FIRST CITIZENS BANCSHARES INC /DE/ 10-K

Item 8. Financial Statements and Supplementary Data Table 24 FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS (Dollars in thousands, except share data) 2021 2020 2019 2018 2017 SUMMARY OF OPERATIONS Interest income $ 1,451,010 $ 1,484,026 $ 1,404,011 $ 1,245,757 $ 1,103,690 Interest expense 60,676 95,857 92,642 36,857 43,794 Net interest income 1,390,334 1,388,169 1,311,369 1,208,900 1,059,896 (Benefit) provision for credit losses (36,835) 58,352 31,441 28,468 25,692 Net interest income after provision for credit losses 1,427,169 1,329,817 1,279,928 1,180,432 1,034,204 Gain on acquisitions — — — — 134,745 Noninterest income excluding gain on acquisitions 508,002 476,750 415,861 400,149 387,218 Noninterest expense 1,233,510 1,188,685 1,103,741 1,076,971 1,012,469 Income before income taxes 701,661 617,882 592,048 503,610 543,698 Income taxes 154,202 126,159 134,677 103,297 219,946 Net income 547,459 491,723 457,371 400,313 323,752 Net income available to common shareholders $ 528,915 $ 477,661 $ 457,371 $ 400,313 $ 323,752 Net interest income, taxable equivalent (1) $ 1,392,708 $ 1,390,765 $ 1,314,940 $ 1,212,280 $ 1,064,415 PER SHARE DATA Net income $ 53.88 $ 47.50 $ 41.05 $ 33.53 $ 26.96 Cash dividends 1.88 1.67 1.60 1.45 1.25 Market price at period end (Class A) 829.84 574.27 532.21 377.05 403.00 Book value at period end 447.95 396.21 337.38 300.04 277.60 SELECTED PERIOD AVERAGE BALANCES Total assets $ 54,982,821 $ 46,021,438 $ 37,161,719 $ 34,879,912 $ 34,302,867 Investment securities 10,610,750 9,054,933 6,919,069 7,074,929 7,036,564 Loans and leases (2) 32,860,019 31,605,090 26,656,048 24,483,719 22,725,665 Interest-earning assets 51,819,672 43,351,119 34,866,734 32,847,661 32,213,646 Deposits 48,258,586 39,746,616 32,218,536 30,165,249 29,119,344 Interest-bearing liabilities 29,345,838 24,894,309 20,394,815 18,995,727 19,576,353 Securities sold under customer repurchase agreements 660,288 632,362 530,818 555,555 649,252 Other short-term borrowings — 50,549 23,087 58,686 77,680 Long-term borrowings 1,225,661 1,186,145 392,150 304,318 842,863 Common shareholders’ equity 4,120,785 3,684,889 3,551,781 3,422,941 3,206,250 Shareholders’ equity $ 4,460,722 $ 3,954,007 $ 3,551,781 $ 3,422,941 $ 3,206,250 Shares outstanding 9,816,405 10,056,654 11,141,069 11,938,439 12,010,405 SELECTED PERIOD-END BALANCES Total assets $ 58,308,140 $ 49,957,680 $ 39,824,496 $ 35,408,629 $ 34,527,512 Investment securities 13,110,408 9,922,905 7,173,003 6,834,362 7,180,256 Loans and leases 32,371,522 32,791,975 28,881,496 25,523,276 23,596,825 Deposits 51,406,094 43,431,609 34,431,236 30,672,460 29,266,275 Securities sold under customer repurchase agreements 589,101 641,487 442,956 543,936 586,256 Other short-term borrowings — — 295,277 28,351 107,551 Long-term borrowings 1,194,378 1,248,163 588,638 319,867 870,240 Shareholders’ equity $ 4,737,241 $ 4,229,268 $ 3,586,184 $ 3,488,954 $ 3,334,064 Shares outstanding 9,816,405 9,816,405 10,629,495 11,628,405 12,010,405 SELECTED RATIOS AND OTHER DATA Rate of return on average assets 1.00 % 1.07 % 1.23 % 1.15 % 0.94 % Rate of return on average common shareholders’ equity 12.84 12.96 12.88 11.69 10.10 Average equity to average assets ratio 8.11 8.59 9.56 9.81 9.35 Net yield on interest-earning assets (taxable equivalent) 2.66 3.17 3.74 3.66 3.28 Allowance for credit losses to total loans and leases: PCD 4.38 5.18 1.35 1.51 1.31 Non-PCD 0.51 0.62 0.77 0.86 0.93 Total 0.55 0.68 0.78 0.88 0.94 Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.49 0.74 0.58 0.52 0.61 Total risk-based capital ratio 14.35 13.81 12.12 13.99 14.21 Tier 1 risk-based capital ratio 12.47 11.63 10.86 12.67 12.88 Common equity Tier 1 ratio 11.50 10.61 10.86 12.67 12.88 Leverage capital ratio 7.59 7.86 8.81 9.77 9.47 Dividend payout ratio 3.49 3.52 3.90 4.32 4.64 Average loans and leases to average deposits 68.09 79.52 82.74 81.17 78.04 (1) The taxable-equivalent adjustment was $2.4 million, $2.6 million, $3.6 million, $3.4 million and $4.5 million for the years 2021, 2020, 2019, 2018, and 2017, respectively. (2) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases. 64 Table 25 SELECTED QUARTERLY DATA 2021 2020 (Dollars in thousands, except share data and ratios) Fourth Quarter Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter SUMMARY OF OPERATIONS Interest income $ 372,007 $ 361,855 $ 361,825 $ 355,323 $ 376,876 $ 374,334 $ 363,257 $ 369,559 Interest expense 14,605 14,968 15,432 15,671 18,160 20,675 25,863 31,159 Net interest income 357,402 346,887 346,393 339,652 358,716 353,659 337,394 338,400 (Benefit) provision for credit losses (5,138) (1,120) (19,603) (10,974) 5,403 4,042 20,552 28,355 Net interest income after provision for credit losses 362,540 348,007 365,996 350,626 353,313 349,617 316,842 310,045 Noninterest income 114,259 122,944 134,150 136,649 126,765 120,572 165,402 64,011 Noninterest expense 323,188 312,818 301,578 295,926 305,373 291,662 291,679 299,971 Income before income taxes 153,611 158,133 198,568 191,349 174,705 178,527 190,565 74,085 Income taxes 30,329 34,060 45,780 44,033 36,621 35,843 36,779 16,916 Net income 123,282 124,073 152,788 147,316 138,084 142,684 153,786 57,169 Net income available to common shareholders $ 118,646 $ 119,437 $ 148,152 $ 142,680 $ 133,448 $ 138,048 $ 148,996 $ 57,169 Net interest income, taxable equivalent $ 357,950 $ 347,451 $ 347,035 $ 340,271 $ 359,370 $ 354,256 $ 337,965 $ 339,174 PER COMMON SHARE DATA Net income $ 12.09 $ 12.17 $ 15.09 $ 14.53 $ 13.59 $ 14.03 $ 14.74 $ 5.46 Cash dividends on common shares 0.47 0.47 0.47 0.47 0.47 0.40 0.40 0.40 Market price at period end (Class A) 829.84 843.17 832.74 835.77 574.27 318.78 405.02 332.87 Book value per share at period-end 447.95 432.07 421.39 405.59 396.21 380.43 367.57 351.90 SELECTED QUARTERLY AVERAGE BALANCES Total assets $ 58,115,943 $ 55,922,358 $ 54,399,331 $ 51,409,634 $ 49,557,803 $ 48,262,155 $ 45,553,502 $ 40,648,806 Investment securities 11,424,103 10,707,519 10,534,348 9,757,650 9,889,124 9,930,197 8,928,467 7,453,159 Loans and leases (1) 32,488,033 32,707,591 33,166,049 33,086,656 32,964,390 32,694,996 31,635,958 29,098,101 Interest-earning assets 54,601,810 52,371,165 51,519,684 48,715,279 46,922,823 45,617,376 42,795,781 38,004,341 Deposits 51,238,517 49,107,087 47,751,103 44,858,198 43,123,312 41,905,844 39,146,415 34,750,061 Interest-bearing liabilities 30,876,506 29,662,791 28,909,320 27,898,525 26,401,222 25,591,707 24,407,285 23,153,777 Securities sold under customer repurchase agreements 650,123 672,114 677,451 641,236 684,311 710,237 659,244 474,231 Other short-term borrowings — — — — — — 45,549 157,759 Long-term borrowings 1,217,099 1,222,452 1,227,755 1,235,576 1,250,682 1,256,331 1,275,928 961,132 Common shareholders' equity 4,292,981 4,196,655 4,058,236 3,935,267 3,786,158 3,679,138 3,648,284 3,625,975 Shareholders' equity $ 4,632,918 $ 4,536,592 $ 4,398,173 $ 4,275,204 $ 4,126,095 $ 4,019,075 $ 3,988,225 $ 3,682,634 Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,836,629 10,105,520 10,473,119 SELECTED QUARTER-END BALANCES Total assets $ 58,308,140 $ 56,901,977 $ 55,175,318 $ 53,908,606 $ 49,957,680 $ 48,666,873 $ 47,866,194 $ 41,594,453 Investment securities 13,110,408 10,875,354 10,894,227 10,222,107 9,922,905 9,860,594 9,508,476 8,845,197 Loans and leases 32,371,522 32,516,189 32,689,652 33,180,851 32,791,975 32,845,144 32,418,425 29,240,959 Deposits 51,406,094 50,065,762 48,410,596 47,330,997 43,431,609 42,250,606 41,479,245 35,346,711 Securities sold under customer repurchase agreements 589,101 663,575 692,604 680,705 641,487 693,889 740,276 540,362 Other short-term borrowings — — — — — — — 105,000 Long-term borrowings 1,194,378 1,219,229 1,224,488 1,230,326 1,248,163 1,252,016 1,258,719 1,297,132 Shareholders' equity $ 4,737,241 $ 4,581,295 $ 4,476,490 $ 4,321,400 $ 4,229,268 $ 4,074,414 $ 3,991,444 $ 3,957,520 Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,934,105 10,280,105 SELECTED RATIOS AND OTHER DATA Rate of return on average assets (annualized) 0.84 % 0.88 % 1.13 % 1.16 % 1.11 % 1.18 % 1.36 % 0.57 % Rate of return on average shareholders’ equity (annualized) 10.96 11.29 14.64 14.70 14.02 14.93 16.43 6.34 Net yield on interest-earning assets (taxable equivalent) 2.58 2.61 2.68 2.80 3.02 3.06 3.14 3.55 Allowance for credit losses to total loans and leases: PCD 4.38 4.94 4.73 5.30 5.18 5.07 5.07 4.80 Non-PCD 0.51 0.51 0.53 0.57 0.62 0.61 0.61 0.64 Total 0.55 0.56 0.58 0.63 0.68 0.68 0.69 0.72 Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.49 0.63 0.71 0.73 0.74 0.73 0.77 0.79 Total risk-based capital ratio 14.35 14.30 14.15 14.14 13.81 13.70 13.63 13.65 Tier 1 risk-based capital ratio 12.47 12.32 12.13 12.02 11.63 11.48 11.38 11.43 Common equity Tier 1 ratio 11.50 11.34 11.14 11.00 10.61 10.43 10.32 10.36 Tier 1 leverage capital ratio 7.59 7.68 7.67 7.84 7.86 7.80 8.07 8.98 Dividend payout ratio 3.89 3.86 3.11 3.23 3.46 2.85 2.71 7.33 Average loans and leases to average deposits 63.41 66.60 69.46 73.76 76.44 78.02 80.81 83.74 (1) Average loan and lease balances include PCI loans, non-PCI loans and leases, loans held for sale and nonaccrual loans and leases. 65 Table 26 CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS - FOURTH QUARTER 2021 2020 Increase (decrease) due to: Interest Interest Average Income/ Yield/ Average Income/ Yield/ Yield/ Total (Dollars in thousands, taxable equivalent) Balance Expense Rate Balance Expense Rate Volume Rate Change Assets Loans and leases (1)(2) $ 32,488,033 $ 328,781 3.98 % $ 32,964,390 $ 345,300 4.12 % $ (15,137) $ (1,382) $ (16,519) Investment securities: (2) U.S. Treasury 560,737 1,401 0.99 526,072 250 0.19 17 1,134 1,151 Government agency 832,821 1,381 0.66 695,757 1,574 0.90 310 (503) (193) Mortgage-backed securities 9,300,971 28,597 1.23 7,981,834 21,130 1.06 3,523 3,944 7,467 Corporate bonds 620,341 7,782 5.02 591,780 7,657 5.18 370 (245) 125 Other investments 109,233 563 2.04 93,681 600 2.55 102 (139) (37) Total investment securities 11,424,103 39,724 1.39 9,889,124 31,211 1.26 4,322 4,191 8,513 Overnight investments 10,689,674 4,050 0.15 4,069,309 1,019 0.10 1,664 1,367 3,031 Total interest-earning assets 54,601,810 $ 372,555 2.69 % 46,922,823 $ 377,530 3.17 % $ (9,151) $ 4,176 $ (4,975) Cash and due from banks 336,715 325,890 Premises and equipment 1,239,037 1,262,831 Allowance for credit losses (183,810) (225,339) Other real estate owned 41,673 50,949 Other assets 2,080,518 1,220,649 Total assets $ 58,115,943 $ 49,557,803 Liabilities Interest-bearing deposits: Checking with interest $ 11,993,935 $ 1,382 0.05 % $ 9,688,744 $ 1,533 0.06 % $ 365 $ (516) $ (151) Savings 4,140,161 324 0.03 3,230,625 306 0.04 86 (68) 18 Money market accounts 10,357,923 2,223 0.09 8,529,816 3,242 0.15 695 (1,714) (1,019) Time deposits 2,517,265 3,903 0.62 3,017,044 5,976 0.79 (990) (1,083) (2,073) Total interest-bearing deposits 29,009,284 7,832 0.11 24,466,229 11,057 0.18 156 (3,381) (3,225) Securities sold under customer repurchase agreements 650,123 260 0.16 684,311 374 0.22 (18) (96) (114) Other short-term borrowings — — — — — — — — — Long-term borrowings 1,217,099 6,513 2.12 1,250,682 6,729 2.13 (134) (82) (216) Total interest-bearing liabilities 30,876,506 14,605 0.19 26,401,222 18,160 0.27 4 (3,559) (3,555) Demand deposits 22,229,233 18,657,083 Other liabilities 377,286 373,403 Shareholders' equity 4,632,918 4,126,095 Total liabilities and shareholders' equity $ 58,115,943 $ 49,557,803 Interest rate spread 2.50 % 2.90 % Net interest income and net yield on interest-earning assets $ 357,950 2.58 % $ 359,370 3.02 % $ (9,155) $ 7,735 $ (1,420) (1) Loans and leases include PCI loans and non-PCI loans, nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees. Loan fees were $32.5 million and $39.8 million for the three months ended December 31, 2021, and 2020, respectively. (2) Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 21.0% as well as state income tax rates of 3.3% and 3.5% for the three months ended December 31, 2021, and 2020, respectively. The taxable-equivalent adjustment was $548 thousand and $654 thousand for the three months ended December 31, 2021, and 2020, respectively. 66 REPORT OF PREDECESSOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of First Citizens BancShares, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of First Citizens BancShares, Inc. and Subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Adoption of New Accounting Standard As discussed in Notes A and E to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Accounting Standards Codification (ASC) Topic 326 Financial Instruments – Credit Losses . Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Dixon Hughes Goodman LLP We served as the Company’s auditor from 2004 to 2021. Raleigh, North Carolina February 24, 2021 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders First Citizens BancShares, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of First Citizens BancShares, Inc. and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion . Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Quantitative component of the allowance for credit losses for loans evaluated on a collective basis As discussed in Notes A and E to the consolidated financial statements, as of December 31, 2021 the Company had an allowance for credit losses (ACL) of $178.5 million, which includes the quantitative component for loans evaluated on a collective basis (the quantitative collective ACL). Loans are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the quantitative collective ACL. The quantitative collective ACL models estimate the probability of default (PD) and loss given default (LGD) for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. Loan level undiscounted ACL is calculated by applying the modeled PD and LGD to quarterly forecasted loan balances, which are adjusted for contractual payments, pre-payments, and prior defaults. The Company uses a two-year reasonable and supportable forecast period which incorporates macroeconomic forecasts at the time of the evaluation. The Company’s ACL forecasts consider a range of economic scenarios from an upside scenario to a severely adverse scenario, but the December 31, 2021 ACL forecast was calculated using the consensus baseline scenario. A twelve-month straight-line 68 reversion period to historical averages is used for model inputs, however for the commercial card and certain consumer portfolios immediate reversion to historical net loss rates is utilized. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes. We identified the assessment of the quantitative collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the quantitative collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the methodology, including the methods and models used to estimate the PD and LGD, as well as the selection of the economic scenario and related economic input variables. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the quantitative collective ACL including controls related to the: • development and approval of the ACL methodology • continued use and appropriateness of changes to the PD and LGD models • selection of the economic scenario and related economic input variables utilized in the models • determination and measurement of the factors and assumptions used in the PD and LGD models • performance monitoring of the PD and LGD models • analysis of the ACL results, trends, and ratios. We evaluated the Company’s process to develop the quantitative collective ACL by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s quantitative collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • assessing the conceptual soundness of the PD and LGD models including the selection and use of the economic scenario and related economic input variables by inspecting the model documentation to determine whether the models are suitable for their intended use. We also assessed the sufficiency of the audit evidence obtained related to the quantitative collective ACL by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimate. /s/ KPMG LLP We have served as the Company’s auditor since 2021. Raleigh, North Carolina February 25, 2022 69 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders First Citizens BancShares, Inc.: Opinion on Internal Control Over Financial Reporting We have audited First Citizens BancShares, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Raleigh, North Carolina February 25, 2022 70 First Citizens BancShares, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data) December 31, 2021 December 31, 2020 Assets Cash and due from banks $ 337,814 $ 362,048 Overnight investments 9,114,660 4,347,336 Investment in marketable equity securities (cost of $ 72,894 at December 31, 2021 and $ 84,837 at December 31, 2020) 97,528 91,680 Investment securities available for sale (cost of $ 9,215,219 at December 31, 2021 and $ 6,911,965 at December 31, 2020) 9,203,427 7,014,243 Investment securities held to maturity (fair value of $ 3,759,650 at December 31, 2021 and $ 2,838,499 at December 31, 2020) 3,809,453 2,816,982 Loans held for sale 98,741 124,837 Loans and leases 32,371,522 32,791,975 Allowance for credit losses ( 178,493 ) ( 224,314 ) Net loans and leases 32,193,029 32,567,661 Premises and equipment 1,233,418 1,251,283 Other real estate owned 39,328 50,890 Income earned not collected 134,237 145,694 Goodwill 346,064 350,298 Other intangible assets 43,085 50,775 Other assets 1,657,356 783,953 Total assets $ 58,308,140 $ 49,957,680 Liabilities Deposits: Noninterest-bearing $ 21,404,808 $ 18,014,029 Interest-bearing 30,001,286 25,417,580 Total deposits 51,406,094 43,431,609 Securities sold under customer repurchase agreements 589,101 641,487 Federal Home Loan Bank borrowings 644,659 655,175 Subordinated debt 477,564 504,518 Other borrowings 72,155 88,470 FDIC shared-loss payable — 15,601 Other liabilities 381,326 391,552 Total liabilities 53,570,899 45,728,412 Shareholders’ equity Common stock: Class A - $ 1 par value ( 16,000,000 shares authorized; 8,811,220 shares issued and outstanding at December 31, 2021 and December 31, 2020) 8,811 8,811 Class B - $ 1 par value ( 2,000,000 shares authorized; 1,005,185 shares issued and outstanding at December 31, 2021 and December 31, 2020) 1,005 1,005 Preferred stock - $ 0.01 par value and liquidation preference of $ 1,000 per share ( 10,000,000 shares authorized; 345,000 shares issued and outstanding at December 31, 2021 and December 31, 2020) 339,937 339,937 Retained earnings 4,377,712 3,867,252 Accumulated other comprehensive income 9,776 12,263 Total shareholders’ equity 4,737,241 4,229,268 Total liabilities and shareholders’ equity $ 58,308,140 $ 49,957,680 Refer to the accompanying Notes to Consolidated Financial Statements. 71 First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Income Year ended December 31 (Dollars in thousands, except share and per share data) 2021 2020 2019 Interest income Loans and leases $ 1,294,813 $ 1,332,720 $ 1,217,306 Investment securities interest and dividend income 145,200 144,459 160,460 Overnight investments 10,997 6,847 26,245 Total interest income 1,451,010 1,484,026 1,404,011 Interest expense Deposits 33,240 66,635 76,254 Securities sold under customer repurchase agreements 1,312 1,610 1,995 Federal Home Loan Bank borrowings 8,410 9,763 5,472 Subordinated debt 16,709 16,074 7,099 Other borrowings 1,005 1,775 1,822 Total interest expense 60,676 95,857 92,642 Net interest income 1,390,334 1,388,169 1,311,369 (Benefit) provision for credit losses ( 36,835 ) 58,352 31,441 Net interest income after (benefit) provision for credit losses 1,427,169 1,329,817 1,279,928 Noninterest income Wealth management services 128,788 102,776 99,241 Service charges on deposit accounts 94,756 87,662 105,191 Cardholder services, net 86,684 74,291 69,078 Other service charges and fees 35,923 30,911 31,644 Merchant services, net 33,140 24,122 24,304 Mortgage income 30,508 39,592 21,126 Insurance commissions 15,556 14,544 12,810 ATM income 6,002 5,758 6,296 Marketable equity securities gains, net 34,081 29,395 20,625 Realized gains on investment securities available for sale, net 33,119 60,253 7,115 Other 9,445 7,446 18,431 Total noninterest income 508,002 476,750 415,861 Noninterest expense Salaries and wages 623,194 590,020 551,112 Employee benefits 135,659 132,244 120,501 Occupancy expense 117,180 117,169 111,179 Equipment expense 119,171 115,535 112,290 Processing fees paid to third parties 59,743 44,791 29,552 FDIC insurance expense 14,132 12,701 10,664 Collection and foreclosure-related expenses 5,442 13,658 11,994 Merger-related expenses 29,463 17,450 17,166 Other 129,526 145,117 139,283 Total noninterest expense 1,233,510 1,188,685 1,103,741 Income before income taxes 701,661 617,882 592,048 Income taxes 154,202 126,159 134,677 Net income $ 547,459 $ 491,723 $ 457,371 Preferred stock dividends 18,544 14,062 — Net income available to common shareholders $ 528,915 $ 477,661 $ 457,371 Weighted average common shares outstanding 9,816,405 10,056,654 11,141,069 Earnings per common share $ 53.88 $ 47.50 $ 41.05 Dividends declared per common share $ 1.88 $ 1.67 $ 1.60 Refer to the accompanying Notes to Consolidated Financial Statements. 72 First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Year ended December 31 2021 2020 2019 (Dollars in thousands) Net income $ 547,459 $ 491,723 $ 457,371 Other comprehensive income (loss) Unrealized (losses) gains on securities available for sale: Unrealized (losses) gains on securities available for sale arising during the period ( 80,951 ) 155,009 64,644 Tax effect 18,619 ( 35,652 ) ( 14,868 ) Reclassification adjustment for realized gains on securities available for sale included in income before income taxes ( 33,119 ) ( 60,253 ) ( 7,115 ) Tax effect 7,617 13,858 1,636 Unrealized (losses) gains on securities available for sale arising during the period, net of tax ( 87,834 ) 72,962 44,297 Unrealized (losses) gains on securities available for sale transferred to held to maturity: Unrealized (losses) gains on securities available for sale transferred to held to maturity ( 12,659 ) 5,894 72,512 Tax effect 2,912 ( 1,356 ) ( 16,678 ) Reclassification adjustment for (amortization) accretion of unrealized (losses) gains on securities available for sale transferred to held to maturity ( 1,475 ) ( 495 ) 19,889 Tax effect 339 114 ( 4,574 ) Total change in unrealized (losses) gains on securities available for sale transferred to held to maturity, net of tax ( 10,883 ) 4,157 71,149 Defined benefit pension items: Actuarial gains (loss) arising during the period 97,880 55,023 ( 20,049 ) Tax effect ( 22,512 ) ( 12,656 ) 4,611 Amortization of actuarial gains (losses) and prior service cost 27,093 25,324 10,981 Tax effect ( 6,231 ) ( 5,824 ) ( 2,525 ) Total change from defined benefit plans, net of tax 96,230 61,867 ( 6,982 ) Other comprehensive (loss) income ( 2,487 ) 138,986 108,464 Total comprehensive income $ 544,972 $ 630,709 $ 565,835 Refer to the accompanying Notes to Consolidated Financial Statements. 73 First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Class A Common Stock Class B Common Stock Preferred Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity (Dollars in thousands, except share and per share data) Balance at December 31, 2018 $ 10,623 $ 1,005 $ — $ 493,962 $ 3,218,551 $ ( 235,187 ) $ 3,488,954 Net income — — — — 457,371 — 457,371 Other comprehensive income, net of tax — — — — — 108,464 108,464 Repurchase of 998,910 shares of Class A common stock ( 999 ) — — ( 449,881 ) — — ( 450,880 ) Cash dividends declared ($ 1.60 per common share) Class A common stock — — — — ( 16,117 ) — ( 16,117 ) Class B common stock — — — — ( 1,608 ) — ( 1,608 ) Balance at December 31, 2019 9,624 1,005 — 44,081 3,658,197 ( 126,723 ) 3,586,184 Cumulative effect of adoption of ASC 326 — — — — 36,943 — 36,943 Net income — — — — 491,723 — 491,723 Other comprehensive income, net of tax — — — — — 138,986 138,986 Issuance of preferred stock — — 339,937 — — — 339,937 Repurchase of 813,090 shares of Class A common stock ( 813 ) — — ( 44,081 ) ( 288,861 ) — ( 333,755 ) Cash dividends declared ($ 1.67 per common share) Class A common stock — — — — ( 15,010 ) — ( 15,010 ) Class B common stock — — — — ( 1,678 ) — ( 1,678 ) Preferred stock dividends declared ($40.76 per preferred share) — — — — ( 14,062 ) — ( 14,062 ) Balance at December 31, 2020 8,811 1,005 339,937 — 3,867,252 12,263 4,229,268 Net income — — — — 547,459 — 547,459 Other comprehensive loss, net of tax — — — — — ( 2,487 ) ( 2,487 ) Cash dividends declared ($ 1.88 per common share) Class A common stock — — — — ( 16,565 ) — ( 16,565 ) Class B common stock — — — — ( 1,890 ) — ( 1,890 ) Preferred stock dividends declared ($53.75 per preferred share) — — — — ( 18,544 ) — ( 18,544 ) Balance at December 31, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,377,712 $ 9,776 $ 4,737,241 Refer to the accompanying Notes to Consolidated Financial Statements. 74 First Citizens BancShares, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year ended December 31 (Dollars in thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 547,459 $ 491,723 $ 457,371 Adjustments to reconcile net income to cash provided by operating activities: (Benefit) provision for credit losses on loans and leases ( 36,835 ) 58,352 31,441 Deferred tax (benefit) expense ( 7,586 ) ( 25,535 ) 54,598 Net increase in prepaid and current tax receivable ( 731,741 ) ( 5,894 ) ( 19,564 ) Depreciation and amortization 106,585 108,641 103,828 Net (decrease) increase in accrued interest payable ( 1,493 ) ( 8,683 ) 14,412 Net decrease (increase) in income earned not collected 11,457 ( 21,982 ) ( 4,151 ) Contribution to pension plans ( 32 ) ( 100,000 ) ( 3,592 ) Realized gains on investment securities available for sale, net ( 33,119 ) ( 60,253 ) ( 7,115 ) Marketable equity securities gains, net ( 34,081 ) ( 29,395 ) ( 20,625 ) Origination of loans held for sale ( 1,123,312 ) ( 1,042,292 ) ( 698,044 ) Proceeds from sale of loans held for sale 1,035,822 1,045,937 731,803 Gain on sale of loans ( 32,719 ) ( 37,594 ) ( 15,183 ) Net (gains) losses on other real estate owned ( 1,207 ) 4,056 2,664 Net amortization (accretion) of premiums and discounts 11,151 ( 8,513 ) ( 27,263 ) Amortization of intangible assets 25,582 32,801 23,861 Origination of mortgage servicing rights, net of change in valuation allowance ( 13,658 ) ( 12,149 ) ( 5,927 ) Net increase in other assets ( 12,910 ) ( 7,286 ) ( 24,274 ) Net increase (decrease) in other liabilities 6,854 ( 6,115 ) ( 15,992 ) Net cash (used in) provided by operating activities ( 283,783 ) 375,819 578,248 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease (increase) in loans outstanding 423,257 ( 3,850,129 ) ( 1,320,851 ) Purchases of investment securities available for sale ( 6,375,349 ) ( 8,667,406 ) ( 4,705,038 ) Purchases of investment securities held to maturity ( 1,401,220 ) ( 1,633,165 ) ( 223,598 ) Purchases of marketable equity securities ( 1,563 ) ( 333,140 ) ( 26,166 ) Proceeds from maturities, calls, and principal repayments of investment securities held to maturity 809,421 301,347 341,077 Proceeds from maturities, calls, and principal repayments of investment securities available for sale 2,454,722 2,791,291 2,345,512 Proceeds from sales of investment securities available for sale 1,366,909 4,585,002 2,308,856 Proceeds from sales of marketable equity securities 29,796 352,835 56,749 Net increase in overnight investments ( 4,767,324 ) ( 3,204,363 ) ( 65,181 ) Proceeds from sales of loans held for investment — 13,368 24,247 Cash paid to FDIC for settlement of shared-loss agreement ( 16,103 ) ( 99,468 ) — Proceeds from sales of other real estate owned 40,524 28,280 25,918 Proceeds from sales of premises and equipment 1,194 1,369 132 Purchases of premises and equipment ( 107,367 ) ( 133,384 ) ( 121,077 ) Other investing activities ( 25,323 ) — — Business acquisitions, net of cash acquired — ( 59,999 ) ( 236,728 ) Net cash used in investing activities ( 7,568,426 ) ( 9,907,562 ) ( 1,596,148 ) CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in time deposits ( 406,226 ) ( 1,010,190 ) 284,611 Net increase in demand and other interest-bearing deposits 8,382,531 9,989,107 1,154,815 Net decrease in short-term borrowings ( 52,386 ) ( 96,746 ) ( 27,703 ) Repayment of long-term obligations ( 54,332 ) ( 86,737 ) ( 73,284 ) Origination of long-term obligations — 400,000 200,000 Net proceeds from subordinated notes issuance — 345,849 — Net proceeds from preferred stock issuance — 339,937 — Repurchase of common stock — ( 333,755 ) ( 453,123 ) Cash dividends paid ( 41,612 ) ( 30,393 ) ( 18,137 ) Net cash provided by financing activities 7,827,975 9,517,072 1,067,179 Change in cash and due from banks ( 24,234 ) ( 14,671 ) 49,279 Cash and due from banks at beginning of period 362,048 376,719 327,440 Cash and due from banks at end of period $ 337,814 $ 362,048 $ 376,719 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 62,169 $ 104,567 $ 78,230 Income taxes 870,467 116,583 83,038 Significant noncash investing and financing activities: Transfers of loans to other real estate 13,979 11,635 14,639 Dividends declared but not paid — 4,613 4,256 Transfer of loans held for sale to loans held for investment 3,574 5,950 — Loans held for sale exchanged for investment securities 230,537 11,137 — Transfer of loans held for investment to loans held for sale 87,814 48,628 60,005 Transfer of investment securities available for sale to (from) held to maturity 451,684 1,460,745 ( 2,080,617 ) Transfers of premises and equipment to other real estate 13,776 15,187 7,045 Refer to the accompanying Notes to Consolidated Financial Statements. 75 First Citizens BancShares, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE A ACCOUNTING POLICIES AND BASIS OF PRESENTATION Nature of Operations First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “BancShares”) is a financial holding company organized under the laws of Delaware and conducts operations through its banking subsidiary, First-Citizens Bank & Trust Company (“FCB,” or the "Bank”), which is headquartered in Raleigh, North Carolina. BancShares and its subsidiaries operate 529 branches in 19 states predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States (the “U.S.”). BancShares seeks to meet the financial needs of individuals and commercial entities in its market areas through a wide range of retail and commercial banking services. Loan services include various types of commercial, business and consumer lending. Deposit services include checking, savings, money market and time deposit accounts. First Citizens Wealth Management provides holistic, goals-based advisory services encompassing a broad range of client deliverables. These deliverables include wealth planning, discretionary investment advisory services, insurance, brokerage, defined benefit and defined contribution services, private banking, trust, fiduciary, philanthropy and special asset services. Principles of Consolidation and Basis of Presentation The accounting and reporting policies of BancShares are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The consolidated financial statements of BancShares include the accounts of BancShares, certain partnership interests and variable interest entities. All significant intercompany accounts and transactions are eliminated upon consolidation. BancShares operates with centralized management and combined reporting; therefore, BancShares does not have multiple reportable segments. Variable interest entities (“VIE”) are legal entities that either do not have sufficient equity to finance their activities without the support from other parties or whose equity investors lack a controlling financial interest. BancShares has investments in certain partnerships and limited liability entities that have been evaluated and determined to be VIEs. Consolidation of a VIE is appropriate if a reporting entity holds a controlling financial interest in the VIE and is the primary beneficiary. BancShares is not the primary beneficiary and does not hold a controlling interest in the VIEs as it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. As such, assets and liabilities of these entities are not consolidated into the financial statements of BancShares. The recorded investment in these entities is reported within other assets. Reclassifications In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions impacting the amounts reported. Actual results could differ from those estimates. BancShares considers the allowance for credit losses to be a significant estimate. Business Combinations BancShares accounts for all business combinations using the acquisition method of accounting. Under this method, acquired assets and assumed liabilities are included with the acquirer’s accounts as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as either finite lived intangibles or capitalized as goodwill. In addition, acquisition-related and restructuring costs are recognized as period expenses as incurred. Refer to Note B, Business Combinations, for additional information. On January 3, 2022, BancShares completed its previously announced merger (the “CIT Merger”) with CIT Group Inc. (“CIT”), pursuant to an Agreement and Plan of Merger, dated as of October 15, 2020, as amended by Amendment No. 1, dated as of September 30, 2021 (as amended, the “Merger Agreement”) . Refer to Note W, Subsequent Events, for further information . 76 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Overnight Investments Overnight investments primarily comprise of interest-bearing deposits with banks and federal funds sold. Interest-bearing cash held at the Federal Reserve at December 31, 2021 and December 31, 2020 was $ 9.03 billion and $ 4.27 billion, respectively. Overnight investments have initial maturities of three months or less. The carrying value of overnight investments approximates its fair value due to its short-term nature. Debt Securities BancShares classifies debt securities as held to maturity (“HTM”) or available for sale (“AFS”). Debt securities are classified as HTM when BancShares has the intent and ability to hold the securities to maturity. HTM securities are reported at amortized cost. Other debt securities are classified as AFS and reported at estimated fair value, with unrealized gains and losses, net of income taxes, reported in Accumulated Other Comprehensive Income (“AOCI”). Amortization of premiums and accretion of discounts for debt securities are recorded in interest income. Realized gains and losses from the sale of debt securities are determined by specific identification on a trade date basis and are included in noninterest income. BancShares performs pre-purchase due diligence and evaluates the credit risk of AFS and HTM debt securities purchased directly into BancShares' portfolio or via acquisition. If securities have evidence of more than insignificant credit deterioration since issuance, they are designated as purchased credit deteriorated (“PCD”). P CD debt securities are recorded at fair value at the date of acquisition, which includes an associated allowance for credit losses (“ACL”) that is added to the purchase price or fair value to arrive at the Day 1 amortized cost basis. Excluding the ACL, the difference between the purchase price and the Day 1 amortized cost is amortized or accreted to interest income over the contractual life of the securities using the effective interest method. For AFS debt securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in an unrealized loss position for potential credit-related impairment. If BancShares intends to sell a security, or does not have the intent and ability to hold a security before recovering the amortized cost, the entirety of the unrealized loss is immediately recorded in earnings to the extent that it exceeds the associated allowance for credit losses previously established. For the remaining securities, an analysis is performed to determine if any portion of the unrealized loss recorded relates to credit impairment. If credit-related impairment exists, the amount is recorded through the ACL and related provision. This review includes indicators such as changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer. BancShares’ portfolio of HTM debt securities is made up of mortgage-backed securities issued by government agencies and government sponsored entities. Given the historically 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, BancShares determined zero expected credit losses on the HTM portfolio. Equity Securities Investments in equity securities having readily determinable fair values are stated at fair value. Realized and unrealized gains and losses on these securities are determined by specific identification and are included in noninterest income. Non-marketable equity securities are securities with no readily determinable fair values and are measured at cost. BancShares evaluates its non-marketable equity securities for impairment and recoverability of the recorded investment by considering positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience. Impairment is assessed at each reporting period and if identified, is recognized in noninterest expense. Non-marketable equity securities were $ 9.6 million and $ 11.6 million at December 31, 2021 and 2020, respectively, and are included in other assets. Other Securities Membership in the Federal Home Loan Bank (“FHLB”) network requires ownership of FHLB restricted stock. This stock is restricted as it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at cost, less any applicable impairment charges and is recorded within other assets. FHLB restricted stock was $ 40.5 million and $ 45.4 million at December 31, 2021 and 2020, respectively. Additionally, BancShares holds 353,577 shares of Visa Class B common stock. Visa Class B shares are not considered to have a readily determinable fair value and are recorded at $ 0 . 77 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments in Qualified Affordable Housing Projects BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. These investments are accounted for using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received, and the net investment performance is recognized in the income statement as a component of income tax expense. All investments held in qualified affordable housing projects qualify for the proportional amortization method and totaled $ 156.6 million and $ 163.9 million at December 31, 2021 and 2020, respectively, and are included in other assets. Loans Held For Sale BancShares elected to apply the fair value option for residential mortgage loans originated to be sold to investors. Gains and losses on sales of mortgage loans are recognized within mortgage income. Interest on loans held for sale is recorded within interest income on loans and leases on the Consolidated Statements of Income. Loans and Leases BancShares’ accounting methods for loans and leases depends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination as of the date of acquisition. Non-Purchased Credit Deteriorated Loans Non-Purchased Credit Deteriorated (“Non-PCD”) loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition. Originated loans for which management has the intent and ability to hold for the foreseeable future are classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations are deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fees and costs is amortized to interest income over the contractual lives using methods that approximate a constant yield. Purchased loans which do not reflect more than insignificant credit deterioration at acquisition are classified as non-PCD loans. These loans are recorded at fair value at the date of acquisition and an initial allowance is recorded on these assets as provision expense at the date of acquisition. The difference between the fair value and the unpaid principal balance at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method. Purchased Credit Deteriorated Loans Purchased loans which reflect a more than insignificant credit deterioration since origination as of the date of acquisition are classified as PCD and are recorded at acquisition-date amortized cost, which is the purchase price or fair value in a business combination, plus BancShares' initial ACL which results in a gross up of the loan balance. Excluding the ACL, the difference between the unpaid principal balance and the acquisition date amortized cost is amortized or accreted to interest income over the contractual life of the loan using the effective interest method. The performance of all loans within the BancShares portfolio is subject to a number of external risks, including but not limited to changes in the overall health of the economy, declines in real estate or other collateral values, changes in the demand for products and services and personal events, such as death, disability or change in marital status. BancShares evaluates and reports its non-PCD and PCD loan portfolios separately, and each non-PCD portfolio is further divided into commercial and consumer segments based on the type of borrower, purpose, collateral and/or BancShares' underlying credit management processes. Additionally, non-PCD commercial and consumer loans are assigned to loan classes, which further disaggregate the loan portfolio. PCD loans are reported as a single loan segment and class. 78 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Upon adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or the “Codification”) 326, owner occupied and non-owner occupied commercial real estate were segregated into separate classes within the commercial segment. Similarly, consumer auto was segregated into its own class within the consumer segment. These enhancements were made to capture the unique credit characteristics used in BancShares' current expected credit loss (“CECL”) models. Information for reporting periods beginning on or after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to be reported in accordance with previously applicable GAAP and have not been reclassified to conform to the current financial statement presentation. Small Business Administration Paycheck Protection Program The Small Business Administration Paycheck Protection Program (“SBA-PPP”) is one of the centerpieces of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which was passed on March 27, 2020 in response to the outbreak of coronavirus (“COVID-19”) and was supplemented with subsequent legislation. Overseen by the U.S. Treasury Department, the SBA-PPP offered cash-flow assistance to nonprofit and small business employers through guaranteed loans for expenses incurred between February 15, 2020, and August 8, 2020 (“Round 1”). Borrowers are eligible for forgiveness of principal and accrued interest on SBA-PPP loans to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of between eight and 24-weeks after the loan was made as long as the borrower retains its employees and their compensation levels. The CARES Act authorized the SBA to temporarily guarantee these loans. The SBA began processing forgiveness payments during the fourth quarter of 2020. The Consolidated Appropriations Act 2021 was signed into law during the fourth quarter of 2020 and contained provisions for a second round of funding of SBA-PPP loans (“Round 2”). BancShares originated a total of $3.2 billion of Round 1 loans and $1.2 billion of Round 2 loans. As of December 31, 2021, the total remaining balance of SBA-PPP loans was $ 493.8 million, net of deferred fees, compared to $ 2.41 billion as of December 31, 2020. Forgiveness for SBA-PPP loans was approximately $3.93 billion for the year ended December 31, 2021. Due to the unique nature of these provisions, SBA-PPP loans have been disclosed as a separate loan class. Origination fees received from the SBA are capitalized into the carrying amount of the loans. The deferred fee income, net of origination costs, is recognized over the life of the loan as an adjustment to yield using the effective interest method. The following represent BancShares' classes of loans beginning January 1, 2020 upon adoption of ASC 326 (with the exception of SBA-PPP, which was added during second quarter 2020): Commercial loans and leases Construction and land development - Construction and land development consists of loans to finance land for commercial development of real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers. Owner occupied commercial mortgage - Owner occupied commercial mortgages consists of loans to purchase or refinance owner occupied nonresidential properties. This includes office buildings, other commercial facilities and farmland. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation. Non-owner occupied commercial mortgage - Non-owner occupied commercial mortgage consists of loans to purchase or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation. Commercial and industrial and leases - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. 79 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease. SBA-PPP - These loans were originated as part of the SBA-PPP to finance payroll and other costs for nonprofit and small businesses impacted by the COVID-19 pandemic. These loans are guaranteed by the SBA and borrowers have the ability to qualify for loan forgiveness through the U.S. Treasury. Consumer loans Residential mortgage - Residential mortgage consists of loans to purchase or refinance the borrower’s primary dwelling, secondary residence or vacation home and are often secured by 1-4 family residential properties. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral. Revolving mortgage - Revolving mortgage consists of home equity lines of credit and other lines of credit or loans secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior lines as a substantial decline in value could render the junior lien position effectively unsecured. Construction and land development - Construction and land development consists of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral. Consumer auto loans - Consumer auto loans consist of installment loans to finance purchases of vehicles. These loans include direct auto loans originated in bank branches, as well indirect auto loans originated through agreements with auto dealerships. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral. Other consumer - Other consumer loans consist of loans to finance unsecured home improvements, student loans and revolving lines of credit that can be secured or unsecured, including personal credit cards. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral. Loans and Leases - (Prior to Adoption of ASC 326) Prior to the adoption of ASC 326 on January 1, 2020, BancShares’ accounting methods for loans and leases depended on whether they were originated or purchased, and if purchased, whether or not the loans reflected credit deterioration at the date of acquisition. Non-Purchased Credit Impaired (“Non-PCI”) Loans Non-PCI loans consisted of loans originated by BancShares or loans purchased from other institutions that did not reflect credit deterioration at acquisition. Originated loans for which management had the intent and ability to hold for the foreseeable future were classified as held for investment and carried at the principal amount outstanding net of any unearned income, charge-offs and unamortized fees and costs. Nonrefundable fees collected and certain direct costs incurred related to loan originations were deferred and recorded as an adjustment to loans outstanding. The net amount of the nonrefundable fees and costs was amortized to interest income over the contractual lives using methods that approximated a constant yield. Purchased loans which did not reflect credit deterioration at acquisition were classified as non-PCI loans. These loans were recorded at fair value at the date of acquisition. The difference between the fair value and the unpaid principal balance at the acquisition date was amortized or accreted to interest income over the contractual life of the loan using the effective interest method. 80 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased Credit Impaired (“PCI”) Loans Purchased loans which reflected credit deterioration since origination, such that it was probable at acquisition that BancShares would be unable to collect all contractually required payments, were classified as PCI loans. PCI loans were recorded at fair value at the date of acquisition. If the timing and amount of the future cash flows could be reasonably estimated, any excess of cash flows expected at acquisition over the estimated fair value were recognized as interest income over the life of the loans using the effective yield method. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date were recognized prospectively as interest income. Decreases in expected cash flows due to credit deterioration were recognized by recording an allowance for loan losses. In the event of prepayment, the remaining unamortized amount was recognized in interest income. To the extent possible, PCI loans were aggregated into pools based upon common risk characteristics and each pool was accounted for as a single unit. The performance of all loans within the BancShares portfolio was subject to a number of external risks, including changes in the overall health of the economy, declines in real estate values, changes in the demand for products and services and personal events, such as death, disability or change in marital status. BancShares evaluated and reported its non-PCI and PCI loan portfolios separately, and each portfolio was further divided into commercial and non-commercial segments based on the type of borrower, purpose, collateral and/or BancShares' underlying credit management processes. Nonperforming Assets and Troubled Debt Restructurings Nonperforming Assets Nonperforming assets (“NPAs”) include nonaccrual loans, past due debt securities and other real estate owned. All loans are classified as past due when the payment of principal and interest based upon contractual terms is 30 days or greater delinquent. Loans are generally placed on nonaccrual when principal or interest becomes 90 days past due or when it is probable the principal or interest is not fully collectible. When loans are placed on nonaccrual, all previously uncollected accrued interest is reversed from interest income and the ongoing accrual of interest is discontinued. All payments received thereafter are applied as a reduction of the remaining principal balance as long as doubt exists as to the ultimate collection of the principal. Loans and leases are generally removed from nonaccrual status when they become current for a sustained period of time and there is no longer concern as to the collectability of principal and interest. Debt securities are also classified as past due when the payment of principal and interest based upon contractual terms is 30 days delinquent or greater. Missed interest payments on debt securities are rare. Management reviews all debt securities with delinquent interest and immediately charge off any accrued interest determined to be uncollectible. Troubled Debt Restructurings A loan is considered a troubled debt restructuring (“TDR”) when both a modification to a borrower’s debt agreement is made and a concession is granted for economic or legal reasons related to a borrower’s financial difficulties that otherwise would not be granted. TDR concessions could include short-term deferrals of interest, modifications of payment terms or, in certain limited instances, forgiveness of principal or interest. Loans restructured as a TDR are treated and reported as such for the remaining life of the loan. TDR loans can be nonaccrual or accrual, depending on the individual facts and circumstances of the borrower. In circumstances where a portion of the loan balance is charged-off, the remaining balance is typically classified as nonaccrual. 81 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Allowance for Credit Losses Loans Loans within the various reporting classes are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the ACL. These loan level ACL models estimate the probability of default (“PD”) and loss given default (“LGD”) for individual loans within the risk pool based on historical loss experience, borrower characteristics, collateral type, forecasts of relevant economic conditions, expected future recoveries and other factors. Loan level, undiscounted ACL is calculated by applying the modeled PD and LGD to quarterly forecasted loan balances which are adjusted for contractual payments, prepayments and prior defaults. Pools for estimating the ACL are aggregated into loan classes, as described above, which roll up into commercial and consumer loan segments. Non-PCD and PCD loans are modeled together within the loan level models using acquired and PCD indicator variables to provide differentiation of individual loan risk. BancShares uses a two-year reasonable and supportable forecast period which incorporates economic forecasts at the time of evaluation. For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs, however for the commercial card and certain consumer portfolios, immediate reversion to historical net loss rates is utilized. The ACL for SBA-PPP loans originated during 2021 and 2020 are separately evaluated given the explicit government guarantee. BancShares determined SBA-PPP loans have zero expected credit losses and as such these are excluded from ACL disclosures in Note E, Allowance for Credit Losses. The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and the impact of prepayment expectations. Prepayment assumptions were developed through a review of BancShares’ historical prepayment activity and considered forecasts of relevant economic conditions, as well as prepayment assumptions utilized in other modeling activities. Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses. Loan balances considered uncollectible are charged-off against the ACL. Forecasted LGDs are adjusted for expected recoveries and realized recoveries of amounts previously charged-off are credited to the ACL. A primary component of determining the ACL on loans is the actual net loss history of the various loan pools. For commercial pools, key factors utilized in the models include delinquency trends as well as macroeconomic variables such as unemployment and commercial real estate price index. For consumer pools, key factors include delinquency trends and the borrower’s original credit score, as well as other macroeconomic variables such as unemployment, gross domestic product, home price index, and commercial real estate index. As the models project losses over the life of the loans, prepayment assumptions also serve as inputs. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes. Within BancShares’ ACL model, TDRs meet the definition of default and are given a 100% probability of default rating. TDRs are not individually evaluated unless determined to be collateral-dependent. When loans do not share risk characteristics similar to others in the pool, the ACL is evaluated on an individual basis. Given that BancShares' CECL models are loan level models, the population of loans evaluated individually is minimal and consists primarily of loans greater than $ 500 thousand and determined to be collateral-dependent. BancShares elected the practical expedient allowed under ASC 326 to assess the collectability of these loans, where repayment is expected to be provided substantially through operation or sale of collateral, based on the fair value of the underlying collateral. The fair value of the collateral is estimated using appraised and market values (appropriately adjusted for an assessment of the sales and marketing costs when applicable). A specific allowance is established, or partial charge-off is recorded, for the difference between the excess amortized cost of loan and the collateral’s estimated fair value. Accrued Interest Receivable BancShares has elected not to measure an ACL for accrued interest receivable and has excluded it from the amortized cost basis of loans and held to maturity debt securities as BancShares' accounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off against interest income in a timely manner. Unfunded Commitments A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). These unfunded commitments are assessed to determine both the probability of funding as well 82 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the expectation of future losses. The expected funding balance is used in the PD and LGD models to determine the reserve. The reserve for unfunded commitments was $ 11.8 million at December 31, 2021, and is recorded within other liabilities with changes recorded through other noninterest expense. Allowance for Loan and Lease Losses (Prior to Adoption of ASC 326) Prior to adoption of ASC 326 on January 1, 2020, management calculated estimated loan losses through the allowance for loan and lease losses (“ALLL”). The ALLL represented management’s best estimate of inherent credit losses within the loan and lease portfolio at the balance sheet date. Management determined the ALLL based on an ongoing evaluation of the loan portfolio. Estimates for loan losses were determined by analyzing quantitative and qualitative components, such as: economic conditions, historical loan losses, historical loan migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows on PCI loans, current assessment of impaired loans, and changes in the size, composition and/or risk within the loan portfolio. Adjustments to the ALLL were recorded with a corresponding entry to provision for loan and lease losses. Loan balances considered uncollectible were charged-off against the ALLL. Recoveries of amounts previously charged-off were generally credited to the ALLL. A primary component of determining the allowance on non-PCI loans collectively evaluated was the actual loss history of the various loan classes. Loan loss factors were based on historical experience and, when necessary, were adjusted for significant factors, that in management’s judgment, affect the collectability of principal and interest at the balance sheet date. Loan loss factors were monitored quarterly and, when necessary, adjusted based on changes in the level of historical net charge-offs and updates by management, such as the number of periods included in the calculation of loss factors, loss severity, loss emergence period and portfolio attrition. For commercial non-PCI loans, management incorporated historical net loss data to develop the applicable loan loss factors. General reserves for collective impairment were based on incurred loss estimates for the loan class based on average loss rates by credit quality indicators, which were estimated using historical loss experience and credit risk rating migrations. Credit quality indicators include borrower classification codes and facility risk ratings. Incurred loss estimates were adjusted through a qualitative assessment to reflect current economic conditions and portfolio trends including credit quality, concentrations, aging of the portfolio and significant policy and underwriting changes. For noncommercial non-PCI loans, management incorporated specific loan class and delinquency status trends into the loan loss factors. General reserve estimates of incurred losses were based on historical loss experience and the migration of loans through the various delinquency pools applied to the current risk mix. Non-PCI loans were considered to be impaired when, based on current information and events, it was probable that a borrower would be unable to pay all amounts due according to the contractual terms of the loan agreement. Generally, management considered the following loans to be impaired: all TDR loans and all loan relationships which were on nonaccrual or 90+ days past due and greater than $500,000. Non-PCI impaired loans greater than $500,000 were evaluated individually for impairment while others were evaluated collectively. The impairment assessment and determination of the related specific reserve for each impaired loan was based on the loan’s characteristics. Impairment measurement for loans dependent on borrower cash flow for repayment was based on the present value of expected cash flows discounted at the interest rate implicit in the original loan agreement. Impairment measurement for most real estate loans, particularly when a loan was considered to be a probable foreclosure, was based on the fair value of the underlying collateral. Collateral was appraised and market value (appropriately adjusted for an assessment of the sales and marketing costs) was used to calculate a fair value estimate. A specific valuation allowance was established or partial charge-off was recorded for the difference between the excess recorded investment in the loan and the loan’s estimated fair value less costs to sell. The ALLL for PCI loans was estimated based on the expected cash flows over the life of the loan. BancShares estimated and updated cash flows expected to be collected on individual loans or pools of loans sharing common risk characteristics. BancShares compared the carrying value of all PCI loans to the present value at each balance sheet date. If the present value was less than the carrying value, the shortfall reduced the remaining credit discount and if it was in excess of the remaining credit discount, an ALLL was recorded through the recognition of provision expense. The ALLL for PCI loans with subsequent increases in expected cash flows to be collected was reduced and any remaining excess was recorded as an adjustment to the accretable yield over the loan’s or pool’s remaining life. 83 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other Real Estate Owned Other Real Estate Owned (“OREO”) includes foreclosed real estate property and closed branch properties. Foreclosed real estate property in OREO is initially recorded at the asset’s estimated fair value less costs to sell. Any excess in the recorded investment in the loan over the estimated fair value less costs to sell is charged-off against the ACL at the time of foreclosure. If the estimated value of the OREO exceeds the recorded investment of the loan, the difference is recorded as a gain within other income. OREO is subsequently carried at the lower of cost or market value less estimated selling costs and is evaluated at least annually. The periodic evaluations are generally based on the appraised value of the property and may include additional adjustments based upon management’s review of the valuation estimate and specific knowledge of the property. Routine maintenance costs, income and expenses related to the operation of the foreclosed asset, subsequent declines in market value and net gains or losses on disposal are included in collection and foreclosure-related expense. Payable to the Federal Deposit Insurance Corporation for Shared-Loss Agreements The purchase and assumption agreements for certain Federal Deposit Insurance Corporation (“FDIC”) assisted transactions include payments that may be owed to the FDIC at the termination of the shared-loss agreements . The payment is due to the FDIC if actual cumulative losses on acquired covered assets are lower than the cumulative losses originally estimated by the FDIC at the time of acquisition. The liability is calculated by discounting estimated future payments and is reported as FDIC shared-loss payable. The ultimate settlement amount of the payment is dependent upon the performance of the underlying covered loans, recoveries, the passage of time and actual claims submitted to the FDIC. Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation. Land is carried at cost. Depreciation expense is generally computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and capitalized leases are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the assets. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the identifiable assets acquired. Goodwill is not amortized, but is evaluated at least annually for impairment during the third quarter, or when events or changes in circumstances indicate a potential impairment exists. Other acquired intangible assets with finite lives, such as core deposit intangibles, are initially recorded at fair value and are amortized on an accelerated basis typically between five to twelve years over their estimated useful lives. Intangible assets are evaluated for impairment when events or changes in circumstances indicate a potential impairment exists. Mortgage Servicing Rights Mortgage servicing rights (“MSRs”) represent the right to provide servicing under various loan servicing contracts when servicing is retained in connection with a loan sale or acquired in a business combination. MSRs are initially recorded at fair value and amortized in proportion to, and over the period of, the future net servicing income of the underlying loan. At each reporting period, MSRs are evaluated for impairment based upon the fair value of the rights as compared to the carrying value. Fair Values The fair value of financial instruments and the methods and assumptions used in estimating fair value amounts and financial assets and liabilities for which fair value was elected are detailed in Note P , Estimated Fair Values. Income Taxes Income taxes are accounted for using the asset and liability approach as prescribed in ASC 740, Income Taxes . Under this method, a deferred tax asset or liability is determined based on the currently enacted tax rates applicable to the period in which the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in BancShares’ income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period which includes the enactment date. The potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities is 84 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) continually monitored and evaluated. Income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where income tax returns are filed, as well as potential or pending audits or assessments by such tax auditors are evaluated on a periodic basis. BancShares has unrecognized tax benefits related to the uncertain portion of tax positions BancShares has taken or expects to take. A liability may be created or an amount refundable may be reduced for the amount of unrecognized tax benefits. These uncertainties result from the application of complex tax laws, rules, regulations and interpretations, primarily in state taxing jurisdictions. Unrecognized tax benefits are assessed quarterly and may be adjusted through current income tax expense in future periods based on changing facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest on uncertain tax positions are recognized in income tax expense. BancShares files a consolidated federal income tax return and various combined and separate company state tax returns. Refer to Note O, Income Taxes, for additional disclosures. Per Share Data Earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of both classes of common shares outstanding during each period. BancShares had no potential dilutive common shares outstanding in any period and did not report diluted earnings per common share. Cash dividends per share apply to both Class A and Class B common stock. Shares of Class A common stock carry one vote per share, while shares of Class B common stock carry 16 votes per share. Defined Benefit Pension Plans BancShares maintains noncontributory defined benefit pension plans covering certain qualifying employees. The calculation of the obligations and related expenses under the plans require the use of actuarial valuation methods and assumptions. Actuarial assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used. All assumptions are reviewed annually for appropriateness. The discount rate assumption used to measure the plan obligations is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve, and a single discount rate is calculated to achieve the same present value. The assumed rate of future compensation increases is based on actual experience and future salary expectations. BancShares also estimates a long-term rate of return on pension plan assets used to estimate the future value of plan assets. In developing the long-term rate of return, BancShares considers such factors as the actual return earned on plan assets, historical returns on the various asset classes in the plans and projections of future returns on various asset classes. Refer to Note Q, Employee Benefit Plans, for disclosures related to BancShares’ defined benefit pension plans. Leases BancShares leases certain branch locations, administrative offices and equipment. Operating lease ROU assets are included in other assets and the associated lease obligations are included in other liabilities. Sales-type and direct financing leases are included in premises and equipment and other borrowings. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets; BancShares instead recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent BancShares' right to use an underlying asset for the lease term and lease liabilities represent BancShares' corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of BancShares' leases do not provide an implicit rate, BancShares uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using secured rates for new FHLB advances under similar terms as the lease at inception. BancShares utilizes the implicit or incremental borrowing rate at the effective date of a modification not accounted for as a separate contract or a change in the lease terms to determine the present value of lease payments. For operating leases commencing prior to January 1, 2019, BancShares used the incremental borrowing rate as of that date. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at BancShares' sole discretion. When it is reasonably certain BancShares will exercise its option to renew or extend the lease term, the option is included in calculating the value of the ROU asset and lease liability. The 85 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. BancShares determines if an arrangement is a lease at inception. BancShares’ lease agreements do not contain any material residual value guarantees or material restrictive covenants. BancShares does not lease any properties or facilities from any related party. As of December 31, 2021, there were no leases that have not yet commenced that would have a material impact on BancShares’ consolidated financial statements. Sales-type and direct financing leases are carried at the aggregate of lease payments receivable and estimated residual value of the leased property, if applicable, less unearned income. Interest income is recognized over the term of the leases. Refer to Note R, Leases, for additional disclosures. Revenue Recognition BancShares generally acts in a principal capacity, on its own behalf, in its contracts with customers. In these transactions, BancShares recognizes revenues and the related costs to generate those revenues on a gross basis. In certain, circumstances, BancShares acts in an agent capacity, on behalf of the customers with other entities, and recognize revenues and the related costs to provide BancShares' services on a net basis. BancShares acts as an agent when providing certain cardholder and merchant, insurance, and brokerage services. Descriptions of BancShares' noninterest revenue-generating activities are broadly segregated as follows: Cardholder and Merchant Services - These represent interchange fees from customer debit and credit card transactions earned when a cardholder engages in a transaction with a merchant as well as fees charged to merchants for providing them the ability to accept and process the debit and credit card transaction. Revenue is recognized when the performance obligation has been satisfied, which is upon completion of the card transaction. Additionally, as BancShares is acting as an agent for the customer and transaction processor, costs associated with cardholder and merchant services transactions are netted against the fee income. Service charges on deposit accounts - These deposit account-related fees represent monthly account maintenance and transaction-based service fees, such as overdraft fees, stop payment fees and charges for issuing cashier’s checks and money orders. For account maintenance services, revenue is recognized at the end of the statement period when BancShares' performance obligation has been satisfied. All other revenues from transaction-based services are recognized at a point in time when the performance obligation has been completed. Wealth management services - These primarily represent sales commissions on various product offerings, transaction fees and trust and asset management fees. The performance obligation for wealth management services is the provision of services to place annuity products issued by the counterparty to investors and the provision of services to manage the client’s assets, including brokerage custodial and other management services. Revenue from wealth management services is recognized over the period in which services are performed, and is based on a percentage of the value of the assets under management/administration. Other service charges and fees - These include, but are not limited to, check cashing fees, international banking fees, internet banking fees, wire transfer fees and safe deposit fees. The performance obligation is fulfilled and revenue is recognized, at the point in time the requested service is provided to the customer. Insurance commissions - These represent commissions earned on the issuance of insurance products and services. The performance obligation is generally satisfied upon the issuance of the insurance policy and revenue is recognized when the commission payment is remitted by the insurance carrier or policy holder depending on whether the billing is performed by BancShares or the carrier. ATM income - These represent fees imposed on customers and non-customers for engaging in an ATM transaction. Revenue is recognized at the time of the transaction as the performance obligation of rendering the ATM service has been met. Other - This consists of several forms of recurring revenue, such as FHLB dividends and income earned on changes in the cash surrender value of bank-owned life insurance. For the remaining immaterial transactions, revenue is recognized when, or as, the performance obligation is satisfied. Refer to Note N, Other Noninterest Income and Other Noninterest Expense, for additional disclosures on other noninterest income. 86 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recently Adopted Accounting Pronouncements The following pronouncements or Accounting Standard Updates (“ASUs”) were issued by the FASB and adopted by BancShares as of January 1, 2021. FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The amendments in this ASU add new guidance to simplify accounting for income taxes, change the accounting for certain income tax transactions and make minor improvements to the Codification. BancShares adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements or disclosures. FASB ASU 2020-01 - Clarifying the Interactions between I nvestments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under ASC 321, the guidance to account for investments under the equity method of accounting in ASC 323, and the guidance in ASC 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with ASC 825, Financial Instruments. BancShares adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements or disclosures. FASB ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Under the new guidance, premiums on callable debt securities that have explicit, non-contingent call features that are callable at fixed prices and on preset dates must be amortized to the earliest call date, rather than the maturity date. The new guidance does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. BancShares adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements or disclosures. ASU 2020-10, Codification Improvements The amendments in this ASU improve the Codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the Disclosure Section of the Codification. Certain amendments in this ASU are varied in nature and clarifies the previously issued guidance, in cases where it may have been unclear. BancShares adopted this ASU as of January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements and disclosures. 87 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE B BUSINESS COMBINATIONS Each business combination is accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. As part of the accounting for each acquisition, BancShares performs an analysis of the acquired bank’s loan portfolio and based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations segregate the acquired loans into PCD loans and non-PCD loans. Additionally, BancShares performs an analysis of the acquired bank’s portfolio of debt securities to determine if any debt securities should be designated PCD. CIT Group Inc. On January 3, 2022, BancShares completed the CIT Merger. Refer to Note W, Subsequent Events, for further information . Community Financial Holding Company, Inc. On February 1, 2020, BancShares completed the merger of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank. BancShares concluded the completed business combination of Community Financial was not material to BancShares’ consolidated financial statements, individually or in aggregate, and therefore, pro forma financial data has not been included. The transaction was accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed were recorded at their estimated fair values on the acquisition date. Fair values were subject to refinement for up to one year after the closing date of the acquisition. The measurement period ended on December 30, 2020. The fair value of the assets acquired was $ 221.4 million, including $ 110.6 million in non-PCD loans, $ 23.4 million in PCD loans, net of an ACL of $ 1.2 million, and $ 536 thousand in a core deposit intangible. No debt securities purchased in the transaction were designated PCD. Liabilities assumed were $ 219.8 million, of which $ 209.3 million were deposits. As a result of the transaction, BancShares recorded $ 686 thousand of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies expected to result from the acquisition. None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase. The Community Financial transaction resulted in merger-related expenses of $ 3.5 million for the year ended December 31, 2020. Additionally, loan-related interest income generated was approximately $ 5.3 million from the acquisition date through December 31, 2020. The ongoing contribution of this transaction to BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included. 88 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE C INVESTMENTS The amortized cost and fair value of investment and marketable equity securities at December 31, 2021 and 2020, were as follows: December 31, 2021 (Dollars in thousands) Cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury $ 2,006,788 $ 106 $ 1,924 $ 2,004,970 Government agency 797,725 4,659 3,624 798,760 Residential mortgage-backed securities 4,756,977 8,229 36,793 4,728,413 Commercial mortgage-backed securities 1,071,309 5,364 13,924 1,062,749 Corporate bonds 582,420 26,648 533 608,535 Total investment securities available for sale 9,215,219 45,006 56,798 9,203,427 Investment in marketable equity securities 72,894 24,879 245 97,528 Investment securities held to maturity Residential mortgage-backed securities 2,322,529 5,690 21,957 2,306,262 Commercial mortgage-backed securities 1,484,916 32 33,568 1,451,380 Other 2,008 — — 2,008 Total investment securities held to maturity 3,809,453 5,722 55,525 3,759,650 Total investment securities $ 13,097,566 $ 75,607 $ 112,568 $ 13,060,605 December 31, 2020 Cost Gross unrealized gains Gross unrealized losses Fair value Investment securities available for sale U.S. Treasury $ 499,832 $ 101 $ — $ 499,933 Government agency 706,241 723 5,573 701,391 Residential mortgage-backed securities 4,369,130 70,283 1,310 4,438,103 Commercial mortgage-backed securities 745,892 25,645 — 771,537 Corporate bonds 590,870 14,437 2,028 603,279 Total investment securities available for sale 6,911,965 111,189 8,911 7,014,243 Investment in marketable equity securities 84,837 8,654 1,811 91,680 Investment securities held to maturity Residential mortgage-backed securities 1,877,692 17,689 — 1,895,381 Commercial mortgage-backed securities 937,034 3,884 56 940,862 Other 2,256 — — 2,256 Total investment securities held to maturity 2,816,982 21,573 56 2,838,499 Total investment securities $ 9,813,784 $ 141,416 $ 10,778 $ 9,944,422 On October 1, 2021, mortgage-backed securities with an amortized cost of $ 451.7 million were transferred from investment securities available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $ 439.0 million and a weighted average remaining contractual maturity of approximately 28 years. The unrealized loss on these securities at the date of transfer was $ 12.7 million, or $ 9.7 million net of tax, and was reported as a component of AOCI. This unrealized loss is amortized over the remaining expected life of the securities as an adjustment of yield. On November 1, 2020, mortgage-backed securities with an amortized cost of $ 1.46 billion were transferred from investment securities available for sale to the held to maturity portfolio. At the time of transfer, the mortgage-backed securities had a fair value of $ 1.47 billion and a weighted average remaining contractual maturity of approximately 18 years. The unrealized gain on these securities at the date of transfer was $ 5.9 million, or $ 4.5 million net of tax, and was reported as a component of AOCI. This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield. 89 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Investments in government agency securities represent securities issued by the SBA. Investments in corporate bonds represent positions in debt securities of other financial institutions. Investments in marketable equity securities represent positions in common stock of publicly traded financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions. BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other shareholders of Visa Class B common stock. As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and have no carrying value. BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock. BancShares held FHLB stock of $ 40.5 million and $ 45.4 million and other non-marketable equity securities of $ 9.6 million and $ 11.6 million at December 31, 2021 and December 31, 2020, respectively. These securities are recorded at cost within other assets. As of December 31, 2021 and December 31, 2020, no ACL was required for available for sale and held to maturity debt securities. At December 31, 2021, accrued interest receivable for available for sale and held to maturity debt securities were $ 22.3 million and $ 6.6 million, respectively, and were excluded from the estimate of credit losses. At December 31, 2020, accrued interest receivable for available for sale and held to maturity debt securities were $ 17.6 million and $ 5.4 million, respectively, and were excluded from the estimate of credit losses. During the years ended December 31, 2021 and December 31, 2020, no accrued interest was deemed uncollectible and written off against interest income. The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date. December 31, 2021 December 31, 2020 (Dollars in thousands) Amortized cost Fair value Amortized cost Fair value Investment securities available for sale Non-amortizing securities maturing in: One year or less $ 200 $ 202 $ 500,846 $ 500,954 One through five years 2,049,068 2,048,259 72,565 73,881 Five through 10 years 523,290 547,912 508,320 519,570 Over 10 years 16,650 17,132 8,971 8,807 Government agency 797,725 798,760 706,241 701,391 Residential mortgage-backed securities 4,756,977 4,728,413 4,369,130 4,438,103 Commercial mortgage-backed securities 1,071,309 1,062,749 745,892 771,537 Total investment securities available for sale $ 9,215,219 $ 9,203,427 $ 6,911,965 $ 7,014,243 Investment securities held to maturity Non-amortizing securities maturing in: One year or less $ 2,008 $ 2,008 $ 1,507 $ 1,507 One through five years — — 749 749 Residential mortgage-backed securities 2,322,529 2,306,262 1,877,692 1,895,381 Commercial mortgage-backed securities 1,484,916 1,451,380 937,034 940,862 Total investment securities held to maturity $ 3,809,453 $ 3,759,650 $ 2,816,982 $ 2,838,499 90 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For each year presented, realized gains on investment securities available for sale included the following: Year ended December 31 (Dollars in thousands) 2021 2020 2019 Gross gains on retirement/sales of investment securities available for sale $ 33,133 $ 60,932 $ 8,993 Gross losses on sales of investment securities available for sale ( 14 ) ( 679 ) ( 1,878 ) Realized gains on investment securities available for sale, net $ 33,119 $ 60,253 $ 7,115 For each year presented, realized and unrealized gains or losses on marketable equity securities included the following: Year ended December 31 (Dollars in thousands) 2021 2020 2019 Marketable equity securities gains (losses), net $ 34,081 $ 29,395 $ 20,625 Less net gains recognized on marketable equity securities sold 16,261 44,550 16,344 Unrealized gains (losses) recognized on marketable equity securities held $ 17,820 $ ( 15,155 ) $ 4,281 The following table provides information regarding investment securities with unrealized losses as of December 31, 2021 and 2020: December 31, 2021 Less than 12 months 12 months or more Total (Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Investment securities available for sale U.S. Treasury $ 1,810,924 $ 1,924 $ — $ — $ 1,810,924 $ 1,924 Government agency 222,401 1,516 189,935 2,108 412,336 3,624 Residential mortgage-backed securities 3,992,305 36,769 1,351 24 3,993,656 36,793 Commercial mortgage-backed securities 647,101 13,924 — — 647,101 13,924 Corporate bonds 52,331 533 — — 52,331 533 Total $ 6,725,062 $ 54,666 $ 191,286 $ 2,132 $ 6,916,348 $ 56,798 December 31, 2020 Less than 12 months 12 months or more Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Investment securities available for sale Government agency $ 268,622 $ 3,197 $ 328,777 $ 2,376 $ 597,399 $ 5,573 Residential mortgage-backed securities 433,816 1,241 23,064 69 456,880 1,310 Corporate bonds 57,715 2,028 — — 57,715 2,028 Total $ 760,153 $ 6,466 $ 351,841 $ 2,445 $ 1,111,994 $ 8,911 There were 37 and 39 investment securities available for sale with continuous losses for more than 12 months as of December 31, 2021 and December 31, 2020, respectively, all of which are government sponsored, enterprise-issued mortgage-backed securities or government agency securities. None of the unrealized losses identified as of December 31, 2021 or December 31, 2020 relate to the issuer’s ability to honor redemption obligations. Rather, the unrealized losses relate to changes in interest rates relative to when the investment securities were purchased, and do not indicate credit-related impairment. BancShares considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors in this determination. As a result, none of the securities were deemed to require an allowance for credit losses. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Investment securities having an aggregate carrying value of $ 5.74 billion at December 31, 2021 and $ 4.64 billion at December 31, 2020, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law. 91 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities. 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, no allowance for credit losses has been recorded on these securities. In the event there are downgrades to the credit rating of the U.S. Treasury or losses reported on securities issued by government agencies and government sponsored entities, BancShares will reevaluate its determination of zero expected credit losses on held to maturity debt securities. There were no debt securities held to maturity on non-accrual status as of December 31, 2021 or December 31, 2020. A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities past due as of December 31, 2021 or December 31, 2020. NOTE D LOANS AND LEASES BancShares’ accounting methods for loans and leases depends whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination, which is determined as of the acquisition date. Non-PCD loans consist of loans originated by BancShares and loans purchased from other institutions that do not reflect more than insignificant credit deterioration at acquisition and are reported by loan segments as defined in Note A, Accounting Policies and Basis of Presentation. Purchased loans which reflect more than insignificant credit deterioration are classified as PCD and reported as a single loan segment or class. At the date of acquisition, all acquired loans are recorded at fair value. Loans and leases outstanding include the following at December 31, 2021 and 2020: (Dollars in thousands) December 31, 2021 December 31, 2020 Commercial: Construction and land development $ 1,111,797 $ 985,424 Owner occupied commercial mortgage 11,992,625 11,165,012 Non-owner occupied commercial mortgage 2,971,393 2,987,689 Commercial and industrial and leases 5,710,652 5,013,644 SBA-PPP 493,821 2,406,291 Total commercial loans and leases 22,280,288 22,558,060 Consumer: Residential mortgage 5,679,919 5,561,686 Revolving mortgage 1,795,005 2,052,854 Construction and land development 399,570 348,123 Consumer auto 1,331,388 1,255,402 Consumer other 547,728 552,968 Total consumer loans 9,753,610 9,771,033 Total non-PCD loans and leases 32,033,898 32,329,093 PCD loans 337,624 462,882 Total loans and leases $ 32,371,522 $ 32,791,975 92 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Certain residential real estate loans are originated to be sold to investors and are recorded in loans held for sale at fair value. Loans held for sale totaled $ 98.7 million and $ 124.8 million at December 31, 2021 and 2020, respectively. We may change our strategy for certain portfolio loans and sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at the lower of cost or market value. During 2021, total proceeds from sales of residential mortgage loans were $ 1.04 billion. During 2020, total proceeds from sales of residential mortgage loans were $ 1.05 billion, the majority of which were originated to be sold. An additional $ 7.6 million related to sales of portfolio loans, which were sold at par. The following table presents selected components of the amortized cost of loans. (Dollars in thousands) December 31, 2021 December 31, 2020 Deferred fees, including unearned fees and unamortized costs on non-PCD loans Net deferred fees related to SBA-PPP loans $ 14,882 $ 41,064 Net deferred fees related to other portfolios 16,903 9,153 Total net deferred fees $ 31,785 $ 50,217 Net unamortized discount on purchased loans Non-PCD $ 11,428 $ 19,473 PCD 29,008 45,254 Total $ 40,436 $ 64,727 Loans and leases to borrowers in medical, dental or related fields were $ 7.09 billion as of December 31, 2021, which represented 21.9 % of total loans and leases, compared to $ 5.54 billion or 16.9 % of total loans and leases at December 31, 2020. The credit risk of this industry concentration is mitigated through our underwriting policies, which emphasize reliance on adequate borrower cash flow, rather than underlying collateral value, and our preference for financing secured by owner-occupied real property. Except for this single concentration, no other industry represented more than 10% of total loans and leases outstanding at December 31, 2021 or 2020. Similar to FCB’s branch footprint, the collateral of loans secured by real estate is concentrated within North Carolina and South Carolina. At December 31, 2021, real estate located in North Carolina and South Carolina represented 35.9 % and 15.6 %, respectively, of all real estate used as collateral. 93 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The aging of the outstanding loans and leases, by class, at December 31, 2021 and 2020, is provided in the tables below. Loans and leases 30 days or less past due are considered current, as various grace periods allow borrowers to make payments within a stated period after the due date and still remain in compliance with the loan agreement. December 31, 2021 (Dollars in thousands) 30-59 days past due 60-89 days past due 90 days or greater Total past due Current Total loans and leases Commercial: Construction and land development $ 456 $ — $ 2,099 $ 2,555 $ 1,109,242 $ 1,111,797 Owner occupied commercial mortgage 18,073 517 6,929 25,519 11,967,106 11,992,625 Non-owner occupied commercial mortgage 1,335 33 2,217 3,585 2,967,808 2,971,393 Commercial and industrial and leases 7,909 3,714 6,238 17,861 5,692,791 5,710,652 SBA-PPP — — — — 493,821 493,821 Total commercial loans 27,773 4,264 17,483 49,520 22,230,768 22,280,288 Consumer: Residential mortgage 18,585 4,066 14,205 36,856 5,643,063 5,679,919 Revolving mortgage 5,446 2,086 4,612 12,144 1,782,861 1,795,005 Construction and land development 388 — 41 429 399,141 399,570 Consumer auto 5,628 1,134 1,214 7,976 1,323,412 1,331,388 Consumer other 2,335 2,013 1,154 5,502 542,226 547,728 Total consumer loans 32,382 9,299 21,226 62,907 9,690,703 9,753,610 PCD loans 10,898 2,899 13,160 26,957 310,667 337,624 Total loans and leases $ 71,053 $ 16,462 $ 51,869 $ 139,384 $ 32,232,138 $ 32,371,522 December 31, 2020 (Dollars in thousands) 30-59 days past due 60-89 days past due 90 days or greater Total past due Current Total loans and leases Commercial: Construction and land development $ 956 $ 527 $ 1,603 $ 3,086 $ 982,338 $ 985,424 Owner occupied commercial mortgage 8,757 2,232 14,082 25,071 11,139,941 11,165,012 Non-owner occupied commercial mortgage 12,370 — 5,973 18,343 2,969,346 2,987,689 Commercial and industrial and leases 14,532 2,842 3,243 20,617 4,993,027 5,013,644 SBA-PPP — — — — 2,406,291 2,406,291 Total commercial loans 36,615 5,601 24,901 67,117 22,490,943 22,558,060 Consumer: Residential mortgage 43,218 8,364 31,690 83,272 5,478,414 5,561,686 Revolving mortgage 11,977 2,626 7,415 22,018 2,030,836 2,052,854 Construction and land development 932 77 330 1,339 346,784 348,123 Consumer auto 6,825 1,835 1,076 9,736 1,245,666 1,255,402 Consumer other 3,610 1,464 1,505 6,579 546,389 552,968 Total consumer loans 66,562 14,366 42,016 122,944 9,648,089 9,771,033 PCD loans 18,322 6,076 31,026 55,424 407,458 462,882 Total loans and leases $ 121,499 $ 26,043 $ 97,943 $ 245,485 $ 32,546,490 $ 32,791,975 94 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The amortized cost, by class, of loans and leases on nonaccrual status, and loans and leases greater than 90 days past due and still accruing at December 31, 2021 and December 31, 2020, were as follows: December 31, 2021 December 31, 2020 (Dollars in thousands) Nonaccrual loans and leases Loans and leases > 90 days and accruing Nonaccrual loans and leases Loans and leases > 90 days and accruing Commercial: Construction and land development $ 2,128 $ — $ 1,661 $ — Owner occupied commercial mortgage 11,355 4,573 23,103 3,625 Non-owner occupied commercial mortgage 4,420 197 7,932 147 Commercial and industrial and leases 17,384 661 10,626 540 Total commercial loans 35,287 5,431 43,322 4,312 Consumer: Residential mortgage 35,395 — 66,345 — Revolving mortgage 15,882 — 22,236 — Construction and land development 482 — 652 — Consumer auto 3,089 — 3,166 — Consumer other 555 951 823 1,195 Total consumer loans 55,403 951 93,222 1,195 PCD loans 29,616 543 54,939 355 Total loans and leases $ 120,306 $ 6,925 $ 191,483 $ 5,862 Credit quality indicators Loans and leases are monitored for credit quality on a recurring basis. Commercial and noncommercial loans and leases have different credit quality indicators as a result of the unique characteristics of the loan segments being evaluated. The credit quality indicators for non-PCD commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below: Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification. Special mention – A special mention asset has potential weaknesses which deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification. Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected. Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values. Loss – Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future. Ungraded – Ungraded loans represent loans not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at December 31, 2021 and 2020, relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit. The remaining balance is comprised of a small amount of commercial mortgage, lease financing and other commercial real estate loans. 95 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The credit quality indicators for consumer and PCD loans are based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases. The following tables represent current credit quality indicators by origination year as of December 31, 2021. Commercial Loans Amortized Cost Basis by Origination Year Classification: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total (Dollars in thousands) Construction and land development Pass $ 467,540 $ 374,206 $ 178,035 $ 23,546 $ 43,541 $ 8,419 $ 9,491 $ — $ 1,104,778 Special Mention 18 152 283 — 45 — — — 498 Substandard 975 35 61 1,439 4,002 9 — — 6,521 Total 468,533 374,393 178,379 24,985 47,588 8,428 9,491 — 1,111,797 Owner occupied commercial mortgage Pass 3,042,301 3,016,532 1,868,940 1,193,126 960,346 1,538,984 125,025 115 11,745,369 Special Mention 2,924 35,390 35,949 22,247 11,399 20,233 4,598 70 132,810 Substandard 28,456 6,239 14,817 10,590 17,362 31,565 5,417 — 114,446 Total 3,073,681 3,058,161 1,919,706 1,225,963 989,107 1,590,782 135,040 185 11,992,625 Non-owner occupied commercial mortgage Pass 628,953 734,538 577,953 261,504 261,946 388,956 35,297 — 2,889,147 Special Mention 1,252 — 262 2,602 32 5,083 — — 9,231 Substandard 5,364 10,367 22,754 9,106 6,973 16,502 549 — 71,615 Doubtful — — — — 1,400 — — — 1,400 Total 635,569 744,905 600,969 273,212 270,351 410,541 35,846 — 2,971,393 Commercial and industrial and leases Pass 1,767,047 1,042,730 636,334 298,326 165,371 289,044 1,338,162 4,983 5,541,997 Special Mention 2,455 7,859 20,225 2,493 3,769 3,517 5,455 296 46,069 Substandard 15,752 6,579 3,111 4,000 1,642 2,679 15,911 864 50,538 Doubtful — — — — — — 1 — 1 Ungraded — — — — — — 72,047 — 72,047 Total 1,785,254 1,057,168 659,670 304,819 170,782 295,240 1,431,576 6,143 5,710,652 SBA-PPP Pass 450,550 43,271 — — — — — — 493,821 Total commercial $ 6,413,587 $ 5,277,898 $ 3,358,724 $ 1,828,979 $ 1,477,828 $ 2,304,991 $ 1,611,953 $ 6,328 $ 22,280,288 96 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consumer and PCD Loans Amortized Cost Basis by Origination Year Days Past Due: 2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total (Dollars in thousands) Residential mortgage Current $ 1,964,807 $ 1,561,214 $ 607,551 $ 359,581 $ 339,318 $ 789,770 $ 20,822 $ — $ 5,643,063 30-59 days 1,809 2,011 2,045 1,866 1,385 9,469 — — 18,585 60-89 days 465 26 67 649 507 2,352 — — 4,066 90 days or greater 225 428 681 1,998 744 10,129 — — 14,205 Total 1,967,306 1,563,679 610,344 364,094 341,954 811,720 20,822 — 5,679,919 Revolving mortgage Current — — — — — — 1,671,148 111,713 1,782,861 30-59 days — — — — — — 3,688 1,758 5,446 60-89 days — — — — — — 256 1,830 2,086 90 days or greater — — — — — — 1,957 2,655 4,612 Total — — — — — — 1,677,049 117,956 1,795,005 Construction and land development Current 241,692 122,259 20,782 6,665 4,835 1,630 1,278 — 399,141 30-59 days 55 285 27 — 11 10 — — 388 60-89 days — — — — — — — — — 90 days or greater — — — — — 41 — — 41 Total 241,747 122,544 20,809 6,665 4,846 1,681 1,278 — 399,570 Consumer auto Current 596,617 343,230 198,455 118,540 48,405 18,165 — — 1,323,412 30-59 days 1,331 1,570 1,265 879 409 174 — — 5,628 60-89 days 184 429 296 147 48 30 — — 1,134 90 days or greater 428 297 156 228 87 18 — — 1,214 Total 598,560 345,526 200,172 119,794 48,949 18,387 — — 1,331,388 Consumer other Current 132,402 23,856 11,019 4,402 2,362 28,099 340,086 — 542,226 30-59 days 205 125 23 1 — 25 1,956 — 2,335 60-89 days 697 20 36 — — 1 1,259 — 2,013 90 days or greater 45 7 1 1 — — 1,100 — 1,154 Total 133,349 24,008 11,079 4,404 2,362 28,125 344,401 — 547,728 Total consumer 2,940,962 2,055,757 842,404 494,957 398,111 859,913 2,043,550 117,956 9,753,610 PCD loans Current — 22,154 20,896 20,486 21,739 200,915 10,070 14,407 310,667 30-59 days — 798 98 479 164 9,173 — 186 10,898 60-89 days — 302 143 158 22 2,196 — 78 2,899 90 days or greater — 483 222 275 403 10,697 28 1,052 13,160 Total PCD — 23,737 21,359 21,398 22,328 222,981 10,098 15,723 337,624 Total loans and leases $ 9,354,549 $ 7,357,392 $ 4,222,487 $ 2,345,334 $ 1,898,267 $ 3,387,885 $ 3,665,601 $ 140,007 $ 32,371,522 97 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables represent current credit quality indicators by origination year as of December 31, 2020. Commercial Loans Amortized Cost Basis by Origination Year Classification: 2020 2019 2018 2017 2016 Prior Revolving loans Revolving loans converted to term loans Total (Dollars in thousands) Construction and land development Pass $ 342,183 $ 341,233 $ 190,429 $ 50,776 $ 23,969 $ 11,306 $ 10,969 $ — $ 970,865 Special Mention 246 — 6,421 5,342 — — 153 — 12,162 Substandard 229 629 1,450 — 8 81 — — 2,397 Total 342,658 341,862 198,300 56,118 23,977 11,387 11,122 — 985,424 Owner occupied commercial mortgage Pass 3,183,467 2,201,165 1,625,141 1,301,412 1,049,858 1,454,020 101,556 133 10,916,752 Special Mention 6,274 20,702 36,739 12,387 17,699 25,693 5,115 72 124,681 Substandard 10,280 19,052 9,842 20,928 13,736 41,303 8,438 — 123,579 Total 3,200,021 2,240,919 1,671,722 1,334,727 1,081,293 1,521,016 115,109 205 11,165,012 Non-owner occupied commercial mortgage Pass 865,514 609,975 378,136 331,800 282,810 391,517 32,149 — 2,891,901 Special Mention 569 905 10,794 1,808 5,121 3,279 483 — 22,959 Substandard 2,899 18,546 12,296 8,764 14,087 15,427 810 — 72,829 Total 868,982 629,426 401,226 342,372 302,018 410,223 33,442 — 2,987,689 Commercial and industrial and leases Pass 1,620,622 983,852 504,463 310,468 234,735 286,996 899,978 5,520 4,846,634 Special Mention 3,146 17,065 7,265 5,393 3,307 4,912 9,152 189 50,429 Substandard 17,811 4,095 4,370 4,257 2,548 3,801 22,384 983 60,249 Ungraded — — — — — — 56,332 — 56,332 Total 1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644 SBA-PPP Pass 2,406,291 — — — — — — — 2,406,291 Total commercial $ 8,459,531 $ 4,217,219 $ 2,787,346 $ 2,053,335 $ 1,647,878 $ 2,238,335 $ 1,147,519 $ 6,897 $ 22,558,060 98 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consumer and PCD Loans Amortized Cost Basis by Origination Year Days Past Due: 2020 2019 2018 2017 2016 Prior Revolving loans Revolving loans converted to term loans Total (Dollars in thousands) Residential mortgage Current $ 1,882,683 $ 978,298 $ 655,798 $ 596,309 $ 461,719 $ 878,634 $ 24,973 $ — $ 5,478,414 30-59 days 2,278 4,573 11,463 3,772 8,613 12,299 220 — 43,218 60-89 days 30 100 1,246 1,449 834 4,705 — — 8,364 90 days or greater 282 4,831 3,150 4,015 5,689 13,723 — — 31,690 Total 1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 — 5,561,686 Revolving mortgage Current — — — — — — 1,879,968 150,868 2,030,836 30-59 days — — — — — — 8,241 3,736 11,977 60-89 days — — — — — — 527 2,099 2,626 90 days or greater — — — — — — 2,301 5,114 7,415 Total — — — — — — 1,891,037 161,817 2,052,854 Construction and land development Current 215,112 85,707 24,860 10,269 6,093 2,218 2,525 — 346,784 30-59 days — 420 121 370 — 21 — — 932 60-89 days — — — 9 — 68 — — 77 90 days or greater — — — — — 330 — — 330 Total 215,112 86,127 24,981 10,648 6,093 2,637 2,525 — 348,123 Consumer auto Current 521,719 340,594 219,597 104,280 49,872 9,604 — — 1,245,666 30-59 days 2,175 1,873 1,257 842 544 134 — — 6,825 60-89 days 329 689 312 351 109 45 — — 1,835 90 days or greater 170 527 217 57 102 3 — — 1,076 Total 524,393 343,683 221,383 105,530 50,627 9,786 — — 1,255,402 Consumer other Current 53,842 27,117 10,911 7,159 2,980 29,336 415,044 — 546,389 30-59 days 322 114 77 18 11 7 3,061 — 3,610 60-89 days 102 20 13 18 3 23 1,285 — 1,464 90 days or greater 53 84 8 — — — 1,360 — 1,505 Total 54,319 27,335 11,009 7,195 2,994 29,366 420,750 — 552,968 Total consumer 2,679,097 1,444,947 929,030 728,918 536,569 951,150 2,339,505 161,817 9,771,033 PCD loans Current 31,475 25,425 27,183 27,955 28,995 232,186 13,212 21,027 407,458 30-59 days 999 925 801 718 1,341 12,637 156 745 18,322 60-89 days 447 81 312 695 97 4,098 9 337 6,076 90 days or greater 721 2,325 4,755 1,208 897 19,963 111 1,046 31,026 Total PCD 33,642 28,756 33,051 30,576 31,330 268,884 13,488 23,155 462,882 Total loans and leases $ 11,172,270 $ 5,690,922 $ 3,749,427 $ 2,812,829 $ 2,215,777 $ 3,458,369 $ 3,500,512 $ 191,869 $ 32,791,975 99 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of December 31, 2021 and 2020: (Dollars in thousands) December 31, 2021 December 31, 2020 FHLB of Atlanta Lendable collateral value of pledged non-PCD loans $ 9,563,947 $ 8,637,844 Less: advances 644,659 652,675 Available borrowing capacity $ 8,919,288 $ 7,985,169 Pledged non-PCD loans $ 14,507,109 $ 12,157,153 FRB Lendable collateral value of pledged non-PCD loans $ 3,950,649 $ 3,321,762 Less: advances — — Available borrowing capacity $ 3,950,649 $ 3,321,762 Pledged non-PCD loans $ 4,806,443 $ 4,104,866 NOTE E ALLOWANCE FOR CREDIT LOSSES As noted in Note A, Accounting Polices and Basis of Presentation, BancShares determined SBA-PPP loans have zero expected credit losses and as such these are excluded from the following ACL disclosures. Upon adoption of ASC 326 on January 1, 2020, BancShares recorded a net decrease of $ 37.9 million in the ACL, which included a decrease of $ 56.9 million in the ACL on non-PCD loans, offset by an increase of $ 19.0 million in the ACL on PCD loans. The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL. The remaining non-credit related discount continues to amortize into interest. The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. The decrease in the ACL as of December 31, 2021 compared to December 31, 2020 was primarily driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years . For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. BancShares’ ACL forecasts consider a range of economic scenarios from an upside scenario to a severely adverse scenario, but the December 31, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs. Refer to Note A, Accounting Policies and Basis of Presentation, for discussion of the accounting treatment of the allowance for loan losses prior to adoption of ASC 326. 100 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables summarize activity in the allowance for credit losses for the years ended December 31, 2021 and 2020 and the allowance for loan losses for the year ended December 31, 2019. Year ended December 31, 2021 (Dollars in thousands) Commercial Consumer PCD Total Balance at January 1 $ 80,842 $ 119,485 $ 23,987 $ 224,314 Benefit ( 1,228 ) ( 21,278 ) ( 14,329 ) ( 36,835 ) Charge-offs ( 15,924 ) ( 17,181 ) ( 2,317 ) ( 35,422 ) Recoveries 7,523 11,452 7,461 26,436 Balance at December 31 $ 71,213 $ 92,478 $ 14,802 $ 178,493 Year ended December 31, 2020 (Dollars in thousands) Commercial Consumer PCD Total Balance at January 1 $ 142,369 $ 75,236 $ 7,536 $ 225,141 Adoption of ASC 326 ( 87,554 ) 30,629 19,001 ( 37,924 ) Balance at January 1 54,815 105,865 26,537 187,217 Provision (benefit) 37,763 27,791 ( 7,202 ) 58,352 Initial allowance on PCD loans — — 1,193 1,193 Charge-offs ( 17,586 ) ( 24,219 ) ( 3,300 ) ( 45,105 ) Recoveries 5,850 10,048 6,759 22,657 Balance at December 31 $ 80,842 $ 119,485 $ 23,987 $ 224,314 Year ended December 31, 2019 (Dollars in thousands) Commercial Consumer PCI Total Balance at January 1 $ 139,043 $ 75,525 $ 9,144 $ 223,712 Provision (benefit) 13,386 19,663 ( 1,608 ) 31,441 Charge-offs ( 14,744 ) ( 28,283 ) — ( 43,027 ) Recoveries 4,684 8,331 — 13,015 Balance at December 31 $ 142,369 $ 75,236 $ 7,536 $ 225,141 BancShares records an allowance for credit losses on unfunded commitments within other liabilities. Activity in the allowance for credit losses for unfunded commitments is summarized as follows: (Dollars in thousands) December 31, 2021 December 31, 2020 Allowance for credit losses: Beginning balance $ 12,814 $ 1,055 Adoption of ASC 326 — 8,885 Adjusted beginning balance $ 12,814 $ 9,940 (Benefit) provision ( 999 ) 2,874 Ending balance 11,815 12,814 BancShares individually reviews loans greater than $ 500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property. The following table presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of December 31, 2021 and 2020. 101 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 (Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses Commercial loans: Construction and land development $ 1,424 $ 1,964 137.9 % $ — Owner occupied commercial mortgage 3,461 4,370 126.3 — Non-owner occupied commercial mortgage 2,056 2,118 103.0 — Commercial and industrial and leases 2,665 5,208 195.4 941 Total commercial loans 9,606 13,660 142.2 941 Consumer: Residential mortgage 5,323 7,353 138.1 — Total non-PCD loans 14,929 21,013 140.8 941 PCD 4,864 21,099 433.8 — Total collateral-dependent loans $ 19,793 $ 42,112 212.8 % $ 941 December 31, 2020 (Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses Commercial loans: Construction and land development $ 1,424 $ 1,795 126.1 % $ — Owner occupied commercial mortgage 9,792 14,253 145.6 — Non-owner occupied commercial mortgage 5,556 7,577 136.4 — Total commercial loans 16,772 23,625 140.9 — Consumer: Residential mortgage 23,011 29,775 129.4 131 Total non-PCD loans 39,783 53,400 134.2 131 PCD 19,042 27,872 146.4 — Total collateral-dependent loans $ 58,825 $ 81,272 138.2 % $ 131 Collateral-dependent nonaccrual loans with no recorded allowance totaled $ 14.8 million and $ 57.5 million as of December 31, 2021 and 2020, respectively. All other nonaccrual loans have a recorded allowance. Non-PCI impaired loans less than $ 500,000 that were collectively evaluated was $ 41.0 million at December 31, 2019. The following table shows the average non-PCI impaired loan balance and the interest income recognized by loan class for the years ended December 31, 2019. 2019 (Dollars in thousands) Average Balance Interest Income Recognized Non-PCI impaired loans and leases: Commercial: Construction and land development $ 3,915 $ 53 Commercial mortgage 64,363 2,188 Other commercial real estate 919 27 Commercial and industrial and leases 11,884 482 Other 396 11 Total commercial 81,477 2,761 Noncommercial: Residential mortgage 52,045 1,386 Revolving mortgage 29,516 1,009 Construction and land development 3,589 116 Consumer 3,311 138 Total noncommercial 88,461 2,649 Total non-PCI impaired loans and leases $ 169,938 $ 5,410 102 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Troubled Debt Restructurings BancShares accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be collateral-dependent. Consumer TDRs are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in credit quality metrics do not impact the calculation of the ACL on consumer TDRs. For commercial TDRs, the TDR distinction does impact the calculation of ACL, as the standard definition of default is utilized. The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs. The following tables provides a summary of total TDRs by accrual status. December 31, 2021 December 31, 2020 (Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total Commercial loans: Construction and land development $ 328 $ 29 $ 357 $ 578 $ 54 $ 632 Owner occupied commercial mortgage 43,593 6,231 49,824 37,574 10,889 48,463 Non-owner occupied commercial mortgage 21,278 2,741 24,019 18,336 1,649 19,985 Commercial and industrial and leases 11,723 9,384 21,107 29,131 3,528 32,659 Total commercial loans 76,922 18,385 95,307 85,619 16,120 101,739 Consumer: Residential mortgage 20,635 12,262 32,897 29,458 19,380 48,838 Revolving mortgage 16,322 6,395 22,717 20,124 7,128 27,252 Construction and land development 961 259 1,220 1,573 9 1,582 Consumer auto 1,827 455 2,282 2,018 696 2,714 Consumer other 713 76 789 955 137 1,092 Total consumer loans 40,458 19,447 59,905 54,128 27,350 81,478 PCD loans 29,401 9,935 39,336 17,617 7,346 24,963 Total loans $ 146,781 $ 47,767 $ 194,548 $ 157,364 $ 50,816 $ 208,180 December 31, 2019 (Dollars in thousands) Accruing Nonaccruing Total Commercial loans: Construction and land development $ 487 $ 2,279 $ 2,766 Commercial mortgage 50,819 11,116 61,935 Other commercial real estate 571 — 571 Commercial and industrial and leases 9,430 2,409 11,839 Other 320 105 425 Total commercial loans 61,627 15,909 77,536 Noncommercial: Residential mortgage 41,813 16,048 57,861 Revolving mortgage 21,032 7,367 28,399 Construction and land development 1,452 2,430 3,882 Consumer 2,826 688 3,514 Total noncommercial loans 67,123 26,533 93,656 Total loans $ 128,750 $ 42,442 $ 171,192 103 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the loan restructurings as of December 31, 2021, 2020 and 2019 that were designated as TDRs. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first. 2021 2020 2019 Restructurings Restructurings Restructurings (Dollars in thousands) Number of loans Amortized cost at period end Number of loans Amortized cost at period end Number of loans Amortized cost at period end Loans and leases Interest only period provided Commercial loans 19 $ 17,847 31 $ 28,145 11 $ 1,595 Consumer loans 1 297 6 4,169 7 4,018 Total interest only 20 18,144 37 32,314 18 5,613 Loan term extension Commercial loans 23 6,717 26 5,444 16 3,904 Consumer loans 106 8,803 66 5,689 2 342 Total loan term extension 129 15,520 92 11,133 18 4,246 Below market interest rate Commercial loans 97 17,082 98 33,870 90 13,932 Consumer loans 80 3,188 156 6,074 176 12,458 Total below market interest rate 177 20,270 254 39,944 266 26,390 Discharged from bankruptcy Commercial loans 32 5,955 30 1,168 25 5,571 Consumer loans 96 3,675 186 8,129 178 10,349 Total discharged from bankruptcy 128 9,630 216 9,297 203 15,920 Total restructurings 454 $ 63,564 599 $ 92,688 505 $ 52,169 As of December 31, 2021, 2020 and 2019, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different. 104 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE F PREMISES AND EQUIPMENT Major classifications of premises and equipment at December 31, 2021 and 2020 are summarized as follows: (Dollars in thousands) Useful Life ( years ) 2021 2020 Land indefinite $ 334,375 $ 336,258 Premises and leasehold improvements 3 - 40 1,307,502 1,286,092 Furniture, equipment and software 3 - 10 671,172 639,109 Total 2,313,049 2,261,459 Less accumulated depreciation and amortization 1,079,631 1,010,176 Total premises and equipment $ 1,233,418 $ 1,251,283 Depreciation and amortization expense was $ 106.6 million, $ 108.6 million and $ 103.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOTE G OTHER REAL ESTATE OWNED The following table explains changes in other real estate owned (“OREO”) for the years ended December 31, 2021 and 2020. (Dollars in thousands) 2021 2020 Balance at January 1 $ 50,890 $ 46,591 Additions 27,755 26,822 Acquired in business combinations — 9,813 Sales ( 35,703 ) ( 26,726 ) Write-downs/losses ( 3,614 ) ( 5,610 ) Balance at December 31 $ 39,328 $ 50,890 At December 31, 2021 and 2020, BancShares had $ 2.3 million and $ 5.8 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure was $ 15.0 million and $ 29.4 million at December 31, 2021, and 2020, respectively. Gains recorded on the sale of OREO were $ 4.7 million, $ 1.6 million, and $ 1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOTE H GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill BancShares’ annual impairment test, conducted as of July 31 each year, or more frequently if events occur or circumstances change that may trigger a decline in the value of the reporting unit or otherwise indicate that a potential impairment exists, resulted in no indication of goodwill impairment. Subsequent to the annual impairment test, there were no events or changes in circumstances that would indicate goodwill should be tested for impairment during the interim period between annual tests. No goodwill impairment was recorded during 2021 or 2020. The following table presents the changes in the carrying amount of goodwill for the years ending December 31, 2021 and 2020: Year ended December 31 (Dollars in thousands) 2021 2020 Balance at January 1 $ 350,298 $ 349,398 Recognized in the Community Financial acquisition — 686 Measurement period adjustments (1) — 214 Other adjustment (2) ( 4,234 ) — Balance at December 31 $ 346,064 $ 350,298 (1) Adjustments related to Entegra PCD loans and divested deposits as well as the deferred tax assets related to these items. (2) Immaterial adjustment related to deferred taxes associated with pensions. 105 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other Intangible Assets Other intangible assets include mortgage servicing rights (“MSRs”) on loans sold to third parties with servicing retained, core deposit intangibles, which represent the estimated fair value of acquired core deposits and other customer relationships, and other intangible assets acquired, such as other servicing rights and noncompete agreements. Mortgage Servicing Rights Our portfolio of residential mortgage loans serviced for third parties was $ 3.39 billion, $ 3.31 billion and $ 3.38 billion as of December 31, 2021, 2020 and 2019, respectively. The majority of these loans were originated by BancShares and sold to third parties on a non-recourse basis with servicing rights retained. At December 31, 2020, a portion of the MSRs were related to originations by Entegra Financial Corp. and its subsidiaries (collectively, “Entegra”) prior to acquisition. These retained servicing rights are recorded as a servicing asset and reported in other intangible assets. The mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair market value. The amortization expense related to mortgage servicing rights is included as a reduction of mortgage income. The weighted average expected life of the mortgage servicing rights established during 2021 is 5.6 years. The activity of the mortgage servicing asset for the years ended December 31, 2021, 2020 and 2019 is presented in the following table: (Dollars in thousands) 2021 2020 2019 Balance at January 1 $ 18,426 $ 22,963 $ 21,396 Servicing rights originated 10,556 8,006 6,149 Servicing rights acquired in Entegra transaction — — 1,873 Amortization ( 8,727 ) ( 8,400 ) ( 6,233 ) Valuation allowance decrease (increase) 3,102 ( 4,143 ) ( 222 ) Balance at December 31 $ 23,357 $ 18,426 $ 22,963 The following table presents the activity in the servicing asset valuation allowance for the years ended December 31, 2021, 2020 and 2019: (Dollars in thousands) 2021 2020 2019 Beginning balance $ 4,365 $ 222 $ — Valuation allowance (decrease) increase ( 3,102 ) 4,143 222 Ending balance $ 1,263 $ 4,365 $ 222 Valuation of mortgage servicing rights is performed using a pooling methodology. Similar loans are pooled together and evaluated on a discounted earnings basis to determine the present value of future earnings. Contractually specified mortgage servicing fees, late fees and ancillary fees earned for the years ended December 31, 2021, 2020 and 2019, were $ 8.6 million, $ 8.5 million and $ 7.9 million, respectively, and reported in mortgage income. Key economic assumptions used to value mortgage servicing rights as of December 31, 2021 and 2020, were as follows: 2021 2020 Discount rate - conventional fixed loans 8.51 % 7.92 % Discount rate - all loans excluding conventional fixed loans 9.51 % 8.92 % Weighted average constant prepayment rate 15.69 % 20.62 % Weighted average cost to service a loan $ 87.58 $ 87.58 The discount rate is based on the 10-year U.S. Treasury rate plus 700 basis points for conventional fixed loans and 800 basis points for all other loans. The 700 and 800 basis points are used as a risk premium when calculating the discount rate. The prepayment rate is derived from the Public Securities Association Standard Prepayment model, which is compared to actual prepayment rates annually for reasonableness. The average cost to service a loan is based on the number of loans serviced and the total costs to service the loans. Core Deposit Intangibles Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. They are being amortized on an accelerated basis over their estimated useful lives. 106 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following information relates to core deposit intangible assets, which are being amortized over their estimated useful lives: (Dollars in thousands) 2021 2020 Balance at January 1 $ 29,667 $ 43,386 Acquired in Community Financial transaction — 536 Amortization ( 10,948 ) ( 14,255 ) Balance at December 31 $ 18,719 $ 29,667 The gross amount of core deposit intangible assets and accumulated amortization as of December 31, 2021 and 2020, are: (Dollars in thousands) 2021 2020 Gross balance $ 127,842 $ 127,842 Accumulated amortization ( 109,123 ) ( 98,175 ) Carrying value $ 18,719 $ 29,667 Based on current estimated useful lives and carrying values, BancShares anticipates amortization expense for core deposit intangibles in subsequent periods will be: (Dollars in thousands) 2022 $ 7,743 2023 5,129 2024 2,659 2025 1,374 2026 and subsequent 1,814 $ 18,719 NOTE I DEPOSITS Deposits at December 31, 2021 and 2020 were as follows: (Dollars in thousands) 2021 2020 Demand $ 21,404,808 $ 18,014,029 Checking with interest 12,694,389 10,591,687 Money market accounts 10,590,106 8,632,713 Savings 4,235,824 3,304,167 Time 2,480,967 2,889,013 Total deposits $ 51,406,094 $ 43,431,609 Time deposits with a denomination of $ 250,000 or more were $ 593.0 million and $ 670.4 million at December 31, 2021 and 2020, respectively. At December 31, 2021, the scheduled maturities of time deposits were: (Dollars in thousands) Year ended December 31 2022 $ 1,937,216 2023 225,370 2024 81,558 2025 56,970 2026 and thereafter 179,853 Total time deposits $ 2,480,967 As of December 31, 2021, FCB’s primary deposit markets are North Carolina and South Carolina, which represent approximately 50.8% and 22.7%, respectively, of total FCB deposits. 107 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE J BORROWINGS Short-term Borrowings Short-term borrowings at December 31, 2021 and 2020 are as follows: (Dollars in thousands) 2021 2020 Securities sold under customer repurchase agreements $ 589,101 $ 641,487 At December 31, 2021, BancShares had unused credit lines allowing contingent access to overnight borrowings of up to $ 556.0 million on an unsecured basis. Additionally, under borrowing arrangements with the FRB of Richmond and FHLB of Atlanta, BancShares has access to an additional $ 12.87 billion on a secured basis. Repurchase Agreements BancShares utilizes securities sold under agreements to repurchase to facilitate the needs of customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price and interest rate. These agreements are recorded at the amount of cash received in connection with the transaction and are reflected as securities sold under customer repurchase agreements. BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $ 619.1 million and $ 689.3 million at December 31, 2021 and December 31, 2020, respectively. At December 31, 2021, BancShares held $ 589.1 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 508.4 million collateralized by government agency securities and $ 80.7 million collateralized by commercial mortgage-backed securities. At December 31, 2020, BancShares held $ 641.5 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 432.8 million collateralized by government agency securities and $ 208.7 million collateralized by commercial mortgage-backed securities. Long-term Borrowings Long-term borrowings at December 31, 2021 and 2020 include: (Dollars in thousands) 2021 2020 Fixed-to-Floating subordinated notes at 3.375 % maturing March 15, 2030 $ 350,000 $ 350,000 Junior subordinated debenture at 3-month LIBOR plus 1.75 % maturing June 30, 2036 (1) 88,145 88,145 Junior subordinated debenture at 3-month LIBOR plus 2.25 % maturing June 15, 2034 (1) 19,588 19,588 Junior subordinated debenture at 3-month LIBOR plus 2.85 % maturing April 7, 2034 (1) 10,310 10,310 Junior subordinated debentures at 3-month LIBOR plus 2.80 % maturing March 30, 2034 (1) 14,433 14,433 Junior subordinated debentures at 7.00 % maturing December 31, 2026 (2) — 20,000 Junior subordinated debentures at 6.50 % maturing October 1, 2025 (3) — 7,500 Notes payable to FHLBs of Atlanta and Chicago with rates ranging from 0.75 % to 2.99 % and maturing through March 2032 644,659 655,175 Unsecured term loan at 1-month LIBOR plus 1.10 % maturing September 5, 2022 67,825 82,125 Obligations under capitalized leases extending to December 2050 4,311 6,308 Unamortized issuance costs ( 2,629 ) ( 3,459 ) Unamortized purchase accounting adjustments ( 2,283 ) ( 1,999 ) Other long-term debt 19 37 Total long-term obligations $ 1,194,378 $ 1,248,163 (1) Obligations to capital and grantor trusts for trust preferred securities (2) Assumed in HomeBancorp acquisition. (3) Assumed in Biscayne BancShares acquisition. 108 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On March 4, 2020, BancShares completed its public offering of $ 350 million aggregate principal amount of its 3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030 and redeemable at the option of BancShares starting with the interest payment due March 15, 2025, subject to obtaining the prior approval of the Federal Reserve to the extent such approval is then required under the rules of the Federal Reserve, or earlier upon the occurrence of certain events. At December 31, 2021 and 2020, BancShares held $ 132.5 million in junior subordinated debentures representing obligations to FCB/NC Capital Trust III, FCB/SC Capital Trust II, SCB Capital Trust I and Macon Capital Trust I special purpose entities and grantor trusts (the “Trusts”) for trust preferred securities. The Trusts had outstanding trust preferred securities of $ 128.1 million and $ 128.5 million at December 31, 2021 and 2020 respectively, which may be redeemed at par in whole or in part at any time, in accordance with the applicable transaction documents. BancShares has guaranteed all obligations of its subsidiaries, FCB Capital Trust III and FCB/SC Capital Trust II. FCB has guaranteed all obligations of its trust subsidiaries, SCB Capital Trust I and Macon Capital Trust I, which was acquired from Entegra during the fourth quarter of 2019 and has a related obligation of $ 14.4 million. Long-term borrowings maturing in each of the five years subsequent to December 31, 2021 and thereafter include: (Dollars in thousands) Year ended December 31 2022 $ 82,735 2023 125,500 2024 5,771 2025 — 2026 2,649 Thereafter 977,723 Total long-term borrowings $ 1,194,378 NOTE K FDIC SHARED-LOSS PAYABLE Prior to 2020, certain consumer loans were “covered loans” for which BancShares was eligible for reimbursement for a portion of certain future losses with indemnifications provided by the FDIC under loss share agreements (“LSAs”). The LSAs for two FDIC-assisted transactions included provisions related to payments owed to the FDIC at the termination of the agreements if actual cumulative losses on covered assets are lower than originally estimated by the FDIC at the time of acquisition (“Clawback Liability”). All of the LSAs relate to transactions that occurred prior to 2020 and have since expired. There was no Clawback Liability remaining at December 31, 2021 as FCB remitted the final payment of $ 16.1 million to the FDIC during the first quarter of 2021. At December 31, 2020, the estimated Clawback Liability was $ 15.6 million following a payment of $ 99.5 million to the FDIC during the first quarter of 2020. The following table includes the changes in the FDIC shared-loss payable for the years ended December 31, 2021 and 2020. (Dollars in thousands) 2021 2020 Beginning balance $ 15,601 $ 112,395 Accretion 502 2,674 Payment made to the FDIC to settle shared-loss agreement ( 16,103 ) ( 99,468 ) Ending balance $ — $ 15,601 NOTE L REGULATORY REQUIREMENTS, DIVIDENDS FROM SUBSIDIARIES BancShares and FCB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the BancShares’ Consolidated Financial Statements. Certain activities, such as the ability to undertake new business initiatives, including acquisitions, the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight, largely depend on a financial institution’s capital strength. Federal banking agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening previous capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015 and the associated 109 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) capital conservation buffers of 2.5% were fully phased in by January 1, 2019. The following table includes the Basel III requirements for regulatory capital ratios. Basel III Minimums Basel III Conservation Buffers Basel III Requirements Regulatory capital ratios Total risk-based capital 8.00 % 2.50 % 10.50 % Tier 1 risk-based capital 6.00 2.50 8.50 Common equity Tier 1 4.50 2.50 7.00 Tier 1 leverage 4.00 — 4.00 The FDIC also has Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. The regulatory capital ratios for BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of December 31, 2021 and 2020 as summarized in the following table. December 31, 2021 December 31, 2020 (Dollars in thousands) Basel III Requirements PCA well-capitalized thresholds Amount Ratio Amount Ratio BancShares Total risk-based capital 10.50 % 10.00 % $ 5,041,686 14.35 % $ 4,577,212 13.81 % Tier 1 risk-based capital 8.50 8.00 4,380,452 12.47 3,856,086 11.63 Common equity Tier 1 7.00 6.50 4,040,515 11.50 3,516,149 10.61 Tier 1 leverage 4.00 5.00 4,380,452 7.59 3,856,086 7.86 FCB Total risk-based capital 10.50 % 10.00 4,857,960 13.85 4,543,496 13.72 Tier 1 risk-based capital 8.50 8.00 4,651,226 13.26 4,276,870 12.92 Common equity Tier 1 7.00 6.50 4,651,226 13.26 4,276,870 12.92 Tier 1 leverage 4.00 5.00 4,651,226 8.07 4,276,870 8.72 At December 31, 2021, BancShares and FCB had total risk-based capital ratio conservation buffers of 6.35 % and 5.85 %, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of December 31, 2021 over the Basel III minimum. At December 31, 2021, Tier 2 capital of BancShares included $ 128.1 million of trust preferred capital securities and $ 350.0 million of qualifying subordinated debentures, compared to $ 128.5 million of trust preferred capital securities and $ 377.5 million of qualifying subordinated debentures included at December 31, 2020. BancShares has Class A and Class B common stock. Class A common shares have one vote per share, while Class B common shares have 16 votes per share. Preferred Stock On March 12, 2020, the Parent Company issued and sold an aggregate of 13,800,000 depositary shares (the “Depositary Shares”), each representing a 1/40th interest in a share of 5.375 % Non-Cumulative Perpetual Preferred Stock, Series A, par value $ 0.01 per share (the “Series A Preferred Stock”), with a liquidation preference of $ 25 per Depositary Share (equivalent to $1,000 per share of the Series A Preferred Stock) for a total of $ 345 million. The Series A Preferred Stock qualifies as Tier 1 regulatory capital. Dividends on the Series A Preferred Stock will be paid when, as, and if declared by the Board of Directors of the Parent Company, or a duly authorized committee thereof, to the extent that the Parent Company has lawfully available funds to pay dividends. If declared, dividends will accrue and be payable from the date of issuance at a rate of 5.375 % per annum, payable quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, beginning on June 15, 2020. Dividends on the Series A Preferred Stock will not be cumulative. BancShares may redeem the Series A Preferred Stock at its option, and subject to any required regulatory approval, at a redemption price equal to $1,000 per share (equivalent to $ 25 per depositary share), plus any declared and unpaid dividends to, but excluding, the redemption date, (i) in whole or in part, from time to time, on any dividend payment date on or after March 110 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15, 2025, or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event (as defined in the Certificate of Designation for the Series A Preferred Stock). Dividends FCB to the Parent Company Dividends paid from FCB to the Parent Company are the primary source of funds available to the Parent Company for payment of dividends to its shareholders. The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions do not reduce the regulatory capital ratios below the applicable requirements. FCB could have paid additional dividends to the Parent Company in the amount of $ 1.35 billion while continuing to meet the requirements for well-capitalized banks at December 31, 2021. Dividends declared by FCB and paid to the Parent Company amounted to $ 173.1 million in 2021, $ 229.7 million in 2020 and $ 149.8 million in 2019. Payment of dividends is made at the discretion of FCB’s Board of Directors and is contingent upon satisfactory earnings as well as projected capital needs. Restrictions on Cash and Overnight Investments Effective March 26, 2020, the Federal Reserve Board suspended the cash reserve requirement. BancShares’ overnight investments of $ 75 million in U.S. Bank Money Market accounts require a 30-day notice for withdrawal. NOTE M ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) included the following at December 31, 2021 and 2020: December 31, 2021 December 31, 2020 (Dollars in thousands) Accumulated other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax Accumulated other comprehensive income (loss) Deferred tax expense (benefit) Accumulated other comprehensive income (loss), net of tax Unrealized (losses) gains on securities available for sale $ ( 11,792 ) $ ( 2,712 ) $ ( 9,080 ) $ 102,278 $ 23,524 $ 78,754 Unrealized (losses) gains on securities available for sale transferred to held to maturity ( 8,735 ) ( 2,009 ) ( 6,726 ) 5,399 1,242 4,157 Defined benefit pension items 33,223 7,641 25,582 ( 91,751 ) ( 21,103 ) ( 70,648 ) Total $ 12,696 $ 2,920 $ 9,776 $ 15,926 $ 3,663 $ 12,263 The following table highlights changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2021 and 2020: (Dollars in thousands) Unrealized gains (losses) on securities available-for-sale (1) Unrealized gains (losses) on securities available for sale transferred to held to maturity (1)(2) Defined benefit pension items (1) Total Balance at January 1, 2020 $ 5,792 $ — $ ( 132,515 ) $ ( 126,723 ) Net unrealized gains arising during period 119,357 4,538 42,367 166,262 Amounts reclassified from accumulated other comprehensive loss ( 46,395 ) ( 381 ) 19,500 ( 27,276 ) Net current period other comprehensive income 72,962 4,157 61,867 138,986 Balance at December 31, 2020 78,754 4,157 ( 70,648 ) 12,263 Net unrealized (losses) gains arising during the period ( 62,332 ) ( 9,747 ) 75,368 3,289 Amounts reclassified from accumulated other comprehensive income ( 25,502 ) ( 1,136 ) 20,862 ( 5,776 ) Net current period other comprehensive (loss) income ( 87,834 ) ( 10,883 ) 96,230 ( 2,487 ) Balance at December 31, 2021 $ ( 9,080 ) $ ( 6,726 ) $ 25,582 $ 9,776 (1) All amounts are net of tax. Amounts in parentheses indicate other comprehensive losses, which are debits or decreases to equity. (2) Unrealized gains (losses) related to the reclassification of investment securities from available for sale to held to maturity. Refer to Note C, Investments, for additional information. 111 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the amounts reclassified from accumulated other comprehensive income (loss) and the line item affected in the Consolidated Statements of Income for years ended December 31, 2021 and 2020: (Dollars in thousands) Year ended December 31, 2021 Details about accumulated other comprehensive income (loss) Amount reclassified from accumulated other comprehensive income (loss) (1) Affected line item in the Consolidated Statements of Income Unrealized gains on available for sale securities $ 33,119 Realized gains on investment securities available for sale, net ( 7,617 ) Income taxes $ 25,502 Net accretion of unrealized gains (losses) on securities available for sale transferred to held to maturity $ 1,475 Net interest income ( 339 ) Income taxes $ 1,136 Amortization of actuarial losses on defined benefit pension items $ ( 27,093 ) Other noninterest expense 6,231 Income taxes $ ( 20,862 ) Total reclassifications for the period $ 5,776 Year ended December 31, 2020 Details about accumulated other comprehensive (loss) income Amount reclassified from accumulated other comprehensive income (loss) (1) Affected line item in the statement where net income is presented Unrealized gains on available for sale securities $ 60,253 Realized gains on investment securities available for sale, net ( 13,858 ) Income taxes $ 46,395 Amortization of unrealized losses on securities available for sale transferred to held to maturity $ 495 Net interest income ( 114 ) Income taxes $ 381 Amortization of defined benefit pension items Actuarial losses ( 25,324 ) Other noninterest expense 5,824 Income taxes $ ( 19,500 ) Total reclassifications for the period $ 27,276 (1) Amounts in parentheses represent decreases to net income. NOTE N OTHER NONINTEREST INCOME AND OTHER NONINTEREST EXPENSE Other noninterest income for the years ended December 31, 2021, 2020 and 2019 was $ 9.4 million, $ 7.4 million and $ 18.4 million, respectively. Prior to the adoption of ASC 326 on January 1, 2020, the most significant item in other noninterest income was recoveries on PCI loans previously charged-off. BancShares recorded the portion of recoveries related to loans and leases written off prior to the closing of an acquisition as noninterest income rather than as an adjustment to the allowance for loan losses. These recoveries were $ 17.4 million for the year ended December 31, 2019. Following the adoption of ASC 326, these recoveries are recorded as an adjustment to the ACL. Other noninterest income also includes income from bank owned life insurance, FHLB dividends and other various income items. 112 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other noninterest expense for the years ended December 31, 2021, 2020 and 2019 included the following: (Dollars in thousands) 2021 2020 2019 Core deposit intangible amortization $ 10,948 $ 14,255 $ 16,346 Consultant expense 12,507 12,751 12,801 Advertising expense 9,763 10,010 11,437 Telecommunications expense 12,714 12,179 9,391 Other 83,594 95,922 89,308 Total other noninterest expense $ 129,526 $ 145,117 $ 139,283 Other expense consists of miscellaneous expenses including travel, postage, supplies, appraisal expense and other operational losses. Advertising expense related to non-direct response advertisements are expensed as incurred. NOTE O INCOME TAXES At December 31, 2021, 2020 and 2019 income tax expense consisted of the following: (Dollars in thousands) 2021 2020 2019 Current tax expense Federal $ 140,405 $ 137,162 $ 68,984 State 21,383 14,532 11,095 Total current tax expense 161,788 151,694 80,079 Deferred tax (benefit) expense Federal ( 6,234 ) ( 28,535 ) 50,522 State ( 1,352 ) 3,000 4,076 Total deferred tax (benefit) expense ( 7,586 ) ( 25,535 ) 54,598 Total income tax expense $ 154,202 $ 126,159 $ 134,677 Income tax expense differed from the amounts computed by applying the statutory federal income tax rate of 21 % to pretax income as a result of the following: (Dollars in thousands) 2021 2020 2019 Income taxes at federal statutory rates $ 147,349 $ 129,755 $ 124,330 Increase (reduction) in income taxes resulting from: Nontaxable income on loans, leases and investments, net of nondeductible expenses ( 1,523 ) ( 1,581 ) ( 1,639 ) Excess tax benefits of compensation 1,507 1,146 1,070 State and local income taxes, including any change in valuation allowance, net of federal income tax benefit 15,825 13,850 11,985 Tax credits net of amortization ( 5,078 ) ( 5,367 ) ( 4,474 ) Repayment of claim of right income ( 2,254 ) ( 13,926 ) — Other, net ( 1,624 ) 2,282 3,405 Total income tax expense $ 154,202 $ 126,159 $ 134,677 113 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The net deferred tax liability included the following components at December 31, 2021, and 2020: (Dollars in thousands) 2021 2020 Allowance for credit losses $ 39,759 $ 52,293 Operating lease liabilities 14,267 15,737 Executive separation from service agreements 7,835 8,989 Net operating loss carryforwards 7,843 9,545 Net unrealized loss included in accumulated other comprehensive income (loss) 4,630 — Accelerated depreciation 3,645 — Employee compensation 18,860 16,083 Other reserves 6,135 5,376 Other 5,845 6,898 Deferred tax asset 108,819 114,921 Accelerated depreciation — 14,984 Lease financing activities 7,725 15,265 Operating lease assets 13,996 15,670 Net unrealized gain on securities included in accumulated other comprehensive income (loss) — 24,857 Net deferred loan fees and costs 14,662 13,975 Intangible assets 14,257 13,012 Security, loan and debt valuations 5,960 2,051 FDIC assisted transactions timing differences — 2,393 Pension assets 64,068 44,549 Other 20,998 10,193 Deferred tax liability 141,666 156,949 Net deferred tax liability $ ( 32,847 ) $ ( 42,028 ) At December 31, 2021, the gross tax benefit related to net operating loss carryforwards was $ 34.7 million and $ 15.9 million related to federal and state taxes, respectively. The carryforwards expire in years beginning in 2030 and 2024 for federal and state taxes, respectively. The net operating losses were obtained through various acquisitions and are subject to the annual limitations set forth by Internal Revenue Code Section 382. No valuation allowance was necessary as of December 31, 2021 or 2020 to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized. Income tax expense for 2021 and 2020 was favorably impacted by $ 2.3 million and $ 13.9 million, respectively, due to BancShares’ decision in the second quarter of 2020 to utilize an allowable alternative for computing its 2021 and 2020 federal income tax liability. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax. BancShares regularly adjusts its net deferred tax liability as a result of changes in tax rates in the states where it files tax returns. These changes in tax rates did not have a material impact on tax expense in 2021, 2020 or 2019. BancShares federal income tax returns for 2018 through 2020 remain open for examination by the Internal Revenue Service. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2016. The following table provides a roll forward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2021, 2020 and 2019: (Dollars in thousands) 2021 2020 2019 Unrecognized tax benefits at the beginning of the year $ 31,375 $ 32,226 $ 28,255 Additions (reductions) related to tax positions taken in prior year ( 321 ) 153 ( 683 ) Additions related to tax positions taken in current year 1,373 1,295 6,554 Settlements ( 1,601 ) ( 1,516 ) — Reductions related to lapse of statute of limitations ( 394 ) ( 783 ) ( 1,900 ) Unrecognized tax benefits at the end of the year $ 30,432 $ 31,375 $ 32,226 All of the unrecognized tax benefits, if recognized, would affect BancShares’ effective tax rate. 114 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the consolidated financial statements. It is reasonably possible that these uncertain state tax positions will be either settled or resolved in the next twelve months. A range of the reasonably possible change cannot be made. BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accruals and releases of interest and penalties resulted in a benefit of $ 381 thousand and $ 135 thousand for the years ended December 31, 2021 and 2019, respectively, and an expense of $ 467 thousand for the year ended December 31, 2020. BancShares had $ 515 thousand and $ 896 thousand accrued for the payment of interest and penalties as of December 31, 2021 and 2020, respectively. NOTE P ESTIMATED FAIR VALUES Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. BancShares estimates fair value using discounted cash flows or other valuation techniques when there is no active market for a financial instrument. Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require judgment. Therefore, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange. Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows: • Level 1 inputs are quoted prices in active markets for identical assets and liabilities. • Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs. • Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability. BancShares’ management reviews any changes to its valuation methodologies to ensure they are appropriate and supportable, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period. The methodologies used to estimate the fair value of financial assets and financial liabilities are discussed below. Investment securities available for sale . The fair value of U.S. Treasury, government agency, mortgage-backed and municipal securities and a portion of our corporate bonds are generally estimated using a third-party pricing service. To obtain an understanding of the processes and methodologies used, management reviews correspondence from the third-party pricing service. Management also performs a price variance analysis process to corroborate the reasonableness of prices. The third-party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using inputs that are not directly observable. These securities are considered Level 3. Marketable equity securities. Equity securities are measured at fair value using observable closing prices. The valuation also considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market. Loans held for sale. Certain residential real estate loans originated to be sold to investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are considered Level 2 inputs. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market. The fair values for the transferred loans are based on quoted prices from the purchase commitments for the individual loans being transferred and are considered Level 1 inputs. 115 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net loans and leases (Non-PCD and PCD). Fair value is estimated based on discounted future cash flows using the current interest rates at which loans with similar terms would be made to borrowers of similar credit quality. The inputs used in the fair value measurements for loans and leases are considered Level 3 inputs. FHLB stock . The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares’ investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for FHLB stock are considered Level 2 inputs. Mortgage and other servicing rights. Mortgage and other servicing rights are initially recorded and fair value and subsequently carried at the lower of amortized cost or market. Therefore, servicing rights are carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is performed using a pooling methodology. Similar loans are pooled together and a model which relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs. Deposits. For deposits with no stated maturity, the carrying value is a reasonable estimate of fair value. The fair value of time deposits is estimated by discounting future cash flows using the interest rates currently offered for deposits of similar remaining maturities. The inputs used in the fair value measurement for deposits are considered Level 2 inputs. Borrowings. For borrowings, the fair values are determined based on recent trades or sales of the actual security, if available. Otherwise, fair values are estimated by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, subordinated debentures, and other borrowings are considered Level 2 inputs. Payable to the FDIC for shared-loss agreements. The fair value of the payable to the FDIC for shared-loss agreements is determined by the projected cash flows based on expected payments to the FDIC in accordance with the shared-loss agreements. Cash flows are discounted using current discount rates to reflect the timing of the estimated amounts due to the FDIC. The inputs used in the fair value measurement for the payable to the FDIC are considered Level 3 inputs. Off-balance-sheet commitments and contingencies. Carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares’ financial position. For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of December 31, 2021 and 2020. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks is classified on the fair value hierarchy as Level 1. Overnight investments, income earned not collected and accrued interest payable are considered Level 2. 116 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The table below presents the carrying values and estimated fair values for financial instruments as of December 31, 2021 and 2020. December 31, 2021 December 31, 2020 (Dollars in thousands) Carrying value Fair value Carrying value Fair value Assets Cash and due from banks $ 337,814 $ 337,814 $ 362,048 $ 362,048 Overnight investments 9,114,660 9,114,660 4,347,336 4,347,336 Investment securities available for sale 9,203,427 9,203,427 7,014,243 7,014,243 Investment securities held to maturity 3,809,453 3,759,650 2,816,982 2,838,499 Investment in marketable equity securities 97,528 97,528 91,680 91,680 Loans held for sale 98,741 98,741 124,837 124,837 Net loans and leases 32,193,029 31,889,594 32,567,661 33,298,166 Income earned not collected 134,237 134,237 145,694 145,694 Federal Home Loan Bank stock 40,450 40,450 45,392 45,392 Mortgage and other servicing rights 23,797 23,784 19,628 20,283 Liabilities Deposits with no stated maturity 48,925,127 48,925,127 40,542,596 40,542,596 Time deposits 2,480,967 2,471,116 2,889,013 2,905,577 Securities sold under customer repurchase agreements 589,101 589,101 641,487 641,487 Federal Home Loan Bank borrowings 644,659 654,694 655,175 677,579 Subordinated debt 477,564 495,483 504,518 525,610 Other borrowings 72,155 72,476 88,470 89,263 FDIC shared-loss payable — — 15,601 15,843 Accrued interest payable 7,922 7,922 9,414 9,414 117 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Among BancShares’ assets and liabilities, investment securities available for sale, marketable equity securities and loans held for sale are reported at their fair values on a recurring basis. For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of December 31, 2021 and 2020. December 31, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 Level 2 Level 3 Assets measured at fair value Investment securities available for sale U.S. Treasury $ 2,004,970 $ — $ 2,004,970 $ — Government agency 798,760 — 798,760 — Residential mortgage-backed securities 4,728,413 — 4,728,413 — Commercial mortgage-backed securities 1,062,749 — 1,062,749 — Corporate bonds 608,535 — 401,133 207,402 Total investment securities available for sale $ 9,203,427 $ — $ 8,996,025 $ 207,402 Marketable equity securities $ 97,528 $ 33,522 $ 64,006 $ — Loans held for sale 98,741 — 98,741 — December 31, 2020 Fair value measurements using: Fair value Level 1 Level 2 Level 3 Assets measured at fair value Investment securities available for sale U.S. Treasury $ 499,933 $ — $ 499,933 $ — Government agency 701,391 — 701,391 — Residential mortgage-backed securities 4,438,103 — 4,438,103 — Commercial mortgage-backed securities 771,537 — 771,537 — Corporate bonds 603,279 — 286,655 316,624 Total investment securities available for sale $ 7,014,243 $ — $ 6,697,619 $ 316,624 Marketable equity securities $ 91,680 $ 32,855 $ 58,825 $ — Loans held for sale 124,837 — 124,837 — During the year ended December 31, 2021, $ 102.1 million of corporate bonds available for sale were transferred from Level 3 to Level 2. The transfers were due to the availability of additional observable inputs for those securities. During the year ended December 31, 2020, $ 1.8 million of corporate bonds available for sale were transferred from Level 2 to Level 3. The transfers were due to a lack of observable inputs and trade activity for those securities. The following table summarizes activity for Level 3 assets for the years ended December 31, 2021 and 2020: 2021 2020 (Dollars in thousands) Corporate bonds Corporate bonds Beginning balance $ 316,624 $ 69,685 Purchases 30,878 242,595 Unrealized net losses (gains) included in other comprehensive income 6,391 2,898 Amounts included in net income 2,555 ( 336 ) Transfers in — 1,782 Transfers out ( 102,065 ) — Sales / Calls ( 46,981 ) — Ending balance $ 207,402 $ 316,624 118 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at December 31, 2021. (Dollars in thousands) December 31, 2021 Level 3 assets Valuation technique Significant unobservable input Fair Value Corporate bonds Indicative bid provided by broker Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer $ 207,402 Fair Value Option BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value are recorded as a component of mortgage income and were losses of $ 3.0 million for the year ended December 31, 2021, and gains of $ 3.9 million and $ 289 thousand for the years ended December 31, 2020 and 2019, respectively. The following table summarizes the difference between the aggregate fair value and the unpaid principal balance for residential real estate loans originated for sale measured at fair value as of December 31, 2021 and 2020. December 31, 2021 (Dollars in thousands) Fair Value Unpaid Principal Balance Difference Originated loans held for sale $ 98,741 $ 95,852 $ 2,889 December 31, 2020 Fair Value Unpaid Principal Balance Difference Originated loans held for sale $ 124,837 $ 118,902 $ 5,935 No originated loans held for sale were 90 or more days past due or on non-accrual status as of December 31, 2021 or December 31, 2020. Certain other assets are adjusted to their fair value on a non-recurring basis, including certain loans, OREO, and goodwill, which are periodically tested for impairment, and mortgage servicing rights, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value. Following the adoption of ASC 326 on January 1, 2020, the population of loans measured at fair value on a non-recurring basis has greatly diminished and is limited to collateral-dependent loans evaluated individually. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, typically between 5% and 10 %, and immaterial adjustments for other external factors that may impact the marketability of the collateral. At December 31, 2021, the weighted average discount for estimated selling costs applied was 9.00 %. OREO is carried at the lower of cost or fair value. OREO asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts, generally between 6 % and 15 %, applied for estimated selling costs and other external factors that may impact the marketability of the property. At December 31, 2021, the weighted average discount applied was 8.79 %. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordered to ensure the reported values reflect the most current information. Mortgage servicing rights are carried at the lower of amortized cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of mortgage servicing rights is determined using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, is used to determine the fair value. 119 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For financial assets carried at fair value on a non-recurring basis, the following table provides fair value information as of December 31, 2021 and December 31, 2020. December 31, 2021 Fair value measurements using: (Dollars in thousands) Fair value Level 1 Level 2 Level 3 Collateral-dependent loans $ 3,099 $ — $ — $ 3,099 Other real estate remeasured during the year 34,211 — — 34,211 Mortgage servicing rights 21,731 — — 21,731 December 31, 2020 Fair value measurements using: Fair value Level 1 Level 2 Level 3 Collateral-dependent loans $ 11,779 $ — $ — $ 11,779 Other real estate remeasured during the year 40,115 — — 40,115 Mortgage servicing rights 16,966 — — 16,966 No financial liabilities were carried at fair value on a non-recurring basis as of December 31, 2021 and December 31, 2020. NOTE Q EMPLOYEE BENEFIT PLANS BancShares sponsors benefit plans for its qualifying employees and former employees of Bancorporation, Inc. (“Bancorporation”). The plans include noncontributory defined benefit pension plans, a 401(k) savings plan and an enhanced 401(k) savings plan. These plans are qualified under the Internal Revenue Code. BancShares also maintains agreements with certain executives providing supplemental benefits paid upon death or separation from service at an agreed-upon age. Defined Benefit Pension Plans BancShares employees who were hired prior to April 1, 2007 and qualified under length of service and other requirements are covered by the FCB-North Pension Plan (the “BancShares Pension Plan”), which was closed to new participants as of April 1, 2007. Discretionary contributions of $ 32 thousand were made to the BancShares Pension Plan in 2021, while discretionary contributions of $ 80 million were made in 2020. Certain legacy Bancorporation employees that qualified under length of service and other requirements are covered by the FCB-South Pension Plan (the “Bancorporation Pension Plan” and together with the BancShares Pension Plan, the “Plans”), which was closed to new participants as of September 1, 2007. There were no discretionary contributions made to the legacy Bancorporation Pension Plan for 2021, while discretionary contributions were $ 20 million in 2020. Participants in the Plans were fully vested after five years of service. Retirement benefits are based on years of service and highest annual compensation for five consecutive years during the last ten years of employment. BancShares makes contributions to the Plans in amounts between the minimum required for funding and the maximum amount deductible for federal income tax purposes. Management evaluates the need for its contributions to the Plans on a periodic basis based upon numerous factors including, but not limited to, funded status, returns on plan assets, discount rates and the current economic environment. The following tables and disclosures are on a combined basis as the Plans have the same terms in both form and substance. 120 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Obligations and Funded Status The following table provides the changes in benefit obligation and plan assets and the funded status of the Plans at December 31, 2021 and 2020. (Dollars in thousands) 2021 2020 Change in benefit obligation Projected benefit obligation at January 1 $ 1,077,653 $ 990,406 Service cost 15,351 14,279 Interest cost 29,864 34,197 Actuarial (gains)/losses ( 30,591 ) 72,080 Benefits paid ( 35,967 ) ( 33,309 ) Projected benefit obligation at December 31 1,056,310 1,077,653 Change in plan assets Fair value of plan assets at January 1 1,235,555 976,072 Actual return on plan assets 145,720 192,792 Employer contributions 32 100,000 Benefits paid ( 35,967 ) ( 33,309 ) Fair value of plan assets at December 31 1,345,340 1,235,555 Funded status at December 31 $ 289,030 $ 157,902 The amounts recognized in other assets at December 31, 2021 and December 31, 2020 were $ 289.0 million and $ 157.9 million, respectively. The following table details the amounts recognized in accumulated other comprehensive income at December 31, 2021 and 2020. (Dollars in thousands) 2021 2020 Net actuarial (gain) loss $ ( 33,223 ) $ 91,751 The accumulated benefit obligation for the Plans at December 31, 2021 and 2020, was $ 972.7 million and $ 985.0 million, respectively. The Plans use a measurement date of December 31. The following table shows the components of periodic benefit cost related to the Plans and changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2021, 2020 and 2019. Year ended December 31 (Dollars in thousands) 2021 2020 2019 Service cost $ 15,351 $ 14,279 $ 12,767 Interest cost 29,864 34,197 37,260 Expected return on assets ( 78,430 ) ( 65,689 ) ( 62,590 ) Amortization of prior service cost — — 57 Amortization of net actuarial loss 27,093 25,324 10,924 Total net periodic benefit cost (income) ( 6,122 ) 8,111 ( 1,582 ) Current year actuarial (gain) loss ( 97,880 ) ( 55,023 ) 20,049 Amortization of actuarial loss ( 27,093 ) ( 25,324 ) ( 10,924 ) Amortization of prior service cost — — ( 57 ) Net (gain) loss recognized in other comprehensive income ( 124,973 ) ( 80,347 ) 9,068 Total recognized in net periodic benefit cost and other comprehensive income $ ( 131,095 ) $ ( 72,236 ) $ 7,486 Actuarial gains in 2021 and 2020 were primarily driven by return on assets greater than expected, partially offset by the impact of a decreased discount rate. Service costs and the amortization of prior service costs are recorded in personnel expense, while interest cost, expected return on plan assets and the amortization of actuarial (gains)losses are recorded in other noninterest expense. 121 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The assumptions used to determine the benefit obligations at December 31, 2021 and 2020 are as follows: 2021 2020 Discount rate 3.04 % 2.76 % Rate of compensation increase 5.60 5.60 The assumptions used to determine the net periodic benefit cost for the years ended December 31, 2021, 2020 and 2019, are as follows: 2021 2020 2019 Discount rate 2.76 % 3.46 % 4.38 % Rate of compensation increase 5.60 5.60 5.60 Expected long-term return on plan assets 7.50 7.50 7.50 The estimated discount rate, which represents the interest rate that could be obtained for a suitable investment used to fund the benefit obligations, is based on a yield curve developed from high-quality corporate bonds across a full maturity spectrum. The projected cash flows of the pension plans are discounted based on this yield curve and a single discount rate is calculated to achieve the same present value. The weighted average expected long-term rate of return on the Plans’ assets represents the average rate of return expected to be earned on the Plans’ assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, historical and current returns, as well as investment allocation strategies, on the Plans’ assets are considered. Plan Assets For the Plans, our primary total return objective is to achieve returns over the long term that will fund retirement liabilities and provide desired plan benefits in a manner that satisfies the fiduciary requirements of the Employee Retirement Income Security Act. The Plans’ assets have a long-term time horizon that runs concurrent with the average life expectancy of the participants. As such, the Plans can assume a time horizon that extends well beyond a full market cycle and can assume a reasonable level of risk. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth volatility and help generate a consistent level of return. The investments are broadly diversified across global, economic and market risk factors in an attempt to reduce volatility and target multiple return sources. Within approved guidelines and restrictions, the investment manager has discretion over the timing and selection of individual investments. The Plans’ assets are currently held by the BancShares trust department. Equity securities are measured at fair value using observable closing prices. These securities are classified as Level 1 as they are traded in an active market. Fixed income securities are generally estimated using a third party pricing service. The third party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. 122 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair values of pension plan assets at December 31, 2021 and 2020, by asset class are as follows: December 31, 2021 (Dollars in thousands) Market Value Level 1 Level 2 Level 3 Target Allocation Actual % of Plan Assets Cash and equivalents $ 16,674 $ 16,674 $ — $ — 0 - 5 % 1 % Equity securities 30 - 70 % 61 % Common and preferred stock 76,240 76,240 — — Mutual funds 481,630 481,630 — — Exchange traded funds 263,072 263,072 — — Fixed income 15 - 45 % 38 % U.S. government and government agency securities 228,399 — 228,399 — Corporate bonds 279,325 2,902 276,423 — Total pension assets $ 1,345,340 $ 840,518 $ 504,822 $ — 100 % December 31, 2020 Market Value Level 1 Level 2 Level 3 Target Allocation Actual % of Plan Assets Cash and equivalents $ 37,913 $ 37,913 $ — $ — 0 - 5 % 3 % Equity securities 30 - 70 % 77 % Common and preferred stock 144,924 144,924 — — Mutual funds 559,472 559,472 — — Exchange traded funds 248,819 248,819 — — Fixed income 15 - 45 % 20 % U.S. government and government agency securities 90,292 — 90,292 — Corporate bonds 154,135 — 154,135 — Total pension assets $ 1,235,555 $ 991,128 $ 244,427 $ — 100 % There were no direct investments in equity securities of BancShares included in pension plan assets in any of the years presented. Cash Flows The following are estimated payments to pension plan participants in the indicated periods: (Dollars in thousands) Estimated Payments 2022 $ 41,051 2023 43,686 2024 46,266 2025 48,548 2026 50,756 2027-2031 280,173 401(k) Savings Plans Certain employees enrolled in the defined benefit plan are also eligible to participate in a 401(k) savings plan through deferral of portions of their salary. For employees who participate in the 401(k) savings plan who also continue to accrue additional years of service under the defined benefit plans, BancShares makes a matching contribution equal to 100 % of the first 3 % and 50 % of the next 3 % of the participant’s deferral up to and including a maximum contribution of 4.5 % of the participant’s eligible compensation. The matching contribution immediately vests. At the end of 2007, current employees were given the option to continue to accrue additional years of service under the defined benefit plans or to elect to join an enhanced 401(k) savings plan. Under the enhanced 401(k) savings plan, BancShares matches 123 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) up to 100 % of the participant’s deferrals not to exceed 6 % of the participant’s eligible compensation. The matching contribution immediately vests. In addition to the employer match of the employee contributions, the enhanced 401(k) savings plan provides a required employer non-elective contribution equal to 3 % of the compensation of a participant who remains employed at the end of the calendar year. This employer contribution vests after three years of service. Employees who elected to enroll in the enhanced 401(k) savings plan discontinued the accrual of additional years of service under the defined benefit plans and became enrolled in the enhanced 401(k) savings plan effective January 1, 2008. Eligible employees hired after January 1, 2008, are eligible to participate in the enhanced 401(k) savings plan. BancShares recognized expense related to contributions to the 401(k) plans of $ 36.2 million, $ 35.6 million and $ 30.8 million during 2021, 2020 and 2019, respectively. Additional Benefits for Executives, Directors, and Officers BancShares has entered into contractual agreements with certain executives providing payments for a period of no more than ten years following separation from service occurring no earlier than an agreed-upon age. These agreements also provide a death benefit in the event a participant dies prior to separation from service or during the payment period following separation from service. BancShares has also assumed liability for contractual obligations to directors and officers of previously acquired entities. The following table provides the accrued liability as of December 31, 2021 and 2020, and the changes in the accrued liability during the years then ended: (Dollars in thousands) 2021 2020 Accrued liability as of January 1 $ 42,655 $ 45,295 Discount rate adjustment ( 680 ) 1,719 Benefit expense and interest cost 2,015 3,503 Benefits paid ( 5,244 ) ( 7,862 ) Accrued liability as of December 31 $ 38,746 $ 42,655 Discount rate at December 31 3.04 % 2.76 % Other Compensation Plans BancShares offers various short-term and long-term incentive plans for certain employees. Compensation awarded under these plans may be based on defined formulas, performance criteria, or at the discretion of management. The incentive compensation programs were designed to motivate employees through a balanced approach of risk and reward for their contributions toward BancShares’ success. As of December 31, 2021 and 2020, the accrued liability for incentive compensation was $ 84.0 million and $ 68.2 million, respectively. 124 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE R LEASES Leases under which BancShares is a Lessee The following table presents lease assets and liabilities as of December 31, 2021 and 2020: (Dollars in thousands) Classification December 31, 2021 December 31, 2020 Assets: Operating Other assets $ 63,207 $ 68,048 Finance Premises and equipment 4,310 6,478 Total leased assets $ 67,517 $ 74,526 Liabilities: Operating Other liabilities $ 64,431 $ 68,343 Finance Other borrowings 4,311 6,308 Total lease liabilities $ 68,742 $ 74,651 The following table presents lease costs for the years ended December 31, 2021 and 2020. Variable lease cost primarily represents variable payments such as common area maintenance and utilities recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured as a result of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. (Dollars in thousands) Classification 2021 2020 Lease cost: Operating lease cost (1) Occupancy expense $ 13,993 $ 15,023 Finance lease cost: Amortization of leased assets Equipment expense 2,168 2,168 Interest on lease liabilities Interest expense - Other borrowings 162 220 Variable lease cost Occupancy expense 3,110 3,231 Sublease income Occupancy expense ( 355 ) ( 350 ) Net lease cost $ 19,078 $ 20,292 (1) Operating lease cost includes short-term lease cost, which is immaterial. The following table presents lease liability maturities in the next five years and thereafter: (Dollars in thousands) Operating Leases Finance Leases Total 2022 $ 12,840 $ 1,876 $ 14,716 2023 11,162 993 12,155 2024 9,356 617 9,973 2025 6,462 635 7,097 2026 5,450 431 5,881 Thereafter 29,236 — 29,236 Total lease payments $ 74,506 $ 4,552 $ 79,058 Less: Interest 10,075 241 10,316 Present value of lease liabilities $ 64,431 $ 4,311 $ 68,742 The following table presents the remaining weighted average lease terms and discount rates as of December 31, 2021: Weighted average remaining lease term (years): December 31, 2021 Operating 8.9 Finance 3.5 Weighted average discount rate: Operating 3.00 % Finance 3.12 125 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020: Year ended December 31 (Dollars in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 13,054 $ 14,237 Operating cash flows from finance leases 162 220 Financing cash flows from finance leases 1,997 1,922 Right-of-use assets obtained in exchange for new operating lease liabilities 6,535 4,595 Leases under which BancShares is a Lessor BancShares provides equipment financing using a variety of loan and lease structures. Typical items financed and leased include commercial equipment and vehicles. The following table presents the components of the investment in direct or sales type financing leases, included in loans in the consolidated balance sheets as of December 31, 2021 and 2020: (Dollars in thousands) Year ended December 31 2021 2020 Total minimum lease payment to be received $ 261,469 $ 335,385 Estimated unguaranteed residual value of leased assets 24,472 19,428 Gross investment in direct or sales type financing leases 285,941 354,813 Unearned income ( 18,262 ) ( 23,970 ) Initial direct costs 783 548 Total net investment $ 268,462 $ 331,391 At December 31, 2021, future minimum lease payments to be received under direct or sales type financing leases were as follows: Years ending December 31 2022 $ 96,974 2023 70,635 2024 46,407 2025 28,065 2026 13,630 Thereafter 5,758 Future minimum lease payments $ 261,469 NOTE S TRANSACTIONS WITH RELATED PERSONS BancShares has, and expects to have in the future, banking transactions in the ordinary course of business with directors, officers and their associates (“Related Persons”) and entities controlled by Related Persons. For those identified as Related Persons as of December 31, 2021, the following table provides an analysis of changes in the loans outstanding during 2021 and 2020: Year ended December 31 (dollars in thousands) 2021 2020 Balance at January 1 $ 117 $ 145 New loans 21 19 Repayments ( 16 ) ( 47 ) Balance at December 31 $ 122 $ 117 The amounts presented exclude loans to Related Persons for credit card lines of $ 15,000 or less, overdraft lines of $ 5,000 or less and intercompany transactions between the Parent Company and FCB. Unfunded loan commitments available to Related Persons were $ 2.7 million and $ 2.6 million as of December 31, 2021 and 2020, respectively. 126 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the year ended December 31, 2020, the Parent Company repurchased 45,000 shares of its outstanding Class A common stock from Ella Anna Holding, as trustee of her revocable trust. Mrs. Holding is the widow of the Parent Company’s former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively. No shares were repurchased during the year ended December 31, 2021. NOTE T COMMITMENTS AND CONTINGENCIES To meet the financing needs of its customers, BancShares has financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit, interest rate or liquidity risk. Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets. Standby letters of credit are commitments guaranteeing performance of a customer to a third party. These commitments are primarily issued to support public and private borrowing arrangements, and their fair value is not material. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as those involved in extending loans to clients and, therefore, these letters of credit are collateralized when necessary. The following table presents the commitments to extend credit and unfunded commitments as of December 31, 2021 and 2020: (Dollars in thousands) 2021 2020 Unused commitments to extend credit $ 13,011,154 $ 12,098,417 Standby letters of credit 116,648 129,819 BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits. Unfunded commitments to fund future investments in affordable housing projects totaled $ 43.4 million and $ 53.7 million as of December 31, 2021 and 2020, respectively, and were recorded within other liabilities. The Parent Company and certain of its subsidiaries have been named as a defendant in legal actions arising from its normal business activities in which damages in various amounts are claimed. BancShares is also exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in merger transactions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares’ consolidated financial statements. 127 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE U PARENT COMPANY FINANCIAL STATEMENTS Parent Company Condensed Balance Sheets (Dollars in thousands) December 31, 2021 December 31, 2020 Assets Cash and due from banks $ 173,719 $ 49,716 Overnight investments 5,716 1,607 Investments in marketable equity securities 97,528 91,680 Investment securities available for sale — 2,010 Investment in banking subsidiaries 4,987,350 4,621,676 Investment in other subsidiaries 3,237 3,241 Due from subsidiaries — 786 Other assets 41,874 48,591 Total assets $ 5,309,424 $ 4,819,307 Liabilities and Shareholders’ Equity Subordinated debentures $ 453,313 $ 452,350 Other borrowings 107,825 128,125 Due to subsidiaries 2,829 — Other liabilities 8,216 9,564 Shareholders’ equity 4,737,241 4,229,268 Total liabilities and shareholders’ equity $ 5,309,424 $ 4,819,307 Parent Company Condensed Income Statements Year ended December 31 (Dollars in thousands) 2021 2020 2019 Interest and dividend income $ 2,011 $ 3,952 $ 1,327 Interest expense 16,578 16,817 7,187 Net interest loss ( 14,567 ) ( 12,865 ) ( 5,860 ) Dividends from banking subsidiaries 173,091 229,685 149,819 Marketable equity securities gains, net 34,081 29,395 20,625 Other income 66 574 257 Other operating expense 11,275 13,168 9,497 Income before income tax benefit and equity in undistributed net income of subsidiaries 181,396 233,621 155,344 Income tax expense 2,089 879 892 Income before equity in undistributed net income of subsidiaries 179,307 232,742 154,452 Equity in undistributed net income of subsidiaries 368,152 258,981 302,919 Net income 547,459 491,723 457,371 Preferred stock dividends 18,544 14,062 — Net income available to common shareholders $ 528,915 $ 477,661 $ 457,371 128 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Parent Company Condensed Statements of Cash Flows Year ended December 31 (Dollars in thousands) 2021 2020 2019 OPERATING ACTIVITIES Net income $ 547,459 $ 491,723 $ 457,371 Adjustments Undistributed net income of subsidiaries ( 368,152 ) ( 258,981 ) ( 302,919 ) Net amortization of premiums and discounts 963 824 119 Marketable equity securities gains, net ( 34,081 ) ( 29,395 ) ( 20,625 ) Realized gains on investment securities available for sale, net — — ( 20 ) Net change in due to/from subsidiaries 3,615 ( 2,456 ) ( 2,185 ) Change in other assets 6,722 ( 3,074 ) ( 2,001 ) Change in other liabilities 3,265 ( 694 ) 981 Net cash provided by operating activities 159,791 197,947 130,721 INVESTING ACTIVITIES Net change in loans — — 100,000 Net change in overnight investments ( 4,109 ) 940 2,162 Purchases of marketable equity securities ( 1,563 ) ( 333,140 ) ( 26,166 ) Proceeds from sales of marketable equity securities 29,796 352,835 56,749 Proceeds from sales, calls, and maturities of securities 2,000 1,000 3,477 Investment in subsidiaries — ( 422,500 ) — Net cash provided by (used in) investing activities 26,124 ( 400,865 ) 136,222 FINANCING ACTIVITIES Net change in short-term borrowings — ( 40,277 ) 40,277 Repayment of long-term obligations ( 20,300 ) ( 33,300 ) ( 3,575 ) Origination of long-term obligations — — 165,000 Net proceeds from subordinated notes issuance — 345,849 — Net proceeds from preferred stock issuance — 339,937 — Repurchase of common stock — ( 333,755 ) ( 453,123 ) Cash dividends paid ( 41,612 ) ( 30,393 ) ( 18,137 ) Net cash provided by (used in) financing activities ( 61,912 ) 248,061 ( 269,558 ) Net change in cash 124,003 45,143 ( 2,615 ) Cash balance at beginning of year 49,716 4,573 7,188 Cash balance at end of year $ 173,719 $ 49,716 $ 4,573 CASH PAYMENTS FOR: Interest $ 16,579 $ 13,338 $ 7,187 Income taxes 810,116 106,618 78,345 NOTE V OTHER ASSETS The following table presents the primary components of other assets as of December 31, 2021 and 2020: December 31 (Dollars in thousands) 2021 2020 Income taxes receivable $ 798,640 $ 66,465 Pension assets 289,030 157,902 Investment in low-income housing tax credits 156,588 163,866 Cash surrender value of life insurance 113,391 111,671 Right of use assets for operating leases, net of accumulated amortization 63,207 68,048 Federal Home Loan Bank stock 40,450 45,392 Prepaid expenses 37,660 40,489 Other 158,390 130,119 Total other assets $ 1,657,356 $ 783,953 129 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE W SUBSEQUENT EVENTS On January 3, 2022, BancShares closed the CIT Merger pursuant to the Merger Agreement. The CIT Merger will be accounted for as a business combination. The assets and liabilities of CIT will be recorded at fair value. As discussed in Note B, Business Combinations, fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. Due to the timing of the CIT Merger, the fair value estimates of CIT’s assets and liabilities are not available to disclose in these Consolidated Financial Statements as of and for the year ended December 31, 2021. Pursuant to the Merger Agreement, the Boards of Directors of the Parent Company and FCB now consist of 14 directors, (i) 11 of whom were legacy members of the Board of Directors of the Parent Company, and (ii) three of whom were selected from the former Board of Directors of CIT. Common Stock Conversion Pursuant to the Merger Agreement, each share of CIT common stock, par value $ 0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares (the “Exchange Ratio” and such shares, the “Merger Consideration”) of the Parent Company’s Class A Common Stock, par value $ 1.00 per share (“Class A Common Stock”), plus, cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued approximately 6.1 million shares of its Class A Common Stock in connection with the consummation of the CIT Merger. The closing share price was $859.76 on the Nasdaq Global Select Market on January 3, 2022. There were approximately 8,800 fractional shares for which the Parent Company paid cash of approximately $ 7.2 million. Preferred Stock Conversion Pursuant to the terms of the Merger Agreement, each issued and outstanding share of fixed-to-floating rate non-cumulative perpetual preferred stock, series A, par value $ 0.01 per share, of CIT (“CIT Series A Preferred Stock”) and each issued and outstanding share of 5.625 % non-cumulative perpetual preferred stock, series B, par value $ 0.01 per share, of CIT (“CIT Series B Preferred Stock”), converted into the right to receive one share of a newly created series of preferred stock, series B, of the Parent Company (“BancShares Series B Preferred Stock”) and one share of a newly created series of preferred stock, series C, of the Parent Company (“BancShares Series C Preferred Stock” and together with the BancShares Series B Preferred Stock, the “New BancShares Preferred Stock”), respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, of the CIT Series A Preferred Stock and the CIT Series B Preferred Stock, respectively. The non-callable period for the New BancShares Preferred Stock was extended for five years to January 4, 2027. There are 325,000 shares of BancShares Series B Preferred Stock with a liquidation preference of $ 1,000 per share, resulting in a total liquidation preference of $ 325 million. There are 8 million shares of BancShares Series C Preferred Stock with a liquidation preference of $ 25 per share, resulting in a total liquidation preference of $ 200 million. The New BancShares Preferred Stock qualifies as Tier 1 capital. Restricted Stock Conversion Pursuant to the terms of the Merger Agreement, (i) each restricted stock unit (“RSU”) award or performance stock unit (“PSU”) award in respect of shares of CIT Common Stock, including any deferred RSU award (each, a “CIT Award”) outstanding, other than a CIT Director RSU Award (defined below), automatically converted into a RSU in respect of a number of shares of Class A Common Stock (a “BancShares Award”) equal to (a) the number of shares of CIT Common Stock subject to such CIT Award based on target level performance multiplied by (b) the Exchange Ratio, subject to the same terms and conditions applicable to the existing CIT Award (except, in the case of PSU awards, for any performance goals or metrics), and (ii) each RSU award in respect of shares of CIT Common Stock that (a) was outstanding and unvested, (b) was held by a member of the Board of Directors of CIT, (c) automatically vested upon close of the CIT Merger in accordance with its terms, and (d) was not subject to a deferral election (each, a “CIT Director RSU Award”) automatically converted into the right to receive the applicable Merger Consideration. Updates to Operating Segments As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment. Due to the CIT Merger, BancShares will begin reporting multiple segments during the first quarter of 2022. BancShares plans to report 130 Table of Contents FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) financial results in three operating segments: General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate. BancShares will also conform prior period comparisons to any new segment presentation. Based on the planned approach for segment disclosures to be implemented during the first quarter of 2022, the substantial majority of BancShares’ operations for historical periods prior to the CIT Merger will be reflected in the General Banking segment. Assumption of Debt Securities In connection with the CIT Merger, FCB assumed the following issued and outstanding series of CIT debt securities: (i) $ 1.25 billion 5.00 % Senior Unsecured Notes due 2022 (the “2022 Notes”), (ii) $ 750 million 5.00 % Senior Unsecured Notes due 2023 (the “2023 Notes”); (iii) $ 500 million 4.750 % Senior Unsecured Notes due 2024 (the “2024 Notes”); (iv) $ 500 million 3.929 % Senior Unsecured Fixed-to-Floating Rate Notes due 2024; (v) $ 500 million 5.250 % Senior Unsecured Notes due 2025 (the “2025 Notes”); (vi) $ 550 million 2.969 % Senior Unsecured Fixed-to-Floating Rate Notes due 2025; (vii) $ 500 million 6.00 % Senior Notes due 2036; (viii) $ 400 million 6.125 % Subordinated Notes due 2028; and (ix) $ 100 million 4.125 % Fixed-to-Floating Rate Subordinated Notes due 2029. Redemption of Assumed Senior Unsecured Note s As part of its liability management to reduce higher debt costs, on January 24, 2022 BancShares announced FCB’s intention, and on February 24, 2022, completed, a redemption of approximately $ 2.9 billion of senior unsecured notes that were assumed in the CIT Merger. Using excess cash from deposit growth, FCB redeemed all of the outstanding $ 1.1 billion aggregate principal amount of the 2022 Notes, $ 750 million aggregate principal amount of the 2023 Notes, $ 500.0 million aggregate principal amount of the 2024 Notes, and $ 500 million aggregate principal amount of the 2025 Notes. 131