All other noninterest-earning assets","8,101","","","","","","","3,015"],["Total assets","$","108,915","","","","","","","$","54,983"],["Interest-bearing deposits"],["Checking with interest","$","16,323","","","$","29","","","0.18","%","","$","11,258","","","$","6","","","0.05","%","","$","3","","","$","20","","","$","23"],["Money market","23,949","","","125","","","0.52","","","9,708","","","10","","","0.10","","","29","","","86","","","115"],["Savings","14,392","","","117","","","0.81","","","3,847","","","1","","","0.03","","","13","","","103","","","116"],["Time deposits","8,934","","","64","","","0.72","","","2,647","","","16","","","0.63","","","45","","","3","","","48"],["Total interest-bearing deposits","63,598","","","335","","","0.53","","","27,460","","","33","","","0.12","","","90","","","212","","","302"],["Borrowings:"],["Securities sold under customer repurchase agreements","590","","","1","","","0.19","","","660","","","1","","","0.20","","","\u2014","","","\u2014","","","\u2014"],["Short-term FHLB borrowings","824","","","28","","","3.35","","","\u2014","","","\u2014","","","\u2014","","","28","","","\u2014","","","28"],["Short-term borrowings","1,414","","","29","","","2.03","","","660","","","1","","","0.20","","","28","","","\u2014","","","28"],["Federal Home Loan Bank borrowings","1,414","","","43","","","3.01","","","648","","","8","","","1.30","","","17","","","18","","","35"],["Senior unsecured borrowings","1,348","","","25","","","1.89","","","\u2014","","","\u2014","","","\u2014","","","25","","","\u2014","","","25"],["Subordinated debt","1,056","","","33","","","3.15","","","498","","","18","","","3.36","","","16","","","(1)","","","15"],["Other borrowings","64","","","2","","","3.22","","","80","","","1","","","1.25","","","\u2014","","","1","","","1"],["Long-term borrowings","3,882","","","103","","","2.66","","","1,226","","","27","","","2.13","","","58","","","18","","","76"],["Total borrowings","5,296","","","132","","","2.49","","","1,886","","","28","","","1.45","","","86","","","18","","","104"],["Total interest-bearing liabilities","$","68,894","","","$","467","","","0.68","%","","$","29,346","","","$","61","","","0.21","%","","$","176","","","$","230","","","$","406"],["Noninterest-bearing deposits","$","26,318","","","","","","","$","20,798"],["Credit balances of factoring clients","1,153","","","","","","","\u2014"],["Other noninterest-bearing liabilities","2,274","","","","","","","378"],["Stockholders' equity","10,276","","","","","","","4,461"],["Total liabilities and stockholders\u2019 equity","$","108,915","","","","","","","$","54,983"],["Interest rate spread (2)","","","","","2.98","%","","","","","","2.59","%"],["Net interest income and net yield on interest-earning assets (2)","","","$","2,946","","","3.16","%","","","","$","1,390","","","2.68","%"]] [[/GREPCENT_TABLE]] (1)     Loans and leases include Non-PCD and PCD loans, nonaccrual loans, and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. (2)    The balance and rate presented is calculated net of average credit balances and deposits of factoring clients. 56 The following table includes the average interest-earning assets by category. The increase in interest-earning deposits at banks is due to the SVBB Acquisition. Table 7 Average Interest-earning Asset Mix [[GREPCENT_TABLE]] [["","","","","","","","% of Average Interest-earning Assets"],["","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Loans and leases","","","","","","","69","%","","71","%","","63","%"],["Investment securities","","","","","","","14","","","21","","","21"],["Interest-earning deposits at banks","","","","","","","17","","","8","","","16"],["Total interest-earning assets","","","","","","","100","%","","100","%","","100","%"]] [[/GREPCENT_TABLE]] The following table shows our average funding mix. The change from the prior year reflects the Purchase Money Note related to the SVBB Acquisition. Table 8 Average Interest-bearing Liability Mix [[GREPCENT_TABLE]] [["","","","","","","","% of Average Interest-bearing Liabilities"],["","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Total interest-bearing deposits","","","","","","","74","%","","92","%","","94","%"],["Securities sold under customer repurchase agreements","","","","","","","\u2014","","","1","","","\u2014"],["Other short-term borrowings","","","","","","","\u2014","","","1","","","2"],["Long-term borrowings","","","","","","","26","","","6","","","4"],["Total interest-bearing liabilities","","","","","","","100","%","","100","%","","100","%"]] [[/GREPCENT_TABLE]] PROVISION FOR CREDIT LOSSES The provision for credit losses for the current year was $1.38 billion, an increase of $730 million or 113% from $645 million for the prior year. The provision for credit losses included the day 2 provisions for credit losses of $716 million related to the SVBB Acquisition, which was comprised of $462 million for the day 2 provision for loans and lease losses and $254 million for the day 2 provision for off-balance sheet credit exposure. The day 2 provisions for credit losses were higher for the SVBB Acquisition in the current year than for the CIT Merger in the prior year. The remaining increase was due to credit quality deterioration in certain commercial portfolios, particularly general office, increases in specific reserves in the investor dependent portfolio, and deterioration in the macroeconomic forecast. The ALLL is further discussed in the “Critical Accounting Estimates” and “Credit Risk Management – Credit Risk – Allowance for Loan and Lease Losses” sections of this MD&A and in Note 5—Allowance for Loan and Lease Losses. Table 9 Provision for Credit Losses [[GREPCENT_TABLE]] [["dollars in millions","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Day 2 provision for loan and lease losses","","","","","","","$","462","","","$","454","","","$","\u2014"],["Provision (benefit) for loan and lease losses","","","","","","","703","","","97","","","(37)"],["Total provision (benefit) for loan and lease losses","","","","","","","1,165","","","551","","","(37)"],["Day 2 provision for off-balance sheet credit exposure","","","","","","","254","","","59","","","\u2014"],["(Benefit) provision for off-balance sheet credit exposure","","","","","","","(44)","","","35","","","\u2014"],["Total provision for off-balance sheet credit exposure","","","","","","","210","","","94","","","\u2014"],["Benefit for investment securities available for sale credit losses","","","","","","","\u2014","","","\u2014","","","\u2014"],["Provision (benefit) for credit losses","","","","","","","$","1,375","","","$","645","","","$","(37)"]] [[/GREPCENT_TABLE]] 57 NONINTEREST INCOME Noninterest Income Noninterest income is an essential part of our total revenue. The primary sources of noninterest income consist of rental income on operating lease equipment, fee income and other service charges, client investment fees, wealth management services, service charges generated from deposit accounts, cardholder and merchant services, international fees, factoring commissions, and insurance commissions. The current year includes noninterest income related to the SVBB Acquisition. We added client investment and international fees as new categories of noninterest income as a result of the SVBB Acquisition. Client investment fees are earned from discretionary investment management services for managing clients’ portfolios based on their investment policies, strategies and objectives. International fees primarily include foreign exchange fees that represent the income differential between purchases and sales of foreign currency on behalf of our clients, mostly from spot contracts. The remaining components of noninterest income that increased as a result of the SVBB Acquisition were aligned into pre-existing noninterest income categories and primarily included items such as fee income and other service charges, wealth management services, service charges on deposit accounts, and other noninterest income. Table 10 Noninterest Income [[GREPCENT_TABLE]] [["dollars in millions","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Rental income on operating lease equipment","","","","","","","$","971","","","$","864","","","$","\u2014"],["Other noninterest income:"],["Fee income and other service charges","","","","","","","268","","","155","","","35"],["Client investment fees","","","","","","","157","","","\u2014","","","\u2014"],["Wealth management services","","","","","","","188","","","142","","","129"],["International fees","","","","","","","93","","","10","","","7"],["Service charges on deposit accounts","","","","","","","156","","","98","","","95"],["Factoring commissions","","","","","","","82","","","104","","","\u2014"],["Cardholder services, net","","","","","","","139","","","102","","","87"],["Merchant services, net","","","","","","","48","","","35","","","33"],["Insurance commissions","","","","","","","54","","","47","","","16"],["Realized (loss) gain on sale of investment securities available for sale, net","","","","","","","(26)","","","\u2014","","","33"],["Fair value adjustment on marketable equity securities, net","","","","","","","(11)","","","(3)","","","34"],["Bank-owned life insurance","","","","","","","8","","","32","","","3"],["Gain on sale of leasing equipment, net","","","","","","","20","","","15","","","\u2014"],["Gain on acquisition","","","","","","","9,808","","","431","","","\u2014"],["Gain on extinguishment of debt","","","","","","","\u2014","","","7","","","\u2014"],["Other noninterest income","","","","","","","120","","","97","","","36"],["Total other noninterest income","","","","","","","11,104","","","1,272","","","508"],["Total noninterest income","","","","","","","$","12,075","","","$","2,136","","","$","508"]] [[/GREPCENT_TABLE]] Rental Income on Operating Lease Equipment Rental income on operating lease equipment was $971 million for the current year, an increase of $107 million or 12% from $864 million for the prior year. The current year benefited from a higher number of rail cars owned and leased, as well as higher re-pricing and utilization rates. Rental income is generated primarily in the Rail segment and, to a lesser extent, in the Commercial Banking segment. Revenue is generally dictated by the size of the portfolio, utilization of the railcars, re-pricing of equipment renewed upon lease maturities and pricing on new leases. Re-pricing refers to the rental rate in the renewed equipment contract compared to the prior contract. Refer to the Rail segment discussion in the “Results by Business Segment” section of this MD&A for further details. Other Noninterest Income Other noninterest income for the current year was $11.10 billion, an increase of $9.83 billion from $1.27 billion for the prior year. The increase was primarily due to the preliminary gain on the SVBB Acquisition. The remaining changes compared to the prior year reflect increases and decreases among various noninterest income accounts as follows: •Fee income and other service charges, consisting of items such as capital market-related fees, fees for lines and letters of credit, and servicing fees, increased by $113 million, primarily reflecting higher fees for lines and letters of credit due to the additional SVBB Acquisition activity and higher capital markets fees. 58 •Client investment fees, a revenue stream added with the SVBB Acquisition, consist of fees that are earned for managing off-balance sheet client funds. Refer to the description above and in Note 1—Significant Accounting Policies and Basis of Presentation. •The $46 million increase in wealth management services was mostly due to additional clients and services acquired in the SVBB Acquisition and higher assets under management. •International fees, a revenue stream added with the SVBB Acquisition, relate mostly to commissions on customer foreign currency transactions. Refer to the description above and in Note 1—Significant Accounting Policies and Basis of Presentation. •The $58 million increase in service charges on deposit accounts was primarily due to higher balances as a result of the SVBB Acquisition and organic deposit growth. •The $22 million decrease in factoring commissions reflected lower factoring volumes and surcharges. •The $37 million increase in cardholder services and $13 million increase in merchant services, net, both reflected additional volume from the SVBB Acquisition. •The $7 million increase in insurance commissions included higher activity. •The realized loss on sale of investment securities available for sale was associated with the sale of a single corporate bond of a distressed financial institution and our strategic decision to sell the municipal bonds acquired in the SVBB Acquisition. •Fair value adjustments on marketable equity securities reflect changes in market prices of underlying portfolio investments. •The $24 million decrease in bank-owned life insurance income was due to our decision in 2022 to terminate a significant portion of the contracts. •Other noninterest income consisted of items such as derivative gains and losses, gain on sales of other assets including other real estate owned (“OREO”), fixed assets and loans, and non-marketable securities. The $23 million increase in other noninterest income was primarily due to higher derivative income. NONINTEREST EXPENSE The current year includes noninterest expense related to the SVBB Acquisition. The components of noninterest expense that increased as a result of the SVBB Acquisition were aligned into pre-existing noninterest expense categories and mainly included salaries and benefits and acquisition-related expenses. Table 11 Noninterest Expense [[GREPCENT_TABLE]] [["dollars in millions","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Depreciation on operating lease equipment","","","","","","","$","371","","","$","345","","","$","\u2014"],["Maintenance and other operating lease expenses","","","","","","","222","","","189","","","\u2014"],["Operating expenses:"],["Salaries and benefits","","","","","","","2,636","","","1,408","","","759"],["Net occupancy expense","","","","","","","244","","","191","","","117"],["Equipment expense","","","","","","","422","","","216","","","119"],["Professional fees","","","","","","","73","","","45","","","20"],["Third-party processing fees","","","","","","","203","","","103","","","60"],["FDIC insurance expense","","","","","","","158","","","31","","","14"],["Marketing expense","","","","","","","102","","","53","","","10"],["Acquisition-related expenses","","","","","","","470","","","231","","","29"],["Intangible asset amortization","","","","","","","57","","","23","","","12"],["Other noninterest expense","","","","","","","377","","","240","","","94"],["Total operating expenses","","","","","","","4,742","","","2,541","","","1,234"],["Total noninterest expense","","","","","","","$","5,335","","","$","3,075","","","$","1,234"]] [[/GREPCENT_TABLE]] Depreciation on Operating Lease Equipment Depreciation expense on operating lease equipment is primarily related to rail equipment and small and large ticket equipment we own and lease to others. Operating lease activity is in the Rail and Commercial Banking segments. The useful lives of rail equipment is generally longer in duration, 40-50 years, whereas small and large ticket equipment is generally 3-10 years. Refer to the Rail segment discussion in the section entitled “Results by Business Segment” of this MD&A for further details. 59 Maintenance and Other Operating Lease Expenses The Rail segment provides railcars, primarily pursuant to full-service lease contracts under which we, as lessor, are responsible for railcar maintenance and repair. Maintenance and other operating lease expenses for the current year were $222 million, an increase of $33 million, or 17%, from $189 million for the prior year. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the railcar portfolio and tend to be variable due to timing and number of railcars coming on or off lease and the asset condition. Refer to the Rail segment discussion in the section entitled “Results by Business Segment” of this MD&A for further details. Operating Expenses The primary components of operating expenses are salaries and benefits and occupancy and equipment expenses. Operating expenses for the current year were $4.74 billion, an increase of $2.20 billion or 87% compared to $2.54 billion in the prior year. The main components of the increase in operating expenses are summarized below: •The $1.23 billion increase in salaries and benefits reflected the higher number of employees and benefit costs associated with the SVBB Acquisition. •The $53 million increase in net occupancy expense was commensurate with the additional locations associated with the SVBB Acquisition. Net occupancy expense includes rent expense on leased office space and depreciation on buildings we own. •The $206 million increase in equipment expense included additional systems and higher software costs due to the SVBB Acquisition. •The $28 million increase in professional fees mostly reflected higher levels of accounting, consulting and legal costs associated with our larger company. •The $100 million increase in third-party processing fees was due to the SVBB Acquisition and our continued investments in digital and technology to support revenue-generating businesses and improve internal processes. •The $127 million increase in FDIC insurance included a $64 million accrual related to a FDIC insurance special assessment, as well as higher assessment rates charged to financial institutions, and higher deposit balances. Refer to Item 1. Business, in the section entitled “Regulatory Considerations—Subsidiary Bank—FCB” for discussion. •The $49 million increase in marketing costs primarily reflected the timing of our advertising related to marketing efforts for the Direct Bank to support deposit growth. •The $239 million increase in acquisition-related expenses was primarily due to severance, retention, consulting and legal costs related to the SVBB Acquisition. •The $34 million increase in intangible asset amortization resulted from the additional amortization on core deposit intangibles related to the SVBB Acquisition. See Note 2—Business Combinations for additional information. •The $137 million increase in other expenses included additional costs associated with the SVBB Acquisition. Other expenses consisted of: other insurance and taxes (other than FDIC insurance and income tax); foreclosure, collection and other OREO-related expenses; consulting; telecommunications; and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. INCOME TAXES Table 12 Income Tax Data [[GREPCENT_TABLE]] [["dollars in millions","","","Year Ended December 31,"],["","","","","","","","2023","","2022","","2021"],["Income before income taxes","","","","","","","$","12,077","","","$","1,362","","","$","701"],["Income tax expense","","","","","","","$","611","","","$","264","","","$","154"],["Effective tax rate","","","","","","","5.1","%","","19.4","%","","22.0","%"]] [[/GREPCENT_TABLE]] The effective tax rate (“ETR”) was 5.1% for the current year compared to 19.4% in the prior year. The decrease in the ETR for the current year was primarily driven by the effects of recording the preliminary gain on acquisition, net of tax, related to the SVBB Acquisition in noninterest income. The ETR is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The ETR in future periods may vary from the actual 2023 ETR due to changes in these factors. 60 BancShares monitors and evaluates the potential impact of current events on the estimates used to establish income tax expense and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors. Refer to Note 21—Income Taxes for additional information. RESULTS BY BUSINESS SEGMENT For detailed descriptions of each of the segment’s products and services, refer to Item 1. Business of this Annual Report on Form 10-K and Note 23—Business Segment Information. During the first quarter of 2023, we updated our segment disclosures to include the SVB segment. Results in our business segments reflect our funds transfer policy and allocation of expenses. General Banking The General Banking segment delivers products and services to consumers and businesses through our extensive network of branches and various digital channels, including the Direct Bank. We offer a full suite of deposit products, loans (primarily residential mortgages and business and commercial loans), cash management, wealth management, payment services, and various other fee-based services. Table 13 General Banking: Financial Data [[GREPCENT_TABLE]] [["dollars in millions","","","As of and for the Year Ended December 31,"],["Earnings Summary","","","","","","","2023","","2022","","2021"],["Net interest income","","","","","","","$","2,433","","","$","1,947","","","$","1,447"],["Provision (benefit) for credit losses","","","","","","","71","","","11","","","(37)"],["Net interest income after provision for credit losses","","","","","","","2,362","","","1,936","","","1,484"],["Noninterest income","","","","","","","490","","","482","","","433"],["Noninterest expense","","","","","","","1,607","","","1,542","","","1,179"],["Income before income taxes","","","","","","","1,245","","","876","","","738"],["Income tax expense","","","","","","","336","","","214","","","162"],["Net income","","","","","","","$","909","","","$","662","","","$","576"],["Select Period End Balances"],["Total assets","","","","","","","$","50,179","","","$","45,802","","","$","33,848"],["Loans and leases","","","","","","","47,330","","","43,212","","","31,820"],["Deposits","","","","","","","102,647","","","84,369","","","51,344"]] [[/GREPCENT_TABLE]] General Banking segment net income for the current year increased from the prior year, primarily reflecting higher NII, partially offset by higher provision for credit losses and noninterest expenses. NII increased due to higher yields resulting from the increased rate environment and portfolio growth that outpaced rising deposit costs. The provision for credit losses reflects an ALLL build for portfolio growth and changes in the macroeconomic forecasts. Noninterest income and expense increased compared to the prior year and are discussed in their respective sections entitled “Noninterest Income” and “Noninterest Expense” of this MD&A. The increase in loans and leases during 2023 reflected continued demand in our branch network. Growth was primarily concentrated in commercial and business loans. Our consumer mortgage loans increased modestly. Deposits include deposits from the branch network, Direct Bank, and CAB channels. The increase in deposits during 2023 was primarily in the Direct Bank in savings and time deposit accounts, which partially offset decreases in checking and money market accounts. Refer to consolidated discussions in the sections entitled “Net Interest Income and Net Interest Margin” and “Balance Sheet Analysis—Deposits” of this MD&A for additional information. 61 Commercial Banking The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management, factoring, and other financial and advisory services, primarily to small and middle market companies in a wide range of industries. Table 14 Commercial Banking: Financial Data [[GREPCENT_TABLE]] [["dollars in millions","","","As of and for the Year Ended December 31,"],["Earnings Summary","","","","","","","2023","","2022","","2021"],["Net interest income","","","","","","","$","1,015","","","$","884","","","$","17"],["Provision for credit losses","","","","","","","517","","","121","","","\u2014"],["Net interest income after provision for credit losses","","","","","","","498","","","763","","","17"],["Noninterest income","","","","","","","559","","","517","","","\u2014"],["Noninterest expense","","","","","","","823","","","744","","","3"],["Income before income taxes","","","","","","","234","","","536","","","14"],["Income tax expense","","","","","","","69","","","128","","","3"],["Net income","","","","","","","$","165","","","$","408","","","$","11"],["Select Period End Balances"],["Total assets","","","","","","","$","31,826","","","$","28,235","","","$","552"],["Loans and leases","","","","","","","30,936","","","27,491","","","552"],["Operating lease equipment, net","","","","","","","780","","","723","","","\u2014"],["Deposits","","","","","","","3,228","","","3,219","","","62"]] [[/GREPCENT_TABLE]] Commercial Banking segment net income for the current year decreased from the prior year, primarily reflecting the higher provision for credit losses due to loan growth and a reserve build, which was mainly the result of credit quality deterioration, particularly general office, higher net charge-offs, and deterioration in the macroeconomic forecast. The increase in provision for credit losses was partially offset by an increase in NII. The increase in NII was mainly the result of loan growth and higher loan yields, which were partially offset by higher costs on interest-bearing deposits due to increases in the average balance and rates paid. Noninterest income increased, mostly due to higher rental income on operating lease equipment, partially offset by lower factoring commissions. Noninterest expense increased, reflecting higher depreciation expense on operating lease equipment. Noninterest income and noninterest expense are discussed in the sections entitled “Noninterest Income” and “Noninterest Expense” of this MD&A. The increase in loans and leases during 2023 reflected growth in a number of industry verticals, including energy and healthcare, along with the technology, media and telecommunications and middle-market verticals. 62 Silicon Valley Banking The SVB segment offers products and services to commercial clients in key innovation markets, such as healthcare and technology industries, as well as private equity and venture capital firms. The segment provides solutions to the financial needs of commercial clients through credit, treasury management, foreign exchange, trade finance and other services including capital call lines of credit. In addition, the segment offers private banking and wealth management and provides a range of personal financial solutions for consumers. Table 15 Silicon Valley Banking: Financial Data [[GREPCENT_TABLE]] [["dollars in millions","","","As of and for the Year Ended"],["Earnings Summary","","","","","","","December 31, 2023"],["Net interest income","","","","","","","$","1,946"],["Provision for credit losses","","","","","","","71"],["Net interest income after provision for credit losses","","","","","","","1,875"],["Noninterest income","","","","","","","478"],["Noninterest expense","","","","","","","1,642"],["Income before income taxes","","","","","","","711"],["Income tax expense","","","","","","","181"],["Net income","","","","","","","$","530"],["Select Period End Balances"],["Total assets","","","","","","","$","56,190"],["Loans and leases","","","","","","","55,013"],["Deposits","","","","","","","38,477"]] [[/GREPCENT_TABLE]] Results of operations include activity of the SVBB Acquisition since March 27, 2023. The SVB segment excludes the preliminary gain on acquisition, day 2 provisions for credit losses, loan discount accretion income, interest expense on the Purchase Money Note, and acquisition-related expenses, all of which are included in Corporate. The provision for credit losses reflects increases in specific reserves in the investor dependent portfolio and changes in the macroeconomic forecast, partially offset by declines in the acquired loan portfolio and a benefit for off-balance sheet exposure for the SVB segment. Noninterest income includes revenue for various commercial banking and wealth management products and services, primarily client investment fees and international fees. Noninterest expense was mostly related to personnel costs. Loans totaled $55.01 billion at December 31, 2023, down from $68.47 billion at the SVBB Acquisition Date. The loan balance on the SVBB Acquisition Date included customers who had drawn on their lines of credit during the uncertainty in the banking industry in March of 2023. Most of the subsequent declines have been in Global Fund Banking loans due to the slowdown in private equity and venture capital markets that reduced new fundings, as well as the impacts of prepayments and run-off of certain foreign operations. Deposits totaled $38.48 billion at December 31, 2023, a decline from $56.01 billion at the SVBB Acquisition Date. Deposits for the SVB segment began to stabilize early in the second quarter of 2023. For additional information on deposit trends, refer to the “Funding, Liquidity and Capital Overview” discussion in the “Financial Performance Summary” section of this MD&A. 63 Rail Our Rail segment offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. Railcar types include: covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service products; boxcars for paper and auto parts; and other cars including open hopper cars for coal and aggregates and centerbeams and flat cars for lumber. Revenues are primarily generated from rental income on operating lease equipment. Table 16 Rail: Financial Data [[GREPCENT_TABLE]] [["dollars in millions","","","As of and for the Year Ended December 31,"],["Earnings Summary","","","","","","","2023","","2022"],["Rental income on operating leases","","","","","","","$","740","","","$","652"],["Less: depreciation on operating lease equipment","","","","","","","191","","","176"],["Less: maintenance and other operating lease expenses","","","","","","","222","","","189"],["Adjusted rental income on operating lease equipment(1)","","","","","","","327","","","287"],["Interest expense, net","","","","","","","143","","","80"],["Other noninterest income","","","","","","","6","","","5"],["Operating expenses","","","","","","","68","","","63"],["Income before income taxes","","","","","","","122","","","149"],["Income tax expense","","","","","","","32","","","37"],["Net income","","","","","","","$","90","","","$","112"],["Select Period End Balances"],["Total assets","","","","","","","$","8,199","","","$","7,647"],["Operating lease equipment, net","","","","","","","7,966","","","7,433"]] [[/GREPCENT_TABLE]] (1)    Adjusted rental income on operating lease equipment is a non-GAAP measure. See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (rental income on operating leases) to the non-GAAP measure (adjusted rental income on operating lease equipment). Net income, rental income on operating leases, and adjusted rental income on operating lease equipment are utilized to measure the profitability of our Rail segment. Adjusted rental income on operating lease equipment is calculated as rental income on operating lease equipment reduced by depreciation, maintenance and other operating lease expenses. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail segment portfolio and tend to be variable. Due to the nature of our portfolio, which is essentially all operating lease equipment, certain financial measures commonly used by banks, such as NII, are not as meaningful for this segment. NII is not used because it includes the impact of debt costs funding our operating lease assets but excludes the associated net rental income. Net income, rental income on operating leases, and adjusted rental income on operating leases for the current year were $90 million, $740 million, and $327 million, respectively. Rail segment net income for the current year decreased from the prior year, as the higher interest rate environment increased interest expense, which offset the higher rental income on operating lease equipment. Rental income on operating leases increased, largely as a result of a higher number of rail cars owned and leased, higher utilization, and strong re-pricing. Railcar depreciation is recognized on a straight-line basis over the estimated useful life of the asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease. Noninterest income primarily reflects net gains on equipment sales. Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 133.0% of the average prior or expiring lease rate during the fourth quarter of 2023. Our railcar utilization, including commitments to lease, improved from 97.7% at December 31, 2022 to 98.7% at December 31, 2023. 64 Portfolio Rail segment customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater) and other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at December 31, 2023 consisted of approximately 122,200 railcars and locomotives. The following tables reflect the proportion of railcars by type based on units and net investment, and rail operating lease equipment by obligor industry: Table 17 Operating lease Railcar Portfolio by Type (units and net investment) [[GREPCENT_TABLE]] [["","December 31, 2023","","","","December 31, 2022"],["Railcar Type","Total Owned Fleet - % Total Units","","Total Owned Fleet - % Total Net Investment","","","","","","Total Owned Fleet - % Total Units","","Total Owned Fleet - % Total Net Investment"],["Covered Hoppers","45","%","","42","%","","","","","","43","%","","41","%"],["Tank Cars","27","","","38","","","","","","","29","","","40"],["Mill/Coil Gondolas","8","","","7","","","","","","","8","","","6"],["Coal","7","","","1","","","","","","","8","","","1"],["Boxcars","6","","","6","","","","","","","6","","","6"],["Other","7","","","6","","","","","","","6","","","6"],["Total","100","%","","100","%","","","","","","100","%","","100","%"]] [[/GREPCENT_TABLE]] Table 18 Rail Operating Lease Equipment by Obligor Industry [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","","","December 31, 2022"],["Manufacturing","$","3,281","","","41","%","","","","","","$","3,016","","","41","%"],["Rail","1,889","","","24","","","","","","","1,981","","","27"],["Wholesale","1,217","","","15","","","","","","","1,101","","","15"],["Oil and gas extraction / services","573","","","7","","","","","","","552","","","7"],["Energy and utilities","230","","","3","","","","","","","242","","","3"],["Other","776","","","10","","","","","","","541","","","7"],["Total","$","7,966","","","100","%","","","","","","$","7,433","","","100","%"]] [[/GREPCENT_TABLE]] Corporate All other items that are not allocated to the above segments are included in Corporate. For descriptions, see Note 23—Business Segment Information. Table 19 Corporate: Financial Data and Metrics [[GREPCENT_TABLE]] [["dollars in millions","","","As of and for the Year Ended December 31,"],["Earnings Summary","","","","","","","2023","","2022","","2021"],["Net interest income (expense)","","","","","","","$","1,461","","","$","195","","","$","(74)"],["Provision for credit losses","","","","","","","716","","","513","","","\u2014"],["Net interest income (expense) after provision for credit losses","","","","","","","745","","","(318)","","","(74)"],["Noninterest income","","","","","","","9,802","","","480","","","75"],["Noninterest expense","","","","","","","782","","","361","","","52"],["Income (loss) before income taxes","","","","","","","9,765","","","(199)","","","(51)"],["Income tax benefit","","","","","","","(7)","","","(115)","","","(11)"],["Net income (loss)","","","","","","","$","9,772","","","$","(84)","","","$","(40)"],["Select Period End Balances"],["Total assets","","","","","","","$","67,364","","","$","27,614","","","$","23,909"]] [[/GREPCENT_TABLE]] Current year net income for Corporate increased from the prior year, primarily reflecting significant impacts from the SVBB Acquisition as further described below. Current year Corporate NII increased by $1.27 billion, mainly due to a $1.45 billion increase in interest income on interest-earning deposits at banks, loan purchase accounting accretion of $697 million from the SVBB Acquisition, and a $286 million increase in interest income on investment securities, partially offset by interest expense of $1.00 billion on the Purchase Money Note. 65 The day 2 provisions for credit losses were $716 million in the current year for the SVBB Acquisition compared to $513 million in the prior year for the CIT Merger. Current year noninterest income included a preliminary gain on acquisition of $9.81 billion, compared to a gain on acquisition of $431 million in the prior year for the CIT Merger. Current year noninterest expense includes $470 million of acquisition-related expenses compared to $231 million in the prior year. The income tax rate for 2023 and 2022 was impacted by the preliminary gain on acquisition. Refer to the “Income Taxes” section of this MD&A for further discussion. BALANCE SHEET ANALYSIS INTEREST-EARNING ASSETS Interest-earning assets include interest-earning deposits at banks, securities purchased under agreement to resell, investment securities, loans held for sale, and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Higher-risk investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit risk. We strive to maintain a high level of interest-earning assets relative to total assets while keeping non-earning assets at a minimum. Interest-earning Deposits at Banks Interest-earning deposits at banks are primarily comprised of interest-bearing deposits with the FRB. Interest-earning deposits at banks as of December 31, 2023 totaled $33.61 billion, an increase of $28.58 billion from $5.03 billion at December 31, 2022. The increase from December 31, 2022 is primarily related to $34.00 billion acquired in the SVBB Acquisition. Interest-earning deposits at banks decreased after the SVBB Acquisition Date as we purchased investment securities, paid off FHLB borrowings, and continued to manage our liquidity and funding positions after the SVBB Acquisition. Securities Purchased Under Agreement to Resell Securities Purchased Under Agreement to Resell at December 31, 2023 totaled $473 million. There were none as of December 31, 2022. The increase is related to the SVBB Acquisition. Investment Securities The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with our objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into interest-earning deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan growth. Refer to Note 3—Investment Securities and the “Funding, Liquidity and Capital Overview” section of this MD&A for additional disclosures regarding investment securities. The carrying value of investment securities at December 31, 2023 totaled $30.00 billion, an increase of $10.63 billion or 55% from $19.37 billion at December 31, 2022. The increase from December 31, 2022 primarily reflected purchases that totaled $13.05 billion, most of which were short-duration U.S. Treasury and U.S agency residential mortgage-backed investment securities, partially offset by maturities, paydowns and sales of $3.12 billion. Other items that impacted the change include non-cash items, such as fair value changes and amortization. Investment securities acquired in the SVBB Acquisition were primarily municipal bonds, which were sold. 66 Our portfolio of investment securities available for sale consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury securities, unsecured bonds issued by government agencies and government sponsored entities, corporate bonds, and municipal bonds. Investment securities available for sale are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of December 31, 2023, investment securities available for sale had a net pre-tax unrealized loss of $752 million, compared to a net pre-tax unrealized loss of $972 million as of December 31, 2022. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest rates increase or when credit spreads widen. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of December 31, 2023, no ALLL was required. For corporate bonds and municipal bonds we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired and considered other factors, including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond carries credit-related losses of an insignificant amount as of December 31, 2023. Our portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury securities and government agency securities described above, as well as securities issued by the Supranational Entities and Multilateral Development Banks and FDIC guaranteed certificates of deposit with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury and the Supranational Entities and Multilateral Development Banks, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined that no ALLL was needed for investment securities held to maturity at December 31, 2023. The following table presents the investment securities portfolio at December 31, 2023, 2022 and 2021, segregated by major category: Table 20 Investment Securities [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["","Composition(1)","","Amortized cost","","Fair value","","Composition(1)","","Amortized cost","","Fair value","","Composition(1)","","Amortized cost","","Fair value"],["Investment securities available for sale:"],["U.S. Treasury","36.8","%","","$","10,554","","","$","10,508","","","10.6","%","","$","2,035","","","$","1,898","","","15.4","%","","$","2,007","","","$","2,005"],["Government agency","0.4","","","120","","","117","","","0.9","","","164","","","162","","","1.7","","","221","","","221"],["Residential mortgage-backed securities","23.4","","","7,154","","","6,686","","","26.8","","","5,424","","","4,795","","","36.2","","","4,757","","","4,729"],["Commercial mortgage-backed securities","7.5","","","2,319","","","2,131","","","9.0","","","1,774","","","1,604","","","12.6","","","1,648","","","1,640"],["Corporate bonds","1.7","","","529","","","482","","","3.0","","","570","","","536","","","4.7","","","582","","","608"],["Municipal bonds","\u2014","","","12","","","12","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total investment securities available for sale","69.8","%","","$","20,688","","","$","19,936","","","50.3","%","","$","9,967","","","$","8,995","","","70.6","%","","$","9,215","","","$","9,203"],["Investment in marketable equity securities","0.3","%","","$","75","","","$","84","","","0.5","%","","$","75","","","$","95","","","0.7","%","","$","73","","","$","98"],["Investment securities held to maturity:"],["U.S. Treasury","1.5","","","$","479","","","$","439","","","2.4","","","$","474","","","$","424","","","\u2014","","","$","\u2014","","","$","\u2014"],["Government agency","4.9","","","1,506","","","1,363","","","7.6","","","1,548","","","1,362","","","\u2014","","","\u2014","","","\u2014"],["Residential mortgage-backed securities","12.5","","","4,205","","","3,561","","","21.7","","","4,605","","","3,882","","","17.7","","","2,322","","","2,306"],["Commercial mortgage-backed securities","10.1","","","3,489","","","2,875","","","16.1","","","3,355","","","2,871","","","11.0","","","1,485","","","1,451"],["Supranational securities","0.9","","","298","","","263","","","1.4","","","295","","","254","","","\u2014","","","\u2014","","","\u2014"],["Other","\u2014","","","2","","","2","","","\u2014","","","2","","","2","","","\u2014","","","2","","","2"],["Total investment securities held to maturity","29.9","%","","$","9,979","","","$","8,503","","","49.2","%","","$","10,279","","","$","8,795","","","28.7","%","","$","3,809","","","$","3,759"],["Total investment securities","100.0","%","","$","30,742","","","$","28,523","","","100.0","%","","$","20,321","","","$","17,885","","","100.0","%","","$","13,097","","","$","13,060"],["(1) Calculated as a percentage of the total fair value of investment securities."]] [[/GREPCENT_TABLE]] 67 The following table presents the weighted average yields for investment securities available for sale and held to maturity at December 31, 2023, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio was calculated using security-level annualized yields. Table 21 Weighted Average Yield on Investment Securities [[GREPCENT_TABLE]] [["","December 31, 2023"],["","Within One Year","","One to Five Years","","Five to 10 Years","","After 10 Years","","Total"],["Investment securities available for sale:"],["U.S. Treasury","4.70","%","","4.07","%","","\u2014","%","","\u2014","%","","4.41","%"],["Government agency","5.75","","","4.89","","","5.21","","","5.21","","","5.19"],["Residential mortgage-backed securities","5.60","","","3.56","","","4.71","","","2.99","","","3.03"],["Commercial mortgage-backed securities","4.62","","","4.54","","","5.72","","","3.48","","","3.84"],["Corporate bonds","5.86","","","6.79","","","5.33","","","6.13","","","5.64"],["Municipal bonds","\u2014","","","\u2014","","","\u2014","","","5.26","","","5.26"],["Total investment securities available for sale","4.70","%","","4.18","%","","5.21","%","","3.09","%","","3.91","%"],["Investment securities held to maturity:"],["U.S. Treasury","\u2014","%","","1.37","%","","1.57","%","","\u2014","%","","1.38","%"],["Government agency","0.91","","","1.42","","","1.88","","","\u2014","","","1.53"],["Residential mortgage-backed securities (1)","\u2014","","","\u2014","","","2.64","","","1.90","","","1.90"],["Commercial mortgage-backed securities (1)","\u2014","","","2.44","","","1.93","","","2.70","","","2.69"],["Supranational securities","\u2014","","","1.35","","","1.68","","","\u2014","","","1.56"],["Other","2.72","","","\u2014","","","\u2014","","","\u2014","","","2.72"],["Total investment securities held to maturity","1.03","%","","1.40","%","","1.80","%","","2.26","%","","2.08","%"]] [[/GREPCENT_TABLE]] (1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity at December 31, 2023. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. Assets Held for Sale Certain residential mortgage loans and commercial loans are originated with the intent to be sold to investors or lenders, respectively, and are recorded in assets held for sale at fair value. In addition, BancShares may change its strategy for certain loans initially held for investment and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at the lower of cost or fair value (“LOCOM”). When we decide to sell operating lease equipment, it is transferred to assets held for sale at LOCOM. Assets held for sale at December 31, 2023 were $76 million, an increase of $16 million or 27% from $60 million at December 31, 2022. Table 22 Assets Held for Sale [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Loans and leases:"],["Commercial","$","26","","$","48","","$","\u2014"],["Consumer","38","","4","","99"],["SVB","9","","\u2014","","\u2014"],["Loans and leases","73","","52","","99"],["Operating lease equipment","3","","8","","\u2014"],["Total assets held for sale","$","76","","$","60","","$","99"]] [[/GREPCENT_TABLE]] Loans and Leases Loans and leases held for investment at December 31, 2023 were $133.30 billion, an increase of $62.52 billion or 88% from $70.78 billion at December 31, 2022. The increase from December 31, 2022 reflects approximately $55.01 billion of SVB segment loans as of December 31, 2023 and growth in commercial and consumer loans. The commercial loan growth was primarily from the branch network in the General Banking segment and various industry verticals in the Commercial Banking segment. The consumer loan growth was mainly from residential mortgage loans in the General Banking segment. Refer to the “Results by Business Segments” section of this MD&A for further information regarding loan trends in 2023. 68 The following table presents loans and leases by loan segment and loan class, and the respective proportion to total loans: Table 23 Loans and Leases [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["","Balance","","% to Total Loans","","Balance","","% to Total Loans","","Balance","","% to Total Loans"],["Commercial:"],["Commercial construction","$","3,465","","","3","%","","$","2,804","","","4","%","","$","1,238","","","4","%"],["Owner occupied commercial mortgage","15,567","","","12","","","14,473","","","20","","","12,099","","","37"],["Non-owner occupied commercial mortgage","11,540","","","9","","","9,902","","","14","","","3,041","","","9"],["Commercial and industrial","27,072","","","20","","","24,105","","","34","","","5,937","","","18"],["Leases","2,054","","","1","","","2,171","","","3","","","271","","","1"],["Total commercial","$","59,698","","","45","%","","$","53,455","","","75","%","","$","22,586","","","69","%"],["Consumer:"],["Residential mortgage","$","14,422","","","11","%","","$","13,309","","","19","%","","$","6,088","","","19","%"],["Revolving mortgage","2,007","","","1","","","1,951","","","3","","","1,818","","","6"],["Consumer auto","1,442","","","1","","","1,414","","","2","","","1,332","","","4"],["Consumer other","720","","","1","","","652","","","1","","","548","","","2"],["Total consumer","$","18,591","","","14","%","","$","17,326","","","25","%","","$","9,786","","","31","%"],["Silicon Valley Banking:"],["Global fund banking","$","25,553","","","19","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%"],["Investor dependent - early stage","1,403","","","1","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Investor dependent - growth stage","2,897","","","2","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Innovation C&I and cash flow dependent","9,658","","","7","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Private Bank","9,822","","","8","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["CRE","2,698","","","2","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Other","2,982","","","2","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total Silicon Valley Banking","$","55,013","","","41","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%"],["Total loans and leases","$","133,302","","","100","%","","$","70,781","","","100","%","","$","32,372","","","100","%"],["Allowance for loan and lease losses","(1,747)","","","","","(922)","","","","","(178)"],["Net loans and leases","$","131,555","","","","","$","69,859","","","","","$","32,194"]] [[/GREPCENT_TABLE]] The unamortized discount related to acquired loans was $2.04 billion at December 31, 2023, an increase of $1.92 billion from $118 million at December 31, 2022. The increase from December 31, 2022 reflects the discount on loans acquired in the SVBB Acquisition, reduced by accretion of $733 million, including $128 million for unfunded commitments, for the year ended December 31, 2023. OPERATING LEASE EQUIPMENT, NET As detailed in the following table, our operating lease portfolio mostly relates to the Rail segment, with the remainder included in the Commercial Banking segment. Refer to the “Results by Business Segment” section of this MD&A for further details on the operating lease equipment portfolios in the Rail and Commercial Banking segments. Table 24 Operating Lease Equipment [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","","","December 31, 2022","","December 31, 2021"],["Railcars and locomotives","$","7,966","","","","","$","7,433","","","$","\u2014"],["Other equipment","780","","","","","723","","","\u2014"],["Total (1)","$","8,746","","","","","$","8,156","","","$","\u2014"]] [[/GREPCENT_TABLE]] (1)    Includes off-lease rail equipment of $253 million at December 31, 2023, and $457 million at December 31, 2022. 69 INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, the Purchase Money Note, FHLB borrowings, senior and subordinated debt, and other borrowings. Interest-bearing liabilities at December 31, 2023 totaled $143.71 billion, an increase of $72.58 billion or 102% from $71.13 billion at December 31, 2022. The increase from December 31, 2022 was primarily due to deposits assumed in the SVBB Acquisition and the Purchase Money Note, as well as deposit growth in the Direct Bank in the General Banking segment, partially offset by a net decrease in FHLB borrowings. Deposits Total deposits at December 31, 2023 were $145.85 billion, an increase of $56.45 billion or 63% from $89.41 billion at December 31, 2022. The increase from December 31, 2022 reflects $38.48 billion of SVB segment deposits as of December 31, 2023. The remaining increase from December 31, 2022 reflects strong deposit growth in our Direct Bank. As summarized in the following table, interest-bearing deposits totaled $106.06 billion, $64.49 billion and $30.00 billion at December 31, 2023, 2022 and 2021, respectively. Noninterest-bearing deposits totaled $39.80 billion, $24.92 billion and $21.41 billion at December 31, 2023, 2022 and 2021, respectively. Table 25 Deposits [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","","","December 31, 2022","","December 31, 2021"],["Noninterest-bearing demand","$","39,799","","","","","$","24,922","","","$","21,405"],["Checking with interest","23,754","","","","","16,202","","","12,694"],["Money market","30,616","","","","","21,040","","","10,590"],["Savings","35,258","","","","","16,834","","","4,236"],["Time","16,427","","","","","10,410","","","2,481"],["Interest-bearing deposits","106,055","","","","","64,486","","","30,001"],["Total deposits","$","145,854","","","","","$","89,408","","","$","51,406"],["Noninterest-bearing deposits to total deposits","27.3","%","","","","27.9","%","","41.6","%"]] [[/GREPCENT_TABLE]] We strive to maintain a strong liquidity position, and therefore, a focus on deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change, we recognize that our liquidity position could be adversely affected if bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost. Deposit Concentrations Based on branch location, deposits as of December 31, 2023 in North Carolina and South Carolina represented approximately 25.5% and 7.8%, respectively, of total deposits. The Direct Bank, a nationwide digital bank, had $37.67 billion or 25.8% of our total deposits as of December 31, 2023. The Direct Bank deposits mainly consist of savings deposit accounts. SVB segment deposits as of December 31, 2023 were $38.48 billion or 26.4% of total deposits and are primarily concentrated in online banking. Deposits in the SVB segment included large dollar accounts with private equity and venture capital clients, primarily in the healthcare and technology industries. Deposit accounts in the SVB segment with balances in excess of $50 million totaled approximately $4.80 billion as of December 31, 2023. Uninsured Deposits Where information is not readily available to determine the amount of deposits not insured by the FDIC, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate total uninsured deposits were $54.15 billion, which represented approximately 37.1% of total deposits at December 31, 2023, compared to $29.13 billion or 32.6% of total deposits at December 31, 2022. The increase in the amount of uninsured deposits from December 31, 2022 reflects the SVB segment deposits. Refer to the “Funding, Liquidity and Capital Overview” and “Results by Business Segment” sections of this MD&A for further discussion of deposit composition, uninsured deposits, and recent deposit trends. 70 The following table provides the expected maturity of time deposits with balances in excess of $250,000 as of December 31, 2023: Table 26 Maturities of Time Deposits In Excess of $250,000 [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023"],["Time deposits maturing in:"],["Three months or less","$","515"],["Over three months through six months","433"],["Over six months through 12 months","475"],["More than 12 months","49"],["Total","$","1,472"]] [[/GREPCENT_TABLE]] Borrowings Total borrowings at December 31, 2023 were $37.65 billion, an increase of $31.01 billion from $6.65 billion at December 31, 2022. The increase from December 31, 2022 to December 31, 2023 primarily related to the Purchase Money Note of approximately $35.85 billion payable to the FDIC, as discussed in Note 2—Business Combinations, partially offset by repayments of FHLB borrowings, as discussed below, and redemptions of a $500 million senior unsecured note and certain Capital Trust debentures as shown in the following table. There were no FHLB borrowings outstanding at December 31, 2023, a decrease of $4.25 billion compared to December 31, 2022. The decline from December 31, 2022 reflected $7.00 billion of advances taken in March 2023 to enhance available liquidity and $3.48 billion of advances in the second quarter, all of which were repaid by September 30, 2023. The following table presents borrowings, net of the respective unamortized purchase accounting adjustments and issuance costs: Table 27 Borrowings [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","","","December 31, 2022","","December 31, 2021"],["Securities sold under customer repurchase agreements","$","485","","","","","$","436","","","$","589"],["Federal Home Loan Bank borrowings"],["Floating rate notes due through September 2025","\u2014","","","","","4,250","","","\u2014"],["Fixed rate notes due through March 2032","\u2014","","","","","\u2014","","","645"],["Federal Deposit Insurance Corporation"],["3.500% fixed rate note due March 2028 (1)","35,846","","","","","\u2014","","","\u2014"],["Senior Unsecured Borrowings"],["3.929% fixed-to-floating rate notes due June 2024","\u2014","","","","","505","","","\u2014"],["2.969% fixed-to-floating rate notes due September 2025","318","","","","","320","","","\u2014"],["6.000% fixed rate notes due April 2036","59","","","","","59","","","\u2014"],["Subordinated debt"],["6.125% fixed rate notes due March 2028","460","","","","","469","","","\u2014"],["4.125% fixed-to-fixed rate notes due November 2029","101","","","","","102","","","\u2014"],["3.375% fixed-to-floating rate notes due March 2030","349","","","","","348","","","347"],["Macon Capital Trust I - floating rate debentures due March 2034","\u2014","","","","","14","","","14"],["SCB Capital Trust I - floating rate debentures due April 2034 (2)","10","","","","","10","","","10"],["FCB/SC Capital Trust II - floating rate debentures due June 2034 (2)","18","","","","","18","","","18"],["FCB/NC Capital Trust III - floating rate debentures due June 2036","\u2014","","","","","88","","","88"],["Other borrowings","8","","","","","26","","","73"],["Total borrowings","$","37,654","","","","","$","6,645","","","$","1,784"]] [[/GREPCENT_TABLE]] (1)    Purchase Money Note was issued in connection with the SVBB Acquisition. (2)    As of December 31, 2023, debt holders had received notice of the debt calls, but funds to settle the calls had not been disbursed. Refer to the “Liquidity Risk” section of this MD&A and Note 13—Borrowings for further information regarding liquidity and borrowings. 71 Refer to the “Regulatory Considerations” section in Item 1. Business of this Annual Report on Form 10-K, for a information on an NPR issued by the federal banking agencies discussing the requirement to maintain a certain level of long-term debt. We are in the process of evaluating the proposal and assessing its potential impact, but we expect we will need to raise additional long-term debt to satisfy these requirements. RISK MANAGEMENT Risk is inherent in any business. BancShares has defined a moderate risk appetite and a balanced approach to risk taking with a philosophy that does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework and Statement, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge and oversight by management committees. Our Board strives to ensure that risk management is a part of our business culture and that our policies and procedures for identifying, assessing, monitoring, and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through its Risk Committee. The Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, asset, strategic, and reputational risks; review, approve and monitor adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework and Statement. The Risk Committee also reviews reports of examination by and communications from regulatory agencies, the results of internal and third-party testing and qualitative and quantitative assessments related to risk management, and any other matters within the scope of the Risk Committee’s oversight responsibilities. The Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, compensation risk management and other areas of joint responsibility. In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods. BancShares monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to the “Regulatory Considerations” section of Item 1. Business included in this Annual Report on Form 10-K for further discussion. BancShares has been assessing the emerging impacts of the international tensions that could impact the economy and exacerbate headwinds of elevated market volatility, global supply chain disruptions, and recessionary pressures as well as operational risks such as those associated with potential cyberattacks for FCB and third parties upon whom it relies. Assessments have not identified material impacts to date, but those assessments will remain ongoing as the conditions continue to exist. BancShares is also assessing the potential risk of an economic slowdown or recession that could create increased credit and market risk having downstream impacts on earnings, capital, and/or liquidity. While economic data continues to be mixed, baseline economic forecasts currently reflect a more marked decline in CRE properties due to current interest rate levels that impacted the ALLL forecasts. Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. 72 CREDIT RISK Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or Non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type, and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an appropriate ALLL that accounts for expected losses over the life of the loan and lease portfolios. Commercial Lending and Leasing BancShares employs a credit ratings system where each commercial loan is assigned a probability of default, loss given default, and/or overall credit rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. These models incorporate both internal and external historical default and loss data, as well as other borrower and loan characteristics, to assign a risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts and circumstances, that in management’s judgment, warrant a modification of the modeled risk rating to arrive at the final approved risk ratings. Consumer Lending Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards. Credit decisions are made after analyzing quantitative and qualitative factors, including borrower’s ability to repay the loan, collateral values, and considering the transaction from a judgmental perspective. Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant. Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions. Loans may also be monitored during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of the underlying collateral may be conducted. Our ALLL estimate as of December 31, 2023 included extensive reviews of the changes in credit risk associated with the uncertainties around macroeconomic forecasts. These loss estimates consider industry risk and the actual net losses incurred during prior periods of economic stress as well as recent credit trends. Our ALLL methodology is discussed further in the section entitled “Critical Accounting Estimates” of this MD&A and Note 1—Significant Accounting Policies and Basis of Presentation. Allowance for Loan and Lease Losses The ALLL at December 31, 2023 was $1.75 billion, representing an increase of $825 million from $922 million at December 31, 2022. The ALLL as a percentage of total loans and leases at December 31, 2023 was 1.31%, compared to 1.30% at December 31, 2022. The $825 million increase in the ALLL compared to December 31, 2022 was primarily due to the impact of the SVBB Acquisition, including the initial ALLL for PCD loans and leases (the “Initial PCD ALLL”) of $220 million and the day 2 provision for loans and leases of $462 million. The increase also reflected credit quality deterioration in certain commercial portfolios, particularly general office, increases in specific reserves in the investor dependent portfolio, and deterioration in the macroeconomic forecast. The increase in the ALLL from December 31, 2022 included $555 million related to SVB loans, an increase of $257 million and $13 million related to commercial loans and consumer loans, respectively. 73 Table 28 ALLL for Loans and Leases [[GREPCENT_TABLE]] [["dollars in millions","Year Ended December 31, 2023"],["","Commercial","","Consumer","","SVB","","Total"],["Balance at beginning of period","$","789","","","$","133","","","$","\u2014","","","$","922"],["Initial PCD ALLL","\u2014","","","\u2014","","","220","","","220"],["Day 2 provision for loan and lease losses","\u2014","","","\u2014","","","462","","","462"],["Provision for loan and lease losses","541","","","27","","","135","","","703"],["Total provision for loans and lease losses","541","","","27","","","597","","","1,165"],["Charge-offs","(328)","","","(28)","","","(282)","","","(638)"],["Recoveries","44","","","14","","","20","","","78"],["Balance at end of period","$","1,046","","","$","146","","","$","555","","","$","1,747"],["Net charge-off ratio","","","","","","","0.47","%"],["Net charge-offs","$","284","","","$","14","","","$","262","","","$","560"],["Average loans","","","","","","","119,176"],["Percent of loans in each category to total loans","45","%","","14","%","","41","%","","100","%"],["","Year Ended December 31, 2022"],["","Commercial","","Consumer","","SVB","","Total"],["Balance at beginning of period","$","80","","","$","98","","","$","\u2014","","","$","178"],["Initial PCD ALLL","258","","","14","","","\u2014","","","272"],["Day 2 provision for loan and lease losses","432","","","22","","","\u2014","","","454"],["Provision (benefit) for loan and lease losses","101","","","(4)","","","\u2014","","","97"],["Total provision for loans and lease losses","533","","","18","","","\u2014","","","551"],["Charge-offs","(126)","","","(20)","","","\u2014","","","(146)"],["Recoveries","44","","","23","","","\u2014","","","67"],["Balance at end of period","$","789","","","$","133","","","$","\u2014","","","$","922"],["Net charge-off ratio","","","","","","","0.12","%"],["Net charge-offs (recoveries)","$","82","","","$","(3)","","","$","\u2014","","","$","79"],["Average loans","","","","","","","67,730"],["Percent of loans in each category to total loans","76","%","","24","%","","\u2014","%","","100","%"],["","Year Ended December 31, 2021"],["","Commercial","","Consumer","","SVB","","Total"],["Balance at beginning of period","$","92","","","$","133","","","$","\u2014","","","$","225"],["Benefit for credit losses - loans and leases","(7)","","","(30)","","","\u2014","","","(37)"],["Charge-offs","(18)","","","(18)","","","\u2014","","","(36)"],["Recoveries","13","","","13","","","\u2014","","","26"],["Balance at end of period","$","80","","","$","98","","","$","\u2014","","","$","178"],["Net charge-off ratio","","","","","","","0.03","%"],["Net charge-offs","$","5","","","$","5","","","$","\u2014","","","$","10"],["Average loans","","","","","","","32,750"],["Percent of loans in each category to total loans","70","%","","30","%","","\u2014","%","","100","%"]] [[/GREPCENT_TABLE]] Net charge-offs during 2023 were $560 million, an increase of $481 million from $79 million during 2022. The net charge-off ratio was 0.47% and 0.12% for 2023 and 2022, respectively. The increase in net charge-offs compared to 2022 primarily reflects charge-offs related to SVB loans and commercial loans. Within the SVB segment, net charge-offs were concentrated in investor dependent loans. Commercial loan net charge-offs in 2023 were concentrated in certain portfolios, including equipment finance, general office, and energy. 74 The following table provides trends in the ALLL ratios: Table 29 ALLL Ratios [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["ALLL","$","1,747","","","$","922","","","$","178"],["Total loans and leases","133,302","","","70,781","","","32,372"],["ALLL to total loans and leases","1.31","%","","1.30","%","","0.55","%"],["Commercial loans and leases:"],["ALLL - commercial","$","1,046","","","$","789","","","$","80"],["Commercial loans and leases","59,698","","","53,455","","","22,586"],["Commercial ALLL to commercial loans and leases","1.75","%","","1.48","%","","0.35","%"],["Consumer loans:"],["ALLL - consumer","$","146","","","$","133","","","$","98"],["Consumer loans","18,591","","","17,326","","","9,786"],["Consumer ALLL to consumer loans","0.78","%","","0.77","%","","1.01","%"],["SVB loans:"],["ALLL - SVB","$","555","","","$","\u2014","","","$","\u2014"],["SVB loans","55,013","","","\u2014","","","\u2014"],["SVB ALLL to SVB loans","1.01","%","","\u2014","%","","\u2014","%"]] [[/GREPCENT_TABLE]] The reserve for off-balance sheet credit exposures was $316 million at December 31, 2023, an increase of $210 million compared to $106 million at December 31, 2022. The increase from December 31, 2022 primarily reflects the $254 million day 2 provision for off-balance sheet credit exposures related to the SVBB Acquisition, partially offset by subsequent declines in the SVB unfunded commitments. Refer to Note 24—Commitments and Contingencies for information relating to off-balance sheet commitments. The following table presents the ALLL by loan class: Table 30 ALLL by Loan Class [[GREPCENT_TABLE]] [["dollars in millions:","December 31, 2023","","December 31, 2022","","December 31, 2021"],["","ALLL","","ALLL as a Percentage of Loans","","ALLL","","ALLL as a Percentage of Loans","","ALLL","","ALLL as a Percentage of Loans"],["Commercial"],["Commercial construction","$","43","","","1.23","%","","$","40","","","1.43","%","","$","5","","","0.44","%"],["Owner occupied commercial mortgage","42","","","0.27","","","61","","","0.42","","","28","","","0.23"],["Non-owner occupied commercial mortgage","284","","","2.46","","","181","","","1.83","","","16","","","0.52"],["Commercial and industrial","633","","","2.34","","","476","","","1.98","","","29","","","0.49"],["Leases","44","","","2.12","","","31","","","1.41","","","2","","","0.76"],["Total commercial","1,046","","","1.75","","","789","","","1.48","","","80","","","0.35"],["Consumer"],["Residential mortgage","77","","","0.53","","","74","","","0.55","","","39","","","0.63"],["Revolving mortgage","15","","","0.76","","","13","","","0.67","","","18","","","1.02"],["Consumer auto","5","","","0.34","","","5","","","0.37","","","5","","","0.43"],["Consumer other","49","","","6.72","","","41","","","6.32","","","36","","","6.60"],["Total consumer","146","","","0.78","","","133","","","0.77","","","98","","","1.01"],["SVB"],["Global fund banking","68","","","0.27","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Investor dependent - early stage","96","","","6.84","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Investor dependent - growth stage","127","","","4.40","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Innovation and cash flow dependent","165","","","1.70","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Private Bank","25","","","0.26","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["CRE","53","","","1.98","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Other","21","","","0.71","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total SVB","555","","","1.01","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total ALLL","$","1,747","","","1.31","%","","$","922","","","1.30","%","","$","178","","","0.55","%"]] [[/GREPCENT_TABLE]] 75 Credit Metrics Nonperforming Assets Nonperforming assets include nonaccrual loans and leases, OREO and repossessed assets. Nonperforming assets include both Non-PCD and PCD loans. Non-PCD loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable that principal or interest is not fully collectable. When Non-PCD loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. Non-PCD loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time as to both principal and interest and there is no longer concern as to the collectability of principal and interest. Accretion of income for PCD loans is discontinued when we are unable to estimate the amount or timing of cash flows. PCD loans may begin or resume accretion of income when information becomes available that allows us to estimate the amount and timing of future cash flows. OREO includes foreclosed property and branch facilities that we have closed but not sold. Net book values of OREO are reviewed at least annually to evaluate reasonableness of the carrying value. The level of review is dependent on the value and type of the collateral, with higher value and more complex properties receiving a more detailed review. Changes to the value of the assets between scheduled valuation dates are monitored through communication with brokers and monthly reviews by the asset manager assigned to each asset. The asset manager uses the information gathered from brokers and other market sources to identify any significant changes in the market or the subject property as they occur. Valuations are then adjusted or new appraisals are ordered to ensure the reported values reflect the most current information. Since OREO is carried at the lower of cost or market value, less estimated selling costs, book value adjustments are only recorded when fair values have declined. Decisions regarding write-downs are based on factors including appraisals, previous offers received on the property, market conditions and the number of days the property has been on the market. The following table presents total nonperforming assets: Table 31 Non-Performing Assets [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Nonaccrual loans:"],["Commercial loans","$","641","","","$","529","","","$","45"],["Consumer loans","122","","","98","","","76"],["SVB loans","206","","","\u2014","","","\u2014"],["Total nonaccrual loans","969","","","627","","","121"],["Other real estate owned and repossessed assets","62","","","47","","","40"],["Total nonperforming assets","$","1,031","","","$","674","","","$","161"],["ALLL to total loans and leases","1.31","%","","1.30","%","","0.55","%"],["Ratio of total nonperforming assets to total loans, leases, other real estate owned and repossessed assets","0.77","","","0.95","","","0.49"],["Ratio of nonaccrual loans and leases to total loans and leases","0.73","","","0.89","","","0.37"],["Ratio of ALLL to nonaccrual loans and leases","180.15","","","146.88","","","148.37"]] [[/GREPCENT_TABLE]] Nonaccrual loans and leases at December 31, 2023 were $969 million, an increase of $342 million from $627 million at December 31, 2022. The increase from December 31, 2022 included $206 million of loans in the acquired SVB portfolios. The SVB nonaccrual loans were mostly in the investor dependent and real estate portfolios. The increase related to commercial loans was mostly in the non-owner occupied commercial mortgage portfolio. Refer below for certain metrics on general office loans and to Note 4—Loans and Leases for tabular presentation of nonaccrual loans by loan class. OREO and repossessed assets at December 31, 2023 was $62 million, compared to $47 million at December 31, 2022. Nonperforming assets as a percentage of total loans, leases, OREO and repossessed assets at December 31, 2023 was 0.77% compared to 0.95% at December 31, 2022. Past Due Accounts The percentage of loans 30 days or more past due at December 31, 2023 was 1.16% of total loans, compared to 1.22% at December 31, 2022. Delinquency status of loans is presented in Note 4—Loans and Leases. 76 Commercial Real Estate Portfolio Our CRE portfolio is diversified across various property types. The following table provides an overview of the property type exposures within our CRE portfolio. Table 32 Commercial Real Estate Portfolio [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023"],["","Balance","","% to Total Loans and Leases"],["Multi-Family","$","4,356","","","3.27","%"],["General Office","2,927","","","2.20"],["Medical Office","3,494","","","2.62"],["Industrial / Warehouse","2,888","","","2.07"],["Retail","1,828","","","1.37"],["Hotel/Motel","792","","","0.59"],["Other","4,967","","","3.73"],["Total","$","21,252","","","15.94","%"]] [[/GREPCENT_TABLE]] Evolving macroeconomic and social conditions (including the increase in remote working in connection with the COVID-19 pandemic) may result in changes for general office demand moving forward. Select metrics specific to our general office loan portfolio are as follows: Table 33 Select General Office Loan Metrics [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023"],["% of total loans and leases","2.20","%"],["% of commercial real estate loans","13.77","%"],["Average loan balance","$","2"],["Net charge-offs (%)","3.56","%"],["Delinquencies as a % of total CRE loans","13.56","%"],["Non-performing loans as a % of CRE loans","11.38","%"],["ALLL ratio","4.77","%"]] [[/GREPCENT_TABLE]] 77 Concentration Risk We strive to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to risk, such as our concentrations of real estate secured loans, revolving mortgage loans and healthcare-related loans. Additionally, SVB loans are concentrated in loans with large balances and loans in certain industries and customer groups, including private equity and venture capital. The following discussions present concentration data along our loan portfolio classes, Commercial, Consumer, and SVB. Commercial Loans Concentrations Geographic Concentrations The following table summarizes state concentrations greater than 5.0% of our loans. Data is based on obligor location unless secured by real estate, then data based on property location. Table 34 Commercial Loans and Leases - Geography [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["State"],["California","$","10,254","","","17.2","%","","$","9,226","","","17.3","%","","$","3,163","","","14.0","%"],["North Carolina","9,820","","","16.4","","","8,699","","","16.3","","","7,181","","","31.8"],["Texas","4,339","","","7.3","","","3,624","","","6.8","","","879","","","3.9"],["Florida","3,708","","","6.2","","","3,273","","","6.1","","","1,496","","","6.6"],["South Carolina","3,276","","","5.5","","","3,142","","","5.9","","","2,855","","","12.6"],["All other states","26,645","","","44.6","","","24,243","","","45.4","","","7,012","","","31.1"],["Total U.S.","$","58,042","","","97.2","%","","$","52,207","","","97.8","%","","$","22,586","","","100.0","%"],["Total International","1,656","","","2.8","","","1,248","","","2.2","","","\u2014","","","\u2014"],["Total","$","59,698","","","100.0","%","","$","53,455","","","100.0","%","","$","22,586","","","100.0","%"]] [[/GREPCENT_TABLE]] Industry Concentrations The following table represents loans by industry of obligor: Table 35 Commercial Loans and Leases - Industry [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Real Estate","$","14,049","","","23.6","%","","$","11,684","","","21.9","%","","$","4,279","","","18.9","%"],["Healthcare","8,960","","","15.0","","","8,146","","","15.2","","","6,997","","","31.0"],["Business Services","6,943","","","11.6","","","5,518","","","10.3","","","2,307","","","10.2"],["Transportation, Communication, Gas, Utilities","5,801","","","9.7","","","5,002","","","9.4","","","774","","","3.4"],["Manufacturing","4,421","","","7.4","","","4,387","","","8.2","","","1,347","","","6.0"],["Retail","3,550","","","5.9","","","3,462","","","6.5","","","1,301","","","5.8"],["Wholesale","3,496","","","5.9","","","2,605","","","4.9","","","882","","","3.9"],["Service Industries","2,813","","","4.7","","","4,213","","","7.9","","","722","","","3.2"],["Finance and Insurance","2,351","","","3.9","","","2,604","","","4.9","","","1,361","","","6.0"],["Other","7,314","","","12.3","","","5,834","","","10.8","","","2,616","","","11.6"],["Total","$","59,698","","","100.0","%","","$","53,455","","","100.0","%","","$","22,586","","","100.0","%"]] [[/GREPCENT_TABLE]] We have historically carried a concentration of real estate secured loans, but actively mitigate exposure through underwriting policies, which primarily rely on borrower cash flow rather than underlying collateral values. When we do rely on underlying real property values, we favor financing secured by owner-occupied real property. At December 31, 2023, commercial loans secured by real estate were $30.57 billion, or 51% of commercial loans and leases, compared to $27.18 billion, or 51% at December 31, 2022. Loans and leases to borrowers in medical, dental or other healthcare fields were $8.96 billion as of December 31, 2023, which represents 15.0% of commercial loans and leases, compared to $8.15 billion or 15.2% of commercial loans and leases at December 31, 2022. The credit risk of this industry concentration is mitigated through our underwriting policies that emphasize reliance on adequate borrower cash flow, rather than underlying collateral value and our preference for financing secured by owner-occupied real property. 78 Consumer Loans Concentrations Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes state concentrations greater than 5.0% based on customer address: Table 36 Consumer Loans - Geography [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["State"],["North Carolina","$","6,347","","","34.2","%","","$","5,702","","","32.9","%","","$","4,931","","","50.4","%"],["California","4,091","","","22.0","","","4,014","","","23.2","","","161","","","1.6"],["South Carolina","3,318","","","17.8","","","3,001","","","17.3","","","2,626","","","26.9"],["Other states","4,835","","","26.0","","","4,609","","","26.6","","","2,068","","","21.1"],["Total","$","18,591","","","100.0","%","","$","17,326","","","100.0","%","","$","9,786","","","100.0","%"]] [[/GREPCENT_TABLE]] Among consumer real estate secured loans, our revolving mortgage loans (“Home Equity Lines of Credit” or “HELOCs”) present a heightened risk due to long commitment periods during which the financial position of individual borrowers or collateral values may deteriorate significantly. In addition, a large percentage of our HELOCs are secured by junior liens. Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. HELOCs secured by real estate were $2.01 billion, or 11% of total consumer loans, at December 31, 2023, compared to $1.95 billion, or 11%, at December 31, 2022. Except for loans acquired through mergers and acquisitions, we have not purchased HELOCs in the secondary market, nor have we originated these loans to customers outside of our market areas. Originated HELOCs were underwritten by us based on our standard lending criteria. The HELOC portfolio consists of variable rate lines of credit which allow customer draws during a specified period of the line of credit, with a portion switching to an amortizing term following the draw period. Approximately 81.9% of the revolving mortgage portfolio relates to properties in North Carolina and South Carolina. Approximately 28.6% of the loan balances outstanding are secured by senior collateral positions while the remaining 71.4% are secured by junior liens. We actively monitor the portion of our HELOCs in the interest-only period and when they will mature. When HELOCs transition from interest-only to requiring principal and interest payments, some borrowers may not be able to afford the higher monthly payments. We have not experienced a significant increase in defaults as a result of these increased payments. In the normal course of business, we will work with each borrower as they approach the revolving period maturity date to discuss options for refinance or repayment. Silicon Valley Banking Loans The SVBB Acquisition occurred during 2023. Therefore, there are no prior year comparisons in the following tables and discussions. SVB loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions. 79 The table below summarizes SVB loans that are secured by real estate, at amortized cost: Table 37 Silicon Valley Banking Loans Secured by Real Estate [[GREPCENT_TABLE]] [["dollars in millions","","December 31, 2023"],["Private bank:"],["Loans for personal residence","","$","7,683"],["Loans to eligible employees","","535"],["Home equity lines of credit","","137"],["Other","","101"],["Total private bank loans secured by real estate","","8,456"],["CRE"],["Multifamily and residential investment","","815"],["Retail","","464"],["Office and medical","","506"],["Manufacturing, industrial and warehouse","","618"],["Hospitality","","155"],["Other","","140"],["Total CRE loans secured by real estate","","2,698"],["Premium wine","","905"],["Other","","697"],["Total real estate secured loans","","$","12,756"]] [[/GREPCENT_TABLE]] The SVB loan portfolio is focused on three primary markets: (i) Global Fund Banking, (ii) Technology and Life Science/Healthcare and (iii) Private Banking. The remainder of the portfolio is made up of CRE and other loans. Global Fund Banking The Global Fund Banking loan portfolio includes loans to clients in the private equity and venture capital community. Global Fund Banking represented 46% of SVB loans and 19% of total loans at December 31, 2023. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by financial covenants oriented towards ensuring that the funds’ remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors. Technology and Life Science/Healthcare The Technology and Life Science/Healthcare loan portfolios include loans to clients at the various stages of their life cycles. The classes of financing receivables for our technology and life science/healthcare market segments are classified as Investor Dependent - Early Stage, Investor Dependent - Growth Stage, and Innovation Commercial and Industrial (“C&I”) and Cash Flow Dependent for reporting purposes. Investor Dependent - Early Stage loans represented 3% of SVB loans and 1% of total loans at December 31, 2023. These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third-party or an initial public offering. Investor Dependent - Growth Stage loans represented 5% of SVB loans and 2% of total loans at December 31, 2023. These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid-stage, and companies with revenues in excess of $15 million are considered to be later-stage. Innovation C&I and Cash Flow Dependent loans represented 18% of SVB loans and 7% of total loans at December 31, 2023. This portfolio is comprised of two types of loans, Innovation C&I and Cash Flow Dependent. Innovation C&I includes loans in innovation sectors such as technology and life science/healthcare industries. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash Flow Dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities. 80 Private Banking Private Banking clients consist of executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients. Lending to Private Banking clients represented 18% of SVB loans and 7% of total loans at December 31, 2023. Many Private Banking products are secured by real estate. These products include mortgage loans, owner-occupied commercial mortgage loans, HELOCs, and other secured lending products. The remaining balance of the Private Banking portfolio consists of personal capital call lines of credit, restricted and private stock loans and other secured and unsecured lending products. CRE The CRE class represented 5% of SVB loans and 2% of total loans at December 31, 2023. This class consists generally of acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space. All CRE products are secured by real estate collateral. Other This class includes Premium Wine, Other C&I and other portfolios, which represented 5% of SVB loans and 2% of total loans at December 31, 2023. Premium wine loans are to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of premium wine loans are secured by real estate collateral. Other C&I loans include tax-exempt commercial loans to not-for-profit private schools, colleges, public charter schools and other not-for-profit organizations as well as commercial loans to clients that are not in technology and life sciences/healthcare industries. Our other class of loans is primarily comprised of construction and land loans for financing new developments or financing improvements to existing buildings, as well as loans made as part of our responsibilities under the CRA. The following table provides a summary of SVB loans by size and class. The breakout below is based on total client balances (individually or in the aggregate) as of December 31, 2023: Table 38 Silicon Valley Banking Loans by Size and Class [[GREPCENT_TABLE]] [["dollars in millions","","Less Than $5 Million","","$5 to $10 Million","","$10 to $20 Million","","$20 to $30 Million",""," $30 Million","","Total SVB Loans"],["Global fund banking","","$","935","","","$","1,474","","","$","2,596","","","$","2,251","","","$","18,296","","","$","25,552"],["Investor dependent - early stage","","982","","","313","","","111","","","\u2014","","","\u2014","","","1,406"],["Investor dependent - growth stage","","632","","","957","","","746","","","191","","","374","","","2,900"],["Innovation C&I and cash flow dependent","","264","","","306","","","934","","","1,439","","","6,721","","","9,664"],["Private Bank","","7,414","","","920","","","866","","","220","","","403","","","9,823"],["CRE","","687","","","511","","","724","","","464","","","310","","","2,696"],["Other","","489","","","609","","","701","","","650","","","523","","","2,972"],["Total","","$","11,403","","","$","5,090","","","$","6,678","","","$","5,215","","","$","26,627","","","$","55,013"]] [[/GREPCENT_TABLE]] SVB Loans - State Concentrations The following table summarizes state concentrations greater than 5.0% within the SVB loans portfolio at December 31, 2023, based on borrower location: Table 39 Silicon Valley Banking Loans - Geography [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023"],["State"],["California","$","17,724","","","32.2","%"],["Massachusetts","8,470","","","15.4"],["New York","7,952","","","14.5"],["Texas","4,071","","","7.4"],["Connecticut","3,471","","","6.3"],["All other states","11,603","","","21.1"],["Total U.S.","53,291","","","96.9"],["Total International","1,722","","","3.1"],["Total","$","55,013","","","100.0","%"]] [[/GREPCENT_TABLE]] 81 COUNTERPARTY RISK We enter into interest rate derivatives and foreign exchange forward contracts as part of our overall risk management practices and also on behalf of our clients. We establish risk metrics and evaluate and manage the counterparty risk associated with these derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework and Statement. Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to the ability of a counterparty to perform its financial obligations under the derivative contract. We seek to control credit risk of derivative agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures, which are integrated with our cash and issuer related credit processes. The applicable Chief Credit Officer, or delegate, approves each counterparty and establishes exposure limits based on credit analysis of each counterparty. Derivative agreements for BancShares’ risk management purposes and for the hedging of client transactions are executed with major financial institutions and are settled through the major clearing exchanges, which are rated investment grade by nationally recognized statistical rating agencies. Credit exposure is mitigated via the exchange of collateral between the counterparties covering mark-to-market valuations. Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes. ASSET RISK Asset risk is a form of price risk that is a primary risk of our leasing businesses. This relates to the risk of earning capital arising from changes in the value of owned leasing equipment. Asset risk in our leasing business is evaluated and managed in the divisions and overseen by risk management processes. In our asset-based lending business, we also use residual value guarantees to mitigate or partially mitigate exposure to end of lease residual value exposure on certain of our finance leases. Our business process consists of: (1) setting residual values at transaction inception, (2) systematic periodic residual value reviews, and (3) monitoring levels of residual realizations. Residual realizations, by business and product, are reviewed as part of the quarterly financial and asset quality review. Reviews for impairment are performed at least annually. In combination with other risk management and monitoring practices, asset risk is monitored through: reviews of the equipment markets, including utilization rates and traffic flows; the evaluation of supply and demand dynamics; the impact of new technologies; and changes in regulatory requirements on different types of equipment. At a high level, demand for equipment is correlated with Gross Domestic Product (“GDP”) growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses. For instance, in the Rail segment, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates. MARKET RISK Interest rate risk management BancShares is exposed to the risk that changes in market conditions may affect interest rates and negatively impact earnings. The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes in the level or shape of the yield curve. BancShares manages this inherent risk strategically based on prescribed guidelines and approved limits. Interest rate risk can arise from many of BancShares’ business activities, such as lending, leasing, investing, deposit taking, derivatives, and funding activities. We evaluate and monitor interest rate risk primarily through two metrics. •Net Interest Income Sensitivity (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; and •Economic Value of Equity (“EVE”) Sensitivity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments. BancShares uses a holistic process to measure and monitor both short term and long term risks, which includes, but is not limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship of various yield curves. NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet. 82 Our exposure to NII Sensitivity is guided by the Risk Appetite Framework and Statement and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line actions and actions within the investment, funding and derivative portfolios. The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII Sensitivity, whereby our assets will reprice faster than our liabilities. Our funding sources consist primarily of deposits and we also support our funding needs through wholesale funding sources (including unsecured and secured borrowings). The SVBB Acquisition significantly increased our balance sheet and changed our rate sensitivity. At the time of the SVBB Acquisition, we assumed $56.01 billion of deposits, entered into a $36.07 billion fixed-rate Purchase Money Note payable to the FDIC, and acquired $68.47 billion of loans, most of which have variable rates, and $35.31 billion of cash and interest-bearing deposits at banks. The deposit rates we offer are influenced by market conditions and competitive factors. Market rates are the key drivers of deposit costs and we continue to optimize deposit costs by improving our deposit mix. Changes in interest rates, expected funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing. We believe our targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits. We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities. The following table summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management system. These simulations assume static balance sheet replacement with like products and implied forward market rates, but also incorporate additional assumptions, including prepayment estimates, pricing estimates, deposit behaviors, and using internal models. The below simulations assume an immediate 25, 100 and 200 bps parallel increase and decrease from the market-based forward curve for December 31, 2023, 2022, and 2021. Table 40 Net Interest Income Sensitivity Simulation Analysis [[GREPCENT_TABLE]] [["","","Estimated (Decrease) Increase in NII"],["Change in interest rate (bps)","","December 31, 2023","","December 31, 2022","","December 31, 2021"],["-200","","(20.1)","%","","(9.0)","%","","\u2014","%"],["-100","","(10.0)","","","(4.0)","","","(5.8)"],["-25","","(2.5)","","","(0.9)","","","(1.2)"],["+25","","2.4","","","0.8","","","1.1"],["+100","","9.8","","","3.4","","","3.2"],["+200","","19.4","","","6.7","","","6.3"]] [[/GREPCENT_TABLE]] NII Sensitivity metrics at December 31, 2023, compared to December 31, 2022, were primarily affected by the addition of the acquired loans and assumed deposits as part of the SVBB Acquisition, as well as the Purchase Money Note and the higher cash balance to manage liquidity risk from the acquired portfolios. As of December 31, 2023, BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings was largely driven by the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as estimates of modest future deposit betas. Approximately 65%-70% of our loans have floating contractual reference rates, indexed primarily to the Prime Lending Rate and Secured Overnight Financing Rate (“SOFR”). Deposit betas are currently modeled to have a portfolio average of approximately 35%-40% over the twelve-month forecast horizon. Deposit beta is the portion of a change in the federal funds rate that is passed on to the deposit rate. Actual deposit betas may be different than modeled, depending on various factors, including liquidity requirements, deposit mix and competitive pressures. Impacts to NII Sensitivity may change due to actual results differing from modeled expectations. As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon. EVE Sensitivity measures the change in the EVE driven by changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates. EVE Sensitivity was calculated by estimating the change in the net present value of assets, liabilities, and off-balance sheet items under various rate movements. 83 The following table presents the EVE profile as of December 31, 2023, 2022, and 2021: Table 41 Economic Value of Equity Modeling Analysis [[GREPCENT_TABLE]] [["","","Estimated (Decrease) Increase in EVE"],["Change in interest rate (bps)","","December 31, 2023","","December 31, 2022","","December 31, 2021"],["-200","","(7.2)","%","","(12.1)","%","","\u2014","%"],["-100","","(3.2)","","","(5.3)","","","(13.7)"],["-25","","(0.7)","","","(1.2)","","","\u2014"],["+100","","2.6","","","4.1","","","6.1"],["+200","","4.8","","","3.0","","","5.9"]] [[/GREPCENT_TABLE]] The EVE metrics at December 31, 2023 compared to December 31, 2022 were primarily affected by the balance sheet changes noted earlier due to the SVBB Acquisition. In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system. Scenarios that impact balance sheet composition or the sensitivity to key assumptions are also evaluated. We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using derivatives to mitigate earnings volatility. The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. 84 The following table provides loan maturity distribution information: Table 42 Loan Maturity Distribution [[GREPCENT_TABLE]] [["dollars in millions","At December 31, 2023, Maturing"],["","Within One Year","","One to Five Years","","Five to 15 Years","","After 15 Years","","Total"],["Commercial"],["Commercial construction","$","1,122","","","$","1,693","","","$","639","","","$","11","","","$","3,465"],["Owner occupied commercial mortgage","1,702","","","6,906","","","6,699","","","260","","","15,567"],["Non-owner occupied commercial mortgage","3,041","","","6,213","","","1,651","","","635","","","11,540"],["Commercial and industrial","8,823","","","15,684","","","2,377","","","188","","","27,072"],["Leases","574","","","1,261","","","219","","","\u2014","","","2,054"],["Total commercial","15,262","","","31,757","","","11,585","","","1,094","","","59,698"],["Consumer"],["Residential mortgage","529","","","2,314","","","5,101","","","6,478","","","14,422"],["Revolving mortgage","58","","","200","","","690","","","1,059","","","2,007"],["Consumer auto","324","","","993","","","125","","","\u2014","","","1,442"],["Consumer other","168","","","395","","","146","","","11","","","720"],["Total consumer","1,079","","","3,902","","","6,062","","","7,548","","","18,591"],["SVB"],["Global fund banking","24,076","","","1,355","","","122","","","\u2014","","","25,553"],["Investor dependent - early stage","116","","","1,287","","","\u2014","","","\u2014","","","1,403"],["Investor dependent - growth stage","277","","","2,620","","","\u2014","","","\u2014","","","2,897"],["Innovation and cash flow dependent","1,287","","","8,038","","","333","","","\u2014","","","9,658"],["Private Bank","216","","","443","","","993","","","8,170","","","9,822"],["CRE","239","","","1,737","","","646","","","76","","","2,698"],["Other","749","","","752","","","861","","","620","","","2,982"],["Total SVB","26,960","","","16,232","","","2,955","","","8,866","","","55,013"],["Total loans and leases","$","43,301","","","$","51,891","","","$","20,602","","","$","17,508","","","$","133,302"]] [[/GREPCENT_TABLE]] 85 The following table provides information regarding the sensitivity of loans and leases to changes in interest rates: Table 43 Loan Interest Rate Sensitivity [[GREPCENT_TABLE]] [["dollars in millions","Loans Maturing One Year or After with"],["","Fixed Interest Rates","","Variable Interest Rates"],["Commercial"],["Commercial construction","$","950","","","$","1,393"],["Owner occupied commercial mortgage","12,515","","","1,350"],["Non-owner occupied commercial mortgage","3,886","","","4,613"],["Commercial and industrial","8,802","","","9,447"],["Leases","1,467","","","13"],["Total commercial","27,620","","","16,816"],["Consumer"],["Residential mortgage","7,294","","","6,599"],["Revolving mortgage","33","","","1,916"],["Consumer auto","1,118","","","\u2014"],["Consumer other","272","","","280"],["Total consumer","8,717","","","8,795"],["SVB"],["Global fund banking","7","","","1,470"],["Investor dependent - early stage","22","","","1,265"],["Investor dependent - growth stage","2","","","2,618"],["Innovation and cash flow dependent","\u2014","","","8,371"],["Private Bank","1,954","","","7,652"],["CRE","1,171","","","1,288"],["Other","1,447","","","786"],["Total SVB","4,603","","","23,450"],["Total loans and leases","$","40,940","","","$","49,061"]] [[/GREPCENT_TABLE]] Reference Rate Reform The U.S. Dollar London Inter-Bank Offered Rate (“LIBOR”) officially ceased reporting at close of business June 30, 2023. The U.K. Financial Conduct Authority at such time announced that LIBOR is “Not Representative” going forward. In April 2018, the FRB of New York commenced publication of SOFR, which has been recommended as an alternative to LIBOR by the Alternative Reference Rates Committee, a group of market and official sector participants. On March 15, 2022, the U.S. Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest Act (“LIBOR Act”), which provides certain statutory requirements and guidance for the selection and use of alternative reference rates in legacy financial contracts governed by U.S. law that do not provide for the use of a clearly defined or practicable alternative reference rate. On July 19, 2022, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking on a proposed regulation to implement the LIBOR Act, as required by its terms. The LIBOR Act requires implementing regulations be in place within 180 days of its enactment. The final rule was approved by the FRB on December 16, 2022 and became effective February 27, 2023. The CFPB issued an interim final rule, effective May 15, 2023. This further addresses the planned cessation of most LIBOR tenors after June 30, 2023, by incorporating the FRB selected benchmark replacement for consumer loans into Regulation Z open-end and closed-end credit provisions. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the LIBOR Act. BancShares has adopted FRB-selected benchmark replacements to take advantage of the safe harbors, where applicable, that are afforded in the rule. All consumer and commercial clients with contracts providing FCB with unilateral lender discretion were notified in April 2023 of LIBOR’s cessation and FCB’s preferred replacement index, SOFR. During the second quarter of 2023, FCB added replacement indices to all impacted systems. The remaining servicing task for both General Banking and Commercial Banking is to link transactions to the new index as the index becomes effective (next reset date). In the months leading up to the cessation of LIBOR, Commercial Banking engaged in a proactive exercise to amend existing contracts where it would provide a positive client experience. All amendments are completed. Synthetic LIBOR for 1, 3 and 6 month tenors will be reported through the end of September 2024 and is calculated based on CME Term SOFR plus the relevant International Swaps and Derivatives Association agreement fixed spread adjustments. 86 As loans mature and new originations occur a larger percentage of BancShares’ variable-rate loans are expected to reference SOFR in response to the discontinuation of LIBOR. However, we are positioned to accommodate other alternative reference rates (e.g., credit sensitive rates) in response to how the market evolves. Further, BancShares has moved to Term SOFR plus the Alternative Reference Rates Committee recommended credit spread adjustment for its fixed-to-floating rate, non-cumulative perpetual preferred stock Series B (“Series B Preferred Stock”) since the dividends were previously based on a floating rate tied to three-month LIBOR. The last dividend payment based on a LIBOR accrual occurred on September 15, 2023. Some acquired assets, such as loans and derivatives as well as derivative liabilities, from the SVBB Acquisition have LIBOR settings. Processes and procedures are in place to have these LIBOR exposures reference alternative rates, such as Term SOFR and Daily SOFR at the next reset date. LIQUIDITY RISK Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent with this strategy, we maintain sufficient amounts of Available Cash and High Quality Liquid Securities (“HQLS”). Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, brokered certificates of deposit issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties. We utilize measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid assets, and contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events. BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares maintains a contingent funding plan, which details protocols and potential actions to be taken under liquidity stress conditions. Liquidity includes Available Cash and HQLS. At December 31, 2023 we had $57.28 billion of total Liquid Assets (26.8% of total assets) and $33.94 billion of contingent liquidity sources available. Table 44 Liquidity [[GREPCENT_TABLE]] [["dollars in millions","","December 31, 2023"],["Available cash","","$","32,693"],["High quality liquid securities (1)","","24,591"],["Liquid assets","","$","57,284"],["Credit Facilities:","","Current Capacity (2)"],["FDIC facility (3)","","$","15,107"],["FHLB facility (4)","","13,622"],["FRB facility","","5,115"],["Line of credit","","100"],["Total contingent sources","","$","33,944"],["Total liquid assets and contingent sources","","$","91,228"]] [[/GREPCENT_TABLE]] (1)    Consists of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and U.S. Agency investment securities held outright or via reverse repurchase agreements. (2)    Current capacity is based on the amount of collateral pledged and available for use at December 31, 2023. (3)    Advance Facility Agreement with the FDIC obtained in connection with SVBB Acquisition and has a maximum capacity of $70 billion, subject to additional collateral pledge requirements. See below for additional details and limits on use. (4)    See following table for additional details. 87 We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our various deposit channels, including our branch network and Direct Bank. Total deposits at December 31, 2023 were $145.85 billion, an increase of $56.45 billion from $89.41 billion at December 31, 2022. The increase in deposits from December 31, 2022 primarily reflected additional deposits from the SVBB Acquisition, and growth in the Direct Bank. We use borrowings to diversify the funding of our business operations. Total borrowings at December 31, 2023 were $37.65 billion, an increase of $31.01 billion from $6.65 billion at December 31, 2022. The increase in borrowings from December 31, 2022 primarily reflected the Purchase Money Note (see Note 2—Business Combinations), partially offset by FHLB repayments. In addition to the Purchase Money Note and FHLB advances, borrowings also include senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes. Refer to the respective “Deposits” and “Borrowings” sections of this MD&A for further details. FHLB Capacity A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment. Certain related cash balances are restricted. Table 45 FHLB Balances [[GREPCENT_TABLE]] [["dollars in millions","December 31, 2023","","December 31, 2022","","December 31, 2021"],["Total borrowing capacity","$","15,072","","","$","14,918","","","$","9,564"],["Less:"],["Advances","\u2014","","","4,250","","","645"],["Letters of credit (1)","1,450","","","1,450","","","\u2014"],["Available capacity","$","13,622","","","$","9,218","","","$","8,919"],["Pledged Non-PCD loans (contractual balance)","$","25,370","","","$","23,491","","","$","14,507"],["Weighted average rate on advances","\u2014","%","","3.28","%","","1.28","%"]] [[/GREPCENT_TABLE]] (1)    Letters of credit were established with the FHLB to collateralize public funds. FRB Capacity Under borrowing arrangements with the FRB of Richmond, FCB has access to $5.12 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at December 31, 2023, 2022, and 2021. In March 2023, following the failures of Silicon Valley Bank and Signature Bank, the FRB created a new Bank Term Funding Program (the “Funding Program”) as an additional source of liquidity against high-quality securities in order to make additional funding available to eligible depository institutions. The Funding Program offers loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral, provided that such collateral was owned by the borrower as of March 12, 2023. These pledged assets will be valued at par under the Funding Program. Eligible institutions can request advances under the Funding Program until March 11, 2024. As of December 31, 2023, we did not have any securities pledged or amounts advanced related to this program. FDIC Credit Facility FCB and the FDIC entered into the Advance Facility Agreement, dated as of March 27, 2023, and effective as of November 20, 2023, providing total advances available through March 27, 2025 of up to $70 billion (subject to the limits described below) solely to provide liquidity to offset deposit withdrawal or runoff of former SVBB deposit accounts and to fund the unfunded commercial lending commitments acquired in the SVBB Acquisition. Borrowings outstanding under the Advance Facility Agreement are limited to an amount equal to the value of loans and other collateral obtained from SVBB plus the value of any other unencumbered collateral agreed by the parties to serve as additional collateral, reduced by the amount of principal and accrued interest outstanding under the Purchase Money Note and the accrued interest on the Advance Facility Agreement. Interest on any outstanding principal amount accrues at a variable rate equal to the three-month weighted average of the Daily Simple SOFR plus 25 bps (but in no event less than 0.00%). The facility had a current capacity of $15.11 billion and was not utilized as of December 31, 2023. See Note 2—Business Combinations for further discussion. 88 Contractual Obligations and Commitments The following table includes significant contractual obligations and commitments as of December 31, 2023, representing required and potential cash outflows, including impacts from purchase accounting adjustments and deferred fees. See Note 24—Commitments and Contingencies for additional information regarding commitments. Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows, as many are expected to expire unused or partially used. Balances related to the SVBB Acquisition are primarily included in financing commitments, letters of credit and affordable housing partnerships. Table 46 Contractual Obligations and Commitments [[GREPCENT_TABLE]] [["dollars in millions","Payments Due by Period"],["","Less than 1 year","","1-3 years","","4-5 years","","Thereafter","","Total"],["Contractual obligations:"],["Time deposits (1)","$","15,175","","","$","1,200","","","$","52","","","$","\u2014","","","$","16,427"],["Short-term borrowings","485","","","\u2014","","","\u2014","","","\u2014","","","485"],["Long-term borrowings (1)(2)","(34)","","","207","","","36,996","","","\u2014","","","37,169"],["Total contractual obligations","$","15,626","","","$","1,407","","","$","37,048","","","$","\u2014","","","$","54,081"],["Commitments:"],["Financing commitments","$","34,145","","","$","12,873","","","$","4,669","","","$","5,880","","","$","57,567"],["Letters of credit","1,990","","","308","","","211","","","6","","","2,515"],["Deferred purchase agreements","2,076","","","\u2014","","","\u2014","","","\u2014","","","2,076"],["Purchase and funding commitments","685","","","\u2014","","","\u2014","","","\u2014","","","685"],["Affordable housing partnerships (1)","510","","","379","","","19","","","39","","","947"],["Total commitments","$","39,406","","","$","13,560","","","$","4,899","","","$","5,925","","","$","63,790"]] [[/GREPCENT_TABLE]] (1)    Time deposits and long-term borrowings are presented net of purchase accounting adjustments of $11 million and $163 million, respectively. On-balance sheet commitments for affordable housing partnerships are included in other liabilities and presented net of a purchase accounting adjustment of $57 million . (2)    Less than 1 year balance represents the estimated amortization of the purchase accounting adjustment and deferred costs in excess of scheduled repayments. CRA Investment Commitment BancShares has a community benefit plan, developed in collaboration with representatives of community reinvestment organizations. See further discussion on CRA, including details on investment commitments, in the subsection “Subsidiary Bank - FCB” in Item 1. Business—Regulatory Considerations of this Annual Report on Form 10-K. CAPITAL Capital requirements applicable to BancShares are discussed in “Regulatory Considerations” section in Item 1. Business of this Annual Report on Form 10-K, including a discussion of an NPR issued by the federal banking agencies regarding enhanced capital requirements. The SVBB Acquisition was the primary cause of increase in BancShares’ total assets, from $109.30 billion at December 31, 2022 to $213.76 billion at December 31, 2023. BancShares’ total consolidated assets remains between $100 billion and $250 billion, and, as such, BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods. However, the proposed interagency rulemaking recently announced by the FDIC, the Federal Reserve and the OCC could alter the capital framework for banks with total assets of $100 billion or more. We are continuing to monitor these proposed rules. For further discussion, refer to the section entitled “Regulatory Considerations” in Item 1. Business of this Annual Report of Form 10-K. BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments. The capital management framework requires contingency plans be defined and may be employed at management’s discretion. 89 Common and Preferred Stock Dividends During the first, second and third quarters of 2023, we paid quarterly dividends of $0.75 on the Class A common stock and Class B common stock. On October 24, 2023, our Board declared a quarterly dividend on the Class A common stock and Class B common stock of $1.64 per common share that was paid in the fourth quarter. On January 24, 2024, our Board declared a quarterly dividend on the Class A common stock and Class B common stock of $1.64 per common share. The dividends are payable on March 15, 2024 to stockholders of record as of February 29, 2024. On January 24, 2024, our Board also declared dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. The dividends are payable on March 15, 2023. Dividend payment information on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is disclosed in Note 17—Stockholders' Equity. Capital Composition and Ratios The table below shows activities that caused the change in outstanding Class A common stock during 2023: Table 47 Changes in Shares of Class A Common Stock Outstanding [[GREPCENT_TABLE]] [["","","","","Year Ended December 31, 2023"],["Class A common stock shares outstanding at beginning of period","","","","13,501,017"],["Restricted stock units vested, net of shares held to cover taxes","","","","13,916"],["Class A common stock shares outstanding at end of period","","","","13,514,933"]] [[/GREPCENT_TABLE]] We also had 1,005,185 Class B common stock outstanding at December 31, 2023 and December 31, 2022. On April 25, 2023 the Parent Company’s stockholders approved amendments to the Certificate of Incorporation to increase the number of authorized shares of the Class A common stock from 16,000,000 shares to 32,000,000 shares and to increase the number of authorized shares of the Preferred Stock from 10,000,000 shares to 20,000,000. We are committed to effectively managing our capital to protect our depositors, creditors and stockholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements. In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within stockholders’ equity. These amounts are excluded from the calculation of our regulatory capital ratios under current regulatory guidelines. Table 48 Analysis of Capital Adequacy [[GREPCENT_TABLE]] [["dollars in millions","Requirements to be Well Capitalized","","December 31, 2023","","","","December 31, 2022","","December 31, 2021"],["","","Amount","","Ratio","","","","","","Amount","","Ratio","","Amount","","Ratio"],["BancShares"],["Risk-based capital ratios"],["Total risk-based capital","10.00","%","","$","23,891","","","15.75","%","","","","","","$","11,799","","","13.18","%","","$","5,042","","","14.35","%"],["Tier 1 risk-based capital","8.00","","","21,150","","","13.94","","","","","","","9,902","","","11.06","","","4,380","","","12.47"],["Common equity Tier 1","6.50","","","20,270","","","13.36","","","","","","","9,021","","","10.08","","","4,041","","","11.50"],["Tier 1 leverage ratio","5.00","","","21,150","","","9.83","","","","","","","9,902","","","8.99","","","4,380","","","7.59"],["FCB"],["Risk-based capital ratios"],["Total risk-based capital","10.00","%","","$","23,600","","","15.56","%","","","","","","$","11,627","","","12.99","%","","$","4,858","","","13.85","%"],["Tier 1 risk-based capital","8.00","","","21,227","","","13.99","","","","","","","10,186","","","11.38","","","4,651","","","13.26"],["Common equity Tier 1","6.50","","","21,227","","","13.99","","","","","","","10,186","","","11.38","","","4,651","","","13.26"],["Tier 1 leverage ratio","5.00","","","21,227","","","9.88","","","","","","","10,186","","","9.25","","","4,651","","","8.07"]] [[/GREPCENT_TABLE]] 90 As of December 31, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of 7.75% and 7.56%, respectively, which are in excess of the Basel III conservation buffer of 2.50%. As of December 31, 2022, BancShares and FCB risk-based capital ratio conservation buffers were 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratios as of December 31, 2023 and 2022 over the Basel III minimum for the ratio that is the binding constraint. Additional Tier 1 capital for BancShares includes perpetual preferred stock. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ALLL and qualifying subordinated debt. CRITICAL ACCOUNTING ESTIMATES The accounting and reporting policies of BancShares are in accordance with GAAP and are described in Note 1—Significant Accounting Policies and Basis of Presentation. The preparation of financial statements in conformity with GAAP requires us to exercise judgment in determining many of the estimates and assumptions utilized to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Our financial position and results of operations could be materially affected by changes to these estimates and assumptions. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. Accounting estimates related to BancShares’ ALLL and certain purchase accounting fair value estimates for the SVBB Acquisition related to loans and core deposit intangibles are considered to be critical accounting estimates because considerable judgment and estimation is applied by management. ALLL The ALLL represents management’s best estimate of credit losses expected over the life of the loan or lease, adjusted for expected contractual payments and the impact of prepayment expectations. Estimates for loan and lease losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. The ALLL is calculated based on a variety of considerations, including, but not limited to actual net loss history of the various loan and lease pools, delinquency trends, changes in forecasted economic conditions, loan growth, estimated loan life, and changes in portfolio credit quality. Loans and leases are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the ALLL. The ALLL models utilize economic variables, including unemployment, GDP, home price index, CRE index, corporate profits, and credit spreads. These economic variables are based on macroeconomic scenario forecasts with a forecast horizon that covers the lives of the loan portfolios. While management utilizes its best judgment and information available, the ultimate adequacy of our ALLL is dependent upon a variety of factors beyond our control which are inherently difficult to predict, the most significant being the macroeconomic scenario forecasts that determine the economic variables utilized in the ALLL models. Due to the inherent uncertainty in the macroeconomic forecasts, BancShares utilizes baseline, upside, and downside macroeconomic scenarios and weights the scenarios based on review of variable forecasts for each scenario and comparison to expectations. At December 31, 2023, ALLL estimates in these scenarios ranged from approximately $1.39 billion, when weighing the upside scenario 100%, to approximately $2.22 billion when weighting the downside scenario 100%. BancShares management determined that an ALLL of $1.75 billion was appropriate as of December 31, 2023. Current economic conditions and forecasts can change which could affect the anticipated amount of estimated credit losses and therefore the appropriateness of the ALLL. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ALLL because a wide variety of factors and inputs are considered in estimating the ALLL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Accounting policies related to the ALLL are discussed in Note 1—Significant Accounting Policies and Basis of Presentation. For more information regarding the ALLL, refer to the Credit Risk Management — ALLL section of this MD&A and Note 5—Allowance for Loan and Lease Losses. 91 Purchase Accounting Fair Value Estimates Acquired assets and liabilities in a business combination are recorded at their fair values as of the date of acquisition. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition, and other future events that are highly subjective in nature and may require adjustments. The fair values for these items are further discussed in Note 2—Business Combinations. Fair values of loans acquired in and core deposit intangibles associated with the SVBB Acquisition are considered critical accounting estimates and are further discussed below. Loans Fair values for loans acquired in the SVBB Acquisition were based on a discounted cash flow methodology that forecasts expected credit and prepayment adjusted cash flows, which were discounted using market-based discount rates. This approach also considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, and amortization status. Selected larger, impaired loans were specifically reviewed to evaluate fair value. Loans with similar risk characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary. In our valuation analysis, the discount rate had the most significant impact on the valuation. An increase of 0.25% to the discount rates used to derive the fair value of the loans at the time of the acquisition would have reduced the fair value by approximately $215 million, whereas a decrease of 0.25% to the discount rates would have increased the fair value by approximately $230 million. Core Deposit Intangibles Certain core deposits were acquired as part of the SVBB Acquisition, which provide an additional source of funds for BancShares. Core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. The core deposit intangibles were recorded at fair value of $230 million at the SVBB Acquisition Date. See Note 1—Significant Accounting Policies and Basis of Presentation for further accounting policy information, Note 2—Business Combinations and Note 8—Goodwill and Core Deposit Intangibles. Core deposit intangibles were valued using the income approach, after-tax cost savings method. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. The discounted cash flow methodology considered discount rate, client attrition rate, cost of the deposit base, reserve requirements, net maintenance cost, and an estimate of the cost associated with alternative funding sources. In our valuation analysis, the attrition rate had the most significant impact on the valuation. An increase of 2.50% to the attrition rates used to derive the fair value of core deposit intangibles at the SVBB Acquisition Date would have decreased core deposit intangibles by approximately $40 million, whereas a decrease to the attrition rates of 2.50% would have increased core deposit intangibles by approximately $60 million. 92 RECENT ACCOUNTING PRONOUNCEMENTS BancShares adopted the following FASB Accounting Standards Updates (“ASUs”) as of January 1, 2024: [[GREPCENT_TABLE]] [["Standard","Summary of Guidance","Effect on BancShares\u2019 Financial Statements"],["ASU 2023-02 \u2013 Investments\u2014Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued March 2023","The amendments in this ASU allow entities to elect to account for qualifying tax equity investments using the proportional amortization method (\u201cPAM\u201d), regardless of the program giving rise to the related income tax credits. PAM accounting had been available only for qualifying investments in qualified affordable housing projects. This ASU also requires disclosure of the nature of the investor\u2019s tax equity investments and the effect of income tax credits and other income tax benefits from tax equity investments on the investor\u2019s balance sheet and income statement.","BancShares adopted ASU 2023-02 as of January 1, 2024. Adoption of this ASU did not have a material impact on our consolidated financial statements."],["ASU 2022-03 - Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued June 2022","The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This ASU also requires specific disclosures for equity securities subject to contractual sale restrictions.","BancShares adopted ASU 2022-03 as of January 1, 2024. Adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures."]] [[/GREPCENT_TABLE]] The following ASUs were issued by the FASB but are not yet effective for BancShares: [[GREPCENT_TABLE]] [["Standard","Summary of Guidance","Effect on BancShares\u2019 Financial Statements"],["ASU No. 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures Issued December 2023","This ASU enhances income tax disclosure requirements primarily by requiring disclosure of specific categories in the rate reconciliation table and disaggregation of income taxes paid by jurisdiction.","Effective for BancShares beginning with our financial statement for the year ending December 31, 2025. Early adoption is permitted and this ASU allows for adoption on a prospective basis, with a retrospective option permitted to prior periods presented. We are currently evaluating the impact of this ASU on our income tax footnote disclosures."],["ASU No. 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures Issued November 2023","This ASU expands reportable segment disclosure requirements primarily through enhanced disclosures of significant segment expenses that are regularly provided to the chief operating decision maker and disclosure of the amount and composition of other segment items. Other segment items are the amount that reconciles segment revenues, less significant expenses, to segment profit or loss by reportable segment.","Effective for BancShares beginning with our financial statement for the year ending December 31, 2024, and for interim periods beginning in 2025. Early adoption is permitted, and retrospective application is required for all periods presented. We are currently evaluating the impact of the ASU on our segment footnote disclosures."]] [[/GREPCENT_TABLE]] 93 The following ASUs related to reference rate reform can be applied through December 31, 2024: [[GREPCENT_TABLE]] [["Standard","Summary of Guidance","Effect on BancShares\u2019 Financial Statements"],["ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued March 2020 ASU 2021-01, Reference Rate Reform (Topic 848): Scope Issued January 2021 ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 Issued December 2022","These ASUs apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These ASUs allow entities to prospectively apply certain optional expedients for contract modifications and removes the requirements to remeasure contract modifications or de-designate hedging relationships. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing certain effectiveness assessments. The main purpose of the optional expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform. ASU 2021-01 refines the scope of Accounting Standards Codification 848 and clarifies which optional expedients may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified in connection with the market-wide transition to new reference rates. ASU 2022-06 extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024.","The reference rate reform ASU guidance has not had, and is not expected to have, a material impact on the financial statements. Refer to the \u201cReference Rate Reform\u201d section of this MD&A for further discussion regarding the replacement of LIBOR."]] [[/GREPCENT_TABLE]] NON-GAAP FINANCIAL MEASUREMENTS BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts or is adjusted in some way to the effect of including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements. BancShares’ management believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and financial position to its investors, analysts and management. These non-GAAP measures should be considered in addition to, and not superior to or a substitute for, GAAP measures presented in BancShares’ consolidated financial statements and other publicly filed reports. In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial measures used by other institutions. Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation between the GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful. Adjusted Rental Income on Operating Lease Equipment for Rail Segment Adjusted rental income on operating lease equipment within the Rail segment is calculated as rental income on operating leases less depreciation and maintenance. This metric allows us to monitor the performance and profitability of the rail leases after deducting direct expenses. The table below presents a reconciliation of rental income on operating leases to adjusted rental income on operating lease equipment. Table 49 Rail Segment [[GREPCENT_TABLE]] [["dollars in millions","","","Year Ended December 31,"],["","","","","","","","2023","","2022"],["Rental income on operating leases (GAAP)","","","","","","","$","740","","","$","652"],["Less: Depreciation on operating lease equipment","","","","","","","191","","","176"],["Less: Maintenance and other operating lease expenses","","","","","","","222","","","189"],["Adjusted rental income on operating lease equipment (non-GAAP)","","","","","","","$","327","","","$","287"]] [[/GREPCENT_TABLE]] 94 FOURTH QUARTER ANALYSIS The following table compares financial data for the three months ended December 31, 2023 (the “current quarter”) to financial data for the three months ended September 30, 2023 (the “linked quarter”) and December 31, 2022 (the “prior year quarter”). Table 50 Selected Financial Data [[GREPCENT_TABLE]] [["dollars in millions, except share data","Three Months Ended"],["","December 31, 2023","","September 30, 2023","","December 31, 2022"],["Results of Operations:"],["Interest income","$","3,117","","","$","3,110","","","$","1,040"],["Interest expense","1,206","","","1,120","","","238"],["Net interest income","1,911","","","1,990","","","802"],["Provision for credit losses","249","","","192","","","79"],["Net interest income after provision for credit losses","1,662","","","1,798","","","723"],["Noninterest income","543","","","615","","","429"],["Noninterest expense","1,492","","","1,416","","","760"],["Income before income taxes","713","","","997","","","392"],["Income tax expense","199","","","245","","","135"],["Net income","514","","","752","","","257"],["Preferred stock dividends","15","","","15","","","14"],["Net income available to common stockholders","$","499","","","$","737","","","$","243"],["Per Common Share Information:"],["Average diluted common shares outstanding","14,539,838","","","14,539,133","","","14,607,426"],["Earnings per diluted common share","$","34.33","","","$","50.67","","","$","16.67"],["Key Performance Metrics:"],["Return on average assets","0.95","%","","1.41","%","","0.93","%"],["Net interest margin (1)","3.86","","","4.07","","","3.39"],["Select Average Balances:"],["Investment securities","$","28,722","","","$","24,388","","","$","18,876"],["Total loans and leases (2)","133,294","","","133,247","","","70,463"],["Operating lease equipment, net","8,715","","","8,617","","","8,049"],["Total assets","214,612","","","211,994","","","109,774"],["Total deposits","146,316","","","144,043","","","89,042"],["Total stockholders\u2019 equity","20,740","","","20,116","","","9,621"],["Asset Quality:"],["Ratio of nonaccrual loans to total loans","0.73","%","","0.68","%","","0.89","%"],["Allowance for loan and lease losses to loans ratio","1.31","","","1.26","","","1.30"],["Net charge off ratio","0.53","","","0.53","","","0.14"]] [[/GREPCENT_TABLE]] (1)     Calculated net of average credit balances and deposits of factoring clients. (2)     Average loan balances include loans held for sale and nonaccrual loans. 95 Fourth Quarter Income Statement Highlights •Net income for the current quarter was $514 million, a decrease of $238 million or 32% from $752 million for the linked quarter. Net income available to common stockholders for the current quarter was $499 million, a decrease of $238 million or 32% from $737 million for the linked quarter. The decreases as explained below were primarily related to lower NII and noninterest income, along with higher noninterest expenses. Net income per diluted common share for the current quarter was $34.33, a decrease from $50.67 for the linked quarter. •The current quarter included the following select items: ◦Acquisition-related expenses of $116 million, ◦Decrease in the preliminary gain on acquisition of $83 million reflecting a true-up of the deferred tax liabilities, and ◦FDIC insurance special assessment of $64 million. •The linked quarter included the following select items: ◦Acquisition-related expenses of $121 million, ◦Additional preliminary gain on acquisition of $12 million, and ◦Realized loss on sales of investment securities available for sale of $12 million. •Return on average assets for the current quarter was 0.95% compared to 1.41% for the linked quarter. •NII for the current quarter was $1.91 billion, a decrease of $79 million or 4% from $1.99 billion for the linked quarter as discussed further below. •NIM for the current quarter was 3.86%, a decrease of 21 bp from 4.07% for the linked quarter as discussed further below. •Provision for credit losses for the current quarter was $249 million, an increase of $57 million or 29% from $192 million for the linked quarter. ◦The provision for loan and lease losses increased $39 million, primarily related to a net reserve build driven by specific reserves on individually evaluated loans, as net charge-offs were flat over the prior quarter, and mild credit deterioration in certain commercial portfolios. ◦The benefit for off-balance sheet credit exposure decreased $15 million, primarily due to a higher decline in unfunded commitments during the prior quarter. ◦The benefit for credit losses for investment securities available for sale decreased $3 million compared to the third quarter. •Noninterest income for the current quarter was $543 million, a decrease of $72 million or 12% from $615 million for the linked quarter. The decrease reflected an adjustment to the gain on acquisition of $83 million as we refined our income tax estimates, partially offset by realized losses on the sale of investment securities in the prior quarter, and an increase in fair value adjustments on marketable equity securities. •Noninterest expense for the current quarter was $1.49 billion, an increase of $76 million or 6% from $1.42 billion for the linked quarter. The increase was largely due to a $64 million FDIC insurance special assessment. For the three months ended December 31, 2023 compared to the three months ended December 31, 2022, the changes were primarily due to the impacts of the SVBB Acquisition. 96 Table 51 Average Balances and Rates [[GREPCENT_TABLE]] [["dollars in millions","Three Months Ended"],["","December 31, 2023","","September 30, 2023","","Change in NII Due to:"],["","Average Balance","","Income / Expense","","Yield / Rate","","Average Balance","","Income / Expense","","Yield / Rate","","Volume(1)","","Yield /Rate(1)","","Total Change"],["Loans and leases (1)(2)","$","131,594","","","$","2,391","","","7.21","%","","$","131,653","","","$","2,426","","","7.30","%","","$","(1)","","","$","(34)","","","$","(35)"],["Investment securities","28,722","","","239","","","3.30","","","24,388","","","177","","","2.90","","","35","","","27","","","62"],["Securities purchased under agreements to resell","225","","","2","","","5.36","","","223","","","3","","","5.28","","","(1)","","","\u2014","","","(1)"],["Interest-earning deposits at banks","35,712","","","485","","","5.39","","","37,456","","","504","","","5.34","","","(24)","","","5","","","(19)"],["Total interest-earning assets (2)","$","196,253","","","$","3,117","","","6.30","%","","$","193,720","","","$","3,110","","","6.37","%","","$","9","","","$","(2)","","","$","7"],["Operating lease equipment, net","$","8,715","","","","","","","$","8,617"],["Cash and due from banks","846","","","","","","","911"],["Allowance for loan and lease losses","(1,717)","","","","","","","(1,714)"],["All other noninterest-earning assets","10,515","","","","","","","10,460"],["Total assets","$","214,612","","","","","","","$","211,994"],["Interest-bearing deposits"],["Checking with interest","$","23,820","","","$","128","","","2.14","%","","$","24,600","","","$","134","","","2.15","%","","$","(5)","","","$","(1)","","","$","(6)"],["Money market","30,178","","","211","","","2.77","","","29,684","","","179","","","2.40","","","3","","","29","","","32"],["Savings","34,166","","","362","","","4.20","","","30,185","","","303","","","3.99","","","42","","","17","","","59"],["Time deposits","16,553","","","164","","","3.94","","","16,489","","","153","","","3.68","","","\u2014","","","11","","","11"],["Total interest-bearing deposits","104,717","","","865","","","3.28","","","100,958","","","769","","","3.02","","","40","","","56","","","96"],["Borrowings:"],["Securities sold under customer repurchase agreements","455","","","1","","","0.44","","","454","","","\u2014","","","0.35","","","1","","","\u2014","","","1"],["Short-term FHLB borrowings","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Short-term borrowings","455","","","1","","","0.44","","","454","","","\u2014","","","0.35","","","1","","","\u2014","","","1"],["Federal Home Loan Bank borrowings","\u2014","","","\u2014","","","1.99","","","444","","","6","","","5.47","","","(4)","","","(2)","","","(6)"],["Senior unsecured borrowings","377","","","3","","","2.46","","","382","","","2","","","2.46","","","1","","","\u2014","","","1"],["Subordinated debt","1,038","","","10","","","3.82","","","1,042","","","10","","","3.65","","","\u2014","","","\u2014","","","\u2014"],["Other borrowings","35,845","","","327","","","3.65","","","35,831","","","333","","","3.71","","","(2)","","","(4)","","","(6)"],["Long-term borrowings","37,260","","","340","","","3.65","","","37,699","","","351","","","3.72","","","(5)","","","(6)","","","(11)"],["Total borrowings","37,715","","","341","","","3.61","","","38,153","","","351","","","3.68","","","(4)","","","(6)","","","(10)"],["Total interest-bearing liabilities","$","142,432","","","$","1,206","","","3.37","%","","$","139,111","","","$","1,120","","","3.20","%","","$","36","","","$","50","","","$","86"],["Noninterest-bearing deposits","$","41,599","","","","","","","$","43,085"],["Credit balances of factoring clients","1,275","","","","","","","1,209"],["Other noninterest-bearing liabilities","8,566","","","","","","","8,473"],["Stockholders' equity","20,740","","","","","","","20,116"],["Total liabilities and stockholders\u2019 equity","$","214,612","","","","","","","$","211,994"],["Interest rate spread (2)","","","","","2.93","%","","","","","","3.17","%"],["Net interest income and net yield on interest-earning assets (2)","","","$","1,911","","","3.86","%","","","","$","1,990","","","4.07","%"]] [[/GREPCENT_TABLE]] (1)     Loans and leases include Non-PCD and PCD loans, nonaccrual loans, and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. (2)    The balance and rate presented is calculated net of average credit balances and deposits of factoring clients. NII and NIM- Current quarter compared to linked quarter •NII for the current quarter was $1.91 billion, a decrease of $79 million or 4% from $1.99 billion for the linked quarter. This decrease reflected higher costs for deposits and lower interest income on loans due to lower purchase accounting accretion, partially offset by an increase in interest on investment securities. Purchase accounting accretion for loans was $198 million in the current quarter, compared to $275 million in the linked quarter. ◦Interest income earned on loans and leases for the current quarter was $2.39 billion, a decrease of $35 million or 1% from $2.43 billion for the linked quarter. The decrease was primarily due a decline of $77 million in purchase accounting accretion for loans in the SVB portfolio, partially offset by an increase in interest income from higher yields. 97 ◦Interest income earned on investment securities for the current quarter was $239 million, an increase of $62 million or 34% from $177 million for the linked quarter. The increase reflected a higher average balance due to purchases of short duration U.S. Treasuries and agency mortgage-backed securities, and increased yield. ◦Interest income earned on interest-earning deposits at banks for the current quarter was $485 million, a decrease of $19 million or 4% from $504 million for the linked quarter, reflecting a lower average balance due to the investment securities purchases noted above. ◦Interest expense on interest-bearing deposits for the current quarter was $865 million, an increase of $96 million or 13% from $769 million for the linked quarter, reflecting higher average balances of deposits in our Direct Bank and higher deposit rates. ◦Interest expense on borrowings for the current quarter was $341 million, a decrease of $10 million or 3% from $351 million for the linked quarter, reflecting repayments of certain borrowings. Refer to the “Interest-Bearing Liabilities – Borrowings” section in this MD&A for further discussion of FHLB borrowings. •NIM for the current quarter was 3.86%, a decrease of 21 bp from 4.07% for the linked quarter. The decline in NIM during the quarter reflected a higher rate on interest-bearing liabilities, primarily due to higher rates paid and higher average balances for interest-bearing deposits, as well as a decrease in yield on interest-earning assets. The decrease in yield on interest-earning assets was mostly due to lower yield on loans, as the impact from lower loan accretion offset a higher yield on loans. •Average interest-earning assets for the current quarter were $196.25 billion, an increase of $2.53 billion or 1% from $193.72 billion for the linked quarter, reflecting higher average investment securities. The average yield on interest-earning assets for the current quarter was 6.30%, a decrease of 7 bps compared to the linked quarter. •Average interest-bearing liabilities for the current quarter were $142.43 billion, an increase of $3.32 billion or 2% over the linked quarter, reflecting a higher average deposit balance. The average rate on interest-bearing liabilities for the current quarter was 3.37%, an increase of 17 bps from the linked quarter. 98 Forward-Looking Statements Statements in this Annual Report on Form 10-K contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans, asset quality, and future performance, and other strategic goals of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “predicts,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will,” “potential,” “continue,” “aims” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including conflicts in Ukraine and the Middle East) and market conditions, including changes in competitive pressures among financial institutions and the impacts related to or resulting from recent bank failures, risks and impacts of future bank failures and other volatility, the financial success or changing conditions or strategies of BancShares’ vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, changes in the quality or composition of BancShares’ loan or investment portfolio, actions of government regulators, including the recent interest rate hikes by the Federal Reserve, changes to estimates of future costs and benefits of actions taken by BancShares, BancShares’ ability to maintain adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including the significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including potential increased regulatory requirements, limitations, and costs, such as FDIC special assessments and the interagency proposed rule on regulatory capital, along with the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares’ previous acquisition transactions, including the SVBB Acquisition and the CIT Merger, which acquisition risks include (1) disruption from the transactions with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the transactions may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities or increased regulatory compliance obligations or oversight, (3) reputational risk and the reaction of the parties’ customers to the transactions, (4) the risk that the cost savings and any revenue synergies from the transactions may not be realized or take longer than anticipated to be realized, (5) difficulties experienced in completing the integration of the businesses, (6) the ability to retain customers following the transactions and (7) adjustments to BancShares’ estimated purchase accounting impacts of the SVBB Acquisition. Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.