NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a regional bank holding company organized under Delaware law and headquartered in Providence, Rhode Island. Through its bank subsidiary, CBNA, the Company provides a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. The Company’s retail branch network is primarily located in the New England, Mid-Atlantic and Midwest regions, with certain lines of business serving national markets.
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Parent Company and its subsidiaries, including VIEs in which the Company is a primary beneficiary, and are prepared in accordance with GAAP. Investments in VIEs in which the Company does not have the ability to exercise significant influence are not consolidated. All intercompany transactions and balances have been eliminated in consolidation.
During 2024, the Company modified the presentation of its loans and leases portfolio to include leases in the commercial and industrial financing receivable class. In addition, LHFS, at fair value and Other LHFS were combined into LHFS in the Consolidated Balance Sheets. See Notes 5 and 6 for additional information relative to the Company’s loans and leases portfolio. In the Consolidated Statements of Operations, Trust and investment services fees was renamed to Wealth fees to better reflect the broad range of wealth-related management fees and services provided to customers and Interest and fees on other LHFS is now included with Interest and fees on LHFS. Prior period results have been revised to conform to the new presentations.
Change in Accounting Principle
During 2024, the Company voluntarily changed its annual goodwill impairment assessment date from October 31st to October 1st to better align its testing procedures with its annual financial planning process and year-end reporting schedule. Less than 12 months elapsed between the Company’s previous annual assessment as of October 31, 2023, and the annual assessment performed as of October 1, 2024. This change in accounting principle did not result in any delay, acceleration or avoidance of a goodwill impairment charge. The Company continuously monitors each reporting unit for triggering events for the purpose of goodwill impairment testing.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL, fair value measurements and the evaluation and measurement of goodwill impairment.
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| | Citizens Financial Group, Inc. | 93 |
Significant Accounting Policies
The following table identifies the Company’s significant accounting policies and the Note and Page where a detailed description of each policy can be found.
| | | | | | | | |
| Note | Page |
| Cash and Due From Banks | | |
| Securities | | |
| Loans and Leases | | |
Allowance for Credit Losses and FDMs | | |
| Premises, Equipment and Software | | |
| Mortgage Servicing Rights | | |
| Leases | | |
| Goodwill and Intangible Assets | | |
| Variable Interest Entities | | |
| Derivative Instruments | | |
| Employee Benefits | | |
| Treasury Stock | | |
| Employee Share-Based Compensation | | |
| Fair Value Measurement | | |
| Revenue Recognition | | |
| Income Taxes | | |
| Earnings Per Share | | |
Business Segments | | |
Accounting Pronouncements Adopted in 2024
| | | | | | | | |
| Pronouncement | Summary of Guidance | Effects on Financial Statements |
Improvements to Reportable Segment Disclosures
Issued November 2023 | •Requires disclosure of significant segment expenses regularly provided to the CODM
•Requires disclosure of an amount for other segment items by reportable segment and a description of its composition
•Requires disclosure of the title and position of the CODM | •The Company adopted the new standard on January 1, 2024, effective for annual financial statements for the year ended December 31, 2024 and subsequent interim periods beginning in 2025.
•Required disclosures and discussion of significant accounting policies for business operating segments are included in Note 26.
|
NOTE 2 - ACQUISITIONS
Acquisition of HSBC
On February 18, 2022, CBNA closed on its HSBC transaction, which included 66 branches in the New York City metropolitan area, 9 branches in the Mid-Atlantic/Washington D.C. area, and 5 branches in Southeast Florida. The Company’s results of operations and balance sheets for all periods presented in this Report reflect the benefit of the HSBC transaction for the period since the transaction closed on February 18, 2022.
Investors Acquisition
On April 6, 2022, the Company completed its Investors acquisition, building the Company’s physical presence in the Mid-Atlantic region with the addition of 154 branches located in the greater New York City and Philadelphia metropolitan areas and across New Jersey.
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| | Citizens Financial Group, Inc. | 94 |
Upon closing of the acquisition, each share of Investors common stock was converted into 0.297 of a share of the Company’s common stock. In addition, stock options and restricted shares granted by Investors that were outstanding as of April 6, 2022 were converted into CFG awards and remained subject to their original terms and conditions. The Company issued 1,151,301 stock options and 259,316 restricted shares in connection with the conversion of equity awards. The conversion of Investors common stock, coupled with the conversion of equity awards, resulted in an increase of approximately 73.6 million basic and diluted shares. The Company also paid $1.46 in cash to shareholders of Investors for each share they owned.
The Company’s results of operations and balance sheets for all periods presented in this Report reflect the benefit of the Investors acquisition for the period since the acquisition closed on April 6, 2022.
NOTE 3 - CASH AND DUE FROM BANKS
For the purpose of reporting cash flows, cash and cash equivalents have original maturities of three months or less and include cash and due from banks and interest-bearing cash and due from banks. The Company had no material restrictions on the use or availability of its cash as of December 31, 2024 or 2023.
NOTE 4 - SECURITIES
Investments include debt, equity and other securities. The Company classifies debt securities as AFS, HTM, or trading based on management’s intent to hold to maturity at the time of purchase. Management reserves the right to change the initial classification of a security based on its intent to hold to maturity or as permitted by periodic changes in accounting guidance. Equity securities are recorded at fair value or at cost if there is not a readily determinable fair value.
Debt securities that will be held for indefinite periods of time and may be sold in response to changes in liquidity, interest rates or prepayment risk, among other factors, are classified as AFS and reported at fair value, with unrealized gains and losses, net of taxes, reported in AOCI. Gains and losses on the sale of AFS securities are recognized in noninterest income in the Consolidated Statements of Operations and are computed using the specific identification method.
Debt securities for which the Company has the ability and intent to hold to maturity are classified as HTM and reported at amortized cost. Transfers of debt securities to the HTM classification are recognized at fair value at the date of transfer.
Interest income for AFS and HTM debt securities is recorded on the accrual basis, including the amortization of premiums and the accretion of discounts, utilizing the effective interest method over the estimated lives of the individual securities. The Company uses actual prepayment experience and estimates of future prepayments to determine the constant effective yield necessary to apply the effective interest method of income recognition. Estimates of future prepayments are based on the underlying collateral characteristics of each security and are derived from market sources. Judgment is involved in making determinations about prepayment expectations and in changing those expectations in response to changes in interest rates and macroeconomic conditions.
Securities classified as trading are held principally for sale in the near-term and carried at fair value, with changes in fair value recognized in earnings. Realized and unrealized gains and losses on such securities are reported in noninterest income in the Consolidated Statements of Operations.
Equity securities primarily consist of FHLB and FRB stock carried at cost and money market mutual fund investments held by the Company’s broker-dealers carried at fair value with changes in fair value recognized in noninterest income. Equity securities are recorded in other assets on the Consolidated Balance Sheets, with those carried at cost reviewed at least annually for impairment. Valuation adjustments, to the extent necessary, are reported in noninterest income in the Consolidated Statements of Operations.
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| | Citizens Financial Group, Inc. | 95 |
The following table presents the major components of securities at amortized cost and fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Amortized Cost(1) | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | Amortized Cost(1) | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| U.S. Treasury and other | $3,631 | | $3 | | ($109) | | $3,525 | | | $4,493 | | $26 | | ($139) | | $4,380 | |
| State and political subdivisions | 1 | | — | | — | | 1 | | | 1 | | — | | — | | 1 | |
| Mortgage-backed securities: | | | | | | | | | |
| Federal agencies and U.S. government sponsored entities | 30,897 | | 33 | | (2,135) | | 28,795 | | | 26,289 | | 45 | | (1,857) | | 24,477 | |
| Other/non-agency | 273 | | — | | (13) | | 260 | | | 279 | | — | | (24) | | 255 | |
Total mortgage-backed securities | 31,170 | | 33 | | (2,148) | | 29,055 | | | 26,568 | | 45 | | (1,881) | | 24,732 | |
| Collateralized loan obligations | 184 | | — | | — | | 184 | | | 667 | | — | | (3) | | 664 | |
| Total debt securities available for sale, at fair value | $34,986 | | $36 | | ($2,257) | | $32,765 | | | $31,729 | | $71 | | ($2,023) | | $29,777 | |
| Mortgage-backed securities: | | | | | | | | | |
| Federal agencies and U.S. government sponsored entities | $8,187 | | $— | | ($1,051) | | $7,136 | | | $8,696 | | $9 | | ($818) | | $7,887 | |
| | | | | | | | | |
Total mortgage-backed securities | 8,187 | | — | | (1,051) | | 7,136 | | | 8,696 | | 9 | | (818) | | 7,887 | |
| Asset-backed securities | 412 | | 1 | | (9) | | 404 | | | 488 | | — | | (25) | | 463 | |
| Total debt securities held to maturity | $8,599 | | $1 | | ($1,060) | | $7,540 | | | $9,184 | | $9 | | ($843) | | $8,350 | |
Equity securities, at cost(2) | $710 | | $— | | $— | | $710 | | | $869 | | $— | | $— | | $869 | |
Equity securities, at fair value(2) | 220 | | — | | — | | 220 | | | 173 | | — | | — | | 173 | |
(1) Excludes portfolio level basis adjustments of $(75) million and $60 million, respectively, for securities designated in active fair value hedge relationships under the portfolio layer method at December 31, 2024 and 2023.
(2) Included in other assets in the Consolidated Balance Sheets.
Accrued interest receivable on debt securities totaled $125 million as of December 31, 2024 and 2023 and is included in other assets in the Consolidated Balance Sheets.
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| | Citizens Financial Group, Inc. | 96 |
The following table presents the amortized cost and fair value of debt securities by contractual maturity as of December 31, 2024. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
| | | | | | | | | | | | | | | | | |
| Distribution of Maturities |
| (dollars in millions) | 1 Year or Less | After 1 Year through 5 Years | After 5 Years through 10 Years | After 10 Years | Total |
| Amortized cost: | | | | | |
| U.S. Treasury and other | $— | | $3,115 | | $516 | | $— | | $3,631 | |
| State and political subdivisions | — | | — | | — | | 1 | | 1 | |
| Mortgage-backed securities: | | | | | |
| Federal agencies and U.S. government sponsored entities | — | | 2,221 | | 1,151 | | 27,525 | | 30,897 | |
| Other/non-agency | — | | — | | — | | 273 | | 273 | |
| Collateralized loan obligations | — | | — | | 100 | | 84 | | 184 | |
| Total debt securities available for sale | — | | 5,336 | | 1,767 | | 27,883 | | 34,986 | |
Mortgage-backed securities: | | | | | |
| Federal agencies and U.S. government sponsored entities | — | | — | | — | | 8,187 | | 8,187 | |
| | | | | |
| Asset-backed securities | — | | 412 | | — | | — | | 412 | |
| Total debt securities held to maturity | — | | 412 | | — | | 8,187 | | 8,599 | |
| Total amortized cost of debt securities | $— | | $5,748 | | $1,767 | | $36,070 | | $43,585 | |
| | | | | |
| Fair value: | | | | | |
| U.S. Treasury and other | $— | | $3,008 | | $517 | | $— | | $3,525 | |
| State and political subdivisions | — | | — | | — | | 1 | | 1 | |
| Mortgage-backed securities: | | | | | |
| Federal agencies and U.S. government sponsored entities | — | | 2,135 | | 1,079 | | 25,581 | | 28,795 | |
| Other/non-agency | — | | — | | — | | 260 | | 260 | |
| Collateralized loan obligations | — | | — | | 100 | | 84 | | 184 | |
| Total debt securities available for sale | — | | 5,143 | | 1,696 | | 25,926 | | 32,765 | |
Mortgage-backed securities: | | | | | |
| Federal agencies and U.S. government sponsored entities | — | | — | | — | | 7,136 | | 7,136 | |
| | | | | |
| Asset-backed securities | — | | 404 | | — | | — | | 404 | |
| Total debt securities held to maturity | — | | 404 | | — | | 7,136 | | 7,540 | |
| Total fair value of debt securities | $— | | $5,547 | | $1,696 | | $33,062 | | $40,305 | |
Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was $1.7 billion, $1.2 billion and $840 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The following table presents realized gains and losses on sale of securities:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
Gains | $32 | | | $36 | | | $13 | |
| Losses | (14) | | | (8) | | | (4) | |
| Securities gains, net | $18 | | | $28 | | | $9 | |
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| | Citizens Financial Group, Inc. | 97 |
The following table presents the amortized cost and fair value of debt securities pledged:
| | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
| Pledged against derivatives, to qualify for fiduciary powers, or to secure public and other deposits as required by law | $3,975 | | $3,644 | | | $5,619 | | $5,305 | |
| Pledged as collateral for FHLB borrowing capacity | 237 | | 224 | | | 242 | | 220 | |
| Pledged against repurchase agreements | — | | — | | | — | | — | |
From time to time, the Company may enter into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. These repurchase agreements are typically short-term in nature and are accounted for as secured borrowed funds in the Company’s Consolidated Balance Sheets. The Company recognized no offsetting short-term receivables or payables associated with security repurchase agreements as of December 31, 2024 or 2023.
Securitizations of mortgage loans retained in the investment portfolio for the years ended December 31, 2024 and 2023 were $329 million and $102 million, respectively. These securitizations include a substantive guarantee by a third party. The guarantors were FNMA and FHLMC in 2024 and 2023. The debt securities received from the guarantors are classified as AFS.
Impairment
Upon purchase, and at each subsequent measurement date, the Company is required to evaluate HTM securities for risk of loss over their life and establish an associated reserve, if necessary. Recognition of a reserve for expected credit losses is not required if the Company does not expect to realize a loss (commonly referred to as “zero expected credit losses”). The Company evaluated its existing HTM portfolio as of December 31, 2024 and concluded that 95% of HTM securities met the zero expected credit loss criteria and, therefore, no ACL was recognized. Lifetime expected credit losses on the remainder of the HTM portfolio were determined to be insignificant based on the modeling of the Company’s credit loss position in the securities. The Company monitors the credit exposure through the use of credit quality indicators. For these securities, the Company uses external credit ratings or an internally derived credit rating when an external rating is not available. All securities were determined to be investment grade at December 31, 2024.
AFS debt securities are reviewed for impairment at the individual security level on a quarterly basis, or more frequently if a potential loss triggering event occurs. The initial indicator of impairment for AFS debt securities is a decline in fair value below its amortized cost basis. An impairment loss is recognized for any security that has declined in fair value below its amortized cost basis if management has the intent to sell the security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost basis.
Estimating the recovery of the amortized cost basis of a debt security is based on an assessment of the present value of the cash flows expected to be collected, discounted at the security’s original effective yield. If the present value of the cash flows is less than the amortized cost basis then impairment equal to the shortfall in cash flows has occurred and the Company must evaluate whether the impairment is attributable to credit-related factors. If credit-related factors exist, a credit-related impairment has occurred regardless of the Company’s intent to hold the security until it recovers.
The credit-related portion of impairment is recognized as provision expense through the establishment of an allowance for AFS securities, to the extent the allowance does not reduce the carrying value of the AFS security below its current fair value. The remaining non-credit related portion of impairment is recognized in OCI. Improvement in credit losses in subsequent periods results in a reversal of the allowance for AFS securities and a corresponding decrease to provision expense, to the extent the allowance does not become negative. Accrued interest receivable on AFS debt securities is excluded from the balances used to calculate the allowance for AFS securities. All accrued and uncollected interest is immediately reversed against interest income when it is deemed uncollectible.
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| | Citizens Financial Group, Inc. | 98 |
The following tables present AFS debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:
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| December 31, 2024 |
| Less than 12 Months | | 12 Months or Longer | | Total |
| (dollars in millions) | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses |
U.S. Treasury and other | $— | | $— | | | $2,544 | | ($109) | | | $2,544 | | ($109) | |
| Mortgage-backed securities: | | | | | | | | |
| Federal agencies and U.S. government sponsored entities | 9,560 | | (265) | | | 14,304 | | (1,870) | | | 23,864 | | (2,135) | |
| Other/non-agency | — | | — | | | 260 | | (13) | | | 260 | | (13) | |
| Total mortgage-backed securities | 9,560 | | (265) | | | 14,564 | | (1,883) | | | 24,124 | | (2,148) | |
| Collateralized loan obligations | — | | — | | | — | | — | | | — | | — | |
| Total | $9,560 | | ($265) | | | $17,108 | | ($1,992) | | | $26,668 | | ($2,257) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Less than 12 Months | | 12 Months or Longer | | Total |
| (dollars in millions) | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses |
U.S. Treasury and other | $49 | | $— | | | $3,245 | | ($139) | | | $3,294 | | ($139) | |
| Mortgage-backed securities: | | | | | | | | |
| Federal agencies and U.S. government sponsored entities | 2,939 | | (24) | | | 16,398 | | (1,833) | | | 19,337 | | (1,857) | |
| Other/non-agency | — | | — | | | 255 | | (24) | | | 255 | | (24) | |
| Total mortgage-backed securities | 2,939 | | (24) | | | 16,653 | | (1,857) | | | 19,592 | | (1,881) | |
| Collateralized loan obligations | 56 | | — | | | 607 | | (3) | | | 663 | | (3) | |
| Total | $3,044 | | ($24) | | | $20,505 | | ($1,999) | | | $23,549 | | ($2,023) | |
The Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. The Company determined that credit losses are not expected to be incurred on the AFS debt securities identified with unrealized losses as of December 31, 2024. The unrealized losses on these debt securities reflect non-credit-related factors driven by changes in interest rates. Therefore, the Company determined that these debt securities are not impaired.
NOTE 5 - LOANS AND LEASES
Loans are classified as held for investment when management has the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans. Deferred loan origination fees and costs and premiums and discounts on purchased loans are amortized as an adjustment of yield over the life of the loan using the effective interest method. Unamortized amounts that remain when a loan is prepaid or sold are recorded as interest income or gain (loss) on sale, respectively. Credit card receivables include billed and uncollected interest and fees.
Interest income on loans is determined using the effective interest method, which calculates periodic interest income at a constant effective yield on the net investment in the loan, providing a constant rate of return over the loan term. Loans accounted for using the fair value option are measured at fair value with corresponding changes reported in mortgage banking fees and capital markets fees, respectively, in the Consolidated Statements of Operations for residential mortgage LHFS and commercial LHFS.
Commitment fees for loans that are likely to be drawn down, along with other credit-related fees, are deferred and recognized as an adjustment to the effective interest rate over the loan term. Commitment fees are recognized over the commitment period on a straight-line basis if it is unlikely that a loan will be drawn down and are reported in letter of credit and loan fees in the Consolidated Statements of Operations.
Loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail with the following classes: commercial and industrial, commercial real estate, residential mortgages, home equity, automobile, education and other retail.
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| | Citizens Financial Group, Inc. | 99 |
The following table presents loans and leases, excluding LHFS:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Commercial and industrial | $42,551 | | | $44,974 | |
| Commercial real estate | 27,225 | | | 29,471 | |
| | | |
| Total commercial | 69,776 | | | 74,445 | |
| Residential mortgages | 32,726 | | | 31,332 | |
| Home equity | 16,495 | | | 15,040 | |
| Automobile | 4,744 | | | 8,258 | |
| Education | 10,812 | | | 11,834 | |
| Other retail | 4,650 | | | 5,050 | |
| Total retail | 69,427 | | | 71,514 | |
| Total loans and leases | $139,203 | | | $145,959 | |
Accrued interest receivable on loans and leases held for investment totaled $816 million and $875 million as of December 31, 2024 and 2023, respectively, and is included in other assets in the Consolidated Balance Sheets.
Loans pledged as collateral for FHLB borrowing capacity, primarily residential mortgages and home equity products, totaled $37.5 billion and $36.0 billion at December 31, 2024 and 2023, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of education, commercial and industrial, and commercial real estate loans, and totaled $22.9 billion and $31.9 billion at December 31, 2024 and 2023, respectively.
Loans are classified as held for sale when management does not have the intent and ability to hold the loan for the foreseeable future. LHFS for which the fair value option is not elected are carried at the lower of amortized cost or fair value less costs to sell, with any write-downs or subsequent recoveries recognized in other income in the Consolidated Statements of Operations. The Company has elected to account for residential mortgage LHFS and certain commercial LHFS at fair value. See Note 20 for additional information.
The following table presents the composition of LHFS:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Residential Mortgages(1) | Commercial(2) | Total | | Residential Mortgages(1) | Commercial(2) | Total |
| Loans held for sale at fair value | $633 | | $192 | | $825 | | | $614 | | $62 | | $676 | |
| Other loans held for sale | — | | 33 | | 33 | | | — | | 103 | | 103 | |
Total loans held for sale | $633 | | $225 | | $858 | | | $614 | | $165 | | $779 | |
(1) Residential mortgage LHFS at fair value are originated for sale.
(2) Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other commercial LHFS primarily consist of loans associated with the Company’s syndication business.
The Company leases equipment for commercial use with a primary focus on middle-market and mid-corporate clients for large capital equipment acquisitions including railcars, trucks and trailers, and other equipment. The determination of whether an arrangement is a lease and the related lease classification are made at lease inception. Lease terms predominantly range from three to ten years and may include options to purchase the leased property prior to the end of the lease term. The Company does not have lease agreements that contain both lease and non-lease components.
A lessee is evaluated from a credit perspective using the same underwriting standards and procedures for a loan borrower. A lessee is expected to make rental payments based on its cash flows and the viability of its operations. Leases are not typically evaluated as collateral-based transactions and, therefore, the lessee’s overall financial strength is the most important credit evaluation factor.
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| | Citizens Financial Group, Inc. | 100 |
The components of the net investment in direct financing and sales-type leases, before ALLL, are presented below:
| | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 |
| Total future minimum lease rentals | $916 | | | $942 | |
| Estimated residual value of leased equipment (non-guaranteed) | 231 | | | 322 | |
| Initial direct costs | 4 | | | 5 | |
| Unearned income | (124) | | | (121) | |
| Total leases | $1,027 | | | $1,148 | |
Interest income on direct financing and sales-type leases for the years ended December 31, 2024, 2023 and 2022 was $41 million, $46 million and $46 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.
A maturity analysis of direct financing and sales-type lease receivables at December 31, 2024 is presented below:
| | | | | |
Year | (dollars in millions) |
| 2025 | $241 | |
| 2026 | 198 | |
| 2027 | 177 | |
| 2028 | 126 | |
| 2029 | 68 | |
| Thereafter | 106 | |
| Total undiscounted future minimum lease rentals | $916 | |
NOTE 6 - CREDIT QUALITY AND THE ALLOWANCE FOR CREDIT LOSSES
Allowance for Credit Losses
The Company’s estimate of expected credit losses in its loan and lease portfolios is recorded in the ACL and considers extensive historical loss experience, including the impact of loss mitigation and restructuring programs that the Company offers to borrowers experiencing financial difficulty, as well as projected loss severity as a result of loan default. The ACL is maintained at a level the Company believes to be appropriate to absorb expected lifetime credit losses over the contractual life of a loan or lease and on unfunded lending commitments. The determination of the ACL is based on periodic evaluation of loan and lease portfolios and unfunded lending commitments that are not unconditionally cancellable. A number of relevant underlying factors, including key assumptions and the evaluation of quantitative and qualitative information, are considered.
Key assumptions used in the ACL measurement process include the use of a two-year reasonable and supportable economic forecast period followed by a one-year reversion period to historical credit loss information. The evaluation of quantitative and qualitative information is performed by assessing groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are generally grouped by product type and are assessed for credit losses using econometric models.
The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast as its foundation and is primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current PD, LGD and EAD for commercial loans, timing and amount of expected draws for unfunded lending commitments, and FICO, LTV, and term for retail loans. The mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amount and timing of expected future cash flows, and factors specific to commercial credits such as competition, business and management performance are also considered. Forward-looking economic assumptions include real GDP, unemployment rate, interest rate curve, and changes in collateral values. This data is accumulated to estimate expected credit losses over the contractual life of the loans and leases, adjusted for expected prepayments. Historical information, such as financial statements for commercial customers or consumer credit ratings, may not be as relevant in estimating future expected losses as forecasted inputs to the models during volatile economic time periods.
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| | Citizens Financial Group, Inc. | 101 |
The ACL may also be affected by a variety of qualitative factors that the Company considers that are not measured in the statistical procedures including uncertainty related to economic forecasts, loan growth, backtesting results, regional geographic concentrations, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The qualitative allowance is further affected by sensitivity analysis for certain industry sectors or loan classes, including CRE office.
The measurement process results in specific or pooled allowances for loans, leases and unfunded lending commitments, and qualitative allowances that are determined and applied across the portfolio.
Certain loan portfolios don’t require an econometric model to calculate expected credit losses. Approaches that are less data intensive and non-modeled are utilized to estimate credit losses for these portfolios, as they are considered more efficient and practical for portfolios that have outstanding balances that are not material (e.g., runoff or closed portfolios, new products or products that are not significant to the Company’s overall credit risk exposure).
Loans and leases that do not share similar risk characteristics are individually assessed for expected credit losses. Nonaccrual commercial and industrial, and commercial real estate loans with an outstanding balance of $5 million or greater are assessed on an individual basis. Generally, measurement of the ACL on an individual loan or lease is the present value of its future cash flows or the fair value of its underlying collateral, if the loan or lease is collateral dependent.
A loan is considered to be collateral dependent when repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources. Generally, this occurs when cash flows to repay the loan from all other available sources, including guarantors, are expected to be no more than nominal. Loans that are deemed to be collateral dependent are written down to fair value, less costs to sell, as of the evaluation date and are reassessed each subsequent period, which may result in an increase or decrease to the ACL based on the corresponding change in the fair value of the collateral during the period. Any decrease to the ACL would be limited to the amount previously written off for a given loan or lease.
Collateral values for residential mortgage and home equity loans are based on appraisals, which are updated every 90 days at a minimum, less estimated costs to sell. At December 31, 2024 and 2023, the Company had collateral-dependent residential mortgage and home equity loans totaling $372 million and $556 million, respectively. The amortized cost basis of mortgage loans collateralized by residential real estate for which formal foreclosure proceedings were in-process was $295 million and $336 million as of December 31, 2024 and 2023, respectively.
Commercial loans are secured by various types of collateral, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. Collateral values are generally based on appraisals for commercial real estate loans, which are updated based on management judgment on a case-by-case basis. At December 31, 2024 and 2023, the Company had collateral-dependent commercial loans totaling $607 million and $233 million, respectively.
Expected recoveries are considered in management’s estimate of the ACL and may result in a reduction to the ACL balance. A negative ACL for a collateral dependent loan exists if the fair value of the collateral increases in a subsequent reporting period and cannot exceed the total amount previously charged off. Accrued interest receivable on loans and leases is excluded from asset balances used to calculate the ACL.
The Company estimates expected credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and unfunded loan commitments that are not unconditionally cancellable. Off-balance sheet financial instruments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with historical loss experience, current and future economic conditions, timing and amount of expected draws, and performance trends within specific portfolio segments, are considered to estimate the allowance for unfunded lending commitments. The Company does not recognize a reserve for future draws from credit lines that are unconditionally cancellable (e.g., credit cards).
The ALLL and the allowance for unfunded lending commitments are reported in the allowance for loan and lease losses and other liabilities, respectively, in the Consolidated Balance Sheets. The provision for credit losses related to loan and lease portfolios and unfunded lending commitments is reported in provision (benefit) for credit losses in the Consolidated Statements of Operations.
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| | Citizens Financial Group, Inc. | 102 |
Loan Charge-Offs
Commercial loans are charged-off when available information indicates that a loan, or portion thereof, is determined to be uncollectible. The determination of whether to recognize a charge-off involves many factors, including the prioritization of the Company’s claim in bankruptcy, workout/restructuring expectations of the loan and valuation of the borrower’s equity or loan collateral.
Retail loans are generally charged-off or written down to the net realizable value of the underlying collateral, with an offset to the ALLL, upon reaching specified stages of delinquency in accordance with standards established by the FFIEC. Residential real estate, credit card and unsecured open-end loans are generally charged-off in the month when the account becomes 180 days past due. Auto, education and unsecured closed-end loans are generally charged off in the month when the account becomes 120 days past due. Certain retail loans will be charged-off or written down to their net realizable value earlier in the following circumstances:
•FDMs that are determined to be collateral dependent.
•Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain.
◦Residential real estate and auto loans are written down to fair value less costs to sell within 60 days of receiving notification of the bankruptcy filing, unless repayment is likely to occur, or when the loan subsequently becomes 60 days past due.
◦Credit card loans are fully charged-off within 60 days of receiving notification of the bankruptcy filing or other event.
◦Education loans are generally charged-off when the loan becomes 60 days past due after receiving notification of a bankruptcy.
•Auto loans are written down to fair value less costs to sell upon repossession of the collateral.
The following table presents a summary of changes in the ACL for the year ended December 31, 2024:
| | | | | | | | | | | |
| Year Ended December 31, 2024 |
| (dollars in millions) | Commercial | Retail | Total |
| Allowance for loan and lease losses, beginning of period | $1,250 | | $848 | | $2,098 | |
| | | |
Charge-offs | (419) | | (504) | | (923) | |
| Recoveries | 43 | | 134 | | 177 | |
| Net charge-offs | (376) | | (370) | | (746) | |
Provision expense (benefit) for loans and leases | 266 | | 443 | | 709 | |
| Allowance for loan and lease losses, end of period | 1,140 | | 921 | | 2,061 | |
| Allowance for unfunded lending commitments, beginning of period | 175 | | 45 | | 220 | |
| Provision expense (benefit) for unfunded lending commitments | (20) | | (2) | | (22) | |
| | | |
| Allowance for unfunded lending commitments, end of period | 155 | | 43 | | 198 | |
| Total allowance for credit losses, end of period | $1,295 | | $964 | | $2,259 | |
During the year ended December 31, 2024, net charge-offs of $746 million and a provision for expected credit losses of $687 million resulted in a decrease of $59 million to the ACL.
As of December 31, 2024, the ACL economic forecast over a two-year reasonable and supportable period was consistent with December 31, 2023, with peak unemployment of approximately 5.1% and start-to-trough real GDP decline of approximately 0.4%. These forecasts reflect a mild recession over the two-year reasonable and supportable period.
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| | Citizens Financial Group, Inc. | 103 |
The following tables present a summary of changes in the ACL for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (dollars in millions) | Commercial | Retail | Total |
| Allowance for loan and lease losses, beginning of period | $1,060 | | $923 | | $1,983 | |
| | | |
| | | |
| | | |
Charge-offs | (285) | | (472) | | (757) | |
| Recoveries | 18 | | 130 | | 148 | |
| Net charge-offs | (267) | | (342) | | (609) | |
Provision expense (benefit) for loans and leases | 457 | | 267 | | 724 | |
| Allowance for loan and lease losses, end of period | 1,250 | | 848 | | 2,098 | |
| Allowance for unfunded lending commitments, beginning of period | 207 | | 50 | | 257 | |
| | | |
| | | |
| Provision expense (benefit) for unfunded lending commitments | (32) | | (5) | | (37) | |
| | | |
| Allowance for unfunded lending commitments, end of period | 175 | | 45 | | 220 | |
| Total allowance for credit losses, end of period | $1,425 | | $893 | | $2,318 | |
| | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (dollars in millions) | Commercial | Retail | Total |
| Allowance for loan and lease losses, beginning of period | $821 | | $937 | | $1,758 | |
| | | |
| | | |
Allowance on PCD loans and leases at acquisition | 99 | | 2 | | 101 | |
Charge-offs(1) | (70) | | (364) | | (434) | |
| Recoveries | 18 | | 146 | | 164 | |
| Net charge-offs | (52) | | (218) | | (270) | |
Provision expense (benefit) for loans and leases(2) | 192 | | 202 | | 394 | |
| Allowance for loan and lease losses, end of period | 1,060 | | 923 | | 1,983 | |
| Allowance for unfunded lending commitments, beginning of period | 153 | | 23 | | 176 | |
| | | |
| | | |
| Provision expense (benefit) for unfunded lending commitments | 53 | | 27 | | 80 | |
Allowance on PCD unfunded lending commitments at acquisition | 1 | | — | | 1 | |
| Allowance for unfunded lending commitments, end of period | 207 | | 50 | | 257 | |
| Total allowance for credit losses, end of period | $1,267 | | $973 | | $2,240 | |
(1) Excludes $34 million of charge-offs previously taken by Investors or recognized upon completion of the Investors acquisition under purchase accounting for the year ended December 31, 2022. The initial allowance for loan and lease losses on PCD assets included these amounts and, after charging these amounts off upon acquisition, the net impact for PCD assets was $101 million of additional allowance for loan and lease losses.
(2) Includes $169 million of initial provision expense related to non-PCD loans and leases acquired from HSBC and Investors for the year ended December 31, 2022.
Credit Quality Indicators
The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year and defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty, or FDMs, which are presented in the original vintage.
The Company utilizes internal risk ratings to monitor credit quality for commercial loans and leases. These ratings are assigned at loan origination and are reevaluated utilizing a risk-based approach annually, at a minimum, or any time management becomes aware of information affecting a borrower’s ability to fulfill their obligations. This process considers both quantitative and qualitative factors. The following categories are utilized to develop the ACL:
•Pass - includes obligations where the probability of default is considered low and repayment in full is expected in accordance with the contractual loan terms;
•Special Mention - includes obligations that have potential weakness that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date;
•Substandard Accrual - includes obligations that have well-defined weaknesses that could hinder normal repayment or collection of the debt, but are currently performing;
•Nonaccrual - includes obligations where management has determined that full payment of principal and interest is in doubt. For more information on nonaccrual loans and leases see “Nonaccrual and Past Due Assets” below.
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| | Citizens Financial Group, Inc. | 104 |
For commercial and industrial loans, the performance of the borrower is monitored in a disciplined and regular manner based upon the level of credit risk inherent in the loan. An internal risk rating is assigned reflecting the borrower’s PD and LGD to evaluate the level of credit risk. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process. These ratings are generally reviewed at least annually. The combination of the PD and LGD assigned ratings, which reflect credit quality characteristics as of the reporting date and are used as inputs into the loss forecasting process, capture both the expectation of default and loss severity in the event of default. Each loan is periodically reviewed by management based on the amount of the lending arrangement and risk rating assessment, with priority given to those loans which are perceived to be of higher risk, or loans for which credit quality is weakening (e.g., payment delinquency). Loans are proactively managed by utilizing various procedures that are customized to the risk of a given loan, including ongoing outreach to the borrower, assessment of the borrower’s financial condition and appraisal of the collateral.
Credit risk associated with CRE loans is managed similar to commercial and industrial loans by evaluating PD and LGD. Risks associated with CRE activities are typically correlated to the loan structure, collateral location, project progress and business environment. As a result, these attributes are monitored and utilized in assessing credit risk. Periodic reviews are also performed to assess market/geographic risk and business unit/industry risk, which may result in increased scrutiny on loans that are perceived to be of higher risk, had adverse changes in risk ratings and/or areas that concern management. These reviews are designed to assess risk and facilitate actions to mitigate such risks.
Credit risk associated with leases is managed similar to commercial and industrial loans by evaluating PD and LGD. Reviews are generally performed annually based upon the dollar amount of the lease and the level of credit risk, and may be more frequent if circumstances warrant. The review process includes analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk, guarantor requirements, and regulatory compliance as applicable.
Commercial loans with renewal terms in the original contract are recognized as current year originations upon renewal unless the loan automatically renewed without a new credit decision. The Company generally reserves the right to not renew the loan or lease until current underwriting is completed and approved.
The following table presents the amortized cost basis of commercial loans and leases by vintage date and internal risk rating as of December 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans and Leases by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior to 2020 | | Within the Revolving Period | Converted to Term | | Total |
| Commercial and industrial | | | | | | | | | | | | | | | | |
| Pass | $5,945 | | | $2,525 | | | $4,194 | | | $2,923 | | | $895 | | | $2,066 | | | $21,323 | | $66 | | | $39,937 | |
| Special Mention | 2 | | | 79 | | | 98 | | | 236 | | | 48 | | | 48 | | | 211 | | — | | | 722 | |
Substandard Accrual | 9 | | | 64 | | | 207 | | | 269 | | | 139 | | | 253 | | | 697 | | 13 | | | 1,651 | |
Nonaccrual | — | | | 11 | | | 68 | | | 62 | | | 5 | | | 55 | | | 34 | | 6 | | | 241 | |
| Total commercial and industrial | 5,956 | | | 2,679 | | | 4,567 | | | 3,490 | | | 1,087 | | | 2,422 | | | 22,265 | | 85 | | | 42,551 | |
| Commercial real estate | | | | | | | | | | | | | | | | |
| Pass | 2,720 | | | 1,305 | | | 5,748 | | | 5,412 | | | 1,919 | | | 4,199 | | | 1,434 | | 4 | | | 22,741 | |
| Special Mention | 1 | | | — | | | 911 | | | 362 | | | 175 | | | 257 | | | 80 | | 6 | | | 1,792 | |
Substandard Accrual | 3 | | | 22 | | | 359 | | | 253 | | | 275 | | | 875 | | | 9 | | 120 | | | 1,916 | |
Nonaccrual | — | | | 67 | | | 89 | | | 58 | | | 90 | | | 470 | | | 2 | | — | | | 776 | |
| Total commercial real estate | 2,724 | | | 1,394 | | | 7,107 | | | 6,085 | | | 2,459 | | | 5,801 | | | 1,525 | | 130 | | | 27,225 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total commercial | | | | | | | | | | | | | | | | |
| Pass | 8,665 | | | 3,830 | | | 9,942 | | | 8,335 | | | 2,814 | | | 6,265 | | | 22,757 | | 70 | | | 62,678 | |
| Special Mention | 3 | | | 79 | | | 1,009 | | | 598 | | | 223 | | | 305 | | | 291 | | 6 | | | 2,514 | |
Substandard Accrual | 12 | | | 86 | | | 566 | | | 522 | | | 414 | | | 1,128 | | | 706 | | 133 | | | 3,567 | |
Nonaccrual | — | | | 78 | | | 157 | | | 120 | | | 95 | | | 525 | | | 36 | | 6 | | | 1,017 | |
Total commercial | $8,680 | | | $4,073 | | | $11,674 | | | $9,575 | | | $3,546 | | | $8,223 | | | $23,790 | | $215 | | | $69,776 | |
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| | Citizens Financial Group, Inc. | 105 |
The following table presents the amortized cost basis of commercial loans and leases by vintage date and internal risk rating as of December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans and Leases by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Within the Revolving Period | Converted to Term | | Total |
| Commercial and industrial | | | | | | | | | | | | | | | | |
| Pass | $3,694 | | | $6,512 | | | $5,331 | | | $1,445 | | | $1,147 | | | $2,299 | | | $21,033 | | $53 | | | $41,514 | |
| Special Mention | 59 | | | 221 | | | 355 | | | 30 | | | 50 | | | 113 | | | 368 | | — | | | 1,196 | |
Substandard Accrual | 8 | | | 189 | | | 337 | | | 218 | | | 125 | | | 287 | | | 792 | | 11 | | | 1,967 | |
Nonaccrual | 1 | | | 72 | | | 54 | | | 4 | | | 5 | | | 102 | | | 53 | | 6 | | | 297 | |
| Total commercial and industrial | 3,762 | | | 6,994 | | | 6,077 | | | 1,697 | | | 1,327 | | | 2,801 | | | 22,246 | | 70 | | | 44,974 | |
| Commercial real estate | | | | | | | | | | | | | | | | |
| Pass | 1,906 | | | 5,791 | | | 6,062 | | | 2,555 | | | 2,294 | | | 3,895 | | | 1,975 | | 8 | | | 24,486 | |
| Special Mention | — | | | 713 | | | 539 | | | 222 | | | 183 | | | 260 | | | 75 | | — | | | 1,992 | |
Substandard Accrual | — | | | 277 | | | 203 | | | 469 | | | 528 | | | 939 | | | 100 | | — | | | 2,516 | |
Nonaccrual | 1 | | | 66 | | | 2 | | | 23 | | | 144 | | | 238 | | | 3 | | — | | | 477 | |
| Total commercial real estate | 1,907 | | | 6,847 | | | 6,806 | | | 3,269 | | | 3,149 | | | 5,332 | | | 2,153 | | 8 | | | 29,471 | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total commercial | | | | | | | | | | | | | | | | |
| Pass | 5,600 | | | 12,303 | | | 11,393 | | | 4,000 | | | 3,441 | | | 6,194 | | | 23,008 | | 61 | | | 66,000 | |
| Special Mention | 59 | | | 934 | | | 894 | | | 252 | | | 233 | | | 373 | | | 443 | | — | | | 3,188 | |
Substandard Accrual | 8 | | | 466 | | | 540 | | | 687 | | | 653 | | | 1,226 | | | 892 | | 11 | | | 4,483 | |
Nonaccrual | 2 | | | 138 | | | 56 | | | 27 | | | 149 | | | 340 | | | 56 | | 6 | | | 774 | |
Total commercial | $5,669 | | | $13,841 | | | $12,883 | | | $4,966 | | | $4,476 | | | $8,133 | | | $24,399 | | $78 | | | $74,445 | |
For retail loans, the Company utilizes FICO credit scores and the loan’s payment and delinquency status to monitor credit quality. Management believes FICO scores are the strongest indicator of credit losses over the contractual life of the loan and assist management in predicting the borrower’s future payment performance. Scores are based on current and historical national industry-wide consumer level credit performance data.
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| | Citizens Financial Group, Inc. | 106 |
The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of December 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior to 2020 | | Within the Revolving Period | Converted to Term | | Total |
| Residential mortgages | | | | | | | | | | | | | | | | |
| 800+ | $1,230 | | | $1,302 | | | $3,299 | | | $5,109 | | | $2,919 | | | $3,869 | | | $— | | $— | | | $17,728 | |
| 740-799 | 1,757 | | | 873 | | | 1,568 | | | 2,213 | | | 1,338 | | | 1,923 | | | — | | — | | | 9,672 | |
| 680-739 | 425 | | | 281 | | | 552 | | | 697 | | | 385 | | | 938 | | | — | | — | | | 3,278 | |
| 620-679 | 31 | | | 61 | | | 126 | | | 151 | | | 101 | | | 494 | | | — | | — | | | 964 | |
| <620 | 15 | | | 37 | | | 76 | | | 147 | | | 89 | | | 703 | | | — | | — | | | 1,067 | |
No FICO available(1) | 1 | | | — | | | — | | | 1 | | | 1 | | | 14 | | | — | | — | | | 17 | |
| Total residential mortgages | 3,459 | | | 2,554 | | | 5,621 | | | 8,318 | | | 4,833 | | | 7,941 | | | — | | — | | | 32,726 | |
| Home equity | | | | | | | | | | | | | | | | |
| 800+ | 1 | | | — | | | 3 | | | 4 | | | 1 | | | 76 | | | 5,634 | | 200 | | | 5,919 | |
| 740-799 | — | | | — | | | 1 | | | 2 | | | 1 | | | 65 | | | 5,275 | | 224 | | | 5,568 | |
| 680-739 | — | | | — | | | 1 | | | — | | | 1 | | | 76 | | | 2,995 | | 183 | | | 3,256 | |
| 620-679 | — | | | 1 | | | 4 | | | 3 | | | 2 | | | 60 | | | 752 | | 141 | | | 963 | |
| <620 | — | | | 2 | | | 6 | | | 3 | | | 1 | | | 59 | | | 459 | | 259 | | | 789 | |
No FICO available(1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
| Total home equity | 1 | | | 3 | | | 15 | | | 12 | | | 6 | | | 336 | | | 15,115 | | 1,007 | | | 16,495 | |
| Automobile | | | | | | | | | | | | | | | | |
| 800+ | — | | | 65 | | | 380 | | | 665 | | | 183 | | | 58 | | | — | | — | | | 1,351 | |
| 740-799 | — | | | 92 | | | 430 | | | 581 | | | 176 | | | 61 | | | — | | — | | | 1,340 | |
| 680-739 | — | | | 91 | | | 338 | | | 385 | | | 115 | | | 45 | | | — | | — | | | 974 | |
| 620-679 | — | | | 51 | | | 189 | | | 194 | | | 56 | | | 29 | | | — | | — | | | 519 | |
| <620 | — | | | 47 | | | 197 | | | 216 | | | 62 | | | 38 | | | — | | — | | | 560 | |
No FICO available(1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
| Total automobile | — | | | 346 | | | 1,534 | | | 2,041 | | | 592 | | | 231 | | | — | | — | | | 4,744 | |
| Education | | | | | | | | | | | | | | | | |
| 800+ | 227 | | | 373 | | | 657 | | | 1,517 | | | 1,256 | | | 1,475 | | | — | | — | | | 5,505 | |
| 740-799 | 290 | | | 359 | | | 571 | | | 804 | | | 637 | | | 811 | | | — | | — | | | 3,472 | |
| 680-739 | 110 | | | 150 | | | 229 | | | 261 | | | 211 | | | 337 | | | — | | — | | | 1,298 | |
| 620-679 | 27 | | | 48 | | | 55 | | | 58 | | | 51 | | | 111 | | | — | | — | | | 350 | |
| <620 | 5 | | | 12 | | | 21 | | | 28 | | | 25 | | | 60 | | | — | | — | | | 151 | |
No FICO available(1) | 5 | | | — | | | — | | | — | | | — | | | 31 | | | — | | — | | | 36 | |
| Total education | 664 | | | 942 | | | 1,533 | | | 2,668 | | | 2,180 | | | 2,825 | | | — | | — | | | 10,812 | |
| Other retail | | | | | | | | | | | | | | | | |
| 800+ | 186 | | | 65 | | | 36 | | | 15 | | | 11 | | | 10 | | | 512 | | — | | | 835 | |
| 740-799 | 259 | | | 96 | | | 46 | | | 18 | | | 13 | | | 11 | | | 895 | | 1 | | | 1,339 | |
| 680-739 | 201 | | | 87 | | | 39 | | | 15 | | | 11 | | | 7 | | | 845 | | 1 | | | 1,206 | |
| 620-679 | 97 | | | 47 | | | 27 | | | 10 | | | 6 | | | 3 | | | 335 | | 1 | | | 526 | |
| <620 | 32 | | | 31 | | | 34 | | | 15 | | | 7 | | | 3 | | | 234 | | 1 | | | 357 | |
No FICO available(1) | 5 | | | — | | | — | | | — | | | — | | | — | | | 382 | | — | | | 387 | |
| Total other retail | 780 | | | 326 | | | 182 | | | 73 | | | 48 | | | 34 | | | 3,203 | | 4 | | | 4,650 | |
| Total retail | | | | | | | | | | | | | | | | |
| 800+ | 1,644 | | | 1,805 | | | 4,375 | | | 7,310 | | | 4,370 | | | 5,488 | | | 6,146 | | 200 | | | 31,338 | |
| 740-799 | 2,306 | | | 1,420 | | | 2,616 | | | 3,618 | | | 2,165 | | | 2,871 | | | 6,170 | | 225 | | | 21,391 | |
| 680-739 | 736 | | | 609 | | | 1,159 | | | 1,358 | | | 723 | | | 1,403 | | | 3,840 | | 184 | | | 10,012 | |
| 620-679 | 155 | | | 208 | | | 401 | | | 416 | | | 216 | | | 697 | | | 1,087 | | 142 | | | 3,322 | |
| <620 | 52 | | | 129 | | | 334 | | | 409 | | | 184 | | | 863 | | | 693 | | 260 | | | 2,924 | |
No FICO available(1) | 11 | | | — | | | — | | | 1 | | | 1 | | | 45 | | | 382 | | — | | | 440 | |
| Total retail | $4,904 | | | $4,171 | | | $8,885 | | | $13,112 | | | $7,659 | | | $11,367 | | | $18,318 | | $1,011 | | | $69,427 | |
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
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| | Citizens Financial Group, Inc. | 107 |
The following table presents the amortized cost basis of retail loans by vintage date and current FICO score as of December 31, 2023:
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| Term Loans by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Within the Revolving Period | Converted to Term | | Total |
| Residential mortgages | | | | | | | | | | | | | | | | |
| 800+ | $889 | | | $3,067 | | | $5,172 | | | $3,117 | | | $1,131 | | | $3,125 | | | $— | | $— | | | $16,501 | |
| 740-799 | 1,333 | | | 1,940 | | | 2,560 | | | 1,411 | | | 592 | | | 1,625 | | | — | | — | | | 9,461 | |
| 680-739 | 367 | | | 631 | | | 758 | | | 466 | | | 266 | | | 873 | | | — | | — | | | 3,361 | |
| 620-679 | 54 | | | 135 | | | 165 | | | 90 | | | 121 | | | 445 | | | — | | — | | | 1,010 | |
| <620 | 9 | | | 48 | | | 104 | | | 95 | | | 161 | | | 561 | | | — | | — | | | 978 | |
No FICO available(1) | 1 | | | — | | | 2 | | | 1 | | | 3 | | | 14 | | | — | | — | | | 21 | |
| Total residential mortgages | 2,653 | | | 5,821 | | | 8,761 | | | 5,180 | | | 2,274 | | | 6,643 | | | — | | — | | | 31,332 | |
| Home equity | | | | | | | | | | | | | | | | |
| 800+ | — | | | 4 | | | 4 | | | 1 | | | 4 | | | 91 | | | 5,078 | | 222 | | | 5,404 | |
| 740-799 | — | | | 1 | | | 2 | | | 1 | | | 3 | | | 82 | | | 4,708 | | 241 | | | 5,038 | |
| 680-739 | 1 | | | 1 | | | 1 | | | 2 | | | 5 | | | 93 | | | 2,693 | | 202 | | | 2,998 | |
| 620-679 | — | | | 1 | | | 1 | | | 2 | | | 8 | | | 77 | | | 718 | | 137 | | | 944 | |
| <620 | — | | | 2 | | | 1 | | | 1 | | | 10 | | | 80 | | | 332 | | 230 | | | 656 | |
No FICO available(1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
| Total home equity | 1 | | | 9 | | | 9 | | | 7 | | | 30 | | | 423 | | | 13,529 | | 1,032 | | | 15,040 | |
| Automobile | | | | | | | | | | | | | | | | |
| 800+ | 81 | | | 539 | | | 1,062 | | | 368 | | | 162 | | | 47 | | | — | | — | | | 2,259 | |
| 740-799 | 134 | | | 671 | | | 1,038 | | | 375 | | | 165 | | | 52 | | | — | | — | | | 2,435 | |
| 680-739 | 147 | | | 577 | | | 708 | | | 252 | | | 118 | | | 39 | | | — | | — | | | 1,841 | |
| 620-679 | 94 | | | 316 | | | 345 | | | 112 | | | 65 | | | 26 | | | — | | — | | | 958 | |
| <620 | 44 | | | 232 | | | 291 | | | 100 | | | 66 | | | 32 | | | — | | — | | | 765 | |
No FICO available(1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | | — | |
| Total automobile | 500 | | | 2,335 | | | 3,444 | | | 1,207 | | | 576 | | | 196 | | | — | | — | | | 8,258 | |
| Education | | | | | | | | | | | | | | | | |
| 800+ | 296 | | | 671 | | | 1,637 | | | 1,418 | | | 600 | | | 1,185 | | | — | | — | | | 5,807 | |
| 740-799 | 368 | | | 694 | | | 1,050 | | | 850 | | | 369 | | | 678 | | | — | | — | | | 4,009 | |
| 680-739 | 143 | | | 289 | | | 333 | | | 273 | | | 134 | | | 298 | | | — | | — | | | 1,470 | |
| 620-679 | 30 | | | 65 | | | 68 | | | 58 | | | 32 | | | 107 | | | — | | — | | | 360 | |
| <620 | 5 | | | 18 | | | 25 | | | 23 | | | 15 | | | 55 | | | — | | — | | | 141 | |
No FICO available(1) | 10 | | | — | | | 1 | | | — | | | — | | | 36 | | | — | | — | | | 47 | |
| Total education | 852 | | | 1,737 | | | 3,114 | | | 2,622 | | | 1,150 | | | 2,359 | | | — | | — | | | 11,834 | |
| Other retail | | | | | | | | | | | | | | | | |
| 800+ | 183 | | | 70 | | | 38 | | | 35 | | | 16 | | | 18 | | | 500 | | — | | | 860 | |
| 740-799 | 258 | | | 87 | | | 46 | | | 45 | | | 21 | | | 19 | | | 963 | | 1 | | | 1,440 | |
| 680-739 | 214 | | | 76 | | | 39 | | | 39 | | | 18 | | | 11 | | | 973 | | 2 | | | 1,372 | |
| 620-679 | 118 | | | 48 | | | 23 | | | 19 | | | 6 | | | 4 | | | 419 | | 2 | | | 639 | |
| <620 | 31 | | | 35 | | | 18 | | | 14 | | | 4 | | | 2 | | | 251 | | 2 | | | 357 | |
No FICO available(1) | 7 | | | 1 | | | — | | | 1 | | | — | | | — | | | 373 | | — | | | 382 | |
| Total other retail | 811 | | | 317 | | | 164 | | | 153 | | | 65 | | | 54 | | | 3,479 | | 7 | | | 5,050 | |
| Total retail | | | | | | | | | | | | | | | | |
| 800+ | 1,449 | | | 4,351 | | | 7,913 | | | 4,939 | | | 1,913 | | | 4,466 | | | 5,578 | | 222 | | | 30,831 | |
| 740-799 | 2,093 | | | 3,393 | | | 4,696 | | | 2,682 | | | 1,150 | | | 2,456 | | | 5,671 | | 242 | | | 22,383 | |
| 680-739 | 872 | | | 1,574 | | | 1,839 | | | 1,032 | | | 541 | | | 1,314 | | | 3,666 | | 204 | | | 11,042 | |
| 620-679 | 296 | | | 565 | | | 602 | | | 281 | | | 232 | | | 659 | | | 1,137 | | 139 | | | 3,911 | |
| <620 | 89 | | | 335 | | | 439 | | | 233 | | | 256 | | | 730 | | | 583 | | 232 | | | 2,897 | |
No FICO available(1) | 18 | | | 1 | | | 3 | | | 2 | | | 3 | | | 50 | | | 373 | | — | | | 450 | |
| Total retail | $4,817 | | | $10,219 | | | $15,492 | | | $9,169 | | | $4,095 | | | $9,675 | | | $17,008 | | $1,039 | | | $71,514 | |
(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
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| | Citizens Financial Group, Inc. | 108 |
The following tables present gross charge-offs by vintage date for the Company’s loan and lease portfolios:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2024 |
| Term Loans and Leases by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior to 2020 | | Within the Revolving Period | Converted to Term | | Total |
Commercial and industrial | $— | | | $— | | | $15 | | | $31 | | | $1 | | | $22 | | | $38 | | $— | | | $107 | |
Commercial real estate | — | | | — | | | 1 | | | 23 | | | 145 | | | 143 | | | — | | — | | | 312 | |
| | | | | | | | | | | | | | | | |
Total commercial | — | | | — | | | 16 | | | 54 | | | 146 | | | 165 | | | 38 | | — | | | 419 | |
| Residential mortgages | — | | | — | | | — | | | — | | | — | | | 4 | | | — | | — | | | 4 | |
| Home equity | — | | | — | | | — | | | — | | | — | | | 5 | | | 11 | | 2 | | | 18 | |
| Automobile | — | | | 6 | | | 34 | | | 34 | | | 10 | | | 10 | | | — | | — | | | 94 | |
| Education | 1 | | | 5 | | | 12 | | | 24 | | | 25 | | | 59 | | | — | | — | | | 126 | |
| Other retail | 42 | | | 24 | | | 10 | | | 6 | | | 3 | | | 10 | | | 167 | | — | | | 262 | |
| Total retail | 43 | | | 35 | | | 56 | | | 64 | | | 38 | | | 88 | | | 178 | | 2 | | | 504 | |
| Total loans and leases | $43 | | | $35 | | | $72 | | | $118 | | | $184 | | | $253 | | | $216 | | $2 | | | $923 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Term Loans and Leases by Origination Year | | Revolving Loans | | |
| (dollars in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Within the Revolving Period | Converted to Term | | Total |
Commercial and industrial | $1 | | | $3 | | | $34 | | | $4 | | | $1 | | | $34 | | | $44 | | $— | | | $121 | |
Commercial real estate | — | | | — | | | — | | | 56 | | | 13 | | | 95 | | | — | | — | | | 164 | |
| | | | | | | | | | | | | | | | |
Total commercial | 1 | | | 3 | | | 34 | | | 60 | | | 14 | | | 129 | | | 44 | | — | | | 285 | |
| Residential mortgages | — | | | — | | | — | | | 1 | | | 1 | | | 4 | | | — | | — | | | 6 | |
| Home equity | — | | | — | | | — | | | — | | | — | | | 3 | | | 8 | | 1 | | | 12 | |
| Automobile | 3 | | | 34 | | | 41 | | | 14 | | | 12 | | | 9 | | | — | | — | | | 113 | |
| Education | — | | | 5 | | | 19 | | | 25 | | | 17 | | | 45 | | | — | | — | | | 111 | |
| Other retail | 49 | | | 24 | | | 8 | | | 8 | | | 11 | | | 9 | | | 121 | | — | | | 230 | |
| Total retail | 52 | | | 63 | | | 68 | | | 48 | | | 41 | | | 70 | | | 129 | | 1 | | | 472 | |
| Total loans and leases | $53 | | | $66 | | | $102 | | | $108 | | | $55 | | | $199 | | | $173 | | $1 | | | $757 | |
Nonaccrual and Past Due Assets
Nonaccrual loans and leases are those on which accrual of interest is suspended. Loans, other than certain retail loans insured by U.S. government agencies, are placed on nonaccrual status when full payment of principal and interest is in doubt, unless the loan is both well-secured and in the process of collection.
When a loan is placed on nonaccrual status the accrued interest receivable is reversed against interest income and the amortization of any net deferred fees is suspended. Interest collected on nonaccrual loans and leases for which the ultimate collectability of principal is uncertain are generally applied to reduce the carrying value of the asset first. Otherwise, interest income may be recognized to the extent of the cash received if the loan is deemed fully collectible.
A loan or lease may be returned to accrual status if:
•no principal and interest payments are due and unpaid, and repayment of the remaining contractual principal and interest is expected;
•the loan or lease has otherwise become well-secured and in the process of collection; or
•the borrower has made regularly scheduled payments in full for the prior six months and it is reasonably assured that the loan or lease will be brought current within a reasonable period.
Upon return to accrual status, interest payments received and applied to the carrying value of a loan or lease while on nonaccrual status are accreted into interest income over the remaining life of the loan or lease using the effective interest method.
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| | Citizens Financial Group, Inc. | 109 |
Commercial and industrial loans and commercial real estate loans are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Some of these loans may remain on accrual status when contractually past due 90 days or more if management considers the loan collectible.
Residential mortgages are generally placed on nonaccrual status when past due 120 days, or sooner if determined to be collateral dependent, unless repayment of the loan is fully or partially guaranteed by the FHA, VA or USDA. Credit card balances are placed on nonaccrual status when past due 90 days or more and are restored to accrual status if they subsequently become less than 90 days past due. All other retail loans are generally placed on nonaccrual status when past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Loans less than 90 days past due may be placed on nonaccrual status due to the death of the borrower, fraud or bankruptcy.
The following tables present an aging analysis of accruing and nonaccrual loans and leases as of December 31, 2024 and 2023:
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| December 31, 2024 |
| | Days Past Due and Accruing | | | |
| (dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total | Nonaccrual with no related ACL |
| Commercial and industrial | $42,247 | | $35 | | $20 | | $8 | | $241 | | $42,551 | | $31 | |
| Commercial real estate | 26,212 | | 204 | | 27 | | 6 | | 776 | | 27,225 | | 32 | |
| | | | | | | |
| Total commercial | 68,459 | | 239 | | 47 | | 14 | | 1,017 | | 69,776 | | 63 | |
Residential mortgages | 32,011 | | 251 | | 93 | | 179 | | 192 | | 32,726 | | 142 | |
| Home equity | 16,097 | | 88 | | 27 | | — | | 283 | | 16,495 | | 182 | |
| Automobile | 4,563 | | 100 | | 33 | | — | | 48 | | 4,744 | | 6 | |
| Education | 10,686 | | 45 | | 23 | | 2 | | 56 | | 10,812 | | 4 | |
| Other retail | 4,504 | | 46 | | 31 | | 1 | | 68 | | 4,650 | | 1 | |
| Total retail | 67,861 | | 530 | | 207 | | 182 | | 647 | | 69,427 | | 335 | |
| Total | $136,320 | | $769 | | $254 | | $196 | | $1,664 | | $139,203 | | $398 | |
Guaranteed residential mortgages(1) | $696 | | $119 | | $55 | | $172 | | $— | | $1,042 | | $— | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| | Days Past Due and Accruing | | | |
| (dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total | Nonaccrual with no related ACL |
| Commercial and industrial | $44,591 | | $62 | | $18 | | $6 | | $297 | | $44,974 | | $30 | |
| Commercial real estate | 28,745 | | 150 | | 59 | | 40 | | 477 | | 29,471 | | 71 | |
| | | | | | | |
| Total commercial | 73,336 | | 212 | | 77 | | 46 | | 774 | | 74,445 | | 101 | |
Residential mortgages | 30,499 | | 282 | | 118 | | 256 | | 177 | | 31,332 | | 144 | |
| Home equity | 14,640 | | 82 | | 33 | | — | | 285 | | 15,040 | | 198 | |
| Automobile | 8,005 | | 144 | | 48 | | — | | 61 | | 8,258 | | 7 | |
| Education | 11,732 | | 49 | | 23 | | 2 | | 28 | | 11,834 | | 3 | |
| Other retail | 4,899 | | 49 | | 34 | | 29 | | 39 | | 5,050 | | — | |
| Total retail | 69,775 | | 606 | | 256 | | 287 | | 590 | | 71,514 | | 352 | |
| Total | $143,111 | | $818 | | $333 | | $333 | | $1,364 | | $145,959 | | $453 | |
Guaranteed residential mortgages(1) | $675 | | $128 | | $76 | | $243 | | $— | | $1,122 | | $— | |
(1) Guaranteed residential mortgages represent loans fully or partially guaranteed by the FHA, VA and USDA, and are included in the amounts presented for Residential mortgages.
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| | Citizens Financial Group, Inc. | 110 |
Loan Modifications to Borrowers Experiencing Financial Difficulty
Loan modifications to borrowers experiencing financial difficulty, or FDMs, are evaluated to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. The existing loan is derecognized and the restructured loan is accounted for as a new loan if the effective yield on the restructured loan is at least equal to the effective yield for comparable loans with similar collection risk and the modification to the original loan is more than minor. Any unamortized fees and costs from the original loan are recognized in interest income when the new loan is granted. If a loan restructuring does not meet these conditions, the existing loan’s amortized cost basis is carried forward and the modified loan is accounted for as a continuation of the existing loan. FDMs are generally accounted for as a continuation of the existing loan given the terms are typically not at market rates.
The Company offers loan modifications, characterized as FDMs, to retail and commercial borrowers experiencing financial difficulty as a result of its loss mitigation activities that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. Payment delays consist of modifications that result in a delay of contractual amounts due greater than three months over a rolling 12-month period. Term extensions consist of modifications that result in an extension of the contractual maturity date greater than three months or a significant deferral of principal payments relative to the total outstanding principal balance of the loan.
Commercial loan modifications are offered on a case-by-case basis and generally include a payment delay, term extension and/or interest rate reduction. The Company does not typically offer principal forgiveness for commercial loans. Retail loan modifications are offered through structured loan modification programs, which are summarized below.
•Forbearance programs provide borrowers experiencing some form of hardship a period of time during which their contractual payment obligations are suspended, resulting in a payment delay and/or term extension.
•Other repayment plans are offered due to hardship and include an interest rate reduction and/or term extension designed to enable the borrower to return the loan to current status in an expeditious manner.
•Settlement agreements may be executed with borrowers experiencing a long-term hardship or who are delinquent, resulting in principal forgiveness. Upon fulfillment of the terms of the settlement agreement, the unpaid principal amount is forgiven resulting in a charge-off of the outstanding principal balance.
•Certain reorganization bankruptcy judgments may result in any one of the four modification types or some combination thereof.
Retail and commercial loans whose contractual terms have been modified in a FDM and are current at the time of the modification may remain on accrual status if there is demonstrated performance prior to the modification and payment in full is expected under the modified terms. Cash receipts on nonaccrual impaired loans, including nonaccrual loans involved in FDMs, are generally applied to reduce the unpaid principal balance. Certain FDMs that are current in payment status are classified as nonaccrual in accordance with regulatory guidance. Nonaccrual FDMs that meet the guidelines above for accrual status can be returned to accruing if supported by a well-documented evaluation of the borrowers’ financial condition and the borrower has been current for at least six months.
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| | Citizens Financial Group, Inc. | 111 |
The following tables present the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023, disaggregated by class of financing receivable and modification type. The modification type reflects the cumulative effect of all FDMs received during the indicated period.
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| Year Ended December 31, 2024 |
| (dollars in millions) | Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Interest Rate Reduction and Term Extension | | | Term Extension and Payment Delay | | | Interest Rate Reduction, Term Extension and Payment Delay | Total | Total as a % of Loan Class(1) |
| Commercial and industrial | $— | | $235 | | $99 | | $— | | $1 | | | | $21 | | | | $1 | | $357 | | 0.84 | % |
| Commercial real estate | — | | 650 | | 113 | | — | | 130 | | | | 134 | | | | — | | 1,027 | | 3.77 | |
| Total commercial | — | | 885 | | 212 | | — | | 131 | | | | 155 | | | | 1 | | 1,384 | | 1.98 | |
| Residential mortgages | 6 | | 74 | | 12 | | — | | 16 | | | | 5 | | | | 1 | | 114 | | 0.35 | |
| Home equity | 6 | | 3 | | 1 | | — | | 13 | | | | — | | | | — | | 23 | | 0.14 | |
| Automobile | — | | — | | — | | — | | — | | | | — | | | | — | | — | | — | |
| Education | 11 | | 3 | | 34 | | — | | — | | | | 10 | | | | — | | 58 | | 0.54 | |
| Other retail | 16 | | — | | — | | — | | — | | | | — | | | | — | | 16 | | 0.34 | |
| Total retail | 39 | | 80 | | 47 | | — | | 29 | | | | 15 | | | | 1 | | 211 | | 0.30 | |
Total | $39 | | $965 | | $259 | | $— | | $160 | | | | $170 | | | | $2 | | $1,595 | | 1.15 | % |
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| Year Ended December 31, 2023 |
| (dollars in millions) | Interest Rate Reduction | Term Extension | Payment Delay | Principal Forgiveness | Interest Rate Reduction and Term Extension | | | Term Extension and Payment Delay | | | | Total | Total as a % of Loan Class(1) |
| Commercial and industrial | $1 | | $252 | | $69 | | $— | | $1 | | | | $2 | | | | | $325 | | 0.74 | % |
| Commercial real estate | — | | 522 | | — | | — | | 70 | | | | 1 | | | | | 593 | | 2.01 | |
| Total commercial | 1 | | 774 | | 69 | | — | | 71 | | | | 3 | | | | | 918 | | 1.23 | |
| Residential mortgages | 8 | | 77 | | 3 | | — | | 20 | | | | 1 | | | | | 109 | | 0.35 | |
| Home equity | 2 | | 5 | | — | | — | | 8 | | | | — | | | | | 15 | | 0.10 | |
| Automobile | — | | — | | — | | — | | — | | | | — | | | | | — | | — | |
| Education | 9 | | — | | 31 | | — | | — | | | | — | | | | | 40 | | 0.34 | |
| Other retail | 11 | | — | | — | | — | | — | | | | — | | | | | 11 | | 0.22 | |
| Total retail | 30 | | 82 | | 34 | | — | | 28 | | | | 1 | | | | | 175 | | 0.24 | |
Total | $31 | | $856 | | $103 | | $— | | $99 | | | | $4 | | | | | $1,093 | | 0.75 | % |
(1) Represents the total amortized cost as of period-end divided by the period-end amortized cost of the corresponding loan class. Accrued interest receivable is excluded from amortized cost and is immaterial.
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| | Citizens Financial Group, Inc. | 112 |
The following tables present the financial effect of loans to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023, disaggregated by class of financing receivable.
| | | | | | | | | | | | | | |
| Year Ended December 31, 2024 |
(dollars in millions) | Weighted-Average Interest Rate Reduction(1) | Weighted-Average Term Extension (in Months)(1) | Weighted-Average Payment Deferral(1) | Amount of Principal Forgiven(2) |
| Commercial and industrial | 3.78 | % | 15 | $4 | | $— | |
| Commercial real estate | 2.83 | | 17 | 1 | | — | |
| Residential mortgages | 1.83 | | 94 | — | | — | |
| Home equity | 4.01 | | 71 | — | | — | |
| Automobile | — | | — | | — | | — | |
| Education | 4.41 | | 12 | — | | — | |
| Other retail | 20.18 | | — | | — | | 6 | |
| | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
(dollars in millions) | Weighted-Average Interest Rate Reduction(1) | Weighted-Average Term Extension (in Months)(1) | Weighted-Average Payment Deferral(1) | Amount of Principal Forgiven(2) |
| Commercial and industrial | 2.02 | % | 15 | $1 | | $— | |
| Commercial real estate | 0.59 | | 11 | — | | — | |
| Residential mortgages | 1.58 | | 50 | — | | — | |
| Home equity | 2.64 | | 120 | — | | — | |
| Automobile | 3.60 | | 18 | — | | — | |
| Education | 4.76 | | — | | — | | — | |
| Other retail | 18.68 | | — | | — | | 5 | |
(1) Weighted based on period-end amortized cost.
(2) Amounts are recorded as charge-offs.
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| | Citizens Financial Group, Inc. | 113 |
The following tables present an aging analysis of the period-end amortized cost of loans to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023, disaggregated by class of financing receivable. A loan in a forbearance or repayment plan is reported as past due according to its contractual terms until contractually modified. Subsequent to modification, it is reported as past due based on its restructured terms.
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 |
| | Days Past Due and Accruing | | |
| (dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total |
| Commercial and industrial | $290 | | $3 | | $— | | $— | | $64 | | $357 | |
| Commercial real estate | 546 | | 92 | | — | | 4 | | 385 | | 1,027 | |
| Total commercial | 836 | | 95 | | — | | 4 | | 449 | | 1,384 | |
| Residential mortgages | 49 | | 13 | | 7 | | 22 | | 23 | | 114 | |
| Home equity | 10 | | — | | — | | — | | 13 | | 23 | |
| Automobile | — | | — | | — | | — | | — | | — | |
| Education | 26 | | — | | — | | — | | 32 | | 58 | |
| Other retail | 12 | | 2 | | 1 | | — | | 1 | | 16 | |
| Total retail | 97 | | 15 | | 8 | | 22 | | 69 | | 211 | |
| Total | $933 | | $110 | | $8 | | $26 | | $518 | | $1,595 | |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| | Days Past Due and Accruing | | |
| (dollars in millions) | Current | 30-59 | 60-89 | 90+ | Nonaccrual | Total |
| Commercial and industrial | $211 | | $— | | $— | | $— | | $114 | | $325 | |
| Commercial real estate | 402 | | 7 | | — | | 26 | | 158 | | 593 | |
| Total commercial | 613 | | 7 | | — | | 26 | | 272 | | 918 | |
| Residential mortgages | 61 | | 11 | | 7 | | 17 | | 13 | | 109 | |
| Home equity | 5 | | — | | — | | — | | 10 | | 15 | |
| Automobile | — | | — | | — | | — | | — | | — | |
| Education | 37 | | 1 | | — | | — | | 2 | | 40 | |
| Other retail | 8 | | 1 | | 1 | | — | | 1 | | 11 | |
| Total retail | 111 | | 13 | | 8 | | 17 | | 26 | | 175 | |
| Total | $724 | | $20 | | $8 | | $43 | | $298 | | $1,093 | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 114 |
The following tables present the period-end amortized cost of loans to borrowers experiencing financial difficulty that defaulted during the period presented and were modified within the previous 12 months preceding the default, disaggregated by class of financing receivable and modification type. The modification type reflects the cumulative effect of all FDMs at the time of default. A loan is considered to be in default if, subsequent to modification, it becomes 90 or more days past due or is placed on nonaccrual status.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2024 |
| (dollars in millions) | Interest Rate Reduction | Term Extension | Payment Delay | | Interest Rate Reduction and Term Extension | | | | | | | Total |
| Commercial and industrial | $1 | | $18 | | $— | | | $— | | | | | | | | $19 | |
| Commercial real estate | — | | 134 | | 20 | | | — | | | | | | | | 154 | |
| Total commercial | 1 | | 152 | | 20 | | | — | | | | | | | | 173 | |
| Residential mortgages | — | | 26 | | 3 | | | 3 | | | | | | | | 32 | |
| Home equity | — | | 1 | | — | | | 1 | | | | | | | | 2 | |
| Automobile | — | | — | | — | | | — | | | | | | | | — | |
| Education | 4 | | — | | 11 | | | — | | | | | | | | 15 | |
| Other retail | 1 | | — | | — | | | — | | | | | | | | 1 | |
| Total retail | 5 | | 27 | | 14 | | | 4 | | | | | | | | 50 | |
| Total | $6 | | $179 | | $34 | | | $4 | | | | | | | | $223 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (dollars in millions) | Interest Rate Reduction | Term Extension | Payment Delay | | Interest Rate Reduction and Term Extension | | | | | | | Total |
| Commercial and industrial | $— | | $— | | $43 | | | $— | | | | | | | | $43 | |
| Commercial real estate | — | | 102 | | — | | | — | | | | | | | | 102 | |
| Total commercial | — | | 102 | | 43 | | | — | | | | | | | | 145 | |
| Residential mortgages | 1 | | 9 | | — | | | 5 | | | | | | | | 15 | |
| Home equity | — | | 1 | | — | | | 2 | | | | | | | | 3 | |
| Automobile | — | | — | | — | | | — | | | | | | | | — | |
| Education | — | | — | | 1 | | | — | | | | | | | | 1 | |
| Other retail | — | | — | | — | | | — | | | | | | | | — | |
| Total retail | 1 | | 10 | | 1 | | | 7 | | | | | | | | 19 | |
| Total | $1 | | $112 | | $44 | | | $7 | | | | | | | | $164 | |
Unfunded commitments related to loans modified during the year ended December 31, 2024 were $206 million at December 31, 2024. Unfunded commitments related to loans modified during the year ended December 31, 2023 were $221 million at December 31, 2023.
NOTE 7 - PREMISES, EQUIPMENT AND SOFTWARE
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization, computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the life of the lease, including renewal options if exercise of those options is reasonably assured, or their estimated useful life, whichever is shorter.
The cost of major additions and improvements to premises and equipment is capitalized. Repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. The Company evaluates premises and equipment for impairment when events or circumstances indicate that the carrying value of such assets may not be recoverable.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 115 |
A summary of the carrying value of premises and equipment is presented below:
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (dollars in millions) | Useful Lives (years) | | 2024 | | 2023 |
| Land and land improvements | 10 - 75 | | $144 | | | $143 | |
| Buildings and leasehold improvements | 5 - 60 | | 887 | | | 875 | |
| Furniture, fixtures and equipment | 4 - 20 | | 601 | | | 613 | |
| Construction in progress | | | 53 | | | 77 | |
| Total premises and equipment, gross | | | 1,685 | | | 1,708 | |
Accumulated depreciation and amortization | | | (810) | | | (813) | |
| Total premises and equipment, net | | | $875 | | | $895 | |
Depreciation charged to noninterest expense totaled $132 million, $115 million and $107 million for the years ended December 31, 2024, 2023 and 2022, respectively, and is presented in the Consolidated Statements of Operations in either occupancy or equipment expense, as applicable.
Software
Costs related to computer software developed or obtained for internal use are capitalized if the projects improve functionality and provide long-term future operational benefits. Capitalized costs are amortized using the straight-line method over the asset’s expected useful life, which is based on the basic pattern of consumption and economic benefits provided by the asset. The amortization of software commences when the asset, or identifiable component of the asset, is substantially complete and ready for its intended use. All other costs incurred in connection with an internal-use software project are expensed as incurred. Capitalized software is included in other assets in the Consolidated Balance Sheets.
The Company had capitalized software assets of $2.5 billion and $2.6 billion, respectively, and related accumulated amortization of $1.7 billion as of December 31, 2024 and 2023. Amortization expense was $268 million, $254 million and $243 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The estimated future amortization expense for capitalized software assets is presented below.
| | | | | |
| Year | (dollars in millions) |
| 2025 | $244 | |
| 2026 | 184 | |
| 2027 | 129 | |
| 2028 | 72 | |
| 2029 | 16 | |
| Thereafter | — | |
Total(1) | $645 | |
(1) Excludes $222 million of in-process software at December 31, 2024.
NOTE 8 - MORTGAGE BANKING AND OTHER SERVICED LOANS
The Company sells residential mortgages into the secondary market and retains no beneficial interest in these sales, but may retain the servicing rights for the loans sold. The Company may exercise its option to repurchase eligible government guaranteed residential mortgages or may be obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.
Mortgage LHFS are accounted for at fair value, with changes in fair value and realized gains and losses on the sale of mortgage loans reported in mortgage banking fees in the Consolidated Statements of Operations.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 116 |
The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Cash proceeds from residential mortgage loans sold with servicing retained | $7,306 | | | $9,124 | | | $17,025 | |
Repurchased residential mortgages(1) | — | | | — | | | 87 | |
Gain on sales(2) | 63 | | | 72 | | | 86 | |
Contractually specified servicing, late and other ancillary fees(2) | 309 | | | 309 | | | 287 | |
(1) Includes government insured or guaranteed loans repurchased through the exercise of the Company’s removal of account provision option.
(2) Reported in mortgage banking fees in the Consolidated Statements of Operations.
The Company recognizes the right to service residential mortgage loans for others, or MSRs, when purchased or when servicing is contractually separated from the underlying mortgage loans sold with servicing rights retained. MSRs are reported in other assets in the Consolidated Balance Sheets and are measured using the fair value method, with changes in fair value recorded in mortgage banking fees in the Consolidated Statements of Operations. The unpaid principal balance of residential mortgage loans related to our MSRs was $95.6 billion and $97.4 billion at December 31, 2024 and 2023, respectively. The Company manages the risk associated with changes in the value of the MSRs with an active economic hedging strategy, which includes the purchase of freestanding derivatives.
The following table summarizes changes in MSRs recorded using the fair value method:
| | | | | | | | | | | |
| As of and for the Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Fair value as of beginning of the period | $1,552 | | | $1,530 | |
| | | |
| | | |
| | | |
| Amounts capitalized | 106 | | | 127 | |
| | | |
Sales(1) | (99) | | | — | |
Changes in unpaid principal balance during the period(2) | (176) | | | (166) | |
Changes in fair value during the period(3) | 108 | | | 61 | |
| Fair value at end of the period | $1,491 | | | $1,552 | |
(1) For the year ended December 31, 2024, represents the sale of the excess servicing yield on MSRs related to certain FHLMC mortgages with a total unpaid principal balance of $17.8 billion.
(2) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial paydowns, and ii) loans that paid off during the period.
(3) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.
The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 117 |
The sensitivity analysis below presents the impact of an immediate 10% and 20% adverse change in key economic assumptions to the current fair value of MSRs. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. Changes in one factor may result in changes in another (e.g., changes in interest rates that drive changes in prepayment rates could result in changes in discount rates) and may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.
| | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 |
| Fair value | $1,491 | | $1,552 |
| Weighted average life (years) | 8.7 | | 8.8 |
| Weighted average constant prepayment rate | 6.7% | | 7.2% |
Decline in fair value from 10% adverse change | $35 | | $37 |
Decline in fair value from 20% adverse change | $67 | | $71 |
| Weighted average option adjusted spread | 632 bps | | 630 bps |
Decline in fair value from 10% adverse change | $42 | | $43 |
Decline in fair value from 20% adverse change | $84 | | $87 |
The Company has mortgage banking derivatives that include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 14 for additional information.
Other Serviced Loans
The Company engages in other servicing relationships from time to time. The following table presents the unpaid principal balance of other serviced loans:
| | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 |
| Education | $420 | | | $502 | |
Commercial and industrial(1) | 92 | | | 94 | |
(1) Represents the government guaranteed portion of SBA loans sold to outside investors.
NOTE 9 - LEASES
Citizens as Lessee
The Company determines if an arrangement is a lease at inception and records a right-of-use asset and a corresponding lease liability. A right-of-use asset represents the value of the Company’s contractual right to use an underlying leased asset and a lease liability represents the Company’s contractual obligation to make payments on the same asset. Operating and finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the non-cancelable lease term. In instances where the lease does not specify an implicit rate, the Company utilizes an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
The Company leases both equipment and real estate, including office and branch space, in the normal course of business. Lease terms predominantly range from one year to fifteen years and may include options to extend the lease, terminate the lease, or purchase the underlying asset at the end of the lease. Certain lease agreements include rental payments based on an index or are adjusted periodically for inflation. Lease components are accounted for as a single lease component when lease agreements contain lease and non-lease components and for certain real estate leases.
Leases with an initial term of 12 months or less are not recorded in the Company’s Consolidated Balance Sheets and are recognized in occupancy expense in the Company’s Consolidated Statements of Operations on a straight-line basis over the lease term. The Company may also enter into subleases with third parties for certain leased real estate properties that are no longer occupied.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 118 |
The components of operating lease cost are presented below.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Operating lease cost | $220 | | | $221 | | | $216 | |
| Short-term lease cost | 3 | | | 2 | | | 2 | |
| Variable lease cost | 5 | | | 5 | | | 7 | |
| Sublease income | (5) | | | (1) | | | (1) | |
| Total | $223 | | | $227 | | | $224 | |
Operating lease cost is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment and software in the Consolidated Statements of Operations.
Supplemental information related to the Company’s operating lease arrangements is presented in the tables below:
| | | | | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 | Affected Line Item in Consolidated Balance Sheets |
| Operating lease right-of-use assets | $869 | | | $885 | | Other assets |
| Operating lease liabilities | 956 | | | 977 | | Other liabilities |
| Weighted average remaining lease term (years) | 7 | | 7 | — |
| Weighted average discount rate | 3.51 | % | | 3.10 | % | — |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Cash paid for amounts included in measurement of liabilities: | | | | | |
| Operating cash flows from operating leases | $233 | | | $232 | | | $219 | |
| Supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets: | | | | | |
| Right-of-use assets in exchange for new operating lease liabilities | 84 | | | 64 | | | 408 | |
Lease liabilities maturing under non-cancelable operating leases are presented below as of December 31, 2024.
| | | | | |
Year | (dollars in millions) |
| 2025 | $204 | |
| 2026 | 193 | |
| 2027 | 171 | |
| 2028 | 140 | |
| 2029 | 108 | |
| Thereafter | 267 | |
| Total lease payments | 1,083 | |
| Less: Interest | 127 | |
| Present value of lease liabilities | $956 | |
Citizens as Lessor
Operating lease assets where Citizens was the lessor totaled $165 million and $254 million as of December 31, 2024 and 2023, respectively. Operating lease rental income associated with these assets is recognized in other income in the Consolidated Statements of Operations on a straight-line basis over the lease term.
Depreciation expense associated with operating lease assets is recorded on a straight-line basis over their estimated useful life and is included in other operating expense in the Consolidated Statements of Operations. Operating lease assets are reviewed for impairment on a periodic basis, with an impairment loss recognized in other operating expense if the carrying amount of the leased asset exceeds its fair value and is not recoverable. The carrying amount of a leased asset is not recoverable if its carrying value exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value of the asset.
For more information on direct finance and sales-type leases where Citizens is the lessor, see Note 5.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 119 |
NOTE 10 - GOODWILL AND INTANGIBLE ASSETS
Goodwill is the purchase premium associated with the acquisition of a business and is assigned to the Company’s reporting units at the acquisition date. A reporting unit is a business operating segment or a component of a business operating segment. The Company has identified and assigned goodwill to two reporting units, Consumer Banking and Commercial Banking, based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes. Goodwill no longer retains its association with a particular acquisition once assigned to a reporting unit, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.
Goodwill is subject to an annual impairment test and not amortized. Goodwill is reviewed for impairment annually as of October 1st and in interim periods when events or changes indicate the carrying value of one or more reporting units may not be recoverable. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of each reporting unit is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, a quantitative assessment of goodwill must be performed.
The Company may elect to bypass the qualitative assessment and perform a quantitative assessment, which is used to identify potential impairment and involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value inclusive of goodwill, applicable goodwill is deemed not to be impaired. If the carrying value of the reporting unit inclusive of goodwill exceeds fair value, an impairment loss is recognized for the excess, establishing a new basis in the goodwill, and cannot exceed the amount of goodwill assigned to the reporting unit. Subsequent reversal of goodwill impairment losses is not permitted.
The fair value of the Company’s reporting units is determined using a combination of income and market-based approaches. The Company relies on several assumptions to estimate the fair value of its reporting units under the income-based approach including discount rate, projected loan losses, income tax and capital retention rates.
The Company performed a quantitative goodwill impairment assessment during the year ended December 31, 2024 as part of its annual impairment assessment. Based on this quantitative assessment, the Company concluded that the estimated fair value of the Consumer Banking and Commercial Banking reporting units exceeded their carrying value; therefore, the Company determined that there was no impairment to the carrying value of its goodwill as of December 31, 2024.
Changes in the carrying value of goodwill for the years ended December 31, 2024 and 2023 are presented below.
| | | | | | | | | | | | | | | | | |
| (dollars in millions) | Consumer Banking | | Commercial Banking | | Total |
| Balance at December 31, 2022 | $2,673 | | | $5,500 | | | $8,173 | |
| Business acquisitions | 5 | | | 10 | | | 15 | |
| | | | | |
| | | | | |
| Balance at December 31, 2023 | $2,678 | | | $5,510 | | | $8,188 | |
| | | | | |
| | | | | |
Divestitures | — | | | (1) | | | (1) | |
| Balance at December 31, 2024 | $2,678 | | | $5,509 | | | $8,187 | |
Accumulated impairment losses related to the Consumer Banking and Commercial Banking reporting units totaled $5.9 billion and $50 million, respectively, at December 31, 2024 and 2023. No impairment was recorded for the years ended December 31, 2024, 2023 or 2022.
Other Intangibles
Other intangible assets are recognized separately from goodwill if the asset arises as a result of contractual rights or if the asset is capable of being separated and sold, transferred or exchanged. These assets are amortized on a straight-line basis with the exception of core deposits, which are amortized using an accelerated methodology, and are subject to an annual impairment evaluation. Amortization expense is recorded in other operating expense in the Consolidated Statements of Operations.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 120 |
A summary of the carrying value of intangible assets is presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Amortizable Lives (years) | Gross | Accumulated Amortization | Net | | Gross | Accumulated Amortization | Net |
| Core deposits | 10 | $144 | | $66 | | $78 | | | $144 | | $44 | | $100 | |
| Acquired technology | 5 - 7 | 23 | | 22 | | 1 | | | 23 | | 21 | | 2 | |
| Acquired relationships | 2 - 15 | 52 | | 31 | | 21 | | | 52 | | 26 | | 26 | |
| Naming Rights | 5 - 10 | 33 | | 16 | | 17 | | | 33 | | 12 | | 21 | |
| Other | 2 - 8 | 42 | | 13 | | 29 | | | 18 | | 10 | | 8 | |
| Total | | $294 | | $148 | | $146 | | | $270 | | $113 | | $157 | |
As of December 31, 2024, all of the Company’s intangible assets are subject to amortization. Amortization expense recognized on intangible assets was $35 million, $42 million and $41 million for the years ended December 31, 2024, 2023 and 2022, respectively. The Company’s projection of amortization expense is based on balances as of December 31, 2024. Future amortization expense may vary from these projections.
Estimated intangible asset amortization expense for the next five years is as follows:
| | | | | |
Year | (dollars in millions) |
| 2025 | $33 | |
| 2026 | 30 | |
| 2027 | 26 | |
| 2028 | 18 | |
| 2029 | 9 | |
NOTE 11 - VARIABLE INTEREST ENTITIES
The Company, in the normal course of business, engages in a variety of activities with entities that are considered VIEs, as defined by GAAP, with its variable interest arising from contractual, ownership or other monetary interests in the entity. A VIE typically does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The Company is the primary beneficiary of a VIE, and must consolidate it, if its variable interest provides it with the power to direct the activities that significantly impact the VIE and it has the right to receive benefits, or the obligation to absorb losses, that could potentially be significant to the VIE. Both qualitative and quantitative factors are considered regarding the nature, size and form of involvement with the VIE to determine whether or not a variable interest held is significant to the VIE. The Company assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.
Transfers of financial assets in which the Company has not surrendered control over the transferred assets are accounted for as a secured borrowing with a pledge of collateral. Control is generally considered surrendered when 1) the transferred assets are legally isolated from the Company and its creditors, even in bankruptcy, 2) the transferee has the right to pledge or exchange the transferred assets it received, with no condition that constrains the transferee from taking advantage of this right or that provides more than a trivial benefit to the Company, and 3) the Company does not maintain effective control over the transferred financial assets. Judgment is required to assess whether the Company maintains effective control over transferred financial assets.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 121 |
Consolidated VIEs
The Company has consolidated VIEs related to secured borrowings collateralized by auto loans. The following table summarizes the carrying amount of assets and liabilities for the Company’s consolidated VIEs:
| | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 |
| Assets: | | | |
| Cash and due from banks | $— | | | $13 | |
Interest-bearing deposits in banks | 209 | | | 106 | |
Net loans and leases | 3,843 | | | 3,194 | |
| | | |
| Other assets | 21 | | | 14 | |
| Total assets | $4,073 | | | $3,327 | |
| Liabilities: | | | |
| Long-term borrowed funds | $3,375 | | | $2,692 | |
| Other liabilities | 8 | | | 8 | |
| Total liabilities | $3,383 | | | $2,700 | |
Secured Borrowings
The Company utilizes a portion of its auto loan portfolio to support certain secured borrowing arrangements, which provide a source of funding for the Company and involves the transfer of auto loans to bankruptcy remote special purpose entities (“SPEs”). These SPEs then issue asset-backed notes to third-parties collateralized by the transferred loans. The Company holds certain residual interests in the loans and, therefore, has a right to receive benefits or the obligation to absorb losses that could potentially be significant to the SPEs. In addition, the Company retains servicing for the transferred loans and, therefore, holds the power to direct significant activities that impact the economic performance of the SPEs. As a result, the Company concluded that it is the primary beneficiary of these SPEs and, accordingly, consolidates these VIEs.
The assets of a particular VIE are the primary source of funds to settle its obligations. Creditors of these VIEs do not have recourse to the general credit of the Company. The performance of the loans transferred to the SPEs is the most significant driver impacting the economic performance of the VIEs.
Unconsolidated VIEs
The Company is involved with various VIEs that are not consolidated, including lending to special purpose entities, investments in asset-backed securities and investments in entities that sponsor affordable housing, renewable energy and economic development projects. The Company’s maximum exposure to loss resulting from its involvement with these entities is limited to the balance sheet carrying amount of its investments, unfunded commitments, and the outstanding principal balance of loans to special purpose entities.
A summary of these investments is presented below:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Lending to special purpose entities included in loans and leases | $4,215 | | | $4,760 | |
LIHTC investments included in other assets | 2,631 | | | 2,444 | |
| LIHTC unfunded commitments included in other liabilities | 1,109 | | | 1,025 | |
| Asset-backed investments included in HTM securities | 412 | | | 488 | |
| Renewable energy investments included in other assets | 269 | | | 314 | |
NMTC investments included in other assets | 2 | | | 3 | |
Lending to Special Purpose Entities
The Company provides lending facilities to third-party sponsored special purpose entities. The sponsor for each respective entity has the power to direct how proceeds from the Company are utilized and maintains responsibility for any associated servicing commitments. Therefore, the Company is not the primary beneficiary of these entities and, accordingly, does not consolidate these VIEs. As of December 31, 2024 and 2023, the lending facilities had undrawn commitments to extend credit of $2.8 billion and $2.7 billion, respectively. For more information on commitments to extend credit see Note 19.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 122 |
Asset-backed securities
The Company’s investments in asset-backed securities are collateralized by education loans sold to a third-party sponsored VIE. The Company acts as the primary servicer for the sold loans and receives a servicing fee. A third-party servicer is responsible for all loans that become significantly delinquent.
The Company’s investments in asset-backed securities, as well as the primary servicing fee, are considered variable interests in the VIE since some of the losses of the VIE could be absorbed by the Company’s interest in the asset-backed securities or the primary servicing fee. However, the Company does not control the determination of the assets purchased by the VIE and the servicing activities on significantly delinquent loans. Since these activities significantly impact the economic performance of the VIE, the Company has concluded that it is not the primary beneficiary of this VIE and, accordingly, does not consolidate the VIE.
Low Income Housing Tax Credit Partnerships
The purpose of the Company’s LIHTC investments is to assist in achieving the goals of the CRA and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Therefore, the Company is not the primary beneficiary of these partnerships and, accordingly, does not consolidate these VIEs.
Renewable Energy Entities
The Company’s investments in certain renewable energy entities provide benefits from government incentives and other tax attributes (e.g., tax depreciation). As a tax equity investor, the Company does not have the power to direct the activities which most significantly affect the performance of these entities. Therefore, the Company is not the primary beneficiary of these entities and, accordingly, does not consolidate these VIEs.
Contingent commitments related to the Company’s renewable energy investments were $49 million at December 31, 2024, and are expected to be paid in varying amounts through 2027. These payments are contingent upon the level of electricity production attained by the renewable energy entity relative to its targeted threshold and changes in the production tax credit rates set by the Internal Revenue Service.
New Markets Tax Credit Program
The Company participates in the NMTC program which provides a tax incentive for private sector investment into economic development projects and businesses located in low-income communities.
The Company’s investments in entities that sponsor economic development projects provide income tax credits to offset federal taxable income over a specified period of time. Independent third parties manage these entities and have the power to direct the activities which most significantly affect their performance. Therefore, the Company is not the primary beneficiary of these entities and does not consolidate these VIEs as a result.
The Company applies the proportional amortization method to account for its LIHTC, renewable energy and NMTC investments. Under the proportional amortization method, the Company applies a practical expedient for its LIHTC and NMTC investments and amortizes the initial cost of qualifying investments in proportion to the income tax credits received in the current period as compared to the total income tax credits expected to be received over the life of the investment. For renewable energy investments, the Company amortizes the initial cost of qualifying investments in proportion to the income tax credits and other income tax benefits received in the current period as compared to the total income tax credits and other income tax benefits expected to be received over the life of the investment. The net amortization and income tax credits and other income tax benefits received are included as a component of income tax expense (benefit).
| | | | | | | | |
| | Citizens Financial Group, Inc. | 123 |
The following table summarizes the impact to the Consolidated Statements of Operations relative to the Company’s tax credit programs for which it has elected to apply the proportional amortization method of accounting:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
Tax credits recognized | $379 | | | $334 | | | $236 | |
Other tax benefits recognized | 93 | | | 71 | | | 59 | |
Amortization | (363) | | | (320) | | | (247) | |
| Net benefit (expense) included in income tax expense | 109 | | | 85 | | | 48 | |
| Other income | 4 | | | 5 | | | — | |
| Allocated income (loss) on investments | (12) | | | (10) | | | — | |
| Net benefit (expense) included in noninterest income | (8) | | | (5) | | | — | |
Net benefit (expense) included in the Consolidated Statements of Operations(1) | $101 | | | $80 | | | $48 | |
(1) Includes the impact of tax credit investments when the election to apply the proportional amortization method was in effect during the periods presented. For 2024 and 2023, this includes LIHTC, renewable energy and NMTC investments, and for 2022, includes LIHTC investments.
The Company did not recognize impairment losses resulting from the forfeiture or ineligibility of income tax credits or other circumstances during the years ended December 31, 2024, 2023 and 2022.
NOTE 12 - DEPOSITS
The following table presents the major components of deposits:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
Noninterest-bearing demand | $36,920 | | | $37,107 | |
| Money market | 55,321 | | | 53,812 | |
| Checking with interest | 33,246 | | | 31,876 | |
| Savings | 25,976 | | | 27,983 | |
Time | 23,313 | | | 26,564 | |
| Total deposits | $174,776 | | | $177,342 | |
The following table presents the maturity distribution of time deposits by year as of December 31, 2024:
| | | | | |
Year | (dollars in millions) |
| 2025 | $22,935 | |
| 2026 | 241 | |
| 2027 | 71 | |
| 2028 | 36 | |
| 2029 | 26 | |
| 2030 and thereafter | 4 | |
| Total | $23,313 | |
The following table presents the remaining maturities of time deposits with a denomination of $250,000 or more as of December 31, 2024:
| | | | | |
| (dollars in millions) | |
| Three months or less | $2,763 | |
| After three months through six months | 2,339 | |
| After six months through twelve months | 1,430 | |
| After twelve months | 50 | |
Total time deposits | $6,582 | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 124 |
NOTE 13 - BORROWED FUNDS
Short-term borrowed funds
The following table presents a summary of the Company’s short-term borrowed funds: | | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| | | |
| | | |
| Other short-term borrowed funds | $— | | | $505 | |
| Total short-term borrowed funds | $— | | | $505 | |
Long-term borrowed funds
The following table presents a summary of the Company’s long-term borrowed funds:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Parent Company: | | | |
3.750% fixed-rate subordinated debt, due July 2024 | $— | | | $90 | |
4.023% fixed-rate subordinated debt, due October 2024 | — | | | 17 | |
4.350% fixed-rate subordinated debt, due August 2025 | 133 | | | 133 | |
4.300% fixed-rate subordinated debt, due December 2025 | 336 | | | 336 | |
2.850% fixed-rate senior unsecured notes, due July 2026 | 499 | | | 499 | |
5.841% fixed/floating-rate senior unsecured notes, due January 2030 | 1,245 | | | — | |
2.500% fixed-rate senior unsecured notes, due February 2030 | 299 | | | 298 | |
3.250% fixed-rate senior unsecured notes, due April 2030 | 747 | | | 746 | |
3.750% fixed-rate reset subordinated debt, due February 2031 | 69 | | | 69 | |
4.300% fixed-rate reset subordinated debt, due February 2031 | 135 | | | 135 | |
4.350% fixed-rate reset subordinated debt, due February 2031 | 60 | | | 60 | |
5.718% fixed/floating-rate senior unsecured notes, due July 2032 | 1,243 | | | — | |
2.638% fixed-rate subordinated debt, due September 2032 | 570 | | | 563 | |
6.645% fixed/floating-rate senior unsecured notes, due April 2035 | 745 | | | — | |
5.641% fixed-rate reset subordinated debt, due May 2037 | 398 | | | 398 | |
| CBNA’s Global Note Program: | | | |
2.250% senior unsecured notes, due April 2025 | 750 | | | 749 | |
4.119% fixed/floating-rate senior unsecured notes, due May 2025(1) | — | | | 649 | |
6.064% fixed/floating-rate senior unsecured notes, due October 2025(2) | — | | | 599 | |
5.284% fixed/floating-rate senior unsecured notes, due January 2026 | 350 | | | 349 | |
3.750% senior unsecured notes, due February 2026 | 492 | | | 483 | |
4.575% fixed/floating-rate senior unsecured notes, due August 2028 | 798 | | | 798 | |
| Additional Borrowings by CBNA and Other Subsidiaries: | | | |
Federal Home Loan Bank advances, 3.243% weighted average rate, due through 2043(3) | 53 | | | 3,786 | |
Secured borrowings, 5.690% weighted average rate, due through 2031(3)(4) | 3,461 | | | 2,692 | |
| Other | 18 | | | 18 | |
| Total long-term borrowed funds | $12,401 | | | $13,467 | |
(1) Notes were redeemed on May 23, 2024.
(2) Notes were redeemed on October 24, 2024.
(3) Rate disclosed reflects the weighted average rate as of December 31, 2024.
(4) Collateralized by loans. See Note 11 for additional information.
At December 31, 2024, the Company’s long-term borrowed funds include principal balances of $12.5 billion, unamortized debt issuance costs and discounts of $85 million, and hedging basis adjustments of ($8) million. At December 31, 2023, the Company’s long-term borrowed funds include principal balances of $13.6 billion, unamortized debt issuance costs and discounts of $74 million, and hedging basis adjustments of ($17) million. See Note 14 for further information about the Company’s hedging of certain long-term borrowed funds.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 125 |
Advances, lines of credit and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized FHLB borrowing capacity, primarily for advances and letters of credit, was $4.6 billion and $9.2 billion at December 31, 2024 and 2023, respectively. The Company’s available FHLB borrowing capacity was $21.1 billion and $15.9 billion at December 31, 2024 and 2023, respectively. The Company can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At December 31, 2024, the Company’s unused secured borrowing capacity was approximately $74.0 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
The following table presents a summary of maturities for the Company’s long-term borrowed funds at December 31, 2024:
| | | | | | | | | | | |
| (dollars in millions) | Parent Company | CBNA and Other Subsidiaries | Consolidated |
| Year | | | |
| 2025 | $470 | | $876 | | $1,346 | |
| 2026 | 499 | | 1,902 | | 2,401 | |
| 2027 | — | | 4 | | 4 | |
| 2028 | — | | 2,700 | | 2,700 | |
| 2029 | — | | 1 | | 1 | |
| 2030 and thereafter | 5,510 | | 439 | | 5,949 | |
| Total | $6,479 | | $5,922 | | $12,401 | |
NOTE 14 - DERIVATIVES
In the normal course of business, the Company enters into derivative transactions to meet the financing and hedging needs of its customers and reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, certain commodities, forward commitments to sell TBAs, forward sale contracts and purchase options. The Company does not use derivatives for speculative purposes.
The Company’s derivative instruments are reported at fair value in the Consolidated Balance Sheets as derivative assets and derivative liabilities. Certain derivatives are cleared through central clearing houses. Cleared derivatives represent contracts executed bilaterally with counterparties in the OTC market that are novated to central clearing houses that become our counterparty. OTC-cleared derivative instruments are typically settled in cash each day based on their value from the previous day. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 20.
Derivative assets and liabilities are netted by counterparty in the Consolidated Balance Sheets if a “right of setoff” is established in a master netting agreement between the Company and the counterparty. This netted derivative asset or liability position is also netted against the fair value of any cash collateral that is pledged or received in accordance with a master netting agreement.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 126 |
The following table presents derivative instruments included in the Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Notional Amount | Derivative Assets | Derivative Liabilities | | Notional Amount | Derivative Assets | Derivative Liabilities |
| Derivatives designated as hedging instruments: | | | | | | | |
| Interest rate contracts | $69,077 | | $402 | | $5 | | | $86,895 | | $173 | | $44 | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Interest rate contracts | 171,193 | | 160 | | 905 | | | 185,993 | | 291 | | 1,105 | |
| Foreign exchange contracts | 34,749 | | 472 | | 411 | | | 32,528 | | 434 | | 378 | |
| Commodities contracts | 1,136 | | 429 | | 379 | | | 1,251 | | 685 | | 640 | |
| TBA contracts | 2,714 | | 10 | | 8 | | | 2,337 | | 3 | | 16 | |
| Other contracts | 615 | | 3 | | 2 | | | 549 | | 7 | | — | |
| Total derivatives not designated as hedging instruments | 210,407 | | 1,074 | | 1,705 | | | 222,658 | | 1,420 | | 2,139 | |
Total gross derivatives | 279,484 | | 1,476 | | 1,710 | | | 309,553 | | 1,593 | | 2,183 | |
Less: Gross amounts offset in the Consolidated Balance Sheets(1) | | (391) | | (391) | | | | (471) | | (471) | |
Less: Cash collateral applied(1) | | (677) | | (99) | | | | (682) | | (150) | |
Total net derivatives presented in the Consolidated Balance Sheets | | $408 | | $1,220 | | | | $440 | | $1,562 | |
(1) Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions, as well as collateral paid and received.
The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer facilitation and residential loan. Certain derivative transactions within these sub-groups are designated as fair value or cash flow hedges, as described below:
Derivatives Designated As Hedging Instruments
The Company’s institutional derivatives qualify for hedge accounting treatment. The net interest accruals on interest rate swaps designated in a fair value or cash flow hedge relationship are treated as an adjustment to interest income or interest expense of the item being hedged. All hedging relationships are formally documented at inception, as well as risk management objectives and strategies for undertaking various accounting hedges. In addition, the effectiveness of hedge relationships is monitored during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on the hedge relationship and each relationship is monitored to ensure that management’s initial intent continues to be satisfied. Hedge accounting treatment is discontinued when the derivative is terminated or when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge. Changes in the fair value of a derivative are reflected in earnings after termination of the hedge relationship.
Fair Value Hedges
In a fair value hedge, changes in the fair value of both the derivative instrument and the hedged asset or liability attributable to the risk being hedged are recognized in the same income statement line item in the Consolidated Statements of Operations when the changes in fair value occur. At December 31, 2024 and 2023, the Company has designated $4.7 billion and $4.0 billion, respectively, of interest rate swaps as fair value hedges of its fixed-rate prepayable AFS securities using the portfolio layer method. This approach allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows. The Company has also entered into fair value hedges to manage interest rate risk within its nonprepayable fixed-rate AFS securities and long-term borrowed funds portfolios.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 127 |
The following table presents the effect of fair value hedges on the Consolidated Statements of Operations and the respective line items affected for each hedged item:
| | | | | | | | | | | |
| Location and Amount of Gains (Losses) Recognized |
| Interest Income | Interest Expense |
| (dollars in millions) | Loans Held for Sale | Investment Securities | Long-Term Borrowed Funds |
| Year Ended December 31, 2024 | | | |
Gains (losses) on fair value hedges recognized on: | | | |
Hedged items | $— | | ($142) | | ($8) | |
Derivatives | — | | 147 | | 8 | |
| Amounts related to interest settlements on derivatives | — | | 107 | | (14) | |
Total net interest income recognized on fair value hedges | $— | | $112 | | ($14) | |
| Year Ended December 31, 2023 | | | |
Gains (losses) on fair value hedges recognized on: | | | |
Hedged items | $— | | $50 | | ($10) | |
Derivatives | — | | (48) | | 10 | |
| Amounts related to interest settlements on derivatives | — | | 10 | | (16) | |
Total net interest income recognized on fair value hedges | $— | | $12 | | ($16) | |
| Year Ended December 31, 2022 | | | |
Gains (losses) on fair value hedges recognized on: | | | |
Hedged items | ($13) | | ($29) | | $68 | |
Derivatives | 13 | | 29 | | (69) | |
| Amounts related to interest settlements on derivatives | — | | (3) | | 12 | |
Total net interest income recognized on fair value hedges | $— | | ($3) | | $11 | |
The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
| | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Debt securities available for sale(1) | Long-term borrowed funds | | | Debt securities available for sale(1) | Long-term borrowed funds |
Carrying amount of hedged assets(2) | $9,557 | | $— | | | | $7,253 | | $— | |
| Carrying amount of hedged liabilities | — | | 491 | | | | — | | 483 | |
| Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items | (97) | | (8) | | | | 60 | | (17) | |
(1) Includes the amortized cost basis of closed portfolios used to designate hedging relationships under the portfolio layer method. The hedged item is a layer of the closed portfolio which is expected to be remaining at the end of the hedging relationship. As of December 31, 2024 and 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $6.4 billion and $5.9 billion, respectively, including associated cumulative basis adjustments of $(75) million and $39 million, respectively. The amount of the designated hedging instruments was $4.7 billion and $4.0 billion at December 31, 2024 and 2023, respectively.
(2) Carrying amount represents amortized cost.
Cash Flow Hedges
In a cash flow hedge the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from AOCI into earnings in the period during which the hedged item affects earnings.
The Company has entered into interest rate swap agreements designed to hedge a portion of its floating-rate assets and liabilities. All of these swaps are deemed highly effective cash flow hedges. From time to time, the Company may also enter into certain interest rate option agreements that utilize interest rate floors and/or caps. Option premiums paid and received are excluded from the assessment of hedge effectiveness and are amortized over the life of the instruments.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 128 |
The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income related to derivative instruments designated as cash flow hedges:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
Pre-tax net gains (losses) recognized in OCI | ($725) | | | ($145) | | | ($1,806) | |
Pre-tax net gains (losses) reclassified from AOCI into interest income | (945) | | | (596) | | | (111) | |
Pre-tax net gains (losses) reclassified from AOCI into interest expense | (1) | | | — | | | (4) | |
Using the December 31, 2024 interest rate curve, the Company estimates that $718 million in pre-tax net losses related to cash flow hedge strategies will be reclassified from AOCI to net interest income over the next 12 months. These losses could differ from amounts recognized due to changes in interest rates, hedge de-designations or the addition of other hedges after December 31, 2024.
Derivatives Not Designated as Hedging Instruments
The Company offers derivatives to customers in connection with their risk management needs consisting primarily of interest rate, foreign exchange and commodity contracts. Market risk exposure from customer transactions is primarily managed by entering into a variety of hedging transactions with third-party dealers. Gains and losses on customer-related derivatives are reported in foreign exchange and derivatives products in the Consolidated Statements of Operations.
Residential mortgage loans that will be sold in the secondary market and the related loan commitments, which are considered derivatives, are accounted for at fair value. Forward contracts to sell mortgage-backed securities are utilized to hedge the fair value of the loans and related commitments. Gains and losses on the loans and related commitments, and the derivatives used to economically hedge them, are reported in mortgage banking fees in the Consolidated Statements of Operations.
Residential MSRs are accounted for at fair value. Derivatives utilized to hedge the fair value of residential MSRs include interest rate futures, swaps, options, and forward contracts to purchase mortgage-backed securities. Gains and losses on residential MSRs and the related derivatives are reported in mortgage banking fees in the Consolidated Statements of Operations.
The following table presents the effect of economic hedges on noninterest income:
| | | | | | | | | | | | | | | | | | | | |
| Amounts Recognized in Noninterest Income for the Year Ended December 31, | Affected Line Item in the Consolidated Statements of Operations |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Economic hedge type: | | | | | | |
| Customer interest rate contracts | ($773) | | | ($505) | | | ($2,027) | | Foreign exchange and derivative products |
| Derivatives hedging interest rate risk | 805 | | | 551 | | | 2,090 | | Foreign exchange and derivative products |
| Customer foreign exchange contracts | (223) | | | 94 | | | (180) | | Foreign exchange and derivative products |
| Derivatives hedging foreign exchange risk | 334 | | | 14 | | | 313 | | Foreign exchange and derivative products |
| Customer commodity contracts | 23 | | | (900) | | | 1,121 | | Foreign exchange and derivative products |
| Derivatives hedging commodity price risk | (7) | | | 941 | | | (1,097) | | Foreign exchange and derivative products |
| Residential loan commitments | (16) | | | (34) | | | (284) | | Mortgage banking fees |
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value | 19 | | | 25 | | | 489 | | Mortgage banking fees |
| Derivative contracts used to hedge residential MSRs | (91) | | | (33) | | | (313) | | Mortgage banking fees |
| Total | $71 | | | $153 | | | $112 | | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 129 |
NOTE 15 - EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company maintains a non-contributory pension plan (the “Citizens Qualified Plan”) that was closed to new hires and re-hires effective January 1, 2009, and frozen to all participants effective December 31, 2012. Benefits under the Citizens Qualified Plan are based on employees’ years of service and highest 5-year average of eligible compensation. The Citizens Qualified Plan is funded on a current basis, in compliance with the requirements of the Employee Retirement Income Security Act of 1974.
In connection with the Investors acquisition, effective June 30, 2022, the Company withdrew from a multi-employer plan and transferred the plan assets into a newly established defined benefit pension plan sponsored by the Company (the “Investors Qualified Plan”). The Investors Qualified Plan was closed to new hires and re-hires effective December 1, 2015, and future benefit accruals were frozen to all participants effective December 31, 2016.
The Citizens Qualified Plan and the Investors Qualified Plan are collectively referred to as the Company’s “Qualified Plans.”
The Company also provides an unfunded, non-qualified supplemental retirement plan which was closed and frozen effective December 31, 2012, as well as postretirement benefit plans. As part of the Investors acquisition in 2022, the Company also obtained other frozen, non-qualified supplemental retirement and postretirement benefit plans. These plans are collectively referred to as the Company’s “Non-Qualified Plans.”
The Company’s Qualified Plans and Non-Qualified Plans are collectively referred to as the Company’s “Pension Plans.” The Pension Plans’ investments include equity-oriented and fixed income-oriented investments including, but not limited to, government obligations, corporate bonds, and common and collective equity and fixed income funds.
The following table presents changes in the fair value of the Company’s Pension Plan assets, projected benefit obligation, funded status, and accumulated benefit obligation:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Qualified Plans | | Non-Qualified Plans |
| (dollars in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Fair value of plan assets as of January 1 | $1,281 | | | $1,182 | | | $— | | | $— | |
Return on plan assets | 86 | | | 169 | | | — | | | — | |
| Employer contributions | — | | | — | | | 20 | | | 5 | |
| Settlements | — | | | — | | | (11) | | | — | |
| | | | | | | |
| Benefits and administrative expenses paid | (67) | | | (70) | | | (9) | | | (5) | |
| | | | | | | |
| Fair value of plan assets as of December 31 | 1,300 | | | 1,281 | | | — | | | — | |
| Projected benefit obligation | 828 | | | 880 | | | 84 | | | 99 | |
| Pension asset (obligation) | $472 | | | $401 | | | ($84) | | | ($99) | |
| Accumulated benefit obligation | $828 | | | $880 | | | $84 | | | $99 | |
Actuarial losses related to the Pension Plans recognized in AOCI at December 31, 2024 and 2023 were $403 million and $446 million, respectively.
In 2025, the Company does not plan to contribute to the Qualified Plans and expects to contribute $10 million to the Non-Qualified Plans.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 130 |
The following table presents the components of net periodic benefit cost (income) and other changes in plan assets and benefit obligations recognized in OCI for the Company’s Pension Plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| Qualified Plans | | Non-Qualified Plans | | Total |
| (dollars in millions) | 2024 | 2023 | 2022 | | 2024 | 2023 | 2022 | | 2024 | 2023 | 2022 |
| Service cost | $3 | | $4 | | $3 | | | $— | | $— | | $— | | | $3 | | $4 | | $3 | |
| Interest cost | 45 | | 46 | | 34 | | | 5 | | 5 | | 3 | | | 50 | | 51 | | 37 | |
| Expected return on plan assets | (97) | | (92) | | (93) | | | — | | — | | — | | | (97) | | (92) | | (93) | |
| Amortization of actuarial loss | 13 | | 15 | | 11 | | | 1 | | 2 | | 3 | | | 14 | | 17 | | 14 | |
| | | | | | | | | | | |
| Settlement | — | | — | | — | | | 3 | | — | | — | | | 3 | | — | | — | |
Net periodic benefit cost (income)(1) | (36) | | (27) | | (45) | | | 9 | | 7 | | 6 | | | (27) | | (20) | | (39) | |
| Net actuarial loss (gain) | (23) | | (44) | | 71 | | | (3) | | 1 | | (19) | | | (26) | | (43) | | 52 | |
| | | | | | | | | | | |
Amortization of actuarial loss | (13) | | (15) | | (11) | | | (1) | | (2) | | (3) | | | (14) | | (17) | | (14) | |
| Settlement | — | | — | | — | | | (3) | | — | | — | | | (3) | | — | | — | |
| | | | | | | | | | | |
Total recognized in OCI | (36) | | (59) | | 60 | | | (7) | | (1) | | (22) | | | (43) | | (60) | | 38 | |
Total recognized in net periodic benefit cost (income) and OCI | ($72) | | ($86) | | $15 | | | $2 | | $6 | | ($16) | | | ($70) | | ($80) | | ($1) | |
(1) In the Consolidated Statements of Operations, service cost is presented in salaries and employee benefits and all other components of net periodic benefit cost (income) are presented in other operating expense.
Costs under the Company’s Pension Plans are actuarially computed and include current service costs and amortization of prior service costs over the participants’ average future working lifetime. The actuarial cost method used in determining the net periodic benefit cost is the projected unit method. During 2024, lump sum payments made under a Citizens Non-Qualified Plan triggered settlement accounting. In accordance with the applicable accounting guidance for defined benefit plans, the Company performed a remeasurement of the plan and recognized a settlement loss.
The following table presents the expected future benefit payments for the Company’s Pension Plans:
| | | | | |
| (dollars in millions) |
| Expected benefit payments by fiscal year ending: | |
| December 31, 2025 | $72 | |
| December 31, 2026 | 73 | |
| December 31, 2027 | 74 | |
| December 31, 2028 | 73 | |
| December 31, 2029 | 73 | |
| December 31, 2030 - 2034 | 352 | |
401(k) Plan
The Company sponsors a 401(k) Plan under which employee contributions are matched by the Company dollar for dollar up to 4% after the employee completes of one year of service. In addition, substantially all employees will receive an additional 1.5% of their eligible earnings after completion of one year of service, subject to limits set by the Internal Revenue Service. Amounts expensed by the Company were $84 million in 2024 compared to $78 million in 2023 and $86 million in 2022.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 131 |
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in the balances, net of income taxes, of each component of AOCI:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | Net Unrealized Gains (Losses) on Cash Flow Hedges | | Net Unrealized Gains (Losses) on Investment Securities | | Defined Benefit Plans | | Total AOCI |
| Balance at January 1, 2022 | | ($161) | | | ($156) | | | ($348) | | | ($665) | |
| Other comprehensive income (loss) before reclassifications | | (1,340) | | | (2,608) | | | (37) | | | (3,985) | |
| | | | | | | | |
| Amounts reclassified to the Consolidated Statements of Operations | | 85 | | | (7) | | | 12 | | | 90 | |
| Net other comprehensive income (loss) | | (1,255) | | | (2,615) | | | (25) | | | (3,895) | |
| | | | | | | | |
| Balance at December 31, 2022 | | ($1,416) | | | ($2,771) | | | ($373) | | | ($4,560) | |
| Other comprehensive income (loss) before reclassifications | | (106) | | | 350 | | | 28 | | | 272 | |
| | | | | | | | |
| Amounts reclassified to the Consolidated Statements of Operations | | 435 | | | 83 | | | 12 | | | 530 | |
| Net other comprehensive income (loss) | | 329 | | | 433 | | | 40 | | | 802 | |
| | | | | | | | |
| Balance at December 31, 2023 | | ($1,087) | | | ($2,338) | | | ($333) | | | ($3,758) | |
| Other comprehensive income (loss) before reclassifications | | (531) | | | (90) | | | 19 | | | (602) | |
| Amounts reclassified to the Consolidated Statements of Operations | | 693 | | | 59 | | | 13 | | | 765 | |
| Net other comprehensive income (loss) | | 162 | | | (31) | | | 32 | | | 163 | |
| | | | | | | | |
| Balance at December 31, 2024 | | ($925) | | | ($2,369) | | | ($301) | | | ($3,595) | |
| Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI | | Net interest income | | Securities gains, net and Net interest income | | Other operating expense | | |
NOTE 17 - STOCKHOLDERS’ EQUITY
Preferred Stock
The following table summarizes the Company’s preferred stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2024 | | 2023 |
| (dollars in millions, except per share data) | Liquidation value per share | | Preferred Shares | | Carrying Amount | | Preferred Shares | | Carrying Amount |
Authorized ($25 par value per share) | | | 100,000,000 | | | | | 100,000,000 | | | |
| Issued and outstanding: | | | | | | | | | |
| Series B | $1,000 | | 300,000 | | | $296 | | 300,000 | | | $296 |
| Series C | 1,000 | | | 300,000 | | | 297 | | | 300,000 | | | 297 | |
| Series D | 1,000 | | (1) | — | | | — | | | 300,000 | | (2) | 293 | |
| Series E | 1,000 | | (1) | 450,000 | | (3) | 437 | | | 450,000 | | | 437 | |
| Series F | 1,000 | | | 400,000 | | | 395 | | | 400,000 | | | 395 | |
| Series G | 1,000 | | | 300,000 | | | 296 | | | 300,000 | | | 296 | |
Series H | 1,000 | | (1) | 400,000 | | (4) | 392 | | | — | | | — | |
| Total | | | 2,150,000 | | | $2,113 | | 2,050,000 | | | $2,014 |
(1) Equivalent to $25 per depositary share.
(2) Represented by 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.
(3) Represented by 18,000,000 depositary shares each representing a 1/40th interest in the Series E Preferred Stock.
(4) Represented by 16,000,000 depositary shares each representing a 1/40th interest in the Series H Preferred Stock.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 132 |
On May 23, 2024, the Company issued $400 million, or 400,000 shares, of 7.375% fixed-rate non-cumulative perpetual Series H Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (the “Series H Preferred Stock”). As a result of this issuance, the Company received net proceeds of $392 million after underwriting fees and other expenses. The Series H Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. The Series H Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after July 6, 2029 or, in whole but not in part, at any time within the 90 days following a regulatory capital treatment event at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends. The Company may not redeem shares of the Series H Preferred Stock without the prior approval of the FRB or other appropriate federal banking agency as required under applicable capital rules. Except in limited circumstances or otherwise required by law, holders of the Series H Preferred Stock do not have any voting rights.
On July 8, 2024, the Company redeemed all outstanding shares of the 9.205% floating rate non-cumulative perpetual Series D Preferred Stock.
The following table provides information related to the Company’s preferred stock outstanding as of December 31, 2024:
| | | | | | | | | | | | | | | | | |
Preferred Stock(1) | Issue Date | Number of Shares Issued | Dividend Dates(2) | Annual Per Share Dividend Rate | Optional Redemption Date(3) |
| Series B | May 24, 2018 | 300,000 | Semi-annually beginning January 6, 2019 until July 6, 2023 | 6.000% until July 6, 2023 | July 6, 2023 |
| | | Quarterly beginning October 6, 2023 | 3 Mo. CME Term SOFR plus 3.265% beginning July 6, 2023 | |
| Series C | October 25, 2018 | 300,000 | Quarterly beginning January 6, 2019 until April 6, 2024 | 6.375% until April 6, 2024 | April 6, 2024 |
| | | Quarterly beginning July 6, 2024 | 3 Mo. CME Term SOFR plus 3.419% beginning April 6, 2024 | |
| Series E | October 28, 2019 | 450,000(4) | Quarterly beginning January 6, 2020 | 5.000% | January 6, 2025 |
| Series F | June 4, 2020 | 400,000 | Quarterly beginning October 6, 2020 until October 6, 2025 | 5.650% until October 6, 2025 | October 6, 2025 |
| | | Quarterly beginning January 6, 2026 | 5 Yr. US Treasury rate plus 5.313% beginning October 6, 2025 | |
| Series G | June 11, 2021 | 300,000 | Quarterly beginning October 6, 2021 until October 6, 2026 | 4.000% until October 6, 2026 | October 6, 2026 |
| | | Quarterly beginning January 6, 2027 | 5 Yr. US Treasury rate plus 3.215% beginning October 6, 2026 | |
Series H | May 23, 2024 | 400,000(5) | Quarterly beginning October 6, 2024 | 7.375% | July 6, 2029 |
(1) Series B and C are non-cumulative fixed-to-floating rate perpetual preferred stock, Series E and H are non-cumulative fixed-rate perpetual preferred stock, and Series F and G are non-cumulative fixed-rate reset perpetual preferred stock. Except in limited circumstances, each series of preferred stock does not have voting rights.
(2) Dividends are payable when declared by the Company’s Board of Directors or an authorized committee thereof.
(3) Redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after the date stated, or in whole but not in part, at any time within 90 days following a regulatory capital treatment event as defined in the applicable certificate of designations, in each case at a redemption price equal to $1,000 per share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Under current rules, any redemption is subject to approval by the FRB.
(4) Represented by 18,000,000 depositary shares each representing a 1/40th interest in the Series E Preferred Stock.
(5) Represented by 16,000,000 depositary shares each representing a 1/40th interest in the Series H Preferred Stock.
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| | Citizens Financial Group, Inc. | 133 |
Dividends
The following table summarizes the Company’s dividend activity for the years ended December 31, 2024, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2024 | | 2023 | | 2022 |
| (dollars in millions, except per share data) | | Dividends Declared per Share | Dividends Declared | Dividends Paid | | Dividends Declared per Share | Dividends Declared | Dividends Paid | | Dividends Declared per Share | Dividends Declared | Dividends Paid |
| Common stock | | $1.68 | | $769 | | $769 | | | $1.68 | | $808 | | $808 | | | $1.62 | | $779 | | $779 | |
| Preferred stock | | | | | | | | | | | | |
| Series B | | $84.92 | | $25 | | $26 | | | $74.49 | | $22 | | $25 | | | $60.00 | | $18 | | $18 | |
| Series C | | 80.78 | | 24 | | 23 | | | 63.75 | | 19 | | 19 | | | 63.75 | | 19 | | 19 | |
| Series D | | 39.66 | | 12 | | 17 | | | 63.50 | | 19 | | 19 | | | 63.50 | | 19 | | 19 | |
| Series E | | 50.00 | | 23 | | 23 | | | 50.00 | | 22 | | 22 | | | 50.00 | | 22 | | 22 | |
| Series F | | 56.50 | | 23 | | 23 | | | 56.50 | | 23 | | 23 | | | 56.50 | | 23 | | 23 | |
| Series G | | 40.00 | | 12 | | 12 | | | 40.00 | | 12 | | 12 | | | 40.00 | | 12 | | 12 | |
Series H | | 45.68 | | 18 | | 10 | | | — | | — | | — | | | — | | — | | — | |
| Total preferred stock | | | $137 | | $134 | | | | $117 | | $120 | | | | $113 | | $113 | |
Treasury Stock
The purchase of the Company’s common stock is recorded at cost. Upon retirement, or if subsequently reissued, treasury stock is reduced by the cost of such stock on a first-in, first-out basis with differences recorded in additional paid-in capital or retained earnings, as applicable.
During the years ended December 31, 2024 and 2023, the Company repurchased $1.1 billion, or 28,113,278 shares, and $906 million, or 28,473,805 shares, respectively, of its outstanding common stock, which are held in treasury stock.
NOTE 18 - SHARE-BASED COMPENSATION
The Company has share-based employee compensation plans as outlined below, pursuant to which awards are granted to employees and non-employee directors. The Company grants time-based restricted stock units and performance-based restricted stock units, which represent the right to receive shares of stock on a future date subject to applicable vesting conditions.
Amended & Restated Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan. The Company grants select employees time-based and performance-based restricted stock units under this plan. Time-based restricted stock units generally become vested ratably over a 3-year period and performance-based restricted stock units generally become vested in a single installment at the end of a 3-year performance period, depending on the level of performance achieved during such period relative to established targets. If a dividend is paid on shares underlying the awards prior to the date such shares are distributed, those dividends will be distributed following vesting in the same form as the dividend that was paid to common stockholders generally.
Amended & Restated Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan. The Company grants time-based restricted stock units to non-employee directors as compensation for their services under this plan. Restricted stock units granted to directors are fully vested on the grant date, with settlement of the awards deferred until a director’s cessation of service. If a dividend is paid on the shares underlying the awards prior to the date such shares are distributed, they are reinvested into additional restricted stock units.
Amended & Restated Citizens Financial Group, Inc. 2014 Employee Stock Purchase Plan. This plan provides eligible employees an opportunity to purchase CFG common stock at a 10% discount. Participants may contribute up to 10% of eligible compensation to the ESPP and may purchase up to $25,000 worth of stock in any calendar year. Offering periods under the ESPP are quarterly, with shares of CFG common stock purchased on the last day of each quarter at a 10% discount from the fair market value, defined as the closing price on the day of purchase. Prior to the date the shares are purchased, participants have no rights or privileges as a stockholder with respect to shares purchased at the end of the offering period.
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| | Citizens Financial Group, Inc. | 134 |
Restricted Stock Unit Activity
The following table presents the activity related to the Company’s restricted stock units:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| Units | | Weighted-Average Grant Price | | Units | | Weighted-Average Grant Price | | Units | | Weighted-Average Grant Price |
| Outstanding, January 1 | 4,573,657 | | | $42.23 | | | 3,876,601 | | | $43.06 | | | 3,502,956 | | | $38.23 | |
| | | | | | | | | | | |
Granted | 4,080,812 | | | 33.62 | | | 2,575,234 | | | 39.88 | | | 1,844,352 | | | 48.12 | |
Vested & Distributed | (1,791,746) | | | 43.12 | | | (1,729,136) | | | 40.84 | | | (1,359,543) | | | 37.47 | |
Forfeited | (184,555) | | | 37.56 | | | (149,042) | | | 42.92 | | | (111,164) | | | 43.36 | |
| Outstanding, December 31 | 6,678,168 | | | $36.86 | | | 4,573,657 | | | $42.23 | | | 3,876,601 | | | $43.06 | |
The total fair value of restricted stock units that vested during the years ended December 31, 2024, 2023 and 2022 was $77 million, $71 million, and $51 million, respectively.
There are 12,847,704 shares of common stock available for awards to be granted under the Omnibus Plan and Directors Plan. In addition, there are 7,709,853 shares available for issuance under the ESPP. Upon settlement of share-based awards, the Company generally issues new shares, but may also issue shares from treasury stock.
Compensation Expense
The Company measures compensation expense related to stock awards based upon the fair value of the awards on the grant date, with adjustments made for forfeitures as they occur. The expense is charged to earnings on a straight-line basis over the requisite service period (i.e., vesting period) of the award. Compensation expense for performance-based stock awards is adjusted upward or downward based upon the probability of achievement of performance. Awards that continue to vest after retirement are expensed over the period of time from the grant date to the final vesting date or from the grant date to the date when an employee is retirement eligible, whichever is shorter. Awards granted to employees who are retirement eligible at the grant date are generally expensed immediately.
Share-based compensation expense was $97 million, $87 million and $84 million for the years ended December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, the total unrecognized compensation expense for unvested awards granted was $105 million. This expense is expected to be recognized over a weighted-average period of approximately two years.
The Company recognized income tax benefits related to share-based compensation arrangements of $16 million for the years ended December 31, 2024 and 2023, and $19 million for the year ended December 31, 2022.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
A summary of outstanding off-balance sheet arrangements is presented below:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Commitments to extend credit | $93,460 | | | $94,201 | |
| Letters of credit | 1,845 | | | 1,977 | |
| Loans sold with recourse | 93 | | | 96 | |
| Marketing rights | 14 | | | 18 | |
| Risk participation agreements | 1 | | | 3 | |
| Total | $95,413 | | | $96,295 | |
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. These commitments generally have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
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| | Citizens Financial Group, Inc. | 135 |
Letters of Credit
Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Financial and performance standby letters of credit are issued by the Company for the benefit of its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments. Letters of credit are generally secured, with collateral including, but not limited to, cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amount of allowances for unfunded commitments. Standby letters of credit and commercial letters of credit are issued for terms of up to two years and one year, respectively.
Other Commitments
The Company has additional off-balance sheet arrangements that are summarized below:
•Marketing Rights - During 2003, the Company entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.
•Loans sold with recourse - the Company is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to GSEs. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. The Company also sells the government guaranteed portion of certain SBA loans to outside investors, for which it retains the servicing rights.
•Risk Participation Agreements - RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. The current amount of credit exposure is spread out over multiple counterparties. At December 31, 2024, the remaining terms on these RPAs ranged from less than one year to nine years.
Contingencies
The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, and mortgage-related issues. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.
In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, and based on the Company's experience, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question. The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.
Based on information currently available, the advice of legal counsel and other advisers, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s Consolidated Financial Statements.
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| | Citizens Financial Group, Inc. | 136 |
NOTE 20 - FAIR VALUE MEASUREMENTS
The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Fair value is also used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Fair value measurement guidance is also applied to determine amounts reported for certain disclosures in this Note for assets and liabilities that are not required to be reported at fair value in the financial statements.
Fair Value Option
The Company elected to account for residential mortgage LHFS and certain commercial LHFS at fair value. The election of the fair value option for financial assets and liabilities is optional and irrevocable. Applying fair value accounting to residential mortgage LHFS better aligns the reported results of the economic changes in the value of these loans and their related economic hedge instruments. Certain commercial LHFS are managed by a commercial secondary loan desk that provides liquidity to banks, finance companies and institutional investors. Fair value accounting is applied to these loans since the Company holds these loans with the intent to sell them in the near-term.
The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Aggregate Fair Value | Aggregate Unpaid Principal | Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal | | Aggregate Fair Value | Aggregate Unpaid Principal | Aggregate Fair Value Greater (Less) Than Aggregate Unpaid Principal |
Residential mortgage loans held for sale | $633 | | $625 | | $8 | | | $614 | | $593 | | $21 | |
Commercial loans held for sale | 192 | | 199 | | (7) | | | 62 | | 69 | | (7) | |
Residential Mortgage Loans Held for Sale
The fair value of residential mortgage LHFS is derived from observable mortgage security prices and includes adjustments for loan servicing value, agency guarantee fees, and other loan level attributes which are observable in the marketplace. Credit risk does not have a significant impact on the valuation of these loans as they are sold shortly after origination. Residential mortgage LHFS are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these loans.
Residential mortgage loans accounted for under the fair value option are initially measured at fair value when the financial asset is originated or purchased. Subsequent changes in fair value are recognized in mortgage banking fees in the Consolidated Statements of Operations.
Interest income on residential mortgage loans held for sale is calculated based on the contractual interest rate of the loan and is recorded in interest income in the Consolidated Statements of Operations.
Commercial Loans Held for Sale
The fair value of commercial LHFS is estimated using observable prices of similar loans that transact in the marketplace. External pricing services that provide fair value estimates based on quotes from various dealers transacting in the market, sector curves or benchmarking techniques are also utilized. Commercial loans managed by the commercial secondary loan desk are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these loans.
These commercial loans accounted for under the fair value option are initially measured at fair value when the financial asset is recognized. Subsequent changes in fair value are recognized in capital markets fees in the Consolidated Statements of Operations. Changes in the fair value of the commercial trading portfolio are due to changes in credit risk since the portfolio is comprised of floating-rate obligations only. These credit-related changes may include observed changes in overall credit spreads and/or changes to the creditworthiness of an individual borrower.
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| | Citizens Financial Group, Inc. | 137 |
Interest income on commercial LHFS is calculated based on the contractual interest rate of the loan and is recorded in interest income in the Consolidated Statements of Operations.
Recurring Fair Value Measurements
Fair value is measured using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices in an active market, if available, or observable market-based inputs or independently sourced parameters if quoted prices are not available. Inputs may include prices for similar assets or liabilities, yield curves, interest rates, prepayment speeds, and foreign exchange rates.
The Company carries certain assets and liabilities at fair value and has elected to account for its residential mortgage LHFS and loans managed by the commercial secondary loan trading desk at fair value. Assets and liabilities carried at fair value are classified in accordance with the three-level valuation hierarchy:
•Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by market data for substantially the full term of the asset or liability.
•Level 3. Unobservable inputs that are supported by little or no market information and that are significant to the fair value measurement.
Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Levels 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data.
Fair value hierarchy classifications are reviewed and updated on a quarterly basis. Changes related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on period-end balances.
A variety of valuation techniques are utilized to measure the Company’s assets and liabilities at fair value on a recurring basis, with those utilized for significant assets and liabilities presented below:
Debt Securities Available for Sale
AFS debt securities are classified as Level 1 in the fair value hierarchy if quoted prices in active markets are available. Classes of securities that are valued using this market approach include debt securities issued by the U.S. Treasury. The fair value of a security is estimated under the market or income approach using pricing models if quoted market prices are not available. These securities are classified as Level 2 since they trade in active markets and the inputs to their valuations are observable. The pricing models used to value securities generally commence with market prices, or rates, for similar instruments, with adjustments made based on the characteristics of the instrument being valued. These adjustments reflect assumptions made regarding the sensitivity of each security’s value to changes in interest rates and prepayment speeds. Classes of securities that are valued using this market approach include pooled mortgage “pass-through” securities, collateralized loan obligations, and other debt securities issued by U.S. GSEs and state and political subdivisions. The pricing models used to value securities under the income approach generally commence with the contractual cash flows of each security, with adjustments made based on forecasted prepayment speeds, default rates, and other market-observable information. The adjusted cash flows are then discounted at a rate derived from observed rates of return for comparable assets or liabilities that are traded in the market. Classes of instruments that are valued using this market approach include residential and commercial CMOs.
A majority of the Company’s Level 1 and 2 debt securities are priced using an external pricing service. The pricing accuracy of this service is verified on a quarterly basis and involves the use of a secondary external vendor to provide valuations for the Company’s securities portfolio for comparison purposes. Any valuation discrepancies exceeding a certain threshold are researched and, if necessary, corroborated by an independent outside broker.
In certain cases where there is limited activity or less transparency around inputs to the valuation model, securities are classified as Level 3.
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| | Citizens Financial Group, Inc. | 138 |
Mortgage Servicing Rights
MSRs do not trade in an active market with readily observable prices and, therefore, are classified as Level 3 since their valuation utilizes significant unobservable inputs. The fair value is determined using a discounted cash flow model, which includes assumptions associated with weighted-average life, prepayment speed, and weighted-average option adjusted spread. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio and comparisons to market transactions. Refer to Note 8 for more information.
Derivatives
The Company’s interest rate derivatives are traded in OTC markets where quoted market prices are not readily available. Fair value is determined through models that primarily use market observable inputs, such as swap rates and yield curves. These pricing models determine the sum of each instrument’s fixed and variable cash flows, which are then discounted using an appropriate yield curve to arrive at the fair value of each derivative instrument. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgment. Certain adjustments to the modeled price that market participants would make when pricing each instrument are also considered, including a credit valuation adjustment that reflects the credit quality of the derivative counterparty. The effect of exposure to a particular counterparty’s credit is incorporated by netting their derivative contracts with the available collateral and calculating a credit valuation adjustment on the basis of the net position with the counterparty where permitted. This adjustment requires judgment on behalf of Company management; however, the total amount of this portfolio-level adjustment is not material to the total fair value of the interest rate derivative portfolio. Therefore, interest rate derivatives are classified as Level 2 in the fair value hierarchy.
The fair value of commodity derivatives uses the mid-point of market observable quoted prices as an input into the fair value model. These observed market prices, combined with other market observed inputs to derive the fair value of the instrument, generally classifies the commodity derivative as a Level 2 instrument.
The fair value of foreign exchange derivatives uses the mid-point of daily quoted currency spot prices. The valuation model estimates fair value based on these quoted prices along with interest rate yield curves and forward currency rates. Since all of these inputs are observable in the market, foreign exchange derivatives are classified as Level 2 in the fair value hierarchy.
The fair value of TBA contracts is estimated using observable prices of similar loan pools that transact in the marketplace, as well as sector curves and benchmarking techniques. Therefore, TBA contracts are classified as Level 2 in the fair value hierarchy given the observable market inputs.
Other contracts primarily consist of interest rate lock commitments, which are valued utilizing loan closing rate assumptions that are internally generated. These assumptions are a significant unobservable input and, therefore, interest rate lock commitments are classified as Level 3 in the fair value hierarchy.
Equity Securities, at fair value
The fair value of money market mutual fund investments is determined based on unadjusted quoted market prices and is considered a Level 1 fair value measurement.
Short-Term Investments
Short-term investments include corporate bonds and U.S. Treasury securities managed by the Company’s trading desks. U.S. Treasury securities are classified as Level 1 in the fair value hierarchy as quoted prices in active markets are readily available. The fair value of corporate bonds is estimated using a combination of direct market quotes for a particular bond, or a comparable bond if recent market data is not available, and a discounted cash flow model that incorporates certain credit attributes of the bond issuer. External pricing services are utilized to corroborate the fair value of corporate bonds, which may result in an adjustment to the underlying bond’s valuation if price differences exceed certain thresholds. Corporate bonds are classified as Level 2 in the fair value hierarchy given the observable market inputs utilized to value these instruments. Short-term investments are included in interest-bearing deposits in banks in the Consolidated Balance Sheets.
Short-Term Borrowed Funds
Short-term borrowed funds include short positions in corporate bonds held by the Company’s trading desks and are classified as Level 2 in the fair value hierarchy. See “Short-term investments” above for more information regarding the valuation techniques utilized to value corporate bonds.
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| | Citizens Financial Group, Inc. | 139 |
Other Liabilities
Other liabilities include short positions in commercial LHFS managed by the Company’s commercial secondary loan desk and are classified as Level 2 in the fair value hierarchy. See “Commercial Loans Held for Sale” above for more information regarding the valuation techniques utilized to value commercial LHFS.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2024:
| | | | | | | | | | | | | | |
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 |
| Debt securities available for sale: | | | | |
| Mortgage-backed securities | $29,055 | | $— | | $29,055 | | $— | |
| Collateralized loan obligations | 184 | | — | | 184 | | — | |
| State and political subdivisions | 1 | | — | | 1 | | — | |
| U.S. Treasury and other | 3,525 | | 3,525 | | — | | — | |
| Total debt securities available for sale | 32,765 | | 3,525 | | 29,240 | | — | |
Loans held for sale: | | | | |
| Residential loans held for sale | 633 | | — | | 633 | | — | |
| Commercial loans held for sale | 192 | | — | | 192 | | — | |
| Total loans held for sale, at fair value | 825 | | — | | 825 | | — | |
| Mortgage servicing rights | 1,491 | | — | | — | | 1,491 | |
| Derivative assets: | | | | |
| Interest rate contracts | 562 | | — | | 562 | | — | |
| Foreign exchange contracts | 472 | | — | | 472 | | — | |
| Commodities contracts | 429 | | — | | 429 | | — | |
| TBA contracts | 10 | | — | | 10 | | — | |
| Other contracts | 3 | | — | | — | | 3 | |
| Total derivative assets | 1,476 | | — | | 1,473 | | 3 | |
Equity securities, at fair value(1) | 162 | | 162 | | — | | — | |
Short-term investments | 53 | | 40 | | 13 | | — | |
| Total assets | $36,772 | | $3,727 | | $31,551 | | $1,494 | |
| Derivative liabilities: | | | | |
| Interest rate contracts | $910 | | $— | | $910 | | $— | |
| Foreign exchange contracts | 411 | | — | | 411 | | — | |
| Commodities contracts | 379 | | — | | 379 | | — | |
| TBA contracts | 8 | | — | | 8 | | — | |
| Other contracts | 2 | | — | | — | | 2 | |
| Total derivative liabilities | 1,710 | | — | | 1,708 | | 2 | |
Short-term borrowed funds | — | | — | | — | | — | |
Other liabilities | 101 | | — | | 101 | | — | |
| Total liabilities | $1,811 | | $— | | $1,809 | | $2 | |
(1) Excludes investments of $58 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $24 million at December 31, 2024, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 140 |
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, 2023:
| | | | | | | | | | | | | | |
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 |
| Debt securities available for sale: | | | | |
| Mortgage-backed securities | $24,732 | | $— | | $24,732 | | $— | |
| Collateralized loan obligations | 664 | | — | | 664 | | — | |
| State and political subdivisions | 1 | | — | | 1 | | — | |
| U.S. Treasury and other | 4,380 | | 4,380 | | — | | — | |
| Total debt securities available for sale | 29,777 | | 4,380 | | 25,397 | | — | |
Loans held for sale: | | | | |
| Residential loans held for sale | 614 | | — | | 614 | | — | |
| Commercial loans held for sale | 62 | | — | | 62 | | — | |
| Total loans held for sale, at fair value | 676 | | — | | 676 | | — | |
| Mortgage servicing rights | 1,552 | | — | | — | | 1,552 | |
| Derivative assets: | | | | |
| Interest rate contracts | 464 | | — | | 464 | | — | |
| Foreign exchange contracts | 434 | | — | | 434 | | — | |
| Commodities contracts | 685 | | — | | 685 | | — | |
| TBA contracts | 3 | | — | | 3 | | — | |
| Other contracts | 7 | | — | | — | | 7 | |
| Total derivative assets | 1,593 | | — | | 1,586 | | 7 | |
Equity securities, at fair value(1) | 115 | | 115 | | — | | — | |
| Total assets | $33,713 | | $4,495 | | $27,659 | | $1,559 | |
| Derivative liabilities: | | | | |
| Interest rate contracts | $1,149 | | $— | | $1,149 | | $— | |
| Foreign exchange contracts | 378 | | — | | 378 | | — | |
| Commodities contracts | 640 | | — | | 640 | | — | |
| TBA contracts | 16 | | — | | 16 | | — | |
| Other contracts | — | | — | | — | | — | |
| Total derivative liabilities | 2,183 | | — | | 2,183 | | — | |
| | | | |
| | | | |
| Total liabilities | $2,183 | | $— | | $2,183 | | $— | |
(1) Excludes investments of $58 million included in other assets in the Consolidated Balance Sheets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient. These investments include capital contributions to private investment funds and have unfunded capital commitments of $28 million at December 31, 2023, which may be called at any time during prescribed time periods. The credit exposure is generally limited to the carrying amount of investments made and unfunded capital commitments.
The following table presents a roll forward of the balance sheet amounts for assets and liabilities measured at fair value on a recurring basis and classified as Level 3:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2024 | | 2023 |
| (dollars in millions) | Mortgage Servicing Rights | | Other Derivative Contracts | | Mortgage Servicing Rights | | Other Derivative Contracts |
| Beginning balance | $1,552 | | | $7 | | | $1,530 | | | $1 | |
| Issuances | 106 | | | 60 | | | 127 | | | 64 | |
| | | | | | | |
Sales(1) | (99) | | | — | | | — | | | — | |
Settlements(2) | (176) | | | (41) | | | (166) | | | (24) | |
Changes in fair value during the period recognized in earnings(3) | 108 | | | (25) | | | 61 | | | (34) | |
| Ending balance | $1,491 | | | $1 | | | $1,552 | | | $7 | |
(1) For MSRs, represents the sale of the excess servicing yield on MSRs.
(2) For MSRs, represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial paydowns, and ii) loans that paid off during the period. For other derivative contracts, represents the closeout of interest rate lock commitments and other cash payments.
(3) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees and other income in the Consolidated Statements of Operations.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 141 |
The following table presents quantitative information about significant unobservable inputs utilized to measure the fair of Level 3 assets and liabilities.
| | | | | | | | | | | | | | | | | |
| | | As of December 31, 2024 | | As of December 31, 2023 |
Financial Instrument(1) | Valuation Technique | Unobservable Input | Range (Weighted Average) | | Range (Weighted Average) |
| Mortgage servicing rights | Discounted Cash Flow | Constant prepayment rate | 5.08-16.32% CPR (6.70% CPR) | | 6.70-14.55% CPR (7.23% CPR) |
| Option adjusted spread | 398-1,058 bps (632 bps) | | 398-1,058 bps (630 bps) |
| Other derivative contracts | Internal Model | Pull through rate | 5.09-99.90% (83.06%) | | 24.90-99.70% (80.34%) |
| MSR value | 23.91-171.64 bps (121.23 bps) | | (8.90)-141.24 bps (88.04 bps) |
(1) Disclosures related to the fair value measurement of financial instruments deemed immaterial are not included.
Nonrecurring Fair Value Measurements
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. The following valuation techniques are utilized to measure significant assets for which the Company utilizes fair value on a nonrecurring basis:
Collateral-Dependent Loans
The carrying amount of collateral-dependent loans is compared to the appraised value of the collateral less costs to dispose, with any excess charged to the ALLL, and is classified as Level 2.
The following table presents losses on assets measured at fair value on a nonrecurring basis and recorded in earnings:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Collateral-dependent loans | ($200) | | | ($138) | | | ($4) | |
The following table presents assets measured at fair value on a nonrecurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 | | December 31, 2023 |
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | | Total | Level 1 | Level 2 | Level 3 |
| Collateral-dependent loans | $979 | | $— | | $979 | | $— | | | $789 | | $— | | $789 | | $— | |
Fair Value of Financial Instruments
The following tables present the estimated fair value for financial instruments not recorded at fair value in the Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (dollars in millions) | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value |
| Financial assets: | | | | | | | | | | | |
| Debt securities held to maturity | $8,599 | | $7,540 | | | $— | | $— | | | $8,187 | | $7,136 | | | $412 | | $404 | |
Loans held for sale | 33 | | 33 | | | — | | — | | | — | | — | | | 33 | | 33 | |
Net loans and leases | 137,142 | | 136,293 | | | — | | — | | | 979 | | 979 | | | 136,163 | | 135,314 | |
| Other assets | 710 | | 710 | | | — | | — | | | 689 | | 689 | | | 21 | | 21 | |
| Financial liabilities: | | | | | | | | | | | |
| Deposits | 174,776 | | 174,651 | | | — | | — | | | 174,776 | | 174,651 | | | — | | — | |
| | | | | | | | | | | |
| Long-term borrowed funds | 12,401 | | 12,247 | | | — | | — | | | 12,401 | | 12,247 | | | — | | — | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 142 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (dollars in millions) | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value | | Carrying Value | Estimated Fair Value |
| Financial assets: | | | | | | | | | | | |
| Debt securities held to maturity | $9,184 | | $8,350 | | | $— | | $— | | | $8,696 | | $7,887 | | | $488 | | $463 | |
Loans held for sale | 103 | | 103 | | | — | | — | | | — | | — | | | 103 | | 103 | |
Net loans and leases | 143,861 | | 140,504 | | | — | | — | | | 789 | | 789 | | | 143,072 | | 139,715 | |
| Other assets | 869 | | 869 | | | — | | — | | | 851 | | 851 | | | 18 | | 18 | |
| Financial liabilities: | | | | | | | | | | | |
| Deposits | 177,342 | | 177,096 | | | — | | — | | | 177,342 | | 177,096 | | | — | | — | |
| Short-term borrowed funds | 505 | | 505 | | | — | | — | | | 505 | | 505 | | | — | | — | |
| Long-term borrowed funds | 13,467 | | 13,012 | | | — | | — | | | 13,467 | | 13,012 | | | — | | — | |
NOTE 21 - NONINTEREST INCOME
Revenues from Contracts with Customers
Revenue from contracts with customers is recognized based on the amount of consideration expected to be received upon the transfer of control of a good or service. The timing of recognition is dependent on whether a performance obligation is satisfied by transferring control of the product or service to a customer over time or at a point in time. Judgments made include the timing of when performance obligations are satisfied and determination of the transaction price.
The following tables present the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2024 |
| (dollars in millions) | Consumer Banking | Commercial Banking | Non-Core | Other | Consolidated |
| Service charges and fees | $288 | | $128 | | $— | | $1 | | $417 | |
| Card fees | 284 | | 54 | | — | | 24 | | 362 | |
| Capital markets fees | — | | 445 | | — | | — | | 445 | |
Wealth fees(1) | 294 | | — | | — | | — | | 294 | |
| Other banking fees | 3 | | 12 | | — | | — | | 15 | |
| Total revenue from contracts with customers | $869 | | $639 | | $— | | $25 | | $1,533 | |
Total revenue from other sources(2) | 262 | | 269 | | — | | 112 | | 643 | |
| Total noninterest income | $1,131 | | $908 | | $— | | $137 | | $2,176 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (dollars in millions) | Consumer Banking | Commercial Banking | Non-Core | Other | Consolidated |
| Service charges and fees | $277 | | $131 | | $— | | $1 | | $409 | |
| Card fees | 244 | | 47 | | — | | — | | 291 | |
| Capital markets fees | — | | 293 | | — | | — | | 293 | |
Wealth fees(1) | 259 | | — | | — | | — | | 259 | |
| Other banking fees | 3 | | 11 | | — | | — | | 14 | |
| Total revenue from contracts with customers | $783 | | $482 | | $— | | $1 | | $1,266 | |
Total revenue from other sources(2) | 284 | | 302 | | — | | 131 | | 717 | |
| Total noninterest income | $1,067 | | $784 | | $— | | $132 | | $1,983 | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 143 |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (dollars in millions) | Consumer Banking | Commercial Banking | Non-Core | Other | Consolidated |
| Service charges and fees | $291 | | $124 | | $— | | $3 | | $418 | |
| Card fees | 228 | | 43 | | — | | — | | 271 | |
| Capital markets fees | — | | 341 | | — | | — | | 341 | |
Wealth fees(1) | 249 | | 1 | | — | | — | | 250 | |
| Other banking fees | 1 | | 17 | | — | | 1 | | 19 | |
| Total revenue from contracts with customers | $769 | | $526 | | $— | | $4 | | $1,299 | |
Total revenue from other sources(2) | 294 | | 319 | | — | | 97 | | 710 | |
| Total noninterest income | $1,063 | | $845 | | $— | | $101 | | $2,009 | |
(1) See Note 1 for information regarding updates to the Consolidated Statements of Operations during 2024.
(2) Includes bank-owned life insurance income of $108 million, $93 million and $88 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The Company does not have any material contract assets, liabilities, or other receivables recorded on its Consolidated Balance Sheets related to revenues from contracts with customers as of December 31, 2024. The Company has elected to exclude disclosure of unsatisfied performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognized revenue at the amount to which the Company has the right to invoice for services performed.
A description of the above components of revenue from contracts with customers is presented below:
Service Charges and Fees
Service charges and fees include fees earned from deposit products in lieu of compensating balances, service charges for deposit transactions performed by customers, and fees earned for cash management activities. Service charges on deposit products are recognized over the period in which the related service is provided and at a point in time upon completion of the requested service transaction. Fees on cash management products and servicing fees on loans sold without recognition of a servicing right are recognized over time as the services are provided.
Card Fees
Card fees include interchange income from credit and debit card transactions and are recognized upon settlement by the association network. Interchange rates are generally set by the association network based on purchase volume and other factors. Other card-related fees are recognized upon completion of the transaction. Costs related to card reward programs are recognized in current earnings as the rewards are earned by the customer and are presented as a reduction to card fees in the Consolidated Statements of Operations.
Capital Markets Fees
Capital markets fees include fees received from leading or participating in loan syndications, bond and equity underwriting services, and advisory fees. Loan syndication and underwriting fees are recognized as revenue when the Company has rendered all services to, and is entitled to collect the fee from, the borrower or the issuer, and there are no significant contingencies associated with the fee. Underwriting expenses passed through from the lead underwriter are recognized within other operating expense in the Consolidated Statements of Operations. Advisory fees for mergers and acquisitions are recognized over time, while valuation services and fairness opinions are recognized upon completion of the advisory service.
Wealth Fees
Wealth fees include fees from investment management and brokerage services. Fees from investment management services are based on asset market values and are recognized over the period in which the related service is provided. Brokerage services include custody fees, commission income, trailing commissions and other investment services. Custody fees are recognized on a monthly basis and commission income is recognized on trade date. Trailing commissions, such as 12b-1 fees, insurance renewal income, and income based on asset or investment levels in future periods are recognized when the asset balance is known, or the renewal occurs and the income is no longer constrained. For the years ended December 31, 2024, 2023 and 2022, the Company recognized trailing commissions of $16 million, $15 million and $15 million, respectively, related to ongoing commissions from previous investment sales. Fees from other investment services are recognized upon completion of the service.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 144 |
Other Banking Fees
Other banking fees include fees for various banking transactions such as letter of credit fees, foreign wire transfers and other services. These fees are recognized in a manner that reflects the timing of when transactions occur and as services are provided.
Revenue from Other Sources
Letter of Credit and Loan Fees
Letter of credit and loan fees primarily include fees received from letter of credit agreements as well as loan fees received from lending activities that cannot be deferred. These fees are recognized upon execution of the contract.
Foreign Exchange and Derivative Products
Foreign exchange and derivative products primarily include fees received from foreign exchange and interest rate derivative contracts executed with customers to meet their hedging and financing needs. These fees are generally recognized upon execution of the contracts. Foreign exchange and derivative products also include mark-to-market gains and losses recognized on these customer contracts and offsetting derivative contracts that are executed with external counterparties to hedge the foreign exchange and interest rate risk associated with the customer contracts.
Mortgage Banking Fees
Mortgage banking fees primarily include gains, or losses, on the sale of residential mortgages originated with the intent to sell and servicing fees on mortgages serviced by the Company. Mortgage banking fees also include valuation adjustments for mortgage LHFS that are measured at the lower of cost or fair value, as well as mortgage loans originated with the intent to sell that are measured at fair value under the fair value option. Changes in the value of MSRs are reported in mortgage banking fees. For a further discussion of MSRs, see Note 8.
Other Income
Bank-owned life insurance is stated at its cash surrender value. The Company is the beneficiary of life insurance policies on current and former officers of the Company. Net changes in the carrying amount of the cash surrender value are an adjustment of premiums paid in determining the expense or income recognized under the life insurance policy for the period.
NOTE 22 - OTHER OPERATING EXPENSE
The following table presents the details of other operating expense:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Marketing | $170 | | | $187 | | | $166 | |
Deposit insurance(1) | 193 | | | 390 | | | 96 | |
| Other | 359 | | | 396 | | | 323 | |
| Other operating expense | $722 | | | $973 | | | $585 | |
(1) Includes an industry-wide FDIC special assessment of $31 million and $225 million for the years ended December 31, 2024 and 2023, respectively.
NOTE 23 - INCOME TAXES
Income taxes are accounted for under the asset and liability method, resulting in two components of income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period while deferred income tax expense results from changes in gross deferred tax assets and liabilities between periods. Gross deferred tax assets and liabilities represent changes in taxes expected to be paid in the future due to the reversal of temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases.
The Company assesses the probability that positions taken, or expected to be taken, in its income tax returns will be sustained by taxing authorities. A “more likely than not” (i.e., more than 50 percent) recognition threshold must be met before a tax benefit can be recognized. Tax positions that are more likely than not to be sustained are reflected in the Company’s Consolidated Financial Statements.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 145 |
The following table presents total income tax expense:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Income tax expense | $379 | | | $422 | | | $582 | |
| Tax effect of changes in OCI | 62 | | | 289 | | | (1,319) | |
| Total comprehensive income tax expense (benefit) | $441 | | | $711 | | | ($737) | |
The following table presents the components of income tax expense:
| | | | | | | | | | | |
| (dollars in millions) | Current | Deferred | Total |
| Year Ended December 31, 2024 | | | |
| U.S. federal | $447 | | ($127) | | $320 | |
| State and local | 109 | | (50) | | 59 | |
| Total | $556 | | ($177) | | $379 | |
| Year Ended December 31, 2023 | | | |
| U.S. federal | $497 | | ($135) | | $362 | |
| State and local | 167 | | (107) | | 60 | |
| Total | $664 | | ($242) | | $422 | |
| Year Ended December 31, 2022 | | | |
| U.S. federal | $355 | | $88 | | $443 | |
| State and local | 170 | | (31) | | 139 | |
| Total | $525 | | $57 | | $582 | |
The following table presents a reconciliation between the U.S. federal income tax rate and the Company’s effective income tax rate:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 | | 2022 |
| (dollars in millions) | Amount | Rate | | Amount | Rate | | Amount | Rate |
| U.S. federal income tax expense and tax rate | $396 | | 21.0 | % | | $426 | | 21.0 | % | | $558 | | 21.0 | % |
| Increase (decrease) resulting from: | | | | | | | | |
| State and local income taxes (net of federal benefit) | 46 | | 2.5 | | | 58 | | 2.9 | | | 133 | | 5.0 | |
| Bank-owned life insurance | (22) | | (1.2) | | | (20) | | (1.0) | | | (19) | | (0.7) | |
| Tax-exempt interest | (12) | | (0.7) | | | (12) | | (0.6) | | | (8) | | (0.3) | |
| Tax advantaged investments (including related credits) | (82) | | (4.4) | | | (77) | | (3.8) | | | (102) | | (3.8) | |
| Other tax credits | (2) | | (0.1) | | | (3) | | (0.1) | | | (9) | | (0.3) | |
| Adjustments for uncertain tax positions | — | | — | | | 5 | | 0.2 | | | 1 | | — | |
Non-deductible FDIC insurance premiums | 34 | | 1.8 | | | 35 | | 1.7 | | | 20 | | 0.7 | |
| Legacy tax matters | — | | — | | | — | | — | | | 3 | | 0.1 | |
| Other | 21 | | 1.2 | | | 10 | | 0.5 | | | 5 | | 0.2 | |
Total income tax expense and effective tax rate | $379 | | 20.1 | % | | $422 | | 20.8 | % | | $582 | | 21.9 | % |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 146 |
The following table presents the significant components of the Company’s deferred tax assets and liabilities:
| | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 |
| Deferred tax assets: | | | |
| Other comprehensive income | $1,242 | | | $1,291 | |
| Allowance for credit losses | 552 | | | 555 | |
| Federal and state net operating and capital loss carryforwards | 69 | | | 79 | |
Accrued expenses | 1,198 | | | 1,152 | |
| Investment and other tax credit carryforwards | 214 | | | 130 | |
Partnerships | 4 | | | — | |
| Other | 10 | | | 9 | |
| Total deferred tax assets | 3,289 | | | 3,216 | |
| Valuation allowance | (120) | | | (137) | |
| Deferred tax assets, net of valuation allowance | 3,169 | | | 3,079 | |
| Deferred tax liabilities: | | | |
| Leasing transactions | 208 | | | 297 | |
| Amortization of intangibles | 425 | | | 421 | |
| Depreciation | 570 | | | 532 | |
| Pension and other employee compensation plans | 146 | | | 130 | |
| Partnerships | — | | | 12 | |
| Deferred Income | 24 | | | 3 | |
| MSRs | 243 | | | 252 | |
| Total deferred tax liabilities | 1,616 | | | 1,647 | |
| Net deferred tax asset (liability) | $1,553 | | | $1,432 | |
Deferred tax assets are recognized for net operating loss carryforwards, capital loss carryforwards and tax credit carryforwards. Valuation allowances are recorded, as necessary, to reduce deferred tax assets to the amount that management concludes is more likely than not to be realized.
At December 31, 2024, the Company had federal and state tax net operating loss carryforwards of $581 million, capital loss carryforwards of $132 million and federal and state tax credit carryforwards of $212 million. The majority of the federal and state tax net operating loss carryforwards, if not utilized, will expire in varying amounts through 2043, while the capital loss and tax credit carryforwards expire in varying amounts through 2027 and 2044, respectively. Limitations on the ability to realize these carryforwards are reflected in the associated valuation allowance. At December 31, 2024, the Company had a valuation allowance of $120 million against various deferred tax assets related to federal and state net operating losses, capital losses and state tax credits, as the Company’s current assessment is that it is more likely than not that a portion of the deferred tax assets related to these items will not be realized.
Effective with the fiscal year ended September 30, 1997, the reserve method for bad debts was no longer permitted for tax purposes. The repeal of the reserve method required the recapture of the reserve balance in excess of certain base year reserve amounts attributable to years ended prior to 1988. At December 31, 2024, the Company’s base year loan loss reserves attributable to years ended prior to 1988, for which no deferred income taxes have been provided, was $557 million. This base year reserve may become taxable if certain distributions are made with respect to the stock of the Company or if CBNA ceases to qualify as a bank for tax purposes. No actions are planned that would cause any portion of this reserve to become taxable.
The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. The Company is no longer subject to U.S. federal tax examinations by major tax authorities for years before 2021 and, with few exceptions, before 2020 for state and local jurisdictions.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 147 |
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| | | | | | | | | | | | | | | | | |
| December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| Balance at the beginning of the year | $7 | | | $6 | | | $7 | |
| Gross increase for tax positions related to current year | 1 | | | 1 | | | — | |
| Gross increase for tax positions related to prior years | 1 | | | 1 | | | — | |
| | | | | |
| Decrease for tax positions as a result of the lapse of the statutes of limitations | (1) | | | — | | | — | |
| Decrease for tax positions related to settlements with taxing authorities | (3) | | | (1) | | | (1) | |
| Balance at end of year | $5 | | | $7 | | | $6 | |
Tax positions are measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. Any adjustment to unrecognized tax benefits is recorded in income tax expense in the Consolidated Statements of Operations. The Company does not expect the balance of unrecognized tax benefits to significantly change in the next twelve months.
Interest and penalties related to unrecognized tax benefits are reported in income tax expense in the Consolidated Statements of Operations. The Company’s liability for accrued interest and penalties related to unrecognized tax benefits was $1 million and $4 million as of December 31, 2024 and 2023, respectively. In addition, the income tax expense (benefit) recognized for interest and penalties related to unrecognized tax benefits was $(1) million and $3 million for the years ended December 31, 2024 and 2023, respectively, and was immaterial for the year ended December 31, 2022.
NOTE 24 - EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Net income available to common stockholders represents net income less preferred stock dividends and issuance costs associated with preferred stock redeemed. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period, inclusive of potential dilutive shares such as share-based payment awards and warrants using the treasury stock method.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions, except per share data) | 2024 | | 2023 | | 2022 |
| Numerator (basic and diluted): | | | | | |
| Net income | $1,509 | | | $1,608 | | | $2,073 | |
| Less: Preferred stock dividends | 137 | | | 117 | | | 113 | |
| | | | | |
| Net income available to common stockholders | $1,372 | | | $1,491 | | | $1,960 | |
| Denominator: | | | | | |
| Weighted-average common shares outstanding - basic | 450,678,038 | | | 475,089,384 | | | 475,959,815 | |
| Dilutive common shares: share-based awards | 2,832,207 | | | 1,603,764 | | | 1,843,327 | |
| Weighted-average common shares outstanding - diluted | 453,510,245 | | | 476,693,148 | | | 477,803,142 | |
| Earnings per common share: | | | | | |
| Basic | $3.05 | | | $3.14 | | | $4.12 | |
Diluted(1) | 3.03 | | | 3.13 | | | 4.10 | |
(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 330,950, 2,210,857 and 949,606 for the years ended December 31, 2024, 2023 and 2022, respectively.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 148 |
NOTE 25 - REGULATORY MATTERS
As a BHC and FHC, the Company is subject to regulation and supervision by the FRB. Our banking subsidiary, CBNA, is a national banking association primarily regulated by the OCC.
Under the current U.S. Basel III capital framework, the Company and 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 BHC, the Company’s SCB of 4.5% is imposed on top of the three minimum risk-based capital ratios listed above and a CCB of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above for CBNA. The Company’s SCB is re-calibrated with each biennial supervisory stress test and updated annually to reflect the Company’s planned common stock dividends. In addition, the Company must not be subject to a written agreement, order or capital directive with any of its regulators. Failure to meet minimum capital requirements can result in the initiation of certain actions that, if undertaken, could have a material effect on the Company’s Consolidated Financial Statements.
The following table presents the regulatory capital ratios for the Company and CBNA under the U.S. Basel III Standardized rules. The Company and CBNA have both declared as an “AOCI opt-out” institution, which means they are not required to recognize the AOCI impact of net unrealized gains and losses on debt securities and accumulated net gains and losses on cash flow hedges and certain defined benefit pension plan assets in regulatory capital. In addition, both entities elected to delay the estimated impact of CECL on regulatory capital for a two-year period ending December 31, 2021, followed by a three-year transition period ending December 31, 2024, to phase-in the aggregate amount of the capital benefit provided during the initial two-year delay.
| | | | | | | | | | | | | | | | | |
| Actual | | Required Minimum Capital |
| (dollars in millions) | Amount | Ratio | | Amount | Ratio(1) |
| As of December 31, 2024 | | | | | |
| CET1 capital | | | | | |
| CFG | $17,900 | | 10.8 | % | | $14,913 | | 9.0 | % |
| CBNA | 20,250 | | 12.3 | | | 11,549 | | 7.0 | |
| Tier 1 capital | | | | | |
| CFG | 20,013 | | 12.1 | | | 17,398 | | 10.5 | |
| CBNA | 20,250 | | 12.3 | | | 14,024 | | 8.5 | |
| Total capital | | | | | |
| CFG | 23,232 | | 14.0 | | | 20,712 | | 12.5 | |
| CBNA | 23,362 | | 14.2 | | | 17,324 | | 10.5 | |
| Tier 1 leverage | | | | | |
| CFG | 20,013 | | 9.4 | | | 8,502 | | 4.0 | |
| CBNA | 20,250 | | 9.6 | | | 8,474 | | 4.0 | |
| As of December 31, 2023 | | | | | |
| CET1 capital | | | | | |
| CFG | $18,358 | | 10.6 | % | | $14,671 | | 8.5 | % |
| CBNA | 19,411 | | 11.3 | | | 12,047 | | 7.0 | |
| Tier 1 capital | | | | | |
| CFG | 20,372 | | 11.8 | | | 17,260 | | 10.0 | |
| CBNA | 19,411 | | 11.3 | | | 14,628 | | 8.5 | |
| Total capital | | | | | |
| CFG | 23,608 | | 13.7 | | | 20,712 | | 12.0 | |
| CBNA | 22,453 | | 13.0 | | | 18,070 | | 10.5 | |
| Tier 1 leverage | | | | | |
| CFG | 20,372 | | 9.3 | | | 8,784 | | 4.0 | |
| CBNA | 19,411 | | 8.9 | | | 8,759 | | 4.0 | |
(1) Represents minimum requirement under the current capital framework plus the SCB of 4.5% and CCB of 2.5% for CFG and CBNA, respectively. The SCB and CCB are not applicable to the Tier 1 leverage ratio.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 149 |
The Company’s capital distributions are subject to the oversight of the FRB. Under the FRB’s SCB framework, failure to maintain risk-based capital ratios above the respective minimum requirements, including the SCB, would result in graduated restrictions on the Company’s ability to make certain discretionary bonus payments and capital distributions, including common stock dividends and share repurchases. The timing and amount of future dividends and share repurchases will depend on various factors, including the Company’s capital position, financial performance, capital impacts of strategic initiatives, market conditions, and regulatory considerations. All future capital distributions are subject to consideration and approval by the Board of Directors prior to execution. See Note 17 for more information regarding the Company’s common stock repurchases and dividends.
Dividends payable by CBNA, as a national bank subsidiary, are limited to the lesser of the amount calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared during any calendar year exceeds the sum of current year net income and retained net income of the two preceding years, less any required transfers to surplus, unless the national bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of the entity’s “undivided profits” (generally accumulated net profits that have not been paid out as dividends or transferred to surplus). Federal banking regulatory agencies have issued policy statements that provide that FDIC-insured depository institutions and their holding companies should generally pay dividends out of current operating earnings only.
NOTE 26 - BUSINESS OPERATING SEGMENTS
The Company is managed by its CODM, the Chief Executive Officer, on a segment basis. The Company’s three reportable business operating segments are Consumer Banking, Commercial Banking, and Non-Core. The business operating segments are determined based on the products and services provided, or the type of customer served. Each business operating segment has a segment head that reports directly to the Chief Executive Officer, who has final authority over resource allocation decisions and performance assessment. The business operating segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer.
The CODM utilizes segment pretax profit or loss as the primary measure to allocate resources to the Company’s business operating segments during the annual budgeting and forecasting process. This measure is also used to assess the performance of each segment, with a focus on monitoring net interest income, noninterest income, and noninterest expense. To ensure effective oversight, the CODM participates in monthly business review meetings, where budget-to-actual variances for pretax profit or loss and its components are analyzed. These evaluations inform the CODM’s decisions regarding the allocation of capital and resources across the business operating segments, ensuring alignment with the Company’s strategic objectives.
Developing and applying methodologies used to allocate items among the business operating segments is a dynamic process. Accordingly, financial results may be revised periodically as management systems are enhanced, methods of evaluating performance or product lines are updated, or organizational structure changes occur.
Reportable Segments
Segment results are determined based upon the Company’s organizational and management structure, with balance sheet and statement of operations items assigned to each of the business operating segments. The results are not necessarily comparable with similar information reported by other financial institutions. A description of each reportable business operating segment is presented below:
Consumer Banking
The Consumer Banking segment serves consumer customers and small businesses, offering traditional banking products and services including deposits, mortgage and home equity lending, credit cards, small business loans, education loans, point-of-sale finance loans, and wealth management and investment services. Citizens Private Bank integrates wealth management and banking services to serve high- and ultra-high-net-worth individuals and families, as well as businesses.
The segment’s distribution channels include a branch network, ATMs and a workforce of experienced specialists covering lending, savings and investment needs as well as a broad range of small business products and services. The Company’s Consumer Banking value proposition is based on providing simple, easy to understand product offerings and a convenient banking experience with a more personalized approach.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 150 |
Commercial Banking
The Commercial Banking segment primarily serves companies and institutions and strives to be a trusted advisor to its clients and preferred provider for their banking needs. A broad complement of financial products and solutions are offered, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as syndicated loans, corporate finance, mergers and acquisitions, and debt and equity capital markets capabilities.
The segment focuses on middle-market companies, large corporations and institutions and has dedicated teams with industry and product expertise in Aerospace, Defense and Government Services, Communications, Transportation and Logistics, Food and Restaurants, Human Capital Management, and Gaming. While the segment’s business development efforts are predominantly focused in the Company’s footprint, some of its specialized industry businesses also operate on a national basis. A key component of Commercial Banking’s growth strategy is to present clients with ideas that help their businesses thrive and, in doing so, expand the breadth and depth of our banking relationship with them.
Non-Core
The Non-Core segment includes the Company’s indirect auto and certain purchased consumer loan portfolios that the Company discontinued the origination of in 2023 as part of its balance sheet optimization strategy. These portfolios were transferred from the Consumer Banking segment into this segment during 2023.
Non-segment Operations
Other
Non-segment operations are classified as Other and include assets, liabilities, capital, revenues, provision (benefit) for credit losses, expenses and income tax expense not attributed to the Company’s Consumer Banking, Commercial Banking, or Non-Core segments as well as treasury and community development.
Management accounting practices utilized by the Company to measure the performance and produce the results of its segments include the following:
Funds Transfer Pricing
The Company’s FTP, a component of net interest income, ensures consistent business segment pricing behavior by removing interest rate risk from business performance. This risk is centrally managed within the Treasury function and reported in Other non-segment operations. Business operating segments are provided an interest credit for funding it generates and an interest charge for assets it holds. The sum of interest income/expense and FTP charges/credits for each business operating segment is its designated net interest income. The offset to FTP charges and credits is recorded in Other non-segment operations.
The Company employs a matched maturity FTP methodology for the Consumer Banking and Commercial Banking business operating segments with rates based on a product’s repricing frequency and interest sensitivity, as well as other factors. The FTP charge for the Non-Core business operating segment is based on an implied reference pool of high-cost funding sources. This method applies a waterfall marginal funding approach referencing the Company’s secured borrowings collateralized by auto loans, FHLB advances, and various other higher-cost deposit sources required to fully debt-fund the assets.
Provision for credit losses
The provision for credit losses for each business operating segment is based on actual net charge-offs recognized by the business operating segment. The difference between the consolidated provision for credit losses and total net charge-offs for all business operating segments is reflected in Other non-segment operations.
Income taxes
Income taxes are assessed to each business operating segment at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Other non-segment operations.
Expenses
Noninterest expenses incurred by centrally-managed operations or business lines that directly support the operations of another business line are charged to the applicable business line based on its utilization of those services.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 151 |
Goodwill
Goodwill is allocated to the Consumer Banking and Commercial Banking business operating segments for impairment testing purposes.
Substantially all revenues generated and long-lived assets held by the Company’s business operating segments are derived from customers that reside in the United States. No business operating segment earns revenue from a single external customer that represents ten percent or more of the Company’s total revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2024 |
| (dollars in millions) | Consumer Banking | | Commercial Banking | | Non-Core | | Other | | Consolidated |
| Net interest income | $4,565 | | | $1,950 | | | ($117) | | | ($765) | | | $5,633 | |
| Noninterest income | 1,131 | | | 908 | | | — | | | 137 | | | 2,176 | |
| Total revenue | 5,696 | | | 2,858 | | | (117) | | | (628) | | | 7,809 | |
Direct expenses(1)(2) | 2,325 | | | 835 | | | 4 | | | 2,070 | | | 5,234 | |
Indirect expenses(3) | 1,353 | | | 406 | | | 94 | | | (1,853) | | | — | |
| Noninterest expense | 3,678 | | | 1,241 | | | 98 | | | 217 | | | 5,234 | |
| Profit (loss) before provision (benefit) for credit losses | 2,018 | | | 1,617 | | | (215) | | | (845) | | | 2,575 | |
| Provision (benefit) for credit losses | 331 | | | 353 | | | 61 | | | (58) | | | 687 | |
| Income (loss) before income tax expense (benefit) | 1,687 | | | 1,264 | | | (276) | | | (787) | | | 1,888 | |
| Income tax expense (benefit) | 434 | | | 291 | | | (70) | | | (276) | | | 379 | |
| Net income (loss) | $1,253 | | | $973 | | | ($206) | | | ($511) | | | $1,509 | |
| Total average assets | $75,037 | | | $68,478 | | | $8,942 | | | $66,567 | | | $219,024 | |
(1) Represents operating expenses incurred by the business operating segments and primarily includes salaries and employee benefits, equipment and software, outside services, and occupancy.
(2) Includes depreciation and amortization of $113 million, $26 million and $312 million, respectively, for the Consumer Banking, Commercial Banking and Other business operating segments.
(3) Represents allocated corporate overhead from support functions such as finance, risk, human resources, and information technology.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (dollars in millions) | Consumer Banking | | Commercial Banking | | Non-Core | | Other | | Consolidated |
| Net interest income | $4,187 | | | $2,292 | | | ($129) | | | ($109) | | | $6,241 | |
| Noninterest income | 1,067 | | | 784 | | | — | | | 132 | | | 1,983 | |
| Total revenue | 5,254 | | | 3,076 | | | (129) | | | 23 | | | 8,224 | |
Direct expenses(1)(2) | 2,244 | | | 857 | | | 13 | | | 2,393 | | | 5,507 | |
Indirect expenses(3) | 1,298 | | | 438 | | | 110 | | | (1,846) | | | — | |
| Noninterest expense | 3,542 | | | 1,295 | | | 123 | | | 547 | | | 5,507 | |
| Profit (loss) before provision (benefit) for credit losses | 1,712 | | | 1,781 | | | (252) | | | (524) | | | 2,717 | |
| Provision (benefit) for credit losses | 280 | | | 250 | | | 78 | | | 79 | | | 687 | |
| Income (loss) before income tax expense (benefit) | 1,432 | | | 1,531 | | | (330) | | | (603) | | | 2,030 | |
| Income tax expense (benefit) | 373 | | | 378 | | | (86) | | | (243) | | | 422 | |
| Net income (loss) | $1,059 | | | $1,153 | | | ($244) | | | ($360) | | | $1,608 | |
| Total average assets | $72,693 | | | $76,028 | | | $13,745 | | | $59,755 | | | $222,221 | |
(1) Represents operating expenses incurred by the business operating segments and primarily includes salaries and employee benefits, equipment and software, outside services, and occupancy.
(2) Includes depreciation and amortization of $106 million, $30 million and $291 million, respectively, for the Consumer Banking, Commercial Banking and Other business operating segments.
(3) Represents allocated corporate overhead from support functions such as finance, risk, human resources, and information technology.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 152 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (dollars in millions) | Consumer Banking | | Commercial Banking | | Non-Core | | Other | | Consolidated |
| Net interest income | $3,649 | | | $2,103 | | | $378 | | | ($118) | | | $6,012 | |
| Noninterest income | 1,063 | | | 845 | | | — | | | 101 | | | 2,009 | |
| Total revenue | 4,712 | | | 2,948 | | | 378 | | | (17) | | | 8,021 | |
Direct expenses(1)(2) | 2,103 | | | 820 | | | 23 | | | 1,946 | | | 4,892 | |
Indirect expenses(3) | 1,152 | | | 403 | | | 113 | | | (1,668) | | | — | |
| Noninterest expense | 3,255 | | | 1,223 | | | 136 | | | 278 | | | 4,892 | |
| Profit (loss) before provision (benefit) for credit losses | 1,457 | | | 1,725 | | | 242 | | | (295) | | | 3,129 | |
| Provision (benefit) for credit losses | 174 | | | 46 | | | 52 | | | 202 | | | 474 | |
| Income (loss) before income tax expense (benefit) | 1,283 | | | 1,679 | | | 190 | | | (497) | | | 2,655 | |
| Income tax expense (benefit) | 328 | | | 375 | | | 48 | | | (169) | | | 582 | |
| Net income (loss) | $955 | | | $1,304 | | | $142 | | | ($328) | | | $2,073 | |
| Total average assets | $68,027 | | | $74,919 | | | $18,121 | | | $53,994 | | | $215,061 | |
(1) Represents operating expenses incurred by the business operating segments and primarily includes salaries and employee benefits, equipment and software, outside services, and occupancy.
(2) Includes depreciation and amortization of $97 million, $27 million and $274 million, respectively, for the Consumer Banking, Commercial Banking and Other business operating segments.
(3) Represents allocated corporate overhead from support functions such as finance, risk, human resources, and information technology.
NOTE 27 - PARENT COMPANY FINANCIALS
Condensed Balance Sheets
| | | | | | | | | | | |
| (dollars in millions) | December 31, 2024 | | December 31, 2023 |
| ASSETS: | | | |
| Cash and due from banks | $2,658 | | | $2,864 | |
| Loans and advances to: | | | |
| Bank subsidiary | 3,326 | | | 1,152 | |
| Nonbank subsidiaries | 150 | | | 154 | |
| Investments in subsidiaries: | | | |
| Bank subsidiary | 24,389 | | | 23,289 | |
| Nonbank subsidiaries | 334 | | | 291 | |
| Other assets | 237 | | | 194 | |
| Total assets | $31,094 | | | $27,944 | |
| LIABILITIES: | | | |
| Long-term borrowed funds | $6,480 | | | $3,344 | |
| Other liabilities | 360 | | | 258 | |
| Total liabilities | 6,840 | | | 3,602 | |
| Total stockholders’ equity | 24,254 | | | 24,342 | |
| Total liabilities and stockholders’ equity | $31,094 | | | $27,944 | |
| | | | | | | | |
| | Citizens Financial Group, Inc. | 153 |
Condensed Statements of Operations
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| OPERATING INCOME: | | | | | |
| Income from bank subsidiaries, excluding equity in undistributed income: | | | | | |
| Dividends | $625 | | | $2,875 | | | $450 | |
| Interest | 139 | | | 43 | | | 39 | |
| Management and service fees | 67 | | | 69 | | | 69 | |
| Income from nonbank subsidiaries, excluding equity in undistributed income: | | | | | |
| Dividends | — | | | — | | | 43 | |
| Interest | 9 | | | 8 | | | 3 | |
| All other operating income | 1 | | | 1 | | | 1 | |
| Total operating income | 841 | | | 2,996 | | | 605 | |
| OPERATING EXPENSE: | | | | | |
| Salaries and employee benefits | 36 | | | 39 | | | 43 | |
| Interest expense | 263 | | | 129 | | | 125 | |
| All other expenses | 32 | | | 31 | | | 28 | |
| Total operating expense | 331 | | | 199 | | | 196 | |
| Income (loss) before taxes and undistributed income | 510 | | | 2,797 | | | 409 | |
| Income tax expense (benefit) | (24) | | | (13) | | | (13) | |
| Income before undistributed income of subsidiaries | 534 | | | 2,810 | | | 422 | |
| Equity in undistributed income (losses) of subsidiaries: | | | | | |
| Bank | 939 | | | (1,163) | | | 1,724 | |
| Nonbank | 36 | | | (39) | | | (73) | |
| Net income | $1,509 | | | $1,608 | | | $2,073 | |
Total other comprehensive income (loss), net of income taxes(1) | 163 | | | 802 | | | (3,895) | |
| Total comprehensive income (loss) | $1,672 | | | $2,410 | | | ($1,822) | |
(1) See Consolidated Statements of Comprehensive Income for comprehensive income (loss) detail.In accordance with federal and state banking regulations, dividends paid by CBNA to the Company are subject to certain limitations. See Note 25 for more information. Also, see Note 17 for more information regarding the Company’s common and preferred stock dividends.
| | | | | | | | |
| | Citizens Financial Group, Inc. | 154 |
Condensed Cash Flow Statements
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (dollars in millions) | 2024 | | 2023 | | 2022 |
| OPERATING ACTIVITIES | | | | | |
| Net income | $1,509 | | | $1,608 | | | $2,073 | |
Adjustments to reconcile net income to net change due to operating activities: | | | | | |
Deferred income tax expense (benefit) | (10) | | | (4) | | | (11) | |
Equity in undistributed (income) losses of subsidiaries | (975) | | | 1,202 | | | (1,651) | |
Other, net | 108 | | | 96 | | | 92 | |
| Net increase (decrease) in other liabilities | 92 | | | (17) | | | (7) | |
| Net (increase) decrease in other assets | (84) | | | 17 | | | (44) | |
| Net change due to operating activities | 640 | | | 2,902 | | | 452 | |
| INVESTING ACTIVITIES | | | | | |
| | | | | |
| | | | | |
| Investments in and advances to subsidiaries | (2,249) | | | (76) | | | (156) | |
| Repayment of investments in and advances to subsidiaries | 120 | | | 30 | | | 121 | |
| Acquisitions, net of cash acquired | — | | | — | | | (23) | |
| Other investing, net | 2 | | | — | | | (1) | |
| Net change due to investing activities | (2,127) | | | (46) | | | (59) | |
| FINANCING ACTIVITIES | | | | | |
| Proceeds from issuance of long-term borrowed funds | 3,231 | | | — | | | 414 | |
| Repayments of long-term borrowed funds | (107) | | | — | | | (182) | |
| Treasury stock purchased | (1,050) | | | (906) | | | (153) | |
| Net proceeds from issuance of preferred stock | 392 | | | — | | | — | |
| Redemption of preferred stock | (300) | | | — | | | — | |
Dividends paid to common stockholders | (769) | | | (808) | | | (779) | |
Dividends paid to preferred stockholders | (134) | | | (120) | | | (113) | |
| Other financing, net | 18 | | | 21 | | | (25) | |
| Net change due to financing activities | 1,281 | | | (1,813) | | | (838) | |
| Net change in cash and due from banks | (206) | | | 1,043 | | | (445) | |
| Cash and due from banks at beginning of year | 2,864 | | | 1,821 | | | 2,266 | |
| Cash and due from banks at end of year | $2,658 | | | $2,864 | | | $1,821 | |