CITIZENS FINANCIAL GROUP, INC. 
Page Forward-Looking Statements 6 Introduction 7 Financial Performance 8 Selected Consolidated Financial Data 10 Results of Operations 12 Net Interest Income 12 Noninterest Income 14 Noninterest Expense 15 Provision for Credit Losses 16 Income Tax Expense 16 Business Operating Segments 17 Analysis of Financial Condition 18 Securities 18 Loans and Leases 19 Allowance for Credit Losses and Nonaccruing Loans and Leases 19 Deposits 22 Borrowed Funds 22 Capital and Regulatory Matters
23
Liquidity
27
Off-Balance Sheet Arrangements
30
Critical Accounting Estimates 30
Risk Governance 32
Market Risk 32
Key Performance Metrics, Non-GAAP Financial Measures and
Reconciliations 37
Citizens Financial Group, Inc. | 5
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FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements regarding potential
future share repurchases and future dividends as well as the potential effects
of the COVID-19 pandemic on our business, operations, financial performance and
prospects, are forward-looking statements. Also, 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" 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 and political conditions that adversely affect the
general economy, housing prices, the job market, consumer confidence
and spending habits which may affect, among other things, the level
of nonperforming assets, charge-offs and provision expense;
• The rate of growth in the economy and employment levels, as well as
general business and economic conditions, and changes in the
competitive environment;
• Our ability to implement our business strategy, including the cost
savings and efficiency components, and achieve our financial
performance goals;
• The COVID-19 pandemic and its effects on the economic and business
environments in which we operate;
• Our ability to meet heightened supervisory requirements and expectations;
• Liabilities and business restrictions resulting from
litigation and
regulatory investigations;
• Our capital and liquidity requirements (including under regulatory
capital standards, such as the U.S. Basel III capital rules) and our
ability to generate capital internally or raise capital on favorable
terms;
• 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;
• The effect of changes in the level of checking or savings account
deposits on our funding costs and net interest margin;
• Financial services reform and other current, pending or future
legislation or regulation that could have a negative effect on our
revenue and businesses;
• 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, financial performance,
capital impacts of strategic initiatives, market conditions and regulatory and
accounting 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.
Further, statements about the effects of the COVID-19 pandemic on our business,
operations, financial performance and prospects may constitute what is
Citizens Financial Group, Inc. | 6
--------------------------------------------------------------------------------reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.
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 II, Item 1A of this Report and Part I, Item 1A. of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . INTRODUCTIONCitizens Financial Group, Inc. is one of the nation's oldest and largest financial institutions with$176.7 billion in assets as ofMarch 31, 2020 . Our mission is to help customers, colleagues and communities each reach their potential by listening to them and understanding their needs in order to offer tailored advice, ideas and solutions. Headquartered inProvidence, 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. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center as well as the convenience of approximately 2,800 ATMs and 1,000 branches in 11 states in theNew England , Mid-Atlantic, and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer corporate, institutional and not-for-profit clients a full range of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. 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 2019 Form 10-K. Key Performance Metrics Used by Management and Non-GAAP Financial Measures As a banking institution, we manage and evaluate various aspects of our results of operations and our financial condition including the levels and trends of the line items included in our balance sheet and statement of operations, used in calculating various key performance metrics commonly used in our industry. We analyze these key performance metrics and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable banking institutions in our region and nationally. We consider the following key performance metrics when evaluating our performance and making day-to-day operating decisions, as well as evaluating capital utilization and adequacy, including: • Return on average tangible common equity, which we define as annualized
net income available to common stockholders divided by average common
equity excluding average goodwill (net of related deferred tax liability)
and average other intangibles;
• Efficiency ratio, which we define as the ratio of total noninterest
expense to the sum of net interest income and total noninterest income.
The efficiency ratio helps us to evaluate the efficiency of our operations
as it helps us monitor how costs are changing compared to income. A
decrease in the efficiency ratio represents improvement;
• Operating leverage, which we define as the percent change in total
revenue, less the percent change in noninterest expense; and
• CET1 capital ratio, which represents CET1 capital divided by total
risk-weighted assets as defined under the
approach.
This document contains non-GAAP financial measures denoted as "Underlying"
results. 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 and increase comparability of
period-to-period results, and accordingly, are useful to consider in addition to
our GAAP financial results.
Citizens Financial Group, Inc. | 7-------------------------------------------------------------------------------- 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 and where there is a reference to Underlying results in a paragraph, all measures that follow this reference are on the same basis when applicable. For more information on the computation of key performance metrics and non-GAAP financial measures, see "-Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations." FINANCIAL PERFORMANCE Net income of$34 million decreased 92% from the first quarter of 2019, with earnings per diluted common share of$0.03 , down$0.89 from$0.92 per diluted common share in the first quarter of 2019. ROTCE of 0.4% declined from 13.0% in the first quarter of 2019. Net income available to common stockholders of$12 million decreased$412 million , or 97%, compared to$424 million in the first quarter of 2019. First quarter 2020 results reflected a$25 million , or$0.06 per diluted common share, after-tax reduction from notable items, largely tied to TOP 6 transformational and revenue and efficiency initiatives. In the first quarter of 2019, there were$4 million after-tax of notable items, or$0.01 per diluted common share, tied to integration costs associated with acquisitions. On an Underlying basis, which excludes notable items, first quarter 2020 net income available to common stockholders of$37 million compared with$428 million in the first quarter of 2019. Underlying EPS of$0.09 per share compares with$0.93 in the first quarter of 2019. Underlying first quarter 2020 ROTCE of 1.1% compared with 13.1% in the first quarter of 2019. Tangible book value per common share of$31.97 increased 8% from the first quarter of 2019. In the first quarter of 2020, we adopted the CECL accounting standard and recorded first quarter 2020 provision for credit losses of$600 million pre-tax, or$1.10 per share after-tax, including a reserve build of$463 million pre-tax, or$0.85 per share after-tax, tied to COVID-19 pandemic impacts. Three Months Ended March 31, 2020 2019 Noninterest Income tax Noninterest Income tax (in millions) expense expense Net Income expense expense Net Income Reported results (GAAP)$1,012 $11 $34 $937 $127 $439 Less notable items: Total integration costs 4 (1 ) (3 ) 5 (1 ) (4 ) Other notable items(1) 29 (7 ) (22 ) - - - Total notable items 33 (8 ) (25 ) 5 (1 ) ($4 ) Underlying results* (non-GAAP)$979 $19 $59 $932 $128 $443
(1) Other notable items include noninterest expense of
• Total revenue of
quarter of 2019, reflecting strength in noninterest income and stable net
interest income.
• Net interest income of
average interest-earning assets offset by the impact of the lower rate
and challenging yield-curve environment.
• Net interest margin of 3.09% decreased 14 basis points from 3.23% in
the first quarter of 2019, reflecting the impact of lower interest
rates, which was partially offset by lower funding costs and improved
deposit mix as well as the continued mix shift towards better-returning
assets.
- Net interest margin on a fully taxable-equivalent basis of 3.10%
decreased by 15 basis points, compared to 3.25% in the first
quarter of 2019.
- Average loans and leases of $121.1 billion increased $3.4
billion, or 3%, from $117.6 billion in the first quarter of 2019,
reflecting a $1.8 billion increase in commercial loans and leases
driven by the impact of higher COVID-19 related line utilization
and a $1.6 billion increase in retail loans.
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- Period-end loan growth of$8.4 billion , or 7%, from the fourth quarter of 2019, reflected 15% growth in total commercial loans and leases, which included the estimated$7.2 billion impact of higher line of credit utilization tied to COVID-19 disruption. As ofApril 30, 2020 , estimated COVID-19-related credit utilization fell to approximately$6.4 billion . - Average deposits of$126.6 billion increased$6.2 billion , or 5%, from$120.4 billion in the first quarter of 2019, reflecting growth in money market accounts, savings, checking with interest and demand deposits, partially offset by a decrease in term deposits. - Period-end deposit growth of$8.2 billion , or 7%, from the fourth quarter of 2019, kept pace with loan growth as most commercial customers left their funds from line draws on deposit with us.
• Noninterest income of
the first quarter of 2019, driven by record results in mortgage banking
and trust and investment services fees, partially offset by COVID-19
impacts that resulted in lower service charges and fees, card fees,
capital market fees and foreign exchange and interest rate products
revenue.
• Noninterest expense of
million in the first quarter of 2019, driven by higher salaries and employee
benefits, outside services, and equipment and software expense.
• On an Underlying basis, noninterest expense increased 5% from the first
quarter of 2019.
• The efficiency ratio of 61.1% compared to 59.0% for the first quarter of2019, and ROTCE of 0.4% compared to 13.0%.
• On an Underlying basis, operating leverage was (0.7%), the efficiency
ratio of 59.1% compared to 58.7% for the first quarter of 2019 and
ROTCE of 1.1% compared to 13.1%, reflecting the challenging environment
presented by COVID-19, in particular the CECL provision impact.
• Provision for credit losses of
million for the first quarter of 2019, driven by a
build tied to COVID-19 impacts.
• Tangible book value per common share of
quarter of 2019. Fully diluted average common shares outstanding decreased
33.1 million shares, or 7%, over the same period.
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SELECTED CONSOLIDATED FINANCIAL DATA
The summary Consolidated Operating Data for the three months ended March 31,
2020 and 2019 and the summary Consolidated Balance Sheet data as of March 31,
2020 and December 31, 2019 are derived from our unaudited interim Consolidated
Financial Statements, included in Part I, Item 1. Our historical results are not
necessarily indicative of the results expected for any future period.
Three Months Ended March 31,
(dollars in millions, except per share amounts) 2020 2019 OPERATING DATA: Net interest income$1,160 $1,160 Noninterest income 497 428 Total revenue 1,657 1,588 Provision for credit losses 600 85 Noninterest expense 1,012 937 Income before income tax expense 45 566 Income tax expense 11 127 Net income$34 $439 Net income available to common stockholders$12
Net income per common share - basic$0.03
Net income per common share - diluted$0.03
OTHER OPERATING DATA(1): Return on average common equity 0.24 % 8.62 % Return on average tangible common equity 0.36
13.00
Return on average total assets 0.08
1.11
Return on average total tangible assets 0.09 1.16
Efficiency ratio 61.10 59.00
Operating leverage(2) (3.71 ) 2.57
Net interest margin, FTE(3) 3.10 3.25
Effective income tax rate 24.13 22.42
(1) See "-Key Performance Metrics, Non-GAAP Financial Measures and
Reconciliations" for definitions of our key performance metrics.
(2) "Operating leverage" represents the period-over-period percent change in
total revenue, less the period-over-period percent change in noninterest
expense.
(3) Net interest margin is presented on an FTE basis using the federal statutory
tax rate of 21%.
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March 31, December 31,
(dollars in millions) 2020 2019
BALANCE SHEET DATA:
Total assets $176,719 $165,733
Loans held for sale, at fair value 2,911 1,946
Other loans held for sale 350 1,384
Loans and leases 127,528 119,088
Allowance for loan and lease losses (2,171 ) (1,252 )
Total securities 26,352 24,669
Goodwill 7,050 7,044
Total liabilities 154,769 143,532
Total deposits 133,475 125,313
Short-term borrowed funds(1) 1,059 274
Long-term borrowed funds 16,437
14,047
Total stockholders' equity 21,950
22,201
OTHER BALANCE SHEET DATA: Asset Quality Ratios: Allowance for credit losses as a percentage of loans and leases 1.73 %
1.09 % Allowance for credit losses as a percentage of nonaccruing loans and leases
283.48 184.31
Nonaccruing loans and leases as a percentage of loans and
leases 0.61 0.59
Capital Ratios:
CET1 capital ratio(2) 9.4 % 10.0 %
Tier 1 capital ratio 10.5 11.1
Total capital ratio 12.5 13.0
Tier 1 leverage ratio 9.6 10.0
(1) In the first quarter of 2020, we reclassified federal funds purchased and
securities sold under agreement to repurchase and other short-term borrowed
funds to short-term borrowed funds. Prior periods have been adjusted to conform
with the current period presentation.
(2) See "-Key Performance Metrics, Non-GAAP Financial Measures and
Reconciliations" for definitions of our key performance metrics.
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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 "-Market Risk - Non-Trading
Risk," and "-Risk Governance" as described in our 2019 Form 10-K.
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The following table presents the major components of net interest income and net
interest margin:
Three Months Ended March 31,
2020 2019 Change
Average Income/ Yields/ Average Income/ Yields/ Average Yields/
(dollars in millions) Balances Expense Rates Balances Expense Rates Balances Rates (bps)
Assets:
Interest-bearing cash and due
from banks and deposits in
banks $1,859 $5 1.12 %
4 - 2.60 5 - 2.60 (1 ) -
Total investment securities 25,343 147 2.32 25,141 166 2.64 202 (32 ) Commercial
43,152 417 3.82 41,562 460 4.43 1,590 (61 ) Commercial real estate
13,876 139 3.96 13,272 165 4.98 604 (102 ) Leases
2,482 18 2.83 2,873 21 2.85 (391 ) (2 ) Total commercial loans and leases
59,510 574 3.81 57,707 646 4.48 1,803 (67 ) Residential mortgages
18,866 164 3.47 19,094 175 3.67 (228 ) (20 )
Home equity 13,042 152 4.69 14,075 183 5.27 (1,033 ) (58 )
Automobile 12,173 131 4.34 12,070 120 4.04 103 30
Education 10,610 149 5.64 9,069 134 5.99 1,541 (35 )
Other retail 6,854 132 7.77 5,634 123 8.87 1,220 (110 )
Total retail loans 61,545 728 4.75 59,942 735 4.96 1,603 (21 ) Total loans and leases
121,055 1,302 4.29 117,649 1,381 4.72 3,406 (43 )
Loans held for sale, at fair
value 1,890 15 3.28 1,035 11 4.35 855 (107 )
Other loans held for sale 799 9 4.31 191 4 7.03 608 (272 )
Interest-earning assets 150,946 1,478 3.91 145,513 1,570 4.34 5,433 (43 )
Allowance for loan and lease
losses (1,708 ) (1,243 ) (465 )
Goodwill 7,046 7,018 28
Other noninterest-earning
assets 10,893 9,127 1,766
Total assets $167,177 $160,415 $6,762
Liabilities and Stockholders'
Equity:
Checking with interest $24,612 $37 0.60 %
39,839 93 0.94 35,209 110 1.26 4,630 (32)
Regular savings 14,201 18 0.51 12,626 17 0.56 1,575 (5)
Term deposits 18,616 79 1.70 21,127 108 2.08 (2,511 ) (38) Total interest-bearing deposits
97,268 227 0.94 91,949 287 1.27 5,319 (33) Short-term borrowed funds (1) 644 1 0.76
698 2 1.37 (54 ) (61) Long-term borrowed funds 14,057 90 2.56 14,736 121 3.27 (679 ) (71) Total borrowed funds 14,701 91 2.48 15,434 123 3.18 (733 ) (70) Total interest-bearing liabilities 111,969 318 1.14 107,383 410 1.54 4,586 (40) Demand deposits 29,362 28,465 897 Other liabilities 4,053 3,584 469 Total liabilities 145,384 139,432 5,952 Stockholders' equity 21,793 20,983 810 Total liabilities and stockholders' equity$167,177 $160,415 $6,762 Interest rate spread 2.77 % 2.80 % (3) Net interest income and net interest margin$1,160 3.09 %$1,160 3.23 % (14) Net interest income and net interest margin, FTE(2)$1,164 3.10 %$1,166 3.25 % (15)
Memo: Total deposits
(interest-bearing and demand)
(1) In the first quarter of 2020, we reclassified federal funds purchased and
securities sold under agreement to repurchase and other short-term borrowed
funds to short-term borrowed funds. Prior periods have been adjusted to conform
with the current period presentation.
(2) Net interest income and net interest margin is presented on an FTE basis
using the federal statutory tax rate of 21%. The FTE impact is predominantly
attributable to commercial loans for the periods presented.
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Net interest income of $1.2 billion was stable with first quarter 2019, despite
the lower rate and challenging yield-curve environment, given 4% growth in
interest-earning assets.
Net interest margin of 3.09% decreased 14 basis points compared to 3.23% in the
first quarter of 2019, as the impact of lower interest rates was partially
offset by lower funding costs and improved deposit mix, as well as continued mix
shift towards better-returning assets. Net interest margin on an FTE basis of
3.10% decreased 15 basis points compared to 3.25% in the first quarter of 2019.
Average interest-earning asset yields of 3.91% decreased 43 basis points from
4.34% in the first quarter of 2019, while average interest-bearing liability
costs of 1.14% decreased 40 basis points from 1.54% in the first quarter of
2019.
Average interest-earning assets of $150.9 billion increased $5.4 billion , or 4%,
from the first quarter of 2019, driven by a 4.9 billion, or 4%, increase in
average loans and leases and LHFS. Results reflected a $1.8 billion increase in
average commercial loans and leases and a $1.6 billion increase in average
retail loans. Commercial loan growth reflected strength in commercial and
industrial loans and commercial real estate, and was driven by the impact of
higher COVID-19-related line of credit utilization. Retail loan growth was
driven by education and other retail, partially offset by lower home equity.
Average deposits of $126.6 billion increased $6.2 billion , or 5%, from the first
quarter of 2019, reflecting growth in checking with interest, money market
accounts, savings and demand deposits, partially offset by a decline in term
deposits. Average total borrowed funds of $14.7 billion decreased $733 million
from the first quarter of 2019, reflecting a decrease in long-term and
short-term borrowed funds. Total borrowed funds costs of $91 million decreased
$32 million from the first quarter of 2019. The total borrowed funds cost of
2.48% decreased 70 basis points from 3.18% in the first quarter of 2019 due to
lower interest cost on long-term senior debt and FHLB borrowings.
Noninterest Income
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The following table presents the significant components of our noninterest
income:
Three Months Ended
March 31,
(in millions) 2020 2019 Change Percent
Service charges and fees $118 $123 ($5 ) (4 %)
Mortgage banking fees 159 43 116 NM
Card fees 56 59 (3 ) (5 )
Capital markets fees 43 54 (11 ) (20 )
Trust and investment services fees 53 47 6 13
Foreign exchange and interest rate products 24 36 (12 ) (33 )
Letter of credit and loan fees 34 33 1 3
Securities gains, net - 8 (8 ) (100 )
Other income (1) 10 25 (15 ) (60 )
Noninterest income $497 $428 $69 16 %
(1) Includes net impairment losses recognized in earnings on available for sale debt securities, bank-owned life insurance income and other income.
Noninterest income increased$69 million from the first quarter of 2019, as record results in mortgage banking and trust and investment services fees were partially offset by COVID-19 impacts on service charges and fees, card fees, capital markets and foreign exchange and interest rate products. Mortgage banking fees of$159 Citizens Financial Group, Inc. | 14 -------------------------------------------------------------------------------- million reflected increased origination volumes and improved gain on sale margins, as well as higher mortgage servicing rights hedging gains. Capital markets fees of$43 million decreased$11 million , as market disruption in March resulted in a$21 million unrealized loss on trading assets. Foreign exchange and interest rate products revenue of$24 million declined by$12 million , driven by a$10 million decrease in net credit valuation adjustments given the fall in rates. Other income decreased from first quarter 2019 levels that included higher gains related to asset dispositions and efficiency initiatives. Noninterest Expense [[Image Removed: chart-a7d6a5b871de51eebf4.jpg]]
The following table presents the significant components of our noninterest expense:
Three Months Ended March 31,
(in millions) 2020 2019 Change Percent
Salaries and employee benefits$549 $509 $40 8 % Equipment and software expense 133 125 8 6 Outside services 135 110 25 23 Occupancy 84 83 1 1 Other operating expense 111 110 1 1 Noninterest expense$1,012 $937 $75 8 % Noninterest expense increased$75 million , or 8%, from the first quarter of 2019, largely reflecting higher salaries and employee benefits given the impact of annual merit increases and revenue-based compensation tied to increased mortgage originations. Results also reflect higher equipment and software expense given continued investments in technology as well as higher outside services largely tied to growth initiatives. Underlying noninterest expense of$979 million increased$47 million , or 5%. These results were partially offset by a reduction in occupancy. Citizens Financial Group, Inc. | 15
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Provision for Credit Losses
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The provision for credit losses is the result of a detailed analysis performed
to estimate an appropriate and adequate 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 Nonaccruing Loans and Leases" for more information.
The provision for credit losses of $600 million includes a $463 million reserve
build associated with COVID-19 and compared with $85 million in first quarter
2019. Net charge-offs of $137 million increased $48 million from the first
quarter of 2019, driven by a $20 million increase in commercial loan and lease
net charge-offs, reflecting several uncorrelated commercial losses, and a $28
million increase in retail, largely reflecting expected seasoning in growth
portfolios.
Income Tax Expense
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Income tax expense decreased $116 million from the first quarter of 2019. The
effective income tax rate increased to 24.1% from 22.4% in the first quarter of
2019, driven by the discrete negative impact of stock-based compensation on
lower pre-tax income, partially offset by the increased benefit of tax
advantaged investments. The Underlying effective income tax rate increased 208
basis points to 24.5% from the first quarter of 2019.
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Business Operating Segments
We have two business operating segments: Consumer Banking and Commercial
Banking. Segment results are derived by specifically attributing managed assets,
liabilities, capital and related revenues, provision for credit losses and
expenses. Non-segment operations are classified as Other, which includes
corporate functions, the Treasury function, the securities portfolio, wholesale
funding activities, intangible assets not directly allocated to a business
operating segment, community development, non-core assets and other unallocated
assets, liabilities, capital, revenues, provision for credit losses, expenses
and income tax expense. In addition, Other includes goodwill not directly
allocated to a business operating segment and any associated goodwill impairment
charges. For impairment testing purposes, we allocate all goodwill to our
Consumer Banking and/or Commercial Banking reporting units. There have been no
significant changes in our methodologies used to allocate items to our business
operating segments as described in "-Results of Operations - Business Operating
Segments" in our 2019 Form 10-K.
The following table presents certain financial data of our business operating
segments. Total business operating segment financial results differ from total
consolidated net income. These differences are reflected in Other non-segment
operations. See Note 17 in Item 1 for further information.
Consumer Banking Commercial Banking
Three Months Ended March 31, Three Months Ended March 31,
(dollars in millions) 2020 2019 2020 2019
Net interest income $793 $788 $365 $372
Noninterest income 357 247 125 150
Total revenue 1,150 1,035 490 522
Noninterest expense 738 700 221 209
Profit before provision for credit losses 412 335 269 313
Provision for credit losses 97 67 43 21
Income before income tax expense 315 268 226 292
Income tax expense 79 66 47 65
Net income $236 $202 $179 $227
Average Balances:
Total assets $68,415 $65,007 $59,005 $55,630
Total loans and leases(1) 65,343 62,163 56,555 54,436
Deposits 85,228 82,569 33,545 29,823
Interest-earning assets 65,393 62,216 57,016 54,724
(1) Includes LHFS.
Consumer Banking
Net interest income increased $5 million , or 1%, from the first quarter of 2019,
driven by the benefit of a $3.2 billion increase in average loans led by growth
in education and unsecured personal loans. Noninterest income increased $110
million , or 45%, from the first quarter of 2019, driven by higher mortgage
banking fees, partially offset by lower service charges and fees. Noninterest
expense increased $38 million , or 5%, from the first quarter of 2019, reflecting
higher salaries and benefits, and outside services. Provision for credit losses
of $97 million increased $30 million , or 45%, reflecting the impact of higher
net charge-offs due to seasoning in growth portfolios.
Commercial Banking
Net interest income of $365 million decreased $7 million , or 2%, from $372
million in the first quarter of 2019, primarily due to lower interest rates.
Noninterest income of $125 million decreased $25 million , or 17%, from $150
million in the first quarter of 2019, driven by a decrease in capital market
fees and foreign exchange and interest rate products. Noninterest expense of
$221 million increased $12 million , or 6%, from $209 million in the first
quarter of 2019, driven by higher salaries and employee benefits expenses.
Provision for credit losses of $43 million increased $22 million from the first
quarter of 2019, reflecting the impact of higher net charge-offs from several
uncorrelated losses.
Citizens Financial Group, Inc. | 17
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ANALYSIS OF FINANCIAL CONDITION
Securities
Our securities portfolio is managed to maintain prudent levels of liquidity,
credit quality and market risk while achieving appropriate returns that align
with our overall portfolio management strategy. The following table presents our
securities AFS and HTM:
March 31, 2020 December 31, 2019
Amortized Amortized
(in millions) Cost Fair Value Cost Fair Value
U.S. Treasury and other $41 $41 $71 $71
State and political subdivisions 4 4 5 5
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored
entities 21,029 21,651 19,803 19,875
Other/non-agency 612 611 638 662
Total mortgage-backed securities 21,641 22,262 20,441 20,537
Total debt securities available for sale, at fair value$21,686 $22,307 $20,517 $20,613 Mortgage-backed securities, at cost: Federal agencies andU.S. government sponsored entities$3,071
Total debt securities held to maturity, at cost
Total debt securities available for sale and held to maturity$24,757 $25,526 $23,719 $23,855 Equity securities, at fair value$47 $47 $47 $47 Equity securities, at cost 927 927 807 807 Total equity securities$974 $974 $854 $854 The fair value of the AFS debt securities portfolio of$22.3 billion atMarch 31, 2020 increased$1.7 billion from$20.6 billion atDecember 31, 2019 due to an increase of$1.2 billion related to reinvestment timing and a$500 million increase in value due to lower long-term rates. The decline in the fair value of the HTM debt portfolio of$23 million was primarily attributable to portfolio runoff of$131 million , partially offset by an increase in fair value due to lower long-term rates. For further information, see Note 1. As ofMarch 31, 2020 , the portfolio's average effective duration was 2.1 years compared with 3.7 years as ofDecember 31, 2019 , as lower long-term rates drove an increase in both actual and projected securities prepayment speeds. We manage our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within risk appetite in the context of the broader interest rate risk in the banking book framework and limits. The securities portfolio includes high quality, highly liquid investments reflecting our ongoing commitment to maintaining appropriate contingent liquidity levels and pledging capacity.U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 98% of the fair value of the debt securities portfolio holdings. Holdings backed by mortgages dominate our portfolio and facilitate our ability to pledge them to the FHLB for collateral purposes. For further discussion of the liquidity coverage ratios, see "Regulation and Supervision - Liquidity Standards" in our 2019 Form 10-K. Citizens Financial Group, Inc. | 18 -------------------------------------------------------------------------------- Loans and Leases The following table presents our loans and leases in portfolio segments and classes: December 31, (in millions) March 31, 2020 2019 Change Percent Commercial$49,092 $41,479 $7,613 18 % Commercial real estate 14,502 13,522 980 7 Leases 2,438 2,537 (99 ) (4 ) Total commercial loans and leases 66,032 57,538 8,494 15 Residential mortgages 18,721 19,083 (362 ) (2 ) Home equity(1) 12,992 13,154 (162 ) (1 ) Automobile 12,157 12,120 37 - Education 10,887 10,347 540 5 Other retail(2) 6,739 6,846 (107 ) (2 ) Total retail loans 61,496 61,550 (54 ) - Total loans and leases(3)$127,528 $119,088 $8,440 7 % (1) In the first quarter of 2020, home equity loans, home equity lines of credit, home equity loans serviced by others and home equity lines of credit serviced by others are included in home equity. Prior periods have been adjusted to conform with current period presentation. (2) In the first quarter of 2020, credit card and other retail are included in other retail. Prior periods have been adjusted to conform with current period presentation. (3) LHFS totaling$3.3 billion at bothMarch 31, 2020 andDecember 31, 2019 are not included above. Total loans and leases increased$8.4 billion from$119.1 billion as ofDecember 31, 2019 , largely due to an$8.5 billion increase in commercial loans and leases, which included the estimated$7.2 billion impact of higher line of credit utilization tied to COVID-19 disruption. As ofApril 30, 2020 , estimated COVID-19-related credit utilization fell to approximately$6.4 billion . As ofApril 30, 2020 , under our COVID-19-related forbearance and other customer accommodation programs that are guided by the CARES Act as well as banking regulator interagency guidance, we have deferred payments on approximately 6%, or$4.1 billion , of our retail and business banking loans (business banking loans are reflected in commercial in the table above). Of this,$1.1 billion , or 6%, of our residential mortgage portfolio is in forbearance. Further, we have worked proactively with approximately 950 commercial customers seeking flexibility on loan terms and conditions, of which approximately 33% are requesting covenant waivers to allow forSmall Business Administration ("SBA") Paycheck Protection Program ("PPP") application. None of these retail deferrals or commercial modifications are classified as TDRs. Under the PPP, which provides loans to small businesses to keep their employees on payroll and make other eligible payments, we have registered approximately 45,000 loan applications with$4.8 billion in commitments with the SBA as ofMay 5 , 2020,with additional applications still entering the pipeline, of which approximately 34,000 loans totaling$4.0 billion are funded. Allowance for Credit Losses and Nonaccruing Loans and Leases The ACL is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb future estimated credit losses in accordance with GAAP. For further information on our processes to determine our ACL, see "-Critical Accounting Estimates - Allowance for Credit Losses." The ACL of$2.2 billion as ofMarch 31, 2020 included impacts from the adoption of CECL onJanuary 1, 2020 . This compared with the ACL of$1.3 billion as ofDecember 31, 2019 . For further information, see Note 4. The ACL represented 1.73% of total loans and leases and 283% of nonaccrual loans and leases as ofMarch 31, 2020 compared with 1.09% and 184%, as ofDecember 31, 2019 , respectively, and reflected the impact of CECL implementation and the provision impact of COVID-19 disruption. Nonaccruing loans and leases of$780 million as ofMarch 31, 2020 increased$77 million , or 11%, fromDecember 31, 2019 , reflecting a$69 million increase in commercial nonaccruing loans and an$8 million increase in retail. First quarter of 2020 net charge-offs of$137 million increased$48 million from first quarter 2019, with a$28 million increase in retail net charge-offs, given expected seasoning in growth portfolios, and a$20 million increase in commercial net charge-offs, reflecting several uncorrelated commercial losses. First quarter 2020 annualized net charge-offs of 0.46% of average loans and leases compared with 0.31% in first quarter 2019. Citizens Financial Group, Inc. | 19 -------------------------------------------------------------------------------- We continue to assess the impact of the COVID-19 pandemic and have instituted a variety of measures to identify and monitor areas of potential risk, including direct outreach to commercial clients and close monitoring of retail credit metrics. Commercial Loan Asset Quality Our commercial loan and lease portfolio consists of traditional commercial loans, commercial leases and commercial real estate loans. The portfolio is predominantly focused on customers in our footprint and adjacent states in which we have a physical presence where our local delivery model provides for strong client connectivity. Additionally, we also do business in certain specialized industry sectors on a national basis. As ofMarch 31, 2020 , nonaccruing commercial loans and leases of$314 million increased$69 million from$245 million as ofDecember 31, 2019 . Total commercial nonaccruing loans and leases were 0.5% and 0.4% of the total commercial loan and lease portfolio as ofMarch 31, 2020 andDecember 31, 2019 , respectively. Total commercial loan and lease net charge-offs of$44 million for first quarter 2020 compared to net charge-offs of$24 million for first quarter of 2019. The commercial loan and lease portfolio's annualized net charge-off rate of 0.30% for first quarter 2020 compared to a net charge-off rate of 0.17% for first quarter 2019. For commercial loans and leases, we utilize regulatory classification ratings to monitor credit quality. For more information on regulatory classification ratings, see "-Allowance for Credit Losses and Nonaccruing Loans and Leases - Commercial Loan Asset Quality" and Note 5 in our 2019 Form 10-K. The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below: March 31, 2020 Criticized Special (in millions) Pass Mention Substandard Doubtful Total Commercial$46,225 $1,500 $1,062 $305 $49,092 Commercial real estate 13,745 725 24 8 14,502 Leases 2,319 19 99 1 2,438 Total commercial loans and leases$62,289 $2,244 $1,185 $314 $66,032 December 31, 2019 Criticized Special (in millions) Pass Mention Substandard Doubtful Total Commercial$38,950 $1,351 $934 $244 $41,479 Commercial real estate 13,169 318 33 2 13,522 Leases 2,383 109 42 3 2,537 Total commercial loans and leases$54,502 $1,778
Total commercial criticized loans and leases of$3.7 billion , or 5.7% of total commercial loans and leases, atMarch 31, 2020 increased$707 million , or 23%, fromDecember 31, 2019 , largely due to some deterioration in theCommercial Real Estate retail focused borrowers and across several other non-correlated industries. Commercial real estate criticized loans totaled$757 million , or 5.2%, of the commercial real estate portfolio and increased from$353 million , or 2.6%, as ofDecember 31, 2019 , due to migration to criticized of a few sizeable borrowers. Commercial real estate accounted for 20% of total criticized loans as ofMarch 31, 2020 , compared to 12% as ofDecember 31, 2019 . Retail Loan Asset Quality For retail loans, we utilize credit scores provided by FICO which are generally refreshed on a quarterly basis and the loan's payment and delinquency status to monitor credit quality. FICO credit scores are considered the strongest indicator of credit losses over the contractual life of the loan as the scores are based on current and historical national industry-wide consumer level credit performance data, and assist management in predicting the borrower's future payment performance. The largest portion of the retail portfolio is represented by borrowersCitizens Financial Group, Inc. | 20
-------------------------------------------------------------------------------- located in theNew England , Mid-Atlantic and Midwest regions, although we have continued to lend selectively in areas outside the footprint primarily in the auto finance, education lending and unsecured portfolios. The following tables present asset quality metrics for the retail loan portfolio: March 31, 2020 December 31, 2019 Average refreshed FICO for total portfolio 763 764 CLTV ratio for secured real estate(1) 59 % 59 % Nonaccruing retail loans as a percentage of total retail 0.76 0.74 (1) The real estate secured portfolio CLTV is calculated as the mortgage and second lien loan balance divided by the most recently available value of the property. Three Months Ended March 31, (dollars in millions) 2020 2019 Change Percent Net charge-offs$93 $65 $28 43 % Annualized net charge-off rate 0.61 % 0.44 % 17
bps
Troubled Debt Restructurings In the first quarter of 2020, we adopted the CARES Act and interagency guidance issued by the bank regulatory agencies which provides that COVID-19 related modifications to consumer and commercial loans that met certain eligibility criteria are exempt from classification as a TDR. Payment deferrals and forbearance plans entered into towards the end of the quarter as a result of the COVID-19 pandemic were generally not considered TDRs. As ofMarch 31, 2020 ,$664 million of retail loans were classified as TDRs, compared with$667 million as ofDecember 31, 2019 . As ofMarch 31, 2020 ,$145 million of retail TDRs were in nonaccrual status with 38% current with payments compared to$143 million in nonaccrual status with 38% current on payments atDecember 31, 2019 . TDRs generally return to accrual status once repayment capacity and appropriate payment history can be established. TDRs are individually evaluated for impairment and loans, once classified as TDRs, remain classified as TDRs until paid off, sold or refinanced at market terms. For additional information regarding TDRs see Note 5 in our 2019 Form 10-K. The following tables present retail TDRs by loan class, including delinquency status for accruing TDRs and TDRs in nonaccrual: March 31, 2020 As a % of Accruing Retail TDRs 30-89 Days (dollars in millions) Accruing Past Due 90+ Days Past Due Nonaccruing Total Residential mortgages$126 4.3 % 1.8 %$41 $167 Home equity 236 2.2 - 82 318 Automobile 3 0.1 - 12 15 Education 124 0.8 0.3 7 131 Other retail 30 0.6 - 3 33 Total$519 8.0 % 2.1 %$145 $664 December 31, 2019 As a % of Accruing Retail TDRs 30-89 Days (dollars in millions) Accruing Past Due 90+ Days Past Due Nonaccruing Total Residential mortgages$113 3.8 % 2.1 %$41 $154 Home equity 240 1.9 - 84 324 Automobile 13 0.2 - 8 21 Education 127 0.9 0.3 7 134 Other retail 31 0.6 - 3 34 Total$524 7.4 % 2.4 %$143 $667 Citizens Financial Group, Inc. | 21
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Non-Core Assets
March 31, December 31,
(in millions) 2020 2019 Change Percent
Commercial $12 $6 $6 100 %
Commercial real estate 10 11 (1 ) (9 )
Leases 432 444 (12 ) (3 )
Total commercial loans and leases 454 461 (7 ) (2 )
Residential mortgages 86 91 (5 ) (5 )
Home equity 368 400 (32 ) (8 )
Education 159 166 (7 ) (4 )
Total retail loans 613 657 (44 ) (7 )
Total non-core loans and leases 1,067 1,118 (51 ) (5 )
Other assets 119 122 (3 ) (2 )
Total non-core assets $1,186 $1,240 ($54 ) (4 %)
Non-core assets are primarily liquidating loan and lease portfolios inconsistent
with our strategic priorities, generally as a result of geographic location,
industry, product type or risk level and are included in Other.
Deposits
The following table presents the major components of our deposits:
(in millions) March 31, 2020 December 31, 2019 Change Percent
Demand $32,398 $29,233 $3,165 11 %
Checking with interest 25,358 24,840 518 2
Regular savings 14,702 13,779 923 7
Money market accounts 42,972 38,725 4,247 11
Term deposits 18,045 18,736 (691 ) (4 )
Total deposits $133,475 $125,313 $8,162 7 %
Total deposits as of March 31, 2020 increased $8.2 billion , or 7%, to $133.5
billion , from $125.3 billion as of December 31, 2019 as commercial customers
placed deposits related to credit facility draws with us. Citizens Access®, our
digital platform, ended the quarter with $6.1 billion of deposits, up from $5.8
billion as of December 31, 2019 .
Borrowed Funds
Total borrowed funds as of March 31, 2020 increased $3.2 billion from December
31, 2019 , driven by a $785 million and $2.4 billion increase in short-term and
long-term borrowed funds, respectively.
Short-term borrowed funds
Short-term borrowed funds as of March 31, 2020 increased $785 million from
December 31, 2019 driven by an increase in federal funds purchased used to
manage short-term liquidity needs as commercial line draws increased during the
quarter.
Citizens Financial Group, Inc. | 22
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Long-term borrowed funds
The following table presents a summary of our long-term borrowed funds:
March 31, December 31,
(in millions) 2020 2019
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021 $350 4.150% fixed-rate subordinated debt, dueSeptember 2022 348
348
3.750% fixed-rate subordinated debt, dueJuly 2024 250
250
4.023% fixed-rate subordinated debt, dueOctober 2024 42
42
4.350% fixed-rate subordinated debt, dueAugust 2025 249
249
4.300% fixed-rate subordinated debt, dueDecember 2025 750
750
2.850% fixed-rate senior unsecured notes, dueJuly 2026 496
496
2.500% fixed-rate senior unsecured notes, due
-
CBNA's Global Note Program: 2.250% senior unsecured notes, dueMarch 2020 -
700
2.678% floating-rate senior unsecured notes, due
- 300
2.217% floating-rate senior unsecured notes, due
250 250
2.200% senior unsecured notes, dueMay 2020 500
500
2.250% senior unsecured notes, dueOctober 2020 753
750
2.550% senior unsecured notes, dueMay 2021 1,005
991
3.250% senior unsecured notes, dueFebruary 2022 724
711
2.424% floating-rate senior unsecured notes, due
299 299
2.457% floating-rate senior unsecured notes, due
250
2.650% senior unsecured notes, dueMay 2022 514
501
3.700% senior unsecured notes, dueMarch 2023 532
515
2.325% floating-rate senior unsecured notes, due
249
(1)
3.750% senior unsecured notes, dueFebruary 2026 555
521
Additional Borrowings by CBNA and Other Subsidiaries:
5,008
rate, due through 2038 Other 16
18
Total long-term borrowed funds$16,437
(1) Rate disclosed reflects the floating rate as ofMarch 31, 2020 or final floating rate, as applicable. Long-term borrowed funds as ofMarch 31, 2020 increased$2.4 billion fromDecember 31, 2019 , reflecting an increase of$3.0 billion in long-term FHLB borrowings, partially offset by a$1.0 billion reduction in CBNA unsecured notes maturing during the quarter.The Parent Company's long-term borrowed funds as ofMarch 31, 2020 andDecember 31, 2019 included principal balances of$2.8 billion and$2.5 billion respectively, and unamortized deferred issuance costs and/or discounts of($9) million and($8) million , respectively. CBNA and other subsidiaries' long-term borrowed funds as ofMarch 31, 2020 andDecember 31, 2019 included principal balances of$13.5 billion and$11.5 billion , respectively, with unamortized deferred issuance costs and/or discounts of($10) million and($13) million , respectively, and hedging basis adjustments of$141 million and$50 million , respectively. See Note 9 for further information about our hedging of certain long-term borrowed funds. For information regarding our liquidity and available borrowing capacity, see "-Liquidity" and Note 8. CAPITAL AND REGULATORY MATTERS As a bank holding company and a financial holding company, we are subject to regulation and supervision by the FRB. Our banking subsidiary, CBNA, is a national banking association whose primary federal regulator is the OCC. Our regulation and supervision continues to evolve as the legal and regulatory frameworks governing our operations continue to change. The current operating environment reflects heightened regulatory expectations around consumer compliance, the Bank Secrecy Act, anti-money laundering compliance, and increased internal audit activities, among other factors. For more information, see the "Regulation and Supervision" in our 2019 Form 10-K. Citizens Financial Group, Inc. | 23 -------------------------------------------------------------------------------- Tailoring of Prudential Requirements InOctober 2019 , the FRB and the other banking regulators finalized rules that tailor the application of the enhanced prudential standards to bank holding companies and depository institutions to implement the EGRRCPA amendments to the Dodd-Frank Act ("Tailoring Rules"). Concurrently, the FRB and other banking regulators finalized the regulatory capital, liquidity and resolution plan requirements to firms with more than$100 billion in total assets. Category IV firms with$100 billion to$250 billion in total assets, such as us, will be subject to biennial supervisory stress-testing and will be exempt from company-run stress testing and related disclosure requirements. The FRB will continue to supervise Category IV firms on an ongoing basis, including evaluation of the capital adequacy and capital planning processes during off-cycle years. Category IV firms are also no longer required to submit resolution plans. For more information, see the "Tailoring of Prudential Requirements" and "Resolution Planning" in our 2019 Form 10-K. In light of the Tailoring Rules, the FRB provided us relief inFebruary 2019 from certain regulatory requirements related to supervisory stress testing, company-run stress testing, and related disclosure requirements for the 2019 stress test cycle. As a result, we were not required to participate in the supervisory stress test of CCAR, conduct company-run stress tests, or submit a capital plan to the FRB for 2019. We remain subject to the requirement to develop and maintain an annual capital plan that is reviewed and approved by our Board of Directors (or one of its committees), as well as FRY-14 reporting requirements. The FRB has not objected to our maximum planned capital actions for the period beginningJuly 1, 2019 and endingJune 30, 2020 , which are largely based on the results for our 2018 supervisory stress test, adjusted for any changes in our regulatory capital ratios since the FRB acted on our 2018 capital plan. OnJune 27, 2019 , our Board of Directors authorized common share repurchases of up to$1.275 billion over the four-quarter period beginningJuly 1, 2019 . OnApril 17, 2020 , we announced that in order to ensure capital remains strong to meet further loan demand during the COVID-19 crisis, we would cease stock repurchases throughDecember 31, 2020 . OnApril 6, 2020 , we submitted our 2020 capital plan to the FRB. OnMarch 4, 2020 , the FRB finalized a rule that simplifies capital rules for large banks and establishes a stress capital buffer ("SCB") requirement. The final rule integrates regulatory capital requirements with the results of the FRB's supervisory stress tests by replacing the capital conservation buffer, which is currently 2.5%, with the SCB. The SCB will be determined as the higher of either 2.5%, or the difference between the starting and the minimum projected CET1 capital ratio under the severely adverse scenario as modeled by the FRB as part of the supervisory stress testing framework. The SCB will include four quarters of planned dividends for each bank on top of the FRB-modeled losses. Under the SCB framework, the FRB will no longer object to capital plans on quantitative grounds and each firm will be required to maintain capital ratios above the sum of its minimum requirements and the SCB requirements to avoid restrictions on capital distributions and discretionary bonus payments. The SCB will be re-calibrated with each CCAR supervisory stress test (annually for Category I, II and III firms, and every other year for Category IV firms, such as us) and will be effective onOctober 1 of each year throughSeptember 30 of the following year. The first SCB requirement goes into effect onOctober 1, 2020 and will apply to our capital actions over the four-quarter period beginningOctober 1, 2020 throughSeptember 30, 2021 . Capital actions for the transition quarter beginningJuly 1 through September 30, 2020 may not exceed the four-quarter average of capital distributions authorized by the FRB for the 2019 capital plan cycle. Many of the provisions of the EGRRCPA and other laws are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. The ultimate effects of EGRRCPA and the Tailoring Rules on us and our activities will be subject to any additional rule making issued by the FRB and other federal regulators. We will continue to evaluate the impact of any changes in law and any new regulations promulgated, including changes in regulatory costs and fees, modifications to consumer products or disclosures required by theCFPB and the requirements of the enhanced supervision provisions, among others. For additional discussion of the EGRRCPA and the Tailoring Rules, see "Regulation and Supervision" and "-Capital and Regulatory Matters" in our 2019 Form 10-K. Capital Framework Under the currentU.S. Basel III capital framework, we and our banking subsidiary must meet the following specific minimum requirements: CET1 capital ratio of 4.5%, tier 1 capital ratio of 6.0%, total capital ratio of 8.0%, and tier 1 leverage ratio of 4.0%. A capital conservation buffer ("CCB") of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above. InJuly 2019 , the FRB and the other federal banking regulators issued a final rule to simplify regulatory capital treatment for MSRs, certain DTAs and significant investments in the capital of unconsolidated financial institutions, pursuant to EGRRCPA. Effective for us onApril 1, 2020 , the final rule will change the individual CET1 Citizens Financial Group, Inc. | 24 -------------------------------------------------------------------------------- deduction threshold for these assets from 10% to 25%, eliminate the aggregate deduction threshold for these assets of 15%, assign a 250% risk weight for any MSRs or DTAs not deducted from CET1 capital, and assign an exposure category risk weight for investments in the capital of unconsolidated financial institutions not deducted from CET1 capital. OnMarch 31, 2020 , in response to the COVID-19 pandemic, the FRB and the other federal banking regulators issued an interim final rule relative to regulatory capital treatment of ACL under CECL. This rule allowed banking organizations to delay the estimated impact of CECL on regulatory capital for a two-year period endingJanuary 1, 2022 , followed by a three-year transition period endingJanuary 1, 2025 to phase-in the aggregate amount of the capital benefit provided during the initial two-year delay. For additional discussion of theU.S. Basel III capital framework and its related application, see Regulation and Supervision" in our 2019 Form 10-K. The table below presents our actual regulatory capital ratios under theU.S. Basel III Standardized rules: Required Minimum March 31, 2020 December 31, 2019 plus Required CCB (in millions, except ratio for Non-Leverage data) Amount Ratio Amount Ratio Ratios(1) CET1 capital$14,007 9.4 %$14,304 10.0 % 7.0 % Tier 1 capital 15,577 10.5 15,874 11.1 8.5 Total capital 18,592 12.5 18,542 13.0 10.5 Tier 1 leverage 15,577 9.6 15,874 10.0 4.0 Risk-weighted assets 148,946 142,915 Quarterly adjusted average assets 161,715 158,782 (1) Required "Minimum Capital ratios" are: CET1 capital of 4.5%; Tier 1 capital of 6.0%; Total capital of 8.0%; and Tier 1 leverage of 4.0%. "Minimum Capital ratios" also include a capital conservation buffer of 2.5%; N/A to Tier 1 leverage. AtMarch 31, 2020 , our CET1 capital, tier 1 capital and total capital ratios were 9.4%, 10.5% and 12.5%, respectively, as compared with 10.0%, 11.1%, and 13.0%, respectively, as ofDecember 31, 2019 . The CET1 capital ratio decreased as$6.0 billion of risk-weighted asset ("RWA") growth and the impact of the capital actions described in "-Capital Transactions" below were partially offset by net income for the three months endedMarch 31, 2020 and 25% of the increase in AACL subsequent to CECL adoption. The tier 1 capital ratio decreased due to changes in CET1. The total capital ratio decreased due to the changes in CET1 partially offset by the net change in AACL attributable to CECL adoption and the modified transition amount. AtMarch 31, 2020 , our CET1 capital, tier 1 capital and total capital ratios were approximately 240 basis points, 200 basis points and 200 basis points, respectively, above their regulatory minimums plus the capital conservation buffer. All ratios remained well above theU.S. Basel III minima. Regulatory Capital Ratios and Capital Composition CET1 capital underU.S. Basel III Standardized rules totaled$14.0 billion atMarch 31, 2020 , a decrease of$297 million from$14.3 billion atDecember 31, 2019 , largely driven by common share repurchases and dividends, partially offset by net income for the three months endedMarch 31, 2020 and 25% of the increase in AACL subsequent to CECL adoption. Tier 1 capital atMarch 31, 2020 totaled$15.6 billion , reflecting a$297 million decrease from$15.9 billion atDecember 31, 2019 , driven by the changes in CET1 capital. Total capital of$18.6 billion atMarch 31, 2020 , increased$50 million fromDecember 31, 2019 , driven by the changes in CET1 capital, which was more than offset by the net change in AACL attributable to the adoption of CECL adoption and the modified transition amount. RWA totaled$148.9 billion atMarch 31, 2020 , based onU.S. Basel III Standardized rules, up$6.0 billion fromDecember 31, 2019 . This increase was driven by the net impact of higher commercial commitment utilization as a result of the COVID-19 pandemic, higher derivative valuations, education loans and CRE loans, offset by lower HVCRE loans. As ofMarch 31, 2020 , the tier 1 leverage ratio was 9.6%, decreasing from 10.0% atDecember 31, 2019 driven by the$2.9 billion increase in quarterly adjusted average assets and lower tier 1 capital.
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