CITIZENS FINANCIAL GROUP, INC. Page
Forward-Looking Statements 7
Introduction 8
Financial Performance 9
Results of Operations 11
Net Interest Income 11
Noninterest Income 13
Noninterest Expense 14
Provision for Credit Losses 14
Income Tax Expense 14
Business Operating Segments 14
Analysis of Financial Condition 16
Securities 16
Loans and Leases 17
Allowance for Credit Losses and Nonaccrual Loans and Leases 17
Deposits 23
Borrowed Funds 23
Capital and Regulatory Matters 23
Liquidity 26
Critical Accounting Estimates 29
Accounting and Reporting Developments 31
Risk Governance 31
Market Risk 32
Non-GAAP Financial Measures and Reconciliations 36
Citizens Financial Group, Inc. | 6
--------------------------------------------------------------------------------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 disruption andRussia's invasion ofUkraine 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," "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 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 nonaccrual 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, including through the integration of Investors and the HSBC branches;
•The COVID-19 disruption and its effects on the economic and business environments in which we operate;
•The impact ofRussia's invasion ofUkraine and the imposition of sanctions onRussia and other actions in response, including 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;
•Our capital and liquidity requirements under regulatory capital standards 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;
•Greater than expected costs or other difficulties related to the integration of our business and that of Investors and the relevant HSBC branches;
Citizens Financial Group, Inc. | 7 --------------------------------------------------------------------------------
•The inability to retain existing Investors or HSBC clients and employees following the closing of the Investors acquisition and HSBC transaction; 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, risk-weighted assets, capital impacts of strategic initiatives, market conditions, receipt of required regulatory approvals and other 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 pandemic andRussia's invasion ofUkraine on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is 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 andRussia's invasion ofUkraine , actions taken by governmental authorities in response to the pandemic andRussia's invasion ofUkraine , and the direct and indirect impact of the pandemic andRussia's invasion ofUkraine 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 I, Item 1A of our 2021 Form 10-K as well as Part II, Item 1A of our Form 10-Q for the quarter endedMarch 31, 2022 .
INTRODUCTION
Citizens Financial Group, Inc. is one of the nation's oldest and largest financial institutions, with$226.7 billion in assets as ofJune 30, 2022 . 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. 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 3,300 ATMs and more than 1,200 branches in 14 states and theDistrict 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. OnFebruary 18, 2022 , CBNA completed the acquisition of theHSBC East Coast branches and national online deposit business. The transaction extends our physical presence and adds customers in several attractive markets, accelerating our national expansion strategy. The transaction includes 66 branches in theNew York City metropolitan area, 9 branches in the Mid-Atlantic/Washington D.C. area, and 5 branches inSoutheast Florida . OnApril 6, 2022 , Citizens completed the acquisition of all outstanding shares of Investors for a combination of stock and cash. The acquisition enhances Citizens' banking franchise, adding an attractive middle market, small business and consumer customer base while building our physical presence in the Mid-Atlantic region with the addition of 154 branches located in the greaterNew York City andPhiladelphia metropolitan areas and acrossNew Jersey .
On
For additional information regarding these acquisitions see Note 2.
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 2021 Form 10-K.
Citizens Financial Group, Inc. | 8
--------------------------------------------------------------------------------Non-GAAP Financial Measures
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, increase comparability of period-to-period results, and are useful to consider in addition to our GAAP financial 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."
FINANCIAL PERFORMANCE
Key Highlights
Net income decreased$284 million to$364 million and decreased$475 million to$784 million , with earnings per diluted common share of$0.67 , down$0.77 from$1.44 , and$1.58 , down$1.23 from$2.81 , for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. Results reflect notable items of$231 million or$0.47 per diluted common share, net of tax benefit, for the three months endedJune 30, 2022 , compared to$8 million or$0.02 per diluted common share, net of tax benefit, for the same period in 2021. For the six months endedJune 30, 2022 , notable items were$287 million or$0.63 per diluted common share, net of tax benefit, as compared to$23 million or$0.06 per diluted common share, net of tax benefit, for the same period in 2021. Table 1: Notable Items Three Months Ended June 30, 2022 Less: notable items Integration related Underlying results (in millions) Reported results (GAAP) costs(1) TOP and other(2) Provision(3)
(non-GAAP)
Provision (benefit) for credit losses$216 $- $-$145 $71 Noninterest income 494 (31) - - 525 Noninterest expense 1,305 104 21 - 1,180 Income tax expense 114 (28) (5) (37) 184 Three Months Ended June 30, 2021 Less: notable items Integration related Underlying results (in millions) Reported results (GAAP) costs(1) TOP and other(2) Provision (non-GAAP) Provision (benefit) for credit losses ($213 ) $- $- $- ($213 ) Noninterest income 485 - - - 485 Noninterest expense 991 2 9 - 980 Income tax expense 183 (1) (2) - 186 Citizens Financial Group, Inc. | 9
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Six Months Ended June 30, 2022
Less: notable items
Integration Underlying results
(in millions) Reported results (GAAP) related costs(1) TOP and other(2) Provision(3) (non-GAAP) Provision (benefit) for credit losses
$219 $- $-$169 $50 Noninterest income 992 (31) - - 1,023 Noninterest expense 2,411 141 32 - 2,238 Income tax expense 230 (38) (5) (43) 316 Six Months Ended June 30, 2021 Less: notable items Integration Underlying results (in millions) Reported results (GAAP)
related costs(1) TOP and other(2) Provision (non-GAAP) Provision (benefit) for credit losses
($353 ) $- $- $- ($353 )
Noninterest income 1,027 - - - 1,027
Noninterest expense 2,009 2 29 - 1,978
Income tax expense 353 (1) (7) - 361
(1) Includes integration related costs associated with acquisitions for the
three and six months ended June 30, 2022 and 2021, and mark-to-market losses on
loans acquired from Investors classified as LHFS for the three and six months
ended June 30, 2022 .
(2) Includes our TOP transformational and revenue and efficiency initiatives for
the three and six months ended June 30, 2022 and 2021, and income tax impacts
related to legacy tax matters for the six months ended June 30, 2022 .
(3) Includes the initial provision for credit losses of $145 million and
$169 million for the three and six months ended June 30, 2022 , respectively,
tied to the Investors acquisition and 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 decreased $284 million to $332
million and decreased $476 million to $728 million for the three and six months
ended June 30, 2022 , respectively, compared to the same periods in 2021.
•On an Underlying basis, which excludes notable items, net income available to
common stockholders of $563 million and $1.0 billion for the three and six
months ended June 30, 2022 , respectively, compared with $624 million and $1.2
billion for the same periods in 2021.
•On an Underlying basis, earnings per diluted common share of
•Total revenue increased$390 million to$2.0 billion and increased$376 million to$3.6 billion for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, driven by increases of 34% and 18%, respectively, in net interest income, including the impact of the Investors acquisition and the HSBC transaction.
•The efficiency ratio of 65.3% and 66.2% for the three and six months ended
•On an Underlying basis, the efficiency ratio of 58.2% and 60.9% for the three and six months endedJune 30, 2022 , respectively, compared to 60.9% and 60.6% for the same periods in 2021.
•ROTCE of 9.1% and 10.2% for the three and six months ended
•On an Underlying basis, ROTCE of 15.5% and 14.2% for the three and six months
ended
•Tangible book value per common share of
For additional information regarding our financial performance, see "-Results of Operations" included in this report.
Citizens Financial Group, Inc. | 10 --------------------------------------------------------------------------------
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 2021 Form 10-K.
Table 2: Major Components of Net Interest Income
Three Months Ended June 30,
2022 2021 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$4,630 $13 1.06 %$11,259 $3 0.12 % ($6,629 ) 94 bps Taxable investment securities 35,900 201 2.25 27,597 124 1.80 8,303 45 Non-taxable investment securities 3 - 2.62 3 - 2.60 - 2 Total investment securities 35,903 201 2.25 27,600 124 1.80 8,303 45 Commercial and industrial 50,517 418 3.28 44,388 345 3.08 6,129 20 Commercial real estate 27,592 243 3.48 14,473 95 2.58 13,119 90 Leases 1,575 10 2.61 1,792 12 2.76 (217) (15) Total commercial loans and leases 79,684 671 3.33 60,653 452 2.96 19,031 37 Residential mortgages 28,486 221 3.10 20,242 154 3.04 8,244 6 Home equity 12,811 105 3.27 11,825 92 3.13 986 14 Automobile 14,172 127 3.60 12,526 125 4.00 1,646 (40) Education 13,144 137 4.18 12,632 135 4.26 512 (8) Other retail 5,557 109 7.87 5,612 100 7.13 (55) 74 Total retail loans 74,170 699 3.77 62,837 606 3.86 11,333 (9) Total loans and leases 153,854 1,370 3.55 123,490 1,058 3.42 30,364 13 Loans held for sale, at fair value 1,937 17 3.60 3,751 24 2.55 (1,814) 105 Other loans held for sale 2,353 25 4.21 233 2 2.99 2,120 122 Interest-earning assets 198,677 1,626 3.26 166,333 1,211 2.90 32,344 36 Noninterest-earning assets 22,290 18,123 4,167 Total assets$220,967 $184,456 $36,511 Liabilities and Stockholders' Equity Checking with interest$38,747 $15 0.16 %$27,278 $5 0.08 %$11,469 8 Money market 48,795 23 0.19 49,394 21 0.17 (599) 2 Savings 27,661 9 0.14 20,077 5 0.10 7,584 4 Term 6,970 7 0.31 6,970 11 0.61 - (30) Total interest-bearing deposits 122,173 54 0.18 103,719 42 0.16 18,454 2 Short-term borrowed funds 3,995 10 0.98 69 - 0.87 3,926 11 Long-term borrowed funds 10,222 57 2.26 7,434 45 2.41 2,788 (15) Total borrowed funds 14,217 67 1.90 7,503 45 2.40 6,714 (50) Total interest-bearing liabilities 136,390 121 0.36 111,222 87 0.31 25,168 5 Demand deposits 54,189 46,630 7,559 Other noninterest-bearing liabilities 5,991 3,741 2,250 Total liabilities 196,570 161,593 34,977 Stockholders' equity 24,397 22,863 1,534 Total liabilities and stockholders' equity$220,967 $184,456 $36,511 Interest rate spread 2.90 % 2.59 % 31 Net interest income and net interest margin$1,505 3.04 %$1,124 2.71 % 33 Net interest income and net interest margin, FTE(1)$1,507 3.04 %$1,126 2.72 % 32 Memo: Total deposits (interest-bearing and demand)$176,362 $54 0.12 %$150,349 $42 0.11 %$26,013 1 bp Citizens Financial Group, Inc. | 11
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Six Months Ended June 30,
2022 2021 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 $6,333 $17 0.52 % $11,061 $6 0.11 % ($4,728 ) 41 bps
Taxable investment securities 32,591 339 2.08 27,316 252 1.84 5,275 24
Non-taxable investment securities 2 - 2.61 3 - 2.60 (1) 1
Total investment securities 32,593 339 2.08 27,319 252 1.84 5,274 24
Commercial and industrial 47,747 746 3.11 44,338 692 3.10 3,409 1
Commercial real estate 20,867 333 3.17 14,574 189 2.58 6,293 59
Leases 1,568 21 2.71 1,852 25 2.73 (284) (2)
Total commercial loans and leases 70,182 1,100 3.12 60,764 906 2.97 9,418 15
Residential mortgages 25,987 390 3.00 19,817 302 3.05 6,170 (5)
Home equity 12,469 195 3.15 11,912 187 3.16 557 (1)
Automobile 14,352 254 3.58 12,378 250 4.07 1,974 (49)
Education 13,091 268 4.13 12,534 269 4.32 557 (19)
Other retail 5,492 211 7.75 5,765 205 7.19 (273) 56
Total retail loans 71,391 1,318 3.71 62,406 1,213 3.91 8,985 (20)
Total loans and leases 141,573 2,418 3.42 123,170 2,119 3.44 18,403 (2)
Loans held for sale, at fair value 2,150 33 3.11 3,535 42 2.40 (1,385) 71
Other loans held for sale 1,409 32 4.48 348 8 4.48 1,061 -
Interest-earning assets 184,058 2,839 3.09 165,433 2,427 2.94 18,625 15
Noninterest-earning assets 20,674 18,085 2,589
Total assets $204,732 $183,518 $21,214
Liabilities and Stockholders' Equity:
Checking with interest $34,605 $20 0.12 % $26,700 $11 0.09 % $7,905 3
Money market 48,012 35 0.15 49,465 43 0.17 (1,453) (2)
Savings 25,758 14 0.11 19,348 10 0.10 6,410 1
Term 5,976 10 0.30 7,767 28 0.73 (1,791) (43)
Total interest-bearing deposits 114,351 79 0.14 103,280 92 0.18 11,071 (4)
Short-term borrowed funds 2,023 10 1.00 109 - 0.59 1,914 41
Long-term borrowed funds 8,155 98 2.40 7,882 94 2.38 273 2
Total borrowed funds 10,178 108 2.13 7,991 94 2.36 2,187 (23)
Total interest-bearing liabilities 124,529 187 0.30 111,271 186 0.34 13,258 (4)
Demand deposits 51,430 45,230 6,200
Other noninterest-bearing liabilities 5,073 4,297 776
Total liabilities 181,032 160,798 20,234
Stockholders' equity 23,700 22,720 980
Total liabilities and stockholders' equity $204,732 $183,518 $21,214
Interest rate spread 2.79 % 2.60 % 19
Net interest income and net interest margin $2,652 2.91 % $2,241 2.73 % 18
Net interest income and net interest
margin, FTE(1) $2,656 2.91 % $2,246 2.74 % 17
Memo: Total deposits (interest-bearing and
demand) $165,781 $79 0.10 % $148,510 $92 0.12 % $17,271 (2) 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.
Net interest income increased$381 million , or 34%, and increased$411 million , or 18%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, reflecting growth of 19% and 11%, respectively, in interest-earning assets and a higher net interest margin. Net interest margin on a FTE basis increased 32 basis points to 3.04%, and increased 17 basis points to 2.91%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, reflecting higher earning-asset yields given higher market interest rates, the impact of the HSBC transaction and Investors acquisition, and the deployment of cash into loan growth, partially offset by increased funding costs. Average interest-earning asset yields increased 36 basis points to 3.26%, and increased 15 basis points to 3.09%, while average interest-bearing liability costs increased 5 basis points to 0.36%, and decreased 4 basis points to 0.30%, respectively, compared to the same periods.
Average interest-earning assets increased
Citizens Financial Group, Inc. | 12
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in loans, primarily reflecting the impact of the HSBC transaction and Investors
acquisition, and investments was partially offset by a decrease in cash held in
interest-bearing deposits from the partial deployment of elevated liquidity.
Average deposits increased $26.0 billion , or 17%, and increased $17.3 billion ,
or 12%, for the three and six months ended June 30, 2022 , respectively, compared
to the same periods in 2021, primarily attributable to the HSBC transaction and
Investors acquisition. Average total borrowed funds increased $6.7 billion and
increased $2.2 billion , respectively, compared to the same periods, given an
increase in long-term and short-term FHLB advances and subordinated debt,
partially offset by a decrease in senior debt.
Noninterest Income
Table 3: Noninterest Income
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 Change Percent 2022 2021 Change Percent
Capital markets fees $88 $91 ($3 ) (3 %) $181 $172 $9 5 %
Service charges and fees 108 100 8 8 206 199 7 4
Mortgage banking fees 72 85 (13) (15) 141 250 (109) (44)
Card fees 71 64 7 11 131 119 12 10
Trust and investment services
fees 66 60 6 10 127 118 9 8
Letter of credit and loan fees 40 38 2 5 78 76 2 3
Foreign exchange and
derivative products 60 28 32 114 111 56 55 98
Securities gains, net 1 3 (2) (67) 5 6 (1) (17)
Other income(1) (12) 16 (28) NM 12 31 (19) (61)
Noninterest income $494 $485 $9 2 % $992 $1,027 ($35 ) (3 %)
(1) Includes bank-owned life insurance income and other income for all periods presented.
Noninterest income increased$9 million , or 2%, and decreased$35 million , or 3%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, highlighted by the following significant changes.
•The changes in capital markets fees reflect lower bond underwriting fees and higher merger and acquisition advisory and loan syndication fees.
•Service charges and fees increased driven by the Investors acquisition and HSBC transaction.
•Mortgage banking fees declined given lower gain-on-sale margins and production volumes.
•Card fees increased driven by higher debit and credit card volumes.
•Trust and investment services fees increased driven by higher annuity and assets under management fees.
•Foreign exchange and derivative products revenue increased reflecting growth in client hedging activity across foreign exchange, interest rate and commodity products. •The decrease in other income was driven by$31 million of mark-to-market losses on loans acquired from Investors classified as LHFS, partially offset by higher bank-owned life insurance income.Citizens Financial Group, Inc. | 13 --------------------------------------------------------------------------------
Noninterest Expense
Table 4: Noninterest Expense
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 Change Percent 2022 2021 Change Percent
Salaries and employee benefits $683 $524 $159 30 % $1,277 $1,072 $205 19 %
Equipment and software 169 155 14 9 319 307 12 4
Outside services 189 137 52 38 358 276 82 30
Occupancy 111 82 29 35 194 170 24 14
Other operating expense 153 93 60 65 263 184 79 43
Noninterest expense $1,305 $991 $314 32 % $2,411 $2,009 $402 20 %
Noninterest expense increased $314 million , or 32%, and increased $402 million ,
or 20%, for the three and six months ended June 30, 2022 , respectively, compared
to the same periods in 2021. The increases in three and six month expense were
driven primarily by $104 million and $141 million , respectively, of
integration-related costs, higher salaries and employee benefits as well as
other operating expense associated with FDIC insurance, travel and advertising
costs, 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$216 million and$219 million for the three and six months endedJune 30, 2022 , respectively, compared to a credit provision benefit of$213 million and$353 million for the same periods in 2021. The credit provision includes the "double count" of the non-PCD loan CECL provision expense of$145 million and$169 million for the three and six months endedJune 30, 2022 , respectively, tied to the Investors acquisition and the HSBC transaction. The increased provision expense reflects loan growth, including the Investors acquisition and a slight deterioration in the macroeconomic outlook, partially offset by strong credit performance across retail and commercial.
Income Tax Expense
Income tax expense of$114 million and$230 million decreased$69 million and$123 million for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, driven by decreased taxable income. The effective income tax rate of 23.8% and 22.7% for the same periods increased from 22.0% and 21.9%, respectively, compared to the same periods in 2021, primarily driven by higher state taxes and nondeductible expenses related to recent acquisitions, partially offset by the increased benefit of tax-advantaged investments.
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, which at
the segment level is equal to net charge-offs, and other expenses. The residual
difference between the consolidated provision for credit losses and the business
operating segments' net charge-offs is reflected in Other.
Non-segment operations are classified as Other and include assets, liabilities,
capital, revenues, provision for credit losses, expenses and income tax expense
not attributed to our Consumer or Commercial Banking segments as well as
treasury and community development. In addition, for impairment testing
purposes, we allocate all goodwill to our Consumer Banking and 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 2021 Form 10-K other than the change
relative to our FTP methodology. See Note 18 for additional information.
Citizens Financial Group, Inc. | 14
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The following tables present 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 18 for additional information.
Table 5: Selected Financial Data for Business Operating Segments
Consumer Banking Commercial Banking
Three Months Ended June 30, Three Months Ended June 30,
(dollars in millions) 2022 2021 2022 2021
Net interest income $995 $897 $534 $419
Noninterest income 280 283 221 178
Total revenue 1,275 1,180 755 597
Noninterest expense 881 751 308 226
Profit before credit losses 394 429 447 371
Net charge-offs 39 45 10 34
Income before income tax expense 355 384 437 337
Income tax expense 90 98 96 72
Net income $265 $286 $341 $265
Average Balances:
Total assets $88,881 $75,600 $78,638 $57,527
Total loans and leases(1) 83,248 71,389 74,172 54,758
Deposits 118,482 100,933 51,575 44,049
Interest-earning assets 84,026 72,308 74,422 55,143
Consumer Banking Commercial Banking
Six Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2022 2021 2022 2021
Net interest income $1,852 $1,760 $950 $840
Noninterest income 537 634 434 348
Total revenue 2,389 2,394 1,384 1,188
Noninterest expense 1,665 1,501 580 453
Profit before credit losses 724 893 804 735
Net charge-offs 88 104 22 135
Income before income tax expense 636 789 782 600
Income tax expense 162 201 170 124
Net income $474 $588 $612 $476
Average Balances:
Total assets $83,247 $75,443 $69,927 $57,632
Total loans and leases(1) 78,268 70,792 66,134 54,786
Deposits 111,610 99,067 48,067 44,012
Interest-earning assets 79,067 71,725 66,412 55,159
(1) Includes LHFS.
Consumer Banking
Net interest income increased $98 million , or 11%, and increased $92 million , or
5%, for the three and six months ended June 30, 2022 , respectively, compared to
the same periods in 2021, driven by higher net interest margin and growth in
interest-earning assets, including the impact of the HSBC transaction and
Investors acquisition. This increase was partially offset by a reduction in PPP
loans. Average loans increased $11.9 billion and increased $7.5 billion for the
same periods, reflecting the impact of the Investors acquisition and HSBC
transaction, partially offset by a decline in PPP loans and planned runoff of
personal unsecured installment loans. Deposits increased $17.5 billion , or 17%,
and increased $12.5 billion , or 13%, for the same periods, including the impact
of the HSBC transaction and Investors acquisition.
Noninterest income decreased $3 million , or 1%, and decreased $97 million , or
15%, for the three and six months ended June 30, 2022 , respectively, compared to
the same periods in 2021, driven by lower mortgage banking fees reflecting lower
gain-on-sale margins and production volumes, and lower service charges and fees.
This decrease was partially offset by higher trust and investment services fees
reflecting higher annuity and management fees, and higher card fees driven by
debit and credit card volumes.
Citizens Financial Group, Inc. | 15
--------------------------------------------------------------------------------
Noninterest expense increased $130 million , or 17%, and increased $164 million ,
or 11%, for the three and six months ended June 30, 2022 , respectively, compared
to the same periods in 2021, reflecting higher salaries and employee benefits
and other operating expense associated with increased travel and advertising
costs, partially offset by the benefit of efficiency initiatives.
Net charge-offs decreased $6 million , or 13%, and decreased $16 million , or 15%,
for the three and six months ended June 30, 2022 , respectively, compared to the
same periods in 2021, as consumers continued to maintain a savings cushion, the
economy approached full employment and residential mortgage and auto loan
collateral values remained elevated.
Commercial Banking
Net interest income increased$115 million , or 27%, and increased$110 million , or 13%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, driven by higher net interest margin and growth in interest-earning assets, including the impact of the Investors acquisition. Noninterest income increased$43 million , or 24%, and increased$86 million , or 25%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, driven by higher foreign exchange and derivative products revenue, reflecting increased client activity across foreign exchange, interest rate and commodity products, partially offset by lower capital markets fees driven by lower bond underwriting fees. Noninterest expense increased$82 million , or 36%, and increased$127 million , or 28%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, reflecting higher salaries and employee benefits and other operating expense associated with increased travel and advertising costs, partially offset by the benefit of efficiency initiatives. Net charge-offs decreased$24 million , or 71%, and decreased$113 million , or 84%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021, as credit performance remained strong.
ANALYSIS OF FINANCIAL CONDITION
Securities
Table 6: Amortized Cost and Fair Value of
June 30, 2022 December 31, 2021
Amortized Amortized
(in millions) Cost Fair Value Cost Fair Value
U.S. Treasury and other $3,455 $3,408 $11 $11
State and political subdivisions 3 3 2 2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 21,568 20,089 24,607 24,442
Other/non-agency 281 261 397 405
Total mortgage-backed securities 21,849 20,350 25,004 24,847
Collateralized loan obligations 1,248 1,200 1,208 1,207
Total debt securities available for sale, at fair value
$24,961 $26,225 $26,067 Mortgage-backed securities: Federal agencies and U.S. government sponsored entities$8,921 $8,747 $1,505 $1,557 Total mortgage-backed securities 8,921 8,747 1,505 1,557 Asset-backed securities 646 614 737 732 Total debt securities held to maturity$9,567 $9,361 $2,242 $2,289
Total debt securities available for sale and held to maturity
$36,122 $34,322 $28,467 $28,356 Equity securities, at cost$1,162 $1,162 $624 $624 Equity securities, at fair value 138 138 109 109 Citizens Financial Group, Inc. | 16
-------------------------------------------------------------------------------- Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality, and market risk while achieving returns that align with our overall portfolio management strategy. The portfolio primarily includes high quality, highly liquid investments reflecting our ongoing commitment to maintain strong contingent liquidity levels and pledging capacity. As ofJune 30, 2022 ,U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 93% of the fair value of our debt securities portfolio holdings. Holdings backed by mortgages dominate our portfolio and facilitate our ability to pledge those securities to the FHLB for collateral purposes. For further discussion of the liquidity coverage ratios, see "Regulation and Supervision - Liquidity Requirements" in our 2021 Form 10-K. The fair value of the debt securities portfolio increased$6.0 billion fromDecember 31, 2021 , driven in large part by$3.8 billion from the Investors acquisition as well as net securities purchases. This increase was partially offset by the impact of higher interest rates driving a$2.8 billion increase in unrealized losses. The amortized cost basis of the HTM portfolio increased$7.3 billion due to the transfer of$7.8 billion from the AFS portfolio during the second quarter of 2022, offset in part by paydowns. The ratio of HTM securities to total securities increased to approximately 27% as ofJune 30, 2022 . As ofJune 30, 2022 , the portfolio's average effective duration was 5.7 years compared with 4.3 years as ofDecember 31, 2021 , as higher long-term rates drove a decrease 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 our risk appetite in the context of the broader interest rate risk framework and limits.
Loans and Leases
Table 7: Composition of Loans and Leases, Excluding LHFS (in millions)
June 30, 2022 December 31, 2021 Change PercentCommercial and industrial$51,801 $44,500 $7,301 16 % Commercial real estate 28,070 14,264 13,806 97 Leases 1,574 1,586 (12) (1) Total commercial 81,445 60,350 21,095 35 Residential mortgages 29,088 22,822 6,266 27 Home equity 13,122 12,015 1,107 9 Automobile 13,868 14,549 (681) (5) Education 13,141 12,997 144 1 Other retail 5,508 5,430 78 1 Total retail 74,727 67,813 6,914 10 Total loans and leases$156,172 $128,163 $28,009 22 %
Total loans and leases increased
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 5 of this report, and "-Critical Accounting Estimates - Allowance for Credit Losses" and Note 6 in our 2021 Form 10-K.
The ACL of
Citizens Financial Group, Inc. | 17 --------------------------------------------------------------------------------
Table 8: ACL and Related Coverage Ratios by Portfolio
June 30, 2022 December 31, 2021
(in millions) Loans and Leases Allowance Coverage Loans and Leases Allowance Coverage
Allowance for Loan and Lease Losses
Commercial and industrial $51,801 $608 1.17 % $44,500 $555 1.25 %
Commercial real estate 28,070 350 1.25 14,264 220 1.54
Leases 1,574 29 1.87 1,586 46 2.92
Total commercial 81,445 987 1.21 60,350 821 1.36
Residential mortgages 29,088 196 0.67 22,822 144 0.63
Home equity 13,122 96 0.73 12,015 82 0.69
Automobile 13,868 145 1.04 14,549 154 1.05
Education 13,141 287 2.18 12,997 308 2.37
Other retail 5,508 253 4.59 5,430 249 4.59
Total retail 74,727 977 1.31 67,813 937 1.38
Total loans and leases $156,172 $1,964 1.26 % $128,163 $1,758 1.37 %
Allowance for Unfunded Lending Commitments
Commercial(1) $166 1.42 % $153 1.61 %
Retail(2) 17 1.33 23 1.42
Total allowance for unfunded lending
commitments 183 176
Allowance for credit losses $156,172 $2,147 1.37 % $128,163 $1,934 1.51 %
(1) Coverage ratio includes total commercial allowance for unfunded lending commitments and total commercial allowance for loan and lease losses in the numerator and total commercial loans and leases in the denominator. (2) Coverage ratio includes total retail allowance for unfunded lending commitments and total retail allowance for loan losses in the numerator and total retail loans in the denominator.
Table 9: Nonaccrual Loans and Leases (dollars in millions) June 30, 2022 December 31, 2021 Change Percent Commercial and industrial$202 $171 $31 18 % Commercial real estate 37 11 26 236 Leases - 1 (1) (100) Total commercial 239 183 56 31 Residential mortgages(1) 253 201 52 26 Home equity 240 220 20 9 Automobile 50 55 (5) (9) Education 31 23 8 35 Other retail 26 20 6 30 Total retail 600 519 81 16 Nonaccrual loans and leases$839 $702 $137 20 % Nonaccrual loans and leases to total loans and leases 0.54 % 0.55 % (1 bp) Allowance for loan and lease losses to nonaccrual loans and leases 234 251 (17 %) Allowance for credit losses to nonaccrual loans and leases 256 276 (20 %)
(1) Loans fully or partially guaranteed by the FHA,
The increase in nonaccrual loans and leases is primarily due to the impact of
the Investors acquisition.
Citizens Financial Group, Inc. | 18--------------------------------------------------------------------------------
Table 10: Ratio of Net Charge-Offs to Average Loans and Leases
Three Months Ended June 30,
2022 2021
(dollars in millions) Net Charge-Offs Average Balance Ratio Net Charge-Offs Average Balance Ratio
Commercial and industrial $10 $50,517 0.08 % $28 $44,388 0.25 %
Commercial real estate - 27,592 - - 14,473 -
Leases - 1,575 (0.05) 13 1,792 2.97
Total commercial 10 79,684 0.05 41 60,653 0.27
Residential mortgages (1) 28,486 (0.01) (1) 20,242 (0.03)
Home equity (9) 12,811 (0.27) (10) 11,825 (0.33)
Automobile 6 14,172 0.16 (2) 12,526 (0.04)
Education 11 13,144 0.34 13 12,632 0.40
Other retail 32 5,557 2.25 37 5,612 2.63
Total retail 39 74,170 0.21 37 62,837 0.24
Total loans and leases $49 $153,854 0.13 % $78 $123,490 0.25 %
Second quarter 2022 NCOs decreased $29 million , or 37%, compared to the second
quarter of 2021, driven by a decrease in commercial of $31 million . Second
quarter 2022 annualized net charge-offs of 0.13% of average loans and leases
were down 12 basis points from the second quarter of 2021.
Table 11: Ratio of Net Charge-Offs to Average Loans and Leases
Six Months Ended June 30,
2022 2021
(dollars in millions) Net Charge-Offs Average Balance Ratio Net Charge-Offs Average Balance Ratio
Commercial and industrial $21 $47,747 0.09 % $105 $44,338 0.48 %
Commercial real estate - 20,867 - 26 14,574 0.36
Leases - 1,568 0.03 14 1,852 1.58
Total commercial 21 70,182 0.06 145 60,764 0.48
Residential mortgages (1) 25,987 (0.01) (2) 19,817 (0.02)
Home equity (18) 12,469 (0.30) (17) 11,912 (0.29)
Automobile 12 14,352 0.17 9 12,378 0.15
Education 27 13,091 0.41 20 12,534 0.32
Other retail 67 5,492 2.43 81 5,765 2.82
Total retail 87 71,391 0.24 91 62,406 0.29
Total loans and leases $108 $141,573 0.15 % $236 $123,170 0.39 %
First half 2022 NCOs decreased
Retail NCOs reflected modest improvement for the three and six months endedJune 30, 2022 compared to the same periods in 2021, as consumers continued to maintain a savings cushion, the economy approached full employment and residential mortgage and automobile loan collateral values remained elevated. Commercial NCOs decreased for the three and six months endedJune 30, 2022 compared to the same periods in 2021, as credit performance remained strong.
Commercial Loan Asset Quality
Our commercial portfolio consists of traditional commercial and industrial
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 discussed in our 2021 Form 10-K, we
utilize regulatory classification ratings to monitor credit quality for
commercial loans and leases.
Citizens Financial Group, Inc. | 19
--------------------------------------------------------------------------------Table 12: Commercial Loans and Leases by Regulatory Classification
June 30, 2022
Criticized
(in millions) Pass Special Mention Substandard Doubtful Total
Commercial and industrial $49,353 $813 $1,479 $156 $51,801
Commercial real estate 26,410 561 1,087 12 28,070
Leases 1,557 9 8 - 1,574
Total commercial $77,320 $1,383 $2,574 $168 $81,445
December 31, 2021
Criticized
(in millions) Pass Special Mention Substandard Doubtful Total
Commercial and industrial $42,254 $809 $1,294 $143 $44,500
Commercial real estate 13,319 406 528 11 14,264
Leases 1,512 49 24 1 1,586
Total commercial $57,085 $1,264 $1,846 $155 $60,350
Total commercial criticized balances of $4.1 billion as of June 30, 2022
increased $860 million compared with December 31, 2021 , primarily driven by the
Investors acquisition. Commercial criticized as a percent of total commercial of
5.1% at June 30, 2022 decreased from 5.4% at December 31, 2021 , given
improvements in loan mix.
Commercial and industrial criticized balances of $2.4 billion , or 4.7% of the
total commercial and industrial loan portfolio as of June 30, 2022 , increased
from $2.2 billion , or 5.0%, as of December 31, 2021 , primarily driven by the
Investors acquisition. The percentage decrease was primarily driven by an
improved loan mix. Commercial and industrial criticized loans represented 59% of
total criticized loans as of June 30, 2022 compared to 69% as of December 31,
2021 .
Commercial real estate criticized balances of $1.7 billion , or 5.9% of the
commercial real estate portfolio, increased from $945 million , or 6.6% as of
December 31, 2021 , primarily driven by the Investors acquisition. Commercial
real estate accounted for 40% of total criticized loans as of June 30, 2022 ,
compared to 29% as of December 31, 2021 .
Citizens Financial Group, Inc. | 20
--------------------------------------------------------------------------------Table 13: Commercial Loans and Leases by Industry Sector
June 30, 2022 December 31, 2021
% of % of
Total Loans Total Loans
(dollars in millions) Balance and Leases Balance and Leases
Finance and insurance $11,542 7 % $9,301 7 %
Health, pharma, and social assistance 3,136 2 2,912 2
Accommodation and food services 3,716 2 3,438 3
Professional, scientific, and technical services 3,009 2 2,665 2
Other manufacturing 4,481 3 4,087 3
Technology 4,822 3 4,220 3
Retail trade 2,779 2 2,237 2
Energy and related 2,156 1 2,017 2
Wholesale trade 3,104 2 2,358 2
Arts, entertainment, and recreation 1,372 1 1,189 1
Other services 2,192 2 2,051 2
Administrative and waste management services 1,494 1 1,396 1
Transportation and warehousing 1,078 1 1,147 1
Consumer products manufacturing 1,434 1 1,192 1
Automotive 1,437 1 1,172 1
Educational services 659 - 573 -
Chemicals 1,161 1 896 1
Real estate and rental and leasing 1,436 1 739 -
All other(1) 506 - 123 -
Total commercial and industrial 51,514 33 43,713 34
Real estate and rental and leasing 25,774 17 12,773 10
Accommodation and food services 623 - 605 -
Finance and insurance 798 1 624 1
Other services(2) 312 - 45 -
Health, pharma, and social assistance(2) 273 - 14 -
All other(1) 290 - 203 -
Total commercial real estate 28,070 18 14,264 11
Total leases 1,574 1 1,586 1
Total commercial(3) $81,158 52 % $59,563 46 %
(1) Deferred fees and costs are reported in All other.
(2) Sector was added in the second quarter of 2022. Prior period has been
adjusted to conform with the current period presentation.
(3) Excludes PPP loans of
Retail Loan Asset Quality
For retail loans, we utilize credit scores provided by FICO and the loan's payment and delinquency status to monitor credit quality. Management believes FICO credit scores are the strongest indicator of potential credit losses over the contractual life of the loan. These scores represent current and historical national industry-wide consumer level credit performance data, which management considers to predict a borrower's future payment performance. The largest portion of the retail portfolio is represented by borrowers located in theNew England , Mid-Atlantic and Midwest regions. However, we do lend selectively in areas outside the footprint, primarily in automobile finance and education lending.Citizens Financial Group, Inc. | 21 --------------------------------------------------------------------------------
Table 14: Retail Loan Portfolio Analysis
June 30, 2022 December 31, 2021
Days Past Due and Accruing Days Past Due and Accruing
(dollars in millions) Current 30-59 60-89 90+ Nonaccrual Current 30-59 60-89 90+ Nonaccrual
Residential mortgages(1) 96.67 % 0.20 % 0.12 % 2.14 % 0.87 % 96.03 % 0.45 % 0.23 % 2.41 % 0.88 %
Home equity 97.81 0.27 0.09 - 1.83 97.75 0.32 0.10 - 1.83
Automobile 98.50 0.87 0.27 - 0.36 98.45 0.90 0.27 - 0.38
Education 99.44 0.20 0.10 0.02 0.24 99.45 0.26 0.10 0.01 0.18
Other retail 98.20 0.64 0.44 0.25 0.47 98.18 0.74 0.42 0.29 0.37
Total retail 97.81 % 0.37 % 0.16 % 0.86 % 0.80 % 97.69 % 0.51 % 0.20 % 0.83 % 0.77 %
(1) 90+ days past due and accruing includes $623 million and $544 million of
loans fully or partially guaranteed by the FHA, VA , and USDA at June 30, 2022
and December 31, 2021 , respectively.
For more information on the aging of accruing and nonaccrual retail loans, see Note 5.
Table 15: Retail Asset Quality Metrics
June 30, 2022 December 31, 2021
Average refreshed FICO for total portfolio 768 768
CLTV ratio for secured real estate(1) 53 % 56 %
Nonaccrual retail loans as a percentage of total retail 0.80 % 0.77 %
(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.
Troubled Debt Restructurings
In the first quarter of 2020, the CARES Act and interagency guidance exempted from TDR classification COVID-19-related modified retail and commercial loans that met certain eligibility criteria. We generally do not consider modified loans that met eligibility criteria under the CARES Act to be TDRs. OnDecember 31, 2021 , relief provisions granted under the CARES Act expired, including the TDR classification exemption.
For additional information regarding TDRs, see Note 6 in our 2021 Form 10-K.
Table 16: Accruing and Nonaccrual Troubled Debt Restructurings
June 30, 2022
As a % of Accruing TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccrual Total
Commercial and industrial $195 - % - % $89 $284
Commercial real estate 1 - - 9 10
Total commercial 196 - - 98 294
Residential mortgages(1) 524
2.2 24.0 86 610
Home equity 162 0.3 - 88 250
Automobile 8 0.2 - 13 21
Education 100 0.4 0.2 20 120
Other retail 17 0.2 - 3 20
Total retail 811 3.3 24.2 210 1,021
Total $1,007 3.3 % 24.2 % $308 $1,315
Citizens Financial Group, Inc. | 22--------------------------------------------------------------------------------
December 31, 2021
As a % of Accruing TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccrual Total
Commercial and industrial $196 - % - % $74 $270
Commercial real estate 1 - - 9 10
Total commercial 197 - - 83 280
Residential mortgages(1) 295
2.9 12.0 42 337
Home equity 183 0.6 - 74 257
Automobile 8 0.2 - 22 30
Education 112 0.5 0.1 11 123
Other retail 20 0.2 - 2 22
Total retail 618 4.5 12.1 151 769
Total $815 4.5 % 12.1 % $234 $1,049
(1) Includes $242 million and $98 million in 90+ days past due and accruing that
are fully or partially guaranteed by the FHA, VA , and USDA at June 30, 2022 and
December 31, 2021 , respectively.
Deposits
Table 17: Composition of Deposits (in millions) June 30, 2022 December 31, 2021 Change Percent Demand$54,169 $49,443 $4,726 10 % Money market 48,063 47,216 847 2 Checking with interest 39,611 30,409 9,202 30 Savings 27,959 22,030 5,929 27 Term 9,123 5,263 3,860 73 Total deposits$178,925 $154,361 $24,564 16 % The increase in total deposits as ofJune 30, 2022 compared toDecember 31, 2021 is driven by$25.8 billion of period-end balances from the Investors acquisition and the HSBC transaction. Borrowed Funds Total borrowed funds of$18.2 billion as ofJune 30, 2022 increased$11.2 billion fromDecember 31, 2021 , driven by an increase in FHLB borrowings. The FHLB borrowings increased due to the advances acquired from Investors and the funding of loan and security growth. For more information regarding our borrowed funds, see "-Liquidity" and Note 9.
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 primarily regulated by the OCC. Our regulation and supervision continues to evolve as the legal and regulatory frameworks governing our operations continue to change. For more information, see "Regulation and Supervision" in our 2021 Form 10-K.
Capital Adequacy Process
Our assessment of capital adequacy begins with our Board-approved risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. There have been no significant changes to our capital adequacy risk appetite and risk management framework as described in "-Capital and Regulatory Matters" in our 2021 Form 10-K. Under the FRB's Tailoring Rules, Category IV firms, such as us, are subject to biennial supervisory stress testing and are exempt from company-run stress testing and related disclosure requirements. The FRB supervises Category IV firms on an ongoing basis, including evaluation of the capital adequacy and capital planning processes during off-cycle years. Annually, the FRB requires us to submit a capital plan approved by our Board of Directors or one of its committees. Our annual capital plan is due each year in April. We submitted our 2022 Capital Plan to the FRB onApril 4, 2022 . For more information, see the "Tailoring of Prudential Requirements" section in Item 1 of our 2021 Form 10-K.Citizens Financial Group, Inc. | 23 --------------------------------------------------------------------------------
Under the stress capital buffer ("SCB") framework, the FRB will not object to capital plans on quantitative grounds and each firm is required to maintain capital ratios above the sum of its minimum and SCB requirements to avoid restrictions on capital distributions and discretionary bonus payments.
For Category IV firms, like us, the SCB will be re-calibrated with each biennial supervisory stress test and updated annually to reflect our planned common stock dividends. Our SCB requirement throughSeptember 30, 2022 , is 3.4%. OnJune 23, 2022 , the FRB notified us that based on the results of the 2022 CCAR supervisory stress tests, our preliminary SCB effectiveOctober 1, 2022 throughSeptember 30, 2023 , will remain at 3.4%, with the FRB providing us with a final SCB byAugust 31, 2022 . To incorporate the effects of the Investors acquisition on our capital requirements, the FRB will require that we participate in the 2023 CCAR supervisory stress tests. Regulations relating to capital planning, regulatory reporting, stress testing and capital buffer requirements applicable to firms like us are presently subject to rule-making and potential further guidance and interpretation by the applicable federal regulators. We will continue to evaluate the impact of these and any other prudential regulatory changes, including their potential resultant changes in our regulatory and compliance costs and expenses.
For more information, see the "Regulation and Supervision" and "-Capital and Regulatory Matters" sections in our 2021 Form 10-K.
Regulatory Capital Ratios and Capital Composition
Under the currentU.S. Basel III capital framework, we and our banking subsidiary, CBNA, 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%. As a bank holding company, our SCB of 3.4% is imposed on top of the three minimum risk-based capital ratios listed above and a CCB of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above for our banking subsidiary. Under theU.S. Basel III rules, the CET1 deduction threshold for MSRs, certain deferred tax assets and investments in the capital of unconsolidated financial institutions is 25%. As ofJune 30, 2022 , we did not meet the threshold for these additional capital deductions. MSRs or certain deferred tax assets not deducted from CET1 capital are assigned a 250% risk weight and investments in the capital of unconsolidated financial institutions not deducted from CET1 capital are assigned an exposure category risk weight. In reaction to the COVID-19 pandemic, the FRB and the other federal banking regulators adopted a final rule relative to regulatory capital treatment of ACL under CECL. This rule allows electing banking organizations to delay the estimated impact of CECL on regulatory capital for a two-year period endingDecember 31, 2021 , followed by a three-year transition period endingDecember 31, 2024 . The three-year transition period will phase-in the aggregate amount of capital benefit provided during the initial two-year delay. OnDecember 31, 2021 , the aggregate amount of capital benefit was$384 million . The reduction in the capital benefit in 2022 is$96 million , or 5 basis points. For additional discussion of theU.S. Basel III capital framework and its related application, see "Regulation and Supervision" in our 2021 Form 10-K. The table below presents our actual regulatory capital ratios under theU.S. Basel III Standardized rules:
Table 18: Regulatory Capital Ratios Under the
June 30, 2022 December 31, 2021 Required Minimum
(in millions, except ratio data) Amount Ratio Amount Ratio Capital Ratios(1)
CET1 capital $17,946 9.6 % $15,656 9.9 % 7.9 %
Tier 1 capital 19,960 10.6 17,670 11.1 9.4
Total capital 23,184 12.3 20,244 12.7 11.4
Tier 1 leverage 19,960 9.3 17,670 9.7 4.0
Risk-weighted assets 187,727 158,831
Quarterly adjusted average assets 215,727 181,800
(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 SCB of 3.4%; N/A to Tier 1 leverage.
Citizens Financial Group, Inc. | 24
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At June 30, 2022 , our CET1 capital, tier 1 capital and total capital ratios were
9.6%, 10.6% and 12.3%, respectively, as compared with 9.9%, 11.1% and 12.7%,
respectively, as of December 31, 2021 . The CET1 and tier 1 capital ratios
decreased largely driven by $28.9 billion of RWA growth, higher estimated
goodwill and intangibles related to the Investors acquisition and the HSBC
transaction, dividends as described in "-Capital Transactions" below and a
decrease in the modified CECL transition amount as a result of entering the CECL
three-year transition period, partially offset by the common stock issued in
connection with the Investors acquisition and net income for the six months
ended June 30, 2022 . The total capital ratio decreased due to the changes in the
CET1 capital ratio described above, partially offset by increases in
subordinated debt as described in "-Capital Transactions" below and higher AACL
related to the Investors acquisition and a reduction in the modified AACL
transition amount as a result of entering the CECL three-year transition period.
At June 30, 2022 , our CET1 capital, tier 1 capital and total capital ratios were
approximately 170 basis points, 120 basis points and 90 basis points,
respectively, above their regulatory minimums plus our SCB. All ratios remained
well above the U.S. Basel III minimums.
Both the Company and CBNA are subject to the standardized approach for
determining RWA. At June 30, 2022 , RWA totaled $187.7 billion , up $28.9 billion
from December 31, 2021 , largely driven by the Investors acquisition and includes
higher CRE, commercial and residential mortgage loans, home equity lines, MSRs,
CRE commitments and loans held for sale.
As of
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