cfg-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From

(Not Applicable)

Commission File Number 001-36636

(Exact name of the registrant as specified in its charter)


Delaware						05-0412693
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

One Citizens Plaza, Providence, RI 02903

(Address of principal executive offices, including zip code)

(203) 900-6715

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	CFG	New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 6.350% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D	CFG PrD	New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 5.000% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series E	CFG PrE	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

There were 483,988,282 shares of the registrant’s common stock ($0.01 par value) outstanding on April 28, 2023.




	Table of Contents


Glossary of Acronyms and Terms		3

Part I. Financial Information		5

Item 1. Financial Statements		32

Consolidated Balance Sheets (unaudited)		33
Consolidated Statements of Operations (unaudited)		34
Consolidated Statements of Comprehensive Income (unaudited)		35
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)		36
Consolidated Statements of Cash Flows (unaudited)		37
Notes to Consolidated Financial Statements (unaudited)		38

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		5

Item 3. Quantitative and Qualitative Disclosures about Market Risk		69

Item 4. Controls and Procedures		70


Part II. Other Information		70

Item 1. Legal Proceedings		70
Item 1A. Risk Factors		70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3. Defaults Upon Senior Securities		70
Item 4. Mine Safety Disclosures		70
Item 5. Other Information		71
Item 6. Exhibits		71


Signature		72

Citizens Financial Group, Inc. | 2

GLOSSARY OF ACRONYMS AND TERMS

The following is a list of common acronyms and terms used regularly in our financial reporting:


2022 Form 10-K						Annual Report on Form 10-K for the year ended December 31, 2022
AACL						Adjusted Allowance for Credit Losses
ACL						Allowance for Credit Losses: Allowance for Loan and Lease Losses plus Allowance for Unfunded Lending Commitments
AFS						Available for Sale
ALLL						Allowance for Loan and Lease Losses
ALM						Asset and Liability Management
AOCI						Accumulated Other Comprehensive Income (Loss)
ASU						Accounting Standards Update
ATM						Automated Teller Machine
Board or Board of Directors						The Board of Directors of Citizens Financial Group, Inc.
bps						Basis Points
CBNA						Citizens Bank, National Association
CCAR						Comprehensive Capital Analysis and Review
CCB						Capital Conservation Buffer
CCMI						Citizens Capital Markets, Inc.
CECL						Current Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1						Common Equity Tier 1
CET1 capital ratio						Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Citizens, CFG, the Company, we, us, or our						Citizens Financial Group, Inc. and its Subsidiaries
CLTV						Combined Loan-to-Value
COVID						Coronavirus Disease
CRE						Commercial Real Estate
Dodd-Frank Act						The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS						Earnings Per Share
EVE						Economic Value of Equity
Exchange Act						The Securities Exchange Act of 1934, as amended
Fannie Mae (FNMA)						Federal National Mortgage Association
FDIC						Federal Deposit Insurance Corporation
FDM						Financially Distressed Modification
FHA						Federal Housing Administration
FHLB						Federal Home Loan Bank
FICO						Fair Isaac Corporation (credit rating)
FRB or Federal Reserve						Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)						Federal Home Loan Mortgage Corporation
FTE						Fully Taxable Equivalent
GAAP						Accounting Principles Generally Accepted in the United States of America
GDP						Gross Domestic Product
Ginnie Mae (GNMA)						Government National Mortgage Association
GSE						Government Sponsored Entity
HSBC						HSBC Bank U.S.A., N.A.
HSBC transaction						Acquisition of HSBC East Coast branches and national online deposit business
HTM						Held To Maturity
Investors						Investors Bancorp, Inc. and its subsidiaries

Citizens Financial Group, Inc. | 3


JMP						JMP Group LLC
LHFS						Loans Held for Sale
LIBOR						London Interbank Offered Rate
LIHTC						Low Income Housing Tax Credit
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-Atlantic						District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest						Illinois, Indiana, Michigan, and Ohio
Modified AACL Transition						The Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
Modified CECL Transition						The Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
MSRs						Mortgage Servicing Rights
NCOs						Net charge-offs
New England						Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NMTC						New Markets Tax Credit
OCC						Office of the Comptroller of the Currency
OCI						Other Comprehensive Income (Loss)
Operating Leverage						Period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense
Parent Company						Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
PCD						Purchased Credit Deteriorated
PPP						The U.S. Small Business Administration’s Paycheck Protection Program
ROTCE						Return on Average Tangible Common Equity
RPA						Risk Participation Agreement
RWA						Risk-Weighted Assets
SBA						United States Small Business Administration
SCB						Stress Capital Buffer
SEC						United States Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate
SVaR						Stressed Value at Risk
Tailoring Rules						Rules establishing risk-based categories for determining prudential standards for large U.S. and foreign banking organizations, consistent with the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act
TBAs						To-Be-Announced Mortgage Securities
TDR						Troubled Debt Restructuring
Tier 1 capital ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Tier 1 leverage ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by quarterly adjusted average assets as defined under the U.S. Basel III Standardized approach
TOP						Tapping Our Potential
Total capital ratio						Total capital, which includes Common Equity Tier 1 capital, tier 1 capital, and allowance for credit losses and qualifying subordinated debt that qualifies as tier 2 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
USDA						United States Department of Agriculture
VA						United States Department of Veterans Affairs
VaR						Value at Risk
VIE						Variable Interest Entities

Citizens Financial Group, Inc. | 4

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


						Page
Forward-Looking Statements						6
Introduction						7
Financial Performance						8
Results of Operations						9
Net Interest Income						9
Noninterest Income						10
Noninterest Expense						11
Provision for Credit Losses						11
Income Tax Expense						11
Business Operating Segments						11
Analysis of Financial Condition						13
Securities						13
Loans and Leases						14
Allowance for Credit Losses and Nonaccrual Loans and Leases						14
Deposits						17
Borrowed Funds						18
Capital and Regulatory Matters						18
Liquidity						21
Critical Accounting Estimates						24
Risk Governance						25
Market Risk						26
Non-GAAP Financial Measures and Reconciliations						30

Citizens Financial Group, Inc. | 5

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook,” “guidance” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

•Negative economic, business and political conditions, including as a result of the interest rate environment, supply chain disruptions, inflationary pressures and labor shortages, that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits;

•The general state of the economy and employment, as well as general business and economic conditions, and changes in the competitive environment;

•Our capital and liquidity requirements under regulatory standards and our ability to generate capital and liquidity on favorable terms;

•The effect of changes in the level of commercial and consumer deposits on our funding costs and net interest margin;

•Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals, including the anticipated benefits of the Investors acquisition and HSBC transaction;

•The effects of geopolitical instability, including as a result of Russia’s invasion of Ukraine and the imposition of sanctions on Russia and other actions in response, on economic and market conditions, inflationary pressures and the interest rate environment, commodity price and foreign exchange rate volatility, and heightened cybersecurity risks;

•Our ability to meet heightened supervisory requirements and expectations;

•Liabilities and business restrictions resulting from litigation and regulatory investigations;

•The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;

•Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

•Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses;

•Environmental risks, such as physical or transitional risks associated with climate change, and social and governance risks, that could adversely affect our reputation, operations, business, and customers;

•A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks; and

•Management’s ability to identify and manage these and other risks.

In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position,

Citizens Financial Group, Inc. | 6

financial performance, capital impacts of strategic initiatives, market conditions, receipt of required regulatory approvals and other regulatory considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares from or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the “Risk Factors” section in Part I, Item 1A of our 2022 Form 10-K.

INTRODUCTION

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $222.3 billion in assets as of March 31, 2023. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. We help our customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a full-service customer contact center and the convenience of approximately 3,400 ATMs and more than 1,100 branches in 14 states and the District of Columbia. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com.

The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1, as well as other information contained in this document and our 2022 Form 10-K.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures denoted as “Underlying” results and “including AOCI impact”. Underlying results for any given reporting period exclude certain items that may occur in that period which management does not consider indicative of our on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of Underlying results increases comparability of period-to-period results.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.

Non-GAAP measures are denoted throughout our MD&A by the use of the term Underlying. Where there is a reference to these metrics in that paragraph, all measures that follow are on the same basis when applicable. For more information on the computation of non-GAAP financial measures, see “Non-GAAP Financial Measures and Reconciliations.”

Citizens Financial Group, Inc. | 7

FINANCIAL PERFORMANCE

Key Highlights

Net income increased $91 million for the three months ended March 31, 2023, with earnings per diluted common share up $0.07 to $1.00 compared to the same period in 2022.

Results reflect notable items of $49 million or $0.10 per diluted common share, net of tax benefit, for the three months ended March 31, 2023, compared to $56 million or $0.14 per diluted common share, net of tax benefit, for the same period in 2022.


Table 1: Notable Items	Three Months Ended March 31, 2023
		Less: notable items
(dollars in millions)	Reported results (GAAP)	Integration related costs(1)	TOP and other(2)	Provision	Underlying results (non-GAAP)
Provision (benefit) for credit losses	$168	$—	$—	$—	$168

Noninterest expense	1,296	52	14	—	1,230
Income tax expense	153	(13)	(4)	—	170


	Three Months Ended March 31, 2022
		Less: notable items
(dollars in millions)	Reported results (GAAP)	Integration related costs(1)	TOP and other(2)	Provision(3)	Underlying results (non-GAAP)
Provision (benefit) for credit losses	$3	$—	$—	$24	($21)

Noninterest expense	1,106	37	11	—	1,058
Income tax expense	116	(10)	—	(6)	132

(1) Includes integration related costs associated with acquisitions.

(2) Includes our TOP transformational and revenue and efficiency initiatives for the three months ended March 31, 2023 and 2022, and income tax impacts related to legacy tax matters for the three months ended March 31, 2022.

(3) Includes the initial provision for credit losses of $24 million tied to the HSBC transaction. As required by purchase accounting, a fair value mark for performing loans including both credit and interest rate components is recorded in addition to the provision for credit losses expense, thus the credit exposure has been “double counted”.

•Net income available to common stockholders increased $92 million to $488 million for the three months ended March 31, 2023, compared to the same period in 2022.

◦On an Underlying basis, which excludes notable items, net income available to common stockholders of $537 million for the three months ended March 31, 2023, compared with $452 million for the same period in 2022.

◦On an Underlying basis, earnings per diluted common share of $1.10 for the three months ended March 31, 2023, compared to $1.07 for the same period in 2022.

•Total revenue increased $483 million to $2.1 billion for the three months ended March 31, 2023, compared to the same period in 2022, driven by an increase of 43% in net interest income, including the impacts of the HSBC transaction and Investors acquisition.

•The efficiency ratio of 60.9% for the three months ended March 31, 2023, compared to 67.2% for the same period in 2022.

◦On an Underlying basis, the efficiency ratio of 57.8% for the three months ended March 31, 2023, compared to 64.3% for the same period in 2022.

•ROTCE of 14.4% for the three months ended March 31, 2023, compared to 11.4% for the same period in 2022.

◦On an Underlying basis, ROTCE of 15.8% for the three months ended March 31, 2023, compared to 13.0% for the same period in 2022.

•Tangible book value per common share of $29.44 increased 6% from December 31, 2022.

For additional information regarding our financial performance, see “Results of Operations” included in this report.

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RESULTS OF OPERATIONS

Net Interest Income

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to the “Market Risk” and “Risk Governance” sections of our 2022 Form 10-K.


Table 2: Major Components of Net Interest Income
	Three Months Ended March 31,
	2023				2022				Change
(dollars in millions)	Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Yields/ Rates (bps)
Assets
Interest-bearing cash and due from banks and deposits in banks	$5,899	$69	4.65	%	$8,055	$4	0.21	%	($2,156)	444 bps
Taxable investment securities	38,953	266	2.74		29,245	138	1.88		9,708	86
Non-taxable investment securities	2	—	2.68		2	—	2.60		—	8
Total investment securities	38,955	266	2.74		29,247	138	1.88		9,708	86
Commercial and industrial	51,993	735	5.66		44,947	328	2.91		7,046	275
Commercial real estate	28,892	416	5.75		14,066	90	2.57		14,826	318
Leases	1,436	12	3.33		1,560	11	2.81		(124)	52
Total commercial	82,321	1,163	5.65		60,573	429	2.83		21,748	282
Residential mortgages	30,075	250	3.33		23,461	169	2.88		6,614	45
Home equity	14,073	240	6.92		12,124	90	3.02		1,949	390
Automobile	11,937	119	4.04		14,534	127	3.55		(2,597)	49
Education	12,796	154	4.88		13,034	131	4.07		(238)	81
Other retail	5,290	121	9.25		5,428	102	7.63		(138)	162
Total retail	74,171	884	4.81		68,581	619	3.65		5,590	116
Total loans and leases	156,492	2,047	5.25		129,154	1,048	3.26		27,338	199
Loans held for sale, at fair value	1,009	15	5.87		2,366	16	2.70		(1,357)	317
Other loans held for sale	197	5	9.98		454	7	5.89		(257)	409
Interest-earning assets	202,552	2,402	4.76		169,276	1,213	2.88		33,276	188
Noninterest-earning assets	20,159				19,041				1,118
Total assets	$222,711				$188,317				$34,394
Liabilities and Stockholders’ Equity
Checking with interest	$35,974	$97	1.09	%	$30,417	$5	0.07	%	$5,557	102
Money market	49,942	287	2.33		47,220	12	0.10		2,722	223
Savings	29,460	79	1.09		23,835	5	0.08		5,625	101
Term	12,839	87	2.72		4,970	3	0.29		7,869	243
Total interest-bearing deposits	128,215	550	1.74		106,442	25	0.10		21,773	164
Short-term borrowed funds	542	6	4.97		29	—	3.50		513	147
Long-term borrowed funds	17,780	203	4.55		6,066	41	2.66		11,714	189
Total borrowed funds	18,322	209	4.57		6,095	41	2.66		12,227	191
Total interest-bearing liabilities	146,537	759	2.09		112,537	66	0.23		34,000	186
Demand deposits	46,135				48,641				(2,506)
Other noninterest-bearing liabilities	6,323				4,144				2,179
Total liabilities	198,995				165,322				33,673
Stockholders’ equity	23,716				22,995				721
Total liabilities and stockholders’ equity	$222,711				$188,317				$34,394
Interest rate spread			2.67	%			2.65	%		2
Net interest income and net interest margin		$1,643	3.29	%		$1,147	2.75	%		54
Net interest income and net interest margin, FTE(1)		$1,647	3.30	%		$1,149	2.75	%		55
Memo: Total deposits (interest-bearing and demand)	$174,350	$550	1.28	%	$155,083	$25	0.07	%	$19,267	121	bps

(1) Net interest income and net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial and industrial loans for the periods presented.

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Net interest income increased $496 million, or 43%, for the three months ended March 31, 2023, compared to the same period in 2022, reflecting higher net interest margin and growth of 20% in average interest-earning assets, including the impacts of the HSBC transaction and Investors acquisition.

Net interest margin on a FTE basis increased 55 basis points to 3.30% for the three months ended March 31, 2023, compared to the same period in 2022, reflecting higher interest-earning asset yields given higher market interest rates and interest-earning asset growth, partially offset by increased funding costs. Average interest-earning asset yields increased 188 basis points to 4.76%, while average interest-bearing liability costs increased 186 basis points to 2.09%, compared to the same period.

Average interest-earning assets increased $33.3 billion, or 20%, for the three months ended March 31, 2023, compared to the same period in 2022, reflecting the impacts of the HSBC transaction and Investors acquisition. Growth of $27.3 billion in loans and leases and $9.7 billion in investments was partially offset by a decline of $2.2 billion in cash held in interest-bearing deposits and $1.6 billion in LHFS.

Average deposits increased $19.3 billion, or 12%, for the three months ended March 31, 2023, compared to the same period in 2022, primarily attributable to the HSBC transaction and Investors acquisition.

Average total borrowed funds increased $12.2 billion for the three months ended March 31, 2023, compared to the same period in 2022, driven by the Investors acquisition, an increase in FHLB advances and the issuance of senior debt.

Noninterest Income


Table 3: Noninterest Income
	Three Months Ended March 31,
(dollars in millions)		2023	2022	Change	Percent
Service charges and fees		$100	$98	$2	2	%
Capital markets fees		83	93	(10)	(11)
Card fees		72	60	12	20
Mortgage banking fees		57	69	(12)	(17)
Trust and investment services fees		63	61	2	3
Foreign exchange and derivative products		48	51	(3)	(6)
Letter of credit and loan fees		40	38	2	5
Securities gains, net		5	4	1	25
Other income(1)		17	24	(7)	(29)
Noninterest income		$485	$498	($13)	(3	%)

(1) Includes bank-owned life insurance income and other income for all periods presented.

Noninterest income decreased for the three months ended March 31, 2023, compared to the same period in 2022, highlighted by the following significant changes.

•Mortgage banking fees declined driven by lower production volumes, partially offset by improved gain-on-sale margins and higher servicing revenue.

•Card fees increased given higher transaction volumes.

•Capital markets fees decreased reflecting lower syndication fees, partially offset by higher merger and acquisition advisory, and underwriting fees.

•Other income decreased reflecting higher derivative expense associated with hedging customer risk given wider spreads.

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Noninterest Expense


Table 4: Noninterest Expense
	Three Months Ended March 31,
(dollars in millions)		2023	2022	Change	Percent
Salaries and employee benefits		$658	$594	$64	11	%
Outside services		176	169	7	4
Equipment and software		169	150	19	13
Occupancy		124	83	41	49
Other operating expense		169	110	59	54
Noninterest expense		$1,296	$1,106	$190	17	%

Noninterest expense increased for the three months ended March 31, 2023, compared to the same period in 2022, driven primarily by acquisition and integration-related costs, and higher other operating expense associated with FDIC insurance and fraud losses, partially offset by the benefit of efficiency initiatives.

Provision for Credit Losses

The provision for credit losses is the result of a detailed analysis performed to estimate our ACL. The total provision for credit losses includes the provision for loan and lease losses and the provision for unfunded commitments. Refer to “—Analysis of Financial Condition — Allowance for Credit Losses and Nonaccrual Loans and Leases” for more information.

Credit provision expense of $168 million for the three months ended March 31, 2023, compared to $3 million for the same period in 2022. The provision expense for the three months ended March 31, 2023 reflects an increased net charge-off level and a focus on the CRE general office portfolio given return to office dynamics and rising interest rates. For the three months ended March 31, 2022, the provision expense reflects low charge-off levels and reduced reserve requirements as COVID concerns subsided.

Income Tax Expense

Income tax expense of $153 million increased $37 million for the three months ended March 31, 2023, compared to the same period in 2022. The effective income tax rate of 23.0% for the same period increased from 21.7%, compared to the same period in 2022, primarily driven by the adoption of the proportional amortization method for qualified investments in tax credit structures and increased non-deductible FDIC premium expense. Provision for income taxes is calculated by applying the estimated annual effective tax rate to year-to-date pre-tax income, adjusting for discrete items that occurred during the period.

Business Operating Segments

We have two business operating segments: Consumer Banking and Commercial Banking. Segment results are determined based on our management reporting system, which assigns balance sheet and statement of operations items to each of the business segments. The process is designed around our organizational and management structure. The results derived are not necessarily comparable with similar information published by other financial institutions.

Developing and applying methodologies used to allocate items among the business operating segments is a dynamic process. Accordingly, financial results may be revised periodically as management systems are enhanced, methods of evaluating performance or product lines are updated, or our organizational structure changes.

There have been no significant changes in our methodologies used to allocate items to our business operating segments as described in Note 26 in our 2022 Form 10-K.

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The following table presents certain financial data of our business operating segments. Total business operating segment financial results differ from total consolidated financial results. These differences are reflected in Other non-segment operations. See Note 16 for additional information.


Table 5: Selected Financial Data for Business Operating Segments
	Consumer Banking		Commercial Banking
	Three Months Ended March 31,		Three Months Ended March 31,
(dollars in millions)	2023	2022	2023	2022
Net interest income	$1,096	$857	$597	$416
Noninterest income	256	257	201	213
Total revenue	1,352	1,114	798	629
Noninterest expense	889	784	331	272
Profit before credit losses	463	330	467	357
Net charge-offs	83	49	47	12
Income before income tax expense	380	281	420	345
Income tax expense	99	72	101	74
Net income	$281	$209	$319	$271
Average Balances:
Total assets	$87,558	$77,551	$78,891	$61,118
Total loans and leases(1)	81,190	73,233	75,734	58,007
Deposits	115,578	104,663	48,966	44,520
Interest-earning assets	81,871	74,052	76,130	58,312

(1) Includes LHFS.

Consumer Banking

Net interest income increased $239 million, or 28%, for the three months ended March 31, 2023, compared to the same period in 2022, driven by higher net interest margin and growth in average interest-earning assets, including the impacts of the HSBC transaction and Investors acquisition, partially offset by higher funding costs. Average loans increased $8.0 billion, or 11%, for the same period, reflecting the impacts of the HSBC transaction and Investors acquisition, as well as growth in home equity and mortgage, partially offset by planned runoff in auto. Average deposits increased $10.9 billion, or 10%, for the same period, reflecting the impacts of the HSBC transaction and Investors acquisition.

Noninterest income decreased $1 million for the three months ended March 31, 2023, compared to the same period in 2022, driven by a decline in mortgage banking fees reflecting lower production volumes, partially offset by improved gain-on-sale margins and higher servicing revenue, and service charges and fees given the elimination of non-sufficient funds fees. These decreases were partially offset by higher card fees given higher transactions volumes and higher trust and investment services fees reflecting increased investment sales, partially offset by lower fees on assets under management.

Noninterest expense increased $105 million, or 13%, for the three months ended March 31, 2023, compared to the same period in 2022, driven primarily by acquisition and integration-related costs, and higher other operating expense associated with FDIC insurance and fraud losses, partially offset by the benefit of efficiency initiatives.

Net charge-offs increased $34 million, or 69%, for the three months ended March 31, 2023, compared to the same period in 2022, driven by other retail, auto and home equity as credit losses continue to gradually normalize off pandemic-era lows.

Commercial Banking

Net interest income increased $181 million, or 44%, for the three months ended March 31, 2023, compared to the same period in 2022, reflecting higher net interest margin and growth in average interest-earning assets, including the impact of the Investors acquisition. The increase in net interest margin reflects higher interest-earning asset yields given higher market interest rates and interest-earning asset growth, partially offset by higher funding costs.

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Noninterest income decreased $12 million, or 6%, for the three months ended March 31, 2023, compared to the same period in 2022, driven by a decline in capital markets fees reflecting lower syndication fees, partially offset by higher mergers and acquisitions advisory, and underwriting fees, and other income reflecting higher derivative expense associated with hedging customer risk given wider spreads. These decreases were partially offset by higher service charges and fees reflecting the benefit of acquisitions and improvement in Treasury Solutions fees and higher card fees given higher transaction volumes.

Noninterest expense increased $59 million, or 22%, for the three months ended March 31, 2023, compared to the same period in 2022, driven primarily by acquisition and integration-related costs, and higher other operating expense associated with FDIC insurance, partially offset by the benefit of efficiency initiatives.

Net charge-offs increased $35 million for the three months ended March 31, 2023, compared to the same period in 2022, as credit losses continue to gradually normalize off pandemic-era lows.

ANALYSIS OF FINANCIAL CONDITION

Securities


Table 6: Amortized Cost and Fair Value of AFS and HTM Securities
	March 31, 2023		December 31, 2022
(dollars in millions)	Amortized Cost	Fair Value	Amortized Cost	Fair Value
U.S. Treasury and other	$3,378	$3,252	$3,678	$3,486
State and political subdivisions	2	2	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	20,957	19,125	21,250	19,062
Other/non-agency	280	251	280	251
Total mortgage-backed securities	21,237	19,376	21,530	19,313

Collateralized loan obligations	1,248	1,215	1,248	1,206
Total debt securities available for sale	$25,865	$23,845	$26,458	$24,007
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$9,125	$8,540	$9,253	$8,506

Total mortgage-backed securities	9,125	8,540	9,253	8,506
Asset-backed securities	552	524	581	536
Total debt securities held to maturity	$9,677	$9,064	$9,834	$9,042
Total debt securities available for sale and held to maturity	$35,542	$32,909	$36,292	$33,049
Equity securities (at cost)	$1,228	$1,228	$1,058	$1,058
Equity securities (at fair value)	143	143	153	153

The primary objective of the securities portfolio is to provide a ready source of liquidity and is an effective mitigant of interest rate risk. The portfolio primarily includes high-quality, highly-liquid investments reflecting our ongoing commitment to maintain strong contingent liquidity levels and pledging capacity. The amount by which amortized cost exceeded fair value improved by approximately $600 million from $3.2 billion at December 31, 2022, to $2.6 billion at March 31, 2023.

As of March 31, 2023, U.S. Treasury, GNMA and GSE-issued mortgage-backed securities represent 94% of the fair value of our debt securities portfolio holdings, with approximately $27.3 billion in fair value of unencumbered high-quality liquid securities serving as potential collateral for borrowings from the FHLB, FRB discount window, the Fixed Income Clearing Corporation bilateral repurchase agreement market, and the Bank Term Funding Program. Under the Bank Term Funding Program, securities are pledged at par value instead of fair value.

For further discussion of the use of our securities as liquidity collateral see the “Liquidity Risk Management and Governance” section in this document. For further discussion of liquidity requirements, see “Regulation and Supervision — Liquidity Requirements” in our 2022 Form 10-K.

We manage our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within our risk appetite in the context of the broader interest rate risk

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framework and limits. As of March 31, 2023 and December 31, 2022, the portfolio’s average effective duration remained stable at 5.8 years.

Loans and Leases


Table 7: Composition of Loans and Leases, Excluding LHFS
(dollars in millions)	March 31, 2023	December 31, 2022	Change	Percent
Commercial and industrial	$50,450	$51,836	($1,386)	(3)	%
Commercial real estate	28,999	28,865	134	—
Leases	1,417	1,479	(62)	(4)
Total commercial	80,866	82,180	(1,314)	(2)
Residential mortgages	30,362	29,921	441	1
Home equity	14,135	14,043	92	1
Automobile	11,535	12,292	(757)	(6)
Education	12,634	12,808	(174)	(1)
Other retail	5,156	5,418	(262)	(5)
Total retail	73,822	74,482	(660)	(1)
Total loans and leases	$154,688	$156,662	($1,974)	(1)	%

Total loans and leases as of March 31, 2023 decreased compared to December 31, 2022, reflecting a $1.3 billion decrease in commercial given loan sales as part of balance sheet optimization actions and reduced line utilization by companies in anticipation of a softer economic environment, and a $660 million decrease in retail, given planned runoff in auto, partially offset by growth in mortgage and home equity.

Allowance for Credit Losses and Nonaccrual Loans and Leases

The ACL is a reserve to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see “Critical Accounting Estimates — Allowance for Credit Losses” and Note 4 of this report, and “Critical Accounting Estimates — Allowance for Credit Losses” and Note 6 in our 2022 Form 10-K.

The ACL of $2.3 billion at March 31, 2023 compared with an ACL of $2.2 billion as of December 31, 2022, reflecting a reserve increase of $35 million. For further information see Note 4.


Table 8: ACL and Related Coverage Ratios by Portfolio
	March 31, 2023				December 31, 2022
(dollars in millions)	Loans and Leases	Allowance	Coverage		Loans and Leases	Allowance	Coverage
Allowance for Loan and Lease Losses
Commercial and industrial	$50,450	$601	1.19	%	$51,836	$581	1.12	%
Commercial real estate	28,999	486	1.67		28,865	456	1.58
Leases	1,417	24	1.72		1,479	23	1.59
Total commercial	80,866	1,111	1.37		82,180	1,060	1.29
Residential mortgages	30,362	207	0.68		29,921	207	0.69
Home equity	14,135	95	0.67		14,043	89	0.63
Automobile	11,535	121	1.05		12,292	131	1.07
Education	12,634	266	2.11		12,808