Docoh
Loading...

CFG Citizens Financial

Filed: 5 May 21, 4:04pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 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
cfg-20210331_g1.jpg
(Exact name of the registrant as specified in its charter)
Delaware05-0412693
(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)
(401) 456-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareCFGNew 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 PrDNew 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 PrENew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 425,930,159 shares of Registrant’s common stock ($0.01 par value) outstanding on April 23, 2021.



cfg-20210331_g1.jpg
Table of Contents
 3
Part I. Financial Information
 5
Item 1. Financial Statements
Notes to the Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signature

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-KAnnual Report on Form 10-K for the year ended December 31, 2020
AACLAdjusted Allowance for Credit Losses
ACLAllowance for Credit Losses: Allowance for Loan and Lease Losses plus Allowance for Unfunded Lending Commitments
AFSAvailable for Sale
ALLLAllowance for Loan and Lease Losses
ALMAsset and Liability Management
AOCIAccumulated Other Comprehensive Income (Loss)
ARRCAlternative Reference Rate Committee
ASUAccounting Standards Update
ATMAutomated Teller Machine
Board or Board of DirectorsThe Board of Directors of Citizens Financial Group, Inc.
bpsBasis Points
Capital Plan RuleFederal Reserve’s Regulation Y Capital Plan Rule
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CBNACitizens Bank, National Association
CCARComprehensive Capital Analysis and Review
CCBCapital Conservation Buffer
CCMICitizens Capital Markets, Inc.
CECLCurrent Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1Common Equity Tier 1
CET1 capital ratioCommon 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 ourCitizens Financial Group, Inc. and its Subsidiaries
CLTVCombined Loan-to-Value
COVID-19 pandemicCoronavirus Disease 2019 Pandemic
CRECommercial Real Estate
Dodd-Frank ActThe Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EGRRCPAEconomic Growth, Regulatory Relief and Consumer Protection Act
Elevated cashCash above targeted operating levels
EPSEarnings Per Share
Exchange ActThe Securities Exchange Act of 1934
Fannie Mae (FNMA)Federal National Mortgage Association
FDICFederal Deposit Insurance Corporation
FHLBFederal Home Loan Bank
FICOFair Isaac Corporation (credit rating)
FRB or Federal ReserveBoard of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)Federal Home Loan Mortgage Corporation
FTEFully Taxable Equivalent
GAAPAccounting Principles Generally Accepted in the United States of America
GDPGross Domestic Product
Ginnie Mae (GNMA)Government National Mortgage Association
GSEGovernment Sponsored Entity
HTMHeld To Maturity
Citizens Financial Group, Inc. | 3


Last-of-LayerLast-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
LHFSLoans Held for Sale
LIBORLondon Interbank Offered Rate
LIHTCLow Income Housing Tax Credit
LTVLoan to Value
MBSMortgage-Backed Securities
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-AtlanticDistrict of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
MidwestIllinois, Indiana, Michigan, and Ohio
Modified CECL TransitionThe Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
Modified AACL TransitionThe Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
MSRsMortgage Servicing Rights
NCOsNet charge-offs
New EnglandConnecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NPLsNonaccrual loans and leases
OCCOffice of the Comptroller of the Currency
OCIOther Comprehensive Income (Loss)
OTCOver the Counter
Parent CompanyCitizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
PPPPaycheck Protection Program
ROTCEReturn on Average Tangible Common Equity
RPARisk Participation Agreement
RWARisk-Weighted Assets
SBAUnited States Small Business Administration
SCBStress Capital Buffer
SECUnited States Securities and Exchange Commission
SOFRSecured Overnight Financing Rate
SVaRStressed Value at Risk
Tailoring RulesRules 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
TBAsTo-Be-Announced Mortgage Securities
TDRTroubled Debt Restructuring
Tier 1 capital ratioTier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Tier 1 leverage ratioTier 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 ratioTotal 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
VaRValue at Risk
VIEVariable Interest Entities
Citizens Financial Group, Inc. | 4


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


Citizens Financial Group, Inc. | 5


FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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,
Citizens Financial Group, Inc. | 6


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.”
Citizens Financial Group, Inc. | 7


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,
20212020
(in millions)Noninterest expenseIncome tax expenseNet IncomeNoninterest expenseIncome tax expenseNet Income
Reported results (GAAP)$1,018 $170 $611 $1,012 $11 $34 
Less notable items:
Total integration costs— — — (1)(3)
Other notable items (1)
20 (5)(15)29 (7)(22)
Total notable items20 (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.
Citizens Financial Group, Inc. | 8


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.
Citizens Financial Group, Inc. | 9


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)20212020
OPERATING DATA:
Net interest income$1,117 $1,160 
Noninterest income542 497 
Total revenue1,659 1,657 
Provision for credit losses(140)600 
Noninterest expense1,018 1,012 
Income before income tax expense781 45 
Income tax expense170 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 equity11.57 %0.24 %
Return on average tangible common equity17.17 0.36 
Return on average total assets1.36 0.08 
Return on average total tangible assets1.41 0.09 
Efficiency ratio61.35 61.10 
Operating leverage(1)
(0.41)(3.71)
Net interest margin, FTE(2)
2.76 3.10 
Effective income tax rate21.76 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%.
Citizens Financial Group, Inc. | 10


Table 3: Summary of Consolidated Balance Sheet data
(dollars in millions)March 31, 2021December 31, 2020
BALANCE SHEET DATA:
Total assets$187,217 $183,349 
Loans held for sale, at fair value4,304 3,564 
Other loans held for sale75 439 
Loans and leases122,195 123,090 
Allowance for loan and lease losses(2,194)(2,443)
Total securities28,138 26,847 
Goodwill7,050 7,050 
Total liabilities164,564 160,676 
Total deposits151,349 147,164 
Short-term borrowed funds70 243 
Long-term borrowed funds8,316 8,346 
Total stockholders’ equity22,653 22,673 
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses to loans and leases1.80 %1.98 %
Allowance for credit losses to loans and leases1.94 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 leases218 240 
Allowance for credit losses to nonaccruing loans and leases235 262 
Nonaccruing loans and leases to loans and leases0.82 0.83 
Capital Ratios:
CET1 capital ratio10.1 %10.0 %
Tier 1 capital ratio11.4 11.3 
Total capital ratio13.4 13.4 
Tier 1 leverage ratio9.5 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.”


Citizens Financial Group, Inc. | 11


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:
cfg-20210331_g2.jpg

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.
Citizens Financial Group, Inc. | 12


Table 4: Major Components of Net Interest Income
Three Months Ended March 31,
20212020Change
(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$10,861 $3 0.11 %$1,859 $5 1.12 %$9,002 (101) bps
Taxable investment securities27,031 128 1.89 25,339 147 2.32 1,692 (43)
Non-taxable investment securities— 2.60 — 2.60 (1)
Total investment securities27,034 128 1.89 25,343 147 2.32 1,691 (43)
Commercial and industrial44,287 347 3.12 43,152 417 3.82 1,135 (70)
Commercial real estate14,675 94 2.57 13,876 139 3.96 799 (139)
Leases1,915 13 2.69 2,482 18 2.83 (567)(14)
Total commercial loans and leases60,877 454 2.98 59,510 574 3.81 1,367 (83)
Residential mortgages19,388 148 3.05 18,866 164 3.47 522 (42)
Home equity12,001 95 3.20 13,042 152 4.69 (1,041)(149)
Automobile12,229 125 4.14 12,173 131 4.34 56 (20)
Education12,436 134 4.38 10,610 149 5.64 1,826 (126)
Other retail5,916 105 7.25 6,854 132 7.77 (938)(52)
Total retail loans61,970 607 3.96 61,545 728 4.75 425 (79)
Total loans and leases122,847 1,061 3.47 121,055 1,302 4.29 1,792 (82)
Loans held for sale, at fair value3,254 18 2.27 1,890 15 3.28 1,364 (101)
Other loans held for sale385 6.30 799 4.31 (414)199
Interest-earning assets164,381 1,216 2.97 150,946 1,478 3.91 13,435 (94)
Allowance for loan and lease losses(2,439)(1,708)(731)
Goodwill7,050 7,046 
Other noninterest-earning assets13,577 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 accounts49,536 22 0.18 39,839 93 0.94 9,697 (76)
Regular savings18,611 0.11 14,201 18 0.51 4,410 (40)
Term deposits8,572 17 0.83 18,616 79 1.70 (10,044)(87)
Total interest-bearing deposits102,835 50 0.20 97,268 227 0.94 5,567 (74)
Short-term borrowed funds150 — 0.46 644 0.76 (494)(30)
Long-term borrowed funds8,336 49 2.35 14,057 90 2.56 (5,721)(21)
Total borrowed funds8,486 49 2.32 14,701 91 2.48 (6,215)(16)
Total interest-bearing liabilities111,321 99 0.36 111,969 318 1.14 (648)(78)
Demand deposits43,814 29,362 14,452 
Other liabilities4,858 4,053 805 
Total liabilities159,993 145,384 14,609 
Stockholders’ equity22,576 21,793 783 
Total liabilities and stockholders’ equity$182,569 $167,177 $15,392 
Interest rate spread2.62 %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 %$20,019 (58) bps
(1) Net interest income and net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial and industrial loans for the periods presented.
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:
cfg-20210331_g3.jpg
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)20212020ChangePercent
Mortgage banking fees$165 $159 $6 %
Service charges and fees99 118 (19)(16 %)
Capital markets fees81 43 38 88 
Card fees55 56 (1)(2)
Trust and investment services fees58 53 
Letter of credit and loan fees38 34 12 
Foreign exchange and interest rate products28 24 17 
Securities gains, net— 100 
Other income (1)
15 10 50 
Noninterest income$542 $497 $45 %
(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, and
Citizens 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:
cfg-20210331_g4.jpg
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)20212020ChangePercent
Salaries and employee benefits$548 $549 ($1)%
Equipment and software152 133 19 14 
Outside services139 135 
Occupancy88 84 
Other operating expense91 111 (20)(18)
Noninterest expense$1,018 $1,012 $6 %
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.
Citizens Financial Group, Inc. | 15


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:
            
cfg-20210331_g5.jpg
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.
Citizens Financial Group, Inc. | 16


Income Tax Expense
The following table presents a five quarter trend of our income tax expense and effective income tax rate:
cfg-20210331_g6.jpg
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 BankingCommercial Banking
Three Months Ended March 31,Three Months Ended March 31,
(dollars in millions)2021202020212020
Net interest income$863 $793 $421 $365 
Noninterest income351 357 170 125 
Total revenue1,214 1,150 591 490 
Noninterest expense750 738 227 221 
Profit before credit losses464 412 364 269 
Net charge-offs59 97 101 43 
Income before income tax expense405 315 263 226 
Income tax expense103 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 
Deposits97,180 85,228 43,974 33,545 
Interest-earning assets71,135 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


ANALYSIS OF FINANCIAL CONDITION
Securities
Table 8: Amortized Cost and Fair Value of AFS and HTM Securities
March 31, 2021December 31, 2020
(in millions)Amortized
Cost
Fair ValueAmortized
Cost
Fair Value
U.S. Treasury and other$11 $11 $11 $11 
State and political subdivisions
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities23,966 24,113 21,954 22,506 
Other/non-agency324 340 396 422 
Total mortgage-backed securities, at fair value24,290 24,453 22,350 22,928 
   Total debt securities available for sale, at fair value$24,304 $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 cost2,139 2,223 2,342 2,464 
Asset-backed securities, at cost856 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 cost603 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 at March 31, 2021 increased $1.5 billion from $22.9 billion at December 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 of March 31, 2021, the portfolio’s average effective duration was 4.1 years compared with 2.7 years as of December 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, 2021December 31, 2020Change Percent
Commercial and industrial (1)
$44,058 $44,173 ($115)— %
Commercial real estate14,553 14,652 (99)(1)
Leases1,802 1,968 (166)(8)
Total commercial60,413 60,793 (380)(1)
Residential mortgages19,202 19,539 (337)(2)
Home equity11,854 12,149 (295)(2)
Automobile12,344 12,153 191 
Education12,691 12,308 383 
Other retail5,691 6,148 (457)(7)
Total retail61,782 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 at March 31, 2021 and $4.2 billion at December 31, 2020.
Total loans and leases decreased $895 million, or 1%, from $123.1 billion as of December 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 of March 31, 2021 compared with the ACL of $2.7 billion as of December 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, 2021December 31, 2020
(in millions)Loans and LeasesAllowanceCoverageLoans and LeasesAllowanceCoverage
Allowance for Loan and Lease Losses
Commercial and industrial$44,058 $742 1.68 %$44,173 $821 1.86 %
Commercial real estate14,553 353 2.43 14,652 360 2.46 
Leases1,802 51 2.82 1,968 52 2.67 
Total commercial60,413 1,146 1.90 60,793 1,233 2.03 
Residential mortgages19,202 125 0.65 19,539 141 0.72 
Home equity11,854 102 0.86 12,149 134 1.10 
Automobile12,344 175 1.41 12,153 200 1.65 
Education12,691 342 2.70 12,308 361 2.93 
Other retail5,691 304 5.34 6,148 374 6.07 
Total retail loans61,782 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 %
Retail13 1.72 41 2.01 
     Total allowance for unfunded lending commitments178 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% for March 31, 2021 and December 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, 2021December 31, 2020ChangePercent
Commercial and industrial$281 $280 $1 — %
Commercial real estate100 176 (76)(43 %)
Leases(1)(50)
Total commercial loans and leases382 458 (76)(17)
Residential mortgages237 167 70 42 
Home equity269 276 (7)(3)
Automobile70 72 (2)(3)
Education22 18 22 
Other retail28 28 — — 
Total retail loans626 561 65 12 
Nonaccrual loans and leases$1,008 $1,019 ($11)(1 %)
Nonaccrual loans and leases to total loans and leases0.82 %0.83 %(1  bp)
Allowance for loan and lease losses to nonaccruing loans and leases218 240 (22 %)
Allowance for credit losses to nonaccruing loans and leases235 262 (27 %)
NPLs of $1.0 billion as of March 31, 2021 decreased $11 million, or 1%, from December 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 31,Three Months Ended March 31,
(dollars in millions)20212020Change20212020Change
Commercial and industrial$77 $44 $33 0.70 %0.41 %29  bps
Commercial real estate26 — 26 0.73 — 73 
Leases— 0.26 0.07 19 
Total commercial104 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)
Automobile11 27 (16)0.35 0.88 (53)
Education14 (7)0.24 0.55 (31)
Other retail44 55 (11)3.00 3.21 (21)
Total retail loans54 93 (39)0.35 0.61 (26)
Total net charge-offs$158 $137 $21 0.52 %0.46 % 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 to U.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


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)PassSpecial MentionSubstandardDoubtfulTotal
Commercial and industrial(1)
$40,922 $1,282 $1,609 $245 $44,058 
Commercial real estate13,631 489 408 25 14,553 
Leases1,751 34 16 1,802 
Total commercial$56,304 $1,805 $2,033 $271 $60,413 

December 31, 2020
Criticized
(in millions)PassSpecial MentionSubstandardDoubtfulTotal
Commercial and industrial(1)
$40,878 $1,583 $1,464 $248 $44,173 
Commercial real estate13,356 804 416 76 14,652 
Leases1,922 33 12 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 of March 31, 2021 and December 31, 2020, respectively.
Total commercial criticized balances of $4.1 billion as of March 31, 2021 decreased $528 million compared with December 31, 2020. Commercial criticized as a percent of total commercial of 6.8% at March 31, 2021 decreased from 7.6% at December 31, 2020.
Commercial and industrial criticized balances of $3.1 billion, or 7.1% of the total commercial and industrial loan portfolio as of March 31, 2021, decreased from $3.3 billion, or 7.5%, as of December 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 of March 31, 2021 compared to 71% as of December 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 of December 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 of March 31, 2021 compared to 28% as of December 31, 2020.
Citizens Financial Group, Inc. | 22


Table 14: Commercial Loans and Leases by Industry Sector
March 31, 2021December 31, 2020
(dollars in millions)Balance% of
Total Loans
Balance% of
Total Loans
Finance and insurance$6,297 %$6,481 %
Health, pharma, and social assistance3,147 3,243 
Accommodation and food services3,251 3,206 
Professional, scientific, and technical services2,753 2,804 
Other manufacturing2,366 2,403 
Information2,223 2,378 
Retail trade2,381 2,336 
Energy and related2,044 2,237 
Wholesale trade2,006 1,904 
Metals and mining1,533 1,646 
Arts, entertainment, and recreation1,250 1,382 
Other services1,368 1,370 
Administrative and waste management services1,241 1,320 
Computer, electrical equipment, appliance, and component manufacturing1,213 1,174 
Transportation and warehousing1,216 1,169 
Consumer products manufacturing1,131 1,112 
Automotive990 1,051 
Educational services803 844 
Chemicals771 — 736 — 
Real estate and rental and leasing744 — 732 — 
All other (1)
182 — 490 — 
Total commercial and industrial38,910 32 40,018 32 
Real estate and rental and leasing13,116 11 13,169 11 
Accommodation and food services789 749 
Finance and insurance469 — 498 — 
All other (1)
179 — 236 — 
Total commercial real estate14,553 12 14,652 12 
Total leases1,802 1,968 
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, 2021December 31, 2020
Days Past DueDays Past Due
Current-2930-5960-89 90 or MoreCurrent-2930-5960-89 90 or More
Residential mortgages98.69 %0.29 %0.06 %0.96 %98.73 %0.30 %0.11 %0.86 %
Home equity97.85 0.39 0.16 1.60 97.53 0.50 0.23 1.74 
Automobile98.64 0.95 0.33 0.08 97.93 1.40 0.53 0.14 
Education99.58 0.23 0.10 0.09 99.56 0.27 0.11 0.06 
Other retail98.44 0.54 0.42 0.60 98.36 0.62 0.47 0.55 
Total retail98.68 %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, 2021December 31, 2020
Average refreshed FICO for total portfolio769 771 
CLTV ratio for secured real estate(1)
58 %60 %
Nonaccruing retail loans to total retail1.01 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)20212020ChangePercent
Net charge-offs$54 $93 ($39)(42 %)
Annualized net charge-off rate0.35 %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
(dollars in millions)Accruing30-89 Days
Past Due
90+ Days Past DueNonaccruingTotal
Residential mortgages$174 2.0 %2.6 %$46 $220 
Home equity213 0.9 — 85 298 
Automobile0.1 — 43 46 
Education112 0.6 0.3 12 124 
Other retail24 0.3 — 26 
Total$526 3.9 %2.9 %$188 $714 
December 31, 2020
As a % of Accruing Retail TDRs
(dollars in millions)Accruing30-89 Days
Past Due
90+ Days Past DueNonaccruingTotal
Residential mortgages$172 2.7 %2.6 %$43 $215 
Home equity221 1.3 — 83 304 
Automobile13 0.5 — 33 46 
Education116 0.6 0.3 10 126 
Other retail25 0.3 — 27 
Total$547 5.4 %2.9 %$171 $718 
Deposits
Table 18: Composition of Deposits
(in millions)March 31, 2021December 31, 2020ChangePercent
Demand$46,067 $43,831 $2,236 %
Checking with interest26,883 27,204 (321)(1)
Regular savings19,634 18,044 1,590 
Money market accounts51,074 48,569 2,505 
Term deposits7,691 9,516 (1,825)(19)
Total deposits$151,349 $147,164 $4,185 %
    
Total deposits as of March 31, 2021 increased $4.2 billion, or 3%, to $151.3 billion, from $147.2 billion as of December 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 of December 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 of March 31, 2021 decreased $203 million from December 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, 2021December 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 2026497 497 
2.500% fixed-rate senior unsecured notes, due February 2030297 297 
3.250% fixed-rate senior unsecured notes, due April 2030745 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 2032545 543 
CBNA’s Global Note Program:
2.550% senior unsecured notes, due May 20211,000 1,003 
3.250% senior unsecured notes, due February 2022712 716 
0.918% floating-rate senior unsecured notes, due February 2022 (2)
300 299 
1.000% floating-rate senior unsecured notes, due May 2022 (2)
250 250 
2.650% senior unsecured notes, due May 2022508 510 
3.700% senior unsecured notes, due March 2023523 527 
1.143% floating-rate senior unsecured notes, due March 2023 (2)
250 249 
2.250% senior unsecured notes, due April 2025746 746 
3.750% senior unsecured notes, due February 2026536 551 
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 0.920% weighted average rate, due through 203819 19 
Other30 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


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 ending January 1, 2022, followed by a three-year transition period ending January 1, 2025 to phase-in the aggregate amount of the capital benefit provided during the initial two-year delay. As of March 31, 2021, $493 million of the capital benefit has been accumulated for application to the three-year transition period.

For additional discussion of the U.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 the U.S. Basel III Standardized rules:
Table 20: Regulatory Capital Ratios Under the U.S. Basel III Standardized Rules
March 31, 2021December 31, 2020
Required Minimum plus Required CCB for Non-Leverage Ratios(1)
(in millions, except ratio data)AmountRatioAmountRatio
   CET1 capital$14,867 10.1 %$14,607 10.0 %7.9 %
   Tier 1 capital16,832 11.4 16,572 11.3 9.4 
   Total capital19,879 13.4 19,602 13.4 11.4 
   Tier 1 leverage16,832 9.5 16,572 9.4 4.0 
   Risk-weighted assets147,817 146,781 
   Quarterly adjusted average assets176,890 175,370 
(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.
At March 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 of December 31, 2020. The CET1 capital ratio increased as net income for the three months ended March 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. At March 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 the U.S. Basel III minimums.
Regulatory Capital Ratios and Capital Composition
CET1 capital under U.S. Basel III Standardized rules totaled $14.9 billion at March 31, 2021, an increase of $260 million from $14.6 billion at December 31, 2020, largely driven by net income for the three months ended March 31, 2021 partially offset by dividends, common share repurchases and a decrease in the modified CECL transitional amount. Tier 1 capital at March 31, 2021 totaled $16.8 billion, reflecting a $260 million increase from $16.6 billion at December 31, 2020, driven by the changes in CET1 capital. Total capital of $19.9 billion at March 31, 2021, increased $277 million from December 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 at March 31, 2021, based on U.S. Basel III Standardized rules, up $1.0 billion from December 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 of March 31, 2021, the tier 1 leverage ratio was 9.5%, up from 9.4% at December 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



Table 21: Capital Composition Under the U.S. Basel III Capital Framework
(in millions)March 31, 2021December 31, 2020
Total common shareholders' equity$20,688 $20,708 
Exclusions:
Modified CECL transitional amount493 568 
Net unrealized (gains)/losses recorded in accumulated other comprehensive income (loss), net of tax:
Debt and equity securities(71)(380)
Derivatives57 11 
Unamortized net periodic benefit costs425 429 
Deductions:
Goodwill(7,050)(7,050)
Deferred tax liability associated with goodwill380379 
Other intangible assets(55)(58)
Total common equity tier 114,867 14,607 
Qualifying preferred stock1,965 1,965 
Total tier 1 capital16,832 16,572 
Qualifying subordinated debt(1)
1,282 1,204 
Allowance for credit losses2,372 2,670 
Exclusions from tier 2 capital:
Modified AACL transitional amount(607)(682)
Excess allowance for credit losses(2)
— (162)
Adjusted allowance for credit losses1,765 1,826 
Total capital$19,879 $19,602 
(1) As of March 31, 2021 and December 31, 2020, the amount of non-qualifying subordinated debt excluded from regulatory capital was $271 million and $348 million, respectively.
(2) Excess allowance represents the amount excluded from tier 2 capital that is in excess of 1.25% of risk weighted assets, excluding market risk.
On February 11, 2021, we completed $265 million in private exchange offers for five series of outstanding subordinated notes. Exchange offer participants received newly-issued fixed-rate reset subordinated notes due 2031 which are redeemable by us five years prior to their maturity. These subordinated debt exchange offers will benefit our tier 2 and total capital going forward by increasing the amount of subordinated debt eligible for inclusion in tier 2 capital without increasing the aggregate principal amount of subordinated debt outstanding. See Note 7 for more details on our outstanding subordinated debt.
Capital Adequacy Process
Our assessment of capital adequacy begins with our risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. There have been no significant changes to our capital adequacy risk appetite and risk management framework as described in “—Capital and Regulatory Matters” in our 2020 Form 10-K.
Capital Transactions
We completed the following capital actions during the quarterly period ended March 31, 2021:
Completed $265 million of subordinated debt private exchange offers in February 2021;
Declared and paid a quarterly common stock dividend of $0.39 per share for first quarter of 2021, aggregating to $167 million;
Declared a quarterly dividend of $10.49 per share on the 5.500% fixed-to-floating rate non-cumulative perpetual Series A Preferred Stock, aggregating to $3 million;
Declared a quarterly dividend of $15.94 per share on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to $5 million;
Declared a quarterly dividend of $15.88 per share on the 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, aggregating to $5 million;
Declared a quarterly dividend of $12.50 per share on the 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, aggregating to $5 million;
Citizens Financial Group, Inc. | 29


Declared a quarterly dividend of $14.13 per share on the 5.650% fixed-rate non-cumulative perpetual Series F Preferred Stock, aggregating to $5 million; and
Repurchased $95 million of our outstanding common stock at a weighted-average price per share of $42.32.
Banking Subsidiary’s Capital
Table 22: CBNA's Capital Ratios Under the U.S. Basel III Standardized Rules
March 31, 2021December 31, 2020
(dollars in millions, except ratio data)AmountRatioAmountRatio
CET1 capital$16,265 11.0 %$16,032 10.9 %
Tier 1 capital16,265 11.0 16,032 10.9 
Total capital19,155 13.0 18,980 13.0 
Tier 1 leverage16,265 9.2 16,032 9.2 
Risk-weighted assets147,394 146,558 
Quarterly adjusted average assets176,427 174,954 

CBNA’s CET1 and tier 1 capital totaled $16.3 billion at March 31, 2021, up $233 million from $16.0 billion at December 31, 2020. This increase was primarily driven by net income for the three months ended March 31, 2021, partially offset by dividends paid to the Parent Company and a decrease in the modified CECL transitional amount. Total capital was $19.2 billion at March 31, 2021, an increase of $175 million from $19.0 billion at December 31, 2020, driven by the change in CET1 capital partially offset by the reduction in the net AACL impact.

CBNA’s RWA totaled $147.4 billion at March 31, 2021, up $836 million from December 31, 2020, 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 of March 31, 2021, CBNA’s tier 1 leverage ratio of 9.2% slightly increased as the increase in tier 1 capital was mostly offset by the $1.5 billion increase in quarterly adjusted average assets.
LIQUIDITY
Liquidity is defined as our ability to meet our cash-flow and collateral obligations in a timely manner, at a reasonable cost. An institution must maintain operating liquidity to meet its expected daily and forecasted cash-flow requirements, as well as contingent liquidity to meet unexpected (stress scenario) funding requirements. As noted earlier, reflecting the importance of meeting all unexpected and stress-scenario funding requirements, we identify and manage contingent liquidity (consisting of cash balances at the FRB, unencumbered high-quality and liquid securities, and unused FHLB borrowing capacity). Separately, we also identify and manage asset liquidity as a subset of contingent liquidity (consisting of cash balances at the FRB and unencumbered high-quality securities). We consider the effective and prudent management of liquidity fundamental to our health and strength. We manage liquidity at the consolidated enterprise level and at each material legal entity, including at the Parent Company and CBNA level.
Parent Company Liquidity
Our Parent Company’s primary sources of cash are dividends and interest received from CBNA as a result of investing in bank equity and subordinated debt and externally issued preferred stock as well as senior and subordinated debt. Uses of cash include the routine cash flow requirements as a bank holding company, including periodic share repurchases and payments of dividends, interest and expenses; the needs of subsidiaries, including CBNA, for additional equity and, as required, its need for debt financing; and the support for extraordinary funding requirements when necessary. To the extent the Parent Company has relied on wholesale borrowings, uses also include payments of related principal and interest.
During the three months ended March 31, 2021 and 2020, the Parent Company declared dividends on common stock of $167 million and $168 million, respectively, and declared dividends on preferred stock of $23 million and $22 million, respectively.
Our Parent Company’s cash and cash equivalents represent a source of liquidity that can be used to meet various needs and totaled $2.7 billion as of March 31, 2021 and December 31, 2020. The Parent Company’s
Citizens Financial Group, Inc. | 30


double-leverage ratio (the combined equity investment in Parent Company subsidiaries divided by Parent Company equity) is a measure of reliance on equity cash flows from subsidiaries to fund Parent Company obligations. At March 31, 2021, the Parent Company’s double-leverage ratio was 98.2%.
CBNA Liquidity
In the ordinary course of business, the liquidity of CBNA is managed by matching sources and uses of cash. The primary sources of bank liquidity include deposits from our consumer and commercial customers; payments of principal and interest on loans and debt securities; and wholesale borrowings, as needed, and as described under “—Liquidity Risk Management and Governance.” The primary uses of bank liquidity include withdrawals and maturities of deposits; payment of interest on deposits; funding of loans and related commitments; and funding of securities purchases. To the extent that CBNA has relied on wholesale borrowings, uses also include payments of related principal and interest. For further information on CBNA’s outstanding debt, see Note 7.
As CBNA’s primary business involves taking deposits and making loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary.
Liquidity Risk
We define liquidity risk as the risk that an entity will be unable to meet its payment obligations in a timely manner, at a reasonable cost. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.
Contingent liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.
Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity risk may be idiosyncratic or systemic, reflecting impediments to operations and/or damaged market confidence.
Factors Affecting Liquidity
Given the composition of assets and borrowing sources, contingent liquidity risk at CBNA would be materially affected by events such as deterioration of financing markets for high-quality securities (e.g., mortgage-backed securities and other instruments issued by the GNMA, FNMA and the FHLMC), by any inability of the FHLBs to provide collateralized advances and/or by a refusal of the FRB to act as a lender of last resort in systemic stress.
Similarly, given the structure of its balance sheet, the funding liquidity risk of CBNA would be materially affected by an adverse idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or a combination of both. Consequently, and despite ongoing exposure to a variety of idiosyncratic and systemic events, we view our contingent liquidity risk and our funding liquidity risk to be relatively modest.
Citizens Financial Group, Inc. | 31


An additional variable affecting our access to unsecured wholesale market funds and to large denomination (i.e., uninsured) customer deposits is the credit ratings assigned by such agencies as Moody’s, Standard and Poor’s, and Fitch.
Table 23: Credit Ratings
 March 31, 2021
 
Moody’s  
Standard and
Poor’s
Fitch  
Citizens Financial Group, Inc.:   
Long-term issuerNRBBB+BBB+
Short-term issuerNRA-2F1
Subordinated debtNRBBBBBB
Preferred StockNRBB+BB
Citizens Bank, National Association:
Long-term issuerBaa1A-BBB+
Short-term issuerNRA-2F1
Long-term depositsA1NRA-
Short-term depositsP-1NRF1
 NR = Not rated
Changes in our public credit ratings could affect both the cost and availability of our wholesale funding. As a result, and in order to maintain a conservative funding profile, CBNA continues to minimize reliance on unsecured wholesale funding. At March 31, 2021, our wholesale funding consisted primarily of term debt issued by the Parent Company and CBNA.
Existing and evolving regulatory liquidity requirements represent another key driver of systemic liquidity conditions and liquidity management practices. The FRB, the OCC, and the FDIC regularly evaluate our liquidity as part of the overall supervisory process. In addition, we are subject to existing and evolving regulatory liquidity requirements, some of which are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. For further discussion, see “Regulation and Supervision — Tailoring of Prudential Requirements” and “—Liquidity Requirements” in our 2020 Form 10-K.
Liquidity Risk Management and Governance
Liquidity risk is measured and managed by the Funding and Liquidity unit within our Treasury unit in accordance with policy guidelines promulgated by our Board and the Asset Liability Committee. In managing liquidity risk, the Funding and Liquidity unit delivers regular and comprehensive reporting, including current levels versus threshold limits for a broad set of liquidity metrics and early warning indicators, explanatory commentary relating to emerging risk trends and, as appropriate, recommended remedial strategies.
Our Funding and Liquidity unit’s primary goal is to deliver and otherwise maintain prudent levels of operating liquidity (to support expected and projected funding requirements), and contingent liquidity (to support unexpected funding requirements resulting from idiosyncratic, systemic, and combination stress events, and regulatory liquidity requirements) in a timely manner from stable and cost-efficient funding sources.
We seek to accomplish this goal by funding loans with stable deposits; by prudently controlling dependence on wholesale funding, particularly short-term unsecured funding; and by maintaining ample available liquidity, including a contingent liquidity buffer of unencumbered high-quality loans and securities. As of March 31, 2021:
Core deposits continued to be our primary source of funding and our consolidated period end loan-to-deposits ratio, which excludes LHFS, was 80.7%;
Our cash position, which is defined as cash balance held at the FRB, totaled $13.5 billion;
Our total available liquidity, comprised of contingent liquidity and available discount window capacity, was approximately $80.1 billion;
Contingent liquidity was $50.2 billion, consisting of unencumbered high-quality liquid securities of $22.6 billion, unused FHLB capacity of $14.1 billion, and our cash position of $13.5 billion. Asset liquidity, a component of contingent liquidity, was $36.1 billion, consisting of our cash position of $13.5 billion and unencumbered high-quality liquid securities of $22.6 billion;
Citizens Financial Group, Inc. | 32


Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured by non-mortgage commercial and retail loans and totaled $29.9 billion. Use of this borrowing capacity would be considered only during exigent circumstances; and
For a summary of our sources and uses of cash by type of activity for the three months ended March 31, 2021 and 2020, see the Consolidated Statements of Cash Flows.
The Funding and Liquidity unit monitors a variety of liquidity and funding metrics and early warning indicators and metrics, including specific risk thresholds limits. These monitoring tools are broadly classified as follows:
Current liquidity sources and capacities, including cash at the FRBs, free and liquid securities and available and secured FHLB borrowing capacity;
Liquidity stress sources, including idiosyncratic, systemic and combined stresses, in addition to evolving regulatory requirements; and
Current and prospective exposures, including secured and unsecured wholesale funding and spot and cumulative cash-flow gaps across a variety of horizons.
Further, certain of these metrics are monitored individually for CBNA and for our consolidated enterprise on a daily basis, including cash position, unencumbered securities, asset liquidity, and available FHLB borrowing capacity. In order to identify emerging trends and risks and inform funding decisions, specific metrics are also forecasted over a one-year horizon.
OFF-BALANCE SHEET ARRANGEMENTS
The following table presents our outstanding off-balance sheet arrangements. For further information, see Note 11.
Table 24: Outstanding Off-Balance Sheet Arrangements
(in millions)March 31, 2021December 31, 2020ChangePercent
Commitments to extend credit$76,200 $74,160 $2,040 %
Letters of credit2,077 2,239 (162)(7)
Risk participation agreements71 98 (27)(28)
Loans sold with recourse58 54 
Marketing rights29 29 — — 
Total$78,435 $76,580 $1,855 %
CRITICAL ACCOUNTING ESTIMATES
Our unaudited interim Consolidated Financial Statements, which are included in this Report, are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our audited Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on our unaudited interim Consolidated Financial Statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting policies and estimates and their related application are discussed below. For additional information regarding fair value measurements, see “—Critical Accounting Estimates” in our 2020 Form 10-K.
Allowance for Credit Losses
We reserve for expected credit losses on our loan and lease portfolio through the ALLL and for expected credit losses in our unfunded lending commitments through other liabilities. Collectively, the ALLL and allowance for expected credit losses in unfunded lending commitments are referred to as the ACL.
Changes in the ACL are reflected in net income through provision for credit losses. Changes in the credit risk profile of our loans and leases result in changes in provision expense with a resulting change, net of charge-offs and recoveries, in the ACL balance.
Citizens Financial Group, Inc. | 33


The ACL is often the most critical of all the accounting estimates for banking institutions like us. The ACL is maintained at a level we believe to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolios and on the unfunded lending commitments. Our determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments that are not unconditionally cancellable considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information.
Key assumptions used in our ACL measurement process include the use of a two-year reasonable and supportable economic forecast period followed by a one-year period during which the expected credit losses revert to long-term historical macroeconomic inputs.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are grouped generally by product type (e.g., commercial and industrial, commercial real estate, residential mortgage, etc.), and significant loan portfolios are assessed for credit losses using econometric models. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to change, sometimes materially and rapidly.
The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast as its foundation, and is primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current probability of default, loss given default and exposure at default (for commercial), timing and amount of expected draws (for unfunded lending commitments), FICO, LTV, term and time on books (for retail loans), mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amounts and timing of expected future cash flows, and factors particular to a specific commercial credit such as competition, business and management performance. Forward-looking economic assumptions include real gross domestic product, unemployment rate, interest rate curve, and changes in collateral values. This data is aggregated to estimate expected credit losses over the contractual life of the loans and leases, adjusted for expected prepayments. In highly volatile economic environments historical information, such as commercial customer financial statements or consumer credit ratings, may not be as important to estimating future expected losses as forecasted inputs to the models.
The ACL may also be affected materially by a variety of qualitative factors that we consider to reflect our current judgment of various events and risks that are not measured in our statistical procedures including uncertainty related to the economic forecasts used in the modeled credit loss estimates, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The qualitative allowance is further informed for certain industry sectors and certain loan classes by alternative scenarios to support the period-end ACL balance. We recognize that this approach may not be suitable in certain economic environments and differing analysis may be requested at management’s discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events could lead to revision of reserves to reflect management’s best estimate of expected credit losses.
The measurement process results in specific or pooled allowances for loans, leases and unfunded lending commitments, and qualitative allowances that are judgmentally determined and applied across the portfolio.
There are certain loan portfolios that may not need an econometric model to enable us to calculate management’s best estimate of the expected credit losses. Less data intensive, non-modeled approaches to estimating losses are considered more efficient and practical for portfolios that have lower levels of outstanding balances (e.g., runoff or closed portfolios, and new products or products that are not significant to our overall credit risk exposure).
The ACL decreased from $2.7 billion at December 31, 2020 to $2.4 billion at March 31, 2021, reflecting a reserve release of $298 million.
To determine the ACL as of March, 31, 2021, we utilized an economic forecast that generally reflects real GDP growth of approximately 3.2% over 2021, returning to fourth quarter 2019 real GDP levels by the last quarter of 2021. The forecast also projects the unemployment rate to be in the range of 6.3% to 7.0% throughout 2021. Overall, this forecast reflects an improved macroeconomic outlook as compared to December 31, 2020. In addition to judgment applied at the commercial portfolio as a whole, we continued to apply management
Citizens Financial Group, Inc. | 34


judgment to adjust the modeled reserves in the commercial industry sectors most impacted by the COVID-19 pandemic and associated lockdowns, including CRE retail and hospitality and casual dining.
Our determination of the ACL is sensitive to changes in forecasted macroeconomic conditions during the reasonable and supportable period. To illustrate, we applied a more pessimistic scenario than that described above which assumes that challenges in wide-spread distribution and acceptance of vaccines cause COVID-19 related hospitalization and fatality rates to be higher than base case. The decline in consumer spending from associated reductions in travel and an increase in state and local government restrictions cause real GDP to drop and unemployment to rise beyond our current forecast. This pessimistic scenario reflects real GDP growth of approximately 2.5% and unemployment in the range of 8% to 8.5% over 2021. Excluding consideration of qualitative adjustments, this scenario would result in a quantitative lifetime loss estimate of approximately 1.2x our period end ACL, or an increase of approximately $350 million.
Because several quantitative and qualitative factors are considered in determining the ACL, this sensitivity analysis does not necessarily reflect the nature and extent of future changes in the ACL or even what the ACL would be under these economic circumstances. The sensitivity is intended to provide insights into the impact of adverse changes in the macroeconomic environment and the corresponding impact to modeled loss estimates. The hypothetical determination does not incorporate the impact of management judgment or other qualitative factors that could be applied in the actual estimation of the ACL, and does not imply any expectation of future deterioration in our loss rates.
To provide additional context regarding sensitivity to more pessimistic scenarios, our ACL balance of $2.4 billion represents 28% of the $8.6 billion of nine-quarter losses projected in the Federal Reserve run of the December 2020 Supervisory Severely Adverse scenario (the “Supervisory Severely Adverse scenario”), which forecasted more protracted unemployment and GDP declines compared with our ACL calculation. Our ACL calculation also included the impacts of government stimulus.
Comparatively, our ACL represents 47% of the $5.1 billion of projected losses in the Company run results of the Supervisory Severely Adverse scenario. Losses projected under the Company run Supervisory Severely Adverse scenario are lower than the Federal Reserve run results due to methodology and modeling differences. As an example, the Federal Reserve’s models did not recognize contractual loss sharing arrangements in the merchant loan portfolio. In addition, both the Company run and Federal Reserve run results include incremental losses associated with loan originations assumed post-June 30, 2020. In contrast, our March 31, 2021 ACL balance considers only existing loans and lines of credit as of the reporting date.
While the recovery path is clearer than it was at the end of the fourth quarter 2020, significant future uncertainty still exists, including progress in the rollout, acceptance, and effectiveness of COVID-19-related vaccines. It remains difficult to estimate how changes in economic forecasts might affect our ACL because such forecasts consider a wide variety of variables and inputs, and changes in the variables and inputs may not occur at the same time or in the same direction, and such changes may have differing impacts by product types. Further, the variables and inputs may be idiosyncratically affected by existing or future monetary and fiscal stimulus programs and forbearance and other customer accommodation efforts. Nevertheless, changes in one or multiple of the key variables may have a material impact to our estimation of expected credit losses.
We continue to monitor the impact of COVID-19, vaccination efforts, and related policy measures on the economy and the resulting potentially material effects on the ACL.
For additional information regarding the ALLL and allowance for unfunded lending commitments, see Note 1 and Note 4.
Citizens Financial Group, Inc. | 35


RISK GOVERNANCE
We are committed to maintaining a strong, integrated, and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision making body is setting our risk appetite to ensure that the levels of risk that we are willing to accept in the attainment of our strategic business and financial objectives are clearly understood.
To enable our Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The Executive Risk Committee (“ERC”), chaired by the Chief Risk Officer, is responsible for oversight of risk across the enterprise and actively considers our inherent material risks, analyzes our overall risk profile and seeks confirmation that the risks are being appropriately identified, assessed and mitigated. Reporting to the ERC are the following additional committees covering specific areas of risk: Compliance and Operational Risk Committee, Model Risk Committee, Credit Policy Committee, Asset Liability Committee, Business Initiatives Review Committee, and the Conduct and Ethics Committee.
There have been no significant changes in our risk governance practices, risk framework, risk appetite, or credit risk as described in “—Risk Governance” in our 2020 Form 10-K.
MARKET RISK
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit-gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage market risk for both non-trading and trading activities.
Non-Trading Risk
We are exposed to market risk as a result of non-trading banking activities. This market risk is substantially composed of interest rate risk, as we have no commodity risk and de minimis direct currency and equity risk. We also have market risk related to capital markets loan originations, as well as the valuation of our MSRs. There have been no significant changes in our sources of interest rate risk, interest rate risk practices, risk framework, metrics or assumptions as described in “—Market Risk — Non-Trading Risk” in our 2020 Form 10-K.
The table below reports net interest income exposures against a variety of interest rate scenarios. Our policies involve measuring exposures as a percentage change in net interest income over the next year due to either instantaneous or gradual parallel changes in rates relative to the market implied forward yield curve. As the following table illustrates, our balance sheet is asset sensitive; net interest income would benefit from an increase in interest rates, while exposure to a decline in interest rates is within limit. While an instantaneous and severe shift in interest rates is included in this analysis, we believe that any actual shift in interest rates would likely be more gradual and therefore have a more modest impact.
The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve:
Table 25: Sensitivity of Net Interest Income
Estimated % Change in Net Interest Income over 12 Months
Basis pointsMarch 31, 2021December 31, 2020
Instantaneous Change in Interest Rates  
20017.6 %21.2 %
1009.1 11.2 
-25(2.3)(2.7)
Gradual Change in Interest Rates
2008.5 10.8 
1004.3 5.5 
-25(1.3)(1.5)
Citizens Financial Group, Inc. | 36


We continue to manage asset sensitivity within the scope of our policy and changing market conditions. Asset sensitivity against a 200 basis point gradual increase in rates decreased to 8.5% at March 31, 2021 from 10.8% at December 31, 2020, driven by the purchase of $7.0 billion of receive-fixed/pay-variable interest rate swaps and forecasted changes in balance sheet activity. Current levels of asset sensitivity are elevated relative to our core sensitivity profile due to meaningful increases in cash and deposit balances as a result of monetary and fiscal stimulus programs. In light of the yield curve steepening experienced in first quarter 2021, asset sensitivity has been reduced as we continue to balance near term net interest income considerations with the potential future benefit of rising short-term rates. Changes in interest rates can affect the risk positions, which impact the repricing sensitivity or beta of the deposit base as well as the cash flows on assets that allow for early payoff without a penalty. The risk position is managed within our risk limits, and long-term view of interest rates through occasional adjustments to securities investments, interest rate swaps and mix of funding.
We use a valuation measure of exposure to structural interest rate risk, Economic Value of Equity (“EVE”), as a supplement to net interest income simulations. EVE complements net interest income simulation analysis as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. The change in value is expressed as a percentage of regulatory capital.
We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating-rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances.
Table 26: Interest Rate Swap Contracts Used to Manage Non-Trading Interest Rate Exposure
March 31, 2021December 31, 2020
Weighted AverageWeighted Average
(dollars in millions)Notional AmountMaturity (Years)Receive RatePay RateNotional AmountMaturity (Years)Receive RatePay Rate
Cash flow - receive-fixed/pay-variable - conventional ALM(1)
$18,350 2.4 1.2 %0.1 %$12,350 1.0 1.5 %0.2 %
Fair value - receive-fixed/pay-variable - conventional debt3,200 1.4 2.1 0.2 3,200 1.7 2.1 0.2 
Cash flow - pay-fixed/receive-variable - conventional ALM(1)(2)
3,000 3.2 0.1 1.7 4,750 3.9 0.2 1.4 
Fair value - pay-fixed/receive-variable - conventional ALM(1)
2,000 3.5 0.1 1.5 2,000 3.7 0.2 1.5 
Total portfolio swaps$26,550 2.5 1.1 %0.4 %$22,300 1.2 %0.6 %
(1) Asset Liability Management (“ALM”) strategies used to manage interest rate exposures include interest rate swap contracts used to manage exposure to the variability in the interest cash flows on our floating-rate commercial loans and floating-rate wholesale funding, as well as the variability in the fair value of AFS securities.
(2) December 31, 2020 includes $1.8 billion of forward-starting, pay-fixed interest rate swaps that were terminated in the first quarter of 2021.
Using the interest rate curve at March 31, 2021, the estimated net contribution to net interest income related to our ALM hedge strategies is approximately $93 million for the full-year 2021 compared to $133 million for the full-year 2020 which represents a decrease of $40 million. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to March 31, 2021.
Citizens Financial Group, Inc. | 37


The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
Table 27: Pre-Tax Gains (Losses) Recorded in the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income(1)
Three Months Ended March 31,
(in millions)20212020
Amount of pre-tax net (losses) gains recognized in OCI($28)$129 
Amount of pre-tax net gains reclassified from OCI into interest income46 
Amount of pre-tax net losses reclassified from OCI into interest expense(12)(1)
(1) Using the interest rate curve at March 31, 2021, with respect to cash flow hedge strategies, we estimate that approximately $94 million will be reclassified from AOCI to net interest income over the next 12 months.
LIBOR Transition
As previously disclosed, many of our lending products, securities, derivatives, and other financial transactions utilize the LIBOR benchmark rate and will be impacted by its planned discontinuance. In late 2018, we formed a LIBOR Transition Program designed to guide the organization through the planned discontinuation of LIBOR. The Program, with direction and oversight from our Chief Financial Officer, is responsible for developing, maintaining and executing against a coordinated strategy to ensure a timely and orderly transition from LIBOR. The Program is structured to address various initiatives including program governance, transition management, communications, exposure management, new alternative reference rate product delivery, risk management, contract remediation, operations and technology readiness, accounting and reporting, as well as tax and regulation impacts. We have identified and are monitoring the risks associated with the LIBOR transition on a quarterly basis.

The ARRC recommended that banks be systemically and operationally capable of supporting transactions in alternative reference rates, such as SOFR, by the end of September 2020. Guided by this milestone, we are systemically and operationally prepared to support alternative reference rate transactions. On March 5, 2021, the Financial Conduct Authority (“FCA”) formally announced the future cessation or loss of representation of the LIBOR benchmark settings currently published by the Intercontinental Exchange (“ICE”) Benchmark Administration. Further, the FCA stated that the 1-week and 2-month U.S. dollar LIBOR rates will cease as of December 31, 2021 and all other U.S. dollar LIBOR tenors will cease as of June 30, 2023. With the FRB, OCC, and FDIC (collectively, the agencies) supporting this announcement, the LIBOR Transition Program adjusted LIBOR transition activities accordingly. The agencies are still urging market participants to stop entering into new U.S. dollar LIBOR contracts as soon as practicable, but no later than the end of 2021. We are continuing all efforts to move new originations to alternative reference rates over the course of 2021. However, our plans for legacy contract remediation now extend through mid-2023. More broadly, program governance remains robust, and progress has been made in the above-outlined initiatives as management continues to closely monitor industry and regulatory developments pertaining to the transition.    
Capital Markets
A key component of our capital markets activities is the underwriting and distribution of corporate credit facilities to partially finance mergers and acquisitions transactions for our clients. We have a rigorous risk management process around these activities, including a limit structure capping our underwriting risk, our potential loss, and sub limits for specific asset classes. Further, the ability to approve underwriting exposure is delegated only to senior level individuals in the credit risk management and capital markets organizations with each transaction adjudicated in the Loan Underwriting Approval Committee.
Mortgage Servicing Rights    
We have market risk associated with the value of residential MSRs, which are impacted by various types of inherent risks, including duration, basis, convexity, volatility and yield curve.
As part of our overall risk management strategy relative to the fair market value of the MSRs, we enter into various free-standing derivatives, such as interest rate swaps, interest rate swaptions, interest rate futures, and forward contracts to purchase mortgage-backed securities to economically hedge the changes in fair value. As of March 31, 2021 and December 31, 2020, the fair value of our MSRs was $893 million and $658 million, respectively, and the total notional amount of related derivative contracts was $15.0 billion and $11.4 billion,
Citizens Financial Group, Inc. | 38


respectively. Gains and losses on MSRs and the related derivatives used for hedging are included in mortgage banking fees on the Consolidated Statements of Operations.
As with our traded market risk-based activities, earnings at-risk excludes the impact of MSRs. MSRs are captured under our single price risk management framework that is used for calculating a management value at risk that is consistent with the definition used by banking regulators, as defined below.
Trading Risk
We are exposed to market risk primarily through client facilitation activities including derivatives and foreign exchange products as well as underwriting and market making activities. Exposure is created as a result of changes in interest rates and related basis spreads and volatility, foreign exchange rates, and credit spreads on a select range of interest rates, foreign exchange, commodities, corporate bonds and secondary loan instruments. These trading activities are conducted through CBNA and CCMI. There have been no significant changes in our market risk governance, market risk measurement, or market risk practices including VaR, stressed VaR, sensitivity analysis, stress testing, or VaR model review and validation as described in “—Market Risk — Trading Risk” in our 2020 Form 10-K.
Market Risk Regulatory Capital
The U.S. banking regulators’ “Market Risk Rule” covers the calculation of market risk capital. For the purposes of the Market Risk Rule, all of our client facing trades and associated hedges maintain a net low risk and do qualify as “covered positions.” The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR.
Table 28: Results of Modeled and Non-Modeled Measures for Regulatory Capital Calculations
(in millions)For the Three Months Ended March 31, 2021For the Three Months Ended March 31, 2020
Market Risk Category 
Period End
Average 
HighLowPeriod EndAverageHighLow
Interest Rate$2 $3 $6 $1 $1 $1 $4 $— 
Foreign Exchange Currency Rate— — — — — — — — 
Credit Spread15 13 18 14 14 
Commodity— — — — — — — — 
General VaR14 12 16 13 14 
Specific Risk VaR— — — — — — — — 
Total VaR$14 $12 $16 $7 $13 $5 $14 $4 
Stressed General VaR$18 $15 $19 $9 $15 $11 $15 $9 
Stressed Specific Risk VaR— — — — — — — — 
Total Stressed VaR$18 $15 $19 $9 $15 $11 $15 $9 
Market Risk Regulatory Capital$82 $50 
Specific Risk Not Modeled Add-on15 12 
Total Market Risk Regulatory Capital$97 $62 
Market Risk-Weighted Assets$1,216 $774 
VaR Backtesting
Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. We perform sub-portfolio backtesting as required under the Market Risk Rule, using models approved by our banking regulators, for interest rate, credit spread, and foreign exchange positions.
Citizens Financial Group, Inc. | 39


The following graph shows our daily net trading revenue and total internal, modeled VaR for the twelve months ended March 31, 2021.
Daily VaR Backtesting
cfg-20210331_g7.jpg

Citizens Financial Group, Inc. | 40


NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
For more information on the computation of our non-GAAP financial measures, see “—Introduction — Non-GAAP Financial Measures,” included in this Report. The following tables present computations of non-GAAP financial measures representing our Underlying results used throughout the MD&A:

Table 29: Reconciliations of Non-GAAP Measures
  As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)Ref.20212020
Total revenue, Underlying:
Total revenue (GAAP)A$1,659 $1,657 
Less: Notable items— — 
Total revenue, Underlying (non-GAAP)B$1,659 $1,657 
Noninterest expense, Underlying:
Noninterest expense (GAAP)C$1,018 $1,012 
Less: Notable items20 33 
Noninterest expense, Underlying (non-GAAP)D$998 $979 
Pre-provision profit:
Total revenue (GAAP)A$1,659 $1,657 
Less: Noninterest expense (GAAP)C1,018 1,012 
Pre-provision profit (GAAP)$641 $645 
Pre-provision profit, Underlying
Total revenue, Underlying (non-GAAP)B$1,659 $1,657 
Less: Noninterest expense, Underlying (non-GAAP)D998 979 
Pre-provision profit, Underlying (non-GAAP)$661 $678 
Income before income tax expense, Underlying:
Income before income tax expense (GAAP)E$781 $45 
Less: Expense before income tax benefit related to notable items(20)(33)
Income before income tax expense, Underlying (non-GAAP)F$801 $78 
Income tax expense and effective income tax rate, Underlying:
Income tax expense (GAAP)G$170 $11 
Less: Income tax benefit related to notable items(5)(8)
Income tax expense, Underlying (non-GAAP)H$175 $19 
Effective income tax rate (GAAP)G/E21.76 %24.13 %
Effective income tax rate, Underlying (non-GAAP)H/F21.85 24.52 
Net income, Underlying:
Net income (GAAP)I$611 $34 
Add: Notable items, net of income tax benefit15 25 
Net income, Underlying (non-GAAP)J$626 $59 
Net income available to common stockholders, Underlying:
Net income available to common stockholders (GAAP)K$588 $12 
Add: Notable items, net of income tax benefit15 25 
Net income available to common stockholders, Underlying (non-GAAP)L$603 $37 
Return on average common equity and return on average common equity, Underlying:
Average common equity (GAAP)M$20,611 $20,223 
Return on average common equityK/M11.57 %0.24 %
Return on average common equity, Underlying (non-GAAP)
L/M11.85 0.74 



Citizens Financial Group, Inc. | 41


  As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)Ref.20212020
Return on average tangible common equity and return on average tangible common equity, Underlying: 
Average common equity (GAAP)M$20,611 $20,223 
Less: Average goodwill (GAAP)7,050 7,046 
Less: Average other intangibles (GAAP)57 67 
Add: Average deferred tax liabilities related to goodwill (GAAP)379 374 
Average tangible common equityN$13,883 $13,484 
Return on average tangible common equityK/N17.17 %0.36 %
Return on average tangible common equity, Underlying (non-GAAP)L/N17.59 1.10 
Return on average total assets and return on average total assets, Underlying:
Average total assets (GAAP)O$182,569 $167,177 
Return on average total assetsI/O1.36 %0.08 %
Return on average total assets, Underlying (non-GAAP)J/O1.39 0.14 
Return on average total tangible assets and return on average total tangible assets, Underlying: 
Average total assets (GAAP)O$182,569 $167,177 
Less: Average goodwill (GAAP) 7,050 7,046 
Less: Average other intangibles (GAAP) 57 67 
Add: Average deferred tax liabilities related to goodwill (GAAP) 379 374 
Average tangible assetsP$175,841 $160,438 
Return on average total tangible assetsI/P1.41 %0.09 %
Return on average total tangible assets, Underlying (non-GAAP)J/P1.44 0.15 
Efficiency ratio and efficiency ratio, Underlying: 
Efficiency ratioC/A61.35 %61.10 %
Efficiency ratio, Underlying (non-GAAP)D/B60.19 59.08 
Operating leverage and operating leverage, Underlying:
Increase in total revenue0.07 %4.35 %
Increase in noninterest expense0.48 8.06 
Operating leverage(0.41 %)(3.71)%
Increase in total revenue, Underlying (non-GAAP)0.07 %4.35 %
Increase in noninterest expense, Underlying (non-GAAP)1.94 5.09 
Operating leverage, Underlying (non-GAAP)(1.87 %)(0.74)%
Tangible book value per common share:
Common shares - at period end (GAAP)Q425,930,159 426,586,533 
Common stockholders' equity (GAAP)$20,688 $20,380 
Less: Goodwill (GAAP)7,050 7,050 
Less: Other intangible assets (GAAP)54 66 
Add: Deferred tax liabilities related to goodwill (GAAP)380 375 
Tangible common equityR$13,964 $13,639 
Tangible book value per common shareR/Q$32.79 $31.97 
Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:
Average common shares outstanding - basic (GAAP)S425,953,716 427,718,421 
Average common shares outstanding - diluted (GAAP)T427,880,530 429,388,855 
Net income per average common share - basic (GAAP)K/S$1.38 $0.03 
Net income per average common share - diluted (GAAP)K/T1.37 0.03 
Net income per average common share - basic, Underlying (non-GAAP)L/S1.41 0.09 
Net income per average common share - diluted, Underlying (non-GAAP)L/T1.41 0.09 
Dividend payout ratio and dividend payout ratio, Underlying:
Cash dividends declared and paid per common shareU$0.39 $0.39 
Dividend payout ratioU/(K/S)28 %1,398 %
Dividend payout ratio, Underlying (non-GAAP)U/(L/S)28 451 

Citizens Financial Group, Inc. | 42


The following table presents computations of non-GAAP financial measures representing certain metrics excluding the impact of PPP loans used throughout the MD&A:
Table 30: Reconciliations of Non-GAAP Measures - Excluding PPP
(in millions, except share, per share and ratio data)Ref.March 31, 2021December 31, 2020
Allowance for credit losses to total loans and leases, excluding the impact of PPP loans:
Total loans and leases (GAAP)A$122,195 $123,090 
Less: PPP loans5,148 4,155 
Total loans and leases, excluding the impact of PPP loans (non-GAAP)B$117,047 $118,935 
Allowance for credit losses (GAAP)C$2,372 $2,670 
Allowance for credit losses to total loans and leases (GAAP)C/A1.94 %2.17 %
Allowance for credit losses to total loans and leases, excluding the impact of PPP loans (non-GAAP)C/B2.03 %2.24 %

The following table presents computations of non-GAAP financial measures representing certain metrics
excluding the impact of elevated cash levels used in “—Net Interest Income”:
Table 31: Reconciliations of Non-GAAP Measures - Excluding Elevated Cash
As of and for the Three Months Ended March 31,
(in millions, except ratio data)Ref.20212020
Net interest income, FTE, excluding the impact of elevated cash:
Net interest income, FTE (GAAP)A$1,120 $1,164 
Less: Net interest income associated with elevated cash— — 
Net interest income, FTE, excluding the impact of elevated cash (non-GAAP)B$1,120 $1,164 
Average interest-earning assets, excluding the impact of elevated cash:
Total interest-earning assets (GAAP)C$164,381 $150,946 
Less: Elevated cash8,985 — 
Total average interest-earning assets, excluding the impact of elevated cash (non-GAAP)D$155,396 $150,946 
Day countE90 91 
Day count (year)F365 366 
Ratios:
Net interest margin, FTE (GAAP)A / C / E * F2.76 %3.10 %
Net interest margin, FTE, excluding the impact of elevated cash (non-GAAP)B / D / E * F2.92 %3.10 %
Citizens Financial Group, Inc. | 43


ITEM 1. FINANCIAL STATEMENTS


Citizens Financial Group, Inc. | 44


CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)March 31, 2021December 31, 2020
ASSETS:
Cash and due from banks$1,117 $1,037 
Interest-bearing cash and due from banks13,543 11,696 
Interest-bearing deposits in banks308 306 
Debt securities available for sale, at fair value (including $539 and $549 pledged to creditors, respectively)(1)
24,467 22,942 
Debt securities held to maturity (fair value of $3,077 and $3,357 respectively, and including $141 and $144 pledged to creditors, respectively)(1)
2,995 3,235 
Loans held for sale, at fair value4,304 3,564 
Other loans held for sale75 439 
Loans and leases122,195 123,090 
Less: Allowance for loan and lease losses(2,194)(2,443)
Net loans and leases120,001 120,647 
Derivative assets1,298 1,915 
Premises and equipment, net743 759 
Bank-owned life insurance2,135 1,756 
Goodwill7,050 7,050 
Other assets9,181 8,003 
TOTAL ASSETS$187,217 $183,349 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing$46,067 $43,831 
Interest-bearing105,282 103,333 
          Total deposits151,349 147,164 
Short-term borrowed funds70 243 
Derivative liabilities111 128 
Deferred taxes, net593 629 
Long-term borrowed funds8,316 8,346 
Other liabilities4,125 4,166 
TOTAL LIABILITIES164,564 160,676 
Contingencies (refer to Note 11)00
STOCKHOLDERS’ EQUITY:
Preferred stock:
$25.00 par value,100,000,000 shares authorized; 2,000,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively1,965 1,965 
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 570,841,385 shares issued and 425,930,159 shares outstanding at March 31, 2021 and 569,876,133 shares issued and 427,209,831 shares outstanding at December 31, 2020
Additional paid-in capital18,945 18,940 
Retained earnings6,866 6,445 
Treasury stock, at cost, 144,911,226 and 142,666,302 shares at March 31, 2021 and December 31, 2020, respectively(4,718)(4,623)
Accumulated other comprehensive loss(411)(60)
TOTAL STOCKHOLDERS’ EQUITY$22,653 $22,673 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$187,217 $183,349 
(1) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Citizens Financial Group, Inc. | 45


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
 (in millions, except share and per share data)20212020
INTEREST INCOME:
Interest and fees on loans and leases$1,061 $1,302 
Interest and fees on loans held for sale, at fair value18 15 
Interest and fees on other loans held for sale
Investment securities128 147 
Interest-bearing deposits in banks
Total interest income1,216 1,478 
INTEREST EXPENSE:
Deposits50 227 
Short-term borrowed funds
Long-term borrowed funds49 90 
Total interest expense99 318 
Net interest income1,117 1,160 
Provision for credit losses(140)600 
Net interest income after provision for credit losses1,257 560 
NONINTEREST INCOME:
Mortgage banking fees165 159 
Service charges and fees99 118 
Capital markets fees81 43 
Card fees55 56 
Trust and investment services fees58 53 
Letter of credit and loan fees38 34 
Foreign exchange and interest rate products28 24 
Securities gains, net
Other income15 10 
Total noninterest income542 497 
NONINTEREST EXPENSE:
Salaries and employee benefits548 549 
Equipment and software152 133 
Outside services139 135 
Occupancy88 84 
Other operating expense91 111 
Total noninterest expense1,018 1,012 
Income before income tax expense781 45 
Income tax expense170 11 
NET INCOME$611 $34 
Net income available to common stockholders$588 $12 
Weighted-average common shares outstanding:
Basic425,953,716 427,718,421 
Diluted427,880,530 429,388,855 
Per common share information:
Basic earnings$1.38 $0.03 
Diluted earnings1.37 0.03 

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
Citizens Financial Group, Inc. | 46


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31,
(in millions)20212020
Net income$611 $34 
Other comprehensive income (loss):
Net unrealized derivative instruments (losses) gains arising during the periods, net of income taxes of $(7) and $33, respectively(21)96 
Reclassification adjustment for net derivative gains included in net income, net of income taxes of $(9) and $(1), respectively(25)(3)
Net unrealized debt securities (losses) gains arising during the periods, net of income taxes of $(100) and $129, respectively(307)400 
Reclassification of net debt securities gains to net income, net of income taxes of $(1) and $0, respectively(2)
Amortization of actuarial loss, net of income taxes of $0 and $1, respectively
Total other comprehensive (loss) income, net of income taxes(351)496 
Total comprehensive income$260 $530 

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
Citizens Financial Group, Inc. | 47


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Preferred
 Stock
Common
 Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock, at CostAccumulated Other Comprehensive Income (Loss)Total
(in millions)SharesAmountSharesAmount
Balance at January 1, 2020$1,570 433 $6 $18,891 $6,498 ($4,353)($411)$22,201 
Dividends to common stockholders— — — — — (168)— — (168)
Dividends to preferred stockholders— — — — — (22)— — (22)
Treasury stock purchased— — (7)— — — (270)— (270)
Share-based compensation plans— — — — — 
Employee stock purchase plan shares purchased— — — — — — — 
Cumulative effect of change in accounting principle(331)(331)
Total comprehensive income:
Net income— — — — — 34 — — 34 
Other comprehensive income— — — — — — — 496 496 
Total comprehensive income— — — — — 34 — 496 530 
Balance at March 31, 2020$1,570 427 $6 $18,901 $6,011 ($4,623)$85 $21,950 
Balance at January 1, 2021$1,965 427 $6 $18,940 $6,445 ($4,623)($60)$22,673 
Dividends to common stockholders— — — — — (167)— — (167)
Dividends to preferred stockholders— — — — — (23)— — (23)
Treasury stock purchased— — (2)— — — (95)— (95)
Share-based compensation plans— — — — — — 
Employee stock purchase plan shares purchased— — — — — — — 
Total comprehensive income:
Net income— — — — — 611 — — 611 
Other comprehensive loss— — — — — — — (351)(351)
Total comprehensive income (loss)— — — — — 611 — (351)260 
Balance at March 31, 2021$1,965 426 $6 $18,945 $6,866 ($4,718)($411)$22,653 

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

Citizens Financial Group, Inc. | 48


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31,
(in millions)20212020
OPERATING ACTIVITIES
Net income$611 $34 
Adjustments to reconcile net income to net cash used in operating activities:
Provision for credit losses(140)600 
Net change in loans held for sale(622)(860)
Depreciation, amortization and accretion152 204 
Deferred income taxes80 (134)
Share-based compensation22 21 
Net gain on sale of debt securities(3)
Increase in other assets(773)(1,022)
Decrease in other liabilities(17)(170)
Net cash used in operating activities(690)(1,327)
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale(4,256)(2,102)
Proceeds from maturities and paydowns of debt securities available for sale2,281 1,010 
Proceeds from sales of debt securities available for sale54 
Proceeds from maturities and paydowns of debt securities held to maturity241 131 
Net (increase) decrease in interest-bearing deposits in banks(2)17 
Acquisitions, net of cash acquired(3)
Net decrease (increase) in loans and leases1,042 (7,630)
Capital expenditures, net(10)(16)
Purchase of bank-owned life insurance(375)
Other(47)(175)
Net cash used in investing activities(1,072)(8,768)
FINANCING ACTIVITIES
Net increase in deposits4,185 8,162 
Net (decrease) increase in short-term borrowed funds(176)780 
Proceeds from issuance of long-term borrowed funds6,800 
Repayments of long-term borrowed funds(4)(4,500)
Treasury stock purchased(95)(270)
Dividends paid to common stockholders(167)(168)
Dividends paid to preferred stockholders(32)(23)
Premium paid to exchange subordinated debt(1)
Payments of employee tax withholding for share-based compensation(21)(14)
Net cash provided by financing activities3,689 10,767 
Increase in cash and cash equivalents (1)
1,927 672 
Cash and cash equivalents at beginning of period (1)
12,733 3,386 
Cash and cash equivalents at end of period (1)
$14,660 $4,058 

(1) Cash and cash equivalents includes cash and due from banks and interest-bearing cash and due from banks as reflected on the Consolidated Balance Sheets.

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
Citizens Financial Group, Inc. | 49


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Basis of Presentation
The unaudited interim Consolidated Financial Statements, including the Notes presented in this document of Citizens Financial Group, Inc., have been prepared in accordance with GAAP interim reporting requirements, and therefore do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. These unaudited interim Consolidated Financial Statements and Notes presented in this document should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s 2020 Form 10-K. The Company’s principal business activity is banking, conducted through its banking subsidiary, CBNA.
The unaudited interim Consolidated Financial Statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. The Company has evaluated its unconsolidated entities and does not believe that any entity in which it has an interest, but does not currently consolidate, meets the requirements to be consolidated as a variable interest entity. The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the ACL and the fair value of MSRs.
Significant Accounting Policies
For further information regarding the Company’s significant accounting policies, see Note 1 in the Company’s 2020 Form 10-K.
NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:
March 31, 2021December 31, 2020
(in millions)Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury and other$11 $0 $0 $11 $11 $0 $0 $11 
State and political subdivisions
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities23,966 415 (268)24,113 21,954 571 (19)22,506 
Other/non-agency324 16 340 396 26 422 
Total mortgage-backed securities, at fair value24,290 431 (268)24,453 22,350 597 (19)22,928 
Total debt securities available for sale, at fair value$24,304 $431 ($268)$24,467 $22,364 $597 ($19)$22,942 
Federal agencies and U.S. government sponsored entities$2,139 $84 $0 $2,223 $2,342 $122 $0 $2,464 
Total mortgage-backed securities, at cost2,139 84 2,223 2,342 122 2,464 
Asset-backed securities, at cost856 (2)854 893 893 
Total debt securities held to maturity$2,995 $84 ($2)$3,077 $3,235 $122 $0 $3,357 
Equity securities, at fair value$73 $— $— $73 $66 $— $— $66 
Equity securities, at cost603 — — 603 604 — — 604 
Accrued interest receivable on debt securities totaled $56 million and $55 million as of March 31, 2021 and December 31, 2020, respectively, and is included in other assets on the Consolidated Balance Sheets.
Citizens Financial Group, Inc. | 50


The following table presents the amortized cost and fair value of debt securities by contractual maturity as of March 31, 2021. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
March 31, 2021
Distribution of Maturities
(in millions)1 Year or LessAfter 1 Year through 5 YearsAfter 5 Years through 10 YearsAfter 10 YearsTotal
Amortized cost:
U.S. Treasury and other$11 $0 $0 $0 $11 
State and political subdivisions
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities108 1,626 22,230 23,966 
Other/non-agency324 324 
Total debt securities available for sale13 108 1,626 22,557 24,304 
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities2,139 2,139 
Asset-backed securities856 856 
Total debt securities held to maturity856 2,139 2,995 
Total amortized cost of debt securities$13 $108 $2,482 $24,696 $27,299 
Fair value:
U.S. Treasury and other$11 $0 $0 $0 $11 
State and political subdivisions
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities111 1,676 22,324 24,113 
Other/non-agency340 340 
Total debt securities available for sale13 111 1,676 22,667 24,467 
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities02,223 2,223 
Asset-backed securities854 854 
Total debt securities held to maturity854 2,223 3,077 
Total fair value of debt securities$13 $111 $2,530 $24,890 $27,544 
        
Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $128 million and $147 million for the three months ended March 31, 2021 and 2020, respectively.

The following table presents realized gains and losses on securities:
Three Months Ended March 31,
(in millions)20212020
Gains on sale of debt securities$3 $0 
Losses on sale of debt securities
Debt securities gains, net$3 $0 
The following table presents the amortized cost and fair value of debt securities pledged:
March 31, 2021December 31, 2020
(in millions)Amortized CostFair ValueAmortized CostFair Value
Pledged against repurchase agreements$53 $55 $224 $231 
Pledged against FHLB borrowed funds322 340 394 423 
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law3,677 3,725 3,818 3,937 

The Company regularly enters into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. These repurchase agreements are typically short-term in nature and are
Citizens Financial Group, Inc. | 51


accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. The Company recognized 0 offsetting of short-term receivables or payables as of March 31, 2021 or December 31, 2020. The Company offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information, see Note 8.
Securitizations of mortgage loans retained in the investment portfolio were $81 million for the three months ended March 31, 2021. There were 0 securitizations of mortgage loans retained in the investment portfolio for the three months ended March 31, 2020. These securitizations include a substantive guarantee by a third party. In 2021, the guarantors were FNMA and FHLMC. The debt securities received from the guarantors are classified as AFS.
Impairment
As of March 31, 2021, the Company concluded that 71% of HTM securities met the zero expected credit loss criteria; therefore, no ACL was recognized. For the remaining 29%, the lifetime expected credit losses were determined to be insignificant based on the modeling of the Company’s credit loss position in the security. The Company monitors the credit exposure through the use of credit quality indicators. For these securities, the Company uses external credit ratings or an internally derived credit rating when an external rating is not available. All securities were determined to be investment grade at March 31, 2021.
The following tables present AFS mortgage-backed debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:
March 31, 2021
Less than 12 Months12 Months or LongerTotal
(dollars in millions)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Federal agencies and U.S. government sponsored entities$9,997 ($268)$0 $0 $9,997 ($268)

December 31, 2020
Less than 12 Months12 Months or LongerTotal
(dollars in millions)Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Federal agencies and U.S. government sponsored entities$1,991 ($19)$0 $0 $1,991 ($19)
Citizens does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. Citizens has determined that credit losses are not expected to be incurred on the agency and non-agency MBS identified with unrealized losses as of March 31, 2021. The unrealized losses on these debt securities reflect non-credit-related factors driven by changes in interest rates. Therefore, the Company has determined that these debt securities are not impaired.
NOTE 3 - LOANS AND LEASES
Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans.
Loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial and industrial, commercial real estate, leases, residential mortgages, home equity, automobile, education and other retail.
Citizens Financial Group, Inc. | 52


The following table presents loans and leases, excluding LHFS.
(in millions)March 31, 2021December 31, 2020
Commercial and industrial (1)
$44,058 $44,173 
Commercial real estate14,553 14,652 
Leases1,802 1,968 
Total commercial60,413 60,793 
Residential mortgages19,202 19,539 
Home equity11,854 12,149 
Automobile12,344 12,153 
Education12,691 12,308 
Other retail5,691 6,148 
Total retail loans61,782 62,297 
Total loans and leases$122,195 $123,090 
(1) Includes $5.1 billion and $4.2 billion of PPP loans fully guaranteed by the SBA as of March 31, 2021 and December 31, 2020, respectively.
 
Accrued interest receivable on loans and leases held for investment totaled $444 million and $449 million as of March 31, 2021 and December 31, 2020, respectively, and is included in other assets in the Consolidated Balance Sheets.
During the three months ended March 31, 2021 and 2020, the Company purchased $301 million and $218 million of education loans, respectively, and $177 million and $272 million of other retail loans, respectively.
During the three months ended March 31, 2021 and 2020, the Company sold $326 million and $191 million of commercial loans, respectively. During the three months ended March 31, 2020, the company sold $1.5 billion of residential mortgage loans as compared to none in the same period in 2021.
Loans pledged as collateral for FHLB borrowed funds, primarily residential mortgages and home equity products, totaled $25.3 billion and $25.5 billion at March 31, 2021 and December 31, 2020, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of education, auto, commercial and industrial, and commercial real estate loans, and totaled $40.7 billion and $40.0 billion at March 31, 2021 and December 31, 2020, respectively.
Interest income on direct financing and sales-type leases was $13 million and $18 million for the three months ended March 31, 2021 and 2020, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.
    The following table presents the composition of LHFS.
March 31, 2021December 31, 2020
(in millions)
Residential Mortgages(1)
Commercial(2)
Total
Residential Mortgages(1)
Commercial(2)
Total
Loans held for sale at fair value$4,208 $96 $4,304 $3,416 $148 $3,564 
Other loans held for sale75 75 439 439 
(1) Residential mortgage LHFS are originated for sale.
(2) Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other commercial LHFS generally consist of loans associated with the Company’s syndication business.
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONACCRUING LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK
Allowance for Credit Losses    
Management’s estimate of expected credit losses in the Company’s loan and lease portfolios is recorded in the ALLL and the allowance for unfunded lending commitments (collectively the ACL). See Note 5 in the Company’s 2020 Form 10-K for a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, 2020. There were no significant changes to the ACL reserve methodology in the three months ended March 31, 2021.
Citizens Financial Group, Inc. | 53


The following table presents a summary of changes in the ALLL and the allowance for unfunded lending commitments for the three months ended March 31, 2021:
Three Months Ended March 31, 2021
(in millions)CommercialRetailTotal
Allowance for loan and lease losses, beginning of period$1,233 $1,210 $2,443 
Charge-offs(134)(93)(227)
Recoveries30 39 69 
Net charge-offs(104)(54)(158)
Provision charged to income17 (108)(91)
Allowance for loan and lease losses, end of period$1,146 $1,048 $2,194 
Allowance for unfunded lending commitments, beginning of period$186 $41 $227 
Provision for unfunded lending commitments(21)(28)(49)
Allowance for unfunded lending commitments, end of period$165 $13 $178 
The difference in ACL as of March 31, 2021 as compared to December 31, 2020 was due to higher net charge-offs of $158 million, as detailed below, coupled with a negative provision for credit losses for $140 million. This reflected strong credit performance across the retail and commercial loan portfolios, and improvement in the macroeconomic outlook. Overall, an ending ACL balance of $2.4 billion at March 31, 2021 compared to $2.7 billion at December 31, 2020.    
The increase in commercial net charge-offs of $60 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was driven by higher charge-offs in finance and insurance, including one large charge-off related to a financial sponsor, and CRE. Retail net charge-offs were down $39 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 as a result of government stimulus and forbearance programs.
To determine the ACL as of March, 31, 2021, Citizens utilized an economic forecast that generally reflects real GDP growth of approximately 3.2% over 2021, returning to fourth quarter 2019 real GDP levels by the last quarter of 2021. The forecast also projects the unemployment rate to be in the range of 6.3% to 7.0% throughout 2021. Overall, this forecast reflects an improved macroeconomic outlook as compared to December 31, 2020. In addition to judgment applied at the commercial portfolio as a whole, Citizens continued to apply management judgment to adjust the modeled reserves in the commercial industry sectors most impacted by the COVID-19 pandemic and associated lockdowns, including CRE retail and hospitality and casual dining.
Accrued interest receivable on loans and leases is excluded from asset balances used to calculate the ACL. Loans in COVID-19 pandemic-related forbearance programs continue to accrue interest during the forbearance period; a reserve is established for interest income expected to be uncollectible following forbearance. Accrued interest reversed against interest income for the three months ended March 31, 2021 was $1 million and $6 million for commercial and retail, respectively. For the three months ended March 31, 2020, these reversals were $1 million and $5 million for commercial and retail, respectively.
Citizens Financial Group, Inc. | 54


The following table presents a summary of changes in the ALLL and the allowance for unfunded lending commitments for the three months ended March 31, 2020:
Three Months Ended March 31, 2020
(in millions)CommercialRetailTotal
Allowance for loan and lease losses, beginning of period$674 $578 $1,252 
Cumulative effect of change in accounting principle(176)629 453 
Allowance for loan and lease losses, beginning of period, adjusted498 1,207 1,705 
Charge-offs(47)(127)(174)
Recoveries34 37 
Net charge-offs(44)(93)(137)
Provision charged to income298 305 603 
Allowance for loan and lease losses, end of period$752 $1,419 $2,171 
Allowance for unfunded lending commitments, beginning of period$44 $0 $44 
Cumulative effect of change in accounting principle(3)(2)
Allowance for unfunded lending commitments, beginning of period, adjusted41 42 
Provision for unfunded lending commitments(3)(3)
Allowance for unfunded lending commitments, end of period$38 $1 $39 
Credit Quality Indicators
Loan and lease portfolio segments and classes, excluding LHFS, are presented by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date. Loans modified in a TDR are considered to be a continuation of the original loan and vintage date corresponds with the initial loan origination date.
For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. Regulatory classification ratings are assigned at loan origination and are periodically re-evaluated by Citizens utilizing a risk-based approach, or at any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. Both quantitative and qualitative factors are considered in this review process. Loans with a “pass” rating are those that the Company believes 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 the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans 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.
Citizens Financial Group, Inc. | 55


The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of March 31, 2021:
Term Loans by Origination YearRevolving Loans
(in millions)20212020201920182017Prior to 2017Within the Revolving PeriodConverted to TermTotal
Commercial and industrial
Pass(1)
$3,000 $7,178 $5,699 $3,995 $2,206 $3,384 $15,134 $326 $40,922 
Special Mention41 221 241 86 244 415 34 1,282 
Substandard22 101 294 256 124 177 612 23 1,609 
Doubtful65 11 31 28 35 72 245 
Total commercial and industrial3,022 7,385 6,225 4,523 2,444 3,840 16,233 386 44,058 
Commercial real estate
Pass253 2,411 3,815 3,212 1,206 1,794 940 13,631 
Special Mention131 72 178 99 489 
Substandard46 116 58 58 49 81 408 
Doubtful16 25 
Total commercial real estate299 2,552 4,004 3,349 1,433 1,976 940 14,553 
Leases
Pass94 401 240 225 116 675 1,751 
Special Mention19 34 
Substandard13 16 
Doubtful
Total leases94 417 246 228 122 695 1,802 
Total commercial loans and leases
Pass(1)
3,347 9,990 9,754 7,432 3,528 5,853 16,074 326 56,304 
Special Mention53 356 315 270 362 415 34 1,805 
Substandard68 230 354 315 173 258 612 23 2,033 
Doubtful81 11 38 28 38 72 271 
Total commercial$3,415 $10,354 $10,475 $8,100 $3,999 $6,511 $17,173 $386 $60,413 
(1) Includes $5.1 billion of PPP loans designated as pass that are fully guaranteed by the SBA originating in 2021 and 2020.
Citizens Financial Group, Inc. | 56


The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of December 31, 2020:
Term Loans by Origination YearRevolving Loans
(in millions)20202019201820172016Prior to 2016Within the Revolving PeriodConverted to TermTotal
Commercial and industrial
Pass(1)
$8,036 $5,730 $4,180 $2,174 $1,157 $1,980 $17,281 $340 $40,878 
Special Mention34 264 163 84 60 173 771 34 1,583 
Substandard91 195 248 100 81 127 600 22 1,464 
Doubtful65 10 34 38 31 63 248 
Total commercial and industrial8,226 6,199 4,625 2,396 1,301 2,311 18,715 400 44,173 
Commercial real estate
Pass1,848 2,836 2,810 1,106 566 919 3,271 13,356 
Special Mention19 130 121 92 94 48 300 804 
Substandard116 65 53 26 149 416 
Doubtful16 26 24 76 
Total commercial real estate1,999 2,994 3,004 1,203 713 995 3,744 14,652 
Leases
Pass455 246 229 139 180 673 1,922 
Special Mention18 33 
Substandard12 
Doubtful
Total leases458 252 233 147 186 692 1,968 
Total commercial loans and leases
Pass(1)
10,339 8,812 7,219 3,419 1,903 3,572 20,552 340 56,156 
Special Mention56 398 286 180 156 239 1,071 34 2,420 
Substandard207 199 315 109 138 153 749 22 1,892 
Doubtful81 36 42 38 34 87 325 
Total commercial$10,683 $9,445 $7,862 $3,746 $2,200 $3,998 $22,459 $400 $60,793 
(1) Includes $4.2 billion PPP loans designated as pass that are fully guaranteed by the SBA originating in 2020.
For retail loans, Citizens utilizes credit scores provided by FICO 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.
Citizens Financial Group, Inc. | 57


The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of March 31, 2021:
Term Loans by Origination YearRevolving Loans
(in millions)20212020201920182017Prior to 2017Within the Revolving PeriodConverted to TermTotal
Residential mortgages
800+$307 $3,088 $1,756 $556 $1,014 $3,023 $0 $0 $9,744 
740-799729 2,369 944 337 446 1,442 6,267 
680-739175 699 331 140 157 681 2,183 
620-67914 96 93 46 65 306 620 
<62025 28 40 53 224 372 
No FICO available(1)
11 16 
Total residential mortgages1,229 6,279 3,153 1,119 1,735 5,687 19,202 
Home equity
800+192 4,288 335 4,839 
740-799170 3,167 317 3,672 
680-73911 16 175 1,610 270 2,089 
620-67913 20 23 144 363 189 755 
<62021 33 26 124 87 203 499 
No FICO available(1)
Total home equity13 52 78 77 805 9,515 1,314 11,854 
Automobile
800+370 997 749 378 265 168 2,927 
740-799495 1,426 906 460 288 169 3,744 
680-739441 1,253 781 396 232 136 3,239 
620-679188 616 421 220 131 86 1,662 
<62018 159 218 168 117 87 767 
No FICO available(1)
Total automobile1,514 4,452 3,075 1,622 1,033 648 12,344 
Education
800+347 1,781 1,169 713 647 1,151 5,808 
740-799399 1,883 971 528 370 638 4,789 
680-73998 560 326 187 136 312 1,619 
620-67955 50 41 34 125 310 
<62012 15 12 62 106 
No FICO available(1)
57 59 
Total education851 4,284 2,528 1,484 1,199 2,345 12,691 
Other retail
800+63 394 269 117 56 49 303 1,251 
740-79995 546 359 151 68 42 592 1,855 
680-73987 431 245 102 45 22 531 1,468 
620-67956 229 88 36 13 170 605 
<62046 35 20 74 198 
No FICO available(1)
24 279 314 
Total other retail329 1,655 996 426 189 124 1,949 23 5,691 
Retail
800+1,087 6,263 3,950 1,772 1,988 4,583 4,591 335 24,569 
740-7991,718 6,225 3,185 1,482 1,178 2,461 3,759 319 20,327 
680-739801 2,944 1,689 836 586 1,326 2,141 275 10,598 
620-679263 999 665 363 266 668 533 195 3,952 
<62024 240 314 276 215 501 161 211 1,942 
No FICO available(1)
30 12 70 279 394 
Total retail$3,923 $16,683 $9,804 $4,729 $4,233 $9,609 $11,464 $1,337 $61,782 
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
Citizens Financial Group, Inc. | 58


The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of December 31, 2020:
Term Loans by Origination YearRevolving Loans
(in millions)20202019201820172016Prior to 2016Within the Revolving PeriodConverted to TermTotal
Residential mortgages
800+$2,687 $1,885 $638 $1,129 $1,615 $1,755 $0 $0 $9,709 
740-7992,931 1,133 398 527 743 904 6,636 
680-739784 351 162 172 295 458 2,222 
620-67997 94 44 56 66 223 580 
<62012 28 35 58 50 185 368 
No FICO available(1)
14 24 
Total residential mortgages6,512 3,493 1,278 1,947 2,770 3,539 19,539 
Home equity
800+10 216 4,319 344 4,911 
740-799180 3,234 331 3,771 
680-73910 15 179 1,632 284 2,135 
620-67910 18 21 14 136 402 195 796 
<62017 30 29 18 122 105 214 536 
No FICO available(1)
Total home equity47 75 78 50 833 9,692 1,368 12,149 
Automobile
800+1,056 812 424 312 169 62 2,835 
740-7991,514 1,022 531 344 172 59 3,642 
680-7391,347 889 461 282 138 47 3,164 
620-679669 484 259 157 84 32 1,685 
<620140 242 189 137 79 34 821 
No FICO available(1)
Total automobile4,728 3,449 1,864 1,232 642 238 12,153 
Education
800+1,817 1,363 849 781 578 777 6,165 
740-7991,797 1,009 541 387 251 423 4,408 
680-739450 294 173 127 90 221 1,355 
620-67926 35 33 28 25 95 242 
<62010 10 41 76 
No FICO available(1)
60 62 
Total education4,094 2,706 1,606 1,333 952 1,617 12,308 
Other retail
800+461 380 163 77 15 44 341 1,481 
740-799620 460 184 81 19 31 638 2,035 
680-739495 302 111 48 10 13 561 1,545 
620-679248 104 37 14 174 592 
<62024 30 17 77 166 
No FICO available(1)
54 272 329 
Total other retail1,902 1,277 512 226 48 96 2,063 24 6,148 
Retail
800+6,023 4,448 2,084 2,306 2,382 2,854 4,660 344 25,101 
740-7996,864 3,630 1,661 1,345 1,190 1,597 3,872 333 20,492 
680-7393,077 1,842 917 644 541 918 2,193 289 10,421 
620-6791,040 727 391 276 192 491 576 202 3,895 
<620179 322 281 240 156 385 182 222 1,967 
No FICO available(1)
59 78 272 421 
Total retail$17,242 $10,972 $5,335 $4,816 $4,462 $6,323 $11,755 $1,392 $62,297 
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
Citizens Financial Group, Inc. | 59



Nonaccrual and Past Due Assets
The following table presents nonaccrual loans and leases and loans accruing and 90 days or more past due:
As of March 31, 2021As of December 31, 2020
(in millions)Nonaccrual loans and leases90+ days past due and accruingNonaccrual with no related ACLNonaccrual loans and leases90+ days past due and accruingNonaccrual with no related ACL
Commercial and industrial$281 $3 $56 $280 $20 $56 
Commercial real estate100 37 176 
Leases
Total commercial382 12 93 458 21 58 
Residential mortgages237 23 178 167 30 96 
Home equity269 202 276 207 
Automobile70 33 72 17 
Education22 18 
Other retail28 28 
Total retail626 34 417 561 41 322 
Total loans and leases$1,008 $46 $510 $1,019 $62 $380 
Interest income is generally not recognized for loans and leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying the loan or lease as nonaccrual.
    The following table presents an analysis of the age of both accruing and nonaccruing loan and lease past due amounts:
March 31, 2021December 31, 2020
Days Past DueDays Past Due
(in millions)Current-2930-5960-89 90 or More TotalCurrent-2930-5960-89 90 or More Total
Commercial and industrial$43,768 $178 $20 $92 $44,058 $43,817 $223 $16 $117 $44,173 
Commercial real estate14,440 60 36 17 14,553 14,531 85 35 14,652 
Leases1,798 1,802 1,956 1,968 
Total commercial60,006 240 56 111 60,413 60,304 233 101 155 60,793 
Residential mortgages18,951 55 11 185 19,202 19,291 59 21 168 19,539 
Home equity11,599 46 19 190 11,854 11,848 61 28 212 12,149 
Automobile12,176 117 41 10 12,344 11,901 170 65 17 12,153 
Education12,638 29 13 11 12,691 12,255 33 13 12,308 
Other retail5,602 31 24 34 5,691 6,047 38 29 34 6,148 
Total retail loans60,966 278 108 430 61,782 61,342 361 156 438 62,297 
Total$120,972 $518 $164 $541 $122,195 $121,646 $594 $257 $593 $123,090 
At March 31, 2021 and December 31, 2020, the Company had collateral-dependent residential mortgage and home equity loans totaling $613 million and $552 million, respectively. At March 31, 2021 and December 31, 2020, the Company had collateral-dependent commercial loans totaling $110 million and $206 million, respectively.
The amortized cost basis of mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $112 million and $119 million as of March 31, 2021 and December 31, 2020, respectively.
Citizens Financial Group, Inc. | 60


Troubled Debt Restructurings
The following table summarizes TDRs by portfolio segment and total unfunded commitments:
(in millions)March 31, 2021December 31, 2020
Commercial$367 $257 
Retail714 718 
Unfunded commitments related to TDRs167 49 
The following tables below summarize how loans were modified during the three months ended March 31, 2021 and March 31, 2020. The reported balances represent the post-modification outstanding amortized cost basis and can include loans that became TDRs during the period and were paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.
Three Months Ended March 31, 2021
Primary Modification Types
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
(dollars in millions)Number of ContractsAmortized CostNumber of ContractsAmortized CostNumber of ContractsAmortized Cost
Commercial and industrial$0 $3 $0 
Commercial real estate
Total commercial loans
Residential mortgages20 13 
Home equity34 41 72 
Automobile21 52 596 
Education147 
Other retail556 74 
Total retail loans631 102 11 902 20 
Total631 $9 105 $14 906 $20 
Three Months Ended March 31, 2020
Primary Modification Types
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
(dollars in millions)Number of ContractsAmortized CostNumber of ContractsAmortized CostNumber of ContractsAmortized Cost
Commercial and industrial$0 $0 17 $41 
Commercial real estate
Total commercial loans17 41 
Residential mortgages38 37 21 
Home equity46 71 
Automobile47 183 
Education91 
Other retail861 112 
Total retail loans992 15 43 478 13 
Total992 $15 45 $7 495 $54 
(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.
(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).
(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.
The net change to ALLL resulting from modifications of loans for the three months ended March 31, 2021 and 2020 was $0 million and $4 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded $2 million of charge-offs related to TDRs for each of the three months ended March 31, 2021 and 2020.
A payment default refers to a loan that becomes 90 days or more past due under the modified terms. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to March 31, 2021 and 2020. For commercial loans, the amortized cost basis of TDRs that defaulted within 12 months of their modification date was $22 million and $13 million in the three months ended March 31, 2021 and 2020,
Citizens Financial Group, Inc. | 61


respectively. For retail loans, there were $15 million and $11 million of loans which defaulted within 12 months of their restructuring date for the three months ended March 31, 2021 and 2020, respectively.
Concentrations of Credit Risk
Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of March 31, 2021 and December 31, 2020, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.
Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only residential mortgages, and loans with low introductory rates. The following tables present balances of loans with these characteristics:
March 31, 2021
(in millions)Residential MortgagesHome EquityOther RetailTotal
High loan-to-value$224 $41 $0 $265 
Interest-only2,936 2,936 
Low introductory rate145 145 
Multiple characteristics and other
Total$3,162 $41 $145 $3,348 
December 31, 2020
(in millions)Residential MortgagesHome EquityOther RetailTotal
High loan-to-value$289 $64 $0 $353 
Interest-only2,801 2,801 
Low introductory rate170 170 
Total$3,090 $64 $170 $3,324 
NOTE 5 - MORTGAGE BANKING AND OTHER
The Company sells residential mortgages to GSEs and other parties, who may issue securities backed by pools of such loans. The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. The Company is obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.
The Company recognizes the right to service residential mortgage loans for others, or MSRs, as separate assets, which are presented in other assets on the Consolidated Balance Sheets, when purchased or when servicing is contractually separated from the underlying mortgage loans by sale with servicing rights retained. The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:
Three Months Ended March 31,
(in millions)20212020
Cash proceeds from residential mortgage loans sold with servicing retained$9,038 $5,272 
Gain on sales (1)
140 143 
Contractually specified servicing, late and other ancillary fees (1)
58 58 
(1) Reported in mortgage banking fees on the Consolidated Statements of Operations.
The Company records MSRs at fair value method each reporting date with any changes in fair value during the period recorded in mortgage banking fees in the Consolidated Statements of Operations. The unpaid principal balance of the related residential mortgage loans was $81.8 billion and $81.2 billion as of March 31, 2021 and
Citizens Financial Group, Inc. | 62


December 31, 2020, respectively. The Company manages an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio, which includes the purchase of freestanding derivatives.
The following table summarizes changes in MSRs recorded using the fair value method:
As of and for the Three Months Ended March 31,
(in millions)20212020
Fair value as of beginning of the period$658 $642 
Transfers upon election of fair value method(1)
190 
Fair value as of beginning of the period, adjusted658 832 
Amounts capitalized87 67 
Changes in unpaid principal balance during the period (2)
(58)(40)
Changes in fair value during the period (3)
206 (282)
Fair value at end of the period$893 $577 
(1) Effective January 1, 2020, the Company elected to account for all MSRs previously accounted for under the amortization method under the fair value method.
(2) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial
paydowns, and ii) loans that paid off during the period.
(3) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.
The sensitivity analysis below presents the impact to current fair value of an immediate 50 basis point and 100 basis point adverse change in key economic assumptions and the decline in fair value if the respective adverse change was realized. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.
March 31, 2021December 31, 2020
ActualDecline in fair value due toActualDecline in fair value due to
(dollars in millions)
Fair value$89350 bps adverse change100 bps adverse change$65850 bps adverse change100 bps adverse change
Weighted average life (in years)5.94.2
Weighted average constant prepayment rate11.3%$103$22817.3%$122$202
Weighted average option adjusted spread582 bps1837595 bps1224
Citizens accounts for derivatives in its mortgage banking operations at fair value on the Consolidated Balance Sheets as derivative assets or derivative liabilities, depending on whether the derivative had a positive (asset) or negative (liability) fair value as of the balance sheet date. The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 8 for additional information.
Other Serviced Loans
From time to time, Citizens engages in other servicing relationships. The following table presents the unpaid principal balance of other serviced loans:
(in millions)March 31, 2021December 31, 2020
Education(1)
$903 $974 
Commercial(2)
55 51 
(1) Represents the servicing associated with education loans sold.
(2) Represents the government guaranteed portion of SBA loans sold to outside investors.
Citizens Financial Group, Inc. | 63


NOTE 6 - VARIABLE INTEREST ENTITIES
    Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects or asset-backed securities, and lending to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its investment in equity and asset-backed securities, unfunded commitments, and outstanding principal balance of loans to special purpose entities. A summary of these investments is presented below:
(in millions)March 31, 2021December 31, 2020
Lending to special purpose entities included in loans and leases$1,269 $1,295 
LIHTC investment included in other assets1,776 1,687 
LIHTC unfunded commitments included in other liabilities874 875 
Investment in asset-backed securities included in HTM securities854 893 
Renewable energy investments included in other assets459 403 
Lending to Special Purpose Entities
Citizens provides lending facilities to third-party sponsored special purpose entities. Because the sponsor for each respective entity has the power to direct how proceeds from the Company are utilized, as well as maintains responsibility for any associated servicing commitments, Citizens is not the primary beneficiary of these entities. Accordingly, Citizens does not consolidate these VIEs on the Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, the lending facilities had aggregate unpaid principal balances of $1.3 billion in each period, and undrawn commitments to extend credit of $1.7 billion and $1.5 billion, respectively.
Low Income Housing Tax Credit Partnerships
The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Citizens is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
Citizens applies the proportional amortization method to account for its LIHTC investments. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of the investment in proportion to the tax credits received in the current period as compared to the total tax credits expected to be received over the life of the investment. The amortization and tax benefits are included as a component of income tax expense. The tax credits received are reported as a reduction of income tax expense (or an increase to income tax benefit) related to these transactions.
The following table presents other information related to the Company’s affordable housing tax credit investments:
Three Months Ended March 31,
(in millions)20212020
Tax credits included in income tax expense$51 $41 
Other tax benefits included in income tax expense12 10 
Total tax benefit included in income tax expense63 51 
Less: Amortization expense included in income tax expense53 43 
Net benefit from affordable housing tax credit investments included in income tax expense$10 $8 
NaN LIHTC investment impairment losses were recognized three months ended March 31, 2021 and 2020, respectively.
Asset-backed securities        
Citizens invests in certain asset-backed securities that are sponsored by legal entities determined to be VIEs. Each reporting period, Citizens is required to evaluate any changes in its involvement with the VIEs that issue the asset-backed securities to determine if the Company is required to consolidate the VIE. As of March 31,
Citizens Financial Group, Inc. | 64


2021, the Company concluded, based on the fact that the activities which most significantly affect the performance of the VIE are controlled by the equity holder in the VIE, and not by Citizens; therefore, Citizens is not the primary beneficiary of the VIE and does not consolidate the VIE. The Company accounts for its investment in the debt issued by these entities as HTM asset-backed securities on the Consolidated Balance Sheets.
Renewable Energy Entities
The Company’s investments in renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation). As a tax equity investor, Citizens does not have the power to direct the activities which most significantly affect the performance of these entities and therefore is not the primary beneficiary of any renewable energy entities. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
NOTE 7 - BORROWED FUNDS
Short-term borrowed funds
Short-term borrowed funds were $70 million and $243 million as of March 31, 2021 and December 31, 2020, respectively.
Long-term borrowed funds
The following table presents a summary of the Company’s long-term borrowed funds:
(in millions)March 31, 2021December 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 2026497 497 
2.500% fixed-rate senior unsecured notes, due February 2030297 297 
3.250% fixed-rate senior unsecured notes, due April 2030745 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 2032545 543 
CBNA’s Global Note Program:
2.550% senior unsecured notes, due May 20211,000 1,003 
3.250% senior unsecured notes, due February 2022712 716 
0.918% floating-rate senior unsecured notes, due February 2022 (2)
300 299 
1.000% floating-rate senior unsecured notes, due May 2022 (2)
250 250 
2.650% senior unsecured notes, due May 2022508 510 
3.700% senior unsecured notes, due March 2023523 527 
1.143% floating-rate senior unsecured notes, due March 2023 (2)
250 249 
2.250% senior unsecured notes, due April 2025746 746 
3.750% senior unsecured notes, due February 2026536 551 
Additional Borrowings by CBNA and Other Subsidiaries:

Federal Home Loan Bank advances, 0.920% weighted average rate, due through 203819 19 
Other30 35 
Total long-term borrowed funds$8,316 $8,346 
(1) March 31, 2021 balances reflect the February 2021 completion of $265 million in private exchange offers for 5 series of outstanding subordinated notes whereby participants received newly issued 3.750%, 4.300%, and 4.350% fixed-rate reset subordinated notes due 2031 which are redeemable by the Company five years prior to their maturity.
(2) Rate disclosed reflects the floating rate as of March 31, 2021 or final rate, as applicable.
The Parent Company’s long-term borrowed funds as of March 31, 2021 and December 31, 2020 included
Citizens Financial Group, Inc. | 65


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 the Company’s hedging of certain long-term borrowed funds.
Advances, lines of credit, and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $2.8 billion and $3.2 billion at March 31, 2021 and December 31, 2020, respectively. The Company’s available FHLB borrowing capacity was $14.1 billion and $13.9 billion at March 31, 2021 and December 31, 2020, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At March 31, 2021, the Company’s unused secured borrowing capacity was approximately $66.6 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
The following table presents a summary of maturities for the Company’s long-term borrowed funds at March 31, 2021:
(in millions)Parent CompanyCBNA and Other SubsidiariesConsolidated
Year
2021$350 $1,006 $1,356 
2022168 1,777 1,945 
2023774 774 
2024107 108