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 17
Business Operating Segments 17
Analysis of Financial Condition 18
Securities 19
Loans and Leases 20
Allowance for Credit Losses and Nonaccruing Loans and Leases 20
Deposits 25
Borrowed Funds 26
Capital and Regulatory Matters 26
Liquidity 30
Off-Balance Sheet Arrangements 33
Critical Accounting Estimates 33
Risk Governance 36
Market Risk 36
Non-GAAP Financial Measures and Reconciliations 41
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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 and associated lockdowns 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 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 associated lockdowns and their 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 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; 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 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 and associated lockdowns on our business,
operations,
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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,
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. In addition, statements about our net charge-off guidance constitute
forward-looking statements and are subject to the risk that the actual
charge-offs may differ, possibly materially, from what is reflected in those
statements due to, among other potential factors, the impact of the COVID-19
pandemic and the effectiveness of stimulus and forbearance programs in response,
changes in economic conditions, and idiosyncratic events affecting our
commercial loans.
More information about factors that could cause actual results to differ
materially from those described in the forward-looking statements can be found
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2020 .
INTRODUCTION
Citizens Financial Group, Inc. is one of the nation's oldest and largest
financial institutions with $187.2 billion in assets as of March 31, 2021 . 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 in Providence, Rhode Island ,
we offer a broad range of retail and commercial banking products and services to
individuals, small businesses, middle-market companies, large corporations and
institutions. 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 2,900 ATMs and 1,000 branches in 11 states in
the New 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 2020 Form 10-K.
Non-GAAP Financial Measures
This document contains non-GAAP financial measures denoted as "Underlying",
"excluding elevated cash", "excluding PPP loans", as well as other results
excluding the impact of certain items. 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 or results excluding the impact of certain items 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.
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 or identified as excluding the impact of certain items and where
there is a reference to these metrics in that paragraph, all measures that
follow that reference 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."
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FINANCIAL PERFORMANCE
Quarter to Date and Period End Key Highlights
Net income of $611 million increased $577 million from the first quarter of
2020, with earnings per diluted common share of $1.37 , up $1.34 from $0.03 per
diluted common share in the first quarter of 2020. ROTCE of 17.2% increased from
0.4% in the first quarter of 2020. Improved results primarily reflect the impact
of the COVID-19 pandemic and associated lockdowns in the first quarter of 2020,
resulting in a significant ACL reserve build in the first quarter of 2020.
In the first quarter of 2021, results reflected $15 million of expenses, net of
tax benefit, or $0.04 per diluted common share, from notable items, largely tied
to TOP 6 transformational and revenue and efficiency initiatives. In the first
quarter of 2020, there were $25 million of expenses, net of tax benefit, or
$0.06 per diluted common share, from notable items, largely tied to TOP 6
transformational and revenue and efficiency initiatives.
Table 1: Notable Items
Three Months Ended March 31,
2021 2020
(in millions) Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP) $1,018 $170 $611 $1,012 $11 $34
Less notable items:
Total integration costs - - - 4 (1) (3)
Other notable items (1) 20 (5) (15) 29 (7) (22)
Total notable items 20 (5) (15) 33 (8) (25)
Underlying results* (non-GAAP) $998 $175 $626 $979 $19 $59
(1) For the three months ended March 31, 2021 and 2020, Other notable items
include noninterest expense of $20 million and $29 million , respectively,
related to our TOP 6 transformational and revenue and efficiency initiatives.
•Net income available to common stockholders of $588 million increased $576
million , compared to $12 million in the first quarter of 2020.
•On an Underlying basis, which excludes notable items, first quarter 2021 net
income available to common stockholders of $603 million compared with $37
million in the first quarter of 2020.
•On an Underlying basis, EPS of $1.41 per share compared to $0.09 in the first
quarter of 2020.
•Total revenue of $1.7 billion was stable with the first quarter of 2020, driven
by a 9% increase in noninterest income, partially offset by a 4% decrease in net
interest income.
•Net interest income of $1.1 billion decreased 4%, reflecting 9% growth in
average interest-earning assets, including the addition of PPP loans, which was
more than offset by lower net interest margin.
•Net interest margin of 2.75% decreased 34 basis points from 3.09% in the first
quarter of 2020, primarily reflecting the impact of a lower rate environment,
lower interest-earning asset yields and elevated cash balances given strong
deposit flows, partially offset by improved funding mix and deposit pricing.
-Net interest margin on a FTE basis of 2.76% decreased by 34 basis points,
compared to 3.10% in the first quarter of 2020.
-Average loans and leases of $122.8 billion increased $1.8 billion , or 1%, from
$121.1 billion in the first quarter of 2020, reflecting a $1.4 billion increase
in commercial driven by PPP loans, partially offset by line of credit repayments
and net payoffs, as well as a $425 million increase in retail driven by growth
in education and residential mortgage, partially offset by decreases in home
equity and other retail given run off of personal unsecured installment loans.
-Period-end loans declined $895 million , or 1%, from the fourth quarter of 2020,
reflecting a 1% decline in both commercial and retail.
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-Average deposits of $146.6 billion increased $20.0 billion , or 16%, from $126.6
billion in the first quarter of 2020, reflecting an increase in demand deposits,
money market accounts, savings and checking with interest, partially offset by a
decrease in term deposits.
-Period-end deposit growth of $4.2 billion , or 3%, from the fourth quarter of
2020, reflecting growth in money market accounts, demand deposits, and savings
given strong deposit flows from consumer-oriented government stimulus, partially
offset by a decline in term deposits and checking with interest.
•Noninterest income of $542 million increased $45 million , or 9%, from the first
quarter of 2020, driven by growth in mortgage banking fees, strong capital
markets fees and record trust and investment services fees, partially offset by
a decrease in service charges and fees, reflecting COVID-19 impacts on overdraft
fees.
•Noninterest expense of $1.0 billion was stable compared to the first quarter of
2020.
•On an Underlying basis, noninterest expense increased 2% from the first quarter
of 2020, reflecting increases in outside services largely tied to growth
initiatives, equipment and software driven by increased technology spend, and
salaries and employee benefits as a result of higher revenue-based compensation,
partially offset by a decrease in other operating expense driven by lower travel
and advertising costs.
•The efficiency ratio of 61.4% compared to 61.1% for the first quarter of 2020,
and ROTCE of 17.2% compared to 0.4%.
•On an Underlying basis, the efficiency ratio of 60.2% compared to 59.1% for the
first quarter of 2020, and ROTCE of 17.6% compared to 1.1%.
•Negative provision for credit losses of $140 million compares with a $600
million provision for the first quarter of 2020, reflecting strong credit
performance across the consumer and commercial loan portfolios and improvement
in the macroeconomic outlook.
•Tangible book value per common share of $32.79 increased 3% from the first
quarter of 2020. Fully diluted average common shares outstanding decreased 1.5
million shares over the same period.
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SELECTED CONSOLIDATED FINANCIAL DATA
The summary of the Consolidated Operating Data for the three months ended March
31, 2021 and 2020 and the summary Consolidated Balance Sheet data as of March
31, 2021 and December 31, 2020 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.
Table 2: Summary of Consolidated Operating Data
Three Months Ended March 31,
(dollars in millions, except per share amounts) 2021 2020
OPERATING DATA:
Net interest income $1,117 $1,160
Noninterest income 542 497
Total revenue 1,659 1,657
Provision for credit losses (140) 600
Noninterest expense 1,018 1,012
Income before income tax expense 781 45
Income tax expense 170 11
Net income $611 $34
Net income available to common stockholders $588 $12
Net income per common share - basic $1.38 $0.03
Net income per common share - diluted $1.37 $0.03
OTHER OPERATING DATA:
Return on average common equity 11.57 % 0.24 %
Return on average tangible common equity 17.17 0.36
Return on average total assets 1.36 0.08
Return on average total tangible assets 1.41 0.09
Efficiency ratio 61.35 61.10
Operating leverage(1) (0.41) (3.71)
Net interest margin, FTE(2) 2.76 3.10
Effective income tax rate 21.76 24.13
(1) "Operating leverage" represents the period-over-period percent change in
total revenue, less the period-over-period percent change in noninterest
expense.
(2) Net interest margin is presented on a FTE basis using the federal statutory
tax rate of 21%.
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Table 3: Summary of Consolidated Balance Sheet data
(dollars in millions) March 31, 2021 December 31, 2020
BALANCE SHEET DATA:
Total assets $187,217 $183,349
Loans held for sale, at fair value 4,304 3,564
Other loans held for sale 75 439
Loans and leases 122,195 123,090
Allowance for loan and lease losses (2,194) (2,443)
Total securities 28,138 26,847
Goodwill 7,050 7,050
Total liabilities 164,564 160,676
Total deposits 151,349 147,164
Short-term borrowed funds 70 243
Long-term borrowed funds 8,316 8,346
Total stockholders' equity 22,653 22,673
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses to loans and leases 1.80 % 1.98 %
Allowance for credit losses to loans and leases 1.94 2.17
Allowance for credit losses to loans and leases, excluding the impact of PPP loans(1)
2.03 2.24
Allowance for loan and lease losses to nonaccruing loans and leases
218 240
Allowance for credit losses to nonaccruing loans and leases 235 262
Nonaccruing loans and leases to loans and leases 0.82 0.83
Capital Ratios:
CET1 capital ratio 10.1 % 10.0 %
Tier 1 capital ratio 11.4 11.3
Total capital ratio 13.4 13.4
Tier 1 leverage ratio 9.5 9.4
(1) For more information on the computation of non-GAAP financial measures, see
"-Introduction - Non-GAAP Financial Measures" and "-Non-GAAP Financial Measures
and Reconciliations."
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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 2020 Form 10-K.
The following table presents a five quarter trend of our Net interest margin,
FTE and Net interest income:
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First quarter 2021 versus fourth quarter 2020: Net interest income of $1.1
billion was down 1% given the impact of lower day count, with broadly stable net
interest margin and loans. Net interest margin on a FTE basis of 2.76% was up 1
basis point, reflecting improving funding mix and deposit pricing and a
steepening yield curve, largely offset by lower earning-asset yields.
Interest-bearing deposits costs of 0.20% decreased 7 basis points.
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Three Months Ended March 31,
2021 2020 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 $10,861 $3 0.11 % $1,859 $5 1.12 % $9,002 (101) bps
Taxable investment securities 27,031 128 1.89 25,339 147 2.32 1,692 (43)
Non-taxable investment securities 3 - 2.60 4 - 2.60 (1) -
Total investment securities 27,034 128 1.89 25,343 147 2.32 1,691 (43)
Commercial and industrial 44,287 347 3.12 43,152 417 3.82 1,135 (70)
Commercial real estate 14,675 94 2.57 13,876 139 3.96 799 (139)
Leases 1,915 13 2.69 2,482 18 2.83 (567) (14)
Total commercial loans and leases 60,877 454 2.98 59,510 574 3.81 1,367 (83)
Residential mortgages 19,388 148 3.05 18,866 164 3.47 522 (42)
Home equity 12,001 95 3.20 13,042 152 4.69 (1,041) (149)
Automobile 12,229 125 4.14 12,173 131 4.34 56 (20)
Education 12,436 134 4.38 10,610 149 5.64 1,826 (126)
Other retail 5,916 105 7.25 6,854 132 7.77 (938) (52)
Total retail loans 61,970 607 3.96 61,545 728 4.75 425 (79)
Total loans and leases 122,847 1,061 3.47 121,055 1,302 4.29 1,792 (82)
Loans held for sale, at fair value 3,254 18 2.27 1,890 15 3.28 1,364 (101)
Other loans held for sale 385 6 6.30 799 9 4.31 (414) 199
Interest-earning assets 164,381 1,216 2.97 150,946 1,478 3.91 13,435 (94)
Allowance for loan and lease losses (2,439) (1,708) (731)
Goodwill 7,050 7,046 4
Other noninterest-earning assets 13,577 10,893 2,684
Total assets $182,569 $167,177 $15,392
Liabilities and Stockholders' Equity:
Checking with interest $26,116 $6 0.09 % $24,612 $37 0.60 % $1,504 (51)
Money market accounts 49,536 22 0.18 39,839 93 0.94 9,697 (76)
Regular savings 18,611 5 0.11 14,201 18 0.51 4,410 (40)
Term deposits 8,572 17 0.83 18,616 79 1.70 (10,044) (87)
Total interest-bearing deposits 102,835 50 0.20 97,268 227 0.94 5,567 (74)
Short-term borrowed funds 150 - 0.46 644 1 0.76 (494) (30)
Long-term borrowed funds 8,336 49 2.35 14,057 90 2.56 (5,721) (21)
Total borrowed funds 8,486 49 2.32 14,701 91 2.48 (6,215) (16)
Total interest-bearing liabilities 111,321 99 0.36 111,969 318 1.14 (648) (78)
Demand deposits 43,814 29,362 14,452
Other liabilities 4,858 4,053 805
Total liabilities 159,993 145,384 14,609
Stockholders' equity 22,576 21,793 783
Total liabilities and stockholders' equity $182,569 $167,177 $15,392
Interest rate spread 2.62 % 2.77 % (15)
Net interest income and net interest margin $1,117 2.75 % $1,160 3.09 % (34)
Net interest income and net interest margin,
FTE(1) $1,120 2.76 % $1,164 3.10 % (34)
Memo: Total deposits (interest-bearing and
demand) $146,649 $50 0.14 % $126,630 $227 0.72 % (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. First quarter 2021 versus first quarter 2020: Net interest income of$1.1 billion decreased 4% from first quarter 2020, with 9% growth in interest-earning assets, including the addition of PPP loans, which was more than offset by lower net interest margin. Net interest margin on a FTE basis of 2.76% decreased 34 basis points compared to 3.10% in the first quarter of 2020, primarily reflecting the impact of a lower rate environment, lower interest-earning asset yields, and elevated cash balances (16 basis points) given strong deposit flows, partially offset by improved funding mix and deposit pricing. Average interest-earning asset yields of 2.97% decreased 94 basis points from 3.91% in the first quarter of 2020, while average interest-bearing liability costs of 0.36% decreased 78 basis points from 1.14% in the first quarter of 2020.Citizens Financial Group, Inc. | 13 -------------------------------------------------------------------------------- Average interest-earning assets of$164.4 billion increased$13.4 billion , or 9%, from the first quarter of 2020, as increased liquidity allowed for a$6.2 billion , or 42%, decrease in borrowed funds, and drove a$9.0 billion increase in cash held in interest-bearing deposits, and a$1.7 billion , or 7%, increase in investments. Results also reflected a$2.7 billion , or 2%, increase in average loans and leases and LHFS with a$1.4 billion increase in average commercial loans and leases driven by$4.8 billion of PPP loans, largely offset by line of credit repayments and net payoffs. Furthermore, average retail loans increased$425 million , driven by growth in education and residential mortgage, partially offset by decreases in home equity and other retail given run off of personal unsecured installment loans. Average deposits of$146.6 billion increased$20.0 billion , or 16%, from the first quarter of 2020, reflecting growth in demand deposits, money market accounts, savings and checking with interest, partially offset by a decline in term deposits. Average total borrowed funds of$8.5 billion decreased$6.2 billion from the first quarter of 2020, as strong customer deposit inflows allowed for significantly lower levels of FHLB advances. Results also reflect the paydown of senior debt and short-term borrowings. Total borrowed funds costs of$49 million decreased$42 million from the first quarter of 2020. The total borrowed funds cost of 2.32% decreased 16 basis points from 2.48% in the first quarter of 2020. Noninterest Income
The following table presents a five quarter trend of our noninterest income:
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First quarter 2021 versus fourth quarter 2020: Noninterest income of
$542 million was down 6%, reflecting lower mortgage banking fees, capital
markets fees, foreign exchange and interest rate products and service charges
and fees. These decreases were partially offset by improved trust and investment
services fees and net securities gains.
Table 5: Noninterest Income
Three Months Ended March 31,
(in millions) 2021 2020 Change Percent
Mortgage banking fees $165 $159 $6 4 %
Service charges and fees 99 118 (19) (16 %)
Capital markets fees 81 43 38 88
Card fees 55 56 (1) (2)
Trust and investment services fees 58 53 5 9
Letter of credit and loan fees 38 34 4
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Foreign exchange and interest rate products 28 24 4 17 Securities gains, net 3 - 3 100 Other income (1) 15 10 5 50 Noninterest income$542 $497 $45 9 %
(1) Includes bank-owned life insurance income and other income for all periods presented.
First quarter 2021 versus first quarter 2020: Noninterest income increased$45 million , or 9%, from the first quarter of 2020. Results reflected strong capital markets fees, growth in mortgage banking fees, andCitizens Financial Group, Inc. | 14 -------------------------------------------------------------------------------- higher trust and investment services fees, offset by lower service charges and fees. Capital markets fees increased from the first quarter of 2020 driven by higher underwriting revenue and mergers and acquisitions advisory fees, as well as the impact of a mark-to-market loss on loan trading assets in the first quarter of 2020. Mortgage banking fees reflected higher production volumes and favorable MSR hedging results, partially offset by lower servicing income given higher amortization expense. Trust and investment services fees increased reflecting an increase in assets under management from strong net inflows and higher equity market levels. Service charges and fees decreased from the first quarter of 2020 as a result of COVID-19 impacts on overdraft fees. Noninterest Expense
The following table presents a five quarter trend of our noninterest expense:
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First quarter 2021 versus fourth quarter 2020: Noninterest expense of
$1.0 billion was broadly stable and included the impact of notable items. On an
Underlying basis, noninterest expense of $998 million was up 3%, reflecting
seasonally higher salaries and employee benefits. These increases were partially
offset by lower other operating expense which reflected lower advertising costs.
Table 6: Noninterest Expense
Three Months Ended March 31,
(in millions) 2021 2020 Change Percent
Salaries and employee benefits $548 $549 ($1 ) 0 %
Equipment and software 152 133 19 14
Outside services 139 135 4 3
Occupancy 88 84 4 5
Other operating expense 91 111 (20) (18)
Noninterest expense $1,018 $1,012 $6 1 %
First quarter 2021 versus first quarter 2020: Noninterest expense increased $6
million , or 1%, from the first quarter of 2020, largely reflecting higher
equipment and software driven by increased technology spend as well as higher
outside services tied to growth initiatives. These results were partially offset
by a decrease in other operating expense related mainly to lower travel and
advertising costs. Underlying noninterest expense of $998 million increased $19
million , or 2%, as a result of the items stated above as well as higher salaries
and employee benefits tied to higher revenue-based compensation.
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Provision for Credit Losses
The following table presents a five quarter trend of our provision for credit
losses, net charge-offs and net charge-off ratio:
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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
Nonaccruing Loans and Leases" for more information.
First quarter 2021 versus fourth quarter 2020: In the first quarter of 2021,
strong credit performance across the retail and commercial loan portfolios and
improvement in the macroeconomic outlook resulted in a negative provision for
credit losses of $140 million . This compared to a provision of $124 million in
the fourth quarter of 2020.
First quarter 2021 versus first quarter 2020: As described above, the negative
provision for credit losses was $140 million in the first quarter of 2021. This
compared to provision for credit losses of $600 million in the first quarter of
2020, which reflected the adverse impacts from the COVID-19 pandemic and
associated lockdowns.
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Income Tax Expense
The following table presents a five quarter trend of our income tax expense and
effective income tax rate:
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First quarter 2021 versus first quarter 2020: Income tax expense increased $159
million from the first quarter of 2020 due to increased taxable income. The
effective income tax rate decreased to 21.8% from 24.1% in the first quarter of
2020. The first quarter 2020 rate was elevated due to the negative tax impact of
stock-based compensation on lower pre-tax income.
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.
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 2020 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 financial results. These differences are reflected in Other
non-segment operations. See Note 16 in Item 1 for further information.
Citizens Financial Group, Inc. | 17
--------------------------------------------------------------------------------Table 7: Selected Financial Data for Business Operating Segments
Consumer Banking Commercial Banking
Three Months Ended March 31, Three Months Ended March 31,
(dollars in millions) 2021 2020 2021 2020
Net interest income $863 $793 $421 $365
Noninterest income 351 357 170 125
Total revenue 1,214 1,150 591 490
Noninterest expense 750 738 227 221
Profit before credit losses 464 412 364 269
Net charge-offs 59 97 101 43
Income before income tax expense 405 315 263 226
Income tax expense 103 79 52 47
Net income $302 $236 $211 $179
Average Balances:
Total assets $75,283 $68,415 $57,738 $59,005
Total loans and leases(1)(2) 70,188 65,343 54,813 56,555
Deposits 97,180 85,228 43,974 33,545
Interest-earning assets 71,135 65,393 55,175 57,016
(1) Includes LHFS.
(2) The majority of PPP loans are reflected in Consumer Banking in accordance
with how they are managed.
Consumer Banking
Net interest income of $863 million increased $70 million , or 9%, from the first
quarter of 2020, driven by the benefit of loan and deposit growth, partially
offset by lower deposit margins given lower rates. Average loans grew $4.8
billion led by education and residential mortgage, as well as the impact of the
PPP loan program. Deposits grew $12 billion , or 14%, driven by government
stimulus. Noninterest income decreased $6 million , or 2%, from the first quarter
of 2020, driven by lower service charges and fees reflecting COVID-19 impacts on
overdraft fees, partially offset by higher mortgage banking and trust and
investment services fees which reflected an increase in assets under management
from strong equity market levels and net inflows. Noninterest expense increased
$12 million , or 2%, from the first quarter of 2020, reflecting higher salaries
and employee benefits tied to higher revenue-based compensation, equipment and
software, as a result of increased technology spend, and outside services,
largely tied to growth initiatives, partially offset by lower other operating
expense related to lower travel and advertising costs. Net charge-offs of $59
million decreased $38 million , or 39%, reflecting the impact of U.S. Government
stimulus programs and forbearance.
Commercial Banking
Net interest income of $421 million increased $56 million , or 15%, from $365
million in the first quarter of 2020, primarily driven by higher loan and
deposit volumes that were partially offset by improved funding mix and deposit
pricing. Noninterest income of $170 million increased $45 million , or 36%, from
$125 million in the first quarter of 2020, driven by strength in capital markets
fees due to higher underwriting revenue and mergers and acquisition advisory
fees, as well as the impact of a mark-to-market loss on loan trading assets in
the first quarter of 2020. Noninterest expense of $227 million increased $6
million , or 3%, from $221 million in the first quarter of 2020, driven by higher
salaries and employee benefits, and higher equipment and software due to
increased technology spend. Net charge-offs of $101 million increased $58
million from the first quarter of 2020, driven by finance and insurance,
including one large charge-off related to a financial sponsor, and commercial
real estate as a result of COVID-19 impacts.
Citizens Financial Group, Inc. | 18
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ANALYSIS OF FINANCIAL CONDITION
Securities
Table 8: Amortized Cost and Fair Value of AFS and HTM
Securities
March 31, 2021 December 31, 2020
Amortized Amortized
(in millions) Cost Fair Value Cost Fair Value
U.S. Treasury and other $11 $11 $11 $11
State and political subdivisions 3 3 3 3
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities 23,966 24,113 21,954 22,506
Other/non-agency 324 340 396 422
Total mortgage-backed securities, at fair value 24,290 24,453 22,350 22,928
Total debt securities available for sale, at fair value
$24,467 $22,364 $22,942 Mortgage-backed securities, at cost: Federal agencies and U.S. government sponsored entities$2,139 $2,223 $2,342 $2,464 Total mortgage-backed securities, at cost 2,139 2,223 2,342 2,464 Asset-backed securities, at cost 856 854 893 893 Total debt securities held to maturity$2,995 $3,077 $3,235 $3,357
Total debt securities available for sale and held to maturity
$27,299 $27,544 $25,599 $26,299 Equity securities, at fair value$73 $73 $66 $66 Equity securities, at cost 603 603 604 604 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 portfolio primarily includes high quality, highly liquid investments reflecting our ongoing commitment to maintain appropriate contingent liquidity levels and pledging capacity.U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 96% 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 2020 Form 10-K. The fair value of the AFS debt securities portfolio of$24.5 billion atMarch 31, 2021 increased$1.5 billion from$22.9 billion atDecember 31, 2020 , including$1.9 billion in new investments, offset by a$414 million reduction in unrealized gains driven by the steepening yield curve. The decline in the fair value of the HTM debt portfolio of$280 million was primarily attributable to portfolio run off. For further information, see Note 2. As ofMarch 31, 2021 , the portfolio's average effective duration was 4.1 years compared with 2.7 years as ofDecember 31, 2020 , 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. Citizens Financial Group, Inc. | 19 -------------------------------------------------------------------------------- Loans and Leases Table 9: Composition of Loans and Leases, Excluding LHFS (in millions) March 31, 2021 December 31, 2020 Change Percent Commercial and industrial (1)$44,058 $44,173 ($115 ) - % Commercial real estate 14,553 14,652 (99) (1) Leases 1,802 1,968 (166) (8) Total commercial 60,413 60,793 (380) (1) Residential mortgages 19,202 19,539 (337) (2) Home equity 11,854 12,149 (295) (2) Automobile 12,344 12,153 191 2 Education 12,691 12,308 383 3 Other retail 5,691 6,148 (457) (7) Total retail 61,782 62,297 (515) (1) Total loans and leases$122,195 $123,090 ($895 ) (1 %) (1) Includes PPP loans fully guaranteed by the SBA of$5.1 billion atMarch 31, 2021 and$4.2 billion atDecember 31, 2020 . Total loans and leases decreased$895 million , or 1%, from$123.1 billion as ofDecember 31, 2020 , reflecting a$380 million decrease in commercial and a$515 million decrease in retail. 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$2.4 billion as ofMarch 31, 2021 compared with the ACL of$2.7 billion as ofDecember 31, 2020 , reflecting a reserve release of$298 million . For further information, see Note 4. Table 10: ACL and Related Coverage Ratios by Portfolio March 31, 2021 December 31, 2020 (in millions) Loans and Leases Allowance Coverage Loans and Leases Allowance Coverage Allowance for Loan and Lease Losses Commercial and industrial$44,058 $742 1.68 %$44,173 $821 1.86 % Commercial real estate 14,553 353 2.43 14,652 360
2.46
Leases 1,802 51 2.82 1,968 52 2.67 Total commercial 60,413 1,146 1.90 60,793 1,233 2.03 Residential mortgages 19,202 125 0.65 19,539 141 0.72 Home equity 11,854 102 0.86 12,149 134 1.10 Automobile 12,344 175 1.41 12,153 200 1.65 Education 12,691 342 2.70 12,308 361 2.93 Other retail 5,691 304 5.34 6,148 374 6.07 Total retail loans 61,782 1,048 1.70 62,297 1,210
1.94
Total loans and leases$122,195 $2,194 1.80 %$123,090 $2,443 1.98 % Allowance for Unfunded Lending Commitments(1) Commercial$165 2.17 %$186 2.33 % Retail 13 1.72 41 2.01 Total allowance for unfunded lending commitments 178 227 Allowance for credit losses(2)$122,195 $2,372 1.94 %$123,090 $2,670
2.17 %
(1) Commercial and Retail coverages ratios calculated for allowance for unfunded lending commitments include the allowance for loan and lease losses and allowance for unfunded lending commitments in the numerator and total loans and leases in the denominator. (2) Excluding the impact of PPP loans, the ACL Coverage Ratio would have been 2.03% and 2.24% forMarch 31, 2021 andDecember 31, 2020 , respectively. For more information on the computation of non-GAAP financial measures, see "-Introduction - Non-GAAP Financial Measures" and "-Non-GAAP Financial Measures and Reconciliations." Citizens Financial Group, Inc. | 20 -------------------------------------------------------------------------------- Table 11: Nonaccrual Loans and Leases (dollars in millions) March 31, 2021 December 31, 2020 Change Percent Commercial and industrial$281 $280 $1 - % Commercial real estate 100 176 (76) (43 %) Leases 1 2 (1) (50) Total commercial loans and leases 382 458 (76) (17) Residential mortgages 237 167 70 42 Home equity 269 276 (7) (3) Automobile 70 72 (2) (3) Education 22 18 4 22 Other retail 28 28 - - Total retail loans 626 561 65 12 Nonaccrual loans and leases$1,008 $1,019 ($11 ) (1 %) Nonaccrual loans and leases to total loans and leases 0.82 % 0.83 % (1 bp) Allowance for loan and lease losses to nonaccruing loans and leases 218 240 (22 %) Allowance for credit losses to nonaccruing loans and leases 235 262 (27 %) NPLs of$1.0 billion as ofMarch 31, 2021 decreased$11 million , or 1%, fromDecember 31, 2020 , reflecting a$76 million decrease in commercial and a$65 million increase in retail. The decrease in commercial NPLs was primarily driven by the resolution of one large CRE loan, partially offset by higher nonaccrual designation for mortgage loans after exiting forbearance. Table 12: Net Charge-offs and Charge-Off Ratios Three Months Ended March Three Months Ended March 31, 31, (dollars in millions) 2021 2020 Change 2021 2020 Change Commercial and industrial$77 $44 $33 0.70 % 0.41 % 29 bps Commercial real estate 26 - 26 0.73 - 73 Leases 1 - 1 0.26 0.07 19 Total commercial 104 44 60 0.69 0.30 39 Residential mortgages (1) - (1) (0.01) 0.01 (2) Home equity (7) (3) (4) (0.25) (0.10) (15) Automobile 11 27 (16) 0.35 0.88 (53) Education 7 14 (7) 0.24 0.55 (31) Other retail 44 55 (11) 3.00 3.21 (21) Total retail loans 54 93 (39) 0.35 0.61 (26) Total net charge-offs$158 $137 $21 0.52 % 0.46 % 6 bps First quarter of 2021 NCOs of$158 million increased$21 million , or 15%, from$137 million in the first quarter of 2020, driven by an increase in commercial of$60 million partially offset by a decrease in retail of$39 million . First quarter of 2021 annualized net charge-offs of 0.52% of average loans and leases were up 6 basis points from first quarter of 2020. The increase in commercial NCOs in the first quarter of 2021 as compared to the first quarter of 2020 were primarily driven by a charge-off related to a financial sponsor, described below, as well as COVID-related charge-offs in CRE. Retail NCOs were down in the first quarter of 2021 as compared to the first quarter of 2020 primarily due toU.S. Government stimulus programs, as well as forbearance. In the first quarter of 2021, we charged-off our full exposure of approximately$54 million associated with a private equity sponsor client. This impact has been incorporated into our most recent full-year 2021 net charge-off guidance of 35-45 basis points of average loans. We recently filed a lawsuit in Federal court against this sponsor client alleging breach of contract and fraud. The Company has completed a full portfolio review and believes this incident is an isolated matter.
We continue to assess the impact of the COVID-19 pandemic and associated lockdowns 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.
Citizens Financial Group, Inc. | 21
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Commercial Loan Asset Quality
Our commercial loan and lease 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 of March 31, 2021 , commercial NPLs of $382 million decreased $76 million from
$458 million as of December 31, 2020 , representing 0.6% and 0.8% of the
commercial loan and lease portfolio as of March 31, 2021 and December 31, 2020 ,
respectively.
For commercial loans and leases, we utilize regulatory classification ratings to
monitor credit quality. Loans with a "pass" rating are those that we believe
will be fully repaid in accordance with the contractual loan terms. Commercial
loans and leases that are "criticized" are those that have some weakness, or
potential weakness, that indicate an increased probability of future loss.
"Criticized" loans are grouped into three categories, "special mention,"
"substandard" and "doubtful." Special mention loans have potential weaknesses
that, if left uncorrected, may result in deterioration of our credit position at
some future date. Substandard loans are inadequately protected loans which have
well-defined weaknesses that could hinder normal repayment or collection of the
debt. Doubtful loans have the same weaknesses as substandard, with the added
characteristics that the possibility of loss is high and collection of the full
amount of the loan is improbable.
Table 13: Commercial Loans and Leases by Regulatory Classification
March 31, 2021
Criticized
(in millions) Pass Special Mention Substandard Doubtful Total
Commercial and industrial(1)$40,922 $1,282 $1,609 $245 $44,058 Commercial real estate 13,631 489 408 25 14,553 Leases 1,751 34 16 1 1,802 Total commercial$56,304 $1,805 $2,033 $271 $60,413 December 31, 2020 Criticized (in millions) Pass Special Mention Substandard Doubtful Total Commercial and industrial(1)$40,878 $1,583 $1,464 $248 $44,173 Commercial real estate 13,356 804 416 76 14,652 Leases 1,922 33 12 1 1,968 Total commercial$56,156 $2,420 $1,892 $325 $60,793 (1) Includes$5.1 billion and$4.2 billion of PPP loans designated as pass that are fully guaranteed by the SBA as ofMarch 31, 2021 andDecember 31, 2020 , respectively. Total commercial criticized balances of$4.1 billion as ofMarch 31, 2021 decreased$528 million compared withDecember 31, 2020 . Commercial criticized as a percent of total commercial of 6.8% atMarch 31, 2021 decreased from 7.6% atDecember 31, 2020 . Commercial and industrial criticized balances of$3.1 billion , or 7.1% of the total commercial and industrial loan portfolio as ofMarch 31, 2021 , decreased from$3.3 billion , or 7.5%, as ofDecember 31, 2020 . The decrease was primarily driven by net repayments and charge-offs. Commercial and industrial criticized loans represented 76% of total criticized loans as ofMarch 31, 2021 compared to 71% as ofDecember 31, 2020 . Commercial real estate criticized balances of$922 million , or 6.3% of the commercial real estate portfolio, decreased from$1.3 billion , or 8.8%, as ofDecember 31, 2020 . The decrease was primarily driven by credit upgrades and net charge-offs. Commercial real estate accounted for 22% of total criticized loans as ofMarch 31, 2021 compared to 28% as ofDecember 31, 2020 . Citizens Financial Group, Inc. | 22 --------------------------------------------------------------------------------
Table 14: Commercial Loans and Leases by Industry Sector
March 31, 2021 December 31, 2020
% of % of
(dollars in millions) Balance Total Loans Balance Total Loans
Finance and insurance $6,297 5 % $6,481 5 %
Health, pharma, and social assistance 3,147 3 3,243 3
Accommodation and food services 3,251 3 3,206 3
Professional, scientific, and technical services 2,753 2 2,804 2
Other manufacturing 2,366 2 2,403 2
Information 2,223 2 2,378 2
Retail trade 2,381 2 2,336 2
Energy and related 2,044 2 2,237 2
Wholesale trade 2,006 2 1,904 2
Metals and mining 1,533 1 1,646 1
Arts, entertainment, and recreation 1,250 1 1,382 1
Other services 1,368 1 1,370 1
Administrative and waste management services 1,241 1 1,320 1
Computer, electrical equipment, appliance, and component manufacturing
1,213 1 1,174 1
Transportation and warehousing 1,216 1 1,169 1
Consumer products manufacturing 1,131 1 1,112 1
Automotive 990 1 1,051 1
Educational services 803 1 844 1
Chemicals 771 - 736 -
Real estate and rental and leasing 744 - 732 -
All other (1) 182 - 490 -
Total commercial and industrial 38,910 32 40,018 32
Real estate and rental and leasing 13,116 11 13,169 11
Accommodation and food services 789 1 749 1
Finance and insurance 469 - 498 -
All other (1) 179 - 236 -
Total commercial real estate 14,553 12 14,652 12
Total leases 1,802 1 1,968 2
Total commercial (2) $55,265 45 % $56,638 46 %
(1) Deferred fees and costs are reported in All other.
(2) Excludes PPP loans of $5.1 billion and $4.2 billion as of March 31, 2021 and
December 31, 2020 , respectively.
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. Management believes 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 borrowers located in the New England , Mid-Atlantic
and Midwest regions, although we have continued to lend selectively in areas
outside the footprint primarily in the auto, education and point-of-sale
financing.
Citizens Financial Group, Inc. | 23
--------------------------------------------------------------------------------Table 15: Aging of Retail Loans as a Percentage of Loan Class
March 31, 2021 December 31, 2020
Days Past Due Days Past Due
Current-29 30-59 60-89 90 or More Current-29 30-59 60-89 90 or More
Residential mortgages 98.69 % 0.29 % 0.06 % 0.96 % 98.73 % 0.30 % 0.11 % 0.86 %
Home equity 97.85 0.39 0.16 1.60 97.53 0.50 0.23 1.74
Automobile 98.64 0.95 0.33 0.08 97.93 1.40 0.53 0.14
Education 99.58 0.23 0.10 0.09 99.56 0.27 0.11 0.06
Other retail 98.44 0.54 0.42 0.60 98.36 0.62 0.47 0.55
Total retail 98.68 % 0.45 % 0.17 % 0.70 % 98.47 % 0.58 % 0.25 % 0.70 %
For more information on the aging of accruing and nonaccruing retail loans, see Note 4.
Table 16: Retail Asset Quality Metrics
March 31, 2021
Average refreshed FICO for total portfolio 769 771
CLTV ratio for secured real estate(1) 58 % 60 %
Nonaccruing retail loans to total retail 1.01 0.90
(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) 2021 2020 Change Percent
Net charge-offs $54 $93 ($39 ) (42 %)
Annualized net charge-off rate 0.35 % 0.61 % (26) bps
Retail asset quality continues to reflect a stronger economic outlook. The net
charge-off rate of 0.35% for the quarter ended March 31, 2021 reflected a
decrease of 26 basis points from the quarter ended March 31, 2020 , driven by the
forbearance and stimulus activity stemming from the COVID-19 pandemic and
associated lockdowns.
Troubled Debt Restructurings
In the first quarter of 2020, we adopted the CARES Act and interagency guidance
issued by the bank regulatory agencies which provide that COVID-19-related
modifications to retail and commercial loans that met certain eligibility
criteria are exempt from classification as a TDR. Payment deferrals and
forbearance plans entered into as a result of the COVID-19 pandemic were
generally not considered TDRs.
As of March 31, 2021 , $714 million of retail loans were classified as TDRs,
compared with $718 million as of December 31, 2020 . As of March 31, 2021 , $188
million of retail TDRs were in nonaccrual status with 33% of those current on
payments compared to $171 million in nonaccrual status with 38% of those current
on payments at December 31, 2020 . TDRs that are current on payments generally
return to accrual status once repayment capacity and appropriate payment history
has been established. TDRs are individually evaluated to estimate ACL, 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 2020 Form 10-K.
Citizens Financial Group, Inc. | 24
--------------------------------------------------------------------------------Table 17: Accruing and Nonaccruing Retail Troubled Debt Restructurings
March 31, 2021
As a % of Accruing Retail TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccruing Total
Residential mortgages $174 2.0 % 2.6 % $46 $220
Home equity 213 0.9 - 85 298
Automobile 3 0.1 - 43 46
Education 112 0.6 0.3 12 124
Other retail 24 0.3 - 2 26
Total $526 3.9 % 2.9 % $188 $714
December 31, 2020
As a % of Accruing Retail TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccruing Total
Residential mortgages$172 2.7 % 2.6 %$43 $215 Home equity 221 1.3 - 83 304 Automobile 13 0.5 - 33 46 Education 116 0.6 0.3 10 126 Other retail 25 0.3 - 2 27 Total$547 5.4 % 2.9 %$171 $718 Deposits Table 18: Composition of Deposits (in millions) March 31, 2021 December 31, 2020 Change Percent Demand$46,067 $43,831 $2,236 5 % Checking with interest 26,883 27,204 (321) (1) Regular savings 19,634 18,044 1,590 9 Money market accounts 51,074 48,569 2,505 5 Term deposits 7,691 9,516 (1,825) (19) Total deposits$151,349 $147,164 $4,185 3 % Total deposits as ofMarch 31, 2021 increased$4.2 billion , or 3%, to$151.3 billion , from$147.2 billion as ofDecember 31, 2020 , reflecting strong deposit flows from consumer-oriented government stimulus. Citizens Access®, our digital platform, ended the quarter with$5.3 billion of deposits, down from$5.9 billion as ofDecember 31, 2020 , primarily due to rate reduction strategies that resulted in a decrease in term deposits. Citizens Financial Group, Inc. | 25 -------------------------------------------------------------------------------- Borrowed Funds Total borrowed funds as ofMarch 31, 2021 decreased$203 million fromDecember 31, 2020 , driven by a$173 million and$30 million decrease in short-term and long-term borrowed funds, respectively. Long-term borrowed funds Table 19: Summary of Long-Term Borrowed Funds (in millions) March 31, 2021 December 31, 2020 Parent Company: 2.375% fixed-rate senior unsecured debt, due July 2021$350 $350 4.150% fixed-rate subordinated debt, due September 2022 (1) 168 182 3.750% fixed-rate subordinated debt, due July 2024 (1) 90 159 4.023% fixed-rate subordinated debt, due October 2024 (1) 17 25 4.350% fixed-rate subordinated debt, due August 2025 (1) 133 193 4.300% fixed-rate subordinated debt, due December 2025 (1) 336 450 2.850% fixed-rate senior unsecured notes, due July 2026 497 497 2.500% fixed-rate senior unsecured notes, due February 2030 297 297 3.250% fixed-rate senior unsecured notes, due April 2030 745 745 3.750% fixed-rate reset subordinated debt, due February 2031 (1) 69 - 4.300% fixed-rate reset subordinated debt, due February 2031 (1) 135 - 4.350% fixed-rate reset subordinated debt, due February 2031 (1) 60 - 2.638% fixed-rate subordinated debt, due September 2032 545 543
CBNA's Global Note Program:
2.550% senior unsecured notes, due May 2021 1,000 1,003 3.250% senior unsecured notes, due February 2022 712 716
0.918% floating-rate senior unsecured notes, due
300 299 1.000% floating-rate senior unsecured notes, due May 2022 (2) 250 250 2.650% senior unsecured notes, due May 2022 508 510 3.700% senior unsecured notes, due March 2023 523 527 1.143% floating-rate senior unsecured notes, due March 2023 (2) 250 249 2.250% senior unsecured notes, due April 2025 746 746 3.750% senior unsecured notes, due February 2026 536 551
Additional Borrowings by CBNA and Other Subsidiaries:
19 19
through 2038
Other 30 35
Total long-term borrowed funds $8,316 $8,346
(1) The March 31, 2021 balances reflect the results of the February 2021
subordinated debt private exchange offers. See "Capital and Regulatory
Matters-Regulatory Capital Ratios and Capital Composition" for additional
information.
(2) Rate disclosed reflects the floating rate as of March 31, 2021 or final
floating rate, as applicable.
The Parent Company's long-term borrowed funds as of March 31, 2021 and December
31, 2020 included principal balances of $3.5 billion and unamortized deferred
issuance costs and/or discounts of $87 million and $90 million , respectively.
CBNA and other subsidiaries' long-term borrowed funds as of March 31, 2021 and
December 31, 2020 included principal balances of $4.8 billion with unamortized
deferred issuance costs and/or discounts of $10 million and $11 million ,
respectively, and hedging basis adjustments of $85 million and $112 million ,
respectively. See Note 8 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 7.
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. For more information,
see "Regulation and Supervision" in our 2020 Form 10-K.
Citizens Financial Group, Inc. | 26
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Tailoring of Prudential Requirements
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. We are also required to
develop, maintain and submit an annual capital plan for review and approval by
our board of directors (or one of its committees), as well as FR Y-14 reporting
requirements. On April 2, 2021 , we submitted our 2021 Capital Plan to the FRB
under the FRB's 2021 CCAR process. For more information, see the "Tailoring of
Prudential Requirements" section in item 1 of our 2020 Form 10-K.
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 requirements and the SCB
requirements to avoid restrictions on capital distributions and discretionary
bonus payments. For Category IV firms, like us, the FRB has stated that the SCB
will be re-calibrated with each biennial supervisory stress test and updated
annually to reflect our planned common stock dividends. On October 1, 2020 , our
SCB of 3.4% became effective and applies to our capital actions through
September 30, 2021 .
On February 3, 2021 , the FRB adopted a final rule to tailor the requirements of
its Capital Plan Rule, specifically modifying capital planning, regulatory
reporting and stress capital buffer requirements to be consistent with the
Tailoring Rules framework. Under the final rule, effective April 5, 2021 ,
Category IV firms, like us, have the ability to elect to participate in the
supervisory stress test and receive an updated SCB requirement in a year in
which they are not subject to the supervisory stress test. We did not elect to
participate in the 2021 supervisory stress test and therefore our SCB is
expected to remain at 3.4% for 2021.
In light of the heightened uncertainty related to the COVID-19 pandemic and
associated lockdowns, the FRB took certain actions to preserve capital at banks.
Among those actions, the FRB imposed certain limitations on firms for the third
and fourth quarters of 2020, including mandatory suspension of share repurchases
and limiting common stock dividends to existing rates and the average quarterly
net income over the prior four quarters. The FRB modified its limitations on
capital distributions for the first and second quarters of 2021 such that firms
that participate in CCAR, like us, may resume share repurchases provided that
the aggregate of share repurchases and common stock dividends for the applicable
quarter did not exceed average quarterly net income for the trailing four
quarters. In January 2021 , our board of directors authorized us to repurchase up
to $750 million of our common stock beginning in the first quarter of 2021. Our
2020 Capital Plan includes maintaining quarterly common dividends of $0.39 per
common share through the SCB window period ending third quarter 2021. In March
2021 , the FRB announced that the current capital distribution limitations will
end on June 30, 2021 for firms, like us, that are on a two-year cycle and not
subject to supervisory stress testing this year. The timing and amount of future
dividends and share repurchases will depend on various factors, including our
capital position, financial performance, risk-weighted assets, capital impacts
of strategic initiatives, market conditions and regulatory considerations. All
future capital distributions are subject to consideration and approval by the
board of directors prior to execution.
Regulations relating to capital planning, regulatory reporting, and SCB
requirements applicable to firms like us are subject to ongoing rulemaking 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 "Regulation and Supervision" and "-Capital and
Regulatory Matters" in our 2020 Form 10-K.
Capital Framework
Under the current U.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 the U.S. Basel III rules, the CET1 deduction threshold for MSRs, certain
deferred tax assets and significant investments in the capital of unconsolidated
institutions is 25%. As of March 31, 2021 , we did not meet the threshold for
these additional capital deductions. MSRs or deferred tax assets not deducted
from CET1 capital
Citizens Financial Group, Inc. | 27
--------------------------------------------------------------------------------are assigned a 250% risk weight and significant 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 allowed electing 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. As ofMarch 31, 2021 ,$493 million of the capital benefit has been accumulated for application to the three-year transition period. For additional discussion of theU.S. Basel III capital framework and its related application, see "Regulation and Supervision" in our 2020 Form 10-K. The table below presents our actual regulatory capital ratios under theU.S. Basel III Standardized rules: Table 20: Regulatory Capital Ratios Under theU.S. Basel III Standardized Rules March 31, 2021 December 31, 2020 Required Minimum plus Required CCB for (in millions, except ratio data) Amount Ratio Amount Ratio Non-Leverage Ratios(1) CET1 capital$14,867 10.1 %$14,607 10.0 % 7.9 % Tier 1 capital 16,832 11.4 16,572 11.3 9.4 Total capital 19,879 13.4 19,602 13.4 11.4 Tier 1 leverage 16,832 9.5 16,572 9.4 4.0 Risk-weighted assets 147,817 146,781 Quarterly adjusted average assets 176,890 175,370 (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. AtMarch 31, 2021 , our CET1 capital, tier 1 capital and total capital ratios were 10.1%, 11.4% and 13.4%, respectively, as compared with 10.0%, 11.3%, and 13.4%, respectively, as ofDecember 31, 2020 . The CET1 capital ratio increased as net income for the three months endedMarch 31, 2021 was partially offset by$1.0 billion of risk-weighted asset ("RWA") growth, the impact of the capital actions described in "-Capital Transactions" below and a decrease in the modified CECL transitional amount. The tier 1 capital ratio increased due to the changes in the CET1 capital ratio described above. The total capital ratio was constant as the changes in the CET1 capital ratio described above combined with the subordinated debt exchange offer in the first quarter of 2021, as described in the "Regulatory Capital Ratios and Capital Composition" section below, were partially offset by the reduction in the net AACL impact. AtMarch 31, 2021 , our CET1 capital, tier 1 capital and total capital ratios were approximately 220 basis points, 200 basis points and 200 basis points, respectively, above their regulatory minimums plus our SCB. All ratios remained well above theU.S. Basel III minimums. Regulatory Capital Ratios and Capital Composition CET1 capital underU.S. Basel III Standardized rules totaled$14.9 billion atMarch 31, 2021 , an increase of$260 million from$14.6 billion atDecember 31, 2020 , largely driven by net income for the three months endedMarch 31, 2021 partially offset by dividends, common share repurchases and a decrease in the modified CECL transitional amount. Tier 1 capital atMarch 31, 2021 totaled$16.8 billion , reflecting a$260 million increase from$16.6 billion atDecember 31, 2020 , driven by the changes in CET1 capital. Total capital of$19.9 billion atMarch 31, 2021 , increased$277 million fromDecember 31, 2020 , driven by the changes in CET1 capital and a decrease in non-qualifying subordinated debt partially offset by the reduction in the net AACL impact. RWA totaled$147.8 billion atMarch 31, 2021 , based onU.S. Basel III Standardized rules, up$1.0 billion fromDecember 31, 2020 . This increase in RWA was driven by higher MSRs, agency securities, commercial commitments, bank-owned life insurance, education loans and unsettled trades. These RWA increases were partially offset by lower commercial loans and derivative valuations. As ofMarch 31, 2021 , the tier 1 leverage ratio was 9.5%, up from 9.4% atDecember 31, 2020 , driven by higher tier 1 capital, partially offset by the$1.5 billion increase in quarterly adjusted average assets. Citizens Financial Group, Inc. | 28 --------------------------------------------------------------------------------
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