Purchase Price Consideration; Unaudited Statement of Assets Acquired and Liabilities Assumed
| | | | | |
dollars in millions | Fair Value Purchase Price Allocation as of March 27, 2023 |
Purchase price consideration | |
Purchase Money Note (1) | $ | 35,150 |
Value Appreciation Instrument | 500 |
Purchase price consideration | $ | 35,650 |
Assets | |
Cash and due from banks | 1,347 | |
Interest-earning deposits at banks | 33,932 | |
Investment securities | 122 | |
| |
Loans and leases | 68,503 | |
Affordable housing tax credit investments | 1,134 | |
| |
Core deposit intangibles | 230 | |
Other assets | 1,332 | |
Total assets acquired | $ | 106,600 | |
Liabilities | |
Deposits | 55,959 | |
Borrowings | 10 | |
Deferred tax liabilities | 3,310 | |
Other liabilities | 1,847 | |
Total liabilities assumed | $ | 61,126 | |
Fair value of net assets acquired | 45,474 | |
Preliminary gain on acquisition, after income taxes (2) | $ | 9,824 | |
Preliminary gain on acquisition, before income taxes (2) | $ | 13,134 | |
(1) The principal amount of the Purchase Money Note is the book value of net assets acquired of approximately $51.82 billion less the asset discount of $16.45 billion pursuant to the SVBB Purchase Agreement. The $35.15 billion above is net of a fair value discount of approximately $220 million.
(2) The difference between the preliminary gain on acquisition before and after taxes reflects the deferred tax liabilities recorded in the SVBB Acquisition, as presented above.
BancShares recorded a preliminary gain on acquisition of $9.82 billion in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price. The following is a description of the methods used to determine the estimated fair values of the Purchase Money Note and significant assets acquired and liabilities assumed, as presented above.
Purchase Money Note
The fair value of the Purchase Money Note was estimated based on the income approach, which includes: (i) projecting cash flows over a certain discrete projection period and (ii) discounting those projected cash flows to present value at a rate of return that considers the relative risk of the cash flows and the time value of money.
Cash and interest-earning deposits at banks
For financial instruments with a short-term or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value.
Investment Securities
Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.
Loans
Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, remaining term of loan, credit quality ratings or scores, amortization status and current discount rate. Loans with similar risk characteristics were pooled together and treated in aggregate when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans and required rates of return for market participants to purchase similar assets, including adjustments for liquidity and credit quality when necessary.
BancShares’ accounting methods for acquired Non-PCD and PCD loans and leases are discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. The following table presents the UPB and fair value of the loans acquired by BancShares in the SVBB Acquisition. The UPB for PCD loans includes the PCD Gross-Up of $200 million as discussed further in Note 4 — Loans and Leases.
Loans Acquired
| | | | | | | | | | | |
dollars in millions | Loans and Leases |
| UPB | | Fair Value |
Non-PCD loans and leases | $ | 68,742 | | | $ | 66,473 | |
PCD loans and leases | 2,529 | | | 2,030 | |
Total loans and leases | $ | 71,271 | | | $ | 68,503 | |
Affordable housing tax credit investments
The fair values of the affordable housing tax credit investments were determined based on discounted cash flows. The cash flow projections considered tax credits and net cash flows from operating losses and tax depreciation. The discount rate was determined using observable market data points for similar investments.
Core deposit intangibles
The following table presents the intangible asset recorded related to the valuation of core deposits:
Intangible Asset
| | | | | | | | | | | | | | | | | |
dollars in millions | Fair Value | | Estimated Useful Life | | Amortization Method |
Core deposit intangibles | $ | 230 | | | 8 years | | Effective Yield |
Certain core deposits were acquired as part of the SVBB Acquisition, which provide an additional source of funds for BancShares. The core deposit intangible represents the costs saved by BancShares by acquiring the core deposits rather than sourcing the funds elsewhere. This intangible was valued using the after-tax cost savings method under the income approach. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The valuation considered a dynamic approach to interest rates and alternative cost of funds. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. Refer to further discussion in Note 7 — Goodwill and Core Deposit Intangibles.
Other assets and liabilities
The following table details other assets acquired:
Other Assets
| | | | | |
dollars in millions | Fair Value |
Accrued interest receivable | $ | 412 |
Fair value of derivative financial instruments, net | 197 |
Premises and equipment | 286 |
| |
| |
Other | 437 | |
Total other assets | $ | 1,332 |
The fair values of the derivative assets in the table above and derivative liabilities in the table below were valued using prices of financial instruments with similar characteristics and observable inputs. The fair value of accrued interest receivable and the remaining other assets was determined to approximate book value. Refer to further discussion in Note 12 — Derivative Financial Instruments and Note 14 — Fair Value.
Deposits
Acquired deposits were essentially all transactional deposits. Thus, we determined carrying amounts approximate fair value.
Deferred Tax liability
The SVBB Acquisition is an asset acquisition for tax purposes and is therefore considered a taxable transaction. The deferred tax liability (“DTL”) for the SVBB Acquisition was calculated by applying FCB’s deferred tax rate to the book and tax basis differences on the SVBB Acquisition Date for acquired assets and assumed liabilities. Deferred taxes were not recorded for the affordable housing tax credit investments in accordance with the proportional amortization method.
Other liabilities
The following table details other liabilities assumed:
| | | | | |
dollars in millions | Fair Value |
| |
Fair value of derivative financial instruments, net | $ | 333 |
| |
Accrued interest payable | 113 | |
Commitments to fund tax credit investments | 716 |
Other | 685 | |
Total other liabilities | $ | 1,847 |
The fair value of the liability representing our commitment for future capital contributions to the affordable housing tax credit investments was determined based on discounted cash flows. Projected cash flows for future capital contributions were discounted at a rate that represented FCB’s cost of debt.
Shared-Loss Agreement Intangibles
Preliminary estimates indicate there is no material value to attribute to the loss indemnification asset or true-up liability. This is primarily based on evaluation of historical loss experience and the credit quality of the portfolio.
Unaudited Pro Forma Information - SVBB Acquisition
The amount of net interest income, noninterest income and net income of $65 million, $14 million and $35 million, respectively, attributable to the SVBB Acquisition were included in BancShares’ Consolidated Statement of Income for the three months ended March 31, 2023. SVBB’s net interest income, noninterest income and net income noted above reflect management’s best estimates, based on information available at the reporting date.
SVBB was only in operation from March 10 to March 27, 2023 and does not have historical financial information on which we could base pro forma information. Additionally, we did not acquire all assets or assume all liabilities of SVBB and an essential part of the SVBB Acquisition is the federal assistance governed by the SVBB Purchase Agreement and Shared-Loss Agreement, which is not reflected in the previous operations of SVBB. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the SVBB Acquisition in accordance with ASC 805-10-50-2.
CIT Group Inc.
BancShares completed the CIT Merger on January 3, 2022 (the “Merger Date”). Pursuant to the CIT Merger Agreement, each share of CIT common stock, par value $0.01 per share (“CIT Common Stock”), issued and outstanding, except for certain shares of CIT Common Stock owned by CIT or BancShares, was converted into the right to receive 0.062 shares of Class A Common Stock, plus cash in lieu of fractional shares of Class A Common Stock. The Parent Company issued approximately 6.1 million shares of Class A Common Stock in connection with the consummation of the CIT Merger.
The CIT Merger has been accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values based on the Merger Date. 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 following table provides the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the Merger Date:
Purchase Price Consideration and Net Assets Acquired | | | | | | | | | | | | | | | | | |
dollars in millions, except shares issued and price per share | | | | | Purchase Price Allocation |
Common share consideration | | | | | |
Shares of Class A Common Stock issued | | | | | 6,140,010 | |
Price per share on January 3, 2022 | | | | | $ | 859.76 | |
Common stock consideration | | | | | $ | 5,279 | |
Preferred stock consideration | | | | | 541 | |
Stock-based compensation consideration | | | | | 81 | |
Cash in lieu of fractional shares and other consideration paid | | | | | 51 | |
Purchase price consideration | | | | | $ | 5,952 | |
Assets | | | | | |
Cash and interest-earning deposits at banks | | | | | $ | 3,060 | |
Investment securities | | | | | 6,561 | |
Assets held for sale | | | | | 59 | |
Loans and leases | | | | | 32,714 | |
Operating lease equipment | | | | | 7,838 | |
Bank-owned life insurance | | | | | 1,202 | |
Intangible assets | | | | | 143 | |
Other assets | | | | | 2,198 | |
Total assets acquired | | | | | $ | 53,775 | |
Liabilities | | | | | |
Deposits | | | | | $ | 39,428 | |
Borrowings | | | | | 4,536 | |
Credit balances of factoring clients | | | | | 1,534 | |
Other liabilities | | | | | 1,894 | |
Total liabilities assumed | | | | | $ | 47,392 | |
Fair value of net assets acquired | | | | | 6,383 | |
Gain on acquisition | | | | | $ | 431 | |
BancShares recorded a gain on acquisition of $431 million in noninterest income, representing the excess of the fair value of net assets acquired over the purchase price. The gain on acquisition was not taxable.
For a description of the fair value and unpaid principal balance of loans from the CIT Merger, as well as the methods used to determine the fair values of significant assets and liabilities, see Note 2 — Business Combinations in Item 8 of our 2022 Form 10-K.
NOTE 3 — INVESTMENT SECURITIES
The following tables include the amortized cost and fair value of investment securities at March 31, 2023 and December 31, 2022.
Amortized Cost and Fair Value - Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Investment securities available for sale | | | | | | | |
U.S. Treasury | $ | 2,091 | | | $ | — | | | $ | (113) | | | $ | 1,978 | |
Government agency | 152 | | | — | | | (2) | | | 150 | |
Residential mortgage-backed securities | 5,415 | | | 3 | | | (570) | | | 4,848 | |
Commercial mortgage-backed securities | 1,755 | | | — | | | (170) | | | 1,585 | |
Corporate bonds(1) | 542 | | | — | | | (42) | | | 500 | |
| | | | | | | |
Total investment securities available for sale(1) | $ | 9,955 | | | $ | 3 | | | $ | (897) | | | $ | 9,061 | |
Investment in marketable equity securities | $ | 75 | | | $ | 14 | | | $ | (4) | | | $ | 85 | |
Investment securities held to maturity | | | | | | | |
U.S. Treasury | $ | 475 | | | $ | — | | | $ | (42) | | | $ | 433 | |
Government agency | 1,550 | | | — | | | (163) | | | 1,387 | |
Residential mortgage-backed securities | 4,511 | | | 2 | | | (655) | | | 3,858 | |
Commercial mortgage-backed securities | 3,547 | | | 1 | | | (497) | | | 3,051 | |
Supranational securities | 296 | | | — | | | (34) | | | 262 | |
Other | 2 | | | — | | | — | | | 2 | |
Total investment securities held to maturity | $ | 10,381 | | | $ | 3 | | | $ | (1,391) | | | $ | 8,993 | |
Total investment securities(1) | $ | 20,411 | | | $ | 20 | | | $ | (2,292) | | | $ | 18,139 | |
(1) Balances presented net of allowance for credit losses of $4 million | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Investment securities available for sale | | | | | | | |
U.S. Treasury | $ | 2,035 | | | $ | — | | | $ | (137) | | | $ | 1,898 | |
Government agency | 164 | | | — | | | (2) | | | 162 | |
Residential mortgage-backed securities | 5,424 | | | 1 | | | (630) | | | 4,795 | |
Commercial mortgage-backed securities | 1,774 | | | — | | | (170) | | | 1,604 | |
Corporate bonds | 570 | | | — | | | (34) | | | 536 | |
| | | | | | | |
Total investment securities available for sale | $ | 9,967 | | | $ | 1 | | | $ | (973) | | | $ | 8,995 | |
Investment in marketable equity securities | $ | 75 | | | $ | 21 | | | $ | (1) | | | $ | 95 | |
Investment securities held to maturity | | | | | | | |
U.S. Treasury | $ | 474 | | | $ | — | | | $ | (50) | | | $ | 424 | |
Government agency | 1,548 | | | — | | | (186) | | | 1,362 | |
Residential mortgage-backed securities | 4,605 | | | — | | | (723) | | | 3,882 | |
Commercial mortgage-backed securities | 3,355 | | | — | | | (484) | | | 2,871 | |
Supranational securities | 295 | | | — | | | (41) | | | 254 | |
Other | 2 | | | — | | | — | | | 2 | |
Total investment securities held to maturity | $ | 10,279 | | | $ | — | | | $ | (1,484) | | | $ | 8,795 | |
Total investment securities | $ | 20,321 | | | $ | 22 | | | $ | (2,458) | | | $ | 17,885 | |
Investments in mortgage-backed securities represent securities issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. U.S. Treasury investments represents T-bills and Notes issued by the U.S. Treasury. Investments in government agency securities represent securities issued by the Small Business Association (“SBA”), Federal Home Loan Bank (“FHLB”) and other agencies. Investments in supranational securities represent securities issued by the Supranational Entities and Multilateral Development Banks. Investments in corporate bonds represent positions in debt securities of other financial institutions. Investments in marketable equity securities represent positions in common stock of publicly traded financial institutions. Other held to maturity investments include certificates of deposit with other financial institutions.
BancShares also holds approximately 354,000 shares of Class B common stock of Visa, Inc. (“Visa”). Until the resolution of certain litigation, at which time the Visa Class B common stock will convert to publicly traded Visa Class A common stock, these shares are only transferable to other stockholders of Visa Class B common stock. As a result, there is limited transfer activity in private transactions between buyers and sellers. Given this limited trading activity and the continuing uncertainty regarding the likelihood, ultimate timing and eventual exchange rate for shares of Visa Class B common stock into shares of Visa Class A common stock, these shares are not considered to have a readily determinable fair value and have no carrying value. BancShares continues to monitor the trading activity in Visa Class B common stock and the status of the resolution of certain litigation matters at Visa that would trigger the conversion of the Visa Class B common stock into Visa Class A common stock.
Accrued interest receivables for available for sale and held to maturity debt securities were excluded from the estimate for credit losses. At March 31, 2023, accrued interest receivables for available for sale and held to maturity debt securities were $30 million and $17 million, respectively. At December 31, 2022, accrued interest receivables for available for sale and held to maturity debt securities were $33 million and $19 million, respectively. During the three months ended March 31, 2023 and 2022, there was no accrued interest that was deemed uncollectible and written off against interest income.
The following table provides the amortized cost and fair value by contractual maturity. Expected maturities will differ from contractual maturities on certain securities because borrowers and issuers may have the right to call or prepay obligations with or without prepayment penalties. Residential and commercial mortgage-backed and government agency securities are stated separately as they are not due at a single maturity date.
Maturities - Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
| Cost | | Fair Value | | Cost | | Fair Value |
Investment securities available for sale | | | | | | | |
Non-amortizing securities maturing in: | | | | | | | |
One year or less | $ | 34 | | | $ | 33 | | | $ | 37 | | | $ | 37 | |
After one through five years | 2,120 | | | 2,004 | | | 2,068 | | | 1,928 | |
After five through 10 years | 463 | | | 427 | | | 483 | | | 455 | |
After 10 years | 16 | | | 14 | | | 17 | | | 14 | |
| | | | | | | |
Government agency | 152 | | | 150 | | | 164 | | | 162 | |
Residential mortgage-backed securities | 5,415 | | | 4,848 | | | 5,424 | | | 4,795 | |
Commercial mortgage-backed securities | 1,755 | | | 1,585 | | | 1,774 | | | 1,604 | |
Total investment securities available for sale(1) | $ | 9,955 | | | $ | 9,061 | | | $ | 9,967 | | | $ | 8,995 | |
Investment securities held to maturity | | | | | | | |
Non-amortizing securities maturing in: | | | | | | | |
One year or less | $ | 51 | | | $ | 51 | | | $ | 51 | | | $ | 51 | |
After one through five years | 1,579 | | | 1,440 | | | 1,479 | | | 1,328 | |
After five through 10 years | 693 | | | 593 | | | 789 | | | 663 | |
| | | | | | | |
| | | | | | | |
Residential mortgage-backed securities | 4,511 | | | 3,858 | | | 4,605 | | | 3,882 | |
Commercial mortgage-backed securities | 3,547 | | | 3,051 | | | 3,355 | | | 2,871 | |
| | | | | | | |
| | | | | | | |
Total investment securities held to maturity | $ | 10,381 | | | $ | 8,993 | | | $ | 10,279 | | | $ | 8,795 | |
| | | | | | | |
(1) Balances as of March 31, 2023 are presented net of the allowance for credit losses of $4 million.
The following table presents interest and dividend income on investment securities:
Interest and Dividends on Investment Securities
| | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Interest income - taxable investment securities | $ | 106 | | | $ | 82 | | | | | |
Dividend income - marketable equity securities | 1 | | | 1 | | | | | |
Interest on investment securities | $ | 107 | | | $ | 83 | | | | | |
The following table presents the gross realized losses on the sales of investment securities available for sale:
Realized Losses on Debt Securities Available For Sale
| | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Gross realized gains on sales of investment securities available for sale | $ | — | | | $ | — | | | | | |
Gross realized losses on sales of investment securities available for sale | (14) | | | — | | | | | |
Net realized losses on sales of investment securities available for sale | $ | (14) | | | $ | — | | | | | |
The following table provides the fair value adjustment on marketable equity securities:
Fair Value Adjustment on Marketable Equity Securities
| | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| | | | | | | |
| | | | | | | |
Fair value adjustment on marketable equity securities, net | $ | (9) | | | $ | 3 | | | | | |
The following table provides information regarding investment securities available for sale with unrealized losses:
Gross Unrealized Losses on Debt Securities Available For Sale
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| Less than 12 months | | 12 months or more | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Investment securities available for sale | | | | | | | | | | | |
U.S. Treasury | $ | 28 | | | $ | (1) | | | $ | 1,889 | | | $ | (112) | | | $ | 1,917 | | | $ | (113) | |
Government agency | 75 | | | (1) | | | 75 | | | (1) | | | 150 | | | (2) | |
Residential mortgage-backed securities | 656 | | | (26) | | | 3,955 | | | (544) | | | 4,611 | | | (570) | |
Commercial mortgage-backed securities | 568 | | | (13) | | | 1,003 | | | (157) | | | 1,571 | | | (170) | |
Corporate bonds(1) | 360 | | | (25) | | | 140 | | | (17) | | | 500 | | | (42) | |
Total(1) | $ | 1,687 | | | $ | (66) | | | $ | 7,062 | | | $ | (831) | | | $ | 8,749 | | | $ | (897) | |
| | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 months | | 12 months or more | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Investment securities available for sale | | | | | | | | | | | |
U.S. Treasury | $ | 403 | | | $ | (27) | | | $ | 1,495 | | | $ | (110) | | | $ | 1,898 | | | $ | (137) | |
Government agency | 65 | | | (1) | | | 62 | | | (1) | | | 127 | | | (2) | |
Residential mortgage-backed securities | 1,698 | | | (165) | | | 3,001 | | | (465) | | | 4,699 | | | (630) | |
Commercial mortgage-backed securities | 836 | | | (53) | | | 752 | | | (117) | | | 1,588 | | | (170) | |
Corporate bonds | 499 | | | (30) | | | 37 | | | (4) | | | 536 | | | (34) | |
Total | $ | 3,501 | | | $ | (276) | | | $ | 5,347 | | | $ | (697) | | | $ | 8,848 | | | $ | (973) | |
(1) Balances as of March 31, 2023 are presented net of the allowance for credit losses of $4 million.
As of March 31, 2023, there were 337 investment securities available for sale with continuous unrealized losses for more than 12 months, of which 315 were government sponsored enterprise-issued mortgage-backed securities, government agency securities, or U.S. treasury securities and the remaining 22 were corporate bonds. BancShares has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of March 31, 2023, no ACL was required. For corporate bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. As a result of this analysis, we determined that one corporate bond had a credit-related loss of $4 million as of March 31, 2023, which is reflected in the provision for credit losses as further discussed in Note 5 — Allowance for Credit Losses.
BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, and securities issued by the Supranational Entities and Multilateral Development Banks. Given the consistently strong credit rating of the U.S. Treasury, the Supranational Entities and Multilateral Development Banks and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, as of March 31, 2023, no ACL was required for held to maturity debt securities.
Investment securities having an aggregate carrying value of $4.16 billion at March 31, 2023, and $4.20 billion at December 31, 2022, were pledged as collateral to secure public funds on deposit and certain short-term borrowings, and for other purposes as required by law.
A security is considered past due once it is 30 days contractually past due under the terms of the agreement. There were no securities past due as of March 31, 2023 or December 31, 2022.
There were no debt securities held to maturity on non-accrual status as of March 31, 2023 or December 31, 2022.
Certain investments held by BancShares were recorded in other assets. BancShares held FHLB stock of $393 million and $197 million at March 31, 2023 and December 31, 2022, respectively; these securities are recorded at cost. BancShares held $62 million and $58 million of nonmarketable securities without readily determinable fair values, which are measured at cost at March 31, 2023 and December 31, 2022, respectively. Investments in qualified affordable housing projects, all of which qualify for the proportional amortization method were $1.66 billion and $598 million at March 31, 2023 and December 31, 2022, respectively.
NOTE 4 — LOANS AND LEASES
Unless otherwise noted, loans held for sale are not included in the following tables. Leases in the following tables include finance leases, but exclude operating lease equipment. As disclosed in Note 2 — Business Combinations, the following tables as of March 31, 2023 include loans acquired in the SVBB Acquisition.
Loans by Class | | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Commercial | | | |
Commercial construction | $ | 2,971 | | | $ | 2,804 | |
Owner occupied commercial mortgage | 14,456 | | | 14,473 | |
Non-owner occupied commercial mortgage | 10,292 | | | 9,902 | |
Commercial and industrial | 24,508 | | | 24,105 | |
Leases | 2,163 | | | 2,171 | |
Total commercial | 54,390 | | | 53,455 | |
Consumer | | | |
Residential mortgage | 13,727 | | | 13,309 | |
Revolving mortgage | 1,916 | | | 1,951 | |
Consumer auto | 1,452 | | | 1,414 | |
Consumer other | 632 | | | 652 | |
Total consumer | 17,727 | | | 17,326 | |
SVB | | | |
Global fund banking | 36,097 | | | — | |
Investor dependent - early stage | 1,994 | | | — | |
Investor dependent - growth stage | 4,418 | | | — | |
Innovation C&I and cash flow dependent | 9,193 | | | — | |
Private Bank | 9,476 | | | — | |
CRE | 2,444 | | | — | |
Other | 2,549 | | | — | |
Total SVB | 66,171 | | | — | |
Total loans and leases | $ | 138,288 | | | $ | 70,781 | |
At March 31, 2023 and December 31, 2022, accrued interest receivable on loans included in other assets was $643 million and $203 million, respectively, and was excluded from the estimate of credit losses.
The following table presents selected components of the amortized cost of loans:
Components of Amortized Cost
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Deferred costs, including unamortized costs and unearned fees on non-PCD loans | $ | 26 | | $ | 34 |
| | | |
Net unamortized discount on purchased loans | | | |
Non-PCD | $ | 2,337 | | $ | 73 |
PCD | 337 | | 45 | |
Total net unamortized discount | $ | 2,674 | | $ | 118 |
The aging of the outstanding loans and leases, by class, at March 31, 2023 and December 31, 2022 is provided in the tables below. Loans and leases less than 30 days past due are considered current, as various grace periods allow borrowers to make payments within a stated period after the due date and remain in compliance with the respective agreement.
Loans and Leases - Delinquency Status
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater | | Total Past Due | | Current | | Total |
Commercial | | | | | | | | | | | |
Commercial construction | $ | 9 | | | $ | 1 | | | $ | — | | | $ | 10 | | | $ | 2,961 | | | $ | 2,971 | |
Owner occupied commercial mortgage | 30 | | | — | | | 34 | | | 64 | | | 14,392 | | | 14,456 | |
Non-owner occupied commercial mortgage | 165 | | | 67 | | | 190 | | | 422 | | | 9,870 | | | 10,292 | |
Commercial and industrial | 158 | | | 30 | | | 61 | | | 249 | | | 24,259 | | | 24,508 | |
Leases | 55 | | | 13 | | | 14 | | | 82 | | | 2,081 | | | 2,163 | |
Total commercial | 417 | | | 111 | | | 299 | | | 827 | | | 53,563 | | | 54,390 | |
Consumer | | | | | | | | | | | |
Residential mortgage | 77 | | | 17 | | | 46 | | | 140 | | | 13,587 | | | 13,727 | |
Revolving mortgage | 10 | | | 3 | | | 8 | | | 21 | | | 1,895 | | | 1,916 | |
Consumer auto | 7 | | | 2 | | | 1 | | | 10 | | | 1,442 | | | 1,452 | |
Consumer other | 4 | | | 2 | | | 3 | | | 9 | | | 623 | | | 632 | |
Total consumer | 98 | | | 24 | | | 58 | | | 180 | | | 17,547 | | | 17,727 | |
SVB | | | | | | | | | | | |
Global fund banking | 37 | | | — | | | — | | | 37 | | | 36,060 | | | 36,097 | |
Investor dependent - early stage | 17 | | | 3 | | | 2 | | | 22 | | | 1,972 | | | 1,994 | |
Investor dependent - growth stage | 25 | | | 8 | | | — | | | 33 | | | 4,385 | | | 4,418 | |
Innovation C&I and cash flow dependent | 27 | | | 11 | | | — | | | 38 | | | 9,155 | | | 9,193 | |
Private Bank | 39 | | | 1 | | | 17 | | | 57 | | | 9,419 | | | 9,476 | |
CRE | 4 | | | 1 | | | — | | | 5 | | | 2,439 | | | 2,444 | |
Other | 10 | | | — | | | 4 | | | 14 | | | 2,535 | | | 2,549 | |
Total SVB | 159 | | | 24 | | | 23 | | | 206 | | | 65,965 | | | 66,171 | |
Total loans and leases | $ | 674 | | | $ | 159 | | | $ | 380 | | | $ | 1,213 | | | $ | 137,075 | | | $ | 138,288 | |
| | | | | | | | | | | |
| December 31, 2022 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or Greater | | Total Past Due | | Current | | Total |
Commercial | | | | | | | | | | | |
Commercial construction | $ | 50 | | | $ | — | | | $ | 1 | | | $ | 51 | | | $ | 2,753 | | | $ | 2,804 | |
Owner occupied commercial mortgage | 29 | | | 5 | | | 25 | | | 59 | | | 14,414 | | | 14,473 | |
Non-owner occupied commercial mortgage | 76 | | | 144 | | | 11 | | | 231 | | | 9,671 | | | 9,902 | |
Commercial and industrial | 173 | | | 26 | | | 53 | | | 252 | | | 23,853 | | | 24,105 | |
Leases | 59 | | | 17 | | | 16 | | | 92 | | | 2,079 | | | 2,171 | |
Total commercial | 387 | | | 192 | | | 106 | | | 685 | | | 52,770 | | | 53,455 | |
Consumer | | | | | | | | | | | |
Residential mortgage | 73 | | | 16 | | | 52 | | | 141 | | | 13,168 | | | 13,309 | |
Revolving mortgage | 9 | | | 3 | | | 8 | | | 20 | | | 1,931 | | | 1,951 | |
Consumer auto | 7 | | | 1 | | | 1 | | | 9 | | | 1,405 | | | 1,414 | |
Consumer other | 4 | | | 2 | | | 3 | | | 9 | | | 643 | | | 652 | |
Total consumer | 93 | | | 22 | | | 64 | | | 179 | | | 17,147 | | | 17,326 | |
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Total loans and leases | $ | 480 | | | $ | 214 | | | $ | 170 | | | $ | 864 | | | $ | 69,917 | | | $ | 70,781 | |
The amortized cost, by class, of loans and leases on non-accrual status, and loans and leases greater than 90 days past due and still accruing at March 31, 2023 and December 31, 2022 are presented below.
Loans on Non-Accrual Status (1) (2)
| | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
| Non-Accrual Loans | | Loans > 90 Days and Accruing | | Non-Accrual Loans | | Loans > 90 Days and Accruing |
Commercial | | | | | | | |
Commercial construction | $ | 2 | | | $ | — | | | $ | 48 | | | $ | — | |
Owner occupied commercial mortgage | 46 | | | 8 | | | 41 | | | 2 | |
Non-owner occupied commercial mortgage | 219 | | | 114 | | | 228 | | | — | |
Commercial and industrial | 214 | | | 20 | | | 184 | | | 41 | |
Leases | 29 | | | 4 | | | 28 | | | 7 | |
Total commercial | 510 | | | 146 | | | 529 | | | 50 | |
Consumer | | | | | | | |
Residential mortgage | 71 | | | 8 | | | 75 | | | 10 | |
Revolving mortgage | 18 | | | — | | | 18 | | | — | |
Consumer auto | 4 | | | — | | | 4 | | | — | |
Consumer other | 1 | | | 3 | | | 1 | | | 3 | |
Total consumer | 94 | | | 11 | | | 98 | | | 13 | |
SVB | | | | | | | |
Global fund banking | — | | | — | | | — | | | — | |
Investor dependent - early stage | 56 | | | — | | | — | | | — | |
Investor dependent - growth stage | 60 | | | — | | | — | | | — | |
Innovation C&I and cash flow dependent | 78 | | | — | | | — | | | — | |
Private Bank | 27 | | | — | | | — | | | — | |
CRE | 2 | | | — | | | — | | | — | |
Other | 1 | | | 4 | | | — | | | — | |
Total SVB | 224 | | | 4 | | | — | | | — | |
Total loans and leases | $ | 828 | | | $ | 161 | | | $ | 627 | | | $ | 63 | |
(1) Accrued interest that was reversed when the loan went to non-accrual status was $1 million for the three months ended March 31, 2023 and $4 million for the year ended December 31, 2022.
(2) Non-accrual loans for which there was no related ACL totaled $59 million at March 31, 2023 and $63 million at December 31, 2022.
Other real estate owned (“OREO”) and repossessed assets were $47 million as of March 31, 2023 and $47 million as of December 31, 2022.
Credit Quality Indicators
Loans and leases are monitored for credit quality on a recurring basis. Commercial loans and leases and consumer loans have different credit quality indicators as a result of the unique characteristics of the loan classes being evaluated. The credit quality indicators for Non-PCD commercial loans and leases are developed through a review of individual borrowers on an ongoing basis. Commercial loans are evaluated periodically with more frequent evaluations done on criticized loans. The indicators as of the date presented are based on the most recent assessment performed and are defined below:
Pass – A pass rated asset is not adversely classified because it does not display any of the characteristics for adverse classification.
Special mention – A special mention asset has potential weaknesses which deserve management’s close attention. If left uncorrected, such potential weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified and do not warrant adverse classification.
Substandard – A substandard asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets classified as substandard generally have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These assets are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Doubtful – An asset classified as doubtful has all the weaknesses inherent in an asset classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions and values.
Loss – Assets classified as loss are considered uncollectible and of such little value it is inappropriate to be carried as an asset. This classification is not necessarily equivalent to any potential for recovery or salvage value, but rather it is not appropriate to defer a full charge-off even though partial recovery may be affected in the future.
Ungraded – Ungraded loans represent loans not included in the individual credit grading process due to their relatively small balances or borrower type. The majority of ungraded loans at March 31, 2023 and December 31, 2022, relate to business credit cards. Business credit card loans are subject to automatic charge-off when they become 120 days past due in the same manner as unsecured consumer lines of credit.
The credit quality indicator for consumer loans is based on delinquency status of the borrower as of the date presented. As the borrower becomes more delinquent, the likelihood of loss increases. An exemption is applied to government guaranteed loans as the principal repayments are insured by the Federal Housing Administration and U.S. Department of Veterans Affairs and thus remain on accrual status regardless of delinquency status.
The following tables summarize the commercial and SVB loans disaggregated by year of origination and by risk rating. The consumer loan delinquency status by year of origination is also presented below. The tables reflect the amortized cost of the loans and include PCD loans.
Commercial Loans - Risk Classifications by Class
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 |
Risk Classification: | Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Revolving | | | Total |
Commercial construction | | | | | | | | | | | | | | | | |
Pass | $ | 187 | | | $ | 1,226 | | | $ | 772 | | | $ | 384 | | | $ | 119 | | | $ | 96 | | | $ | 60 | | | $ | — | | | $ | 2,844 | |
Special Mention | — | | | 4 | | | — | | | 48 | | | 40 | | | — | | | — | | | — | | | 92 | |
Substandard | 1 | | | 1 | | | — | | | — | | | 28 | | | 5 | | | — | | | — | | | 35 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial construction | 188 | | | 1,231 | | | 772 | | | 432 | | | 187 | | | 101 | | | 60 | | | — | | | 2,971 | |
Owner occupied commercial mortgage | | | | | | | | | | | | | | | | | |
Pass | 393 | | | 2,709 | | | 3,292 | | | 2,877 | | | 1,767 | | | 2,728 | | | 165 | | | — | | | 13,931 | |
Special Mention | — | | | 40 | | | 20 | | | 46 | | | 30 | | | 72 | | | 1 | | | — | | | 209 | |
Substandard | 5 | | | 22 | | | 47 | | | 52 | | | 29 | | | 154 | | | 6 | | | — | | | 315 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total owner occupied commercial mortgage | 398 | | | 2,771 | | | 3,359 | | | 2,975 | | | 1,826 | | | 2,955 | | | 172 | | | — | | | 14,456 | |
Non-owner occupied commercial mortgage | | | | | | | | | | | | | | | | | |
Pass | 612 | | | 2,500 | | | 1,666 | | | 1,772 | | | 1,202 | | | 1,456 | | | 49 | | | — | | | 9,257 | |
Special Mention | — | | | — | | | — | | | 79 | | | 130 | | | 81 | | | — | | | — | | | 290 | |
Substandard | — | | | 4 | | | 13 | | | 67 | | | 312 | | | 313 | | | — | | | — | | | 709 | |
Doubtful | — | | | — | | | — | | | — | | | 26 | | | 10 | | | — | | | — | | | 36 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total non-owner occupied commercial mortgage | 612 | | | 2,504 | | | 1,679 | | | 1,918 | | | 1,670 | | | 1,860 | | | 49 | | | — | | | 10,292 | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | 3,482 | | | 5,434 | | | 3,890 | | | 1,863 | | | 1,342 | | | 1,529 | | | 5,125 | | | 28 | | | 22,693 | |
Special Mention | 52 | | | 84 | | | 120 | | | 93 | | | 47 | | | 54 | | | 100 | | | — | | | 550 | |
Substandard | 24 | | | 103 | | | 135 | | | 175 | | | 148 | | | 272 | | | 239 | | | 1 | | | 1,097 | |
Doubtful | — | | | 4 | | | 5 | | | 1 | | | 14 | | | 30 | | | 10 | | | — | | | 64 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | 104 | | | — | | | 104 | |
Total commercial and industrial | 3,558 | | | 5,625 | | | 4,150 | | | 2,132 | | | 1,551 | | | 1,885 | | | 5,578 | | | 29 | | | 24,508 | |
Leases | | | | | | | | | | | | | | | | | |
Pass | 235 | | | 648 | | | 425 | | | 338 | | | 177 | | | 152 | | | — | | | — | | | 1,975 | |
Special Mention | 5 | | | 21 | | | 20 | | | 14 | | | 8 | | | 3 | | | — | | | — | | | 71 | |
Substandard | 5 | | | 35 | | | 28 | | | 23 | | | 10 | | | 6 | | | — | | | — | | | 107 | |
Doubtful | — | | | 3 | | | 3 | | | 2 | | | 1 | | | 1 | | | — | | | — | | | 10 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total leases | 245 | | | 707 | | | 476 | | | 377 | | | 196 | | | 162 | | | — | | | — | | | 2,163 | |
Total commercial | $ | 5,001 | | | $ | 12,838 | | | $ | 10,436 | | | $ | 7,834 | | | $ | 5,430 | | | $ | 6,963 | | | $ | 5,859 | | | $ | 29 | | | $ | 54,390 | |
SVB - Risk Classifications by Class
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 |
Risk Classification: | Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Revolving | | | Total |
Global fund banking | | | | | | | | | | | | | | | | |
Pass | $ | 78 | | | $ | 191 | | | $ | 134 | | | $ | 103 | | | $ | 44 | | | $ | 9 | | | $ | 35,453 | | | $ | 75 | | | $ | 36,087 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | 10 | | | — | | | 10 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total global fund banking | 78 | | | 191 | | | 134 | | | 103 | | | 44 | | | 9 | | | 35,463 | | | 75 | | | 36,097 | |
Investor dependent - early stage | | | | | | | | | | | | | | | | | |
Pass | 76 | | | 848 | | | 406 | | | 115 | | | 48 | | | 10 | | | 169 | | | — | | | 1,672 | |
Special Mention | — | | | 15 | | | 1 | | | 1 | | | — | | | — | | | 3 | | | — | | | 20 | |
Substandard | — | | | 61 | | | 89 | | | 38 | | | 8 | | | 2 | | | 47 | | | — | | | 245 | |
Doubtful | — | | | 27 | | | 20 | | | 4 | | | 2 | | | — | | | 4 | | | — | | | 57 | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total investor dependent - early stage | 76 | | | 951 | | | 516 | | | 158 | | | 58 | | | 12 | | | 223 | | | — | | | 1,994 | |
Investor dependent - growth stage | | | | | | | | | | | | | | | | | |
Pass | 206 | | | 1,372 | | | 1,137 | | | 512 | | | 145 | | | 186 | | | 314 | | | 5 | | | 3,877 | |
Special Mention | — | | | 8 | | | 15 | | | 17 | | | — | | | — | | | — | | | — | | | 40 | |
Substandard | 3 | | | 76 | | | 150 | | | 120 | | | 20 | | | 38 | | | 35 | | | — | | | 442 | |
Doubtful | — | | | 5 | | | 42 | | | 1 | | | 9 | | | 2 | | | — | | | — | | | 59 | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total investor dependent - growth stage | 209 | | | 1,461 | | | 1,344 | | | 650 | | | 174 | | | 226 | | | 349 | | | 5 | | | 4,418 | |
Innovation C&I and cash flow dependent | | | | | | | | | | | | | | | | | |
Pass | 129 | | | 1,684 | | | 1,191 | | | 1,309 | | | 586 | | | 669 | | | 2,948 | | | — | | | 8,516 | |
Special Mention | 41 | | | — | | | — | | | 26 | | | 28 | | | — | | | 15 | | | — | | | 110 | |
Substandard | — | | | 37 | | | 133 | | | 117 | | | 7 | | | 34 | | | 160 | | | — | | | 488 | |
Doubtful | — | | | — | | | 2 | | | 61 | | | — | | | — | | | 16 | | | — | | | 79 | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total innovation C&I and cash flow dependent | 170 | | | 1,721 | | | 1,326 | | | 1,513 | | | 621 | | | 703 | | | 3,139 | | | — | | | 9,193 | |
Private bank | | | | | | | | | | | | | | | | | |
Pass | 398 | | | 2,379 | | | 2,332 | | | 1,443 | | | 788 | | | 1,171 | | | 889 | | | 14 | | | 9,414 | |
Special Mention | — | | | — | | | 2 | | | — | | | — | | | 9 | | | 2 | | | — | | | 13 | |
Substandard | — | | | — | | | 13 | | | 1 | | | 3 | | | 20 | | | 2 | | | — | | | 39 | |
Doubtful | — | | | — | | | — | | | — | | | 1 | | | 9 | | | — | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total private bank | 398 | | | 2,379 | | | 2,347 | | | 1,444 | | | 792 | | | 1,209 | | | 893 | | | 14 | | | 9,476 | |
CRE | | | | | | | | | | | | | | | | | |
Pass | 53 | | | 516 | | | 260 | | | 194 | | | 195 | | | 889 | | | 98 | | | 5 | | | 2,210 | |
Special Mention | — | | | 3 | | | 10 | | | — | | | 3 | | | 27 | | | — | | | — | | | 43 | |
Substandard | — | | | — | | | 4 | | | 18 | | | 102 | | | 65 | | | 2 | | | — | | | 191 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CRE | 53 | | | 519 | | | 274 | | | 212 | | | 300 | | | 981 | | | 100 | | | 5 | | | 2,444 | |
Other | | | | | | | | | | | | | | | | | |
Pass | 43 | | | 419 | | | 416 | | | 356 | | | 163 | | | 625 | | | 364 | | | 64 | | | 2,450 | |
Special Mention | — | | | — | | | 2 | | | 11 | | | — | | | 11 | | | 2 | | | — | | | 26 | |
Substandard | — | | | 10 | | | 6 | | | 7 | | | 8 | | | 29 | | | 13 | | | — | | | 73 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Other | 43 | | | 429 | | | 424 | | | 374 | | | 171 | | | 665 | | | 379 | | | 64 | | | 2,549 | |
Total SVB | $ | 1,027 | | | $ | 7,651 | | | $ | 6,365 | | | $ | 4,454 | | | $ | 2,160 | | | $ | 3,805 | | | $ | 40,546 | | | $ | 163 | | | $ | 66,171 | |
Consumer Loans - Delinquency Status by Class
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 |
Days Past Due: | Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Revolving | | | Total |
Residential mortgage | | | | | | | | | | | | | | | | | |
Current | $ | 726 | | | $ | 3,527 | | | $ | 3,681 | | | $ | 2,043 | | | $ | 774 | | | $ | 2,819 | | | $ | 17 | | | $ | — | | | $ | 13,587 | |
30-59 days | — | | | 5 | | | 9 | | | 6 | | | 2 | | | 55 | | | — | | | — | | | 77 | |
60-89 days | — | | | — | | | 2 | | | 2 | | | 1 | | | 12 | | | — | | | — | | | 17 | |
90 days or greater | — | | | 1 | | | 1 | | | 3 | | | 1 | | | 40 | | | — | | | — | | | 46 | |
Total residential mortgage | 726 | | | 3,533 | | | 3,693 | | | 2,054 | | | 778 | | | 2,926 | | | 17 | | | — | | | 13,727 | |
Revolving mortgage | | | | | | | | | | | | | | | | | |
Current | — | | | — | | | — | | | — | | | — | | | — | | | 1,803 | | | 92 | | | 1,895 | |
30-59 days | — | | | — | | | — | | | — | | | — | | | — | | | 7 | | | 3 | | | 10 | |
60-89 days | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 2 | | | 3 | |
90 days or greater | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 3 | | | 8 | |
Total revolving mortgage | — | | | — | | | — | | | — | | | — | | | — | | | 1,816 | | | 100 | | | 1,916 | |
Consumer auto | | | | | | | | | | | | | | | | | |
Current | 165 | | | 565 | | | 360 | | | 193 | | | 95 | | | 64 | | | — | | | — | | | 1,442 | |
30-59 days | — | | | 2 | | | 2 | | | 1 | | | 1 | | | 1 | | | — | | | — | | | 7 | |
60-89 days | — | | | 1 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 2 | |
90 days or greater | — | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Total consumer auto | 165 | | | 568 | | | 364 | | | 194 | | | 96 | | | 65 | | | — | | | — | | | 1,452 | |
Consumer other | | | | | | | | | | | | | | | | | |
Current | 30 | | | 142 | | | 73 | | | 12 | | | 5 | | | 20 | | | 341 | | | — | | | 623 | |
30-59 days | — | | | 1 | | | — | | | — | | | — | | | 1 | | | 2 | | | — | | | 4 | |
60-89 days | — | | | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
90 days or greater | — | | | — | | | — | | | — | | | — | | | 1 | | | 2 | | | — | | | 3 | |
Total consumer other | 30 | | | 143 | | | 73 | | | 12 | | | 5 | | | 22 | | | 347 | | | — | | | 632 | |
Total consumer | $ | 921 | | | $ | 4,244 | | | $ | 4,130 | | | $ | 2,260 | | | $ | 879 | | | $ | 3,013 | | | $ | 2,180 | | | $ | 100 | | | $ | 17,727 | |
The following tables represent current credit quality indicators by origination year as of December 31, 2022:
Commercial Loans - Risk Classifications by Class
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 |
Risk Classification: | Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Revolving | | | Total |
Commercial construction | | | | | | | | | | | | | | | | |
Pass | $ | 1,140 | | | $ | 759 | | | $ | 511 | | | $ | 157 | | | $ | 27 | | | $ | 75 | | | $ | 42 | | | $ | — | | | $ | 2,711 | |
Special Mention | 4 | | | — | | | 18 | | | 18 | | | — | | | — | | | — | | | — | | | 40 | |
Substandard | 2 | | | — | | | — | | | 43 | | | — | | | 5 | | | — | | | — | | | 50 | |
Doubtful | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 3 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial construction | 1,146 | | | 759 | | | 529 | | | 221 | | | 27 | | | 80 | | | 42 | | | — | | | 2,804 | |
Owner occupied commercial mortgage | | | | | | | | | | | | | | | | | |
Pass | 2,773 | | | 3,328 | | | 2,966 | | | 1,825 | | | 1,048 | | | 1,867 | | | 177 | | | — | | | 13,984 | |
Special Mention | 33 | | | 14 | | | 32 | | | 33 | | | 18 | | | 49 | | | 2 | | | — | | | 181 | |
Substandard | 24 | | | 47 | | | 41 | | | 28 | | | 47 | | | 114 | | | 6 | | | — | | | 307 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total owner occupied commercial mortgage | 2,830 | | | 3,389 | | | 3,039 | | | 1,886 | | | 1,113 | | | 2,031 | | | 185 | | | — | | | 14,473 | |
Non-owner occupied commercial mortgage | | | | | | | | | | | | | | | | | |
Pass | 2,501 | | | 1,658 | | | 1,794 | | | 1,397 | | | 680 | | | 933 | | | 48 | | | — | | | 9,011 | |
Special Mention | — | | | 1 | | | 69 | | | 38 | | | 35 | | | 10 | | | 1 | | | — | | | 154 | |
Substandard | 3 | | | 11 | | | 68 | | | 324 | | | 58 | | | 236 | | | — | | | — | | | 700 | |
Doubtful | — | | | — | | | — | | | 17 | | | — | | | 20 | | | — | | | — | | | 37 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total non-owner occupied commercial mortgage | 2,504 | | | 1,670 | | | 1,931 | | | 1,776 | | | 773 | | | 1,199 | | | 49 | | | — | | | 9,902 | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | 7,695 | | | 4,145 | | | 2,035 | | | 1,533 | | | 872 | | | 845 | | | 5,252 | | | 29 | | | 22,406 | |
Special Mention | 87 | | | 153 | | | 79 | | | 63 | | | 52 | | | 23 | | | 40 | | | — | | | 497 | |
Substandard | 106 | | | 117 | | | 194 | | | 132 | | | 166 | | | 145 | | | 200 | | | 1 | | | 1,061 | |
Doubtful | 1 | | | 4 | | | 3 | | | 11 | | | 6 | | | 16 | | | 7 | | | — | | | 48 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | — | | | 93 | | | — | | | 93 | |
Total commercial and industrial | 7,889 | | | 4,419 | | | 2,311 | | | 1,739 | | | 1,096 | | | 1,029 | | | 5,592 | | | 30 | | | 24,105 | |
Leases | | | | | | | | | | | | | | | | | |
Pass | 718 | | | 466 | | | 389 | | | 216 | | | 80 | | | 108 | | | — | | | — | | | 1,977 | |
Special Mention | 21 | | | 22 | | | 17 | | | 9 | | | 4 | | | — | | | — | | | — | | | 73 | |
Substandard | 32 | | | 32 | | | 27 | | | 12 | | | 7 | | | 1 | | | — | | | — | | | 111 | |
Doubtful | 2 | | | 3 | | | 2 | | | 1 | | | 1 | | | — | | | — | | | — | | | 9 | |
Ungraded | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Total leases | 773 | | | 523 | | | 435 | | | 238 | | | 92 | | | 110 | | | — | | | — | | | 2,171 | |
Total commercial | $ | 15,142 | | | $ | 10,760 | | | $ | 8,245 | | | $ | 5,860 | | | $ | 3,101 | | | $ | 4,449 | | | $ | 5,868 | | | $ | 30 | | | $ | 53,455 | |
Consumer Loans - Delinquency Status by Class
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 |
Days Past Due: | Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 & Prior | | Revolving | | | Total |
Residential mortgage | | | | | | | | | | | | | | | | | |
Current | $ | 3,485 | | | $ | 3,721 | | | $ | 2,097 | | | $ | 805 | | | $ | 413 | | | $ | 2,625 | | | $ | 22 | | | $ | — | | | $ | 13,168 | |
30-59 days | 3 | | | 7 | | | 6 | | | 5 | | | 3 | | | 49 | | | — | | | — | | | 73 | |
60-89 days | 1 | | | 1 | | | 2 | | | — | | | 1 | | | 11 | | | — | | | — | | | 16 | |
90 days or greater | — | | | 1 | | | 1 | | | 2 | | | 2 | | | 46 | | | — | | | — | | | 52 | |
Total residential mortgage | 3,489 | | | 3,730 | | | 2,106 | | | 812 | | | 419 | | | 2,731 | | | 22 | | | — | | | 13,309 | |
Revolving mortgage | | | | | | | | | | | | | | | | | |
Current | — | | | — | | | — | | | — | | | — | | | — | | | 1,839 | | | 92 | | | 1,931 | |
30-59 days | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 4 | | | 9 | |
60-89 days | — | | | — | | | — | | | — | | | — | | | — | | | 2 | | | 1 | | | 3 | |
90 days or greater | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 3 | | | 8 | |
Total revolving mortgage | — | | | — | | | — | | | — | | | — | | | — | | | 1,851 | | | 100 | | | 1,951 | |
Consumer auto | | | | | | | | | | | | | | | | | |
Current | 599 | | | 398 | | | 216 | | | 111 | | | 59 | | | 22 | | | — | | | — | | | 1,405 | |
30-59 days | 1 | | | 2 | | | 2 | | | 1 | | | 1 | | | — | | | — | | | — | | | 7 | |
60-89 days | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
90 days or greater | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Total consumer auto | 600 | | | 402 | | | 218 | | | 112 | | | 60 | | | 22 | | | — | | | — | | | 1,414 | |
Consumer other | | | | | | | | | | | | | | | | | |
Current | 160 | | | 82 | | | 13 | | | 6 | | | 2 | | | 19 | | | 361 | | | — | | | 643 | |
30-59 days | — | | | — | | | — | | | — | | | — | | | 1 | | | 3 | | | — | | | 4 | |
60-89 days | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | — | | | 2 | |
90 days or greater | — | | | — | | | — | | | — | | | — | | | 1 | | | 2 | | | — | | | 3 | |
Total consumer other | 160 | | | 82 | | | 13 | | | 6 | | | 2 | | | 22 | | | 367 | | | — | | | 652 | |
Total consumer | $ | 4,249 | | | $ | 4,214 | | | $ | 2,337 | | | $ | 930 | | | $ | 481 | | | $ | 2,775 | | | $ | 2,240 | | | $ | 100 | | | $ | 17,326 | |
Gross Charge-offs
Gross Charge-off Vintage Disclosures by origination year and loan class are summarized in the following table for the three months ended March 31, 2023:
Gross Charge-offs
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Three Months Ended March 31, 2023 |
| Term Loans by Origination Year | | | | Revolving Converted to Term Loans | | |
dollars in millions | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 & Prior | | Revolving | | | Total |
Commercial | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Non-owner occupied commercial mortgage | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 12 | | | $ | — | | | $ | — | | | $ | 12 | |
Commercial and industrial | — | | | 14 | | | 9 | | | 4 | | | 2 | | | 1 | | | 8 | | | — | | | 38 | |
Leases | — | | | 2 | | | 1 | | | 1 | | | — | | | — | | | — | | | — | | | 4 | |
Total commercial | — | | | 16 | | | 10 | | | 5 | | | 2 | | | 13 | | | 8 | | | — | | | 54 | |
Consumer | | | | | | | | | | | | | | | | | |
Residential mortgage | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | — | | | 2 | |
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Consumer other | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | — | | | 3 | |
Total consumer | — | | | — | | | — | | | — | | | — | | | 2 | | | 3 | | | — | | | 5 | |
SVB | | | | | | | | | | | | | | | | | |
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Total SVB | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total loans and leases | $ | — | | | $ | 16 | | | $ | 10 | | | $ | 5 | | | $ | 2 | | | $ | 15 | | | $ | 11 | | | $ | — | | | $ | 59 | |
Loan Modifications for Borrowers Experiencing Financial Difficulties
On January 1, 2023, we adopted ASU 2022-02 as further discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. The Modification Disclosures required by ASU 2022-02 are included below.
As part of BancShares’ ongoing credit risk management practices, BancShares attempts to work with borrowers when necessary to extend or modify loan terms to better align with borrowers current ability to repay. BancShares’ modifications granted to debtors experiencing financial difficulties typically take the form of term extensions, interest rate reductions, other-than-insignificant payment delays, principal forgiveness, or a combination thereof. Modifications are made in accordance with internal policies and guidelines to conform to regulatory guidance.
The following table presents loan modifications made to debtors experiencing financial difficulty, disaggregated by class and type of loan modification. The table also includes the weighted average term extensions, as well as the modification total
relative to the total period-end amortized cost basis of loans in the respective loan class.
Loan Modifications Made to Borrowers Experiencing Financial Difficulty (three months ended March 31, 2023)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Term Extension(1) | | Term Extension and Interest Rate Reduction | | Term Extension and Other Than Insignificant Payment Delay | | Total |
| Amortized Cost | | Weighted Average Term Extension (Months) | | Amortized Cost | | Weighted Average Term Extension (Months) | | Weighted Average Interest Rate Reduction | | Amortized Cost | | Weighted Average Term Extension (Months) | | Weighted Average Payment Delay (Months) | | Amortized Cost | | Total as a % of Loan and Lease Class |
Commercial | | | | | | | | | | | | | | | | | | | |
Commercial construction | $ | 1 | | | 9 | | | $ | — | | | — | | | — | % | | $ | — | | | — | | | — | | | $ | 1 | | | 0.02 | % |
Owner occupied commercial mortgage | 10 | | | 11 | | | — | | | 36 | | | 2.00 | % | | — | | | — | | | — | | | 10 | | | 0.07 | % |
Non-owner occupied commercial mortgage | 53 | | | 3 | | | — | | | — | | | 1.10 | % | | — | | | — | | | — | | | 53 | | | 0.51 | % |
Commercial and industrial | 12 | | | 6 | | | 6 | | | 3 | | | 1.17 | % | | 3 | | | 8 | | | 8 | | | 21 | | | 0.09 | % |
| | | | | | | | | | | | | | | | | | | |
Total commercial | 76 | | | 5 | | | 6 | | | 4 | | | 1.19 | % | | 3 | | | 8 | | | 8 | | | 85 | | | 0.16 | % |
Consumer | | | | | | | | | | | | | | | | | | | |
Residential mortgage | 1 | | | 29 | | | — | | | — | | | — | % | | — | | | — | | | — | | | 1 | | | 0.01 | % |
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Total consumer | 1 | | | 29 | | | — | | | 60 | | | 0.39 | % | | — | | | — | | | — | | | 1 | | | 0.01 | % |
SVB | | | | | | | | | | | | | | | | | | | |
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Investor dependent - growth stage | 6 | | | 6 | | | — | | | — | | | — | % | | — | | | — | | | — | | | 6 | | | 0.14 | % |
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Total SVB | 6 | | | 6 | | | — | | | — | | | — | % | | — | | | — | | | — | | | 6 | | | 0.01 | % |
Total loans and leases | $ | 83 | | | 5 | | | $ | 6 | | | 4 | | | 1.18 | % | | $ | 3 | | | 8 | | | 8 | | | $ | 92 | | | 0.07 | % |
(1) Term extensions include loans where the balloon payment has been deferred to a later date or is amortizing over an extended period.
Borrowers experiencing financial difficulties are typically identified in our credit risk management process before loan modifications occur. An assessment of whether a borrower is experiencing financial difficulty is reassessed or performed on the date of a modification. Since the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Upon BancShares’ determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. There were no significant amounts of modified loans that subsequently defaulted during the first quarter of 2023.
The following table presents the amortized cost and performance of modified loans to borrowers experiencing financial difficulties in the three months ended March 31, 2023. The period of delinquency is based on the number of days the scheduled payment is contractually past due.
Modified Loans Payment Status
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Current | | 30–59 Days Past Due | | 60–89 Days Past Due | | 90 days or greater Past Due | | Total |
Commercial | | | | | | | | | |
Commercial construction | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
Owner occupied commercial mortgage | 10 | | | — | | | — | | | — | | | 10 | |
Non-owner occupied commercial mortgage | 53 | | | — | | | — | | | — | | | 53 | |
Commercial and industrial | 21 | | | — | | | — | | | — | | | 21 | |
| | | | | | | | | |
Total commercial | 85 | | | — | | | — | | | — | | | 85 | |
Consumer | | | | | | | | | |
Residential mortgage | 1 | | | — | | | — | | | — | | | 1 | |
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Total consumer | 1 | | | — | | | — | | | — | | | 1 | |
SVB | | | | | | | | | |
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Investor dependent - growth stage | 6 | | | — | | | — | | | — | | | 6 | |
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Total SVB | 6 | | | — | | | — | | | — | | | 6 | |
Total loans and leases | $ | 92 | | | $ | — | | | $ | — | | | $ | — | | | $ | 92 | |
At March 31, 2023, there were no significant commitments to lend additional funds to debtors experiencing financial difficulty for which the terms of the loan were modified.
Prior Period Troubled Debt Restructuring
The following includes disclosures for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”) for historical periods prior to adoption of ASU 2022-02. In general, a modification or restructuring of a loan was considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.
Concessions may have related to the contractual interest rate, maturity date, payment structure or other actions. The assessments of whether a borrower was experiencing (or is likely to experience) financial difficulty, and whether a concession had been granted, were subjective in nature and management’s judgment was required when determining whether a modification was classified as a TDR. Modified loans that met the definition of a TDR were subject to BancShares’ individually reviewed loans policy.
The following table presents amortized cost of TDRs:
TDRs
| | | | | | | | | | | | | | | | | |
dollars in millions | December 31, 2022 |
| Accruing | | Non-Accruing | | Total |
Commercial | | | | | |
Commercial construction | $ | 2 | | | $ | 1 | | | $ | 3 | |
Owner occupied commercial mortgage | 46 | | | 9 | | | 55 | |
Non-owner occupied commercial mortgage | 24 | | | 30 | | | 54 | |
Commercial and industrial | 26 | | | 8 | | | 34 | |
Leases | — | | | 1 | | | 1 | |
Total commercial | 98 | | | 49 | | | 147 | |
Consumer | | | | | |
Residential mortgage | 33 | | | 17 | | | 50 | |
Revolving mortgage | 17 | | | 5 | | | 22 | |
Consumer auto | 2 | | | — | | | 2 | |
Consumer other | — | | | — | | | — | |
Total consumer | 52 | | | 22 | | | 74 | |
Total TDRs | $ | 150 | | | $ | 71 | | | $ | 221 | |
The following table summarizes the loan restructurings during the three months ended March 31, 2022 that were designated as TDRs. BancShares defines payment default as movement of the TDR to non-accrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.
Restructurings
| | | | | | | | | | | | | | | | | | | | |
dollars in millions (except for number of loans) | | | | | | Three Months Ended March 31, | | | | |
| | | 2022 | | | | |
| | | | | | Number of Loans | | Amortized Cost at Period End | | | | |
Loans and leases | | | | | | | | | | | | |
Interest only | | | | | | 2 | | | $ | — | | | | | |
Loan term extension | | | | | | 35 | | | 20 | | | | | |
Below market rates | | | | | | 20 | | | 2 | | | | | |
Discharge from bankruptcy | | | | | | 24 | | | 2 | | | | | |
Total | | | | | | 81 | | | $ | 24 | | | | | |
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There were $1.5 million of commitments to lend additional funds to borrowers whose loan terms that were modified in TDRs as of December 31, 2022.
After a loan is determined to be a TDR, BancShares continues to track its performance under its most recent restructured terms. TDRs that subsequently defaulted during the three months ended March 31, 2022, and were classified as TDRs during the applicable 12-month period preceding March 31, 2022 were as follows:
TDR Defaults
| | | | | | | | |
dollars in millions | | Three Months Ended March 31, |
| | 2022 |
TDR Defaults | | $ | 2 | |
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| |
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Purchased loans and leases
The following table summarizes PCD loans and leases that BancShares acquired in the SVBB Acquisition.
PCD Loans and Leases - SVBB Acquisition
| | | | | |
| Total PCD from SVBB Acquisition |
UPB | $ | 2,529 | |
Initial PCD ACL | (200) | |
Fair value discount, net of the PCD Gross-Up | (299) | |
Purchase price | $ | 2,030 | |
The recorded fair values of Non-PCD loans acquired in the SVBB Acquisition as of the acquisition date was $66.47 billion, resulting in a purchase accounting adjustment discount of $2.27 billion. BancShares’ accounting methods for acquired loans are discussed in Note 1 — Significant Accounting Policies and Basis of Presentation. See Note 2 — Business Combinations for further discussion of the SVBB Acquisition.
Loans Pledged
The following table provides information regarding loans pledged as collateral for borrowing capacity through the FHLB of Atlanta and the Federal Reserve Bank (“FRB”) as of March 31, 2023 and December 31, 2022.
Loans Pledged
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
FHLB of Atlanta | | | |
Lendable collateral value of pledged non-PCD loans | $ | 14,662 | | | $ | 14,918 | |
Less: Advances | 8,500 | | | 4,250 | |
Less: Letters of Credit | 1,450 | | | 1,450 | |
Available borrowing capacity | $ | 4,712 | | | $ | 9,218 | |
Pledged non-PCD loans (contractual balance) | $ | 23,743 | | | $ | 23,491 | |
| | | |
FRB | | | |
Lendable collateral value of pledged non-PCD loans | $ | 4,676 | | | $ | 4,203 | |
Less: Advances | — | | | — | |
Available borrowing capacity | $ | 4,676 | | | $ | 4,203 | |
Pledged non-PCD loans (contractual balance) | $ | 5,864 | | | $ | 5,697 | |
In connection with the SVBB Acquisition, FCB and the FDIC entered into terms and conditions for a five-year, up to $70 billion line of credit to FCB provided by the FDIC and a Purchase Money Note, both of which are or will be primarily secured by all loans acquired and related commitments that subsequently were drawn and outstanding as of March 31, 2023. See Note 2 — Business Combinations for further discussion of the facility and note.
NOTE 5 — ALLOWANCE FOR CREDIT LOSSES
The ACL for loans and leases is reported in the allowance for credit losses on the Consolidated Balance Sheets, while the ACL for unfunded commitments is reported in other liabilities. The provision or benefit for credit losses related to (i) loans and leases (ii) unfunded commitments and (iii) investment securities available for sale is reported in the Consolidated Statements of Income as provision or benefit for credit losses.
The initial ACL for PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger (the “Initial PCD ACL”) were established through a PCD Gross-Up and there were no corresponding increases to the provision for credit losses. The PCD Gross-Ups are discussed further in Note 1 — Significant Accounting Policies and Basis of Presentation. The initial ACL for Non-PCD loans and leases acquired in the SVBB Acquisition and the CIT Merger were established through corresponding increases to the provision for credit losses (the “day 2 provision for loans and leases”). The initial ACL for unfunded commitments acquired in the SVBB Acquisition and the CIT Merger were established through a corresponding increase to the provision for unfunded commitments (the “day 2 provision for unfunded commitments”).
The ACL activity for loans and leases, unfunded commitments and investment securities is summarized in the following tables.
ACL for Loans and Leases
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | | | Three Months Ended March 31, 2023 |
| | | | | | | Commercial | | Consumer | | SVB | | Total |
Balance at beginning of period | | | | | | | $ | 789 | | | $ | 133 | | | $ | — | | | $ | 922 | |
Initial PCD ACL | | | | | | | — | | | — | | | 200 | | | 200 | |
Day 2 provision for loans and leases | | | | | | | — | | | — | | | 462 | | | 462 | |
Provision for credit losses - loans and leases | | | | | | | 58 | | | 13 | | | — | | | 71 | |
Total provision for credit losses- loans and leases | | | | | | | 58 | | | 13 | | | 462 | | | 533 | |
Charge-offs | | | | | | | (55) | | | (7) | | | — | | | (62) | |
Recoveries | | | | | | | 8 | | | 4 | | | — | | | 12 | |
| | | | | | | | | | | | | |
Balance at March 31, 2023 | | | | | | | $ | 800 | | | $ | 143 | | | $ | 662 | | | $ | 1,605 | |
| | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2022 |
| | | | | | | Commercial | | Consumer | | SVB | | Total |
Balance at beginning of period | | | | | | | $ | 80 | | | $ | 98 | | | $ | — | | | $ | 178 | |
Initial PCD ACL | | | | | | | 270 | | | 14 | | | — | | | 284 | |
Day 2 provision for loans and leases | | | | | | | 432 | | | 22 | | | — | | | 454 | |
Benefit for credit losses - loans and leases | | | | | | | (23) | | | (30) | | | — | | | (53) | |
Total provision (benefit) for credit losses- loans and leases | | | | | | | 409 | | | (8) | | | — | | | 401 | |
Charge-offs | | | | | | | (28) | | | (5) | | | — | | | (33) | |
Recoveries | | | | | | | 12 | | | 6 | | | — | | | 18 | |
Balance at March 31, 2022 | | | | | | | $ | 743 | | | $ | 105 | | | $ | — | | | $ | 848 | |
ACL for Unfunded Commitments
| | | | | | | | | | | | | | | |
dollars in millions | | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Beginning balance | | | | | $ | 106 | | | $ | 12 | |
Day 2 provision for unfunded commitments | | | | | 254 | | | 59 | |
(Benefit) provision for unfunded commitments | | | | | (8) | | | 4 | |
Total provision for credit losses - unfunded commitments | | | | | 246 | | | 63 | |
Ending balance | | | | | $ | 352 | | | $ | 75 | |
ACL for Investment Securities
| | | | | | | | | | | | | | | |
dollars in millions | | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Beginning balance | | | | | $ | — | | | $ | — | |
Provision for credit losses - investment securities available for sale | | | | | 4 | | | — | |
Ending balance | | | | | $ | 4 | | | $ | — | |
NOTE 6 — LEASES
Lessee
BancShares leases primarily include administrative offices and bank locations. Substantially all of our lease liabilities relate to United States real estate leases under operating lease arrangements. Our real estate leases have remaining lease terms of up to 16 years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised.
The following table presents supplemental balance sheet information and remaining weighted average lease terms and discount rates.
Supplemental Lease Information
| | | | | | | | | | | | | | | | | |
dollars in millions | Classification | | March 31, 2023 | | December 31, 2022 |
ROU assets: | | | | | |
Operating leases | Other assets | | $ | 337 | | | $ | 345 | |
Finance leases | Premises and equipment | | 7 | | | 7 | |
Total ROU assets | | | $ | 344 | | | $ | 352 | |
Lease liabilities: | | | | | |
Operating leases | Other liabilities | | $ | 345 | | | $ | 352 | |
Finance leases | Other borrowings | | 7 | | | 7 | |
Total lease liabilities | | | $ | 352 | | | $ | 359 | |
Weighted-average remaining lease terms: | | | | | |
Operating leases | | | 9.4 years | | 9.6 years |
Finance leases | | | 3.8 years | | 4.1 years |
Weighted-average discount rate: | | | | | |
Operating leases | | | 2.22 | % | | 2.19 | % |
Finance leases | | | 2.34 | % | | 2.34 | % |
The following table presents components of lease cost:
Components of Net Lease Cost
| | | | | | | | | | | | | | | | | |
dollars in millions | | | Three Months Ended March 31, |
| Classification | | 2023 | | 2022 |
Lease cost | | | | | |
Operating lease cost(1) | Occupancy Expense | | $ | 13 | | | $ | 16 | |
Finance lease cost | | | | | |
Amortization of leased assets | Equipment expense | | — | | | 1 | |
Interest on lease liabilities | Interest expense - other borrowings | | — | | | — | |
Variable lease cost | Occupancy Expense | | 4 | | | 3 | |
Sublease income | Occupancy Expense | | (1) | | | (1) | |
Net lease cost | | | $ | 16 | | | $ | 19 | |
(1) Includes short-term lease cost, which is not significant.
Variable lease cost includes common area maintenance, property taxes, utilities, and other operating expenses related to leased premises recognized in the period in which the expense was incurred. Certain of our lease agreements also include rental payments adjusted periodically for inflation. While lease liabilities are not remeasured because of these changes, these adjustments are treated as variable lease costs and recognized in the period in which the expense is incurred. Sublease income results from leasing excess building space that BancShares is no longer utilizing under operating leases, which have remaining lease terms of up to 13 years.
The following table presents supplemental cash flow information related to leases:
Supplemental Cash Flow Information
| | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, |
| 2023 | | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 13 | | | $ | 14 | |
| | | |
| | | |
ROU assets obtained in exchange for new operating lease liabilities | 4 | | | 8 | |
| | | |
Lessor
BancShares leases equipment to commercial end-users under operating lease and finance lease arrangements. The majority of operating lease equipment is long-lived rail equipment, which is typically leased several times over its life. We also lease technology and office equipment, and large and small industrial, medical, and transportation equipment under both operating leases and finance leases.
The table that follows presents lease income related to BancShares’ operating and finance leases:
Lease Income
| | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Lease income – Operating leases | $ | 214 | | | $ | 195 | | | | | |
Variable lease income – Operating leases(1) | 19 | | | 13 | | | | | |
Rental income on operating leases | 233 | | | 208 | | | | | |
Interest income - Sales type and direct financing leases | 41 | | | 42 | | | | | |
Variable lease income included in Other noninterest income(2) | 15 | | | 11 | | | | | |
Interest income - Leveraged leases | 5 | | | 5 | | | | | |
Total lease income | $ | 294 | | | $ | 266 | | | | | |
(1) Primarily includes per diem railcar operating lease rental income earned on a time or mileage usage basis.
(2) Includes leased equipment property tax reimbursements due from customers of $4 million and $3 million for the three months ended March 31, 2023 and 2022, respectively and revenue related to insurance coverage on leased equipment of $10 million and $7 million for the three months ended March 31, 2023 and 2022, respectively.
NOTE 7 — GOODWILL AND CORE DEPOSIT INTANGIBLES
Goodwill
BancShares applied the acquisition method of accounting for the SVBB Acquisition and the CIT Merger. The fair value of the net assets acquired exceeded the purchase prices for both acquisitions. Consequently, there was a gain on acquisition (and no goodwill) as discussed further in Note 2 — Business Combinations. BancShares had goodwill of $346 million at March 31, 2023 and December 31, 2022 that relates to business combinations completed prior to the SVBB Acquisition and the CIT Merger. All of the goodwill relates to the General Banking reporting segment. There was no goodwill impairment during the three months ended March 31, 2023 or 2022.
Core Deposit Intangibles
Core deposit intangibles represent the estimated fair value of core deposits and other customer relationships acquired. Core deposit intangibles are being amortized over their estimated useful life. The following tables summarize the activity for core deposit intangibles during the quarter ending March 31, 2023.
Core Deposit Intangibles
| | | | | |
dollars in millions | 2023 |
Balance, net of accumulated amortization at January 1 | $ | 140 | |
Core deposit intangibles related to the SVBB Acquisition | 230 | |
Amortization for the period | (6) | |
Balance at March 31, net of accumulated amortization | $ | 364 | |
Core Deposit Intangible Accumulated Amortization
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Gross balance | $ | 501 | | | $ | 271 | |
Accumulated amortization | (137) | | | (131) | |
Balance, net of accumulated amortization | $ | 364 | | | $ | 140 | |
The following table summarizes the expected amortization expense as of March 31, 2023 in subsequent periods for core deposit intangibles.
Core Deposit Intangible Expected Amortization
| | | | | |
dollars in millions | |
Remainder 2023 | $ | 52 | |
2024 | 63 | |
2025 | 54 | |
2026 | 46 | |
2027 | 39 | |
2028 | 34 | |
Thereafter | 76 | |
Balance, net of accumulated amortization | $ | 364 | |
NOTE 8 — VARIABLE INTEREST ENTITIES
Variable Interest Entities
Described below are the results of BancShares’ assessment of its variable interests in order to determine its current status with regard to being the VIE primary beneficiary. Refer to Note 1 — Significant Accounting Policies and Basis of Presentation for additional information on accounting for VIEs and investments in qualified housing projects.
Consolidated VIEs
At March 31, 2023 and December 31, 2022, there were no consolidated VIEs.
Unconsolidated VIEs
Unconsolidated VIEs include limited partnership interests and joint ventures where BancShares’ involvement is limited to an investor interest and BancShares does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance or obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The table below presents potential losses that would be incurred under hypothetical circumstances, such that the value of BancShares’ interests and any associated collateral declines to zero and assuming no recovery or offset from any economic hedges. BancShares believes the possibility is remote under this hypothetical scenario; accordingly, this disclosure is not an indication of expected loss. As disclosed in Note 2 — Business Combinations, the following tables as of March 31, 2023 include VIEs acquired in the SVBB Acquisition.
Unconsolidated VIEs Carrying Value
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Investment in qualified affordable housing projects | $ | 1,662 | | | $ | 598 | |
Other tax credit equity investments | 5 | | | 5 | |
Total tax credit equity investments | $ | 1,667 | | | $ | 603 | |
Other unconsolidated investments | 166 | | | 159 | |
Total assets (maximum loss exposure)(1) | $ | 1,833 | | | $ | 762 | |
Liabilities for commitments to tax credit investments(2)(3) | $ | 991 | | | $ | 295 | |
(1) Included in other assets. Balance presented net of purchase accounting adjustments of $273 million at March 31, 2023.
(2) Represents commitments to invest in qualified affordable housing investments, and other investments qualifying for community reinvestment tax credits. These commitments are payable on demand and are included in other liabilities.
(3) Balance presented net of purchase accounting adjustment of $70 million at March 31, 2023.
NOTE 9 — OTHER ASSETS
The below table reflects the impact of approximately $2.18 billion of miscellaneous assets acquired in conjunction with the SVBB Acquisition. These consisted primarily of affordable housing tax credit investments, accrued interest receivable, derivative assets, and other miscellaneous assets. Refer to Note 2 — Business Combinations for further discussion. The following table includes the components of other assets:
Other Assets
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Affordable housing tax credit and other unconsolidated investments (1) | $ | 1,869 | | | $ | 762 | |
Right of use assets for operating leases, net | 337 | | | 345 | |
Pension assets | 359 | | | 343 | |
Accrued interest receivable | 772 | | | 329 | |
Income tax receivable | 284 | | | 275 | |
Federal Home Loan Bank stock | 393 | | | 197 | |
Fair value of derivative financial instruments | 547 | | | 159 | |
Bank-owned life insurance | 530 | | | 586 | |
Counterparty receivables | 171 | | | 98 | |
Nonmarketable equity securities | 62 | | | 58 | |
Other real estate owned | 46 | | | 47 | |
Mortgage servicing assets | 25 | | | 25 | |
Other (2) | 2,055 | | | 1,145 | |
Total other assets | $ | 7,450 | | | $ | 4,369 | |
(1) Refer to Note 8 — Variable Interest Entities for additional information.
(2) The balances at March 31, 2023 and December 31, 2022 include $428 million and $607 million, respectively, in “Other” related to bank-owned life insurance policies that had terminated, but not cash-settled as further discussed in the 2022 Form 10-K.
NOTE 10 — DEPOSITS
The following table provides detail on deposit types. The deposit balances as of March 31, 2023 include those acquired in the SVBB Acquisition, as described in Note 2 — Business Combinations.
Deposit Types
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Noninterest-bearing demand | $ | 54,649 | | | $ | 24,922 | |
Checking with interest | 23,743 | | | 16,202 | |
Money market | 30,598 | | | 21,040 | |
Savings | 17,932 | | | 16,634 | |
Time | 13,128 | | | 10,610 | |
Total deposits | $ | 140,050 | | | $ | 89,408 | |
At March 31, 2023, the scheduled maturities of time deposits were:
Deposit Maturities
| | | | | |
dollars in millions | |
Twelve months ended March 31, | |
2024 | $ | 9,199 | |
2025 | 3,281 | |
2026 | 437 | |
2027 | 55 | |
2028 | 31 | |
Thereafter | 125 | |
Total time deposits | $ | 13,128 | |
Time deposits with a denomination of $250,000 or more were $3.74 billion and $2.22 billion at March 31, 2023 and December 31, 2022, respectively.
NOTE 11 — BORROWINGS
Short-term Borrowings
Short-term borrowings at March 31, 2023 and December 31, 2022 include:
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Securities sold under customer repurchase agreements | $ | 509 | | | $ | 436 | |
Notes payable to FHLB of Atlanta at overnight SOFR plus 0.28%. | 500 | | | 1,750 | |
| | | |
Total short-term borrowings | $ | 1,009 | | | $ | 2,186 | |
Securities Sold under Agreements to Repurchase
BancShares held $509 million and $436 million at March 31, 2023 and December 31, 2022, respectively, of securities sold under agreements to repurchase that have overnight contractual maturities and are collateralized by government agency securities.
BancShares utilizes securities sold under agreements to repurchase to facilitate the needs for collateralization of commercial customers and secure wholesale funding needs. Repurchase agreements are transactions whereby BancShares offers to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates BancShares to repurchase the security at an agreed upon date, repurchase price and interest rate. These agreements are recorded at the amount of cash received in connection with the transactions and are reflected as securities sold under customer repurchase agreements.
BancShares monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and segregates the security from general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the investments securing the transactions, as additional collateral may be required based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents. The carrying value of investment securities pledged as collateral under repurchase agreements was $545 million and $496 million at March 31, 2023 and December 31, 2022, respectively.
Long-term Borrowings
Long-term borrowings at March 31, 2023 and December 31, 2022 include:
Long-term Borrowings
| | | | | | | | | | | | | | | | | |
dollars in millions | Maturity | | March 31, 2023 | | December 31, 2022 |
Parent Company: | | | | | |
| | | | | |
| | | | | |
Subordinated: | | | | | |
| | | | | |
| | | | | |
Fixed-to-Floating subordinated notes at 3.375% | March 2030 | | $ | 350 | | | $ | 350 | |
Junior subordinated debentures at 3-month LIBOR plus 2.25% (FCB/SC Capital Trust II) | June 2034 | | 20 | | | 20 | |
Junior subordinated debentures at 3-month LIBOR plus 1.75% (FCB/NC Capital Trust III) | June 2036 | | 88 | | | 88 | |
Subsidiaries: | | | | | |
Senior: | | | | | |
Senior unsecured fixed-to-floating rate notes at 3.929% | June 2024 | | 500 | | | 500 | |
Senior unsecured fixed-to-floating rate notes at 2.969% | September 2025 | | 315 | | | 315 | |
Fixed senior unsecured notes at 6.00% | April 2036 | | 51 | | | 51 | |
Subordinated: | | | | | |
Fixed subordinated notes at 6.125% | March 2028 | | 400 | | | 400 | |
Fixed-to-Fixed subordinated notes at 4.125% | November 2029 | | 100 | | | 100 | |
Junior subordinated debentures at 3-month LIBOR plus 2.80% (Macon Capital Trust I) | March 2034 | | 14 | | | 14 | |
Junior subordinated debentures at 3-month LIBOR plus 2.85% (SCB Capital Trust I) | April 2034 | | 10 | | | 10 | |
Secured: | | | | | |
Notes payable to FHLB of Atlanta at overnight SOFR plus spreads ranging from 0.24% to 0.48%. | Maturities through September 2025 | | 8,000 | | | 2,500 | |
Purchase Money Note to FDIC fixed at 3.50%(1) | March 2028 | | 35,370 | | | — | |
Other secured financings | Maturities through January 2024 | | — | | | 18 | |
Capital lease obligations | Maturities through June 2027 | | 7 | | | 7 | |
Unamortized issuance costs | | | (1) | | | (1) | |
Unamortized purchase accounting adjustments(2) | | | (139) | | | 87 | |
Total long-term borrowings | | | $ | 45,085 | | | $ | 4,459 | |
(1) Issued in connection with the SVBB Acquisition and will be secured by acquired loans. See below and Note 2 — Business Combinations for further information.
(2) At March 31, 2023 and December 31, 2022, unamortized purchase accounting adjustments were $65 million and $69 million, respectively, for subordinated debentures.
Pledged Assets
At March 31, 2023, BancShares had pledged $29.6 billion of loans to the FHLB and FRB.
As a member of the FHLB, FCB can access financing based on an evaluation of its creditworthiness, statement of financial position, size and eligibility of collateral. Pledged assets related to these financings totaled $23.7 billion at March 31, 2023. FCB may at any time grant a security interest in, sell, convey or otherwise dispose of any of the assets used for collateral, provided that FCB is in compliance with the collateral maintenance requirement immediately following such disposition.
Under borrowing arrangements with the FRB of Richmond, BancShares has access to an additional $4.7 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at March 31, 2023 and December 31, 2022. Assets pledged to the FRB of Richmond totaled $5.9 billion at March 31, 2023.
In connection with the SVBB Acquisition, FCB and the FDIC entered into a Purchase Money Note, which is primarily secured by all loans acquired and related commitments that subsequently were drawn and outstanding as of March 31, 2023.
At March 31, 2023, BancShares had other unused credit lines allowing contingent access to borrowings of up to $100 million on an unsecured basis.
NOTE 12 — DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents notional amount and fair value of derivative financial instruments on a gross basis. At March 31, 2023, and December 31, 2022 BancShares’ derivatives are not designated as hedging instruments.
Notional Amount and Fair Value of Derivative Financial Instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
| Notional Amount | | Asset Fair Value | | Liability Fair Value | | Notional Amount | | Asset Fair Value | | Liability Fair Value |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Derivatives not designated as hedging instruments (Non-qualifying hedges) | | | | | | | | | | | |
Interest rate contracts(1)(3) | $ | 23,557 | | | $ | 285 | | | $ | (535) | | | $ | 18,173 | | | $ | 158 | | | $ | (482) | |
Foreign exchange contracts | 18,419 | | | 262 | | | (255) | | | 125 | | | 1 | | | (4) | |
Other contracts(2) | 713 | | | — | | | (1) | | | 507 | | | — | | | — | |
Total derivatives not designated as hedging instruments | $ | 42,689 | | | 547 | | | (791) | | | $ | 18,805 | | | 159 | | | (486) | |
Gross derivatives fair values presented in the Consolidated Balance Sheets | | | 547 | | | (791) | | | | | 159 | | | (486) | |
Less: Gross amounts offset in the Consolidated Balance Sheets | | | — | | | — | | | | | — | | | — | |
Net amount presented in the Consolidated Balance Sheets | | | 547 | | | (791) | | | | | 159 | | | (486) | |
Less: Amounts subject to master netting agreements(4) | | | (179) | | | 179 | | | | | (13) | | | 13 | |
Less: Cash collateral pledged(received) subject to master netting agreements(5) | | | (255) | | | 16 | | | | | (124) | | | — | |
Total net derivative fair value | | | $ | 113 | | | $ | (596) | | | | | $ | 22 | | | $ | (473) | |
(1) Fair value balances include accrued interest.
(2) Other derivative contracts not designated as hedging instruments include risk participation agreements.
(3) BancShares accounts for swap contracts cleared by the Chicago Mercantile Exchange and LCH Clearnet as “settled-to-market”. As a result, variation margin payments are characterized as settlement of the derivative exposure and variation margin balances are netted against the corresponding derivative mark-to-market balances. Gross amounts of recognized assets and liabilities were lowered by $324 million and $24 million, respectively, at March 31, 2023, and $376 million and $19 million, respectively at December 31, 2022.
(4) BancShares’ derivative transactions are governed by International Swaps and Derivatives Association (“ISDA”) agreements that allow for net settlements of certain payments as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. BancShares believes its ISDA agreements meet the definition of a master netting arrangement or similar agreement for purposes of the above disclosure.
(5) In conjunction with the ISDA agreements described above, BancShares has entered into collateral arrangements with its counterparties, which provide for the exchange of cash depending on change in the market valuation of the derivative contracts outstanding. Such collateral is available to be applied in settlement of the net balances upon an event of default of one of the counterparties. Collateral pledged or received is included in other assets or other liabilities, respectively.
Non-Qualifying Hedges
The following table presents gains of non-qualifying hedges recognized on the Consolidated Statements of Income:
Gains on Non-Qualifying Hedges
| | | | | | | | | | | | | | | | | | | | | |
dollars in millions | | | Three Months Ended March 31, | | |
| Amounts Recognized | | 2023 | | 2022 | | | | |
Interest rate contracts | Other noninterest income | | $ | 21 | | | $ | 4 | | | | | |
Foreign currency forward contracts | Other noninterest income | | (2) | | | — | | | | | |
| | | | | | | | | |
Total non-qualifying hedges - income statement impact | | | $ | 19 | | | $ | 4 | | | | | |
NOTE 13 —OTHER LIABILITIES
We assumed approximately $1.85 billion of other liabilities in conjunction with the SVBB Acquisition, comprised of commitments to fund tax credit investments, derivative liabilities, accrued interest payable and other miscellaneous liabilities. In addition, we recorded $3.31 billion of deferred tax liabilities, primarily related to the purchase of the acquired assets. Refer to Note 2 — Business Combinations for further discussion. The following table presents the components of other liabilities:
Other Liabilities
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Fair value of derivative financial instruments | $ | 791 | | | $ | 486 | |
Lease liabilities | 345 | | | 352 | |
Accrued expenses and accounts payable | 476 | | | 275 | |
Commitments to fund tax credit investments | 991 | | | 295 | |
Deferred taxes | 3,551 | | | 286 | |
ACL for unfunded commitments | 352 | | | 106 | |
Incentive plan liabilities | 156 | | | 267 | |
Accrued interest payable | 150 | | | 57 | |
Other (1) | 1,360 | | | 464 | |
Total other liabilities | $ | 8,172 | | | $ | 2,588 | |
(1) The balance at March 31, 2023 includes $500 million payable to the FDIC for the Value Appreciation Instrument discussed further in Note 2 — Business Combinations.
NOTE 14 — FAIR VALUE
Fair Value Hierarchy
BancShares measures certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels.
Assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels. The levels are based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy for an asset or liability is based on the lowest level of input significant to the fair value measurement with Level 1 inputs considered highest and Level 3 inputs considered lowest. A brief description of each input level follows:
•Level 1 inputs are quoted prices in active markets for identical assets and liabilities.
•Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices observable for the assets or liabilities and market corroborated inputs.
•Level 3 inputs are unobservable inputs for the asset or liability. These unobservable inputs and assumptions reflect the estimates market participants would use in pricing the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes BancShares’ assets and liabilities measured at estimated fair value on a recurring basis:
Assets and Liabilities Measured at Fair Value - Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Investment securities available for sale | | | | | | | |
U.S. Treasury | $ | 1,978 | | | $ | — | | | $ | 1,978 | | | $ | — | |
Government agency | 150 | | | — | | | 150 | | | — | |
Residential mortgage-backed securities | 4,848 | | | — | | | 4,848 | | | — | |
Commercial mortgage-backed securities | 1,585 | | | — | | | 1,585 | | | — | |
Corporate bonds | 500 | | | — | | | 340 | | | 160 | |
| | | | | | | |
Total investment securities available for sale | $ | 9,061 | | | $ | — | | | $ | 8,901 | | | $ | 160 | |
Marketable equity securities | 85 | | | 29 | | | 56 | | | — | |
Loans held for sale | 9 | | | — | | | 9 | | | — | |
Derivative assets(1) | | | | | | | |
Interest rate contracts — non-qualifying hedges | $ | 285 | | | $ | — | | | $ | 284 | | | $ | 1 | |
Foreign exchange contracts — non-qualifying hedges | 262 | | | — | | | 262 | | | — | |
Other derivative contracts — non-qualifying hedges | — | | | — | | | — | | | — | |
Total derivative assets | $ | 547 | | | $ | — | | | $ | 546 | | | $ | 1 | |
Liabilities | | | | | | | |
Derivative liabilities(1) | | | | | | | |
Interest rate contracts — non-qualifying hedges | $ | 535 | | | $ | — | | | $ | 535 | | | $ | — | |
Foreign exchange contracts — non-qualifying hedges | 255 | | | — | | | 255 | | | — | |
Other derivative contracts — non-qualifying hedges | 1 | | | — | | | — | | | 1 | |
Total derivative liabilities | $ | 791 | | | $ | — | | | $ | 790 | | | $ | 1 | |
| | | | | | | |
| December 31, 2022 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Investment securities available for sale | | | | | | | |
U.S. Treasury | $ | 1,898 | | | $ | — | | | $ | 1,898 | | | $ | — | |
Government agency | 162 | | | — | | | 162 | | | — | |
Residential mortgage-backed securities | 4,795 | | | — | | | 4,795 | | | — | |
Commercial mortgage-backed securities | 1,604 | | | — | | | 1,604 | | | — | |
Corporate bonds | 536 | | | — | | | 362 | | | 174 | |
| | | | | | | |
Total investment securities available for sale | $ | 8,995 | | | $ | — | | | $ | 8,821 | | | $ | 174 | |
Marketable equity securities | 95 | | | 32 | | | 63 | | | — | |
Loans held for sale | 4 | | | — | | | 4 | | | — | |
Derivative assets(1) | | | | | | | |
Interest rate contracts — non-qualifying hedges | $ | 158 | | | $ | — | | | $ | 158 | | | $ | — | |
Foreign exchange contracts — non-qualifying hedges | 1 | | | — | | | 1 | | | — | |
Other derivative contracts — non-qualifying hedges | — | | | — | | | — | | | — | |
Total derivative assets | $ | 159 | | | $ | — | | | $ | 159 | | | $ | — | |
Liabilities | | | | | | | |
Derivative liabilities(1) | | | | | | | |
Interest rate contracts — non-qualifying hedges | $ | 482 | | | $ | — | | | $ | 482 | | | $ | — | |
Foreign exchange contracts — non-qualifying hedges | 4 | | | — | | | 4 | | | — | |
Other derivative contracts — non-qualifying hedges | — | | | — | | | — | | | — | |
Total derivative liabilities | $ | 486 | | | $ | — | | | $ | 486 | | | $ | — | |
(1) Derivative fair values include accrued interest.
The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a recurring basis are as follows:
Investment securities available for sale. The fair value of U.S. Treasury, government agency, mortgage-backed securities, and a portion of the corporate bonds are generally estimated using a third-party pricing service. To obtain an understanding of the processes and methodologies used, management reviews correspondence from the third-party pricing service. Management also performs a price variance analysis process to corroborate the reasonableness of prices. The third-party provider evaluates securities based on comparable investments with trades and market data and will utilize pricing models which use a variety of inputs, such as benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers as needed. These securities are generally classified as Level 2. The remaining corporate bonds held are generally measured at fair value based on indicative bids from broker-dealers using inputs that are not directly observable. These securities are classified as Level 3.
Marketable equity securities. Equity securities are measured at fair value using observable closing prices. The valuation also considers the amount of market activity by examining the trade volume of each security. Equity securities are classified as Level 1 if they are traded in an active market and as Level 2 if the observable closing price is from a less than active market.
Loans held for sale. Certain residential real estate loans originated for sale to investors are carried at fair value based on quoted market prices for similar types of loans. Accordingly, the inputs used to calculate fair value of originated residential real estate loans held for sale are considered Level 2 inputs.
Derivative Assets and Liabilities. Derivatives were valued using models that incorporate inputs depending on the type of derivative. Other than the fair value of credit derivatives, which were estimated using Level 3 inputs, most derivative instruments were valued using Level 2 inputs based on observed pricing for similar assets and liabilities and model-based valuation techniques for which all significant assumptions are observable in the market. See Note 12 — Derivative Financial Instruments for notional amounts and fair values.
The following tables summarize information about significant unobservable inputs related to BancShares’ categories of Level 3 financial assets and liabilities measured on a recurring basis:
Quantitative Information About Level 3 Fair Value Measurements - Recurring Basis
| | | | | | | | | | | | | | | | | | | | | |
dollars in millions | | | | | | | | | |
Financial Instrument | Estimated Fair Value | | Valuation Technique(s) | | Significant Unobservable Inputs | | | | |
March 31, 2023 | | | | | | | | | |
Assets | | | | | | | | | |
Corporate bonds | $ | 160 | | | Indicative bid provided by broker | | Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer. | | | | |
Interest rate & other derivative — non-qualifying hedges | $ | 1 | | | Internal valuation model | | Not material | | | | |
Liabilities | | | | | | | | | |
Interest rate & other derivative — non-qualifying hedges | $ | 1 | | | Internal valuation model | | Not material | | | | |
December 31, 2022 | | | | | | | | | |
Assets | | | | | | | | | |
Corporate bonds | $ | 174 | | | Indicative bid provided by broker | | Multiple factors, including but not limited to, current operations, financial condition, cash flows, and recently executed financing transactions related to the issuer. | | | | |
| | | | | | | | | |
The following table summarizes the changes in estimated fair value for all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):
Changes in Estimated Fair Value of Level 3 Financial Assets and Liabilities - Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Corporate Bonds | | Other Derivative Assets — Non-Qualifying | | Other Derivative Liabilities — Non-Qualifying | | Corporate Bonds | | Other Derivative Assets — Non-Qualifying | | Other Derivative Liabilities — Non-Qualifying |
Beginning balance | $ | 174 | | | $ | — | | | $ | — | | | $ | 207 | | | $ | — | | | $ | — | |
Purchases | — | | | — | | | — | | | — | | | — | | | 1 | |
Changes in FV included in earnings | — | | | 1 | | | — | | | — | | | 1 | | | — | |
Changes in FV included in comprehensive income | (5) | | | — | | | — | | | (7) | | | — | | | — | |
Transfers in | — | | | — | | | 1 | | | — | | | — | | | — | |
Transfers out | — | | | — | | | — | | | (14) | | | — | | | — | |
Maturity and settlements | (9) | | | — | | | — | | | — | | | — | | | — | |
Ending balance | $ | 160 | | | $ | 1 | | | $ | 1 | | | $ | 186 | | | $ | 1 | | | $ | 1 | |
Fair Value Option
The following table summarizes the difference between the aggregate fair value and the UPB for residential real estate loans originated for sale measured at fair value as of March 31, 2023 and December 31, 2022:
Aggregate Fair Value and UPB - Residential Real Estate Loans
| | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| Fair Value | | Unpaid Principal Balance | | Difference |
Originated loans held for sale | $ | 9 | | | $ | 9 | | | $ | — | |
| | | | | |
| December 31, 2022 |
| Fair Value | | Unpaid Principal Balance | | Difference |
Originated loans held for sale | $ | 4 | | | $ | 4 | | | $ | — | |
BancShares has elected the fair value option for residential real estate loans originated for sale. This election reduces certain timing differences in the Consolidated Statements of Income and better aligns with the management of the portfolio from a business perspective. The changes in fair value were recorded as a component of mortgage income and included $0 million and a loss of $3 million for the three months ended March 31, 2023 and 2022, respectively. Interest earned on loans held for sale is recorded within interest income on loans and leases in the Consolidated Statements of Income.
No originated loans held for sale were 90 or more days past due or on non-accrual status as of March 31, 2023 or December 31, 2022.
Assets Measured at Estimated Fair Value on a Non-recurring Basis
Certain assets or liabilities are required to be measured at estimated fair value on a non-recurring basis subsequent to initial recognition. Generally, these adjustments are the result of LOCOM or other impairment accounting. The following table presents carrying value of assets measured at estimated fair value on a non-recurring basis for which gains and losses have been recorded in the periods. The gains and losses reflect amounts recorded for the respective periods, regardless of whether the asset is still held at period end. Gains and losses related to assets held for sale and OREO for the three months ended March 31, 2023 were not significant.
Assets Measured at Fair Value - Non-recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Fair Value Measurements | | |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total Gains (Losses) |
March 31, 2023 | | | | | | | | | |
Assets held for sale - loans | $ | 9 | | | $ | — | | | $ | — | | | $ | 9 | | | $ | — | |
Loans - collateral dependent loans | 87 | | | — | | | — | | | 87 | | | (15) | |
Other real estate owned | 36 | | | — | | | — | | | 36 | | | — | |
| | | | | | | | | |
Total | $ | 132 | | | $ | — | | | $ | — | | | $ | 132 | | | $ | (15) | |
December 31, 2022 | | | | | | | | | |
Assets held for sale - loans | $ | 23 | | | $ | — | | | $ | — | | | $ | 23 | | | $ | (1) | |
Loans - collateral dependent loans | 149 | | | — | | | — | | | 149 | | | (24) | |
Other real estate owned | 43 | | | — | | | — | | | 43 | | | 14 | |
Mortgage servicing rights | — | | | — | | | — | | | — | | | 1 | |
Total | $ | 215 | | | $ | — | | | $ | — | | | $ | 215 | | | $ | (10) | |
Certain other assets are adjusted to their fair value on a non-recurring basis, including certain loans, OREO, and goodwill, which are periodically tested for impairment, and MSRs, which are carried at the lower of amortized cost or market. Most loans held for investment, deposits, and borrowings are not reported at fair value.
The methods and assumptions used to estimate the fair value of each class of financial instruments measured at fair value on a non-recurring basis are as follows:
Assets held for sale - loans. Loans held for investment subsequently transferred to held for sale are carried at the lower of cost or market. When available, the fair values for the transferred loans are based on quoted prices from the purchase commitments for the individual loans being transferred and are considered Level 1 inputs. The fair value of Level 2 assets was primarily estimated based on prices of recent trades of similar assets. For other loans held for sale, the fair value of Level 3 assets was primarily measured under the income approach using the discounted cash flow model based on Level 3 inputs including discount rate or the price of committed trades.
Loans - collateral dependent loans. The population of Level 3 loans measured at fair value on a non-recurring basis includes collateral-dependent loans evaluated individually. Collateral values are determined using appraisals or other third-party value estimates of the subject property discounted based on estimated selling costs, and adjustments for other external factors that may impact the marketability of the collateral.
Other real estate owned. OREO is carried at LOCOM. OREO asset valuations are determined by using appraisals or other third-party value estimates of the subject property with discounts, generally between 6% and 11%, applied for estimated selling costs and other external factors that may impact the marketability of the property. At March 31, 2023 and December 31, 2022, the weighted average discount applied was 8.48% and 9.31%, respectively. Changes to the value of the assets between scheduled valuation dates are monitored through continued communication with brokers and monthly reviews by the asset manager assigned to each asset. If there are any significant changes in the market or the subject property, valuations are adjusted or new appraisals are ordered to ensure the reported values reflect the most current information.
Mortgage servicing rights. MSRs are carried at the lower of amortized cost or market and are, therefore, carried at fair value only when fair value is less than amortized cost. The fair value of MSRs is determined using a pooling methodology. Similar loans are pooled together and a discounted cash flow model, which takes into consideration discount rates, prepayment rates, and the weighted average cost to service the loans, is used to determine the fair value.
Financial Instruments Fair Value
The table below presents the carrying values and estimated fair values for financial instruments, excluding leases and certain other assets and liabilities for which these disclosures are not required.
Carrying Values and Fair Values of Financial Assets and Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 |
| | | Estimated Fair Value |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
Financial Assets | | | | | | | | | |
Cash and due from banks | $ | 1,598 | | | $ | 1,598 | | | $ | — | | | $ | — | | | $ | 1,598 | |
Interest earning deposits at banks | 38,522 | | | 38,522 | | | — | | | — | | | 38,522 | |
Investment in marketable equity securities | 85 | | | 29 | | | 56 | | | — | | | 85 | |
Investment securities available for sale | 9,061 | | | — | | | 8,901 | | | 160 | | | 9,061 | |
Investment securities held to maturity | 10,381 | | | — | | | 8,993 | | | — | | | 8,993 | |
Loans held for sale | 90 | | | — | | | 9 | | | 81 | | | 90 | |
Net loans | 134,556 | | | — | | | 1,576 | | | 130,572 | | | 132,148 | |
Accrued interest receivable | 772 | | | — | | | 772 | | | — | | | 772 | |
Federal Home Loan Bank stock | 393 | | | — | | | 393 | | | — | | | 393 | |
Mortgage and other servicing rights | 25 | | | — | | | — | | | 45 | | | 45 | |
Derivative assets | 547 | | | — | | | 546 | | | 1 | | | 547 | |
Financial Liabilities | | | | | | | | | |
Deposits with no stated maturity | 126,922 | | | — | | | 126,922 | | | — | | | 126,922 | |
Time deposits | 13,128 | | | — | | | 13,055 | | | — | | | 13,055 | |
Credit balances of factoring clients | 1,126 | | | — | | | — | | | 1,126 | | | 1,126 | |
Securities sold under customer repurchase agreements | 509 | | | — | | | 509 | | | — | | | 509 | |
Other short-term borrowings | 500 | | | — | | | 500 | | | — | | | 500 | |
Long-term borrowings | 45,078 | | | — | | | 45,048 | | | — | | | 45,048 | |
Accrued interest payable | 150 | | | — | | | 150 | | | — | | | 150 | |
Derivative liabilities | 791 | | | — | | | 790 | | | 1 | | | 791 | |
| | | | | | | | | |
| December 31, 2022 |
| | | Estimated Fair Value |
| Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total |
Financial Assets | | | | | | | | | |
Cash and due from banks | $ | 518 | | | $ | 518 | | | $ | — | | | $ | — | | | $ | 518 | |
Interest earning deposits at banks | 5,025 | | | 5,025 | | | — | | | — | | | 5,025 | |
Investment in marketable equity securities | 95 | | | 32 | | | 63 | | | — | | | 95 | |
Investment securities available for sale | 8,995 | | | — | | | 8,821 | | | 174 | | | 8,995 | |
Investment securities held to maturity | 10,279 | | | — | | | 8,795 | | | — | | | 8,795 | |
Loans held for sale | 52 | | | — | | | 4 | | | 45 | | | 49 | |
Net loans | 67,720 | | | — | | | 1,679 | | | 62,633 | | | 64,312 | |
Accrued interest receivable | 329 | | | — | | | 329 | | | — | | | 329 | |
Federal Home Loan Bank stock | 197 | | | — | | | 197 | | | — | | | 197 | |
Mortgage and other servicing rights | 25 | | | — | | | — | | | 47 | | | 47 | |
Derivative assets | 159 | | | — | | | 159 | | | — | | | 159 | |
Financial Liabilities | | | | | | | | | |
Deposits with no stated maturity | 78,798 | | | — | | | 78,798 | | | — | | | 78,798 | |
Time deposits | 10,610 | | | — | | | 10,504 | | | — | | | 10,504 | |
Credit balances of factoring clients | 995 | | | — | | | — | | | 995 | | | 995 | |
Securities sold under customer repurchase agreements | 436 | | | — | | | 436 | | | — | | | 436 | |
Other short-term borrowings | 1,750 | | | — | | | 1,750 | | | — | | | 1,750 | |
Long-term borrowings | 4,452 | | | — | | | 4,312 | | | 18 | | | 4,330 | |
Accrued interest payable | 57 | | | — | | | 57 | | | — | | | 57 | |
Derivative liabilities | 486 | | | — | | | 486 | | | — | | | 486 | |
The methods and assumptions used to estimate the fair value of each class of financial instruments not discussed elsewhere are as follows:
Net loans. The carrying value of net loans is net of the ACL. Loans are generally valued by discounting expected cash flows using market inputs with adjustments based on cohort level assumptions for certain loan types as well as internally developed estimates at a business segment level. Due to the significance of the unobservable market inputs and assumptions, as well as the absence of a liquid secondary market for most loans, these loans are classified as Level 3. Certain loans are measured based on observable market prices sourced from external data providers and classified as Level 2. Nonaccrual loans are written down and reported at their estimated recovery value which approximates their fair value and classified as Level 3.
Investment securities held to maturity. BancShares’ portfolio of held to maturity debt securities consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury notes, unsecured bonds issued by government agencies and government sponsored entities, securities issued by the Supranational Entities and Multilateral Development Banks and FDIC guaranteed CDs with other financial institutions. We primarily use prices obtained from pricing services to determine the fair value of securities, which are Level 2 inputs.
FHLB stock. The carrying amount of FHLB stock is a reasonable estimate of fair value, as these securities are not readily marketable and are evaluated for impairment based on the ultimate recoverability of the par value. BancShares considers positive and negative evidence, including the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. BancShares investment in FHLB stock is ultimately recoverable at par. The inputs used in the fair value measurement for the FHLB stock are considered Level 2 inputs.
Mortgage and other servicing rights. Mortgage and other servicing rights are initially recorded at fair value and subsequently carried at the lower of amortized cost or market. Therefore, servicing rights are carried at fair value only when fair value is less than the amortized cost. The fair value of mortgage and other servicing rights is determined using a pooling methodology. Similar loans are pooled together and a model which relies on discount rates, estimates of prepayment rates and the weighted average cost to service the loans is used to determine the fair value. The inputs used in the fair value measurement for mortgage and other servicing rights are considered Level 3 inputs.
Deposits. The estimated fair value of deposits with no stated maturity, such as demand deposit accounts, money market accounts, and savings accounts was the amount payable on demand at the reporting date. The fair value of time deposits was estimated based on a discounted cash flow technique using Level 2 inputs appropriate to the contractual maturity.
Credit balances of factoring clients. The impact of the time value of money from the unobservable discount rate for credit balances of factoring clients is inconsequential due to the short term nature of these balances, therefore, the fair value approximated carrying value, and the credit balances were classified as Level 3.
Short-term borrowed funds. Includes repurchase agreements and certain other short-term borrowings. The fair value approximates carrying value and are classified as Level 2.
Long-term Borrowings. For certain long-term senior and subordinated unsecured borrowings, the fair values are sourced from a third-party pricing service. The fair value of other long-term borrowings are determined by discounting future cash flows using current interest rates for similar financial instruments. The inputs used in the fair value measurement for FHLB borrowings, senior and subordinated debentures, and other borrowings are classified as Level 2. The fair value of other secured borrowings are estimated based on unobservable inputs and therefore classified as Level 3.
For all other financial assets and financial liabilities, the carrying value is a reasonable estimate of the fair value as of March 31, 2023 and December 31, 2022. The carrying value and fair value for these assets and liabilities are equivalent because they are relatively short-term in nature and there is no interest rate or credit risk that would cause the fair value to differ from the carrying value. Cash and due from banks, and interest earning deposits at banks, are classified on the fair value hierarchy as Level 1. Accrued interest receivable and accrued interest payable are classified as Level 2.
NOTE 15 — STOCKHOLDERS' EQUITY
A roll forward of common stock activity is presented in the following table:
Number of Shares of Common Stock
| | | | | | | | | | | |
| Outstanding |
| Class A | | Class B |
Common stock - December 31, 2022 | 13,501,017 | | | 1,005,185 | |
| | | |
Restricted stock units vested, net of shares held to cover taxes | 13,791 | | | — | |
Common stock - March 31, 2023 | 13,514,808 | | | 1,005,185 | |
Common Stock
The Parent Company has Class A Common Stock and Class B common stock (“Class B Common Stock”). Class A Common Stock have one vote per share, while shares of Class B Common Stock have 16 votes per share.
Non-Cumulative Perpetual Preferred Stock
The following table summarizes BancShares’ non-cumulative perpetual preferred stock.
Preferred Stock
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions, except per share and par value data |
Preferred Stock | | Issuance Date | | Earliest Redemption Date | | Par Value | | Authorized Shares | | | | | | Liquidation Preference Per Share | | Total Liquidation Preference | | Dividend | | Dividend Payment Dates |
Series A | | March 12, 2020 | | March 15, 2025 | | $ | 0.01 | | | 345,000 | | | | | | $ | 1,000 | | | 345 | | 5.375% | | Quarterly in arrears on March 15, June 15, September 15, and December 15 |
Series B | | January 3, 2022 | | January 4, 2027 | | $ | 0.01 | | | 325,000 | | | | | | $ | 1,000 | | | 325 | | LIBOR + 3.792% | |
Series C | | January 3, 2022 | | January 4, 2027 | | $ | 0.01 | | | 8,000,000 | | | | | | $ | 25 | | | 200 | | 5.625% | |
For further description of BancShares’ non-cumulative perpetual preferred stock, refer to Note 17 — Stockholders’ Equity in Item 8 of our 2022 Form 10-K.
NOTE 16 — ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table details the components of Accumulated Other Comprehensive (Loss) Income (“AOCI”):
Components of Accumulated Other Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
| Gross Unrealized | | Income Taxes | | Net Unrealized | | Gross Unrealized | | Income Taxes | | Net Unrealized |
Unrealized loss on securities available for sale | $ | (894) | | | $ | 213 | | | $ | (681) | | | $ | (972) | | | $ | 233 | | | $ | (739) | |
Unrealized loss on securities available for sale transferred to securities held to maturity | (8) | | | 2 | | | (6) | | | (8) | | | 2 | | | (6) | |
Defined benefit pension items | 23 | | | (5) | | | 18 | | | 13 | | | (3) | | | 10 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total accumulated other comprehensive loss | $ | (879) | | | $ | 210 | | | $ | (669) | | | $ | (967) | | | $ | 232 | | | $ | (735) | |
The following table details the changes in the components of AOCI, net of income taxes:
Changes in Accumulated Other Comprehensive Income (Loss) by Component
| | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Unrealized (loss) gain on securities available for sale | | Unrealized loss on securities available for sale transferred to securities held to maturity | | Net change in Defined Benefit Pension Items | | | | Total AOCI |
Balance as of December 31, 2022 | $ | (739) | | | $ | (6) | | | $ | 10 | | | | | $ | (735) | |
AOCI activity before reclassifications | 45 | | | — | | | 8 | | | | | 53 | |
Amounts reclassified from AOCI | 13 | | | — | | | — | | | | | 13 | |
Other comprehensive income for the period | 58 | | | — | | | 8 | | | | | 66 | |
Balance as of March 31, 2023 | $ | (681) | | | $ | (6) | | | $ | 18 | | | | | $ | (669) | |
| | | | | | | | | |
Balance as of December 31, 2021 | $ | (9) | | | $ | (7) | | | $ | 26 | | | | | $ | 10 | |
AOCI activity before reclassifications | (318) | | | — | | | — | | | | | (318) | |
Amounts reclassified from AOCI | — | | | 1 | | | 2 | | | | | 3 | |
Other comprehensive (loss) income for the period | (318) | | | 1 | | | 2 | | | | | (315) | |
Balance as of March 31, 2022 | $ | (327) | | | $ | (6) | | | $ | 28 | | | | | $ | (305) | |
Other Comprehensive Income
The amounts included in the Condensed Consolidated Statements of Comprehensive Income are net of income taxes. The following table presents the pretax and after-tax components of other comprehensive income:
Other Comprehensive Income (Loss) by Component
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | Three Months Ended March 31, | | |
| 2023 | | 2022 | | |
| Gross Amount | | Tax | | Net Amount | | Gross Amount | | Tax | | Net Amount | | Income Statement Line Items |
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Defined benefit pension items | | | | | | | | | | | | | |
Actuarial (loss) gain | $ | 10 | | | $ | (2) | | | $ | 8 | | | $ | — | | | $ | — | | | $ | — | | | |
Amounts reclassified from AOCI | — | | | — | | | — | | | 3 | | | (1) | | | 2 | | | Other noninterest expense |
Other comprehensive (loss) income for defined benefit pension items | $ | 10 | | | $ | (2) | | | $ | 8 | | | $ | 3 | | | $ | (1) | | | $ | 2 | | | |
| | | | | | | | | | | | | |
Unrealized loss on securities available for sale transferred to securities held to maturity | | | | | | | | | | | | | |
Amounts reclassified from AOCI | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
Reclassifications out of AOCI | — | | | — | | | — | | | 1 | | | — | | | 1 | | | Interest on investment securities |
Other comprehensive income (loss) on securities available for sale transferred to securities held to maturity | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | |
| | | | | | | | | | | | | |
Unrealized loss on securities available for sale | | | | | | | | | | | | | |
AOCI activity before reclassification | $ | 60 | | | $ | (15) | | | $ | 45 | | | $ | (419) | | | $ | 101 | | | $ | (318) | | | |
Reclassifications out of AOCI | 18 | | | (5) | | | 13 | | | — | | | — | | | — | | | $14 realized loss on sales of investment securities available for sale, net; $4 provision for credit losses |
Other comprehensive loss on securities available for sale | $ | 78 | | | $ | (20) | | | $ | 58 | | | $ | (419) | | | $ | 101 | | | $ | (318) | | | |
Total other comprehensive loss | $ | 88 | | | $ | (22) | | | $ | 66 | | | $ | (415) | | | $ | 100 | | | $ | (315) | | | |
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NOTE 17 — REGULATORY CAPITAL
BancShares and FCB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the BancShares’ Consolidated Financial Statements. Certain activities, such as the ability to undertake new business initiatives, including acquisitions, the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight, largely depend on a financial institution’s capital strength.
Federal banking agencies approved regulatory capital guidelines (“Basel III”) aimed at strengthening previous capital requirements for banking organizations. Basel III became effective for BancShares on January 1, 2015 and the associated capital conservation buffers of 2.50% were fully phased in by January 1, 2019.
The following table includes the Basel III requirements for regulatory capital ratios.
| | | | | | | | | | | | | | | | | |
| Basel III Minimums | | Basel III Conservation Buffers | | Basel III Requirements |
Regulatory capital ratios | | | | | |
Total risk-based capital | 8.00 | % | | 2.50 | % | | 10.50 | % |
Tier 1 risk-based capital | 6.00 | | | 2.50 | | | 8.50 | |
Common equity Tier 1 | 4.50 | | | 2.50 | | | 7.00 | |
Tier 1 leverage | 4.00 | | | — | | | 4.00 | |
The FDIC also has Prompt Corrective Action (“PCA”) thresholds for regulatory capital ratios. The regulatory capital ratios for BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital ratios for BancShares and FCB exceed the Basel III requirements and the PCA well-capitalized thresholds as of March 31, 2023 and December 31, 2022 as summarized in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
dollars in millions | | | | | March 31, 2023 | | December 31, 2022 |
| Basel III Requirements | | PCA well-capitalized thresholds | | Amount | | Ratio | | Amount | | Ratio |
BancShares | | | | | | | | | | | |
Total risk-based capital | 10.50 | % | | 10.00 | % | | $ | 21,764 | | | 14.86 | % | | $ | 11,799 | | | 13.18 | % |
Tier 1 risk-based capital | 8.50 | | | 8.00 | | | 19,225 | | | 13.13 | | | 9,902 | | | 11.06 | |
Common equity Tier 1 | 7.00 | | | 6.50 | | | 18,344 | | | 12.53 | | | 9,021 | | | 10.08 | |
Tier 1 leverage | 4.00 | | | 5.00 | | | 19,225 | | | 16.72 | | | 9,902 | | | 8.99 | |
FCB | | | | | | | | | | | |
Total risk-based capital | 10.50 | % | | 10.00 | % | | $ | 21,578 | | | 14.74 | % | | $ | 11,627 | | | 12.99 | % |
Tier 1 risk-based capital | 8.50 | | | 8.00 | | | 19,495 | | | 13.32 | | | 10,186 | | | 11.38 | |
Common equity Tier 1 | 7.00 | | | 6.50 | | | 19,495 | | | 13.32 | | | 10,186 | | | 11.38 | |
Tier 1 leverage | 4.00 | | | 5.00 | | | 19,495 | | | 16.97 | | | 10,186 | | | 9.25 | |
At March 31, 2023, BancShares and FCB had risk-based capital ratio conservation buffers of 6.86% and 6.74%, respectively, which are in excess of the fully phased in Basel III conservation buffer of 2.50%. At December 31, 2022, BancShares and FCB had risk-based capital ratio conservation buffers of 5.06% and 4.99%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratio as of March 31, 2023 and December 31, 2022 over the Basel III minimum for the ratio that is the binding constraint.
Additional Tier 1 capital for BancShares includes preferred stock discussed further in Note 15 — Stockholders’ Equity. Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ACL and qualifying subordinated debt.
Dividend Restrictions
Dividends paid from FCB to the Parent Company are the primary source of funds available to the Parent Company for payment of dividends to its stockholders. The Board of Directors of FCB may approve distributions, including dividends, as it deems appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, provided that the distributions do not reduce the regulatory capital ratios below the applicable requirements. FCB could have paid additional dividends to the Parent Company in the amount of $6.94 billion while continuing to meet the requirements for well-capitalized banks at March 31, 2023. Dividends declared by FCB and paid to the Parent Company amounted to $52 million for the three months ended March 31, 2023. Payment of dividends is made at the discretion of FCB’s Board of Directors and is contingent upon satisfactory earnings as well as projected capital needs.
NOTE 18 — EARNINGS PER COMMON SHARE
The following table sets forth the computation of the basic and diluted earnings per common share:
Earnings per Common Share
| | | | | | | | | | | | | | | |
dollars in millions, except per share data | | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Net income | | | | | $ | 9,518 | | | $ | 271 | |
Preferred stock dividends | | | | | 14 | | | 7 | |
Net income available to common stockholders | | | | | $ | 9,504 | | | $ | 264 | |
Weighted average common shares outstanding | | | | | | | |
Basic shares outstanding | | | | | 14,526,693 | | | 15,779,153 | |
Stock-based awards | | | | | 13,016 | | | — | |
Diluted shares outstanding | | | | | 14,539,709 | | | 15,779,153 | |
Earnings per common share | | | | | | | |
Basic | | | | | $ | 654.22 | | | $ | 16.70 | |
Diluted | | | | | $ | 653.64 | | | $ | 16.70 | |
NOTE 19 — INCOME TAXES
BancShares’ global effective income tax rate was (0.5)% and (20.4)% for the three months ended March 31, 2023 and 2022, respectively. The increase in the income tax rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to the bargain purchase gain relating to the SVBB Acquisition.
The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate (“ETR”). This annual ETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The ETR each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted ETR may vary from the actual year-end 2023 ETR due to the changes in these factors.
Uncertain Tax Benefits
BancShares’ recognizes tax benefits when it is more likely than not that the position will prevail, based solely on the technical merits under the tax law of the relevant jurisdiction. BancShares will recognize the tax benefit if the position meets this recognition threshold determined based on the largest amount of the benefit that is more than likely to be realized.
Net Operating Loss Carryforwards and Valuation Adjustments
As a result of the SVBB Acquisition, BancShares’ net deferred tax liabilities increased by approximately $3.31 billion, primarily related to acquired loans and other assets.
BancShares’ ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize our DTAs, adjustments to the valuation allowance adjustments may be required.
NOTE 20 — EMPLOYEE BENEFIT PLANS
BancShares sponsors non-contributory defined benefit pension plans for its qualifying employees. The service cost component of net periodic benefit cost is included in salaries and wages while all other non-service cost components are included in other noninterest expense.
The components of net periodic benefit cost are as follows:
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dollars in millions | Three Months Ended March 31, |
| 2023 | | 2022 |
Service cost | $ | 2 | | | $ | 3 | |
Interest cost | 15 | | | 11 | |
Expected return on assets | (21) | | | (22) | |
Amortization of prior service cost | — | | | — | |
Amortization of net actuarial loss | — | | | 3 | |
Net periodic benefit | $ | (4) | | | $ | (5) | |
NOTE 21 — BUSINESS SEGMENT INFORMATION
BancShares’ segments include General Banking, Commercial Banking, a new segment Silicon Valley Banking that includes the operating results for the SVBB Acquisition, as well as Rail and Corporate. Each of the segments are described below.
General Banking
General Banking delivers products and services to consumers and businesses through an extensive network of branches and various digital channels, including a full suite of deposit products, loans (primarily residential mortgages and business/commercial loans), and various fee-based services. General Banking also provides a variety of wealth management products and services to individuals and institutional clients, including brokerage, investment advisory, and trust services. In addition, General Banking has a dedicated business line that supports deposit, cash management and lending to homeowner associations and property management companies nationwide. Revenue is primarily generated from interest earned on loans and fees for banking and advisory services.
Commercial Banking
Commercial Banking 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. Loans offered are primarily senior secured loans collateralized by accounts receivable, inventory, machinery and equipment, transportation equipment and/or intangibles, and are often used for working capital, plant expansion, acquisitions or recapitalizations. 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. Commercial Banking provides senior secured loans to developers and other commercial real estate professionals, and also provides small business loans and leases, including both capital and operating leases, through a highly automated credit approval, documentation and funding process. Commercial Banking also provides factoring, receivable management, and secured financing to businesses that operate in various industries.
Revenue is primarily generated from interest earned on loans, rents on equipment leased, fees and other revenue from lending and leasing activities and banking services, along with capital markets transactions and commissions earned on factoring and related activities.
Silicon Valley Banking
Silicon Valley Banking offers products and services to commercial clients in key innovation markets, such as healthcare and technology industries, as well as private equity and venture capital firms. The segment provides solutions to the financial needs of commercial clients through credit, treasury management, foreign exchange, trade finance and other services. In addition, the segment offers private banking and wealth management and provides a range of personal financial solutions for consumers. Private banking and wealth management clients consist of private equity/venture capital professionals and executive leaders of the innovation companies they support and premium wine clients. The segment offers a customized suite of private banking services, including mortgages, home equity lines of credit, restricted and private stock loans, capital call lines of credit, other secured and unsecured lending products and vineyard development loans, as well as planning-based financial strategies, wealth management, family office, financial planning, tax planning and trust services.
Revenue is primarily generated from interest earned on loans, and fees and other revenue from lending activities and banking services.
Deposit products include business and analysis checking accounts, money market accounts, multi-currency accounts, bank accounts, sweep accounts and positive pay services. Services are provided through online and mobile banking platforms, as well as branch locations.
Rail
Rail offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. Railcar types include covered hopper cars used to ship grain and agricultural products, plastic pellets, sand, and cement, tank cars for energy products and chemicals, gondolas for coal, steel coil and mill service products, open hopper cars for coal and aggregates, boxcars for paper and auto parts, and center beams and flat cars for lumber. Revenue is primarily from operating lease income.
Corporate
Certain items that are not allocated to operating segments are included in the Corporate segment, inclusive of similar items related to Silicon Valley Banking. Some of the more significant and recurring items include interest income on investment securities, a portion of interest expense primarily related to corporate funding costs (including brokered deposits), income on BOLI (other noninterest income), acquisition-related costs, as well as certain unallocated costs and intangible asset amortization expense (operating expenses). Corporate also includes certain significant items that are infrequent, such as the Initial Non-PCD Provision for loans and leases and unfunded commitments and gain on acquisition.
Segment Net Income (Loss) and Select Period End Balances
The following table presents the condensed income statement by segment:
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dollars in millions | Three Months Ended March 31, 2023 |
| General Banking | | Commercial Banking | | Silicon Valley Banking | | Rail | | Corporate | | Total BancShares |
Net interest income (expense) | $ | 560 | | | $ | 240 | | | $ | 65 | | | $ | (28) | | | $ | 13 | | | $ | 850 | |
Provision for credit losses | 14 | | | 49 | | | — | | | — | | | 720 | | | 783 | |
Net interest income (expense) after provision for credit losses | 546 | | | 191 | | | 65 | | | (28) | | | (707) | | | 67 | |
Noninterest income | 116 | | | 143 | | | 14 | | | 177 | | | 9,809 | | | 10,259 | |
Noninterest expense | 395 | | | 211 | | | 33 | | | 120 | | | 96 | | | 855 | |
Income before income taxes | 267 | | | 123 | | | 46 | | | 29 | | | 9,006 | | | 9,471 | |
Income tax expense (benefit) | 65 | | | 29 | | | 11 | | | 7 | | | (159) | | | (47) | |
Net income | $ | 202 | | | $ | 94 | | | $ | 35 | | | $ | 22 | | | $ | 9,165 | | | $ | 9,518 | |
Select Period End Balances | | | | | | | | | | | |
Loans and leases | $ | 43,353 | | | $ | 28,684 | | | $ | 66,171 | | | $ | 80 | | | $ | — | | | $ | 138,288 | |
Deposits | 85,982 | | | 3,045 | | | 49,259 | | | 14 | | | 1,750 | | | 140,050 | |
Operating lease equipment, net | — | | | 719 | | | — | | | 7,612 | | | — | | | 8,331 | |
| | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| General Banking | | Commercial Banking | | Silicon Valley Banking | | Rail | | Corporate | | Total BancShares |
Net interest income (expense) | $ | 437 | | | $ | 207 | | | $ | — | | | $ | (19) | | | $ | 24 | | | $ | 649 | |
(Benefit) provision for credit losses | (15) | | | (34) | | | — | | | — | | | 513 | | | 464 | |
Net interest income (expense) after benefit for credit losses | 452 | | | 241 | | | — | | | (19) | | | (489) | | | 185 | |
Noninterest income | 123 | | | 112 | | | — | | | 162 | | | 453 | | | 850 | |
Noninterest expense | 409 | | | 191 | | | — | | | 100 | | | 110 | | | 810 | |
Income (loss) before income taxes | 166 | | | 162 | | | — | | | 43 | | | (146) | | | 225 | |
Income tax expense (benefit) | 40 | | | 41 | | | — | | | 11 | | | (138) | | | (46) | |
Net income (loss) | $ | 126 | | | $ | 121 | | | $ | — | | | $ | 32 | | | $ | (8) | | | $ | 271 | |
Select Period End Balances | | | | | | | | | | | |
Loans and leases | $ | 38,528 | | | $ | 26,922 | | | $ | — | | | $ | 67 | | | $ | 7 | | | $ | 65,524 | |
Deposits | 85,458 | | | 4,698 | | | — | | | 13 | | | 1,428 | | | 91,597 | |
Operating lease equipment, net | — | | | 721 | | | — | | | 7,251 | | | — | | | 7,972 | |
NOTE 22 — COMMITMENTS AND CONTINGENCIES
Commitments
To meet the financing needs of its customers, BancShares and its subsidiaries have financial instruments with off-balance sheet risk. These financial instruments involve elements of credit, interest rate or liquidity risk and include commitments to extend credit and standby letters of credit. The below balances for March 31, 2023 include balances related to the SVBB Acquisition. The balances acquired are included in Financing Commitments and Letters of Credit.
The accompanying table summarizes credit-related commitments and other purchase and funding commitments:
| | | | | | | | | | | |
dollars in millions | March 31, 2023 | | December 31, 2022 |
Financing Commitments | | | |
Financing assets (excluding leases) | $ | 74,507 | | | $ | 23,452 | |
Letters of Credit | | | |
Standby letters of credit | 3,928 | | | 436 | |
Other letters of credit | 111 | | | 44 | |
Deferred Purchase Agreements | 1,707 | | | 2,039 | |
Purchase and Funding Commitments(1) | 869 | | | 941 | |
(1) BancShares’ purchase and funding commitments relate to the equipment leasing businesses’ commitments to fund finance leases and operating leases, and Rail’s railcar manufacturer purchase and upgrade commitments.
Financing Commitments
Commitments to extend credit are legally binding agreements to lend to customers. These commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Established credit standards control the credit risk exposure associated with these commitments. In some cases, BancShares requires collateral be pledged to secure the commitment, including cash deposits, securities and other assets.
Financing commitments, referred to as loan commitments or lines of credit, primarily reflect BancShares’ agreements to lend to its customers, subject to the customers’ compliance with contractual obligations. At March 31, 2023 and December 31, 2022, substantially all undrawn financing commitments were senior facilities. The undrawn and available financing commitments are primarily in the Silicon Valley Banking and Commercial Banking segments. Financing commitments also include approximately $74 million and $66 million at March 31, 2023 and December 31, 2022, respectively, related to off-balance sheet commitments to fund equity investments. Commitments to fund equity investments are contingent on events that have yet to occur and may be subject to change.
As financing commitments may not be fully drawn, may expire unused, may be reduced or canceled at the customer’s request, and may require the customer to be in compliance with certain conditions, total commitment amounts do not necessarily reflect actual future cash flow requirements.
The table above excludes uncommitted revolving credit facilities extended by Commercial Services to its clients for working capital purposes. In connection with these facilities, Commercial Services has the sole discretion throughout the duration of these facilities to determine the amount of credit that may be made available to its clients at any time and whether to honor any specific advance requests made by its clients under these credit facilities.
Letters of Credit
Standby letters of credit are commitments to pay the beneficiary thereof if drawn upon by the beneficiary upon satisfaction of the terms of the letter of credit. Those commitments are primarily issued to support public and private borrowing arrangements. To mitigate its risk, BancShares’ credit policies govern the issuance of standby letters of credit. The credit risk related to the issuance of these letters of credit is essentially the same as in extending loans to clients and, therefore, these letters of credit are collateralized when necessary. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of amounts recognized in the Consolidated Balance Sheets.
Deferred Purchase Agreements (“DPA”)
A DPA is provided in conjunction with factoring, whereby a client is provided with credit protection for trade receivables without purchasing the receivables. The trade receivables terms generally require payment in 90 days or less. If the client’s customer is unable to pay an undisputed receivable solely as the result of credit risk, BancShares is then required to purchase the receivable from the client, less any borrowings for such client based on such defaulted receivable. The outstanding amount in the table above, less $170 million and $186 million at March 31, 2023 and December 31, 2022, respectively, of borrowings for such clients, is the maximum amount that BancShares would be required to pay under all DPAs. This maximum amount would only occur if all receivables subject to DPAs default in the manner described above, thereby requiring BancShares to purchase all such receivables from the DPA clients.
The table above includes $1.60 billion and $1.90 billion of DPA exposures at March 31, 2023 and December 31, 2022, respectively, related to receivables on which BancShares has assumed the credit risk. The table also includes $110 million and $138 million available under DPA credit line agreements provided at March 31, 2023 and December 31, 2022, respectively. The DPA credit line agreements specify a contractually committed amount of DPA credit protection and are cancellable by us only after a notice period, which is typically 90 days or less.
Litigation and other Contingencies
The Parent Company and certain of its subsidiaries have been named as a defendant in legal actions arising from its normal business activities in which damages in various amounts are claimed. BancShares is also exposed to litigation risk relating to the prior business activities of banks from which assets were acquired and liabilities assumed.
BancShares is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory, and arbitration proceedings as well as proceedings, investigations, examinations and other actions brought or considered by governmental and self-regulatory agencies. These matters arise in connection with the ordinary conduct of BancShares’ business. At any given time, BancShares may also be in the process of responding to subpoenas, requests for documents, data and testimony relating to such matters and engaging in discussions to resolve the matters (all of the foregoing collectively being referred to as “Litigation”). While most Litigation relates to individual claims, BancShares may be subject to putative class action claims and similar broader claims and indemnification obligations.
In light of the inherent difficulty of predicting the outcome of Litigation matters and indemnification obligations, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, BancShares cannot state with confidence what the eventual outcome of the pending Litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, BancShares’ establishes reserves for Litigation when those matters present loss contingencies as to which it is both probable that a loss will occur and the amount of such loss can reasonably be estimated. Based on currently available information, BancShares believes that the outcome of Litigation that is currently pending will not have a material adverse effect on BancShares’ financial condition, but may be material to BancShares’ operating results or cash flows for any particular period, depending in part on its operating results for that period. The actual results of resolving such matters may be substantially higher than the amounts reserved.
For certain Litigation matters in which BancShares is involved, BancShares is able to estimate a range of reasonably possible losses in excess of established reserves and insurance. For other matters for which a loss is probable or reasonably possible, such an estimate cannot be determined. For Litigation and other matters where losses are reasonably possible, management currently estimates an aggregate range of reasonably possible losses of up to $10 million in excess of any established reserves and any insurance we reasonably believe we will collect related to those matters. This estimate represents reasonably possible losses (in excess of established reserves and insurance) over the life of such Litigation, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, 2023. The Litigation matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate.
Those Litigation matters for which an estimate is not reasonably possible or as to which a loss does not appear to be reasonably possible, based on current information, are not included within this estimated range and, therefore, this estimated range does not represent BancShares’ maximum loss exposure.
The foregoing statements about BancShares’ Litigation are based on BancShares’ judgments, assumptions, and estimates and are necessarily subjective and uncertain. In the event of unexpected future developments, it is possible that the ultimate resolution of these cases, matters, and proceedings, if unfavorable, may be material to BancShares’ consolidated financial position in a particular period.