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What changed in FIRST CITIZENS BANCSHARES INC /DE/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRST CITIZENS BANCSHARES INC /DE/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+866 added−799 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in FIRST CITIZENS BANCSHARES INC /DE/'s 2023 10-K

866 paragraphs added · 799 removed · 489 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

150 edited+107 added−54 removed22 unchanged
Biggest changeBancShares has over $100 billion in total consolidated assets, and is now subject to certain enhanced prudential standards and enhanced oversight under the applicable transition provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) by the Federal Reserve Board (“Federal Reserve” or “FRB”), and the FDIC with respect to FCB.
Biggest changeThe impact of these statutes and regulations is discussed below and in the accompanying consolidated financial statements. 8 In 2022 and 2023, BancShares completed two acquisitions that resulted in the organization being subject to heightened supervision and enhanced regulatory standards as a large banking organization with over $100 billion in total consolidated assets, including certain enhanced prudential standards and oversight under the applicable transition provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) by the Federal Reserve, and the FDIC with respect to FCB.
Edge Act corporations are international banking organizations that are authorized to engage in international banking and foreign financial transactions, and the U.S. activities of such corporations are generally limited to those that are incidental to their foreign operations.
Edge Act corporations are banking organizations that are authorized to engage in international banking and foreign financial transactions, and the U.S. activities of such corporations are generally limited to those that are incidental to their foreign operations.
The Federal Reserve calculates a SCB as the greater of (i) the difference between the firm’s starting and minimum projected Common Equity Tier 1 (“CET1”) Risk-Based Capital Ratio under the severely adverse scenario in the supervisory stress test, plus the sum of dollar amount of the firm’s planned common stock dividends for each of the fourth through seventh quarters of the planning horizon as a percentage of risk-weighted assets, or (ii) 2.5 percent.
The Federal Reserve calculates a SCB as the greater of (i) the difference between the firm’s starting and minimum projected common equity Tier 1 risk-based capital ratio under the severely adverse scenario in the supervisory stress test, plus the sum of dollar amount of the firm’s planned common stock dividends for each of the fourth through seventh quarters of the planning horizon as a percentage of risk-weighted assets, or (ii) 2.5 percent.
Banks’ service providers are required under the Cybersecurity Rule to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Banks’ service providers are required under the rule to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Interested parties may also directly access the SEC’s website ( www.sec.gov ), which contains reports, proxy and information statements and other information electronically filed by BancShares. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those websites is not part of this report.
Interested parties may also directly access the SEC’s website ( www.sec.gov ), which contains reports, proxy and information statements and other information electronically filed by BancShares. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those websites is not part of this report. 21
As noted above, BancShares became a Category IV banking organization and is subject to enhanced prudential standards and enhanced supervision under the Tailoring Rules subject to the applicable transition periods. Limits on Dividends and Other Payments . The Parent Company is a legal entity, separate and distinct from its subsidiaries.
As noted above, BancShares is a Category IV banking organization and is subject to enhanced prudential standards and enhanced supervision under the Tailoring Rules subject to the applicable transition periods. Limits on Dividends and Other Payments . The Parent Company is a legal entity, separate and distinct from its subsidiaries.
These loans include revolving lines of credit and term loans and, depending on the nature of the collateral, may be referred to as collateral-backed loans, asset-based loans or cash flow loans. We provide senior secured loans to developers and other commercial real estate professionals.
These loans include revolving lines of credit and term loans and, depending on the nature of the collateral, may be referred to as collateral-backed loans, asset-based loans or cash flow loans. We provide senior secured loans to developers and other commercial real estate (“CRE”) professionals.
Some federal consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, TILA, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act (“RESPA”), the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.
Some federal consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, TILA, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.
BancShares’ supervisory stress testing results under CCAR could impact the ability of the Parent Company to declare dividends or make other capital distributions, including common share repurchases. 11 Additionally, under the FDI Act, IDIs, such as FCB, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” as such term is used in the statute.
BancShares’ supervisory stress testing results under CCAR could impact the ability of the Parent Company to declare dividends or make other capital distributions, including common share repurchases. 14 Additionally, under the FDI Act, IDIs, such as FCB, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” as such term is used in the statute.
The fees are eliminated from the consolidated financial statements. Community Reinvestment Act . FCB is subject to the requirements of the Community Reinvestment Act of 1977 (“CRA”). The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including low- and moderate-income (“LMI”) neighborhoods.
The fees are eliminated from the consolidated financial statements. Community Reinvestment Act . FCB is subject to the requirements of the CRA. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities, including low- and moderate-income (“LMI”) neighborhoods.
In addition, the Dodd-Frank Act requires the federal banking regulators and the SEC to issue regulations requiring covered financial institutions to prohibit incentive compensation arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the institution.
In addition, the Dodd-Frank Act requires the federal banking agencies and the SEC to issue regulations requiring covered financial institutions to prohibit incentive compensation arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the institution.
SEGMENT MARKETS AND SERVICES General Banking • Delivers services to individuals and businesses through an extensive branch network and various digital channels, including a full suite of deposit products, loans (primarily business/commercial loans and residential mortgages), and various fee-based services. • Provides a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. • Provides deposit, cash management and lending to homeowner associations and property management companies.
SEGMENT MARKETS AND SERVICES General Banking • Delivers services to individuals and businesses through an extensive branch network and various digital channels, including a nationwide digital bank, and offers a full suite of deposit products, loans (primarily business/commercial loans and residential mortgages), and various fee-based services. • Provides a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. • Provides deposit, cash management and lending to homeowner associations and property management companies.
Additionally, under Basel III capital guidelines, banking institutions with a Regulatory Capital Ratio above the Basel III minimum, but below the Basel III requirement will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
Furthermore, under Basel III capital guidelines, banking institutions with a Regulatory Capital Ratio above the Basel III minimum but below the Basel III requirement will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
Item 1. Business General First Citizens BancShares, Inc. (the “Parent Company” and when including all of its subsidiaries on a consolidated basis, “BancShares,” “we,” “us,” or “our”) was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company (“FCB,” or the “Bank”), its banking subsidiary.
Item 1. Business General First Citizens BancShares, Inc. (the “Parent Company” and when including all of its subsidiaries on a consolidated basis, “BancShares,” “we,” “us,” or “our”) was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company (“FCB”), its banking subsidiary.
Additionally, we provide small business loans and leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding process. 5 We provide factoring, receivable management, and secured financing to businesses that operate in several industries, including apparel, textile, furniture, home furnishings and consumer electronics.
Additionally, we provide small business loans and leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding process. We provide factoring, receivable management, and secured financing to businesses that operate in several industries. These include: apparel, textile, furniture, home furnishings, and consumer electronics.
Under the LFI rating system, the FRB assigns ratings based on three supervisory components: (i) capital planning and positions, (ii) liquidity risk management and positions, and (iii) governance and controls. The LFI rating system scale differs from the RFI rating system scale. The LFI rating system has a four-category, non-numeric rating scale with no single composite rating or scoring.
Under the LFI rating system, the FRB assigns ratings based on three supervisory components: (i) capital planning and positions, (ii) liquidity risk management and positions, and (iii) governance and controls. The LFI rating system has a four-category, non-numeric rating scale with no single composite rating or scoring.
For example, under the BHCA, a bank holding company must obtain approval from the Federal Reserve prior to directly or indirectly acquiring ownership or control of 5% of the voting shares or substantially all of the assets of another bank holding company or bank or prior to merging or consolidating with another bank holding company.
For example, under the BHCA, a BHC must obtain approval from the Federal Reserve prior to directly or indirectly acquiring ownership or control of 5% of the voting shares or substantially all of the assets of another BHC or bank or prior to merging or consolidating with another BHC.
BancShares delivers products and services to its customers through an extensive branch network and additionally operates a nationwide digital 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.
Financial Statements and Supplemental Data. BancShares delivers products and services to its customers through an extensive branch network and additionally operates a nationwide digital 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.
Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods by our clients to their customers (generally retailers) that have been factored (i.e., sold or assigned to the factor).
Factoring entails the assumption of credit risk with respect to trade accounts receivable arising from the sale of goods from our factoring clients to their customers that have been factored (i.e., sold or assigned to the factor).
Under the Dodd-Frank Act, bank holding companies are required to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, the Parent Company is expected to commit resources to support FCB, including times when the Parent Company may not be in a financial position to provide such resources.
Source of Strength . Under the Dodd-Frank Act, BHCs are required to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, the Parent Company is expected to commit resources to support FCB, including times when the Parent Company may not be in a financial position to provide such resources.
Pursuant to the Dodd-Frank Act, the FDIC has backup enforcement authority over a depository institution holding company, such as the Parent Company, if the conduct or threatened conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF.
The FDIC has backup enforcement authority over a depository institution holding company, such as the Parent Company, if the conduct or threatened conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF.
Based on FCB’s current financial condition, the Parent Company currently does not expect these provisions to have any material impact on its ability to receive dividends from FCB. The Parent Company’s non-bank subsidiaries pay dividends to the Parent Company periodically on a non-regulated basis. Crypto-Asset Related Activities .
Based on FCB’s current financial condition, the Parent Company currently does not expect these provisions to have any material impact on its ability to receive dividends from FCB. The Parent Company’s non-bank subsidiaries pay dividends to the Parent Company periodically without impact from these provisions. Crypto-Asset Related Activities .
A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
A BHC is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and to the FDIC insurance fund in the event of a depository institution default.
There are a number of obligations and restrictions imposed on BHCs and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and to the FDIC insurance fund in the event of a depository institution default.
This price increase will be instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020 which caused the Depositors Insurance Fund (“DIF”) reserve ratio to decline below the statutory minimum of 1.35%.
This price increase has been instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused the Depositors Insurance Fund (“DIF”) reserve ratio to decline below the statutory minimum of 1.35%.
Consistent with the authority of the FRB under the Dodd-Frank Act, a bank holding company with $100 billion or more in assets, but less than $250 billion in assets is subject to certain enhanced prudential standards as implemented by the Tailoring Rules.
Consistent with the authority of the FRB under the Dodd-Frank Act, a BHC with $100 billion or more in assets, but less than $250 billion in assets is subject to certain enhanced prudential standards as implemented by the Tailoring Rules.
FCB has implemented a program designed to facilitate compliance with the full extent of the applicable BSA and OFAC related laws, regulations and related sanctions. 13 On January 1, 2021, Congress passed the National Defense Authorization Act, which enacted the most significant overhaul of the BSA and related anti-money laundering laws since the Patriot Act.
FCB has implemented a program designed to facilitate compliance with the full extent of the applicable BSA and OFAC related laws, regulations and related sanctions. On January 1, 2021, Congress passed the National Defense Authorization Act, which enacted the most significant overhaul of the BSA and related AML laws since the Patriot Act.
For example, if BancShares has $50 billion or more in weighted short-term wholesale funding, it will be subject to modified liquidity coverage ratio (“LCR”) and net stable funding ratio (“NSFR”) requirements.
For example, if BancShares has $50 billion or more in weighted short-term wholesale funding, under the FRB’s regulations, it will be subject to the modified Liquidity Coverage Ratio (“LCR”) and Net Stable Funding Ratio (“NSFR”) requirements.
Our human resources team works to formalize the process of defining and deploying the mission-critical talent needed to align BancShares with the financial and strategic goals and objectives. Key human capital initiatives include scaling and developing talent, enhancing performance management and coaching, and accelerating inclusion, equity and diversity initiatives.
Our human resources team works to formalize the process of defining and deploying the mission-critical talent needed to align our program with our financial and strategic goals and objectives. Our key human capital initiatives include scaling and developing talent, enhancing performance/leadership management and coaching, and supporting diversity, equity and inclusion initiatives.
Basel III Minimums Basel III Conservation Buffers Basel III Requirements PCA Well-Capitalized Thresholds Regulatory Capital Ratios Total risk-based capital 8.00 % 2.50 % 10.50 % 10.00 % Tier 1 risk-based capital 6.00 2.50 8.50 8.00 Common equity Tier 1 4.50 2.50 7.00 6.50 Tier 1 leverage 4.00 — 4.00 5.00 10 Failure to meet regulatory capital requirements may result in certain actions by federal banking agencies that could have a direct material effect on the consolidated financial statements of BancShares and constraints on capital distributions and discretionary executive compensation.
The SCB calculated by the Federal Reserve replaces the static 2.5 percent capital conservation buffer required under Basel III. 13 Basel III Minimums Basel III Conservation Buffers Basel III Requirements PCA Well Capitalized Thresholds Regulatory Capital Ratios Total risk-based capital 8.00 % 2.50 % 10.50 % 10.00 % Tier 1 risk-based capital 6.00 2.50 8.50 8.00 Common equity Tier 1 4.50 2.50 7.00 6.50 Tier 1 leverage 4.00 — 4.00 5.00 Failure to meet regulatory capital requirements may result in certain actions by federal banking agencies that could have a direct material effect on the consolidated financial statements of BancShares and constraints on capital distributions and discretionary executive compensation.
In the United States, equipment financing and leasing operations, including for railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations, maintenance, and mechanical standards promulgated by various federal and state agencies and industry organizations, including the U.S. Department of Transportation, the Federal Railroad Administration, the Association of American Railroads, the Maritime Administration, the U.S.
In the United States, equipment financing and leasing operations, including for railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations, maintenance, and mechanical standards promulgated by various federal and state agencies and industry organizations, including the United States Department of Transportation, the Federal Railroad Administration, the Association of American Railroads, the Maritime Administration, the United States Coast Guard, and the United States Environmental Protection Agency.
BancShares has developed policies, programs, and systems designed to meet such enhanced prudential standards, including annual capital plan submissions and supervisory stress testing by the Federal Reserve under CCAR, enhanced enterprise-wide risk management requirements, and enhanced liquidity management requirements, including liquidity stress tests and liquidity buffer requirements.
BancShares has developed and is implementing policies, programs, and systems designed to meet the enhanced prudential standards applicable to the organization, including annual capital plan submissions and biennial supervisory stress testing by the Federal Reserve under CCAR, enhanced enterprise-wide risk management requirements, and enhanced liquidity management requirements, including liquidity stress tests and liquidity buffer requirements.
To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services, the CFPB is responsible for interpreting and enforcing federal consumer financial laws, as defined by the Dodd-Frank Act, that, among other things, govern the provision of deposit accounts along with mortgage origination and servicing.
To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services, the CFPB is responsible for interpreting and enforcing federal consumer financial laws that, among other things, govern the provision of deposit accounts along with mortgage origination and servicing.
The Parent Company is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Commissioner of Banks (“NCCOB”). Enhanced Prudential Standards and Enhanced Supervision .
The Parent Company is also registered under the bank holding company laws of North Carolina and is subject to supervision, regulation and examination by the NCCOB. Enhanced Prudential Standards and Enhanced Supervision .
Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and minimum ratios of “qualifying” capital to risk-weighted assets.
Capital Requirements. The Federal Reserve imposes certain capital requirements on BHCs under the BHCA, including a minimum leverage ratio and minimum ratios of “qualifying” capital to risk-weighted assets.
EGRRCPA amended the FDI Act to add a limited exception under which IDIs that are well-capitalized or adequately capitalized and meet certain other criteria are able to exempt from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (defined generally as deposits received by a depository institution through a deposit placement network with the same maturity and in the same aggregate amount as deposits placed by the depository institution in other network institutions).
IDIs that are well capitalized or adequately capitalized and meet certain other criteria are able to exempt from treatment as “brokered” deposits up to $5 billion or 20 percent of the institution’s total liabilities in reciprocal deposits (defined generally as deposits received by a depository institution through a deposit placement network with the same maturity and in the same aggregate amount as deposits placed by the depository institution in other network institutions).
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the Community Reinvestment Act of 1977 of the IDI involved in the transaction.
These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations' compliance with anti-money laundering (“AML”) laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the IDIs involved in the transaction.
Any capital loans made by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks.
Any capital loans made by a BHC to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks.
Financial institutions, such as us, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. In addition, such financial institutions must appropriately safeguard their customers’ nonpublic, personal information.
Financial institutions, such as us, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third-party.
Revenues of the Parent Company primarily result from dividends received from FCB. There are various legal limitations applicable to the payment of dividends by FCB to the Parent Company and to the payment of dividends by the Parent Company to its stockholders.
Revenues of the Parent Company primarily result from dividends received from FCB. There are various legal limitations applicable to the payment of dividends by FCB to the Parent Company and capital distributions by the Parent Company.
However, on FCB’s investor relations website ( www.ir.firstcitizens.com ), we make available BancShares’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
Available Information We make available on our investor relations website (ir.firstcitizens.com/overview/default.aspx) BancShares’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, such as BancShares, including by encouraging such banks to: ensure that management of climate-related risk exposures has been incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations.
Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, such as BancShares, including by encouraging such banks to: (1) ensure that management of climate-related risk exposures has been incorporated into existing governance structures; (2) evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; (3) account for the effects of climate change in stress testing scenarios and systemic risk assessments; (4) revise expectations for credit portfolio concentrations based on climate-related factors; (5) consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; (6) evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; (7) incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and (8) prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations. 19 In 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets.
A bank holding company with total consolidated assets of $250 billion or more is subject to enhanced prudential standards under the Dodd-Frank Act, as amended by EGRRCPA, with the requirements tailored based on risk-based factors identified by the federal banking agencies.
A BHC with total consolidated assets of $250 billion or more is subject to enhanced prudential standards under the Dodd-Frank Act, as amended by Economic Growth Act, with the requirements tailored based on risk-based factors identified by the federal banking agencies.
BancShares’ human capital strategy is predicated on ensuring the organization has the right people with the right skills in the right places at the right time for the right cost to fulfill its mandate and strategic objectives.
Our human capital strategy is predicated on ensuring the organization has the right people with the right skills in the right places at the right time for the right cost to fulfill our strategic objectives.
Regulatory Considerations Various laws and regulations administered by regulatory agencies affect BancShares’ corporate practices, including the payment of dividends, the incurrence of debt, and the acquisition of financial institutions and other companies.
Various laws and regulations administered by these and other regulatory agencies affect BancShares’ corporate practices, including the payment of dividends or other capital distributions, the incurrence of debt, and the acquisition of financial institutions and other companies.
In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (“clawback”) provisions of the Dodd-Frank Act.
In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (“clawback”) provisions mandated by Section 954 of the Dodd-Frank Act.
The BSA and subsequent laws and regulations require financial institutions to take steps to prevent the use of their systems to facilitate the flow of illegal or illicit money or terrorist funds and to report certain activity to the government.
The Bank Secrecy Act of 1970 (“BSA”) and subsequent laws and regulations require financial institutions to take steps to prevent the use of their systems to facilitate the flow of illegal or illicit money or terrorist funds and to report certain activity to the government.
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. Safety and Soundness . The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards.
In the event of a BHC’s bankruptcy, any commitment by the BHC to a federal banking agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. Safety and Soundness . The federal banking agencies have adopted guidelines prescribing safety and soundness standards.
Covered Insured Depository Institution Contingency Planning Requirements . Under the FDIC’s CIDI Rule, an IDI with $50 billion or more in total assets is required to submit periodically to the FDIC a contingency plan for the resolution of the institution in the event of its failure (“Resolution Plan”).
Under the FDIC’s CIDI Rule, an IDI with $50 billion or more in total assets is required to submit periodically to the FDIC a contingency Resolution Plan for the resolution of the institution in the event of its failure.
The BHCA and other federal laws enumerate the factors the Federal Reserve must consider when reviewing the merger of bank holding companies, the acquisition of banks or the acquisition of voting securities of a bank or bank holding company.
The BHCA and other federal laws enumerate the factors the Federal Reserve must consider when reviewing the merger of BHCs, the acquisition of banks, or the acquisition of voting securities of a bank or BHC.
Commercial Banking • Provides lending, leasing, capital markets and other financial and advisory services, primarily to small and middle-market companies across a variety of industries. • Provides asset-based lending, factoring, receivables management products and supply chain financing. Rail • Provides equipment leasing and secured financing to railroads and shippers.
Commercial Banking • Provides lending, leasing, capital markets and other financial and advisory services, primarily to small and middle-market companies across a variety of industries. • Provides asset-based lending, factoring, receivables management and secured financing services.
Notable amendments include (1) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, LLC, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions); (2) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the AML laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30% of the monetary sanctions collected and will receive increased protections; (3) increased penalties for violations of the BSA; (4) improvements to existing information sharing provisions that permit financial institutions to share information relating to Suspicious Activity Reports (SARs) with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (5) expanded duties and powers of FinCEN.
Notable amendments include (1) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires certain entities to report beneficial ownership information to the United States Financial Crimes Enforcement Network (“FinCEN”) (which will be maintained by FinCEN and made available upon request to financial institutions); (2) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the AML laws in any judicial or administrative action brought by the Secretary of the Treasury or the United States Attorney General resulting in monetary sanctions exceeding $1 million will receive not more than 30% of the monetary sanctions collected and will receive increased protections; (3) increased penalties for violations of the BSA; (4) improvements to existing information sharing provisions that permit financial institutions to share information relating to Suspicious Activity Reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (5) expanded duties and powers of FinCEN.
As of December 31, 2022, the Regulatory Capital Ratios of FCB exceeded the applicable Basel III requirements and the well-capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 2023, the Regulatory Capital Ratios of FCB exceeded the applicable Basel III requirements and the well capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 15 Covered Insured Depository Institution Contingency Planning Requirements .
Specifically, the Cybersecurity Rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the Cybersecurity Rule.
Specifically, the rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident”, as those terms are defined under the final rule.
Holding’s children and grandchildren have served as members of the Board of Directors (the “Board”), as chief executive officers and in other executive management positions and, since BancShares’ formation in 1986, have remained stockholders owning a large percentage of its common stock. The Chairman of the Board and Chief Executive Officer, Frank B.
Holding’s children and grandchildren have served as members of the Board of Directors (the “Board”) of BancShares and of the Board of Directors of FCB (collectively with the Board of BancShares, the “Boards”), as chief executive officers and in other executive management positions and, since BancShares’ formation in 1986, have remained stockholders owning a large percentage of its common stock.
Other Regulated Subsidiaries As noted above, certain subsidiaries of the Parent Company and FCB are subject to regulation, supervision, and examination by the SEC, FINRA, state regulatory agencies, and other regulatory authorities as “regulated entities.” 16 FCB’s insurance activities are subject to licensing and regulation by state insurance regulatory agencies.
Our clawback policy is filed herein as Exhibit 97. Other Regulated Subsidiaries As noted above, certain subsidiaries of the Parent Company and FCB are subject to regulation, supervision, and examination by the SEC, FINRA, state regulatory agencies, and other regulatory authorities as “regulated entities.” FCB’s insurance activities are subject to licensing and regulation by state insurance regulatory agencies.
Certain of the significant requirements of the Dodd-Frank Act are listed below with information regarding how they apply to BancShares following the enactment of the EGRRCPA. • Asset Threshold for Applicability of Dodd-Frank Act Enhanced Prudential Standards and Enhanced Supervision.
Certain of the significant requirements of the Dodd-Frank Act, as modified by the Economic Growth Act, are listed below with information regarding how they apply to BancShares. • Asset Threshold for Applicability of Dodd-Frank Act Enhanced Prudential Standards and Enhanced Supervision.
FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the NCCOB. Deposit obligations are insured by the FDIC to the maximum legal limits.
FCB is a state-chartered bank, subject to supervision and examination by, and the regulations and reporting requirements of, the FDIC and the NCCOB. Deposit obligations are insured by the FDIC to the maximum legal limits. Based on asset size, FCB is subject to certain additional requirements under the FDIC’s regulations.
As of December 31, 2022, the Regulatory Capital Ratios of BancShares exceeded the applicable Basel III requirements and the well-capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 2023, the Regulatory Capital Ratios of BancShares exceeded the applicable Basel III requirements and the well capitalized thresholds as further addressed under “Stockholders’ Equity and Capital Adequacy” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. BancShares will participate in the Federal Reserve’s CCAR process in the first instance in 2024.
Section 29 of the Federal Deposit Insurance Act (the “FDI Act”) and the FDIC’s implementing regulations limit the ability of an IDI to accept brokered deposits unless the institution is well-capitalized under the Prompt Corrective Action (the “PCA”) under the FDI Act, or the IDI is adequately capitalized and obtains a waiver from the FDIC.
Section 29 of the FDI Act and the FDIC’s implementing regulations limit the ability of an IDI to accept brokered deposits unless the institution is well capitalized, or the IDI is adequately capitalized and obtains a waiver from the FDIC.
IDIs that are less than well-capitalized are not able to accept brokered deposits, and are subject to restrictions on the interest rates paid on deposits. In addition, deposits that are considered “brokered” are subject to higher deposit assessments.
IDIs that are less than well capitalized are not able to accept brokered deposits, and are subject to restrictions on the interest rates paid on deposits.
As part of the CIT Merger, BancShares adopted a community benefit plan, developed in collaboration with representatives of community reinvestment organizations, for the combined bank.
As part of the CIT Merger, BancShares implemented a community benefit plan for the combined bank. The community benefit plan was developed in collaboration with representatives of national, state, and local community reinvestment organizations.
In general, numerous statutes and regulations also apply to and restrict the activities of BancShares, including limitations on the ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on transactions with related persons and entities controlled by related persons. The impact of these statutes and regulations is discussed below and in the accompanying consolidated financial statements.
In addition, numerous statutes and regulations also apply to and restrict the activities of BancShares, including limitations on the ability to pay dividends, capital requirements, reserve requirements, deposit insurance requirements and restrictions on transactions with related persons and entities controlled by related persons.
Dodd-Frank Act . The Dodd-Frank Act, enacted in 2010, significantly restructured the financial services regulatory environment; imposed significant regulatory and compliance changes on the financial services industry; increased capital, leverage and liquidity requirements for banking organizations; and expanded the scope of oversight responsibility of certain federal agencies through the creation of new oversight bodies.
The Dodd-Frank Act, as modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), significantly restructured the financial services regulatory environment; imposed significant regulatory and compliance changes on the financial services industry; increased capital, leverage and liquidity requirements for banking organizations; and expanded the scope of oversight responsibility of certain federal agencies through the creation of new oversight bodies.
In addition, bank holding companies that qualify and elect to be financial holding companies, such as the Parent Company, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve), without prior approval of the Federal Reserve.
In addition, BHCs that qualify and elect to be FHCs and continue to meet the requirements as an FHC as discussed in the Status Requirements section below, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to such financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve).
Women and ethnically diverse associates make up approximately 61% and 33% of total employees, respectively, and our Executive Leadership Team includes three women. Our ability to attract, retain and develop associates who align with our purpose is key to our success.
Women and ethnically diverse associates make up approximately 56% and 37% of total employees, respectively. Our ability to attract, retain and develop associates who align with our purpose is key to our success.
In addition to salaries, compensation and benefit programs include a 401(k) plan with employer matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and other employee assistance programs.
Our competitive benefits offerings include a 401(k) plan with employer matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and other employee assistance programs.
The other foreign companies acquired by FCB support the railcar leasing business acquired from CIT in Canada and Mexico. FC International is subject to supervision and regulation by the Federal Reserve, including examination, reporting, capital, and Bank Secrecy Act of 1970 (“BSA”) and anti-money laundering (“AML”) requirements, pursuant to the Edge Act and the Federal Reserve’s Regulation K.
The active foreign companies acquired by FCB support the railcar leasing business acquired from CIT in Canada and Mexico. FC International is subject to supervision and regulation by the Federal Reserve, including examination, reporting, capital, and the BSA and AML requirements pursuant to the Edge Act and the Federal Reserve’s Regulation K.
As a “financial holding company” (“FHC”), the Parent Company may engage in or acquire and retain the shares of a company engaged in activities that are “financial in nature” as long as the Parent Company continues to meet the eligible requirements for FHC status, including that the Parent Company and FCB each remain “well-capitalized” and “well-managed.” Activities that are “financial in nature” include securities underwriting, dealing and market making, advising mutual funds and investment companies, insurance underwriting and agency, merchant banking, and any activities that the Federal Reserve in consultation with the Secretary of the Treasury determines to be in “financial in nature,” “complementary” or “incidental” to such financial activity.
An FHC may engage in or acquire and retain the shares of a company engaged in activities that are “financial in nature” or complementary to a financial activity that does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally as long as the FHC continues to meet the eligible requirements for FHC status, including that the FHC and its subsidiary IDIs each remain “well capitalized” and “well-managed.” Activities that are “financial in nature” include securities underwriting, dealing and market making, advising mutual funds and investment companies, insurance underwriting and agency, merchant banking, and any other activities determined by the Federal Reserve in consultation with the Secretary of the Treasury to be “financial in nature,” or “complementary” or “incidental” to such financial activity.
The payment of dividends, depending on the financial condition of FCB or the Parent Company, could be deemed to constitute such an unsafe or unsound practice. BancShares became a Category IV banking organization and is required to submit a capital plan annually to the Federal Reserve in accordance with the applicable transition provisions.
Capital distributions, depending on the financial condition of FCB or the Parent Company, could be deemed to constitute such an unsafe or unsound practice. BancShares is required to submit a capital plan annually to the Federal Reserve in accordance with the applicable transition provisions, and the annual capital plan includes planned capital distributions over a specified forecasting horizon.
Failure of a financial institution to maintain and implement adequate BSA, AML and OFAC programs, or to comply with all the relevant laws and regulations, could have serious legal and reputational consequences, including material fines and sanctions.
The United States has imposed economic sanctions on transactions with certain designated foreign countries, nationals and others. Failure of a financial institution to maintain and implement adequate BSA, AML and OFAC programs, or to comply with all the relevant laws and regulations, could have serious legal and reputational consequences, including material fines and sanctions.
The payment of dividends by FCB or the Parent Company may be limited by certain factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit FCB or the Parent Company from engaging in an unsafe or unsound practice in conducting their business.
Capital distributions by FCB or the Parent Company may be suspended or limited by bank regulatory agencies for various reasons, including requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit FCB or the Parent Company from engaging in an unsafe or unsound practice in conducting their business.
We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and data protection. Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and its implementing regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to nonaffiliated third parties.
Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and its implementing regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to nonaffiliated third parties.
FDIC Deposit Insurance Assessment Rates. As an IDI, FCB is required to pay the FDIC premiums for deposit insurance. On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules by 2 points, beginning in the first quarterly assessment period of 2023.
On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points (“bps”), beginning in the first quarterly assessment period of 2023.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the “Executive Order”), which encouraged the federal banking agencies, to review the current framework for merger oversight practices under the Bank Holding Company Act of 1956, as amended (“BHCA”) and the Bank Merger Act.
In July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that encouraged the federal banking agencies to review the current framework for merger oversight practices under the BHCA and the Bank Merger Act (the “BMA”).
These rules were expanded to require new customer due diligence and beneficial ownership requirements in 2018. An institution subject to the BSA, such as FCB (and FC International), in addition to maintaining a written BSA/AML compliance program, must also provide AML training to employees, designate an AML compliance officer and annually audit the AML program to assess its effectiveness.
An institution subject to the BSA, such as FCB (and FC International, as described below), in addition to maintaining a written BSA/AML compliance program, must also provide AML training to employees, designate an AML compliance officer and annually audit the AML program to assess its effectiveness.
Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding, who came to control FCB during the 1920s. Robert P.
At December 31, 2023, BancShares had total consolidated assets of $213.76 billion. Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding, who came to control FCB during the 1920s. Robert P.
Statistical information regarding our business activities is found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Business Combinations BancShares pursues growth through strategic mergers and acquisitions to enhance organizational value, strengthen its presence in existing markets, as well as expand its footprint in new markets.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. 4 Business Combinations In addition to organically growing our business, BancShares has historically pursued growth through strategic mergers and acquisitions to enhance organizational value, strengthen its presence in existing markets, as well as expand its footprint in new markets.
GSIBs) are subject to the most stringent enhanced prudential requirements, and Category IV banking organizations (i.e., between $100 billion and $250 billion in total consolidated assets, and less than $75 billion in nonbank assets, off-balance sheet exposure, cross-jurisdictional activities, and weighted short-term wholesale funding) are subject to the least stringent requirements.
Globally Systemically Important Banks) are subject to the most stringent enhanced prudential requirements, and Category IV banking organizations (i.e., between $100 billion and $250 billion in total consolidated assets, and less than $75 billion in nonbank assets, off-balance sheet exposure, cross-jurisdictional activities, and weighted short-term wholesale funding) are subject to the least stringent requirements. 11 Based on our asset size, we are required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods.
BancShares has expanded through de novo branching and acquisitions and as of December 31, 2022, operates 550 branches in 22 states, predominantly located in the Southeast, Mid-Atlantic, Midwest, and Western United States, providing a broad range of financial services to individuals, businesses and professionals. At December 31, 2022, BancShares had total consolidated assets of $109.3 billion.
BancShares has expanded through de novo branching and acquisitions and as of December 31, 2023, operates a network of more than 600 branches and offices in 30 states, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States, providing a broad range of financial services to individuals, businesses and professionals.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOn December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets. On March 30, 2022 and December 2, 2022, the FDIC and Federal Reserve Board issued their own proposed principles, respectively, for climate risk management by larger banking organizations.
Biggest changeFor example, on October 21, 2021, the Financial Stability Oversight Council published a report identifying climate-related financial risk as an “emerging threat” to financial stability, on December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets, on March 21, 2022, the SEC issued proposed requirements for companies to disclose information about climate-related risks that are likely to have an impact on their business, as well as climate goals or planning processes that the company has developed in response thereto, and on March 30, 2022 and December 2, 2022, the FDIC and Federal Reserve issued their own proposed principles, respectively, for climate risk management by larger banking organizations, and on October 24, 2023, the federal banking agencies jointly finalized principles for climate-related financial risk management for banking organizations with $100 billion or more in total consolidated assets.
During the last credit crisis, we saw the number of cases and our expenses related to those cases increase and expect to see the same in future credit crises. The outcomes of such cases are always uncertain until finally adjudicated or resolved.
During the last credit crisis, we saw the number of cases and our expenses related to those cases increase and we expect to see the same in future credit crises. The outcomes of such cases are always uncertain until finally adjudicated or resolved.
Under regulatory capital adequacy guidelines and other regulatory requirements, we, together with FCB, must meet certain capital and liquidity guidelines, subject to qualitative judgments by regulators about components, risk weightings and other factors. We and FCB are subject to capital rules issued by the federal banking agencies including required minimum capital and leverage ratios.
Under capital adequacy and other regulatory requirements, we, together with FCB, must meet certain capital adequacy and liquidity guidelines, subject to qualitative judgments by regulators about components, risk weightings and other factors. We and FCB are subject to capital rules issued by the federal banking agencies including required minimum capital and leverage ratios.
This could adversely impact our results of operations, liquidity and financial condition, as well as cause us legal or reputational harm. 17 • Credit Risks: The risks that a borrower, obligor, or counterparty will fail to perform on an obligation or that our risk management processes will fail or be insufficient. ▪ If we fail to effectively manage credit risk, our business and financial condition will suffer. ▪ Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolios. • Market Risks: The risks to our financial condition resulting from adverse movements in domestic and international macroeconomic and political conditions, as well as economic output levels, interest and inflation rates, employment levels, prices of commodities, consumer confidence levels, and changes in consumer spending, international trade policy, and fiscal and monetary policy. ▪ Unfavorable economic or political conditions, as considered through a range of metrics, have and could continue to adversely affect our business. ▪ Failure to effectively manage our interest rate risk could adversely affect us. • Liquidity Risks: The risks that we will be unable to meet our obligations as they come due because of an inability to (i) liquidate assets or obtain adequate funding, or (ii) unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions, or that we will not meet the liquidity management requirements applicable to us as a Category IV banking organization, subject to the applicable transition periods. ▪ If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay deposits and fund our operations. ▪ We are subject to enhanced liquidity risk management requirements as a Category IV banking organization, subject to the applicable transition periods, including reporting, liquidity stress testing, and a liquidity buffer, as well as resolution planning at the bank level, and failure to meet these requirements could result in regulatory and compliance risks, and possible restrictions on our activities. • Capital Adequacy Risks: The risks that our capital levels become inadequate to preserve our safety and soundness, support our ongoing business operations and strategies and provide us with support against unexpected or sudden changes in the business/economic environment, or that we will not meet the capital adequacy requirements applicable to us as a Category IV banking organization, subject to the applicable transition periods. ▪ Our ability to grow is contingent upon access to capital, which may not be readily available to us. ▪ We and FCB are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition and ability to make capital distributions would be adversely affected. • Compliance Risks: The risks of loss or reputational harm to us resulting from regulatory sanctions, fines, penalties or losses due to our failure to comply with laws, rules, regulations or other supervisory requirements applicable to us. ▪ We operate in a highly regulated industry, and the laws and regulations that govern our operations, taxes, corporate governance, executive compensation and financial accounting and reporting, including changes in them or our failure to comply with them, may adversely affect us. ▪ Information security and data privacy are areas of heightened legislative and regulatory focus. • Asset Risks: The risks that the value of our long-lived assets will be lower than expected, resulting in reduced income over the remaining life of the asset or a lower sale value. ▪ We may not be able to realize our entire investment in the equipment that we lease to our customers. • Financial Reporting Risks: The risks that our financial information is reported incorrectly or incompletely, including through the improper application of accounting standards or other errors or omissions. ▪ Accounting standards may change and increase our operating costs or otherwise adversely affect our results. ▪ Our accounting policies and processes are critical to the reporting of our financial condition and results of operations.
This could adversely impact our results of operations, liquidity and financial condition, as well as cause us legal or reputational harm. • Credit Risks: The risks that a borrower, obligor, or counterparty will fail to perform on an obligation or that our risk management processes will fail or be insufficient. ▪ If we fail to effectively manage credit risk, our business and financial condition will suffer. ▪ Our allowance for credit losses may prove to be insufficient to absorb losses in our credit portfolios. • Market Risks: The risks to our financial condition resulting from adverse movements in domestic and international macroeconomic and political conditions, as well as economic output levels, interest and inflation rates, employment levels, prices of commodities, consumer confidence levels, and changes in consumer spending, international trade policy, and fiscal and monetary policy. ▪ Unfavorable economic or political conditions, as considered through a range of metrics, have and could continue to adversely affect our business. ▪ Failure to effectively manage our interest rate risk could adversely affect us. • Liquidity Risks: The risks that we will be unable to meet our obligations as they come due because of an inability to (i) liquidate assets or obtain adequate funding, or (ii) unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions, or that we will not meet the liquidity management requirements applicable to us as a Category IV banking organization, subject to the applicable transition periods. ▪ If our current level of balance sheet liquidity were to experience pressure, it could affect our ability to pay deposits and fund our operations. ▪ We are subject to enhanced liquidity risk management requirements as a Category IV banking organization, subject to the applicable transition periods, including reporting, liquidity stress testing, and liquidity buffer, as well as resolution planning at the bank level, and failure to meet these requirements could result in regulatory and compliance risks, and possible restrictions on our activities. • Capital Adequacy Risks: The risks that our capital levels become inadequate to preserve our safety and soundness, support our ongoing business operations and strategies and provide us with support against unexpected or sudden changes in the business/economic environment, or that we will not meet the capital adequacy requirements applicable to us as a Category IV banking organization, subject to the applicable transition periods. ▪ Our ability to grow is contingent upon access to capital, which may not be readily available to us. ▪ We and FCB are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition and ability to make capital distributions would be adversely affected. 22 • Compliance Risks: The risks of loss or reputational harm to us resulting from regulatory sanctions, fines, penalties or losses due to our failure to comply with laws, rules, regulations or other supervisory requirements applicable to us. ▪ We operate in a highly regulated industry, and the laws and regulations that govern our operations, taxes, corporate governance, executive compensation and financial accounting and reporting, including changes in them or our failure to comply with them, may adversely affect us. ▪ Information security and data privacy are areas of heightened legislative and regulatory focus. • Asset Risks: The risks that the value of our long-lived assets will be lower than expected, resulting in reduced income over the remaining life of the asset or a lower sale value. ▪ We may not be able to realize our entire investment in the equipment that we lease to our customers. • Financial Reporting Risks: The risks that our financial information is reported incorrectly or incompletely, including through the improper application of accounting standards or other errors or omissions. ▪ Accounting standards may change and increase our operating costs or otherwise adversely affect our results. ▪ Our accounting policies and processes are critical to the reporting of our financial condition and results of operations.
Natural or man-made disasters (including, but not limited to, earthquakes, hurricanes, tornadoes, floods, fires, pollution, and explosions), global pandemics, acts of war, terrorist activities, climate change or other adverse external events could hurt our financial performance (i) directly through damage to our facilities or other impacts to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties.
Natural or man-made disasters (including, but not limited to, earthquakes, hurricanes, tornadoes, floods, tsunamis, fires, pollution, and explosions), global pandemics, acts of war, terrorist activities, climate change or other adverse external events could hurt our financial performance (i) directly through damage to our facilities or other impacts to our ability to conduct business in the ordinary course, and (ii) indirectly through such damage or impacts to our customers, suppliers or other counterparties.
The limitations and restrictions that may be placed upon us by the CFPB with respect to our consumer product offerings and services may produce significant, material effects on our profitability. We may be adversely affected by changes in United States and foreign tax laws and other tax laws and regulations. Corporate tax rates affect our profitability and capital levels.
The limitations and restrictions that may be placed upon us by the CFPB with respect to our consumer product offerings and services may produce significant, material effects on our profitability. 40 We may be adversely affected by changes in United States and foreign tax laws and other tax laws and regulations. Corporate tax rates affect our profitability and capital levels.
If such risks and uncertainties were to materialize or the likelihoods of the risks were to increase, we could be adversely affected, and the market price of our securities could significantly decline. 18 Strategic Risks We may be adversely affected by risks associated with completed, pending or any potential future acquisitions. We plan to continue to grow our business organically.
If such risks and uncertainties were to materialize or the likelihoods of the risks were to increase, we could be adversely affected, and the market price of our securities could significantly decline. Strategic Risks We may be adversely affected by risks associated with completed, pending or any potential future acquisitions. We plan to continue to grow our business organically.
Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events, and such quality and ability may be inadequate. There has been increasing political and social attention to the issue of climate change and related environmental sustainability matters.
Our ability to minimize the consequences of such events is in significant measure reliant on the quality of our disaster recovery planning and our ability, if any, to forecast the events, and such quality and ability may be inadequate. 30 There has been increasing political and social attention to the issue of climate change and related environmental sustainability matters.
Weakness in any of our market areas could have an adverse impact on our earnings, and consequently, our financial condition and capital adequacy. Failure to effectively manage our interest rate risk could adversely affect us. Our results of operations and cash flows are highly dependent upon net interest income.
Weakness in any of our market areas could have an adverse impact on our earnings, and consequently, our financial condition and capital adequacy. Failure to effectively manage our interest rate risk could adversely affect us. Our results of operations and cash flows are highly dependent upon net interest income (“NII”).
For additional information, refer to the Notes to the Consolidated Financial Statements, Note 24 - Commitments and Contingencies, in this Annual Report on Form 10-K. We depend on qualified personnel for our success and may not be able to retain or attract such personnel.
For additional information, refer to the Notes to the Consolidated Financial Statements, Note 24—Commitments and Contingencies, in this Annual Report on Form 10-K. 29 We depend on qualified personnel for our success and may not be able to retain or attract such personnel.
As a FHC, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source from which we pay dividends on our common and preferred stock and interest and principal on our debt obligations.
As an FHC, we are a separate legal entity from FCB. We derive most of our revenue and cash flow from dividends paid by FCB. These dividends are the primary source from which we pay dividends on our common and preferred stock and interest and principal on our debt obligations.
As cyber threats continue to evolve, we have been and will likely continue to be required to expend significant resources to continuously enhance our protective measures and may be required to expend significant resources to investigate and remediate any information security vulnerabilities or incidents.
As cyber threats continue to evolve, we have been and will continue to be required to expend significant resources to continuously enhance our protective measures and may be required to expend significant resources to investigate and remediate any information security vulnerabilities or incidents.
Unfavorable changes in unemployment, real estate values, interest rates, foreign currency exchange rate fluctuations and other factors could weaken the economies of the communities we serve and otherwise adversely affect our business.
Unfavorable changes in unemployment, real estate values, inflation, interest rates, foreign currency exchange rate fluctuations and other factors could weaken the economies of the communities we serve and otherwise adversely affect our business.
This consolidation interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis.
This consolidation interconnectivity and complexity increases the risk of operational failure, for both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis.
As a human capital-intensive business, our success depends to a great extent on our ability to attract and retain highly skilled and qualified executive officers and management, financial, compliance, technical, operations, sales, and support employees, which has taken on heightened importance because of the significant expansion of the size and geographic and operational scope of our business that occurred in connection with the CIT Merger.
As a human capital-intensive business, our success depends to a great extent on our ability to attract and retain highly skilled and qualified executive officers and management, financial, compliance, technical, operations, sales, and support employees, which has taken on heightened importance because of the significant expansion of the size and geographic and operational scope of our business that occurred in connection with the CIT Merger and SVBB Acquisition.
Business of this Annual Report on Form 10-K for additional information regarding the capital requirements under the Dodd-Frank Act and Basel III. 31 We are required to submit an annual capital plan to the Federal Reserve and to be subject to supervisory stress testing under the Federal Reserve’s CCAR process on a biennial basis as a Category IV banking organization, subject to the applicable transition periods.
Business of this Annual Report on Form 10-K for additional information regarding the capital requirements under the Dodd-Frank Act and Basel III. 37 We are required to submit an annual capital plan to the Federal Reserve and to be subject to supervisory stress testing under the Federal Reserve’s CCAR process on a biennial basis as a Category IV banking organization, subject to the applicable transition periods.
Our monitoring of the financial conditions of financial institutions with which we have credit exposure is inherently limited and may be inadequate, and transactions with those institutions expose us to credit risk through the possibility of counterparty default. 27 Market Risks Unfavorable economic or political conditions, as considered through a range of metrics, have and could continue to adversely affect our business.
Our monitoring of the financial conditions of financial institutions with which we have credit exposure is inherently limited and may be inadequate, and transactions with those institutions expose us to credit risk through the possibility of counterparty default. 33 Market Risks Unfavorable economic or political conditions, as considered through a range of metrics, have and could continue to adversely affect our business.
Such additional regulation and supervision may limit our ability to pursue business opportunities and result in a material adverse impact on our financial condition and results of operations. 32 Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways.
Such additional regulation and supervision may limit our ability to pursue business opportunities and result in a material adverse impact on our financial condition and results of operations. 38 Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways.
As an integral part of their examination process, our banking regulators periodically review the ACL and may require us to increase it by recognizing additional provisions for credit losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries.
As an integral part of their examination process, our banking regulators periodically review the ALLL and may require us to increase it by recognizing additional provisions for credit losses charged to expense or to decrease the allowance by recognizing loan charge-offs, net of recoveries.
If we fail to develop and maintain at a reasonable cost the systems and processes necessary to comply with the standards and requirements imposed by these rules, it could have a material adverse effect on our business, financial condition or results of operations.
In addition, if we fail to develop and maintain at a reasonable cost the systems and processes necessary to comply with the standards and requirements imposed by these rules, it could have a material adverse effect on our business, financial condition or results of operations.
The fierce competitive pressures that we face adversely affect pricing for many of our products and services. 19 Additionally, technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods without involving banks.
The fierce competitive pressures that we face adversely affect pricing for many of our products and services. 24 Additionally, technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods without involving banks.
The CFPB has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that has resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB.
The CFPB has increased enforcement staff and initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that has resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB.
The failure of a critical third party vendor to provide key components of our business infrastructure could substantially disrupt our business and cause us to incur significant expense while harming our relationships with our customers. The quality of our data could deteriorate and cause financial or reputational harm to the Bank.
The failure of a critical third-party vendor to provide key components of our business infrastructure could substantially disrupt our business and cause us to incur significant expense while harming our relationships with our customers. The quality of our data could deteriorate and cause financial or reputational harm to FCB.
Such events could impact our performance through fewer loans, reduced fee income and fewer deposits, each of which could result in reduced net income. 21 New technologies, and our ability to efficiently and effectively implement, market and deliver new products and services to our customers present competitive risks.
Such events could impact our performance through fewer loans, reduced fee income and fewer deposits, each of which could result in reduced net income. 26 New technologies, and our ability to efficiently and effectively implement, market and deliver new products and services to our customers present competitive risks.
The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and The Nasdaq, as well as numerous other more recently enacted statutes and regulations, including the Dodd-Frank Act, EGRRCPA, and regulations promulgated thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices, including the costs of completing our external audit and maintaining our internal controls.
The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and Nasdaq, as well as numerous other more recently enacted statutes and regulations, including the Dodd-Frank Act, Economic Growth Act, and regulations promulgated thereunder, have increased the scope, complexity and cost of corporate governance and reporting and disclosure practices, including the costs of completing our external audit and maintaining our internal controls.
These choice of forum provisions do not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
These choice of forum provisions do not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any actions brought under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As interest rates rise, our interest expense will increase and our net interest margins may decrease, negatively impacting our performance and our financial condition. To the extent banks and other financial services providers compete for interest-bearing deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates.
As interest rates rise, our interest expense will increase and our net interest margin (“NIM”) may decrease, negatively impacting our performance and our financial condition. To the extent banks and other financial services providers compete for interest-bearing deposit accounts through higher interest rates, our deposit base could be reduced if we are unwilling to pay those higher rates.
The federal bank regulatory agencies have proposed regulations that would enhance cyber risk management standards, which would apply to a wide range of LFIs and their third-party service providers, including us and FCB, and would focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience, and situational awareness.
The federal banking agencies have proposed regulations that would enhance cyber risk management standards, which apply to a wide range of LFIs and their third-party service providers, including us and FCB, and would focus on cyber risk governance and management, management of internal and external dependencies, and incident response, cyber resilience, and situational awareness.
If we decide to compete with those higher interest rates, our cost of funds could increase and our net interest margins could be reduced, dependent on the timing and sensitivities of our interest-earning assets and interest-bearing liabilities. Additionally, higher interest rates may impact our ability to originate new loans.
If we decide to compete with those higher interest rates, our cost of funds could increase and our NIM could be reduced, dependent on the timing and sensitivities of our interest-earning assets and interest-bearing liabilities. Additionally, higher interest rates may impact our ability to originate new loans.
In the United States, our equipment leasing operations, including for railcars, ships, and other equipment, are subject to rules and regulations relating to safety, operations, maintenance and mechanical standards promulgated by various federal and state agencies and industry organizations, including the United States Department of Transportation, the Federal Railroad Administration, the Association of American Railroads, the Maritime Administration, the United States Coast Guard, and the United States Environmental Protection Agency.
In the United States, our equipment financing and leasing operations, including for our portfolio of railcars, maritime lending and other equipment financing and leasing, are subject to rules and regulations relating to safety, operations, maintenance and mechanical standards promulgated by various federal and state agencies and industry organizations, including the United States Department of Transportation, the Federal Railroad Administration, the Association of American Railroads, the Maritime Administration, the United States Coast Guard, and the United States Environmental Protection Agency.
These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to anti-money laundering, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, regulatory reporting, and community reinvestment, In addition, we must comply with other regulations that protect the deposit insurance fund and the stability of the United States financial system, including laws and regulations that, among other matters, prescribe minimum capital requirements, impose limitations on our business activities and investments, limit the dividends or distributions that we can pay, restrict the ability of our bank subsidiaries to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP.
These broad-based laws, rules, and regulations include, but are not limited to, expectations relating to AML, lending limits, client privacy, fair lending, prohibitions against unfair, deceptive or abusive acts or practices, regulatory reporting, and community reinvestment, In addition, we must comply with other regulations that protect the DIF and the stability of the United States financial system, including laws and regulations that, among other matters, prescribe minimum capital requirements, impose limitations on our business activities and investments, limit the dividends or distributions that we can pay, restrict the ability of our bank subsidiaries to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP.
In particular, a significant amount of our business is concentrated in North Carolina, South Carolina, California, Texas, New York and Florida, including areas where our facilities and retail and commercial customers have been and in the future could be impacted by hurricanes and flooding, earthquakes or wildfires.
In particular, a significant amount of our business is concentrated in North Carolina, South Carolina, California, Texas, New York and Florida, including areas where our facilities and retail and commercial customers have been and in the future could be impacted by hurricanes and flooding, earthquakes wildfires, and rising sea levels.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors, including expectations of financial and operating results, actual operating results, actions of institutional stockholders, speculation in the press or the investment community, market perception of acquisitions, including the CIT Merger, rating agency upgrades or downgrades, stock prices of other companies that are similar to us, general market expectations related to the financial services industry and the potential impact of government actions affecting the financial services industry.
Excluding the impact of liquidity, the market price of our common stock can fluctuate widely in response to other factors, including expectations of financial and operating results, actual operating results, actions of institutional stockholders, speculation in the press or the investment community, market perception of acquisitions, including the CIT Merger and the SVBB Acquisition, rating agency upgrades or downgrades, the anticipated or actual incurrence of additional debt, stock prices of other companies that are similar to us, general market expectations related to the financial services industry and the potential impact of government actions affecting the financial services industry.
Fraudulent activity that we have been and are likely to continue to be exposed to can come in many forms, including debit card/credit card fraud, check fraud, wire fraud, electronic scanning devices attached to ATM machines, social engineering, digital fraud and phishing attacks to obtain personal information and fraudulent impersonation of our customers through the use of falsified or stolen credentials.
Fraudulent activity that we have been and are likely to continue to be exposed to can come in many forms, including debit card/credit card fraud, check fraud, wire fraud, electronic scanning devices attached to ATM machines, social engineering, digital fraud, malware, and phishing, smishing, or vishing attacks to obtain personal information and fraudulent impersonation of our customers through the use of falsified documents, fake identification, or stolen credentials.
Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that a stockholder might consider to be in their best interests. We are a banking holding company incorporated in the state of Delaware.
Certain provisions in our Certificate of Incorporation and Bylaws may prevent a change in management or a takeover attempt that a stockholder might consider to be in their best interests. We are a BHC incorporated in the state of Delaware.
Additionally, the fact that the Holding family and entities related to various family members hold or control shares representing approximately 50%, and in the past have held or controlled shares representing more than 50%, of the voting power of our common stock may discourage potential takeover attempts and bids for our common stock at a premium over market price. 20 Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders.
Additionally, the fact that the Holding family and entities related to various family members hold or control shares representing approximately 50% of the voting power of our common stock may discourage potential takeover attempts and bids for our common stock at a premium over market price. 25 Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders.
Our internal controls that are intended to safeguard and maintain our operational and organizational infrastructure and information have inherent limitations and may not be successful. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control.
Our internal controls that are intended to safeguard and maintain our operational and organizational infrastructure and information, as well as oversee and monitor control effectiveness, have inherent limitations and may not be successful. We may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control.
In 2022, we collected approximately $48 million in overdraft and NSF fees (down from approximately $55 million in 2021), due to the reduction in our fees for overdrafts and elimination of NSF fees announced in January 2022. In 2021, certain members of Congress and the leadership of the CFPB expressed a heightened interest in bank overdraft and NSF programs.
In 2023, we collected approximately $42 million in overdraft fees (down from approximately $49 million in 2022), due to the reduction in our fees for overdrafts and elimination of NSF fees announced in January 2022. In 2021, certain members of Congress and the leadership of the CFPB expressed a heightened interest in bank overdraft and NSF programs.
While we maintain access to these non-core funding sources, some sources are dependent on the availability of collateral as well as the counterparty’s willingness and ability to lend. Failure to access sources of liquidity may affect our ability to pay deposits and fund our operations.
While we maintain access to these non-core funding sources, including the Advance Facility Agreement, these sources are dependent on the availability of collateral as well as the counterparty’s willingness and ability to lend. Failure to access sources of liquidity may affect our ability to pay deposits and fund our operations.
These provisions, as well as provisions of the BHC Act and other relevant statutes and regulations that require advance notice and applications for regulatory approval of changes in control of banks and bank holding companies, may discourage bids for our common stock at a premium over market price, adversely affecting the price that could be received by our stockholders for our common stock.
These provisions, as well as provisions of the BHCA and other relevant statutes and regulations that require advance notice and applications for regulatory approval of changes in control of banks and BHCs, may discourage bids for our common stock at a premium over market price, adversely affecting the price that could be received by our stockholders for our common stock.
As a result, a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stability and market value of other financial institutions, as well as interest rate sensitivity to economic and market conditions.
Our investment securities portfolio contains certain equity securities and corporate bonds of other financial institutions. As a result, a portion of our investment securities portfolio is subject to fluctuation due to changes in the financial stability and market value of other financial institutions, as well as interest rate sensitivity to economic and market conditions.
Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on accounting principles generally accepted in the United States (“GAAP”). The rate at which those discounts are accreted is unpredictable and the result of various factors including prepayments and estimated credit losses.
Fair value discounts that are recorded at the time an asset is acquired are accreted into interest income based on United States generally accepted accounting principles (“GAAP”). The rate at which those discounts are accreted is unpredictable and the result of various factors including prepayments and estimated credit losses. Post-acquisition credit deterioration results in the recognition of provision expense.
However, required changes to our business practices, policies, or systems may also adversely impact our operating results. We face heightened compliance risks related to certain specialty commercial business lines. Our rail business line is subject to various laws, rules and regulations administered by authorities in various jurisdictions.
We acknowledge that changes to our business practices, policies, or systems, unplanned or otherwise, may also adversely impact our operating results. 39 We face heightened compliance risks related to certain specialty commercial business lines. Our rail business line is subject to various laws, rules and regulations administered by authorities in various jurisdictions.
As of December 31, 2022, approximately 34.1% of the outstanding shares of Class B common stock were owned and entitled to be voted by our directors and executive officers and certain of their affiliates.
As of December 31, 2023, approximately 30% of the outstanding shares of Class B common stock were owned and entitled to be voted by our directors and executive officers and certain of their affiliates.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system as a whole, not stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes.
Banking regulations are primarily intended to protect depositors’ funds, amounts held within the DIF, and the banking system as a whole, not stockholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, growth, and governance and controls, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes.
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including, but not limited to, employee fraud, customer fraud and control lapses in bank operations and information technology.
Safely conducting and growing our business requires that we create and maintain an appropriate operational and organizational control infrastructure. Operational risk can arise in numerous ways, including, but not limited to, employee fraud, customer fraud, control lapses in bank operations and information technology, and pace of change brought about by organizational growth.
We categorize risks into the following areas, and the principal risks and uncertainties that management believes make an investment in us speculative or risky are summarized within their respective areas: • Strategic Risks: The risks to our earnings or capital arising from our business decisions or improper implementation of those decisions. ▪ We may be adversely affected by risks associated with completed, pending or any potential future acquisitions. ▪ Our future results will suffer if we do not effectively manage our expanded operations following the CIT Merger . • Operational Risks: The risks of loss resulting from inadequate or failed processes, people and systems or from external events. ▪ We face significant operational risks in our businesses and may fail to maintain appropriate operational infrastructure and oversight. ▪ A cyberattack, information or security breach, or a technology outage of ours or of a third party could adversely affect our ability to conduct our business, manage our exposure to risk, result in the disclosure or misuse of confidential customer or employee data or proprietary information, and increase our costs to maintain and update our operational and security systems and infrastructure.
We categorize risks into the following areas, and the principal risks and uncertainties that management believes make an investment in us speculative or risky are summarized within their respective areas: • Strategic Risks: The risks to our earnings or capital arising from our business decisions or improper implementation of those decisions. ▪ We may be adversely affected by risks associated with completed, pending or any potential future acquisitions. ▪ We encounter significant competition that may reduce our market share and profitability. • Operational Risks: The risks of loss resulting from inadequate or failed processes, staffing and systems or from external events. ▪ We face significant operational risks in our businesses and may fail to maintain appropriate operational infrastructure and oversight. ▪ A cyberattack, information or security breach, or a technology outage of ours or of a third-party could adversely affect our ability to conduct our business, manage our exposure to risk, result in the disclosure or misuse of confidential customer or employee data or proprietary information, and increase our costs to maintain and update our operational and security systems and infrastructure.
Our goodwill could become impaired in the future. At December 31, 2022, we had $346 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value.
At December 31, 2023, we had $346 million of goodwill recorded as an asset on our balance sheet. We test goodwill for impairment at least annually, comparing the estimated fair value of a reporting unit with its net book value.
Failure to comply with these laws, rules and regulations could result in sanctions by regulatory agencies (including potential limitations on our future acquisitions or operations, or requirements to forfeit assets), civil money penalties, or reputation damage.
Failure to comply with these laws, rules and regulations could result in sanctions by regulatory agencies (including potential limitations on our future acquisitions or operations, or requirements to forfeit assets), civil money penalties, or reputation damage. Additionally, we may incur significant expenses in our efforts to comply with these laws, rules and regulations.
Any failure to manage such credit risks may materially adversely affect our business, consolidated results of operations and financial condition because it may lead to loans that we make not being paid back in part or in full on a timely basis or at all. 26 Our allowance for credit losses may prove to be insufficient to absorb losses in our credit portfolios.
Any failure to manage such credit risks may materially adversely affect our business, consolidated results of operations and financial condition because it may lead to loans that we make not being paid back in part or in full on a timely basis or at all.
In addition, the reserve related to unfunded commitments may not be sufficient to cover actual losses, and future provisions for such losses could also materially and adversely affect our operating results and are also subject to significant uncertainties and fluctuations.
In addition, the reserve related to off-balance sheet credit exposures may not be sufficient to cover actual losses, and future provisions for such losses could also materially and adversely affect our operating results and are also subject to significant uncertainties and fluctuations.
Malicious action by an employee could result in harm to our customers or the Bank. Several high-profile cases of employee misconduct have occurred at other financial institutions. Such an event may lead to large regulatory fines, as well as an erosion in customer confidence, which could impact our financial and competitive position.
Several high-profile cases of employee misconduct have occurred at other financial institutions. Such an event may lead to large regulatory fines, as well as an erosion in customer confidence, which could impact our financial and competitive position.
Thus far, this includes declines in fee income and impacts on the fair value of our equity securities, but could create additional adverse impacts to provision for credit losses and declines in demand for our products and services. We conduct limited business operations in certain foreign jurisdictions, and we engage in certain cross border lending and leasing transactions.
Thus far, this includes higher unrealized losses on investment securities, but could create additional adverse impacts to provision for credit losses and declines in demand for our products and services. We conduct limited business operations in certain foreign jurisdictions, and we engage in certain cross border lending and leasing transactions.
We are subject to a variety of risks arising from environmental, social and governance (“ESG”) matters. ESG matters include, but are not limited to, climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving our personnel, customers and third parties with whom we otherwise do business.
ESG matters include, but are not limited to, climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving our personnel, customers and third parties with whom we otherwise do business.
These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results. The market price of our common stock may be volatile due to its relative illiquidity and other factors.
These tests may result in a write-off of goodwill deemed to be impaired, which could have a significant impact on our financial results. 35 The market price of our common stock may be volatile.
The federal banking agencies have issued joint guidance on executive compensation designed to help ensure that a banking organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization.
Our compensation practices are subject to review and oversight by the Federal Reserve, the FDIC and other regulators. The federal banking agencies have issued joint guidance on executive compensation designed to help ensure that a banking organization’s incentive compensation policies do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization.
For example, the closing price per share of our Class A common stock, par value $1 per share (“Class A common stock”) on the Nasdaq Global Select Market ranged from a low of $598.01 to a high of $947.71 during the year ended December 31, 2022.
For example, the closing price per share of our Class A common stock, par value $1 per share (“Class A common stock”) on the Nasdaq Global Select Market ranged from a low of $509.06 to a high of $1,512.07 during the year ended December 31, 2023.
In addition, financially motivated attacks remain a challenge from a cybercrime perspective due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise.
In addition, financially motivated attacks remain a challenge from a cybercrime perspective due to the increased sophistication and activities of threat actors, which may include organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage.
If the market value of leased equipment decreases at a rate greater than we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment, recession or other adverse economic conditions impacting supply and demand, it could adversely affect the current values or the residual values of such equipment.
If the market value of leased equipment decreases at a rate greater than we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment, recession or other adverse economic conditions impacting supply and demand, it could adversely affect the current values or the residual values of such equipment. 41 Financial Reporting Risks Accounting standards may change and increase our operating costs or otherwise adversely affect our results.
Failure to develop and maintain an adequate liquidity risk management and monitoring process may lead to adverse regulatory action (including possible restrictions on our activities). 30 Fee revenues from overdraft and nonsufficient funds programs may be subject to increased supervisory scrutiny. Revenues derived from transaction fees associated with overdraft and nonsufficient funds (“NSF”) programs is included in non-interest income.
Failure to develop and maintain an adequate liquidity risk management and monitoring process may lead to adverse regulatory action (including possible restrictions on our activities), along with inadequate liquidity. 36 Fee revenues from overdraft and NSF programs may be subject to increased supervisory scrutiny. Revenues derived from transaction fees associated with overdraft and NSF programs are included in noninterest income.
Asset Risks We may not be able to realize our entire investment in the equipment that we lease to our customers. Our loans and leases include a significant portion of leased equipment, including, but not limited to, railcars and locomotives, technology and office equipment and medical equipment.
Asset Risks We may not be able to realize our entire investment in the equipment that we lease to our customers. Our portfolio includes leased equipment, including, but not limited to, railcars and locomotives, technology and office equipment and medical equipment.
We may be unsuccessful in retaining our current executive officers or other key personnel, or hiring additional key personnel to assist in executing our growth, expansion and acquisition strategies, all of which could cause those strategies to fail or be less successful than they would otherwise be. 24 Our compensation practices are subject to review and oversight by the Federal Reserve, the FDIC and other regulators.
We may be unsuccessful in retaining our current executive officers or other key personnel, or hiring additional key personnel to assist in executing our growth, expansion and acquisition strategies, all of which could cause those strategies to fail or be less successful than they would otherwise be.
For example, after reporting $50 billion or more in weighted short-term wholesale funding, we will be subject to modified LCR and NSFR requirements, and we will be subject to full LCR and NSFR requirements after reporting $75 billion or more in weighted short-term wholesale funding in addition to other enhanced prudential standards as a Category III banking organization.
For example, after reporting $50 billion or more in weighted short-term wholesale funding, we will be subject to modified LCR and NSFR requirements, and we will be subject to full LCR and NSFR requirements after reporting $75 billion or more in weighted short-term wholesale funding, nonbank assets, off-balance sheet exposure, or cross-jurisdictional activities in addition to other enhanced prudential standards as a Category III banking organization (or a Category II banking organization in the case of cross-jurisdictional assets).
In addition, volatility in the price of, and demand for oil and gas may have negative effects on not only our loan exposures in the exploration and production section, but may also lead to a decreased demand for our railcars.
In addition, volatility in the price of, and demand for oil and gas may have negative effects on not only our loan exposures in the exploration and production section, but may also lead to a decreased demand for our railcars. Deteriorating credit quality and our reliance on junior liens may adversely impact our business and our results of operations.
However, in circumstances where our ability to generate needed liquidity is impaired, we need access to non-core funding such as borrowings from the Federal Home Loan Bank and the Federal Reserve, Federal Funds purchased lines and brokered deposits.
In circumstances where our ability to generate needed liquidity is impaired, we need access to other sources of funding such as borrowings from the FHLBs and the Federal Reserve, Federal Funds purchased lines, and brokered deposits.
For example, in 2022, the SEC proposed new climate disclosure rules, which if adopted, would require new climate-related disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements.
For example, on March 12, 2022, the SEC proposed new climate disclosure rules, which if adopted, would require new climate-related disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements. Federal banking agencies have also issued principles related to climate risk management.
Because of the uncertainty surrounding management’s judgments and the estimates pertaining to these matters, we may be required to adjust accounting policies or restate prior period financial statements. Refer to “Critical Accounting Estimates” included in Item 7.
Because of the uncertainty surrounding management’s judgments and the estimates pertaining to these matters, we may be required to adjust accounting policies or restate prior period financial statements. Refer to “Critical Accounting Estimates” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.
Increases in interest rates could adversely affect the ability of our borrowers to meet higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs. 28 We cannot control or predict with certainty changes in interest rates.
Increases in interest rates could adversely affect the ability of our borrowers to meet higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs. We cannot control or predict with certainty changes in interest rates. The forecasts of future NII by our interest rate risk monitoring system are estimates and may be inaccurate.
We have developed an executive officer succession plan, but it may be ineffective, or we may fail in implementing it.
We have developed an executive officer succession plan intended to avoid significant disruptions in our business, but it may be ineffective, or we may fail in implementing it.
We may not be able to effectively implement new technology-driven products and services that allow us to remain competitive or be successful in marketing these products and services to our customers.
In addition, our utilization of new technologies may also create risks that our customers may not be ready for or may not adopt such technologies. We may not be able to effectively implement new technology-driven products and services that allow us to remain competitive or be successful in marketing these products and services to our customers.
Our existing debt, together with any future incurrence of additional indebtedness and preferred stock, could have consequences that are materially adverse to our business, financial condition or results of operations.
Our existing debt, together with any future incurrence of additional indebtedness, including under the Advance Facility Agreement and the Purchase Money Note, could have consequences that are materially adverse to our business, financial condition or results of operations.
Real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequately collateralized over time. Our reliance on junior liens is concentrated in our consumer revolving mortgage loan portfolio.
For example, real property collateral values may be impacted by economic conditions in the real estate market and may result in losses on loans that, while adequately collateralized at the time of origination, become inadequately collateralized over time.
Any failure to maintain effective internal controls or to implement any necessary improvement of our internal controls in a timely manner could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, each of which could have a material adverse effect on our results of operations and financial condition and the market value of our common stock.
Any failure to maintain effective internal controls or to implement any necessary improvement of our internal controls in a timely manner could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, each of which could have a material adverse effect on our results of operations and financial condition and the market value of our common stock. 42 The SVBB Acquisition has been accounted for under the purchase method of accounting and is based upon a preliminary valuation that involves significant estimates that are subject to change.
Following the CIT Merger, the size and geographic and operational scope of our business has increased significantly. The CIT Merger more than doubled our asset size, increased the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged and expanded our geographic scope to new geographic areas.
The SVBB Acquisition, like the CIT Merger, increased the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged and expanded our geographic scope to new areas.
These effects include the direct impact of disease as well as secondary effects on third party vendors, including pandemic-related changes to how vendors are engaged, onboarded and monitored.
Our monitoring of significant vendor risks, including the financial stability of critical vendors, may be inadequate and incomplete. These effects include the direct impact of disease as well as secondary effects on third-party vendors, including pandemic-related changes to how vendors are engaged, onboarded and monitored.
A debt default or further downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could also adversely affect the ability of the U.S. government to support the financial stability of Fannie Mae, Freddie Mac, and the FHLBs.
A debt default or further downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could also adversely affect the ability of the U.S. government to support the financial stability of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as Fannie Mae and Freddie Mac, respectively, as well as the Federal Home Loan Banks (“FHLBs”).
Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K. 35 Our business is highly quantitative and requires widespread use of financial models for day-to-day operations; these models may produce inaccurate predictions that significantly vary from actual results, and we may rely on these inaccurate predictions in making decisions that ultimately adversely affect our business.
Our business is highly quantitative and requires widespread use of financial models for day-to-day operations; these models may produce inaccurate predictions that significantly vary from actual results, and we may rely on these inaccurate predictions in making decisions that ultimately adversely affect our business. We rely on qualitative and quantitative models to measure risks and to estimate certain financial values.
To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to us, we would expect to experience increased compliance costs and other compliance-related risks.
To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to us, we would expect to experience increased compliance costs and other compliance-related risks. Moreover, this could result in increased management time and attention to ensure we are compliant with the regulations and expectations.
As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyberattack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us.
As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, an event that materially degrades, or disrupts systems of one or more financial entities could have a material impact on counterparties or other market participants, including us.
Such fluctuations could reduce the value of our investment securities portfolio and consequently have an adverse effect on our results of operations. We have seen volatile earnings impacts related to the fair value of equity securities in recent periods. We may be adversely impacted by the transition from LIBOR as a reference rate.
Such fluctuations could reduce the value of our investment securities portfolio and consequently have an adverse effect on our results of operations. We have seen volatile earnings impacts related to the fair value of equity securities in recent periods. The value of our goodwill may decline in the future. Our goodwill could become impaired in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe addition of CIT primarily increased leased space, as CIT occupied office space and a branch network, the vast majority of which was leased. As of December 31, 2022, FCB operated 582 branches and offices throughout the Southeast, Mid-Atlantic, Midwest and Western United States. FCB owns many of our branch buildings and leases other facilities from third parties.
Biggest changeThe addition of SVBB in 2023 and CIT in 2022 primarily increased leased space, as both occupied office space and a branch network. As of December 31, 2023, FCB operated more than 600 branches and offices throughout the United States. FCB owns many of our branch buildings and leases other facilities from third parties.
We believe that these properties are in good condition and well maintained, and are suitable and adequate for our business needs. Additional information relating to leased office space is set forth in Note 6 — Leases, of BancShares’ Notes to Consolidated Financial Statements.
We believe that these properties are in good condition and well maintained, and are suitable and adequate for our business needs. Additional information relating to leased office space is set forth in Note 6—Leases and additional information relating to premises and equipment is set forth in Note 7—Premises and Equipment, of BancShares’ Notes to Consolidated Financial Statements.
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Additional information relating to premises and equipment is set forth in Note 7 — Premises and Equipment, of BancShares’ Notes to Consolidated Financial Statements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions exist that would be material to BancShares’ consolidated financial statements. Additional information related to legal proceedings is set forth in Note 24 — Commitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements. 36 PART II
Biggest changeAlthough the amount of any ultimate liability with respect to those matters cannot be determined, in the opinion of management, no legal actions currently exist that would be material to BancShares’ consolidated financial statements. Additional information relating to legal proceedings is set forth in Note 24—Commitments and Contingencies, of BancShares’ Notes to Consolidated Financial Statements. 45 PART II
Item 3. Legal Proceedings The Parent Company’s and various subsidiaries are named as defendants in various legal actions arising from our normal business activities in which damages in various amounts are claimed.
Item 3. Legal Proceedings The Parent Company and certain of its subsidiaries are named as defendants in various legal actions arising from our normal business activities in which damages in various amounts were claimed.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAll 1,500,000 shares of Class A common stock under the program were repurchased during 2022, thereby completing the share repurchase program. 37 The graph and table below compare the cumulative total shareholder return (“CTSR”) of our Class A common stock to selected industry and broad-market indices.
Biggest changeThere were no repurchases of our stock during the three months ended December 31, 2023. The graph and table below compare the cumulative total shareholder return (“CTSR”) of our Class A common stock to selected industry and broad-market indices.
Each trend line assumes $100 was invested on December 31, 2017, and dividends were reinvested for additional shares.
Each trend line assumes $100 was invested on December 31, 2018, and dividends were reinvested for additional shares.
As of February 17, 2023, there were aggregates of 1,052 and 142 holders of record and individual participants in securities position listings with respect to the Class A common stock and Class B common stock, respectively. The market volume for Class B common stock is extremely limited.
As of February 16, 2024, there were aggregates of 986 and 134 active holders of record and individual participants in securities position listings with respect to the Class A common stock and Class B common stock, respectively. The market volume for Class B common stock is extremely limited.
The average monthly trading volume for the Class A common stock was 2,235,497 shares during the fourth quarter of 2022 and 2,567,371 shares for the year ended December 31, 2022. The Class B common stock monthly trading volume averaged 617 shares during the fourth quarter of 2022 and 1,381 shares for the year ended December 31, 2022.
The average monthly trading volume for the Class A common stock was 1,423,077 shares during the fourth quarter of 2023 and 2,468,115 shares for the year ended December 31, 2023. The Class B common stock monthly trading volume averaged 1,150 shares during the fourth quarter of 2023 and 1,838 shares for the year ended December 31, 2023.
The performance graph represents past performance and should not be considered to be an indication of future performance. 2017 2018 2019 2020 2021 2022 FCNCA $ 100 $ 94 $ 133 $ 144 $ 208 $ 190 Nasdaq US Benchmark TR 100 95 124 150 189 152 KBW Nasdaq Bank Total Return Index 100 82 112 100 139 109
The performance graph represents past performance and should not be considered to be an indication of future performance. 2018 2019 2020 2021 2022 2023 FCNCA $ 100 $ 142 $ 153 $ 221 $ 203 $ 379 Nasdaq US Benchmark TR 100 131 159 200 161 203 KBW Nasdaq Bank Total Return Index 100 136 122 169 133 132
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The table below summarizes our stock repurchase activity during the fourth quarter of 2022.
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ISSUER PURCHASES OF EQUITY SECURITIES Class A Common Stock Total Number of Class A Shares Repurchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plan Maximum Number of Shares that May Yet be Repurchased Under Plan Repurchases from October 1 - 31, 2022 472,586 $ 842.61 472,586 — Repurchases from November 1 - 30, 2022 — $ — — — Repurchases from December 1 - 31, 2022 — $ — — — Total 472,586 $ 842.61 472,586 — On July 26, 2022, the Board authorized a share repurchase program for up to 1,500,000 shares of Class A common stock for the period commencing August 1, 2022 through July 28, 2023.
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Under the authorized share repurchase program, shares of Class A common stock were authorized to be repurchased from time to time on the open market or in privately negotiated transactions, including through a Rule 10b5-1 plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(2) The balance and rate presented is calculated net of average credit balances of factoring clients. 44 dollars in millions Year ended December 31 2021 2020 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) $ 32,860 $ 1,295 3.91 % $ 31,605 $ 1,333 4.18 % $ 52 $ (90) $ (38) Total investment securities 10,611 145 1.37 % 9,055 144 1.60 % 23 (22) 1 Interest-earning deposits at banks 8,349 11 0.13 % 2,691 7 0.25 % 9 (5) 4 Total interest-earning assets (2) $ 51,820 $ 1,451 2.78 % $ 43,351 $ 1,484 3.40 % $ 84 $ (117) $ (33) Operating lease equipment, net $ — $ — Cash and due from banks 350 345 Allowance for credit losses (202) (211) All other noninterest-earning assets 3,015 2,536 Total assets $ 54,983 $ 46,021 Interest-bearing deposits: Checking with interest $ 11,258 $ 6 0.05 % $ 8,923 $ 6 0.07 % $ 2 $ (2) $ — Money market 9,708 10 0.10 % 7,821 23 0.29 % 4 (17) (13) Savings 3,847 1 0.03 % 2,937 1 0.04 % — — — Time deposits 2,647 16 0.63 % 3,344 37 1.11 % (7) (14) (21) Total interest-bearing deposits 27,460 33 0.12 % 23,025 67 0.29 % (1) (33) (34) Borrowings: Securities sold under customer repurchase agreements 660 1 0.20 % 632 1 0.25 % — — — Short-term FHLB borrowings — — — % 50 1 2.03 % (1) — (1) Short-term borrowings 660 1 0.20 % 682 2 0.38 % (1) — (1) Federal Home Loan Bank borrowings 648 8 1.28 % 642 9 1.34 % (1) — (1) Senior unsecured borrowings — — — % — — — % — — — Subordinated debt 498 15 3.35 % 446 16 3.60 % — (1) (1) Other borrowings 80 4 1.23 % 99 2 1.75 % 3 (1) 2 Long-term borrowings 1,226 27 2.12 % 1,187 27 2.22 % 2 (2) — Total borrowings 1,886 28 1.45 % 1,869 29 1.55 % 1 (2) (1) Total interest-bearing liabilities $ 29,346 $ 61 0.21 % $ 24,894 $ 96 0.38 % $ — $ (35) $ (35) Noninterest-bearing deposits $ 20,798 $ 16,721 Credit balances of factoring clients — — Other noninterest-bearing liabilities 378 452 Stockholders' equity 4,461 3,954 Total liabilities and stockholders' equity $ 54,983 $ 46,021 Interest rate spread (2) 2.57 % 3.02 % Net interest income and net yield on interest-earning assets (2) $ 1,390 2.66 % $ 1,388 3.17 % (1), (2) See footnotes to previous table.
Biggest changeThis 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 NII was not materially different from NII, therefore we present NII in our analysis. 53 Table 5 Average Balances and Rates dollars in millions Year Ended December 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) $ 117,708 $ 8,187 6.95 % $ 66,303 $ 2,953 4.45 % $ 3,035 $ 2,199 $ 5,234 Investment securities 23,112 640 2.77 19,166 354 1.85 84 202 286 Securities purchased under agreements to resell 161 8 5.20 — — — 8 — 8 Interest-earning deposits at banks 29,790 1,556 5.22 7,726 106 1.38 733 717 1,450 Total interest-earning assets (2) $ 170,771 $ 10,391 6.08 % $ 93,195 $ 3,413 3.66 % $ 3,860 $ 3,118 $ 6,978 Operating lease equipment, net $ 8,495 $ 7,982 Cash and due from banks 879 512 Allowance for loan and lease losses (1,495) (875) All other noninterest-earning assets 15,631 8,101 Total assets $ 194,281 $ 108,915 Interest-bearing deposits Checking with interest $ 22,296 $ 402 1.80 % $ 16,323 $ 29 0.18 % $ 14 $ 359 $ 373 Money market 27,567 618 2.24 23,949 125 0.52 22 471 493 Savings 26,121 963 3.69 14,392 117 0.81 158 688 846 Time deposits 14,946 514 3.44 8,934 64 0.72 68 382 450 Total interest-bearing deposits 90,930 2,497 2.75 63,598 335 0.53 262 1,900 2,162 Borrowings: Securities sold under customer repurchase agreements 455 2 0.35 590 1 0.19 — 1 1 Short-term FHLB borrowings 108 5 4.79 824 28 3.35 (32) 9 (23) Short-term borrowings 563 7 1.20 1,414 29 2.03 (32) 10 (22) Federal Home Loan Bank borrowings 2,307 120 5.22 1,414 43 3.01 35 42 77 Senior unsecured borrowings 608 14 2.21 1,348 25 1.89 (15) 4 (11) Subordinated debt 1,043 39 3.65 1,056 33 3.15 — 6 6 Other borrowings 27,322 1,002 3.67 64 2 3.22 1,000 — 1,000 Long-term borrowings 31,280 1,175 3.75 3,882 103 2.66 1,020 52 1,072 Total borrowings 31,843 1,182 3.71 5,296 132 2.49 988 62 1,050 Total interest-bearing liabilities $ 122,773 $ 3,679 3.00 % $ 68,894 $ 467 0.68 % $ 1,250 $ 1,962 $ 3,212 Noninterest-bearing deposits $ 39,660 $ 26,318 Credit balances of factoring clients 1,166 1,153 Other noninterest-bearing liabilities 12,745 2,274 Stockholders' equity 17,937 10,276 Total liabilities and stockholders’ equity $ 194,281 $ 108,915 Interest rate spread (2) 3.08 % 2.98 % Net interest income and net yield on interest-earning assets (2) $ 6,712 3.92 % $ 2,946 3.16 % (1) Loans and leases include Non-PCD and Purchase Credit Deteriorated (“PCD”) loans, nonaccrual loans, and loans held for sale.
The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. 56 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.
The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans. 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.
We evaluate and monitor interest rate risk primarily through two metrics. • Net Interest Income Sensitivity (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; 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.
We evaluate and monitor interest rate risk primarily through two metrics. • Net Interest Income Sensitivity (“NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; and • Economic Value of Equity (“EVE”) 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.
The discounted cash flow methodology considered discount rate, client attrition rates, cost of the deposit base, reserve requirements, net maintenance cost, and an estimate of the cost associated with alternative funding sources. In our valuation analysis, the discount rate had the most significant impact on the valuation.
The discounted cash flow methodology considered discount rate, client attrition rate, cost of the deposit base, reserve requirements, net maintenance cost, and an estimate of the cost associated with alternative funding sources. In our valuation analysis, the attrition rate had the most significant impact on the valuation.
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.
BancShares has been assessing the emerging impacts of the international tensions that could impact the economy and exacerbate headwinds of 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.
The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the merger and other future events that are highly subjective in nature and may require adjustments. The fair values for these items are further discussed in Note 2 — Business Combinations.
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.
It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ACL because a wide variety of factors and inputs are considered in estimating the ACL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types.
It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ALLL because a wide variety of factors and inputs are considered in estimating the ALLL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types.
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.
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 our objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made under a long-term earnings optimization strategy.
For instance, in the Rail business, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates. 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.
For instance, in the Rail segment, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates. 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.
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.
While management utilizes its best judgment and information available, the ultimate adequacy of our ALLL 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 ALLL models.
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.
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 GAAP, along with a reconciliation between the GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful.
The ACL is calculated based on a variety of considerations, including, but not limited to actual net loss history of the various loan and lease pools, delinquency trends, changes in forecasted economic conditions, loan growth, estimated loan life, and changes in portfolio credit quality.
The ALLL is calculated based on a variety of considerations, including, but not limited to actual net loss history of the various loan and lease pools, delinquency trends, changes in forecasted economic conditions, loan growth, estimated loan life, and changes in portfolio credit quality.
ACL The ACL represents management’s best estimate of credit losses expected over the life of the loan or lease, adjusted for expected contractual payments and the impact of prepayment expectations. Estimates for loan and lease losses are determined by analyzing quantitative and qualitative components present as of the evaluation date.
ALLL The ALLL represents management’s best estimate of credit losses expected over the life of the loan or lease, adjusted for expected contractual payments and the impact of prepayment expectations. Estimates for loan and lease losses are determined by analyzing quantitative and qualitative components present as of the evaluation date.
Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Accounting policies related to the ACL are discussed in Note 1 — Significant Accounting Policies and Basis of Presentation.
Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Accounting policies related to the ALLL are discussed in Note 1—Significant Accounting Policies and Basis of Presentation.
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.
BancShares’ management 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 amounts are excluded from regulatory in the calculation of our regulatory capital ratios under current regulatory guidelines.
These amounts are excluded from the calculation of our regulatory capital ratios under current regulatory guidelines.
Throughout this MD&A, references to a specific “Note” refer to Notes to the Consolidated Financial Statements. Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2022, the reclassifications had no effect on stockholders’ equity or net income as previously reported.
Throughout this MD&A, references to a specific “Note” refer to Notes to the Consolidated Financial Statements. Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform with financial statement presentations for 2023, the reclassifications had no effect on stockholders’ equity or net income as previously reported.
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.
Congress adopted, as part of the Consolidated Appropriation Act of 2022, the Adjustable Interest Act (“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.
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.
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 certificates of deposit issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.
The credit risk of this industry concentration is mitigated through our underwriting policies which emphasize reliance on adequate borrower cash flow rather than underlying collateral value and our preference for financing secured by owner-occupied real property. Consumer Concentrations Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions.
The credit risk of this industry concentration is mitigated through our underwriting policies that emphasize reliance on adequate borrower cash flow, rather than underlying collateral value and our preference for financing secured by owner-occupied real property. 78 Consumer Loans Concentrations Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions.
Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes. ASSET RISK Asset risk is a form of price risk and is a primary risk of our leasing businesses related to the risk to earning of capital arising from changes in the value of owned leasing equipment.
Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes. ASSET RISK Asset risk is a form of price risk that is a primary risk of our leasing businesses. This relates to the risk of earning capital arising from changes in the value of owned leasing equipment.
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.
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.
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 2021-01 refines the scope of Accounting Standards Codification 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.
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.
Assessments have not identified material impacts to date, but those assessments will remain ongoing as the conditions continue 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.
See the “Non-GAAP Financial Measures” section of this MD&A 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.
See the “Non-GAAP Financial Measures” section for a reconciliation from the GAAP measure (rental income on operating leases) to the non-GAAP measure (adjusted rental income on operating lease equipment). Net income, rental income on operating leases, and adjusted rental income on operating lease equipment are utilized to measure the profitability of our Rail segment.
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.
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 derivatives to mitigate earnings volatility.
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.
These ASUs allow 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.
Current economic conditions and forecasts can change which could affect the anticipated amount of estimated credit losses and therefore the appropriateness of the ACL.
Current economic conditions and forecasts can change which could affect the anticipated amount of estimated credit losses and therefore the appropriateness of the ALLL.
The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform.
The main purpose of the optional expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform.
At a high level, demand for equipment is correlated with GDP growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses.
At a high level, demand for equipment is correlated with Gross Domestic Product (“GDP”) growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses.
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 December 31, 2022, investment securities available for sale had a net pre-tax unrealized loss of $972 million, compared to a net pre-tax unrealized loss of $12 million as of December 31, 2021.
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 December 31, 2023, investment securities available for sale had a net pre-tax unrealized loss of $752 million, compared to a net pre-tax unrealized loss of $972 million as of December 31, 2022.
See Note 1 — Significant Accounting Policies and Basis of Presentation for further accounting policy information and Note 8 — Goodwill and Other Intangibles. Core deposit intangibles were valued using the income approach, after-tax cost savings method.
See Note 1—Significant Accounting Policies and Basis of Presentation for further accounting policy information, Note 2—Business Combinations and Note 8—Goodwill and Core Deposit Intangibles. Core deposit intangibles were valued using the income approach, after-tax cost savings method.
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.
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; boxcars for paper and auto parts; and other cars including open hopper cars for coal and aggregates and centerbeams and flat cars for lumber.
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.
The increase is related to the SVBB Acquisition. 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.
In addition, a large percentage of our HELOCs are secured by junior liens. Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. HELOCs secured by real estate were $1.95 billion, or 11%, of total consumer loans at December 31, 2022, compared to $1.82 billion, or 19%, at December 31, 2021.
In addition, a large percentage of our HELOCs are secured by junior liens. Substantial declines in collateral values could cause junior lien positions to become effectively unsecured. HELOCs secured by real estate were $2.01 billion, or 11% of total consumer loans, at December 31, 2023, compared to $1.95 billion, or 11%, at December 31, 2022.
CRA Investment Commitment As part of the CIT Merger, BancShares adopted a community benefit plan, developed in collaboration with representatives of community reinvestment organizations. See further discussion on CRA, including details on investment commitments, in the subsection “Subsidiary Bank - FCB” in Item 1. Business — Regulatory Considerations of this Annual Report on Form 10-K.
CRA Investment Commitment BancShares has a community benefit plan, developed in collaboration with representatives of community reinvestment organizations. See further discussion on CRA, including details on investment commitments, in the subsection “Subsidiary Bank - FCB” in Item 1. Business—Regulatory Considerations of this Annual Report on Form 10-K.
For more information regarding the ACL, refer to the Credit Risk Management — ACL section of this MD&A and Note 5 — Allowance for Credit Losses. 75 Purchase Accounting Fair Value Estimates Acquired assets and liabilities in a business combination are recorded at their fair values as of the date of acquisition.
For more information regarding the ALLL, refer to the Credit Risk Management — ALLL section of this MD&A and Note 5—Allowance for Loan and Lease Losses. 91 Purchase Accounting Fair Value Estimates Acquired assets and liabilities in a business combination are recorded at their fair values as of the date of acquisition.
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.
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 the lower of cost or fair value (“LOCOM”).
Loans and leases are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the ACL. The ACL models utilize economic variables, including unemployment, GDP, home price index, commercial real estate index, corporate profits, and credit spreads.
Loans and leases are segregated into pools with similar risk characteristics and each have a model that is utilized to estimate the ALLL. The ALLL models utilize economic variables, including unemployment, GDP, home price index, CRE index, corporate profits, and credit spreads.
Loans and leases to borrowers in medical, dental or other healthcare fields were $8.15 billion as of December 31, 2022, which represents 15.2% of commercial loans and leases, compared to $7.00 billion or 31.0% of commercial loans and leases at December 31, 2021.
Loans and leases to borrowers in medical, dental or other healthcare fields were $8.96 billion as of December 31, 2023, which represents 15.0% of commercial loans and leases, compared to $8.15 billion or 15.2% of commercial loans and leases at December 31, 2022.
Refer to the Rail discussion in the section entitled “Results by Business Segments” of this MD&A for further details. Maintenance and Other Operating Lease Expenses Our Rail segment provides railcars primarily pursuant to full-service lease contracts under which Rail as lessor is responsible for railcar maintenance and repair.
Refer to the Rail segment discussion in the section entitled “Results by Business Segment” of this MD&A for further details. 59 Maintenance and Other Operating Lease Expenses The Rail segment provides railcars, primarily pursuant to full-service lease contracts under which we, as lessor, are responsible for railcar maintenance and repair.
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.
Commercial Lending and Leasing BancShares employs a credit ratings system where each commercial loan is assigned a probability of default, loss given default, and/or overall credit rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors.
When HELOCs switch from interest-only to fully amortizing, including principal and interest, some borrowers may not be able to afford the higher monthly payments. We have not experienced a significant increase in defaults as a result of these increased payments.
When HELOCs transition from interest-only to requiring principal and interest payments, some borrowers may not be able to afford the higher monthly payments. We have not experienced a significant increase in defaults as a result of these increased payments.
The following table presents the average balances, yields on interest-earning assets, rates on interest-bearing liabilities, and year-over-year 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 year. • 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 year. • 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.
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.
Our railcar utilization, including commitments to lease, at December 31, 2022 was 97.7%. 53 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 railcar utilization, including commitments to lease, improved from 97.7% at December 31, 2022 to 98.7% at December 31, 2023. 64 Portfolio Rail segment customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater) and other railroads, as well as manufacturers and commodity shippers.
Core Deposit Intangibles Certain core deposits were acquired as part of the CIT Merger, which provide an additional source of funds for BancShares. Core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. The core deposit intangibles were recorded at fair value of $143 million.
Core Deposit Intangibles Certain core deposits were acquired as part of the SVBB Acquisition, which provide an additional source of funds for BancShares. Core deposit intangibles represent the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. The core deposit intangibles were recorded at fair value of $230 million at the SVBB Acquisition Date.
The following ASUs related to reference rate reform can be applied through December 31, 2024: 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.
We are currently evaluating the impact of the ASU on our segment footnote disclosures. 93 The following ASUs related to reference rate reform can be applied through December 31, 2024: 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 These ASUs 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.
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.
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 balance sheet composition or the sensitivity to key assumptions are also evaluated.
BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings is largely due to the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as estimates of modest cumulative future deposit betas.
As of December 31, 2023, BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings was 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.
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.
On a periodic basis, we evaluate our income tax positions based on current tax law and 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. Refer to Note 21—Income Taxes for additional information.
Year-over-year comparisons of the financial results for 2021 and 2020 are contained in Item 7. of BancShares’ Annual Report on Form 10-K as of and for the year ending December 31, 2021 filed with the SEC on February 25, 2022 and available through FCB’s investor relations website www.ir.firstcitizens.com or the SEC’s EDGAR database.
Comparisons of the financial data as of and for the years ended December 31, 2022 and 2021 are contained in Item 7. of BancShares’ Annual Report on Form 10-K as of and for the year ended December 31, 2022 filed with the SEC on February 24, 2023 and available through FCB’s investor relations website www.ir.firstcitizens.com or the SEC’s EDGAR database.
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.
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.
The CIT Merger is a primary reason for many of the increases in 2022 compared to 2021 as discussed below in the “Results of Operations” and “Balance Sheet” sections of this MD&A.
The SVBB Acquisition is a primary reason for many of the increases in 2023 compared to 2022 as discussed below in the “Results of Operations” and “Balance Sheet” sections of this MD&A.
For further information, refer to the discussions in the “Net Interest Income,” “Net Interest Margin” and “Balance Sheet Analysis—Interest-Bearing Liabilities—Deposits” sections of this MD&A. 51 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.
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. 61 Commercial Banking The Commercial Banking segment provides a range of lending, leasing, capital markets, asset management, factoring, and other financial and advisory services, primarily to small and middle market companies in a wide range of industries.
Decisions regarding write-downs are based on factors including appraisals, previous offers received on the property, market conditions and the number of days the property has been on the market. The following table presents total nonperforming assets.
Decisions regarding write-downs are based on factors including appraisals, previous offers received on the property, market conditions and the number of days the property has been on the market.
Table 4 Average Interest-earning Asset Mix % of Total Interest-earning Assets Year ended December 31 2022 2021 2020 Loans and leases 71 % 63 % 73 % Investment securities 21 % 21 % 21 % Interest-earning deposits at banks 8 % 16 % 6 % Total interest-earning assets 100 % 100 % 100 % The following table shows our average funding mix.
Table 7 Average Interest-earning Asset Mix % of Average Interest-earning Assets Year Ended December 31, 2023 2022 2021 Loans and leases 69 % 71 % 63 % Investment securities 14 21 21 Interest-earning deposits at banks 17 8 16 Total interest-earning assets 100 % 100 % 100 % The following table shows our average funding mix.
Treasury 10.6 % $ 2,035 $ 1,898 15.4 % $ 2,007 $ 2,005 Government agency 0.9 % 164 162 1.7 % 221 221 Residential mortgage-backed securities 26.8 % 5,424 4,795 36.2 % 4,757 4,729 Commercial mortgage-backed securities 9.0 % 1,774 1,604 12.6 % 1,648 1,640 Corporate bonds 3.0 % 570 536 4.7 % 582 608 Total investment securities available for sale 50.3 % $ 9,967 $ 8,995 70.6 % $ 9,215 $ 9,203 Investment in marketable equity securities 0.5 % $ 75 $ 95 0.7 % $ 73 $ 98 Investment securities held to maturity: U.S.
Treasury 36.8 % $ 10,554 $ 10,508 10.6 % $ 2,035 $ 1,898 15.4 % $ 2,007 $ 2,005 Government agency 0.4 120 117 0.9 164 162 1.7 221 221 Residential mortgage-backed securities 23.4 7,154 6,686 26.8 5,424 4,795 36.2 4,757 4,729 Commercial mortgage-backed securities 7.5 2,319 2,131 9.0 1,774 1,604 12.6 1,648 1,640 Corporate bonds 1.7 529 482 3.0 570 536 4.7 582 608 Municipal bonds — 12 12 — — — — — — Total investment securities available for sale 69.8 % $ 20,688 $ 19,936 50.3 % $ 9,967 $ 8,995 70.6 % $ 9,215 $ 9,203 Investment in marketable equity securities 0.3 % $ 75 $ 84 0.5 % $ 75 $ 95 0.7 % $ 73 $ 98 Investment securities held to maturity: U.S.
An increase of 0.25% to the discount rates used to derive the fair value of the loans at the time of the merger would have reduced the approximate fair value by $201 million, whereas a decrease of 0.25% to the discount rates would have increased the fair value by approximately $202 million.
An increase of 0.25% to the discount rates used to derive the fair value of the loans at the time of the acquisition would have reduced the fair value by approximately $215 million, whereas a decrease of 0.25% to the discount rates would have increased the fair value by approximately $230 million.
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.
NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet. 82 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.
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.
RISK MANAGEMENT Risk is inherent in any business. BancShares has defined a moderate risk appetite and a balanced approach to risk taking with a philosophy that does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives.
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.
Adjusted rental income on operating lease equipment is calculated as rental income on operating lease equipment reduced by depreciation, maintenance and other operating lease expenses. Maintenance and other operating lease expenses relate to equipment ownership and leasing costs associated with the Rail segment portfolio and tend to be variable.
FHLB Advances Table 36 FHLB Balances dollars in millions December 31, 2022 December 31, 2021 December 31, 2020 Total Total Total Total borrowing capacity $ 14,918 $ 9,564 $ 8,638 Less: Advances 4,250 645 655 Letters of credit (1) 1,450 — — Available capacity $ 9,218 $ 8,919 $ 7,983 Pledged Non-PCD loans (contractual balance) $ 23,491 $ 14,507 $ 12,157 Weighted Average Rate 3.28 % 1.28 % 1.28 % (1) Letters of credit were established with the FHLB to collateralize public funds.
Table 45 FHLB Balances dollars in millions December 31, 2023 December 31, 2022 December 31, 2021 Total borrowing capacity $ 15,072 $ 14,918 $ 9,564 Less: Advances — 4,250 645 Letters of credit (1) 1,450 1,450 — Available capacity $ 13,622 $ 9,218 $ 8,919 Pledged Non-PCD loans (contractual balance) $ 25,370 $ 23,491 $ 14,507 Weighted average rate on advances — % 3.28 % 1.28 % (1) Letters of credit were established with the FHLB to collateralize public funds.
The ETR 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 2022 ETR due to changes in these factors.
The ETR 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 following table reflects the proportion of railcars by type based on units and net investment, respectively: Table 12 Operating lease Railcar Portfolio by Type (units and net investment) December 31, 2022 Railcar Type Total Owned Fleet - % Total Units Total Owned Fleet - % Total Net Investment Covered Hoppers 43 % 41 % Tank Cars 29 % 40 % Mill/Coil Gondolas 8 % 6 % Coal 8 % 1 % Boxcars 6 % 6 % Other 6 % 6 % Total 100 % 100 % Table 13 Rail Operating Lease Equipment by Obligor Industry dollars in millions December 31, 2022 Manufacturing $ 3,016 41 % Rail 1,981 27 % Wholesale 1,101 15 % Oil and gas extraction / services 552 7 % Energy and utilities 242 3 % Other 541 7 % Total $ 7,433 100 % Corporate Certain items that are not allocated to operating segments are included in the Corporate segment.
The following tables reflect the proportion of railcars by type based on units and net investment, and rail operating lease equipment by obligor industry: Table 17 Operating lease Railcar Portfolio by Type (units and net investment) December 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 45 % 42 % 43 % 41 % Tank Cars 27 38 29 40 Mill/Coil Gondolas 8 7 8 6 Coal 7 1 8 1 Boxcars 6 6 6 6 Other 7 6 6 6 Total 100 % 100 % 100 % 100 % Table 18 Rail Operating Lease Equipment by Obligor Industry dollars in millions December 31, 2023 December 31, 2022 Manufacturing $ 3,281 41 % $ 3,016 41 % Rail 1,889 24 1,981 27 Wholesale 1,217 15 1,101 15 Oil and gas extraction / services 573 7 552 7 Energy and utilities 230 3 242 3 Other 776 10 541 7 Total $ 7,966 100 % $ 7,433 100 % Corporate All other items that are not allocated to the above segments are included in Corporate.
Table 19 Operating Lease Equipment dollars in millions December 31, 2022 Railcars and locomotives (1) $ 7,433 Other equipment 723 Total (1) $ 8,156 (1) Includes off-lease rail equipment of $457 million at December 31, 2022. INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, FHLB borrowings, subordinated debt, and other borrowings.
Table 24 Operating Lease Equipment dollars in millions December 31, 2023 December 31, 2022 December 31, 2021 Railcars and locomotives $ 7,966 $ 7,433 $ — Other equipment 780 723 — Total (1) $ 8,746 $ 8,156 $ — (1) Includes off-lease rail equipment of $253 million at December 31, 2023, and $457 million at December 31, 2022. 69 INTEREST-BEARING LIABILITIES Interest-bearing liabilities include interest-bearing deposits, securities sold under customer repurchase agreements, the Purchase Money Note, FHLB borrowings, senior and subordinated debt, and other borrowings.
Periodically, depreciation expense could include adjustments to residual values. 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.
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.
Revenues are primarily generated from rental income on operating leases.
Revenues are primarily generated from rental income on operating lease equipment.
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.
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, as well as other borrower and loan characteristics, to assign a risk rating.
Non-performing assets as a percentage of total loans, leases and OREO at December 31, 2022 was 0.95% compared to 0.49% at December 31, 2021. Past Due Accounts The percentage of loans 30 days or more past due at December 31, 2022 was 1.22% of loans, compared to 0.43% at December 31, 2021.
Nonperforming assets as a percentage of total loans, leases, OREO and repossessed assets at December 31, 2023 was 0.77% compared to 0.95% at December 31, 2022. Past Due Accounts The percentage of loans 30 days or more past due at December 31, 2023 was 1.16% of total loans, compared to 1.22% at December 31, 2022.
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. 43 Table 3 Average Balances and Rates dollars in millions Year ended December 31 2022 2021 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) $ 66,634 $ 2,953 4.41 % $ 32,860 $ 1,295 3.91 % $ 1,479 $ 179 $ 1,658 Total investment securities 19,166 354 1.85 % 10,611 145 1.37 % 145 64 209 Interest-earning deposits at banks 7,726 106 1.38 % 8,349 11 0.13 % (1) 96 95 Total interest-earning assets (2) $ 93,526 $ 3,413 3.63 % $ 51,820 $ 1,451 2.78 % $ 1,623 $ 339 $ 1,962 Operating lease equipment, net $ 7,982 $ — Cash and due from banks 512 350 Allowance for credit losses (875) (202) All other noninterest-earning assets 7,788 3,015 Total assets $ 108,933 $ 54,983 Interest-bearing deposits: Checking with interest $ 16,323 $ 29 0.15 % $ 11,258 $ 6 0.05 % $ 3 $ 20 $ 23 Money market 23,949 125 0.52 % 9,708 10 0.10 % 29 86 115 Savings 14,193 117 0.82 % 3,847 1 0.03 % 12 104 116 Time deposits 9,133 64 0.70 % 2,647 16 0.63 % 46 2 48 Total interest-bearing deposits 63,598 335 0.53 % 27,460 33 0.12 % 90 212 302 Borrowings: Securities sold under customer repurchase agreements 590 1 0.19 % 660 1 0.20 % — — — Short-term FHLB borrowings 824 28 3.30 % — — — % 28 — 28 Short-term borrowings 1,414 29 2.00 % 660 1 0.20 % 28 — 28 Federal Home Loan Bank borrowings 1,414 43 2.96 % 648 8 1.28 % 17 18 35 Senior unsecured borrowings 1,348 25 1.87 % — — — % 25 — 25 Subordinated debt 1,056 33 3.15 % 498 15 3.35 % 19 (1) 18 Other borrowings 64 2 3.22 % 80 4 1.23 % (3) 1 (2) Long-term borrowings 3,882 103 2.64 % 1,226 27 2.12 % 58 18 76 Total borrowings 5,296 132 2.47 % 1,886 28 1.45 % 86 18 104 Total interest-bearing liabilities $ 68,894 $ 467 0.68 % $ 29,346 $ 61 0.21 % $ 176 $ 230 $ 406 Noninterest-bearing deposits $ 26,318 $ 20,798 Credit balances of factoring clients 1,153 — Other noninterest-bearing liabilities 2,292 378 Stockholders' equity 10,276 4,461 Total liabilities and stockholders' equity $ 108,933 $ 54,983 Interest rate spread (2) 2.95 % 2.57 % Net interest income and net yield on interest-earning assets (2) $ 2,946 3.14 % $ 1,390 2.66 % (1) Loans and leases include Non-PCD and PCD loans, nonaccrual loans and held for sale.
The average rate paid on interest-bearing liabilities for the current year was 3.00%, an increase of 232 bps from 0.68% for the prior year, reflecting the higher interest rate environment and the Purchase Money Note. 55 Table 6 Average Balances and Rates dollars in millions Year Ended December 31, 2022 December 31, 2021 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) $ 66,303 $ 2,953 4.45 % $ 32,860 $ 1,295 3.94 % $ 1,470 $ 188 $ 1,658 Investment securities 19,166 354 1.85 10,611 145 1.37 145 64 209 Interest-earning deposits at banks 7,726 106 1.38 8,349 11 0.13 (1) 96 95 Total interest-earning assets (2) $ 93,195 $ 3,413 3.66 % $ 51,820 $ 1,451 2.80 % $ 1,614 $ 348 $ 1,962 Operating lease equipment, net $ 7,982 $ — Cash and due from banks 512 350 Allowance for loan and lease losses (875) (202) All other noninterest-earning assets 8,101 3,015 Total assets $ 108,915 $ 54,983 Interest-bearing deposits Checking with interest $ 16,323 $ 29 0.18 % $ 11,258 $ 6 0.05 % $ 3 $ 20 $ 23 Money market 23,949 125 0.52 9,708 10 0.10 29 86 115 Savings 14,392 117 0.81 3,847 1 0.03 13 103 116 Time deposits 8,934 64 0.72 2,647 16 0.63 45 3 48 Total interest-bearing deposits 63,598 335 0.53 27,460 33 0.12 90 212 302 Borrowings: Securities sold under customer repurchase agreements 590 1 0.19 660 1 0.20 — — — Short-term FHLB borrowings 824 28 3.35 — — — 28 — 28 Short-term borrowings 1,414 29 2.03 660 1 0.20 28 — 28 Federal Home Loan Bank borrowings 1,414 43 3.01 648 8 1.30 17 18 35 Senior unsecured borrowings 1,348 25 1.89 — — — 25 — 25 Subordinated debt 1,056 33 3.15 498 18 3.36 16 (1) 15 Other borrowings 64 2 3.22 80 1 1.25 — 1 1 Long-term borrowings 3,882 103 2.66 1,226 27 2.13 58 18 76 Total borrowings 5,296 132 2.49 1,886 28 1.45 86 18 104 Total interest-bearing liabilities $ 68,894 $ 467 0.68 % $ 29,346 $ 61 0.21 % $ 176 $ 230 $ 406 Noninterest-bearing deposits $ 26,318 $ 20,798 Credit balances of factoring clients 1,153 — Other noninterest-bearing liabilities 2,274 378 Stockholders' equity 10,276 4,461 Total liabilities and stockholders’ equity $ 108,915 $ 54,983 Interest rate spread (2) 2.98 % 2.59 % Net interest income and net yield on interest-earning assets (2) $ 2,946 3.16 % $ 1,390 2.68 % (1) Loans and leases include Non-PCD and PCD loans, nonaccrual loans, and loans held for sale.
Commercial Concentrations Geographic Concentrations The following table summarizes state concentrations greater than 5.0% of our loans. Data is based on obligor location unless secured by real estate, then data based on property location.
The following discussions present concentration data along our loan 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.
On January 24, 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 March 15, 2023.
The dividends are payable on March 15, 2024 to stockholders of record as of February 29, 2024. On January 24, 2024, our Board also declared dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. The dividends are payable on March 15, 2023.
Table 28 Commercial Loans and Leases - Geography dollars in millions December 31, 2022 December 31, 2021 December 31, 2020 State California $ 9,226 17.3 % $ 3,163 14.0 % $ 2,940 12.8 % North Carolina 8,699 16.3 % 7,181 31.8 % 7,649 33.4 % Texas 3,624 6.8 % 879 3.9 % 816 3.6 % Florida 3,273 6.1 % 1,496 6.6 % 1,478 6.5 % South Carolina 3,142 5.9 % 2,855 12.6 % 2,944 12.9 % All other states 24,243 45.4 % 7,012 31.1 % 7,073 30.8 % Total U.S. 52,207 97.8 % 22,586 100.0 % 22,900 100.0 % Total International 1,248 2.2 % — — % — — % Total $ 53,455 100.0 % $ 22,586 100.0 % $ 22,900 100.0 % 65 Industry Concentrations The following table represents loans and leases by industry of obligor: Table 29 Commercial Loans and Leases - Industry dollars in millions December 31, 2022 December 31, 2021 December 31, 2020 Real Estate $ 11,684 21.9 % $ 4,279 18.9 % $ 4,348 19.0 % Healthcare 8,146 15.2 % 6,997 31.0 % 6,381 27.9 % Business Services 5,518 10.3 % 2,307 10.2 % 2,175 9.5 % Transportation, Communication, Gas, Utilities 5,002 9.4 % 774 3.4 % 596 2.6 % Manufacturing 4,387 8.2 % 1,347 6.0 % 1,101 4.8 % Service Industries 4,213 7.9 % 722 3.2 % 686 3.0 % Retail 3,462 6.5 % 1,301 5.8 % 1,310 5.7 % Wholesale 2,605 4.9 % 882 3.9 % 875 3.8 % Finance and Insurance 2,604 4.9 % 1,361 6.0 % 1,251 5.5 % Other 5,834 10.8 % 2,616 11.6 % 4,177 18.2 % Total $ 53,455 100.0 % $ 22,586 100.0 % $ 22,900 100.0 % We have historically carried a concentration of real estate secured loans, but actively mitigate exposure through underwriting policies, which primarily rely on borrower cash flow rather than underlying collateral values.
Table 34 Commercial Loans and Leases - Geography dollars in millions December 31, 2023 December 31, 2022 December 31, 2021 State California $ 10,254 17.2 % $ 9,226 17.3 % $ 3,163 14.0 % North Carolina 9,820 16.4 8,699 16.3 7,181 31.8 Texas 4,339 7.3 3,624 6.8 879 3.9 Florida 3,708 6.2 3,273 6.1 1,496 6.6 South Carolina 3,276 5.5 3,142 5.9 2,855 12.6 All other states 26,645 44.6 24,243 45.4 7,012 31.1 Total U.S. $ 58,042 97.2 % $ 52,207 97.8 % $ 22,586 100.0 % Total International 1,656 2.8 1,248 2.2 — — Total $ 59,698 100.0 % $ 53,455 100.0 % $ 22,586 100.0 % Industry Concentrations The following table represents loans by industry of obligor: Table 35 Commercial Loans and Leases - Industry dollars in millions December 31, 2023 December 31, 2022 December 31, 2021 Real Estate $ 14,049 23.6 % $ 11,684 21.9 % $ 4,279 18.9 % Healthcare 8,960 15.0 8,146 15.2 6,997 31.0 Business Services 6,943 11.6 5,518 10.3 2,307 10.2 Transportation, Communication, Gas, Utilities 5,801 9.7 5,002 9.4 774 3.4 Manufacturing 4,421 7.4 4,387 8.2 1,347 6.0 Retail 3,550 5.9 3,462 6.5 1,301 5.8 Wholesale 3,496 5.9 2,605 4.9 882 3.9 Service Industries 2,813 4.7 4,213 7.9 722 3.2 Finance and Insurance 2,351 3.9 2,604 4.9 1,361 6.0 Other 7,314 12.3 5,834 10.8 2,616 11.6 Total $ 59,698 100.0 % $ 53,455 100.0 % $ 22,586 100.0 % We have historically carried a concentration of real estate secured loans, but actively mitigate exposure through underwriting policies, which primarily rely on borrower cash flow rather than underlying collateral values.
Table 30 Consumer Loans - Geography dollars in millions December 31, 2022 December 31, 2021 December 31, 2020 State North Carolina $ 5,702 32.9 % $ 4,931 50.4 % $ 4,741 47.9 % California 4,014 23.2 % 161 1.6 % 141 1.4 % South Carolina 3,001 17.3 % 2,626 26.9 % 2,533 25.6 % Other states 4,609 26.6 % 2,068 21.1 % 2,477 25.1 % Total $ 17,326 100.0 % $ 9,786 100.0 % $ 9,892 100.0 % Among consumer real estate secured loans, our revolving mortgage loans (“Home Equity Lines of Credit” or “HELOCs”) present a heightened risk due to long commitment periods during which the financial position of individual borrowers or collateral values may deteriorate significantly.
The following table summarizes state concentrations greater than 5.0% based on customer address: Table 36 Consumer Loans - Geography dollars in millions December 31, 2023 December 31, 2022 December 31, 2021 State North Carolina $ 6,347 34.2 % $ 5,702 32.9 % $ 4,931 50.4 % California 4,091 22.0 4,014 23.2 161 1.6 South Carolina 3,318 17.8 3,001 17.3 2,626 26.9 Other states 4,835 26.0 4,609 26.6 2,068 21.1 Total $ 18,591 100.0 % $ 17,326 100.0 % $ 9,786 100.0 % Among consumer real estate secured loans, our revolving mortgage loans (“Home Equity Lines of Credit” or “HELOCs”) present a heightened risk due to long commitment periods during which the financial position of individual borrowers or collateral values may deteriorate significantly.
We offer a full suite of deposit products, loans, cash management, wealth, payments and various other fee-based services.
We offer a full suite of deposit products, loans (primarily residential mortgages and business and commercial loans), cash management, wealth management, payment services, and various other fee-based services.
We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities. The following table below summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management system.
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. The following table summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management system.
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 December 31, 2022 totaled $5.03 billion.
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 are primarily comprised of interest-bearing deposits with the FRB.
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 December 31, 2022 and 2021. 55 Table 15 presents the major categories of investment securities at December 31, 2022, and 2021.
Treasury and 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, we determined that no ALLL was needed for investment securities held to maturity at December 31, 2023.
At December 31, 2021, BancShares and FCB had risk-based capital ratio conservation buffers of 6.35% and 5.85%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of December 31, 2022 and 2021 over the Basel III minimum for the ratio that is the binding constraint.
As of 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 December 31, 2023 and 2022 over the Basel III minimum for the ratio that is the binding constraint.
Economic data has been mixed and markets have experienced elevated levels of volatility in 2022. Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. CREDIT RISK MANAGEMENT Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities.
Key indicators will continue to be monitored and impacts assessed as part of our ongoing risk management framework. 72 CREDIT RISK Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeChanges in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain. As of December 31, 2022, BancShares’ market risk profile had changed since December 31, 2021, primarily due to the CIT Merger.
Biggest changeAs of December 31, 2023, BancShares’ market risk profile had changed since December 31, 2022 primarily due to the SVBB Acquisition. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.
Market risk information is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within the “Risk Management” section and in Item 8. Notes to Consolidated Financial Statements within Note 1 — Significant Accounting Policies and Basis of Presentation, Note 14 — Derivative Financial Instruments and Note 16 — Fair Value. 86
Market risk information is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within the “Risk Management” section and in Item 8. Notes to Consolidated Financial Statements within Note 1—Significant Accounting Policies and Basis of Presentation, Note 14—Derivative Financial Instruments and Note 16—Fair Value. 99

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