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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-02 · 1110 added, 639 removed, 165 unchanged (91% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc.

and its subsidiaries (“BancShares”).

Management’s discussion and analysis (“MD&A”) of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc.

(the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” “BancShares”) and its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”).

Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.

This MD&A is expected to provide our investors with a view of BancShares’ financial condition and results of operations from our management’s perspective.

This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q along with our financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Annual Report”).

Intercompany accounts and transactions have been eliminated.

Although certain amounts for prior years have been reclassified to conform to statement presentations for 2021, the reclassifications had no effect on shareholders’ equity or net income as previously reported.

Unless otherwise noted, the terms “we,” “us” and “BancShares” refer to the consolidated financial position and consolidated results of operations for BancShares.

Although certain amounts for prior years have been reclassified to conform to statement presentations for 2022, the reclassifications had no effect on stockholders’ equity or net income as previously reported.

Throughout this MD&A we reference specific "Notes" to our financial statements.

These are Notes to the consolidated financial statements in Part One, Item 1.

Financial Statements.

Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of BancShares.

See "Non-GAAP Financial Measurements" for a reconciliation of these financial measures to the most directly comparable financial measures in accordance with GAAP.

On January 3, 2022, BancShares completed its largest acquisition to date with the merger with CIT Group Inc.

(“CIT”) and its subsidiary CIT Bank, N.A., a national banking association (“CIT Bank”), pursuant to the terms and subject to the conditions set forth in the Agreement and Plan of Merger (as amended, the “Merger Agreement”) (such acquisition, the CIT Merger).

CIT had consolidated total assets of approximately $53.2 billion as of December 31, 2021.

The CIT Merger is described further below and in Note 2 — Business Combinations.

Financial data for periods prior to the CIT Merger do not include any CIT related data, and therefore are not directly comparable to the three months ended March 31, 2022.

EXECUTIVE OVERVIEW

BancShares conducts its banking operations through its wholly-owned subsidiary First-Citizens Bank & Trust Company (“FCB”), a state-chartered bank organized under the laws of the state of North Carolina.

BancShares’ earnings and cash flows are primarily derived from our commercial and retail banking activities.

The Parent Company is a bank holding company ("BHC") and Financial Holding Company (“FHC”).

BancShares is regulated by the Board of Governors of the Federal Reserve System under the U.S.

Bank Holding Company Act of 1956, as amended.

BancShares is also registered under the BHC laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (“NCCOB”).

BancShares conducts its banking operations through its wholly-owned subsidiary FCB, a state-chartered bank organized under the laws of the state of North Carolina.

FCB is regulated by the NCCOB.

In addition, FCB, as an insured depository institution, is supervised by the “FDIC”.

BancShares’ earnings and cash flows are primarily derived from its commercial and retail banking activities.

We expanded our products and services with the CIT Merger, and now have leased assets, primarily rail-related, and offer factoring services.

We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources.

We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments.

We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and interest-earning deposits at banks.

We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business.

We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks.

We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by banks.

The fees and service charges generated from these products and services are primary sources of noninterest income, which is an essential component of our total revenue.

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Refer to our 2021 Annual Report for further discussion of our strategy.

RECENT ECONOMIC AND INDUSTRY DEVELOPMENTS

During the first quarter of 2020, a novel strain of coronavirus (“COVID-19”) spread throughout the world, causing significant disruptions to the domestic and global economies.

In response to the outbreak, governments imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability.

Although vaccines for COVID-19 have been made available to the general public in the United States and many places around the world, vaccination rates vary and effectiveness may decrease over time.

We cannot predict how widely utilized the vaccines and boosters will be or whether and for how long they will be effective in preventing the spread of COVID-19 (including its variants).

Although we cannot predict when or if normal economic activity and business operations will resume, we observed general declines in the level of economic uncertainty and stabilization of macroeconomic forecasts during the first three quarters of 2021.

The US experienced an uptick in the number of new cases during the third quarter of 2021.

We are unable to predict whether these trends will continue and how this will affect the overall economy at the current time.

However, we remain vigilant in our review and monitoring efforts around the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the overall economy and our financial results.

During the third quarter of 2021, the Federal Reserve’s Federal Open Market Committee (“FOMC”) maintained the federal funds rate at a target range of 0.00% to 0.25%.

The FOMC acknowledged the economy’s accelerating recovery from the COVID-19 pandemic, but maintained that the recovery is incomplete and economic risks remain.

The FOMC expects to maintain this target range, but rate hikes are expected in late 2022 or early 2023.

Further, the committee suggested that they will begin tapering asset purchases, potentially as early as the fourth quarter of 2021 if economic progress continues as expected.

In response to the COVID-19 pandemic, the Small Business Administration Paycheck Protection Program (“SBA-PPP”) was established through the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act 2021 to direct aid via loans to small businesses impacted by the COVID-19 pandemic.

We completed the first round of SBA-PPP funding in the second half 2020 and the second round of funding during the second quarter of 2021.

As of September 30, 2021, there were $1.1 billion SBA-PPP loans outstanding with remaining net deferred fees of $39.4 million.

With respect to the first round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2020.

As of September 30, 2021, we have received approximately 98% of forgiveness decisions from the SBA to date, representing over $3.1 billion in forgiveness payments.

With respect to the second round of SBA-PPP, we began accepting and processing applications for forgiveness during the third quarter of 2021.

As of September 30, 2021, we have received approximately 14% of forgiveness decisions from the SBA, representing over $175 million in forgiveness payments.

SBA-PPP LOAN FORGIVENESS STATUS

(Dollars in thousands)

Round 1 Round 2

Status $ of Loans % of Round Total $ of Loans % of Round Total

Total Funded $ 3,199,897 100.0 % $ 1,223,797 100.0 %

Payments Received 3,121,746 97.6 175,660 14.4

Total Remaining $ 78,151 2.4 % $ 1,048,137 85.6 %

Through September 30, 2021, over 99% of all COVID-19-related loan extensions have begun repayment.

Delinquency trends among loans entering repayment are in line with the remainder of the portfolio, and we have not seen significant declines in overall credit quality.

Significant Events in 2022

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 has been 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 and both parties are committed to continuing to seek such approval.

The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time.

The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application.

Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions.

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.

The Merger Agreement requires that, effective as of the Effective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R.

Alemany, Chairwoman and Chief Executive Officer of CIT.

We intend to appoint Michael A.

Carpenter and Vice Admiral John R.

Ryan, USN (Ret.), as the two other members from CIT’s current Board of Directors who will join the Boards of Directors of the combined company and the combined bank.

As discussed in detail in Note 2 — Business Combinations, the CIT Merger closed on January 3, 2022.

Significant items related to the CIT Merger are as follows:

• The fair value of total assets acquired was $53.8 billion, which mainly consisted of approximately $32.7 billion of loans, $7.8 billion of operating lease equipment and approximately $6.6 billion of investment securities.

Loans consisted of commercial and industrial loans, commercial real estate loans and finance leases, which are included in our Commercial Banking segment, and consumer loans (primarily residential mortgages), which are in our General Banking segment, as further discussed below.

Acquired rail assets were mostly operating lease equipment that are in the new Rail segment.

• The fair value of deposits acquired was $39.4 billion that included deposits derived from online banking and HOA deposits related to CAB, and commercial deposits.

The transaction also included approximately 80 bank branches, about 60 of which were in Southern California and the remaining primarily in the Southwest, Midwest and Southeast.

• FCB recorded a preliminary gain on acquisition of $431 million, representing the excess of the net assets acquired over the purchase price, and recorded a $143 million core deposit intangible and a $52 million intangible liability f or net below market lessor lease contract rental rates related to the rail portfolio.

Segment Updates

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.

Information about our segments is included Note 22 — Business Segment Information and in Results by Business Segments, later in this MD&A.

Financial Performance Summary

Third Quarter Highlights

• Net income for the third quarter of 2021 was $124.1 million, a decrease of $18.6 million, or 13.0% compared to the same quarter in 2020.

Net income available to common shareholders totaled $119.4 million for the third quarter of 2021.

Net income per common share decreased $1.86, or 13.3%, to $12.17 in the third quarter of 2021, from $14.03 per share during the comparable quarter in 2020.

• Return on average assets for the third quarter of 2021 was 0.88%, down from 1.18% in the third quarter of 2020.

Return on average equity for the third quarter of 2021 was 11.29%, down from 14.93% during the comparable quarter of 2020.

• Net interest income was $346.9 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9% compared to the same quarter in 2020, but was relatively stable compared to the second quarter of 2021.

The taxable-equivalent net interest margin (“NIM”) was 2.61% for the third quarter of 2021, a decrease of 45 basis points from 3.06% for the third quarter in 2020 and a decrease of 7 basis points from 2.68% from the second quarter of 2021.

• Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021 compared to an expense of $4.0 million for the same quarter in 2020.

The net charge-off ratio was 0.06% for the third quarter of 2021, up from 0.02% for the second quarter of 2021 and 0.03% for the third quarter of 2020.

• Noninterest income was $122.9 million for the third quarter of 2021, an increase of $2.4 million, or 2.0%, compared to $120.6 million for the same quarter of 2020.

• Noninterest expense was $312.8 million for the third quarter of 2021, an increase of $21.2 million, or by 7.3% compared to the same quarter of 2020.

• The allowance for credit losses was $183.2 million at September 30, 2021, compared to $189.1 million at June 30, 2021.

The $5.9 million change was due primarily to a reserve release for the three months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

• Total loans were $32.5 billion as of September 30, 2021, a decrease of $173.5 million, or by 2.1% on an annualized basis, since June 30, 2021.

Excluding loans originated under the SBA-PPP, total loans increased $437.4 million, or by 5.6% on an annualized basis, since June 30, 2021.

• Total deposits grew to $50.1 billion, an increase of $1.7 billion, or by 13.6% on an annualized basis, since June 30, 2021.

• At September 30, 2021, BancShares remained “well-capitalized” as defined by regulatory standards with a total risk-based capital ratio of 14.3%, a Tier 1 risk-based capital of 12.3%, a common equity Tier 1 ratio of 11.3% and a leverage ratio of 7.7%.

Year to Date Highlights

• Net income for the nine months ended September 30, 2021 totaled $424.2 million, an increase of $70.5 million, or 19.9% compared to the same period in 2020.

Net income available to common shareholders totaled $410.3 million.

Earnings per share increased $7.83, or 23.1%, to $41.79 for the nine months ended September 30, 2021, from $33.96 during the comparable period in 2020.

• Return on average assets for the nine months ended September 30, 2021 was 1.05%, consistent with the same period in 2020.

Return on average equity for the nine months ended September 30, 2021 was 13.50%, up 91 basis points compared to the same period in 2020.

• Net interest income for the nine months ended September 30, 2021, was $1.0 billion, an increase of $3.5 million, or 0.3% compared to the same period of 2020.

The taxable-equivalent NIM was 2.69% for the nine months ended September 30, 2021, a decrease of 54 basis points from 3.23% during the comparable period of 2020.

• Provision for credit losses was a benefit of $31.7 million for the nine months ended September 30, 2021, compared to $52.9 million in expense for the same period in 2020.

The net charge-off ratio was 0.04% for the nine months ended September 30, 2021, a 3 basis point decrease compared to the same period of 2020.

• Noninterest income was $393.7 million for the nine months ended September 30, 2021, an increase of $43.8 million, or 12.5%, compared to $350.0 million for the same quarter of 2020.

• Noninterest expense was $910.3 million for the nine months ended September 30 2021, an increase of $27.0 million or by 3.1% compared to the same quarter of 2020.

• The allowance for credit losses was $183.2 million at September 30, 2021, compared to $224.3 million at December 31, 2020.

The $41.1 million change was due primarily to a reserve release for the nine months ended September 30, 2021 driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

• Total loans were $32.5 billion, a decrease of $275.8 million since December 31, 2020.

Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis, since December 31, 2020.

• Total deposits grew to $50.1 billion, an increase of $6.6 billion since December 31, 2020 or by 20.4% on an annualized basis.

The following table summarizes the BancShares’ results in accordance with U.S.

GAAP, unless otherwise noted.

Refer to the Non-GAAP Financial Measurements section at the end of the MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Additionally, due to the CIT Merger, current quarter ending and average balances are not comparable to the prior periods.

Further discussions are included in the remaining sections of this MD&A.

Selected Quarterly Data

2021 2020 Nine months ended September 30

Third Second First Fourth Third

(Dollars in thousands, except share data) Quarter Quarter Quarter Quarter Quarter 2021 2020

Three Months Ended March 31,

dollars in millions, except share data 2022 2021

SUMMARY OF OPERATIONS

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Net interest income 649 340

Provision (credit) for credit losses (1,120) (19,603) (10,974) 5,403 4,042 (31,697) 52,949

Provision (benefit) for credit losses 464 (11)

Net interest income after provision for credit losses 185 351

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Net income 271 147

Net income available to common shareholders $ 119,437 $ 148,152 $ 142,680 $ 133,448 $ 138,048 $ 410,269 $ 344,213

Net interest income, taxable equivalent $ 347,451 $ 347,035 $ 340,271 $ 359,370 $ 354,256 $ 1,034,758 $ 1,031,395

Preferred stock dividends 7 4

Net income available to common stockholders $ 264 $ 143

PER COMMON SHARE DATA

Net income $ 12.17 $ 15.09 $ 14.53 $ 13.59 $ 14.03 $ 41.79 $ 33.96

Cash dividends on common shares 0.47 0.47 0.47 0.47 0.40 1.41 1.20

Market price at period end (Class A) 843.17 832.74 835.77 574.27 318.78 843.17 318.78

Book value per share at period-end 432.07 421.39 405.59 396.21 380.43 432.07 380.43

Average diluted common shares 15,779,153 9,816,405

Net income available to common stockholders (diluted) $ 16.70 $ 14.53

Book value per common share 605.48 405.59

KEY PERFORMANCE METRICS

Return on average assets (ROA) 1.00 % 1.16 %

Return on average common stockholders' equity (ROE) 11.18 % 14.70 %

Net interest margin (NIM) (1)

2.73 % 2.79 %

SELECTED QUARTERLY AVERAGE BALANCES

Total assets $ 55,922,358 $ 54,399,331 $ 51,409,634 $ 49,557,803 $ 48,262,155 $ 53,926,971 $ 44,834,045

Investment securities 10,707,519 10,534,348 9,757,650 9,889,124 9,930,197 10,336,652 8,774,840

Loans and leases (1)

Total investments $ 19,492 $ 9,757

Total loans and leases (2)

64,144 33,087

Interest-earning assets 52,371,165 51,519,684 48,715,279 46,922,823 45,617,376 50,882,100 42,151,861

Deposits 49,107,087 47,751,103 44,858,198 43,123,312 41,905,844 47,254,360 38,612,836

Interest-bearing liabilities 29,662,791 28,909,320 27,898,525 26,401,222 25,591,707 28,830,007 24,388,339

Securities sold under customer repurchase agreements 672,114 677,451 641,236 684,311 710,237 663,713 614,920

Other short-term borrowings — — — — — — 67,522

Long-term borrowings 1,222,452 1,227,755 1,235,576 1,250,682 1,256,331 1,228,546 1,164,475

Common shareholders' equity 4,196,655 4,058,236 3,935,267 3,786,158 3,679,138 4,063,386 3,651,132

Shareholders’ equity $ 4,536,592 $ 4,398,173 $ 4,275,204 $ 4,126,095 $ 4,019,075 $ 4,403,323 $ 3,896,645

Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,836,629 9,816,405 10,137,321

Total operating lease equipment (net) 7,924 —

Total assets 109,234 51,409

Total deposits 91,574 44,858

Total common stockholders' equity 9,560 3,935

SELECTED QUARTER-END BALANCES

Total investments $ 19,469 $ 10,222

Total loans and leases 65,524 33,181

Total operating lease equipment (net) 7,972 —

Total assets 108,597 53,909

Investment securities 10,875,354 10,894,227 10,222,107 9,922,905 9,860,594 10,875,354 9,860,594

Loans and leases 32,516,189 32,689,652 33,180,851 32,791,975 32,845,144 32,516,189 32,845,144

Deposits 50,065,762 48,410,596 47,330,997 43,431,609 42,250,606 50,065,762 42,250,606

Securities sold under customer repurchase agreements 663,575 692,604 680,705 641,487 693,889 663,575 693,889

Other short-term borrowings — — — — — — —

Long-term borrowings 1,219,229 1,224,488 1,230,326 1,248,163 1,252,016 1,219,229 1,252,016

Shareholders’ equity $ 4,581,295 $ 4,476,490 $ 4,321,400 $ 4,229,268 $ 4,074,414 $ 4,581,295 $ 4,074,414

Common shares outstanding 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405 9,816,405

SELECTED RATIOS AND OTHER DATA

Return on average assets (annualized) 0.88 % 1.13 % 1.16 % 1.11 % 1.18 % 1.05 % 1.05 %

Return on average common shareholders’ equity (annualized) 11.29 14.64 14.70 14.02 14.93 13.50 12.59

Net yield on interest-earning assets (taxable equivalent) 2.61 2.68 2.80 3.02 3.06 2.69 3.23

Net charge-offs to average loans and leases (annualized) 0.06 0.02 0.03 0.06 0.03 0.04 0.07

Allowance for credit losses to total loans and leases (2) :

PCD 4.94 4.73 5.30 5.18 5.07 4.94 5.07

Non-PCD 0.51 0.53 0.57 0.62 0.61 0.51 0.61

Total 0.56 0.58 0.63 0.68 0.68 0.56 0.68

Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.63 0.71 0.73 0.74 0.73 0.63 0.73

Total risk-based capital ratio 14.30 14.15 14.14 13.81 13.70 14.30 13.70

Tier 1 risk-based capital ratio 12.32 12.13 12.02 11.63 11.48 12.32 11.48

Total deposits 91,597 47,331

Total common stockholders' equity 9,689 4,321

Loan to deposit ratio 71.53 % 70.10 %

Noninterest-bearing deposits to total deposits 28.27 % 43.34 %

CAPITAL RATIOS

Common equity tier 1 ratio 11.34 % 12.02 %

Tier 1 risk-based capital ratio 12.39 % 14.14 %

Total risk-based capital ratio 14.47 % 11.00 %

Tier 1 leverage capital ratio 9.55 % 7.84 %

Dividend payout ratio 3.86 3.11 3.23 3.46 2.85 3.37 3.53

Average loans and leases to average deposits 66.60 69.46 73.76 76.44 78.02 69.80 80.67

(1) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases.

(2) Loans originated in relation to the SBA-PPP ($1.7 billion as of September 30, 2021) do not have a recorded ACL.

As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans is 0.53%, while the ratio of ACL to total loans excluding SBA-PPP loans is 0.58%.

BUSINESS COMBINATIONS

CIT Group Inc.

On October 15, 2020, BancShares and CIT, entered into the Merger Agreement by and among BancShares, FCB, the Merger Sub, and CIT, the parent company of CIT Bank.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub and CIT will ultimately merge with and into FCB, with FCB as the surviving entity.

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.

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

The transaction has been approved by the shareholders of both companies and has received regulatory approval from the North Carolina Commissioner of Banks and the FDIC.

Completion of the proposed merger remains subject to approval from the Board of Governors of the Federal Reserve System and both parties are committed to continuing to seek such approval.

The parties have responded to all questions issued by the Staff of the Federal Reserve Board, and the Staff has informed us that they do not have further questions at this time.

The parties have been informed that the application is presently at the Governor level, but the Board of Governors has not provided a time frame for its decision on the application.

Closing is expected to occur as soon as practicable following receipt of such approval and the satisfaction or waiver of other customary closing conditions.

Federal Deposit Insurance Corporation Assisted Transactions

BancShares completed fourteen FDIC-assisted transactions between 2009 and 2017.

Nine of the fourteen FDIC-assisted transactions included shared-loss agreements which, for their terms, protected us from a substantial portion of the credit and asset quality risk we would otherwise have incurred.

For certain FDIC-assisted transactions, the shared-loss agreement included a provision related to 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 for the final active agreement during the first quarter of 2021.

CONSOLIDATED QUARTER-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS

Three months ended September 30

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(Dollars in thousands) Balance Expense Rate Balance Expense Rate

Loans and leases $ 32,707,591 $ 319,738 3.85 % $ 32,694,996 $ 336,934 4.06 %

Investment securities:

Treasury — — — 695,419 497 0.28

Government agency 824,499 2,076 1.01 587,377 1,335 0.91

Mortgage-backed securities 9,164,180 29,056 1.27 8,047,247 28,236 1.40

Corporate bonds 597,386 7,610 5.10 489,602 6,433 5.26

Other investments 121,454 544 1.78 110,552 739 2.66

Total investment securities 10,707,519 39,286 1.47 9,930,197 37,240 1.50

Overnight investments 8,956,055 3,395 0.15 2,992,183 757 0.10

Total interest-earning assets 52,371,165 362,419 2.73 45,617,376 374,931 3.24

Cash and due from banks 364,593 349,079

Premises and equipment 1,239,111 1,261,864

Allowance for credit losses (189,885) (222,793)

Other real estate owned 40,786 52,716

Other assets 2,096,588 1,203,913

Total assets $ 55,922,358 $ 48,262,155

Interest-bearing deposits:

Checking with interest $ 11,323,503 $ 1,350 0.05 % $ 9,239,838 $ 1,369 0.06 %

Savings 3,979,389 342 0.03 3,070,619 314 0.04

Money market accounts 9,866,327 2,357 0.09 8,108,832 3,634 0.18

Time deposits 2,599,006 4,024 0.61 3,205,850 8,151 1.01

Total interest-bearing deposits 27,768,225 8,073 0.12 23,625,139 13,468 0.23

Securities sold under customer repurchase agreements 672,114 358 0.21 710,237 395 0.22

Other short-term borrowings — — — — — —

Long-term borrowings 1,222,452 6,537 2.09 1,256,331 6,812 2.15

Total interest-bearing liabilities 29,662,791 14,968 0.20 25,591,707 20,675 0.32

Noninterest-bearing deposits 21,338,862 18,280,705

Other liabilities 384,113 370,668

Shareholders’ equity 4,536,592 4,019,075

Total liabilities and shareholders’ equity $ 55,922,358 $ 48,262,155

Interest rate spread 2.53 % 2.92 %

Net interest income and net yield on interest-earning assets $ 347,451 2.61 % $ 354,256 3.06 %

Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale.

Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for the three months ended September 30, 2021 and 2020, respectively.

The taxable-equivalent adjustment was $564 thousand and $597 thousand for the three months ended September 30, 2021 and 2020, respectively.

CONSOLIDATED YEAR-TO-DATE AVERAGE TAXABLE-EQUIVALENT BALANCE SHEETS

Nine months ended September 30

Interest Interest

Average Income/ Yield/ Average Income/ Yield/

(Dollars in thousands) Balance Expense Rate Balance Expense Rate

ASSET QUALITY

Ratio of nonaccrual loans to total loans 0.82 % 0.59 %

Allowance for credit losses to loans ratio 1.29 % 0.63 %

Net charge off ratio 0.09 % 0.03 %

(1) See “Non-GAAP Financial Measures” section for reconciliation of NIM presented to unadjusted NIM (GAAP).

(2) Average loan balances include held for sale and non-accrual loans.

First Quarter Highlights

• Net income for the first quarter of 2022 was $271 million, an increase of $124 million, or 84% compared to the same quarter in 2021.

Net income available to common stockholders totaled $264 million for the first quarter of 2022, an increase of $121 million, or 85% compared to the same quarter in 2021.

Net income per common share increased $2.17, or 15%, to $16.70 in the first quarter of 2022, from $14.53 per share during the same quarter in 2021.

The increases are primarily attributed to the CIT Merger.

• Certain notable items and approximate after-tax amounts and impacts on earnings per share included:

◦ Current expected credit losses (“CECL”) day 2 provision for loans and leases and unfunded commitments of $513 million ($387 million after tax, $24.50 per common share).

◦ Preliminary gain on acquisition of $431 million (non-taxable, $27.34 per common share) in other noninterest income, representing the excess of the fair value of net assets acquired over the purchase price.

◦ Gain on debt redemptions in other noninterest income of $6 million ($5 million after tax, $0.29 per common share) from approximately $2.9 billion of borrowings assumed in the CIT Merger.

◦ Merger related expenses of $135 million ($102 million after tax, $6.45 per common share) in other noninterest expenses.

◦ A reduction in other noninterest expenses of approximately $27 million ($20 million after tax, $1.28 per common share) related to the termination of certain healthcare and life insurance plans of legacy CIT, reflecting amounts previously accrued.

• Return on average assets for the first quarter of 2022 was 1.00%, compared to 1.16% in the first quarter of 2021.

• Net interest income (“NII”) was $649 million for the first quarter of 2022, an increase of $309 million, or 91% compared to the same quarter in 2021.

This was primarily due to the CIT Merger, partially offset by lower interest and fee income on SBA-PPP loans.

The net interest margin (“NIM”) was 2.73% for the first quarter of 2022, a decrease of 6 bps from 2.79% for the first quarter in 2021.

• Provision for credit losses was $464 million for the first quarter of 2022 compared to a benefit of $11 million for the same quarter in 2021.

While still low, net charge-off ratio was 0.09% for the first quarter of 2022, up from 0.03% for the first quarter of 2021.

• Noninterest income was $850 million for the first quarter of 2022, compared to $137 million for the same quarter of 2021, benefiting from the CIT Merger.

The current quarter includes a preliminary gain on acquisition of $431 million and rental income on operating leases of $208 million.

The remaining increase was driven by the added activity due to the CIT Merger.

• Noninterest expense was $810 million for the first quarter of 2022, compared to $297 million in the same quarter of 2021.

The increase is primarily associated with the CIT Merger, reflecting higher salaries and benefit costs of $168 million due to the increase in employees, $124 million of depreciation and maintenance costs associated with the operating lease portfolio and higher merger costs of $128 million.

• Total loans and leases of $65.5 billion increased $32.5 billion from December 31, 2021, reflecting the addition of $32.7 billion from the CIT Merger.

• Total deposits of $91.6 billion increased $40.2 billion from December 31, 2021, reflecting the addition of $39.4 billion from the CIT Merger.

• At March 31, 2022, BancShares remained well capitalized with a total risk-based capital ratio of 14.47%, a Tier 1 risk-based capital of 12.39%, a common equity Tier 1 ratio of 11.34% and a leverage ratio of 9.55%.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

NII reflects our interest income less interest expense and is included as a line item on the Consolidated Statements of Income.

NII was $649 million for the three months ended March 31, 2022, up from $340 million in the year-ago quarter.

The following table presents the average balance sheet and related rates, along with disaggregated quarter-over-quarter changes in NII between volume (level of lending or borrowing) and rate (rates charged to customers or incurred on borrowings).

Volume change is calculated as change in volume times the previous rate, while rate change is calculated as change in rate times the previous volume.

The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change.

Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis.

Average Balances and Rates

Three Months Ended

March 31, 2022 March 31, 2021 Change in NII Due to:

dollars in millions Average

Balance Income /

Expense Yield /

Balance Income /

Expense Yield /

Rate Volume (1)

Yield /Rate (1)

Loans and leases (1)(2)

Investment securities:

Treasury 126,363 172 0.18 401,666 2,853 0.95

Government agency 818,591 5,942 0.97 655,097 6,883 1.40

Mortgage-backed securities 8,676,573 74,936 1.15 7,224,224 87,475 1.61

Corporate bonds 604,241 23,158 5.11 332,029 12,692 5.10

Other investments 110,884 1,442 1.74 161,824 3,653 3.02

$ 64,144 $ 621 3.88 % $ 33,087 $ 323 3.92 % $ 301 $ (3) $ 298

Total investment securities 19,492 83 1.71 9,757 31 1.27 26 26 52

Overnight investments 7,560,072 6,948 0.12 2,228,338 5,828 0.35

Total interest-earning assets 50,882,100 1,080,829 2.81 42,151,861 1,109,092 3.48

Interest-earning deposits at banks 11,476 6 0.19 5,871 1 0.10 4 1 5

Total adjusted interest earning assets (2)

$ 95,112 $ 710 2.99 % $ 48,715 $ 355 2.92 % $ 331 $ 24 $ 355

Operating lease equipment, net (including held for sale) 7,924 —

Cash and due from banks 536 333

Premises and equipment 1,244,405 1,258,147

Allowance for credit losses (907) (224)

Other real estate owned 45,122 53,871

Other assets 1,609,717 1,225,569

All other noninterest bearing assets 6,569 2,585

Total assets $ 109,234 $ 51,409

1 unchanged sentence

Checking with interest $ 16,605 $ 5 0.10 % $ 10,746 $ 1 0.05 % $ 3 $ 1 $ 4

Money market 26,199 15 0.24 9,008 3 0.11 9 3 12

Savings 13,659 9 0.26 3,462 — 0.04 7 2 9

Money market accounts 9,488,641 7,500 0.11 7,583,359 19,262 0.34

Time deposits 9,794 10 0.43 2,805 5 0.66 7 (2) 5

1 unchanged sentence

Securities sold under customer repurchase agreements 600 — 0.16 641 — 0.21 — — —

Other short-term borrowings — — — 67,522 1,052 2.05

Long-term borrowings 1,228,546 19,611 2.10 1,164,475 19,831 2.24

Federal Home Loan Bank borrowings 641 2 1.27 651 2 1.28 — — —

Senior unsecured borrowings 2,719 12 1.71 — — — 12 — 12

Subordinated debt 1,060 8 2.96 497 4 3.37 4 — 4

Other borrowings 85 — 1.95 88 — 1.22 — — —

Total borrowings 4,505 22 1.95 1,236 6 2.12 16 — 16

Total interest-bearing liabilities $ 71,362 $ 61 0.35 % $ 27,898 $ 15 0.23 % $ 42 $ 4 $ 46

Noninterest-bearing deposits 25,317 18,837

Other liabilities 377,029 477,647

Shareholders’ equity 4,403,323 3,896,645

Total liabilities and shareholders’ equity $ 53,926,971 $ 44,834,045

Other noninterest-bearing liabilities 2,132 399

Stockholders' equity 10,423 4,275

Total liabilities and stockholders' equity $ 109,234 $ 51,409

Interest rate spread (2)

2.64 % 2.69 %

Net interest income and net yield on interest-earning assets (2)

Loans and leases include PCD loans, non-PCD loans, nonaccrual loans and loans held for sale.

Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 21.0%, as well as a blended state income tax rate of 3.3% and 3.4%, for the nine months ended September 30, 2021 and 2020, respectively.

The taxable-equivalent adjustment was $1.8 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively.

CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME

Three months ended September 30, 2021 Nine months ended September 30, 2021

Change from prior year period due to:

(Dollars in thousands) Volume (1)

Yield/Rate (1)

Total Change Volume (1)

Yield/Rate (1)

$ 649 2.73 % $ 340 2.79 %

(1) Loans and leases include non-PCD and PCD loans, nonaccrual loans and held for sale.

Interest income on loans and leases includes accretion income and loan fees.

(2) The balance and rate presented is calculated net of average credit balances of factoring clients.

See “Non-GAAP Financial Measures” section for description of adjusted interest earning assets and why these balances are shown net of credit balances of factoring clients.

First Quarter 2022 compared to First Quarter 2021

• NII was $649 million for the three months ended March 31, 2022, an increase of $309 million compared to the first quarter of 2021, primarily due to the CIT Merger, as well as loan growth absent the decline in SBA-PPP loans, partially offset by a decline in interest and fee income on SBA-PPP loans and lower yields on other interest-earning assets.

◦ Interest income earned on loans and leases was $621 million for the three months ended March 31, 2022, an increase of $298 million compared to 2021.

The increase was primarily due to the addition of $32.7 billion of loans acquired in the CIT Merger along with growth in loans, excluding SBA-PPP loans.

Partially offsetting was lower SBA-PPP interest and fee income.

SBA-PPP loans contributed $9 million in interest and fee income during the first quarter of 2022 compared to $31 million in the first quarter of 2021.

◦ Interest income earned on investment securities was $83 million for the three months ended March 31, 2022, an increase of $53 million compared to 2021.

The increase was primarily due to the addition of $6.6 billion of securities acquired in the CIT Merger and higher portfolio yield, reflecting the mix of acquired investments and a higher rate environment.

◦ Interest expense on interest-bearing deposits was $39 million for the three months ended March 31, 2022, an increase of $30 million compared to 2021.

The increase was primarily due to the additional interest-bearing deposits acquired in the CIT Merger, which also carried a higher average rate.

Interest expense on borrowings was $22 million for the three months ended March 31, 2022, an increase of $16 million compared to 2021.

The increase was primarily due to the assumed borrowings in the CIT Merger.

Utilizing excess cash, we redeemed approximately $2.9 billion of the $4.5 billion assumed debt during the quarter.

• NIM was 2.73% in the first quarter of 2022, a decrease of 6 bps from the comparable quarter in the prior year.

The margin decline reflected higher yield on our investment portfolio, offset by lower SBA-PPP income and purchase accounting accretion, which reduced the loan portfolio yield, and higher rates on deposits.

• Average interest-earning assets increased to $95.1 billion for the first quarter of 2022, compared to $48.7 billion in the first quarter of 2021.

The primary driver for this change was the added assets from the CIT Merger.

The following table details the average interest earning asset by category.

Average Interest-earning Asset Mix

% of Total Interest-earning Assets

Three months ended

March 31, 2022 March 31, 2021

Loans and leases 67 % 68 %

Investment securities 21 % 20 %

Treasury (497) — (497) (1,956) (725) (2,681)

Government agency 539 202 741 1,718 (2,659) (941)

Mortgage-backed securities 3,787 (2,967) 820 17,444 (29,983) (12,539)

Corporate bonds 1,416 (239) 1,177 10,406 60 10,466

Other investments 75 (270) (195) (1,180) (1,031) (2,211)

Total investment securities 5,320 (3,274) 2,046 26,432 (34,338) (7,906)

Overnight investments 1,516 1,122 2,638 13,953 (12,833) 1,120

Interest-bearing cash 12 % 12 %

Total interest earning assets 100 % 100 %

Interest-bearing deposits:

Checking with interest $ 313 $ (332) $ (19) $ 1,195 $ (1,312) $ (117)

Savings 94 (66) 28 294 (239) 55

Money market accounts 800 (2,077) (1,277) 4,845 (16,607) (11,762)

Time deposits 1,525 (5,652) (4,127) (6,827) (11,519) (18,346)

• Average interest-bearing liabilities increased to $71.4 billion compared to $27.9 billion the first quarter of 2021, reflecting the addition of deposits and borrowings from the CIT Merger.

The following table shows our average funding mix.

Average Funding Mix

% of Total Interest-bearing Liabilities

Three months ended

March 31, 2022 March 31, 2021

Total interest-bearing deposits 93 % 93 %

Securities sold under customer repurchase agreements 1 % 2 %

Other short-term borrowings (248) 248 — (1,052) — (1,052)

Long-term borrowings 6 % 5 %

Total interest-bearing liabilities 2,225 (7,932) (5,707) 725 (32,351) (31,626)

Change in net interest income $ 4,607 $ (11,412) $ (6,805) $ 90,483 $ (87,120) $ 3,363

(1) The rate/volume variance is allocated proportionally between the changes in volume and rate.

RESULTS OF OPERATIONS

Net Interest Income and Margin (Taxable-Equivalent Basis)

Third Quarter 2021 compared to Third Quarter 2020

Taxable-equivalent net interest income totaled $347.5 million for the third quarter of 2021, a decrease of $6.8 million, or 1.9%, compared to the third quarter of 2020.

The decline in net interest income was driven primarily by a decline in the yield on interest-earning assets due to the sustained low rate environment and a reduction in interest and fee income on SBA-PPP loans.

These declines were partially offset by organic loan growth, higher average investment balances as we have deployed some of the excess liquidity on our balance sheet, and a decline in the rate paid on interest bearing deposits.

SBA-PPP loans contributed $20.0 million in interest and fee income for the third quarter of 2021 compared to $28.9 million for the same quarter in 2020.

While SBA-PPP loans continue to support overall net interest income, the contribution from these loans continues to decline as forgiveness activity continues.

Net interest income increased $0.5 million compared to the linked quarter despite a decline in SBA-PPP income and continued low interest rates.

Higher investment and overnight yields and balances, organic loan growth and slightly lower deposit costs more than offset rate pressure on loans and a decline in SBA-PPP income.

SBA-PPP loans contributed $27.2 million in interest and fee income for the second quarter of 2021.

The taxable-equivalent NIM was 2.61% in the third quarter of 2021, a decrease of 45 basis points from the comparable quarter of 2020.

The margin decline was primarily due to changes in earning asset mix driven by excess liquidity and higher balances in overnight investments as well as declines in loan yields.

These declines were partially offset by lower rates paid on interest-bearing deposits and increased yield on SBA-PPP loans.

As with prior quarters, we continue to operate with liquidity above normal operating ranges which puts downward pressure on net interest margin.

The level of organic loan growth has helped to somewhat protect taxable equivalent NIM from the impacts of the low interest rate environment.

We have also opportunistically deployed incremental liquidity of $1 billion into the investment portfolio since the third quarter of 2020.

The taxable-equivalent NIM declined 7 basis points from 2.68% for the linked quarter primarily due to changes in earning asset mix as our overnight investments continued to grow, partially offset by higher investment yields.

Nine Months of 2021 compared to Nine Months of 2020

The taxable-equivalent net interest income for the nine months ended September 30, 2021 was $1.0 billion, an increase of $3.4 million, or 0.3%, compared to the same period in 2020.

This increase was primarily due to organic loan growth, an increase in interest and fee income on SBA-PPP loans, and lower rates paid on interest-bearing deposits.

These increases were largely offset by a decline in the yield on interest-earning assets.

SBA-PPP loans contributed $78.1 million in interest and fee income for the nine months ended September 30, 2021, compared to $47.9 million for the same period in 2020.

The taxable-equivalent NIM was 2.69% for the nine months ended September 30, 2021, a decrease of 54 basis points from the comparable period of 2020.

The margin decline was primarily due to changes in earning asset mix and a decline in the yield on interest-earning assets, partially offset by lower rates paid on interest-bearing deposits and increased income on SBA-PPP loans.

• Rates on interest-bearing liabilities increased by 12 bps to 0.35%, primarily due to the higher rates on the deposits and borrowings acquired in the CIT Merger.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was a benefit of $1.1 million for the third quarter of 2021, compared to an expense of $4.0 million for the comparable quarter in 2020.

The third quarter of 2021 was favorably impacted by a $5.9 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors.

The comparable quarter in 2020 included a $1.5 million reserve build due to continued uncertainties surrounding the COVID-19 pandemic and net loan growth.

Total net charge-offs for the third quarter of 2021 were $4.8 million, an increase from $2.6 million for the comparable quarter in 2020 due to a higher volume of charge-offs and lower recoveries.

The net charge-off ratio was 0.06% for the third quarter of 2021 compared to 0.03% for the same quarter in 2020.

The impact of SBA-PPP loans on average loan balances did not affect the net charge-off ratio in either three-month period.

For the nine months ended September 30, 2021, provision for credit losses was a benefit of $31.7 million compared to $52.9 million in expense for the first nine months of 2020.

Provision for credit losses for the nine months ended September 30, 2021 was favorably impacted by a $41.1 million reserve release driven primarily by continued strong credit performance, low net charge-offs and improvement in macroeconomic factors.

The comparable period in 2020 included $36.1 million reserve build related to uncertainties surrounding the COVID-19 pandemic.

Net charge-offs for the nine months ended September 30, 2021 were $9.4 million, a decrease from $17.4 million for the comparable period in 2020 due to a lower volume of charge-offs and stable recoveries.

The net charge-off ratio was 0.04% for the nine months ended September 30, 2021 compared to 0.07% for the same period in 2020.

The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021.

Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.

The provision for credit losses was $464 million for the first quarter of 2022, compared to a benefit of $11 million for the same quarter in 2021.

The increase of $475 million was primarily due to the impact of the CIT Merger.

The initial ACL for Non-Purchased Credit Deteriorated (“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”).

The provision for credit losses for unfunded commitments increased to $63 million for the first quarter of 2022 compared to a benefit of $1 million for the first quarter of 2021.

The increase of $64 million was primarily due to the $59 million provision for unfunded commitments recognized on the Merger Date related to off balance sheet exposures acquired in the CIT Merger.

The noted increases to the provision for credit losses of $513 million related to the CIT Merger were partially offset by a benefit of $53 million, primarily related to improvements in the most significant economic factors used to determine the ACL as of March 31, 2022 compared to the economic factors used to determine the ACL as of the Merger Date.

The ACL is further discussed in Risk Management - Credit Risk Management below.

NONINTEREST INCOME

Noninterest Income

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Rental income on operating leases $ 208 $ —

Other noninterest income

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

Total noninterest income $ 122,944 $ 120,572 $ 393,743 $ 349,985

Noninterest income is an essential component of our total revenue and is critical to our profitability level.

The primary sources of noninterest income consist of wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, and mortgage lending and servicing.

Noninterest income for the third quarter of 2021 was $122.9 million, compared to $120.6 million for the same period of 2020, an increase of $2.4 million, or 2.0%.

The most significant components of the change were as follows:

• A $6.1 million favorable change in the fair market value adjustments on marketable equity securities.

• Wealth management services increased by $5.6 million, primarily due to growth in assets under management driving higher advisory and transaction fees.

• Service charges on deposit accounts increased by $4.0 million due to volume.

• Cardholder services income, net increased by $3.1 million and merchant services, net increased by $1.6 million, primarily due to an increase in transaction volume.

• Realized gains on investment securities available for sale, net declined by $13.3 million.

• Mortgage income decreased by $7.0 million, driven by reductions in gain on sale margins and lower production volume in 2021 due to higher mortgage rates and increased competition.

Noninterest income was $393.7 million for the first nine months of 2021, compared to $350.0 million for the same period of 2020, an increase of $43.8 million, or 12.5%.

The most significant components of the change were as follows:

• Wealth management services increased by $20.7 million, primarily due to growth in assets under management driving higher advisory and transaction fees.

• A $20.6 million favorable change in the fair market value adjustments on marketable equity securities.

• Cardholder services income, net increased by $9.8 million and merchant services, net increased by $7.8 million, primarily due to an increase in transaction volume.

• Realized gains on investment securities available for sale declined by $21.9 million.

Marketable equity securities gains, net 3 16

Gain on acquisition 431 —

Gain (loss) on extinguishment of debt 6 —

Other noninterest income 38 20

Total other noninterest income $ 642 $ 137

Noninterest Income

Noninterest income is an essential component of our total revenue.

The primary sources of noninterest income consist of rental income on operating leases, wealth management services, fees and service charges generated from deposit accounts, cardholder and merchant services, factoring commissions and mortgage lending and servicing.

A primary driver of the increases from the first quarter of 2021 to the first quarter of 2022 was the addition of income related to the CIT Merger.

Rental income from equipment we lease is generated primarily in the Rail segment and to a lesser extent, in the Commercial Banking segment.

Revenue is generally dictated by the size of the portfolio, re-pricing of equipment upon lease maturities and pricing on new equipment leases.

Re-pricing refers to the rental rate in the renewed equipment contract compared to the prior contract.

Refer to the Rail discussion in the Results by Business Segment section for further details.

Other noninterest income for the first quarter of 2022 was $642 million, compared to $137 million for the same period in 2021.

The increase for the comparable period was primarily due to the preliminary estimated gain on acquisition related to the CIT Merger.

See Note 2 — Business Combinations for details.

The remaining increase was primarily due to the following:

• Fee income and other revenue, consisting of items such as capital market-related fees, fees on lines and letters of credit, agent and advisory fees, servicing and insurance fees, increased by $24 million, reflecting the added CIT activity.

• Factoring commissions totaled $27 million during the quarter on factoring volume of $6.4 billion.

See Results By Business Segment - Commercial Banking below for a brief discussion on the factoring business.

• Cardholder services and merchant services increased by $6 million primarily due to an increase in the volume of transactions processed.

• Service charges on deposit accounts increased by $6 million, primarily due to additional customer deposit balances acquired in the CIT Merger.

In January, we announced our intent to eliminate our NSF fees and significantly lower our overdraft fees from $36 to $10 on consumer accounts beginning mid-year 2022.

• Wealth management services increased by $3 million, primarily due to increases in advisory and transactions fees, assets under management and annuity fees.

• Gains on equipment sales were $6 million during the quarter and are recognized on operating lease equipment sold, primarily related to rail equipment.

• During the quarter, we redeemed approximately $2.9 billion of borrowings assumed in the CIT Merger, resulting in a $6 million gain in debt extinguishment.

• Realized gains on sales of investment securities declined by $9 million.

• The fair market value adjustment on marketable equity securities declined by $13 million.

• Other noninterest income increased by $18 million and primarily consisted of insurance commissions, bank owned life insurance (“BOLI”) income, gain on sales of loans and OREO.

Other noninterest income also includes derivative-related gains and losses, ATM fees, and other various income items.

NONINTEREST EXPENSE

Noninterest Expense

Three months ended September 30 Nine months ended September 30

(Dollars in thousands) 2021 2020 2021 2020

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

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Depreciation on operating lease equipment $ 81 $ —

Maintenance and other operating lease expenses 43 —

Operating expenses

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

Telecommunications expense 3,111 3,197 9,331 8,985

Consultant expense 3,338 2,936 8,176 9,223

Advertising expense 3,024 2,396 7,210 7,045

Core deposit intangible amortization 2,638 3,468 8,523 10,999

Other 21,172 23,391 58,505 72,004

Total noninterest expense $ 312,818 $ 291,662 $ 910,322 $ 883,312

The primary components of noninterest expense are salaries and related employee benefits, occupancy and equipment expense.

Noninterest expense was $312.8 million during the third quarter of 2021, an increase of $21.2 million, or 7.3%, compared to the same quarter in 2020.

The most significant components of the change were as follows:

• Salaries and wages increased $13.7 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.

• Processing fees paid to third parties increased $3.7 million driven by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.

• Merger-related expenses increased $3.5 million in anticipation of the upcoming merger with CIT.

Noninterest expense was $910.3 million for the first nine months of 2021, compared to $883.3 million for the same period in 2020, an increase of $27.0 million, or 3.1%.

Intangible asset amortization 6 3

Total operating expenses $ 686 $ 297

Depreciation on Operating Lease Equipment

Depreciation expense is driven by rail equipment and small and large ticket equipment we own and lease to others.

Operating lease activity is in the Rail and Commercial Banking segments.

The useful lives of rail equipment is generally longer in duration, 40-50 years, whereas small and large ticket equipment is generally 3-10 years.

Refer to the Rail discussion in the Results by Business Segments section for further details.

Maintenance and Other Operating Lease Expenses

Maintenance and other operating lease expenses of $43 million for the three months ended March 31, 2022 related to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable.

Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for railcar maintenance and repair.

Refer to the Rail discussion in the Results by Business Segment section for further details.

Operating Expenses

The primary components of operating expenses are salaries and related employee benefits, occupancy and equipment expense.

Operating expenses were $686 million during the first quarter of 2022.

The increase compared to the same quarter in 2021 was primarily driven by the CIT Merger.

The most significant components of the change were as follows:

• Salaries and wages increased $23.2 million driven primarily by annual merit increases, increases in revenue-driven incentives, and an increase in temporary personnel costs.

• Processing fees paid to third parties increased $11.2 million by our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.

• Merger-related expenses increased $7.5 million in anticipation of the upcoming merger with CIT.

• Other expenses decreased $16.5 million primarily due to a decrease in pension expense as a result of higher returns on plan assets, coupled with a reduction in the reserve for unfunded commitments.

• Collection and foreclosure-related expenses declined $7.0 million.

Income tax expense was $34.1 million and $35.8 million for the third quarter of 2021 and 2020, respectively, representing effective tax rates of 21.5% and 20.1% during the respective periods.

Income tax expense totaled $123.9 million and $89.5 million for the first nine months of 2021 and 2020, respectively, representing effective tax rates of 22.6% and 20.2% for the respective nine month periods.

The effective tax rates during 2020 were favorably impacted by BancShares’ decision to utilize an allowable alternative for computing its federal income tax liability.

The allowable alternative provided BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.

Without this alternative, the effective tax rate is materially unchanged for the third quarter and first nine months of 2021 and the effective tax rate for the third quarter and first nine months of 2020 would have been approximately 22.0% and 22.6% respectively.

We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expenses and income tax liabilities.

• Salaries and benefits, which includes salaries, wages and employee benefits, were up $168 million, primarily reflecting the added headcount.

• Net occupancy expense includes rent expense on leased office space and depreciation on buildings we own.

The $19 million increase reflects the added branches and office space from the CIT Merger.

• Equipment expense increased $22 million, reflecting the additional costs for the IT systems from the CIT Merger.

• Third-party processing fees increased $10 million as a result of the CIT Merger and our continued investments in digital and technology to support revenue-generating businesses and improve internal processes.

• Merger-related expenses increased by $128 million, driven by expenses related to the CIT Merger, including severance, retention, consulting and legal costs.

• The $9 million increase in FDIC insurance expense reflects the additional deposits acquired in the CIT Merger.

• Intangible amortization was up $3 million, reflecting the additional amortization on the core deposit intangible asset recorded in the CIT Merger.

See Note 2 — Business Combinations for additional information.

• Other expense increased by $30 million and consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, advertising, consulting, telecommunications and other miscellaneous expenses including travel, postage, supplies, and appraisal expense.

The first quarter of 2022 included a $27 million reversal of an accrual related to legacy CIT postretirement plans that were terminated after the acquisition date.

See Note 21 — Employee Benefit Plans.

Income Tax Data

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Income before income taxes $ 225 $ 191

Income taxes (46) 44

Effective tax rate (20.4) % 23.0 %

The effective tax rate (“ETR”) was (20.4)% in the current quarter, compared to 23.0% in the year-ago quarter.

The effective rate for the three months ended March 31, 2022 was primarily driven by the non-taxable nature of the preliminary bargain purchase gain arising from the CIT Merger.

The ETR each quarter is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances, and discrete items.

The future period’s ETR may vary from the actual 2022 ETR due to changes in these factors.

We monitor and evaluate the potential impact of current events on the estimates used to establish income tax expense and income tax liabilities.

On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors.

See Note 20 — Income Taxes for additional information.

RESULTS BY BUSINESS SEGMENT

Prior to the CIT Merger, BancShares operated with centralized management and combined reporting, thus, BancShares operated as one consolidated reportable segment.

Due to the CIT Merger, we made changes to reflect the inclusion of CIT operations and to reflect how we manage the combined business.

As summarized in the sections below, BancShares now reports financial results in three operating segments:

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

We conformed prior period comparisons to this new segment presentation.

Based on the approach for segment disclosures, the substantial majority of BancShares’ operations for historical periods prior to the CIT Merger are reflected in the General Banking segment.

See Note 22 — Business Segments for related disclosures on the segments.

Results in our business segments reflect our funds transfer policy and allocation of expenses.

Unallocated balances and, when applicable, certain notable items, are reflected in Corporate.

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 and property management companies.

As part of the CIT Merger, 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.

General Banking:

Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

Net interest income $ 437 $ 344

Benefit for credit losses (15) (11)

Net interest income after benefit for credit losses 452 355

Noninterest income 123 110

Noninterest expense 409 290

Segment income before income taxes 166 175

Provision for income taxes 40 40

Segment net income $ 126 $ 135

Select Period End Balances

Loans and leases $ 38,778 $ 32,580

Deposits 85,469 47,277

Results for the quarter reflect the additional activity from the CIT Merger, driving the increase in NII.

Noninterest income is driven by fees from services we provide to our customers, such as wealth management and cardholder, plus service charges on deposits.

Noninterest expense was higher, primarily due to the additional costs associated with the larger business and additional employees.

The results for the three months ended March 31, 2021 reflect the vast majority of the historic operating activity for BancShares only.

Loans and leases increased, reflecting the additional residential mortgages and consumer loans acquired in the CIT Merger, partially offset by run-off of SBA-PPP loans.

Deposits include deposits from the branch, online and community association banking channels, most of which were acquired in the CIT Merger.

See discussions in Net Interest Income and Deposits sections.

The additional branches acquired in the CIT Merger were mostly in California.

Commercial Banking

Commercial Banking provides lending, leasing and other financial and advisory services, primarily to small and middle-market companies across 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.

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).

Commercial Banking:

Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

Net interest income $ 207 $ 4

Benefit for credit losses (34) —

Net interest income after benefit for credit losses 241 4

Noninterest income 112 —

Noninterest expense 191 1

Segment income before income taxes 162 3

Provision for income taxes 41 1

Segment net income $ 121 $ 2

Select Period End Balances

Loans and leases $ 26,672 $ 601

Deposits 4,687 54

Factoring volume 6,433 —

Results for the current quarter primarily reflect activity from the former CIT businesses which are not included in the year-ago activity.

Noninterest income primarily includes rental income on operating lease equipment of $49 million and factoring commissions of $27 million, plus other fee and income items.

Noninterest expense reflects normal operating costs and includes depreciation on operating lease equipment of $40 million.

The increase in loans and leases and deposits for the three months ended March 31, 2022 reflect those acquired in the CIT Merger.

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.

Revenues are primarily generated from operating lease income.

Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

Rental income on operating leases $ 159 $ —

Depreciation on operating lease equipment 41 —

Maintenance and other operating lease expenses 43 —

Net revenue on operating leases (1)

Interest expense, net 19 —

Noninterest income 3 —

Noninterest expense 16 —

Segment income before income taxes 43 —

Provision for income taxes 11 —

Segment net income $ 32 $ —

Select Period End Balances

Operating lease equipment, net $ 7,251 $ —

(1) Net revenue on operating leases is a non-GAAP measure.

See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (segment net income) to the non-GAAP measure (net revenue on operating leases).

Net income and net revenue on operating leases are utilized to measure the profitability of our Rail segment.

N et revenue on operating leases reflects rental income on operating lease equipment less depreciation on operating lease equipment and maintenance and other operating lease expenses.

Due to the nature of our portfolio, which is essentially all operating lease equipment, certain financial measures commonly used by banks, such as NII, are not as meaningful for this business.

NII is not used because it includes the impact of debt costs of our operating lease assets but excludes the associated rental income.

Net income and net revenue on operating leases for the three months ended March 31, 2022, were $32 million and $75 million, respectively.

Our fleet is diverse and pricing on new leases averaged 108% of the previous rate, strengthened by various railcar types during the quarter.

Our railcar utilization, including commitments to lease, was 95.5% at March 31, 2022, representing improvement in many railcar types.

Depreciation is recognized on railcars.

Maintenance and other operating lease expenses tend to be variable.

Maintenance costs relate to freight and storage costs, reflecting railcars returned, and costs to put cars back on lease.

Rail customers include all of the U.S.

and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater), other railroads, as well as manufacturers and commodity shippers.

At March 31, 2022 our total operating lease fleet consisted of approximately 119,600 railcars.

The following table reflects the proportion of railcars by type based on units and net investment, respectively:

Operating lease Railcar Portfolio by Type as of March 31, 2022 (units and net investment)

Railcar Type Total Owned

Fleet - % Total Units Total Owned

Fleet - % Total

Net Investment

Covered Hoppers 42 % 40 %

Tank Cars 30 % 41 %

Mill/Coil Gondolas 8 % 6 %

Boxcars 6 % 7 %

Other 6 % 5 %

Total 100 % 100 %

Rail Operating Lease Equipment by Obligor Industry

dollars in millions March 31, 2022

Manufacturing $ 2,879 40 %

Rail 2,306 32 %

Wholesale 945 13 %

Oil and gas extraction / services 447 6 %

Energy and utilities 224 3 %

Other 450 6 %

Total $ 7,251 100 %

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.

Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

Net interest income (expense) $ 24 $ (8)

Provision for credit losses 513 —

Net interest expense after provision for credit losses (489) (8)

Noninterest income 453 27

Noninterest expense 110 6

Segment (loss) income before income taxes (146) 13

(Benefit) provision for income taxes (138) 3

Segment net (loss) income $ (8) $ 10

Results for the three months ended March 31, 2022 were driven by impacts from the CIT Merger.

Results in the current quarter included notable items of $513 million related to the Initial Non-PCD Provision, a preliminary gain on acquisition of $431 million (noninterest income) and $135 million of merger related expenses.

BALANCE SHEET ANALYSIS

Interest-earning Assets

Interest-earning assets include overnight investments, investment securities and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset.

Riskier investments typically carry a higher interest rate but expose us to higher levels of market risk.

Interest-earning assets include interest-bearing cash, investment securities, loans and leases, and loans and leases held for sale, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset.

Higher risk investments typically carry a higher interest rate but expose us to higher levels of market and/or credit risk.

We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum.

Interest-earning assets totaled $53.4 billion and $47.2 billion at September 30, 2021 and December 31, 2020, respectively.

The $6.2 billion increase was primarily composed of a $5.5 billion increase in overnight investments and a $952.4 million increase in investment securities, partially offset by a $275.8 million decrease in loans.

Interest-earning Deposits at Banks

Interest-bearing cash totaled $9.3 billion at March 31, 2022, up from $9.1 billion at December 31, 2021, reflecting lending and deposit levels, and the timing of investment maturities.

While the CIT Merger added nearly $2.9 billion at the time of the merger, that was offset by the use of cash for the redemption of approximately $2.9 billion of assumed debt.

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities with minimal liquidity and credit risk, and low to moderate interest rate risk.

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit risk.

Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives.

Additionally, purchases of equities and corporate bonds in other financial institutions have been made largely under a long-term earnings optimization strategy.

Changes in the total balance of our investment portfolio result from trends in balance sheet funding and market performance.

Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio and into overnight investments.

Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand.

See Note C - Investments to our consolidated financial statements for additional disclosures.

The carrying value of investment securities totaled $10.9 billion at September 30, 2021, an increase of $952.4 million compared to December 31, 2020 attributable to our continued growth in deposits.

During the period we had $5.0 billion in investment security purchases, partially offset by sales of $1.4 billion and maturities and paydowns of $2.6 billion.

Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income, net of deferred taxes.

As of September 30, 2021, investment securities available for sale had a net pre-tax unrealized gain of $26.0 million, compared to a net pre-tax unrealized gain of $102.3 million as of December 31, 2020.

Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses relate to changes in interest rates relative to when the securities were purchased, and therefore, no allowance for credit losses was recorded at September 30, 2021 or December 31, 2020.

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

Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance.

Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into overnight investments.

Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow any overnight investments to decline and use proceeds from maturing securities and prepayments to fund loan demand.

See Note 1 — Accounting Policies and Basis of Presentation, and Note 3 — Investments, for additional disclosures regarding investment securities.

The carrying value of investment securities totaled $19.5 billion at March 31, 2022, an increase of $6.4 billion compared to December 31, 2021, primarily reflecting the CIT Merger, which added $6.6 billion at the time of the merger.

The remaining activity in the portfolio included investment securities purchases of $0.8 billion, partially offset by maturities and paydowns of $0.6 billion.

Available for sale securities are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes.

As of March 31, 2022, investment securities available for sale had a net pre-tax unrealized loss of $431 million, compared to a net pre-tax unrealized loss of $12 million as of December 31, 2021.

Management evaluated the available for sale securities in an unrealized loss position and concluded that the unrealized losses related to changes in interest rates relative to when the securities were purchased, and therefore, no ACL was needed at March 31, 2022.

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.

Given the consistently strong credit rating of the U.S.

Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit losses was needed at September 30, 2021 and December 31, 2020.

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 was needed at March 31, 2022 and December 31, 2021.

Table 14 presents the investment securities portfolio at March 31, 2022 and December 31, 2021, segregated by major category.

Investment Securities

September 30, 2021 December 31, 2020

(Dollars in thousands) Composition (1)

March 31, 2022 December 31, 2021

dollars in millions Composition (1)

Amortized cost Fair

value Composition (1)

Composition (1)

Amortized cost Fair

8 unchanged sentences

Investment securities held to maturity

Treasury 2.4 % $ 471 $ 447 — % $ — $ —

Government agency 7.8 % 1,541 1,463 — % — —

Residential mortgage-backed securities 23.6 % 4,776 4,461 17.7 % 2,323 2,307

Commercial mortgage-backed securities 14.9 % 2,988 2,805 11.0 % 1,485 1,451

Other 0.1 2,008 2,008 0.1 2,256 2,256

Supranational securities 1.5 % 294 277 — % — —

Other investments — % 4 4 — % 2 2

Total investment securities held to maturity 50.2 % $ 10,074 $ 9,457 28.7 % $ 3,810 $ 3,760

1 unchanged sentence

(1) Calculated as a percent of the total fair value of investment securities.

Table 9 presents the weighted average taxable-equivalent yields for investment securities available for sale and held to maturity at September 30, 2021 segregated by major category with ranges of contractual maturities.

The weighted average yield on the portfolio is calculated using security-level yields.

Table 15 presents the weighted average yields for investment securities available for sale and held to maturity at March 31, 2022, segregated by major category with ranges of contractual maturities.

The weighted average yield on the portfolio is calculated using security-level annualized yields.

Weighted Average Yield on Investment Securities

September 30, 2021

March 31, 2022

One Year One to Five

2 unchanged sentences

Investment securities available for sale

Treasury 0.11 % 0.96 % — % — % 0.96 %

Government agency — % 3.44 % 2.78 % 2.81 % 2.79 %

Residential mortgage-backed securities 1.70 % 1.84 % 2.18 % 1.50 % 1.51 %

— — 1.80 1.26 1.27

Commercial mortgage-backed securities — % 3.16 % 4.02 % 2.17 % 2.20 %

— — 3.19 2.04 2.09

Corporate bonds 3.54 % 5.88 % 5.43 % 5.28 % 5.46 %

1 unchanged sentence

Investment securities held to maturity

Treasury — % 1.19 % 1.44 % — % 1.38 %

Government agency — % 1.26 % 1.70 % — % 1.49 %

Residential mortgage-backed securities (1)

2 unchanged sentences

— % — % 2.37 % 1.84 % 1.84 %

Supranational Securities — % 1.23 % 1.64 % — % 1.56 %

Other investments 0.59 % — % — % — % 0.59 %

2 unchanged sentences

The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

Assets Held for Sale

Assets held for sale were $83 million at March 31, 2022, of which $81 million related to loans and remainder to non-interest earning operating lease equipment.

The decrease since December 31, 2021 is primarily due to loan sales, partially offset by assets acquired in the CIT Merger and originations.

Certain residential real estate loans and commercial loans are originated to be sold to investors or lenders, respectively, and are recorded in assets held for sale at fair value.

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

At that time, portfolio loans are transferred to loans held for sale at fair value.

Loans and Leases

Loans held for sale were $98.5 million at September 30, 2021, a net decrease of $26.4 million since December 31, 2020.

At September 30, 2021, loans totaled $32.5 billion, a decrease of $275.8 million, or by 1.1% on an annualized basis since December 31, 2020.

Excluding SBA-PPP loans, total loans increased $1.0 billion, or by 4.6% on an annualized basis since December 31, 2020.

BancShares reports non-PCD and PCD loan portfolios separately, and the non-PCD portfolio is further divided into commercial and consumer segments.

Non-PCD loans and leases were $32.1 billion at September 30, 2021 and $32.3 billion at December 31, 2020, representing 98.9% and 98.6% of total loans, respectively.

PCD loans at September 30, 2021 were $373.3 million, compared to $462.9 million at December 31, 2020, representing 1.1% and 1.4% of total loans, respectively.

The discount related to acquired non-PCD loans and leases was $13.4 million and $19.5 million at September 30, 2021 and December 31, 2020, respectively.

The discount related to PCD loans was $32.6 million and $45.3 million at September 30, 2021 and December 31, 2020, respectively.

During the three months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $1.2 million and $2.8 million, respectively, while interest and accretion income on PCD loans was $10.8 million and $15.0 million, respectively.

During the nine months ended September 30, 2021 and 2020, accretion income on purchased non-PCD loans and leases was $6.1 million and $7.8 million, respectively, while interest and accretion income on PCD loans was $34.5 million and $48.0 million, respectively

Loans and leases held for investment were $65.5 billion at March 31, 2022, an increase of $32.5 billion since December 31, 2021, primarily related to the $32.7 billion of loans acquired as part of the CIT Merger and partially offset by a reduction in SBA-PPP loans.

Upon completion of the CIT Merger, we re-evaluated our loan classes to reflect the risk characteristics of the combined portfolio.

BancShares reports its commercial loan portfolio in the following classes:

commercial construction, owner occupied commercial mortgage, non-owner occupied commercial mortgage, commercial and industrial, and leases.

The consumer portfolio reflects residential mortgage, revolving mortgage, consumer auto and consumer other.

Commercial loans at March 31, 2022 were $50.1 billion compared to $22.6 billion at December 31, 2021, representing 76% and 70% of total loans and leases, respectively.

Consumer loans at March 31, 2022 were $15.4 billion, compared to $9.8 billion at December 31, 2021, representing 24% and 30% of total loans and leases, respectively.

Loans and Leases

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

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

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

Total non-PCD loans and leases 32,142,934 32,329,093

PCD loans 373,255 462,882

Total consumer $ 15,423 $ 9,786

Total loans and leases 65,524 32,372

1 unchanged sentence

Net loans and leases $ 64,676 $ 32,194

Non-PCD and PCD loans were $62.1 billion and $3.4 billion at March 31, 2022, respectively, compared to $32.0 billion and $0.3 billion at December 31, 2021, respectively.

The discount related to acquired non-PCD loans was $74.7 million and $11.4 million at March 31, 2022 and December 31, 2021, respectively.

The discount related to PCD loans was $66.9 million and $29.0 million at March 31, 2022 and December 31, 2021, respectively.

OPERATING LEASE EQUIPMENT, NET

As detailed in the following table, our operating lease portfolio is mostly comprised of rail assets.

See the Rail segment section for further details on the rail portfolio.

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.

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings.

Interest-bearing liabilities totaled $69.0 billion at March 31, 2022, compared to $31.8 billion at December 31, 2021.

The increase was mostly due to deposits and borrowings from the CIT Merger, partially offset by the redemption of assumed debt during the quarter.

See Note 2 — Business Combinations for details on deposits and borrowings associated with the CIT Merger.

At March 31, 2022, total deposits were $91.6 billion, an increase of $40.2 billion since December 31, 2021, driven by the $39.4 billion of deposits from the CIT Merger.

As part of the CIT Merger, we acquired CIT’s online banking platform and a leading HOA deposit channel.

dollars in millions March 31, 2022 December 31, 2021

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

We strive to maintain a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective.

We believe traditional bank deposit products remain an attractive option for many customers, as evidenced by the significant deposit growth the industry has experienced over the past 18 months.

As economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are withdrawn.

Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost.

We estimate total uninsured deposits were $31.3 billion and $23.0 billion at March 31, 2022 and December 31, 2021, respectively.

Table 20 provides the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of March 31, 2022.

Maturities of Time Deposits In Excess of $250,000

dollars in millions March 31, 2022

Time deposits maturing in:

Three months or less $ 470

Over three months through six months 346

Over six months through 12 months 456

More than 12 months 319

Total $ 1,591

At March 31, 2022, total borrowings were $3.3 billion compared to $1.8 billion at December 31, 2021.

The $1.5 billion increase was due to the $4.5 billion debt assumed in the CIT Merger.

As part of liability management and to reduce higher debt costs, on February 24, 2022, BancShares redeemed approximately $2.9 billion of senior unsecured notes that were assumed in the CIT Merger.

This included all of the outstanding approximately $1.1 billion aggregate principal amount of the 5.000% Senior Unsecured Notes due 2022, $750 million aggregate principal amount of the 5.000% Senior Unsecured Notes due 2023, $500 million aggregate principal amount of the 4.750% Senior Unsecured Notes due 2024, and $500 million aggregate principal amount of the 5.250% Senior Unsecured Notes due 2025.

Table 20 presents borrowings, including the respective unamortized purchase accounting adjustments and issuance costs.

dollars in millions March 31, 2022 December 31, 2021

Securities sold under customer repurchase agreements $ 616 $ 589

Federal Home Loan Bank borrowings 639 645

Senior Unsecured Borrowings

3.929% fixed-to-floating rate notes due June 2024 (1)

2.969% fixed-to-floating rate notes due September 2025 (1)

6.000% fixed rate notes due April 2036 (1)

Subordinated debt

SCB Capital Trust I - floating rate debenture due April 2034 10 11

FCB/SC Capital Trust II - floating rate debenture due June 2034 18 18

FCB/NC Capital Trust III - floating rate debenture due June 2036 88 88

Macon Capital Trust I - floating rate debenture due March 2034 14 14

3.375 % fixed-to-floating rate notes due March 2030 347 347

6.125% fixed rate notes due March 2028 (1)

4.125% fixed-to-fixed rate notes due November 2029 (1)

Total subordinated debt 1,058 478

Other borrowings 84 72

Total borrowings $ 3,292 $ 1,784

(1) Debt assumed in the CIT Merger.

BancShares owns four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III, and Macon Capital Trust I (the “Trusts”), which mature in 2034, 2034, 2036, and 2034, respectively.

Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time.

BancShares has guaranteed all obligations of SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III, and Macon Capital Trust I.

RISK MANAGEMENT

BancShares provided detail risk management information in our 2021 Form 10-K.

The following is a summary of those disclosures or updates to those disclosures, primarily due to the CIT Merger.

Risk is inherent in any business.

BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a philosophy which does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives.

Through the comprehensive Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates.

Senior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge and oversight by management committees.

In addition, our Board of Directors (the “Board”) strives to ensure the business culture is integrated with the Risk Management program and policies, procedures and metrics for identifying, assessing, monitoring and managing risk are part of the decision-making process.

The Board’s role in risk oversight is an integral part of our overall Risk Management Framework and Risk Appetite Framework.

The Board administers its risk oversight function primarily through the Board Risk Committee.

The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues.

The Board Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including Credit, Market, Capital, Liquidity, Operational, Compliance, Asset, Strategic and Reputational risks;

review, approve, and monitor adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics;

and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework.

The Board Risk Committee also reviews:

reports of examination by and communications from regulatory agencies;

the results of internal and third party testing and qualitative and quantitative assessments related to risk management;

and any other matters within the scope of the Board Risk Committee’s oversight responsibilities.

The Board Risk Committee monitors management’s response to certain risk-related regulatory and audit issues.

In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, compensation risk management and other areas of joint responsibility.

In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework.

Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.

BancShares is subject to a variety of risks that may arise through its business activities.

As identified in our 2021 Form 10-K, our primary risks are credit, market, capital, liquidity, operational, compliance, strategic and reputational risks.

Given several factors including but not limited to positive internal and external trends, positive risk metrics, effective incident, oversight and monitoring, the Company returned to business as usual operations and lifted internal COVID-19 related restrictions in early April.

BancShares will continue to comply with any state and local orders that are in place.

Monitoring of associated credit and operational risks has now been integrating into normal risk monitoring activities.

Since the filing of our 2021 Annual Report on Form 10-K, BancShares has been assessing the emerging impacts of the rising international tensions that could impact the economy and exacerbate headwinds of rising inflation, global supply chain disruptions, and recessionary pressures as well as operational risks such as those associated with potential cyber-attacks for FCB and third parties upon whom it relies.

Assessments have not identified material impacts to date but those assessments will remain ongoing as the condition continues to exist.

Due to the CIT Merger, we included additional information on added risks, Asset Risk (due to the operating lease portfolio) and Counterparty Risk (due to the increased use of derivatives).

CREDIT RISK MANAGEMENT

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities.

Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews.

Acquired loans, regardless of whether PCD or non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration.

Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength.

These reviews include portfolio analysis by geographic location, industry, collateral type and product.

We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an appropriate ACL that accounts for losses inherent in the loan and lease portfolio.

Commercial Lending and Leasing

Commercial loans and leases acquired in the CIT Merger, which are primarily within the Commercial Banking segment, are graded according to a rating system that was used by CIT prior to the merger with respect to probability of obligor default (“PD”) and loss given default (severity) based on various risk factors.

The PD and severity are derived through historical observations of default and subsequent losses within each risk grading.

When these loans and leases were graded at underwriting, or when updated periodically, a model is run to generate a preliminary risk rating.

The model incorporates both internal and external historical default and loss data to develop loss rates for each risk rating.

The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts that in management’s judgment warrant a modification of the modeled risk rating to arrive at the final approved risk ratings.

For small-ticket lending and leasing portfolio acquired in the CIT Merger, automated credit scoring models for origination (scorecards) and re-grading (auto re-grade algorithms) are also employed.

These are supplemented by business rules and expert judgment.

Adjustments to credit scorecards, auto re-grading algorithms, business rules and lending programs may be made periodically based on these evaluations.

A credit approval hierarchy is enforced to ensure that an underwriter with the appropriate level of authority reviews applications.

Consumer Lending

Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards.

Credit decisions are made after analyzing quantitative and qualitative factors, including borrower’s ability to repay the loan, collateral values, and considering the transaction from a judgmental perspective.

Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant.

Credit standards follow industry standard documentation requirements.

Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions.

Non-traditional loans may also be monitored by way of a quarterly review of the borrower’s refreshed credit score.

Loans are placed on non-accrual status at 90 days past due or more, except for government guaranteed loans.

When warranted an additional review of the underlying collateral’s loan-to-value may be conducted.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) was $183.2 million at September 30, 2021, representing a decrease of $41.1 million since December 31, 2020.

The ACL as a percentage of total loans and leases was 0.56% at September 30, 2021, compared to 0.68% at December 31, 2020.

The ACL as a percentage of loans and leases excluding SBA-PPP loans, which have no recorded ACL, was 0.58% at September 30, 2021, compared to 0.74% at December 31, 2020.

The ACL was $848 million at March 31, 2022, compared to $178 million at December 31, 2021.

The ACL as a percentage of total loans and leases was 1.29% at March 31, 2022, compared to 0.55% at December 31, 2021.

The increase in the ACL was primarily due to the impact of the CIT Merger.

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 for the “Initial Non-PCD Provision”.

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, we use 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.

Our 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 our strong credit quality and low net charge-offs.

As of September 30, 2021, the consensus baseline forecast utilized the following significant inputs over the two-year reasonable and supportable forecast period:

Unemployment - Rates are expected to improve to below 4% through the end of 2022 and stabilizing into early 2023.

GDP Growth - Peak growth of just under 7% in the fourth quarter of 2021, decreasing to below 3% in 2022 and thereafter.

Home Pricing Index - Growth rates of over 7% declining to below 4% over the forecast period.

Commercial Real Estate Index - Small forecasted downturn through the first half of 2022 and then improving to over 6% into 2023.

At September 30, 2021, the ACL allocated to non-PCD loans and leases was $164.8 million, or 0.51% of non-PCD loans and leases, compared to $200.3 million, or 0.62%, at December 31, 2020.

The decrease of 11 basis points since December 31, 2020 was primarily due to continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors.

The ACL as a percentage of non-PCD loans and leases excluding SBA-PPP loans was 0.53% at September 30, 2021 compared to 0.67% at December 31, 2020.

At September 30, 2021, the ACL for PCD loans totaled $18.4 million compared to $24.0 million at December 31, 2020.

The decrease was due to paydowns and the decline in the portfolio coupled with the impact of improved macroeconomic factors.

In the period ended September 30, 2021, the ACL on our commercial portfolio decreased $8.2 million, with the largest share of the decrease within commercial real estate.

The ACL on the consumer portfolio decreased $27.4 million, with decreases across all portfolios with the largest change in residential mortgages.

These portfolios were largely impacted by the improvement in macroeconomic factors.

Net charge-offs for loans and leases were $4.8 million during the third quarter of 2021, compared to $2.6 million during the third quarter of 2020.

On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.06% and 0.03% for the third quarter of 2021 and 2020, respectively.

The impact of SBA-PPP loans on average loans balances did not affect the net charge-off ratio in either period.

Net charge-offs for loans and leases were $9.4 million during the nine months ended September 30, 2021, compared to $17.4 million during the same period of 2020.

On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.04% and 0.07% for the nine months ended September 30, 2021 and 2020, respectively.

The impact of SBA-PPP loans on average loan balances did not have an impact on the net charge-off ratio for the nine months ended September 30, 2021.

Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.08% for the nine months ended September 30, 2020.

ALLOWANCE FOR CREDIT LOSSES

Three months ended September 30, 2021

(Dollars in thousands) Commercial Consumer PCD Total

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.

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

Significant macroeconomic factors used in estimating the expected losses include unemployment, GDP, home price index, commercial real estate index, corporate profits, and credit spreads.

The March 31, 2022 ACL forecast was calculated using scenario weighting of a range of economic scenarios, including a baseline, an upside, and a downside scenario.

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.

BancShares determined that an ACL of $848 million was appropriate as of March 31, 2022.

In the three months ended March 31, 2022, the ACL on commercial portfolios increased $663 million and the ACL on consumer portfolios increased $7 million, reflecting the CIT Merger.

While management utilizes its best judgment and information available, the ACL is dependent upon factors that are inherently difficult to predict, the most significant being the factors in the economic scenarios.

ACL estimates in these scenarios ranged from approximately $625 million to approximately $1.1 billion.

BancShares determined that an ACL of $848 million was appropriate as of March 31, 2022.

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

Percent of loans in each category to total loans 68.4 % 30.5 % 1.2 % 100.0 %

Annualized net charge-off ratio 0.08 % 0.08 % (0.55) % 0.06 %

Net charge-offs $ 4,373 $ 1,977 $ (1,570) $ 4,780

Average loans 22,331,889 9,891,071 384,673 32,607,633

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

Three months ended March 31, 2022

dollars in millions Commercial Consumer Total

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

Initial PCD ACL (1)

Initial Non-PCD Provision 432 22 454

Benefit for credit losses - loans and leases (23) (30) (53)

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

Charge-offs (1)

(28) (5) (33)

Recoveries 12 6 18

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

Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 %

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

Annualized net charge-off ratio 0.09 %

Net charge-offs $ 990 $ 2,390 $ (824) $ 2,556

Net charge-offs (recoveries) $ 16 $ (1) $ 15

Average loans $ 65,182

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)

Initial allowance on PCD loans — — — —

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

Percent of loans in each category to total loans 76 % 24 % 100 %

Annualized net charge-off ratio 0.05 % 0.06 % (1.05) % 0.04 %

Net charge-offs $ 8,490 $ 4,205 $ (3,272) $ 9,423

Average loans 22,680,602 9,773,946 417,536 32,872,084

Nine months ended September 30, 2020

(Dollars in thousands) Commercial Consumer PCD Total

Three months ended March 31, 2021

dollars in millions Commercial Consumer Total

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

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

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

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

Recoveries 2 4 6

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

Percent of loans in each category to total loans 68.9 % 29.6 % 1.5 % 100.0 %

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

Annualized net charge-off ratio 0.03 %

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Average loans $ 32,970

The reserve for unfunded loan commitments was $11.5 million and $12.8 million at September 30, 2021 and December 31, 2020, respectively.

Percent of loans in each category to total loans 70 % 30 % 100 %

(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.

Net charge-offs were $15 million during the first quarter of 2022, compared to $3 million during the first quarter of 2021.

On an annualized basis, total net charge-offs as a percentage of total average loans and leases was 0.09% and 0.03% for the first quarter of 2022 and 2021, respectively.

The following table provides trends in the ACL ratios.

Allowance for Credit Losses Ratios

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

dollars in millions March 31, 2022 December 31, 2021

Allowance for credit losses to total loans and leases:

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

Allowance for credit losses to non-PCD loans and leases (1) :

Commercial Loans:

Commercial allowance for credit losses to commercial loans and leases:

1.48 % 0.35 %

Allowance for credit losses on non-PCD loans and leases $ 164,756 $ 200,327

Total non-PCD loans and leases 32,142,934 32,329,093

Allowance for credit losses to PCD loans:

Allowance for credit losses - commercial $ 743 $ 80

Commercial loans and leases $ 50,101 $ 22,586

Consumer Loans:

Consumer allowance for credit losses to consumer loans and leases:

0.69 % 1.01 %

Allowance for credit losses on PCD loans $ 18,438 $ 23,987

Total PCD loans 373,255 462,882

(1) Loans originated in relation to the SBA-PPP ($1.1 billion as of September 30, 2021 and $2.4 billion as of December 31, 2020) do not have a recorded ACL.

As of September 30, 2021, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.53% while the ratio of ACL to total loans excluding SBA-PPP loans was 0.58%.

As of December 31, 2020, the ratio of ACL to total Non-PCD loans excluding SBA-PPP loans was 0.67% while the ratio of ACL to total loans excluding SBA-PPP loans is 0.74%.

NONPERFORMING ASSETS

Nonperforming assets include nonaccrual loans and leases and other real estate owned (“OREO”).

At September 30, 2021, BancShares’ nonperforming assets totaled $204.4 million, a decrease of $37.9 million since December 31, 2020.

Nonaccrual loans and leases at September 30, 2021 were $163.8 million, reflecting a decrease of $27.7 million since December 31, 2020.

Nonaccrual loans and leases as a percentage of total loans and leases was 0.50% and 0.58% at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, OREO totaled $40.6 million, representing a decrease of $10.2 million since December 31, 2020.

Nonperforming assets as a percentage of total loans, leases and OREO was 0.63% as of September 30, 2021 compared to 0.74% as of December 31, 2020.

NONPERFORMING ASSETS

Third Second First Fourth Third

(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter

Nonaccrual loans and leases:

Non-PCD $ 118,737 $ 136,530 $ 141,369 $ 136,544 $ 130,927

PCD 45,038 50,934 53,165 54,939 55,527

Total nonaccrual loans and leases 163,775 187,464 194,534 191,483 186,454

Allowance for credit losses - consumer $ 105 $ 98

Consumer loans and leases $ 15,423 $ 9,786

The reserve for unfunded loan commitments was $75 million and $12 million at March 31, 2022 and December 31, 2021, respectively.

The increase was driven by the additional commitments from the CIT Merger.

The additional off-balance sheet commitments primarily reflect loan commitments or lines of credit and DPAs.

See Note 23 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 1 — Accounting Policies and Basis of Presentation for discussion on the ACL for unfunded commitments.

Credit Metrics

Non-performing Assets

Nonperforming assets include non-accrual loans and leases and OREO.

At March 31, 2022, BancShares’ nonperforming assets totaled $581 million, an increase of $420 million since December 31, 2021, reflecting the added balances of the CIT Merger portfolio.

The following table presents total nonperforming assets.

Non-Performing Assets

dollars in millions March 31, 2022 December 31, 2021

Non-accrual loans:

Commercial loans $ 426 $ 45

Consumer loans 112 76

Total non-accrual loans $ 538 $ 121

Other real estate owned 43 40

Total nonperforming assets $ 204,424 $ 231,149 $ 243,046 $ 242,373 $ 239,243

Accruing loans and leases 90 days or more past due

Non-PCD $ 3,827 $ 3,413 $ 5,945 $ 5,507 $ 3,587

PCD 1,787 363 1,432 355 —

Total non-performing assets $ 581 $ 161

Allowance for credit losses to total loans and leases:

1.29 % 0.55 %

Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.89 % 0.49 %

Ratio of nonaccrual loans and leases to total loans and leases 0.50 0.57 0.59 0.58 0.57

Ratio of allowance for credit losses to nonaccrual loans and leases 111.9 100.9 108.3 117.1 120.1

Ratio of non-accrual loans and leases to total loans and leases 0.82 % 0.37 %

Ratio of allowance for credit losses to non-accrual loans and leases 157.55 % 148.37 %

Non-accrual loans and leases at March 31, 2022 were $538 million, reflecting an increase of $417 million since December 31, 2021.

Non-accrual loans and leases as a percentage of total loans and leases was 0.82% and 0.37% at March 31, 2022 and December 31, 2021, respectively.

The increases were driven by the CIT Merger.

The increase in consumer non-accrual loans primarily reflects the addition of a legacy CIT single family residential loan portfolio.

At March 31, 2022, OREO totaled $43 million, representing an increase of $3 million since December 31, 2021.

Nonperforming assets as a percentage of total loans, leases and OREO was 0.89% as of March 31, 2022 compared to 0.49% as of December 31, 2021.

Past Due Accounts

The percentage of loans 30 days or more past due was 0.81% of loans at March 31, 2022 and 0.43% at December 31, 2021.

Delinquency status of loans is presented in Note 4 — Loans and Leases

Troubled Debt Restructurings

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Typical modifications include short-term deferral of interest or modification of payment terms.

Troubled debt restructurings (“TDRs”) not accruing interest at the time of restructure are included as nonperforming loans.

TDRs not accruing interest at the time of restructure are included as nonperforming loans.

TDRs accruing at the time of restructure and continuing to perform based on the restructured terms are considered performing loans.

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 accounting and reporting expectations for loan modifications in determining TDR designation for borrowers experiencing COVID-19-related financial difficulty.

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.

Troubled Debt Restructurings

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

March 31, 2022 December 31, 2021

dollars in millions Commercial Consumer Total Commercial Consumer Total

Accruing TDRs $ 103 $ 48 $ 151 $ 97 $ 49 $ 146

Non-PCD $ 122,810 $ 139,747

PCD 29,207 17,617

Total accruing TDRs 152,017 157,364

Nonaccruing TDRs 28 24 52 21 25 46

Non-PCD 48,593 43,470

PCD 12,365 7,346

Total nonaccruing TDRs 60,958 50,816

Non-PCD 171,403 183,217

PCD 41,572 24,963

Total TDRs $ 131 $ 72 $ 203 $ 118 $ 74 $ 192

INTEREST-BEARING LIABILITIES

Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings.

Interest-bearing liabilities totaled $30.4 billion at September 30, 2021, compared to $27.3 billion at December 31, 2020.

The increase was mostly due to an increase of $3.1 billion in interest-bearing deposits.

We strive to maintain a strong liquidity position, and therefore a focus on core deposit retention remains a key business objective.

We believe traditional bank deposit products remain an attractive option for many customers, as evidenced by the significant deposit growth the industry has experienced over the past 18 months.

As economic conditions improve, we recognize that our liquidity position could be adversely affected as bank deposits are withdrawn.

Our ability to fund future loan growth is significantly dependent on our success at retaining existing deposits and generating new deposits at a reasonable cost.

At September 30, 2021, total deposits were $50.1 billion, an increase of $6.6 billion, representing annualized growth of 20.4% since December 31, 2020, driven by organic growth.

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

Demand $ 21,514,407 $ 18,014,029

Checking with interest 11,768,943 10,591,687

Money market 10,145,752 8,632,713

Savings 4,063,092 3,304,167

Time 2,573,568 2,889,013

Total deposits $ 50,065,762 $ 43,431,609

Total borrowings were relatively unchanged, totaling $1.9 billion at September 30, 2021 and December 31, 2020.

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

Securities sold under customer repurchase agreements $ 663,575 $ 641,487

Federal Home Loan Bank borrowings 645,663 655,175

Subordinated debt

SCB Capital Trust I 9,808 9,779

FCB/SC Capital Trust II 17,764 17,664

FCB/NC Capital Trust III 88,145 88,145

Macon Capital Trust I 14,433 14,433

3.375 % Fixed-to-Floating Rate Subordinated Notes due 2030 347,163 346,541

Other subordinated debt 20,114 27,956

Total subordinated debt 497,427 504,518

Other borrowings 76,139 88,470

Total borrowings $ 1,882,804 $ 1,889,650

BancShares owns four special purpose entities – SCB Capital Trust I, FCB/SC Capital Trust II, FCB/NC Capital Trust III and Macon Capital Trust I (the “Trusts”), which mature in 2034, 2034, 2036, and 2034, respectively.

Subordinated debt included junior subordinated debentures representing obligations to the Trusts, which may be redeemed at par in whole or in part at any time.

BancShares has guaranteed all obligations of the Trusts.

SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

The table below shows Class A common stock repurchase activity for the three and nine months ended September 30, 2021 and 2020.

All Class A common stock repurchases completed in 2020 were consummated under previously approved authorizations.

There were no repurchases of Class B common stock or the preferred stock during the three and nine months ended September 30, 2021 or 2020.

CLASS A COMMON STOCK REPURCHASE ACTIVITY

Three months ended September 30 Nine months ended September 30

(Dollars in thousands, expect per share data) 2021 2020 2021 2020

Number of shares repurchased — 117,700 — 813,090

Total cost $ — $ 47,060 $ — $ 333,756

Average price per share $ — $ 399.82 $ — $ 410.48

Upon expiration of the most recent authorization on July 31, 2020, share repurchase activity ended and will be reevaluated in subsequent periods.

We are committed to effectively managing our capital to protect our depositors, creditors and shareholders.

Concentration Risk

We maintain a well-diversified loan portfolio and seek to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries.

Commercial Concentrations

Geographic Concentrations

The following table summarizes state concentrations greater than 5.0% of our loans.

Data is based on obligor location unless secured by real estate, then data based on property location.

Commercial Loans - Geography

dollars in millions March 31, 2022 December 31, 2021

California $ 8,701 17.4 % $ 3,163 14.0 %

North Carolina 7,973 15.9 % 7,181 31.8 %

Texas 3,235 6.5 % 879 3.9 %

Florida 3,020 6.0 % 1,496 6.6 %

South Carolina 2,969 5.9 % 2,855 12.6 %

All other states 22,784 45.5 % 7,012 31.1 %

$ 48,682 97.2 % $ 22,586 100.0 %

Total International 1,419 2.8 % — — %

Total $ 50,101 100.0 % $ 22,586 100.0 %

Industry Concentrations

The following table represents loans by industry of obligor:

Commercial Loans - Industry

dollars in millions March 31, 2022 December 31, 2021

Real Estate $ 11,233 22.4 % $ 4,279 18.9 %

Healthcare 8,311 16.6 % 6,997 31.0 %

Transportation, communication, gas, utilities 4,156 8.3 % 774 3.4 %

Manufacturing 4,092 8.2 % 1,347 6.0 %

Business Services 4,053 8.1 % 2,307 10.2 %

Retail 3,832 7.6 % 1,301 5.8 %

Finance and insurance 3,228 6.4 % 1,361 6.0 %

Service industries 3,199 6.4 % 722 3.2 %

Wholesale 2,198 4.4 % 882 3.9 %

Other 5,799 11.6 % 2,615 11.6 %

Total $ 50,101 100.0 % $ 22,585 100.0 %

Consumer Concentrations

Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions.

The following table summarizes state concentrations greater than 5.0% based upon property address.

Consumer Loans Geographic Concentrations

March 31, 2022 December 31, 2021

dollars in millions Net

Investment % of

North Carolina $ 5,013 32.5 % $ 4,931 50.4 %

California 3,616 23.4 % 161 1.6 %

South Carolina 2,682 17.4 % 2,626 26.9 %

Other states 4,112 26.7 % 2,068 21.1 %

Total loans $ 15,423 100.0 % $ 9,786 100.0 %

Counterparty Risk

We enter into interest rate derivatives and foreign exchange forward contracts as part of our overall risk management practices and also on behalf of our clients.

We establish risk metrics and evaluate and manage the counterparty risk associated with these derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework.

Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to the ability of a counterparty to perform its financial obligations under the derivative contract.

We seek to control credit risk of derivative agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures, which are integrated with our cash and issuer related credit processes.

The Chief Credit Officer, or delegate, approves each counterparty and establishes exposure limits based on credit analysis of each counterparty.

Derivative agreements for BancShares’ risk management purposes and for the hedging of client transactions are executed with major financial institutions and are settled through the major clearing exchanges, which are rated investment grade by nationally recognized statistical rating agencies.

Credit exposure is mitigated via the exchange of collateral between the counterparties covering mark-to-market valuations.

Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes.

Asset risk is a form of price risk and is a primary risk of our leasing businesses related to the risk to earning of capital arising from changes in the value of owned leasing equipment.

Reflecting the addition of operating lease equipment and additional asset-based lending from the CIT Merger, we are subject to increased asset risk.

Asset risk in our leasing business is evaluated and managed in the divisions and overseen by risk management processes.

In our asset based lending business, we also use residual value guarantees to mitigate or partially mitigate exposure to end of lease residual value exposure on certain of our finance leases.

Our business process consists of:

(1) setting residual values at transaction inception, (2) systematic periodic residual value reviews, and (3) monitoring levels of residual realizations.

Residual realizations, by business and product, are reviewed as part of the quarterly financial and asset quality review.

Reviews for impairment are performed at least annually.

In combination with other risk management and monitoring practices, asset risk is monitored through reviews of the equipment markets including utilization rates and traffic flows, the evaluation of supply and demand dynamics, the impact of new technologies and changes in regulatory requirements on different types of equipment.

At a high level, demand for equipment is correlated with GDP growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets.

Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses.

For instance, in the Rail business, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates.

Interest rate risk management

BancShares is exposed to the risk that changes in market conditions or government policy may affect interest rates and negatively impact earnings.

The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes in the level or shape of the yield curve.

BancShares manages this inherent risk strategically based on prescribed guidelines and approved limits.

Interest rate risk can arise from many of the BancShares’ business activities, such as lending, leasing, investing, deposit taking, derivatives, and funding activities.

We evaluate and monitor interest rate risk primarily through two metrics.

• Net Interest Income Sensitivity (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII;

• Economic Value of Equity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.

BancShares uses a holistic process to measure and monitor both short term and long term risks which includes, but is not limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship of various yield curves.

NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet.

Our exposure to NII Sensitivity is guided by BancShares risk appetite framework and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line actions and actions within the investment, funding and derivative activities.

The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII Sensitivity, whereby our assets will reprice faster than our liabilities, which is generally concentrated at the short end of the yield curve.

Our funding sources consist primarily of non-maturity deposits and time deposits.

We also support our funding needs through wholesale funding sources (including unsecured and secured borrowings).

The deposit rates we offer are influenced by market conditions and competitive factors.

Market rates are the key drivers of deposit costs and we continue to optimize deposit costs by improving our deposit mix.

Changes in interest rates, expected funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing.

We believe our targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits.

We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities.

Table 28 below summarizes the results of 12-month NII Sensitivity simulations produced our asset/liability management system.

These simulations assume static balance sheet replacement with like products and implied forward market rates, but also incorporates additional assumptions, such as, but not limited to prepayment estimates, pricing estimates and deposit behaviors.

The below simulations assume an immediate 25, 100 and 200 bps parallel increase and 25 and 100 bps decrease from the market-based forward curve for March 31, 2022 and December 2021.

Net Interest Income Sensitivity Simulation Analysis

Estimated (decrease) increase in net interest income

Change in interest rate (basis points) March 31, 2022 December 31, 2021

-100 (6.10) % (5.77) %

-25 (1.50) % (1.15) %

+25 1.60 % 1.05 %

+100 6.10 % 3.21 %

+200 12.20 % 6.30 %

NII Sensitivity metrics at March 31, 2022, compared to December 31, 2021, were primarily affected by the addition of CIT assets and liabilities, and subsequent debt redemptions.

BancShares continues to have an asset sensitive interest rate risk profile.

The potential upside to forecasted earnings is largely driven by the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as modest estimates of future deposit betas.

Approximately 45% of our loans have floating contractual reference rates, indexed primarily to 1-month LIBOR, 3-month LIBOR, Prime and Secured Overnight Financing Rate (“SOFR”).

Deposit betas for the combined company are modeled and have a portfolio average of 20%-25%, which blends the lower beta deposits of legacy FCB with the higher betas from legacy CIT.

Impacts to NII Sensitivity may change due to actual results differing from modeled expectations.

As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon.

EVE Sensitivity measures the change in value of the economic value of equity driven by changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates.

EVE Sensitivity is calculated by estimating the change in the net present value of assets, liabilities, and off balance sheet items under various rate movements.

Table 29 presents the EVE profile as of March 31, 2022 and December 31, 2021.

Economic Value Of Equity Modeling Analysis

Estimated (decrease) increase in EVE

Change in interest rate (basis points) March 31, 2022 December 31, 2021

-100 (7.90) % (13.68) %

-25 (1.80) % — %

+100 6.40 % 6.10 %

+200 8.40 % 5.93 %

The economic value of equity metrics at March 31, 2022 compared to December 31, 2021, were primarily affected by the CIT Merger, coupled with increasing market interest rates.

In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system.

Scenarios that impact management volumes, specific risk events, or the sensitivity to key assumptions are also evaluated.

We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives.

Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using off balance sheet derivatives to mitigate earnings volatility.

The above sensitivities provide an estimate of our interest rate sensitivity;

however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve.

They also do not account for other business developments and other actions.

Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations.

Further, the range of such simulations is not intended to represent our current view of the expected range of future interest rate movements.

Table 30 provides loan maturity distribution information.

Loan Maturity Distribution

At March 31, 2022, maturing

dollars in millions Within

One Year One to Five

Years Five to 15

Years After 15 years Total

Commercial construction $ 563 $ 1,368 $ 605 $ 97 $ 2,633

Owner occupied commercial mortgage 549 3,886 8,623 496 13,554

Non-owner occupied commercial mortgage 2,133 4,966 1,934 259 9,292

Commercial and industrial 6,550 12,362 3,373 117 22,402

Leases 742 1,427 51 — 2,220

Total commercial $ 10,537 $ 24,009 $ 14,586 $ 969 $ 50,101

Residential mortgage 275 1,085 3,456 6,895 11,711

Revolving mortgage 114 222 95 1,410 1,841

Consumer auto 10 627 683 — 1,320

Consumer other 296 129 88 38 551

Total consumer $ 695 $ 2,063 $ 4,322 $ 8,343 $ 15,423

Total loans and leases $ 11,232 $ 26,072 $ 18,908 $ 9,312 $ 65,524

Table 31 provides information regarding the sensitivity of loans and leases to changes in interest rates.

Loan Interest Rate Sensitivity

Loans maturing one year or after with

dollars in millions Fixed interest rates Variable interest rates

Commercial construction $ 853 $ 1,217

Owner occupied commercial mortgage 11,353 1,592

Non-owner occupied commercial mortgage 2,608 4,552

Commercial and industrial 6,933 8,979

Leases 1,477 —

Total commercial $ 23,224 $ 16,340

Residential mortgage 6,912 4,524

Revolving mortgage 38 1,688

Consumer auto 1,311 —

Consumer other 215 40

Total consumer $ 8,476 $ 6,252

Total loans and leases $ 31,700 $ 22,592

Reference Rate Reform

The administrator of LIBOR has announced that publication of the most commonly used U.S.

Dollar LIBOR will cease to be provided or cease to be representative after June 30, 2023.

The publication of all other LIBOR settings ceased to be provided or ceased to be representative on December 31, 2021.

federal banking agencies had also issued guidance strongly encouraging banking organizations to cease using the U.S.

Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021 at the latest.

As a result, prior to the CIT Merger, FCB and CIT had ceased originating new products using LIBOR by the end of 2021.

In April 2018, the FRB of New York commenced publication of SOFR, which has been recommended as an alternative to U.S.

Dollar LIBOR by the Alternative Reference Rates Committee, a group of market and official sector participants.

However, uncertainty remains as to the transition process and acceptance of SOFR as the primary alternative to LIBOR.

BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR as a benchmark rate.

However, BancShares’ LIBOR exposure is primarily to tenures other than one week and two-month USD LIBOR.

LIBOR is a benchmark interest rate for most of our floating rate loans, as well as certain liabilities and off-balance sheet exposures.

We continue to monitor industry and regulatory developments and have a well-established transition program in place to manage the implementation of alternative reference rates as the market transitions away from LIBOR.

Coordination is being handled by a cross-functional project team governed by executive sponsors.

Its mission is to work with our businesses to ensure a smooth transition for BancShares and its customers to an appropriate LIBOR alternative.

Certain financial markets and products have already migrated to alternatives.

The project team ensures that BancShares is ready to move quickly and efficiently as consensus around LIBOR alternatives emerge.

BancShares has processes in place to complete its review of the population of legal contracts impacted by the LIBOR transition, and updates to our operational systems and processes are substantially in place.

BancShares is utilizing SOFR as our preferred replacement index for LIBOR.

However, we are positioned to accommodate other alternative reference rates (e.g.

credit sensitive rates) in response to how the market evolves.

LIQUIDITY RISK MANAGEMENT

Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations.

Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments.

Consistent with this strategy, we maintain significant amounts of Available Cash and High-Quality Liquid Securities.

Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, Brokered CD issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.

We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends.

We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons.

We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed.

Stress test results inform our business strategy, risk appetite, levels of liquid asset, and contingency funding plans.

Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events.

BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate.

Further, BancShares maintains a contingent funding plan which details protocols and potential actions to be taken under liquidity stress conditions.

Liquidity includes Available Cash and High Quality Liquid Securities.

At March 31, 2022 we had $21.5 billion of total Liquid Assets (20% of total assets) and $17.5 billion of contingent liquidity sources available.

dollars in millions March 31, 2022

Available Cash

High Quality Liquid Securities

Liquid Assets $ 21,532

FHLB capacity (1)

FRB capacity 4,242

Line of credit with bank 75

Total contingent sources $ 17,460

Total Liquid Assets and contingent sources $ 38,992

(1) See Table 33 for additional details.

We fund our operations through deposits and borrowings.

Our primary source of liquidity is our branch-generated deposit portfolio due to the generally stable balances and low cost.

Deposits totaled $91.6 billion and $51.4 billion at March 31, 2022 and December 31, 2021, respectively.

Borrowings totaled $3.3 billion and $1.8 billion at March 31, 2022 and December 31, 2021, respectively.

Borrowings consist of long-term debt, FHLB advances and securities sold under customer repurchase agreements.

A source of available funds is advances from the FHLB of Atlanta.

We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law.

The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment.

Certain related cash balances are restricted.

FHLB Advances

FHLB Balances

March 31, 2022 December 31, 2021

dollars in millions Total Total

Total borrowing capacity $ 13,782 $ 9,564

Advances 639 645

Available capacity $ 13,143 $ 8,919

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

Weighted Average Rate 1.27 % 1.28 %

Under borrowing arrangements with the FRB of Richmond, FCB 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.

Commitments and Contractual Obligations

Table 34 identifies significant obligations and commitments as of March 31, 2022, representing required and potential cash outflows.

See Note 23 — Commitments and Contingencies, for additional information regarding commitments.

Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows as many are expected to expire unused or partially used.

Commitments and Contractual Obligations

Type of obligation Payments due by period

dollars in millions Less than 1 year 1-3 years 4-5 years Thereafter Total

Contractual obligations:

Time deposits $ 6,765 $ 1,918 $ 436 $ 123 $ 9,242

Short-term borrowings 616 — — — 616

Long-term obligations 94 683 347 1,552 2,676

Total contractual obligations $ 7,475 $ 2,601 $ 783 $ 1,675 $ 12,534

Financing commitments

$ 11,051 $ 4,724 $ 1,983 $ 4,049 $ 21,807

Letters of credit

169 98 76 23 366

Deferred purchase agreements 2,097 — — — 2,097

Lessor commitments 513 — — — 513

Affordable housing partnerships (1)

84 137 14 7 242

Total commitments $ 13,914 $ 4,959 $ 2,073 $ 4,079 $ 25,025

(1) On-balance sheet commitments, included in other liabilities.

Capital requirements applicable to BancShares’ are discussed in Item 1.

Business - Regulation, subsections “Regulatory Considerations” of our 2021 Annual Report.

BancShares maintains a comprehensive capital adequacy process.

BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments.

The capital management framework requires contingency plans be defined and may be employed at management’s discretion.

Capital Composition and Ratios

In connection with the consummation of the CIT Merger, the Parent Company issued approximately 6.1 million shares of its Class A Common Stock.

Additionally, CIT Series A and B Preferred Stock was converted into the rights to receive BancShares Series B and C Preferred Stock, respectively.

In connection with the consummation of the CIT Merger, the Parent Company issued (a) 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, and (b) 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 table below shows activities that caused the change in outstanding Class A Common Stock for the quarter.

Changes in Shares of Class A Common Stock Outstanding

Three months ended March 31, 2022

Class A shares outstanding at beginning of period 8,811,220

Share issuance in conjunction with the CIT Merger 6,140,010

Restricted stock units vested, net of shares held to cover taxes 45,095

Class A shares outstanding at end of period 14,996,325

We also had 1,005,185 Class B Common Stock outstanding at March 31, 2022 and December 31, 2021.

We are committed to effectively managing our capital to protect our depositors, creditors and stockholders.

We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment.

Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements.

In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within shareholders’ equity.

These amounts are excluded from shareholders’ equity in the calculation of our capital ratios under current regulatory guidelines.

In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within stockholders’ equity.

These amounts are excluded from regulatory in the calculation of our regulatory capital ratios under current regulatory guidelines.

Analysis of Capital Adequacy

Requirements to be well-capitalized September 30, 2021 December 31, 2020

(Dollars in thousands) Amount Ratio Amount Ratio

Requirements to be Well-Capitalized March 31, 2022 December 31, 2021

dollars in millions Amount Ratio Amount Ratio

Risk-based capital ratios

8 unchanged sentences

Tier 1 leverage ratio 5.00 % 10,641 9.81 % 4,651 8.07 %

As of September 30, 2021, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines.

Trust preferred capital securities continue to be a component of total risk-based capital.

BancShares and FCB had capital conservation buffers of 6.30% and 5.93%, respectively, at September 30, 2021, and resulted in no limit on distributions.

RISK MANAGEMENT

Risk is inherent in any business.

BancShares has defined a moderate risk appetite, a conservative approach to risk taking, with a philosophy that does not preclude higher risk business activities balanced with acceptable returns while meeting regulatory objectives.

Through the comprehensive Enterprise Risk Management Framework and Risk Appetite Framework, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates.

Senior management applies various strategies to reduce the risks to which BancShares activities may be exposed, with effective challenge and oversight by management committees.

In addition, the Board of Directors strives to ensure that the business culture is integrated with the enterprise risk management program and that policies, procedures and metrics for identifying, assessing, measuring, monitoring and managing risk are part of the decision-making process.

The Board of Directors’ role in risk oversight is an integral part of our overall Enterprise Risk Management Framework and Risk Appetite Framework.

The Board of Directors administers its risk oversight function primarily through the Board Risk Committee.

The Board Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues.

The Board Risk Committee is directed to monitor and advise the Board of Directors regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, strategic and reputational risks;

review, approve, and monitor adherence to the risk appetite and supporting risk tolerance levels via a series of established metrics;

and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework.

The Board Risk Committee also reviews:

reports of examination by and communications from regulatory agencies;

the results of internal and third party testing and qualitative and quantitative assessments related to risk management;

and any other matters within the scope of the Committee’s oversight responsibilities.

The Board Risk Committee monitors management’s response to certain risk-related regulatory and audit issues.

In addition, the Board Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, information security and other areas of joint responsibility.

In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are part of the Risk Management Framework and conducted within a defined framework.

Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.

Credit risk management

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities.

Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews.

Acquired loans, regardless of whether PCD or non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration.

These reviews include portfolio analysis by geographic location, industry, collateral type and product.

We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an adequate ACL that accounts for expected credit losses in the loan and lease portfolio.

We continue to actively monitor our loan portfolio for areas of increased risk as a result of the COVID-19 pandemic and to date have not seen any significant declines in credit quality.

Through September 30, 2021, over 99% of all COVID-19 related loan extensions have begun repayment.

Additionally, we participated in both rounds of funding in the SBA-PPP program, which provided much needed funds to our existing small business customers.

At September 30, 2021, BancShares had $1.1 billion in SBA-PPP loans outstanding.

Interest rate risk management

Interest rate risk (“IRR”) results principally from:

assets and liabilities maturing or repricing at different points in time, assets and liabilities repricing at the same point in time but in different amounts, and short-term and long-term interest rates changing in different magnitudes.

We assess our short-term IRR by forecasting net interest income over 24 months under various interest rate scenarios and comparing those results to forecasted net interest income, assuming stable rates.

IRR scenarios modeled include, but are not limited to, immediate, parallel rate shocks, interest rate ramps, changes in the shape of the yield curve and changes in the relationships of our rates to market rates.

Market interest rates have increased since year-end, driven by improving economic conditions.

Table 19 provides the impact on net interest income over 24 months resulting from various instantaneous interest rate shock scenarios as of September 30, 2021 and December 31, 2020.

NET INTEREST INCOME SENSITIVITY ANALYSIS

Estimated percentage (decrease) increase in net interest income

Change in interest rate (basis points) September 30, 2021 December 31, 2020

-100 (6.94) % (6.24) %

+100 7.42 8.09

+200 15.41 14.57

Net interest income sensitivity metrics as of September 30, 2021 remain largely unchanged when compared to December 31, 2020.

Long-term interest rate risk exposure is measured using the economic value of equity (“EVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital.

EVE represents the difference between the sum of the present value of all asset cash flows and the sum of the present value of the liability cash flows.

EVE sensitivity analysis involves discounting cash flows of balance sheet items under different interest rate scenarios.

Cash flows will vary by interest rate scenario, resulting in variations in EVE.

The base-case measurement and its sensitivity to shifts in the yield curve allow management to measure longer-term repricing and option risk in the balance sheet.

Table 20 presents the EVE profile as of September 30, 2021 and December 31, 2020.

ECONOMIC VALUE OF EQUITY MODELING ANALYSIS

Estimated percentage (decrease) increase in EVE

Change in interest rate (basis points) September 30, 2021 December 31, 2020

-100 (15.09) % (21.20) %

+100 8.32 12.18

+200 8.77 15.71

The economic value of equity metrics at September 30, 2021 compared to December 31, 2020 were primarily affected by ongoing growth in non-maturity deposits during 2021, coupled with higher market interest rates.

We do not typically utilize interest rate swaps, floors, collars or other derivative financial instruments to hedge our overall balance sheet interest rate sensitivity and risk.

LIBOR Transition

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”).

Subsequent announcements have delayed the potential date for certain LIBOR tenors until June 30, 2023.

We continue to transition away from LIBOR in order to cease issuance of loans indexed to LIBOR by December 31, 2021.

Conforming and nonconforming adjustable rate mortgage originations transitioned to alternative rates in 2020.

The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative to LIBOR.

We have introduced SOFR as an alternative rate for other business lines in mid-2021.

We do not expect a material financial impact to BancShares or our customers from this transition.

Liquidity risk management

Liquidity risk is the risk that an institution will be unable to generate or obtain sufficient cash or its equivalents on a cost-effective basis to meet commitments as they fall due.

The most common sources of liquidity risk arise from mismatches in the timing and value of on-balance sheet and off-balance sheet cash inflows and outflows.

In general, on-balance sheet mismatches generate liquidity risk when the effective maturity of assets exceeds the effective maturity of liabilities.

A commonly cited example of a balance sheet liquidity mismatch is when long-term loans (assets) are funded with short-term borrowings (liabilities).

Other forms of liquidity risk include market constraints on the ability to convert assets into cash at expected levels, an inability to access funding sources at sufficient levels at a reasonable cost, and changes in economic conditions or exposure to credit, market, operational, legal and reputation risks that can affect an institution’s liquidity risk profile.

We utilize various limit-based measures to monitor, measure and control three different categories of liquidity risk:

• Tactical - Measures the risk of a negative cash flow position whereby cash outflows exceed cash inflows over a short-term horizon out to nine weeks;

• Structural - Measures the amount by which illiquid assets are supported by long-term funding;

• Contingent - Measures the risk of having insufficient liquidity sources to support cash needs under potential future stressed market conditions or having an inability to access wholesale funding sources in a timely and cost effective manner.

We aim to maintain a diverse mix of liquidity sources to support the liquidity management function, while aiming to avoid funding concentrations by diversifying our external funding with respect to maturities, counterparties and nature.

Our primary funding source is our branch-generated retail deposit portfolio due to the generally stable balances and low cost.

Sources of liquidity include cash in excess of our reserve requirement at the Federal Reserve Bank, and various other corresponding bank accounts and unencumbered securities, which totaled $15.1 billion at September 30, 2021 compared to $9.6 billion at December 31, 2020.

Another source of available funds is advances from the FHLB of Atlanta.

Outstanding FHLB advances were $645.7 million as of September 30, 2021, and we had sufficient collateral pledged to secure $8.5 billion of additional borrowings from the FHLB of Atlanta.

Also, at September 30, 2021, $4.6 billion in non-PCD loans with a lendable collateral value of $3.8 billion were used to create additional borrowing capacity at the Federal Reserve Bank.

We also maintain Federal Funds lines and other credit lines, which had $556.0 million of available capacity at September 30, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, we are a party to certain financial instruments with off-balance sheet risk, which we enter into in order to meet the financing needs of our customers.

These off-balance sheet instruments include commitments to extend credit and standby letters of credit.

For more information on these commitments, see Note N - Commitments and Contingencies to our consolidated financial statements.

A s of March 31, 2022, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines.

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 perpetual preferred stock.

Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.

CRITICAL ACCOUNTING ESTIMATES

There have been no significant changes in our Critical Accounting Estimates as described in our 2020 Annual Report.

Accounting policies related to the ACL are considered critical accounting estimates as described in our 2021 Annual Report.

The ACL as of March 31, 2022 is discussed in Note 5 — Allowance for credit Losses and the Credit Risk Management section of Item II in this Quarterly Report on Form 10-Q.

Fair values of loans acquired in and the core deposit intangibles associated with the CIT Merger are considered critical accounting estimates.

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.

The fair values for these items are further discussed in Note 2 — Business Combinations.

RECENT ACCOUNTING PRONOUNCEMENTS

The following accounting pronouncements were issued by the FASB but are not yet effective for BancShares.

Standard Summary of Guidance Effect on BancShares’ Financial Statements

ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020

ASU 2021-01 - Reference Rate Reform (Topic 848):

Issued January 2021

The amendments in these updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

Allows entities to prospectively apply certain optional expedients for contract modifications and removes the requirements to remeasure contract modifications or de-designate hedging relationships.

In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing certain effectiveness assessments.

ASU 2021-01 refines the scope of ASC 848 and clarifies which optional expedients may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified in connection with the market-wide transition to new reference rates.

Guidance in these ASUs are effective as of March 12, 2020 through December 31, 2022.

The amendments are effective for all entities at issuance date of March 12, 2020, and once adopted will apply to contract modifications made and hedging relationships entered into on or before December 31, 2022.

BancShares is in the process of evaluating the optional expedients as applicable for eligible contract modifications and any hedge relationships.

However, we do not expect to have a material impact on the financial statements.

ASU 2022-01, Fair Value Hedging - Portfolio Layer Method

Issued March 2022

The amendments in this Update allows entities to designate multiple hedged layers of a single closed portfolio, and expands the scope of the portfolio layer method to include non-prepayable financial assets.

Provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method.

In addition, as of the adoption date the Update permits reclassification of debt securities from the held-to-maturity category to the available-for-sale category if the entity intends to include those securities in a portfolio designated in a portfolio layer method hedge.

Also provides 30 days post adoption to reclassify securities and include them in a hedged closed portfolio.

Effective for BancShares as of January 1, 2023.

Early adoption is permitted.

The guidance on hedging multiple layers in a closed portfolio is applied prospectively.

The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis.

BancShares is currently evaluating timing of adoption of this guidance and the impact of the guidance on its consolidated financial statements and disclosures.

2022-02, Troubled Debt Restructurings and Vintage Disclosures

Issued March 2022

The amendments in this ASU eliminates the recognition and measurement guidance for TDRs for creditors that have adopted the CECL model and enhances disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

The guidance also requires disclosure of current-period gross write-offs by year of origination in the vintage disclosure.

Effective for BancShares as of January 1, 2023.

Early adoption is permitted.

Provides the option to early adopt the amendments related to TDRs separately from the amendments related to vintage disclosures.

Allows adoption using either a prospective or modified retrospective transition methods.

Under prospective method, entities are permitted to apply this guidance to modifications occurring after the first day of the fiscal year of adoption.

If the modified retrospective transition method is elected, a cumulative effect adjustment to retained earnings is recorded in the period of adoption to recognize any change in the allowance for credit losses that had been recognized for receivables previously modified in a TDR.

BancShares is currently evaluating the transition methods and timing of adoption, along with the impact on its consolidated financial statements and disclosures.

GLOSSARY OF KEY TERMS

To assist the users of this document, we have added the following Glossary of key terms:

Adjusted Interest-Earnings Assets is a non-GAAP measure that is the sum of loans and leases (as defined below, less the credit balances of factoring clients), loans and leases held for sale, interest-bearing cash, investment securities, and securities purchased under agreements to resell.

Allowance for Credit Losses (“ACL”) reflects the estimated credit losses over the full remaining expected life of the portfolio.

See CECL below.

Assets Held for Sale include loans and operating lease equipment that we no longer have the intent or ability to hold until maturity.

As applicable, assets held for sale could also include a component of goodwill associated with portfolios or businesses held for sale.

Available Cash consists of the unrestricted portions of ‘Cash and due from banks’ and ‘Interest-bearing deposits at banks’, excluding cash not accessible for liquidity, such as vault cash and deposits in transit.

Available for sale is a classification that pertains to debt securities.

We classify debt securities as available for sale when they are not considered trading securities, securities carried at fair value, or held-to-maturity securities.

Available for sale securities are included in investment securities in the balance sheet.

Average Interest-Earning Assets is a non-GAAP measure that is computed using daily balances of Interest-Earning Assets .

We use this average for certain key profitability ratios, including NIM (as defined below) for the respective period.

Average Loans and Leases is computed using daily balances and is used to measure the rate of return on loans and leases (finance leases) and the rate of net charge-offs, for the respective period.

Capital Conservation Buffer (“CCB”) is the excess 2.5% of each of the capital tiers that banks are required to hold in accordance with Basel III rules, above the minimum CET 1 Capital, Tier 1 capital and Total capital requirements, designed to absorb losses during periods of economic stress.

Common Equity Tier 1 ("CET1"), Additional Tier 1 Capital, Tier 1 Capital, Tier 2 Capital, and Total Capital are regulatory capital measures as defined in the capital adequacy guidelines issued by the Federal Reserve.

CET1 is common stockholders' equity reduced by capital deductions such as goodwill, intangible assets and DTAs that arise from net operating loss and tax credit carryforwards and adjusted by elements of other comprehensive income and other items.

Tier 1 Capital is Common Equity Tier 1 Capital plus other Additional Tier 1 Capital instruments, including non-cumulative preferred stock.

Total Capital consists of Tier 1 Capital and Tier 2 Capital, which includes subordinated debt, and qualifying allowance for credit losses and other reserves.

Current Expected Credit Losses (“CECL”) is a forward-looking “expected loss” model used to estimate credit losses over the full remaining expected life of the portfolio.

Estimates under the CECL model are based on relevant information about past events, current conditions, and reasonable and supportable forecasts regarding the collectability of reported amounts.

Generally, the model requires that an ACL be estimated and recognized for financial assets measured at amortized cost within its scope.

Delinquent Loan categorization occurs when payment is not received when contractually due.

Delinquent loan trends are used as a gauge of potential portfolio degradation or improvement.

Derivative Contract is a contract whose value is derived from a specified asset or an index, such as an interest rate or a foreign currency exchange rate.

As the value of that asset or index changes, so does the value of the derivative contract.

Economic Value of Equity ("EVE") measures the net impact of hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.

High Quality Liquid Securities (“HQLS”) consist of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of Treasury and Agency securities held outright or via reverse repurchase agreements.

Impaired Loan is a loan for which, based on current information and events, it is probable that BancShares will be unable to collect all amounts due according to the contractual terms of the loan.

Interest income includes interest earned on loans, interest-bearing cash balances, debt investments and dividends on investments.

Lease — finance is an agreement in which the party who owns the property (lessor), which is BancShares as part of our finance business, permits another party (lessee), which is our customer, to use the property with substantially all of the economic benefits and risks of asset ownership passed to the lessee.

Finance leases are commonly known as sales-type leases and direct finance leases.

Lease — operating is a lease in which BancShares retains ownership of the asset (operating lease equipment, net), collects rental payments, recognizes depreciation on the asset, and retains the risks of ownership, including obsolescence.

Liquid Assets includes Available Cash and HQLS.

Loans and Leases include loans, finance lease receivables, and factoring receivables, and do not include amounts contained within assets held for sale (unless otherwise noted) or operating leases.

Loan-to-Value Ratio ("LTV") is a calculation of a loan's collateral coverage that is used in underwriting and assessing risk in our lending portfolio.

LTV is calculated as the total loan obligations (unpaid principal balance) secured by collateral divided by the fair value of the collateral.

Net Interest Income (“NII”) reflects interest and fees on loans, interest on interest-bearing cash, and interest/dividends on investments less interest expense on deposits and borrowings.

When divided by average adjusted interest earning assets, the quotient is defined as Net Interest Margin ("NIM").

Net Interest Income Sensitivity ("NII Sensitivity") measures the net impact of hypothetical changes in interest rates on forecasted NII.

Net Operating Loss Carryforward / Carryback ("NOLs") is a tax concept, whereby tax losses in one year can be used to offset taxable income in other years.

The rules pertaining to the number of years allowed for the carryback or carryforward of an NOL varies by jurisdiction.

Non-accrual Loans include loans greater than or equal to $500,000 that are individually evaluated and determined to be impaired, as well as loans less than $500,000 that are delinquent (generally for 90 days or more), unless it is both well secured and in the process of collection.

Non-accrual loans also include loans with revenue recognition on a cash basis because of deterioration in the financial position of the borrower.

Non-performing Assets include Non-accrual Loans , OREO, and repossessed assets.

Other Noninterest Income includes (1) fee income and other revenue, (2) wealth management services, (3) gains and losses on leasing equipment, net, (4) Service charges on deposit accounts, (5) factoring commissions, (6) cardholder services, net, (7) merchant services, (8) realized gains and losses on investment securities available for sale, net, (9) marketable equity securities gains and losses, net, (10) gain on acquisition, (11) gain and losses on extinguishments of debt, and (12) other income.

Other Real Estate Owned ("OREO") is a term applied to real estate properties owned by a financial institution and are considered non-performing assets.

Pledged Assets are those required under the collateral maintenance requirement in connection with borrowing availability at the FHLB, which are comprised primarily of consumer and commercial real estate loans and also include certain HQL securities that are available for secured funding at the FHLB.

Purchase Accounting Adjustments (“PAA”) reflect the fair value adjustments to acquired assets and liabilities assumed in a business combination.

Purchased Credit Deteriorated (“PCD”) financial assets are acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment.

Regulatory Credit Classifications used by BancShares are as follows:

• Pass — A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification;

• Special Mention — A special mention asset has potential weaknesses which deserve management’s close attention.

If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date.

Special mention assets are not adversely classified and do not warrant adverse classification;

• Substandard — A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.

These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected;

• Doubtful — An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values;

• Loss — Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as an asset.

This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.

Classified assets are rated as substandard, doubtful or loss based on the criteria outlined above.

Classified assets can be accruing or on non-accrual depending on the evaluation of the relevant factors.

Classified loans plus special mention loans are considered criticized loans.

Residual Values for finance leases represent the estimated value of equipment at the end of its lease term.

For operating lease equipment, it is the value to which the asset is depreciated at the end of lease term or at the end of estimated useful life.

Right of Use Asset (“ROU Asset”) represents our right, as lessee, to use underlying assets for the lease term, and lease liabilities represent our obligation to make lease payments arising from the leases.

Risk Weighted Assets ("RWA") is the denominator to which CET1, Tier 1 Capital and Total Capital is compared to derive the respective risk based regulatory ratios.

RWA is comprised of both on-balance sheet assets and certain off-balance sheet items (for example loan commitments, purchase commitments or derivative contracts).

RWA items are adjusted by certain risk-weightings as defined by the regulators, which are based upon, among other things, the relative credit risk of the counterparty.

Troubled Debt Restructuring ("TDR") occurs when a lender, for economic or legal reasons, grants a concession to the borrower related to the borrower's financial difficulties that it would not otherwise consider.

Variable Interest Entity ("VIE") is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets.

These entities:

lack sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties;

have equity owners who either do not have voting rights or lack the ability to make significant decisions affecting the entity's operations;

and/or have equity owners that do not have an obligation to absorb the entity's losses or the right to receive the entity's returns.

Yield-related Fees are collected in connection with our assumption of underwriting risk in certain transactions in addition to interest income.

We recognize yield-related origination fees in interest income over the life of the lending transaction and recognize yield-related prepayment fees when the loan is prepaid.

NON-GAAP FINANCIAL MEASUREMENTS

BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations.

A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts or is adjusted in some way to the effect of including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements.

BancShares believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and financial position to its investors, analysts and management.

These non-GAAP measures should be considered in addition to, and not superior to or a substitute for, GAAP measures presented in BancShares’ consolidated financial statements and other publicly filed reports.

In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial measures used by other institutions.

Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable financial measure calculated and presented in accordance with U.S.

GAAP, along with a reconciliation between the U.S.

GAAP financial measure and the non-GAAP financial measure.

We describe each of these measures below and explain why we believe the measure to be useful.

The following tables provide:

(1) a reconciliation of net income (GAAP) to net revenue on operating leases (non-GAAP) for the Rail Segment, and (2) a computation of adjusted interest-earning assets (non-GAAP).

Net Revenue on Operating Leases for Rail Segment

Net revenue on operating leases within the Rail segment is calculated as gross revenue earned on rail car leases less depreciation and maintenance.

This metric allows us to monitor the performance and profitability of the rail leases after deducting direct expenses.

The table below presents a reconciliation of net income to net revenue on operating leases.

Three Months Ended March 31,

dollars in millions 2022 2021

Net income (GAAP measure) $ 32 $ —

Provision for income taxes 11 —

Noninterest expense 16 —

Noninterest income 3 —

Interest expense, net 19 —

Net revenue on operating leases (non-GAAP measure) $ 75 $ —

Adjusted Interest-earning Assets

Interest-earning assets (period end balances) (GAAP) displayed in the table below are directly derived from the following line items in the Consolidated Balance Sheets or footnotes thereto:

(i) interest-earning deposits at banks;

(ii) investment securities;

(iii) assets held for sale;

and (iv) loans and leases.

These represent interest income generating assets and the average of which provides a basis for management performance calculations, such as NII and NIM.

We net the liabilities related to the factoring clients as the correlating receivable, which is included in loans and leases, generate commission income, which is noninterest income.

Three Months Ended March 31, 2022

dollars in millions Average

Balance Period End Balance

Interest earning assets (GAAP measure) $ 96,272 $ 94,361

credit balances for factoring clients (1,160) (1,150)

Adjusted interest earning assets, net of credit balances of factoring clients (non-GAAP measure) $ 95,112 $ 93,211

Three Months Ended March 31, 2022

dollars in millions Yield on Interest Earning Assets Interest Rate Spread Net Interest Margin

Unadjusted (GAAP measure) 2.95 % 2.60 % 2.69 %

Impact of credit balances for factoring clients 0.04 % 0.04 % 0.04 %

Adjusted (non-GAAP measure) 2.99 % 2.64 % 2.73 %

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q and Exhibits relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to, factors discussed in our 2020 Annual Report and in other documents filed by us from time to time with the Securities and Exchange Commission.

Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of BancShares’ management about future events.

Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, risks, uncertainties and other factors relating to our announced merger with CIT through a series of merger transactions, including the ability to obtain the remaining regulatory approvals and meet other closing conditions to the Transaction, and delay in closing the Transaction, as well as risks, uncertainties and other factors relating to the impact of COVID-19 on our business and the economy, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry, our ability to compete effectively against other financial institutions in our banking markets, actions of government regulators, the level of market interest rates and our ability to manage our interest rate risk, changes in general economic conditions that affect our loan and lease portfolio, the abilities of our borrowers to repay their loans and leases, the values of real estate and other collateral, the impact of our prior acquisitions, the risks discussed in Part I, Item 1A.

Risk Factors of our 2020 Annual Report and other developments or changes in our business that we do not expect.

Actual results may differ materially from those expressed in or implied by any forward-looking statements.

Except to the extent required by applicable law or regulation, BancShares undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Statements in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of BancShares.

Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will” or other similar words and expressions are intended to identify these forward-looking statements.

These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict.

Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements.

Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including the military conflict between Russia and Ukraine) and market conditions, the impacts of the global COVID-19 pandemic on BancShares’ business, and customers, the financial success or changing conditions or strategies of BancShares’ customers or vendors, fluctuations in interest rates, rising inflation, actions of government regulators, the availability of capital and personnel, the failure to realize the anticipated benefits of BancShares’ previously announced acquisition transaction(s), including the recently-completed transaction with CIT, which acquisition risks include (1) disruption from the transaction, or recently completed mergers, with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the transaction may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties’ customers to the transaction, (4) the risk that the cost savings and any revenue synergies from the transaction may not be realized or take longer than anticipated to be realized, and (5) difficulties experienced in the integration of the businesses.

Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments.

Additional factors which could affect the forward-looking statements can be found in BancShares’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and its other filings with the Securities and Exchange Commission.

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 2. Management’s Discussion and Analysis