FIRST CITIZENS BANCSHARES INC /DE/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis (“MD&A”) of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” or “BancShares”) and its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares. This MD&A is expected to provide our investors with a view of our financial condition and results of operations from our management’s perspective. This MD&A 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 consolidated 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, 2022 (the “2022 Form 10-K”). Throughout this MD&A, references to a specific “Note” refer to Notes to the unaudited Consolidated Financial Statements. Intercompany accounts and transactions have been eliminated. Although certain amounts for the prior year have been reclassified to conform to statement presentations for 2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported. Refer to further detail in Note 1 — Significant Accounting Policies and Basis of Presentation. Management uses certain non-GAAP financial measures in its analysis of the financial condition and results of operations of BancShares. See the "Non-GAAP Financial Measurements" section of this MD&A for a reconciliation of these financial measures to the most directly comparable financial measures in accordance with GAAP. On March 27, 2023, FCB acquired substantially all loans and certain other assets and assumed all customer deposits and certain other liabilities, of Silicon Valley Bridge Bank, N.A. (“SVBB”) from the Federal Deposit Insurance Corporation (the “FDIC”) pursuant to the terms of a purchase and assumption agreement (the “SVBB Purchase Agreement”) by and among FCB, the FDIC, and the FDIC, as receiver of SVBB (the “SVBB Acquisition”). The SVBB Acquisition is briefly described below and further discussed in Note 2 — Business Combinations. In conjunction with the SVBB Acquisition, we added a new business segment, Silicon Valley Banking (“SVB”), as further discussed below. BancShares’ financial data for periods prior to the SVBB Acquisition (i.e., periods in 2022) does not include SVB, and therefore may not be directly comparable to financial data for periods in 2023. EXECUTIVE OVERVIEW The Parent Company is a bank holding company ("BHC") and Financial Holding Company (“FHC”). The Parent Company is regulated by the Board of Governors of the Federal Reserve System under the U.S. Bank Holding Company Act of 1956, as amended. The Parent Company is also registered under the BHC laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (the “NCCOB”). BancShares conducts its banking operations through its wholly-owned subsidiary, FCB, a state-chartered bank organized under the laws of the state of North Carolina. FCB is regulated by the NCCOB. In addition, FCB, as an insured depository institution, is supervised by the FDIC. BancShares provides financial services for a wide range of consumer and commercial clients. This includes retail and mortgage banking, wealth management, commercial and middle market banking, factoring, and leasing. BancShares provides commercial factoring, receivables management and secured financing services to businesses (generally manufacturers or importers of goods) that operate in various industries, including apparel, textile, furniture, home furnishings, and consumer electronics. In addition, BancShares owns a fleet of railcars and locomotives that are leased to railroads and shippers. We also provide various investment products and services through FCB’s wholly owned subsidiaries, First Citizens Investor Services, Inc. (“FCIS”) and First Citizens Asset Management, Inc. (“FCAM”). As a registered broker-dealer, FCIS provides a full range of investment products, including annuities, discount brokerage services and third-party mutual funds. As registered investment advisors, FCIS and FCAM provide investment management services and advice. BancShares delivers products and services to its customers through an extensive branch network and additionally operates a nationwide direct bank (the “Direct Bank”). Services offered at most branches include accepting deposits, cashing checks and providing for consumer and commercial cash needs. Consumer and business customers may also conduct banking transactions through various digital channels. 60 The recently completed SVBB Acquisition adds a global fund banking business to serve private equity and venture capital clients and also compliments BancShares’ existing wealth management business by adding enhanced digital capabilities. The SVBB Acquisition further diversifies our loan portfolio and business mix, particularly across technology and life sciences and healthcare industries, and wealth clients. Refer to our 2022 Form 10-K for a discussion of our strategy. Significant Events in 2023 SVBB Acquisition As discussed in Note 2 — Business Combinations, the SVBB Acquisition closed on March 27, 2023 (the “SVBB Acquisition Date”). Significant items related to the SVBB Acquisition are as follows: • The fair value of total assets acquired was $106.60 billion, which mainly consists of approximately $68.50 billion of loans and $35.28 billion of cash and interest-earning deposits at banks. • The fair value of deposits assumed was $55.96 billion. • FCB recorded a preliminary gain on acquisition of $9.82 billion (net of tax), representing the excess of the net assets acquired over the purchase price, and recorded a $230 million core deposit intangible. Segment Updates As of December 31, 2022, BancShares managed its business and reported its financial results as General Banking, Commercial Banking, Rail, and Corporate segments. In conjunction with the SVBB Acquisition, BancShares added a new business segment, SVB. Prior periods were not impacted by this update. Information about our segments is included in Note 21 — Business Segment Information and in the section entitled “Results by Business Segment” in this MD&A. Recent Economic and Industry Developments The Federal Reserve’s Federal Open Market Committee (“FOMC”) continued to raise its target for the federal funds rate in an effort to combat inflation. The FOMC raised interest rates at its January, March and May meetings by 25 basis points each. With these latest increases, the FOMC raised their benchmark federal funds rate to a range between 5.00% - 5.25%. The FOMC stands ready in its efforts to control inflation and said it will monitor economic and financial-market developments and the effects of their earlier rate increases in determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time. 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 are likely to maintain upward pressure on inflation and weigh on economic activity. The timing and impact of inflation, continued volatility in the stock market, rising interest rates, and possible recession will depend on future developments, which are highly uncertain and difficult to predict. In recent months, the banking industry has experienced increased volatility due to the failure of multiple high-profile banking institutions. These failures have increased industry concerns related to liquidity, deposit outflows, uninsured deposit concentrations, and unrealized losses on securities. Due to the recent uncertainty and related bank failures, there has been ongoing discussions that banking agencies may propose certain actions, including reforms that will require higher capital and increased requirements to issue long term debt, as well as special assessments to repay losses to the FDIC’s Deposit Insurance Fund. The impact of these potential actions, and any others, is unknown at this time. Refer to the “Funding, Liquidity and Capital Overview” discussion below in the “Financial Performance Summary” section of this MD&A. Financial Performance Summary The following tables in this MD&A compare financial data for the three months ended March 31, 2023 (the “current quarter”) to financial data for the three months ended December 31, 2022 (the “linked quarter”) and March 31, 2022 (the “prior year quarter”). In accordance with Item 303(c) of Regulation S-K, we focus on the linked quarter for the narrative discussion and analysis of our results of operations as we believe this provides investors and other users of our data with the most relevant information. For our financial position, the following tables compare balances as of March 31, 2023 to December 31, 2022. Our results of operations include SVB beginning on the SVBB Acquisition Date. Financial position balances as of March 31, 2023 include the assets acquired and liabilities assumed in the SVBB Acquisition. 61 The following table summarizes BancShares’ results in accordance with U.S. GAAP, unless otherwise noted. Refer to the section entitled “Non-GAAP Financial Measurements” at the end of this MD&A for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Table 1 Selected Quarterly Data dollars in millions, except share data Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 SUMMARY OF OPERATIONS Interest income $ 1,211 $ 1,040 $ 710 Interest expense 361 238 61 Net interest income 850 802 649 Provision (benefit) for credit losses 783 79 464 Net interest income after provision for credit losses 67 723 185 Noninterest income 10,259 429 850 Noninterest expense 855 760 810 Income before income taxes 9,471 392 225 Income tax (benefit) expense (47) 135 (46) Net income 9,518 257 271 Preferred stock dividends 14 14 7 Net income available to common stockholders $ 9,504 $ 243 $ 264 PER COMMON SHARE DATA Average diluted common shares 14,539,709 14,607,426 15,779,153 Earnings per common share (diluted) $ 653.64 $ 16.67 $ 16.70 KEY PERFORMANCE METRICS Return on average assets (ROA) 33.23 % 0.93 % 1.00 % Net interest margin (NIM) (1) 3.41 3.36 2.73 SELECTED QUARTERLY AVERAGE BALANCES Investment securities $ 19,416 $ 18,876 $ 19,492 Total loans and leases (2) 74,907 70,465 65,303 Operating lease equipment, net 8,236 8,049 7,924 Total assets 116,164 109,792 110,394 Total deposits 93,844 89,042 91,620 Total stockholders’ equity 11,369 9,621 10,423 SELECTED QUARTER-END BALANCES Investment securities $ 19,527 $ 19,369 $ 19,469 Total loans and leases 138,288 70,781 65,524 Operating lease equipment, net 8,331 8,156 7,972 Total assets 214,658 109,298 108,597 Total deposits 140,050 89,408 91,597 Total stockholders’ equity 19,216 9,662 10,570 Loan to deposit ratio 98.74 % 79.17 % 71.53 % Noninterest-bearing deposits to total deposits 39.02 27.87 28.24 CAPITAL RATIOS Common equity Tier 1 12.53 % 10.08 % 11.34 % Tier 1 risk-based capital 13.13 11.06 12.39 Total risk-based capital 14.86 13.18 14.47 Tier 1 leverage 16.72 8.99 9.55 ASSET QUALITY Ratio of nonaccrual loans to total loans 0.60 % 0.89 % 0.82 % Allowance for credit losses to loans ratio 1.16 1.30 1.29 Net charge off ratio 0.27 0.14 0.09 (1) The rate presented is calculated net of average credit balances of factoring clients. (2) Average loan balances include held for sale and non-accrual loans. 62 First Quarter Income Statement Highlights • Net income for the three months ended March 31, 2023 was $9.52 billion, an increase of $9.26 billion from $257 million for the three months ended December 31, 2022. Net income available to common stockholders for the three months ended March 31, 2023 was $9.50 billion, an increase of $9.26 billion from $243 million for the three months ended December 31, 2022. The increases were primarily due to the $9.82 billion preliminary gain on acquisition, partially offset by the $716 million provision for non-purchased credit deteriorated (“Non-PCD”) loans and leases and the unfunded commitments acquired in the SVBB Acquisition (the “day 2 provision for credit losses”). Results also reflected higher noninterest expenses discussed below and a lower provision for income taxes. Net income per diluted common share for the three months ended March 31, 2023 was $653.64, an increase from $16.67 for the three months ended December 31, 2022. • Select items in the current quarter and linked quarter are summarized below: ◦ For the three months ended March 31, 2023: ▪ Preliminary gain on acquisition of $9.82 billion (net of tax) for the SVBB Acquisition in other noninterest income. ▪ Day 2 provision for credit losses of $716 million related to the SVBB Acquisition. ▪ Acquisition-related expenses of $28 million in noninterest expense. ◦ For the three months ended December 31, 2022: ▪ CIT Merger-related expenses of $29 million in noninterest expense. ▪ Income tax expense of $55 million related to the strategic decision to exit $1.25 billion of BOLI policies. • Return on average assets for the three months ended March 31, 2023 was 33.23%, compared to 0.93% for the three months ended December 31, 2022. • Net interest income (“NII”) for the three months ended March 31, 2023 was $850 million, an increase of $48 million, or 6% compared to the three months ended December 31, 2022. This increase was primarily due to higher yields resulting in higher interest income on our earning assets, along with higher interest income from organic loan growth as well as SVB loans, partially offset by higher costs on interest-bearing deposits and borrowings. • Net interest margin (“NIM”) for the three months ended March 31, 2023 was 3.41%, an increase of 5 basis points (“bps”) compared to 3.36% for the three months ended December 31, 2022, as the rising interest rate environment benefits on our interest-earning assets exceeded the impacts of higher rates paid on interest-bearing deposits and borrowings. • Provision for credit losses for the three months ended March 31, 2023 was $783 million compared to $79 million for the three months ended December 31, 2022. The increase was primarily due to the day 2 provision for credit losses of $716 million related to the SVBB Acquisition, which included $462 million for acquired loans and leases (the “day 2 provision for loans and leases”) and $254 million for acquired unfunded commitments (the “day 2 provision for unfunded commitments”). The net charge-off ratio for the three months ended March 31, 2023 was 0.27%, compared to 0.14% for the three months ended December 31, 2022. • Noninterest income for the three months ended March 31, 2023 was $10.26 billion, an increase of $9.83 billion compared to $429 million for the three months ended December 31, 2022. The increase was primarily due to the preliminary gain on acquisition of $9.82 billion. The remaining increase reflected higher rental income on operating lease equipment and wealth management fees, partially offset by a $14 million loss on sale of one investment security and lower factoring income. • Noninterest expense for the three months ended March 31, 2023 was $855 million, an increase of $95 million compared to $760 million for the three months ended December 31, 2022. The increase was primarily due to higher salary and benefit costs, which included higher incentive awards (these are traditionally paid in the first quarter), and the restart of annual benefit costs, such as Federal Insurance Contributions Act (“FICA”), and salary costs from the SVBB Acquisition. The increase in noninterest expense also included higher FDIC insurance expense and operating lease maintenance expenses. Balance Sheet Highlights • Total loans and leases at March 31, 2023 were $138.29 billion, an increase of $67.51 billion from December 31, 2022. The increase was primarily due to SVB loans of $66.17 billion at March 31, 2023. Loans from our branch network in the General Banking segment increased $432 million. Loans in the Commercial Banking segment increased $902 million, primarily related to growth in industry verticals, such as real estate, maritime and healthcare. • Total deposits at March 31, 2023 were $140.05 billion, an increase of $50.64 billion from December 31, 2022. The increase was primarily due to SVB deposits of $49.26 billion at March 31, 2023. The remaining increase of $1.38 billion was primarily related to deposit growth in the Direct Bank, which is included in the General Banking segment. • Total borrowings at March 31, 2023 were $46.09 billion, an increase of $39.45 billion from December 31, 2022. The increase was primarily due to the Purchase Money Note (as defined and described below) of $35.15 billion payable to the FDIC related to the SVBB Acquisition as further discussed in Note 2 — Business Combinations. The remaining increase was primarily due to advances from the Federal Home Loan Bank (“FHLB”) that were drawn to improve our cash position. 63 • At March 31, 2023, BancShares remained well capitalized with a total risk-based capital ratio of 14.86%, a Tier 1 risk-based capital ratio of 13.13%, a common equity Tier 1 ratio of 12.53% and a leverage ratio of 16.72%. Funding, Liquidity and Capital Overview Deposit Composition We fund our business primarily through deposits. Deposits represent approximately 75% of total funding at March 31, 2023. The following table summarizes the composition, average size and uninsured percentages of our deposits. Table 2 Select Deposit Data Deposits as of March 31, 2023 Ending Balance (in millions) Average Size (in thousands) Uninsured % General Banking segment $ 85,982 $ 36 29% Commercial Banking segment 3,045 212 86% SVB segment 49,259 360 86% Other business segments 1,764 n/m 7% Total $ 140,050 55 50% The General Banking segment includes deposits from our branch network, which deploys a relationship-based approach to deposit gathering. The remaining deposits in the General Banking segment are primarily related to the Direct Bank, which enables us to increase deposits to meet the needs of our business, albeit at a higher cost compared to the branch network. The Commercial Banking segment includes deposits of commercial customers and the SVB segment includes deposits related to the SVBB Acquisition. Other business segments primarily include brokered deposits of $1.75 billion in the Corporate segment and the remaining $14 million relates to the Rail segment. As displayed in the table above, the average size of deposits varies across our business segments. The uninsured data represents the percentage of deposits in the respective business segments. At March 31, 2023, total uninsured deposits were approximately $69.96 billion or 50% of total deposits. The increase in uninsured deposits from of $29.13 billion or 33% of total deposits at December 31, 2022 is due to deposits in the SVB segment, which have higher average customer balances. Deposit Trends Table 3 Deposit Trends (dollars in millions) Deposit Balance Acquisition Date December 31, 2022 March 27, 2023 March 31, 2023 April 14, 2023 April 28, 2023 SVB segment $ — $ 55,959 $ 49,259 $ 41,336 $ 41,425 General Banking, Commercial Banking, Rail and Corporate segments 89,408 — 90,791 92,149 92,447 Total deposits $ 89,408 $ 55,959 $ 140,050 $ 133,485 $ 133,872 SVB deposits declined from $55.96 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. While SVB deposits declined to $41.43 billion as of April 28, 2023, the pace of the decline slowed and deposit amounts leveled off to approximately $41 billion during the last two weeks of April. The table above also indicates that aggregate deposits for the General Banking, Commercial Banking, Rail and Corporate segments increased during the current quarter and in April of 2023, primarily due to deposit growth in the Direct Bank, which is included in the General Banking segment. Liquidity Position We strive to maintain a strong liquidity position and our risk appetite for liquidity is low. At March 31, 2023, liquidity metrics remained strong as we had $51.42 billion in liquid assets consisting of $37.67 billion in cash and interest-earning deposits at banks and $13.75 billion in high-quality liquid securities. To further enhance our liquidity position, we increased our FHLB borrowings to $8.50 billion at March 31, 2023 and increased our remaining FHLB borrowing capacity by pledging an additional $4 billion of investment securities held to maturity. We have unused borrowing capacity with the FHLB and Federal Reserve Bank of $4.71 billion and $4.68 billion, respectively. Further, in conjunction with the SVBB Acquisition, we entered into binding terms and conditions for a five year, up to $70.00 billion line of credit with the FDIC. Refer to the “Liquidity Risk” section of this MD&A for further discussion. 64 Investment Securities Duration At March 31, 2023, our investment securities portfolio primarily consisted of debt securities available for sale and debt securities held to maturity as summarized below. The available for sale securities portfolio has an average duration of 3.4 years and the debt securities held to maturity portfolio has an average duration of 4.9 years. Refer to the “Interest-earning Assets - Investment securities” section of this MD&A and Note 3 — Investment Securities for further information. Table 4 Investment Securities dollars in millions March 31, 2023 Composition (1) Amortized cost Fair value Fair value to cost Total investment securities available for sale 49.9 % $ 9,955 $ 9,061 91.0 % Total investment securities held to maturity 49.6 % 10,381 8,993 86.6 % Investment in marketable equity securities 0.5 % 75 85 113.3 % Total investment securities 100 % $ 20,411 $ 18,139 (1) Calculated as a percentage of the total fair value of investment securities. Capital Position Our capital position remains strong and all regulatory capital ratios for BancShares and FCB significantly exceed the Prompt Corrective Action (“PCA”) well-capitalized thresholds and Basel III Requirements as further discussed in the “Capital” section of this MD&A and Note 17 — Regulatory Capital. RESULTS OF OPERATIONS NET INTEREST INCOME AND NET INTEREST MARGIN NII is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The following tables present the average balances, yields on interest-earning assets, rates on interest-bearing liabilities, and changes in NII due to changes in: (i) volume (average balances of interest-earning assets and interest-bearing liabilities) and (ii) yields or rates. • The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the prior period. • The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance from the prior period. • The change in NII due to rate/volume change (i.e., portfolio mix) is calculated as the change in rate multiplied by the change in volume. This component is allocated between the changes in NII due to volume and yield or rate based on the ratio each component bears to the absolute value of their total. • Tax equivalent net interest income was not materially different from NII, therefore we present NII in our analysis. 65 Table 5 Average Balances and Rates dollars in millions Three Months Ended March 31, 2023 December 31, 2022 Change in NII Due to: Average Balance Income / Expense Yield / Rate Average Balance Income / Expense Yield / Rate Volume (1) Yield /Rate (1) Total Change Loans and leases (1)(2) $ 73,900 $ 1,017 5.57 % $ 69,290 $ 892 5.10 % $ 52 $ 73 $ 125 Total investment securities 19,416 107 2.21 18,876 92 1.95 3 12 15 Interest-earning deposits at banks 7,585 87 4.61 6,193 56 3.60 14 17 31 Total interest-earning assets (2) $ 100,901 $ 1,211 4.85 % $ 94,359 $ 1,040 4.37 % $ 69 $ 102 $ 171 Operating lease equipment, net $ 8,236 $ 8,049 Cash and due from banks 595 500 Allowance for credit losses (936) (886) All other noninterest-earning assets 7,368 7,770 Total assets $ 116,164 $ 109,792 Interest-bearing deposits: Checking with interest $ 16,499 $ 22 0.50 % $ 15,985 $ 13 0.24 % $ — $ 9 $ 9 Money market 21,216 80 1.53 21,200 60 1.13 — 20 20 Savings 17,521 110 2.54 15,831 69 1.73 8 33 41 Time deposits 12,126 76 2.55 9,516 34 1.42 11 31 42 Total interest-bearing deposits 67,362 288 1.73 62,532 176 1.12 19 93 112 Borrowings: Securities sold under customer repurchase agreements 455 — 0.30 514 — 0.27 — — — Short-term FHLB Borrowings 323 4 4.67 2,080 20 3.77 (19) 3 (16) Short-term borrowings 778 4 2.23 2,594 20 3.04 (19) 3 (16) Federal Home Loan Bank borrowings 3,284 40 4.96 2,818 28 3.90 4 8 12 Senior unsecured borrowings 883 5 2.06 906 4 2.08 1 — 1 Subordinated debt 1,048 9 3.54 1,051 9 3.38 — — — Other borrowings 1,978 15 2.95 25 1 5.76 14 — 14 Long-term borrowings 7,193 69 3.84 4,800 42 3.45 19 8 27 Total borrowings 7,971 73 3.68 7,394 62 3.32 — 11 11 Total interest-bearing liabilities $ 75,333 $ 361 1.94 % $ 69,926 $ 238 1.35 % $ 19 $ 104 $ 123 Noninterest-bearing deposits $ 26,482 $ 26,510 Credit balances of factoring clients 1,007 1,174 Other noninterest-bearing liabilities 1,973 2,561 Stockholders' equity 11,369 9,621 Total liabilities and stockholders’ equity $ 116,164 $ 109,792 Interest rate spread (2) 2.91 % 3.02 % Net interest income and net yield on interest-earning assets (2) $ 850 3.41 % $ 802 3.36 % (1) Loans and leases include non-PCD and PCD loans, nonaccrual loans and held for sale. Interest income on loans and leases includes accretion income and loan fees. (2) The balance and rate presented is calculated net of average credit balances of factoring clients. Current quarter compared to linked quarter • NII for the three months ended March 31, 2023 was $850 million, an increase of $48 million compared to the three months ended December 31, 2022. This increase was primarily due to higher yields on loans and interest-earning deposits at banks and loan growth, partially offset by higher costs on interest-bearing deposits and borrowings. The SVBB Acquisition impacted average balances and NII and NIM for only five days during the current quarter as the acquisition was completed on March 27, 2023. We expect the impacts of the SVBB Acquisition to be more prominent beginning in the second quarter of 2023 as the impacts of interest-earning deposits at banks, loans, deposits, and borrowings related to the SVBB Acquisition will be for a full quarter. ◦ Interest income earned on loans and leases for the three months ended March 31, 2023 was $1.02 billion, an increase of $125 million compared to the three months ended December 31, 2022. The increase was primarily due to higher yields and higher average balances related to loan growth in the General and Commercial Banking segments, as well as the SVBB Acquisition. 66 ◦ Interest income earned on investment securities for the three months ended March 31, 2023 was $107 million, an increase of $15 million compared to the three months ended December 31, 2022. The increase was primarily due to higher reinvestment rates. ◦ Interest income earned on interest-earning deposits at banks for the three months ended March 31, 2023 was $87 million, an increase of $31 million compared to the three months ended December 31, 2022, reflecting higher Fed Funds rates and a higher average balance of interest-earning deposits at banks, as we increased liquidity due to the market uncertainty in March, and the impact of the SVBB Acquisition. ◦ Interest expense on interest-bearing deposits for the three months ended March 31, 2023 was $288 million, an increase of $112 million compared to the three months ended December 31, 2022, primarily reflecting higher deposit rates and higher average balances (mainly in higher-cost savings and time deposits as we maintain competitive rates offered to customers). ◦ Interest expense on borrowings for the three months ended March 31, 2023 was $73 million, an increase of $11 million compared to the three months ended December 31, 2022, primarily due to the impact of the Purchase Money Note related to the SVBB Acquisition, partially offset by lower average FHLB borrowings. We repaid FHLB borrowings in January and February, but we increased FHLB borrowings in March to improve liquidity in light of market conditions that led to bank failures. As a result, the FHLB borrowings balance at March 31, 2023 was higher than our average balance for the current quarter. • NIM for the three months ended March 31, 2023 was 3.41%, an increase of 5 bps compared to the three months ended December 31, 2022. The higher yields on earning assets were partially offset by the increasing costs of our interest-bearing deposits and higher borrowing costs. • Average interest-earning assets for the three months ended March 31, 2023 were $100.90 billion. This is an increase of $6.54 billion from $94.36 billion for the three months ended December 31, 2022, reflecting increases in average loans and leases, interest-earning deposits at banks and investment securities of $4.61 billion, $1.39 billion and $540 million, respectively. • Average interest-bearing liabilities for the three months ended March 31, 2023 were $75.33 billion. This is an increase of $5.41 billion from $69.93 billion for the three months ended December 31, 2022, reflecting higher rates and average balances for deposits and borrowings. The average rate on interest-bearing liabilities for the three months ended March 31, 2023 was 1.94%. This is an increase of 59 bps compared to the three months ended December 31, 2022, reflecting the higher interest rate environment. 67 Table 6 Average Balances and Rates dollars in millions Three Months Ended March 31, 2023 March 31, 2022 Change in NII Due to: Average Balance Income / Expense Yield / Rate Average Balance Income / Expense Yield / Rate Volume (1) Yield /Rate (1) Total Change Loans and leases (1)(2) $ 73,900 $ 1,017 5.57 % $ 64,144 $ 621 3.92 % $ 106 $ 290 $ 396 Total investment securities 19,416 107 2.21 19,492 83 1.71 — 24 24 Interest-earning deposits at banks 7,585 87 4.61 11,476 6 0.19 (2) 83 81 Total interest-earning assets (2) $ 100,901 $ 1,211 4.85 % $ 95,112 $ 710 3.02 % $ 104 $ 397 $ 501 Operating lease equipment, net $ 8,236 $ 7,924 Cash and due from banks 595 536 Allowance for credit losses (936) (914) All other noninterest-earning assets 7,368 7,736 Total assets $ 116,164 $ 110,394 Interest-bearing deposits: Checking with interest $ 16,499 $ 22 0.50 % $ 16,614 $ 5 0.10 % $ 1 $ 16 $ 17 Money market 21,216 80 1.53 26,199 15 0.24 (3) 68 65 Savings 17,521 110 2.54 13,659 9 0.26 4 97 101 Time deposits 12,126 76 2.55 9,794 10 0.43 3 63 66 Total interest-bearing deposits 67,362 288 1.73 66,266 39 0.24 5 244 249 Borrowings: Securities sold under customer repurchase agreements 455 — 0.30 600 — 0.16 — — — Short-term FHLB Borrowings 323 4 4.67 — — — 4 — 4 Short-term borrowings 778 4 2.23 600 — 0.16 4 — 4 Federal Home Loan Bank borrowings 3,284 40 4.96 641 2 1.29 22 16 38 Senior unsecured borrowings 883 5 2.06 2,719 12 1.71 (9) 2 (7) Subordinated debt 1,048 9 3.54 1,060 8 2.96 (1) 2 1 Other borrowings 1,978 15 2.95 85 — 1.85 15 — 15 Long-term borrowings 7,193 69 3.84 4,505 22 1.95 27 20 47 Total borrowings 7,971 73 3.68 5,105 22 1.74 31 20 51 Total interest-bearing liabilities $ 75,333 $ 361 1.94 % $ 71,371 $ 61 0.35 % $ 36 $ 264 $ 300 Noninterest-bearing deposits $ 26,482 $ 25,354 Credit balances of factoring clients 1,007 1,160 Other noninterest-bearing liabilities 1,973 2,086 Stockholders' equity 11,369 10,423 Total liabilities and stockholders’ equity $ 116,164 $ 110,394 Interest rate spread (2) 2.91 % 2.67 % Net interest income and net yield on interest-earning assets (2) $ 850 3.41 % $ 649 2.73 % (1), (2) See footnotes to previous table. 68 The following table details the average interest earning assets by category: Table 7 Average Interest-earning Asset Mix % of Total Interest-earning Assets Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Loans and leases 73 % 73 % 67 % Investment securities 19 % 20 % 21 % Interest-earning deposits at banks 8 % 7 % 12 % Total interest earning assets 100 % 100 % 100 % The following table shows our average funding mix: Table 8 Average Funding Mix % of Total Interest-bearing Liabilities Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Total interest-bearing deposits 89 % 89 % 93 % Short-term borrowings 1 % 4 % 1 % Long-term borrowings 10 % 7 % 6 % 100 % 100 % 100 % The above average mix tables include SVB average balances for only five days during the current quarter as the acquisition was completed on March 27, 2023. We expect average balances next quarter to be more aligned with current period end balances. Refer to “Interest-earning Assets” and “Interest-bearing Liabilities” sections of this MD&A for discussion of period end balances. PROVISION FOR CREDIT LOSSES As presented in the following table, the provision for credit losses for the three months ended March 31, 2023 was $783 million, compared to $79 million for the three months ended December 31, 2022. The $704 million increase is primarily due to the day 2 provision for credit losses of $716 million related to the SVBB Acquisition, which includes the $462 million day 2 provision for loans and leases and the $254 million day 2 provision for unfunded commitments. In addition to the day 2 provision, the increase in provision for credit losses on loans and leases was related to portfolio growth, mild credit quality deterioration, and higher specific reserves partially offset by improvement in the macroeconomic forecasts. The provision for credit losses activity also reflected a decline in the provision for credit losses on unfunded commitments and a $4 million provision for investment securities available for sale related to one corporate bond. The ACL is further discussed in the “Critical Accounting Estimates” and “Credit Risk Management - ACL” sections of this MD&A and in Note 5 — Allowance for Credit Losses. Table 9 Provision for Credit Losses dollars in millions Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Day 2 provision for loans and leases $ 462 $ — $ 454 Provision (benefit) for credit losses - loans and leases 71 64 (53) Total provision for credit losses- loans and leases 533 64 401 Day 2 provision for unfunded commitments 254 — 59 (Benefit) provision for unfunded commitments (8) 15 4 Total provision for credit losses - unfunded commitments 246 15 63 Provision for credit losses - investment securities available for sale 4 — — Provision for credit losses $ 783 $ 79 $ 464 69 NONINTEREST INCOME Noninterest Income Noninterest income is an essential component of our total revenue. The primary sources of noninterest income consist of rental income on operating lease equipment, fee income and other service charges, wealth management services, service charges generated from deposit accounts, cardholder and merchant services, factoring commissions, and mortgage lending and servicing. The current quarter includes noninterest income related to SVB for five days as the SVBB Acquisition was completed on March 27, 2023. Noninterest income from SVB was aligned into pre-existing categories and primarily included items such as fee income and other service charges, wealth management services, and service charges on deposit accounts, and other noninterest income. Table 10 Noninterest Income dollars in millions Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Rental income on operating lease equipment $ 233 $ 224 $ 208 Other noninterest income: Fee income and other service charges 50 46 36 Wealth management services 42 35 35 Service charges on deposit accounts 24 22 27 Factoring commissions 19 26 27 Cardholder services, net 21 26 25 Merchant services, net 10 8 10 Insurance commissions 13 13 12 Realized loss on sale of investment securities available for sale, net (14) — — Fair value adjustment on marketable equity securities, net (9) 2 3 Bank-owned life insurance 5 7 8 Gain on sale of leasing equipment, net 4 2 6 Gain on acquisition 9,824 — 431 Gain on extinguishment of debt — — 6 Other noninterest income 37 18 16 Total other noninterest income 10,026 205 642 Total noninterest income $ 10,259 $ 429 $ 850 Rental Income on Operating Lease Equipment Rental income from equipment we lease for the three months ended March 31, 2023 was $233 million, an increase of $9 million compared to three months ended December 31, 2022. Rental income is generated primarily in the Rail segment and, to a lesser extent, in the Commercial Banking segment. Revenue is generally dictated by the size of the portfolio, utilization of the railcars, re-pricing of equipment renewed upon lease maturities and pricing on new leases. Re-pricing refers to the rental rate in the renewed equipment contract compared to the prior contract. Refer to the Rail discussion in the “Results by Business Segment” section of this MD&A for further details. Other Noninterest Income Other noninterest income for the three months ended March 31, 2023 was $10.03 billion, compared to $205 million for the three months ended December 31, 2022. The increase was primarily due to the $9.82 billion preliminary gain on acquisition. The remaining changes compared to the three months ended December 31, 2022 reflect increases and decreases among various noninterest income accounts. The more significant variances follow: • Fee income and other service charges, consisting of items such as capital market-related fees, fees for lines and letters of credit, and servicing fees, increased by $4 million. • Wealth management services increased by $7 million, reflecting higher assets under management led by our trust and brokerage channels. In brokerage, the income was driven by increases in structured notes and fixed products. • Factoring commissions decreased $7 million, reflecting seasonally stronger fourth quarter factoring volume and slowing customer orders as they work down current inventory levels, as well as lower surcharge income. • Cardholder services decreased $5 million, reflecting a decline in volume of transactions and higher reward expense. • The realized loss on sale of investment securities available for sale was due to a sale of a single corporate bond of a distressed entity. 70 • Fair value adjustments on marketable equity securities reflect changes in market prices of underlying portfolio investments. • Other noninterest income consisted of items such as derivative gains and losses, gain on sales of other assets including OREO, fixed assets and loans, and non-marketable securities. Other noninterest income increased by $19 million, primarily due to net positive marks on derivatives. NONINTEREST EXPENSE The current quarter includes noninterest expense related to SVB for five days as the SVBB Acquisition was completed on March 27, 2023. Noninterest expense from SVB was aligned into pre-existing categories, with salaries and benefits impacted the most. Table 11 Noninterest Expense dollars in millions Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Depreciation on operating lease equipment $ 89 $ 88 $ 81 Maintenance and other operating lease expenses 56 47 43 Operating expenses: Salaries and benefits 420 354 356 Net occupancy expense 50 48 48 Equipment expense 58 55 52 Professional fees 12 11 12 Third-party processing fees 29 26 24 FDIC insurance expense 18 5 12 Marketing expense 15 21 8 Acquisition-related expenses 28 29 135 Intangible asset amortization 5 6 6 Other noninterest expense 75 70 33 Total operating expenses 710 625 686 Total noninterest expense $ 855 $ 760 $ 810 Depreciation on Operating Lease Equipment Depreciation expense on operating lease equipment is primarily related to rail equipment and small and large ticket equipment we own and lease to others. Operating lease activity is in the Rail and Commercial Banking segments. The useful lives of rail equipment is generally longer in duration, 40-50 years, whereas small and large ticket equipment is generally 3-10 years. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details. Maintenance and Other Operating Lease Expenses Rail provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for railcar maintenance and repair. Maintenance and other operating lease expenses for the three months ended March 31, 2023 was $56 million, compared to $47 million for the three months ended December 31, 2022. 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 maintenance costs related to readying tank cars for service. Refer to the Rail discussion in the section entitled “Results by Business Segment” of this MD&A for further details. Operating Expenses The primary components of operating expenses are salaries and related employee benefits, occupancy, and equipment expense. Operating expenses for the three months ended March 31, 2023 were $710 million compared to $625 million in the three months ended December 31, 2022. Operating expenses for the three months ended March 31, 2023 increased by $85 million compared to the three months ended December 31, 2022, primarily comprised of the following: • Salaries and benefits increased by $66 million, primarily due to added costs related to salaries as a result of employees from the SVBB Acquisition, plus higher benefit plan expense, merit increases in compensation associated with our annual review process, and the annual restart of payroll taxes. • FDIC insurance increased $13 million due to a higher assessment rate charged to financial institutions, and a higher deposit balance. 71 • Marketing costs decreased by $6 million, reflecting the timing of our advertising relating to marketing efforts for the Direct Bank. • Acquisition-related expenses decreased $1 million due to lower CIT Merger costs. The current quarter includes costs associated with the SVBB Acquisition of approximately $8 million. We expect acquisition-related expenses attributable to the SVBB Acquisition to increase beginning in the second quarter of 2023. • Other expenses consisted of other insurance and taxes (other than income tax), foreclosure, collection and other OREO-related expenses, consulting, telecommunications, and other miscellaneous expenses including travel, postage, supplies, and appraisal expense. Changes in these items were not material. INCOME TAXES Table 12 Income Tax Data dollars in millions Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Income before income taxes $ 9,471 $ 392 $ 225 Income tax (benefit) expense $ (47) $ 135 $ (46) Effective tax rate (0.5) % 34.6 % (20.4) % The effective tax rate (“ETR”) was (0.5)% for the three months ended March 31, 2023, compared to 34.6% for the three months ended December 31, 2022. The decrease in the ETR from 34.6% for the three months ended December 31, 2022 to (0.5)% for the three months ended March 31, 2023 was primarily driven by the effects of the preliminary gain on acquisition for the SVBB Acquisition. 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 ETR in future periods may vary from the actual 2023 ETR due to changes in these factors. BancShares monitors and evaluates the potential impact of current events on the estimates used to establish income tax expense and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law, positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors. See Note 19 — Income Taxes for additional information. RESULTS BY BUSINESS SEGMENT Refer to Note 21 — Business Segment Information for related disclosures on the segments and detail on segment products and services. During the first quarter of 2023, we updated our segment disclosures to include SVB. There was no impact to prior period disclosures. Results in our business segments reflect our funds transfer policy and allocation of expenses. Unallocated balances and, when applicable, certain select items, are reflected in Corporate. General Banking The General Banking segment delivers products and services to consumers and businesses through our extensive network of branches and various digital channels. We offer a full suite of deposit products, loans, cash management, wealth, payments and various other fee-based services. 72 Table 13 General Banking: Financial Data and Metrics dollars in millions Three Months Ended Earnings Summary March 31, 2023 December 31, 2022 March 31, 2022 Net interest income $ 560 $ 546 $ 437 Provision (benefit) for credit losses 14 15 (15) Net interest income after provision for credit losses 546 531 452 Noninterest income 116 111 123 Noninterest expense 395 360 409 Income before income taxes 267 282 166 Income tax expense 65 70 40 Net income $ 202 $ 212 $ 126 Select Period End Balances Loans and leases $ 43,353 $ 42,921 $ 38,528 Deposits 85,982 84,361 85,458 The decrease in net income for the three months ended March 31, 2023 compared to the three months ended December 31, 2022 was due to higher noninterest expenses, which offset higher NII and noninterest income. NII increased, mostly due to higher yields and growth in the loan portfolio, which offset higher deposit costs. Noninterest income for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, reflecting higher wealth management fees. Noninterest expenses for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, mostly reflecting higher salary and benefit costs and other items discussed previously in the section entitled “Noninterest Expense” of this MD&A. The increase in loans and leases at March 31, 2023 compared to December 31, 2022 reflected continued demand through our branch network. Growth was primarily concentrated in commercial and business loans. Our consumer mortgage loans also increased, reflecting lower prepayments and originating loans that were held on-balance sheet, which offset lower activity due to the high rate environment. Deposits include deposits from the branch network, Direct Bank and CAB channels. The increase in deposits at March 31, 2023 compared to December 31, 2022 was primarily in our Direct Bank, in products such as time and savings accounts, partially offset by a decrease in money market accounts. Refer to consolidated discussions in the sections entitled “Net Interest Income and Net Interest Margin” and “Balance Sheet Analysis—Deposits” of this MD&A for additional information. Commercial Banking The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management, and other financial and advisory services primarily to small and middle market companies in a wide range of industries. Table 14 Commercial Banking: Financial Data and Metrics dollars in millions Three Months Ended Earnings Summary March 31, 2023 December 31, 2022 March 31, 2022 Net interest income $ 240 $ 244 $ 207 Provision (benefit) for credit losses 49 59 (34) Net interest income after provision for credit losses 191 185 241 Noninterest income 143 141 112 Noninterest expense 211 188 191 Income before income taxes 123 138 162 Income tax expense 29 39 41 Net income $ 94 $ 99 $ 121 Select Period End Balances Loans and leases $ 28,684 $ 27,782 $ 26,922 Deposits 3,045 3,225 4,698 Operating lease equipment, net 719 723 721 73 The decrease in net income for the three months ended March 31, 2023 compared to the three months ended December 31, 2022 was mostly due to higher noninterest expenses, which offset lower provision for credit losses and taxes. NII decreased, primarily due to higher deposit costs that offset growth in the loan portfolio. The decrease in the provision for credit losses reflects a lower provision for unfunded commitments. Noninterest income for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, reflecting positive marks on derivatives, partially offset by lower factoring commissions. Noninterest expenses for the three months ended March 31, 2023 increased compared to the three months ended December 31, 2022, mostly reflecting higher salary and benefit costs and other items discussed previously in the section entitled “Noninterest Expense” of this MD&A. Noninterest expenses for this segment also includes depreciation on operating lease equipment, which totaled $43 million for each of the three months ended March 31, 2023 and December 31, 2022. The increase in loans and leases at March 31, 2023 compared to December 31, 2022 reflected growth in a number of our industry verticals, such as real estate, maritime and healthcare, as well as commercial mortgages. Silicon Valley Banking The SVB segment products and services are provided to clients primarily in the healthcare and technology industries, as well as private equity and venture capital firms. Financial solutions are provided to commercial clients through credit, treasury management, foreign exchange, trade finance and other financial products and services. Table 15 Silicon Valley Banking: Financial Data and Metrics dollars in millions Three Months Ended Earnings Summary March 31, 2023 Net interest income $ 65 Provision (benefit) for credit losses — Net interest income after provision for credit losses 65 Noninterest income 14 Noninterest expense 33 Income before income taxes 46 Income tax expense 11 Net income $ 35 Select Period End Balances Loans and leases $ 66,171 Deposits 49,259 The current quarter includes results of operations related to SVB for only five days as the SVBB Acquisition was completed on March 27, 2023. Therefore, the results of operations for SVB in the current quarter (or extrapolations thereof) are not indicative of expected results of operations for subsequent periods. The results exclude the preliminary gain on acquisition, day 2 provision for credit losses and acquisition-related expenses, all of which are included in the Corporate segment. NII reflects interest income on loans (including discount accretion), partially offset by deposit costs. There was no provision for credit losses due to the timing of SVBB Acquisition. Noninterest income was earned primarily from commercial banking products. Noninterest expenses were mostly compensation related costs. Loans totaled $66.17 billion at March 31, 2023, which declined from the SVBB Acquisition Date balance of $68.50 billion. The decrease was primarily related to maturities and paydowns. SVB deposits declined from $55.96 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. While SVB deposits declined to $41.43 billion as of April 28, 2023, the pace of the decline slowed and deposit amounts leveled off to approximately $41 billion during the last two weeks of April. Refer to the “Funding, Liquidity and Capital Overview” discussion in the “Financial Performance Summary” section of this MD&A. Rail Our Rail segment offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement; tank cars for energy products and chemicals; gondolas for coal, steel coil and mill service products; open hopper cars for coal and aggregates; boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenues are primarily generated from rental income on operating leases. 74 Table 16 Rail: Financial Data and Metrics dollars in millions Three Months Ended Earnings Summary March 31, 2023 December 31, 2022 March 31, 2022 Rental income on operating leases $ 176 $ 168 $ 159 Depreciation on operating lease equipment 46 45 41 Maintenance and other operating lease expenses 56 47 43 Adjusted rental income on operating lease equipment (1) 74 76 75 Interest expense, net 28 23 19 Noninterest income 1 (5) 3 Operating expenses 18 15 16 Income before income taxes 29 33 43 Income tax expense 7 9 11 Net income $ 22 $ 24 $ 32 Select Period End Balances Operating lease equipment, net $ 7,612 $ 7,433 $ 7,251 (1) Adjusted rental income on operating lease equipment is a non-GAAP measure. See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (segment net income) to the non-GAAP measure (Adjusted rental income on operating lease equipment). Net income and adjusted rental income on operating lease equipment are utilized to measure the profitability of our Rail segment. Adjusted rental income on operating lease equipment 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 segment. NII is not used because it includes the impact of debt costs funding our operating lease assets but excludes the associated net rental income. Net income and adjusted net revenue on operating leases for the three months ended March 31, 2023 were $22 million and $74 million, respectively, both down slightly from the three months ended December 31, 2022. Adjusted net revenue on operating leases was down as higher rental income from the increased number of rail cars and higher re-lease rates was offset by higher maintenance costs, mostly due to readying tank cars for service. Railcar depreciation is recognized on a straight-line basis over the estimated service life of the asset. Maintenance and other operating lease expenses reflect costs for railcars put back on lease. Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 137.0% of the average prior or expiring lease rate during the quarter. Our railcar utilization, including commitments to lease, improved to 97.9% at March 31, 2023 from 97.7% at December 31, 2022. Portfolio 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. Our total operating lease fleet at March 31, 2023 consisted of approximately 119,700 railcars, up from approximately 119,200 at December 31, 2022. The following table reflects the proportion of railcars by type based on units and net investment: Table 17 Operating lease Railcar Portfolio by Type (units and net investment) March 31, 2023 December 31, 2022 Railcar Type Total Owned Fleet - % Total Units Total Owned Fleet - % Total Net Investment Total Owned Fleet - % Total Units Total Owned Fleet - % Total Net Investment Covered Hoppers 44 % 42 % 43 % 41 % Tank Cars 29 % 39 % 29 % 40 % Mill/Coil Gondolas 8 % 6 % 8 % 6 % Coal 8 % 1 % 8 % 1 % Boxcars 6 % 6 % 6 % 6 % Other 5 % 6 % 6 % 6 % Total 100 % 100 % 100 % 100 % 75 Table 18 Rail Operating Lease Equipment by Obligor Industry dollars in millions March 31, 2023 December 31, 2022 Manufacturing $ 3,073 40 % $ 3,016 41 % Rail 1,958 26 % 1,981 27 % Wholesale 1,137 15 % 1,101 15 % Oil and gas extraction / services 593 8 % 552 7 % Energy and utilities 242 3 % 242 3 % Other 609 8 % 541 7 % Total $ 7,612 100 % $ 7,433 100 % Corporate Certain items that are not allocated to operating segments are included in the Corporate segment. For descriptions of items not allocated, see Note 21 — Business Segment Information. Table 19 Corporate: Financial Data and Metrics dollars in millions Three Months Ended Earnings Summary March 31, 2023 December 31, 2022 March 31, 2022 Net interest income $ 13 $ 35 $ 24 Provision for credit losses 720 5 513 Net interest (expense) income after provision for credit losses (707) 30 (489) Noninterest income 9,809 14 453 Noninterest expense 96 105 110 (Loss) income before income taxes 9,006 (61) (146) Income tax (benefit) expense (159) 17 (138) Net income (loss) $ 9,165 $ (78) $ (8) Results for the three months ended March 31, 2023 were primarily impacted by a preliminary gain on acquisition of $9.82 billion and the day 2 provision for credit losses of $716 million related to the SVBB Acquisition. The income tax rate also reflects the impact of the preliminary gain on acquisition. Similar transactions were recorded in the three months ended March 31, 2022 for the CIT Merger. In addition to the above noted items, the three months ended March 31, 2023 also reflect lower NII due to rising brokered deposit funding costs. Included in noninterest expense were $28 million and $29 million of acquisition-related expenses, for the three months ended March 31, 2023 and December 31, 2022, respectively. For the three months ended December 31, 2022 income tax expense included $55 million related to the strategic decision to surrender $1.25 billion of BOLI policies. BALANCE SHEET ANALYSIS INTEREST-EARNING ASSETS Interest-earning assets include interest-earning deposits at banks, 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. We strive to maintain a high level of interest-earning assets relative to total assets, while keeping non-earning assets at a minimum. Interest-earning Deposits at Banks Interest-earning deposits at banks at March 31, 2023 totaled $38.52 billion. This was an increase from $5.03 billion at December 31, 2022. The increase primarily related to $33.93 billion acquired in the SVBB Acquisition, plus holding additional liquidity reflecting higher FHLB borrowings. Subsequent to the SVBB Acquisition Date, interest-earning deposits at banks decreased due to the decline in SVB deposits. The trend in deposits is further addressed in the “Funding, Liquidity and Capital Overview” section of this MD&A. 76 Investment Securities The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with BancShares’ objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into interest-earning deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan growth. Refer to Note 3 — Investment Securities and the “Funding, Liquidity and Capital Overview” section of this MD&A for additional disclosures regarding investment securities. The carrying value of investment securities at March 31, 2023 totaled $19.53 billion. This was up slightly from $19.37 billion at December 31, 2022, reflecting investment security purchases of $337 million, acquired investment securities of $122 million, maturities, paydowns and sales of $345 million, and other non-cash items, such as fair value changes and amortization. We acquired certain mortgage-backed securities as part of the SVBB Acquisition. BancShares’ portfolio of investment securities available for sale 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 and corporate bonds. Investment securities available for sale are reported at fair value and unrealized gains and losses are included as a component of AOCI, net of deferred taxes. As of March 31, 2023, investment securities available for sale had a net pre-tax unrealized loss of $894 million, compared to a net pre-tax unrealized loss of $972 million as of December 31, 2022. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally decreases when interest rates increase or when credit spreads widen. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of March 31, 2023, no ACL was required. For corporate bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased and considered other factors, including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond had a credit-related loss of $4 million as of March 31, 2023 BancShares’ portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury Notes and government agency securities described above, as well as securities issued by the Supranational Entities and Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, BancShares’ management determined that no ACL was needed for investment securities held to maturity at March 31, 2023 and December 31, 2022. 77 The following table presents the investment securities portfolio at March 31, 2023, and December 31, 2022, segregated by major category: Table 20 Investment Securities dollars in millions March 31, 2023 December 31, 2022 Composition (1) Amortized cost Fair value Composition (1) Amortized cost Fair value Investment securities available for sale: U.S. Treasury 10.9 % $ 2,091 $ 1,978 10.6 % $ 2,035 $ 1,898 Government agency 0.8 % 152 150 0.9 % 164 162 Residential mortgage-backed securities 26.7 % 5,415 4,848 26.8 % 5,424 4,795 Commercial mortgage-backed securities 8.7 % 1,755 1,585 9.0 % 1,774 1,604 Corporate bonds 2.8 % 542 500 3.0 % 570 536 Total investment securities available for sale 49.9 % $ 9,955 $ 9,061 50.3 % $ 9,967 $ 8,995 Investment in marketable equity securities 0.5 % $ 75 $ 85 0.5 % $ 75 $ 95 Investment securities held to maturity: U.S. Treasury 2.4 % $ 475 $ 433 2.4 % $ 474 $ 424 Government agency 7.7 % 1,550 1,387 7.6 % 1,548 1,362 Residential mortgage-backed securities 21.3 % 4,511 3,858 21.7 % 4,605 3,882 Commercial mortgage-backed securities 16.8 % 3,547 3,051 16.1 % 3,355 2,871 Supranational securities 1.4 % 296 262 1.4 % 295 254 Other — % 2 2 — % 2 2 Total investment securities held to maturity 49.6 % $ 10,381 $ 8,993 49.2 % $ 10,279 $ 8,795 Total investment securities 100 % $ 20,411 $ 18,139 100 % $ 20,321 $ 17,885 (1) Calculated as a percentage of the total fair value of investment securities. The following table presents the weighted average yields for investment securities available for sale and held to maturity at March 31, 2023, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields. Table 21 Weighted Average Yield on Investment Securities March 31, 2023 Within One Year One to Five Years Five to 10 Years After 10 Years Total Investment securities available for sale: U.S. Treasury 3.57 % 1.09 % — % — % 1.12 % Government agency 4.36 % 4.56 % 4.51 % 4.93 % 4.53 % Residential mortgage-backed securities 1.82 % 4.08 % 4.19 % 1.88 % 1.95 % Commercial mortgage-backed securities 2.46 % 3.59 % 5.74 % 2.81 % 2.95 % Corporate bonds 5.00 % 6.29 % 5.39 % 4.67 % 5.46 % Total investment securities available for sale 3.26 % 1.57 % 5.02 % 2.09 % 2.18 % Investment securities held to maturity: U.S. Treasury — % 1.37 % 1.57 % — % 1.38 % Government agency 0.44 % 1.39 % 1.84 % — % 1.49 % Residential mortgage-backed securities (1) — % — % 2.64 % 1.90 % 1.90 % Commercial mortgage-backed securities (1) — % 2.43 % 2.04 % 2.84 % 2.84 % Supranational Securities — % 1.35 % 1.68 % — % 1.56 % Other 0.34 % 0.20 % — % — % 0.32 % Total investment securities held to maturity 0.44 % 1.39 % 1.79 % 2.31 % 2.12 % (1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity at March 31, 2023. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. 78 Assets Held for Sale Certain residential mortgage loans and commercial loans are originated with the intent to be sold to investors or lenders, respectively, and are recorded in assets held for sale at fair value. In addition, BancShares may change its strategy for certain loans initially held for investment and decide to sell them in the secondary market. At that time, portfolio loans are transferred to loans held for sale at fair value. Assets held for sale at March 31, 2023 were $94 million, an increase of $34 million compared to $60 million at December 31, 2022. The net increase was primarily related to loans held for sale in the SVB portfolio, partially offset by sales of commercial loans. Table 22 Assets Held for Sale dollars in millions March 31, 2023 December 31, 2022 Loans and leases: Commercial $ 33 $ 48 Consumer 9 4 SVB 48 — Loans and leases 90 52 Operating lease equipment 4 8 Total assets held for sale $ 94 $ 60 Loans and Leases Loans and leases held for investment at March 31, 2023 were $138.29 billion, an increase of $67.51 billion from $70.78 billion at December 31, 2022. The increase reflects approximately $66.17 billion of SVB loans at March 31, 2023. In addition, as shown in the table below, commercial loans continued to grow during the current quarter in a number of industry verticals, such as real estate, maritime and healthcare, and growth in our branch network. The current quarter also included growth in both commercial mortgage loans and consumer mortgage loans. Commercial loans at March 31, 2023 were $54.39 billion compared to $53.46 billion at December 31, 2022, representing 39% and 75% of total loans and leases, respectively. Consumer loans at March 31, 2023 were $17.73 billion, compared to $17.33 billion at December 31, 2022, representing 13% and 25% of total loans and leases, respectively. SVB loans at March 31, 2023 were $66.17 billion, representing 48% of total loans and leases. 79 Table 23 Loans and Leases dollars in millions March 31, 2023 December 31, 2022 Balance % to Total Loans Balance % to Total Loans Commercial: Commercial construction $ 2,971 2 % $ 2,804 4 % Owner occupied commercial mortgage 14,456 10 % 14,473 20 % Non-owner occupied commercial mortgage 10,292 7 % 9,902 14 % Commercial and industrial 24,508 18 % 24,105 34 % Leases 2,163 2 % 2,171 3 % Total commercial $ 54,390 39 % $ 53,455 75 % Consumer: Residential mortgage 13,727 10 % 13,309 19 % Revolving mortgage 1,916 1 % 1,951 3 % Consumer auto 1,452 1 % 1,414 2 % Consumer other 632 1 % 652 1 % Total consumer $ 17,727 13 % $ 17,326 25 % Silicon Valley Banking: Global fund banking 36,097 26 % — — % Investor dependent - early stage 1,994 1 % — — % Investor dependent - growth stage 4,418 3 % — — % Innovation C&I and cash flow dependent 9,193 7 % — — % Private Bank 9,476 7 % — — % CRE 2,444 2 % — — % Other 2,549 2 % — — % Total Silicon Valley Banking $ 66,171 48 % $ — — % Total loans and leases 138,288 100 % 70,781 100 % Less allowance for credit losses (1,605) (922) Net loans and leases $ 136,683 $ 69,859 The unamortized discount related to acquired loans was $2.67 billion and $118 million at March 31, 2023 and December 31, 2022, respectively. The increase reflects the discount on loans acquired in the SVBB Acquisition. OPERATING LEASE EQUIPMENT, NET As detailed in the following table, our operating lease portfolio is mostly comprised of rail assets. Refer to the Rail segment discussion in the section entitled “Results by Business Segment” of this MD&A for further details on the rail portfolio. Table 24 Operating Lease Equipment dollars in millions March 31, 2023 December 31, 2022 Railcars and locomotives $ 7,612 $ 7,433 Other equipment 719 723 Total (1) $ 8,331 $ 8,156 (1) Includes off-lease Rail equipment of $409 million at March 31, 2023 and $457 million at December 31, 2022. INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, senior and subordinated debt, and other borrowings. Interest-bearing liabilities at March 31, 2023 totaled $131.50 billion compared to $71.13 billion at December 31, 2022. The increase from December 31, 2022 was primarily due to deposits assumed in the SVBB Acquisition, the Purchase Money Note, as well as deposit growth in the General Banking Segment which includes the Direct Bank and community association banking, and a net increase in FHLB borrowings. 80 Deposits Refer to the “Funding, Liquidity and Capital Overview” section of this MD&A for discussion of deposit composition and recent deposit trends. Total deposits at March 31, 2023 were $140.05 billion, an increase of $50.64 billion compared to December 31, 2022. The increase primarily reflects $49.26 billion of SVB deposits at March 31, 2023, plus solid deposit growth during the current quarter in our Direct Bank and community association banking. Interest-bearing deposits totaled $85.40 billion and $64.49 billion at March 31, 2023 and December 31, 2022, respectively. Noninterest-bearing deposits totaled $54.65 billion and $24.92 billion at March 31, 2023 and December 31, 2022, respectively. Table 25 Deposits dollars in millions March 31, 2023 December 31, 2022 Noninterest-bearing demand $ 54,649 $ 24,922 Checking with interest 23,743 16,202 Money market 30,598 21,040 Savings 17,932 16,634 Time 13,128 10,610 Total deposits $ 140,050 $ 89,408 Noninterest-bearing deposits to total deposits 39.0 % 27.9 % We strive to maintain a strong liquidity position, and therefore a focus on deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change, we recognize that our liquidity position could be adversely affected if bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost. Deposits (based on branch location) as of March 31, 2023, in North Carolina and South Carolina represented approximately 25.3% and 8.4%, respectively, of total deposits. The Direct Bank includes $18.80 billion or 13.4% of total deposits as of March 31, 2023. SVB deposits as of March 31, 2023 were $49.26 billion or 35.2% of total deposits and are primarily concentrated in online banking and California. Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate total uninsured deposits were $69.96 billion, which represents approximately 50% of total deposits at March 31, 2023, compared to $29.13 billion or 33% of total deposits at December 31, 2022. The increase in amount of uninsured deposits reflects the inclusion of SVB deposits. The following table provides the expected maturity of time deposits in excess of $250,000, the FDIC insurance limit, as of March 31, 2023: Table 26 Maturities of Time Deposits In Excess of $250,000 dollars in millions March 31, 2023 Time deposits maturing in: Three months or less $ 260 Over three months through six months 385 Over six months through 12 months 1,877 More than 12 months 1,218 Total $ 3,740 Borrowings Total borrowings at March 31, 2023 were $46.09 billion compared to $6.65 billion at December 31, 2022. The increase from December 31, 2022 primarily related to the Purchase Money Note of approximately $35.15 billion payable to the FDIC, as further discussed in Note 2 — Business Combinations, and net increases in FHLB borrowings during the current quarter. 81 FHLB borrowings were $8.50 billion at March 31, 2023, including $500 million in short-term borrowings and $8.00 billion in long-term borrowings. FHLB borrowings increased from $4.25 billion at December 31, 2022, reflecting $7.00 billion of advances taken in March 2023 to enhance available liquidity, partially offset by $2.75 billion of repayments. Prior to the March advances, we were repaying FHLB borrowings due to deposit growth. Refer to the “Liquidity Risk” section below for more information on FHLB borrowings. The following table presents borrowings, net of the respective unamortized purchase accounting adjustments and issuance costs: Table 27 Borrowings dollars in millions March 31, 2023 December 31, 2022 Securities sold under customer repurchase agreements $ 509 $ 436 Federal Home Loan Bank borrowings (1) Floating rate notes due through September 2025 8,500 4,250 Federal Deposit Insurance Corporation 3.500% fixed rate note due March 2028 (2) 35,151 — Senior Unsecured Borrowings 3.929% fixed-to-floating rate notes due June 2024 502 505 2.969% fixed-to-floating rate notes due September 2025 320 320 6.000% fixed rate notes due April 2036 59 59 Subordinated debt 6.125% fixed rate notes due March 2028 466 469 4.125% fixed-to-fixed rate notes due November 2029 102 102 3.375% fixed-to-floating rate notes due March 2030 348 348 Macon Capital Trust I - floating rate debentures due March 2034 14 14 SCB Capital Trust I - floating rate debentures due April 2034 10 10 FCB/SC Capital Trust II - floating rate debentures due June 2034 18 18 FCB/NC Capital Trust III - floating rate debentures due June 2036 88 88 Total subordinated debt 1,046 1,049 Other borrowings 7 26 Total borrowings $ 46,094 $ 6,645 (1) Includes $500 million and $1.75 billion in short-term borrowings, and $8.00 billion and $2.50 billion in long-term borrowings, at March 31, 2023 and December 31, 2022, respectively. (2) Purchase Money Note in connection with the SVBB Acquisition. Refer to Note 11 — Borrowings for further information on the various components. Also see “Liquidity Risk” in this MD&A. RISK MANAGEMENT BancShares provided detail risk management information in our 2022 Form 10-K. There were no significant changes to those disclosures. The following is a summary of those disclosures. Risk is inherent in any business. BancShares has defined a moderate risk appetite, a balanced approach to risk taking, with a philosophy which does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework and Statement, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge and oversight by management committees. Our Board strives to ensure that risk management is a part of our business culture and that our policies and procedures for identifying, assessing, monitoring, and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through its Risk Committee. 82 The Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including Credit, Market, Capital, Liquidity, Operational, Compliance, Asset, Strategic and Reputational risks; review, approve, and monitor adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework and Statement. The Risk Committee also reviews reports of examination by and communications from regulatory agencies, the results of internal and third party testing and qualitative and quantitative assessments related to risk management, and any other matters within the scope of the Risk Committee’s oversight responsibilities. The Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, compensation risk management and other areas of joint responsibility. In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods. BancShares monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to the “Regulatory Considerations” section of Item 1. Business included in the 2022 Form 10-K for further discussion. BancShares has been assessing the emerging impacts of the international tensions that could impact the economy and exacerbate headwinds of rising inflation, elevated market volatility, global supply chain disruptions, and recessionary pressures as well as operational risks such as those associated with potential cyberattacks for FCB and third parties upon whom it relies. Assessments have not identified material impacts to date, but those assessments will remain ongoing as the condition continues to exist. BancShares is also assessing the potential risk of an economic slowdown or recession that could create increased credit and market risk having downstream impacts on earnings, capital, and/or liquidity. Economic data has been mixed and markets continue to experience elevated levels of volatility in 2023. Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. BancShares is in the process of integrating SVB into its existing risk management processes and procedures. 83 CREDIT RISK Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether PCD or Non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type and product. We strive to identify potential problem loans as early as possible, to record charge-offs or write-downs as appropriate and to maintain an appropriate ACL that accounts for expected losses over the life of the loan and lease portfolios. Our ACL estimate as of March 31, 2023 included extensive reviews of the changes in credit risk associated with the uncertainties around economic forecasts. These loss estimates additionally considered BancShares industry risk, and the actual net losses incurred during prior periods of economic stress, as well as recent credit trends, which have not seen significant deterioration as of March 31, 2023. Our ACL methodology was discussed in Note 1 — Significant Accounting Policies and Basis of Presentation of our 2022 Form 10-K. Commercial Lending and Leasing BancShares employs a dual ratings system where each commercial loan is assigned a probability of default (“PD”) and loss given default (“LGD”) rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. These models incorporate both internal and external historical default and loss data to develop loss rates for each risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts and circumstances, that in management’s judgment, warrant a modification of the modeled risk rating to arrive at the final approved risk ratings. Consumer Lending Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards. Credit decisions are made after analyzing quantitative and qualitative factors, including borrower’s ability to repay the loan, collateral values, and considering the transaction from a judgmental perspective. Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant. Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions. Loans may also be monitored during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of the underlying collateral may be conducted. Silicon Valley Banking Loans Due to the close proximity of the SVBB Acquisition Date to March 31, 2023, the acquired loans, all of which are included within the SVB segment, are graded according to a rating system that was used by Silicon Valley Bank prior to the SVBB Acquisition. The methodology for estimating the ACL is the sum of two main components: (i) modeled ACL assessed on a collective basis for pools of loans that share similar risk characteristics that includes a quantitative adjustment to account for portfolio risk not captured in the models and may include a qualitative adjustment based on management’s assessment of the risks and (ii) ACL assessed for individual loans that do not share similar risk characteristics with other loans. For loans that share similar risk characteristics, the process derives an estimated ACL assumption from a non-discounted cash flow approach based on portfolio classes. This approach incorporates a calculation of three predictive metrics: PD, LGD and Exposure at Default (“EAD”), over the estimated life of the exposure. Similar to the FCB process for other segments, PD and LGD assumptions are developed based on quantitative models and inherent risk of credit loss, both of which involve significant judgment. Renewals and extensions within our control are not considered in the estimated contractual term of a loan. BancShares moved SVB from a three year Reasonable and Supportable (“R&S”) period utilized by Silicon Valley Bank to a life of loan R&S period to ensure consistency with the existing Bancshares assumptions. Silicon Valley Bank and FCB were using similar scenario weighting processes, but BancShares moved SVB to the FCB scenario weights for the ACL estimate as of March 31, 2023. A qualitative adjustment may be applied to account for risk not captured by the models or emerging risks that may not yet be captured. 84 For loans that do not share similar risk characteristics, the ACL is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows and the amortized cost basis of the loan. When a loan is collateral-dependent and the repayment is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. Allowance for Credit Losses The ACL at March 31, 2023 was $1.61 billion, compared to $922 million at December 31, 2022. The ACL as a percentage of total loans and leases at March 31, 2023 was 1.16%, compared to 1.30% at December 31, 2022. The $683 million increase in the ACL is primarily due to the impact of the SVBB Acquisition, including the initial ACL for PCD loans and leases (the “Initial PCD ACL”) of $200 million and the day 2 provision for loans and leases of $462 million. The increase was also related to portfolio growth, mild credit quality deterioration, and higher specific reserves partially offset by improvement in the macroeconomic forecasts. In the three months ended March 31, 2023, the ACL on commercial loans increased $11 million and the ACL on consumer portfolios increased $10 million, with the remaining change due to the ACL on the acquired loans. While management utilizes its best judgment and information available, the ultimate adequacy of our ACL is dependent upon a variety of factors beyond our control which are inherently difficult to predict, the most significant being the macroeconomic scenario forecasts that determine the economic variables utilized in the ACL models. Due to the inherent uncertainty in the macroeconomic forecasts, BancShares utilizes baseline, upside, and downside macroeconomic scenarios and weights the scenarios based on review of variable forecasts for each scenario and comparison to expectations. At March 31, 2023, ACL estimates in these scenarios ranged from approximately $1.21 billion to approximately $1.99 billion when weighting the downside scenario 100%. BancShares management determined that an ACL of $1.61 billion was appropriate as of March 31, 2023. 85 Table 28 Allowance for Credit Losses dollars in millions Three Months Ended March 31, 2023 Commercial Consumer SVB Total Balance at December 31, 2022 $ 789 $ 133 $ — $ 922 Initial PCD ACL — — 200 200 Day 2 provision for loans and leases — — 462 462 Provision for credit losses - loans and leases 58 13 — 71 Total provision for credit losses - loans and leases 58 13 462 533 Charge-offs (55) (7) — (62) Recoveries 8 4 — 12 Balance at March 31, 2023 $ 800 $ 143 $ 662 $ 1,605 Annualized net charge-off ratio 0.27 % Net charge-offs (recoveries) $ 46 $ 4 $ — $ 50 Average loans $ 74,862 Percent of loans in each category to total loans 39 % 13 % 48 % 100 % Three Months Ended December 31, 2022 Commercial Consumer SVB Total Balance at September 30, 2022 $ 766 $ 116 $ — $ 882 Total provision for credit losses- loans and leases 48 16 — 64 Charge-offs (34) (5) — (39) Recoveries 9 6 — 15 Balance at December 31, 2022 $ 789 $ 133 $ — $ 922 Annualized net charge-off ratio 0.14 % Net charge-offs (recoveries) $ 25 $ (1) $ — $ 24 Average loans $ 70,441 Percent of loans in each category to total loans 76 % 24 % — % 100 % Three Months Ended March 31, 2022 Commercial Consumer SVB Total Balance at December 31, 2021 $ 80 $ 98 $ — $ 178 Initial PCD ACL 270 14 — 284 Initial Non-PCD Provision 432 22 — 454 Benefit for credit losses - loans and leases (23) (30) — (53) Total provision for credit losses - loans and leases 409 (8) — 401 Charge-offs (28) (5) — (33) Recoveries 12 6 — 18 Balance at March 31, 2022 $ 743 $ 105 $ — $ 848 Annualized net charge-off ratio 0.09 % Net charge-offs $ 16 $ (1) $ — $ 15 Average loans $ 65,182 Percent of loans in each category to total loans 76 % 24 % — % 100 % Net charge-offs during the three months ended March 31, 2023 were $50 million, compared to $24 million during the three months ended December 31, 2022. On an annualized basis, the net charge-off ratio was 0.27% and 0.14% for the three months ended March 31, 2023 and December 31, 2022, respectively. The increase in net charge-offs compared to the three months ended December 31, 2022 reflects higher charge-offs in our equipment finance and real estate finance businesses. 86 The following table provides trends in the ACL ratios: Table 29 Allowance for Credit Losses Ratios dollars in millions March 31, 2023 December 31, 2022 Allowance for credit losses $ 1,605 $ 922 Total loans and leases $ 138,288 $ 70,781 Allowance for credit losses to total loans and leases 1.16 % 1.30 % Commercial loans and leases: Allowance for credit losses - commercial $ 800 $ 789 Commercial loans and leases $ 54,390 $ 53,455 Commercial allowance for credit losses to commercial loans and leases 1.47 % 1.48 % Consumer loans: Allowance for credit losses - consumer $ 143 $ 133 Consumer loans $ 17,727 $ 17,326 Consumer allowance for credit losses to consumer loans 0.80 % 0.77 % SVB loans: Allowance for credit losses - SVB $ 662 $ — SVB loans $ 66,171 $ — SVB allowance for credit losses to SVB loans 1.00 % — % The reserve for unfunded loan commitments was $352 million and $106 million at March 31, 2023 and December 31, 2022, respectively. The increase primarily reflects the $254 million day 2 provision for unfunded commitments related to the SVBB Acquisition. Refer to Note 22 — 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. The following table presents the ACL by loan class at March 31, 2023 and December 31, 2022: Table 30 ACL by Loan Class dollars in millions: March 31, 2023 December 31, 2022 Allowance for Credit Losses Allowance for Credit Losses as a Percentage of Loans Allowance for Credit Losses Allowance for Credit Losses as a Percentage of Loans Commercial Commercial construction $ 36 1.22 % $ 40 1.43 % Owner occupied commercial mortgage 56 0.39 61 0.42 Non-owner occupied commercial mortgage 182 1.77 181 1.83 Commercial and industrial 490 2.00 476 1.98 Leases 36 1.69 31 1.41 Total commercial 800 1.47 789 1.48 Consumer Residential mortgage 81 0.59 74 0.55 Revolving mortgage 16 0.84 13 0.67 Consumer auto 5 0.35 5 0.37 Consumer other 41 6.42 41 6.32 Total consumer 143 0.80 133 0.77 SVB Global fund banking 91 0.25 — — Investor dependent - early stage 130 6.53 — — Investor dependent - growth stage 175 3.97 — — Innovation and cash flow dependent 171 1.85 — — Private Bank 44 0.47 — — CRE 26 1.07 — — Other 25 0.98 — — Total SVB 662 1.00 — — Total Allowance for Credit Losses $ 1,605 1.16 % $ 922 1.30 % 87 Credit Metrics Non-performing Assets Non-performing assets include non-accrual loans and leases and other real estate owned (“OREO”). Non-performing assets at March 31, 2023 totaled $875 million, compared to $674 million at December 31, 2022. The following table presents total nonperforming assets: Table 31 Non-Performing Assets dollars in millions March 31, 2023 December 31, 2022 Non-accrual loans: Commercial loans $ 510 $ 529 Consumer loans 94 98 SVB loans 224 — Total non-accrual loans 828 627 Other real estate owned 47 47 Total non-performing assets $ 875 $ 674 Allowance for credit losses to total loans and leases: 1.16 % 1.30 % Ratio of total non-performing assets to total loans, leases and other real estate owned 0.63 % 0.95 % Ratio of non-accrual loans and leases to total loans and leases 0.60 % 0.89 % Ratio of allowance for credit losses to non-accrual loans and leases 193.76 % 146.88 % Non-accrual loans and leases at March 31, 2023 were $828 million, an increase of $201 million since December 31, 2022. The increase is due to the SVBB Acquisition, resulting in addition of $224 million non-accrual loans and leases. The commercial non-accruals loans decreased during the first quarter as a result of lower non-accruals in the commercial construction and non-owner occupied commercial mortgage classes partially offset by an increase in the commercial and industrial class. Refer to Note 4 — Loans and Leases for tabular presentation of non-accrual loans by loan class. Non-accrual loans and leases as a percentage of total loans and leases were 0.60% and 0.89% at March 31, 2023 and December 31, 2022, respectively. OREO at March 31, 2023 was $47 million, no change since December 31, 2022. Non-performing assets as a percentage of total loans, leases and OREO at March 31, 2023 was 0.63% compared to 0.95% at December 31, 2022. The lower percentage was driven by the increased loan balance due to the SVBB Acquisition. Past Due Accounts The percentage of loans 30 days or more past due at March 31, 2023 was 0.88% of total loans, compared to 1.22% at December 31, 2022. Delinquency status of loans is presented in Note 4 — Loans and Leases. 88 Concentration Risk We strive to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to risk, such as our concentrations of real estate secured loans, revolving mortgage loans and healthcare-related loans. Additionally, SVB loans are concentrated in loans with large balances and loans in certain industries and customer groups, including private equity and venture capital. The following discussions present concentration data along our portfolio classes, Commercial, Consumer, and SVB. Commercial Loans Concentrations Geographic Concentrations The following table summarizes state concentrations greater than 5.0% of our loans. Data is based on obligor location unless secured by real estate, then data based on property location. Table 32 Commercial Loans and Leases - Geography dollars in millions March 31, 2023 December 31, 2022 State California $ 9,279 17.1 % $ 9,226 17.3 % North Carolina 8,795 16.2 % 8,699 16.3 % Texas 3,586 6.6 % 3,624 6.8 % Florida 3,398 6.2 % 3,273 6.1 % South Carolina 3,076 5.7 % 3,142 5.9 % All other states 24,796 45.6 % 24,243 45.4 % Total U.S. $ 52,930 97.4 % $ 52,207 97.8 % Total International 1,460 2.6 % 1,248 2.2 % Total $ 54,390 100.0 % $ 53,455 100.0 % Industry Concentrations The following table represents loans by industry of obligor: Table 33 Commercial Loans and Leases - Industry dollars in millions March 31, 2023 December 31, 2022 Real Estate $ 12,179 22.4 % $ 11,684 21.9 % Healthcare 8,264 15.2 % 8,146 15.2 % Business Services 5,656 10.4 % 5,518 10.3 % Transportation, Communication, Gas, Utilities 5,120 9.4 % 5,002 9.4 % Manufacturing 4,400 8.1 % 4,387 8.2 % Service Industries 4,118 7.6 % 4,213 7.9 % Retail 3,639 6.7 % 3,462 6.5 % Finance and Insurance 2,521 4.6 % 2,604 4.9 % Wholesale 2,507 4.6 % 2,605 4.9 % Other 5,986 11.0 % 5,834 10.8 % Total $ 54,390 100.0 % $ 53,455 100.0 % Consumer Loans Concentrations Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes state concentrations greater than 5.0% based on property address: 89 Table 34 Consumer Loans - Geography dollars in millions March 31, 2023 December 31, 2022 Net Investment % of Total Net Investment % of Total State North Carolina $ 5,830 32.9 % $ 5,702 32.9 % California 4,001 22.6 % 4,014 23.2 % South Carolina 3,079 17.3 % 3,001 17.3 % Other states 4,817 27.2 % 4,609 26.6 % Total $ 17,727 100.0 % $ 17,326 100.0 % Silicon Valley Banking Loans SVB loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions. The table below details SVB loans that are secured by real estate, at amortized cost as of March 31, 2023. Table 35 Silicon Valley Banking Loans Secured by Real Estate dollars in millions March 31, 2023 Private bank: Loans for personal residence $ 7,355 Loans to eligible employees 519 Home equity lines of credit 130 Other 117 Total private bank loans secured by real estate 8,121 Commercial real estate ("CRE"): Multifamily and residential investment 843 Retail 412 Office and medical 483 Manufacturing, industrial and warehouse 489 Hospitality 109 Other 108 Total CRE loans secured by real estate 2,444 Premium wine 913 Other 505 Total real estate secured loans $ 11,983 The SVB loan portfolio is focused on three primary markets: (i) Global Fund Banking, (ii) Technology and Life Science/Healthcare and (iii) Private Banking. The remainder of the portfolio is made up of CRE and Other loans. Global Fund Banking The Global Fund Banking loan portfolio includes loans to clients in the private equity/venture capital community. Global Fund Banking represented 55% and 26% of SVB loans and total loans at March 31, 2023, respectively. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by meaningful financial covenants oriented towards ensuring that the funds’ remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors. Technology and Life Science/Healthcare The Technology and Life Science/Healthcare loan portfolios include loans to clients at the various stages of their life cycles. The classes of financing receivables for our technology and life science/healthcare market segments are classified as Investor Dependent - Early Stage, Investor Dependent - Growth Stage, and Innovation C&I and Cash Flow Dependent for reporting purposes. 90 Investor Dependent - Early Stage loans represented 3% and 1% of SVB loans and total loans at March 31, 2023, respectively. These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third party or an initial public offering (“IPO”). Investor Dependent - Growth Stage loans represented 7% and 3% of SVB loans and total loans at March 31, 2023, respectively. These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid stage, and companies with revenues in excess of $15 million are considered to be later stage. Innovation C&I and Cash Flow Dependent loans represented 14% and 7% of SVB loans and total loans at March 31, 2023, respectively. This portfolio is comprised of two types of loans, Innovation C&I and Cash Flow Dependent. Innovation C&I include loans in innovation sectors such as technology and life science/healthcare industries. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash Flow Dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities. Private Banking Private Banking clients consist of executive leaders and senior investment professionals in the innovation economy, as well as high net worth clients. Lending to Private Banking clients represented 14% and 7% of SVB loans and total loans at March 31, 2023, respectively. Many Private Banking products are secured by real estate. These products include mortgage loans, owner-occupied commercial mortgage loans, home equity lines of credit and other secured lending products. The remaining balance of the Private Banking portfolio consists of personal capital call lines of credit, restricted and private stock loans and other secured and unsecured lending products. CRE The CRE class represented 4% and 2% of SVB loans and total loans at March 31, 2023, respectively. This class consists generally of acquisition financing loans for commercial properties such as office buildings, retail properties, apartment buildings and industrial/warehouse space. All CRE products are secured by real estate collateral. Other The Other class includes Premium Wine, Other C&I and Other portfolios which represented 4% and 2% of SVB loans and total loans at March 31, 2023. Premium wine loans are to wine producers, vineyards and wine industry or hospitality businesses across the Western United States. A large portion of premium wine loans are secured by real estate collateral. Other C&I loans include tax-exempt commercial loans to non-for-profit private schools, college, public charter schools and other not-for-profit organizations as well as commercial loans to clients that are not in technology and life sciences/healthcare industries. Our Other class of loans is primarily comprised of construction and land loans for financing new developments or financing improvements to existing buildings, as well as loans made as part of our responsibilities under the Community Reinvestment Act of 1977. The following table provides a summary of SVB loans by size and class. The breakout below is based on total client balances (individually or in the aggregate) as of March 31, 2023: Table 36 Silicon Valley Banking Loans by Size and Class dollars in millions Less Than $5 Million $5 to < $10 Million $10 to < $20 Million $20 to < $30 Million > $30 Million Total SVB Loans Global fund banking $ 1,275 $ 1,572 $ 3,394 $ 2,948 $ 26,908 $ 36,097 Investor dependent - early stage 1,141 548 214 — 91 1,994 Investor dependent - growth stage 746 949 1,326 534 863 4,418 Innovation C&I and cash flow dependent 341 322 843 1,301 6,386 9,193 Private Bank 6,887 1,007 848 309 425 9,476 CRE 724 504 666 336 214 2,444 Other 538 491 749 518 253 2,549 Total $ 11,652 $ 5,393 $ 8,040 $ 5,946 $ 35,140 $ 66,171 91 SVB Loans - State Concentrations The following table summarizes state concentrations greater than 5.0% within the SVB loans portfolio at March 31, 2023, based on borrower location: Table 37 Silicon Valley Banking Loans - Geography dollars in millions March 31, 2023 State California $ 19,936 30.1 % New York 10,094 15.3 % Massachusetts 9,658 14.6 % Texas 4,578 6.9 % Connecticut 4,520 6.8 % All other states 14,375 21.7 % Total U.S. 63,161 95.4 % Total International 3,010 4.6 % Total $ 66,171 100.0 % MARKET RISK Interest rate risk management BancShares is exposed to the risk that changes in market conditions may affect interest rates and negatively impact earnings. The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes in the level or shape of the yield curve. BancShares manages this inherent risk strategically based on prescribed guidelines and approved limits. Interest rate risk can arise from many of the BancShares’ business activities, such as lending, leasing, investing, deposit taking, derivatives, and funding activities. We evaluate and monitor interest rate risk primarily through two metrics. • Net Interest Income (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; and • Economic Value of Equity Sensitivity (“EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments. BancShares uses a holistic process to measure and monitor both short term and long term risks which includes, but is not limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship of various yield curves. NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet. Our exposure to NII Sensitivity is guided by the Risk Appetite Framework and Statement and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line actions and actions within the investment, funding and derivative portfolios. The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII Sensitivity, whereby our assets will reprice faster than our liabilities, which is generally concentrated at the short end of the yield curve. Our funding sources consist primarily of deposits and we also support our funding needs through wholesale funding sources (including unsecured and secured borrowings). The SVBB Acquisition significantly increased our balance sheet and changed our rate sensitivity. At the time of the SVBB Acquisition, we assumed $55.96 billion of deposits, entered into a $35.15 billion fixed-rate Purchase Money Note payable to the FDIC, acquired $68.50 billion of loans, most of which have variable rates, and $35.28 billion of cash and interest-bearing deposits at banks. 92 The deposit rates we offer are influenced by market conditions and competitive factors. Market rates are the key drivers of deposit costs and we continue to optimize deposit costs by improving our deposit mix. Changes in interest rates, expected funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing. We believe our targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits. We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities. For this analysis that includes the initial impacts from the assets acquired and liabilities assumed in the SVBB Acquisition, we are running scenarios for both BancShares (without SVB) and SVB and then merging those results, as there are multiple systems involved. The following table below summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management systems. 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, 2023, and December 2022. Table 38 Net Interest Income Sensitivity Simulation Analysis Estimated (Decrease) Increase in NII Change in interest rate (bps) March 31, 2023 December 31, 2022 -100 (11.1) % (4.0) % -25 (2.8) % (0.9) % +25 2.8 % 0.8 % +100 11.1 % 3.4 % +200 22.0 % 6.7 % NII Sensitivity metrics at March 31, 2023, compared to December 31, 2022, were primarily affected by the addition of the acquired loans and assumed deposits as part of the SVBB Acquisition, as well as the Purchase Money Note and the higher cash balance to manage liquidity risk from the acquired portfolios. BancShares continues to have an asset sensitive interest rate risk profile and 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 estimates of modest future deposit betas. Approximately 65%-70% of our loans have floating contractual reference rates, indexed primarily to Prime, SOFR and LIBOR. Deposit betas up for the combined company, and are modeled to have a portfolio average of approximately 30%-35% over the forecast horizon. Deposit beta is the portion of a change in the fed funds rate that is passed on to the deposit rate. Impacts to NII Sensitivity may change due to actual results differing from modeled expectations. As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon. EVE Sensitivity measures the change in the economic value of equity driven by changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates. EVE Sensitivity is calculated by estimating the change in the net present value of assets, liabilities, and off-balance sheet items under various rate movements. The following table presents the EVE profile as of March 31, 2023, and December 31, 2022: Table 39 Economic Value of Equity Modeling Analysis Estimated (Decrease) Increase in EVE Change in interest rate (bps) March 31, 2023 December 31, 2022 -100 (6.1) % (5.3) % -25 (1.4) % (1.2) % +100 5.3 % 4.1 % +200 10.0 % 3.0 % The economic value of equity metrics at March 31, 2023 compared to December 31, 2022 were primarily affected by the balance sheet changes noted earlier due to the SVBB Acquisition. In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system. Scenarios that impact management volumes, specific risk events, or the sensitivity to key assumptions are also evaluated. 93 We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using off balance sheet derivatives to mitigate earnings volatility. The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, the range of such simulations is not intended to represent our current view of the expected range of future interest rate movements. The following table provides loan maturity distribution information: Table 40 Loan Maturity Distribution dollars in millions At March 31, 2023, Maturing Within One Year One to Five Years Five to 15 Years After 15 Years Total Commercial Commercial construction $ 806 $ 1,305 $ 757 $ 103 $ 2,971 Owner occupied commercial mortgage 647 4,331 9,039 439 14,456 Non-owner occupied commercial mortgage 2,159 5,759 2,029 345 10,292 Commercial and industrial 6,767 13,921 3,612 208 24,508 Leases 758 1,364 41 — 2,163 Total commercial 11,137 26,680 15,478 1,095 54,390 Consumer Residential mortgage 320 676 2,398 10,333 13,727 Revolving mortgage 73 143 56 1,644 1,916 Consumer auto 11 703 738 — 1,452 Consumer other 306 167 123 36 632 Total consumer 710 1,689 3,315 12,013 17,727 SVB Global fund banking 33,636 2,330 131 — 36,097 Investor dependent - early stage 234 1,728 32 — 1,994 Investor dependent - growth stage 405 3,885 128 — 4,418 Innovation and cash flow dependent 1,608 7,217 368 — 9,193 Private Bank 283 524 905 7,764 9,476 CRE 286 1,293 817 48 2,444 Other 480 685 800 584 2,549 Total SVB 36,932 17,662 3,181 8,396 66,171 Total loans and leases $ 48,779 $ 46,031 $ 21,974 $ 21,504 $ 138,288 94 The following table provides information regarding the sensitivity of loans and leases to changes in interest rates: Table 41 Loan Interest Rate Sensitivity dollars in millions Loans Maturing One Year or After with Fixed Interest Rates Variable Interest Rates Commercial Commercial construction $ 940 $ 1,225 Owner occupied commercial mortgage 12,312 1,497 Non-owner occupied commercial mortgage 3,251 4,882 Commercial and industrial 8,007 9,734 Leases 1,405 — Total commercial 25,915 17,338 Consumer Residential mortgage 7,302 6,105 Revolving mortgage 35 1,808 Consumer auto 1,441 — Consumer other 298 28 Total consumer 9,076 7,941 SVB Global fund banking 8 2,453 Investor dependent - early stage 22 1,738 Investor dependent - growth stage 9 4,004 Innovation and cash flow dependent — 7,585 Private Bank 1,984 7,209 CRE 928 1,230 Other 1,370 699 Total SVB 4,321 24,918 Total loans and leases $ 39,312 $ 50,197 Reference Rate Reform 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 U.S. 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. Accordingly, we 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. 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. The final rule was approved by the FRB on December 16, 2022 and became effective February 27, 2023. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the LIBOR Act. BancShares anticipates using Board-selected benchmark replacements to take advantage of the safe harbors, where applicable, that are afforded in the rule. BancShares holds instruments such as loans, investments, derivative products, and other financial instruments that use LIBOR as a benchmark rate. However, BancShares’ LIBOR exposure is primarily to tenures other than one week and two-month USD LIBOR. 95 LIBOR is a benchmark interest rate for most of our floating rate loans and our Series B Preferred Stock, as well as certain liabilities and off-balance sheet exposures. We continue to monitor industry and regulatory developments and have a well-established transition program in place to manage the implementation of alternative reference rates as the market transitions away from LIBOR. Coordination is being handled by a cross-functional project team governed by executive sponsors. Its mission is to work with our businesses to ensure a smooth transition for BancShares and its customers to an appropriate LIBOR alternative. Certain financial markets and products have already migrated to alternatives. The project team ensures that BancShares is ready to move quickly and efficiently as consensus around LIBOR alternatives emerge. BancShares has processes in place to complete its review of the population of legal contracts impacted by the LIBOR transition, and updates to our operational systems and processes are substantially in place. BancShares is utilizing SOFR as our preferred replacement index for LIBOR. As loans mature and new originations occur a larger percentage of BancShares’ variable-rate loans are expected to reference SOFR in response to the discontinuation of LIBOR. However, we are positioned to accommodate other alternative reference rates (e.g., credit sensitive rates) in response to how the market evolves. Further, BancShares plans to move to Term SOFR plus the Alternative Reference Rate Committee recommended credit spread adjustment for its Series B Preferred Stock since the dividends are currently based on a floating rate tied to three-month LIBOR. Some acquired assets, such as loans and derivatives as well as derivative liabilities, from the SVBB Acquisition have LIBOR settings. Processes and procedures are in place to have these LIBOR exposures reference alternative rates, such as Term SOFR and Daily SOFR, in advance of LIBOR’s unavailability. 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 2022 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. Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent with this strategy, we maintain sufficient amounts of Available Cash and High Quality Liquid Securities (“HQLS”). Additional sources of liquidity include FHLB borrowing capacity, committed credit facilities, repurchase agreements, brokered CD issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties. We utilize a series of measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid assets, and contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events. BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares maintains a contingent funding plan which details protocols and potential actions to be taken under liquidity stress conditions. Liquidity includes Available Cash and HQLS. At March 31, 2023 we had $51.42 billion of total Liquid Assets (24.0% of total assets) and $79.49 billion of contingent liquidity sources available. 96 Table 42 Liquidity dollars in millions March 31, 2023 Available Cash $ 37,670 High Quality Liquid Securities (1) 13,745 Liquid Assets $ 51,415 FHLB capacity (2) $ 4,712 FRB capacity 4,676 FDIC Credit Facility (3) 70,000 Line of credit 100 Total contingent sources $ 79,488 Total Liquid Assets and contingent sources $ 130,903 (1 ) 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. (2) See following table for additional details. (2) Credit facility obtained in connection with SVBB Acquisition. See below for additional details and limits on use. We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our various deposit channels, including our branch network and Direct Bank. Deposits totaled $140.05 billion and $89.41 billion at March 31, 2023, and December 31, 2022, respectively. The increase in deposits from December 31, 2022 primarily reflected additional deposits from the SVBB Acquisition, and organic growth. We use borrowings to diversify the funding of our business operations. Borrowings totaled $46.09 billion and $6.65 billion at March 31, 2023, and December 31, 2022, respectively. The increase in borrowings from December 31, 2022 primarily reflected the Purchase Money Note (see Note 2 — Business Combination), and net new borrowings of FHLB borrowings. In January and February, we had been repaying outstanding FHLB borrowings as our deposit base grew. In March, due to the Banking uncertainty associated with the regional bank failures we borrowed $7.00 billion. In addition to the Purchase Money Note and FHLB advances, borrowings also include senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes. FHLB Capacity A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment. Certain related cash balances are restricted. Table 43 FHLB Balances dollars in millions March 31, 2023 December 31, 2022 Total Total Total borrowing capacity $ 14,662 $ 14,918 Less: Advances 8,500 4,250 Letters of credit (1) 1,450 1,450 Available capacity $ 4,712 $ 9,218 Pledged non-PCD loans (contractual balance) $ 23,743 $ 23,491 Weighted Average Rate 5.21 % 3.28 % (1) Letters of credit were established with the FHLB to collateralize public funds. FRB Capacity Under borrowing arrangements with the FRB of Richmond, FCB has access to an additional $4.68 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at March 31, 2023 and December 31, 2022. In March 2023, following the failures of Silicon Valley Bank and Signature Bank, the FRB created a new Bank Term Funding Program as an additional source of liquidity against high-quality securities in order to make additional funding available to eligible depository institutions. This program offers loans of up to one year in length to eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral, provided that such collateral was owned by the borrower as of March 12, 2023. These pledged assets will be valued at par under the Program. Eligible institutions can request advances under the Program at least through March 11, 2024. As of March 31, 2023, we did not have any securities pledged or amounts advanced related to this program. 97 FDIC Credit Facility FCB and the FDIC entered into binding terms and conditions for a five-year, up to $70 billion line of credit to FCB (the “Credit Facility”) provided by the FDIC. During the two-year period following the SVBB Acquisition, FCB may draw on the Credit Facility to support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired pursuant to the SVBB Acquisition (the “Unfunded Commitments”). Interest on outstanding principal will accrue at a variable rate equal to the Secured Overnight Financing Rate plus 25 basis points (but in no event less than 0.00%). The Credit Facility is primarily secured by all loans acquired in the SVBB Acquisition and related commitments that are subsequently drawn and outstanding as of March 31, 2023. Contractual Obligations and Commitments The following table identifies significant contractual obligations and commitments as of March 31, 2023, representing required and potential cash outflows. See Note 22 — Commitments and Contingencies for additional information regarding commitments. Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows, as many are expected to expire unused or partially used. Table 44 Contractual Obligations and Commitments dollars in millions Payments Due by Period Less than 1 year 1-3 years 4-5 years Thereafter Total Contractual obligations: Time deposits (1) $ 9,199 $ 3,718 $ 86 $ 125 $ 13,128 Short-term borrowings 1,009 — — — 1,009 Long-term obligations (1) 476 8,259 35,708 642 45,085 Total contractual obligations $ 10,684 $ 11,977 $ 35,794 $ 767 $ 59,222 Commitments: Financing commitments $ 48,696 $ 14,112 $ 5,656 $ 6,043 $ 74,507 Letters of credit 3,614 295 118 12 4,039 Deferred purchase agreements 1,707 — — — 1,707 Purchase and funding commitments 869 — — — 869 Affordable housing partnerships (1) 385 547 19 40 991 Total commitments $ 55,271 $ 14,954 $ 5,793 $ 6,095 $ 82,113 (1) Time deposits and long-term borrowings are presented net of purchase accounting adjustments of $27 million and $139 million, respectively. On-balance sheet commitments are included in other liabilities and presented net of a purchase accounting adjustment of $70 million. CAPITAL Capital requirements applicable to BancShares are discussed in “Regulatory Considerations” section in Item 1. Business — Regulation of our 2022 Form 10-K. The SVBB Acquisition increased BancShares’ total assets from $109.30 billion at December 31, 2022 to $214.66 billion at March 31, 2023 . Therefore, as detailed in our 2022 Form 10-K, BancShares’ total consolidated assets remain between $100 billion and $250 billion, and BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods. BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments. The capital management framework requires contingency plans be defined and may be employed at management’s discretion. Common and Preferred Stock Dividends During the first quarter of 2023, we paid a quarterly dividend of $0.75 on the Class A common stock and Class B common stock. On April 25, 2023, our Board of Directors declared a quarterly dividend on the Class A common stock and Class B common stock of $0.75 per common share. The dividends are payable on June 15, 2023 to stockholders of record as of May 31, 2023. 98 On April 25, 2023, our Board of Directors also declared dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. The dividends are payable on June 15, 2023 to stockholders of record as of May 31, 2023. Dividend payment information on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is disclosed in Note 15 — Stockholders’ Equity. Capital Composition and Ratios The table below shows activities that caused the change in outstanding Class A Common Stock for the quarter: Table 45 Changes in Shares of Class A Common Stock Outstanding Three Months Ended March 31, 2023 Class A shares outstanding at beginning of period 13,501,017 Restricted stock units vested, net of shares held to cover taxes 13,791 Class A shares outstanding at end of period 13,514,808 We also had 1,005,185 Class B Common Stock outstanding at March 31, 2023 and December 31, 2022. On April 25, 2023 Bancshares’ stockholders approved amendments to the Restated Certificate of Incorporation to increase the number of authorized shares of the Class A Common Stock from 16,000,000 shares to 32,000,000 shares and to increase the number of authorized shares of the Preferred Stock from 10,000,000 shares to 20,000,000. We are committed to effectively managing our capital to protect our depositors, creditors and stockholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our consolidated financial statements. In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within stockholders’ equity. These amounts are excluded from regulatory in the calculation of our regulatory capital ratios under current regulatory guidelines. Table 46 Analysis of Capital Adequacy dollars in millions Requirements to be Well-Capitalized March 31, 2023 December 31, 2022 Amount Ratio Amount Ratio BancShares Risk-based capital ratios Total risk-based capital 10.00 % $ 21,764 14.86 % $ 11,799 13.18 % Tier 1 risk-based capital 8.00 % 19,225 13.13 % 9,902 11.06 % Common equity Tier 1 6.50 % 18,344 12.53 % 9,021 10.08 % Tier 1 leverage ratio 5.00 % 19,225 16.72 % 9,902 8.99 % FCB Risk-based capital ratios Total risk-based capital 10.00 % $ 21,578 14.74 % $ 11,627 12.99 % Tier 1 risk-based capital 8.00 % 19,495 13.32 % 10,186 11.38 % Common equity Tier 1 6.50 % 19,495 13.32 % 10,186 11.38 % Tier 1 leverage ratio 5.00 % 19,495 16.97 % 10,186 9.25 % A s of March 31, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of 6.86% and 6.74%, respectively, which are in excess of the Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB risk-based capital ratio conservation buffers were 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratios as of March 31, 2023 and December 31, 2022 over the Basel III minimum for the ratio that is the binding constraint. Additional Tier 1 capital for BancShares includes perpetual preferred stock. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt. 99 CRITICAL ACCOUNTING ESTIMATES As further described in our 2022 Form 10-K, the ACL and fair values of loans acquired in and the core deposit intangibles associated with a business combination are considered critical accounting estimates. The ACL as of March 31, 2023 is discussed in Note 5 — Allowance for Credit Losses and the Credit Risk discussion in the section entitled “Risk Management” above. Fair values of loans acquired in and the core deposit intangibles associated with the SVBB Acquisition are considered critical accounting estimates. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition and other future events that are highly subjective in nature and may require adjustments. The fair values for these items are further discussed in Note 2 — Business Combinations. RECENT ACCOUNTING PRONOUNCEMENTS The following accounting pronouncements were issued by the FASB but are not yet effective for BancShares. Standard Summary of Guidance Effect on BancShares’ Financial Statements ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting Issued March 2020 ASU 2021-01, Reference Rate Reform (Topic 848): Scope Issued January 2021 ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 Issued December 2022 The amendments in these updates apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Allows entities to prospectively apply certain optional expedients for contract modifications and removes the requirements to remeasure contract modifications or de-designate hedging relationships. In addition, potential sources of ineffectiveness as a result of reference rate reform may be disregarded when performing certain effectiveness assessments. The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform. ASU 2021-01 refines the scope of ASC 848 and clarifies which optional expedients may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified in connection with the market-wide transition to new reference rates. ASU 2022-06 extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. BancShares continues to assess the impact of the optional expedients available through December 31, 2024 for eligible contract modifications and hedge relationships. The reference rate reform optional expedients have not yet been applied to any contracts and adoption of this guidance has not had, and is not expected to have, a material impact on the financial statements. ASU 2023-02 – Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method Issued March 2023 The amendments in this update allow entities to elect to account for qualifying tax equity investments using the proportional amortization method (“PAM”), regardless of the program giving rise to the related income tax credits. PAM accounting had been available only for qualifying investments in qualified affordable housing projects. The guidance also requires disclosure of the nature of the investor’s tax equity investments and the effect of income tax credits and other income tax benefits from tax equity investments on the investor’s balance sheet and income statement. Effective for BancShares as of January 1, 2024. Early adoption is permitted. BancShares is currently evaluating timing of adoption of this guidance and the impact of the guidance on its consolidated financial statements and disclosures. ASU 2022-03 - Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions Issued June 2022 The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also require specific disclosures for equity securities subject to contractual sale restrictions. Effective for BancShares as of January 1, 2024. Early adoption is permitted. BancShares does not expect the adoption of the update to have a material impact on our consolidated financial statements and related disclosures. 100 NON-GAAP FINANCIAL MEASUREMENTS BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts or is adjusted in some way to the effect of including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements. BancShares believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and financial position to its investors, analysts and management. These non-GAAP measures should be considered in addition to, and not superior to or a substitute for, GAAP measures presented in BancShares’ consolidated financial statements and other publicly filed reports. In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial measures used by other institutions. Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation between the U.S. GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful. Adjusted Rental Income on Operating Lease Equipment for Rail Segment Adjusted rental income on operating lease equipment within the Rail segment is calculated as gross revenue earned on rail car leases less depreciation and maintenance. This metric allows us to monitor the performance and profitability of the rail leases after deducting direct expenses. The table below presents a reconciliation of net income to adjusted rental income on operating lease equipment. Table 41 Rail Segment dollars in millions Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 Net income (GAAP) $ 22 $ 24 $ 32 Plus: Provision for income taxes 7 9 11 Plus: Other noninterest expense 18 15 16 Less: Other noninterest income 1 (5) 3 Plus: Interest expense, net 28 23 19 Adjusted rental income on operating lease equipment (non-GAAP) $ 74 $ 76 $ 75 101 Forward-Looking Statements Statements in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans, asset quality, and future performance and other strategic goals of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “predicts,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will,” “potential,” “continue,” “aims” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions. Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including the military conflict between Russia and Ukraine) and market conditions, including changes in competitive pressures among financial institutions and the impacts related to or resulting from recent bank failures and other volatility, the financial success or changing conditions or strategies of BancShares’ vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, changes in the quality or composition of BancShares’ loan or investment portfolio, actions of government regulators, including the recent and projected interest rate hikes by the Board of Governors of the Federal Reserve Board (the “Federal Reserve”), changes to estimates of future costs and benefits of actions taken by BancShares, BancShares’ ability to maintain adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including the significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares’ previously announced acquisition transactions, including the SVBB Acquisition and the previously completed transaction with CIT, which acquisition risks include (1) disruption from the transactions with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the transactions may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties’ customers to the transactions, (4) the risk that the cost savings and any revenue synergies from the transactions may not be realized or take longer than anticipated to be realized, (5) difficulties experienced in completing the integration of the businesses, (6) the ability to retain customers following the transactions and (7) adjustments to BancShares’ estimated purchase accounting impacts of the SVBB Acquisition. Except to the extent required by applicable law or regulation, BancShares disclaims any obligation to update such factors or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional factors which could affect the forward-looking statements can be found in the 2022 Form 10-K and its other filings with the Securities and Exchange Commission.