What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-10 · 639 added, 335 removed, 940 unchanged (51% of the section changed)

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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.

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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.

Financial data for periods prior to the CIT Merger does not include any CIT related data, and therefore are not directly comparable to the three and six months ended June 30, 2022.

EXECUTIVE OVERVIEW

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FCB is regulated by the NCCOB.

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

In addition, FCB, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation (“FDIC”).

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

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We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards, and our people.

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

Refer to our 2021 Form 10-K for further discussion of our strategy.

Significant Events in 2022

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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.

Acquired rail assets were mostly operating lease equipment and reported in the new Rail segment.

• The fair value of deposits acquired was $39.4 billion that included deposits derived from online banking and Home Owner’s Association (“HOA”) deposits related to Community Association Banking (“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.

Share Repurchase Program

On July 26, 2022, our Board of Directors (the “Board”) authorized a share repurchase program for up to 1,500,000 shares of BancShares’ Class A common stock for the period commencing August 1, 2022 through July 28, 2023.

Under the authorized share repurchase program, shares of BancShares’ Class A common stock may be repurchased from time to time on the open market or in privately negotiated transactions, including through a Rule 10b5-1 plan.

However, the Board's action does not obligate BancShares to repurchase any particular number of shares, and repurchases may be suspended or discontinued at any time.

Segment Updates

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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.

Additionally, due to the CIT Merger, current quarter and year-to-date activity and ending and average balances are not comparable to the 2021 periods.

Beginning with the second quarter of 2022, we present a linked quarter comparison in the discussions of our consolidated results of operations and consolidated financial position, as permitted by applicable rules of the Securities and Exchange Commission.

We believe this will provide relevant information to our investors relating to our performance due to the inclusion of the CIT Merger in both quarters.

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

Selected Quarterly Data

Three Months Ended March 31,

dollars in millions, except share data 2022 2021

Three Months Ended Six Months Ended

dollars in millions, except share data June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

SUMMARY OF OPERATIONS

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(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.

Second Quarter Income Statement Highlights

For the three months ended June 30, 2022 compared to the three months ended March 31, 2022 (“linked quarter” comparisons):

• Net income for the three months ended June 30, 2022 was $255 million, a decrease of $16 million, or 6% compared to the linked quarter.

The decrease was primarily due to lower non-interest income, partially offset by lower provision for credit losses, higher net interest income and lower operating expense.

Net income available to common stockholders for the three months ended June 30, 2022 totaled $238 million, a decrease of $26 million, or 10% compared to the linked quarter.

In addition to the factors above, the decline also includes higher dividends on preferred stock, primarily related to the Series B Preferred Stock.

Net income per diluted common share for the three months ended June 30, 2022 decreased $1.84, or 11%, to $14.86, from $16.70 per share in the linked quarter.

• Select items in the current and linked quarters include:

◦ For the three months ended June 30, 2022:

• Gain on sale of corporate aircraft acquired in the CIT Merger of $6 million in other noninterest income.

• Merger-related expenses of $34 million in noninterest expense.

◦ For the three months ended March 31, 2022:

• Current expected credit losses (“CECL”) day 2 provision for loans and leases and unfunded commitments of $513 million.

• Preliminary gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price.

• Gain on debt redemptions in noninterest income of $6 million from $2.9 billion of borrowings assumed in the CIT Merger.

• Merger-related expenses of $135 million in noninterest expenses.

• A reduction in other noninterest expense of $27 million related to the termination of certain legacy CIT retiree benefits, reflecting amounts previously accrued.

• Return on average assets for the three months ended June 30, 2022 was 0.95%, compared to 1.00% for the three months ended March 31, 2022.

• Net interest income (“NII”) for the three months ended June 30, 2022 was $700 million, an increase of $51 million, or 8% compared to the three months ended March 31, 2022.

This was primarily due to higher earning asset yields and growth in our loan portfolio, along with lower interest expense on borrowings.

The net interest margin (“NIM”) for the three months ended June 30, 2022 was 3.04%, an increase of 31 bps from 2.73% for the three months ended March 31, 2022, reflecting the rising interest rate environment that increased yields on our earning assets, the impact of a $2.9 billion debt redemption last quarter, partially offset by a higher rate paid on interest-bearing deposits and lower SBA-PPP income.

• Provision for credit losses for the three months ended June 30, 2022 was $42 million compared to a provision of $464 million for the three months ended March 31, 2022.

The provision for credit losses in the current quarter reflects deterioration in CECL macroeconomic forecasts and loan portfolio growth.

The provision in the prior quarter included the day 2 CECL provision of $513 million.

The net charge-off ratio for the three months ended June 30, 2022 was 0.13%, up from 0.09% for the three months ended March 31, 2022.

• Noninterest income for the three months ended June 30, 2022 was $424 million, compared to $850 million for the three months ended March 31, 2022, which included the preliminary gain on acquisition of $431 million.

The remaining change included higher capital markets and wealth management revenue and a gain on sale of the corporate aircraft, mostly offset by fair value adjustments on equity investments.

• Noninterest expense for the three months ended June 30, 2022 was $745 million, compared to $810 million in the three months ended March 31, 2022.

The decrease of $65 million primarily reflects $101 million lower merger-related costs partially offset by the $27 million benefit related to the termination of certain legacy CIT retiree benefit plans that reduced prior quarter expenses.

The remaining change primarily reflects higher depreciation and maintenance costs of operating lease equipment, which offset lower salaries and benefits.

For the three months ended June 30, 2022 compared to the three months ended June 30, 2021:

• Net income for the three months ended June 30, 2022 was $255 million, an increase of $102 million, or 67% compared to the three months ended June 30, 2021.

Net income available to common stockholders for the three months ended June 30, 2022 totaled $238 million, an increase of $90 million, or 61% compared to the three months ended June 30, 2021.

Net income per diluted common share for the three months ended June 30, 2022 decreased $0.23, or 2%, to $14.86, from $15.09 per share during the three months ended June 30, 2021.

• Select items for the three months ended June 30, 2022 are mentioned above.

• Return on average assets for the three months ended June 30, 2022 was 0.95%, compared to 1.13% in the same quarter in 2021.

• NII was $700 million for the three months ended June 30, 2022, an increase of $354 million, or 102% compared to the three months ended June 30, 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.

NIM was 3.04% for the three months ended June 30, 2022, an increase of 37 bps from 2.67% for the three months ended June 30, 2021, reflecting higher loan yields on earning assets.

• Provision for credit losses for the three months ended June 30, 2022 was $42 million, compared to a benefit of $20 million for the three months ended June 30, 2021, primarily due to deterioration in CECL macroeconomic forecasts and loan growth during the second quarter of 2022, versus a reserve release in the second quarter of 2021.

The net charge-off ratio for the three months ended June 30, 2022 was 0.13%, up from 0.02% for the three months ended June 30, 2021.

• Noninterest income for the three months ended June 30, 2022 was $424 million, compared to $133 million for the three months ended June 30, 2021, benefiting from the CIT Merger.

The largest component of the increase was rental income on operating leases totaling $213 million.

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

• Noninterest expense for the three months ended June 30, 2022 was $745 million, compared to $300 million for the three months ended June 30, 2021.

The increase is associated with higher expenses for the combined company, led by higher salaries and benefit costs of $153 million due to the increase in employees and certain new costs, such as $136 million of depreciation and maintenance costs associated with the operating lease portfolio.

Year to Date Income Statement Highlights

• Net income for the six months ended June 30, 2022 was $526 million, an increase of $226 million, or 75% compared to the same period in 2021.

Net income available to common stockholders for the six months ended June 30, 2022 totaled $502 million, an increase of $211 million, or 73% compared to the same period in 2021.

Net income per diluted common share for the six months ended June 30, 2022 increased $1.85, or 6%, to $31.48, from $29.63 per share during the same period in 2021.

The increases are primarily attributed to the CIT Merger.

• Select items for the six months ended June 30, 2022 are mentioned above.

• Return on average assets for the six months ended June 30, 2022 was 0.97%, compared to 1.14% in the same period in 2021.

• NII for the six months ended June 30, 2022 was $1,349 million, an increase of $663 million, or 97% compared to the same period in 2021.

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

NIM for the six months ended June 30, 2022 was 2.89%, an increase of 16 bps from 2.73% for the same period in 2021.

• Provision for credit losses for the six months ended June 30, 2022 was $506 million, compared to a benefit of $31 million for the same period in 2021.

The net charge-off ratio for the six months ended June 30, 2022 was 0.11%, up from 0.03% for the same period in 2021.

• Noninterest income for the six months ended June 30, 2022 was $1,274 million, compared to $270 million for the same period in 2021, benefiting from the CIT Merger.

The six months ended June 30, 2022 includes a preliminary gain on acquisition of $431 million and rental income on operating leases of $421 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%.

• Noninterest expense for the six months ended June 30, 2022 was $1,555 million, compared to $597 million for the same period in 2021.

The increase is primarily associated with the CIT Merger, including higher salaries and benefit costs of $321 million due to the increase in employees, $260 million of depreciation and maintenance costs associated with the operating lease portfolio and higher merger-related costs of $156 million.

Balance Sheet Highlights

• Total loans and leases at June 30, 2022 were $67.7 billion, an increase of $2.2 billion or 13.5% annualized, from March 31, 2022.

We continued to see strong growth in our branch network and residential mortgage portfolio as well as growth in our commercial bank from a number of our industry verticals, middle market banking and business capital, driven by growth in commercial and industrial and residential mortgage loans.

Total loans and leases increased $35.4 billion from December 31, 2021, reflecting the addition of $32.7 billion from the CIT Merger.

• Total deposits at June 30, 2022 were $89.3 billion, a decrease of $2.3 billion or 9.9% annualized, from March 31, 2022, driven by declines in money market and time deposits as we saw the most rate sensitive customers begin to move funds in response to recent rate increases.

The reductions were primarily concentrated in acquired higher cost channels including the direct bank and legacy OneWest branches, offset by growth in our branch network.

These declines were offset by growth in noninterest bearing deposits of $747 million, or 11.5% annualized.

Total deposits increased $37.9 billion from December 31, 2021, reflecting the addition of $39.4 billion from the CIT Merger.

• At June 30, 2022, BancShares remained well capitalized with a total risk-based capital ratio of 14.46%, a Tier 1 risk-based capital of 12.37%, a common equity Tier 1 ratio of 11.35% and a leverage ratio of 9.85%.

Recent Economic and Industry Developments

During the second quarter of 2022, the Federal Reserve’s Federal Open Market Committee (“FOMC”) significantly raised its target for the federal funds rate in an effort to combat rising inflation.

At its March, May, June and July meetings, the FOMC raised rates by 25, 50, 75, and 75 basis points, respectively.

The FOMC projects that there could be a total of seven rate hikes in 2022.

The FOMC’s efforts to control inflation has increased concerns over the possibility of a recession within the next twelve months.

In addition, geopolitical events, including the ongoing conflict with Russia and Ukraine and related events, are likely to create additional upward pressure on inflation and weigh on economic activity.

The timing and impact of inflation, rising interest rates and possible recession will depend on future developments, which are highly uncertain and difficult to predict.

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.

NII is the difference between interest income earned on assets such as loans, leases, securities and cash, and interest expense incurred on liabilities such as deposits and borrowings and is included as a line item on the Consolidated Statements of Income.

NII for the three months ended June 30, 2022 was $700 million, up from $649 million in the three months ended March 31, 2022, and up from $346 million for the three months ended June 30, 2021.

NII for the six months ended June 30, 2022 was $1,349 million, an increase of $663 million, or 97% compared to the same period in 2021.

NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities.

The following 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.

The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total.

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

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Three Months Ended

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

June 30, 2022 March 31, 2022 Change in NII Due to:

dollars in millions Average

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Interest-earning deposits at banks 7,629 13 0.72 11,476 6 0.19 (4) 11 7

Total adjusted interest earning assets (2)

Total interest-earning assets (2)

$ 92,112 $ 757 3.28 % $ 95,112 $ 710 2.99 % $ 6 $ 41 $ 47

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Allowance for credit losses (849) (907)

All other noninterest bearing assets 6,569 2,585

All other noninterest-earning assets 7,815 7,729

Total assets $ 107,575 $ 110,394

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Noninterest-bearing deposits $ 26,551 $ 25,317

Credit balances of factoring clients 1,189 1,160

Other noninterest-bearing liabilities 2,151 2,132

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(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.

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

Three Months Ended

June 30, 2022 June 30, 2021 Change in NII Due to:

Balance Income /

Expense Yield /

Balance Income /

Expense Yield /

Rate Volume (1)

Loans and leases (1)(2)

$ 65,298 $ 655 4.01 % $ 33,166 $ 324 3.88 % $ 322 $ 9 $ 331

Total investment securities 19,185 89 1.85 % 10,535 36 1.35 % 36 17 53

Interest-earning deposits at banks 7,629 13 0.72 % 7,819 2 0.11 % (1) 12 11

Total interest-earning assets (2)

$ 92,112 $ 757 3.28 % $ 51,520 $ 362 2.79 % $ 357 $ 38 $ 395

Operating lease equipment, net (including held for sale) $ 7,973 $ —

Cash and due from banks 524 364

Allowance for credit losses (849) (212)

All other noninterest-earning assets 7,815 2,727

Total assets $ 107,575 $ 54,399

Interest-bearing deposits:

Checking with interest $ 16,503 $ 4 0.12 % $ 10,953 $ 1 0.06 % $ 1 $ 2 $ 3

Money market 25,468 18 0.28 % 9,582 3 0.11 % 8 7 15

Savings 13,303 11 0.34 % 3,797 — 0.03 % 2 9 11

Time deposits 8,796 9 0.38 % 2,673 4 0.61 % 7 (2) 5

Total interest-bearing deposits 64,070 42 0.26 % 27,005 8 0.13 % 18 16 34

Securities sold under customer repurchase agreements 627 — 0.16 % 677 — 0.21 % — — —

Federal Home Loan Bank borrowings 386 2 1.64 % 648 2 1.29 % (1) 1 —

Senior unsecured borrowings 894 4 2.05 % — — — % 4 — 4

Subordinated debt 1,057 8 3.06 % 497 5 3.62 % 3 — 3

Other borrowings 83 1 2.46 % 82 1 3.40 % — — —

Total borrowings 2,420 15 2.43 % 1,227 8 2.12 % 6 1 7

Total interest-bearing liabilities $ 67,117 $ 57 0.34 % $ 28,909 $ 16 0.21 % $ 24 $ 17 $ 41

Noninterest-bearing deposits $ 26,551 $ 20,747

Credit balances of factoring clients 1,189 —

Other noninterest-bearing liabilities 2,151 345

Stockholders' equity 10,567 4,398

Total liabilities and stockholders' equity $ 107,575 $ 54,399

Interest rate spread 2.94 % 2.58 %

Net interest income and net yield on interest-earning assets $ 700 3.04 % $ 346 2.67 %

(1), (2) See footnotes to previous table.

Six Months Ended

June 30, 2022 June 30, 2021 Change in NII Due to:

Balance Income /

Expense Yield /

Balance Income /

Expense Yield /

Rate Volume (1)

Loans and leases (1)(2)

$ 64,724 $ — $ 1,276 $ — 3.96 % $ 33,127 $ 647 3.90 % $ 623 $ 6 $ 629

Total investment securities 19,338 172 1.78 % 10,148 66 1.31 % 76 30 106

Interest-earning deposits at banks 9,542 19 0.40 % 6,850 4 0.10 % 1 14 15

Total interest-earning assets (2)

$ 93,604 $ 1,467 3.14 % $ 50,125 $ 717 2.85 % $ 700 $ 50 $ 750

Operating lease equipment, net (including held for sale) $ 7,949 $ —

Cash and due from banks 530 349

Allowance for credit losses (882) (218)

All other noninterest-earning assets 7,776 2,657

Total assets $ 108,977 $ 52,913

Interest-bearing deposits:

Checking with interest $ 16,554 $ 9 0.11 % $ 10,850 $ 3 0.05 % $ 2 $ 4 $ 6

Money market 25,832 33 0.26 % 9,297 5 0.11 % 16 12 28

Savings 13,480 20 0.30 % 3,630 1 0.03 % 4 15 19

Time deposits 9,293 19 0.40 % 2,739 8 0.64 % 15 (4) 11

Total interest-bearing deposits 65,159 81 0.25 % 26,516 17 0.13 % 37 27 64

Securities sold under customer repurchase agreements 614 — 0.16 % 659 — 0.21 % — — —

Federal Home Loan Bank borrowings 513 4 1.41 % 650 4 1.29 % — — —

Senior unsecured borrowings 1,801 16 1.80 % — — — % 16 — 16

Subordinated debt 1,059 16 3.01 % 497 9 3.65 % 8 (1) 7

Other borrowings 84 1 2.20 % 85 1 2.12 % — — —

Total borrowings 3,457 37 2.12 % 1,232 14 2.12 % 24 (1) 23

Total interest-bearing liabilities $ 69,230 $ 118 0.34 % $ 28,407 $ 31 0.22 % $ 61 $ 26 $ 87

Noninterest-bearing deposits $ 25,960 $ 19,797

Credit balances of factoring clients 1,175 —

Other noninterest-bearing liabilities 2,117 372

Stockholders' equity 10,495 4,337

Total liabilities and stockholders' equity $ 108,977 $ 52,913

Interest rate spread 2.80 % 2.63 %

Net interest income and net yield on interest-earning assets $ 1,349 2.89 % $ 686 2.73 %

(1), (2) See footnotes to previous table.

Second Quarter 2022 compared to First Quarter 2022

• NII for the three months ended June 30, 2022 was $700 million, an increase of $51 million compared to the first quarter of 2022.

The increase was primarily due to the impact of higher yields on loans, investment securities and overnight investments, the debt redemption in the first quarter and strong loan growth, partially offset by a decline in SBA-PPP income and slightly higher interest-bearing deposit costs.

◦ Interest income earned on loans and leases for the three months ended June 30, 2022 was $655 million, an increase of $34 million compared to the first quarter of 2022.

The increase was primarily due to higher yields and growth in the average loans and leases balance from $64.1 billion in the previous quarter to $65.3 billion in the current quarter.

The increase was partially offset by a decline in SBA-PPP interest income.

◦ Interest income earned on investment securities for the three months ended June 30, 2022 was $89 million, an increase of $6 million compared to the first quarter of 2022.

The increase was primarily due to higher reinvestment rates and lower prepayments and premium amortization on our mortgage-backed investment security portfolio.

◦ Interest income earned on interest earning deposits at banks for the three months ended June 30, 2022 was $13 million, an increase of $7 million, reflecting higher Fed Funds rates, which offset the decline in the average balance.

◦ Interest expense on interest-bearing deposits for the three months ended June 30, 2022 was $42 million, an increase of $3 million compared to the first quarter of 2022, as slightly higher deposit rates were partially offset by lower balances, with runoff concentrated in higher cost money market accounts and maturing time deposits.

Interest expense on borrowings for the three months ended June 30, 2022 was $15 million, a decrease of $7 million compared to the first quarter of 2022.

The decrease was primarily due to the redemption of approximately $2.9 billion of senior unsecured notes in February of 2022.

• NIM for the three months ended June 30, 2022 was 3.04%, an increase of 31 bps from the first quarter of 2022, due to the impact of the items noted above, including higher earning asset yields and strong long growth, the impact of the debt redemption in the first quarter, partially offset by a decline in SBA-PPP income and slightly higher interest-bearing deposit costs.

Purchase accounting and SBA-PPP income impact on the NIM was minimal.

• Average interest-earning assets for the three months ended June 30, 2022 were $92.1 billion.

This is a decline from $95.1 billion for the three months ended March 31, 2022, reflecting lower deposits and borrowings.

• Average interest-bearing liabilities for the three months ended June 30, 2022 were $67.1 billion.

This is a decline from $71.4 billion for the three months ended March 31, 2022, driven by declines in money market and time deposits and the approximately $2.9 billion redemption of senior unsecured notes in February of 2022.

The average rate on interest-bearing liabilities for the three months ended June 30, 2022 was 0.34%.

This is a decrease of 1 bp compared to the three months ended March 31, 2022.

Second Quarter 2022 compared to Second Quarter 2021

• NII for the three months ended June 30, 2022 was $700 million, an increase of $354 million compared to the second quarter of 2021, primarily due to the CIT Merger, as well as subsequent loan growth and rising interest rates, partially offset by a decline in interest income on SBA-PPP loans.

◦ Interest income earned on loans and leases for the three months ended June 30, 2022 was $655 million, an increase of $331 million compared to the second quarter of 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, partially offset by lower SBA-PPP interest income.

SBA-PPP loans contributed $5 million of interest income during the second quarter of 2022 compared to $27 million in the second quarter of 2021.

◦ Interest income earned on investment securities for the three months ended June 30, 2022 was $89 million, an increase of $53 million compared to the second quarter of 2021.

The increase was due to the addition of $6.6 billion of investment securities acquired in the CIT Merger and higher portfolio yield.

◦ Interest income earned on interest-earning deposits at banks for the three months ended June 30, 2022 was $13 million, an increase of $11 million compared to the second quarter of 2021, reflecting higher interest rates.

◦ Interest expense on interest-bearing deposits for the three months ended June 30, 2022 was $42 million, an increase of $34 million compared to second quarter of 2021.

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

Interest expense on borrowings for the three months ended June 30, 2022 was $15 million, an increase of $7 million compared to the second quarter of 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.

• NIM was 3.04% for the three months ended June 30, 2022, an increase of 37 bps from the second quarter of 2021, primarily reflective of the higher interest rate environment and the assets acquired and liabilities assumed in the CIT Merger.

• Average interest-earning assets for the three months ended June 30, 2022 were $92.1 billion, an increase of $40.6 billion compared to the second quarter of 2021.

This increase was primary due to the added interest-earning assets from the CIT Merger.

• Average interest-bearing liabilities for the three months ended June 30, 2022 were $67.1 billion, an increase of $38.2 billion compared to the second quarter of 2021.

The increase was primarily due to the addition of deposits and borrowings from the CIT Merger.

Rates on interest-bearing liabilities for the three months ended June 30, 2022 were 0.34%.

This increase of 13 bps from the second quarter of 2021 is primarily due to the higher rates on the deposits and borrowings acquired in the CIT Merger.

Year to Date 2022 compared to 2021

• NII for the six months ended June 30, 2022 was $1,349 million, an increase of $663 million compared to the same period in 2021, primarily due to the CIT Merger, as well as loan growth and a higher interest rate environment, partially offset by a decline in interest income on SBA-PPP loans.

◦ Interest income earned on loans and leases for the six months ended June 30, 2022 was $1,276 million, an increase of $629 million compared to the same period in 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, partially offset by lower SBA-PPP interest income.

SBA-PPP loans contributed $14 million of interest income during the six months ended June 30, 2022 compared to $58 million in the same period in 2021.

◦ Interest income earned on investment securities for the six months ended June 30, 2022 was $172 million, an increase of $106 million compared to the same period in 2021.

The increase was primarily due to the addition of $6.6 billion of investment securities acquired in the CIT Merger and higher portfolio yield.

◦ Interest income earned on interest-earning deposits at banks for the six months ended June 30, 2022 was $19 million, an increase of $15 million compared to the same period in 2021, reflecting higher interest rates.

◦ Interest expense on interest-bearing deposits for the six months ended June 30, 2022 was $81 million, an increase of $64 million compared to the same period in 2021.

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

Interest expense on borrowings for the six months ended June 30, 2022 was $37 million, an increase of $23 million compared to the same period in 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 first quarter.

• NIM for the six months ended June 30, 2022 was 2.89%, an increase of 16 bps from the same period in 2021, primarily reflective of the higher interest rate environment.

• Average interest-earning assets for the six months ended June 30, 2022 were $93.6 billion, compared to $50.1 billion in 2021.

The change was primarily due to the interest-earning assets acquired in the CIT Merger.

• Average interest-bearing liabilities for six months ended June 30, 2022 were $69.2 billion.

This is an increase from $28.4 billion in the same period in 2021, primarily due to the addition of deposits and borrowings from the CIT Merger.

Rates on interest-bearing liabilities for the six months ended June 30, 2022 were 0.34%.

This increase of 12 bps from the same period in 2021 was primarily due to the higher rates on the deposits and borrowings acquired in the CIT Merger.

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

Average Interest-earning Asset Mix

% of Total Interest-earning Assets

Three months ended

March 31, 2022 March 31, 2021

Three Months Ended Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Loans and leases 71 % 67 % 64 % 69 % 66 %

Investment securities 21 % 21 % 21 % 21 % 20 %

Interest-bearing cash 12 % 12 %

Interest-earning deposits at banks 8 % 12 % 15 % 10 % 14 %

Total interest earning assets 100 % 100 % 100 % 100 % 100 %

• 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.

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% of Total Interest-bearing Liabilities

Three months ended

March 31, 2022 March 31, 2021

Three Months Ended Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Total interest-bearing deposits 95 % 93 % 94 % 94 % 94 %

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Long-term borrowings 4 % 6 % 4 % 5 % 4 %

• 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.

100 % 100 % 100 % 100 % 100 %

PROVISION FOR CREDIT LOSSES

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.

BancShares provides an amount for expected credit losses within the loan and lease portfolio and for unfunded commitments that is based on factors discussed in the Critical Accounting Estimates section of our 2021 Form 10-K.

The provision is recorded to bring the ACL and reserve for unfunded commitments to a level deemed appropriate to cover losses expected in the portfolios.

The provision for credit losses for the three months ended June 30, 2022 was $42 million, compared to a provision of $464 million for the three months ended March 31, 2022, which included the day 2 provision related to the CIT Merger as explained below, and a benefit of $20 million for the same quarter in 2021.

The provision for credit losses for the six months ended June 30, 2022 was $506 million compared to a benefit of $31 million in the same period of 2021.

The provision for credit losses for the three months ended June 30, 2022 of $42 million reflects loan portfolio growth and deterioration in the CECL macroeconomic forecast used to determine the ACL, partially offset by benefits from improved credit quality and lower specific reserves.

The decrease in the provision for credit losses compared to the three months ended March 31, 2022 was due to the impact of the CIT Merger in the first quarter.

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 first quarter provision for credit losses also included $63 million related to unfunded commitments, of which $59 million was 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 in the first quarter of $513 million that related to the CIT Merger were partially offset by a benefit of $53 million, primarily reflecting 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.

The increases in the provision for credit losses compared to the three and six months ended June 30, 2021 were primarily related to the impact of the CIT Merger and the deterioration in the CECL macroeconomic forecast used to determine the ACL, while the prior year benefited from reserve releases.

NONINTEREST INCOME

Noninterest Income

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Noninterest income is an essential component of our total revenue.

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

Noninterest Income

Three Months Ended Six Months Ended

dollars in millions June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Rental income on operating leases $ 213 $ 208 $ — $ 421 $ —

Other noninterest income:

Fee income and other revenue 33 9

Fee income and other service charges 39 35 10 74 21

Wealth management services 37 35 32 72 64

Gains on leasing equipment, net 6 —

Service charges on deposit accounts 28 28 21 56 43

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Merchant services, net 9 10 8 19 17

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

Marketable equity securities gains, net 3 16

Insurance commissions 11 12 4 23 8

Realized gain on sales of investment securities available for sale, net — — 16 — 25

Fair value adjustment on marketable equity securities, net (6) 3 12 (3) 28

Bank-owned life insurance 9 8 — 17 1

Gain on sales of leasing equipment, net 5 6 — 11 —

Gain on acquisition — 431 — 431 —

Gain (loss) on extinguishment of debt 6 —

Gain on extinguishment of debt — 6 — 6 —

Other noninterest income 26 16 8 42 21

Total other noninterest income 211 642 133 853 270

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.

Total noninterest income $ 424 $ 850 $ 133 $ 1,274 $ 270

Rental Income on Operating Leases

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.

Revenue is generally dictated by the size of the portfolio, utilization of the railcars, 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.

Other Noninterest Income

Other noninterest income for the three months ended June 30, 2022 was $211 million, compared to $642 million in the three months ended March 31, 2022 and $133 million for the same period in 2021.

Other noninterest income for the six months ended June 30, 2022 was $853 million compared to $270 million in the same period of 2021.

The increases for the comparable 2021 periods were primarily due to the additional activity related to the CIT Merger, both complimentary to existing BancShares services and products, as well as new items such as factoring services and gains recognized on equipment sales, along with 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.

The linked quarter comparison to the three months ended June 30, 2022 reflects a $431 million decline, primarily due to the preliminary estimated gain on acquisition related to the CIT Merger recognized in the first quarter.

The remaining changes netted to a minimal amount, consisting of increases and decreases among other noninterest income accounts.

The more significant variances follow:

• Fee income and other service charges, consisting of items such as capital market-related fees, fees on lines and letters of credit, and servicing fees, increased by $4 million, primarily reflecting higher capital market fees.

• Wealth management services increased by $2 million, and was led by our brokerage channel, which offset some of the pressure in trust from broad-based equity and bond market declines.

In brokerage, the income was driven by increases in annuities and structured products.

• Service charges on deposit accounts were unchanged.

In January, we announced our intent to eliminate our nonsufficient funds (“NSF”) fees and lower our overdraft fees from $36 to $10 on consumer accounts beginning mid-year 2022.

• During the first quarter of 2022, we redeemed approximately $2.9 billion of borrowings assumed in the CIT Merger, resulting in a $6 million gain on debt extinguishment.

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

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

Other noninterest income increased by $10 million, primarily reflecting a $6 million gain on sale of a corporate aircraft acquired in the CIT Merger.

NONINTEREST EXPENSE

Noninterest Expense

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Three Months Ended Six Months Ended

dollars in millions June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Depreciation on operating lease equipment $ 89 $ 81 $ — $ 170 $ —

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Equipment expense 54 52 29 106 59

Professional fees 15 16 4 31 8

Third-party processing fees 26 24 14 50 28

FDIC insurance expense 9 12 4 21 7

Marketing 9 8 2 17 4

Merger-related expenses 34 135 6 169 13

Intangible asset amortization 6 6 3 12 6

Other noninterest expense 67 32 22 99 42

Total operating expenses 609 686 300 1,295 597

Total noninterest expense $ 745 $ 810 $ 300 $ 1,555 $ 597

Depreciation on Operating Lease Equipment

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

The increase in expense from the prior quarter primarily reflects adjustments to residual values.

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

2 unchanged sentences

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.

Maintenance and other operating lease expenses for the three months ended June 30, 2022 and March 31, 2022 were $47 million and $43 million, respectively.

Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable.

The increase from the prior quarter reflects higher renewal activity for railcars put back on lease and inflationary pressures.

Refer to the Rail discussion in the Results by Business Segment section for further detail on our rail portfolio.

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 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.

Operating expenses for the three months ended June 30, 2022 were $609 million, compared to $686 million in the three months ended March 31, 2022 and $300 million for the same period in 2021.

Operating expenses for the six months ended June 30, 2022 were $1,295 million compared to $597 million in the same period of 2021.

The increases compared to the same periods in 2021 were primarily driven by the CIT Merger;

significant drivers included higher employee headcount, more branches and office space, additional technology systems and merger-related expenses.

Operating expenses for the three months ended June 30, 2022 declined by $77 million compared to the linked quarter, which was primarily comprised of the following:

• Salaries and benefits decreased by $11 million, primarily reflecting lower benefit expenses, lower incentive compensation and higher deferred loan origination costs, partially offset by higher salary expense due to annual merit increases and net staff additions.

The staff additions are the result of building out teams to support our move to large bank compliance, as well as to backfill vacancies.

• The $3 million decrease in FDIC insurance expense primarily reflects the decline in deposits from last quarter.

• Merger-related expenses decreased by $101 million, primarily driven by lower severance and retention costs.

• Other expenses 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.

Other expense increased by $35 million, as the first quarter of 2022 included a $27 million reversal of an accrual related to legacy CIT postretirement plans that were terminated after the Merger Date.

See Note 21 — Employee Benefit Plans.

The remaining change included a legal settlement accrual and small net increases in other miscellaneous items, such as travel.

Income Tax Data

Three Months Ended

dollars in millions March 31, 2022 March 31, 2021

Three Months Ended Six Months Ended

dollars in millions June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Income before income taxes $ 337 $ 225 $ 199 $ 562 $ 390

1 unchanged sentence

Effective tax rate 24.2 % (20.4) % 23.1 % 6.3 % 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 effective tax rate (“ETR”) was 24.2% in the three months ended June 30, 2022, compared to (20.4)% for the three months ended March 31, 2022 and 23.1% in the year-ago quarter.

The increase in effective rate from 23.1% in the year ago quarter to 24.2% for the three months ended June 30, 2022 was primarily driven by the increase in state and local taxes resulting from the CIT Merger.

The effective rates for the three months ended March 31, 2022, and the six months ended June 30, 2022, were 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.

The ETR in future periods 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.

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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.

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

General Banking

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Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

dollars in millions Three Months Ended Six Months Ended

Earnings Summary June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Net interest income $ 467 $ 437 $ 363 $ 904 $ 707

Benefit for credit losses (15) (11)

Net interest income after benefit for credit losses 452 355

Provision (benefit) for credit losses 7 (15) (21) (8) (32)

Net interest income after provision (benefit) for credit losses 460 452 384 912 739

Noninterest income 125 123 104 248 214

Noninterest expense 390 409 289 799 579

Segment income before income taxes 166 175

Provision for income taxes 40 40

Segment net income $ 126 $ 135

Income before income taxes 195 166 199 361 374

Income tax expense 40 40 46 80 86

Net income $ 155 $ 126 $ 153 $ 281 $ 288

Select Period End Balances

1 unchanged sentence

Deposits 83,535 85,469 48,344 83,535 48,344

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.

Results for the 2022 periods reflect the additional activity from the CIT Merger, which were not included in 2021 income statements.

Net income for the three months ended June 30, 2022 increased compared to the three months ended March 31, 2022, reflecting higher NII, mostly due to growth in the loan portfolio, partially offset by a higher provision for credit losses.

The provision for credit losses in the current quarter reflects deterioration in CECL macroeconomic scenarios and portfolio growth.

Noninterest income for the three months ended June 30, 2022 increased compared to the three months ended March 31, 2022, reflecting increases in wealth management income and cardholder services income, and slightly higher service charges on deposits compared, to the three months ended March 31, 2022.

Noninterest expenses for the three months ended June 30, 2022 decreased compared to the three months ended March 31, 2022, reflecting items discussed previously in the Noninterest Expenses section.

Loans and leases at June 30, 2022 increased from March 31, 2022 reflecting strong demand through our branch network.

Growth was primarily concentrated in business and commercial loans.

Mortgage loans also grew, reflecting lower prepayments and originating loans that were held on-balance sheet.

Compared to June 30, 2021, 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.

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

Deposits at June 30, 2022 were down from March 31, 2022, reflecting declines in higher-priced deposits from legacy CIT, partially offset by higher noninterest earning deposits, while the increase compared to June 30, 2021 reflects deposits acquired in the CIT Merger.

See discussions in Net Interest Income and Net Interest Margin section above and Balance Sheet Analysis—Deposits section below.

Commercial Banking

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

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

Commercial Banking also provides asset-based lending, factoring, receivables management products and supply chain financing.

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Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

dollars in millions Three Months Ended Six Months Ended

Earnings Summary June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Net interest income $ 204 $ 207 $ 4 $ 411 $ 8

Benefit for credit losses (34) —

Net interest income after benefit for credit losses 241 4

Provision (benefit) for credit losses 35 (34) 1 1 1

Net interest income after provision (benefit) for credit losses 169 241 3 410 7

Noninterest income 130 112 — 242 —

Noninterest expense 180 191 1 371 2

Segment income before income taxes 162 3

Provision for income taxes 41 1

Segment net income $ 121 $ 2

Income before income taxes 119 162 2 281 5

Income tax expense 24 41 — 65 1

Net income $ 95 $ 121 $ 2 $ 216 $ 4

Select Period End Balances

1 unchanged sentence

Deposits 4,449 4,687 66 4,449 66

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.

Results for the 2022 periods primarily reflect activity from the former CIT businesses, which were not included in 2021 income statements.

Net income for the three months ended June 30, 2022 decreased compared to the three months ended March 31, 2022, mostly due to a higher provision for credit losses, which offset higher noninterest income and lower noninterest expenses.

The provision for credit losses in the current quarter reflects deterioration in CECL macroeconomic forecasts and loan growth.

For the three months ended June 30, and March 31, 2022, noninterest income included rental income on operating lease equipment of $53 million and $49 million, respectively.

The increase reflected higher operating lease equipment in the current quarter.

The remaining increase in non-interest income was due to higher capital market fees, market adjustments on derivatives and higher gains on equipment sales.

Noninterest expense include operating expenses and depreciation on operating lease equipment.

Noninterest expenses for the three months ended June 30, 2022 decreased compared to the three months ended March 31, 2022, reflecting items discussed previously in the Noninterest Expenses section.

The decline in the operating expenses was partially offset by an increase in depreciation on operating lease equipment, which totaled $42 million for the three months ended June 30, 2022 and $40 million for the three months ended March 31, 2022.

The increase reflected the higher asset balance.

Loans and leases at June 30, 2022 increased from March 31, 2022, reflecting growth in the commercial and industrial loans, partially offset by a decline in real estate finance loans, as prepayments remained elevated.

The increase in loans and leases and deposits for the 2022 periods compared to 2021 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.

3 unchanged sentences

open hopper cars for coal and aggregates;

boxcars for paper and auto parts, and centerbeams and flat cars for lumber.

boxcars for paper and auto parts, and center beams 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

dollars in millions Three Months Ended Six Months Ended

Earnings Summary June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Rental income on operating leases $ 160 $ 159 $ — $ 319 $ —

2 unchanged sentences

Net revenue on operating leases (1)

66 75 — 141 —

Interest expense, net 18 19 — 37 —

Noninterest income — 3 — 3 —

Noninterest expense 16 —

Segment income before income taxes 43 —

Provision for income taxes 11 —

Segment net income $ 32 $ —

Operating expenses 17 16 — 33 —

Income before income taxes 31 43 — 74 —

Income tax expense 7 11 — 18 —

Net income $ 24 $ 32 $ — $ 56 $ —

Select Period End Balances

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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.

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

Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail portfolio and tend to be variable.

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

Net income and net revenue on operating leases for the three months ended June 30, 2022, were $24 million and $66 million, respectively, both down from the three months ended March 31, 2022, driven by higher depreciation and higher maintenance costs.

Depreciation is recognized on railcars, and the current quarter included higher costs driven by adjustments to residual values.

Maintenance and other operating lease expenses increased from the prior quarter, reflecting higher renewal activity for railcars put back on lease and inflationary pressures.

Other noninterest income reflects gains on equipment sales, which were insignificant in the three months ended June 30, 2022.

Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 114% of the average prior or expiring lease rate, strengthened by various railcar types during the quarter, such as plastics, mill gondolas, covered hoppers and boxcars.

Our railcar utilization, including commitments to lease, at June 30, 2022 was 96.2%, up from 95.5% at March 31, 2022, with broad based improvements across most car types.

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.

Our total operating lease fleet at June 30, 2022 consisted of approximately 119,500 railcars, down slightly from March 31, 2022.

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)

Operating lease Railcar Portfolio by Type (units and net investment)

June 30, 2022 March 31, 2022

Railcar Type Total Owned

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Fleet - % Total

Net Investment Total Owned

Fleet - % Total Units Total Owned

Fleet - % Total

Net Investment

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Mill/Coil Gondolas 8 % 6 % 8 % 6 %

Coal 8 % 1 % 8 % 1 %

Boxcars 6 % 7 % 6 % 7 %

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Rail Operating Lease Equipment by Obligor Industry

dollars in millions March 31, 2022

dollars in millions June 30, 2022 March 31, 2022

Manufacturing $ 3,057 42 % $ 2,879 40 %

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Total $ 7,247 100 % $ 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).

Certain items that are not allocated to operating segments 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 expenses, as well as certain unallocated costs and intangible asset amortization expense (operating expenses).

Corporate also includes certain significant items that are infrequent, such as:

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Financial Data and Metrics

dollars in millions Three Months Ended March 31,

Earnings Summary 2022 2021

dollars in millions Three Months Ended Six Months Ended

Earnings Summary June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Net interest income (expense) $ 47 $ 24 $ (21) $ 71 $ (29)

Provision for credit losses — 513 — 513 —

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

Net interest income (expense) after provision for credit losses 47 (489) (21) (442) (29)

Noninterest income 9 453 29 462 56

Noninterest expense 64 110 10 174 16

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.

Income before income taxes (8) (146) (2) (154) 11

Income tax expense (benefit) 11 (138) — (127) 3

Net loss $ (19) $ (8) $ (2) $ (27) $ 8

Results for 2022 were driven by impacts from the CIT Merger.

Results in the three months ended June 30, 2022 included $34 million of merger-related expenses and a $6 million gain on sale of a corporate aircraft.

The three months ended March 31, 2022 included $513 million related to the Initial Non-PCD Provision, a preliminary gain on acquisition of $431 million in noninterest income and $135 million of merger-related expenses, partially offset by a reduction of approximately $27 million related to the termination of certain legacy CIT retiree benefit plans in noninterest expenses.

BALANCE SHEET ANALYSIS

INTEREST-EARNING ASSETS

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.

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

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

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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.

Interest-bearing cash at June 30, 2022 totaled $6.5 billion.

This was down from $9.3 billion at March 31, 2022 and $9.1 billion at December 31, 2021.

These declines related to lower deposits, loan growth, and the timing of investment maturities.

While the CIT Merger added approximately $2.9 billion of interest-bearing cash as of the Merger Date, that amount was offset by the use of cash for the redemption of approximately $2.9 billion of assumed debt in February.

Investment Securities

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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.

The carrying value of investment securities at June 30, 2022 totaled $19.1 billion.

This was down from $19.5 billion at March 31, 2022, reflecting investment security purchases of $0.5 billion, maturities and paydowns of $0.6 billion, and the remaining primarily due to change in fair value.

The increase from $13.1 billion at December 31, 2021, primarily reflected the CIT Merger, which added $6.6 billion.

The remaining year to date activity in the portfolio included investment securities purchases of $1.3 billion, partially offset by maturities and paydowns of $1.2 billion, and fair value changes.

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.

As of June 30, 2022, investment securities available for sale had a net pre-tax unrealized loss of $647 million, compared to a net pre-tax unrealized losses of $431 million as of March 31, 2022 and $12 million as of December 31, 2021.

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

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, 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.

Treasury, the World Bank and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, BancShares management determined that no ACL was needed at June 30, 2022 and December 31, 2021.

Table 14 presents the investment securities portfolio at June 30, 2022, March 31, 2022, and December 31, 2021, segregated by major category.

Investment Securities

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021

dollars in millions Composition (1)

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Amortized cost Fair

Composition (1)

Amortized cost Fair

Investment securities available for sale

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

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.

Table 15 presents the weighted average yields for investment securities available for sale and held to maturity at June 30, 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

March 31, 2022

June 30, 2022

One Year One to Five

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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.

Assets held for sale at June 30, 2022 were $38 million, of which $35 million related to loans and the remainder to non-interest earning operating lease equipment.

Assets held for sale totaled $83 million at March 31, 2022 and $99 million at December 31, 2021.

The declines were primarily due to loan sales.

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.

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Loans and Leases

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.

Loans and leases held for investment at June 30, 2022 were $67.7 billion, an increase from $65.5 billion, at March 31, 2022.

These increases were partially offset by a decline in real estate finance loans, reflecting continued prepayment activity.

Total loans and leases increased from $32.4 billion at December 31, 2021, reflecting the addition of $32.7 billion from the CIT Merger and the above noted activity, 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.

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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.

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

Commercial loans at June 30, 2022 were $51.5 billion compared to $50.1 billion at March 31, 2022 and $22.6 billion at December 31, 2021, representing 76%, 76% and 70% of total loans and leases, respectively.

Consumer loans at June 30, 2022 were $16.3 billion, compared to $15.4 billion at March 31, 2022 and $9.8 billion at December 31, 2021, representing 24%, 24% and 30% of total loans and leases, respectively.

Loans and Leases

dollars in millions March 31, 2022 December 31, 2021

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Commercial construction $ 2,783 $ 2,633 $ 1,238

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Net loans and leases $ 66,885 $ 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.

The discount related to acquired loans was $138 million, $142 million and $40 million at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

OPERATING LEASE EQUIPMENT, NET

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Operating Lease Equipment

dollars in millions March 31, 2022

dollars in millions June 30, 2022 March 31, 2022

Railcars and locomotives $ 7,247 $ 7,251

Other equipment 724 721

(1) Includes off-lease Rail equipment of $504 million.

$ 7,971 $ 7,972

(1) Includes off-lease Rail equipment of $492 million at June 30, 2022 and $504 million at March 31, 2022.

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.

Interest-bearing liabilities at June 30, 2022 totaled $67.1 billion, compared to $69.0 billion at March 31, 2022 and $31.8 billion at December 31, 2021.

As discussed further below, the decrease from March 31, 2022 reflects lower deposits, partially offset by higher borrowings.

The increase from December 31, 2021 was mostly due to deposits and borrowings from the CIT Merger, partially offset by the redemption of assumed debt during the first 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

Total deposits at June 30, 2022 were $89.3 billion, a decrease of $2.3 billion as compared to March 31, 2022 and an increase of $37.9 billion as compared to December 31, 2021.

Interest-bearing deposits totaled $62.7 billion, $65.7 billion and $30.0 billion at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

Noninterest-bearing deposits totaled $26.6 billion, $25.9 billion and $21.4 billion at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

The decline in total deposits as compared to March 31, 2022 was driven by lower money market and time deposits, as we saw the most rate sensitive customers begin to move funds in response to recent increases by the FOMC in the target federal funds rate.

The reductions were primarily concentrated in acquired higher cost channels including the direct bank and legacy OneWest branches.

These declines were partially offset by growth in noninterest-bearing deposits, primarily from our branch network.

The increase in total deposits as compared to December 31, 2021 was primarily 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 an HOA deposit channel.

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Noninterest-bearing demand $ 26,645 $ 25,898 $ 21,405

Checking with interest 16,285 16,702 12,694

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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.

We estimate total uninsured deposits were $31.0 billion and $23.0 billion at June 30, 2022 and December 31, 2021, respectively.

Table 19 provides the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of June 30, 2022.

Maturities of Time Deposits In Excess of $250,000

dollars in millions March 31, 2022

dollars in millions June 30, 2022

Time deposits maturing in:

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Total $ 1,367

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.

Total borrowings at June 30, 2022 were $4.5 billion, compared to $3.3 billion at March 31, 2022 and $1.8 billion at December 31, 2021.

The increase from March 31, 2022 primarily reflecting new FHLB borrowings of $1.65 billion, partially offset by repayments of $0.5 billion.

The additional $2.7 billion increase from December 31, 2021 reflected $4.5 billion debt assumed in the CIT Merger and the new FHLB borrowings net of repayments, partially offset by debt redemption of approximately $2.9 billion in February.

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

dollars in millions March 31, 2022 December 31, 2021

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Securities sold under customer repurchase agreements $ 646 $ 616 $ 589

Federal Home Loan Bank borrowings

Floating rate notes due through July 2024 1,650 — —

Fixed rate notes due through March 2032 135 639 645

Senior Unsecured Borrowings

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Subordinated debt

6.125% fixed rate notes due March 2028 (1)

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

3.375% fixed-to-floating rate notes due March 2030 348 347 347

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

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

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FCB/NC Capital Trust III - floating rate debenture due June 2036 88 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 1,055 1,058 478

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(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.

See Note 12 — Borrowings for further information on the various components.

RISK MANAGEMENT

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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.

In addition, 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.

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

Due to the CIT Merger, further below we added Asset Risk (due to the operating lease portfolio) as a primary risk and enhanced our credit risk to highlight counterparty risk (due to the increased use of derivatives).

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.

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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.

Since the filing of our 2021 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, elevated market volatility, 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.

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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.

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 expected losses over the life of the loan and lease portfolios.

Commercial Lending and Leasing

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Allowance for Credit Losses

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 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.

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

Significant macroeconomic factors used in estimating the expected losses include unemployment, 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.

The ACL at June 30, 2022 was $850 million, compared to $848 million at March 31, 2022 and $178 million at December 31, 2021.

The ACL as a percentage of total loans and leases at June 30, 2022 was 1.26%, compared to 1.29% at March 31, 2022 and 0.55% at December 31, 2021.

The ACL at June 30, 2022 increased slightly compared to March 31, 2022 due to the impacts of loan growth and deterioration in the CECL macroeconomic forecast (primarily related to GDP, home prices, and commercial real estate prices) were partially offset by improvements in credit quality and a $12 million decrease in the initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”).

In the three months ended June 30, 2022, the ACL on commercial loans decreased $3 million and the ACL on consumer portfolios increased $5 million.

Compared to December 31, 2021, the increase in the ACL at June 30, 2022 on commercial portfolios was $660 million and $12 million on the consumer portfolios.

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

The Initial PCD ACL of $272 million 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.

In addition to the impact on the ACL from the CIT Merger, changes in CECL macroeconomic forecasts during the first half of 2022 impacted the ACL.

As previously discussed above, the economic forecasts utilized to determine the ACL at June 30, 2022 deteriorated compared to the forecasts utilized to determine the ACL at March 31, 2022.

The scenarios utilized to generate the ACL at March 31, 2022 showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2021 ACL.

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

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 $660 million to approximately $1.3 billion.

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

BancShares management determined that an ACL of $850 million was appropriate as of June 30, 2022.

Allowance for Credit Losses

Three months ended March 31, 2022

Three Months Ended June 30, 2022

dollars in millions Commercial Consumer Total

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

Initial PCD ACL (1)

Initial Non-PCD Provision — — —

Provision for credit losses - loans and leases 33 3 36

Total provision for credit losses - loans and leases 33 3 36

Charge-offs (1)

(36) (5) (41)

Recoveries 12 7 19

Balance at June 30, 2022 $ 740 $ 110 $ 850

Annualized net charge-off ratio 0.13 %

Net charge-offs (recoveries) $ 24 $ (2) $ 22

Average loans $ 66,431

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

Three Months Ended March 31, 2022

Commercial Consumer Total

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

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

Three months ended March 31, 2021

Three Months Ended June 30, 2021

Commercial Consumer Total

Balance at March 31, 2021 $ 86 $ 124 $ 210

Provision (benefit) for credit losses - loans and leases 1 (20) (19)

Charge-offs (3) (4) (7)

Recoveries 2 3 5

Balance at June 30, 2021 $ 86 $ 103 $ 189

Annualized net charge-off ratio 0.02 %

Net charge-offs $ 1 $ 1 $ 2

Average loans $ 33,042

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

(1) The Initial PCD ACL related to the CIT Merger was $272 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.

The $12 million reflects second quarter adjustment to the original amount recorded on the Merger Date, with an equal adjustment to the UPB of PCD loans.

There was no income statement impact or adjustment to the purchase price.

Six Months Ended June 30, 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

Provision (benefit) for credit losses - loans and leases 10 (27) (17)

Total provision (benefit) for credit losses - loans and leases 442 (5) 437

Charge-offs (1)

(64) (10) (74)

Recoveries 24 13 37

Balance at June 30, 2022 $ 740 $ 110 $ 850

Annualized net charge-off ratio 0.11 %

Net charge-offs (recoveries) $ 40 $ (3) $ 37

Average loans $ 65,810

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

Six Months Ended June 30, 2021

Commercial Consumer Total

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

Benefit for credit losses - loans and leases (3) (28) (31)

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Recoveries 4 7 11

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

Balance at June 30, 2021 $ 86 $ 103 $ 189

Annualized net charge-off ratio 0.03 %

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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.

(1) See footnote to table above.

Net charge-offs during the three months ended June 30, 2022 were $22 million, compared to $15 million during the first quarter of 2022 and $2 million during the second quarter of 2021.

The increase in net charge-offs from the first quarter of 2022 was primarily driven by a single commercial account.

On an annualized basis, the net charge-off ratio was 0.13%, 0.09% and 0.02% for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

Net charge-offs for the six months ended June 30, 2022 and 2021 were $37 million (net charge-off ratio of 0.11%) and $5 million (net charge-off ratio of 0.03%), respectively.

The following table provides trends in the ACL ratios.

Allowance for Credit Losses Ratios

dollars in millions March 31, 2022 December 31, 2021

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Allowance for credit losses to total loans and leases:

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Total loans and leases $ 67,735 $ 65,524 $ 32,372

Commercial Loans:

Commercial loans and leases:

Commercial allowance for credit losses to commercial loans and leases:

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Consumer loans:

Consumer allowance for credit losses to consumer loans and leases:

Consumer allowance for credit losses to consumer loans:

0.69 % 0.69 % 1.01 %

Allowance for credit losses - consumer $ 110 $ 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.

Consumer loans $ 16,258 $ 15,423 $ 9,786

The reserve for unfunded loan commitments was $81 million, $75 million and $12 million at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

The 2022 increases from December 31, 2021 were 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.

See Note 23 — Commitments and Contingencies for information relating to off-balance sheet commitments and Note 5 — Allowance for Credit Losses for a roll forward of 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.

Non-performing assets include non-accrual loans and leases and OREO.

Non-performing assets at June 30, 2022 totaled $558 million, compared to $581 million at March 31, 2022 and an increase of $397 million since December 31, 2021, primarily reflecting the added balances of the CIT portfolio.

The following table presents total nonperforming assets.

Non-Performing Assets

dollars in millions March 31, 2022 December 31, 2021

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Non-accrual loans:

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1.26 % 1.29 % 0.55 %

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

Ratio of total non-performing assets to total loans, leases and other real estate owned 0.83 % 0.89 % 0.49 %

Ratio of non-accrual loans and leases to total loans and leases 0.76 % 0.82 % 0.37 %

Ratio of allowance for credit losses to non-accrual loans and leases 165.41 % 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.

Non-accrual loans and leases at June 30, 2022 were $513 million, a decrease of $25 million from March 31, 2022 and an increase of $392 million since December 31, 2021.

Non-accrual loans and leases as a percentage of total loans and leases was 0.76%, 0.82% and 0.37% at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

The increase from December 31, 2021 was primarily driven by the CIT Merger.

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

OREO at June 30, 2022 totaled $45 million, representing an increase of $2 million from March 31, 2022 and $5 million since December 31, 2021.

Non-performing assets as a percentage of total loans, leases and OREO at June 30, 2022 was 0.83% compared to 0.89% at March 31, 2022 and 0.49% at 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.

The percentage of loans 30 days or more past due at June 30, 2022 was 0.78% of loans, compared to 0.81% at March 31, 2022 and 0.43% at December 31, 2021.

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

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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.

BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19, and in most cases, did not record these as TDRs.

Troubled Debt Restructurings

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022

dollars in millions Commercial Consumer Total Commercial Consumer Total

Accruing TDRs $ 105 $ 49 $ 154 $ 103 $ 48 $ 151

Nonaccruing TDRs 28 24 52 21 25 46

Non-accruing TDRs 25 24 49 28 24 52

Total TDRs $ 130 $ 73 $ 203 $ 131 $ 72 $ 203

December 31, 2021

Accruing TDRs $ 97 $ 49 $ 146

Non-accruing TDRs 21 25 46

Total TDRs $ 118 $ 74 $ 192

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.

We aim to 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

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Commercial Loans - Geography

dollars in millions March 31, 2022 December 31, 2021

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

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

North Carolina $ 8,639 16.8 % $ 7,973 15.9 % $ 7,181 31.8 %

California 8,636 16.8 % 8,701 17.4 % 3,163 14.0 %

Texas 3,330 6.5 % 3,235 6.5 % 879 3.9 %

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Commercial Loans - Industry

dollars in millions March 31, 2022 December 31, 2021

dollars in millions June 30, 2022 March 31, 2022 December 31, 2021

Real Estate $ 10,850 21.1 % $ 11,233 22.4 % $ 4,279 18.9 %

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Retail 3,647 7.1 % 3,832 7.6 % 1,301 5.8 %

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

Service industries 3,303 6.4 % 3,199 6.4 % 722 3.2 %

Finance and insurance 3,279 6.4 % 3,228 6.4 % 1,361 6.0 %

Wholesale 2,333 4.5 % 2,198 4.4 % 882 3.9 %

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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

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

Consumer Loans - Geographic

June 30, 2022 March 31, 2022 December 31, 2021

dollars in millions Net

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Investment % of

North Carolina $ 5,266 32.4 % $ 5,013 32.5 % $ 4,931 50.4 %

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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.

Our exposure to NII Sensitivity is guided by the 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.

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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.

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 June 30, 2022, 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

Estimated (Decrease) Increase in NII

Change in interest rate (bps) June 30, 2022 March 31, 2022 December 31, 2021

-100 (5.34) % (6.10) % (5.77) %

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+200 10.20 % 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.

NII Sensitivity metrics at June 30, 2022, compared to March 31, 2022, were primarily affected by continued deployment of cash as well as liability management actions which included borrowing FHLB advances indexed to Secured Overnight Financing Rate (“SOFR”).

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”).

The potential exposure 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 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.

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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.

Table 29 presents the EVE profile as of June 30, 2022, 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

Change in interest rate (bps) June 30, 2022 March 31, 2022 December 31, 2021

-100 (7.17) % (7.90) % (13.68) %

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+200 7.21 % 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.

The economic value of equity metrics at June 30, 2022 compared to March 31, 2022 were primarily affected by balance sheet composition changes as well as 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.

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Loan Maturity Distribution

At March 31, 2022, maturing

At June 30, 2022, Maturing

dollars in millions Within

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Reference Rate Reform

The administrator of LIBOR has announced that publication of the most commonly used U.S.

The administrator of LIBOR has announced that publication of the most commonly used tenors of 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.

Accordingly, 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.

On March 15, 2022, the U.S.

Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest (LIBOR) Act, which provides certain statutory requirements and guidance for the selection and use of alternative reference rates in legacy financial contracts governed by U.S.

law that do not provide for the use of a clearly defined or practicable alternative reference rate.

On July 19, 2022, the Board of Governors of the Federal Reserve System issued a notice of proposed rulemaking on a proposed regulation to implement the LIBOR Act, as required by its terms.

The LIBOR Act requires implementing regulations be in place within 180 days of its enactment.

BancShares anticipates using the safe harbors that are expected in the final regulations.

BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR as a benchmark rate.

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credit sensitive rates) in response to how the market evolves.

LIQUIDITY RISK MANAGEMENT

For a further discussion of risks BancShares faces in connection with the replacement of LIBOR on its operations, see “Risk Factors—Market Risks— We may be adversely impacted by the transition from LIBOR as a reference rate .” in Item 1A.

Risk Factors of our 2021 Form 10-K.

LIQUIDITY RISK

Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations.

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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.

Stress test results inform our business strategy, risk appetite, levels of liquid assets, and contingency funding plans.

Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events.

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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

At June 30, 2022 we had $18.9 billion of total Liquid Assets (17.5% of total assets) and $15.8 billion of contingent liquidity sources available.

dollars in millions June 30, 2022

Available Cash

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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.

Deposits totaled $89.3 billion, $91.6 billion and $51.4 billion at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

Borrowings totaled $4.5 billion, $3.3 billion and $1.8 billion at June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

Borrowings consist of long-term debt, FHLB advances and securities sold under customer repurchase agreements.

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FHLB Balances

March 31, 2022 December 31, 2021

dollars in millions Total Total

June 30, 2022 March 31, 2022 December 31, 2021

dollars in millions Total Total Total

Total borrowing capacity $ 14,097 $ 13,782 $ 9,564

Advances 1,785 639 645

Letter of credit (1)

Available capacity $ 11,562 $ 13,143 $ 8,919

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Weighted Average Rate 1.88 % 1.27 % 1.28 %

(1) A letter of credit was established with the FHLB to collateralize public funds.

During the second quarter of 2022, we repaid approximately $0.5 billion of the amounts outstanding as of March 31, 2022, and in June 2022, we borrowed $1.65 billion.

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.

There were no outstanding borrowings with the FRB Discount Window at June 30, 2022, 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.

Table 34 identifies significant obligations and commitments as of June 30, 2022, representing required and potential cash outflows.

See Note 23 — Commitments and Contingencies, for additional information regarding commitments.

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Capital requirements applicable to BancShares’ are discussed in Item 1.

Business - Regulation, subsections “Regulatory Considerations” of our 2021 Annual Report.

Business — Regulation, subsections “Regulatory Considerations” of our 2021 Form 10-K.

BancShares maintains a comprehensive capital adequacy process.

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The capital management framework requires contingency plans be defined and may be employed at management’s discretion.

Share Repurchase Program

On July 26, 2022, the Board authorized a share repurchase program for up to 1,500,000 shares of BancShares’ Class A common stock for the period commencing August 1, 2022 through July 28, 2023.

However, the Board's action does not obligate BancShares to repurchase any particular number of shares, and repurchases may be suspended or discontinued at any time.

Capital Composition and Ratios

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Changes in Shares of Class A Common Stock Outstanding

Three months ended March 31, 2022

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Class A shares outstanding at beginning of period 14,996,325 8,811,220

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Class A shares outstanding at end of period 14,997,202 14,997,202

We also had 1,005,185 Class B Common Stock outstanding at March 31, 2022 and December 31, 2021.

We also had 1,005,185 Class B Common Stock outstanding at June 30, 2022, March 31, 2022 and December 31, 2021.

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

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Analysis of Capital Adequacy

Requirements to be Well-Capitalized March 31, 2022 December 31, 2021

dollars in millions Amount Ratio Amount Ratio

Requirements to be Well-Capitalized June 30, 2022 March 31, 2022 December 31, 2021

dollars in millions Amount Ratio Amount Ratio Amount Ratio

Risk-based capital ratios

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Tier 1 leverage ratio 5.00 % 10,899 10.14 % 10,641 9.81 % 4,651 8.07 %

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.

A s of June 30, 2022, BancShares and FCB continued to exceed minimum capital standards and remained well-capitalized under Basel III guidelines.

At June 30, 2022, BancShares and FCB had total risk-based capital ratio conservation buffers of 6.46% and 6.28%, 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%, respectively.

The capital ratio conservation buffers represent the excess of the regulatory capital ratio over the Basel III minimum.

Additional Tier 1 capital for BancShares includes perpetual preferred stock.

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CRITICAL ACCOUNTING ESTIMATES

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.

Accounting policies related to the ACL are considered critical accounting estimates as described in our 2021 Form 10-K.

The ACL as of June 30, 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.

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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.

However, we do not expect the guidance to have a material impact on the financial statements.

ASU 2022-01, Fair Value Hedging - Portfolio Layer Method

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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.

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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.

Derivative Contract is a contract whose value is derived from a specified asset or an index, such as an interest 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.

Finance leases - lessor 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 and are included in the consolidated balance sheet in the line “Loans and leases.”

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.

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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.

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Non-performing Assets include Non-accrual Loans , OREO, and repossessed assets.

Operating leases - lessor 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.

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.

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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 $ —

Three Months Ended Six Months Ended

dollars in millions June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Net income (GAAP) $ 24 $ 32 $ — $ 56 $ —

Provision for income taxes 7 11 — 18 —

Noninterest expense 16 —

Noninterest income 3 —

Other noninterest expense 17 16 — 33 —

Other noninterest income — 3 — 3 —

Interest expense, net 18 19 — 37 —

Net revenue on operating leases (non-GAAP measure) $ 75 $ —

Net revenue on operating leases (non-GAAP) $ 66 $ 75 $ — $ 141 $ —

Adjusted Interest-earning Assets

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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.

These represent interest income generating assets and the average of which provides a basis for management performance calculations, such as NII and NIM (reconciliation provided below).

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

Three Months Ended Three Months Ended Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2022

dollars in millions Average

Balance Period End Balance Average

Balance Period End Balance

Interest earning assets (GAAP measure) $ 96,272 $ 94,361

Interest earning assets (GAAP) $ 93,301 $ 93,385 $ 96,272 $ 94,361 $ 94,779 $ 93,385

credit balances for factoring clients 1,189 1,070 1,160 1,150 1,175 1,070

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 %

Adjusted interest earning assets (non-GAAP) $ 92,112 $ 92,315 $ 95,112 $ 93,211 $ 93,604 $ 92,315

Three Months Ended Three Months Ended

June 30, 2022 March 31, 2022

dollars in millions Yield on Interest Earning Assets Interest Rate Spread Net Interest Margin Yield on Interest Earning Assets Interest Rate Spread Net Interest Margin

NIM - unadjusted (GAAP) 3.24 % 2.90 % 3.00 % 2.95 % 2.60 % 2.69 %

Impact of credit balances for factoring clients 0.04 % 0.04 % 0.04 % 0.04 % 0.04 % 0.04 %

Adjusted (non-GAAP measure) 2.99 % 2.64 % 2.73 %

NIM - adjusted (non-GAAP) 3.28 % 2.94 % 3.04 % 2.99 % 2.64 % 2.73 %

Six Months Ended

June 30, 2022

Yield on Interest Earning Assets Interest Rate Spread Net Interest Margin

NIM - unadjusted (GAAP) 3.10 % 2.75 % 2.85 %

Impact of credit balances for factoring clients 0.04 % 0.04 % 0.04 %

NIM - adjusted (non-GAAP) 3.14 % 2.80 % 2.89 %

Forward-Looking Statements

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.

Statements in this Quarterly Report on Form 10-Q contains “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,” “potential,” “continue,” “aims” or other similar words and expressions are intended to identify these forward-looking statements.

These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions.

1 unchanged sentence

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.

or global economic conditions, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, 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.

Additional factors which could affect the forward-looking statements can be found in the 2021 Form 10-K 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