cfg-20210930

0000759944-21-000147.txt : 20211103 0000759944-21-000147.hdr.sgml : 20211103 20211103160531 ACCESSION NUMBER: 0000759944-21-000147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 119 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211103 DATE AS OF CHANGE: 20211103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS FINANCIAL GROUP INC/RI CENTRAL INDEX KEY: 0000759944 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 050412693 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36636 FILM NUMBER: 211375308 BUSINESS ADDRESS: STREET 1: 1 CITIZENS PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 2039006715 MAIL ADDRESS: STREET 1: 1 CITIZENS PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 10-Q 1 cfg-20210930.htm 10-Q cfg-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

September 30, 2021

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From

(Not Applicable)

Commission File Number 001-36636

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


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

One Citizens Plaza, Providence, RI 02903

(Address of principal executive offices, including zip code)

(203) 900-6715

(Registrant’s telephone number, including area code)

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


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

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

☑ Yes ☐ No

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

☑ Yes ☐ No

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


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

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

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

There were 426,199,576 shares of Registrant’s common stock ($0.01 par value) outstanding on October 22, 2021.




	Table of Contents


Glossary of Acronyms and Terms		3

Part I. Financial Information		6

Item 1. Financial Statements		50

Consolidated Balance Sheets (unaudited)		51
Consolidated Statements of Operations (unaudited)		52
Consolidated Statements of Comprehensive Income (unaudited)		53
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)		54
Consolidated Statements of Cash Flows (unaudited)		56
Notes to the Consolidated Financial Statements (unaudited)		57

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		6

Item 3. Quantitative and Qualitative Disclosures about Market Risk		89

Item 4. Controls and Procedures		89


Part II. Other Information		89

Item 1. Legal Proceedings		90
Item 1A. Risk Factors		90
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		90

Item 6. Exhibits		90


Signature		91

Citizens Financial Group, Inc. | 2

GLOSSARY OF ACRONYMS AND TERMS

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


2020 Form 10-K						Annual Report on Form 10-K for the year ended December 31, 2020
AACL						Adjusted Allowance for Credit Losses
ACL						Allowance for Credit Losses: Allowance for Loan and Lease Losses plus Allowance for Unfunded Lending Commitments
AFS						Available for Sale
ALLL						Allowance for Loan and Lease Losses
ALM						Asset and Liability Management
AOCI						Accumulated Other Comprehensive Income (Loss)
ARRC						Alternative Reference Rate Committee
ASU						Accounting Standards Update
ATM						Automated Teller Machine
Board or Board of Directors						The Board of Directors of Citizens Financial Group, Inc.
bps						Basis Points
Capital Plan Rule						Federal Reserve’s Regulation Y Capital Plan Rule
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CBNA						Citizens Bank, National Association
CCAR						Comprehensive Capital Analysis and Review
CCB						Capital Conservation Buffer
CCMI						Citizens Capital Markets, Inc.
CECL						Current Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1						Common Equity Tier 1
CET1 capital ratio						Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Citizens, CFG, the Company, we, us, or our						Citizens Financial Group, Inc. and its Subsidiaries
CLO						Collateralized Loan Obligation
CLTV						Combined Loan-to-Value
COVID-19 pandemic						Coronavirus Disease 2019 Pandemic
CRE						Commercial Real Estate
Dodd-Frank Act						The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Elevated cash						Cash above targeted operating levels
EPS						Earnings Per Share
ERC						Executive Risk Committee
EVE						Economic Value of Equity
Exchange Act						The Securities Exchange Act of 1934
Fannie Mae (FNMA)						Federal National Mortgage Association
FCA						Financial Conduct Authority
FDIC						Federal Deposit Insurance Corporation
FHA						Federal Housing Administration
FHLB						Federal Home Loan Bank
FICO						Fair Isaac Corporation (credit rating)
FRB or Federal Reserve						Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)						Federal Home Loan Mortgage Corporation
FTE						Fully Taxable Equivalent
GAAP						Accounting Principles Generally Accepted in the United States of America
GDP						Gross Domestic Product

Citizens Financial Group, Inc. | 3


Ginnie Mae (GNMA)						Government National Mortgage Association
GSE						Government Sponsored Entity
HSBC						HSBC Bank U.S.A., N.A.
HSBC branches						HSBC’s East Coast branches and National Online deposit business
HTM						Held To Maturity
ICE						Intercontinental Exchange
Investors						Investors Bancorp, Inc.
JMP						JMP Group LLC
Last-of-Layer						Last-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar prepayable assets whereby the last dollar amount within the portfolio of assets is identified as the hedged item
LHFS						Loans Held for Sale
LIBOR						London Interbank Offered Rate
LIHTC						Low Income Housing Tax Credit
LTV						Loan to Value
MBS						Mortgage-Backed Securities
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-Atlantic						District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest						Illinois, Indiana, Michigan, and Ohio
Modified CECL Transition						The Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
Modified AACL Transition						The Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
MSRs						Mortgage Servicing Rights
NCOs						Net charge-offs
New England						Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NPLs						Nonaccrual loans and leases
OCC						Office of the Comptroller of the Currency
OCI						Other Comprehensive Income (Loss)
Operating Leverage						Period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense
Parent Company						Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
PPP						Paycheck Protection Program
ROTCE						Return on Average Tangible Common Equity
RPA						Risk Participation Agreement
RWA						Risk-Weighted Assets
SBA						United States Small Business Administration
SCB						Stress Capital Buffer
SEC						United States Securities and Exchange Commission
SOFR						Secured Overnight Financing Rate
SVaR						Stressed Value at Risk
Tailoring Rules						Rules establishing risk-based categories for determining prudential standards for large U.S. and foreign banking organizations, consistent with the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act
TBAs						To-Be-Announced Mortgage Securities
TDR						Troubled Debt Restructuring
Tier 1 capital ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach

Citizens Financial Group, Inc. | 4


Tier 1 leverage ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by quarterly adjusted average assets as defined under the U.S. Basel III Standardized approach
Total capital ratio						Total capital, which includes Common Equity Tier 1 capital, tier 1 capital and allowance for credit losses and qualifying subordinated debt that qualifies as tier 2 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
USDA						United States Department of Agriculture
VA						United States Department of Veterans Affairs
VaR						Value at Risk
VIE						Variable Interest Entities
Willamette						Willamette Management Associates, Inc.

Citizens Financial Group, Inc. | 5

PART I. FINANCIAL INFORMATION

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


						Page
Forward-Looking Statements						7
Introduction						8

Financial Performance						10
Selected Consolidated Financial Data						13
Results of Operations						15



Net Interest Income						15
Noninterest Income						19
Noninterest Expense						20
Provision for Credit Losses						21
Income Tax Expense						22
Business Operating Segments						22
Analysis of Financial Condition						25
Securities						25
Loans and Leases						26
Allowance for Credit Losses and Nonaccru al Loans and Leases						26
Deposits						32
Borrowed Funds						33
Capital and Regulatory Matters						33
Liquidity						37
Off-Balance Sheet Arrangements						40
Critical Accounting Estimates						41

Risk Governance						42
Market Risk						42
Non-GAAP Financial Measures and Reconciliations						47

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 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 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 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;

•An inability to complete the acquisitions of Investors or the HSBC branches, or changes in the current anticipated timeframe, terms or manner of such acquisitions;

•Greater than expected costs or other difficulties related to the integration of our business and that of Investors and HSBC branches;

•The inability to retain existing Investors or HSBC clients and employees following the closings of the Investors and HSBC branch acquisitions;

Citizens Financial Group, Inc. | 7

•The occurrence of any event change or other circumstance that could give rise to the right of one or both parties to terminate (i) the agreement to acquire Investors or (ii) the agreement to acquire HSBC branches; 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, 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. Statements about Citizens’ agreement to acquire Investors and CBNA’s agreement to acquire HSBC branches also constitute forward-looking statements and are subject to the risk that actual results could be materially different from those expressed in those statements, including if either of both transactions are not consummated in a timely manner or at all, or if integration is more costly or difficult than expected.

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 2020 Form 10-K as well as Part II, Item 1A of our Form 10-Q for the quarter ended June 30, 2021.

INTRODUCTION

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with $187.0 billion in assets as of September 30, 2021. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations, and institutions. We help our customers reach their potential by listening to them and by understanding their needs to offer tailored advice, ideas, and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center, the convenience of approximately 3,000 ATMs and approximately 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 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.

On May 26, 2021, CBNA entered into an agreement to acquire 80 East Coast branches and the national online deposit business from HSBC for an approximate 2.0% premium paid on deposits at closing. The HSBC acquisition provides an attractive entry into important metro markets and supports our national expansion strategy. The branch purchase includes 66 locations in the New York City Metro area, 9 locations in the Mid-Atlantic/Washington D.C. area, and 5 locations in Southeast Florida. As of September 30, 2021, there were approximately $8.4 billion in deposits and $1.9 billion in loans. The transaction is expected to close in the first quarter of 2022, subject to customary closing terms and conditions and regulatory approvals.

On July 28, 2021 Citizens entered into a definitive agreement and a plan of merger under which we will acquire all of the outstanding shares of Investors for a combination of stock and cash. Pursuant to the terms of the agreement, Investors shareholders will receive 0.297 of a share of the Company’s common stock and $1.46 in cash for each share of Investors they own. The acquisition of Investors enhances Citizens’ banking franchise, adding an attractive middle market, small business and consumer customer base while building our physical presence in the northeast with the addition of 154 branches located in the greater New York City and Philadelphia metropolitan areas and across New Jersey. As of September 30, 2021, Investors disclosed that it had total assets of $27.3 billion, including $21.6 billion of loans, $24.5 billion of liabilities, including $20.4 billion of

Citizens Financial Group, Inc. | 8

deposits, and $2.8 billion of stockholders’ equity. The merger is expected to close in early second quarter 2022, subject to approval by the shareholders of Investors, regulatory approvals, and other customary closing conditions.

On August 5, 2021, Citizens entered into a definitive agreement to acquire Willamette, a valuation consulting and forensic analysis firm with offices in Chicago, Atlanta, and Portland, Oregon. This transaction further strengthens our growing corporate financial advisory capabilities. The acquisition was completed on September 1, 2021.

On September 8, 2021, Citizens entered into a definitive agreement to acquire JMP in an all-cash transaction. This acquisition further strengthens Citizens’ corporate finance and strategic advisory capabilities. Under the agreement, JMP shareholders will receive $7.50 for each common share of JMP they own, or approximately $149 million in cash. This transaction is targeted to close in mid-fourth quarter 2021, subject to approval by the shareholders of JMP and other customary closing conditions.

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 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 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. Where there is a reference to these metrics in that paragraph, all measures that follow are on the same basis when applicable. For more information on the computation of non-GAAP financial measures, see “—Non-GAAP Financial Measures and Reconciliations.”

Citizens Financial Group, Inc. | 9

FINANCIAL PERFORMANCE

Quarterly Results - Key Highlights

Net income of $530 million increased 69% from $314 million in the third quarter of 2020, with earnings per diluted common share of $1.18, up $0.50 from $0.68 per diluted common share in the third quarter of 2020. ROTCE of 13.7% compared to 8.3% in the third quarter of 2020.

Third quarter 2021 results reflect $16 million of expenses, net of tax benefit, or $0.04 per diluted common share, from notable items compared to $24 million of expenses, net of tax benefit, or $0.05 per diluted common share, from notable items in third quarter of 2020. On an Underlying basis, which excludes notable items, net income available to common stockholders of $520 million compared with $313 million in the third quarter of 2020. Underlying EPS of $1.22 compared to $0.73 in the third quarter of 2020. Underlying ROTCE of 14.2% compared with 9.0% in third quarter of 2020.


Table 1: Notable Items
	Three Months Ended September 30,
	2021			2020
(in millions)	Noninterest expense	Income tax expense	Net Income		Noninterest expense	Income tax expense	Net Income
Reported results (GAAP):	$1,011	$151	$530		$988	$61	$314
Less notable items:
Total integration costs	4	(1)	(3)		2	—	(2)
Other notable items(1)	19	(6)	(13)		29	(7)	(22)
Total notable items	23	(7)	(16)		31	(7)	(24)
Underlying results (non-GAAP)	$988	$158	$546		$957	$68	$338

(1) Other notable items for the third quarter of 2021 include a pension settlement charge and a compensation-related tax credit as well as TOP 6 transformational and revenue and efficiency initiatives. Third quarter 2020 includes our TOP 6 transformational and revenue and efficiency initiatives.

•Total revenue of $1.7 billion decreased $132 million, or 7%, from the third quarter of 2020, driven by a decrease of 21% in noninterest income, partially offset by a 1% increase in net interest income.

•Net interest income of $1.1 billion increased 1% compared to the third quarter of 2020 reflecting 4% growth in interest-earning assets, largely offset by lower net interest margin.

◦Net interest margin of 2.72% decreased 10 basis points compared to 2.82% in the third quarter of 2020, primarily reflecting the impact of elevated cash balances and the lower rate environment, partly offset by improved funding mix and deposit pricing and the benefit of accelerated PPP loan forgiveness.

–Net interest margin on a FTE basis of 2.72% decreased 11 basis points compared to 2.83% in the third quarter of 2020.

–Average loans and leases of $122.6 billion decreased $2.3 billion, or 2%, from $124.9 billion in the third quarter of 2020, driven by a $5.2 billion decrease in commercial reflecting payoffs and a $1.9 billion decrease in PPP loans. The decrease in commercial was partially offset by a $2.9 billion increase in retail driven by growth in education, residential mortgage and automobile, partially offset by planned runoff of personal unsecured installment loans and a decrease in home equity.

–Average deposits of $151.9 billion increased $10.5 billion, or 7%, from $141.4 billion in the third 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.

◦Noninterest income of $514 million decreased $140 million, or 21%, from the third quarter of 2020, driven by a decline in mortgage banking fees and other income, partially offset by higher capital markets, service charges, card and trust and investment services fees.

•Noninterest expense of $1.0 billion was stable compared to the third quarter of 2020.

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◦On an Underlying basis, noninterest expense of $988 million increased $31 million, or 3%, from the third quarter of 2020, given higher salaries and employee benefits, outside services and other operating expense.

•The efficiency ratio of 60.9% compared to 55.2% in the third quarter of 2020.

◦On an Underlying basis, the efficiency ratio of 59.5% compared to 53.4% in the third quarter of 2020.

•Credit provision benefit of $33 million compares with a $428 million credit provision expense in the third quarter of 2020, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook.

Year to Date and Period End - Key Highlights

Net income of $1.8 billion increased $1.2 billion from the first nine months of 2020, with earnings per diluted common share of $3.99, up $2.76 from $1.23 per diluted common share in the first nine months of 2020. ROTCE of 16.1% increased from 5.1% in the first nine months of 2020. Improved results primarily reflect the impact of the COVID-19 pandemic and associated lockdowns in the first nine months of 2020, resulting in a significant ACL reserve build during this period.

In the first nine months of 2021, results reflect $39 million of expenses, net of tax benefit, or $0.10 per diluted common share, from notable items compared to $59 million of expenses, net of tax benefit, or $0.14 per diluted common share, from notable items in the first nine months of 2020.


Table 2: Notable Items
	Nine Months Ended September 30,
	2021			2020
(in millions)	Noninterest expense	Income tax expense	Net Income		Noninterest expense	Income tax expense	Net Income
Reported results (GAAP)	$3,020	$504	$1,789		$2,979	$126	$601
Less notable items:
Total integration costs	6	(2)	(4)		8	(2)	(6)
Other notable items(1)	48	(13)	(35)		75	(22)	(53)
Total notable items	54	(15)	(39)		83	(24)	(59)
Underlying results (non-GAAP)	$2,966	$519	$1,828		$2,896	$150	$660

(1) For the nine months ended September 30, 2021, Other notable items include a pension settlement charge and a compensation-related credit as well as our TOP 6 transformational and revenue and efficiency initiatives. Other notable items for the nine months ended September 30, 2020 includes our TOP 6 transformational and revenue and efficiency initiatives as well as an income tax benefit related to legacy tax matters.

•Net income available to common stockholders of $1.7 billion increased $1.2 billion, compared to $526 million in the first nine months of 2020.

◦On an Underlying basis, which excludes notable items, net income available to common stockholders of $1.7 billion compared with $585 million in the first nine months of 2020.

◦On an Underlying basis, EPS of $4.09 compared to $1.37 in the first nine months of 2020.

•Total revenue of $4.9 billion decreased $271 million, or 5%, from the first nine months of 2020, driven by declines of 11% and 2% in noninterest income and net interest income, respectively.

◦Net interest income of $3.4 billion decreased 2% given lower net interest margin, partially offset by 5% growth in interest-earning assets.

◦Net interest margin of 2.73% decreased 20 basis points from 2.93% in the first nine months of 2020, reflecting the impact of a lower rate environment, lower interest-earning asset yields and elevated cash balances, partly offset by improved funding mix and deposit pricing and the benefit of accelerated PPP loan forgiveness.

–Net interest margin on a FTE basis of 2.73% decreased 20 basis points, compared to 2.93% in the first nine months of 2020.

–Average loans and leases of $123.0 billion decreased $1.9 billion, or 2%, from $124.9 billion in the first nine months of 2020, driven by a $3.5 billion decrease in commercial reflecting line of credit repayments and net payoffs, partially offset by an increase in PPP loans. The decrease in commercial was partially offset by a $1.6 billion increase in retail driven by

Citizens Financial Group, Inc. | 11

growth in education, residential mortgage and automobile, partially offset by planned run-off of personal unsecured installment loans and a decrease in home equity.

–Period-end loans increased $228 million from the fourth quarter of 2020, reflecting 5% growth in retail and a 5% decline in commercial.

–Average deposits of $149.6 billion increased $13.1 billion, or 10%, from $136.5 billion in the first nine months 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 $5.1 billion, or 3%, from the fourth quarter of 2020, reflecting elevated liquidity tied to government stimulus associated with the COVID-19 disruption.

◦Noninterest income of $1.5 billion decreased $200 million, or 11%, from the first nine months of 2020, driven by a decline in mortgage banking fees partially offset by improved capital markets, trust and investment services, letter of credit and loan, card and service charges and fees.

•Noninterest expense of $3.0 billion was stable compared to the first nine months of 2020.

◦On an Underlying basis, noninterest expense increased 2% from the first nine months of 2020, reflecting higher outside services, equipment and software expense, and salaries and employee benefits, partially offset by a decrease in other operating expense.

•The efficiency ratio of 61.3% compared to 57.3% for the first nine months of 2020, and ROTCE of 16.1% compared to 5.1%.

◦On an Underlying basis, the efficiency ratio of 60.2% compared to 55.7% for the first nine months of 2020, and ROTCE of 16.5% compared to 5.7%.

•Credit provision benefit of $386 million compares with a $1.5 billion credit provision expense for the first nine months of 2020, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook.

•Tangible book value per common share of $34.44 increased 7% from the first nine months of 2020. Fully diluted average common shares outstanding was stable over the same period.

Citizens Financial Group, Inc. | 12

SELECTED CONSOLIDATED FINANCIAL DATA

The summary of the Consolidated Operating Data for the three and nine months ended September 30, 2021 and 2020 and the summary Consolidated Balance Sheet data as of September 30, 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 3: Summary of Consolidated Operating Data
	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions, except per share amounts)	2021		2020		2021		2020
OPERATING DATA:
Net interest income	$1,145		$1,137		$3,386		$3,457
Noninterest income	514		654		1,541		1,741
Total revenue	1,659		1,791		4,927		5,198
Provision for credit losses	(33)		428		(386)		1,492
Noninterest expense	1,011		988		3,020		2,979
Income before income tax expense	681		375		2,293		727
Income tax expense	151		61		504		126
Net income	$530		$314		$1,789		$601
Net income available to common stockholders	$504		$289		$1,708		$526
Net income per common share - basic	$1.18		$0.68		$4.01		$1.23
Net income per common share - diluted	$1.18		$0.68		$3.99		$1.23
OTHER OPERATING DATA:
Return on average common equity	9.39	%	5.60	%	10.91	%	3.45	%
Return on average tangible common equity	13.71		8.33		16.08		5.15
Return on average total assets	1.13		0.70		1.30		0.46
Return on average total tangible assets	1.17		0.73		1.35		0.48
Efficiency ratio	60.92		55.18		61.30		57.31
Operating leverage	(9.64)		7.77		(6.59)		2.95
Net interest margin, FTE(1)	2.72		2.83		2.73		2.93
Effective income tax rate	22.35		16.10		22.01		17.27

(1) Net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%.

Citizens Financial Group, Inc. | 13


Table 4: Summary of Consolidated Balance Sheet data
(dollars in millions)	September 30, 2021		December 31, 2020
BALANCE SHEET DATA:
Total assets	$187,007		$183,349
Loans held for sale, at fair value	3,177		3,564
Other loans held for sale	93		439
Loans and leases	123,318		123,090
Allowance for loan and lease losses	(1,855)		(2,443)
Total securities	28,107		26,847
Goodwill	7,065		7,050
Total liabilities	163,584		160,676
Total deposits	152,221		147,164
Short-term borrowed funds	8		243
Long-term borrowed funds	6,947		8,346
Total stockholders’ equity	23,423		22,673
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses to loans and leases	1.50	%	1.98	%
Allowance for credit losses to loans and leases	1.63		2.17
Allowance for credit losses to loans and leases, excluding the impact of PPP loans(1)	1.65		2.24
Allowance for loan and lease losses to nonaccrual loans and leases	248		240
Allowance for credit losses to nonaccrual loans and leases	268		262
Nonaccrual loans and leases to loans and leases	0.61		0.83
Capital Ratios:
CET1 capital ratio	10.3	%	10.0	%
Tier 1 capital ratio	11.6		11.3
Total capital ratio	13.4		13.4
Tier 1 leverage ratio	9.7		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.”

Citizens Financial Group, Inc. | 14

RESULTS OF OPERATIONS

Net Interest Income

The following table presents a five quarter trend of our Net interest margin, FTE and Net interest income:

Third quarter 2021 versus second quarter 2021: Net interest income of $1.1 billion was up 2% given higher day count and interest-earning asset growth, with stable net interest margin. Net interest margin on a FTE basis of 2.72% reflects the benefit of accelerated PPP forgiveness, improved funding mix, and deposit pricing, partially offset by higher cash balances and lower earning-asset yields. Interest-bearing deposit costs of 14 basis points decreased 2 basis points.

Citizens Financial Group, Inc. | 15


Table 5: Major Components of Net Interest Income, Quarter-to-Date
	Three Months Ended September 30,
	2021				2020				Change
(dollars in millions)	Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Yields/ Rates (bps)
Assets
Interest-bearing cash and due from banks and deposits in banks	$13,749	$6	0.16	%	$6,250	$2	0.10	%	$7,499	6 bps
Taxable investment securities	27,466	116	1.69		24,654	121	1.95		2,812	(26)
Non-taxable investment securities	2	—	2.60		4	—	2.60		(2)	—
Total investment securities	27,468	116	1.69		24,658	121	1.95