CITIZENS FINANCIAL GROUP INC / RI DISCUSSION AND ANALYSIS BY THE MANAGEMENT OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
Page Forward-Looking Statements 7 Introduction 8 Financial Performance 10 Selected Consolidated Financial Data 13 Results of Operations 15 Net Interest Income 15 Noninterest Income 19 Noninterest Expense 20 Provision for Credit Losses 21 Income Tax Expense 22 Business Operating Segments 22 Analysis of Financial Condition 25 Securities 25 Loans and Leases 26 Allowance for Credit Losses and Nonaccru al Loans and Leases 26 Deposits 32 Borrowed Funds 33 Capital and Regulatory Matters 33 Liquidity 37 Off-Balance Sheet Arrangements 40 Critical Accounting Estimates 41 Risk Governance 42 Market Risk 42 Non-GAAP Financial Measures and Reconciliations 47 Citizens Financial Group, Inc. | 6 -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends as well as the potential effects of the COVID-19 pandemic and associated lockdowns on our business, operations, financial performance and prospects, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," "goals," "targets," "initiatives," "potentially," "probably," "projects," "outlook," "guidance" or similar expressions or future conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation: •Negative economic and political conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of nonaccrual assets, charge-offs and provision expense; •The rate of growth in the economy and employment levels, as well as general business and economic conditions, and changes in the competitive environment; •Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals, including through the integration of Investors and the HSBC branches; •The COVID-19 pandemic and associated lockdowns and their effects on the economic and business environments in which we operate; •Our ability to meet heightened supervisory requirements and expectations; •Liabilities and business restrictions resulting from litigation and regulatory investigations; •Our capital and liquidity requirements under regulatory capital standards and our ability to generate capital internally or raise capital on favorable terms; •The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale; •Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; •The effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; •Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses; •A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks; •An inability to complete the acquisitions of Investors or the HSBC branches, or changes in the current anticipated timeframe, terms or manner of such acquisitions; •Greater than expected costs or other difficulties related to the integration of our business and that of Investors and HSBC branches; •The inability to retain existing Investors or HSBC clients and employees following the closings of the Investors and HSBC branch acquisitions; Citizens Financial Group, Inc. | 7 -------------------------------------------------------------------------------- •The occurrence of any event change or other circumstance that could give rise to the right of one or both parties to terminate (i) the agreement to acquire Investors or (ii) the agreement to acquire HSBC branches; and •Management's ability to identify and manage these and other risks. In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, risk-weighted assets, capital impacts of strategic initiatives, market conditions and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares from or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends. Further, statements about the effects of the COVID-19 pandemic and associated lockdowns on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us. In addition, statements about our net charge-off guidance constitute forward-looking statements and are subject to the risk that the actual charge-offs may differ, possibly materially, from what is reflected in those statements due to, among other potential factors, the impact of the COVID-19 pandemic and the effectiveness of stimulus and forbearance programs in response, changes in economic conditions, and idiosyncratic events affecting our commercial loans. Statements about Citizens' agreement to acquire Investors and CBNA's agreement to acquire HSBC branches also constitute forward-looking statements and are subject to the risk that actual results could be materially different from those expressed in those statements, including if either of both transactions are not consummated in a timely manner or at all, or if integration is more costly or difficult than expected. More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the "Risk Factors" section in Part I, Item 1A of our 2020 Form 10-K as well as Part II, Item 1A of our Form 10-Q for the quarter endedJune 30, 2021 . INTRODUCTIONCitizens Financial Group, Inc. is one of the nation's oldest and largest financial institutions with$187.0 billion in assets as ofSeptember 30, 2021 . Headquartered inProvidence, Rhode Island , we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations, and institutions. We help our customers reach their potential by listening to them and by understanding their needs to offer tailored advice, ideas, and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center, the convenience of approximately 3,000 ATMs and approximately 1,000 branches in 11 states in theNew England , Mid-Atlantic, and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com. OnMay 26, 2021 , CBNA entered into an agreement to acquire 80East Coast branches and the national online deposit business from HSBC for an approximate 2.0% premium paid on deposits at closing. The HSBC acquisition provides an attractive entry into important metro markets and supports our national expansion strategy. The branch purchase includes 66 locations in theNew York City Metro area, 9 locations in the Mid-Atlantic/Washington D.C. area, and 5 locations inSoutheast Florida . As ofSeptember 30, 2021 , there were approximately$8.4 billion in deposits and$1.9 billion in loans. The transaction is expected to close in the first quarter of 2022, subject to customary closing terms and conditions and regulatory approvals. OnJuly 28, 2021 Citizens entered into a definitive agreement and a plan of merger under which we will acquire all of the outstanding shares of Investors for a combination of stock and cash. Pursuant to the terms of the agreement, Investors shareholders will receive 0.297 of a share of the Company's common stock and$1.46 in cash for each share of Investors they own. The acquisition of Investors enhances Citizens' banking franchise, adding an attractive middle market, small business and consumer customer base while building our physical presence in the northeast with the addition of 154 branches located in the greaterNew York City andPhiladelphia metropolitan areas and acrossNew Jersey . As ofSeptember 30, 2021 , Investors disclosed that it had total assets of$27.3 billion , including$21.6 billion of loans,$24.5 billion of liabilities, including$20.4 billion of Citizens Financial Group, Inc. | 8 -------------------------------------------------------------------------------- deposits, and$2.8 billion of stockholders' equity. The merger is expected to close in early second quarter 2022, subject to approval by the shareholders of Investors, regulatory approvals, and other customary closing conditions. OnAugust 5, 2021 , Citizens entered into a definitive agreement to acquire Willamette, a valuation consulting and forensic analysis firm with offices inChicago ,Atlanta , andPortland, Oregon . This transaction further strengthens our growing corporate financial advisory capabilities. The acquisition was completed onSeptember 1, 2021 . OnSeptember 8, 2021 , Citizens entered into a definitive agreement to acquire JMP in an all-cash transaction. This acquisition further strengthens Citizens' corporate finance and strategic advisory capabilities. Under the agreement, JMP shareholders will receive$7.50 for each common share of JMP they own, or approximately$149 million in cash. This transaction is targeted to close in mid-fourth quarter 2021, subject to approval by the shareholders of JMP and other customary closing conditions. The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1, as well as other information contained in this document and our 2020 Form 10-K. Non-GAAP Financial Measures This document contains non-GAAP financial measures denoted as "Underlying", "excluding PPP loans", as well as other results excluding the impact of certain items. Underlying results for any given reporting period exclude certain items that may occur in that period which management does not consider indicative of our on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results or results excluding the impact of certain items in any given reporting period reflect our on-going financial performance and increase comparability of period-to-period results, and useful to consider in addition to our GAAP financial results. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP. Non-GAAP measures are denoted throughout our MD&A by the use of the term Underlying or identified as excluding the impact of certain items. Where there is a reference to these metrics in that paragraph, all measures that follow are on the same basis when applicable. For more information on the computation of non-GAAP financial measures, see "-Non-GAAP Financial Measures and Reconciliations." Citizens Financial Group, Inc. | 9 -------------------------------------------------------------------------------- FINANCIAL PERFORMANCE Quarterly Results - Key Highlights
Net result of
Third quarter 2021 results reflect$16 million of expenses, net of tax benefit, or$0.04 per diluted common share, from notable items compared to$24 million of expenses, net of tax benefit, or$0.05 per diluted common share, from notable items in third quarter of 2020. On an Underlying basis, which excludes notable items, net income available to common stockholders of$520 million compared with$313 million in the third quarter of 2020. Underlying EPS of$1.22 compared to$0.73 in the third quarter of 2020. Underlying ROTCE of 14.2% compared with 9.0% in third quarter of 2020. Table 1: Notable Items Three Months Ended September 30, 2021 2020 (in millions) Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income Reported results (GAAP):$1,011 $151 $530 $988 $61 $314 Less notable items: Total integration costs 4 (1) (3) 2 - (2) Other notable items(1) 19 (6) (13) 29 (7) (22) Total notable items 23 (7) (16) 31 (7) (24) Underlying results (non-GAAP)$988 $158 $546 $957 $68 $338
(1) Other notable items for Q3 2021 include a pension settlement expense and compensation related tax credit as well as TOP 6 transformation and revenue and efficiency initiatives. The third quarter of 2020 includes our TOP 6 transformation, revenue and efficiency initiatives.
•Total revenue of$1.7 billion decreased$132 million , or 7%, from the third quarter of 2020, driven by a decrease of 21% in noninterest income, partially offset by a 1% increase in net interest income. •Net interest income of$1.1 billion increased 1% compared to the third quarter of 2020 reflecting 4% growth in interest-earning assets, largely offset by lower net interest margin. •Net interest margin of 2.72% decreased 10 basis points compared to 2.82% in the third quarter of 2020, primarily reflecting the impact of elevated cash balances and the lower rate environment, partly offset by improved funding mix and deposit pricing and the benefit of accelerated PPP loan forgiveness. -Net interest margin on a FTE basis of 2.72% decreased 11 basis points compared to 2.83% in the third quarter of 2020. -Average loans and leases of$122.6 billion decreased$2.3 billion , or 2%, from$124.9 billion in the third quarter of 2020, driven by a$5.2 billion decrease in commercial reflecting payoffs and a$1.9 billion decrease in PPP loans. The decrease in commercial was partially offset by a$2.9 billion increase in retail driven by growth in education, residential mortgage and automobile, partially offset by planned runoff of personal unsecured installment loans and a decrease in home equity. -Average deposits of$151.9 billion increased$10.5 billion , or 7%, from$141.4 billion in the third quarter of 2020, reflecting an increase in demand deposits, money market accounts, savings and checking with interest, partially offset by a decrease in term deposits. •Noninterest income of$514 million decreased$140 million , or 21%, from the third quarter of 2020, driven by a decline in mortgage banking fees and other income, partially offset by higher capital markets, service charges, card and trust and investment services fees. •Noninterest expense of$1.0 billion was stable compared to the third quarter of 2020. Citizens Financial Group, Inc. | 10 -------------------------------------------------------------------------------- •On an Underlying basis, noninterest expense of$988 million increased$31 million , or 3%, from the third quarter of 2020, given higher salaries and employee benefits, outside services and other operating expense. •The efficiency ratio of 60.9% compared to 55.2% in the third quarter of 2020. •On an Underlying basis, the efficiency ratio of 59.5% compared to 53.4% in the third quarter of 2020. •Credit provision benefit of$33 million compares with a$428 million credit provision expense in the third quarter of 2020, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook. Year to Date and Period End -Key Highlights Net income of$1.8 billion increased$1.2 billion from the first nine months of 2020, with earnings per diluted common share of$3.99 , up$2.76 from$1.23 per diluted common share in the first nine months of 2020. ROTCE of 16.1% increased from 5.1% in the first nine months of 2020. Improved results primarily reflect the impact of the COVID-19 pandemic and associated lockdowns in the first nine months of 2020, resulting in a significant ACL reserve build during this period. In the first nine months of 2021, results reflect$39 million of expenses, net of tax benefit, or$0.10 per diluted common share, from notable items compared to$59 million of expenses, net of tax benefit, or$0.14 per diluted common share, from notable items in the first nine months of 2020. Table 2: Notable Items Nine Months Ended September 30, 2021 2020 Noninterest (in millions) Noninterest expense Income tax expense Net Income
expense Income tax expense Net Income Reported results (GAAP)$3,020 $504 $1,789 $2,979 $126 $601 Less notable items: Total integration costs 6 (2) (4) 8 (2) (6) Other notable items(1) 48 (13) (35) 75 (22) (53) Total notable items 54 (15) (39) 83 (24) (59) Underlying results (non-GAAP)$2,966 $519 $1,828 $2,896 $150 $660 (1) For the nine months endedSeptember 30, 2021 , Other notable items include a pension settlement charge and a compensation-related credit as well as our TOP 6 transformational and revenue and efficiency initiatives. Other notable items for the nine months endedSeptember 30, 2020 includes our TOP 6 transformational and revenue and efficiency initiatives as well as an income tax benefit related to legacy tax matters. •Net income available to common stockholders of$1.7 billion increased$1.2 billion , compared to$526 million in the first nine months of 2020. •On an Underlying basis, which excludes notable items, net income available to common stockholders of$1.7 billion compared with$585 million in the first nine months of 2020. •On an Underlying basis, EPS of$4.09 compared to$1.37 in the first nine months of 2020. •Total revenue of$4.9 billion decreased$271 million , or 5%, from the first nine months of 2020, driven by declines of 11% and 2% in noninterest income and net interest income, respectively. •Net interest income of$3.4 billion decreased 2% given lower net interest margin, partially offset by 5% growth in interest-earning assets. •Net interest margin of 2.73% decreased 20 basis points from 2.93% in the first nine months of 2020, reflecting the impact of a lower rate environment, lower interest-earning asset yields and elevated cash balances, partly offset by improved funding mix and deposit pricing and the benefit of accelerated PPP loan forgiveness. -Net interest margin on a FTE basis of 2.73% decreased 20 basis points, compared to 2.93% in the first nine months of 2020. -Average loans and leases of$123.0 billion decreased$1.9 billion , or 2%, from$124.9 billion in the first nine months of 2020, driven by a$3.5 billion decrease in commercial reflecting line of credit repayments and net payoffs, partially offset by an increase in PPP loans. The decrease in commercial was partially offset by a$1.6 billion increase in retail driven by Citizens Financial Group, Inc. | 11 -------------------------------------------------------------------------------- growth in education, residential mortgage and automobile, partially offset by planned run-off of personal unsecured installment loans and a decrease in home equity. -Period-end loans increased$228 million from the fourth quarter of 2020, reflecting 5% growth in retail and a 5% decline in commercial. -Average deposits of$149.6 billion increased$13.1 billion , or 10%, from$136.5 billion in the first nine months of 2020, reflecting an increase in demand deposits, money market accounts, savings and checking with interest, partially offset by a decrease in term deposits. -Period-end deposit growth of$5.1 billion , or 3%, from the fourth quarter of 2020, reflecting elevated liquidity tied to government stimulus associated with the COVID-19 disruption. •Noninterest income of$1.5 billion decreased$200 million , or 11%, from the first nine months of 2020, driven by a decline in mortgage banking fees partially offset by improved capital markets, trust and investment services, letter of credit and loan, card and service charges and fees. •Noninterest expense of$3.0 billion was stable compared to the first nine months of 2020. •On an Underlying basis, noninterest expense increased 2% from the first nine months of 2020, reflecting higher outside services, equipment and software expense, and salaries and employee benefits, partially offset by a decrease in other operating expense. •The efficiency ratio of 61.3% compared to 57.3% for the first nine months of 2020, and ROTCE of 16.1% compared to 5.1%. •On an Underlying basis, the efficiency ratio of 60.2% compared to 55.7% for the first nine months of 2020, and ROTCE of 16.5% compared to 5.7%. •Credit provision benefit of$386 million compares with a$1.5 billion credit provision expense for the first nine months of 2020, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook. •Tangible book value per common share of$34.44 increased 7% from the first nine months of 2020. Fully diluted average common shares outstanding was stable over the same period. Citizens Financial Group, Inc. | 12 -------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA The summary of the Consolidated Operating Data for the three and nine months endedSeptember 30, 2021 and 2020 and the summary Consolidated Balance Sheet data as ofSeptember 30, 2021 andDecember 31, 2020 are derived from our unaudited interim Consolidated Financial Statements, included in Part I, Item 1. Our historical results are not necessarily indicative of the results expected for any future period. Table 3: Summary of Consolidated Operating Data Three Months Ended September 30, Nine Months Ended September 30, (dollars in millions, except per share amounts) 2021 2020 2021 2020 OPERATING DATA: Net interest income$1,145 $1,137 $3,386 $3,457 Noninterest income 514 654 1,541 1,741 Total revenue 1,659 1,791 4,927 5,198 Provision for credit losses (33) 428 (386) 1,492 Noninterest expense 1,011 988 3,020 2,979 Income before income tax expense 681 375 2,293 727 Income tax expense 151 61 504 126 Net income$530 $314 $1,789 $601 Net income available to common stockholders$504 $289 $1,708 $526 Net income per common share - basic$1.18 $0.68 $4.01 $1.23 Net income per common share - diluted$1.18 $0.68 $3.99 $1.23 OTHER OPERATING DATA: Return on average common equity 9.39 % 5.60 % 10.91 % 3.45 % Return on average tangible common equity 13.71 8.33 16.08 5.15 Return on average total assets 1.13 0.70 1.30 0.46 Return on average total tangible assets 1.17 0.73 1.35 0.48 Efficiency ratio 60.92 55.18 61.30 57.31 Operating leverage (9.64) 7.77 (6.59) 2.95 Net interest margin, FTE(1) 2.72 2.83 2.73 2.93 Effective income tax rate 22.35 16.10 22.01 17.27
(1) The net interest margin is presented on an FTE basis using the federal statutory tax rate of 21%.
Citizens Financial Group, Inc. | 13 -------------------------------------------------------------------------------- Table 4: Summary of Consolidated Balance Sheet data (dollars in millions) September 30, 2021 December 31, 2020 BALANCE SHEET DATA: Total assets$187,007 $183,349 Loans held for sale, at fair value 3,177 3,564 Other loans held for sale 93 439 Loans and leases 123,318 123,090 Allowance for loan and lease losses (1,855) (2,443) Total securities 28,107 26,847 Goodwill 7,065 7,050 Total liabilities 163,584 160,676 Total deposits 152,221 147,164 Short-term borrowed funds 8 243 Long-term borrowed funds 6,947 8,346 Total stockholders' equity 23,423 22,673 OTHER BALANCE SHEET DATA: Asset Quality Ratios: Allowance for loan and lease losses to loans and leases 1.50 % 1.98 % Allowance for credit losses to loans and leases 1.63 2.17
Provision for credit losses on loans and leases, excluding the impact of PPP loans (1)
1.65 2.24
Provision for losses on loans and leases on unrecognized loans and leases
248 240
Allowance for credit losses to nonaccrual loans and leases 268 262
Nonaccrual loans and leases to loans and leases 0.61 0.83
Capital Ratios:
CET1 capital ratio 10.3 % 10.0 %
Tier 1 capital ratio 11.6 11.3
Total capital ratio 13.4 13.4
Tier 1 leverage ratio 9.7 9.4
(1) For more information on the computation of non-GAAP financial measures, see
"-Introduction - Non-GAAP Financial Measures" and "-Non-GAAP Financial Measures
and Reconciliations."
Citizens Financial Group, Inc. | 14
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RESULTS OF OPERATIONS
Net Interest Income
The following table presents a five quarter trend of our Net interest margin,
FTE and Net interest income:
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Third quarter 2021 versus second quarter 2021: Net interest income of $1.1
billion was up 2% given higher day count and interest-earning asset growth, with
stable net interest margin. Net interest margin on a FTE basis of 2.72% reflects
the benefit of accelerated PPP forgiveness, improved funding mix, and deposit
pricing, partially offset by higher cash balances and lower earning-asset
yields. Interest-bearing deposit costs of 14 basis points decreased 2 basis
points.
Citizens Financial Group, Inc. | 15
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Table 5: Main components of net interest income, quarterly cumulative
Three months ended
2021 2020 Change
Average Income/ Yields/ Average Income/ Yields/ Average Yields/
(dollars in millions) Balances Expense Rates Balances Expense Rates Balances Rates (bps)
Assets
Interest-bearing cash and due from banks and
deposits in banks $13,749 $6 0.16 % $6,250 $2 0.10 % $7,499 6 bps
Taxable investment securities 27,466 116 1.69 24,654 121 1.95 2,812 (26)
Non-taxable investment securities 2 - 2.60 4 - 2.60 (2) -
Total investment securities 27,468 116 1.69 24,658 121 1.95 2,810 (26)
Commercial and industrial 42,330 362 3.36 46,844 383 3.20 (4,514) 16
Commercial real estate 14,656 96 2.56 14,644 96 2.57 12 (1)
Leases 1,695 12 2.72 2,373 16 2.65 (678) 7
Total commercial loans and leases 58,681 470 3.14 63,861 495 3.03 (5,180) 11
Residential mortgages 20,834 157 3.01 19,427 153 3.15 1,407 (14)
Home equity 11,829 92 3.08 12,416 100 3.21 (587) (13)
Automobile 13,136 126 3.83 12,019 128 4.23 1,117 (40)
Education 12,707 134 4.19 10,929 130 4.74 1,778 (55)
Other retail 5,454 99 7.15 6,260 114 7.22 (806) (7)
Total retail loans 63,960 608 3.78 61,051 625 4.08 2,909 (30)
Total loans and leases 122,641 1,078 3.47 124,912 1,120 3.54 (2,271) (7)
Loans held for sale, at fair value 3,299 21 2.51 3,295 21 2.60 4 (9)
Other loans held for sale 112 1 3.98 1,061 16 6.02 (949) (204)
Interest-earning assets 167,269 1,222 2.89 160,176 1,280 3.15 7,093 (26)
Noninterest-earning assets 18,839 17,499 1,340
Total assets $186,108 $177,675 $8,433
Liabilities and Stockholders' Equity
Checking with interest $27,965 $7 0.09 % $26,638 $8 0.13 % $1,327 (4)
Money market accounts 49,159 18 0.14 45,187 33 0.28 3,972 (14)
Regular savings 20,803 5 0.09 16,902 10 0.24 3,901 (15)
Term deposits 6,071 5 0.43 12,032 38 1.25 (5,961) (82)
Total interest-bearing deposits 103,998 35 0.14 100,759 89 0.35 3,239 (21)
Short-term borrowed funds 23 - 2.06 240 - 0.13 (217) 193
Long-term borrowed funds 6,956 42 2.38 9,196 54 2.35 (2,240) 3
Total borrowed funds 6,979 42 2.38 9,436 54 2.30 (2,457) 8
Total interest-bearing liabilities 110,977 77 0.28 110,195 143 0.52 782 (24)
Demand deposits 47,873 40,608 7,265
Other liabilities 3,904 4,374 (470)
Total liabilities 162,754 155,177 7,577
Stockholders' equity 23,354 22,498 856
Total liabilities and stockholders' equity $186,108 $177,675 $8,433
Interest rate spread 2.61 % 2.63 % (2)
Net interest income and net interest margin $1,145 2.72 % $1,137 2.82 % (10)
Net interest income and net interest margin, FTE(1) $1,147 2.72 % $1,140 2.83 % (11)
Memo: Total deposits (interest bearing and on demand)
0.09 %$141,367 $89 0.25 %
(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. Third quarter 2021 vs third quarter 2020: Net interest income of$1.1 billion increased 1% from the third quarter of 2020 reflecting 4% growth in interest-earning assets, largely offset by lower net interest margin. Net interest margin on a FTE basis of 2.72% decreased 11 basis points compared to 2.83% in the third quarter of 2020, primarily reflecting the impact of elevated cash balances and the lower rate environment, partially offset by an improved funding mix, deposit pricing, and the benefit of accelerated PPP loan forgiveness. Interest-bearing deposit costs decreased 21 basis points. Average interest-earning asset yields of 2.89% decreased 26 basis points from 3.15% in the third quarter of 2020, while average interest-bearing liability costs of 0.28% decreased 24 basis points from 0.52% in the third quarter of 2020. Average interest-earning assets of$167.3 billion increased$7.1 billion , or 4%, from the third quarter of 2020, as elevated liquidity drove a$7.5 billion increase in cash held in interest-bearing deposits, and a$2.8 billion increase in investments. Loans and loans held for sale decreased$3.2 billion , or 2%, with a$5.2 billion decrease in average commercial reflecting line of credit repayments and net payoffs and a 1.9 billion decrease inCitizens Financial Group, Inc. | 16 -------------------------------------------------------------------------------- PPP loans. Retail loans increased$2.9 billion driven by growth in education, residential mortgage, and automobile, partially offset by planned run-off of personal unsecured installment loans and a decrease in home equity. Loans held for sale decreased$945 million , driven by education. Average deposits of$151.9 billion increased$10.5 billion , or 7%, from the third quarter of 2020, reflecting an increase in demand deposits, money market accounts, savings and checking with interest, partially offset by a decrease in term deposits. Average total borrowed funds of$7.0 billion decreased$2.5 billion from the third quarter of 2020, as strong customer deposit inflows enabled the pay down of senior debt and short-term borrowings. Total borrowed funds costs of$42 million decreased$12 million from the third quarter of 2020. The total borrowed funds cost of 2.38% increased 8 basis points from 2.30% in the third quarter of 2020. Table 6: Major Components of Net Interest Income, Year-to-Date
Nine months ended
2021 2020 Change
Average Income/ Yields/ Average Income/ Yields/ Average Yields/
(dollars in millions) Balances Expense Rates Balances Expense Rates Balances Rates (bps)
Assets:
Interest-bearing cash and due from banks and
deposits in banks $11,967 $12 0.13 % $4,453 $8 0.24 % $7,514 (11) bps
Taxable investment securities 27,366 368 1.79 25,056 398 2.12 2,310 (33)
Non-taxable investment securities 3 - 2.60 4 - 2.60 (1) -
Total investment securities 27,369 368 1.79 25,060 398 2.12 2,309 (33)
Commercial and industrial 43,661 1,054 3.19 46,813 1,212 3.40 (3,152) (21)
Commercial real estate 14,601 285 2.57 14,354 341 3.12 247 (55)
Leases 1,800 37 2.73 2,427 50 2.74 (627) (1)
Total commercial loans and leases 60,062 1,376 3.02 63,594 1,603 3.31 (3,532) (29)
Residential mortgages 20,160 459 3.03 19,056 467 3.27 1,104 (24)
Home equity 11,884 279 3.14 12,730 363 3.81 (846) (67)
Automobile 12,634 376 3.98 12,063 388 4.30 571 (32)
Education 12,593 403 4.28 10,908 424 5.19 1,685 (91)
Other retail 5,659 304 7.18 6,556 369 7.51 (897) (33)
Total retail loans 62,930 1,821 3.87 61,313 2,011 4.38 1,617 (51)
Total loans and leases 122,992 3,197 3.45 124,907 3,614 3.84 (1,915) (39)
Loans held for sale, at fair value 3,435 63 2.45 2,635 56 2.85 800 (40)
Other loans held for sale 242 9 4.88 791 32 5.32 (549) (44)
Interest-earning assets 166,005 3,649 2.92 157,846 4,108 3.45 8,159 (53)
Noninterest-earning assets 18,386 17,046 1,340
Total assets $184,391 $174,892 $9,499
Liabilities and Stockholders' Equity:
Checking with interest $27,126 $18 0.09 % $25,857 $56 0.29 % $1,269 (20)
Money market accounts 49,362 61 0.16 43,411 165 0.51 5,951 (35)
Regular savings 19,839 15 0.10 15,667 43 0.37 4,172 (27)
Term deposits 7,195 33 0.64 15,692 176 1.49 (8,497) (85)
Total interest-bearing deposits 103,522 127 0.16 100,627 440 0.58 2,895 (42)
Short-term borrowed funds 80 - 0.74 368 1 0.53 (288) 21
Long-term borrowed funds 7,570 136 2.38 11,660 210 2.39 (4,090) (1)
Total borrowed funds 7,650 136 2.36 12,028 211 2.33 (4,378) 3
Total interest-bearing liabilities 111,172 263 0.32 112,655 651 0.77 (1,483) (45)
Demand deposits 46,120 35,922 10,198
Other liabilities 4,166 4,172 (6)
Total liabilities 161,458 152,749 8,709
Stockholders' equity 22,933 22,143 790
Total liabilities and stockholders' equity $184,391 $174,892 $9,499
Interest rate spread 2.61 % 2.68 % (7)
Net interest income and net interest margin $3,386 2.73 % $3,457 2.93 % (20)
Net interest income and net interest margin, FTE(1) $3,393 2.73 % $3,467 2.93 % (20)
Memo: Total deposits (interest bearing and on demand)
0.11 %$136,549 $440 0.43 %
(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 nine months 2021 versus first nine months 2020: Net interest income of$3.4 billion decreased 2% from the first nine months of 2020, reflecting 5% growth in interest-earning assets, largely offset by lower net interest margin.Citizens Financial Group, Inc. | 17 -------------------------------------------------------------------------------- Net interest margin on a FTE basis of 2.73% decreased 20 basis points compared to 2.93% in the first nine months of 2020, primarily reflecting the impact of a lower rate environment, and elevated cash balances given strong deposit flows, partially offset by the benefit of accelerated PPP loan forgiveness, improved funding mix, and deposit pricing. Average interest-earning asset yields of 2.92% decreased 53 basis points from 3.45% in the first nine months of 2020, while average interest-bearing liability costs of 0.32% decreased 45 basis points from 0.77% in the first nine months of 2020. Average interest-earning assets of$166.0 billion increased$8.2 billion , or 5%, from the first nine months of 2020, as elevated liquidity drove a$7.5 billion increase in cash held in interest-bearing deposits and a$2.3 billion , or 9%, increase in investments. Results also reflected a$1.7 billion , or 1%, decrease in average loans and leases and LHFS with a$3.5 billion decrease in average commercial loans and leases reflecting payoffs, partially offset by a$1.3 billion increase in PPP loans. Furthermore, average retail loans increased$1.6 billion , driven by growth in education, residential mortgage, and automobile, partially offset by decreases in home equity and other retail given run-off of personal unsecured installment loans. Loans held for sale increased$251 million , reflecting mortgage originations. Average deposits of$149.6 billion increased$13.1 billion , or 10%, from the first nine months 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$7.7 billion decreased$4.4 billion from the first nine months of 2020, given the pay down of senior debt and short-term borrowings. Total borrowed funds costs of$136 million decreased$75 million from the first nine months of 2020. The total borrowed funds cost of 2.36% increased 3 basis points from 2.33% in the first nine months of 2020.Citizens Financial Group, Inc. | 18 --------------------------------------------------------------------------------
Non-interest income
The following table shows a five-quarter trend in our non-interest income:
[[Image Removed: cfg-20210930_g3.jpg]] Third quarter 2021 versus second quarter 2021: Noninterest income of$514 million increased$29 million , or 6%, from the second quarter of 2021. Results reflect higher mortgage banking fees, service charges and fees, card fees and other income, partially offset by lower capital markets fees. •Mortgage banking fees increased driven by strong origination levels, the benefit of lower agency fees and improved MSR hedge results. •Services charges and fees and card fees increased reflecting seasonality and the benefit of economic recovery. •Other income increased reflecting the benefit of higher community development-related income and a seasonal improvement in tax-advantaged investments. •Capital markets fees declined from record levels reflecting seasonally lower activity, primarily in syndication fees, partially offset by higher merger and acquisition advisory fees. Table 7: Noninterest Income Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 Change Percent 2021 2020 Change Percent Mortgage banking fees$108 $287 ($179 ) (62 %)$358 $722 ($364 ) (50 %) Service charges and fees 110 97 13 13 309 299 10 3 Capital markets fees 72 58 14 24 244 162 82 51 Card fees 66 57 9 16 185 161 24 15 Trust and investment services fees 61 53 8 15 179 151 28 19 Letter of credit and loan fees 39 37 2 5 115 102 13 13 Foreign exchange and interest rate products 29 27 2 7 85 85 - - Securities gains, net 3 1 2 200 9 4 5 125 Other income(1) 26 37 (11) (30) 57 55 2 4 Noninterest income$514 $654 ($140 ) (21 %)$1,541 $1,741 ($200 ) (11 %)
(1) Includes income from life insurance held by banks and other miscellaneous income for all periods presented.
Third quarter 2021 versus third quarter 2020: Noninterest income decreased$140 million , or 21%, from the third quarter of 2020. Results reflect lower mortgage banking fees and other income, partially offset by higher capital markets, service charges, card and trust and investment services fees. •Mortgage banking fees decreased driven by lower gain-on-sale margins and production volumes. •Capital markets fees increased driven by loan syndication and merger and acquisition advisory fees. •Service charges and fees increased reflecting recovery from COVID-19 impacts. •Card fees increased reflecting higher debit and credit card volumes given economic recovery.Citizens Financial Group, Inc. | 19 -------------------------------------------------------------------------------- •Other income decreased largely tied to a gain on the sale of education loans in the third quarter of 2020. •Trust and investment services fees increased driven by an increase in assets under management from higher equity market levels and strong inflows. First nine months 2021 versus first nine months 2020: Noninterest income decreased$200 million , or 11%, from the first nine months of 2020. Results reflect lower mortgage banking fees partially offset by improved capital markets, trust and investment services, letter of credit and loan, card and service charges and fees. •Mortgage banking fees decreased reflecting increased industry capacity and heightened competition resulting in lower gain-on-sale margins and production volumes. •Capital markets fees increased driven by loan syndication, underwriting, and merger and acquisition advisory fees. •Trust and investment services fees increased driven by an increase in assets under management from higher equity market levels and strong inflows. •Letter of credit and loan fees increased reflecting higher commitment fees. •Card fees and service charges and fees increased largely tied to economic recovery. Noninterest Expense
The following table shows a five-quarter trend in our non-interest expenses:
[[Image Removed: cfg-20210930_g4.jpg]]
Third quarter 2021 compared to second quarter 2021: Non-interest expenses of
Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2021 2020 Change Percent 2021 2020 Change Percent Salaries and employee benefits$509 $524 ($15 ) (3 %)$1,581 $1,586 ($5 ) - % Equipment and software 157 149 8 5 464 424 40 9 Outside services 144 139 5 4 420 405 15 4 Occupancy 77 81 (4) (5) 247 247 - - Other operating expense 124 95 29 31 308 317 (9) (3) Noninterest expense$1,011 $988 $23 2 %$3,020 $2,979 $41 1 % Third quarter 2021 versus third quarter 2020: Noninterest expense increased$23 million , or 2%, compared to the third quarter of 2020 and remains well-controlled. Salaries and employee benefits were lower as a result of a compensation-related credit associated with the CARES Act. Other operating expenses increased reflecting a pension settlement charge. On an Underlying basis, noninterest expense of$988 million increased$31 million , or 3%, compared to$957 million given higher salaries and employee benefits, outside services and other operating expense. •Higher salaries and employee benefits reflect revenue-based compensation and merit increases. Citizens Financial Group, Inc. | 20 -------------------------------------------------------------------------------- •Outside services increased largely tied to growth initiatives. •Other operating expense increased reflecting higher travel and advertising costs. First nine months 2021 versus first nine months 2020: Noninterest expense increased$41 million , or 1%, and was stable with the first nine months of 2020. On an Underlying basis, noninterest expense of$3.0 billion increased$70 million , or 2%, given higher salaries and employee benefits and outside services due to the reasons stated above and higher equipment and software expense. These increases were partially offset by a decline in other operating expense. •Equipment and software expense increased reflecting higher technology spend. •Other operating expense decreased reflecting lower travel and advertising costs. 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: [[Image Removed: cfg-20210930_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 Nonaccrual Loans and Leases" for more information. Third quarter 2021 versus second quarter 2021: In the third quarter of 2021, strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook resulted in a credit provision benefit of$33 million . This compared to a credit provision benefit of$213 million in the second quarter of 2021. Third quarter 2021 versus third quarter 2020: The credit provision benefit was$33 million in the third quarter of 2021, compared with a$428 million credit provision expense in the third quarter of 2020. The credit provision expense in 2020 reflects the adverse impacts from the COVID-19 pandemic and associated lockdowns, while the credit provision benefit in 2021 reflects strong credit performance and improving macroeconomic outlook. First nine months 2021 versus first nine months 2020: The credit provision benefit was$386 million in the first nine months of 2021. This compared to a credit provision expense of$1.5 billion in the first nine months of 2020, which reflected the adverse impacts from the COVID-19 pandemic and associated lockdowns. Citizens Financial Group, Inc. | 21 -------------------------------------------------------------------------------- Income Tax Expense The following table presents a five quarter trend of our income tax expense and effective income tax rate: [[Image Removed: cfg-20210930_g6.jpg]] Third quarter 2021 versus third quarter 2020: Income tax expense increased$90 million from the third quarter of 2020 due to increased taxable income. The effective income tax rate increased to 22.4% from 16.1% in the third quarter of 2020, driven by the decreased benefit of tax advantaged investments on higher pre-tax income. First nine months 2021 versus first nine months 2020: Income tax expense for the first nine months of 2021 was$504 million compared to$126 million in the first nine months of 2020. Income tax expense increased$378 million from the first nine months of 2020 due to increased taxable income. The effective income tax rate increased to 22.0% from 17.3% in the first nine months of 2020 driven by the decreased benefit of tax advantaged investment on higher 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 assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense not attributed to our Consumer or Commercial Banking segments as well as treasury and community development. 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. Citizens Financial Group, Inc. | 22 -------------------------------------------------------------------------------- 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. Table 9: Selected Financial Data for Business Operating Segments, Quarter-to-Date Consumer Banking Commercial Banking Three Months Ended September 30, Three Months Ended September 30, (dollars in millions) 2021 2020 2021 2020 Net interest income$919 $845 $428 $421 Noninterest income 315 495 168 144 Total revenue 1,234 1,340 596 565 Noninterest expense 749 742 226 210 Profit before credit losses 485 598 370 355 Net charge-offs 35 55 15 161 Income before income tax expense 450 543 355 194 Income tax expense 114 136 81 41 Net income$336 $407 $274 $153 Average Balances: Total assets$75,070 $73,605 $56,702 $60,889 Total loans and leases(1)(2) 70,984 69,719 53,815 57,796 Deposits 100,968 94,212 45,465 41,393 Interest-earning assets 71,879 69,925 54,177 58,177 (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 increased$74 million , or 9%, from the third quarter of 2020, reflecting the benefit of accelerated PPP loan forgiveness and a$1.3 billion increase in average loans led by education, residential mortgage, and automobile, partially offset by a decline in other retail consistent with planned run-off of personal unsecured installment loans. In addition, higher deposit volumes, reflecting improved funding mix and deposit pricing, contributed to higher net interest income. Noninterest income decreased$180 million , or 36%, from the third quarter of 2020, driven by lower mortgage banking fees resulting from lower gain-on-sale margins and production volumes, and a decline in other income largely tied to a gain on the sale of education loans in the third quarter of 2020. These decreases were partially offset by recovery in service charges and fees from deposit products, card, as well as trust and investment services, reflecting an increase in assets under management. Noninterest expense was stable compared to the third quarter of 2020. Net charge-offs of$35 million decreased$20 million , or 36%, driven by the impact ofU.S. Government stimulus programs and strong collateral values in automobile and residential real estate.
Commercial Bank
Net interest income of$428 million was stable compared to the third quarter of 2020. Noninterest income of$168 million increased$24 million , or 17%, from$144 million in the third quarter of 2020, driven by strength in capital markets due to higher loan syndication and merger and acquisition advisory fees, reflecting favorable market conditions and a strong pipeline. Noninterest expense of$226 million increased$16 million , or 8%, from$210 million in the third quarter of 2020, largely tied to increased technology spend as well as higher salaries and employee benefits. Net charge-offs of$15 million decreased$146 million from the third quarter of 2020 reflecting the stabilization from effects of the COVID-19 pandemic and associated lockdowns. Citizens Financial Group, Inc. | 23 -------------------------------------------------------------------------------- Table 10: Selected Financial Data for Business Operating Segments, Year-to-Date Consumer Banking Commercial Banking Nine Months Ended September 30, Nine Months Ended September 30, (dollars in millions) 2021 2020 2021 2020 Net interest income$2,679 $2,452 $1,268 $1,205 Noninterest income 949 1,280 516 413 Total revenue 3,628 3,732 1,784 1,618 Noninterest expense 2,250 2,215 679 644 Profit before credit losses 1,378 1,517 1,105 974 Net charge-offs 139 232 150 274 Income before income tax expense 1,239 1,285 955 700 Income tax expense 315 322 205 147 Net income$924 $963 $750 $553 Average Balances: Total assets$75,317 $71,227 $57,318 $61,722 Total loans and leases(1)(2) 70,857 67,763 54,459 58,784 Deposits 99,708 90,377 44,501 38,905 Interest-earning assets 71,777 67,866 54,828 59,201 (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$2.7 billion increased$227 million , or 9%, from the first nine months of 2020, driven by the benefit of accelerated PPP loan forgiveness, loan and deposit growth, as well as improved funding mix, and deposit pricing. Average loans increased$3.1 billion led by education, residential mortgage, and automobile, partially offset by a decline in other retail given planned run-off of personal unsecured installment loans. Deposits increased$9.3 billion , or 10%, as a result of elevated liquidity tied to government stimulus associated with the COVID-19 disruption. Noninterest income decreased$331 million , or 26%, from the first nine months of 2020, driven by lower mortgage banking fees as increased industry capacity and heightened competition resulted in lower gain-on-sale margins and production volumes. This decrease was partially offset by higher trust and investment services fees driven by an increase in assets under management, and higher card fees and service charges and fees, reflecting continued volume recovery from COVID-19 impacts. Noninterest expense increased$35 million , or 2%, from the first nine months of 2020, reflecting higher salaries and employee benefits tied to higher revenue-based compensation, combined with higher equipment and software expense and outside services resulting from increased technology spend and growth initiatives. Net charge-offs of$139 million decreased$93 million , or 40%, driven by the impact ofU.S. Government stimulus and forbearance, as well as strong collateral values in automobile and residential real estate. Commercial Banking Net interest income of$1.3 billion increased$63 million , or 5%, from$1.2 billion in the first nine months of 2020, driven by higher deposit volumes reflecting improved funding mix and deposit pricing. Noninterest income of$516 million increased$103 million , or 25%, from$413 million in the first nine months of 2020, driven by strength in capital markets from higher loan syndication and merger and acquisition advisory fees, in addition to higher letter of credit and loan fees. Noninterest expense of$679 million increased$35 million , or 5%, from$644 million in the first nine months of 2020, largely tied to growth initiatives, increased technology spends, and higher salaries and employee benefits. Net charge-offs of$150 million decreased$124 million , or 45%, from the first nine months of 2020, reflecting the stabilization from effects of the COVID-19 pandemic and associated lockdowns. Citizens Financial Group, Inc. | 24 -------------------------------------------------------------------------------- ANALYSIS OF FINANCIAL CONDITION Securities Table 11: Amortized Cost and Fair Value ofAFS and HTM Securities September 30, 2021 December 31, 2020 Amortized Amortized (in millions) Cost Fair Value Cost Fair Value U.S. Treasury and other$11 $11 $11 $11 State and political subdivisions 2 2 3 3 Mortgage-backed securities: Federal agencies and U.S. government sponsored entities 23,838 23,840 21,954 22,506 Other/non-agency 280 291 396 422 Total mortgage-backed securities 24,118 24,131 22,350 22,928 Collateralized loan obligations 767 767 - -
Total debt securities available for sale, at fair value
$24,911 $22,364 $22,942 Mortgage-backed securities: Federal agencies and U.S. government sponsored entities$1,705 $1,778 $2,342 $2,464 Total mortgage-backed securities 1,705 1,778 2,342 2,464 Asset-backed securities 787 789 893 893 Total debt securities held to maturity$2,492 $2,567 $3,235 $3,357
Total debt securities available for sale and held to maturity
$27,390 $27,478 $25,599 $26,299 Equity securities, at cost$616 $616 $604 $604 Equity securities, at fair value 88 88 66 66 Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality, and market risk while achieving returns that align with our overall portfolio management strategy. The portfolio primarily includes high quality, highly liquid investments reflecting our ongoing commitment to maintain strong contingent liquidity levels and pledging capacity.U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 93% 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$24.9 billion atSeptember 30, 2021 increased$2.0 billion from$22.9 billion atDecember 31, 2020 , including$2.5 billion in portfolio growth, offset by a$566 million reduction in unrealized gains driven by a steepening yield curve. The decline in the fair value of the HTM debt securities portfolio of$790 million was primarily attributable to portfolio run-off. For further information, see Note 2. As ofSeptember 30, 2021 , the portfolio's average effective duration was 3.9 years compared with 2.7 years as ofDecember 31, 2020 , as higher long-term rates drove a decrease in both actual and projected securities prepayment speeds. We manage our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within our risk appetite in the context of the broader interest rate risk framework and limits. Citizens Financial Group, Inc. | 25 --------------------------------------------------------------------------------
Loans and leases Table 12: Composition of loans and leases, excluding LHFS (in millions)
September 30, 2021 December 31, 2020 Change Percent Commercial and industrial(1)$41,854 $44,173 ($2,319 ) (5) % Commercial real estate 14,508 14,652 (144) (1) Leases 1,593 1,968 (375) (19) Total commercial 57,955 60,793 (2,838) (5) Residential mortgages(2) 21,513 19,539 1,974 10 Home equity 11,889 12,149 (260) (2) Automobile 13,492 12,153 1,339 11 Education 13,000 12,308 692 6 Other retail 5,469 6,148 (679) (11) Total retail 65,363 62,297 3,066 5 Total loans and leases$123,318 $123,090 $228 - % (1) Includes PPP loans fully guaranteed by the SBA of$1.9 billion atSeptember 30, 2021 and$4.2 billion atDecember 31, 2020 . (2) Includes fully or partially guaranteed FHA,VA andUSDA loans of$1.4 billion atSeptember 30, 2021 and$249 million atDecember 31, 2020 , including loans acquired through the exercise of the GNMA early buyout option. Total loans and leases increased$228 million from$123.1 billion as ofDecember 31, 2020 , reflecting a$3.1 billion increase in retail driven by mortgage, automobile, and education, and a$2.8 billion decrease in commercial driven by payoffs and a decrease in PPP loans. Allowance for Credit Losses and Nonaccrual Loans and Leases The ACL is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Note 4 of this report, and "Critical Accounting Estimates" and Note 5 in the Company's 2020 Form 10-K. The ACL of$2.0 billion as ofSeptember 30, 2021 compared with the ACL of$2.7 billion as ofDecember 31, 2020 , reflecting a reserve release of$666 million . For further information, see Note 4. Citizens Financial Group, Inc. | 26 --------------------------------------------------------------------------------
Table 13: ACL and associated coverage ratios by portfolio
September 30, 2021 December 31, 2020 (in millions) Loans and Leases Allowance Coverage Loans and Leases Allowance Coverage Allowance for Loan and Lease Losses Commercial and industrial$41,854 $592 1.41 %$44,173 $821 1.86 % Commercial real estate 14,508 212 1.46 14,652 360 2.46 Leases 1,593 63 3.92 1,968 52 2.67 Total commercial 57,955 867 1.50 60,793 1,233 2.03 Residential mortgages 21,513 141 0.65 19,539 141 0.72 Home equity 11,889 92 0.78 12,149 134 1.10 Automobile 13,492 165 1.22 12,153 200 1.65 Education 13,000 332 2.56 12,308 361 2.93 Other retail 5,469 258 4.72 6,148 374 6.07 Total retail 65,363 988 1.51 62,297 1,210 1.94 Total loans and leases$123,318 $1,855 1.50 %$123,090 $2,443 1.98 % Allowance for Unfunded Lending Commitments Commercial(1)$130 1.72 %$186 2.33 % Retail(2) 19 1.54 41 2.01 Total allowance for unfunded lending commitments 149 227 Allowance for credit losses(3)$123,318 $2,004 1.63 %$123,090 $2,670
2.17%
(1) Coverage ratio includes total commercial allowance for unfunded lending commitments and total commercial allowance for loan and lease losses in the numerator and total commercial loans and leases in the denominator. (2) Coverage ratio includes total retail allowance for unfunded lending commitments and total retail allowance for loan losses in the numerator and total retail loans in the denominator. (3) Excluding the impact of PPP loans, the ACL Coverage Ratio would have been 1.65% and 2.24% forSeptember 30, 2021 andDecember 31, 2020 , respectively. For more information on the computation of non-GAAP financial measures, see "-Introduction - Non-GAAP Financial Measures" and "-Non-GAAP Financial Measures and Reconciliations." Table 14: Nonaccrual Loans and Leases (dollars in millions) September 30, 2021 December 31, 2020 Change Percent Commercial and industrial$170 $280 ($110 ) (39 %) Commercial real estate 98 176 (78) (44) Leases 1 2 (1) (50) Total commercial 269 458 (189) (41) Residential mortgages(1) 164 167 (3) (2) Home equity 216 276 (60) (22) Automobile 55 72 (17) (24) Education 23 18 5 28 Other retail 20 28 (8) (29) Total retail 478 561 (83) (15) Nonaccrual loans and leases$747 $1,019 ($272 ) (27 %) Nonaccrual loans and leases to total loans and leases 0.61 % 0.83 % (22 bps) Allowance for loan and lease losses to nonaccrual loans and leases 248 240 8 % Allowance for credit losses to nonaccrual loans and leases 268 262 6 % (1) Loans fully or partially guaranteed by the FHA,VA andUSDA are classified as accruing. NPLs of$747 million as ofSeptember 30, 2021 decreased$272 million , or 27%, fromDecember 31, 2020 , reflecting a$189 million decrease in commercial and a$83 million decrease in retail. Commercial NPLs decreased through loan sale activity, repayments, and charge-offs. Citizens Financial Group, Inc. | 27 --------------------------------------------------------------------------------
Table 15: Net expenses and expense ratios, quarterly cumulative
Three Months Ended September
Three Months Ended September 30, 30,
(dollars in millions) 2021 2020 Change 2021 2020 Change
Commercial and industrial $10 $80 ($70 ) 0.09 % 0.68 % (59 bps)
Commercial real estate 5 42 (37) 0.12 1.13 (101)
Leases (1) 48 (49) (0.22) 7.99 (821)
Total commercial 14 170 (156) 0.09 1.06 (97)
Residential mortgages - - - - - -
Home equity (12) (2) (10) (0.42) (0.10) (32)
Automobile 2 7 (5) 0.06 0.24 (18)
Education 13 5 8 0.41 0.21 20
Other retail 27 39 (12) 1.99 2.46 (47)
Total retail 30 49 (19) 0.19 0.32 (13)
Total net charge-offs $44 $219 ($175 ) 0.14 % 0.70 % (56 bps)
Third quarter 2021 NCOs of $44 million decreased $175 million , or 80%, from $219
million in the third quarter of 2020, driven by decreases in commercial and
retail of $156 million and $19 million , respectively. Third quarter 2021
annualized net charge-offs of 0.14% of average loans and leases were down 56
basis points from the third quarter of 2020. The overall improvement in the
macroeconomic environment and post-pandemic reopening drove the significant
decline in commercial NCOs. Retail NCOs remained low driven by continued benefit
to consumers from government stimulus and strong collateral values in
residential real estate and automobile.
Table 16: Net expenses and expense ratios, year to date
Nine Months Ended September
Nine Months Ended September 30 , 30,
(dollars in millions) 2021 2020 Change 2021 2020 Change
Commercial and industrial $115 $189 ($74 ) 0.35 % 0.54 % (19 bps)
Commercial real estate 31 42 (11) 0.28 0.39 (11)
Leases 13 54 (41) 1.01 2.99 (198)
Total commercial 159 285 (126) 0.35 0.60 (25)
Residential mortgages (2) 1 (3) (0.01) 0.01 (2)
Home equity (29) (7) (22) (0.33) (0.08) (25)
Automobile 11 54 (43) 0.12 0.60 (48)
Education 33 29 4 0.35 0.36 (1)
Other retail 108 141 (33) 2.55 2.88 (33)
Total retail 121 218 (97) 0.26 0.48 (22)
Total net charge-offs $280 $503 ($223 ) 0.30 % 0.54 % (24 bps)
First nine months 2021 NCOs of $280 million decreased $223 million , or 44%, from
$503 million in the first nine months of 2020, driven by decreases in commercial
and retail of $126 million and $97 million , respectively. First nine months 2021
annualized net charge-offs of 0.30% of average loans and leases were down 24
basis points from first nine months of 2020.
Retail and commercial NCOs were down in the first nine months of 2021 as
compared to the first nine months of 2020. The decline in retail NCOs is
primarily due to U.S. Government stimulus programs and forbearance, as well as
strong collateral values in residential real estate and automobile. The decrease
in commercial NCOs reflects the economic recovery following the COVID-19
pandemic and associated lockdowns. We continue to assess risks to the recovery,
including potential for continuing impacts from COVID-19 variants, challenges in
the global supply chain and recent inflationary trends, as well as potential
impacts from ending monetary and fiscal stimulus programs. We have maintained 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.
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
Citizens Financial Group, Inc. | 28
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strong client connectivity. Additionally, we also do business in certain
specialized industry sectors on a national basis. As discussed in our 2020 Form
10-K, for commercial loans and leases, we utilize regulatory classification
ratings to monitor credit quality.
As of September 30, 2021 , commercial NPLs of $269 million decreased $189 million
from $458 million as of December 31, 2020 , representing 0.5% and 0.8% of the
commercial loan and lease portfolio as of September 30, 2021 and December 31,
2020 , respectively.
Table 17: Commercial Loans and Leases by Regulatory Classification
September 30, 2021
Criticized
(in millions) Pass
Special Mention Unhealthy Doubtful Total Commercial and industrial (1)
$39,218 $1,115 $1,386 $135 $41,854 Commercial real estate 13,146 616 735 11 14,508 Leases 1,519 49 24 1 1,593 Total commercial$53,883 $1,780 $2,145 $147 $57,955 December 31, 2020 Criticized (in millions) Pass
Special Mention Unhealthy Doubtful Total Commercial and industrial (1)
$40,878 $1,583 $1,464 $248 $44,173 Commercial real estate 13,356 804 416 76 14,652 Leases 1,922 33 12 1 1,968 Total commercial$56,156 $2,420 $1,892 $325 $60,793 (1) Includes$1.9 billion and$4.2 billion of PPP loans designated as pass that are fully guaranteed by the SBA as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Total commercial criticized balances of$4.1 billion as ofSeptember 30, 2021 decreased$565 million compared withDecember 31, 2020 . Commercial criticized as a percent of total commercial of 7.0% atSeptember 30, 2021 decreased from 7.6% atDecember 31, 2020 . Commercial and industrial criticized balances of$2.6 billion , or 6.3% of the total commercial and industrial loan portfolio as ofSeptember 30, 2021 , decreased from$3.3 billion , or 7.5%, as ofDecember 31, 2020 . The decrease was primarily driven by net repayments and charge-offs. Commercial and industrial criticized loans represented 65% of total criticized loans as ofSeptember 30, 2021 compared to 71% as ofDecember 31, 2020 . Commercial real estate criticized balances of$1.4 billion , or 9.4% of the commercial real estate portfolio, was stable compared toDecember 31, 2020 at$1.3 billion , or 8.8%. Commercial real estate accounted for 33% of total criticized loans as ofSeptember 30, 2021 compared to 28% as ofDecember 31, 2020 . Citizens Financial Group, Inc. | 29 --------------------------------------------------------------------------------
Table 18: Commercial loans and leases by sector of activity
September 30, 2021 December 31, 2020
% of % of
Total Loans Total Loans
(dollars in millions) Balance and Leases Balance and Leases
Finance and insurance $7,939 6 % $6,473 5 %
Health, pharma, and social assistance 2,914 2 3,253 3
Accommodation and food services 3,083 3 3,159 3
Professional, scientific, and technical services 2,542 2 2,804 2
Other manufacturing 3,708 3 3,686 3
Technology 3,822 3 3,546 3
Retail trade 2,258 2 2,312 2
Energy and related 1,971 2 2,237 2
Wholesale trade 2,261 2 1,976 2
Arts, entertainment, and recreation 902 1 1,383 1
Other services 1,845 1 1,360 1
Administrative and waste management services 1,226 1 1,327 1
Transportation and warehousing 1,092 1 1,169 1
Consumer products manufacturing 1,160 1 1,078 1
Automotive 1,000 1 1,057 1
Educational services 597 - 844 -
Chemicals 717 - 736 -
Real estate and rental and leasing 886 1 734 -
All other(1) 28 - 884 1
Total commercial and industrial 39,951 32 40,018 32
Real estate and rental and leasing 12,984 11 13,167 11
Accommodation and food services 819 1 749 1
Finance and insurance 560 - 498 -
All other(1) 145 - 238 -
Total commercial real estate 14,508 12 14,652 12
Total leases 1,593 1 1,968 2
Total commercial(2) $56,052 45 % $56,638 46 %
(1) Deferred fees and costs are reported in All other.
(2) Excludes PPP loans of $1.9 billion and $4.2 billion as of September 30, 2021
and December 31, 2020 , respectively.
Retail Loan Asset Quality
For retail loans, we utilize credit scores provided by FICO, which generally
refresh on a quarterly basis, and a loan's payment and delinquency status to
monitor credit quality. Management believes FICO credit scores are the strongest
indicator of credit losses over the contractual life of a loan as the scores are
based on current and historical national industry-wide consumer level credit
performance data. These scores 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 automobile, education and point-of-sale financing.
Citizens Financial Group, Inc. | 30
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Table 19: Aging of Retail Loans as a Percentage of Loan Category
September 30, 2021 December 31, 2020
Days Past Due Days Past Due
Current-29 30-59 60-89 90+ Current-29 30-59 60-89 90+
Residential mortgages(1) 96.97 % 0.72 % 0.26 % 2.05 % 98.73 % 0.30 % 0.11 % 0.86 %
Home equity 98.03 0.29 0.13 1.55 97.53 0.50 0.23 1.74
Automobile 98.71 0.87 0.31 0.11 97.93 1.40 0.53 0.14
Education 99.55 0.25 0.11 0.09 99.56 0.27 0.11 0.06
Other retail 98.21 0.71 0.51 0.57 98.36 0.62 0.47 0.55
Total retail 98.14 % 0.58 % 0.24 % 1.04 %
98.47% 0.58% 0.25% 0.70%
(1) 90+ day past due includes$289 million and$44 million of loans fully or partially guaranteed by the FHA,VA , andUSDA atSeptember 30, 2021 andDecember 31, 2020 , respectively.
For more information on the age of accrued and non-accrued retail loans, see note 4.
Table 20: Retail asset quality indicators
September 30, 2021
Average refreshed FICO for total portfolio 768
771
CLTV ratio for secured real estate(1) 57 %
60%
Nonaccrual retail loans to total retail 0.73
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 September 30, Nine Months Ended September 30,
(dollars in millions) 2021 2020
Change Percent 2021 2020 Change Percent Net charge-offs$30 $49 ($19 ) (39 %)$121 $218 ($97 ) (44 %) Annualized net charge-off rate 0.19 % 0.32 % (13) bps 0.26 % 0.48 % (22) bps Retail asset quality continues to reflect a stronger economic outlook. The retail annualized net charge-off rate decreased to 0.19% for the third quarter of 2021 from 0.32% in the third quarter of 2020. The net charge-off rate of 0.26% for the nine months endedSeptember 30, 2021 reflected a decrease of 22 basis points from the nine months endedSeptember 30, 2020 , driven by the forbearance and stimulus programs stemming from the COVID-19 pandemic and associated lockdowns, as well as strong collateral values in automobile and residential real estate. 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. We generally do not consider payment deferrals and forbearance plans established due to the COVID-19 pandemic to be TDRs. For additional information regarding TDRs, see Note 5 in our 2020 Form 10-K. Citizens Financial Group, Inc. | 31 --------------------------------------------------------------------------------
Table 21: Restructuring of bad debts accumulated and not accumulated
September 30, 2021
As a % of Accruing TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccrual Total
Commercial and industrial $161 - % - % $70 $231
Commercial real estate - - - 9 9
Total commercial 161 - - 79 240
Residential mortgages(1) 339 3.9 9.8 39 378
Home equity 198 0.5 - 74 272
Automobile 8 0.1 - 28 36
Education 112 0.4 0.1 12 124
Other retail 21 0.2 - 2 23
Total retail 678 5.1 9.9 155 833
Total $839 5.1 % 9.9 % $234 $1,073
December 31, 2020
As a % of Accruing TDRs
30-89 Days 90+ Days Past
(dollars in millions) Accruing Past Due Due Nonaccrual Total
Commercial and industrial $134 0.1 % - % $97 $231
Commercial real estate 26 - - - 26
Total commercial 160 0.1 - 97 257
Residential mortgages(1) 172 2.1 2.0 43 215
Home equity 221 1.0 - 83 304
Automobile 13 0.4 - 33 46
Education 116 0.5 0.3 10 126
Other retail 25 0.2 - 2 27
Total retail 547 4.2 2.3 171 718
Total $707 4.3 % 2.3 % $268 $975
(1) Includes $82 million and $14 million in 90+ days past due and accruing that
are fully or partially guaranteed by the FHA, VA , and USDA at September 30, 2021
and December 31, 2020 , respectively.
Deposits
Table 22: Composition of Deposits
(in millions) September 30, 2021 December 31, 2020 Change Percent
Demand $48,184 $43,831 $4,353 10 %
Checking with interest 27,985 27,204 781 3
Regular savings 21,166 18,044 3,122 17
Money market accounts 48,935 48,569 366 1
Term deposits 5,951 9,516 (3,565) (37)
Total deposits $152,221 $147,164 $5,057 3 %
Total deposits as of September 30, 2021 increased $5.1 billion , or 3%, to $152.2
billion , from $147.2 billion as of December 31, 2020 , as a result of elevated
liquidity tied to government stimulus associated with the COVID-19 disruption.
Citizens Access®, our national digital platform, ended the quarter with $4.6
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. | 32
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Borrowed Funds
Total borrowed funds as of September 30, 2021 decreased $1.6 billion from
December 31, 2020 , driven by a $235 million and $1.4 billion decrease in
short-term and long-term borrowed funds, respectively. Strong deposit growth
enabled the paydown of senior debt.
Long-term borrowed funds
Table 23: Summary of Long-Term Borrowed Funds
(in millions) September 30, 2021 December 31, 2020
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021(1) $- $350
4.150% fixed-rate subordinated debt, due September 2022(2) 168 182
3.750% fixed-rate subordinated debt, due July 2024(2) 90 159
4.023% fixed-rate subordinated debt, due October 2024(2) 17 25
4.350% fixed-rate subordinated debt, due August 2025(2) 133 193
4.300% fixed-rate subordinated debt, due December 2025(2) 336 450
2.850% fixed-rate senior unsecured notes, due July 2026 497 497
2.500% fixed-rate senior unsecured notes, due February 2030 298 297
3.250% fixed-rate senior unsecured notes, due April 2030 745 745
3.750% fixed-rate reset subordinated debt, due February 69 -
2031 (2)
4.300% fixed-rate reset subordinated debt, due February 135 -
2031 (2)
4.350% fixed-rate reset subordinated debt, due February 61 -
2031 (2)
2.638% fixed-rate subordinated debt, due September 2032 548 543
CBNA Global Ticket Program:
2.550% senior unsecured notes, due May 2021 - 1,003 3.250% senior unsecured notes, due February 2022 704 716
Senior unsecured notes at 0.845% variable rate, due
300 299 0.932% floating-rate senior unsecured notes, due May 2022(3) 250 250 2.650% senior unsecured notes, due May 2022 505 510 3.700% senior unsecured notes, due March 2023 517 527 1.082% floating-rate senior unsecured notes, due March 250 249
2023 (3)
2.250% senior unsecured notes, due April 2025 746 746 3.750% senior unsecured notes, due February 2026 533 551
Additional loans from the CBNA and other subsidiaries:
19 19 rate, due through 2041 Other 26 35 Total long-term borrowed funds$6,947 $8,346 (1) Notes were redeemed onJune 28, 2021 . (2) TheSeptember 30, 2021 balances reflect the results of theFebruary 2021 subordinated debt private exchange offers. See "Capital and Regulatory Matters-Regulatory Capital Ratios and Capital Composition" for additional information. (3) Rate disclosed reflects the floating rate as ofSeptember 30, 2021 .The Parent Company's long-term borrowed funds as ofSeptember 30, 2021 andDecember 31, 2020 included principal balances of$3.2 billion and$3.5 billion , respectively, and unamortized deferred issuance costs and/or discounts of$82 million and$90 million , respectively. CBNA and other subsidiaries' long-term borrowed funds as ofSeptember 30, 2021 andDecember 31, 2020 included principal balances of$3.8 billion and$4.8 billion , respectively, with unamortized deferred issuance costs and/or discounts of$8 million and$11 million , respectively, and hedging basis adjustments of$63 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. | 33 -------------------------------------------------------------------------------- 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 to the FRB an annual capital plan, which must be reviewed and approved by our board of directors or one of its committees. OnApril 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 FRB's Capital Plan Rule, a firm must update and resubmit its capital plan prior to the next annual submission date under certain circumstances, which includes a material change in the firm's risk profile, financial condition or corporate structure since its last capital plan submission. OnJuly 28, 2021 , we announced an agreement to acquire Investors, which required us to resubmit our capital plan to the FRB, which was submitted onSeptember 15, 2021 . 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 and SCB requirements to avoid restrictions on capital distributions and discretionary bonus payments. OnOctober 1, 2020 , our SCB of 3.4% became effective and applied to our capital actions throughSeptember 30, 2021 . OnFebruary 3, 2021 , the FRB adopted a final rule effectiveApril 5, 2021 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, for Category IV firms, like us, the SCB will be re-calibrated with each biennial supervisory stress test and updated annually to reflect our planned common stock dividends. In addition, Category IV firms 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. OnAugust 5, 2021 , the FRB announced that our SCB will remain unchanged at 3.4% fromOctober 1, 2021 throughSeptember 30, 2022 . 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. BeginningJuly 1, 2021 , the FRB lifted the temporary additional restrictions on capital distributions and authorized firms, like us, that are on a two-year cycle and not subject to supervisory stress testing this year to make capital distributions that are consistent with the regulatory capital rules, including normal restrictions under the FRB stress capital buffer framework. In addition, we temporarily suspended share repurchases in connection with entering into the agreement to acquire Investors, and are poised to resume share repurchases after the Investors shareholder vote scheduled forNovember 19, 2021 . InJanuary 2021 , our board of directors authorized us to repurchase up to$750 million of our common stock, of which$655 million is available as ofSeptember 30, 2021 . All future capital distributions are subject to consideration and approval by our board of directors prior to execution. 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. Regulations relating to capital planning, regulatory reporting and SCB requirements applicable to firms like us are subject to ongoing rule-making 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 currentU.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 Citizens Financial Group, Inc. | 34 -------------------------------------------------------------------------------- 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 theU.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 ofSeptember 30, 2021 , we did not meet the threshold for these additional capital deductions. MSRs or deferred tax assets not deducted from CET1 capital are assigned a 250% risk weight and significant investments in the capital of unconsolidated financial institutions not deducted from CET1 capital are assigned an exposure category risk weight. In reaction to the COVID-19 pandemic, the FRB and the other federal banking regulators adopted a final rule relative to regulatory capital treatment of ACL under CECL. This rule allowed electing banking organizations to delay the estimated impact of CECL on regulatory capital for a two-year period endingJanuary 1, 2022 , followed by a three-year transition period endingJanuary 1, 2025 to phase-in the aggregate amount of the capital benefit provided during the initial two-year delay. As ofSeptember 30, 2021 ,$401 million of the capital benefit has been accumulated for application to the three-year transition period. For additional discussion of theU.S. Basel III capital framework and its related application, see "Regulation and Supervision" in our 2020 Form 10-K. The table below presents our actual regulatory capital ratios under theU.S. Basel III Standardized rules: Table 24: Regulatory Capital Ratios Under theU.S. Basel III Standardized Rules September 30, 2021 December 31, 2020 Required Minimum plus Required CCB for (in millions, except ratio data) Amount Ratio Amount Ratio Non-Leverage Ratios(1) CET1 capital$15,584 10.3 %$14,607 10.0 % 7.9 % Tier 1 capital 17,598 11.6 16,572 11.3 9.4 Total capital 20,295 13.4 19,602 13.4 11.4 Tier 1 leverage 17,598 9.7 16,572 9.4 4.0 Risk-weighted assets 151,796 146,781 Quarterly adjusted average assets 180,528 175,370 (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. AtSeptember 30, 2021 , our CET1 capital, tier 1 capital and total capital ratios were 10.3%, 11.6% and 13.4%, respectively, as compared with 10.0%, 11.3% and 13.4%, respectively, as ofDecember 31, 2020 . The CET1 capital ratio increased as net income for the nine months endedSeptember 30, 2021 was partially offset by dividends and common share repurchases as described in "-Capital Transactions" below,$5.0 billion of risk-weighted asset ("RWA") growth 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 and the issuance of Series G Preferred Stock, partially offset by the redemption of Series A Preferred Stock as described in "-Capital Transactions" below. The total capital ratio increased as the changes in the CET1 and tier 1 capital ratios 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 and a decrease in qualifying subordinated debt. AtSeptember 30, 2021 , our CET1 capital, tier 1 capital and total capital ratios were approximately 240 basis points, 220 basis points and 200 basis points, respectively, above their regulatory minimums plus our SCB. All ratios remained well above theU.S. Basel III minimums. Regulatory Capital Ratios and Capital Composition CET1 capital underU.S. Basel III Standardized rules totaled$15.6 billion atSeptember 30, 2021 , an increase of$977 million from$14.6 billion atDecember 31, 2020 , largely driven by net income for the nine months endedSeptember 30, 2021 , partially offset by dividends, a decrease in the modified CECL transitional amount and common share repurchases. Tier 1 capital atSeptember 30, 2021 totaled$17.6 billion , reflecting a$1.0 billion increase from$16.6 billion atDecember 31, 2020 , driven by the changes in CET1 capital and the issuance of Series G Preferred Stock, partially offset by the redemption of Series A Preferred Stock. Total capital of$20.3 billion atSeptember 30, 2021 increased$693 million fromDecember 31, 2020 , driven by the changes in CET1 and tier 1 capital and an increase in qualifying subordinated debt, partially offset by the reduction in the net AACL impact. RWA totaled$151.8 billion atSeptember 30, 2021 , based onU.S. Basel III Standardized rules, up$5.0 billion fromDecember 31, 2020 , driven by higher automobile loans, commercial commitments, MSRs, agency Citizens Financial Group, Inc. | 35 -------------------------------------------------------------------------------- securities, education loans, bank-owned life insurance and retail commitments partially offset by lower commercial and other retail loans. As ofSeptember 30, 2021 , the tier 1 leverage ratio was 9.7%, up from 9.4% atDecember 31, 2020 , driven by higher tier 1 capital, partially offset by the$5.2 billion increase in quarterly adjusted average assets.
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