Citizens Financial Group, Inc. (NYSE:CFG) Q4 2022 Earnings Conference Call January 17, 2023 9:00 AM ET Company Participants Kristin Silberberg - Executive Vice President, Investor Relations Bruce Van Saun - Chairman & Chief Executive Officer John Woods - Chief Financial Officer Don McCree - Head, Commercial Banking Brendan Coughlin - Head, Consumer Banking Conference Call Participants Scott Siefers - Piper Sandler Peter Winter - D.A. Davidson & Co. Kenneth Usdin - Jefferies John Pancari - Evercore ISI Ma ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2022 ☐ 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- ...

Citizens Financial Group, Inc. (NYSE:CFG) Q3 2022 Earnings Conference Call October 19, 2022 9:00 AM ET Company Participants Kristin Silberberg - Executive Vice President, Investor Relations Bruce Van Saun - Chairman & Chief Executive Officer John Woods - Chief Financial Officer Brendan Coughlin - Head, Consumer Banking Don McCree - Head, Commercial Banking Conference Call Participants Scott Siefers - Piper Sandler Erika Najarian - UBS Matthew O'Connor - Deutsche Bank Ebrahim Poonawala - Bank of America G ...

[GLOSSARY OF ACRONYMS AND TERMS](index=3&type=section&id=Glossary%20of%20Acronyms%20and%20Terms) This section defines key acronyms and terms used throughout the financial report, ensuring clarity and consistent understanding of specialized terminology [PART I. FINANCIAL INFORMATION](index=6&type=section&id=Part%20I.%20Financial%20Information) This part provides comprehensive financial data, management's analysis, and the unaudited interim consolidated financial statements for the reporting period [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=6&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, condition, and operational results for the three and six months ended June 30, 2022, including key metrics and acquisition impacts [Forward-Looking Statements](index=7&type=section&id=Forward-Looking%20Statements) This section outlines potential future events, including share repurchases, dividends, and the impact of global disruptions, subject to various economic and political risks - The document contains forward-looking statements regarding potential future share repurchases, dividends, and the effects of the COVID-19 disruption and Russia's invasion of Ukraine on business, operations, financial performance, and prospects[16](index=16&type=chunk) - Key risk factors that could cause actual results to differ materially include negative economic and political conditions, the rate of economic growth, ability to implement business strategy (including integrations), and changes in interest rates and market liquidity[16](index=16&type=chunk) [Introduction](index=8&type=section&id=Introduction) Citizens Financial Group, Inc. is a large financial institution with **$226.7 billion in assets** as of June 30, 2022, expanding through recent acquisitions - Citizens Financial Group, Inc. is a large financial institution with **$226.7 billion in assets** as of June 30, 2022, offering a broad range of retail and commercial banking products and services[19](index=19&type=chunk) - The company completed several acquisitions in early 2022, including HSBC East Coast branches (February 18, 2022), Investors Bancorp (April 6, 2022), and DH Capital (June 8, 2022), to expand its physical presence and corporate advisory capabilities[19](index=19&type=chunk) [Financial Performance](index=9&type=section&id=Financial%20Performance) Net income significantly decreased for both the three and six months ended June 30, 2022, primarily due to notable items, despite revenue growth - Net income decreased significantly for both the three and six months ended June 30, 2022, compared to the same periods in 2021, primarily due to notable items totaling **$231 million** and **$287 million**, respectively[22](index=22&type=chunk) Key Financial Highlights (GAAP vs. Underlying) | Metric | Three Months Ended June 30, 2022 (GAAP) | Three Months Ended June 30, 2022 (Underlying) | Six Months Ended June 30, 2022 (GAAP) | Six Months Ended June 30, 2022 (Underlying) | |:-------------------------------------------|:----------------------------------------|:----------------------------------------------|:--------------------------------------|:--------------------------------------------| | Net Income Available to Common Stockholders| $332 million | $563 million | $728 million | $1.0 billion | | Diluted EPS | $0.67 | $1.14 | $1.58 | $2.21 | | Total Revenue | $2.0 billion (up 24% YoY) | $2.03 billion (up 26% YoY) | $3.6 billion (up 11.5% YoY) | $3.68 billion (up 12.5% YoY) | | Efficiency Ratio | 65.3% | 58.2% | 66.2% | 60.9% | | ROTCE | 9.1% | 15.5% | 10.2% | 14.2% | | Tangible Book Value per Common Share | $29.14 (down 16% from Dec 31, 2021) | N/A | N/A | N/A | [Results of Operations](index=11&type=section&id=Results%20of%20Operations) This section details the company's operational results, including net interest income, noninterest income, expenses, and provision for credit losses, for the reporting periods [Net Interest Income](index=11&type=section&id=Net%20Interest%20Income) Net interest income, the company's largest revenue source, increased significantly for both the three and six months ended June 30, 2022, driven by higher interest-earning assets and improved yields, partially offset by increased interest-bearing liabilities Net Interest Income and Margin (FTE) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (YoY) | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------| | Net Interest Income (FTE) | $1,507 million | $1,126 million | +$381 million| | Net Interest Margin (FTE) | 3.04% | 2.72% | +32 bps | | Average Interest-Earning Assets | $198,677 million | $166,333 million | +$32,344 million| | Average Interest-Bearing Liabilities | $136,390 million | $111,222 million | +$25,168 million| | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (YoY) | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------| | Net Interest Income (FTE) | $2,656 million | $2,246 million | +$410 million| | Net Interest Margin (FTE) | 2.91% | 2.74% | +17 bps | | Average Interest-Earning Assets | $184,058 million | $165,433 million | +$18,625 million| | Average Interest-Bearing Liabilities | $124,529 million | $111,271 million | +$13,258 million| - The increase in net interest income was primarily driven by the HSBC transaction and Investors acquisition, leading to growth in loans and investments[31](index=31&type=chunk) [Noninterest Income](index=13&type=section&id=Noninterest%20Income) Noninterest income saw a modest increase for the three months ended June 30, 2022, but a decrease for the six-month period, influenced by varied performance across different fee categories and mark-to-market losses Noninterest Income Performance | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (YoY) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (YoY) | |:---------------------------------------|:---------------------------------|:---------------------------------|:-------------|:-------------------------------|:-------------------------------|:-------------| | Total Noninterest Income | $494 million | $485 million | +2% | $992 million | $1,027 million | -3% | | Capital Markets Fees | $88 million | $91 million | -3% | $181 million | $172 million | +5% | | Service Charges and Fees | $108 million | $100 million | +8% | $206 million | $199 million | +4% | | Mortgage Banking Fees | $72 million | $85 million | -15% | $141 million | $250 million | -44% | | Card Fees | $71 million | $64 million | +11% | $131 million | $119 million | +10% | | Trust and Investment Services Fees | $66 million | $60 million | +10% | $127 million | $118 million | +8% | | Foreign Exchange & Derivative Products | $60 million | $28 million | +114% | $111 million | $56 million | +98% | | Other Income | ($12) million | $16 million | NM | $12 million | $31 million | -61% | - Mortgage banking fees declined due to lower gain-on-sale margins and production volumes, while foreign exchange and derivative products revenue significantly increased due to higher client hedging activity[31](index=31&type=chunk) - Other income decreased, primarily driven by **$31 million** in mark-to-market losses on loans acquired from Investors classified as held for sale (LHFS)[31](index=31&type=chunk) [Noninterest Expense](index=14&type=section&id=Noninterest%20Expense) Noninterest expense increased substantially for both periods, primarily due to integration-related costs from recent acquisitions and higher operational expenses Noninterest Expense Performance | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (YoY) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (YoY) | |:-----------------------------|:---------------------------------|:---------------------------------|:-------------|:-------------------------------|:-------------------------------|:-------------| | Total Noninterest Expense | $1,305 million | $991 million | +32% | $2,411 million | $2,009 million | +20% | | Salaries and Employee Benefits | $683 million | $524 million | +30% | $1,277 million | $1,072 million | +19% | | Outside Services | $189 million | $137 million | +38% | $358 million | $276 million | +30% | | Other Operating Expense | $153 million | $93 million | +65% | $263 million | $184 million | +43% | - The increases were driven by **$104 million** (three months) and **$141 million** (six months) of integration-related costs, higher salaries and employee benefits, and increased FDIC insurance, travel, and advertising costs[34](index=34&type=chunk) [Provision for Credit Losses](index=14&type=section&id=Provision%20for%20Credit%20Losses) The company recorded a significant provision for credit losses in Q2 and H1 2022, a reversal from the benefit recorded in the prior year, primarily due to loan growth from acquisitions and a slightly deteriorated macroeconomic outlook Provision for Credit Losses | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:-------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Provision (benefit) for credit losses | $216 million | ($213) million | $219 million | ($353) million | - The provision includes a 'double count' of non-PCD loan CECL provision expense of **$145 million** (three months) and **$169 million** (six months) related to the Investors acquisition and HSBC transaction[35](index=35&type=chunk) - Increased provision expense reflects loan growth, including acquisitions, and a slight deterioration in the macroeconomic outlook, partially offset by strong credit performance[35](index=35&type=chunk) [Income Tax Expense](index=14&type=section&id=Income%20Tax%20Expense) Income tax expense decreased for both periods due to decreased taxable income, while the effective income tax rate increased due to higher state taxes and non-deductible expenses from acquisitions Income Tax Expense and Effective Rate | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Income Tax Expense | $114 million | $183 million | $230 million | $353 million | | Effective Income Tax Rate | 23.8% | 22.0% | 22.7% | 21.9% | [Business Operating Segments](index=14&type=section&id=Business%20Operating%20Segments) The company operates with two main segments: Consumer Banking and Commercial Banking, both experiencing growth in net interest income and assets due to acquisitions, with varied noninterest income performance Segment Performance (Three Months Ended June 30, 2022 vs. 2021) | Metric (in millions) | Consumer Banking 2022 | Consumer Banking 2021 | Commercial Banking 2022 | Commercial Banking 2021 | |:---------------------|:----------------------|:----------------------|:------------------------|:------------------------| | Net Interest Income | $995 | $897 | $534 | $419 | | Noninterest Income | $280 | $283 | $221 | $178 | | Total Revenue | $1,275 | $1,180 | $755 | $597 | | Net Income | $265 | $286 | $341 | $265 | | Average Total Assets | $88,881 | $75,600 | $78,638 | $57,527 | | Average Loans & Leases | $83,248 | $71,389 | $74,172 | $54,758 | | Deposits | $118,482 | $100,933 | $51,575 | $44,049 | Segment Performance (Six Months Ended June 30, 2022 vs. 2021) | Metric (in millions) | Consumer Banking 2022 | Consumer Banking 2021 | Commercial Banking 2022 | Commercial Banking 2021 | |:---------------------|:----------------------|:----------------------|:------------------------|:------------------------| | Net Interest Income | $1,852 | $1,760 | $950 | $840 | | Noninterest Income | $537 | $634 | $434 | $348 | | Total Revenue | $2,389 | $2,394 | $1,384 | $1,188 | | Net Income | $474 | $588 | $612 | $476 | | Average Total Assets | $83,247 | $75,443 | $69,927 | $57,632 | | Average Loans & Leases | $78,268 | $70,792 | $66,134 | $54,786 | | Deposits | $111,610 | $99,067 | $48,067 | $44,012 | - Consumer Banking's net interest income increased due to higher net interest margin and asset growth from acquisitions, while noninterest income decreased due to lower mortgage banking fees[40](index=40&type=chunk) - Commercial Banking's net interest income and noninterest income both increased, driven by asset growth from acquisitions and higher foreign exchange and derivative product revenue[43](index=43&type=chunk) [Analysis of Financial Condition](index=16&type=section&id=Analysis%20of%20Financial%20Condition) This section provides a detailed analysis of the company's balance sheet, including securities, loans, deposits, borrowed funds, capital, and liquidity, highlighting changes from recent acquisitions [Securities](index=16&type=section&id=Securities) The securities portfolio increased in fair value, largely due to the Investors acquisition and net purchases, but was partially offset by increased unrealized losses from higher interest rates Securities Portfolio (June 30, 2022 vs. December 31, 2021) | Category | June 30, 2022 (Fair Value) | December 31, 2021 (Fair Value) | Change |\ |:---------------------------------------------|:---------------------------|:-------------------------------|:-------|\ | Total Debt Securities AFS | $24,961 million | $26,067 million | -$1,106 million |\ | Total Debt Securities HTM | $9,361 million | $2,289 million | +$7,072 million |\ | Total Debt Securities AFS and HTM | $34,322 million | $28,356 million | +$5,966 million |\ | HTM Securities as % of Total Securities | 27% | N/A | N/A | - The fair value of the debt securities portfolio increased by **$6.0 billion** from December 31, 2021, including **$3.8 billion** from the Investors acquisition, but was partially offset by a **$2.8 billion** increase in unrealized losses due to higher interest rates[44](index=44&type=chunk) - The amortized cost of the HTM portfolio increased by **$7.3 billion**, primarily due to a **$7.8 billion** transfer from the AFS portfolio in Q2 2022, increasing HTM's ratio to total securities to approximately **27%**[44](index=44&type=chunk) [Loans and Leases](index=17&type=section&id=Loans%20and%20Leases) Total loans and leases significantly increased by **$28.0 billion**, driven by the Investors acquisition and HSBC transaction, with substantial growth in both commercial and retail portfolios Composition of Loans and Leases (June 30, 2022 vs. December 31, 2021) | Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (YoY) | Percent Change | |:-----------------------------|:----------------------------|:--------------------------------|:-------------|:---------------| | Commercial and Industrial | $51,801 | $44,500 | $7,301 | 16% | | Commercial Real Estate | $28,070 | $14,264 | $13,806 | 97% | | Total Commercial | $81,445 | $60,350 | $21,095 | 35% | | Residential Mortgages | $29,088 | $22,822 | $6,266 | 27% | | Home Equity | $13,122 | $12,015 | $1,107 | 9% | | Total Retail | $74,727 | $67,813 | $6,914 | 10% | | Total Loans and Leases | $156,172 | $128,163 | $28,009 | 22% | - The **$28.0 billion** increase in total loans and leases was primarily due to the Investors acquisition and HSBC transaction, resulting in **35% growth** in commercial and **10% in retail**[44](index=44&type=chunk) [Allowance for Credit Losses and Nonaccrual Loans and Leases](index=17&type=section&id=Allowance%20for%20Credit%20Losses%20and%20Nonaccrual%20Loans%20and%20Leases) The Allowance for Credit Losses (ACL) increased, reflecting loan growth from acquisitions and a slightly deteriorated macroeconomic outlook, while nonaccrual loans also rose due to the Investors acquisition Allowance for Credit Losses (ACL) and Coverage Ratios | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change |\ |:-------------------------------------------|:----------------------------|:--------------------------------|:-------|\ | Total Allowance for Credit Losses (ACL) | $2,147 | $1,934 | +$213 |\ | ACL to Total Loans and Leases | 1.37% | 1.51% | -14 bps|\ | Nonaccrual Loans and Leases | $839 | $702 | +$137 |\ | Nonaccrual Loans and Leases to Total Loans | 0.54% | 0.55% | -1 bp | - The increase in ACL reflects loan growth, including the Investors acquisition, and a slight deterioration in the macroeconomic outlook, partially offset by strong credit performance[35](index=35&type=chunk) - The increase in nonaccrual loans and leases is primarily due to the impact of the Investors acquisition[47](index=47&type=chunk) - Net charge-offs decreased by **$128 million (54%)** in the first half of 2022 compared to 2021, with annualized net charge-offs at **0.15%** of average loans and leases, down **24 basis points**[49](index=49&type=chunk) [Deposits](index=23&type=section&id=Deposits) Total deposits increased significantly by **$24.6 billion**, primarily driven by the Investors acquisition and HSBC transaction, expanding the company's funding base Composition of Deposits (June 30, 2022 vs. December 31, 2021) | Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (YoY) | Percent Change | |:-------------------------|:----------------------------|:--------------------------------|:-------------|:---------------| | Total Deposits | $178,925 | $154,361 | $24,564 | 16% | | Demand | $54,169 | $49,443 | $4,726 | 10% | | Checking with Interest | $39,611 | $30,409 | $9,202 | 30% | | Savings | $27,959 | $22,030 | $5,929 | 27% | | Term | $9,123 | $5,263 | $3,860 | 73% | - The increase in total deposits was driven by **$25.8 billion** of period-end balances from the Investors acquisition and the HSBC transaction[59](index=59&type=chunk) [Borrowed Funds](index=23&type=section&id=Borrowed%20Funds) Total borrowed funds increased substantially by **$11.2 billion**, primarily due to an increase in FHLB borrowings related to the Investors acquisition and funding of loan and security growth Total Borrowed Funds (June 30, 2022 vs. December 31, 2021) | Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change |\ |:-------------------------|:----------------------------|:--------------------------------|:-------|\ | Total Borrowed Funds | $18,200 | $7,000 | +$11,200 |\ | FHLB Borrowings | N/A | N/A | Increased | - The increase was driven by FHLB borrowings acquired from Investors and used for funding loan and security growth[60](index=60&type=chunk) [Capital and Regulatory Matters](index=23&type=section&id=Capital%20and%20Regulatory%20Matters) The company's regulatory capital ratios remained well above minimums, despite decreases in CET1 and Tier 1 ratios driven by RWA growth and acquisition-related goodwill Regulatory Capital Ratios (June 30, 2022 vs. December 31, 2021) | Ratio | June 30, 2022 | December 31, 2021 | Required Minimum Capital Ratios | |:-----------------------|:--------------|:------------------|:--------------------------------| | CET1 Capital Ratio | 9.6% | 9.9% | 7.9% | | Tier 1 Capital Ratio | 10.6% | 11.1% | 9.4% | | Total Capital Ratio | 12.3% | 12.7% | 11.4% | | Tier 1 Leverage Ratio | 9.3% | 9.7% | 4.0% | | Risk-Weighted Assets | $187,727 million | $158,831 million | N/A | - CET1 and Tier 1 capital ratios decreased due to **$28.9 billion** in RWA growth, higher goodwill and intangibles from acquisitions, and dividends, partially offset by common stock issued for the Investors acquisition and net income[67](index=67&type=chunk) - The company's preliminary Stress Capital Buffer (SCB) will remain at **3.4%** for the period effective October 1, 2022, through September 30, 2023[64](index=64&type=chunk) - The Board of Directors increased common share repurchase authorization to **$1.0 billion** and declared a **three-cent increase** in the quarterly common stock dividend to **$0.42 per share** for Q3 2022[69](index=69&type=chunk) [Liquidity](index=26&type=section&id=Liquidity) The company maintains strong liquidity, with organically generated deposits as its primary funding source, and total available liquidity of approximately **$66.5 billion** as of June 30, 2022 - Organically generated deposits are the primary funding source, resulting in a consolidated period-end loan-to-deposits ratio (excluding LHFS) of **87.3%**[83](index=83&type=chunk) Total Available Liquidity (June 30, 2022) | Component | Amount (in billions) | |:----------------------------------------|:---------------------| | Total Available Liquidity | $66.5 | | Contingent Liquidity | $39.8 | | Unencumbered High-Quality Liquid Securities | $26.9 | | Unused FHLB Capacity | $7.9 | | Cash Balances at FRB | $5.0 | | Available Discount Window Capacity | $26.7 | - The Parent Company's cash and cash equivalents totaled **$2.0 billion** at June 30, 2022, down from **$2.3 billion** at December 31, 2021[74](index=74&type=chunk) - CBNA issued **$650 million** of senior notes and redeemed **$1.75 billion** of senior notes during the six months ended June 30, 2022[75](index=75&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) The Allowance for Credit Losses (ACL) is a critical accounting estimate, increasing to **$2.1 billion** at June 30, 2022, incorporating an economic forecast reflecting real GDP growth and unemployment - The ACL increased from **$1.9 billion** at December 31, 2021, to **$2.1 billion** at June 30, 2022[87](index=87&type=chunk) - The ACL determination uses an economic forecast for 2022 reflecting **2.1% real GDP growth** and **4.3% average unemployment**, incorporating the risk of a mild recession in the latter half of the year[87](index=87&type=chunk) - Qualitative adjustments to the ACL reflect macroeconomic risks from aggressive monetary tightening, fiscal policy contraction, and impacts of global commodity prices, wage increases, and supply-chain challenges[87](index=87&type=chunk) - A more pessimistic scenario (real GDP contraction for three consecutive quarters, **4.4% unemployment**) would result in an approximate **$175 million increase** in the quantitative lifetime loss estimate, excluding qualitative adjustments[87](index=87&type=chunk) [Accounting and Reporting Developments](index=31&type=section&id=Accounting%20and%20Reporting%20Developments) The company is monitoring new accounting standards for Troubled Debt Restructurings (TDRs) and Derivatives and Hedging, with adoption expected in 2023, primarily impacting disclosures - New accounting standards for Troubled Debt Restructurings (TDRs) eliminate separate recognition guidance and require enhanced disclosures for modifications to borrowers experiencing financial difficulty[89](index=89&type=chunk) - The effective date for the TDR pronouncement is January 1, 2023, and while not expected to have a material financial impact, it will significantly affect required disclosures[89](index=89&type=chunk) - A new standard for Derivatives and Hedging replaces the 'last-of-layer' method and allows for multiple layers in a closed portfolio of prepayable assets, also effective January 1, 2023[91](index=91&type=chunk) [Risk Governance](index=31&type=section&id=Risk%20Governance) The company maintains a strong, integrated, and proactive approach to risk management, with the Board setting risk appetite and delegating oversight to various risk committees - The Board of Directors sets the risk appetite, and the Executive Risk Committee, chaired by the Chief Risk Officer, oversees enterprise-wide risk management[92](index=92&type=chunk) - No significant changes occurred in risk governance practices, framework, risk appetite, or credit risk during the period[92](index=92&type=chunk) [Market Risk](index=32&type=section&id=Market%20Risk) The company is exposed to market risk primarily from non-trading banking activities, mainly interest rate risk, actively managed through asset sensitivity and hedging strategies, with trading activities also monitored - The balance sheet is asset-sensitive, meaning net interest income benefits from rising interest rates. Asset sensitivity to a **200 basis point gradual increase** in rates was **2.6%** at June 30, 2022, down from **10.1%** at December 31, 2021, due to rising base net interest income and hedging activities[94](index=94&type=chunk) Sensitivity of Net Interest Income to Interest Rate Changes | Basis Points Change in Interest Rates | Estimated % Change in Net Interest Income (June 30, 2022) | Estimated % Change in Net Interest Income (December 31, 2021) | |:--------------------------------------|:----------------------------------------------------------|:--------------------------------------------------------------| | Instantaneous +200 | 3.8% | 19.4% | | Instantaneous +100 | 1.6% | 10.2% | | Instantaneous -100 | (2.4)% | (8.5)% | | Gradual +200 | 2.6% | 10.1% | | Gradual +100 | 1.9% | 5.2% | | Gradual -100 | (0.9)% | (6.0)% | - The fair value of Mortgage Servicing Rights (MSRs) was **$1.4 billion** at June 30, 2022, with related derivative contracts totaling **$9.8 billion** notional amount used for economic hedging[97](index=97&type=chunk) Market Risk-Weighted Assets (in millions) | Market Risk Category | For the Period End June 30, 2022 | For the Period End June 30, 2021 | |:---------------------|:---------------------------------|:---------------------------------| | General VaR | $3 | $14 | | Total VaR | $3 | $14 | | Total Stressed VaR | $14 | $16 | | Market Risk-Weighted Assets | $955 | $1,350 | [Non-GAAP Financial Measures and Reconciliations](index=36&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section provides reconciliations of non-GAAP financial measures, or 'Underlying' results, to their most directly comparable GAAP measures, offering additional insights into operating performance - Underlying results exclude certain items (e.g., integration-related costs, TOP initiatives, mark-to-market losses on LHFS, initial provision for credit losses from acquisitions) that management does not consider indicative of ongoing financial performance[22](index=22&type=chunk)[25](index=25&type=chunk)[106](index=106&type=chunk) Non-GAAP Financial Measures Reconciliation (Three Months Ended June 30, 2022) | Metric | GAAP (in millions) | Notable Items (in millions) | Underlying (non-GAAP) (in millions) | |:-------------------------------------------|:-------------------|:----------------------------|:------------------------------------| | Noninterest Income | $494 | ($31) | $525 | | Total Revenue | $1,999 | ($31) | $2,030 | | Noninterest Expense | $1,305 | $125 | $1,180 | | Pre-provision Profit | $694 | $156 | $850 | | Provision (benefit) for Credit Losses | $216 | $145 | $71 | | Income before Income Tax Expense | $478 | ($301) | $779 | | Net Income | $364 | $231 | $595 | | Net Income Available to Common Stockholders| $332 | $231 | $563 | Non-GAAP Financial Measures Reconciliation (Six Months Ended June 30, 2022) | Metric | GAAP (in millions) | Notable Items (in millions) | Underlying (non-GAAP) (in millions) | |:-------------------------------------------|:-------------------|:----------------------------|:------------------------------------| | Noninterest Income | $992 | ($31) | $1,023 | | Total Revenue | $3,644 | ($31) | $3,675 | | Noninterest Expense | $2,411 | $173 | $2,238 | | Pre-provision Profit | $1,233 | $204 | $1,437 | | Provision (benefit) for Credit Losses | $219 | $169 | $50 | | Income before Income Tax Expense | $1,014 | ($373) | $1,387 | | Net Income | $784 | $287 | $1,071 | | Net Income Available to Common Stockholders| $728 | $287 | $1,015 | [ITEM 1. FINANCIAL STATEMENTS](index=38&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited interim consolidated financial statements, including balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes [Consolidated Balance Sheets (unaudited)](index=39&type=section&id=Consolidated%20Balance%20Sheets%20(unaudited)) This table presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2022, compared to December 31, 2021 Consolidated Balance Sheet Highlights (June 30, 2022 vs. December 31, 2021) | Item (in millions) | June 30, 2022 | December 31, 2021 | Change |\ |:-----------------------------------|:--------------|:------------------|:-------|\ | TOTAL ASSETS | $226,712 | $188,409 | +$38,303 |\ | Loans and leases | $156,172 | $128,163 | +$28,009 |\ | Net loans and leases | $154,208 | $126,405 | +$27,803 |\ | Debt securities available for sale | $24,961 | $26,067 | -$1,106 |\ | Debt securities held to maturity | $9,567 | $2,242 | +$7,325 |\ | Goodwill | $8,081 | $7,116 | +$965 |\ | TOTAL LIABILITIES | $202,384 | $164,989 | +$37,395 |\ | Total deposits | $178,925 | $154,361 | +$24,564 |\ | Long-term borrowed funds | $14,440 | $6,932 | +$7,508 |\ | TOTAL STOCKHOLDERS' EQUITY | $24,328 | $23,420 | +$908 |\ | Accumulated other comprehensive income (loss) | ($3,218) | ($665) | -$2,553 | [Consolidated Statements of Operations (unaudited)](index=40&type=section&id=Consolidated%20Statements%20of%20Operations%20(unaudited)) This table summarizes the company's revenues, expenses, and net income for the three and six months ended June 30, 2022, compared to the same periods in 2021 Consolidated Statements of Operations Highlights (Three and Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:-----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total interest income | $1,626 | $1,211 | $2,839 | $2,427 | | Total interest expense | $121 | $87 | $187 | $186 | | Net interest income | $1,505 | $1,124 | $2,652 | $2,241 | | Provision (benefit) for credit losses | $216 | ($213) | $219 | ($353) | | Total noninterest income | $494 | $485 | $992 | $1,027 | | Total noninterest expense | $1,305 | $991 | $2,411 | $2,009 | | NET INCOME | $364 | $648 | $784 | $1,259 | | Net income available to common stockholders | $332 | $616 | $728 | $1,204 | | Diluted earnings per common share | $0.67 | $1.44 | $1.58 | $2.81 | [Consolidated Statements of Comprehensive Income (unaudited)](index=41&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(unaudited)) This table presents the company's net income and other comprehensive income (loss) components for the three and six months ended June 30, 2022, compared to the prior year Consolidated Statements of Comprehensive Income Highlights (Three and Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:-----------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income | $364 | $648 | $784 | $1,259 | | Total other comprehensive income (loss), net of income taxes | ($960) | $30 | ($2,553) | ($321) | | Total comprehensive income (loss) | ($596) | $678 | ($1,769) | $938 | [Consolidated Statements of Changes in Stockholders' Equity (unaudited)](index=42&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(unaudited)) This table details the changes in stockholders' equity, including net income, other comprehensive income, stock issuance, and dividends, for the six months ended June 30, 2022 and 2021 Consolidated Statements of Changes in Stockholders' Equity Highlights (Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Balance at January 1, 2022 | Balance at June 30, 2022 | Balance at January 1, 2021 | Balance at June 30, 2021 | |:-----------------------------------|:---------------------------|:-------------------------|:---------------------------|:-------------------------| | Total Stockholders' Equity | $23,420 | $24,328 | $22,673 | $23,199 | | Net Income | N/A | $784 | N/A | $1,259 | | Other Comprehensive Income (Loss) | N/A | ($2,553) | N/A | ($321) | | Issuance of Common Stock - Business Acquisition | N/A | $3,036 | N/A | N/A | | Dividends to Common Stockholders | N/A | ($360) | N/A | ($335) | | Treasury Stock Purchased | N/A | ($2) | N/A | ($95) | [Consolidated Statements of Cash Flows (unaudited)](index=44&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) This table summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:-----------------------------------|:-------------------------------|:-------------------------------| | Net change due to operating activities | ($322) | ($110) | | Net change due to investing activities | ($13,362) | ($1,703) | | Net change due to financing activities | $11,040 | $1,721 | | Net change in cash and cash equivalents | ($2,644) | ($92) | | Cash and cash equivalents at end of period | $6,514 | $12,641 | - Investing activities saw a significant net outflow of **$13.36 billion**, primarily due to purchases of debt securities, acquisitions (net of cash acquired), and net increase in loans and leases[124](index=124&type=chunk) - Financing activities generated **$11.04 billion**, driven by increases in deposits and short-term and long-term borrowed funds, partially offset by dividends and treasury stock repurchases[124](index=124&type=chunk) [Notes to Consolidated Financial Statements (unaudited)](index=45&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed explanations of the company's accounting policies, significant estimates, and specific financial items presented in the consolidated financial statements [Note 1 - Basis of Presentation](index=45&type=section&id=Note%201%20-%20Basis%20of%20Presentation) The unaudited interim Consolidated Financial Statements are prepared in accordance with GAAP interim reporting requirements and include all necessary adjustments for fair presentation - The interim financial statements are prepared in accordance with GAAP interim reporting requirements and include all normal recurring adjustments[127](index=127&type=chunk) - The Allowance for Credit Losses (ACL) is identified as a material estimate particularly susceptible to significant change in the near-term[127](index=127&type=chunk) [Note 2 - Acquisitions](index=45&type=section&id=Note%202%20-%20Acquisitions) Citizens completed three significant acquisitions in early 2022, expanding its physical presence, customer base, and corporate advisory capabilities, resulting in increased goodwill and preliminary asset/liability allocations - On February 18, 2022, CBNA acquired HSBC East Coast branches and national online deposit business, adding approximately **$6.3 billion** in deposits and **$1.5 billion** in loans, and increasing goodwill by **$119 million**[128](index=128&type=chunk) - On April 6, 2022, Citizens acquired Investors Bancorp for a combination of stock and cash, adding **154 branches** and resulting in an increase of approximately **73.6 million basic and diluted shares**[130](index=130&type=chunk) Preliminary Allocation of Investors Acquisition (April 6, 2022) | Item (in millions) | Amount |\ |:-----------------------------------|:-------|\ | Fair value of merger consideration | $3,410 |\ | Cash and equivalents acquired | $287 |\ | Investment securities acquired | $3,825 |\ | Net loans and leases acquired | $20,158|\ | Deposits assumed | $20,217|\ | Borrowed funds assumed | $4,097 |\ | Goodwill | $799 | - On June 8, 2022, Citizens acquired DH Capital, a private investment banking firm, further strengthening corporate advisory capabilities, with the financial impact not material to the Consolidated Balance Sheet[145](index=145&type=chunk) [Note 3 - Securities](index=50&type=section&id=Note%203%20-%20Securities) The securities portfolio saw an increase in amortized cost and fair value, largely due to the Investors acquisition and a significant transfer of securities from AFS to HTM, despite rising unrealized losses Major Components of Securities (June 30, 2022 vs. December 31, 2021) | Category (in millions) | June 30, 2022 (Amortized Cost) | June 30, 2022 (Fair Value) | December 31, 2021 (Amortized Cost) | December 31, 2021 (Fair Value) | |:-------------------------------------------|:-------------------------------|:---------------------------|:-----------------------------------|:-------------------------------| | Total Debt Securities Available for Sale | $26,555 | $24,961 | $26,225 | $26,067 | | Total Debt Securities Held to Maturity | $9,567 | $9,361 | $2,242 | $2,289 | | Total Debt Securities (AFS & HTM) | $36,122 | $34,322 | $28,467 | $28,356 | - The amortized cost of debt securities held to maturity increased by **$7.3 billion**, primarily due to a **$7.8 billion** transfer from available-for-sale securities during Q2 2022[44](index=44&type=chunk)[124](index=124&type=chunk) - Unrealized losses on debt securities available for sale increased to **($1,599) million** at June 30, 2022, from **($377) million** at December 31, 2021, reflecting non-credit-related factors driven by changes in interest rates[146](index=146&type=chunk)[150](index=150&type=chunk) - The company does not intend to sell these debt securities and does not expect to incur credit losses on them, as unrealized losses are due to interest rate changes[150](index=150&type=chunk) [Note 4 - Loans and Leases](index=53&type=section&id=Note%204%20-%20Loans%20and%20Leases) Total loans and leases, excluding those held for sale, significantly increased to **$156.2 billion**, driven by growth in both commercial and retail portfolios, with a substantial portion pledged as collateral Loans and Leases, Excluding LHFS (June 30, 2022 vs. December 31, 2021) | Category (in millions) | June 30, 2022 | December 31, 2021 | Change |\ |:-----------------------------|:--------------|:------------------|:-------|\ | Total loans and leases | $156,172 | $128,163 | +$28,009 |\ | Commercial and industrial | $51,801 | $44,500 | +$7,301 |\ | Commercial real estate | $28,070 | $14,264 | +$13,806 |\ | Residential mortgages | $29,088 | $22,822 | +$6,266 |\ | Home equity | $13,122 | $12,015 | +$1,107 | - Loans pledged as collateral for FHLB borrowing capacity totaled **$38.5 billion** at June 30, 2022, and loans pledged for the FRB discount window totaled **$37.9 billion**[152](index=152&type=chunk) Composition of Loans Held for Sale (LHFS) (June 30, 2022 vs. December 31, 2021) | Category (in millions) | June 30, 2022 | December 31, 2021 | |:-----------------------|:--------------|:------------------| | Loans held for sale at fair value | $1,377 | $2,733 | | Other loans held for sale | $2,078 | $735 | [Note 5 - Allowance for Credit Losses, Nonaccrual Loans and Leases, and Concentrations of Credit Risk](index=53&type=section&id=Note%205%20-%20Allowance%20for%20Credit%20Losses,%20Nonaccrual%20Loans%20and%20Leases,%20and%20Concentrations%20of%20Credit%20Risk) The Allowance for Credit Losses (ACL) increased to **$2.1 billion**, driven by acquisitions and a weaker macroeconomic outlook, with nonaccrual loans and TDRs also rising, though credit quality remained strong Summary of Changes in ACL (Six Months Ended June 30, 2022) | Item (in millions) | Commercial | Retail | Total |\ |:-------------------------------------------------|:-----------|:-------|:------|\ | Allowance for loan and lease losses, beginning of period | $821 | $937 | $1,758|\ | Allowance on PCD loans and leases at acquisition | $99 | $2 | $101 |\ | Net charge-offs | ($21) | ($87) | ($108)|\ | Provision expense for loans and leases | $88 | $125 | $213 |\ | Total allowance for credit losses, end of period | $1,153 | $994 | $2,147| - The increase in ACL was due to net charge-offs of **$108 million**, ACL on PCD loans and unfunded commitments at acquisition of **$102 million**, and a credit provision of **$219 million**[154](index=154&type=chunk) Nonaccrual Loans and Leases (June 30, 2022 vs. December 31, 2021) | Category (in millions) | June 30, 2022 | December 31, 2021 | Change |\ |:-----------------------------|:------------------|:------------------|:-------|\ | Nonaccrual loans and leases | $839 | $702 | +$137 |\ | Total commercial | $239 | $183 | +$56 |\ | Total retail | $600 | $519 | +$81 | - The increase in nonaccrual loans and leases is primarily due to the Investors acquisition[47](index=47&type=chunk) Troubled Debt Restructurings (TDRs) (Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |\ |:-----------------------------|:-------------------------------|:-------------------------------|\ | Total TDRs (Amortized Cost Basis) | $421 | $295 |\ | Commercial TDRs | $58 | $60 |\ | Retail TDRs | $363 | $235 | [Note 6 - Mortgage Banking and Other](index=63&type=section&id=Note%206%20-%20Mortgage%20Banking%20and%20Other) The company sells residential mortgages into the secondary market, retaining servicing rights, with the fair value of Mortgage Servicing Rights (MSRs) increasing and actively hedged using derivatives Residential Mortgage Loans Sold with Servicing Retained (in millions) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |\ |:-----------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------|\ | Cash proceeds from residential mortgage loans sold with servicing retained | $4,576 | $10,540 | $11,158 | $19,577 |\ | Gain on sales | $23 | $85 | $87 | $225 | Changes in MSRs Recorded Using Fair Value Method (in millions) | Item | June 30, 2022 | December 31, 2021 |\ |:-----------------------------------------|:--------------|:------------------|\ | Fair value at end of the period | $1,411 | $1,029 |\ | Weighted average life (years) | 8.5 | 6.4 |\ | Weighted average constant prepayment rate | 7.6% | 10.7% | - The unpaid principal balance of residential mortgage loans related to MSRs was **$95.5 billion** at June 30, 2022, up from **$90.2 billion** at December 31, 2021[174](index=174&type=chunk) - The company uses freestanding derivatives (e.g., interest rate swaps, swaptions, futures) to economically hedge changes in the fair value of MSRs[97](index=97&type=chunk) [Note 7 - Goodwill and Intangible Assets](index=64&type=section&id=Note%207%20-%20Goodwill%20and%20Intangible%20Assets) Goodwill increased significantly due to recent acquisitions, primarily Investors and DH Capital, and was allocated to the Consumer and Commercial Banking segments, with intangible assets also rising Changes in Carrying Value of Goodwill (Six Months Ended June 30, 2022) | Segment (in millions) | Balance at December 31, 2021 | Business Acquisitions | Balance at June 30, 2022 |\ |:-----------------------------|:-----------------------------|:----------------------|:-------------------------|\ | Consumer Banking | $2,258 | $319 | $2,577 |\ | Commercial Banking | $4,858 | $646 | $5,504 |\ | Total | $7,116 | $965 | $8,081 | - Goodwill increased by **$965 million**, primarily from the Investors and DH Capital acquisitions and the HSBC transaction, reflecting expected synergies and increased market share[181](index=181&type=chunk) Summary of Carrying Value of Intangible Assets (June 30, 2022 vs. December 31, 2021) | Category (in millions) | June 30, 2022 (Net) | December 31, 2021 (Net) |\ |:-----------------------|:--------------------|:------------------------|\ | Core deposits | $137 | $— |\ | Acquired technology | $6 | $10 |\ | Acquired relationships | $36 | $39 |\ | Naming rights | $26 | $7 |\ | Total | $211 | $64 | - Intangible assets from the Investors acquisition and HSBC transaction, consisting of core deposits and naming rights, are the primary drivers of the increase[182](index=182&type=chunk) [Note 8 - Variable Interest Entities](index=66&type=section&id=Note%208%20-%20Variable%20Interest%20Entities) Citizens is involved in various Variable Interest Entities (VIEs), including investments in affordable housing and renewable energy, with maximum exposure to loss limited to carrying amounts Summary of VIE Investments (June 30, 2022 vs. December 31, 2021) | Item (in millions) | June 30, 2022 | December 31, 2021 |\ |:-------------------------------------------------|:--------------|:------------------|\ | Lending to special purpose entities (in loans and leases) | $3,341 | $2,646 |\ | LIHTC investment (in other assets) | $2,175 | $1,978 |\ | LIHTC unfunded commitments (in other liabilities) | $1,045 | $927 |\ | Asset-backed investments (in HTM securities) | $646 | $737 |\ | Renewable energy investments (in other assets) | $401 | $429 | - The company's maximum exposure to loss from VIEs is limited to the balance sheet carrying amount of its investments, unfunded commitments, and outstanding principal balance of loans[183](index=183&type=chunk) Net Benefit from Affordable Housing Tax Credit Investments (in millions) | Item | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |\ |:-----------------------------------------|:---------------------------------|:-------------------------------|\ | Total tax benefits included in income tax expense | $76 | $152 |\ | Less: Amortization | $65 | $129 |\ | Net benefit | $11 | $23 | [Note 9 - Borrowed Funds](index=66&type=section&id=Note%209%20-%20Borrowed%20Funds) Total borrowed funds increased significantly, driven by a substantial rise in FHLB advances and new subordinated debt issuances, while maintaining substantial unused secured borrowing capacity Summary of Long-Term Borrowed Funds (June 30, 2022 vs. December 31, 2021) | Item (in millions) | June 30, 2022 | December 31, 2021 | Change |\ |:-----------------------------------|:--------------|:------------------|:-------|\ | Total long-term borrowed funds | $14,440 | $6,932 | +$7,508 |\ | FHLB advances | $8,269 | $19 | +$8,250 |\ | Parent Company subordinated debt | $1,398 | $968 | +$430 |\ | CBNA senior unsecured notes | $2,695 | $2,531 | +$164 | - Short-term borrowed funds increased from **$74 million** at December 31, 2021, to **$3.8 billion** at June 30, 2022[186](index=186&type=chunk) - The company issued **$400 million** of 5.641% fixed-rate reset subordinated notes in Q2 2022 and **$650 million** of 4.119% fixed-to-floating rate senior notes[69](index=69&type=chunk)[75](index=75&type=chunk)[189](index=189&type=chunk) - Unused secured borrowing capacity was approximately **$61.5 billion** at June 30, 2022, including unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity[189](index=189&type=chunk) [Note 10 - Derivatives](index=68&type=section&id=Note%2010%20-%20Derivatives) Citizens uses various derivative instruments for hedging and customer needs, not for speculation, including interest rate, foreign exchange, and commodity contracts, with a significant portion used for economic hedging Derivative Instruments (June 30, 2022 vs. December 31, 2021) | Item (in millions) | June 30, 2022 (Notional Amount) | June 30, 2022 (Derivative Assets) | June 30, 2022 (Derivative Liabilities) | December 31, 2021 (Notional Amount) | December 31, 2021 (Derivative Assets) | December 31, 2021 (Derivative Liabilities) | |:-----------------------------------|:--------------------------------|:----------------------------------|:---------------------------------------|:------------------------------------|:--------------------------------------|:-------------------------------------------| | Derivatives designated as hedging instruments (Interest rate contracts) | $22,930 | $100 | $1 | $23,450 | $12 | $2 | | Derivatives not designated as hedging instruments (Total) | N/A | $2,271 | $3,002 | N/A | $1,497 | $920 | | Total net derivative fair values | N/A | $1,669 | $1,004 | N/A | $1,216 | $197 | - The company uses interest rate swap contracts to manage interest rate exposure on floating-rate assets and wholesale funding, and to hedge fixed-rate debt issuances[97](index=97&type=chunk) - For cash flow hedges, approximately **($334) million** in pre-tax net losses on derivative instruments are expected to be reclassified from OCI to net interest income over the next 12 months[197](index=197&type=chunk) - Economic hedges include those related to offsetting customer derivatives, residential mortgage loan derivatives, and derivatives to hedge the residential MSR portfolio[200](index=200&type=chunk) [Note 11 - Accumulated Other Comprehensive Income (Loss)](index=71&type=section&id=Note%2011%20-%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated Other Comprehensive Income (AOCI) significantly decreased to a loss of **($3,218) million** at June 30, 2022, primarily driven by substantial net unrealized losses on debt securities and derivative instruments Changes in AOCI (Six Months Ended June 30, 2022 vs. 2021) | Item (in millions) | Balance at January 1, 2022 | Balance at June 30, 2022 | Balance at January 1, 2021 | Balance at June 30, 2021 |\ |:-------------------------------------------------|:---------------------------|:-------------------------|:---------------------------|:-------------------------|\ | Total AOCI | ($665) | ($3,218) | ($60) | ($381) |\ | Net Unrealized Gains (Losses) on Derivatives | ($161) | ($862) | ($11) | ($38) |\ | Net Unrealized Gains (Losses) on Debt Securities | ($156) | ($2,016) | $380 | $78 | - The significant decrease in AOCI was primarily due to net unrealized losses on debt securities of **($1,860) million** and net unrealized losses on der

Citizens Financial Group, Inc. (NYSE:CFG) Q2 2022 Earnings Conference Call July 19, 2022 9:00 AM ET Company Participants Kristin Silberberg - Executive Vice President, Investor Relations Bruce Van Saun - Chairman & Chief Executive Officer John Woods - Chief Financial Officer Brendan Coughlin - Head, Consumer Banking Don McCree - Head, Commercial Banking Conference Call Participants John Pancari - Evercore Scott Siefers - Piper Sandler Peter Winter - Wedbush Securities Gerard Cassidy - RBC Erika Najarian - U ...

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Citizens Financial Group, Inc. (NYSE:CFG) Q1 2022 Earnings Conference Call April 19, 2022 9:00 AM ET Company Participants Kristin Silberberg - Executive Vice President, Investor Relations Bruce Van Saun - Chairman and Chief Executive Officer John Woods - Chief Financial Officer Brendan Coughlin - Head, Consumer Banking Don McCree - Head, Commercial Banking Conference Call Participants Scott Siefers - Piper Sandler Erika Najarian - UBS Brian Foran - Autonomous Betsy Graseck - Morgan Stanley Matt O’Connor - D ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Citizens Financial Group is a major US retail and commercial bank operating through Consumer and Commercial Banking segments, focusing on customer-centric strategies, technology modernization, and financial discipline - Citizens Financial Group, Inc. is a bank holding company headquartered in Providence, RI, with total assets of **$188.4 billion**, total deposits of **$154.4 billion**, and total stockholders' equity of **$23.4 billion** as of December 31, 2021[10](index=10&type=chunk) - The company operates through two primary business segments: Consumer Banking and Commercial Banking. Consumer Banking serves retail customers and small businesses, while Commercial Banking serves companies with annual revenues over **$25 million**[11](index=11&type=chunk)[12](index=12&type=chunk)[15](index=15&type=chunk) - The business strategy focuses on being a customer-centric organization, building excellent capabilities in areas like wealth and capital markets, operating with financial discipline through initiatives like the "TOP" programs, and modernizing technology with an agile operating model[16](index=16&type=chunk)[17](index=17&type=chunk) - The company faces intense competition from a wide range of financial institutions, including community banks, national banks, credit unions, and non-bank FinTech companies, competing on factors like interest rates, fees, customer service, and technology[20](index=20&type=chunk) - As of December 31, 2021, the company had **17,463** full-time equivalent employees. Human capital strategy emphasizes health and well-being, diversity, equity and inclusion (DE&I), fair compensation, and colleague development[21](index=21&type=chunk) - The company is subject to extensive regulation and supervision by federal and state authorities, including the FRB, OCC, and CFPB. As a Category IV firm under the Tailoring Rules, it is subject to specific prudential standards for capital, liquidity, and stress testing[31](index=31&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including the ongoing COVID-19 impact, interest rate fluctuations, LIBOR transition, cybersecurity threats, regulatory changes, and challenges in integrating pending acquisitions - The COVID-19 pandemic continues to pose risks, potentially leading to higher provisions for credit losses, increased charge-offs, reduced net interest margin, and heightened operational and cybersecurity risks due to remote work[67](index=67&type=chunk)[68](index=68&type=chunk) - Changes in interest rates present a significant risk to net interest income, loan volume, and the value of mortgage servicing rights. The company's profitability is sensitive to shifts in monetary policy and economic conditions that are beyond its control[71](index=71&type=chunk)[72](index=72&type=chunk) - The planned discontinuation of LIBOR and transition to alternative benchmark rates could adversely affect the value of financial instruments, require renegotiation of contracts, and result in increased compliance, legal, and operational costs[73](index=73&type=chunk) - Cybersecurity risks have increased significantly due to new technologies and sophisticated external threats. A successful cyber-attack could lead to unauthorized release of confidential information, financial loss, and reputational damage[87](index=87&type=chunk)[89](index=89&type=chunk) - The company is subject to comprehensive regulation that could restrict its ability to implement strategic plans, expand its business, and make capital distributions. Failure to meet supervisory requirements could result in enforcement actions and penalties[99](index=99&type=chunk)[101](index=101&type=chunk) - The pending acquisition of Investors Bancorp and the recently closed HSBC branch acquisition present risks related to regulatory approvals, integration challenges, potential loss of key personnel and customers, and failure to realize anticipated benefits[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[122](index=122&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) As of December 31, 2021, the company owns two principal operations centers in Rhode Island and leases seven others across various states, with subsidiaries owning 37 facilities and leasing an additional 1,123 - The company owns two principal operations centers in Johnston and East Providence, Rhode Island, and leases seven others in Massachusetts, Pennsylvania, Tennessee, Texas, and Virginia[123](index=123&type=chunk) - At year-end 2021, subsidiaries owned 37 facilities and leased an additional 1,123 facilities[123](index=123&type=chunk) [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 19 in Item 8 of the financial statements - Details on legal proceedings are provided in Note 19 of the Notes to Consolidated Financial Statements[124](index=124&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[125](index=125&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Citizens Financial Group's common stock trades on the NYSE as "CFG", with approximately 384,000 beneficial shareholders as of January 28, 2022, and the company repurchased approximately 4.2 million shares in Q4 2021 - The company's common stock (CFG) is traded on the New York Stock Exchange. As of January 28, 2022, there were nine holders of record and approximately **384,000** beneficial shareholders[127](index=127&type=chunk) Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Number of Shares Repurchased | Weighted Average Price Paid Per Share | | :--- | :--- | :--- | | October 1 - 31, 2021 | — | — | | November 1 - 30, 2021 | 3,426,728 | $47.50 | | December 1 - 31, 2021 | 783,984 | $47.50 | - As of December 31, 2021, the maximum dollar amount of shares that may yet be purchased under the publicly announced plan is **$455,000,000**[130](index=130&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, Citizens Financial Group reported a **$2.3 billion** net income, a **119%** increase driven by reduced credit loss provisions, despite a **4%** revenue decrease due to lower mortgage banking fees 2021 Key Financial Highlights vs. 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income | $2.3 billion | $1.1 billion | +119% | | Diluted EPS | $5.16 | $2.22 | +132% | | Total Revenue | $6.6 billion | $6.9 billion | -4% | | Net Interest Income | $4.5 billion | $4.6 billion | -2% | | Noninterest Income | $2.1 billion | $2.3 billion | -8% | | Provision for Credit Losses | ($411 million) benefit | $1.6 billion expense | NM | | Tangible Book Value per Share | $34.61 | $32.72 | +6% | - The significant increase in net income was primarily due to a **$411 million** credit provision benefit in 2021, compared to a **$1.6 billion** provision expense in 2020, reflecting improved economic conditions and strong credit performance[140](index=140&type=chunk)[151](index=151&type=chunk) - Net interest margin decreased by **17 basis points** to **2.71%**, reflecting a lower interest rate environment and elevated cash balances, though partially offset by improved funding mix and deposit pricing[138](index=138&type=chunk)[143](index=143&type=chunk) - The **8%** decline in noninterest income was driven by a **53%** decrease in mortgage banking fees, which was partially offset by a **71%** increase in capital markets fees[140](index=140&type=chunk)[147](index=147&type=chunk) - The company announced two key acquisitions: an agreement to acquire 80 East Coast branches from HSBC (closed Feb 2022) and a definitive agreement to acquire Investors Bancorp (expected to close in Q2 2022)[134](index=134&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=79&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section incorporates by reference the detailed disclosures about market risk presented in the "Market Risk" section of Item 7, Management's Discussion and Analysis - Quantitative and qualitative disclosures about market risk are presented in the "Market Risk" section of Item 7[261](index=261&type=chunk) [Financial Statements and Supplementary Data](index=80&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's consolidated financial statements for 2021, including balance sheets, statements of operations, and cash flows, along with auditor reports and detailed notes on accounting policies and credit losses Consolidated Balance Sheet Highlights (as of Dec 31) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | **Total Assets** | **$188,409** | **$183,349** | | Net Loans and Leases | $126,405 | $120,647 | | Total Deposits | $154,361 | $147,164 | | **Total Liabilities** | **$164,989** | **$160,676** | | **Total Stockholders' Equity** | **$23,420** | **$22,673** | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net Interest Income | $4,512 | $4,586 | | Provision for Credit Losses | ($411) | $1,616 | | Noninterest Income | $2,135 | $2,319 | | Noninterest Expense | $4,081 | $3,991 | | **Net Income** | **$2,319** | **$1,057** | - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[269](index=269&type=chunk)[270](index=270&type=chunk) - The Allowance for Credit Losses (ACL) decreased from **$2.7 billion** at year-end 2020 to **$1.9 billion** at year-end 2021, reflecting a reserve release of **$736 million** due to an improved macroeconomic outlook and strong credit performance[166](index=166&type=chunk)[213](index=213&type=chunk)[330](index=330&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=151&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[482](index=482&type=chunk) [Controls and Procedures](index=151&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the period - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[482](index=482&type=chunk) - No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, these controls[482](index=482&type=chunk) [Other Information](index=151&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[483](index=483&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=151&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required for this item concerning directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[486](index=486&type=chunk) [Executive Compensation](index=152&type=section&id=Item%2011.%20Executive%20Compensation) Information required for this item concerning executive compensation is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[487](index=487&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=152&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2022 Proxy Statement, detailing approximately **3.5 million** securities to be issued and **49.5 million** available under equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights () | Number of securities remaining available (excluding securities reflected in first column) () | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,462,593 | 49,459,410 | | Total | 3,462,593 | 49,459,410 | [Certain Relationships and Related Transactions, and Director Independence](index=152&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required for this item concerning related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[489](index=489&type=chunk) [Principal Accountant Fees and Services](index=152&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required for this item concerning principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[490](index=490&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=152&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including the merger agreement with Investors Bancorp and CEO/CFO certifications - The report includes the Consolidated Financial Statements and Notes to Consolidated Financial Statements for the years ended December 31, 2021, 2020, and 2019[492](index=492&type=chunk)[493](index=493&type=chunk) - Key exhibits filed with the report include the Agreement and Plan of Merger with Investors Bancorp, Inc., the company's Restated Certificate of Incorporation and Bylaws, and various management compensation plans and agreements[495](index=495&type=chunk)[496](index=496&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[498](index=498&type=chunk) [Form 10-K Summary](index=156&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[498](index=498&type=chunk)

Citizens Financial Group, Inc. (NYSE:CFG) Q4 2021 Earnings Conference Call January 19, 2022 8:00 AM ET Company Participants Kristin Silberberg - EVP, IR Bruce Van Saun - Chairman and CEO John Woods - Vice Chairman and CFO Don McCree - Head, Commercial Banking Brendan Coughlin - Head, Consumer Banking Conference Call Participants Peter Winter - Wedbush Securities, Inc. Ken Usdin - Jefferies John Pancari - Evercore ISI Gerard Cassidy - RBC Terry McEvoy - Stephens, Inc. Operator Good morning, everyone, and wel ...