What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-02 · 1659 added, 814 removed, 392 unchanged (86% of the section changed)

2 unchanged sentences

and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, unaudited) September 30, 2021 December 31, 2020

Consolidated Balance Sheets (Unaudited)

dollars in millions, except share data March 31, 2022 December 31, 2021

Cash and due from banks $ 523 $ 338

Overnight investments 9,875,063 4,347,336

Investment in marketable equity securities (cost of $ 85,554 at September 30, 2021 and $ 84,837 at December 31, 2020)

123,147 91,680

Investment securities available for sale (cost of $ 7,345,143 at September 30, 2021 and $ 6,911,965 at December 31, 2020)

7,371,129 7,014,243

Investment securities held to maturity (fair value of $ 3,353,078 at September 30, 2021 and $ 2,838,499 at December 31, 2020)

3,381,078 2,816,982

Loans held for sale 98,451 124,837

Interest-earning deposits at banks 9,285 9,115

Investments in marketable equity securities (cost of $ 73 million at March 31, 2022 and $ 73 million at December 31, 2021)

Investment securities available for sale (cost of $ 9,726 million at March 31, 2022 and $ 9,215 million at December 31, 2021)

Investment securities held to maturity (fair value of $ 9,457 million at March 31, 2022 and $ 3,759 million at December 31, 2021)

Assets held for sale 83 99

Loans and leases 65,524 32,372

Allowance for credit losses ( 848 ) ( 178 )

Net loans and leases 32,332,995 32,567,661

Loans and leases, net of allowance for credit losses $ 64,676 $ 32,194

Operating lease equipment, net 7,972 —

Premises and equipment 1,431 1,233

Other real estate owned 40,649 50,890

Income earned not collected 132,911 145,694

Bank owned life insurance 1,326 116

Goodwill 346 346

2 unchanged sentences

Total assets $ 108,597 $ 58,309

Noninterest-bearing $ 21,514,407 $ 18,014,029

Non-interest-bearing $ 25,898 $ 21,405

Interest-bearing 65,699 30,001

Total deposits $ 91,597 $ 51,406

Credit balances of factoring clients 1,150 —

Securities sold under customer repurchase agreements 616 589

Federal Home Loan Bank borrowings 639 645

Senior unsecured borrowings 895 —

Subordinated debt 1,058 478

Other borrowings 84 72

FDIC shared-loss payable — 15,601

Other liabilities 1,988 381

Total liabilities $ 98,027 $ 53,571

Shareholders’ equity

Stockholders’ equity

Preferred stock - $ 0.01 par value ( 10,000,000 shares authorized at March 31, 2022 and December 31, 2021)

Common stock:

Class A - $ 1 par value ( 16,000,000 shares authorized;

8,811,220 shares issued and outstanding at September 30, 2021 and December 31, 2020)

14,996,325 and 8,811,220 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)

Class B - $ 1 par value ( 2,000,000 shares authorized;

1,005,185 shares issued and outstanding at September 30, 2021 and December 31, 2020)

Preferred stock - $ 0.01 par value ( 10,000,000 shares authorized;

345,000 shares issued and outstanding at September 30, 2021 and December 31, 2020;

$ 1,000 per share liquidity preference)

339,937 339,937

1,005,185 shares issued and outstanding at March 31, 2022 and December 31, 2021)

Additional paid in capital 5,344 —

Retained earnings 4,634 4,378

Accumulated other comprehensive (loss) income ( 305 ) 10

Total shareholders’ equity 4,581,295 4,229,268

Total liabilities and shareholders’ equity $ 56,901,977 $ 49,957,680

See accompanying Notes to Unaudited Consolidated Financial Statements.

Total stockholders’ equity $ 10,570 $ 4,738

Total liabilities and stockholders’ equity $ 108,597 $ 58,309

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc.

and Subsidiaries

Consolidated Statements of Income

Three months ended September 30 Nine months ended September 30

(Dollars in thousands, except per share data, unaudited) 2021 2020 2021 2020

Consolidated Statements of Income (Unaudited)

Three Months Ended March 31,

dollars in millions, except share and per share data 2022 2021

Interest income

Loans and leases $ 319,214 $ 336,382 $ 966,525 $ 988,029

Investment securities interest and dividend income 39,246 37,195 105,530 113,293

Overnight investments 3,395 757 6,948 5,828

Interest and fees on loans $ 621 $ 323

Interest on investment securities 83 30

Other interest and dividends 6 2

Total interest income $ 710 $ 355

1 unchanged sentence

Deposits 39 9

Securities sold under customer repurchase agreements 358 395 1,052 1,236

Federal Home Loan Bank borrowings 2,114 2,156 6,300 7,612

Subordinated debt 4,174 4,351 12,543 11,783

Other borrowings 249 305 768 1,488

Borrowings 22 6

Total interest expense $ 61 $ 15

Net interest income 649 340

Provision (credit) for credit losses ( 1,120 ) 4,042 ( 31,697 ) 52,949

Provision (benefit) for credit losses 464 ( 11 )

Net interest income after provision for credit losses $ 185 $ 351

Noninterest income

Rental income on operating leases 208 —

Fee income and other revenue 33 9

Wealth management services 35 32

Gains on leasing equipment, net 6 —

Service charges on deposit accounts 28 22

Factoring commissions 27 —

Cardholder services, net 25 20

Other service charges and fees 9,205 7,892 26,653 22,829

Merchant services, net 10 9

Mortgage income 6,106 13,106 25,026 28,141

Insurance commissions 4,000 3,576 11,702 10,453

ATM income 1,481 1,537 4,534 4,354

Realized gains on investment securities available for sale, net — 9

Marketable equity securities gains (losses), net 3,350 ( 2,701 ) 31,015 10,461

Other 2,639 2,008 6,363 5,330

Marketable equity securities gains, net 3 16

Gain on acquisition 431 —

Gain on extinguishment of debt 6 —

Other noninterest income 38 20

Total noninterest income $ 850 $ 137

Noninterest expense

Salaries and wages 160,947 147,297 462,420 439,185

Employee benefits 32,146 31,788 103,169 100,663

Occupancy expense 29,101 27,990 87,283 85,026

Depreciation on operating lease equipment 81 —

Maintenance and other operating lease expenses 43 —

Salaries and benefits 352 184

Net occupancy expense 49 30

Equipment expense 52 30

Processing fees paid to third parties 15,602 11,927 43,702 32,485

Third-party processing fees 24 14

FDIC insurance expense 12 3

Collection and foreclosure-related expenses 836 2,168 3,207 10,171

Merger-related expenses 135 7

Other 33,283 35,388 91,745 108,256

Intangible asset amortization 6 3

Other noninterest expense 56 26

Total noninterest expense $ 810 $ 297

Income before income taxes 225 191

Income taxes 34,060 35,843 123,873 89,538

Income tax (benefit) expense ( 46 ) 44

Net income $ 271 $ 147

Preferred stock dividends 7 4

Net income available to common shareholders $ 119,437 $ 138,048 $ 410,269 $ 344,213

Weighted average common shares outstanding 9,816,405 9,836,629 9,816,405 10,137,321

Net income available to common stockholders $ 264 $ 143

Earnings per common share

See accompanying Notes to Unaudited Consolidated Financial Statements.

Basic $ 16.70 $ 14.53

Diluted $ 16.70 $ 14.53

Weighted average common shares outstanding

Basic 15,779,153 9,816,405

Diluted 15,779,153 9,816,405

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Income

Three months ended September 30 Nine months ended September 30

(Dollars in thousands, unaudited) 2021 2020 2021 2020

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended March 31,

dollars in millions 2022 2021

Net income $ 271 $ 147

Other comprehensive income

Unrealized (losses) gains on securities available for sale:

Unrealized (losses) gains on securities available for sale arising during the period

( 11,270 ) 9,781 ( 43,173 ) 182,690

Tax effect 2,593 ( 2,251 ) 9,930 ( 42,019 )

Reclassification adjustment for realized gains on securities available for sale included in income before income taxes ( 8,082 ) ( 21,425 ) ( 33,119 ) ( 54,972 )

Tax effect 1,858 4,928 7,617 12,644

Unrealized (losses) gains on securities available for sale arising during the period, net of tax

( 14,901 ) ( 8,967 ) ( 58,745 ) 98,343

Unrealized gains on securities available for sale transferred to held to maturity:

Reclassification adjustment for accretion of unrealized gains on securities available for sale transferred to held to maturity ( 430 ) — ( 1,690 ) —

Tax effect 99 — 389 —

Total change in unrealized gains on securities available for sale transferred to held to maturity, net of tax ( 331 ) — ( 1,301 ) —

Change in pension obligation:

Amortization of actuarial losses 6,773 6,332 20,320 18,994

Tax effect ( 1,558 ) ( 1,457 ) ( 4,674 ) ( 4,370 )

Total change in pension obligation, net of tax 5,215 4,875 15,646 14,624

Other comprehensive (loss) income ( 10,017 ) ( 4,092 ) ( 44,400 ) 112,967

Total comprehensive income $ 114,056 $ 138,592 $ 379,777 $ 466,606

See accompanying Notes to Unaudited Consolidated Financial Statements.

Other comprehensive income (loss), net of tax

Net unrealized losses on securities available for sale ( 317 ) ( 51 )

Net change in pension obligations 2 5

Other comprehensive loss, net of tax $ ( 315 ) $ ( 46 )

Total comprehensive (loss) income $ ( 44 ) $ 101

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc.

and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

Three months ended September 30

(Dollars in thousands, unaudited) Class A

Common Stock Class B

Common Stock Preferred

Stock Surplus Retained

Earnings Accumulated

Comprehensive

(Loss) Income Total

Shareholders’

Balance at June 30, 2020 $ 8,929 $ 1,005 $ 339,937 $ — $ 3,651,237 $ ( 9,664 ) $ 3,991,444

Net income — — — — 142,684 — 142,684

Other comprehensive loss, net of tax — — — — — ( 4,092 ) ( 4,092 )

Issuance of preferred stock — — — — — — —

Repurchase of 117,700 shares of Class A common stock

( 118 ) — — — ( 46,942 ) — ( 47,060 )

Cash dividends declared ($ 0.40 per common share)

Class A common stock — — — — ( 3,524 ) — ( 3,524 )

Class B common stock — — — — ( 402 ) — ( 402 )

Preferred stock dividends declared — — — — ( 4,636 ) — ( 4,636 )

Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ ( 13,756 ) $ 4,074,414

Balance at June 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,148,857 $ ( 22,120 ) $ 4,476,490

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

dollars in millions, except share data Preferred Stock Class A Common Stock Class B Common Stock Additional Paid In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity

Balance at December 31, 2021 $ 340 $ 9 $ 1 $ — $ 4,378 $ 10 $ 4,738

Net income — — — — 271 — 271

Other comprehensive loss, net of tax — — — — — ( 315 ) ( 315 )

Issued in CIT Merger:

Common stock — 6 — 5,273 — — 5,279

Series B preferred stock 334 — — — — 334

Series C preferred stock 207 — — — — — 207

Stock based compensation — — — 71 — — 71

Cash dividends declared ($ 0.47 per common share)

2 unchanged sentences

Preferred stock dividends declared:

Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ ( 32,137 ) $ 4,581,295

Nine months ended September 30

(Dollars in thousands, unaudited) Class A

Common Stock Class B

Common Stock Preferred

Stock Surplus Retained

Earnings Accumulated

Comprehensive

Shareholders’

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 — — — — 353,639 — 353,639

Other comprehensive income, net of tax — — — — — 112,967 112,967

Issuance of preferred stock — — 339,937 — — — 339,937

Repurchase of 813,090 shares of Class A common stock

Series A ($ 13.44 per share)

— — — — ( 5 ) — ( 5 )

Cash dividends declared ($ 1.20 per common share)

Class A common stock — — — — ( 10,869 ) — ( 10,869 )

Class B common stock — — — — ( 1,206 ) — ( 1,206 )

Preferred stock dividends declared — — — — ( 9,426 ) — ( 9,426 )

Balance at September 30, 2020 $ 8,811 $ 1,005 $ 339,937 $ — $ 3,738,417 $ ( 13,756 ) $ 4,074,414

Series C ($ 0.35 per share)

— — — — ( 3 ) — ( 3 )

Balance at March 31, 2022 $ 881 $ 15 $ 1 $ 5,344 $ 4,634 $ ( 305 ) $ 10,570

Balance at December 31, 2020 $ 340 $ 9 $ 1 $ — $ 3,867 $ 12 $ 4,229

5 unchanged sentences

Preferred stock dividends declared — — — — ( 5 ) — ( 5 )

Balance at September 30, 2021 $ 8,811 $ 1,005 $ 339,937 $ — $ 4,263,679 $ ( 32,137 ) $ 4,581,295

See accompanying Notes to Unaudited Consolidated Financial Statements.

Balance at March 31, 2021 $ 340 $ 9 $ 1 $ — $ 4,005 $ ( 34 ) $ 4,321

See accompanying Notes to the Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Nine months ended September 30

(Dollars in thousands, unaudited) 2021 2020

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31,

dollars in millions 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

Adjustments to reconcile net income to cash provided by operating activities:

Provision (credit) for credit losses ( 31,697 ) 52,949

Deferred tax expense 9,266 16,227

Net increase in prepaid and current tax receivable ( 774,212 ) ( 38,878 )

Depreciation and amortization 80,293 81,169

Net decrease in accrued interest payable ( 2,855 ) ( 7,620 )

Net decrease (increase) in income earned not collected 12,783 ( 28,025 )

Contribution to pension plans — ( 100,000 )

Provision (benefit) for credit losses 464 ( 11 )

Deferred tax (benefit) expense ( 61 ) 9

Depreciation, amortization, and accretion, net 126 34

Stock based compensation expense 12 —

Realized gains on investment securities available for sale, net — ( 9 )

Marketable equity securities gains, net ( 3 ) ( 16 )

Origination of loans held for sale ( 911,995 ) ( 775,900 )

Proceeds from sale of loans held for sale 808,172 743,508

Gain on sale of loans ( 26,789 ) ( 25,728 )

Net (gains) losses on other real estate owned ( 2,971 ) 2,360

Net accretion of premiums and discounts 5,017 4,599

Amortization of intangible assets 16,408 18,589

Origination of mortgage servicing rights, net of change in valuation allowance ( 9,775 ) ( 1,332 )

Net gain on sales of loans ( 8 ) ( 9 )

Gain on sales of premises and equipment ( 1 ) —

Net gains on other real estate owned ( 2 ) ( 1 )

Gain on acquisition ( 431 ) —

Gain on extinguishment of debt ( 6 ) —

Net change in assets held for sale ( 183 ) ( 15 )

Net change in other assets 365 42

Net change in other liabilities 66 ( 38 )

Net cash (used in) provided by operating activities ( 461,771 ) 216,258

Other operating activities ( 209 ) ( 7 )

Net cash provided by operating activities $ 400 $ 126

CASH FLOWS FROM INVESTING ACTIVITIES

Net (increase) decrease in loans outstanding 325,209 ( 3,876,578 )

Net change in loans $ ( 295 ) $ ( 404 )

Purchases of investment securities available for sale ( 810 ) ( 1,738 )

Purchases of investment securities held to maturity — ( 207 )

Purchases of marketable equity securities ( 1,563 ) ( 333,126 )

Proceeds from maturities, calls, and principal repayments of investment securities held to maturity 605,664 134,736

Proceeds from maturities, calls, and principal repayments of investment securities available for sale 1,968,339 1,909,462

Proceeds from maturities of investment securities available for sale 330 1,079

Proceeds from maturities of investment securities held to maturity 283 206

Proceeds from sales of investment securities available for sale — 352

Proceeds from sales of marketable equity securities — 1

Net increase in overnight investments ( 5,527,727 ) ( 1,994,972 )

Cash paid to FDIC for settlement of shared-loss agreement ( 16,103 ) ( 99,468 )

Net decrease (increase) in interest earning deposits at banks 2,705 ( 3,241 )

Net change in securities purchased under resale agreements — —

Proceeds from sales of other real estate owned 11 10

Proceeds from sales of loans 260 —

Proceeds from sales of premises and equipment 19 1

Purchases of premises and equipment ( 241 ) ( 25 )

Business acquisitions, net of cash acquired — ( 59,999 )

Acquisition, net of cash acquired 134 —

Other investing activities ( 14 ) ( 24 )

Net cash used in investing activities ( 6,158,803 ) ( 8,640,985 )

Net cash (used in) provided by investing activities $ 2,382 $ ( 3,990 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net decrease in time deposits ( 314,004 ) ( 759,491 )

Net increase in demand and other interest-bearing deposits 6,949,598 8,556,808

Net increase (decrease) in short-term borrowings 22,088 ( 44,344 )

Repayment of long-term obligations ( 29,343 ) ( 82,747 )

Origination of long-term obligations — 745,849

Net proceeds from preferred stock issuance — 339,937

Repurchase of common stock — ( 333,755 )

Net change in time deposits $ ( 833 ) $ ( 159 )

Net change in demand and other interest-bearing deposits 1,275 4,059

Net increase in short-term borrowings 27 39

Repayment of long-term borrowings ( 3,031 ) ( 18 )

Proceeds from issuance of long-term borrowings 1 —

Cash dividends paid ( 14 ) ( 9 )

Net cash provided by financing activities 6,595,976 8,400,427

Other financing activities ( 22 ) —

Net cash (used in) provided by financing activities $ ( 2,597 ) $ 3,912

Change in cash and due from banks 185 48

1 unchanged sentence

Cash and due from banks at end of period $ 523 $ 410

See accompanying Notes to Unaudited Consolidated Financial Statements.

Three Months Ended March 31,

dollars in millions 2022 2021

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid (received) during the period for:

Cash paid (refunded) during the period for:

Interest $ 122 $ 20

Income taxes ( 1 ) —

Significant noncash investing and financing activities:

Significant non-cash investing and financing activities:

Transfers of loans to other real estate 1 2

Transfers of premises and equipment to other real estate 4 5

Dividends declared but not paid 1 5

Unsettled call of investment securities 15,000 —

Transfer of assets from held for investment to held for sale 22 44

Transfer of assets from held for sale to held for investment 1 —

Loans held for sale exchanged for investment securities 38 64

Reclassification of portfolio loans to loans held for sale 22,655 ( 3,464 )

Transfers of premises and equipment to other real estate 8,593 8,133

See accompanying Notes to Unaudited Consolidated Financial Statements.

First Citizens BancShares, Inc.

and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Commitments extended during the period on affordable housing investment credits — 4

Issuance of common stock as consideration for acquisition 5,279 —

Issuance of common stock for stock based compensation 71 —

Issuance of preferred stock as consideration for acquisition 541 —

See accompanying Notes to the Unaudited Consolidated Financial Statements.

Notes to the Unaudited Consolidated Financial Statements

NOTE 1 — ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Nature of Operations

First Citizens BancShares, Inc.

(“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”), which is headquartered in Raleigh, North Carolina.

(the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” “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 over 600 branches and serve 22 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States (the “U.S.”).

BASIS OF PRESENTATION

Principles of Consolidation and Basis of Presentation

These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made.

The unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in BancShares’ Annual Report on Form 10-K for the year ended December 31, 2020.

The consolidated financial statements of BancShares include the accounts of BancShares and its subsidiaries, certain partnership interests and variable interest entities (“VIEs”) where BancShares is the primary beneficiary (“PB”), if applicable.

Assets held in agency or fiduciary capacity are not included in the consolidated financial statements.

Reclassifications

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current financial statement presentation.

Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income.

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 stockholders’ 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 which affect the amounts reported.

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.

The estimates BancShares considers significant are the allowance for credit losses (“ACL”), fair value measurements, and income taxes.

Share Repurchases

BancShares did not repurchase shares of Class A common stock during the nine-month period ended September 30, 2021 .

During the third quarter of 2020, BancShares repurchased a total of 117,700 shares of Class A common stock for $ 47.1 million at an average cost per share of $ 399.82 .

During the nine months ended September 30, 2020, BancShares repurchased a total of 813,090 shares of Class A common stock for $ 333.8 million at an average cost per share of $ 410.48 .

During 2020, share repurchases included 45,000 shares of Class A common stock purchased from Ella Ann Holding, as trustee of her revocable trust.

Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B.

Holding, and the mother of Frank B.

Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively.

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 a novel strain of coronavirus (“COVID-19”) and was supplemented with subsequent legislation.

Overseen by the United States (“U.S.”) Department of the Treasury, the SBA-PPP offers cash-flow assistance to nonprofit and small business employers through guaranteed loans for certain expenses.

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 is made as long as the borrower retains its employees and their compensation levels.

The CARES Act authorized the United States Small Business Administration (“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 and during the first nine months of 2021, BancShares originated approximately 12,000 SBA-PPP loans totaling approximately $ 1.2 billion.

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 loans as an adjustment to yield using the effective interest method.

As of September 30, 2021, SBA-PPP loans outstanding were $ 1.1 billion.

Recently Issued Accounting Pronouncements

There were no Accounting Standards Updates (“ASUs”) issued during the third quarter of 2021 by the Financial Accounting Standards Board (“FASB”) that will have a material impact on BancShares’ consolidated financial statements.

NOTE B - BUSINESS COMBINATIONS

Recently Announced Business Combinations

BancShares considers the allowance for credit losses (“ACL”) 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 at their estimated fair value 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.

To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a gain on acquisition is recognized.

Acquisition-related and restructuring costs are recognized as period expenses as incurred.

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”) .

Results as of and for the three months ended March 31, 2022 include activity of the combined entity.

See Note 2 — Business Combinations, for additional information.

ACCOUNTING POLICIES

Significant accounting policies are described in the 2021 Form 10-K.

We have further described relevant updates to the significant accounting policies presented below.

Reportable Segments

As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment.

BancShares began reporting multiple segments during the first quarter of 2022.

BancShares now has three operating segments:

General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate.

BancShares conformed the comparative prior periods presented to reflect the new segments.

The substantial majority of BancShares’ operations for historical periods prior to completion of the CIT Merger are included in the General Banking segment.

The Commercial Banking and Rail segments primarily relate to operations acquired in the CIT Merger.

Reportable segments are discussed further in Note 22 — Business Segment Information.

Loans and Leases

We re-evaluated our loan classes to reflect the characteristics of BancShares’ portfolio.

The changes to the loan classes primarily include:

(i) reclassifying Small Business Administration Paycheck Protection Program (“SBA-PPP”) loans into the commercial and industrial class, (ii) identifying a separate loan class for leases, and (iii) purchased credit deteriorated loans (“PCD”) are no longer a separate loan class.

The following represent our classes of loans as of March 31, 2022.

Prior period disclosures have been conformed to the current presentation.

Commercial Loans and Leases

Commercial Construction - Commercial construction 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 mortgage 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 - Commercial and industrial loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, and business credit cards.

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.

Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan.

We provide factoring, receivable management, and secured financing to businesses (our clients, who are generally manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics.

Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the factor).

The most prevalent risk in factoring transactions is customer credit risk, which relates to the financial inability of a customer to pay undisputed factored trade accounts receivable.

Leases – Leases consists of finance lease arrangements for technology and office equipment and large and small industrial, medical, and transportation equipment.

Consumer Loans

Residential Mortgage - Consumer mortgage consists of loans to purchase, construct, or refinance the borrower’s primary dwelling, secondary residence or vacation home and are often secured by 1-4 family residential properties or undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property.

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.

Delays in construction and development projects can cause 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.

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 liens as a substantial decline in value could render the junior lien position effectively unsecured.

Consumer Auto - Consumer auto loans consist of installment loans to finance purchases of vehicles.

These loans include direct auto loans originated in bank branches, as well as 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.

Consumer Other - 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.

Assets Held for Sale

Assets held for sale primarily consist of residential mortgage loans held for sale of $ 65 million carried at fair value and commercial loans held for sale of $ 16 million carried at the lower of the cost or fair market value less disposal costs (“LOCOM”).

BancShares applied the acquisition method of accounting for the CIT Merger.

The fair value of the net assets acquired exceeded the purchase price.

Consequently, there was a gain on acquisition (and no goodwill) related to the CIT Merger as discussed further in Note 2 — Business Combinations.

BancShares had goodwill of $ 346 million at March 31, 2022 and December 31, 2021.

The entire balance of goodwill relates to business combinations that BancShares completed prior to the CIT Merger.

All of the goodwill relates to the General Banking reporting unit.

There was no goodwill impairment during the first quarter of 2022.

Goodwill and other intangibles are discussed further in Note 7 – Goodwill and Other Intangibles.

Derivative Financial Instruments

BancShares did not have any significant derivative financial instruments prior to completion of the CIT Merger.

BancShares has derivative financial instruments at March 31, 2022 as further described in Note 13 — Derivative Financial Instruments.

BancShares manages economic risk and exposure to interest rate and foreign currency risk through derivative transactions in over-the-counter markets with other financial institutions.

BancShares also offers derivative products to its customers in order for them to manage their interest rate and currency risks.

BancShares does not enter into derivative financial instruments for speculative purposes.

Derivatives utilized by BancShares may include swaps, forward settlement contracts and options contracts.

A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices.

Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency or commodity at a predetermined future date, and rate or price.

An option contract is an agreement that gives the buyer the right, but not the obligation, to buy or sell an underlying asset from or to another party at a predetermined price or rate over a specific period of time.

BancShares documents, at inception, all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategies for undertaking various hedges.

Upon executing a derivative contract, BancShares designates the derivative as either a qualifying hedge or non-qualifying hedge.

The designation may change based upon management’s reassessment of circumstances.

BancShares does not have any qualifying fair value, cash flow or net investment hedges as of March 31, 2022.

BancShares provides interest rate derivative contracts to support the business requirements of its customers (“customer-related positions”).

The derivative contracts include interest rate swap agreements and interest rate cap and floor agreements wherein BancShares acts as a seller of these derivative contracts to its customers.

To mitigate the market risk associated with these customer derivatives, BancShares enters into similar offsetting positions with broker-dealers.

BancShares has both bought and sold credit protection in the form of participations in interest rate swaps (risk participations).

These risk participations were entered into in the ordinary course of business to facilitate customer credit needs.

Swap participations where BancShares has sold credit protection have maturities ranging between 2022 and 2040 and may require BancShares to make payment to the counterparty if the customer fails to make payment on any amounts due to the counterparty upon early termination of the swap transaction.

BancShares uses foreign currency forward contracts, interest rate swaps, and options to hedge interest rate and foreign currency risks arising from its asset and liability mix.

These are treated as economic hedges.

All derivative instruments are recorded at their respective fair value.

BancShares does not offset derivative assets and liabilities and cash collateral under master netting agreements and reports all derivatives on a gross basis in the Consolidated Balance Sheets.

Nonqualifying hedges are presented in the Consolidated Balance Sheets in other assets or other liabilities, but with their resulting gains or losses recognized in other noninterest income.

For non-qualifying derivatives with periodic interest settlements, BancShares reports such settlements with other changes in fair value in other noninterest income.

Fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant management judgment or estimation.

Valuations of derivative assets and liabilities reflect the value of the instrument including BancShares’ and the counterparty’s credit risk.

BancShares is exposed to credit risk to the extent that the counterparty fails to perform under the terms of a derivative agreement.

Losses related to credit risk are reflected in other noninterest income.

BancShares manages this credit risk by requiring that all derivative transactions entered into as hedges be conducted with counterparties rated investment grade at the initial transaction by nationally recognized rating agencies, and by setting limits on the exposure with any individual counterparty.

In addition, pursuant to the terms of the Credit Support Annexes between BancShares and its counterparties, BancShares may be required to post collateral or may be entitled to receive collateral in the form of cash or highly liquid securities depending on the valuation of the derivative instruments as measured on a daily basis.

Derivatives are discussed further in Note 13 — Derivative Financial Instruments.

Bank-Owned Life Insurance (“BOLI”)

Banks can purchase life insurance policies on the lives of certain officers and employees and are the owner and beneficiary of the policies.

These policies, known as BOLI, offset the cost of providing employee benefits.

BancShares had BOLI of $ 1.3 billion and $ 116 million at March 31, 2022 and December 31, 2021, respectively.

BancShares acquired BOLI of $ 1.2 billion in the CIT Merger.

BancShares records BOLI as a separate line item in the Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded as other noninterest income in the Consolidated Statements of Income.

Impairment of Operating Lease Equipment

BancShares did not have significant amounts of equipment related to operating leases prior to completion of the CIT Merger.

BancShares has operating lease equipment of approximately $ 8.0 billion, primarily related to the Rail segment, at March 31, 2022.

A review for impairment of long-lived assets, such as operating lease equipment, is performed at least annually or when events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable.

Impairment of long-lived assets is determined by comparing the carrying amount to future undiscounted net cash flows expected to be generated.

If a long-lived asset is impaired, the impairment is the amount by which the carrying amount exceeds the fair value of the long-lived asset.

Fair value is based upon discounted cash flow analysis and available market data.

Current lease rentals, as well as relevant and available market information (including third party sales for similar equipment and published appraisal data), are considered both in determining undiscounted future cash flows when testing for the existence of impairment and in determining estimated fair value in measuring impairment.

Depreciation expense is adjusted when the projected fair value is below the projected book value at the end of the depreciable life.

Assets to be disposed of are included in assets held for sale in the Consolidated Balance Sheets and are reported at LOCOM.

Stock-Based Compensation

BancShares did not have stock-based compensation awards prior to completion of the CIT Merger.

Certain CIT employees received grants of restricted stock unit awards (“CIT RSUs”) or performance stock unit awards (“CIT PSUs”).

Upon completion of the CIT Merger and pursuant to the terms of the Merger Agreement, (i) the CIT RSUs and PSUs converted into “BancShares RSUs” based on the 0.062 exchange ratio (the “Exchange Ratio”) and (ii) the BancShares RSUs became subject to the same terms and conditions (including vesting terms, payment timing and rights to receive dividend equivalents) applicable to the CIT RSUs and CIT PSUs, except that vesting for the converted CIT PSUs was no longer subject to any performance goals or metrics.

Upon completion of the CIT Merger, the fair value of the BancShares RSUs was determined based on the closing share price of the Parent Company’s Class A Common Stock (the “Class A Common Stock”) on January 3, 2022.

The fair value of the BancShares RSUs is (i) included in the purchase price consideration for the portion related to employee services provided prior to completion of the CIT Merger and (ii) recognized in expenses for the portion related to employee services to be provided after completion of the CIT Merger.

For “graded vesting” awards, each vesting tranche of the award is amortized separately as if each were a separate award.

For “cliff vesting” awards, compensation expense is recognized over the requisite service period.

BancShares recognizes the effect of forfeitures in compensation expense when they occur.

In the event of involuntary termination of employees after the Merger Date, vesting occurs on the employee termination date for BancShares RSUs subject to change in control provisions.

Expenses related to stock-based compensation are included in merger-related expenses in the Consolidated Statements of Income.

Stock-based compensation is discussed further in Note 21— Employee Benefit Plans.

Members of the CIT Board of Directors had RSU awards, stock settled annual awards, and deferred stock-settled annual awards (collectively, the “CIT Director Equity Awards”), which vested immediately upon the completion of the CIT Merger.

The fair value of the CIT Director Equity Awards was determined based on the Exchange Ratio and the closing share price of the Class A Stock on January 3, 2022 and was included in the purchase price consideration as discussed further in Note 2 — Business Combinations.

Per Share Data

Earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of BancShares’ Class A and Class B common shares outstanding during each period.

Diluted earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding increased by the weighted-average potential impact of dilutive securities.

BancShares’ potential dilutive instruments primarily include unvested RSUs assumed in the CIT Merger.

The dilutive effect is computed using the treasury stock method, which assumes the conversion of these instruments.

However, in periods when there is a net loss, these shares would not be included in the diluted earnings per common share computation as the result would have an anti-dilutive effect.

BancShares had no potential dilutive common shares outstanding prior to the CIT Merger and did not report diluted earnings per common share for prior periods.

Defined Benefit Pension Plans and Other Postretirement Benefits

As disclosed in the 2021 Form 10-K, BancShares has both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain U.S.

employees, each of which is designed in accordance with the practices and regulations in the related countries.

In conjunction with the CIT Merger, BancShares assumed the funded and unfunded noncontributory defined benefit pension and postretirement plans of CIT.

See Note 21 — Employee Benefit Plans, for disclosures related to the plans.

Revenue Recognition and Noninterest Income

Descriptions of significant noninterest revenue-generating activities new to BancShares due to the CIT Merger are as follows:

Rental income on operating leases is recognized on a straight-line basis over the lease term for lease contract fixed payments and is included in noninterest income.

Rental income also includes variable lease income which is recognized as earned.

The accrual of rental income on operating leases is suspended when the collection of substantially all rental payments is no longer probable and rental income for such leases is recognized when cash payments are received.

In the period we conclude that collection of rental payments is no longer probable, accrued but uncollected rental revenue, is reversed against rental income.

Factoring commissions , which are earned in the Commercial Banking segment, are driven by factoring volumes, principally in the retail sectors.

We provide factoring to businesses (our clients, who are generally manufacturers or importers of goods) that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics.

, sold or assigned to the factor).

Factoring commissions are charged as a percentage of the invoice amount of the receivables assigned to BancShares.

The volume of factoring activity and the commission rates charged impact factoring commission income earned.

Factoring commissions are deferred and recognized as income over time based on the underlying terms of the assigned receivables.

Gains on leasing equipment are recognized upon completion of sale (sale closing) and transfer of title.

The gain is determined based on sales price less book carrying value (net of accumulated depreciation).

BOLI income reflects income earned on changes in the cash surrender value of the BOLI.

Other Newly Adopted Accounting Standards

The following pronouncements or Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board (“FASB”) and adopted by BancShares as of January 1, 2022:

ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity - Issued August 2020

The amendments in this ASU reduce the number of models used to account for convertible instruments, amend diluted earnings per share calculations for convertible instruments, amend the requirements for a contract (or embedded derivative) that is potentially settled in an entity’s own shares to be classified in equity, and expand disclosure requirements for convertible instruments.

The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares does not have any convertible instruments within the scope of this ASU.

ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options - Issued May 2021

The amendments in this ASU clarifies an issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

The ASU requires that such modifications or exchanges be treated as an exchange of the original instrument for a new instrument.

An issuer should measure the effect of such modifications or exchanges based on analysis of the difference between the fair value of the modified instrument and the fair value of that instrument immediately before modification or exchange.

Recognition of a modification or an exchange of a freestanding equity-classified written call option is then based upon the substance of the transaction.

The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares currently does not have any freestanding equity-classified written call options within the scope of this ASU.

ASU 2021-05, Leases, (Topic 842), Lessors - Certain Leases with Variable Lease Payments - Issued July 2021

The amendments in this ASU improve lessor accounting for certain leases with variable lease payments so that lessors are no longer required to recognize a day-one selling loss upon lease commencement when specified criteria are met.

Specifically, this ASU requires a lessor to classify a lease with variable payments that do not depend on a reference index or a rate as an operating lease if classifying the lease as a sales-type lease or a direct financing lease would result in the recognition of a day-one selling loss at lease commencement.

A day-one selling loss is not recognized under operating lease accounting.

The adoption of this ASU did not have a material impact on BancShares’ consolidated financial statements and disclosures as BancShares has not originated finance leases which required a day-one selling loss at lease commencement.

NOTE 2 — BUSINESS COMBINATIONS

CIT Group Inc.

On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”).

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”).

The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT.

The transaction was approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”).

On September 30, 2021, the parties entered into an amendment to the merger agreement pursuant to which the parties mutually agreed to extend until March 1, 2022 the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed.

Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $ 0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by CIT or BancShares, will be converted into the right to receive 0.06200 shares of BancShares Class A common stock, par value $ 1.00 per share.

Holders of CIT Common Stock will receive cash in lieu of fractional shares.

In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $ 0.01 per share, of CIT and 5.625 % Non-Cumulative Perpetual Preferred Stock, Series B, par value $ 0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively.

NOTE C - INVESTMENTS

The amortized cost and fair value of investment securities at September 30, 2021 and December 31, 2020, were as follows:

September 30, 2021

(Dollars in thousands) Amortized cost (1)

BancShares completed the CIT Merger on January 3, 2022 (the “Merger Date”).

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 of Class A Common Stock, par value $ 1.00 per share, 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 of Class A Common Stock on the Nasdaq Global Select Market was $ 859.76 on January 3, 2022.

The purchase price consideration related to the issuance of Class A Common Stock was $ 5.3 billion.

There were approximately 8,800 fractional shares for which the Parent Company paid cash of $ 7 million.

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” and together with CIT Series A Preferred Stock, “CIT 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 is January 4, 2027, which is five years from the original issuance date of the New BancShares Preferred Stock.

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.

The purchase price consideration related to the fair value of the New BancShares Preferred Stock was $ 541 million.

CIT RSUs and PSUs converted to BancShares RSUs and CIT Director Awards and immediately vested upon completion of the CIT Merger as further described in the “Stock-Based Compensation” discussion in Note 1 — Accounting Policies and Basis of Presentation.

The aggregate purchase price consideration related to these compensation awards was $ 81 million.

The CIT Merger has been accounted for as a business combination under the acquisition method of accounting.

Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values based on initial valuations as of January 3, 2022.

The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature and may require adjustments.

As of March 31, 2022, the fair value measurements remain preliminary due to the timing of the Merger Date and BancShares’ Quarterly Report on Form 10-Q.

While BancShares believes that the information available on January 3, 2022 provided a reasonable basis for estimating fair value, BancShares continues to review information relating to events or circumstances existing at the Merger Date.

Purchase accounting could change until management finalizes its analysis of the acquired assets and assumed liabilities, up to one year from the Merger Date.

Management anticipates that this review could result in adjustments to the Merger Date valuation amounts presented herein.

The following table provides a preliminary purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the Merger Date:

Purchase Price Consideration and Net Assets Acquired

dollars in millions, except shares issued and price per share Purchase Price Allocation

Common share consideration

Shares of Class A Common Stock issued 6,140,010

Price per share on January 3, 2022 $ 859.76

Consideration for common stock 5,279

Fair value consideration for preferred stock 541

Consideration for stock-based compensation 81

Cash in lieu of fractional shares and other consideration paid 51

Purchase price consideration $ 5,952

Cash and interest-earning deposits at banks 3,060

Investment securities 6,561

Assets held for sale 59

Loans and leases 32,714

Operating lease equipment 7,838

Bank-owned life insurance 1,202

Intangible assets 143

Other assets 2,198

Total assets acquired $ 53,775

Deposits 39,428

Borrowings 4,536

Credit balances of factoring clients 1,534

Other liabilities 1,894

Total liabilities assumed $ 47,392

Fair value of net assets acquired 6,383

Preliminary gain on acquisition $ 431

BancShares recorded a preliminary gain on acquisition of $ 431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price.

The preliminary gain on acquisition is not taxable.

The following is a description of the methods used to determine the estimated fair values of significant assets acquired and liabilities assumed as presented above.

Cash and interest-bearing deposits

For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value.

Investment securities

Fair values for investment securities were based on quoted market prices, where available.

If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.

In the absence of observable inputs, fair value was estimated based on pricing models and/or discounted cash flows methodologies.

Loans held for sale and portfolio loans

Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, amortization status and current discount rate.

Selected larger, impaired loans were specifically reviewed to evaluate credit risk.

Loans with similar risk characteristics were pooled together when applying various valuation techniques.

The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.

Purchased loans and leases which reflect a more than insignificant credit deterioration since origination as of the date of acquisition are classified as PCD loans and leases.

PCD loans and leases 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 (the “PCD Gross-Up”).

The difference between the unpaid principal balance (“UPB”) and the acquisition date amortized cost resulting from the PCD Gross-Up is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.

Non-Purchased Credit Deteriorated (“Non-PCD”) loans and leases consist of loans that do not reflect more than insignificant credit deterioration since origination at acquisition.

The following table presents the UPB and fair value of the loans and leases acquired by BancShares in the CIT Merger.

The UPB for PCD loans and leases includes the PCD Gross-Up of $ 284 million as discussed further in Note 4 — Loans and Leases.

Loans Acquired

Loans and Leases

dollars in millions UPB Fair Value

Non-PCD loans and leases $ 29,542 $ 29,481

PCD loans and leases 3,562 3,233

Total loans and leases $ 33,104 $ 32,714

Operating Lease Equipment

Operating lease equipment were comprised of two sub-groups:

rail and non-rail equipment.

Fair values for both were based on the cost approach where market values were not available.

The sales approach was used to value rail assets where market information was available, or when replacement cost less depreciation was lower than the current market value.

An intangible liability was recorded for net above and below market lease contracts, for which fair value was estimated using the income approach and contemplated market lease rates and other key inputs.

A discount was recorded for net operating lease equipment, which includes railcars and locomotives and other equipment, to reduce it to fair value.

This adjustment will reduce depreciation expense over the remaining useful lives of the equipment on a straight line basis.

These adjustments (net) will be amortized, thereby increasing rental income (a component of noninterest income) over the remaining lives of the lease agreements on a straight line basis.

Bank Owned Life Insurance

The fair values of BOLI policies were determined by the policy administrator and calculated based on the net present value of investment cash flows.

Expected premium payments, death benefits and expected mortality were considered in the net present value calculation.

Based upon the administrator’s analysis and management’s review of the analysis, fair value was determined to equate to book value as of the merger date.

Intangible assets

The following table presents the intangible asset recorded in conjunction with the CIT Merger related to the valuation of core deposits:

Intangible Assets

dollars in millions Fair Value Estimated Useful Life Amortization Method

Core deposit intangibles $ 143 10 years Straight-line

Certain core deposits were acquired as part of the CIT Merger, which provide an additional source of funds for BancShares.

The core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere.

This intangible was valued using the income approach, after-tax cost savings method.

This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life.

The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost.

Refer to Note 7 — Goodwill and Other Intangibles for further discussion.

The following table details other assets acquired:

dollars in millions Fair Value

Low-income housing tax credit and other equity method investments $ 777

Right of use assets 327

Premises and equipment 230

Fair value of derivative financial instruments 209

Counterparty receivables 133

Total other assets $ 2,198

The fair values of the tax credit investments considered the ongoing equity installments that are regularly allocated to each of the underlying tax credit funds comprising the low income housing tax credits investments, along with changes to projected tax benefits and the impact this has on future capital contributions, and an appropriately determined discount rate.

The fair value of the investments in unconsolidated entities was valued using the income approach.

The right of use asset associated with real estate operating leases were measured at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.

The lease liability was measured at the present value of the remaining lease payments, as if the acquired lease were a new lease of the acquirer at the acquisition date and using BancShares incremental borrowing rate.

The lease term was determined for individual leases based on management’s assessment of the probability of exercising the existing renewal, termination and/or purchase option.

Fair values for property, including leasehold improvements, furniture and fixtures, computer software and other digital equipment were determined using the cost approach.

Certain tangible assets, that are expected to be sold in the short term were reported at net book, while real estate property such as land and buildings was valued using the sales comparison approach, where sales of comparable properties are adjusted for differences to estimate the value of each subject property.

The fair values of the derivative financial instruments, as well as counterparty receivables, were valued using prices of financial instruments with similar characteristics and observable inputs.

The fair values for time deposits were estimated using a discounted cash flow analysis whereby the contractual remaining cash flows were discounted using market rates currently being offered for time deposits of similar maturities.

For transactional deposits, carrying amounts approximate fair value.

In connection with the CIT Merger, BancShares assumed the outstanding borrowings of CIT.

The fair values of borrowing were estimated based on readily observable prices using reliable market sources.

Credit balances of Factoring Clients

Credit balance amounts represent short-term payables that are tied to the factoring receivables.

Due to the short-term nature of these payables and given that amounts are settled at book value, it was determined that the carrying value is equivalent to fair value.

Other Liabilities

Other liabilities include items such as accounts payable and accrued liabilities, lease liabilities, current and deferred taxes, commitments to fund tax credit investments and other miscellaneous liabilities.

The fair value of lease liabilities was measured using the present value of remaining lease payments, using BancShares’ discount rate at the merger date.

The fair value of the remaining liabilities was determined to approximate book value.

For all accrued liabilities and accounts payable, it was determined that the carrying value equals book value.

Unaudited Pro Forma Information

The amount of interest income, noninterest income and net income of $ 351 million, $ 297 million and $ 330 million, respectively, attributable to the acquisition of CIT were included in BancShares’ Consolidated Statement of Income for the three months ended March 31, 2022.

CIT’s interest income, noninterest income and net income noted above reflect management’s best estimates, based on information available at the reporting date.

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three months ended March 31, 2022 and 2021 as if CIT had been acquired on January 1, 2021.

The unaudited estimated pro forma information combines the historical results of CIT with the BancShares’ consolidated historical results and includes certain adjustments for the respective periods.

The following key adjustments were made to reflect the pro forma results as if the CIT Merger was completed on January 1, 2021:

(i) provision for credit losses of $ 513 million related to the Non-PCD loans and leases and unfunded commitments;

(ii) merger and integration costs of $ 135 million;

(iii) estimated purchase accounting adjustment (“PAA”) accretion and amortization related to fair value adjustments and intangibles associated with the CIT Merger;

and (iv) $ 431 million preliminary gain on acquisition.

BancShares expects to achieve operating cost savings and other business synergies as a result of the acquisition that are not reflected in the pro forma amounts that follow.

The pro forma information should not be relied upon as being indicative of the historical results of operations that would have occurred had the acquisition taken place on January 1, 2021.

Actual results may differ from the unaudited pro forma information presented below and the differences could be significant.

Selected Unaudited Pro Forma Financial Information for Consolidated BancShares

Three months ended March 31,

dollars in millions 2022 2021

Interest income $ 710 $ 726

Noninterest income 418 1,001

Net income 335 417

NOTE 3 — INVESTMENT SECURITIES

The following tables as of March 31, 2022 include the investment security balances acquired in the CIT Merger, which were recorded at fair value on the acquisition date.

The amortized cost and fair value of investment securities at March 31, 2022 and December 31, 2021, were as follows:

Amortized Cost and Fair Value - Debt Securities

March 31, 2022

dollars in millions Amortized Cost Gross

Gains Gross Unrealized

Investment securities available for sale

Treasury $ 2,014 $ — $ ( 83 ) $ 1,931

Government agency 206 1 ( 1 ) 206

5 unchanged sentences

Investment securities held to maturity

Treasury $ 471 $ — $ ( 24 ) $ 447

Government agency 1,541 — ( 78 ) 1,463

Residential mortgage-backed securities 4,776 — ( 315 ) 4,461

Commercial mortgage-backed securities 2,988 — ( 183 ) 2,805

Supranational securities 294 — ( 17 ) 277

Other 4 — — 4

2 unchanged sentences

December 31, 2021

(Dollars in thousands) Amortized cost (1)

dollars in millions Amortized Cost Gross

Gains Gross Unrealized

5 unchanged sentences

Corporate bonds 582 27 ( 1 ) 608

State, county and municipal — — — —

Total investment securities available for sale $ 9,215 $ 45 $ ( 57 ) $ 9,203

6 unchanged sentences

Total investment securities $ 13,097 $ 76 $ ( 113 ) $ 13,060

(1) Amortized cost includes any recorded ACL.

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 contractual maturity of 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 accumulated other comprehensive income.

This unrealized gain is accreted over the remaining expected life of the securities as an adjustment of yield.

Investments in residential and commercial 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 and marketable equity securities represent positions in securities of other financial institutions.

Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.

US Treasury investments represents T-bills and Notes issued by the US Treasury.

Investments in government agency securities represent securities issued by the Small Business Association (“SBA”), Federal Home Loan Bank (“FHLB”) and other agencies.

Investments in supranational securities represent securities issued by the World Bank.

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.

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 are recorded at $ 0 .

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 Federal Housing Loan Bank (“ 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 September 30, 2021 and December 31, 2020, respectively.

These securities are recorded at cost within other assets.

As of September 30, 2021 and December 31, 2020, no ACL was required for available for sale and held to maturity debt securities.

As of March 31, 2022 and December 31, 2021, no ACL was required for available for sale or held to maturity debt securities.

Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses.

At September 30, 2021, accrued interest receivables for available for sale and held to maturity debt securities were $ 21.1 million and $ 6.0 million, respectively.

At December 31, 2020, accrued interest receivables for available for sale and held to maturity debt securities were $ 17.6 million and $ 5.4 million, respectively.

During the three and nine months ended September 30, 2021 and 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 for investment securities available for sale and held to maturity.

Expected maturities will differ from contractual maturities on certain securities because issuers and borrowers of underlying collateral may have the right to call or prepay obligations with or without prepayment penalties.

At March 31, 2022, accrued interest receivable for available for sale and held to maturity debt securities were $ 26 million and $ 16 million, respectively.

At December 31, 2021, accrued interest receivable for available for sale and held to maturity debt securities were $ 22 million and $ 7 million, respectively.

During the three months ended March 31, 2022 and 2021, 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.

September 30, 2021 December 31, 2020

(Dollars in thousands) Amortized cost (1)

value Amortized cost (1)

Maturities - Debt Securities

March 31, 2022 December 31, 2021

dollars in millions Cost Fair

value Cost Fair

Investment securities available for sale

1 unchanged sentence

One year or less $ 9 $ 9 $ — $ —

One through five years 37,248 38,540 72,565 73,881

Five through 10 years 545,754 568,692 508,320 519,570

Over 10 years 16,700 16,663 8,971 8,807

After one through five years 2,055 1,972 2,049 2,048

After five through 10 years 515 520 523 548

After 10 years 17 16 17 17

Government agency 206 206 221 221

5 unchanged sentences

One year or less $ 4 $ 4 $ 2 $ 2

One through five years 749 749 749 749

After one through five years 873 836 — —

After five through 10 years 1,433 1,351 — —

Residential mortgage-backed securities 4,776 4,461 2,322 2,306

1 unchanged sentence

Total investment securities held to maturity $ 10,074 $ 9,457 $ 3,809 $ 3,759

(1) Amortized cost includes any recorded ACL.

The following table provides the gross realized gains and losses on the sales of investment securities available for sale for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

T he following table presents interest and dividend income on investments and other interest-bearing assets:

Other Interest and Dividend Income

Three months ended March 31,

dollars in millions 2022 2021

Interest income - taxable debt securities $ 83 $ 30

Interest income - interest-bearing cash 5 1

Dividend income - marketable equity securities 1 1

Total other interest and dividend income $ 89 $ 32

The following table provides the gross realized gains and losses on the sales of investment securities available for sale:

Realized Gains on Debt Securities Available For Sale

Three months ended March 31,

dollars in millions 2022 2021

Gross realized gains on sales of investment securities available for sale $ — $ 9

1 unchanged sentence

Net realized gains on sales of investment securities available for sale $ — $ 9

The following table provides the realized and unrealized gains and losses on marketable equity securities for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

Marketable equity securities gains (losses), net $ 3,350 $ ( 2,701 ) $ 31,015 $ 10,461

Less net gains recognized on marketable equity securities sold — 2,568 263 39,884

Unrealized gains (losses) recognized on marketable equity securities held $ 3,350 $ ( 5,269 ) $ 30,752 $ ( 29,423 )

The following table provides information regarding securities with unrealized losses as of September 30, 2021 and December 31, 2020:

September 30, 2021

The following table provides the realized and unrealized gains and losses on marketable equity securities:

Realized and Unrealized Gains on Marketable Equity Securities

Three months ended March 31,

dollars in millions 2022 2021

Marketable equity securities gains, net $ 3 $ 16

Unrealized gains recognized on marketable equity securities held for sale $ 3 $ 16

The following table provides information regarding investment securities available for sale with unrealized losses for which an ACL has not been recorded:

Gross Unrealized Losses on Debt Securities Available For Sale

March 31, 2022

Less than 12 months 12 months or more Total

(Dollars in thousands) Fair

dollars in millions Fair

value Unrealized

2 unchanged sentences

Investment securities available for sale

Treasury $ 1,931 $ ( 83 ) $ — $ — $ 1,931 $ ( 83 )

Government agency 21 — 74 ( 1 ) 95 ( 1 )

5 unchanged sentences

Less than 12 months 12 months or more Total

(Dollars in thousands) Fair

dollars in millions Fair

value Unrealized

2 unchanged sentences

Investment securities available for sale

Treasury $ 1,811 $ ( 2 ) $ — $ — $ 1,811 $ ( 2 )

Government agency 17 — 79 ( 1 ) 96 ( 1 )

Residential mortgage-backed securities 3,992 ( 36 ) 1 — 3,993 ( 36 )

Commercial mortgage-backed securities 852 ( 15 ) 111 ( 2 ) 963 ( 17 )

Corporate bonds 52 ( 1 ) — — 52 ( 1 )

Total $ 6,724 $ ( 54 ) $ 191 $ ( 3 ) $ 6,915 $ ( 57 )

As of September 30, 2021, there were 36 investment securities available for sale with continuous losses for more than 12 months, of which 34 were government sponsored enterprise-issued mortgage-backed securities or government agency securities and two were corporate bonds.

None of the unrealized losses identified as of September 30, 2021, or December 31, 2020, relate to the issuer’s ability to honor redemption obligations.

As of March 31, 2022, there were 55 investment securities available for sale with continuous losses for more than 12 months, of which all were government sponsored enterprise-issued mortgage-backed securities or government agency securities.

None of the unrealized losses identified as of March 31, 2022, or December 31, 2021, 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.

As a result, none of the securities were deemed to require an ACL.

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 $ 5.5 billion at September 30, 2021, and $ 4.6 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.

BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities.

Investment securities having an aggregate carrying value of $ 5.9 billion at March 31, 2022, and $ 5.7 billion at December 31, 2021, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.

BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, US Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and Federal Deposit Insurance Corporation (“FDIC”) guaranteed CDs with other financial institutions.

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 further credit monitoring is performed on these portfolios.

Should there be 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 nonaccrual status as of September 30, 2021.

Treasury, the World Bank and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no ACL has been recorded on these securities.

In the event there are downgrades to the credit rating of the U.S.

Treasury or the World Bank 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.

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 September 30, 2021.

NOTE D - 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, which is determined as of the acquisition date.

Non-purchased credit deteriorated (“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.

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 included the following at September 30, 2021 and December 31, 2020:

(Dollars in thousands) September 30, 2021 December 31, 2020

Construction and land development $ 1,247,680 $ 985,424

The carrying value was zero for securities past due as of March 31, 2022 and December 31, 2021.

There were no debt securities held to maturity on non-accrual status as of March 31, 2022 and December 31, 2021.

Certain investments held by BancShares were recorded in other assets.

BancShares held FHLB stock of $ 39 million and $ 40 million at March 31, 2022 and December 31, 2021, respectively;

these securities are recorded at cost.

BancShares held $ 67 million and $ 10 million of non-marketable securities without readily determinable fair values measured under the measurement exception at March 31, 2022 and December 31, 2021, respectively.

All investments held in qualified affordable housing projects qualify for the proportional amortization method and totaled $ 533 million and $ 156 million at March 31, 2022 and December 31, 2021, respectively.

NOTE 4 — LOANS AND LEASES

The following tables as of March 31, 2022 include loan and lease balances acquired in the CIT Merger, which were recorded at fair value on the Merger Date.

Refer to Note 2 — Business Combinations for further information.

Refer to Note 1 — Accounting Policies and Basis of Presentation for updates to our accounting policies related to loans.

Unless otherwise noted, loans held for sale are not included in the following tables.

Leases in the following tables include finance leases, but exclude operating lease equipment.

Loans by Class

dollars in millions March 31, 2022 December 31, 2021

Commercial construction $ 2,633 $ 1,238

Owner occupied commercial mortgage 13,553 12,099

Non-owner occupied commercial mortgage 9,293 3,041

Commercial and industrial and leases 5,266,266 5,013,644

SBA-PPP 1,086,917 2,406,291

Total commercial loans 22,229,345 22,558,060

Commercial and industrial 22,402 5,937

Leases 2,220 271

Total commercial 50,101 22,586

Residential mortgage 11,711 6,088

Revolving mortgage 1,840 1,818

Construction and land development 391,768 348,123

Consumer auto 1,320 1,332

Consumer other 552 548

Total consumer loans 9,913,589 9,771,033

PCD loans 373,255 462,882

Total consumer 15,423 9,786

Total loans and leases $ 65,524 $ 32,372

At September 30, 2021 and December 31, 2020, accrued interest receivable on loans was $ 88.1 million and $ 107.7 million, respectively, and was excluded from the estimate of credit losses.

Certain residential real estate loans are originated to be sold to investors.

BancShares has elected the fair value option on these loans, which are recorded in loans held for sale.

In addition, BancShares may change its strategy for certain portfolio loans and decide to sell them in the secondary market.

At that time, portfolio loans are transferred to loans held for sale at the lower of cost or market value.

Loans held for sale totaled $ 98.5 million and $ 124.8 million at September 30, 2021 and December 31, 2020, respectively.

At March 31, 2022 and December 31, 2021, accrued interest receivable on loans included in other assets was $ 135 million and $ 87 million, respectively, and was excluded from the estimate of credit losses.

The following table presents selected components of the amortized cost of loans.

(Dollars in thousands) September 30, 2021 December 31, 2020

Components of Amortized Cost

dollars in millions March 31, 2022 December 31, 2021

Deferred fees, including unearned fees and unamortized costs on non-PCD loans $ 38 $ 32

Net deferred fees related to SBA-PPP loans $ 39,372 $ 41,064

Net deferred fees related to other portfolios 15,162 9,153

Total net deferred fees $ 54,534 $ 50,217

Net unamortized discount on purchased loans

Non-PCD $ 75 $ 11

PCD 32,623 45,254

Total $ 45,973 $ 64,727

The aging of the outstanding loans and leases, by class, at September 30, 2021 and December 31, 2020 is provided in the tables below.

Loans and leases past due less than 30 days 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.

September 30, 2021

(Dollars in thousands) 30-59 days

Total net unamortized discount $ 142 $ 40

The aging of the outstanding loans and leases, by class, at March 31, 2022 and December 31, 2021 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 respective agreement.

Loans and Leases - Delinquency Status

March 31, 2022

dollars in millions 30-59 days

past due 60-89 days

past due 90 days or greater Total past

due Current Total loans

Construction and land development $ 233 $ — $ 1,424 $ 1,657 $ 1,246,023 $ 1,247,680

past due 90 days or

greater Total

Past Due Current Total

Commercial construction $ 55 $ — $ 2 $ 57 $ 2,576 $ 2,633

Owner occupied commercial mortgage 22 16 13 51 13,502 13,553

Non-owner occupied commercial mortgage 20 — 60 80 9,213 9,293

Commercial and industrial and leases 10,309 3,234 9,690 23,233 5,243,033 5,266,266

SBA-PPP — — — — 1,086,917 1,086,917

Commercial and industrial 73 15 23 111 22,291 22,402

Leases 40 13 13 66 2,154 2,220

Total commercial loans 210 44 111 365 49,736 50,101

1 unchanged sentence

Revolving mortgage 6 2 9 17 1,823 1,840

Construction and land development 477 1,719 70 2,266 389,502 391,768

Consumer auto 6 1 1 8 1,312 1,320

1 unchanged sentence

Total consumer loans 77 17 70 164 15,259 15,423

PCD loans 11,407 5,200 27,111 43,718 329,537 373,255

Total loans and leases $ 287 $ 61 $ 181 $ 529 $ 64,995 $ 65,524

December 31, 2021

(Dollars in thousands) 30-59 days

dollars in millions 30-59 days

past due 60-89 days

past due 90 days or greater Total past

due Current Total loans

Construction and land development $ 956 $ 527 $ 1,603 $ 3,086 $ 982,338 $ 985,424

past due 90 days or

greater Total

Past Due Current Total

Commercial construction $ 1 $ — $ 2 $ 3 $ 1,235 $ 1,238

Owner occupied commercial mortgage 21 1 9 31 12,068 12,099

Non-owner occupied commercial mortgage 3 — 2 5 3,036 3,041

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

Commercial and industrial 8 3 5 16 5,921 5,937

Leases — 1 1 2 269 271

Total commercial loans 33 5 19 57 22,529 22,586

1 unchanged sentence

Revolving mortgage 6 2 6 14 1,804 1,818

Construction and land development 932 77 330 1,339 346,784 348,123

Consumer auto 6 1 1 8 1,324 1,332

1 unchanged sentence

Total consumer loans 38 11 31 80 9,706 9,786

PCD loans 18,322 6,076 31,026 55,424 407,458 462,882

Total loans and leases $ 71 $ 16 $ 50 $ 137 $ 32,235 $ 32,372

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 September 30, 2021 and December 31, 2020, were as follows:

September 30, 2021 December 31, 2020

(Dollars in thousands) Nonaccrual

leases Loans and

accruing Nonaccrual

leases Loans and

Construction and land development $ 1,457 $ — $ 1,661 $ —

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 March 31, 2022 and December 31, 2021 are presented below.

Loans on Non-Accrual Status (1) (2)

March 31, 2022 December 31, 2021

dollars in millions Non-Accrual Loans Loans >

Accruing Non-Accrual Loans Loans >

Commercial construction $ 21 $ — $ 4 $ —

Owner occupied commercial mortgage 30 6 18 5

Non-owner occupied commercial mortgage 122 — 5 —

Commercial and industrial and leases 20,689 1,414 10,626 540

Total commercial loans 52,645 2,015 43,322 4,312

Commercial and industrial 229 9 15 1

Leases 24 5 3 —

Total commercial 426 20 45 6

Residential mortgage 86 13 54 —

Revolving mortgage 22 — 18 —

Construction and land development 571 — 652 —

Consumer auto 3 — 3 —

Consumer other 1 1 1 1

Total consumer loans 66,092 1,812 93,222 1,195

PCD loans 45,038 1,787 54,939 355

Total consumer 112 14 76 1

Total loans and leases $ 538 $ 34 $ 121 $ 7

Credit Quality

(1) Accrued interest that was reversed when the loan went to non-accrual status was $ 1 million for the three months ended March 31, 2022.

(2) Non-accrual loans for which there was no related ACL totaled $ 35 million at March 31, 2022 and $ 15 million at December 31, 2021.

Other real estate owned (“OREO”) and repossessed assets were $ 43 million as of March 31, 2022 and $ 40 million as of December 31, 2021.

Credit quality indicators

Loans and leases are monitored for credit quality on a recurring basis.

Commercial and consumer 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 commercial loans and leases are borrower risk classifications developed through a review of individual borrowers on an ongoing basis.

Commercial loans are evaluated at least annually, with more frequent evaluations done on criticized loans.

Commercial loans are also updated if there is evidence of potential credit deterioration, such as delinquency.

Commercial credit cards are included in the Commercial and industrial and leases segment, but are evaluated based primarily upon delinquency status.

The risk classifications as of the date presented are based on the most recent assessment performed and are defined below:

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 that deserve management’s close attention.

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.

4 unchanged sentences

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 that 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 that 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 that are not included in the individual credit grading process due to their relatively small balances or borrower type.

The majority of ungraded loans at September 30, 2021 relate to business credit cards.

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 March 31, 2022 and December 31, 2021, 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.

The credit quality indicators for consumer and PCD loans are based on delinquency status of the borrower as of the date presented.

The credit quality indicator for consumer loans is 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 September 30, 2021.

September 30, 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

An exemption is applied to government guaranteed loans as the principal repayments are insured by the Federal Housing Administration (“FHA”) and U.S.

Department of Veterans Affairs and thus remain on accrual status regardless of delinquency status.

The following table summarizes the commercial loans disaggregated by year of origination and by risk rating.

The consumer loan delinquency status by year of origination is also presented below.

The tables reflect the amortized cost of the loans and include PCD loans.

Commercial Loans - Risk Classifications by Class

March 31, 2022

Risk Classification:

Term Loans by Origination Year Revolving Converted to Term Loans

dollars in millions 2022 2021 2020 2019 2018 2017 & Prior Revolving Total

Commercial construction

Pass $ 300 $ 775 $ 790 $ 439 $ 102 $ 85 $ 15 $ — $ 2,506

1 unchanged sentence

Substandard 1 1 — 30 2 5 — — 39

Total 373,331 452,121 256,647 100,468 48,476 12,406 4,231 — 1,247,680

Doubtful — — — 3 — — — — 3

Ungraded — — — — — — — — —

Total commercial construction 303 776 820 497 132 90 15 — 2,633

Owner occupied commercial mortgage

2 unchanged sentences

Substandard 2 26 37 37 74 124 4 — 304

Total 2,080,750 3,109,944 2,040,892 1,355,124 1,067,390 1,838,498 132,765 191 11,625,554

Doubtful — — — — — 1 — — 1

Ungraded — — — — — — — — —

Total owner occupied commercial mortgage 647 3,340 3,257 2,154 1,306 2,698 151 — 13,553

Non-owner occupied commercial mortgage

2 unchanged sentences

Substandard 2 16 26 324 60 166 1 — 595

Total 442,059 782,736 610,198 298,910 294,910 540,417 33,698 — 3,002,928

Commercial and industrial and leases

Doubtful — — — 5 — 12 — — 17

Ungraded — — — — — — — — —

Total non-owner occupied commercial mortgage 534 1,748 1,870 2,377 999 1,725 40 — 9,293

Commercial and industrial

Pass 3,525 5,292 2,865 2,244 1,277 1,389 4,100 50 20,742

3 unchanged sentences

Ungraded — — — — — — 84 — 84

Total 1,248,645 1,178,503 741,244 351,989 201,102 359,416 1,178,745 6,622 5,266,266

Total commercial and industrial 3,583 5,377 3,092 2,540 1,556 1,702 4,501 51 22,402

Pass 182 635 581 355 168 146 — — 2,067

Special Mention 2 15 15 13 8 3 — — 56

Substandard 3 28 22 21 12 4 — — 90

Doubtful — 3 1 1 1 1 — — 7

Ungraded — — — — — — — — —

Total leases 187 681 619 390 189 154 — — 2,220

Total commercial $ 5,254 $ 11,922 $ 9,658 $ 7,958 $ 4,182 $ 6,369 $ 4,707 $ 51 $ 50,101

Consumer and PCD Loans Amortized Cost Basis by Origination Year

Consumer Loans - Delinquency Status by Class

March 31, 2022

Days Past Due:

2021 2020 2019 2018 2017 Prior Revolving Revolving converted to term loans Total

(Dollars in thousands)

Term Loans by Origination Year Revolving Converted to Term Loans

dollars in millions 2022 2021 2020 2019 2018 2017 & Prior Revolving Total

Residential mortgage

3 unchanged sentences

90 days or greater — 1 1 4 4 49 — — 59

Total 1,592,476 1,654,367 696,566 415,787 396,391 925,580 20,179 — 5,701,346

Total residential mortgage 785 3,832 2,331 951 542 3,250 20 — 11,711

Revolving mortgage

3 unchanged sentences

90 days or greater — — — — — — 2 7 9

Total — — — — — — 1,706,165 128,525 1,834,690

Construction and land development

Current 165,993 175,007 26,889 10,258 5,745 3,016 2,594 — 389,502

30-59 days 33 416 — — — 28 — — 477

60-89 days — 1,650 — — 69 — — — 1,719

90 days or greater — 29 — — — 41 — — 70

Total 166,026 177,102 26,889 10,258 5,814 3,085 2,594 — 391,768

Total revolving mortgage — — — — — — 1,686 154 1,840

Consumer auto

3 unchanged sentences

90 days or greater — — 1 — — — — — 1

Total 505,766 386,788 231,137 141,124 60,240 25,322 — — 1,350,377

Total consumer auto 145 542 308 172 101 52 — — 1,320

Consumer other

3 unchanged sentences

90 days or greater — — — — — — 1 — 1

Total 117,196 33,800 16,346 5,457 5,011 29,884 427,714 — 635,408

Total consumer other 36 116 20 10 4 29 337 — 552

Total consumer $ 966 $ 4,490 $ 2,659 $ 1,133 $ 647 $ 3,331 $ 2,043 $ 154 $ 15,423

Current $ — $ 23,091 $ 23,792 $ 21,034 $ 20,864 $ 213,681 $ 10,622 $ 16,453 $ 329,537

30-59 days — 846 61 785 1,393 7,777 113 432 11,407

60-89 days — 98 149 48 — 4,699 29 177 5,200

90 days or greater — 806 230 3,698 1,070 20,319 16 972 27,111

Total PCD $ — $ 24,841 $ 24,232 $ 25,565 $ 23,327 $ 246,476 $ 10,780 $ 18,034 $ 373,255

Total loans and leases $ 7,537,619 $ 7,875,749 $ 4,644,151 $ 2,704,682 $ 2,102,661 $ 3,981,084 $ 3,516,871 $ 153,372 $ 32,516,189

The following tables represent current credit quality indicators by origination year as of December 31, 2021.

Commercial Loans - Risk Classifications by Class

December 31, 2021

Commercial Loans Amortized Cost Basis by Origination Year

Classification:

2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total

(Dollars in thousands)

Construction and land development

Risk Classification:

Term Loans by Origination Year Revolving Converted to Term Loans

dollars in millions 2021 2020 2019 2018 2017 2016 & Prior Revolving Total

Commercial construction

Pass $ 540 $ 400 $ 189 $ 29 $ 48 $ 11 $ 10 $ — $ 1,227

1 unchanged sentence

Substandard 2 — 1 2 4 1 — — 10

Total 342,658 341,862 198,300 56,118 23,977 11,387 11,122 — 985,424

Doubtful — — — — — — — — —

Ungraded — — — — — — — — —

Total commercial construction 542 400 190 31 52 13 10 — 1,238

Owner occupied commercial mortgage

2 unchanged sentences

Substandard 31 16 18 12 18 56 6 — 157

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

Doubtful — — — — — — — — —

Ungraded — — — — — — — — —

Total owner occupied commercial mortgage 3,079 3,073 1,928 1,228 994 1,661 136 — 12,099

Non-owner occupied commercial mortgage

2 unchanged sentences

Substandard 9 11 24 12 7 22 1 — 86

Total 868,982 629,426 401,226 342,372 302,018 410,223 33,442 — 2,987,689

Commercial and industrial and leases

Doubtful — — — — 1 — — — 1

Ungraded — — — — — — — — —

Total non-owner occupied commercial mortgage 654 748 602 278 277 444 38 — 3,041

Commercial and industrial

Pass 2,107 1,018 599 257 149 281 1,342 5 5,758

1 unchanged sentence

Substandard 20 7 3 4 2 2 16 1 55

Doubtful — — — — — — — — —

Ungraded — — — — — — 72 — 72

Total 1,641,579 1,005,012 516,098 320,118 240,590 295,709 987,846 6,692 5,013,644

Total commercial and industrial 2,136 1,032 622 263 155 288 1,435 6 5,937

Pass 93 68 38 42 17 8 — — 266

Special Mention — 1 — — — — — — 1

Substandard 2 1 — 1 — — — — 4

Doubtful — — — — — — — — —

Ungraded — — — — — — — — —

Total leases 95 70 38 43 17 8 — — 271

Total commercial $ 6,506 $ 5,323 $ 3,380 $ 1,843 $ 1,495 $ 2,414 $ 1,619 $ 6 $ 22,586

Consumer and PCD Loans Amortized Cost Basis by Origination Year

Consumer Loans - Delinquency Status by Class

December 31, 2021

Days Past Due:

2020 2019 2018 2017 2016 Prior Revolving Revolving converted to term loans Total

(Dollars in thousands)

Term Loans by Origination Year Revolving Converted to Term Loans

dollars in millions 2021 2020 2019 2018 2017 2016 & Prior Revolving Total

Residential mortgage

3 unchanged sentences

90 days or greater 1 1 1 2 1 17 — — 23

Total 1,885,273 987,802 671,657 605,545 476,855 909,361 25,193 — 5,561,686

Total residential mortgage 2,142 1,667 630 373 352 902 22 — 6,088

Revolving mortgage

3 unchanged sentences

90 days or greater — — — — — — 2 4 6

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

Total revolving mortgage — — — — — — 1,684 134 1,818

Consumer auto

3 unchanged sentences

90 days or greater — — — — — 1 — — 1

Total 524,393 343,683 221,383 105,530 50,627 9,786 — — 1,255,402

Total consumer auto 598 345 199 120 48 22 — — 1,332

Consumer other

3 unchanged sentences

90 days or greater — — — — — — 1 — 1

Total 54,319 27,335 11,009 7,195 2,994 29,366 420,750 — 552,968

Total consumer other 132 24 11 4 2 29 346 — 548

Total consumer $ 2,872 $ 2,036 $ 840 $ 497 $ 402 $ 953 $ 2,052 $ 134 $ 9,786

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

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 September 30, 2021 and December 31, 2020:

(Dollars in thousands) September 30, 2021 December 31, 2020

FHLB of Atlanta

Lendable collateral value of pledged non-PCD loans $ 9,171,610 $ 8,637,844

Advances 645,663 652,675

Available borrowing capacity $ 8,525,947 $ 7,985,169

Pledged non-PCD loans $ 12,646,208 $ 12,157,153

Lendable collateral value of pledged non-PCD loans $ 3,795,878 $ 3,321,762

Available borrowing capacity $ 3,795,878 $ 3,321,762

Pledged non-PCD loans $ 4,610,291 $ 4,104,866

NOTE E - ALLOWANCE FOR CREDIT LOSSES

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.

For the period ended September 30, 2021, the ACL change since December 31, 2020 was 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 forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 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.

Activity in the ACL by portfolio segment is summarized as follows:

Three months ended September 30, 2021

(Dollars in thousands) Commercial Consumer PCD Total

Allowance for credit losses:

Balance at July 1 $ 76,082 $ 94,272 $ 18,740 $ 189,094

Provision (credit) 975 ( 223 ) ( 1,872 ) ( 1,120 )

Charge-offs ( 5,967 ) ( 4,307 ) ( 799 ) ( 11,073 )

Recoveries 1,594 2,330 2,369 6,293

Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194

Three months ended September 30, 2020

(Dollars in thousands) Commercial Consumer PCD Total

Balance at July 1 $ 76,177 $ 119,345 $ 26,928 $ 222,450

Provision (credit) 4,793 1,874 ( 2,625 ) 4,042

Charge-offs ( 3,328 ) ( 5,109 ) ( 495 ) ( 8,932 )

Recoveries 2,338 2,719 1,319 6,376

Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936

Nine months ended September 30, 2021

(Dollars in thousands) Commercial Consumer PCD Total

Balance at January 1 $ 80,842 $ 119,485 $ 23,987 $ 224,314

Provision (credit) 332 ( 23,208 ) ( 8,821 ) ( 31,697 )

Charge-offs ( 12,342 ) ( 12,804 ) ( 2,018 ) ( 27,164 )

Recoveries 3,852 8,599 5,290 17,741

Balance at September 30 $ 72,684 $ 92,072 $ 18,438 $ 183,194

Nine months ended September 30, 2020

(Dollars in thousands) Commercial Consumer PCD Total

Balance at December 31 $ 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 (credit) 32,854 25,066 ( 4,971 ) 52,949

Initial allowance on PCD loans — — 1,193 1,193

Charge-offs ( 12,712 ) ( 19,535 ) ( 3,010 ) ( 35,257 )

Recoveries 5,023 7,433 5,378 17,834

Balance at September 30 $ 79,980 $ 118,829 $ 25,127 $ 223,936

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:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

Allowance for credit losses:

Beginning balance $ 11,103 $ 13,685 $ 12,814 $ 1,055

Adoption of ASC 326 — — — 8,885

Adjusted beginning balance $ 11,103 $ 13,685 $ 12,814 $ 9,940

Provision (credit) 369 286 ( 1,342 ) 4,031

Ending balance 11,472 13,971 11,472 13,971

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 September 30, 2021 and December 31, 2020 were as follows:

September 30, 2021

(Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses

Construction and land development $ 1,424 $ 1,964 137.9 % $ —

Purchased loans and leases

The following table summarizes PCD loans and leases that BancShares acquired in the CIT Merger.

PCD Loans and Leases - CIT Merger

dollars in millions Total PCD from CIT Merger

Initial PCD ACL ( 284 )

Fair value discount, net of the PCD Gross-Up ( 45 )

Purchase price $ 3,233

The recorded fair values of Non-PCD loans acquired in the CIT Merger as of the acquisition date was $ 29.5 billion, resulting in a PAA discount of $ 61 million.

Troubled Debt Restructuring

As part of BancShares’ ongoing risk-management practices, BancShares attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay.

Extensions and modifications are made in accordance with internal policies and guidelines to conform to regulatory guidance.

BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”).

In general, a 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.

BancShares may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if is probable that a borrower may default in the foreseeable future.

Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions.

The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR.

In accordance with regulatory guidance discussed below, certain loan modifications that might ordinarily have qualified as TDRs were not accounted for as TDRs.

The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the “Interagency Statement”) was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and Interagency Statement offer some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs.

Any loan modification that meets these practical expedients would not automatically be considered a TDR because the borrower is presumed not to be experiencing financial difficulty at the time of the loan modification.

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.

Modified loans that meet the definition of a TDR are subject to BancShares’ individually reviewed loans policy.

The following table presents amortized cost of TDRs.

March 31, 2022

dollars in millions Accruing Non-Accruing Total

Commercial construction $ 2 $ 1 $ 3

Owner occupied commercial mortgage 54 9 63

Non-owner occupied commercial mortgage 24 4 28

Commercial and industrial and leases 4,787 6,530 136.4 230

Total commercial loans 21,826 28,168 129.1 1,433

Commercial and industrial 23 13 36

Total commercial 103 28 131

Residential mortgage 28 18 46

Revolving mortgage 17 6 23

Total consumer loans 11,423 14,625 128.0 —

PCD loans 18,154 32,788 180.6 —

Total collateral-dependent loans $ 51,403 $ 75,581 147.0 % $ 1,433

Consumer auto 2 — 2

Consumer other 1 — 1

Total consumer 48 24 72

Total TDRs $ 151 $ 52 $ 203

December 31, 2021

(Dollars in thousands) Collateral-Dependent Loans Net Realizable Value of Collateral Collateral Coverage Allowance for Credit Losses

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 —

Residential mortgage 23,011 29,775 129.4 131

PCD loans 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 $ 45.5 million and $ 57.5 million as of September 30, 2021 and December 31, 2020, respectively.

All other nonaccrual loans have a recorded allowance.

Troubled Debt Restructurings

BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“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 financial difficulty due to 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 did not record these as TDRs.

The following tables provides a summary of total TDRs by accrual status:

September 30, 2021 December 31, 2020

(Dollars in thousands) Accruing Nonaccruing Total Accruing Nonaccruing Total

Construction and land development $ 346 $ 33 $ 379 $ 578 $ 54 $ 632

dollars in millions Accruing Non-Accruing Total

Commercial construction $ 2 $ — $ 2

Owner occupied commercial mortgage 57 8 65

Non-owner occupied commercial mortgage 26 3 29

Commercial and industrial and leases 12,506 11,295 23,801 29,131 3,528 32,659

Total commercial loans 79,129 25,752 104,881 85,619 16,120 101,739

Commercial and industrial 12 9 21

Total commercial 97 21 118

Residential mortgage 29 18 47

Revolving mortgage 17 7 24

Construction and land development 2,380 282 2,662 1,573 9 1,582

Consumer auto 2 — 2

Consumer other 1 — 1

Total consumer loans 43,681 22,841 66,522 54,128 27,350 81,478

PCD loans 29,207 12,365 41,572 17,617 7,346 24,963

Total loans $ 152,017 $ 60,958 $ 212,975 $ 157,364 $ 50,816 $ 208,180

The following table provides the types of modifications designated as TDRs during the three and nine months ended September 30, 2021 and 2020.

Three months ended September 30, 2021 Three months ended September 30, 2020

All restructurings All restructurings

(Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end

Loans and leases

Interest only 7 $ 9,639 6 $ 5,703

Loan term extension 41 6,371 29 2,380

Below market interest rate 47 3,126 55 15,341

Discharged from bankruptcy 21 2,783 55 1,654

Total restructurings 116 $ 21,919 145 $ 25,078

Nine months ended September 30, 2021 Nine months ended September 30, 2020

All restructurings All restructurings

(Dollars in thousands) Number of Loans Recorded investment at period end Number of Loans Recorded investment at period end

Total consumer 49 25 74

Total TDRs $ 146 $ 46 $ 192

The following table summarizes the loan restructurings during the quarters ended March 31, 2022 and 2021 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.

Restructurings

Three months ended March 31,

dollars in millions (except for number of loans) Number of loans Amortized cost at period end Number of loans Amortized cost at period end

Loans and leases

1 unchanged sentence

Loan term extension 35 20 25 4

Below market interest rate 148 21,004 212 38,740

Discharged from bankruptcy 110 12,478 165 7,025

Total restructurings 387 $ 67,710 462 $ 76,497

For the nine months ended September 30, 2021 and 2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.

NOTE F - OTHER REAL ESTATE OWNED

The following table explains changes in other real estate owned (“OREO”) during the nine months ended September 30, 2021 and 2020:

(Dollars in thousands) OREO

Below market rates 20 2 53 8

Discharge from bankruptcy 24 2 45 4

Total 81 $ 24 129 $ 23

There were $ 1 million and $ 0.4 million of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs as of March 31, 2022 and December 31, 2021, respectively.

After a loan is determined to be a TDR, BancShares continues to track its performance under its most recent restructured terms.

TDRs that subsequently defaulted during the three months ended March 31, 2022 and 2021, and were classified as TDRs during the applicable 12-month period preceding March 31, 2022 and 2021 were as follows:

Three months ended March 31,

dollars in millions 2022 2021

TDR Defaults $ 2 $ 3

Loans Pledged

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 March 31, 2022 and December 31, 2021:

Loans Pledged

dollars in millions March 31, 2022 December 31, 2021

FHLB of Atlanta

Lendable collateral value of pledged non-PCD loans $ 13,782 $ 9,564

Advances 639 645

Available borrowing capacity $ 13,143 $ 8,919

Pledged non-PCD loans (contractual balance) $ 19,889 $ 14,507

Lendable collateral value of pledged non-PCD loans $ 4,242 $ 3,951

Available borrowing capacity $ 4,242 $ 3,951

Pledged non-PCD loans (contractual balance) $ 4,982 $ 4,806

NOTE 5 — ALLOWANCE FOR CREDIT LOSSES

The ACL for loans and leases is reported in the allowance for credit losses on the Consolidated Balance Sheets, while the ACL for unfunded commitments is reported in other liabilities.

The provision or benefit for credit losses related to both (i) loans and leases and (ii) unfunded commitments is reported in the Consolidated Statements of Income as provision or benefit for credit losses.

Forecasted economic conditions are developed using third party macroeconomic scenarios and may be adjusted based on management’s expectations over the lives of the portfolios.

Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product (“GDP”), home price index, commercial real estate index, corporate profits, and credit spreads.

Due to completion of the CIT Merger, BancShares changed certain aspects of its methodology used to determine the ACL during the period ending March 31, 2022.

BancShares made these changes to integrate the ACL methodologies of CIT and BancShares.

The most significant changes in the ACL methodology utilized to determine the ACL at March 31, 2022 compared to that utilized to determine the ACL at December 31, 2021 include the following:

(i) utilized economic scenario forecasts over the lives of the loan portfolios instead of using a two year reasonable and supportable period with a one year reversion period followed by a historical long run average economic forecast for the remainder of the portfolio life;

and (ii) implemented scenario weighting of a range of economic scenarios, including baseline, upside, and downside scenarios instead of utilizing just the consensus baseline scenario as the basis of the quantitative ACL estimate.

The results of these changes increased the ACL for total commercial loans by approximately $ 13.5 million and decreased the ACL for total consumer loans by approximately $ 18.7 million at March 31, 2022.

The initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”) was $ 284 million.

The Initial PCD ACL was established through the PCD Gross-Up and there was no corresponding increase to the provision for credit losses.

The PCD Gross-Up is discussed further in Note 2 — Business Combinations.

The initial ACL for Non-PCD loans and leases acquired in the CIT Merger was established through a corresponding increase of $ 454 million to the provision for credit losses (the “Initial Non-PCD Provision”).

For the period ended March 31, 2022, the ACL increase since December 31, 2021 was primarily driven by the Initial PCD ACL and Initial Non-PCD ACL discussed above, partially offset by improvements in macroeconomic factors in the scenarios used to determine the ACL.

The scenarios showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2021 ACL and estimate the Initial PCD ACL and Initial Non-PCD Provision at the Merger Date.

These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs.

The activity for the ACL for loans and leases and the ACL for unfunded commitments is summarized in the following tables.

ACL for Loans and Leases

dollars in millions Commercial Consumer Total

Balance at December 31, 2021 $ 80 $ 98 $ 178

Additions 16,454

Sales ( 24,311 )

Write-downs/losses ( 2,384 )

Balance at September 30, 2021 $ 40,649

Initial PCD ACL (1)

Balance at Initial Non-PCD Provision 432 22 454

Benefit for credit losses - loans and leases

( 23 ) ( 30 ) ( 53 )

Balance at Total provision (benefit) for credit losses- loans and leases 409 ( 8 ) 401

Charge-offs (1)

( 28 ) ( 5 ) ( 33 )

Balance at Recoveries 12 6 18

Balance at Other — — —

Balance at March 31, 2022 $ 743 $ 105 $ 848

Balance at December 31, 2020 $ 92 $ 133 $ 225

Additions 18,428

Acquired in business combinations 9,813

Sales ( 18,645 )

Write-downs/losses ( 3,398 )

Balance at September 30, 2020 $ 52,789

At September 30, 2021 and December 31, 2020, BancShares had $ 3.0 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 $ 19.6 million and $ 29.4 million at September 30, 2021 and December 31, 2020, respectively.

Net gains recorded on the sale of OREO properties were $ 5.2 million for the nine months ended September 30, 2021.

Net gains recorded on the sale of OREO properties were $ 1.0 million for the nine months ended September 30, 2020 .

NOTE G - MORTGAGE SERVICING RIGHTS

Benefit for credit losses - loans and leases ( 3 ) ( 8 ) ( 11 )

Charge-offs ( 4 ) ( 5 ) ( 9 )

Recoveries 2 4 6

Balance at March 31, 2021 $ 87 $ 124 $ 211

(1) The Initial PCD ACL related to the CIT Merger was $ 284 million, net of an additional $ 243 million for loans that CIT charged-off prior to the Merger Date (whether full or partial) which met BancShares’ charge-off policy at the Merger Date.

ACL for Unfunded Commitments

Three months ended March 31,

dollars in millions 2022 2021

Beginning balance $ 12 $ 13

Provision (benefit) for credit losses - unfunded commitments 63 ( 1 )

Ending balance $ 75 $ 12

For the period ended March 31, 2022, the increase in the ACL for unfunded commitments compared to March 31, 2021 primarily reflected the additional commitments acquired in the CIT Merger.

NOTE 6 — LEASES

BancShares leases primarily include administrative offices and bank locations.

Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements.

Our lessee finance leases are not significant.

Our real estate leases have remaining lease terms of up to 17 years.

Our lease terms may include options to extend or terminate the lease.

The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.

The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.

Supplemental Lease Information

dollars in millions Classification March 31, 2022 December 31, 2021

Operating leases Other assets $ 384 $ 64

Finance leases Premises and equipment 4 4

Total ROU assets $ 388 $ 68

Lease liabilities:

Operating leases Other liabilities $ 385 $ 65

Finance leases Other borrowings 4 4

Total lease liabilities $ 389 $ 69

Weighted-average remaining lease terms

Operating leases 9.9 Years 8.9 Years

Finance leases 3.4 Years 3.5 Years

Weighted-average discount rate

Operating leases 2.07 % 3.00 %

Finance leases 3.11 % 3.12 %

The following table presents components of operating lease expense, which are included in operating expenses:

Components of Operating Lease Expense

Three months ended March 31,

dollars in millions Classification 2022 2021

Operating lease cost (1)

Occupancy Expense $ 16 $ 4

Finance lease cost

Amortization of leased assets Equipment expense 1 1

Interest on lease liabilities Interest expense - Other borrowings — —

Variable lease cost Occupancy Expense 3 1

Sublease income Occupancy Expense ( 1 ) —

Net lease cost $ 19 $ 6

(1) Includes short-term lease cost, which is not significant.

Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises 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.

Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 14 years.

The following table presents supplemental cash flow information related to leases:

Supplemental Cash Flow Information

Three months ended March 31,

dollars in millions 2022 2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 14 $ 3

Operating cash flows from finance leases — —

Financing cash flows from finance leases — —

ROU assets obtained in exchange for new lease liabilities 8 3

The following table presents lease liability maturities in the next five years and thereafter at March 31, 2022:

Maturity of Lease Liabilities

dollars in millions

Twelve months ended March 31, Operating Leases Finance Leases Total

2023 $ 52 $ 2 $ 54

Thereafter 189 — 189

Total undiscounted lease payments $ 428 $ 4 $ 432

Difference between undiscounted cash flows and discounted cash flows 43 — 43

Lease liabilities, at present value $ 385 $ 4 $ 389

BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements.

The majority of operating lease equipment is long-lived rail equipment which is typically leased several times over its life.

We also lease technology and office equipment and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.

Our Rail operating leases typically do not include purchase options.

Many of our finance leases, and other equipment operating leases, offer the lessee the option to purchase the equipment at fair market value or for a nominal fixed purchase option;

and many of the leases that do not have a nominal purchase option include renewal provisions resulting in some leases continuing beyond the initial contractual term.

Our leases typically do not include early termination options;

and continued rent payments are due if leased equipment is not returned at the end of the lease.

The following table provides the net book value of operating lease equipment (net of accumulated depreciation of $ 67 million at March 31, 2022 by equipment type.

Operating Lease Equipment

dollars in millions March 31, 2022

Railcars and locomotives $ 7,251

Other equipment 721

(1) Includes off-lease rail equipment of $ 504 million at March 31, 2022.

The following table presents the components of the finance lease net investment on a discounted basis:

Components of Net Investment in Finance Leases

dollars in millions March 31, 2022 December 31, 2021

Lease receivables $ 1,882 $ 246

Unguaranteed residual assets 283 25

Total net investment in finance leases 2,165 271

Leveraged lease net investment (1)

Total $ 2,220 $ 271

(1) Leveraged leases are reported net of non-recourse debt of $ 24 million at March 31, 2022.

Our leveraged lease arrangements commenced before the Accounting Standards Codification (“ASC”) 842 effective date and continue to be reported under the leveraged lease accounting model.

ASC 842 eliminated leveraged lease accounting for new leases and for existing leases modified on or after the standard’s effective date.

The table that follows presents lease income related to BancShares’ operating and finance leases:

Three months ended March 31,

dollars in millions 2022 2021

Lease income – Operating leases $ 195 $ —

Variable lease income – Operating leases (1)

Rental income on operating leases 208 —

Interest income - Sales type and direct financing leases 42 5

Variable lease income included in Other noninterest income (2)

Leveraged lease income 5 —

Total lease income $ 266 $ 5

(1) Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.

(2) Includes leased equipment property tax reimbursements due from customers of $ 3.2 million for the three months ended March 31, 2022 and an insignificant amount for the three months ended March 31, 2021.

Also includes revenue related to insurance coverage on leased equipment of $ 7.5 million for the three months ended March 31, 2022.

There was no revenue related to insurance coverage on leased equipment for the three months ended March 31, 2021.

The following tables present lease payments due on non-cancellable operating leases and lease receivables due on finance leases at March 31, 2022.

Excluded from these tables are variable lease payments, including rentals calculated based on asset usage levels, rentals from future renewal and re-leasing activity, and expected sales proceeds from remarketing equipment at lease expiration, all of which are components of lease profitability.

Maturity Analysis of Operating Lease Payments

dollars in millions

Twelve months ended March 31,

Thereafter 262

Total $ 2,014

Maturity Analysis of Lease Receivable Payments - Sales Type and Direct Financing Leases

dollars in millions

Twelve months ended March 31,

Thereafter 12

Total undiscounted lease receivables $ 2,099

Difference between undiscounted cash flows and discounted cash flows 217

Lease receivables, at present value $ 1,882

NOTE 7 – GOODWILL AND OTHER INTANGIBLES

BancShares applied the acquisition method of accounting for the CIT Merger.

The fair value of the net assets acquired exceeded the purchase price.

Consequently, there was a gain on acquisition (and no goodwill) related to the CIT Merger as discussed further in Note 2 — Business Combinations.

BancShares had goodwill of $ 346 million at March 31, 2022 and December 31, 2021.

The entire amount of goodwill relates to business combinations that BancShares completed prior to the CIT Merger.

All of the goodwill relates to the General Banking segment.

There was no goodwill impairment during the first quarter of 2022.

Other Intangible Assets

Core Deposit Intangibles

Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired.

Core deposit intangibles are being amortized over their estimated useful life.

The following tables summarize the activity for core deposit intangibles during the quarter ending March 31, 2022.

Core Deposit Intangibles

dollars in millions 2022

Balance, net of accumulated amortization at January 1 $ 19

Core deposit intangibles related to the CIT Merger 143

Amortization for the period ( 6 )

Balance at March 31, net of accumulated amortization $ 156

Core Deposit Intangible Accumulated Amortization

dollars in millions March 31, 2022 December 31, 2021

Gross balance $ 271 $ 128

Accumulated amortization ( 115 ) ( 109 )

Balance, net of accumulated amortization $ 156 $ 19

The following table summarizes the expected amortization expense in subsequent periods for core deposit intangibles.

Core Deposit Intangible Expected Amortization

dollars in millions

Twelve months ended March 31,

Thereafter 69

Intangible Liability

An intangible liability of $ 52 million was recorded in other liabilities for net below market lessor lease contract rental rates related to the rail portfolio as a result of the CIT Merger.

This lease intangible is being accreted on a straight-line over the lease term, thereby increasing rental income (a component of noninterest income) over the remaining lives of the lease agreements.

The following tables summarize the activity for the intangible liability during the quarter ending March 31, 2022.

Intangible Liability

dollars in millions 2022

Balance at January 1 $ —

Acquired in CIT Merger 52

Amortization ( 4 )

Balance at March 31, net of accumulated amortization $ 48

Intangible Liability Accumulated Amortization

dollars in millions March 31, 2022

Gross balance $ 52

Accumulated amortization ( 4 )

Balance, net of accumulated amortization $ 48

The following table summarizes the expected accretion in subsequent periods for the intangible liability.

Intangible Liability

dollars in millions

Twelve months ended March 31,

Thereafter 11

NOTE 8 – MORTGAGE SERVICING RIGHTS

BancShares originates certain residential mortgages loans to sell in the secondary market.

BancShares’ portfolio of residential mortgage loans serviced for third parties was $ 3.3 billion as of September 30, 2021 and December 31, 2020.

These loans are originated and sold to third parties on a non-recourse basis with servicing rights retained.

The retained servicing rights are recorded as a servicing asset and are reported in other intangible assets.

The associated amortization expense and any valuation allowance recognized are included as a reduction of mortgage income.

Mortgage servicing rights are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned were $ 2.1 million for each of the three month periods ended September 30, 2021 and 2020, and are reported in mortgage income.

For the nine months ended September 30, 2021 and 2020, mortgage servicing fees, late fees and ancillary fees earned were each $ 6.4 million.

The following table presents changes in the servicing asset during the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

BancShares’ portfolio of residential mortgage loans serviced for third parties was approximately $ 3.4 billion as of March 31, 2022 and December 31, 2021.

For certain loans, the originated loans are sold to third parties on a non-recourse basis with servicing rights retained.

The retained servicing rights are recorded as a servicing asset and are reported in other assets.

The associated amortization expense and any changes in the valuation allowance recognized were included as a reduction of mortgage income.

Mortgage servicing rights (“MSRs”) are initially recorded at fair value and then carried at the lower of amortized cost or fair value.

Contractually specified mortgage servicing fees, late fees and ancillary fees earned are reported in mortgage income and were $ 2 million for the three month periods ending March 31, 2022 and 2021.

The following table presents changes in the servicing asset during the three months ended March 31, 2022 and 2021:

Servicing Asset

Three months ended March 31,

dollars in millions 2022 2021

Beginning balance $ 23 $ 18

Servicing rights originated 2 4

Servicing rights obtained in CIT Merger 3 —

Amortization ( 1 ) ( 2 )

Valuation allowance (increase) decrease — ( 305 ) 1,339 ( 4,341 )

Valuation allowance decrease 1 3

Ending balance $ 28 $ 23

The following table presents the activity in the servicing asset valuation allowance for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

The following table presents the activity in the servicing asset valuation allowance:

Servicing Asset Valuation Allowance

Three months ended March 31,

dollars in millions 2022 2021

Beginning balance $ 1 $ 4

Valuation allowance increase (decrease) — 305 ( 1,339 ) 4,341

Valuation allowance decrease ( 1 ) ( 3 )

Ending balance $ — $ 1

Mortgage servicing rights valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings.

Key economic assumptions used to value mortgage servicing rights were as follows:

September 30, 2021 December 31, 2020

MSRs valuations are performed using a pooling methodology where loans with similar risk characteristics are grouped together and evaluated using discounted cash flows to estimate the present value of future earnings.

Key economic assumptions used to value MSRs were as follows:

MSRs Valuation Assumptions

March 31, 2022 December 31, 2021

Discount rate - conventional fixed loans 9.30 % 8.51 %

2 unchanged sentences

Weighted average cost to service a loan $ 90.57 $ 87.58

The fair value of mortgage servicing rights is sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs.

The fair value of MSRs are sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows by utilizing discount rates, prepayment rates, and other inputs.

The discount rate is based on the 10-year U.S.

Treasury rate plus a risk premium of 700 basis points for conventional fixed loans and 800 basis points for all other loans.

The prepayment rate is derived from the Public Securities Association Standard Prepayment model.

Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value and may result in the recognition of a valuation allowance.

The average cost to service a loan is based on the number of loans serviced and the total cost to service the loans.

NOTE H - 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 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 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 $ 685.9 million and $ 689.3 million at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, BancShares held $ 663.6 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, including $ 571.6 million collateralized by government agency securities and $ 92.0 million collateralized by commercial mortgage-backed securities.

At December 31, 2020, BancShares held securities sold under agreements to repurchase of $ 641.5 million, with overnight and continuous remaining contractual maturities, including $ 432.8 million collateralized by government agency securities and $ 208.7 million collateralized by commercial mortgage-backed securities.

NOTE I - FDIC SHARED-LOSS PAYABLE

For certain FDIC-assisted transactions, the related shared-loss agreement included a provision requiring a payment owed to the FDIC at the termination of the agreement.

As of September 30, 2021, these agreements have been satisfied following a $ 16.1 million payment made to the FDIC during the first quarter of 2021 related to the final active agreement.

The following table provides changes in the FDIC shared-loss payable since December 31, 2020:

(Dollars in thousands) Total

Balance at December 31, 2020 $ 15,601

Accretion 502

Payment made to the FDIC to settle shared-loss agreement ( 16,103 )

Balance at September 30, 2021 $ —

NOTE J - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

Accumulated other comprehensive (loss) income included the following as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

(Dollars in thousands) Accumulated

comprehensive

income (loss) Deferred

(benefit) Accumulated

comprehensive

income (loss),

net of tax Accumulated

comprehensive

income (loss) Deferred

(benefit) Accumulated

comprehensive

income (loss),

Unrealized gains on securities available for sale $ 25,986 $ 5,977 $ 20,009 $ 102,278 $ 23,524 $ 78,754

Unrealized gains on securities available for sale transferred to held to maturity 3,709 853 2,856 5,399 1,242 4,157

Defined benefit pension items ( 71,431 ) ( 16,429 ) ( 55,002 ) ( 91,751 ) ( 21,103 ) ( 70,648 )

Total $ ( 41,736 ) $ ( 9,599 ) $ ( 32,137 ) $ 15,926 $ 3,663 $ 12,263

The following table highlights changes in accumulated other comprehensive (loss) income by component for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30, 2021

(Dollars in thousands, net of tax) Unrealized gains (losses) on securities available for sale Unrealized gains on securities available for sale transferred to held to maturity Defined benefit pension items Total

Beginning balance $ 34,910 $ 3,187 $ ( 60,217 ) $ ( 22,120 )

Net unrealized losses arising during period ( 8,677 ) — — ( 8,677 )

Amounts reclassified from accumulated other comprehensive loss ( 6,224 ) ( 331 ) 5,215 ( 1,340 )

Net current period other comprehensive (loss) income ( 14,901 ) ( 331 ) 5,215 ( 10,017 )

Ending balance $ 20,009 $ 2,856 $ ( 55,002 ) $ ( 32,137 )

Three months ended September 30, 2020

Beginning balance $ 113,102 $ — $ ( 122,766 ) $ ( 9,664 )

Net unrealized gains arising during period 7,530 — — 7,530

Amounts reclassified from accumulated other comprehensive loss ( 16,497 ) — 4,875 ( 11,622 )

Net current period other comprehensive income ( 8,967 ) — 4,875 ( 4,092 )

Ending balance $ 104,135 $ — $ ( 117,891 ) $ ( 13,756 )

Nine months ended September 30, 2021

(Dollars in thousands, net of tax) Unrealized gains on securities available for sale Unrealized gains on securities available for sale transferred to held to maturity Defined benefit pension items Total

Beginning balance $ 78,754 $ 4,157 $ ( 70,648 ) $ 12,263

Net unrealized losses arising during period ( 33,243 ) — — ( 33,243 )

Amounts reclassified from accumulated other comprehensive income ( 25,502 ) ( 1,301 ) 15,646 ( 11,157 )

Net current period other comprehensive (loss) income ( 58,745 ) ( 1,301 ) 15,646 ( 44,400 )

Ending balance $ 20,009 $ 2,856 $ ( 55,002 ) $ ( 32,137 )

Nine months ended September 30, 2020

Beginning balance $ 5,792 $ — $ ( 132,515 ) $ ( 126,723 )

Net unrealized gains arising during period 140,671 — — 140,671

Amounts reclassified from accumulated other comprehensive loss ( 42,328 ) — 14,624 ( 27,704 )

Net current period other comprehensive income 98,343 — 14,624 112,967

Ending balance $ 104,135 $ — $ ( 117,891 ) $ ( 13,756 )

The following table presents the amounts reclassified from accumulated other comprehensive (loss) income and the line item affected in the statement where net income is presented for the three and nine months ended September 30, 2021 and 2020:

(Dollars in thousands) Three months ended September 30, 2021

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale $ 8,082 Realized gains on investment securities available for sale, net

( 1,858 ) Income taxes

Accretion of unrealized gains on securities available for sale transferred to held to maturity $ 430 Net interest income

( 99 ) Income taxes

Amortization of defined benefit pension actuarial losses ( 6,773 ) Other noninterest expense

1,558 Income taxes

Total reclassifications for the period $ 1,340

(Dollars in thousands) Three months ended September 30, 2020

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale $ 21,425 Realized gains on investment securities available for sale, net

( 4,928 ) Income taxes

Amortization of defined benefit pension actuarial losses ( 6,332 ) Other noninterest expense

1,457 Income taxes

Total reclassifications for the period $ 11,622

(Dollars in thousands) Nine months ended September 30, 2021

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale $ 33,119 Realized gains on investment securities available for sale, net

( 7,617 ) Income taxes

Amortization of unrealized losses on securities available for sale transferred to held to maturity $ 1,690 Net interest income

( 389 ) Income taxes

Amortization of defined benefit pension actuarial losses $ ( 20,320 ) Other noninterest expense

4,674 Income taxes

Total reclassifications for the period $ 11,157

(Dollars in thousands) Nine months ended September 30, 2020

Details about accumulated other comprehensive income (loss) Amounts reclassified from accumulated other comprehensive income (loss) Affected line item in the statement where net income is presented

Unrealized gains on securities available for sale $ 54,972 Realized gains on investment securities available for sale, net

( 12,644 ) Income taxes

Amortization of defined benefit pension actuarial losses ( 18,994 ) Other noninterest expense

4,370 Income taxes

Total reclassifications for the period $ 27,704

NOTE K - ESTIMATED FAIR VALUES

Fair value estimates are intended to represent 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.

Where there is no active market for a financial instrument, BancShares has made estimates using discounted cash flows or other valuation techniques.

Inputs used in these valuation techniques are subjective in nature, involve uncertainties and require significant judgment and therefore can only be derived within a range of precision.

Accordingly, the derived fair value estimates presented below are not necessarily indicative of the amounts BancShares would realize in a current market exchange.

ASC 820, Fair Value Measurements and Disclosures , indicates that 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 highest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest).

A brief description of each level follows:

• Level 1 values are based on quoted prices for identical instruments in active markets.

• Level 2 values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 values are derived from valuation techniques in which one or more significant inputs or assumptions are not observable in the market.

These unobservable inputs and assumptions reflect estimates that market participants would use in pricing the asset or liability.

Valuation techniques include the use of discounted cash flow models and similar techniques.

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.

Accuracy of the levels of the fair value hierarchy are validated and 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 and held to maturity .

The fair value of U.S.

Treasury, government agency and mortgage-backed securities, municipal securities, as well as a portion of corporate bonds, is 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 that use a variety of inputs, such as benchmark yields, reported trades, broker-dealer quotes, 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 which are unadjusted and are not directly observable.

These securities are considered Level 3.

Investment in marketable equity securities.

Equity securities are measured at fair value using observable closing prices and the market activity.

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.

Management elects the fair value option on certain residential real estate loans originated to be sold to investors.

The loans 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 classified as Level 2 inputs.

Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market.

Transfers occur when management intends to sell a pool of loans in the secondary market.

This typically occurs when a firm commitment to purchase from a counterparty exists.

The fair value of the transferred loans is based on the quoted prices and is considered a Level 1 input.

Net loans and leases.

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.

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 believes its investment in FHLB stock is ultimately recoverable at par.

The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.

Mortgage and other servicing rights.

Mortgage and other servicing rights are carried at the lower of amortized cost or market value and are, therefore, 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 that 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.

For non-time deposits, 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 with similar remaining maturities.

The inputs used in the fair value measurement for deposits are considered Level 2 inputs.

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 was determined based on payments to the FDIC in accordance with the shared-loss agreements.

Cash flows were 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 were 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 liabilities, the carrying value is a reasonable estimate of the fair value as of September 30, 2021 and December 31, 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, securities sold under customer repurchase agreements, and accrued interest payable are considered Level 2.

The table presents the carrying values and estimated fair values for financial instruments as of September 30, 2021 and December 31, 2020:

(Dollars in thousands) September 30, 2021 December 31, 2020

Carrying value Fair value Carrying value Fair value

Cash and due from banks $ 337,450 $ 337,450 $ 362,048 $ 362,048

Overnight investments 9,875,063 9,875,063 4,347,336 4,347,336

Investment in marketable equity securities 123,147 123,147 91,680 91,680

Investment securities available for sale 7,371,129 7,371,129 7,014,243 7,014,243

Investment securities held to maturity 3,381,078 3,353,078 2,816,982 2,838,499

Loans held for sale 98,451 98,451 124,837 124,837

Net loans and leases 32,332,995 32,349,172 32,567,661 33,298,166

Income earned not collected 132,911 132,911 145,694 145,694

Treasury rate plus 700 basis points (“bps”) for conventional fixed loans and 800 bps for all other loans.

The 700 and 800 bps 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.

NOTE 9 – OTHER ASSETS

The following table includes the components of other assets.

The increases from December 31, 2021 primarily reflect the other assets acquired in the CIT Merger.

dollars in millions March 31, 2022 December 31, 2021

Federal Home Loan Bank stock $ 39 $ 40

Mortgage and other servicing rights 22,263 22,624 19,628 20,283

Deposits with no stated maturity 47,492,194 47,492,194 40,542,596 40,542,596

Time deposits 2,573,568 2,573,131 2,889,013 2,905,577

Low-income housing tax credit and other equity method investments 702 156

Counterparty receivables 106 —

Fair value of derivative financial instruments 110 —

Right of use assets 384 64

Pension assets 297 289

Income taxes receivable 834 799

Other real estate owned 43 40

Mortgage servicing rights 28 23

Accrued interest receivable 247 134

Other 540 194

Total other assets $ 3,330 $ 1,739

NOTE 10 — DEPOSITS

The following table provides detail on deposit types.

The deposit balances as of March 31, 2022 reflect those acquired in the CIT Merger, as described in Note 2 — Business Combinations.

Deposit Types

dollars in millions March 31, 2022 December 31, 2021

Non-interest-bearing demand $ 25,898 $ 21,405

Checking with interest 16,702 12,694

Money market 26,249 10,590

Savings 13,506 4,236

Time 9,242 2,481

Total deposits $ 91,597 $ 51,406

At March 31, 2022, the scheduled maturities of time deposits were:

Deposit Maturities

dollars in millions

Twelve months ended March 31,

Thereafter 123

Total time deposits $ 9,242

Time deposits with a denomination of $250,000 or more were $ 1.6 billion and $ 593 million at March 31, 2022 and December 31, 2021, respectively.

As of December 31, 2021, FCB’s primary deposit markets were North Carolina and South Carolina, which represent approximately 50.8 % and 22.7 %, respectively, of total FCB deposits.

The CIT Merger added deposits that were primarily in California (which also includes its internet banking).

Deposits (based on branch location) as of March 31, 2022, in California, North Carolina and South Carolina represented approximately 41.2 %, 29.2 % and 13.1 %, respectively, of total deposits.

NOTE 11 — VARIABLE INTEREST ENTITIES

Variable Interest Entities

Described below are the results of BancShares’ assessment of its variable interests in order to determine its current status with regard to being the VIE PB.

Refer to Note 1 — Accounting Policies and Basis of Presentation for additional information on accounting for VIEs.

Consolidated VIEs

At March 31, 2022 and December 31, 2021, there were no consolidated VIEs.

Unconsolidated VIEs

Unconsolidated VIEs include limited partnership interests and joint ventures where BancShares’ involvement is limited to an investor interest and BancShares does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance or obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of its interests and any associated collateral declines to zero and assuming no recovery or offset from any economic hedges.

BancShares believes the possibility is remote under this hypothetical scenario;

accordingly, this disclosure is not an indication of expected loss.

Unconsolidated VIEs Carrying Value

dollars in millions March 31, 2022 December 31, 2021

Tax credit equity investments $ 539 $ 157

Equity investments 178 12

Total assets $ 717 $ 169

Commitments to tax credit investments (1)

Total liabilities $ 242 $ 43

Maximum loss exposure $ 717 $ 169

(1) Represents commitments to invest in affordable housing investments, and other investments qualifying for community reinvestment tax credits.

These commitments are payable on demand and are recorded in other liabilities.

NOTE 12 — BORROWINGS

Short-term Borrowings

Short-term borrowings are as follows:

dollars in millions March 31, 2022 December 31, 2021

Securities sold under customer repurchase agreements $ 616 $ 589

Federal Home Loan Bank borrowings 645,663 659,625 655,175 677,579

Subordinated debt 497,427 520,871 504,518 525,610

Other borrowings 76,139 76,643 88,470 89,263

FDIC shared-loss payable — — 15,601 15,843

Accrued interest payable 6,560 6,560 9,414 9,414

For assets and liabilities carried at fair value on a recurring basis, the following table provides fair value information as of September 30, 2021 and December 31, 2020:

Total short-term borrowings $ 616 $ 589

Securities Sold under Agreements to Repurchase

At March 31, 2022, BancShares held $ 616 million of securities sold under agreements to repurchase, with overnight contractual maturities, consisting of $ 538 million collateralized by government agency securities and $ 78 million collateralized by commercial mortgage-backed securities.

At December 31, 2021, BancShares held $ 589 million of securities sold under agreements to repurchase, with overnight and continuous remaining contractual maturities, made up of $ 508 million collateralized by government agency securities and $ 81 million collateralized by commercial mortgage-backed securities.

BancShares utilizes securities sold under agreements to repurchase to facilitate the needs for collateralization of commercial customers and secure wholesale funding needs.

The carrying value of investment securities pledged as collateral under repurchase agreements was $ 638 million and $ 619 million at March 31, 2022 and December 31, 2021, respectively.

Long-term Borrowings

Long-term borrowings at March 31, 2022 and December 31, 2021 include:

dollars in millions Maturity March 31, 2022 December 31, 2021

Parent Company:

Unsecured term loan at 1-month LIBOR plus 1.10 %

September 2022 $ 64 $ 68

Fair value measurements using:

(Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs

Assets measured at fair value

Subordinated:

Fixed-to-Floating subordinated notes at 3.375 %

March 2030 350 350

Junior subordinated debenture at 3-month LIBOR plus 2.25 %

June 2034 20 20

Junior subordinated debenture at 3-month LIBOR plus 1.75 %

June 2036 88 88

Subsidiaries:

Senior unsecured fixed to floating rate notes at 3.929 % (1)

June 2024 500 —

Senior unsecured fixed to floating rate notes at 2.969 % (1)

September 2025 315 —

Fixed senior unsecured notes at 6.00 % (1)

April 2036 51 —

Subordinated:

Junior subordinated debentures at 3-month LIBOR plus 2.80 %

March 2034 14 14

Junior subordinated debentures at 3-month LIBOR plus 2.85 %

April 2034 10 10

Fixed subordinated notes at 6.125 % (1)

March 2028 400 —

Fixed-to-Fixed subordinated notes at 4.125 % (1)

November 2029 100 —

Notes payable to FHLB of Atlanta with rates ranging from 0.75 % to 2.99 %

Maturities through March 2032 639 645

Other secured financings (1)

Maturities through January 2024 16 —

Capital lease obligations Maturities through August 2026 4 4

Unamortized issuance costs ( 2 ) ( 2 )

Unamortized purchase accounting adjustments (2)

Total long-term borrowings $ 2,676 $ 1,195

(1) Reflects the remaining outstanding debt securities assumed by the BancShares in connection with the CIT Merger.

On February 24, 2022, BancShares redeemed all of the outstanding (i) 5.00 % senior unsecured notes due 2022, (ii) 5.00 %, senior unsecured notes due 2023;

(iii) 4.750 % senior unsecured notes due 2024;

and (iv) 5.250 % senior unsecured notes due 2025 that it had assumed in the CIT Merger.

(2) At March 31, 2022 a nd December 31, 2021, unamortized purchase accounting adjustments were $ 78 million and $ 2 million, respectively, for subordinated debentures.

Long-term borrowings maturing in each of the five years subsequent to March 31, 2022 and thereafter include:

Long-term Borrowings Maturities

dollars in millions

Twelve months ended March 31,

Thereafter 1,552

Total long-term borrowings $ 2,676

Senior Unsecured Notes

Senior unsecured notes included the following as of March 31, 2022:

• Variable-rate senior unsecured notes totaled $ 64 million at 1-month LIBOR plus 1.10 %.

• Fixed-rate senior unsecured notes outstanding totaled $ 866 million and the weighted average coupon rate was 3.70 %.

These notes were assumed by FCB as part of the CIT Merger.

On February 24, 2022, FCB completed a redemption of approximately $ 2.9 billion of senior unsecured notes that were assumed in the CIT Merger, resulting in a gain of approximately $ 6 million.

Subordinated Unsecured Notes

Subordinated unsecured notes included the following as of March 31, 2022:

• $ 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.

• $ 400 million aggregate principal amount of 6.125 % fixed rate subordinated notes with a maturity date of March 9, 2028 and $ 100 million aggregate principal amount of 4.125 % fixed-to-fixed rate subordinated notes with a maturity date of November 13, 2029, which were assumed by BancShares as part of the CIT Merger.

• $ 132 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 million at March 31, 2022 and December 31, 2021, which mature in 2036, 2034, 2034 and 2034, respectively, and may be redeemed at par in whole or in part at any time.

BancShares has guaranteed all obligations of FCB/NC Capital Trust III, FCB/SC Capital Trust II, SCB Capital Trust I and Macon Capital Trust I.

Secured Borrowings

At March 31, 2022, BancShares had pledged $ 24.9 billion of consumer loans to several financing facilities.

Notes Payable to FHLB

As a member of the FHLB, FCB can access financing based on an evaluation of its creditworthiness, statement of financial position, size and eligibility of collateral.

Pledged assets related to these financings totaled $ 19.9 billion at March 31, 2022.

FCB may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that FCB is in compliance with the collateral maintenance requirement immediately following such disposition.

Other Secured Financings

Other secured (other than FHLB) financings were not significant and totaled $ 15 million at March 31, 2022.

Pledged assets related to these financings totaled $ 15 million.

These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.

At March 31, 2022, BancShares had other unused credit lines allowing contingent access to borrowings of up to $ 75 million on an unsecured basis.

Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional $ 4.2 billion on a secured basis.

There were no outstanding borrowings with the FRB Discount Window at March 31, 2022 and December 31, 2021.

NOTE 13 — DERIVATIVE FINANCIAL INSTRUMENTS

BancShares acquired various derivative financial instruments in the CIT Merger.

The following table presents notional amount and fair value of derivative financial instruments on a gross basis.

Notional Amount and Fair Value of Derivative Financial Instruments

March 31, 2022

dollars in millions Notional Amount Asset Fair Value Liability Fair Value

Derivatives not designated as hedging instruments (Non-qualifying hedges)

Interest rate contracts (1)(3)

$ 20,211 $ 106 $ ( 199 )

Foreign exchange contracts 181 4 ( 4 )

Other contracts (2)

Total derivatives not designated as hedging instruments 21,214 110 ( 204 )

Gross derivatives fair values presented in the Consolidated Balance Sheets $ 21,214 110 ( 204 )

Gross amounts offset in the Consolidated Balance Sheets — —

Net amount presented in the Consolidated Balance Sheet 110 ( 204 )

Amounts subject to master netting agreements (4)

Cash collateral pledged(received) subject to master netting agreements (5)

Total net derivative fair value $ 68 $ ( 189 )

(1) Fair value balances include accrued interest.

(2) Other derivative contracts not designated as hedging instruments include risk participation agreements.

(3) BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market”.

As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances.

Gross amounts of recognized assets and liabilities were lowered by $ 191 million and $ 60 million, respectively at March 31, 2022.

(4) BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA”) agreements that allow for net settlements of certain payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction.

BancShares believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.

(5) In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange of cash depending on change in the market valuation of the derivative contracts outstanding.

Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties.

Collateral pledged or received is included in other assets or other liabilities, respectively.

Non-Qualifying Hedges

The following table presents gains (losses) of non-qualifying hedges recognized on the Condensed Consolidated Statements of Income:

Gains (Losses) on Non-Qualifying Hedges

Three Months Ended March 31,

dollars in millions Amounts Recognized 2022 2021

Interest rate contracts Other noninterest income $ 4 $ —

Other contracts Other noninterest income — —

Total non-qualifying hedges - income statement impact $ 4 $ —

NOTE 14 — OTHER LIABILITIES

The following table presents the components of other liabilities.

The increases from December 31, 2021 primarily reflect the other liabilities assumed in the CIT Merger.

Other Liabilities

dollars in millions March 31, 2022 December 31, 2021

Accrued expenses and accounts payable $ 534 $ 5

Reserve for off-balance sheet credit exposure 75 12

Lease liabilities 385 65

Commitments to fund investments in tax credits 242 43

Fair value of derivative financial instruments 204 —

Accrued interest payable 24 8

Deferred taxes 160 33

Other 364 215

Total other liabilities $ 1,988 $ 381

NOTE 15 — FAIR VALUE

Fair Value Hierarchy

BancShares measures certain financial assets and liabilities at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels.

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes BancShares’ assets and liabilities measured at estimated fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value - Recurring Basis (dollars in millions)

March 31, 2022

dollars in millions Total Level 1 Level 2 Level 3

Investment securities available for sale

Treasury $ 1,931 $ — $ 1,931 $ —

Government agency 206 — 206 —

5 unchanged sentences

Loans held for sale 65 — 65 —

Derivative assets (1)

Interest rate contracts — non-qualifying hedges 106 — 105 1

Other derivative — non-qualifying hedges 4 — 4 —

Total derivative assets $ 110 $ — $ 109 $ 1

Derivative liabilities (1)

Interest rate contracts — non-qualifying hedges $ 199 $ — $ 199 $ —

Other derivative— non-qualifying hedges 5 — 4 1

Total derivative liabilities $ 204 $ — $ 203 $ 1

December 31, 2021

Fair value measurements using:

Fair value Level 1 inputs Level 2 inputs Level 3 inputs

Assets measured at fair value

dollars in millions Total Level 1 Level 2 Level 3

Investment securities available for sale

7 unchanged sentences

Loans held for sale 99 — 99 —

The following tables summarize activity for Level 3 assets carried at fair value on a recurring basis:

Corporate bonds

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

(1) Derivative fair values include accrued interest.

The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a recurring basis are as follows:

Investment securities available for sale .

The fair value of U.S.

Treasury, government agency, mortgage-backed securities, and a portion of the 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 classified as 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.

Derivative Assets and Liabilities.

Derivatives were valued using models that incorporate inputs depending on the type of derivative.

Other than the fair value of credit derivatives, which were estimated using Level 3 inputs, most derivative instruments were valued using Level 2 inputs based on observed pricing for similar assets and liabilities and model-based valuation techniques for which all significant assumptions are observable in the market.

See Note 13 — Derivative Financial Instruments for notional principal amounts and fair values.

The following tables summarize information about significant unobservable inputs related to BancShares’ categories of Level 3 financial assets and liabilities measured on a recurring basis.

Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis

dollars in millions

Financial Instrument Estimated

Fair Value Valuation

Technique(s) Significant

Inputs Range of

Inputs Weighted

March 31, 2022

Corporate bonds $ 186 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

Interest rate & other derivative — non-qualifying hedges $ 1 Internal valuation model Not material Not material Not material

December 31, 2021

Corporate bonds $ 207 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

The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3).

Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities - Recurring Basis

Three months ended March 31, 2022 Three months ended March 31, 2021

dollars in millions Corporate Bonds Other Derivative Assets — Non-Qualifying Other Derivative Liabilities — Non-Qualifying Corporate Bonds

Beginning balance $ 207 $ — $ — $ 317

Purchases — — 1 —

Unrealized net losses (gains) included in other comprehensive income 436 2,818 3,927 901

Amounts included in net income 2,504 ( 81 ) 2,687 ( 249 )

Included in earnings — 1 — —

Included in comprehensive income ( 7 ) — — 2

Transfers in — — — —

Sales / Calls ( 44,131 ) — ( 45,981 ) —

Transfers out ( 14 ) — — —

Maturity and settlements — — — ( 1 )

Ending balance $ 186 $ 1 $ 1 $ 318

During the three months ended September 30, 2021 and 2020, there were no transfers between levels.

During the nine months ended September 30, 2021 there were no transfers from Level 2 to Level 3, compared to $ 1.8 million for the same period of 2020.

The transfers were due to a lack of observable inputs and trade activity for those securities.

The following table presents quantitative information about Level 3 fair value measurements for fair value on a recurring basis at September 30, 2021:

(Dollars in thousands) September 30, 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 $ 308,135

Fair Value Option

BancShares has elected the fair value option for residential real estate loans originated to be sold.

This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective.

The changes in fair value were recorded as a component of mortgage income and included losses of $ 0.6 million and gains of $ 0.6 million for the three months ended September 30, 2021 and 2020, respectively.

The changes in fair value included a loss of $ 2.9 million and a gain of $ 4.2 million for nine months ended September 30, 2021 and 2020, respectively.

Interest earned on loans held for sale is recorded within interest income on loans and leases in the consolidated statements of income.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate originated for sale measured at fair value as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Dollars in thousands) Fair value Aggregate unpaid principal balance Difference

The following table summarizes the difference between the aggregate fair value and the UPB for residential real estate loans

originated for sale measured at fair value as of March 31, 2022 and December 31, 2021.

March 31, 2022

dollars in millions Fair Value Unpaid Principal Balance Difference

Originated loans held for sale $ 65 $ 65 $ —

December 31, 2021

Fair value Aggregate unpaid principal balance Difference

Fair Value Unpaid Principal Balance Difference

Originated loans held for sale $ 99 $ 96 $ 3

No originated loans held for sale were 90 or more days past due or on nonaccrual status as of September 30, 2021 or December 31, 2020.

BancShares may be required to measure certain financial assets at fair value on a nonrecurring basis.

These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting or write-downs of individual assets due to impairment.

The population of loans measured at fair value on a non-recurring basis is limited to collateral-dependent loans evaluated individually.

These collateral-dependent loans are deemed to be at fair value if there is an associated ACL or if a charge-off has been recorded in the previous 12 months.

A large majority of collateral for these loans is real property.

Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, generally between 5 % and 10 %, and immaterial adjustments for other external factors that may impact the marketability of the collateral.

The weighted average discount for estimated selling costs applied to real estate collateral was 8 %.

OREO acquired or written down within the previous 12 months is deemed to be at fair value.

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 September 30, 2021, the weighted average discount applied was 8 %.

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 ordered to ensure the reported values reflect the most current information.

For financial assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2021 and December 31, 2020:

September 30, 2021

Fair value measurements using:

(Dollars in thousands) Fair value Level 1 inputs Level 2 inputs Level 3 inputs

Collateral-dependent loans $ 12,185 $ — $ — $ 12,185

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 were recorded as a component of mortgage income and included a loss of $ 3 million and a loss of $ 3 million for the three months ended March 31, 2022 and 2021, respectively.

Interest earned on loans held for sale is recorded within interest income on loans and leases in the Consolidated Statements of Income.

No originated loans held for sale were 90 or more days past due or on non-accrual status as of March 31, 2022 or December 31, 2021.

Assets Measured at Estimated Fair Value on a Non-recurring Basis

Certain assets or liabilities are required to be measured at estimated fair value on a non-recurring basis subsequent to initial recognition.

Generally, these adjustments are the result of LOCOM or other impairment accounting.

The following table presents carrying value of assets measured at estimated fair value on a non-recurring basis for which gains and losses from a non-recurring fair value adjustment have been recorded in the periods.

The gains and losses reflect amounts recorded for the respective periods, regardless of whether the asset is still held at period end.

Assets Measured at Fair Value - Non-recurring Basis

Fair Value Measurements

dollars in millions Total Level 1 Level 2 Level 3 Total Gains

March 31, 2022

Assets held for sale - loans $ 2 $ — $ — $ 2 $ —

Loans - collateral dependent loans 109 — — 109 ( 8 )

Other real estate owned 39 — — 39 2

Mortgage servicing rights 1 — — 1 1

Total $ 151 $ — $ — $ 151 $ ( 5 )

December 31, 2021

Fair value measurements using:

Fair value Level 1 inputs Level 2 inputs Level 3 inputs

Collateral-dependent loans $ 11,779 $ — $ — $ 11,779

Other real estate owned $ 34 $ — $ — $ 34 $ ( 4 )

Loans - collateral dependent loans 3 — — 3 ( 2 )

Mortgage servicing rights 22 — — 22 3

No financial liabilities were carried at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020.

NOTE L - EMPLOYEE BENEFIT PLANS

BancShares sponsors noncontributory defined benefit pension plans for its qualifying employees.

Total $ 59 $ — $ — $ 59 $ ( 3 )

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 MSRs, 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.

The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a non-recurring basis are as follows:

Assets held for sale - loans.

Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market.

When available, 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.

The fair value of Level 2 assets was primarily estimated based on prices of recent trades of similar assets.

For other loans held for sale, the fair value of Level 3 assets was primarily measured under the income approach using the discounted cash flow model based on Level 3 inputs including discount rate or the price of committed trades.

Loans - collateral dependent loans.

The population of Level 3 loans measured at fair value on a non-recurring basis includes 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, and immaterial adjustments for other external factors that may impact the marketability of the collateral.

Other real estate owned.

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 March 31, 2022 and December 31, 2021, the weighted average discount applied was 8.13 % and 8.79 %, respectively.

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.

MSRs 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 MSRs 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.

Financial Instruments Fair Value

The table below presents the carrying values and estimated fair values for financial instruments.

The carrying values and estimated fair values of financial instruments exclude leases and certain other assets and liabilities, which were not required for disclosure.

Carrying Values and Fair Values of Financial Assets and Liabilities

March 31, 2022

Estimated Fair Value

dollars in millions Carrying

Value Level 1 Level 2 Level 3 Total

Financial Assets

Cash and due from banks $ 523 $ 523 $ — $ — $ 523

Interest earning deposits at banks 9,285 9,285 — — 9,285

Investment securities available for sale 9,295 — 9,109 186 9,295

Investment securities held to maturity 10,074 — 9,457 — 9,457

Investment in marketable equity securities 100 33 67 — 100

Loans held for sale 81 — 65 16 81

Net loans 62,489 — 1,574 59,757 61,331

Income earned not collected 247 — 247 — 247

Federal Home Loan Bank stock 39 — 39 — 39

Mortgage and other servicing rights 28 — — 35 35

Derivative assets 110 — 109 1 110

Financial Liabilities

Deposits 91,597 — 91,572 — 91,572

Securities sold under customer repurchase agreements 616 — 616 — 616

Long-term borrowings 2,672 — 2,606 15 2,621

Credit balances of factoring clients 1,150 — — 1,150 1,150

Accrued interest payable 24 — 24 — 24

Derivative liabilities 204 — 203 1 204

December 31, 2021

Estimated Fair Value

dollars in millions Carrying

Value Level 1 Level 2 Level 3 Total

Financial Assets

Cash and due from banks $ 338 $ 338 $ — $ — $ 338

Interest earning deposits at banks 9,115 9,115 — — 9,115

Investment securities available for sale 9,203 — 8,996 207 9,203

Investment securities held to maturity 3,809 — 3,759 — 3,759

Investment in marketable equity securities 98 34 64 — 98

Loans held for sale 99 — 99 — 99

Net loans 32,193 — — 31,890 31,890

Income earned not collected 134 — 134 — 134

Federal Home Loan Bank stock 40 — 40 — 40

Mortgage and other servicing rights 23 — — 23 23

Financial Liabilities

Deposits with no stated maturity 48,925 — 48,925 — 48,925

Time deposits 2,481 — 2,471 — 2,471

Securities sold under customer repurchase agreements 589 — 589 — 589

Long-term borrowings 1,195 — 1,222 — 1,222

Accrued interest payable 8 — 8 — 8

The methods and assumptions used to estimate the fair value of each class of financial instruments not discussed elsewhere are as follows:

The carrying value of net loans is net of the ACL.

Loans are generally valued by discounting expected cash flows using market inputs with adjustments based on cohort level assumptions for certain loan types as well as internally developed estimates at a business segment level.

Due to the significance of the unobservable market inputs and assumptions, as well as the absence of a liquid secondary market for most loans, these loans are classified as Level 3.

Certain loans are measured based on observable market prices sourced from external data providers and classified as Level 2.

Nonaccrual loans are written down and reported at their estimated recovery value which approximates their fair value and classified as Level 3.

Investment securities held to maturity.

BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, US Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the World Bank and FDIC guaranteed CDs with other financial institutions.

We primarily use prices obtained from pricing services to determine the fair value of securities, which are Level 2 inputs.

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 investment in FHLB stock is ultimately recoverable at par.

The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.

Mortgage and other servicing rights.

Mortgage and other servicing rights are initially recorded at 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 determined 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.

The estimated fair value of deposits with no stated maturity, such as demand deposit accounts, money market accounts, and savings accounts was the amount payable on demand at the reporting date.

The fair value of time deposits was estimated based on a discounted cash flow technique using Level 2 inputs appropriate to the contractual maturity.

Short-term borrowed funds.

Includes federal funds purchased, repurchase agreements and certain other short-term borrowings and payables.

The fair value approximates carrying value and are classified as Level 2.

Long-Term 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, senior and subordinated debentures, and other borrowings are considered Level 2 inputs.

The fair value of other secured borrowings was estimated based on unobservable inputs and are classified as Level 3.

Credit balances of factoring clients.

The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances, therefore, the fair value approximated carrying value, and the credit balances were classified as Level 3.

For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of March 31, 2022 and December 31, 2021.

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, and interest earning deposits at banks, are classified on the fair value hierarchy as Level 1.

Income earned not collected and accrued interest payable are classified as Level 2.

NOTE 16 — STOCKHOLDERS' EQUITY

A roll forward of common stock activity is presented in the following table.

Number of Shares of Common Stock

Class A Class B

Common stock - December 31, 2021 8,811,220 1,005,185

Common stock issuance - CIT Merger 6,140,010 —

Restricted stock units vested, net of shares held to cover taxes 45,095 —

Common stock - March 31, 2022 14,996,325 1,005,185

The Parent Company has Class A Common Stock and Class B Common Stock.

Class A common shares have one vote per share, while Class B common shares have 16 votes per share.

In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6 million shares of Class A Common Stock as further discussed in Note 2 — Business Combinations.

Restricted Stock Units

Refer to Note 21 — Employee Benefit Plans for discussion of the BancShares RSUs.

Non-Cumulative Perpetual Preferred Stock

On March 12, 2020, BancShares 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 (“BancShares Series A Preferred Stock”) (equivalent to $ 1,000 per share of the BancShares Series A Preferred Stock) for a total of $ 345 million.

CIT Preferred Stock was converted into New BancShares Preferred Stock on the Merger Date as further discussed in Note 2 — Business Combinations.

The following table summarizes BancShares’ non-cumulative perpetual preferred stock.

dollars in millions, except share and per share data

Preferred Stock Issuance Date Earliest Redemption Date Par Value Shares Authorized, Issued and Outstanding Liquidation Preference Per Share Total Liquidation Preference Dividend Dividend Payment Dates

Series A March 12, 2020 March 15, 2025 $ 0.01 345,000 $ 1,000 $ 345 5.375 % Quarterly in arrears, beginning June 15, 2020

Series B January 3, 2022 January 4, 2027 $ 0.01 325,000 1,000 325 5.8 %, converting to LIBOR + 3.972 % beginning June 15, 2022

Semi-annually during the fixed rate period, then quarterly in arrears, beginning June 15, 2022

Series C January 3, 2022 January 4, 2027 $ 0.01 8,000,000 25 200 5.625 % Quarterly in arrears, beginning March 15, 2022

As part of the CIT Merger, each issued and outstanding share of CIT Series A Preferred Stock and CIT Series B Preferred Stock automatically converted into the right to receive one share of BancShares Series B Preferred Stock and BancShares Series C Preferred Stock, respectively, having such rights, preferences, privileges and voting powers, and limitations and restrictions, taken as a whole, that were 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 .

Dividends on BancShares Series A, B, and C Preferred Stock (together, “BancShares 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 with respect to the BancShares Series A Preferred Stock and BancShares Series C Preferred Stock will accrue and be payable quarterly in arrears on March 15, June 15, September 15, and December 15 of each year, beginning on the “Dividend Payment Dates” in the table above and dividends with respect to the BancShares Series B Preferred Stock will initially accrue and be payable on a semi-annual basis during the fixed rate period, and then quarterly in arrears beginning after June 15, 2022.

Dividends on the BancShares Preferred Stock will not be cumulative.

The Parent Company may redeem the BancShares Preferred Stock at its option, and subject to any required regulatory approval, at a redemption price equal to the “Liquidation Preference Per Share” in the table above, 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 the “Earliest Redemption Date” in the table above, or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event.

NOTE 17 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table details the components of AOCI:

Components of Accumulated Other Comprehensive Income (Loss)

March 31, 2022 December 31, 2021

dollars in millions Gross

Unrealized Income

Unrealized Gross

Unrealized Income

Unrealized (losses) gains on securities available for sale $ ( 431 ) $ 104 $ ( 327 ) $ ( 12 ) $ 3 $ ( 9 )

Unrealized (losses) gains on securities available for sale transferred to held to maturity ( 8 ) 2 ( 6 ) ( 9 ) 2 ( 7 )

Defined benefit pension items 37 ( 9 ) 28 34 ( 8 ) 26

Foreign currency translation adjustments — — — — — —

Gains (losses) on hedge derivatives — — — — — —

Total accumulated other comprehensive income (loss) $ ( 402 ) $ 97 $ ( 305 ) $ 13 $ ( 3 ) $ 10

The following table details the changes in the components of AOCI, net of income taxes:

Changes in Accumulated Other Comprehensive Income (Loss) by Component

dollars in millions Unrealized (losses) gains on securities available for sale Unrealized net gains (losses) on Available for Sale Securities transferred to Held to Maturity Securities Net change in Defined Benefit Pension Items Total AOCI

Balance as of December 31, 2021 $ ( 9 ) $ ( 7 ) $ 26 $ 10

AOCI activity before reclassifications ( 318 ) — — ( 318 )

Amounts reclassified from AOCI — 1 2 3

Net current period AOCI ( 318 ) 1 2 ( 315 )

Balance as of March 31, 2022 $ ( 327 ) $ ( 6 ) $ 28 $ ( 305 )

Balance as of December 31, 2020 $ 79 $ 4 $ ( 71 ) $ 12

AOCI activity before reclassifications ( 44 ) — — ( 44 )

Amounts reclassified from AOCI ( 7 ) — 5 ( 2 )

Net current period AOCI ( 51 ) — 5 ( 46 )

Balance as of March 31, 2021 $ 28 $ 4 $ ( 66 ) $ ( 34 )

Other Comprehensive Income

The amounts included in the Condensed Consolidated Statements of Comprehensive Income are net of income taxes.

The following table presents the pretax and after-tax components of other comprehensive income.

Other Comprehensive Income (Loss) by Component

Three Months Ended March 31,

dollars in millions Gross Amount Tax Net Amount Gross Amount Tax Net Amount Income Statement Line Item

Net change in pension obligations

Reclassifications out of AOCI $ 3 $ ( 1 ) $ 2 $ 7 $ ( 2 ) $ 5 Other noninterest

Net Change $ 3 $ ( 1 ) $ 2 $ 7 $ ( 2 ) $ 5

Unrealized net gains on securities Available for Sale

AOCI activity before reclassification $ ( 419 ) $ 101 $ ( 318 ) $ ( 57 ) $ 13 $ ( 44 )

Reclassifications out of AOCI 1 — 1 ( 9 ) 2 ( 7 ) Realized gains on investment securities available for sale, net

Net Change $ ( 418 ) $ 101 $ ( 317 ) $ ( 66 ) $ 15 $ ( 51 )

Net current period AOCI $ ( 415 ) $ 100 $ ( 315 ) $ ( 59 ) $ 13 $ ( 46 )

NOTE 18 — REGULATORY CAPITAL

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 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 March 31, 2022 and December 31, 2021 as summarized in the following table.

March 31, 2022 December 31, 2021

dollars in millions Basel III Requirements PCA well-capitalized thresholds Amount Ratio Amount Ratio

Total risk-based capital 10.50 % 10.00 % $ 12,117 14.47 % $ 5,042 14.35 %

Tier 1 risk-based capital 8.50 8.00 10,377 12.39 4,380 12.47

Common equity Tier 1 7.00 6.50 9,496 11.34 4,041 11.50

Tier 1 leverage 4.00 5.00 10,377 9.55 4,380 7.59

Total risk-based capital 10.50 % 10.00 % $ 11,925 14.25 % $ 4,858 13.85 %

Tier 1 risk-based capital 8.50 8.00 10,641 12.71 4,651 13.26

Common equity Tier 1 7.00 6.50 10,641 12.71 4,651 13.26

Tier 1 leverage 4.00 5.00 10,641 9.81 4,651 8.07

At March 31, 2022, BancShares and FCB had total risk-based capital ratio conservation buffers of 6.47 % and 6.25 %, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%.

At December 31, 2021, BancShares and FCB had total risk-based capital ratio conservation buffers were 6.35 % and 5.85 %.

The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of March 31, 2022 and December 31, 2021 over the Basel III minimum.

Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 16 — Stockholders’ Equity.

Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.

Dividend Restrictions

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 stockholders.

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 $ 3.6 billion while continuing to meet the requirements for well-capitalized banks at March 31, 2022.

Dividends declared by FCB and paid to the Parent Company amounted to $ 30 million for the three months ended March 31, 2022.

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.

NOTE 19 — EARNINGS PER COMMON SHARE

The following table sets forth the computation of the basic and diluted earnings per common share:

Earnings per Common Share

Three months ended March 31,

dollars in millions, except share and per share data

Net income $ 271 $ 147

Preferred stock dividends 7 4

Net income available to common stockholders $ 264 $ 143

Weighted Average Common Shares Outstanding

Basic shares outstanding 15,779,153 9,816,405

Stock-based awards — —

Diluted shares outstanding 15,779,153 9,816,405

Basic income per common share $ 16.70 $ 14.53

Diluted income per common share $ 16.70 $ 14.53

BancShares RSUs are discussed in Note 21— Employee Benefit Plans.

NOTE 20 — INCOME TAXES

BancShares’ global effective income tax rate was ( 20.4 )% for the three months ended March 31, 2022, and 23.0 % for the three months ended March 31, 2021.

The decrease in the rate from the year-ago quarter was primarily driven by the non-taxable nature of the bargain purchase gain arising from the CIT Merger.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate.

This annual effective tax rate is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items.

The effective tax rate each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items.

The currently forecasted effective tax rate may vary from the actual year-end 2022 effective tax rate due to the changes in these factors.

Uncertain Tax Benefits

BancShares’ recognizes tax benefits when it is more likely than not that the position will prevail, based solely on the technical merits under the tax law of the relevant jurisdiction.

BancShares will recognize the tax benefit if the position meets this recognition threshold determined based on the largest amount of the benefit that is more than likely to be realized.

Net Operating Loss Carryforwards and Valuation Adjustments

As a result of the CIT Merger, BancShares’ net deferred tax liabilities increased by approximately $ 297 million.

That amount included an increase to deferred tax assets (“DTAs”) primarily from net operating losses, capitalized costs and tax credits net of deferred tax liabilities primarily from operating leases.

BancShares’ ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect our ability to utilize existing DTAs.

If events are identified that affect our ability to utilize our DTAs, valuation adjustments may be adjusted accordingly.

NOTE 21 – EMPLOYEE BENEFIT PLANS

BancShares sponsors non-contributory defined benefit pension plans for its qualifying employees.

The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.

For the three and nine months ended September 30, 2021 and 2020, the components of net periodic benefit cost are as follows:

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

For the three months ended March 31, 2022 and 2021, the components of net periodic benefit cost are as follows:

Three months ended March 31,

dollars in millions 2022 2021

Service cost $ 3 $ 4

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Expected return on assets ( 22 ) ( 20 )

Amortization of prior service cost — —

Amortization of net actuarial loss 3 7

Net periodic (benefit) cost $ ( 1,530 ) $ 2,028 $ ( 4,591 ) $ 6,084

No discretionary contribution was made to the pension plans during the nine months ended September 30, 2021.

A discretionary contribution of $ 100.0 million was made to the pension plans during the nine months ended September 30, 2020.

Net periodic benefit $ ( 5 ) $ ( 2 )

No discretionary contribution was made to the pension plans during the three months ended March 31, 2022.

The funding policy of the pension plans is to contribute an amount each year to meet all Employee Retirement Income Security Act minimum requirements, including amounts to meet quarterly funding requirements, avoid “at-risk” status and avoid any benefit restrictions.

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No contributions are currently expected for the year ending December 31, 2022.

NOTE M - LEASES

The following table presents right-of-use lease assets and liabilities as of September 30, 2021 and December 31, 2020:

(Dollars in thousands) Classification September 30, 2021 December 31, 2020

Operating Other assets $ 62,214 $ 68,048

Finance Premises and equipment 4,852 6,478

Total leased assets $ 67,066 $ 74,526

Operating Other liabilities $ 63,025 $ 68,343

Finance Other borrowings 4,720 6,308

Total lease liabilities $ 67,745 $ 74,651

NOTE N - COMMITMENTS AND CONTINGENCIES

Certain retirement benefit plans and stock-based awards of CIT Group Inc.

were acquired by BancShares upon the closing of the CIT Merger.

CIT had both funded and unfunded noncontributory defined benefit pension and postretirement plans covering certain U.S.

employees, each of which was designed in accordance with the practices and regulations in the related countries.

CIT maintained a frozen U.S.

non-contributory pension plan (the "Plan") qualified under the Internal Revenue Code (“IRC”).

CIT also maintained a frozen U.S.

non-contributory supplemental retirement plan (the "Supplemental Plan”), and an Executive Retirement Plan, which had been closed to new members since 2006, and whose participants were all inactive.

Accumulated balances under the Plan and the Supplemental Plan continue to receive periodic interest, subject to certain government limits.

Fair value of the plan assets and benefit obligation at December 31, 2021 were $ 387 million and $ 409 million, respectively.

CIT provided healthcare and life insurance benefits to eligible retired employees.

For most eligible retirees, healthcare was contributory and life insurance was non-contributory.

All postretirement benefit plans were funded on a pay-as-you-go basis.

These plans were terminated in the first quarter of 2022, effective April 1, and BancShares recognized a reduction in other noninterest expenses of approximately $ 27 million in the first quarter of 2022 related to amounts previously accrued.

CIT had a defined contribution retirement plan covering certain of its U.S.

employees that qualifies under section 401(k) of the IRC, and was assumed by BancShares.

Under this plan employees may contribute a portion of their eligible compensation, as defined, subject to regulatory limits and plan provisions, and BancShares matches these contributions up to a threshold.

Participants are also eligible for an additional discretionary company contribution.

In February 2016, CIT adopted the CIT Group Inc.

2016 Omnibus Incentive Plan (the "2016 Plan"), which provided for grants of stock-based awards to employees, executive officers and directors.

The BancShares RSUs are the only outstanding awards subject to the terms of the 2016 Plan and no further awards will be made under the 2016 Plan.

Compensation expense is recognized over the vesting period or the requisite service period, which is generally three years for BancShares RSUs, under the graded vesting method, whereby each vesting tranche of the award is amortized separately as if each were a separate award.

CIT had compensation awards that either converted to BancShares RSUs or immediately vested at completion of the CIT Merger as further described in the “Stock-Based Compensation” discussion in Note 1 — Accounting Policies and Basis of Presentation.

The following table presents the unvested BancShares RSUs at March 31, 2022, which have vesting periods through 2024.

There were no grants of stock-based compensation awards during the quarter ended March 31, 2022.

Stock-Settled Awards Outstanding

Stock-Settled Awards

per share amounts in whole dollars Number of Shares Weighted Average Grant Date Value

Unvested BancShares at December 31, 2021 — $ —

Unvested CIT RSUs converted to BancShares RSUs at Merger Date 116,958 859.76

Unvested CIT PSUs converted to RSUs at Merger Date 10,678 859.76

Forfeited / cancelled ( 411 ) 859.76

Vested / settled awards ( 71,171 ) 859.76

Vested / unsettled awards ( 95 ) 859.76

Unvested BancShares RSUs at March 31, 2022 55,959 $ 859.76

NOTE 22 — BUSINESS SEGMENT INFORMATION

As of December 31, 2021, BancShares managed its business and reported its financial results as a single segment.

BancShares began reporting multiple segments during the first quarter of 2022.

BancShares now has three operating segments:

General Banking, Commercial Banking, and Rail, and a non-operating segment, Corporate.

BancShares conformed the comparative prior periods presented to reflect the new segments.

The substantial majority of BancShares’ operations for historical periods prior to completion of the CIT Merger are included in the General Banking segment.

The Commercial Banking and Rail segments primarily relate to operations acquired in the CIT Merger.

BancShares' reportable segments are primarily based upon industry categories, target markets, distribution channels and customers served, and, to a lesser extent, the core competencies relating to product origination, operations and servicing and the nature of their regulatory environment.

Segment reporting is reflective of BancShares' internal reporting structure and is consistent with the presentation of financial information to the chief operating decision maker.

Each of the segments are described below.

General Banking

General Banking delivers services to individuals and businesses through an extensive branch network, digital banking, telephone banking and various ATM networks, including a full suite of deposit products, loans (primarily residential mortgages and commercial loans), and various fee-based services.

General Banking also provides:

a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services;

and deposit, cash management and lending to homeowner associations (“HOA”) and property management companies.

As part of the CIT Merger, Community Association Banking (“CAB”) products were added that will drive the associated HOA deposit channel.

Revenue is primarily generated from interest earned on residential mortgages, small business loans and fees for banking services.

Commercial Banking

Commercial Banking provides lending, leasing and other financial and advisory services, primarily to small and middle-market companies across select industries.

Commercial Banking also provides asset-based lending, factoring, receivables management products and supply chain financing.

Revenue is primarily generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities.

Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America.

Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement;

tank cars for energy products and chemicals;

gondolas for coal, steel coil and mill service products;

open hopper cars for coal and aggregates;

boxcars for paper and auto parts, and centerbeams and flat cars for lumber.

Revenue is primarily from operating lease income.

Certain items are not allocated to operating segments and are included in the Corporate segment.

Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate funding costs (including brokered deposits), income on BOLI (other noninterest income), merger-related costs, as well as certain unallocated costs and intangible asset amortization expense (operating expenses).

Corporate also includes certain significant items that are infrequent, such as:

the Initial Non-PCD Provision for loans and leases and unfunded commitments;

and the preliminary gain on acquisition, each of which are related to the CIT Merger.

Segment Profit (Loss) and Select Period End Balances

The following table presents the condensed income statement by segment.

Three months ended March 31, 2022

dollars in millions General Banking Commercial Banking Rail Corporate Total BancShares

Net interest income $ 437 $ 207 $ ( 19 ) $ 24 $ 649

Provision (benefit) for credit losses ( 15 ) ( 34 ) — 513 464

Net interest income after provision for credit losses 452 241 ( 19 ) ( 489 ) 185

Noninterest income 123 112 162 453 850

Noninterest expenses 409 191 100 110 810

Income (loss) before income taxes 166 162 43 ( 146 ) 225

Provision (benefit) for income taxes 40 41 11 ( 138 ) ( 46 )

Net income (loss) $ 126 $ 121 $ 32 $ ( 8 ) $ 271

Select Period End Balances

Loans and leases $ 38,778 $ 26,672 $ 67 $ 7 $ 65,524

Deposits 85,469 4,687 13 1,428 91,597

Operating lease equipment, net — 721 7,251 — 7,972

Three months ended March 31, 2021

dollars in millions General Banking Commercial Banking Rail Corporate Total BancShares

Net interest income $ 344 $ 4 $ — $ ( 8 ) $ 340

Benefit for credit losses ( 11 ) — — — ( 11 )

Net interest income (loss) after benefit for credit losses 355 4 — ( 8 ) 351

Noninterest income 110 — — 27 137

Noninterest expenses 290 1 — 6 297

Income before income taxes 175 3 — 13 191

Provision for income taxes 40 1 — 3 44

Net income $ 135 $ 2 $ — $ 10 $ 147

Select Period End Balances

Loans and leases $ 32,580 $ 601 $ — $ — $ 33,181

Deposits 47,277 53 — 1 47,331

Operating lease equipment, net — — — — —

NOTE 23 — COMMITMENTS AND CONTINGENCIES

To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk.

These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit.

The accompanying table summarizes credit-related commitments and other purchase and funding commitments:

dollars in millions March 31, 2022 December 31, 2021

Financing Commitments

Financing assets (excluding leases) $ 21,807 $ 13,011

Letters of credit

Standby letters of credit 325 92

Other letters of credit 41 24

Deferred purchase agreements 2,097 —

Purchase and Funding Commitments

Lessor commitments (1)

(1) BancShares’ purchase and funding commitments relate to the equipment leasing businesses’ commitments to fund finance leases and operating leases, and Rail’s railcar manufacturer purchase commitments.

Financing Commitments

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 these 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.

Financing commitments, referred to as loan commitments or lines of credit, primarily reflect BancShares’ agreements to lend to its customers, subject to the customers’ compliance with contractual obligations.

At March 31, 2022, substantially all undrawn financing commitments were senior facilities.

Most of the undrawn and available financing commitments are in the Commercial Banking segment.

As financing commitments may not be fully drawn, may expire unused, may be reduced or canceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.

The table above excludes uncommitted revolving credit facilities extended by Commercial Services to its clients for working capital purposes.

In connection with these facilities, Commercial Services has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.

Letters of Credit

Standby letters of credit are commitments to pay the beneficiary thereof if drawn upon by the beneficiary upon satisfaction of the terms of the letter of credit.

Those commitments are primarily issued to support public and private borrowing arrangements.

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The credit risk related to the issuance of these letters of credit is essentially the same as 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 standby letters of credit as of September 30, 2021 and December 31, 2020:

(Dollars in thousands) September 30, 2021 December 31, 2020

Unused commitments to extend credit $ 12,775,929 $ 12,098,417

Standby letters of credit 116,302 129,819

BancShares has investments in qualified affordable housing projects primarily for the purposes of fulfilling Community Reinvestment Act requirements and obtaining tax credits.

Affordable housing project investments were $ 162.3 million and $ 163.9 million as of September 30, 2021 and December 31, 2020, respectively, and were recorded in other assets.

Unfunded commitments to fund future investments in affordable housing projects totaled $ 49.8 million and $ 53.7 million as of September 30, 2021 and December 31, 2020, respectively, and were recorded in other liabilities.

BancShares and various subsidiaries have been named as defendants in legal actions arising from their normal business activities in which damages in various amounts were claimed.

BancShares has also been exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed in the various 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.

These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheets.

Deferred Purchase Agreements (“DPA”)

A DPA is provided in conjunction with factoring, whereby a client is provided with credit protection for trade receivables without purchasing the receivables.

The trade receivables terms generally require payment in 90 days or less.

If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, BancShares is then required to purchase the receivable from the client, less any borrowings for such client based on such defaulted receivable.

The outstanding amount in the table above, less $ 161 million at March 31, 2022 of borrowings for such clients, is the maximum amount that BancShares would be required to pay under all DPAs.

This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring BancShares to purchase all such receivables from the DPA clients.

The table above includes $ 2.0 billion of DPA exposures at March 31, 2022, related to receivables on which BancShares has assumed the credit risk.

The table also includes $ 115 million available under DPA credit line agreements provided at March 31, 2022.

The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period, which is typically 90 days or less.

Litigation and other Contingencies

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.

As part of the CIT Merger, BancShares assumed litigation in which CIT and CIT Bank were named as defendants in an existing lawsuit brought as a qui tam (i.e., whistleblower) action by a former OneWest Bank N.A.

(“One-West”) employee on behalf of the U.S.

The lawsuit asserts claims related to OneWest’s participation in the Home Affordable Modification Program (“HAMP”) administered by the United States Treasury Department, as well as FHA and Veterans Administration (“VA”) programs.

On October 15, 2019, the plaintiff filed a second amended complaint in the United States District Court for the Eastern District of Texas alleging that, beginning in 2009, CIT (and its predecessor, OneWest) falsely certified its compliance with HAMP, submitted false claims for incentive payments for loan modifications, submitted false claims for FHA and VA insurance payments, and failed to self-report these violations.

Plaintiff seeks the return of all U.S.

government payments to CIT under the HAMP, FHA, and VA programs.

CIT has received approximately $ 93 million in servicer incentives under HAMP, and the government has paid more than $ 440 million in the aggregate in borrower, servicer, and investor incentives in connection with loans modified by OneWest or CIT under HAMP.

The Department of Justice has declined to intervene in this case.

CIT has filed motions for summary judgment seeking dismissal of the HAMP and FHA claims.

Court has denied those motions.

CIT also has filed a motion for summary judgment seeking a dismissal of the VA claim, which the Court has not yet decided.

A Final Pretrial Conference has been rescheduled for June 15, 2022, with a jury trial to commence on June 20, 2022.

On May 5, 2022, the parties reached an agreement in principle to settle all claims for $ 18.5 million, subject to required approvals by the United States Government and memorializing the agreement in a formal writing (the “Agreement in Principle”).

Based upon the Agreement in Principle, the parties also made a motion to vacate the existing pretrial conference date and trial date so that the parties can devote resources to the completion of the steps necessary to execute a formal settlement agreement.

The existing accruals in BancShares’ consolidated financial statements as of and for the three month period ending March 31, 2022 include estimates that were materially consistent with the amount of $ 18.5 million included in the Agreement in Principle.

BancShares is also involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings as well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies.

These matters arise in connection with the ordinary conduct of BancShares’ business.

At any given time, BancShares may also be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing collectively being referred to as “Litigation”).

While most Litigation relates to individual claims, BancShares may be subject to putative class action claims and similar broader claims and indemnification obligations.

In light of the inherent difficulty of predicting the outcome of Litigation matters and indemnification obligations, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, BancShares cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any.

In accordance with applicable accounting guidance, BancShares’ establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can reasonably be estimated.

Based on currently available information, BancShares believes that the outcome of Litigation that is currently pending will not have a material adverse effect on BancShares’ financial condition, but may be material to BancShares’ operating results or cash flows for any particular period, depending in part on its operating results for that period.

The actual results of resolving such matters may be substantially higher than the amounts reserved.

For certain Litigation matters in which BancShares is involved, BancShares is able to estimate a range of reasonably possible losses in excess of established reserves and insurance.

For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined.

For Litigation and other matters where losses are reasonably possible, management currently estimates an aggregate range of reasonably possible losses of up to $ 10 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters.

This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, 2022.

The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.

Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent BancShares’ maximum loss exposure.

The foregoing statements about BancShares’ Litigation are based on BancShares’ judgments, assumptions, and estimates and are necessarily subjective and uncertain.

In the event of unexpected future developments, it is possible that the ultimate resolution of these cases, matters, and proceedings, if unfavorable, may be material to BancShares’ consolidated financial position in a particular period.

NOTE 24 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

CIT Northbridge Credit LLC (“Northbridge”) is an asset-based-lending joint venture between FCB (as successor to CIT Bank) and Allstate Insurance Company and its subsidiary (“Allstate”) that extends credit in asset-based lending middle-market loans.

FCB holds a 20 % equity investment in Northbridge, and CIT Asset Management LLC, a non-bank subsidiary of FCB, acts as an investment advisor and servicer of the loan portfolio.

Allstate is an 80 % equity investor.

FCB’s investment was $ 31 million at March 31, 2022, with the expectation of additional investment as the joint venture grows.

Management fees were earned on loans under management.

The joint venture is not consolidated, and the investment is being accounted for using the equity method.

BancShares invests in various trusts, partnerships, and limited liability corporations established in conjunction with structured financing transactions of equipment, power and infrastructure projects and workout transactions.

BancShares’ interests in these entities were entered into in the ordinary course of business.

Other assets included $ 702 million at March 31, 2022 and $ 156 million at December 31, 2021, of tax credit investments and investments in non-consolidated entities relating to such transactions that are accounted for under the equity or cost methods.

The combination of investments in and loans to non-consolidated entities represents BancShares’ maximum exposure to loss, as BancShares does not provide guarantees or other forms of indemnification to non-consolidated entities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements