First Citizens Bancshares Inc: Form 10-Q for the period ended Mar 31, 2025

Management’s discussion and analysis (“MD&A”) of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (the “Parent Company” and, when including all of its subsidiaries on a consolidated basis, “we,” “us,” “our,” or “BancShares”) and its banking subsidiary, First-Citizens Bank & Trust Company (“FCB”). Unless otherwise noted, the terms “we,” “us,” “our,” and “BancShares” in this section refer to the consolidated financial position and consolidated results of operations for BancShares.

This MD&A is expected to provide our investors with a view of our financial condition and results of operations from our management’s perspective. This MD&A should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q (this “Form 10-Q”), along with our consolidated financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”). Throughout this MD&A, references to a specific “Note” refer to Notes to the Unaudited Consolidated Financial Statements in Item 1. Financial Statements.

Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform with financial statement presentations for 2025, the reclassifications had no effect on stockholders’ equity or net income as previously reported. Refer to Note 1—Significant Accounting Policies and Basis of Presentation.

Management uses certain financial measures that are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in its analysis of the financial condition and results of operations of BancShares. Refer to the "Non-GAAP Financial Measurements" section of this MD&A for a reconciliation of these financial measures to the most directly comparable financial measures in accordance with GAAP.

EXECUTIVE OVERVIEW

The Parent Company is a bank holding company (“BHC”) and financial holding company. The Parent Company is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve”) under the U.S. Bank Holding Company Act of 1956, as amended. The Parent Company is also registered under the BHC laws of North Carolina and is subject to supervision, regulation and examination by the North Carolina Office of the Commissioner of Banks (the “NCCOB”). BancShares conducts its banking operations through its wholly owned subsidiary, FCB, a state-chartered bank organized under the laws of the state of North Carolina. FCB is regulated by the NCCOB. In addition, FCB, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation (the “FDIC”).

BancShares provides financial services for a wide range of consumer and commercial clients. This includes retail and mortgage banking, wealth management, small and middle market banking, factoring and leasing. BancShares provides commercial factoring, receivables management and secured financing services to businesses (generally manufacturers or importers of goods) that operate in various industries, including apparel, textile, furniture, home furnishings and consumer electronics. BancShares also provides deposit, cash management and lending to homeowner associations and property management companies. BancShares also owns a fleet of railcars and locomotives that are leased to railroads and shippers.

BancShares delivers banking products and services to its customers through an extensive branch network and additionally operates a nationwide digital banking platform that delivers deposit products to consumers (the “Direct Bank”). Services offered at most branches include accepting deposits, cashing checks and providing for consumer and commercial cash needs. Consumer and business customers may also conduct banking transactions through various digital channels.

In addition to our banking operations, we provide various investment products and services through FCB’s wholly owned subsidiaries, including First Citizens Investor Services, Inc. (“FCIS”) and First Citizens Asset Management, Inc. (“FCAM”), and a non-bank subsidiary First Citizens Capital Securities, LLC (“FCCS”). As a registered broker-dealer, FCIS provides a full range of investment products, including annuities, brokerage services and third-party mutual funds. As registered investment advisers, FCIS and FCAM provide investment management services and advice. FCCS is a broker-dealer that also provides underwriting and private placement services. We also have other wholly owned subsidiaries, including SVB Wealth LLC, SVB Asset Management, and First Citizens Institutional Asset Management, LLC, which are active investment advisers.

Refer to Note 17—Segment Information for further information regarding the products and services we provide.

Refer to the 2024 Form 10-K for a discussion of our strategy.

Recent Events

Debt Issuances

On March 12, 2025, the Parent Company issued and sold $500 million aggregate principal amount of its 5.231% Fixed-to-Floating Rate Senior Notes due 2031 and $750 million aggregate principal amount of its 6.254% Fixed-to-Fixed Rate Subordinated Notes due 2040 in a public offering (the “Current Quarter Debt Issuances”).

Termination of the Shared-Loss Agreement with the FDIC

On April 7, 2025, FCB and the FDIC entered into an agreement (the “Shared-Loss Termination Agreement”) to terminate the Shared-Loss Agreement (as defined in Note 2—Business Combinations). As a result of entering into the Shared-Loss Termination Agreement, all rights and obligations of the parties under the Shared-Loss Agreement terminated as of the date of the Shared-Loss Termination Agreement, including FCB’s reporting covenants and obligations related to FDIC Loss Sharing and FCB reimbursement (each as defined in Note 2—Business Combinations). The decision to enter into the Shared-Loss Termination Agreement was motivated, in part, by FCB’s determination that the likelihood of reaching the $5 billion loss threshold during the five-year period covered by the Shared Loss Agreement was remote. Additionally, the Termination Agreement eliminated the reporting responsibilities associated with the Shared-Loss Agreement. There was no impact to our consolidated balance sheets or statements of income resulting from the Shared-Loss Termination Agreement because there was no loss indemnification asset or true-up liability associated with the Shared-Loss Agreement, primarily based on evaluation of historical loss experience and the credit quality of the Covered Assets (as defined in Note 2—Business Combinations).

The risk-based capital ratio impacts resulting from the Shared-Loss Termination Agreement are discussed in the “Capital” section of this MD&A.

Share Repurchase Program

On July 25, 2024, BancShares announced that the Board of Directors (the “Board”) authorized a share repurchase plan (the “SRP”), which allows BancShares to repurchase shares of its Class A common stock in an aggregate amount up to $3.50 billion through 2025.

During the first quarter of 2025, we repurchased 302,683 shares of our Class A common stock for approximately $613 million. Shares repurchased during the first quarter of 2025 represented 2.38% of Class A common shares and 2.21% of total Class A and Class B common shares outstanding at December 31, 2024. From inception of the SRP through March 31, 2025, we have repurchased 1,117,324 shares of our Class A common stock for approximately $2.28 billion, representing 8.26% of Class A common shares and 7.69% of total Class A and Class B common shares outstanding as of June 30, 2024. The total capacity remaining under the SRP was $1.22 billion as of March 31, 2025. Subsequent to March 31, 2025, BancShares purchased an additional 120,558 shares of Class A common stock through April 30, 2025.

Refer to Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional information regarding monthly repurchase activity during the first quarter of 2025.

Changes to the Composition of Reportable Segments

We updated our segment reporting during the first quarter of 2025 as further discussed in Note 1—Significant Accounting Policies and Basis of Presentation. We transferred certain components from the SVB Commercial and General Bank segments to the Commercial Bank segment and modified our segment expense allocation methodology. Segment disclosures for 2024 periods included in this Form 10-Q were recast to reflect the segment reporting updates. Refer to Note 17—Segment Information for descriptions of segment products and services and “Results by Segment” in this MD&A.

Recent Economic, Industry and Regulatory Developments

Entering 2025, the Federal Open Market Committee (“FOMC”) had reduced the benchmark federal funds rate to a range between 4.25% - 4.50% and cautioned that reductions in 2025 may be fewer than initially expected due to continued inflation pressure. As such, the FOMC maintained the range for the benchmark federal funds rate at its January and March 2025 meetings.

The Trump administration has imposed, modified and paused tariffs multiple times since the beginning of 2025. Actual and threatened changes to U.S. trade policies have resulted in some countries enacting retaliatory measures. The imposition of increased tariffs and trade restrictions has contributed to uncertainty and volatility in the global financial markets. The current tariff environment is dynamic, and we are closely monitoring both the impact and potential impact of such measures on our business, our customers and on overall economic conditions in the United States.

Financial Performance Summary

The following tables in this MD&A include financial data for the three months ended March 31, 2025 (the “Current Quarter”), December 31, 2024 (the “Linked Quarter”) and March 31, 2024 (the “Prior Year Quarter”). In accordance with Item 303(c) of Regulation S-K, we focus on changes compared to the Linked Quarter for the narrative discussion and analysis of our results of operations as we believe this provides investors and other users of our data with the most relevant information.

We focus the discussion of our financial position by comparing balances as of March 31, 2025 to December 31, 2024.

The following table summarizes BancShares’ results:

Table 1

Selected Financial Data

dollars in millions, except share data

(1) Calculated net of average credit balances and deposits of factoring clients.

(2) Net interest margin (“NIM”), excluding purchase accounting accretion or amortization (“PAA”), is a non-GAAP financial measure. Refer to the “NII, NIM, and Interest and Fees on Loans, Excluding PAA” discussion in the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

(3) Average loan balances include loans held for sale and nonaccrual loans.

Financial highlights are summarized below. Further details are discussed in the “Results of Operations” and “Balance Sheet Analysis” sections of this MD&A.

Income Statement Highlights

• Net income for the Current Quarter was $483 million, a decrease of $217 million or 31% from $700 million for the Linked Quarter. Net income available to common stockholders for the Current Quarter was $468 million, a decrease of $217 million or 32% from $685 million for the Linked Quarter. Earnings per basic and diluted common share for the Current Quarter was $34.47, a decrease from $49.21 for the Linked Quarter. The decrease in net income available to common stockholders was largely due to an increase in income tax expense of $132 million as further described below.
• Select items in the Current Quarter and Linked Quarter included acquisition-related expenses of $42 million and $62 million, respectively.
• Net Interest Income (“NII”) for the Current Quarter was $1.66 billion, a decrease of $46 million or 3% from $1.71 billion for the Linked Quarter. NIM for the Current Quarter was 3.26%, a decrease of 6 basis points (“bps”) from 3.32% for the Linked Quarter. The decreases in NII and NIM were mainly due to a decline in the yield on interest-earning assets, a mix shift from interest-earning deposits at banks to investment securities, and an increase in average interest-bearing deposits, partially offset by a decline in the cost of interest-bearing deposits and an increase in average loans.
• PAA for the Current Quarter was $75 million, a decrease of $7 million from $82 million for the Linked Quarter. NIM, excluding PAA,(1) for the Current Quarter was 3.12%, a decrease of 4 bps from 3.16% for the Linked Quarter.
• Noninterest income for the Current Quarter was $635 million, a decrease of $64 million or 9% from $699 million for the Linked Quarter. The decrease was largely the result of a decline in other noninterest income of $36 million, mainly attributable to the negative impacts from fair value changes in customer derivative positions driven by changes in the rate environment, as well as the write-down of a held for sale asset. The remaining net decrease included a decline in the fair value adjustment on marketable equity securities of $15 million, as well as declines in gains on sales of loans, leasing equipment and marketable equity securities totaling $16 million, partially offset by an increase in wealth management services of $2 million.
• Noninterest expense for the Current Quarter was $1.49 billion, a decrease of $24 million or 2% from $1.52 billion for the Linked Quarter. The decrease was mostly due to a decline in acquisition-related expenses of $20 million and a decline in other noninterest expense of $32 million, reflecting decreases in non-income taxes and donations to support relief efforts for recent natural disasters, partially offset by an increase in personnel cost of $17 million.
• Provision for credit losses for the Current Quarter was $154 million, a decrease of $1 million from $155 million for the Linked Quarter.
• The provision for loan and lease losses for the Current Quarter was $148 million, a decrease of $10 million from $158 million for the Linked Quarter, mainly attributable to a decrease in net charge-offs of $16 million, partially offset by the impact of a $4 million reserve build in the Current Quarter compared to a $2 million reserve release in the Linked Quarter as discussed below in the “Balance Sheet Highlights.”
• The provision for off-balance sheet credit exposure for the Current Quarter was $6 million, an increase of $9 million compared to a benefit of $3 million for the Linked Quarter, mostly due to an increase in off-balance sheet credit exposure and modest deterioration in the macroeconomic forecast.
• Income tax expense for the Current Quarter was $168 million, an increase of $132 million from $36 million for the Linked Quarter. The Linked Quarter included a decrease in income tax expense due to a decline in the state tax rate applied. The tax rate applied in the Linked Quarter declined after we filed our first income tax returns that included the SVBB Acquisition (as defined in Note 2—Business Combinations).
• Return on average assets for the Current Quarter was 0.87%, a decrease of 38 bps from 1.25% for the Linked Quarter, mainly attributable to higher income tax expense.

(1) NIM, excluding PAA is a non-GAAP measure. Refer to the “NII, NIM, and Interest and Fees on Loans, Excluding PAA” discussion in the “Non-GAAP Financial Measurements” section of this MD&A for further discussion.

Balance Sheet Highlights

• Loans and leases at March 31, 2025 were $141.36 billion, an increase of $1.14 billion or 1% from $140.22 billion at December 31, 2024. Loan growth in the Commercial Bank segment of $733 million was mainly in our industry verticals, primarily technology media and telecommunications (“TMT”) and healthcare. Loan growth in the SVB Commercial segment of $444 million was concentrated in the global fund banking portfolio, partially offset by declines in our investor dependent portfolio. Loans in the General Bank segment slightly declined by $40 million, reflecting a decline in the Branch Network, partially offset by loan growth in Wealth.
• Allowance for loan and lease losses (“ALLL”) at March 31, 2025 was $1.68 billion, an increase of $4 million from December 31, 2024, primarily due to modest deterioration in the macroeconomic forecast, as well as increases in loan volume, partially offset by the result of a mix shift from the investor dependent portfolio to the global fund banking portfolio, which has a lower loss rate relative to our other loan portfolios, and lower specific reserves for individually evaluated loans. The reserve release in the Linked Quarter was primarily due to lower specific reserves, partially offset by increases in loan volume. The ALLL as a percentage of loans was 1.19% at March 31, 2025, a decrease of 1 bp from 1.20% at December 31, 2024.
• Investment securities at March 31, 2025 were $44.32 billion, an increase of $229 million or 1% from $44.09 billion at December 31, 2024, primarily due to purchases of short-duration available for sale U.S. agency mortgage-backed and U.S. Treasury investment securities, partially offset by paydowns, maturities, and sales.
• Deposits at March 31, 2025 were $159.33 billion, an increase of $4.10 billion or 3% from $155.23 billion at December 31, 2024, mainly attributable to deposit growth of $3.1 billion in the Direct Bank in Corporate, $1.4 billion in our Branch Network in the General Bank segment, and $496 million in the SVB Commercial segment, partially offset by a decline of $508 million in the Commercial Bank segment. The remaining decrease in deposits was attributable to declines in other deposits in Corporate and the Rail segment.
• Borrowings at March 31, 2025 were $38.41 billion, an increase of $1.36 billion or 4% from $37.05 billion at December 31, 2024, primarily due to the Current Quarter Debt Issuances with aggregate principal amounts totaling $1.25 billion as further discussed above in the “Recent Events” section of this MD&A.
• At March 31, 2025, BancShares remained well capitalized with a total risk-based capital ratio of 15.23%, a Tier 1 risk-based capital ratio of 13.35%, a common equity Tier 1 (“CET1”) ratio of 12.81% and a Tier 1 leverage ratio of 9.75%.

Funding, Liquidity and Capital Overview

Deposit Composition and Trends

We fund our business primarily through deposits. Deposits represented approximately 81% of total funding at March 31, 2025. The following table summarizes the composition, average size and uninsured percentages of our deposits:

Table 2

Select Deposit Data

(1) The average size is reflective of the Direct Bank deposits and excludes brokered deposits and rail.

The General Bank segment mainly includes deposits in our Branch Network, which deploys a relationship-based approach to deposit gathering. The Commercial Bank segment includes deposits of commercial customers, and the SVB Commercial segment includes deposits related to its commercial customer base. Deposits in Corporate mainly included $44.17 billion in our Direct Bank, with the balance including brokered and other deposits.

As displayed in the table above, the average size of deposits varies across our business segments. The uninsured percentage is the percentage of uninsured deposits to total deposits at period end for the respective segments and Corporate. Total uninsured deposits were approximately $58.06 billion or 36% of total deposits at March 31, 2025 and $59.51 billion or 38% at December 31, 2024.

Table 3

Deposit Trends

dollars in millions

From December 31, 2024 to March 31, 2025, deposits in Corporate and the General Bank segment increased, primarily due to deposit growth in the Direct Bank and our Branch Network, respectively. SVB Commercial segment deposits increased despite the strategic decision to move $2.4 billion in select cash sweep deposits to off-balance sheet client funds during the Current Quarter. The net increase in SVB Commercial segment deposits was mainly due to growth in savings, noninterest-bearing, and money market deposits, partially offset by declines in interest-bearing checking and time deposits. Deposits in the Commercial Bank segment decreased, mostly due to a decline in noninterest-bearing deposits. Refer to the “Interest-bearing Liabilities—Deposits” section in this MD&A for additional information on deposits.

Liquidity Position

We strive to maintain a strong liquidity position and our risk appetite for liquidity is low. At March 31, 2025, we had $62.79 billion in high-quality liquid assets consisting of $23.77 billion in cash and interest-earning deposits at banks (primarily held at the Federal Reserve Bank (“FRB”)) and $39.02 billion in high-quality liquid securities (“HQLS”). HQLS is mainly composed of U.S. agency mortgage-backed and U.S. Treasury investment securities. Additionally, we have unused borrowing capacity with the Federal Home Loan Bank (“FHLB”) and FRB of $16.54 billion and $5.61 billion, respectively.

In connection with the SVBB Acquisition, FCB and the FDIC, as lender and as collateral agent, entered into the Advance Facility Agreement (as defined and described in Note 2—Business Combinations). The draw period under the Advance Facility Agreement ended March 27, 2025, as of which date, FCB had no outstanding amounts under the facility. We are actively working to increase our borrowing capacity under agreements with the FRB through expansion of the eligible loan population to targeted loans historically not pledged to the FRB. Refer to the “Liquidity Risk” section of this MD&A for further discussion.

In connection with the SVBB Acquisition, FCB issued a five-year, 3.50% fixed rate Purchase Money Note (as defined in Note 2—Business Combinations), which had a carrying value of $35.83 billion at March 31, 2025. While scheduled principal payments are not required until maturity in March 2028, FCB may voluntarily prepay principal without a premium or penalty. We will continue to monitor the interest rate environment and assess whether any voluntary prepayments are prudent considering the fixed rate of 3.50%. Potential sources that could fund voluntary prepayments or the amount due at maturity include excess liquidity (primarily comprised of interest-earning deposits at banks and proceeds from maturities and paydowns of investment securities), FHLB advances, deposit growth, and issuance of unsecured debt or other borrowings. At the time of voluntary prepayment or maturity, the interest rates for the potential interest-bearing sources of repayment could be higher than the 3.50% rate.

Investment Securities Duration

At March 31, 2025, our investment securities portfolio primarily consisted of debt securities available for sale and held to maturity as summarized below. We manage debt security market risk by monitoring the average duration of our investment securities portfolio. The duration of our investment securities was approximately 2.7 years at March 31, 2025. The investment securities available for sale portfolio had an average duration of 2.3 years and the held to maturity portfolio had an average duration of 4.3 years. Refer to the “Interest-earning Assets—Investment Securities” section of this MD&A and Note 3—Investment Securities for further information.

Table 4

Investment Securities

dollars in millions

Capital Position

At March 31, 2025, all regulatory capital ratios for BancShares and FCB significantly exceeded the Prompt Corrective Action (“PCA”) well capitalized thresholds and Basel III requirements as further discussed in the “Capital” section of this MD&A.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

NII is affected by changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Interest income and expense and the respective yields and rates include amortization of premiums, accretion of discounts, and impacts from hedging activities.

The following tables present the average balances of interest-earning assets and interest-bearing liabilities with the associated yields and rates, interest income and expense, and changes therein due to changes in volume and yields or rates. Changes in interest income and expense due to changes in (i) volume (average balances of interest-earning assets and interest-bearing liabilities) and (ii) yields or rates are based on the following:

• The change in NII due to volume is calculated as the change in average balance multiplied by the yield or rate from the prior period.
• The change in NII due to yield or rate is calculated as the change in yield or rate multiplied by the average balance from the prior period.
• The change in NII due to changes in both volume and yield or rate (i.e., portfolio mix) is calculated as the change in rate multiplied by the change in volume. This component is allocated between the changes due to volume and yield or rate based on the ratio each component bears to the absolute dollar amounts of their total.
• Tax equivalent NII was not materially different from NII, therefore we present NII in our analysis.

Table 5

Average Balances, Yields and Rates, NII, and NIM (Current Quarter to Linked Quarter)

dollars in millions

(1) Loans and leases include nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees.

(2) The average balances and yields for loans and leases are calculated net of average credit balances of factoring clients to appropriately reflect the interest-earning portion of factoring receivables.

NII, NIM, and Average Balances (Current Quarter Compared to Linked Quarter)

The table above quantifies the increases or decreases for the Current Quarter compared to the Linked Quarter for NII and NIM, as well as average balances of interest-earning assets and interest-bearing liabilities, and the respective yields and rates paid. The main reasons for the increases and decreases are explained below.

NII and NIM

• NII for the Current Quarter was $1.66 billion, a decrease of $46 million or 3% from $1.71 billion for the Linked Quarter. NII, excluding PAA,(1) was $1.59 billion for the Current Quarter, a decrease of $39 million from $1.63 billion for the Linked Quarter. The main reasons for the decreases in NII and NII, excluding PAA,(1) are explained below.
• Interest and fees on loans for the Current Quarter was $2.24 billion, a decrease of $86 million or 4% from $2.32 billion for the Linked Quarter. The decrease was a result of a lower yield, partially offset by the impact of a higher average balance.
• Loan PAA was $84 million for the Current Quarter, a decrease of $6 million from $90 million for the Linked Quarter.
• Interest and fees on loans, excluding loan PAA,(1) was $2.15 billion for the Current Quarter, a decrease of $80 million from $2.23 billion for the Linked Quarter.
• Interest income on interest-earning deposits at banks for the Current Quarter was $245 million, a decrease of $57 million or 19% from $302 million for the Linked Quarter, due to declines in the average balance and the federal funds rate.
• Interest income on investment securities and securities purchased under agreements to resell for the Current Quarter was $414 million, an increase of $37 million or 10% from $377 million for the Linked Quarter, due to a higher average balance and a higher yield.
• Interest expense on interest-bearing deposits for the Current Quarter was $893 million, a decrease of $64 million or 7% from $957 million for the Linked Quarter, due to a lower rate paid, partially offset by the impact of a higher average balance.
• Interest expense on borrowings for the Current Quarter was $339 million, an increase of $4 million or 1% from $335 million for the Linked Quarter, primarily due to a higher average balance as a result of the Current Quarter Debt Issuances discussed in the “Interest-bearing Liabilities—Borrowings” section of this MD&A. We expect interest expense on borrowings to increase next quarter as the Current Quarter Debt Issuances will be included in the average balance and rate paid for the entire quarter.
• NIM for the Current Quarter was 3.26%, a decrease of 6 bps from 3.32% for the Linked Quarter. NIM compression was mainly due to a decline in the yield on interest-earning assets (due primarily to decreases in the federal funds rate in the Linked Quarter that remained in effect for the entire Current Quarter), a mix shift from interest-earning deposits at banks to investment securities, and an increase in average interest-bearing deposits, partially offset by a decline in the cost of interest-bearing deposits and an increase in average loans. Lower PAA had a 1 bp negative impact on NIM during the Current Quarter. NIM, excluding PAA,(1) was 3.12% for the Current Quarter, a decrease of 4 bps from 3.16% for the Linked Quarter.
• The yield on average interest-earning assets for the Current Quarter was 5.68%, a decrease of 15 bps from 5.83% for the Linked Quarter, mainly due to declines in yields on loans and interest-earning deposits at banks, as well as slightly lower loan PAA, partially offset by a higher yield on investment securities.
• The rate paid on average interest-bearing liabilities for the Current Quarter was 3.22%, a decrease of 17 bps from 3.39% for the Linked Quarter, primarily due to a lower rate paid on interest-bearing deposits, partially offset by the impact of a higher average balance of interest-bearing deposits. The rate paid on borrowings for the Current Quarter was 3.62%, relatively consistent with 3.61% for the Linked Quarter.

Average Balances of Interest-earning Assets and Interest-bearing Liabilities

• Average interest-earning assets for the Current Quarter were $206.03 billion, an increase of $1.25 billion or 1% from $204.78 billion for the Linked Quarter.
• Average interest-bearing liabilities for the Current Quarter were $154.62 billion, an increase of $2.97 billion or 2% from $151.66 billion for the Linked Quarter.
• For further discussion, refer to the “Financial Performance Summary—Balance Sheet Highlights,” “Interest-earning Assets,” and “Interest-bearing Liabilities” sections of this MD&A.

(1) Refer to the “NII, NIM, and Interest and Fees on Loans, Excluding PAA” discussion in the “Non-GAAP Financial Measurements” section of this MD&A for further discussion.

Table 6

Average Balances, Yields and Rates, NII, and NIM (Current Quarter to Prior Year Quarter)

dollars in millions

(1) Loans and leases include nonaccrual loans and loans held for sale. Interest income on loans and leases includes accretion income and loan fees.

(2) The average balances and yields for loans and leases are calculated net of average credit balances of factoring clients to appropriately reflect the interest-earning portion of factoring receivables.

The following table includes the average interest-earning assets by category:

Table 7

Average Interest-earning Asset Mix

The following table shows the average interest-bearing liability mix:

Table 8

Average Interest-bearing Liability Mix

Provision for Credit Losses

The provision for credit losses for the Current Quarter was $154 million, a decrease of $1 million from $155 million for the Linked Quarter. The Current Quarter provision for credit losses included a provision for loan and lease losses of $148 million, a decrease of $10 million from the Linked Quarter, and a provision for off-balance sheet credit exposure of $6 million, an increase of $9 million from the Linked Quarter.

• The decrease in provision for loan and lease losses was mainly attributable to a decline in net charge-offs of $16 million, partially offset by the impact of a $4 million reserve build in the Current Quarter compared to a $2 million reserve release in the Linked Quarter.
• The increase in provision for off-balance sheet credit exposure was mostly due to an increase in off-balance sheet credit exposure and modest deterioration in the macroeconomic forecast.

The ALLL and net charge-offs are further discussed in the “Risk Management—Credit Risk—Allowance for Loan and Lease Losses” and “—Credit Metrics” sections of this MD&A and in Note 5—Allowance for Loan and Lease Losses.

Table 9

Provision for Credit Losses

dollars in millions

66

Noninterest Income

The primary sources of noninterest income consist of rental income on operating lease equipment, lending-related fees, deposit fees and service charges, client investment fees, wealth management services, international fees, factoring commissions, cardholder and merchant services, and insurance commissions.

Table 10

Noninterest Income

dollars in millions

The above table includes the amounts for the components of noninterest income for the Current Quarter, Linked Quarter, and Prior Year Quarter, as well as the dollar and percentage increases or decreases for the Current Quarter compared to the Linked Quarter.

Noninterest income for the Current Quarter was $635 million, a decrease of $64 million or 9% from $699 million for the Linked Quarter, mainly due to the following:

• The decrease in other noninterest income of $36 million was mainly attributable to the negative impacts from fair value changes in customer derivative positions driven by changes in the rate environment, as well as the write-down of a held for sale asset.
• The decrease in the fair value adjustment on marketable equity securities of $15 million reflects lower market prices of the underlying securities.
• The decrease in the gain on sale of leasing equipment of $6 million was mostly due to lower volumes of rail equipment sales.
• The decrease in factoring commissions of $3 million was primarily due to a decline in factoring volume.
• The decrease in rental income on operating lease equipment of $2 million was mainly the result of the Linked Quarter including charges that are assessed annually, which were partially offset by strong repricing of renewed equipment during the Current Quarter. Refer to the Rail segment discussion in the “Results by Segment” section of this MD&A for further details.

Noninterest Expense

Noninterest expense includes the following primary expense categories, with the balance in other noninterest expense.

Table 11

Noninterest Expense

dollars in millions

The above table includes the amounts for the components of noninterest expense for the Current Quarter, Linked Quarter, and Prior Year Quarter, as well as the dollar and percentage increases or decreases for the Current Quarter compared to the Linked Quarter.

Noninterest expense for the Current Quarter was $1.49 billion, a decrease of $24 million or 2% from $1.52 billion for the Linked Quarter, mainly due to the following:

• The decrease in other noninterest expense of $32 million reflected declines in capitalized software impairment, state related non-income taxes, and charitable donations to support relief efforts for recent natural disasters.
• The decrease in acquisition-related expenses of $20 million is summarized in the table below.
• The increase in personnel cost of $17 million was mainly due to merit-based compensation increases, net staff additions, and seasonal increases in employee benefits and payroll taxes.
• The increase in marketing expense of $8 million was primarily due to marketing for Direct Bank deposits.
• The increase in third-party processing fees of $6 million was largely a result of higher transaction volume and additional services.
• The decrease in professional fees of $5 million was mostly related to lower consulting costs.
• The increase in FDIC insurance expense of $5 million was largely due to a higher FDIC insurance rate and an increase in average assets.
• The decrease in depreciation on operating lease equipment of $3 million is discussed in the Commercial Bank and Rail segments in the section entitled “Results by Segment” of this MD&A.
• The increase in maintenance and other operating lease expenses of $3 million is discussed in the Rail segment in the section entitled “Results by Segment” of this MD&A.

The following table presents the major components of acquisition-related expenses:

Table 12

Acquisition-related Expenses

dollars in millions

Acquisition-related personnel cost primarily includes severance and retention costs for employees associated with business combinations. These amounts are recognized over the requisite service period, if any.

Acquisition-related professional fees mainly include consulting, legal and accounting costs associated with business combinations and the related integration, optimization, and business process reengineering, including enhancements to technology. These amounts are expensed as incurred.

Income Taxes

Table 13

Income Tax Data

dollars in millions

The effective income tax rate (“ETR”) was 25.8% for the Current Quarter, which is within our projected range for the 2025 ETR, compared to 4.9% for the Linked Quarter. The lower income tax expense and ETR for the Linked Quarter was primarily driven by the revaluation of the deferred tax liability due to a change in the state tax rate applied in the Linked Quarter. The tax rate applied in the Linked Quarter declined after we filed our first income tax returns that included the SVBB Acquisition.

The ETR is impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to valuation allowances, and discrete items. The ETR in future periods may vary from the Current Quarter ETR due to changes in these factors.

BancShares monitors and evaluates the potential impact of current events on the estimates used to establish income tax expense and income tax liabilities. On a periodic basis, we evaluate our income tax positions based on current tax law and positions taken by various tax auditors within the jurisdictions where BancShares is required to file income tax returns, as well as potential or pending audits or assessments by tax auditors. Refer to Note 15—Income Taxes for additional information.

RESULTS BY SEGMENT

We made changes to the composition of our reportable segments during the first quarter of 2025 as further discussed in Note 1—Significant Accounting Policies and Basis of Presentation and briefly summarized in the “Recent Events” section earlier in this MD&A. Segment disclosures for 2024 periods included in this Form 10-Q were recast to reflect the changes.

BancShares’ segments include the General Bank, the Commercial Bank, SVB Commercial, and Rail. All other financial information not included in the segments is reported in the Corporate section of the segment disclosures. Certain noninterest expenses are directly incurred by a segment, while others are not. Noninterest expenses not directly incurred by a segment are included in Corporate unless allocated to a segment (“Allocated Expenses”). Under our segment expense allocation methodology, Allocated Expenses increase noninterest expense of the applicable segment(s), with an offsetting decrease to Corporate noninterest expense. “All other noninterest expense” in the segment reporting tables below are presented net of Allocated Expenses, resulting in a reduction to expense (or “Contra Expense”) for Corporate. Refer to Note 17—Segment Information for descriptions of segment products and services.

General Bank

Table 14

General Bank: Financial Data

dollars in millions

(1) PPNR is a non-GAAP measure. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

General Bank segment net income for the Current Quarter decreased $33 million compared to the Linked Quarter. PPNR decreased $13 million from the Linked Quarter. The decreases in net income and PPNR included higher personnel costs, partially offset by higher NII.

The $11 million increase in NII reflected lower deposit costs, which offset deposit growth and lower income on loans.

Personnel cost increased $24 million mainly due to seasonal increases in employee benefits and payroll taxes.

The $24 million increase in provision for credit losses in the Current Quarter was mainly due to a reserve build, including higher specific reserves, which was partially offset by lower net charge-offs.

The $40 million decrease in loans and leases compared to December 31, 2024 was mainly due to lower mortgage loans and lower commercial and business loans in our Branch Network, which offset modest growth in Wealth.

Deposits in the General Bank segment primarily include deposits from the Branch Network, as well as Wealth and Community Association Banking (“CAB”) channels. The $1.35 billion increase in deposits compared to December 31, 2024 was primarily in money market deposits in the Branch Network, along with higher CAB deposits, partially offset by lower time deposits.

Commercial Bank

Table 15

Commercial Bank: Financial Data

dollars in millions

(1) Net rental income on operating lease equipment, noninterest income, net of depreciation, revenue, net of depreciation, noninterest expense, net of depreciation, and PPNR are non-GAAP measures. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

(2) Total noninterest income and total noninterest expense include depreciation on operating lease equipment.

Commercial Bank segment net income for the Current Quarter decreased $45 million compared to the Linked Quarter. PPNR decreased $57 million from the Linked Quarter. The decreases were mostly due to lower noninterest income, in addition to lower NII and higher personnel costs, as described below.

Segment NII decreased $14 million compared to the Linked Quarter, primarily due to lower loan yields due to a full quarter impact of federal funds rate decreases in the 2024 fourth quarter, which offset loan growth and lower funding costs.

Net rental income on operating lease equipment increased $1 million from the Linked Quarter. Rental income and depreciation expense on operating lease equipment is related to small and large ticket equipment we own and lease to others.

The $32 million decrease in all other noninterest income was mostly due to unfavorable fair value changes in customer derivative positions and foreclosed properties and lower factoring commissions, partially offset by higher lending-related fees, mostly due to higher capital market fees.

The $13 million increase in personnel cost was mainly due to seasonal increases in employee benefits and payroll taxes.

The decrease in provision for credit losses for the Current Quarter was mainly due to lower net charge-offs, largely in equipment finance, which offset loan growth.

The $733 million increase in loans and leases compared to December 31, 2024 reflects loan growth in a number of industry verticals, primarily TMT and healthcare, along with lower prepayments.

Deposits in the Commercial Bank segment decreased by $508 million from December 31, 2024, mostly due to a decline in noninterest-bearing checking deposits. Customers generally build deposits at year end in anticipation of higher first quarter usage.

SVB Commercial

Table 16

SVB Commercial: Financial Data

dollars in millions

(1) PPNR is a non-GAAP measure. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

SVB Commercial segment net income for the Current Quarter decreased $15 million compared to the Linked Quarter. PPNR decreased $36 million from the Linked Quarter. The decreases in net income and PPNR were mainly due to lower NII, partially offset by lower all other noninterest expense, while the decrease in segment net income also included a lower provision for credit losses.

NII decreased $51 million due to lower interest income on loans as lower yields, due to a full quarter impact of federal funds rate decreases in the 2024 fourth quarter, offset loan growth and lower funding costs.

All other noninterest expense was down. Refer to the “Noninterest Expense” section of this MD&A.

The provision for credit losses decreased $20 million, which included lower specific reserves in the investor dependent portfolios.

The $444 million increase in loans from December 31, 2024 was attributed to the global fund banking portfolio, partially offset by declines in investor dependent loans as payments exceeded new originations.

Deposits increased $496 million from December 31, 2024, mainly due to growth in noninterest-bearing deposits and money market deposits, partially offset by a decline in interest-bearing checking deposits. During the Current Quarter we made a strategic decision to move $2.4 billion in select cash sweep deposits to off-balance sheet client funds.

Rail

Table 17

Rail: Financial Data

dollars in millions

(1) Net rental income on operating lease equipment, noninterest income, net of depreciation and maintenance, noninterest expense, net of depreciation and maintenance, revenue, net of depreciation and maintenance, and PPNR are non-GAAP measures. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

(2) Total noninterest income and total noninterest expense include depreciation and maintenance on operating lease equipment.

Rail segment net income, rental income on operating leases and net rental income on operating lease equipment are utilized to measure profitability. Net rental income on operating lease equipment is calculated as rental income on operating lease equipment reduced by depreciation, maintenance and other operating lease expenses. Due to the nature of our portfolio, which is essentially all operating lease equipment, certain financial measures commonly used by banks, such as NII, are not as meaningful for this segment. NII is not used because it includes the impact of debt costs funding our operating lease assets but excludes the associated net rental income.

Rail segment net income for the Current Quarter decreased $9 million and PPNR decreased $10 million compared to the Linked Quarter. The decreases were mostly due to lower gains on sales of equipment on operating lease and net rental income. Net rental income on operating lease equipment decreased $3 million compared to the Linked Quarter. The decrease reflected lower rental income, mainly the result of the Linked Quarter including charges that are assessed annually, which were partially offset by strong repricing of renewed equipment during the Current Quarter. Lower depreciation was offset by higher maintenance costs. Depreciation on operating lease equipment decreased $3 million, primarily due to higher residual review adjustments on rail assets in the Linked Quarter, which offset the fleet additions. Maintenance and other operating lease expenses increased $3 million. Maintenance and other operating lease expenses tend to be variable due to timing and the number of railcars coming on or off lease as well as asset condition.

All other noninterest income primarily reflects net gains on sale of leasing equipment, which can vary due to the type of cars sold, volume sold, and market conditions.

Our fleet is diverse and the average re-pricing of equipment upon lease maturities was 126.0% of the average prior or expiring lease rate during the Current Quarter. Railcar utilization, including commitments to lease, was 97.0% at March 31, 2025 and 97.6% at December 31, 2024.

Portfolio

Rail segment customers include all of the U.S. and Canadian Class I railroads (i.e., railroads with annual revenues of approximately $500 million and greater) and other railroads, as well as manufacturers and commodity shippers. Our total operating lease fleet at March 31, 2025 consisted of approximately 126,600 railcars and locomotives.

The following tables reflect the proportion of railcars by type based on units and net investment, and rail operating lease equipment by obligor industry:

Table 18

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

Table 19

Rail Operating Lease Equipment by Obligor Industry

dollars in millions

Corporate

Table 20

Corporate: Financial Data

dollars in millions

(1) PPNR is a non-GAAP measure. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

Corporate net income decreased $115 million and PPNR increased $30 million compared to the Linked Quarter. The decrease in net income was mainly due to the change in our estimated state tax rates that benefited the Linked Quarter as further discussed in the “Income Taxes” section of this MD&A. The higher PPNR mostly reflected lower noninterest expenses.

NII increased $10 million, reflecting lower deposit interest expense as a result of lower rates on Direct Bank deposits and an increase in interest income on investment securities resulting from continued purchases and higher yields, partially offset by lower interest income on interest-earning deposits at banks, a decline in loan PAA, and higher borrowing costs due to the Current Quarter Debt Issuances.

Noninterest income decreased $19 million mostly due to lower fair value adjustments on marketable equity securities.

Personnel cost decreased $26 million and acquisition-related expenses decreased $20 million from the Linked Quarter. Both are further discussed in the “Noninterest Expense” section of this MD&A. All other noninterest expense is presented net of Allocated Expenses, resulting in a Contra Expense for Corporate as further discussed above and in Note 17—Segment Information.

Corporate deposits increased $2.76 billion from December 31, 2024 primarily due to growth in savings deposits, partially offset by lower time deposits. Total deposits in Corporate mainly include $44.17 billion of Direct Bank deposits with the remaining balance consisting of brokered and other deposits.

BALANCE SHEET ANALYSIS

Interest-earning Assets

Interest-earning assets include interest-earning deposits at banks, securities purchased under agreements to resell, investment securities, loans held for sale, and loans and leases, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. Higher-risk investments typically carry a higher interest rate, but expose us to higher levels of market and/or credit risk. We strive to maintain a high level of interest-earning assets relative to total assets while keeping non-earning assets at a minimum.

Interest-earning Deposits at Banks

Interest-earning deposits at banks are primarily comprised of interest-bearing deposits with the FRB. Interest-earning deposits at banks as of March 31, 2025 totaled $24.69 billion, an increase of $3.33 billion or 16% from $21.36 billion at December 31, 2024. The increase from December 31, 2024 is related to continued liquidity and funding management as we grew customer deposits and issued debt, funded loan growth, and were a main funding source for purchases of investment securities and repurchases of shares of the Parent Company’s Class A common stock during the Current Quarter.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell at March 31, 2025 totaled $345 million, an increase of $187 million from $158 million at December 31, 2024.

Investment Securities

The primary objective of the investment portfolio is to generate incremental income by deploying excess funds into securities that have minimal liquidity risk and low to moderate interest rate risk and credit risk. Other objectives include acting as a stable source of liquidity, serving as a tool for asset and liability management and maintaining an interest rate risk profile compatible with our objectives. Additionally, purchases of equities and corporate bonds in other financial institutions have been made under a long-term earnings optimization strategy. Changes in the total balance of our investment securities portfolio result from trends in balance sheet funding and market performance. Generally, when inflows arising from deposit and treasury services products exceed loan and lease demand, we invest excess funds into the securities portfolio or into interest-earning deposits at banks. Conversely, when loan demand exceeds growth in deposits and short-term borrowings, we allow interest-earning deposits at banks to decline and use proceeds from maturing securities and prepayments to fund loan growth. Refer to Note 3—Investment Securities and “Funding, Liquidity and Capital Overview” in the “Executive Overview” section of this MD&A for additional disclosures regarding investment securities.

The carrying value of investment securities at March 31, 2025 totaled $44.32 billion, an increase of $229 million or 1% from $44.09 billion at December 31, 2024. The increase from December 31, 2024 resulted from purchases that totaled $2.07 billion, which were primarily U.S agency residential mortgage-backed and short-duration U.S. Treasury investment securities, and non-cash items, such as fair value changes for investment securities available for sale and marketable equity securities along with amortization and accretion, that offset maturities, sales, and payments of $2.23 billion.

Our portfolio of investment securities available for sale consists of mortgage-backed securities issued by government agencies and government sponsored entities, U.S. Treasury securities, corporate bonds, and municipal bonds. Investment securities available for sale are reported at fair value and unrealized gains and losses are included as a component of accumulated other comprehensive income (“AOCI”), net of deferred taxes. As of March 31, 2025, investment securities available for sale had a net pretax unrealized loss of $440 million, compared to $762 million as of December 31, 2024, primarily reflecting changes in interest rates and maturities. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. The fair value of the investment securities portfolio generally increases when interest rates decrease or when credit spreads tighten. Given the consistently strong credit rating of the U.S. Treasury, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, no allowance for credit loss was required as of March 31, 2025. For corporate bonds, we analyzed the changes in interest rates relative to when the investment securities were purchased or acquired, and considered other factors including changes in credit ratings, delinquencies, and other macroeconomic factors. We determined no allowance for credit loss was required as of March 31, 2025.

Our portfolio of investment securities held to maturity consists of similar mortgage-backed securities, U.S. Treasury securities and government agency securities described above, as well as securities issued by the Supranational Entities & Multilateral Development Banks and FDIC guaranteed certificates of deposit with other financial institutions. Given the consistently strong credit rating of the U.S. Treasury and the Supranational Entities & Multilateral Development Banks, and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined that no allowance for credit loss was required for investment securities held to maturity at March 31, 2025.

The following table presents the investment securities portfolio, segregated by major category:

Table 21

Investment Securities

dollars in millions

76

The following table presents the weighted average yields for investment securities available for sale and held to maturity at March 31, 2025, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio was calculated using security-level annualized yields based on book yield to maturity and takes into account amortization of premiums and accretion of discounts, but does not include the effects of hedging. The total weighted average yields for investment securities available for sale and held to maturity are based on the underlying weighted average amortized cost.

Table 22

Weighted Average Yield on Investment Securities

(1) Residential mortgage-backed and commercial mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity at March 31, 2025. The expected life will differ from contractual maturities because borrowers have the right to prepay the underlying loans.

Assets Held for Sale

Assets held for sale at March 31, 2025 were $185 million, an increase of $100 million or 119% from $85 million at December 31, 2024.

Table 23

Assets Held for Sale

dollars in millions

Loans and Leases

Loans and leases held for investment at March 31, 2025 were $141.36 billion, an increase of $1.14 billion or 1% from $140.22 billion at December 31, 2024. The increase from December 31, 2024 reflects growth in commercial and SVB loans. The increase of $741 million in commercial loans was spread across various industry verticals such as TMT and healthcare. Within SVB loan classes, the $477 million growth was mostly attributed to the global fund banking portfolio, partially offset by declines in investor dependent portfolios as loan payments exceeded new originations. Consumer loans decreased $81 million, as we continue to originate and sell rather than hold for investment.

Refer to Note 4—Loans and Leases for further information.

The following table presents loans and leases by loan segment and loan class, and the respective proportion to total loans:

Table 24

Loans and Leases

dollars in millions

(1) Total SVB loans are irrespective of segment composition further described in Note 17—Segment Information.

The unamortized discount related to acquired loans was $1.52 billion at March 31, 2025, a decrease of $74 million from $1.60 billion at December 31, 2024. The decrease from December 31, 2024 reflects accretion of $84 million, including $8 million for unfunded commitments.

Operating Lease Equipment, Net

As detailed in the following table, our operating lease portfolio mostly relates to the Rail segment, with the remainder included in the Commercial Bank segment. Refer to the “Results by Segment” section of this MD&A for further details on the operating lease equipment portfolio in Rail.

Table 25

Operating Lease Equipment, Net

dollars in millions

(1) Includes off-lease rail equipment of $256 million at March 31, 2025, and $219 million at December 31, 2024.

Interest-bearing Liabilities

Interest-bearing liabilities include interest-bearing deposits, securities sold under agreements to repurchase, and borrowings. Interest-bearing liabilities at March 31, 2025 totaled $156.96 billion, an increase of $3.32 billion or 2% from $153.65 billion at December 31, 2024, mainly due to deposit growth as well as the Current Quarter Debt Issuances, as further discussed below.

Deposits

Total deposits at March 31, 2025 were $159.33 billion, an increase of $4.10 billion or 3% from $155.23 billion at December 31, 2024. The increase from December 31, 2024 was mainly attributable to:

• growth in savings deposits, partially offset by lower time deposits in the Direct Bank,
• higher noninterest-bearing demand, partially offset by a decline in interest-bearing checking deposits in the SVB Commercial segment,
• growth in money market deposits, partially offset by lower time deposit accounts in the Branch Network, and
• lower noninterest-bearing demand deposits in the Commercial Bank.

The following table summarizes the types of deposits:

Table 26

Deposits

dollars in millions

We strive to maintain a strong liquidity position, and therefore, deposit retention remains a key business objective. We believe traditional bank deposit products remain an attractive option for many customers. As economic conditions change, we recognize that our liquidity position could be adversely affected if bank deposits are withdrawn. Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost.

Deposit Concentrations

BancShares operates a network of branches and offices, predominantly located in the Southeast, Mid-Atlantic, Midwest and Western United States, providing a broad range of financial services to individuals, businesses and professionals. Based on branch location, our top state deposit concentrations as of March 31, 2025 were in North Carolina, California, and South Carolina, which represented approximately 25.6%, 8.4%, and 7.8%, respectively, of total deposits.

The Direct Bank had $44.17 billion or 27.7% of our total deposits as of March 31, 2025. The Direct Bank deposits mainly consist of savings deposit accounts.

SVB Commercial segment deposits as of March 31, 2025 were $37.02 billion or 23.2% of total deposits and are primarily concentrated in online banking. Deposits in the SVB Commercial segment include large dollar accounts with private equity and venture capital clients, primarily in the technology, life science and healthcare industries.

Deposit accounts with balances in excess of $50 million totaled approximately $7.16 billion as of March 31, 2025, compared to approximately $8.01 billion as of December 31, 2024.

Brokered deposits, included in time deposits in the preceding table, are a source of deposit funding but remain an immaterial amount of total deposits at less than 1% as of March 31, 2025 and December 31, 2024.

Uninsured Deposits

The amount of uninsured deposits is estimated consistent with the methodologies and assumptions utilized in providing information to the FDIC and Federal Reserve. We estimate total uninsured deposits were $58.06 billion, which represented approximately 36.4% of total deposits at March 31, 2025, compared to $59.51 billion or 38.3% of total deposits at December 31, 2024.

Refer to the “Funding, Liquidity and Capital Overview” and “Results by Segment” sections of this MD&A for further discussion of deposit composition, uninsured deposits, and recent deposit trends.

The following table provides the expected maturity of time deposits with balances in excess of $250,000 as of March 31, 2025:

Table 27

Maturities of Time Deposits In Excess of $250,000

dollars in millions

Borrowings

Total borrowings at March 31, 2025 were $38.41 billion, an increase of $1.36 billion from $37.05 billion at December 31, 2024. The increase from December 31, 2024 primarily related to the Current Quarter Debt Issuances (refer to the table below), as well as higher securities sold under agreements to repurchase.

The following table presents borrowings, net of the respective unamortized purchase accounting adjustments and issuance costs:

Table 28

Borrowings

dollars in millions

(1) Issued in connection with the SVBB Acquisition and secured by collateral. Refer to Note 2—Business Combinations and Note 4—Loans and Leases. The unamortized discount related to this borrowing was $163 million and $176 million at March 31, 2025 and December 31, 2024, respectively.

(2) The fixed rate period will end on March 12, 2030, and the notes will thereafter bear a floating interest rate equal to a benchmark rate based on the Compounded Secured Overnight Financing Rate (“SOFR”) Index Rate plus 141 bps per annum until the maturity date (or date of earlier redemption).

(3) The fixed rate period ended on March 15, 2025, and the notes now bear a floating interest rate equal to Three-Month Term SOFR plus 246.5 bps per annum.

(4) The interest rate will reset on March 12, 2035, and the notes will thereafter bear a fixed interest rate equal to the Five-year U.S. Treasury Rate plus 197 bps per annum until the maturity date (or date of earlier redemption).

We continually monitor our capital needs and market conditions in an effort to diversify our borrowing base when appropriate. Additionally, we continue to monitor the status of the notice of proposed rulemaking (“NPR”) issued by the federal banking agencies discussing, among other items, the proposed requirement to maintain a certain level of long-term debt that would be available to absorb losses in the event of failure as further discussed in the “Regulatory Considerations” section in Item 1. Business of the 2024 Form 10-K.

Refer to the “Liquidity Risk” section of this MD&A and Note 9—Borrowings for further information regarding liquidity and borrowings.

Other Assets and Liabilities

The following table includes the components of other assets:

Table 29

Other Assets

dollars in millions

(1) Refer to Note 8—Variable Interest Entities for additional information.

The following table includes the components of other liabilities:

Table 30

Other Liabilities

dollars in millions

(1) Accrued personnel cost can fluctuate based on timing of the payroll cycle. The December 31, 2024 accrued balance also included amounts related to annual incentive compensation that were paid in the Current Quarter.

RISK MANAGEMENT

Risk is inherent in any business. BancShares has defined a moderate risk appetite and a balanced approach to risk taking with a philosophy that does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives. Through the comprehensive Risk Management Framework and Risk Appetite Framework and Statement, senior management has primary responsibility for day-to-day management of the risks we face with accountability of and support from all associates. Senior management applies various strategies to reduce the risks to which BancShares may be exposed, with effective challenge by independent risk management and oversight by management committees. The Board strives to ensure that risk management is a part of our business culture and that our policies and procedures for identifying, assessing, monitoring, and managing risk are part of the decision-making process. The Board’s role in risk oversight is an integral part of our overall Risk Management Framework and Risk Appetite Framework. The Board administers its risk oversight function primarily through its Risk Committee.

The Risk Committee structure is designed to allow for information flow, effective challenge and timely escalation of risk-related issues. The Risk Committee is directed to monitor and advise the full Board regarding risk exposures, including credit, market, capital, liquidity, operational, compliance, asset, strategic, and reputational risks; review, approve and monitor adherence to the Risk Appetite Statement and supporting risk tolerance levels via a series of established metrics; and evaluate, monitor and oversee the adequacy and effectiveness of the Risk Management Framework and Risk Appetite Framework and Statement. The Risk Committee also reviews reports of examination by and communications from regulatory agencies, the results of internal and third-party testing and qualitative and quantitative assessments related to risk management, and any other matters within the scope of the Risk Committee’s oversight responsibilities. The Risk Committee monitors management’s response to certain risk-related regulatory and audit issues. In addition, the Risk Committee may coordinate with the Audit Committee and the Compensation, Nominations and Governance Committee for the review of financial statements and related risks, compensation risk management and other areas of joint responsibility.

In combination with other risk management and monitoring practices, enterprise-wide stress testing activities are conducted within a defined framework. Stress tests are performed for various risks to ensure the financial institution can support continued operations during stressed periods.

BancShares monitors and stress tests its capital and liquidity consistent with the safety and soundness expectations of the federal regulators. Refer to the “Regulatory Considerations” section of Item 1. Business included in the 2024 Form 10-K for further discussion.

BancShares has been assessing the emerging impacts of recent and potential U.S. and international tariffs and other retaliatory actions and has continued monitoring the international tensions that could impact the economy and exacerbate headwinds of elevated market volatility, global supply chain disruptions, and recessionary pressures. BancShares also continues to assess operational risks such as those associated with potential cyberattacks for FCB and third parties upon whom it relies. Assessments have not identified material impacts to date, but those assessments will remain ongoing as the conditions continue to exist and develop. BancShares is also assessing the potential risk of an economic slowdown or recession that could create increased credit and market risk having downstream impacts on earnings, capital, and/or liquidity. While economic data continues to be mixed, baseline economic forecasts reflect a decline in commercial real estate (“CRE”) property values due to current interest rate levels that impacted the ALLL forecasts. Key indicators will continue to be monitored, and impacts assessed as part of our ongoing risk management framework.

Credit Risk

Credit risk is the risk of not collecting payments pursuant to the contractual terms of loans, leases and certain investment securities. Loans and leases we originate are underwritten in accordance with our credit policies and procedures and are subject to periodic ongoing reviews. Acquired loans, regardless of whether purchased credit deteriorated (“PCD”) or Non-PCD, are recorded at fair value as of the acquisition date and are subject to periodic reviews to identify any further credit deterioration. Our independent credit review function conducts risk reviews and analyses of both originated and acquired loans to ensure compliance with credit policies and to monitor asset quality trends and borrower financial strength. These reviews include portfolio analysis by geographic location, industry, collateral type, and product. We strive to identify potential problem loans as early as possible, to record charge-offs as appropriate and to maintain an appropriate ALLL that accounts for expected losses over the life of the loan and lease portfolios.

Commercial Lending and Leasing

BancShares employs a credit ratings system where each commercial loan is assigned a probability of obligor default (“PD”), loss given default (“LGD”), and/or overall credit rating using scorecards developed to rate each type of transaction incorporating assessments of both quantitative and qualitative factors. When commercial loans and leases are graded during underwriting, or when updated periodically thereafter, a model is run to generate a preliminary risk rating. These models incorporate both internal and external historical default and loss data, as well as other borrower and loan characteristics, to assign a risk rating. The preliminary risk rating assigned by the model can be adjusted as a result of borrower specific facts and circumstances that, in management’s judgment, warrant a modification of the modeled risk rating to arrive at the final approved risk ratings.

Consumer Lending

Consumer lending begins with an evaluation of a consumer borrower’s credit profile against published standards. Credit decisions are made after analyzing quantitative and qualitative factors to assess the borrower’s ability to repay the loan, and secondary sources of repayment, such as collateral value.

Consumer products use traditional and measurable standards to document and assess the creditworthiness of a loan applicant. Credit standards follow industry standard documentation requirements. Performance is largely evaluated based on an acceptable pay history along with a quarterly assessment which incorporates current market conditions. Loans may also be monitored during quarterly reviews of the borrower’s refreshed credit score. When warranted, an additional review of the loan-to-value of the underlying collateral may be conducted.

Our ALLL estimate as of March 31, 2025 included extensive reviews of the changes in credit risk associated with the uncertainties around macroeconomic forecasts. These loss estimates consider industry risk and the actual net losses incurred during prior periods of economic stress as well as recent credit trends.

Our ALLL methodology was discussed further in the 2024 Form 10-K, in the section entitled “Critical Accounting Estimates” of the MD&A and Note 1—Significant Accounting Policies and Basis of Presentation.

Allowance for Loan and Lease Losses

The ALLL at March 31, 2025 was $1.68 billion, representing an increase of $4 million from December 31, 2024. The ALLL as a percentage of total loans and leases at March 31, 2025 was 1.19%, compared to 1.20% at December 31, 2024. The increase in the ALLL at March 31, 2025 compared to December 31, 2024 was primarily due to modest deterioration in the macroeconomic forecast, as well as increases in loan volume, partially offset by the result of a mix shift from the investor dependent portfolio to the global fund banking portfolio, which has a lower loss rate relative to our other loan portfolios, and lower specific reserves for individually evaluated loans. The reserve release in the Linked Quarter was primarily due to lower specific reserves, partially offset by increases in loan volume.

While management utilizes its best judgment and information available, the ultimate adequacy of our ALLL is dependent upon a variety of factors beyond our control which are inherently difficult to predict, the most significant being the macroeconomic scenario forecasts that determine the economic variables, including unemployment, gross domestic product, home price index, CRE index, corporate profits, and credit spreads, utilized in the ALLL models. These economic variables are based on macroeconomic scenario forecasts with a forecast horizon that covers the lives of the loan portfolios. In addition, during the first quarter of 2025, economic uncertainty increased due to the potential impacts of new trade and other economic policies in the United States, including tariffs. Due to the inherent uncertainty in the macroeconomic forecasts, BancShares utilizes baseline, upside, and downside macroeconomic scenarios and weights the scenarios based on review of variable forecasts for each scenario and comparison to expectations. At March 31, 2025, ALLL estimates in these scenarios ranged from approximately $1.42 billion, when weighing the upside scenario 100%, to approximately $2.17 billion when weighting the downside scenario 100%. BancShares management determined that an ALLL of $1.68 billion was appropriate as of March 31, 2025.

Table 31

ALLL for Loans and Leases

dollars in millions

Net charge-offs during the Current Quarter were $144 million, a decrease of $16 million from $160 million during the Linked Quarter. The lower net charge-offs within commercial loans were primarily related to decreased net charge-offs in the equipment finance portfolio.

The following table provides trends in the ALLL ratios:

Table 32

ALLL Ratios

dollars in millions

A reserve for off-balance sheet credit exposure is established for unfunded commitments and is included in other liabilities. BancShares estimates the expected funding amounts and applies its PD and LGD models to those expected funding amounts to estimate the reserve. The reserve for off-balance sheet credit exposure was $284 million at March 31, 2025, an increase of $6 million compared to $278 million at December 31, 2024. The increase from December 31, 2024 primarily reflects changes in the unfunded commitments. Refer to Note 18—Commitments and Contingencies for information relating to off-balance sheet commitments.

The following table presents the ALLL by loan class:

Table 33

ALLL by Loan Class

dollars in millions

85

Credit Metrics

Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases, OREO and repossessed assets. Accounting policies related to nonperforming assets are discussed in Note 1—Significant Accounting Policies and Basis of Presentation in the 2024 Form 10-K.

The following table presents total nonperforming assets:

Table 34

Non-Performing Assets

dollars in millions

Nonaccrual loans and leases at March 31, 2025 were $1.21 billion, an increase of $22 million from $1.18 billion at December 31, 2024. The increase from December 31, 2024 was mainly due to higher nonaccrual loans in the commercial and industrial, owner occupied commercial mortgage, and residential mortgage portfolios, partially offset by lower nonaccrual loans in the commercial real estate and investor dependent portfolios. Refer to the “CRE Portfolio” discussion below for further information and Note 4—Loans and Leases for tabular presentation of nonaccrual loans by loan class.

OREO and repossessed assets at March 31, 2025 and December 31, 2024 were $105 million and $64 million, respectively. The increase reflects additional properties. Nonperforming assets as a percentage of total loans, leases, OREO and repossessed assets at March 31, 2025 and December 31, 2024 were 0.93% and 0.89%, respectively.

Past Due Accounts

Accruing loans 30 days or more past due were 0.73% and 0.54% of total loans at March 31, 2025 and December 31, 2024, respectively. Delinquency status by loan class is presented in Note 4—Loans and Leases.

CRE Portfolio

Our CRE portfolio is diversified across various property types. The following table provides an overview of the property type exposures within our CRE portfolio as of March 31, 2025 and December 31, 2024:

Table 35

Commercial Real Estate Portfolio (1)

dollars in millions

(1) The definition of CRE in this table is aligned with the Federal Reserve and FDIC guidance on CRE and includes the following: construction loans, loans where the primary repayment is from third party rental income, and loans not secured by real estate but for the purpose of real estate. This table excludes the owner occupied commercial mortgage loan class.

Evolving macroeconomic and social conditions (including the shift to more hybrid work arrangements) may result in changes for general office demand moving forward. Select metrics specific to our general office loan portfolio are as follows:

Table 36

Select General Office Loan Metrics

dollars in millions

Concentration Risk

We strive to minimize the risks associated with large concentrations within specific geographic areas, collateral types or industries. Despite our focus on diversification, several characteristics of our loan portfolio subject us to risk, such as our concentrations of real estate secured loans, revolving mortgage loans and healthcare-related loans. Additionally, SVB portfolio loans are concentrated in loans with large balances and loans in certain industries and customer groups, including private equity and venture capital.

Loan concentration data regarding our commercial, consumer, and SVB loan portfolios is summarized below.

Commercial Loan Concentrations

Geographic Concentrations

The following table summarizes state concentrations of 5.0% or greater of our loans. Data is based on obligor location.

Table 37

Commercial Loans and Leases - Geography

dollars in millions

Industry Concentrations

The following table represents loans by industry of obligor:

Table 38

Commercial Loans and Leases - Industry

dollars in millions

87

Consumer Loan Concentrations

Loan concentrations may exist when multiple borrowers could be similarly impacted by economic or other conditions. The following table summarizes state concentrations greater than 5.0% based on customer address:

Table 39

Consumer Loans - Geography

dollars in millions

SVB Loans

SVB loan concentrations may exist when there are borrowers engaged in similar activities or types of loans extended to a diverse group of borrowers that could cause those borrowers or portfolios to be similarly impacted by economic or other conditions.

The SVB portfolio includes global fund banking and innovation banking loans.

Global Fund Banking

The global fund banking loan portfolio includes loans to clients in the private equity and venture capital community. Global fund banking represented 70% of SVB loans and 20% of total loans at March 31, 2025, compared to 69% and 20%, respectively, at December 31, 2024. The vast majority of this portfolio consists of capital call lines of credit, the repayment of which is dependent on the payment of capital calls by the underlying limited partner investors in the funds managed by these firms. These facilities are generally governed by financial covenants oriented towards ensuring that the funds’ remaining callable capital is sufficient to repay the loan, and larger commitments (typically provided to larger private equity funds) are typically secured by an assignment of the general partner's right to call capital from the fund's limited partner investors.

Innovation Banking

Innovation banking primarily includes loans to technology, life science and healthcare industry clients in the various stages of their life cycles. The loans are classified as investor dependent - early stage, investor dependent - growth stage, and innovation commercial and industrial (“innovation C&I”) and cash flow dependent for reporting purposes.

Investor Dependent - Early Stage loans represented 2% of SVB loans and 1% of total loans at March 31, 2025 and December 31, 2024. These include loans to pre-revenue, development-stage companies and companies that are in the early phases of commercialization, with revenues of up to $5 million. Repayment of these loans may be dependent upon receipt by borrowers of additional equity financing from venture capital firms or other investors, or in some cases, a successful sale to a third-party or an initial public offering.

Investor Dependent - Growth Stage loans represented 5% of SVB loans and 1% of total loans at March 31, 2025, compared to 5% and 2%, respectively, at December 31, 2024. These include loans to growth-stage enterprises. Companies with revenues between $5 million and $15 million, or pre-revenue clinical-stage biotechnology companies, are considered to be mid-stage, and companies with revenues in excess of $15 million are considered to be later-stage.

Innovation C&I and Cash Flow Dependent loans represented 23% of SVB loans and 7% of total loans at March 31, 2025, compared to 23% and 6%, respectively, at December 31, 2024. This portfolio is comprised of two types of loans, innovation C&I and cash flow dependent. Innovation C&I includes loans in innovation sectors such as technology, life science and healthcare industries. These loans are dependent on either the borrower’s cash flows or balance sheet for repayment. Cash flow dependent loans are typically used to assist a select group of private equity sponsors with the acquisition of businesses, and repayment is generally dependent upon the cash flows of the combined entities.

The following table provides a summary of SVB loans by size and class. The breakout below is based on total client balances (individually or in the aggregate) as of March 31, 2025:

Table 40

SVB Loans by Size and Class

dollars in millions

SVB Loans - State Concentrations

The following table summarizes state concentrations greater than 5.0% within the SVB loans portfolio based on borrower location:

Table 41

SVB Loans - Geography

dollars in millions

Market Risk

Interest rate risk management

BancShares is exposed to the risk that changes in market conditions may affect interest rates and negatively impact earnings. The risk arises from the nature of BancShares’ business activities, the composition of BancShares’ balance sheet, and changes in the level or shape of the yield curve. BancShares manages this inherent risk strategically based on prescribed guidelines and approved limits.

Interest rate risk can arise from many of BancShares’ business activities, such as lending, leasing, investing, deposit taking, derivatives, and funding activities. We evaluate and monitor interest rate risk primarily through two metrics.

• *Net Interest Income Sensitivity (“*NII Sensitivity”) measures the net impact of hypothetical changes in interest rates on forecasted NII; and
• *Economic Value of Equity (“*EVE”) *Sensitivity (“*EVE Sensitivity”) measures the net impact of these hypothetical changes on the value of equity by assessing the economic value of assets, liabilities and off-balance sheet instruments.

BancShares uses a holistic process to measure and monitor both short term and long term risks, which includes, but is not limited to, gradual and immediate parallel rate shocks, changes in the shape of the yield curve, and changes in the relationship of various yield curves. NII Sensitivity generally focuses on shorter term earnings risk, while EVE Sensitivity assesses the longer-term risk of the existing balance sheet.

Our exposure to NII Sensitivity is guided by the Risk Appetite Framework and Statement and a range of risk metrics and BancShares may utilize tools across the balance sheet to adjust its interest rate risk exposures, including through business line actions and actions within the investment, funding and derivative portfolios.

The composition of our interest rate sensitive assets and liabilities generally results in a net asset-sensitive position for NII Sensitivity, whereby our assets will reprice faster than our liabilities. A component of our interest rate risk management strategy is the use of derivative instruments to manage fluctuations in earnings caused by changes in market interest rates. Interest rate swaps are the primary type of derivative instrument that we use as part of our interest rate risk management strategy. These derivatives hedge interest income variability of floating rate loans indexed to SOFR, as well as fair value changes of fixed rate time deposits and long-term debt indexed to SOFR. Refer to Note 10—Derivative Financial Instruments for further information on our derivative portfolio.

Our funding sources consist primarily of deposits, and we also support our funding needs through wholesale funding sources (including unsecured and secured borrowings).

The deposit rates we offer are influenced by market conditions and competitive factors. Market rates are the key factors of deposit costs, and we continue to optimize deposit costs by improving our deposit mix. Changes in interest rates, expected funding needs, as well as actions by competitors, can affect our deposit taking activities and deposit pricing. We believe our targeted non-maturity deposit customer retention is strong and we remain focused on optimizing our mix of deposits. We regularly assess the effect of deposit rate changes on our balances and seek to achieve optimal alignment between assets and liabilities.

The following table summarizes the results of 12-month NII Sensitivity simulations produced by our asset/liability management system. These simulations assume static balance sheet replacement with like products and implied forward market rates, and also incorporate additional internal models and assumptions, including rate dependent prepayment for certain loans and securities and repricing of interest-bearing non-maturity deposits. The below simulations assume an immediate 100 and 200 bps parallel increase and decrease from current interest rates.

Table 42

Net Interest Income Sensitivity Simulation Analysis

NII Sensitivity metrics at March 31, 2025, compared to December 31, 2024, were primarily affected by cash increase from deposit growth and the Current Quarter Debt Issuances, as well as impacts from changes in forward rate curve expectations, partially offset by additional execution of cash flow hedges.

As of March 31, 2025, BancShares continues to have an asset sensitive interest rate risk profile and the potential exposure to forecasted earnings was largely due to the composition of the balance sheet (primarily due to floating rate commercial loans and cash), as well as estimates of modest future deposit betas. Approximately 64% of our loans have floating contractual reference rates, indexed primarily to SOFR and the U.S. prime rate. Deposit betas are currently modeled to have a portfolio average of approximately 35%-45% over the twelve-month forecast horizon, including 50%-60% for interest-bearing non-maturity deposits. Deposit beta is the portion of a change in the federal funds rate that is passed on to the deposit rate. Actual deposit betas may be different than modeled, depending on various factors, including liquidity requirements, deposit mix and competitive pressures. Impacts to NII Sensitivity may change due to actual results differing from modeled expectations.

As noted above, EVE Sensitivity supplements NII simulations as it estimates risk exposures beyond a twelve-month horizon. EVE Sensitivity measures the change in the EVE due to changes in assets, liabilities, and off-balance sheet instruments in response to a change in interest rates. EVE Sensitivity was calculated by estimating the change in the net present value of assets, liabilities, and off-balance sheet items under various rate movements, including utilizing a dynamic rate level dependent modeling approach for our deposit attrition assumption. In addition to interest rate changes, other key assumptions used in our EVE Sensitivity simulations include asset prepayments, as well as balance attrition and pricing of non-maturity deposits.

The below simulations assume an immediate 100 and 200 bps parallel increase and decrease from current interest rates and the estimated impact on our EVE profile based on our current modeling approach:

Table 43

Economic Value of Equity Modeling Analysis

In addition to the above reported sensitivities, a wide variety of potential interest rate scenarios are simulated within our asset/liability management system. Scenarios that impact balance sheet composition or the sensitivity to key assumptions are also evaluated.

We use results of our various interest rate risk analyses to formulate and implement asset and liability management strategies, in coordination with the Asset and Liability Committee, to achieve the desired risk profile, while managing our objectives for market risk and other strategic objectives. Specifically, we may manage our interest rate risk position through certain pricing strategies and product design for loans and deposits, our investment portfolio, funding portfolio, or by using derivatives to mitigate earnings volatility.

The above sensitivities provide an estimate of our interest rate sensitivity; however, they do not account for potential changes in credit quality, size, mix, or changes in the competition for business in the industries we serve. They also do not account for other business developments and other actions. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations.

Loan Maturity and Loan Interest Rate Sensitivity

The following table provides loan maturity distribution information:

Table 44

Loan Maturity Distribution

dollars in millions

91

As noted above, approximately 64% of our total loans have floating contractual reference rates, indexed primarily to SOFR and the U.S. prime rate. The following table provides information regarding fixed and variable interest rate loans and leases maturing one year or after, as of March 31, 2025:

Table 45

Fixed and Variable Interest Rate Loans

dollars in millions

Liquidity Risk

Our liquidity risk management and monitoring process is designed to ensure the availability of adequate cash and collateral resources and funding capacity to meet our obligations. Our overall liquidity management strategy is intended to ensure appropriate liquidity to meet expected and contingent funding needs under both normal and stressed environments. Consistent with this strategy, we maintain sufficient amounts of available cash and HQLS. Additional sources of liquidity include committed credit facilities, repurchase agreements, brokered certificates of deposit issuances, unsecured debt issuances, and cash collections generated by portfolio asset sales to third parties.

We utilize measurement tools to assess and monitor the level and adequacy of our liquidity position, liquidity conditions and trends. We measure and forecast liquidity and liquidity risks under different hypothetical scenarios and across different horizons. We use a liquidity stress testing framework to better understand the range of potential risks and their impacts to which BancShares is exposed. Stress test results inform our business strategy, risk appetite, levels of liquid assets, and contingency funding plans. Also included among our liquidity measurement tools are key risk indicators that assist in identifying potential liquidity risk and stress events.

BancShares maintains a framework to establish liquidity risk tolerances, monitoring, and breach escalation protocol to alert management of potential funding and liquidity risks and to initiate mitigating actions as appropriate. Further, BancShares maintains a contingent funding plan, which details protocols and potential actions to be taken under liquidity stress conditions.

Liquidity includes available cash and HQLS. At March 31, 2025 we had $62.79 billion of high-quality liquid assets (27.4% of total assets) and $22.25 billion of contingent liquidity sources available. The higher available cash level presented below was due in part from funds received in connection with the Current Quarter Debt Issuances in March 2025. As noted below, the draw period under the Advance Facility Agreement with the FDIC ended March 27, 2025, as of which date, FCB had no outstanding amounts under the facility. We are actively working to increase our borrowing capacity under agreements with the FRB through expansion of the eligible loan population to targeted loans historically not pledged to the FRB.

Table 46

Liquidity

dollars in millions

(1) Consists of readily-marketable, unpledged securities, as well as securities pledged but not drawn against at the FHLB and available for sale, and generally is comprised of U.S. Treasury and U.S. agency investment securities held outright or via reverse repurchase agreements.

(2) Current capacity is based on the amount of collateral pledged and available for use at March 31, 2025 and December 31, 2024.

(3) Refer to Table 47 for additional details.

(4) The Advance Facility Agreement with the FDIC was obtained in connection with SVBB Acquisition and the draw period ended on March 27, 2025.

We fund our operations through deposits and borrowings. Our primary source of liquidity is derived from our various deposit channels, including our Branch Network and Direct Bank. Total deposits at March 31, 2025 were $159.33 billion, an increase of $4.10 billion or 3% from $155.23 billion at December 31, 2024.

We use borrowings to diversify the funding of our business operations. In addition to the Purchase Money Note and FHLB advances, borrowings also include senior unsecured notes, securities sold under customer repurchase agreements, and subordinated notes. Total borrowings at March 31, 2025 were $38.41 billion, an increase of $1.36 billion from $37.05 billion at December 31, 2024. The increase is primarily due to the Current Quarter Debt Issuances with aggregate principal amounts totaling $1.25 billion, as detailed in the “Interest-bearing Liabilities—Borrowings” section in this MD&A and referenced above. We continually monitor our capital needs and market conditions in an effort to diversify our borrowing base when appropriate.

FHLB Capacity

A source of available funds is advances from the FHLB of Atlanta. We may pledge assets for secured borrowing transactions, which include borrowings from the FHLB and/or FRB, or for other purposes as required or permitted by law. The debt issued in conjunction with these transactions is collateralized by certain discrete receivables, securities, loans, leases and/or underlying equipment. Certain related cash balances are restricted.

Table 47

FHLB Balances

dollars in millions

(1) Letters of credit were established with the FHLB to collateralize public funds.

FRB Capacity

Under borrowing arrangements with the FRB, FCB has access to $5.61 billion on a secured basis. There were no outstanding borrowings with the FRB Discount Window at March 31, 2025 and December 31, 2024.

FDIC Credit Facility

FCB and the FDIC entered into the Advance Facility Agreement, dated as of March 27, 2023, and effective as of November 20, 2023, providing total advances available through March 27, 2025 of up to $70 billion solely to provide liquidity to offset deposit withdrawal or runoff of former SVBB deposit accounts and to fund the unfunded commercial lending commitments acquired in the SVBB Acquisition. There were no amounts outstanding at the end of the draw period on March 27, 2025.

Refer to Note 2—Business Combinations for further discussion.

Contractual Obligations and Commitments

The following table includes significant contractual obligations and commitments as of March 31, 2025, representing required and potential cash outflows, including impacts from purchase accounting adjustments and deferred fees. Refer to Note 18—Commitments and Contingencies for additional information regarding commitments. Financing commitments, letters of credit and deferred purchase commitments are presented at contractual amounts and do not necessarily reflect future cash outflows, as many are expected to expire unused or partially used.

Table 48

Contractual Obligations and Commitments

dollars in millions

(1) Time deposits and long-term borrowings are presented net of purchase accounting adjustments of $1 million and $116 million, respectively. On-balance sheet commitments for affordable housing partnerships are included in other liabilities and presented net of a purchase accounting adjustment of $28 million.

(2) Balance in parenthesis represents the estimated amortization of the purchase accounting adjustment and deferred costs in excess of any principal balance.

Long-term Borrowings

As displayed above in Table 48, we do not have any significant long-term debt obligations due until the Purchase Money Note matures. While scheduled principal payments are not required until maturity in March 2028, FCB may voluntarily prepay principal without a premium or penalty. We will continue to monitor the interest rate environment and assess whether any voluntary prepayments are prudent considering the fixed rate of 3.50%. Potential sources that could fund voluntary prepayments or the amount due at maturity include excess liquidity (primarily comprised of interest-earning deposits at banks and proceeds from maturities and paydowns of investment securities), FHLB advances, deposit growth, and issuance of unsecured debt or other borrowings. At the time of voluntary prepayment or maturity, the interest rates for the potential interest-bearing sources of repayment could be higher than the 3.50% rate.

Refer to the respective “Deposits” and “Borrowings” discussions in the “Interest-bearing Liabilities” section of this MD&A for further details. The Purchase Money Note is discussed further in Note 2—Business Combinations.

Counterparty Risk

We enter into interest rate and foreign exchange derivatives as part of our overall risk management practices and also on behalf of our clients. We establish risk metrics and evaluate and manage the counterparty risk associated with these derivative instruments in accordance with the comprehensive Risk Management Framework and Risk Appetite Framework and Statement.

Counterparty credit exposure or counterparty risk is a primary risk of derivative instruments, relating to the ability of a counterparty to perform its financial obligations under the derivative contract. We seek to control credit risk of derivative agreements through counterparty credit approvals, pre-established exposure limits and monitoring procedures, which are integrated with our cash and issuer related credit processes.

Derivative agreements for BancShares’ risk management purposes and for the hedging of client transactions are primarily executed with investment grade financial institutions, with others cleared through certain central party clearing houses. Credit exposure is mitigated via the exchange of collateral between the counterparties covering mark-to-market valuations. Client related derivative transactions, which are primarily related to lending activities, are incorporated into our loan underwriting and reporting processes.

Asset Risk

Asset risk is a form of price risk that is a primary risk of our leasing businesses. This relates to the risk of earning capital arising from changes in the value of owned leasing equipment. Asset risk in our leasing business is evaluated and managed in the divisions and overseen by risk management processes. In our asset-based lending business, we also use residual value guarantees to mitigate or partially mitigate exposure to end of lease residual value exposure on certain of our finance leases. Our business process consists of: (1) setting residual values at transaction inception, (2) systematic periodic residual value reviews, and (3) monitoring levels of residual realizations. Residual realizations, by business and product, are reviewed as part of the quarterly financial and asset quality review. Reviews for impairment are performed at least annually.

In combination with other risk management and monitoring practices, asset risk is monitored through reviews of the equipment markets, including utilization rates and traffic flows; the evaluation of supply and demand dynamics; the impact of new technologies; and changes in regulatory requirements on different types of equipment. At a high level, demand for equipment is correlated with Gross Domestic Product growth trends for the markets the equipment serves, as well as the more immediate conditions of those markets. Cyclicality in the economy and shifts in trade flows due to specific events represent risks to the earnings that can be realized by these businesses. In the Rail segment, BancShares seeks to mitigate these risks by maintaining a relatively young fleet of assets, which can bolster attractive lease and utilization rates.

CAPITAL

Capital requirements applicable to BancShares are discussed in the “Regulatory Considerations” section in Item 1. Business of the 2024 Form 10-K, including a discussion of an NPR issued on July 27, 2023 by the federal banking agencies regarding enhanced capital requirements.

BancShares’ total consolidated assets are between $100 billion and $250 billion, and, as such, BancShares is required to comply with certain enhanced prudential standards applicable to Category IV banking organizations, subject to the applicable transition periods. Additionally, an NPR released by federal banking agencies on August 29, 2023, could change the long-term debt requirements for banks with total consolidated assets of $100 billion or more. If this NPR is finalized as proposed, we expect we would need to issue additional long-term debt to satisfy the requirements. For further discussion, refer to the section entitled “Regulatory Considerations—Enhanced Prudential Standards—Proposed Long-Term Debt & Clean Holding Company Requirements” in Item 1. Business of the 2024 Form 10-K.

BancShares maintains a comprehensive capital adequacy process. BancShares establishes internal capital risk limits and warning thresholds, which utilize Risk-Based and Leverage-Based Capital calculations, internal and external early warning indicators, its capital planning process, and stress testing to evaluate BancShares' capital adequacy for multiple types of risk in both normal and stressed environments. The capital management framework requires contingency plans be defined and may be employed at management’s discretion.

Common and Preferred Stock Dividends

During the first quarter of 2025, we paid quarterly dividends of $1.95 per share on the Class A common stock and Class B common stock. In April 2025, the Board declared a quarterly dividend on the Class A common stock and Class B common stock of $1.95 per common share. The dividends are payable on June 16, 2025 to stockholders of record as of May 30, 2025.

During the first quarter of 2025, we paid quarterly dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock as disclosed in Note 12—Stockholders' Equity. In April 2025, the Board declared dividends on our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in accordance with their terms. The dividends are payable on June 16, 2025.

Capital Composition and Ratios

As discussed earlier in this MD&A, the Board authorized a Class A common stock SRP in July 2024. During the Current Quarter, we repurchased 302,683 shares. Refer to the “Recent Events” section above for more information and Item 5. Market for Registrants Common Equity for additional information related to our monthly repurchase activity during the Current Quarter.

The following table details the change in outstanding Class A common stock through March 31, 2025. Refer to Note 12—Stockholders' Equity for additional information.

Table 49

Changes in Shares of Class A Common Stock Outstanding

We also had 1,005,185 Class B common stock outstanding at March 31, 2025 and December 31, 2024.

We are committed to effectively managing our capital to protect our depositors, creditors and stockholders. We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our operations or consolidated financial statements.

In accordance with GAAP, the unrealized gains and losses on certain assets and liabilities, net of deferred taxes, are included in accumulated other comprehensive loss within stockholders’ equity. These amounts are excluded from the calculation of our regulatory capital ratios under current regulatory guidelines.

Table 50

Analysis of Capital Adequacy

dollars in millions

(1) Adjusted capital ratios exclude the impact of the FDIC Shared-Loss Agreement and are considered non-GAAP measures. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for a reconciliation from the most comparable GAAP measure to the non-GAAP measure.

(2) The adjusted tier 1 leverage ratio is not applicable because the FDIC Shared-Loss Agreement did not impact the tier 1 leverage ratio.

As of March 31, 2025, BancShares and FCB had risk-based capital ratio conservation buffers of 7.23% and 6.45%, respectively, which are in excess of the Basel III conservation buffer of 2.50%. As of December 31, 2024, BancShares and FCB’s risk-based capital ratio conservation buffers were 7.04% and 6.66%, respectively. The capital ratio conservation buffers represent the excess of the regulatory capital ratios as of March 31, 2025 and December 31, 2024 over the Basel III minimum for the applicable ratio. Additional Tier 1 capital for BancShares includes perpetual preferred stock.

Additional Tier 2 capital for BancShares and FCB primarily consists of qualifying ALLL and qualifying subordinated debt.

Termination of the Shared-Loss Agreement with the FDIC

The risk-based capital ratios of FCB and BancShares for periods in which the Shared Loss Agreement (as defined in Note 2—Business Combinations) was effective were calculated using favorable risk-weighted asset (“RWA”) assumptions permissible for Covered Assets (as defined in Note 2—Business Combinations). FCB and the FDIC entered into the Shared-Loss Termination Agreement on April 7, 2025 (the “Shared-Loss Termination Date”) as further discussed in the “Recent Events” section of this MD&A. FCB and BancShares will not be permitted after the Shared-Loss Termination Date to apply the favorable RWA assumptions to assets that were previously Covered Assets under the Shared-Loss Agreement. The table above includes risk-based capital ratios as of March 31, 2025 and December 31, 2024 when both including and excluding the impact of the Shared Loss Agreement to illustrate the expected decreases in the risk-based capital ratios as a result of entering into the Shared-Loss Termination Agreement. Refer to the “Non-GAAP Financial Measurements” section of this MD&A for further discussion.

CRITICAL ACCOUNTING ESTIMATES

The accounting and reporting policies of BancShares are described in Note 1—Significant Accounting Policies and Basis of Presentation in the 2024 Form 10-K.

The ALLL is considered a critical accounting estimate. For more information regarding the ALLL, refer to the “Credit Risk— Allowance for Loan and Lease Losses” section of this MD&A and Note 5—Allowance for Loan and Lease Losses.

RECENT ACCOUNTING PRONOUNCEMENTS

The following Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board (“FASB”) but are not yet effective for BancShares:

NON-GAAP FINANCIAL MEASUREMENTS

BancShares provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance or financial position that may either exclude or include amounts, or is adjusted in some way to the effect of including or excluding amounts, as compared to the most directly comparable measure calculated and presented in accordance with GAAP financial statements. BancShares’ management believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about, or an alternate means of assessing, its operating results and financial position to its investors, analysts and management. These non-GAAP measures should be considered in addition to, and not superior to or a substitute for, GAAP measures presented in BancShares’ consolidated financial statements and other publicly filed reports. In addition, our non-GAAP measures may be different from or inconsistent with non-GAAP financial measures used by other institutions.

Whenever we refer to a non-GAAP financial measure we will generally define and present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation between the GAAP financial measure and the non-GAAP financial measure. We describe each of these measures below and explain why we believe the measure to be useful.

PPNR

PPNR is a non-GAAP measure of profit or loss calculated as net income plus the provision for credit losses and income tax expense (benefit). PPNR is a measure of segment profit or loss that is meaningful because it enables management and external users of financial statements to assess income before income taxes excluding the provision for credit losses, which can be more volatile when economic conditions are more dynamic.

The following table provides a reconciliation of net income, the comparable GAAP measure, to PPNR:

Table 51

PPNR

dollars in millions

98

Net Rental Income on Operating Lease Equipment for Commercial Bank and Rail Segments

Net rental income on operating lease equipment is a non-GAAP measure calculated as rental income on operating lease equipment less depreciation on operating lease equipment, as well as maintenance and other operating lease expenses, if any. Presentation of net rental income for the Commercial Bank and Rail segments also results in the noninterest income, noninterest expense, and revenue subtotals being presented net of depreciation and maintenance. These measures are meaningful because they enable management to monitor the performance and profitability of operating leases after deducting direct expenses.

The following tables reconcile the most comparable GAAP measures to the non-GAAP measures for the Commercial Bank and Rail segments.

Table 52

Commercial Bank Segment

dollars in millions

Table 53

Rail Segment

dollars in millions

99

NII, NIM, and Interest and Fees on Loans, Excluding PAA

NII and NIM, excluding PAA, and interest and fees on loans, excluding loan PAA are meaningful metrics as they allow management to analyze NII, NIM and loan interest income trends more directly related to the rates of the underlying interest-earning assets and interest-bearing liabilities. Loan PAA is primarily related to the loan discount in the SVBB Acquisition. Other PAA is primarily related to the discount on the Purchase Money Note and the premium on deposits assumed in the merger with CIT Group Inc.

The following table reconciles NII to NII, excluding PAA, NIM to NIM, excluding PAA, and interest and fees on loans to interest and fees on loans, excluding loan PAA:

Table 54

NII, NIM, and Interest and Fees on Loans, Excluding PAA

dollars in millions

100

Adjusted Risk Based Capital Ratios

FCB and the FDIC entered into the Shared-Loss Termination Agreement on April 7, 2025, after which time FCB and BancShares were no longer permitted to apply favorable RWA assumptions to Covered Assets under the Shared-Loss Agreement. Adjusted risk based capital ratios exclude the favorable impact of the Shared-Loss Agreement and are meaningful metrics as these ratios are expected to decrease in future periods.

The following table reconciles the Shared-Loss Agreement impact to the total risk based, CET1 and tier 1 capital ratios of BancShares and FCB:

Table 55

Adjusted Risk Based Capital Ratios

101

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans, asset quality, future performance, and other strategic goals of BancShares. Words such as “anticipates,” “believes,” “estimates,” “expects,” “predicts,” “forecasts,” “intends,” “plans,” “projects,” “targets,” “designed,” “could,” “may,” “should,” “will,” “potential,” “continue,” “aims,” “strives” or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares’ current expectations and assumptions regarding BancShares’ business, the economy, and other future conditions.

Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other factors that are difficult to predict. Many possible events or factors could affect BancShares’ future financial results and performance and could cause actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic (including the imposition of tariffs on trading partners), political (including the makeup of the U.S. Congress and Trump administration), geopolitical (including conflicts in Ukraine and the Middle East), natural disasters and market conditions, including changes in competitive pressures among financial institutions and the impacts related to or resulting from previous bank failures, the risks and impacts of future bank failures and other volatility in the banking industry, public perceptions of our business practices, including our deposit pricing and acquisition activity, the financial success or changing conditions or strategies of BancShares’ vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, changes in the quality or composition of BancShares’ loan or investment portfolio, actions of government regulators, including interest rate decisions by the Federal Reserve, changes to estimates of future costs and benefits of actions taken by BancShares, BancShares’ ability to maintain adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares’ capital plans, adverse developments with respect to U.S. or global economic conditions, including significant turbulence in the capital or financial markets, the impact of any sustained or elevated inflationary environment, the impact of any cyberattack, information or security breach, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including potential increased regulatory requirements, limitations, and costs, such as FDIC special assessments, increases to FDIC deposit insurance premiums and the proposed interagency rule on regulatory capital, along with the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the risks associated with BancShares’ previous acquisition transactions or any future transactions.

BancShares’ SRP allows BancShares to repurchase shares of its Class A common stock through 2025. BancShares is not obligated under the SRP to repurchase any minimum or particular number of shares, and repurchases may be suspended or discontinued at any time (subject to the terms of any Rule 10b5-1 plan in effect) without prior notice. The authorization to repurchase Class A common stock will be utilized at management’s discretion. The actual timing and amount of Class A common stock that may be repurchased will depend on a number of factors, including the terms of any Rule 10-b5-1 plan then in effect, price, general business and market conditions, regulatory requirements, and alternative investment opportunities or capital needs.

Except to the extent required by applicable laws or regulations, BancShares disclaims any obligation to update forward-looking statements or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional factors which could affect the forward-looking statements can be found in the 2024 Form 10-K and BancShares’ other filings with the SEC.

Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values of financial instruments or reduced NII in future periods. Changes in fair value that result from movement in market rates cannot be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain.

The information required by this Item 3. Quantitative and Qualitative Disclosures about Market Risk is set forth in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations within the “Risk Management” section and in Item 1. Financial Statements within Note 10—Derivative Financial Instruments and Note 11—Fair Value of this Form 10-Q.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we are able to record, process, summarize and report in a timely manner the information required to be disclosed in the reports we file under the Exchange Act.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We review our internal controls over financial reporting on an ongoing basis and make changes intended to ensure the quality of our financial reporting. There were no changes in our internal control over financial reporting during the first quarter of 2025 that have materially affected, or are reasonably likely to materially affect, BancShares’ internal control over financial reporting.

Except for the updated risk factor set forth below, there have been no material changes in the risk factors during 2025 from those reported in our 2024 Form 10-K. For a discussion of the risks and uncertainties that management believes are material to an investment in us, refer to Part I, Item 1A. Risk Factors, of our 2024 Form 10-K, and Forward-Looking Statements of this Form 10-Q.

Changes in domestic and foreign trade policies, including the imposition of tariffs and retaliatory tariffs, and other factors beyond our control may adversely impact our business, financial condition, and results of operations.

The U.S. government recently announced changes to its trade policies, including increasing tariffs on imports, in some cases significantly, and potentially negotiating or terminating existing trade agreements. The current tariff environment is dynamic and uncertain, as the U.S. government has announced widespread tariff reform, with the effectiveness delayed in many cases. Changes to tariffs and other trade restrictions can be announced at any time with little or no notice. We cannot predict with certainty the future trade policy of the United States or other countries. Additionally, potential tariffs or other U.S. trade policy measures have triggered retaliatory actions by other countries such as China. Increased tariffs and trade restrictions may cause the prices of our customers’ products to increase, which could reduce demand for such products, or reduce our customers’ margins, and adversely impact their revenues, financial results, and ability to service debt. This, in turn, could adversely impact our financial condition and results of operations. Tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S. and global financial markets and economic conditions. Disruptions and volatility in the financial markets may lead to adverse changes in the availability, terms and cost of capital, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.