Citizens Financial (CFG) - 2021 Q4 - Annual Report

Part I Business 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] - 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][12][15] - 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][17] - 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] - 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] - 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][33][34] Risk Factors 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][68] - 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][72] - 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] - 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][89] - 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][101] - 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][116][117] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[122] Properties 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] - At year-end 2021, subsidiaries owned 37 facilities and leased an additional 1,123 facilities[123] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[125] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][151] - 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][143] - 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][147] - 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] Quantitative and Qualitative Disclosures about Market Risk 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] Financial Statements and Supplementary Data 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][270] - 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][213][330] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[482] Controls and Procedures 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] - 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] Other Information The company reports no other information for this item - None[483] Part III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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 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] Principal Accountant Fees and Services 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] Part IV Exhibits and Financial Statement Schedules 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][493] - 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][496] - 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] Form 10-K Summary This item is not applicable to the company - Not applicable[498]