First Citizens BancShares (FCNCA) 8-K/AIndependent Auditors’ Report

On March 27, 2023, First Citizens BancShares, Inc. (“BancShares”) filed a Current Report on Form 8-K (the “Original Form 8-K”) to report that, effective March 27, 2023 (the “SVBB Acquisition Date”), its wholly-owned subsidiary, First-Citizens Bank & Trust Company (“FCB”), had assumed all customer deposits and certain other liabilities, and acquired substantially all loans and certain other assets, of Silicon Valley Bridge Bank, N.A. (“Silicon Valley Bridge Bank”), as successor to Silicon Valley Bank, from the Federal Deposit Insurance Corporation (the “FDIC”), as receiver for Silicon Valley Bridge Bank (the “SVBB Acquisition”), pursuant to the terms of a purchase and assumption agreement entered into by FCB and the FDIC on March 27, 2023 (the “Purchase Agreement”). On March 31, 2023, BancShares filed Amendment No. 1 to the Original Form 8-K (“Amendment No. 1”) to file Exhibits 2.1, 4.1, and 10.1 and to update the disclosure in Item 1.01 with respect to the exercise of the Cash-Settled Value Appreciation Instrument (the “Value Appreciation Instrument”).

This Current Report on Form 8-K/A (“Amendment No. 2”) is being filed to update the disclosures in Item 2.01 of the Original Form 8-K, as amended, and to provide financial information required by Item 9.01. In accordance with the guidance provided in Securities and Exchange Commission (the “Commission”) Staff Accounting Bulletin Topic 1:K, Financial Statements of Acquired Troubled Financial Institutions (“SAB 1:K”) and the relief granted in a letter dated June 1, 2023 from the staff of the Division of Corporate Finance of the Commission thereunder, BancShares has omitted certain financial information of Silicon Valley Bridge Bank required by Rule 3-05 of Regulation S-X and the related pro forma financial information required by Article 11 of Regulation S-X. SAB 1:K provides relief from the requirements of Rule 3-05 of Regulation S-X under certain circumstances, including a transaction such as the SVBB Acquisition, in which the registrant engages in an acquisition of a troubled financial institution for which audited financial statements are not reasonably available and in which federal assistance is an essential and significant part of the transaction. Except as otherwise provided herein, the other disclosures made in the Original Form 8-K as updated by Amendment No. 1 remain unchanged.

The disclosure set forth under “Explanatory Note” above is incorporated by reference into this Item 2.01.

Under the terms of the Purchase Agreement, FCB acquired assets with a fair value of $107.54 billion, including approximately $68.47 billion in loans held by Silicon Valley Bridge Bank and $35.31 billion of cash and interest-earning deposits at banks. FCB also assumed approximately $61.42 billion in liabilities, including customer deposits with a fair value of approximately $56.01 billion. The deposits were acquired without a premium and the assets were acquired at a discount of approximately $16.45 billion, subject to customary adjustments. The preceding discussion of assets acquired and liabilities assumed is presented at estimated fair value on the SVBB Acquisition Date. The fair values of the assets acquired and liabilities assumed were determined as described in Item 9.01 below. The foregoing summary of the Purchase Agreement is not complete and is qualified in its entirety by reference to the full text of the agreement and certain exhibits attached thereto, a copy of which was attached as Exhibit 2.1 to Amendment No. 1 and is incorporated by reference herein.

In connection with the SVBB Acquisition, FCB issued a five-year $35 billion note payable to the FDIC (the “Purchase Money Note”), and entered into binding terms and conditions for an up to $70 billion line of credit provided by the FDIC for related risks and liquidity purposes (the “Initial Liquidity Commitment”, and with the Original Purchase Money Note, the “Initial Financing”). At such time, FCB and the FDIC agreed to negotiate additional terms and documents augmenting and superseding the Purchase Money Note and Initial Liquidity Commitment, and on November 20, 2023, FCB and the FDIC entered into new financing agreements for those purposes. On November 20, 2023, the Purchase Money Note was amended and restated, dated as of March 27, 2023 and maturing March 27, 2028, adjusting the principal amount to approximately $36.07 billion ($35.81 billion net of fair value discount). FCB and the FDIC, as lender and as collateral agent, also entered into an Advance Facility Agreement, dated as of March 27, 2023, and effective as of November 20, 2023 (the “Advance Facility Agreement”), providing total advances available through March 27, 2025 of up to $70 billion (subject to the limits described below) solely to provide liquidity to offset deposit withdrawal or runoff of former Silicon Valley Bridge Bank deposit accounts and to fund the unfunded commercial lending commitments acquired in the SVBB Acquisition. Borrowings outstanding under the Advance Facility Agreement are limited to an amount equal to the value of loans and other collateral obtained from Silicon Valley Bridge Bank plus the value of any other unencumbered collateral agreed by the parties to serve as additional collateral, reduced by the amount of principal and accrued interest outstanding under the Purchase Money Note and the accrued interest on the Advance Facility Agreement. The Purchase Money Note (as amended and restated) and the Advance Facility Agreement are described in more detail in BancShares’ Current Report on Form 8-K filed with the Commission on November 27, 2023 (the “Financing Agreements Form 8-K”). The foregoing summary of the Purchase Money Note and Advance Facility Agreement is not complete and is qualified in its entirety by reference to the full text of the Purchase Money Note and the Advance Facility

In connection with the Purchase Agreement, FCB also entered into a commercial shared loss agreement with the FDIC (the “Shared-Loss Agreement”). The Shared-Loss Agreement covers approximately $60.5 billion of funded loans (collectively, the “covered assets”). Pursuant to the terms of the Shared-Loss Agreement, the FDIC will reimburse FCB for 0% of losses of up to $5 billion with respect to covered assets and 50% of losses in excess of $5 billion with respect to covered assets (“FDIC loss sharing”) and FCB will reimburse the FDIC for 50% of recoveries related to such covered assets (“FCB reimbursement”). The Shared-Loss Agreement provides for FDIC loss sharing for five years and FCB reimbursement for eight years, in each case on the terms and conditions described in the Shared-Loss Agreement. The Shared-Loss Agreement extends to loans funded after the SVBB Acquisition Date that were unfunded commitments to loan at the SVBB Acquisition Date for a period of one year after the SVBB Acquisition Date. If certain conditions are met pursuant to the Shared-Loss Agreement, FCB has agreed to pay to the FDIC, 45 days after March 31, 2031 (or, if earlier, the time of disposition of all acquired assets pursuant to the Shared-Loss Agreement), a true-up amount up to $1.5 billion calculated using a formula set forth in the Shared-Loss Agreement. The foregoing summary of the Shared-Loss Agreement is not complete and is qualified in its entirety by reference to the full text of the Shared-Loss Agreement, a copy of which was attached as Exhibit 10.1 to Amendment No. 1 and is incorporated by reference herein.

The disclosure in the Explanatory Note and Item 2.01 is incorporated in this Item 9.01(a). The following discussion should be read in conjunction with historical financial statements and related notes of BancShares, which have been filed with the Commission, and the Audited Statement of Assets Acquired and Liabilities Assumed, which is attached hereto as Exhibit 99.1 (the “Audited Statement”).

As set forth in Item 2.01 above, FCB acquired substantially all loans and certain other assets and assumed all customer deposits and certain other liabilities of Silicon Valley Bridge Bank from the FDIC on the SVBB Acquisition Date, pursuant to the terms of the Purchase Agreement.

FCB and the FDIC are awaiting conclusion of the customary final settlement process which could impact the fair value of certain other assets acquired and other liabilities assumed. We continue to review information relating to events or circumstances existing at the SVBB Acquisition Date that could impact the preliminary fair value estimates. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the SVBB Acquisition Date (the “Measurement Period”). We believe the

The following table provides the purchase price allocation to the identifiable assets acquired and liabilities assumed at their estimated fair values as of the SVBB Acquisition Date. The fair values of the Purchase Money Note and the Value Appreciation Instrument do not represent assets acquired or liabilities assumed in the SVBB Acquisition. Therefore, the Purchase Money Note and the Valuation Appreciation Instrument are not reported in the Statement of Assets Acquired and Liabilities Assumed in Exhibit 99.1.

Interest-earning assets include interest-earning deposits at banks, investment securities, and loans, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset.

We acquired $34.00 billion of interest-earning deposits at banks.

We acquired investment securities available for sale with a fair value of $385 million in the SVBB Acquisition. The following table presents the par value and fair value of acquired investment securities available for sale as of the SVBB Acquisition Date. The fair value equates to the amortized cost as of the SVBB Acquisition Date.

We sold the municipal bonds during the quarter ended September 30, 2023.

The following table presents the weighted average yields for investment securities available for sale acquired in the SVBB Acquisition, segregated by major category with ranges of contractual maturities. The weighted average yield on the portfolio is calculated using security-level annualized yields.

Loans were recognized at their estimated fair values on the SVBB Acquisition Date. FCB acquired both Purchased Credit Deteriorated (“PCD”) and non-PCD loans, which will be subject to periodic credit quality reviews in accordance with our policies. The initial allowance for loan losses (“ALL”) for PCD loans was $220 million at the SVBB Acquisition Date. The accounting treatment for loans acquired in a business combination is further discussed in the notes to the Audited Statement.

Unless otherwise noted, the following tables present loan amounts at fair value after the PCD gross-up, which represents amortized cost at the SVBB Acquisition Date.

A summary of loans by class, including the unpaid principal balance (“UPB”), is presented below:

The following table presents the UPB and fair value before the PCD gross-up of the loans acquired in the SVBB Acquisition as of the SVBB Acquisition Date:

The fair value of non-PCD loans was $66.42 billion, compared to the UPB of $68.72 billion, resulting in a fair value discount of $2.30 billion that will be accreted into income over the contractual life of the loan using the effective interest method. The maturity distribution by contractual maturity date is summarized in a table below.

The following table summarizes PCD loans acquired in the SVBB Acquisition:

The following table provides loan maturity distribution information by contractual maturity date and estimated average contractual interest rate as of March 27, 2023:

The following table provides information regarding the sensitivity of loans to changes in interest rates for loans maturing one year or more:

Loans on nonaccrual status at March 27, 2023 totaled $176 million, or 0.26% of total acquired loans.

Interest-bearing liabilities include interest-bearing deposits and securities sold under customer repurchase agreements.

We assumed $56.01 billion of deposits in the SVBB Acquisition as follows:

Where information is not readily available to determine the amount of insured deposits, the amount of uninsured deposits is estimated, consistent with the methodologies and assumptions utilized in providing information to our regulators. We estimate total uninsured deposits were $48.55 billion at March 27, 2023.

We assumed $10 million of securities sold under agreements to repurchase.

The following sections include discussions regarding the impact of the SVBB Acquisition on a consolidated reporting basis by BancShares, including operating results and cash flows, liquidity, and capital.

Beginning on March 27, 2023, the operations acquired in the SVBB Acquisition are included in our consolidated statements of income and cash flows. The SVBB Acquisition has improved our net interest income (“NII”) and cash flows. We expect that the SVBB Acquisition will continue to benefit NII and cash flows compared to before the SVBB Acquisition, as interest earned on acquired loans and to a lesser extent, interest-earning deposits at banks and investments, is expected to continue to exceed interest expense on assumed deposits and borrowings and the Purchase Money Note.

As shown in the table below, our consolidated noninterest income and expense have increased due to the SVBB Acquisition. We expect noninterest income to continue to benefit from the ongoing activities of the acquired operations. While the pace of the increases in noninterest expense could decrease due to synergies, we expect noninterest expense to remain higher than before the SVBB Acquisition reflecting the additional personnel, systems and occupancy costs, as well as higher intangible amortization, due to the CDI of $230 million amortizing over an estimated eight-year useful life.

The fair value of the net assets acquired exceeded the purchase price. Consequently, there was a gain on acquisition of $9.81 billion (and no goodwill) for the SVBB Acquisition.

In addition to the results of operations included in the SVB Segment, certain items related to the SVBB Acquisition were reported in our “Corporate” segment disclosures for the year ended December 31, 2023. These included: loan discount accretion income of $697 million, interest expense of $1.00 billion on the Purchase Money Note, provision for credit losses of $716 million, which included the day 2 provision for acquired non-PCD loans and off-balance sheet credit exposures discussed below, gain on acquisition of $9.81 billion, and acquisition-related expenses of $470 million, most of which was related to the SVBB Acquisition. We expect the pace of the increases in acquisition-related expenses to decrease due to synergies.

The provision for credit losses was impacted by $462 million for the day 2 provision for credit losses for acquired non-PCD loans and $254 million for acquired off-balance sheet credit exposures. The acquired loans and off-balance sheet exposures are subject to our ongoing credit review and ALL processes.

In connection with the Purchase Agreement, FCB also entered into the Shared-Loss Agreement. The Shared-Loss Agreement provides for FDIC Loss Sharing for five years and FCB Reimbursement for eight years. The Shared-Loss Agreement extends to loans funded after the SVBB Acquisition Date that were unfunded loan commitments at the SVBB Acquisition Date for a period of one year after the SVBB Acquisition Date. If certain conditions are met pursuant to the Shared-Loss Agreement, FCB has agreed to pay to the FDIC, 45 days after March 31, 2031 (or, if earlier, the time of disposition of all acquired assets pursuant to the Shared-Loss Agreement), a true-up amount up to $1.5 billion calculated using a formula set forth in the Shared-Loss Agreement. Preliminary estimates indicate there is no material value to attribute to the loss indemnification asset or true-up liability. This is primarily based on evaluation of historical loss experience and the credit quality of the portfolio.

BancShares’ liquidity metrics remain strong as we had $57.28 billion in liquid assets consisting of $32.69 billion in cash and interest-earning deposits at banks and $24.59 billion in high-quality liquid securities at December 31, 2023. In addition, at December 31, 2023, we had estimated unused borrowing capacity with the FHLB and Federal Reserve Bank of $13.62 billion and $5.12 billion, respectively, and $15.11 billion with the FDIC under the Advance Facility Agreement.

As consideration for the SVBB Acquisition, FCB issued the Purchase Money Note and the Value Appreciation Instrument to the FDIC. Under the term of the Value Appreciation Instrument, FCB agreed to make a cash payment to the FDIC equal to the product of (i) $5 million and (ii) the excess amount by which the average volume weighted price of one share of BancShares’ Class A common stock, par value $1, over the two Nasdaq trading days immediately prior to the date on which the Value Appreciation Instrument is exercised exceeds $582.55; provided that the settlement amount does not exceed $500 million. The FDIC exercised its right under the Value Appreciation Instrument on March 28, 2023, and a $500 million payment was made on April 4, 2023.

Deposits are a primary source of funding of our operations. We assumed $56.01 billion of deposits in the SVBB Acquisition. The following table summarizes deposits for the SVB Segment:

Deposits declined from $56.01 billion at the SVBB Acquisition Date to $49.26 billion at March 31, 2023, primarily due to uncertainty in the banking industry. As presented in the table above, deposits began to stabilize early during the second quarter.

The regulatory capital ratios for BancShares and FCB are calculated in accordance with the guidelines of the federal banking authorities. The regulatory capital ratios for BancShares and FCB continued to exceed the Basel III requirements and the Prompt Corrective Action well-capitalized thresholds after the SVBB Acquisition as summarized in the following table:

Attached hereto as Exhibit 99.1 and incorporated by reference into this Item 9.01(a) is the Audited Statement and the accompanying notes thereto.

The disclosure in the Explanatory Note is incorporated in this Item 9.01(b).

Silicon Valley Bridge Bank was only in operation from March 10, 2023 to March 27, 2023 and does not have historical financial information on which we could base pro forma information. Additionally, we did not acquire all assets or assume all liabilities of Silicon Valley Bridge Bank, and an essential part of the SVBB Acquisition is the federal assistance governed by the Purchase Agreement and Shared-Loss Agreement, which is not reflected in the previous operations of Silicon Valley Bridge Bank. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the SVBB Acquisition in accordance with ASC 805-10-50-2.     

The following exhibits accompany this Amendment No. 2.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.