Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares March 2022 Strategic Update. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one on your telephone. If you require operator assistance during the program, please press star then zero. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Miss Deanna Hart, Senior Vice President of Investor Relations. You may begin.
Thank you. Good morning, everyone, and thank you for joining us today. It is my pleasure to introduce our Chairman and Chief Executive Officer, Frank Holding, as well as our Chief Financial Officer, Craig Nix. They will provide an update on our recently closed merger with CIT, including purchase accounting, as well as an updated financial forecast. During the call, they will be referencing our investor presentation, which you can find on our investor relations website. An agenda for today's presentation is included on page two. We are pleased to have several other members of our leadership team in attendance with us today who are available to participate in the Q&A portion of our call, as needed. Following the completion of our formal presentation, we'll be happy to take any questions you may have.
Our comments during today's presentation will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined for your review on page three, and we will also reference non-GAAP financial measures in the presentation. Reconciliations of these measures against the most directly comparable GAAP measures are available in the appendix. Finally, First Citizens is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. With that, I'll turn it over to you, Frank.
Thank you, Deanna, and good morning, everyone. We appreciate all of you joining us today. I'm gonna start on page five of the investor presentation, where we are at the dawning of a new and exciting era of growth. We are now 80 days into our merger with CIT to create the top 20 U.S. financial institution with over $111 billion in assets, $73 billion in loans and leases, $91 billion in deposits, and a market capitalization of approximately $12 billion. This merger provides us with the opportunity to become a stronger and even better bank than we've been for the last 124 years, by providing clients access to a broader range of products, capabilities, and expertise. The goal is to create long-term value for all stakeholders, including customers, communities, shareholders, and associates.
We will do this through our focus on experienced leadership, enduring values, and a commitment to helping people and businesses prosper by focusing on their long-term success. Turning to page six, the scale created by this combination allows us to provide a comprehensive and diverse set of products and services across many client segments in some of the most dynamic and fastest-growing markets in the country, better optimize our balance sheet, and broaden our operating strategy to drive sustainable financial returns over the long term. It also gives us the opportunity to be more proactive in our risk management approach to enhance the long-term resiliency of the bank, positioning us well for future challenges and opportunities. Moving to page seven, we're excited about the strategic rationale for this merger.
When we announced it, and we were excited about the strategic rationale for this merger, we announced it in October of 2020, and it remains powerful today. As we work hard to integrate our companies, the value of this combination becomes clearer. In particular, we're excited about CIT's national commercial lending businesses, debt against First Citizens' quality deposit franchise. New and compelling financial products coming from both banks for people and companies in the markets we support. Financially compelling synergies and returns you'll see when Craig shares the results of our purchase accounting and financial outlook. Strong capital and liquidity that positions us for growth and investment, and robust customer relationships, enthusiastic and motivated associates, and a strong combined culture.
80 days in, it's clear that our company is uniquely positioned to meet the specific needs of a vast array of diverse clients in a way that will drive positive, long-term financial results. Page eight highlights our strategic priorities as we move through 2022 and beyond. Our broad strategic area of focus include integrating the two banks, a focus on talent acquisition and retention in today's competitive hiring market, a focus on our clients to make sure we're aligning our products and services across all segments in ways that meet their financial needs... taking advantage of revenue synergies and delivering on our expense promises to boost our operating leverage, and effectively and efficiently managing to our risk appetite as we bring the two companies together as one.
Pages nine and 10 cover high-level client focus and strategic priorities for our primary business segments in support of the strategic objectives I just covered. Our primary business segments are commercial banking, general banking, and rail. In the commercial bank, we're excited about having the capabilities and expertise to see our clients and their companies' life cycle from early growth stages to sustained operational success, to the transition of their business. Part of our commercial banking strategy will be expanding a leading national middle market business to deliver full banking services to clients in the $75 million-$750 million revenue range. This segment represents some of the top business owners, entrepreneurs, and family offices across our franchise.
Our intent is to leverage our established brand in our core markets to deliver the capabilities of the combined organization to meet the lending, depository, cash management, capital markets, and wealth management needs across our footprint. This focused nationwide team of middle market bankers will tailor solutions for financing and will leverage our relationship-based approach with deep industry and product expertise across a full suite of banking services designed to meet the needs of these clients. In the general bank segment, we will continue to build out our customer relationship ecosystem. We've accelerated investment in digital, call center, and branch technology over the past several years, focusing on customer experience, engagement, and the ability to fulfill products based on the preferences of our customers.
Similar to our commercial bank, we have the robust product breadth to meet the needs of consumers and small businesses across the franchise as their needs change over time. From the earliest interest in financial activity, to household formation, to growing and expanding families, to wealth building and retirement, our combined capabilities can cover the needs of our customers across our 22-state footprint. Through our combination, we now have access to a digital-only top 10 U.S. direct bank that provides customers a seamless, low friction, and personalized banking experience. For the combined company, the direct bank offers more flexibility in balance sheet funding. As rates are expected to rise in 2022, we will have the flexibility to toggle between our direct bank and branch deposits to ensure efficient and effective deposit pricing and funding.
In the rail leasing business, we're excited to be one of the top rail car lessors in North America, with $7.4 billion in rail assets as of December 31, 2021. Our priorities here include enhancing capabilities to improve customer experience and rail car capacity, and continuing to look around the corner in terms of trends and needs across industries in our footprint that rely on rail to keep things in motion. In addition to providing a diverse fleet of rail cars and broad market and segment coverage, we are proud to be a part of the supply system that keeps our country running. Turning to pages 11 and 12, we provide loans, leases, and deposit data as of December 31, 2021 for our commercial banking and general banking segments.
On page 11, the Commercial Banking segment is comprised of 3 sub-segments, including Commercial Finance, Real Estate Finance, and Business Capital. Commercial Finance provides a range of commercial lending, leasing, and deposit products, as well as ancillary services and products, including factoring, cash management, capital markets, and advisory services, primarily to middle-market companies in a wide range of industries. Real Estate Finance provides senior secured commercial real estate loans to developers and other commercial real estate professionals, focusing on properties with stable cash flow. Provides financing to reposition existing properties and originates construction loans to highly experienced and well-capitalized developers. Business Capital provides leasing and equipment financing to small businesses and middle-market companies in a wide range of industries. At December 31, the Commercial Banking segment had $26.9 billion in loans and leases and $4.1 billion in deposits. Turning to page 12-...
Our general bank segment is composed of our extensive branch network, mortgage, and sales finance, or consumer indirect lending. The direct bank, community association banking, and SBA. The general bank offers a wide range of products and services through an expansive footprint, including direct and indirect consumer loans, mortgage loans, business lending, treasury management services, a full suite of deposit products, debit and credit card, as well as wealth management and private banking. At December 31, the general bank segment had $38.9 billion in loans and $85.1 billion in deposits. Turning to page 13, the table shows that we have delivered shareholder value since our last transformational merger. Over that seven-year period, we achieved strong annual balance sheet growth, funded by quality core deposits.
We grew loans at a compounded rate of 8%, generated positive operating leverage, growing pre-provision net revenue at a compounded rate of 11%. Grew net income at a compounded rate at an annual rate of 17% and EPS by 21%, while achieving earnings growth each year during the period. Grew tangible book value per share at a compounded annual rate of 11% while returning excess capital to our shareholders through stock repurchases, repurchasing 18% of our total shares outstanding between 2018 and 2020. Finally, posted solid returns on assets and equity. We are proud of these results and of our people who are responsible for helping us achieve them. Our plan is to continue to create value in this new era of growth as we merge with CIT.
With that, I'd like to turn our attention to merger, to our merger integration process. As page 15 states at the top, merger integration is on track. I'm pleased to say we are exactly where we expected to expected and planned to be at this point in time, and we've made significant progress in integrating our liquidity, investment, and treasury management functions. We've also integrated financial reporting and have combined financials after the first month following close. In addition, we've combined budgets and we've completed day one purchase accounting. You can also see much of our progress across many of our corporate support teams, including HR, IT, risk management, and our integration management office. Led by two senior associates with multiple acquisitions, conversions, and integrations under their belt, both here at First Citizens and previous institutions.
The integration management office is off to a great start on the detailed planning of our conversion and integration efforts. The team is focused on effectively managing integration risk and ensuring teams are coordinated and sticking to a timely integration schedule. It's important to note that integration risk can be better managed in this merger because of the structure of CIT. Instead of converting a large bank over a long weekend, which is typically the case, CIT is a group of diverse and unique business units and groups that will include some conversions, like OneWest Bank, slated for mid-July, but also will include lifting and shifting or replatforming, of other lines of business like factoring, commercial finance, and rail, which will be managed individually and sequenced in a way that manages the integration cleanly over the next few months.
Our management team is laser-focused on demonstrating again, our proven ability to effectively manage integration risk. Our objectives here align with those of our customers, board, regulators, investment community, shareholders, and rating agencies. Our indicators of effective integration are successfully completing key integration and conversion milestones, achieving improved operating efficiency levels, maintaining healthy capital and liquidity, demonstrating continued good credit risk management, including the newly acquired portfolios, and maintaining a consistent combined risk appetite through integration. Moving to page 16, both First Citizens and CIT share strong risk cultures. First Citizens has historically maintained a moderate risk appetite, and the merger with CIT allows us to expand into other areas, particularly commercial banking.
Our integration process includes marrying the risk appetite of First Citizens and CIT to create an overall moderate risk appetite for the combined institution. As you can see, teams across our combined company have been busy normalizing our combined operations and supporting our customers. We're off to a great start, and I want to thank our associates for their commitment and focus so far in 2023. We're proud of what we've accomplished thus far, and are excited about the future for our people, our customers, and communities. I'll now turn it over to Craig for a closer look at our day one purchase accounting and financial outlook, and then we'll open the line for questions. Craig?
Thank you, Frank. I will begin with a discussion of our purchase accounting marks and conclude with our financial outlook for 2022 and 2023. I will begin on page 18, where we provide an overview of our valuation process to arrive at our purchase accounting marks. The process was thorough and robust. We engaged several leading firms with applicable subject matter expertise to perform our valuation work. In total, 25 specialists were used and over 50 subject matter experts within the company were engaged to lead and support the valuation process. While we feel good about where we landed on our purchase accounting marks, and there was a lot of effective challenge regarding results, the numbers have not yet been audited and are subject to change. Therefore, you will hear me use the words estimate and preliminary when discussing purchase accounting marks.
Turning to page 19, I will discuss our purchase accounting marks and resulting bargain purchase gain arising from the merger. I'll also provide a comparison of our current estimate for the marks versus those we provided at announcement in October 2020. The consideration for the purchase is primarily all stock at a fixed price of 0.062 shares of FCNCA stock for every share of CIT stock. At closing, we issued approximately 6.2 million shares and assumed the CIT stock for an estimated purchase price of $5.95 billion, compared to an estimated purchase price of $2.58 billion at announcement. The increase in the purchase price was primarily due to a $507 per share increase in the price of FCNCA stock between announcement and closing.
The estimated net fair value of marks after tax was positive $50 million at closing, compared to a $507 million write-down at announcement, resulting in a $557 million favorable change. The most significant component of the $557 million change was lower marks on the PCD book. Other marks, while favorable on a net basis, were largely as expected. Now I'll touch on the most significant accounting marks included in our current estimate on page 19. Investment securities were written down by $36 million. The write-down was the result of higher interest rates between December 31 and closing on January 3, the closing date of the transaction. This write-down was in addition to the unrealized loss recorded in CIT's equity at year-end, totaling a $152 million.
The total fair value adjustment on loans was a write-up of $136 million, compared to a write-up of $168 million at announcement. Even though the gross change since announcement was relatively small, the components significantly changed. The current estimated PCD interest and liquidity adjustment is $327 million, compared to a $1.36 billion adjustment at announcement. The primary driver of the decrease was a lower level of PCD loans identified at closing compared to announcement. The fair value adjustment on non-PCD loans was largely unchanged since announcement. I'll provide more detail on the loan valuation on the next page. I'll now move on to the allowance for credit losses. I'll refer to that as the ACL. At closing, CIT's ACL was $712 million.
Our current estimate for the PCD ACL write-up is $284 million, and our day two non-PCD provision, commonly referred to as the CECL double count, is $454 million. This brings CIT's total ACL to $738 million and equates to 2.24% of CIT's total loans at closing. In addition to the $454 million dollar day two provision, we recorded $59 million in provision expense for unfunded commitments, bringing the after-tax impact of day two provision expense to $386 million dollars. For rail assets, we are estimating a write-down of approximately $186 million dollars, equating to approximately 2.5% of total rail assets at closing.
The write-down primarily relates to rail assets with lower utilization and higher expected future costs, including tank and coal cars, small cube hoppers, and locomotives. Write-downs on these rail assets are partially offset by write-ups on rail cars with higher utilization rates, such as covered hoppers, mill gondolas, and boxcars. Fixed assets, primarily including land, buildings and software, were written up by $60 million. At announcement, CIT was carrying $140 million in goodwill, which they wrote off in 2021. As part of the merger, we assumed approximately $34.3 billion of core deposits and recorded a core deposit intangible totaling $143 million, or 0.42% of total core deposits. This compares to an estimated core deposit intangible at announcement of $84.3 million, or 0.2% of core deposits at that time.
The increase in the intangible since announcement mostly was due to an increase in market rates, combined with CIT's lower cost of deposit. At announcement, we estimated a deferred tax asset write-down of $150 million associated with our inability to utilize certain of CIT's net operating losses, or NOLs. However, given the increase in CIT's stock price since announcement, the amount of NOLs we can utilize increased. Therefore, this $170 million favorable change in the mark on other assets primarily relates to our ability to utilize these NOLs going forward. Moving into liabilities, the total mark-up declined by $58 million since announcement, from $467 million to $409 million. $38 million of the change related to a lower mark-up on time deposits due to lower costs and higher market rates since announcement.
The fair value of borrowings increased by $34 million, despite higher market rates, as credit spreads on corporate debt tightened significantly since announcement. Other liabilities were written up by $55 million, composed of various small line items. Combining the purchase consideration with the after-tax net fair value of marks totaling $50 million, resulted in a total purchase price, including marks, of $5.9 billion at closing, versus $3.09 billion at announcement. Comparing these numbers to CIT's capital at closing and at announcement, resulted in a bargain purchase gain of $402 million at closing, versus $2.67 billion estimated at announcement. Moving on to page 20, we provide a roll forward of the information on page 19, showing tangible common equity created in the merger.
Additional tangible common equity created at closing was $5.67 billion, compared to $4.65 billion announced at estimated announcement, which is an increase of $1.02 billion. The favorable increase is composed of the $557 million after-tax favorable change in marks, the $540 million increase in CIT equity, partially offset by the increase in core deposit intangible and the mark on CIT preferred stock. So the takeaway here is that the current starting point for tangible common equity and tangible book value per share is meaningfully higher than we estimated at announcement. Page 21 provides a view of the purchase accounting impact to loans and the ACL at closing, and compares them to the estimate at announcement.
We acquired total loans of $32.8 billion, of which we determined approximately $3.45 billion were purchase credit deteriorated, or PCD loans. We utilized various delinquency and credit metrics, as well as insights from the business and credit teams of both companies, to make this determination. For non-PCD and PCD loans, we recorded fair value write-downs, or said another way, liquidity and interest rate discounts of $413 million, consisting of $86 million on non-PCD loans and $327 million on PCD loans. After recording the ACL on PCD loans totaling $284 million, we estimate approximately $129 million of interest income accretion to be recognized over the remaining life of the loans.
As previously mentioned, we anticipate that day two provision on non-PCD loans recorded in the first quarter will be $454 million, bringing the total ACL on loans acquired from CIT to $738 million, representing an ACL ratio on those loans of 2.24%. This compares to an estimated ACL ratio at announcement of 4.14%. Combining CIT's ACL with FCB's results in a total allowance of $917 million, representing a ratio of 1.4%, and compares to an ACL ratio at announcement of 2.53%. Turning to page 22, we present the estimated impact of purchase accounting marks on EPS, net interest margin, and income statement line items, along with their estimated lives.
Please note that the fair value adjustment presented on this page excludes fair value adjustments that will not impact future earnings. So the marks you see here will have a go-forward effect on EPS and net income, and as applicable, net interest income and margin, non-interest income, and non-interest expense. I will not cover this page in detail, but in summary, the net impact of the fair market value adjustments is estimated to be accretive to 2022 and 2023 EPS by $6.84 and $5.68, respectively. They are estimated to be accretive to net interest margin by 13 and 11 basis points in 2022 and 2023 respectively. The after-tax impact of the adjustment is estimated to be positive to net income by $108 million in 2022, and $91 million in 2023.
The Day Two CECL adjustments from non-PCD loans and reserve for unfunded commitments will have a negative impact on 2022 earnings per share of $24.18, equating to a $386 million after-tax impact. Turning to page 23, we provide a tangible book value walk forward, starting with FCB's standalone tangible book value at announcement, and ending with pro forma tangible book value after equity issuance and purchase accounting, then after Day Two CECL impact, and then after remaining merger-related costs are recognized. Starting on the left side of the page, at announcement, tangible book value per share was $341.21. Between announcement and year-end 2021, we are pleased that tangible book value per share increased by 20% to $410.74.
As discussed earlier, the merger with CIT added $5.67 billion in tangible common equity to the company, increasing tangible book value per share to $607.18, or by 48% over the pre-closing value. Including the after-tax impact of CECL Day Two provision for non-PCD loans, accretion, the resulting accretion is 42%, and finally, subtracting merger costs, the accretion is 38%. Turning to page 24, the top of the page shows that all measures of TBV accretion discussed on the previous page are meaningfully higher than we estimated at announcement, ranging from 5%-8% higher, depending on the measurement. The bottom of the page shows capital ratios estimated as of closing versus estimates provided at announcement.
I will call out that CET1 is estimated at 11.2% at closing, versus our estimate of 9.4% at announcement. By all capital measures, current estimates exceed those provided at announcement, with all measures exceeding the upper range of our internal capital ratio targets. The increase in the estimated capital ratios over those provided at announcement was due to a combination of capital growth from net income and a reduction in loans and deposits at CIT, partially offset by organic deposit and loan growth at legacy FCB. I will now shift focus from purchase accounting to our financial outlook for 2022 and 2023. Turning to pages 26 and 27, we list several changes in the external and internal environment since our merger announcement, some favorable and some unfavorable. These changes set the backdrop for our financial outlook that I will cover in a moment.
To start, at merger announcement, we were in the middle of the COVID-19 pandemic, where the market was contracting and was being supported by significant government stimulus. This created significant uncertainty in the market. Since that time, COVID restrictions have been lifted, and while inflation and related problems present potential challenges to business and consumers, the U.S. economy is performing well by most measures. The unemployment rate is back to the full employment level, the economy is now expanding, and corporate profits are well above the pre-pandemic level. These improvements in macroeconomic factors have resulted in both companies releasing reserves built up during the pandemic, increasing capital ratios, and improved fee and loan income generation in businesses such as wealth, bank card, factoring, and rail. The interest rate environment is also more favorable.
With GDP now above the pre-pandemic level, strong employment growth and signs of inflation, the Fed started to unwind its pandemic response in November of last year by tapering purchases of long-term assets. This has resulted in interest rates in the belly of the curve increasing by 60 to 100 basis points compared to when the deal was announced. In addition, at its March meeting, the Fed raised the Fed funds rate by 25 basis points and is now forecasting 7 rate hikes in 2022, and 3 in 2023. With an asset-sensitive balance sheet, we are well positioned for rate increases to be both accretive to net interest income and net interest margin. For information related to our interest rate sensitivity, please see page 41 in the appendix.
The federal stimulus programs increased the amount of liquidity in the financial system, and while our combined borrowings declined by $3.2 billion since announcement, combined deposits increased by $3.8 billion. In addition, combined loans declined by $5 billion. The combination of these factors increased combined cash reserves by $2.3 billion and investment securities by $3.4 billion. We now have an opportunity to redeploy these excess funds into higher, higher-yielding loans and investments. A silver lining of the strengthening liquidity position has been the accelerated realization of funding synergies. As I just mentioned, at closing, combined borrowings declined by $3.2 billion, and broker CDs declined by $1.2 billion. On February 24, we also redeemed $3 billion in outstanding senior unsecured debt, bringing the total reduction in borrowing since announcement to $6.2 billion.
I will cover the financial impacts of these funding actions shortly. With respect to competition for loans, the banking industry went from tightening credit standards in 2020 to loosening in 2021. In addition, credit spreads have tightened since announcement, despite the increase in interest rates, not allowing us to pass along the full extent of rate increases in our loan pricing. Despite these pressures, we will compete on price for quality loans while remaining committed to our credit quality standards. Today, inflation is higher than it was at announcement and is at its highest level in nearly four decades. Inflation has begun to push expenses higher for the banking industry, mostly manifesting itself in a talent shift mix. Increasingly, there is a need for more technology, risk management, credit, and finance talent, and the cost of acquiring that talent is increasing.
We are projecting core operating expense growth in the 4%-5% range, exclusive of merger cost saves, which is a percentage point or two higher than the long-term average for us. So with respect to inflation, the biggest area we are watching is the Employment Cost Index . To conclude here, all things considered, we believe that positive changes since merger announcement outweigh negative ones, providing us an opportunity for solid earnings performance. I would now like to spend a few moments on financial synergies. Turning to page 29, we provide an update on cost saves. At the time of announcement, we announced estimated cost saves of $250 million. At that time, excluding wages, depreciation, and maintenance, those cost saves represented approximately 11% of the combined company's core non-interest expense base, and 20% of CIT's core non-interest expense base.
Currently, we have a direct line of sight into the $250 million from that initial run rate, with the potential to exceed it as we continue to finalize contract savings, or contract negotiations and operational efficiency initiatives. This $250 million is inclusive of dis-synergies from new roles related to increased regulatory oversight, talent upgrades, and compensation changes for existing employees because of the merger. Due to the approximate 15 months that elapsed from deal announcement to merger closing, we estimate that approximately $100 million have been removed from the combined expense base as of the end of 2021. A large portion of this reduction has been attrition of employees in 2021, that were not ultimately backfilled. Additionally, non-interest expense line items such as professional services and regulatory insurance reduced meaningfully from their 2020 levels.
As we look to 2022, we anticipate achieving another $100 million in cost saves by the end of the fourth quarter, as we complete operational conversions and continue to optimize staffing. The last $50 million in expense saves are expected to be in the run rate by the fourth quarter in 2023, as the remaining integration activities are completed during the first half of the year. We will continue to assess further initiatives and areas to reduce costs and believe our cost saves number could ultimately be higher. However, we are remaining conservative in the estimate, given that contract negotiations are currently ongoing and due to the impact of enhanced regulatory oversight on our staffing needs.
We believe the additional $150 million reduction in the 2021 non-interest expense run rate will continue to offset the organic growth rate in the remaining expense base over the next 8 quarters. The remaining expense base continues to be impacted by a difference for revenue producers to generate organic growth in our core markets and the inflationary pressures of a competitive labor market, and on categories such as professional services and third-party processing. While the growth rate for expenses ex merger cost base is increasing, our balance sheet is well positioned to benefit from higher interest rates and from redeploying excess liquidity into higher yielding loans and investments, blunting the impact of higher inflation. Finally, our focus will be on gaining efficiencies above and beyond inflationary pressures as we integrate the two companies.
Turning to page 30, significant progress has been made on funding synergies. With the redemption of $3 billion of senior unsecured debt in February, wholesale funding reliance has been reduced by $7 billion since the announcement of the merger. This includes $3.5 million in senior unsecured debt, $2.6 billion in FHLB borrowing, and $1.2 billion in broker deposits. Since merger announcement and through closing, CIT did a good job reducing its cost of deposits by 45 basis points, and purchase accounting will lower it by another 12 basis points. All of these actions add up to total interest expense savings of $477.3 million on an annualized basis when comparing to the third quarter of 2020 actual results, which was at announcement.
Going forward, there are opportunities remaining to further optimize the funding stack, such as letting the broker deposits run off, but most of the funding synergies we expected at merger announcement have been realized. Turning to page 31, at closing, the combined bank had $12.1 billion in overnight investments, representing 11.5% of earning assets. Assuming that the 2019 level is more indicative of an optimal level, the combined bank had excess liquidity at closing of approximately $7.4 billion. Adjusting for the $3 billion dollar redemption, current excess liquidity is around $4.4 billion. So we do have the opportunity, especially as rates rise, to leverage this excess liquidity, and do one or a combination of things, either further reduce funding costs or deploy it into higher earning assets.
Turning to page 32, we do believe there are revenue synergies, given the complementary expertise that both companies will be able to provide. While these impacts are not factored into our EPS estimate, we do believe they have the potential to lead to revenue growth over the next few years as they develop. To begin with, we see the expansion of the middle market banking line of business as an opportunity to bridge the size gap between First Citizens' expertise and relation-oriented focus in the smaller commercial and business sphere, with CIT's expertise in the larger commercial space. The subset of clients in the $75 million-$750 million revenue range is currently underserved by First Citizens in its existing branch network.
By leveraging many of the larger client and commercial capabilities of CIT, we feel we can expand further into markets where First Citizens has a presence in the smaller commercial and business space, and further compete in the middle market space, which for First Citizens is relatively untapped in most existing markets. Furthermore, First Citizens has specialized products across bank card, merchant, cash management, and treasury services that CIT has not had or had to the same extent as First Citizens. There is the opportunity to expand these consumer products into the HOA space, as well, as sell deeper into existing loyal customer base of CIT's commercial clients on the treasury service, merchant, and cash management side of the house. CIT's expertise in commercial lending provides the ability to retain relationships over all stages of their life cycle.
With the new cost of funds of the combined company, the commercial teams will be able to take that existing name recognition and expertise and compete upmarket for credit and sell into a new customer base, which is more challenging to do with the previous cost of funds. We believe this expansion and targeted client up the credit stream can have a meaningful impact on loan growth in the years to come. In addition to commercial clients, the lower cost of funds should allow the existing equipment leasing team to reach new customers and further high-quality originations. Furthermore, many of First Citizens' existing small business clients can benefit from CIT's equipment leasing product set and expertise, and we see this as a powerful opportunity to increase revenue and further deepen client relationships on the small business side.
I will conclude by providing our financial outlook, which includes the Purchase Accounting impact that I discussed earlier. Page 34 lists our key earnings assumptions for 2022 and 2023. Let me preface my comments here that these assumptions are based upon certain macroeconomic conditions remaining fairly steady with where they are today. One, being growth in the economy continues as COVID continues to wane. Number two, while the economy is likely to feel some of the impact of the Ukraine crisis, that it does not derail the U.S. recovery. Number three, monetary policy becomes tighter as the Fed tries to rein in inflation. Number four, while inflation remains above the Fed's target in 2022, it settles back down to more normal levels as supply chain and geopolitical issues are resolved. Number five, the unemployment rate remains relatively low.
Number six, income taxes remain at current levels. In summary, it assumes that the U.S. economy continues to perform well by most measures. From a loan growth perspective, we expect to be in the 2%-4% growth range for 2022. While we foresee continued mid- to high single-digit growth in our branch network, we do continue to feel some pressures in the real estate finance portfolio based upon accelerated prepayments and the competitive landscape. Moreover, pockets of our equipment leasing portfolio related to office and imaging equipment are under growth pressure with shifting workplace dynamics. We will continue to proactively add bankers to our wealth, middle market banking, and large metro branch network areas to support loan growth.
We believe some of these challenges are temporary, and as we continue to combine the credit cultures and see revenue synergies, we believe that 2023 will be back to mid-single digit range for loan growth after being slightly lower in 2022. We anticipate the cost of funds for the combined company will also afford more opportunities to compete more favorably in the large commercial space on high credit grade opportunities, which should also contribute to loan growth momentum.... On deposits, we do not expect to continue the robust levels of growth over the past two years. On the First Citizens side, we anticipate 2022 being in the range of 0%-2%, as demand deposit growth continues in mid-single digits, but is offset by continued optimization of the funding base by letting higher price CDs and money market accounts run off.
We also continue to monitor the impact of the Fed unwinding its balance sheet and liquidity being removed from the system. In 2023, we forecast growth in the 1%-3% range, with non-interest-bearing growth in the 3%-5% range being offset by continued attrition of higher price time deposits. From net charge-off, we expect a gradual return to historical levels for both First Citizens and CIT, and historical being prior to 2020, in the latter half of 2022 and into 2023, in the 20-30 basis points range on a combined basis.
While we don't have any apparent stresses in the portfolio, and non-accrual loans continue to trend down, we think as the favorable changes in SBA, PPP, and stimulus subside, we believe returning to historical average is more likely compared to the historically low levels achieved in 2021. For net interest margin, we expect an increase to 2.80%-2.90% for 2022, and 3.00%-3.10% for 2023, as the rise in interest rates continues to drive the earning asset yield higher at a faster pace than funding cost increase. This is based on the implied forward curve in February, as well as five rate hikes in 2021, one in early 2023, and one in late 2023. To the extent this rate increase trajectory changes, it would impact our estimate.
From a core non-interest income perspective, we expect to be in the range of $1.86 billion-$1.11 billion for 2022, and $1.08 billion-$1.13 billion in 2023. We expect, we expect mid-single digit growth in many core areas, such as wealth, card, merchant, and net loan income. While we may selectively sell loan and lease assets opportunistically, going forward, we do, we do expect less activity compared to CIT's prior two fiscal years. Our preference is to keep high-quality earning assets on balance sheet due to the favorable compounding impact of earnings in future periods, especially considering our current robust capital and liquidity positions.
It is worth noting that the prior purchase accounting discount on CIT's legacy consumer mortgages was removed in purchase accounting, so we do not expect to continue loan sales in that portfolio. In our earnings estimates, we also assume no meaningful impact on investment portfolio gains, given the rising rate environment. From a core non-interest expense standpoint, exclusive of one-time merger costs, we expect to be in the $2.18 billion-$2.23 billion range in 2022, and $2.2 billion-$2.25 billion in 2023. From a cost-saving standpoint, we estimate that $100 million of cost savings is in our run rate currently, and project $200 million to be in the run rate by the fourth quarter of this year.
In 2023, we expect $250 million to be in our run rate by the fourth quarter. Through closing, we have recognized approximately $95 million in merger expenses. We anticipate another $300 million in 2022, with the first and second quarters having a higher proportion of those costs. We anticipate a further $50 million spent in 2023. We expect our effective tax rate to be in the 24%-25% range for 2022 and 2023, exclusive of the tax-free bargain purchase gain recognized in the first quarter of this year. Revenue synergies and share repurchases are not factored in our earnings and EPS forecast. However, given that our current capital levels are above our target ranges and we have excess liquidity, we do intend to resume share repurchases during the second half of the year.
We will also continue to focus on most immediate opportunities for revenue synergies between our complementary lines of business that I touched on on page 31 of the deck. Turning to page 35, we have taken the assumptions on page 34 and developed an EPS forecast for 2023. The forecast does not include the impact of one-time merger expenses, expected to be in the pre-tax range of $50 million in 2023, and assumes that cost synergies are fully phased in by the fourth quarter. Starting from the left side of the earnings per share walk forward, we begin with FCNCA's standalone actual EPS in 2021 of $53.88 per share.
Moving to the bar on the right, if we look at the base combination of CIT and First Citizens, which, one, combines the two banks prior to achieving the remaining cost synergies, two, includes the impact of the February debt redemption, three, removes a legacy CIT purchase accounting impact, and four, is prior to applying purchase accounting for the merger, we anticipate earnings per share in the range of $63-$65 per share, representing a 17%-21% increase over FCNCA's standalone earnings per share. Moving over to the next bar, further cost synergies achieved in 2022 and 2023 will create an additional $6-$8 increase in earnings per share over the base combination.
The next bar to the right shows that the impact of purchase accounting from this transaction will add over $6 to earnings per share, and the final bar shows that amortization of intangibles will subtract just under $1 per share. So if we add all the bars up from left to right, we arrive at a forecasted earnings per share in the $75-$79 range in 2023, equating to net income between $1.2 billion and $1.26 billion, and EPS accretion between 39% and 46%. Page 36 provides a comparison of acquisition metrics included throughout this presentation of closing versus announcement. I will not spend time rehashing these now, but we are very pleased that every metric either improved or remained very strong from announcement to closing.
As Frank mentioned in his comments, we remain excited about our prospects moving forward as a combined company and have an overall positive outlook. Frank mentioned earlier that the strategic rationale for this merger remains powerful, and I will second that. And I'll also add that the financial metrics we discovered indicate that it's also financially powerful. Upon integration, expecting to deliver 40+ fully synergized EPS accretion. Additionally, it affords us the opportunity to deploy our excess capital to grow earnings in support of the strategic objectives that Frank laid out earlier. Thank you all for joining us today. I will now hand the floor back to the operator to open it up for Q&A. Operator, the floor is yours.
Thank you, sir. Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up, and then return to the call queue if you have additional questions. If your question has been answered and wish to remove yourself from the queue, please press the pound key. We'll pause for one moment to compile our Q&A roster. Our first question comes from the line of Stephen Scouten with Piper Sandler. Your line is now open.
Thanks. Good morning, appreciate the time. I guess maybe my first question comes down to the excess capital that you spoke to, Craig. I know you said that the 11.2 on CET1 puts you above your capital ranges. Can you give us any color around where you think those capital levels could go on a CET1 ratio basis? And around the share repurchase and the timing in the back half of the year, has that approval process begun with regulators? And do you anticipate any sort of pushback being kind of a new, you know, CCAR bank at this time?
We have had discussions with our regulators, and I won't speak for them about what they may do, but I think the capital ratios stand on their own. They're well over our target ranges, so we do believe that during the second half of the year, we should be able to resume our share repurchase program. With respect to, you know, where capital is heading, on a risk-weighted basis, at CET1, assuming 4% earning asset growth, 4% loan growth, we would expect that ratio to increase by 50 basis points over the course of the year. So by the end of 2022, it'll be 50 basis points higher, and leverage would be 100 basis points higher.
So if you look at it just on a period, adding assets to the balance sheet, we're increasing excess capital by about 8 basis points a month on a leverage basis and about 4 basis points per month on a CET1 basis. And that does assume, again, 4% earning asset growth.
Okay, just to refresh, what were those target ranges?
Okay, so for CET1, and we generally target to the middle of our range, it's 9-11. And for leverage, it's 7.5-8.75. Tier 1 and total don't necessarily become binding constraints, but the tier one is 10-11, and the total is 12-13.
Okay, great. And then I guess my second question would just come around the rail car portfolio in particular. And you know, I think I heard you say you guys don't think you'll be having asset sales in the same function that CIT had on a legacy basis. And I'm wondering how that could affect, you know, what looked like it was maybe around $20 million a quarter in rail gains, but I don't think you're factoring into your assumptions on slide 30, 34, 35. And just kind of how you think about that business longer term today, especially given kind of the overall improvement in that sector. Do you anticipate keeping that business around? Is there a chance it could be sold in the nearer term? Just any insights about how you view that business today?
Well, first of all, rail will constitute about 25% of our non-interest income production. Even absent sales. We do, we definitely do not intend to sell our rail cars at the same pace CIT was. And if you look back prior to the last two years, when utilization was higher, CIT was not selling those rail cars. And they're returning to a better market right now, where utilization rates have gone up from 80, high 80s to the mid-90s. So we're very pleased about prospects for rail and its impact on our revenue stream. And in terms of sort of timing, you know, the pull forward of this gain, we believe that the income on the rental line will be pulled forward very quickly versus actually selling those earning assets for gains.
Okay, very helpful. Thanks for the time. I'll hop back in the queue.
Thank you.
Thank you. Our next question comes from the line of Kevin Fitzsimons with D.A. Davidson. Your line is open.
Hey, good morning, everyone.
Good morning.
I just wanted to follow on, and this probably is similar to Steve's question. So when I look at, you know, there's, you know, sizable EPS accretion and especially compared to announcement, but it is coming in. The range seems to be coming in lower than where we collectively were on the street. And the line item that jumps out to me is the range of non-interest income or non-interest income, I'm sorry, being lower than what I have modeled, and I'm guessing it ties in with your comments about a lower pace of rail sales compared to CIT.
So when I look at the earnings slide deck from the most recent quarter, you provided a glimpse of CIT's results, and I think you showed non-interest income in fourth quarter from CIT of about $352 million, of which $204 million was rental income on operating lease equipment, and then the rest was other. I'm just wondering, when we look at that amount and look at adding it into First Citizens, how should we be adjusting that for a run rate going forward? And is it just due to the rail sale activity, or are there other issues we need to account for?
So, Kevin, are you looking at the non-interest income line item?
Yes.
Yes.
The $351.8 million-
Yes
... in the back of the deck from last quarter.
I got you. Well, it I would say that, if you're looking at non-interest income for a full year, sort of. And I'm gonna go to sort of a PPNR, pre-provision net revenue. I think, you know, adjusting for sort of noteworthy items like bargain purchase gain , that number should be coming in at around $1.2 billion or $300 million a quarter. And non-interest income, around $1.5 billion, stripped out for the bargain purchase gain for the year.
Okay. I'm just trying to compare that to the 1.08-1.13 that you provided in the outlook.
I'm gonna let Elliot speak to that, but that is core non-interest income, so it excludes non-core items like gains on sale,
Right
... gains on sales of assets, investments, et cetera. But Elliot, why don't you address the $1.08 billion?
Yeah. So Kevin, on that, you know, if you look at non-interest income, you know, kind of gross income and operating earnings there, and then actually expense the depreciation and maintenance over the base. You'll see in the footnote on slide 34, there was net of those out in the non-interest income estimate. So within the non-interest income, that is net rail, so net of depreciation and maintenance.
Oh, so it's net rail altogether?
That's correct, the non-interest income. The non-interest expense line item does not include the depreciation and maintenance.
Got it. Okay. So actual reported non-interest income will be higher than that, with, with those?
Yeah, that's correct. That's correct.
That's correct.
Okay. All right. Can you, you know, like, there's. You, you guys, and you've said it, you know, over the years, First Citizens, I've always thought, has had a tendency to underpromise, overdeliver, and deliberately take that approach. So as I look at the outlook today with that in mind, and, you know, RA, what, what are some areas that could come better than what you're, what you're thinking? And like, the net charge-off range, it, it does make sense for it to normalize, but maybe not. It doesn't go up at, at that pace. You mentioned the expense savings could be higher than targeted. The revenue synergies are not included.
So I'm just trying to kind of get my arms around how much, you know, how you feel about the high end of the range and whether it could be more. What could go well to take it over the high end of the range?
Well, good question, Kevin, and I think we always try to put numbers out there that are realistic to being hit. So I think that underpromise, overdeliver comment you made is certainly relevant here. I do think that, given that we are building up excess capital, that share repurchases could be upside, given that we've not really, we don't forecast any in here. I mentioned the dot plots on the Fed, dot plots indicate around 10 rate increases. We have seven in this forecast, so there could be upside there. Charge-offs, obviously, if they don't migrate to historical levels, that could be upside. I do think that we do have a potential to exceed our cost saves, so that could be upside, too.
As you mentioned, we're not modeling revenue synergies, but we certainly expect those to start manifesting themselves, at least in 2023. So there are all sorts of upsides to this. Downsides, though, the yield curve could flatten, we might not get any rate increases, inflation could rear its head. But we're remaining optimistic and positive about the economy. So I would say there's good potential for upside to this forecast, for those reasons I listed.
Okay. And thanks, Craig. Just one quick clarification on follow-up on Stephen's question. So for buybacks, you guys are clear, as far as you see it, to resume that program in the second half of the year?
I think I didn't say we've been cleared or approved. I said, we think that we should be able to resume in the second half of the year.
Okay, great. Thank you. Thank you.
Thank you. The next one, we have the line of Brady Gailey with KBW. Please go ahead.
Hey, thanks. Good morning, guys. Yeah, I just want-
Good morning.
To follow up on slide 35. So the $74-$79 estimate, I just want to be very clear here, like, that, that's actually what you guys expect to make in 2023. Like, that includes the seven interest rate hikes that I think you guys assume, that includes kind of the mid-single-digit loan growth, that includes maybe some additional reduction in funding costs. Like, is that the-- that, that's what you guys actually expect to make in 2023?
I would say there would be $50 million of potential merger-related costs excluded from that. So we're trying to really show a run rate there. But, I mean, even despite that, I would say despite that, we expect to be in that range.
Okay. All right, and then back to the guidance on fee income, as it relates to rail. So the guidance you put out is, you know, includes the net rail fee income. Maybe just talk about, you know, how big is net rail, you know, as a percentage of that number? Like, is that a material contribution after you net out the maintenance and depreciation expenses?
Net rail would be around $300 million for the year, which would be 26% of our projected non-interest income. And then the margins on that, when you consider maintenance divided by net income, I think I, I have it here somewhere, so I have the number handy. Because I think that's what you're asking? Is that what you're asking, what the, sort of the growth margin is?
Yeah, that'd be helpful.
Give me one second.
Maybe while you're looking that up, I mean, is this how you guys plan to disclose the income here when you report earnings? Like, are you gonna show rail as a, you know, net item in fee income?
Yes, but we're gonna do a non-GAAP disclosure, because in our GAAP financials, maintenance and depreciation will show up in the expense line.
All right. And maybe another question. Just longer term, you know, what do you expect ROA and return on tangible common equity to be for this franchise, kind of longer term?
We're looking right now, if you just look at the 2023 numbers, around 10.60 for ROE, 1.06 for ROA. And that assumes no stock repurchases.
Okay. And then finally, just the effective tax rate of 24%-25%, that does screen a little high. Is there any extra color on why, you know, that tax rate is a little higher than some of your peers?
I mean, we're operating now in higher tax states than we were previously for Citizens standalone. So that drives the tax rate up. Well, I haven't really compared our tax rate to peers, to be honest with you.
Okay.
But that would account for the increase between First Citizens' rate of about 23 to the new rate of about 24-25.
Yeah, maybe on the question regarding rail, you know, the kind of growth in the operating leases, the depreciation and maintenance represents about 65%-67% of that gross number.
Mm-hmm. This is a 36% gross margin.
Got it. Thanks, guys.
Thank you. The next one for the attendee who queued in, please state your first and last name and your company name before you ask your question. Your lines are open. Our next question is from the line of Stephen Scouten with Piper Sandler. Your line is open.
Hey, guys. I just wanted to jump back in here. Appreciate it. Had two questions, I guess. With the net interest margin guidance here for 2023 of 3%-3.10%, is there anything else that you're assuming, I guess, other than you've noted the 7 rate hikes, and then you laid out on, was that maybe slide 22? I think what you're expecting from an accretion standpoint. I guess, is there anything else unusual that's taking that up? So I mean, you believe it's a pretty big move from where we are today and where it kind of looked to be on a combined basis when you just kind of put the two balance sheets together.
I'm just kind of wondering if you could help me with how we're getting back north of 3%.
Well, we get back north of 3% in 2023. We're coming off of a 2.50 base. So this, we're basically going up 50-60 basis points over a two-year period. And that's assuming 7 rate hikes. So, at 200 basis points, we have around a 14% increase in net interest income, and I think that falls right along the line with that. In terms of just if you want to think of it in terms of basis points, every basis point increase is around $2 million on a pre-tax basis. So every 25 is $50 million in additional, you know, pre-tax income and net interest income. But we feel good about the, I think the 3.10.
Okay. And then how can I think about that accretion that you lay out there around the PCD and the non-PCD book? I think it was $129 million relative to the $28.6 million that was laid out in the 8-K from Friday around that kind of was backed out of NII. How are those numbers comparable moving forward versus what that would have been on a negative basis in 2021, if that makes sense?
This is Robert Hawley. The numbers that we are showing today are just the go-forward Purchase Accounting adjustment. There were at CIT historically did have some Purchase Accounting adjustments that are backed out of our base combination.
Okay.
It's a different approach in the 8-K versus the earnings presentation. Sort of adjustment presentation.
Got it. Got it. And then just very last thing for me would be around, you guys noted again in the, in the slide deck, greater competitive challenges, need to retain talent. Can you give us an update kind of on how that has progressed? Obviously, there's a, a much longer period of time to closing than you all expected. So I'm just wondering if you can give any color or metrics around employee retention from CIT, kind of how many, you know, people you, you've lost, potentially what the FTE reduction was, and, and if any of those were meaningful to your ability to, to generate loans moving forward. And that, you know, your, your loan growth guidance would suggest it is not, but I just wanted to get any color there.
Yeah, we definitely have lost some people, and, you know, some of them are critical to CIT. But where we have, and I don't have the statistics in front of me, but where we have, we've been able to make necessary transitions, and maintain continuity and stability of leadership. So we have a high level of confidence in people who are on board to get us through integration and to generate business and run their departments. And I think we're very positive about the employees we have here, even though we definitely have lost some, which would be expected in a transaction like this.
Absolutely. That's great. Thanks for letting me hop back in for the additional color.
Thank you. I'm not showing any further questions at this time. I'd like to turn the call back over to our host, Mrs. Hart, for any closing remarks.
Thank you. Thank you everyone for joining us today. We continue to appreciate your interest in our company, and if you have any further questions or need additional information, don't hesitate to reach out. I hope everyone has a great day.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.