~~0000759944us-gaap:SeriesFPreferredStockMember2020-04-012020-06-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

~~June 30, 2021~~March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From

(Not Applicable)

Commission File Number 001-36636

(Exact name of the registrant as specified in its charter)


Delaware						05-0412693
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

One Citizens Plaza, Providence, RI 02903

(Address of principal executive offices, including zip code)

~~(401) 456-7000~~(203) 900-6715

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	CFG	New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 6.350% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D	CFG PrD	New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 5.000% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series E	CFG PrE	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

There were ~~426,083,147~~495,446,033 shares of Registrant’s common stock ($0.01 par value) outstanding on ~~July 23, 2021.~~April 25, 2022.




	Table of Contents


Glossary of Acronyms and Terms		3

Part I. Financial Information		65

Item 1. Financial Statements		5035

Consolidated Balance Sheets (unaudited)		5136
Consolidated Statements of Operations (unaudited)		5237
Consolidated Statements of Comprehensive Income (unaudited)		5338
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)		5439
Consolidated Statements of Cash Flows (unaudited)		5640
Notes to the Consolidated Financial Statements (unaudited)		5741

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		65

Item 3. Quantitative and Qualitative Disclosures about Market Risk		8968

Item 4. Controls and Procedures		8968


Part II. Other Information		8968

Item 1. Legal Proceedings		8968
Item 1A. Risk Factors		8968
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		9169
Item 3. Defaults Upon Senior Securities		69
Item 4. Mine Safety Disclosures		69
Item 5. Other Information		69
Item 6. Exhibits		9169


Signature		9370

Citizens Financial Group, Inc. | 2

GLOSSARY OF ACRONYMS AND TERMS

The following is a list of common acronyms and terms we regularly use in our financial reporting:


~~2020~~2021 Form 10-K						Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021
AACL						Adjusted Allowance for Credit Losses
ACL						Allowance for Credit Losses: Allowance for Loan and Lease Losses plus Allowance for Unfunded Lending Commitments
AFS						Available for Sale
~~ALLL~~						~~Allowance for Loan and Lease Losses~~
ALM						Asset and Liability Management
AOCI						Accumulated Other Comprehensive Income (Loss)
~~ARRC~~						~~Alternative Reference Rate Committee~~
ASU						Accounting Standards Update
ATM						Automated Teller Machine

Board or Board of Directors						The Board of Directors of Citizens Financial Group, Inc.
bps						Basis Points

~~Capital Plan Rule~~						~~Federal Reserve’s Regulation Y Capital Plan Rule~~
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CBNA						Citizens Bank, National Association
~~CCAR~~						~~Comprehensive Capital Analysis and Review~~
CCB						Capital Conservation Buffer
CCMI						Citizens Capital Markets, Inc.
CECL						Current Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1						Common Equity Tier 1


CET1 capital ratio						Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach


Citizens, CFG, the Company, we, us, or our						Citizens Financial Group, Inc. and its Subsidiaries
CLO						Collateralized Loan Obligation
CLTV						Combined Loan-to-Value

COVID-19 pandemic						Coronavirus Disease 2019 Pandemic

CRE						Commercial Real Estate



Dodd-Frank Act						The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010



~~Elevated cash~~						~~Cash above targeted operating levels~~
EPS						Earnings Per Share


EVE						Economic Value of Equity
Exchange Act						The Securities Exchange Act of 1934


Fannie Mae (FNMA)						Federal National Mortgage Association

~~FCA~~						~~Financial Conduct Authority~~
FDIC						Federal Deposit Insurance Corporation
FHA						Federal Housing Administration
FHLB						Federal Home Loan Bank
FICO						Fair Isaac Corporation (credit rating)

FRB or Federal Reserve						Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)						Federal Home Loan Mortgage Corporation

FTE						Fully Taxable Equivalent
FTP						Funds Transfer Pricing
GAAP						Accounting Principles Generally Accepted in the United States of America
GDP						Gross Domestic Product

Ginnie Mae (GNMA)						Government National Mortgage Association
GSE						Government Sponsored Entity
HSBC						HSBC Bank U.S.A., N.A.
HSBC transaction						Acquisition of HSBC East Coast branches and national online deposit business
HTM						Held To Maturity
Investors						Investors Bancorp, Inc.

Citizens Financial Group, Inc. | 3


~~GSE~~JMP						~~Government Sponsored Entity~~


~~HSBC~~						~~HSBC Bank U.S.A., N.A.~~
~~HTM~~						~~Held To Maturity~~


~~ICE~~						~~Intercontinental Exchange~~
~~Investors~~						~~Investors Bancorp, Inc.~~JMP Group LLC
Last-of-Layer						Last-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar prepayable assets whereby the last dollar amount within the portfolio of assets is identified as the hedged item



LHFS						Loans Held for Sale
LIBOR						London Interbank Offered Rate
LIHTC						Low Income Housing Tax Credit
~~LTV~~						~~Loan to Value~~
MBS						Mortgage-Backed Securities
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-Atlantic						District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest						Illinois, Indiana, Michigan, and Ohio

Modified CECL Transition						The Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
Modified AACL Transition						The Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
MSRs						Mortgage Servicing Rights
NCOs						Net charge-offs
New England						Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont



~~NPLs~~						~~Nonaccrual loans and leases~~
OCC						Office of the Comptroller of the Currency
OCI						Other Comprehensive Income (Loss)

Operating Leverage						Period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense

Parent Company						Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)


PPP						Paycheck Protection Program

ROTCE						Return on Average Tangible Common Equity
RPA						Risk Participation Agreement
RWA						Risk-Weighted Assets
SBA						United States Small Business Administration


SCB						Stress Capital Buffer
SEC						United States Securities and Exchange Commission
~~SOFR~~						~~Secured Overnight Financing Rate~~
SVaR						Stressed Value at Risk
Tailoring Rules						Rules establishing risk-based categories for determining prudential standards for large U.S. and foreign banking organizations, consistent with the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act
TBAs						To-Be-Announced Mortgage Securities
TDR						Troubled Debt Restructuring
Tier 1 capital ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Tier 1 leverage ratio						Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by quarterly adjusted average assets as defined under the U.S. Basel III Standardized approach

~~Citizens Financial Group, Inc. | 4~~

TOP

Tapping Our Potential

Total capital ratio

Total capital, which includes Common Equity Tier 1 capital, tier 1 capital and allowance for credit losses and qualifying subordinated debt that qualifies as tier 2 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach

USDA

United States Department of Agriculture

United States Department of Veterans Affairs

VaR

Value at Risk

VIE

Variable Interest Entities

Citizens Financial Group, Inc. | 54

PART I. FINANCIAL INFORMATION

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

Citizens Financial Group, Inc. | 65

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends as well as the potential effects of the COVID-19 ~~pandemic~~disruption and ~~associated lockdowns~~Russia’s invasion of Ukraine on our business, operations, financial performance and prospects, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook,” “guidance” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

•Negative economic and political conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of ~~nonperforming~~nonaccrual assets, charge-offs and provision expense;

•The rate of growth in the economy and employment levels, as well as general business and economic conditions, and changes in the competitive environment;

•Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals, including through the integration of Investors and the HSBC branches;

•The COVID-19 ~~pandemic~~disruption and ~~associated lockdowns and their~~its effects on the economic and business environments in which we operate;

•The impact of Russia’s invasion of Ukraine and the imposition of sanctions on Russia and other actions in response, including on economic and market conditions, inflationary pressures and the interest rate environment, commodity price and foreign exchange rate volatility, and heightened cybersecurity risks;

•Our ability to meet heightened supervisory requirements and expectations;

•Liabilities and business restrictions resulting from litigation and regulatory investigations;

•Our capital and liquidity requirements under regulatory capital standards and our ability to generate capital internally or raise capital on favorable terms;

•The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;

•Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

•The effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;

•Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses;

•A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks;

•~~An inability to complete the acquisitions of Investors or the HSBC branches, or changes in the current anticipated timeframe, terms or manner of such acquisitions;~~

•Greater than expected costs or other difficulties related to the integration of our business and that of Investors and the relevant HSBC branches;

Citizens Financial Group, Inc. | 6

•The inability to retain existing Investors or HSBC clients and employees following the ~~closings~~closing of the Investors acquisition and HSBC ~~branch acquisitions;~~

~~Citizens Financial Group, Inc. | 7~~

•The occurrence of any event change or other circumstance that could give rise to the right of one or both parties to terminate (i) the agreement to acquire Investors or (ii) the agreement to acquire branches from HSBC;transaction; and

•Management’s ability to identify and manage these and other risks.

In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, risk-weighted assets, capital impacts of strategic initiatives, market conditions and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares from or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends. Further, statements about the effects of the COVID-19 ~~pandemic~~disruption and ~~associated lockdowns~~Russia’s invasion of Ukraine on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic and Russia’s invasion of Ukraine, actions taken by governmental authorities in response to the pandemic and Russia’s invasion of Ukraine, and the direct and indirect impact of the pandemic and Russia’s invasion of Ukraine on our customers, third parties and us. In addition, statements about our net charge-off guidance constitute forward-looking statements and are subject to the risk that the actual charge-offs may differ, possibly materially, from what is reflected in those statements due to, among other potential factors, the impact of the COVID-19 pandemic and the effectiveness of stimulus and forbearance programs in response, changes in economic conditions, and idiosyncratic events affecting our commercial loans. Statements about Citizens’ agreement and plan of merger, dated July 28, 2021 (the “Investors acquisition agreement”) with Investors Bancorp, Inc. and CBNA’s agreement dated May 26, 2021 (“HSBC branch acquisition agreement”) with HSBC to acquire certain branches from HSBC also constitute forward-looking statements and are subject to the risk that actual results could be materially different from those expressed in those statements, including if either of both transactions are not consummated in a timely manner or at all, or if integration is more costly or difficult than expected.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the “Risk Factors” section in Part II, Item 1A of this report and Part I, Item 1A of our ~~2020~~2021 Form 10-K.

INTRODUCTION

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with ~~$185.1~~$192.1 billion in assets as of June 30, 2021. Our mission is to help customers, colleagues and communities each reach their potential by listening to them and understanding their needs in order to offer tailored advice, ideas and solutions.March 31, 2022. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. We help our customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a ~~24/7~~full-service customer contact center ~~as well as~~and, including the acquisition of Investors, the convenience of approximately ~~3,000~~3,300 ATMs and ~~1,000~~more than 1,200 branches in 1114 states inand the ~~New England, Mid-Atlantic, and Midwest regions.~~District of Columbia. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer ~~corporate, institutional and not-for-profit clients~~ a ~~full range~~broad complement of ~~wholesale banking~~financial products and ~~services~~solutions, including lending and ~~deposits, capital markets,~~leasing, deposit and treasury management services, foreign exchange, ~~and~~ interest rate ~~products,~~ and ~~asset finance.~~commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com.

On ~~May 26, 2021,~~February 18, 2022, CBNA ~~entered into an agreement to acquire 80~~completed the acquisition of HSBC East Coast branches and ~~the~~ national online deposit ~~business from HSBC.~~business. The ~~acquisition provides an~~transaction extends our physical presence and adds customers in several attractive ~~entry into important metro~~ markets, ~~and supports~~accelerating our national expansion strategy. ~~Under the agreement, CBNA will acquire approximately $9.0 billion in deposits and approximately $2.2 billion in loans for a 2.0 percent premium paid on deposits at closing.~~ The ~~80 branch purchase~~transaction includes 66 locations in the New York City ~~Metro~~metropolitan area, 9 locations in the Mid-Atlantic/Washington D.C. area, and 5 locations in Southeast Florida. ~~The transaction is expected to close in the first quarter of 2022, subject to customary closing terms and conditions and regulatory approvals.~~

On ~~July 28, 2021~~April 6, 2022, Citizens ~~entered into a definitive agreement and a plan~~completed the acquisition of ~~merger under which Citizens will acquire~~all outstanding shares of Investors for a combination of stock and cash. The acquisition ~~of Investors~~ enhances Citizens’ banking franchise, adding an attractive middle ~~market/~~market, small business and consumer customer base while building ~~its~~our physical presence in the ~~northeast~~Mid-Atlantic region with the addition of 154 branches located in the greater New York City and Philadelphia metropolitan areas and across New Jersey. ~~See~~

For additional information regarding these acquisitions see Note ~~17 in Item 1 for further information.~~

~~Citizens Financial Group, Inc. | 8~~

The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1, as well as other information contained in this document and our ~~2020~~2021 Form 10-K.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures denoted as “Underlying”~~, “excluding elevated cash”, “excluding PPP loans”, as well as other results excluding the impact of certain items.~~ results. Underlying results for any given reporting period exclude certain items that may occur in that period which management does not consider indicative of our on-going financial performance. We believe these non-GAAP financial measures provide

Citizens Financial Group, Inc. | 7

useful information to investors because they are used by management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results ~~or results excluding the impact of certain items~~ in any given reporting period reflect our on-going financial performance, ~~and~~ increase comparability of period-to-period results, and are useful to consider in addition to our GAAP financial results.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.

Non-GAAP measures are denoted throughout our MD&A by the use of the term ~~Underlying or identified as excluding the impact of certain items and where~~Underlying. Where there is a reference to these metrics in that paragraph, all measures that follow ~~that reference~~ are on the same basis when applicable. For more information on the computation of non-GAAP financial measures, see “—Non-GAAP Financial Measures and Reconciliations.”

FINANCIAL PERFORMANCE

~~Quarterly Results - Key Highlights~~

Second quarter 2021 net income of $648 million increased 156% from $253 million in the second quarter of 2020, with earnings per diluted common share of $1.44, up $0.91 from $0.53 per diluted common share in the second quarter of 2020. Second quarter 2021 ROTCE of 17.5% compared to 6.6% in the second quarter of 2020.

Second quarter 2021 results reflected $8 million of expenses, net of tax benefit, or $0.02 per diluted common share, from notable items largely tied to TOP 6 transformational and revenue and efficiency initiatives as well as integration costs. Second quarter 2020 results reflected $10 million of expenses, net of tax benefit, or $0.02 per diluted common share, of notable items largely tied to TOP 6 transformational and revenue and efficiency initiatives as well as integration costs. On an Underlying basis, which excludes notable items, second quarter 2021 net income available to common stockholders of $624 million compared with $235 million in the second quarter of 2020. Underlying EPS of $1.46 compared to $0.55 in the second quarter of 2020. Underlying second quarter 2021 ROTCE of 17.7% compared with 6.9% in the second quarter of 2020. Second quarter 2021 tangible book value per common share of $33.95 increased 6% from the second quarter of 2020.

Table 1: Notable Items
Three Months Ended June 30,
2021 2020
(in millions) Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP): $991 $183 $648 $979 $54 $253
Less notable items:
Total integration costs 2 (1) (1) 2 (1) (1)
Other notable items(1)
9 (2) (7) 17 (8) (9)
Total notable items 11 (3) (8) 19 (9) (10)
Underlying results (non-GAAP) $980 $186 $656 $960 $63 $263

~~(1)~~ ~~Other notable items for the second quarter of 2021 and 2020 include noninterest expense of $9 million and $17 million, respectively, related to our TOP 6~~

~~Citizens Financial Group, Inc. | 9~~

~~transformational and revenue and efficiency initiatives.~~

•~~Total revenue of $1.6 billion decreased $141 million, or 8%, from the second quarter of 2020, driven by declines of 18% and 3% in noninterest income and net interest income, respectively.~~

•~~Net interest income of $1.1 billion decreased 3% compared to the second quarter of 2020 given lower net interest margin,~~ ~~partially offset by 2% growth in interest-earning assets.~~

◦Net interest margin of 2.71% decreased 16 basis points compared to 2.87% in the second quarter of 2020, primarily reflecting the impact of a lower rate environment, lower interest-earning asset yields and elevated cash balances given strong deposit flows, partially offset by improved funding mix and deposit pricing.

–~~Net interest margin on a fully taxable-equivalent basis of 2.72% decreased 16 basis points compared to 2.88% in the second quarter of 2020.~~

–Average loans and leases of $123.5 billion decreased $5.3 billion, or 4%, from $128.8 billion in the second quarter of 2020, driven by a $6.8 billion decrease in commercial reflecting line of credit repayments and net payoffs partially offset by a $1.2 billion increase in PPP loans. The overall decrease in commercial was partially offset by a $1.5 billion increase in retail driven by growth in education and residential mortgage, which reflects the exercise of the early buyout option of loans previously sold to GNMA, partially offset by decreases in home equity and other retail given run-off of personal unsecured installment loans.

–Average deposits of $150.3 billion increased $8.8 billion, or 6%, from $141.6 billion in the second quarter of 2020, reflecting an increase in demand deposits, money market accounts, savings and checking with interest, partially offset by a decrease in term deposits.

◦Noninterest income of $485 million decreased $105 million, or 18%, from the second quarter of 2020, driven by a decline in mortgage banking fees, partially offset by higher capital markets fees, trust and investment services fees, services charges and fees, and card fees.

•~~Noninterest expense of $991 millionwas stable compared to the second quarter of 2020.~~

◦On an Underlying basis, noninterest expense of $980 million increased $20 million, or 2%, from the second quarter of 2020, reflecting higher outside services, equipment and software expense and salaries and employee benefits, partially offset by a decrease in other operating expense.

•~~The efficiency ratio of 61.6% compared to 55.9% in the second quarter of 2020.~~

◦~~On an Underlying basis, the efficiency ratio of 60.9% compared to 54.9% in the second quarter of 2020.~~

•Credit provision benefit of $213 million compares with a $464 million credit provision expense in the second quarter of 2020, reflecting strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook.

~~Year~~Quarter to Date and Period End - Key Highlights

Net income of ~~$1.3 billion increased $972~~$420 million decreased $191 million from the first ~~half~~quarter of ~~2020,~~2021, with earnings per diluted common share of ~~$2.81, up $2.26~~$0.93, down $0.44 from ~~$0.55~~$1.37 per diluted common share in the first ~~half~~quarter of ~~2020.~~2021. ROTCE of ~~17.3% increased~~11.4% decreased from ~~3.5%~~17.2% in the first ~~half~~quarter of ~~2020. Improved results primarily reflect the impact of the COVID-19 pandemic and associated lockdowns in the first half of 2020, resulting in a significant ACL reserve build in the first half of 2020.~~2021.

In the first ~~half~~quarter of ~~2021,~~2022, results ~~reflected $23~~reflect $56 million of expenses, net of tax benefit, or ~~$0.06~~$0.14 per diluted common share, from notable items ~~largely tied~~compared to ~~TOP 6 transformational and revenue and efficiency initiatives as well as integration costs. In the first half of 2020, there were $35~~$15 million of expenses, net of tax benefit, or ~~$0.09~~$0.04 per diluted common share, from notable items ~~largely tied to~~in the first quarter of 2021.


Table 1: Notable Items
	Three Months Ended March 31, 2022
		Less: notable items
(in millions)	Reported results (GAAP)	Integration costs(1)	TOP and other(2)	Provision(3)	Underlying results (non-GAAP)
Provision (benefit) for credit losses	$3	$—	$—	$24	($21)
Noninterest expense	1,106	37	11	—	1,058
Income tax expense	116	(10)	—	(6)	132


	Three Months Ended March 31, 2021
		Less: notable items
(in millions)	Reported results (GAAP)	Integration costs	TOP and other(2)	Provision	Underlying results (non-GAAP)
Provision (benefit) for credit losses	($140)	$—	$—	$—	($140)
Noninterest expense	1,018	—	20	—	998
Income tax expense	170	—	(5)	—	175

(1) Includes integration costs associated with acquisitions.

(2) Includes our TOP 6 transformational and revenue and efficiency initiatives ~~as well as integration costs.~~

~~Citizens Financial Group, Inc. | 10~~

Table 2: Notable Items
Six Months Ended June 30,
2021 2020
(in millions) Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP) $2,009 $353 $1,259 $1,991 $65 $287
Less notable items:
Total integration costs 2 (1) (1) 6 (2) (4)
Other notable items (1)
29 (7) (22) 46 (15) (31)
Total notable items 31 (8) (23) 52 (17) (35)
Underlying results (non-GAAP) $1,978 $361 $1,282 $1,939 $82 $322

~~(1)~~ ~~For~~for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, and ~~2020, Other notable items include noninterest expense of $29 million and $46 million, respectively, related to our TOP 6 transformational and revenue and efficiency initiatives. Other notable items for the six months ended June 30, 2020 also included a $4 million~~ income tax ~~benefit~~impacts related to legacy tax ~~matters.~~matters for the three months ended March 31, 2022.

(3) Includes the initial provision for credit losses of $24 million tied to the HSBC transaction. As required by purchase accounting, a fair value mark for performing loans including both credit and interest rate components is recorded in addition to the provision for credit losses expense, thus the credit exposure has been “double counted”.

•Net income available to common stockholders of ~~$1.2 billion increased $967~~$396 million decreased $192 million, compared to ~~$237~~$588 million in the first ~~half~~quarter of ~~2020.~~2021.

◦On an Underlying basis, which excludes notable items, ~~first half 2021~~ net income available to common stockholders of ~~$1.2 billion~~$452 million compared with ~~$272~~$603 million in the first ~~half~~quarter of ~~2020.~~2021.

◦On an Underlying basis, ~~EPS~~earnings per diluted common share of ~~$2.87~~$1.07 compared to ~~$0.64~~$1.41 in the first ~~half~~quarter of ~~2020.~~2021.

Citizens Financial Group, Inc. | 8

•Total revenue of ~~$3.3~~$1.6 billion decreased ~~$139~~$14 million, or 4%1%, from the first ~~half~~quarter of ~~2020,~~2021, driven by ~~declines~~a decline of ~~6% and 3%~~8% in noninterest income, ~~and~~partially offset by a 3% increase in net interest ~~income, respectively.~~income.

◦Net interest income of ~~$2.2~~$1.1 billion ~~decreased~~increased 3% ~~given lower net interest margin, partially offset by 6%~~, reflecting 3% growth in interest-earning ~~assets.~~assets and broadly stable net interest margin.

◦Net interest margin of ~~2.73% decreased 25 basis points from 2.98% in~~2.75% was stable compared to the first ~~half~~quarter of 2020, primarily reflecting the impact of a lower rate environment, lower interest-earning asset yields and elevated cash balances given strong deposit flows, partially offset by improved funding mix and deposit pricing.2021.

–Net interest margin on a FTE basis of ~~2.74%~~2.75% decreased ~~by 25~~1 basis ~~points,~~point, compared to ~~2.99%~~2.76% in the first ~~half~~quarter of ~~2020.~~2021, as the impact of lower earning-asset yields was largely offset by the deployment of cash into loan growth.

–Average loans and leases of ~~$123.2~~$129.2 billion ~~decreased $1.7~~increased $6.3 billion, or 1%5%, from ~~$124.9~~$122.8 billion in the first ~~half~~quarter of ~~2020,~~2021, driven by a ~~$2.7~~$6.6 billion ~~decrease~~increase in ~~commercial reflecting line~~retail loans given growth in mortgage, auto and education, and the impact of ~~credit repayments and net payoffs,~~the HSBC transaction, partially offset by a $960 million increase in retail driven by growth in education and residential mortgage, which reflects the exercise of the early buyout option of loans previously sold to GNMA, partially offset by decreases in home equity and other retail givenplanned run-off of personal unsecured installment ~~loans.~~

–~~Period-end~~ loans ~~declined $509~~and a $304 million ~~from the fourth quarter of 2020, reflecting a 3% decline~~decrease in commercial ~~partially~~as growth was more than offset by ~~2% growth~~a reduction in ~~retail.~~PPP loans.

–Average deposits of ~~$148.5~~$155.1 billion increased ~~$14.4~~$8.4 billion, or ~~11%~~6%, from ~~$134.1~~$146.6 billion in the first ~~half~~quarter of ~~2020, reflecting an increase~~2021, driven by the impact of the HSBC transaction and growth in demand, ~~deposits, money market accounts, savings and~~ checking with interest and savings, partially offset by a decrease in ~~term deposits.~~

–Period-end deposit growth of $3.5 billion, or 2%, from the fourth quarter of 2020, reflecting growth in demand deposits, savings and checking with interest, partially offset by a decline in term deposits and money market ~~accounts.~~and term.

◦Noninterest income of ~~$1.0 billion~~$498 million decreased ~~$60~~$44 million, or 6%8%, from the first ~~half~~quarter of ~~2020, driven by by a decline in~~2021, primarily reflecting lower mortgage banking fees partially offset by ~~higher~~improved capital markets fees, ~~trust~~foreign exchange and ~~investment services fees, card fees,~~derivative products revenue, and ~~letter of credit and loan fees.~~other income.

•Noninterest expense of ~~$2.0~~$1.1 billion ~~was stable compared to~~increased by 9% from the first ~~half~~quarter of ~~2020.~~2021.

◦On an Underlying basis, noninterest expense increased 2%6% from the first ~~half~~quarter of ~~2020,~~2021, reflecting higher ~~outside services, equipment and software expense, and~~ salaries and employee benefits given merit increases, and other operating expense associated with increased travel and advertising costs, partially offset by ~~a decrease in other operating expense.~~the benefit of efficiency initiatives.

~~Citizens Financial Group, Inc. | 11~~

•The efficiency ratio of ~~61.5%~~67.2% compared to ~~58.4%~~61.4% for the first ~~half~~quarter of ~~2020,~~2021, and ROTCE of ~~17.3%~~11.4% compared to ~~3.5%~~17.2%.

◦On an Underlying basis, the efficiency ratio of ~~60.6%~~64.3% compared to ~~56.9%~~60.2% for the first ~~half~~quarter of ~~2020,~~2021, and ROTCE of ~~17.7%~~13.0% compared to ~~4.0%~~17.6%.

•Credit provision ~~benefit~~expense of ~~$353~~$3 million compares with a ~~$1.1 billion~~$140 million credit provision ~~expense~~benefit for the first ~~half~~quarter of ~~2020,~~2021, reflecting strong credit performance across the retail and commercial loan ~~portfolios and improvement in~~portfolios. The first quarter 2022 Underlying credit provision benefit excludes the ~~macroeconomic outlook.~~“double count” of the $24 million day-one CECL provision expense tied to the HSBC transaction.

•Tangible book value per common share of ~~$33.95 increased~~$30.97 decreased 6% from the first ~~half~~quarter of ~~2020. Fully diluted average common shares outstanding was stable over the same period.~~

~~Citizens Financial Group, Inc. | 12~~

~~SELECTED CONSOLIDATED FINANCIAL DATA~~

The summary of the Consolidated Operating Data for the for the three and six months ended June 30, 2021 and 2020 and the summary Consolidated Balance Sheet data as of June 30, 2021 and December 31, 2020 are derived from our unaudited interim Consolidated Financial Statements, included in Part I, Item 1. Our historical results are not necessarily indicative of the results expected for any future period.

Table 3: Summary of Consolidated Operating Data
Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions, except per share amounts) 2021 2020 2021 2020
OPERATING DATA:
Net interest income $1,124 $1,160 $2,241 $2,320
Noninterest income 485 590 1,027 1,087
Total revenue 1,609 1,750 3,268 3,407
Provision for credit losses (213) 464 (353) 1,064
Noninterest expense 991 979 2,009 1,991
Income before income tax expense 831 307 1,612 352
Income tax expense 183 54 353 65
Net income $648 $253 $1,259 $287
Net income available to common stockholders $616 $225 $1,204 $237
Net income per common share - basic $1.45 $0.53 $2.83 $0.56
Net income per common share - diluted $1.44 $0.53 $2.81 $0.55
OTHER OPERATING DATA:
Return on average common equity 11.85 % 4.44 % 11.71 % 2.35 %
Return on average tangible common equity 17.50 6.62 17.34 3.51
Return on average total assets 1.41 0.57 1.38 0.33
Return on average total tangible assets 1.46 0.59 1.44 0.35
Efficiency ratio 61.63 55.91 61.49 58.43
Operating leverage (9.42) 4.60 (5.02) 0.48
Net interest margin, FTE(1)
2.72 2.88 2.74 2.99
Effective income tax rate 21.96 17.69 21.86 18.51

~~(1)~~ ~~Net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%.~~

~~Citizens Financial Group, Inc. | 13~~

Table 4: Summary of Consolidated Balance Sheet data
(dollars in millions) June 30, 2021 December 31, 2020
BALANCE SHEET DATA:
Total assets $185,104 $183,349
Loans held for sale, at fair value 3,616 3,564
Other loans held for sale 82 439
Loans and leases 122,581 123,090
Allowance for loan and lease losses (1,947) (2,443)
Total securities 27,976 26,847
Goodwill 7,050 7,050
Total liabilities 161,905 160,676
Total deposits 150,636 147,164
Short-term borrowed funds 62 243
Long-term borrowed funds 6,957 8,346
Total stockholders’ equity 23,199 22,673
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses to loans and leases 1.59 % 1.98 %
Allowance for credit losses to loans and leases 1.70 2.17
Allowance for credit losses to loans and leases, excluding the impact of PPP loans(1)
1.75 2.24
Allowance for loan and lease losses to nonaccruing loans and leases 250 240
Allowance for credit losses to nonaccruing loans and leases 267 262
Nonaccruing loans and leases to loans and leases 0.64 0.83
Capital Ratios:
CET1 capital ratio 10.3 % 10.0 %
Tier 1 capital ratio 11.6 11.3
Total capital ratio 13.5 13.4
Tier 1 leverage ratio 9.7 9.4

~~(1)~~ ~~For more information on the computation of non-GAAP financial measures, see “—Introduction — Non-GAAP Financial Measures” and “—Non-GAAP Financial Measures and Reconciliations.”~~

2021.

Citizens Financial Group, Inc. | 149

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is our largest source of ~~revenue. It~~revenue and is the difference between the interest earned on interest-earning assets ~~generally~~(generally loans, leases and investment ~~securities,~~securities) and the interest expense incurred in connection with interest-bearing liabilities ~~generally~~(generally deposits and borrowed ~~funds.~~funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to “—Market Risk — Non-Trading Risk,” and “—Risk Governance” as described in our ~~2020~~2021 Form 10-K.

~~The following table presents a five quarter trend of our Net interest margin, FTE and Net interest income:~~

~~Second quarter 2021 versus first quarter 2021:~~ Net interest income of $1.1 billion was up 1% given interest-earning asset growth, higher day count and improved funding mix, partially offset by lower net interest margin. Net interest margin on a FTE basis of 2.72% was down 4 basis points, reflecting lower earning asset yields, partially offset by improved funding mix and deposit pricing. Interest-bearing deposit costs of 0.16% decreased 4 basis points.

~~Citizens Financial Group, Inc. | 15~~

Table 5: Major Components of Net Interest Income, Quarter-to-Date
Three Months Ended June 30,
2021 2020 Change
(dollars in millions) Average
Balances Income/
Expense Yields/
Rates Average
Balances Income/
Expense Yields/
Rates Average
Balances Yields/
Rates (bps)
Assets
Interest-bearing cash and due from banks and deposits in banks $11,259 $3 0.12 % $5,231 $1 0.09 % $6,028 3 bps
Taxable investment securities 27,597 124 1.80 25,180 130 2.15 2,417 (35)
Non-taxable investment securities 3 — 2.60 4 — 2.60 (1) —
Total investment securities 27,600 124 1.80 25,184 130 2.15 2,416 (35)
Commercial and industrial 44,388 345 3.08 50,443 412 3.23 (6,055) (15)
Commercial real estate 14,473 95 2.58 14,540 106 2.87 (67) (29)
Leases 1,792 12 2.76 2,426 16 2.75 (634) 1
Total commercial loans and leases 60,653 452 2.96 67,409 534 3.14 (6,756) (18)
Residential mortgages 20,242 154 3.04 18,872 150 3.19 1,370 (15)
Home equity 11,825 92 3.13 12,736 111 3.50 (911) (37)
Automobile 12,526 125 4.00 11,998 129 4.33 528 (33)
Education 12,632 135 4.26 11,183 145 5.21 1,449 (95)
Other retail 5,612 100 7.13 6,557 123 7.52 (945) (39)
Total retail loans 62,837 606 3.86 61,346 658 4.31 1,491 (45)
Total loans and leases 123,490 1,058 3.42 128,755 1,192 3.69 (5,265) (27)
Loans held for sale, at fair value 3,751 24 2.55 2,710 20 2.85 1,041 (30)
Other loans held for sale 233 2 2.99 510 7 4.66 (277) (167)
Interest-earning assets 166,333 1,211 2.90 162,390 1,350 3.33 3,943 (43)
Noninterest-earning assets 18,123 17,403 720
Total assets $184,456 $179,793 $4,663
Liabilities and Stockholders’ Equity
Checking with interest $27,278 $5 0.08 % $26,312 $11 0.17 % $966 (9)
Money market accounts 49,394 21 0.17 45,187 39 0.35 4,207 (18)
Regular savings 20,077 5 0.10 15,883 15 0.39 4,194 (29)
Term deposits 6,970 11 0.61 16,470 59 1.44 (9,500) (83)
Total interest-bearing deposits 103,719 42 0.16 103,852 124 0.48 (133) (32)
Short-term borrowed funds 69 — 0.87 222 — 0.29 (153) 58
Long-term borrowed funds 7,434 45 2.41 11,755 66 2.22 (4,321) 19
Total borrowed funds 7,503 45 2.40 11,977 66 2.18 (4,474) 22
Total interest-bearing liabilities 111,222 87 0.31 115,829 190 0.66 (4,607) (35)
Demand deposits 46,630 37,745 8,885
Other liabilities 3,741 4,086 (345)
Total liabilities 161,593 157,660 3,933
Stockholders’ equity 22,863 22,133 730
Total liabilities and stockholders’ equity $184,456 $179,793 $4,663
Interest rate spread 2.59 % 2.67 % (8)
Net interest income and net interest margin $1,124 2.71 % $1,160 2.87 % (16)
Net interest income and net interest margin, FTE(1)
$1,126 2.72 % $1,163 2.88 % (16)
Memo: Total deposits (interest-bearing and demand) $150,349 $42 0.11 % $141,597 $124 0.35 % $8,752 (24) bps

~~(1)~~ Net interest income and net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial and industrial loans for the periods presented.

~~Second quarter 2021 vs second quarter 2020:Net interest income of $1.1 billion decreased 3% from the second quarter of 2020 given lower net interest margin, partially offset by 2% growth in interest-earning assets.~~

Net interest margin on a FTE basis of 2.72% decreased 16 basis points compared to 2.88% in the second quarter of 2020, primarily reflecting the impact of a lower rate environment, lower interest-earning asset yields andelevated cash balances given strong deposit flows, partially offset by improved funding mix and deposit pricing. Interest-bearing deposit costs decreased 32 basis points. Average interest-earning asset yields of 2.90% decreased 43 basis points from 3.33% in the second quarter of 2020, while average interest-bearing liability costs of 0.31% decreased 35 basis points from 0.66% in the second quarter of 2020.

Average interest-earning assets of $166.3 billion increased $3.9 billion, or 2%, from the second quarter of 2020, driven by a $6.0 billion increase in cash held in interest-bearing deposits, and a $2.4 billion increase in

~~Citizens Financial Group, Inc. | 16~~

investments. Loans and loans held for sale decreased $4.5 billion, or 3%, with a $6.8 billion decrease in average commercial loans and leases reflecting line of credit repayments and net payoffs, partially offset by $4.6 billion of PPP loans. Retail loans increased $1.5 billion driven by growth in education, residential mortgage, and automobile, partially offset by decreases in home equity and other retail given planned run-off of personal unsecured installment loans. Loans held for sale increased $764 million reflecting mortgage originations.

Average deposits of $150.3 billion increased $8.8 billion, or 6%, from the second quarter of 2020, reflecting an increase in demand deposits, money market accounts, savings, and checking with interest, partially offset by a decrease in term deposits. Average total borrowed funds of $7.5 billion decreased $4.5 billion from the second quarter of 2020, as strong customer deposit inflows allowed for significantly lower levels of FHLB advances and the pay down of senior debt and short-term borrowings. Total borrowed funds costs of $45 million decreased $21 million from the second quarter of 2020. The total borrowed funds cost of 2.40% increased 22 basis points from 2.18% in the second quarter of 2020.


Table 6: Major Components of Net Interest Income, Year-to-Date
Table 2: Major Components of Net Interest Income												Table 2: Major Components of Net Interest Income
		Six Months Ended June 30,											Three Months Ended March 31,
		2021				2020				Change			2022				2021				Change
(dollars in millions)	(dollars in millions)	Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Yields/ Rates (bps)	(dollars in millions)	Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Income/ Expense	Yields/ Rates		Average Balances	Yields/ Rates (bps)
Assets:	Assets:											Assets:
Interest-bearing cash and due from banks and deposits in banks	Interest-bearing cash and due from banks and deposits in banks	$11,061	$6	0.11	%	$3,545	$6	0.36	%	$7,516	(25) bps	Interest-bearing cash and due from banks and deposits in banks	$8,055	$4	0.21	%	$10,861	$3	0.11	%	($2,806)	10 bps
Taxable investment securities	Taxable investment securities	27,316	252	1.84		25,259	277	2.24		2,057	(40)	Taxable investment securities	29,245	138	1.88		27,031	128	1.89		2,214	(1)
Non-taxable investment securities	Non-taxable investment securities	3	—	2.60		4	—	2.60		(1)	—	Non-taxable investment securities	2	—	2.60		3	—	2.60		(1)	—
Total investment securities	Total investment securities	27,319	252	1.84		25,263	277	2.24		2,056	(40)	Total investment securities	29,247	138	1.88		27,034	128	1.89		2,213	(1)
Commercial and industrial	Commercial and industrial	44,338	692	3.10		46,797	829	3.50		(2,459)	(40)	Commercial and industrial	44,947	328	2.91		44,287	347	3.12		660	(21)
Commercial real estate	Commercial real estate	14,574	189	2.58		14,208	245	3.40		366	(82)	Commercial real estate	14,066	90	2.57		14,675	94	2.57		(609)	—
Leases	Leases	1,852	25	2.73		2,454	34	2.79		(602)	(6)	Leases	1,560	11	2.81		1,915	13	2.69		(355)	12
Total commercial loans and leases	Total commercial loans and leases	60,764	906	2.97		63,459	1,108	3.45		(2,695)	(48)	Total commercial loans and leases	60,573	429	2.83		60,877	454	2.98		(304)	(15)
Residential mortgages	Residential mortgages	19,817	302	3.05		18,869	314	3.33		948	(28)	Residential mortgages	23,461	169	2.88		19,388	148	3.05		4,073	(17)
Home equity	Home equity	11,912	187	3.16		12,889	263	4.10		(977)	(94)	Home equity	12,124	90	3.02		12,001	95	3.20		123	(18)
Automobile	Automobile	12,378	250	4.07		12,085	260	4.33		293	(26)	Automobile	14,534	127	3.55		12,229	125	4.14		2,305	(59)
Education	Education	12,534	269	4.32		10,897	294	5.42		1,637	(110)	Education	13,034	131	4.07		12,436	134	4.38		598	(31)

Other retail	Other retail	5,765	205	7.19		6,706	255	7.65		(941)	(46)	Other retail	5,428	102	7.63		5,916	105	7.25		(488)	38
Total retail loans	Total retail loans	62,406	1,213	3.91		61,446	1,386	4.53		960	(62)	Total retail loans	68,581	619	3.65		61,970	607	3.96		6,611	(31)
Total loans and leases	Total loans and leases	123,170	2,119	3.44		124,905	2,494	3.98		(1,735)	(54)	Total loans and leases	129,154	1,048	3.26		122,847	1,061	3.47		6,307	(21)
Loans held for sale, at fair value	Loans held for sale, at fair value	3,535	42	2.40		2,300	35	3.03		1,235	(63)	Loans held for sale, at fair value	2,366	16	2.70		3,254	18	2.27		(888)	43
Other loans held for sale	Other loans held for sale	348	8	4.48		655	16	4.45		(307)	3	Other loans held for sale	454	7	5.89		385	6	6.30		69	(41)
Interest-earning assets	Interest-earning assets	165,433	2,427	2.94		156,668	2,828	3.61		8,765	(67)	Interest-earning assets	169,276	1,213	2.88		164,381	1,216	2.97		4,895	(9)

Noninterest-earning assets	Noninterest-earning assets	18,085				16,817				1,268		Noninterest-earning assets	19,041				18,188				853
Total assets	Total assets	$183,518				$173,485				$10,033		Total assets	$188,317				$182,569				$5,748
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:											Liabilities and Stockholders’ Equity:
Checking with interest	Checking with interest	$26,700	$11	0.09	%	$25,462	$48	0.38	%	$1,238	(29)	Checking with interest	$30,417	$5	0.07	%	$26,116	$6	0.09	%	$4,301	(2)
Money market accounts		49,465	43	0.17		42,513	132	0.63		6,952	(46)
Regular savings		19,348	10	0.10		15,042	33	0.44		4,306	(34)
Term deposits		7,767	28	0.73		17,543	138	1.58		(9,776)	(85)
Money market												Money market	47,220	12	0.10		49,536	22	0.18		(2,316)	(8)
Savings												Savings	23,835	5	0.08		18,611	5	0.11		5,224	(3)
Term												Term	4,970	3	0.29		8,572	17	0.83		(3,602)	(54)
Total interest-bearing deposits	Total interest-bearing deposits	103,280	92	0.18		100,560	351	0.70		2,720	(52)	Total interest-bearing deposits	106,442	25	0.10		102,835	50	0.20		3,607	(10)

Short-term borrowed funds	Short-term borrowed funds	109	—	0.59		433	1	0.64		(324)	(5)	Short-term borrowed funds	29	—	3.50		150	—	0.46		(121)	304
Long-term borrowed funds	Long-term borrowed funds	7,882	94	2.38		12,906	156	2.40		(5,024)	(2)	Long-term borrowed funds	6,066	41	2.66		8,336	49	2.35		(2,270)	31
Total borrowed funds	Total borrowed funds	7,991	94	2.36		13,339	157	2.35		(5,348)	1	Total borrowed funds	6,095	41	2.66		8,486	49	2.32		(2,391)	34
Total interest-bearing liabilities	Total interest-bearing liabilities	111,271	186	0.34		113,899	508	0.90		(2,628)	(56)	Total interest-bearing liabilities	112,537	66	0.23		111,321	99	0.36		1,216	(13)
Demand deposits	Demand deposits	45,230				33,553				11,677		Demand deposits	48,641				43,814				4,827
Other liabilities	Other liabilities	4,297				4,070				227		Other liabilities	4,144				4,858				(714)
Total liabilities	Total liabilities	160,798				151,522				9,276		Total liabilities	165,322				159,993				5,329
Stockholders’ equity	Stockholders’ equity	22,720				21,963				757		Stockholders’ equity	22,995				22,576				419
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$183,518				$173,485				$10,033		Total liabilities and stockholders’ equity	$188,317				$182,569				$5,748
Interest rate spread	Interest rate spread			2.60	%			2.71	%		(11)	Interest rate spread			2.65	%			2.62	%		3
Net interest income and net interest margin	Net interest income and net interest margin		$2,241	2.73	%		$2,320	2.98	%		(25)	Net interest income and net interest margin		$1,147	2.75	%		$1,117	2.75	%		—
Net interest income and net interest margin, FTE(1)	Net interest income and net interest margin, FTE(1)		$2,246	2.74	%		$2,327	2.99	%		(25)	Net interest income and net interest margin, FTE(1)		$1,149	2.75	%		$1,120	2.76	%		(1)
Memo: Total deposits (interest-bearing and demand)	Memo: Total deposits (interest-bearing and demand)	$148,510	$92	0.12	%	$134,113	$351	0.53	%	$14,397	(41) bps	Memo: Total deposits (interest-bearing and demand)	$155,083	$25	0.07	%	$146,649	$50	0.14	%	$8,434	(7) bps

(1) Net interest income and net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial and industrial loans for the periods presented.

Citizens Financial Group, Inc. | 1710

~~First half 2021 versus first half of 2020:~~ Net interest income of ~~$2.2~~$1.1 billion ~~decreased~~increased 3% from the first ~~half~~quarter of ~~2020, with 6%~~2021, reflecting 3% growth in interest-earning assets ~~including the addition of PPP loans, which was more than offset by lower~~and broadly stable net interest margin.

Net interest margin on a FTE basis of ~~2.74%~~2.75% decreased 251 basis ~~points~~point compared to ~~2.99%~~2.76% in the first ~~half~~quarter of ~~2020, primarily reflecting~~2021, as the impact of a lower ~~rate environment, lower interest-earning~~earning asset yields ~~and elevated cash balances given strong deposit flows, partially~~was largely offset by ~~improved funding mix and deposit pricing.~~the deployment of cash into loan growth. Average interest-earning asset yields of ~~2.94%~~2.88% decreased 679 basis points from ~~3.61%~~2.97% in the first ~~half~~quarter of ~~2020,~~2021, while average interest-bearing liability costs of ~~0.34%~~0.23% decreased 5613 basis points from ~~0.90%~~0.36% in the first ~~half~~quarter of ~~2020.~~2021.

Average interest-earning assets of ~~$165.4~~$169.3 billion increased ~~$8.8~~$4.9 billion, or 3%, from the first quarter of 2021, as a $2.2 billion, or 8% increase in investments and a $6.3 billion, or 5%, increase in loans and leases was partially offset by a $2.8 billion decrease in cash held in interest-bearing deposits reflecting partial deployment of elevated liquidity. Loan growth was driven by a $6.6 billion increase in retail loans given growth in mortgage, auto and education, partially offset by planned runoff of personal unsecured installment loans. Commercial loans decreased $304 million as growth was more than offset by a $4.2 billion reduction in PPP loans.

Average deposits of $155.1 billion increased $8.4 billion, or 6%, from the first ~~half~~quarter of ~~2020, as increased liquidity allowed for a $5.3 billion, or 40%, decrease~~2021, reflecting growth in ~~borrowed funds, and drove a $7.5 billion increase in cash held in interest-bearing~~lower cost deposits and ~~a $2.1~~the $2.9 billion or 8%, increase in investments. Results also reflected a $807 million, or 1%, decrease in average loans and leases and LHFS with a $2.7 billion decrease in average commercial loans and leases reflecting lineimpact of credit and repayments and net payoffs, partially offset by $4.70 billion of PPP loans. Furthermore, average retail loans increased $960 million, driven by growth in education and residential mortgage,the HSBC transaction, partially offset by decreases in ~~home equity and other retail given run-off of personal unsecured installment loans. Loans held for sale increased $928 million, reflecting mortgage originations.~~

~~Average deposits of $148.5 billion increased $14.4 billion, or 11%, from the first half of 2020, reflecting growth in demand deposits,~~ money market ~~accounts, savings~~ and ~~checking with interest, partially offset by a decline in term deposits.~~term. Average total borrowed funds of ~~$8.0~~$6.1 billion decreased ~~$5.3~~$2.4 billion from the first ~~half~~quarter of ~~2020, as strong customer deposit inflows allowed for significantly lower levels of FHLB advances and~~2021, given the pay down of senior ~~debt and short-term borrowings.~~debt. Total borrowed funds costs of ~~$94~~$41 million decreased ~~$63~~$8 million from the first ~~half~~quarter of ~~2020.~~2021. The total borrowed funds cost of ~~2.36%~~2.66% increased 134 basis ~~point~~points from ~~2.35%~~2.32% in the first ~~half~~quarter of ~~2020.~~

~~Citizens Financial Group, Inc. | 18~~

2021.

Noninterest Income

~~The following table presents a five quarter trend of our noninterest income:~~

~~Second quarter 2021 versus first quarter 2021:~~ Noninterest income of $485 million was down 11%, reflecting lower mortgage banking fees given lower gain-on-sale margins as well as lower mortgage servicing rights hedging results. These decreases were partially offset by higher card fees, capital markets fees, and trust and investment services fees.


Table 7: Noninterest Income
Table 3: Noninterest Income												Table 3: Noninterest Income
		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	Change	Percent		2021	2020	Change	Percent		(in millions)		2022	2021	Change	Percent
Capital markets fees												Capital markets fees		$93	$81	$12	15	%
Service charges and fees												Service charges and fees		98	99	(1)	(1)
Mortgage banking fees	Mortgage banking fees	$85	$276	($191)	(69	%)	$250	$435	($185)	(43	%)	Mortgage banking fees		69	165	(96)	(58)
Service charges and fees		100	84	16	19		199	202	(3)	(1)
Capital markets fees		91	61	30	49		172	104	68	65
Card fees	Card fees	64	48	16	33		119	104	15	14		Card fees		60	55	5	9
Trust and investment services fees	Trust and investment services fees	60	45	15	33		118	98	20	20		Trust and investment services fees		61	58	3	5
Letter of credit and loan fees	Letter of credit and loan fees	38	31	7	23		76	65	11	17		Letter of credit and loan fees		38	38	—	—
Foreign exchange and interest rate products		28	34	(6)	(18)		56	58	(2)	(3)
Foreign exchange and derivative products												Foreign exchange and derivative products		51	28	23	82
Securities gains, net	Securities gains, net	3	3	—	—		6	3	3	100		Securities gains, net		4	3	1	33
Other income (1)	Other income (1)	16	8	8	100		31	18	13	72		Other income(1)		24	15	9	60
Noninterest income	Noninterest income	$485	$590	($105)	(18	%)	$1,027	$1,087	($60)	(6	%)	Noninterest income		$498	$542	($44)	(8	%)

(1) Includes bank-owned life insurance income and other ~~miscellaneous~~ income for all periods presented.

~~Second quarter 2021 versus second quarter 2020:~~Noninterest income decreased ~~$105~~$44 million, or 18% from the second quarter of 2020. Results reflected lower mortgage banking fees and foreign exchange and interest rate products revenue partially offset by improved capital markets fees, service charges and fees, card fees, trust and investment services fees, and letter of credit and loan fees.

•~~Lower mortgage banking fees were driven by lower gain-on-sale margins despite higher origination volumes.~~

•~~Lower foreign exchange and interest rate products revenue reflects lower client interest rate hedging activity partly offset by strong client foreign exchange and commodities hedging results.~~

•~~Improved capital markets fees reflects higher loan syndication and mergers and acquisition advisory fees.~~

•~~Higher card fees reflect increased debit and credit card volumes given the economic recovery.~~

•~~Higher trust and investment services fees reflect an increase in assets under management from higher equity market levels and strong inflows, as well as higher annuity sales.~~

~~First half 2021 versus first half 2020:~~ ~~Noninterest income decreased $60 million, or 6%~~8%, from the first ~~half~~quarter of ~~2020. Results reflected~~2021, primarily reflecting lower mortgage banking fees partially offset by improved capital markets fees, ~~trust~~foreign exchange and ~~investment~~derivative products revenue, and other income.

•The decrease in mortgage banking fees ~~letter~~was driven by lower gain-on-sale margins and production volumes.

•Companies we acquired in the second half of ~~credit~~2021 contributed $21 million of capital market fees in the first quarter of 2022. Excluding these acquisitions, capital markets fees reflect lower merger and acquisition advisory and underwriting fees, partially offset by higher loan ~~fees, and card~~syndication fees.

•~~Lower mortgage banking fees reflected lower gain-on-sale margins given~~Record foreign exchange and derivative products revenue increased ~~industry capacity~~reflecting growth in client interest rate and commodities hedging activity.

•The increase in other income primarily reflects higher investment income.

Citizens Financial Group, Inc. | 1911

~~heightened competition as well as lower mortgage servicing rights hedging results.~~

•~~Higher loan syndication, underwriting, and mergers and acquisition advisory fees drove improvement in capital markets fees.~~

•~~Higher trust and investment services fees reflected an increase in assets under management from higher equity market levels and strong inflows.~~

•~~Increased letter of credit and loan fees reflected higher commitment fees.~~

Noninterest Expense

~~The following table presents a five quarter trend of our noninterest expense:~~


Table 4: Noninterest Expense
	Three Months Ended March 31,
(in millions)		2022	2021	Change	Percent
Salaries and employee benefits		$594	$548	$46	8	%
Equipment and software		150	152	(2)	(1)
Outside services		169	139	30	22
Occupancy		83	88	(5)	(6)
Other operating expense		110	91	19	21
Noninterest expense		$1,106	$1,018	$88	9	%

~~Second quarter 2021 versus~~Noninterest expense increased $88 million, or 9%, compared to the first quarter ~~2021:~~ ~~Noninterest expense~~ of ~~$991 million decreased 3% and included the impact of notable items.~~2021. On an Underlying basis, noninterest expense of ~~$980~~$1.1 billion increased $60 million, ~~was down 2%~~or 6%, reflecting ~~seasonally lower~~higher salaries and employee benefits ~~along~~given merit increases, and other operating expense associated with ~~strong expense discipline.~~

Table 8: Noninterest Expense
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 Change Percent 2021 2020 Change Percent
Salaries and employee benefits $524 $513 $11 2 % $1,072 $1,062 $10 1 %
Equipment and software 155 142 13 9 307 275 32 12
Outside services 137 131 6 5 276 266 10 4
Occupancy 82 82 — — 170 166 4 2
Other operating expense 93 111 (18) (16) 184 222 (38) (17)
Noninterest expense $991 $979 $12 1 % $2,009 $1,991 $18 1 %

~~Second quarter 2021 versus second quarter 2020:~~ ~~Noninterest expense~~ increased~~$12 million, or 1%,~~ travel and ~~underlying noninterest expense of $980 million increased 2% compared to the second quarter of 2020. Higher equipment and software, salaries and employee benefits, and outside services were~~advertising costs, partially offset by ~~lower other operating expense.~~

•~~Higher equipment and software expense reflected increased technology spend.~~

•~~Salaries and employee benefits increased, reflecting higher revenue-based compensation.~~

•~~Higher outside services were largely tied to growth~~the benefit of efficiency initiatives.

~~First half 2021 versus first half 2020:~~ Noninterest expense increased $18 million, or 1%, from the first half of 2020, largely reflecting higher equipment and software expense, salaries and employee benefits and outside services partially offset by lower other operating expense due to the reasons stated above. Underlying noninterest expense of $2.0 billion increased $39 million, or 2%, as a result of the items stated above.

~~Citizens Financial Group, Inc. | 20~~

Provision for Credit Losses

~~The following table presents a five quarter trend of our provision for credit losses, net charge-offs and net charge-off ratio:~~

The provision for credit losses is the result of a detailed analysis performed to estimate our ACL. The total provision for credit losses includes the provision for loan and lease losses and the provision for unfunded commitments. Refer to “—Analysis of Financial Condition — Allowance for Credit Losses and ~~Nonaccruing~~Nonaccrual Loans and Leases” for more information.

~~Second quarter 2021 versus~~Credit provision expense was $3 million for the first quarter ~~2021:~~ ~~In the second quarter~~ of ~~2021, strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook resulted in a credit provision benefit of $213 million. This~~2022, compared to a credit provision benefit of $140 million in the first quarter of ~~2021.~~

~~Second~~2021, reflecting strong economic growth that began in the fourth quarter ~~2021 versus second quarter 2020:~~ ~~The~~of 2020 and continued solid credit performance. Underlying credit provision benefit ~~was $213 million in the second quarter~~ of 2021, compared with a $464 million credit provision expense in the second quarter of 2020. The credit provision expense in 2020 reflects the adverse impacts from the COVID-19 pandemic and associated lockdowns, while the credit provision benefit in 2021 reflects strong credit performance and improving macroeconomic outlook.

~~First half 2021 versus first half 2020:~~ ~~The credit provision benefit was $353~~$21 million in the first ~~half~~quarter of ~~2021. This compared to a credit~~2022 excludes the “double count” of the $24 million day-one CECL provision expense ~~of $1.1 billion in~~tied to the ~~first half of 2020, which reflected the adverse impacts from the COVID-19 pandemic and associated lockdowns.~~HSBC transaction.

~~Citizens Financial Group, Inc. | 21~~

Income Tax Expense

~~The following table presents a five quarter trend of our income tax expense and effective income tax rate:~~

~~Second quarter 2021 versus second quarter 2020:~~Income tax expense ~~increased $129~~of $116 million for the first quarter of 2022 decreased $54 million from $170 million in the ~~second~~first quarter of ~~2020~~2021 due to ~~increased~~decreased taxable income. The effective income tax rate ~~increased~~decreased to ~~22.0% from 17.7%~~21.7% in the ~~second~~first quarter of ~~2020,~~2022 from 21.8% in the first quarter of 2021, primarily driven by the ~~decreased~~increased benefit of ~~tax advantaged~~tax-advantaged investments on ~~higher~~lower pre-tax income.

~~First half 2021 versus first half 2020:~~ Income tax expense for the first half of 2021 was $353 million compared to $65 million in the first half of 2020. Income tax expense increased $288 million from the first half of 2020 due to increased taxable income. The effective income tax rate increased to 21.9% from 18.5% in the first half of 2020 driven by the decreased benefit of tax advantaged investment on higher pre-tax income.

Business Operating Segments

We have two business operating segments: Consumer Banking and Commercial Banking. Segment results are derived by specifically attributing managed assets, liabilities, capital and related revenues, provision for credit losses, which at the segment level is equal to net charge-offs, and other expenses. The residual difference between the consolidated provision for credit losses and the business operating segments’ net charge-offs is reflected in Other.

Non-segment operations are classified as Other ~~which includes~~and include assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense not attributed to our Consumer or Commercial Banking segments as well as treasury and community development. In addition, ~~Other includes goodwill not directly allocated to a business operating segment and any associated goodwill impairment charges. For~~for impairment testing purposes, we allocate all goodwill to our Consumer Banking ~~and/or~~and Commercial Banking reporting units.

There have been no significant changes in our methodologies used to allocate items to our business operating segments as described in “—Results of Operations — Business Operating Segments” in our ~~2020~~2021 Form ~~10-K.~~10-K other than the change relative to our FTP methodology. See Note 17 for additional information.

Citizens Financial Group, Inc. | 12

The following table presents certain financial data of our business operating segments. Total business operating segment financial results differ from total consolidated financial results. These differences are reflected in Other non-segment operations. See Note ~~16 in Item 1~~17 for ~~further~~additional information.

~~Citizens Financial Group, Inc. | 22~~

Table 9: Selected Financial Data for Business Operating Segments, Quarter-to-Date
Consumer Banking Commercial Banking
Three Months Ended June 30, Three Months Ended June 30,
(dollars in millions) 2021 2020 2021 2020
Net interest income $897 $814 $419 $419
Noninterest income 283 428 178 144
Total revenue 1,180 1,242 597 563
Noninterest expense 751 735 226 213
Profit before credit losses 429 507 371 350
Net charge-offs 45 80 34 70
Income before income tax expense 384 427 337 280
Income tax expense 98 107 72 59
Net income $286 $320 $265 $221
Average Balances:
Total assets $75,600 $71,634 $57,527 $65,280
Total loans and leases(1)(2)
71,389 68,205 54,758 62,011
Deposits 100,933 91,648 44,049 41,750
Interest-earning assets 72,308 68,256 55,143 62,422

~~(1)Includes LHFS.~~

~~(2)~~ ~~The majority of PPP loans are reflected in Consumer Banking in accordance with how they are managed.~~

~~Consumer Banking~~

Net interest income increased $83 million, or 10%, from the second quarter of 2020, driven by the benefit of a $3.2 billion increase in average loans led by education, residential mortgage, automobile, and the impact of the PPP loan program. In addition, a $9.3 billion increase in average deposits driven by government stimulus programs also contributed to higher net interest income. Noninterest income decreased $145 million, or 34%, from the second quarter of 2020, driven by lower mortgage banking fees as increased industry capacity and heightened competition resulted in lower gain-on-sale margins, partially offset by recovery in service charges and fees, card fees, and trust and investment services fees, reflecting an increase in assets under management from higher equity market levels as well as higher annuity sales. Noninterest expense increased $16 million, or 2%, from the second quarter of 2020, as higher revenue-based compensation drove increased salaries and employee benefits expense. Higher outside services and equipment and software expense was driven by growth initiatives and increased technology spend. Net charge-offs of $45 million decreased $35 million, or 44%, driven by the impact of government stimulus and forbearance programs, as well as strong collateral values in residential real estate and automobile.

~~Commercial Banking~~

Net interest income of $419 million was flat to the second quarter of 2020. Noninterest income of $178 million increased $34 million, or 24%, from $144 million in the second quarter of 2020, driven by an increase in capital markets fees from higher loan syndication fees and mergers and acquisition advisory fees, as well as an increase in letter of credit and loan fees from higher commitment fees. Noninterest expense of $226 million increased $13 million, or 6%, from $213 million in the second quarter of 2020, largely tied to increased technology spend as well as higher salaries and employee benefits. Net charge-offs of $34 million~~decreased $36 million from the second quarter of 2020, which was a result of stabilization from the effects of the COVID-19 pandemic and associated lockdowns.~~

~~Citizens Financial Group, Inc. | 23~~


Table 10: Selected Financial Data for Business Operating Segments, Year-to-Date
Table 5: Selected Financial Data for Business Operating Segments						Table 5: Selected Financial Data for Business Operating Segments
		Consumer Banking		Commercial Banking			Consumer Banking		Commercial Banking
		Six Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,		Three Months Ended March 31,
(dollars in millions)	(dollars in millions)	2021	2020	2021	2020	(dollars in millions)	2022	2021	2022	2021
Net interest income	Net interest income	$1,760	$1,607	$840	$784	Net interest income	$857	$863	$416	$421
Noninterest income	Noninterest income	634	785	348	269	Noninterest income	257	351	213	170
Total revenue	Total revenue	2,394	2,392	1,188	1,053	Total revenue	1,114	1,214	629	591
Noninterest expense	Noninterest expense	1,501	1,473	453	434	Noninterest expense	784	750	272	227
Profit before credit losses	Profit before credit losses	893	919	735	619	Profit before credit losses	330	464	357	364
Net charge-offs	Net charge-offs	104	177	135	113	Net charge-offs	49	59	12	101
Income before income tax expense	Income before income tax expense	789	742	600	506	Income before income tax expense	281	405	345	263
Income tax expense	Income tax expense	201	186	124	106	Income tax expense	72	103	74	52
Net income	Net income	$588	$556	$476	$400	Net income	$209	$302	$271	$211
Average Balances:	Average Balances:					Average Balances:
Total assets	Total assets	$75,443	$70,024	$57,632	$62,142	Total assets	$77,551	$75,283	$61,118	$57,738
Total loans and leases~~(2)~~(1)	Total loans and leases~~(2)~~(1)	70,792	66,774	54,786	59,283	Total loans and leases~~(2)~~(1)	73,233	70,188	58,007	54,813
Deposits	Deposits	99,067	88,438	44,012	37,647	Deposits	104,663	97,180	44,520	43,974
Interest-earning assets	Interest-earning assets	71,725	66,825	55,159	59,719	Interest-earning assets	74,052	71,135	58,312	55,175

(1) Includes LHFS.

~~(2)~~ ~~The majority of PPP loans are reflected in Consumer Banking in accordance with how they are managed.~~

Consumer Banking

Net interest income of ~~$1.8 billion increased $153~~$857 million decreased $6 million, or ~~10%~~1%, from the first ~~half~~quarter of ~~2020,~~2021, driven by a reduced benefit from PPP loan forgiveness, partially offset by loan growth, including the ~~benefit of loan and deposit growth.~~impacts from the HSBC transaction. Average loans ~~grew $4.0~~increased $3.0 billion ~~led~~driven by higher residential mortgages, including approximately $480 million from the HSBC transaction, automobile and education, ~~residential mortgage, and~~partially offset by the impact of the reduction in PPP ~~loan program.~~loans and planned runoff of personal unsecured installment loans. Deposits ~~grew $11~~increased $7.5 billion, or ~~12%~~8%, ~~driven~~including the $2.9 billion impact of the HSBC transaction. Growth in demand, checking with interest and savings were partially offset by ~~government stimulus programs.~~ decreases in money market and term.

Noninterest income decreased ~~$151~~$94 million, or ~~19%~~27%, from the first ~~half~~quarter of ~~2020,~~2021, driven by lower mortgage banking fees ~~as increased industry capacity and heightened competition resulted in~~reflecting lower gain-on-sale ~~margins.~~margins and production volumes. This decrease was partially offset by higher trust and investment services fees driven by ~~higher~~an increase in assets under management from strong net inflows and higher equity market ~~levels. In addition to~~levels, and higher card ~~fee~~fees driven by higher debit and credit card ~~volumes driven by the economic recovery.~~ volumes.

Noninterest expense increased ~~$28~~$34 million, or 2%5%, from the first ~~half~~quarter of ~~2020,~~2021, reflecting higher salaries and employee benefits ~~tied to~~given merit increases, as well as higher ~~revenue-based compensation, combined~~other operating expense associated with ~~higher equipment~~increased travel and ~~software expense and outside services expense resulting from increased technology spend and growth initiatives. This increase was~~advertising costs, partially offset by ~~lower other operating expense related to lower travel.~~ the benefit of efficiency initiatives.

Net charge-offs of ~~$104~~$49 million decreased ~~$73~~$10 million, or ~~41%~~17%, ~~driven by~~as consumers continue to benefit from the ~~impact of government stimulus~~the fiscal support provided during the pandemic, the rapid growth in jobs, and ~~forbearance programs, as well as strong~~elevated residential mortgage and auto loan collateral ~~values in residential real estate and automobile.~~values.

Commercial Banking

Net interest income of ~~$840~~$416 million ~~increased $56~~decreased $5 million, or 7%1%, from ~~$784~~$421 million in the first ~~half~~quarter of ~~2020,~~2021, driven by ~~higher deposit volumes reflecting~~lower earning asset yields, partially offset by improved funding mix and deposit pricing.

Noninterest income of ~~$348~~$213 million increased ~~$79~~$43 million, or ~~29%~~25%, from ~~$269~~$170 million in the first ~~half~~quarter of ~~2020,~~2021, driven by ~~strength in~~record foreign exchange and derivative products revenue reflecting increased client interest-rate and commodities hedging activity and capital markets fees ~~due to~~driven by higher loan syndication fees, partially offset by lower mergers and ~~acquisition~~acquisitions advisory ~~fees,~~ and ~~letter of credit and loan fees, reflecting higher commitment~~underwriting fees.

Noninterest expense of ~~$453~~$272 million increased ~~$19~~$45 million, or 4%20%, from ~~$434~~$227 million in the first ~~half~~quarter of ~~2020, largely tied to growth initiatives~~2021, reflecting higher salaries and employee benefits given merit increases, as well as higher other operating expense associated with increased ~~technology spend. Net charge-offs~~travel and advertising costs, partially offset by the benefit of ~~$135 millionincreased $22 million, or 19%, from the first half of 2020, primarily driven by COVID-19-related charge-offs in CRE.~~efficiency initiatives.

Citizens Financial Group, Inc. | 2413

Net charge-offs of $12 milliondecreased $89 million, or 88%, from the first quarter of 2021 given the strong economic growth that began in the fourth quarter of 2020 and continued solid credit performance.

ANALYSIS OF FINANCIAL CONDITION

Securities


Table 11: Amortized Cost and Fair Value of AFS and HTM Securities
Table 6: Amortized Cost and Fair Value of AFS and HTM Securities								Table 6: Amortized Cost and Fair Value of AFS and HTM Securities
		June 30, 2021		December 31, 2020			March 31, 2022			December 31, 2021
(in millions)	(in millions)	Amortized Cost	Fair Value	Amortized Cost	Fair Value	(in millions)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
U.S. Treasury and other	U.S. Treasury and other	$11	$11	$11	$11			U.S. Treasury and other	$158	$154	$11	$11
State and political subdivisions	State and political subdivisions	3	3	3	3			State and political subdivisions	2	2	2	2
Mortgage-backed securities, at fair value:
Mortgage-backed securities:								Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	Federal agencies and U.S. government sponsored entities	23,960	24,112	21,954	22,506			Federal agencies and U.S. government sponsored entities	25,074	23,498	24,607	24,442
Other/non-agency	Other/non-agency	267	280	396	422			Other/non-agency	412	401	397	405
Total mortgage-backed securities, at fair value		24,227	24,392	22,350	22,928
Total mortgage-backed securities								Total mortgage-backed securities	25,486	23,899	25,004	24,847

Collateralized loan obligations, at fair value		177	177	—	—
Collateralized loan obligations								Collateralized loan obligations	1,276	1,264	1,208	1,207
Total debt securities available for sale, at fair value	Total debt securities available for sale, at fair value	$24,418	$24,583	$22,364	$22,942			Total debt securities available for sale, at fair value	$26,922	$25,319	$26,225	$26,067
Mortgage-backed securities, at cost:
Mortgage-backed securities:								Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	Federal agencies and U.S. government sponsored entities	$1,887	$1,964	$2,342	$2,464			Federal agencies and U.S. government sponsored entities	$1,370	$1,355	$1,505	$1,557

Total mortgage-backed securities, at cost		1,887	1,964	2,342	2,464
Asset-backed securities, at cost		824	826	893	893
Total mortgage-backed securities								Total mortgage-backed securities	1,370	1,355	1,505	1,557
Asset-backed securities								Asset-backed securities	686	656	737	732
Total debt securities held to maturity	Total debt securities held to maturity	$2,711	$2,790	$3,235	$3,357			Total debt securities held to maturity	$2,056	$2,011	$2,242	$2,289
Total debt securities available for sale and held to maturity	Total debt securities available for sale and held to maturity	$27,129	$27,373	$25,599	$26,299			Total debt securities available for sale and held to maturity	$28,978	$27,330	$28,467	$28,356
Equity securities, at cost	Equity securities, at cost	$602	$602	$604	$604			Equity securities, at cost	$611	$611	$624	$624
Equity securities, at fair value	Equity securities, at fair value	80	80	66	66			Equity securities, at fair value	130	130	109	109

Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality, and market risk while achieving ~~appropriate~~ returns that align with our overall portfolio management strategy. The portfolio primarily includes high quality, highly liquid investments reflecting our ongoing commitment to maintain ~~appropriate~~strong contingent liquidity levels and pledging capacity. U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent ~~95%~~92% of the fair value of our debt securities portfolio holdings. Holdings backed by mortgages dominate our portfolio and facilitate our ability to pledge those securities to the FHLB for collateral purposes. For further discussion of the liquidity coverage ratios, see “Regulation and Supervision — Liquidity Requirements” in our ~~2020~~2021 Form 10-K.

The fair value of the AFS debt securities portfolio of ~~$24.6~~$25.3 billion at ~~June 30, 2021 increased $1.6 billion~~March 31, 2022 decreased $748 million from ~~$22.9~~$26.1 billion at December 31, ~~2020, including $2.0 billion~~2021, reflecting $697 million in ~~new investments,~~portfolio growth offset by a ~~$413 million reduction~~$1.4 billion increase in unrealized ~~gains~~losses driven by ~~a steepening yield curve.~~higher rates. The decline in ~~the~~ fair value of the HTM debt securities portfolio of ~~$567~~$278 million ~~was primarily attributable~~reflects $191 million from portfolio runoff and $87 million due to ~~portfolio run-off. For further information, see Note 2.~~higher rates.

As of ~~June 30, 2021,~~March 31, 2022, the portfolio’s average effective duration was ~~3.6~~5.3 years compared with ~~2.7~~4.3 years as of December 31, ~~2020,~~2021, as higher long-term rates drove a decrease in both actual and projected securities prepayment speeds. We manage our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within our risk appetite in the context of the broader interest rate risk framework and limits.

Citizens Financial Group, Inc. | 2514

Loans and Leases

Table 12: Composition of Loans and Leases, Excluding LHFS
(in millions) June 30, 2021 December 31, 2020 Change Percent
Commercial and industrial (1)
$42,842 $44,173 ($1,331) (3) %
Commercial real estate 14,412 14,652 (240) (2)
Leases 1,829 1,968 (139) (7)
Total commercial 59,083 60,793 (1,710) (3)
Residential mortgages (2)
20,538 19,539 999 5
Home equity 11,841 12,149 (308) (3)
Automobile 12,780 12,153 627 5
Education 12,800 12,308 492 4
Other retail 5,539 6,148 (609) (10)
Total retail 63,498 62,297 1,201 2
Total loans and leases $122,581 $123,090 ($509) — %

~~(1)~~ ~~Includes PPP loans fully guaranteed by the SBA of $3.5 billion at June 30, 2021 and $4.2 billion at December 31, 2020.~~

~~(2)~~ Includes fully or partially guaranteed FHA, VA and USDA loans of $1.4 billion at June 30, 2021 and $249 million at December 31, 2020, including loans acquired through an exercise of the GNMA early buyout option.


Table 7: Composition of Loans and Leases, Excluding LHFS
(in millions)	March 31, 2022	December 31, 2021	Change	Percent
Commercial and industrial(1)	$45,724	$44,500	$1,224	3	%
Commercial real estate	14,268	14,264	4	—
Leases	1,529	1,586	(57)	(4)
Total commercial	61,521	60,350	1,171	2
Residential mortgages	24,211	22,822	1,389	6
Home equity	12,264	12,015	249	2
Automobile	14,439	14,549	(110)	(1)
Education	13,306	12,997	309	2
Other retail	5,564	5,430	134	2
Total retail	69,784	67,813	1,971	3
Total loans and leases	$131,305	$128,163	$3,142	2	%

Total loans and leases ~~decreased $509 million~~increased $3.1 billion from ~~$123.1~~$128.2 billion as of December 31, ~~2020, reflecting a $1.7 billion decrease~~2021, driven by 3% growth in ~~commercial~~retail, including the impact of the HSBC transaction, as well as growth in mortgage, education and ~~a $1.2 billion increase~~home equity, and 2% growth in ~~retail.~~commercial.

Allowance for Credit Losses and ~~Nonaccruing~~Nonaccrual Loans and Leases

The ACL is ~~created through charges to the provision for credit losses in order to provide appropriate reserves~~a reserve to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Note 45 of this report, and ~~“Critical~~“—Critical Accounting ~~Estimates”~~Estimates — Allowance for Credit Losses” and Note 56 in ~~the Company’s 2020~~our 2021 Form 10-K.

The ACL of ~~$2.1~~$1.9 billion ~~as of June 30, 2021~~at March 31, 2022 remained stable compared ~~with the ACL of $2.7 billion as of~~to December 31, ~~2020, reflecting a reserve release of $589 million.~~2021. For further information, see Note 4.5.


Table 13: ACL and Related Coverage Ratios by Portfolio
Table 8: ACL and Related Coverage Ratios by Portfolio										Table 8: ACL and Related Coverage Ratios by Portfolio
		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
(in millions)	(in millions)	Loans and Leases	Allowance	Coverage		Loans and Leases	Allowance	Coverage		(in millions)	Loans and Leases	Allowance	Coverage		Loans and Leases	Allowance	Coverage
Allowance for Loan and Lease Losses	Allowance for Loan and Lease Losses									Allowance for Loan and Lease Losses
Commercial and industrial	Commercial and industrial	$42,842	$674	1.57	%	$44,173	$821	1.86	%	Commercial and industrial	$45,724	$525	1.15	%	$44,500	$555	1.25	%
Commercial real estate	Commercial real estate	14,412	218	1.51		14,652	360	2.46		Commercial real estate	14,268	214	1.50		14,264	220	1.54
Leases	Leases	1,829	61	3.36		1,968	52	2.67		Leases	1,529	39	2.54		1,586	46	2.92
Total commercial	Total commercial	59,083	953	1.61		60,793	1,233	2.03		Total commercial	61,521	778	1.26		60,350	821	1.36
Residential mortgages	Residential mortgages	20,538	140	0.68		19,539	141	0.72		Residential mortgages	24,211	144	0.60		22,822	144	0.63
Home equity	Home equity	11,841	102	0.86		12,149	134	1.10		Home equity	12,264	78	0.64		12,015	82	0.69
Automobile	Automobile	12,780	168	1.31		12,153	200	1.65		Automobile	14,439	149	1.03		14,549	154	1.05
Education	Education	12,800	322	2.51		12,308	361	2.93		Education	13,306	321	2.41		12,997	308	2.37
Other retail	Other retail	5,539	262	4.74		6,148	374	6.07		Other retail	5,564	250	4.49		5,430	249	4.59
Total retail	Total retail	63,498	994	1.57		62,297	1,210	1.94		Total retail	69,784	942	1.35		67,813	937	1.38
Total loans and leases	Total loans and leases	$122,581	$1,947	1.59	%	$123,090	$2,443	1.98	%	Total loans and leases	$131,305	$1,720	1.31	%	$128,163	$1,758	1.37	%
Allowance for Unfunded Lending Commitments	Allowance for Unfunded Lending Commitments									Allowance for Unfunded Lending Commitments
Commercial(1)	Commercial(1)		$121	1.82	%		$186	2.33	%	Commercial(1)		$147	1.50	%		$153	1.61	%
Retail(2)	Retail(2)		13	1.59			41	2.01		Retail(2)		11	1.37			23	1.42
Total allowance for unfunded lending commitments	Total allowance for unfunded lending commitments		134				227			Total allowance for unfunded lending commitments		158				176
Allowance for credit losses~~(3)~~	Allowance for credit losses~~(3)~~	$122,581	$2,081	1.70	%	$123,090	$2,670	2.17	%	Allowance for credit losses~~(3)~~	$131,305	$1,878	1.43	%	$128,163	$1,934	1.51	%

(1) Coverage ratio includes total commercial allowance for unfunded lending commitments and total commercial allowance for loan and lease losses in the numerator and total commercial loans and leases in the denominator.

(2) Coverage ratio includes total retail allowance for unfunded lending commitments and total retail allowance for loan losses in the numerator and total retail loans in the denominator.

~~(3)~~ Excluding the impact of PPP loans, the ACL Coverage Ratio would have been 1.75% and 2.24% for June 30, 2021 and December 31, 2020, respectively. For more information on the computation of non-GAAP financial measures, see “—Introduction — Non-GAAP Financial Measures” and “—Non-GAAP Financial Measures and Reconciliations.”

Citizens Financial Group, Inc. | 2615


Table 14: Nonaccrual Loans and Leases
Table 9: Nonaccrual Loans and Leases										Table 9: Nonaccrual Loans and Leases
(dollars in millions)	(dollars in millions)	June 30, 2021		December 31, 2020		Change		Percent		(dollars in millions)	March 31, 2022		December 31, 2021		Change		Percent
Commercial and industrial	Commercial and industrial	$163		$280		($117)		(42	%)	Commercial and industrial	$200		$171		$29		17	%
Commercial real estate	Commercial real estate	102		176		(74)		(42)		Commercial real estate	11		11		—		—
Leases	Leases	1		2		(1)		(50)		Leases	1		1		—		—
Total commercial loans and leases		266		458		(192)		(42)
Total commercial										Total commercial	212		183		29		16
Residential mortgages(1)	Residential mortgages(1)	174		167		7		4		Residential mortgages(1)	243		201		42		21
Home equity	Home equity	234		276		(42)		(15)		Home equity	239		220		19		9
Automobile	Automobile	62		72		(10)		(14)		Automobile	52		55		(3)		(5)
Education	Education	21		18		3		17		Education	23		23		—		—
Other retail	Other retail	22		28		(6)		(21)		Other retail	20		20		—		—
Total retail loans		513		561		(48)		(9)
Total retail										Total retail	577		519		58		11
Nonaccrual loans and leases	Nonaccrual loans and leases	$779		$1,019		($240)		(24	%)	Nonaccrual loans and leases	$789		$702		$87		12	%
Nonaccrual loans and leases to total loans and leases	Nonaccrual loans and leases to total loans and leases	0.64	%	0.83	%	(19	bps)			Nonaccrual loans and leases to total loans and leases	0.60	%	0.55	%	5	bps
Allowance for loan and lease losses to nonaccruing loans and leases		250		240		10	%
Allowance for credit losses to nonaccruing loans and leases		267		262		5	%
Allowance for loan and lease losses to nonaccrual loans and leases										Allowance for loan and lease losses to nonaccrual loans and leases	218		251		(3,264)
Allowance for credit losses to nonaccrual loans and leases										Allowance for credit losses to nonaccrual loans and leases	238		276		(3,769)

(1) Loans fully or partially guaranteed by the FHA, VA and USDA are classified as accruing.

~~NPLs~~Nonaccrual loans and leases of ~~$779~~$789 million as of ~~June 30, 2021 decreased $240~~March 31, 2022 increased $87 million, or ~~24%~~12%, from December 31, ~~2020, reflecting a $192~~2021, primarily due to residential real estate secured loans exiting forbearance. Total commercial nonaccrual loans and leases were 0.3% of the commercial portfolio as of March 31, 2022 and December 31, 2021.


Table 10: Ratio of Net Charge-Offs to Average Loans and Leases
	Three Months Ended March 31,
	2022				2021
(dollars in millions)	Net Charge-Offs	Average Balance	Ratio		Net Charge-Offs	Average Balance	Ratio
Commercial and industrial	$11	$44,947	0.10	%	$77	$44,287	0.70	%
Commercial real estate	—	14,066	—		26	14,675	0.73
Leases	—	1,560	0.10		1	1,915	0.26
Total commercial	11	60,573	0.08		104	60,877	0.69
Residential mortgages	—	23,461	—		(1)	19,388	(0.01)
Home equity	(9)	12,124	(0.32)		(7)	12,001	(0.25)
Automobile	6	14,534	0.18		11	12,229	0.35
Education	16	13,034	0.49		7	12,436	0.24
Other retail	35	5,428	2.61		44	5,916	3.00
Total retail	48	68,581	0.28		54	61,970	0.35
Total loans and leases	$59	$129,154	0.19	%	$158	$122,847	0.52	%

First quarter 2022 NCOs of $59 million ~~decrease~~decreased $99 million, or 63%, from $158 million in the first quarter of 2021, driven by decreases in commercial and ~~a $48 million decrease in retail. Commercial NPLs decreased through loan sale activity, repayments and charge-offs.~~

Table 15: Net Charge-offs and Charge-Off Ratios, Quarter-to-Date
Three Months Ended June 30, Three Months Ended June 30,
(dollars in millions) 2021 2020 Change 2021 2020 Change
Commercial and industrial $28 $65 ($37) 0.25 % 0.52 % (27 bps)
Commercial real estate — — — — — —
Leases 13 6 7 2.97 1.03 194
Total commercial 41 71 (30) 0.27 0.42 (15)
Residential mortgages (1) 1 (2) (0.03) 0.02 (5)
Home equity (10) (2) (8) (0.33) (0.05) (28)
Automobile (2) 20 (22) (0.04) 0.68 (72)
Education 13 10 3 0.40 0.34 6
Other retail 37 47 (10) 2.63 2.93 (30)
Total retail loans 37 76 (39) 0.24 0.50 (26)
Total net charge-offs $78 $147 ($69) 0.25 % 0.46 % (21 bps)

~~Second quarter 2021 NCOs~~retail of ~~$78 million decreased $69 million, or 47%, from $147 million in the second quarter of 2020, driven by a decrease in total commercial of $30~~$93 million and ~~a $39~~$6 million, ~~reduction in retail. Second~~respectively. First quarter ~~2021~~2022 annualized net charge-offs of ~~0.25%~~0.19% of average loans and leases were down 2133 basis points from ~~the second~~first quarter of ~~2020.~~2021.

~~The decrease~~Retail NCOs declined as consumers continue to benefit from the fiscal support provided during the pandemic, the rapid growth in ~~commercial~~jobs, and elevated residential mortgage and auto loan collateral values. Commercial NCOs decreased given the strong economic growth that began in the ~~second quarter of 2021 as compared to the second~~fourth quarter of 2020 ~~were a result of stabilization from effects of the COVID-19 pandemic~~ and ~~associated lockdowns. Retail NCOs were down in the second quarter of 2021 as compared~~continued solid credit performance. However, we continue to assess risks to the ~~second quarter~~macroeconomic environment. While the outlook is positive, uncertainty exists given changing monetary and fiscal policies, the recent surge in inflation and higher inflation expectations, labor shortages, continuing supply-chain challenges, and possible consequences from Russia’s invasion of ~~2020 primarily due to U.S. Government stimulus programs and strong collateral values in automobile and residential real estate.~~Ukraine.

Citizens Financial Group, Inc. | 2716

Table 16: Net Charge-offs and Charge-Off Ratios, Year-to-Date
Six Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2021 2020 Change 2021 2020 Change
Commercial and industrial $105 $109 ($4) 0.48 % 0.47 % 1 bps
Commercial real estate 26 — 26 0.36 — 36
Leases 14 6 8 1.58 0.55 103
Total commercial 145 115 30 0.48 0.37 11
Residential mortgages (2) 1 (3) (0.02) 0.01 (3)
Home equity (17) (5) (12) (0.29) (0.08) (21)
Automobile 9 47 (38) 0.15 0.78 (63)
Education 20 24 (4) 0.32 0.44 (12)
Other retail 81 102 (21) 2.82 3.07 (25)
Total retail loans 91 169 (78) 0.29 0.56 (27)
Total net charge-offs $236 $284 ($48) 0.39 % 0.46 % (7 bps)

First half 2021 NCOs of $236 million decreased $48 million, or 17%, from $284 million in the first half of 2020, driven by a decrease in retail of $78 million, partially offset by an increase in commercial of $30 million. First half of 2021 annualized net charge-offs of 0.39% of average loans and leases were down 7 basis points from first half of 2020.

Retail NCOs were down in the first half of 2021 as compared to the first half of 2020 primarily due to U.S. Government stimulus programs, forbearance, as well as strong collateral values in automobile and residential real estate. The increase in commercial NCOs in the first half of 2021 as compared to the first half of 2020 were contributed to by COVID-19-related charge-offs in CRE. We continue to assess the impact of the COVID-19 pandemic and associated lockdowns and have instituted a variety of measures to identify and monitor areas of potential risk, including direct outreach to commercial clients and close monitoring of retail credit metrics.

Commercial Loan Asset Quality

Our commercial ~~loan and lease~~ portfolio consists of traditional commercial and industrial loans, commercial leases and commercial real estate loans. The portfolio is predominantly focused on customers in our footprint and adjacent states in which we have a physical presence where our local delivery model provides for strong client connectivity. Additionally, we also do business in certain specialized industry sectors on a national basis. As discussed in our ~~2020~~2021 Form 10-K, ~~for commercial loans and leases,~~ we utilize regulatory classification ratings to monitor credit ~~quality.~~quality for commercial loans and leases.

As of June 30, 2021, commercial NPLs of $266 million decreased $192 million from $458 million as of December 31, 2020, representing 0.5% and 0.8% of the commercial loan and lease portfolio as of June 30, 2021 and December 31, 2020, respectively.


Table 17: Commercial Loans and Leases by Regulatory Classification
Table 11: Commercial Loans and Leases by Regulatory Classification							Table 11: Commercial Loans and Leases by Regulatory Classification
		June 30, 2021						March 31, 2022
			Criticized						Criticized
(in millions)	(in millions)	Pass	Special Mention	Substandard	Doubtful	Total	(in millions)	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial~~(1)~~	Commercial and industrial~~(1)~~	$39,945	$1,145	$1,631	$121	$42,842	Commercial and industrial~~(1)~~	$43,594	$845	$1,109	$176	$45,724
Commercial real estate	Commercial real estate	13,115	666	604	27	14,412	Commercial real estate	13,273	512	472	11	14,268
Leases	Leases	1,776	29	23	1	1,829	Leases	1,509	8	11	1	1,529
Total commercial	Total commercial	$54,836	$1,840	$2,258	$149	$59,083	Total commercial	$58,376	$1,365	$1,592	$188	$61,521

~~Citizens Financial Group, Inc. | 28~~

December 31, 2020
Criticized
(in millions) Pass Special Mention Substandard Doubtful Total
Commercial and industrial(1)
$40,878 $1,583 $1,464 $248 $44,173
Commercial real estate 13,356 804 416 76 14,652
Leases 1,922 33 12 1 1,968
Total commercial $56,156 $2,420 $1,892 $325 $60,793

~~(1)~~ ~~Includes $3.5 billion and $4.2 billion of PPP loans designated as pass that are fully guaranteed by the SBA as of June 30, 2021 and December 31, 2020, respectively.~~


	December 31, 2021
		Criticized
(in millions)	Pass	Special Mention	Substandard	Doubtful	Total
Commercial and industrial	$42,254	$809	$1,294	$143	$44,500
Commercial real estate	13,319	406	528	11	14,264
Leases	1,512	49	24	1	1,586
Total commercial	$57,085	$1,264	$1,846	$155	$60,350

Total commercial criticized balances of ~~$4.2~~$3.1 billion as of ~~June 30, 2021~~March 31, 2022 decreased ~~$390~~$120 million compared with December 31, ~~2020.~~2021. Commercial criticized as a percent of total commercial of ~~7.2%~~5.1% at ~~June 30, 2021~~March 31, 2022 decreased from ~~7.6%~~5.4% at December 31, ~~2020.~~2021.

Commercial and industrial criticized balances of ~~$2.9~~$2.1 billion, or ~~6.8%~~4.7% of the total commercial and industrial loan portfolio as of ~~June 30, 2021,~~March 31, 2022, decreased from ~~$3.3~~$2.2 billion, or ~~7.5%~~5.0%, as of December 31, ~~2020.~~2021. The percentage decrease was ~~primarily~~ driven by an increase in total commercial and industrial net ~~repayments and charge-offs.~~book balances, with a modest decrease in the criticized net book balances primarily attributable to loan payoffs. Commercial and industrial criticized loans represented 68% of total criticized loans as of ~~June 30, 2021~~March 31, 2022 compared to ~~71%~~69% as of December 31, ~~2020.~~2021.

Commercial real estate criticized balances of ~~$1.3 billion,~~$995 million, or ~~9.0%~~7.0% of the commercial real estate portfolio, ~~was stable compared to~~increased from $945 million, or 6.6% as of December 31, ~~2020 at $1.3 billion, or 8.8%.~~2021. The increase was primarily driven by downgrades from lowest pass for a limited number of higher net book balance loans. Loss content, however, remained stable. Commercial real estate accounted for ~~31%~~32% of total criticized loans as of ~~June 30, 2021~~March 31, 2022 compared to ~~28%~~29% as of December 31, ~~2020.~~2021.

Citizens Financial Group, Inc. | 2917


Table 18: Commercial Loans and Leases by Industry Sector
Table 12: Commercial Loans and Leases by Industry Sector								Table 12: Commercial Loans and Leases by Industry Sector
		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
(dollars in millions)	(dollars in millions)	Balance	% of Total Loans and Leases		Balance	% of Total Loans and Leases		(dollars in millions)	Balance	% of Total Loans and Leases		Balance	% of Total Loans and Leases
Finance and insurance	Finance and insurance	$6,693	5	%	$6,473	5	%	Finance and insurance	$9,610	7	%	$9,301	7	%
Health, pharma, and social assistance	Health, pharma, and social assistance	3,078	3		3,253	3		Health, pharma, and social assistance	2,862	2		2,912	2
Accommodation and food services	Accommodation and food services	3,127	3		3,159	3		Accommodation and food services	3,442	3		3,438	3
Professional, scientific, and technical services	Professional, scientific, and technical services	2,644	2		2,804	2		Professional, scientific, and technical services	2,836	2		2,665	2
Other manufacturing	Other manufacturing	3,705	3		3,686	3		Other manufacturing	4,162	3		4,087	3
Technology	Technology	3,765	3		3,546	3		Technology	4,183	3		4,220	3
Retail trade	Retail trade	2,224	2		2,312	2		Retail trade	2,400	2		2,237	2
Energy and related	Energy and related	1,936	2		2,237	2		Energy and related	2,044	2		2,017	2
Wholesale trade	Wholesale trade	2,226	2		1,976	2		Wholesale trade	2,678	2		2,358	2
Arts, entertainment, and recreation	Arts, entertainment, and recreation	1,131	1		1,383	1		Arts, entertainment, and recreation	1,107	1		1,189	1
Other services	Other services	1,758	1		1,360	1		Other services	1,911	2		2,051	2
Administrative and waste management services	Administrative and waste management services	1,261	1		1,327	1		Administrative and waste management services	1,424	1		1,396	1
Transportation and warehousing	Transportation and warehousing	1,196	1		1,169	1		Transportation and warehousing	1,302	1		1,147	1
Consumer products manufacturing	Consumer products manufacturing	1,075	1		1,078	1		Consumer products manufacturing	1,303	1		1,192	1
Automotive	Automotive	1,066	1		1,057	1		Automotive	1,208	1		1,172	1
Educational services	Educational services	693	—		844	—		Educational services	553	—		573	—
Chemicals	Chemicals	726	—		736	—		Chemicals	939	1		896	1
Real estate and rental and leasing	Real estate and rental and leasing	949	1		734	—		Real estate and rental and leasing	968	1		739	—
All other ~~(2)~~(1)	All other ~~(2)~~(1)	110	—		884	1		All other ~~(2)~~(1)	375	—		123	—
Total commercial and industrial	Total commercial and industrial	39,363	32		40,018	32		Total commercial and industrial	45,307	35		43,713	34
Real estate and rental and leasing	Real estate and rental and leasing	12,907	11		13,167	11		Real estate and rental and leasing	12,807	10		12,773	10
Accommodation and food services	Accommodation and food services	814	1		749	1		Accommodation and food services	615	—		605	—
Finance and insurance	Finance and insurance	498	—		498	—		Finance and insurance	624	1		624	1
All other ~~(2)~~(1)	All other ~~(2)~~(1)	193	—		238	—		All other ~~(2)~~(1)	222	—		262	—
Total commercial real estate	Total commercial real estate	14,412	12		14,652	12		Total commercial real estate	14,268	11		14,264	11
Total leases	Total leases	1,829	1		1,968	2		Total leases	1,529	1		1,586	1
Total commercial (1,3)		$55,604	45	%	$56,638	46	%
Total commercial(2)								Total commercial(2)	$61,104	47	%	$59,563	46	%

(1) In the second quarter of 2021, our industry sectors were re-aligned to better reflect sector management and associated risks. Prior period has been adjusted to conform with the current period presentation.

~~(2)~~ Deferred fees and costs are reported in All other.

~~(3)~~(2) Excludes PPP loans of ~~$3.5 billion~~$417 million and ~~$4.2 billion~~$787 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Retail Loan Asset Quality

For retail loans, we utilize credit scores provided by FICO, which are generally ~~refresh~~refreshed on a quarterly basis, and athe loan’s payment and delinquency status to monitor credit quality. Management believes FICO credit scores are considered the strongest indicator of credit losses over the contractual life of athe loan as the scores are based on current and historical national industry-wide consumer level credit performance data, and assist management in predicting the borrower’s future payment performance. The largest portion of the retail portfolio is represented by borrowers located in the New England, Mid-Atlantic and Midwest regions, although we have continued to lend selectively in areas outside the footprint primarily in ~~automobile,~~auto finance and education ~~and point-of-sale financing.~~lending.

Citizens Financial Group, Inc. | 3018


Table 19: Aging of Retail Loans as a Percentage of Loan Class
Table 13: Retail Loan Portfolio Analysis																				Table 13: Retail Loan Portfolio Analysis
		June 30, 2021								December 31, 2020	March 31, 2022										December 31, 2021
		Days Past Due								Days Past Due			Days Past Due and Accruing										Days Past Due and Accruing
		Current-29		30-59		60-89		90+				Current-29		30-59		60-89		90+

(dollars in millions)																				(dollars in millions)	Current		30-59		60-89		90+		Nonaccrual		Current		30-59		60-89		90+		Nonaccrual
Residential mortgages(1)	Residential mortgages(1)	96.83	%	0.86	%	0.30	%	2.03	%			98.73	%	0.30	%	0.11	%	0.86	%	Residential mortgages(1)	95.32	%	0.24	%	0.17	%	3.27	%	1.00	%	96.03	%	0.45	%	0.23	%	2.41	%	0.88	%
Home equity	Home equity	98.03		0.27		0.14		1.56				97.53		0.50		0.23		1.74		Home equity	97.60		0.34		0.11		—		1.95		97.75		0.32		0.10		—		1.83
Automobile	Automobile	98.69		0.89		0.34		0.08				97.93		1.40		0.53		0.14		Automobile	98.60		0.83		0.21		—		0.36		98.45		0.90		0.27		—		0.38
Education	Education	99.58		0.23		0.10		0.09				99.56		0.27		0.11		0.06		Education	99.53		0.20		0.08		0.02		0.17		99.45		0.26		0.10		0.01		0.18
Other retail	Other retail	98.47		0.67		0.36		0.51				98.36		0.62		0.47		0.55		Other retail	97.89		1.10		0.40		0.25		0.36		98.18		0.74		0.42		0.29		0.37
Total retail	Total retail	98.12	%	0.61	%	0.24	%	1.02	%			98.47	%	0.58	%	0.25	%	0.70	%	Total retail	97.40	%	0.44	%	0.17	%	1.16	%	0.83	%	97.69	%	0.51	%	0.20	%	0.83	%	0.77	%

(1) 90+ ~~day~~days past due and accruing includes ~~$266~~$792 million and ~~$44~~$544 million of loans fully or partially guaranteed by the FHA, VA, and USDA at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

For more information on the aging of accruing and ~~nonaccruing~~nonaccrual retail loans, see Note 4.5.


Table 20: Retail Asset Quality Metrics
Table 14: Retail Asset Quality Metrics						Table 14: Retail Asset Quality Metrics
		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Average refreshed FICO for total portfolio	Average refreshed FICO for total portfolio	769		771		Average refreshed FICO for total portfolio	768		768
CLTV ratio for secured real estate(1)	CLTV ratio for secured real estate(1)	58	%	60	%	CLTV ratio for secured real estate(1)	54	%	56	%
Nonaccruing retail loans to total retail		0.81		0.90
Nonaccrual retail loans as a percentage of total retail						Nonaccrual retail loans as a percentage of total retail	0.83	%	0.77	%

(1) The real estate secured portfolio CLTV is calculated as the mortgage and second lien loan balance divided by the most recently available value of the property.

Three Months Ended June 30, Six Months Ended June 30,
(dollars in millions) 2021 2020 Change Percent 2021 2020 Change Percent
Net charge-offs $37 $76 ($39) (51 %) $91 $169 ($78) (46 %)
Annualized net charge-off rate 0.24 % 0.50 % (26) bps 0.29 % 0.56 % (27) bps

Retail asset quality continues to reflect a stronger economic outlook. The retail annualized net charge-off rate decreased to 0.24% for second quarter 2021 from 0.50% in the second quarter of 2020. The net charge-off rate of 0.29% for the six months ended June 30, 2021 reflected a decrease of 27 basis points from the quarter ended June 30, 2020, driven by the forbearance and stimulus programs stemming from the COVID-19 pandemic and associated lockdowns, as well as strong collateral values in automobile and residential real estate.

Troubled Debt Restructurings

In the first quarter of 2020, we adopted the CARES Act and interagency guidance issued by the bank regulatory agencies which provide that COVID-19-related modifications to retail and commercial loans that met certain eligibility criteria are exempt from classification as a TDR. We generally do not consider payment deferrals and forbearance plans established due to the COVID-19 pandemic and under the CARES Act to be TDRs. Relief provisions granted under the CARES Act, including the TDR classification exemption for certain eligible loans, expired on December 31, 2021.

For additional information regarding TDRs, see Note 56 in our ~~2020~~2021 Form 10-K.


Table 15: Accruing and Nonaccrual Troubled Debt Restructurings
	March 31, 2022
		As a % of Accruing TDRs
(dollars in millions)	Accruing	30-89 Days Past Due		90+ Days Past Due		Nonaccrual	Total
Commercial and industrial	$189	0.2	%	—	%	$80	$269
Commercial real estate	1	—		—		9	10
Total commercial	190	0.2		—		89	279
Residential mortgages(1)	479	2.5		27.5		78	557
Home equity	169	0.3		—		91	260
Automobile	8	0.2		—		17	25
Education	110	0.4		0.1		11	121
Other retail	18	0.2		—		2	20
Total retail	784	3.6		27.6		199	983
Total	$974	3.8	%	27.6	%	$288	$1,262

Citizens Financial Group, Inc. | 3119

Table 21: Accruing and Nonaccruing Troubled Debt Restructurings
June 30, 2021
As a % of Accruing TDRs
(dollars in millions) Accruing 30-89 Days
Past Due 90+ Days Past Due Nonaccruing Total
Commercial and industrial 150 0.3 % — % 70 220
Commercial real estate — — — 9 9
Total commercial 150 0.3 — 79 229
Residential mortgages(1)
343 3.9 9.5 34 377
Home equity 211 0.5 — 81 292
Automobile 3 0.1 — 39 42
Education 113 0.4 0.2 11 124
Other retail 22 0.2 — 3 25
Total retail 692 5.1 9.6 168 860
Total $842 5.4 % 9.6 % $247 $1,089


		December 31, 2020								December 31, 2021
			As a % of Accruing TDRs								As a % of Accruing TDRs
(dollars in millions)	(dollars in millions)	Accruing	30-89 Days Past Due		90+ Days Past Due		Nonaccruing	Total	(dollars in millions)	Accruing	30-89 Days Past Due		90+ Days Past Due		Nonaccrual	Total
Commercial and industrial	Commercial and industrial	$134	0.1	%	—	%	$97	$231	Commercial and industrial	$196	—	%	—	%	$74	$270
Commercial real estate	Commercial real estate	$26	—		—		—	$26	Commercial real estate	1	—		—		9	10
Total commercial	Total commercial	$160	0.1		—		97	$257	Total commercial	197	—		—		83	280
Residential mortgages(1)	Residential mortgages(1)	172	2.1		2.0		43	215	Residential mortgages(1)	295	2.9		12.0		42	337
Home equity	Home equity	221	1.0		—		83	304	Home equity	183	0.6		—		74	257
Automobile	Automobile	13	0.4		—		33	46	Automobile	8	0.2		—		22	30
Education	Education	116	0.5		0.3		10	126	Education	112	0.5		0.1		11	123
Other retail	Other retail	25	0.2		—		2	27	Other retail	20	0.2		—		2	22
Total retail	Total retail	547	4.2		2.3		171	718	Total retail	618	4.5		12.1		151	769
Total	Total	$707	4.3	%	2.3	%	$268	$975	Total	$815	4.5	%	12.1	%	$234	$1,049

(1) Includes ~~$75~~$265 million and ~~$14~~$98 million in 90+ days past due and accruing that are fully or partially guaranteed by the FHA, VA, and USDA at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Deposits


Table 22: Composition of Deposits
Table 16: Composition of Deposits							Table 16: Composition of Deposits
(in millions)	(in millions)	June 30, 2021	December 31, 2020	Change	Percent		(in millions)	March 31, 2022	December 31, 2021	Change	Percent
Demand	Demand	$47,480	$43,831	$3,649	8	%	Demand	$50,113	$49,443	$670	1	%
Money market							Money market	45,342	47,216	(1,874)	(4)
Checking with interest	Checking with interest	28,074	27,204	870	3		Checking with interest	32,417	30,409	2,008	7
Regular savings		20,382	18,044	2,338	13
Money market accounts		48,150	48,569	(419)	(1)
Term deposits		6,550	9,516	(2,966)	(31)
Savings							Savings	26,104	22,030	4,074	18
Term							Term	4,800	5,263	(463)	(9)
Total deposits	Total deposits	$150,636	$147,164	$3,472	2	%	Total deposits	$158,776	$154,361	$4,415	3	%

Total deposits as of ~~June 30, 2021~~March 31, 2022 increased ~~$3.5~~$4.4 billion, or 2%3%, to ~~$150.6~~$158.8 billion, from ~~$147.2~~$154.4 billion as of December 31, ~~2020, reflecting strong deposit flows~~2021, driven by the $6.3 billion impact of the HSBC transaction, partially offset by seasonal impacts as well as continued normalization from ~~consumer-oriented government stimulus.~~elevated liquidity levels. Citizens Access®, our national digital platform, ~~ended the quarter with $4.9~~had $4.2 billion in deposits as of ~~deposits,~~March 31, 2022, down from ~~$5.9~~$4.4 billion as of December 31, ~~2020, primarily due to rate reduction strategies that resulted in a decrease in term deposits.~~2021.

~~Citizens Financial Group, Inc. | 32~~

Borrowed Funds

~~Total~~Long-term borrowed funds of $5.9 billion as of ~~June 30, 2021~~March 31, 2022 decreased ~~$1.6~~$1.0 billion from December 31, ~~2020,~~2021 driven by ~~a $181 million and $1.4 billion decrease in short-term and long-term borrowed funds, respectively. Strong deposit growth enabled~~ the ~~paydown~~redemption of CBNA senior ~~debt.~~

~~Long-term borrowed funds~~

Table 23: Summary of Long-Term Borrowed Funds
(in millions) June 30, 2021 December 31, 2020
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021 (1)
$— $350
4.150% fixed-rate subordinated debt, due September 2022 (2)
168 182
3.750% fixed-rate subordinated debt, due July 2024 (2)
90 159
4.023% fixed-rate subordinated debt, due October 2024 (2)
17 25
4.350% fixed-rate subordinated debt, due August 2025 (2)
133 193
4.300% fixed-rate subordinated debt, due December 2025 (2)
336 450
2.850% fixed-rate senior unsecured notes, due July 2026 497 497
2.500% fixed-rate senior unsecured notes, due February 2030 298 297
3.250% fixed-rate senior unsecured notes, due April 2030 745 745
3.750% fixed-rate reset subordinated debt, due February 2031 (2)
69 —
4.300% fixed-rate reset subordinated debt, due February 2031 (2)
135 —
4.350% fixed-rate reset subordinated debt, due February 2031 (2)
60 —
2.638% fixed-rate subordinated debt, due September 2032 547 543
CBNA’s Global Note Program:
2.550% senior unsecured notes, due May 2021 — 1,003
3.250% senior unsecured notes, due February 2022 708 716
0.874% floating-rate senior unsecured notes, due February 2022 (3)
300 299
0.951% floating-rate senior unsecured notes, due May 2022 (3)
250 250
2.650% senior unsecured notes, due May 2022 507 510
3.700% senior unsecured notes, due March 2023 520 527
1.096% floating-rate senior unsecured notes, due March 2023 (3)
250 249
2.250% senior unsecured notes, due April 2025 746 746
3.750% senior unsecured notes, due February 2026 536 551
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 0.909% weighted average rate, due through 2038 18 19
Other 27 35
Total long-term borrowed funds $6,957 $8,346

~~(1)~~ ~~Notes were redeemed on June 28, 2021.~~

~~(2)~~ ~~The June 30, 2021 balances reflect~~notes during the ~~results of the February 2021 subordinated debt private exchange offers. See “Capital and Regulatory Matters-Regulatory Capital Ratios and Capital Composition” for additional information.~~

~~(3)~~ ~~Rate disclosed reflects the floating rate as of June 30, 2021.~~

The Parent Company’s long-term borrowed funds as of June 30, 2021 and December 31, 2020 included principal balances of $3.2 billion and $3.5 billion, respectively, and unamortized deferred issuance costs and/or discounts of $84 million and $90 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of June 30, 2021 and December 31, 2020 included principal balances of $3.8 billion and $4.8 billion, respectively, with unamortized deferred issuance costs and/or discounts of $9 million and $11 million, respectively, and hedging basis adjustments of $76 million and $112 million, respectively. See Note 8 for further information about our hedging of certain long-term borrowed funds.quarter. For more information regarding our ~~liquidity and available borrowing capacity,~~borrowed funds, see “—Liquidity” and Note 7.8.

CAPITAL AND REGULATORY MATTERS

As a bank holding company and a financial holding company, we are subject to regulation and supervision by the FRB. Our banking subsidiary, CBNA, is a national banking association ~~whose primary federal regulator is~~primarily regulated by the OCC. Our regulation and supervision continues to evolve as the legal and regulatory frameworks governing our operations continue to change. For more information, see “Regulation and Supervision” in our ~~2020~~2021 Form 10-K.

~~Citizens Financial Group, Inc. | 33~~

Capital Adequacy Process

~~Tailoring~~Our assessment of ~~Prudential Requirements~~capital adequacy begins with our board-approved risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. There have been no significant changes to our capital adequacy risk appetite and risk management framework as described in “—Capital and Regulatory Matters” in our 2021 Form 10-K.

Under the FRB’s Tailoring Rules, Category IV firms, such as us, are subject to biennial supervisory stress testing and are exempt from company-run stress testing and related disclosure requirements. The FRB supervises Category IV firms on an ongoing basis, including evaluation of the capital adequacy and capital planning processes during off-cycle years. ~~We are also required to develop, maintain and submit to~~Annually, the FRB ~~an annual~~requires us to submit a capital plan ~~which must be reviewed and~~ approved by our board of directors or one of its committees. ~~On April 2, 2021, we~~Our annual capital plan is due each year in April. We submitted our ~~2021~~2022 Capital Plan to the FRB ~~under the FRB’s 2021 CCAR process.~~on April 4, 2022. For more information, see the “Tailoring of Prudential Requirements” section in ~~item~~Item 1 of our ~~2020~~2021 Form 10-K.

Citizens Financial Group, Inc. | 20

Under the stress capital buffer (“SCB”) framework, the FRB will not object to capital plans on quantitative grounds and each firm is required to maintain capital ratios above the sum of its minimum ~~requirements~~ and ~~the~~ SCB requirements to avoid restrictions on capital distributions and discretionary bonus payments. ~~On October 1, 2020, our SCB of 3.4% became effective and applies to our capital actions through September 30, 2021.~~

On February 3, 2021, the FRB adopted a final rule effective April 5, 2021 to tailor the requirements of its Capital Plan Rule, specifically modifying capital planning, regulatory reporting and stress capital buffer requirements to be consistent with the Tailoring Rules framework. Under the final rule, forFor Category IV firms, like us, the SCB will be re-calibrated with each biennial supervisory stress test and updated annually to reflect our planned common stock dividends. In addition, Category IV firms ~~have the ability to~~may elect to participate in the supervisory stress test and receive an updated SCB requirement in a year in which they are not subject to the supervisory stress test. ~~We did not elect to participate in the 2021 supervisory stress test and our~~Our SCB requirement effective ~~for the period~~ October 1, 2021, through September 30, 2022, ~~will remain unchanged at~~is 3.4%.

In light of the heightened uncertainty related to the COVID-19 pandemic and associated lockdowns, the FRB took certain actions to preserve capital at banks. Among those actions, the FRB imposed certain limitations on firms for the third and fourth quarters of 2020, including mandatory suspension of share repurchases and limiting common stock dividends to existing rates and the average quarterly net income over the prior four quarters. The FRB modified its limitations on capital distributions for the first and second quarters of 2021 such that firms that participate in CCAR, like us, may resume share repurchases provided that the aggregate of share repurchases and common stock dividends for the applicable quarter did not exceed average quarterly net income for the trailing four quarters. In January 2021, our board of directors authorized us to repurchase up to $750 million of our common stock beginning in the first quarter of 2021. At June 30, 2021, we had $655 million of this share repurchase authorization remaining. In March 2021, the FRB announced that the temporary restrictions on capital distribution will end after June 30, 2021 for firms, like us, that are on a two-year cycle and not subject to supervisory stress testing this year. The timing and amount of future dividends and share repurchases will depend on various factors, including our capital position, financial performance, risk-weighted assets, capital impacts of strategic initiatives, market conditions and regulatory considerations. In addition, we suspended share repurchases, until the Investors shareholder vote, in connection with our entry into the agreement to acquire Investors. See Note 17 for more details regarding the Investors acquisition. All future capital distributionsWe are subject to ~~consideration~~the 2022 supervisory stress test conducted by the FRB and ~~approval by~~expect to receive an updated SCB from the FRB later this year. On March 22, 2022, the FRB approved our ~~board~~application to acquire Investors and indicated that it will use the 2023 stress test to recalculate our SCB to incorporate the effects of ~~directors prior to execution.~~

the Investors acquisition into our capital requirements.

Regulations relating to capital planning, regulatory reporting, stress testing and ~~SCB~~capital buffer requirements applicable to firms like us are presently subject to ~~ongoing~~ rule-making and potential further guidance and interpretation by the applicable federal regulators. We will continue to evaluate the impact of these and any other prudential regulatory changes, including their potential resultant changes in our regulatory and compliance costs and expenses.

For more information, see the “Regulation and Supervision” and “—Capital and Regulatory Matters” sections in our ~~2020~~2021 Form 10-K.

~~Capital Framework~~

Under the current U.S. Basel III capital framework, we and our banking subsidiary, CBNA, must meet the following specific minimum requirements: CET1 capital ratio of 4.5%, tier 1 capital ratio of 6.0%, total capital ratio of 8.0% and tier 1 leverage ratio of 4.0%. As a bank holding company, our SCB of 3.4% is imposed on top of the three minimum risk-based capital ratios listed above and a CCB of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above for our banking subsidiary.

Under the U.S. Basel III rules, the CET1 deduction threshold for MSRs, certain deferred tax assets and significant investments in the capital of unconsolidated institutions is 25%. As of June 30, 2021, we did not meet the threshold for these additional capital deductions. MSRs or deferred tax assets not deducted from CET1 capital

~~Citizens Financial Group, Inc. | 34~~

~~are assigned a 250% risk weight and significant investments in the capital of unconsolidated financial institutions not deducted from CET1 capital are assigned an exposure category risk weight.~~

In reaction to the COVID-19 pandemic, the FRB and the other federal banking regulators adopted a final rule relative to regulatory capital treatment of ACL under CECL. This rule allowed electing banking organizations to delay the estimated impact of CECL on regulatory capital for a two-year period ending January 1, 2022, followed by a three-year transition period ending January 1, 2025 to phase-in the aggregate amount of the capital benefit provided during the initial two-year delay. As of June 30, 2021, $420 million of the capital benefit has been accumulated for application to the three-year transition period.

For additional discussion of the U.S. Basel III capital framework and its related application, see “Regulation and Supervision” in our 2020 Form 10-K. The table below presents our actual regulatory capital ratios under the U.S. Basel III Standardized rules:

Table 24: Regulatory Capital Ratios Under the U.S. Basel III Standardized Rules
June 30, 2021 December 31, 2020
Required Minimum plus Required CCB for Non-Leverage Ratios(1)
(in millions, except ratio data) Amount Ratio Amount Ratio
   CET1 capital $15,266 10.3 % $14,607 10.0 % 7.9 %
   Tier 1 capital 17,280 11.6 16,572 11.3 9.4
   Total capital 20,111 13.5 19,602 13.4 11.4
   Tier 1 leverage 17,280 9.7 16,572 9.4 4.0
   Risk-weighted assets 148,563 146,781
   Quarterly adjusted average assets 178,929 175,370

~~(1)~~ Required “Minimum Capital ratios” are: CET1 capital of 4.5%; Tier 1 capital of 6.0%; Total capital of 8.0%; and Tier 1 leverage of 4.0%. “Minimum Capital ratios” also include a SCB of 3.4%; N/A to Tier 1 leverage.

~~At June 30, 2021, our CET1 capital, tier 1 capital and total capital ratios were 10.3%, 11.6% and 13.5%, respectively, as compared with 10.0%~~, ~~11.3%and~~13.4%, respectively, as of December 31, 2020. The CET1 capital ratio increased as net income for the six months ended June 30, 2021 was partially offset by dividends and common share repurchases as described in “—Capital Transactions” below, $1.8 billion of risk-weighted asset (“RWA”) growth and a decrease in the modified CECL transitional amount. The tier 1 capital ratio increased due to the changes in the CET1 capital ratio described above and the issuance of Series G Preferred Stock, partially offset by the announced redemption of Series A Preferred Stock as described in “—Capital Transactions” below. The total capital ratio increased as the changes in the CET1 and tier 1 capital ratios described above combined with the subordinated debt exchange offer in the first quarter of 2021, as described in the “Regulatory Capital Ratios and Capital Composition” section below, were partially offset by the reduction in the net AACL impact. At June 30, 2021, our CET1 capital, tier 1 capital and total capital ratios were approximately 240 basis points, 220 basis points and 210 basis points, respectively, above their regulatory minimums plus our SCB. All ratios remained well above the U.S. Basel III minimums.

Regulatory Capital Ratios and Capital Composition

Under the U.S. Basel III rules, the CET1 deduction threshold for MSRs, certain deferred tax assets and investments in the capital of unconsolidated financial institutions is 25%. As of March 31, 2022, we did not meet the threshold for these additional capital deductions. MSRs or certain deferred tax assets not deducted from CET1 capital are assigned a 250% risk weight and investments in the capital of unconsolidated financial institutions not deducted from CET1 capital are assigned an exposure category risk weight.

In reaction to the COVID-19 pandemic, the FRB and the other federal banking regulators adopted a final rule relative to regulatory capital treatment of ACL under CECL. This rule allows electing banking organizations 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. The three-year transition period will phase-in the aggregate amount of capital benefit provided during the initial two-year delay. On December 31, 2021, the aggregate amount of capital benefit was $384 million. The reduction in the capital benefit in 2022 is $96 million, or 6 basis points.

For additional discussion of the U.S. Basel III capital framework and its related application, see “Regulation and Supervision” in our 2021 Form 10-K. The table below presents our actual regulatory capital ratios under the U.S. Basel III Standardized ~~rules totaled $15.3 billion at June 30, 2021, an increase~~rules:


Table 17: Regulatory Capital Ratios Under the U.S. Basel III Standardized Rules
	March 31, 2022			December 31, 2021			Required Minimum Capital Ratios(1)
(in millions, except ratio data)	Amount	Ratio		Amount	Ratio
CET1 capital	$15,643	9.7	%	$15,656	9.9	%	7.9	%
Tier 1 capital	17,657	10.9		17,670	11.1		9.4
Total capital	20,301	12.5		20,244	12.7		11.4
Tier 1 leverage	17,657	9.6		17,670	9.7		4.0
Risk-weighted assets	161,859			158,831
Quarterly adjusted average assets	183,089			181,800

(1) Required “Minimum Capital Ratios” are: CET1 capital of $659 million from $14.6 billion at December 31, 2020, largely driven by net income for the six months ended June 30, 2021, partially offset by dividends, a decrease in the modified CECL transitional amount and common share repurchases.4.5%; Tier 1 capital ~~at June 30, 2021 totaled $17.3 billion, reflecting a $708 million increase from $16.6 billion at December 31, 2020, driven by the changes in CET1 capital and the issuance~~ of ~~Series G Preferred Stock, partially offset by the announced redemption of Series A Preferred Stock.~~6.0%; Total capital of ~~$20.1 billion at June 30, 2021 increased $509 million from December 31, 2020, driven by the changes in CET1~~8.0%; and ~~tier 1 capital and a decrease in non-qualifying subordinated debt, partially offset by the reduction in the net AACL impact.~~

RWA totaled $148.6 billion at June 30, 2021, based on U.S. Basel III Standardized rules, up $1.8 billion from December 31, 2020. This increase in RWA was driven by higher commercial commitments, agency securities, automobile loans, MSRs, bank-owned life insurance and education loans. These RWA increases were partially offset by lower commercial loans, other retail loans and commercial real estate commitments.

~~As of June 30, 2021, the tier~~Tier 1 leverage ~~ratio was 9.7%, up from 9.4% at December 31, 2020, driven by higher tier~~of 4.0%. “Minimum Capital Ratios” also include a SCB of 3.4%; N/A to Tier 1 ~~capital, partially offset by the $3.6 billion increase in quarterly adjusted average assets.~~leverage.

Citizens Financial Group, Inc. | 3521

At March 31, 2022, our CET1 capital, tier 1 capital and total capital ratios were 9.7%, 10.9% and 12.5%, respectively, as compared with 9.9%, 11.1%and12.7%, respectively, as of December 31, 2021. The CET1 and tier 1 capital ratios decreased driven by $3.0 billion of RWA growth, dividends as described in “—Capital Transactions” below, higher estimated goodwill and intangibles related to the HSBC transaction and a decrease in the modified CECL transition amount as a result of entering the CECL three-year transition period, partially offset by net income for the three months ended March 31, 2022. The total capital ratio decreased due to the changes in the CET1 capital ratio described above and lower AACL partially offset by a reduction in the modified AACL transition amount as a result of entering the CECL three-year transition period. At March 31, 2022, our CET1 capital, tier 1 capital and total capital ratios were approximately 180 basis points, 150 basis points and 110 basis points, respectively, above their regulatory minimums plus our SCB. All ratios remained well above the U.S. Basel III minimums.

Table 25: Capital Composition Under the U.S. Basel III Capital Framework
(in millions) June 30, 2021 December 31, 2020
Total common shareholders' equity $21,185 $20,708
Exclusions:
Modified CECL transitional amount 420 568
Net unrealized (gains)/losses recorded in accumulated other comprehensive income (loss), net of tax:
Debt and equity securities (78) (380)
Derivatives 38 11
Unamortized net periodic benefit costs 421 429
Deductions:
Goodwill (7,050) (7,050)
Deferred tax liability associated with goodwill 383 379
Other intangible assets (53) (58)
Total common equity tier 1 15,266 14,607
Qualifying preferred stock 2,014 1,965
Total tier 1 capital 17,280 16,572
Qualifying subordinated debt(1)
1,284 1,204
Allowance for credit losses 2,081 2,670
Exclusions from tier 2 capital:
Modified AACL transitional amount (534) (682)
Excess allowance for credit losses(2)
— (162)
Adjusted allowance for credit losses 1,547 1,826
Total capital $20,111 $19,602
Both the Company and CBNA are subject to the standardized approach for determining RWA. At March 31, 2022 RWA totaled $161.9 billion, up $3.0 billion from December 31, 2021, driven by higher commercial and consumer loans including higher home lending loans resulting from the HSBC transaction, MSRs, derivative valuations and market risk, partially offset by lower loans held for sale and commercial commitments.

As of March 31, 2022, the tier 1 leverage ratio was 9.6%, down from 9.7% at December 31, 2021, driven by an increase in quarterly adjusted average assets of $1.3 billion and slightly lower tier 1 capital.


Table 18: Capital Composition Under the U.S. Basel III Capital Framework
(in millions)	March 31, 2022	December 31, 2021
Total common stockholders' equity	$20,060	$21,406
Exclusions:
Modified CECL transitional amount	288	384
Net unrealized (gains)/losses recorded in accumulated other comprehensive income (loss), net of tax:
Debt and equity securities	1,236	156
Derivatives	675	160
Unamortized net periodic benefit costs	347	349
Deductions:
Goodwill	(7,232)	(7,116)
Deferred tax liability associated with goodwill	387	383
Other intangible assets	(117)	(66)
Deferred tax assets that arise from tax loss and credit carryforwards	(1)	—
Total common equity tier 1	15,643	15,656
Qualifying preferred stock	2,014	2,014
Total tier 1 capital	17,657	17,670
Qualifying subordinated debt(1)	1,140	1,138
Allowance for credit losses	1,878	1,934
Exclusions from tier 2 capital:
Modified AACL transitional amount	(374)	(498)
Adjusted allowance for credit losses	1,504	1,436
Total capital	$20,301	$20,244

(1) As of ~~June 30, 2021~~March 31, 2022, and December 31, ~~2020,~~2021, the amount of non-qualifying subordinated debt excluded from regulatory capital was ~~$271 million and $348 million, respectively.~~$420 million.

~~(2)~~ ~~Excess allowance represents the amount excluded from tier 2 capital that is in excess of 1.25% of risk weighted assets, excluding market risk.~~

On February 11, 2021, we completed $265 million in private exchange offers for five series of outstanding subordinated notes. Exchange offer participants received newly-issued fixed-rate reset subordinated notes due 2031 which are redeemable by us five years prior to their maturity. These subordinated debt exchange offers will benefit our tier 2 and total capital going forward by increasing the amount of subordinated debt eligible for inclusion in tier 2 capital without increasing the aggregate principal amount of subordinated debt outstanding. See Note 78 for more details on our outstanding subordinated debt.

~~Capital Adequacy Process~~

Our assessment of capital adequacy begins with our board-approved risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. There have been no significant changes to our capital adequacy risk appetite and risk management framework as described in “—Capital and Regulatory Matters” in our 2020 Form 10-K.

Capital Transactions

We completed the following capital actions during the ~~six~~three months ended ~~June 30, 2021:~~

•~~Issued 300,000 shares of CFG 4.000% fixed-rate reset non-cumulative perpetual Series G Preferred Stock at an aggregate offering price of $300 million;~~

•~~Issued a notice to redeem all outstanding shares of CFG Series A Non-Cumulative Perpetual Preferred Stock which settled on July 6, 2021;~~

•~~Completed $265 million of subordinated debt private exchange offers in February 2021;~~March 31, 2022:

•Declared and paid a quarterly common stock ~~dividends~~dividend of $0.39 per share in the first ~~and second quarters~~quarter of ~~2021,~~2022, aggregating to ~~$335~~$165 million;

•Declared a quarterly dividend of $10.49 per share in first quarter of 2021 and $10.50 per share in the second quarter of 2021 on the 5.500% fixed-to-floating rate non-cumulative perpetual Series A Preferred Stock, aggregating to $5 million;

~~Citizens Financial Group, Inc. | 36~~

•~~Declared a semi-annual dividend of $30.00 per share on the 6.000% fixed-to-floating rate non-cumulative perpetual Series B Preferred Stock, aggregating to $9 million;~~

•~~Declared quarterly dividends~~ of $15.94 per share on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to ~~$10~~$5 million;

•Declared a quarterly ~~dividends~~dividend of $15.88 per share on the 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, aggregating to $9$5 million;

Citizens Financial Group, Inc. | 22

•Declared a quarterly ~~dividends~~dividend of $12.50 per share on the 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, aggregating to ~~$11~~$5 million;

•Declared a quarterly ~~dividends~~dividend of $14.13 per share on the 5.650% fixed-rate non-cumulative perpetual Series F Preferred Stock, aggregating to ~~$11~~$6 million; and

•~~Repurchased $95~~Declared a quarterly dividend of $10.00 per share on the 4.000% fixed-rate reset non-cumulative perpetual Series G Preferred Stock, aggregating to $3 million.

In January 2021, our board of directors authorized us to repurchase up to $750 million of our ~~outstanding~~ common stock, ~~at a weighted-average price per~~of which $455 million is available as of March 31, 2022. All future capital distributions are subject to consideration and approval by our board of directors prior to execution. The timing and amount of future dividends and share repurchases will depend on various factors, including our capital position, financial performance, risk-weighted assets, capital impacts of ~~$42.32.~~

strategic initiatives, market conditions and regulatory considerations.

Banking Subsidiary’s Capital

Table 26: CBNA's Capital Ratios Under the U.S. Basel III Standardized Rules
June 30, 2021 December 31, 2020
(dollars in millions, except ratio data) Amount Ratio Amount Ratio
CET1 capital $16,545 11.2 % $16,032 10.9 %
Tier 1 capital 16,545 11.2 16,032 10.9
Total capital 19,217 13.0 18,980 13.0
Tier 1 leverage 16,545 9.3 16,032 9.2
Risk-weighted assets 148,105 146,558
Quarterly adjusted average assets 178,441 174,954


Table 19: CBNA's Capital Ratios Under the U.S. Basel III Standardized Rules
	March 31, 2022			December 31, 2021
(dollars in millions, except ratio data)	Amount	Ratio		Amount	Ratio
CET1 capital	$17,226	10.7	%	$17,039	10.7	%
Tier 1 capital	17,226	10.7		17,039	10.7
Total capital	19,855	12.3		19,600	12.4
Tier 1 leverage	17,226	9.4		17,039	9.4
Risk-weighted assets	161,443			158,550
Quarterly adjusted average assets	182,509			181,268

CBNA’s CET1 and tier 1 capital totaled ~~$16.5~~$17.2 billion at ~~June 30, 2021,~~March 31, 2022, up ~~$513~~$187 million from ~~$16.0~~$17.0 billion at December 31, ~~2020.~~2021. This increase was primarily driven by net income for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, partially offset by ~~dividends paid~~higher estimated goodwill and intangibles related to the ~~Parent Company~~HSBC transaction and a decrease in the modified CECL ~~transitional amount.~~transition amount as a result of entering the CECL three-year transition period. Total capital was ~~$19.2~~$19.9 billion at ~~June 30, 2021,~~March 31, 2022, an increase of ~~$237~~$255 million from ~~$19.0~~$19.6 billion at December 31, ~~2020,~~2021, driven by the ~~change~~changes in CET1 capital and a reduction in the modified AACL transition amount as a result of entering the CECL three-year transition period, partially offset by ~~the reduction in the net AACL impact.~~

lower AACL.

CBNA’s RWA totaled ~~$148.1~~$161.4 billion at ~~June 30, 2021,~~March 31, 2022, up ~~$1.5~~$2.9 billion from December 31, ~~2020,~~2021, driven by higher commercial ~~commitments, agency securities, automobile~~and consumer loans including higher home lending loans resulting from the HSBC transaction, MSRs, ~~bank-owned life insurance~~derivative valuations and ~~education loans. These RWA increases were~~market risk, partially offset by lower ~~commercial~~ loans ~~other retail loans~~held for sale and commercial ~~real estate~~ commitments.

As of ~~June 30, 2021,~~March 31, 2022, CBNA’s tier 1 leverage ratio of ~~9.3% increased~~9.4% remained stable as ~~the increase in~~higher tier 1 capital was mostly offset by ~~the $3.5 billion~~an increase in quarterly adjusted average ~~assets.~~assets of $1.2 billion.

LIQUIDITY

Liquidity is defined as our ability to meet our cash-flow and collateral obligations in a timely manner, at a reasonable cost. An institution must maintain operating liquidity to meet its expected daily and forecasted cash-flow requirements, as well as contingent liquidity to meet unexpected (stress scenario) funding requirements. ~~As noted earlier, reflecting~~Reflecting the importance of meeting all unexpected and stress-scenario funding requirements, we identify and manage contingent liquidity, consisting of cash balances at the FRB, unencumbered high-quality ~~and~~ liquid securities and unused FHLB borrowing capacity. Separately, we also identify and manage asset liquidity as a subset of contingent liquidity, consisting of cash balances at the FRB and unencumbered high-quality liquid securities. We consider the effective and prudent management of liquidity fundamental to our health and strength. We manage liquidity at the consolidated enterprise level and at each material legal entity, including at the Parent Company and CBNA level.

Citizens Financial Group, Inc. | 3723

Parent Company Liquidity

Our Parent Company’s primary sources of cash are dividends and interest received from CBNA as a result of investing in bank equity and subordinated debt as well as externally issued preferred stock, senior and subordinated debt. Uses of cash include the routine cash flow requirements as a bank holding company, including periodic share repurchases and payments of dividends, interest and expenses; the needs of subsidiaries, including CBNA for additional equity and, as required, its need for debt financing; and the support for extraordinary funding requirements when necessary. To the extent the Parent Company has relied on wholesale borrowings, uses also include payments of related principal and interest.

During the ~~six months ended June 30, 2021, the Parent Company completed the following transactions:~~

•~~Issued 300,000 shares of 4.00% fixed-rate reset non-cumulative perpetual Series G Preferred Stock at an aggregate offering price of $300 million;~~

•~~Issued a notice to redeem all outstanding shares of CFG Series A Non-Cumulative Perpetual Preferred Stock which settled on July 6, 2021; and~~

•~~Redeemed $350 million of 2.375% fixed-rate senior unsecured debt due July 2021.~~

~~During the~~ three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Parent Company declared dividends on common stock of ~~$168~~$165 million and ~~declared dividends on preferred stock of $32 and $28 million, respectively.~~

~~During the six months ended June 30, 2021 and 2020, the Parent Company declared dividends on common stock of $335 million and $336~~$167 million, respectively, and declared dividends on preferred stock of ~~$55~~$24 million and ~~$50~~$23 million, respectively.

Our Parent Company’s cash and cash equivalents represent a source of liquidity that can be used to meet various needs and totaled ~~$2.7~~$2.1 billion and $2.3 billion as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021, respectively. The Parent Company’s double-leverage ratio ~~the~~(the combined equity investment in Parent Company subsidiaries divided by Parent Company ~~equity,~~equity) is a measure of reliance on equity cash flows from subsidiaries to fund Parent Company obligations. At ~~June 30, 2021,~~March 31, 2022, the Parent Company’s double-leverage ratio was ~~97.6%~~99.1%.

CBNA Liquidity

As CBNA’s primary business involves taking deposits and making loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary. In the ordinary course of business, the liquidity of CBNA is managed by matching sources and uses of cash. The primary sources of bank liquidity include deposits from our consumer and commercial customers; payments of principal and interest on loans and debt securities; and wholesale borrowings, as needed, and as described under “—Liquidity Risk Management and Governance.” The primary uses of bank liquidity include withdrawals and maturities of deposits; payment of interest on deposits; funding of loans and related commitments; and funding of securities purchases. To the extent that CBNA has relied on wholesale borrowings, uses also include payments of related principal and interest. For further information on CBNA’s outstanding debt, see Note 7.8.

~~As CBNA’s primary business involves taking deposits and making loans, a key role~~On April 26, 2022, CBNA redeemed $750 million of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary.senior notes.

Liquidity Risk

We define liquidity risk as the risk that an entity will be unable to meet its payment obligations in a timely manner, at a reasonable cost. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.

Contingent liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.

Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity risk may be idiosyncratic or systemic, reflecting impediments to operations and/or damaged market confidence.

~~Citizens Financial Group, Inc. | 38~~

Factors Affecting Liquidity

Given the composition of assets and borrowing sources, contingent liquidity risk at CBNA would be materially affected by events such as deterioration of financing markets for high-quality securities (e.g., mortgage-backed securities and other instruments issued by the GNMA, FNMA and the FHLMC), by any inability of the FHLBs to provide collateralized advances and/or by a refusal of the FRB to act as a lender of last resort in systemic stress.

Similarly, given the structure of its balance sheet, the funding liquidity risk of CBNA would be materially affected by an adverse idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets

Citizens Financial Group, Inc. | 24

participant), or a combination of both. Consequently, and despite ongoing exposure to a variety of idiosyncratic and systemic events, we view our contingent liquidity risk and our funding liquidity risk to be relatively modest.

An additional variable affecting our access to unsecured wholesale market funds and to large denomination (i.e., uninsured) customer deposits is the credit ratings assigned by such agencies as Moody’s, Standard and Poor’s, and Fitch.

Table ~~27:~~20: Credit Ratings

~~June 30, 2021~~March 31, 2022

Moody’s

Standard and
Poor’s

Fitch

Citizens Financial Group, Inc.:

Long-term issuer

BBB+

Short-term issuer

A-2

Subordinated debt

BBB

Preferred Stock

BB+

Citizens Bank, National Association:

Long-term issuer

Baa1

A-

BBB+

Short-term issuer

A-2

Long-term deposits

A-

Short-term deposits

P-1

NR = Not rated

Changes in our public credit ratings could affect both the cost and availability of our wholesale funding. As a result, and in order to maintain a conservative funding profile, CBNA continues to minimize reliance on unsecured wholesale funding. At ~~June 30, 2021,~~March 31, 2022, our wholesale funding consisted primarily of term debt issued by the Parent Company and CBNA.

Existing and evolving regulatory liquidity requirements represent another key driver of systemic liquidity conditions and liquidity management practices. The FRB, ~~the~~ OCC, and ~~the~~ FDIC regularly evaluate our liquidity as part of the overall supervisory process. In addition, we are subject to existing and evolving regulatory liquidity requirements, some of which are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. For further discussion, see “Regulation and Supervision — Tailoring of Prudential Requirements” and “—Liquidity Requirements” in our ~~2020~~2021 Form 10-K.

Liquidity Risk Management and Governance

Liquidity risk is measured and managed by the Funding and Liquidity unit within our Treasury unit in accordance with policy guidelines promulgated by our Board and the Asset Liability Committee. In managing liquidity risk, the Funding and Liquidity unit delivers regular and comprehensive reporting, including current levels versus threshold limits for a broad set of liquidity metrics and early warning indicators, explanatory commentary relating to emerging risk trends and, as appropriate, recommended remedial strategies.

~~Citizens Financial Group, Inc. | 39~~

Our Funding and Liquidity unit’s primary ~~goal is~~goals are to deliver and maintain prudent levels of operating liquidity to support expected and projected funding requirements, ~~as well as~~ contingent liquidity to support unexpected funding requirements resulting from idiosyncratic, systemic, and combination stress events, and regulatory liquidity requirements in a timely manner from stable and cost-efficient funding sources. We seek to accomplish ~~this goal~~these goals by funding loans with stable deposits; by prudently controlling dependence on wholesale funding, particularly short-term unsecured funding; and by maintaining ample available liquidity, including a contingent liquidity buffer of unencumbered high-quality loans and securities. As of ~~June 30, 2021:~~March 31, 2022:

•Organically generated deposits continue to be our primary source of funding, resulting in a consolidated period end loan-to-deposits ratio, excluding LHFS, of ~~81.4%~~82.7%;

•~~Our cash position, which is defined as cash balance held at the FRB, totaled $11.5 billion;~~

•Our total available liquidity, comprised of contingent liquidity and available discount window capacity, was approximately ~~$75.8~~$71.9 billion;

•Contingent liquidity was ~~$46.9~~$45.7 billion, consisting of unencumbered high-quality liquid securities of ~~$21.0~~$20.6 billion, unused FHLB capacity of ~~$14.4~~$16.4 billion, and our cash ~~position~~balances at the FRB of ~~$11.5 billion. Asset liquidity, a component of contingent liquidity, was $32.5 billion, consisting of our cash position of $11.5 billion and unencumbered high-quality liquid securities of $21.0~~$8.7 billion;

Citizens Financial Group, Inc. | 25

•Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured primarily by non-mortgage commercial and retail loans and totaled ~~$28.9~~$26.2 billion. Use of this borrowing capacity would be considered only during exigent circumstances; and

•For a summary of our sources and uses of cash by type of activity for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ see the Consolidated Statements of Cash Flows.

The Funding and Liquidity unit monitors a variety of liquidity and funding metrics and early warning indicators and metrics, including specific risk thresholds limits. These monitoring tools are broadly classified as follows:

•Current liquidity sources and capacities, ~~include~~including cash balances at the ~~FRBs,~~FRB, free and liquid securities, and secured FHLB borrowing capacity;

•Liquidity stress sources, including idiosyncratic, systemic and combined stresses, in addition to evolving regulatory requirements; and

•Current and prospective exposures, including secured and unsecured wholesale funding, and spot and cumulative cash-flow gaps across a variety of horizons.

Further, certain of these metrics are monitored individually for CBNA and for our consolidated enterprise on a daily basis, including cash position, unencumbered securities, asset liquidity and available FHLB borrowing capacity. In order to identify emerging trends and risks and inform funding decisions, specific metrics are also forecasted over a one-year horizon.

Off-Balance Sheet Arrangements

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~The following table presents~~We engage in a variety of activities that are not reflected in our ~~outstanding off-balance~~Consolidated Balance Sheets that are generally referred to as “off-balance sheet arrangements.” For ~~further~~more information on these types of activities, see Note ~~11.~~12 in Item 1.

Table 28: Outstanding Off-Balance Sheet Arrangements
(in millions) June 30, 2021 December 31, 2020 Change Percent
Commitments to extend credit $76,761 $74,160 $2,601 4 %
Letters of credit 1,926 2,239 (313) (14)
Risk participation agreements 68 98 (30) (31)
Loans sold with recourse 64 54 10 19
Marketing rights 26 29 (3) (10)
Total $78,845 $76,580 $2,265 3 %

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CRITICAL ACCOUNTING ESTIMATES

Our unaudited interim Consolidated Financial Statements, included in this Report, are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our audited Consolidated Financial Statements.

An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on our unaudited interim Consolidated Financial Statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting policies and estimates and their related application are discussed below. For additional information regarding fair value measurements, see “—Critical Accounting Estimates” in our ~~2020~~2021 Form 10-K.

Allowance for Credit Losses

The ACL ~~decreased from $2.7~~of $1.9 billion at March 31, 2022 remained stable compared to December 31, ~~2020 to $2.1 billion at June 30, 2021, reflecting a reserve release of $589 million.~~2021.

To determine the ACL as of ~~June 30, 2021,~~March 31, 2022, we utilized an economic forecast that generally reflects real GDP growth on an annual average basis of ~~approximately 5.7% over 2021. The forecast also projects the~~2.5% and an average unemployment rate ~~to be~~of 5.2% in ~~the range of 5.9% to 6.6% throughout 2021.~~2022. This forecast reflects ana positive overall ~~improved~~ macroeconomic outlook, ~~as compared to~~generally in-line with December 31, ~~2020. In addition~~2021, which reflected real GDP growth on an annual average basis of 2.8% and an average unemployment rate of 6% in 2022. While the U.S. economy has remained strong, uncertainty remains. We continue to ~~judgment applied~~utilize our qualitative allowance framework to reassess and adjust ACL reserve levels. Macroeconomic forecast risk, driven by uncertainty around and volatility of key macroeconomic variables, is one of the primary factors influencing our qualitative reserve.

Our March 2022 qualitative consideration for macroeconomic risk reflects the strength of the overall economy weighed against the headwinds of tightening monetary and fiscal policies, impacts of elevated inflation, including the gap between wage gains and inflation rate, labor shortages, continuing supply-chain challenges, and possible consequences from Russia’s invasion of Ukraine. We expect the combination of these items to likely create volatility in key macroeconomic variables. While COVID has reemerged in certain areas of the world, the impact to the ~~commercial portfolio as a whole, we continued~~US economy has been limited to ~~apply management judgment to adjust~~date given vaccination rates and material reductions in hospitalizations and deaths, reductions in consumer concerns about the ~~modeled reserves in the commercial industry sectors most impacted by the COVID-19~~ pandemic, and ~~associated lockdowns, including CRE retail and hospitality and casual dining.~~a strong labor market with over 11 million open jobs as of February 2022.

Citizens Financial Group, Inc. | 26

Our determination of the ACL is sensitive to changes in forecasted macroeconomic conditions during the reasonable and supportable period. To illustrate the sensitivity, we applied a more pessimistic scenario than that described above which assumes that challenges in ~~acceptance~~tempering inflation combined with a rise in infections from new COVID strains lead to lower consumer spending and a slowing of vaccines cause COVID-19-related infections to abet later than in our base case scenario, with concerns rising about resistant strains. Consumer spending is slower to rebound, with businesses reopening more slowly and vacation spending muted.business hiring. This pessimistic scenario reflects similar real GDP growth ~~of approximately 3.25% and~~to our base case forecast but an unemployment rate in the range of ~~6.5%~~6.6% to ~~7.0%~~7.4% over ~~2021.~~2022. Excluding consideration of qualitative adjustments, this scenario would result in a quantitative lifetime loss estimate of approximately ~~1.15x~~1.16x our modeled period-end ACL, or an increase of approximately ~~$175~~$160 million. This analysis relates only to the modeled credit loss estimate and not to the overall period-end ACL, which includes qualitative adjustments.

Because several quantitative and qualitative factors are considered in determining the ACL, this sensitivity analysis does not necessarily reflect the nature and extent of future changes in the ACL or even what the ACL would be under these economic circumstances. The sensitivity is intended to provide insights into the impact of adverse changes in the macroeconomic environment and the corresponding impact to modeled loss estimates. The hypothetical determination does not incorporate the impact of management judgment or other qualitative factors that could be applied in the actual estimation of the ACL and does not imply any expectation of future deterioration in our loss rates.

~~To provide additional context regarding sensitivity to more pessimistic scenarios, our ACL balance of $2.1 billion represents 24% of the $8.6 billion of n~~ine-quarter losses projected in the Federal Reserve run of the December 2020 Supervisory Severely Adverse scenario, which forecasted more protracted unemployment and GDP declines compared with our ACL calculation. Our ACL calculation also included the impacts of government stimulus.

~~Comparatively, our ACL represents 41% of the $5.1 billion~~ of projected losses in the Company run results of the Supervisory Severely Adverse scenario. Losses projected under the Company Supervisory Severely Adverse scenario are lower than the Federal Reserve results due to methodology and modeling differences. As an example, the Federal Reserve’s models did not recognize contractual loss sharing arrangements in the merchant loan portfolio. Both the Company and Federal Reserve results include incremental losses associated with loan originations assumed post-June 30, 2020. In contrast, our June 30, 2021 ACL balance considers only existing loans and lines of credit as of the reporting date.

~~While the recovery path is clearer than it was at the end of the fourth quarter~~ ~~2020, significant future uncertainty still exists, including progress in the rollout, acceptance, and effectiveness of COVID-19 vaccines.~~ It remains difficult to estimate how changes in economic forecasts might affect our ACL because such forecasts

~~Citizens Financial Group, Inc. | 41~~

consider a wide variety of variables and inputs, and changes in the variables and inputs may not occur at the same time or in the same direction, and such changes may have differing impacts by product types. The variables and inputs may be idiosyncratically affected by ~~existing or future~~risks to the economy, including changing monetary and fiscal ~~stimulus programs~~policies and ~~forbearance and other customer accommodation efforts.~~their impact on inflationary trends, as well as continuing supply-chain challenges. Changes in one or multiple of the key variables may have a material impact to our estimation of expected credit losses.

~~We continue to monitor the impact of COVID-19, vaccination efforts, and related policy measures on the economy and the resulting potentially material effects on the ACL.~~

For additional information regarding the ACL, see Note 45 of this report, and ~~“Critical~~“—Critical Accounting ~~Estimates”~~Estimates - Allowance for Credit Losses” and Note 56 in ~~the Company’s 2020~~our 2021 Form 10-K.

Citizens Financial Group, Inc. | 27

ACCOUNTING AND REPORTING DEVELOPMENTS

Accounting standards issued but not adopted as of March 31, 2022


Pronouncement	Summary of Guidance	Effects on Financial Statements
Troubled Debt Restructurings and Vintage Disclosures Issued March 2022	•Eliminates the separate recognition and measurement guidance for TDRs •Requires evaluation of all modifications to borrowers experiencing financial difficulty to determine whether the modification results in a new loan or continuation of an existing loan •Requires expected credit losses measured under a discounted cash flow method to be determined using an effective interest rate based on the modified (not original) contractual terms of the loan •Enhances disclosures by creditors for modifications of receivables from borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension •Requires disclosure of current period gross charge-offs by vintage year for loans and net investments in leases •Transition is prospective, with an option to adopt the recognition and measurement guidance for TDRs on a modified retrospective basis, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption	•Required effective date: January 1, 2023, with early adoption permitted. Management is currently evaluating adoption prior to the effective date. •Adoption is not expected to have a material financial impact on our Consolidated Financial Statements, but a meaningful impact on our required disclosures in the Notes to our Consolidated Financial Statements.
Derivatives and Hedging - Fair Value Hedging - Portfolio Layer Method Issued March 2022	•Replaces the ‘last-of-layer’ method. •Allows the designation of multiple layers in a closed portfolio of financial assets. •Permits hedging of non-prepayable as well as prepayable assets. •Prohibits the consideration of basis adjustments when measuring expected credit losses of assets in the closed portfolio or determining whether an AFS security is impaired. •The guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis.	•Required effective date: January 1, 2023. Early adoption is permitted. •Adoption is not expected to have a material impact on our Consolidated Financial Statements.

RISK GOVERNANCE

We are committed to maintaining a strong, integrated, and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision making body is setting our risk appetite to ensure that the levels of risk that we are willing to accept in the attainment of our strategic business and financial objectives are clearly understood.

To enable our Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The Executive Risk Committee, ~~(“ERC”),~~ chaired by the Chief Risk Officer, is responsible for oversight of risk across the enterprise and actively considers our inherent material risks, analyzes our overall risk profile and seeks confirmation that the risks are being appropriately identified, assessed and mitigated. Reporting to the ~~ERC~~Executive Risk Committee are the following ~~additional~~ committees covering specific areas of risk: Compliance and Operational Risk Committee, Model Risk Committee, Credit Policy Committee, Asset Liability Committee, Business Initiatives Review Committee, and the Conduct and Ethics Committee.

There have been no significant changes in our risk governance practices, risk framework, risk appetite, or credit risk as described in “—Risk Governance” in our ~~2020~~2021 Form 10-K.

Citizens Financial Group, Inc. | 28

MARKET RISK

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit-gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage market risk for both non-trading and trading activities.

Non-Trading Risk

We are exposed to market risk as a result of non-trading banking activities. This market risk is substantially composed of interest rate risk, as we have no commodity risk and de minimis direct currency and equity risk. We also have market risk related to capital markets loan originations, as well as the valuation of our MSRs. There have been no significant changes in our sources of interest rate risk, interest rate risk practices, risk framework, metrics or assumptions as described in “—Market Risk — Non-Trading Risk” in our ~~2020~~2021 Form 10-K.

The table below reports net interest income exposures against a variety of interest rate scenarios. Our policies involve measuring exposures as a percentage change in net interest income over the next year due to either instantaneous or gradual parallel changes in rates relative to the market implied forward yield curve. As the following table illustrates, our balance sheet is ~~asset sensitive;~~asset-sensitive; net interest income would benefit from an increase in interest rates, while exposure to a decline in interest rates is within limit. While an instantaneous and severe shift in interest rates is included in this analysis, we believe that any actual shift in interest rates would likely be more gradual and therefore have a more modest impact.

~~Citizens Financial Group, Inc. | 42~~

The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve:


Table 29: Sensitivity of Net Interest Income
Table 21: Sensitivity of Net Interest Income						Table 21: Sensitivity of Net Interest Income
		Estimated % Change in Net Interest Income over 12 Months					Estimated % Change in Net Interest Income over 12 Months
Basis points	Basis points	June 30, 2021		December 31, 2020		Basis points	March 31, 2022		December 31, 2021
Instantaneous Change in Interest Rates	Instantaneous Change in Interest Rates					Instantaneous Change in Interest Rates
200	200	21.7	%	21.2	%	200	13.8	%	19.4	%
100	100	11.3		11.2		100	7.1		10.2
-25	-25	(2.2)		(2.7)		-25	(2.0)		(3.0)
Gradual Change in Interest Rates	Gradual Change in Interest Rates					Gradual Change in Interest Rates
200	200	10.7		10.8		200	7.2	%	10.1	%
100	100	5.4		5.5		100	3.7		5.2
-25	-25	(1.2)		(1.5)		-25	(1.0)		(1.5)

We continue to manage asset sensitivity within the scope of our policy, ~~and~~ changing market ~~conditions.~~conditions and changes in our balance sheet. Asset sensitivity against a 200 basis point gradual increase in rates ~~remained fairly steady~~was 7.2% at ~~10.7% as of June 30, 2021 as~~March 31, 2022, compared to ~~10.8%~~10.1% at December 31, ~~2020, resulting from~~2021. The change reflects the ~~addition of $8.0 billion of receive-fixed/pay-variable~~evolving balance sheet and the rising base net interest income, which reduces the asset sensitivity to further rate ~~swaps.~~increases. We continue to adjust our hedge positions to capture higher forward rates and manage evolving downside risks through dollar-cost averaging our entry points for monetizing the asset sensitivity. Current levels of asset sensitivity ~~are elevated relative~~continue to ~~our core sensitivity profile due~~provide meaningful upside benefit to ~~meaningful increases in cash and deposit balances~~net interest income as we enter a ~~result~~period of ~~monetary and fiscal stimulus programs.~~expected higher short-term policy rates from the FRB. Changes in interest rates can also affect the risk positions, which impacts the repricing sensitivity or beta of the deposit base as well as the cash flows on assets that allow for early payoff without a penalty. The risk position is managed within our risk limits, and long-term view of interest rates through occasional adjustments to securities investments, interest rate swaps and mix of funding.

We use a valuation measure of exposure to structural interest rate risk, ~~Economic Value of Equity (“EVE”),~~EVE, as a supplement to net interest income simulations. EVE complements net interest income simulation analysis as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. The change in value is expressed as a percentage of regulatory capital.

Citizens Financial Group, Inc. | 29

We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating-rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances.


Table 30: Interest Rate Swap Contracts Used to Manage Non-Trading Interest Rate Exposure
Table 22: Interest Rate Swap Contracts Used to Manage Non-Trading Interest Rate Exposure																Table 22: Interest Rate Swap Contracts Used to Manage Non-Trading Interest Rate Exposure
		June 30, 2021						December 31, 2020					March 31, 2022							December 31, 2021
			Weighted Average							Weighted Average								Weighted Average						Weighted Average
(dollars in millions)	(dollars in millions)	Notional Amount	Maturity (Years)	Receive Rate		Pay Rate			Notional Amount		Maturity (Years)	Receive Rate		Pay Rate		(dollars in millions)	Notional Amount		Maturity (Years)	Receive Rate		Pay Rate		Notional Amount	Maturity (Years)	Receive Rate		Pay Rate
Cash flow - receive-fixed/pay-variable - conventional ALM~~(1)~~(2)	Cash flow - receive-fixed/pay-variable - conventional ALM~~(1)~~(2)	$18,100	2.5	1.1	%	0.1	%		$12,350		1.0	1.5	%	0.2	%	Cash flow - receive-fixed/pay-variable - conventional ALM~~(1)~~(2)	$15,750		4.1	1.3	%	0.6	%	$16,250	3.7	1.0	%	0.1	%
Fair value - receive-fixed/pay-variable - conventional debt	Fair value - receive-fixed/pay-variable - conventional debt	2,200	1.8	2.5		0.2			3,200		1.7	2.1		0.2		Fair value - receive-fixed/pay-variable - conventional debt	1,500		1.8	2.4		0.6		2,200	1.3	2.5		0.2
Cash flow - pay-fixed/receive-variable - conventional ALM~~(2)~~(1)	Cash flow - pay-fixed/receive-variable - conventional ALM~~(2)~~(1)	3,000	3.0	0.1		1.7			4,750		3.9	0.2		1.4		Cash flow - pay-fixed/receive-variable - conventional ALM~~(2)~~(1)	—		—	—		—		3,000	2.5	0.1		1.7
Fair value - pay-fixed/receive-variable - conventional ALM(1)	Fair value - pay-fixed/receive-variable - conventional ALM(1)	2,000	3.2	0.1		1.5			2,000		3.7	0.2		1.5		Fair value - pay-fixed/receive-variable - conventional ALM(1)	—		—	—		—		2,000	2.7	0.1		1.5
Total portfolio swaps	Total portfolio swaps	$25,300	2.5	1.0	%	0.4	%		$22,300		2.0	1.2	%	0.6	%	Total portfolio swaps	$17,250		3.9	1.4	%	0.6	%	$23,450	3.3	1.0	%	0.4	%

(1) Asset Liability Management (“ALM”) strategies used to manage interest rate exposures include interest rate swap contracts used to manage exposure to the variability in the interest cash flows on our floating-rate commercial loans and floating-rate wholesale funding, as well as the variability in the fair value of AFS securities.

(2) ~~December~~March 31, ~~2020~~2022 includes ~~$1.8~~$2.0 billion of forward-starting ~~pay-fixed interest rate~~ swaps that ~~were terminated~~will become effective in the ~~first~~third quarter of ~~2021.~~2022.

Using the interest rate curve at June 30, 2021, the estimated net contribution to net interest income related to our ALM hedge strategies is approximately $99 million for the full-year 2021 compared to $133 million for the full-year 2020. The estimated net contribution could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2021.

~~Citizens Financial Group, Inc. | 43~~

The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:


Table 27: Pre-Tax Gains (Losses) Recorded in the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income(1)
Table 23: Pre-Tax Gains (Losses) Recorded in the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income on Cash Flow Hedges						Table 23: Pre-Tax Gains (Losses) Recorded in the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income on Cash Flow Hedges
		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Amount of pre-tax net gains (losses) recognized in OCI	Amount of pre-tax net gains (losses) recognized in OCI	$62	($11)	$34	$118	Amount of pre-tax net gains (losses) recognized in OCI		($661)	($28)
Amount of pre-tax net gains (losses) reclassified from OCI into interest income	Amount of pre-tax net gains (losses) reclassified from OCI into interest income	49	55	95	60	Amount of pre-tax net gains (losses) reclassified from OCI into interest income		37	46
Amount of pre-tax net gains (losses) reclassified from OCI into interest expense	Amount of pre-tax net gains (losses) reclassified from OCI into interest expense	(12)	(10)	(24)	(11)	Amount of pre-tax net gains (losses) reclassified from OCI into interest expense		(5)	(12)

(1) Using the interest rate curve at ~~June 30, 2021,~~March 31, 2022 with respect to cash flow hedge strategies, we estimate that approximately ~~$86~~($141) million will be reclassified from AOCI to net interest income over the next 12 months.

LIBOR Transition

~~As previously disclosed, many of~~For details regarding our ~~lending products, securities, derivatives, and other financial transactions utilize the LIBOR benchmark rate and will be impacted by its planned discontinuance. In late 2018, we formed a~~ LIBOR Transition Program ~~designed~~and associated efforts to ~~guide~~plan for the ~~organization through the planned~~ discontinuation of ~~LIBOR. The Program, with direction and oversight from~~LIBOR, see “—Market Risk — LIBOR Transition” in our Chief Financial Officer, is responsible for developing, maintaining and executing against a coordinated strategy to ensure a timely and orderly transition from LIBOR. The Program is structured to address various initiatives including program governance, transition management, communications, exposure management, new alternative reference rate product delivery, risk management, contract remediation, operations and technology readiness, accounting and reporting, as well as tax and regulation impacts. We have identified and are monitoring the risks associated with the LIBOR transition on a quarterly basis.

The ARRC recommended that banks be systemically and operationally capable of supporting transactions in alternative reference rates, such as SOFR, by the end of September 2020. Guided by this milestone, we are systemically and operationally prepared to support alternative reference rate transactions. On March 5, 2021 the Financial Conduct Authority (“FCA”) formally announced the future cessation or loss of representation of the LIBOR benchmark settings currently published by the Intercontinental Exchange (“ICE”) Benchmark Administration. Further, the FCA stated that the 1-week and 2-month U.S. Dollar LIBOR rates will cease as of December 31, 2021 and all other U.S. Dollar LIBOR tenors will cease as of June 30, 2023. With the FRB, OCC, and FDIC (collectively, the agencies) supporting this announcement, the LIBOR Transition Program adjusted LIBOR transition activities accordingly. The agencies are still urging market participants to stop entering into new U.S. Dollar LIBOR contracts as soon as practicable, butForm 10-K. There were no later than the end of 2021. We are continuing all efforts to move new originations to alternative reference rates over the course of 2021. However, our plans for legacy contract remediation now extend through mid-2023. More broadly, program governance remains robust, and progress has been made in the above-outlined initiatives as management continues to closely monitor industry and regulatory developments pertainingsignificant changes relative to the ~~transition.~~ program during the three months ended March 31, 2022.

Capital Markets

A key component of our capital markets activities is the underwriting and distribution of corporate credit facilities to partially finance merger and acquisition transactions for our clients. We have a rigorous risk management process around these activities, including a limit structure capping our underwriting risk, our potential loss, and ~~sub limits~~sub-limits for specific asset classes. Further, the ability to approve underwriting exposure is delegated only to senior level individuals in the credit risk management and capital markets organizations with each transaction adjudicated in the Loan Underwriting Approval Committee.

Mortgage Servicing Rights

We have market risk associated with the value of residential MSRs, which are impacted by various types of inherent risks, including duration, basis, convexity, volatility and yield curve.

As part of our overall risk management strategy relative to the fair market value of the MSRs, we enter into various free-standing derivatives, such as interest rate swaps, interest rate swaptions, interest rate futures, and forward contracts to purchase mortgage-backed securities to economically hedge the changes in fair value. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair value of our MSRs was ~~$902 million~~$1.2 billion and ~~$658 million,~~$1.0 billion, respectively, and the total notional amount of related derivative contracts was ~~$13.9~~$13.4 billion and ~~$11.4~~$11.8 billion,

~~Citizens Financial Group, Inc. | 44~~

respectively. Gains and losses on MSRs and the related derivatives used for hedging are included in mortgage banking fees in the Consolidated Statements of Operations.

As with our traded market risk-based activities, earnings ~~at-risk~~at risk excludes the impact of MSRs. MSRs are captured under our single price risk management framework that is used for calculating a management value at risk that is consistent with the definition used by banking regulators.

Citizens Financial Group, Inc. | 30

Trading Risk

We are exposed to market risk primarily through client facilitation activities including derivatives and foreign exchange products as well as underwriting and market making activities. Exposure is created as a result of changes in interest rates and related basis spreads and volatility, foreign exchange rates, equity prices, and credit spreads on a select range of interest rates, foreign exchange, commodities, equity securities, corporate bonds and secondary loan instruments. These securities underwriting and trading activities are conducted through CBNA, CCMI and ~~CCMI.~~JMP. There have been no significant changes in our market risk governance, market risk measurement, or market risk practices including VaR, stressed VaR, sensitivity analysis, stress testing, or VaR model review and validation as described in “—Market Risk — Trading Risk” in our ~~2020~~2021 Form 10-K.

Market Risk Regulatory Capital

The U.S. banking regulators’ “Market Risk Rule” covers the calculation of market risk capital. For the purposes of the Market Risk Rule, all of our client facing trades and associated hedges maintain a net low risk and do qualify as “covered positions.” The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR.


Table 32: Results of Modeled and Non-Modeled Measures for Regulatory Capital Calculations
Table 24: Results of Modeled and Non-Modeled Measures for Regulatory Capital Calculations										Table 24: Results of Modeled and Non-Modeled Measures for Regulatory Capital Calculations
(in millions)	(in millions)	For the Three Months Ended June 30, 2021				For the Three Months Ended June 30, 2020				(in millions)	For the Three Months Ended March 31, 2022				For the Three Months Ended March 31, 2021
Market Risk Category	Market Risk Category	Period End	Average	High	Low	Period End	Average	High	Low	Market Risk Category	Period End	Average	High	Low	Period End	Average	High	Low
Interest Rate	Interest Rate	$2	$2	$5	$—	$1	$2	$5	$1	Interest Rate	$1	$2	$6	$—	$2	$3	$6	$1
Foreign Exchange Currency Rate	Foreign Exchange Currency Rate	1	—	1	—	—	—	—	—	Foreign Exchange Currency Rate	—	—	3	—	—	—	—	—
Credit Spread	Credit Spread	13	13	17	10	13	8	15	4	Credit Spread	3	9	14	3	15	13	18	6
Commodity	Commodity	—	—	—	—	—	—	—	—	Commodity	—	—	—	—	—	—	—	—
General VaR	General VaR	14	12	16	9	12	11	13	9	General VaR	3	10	17	3	14	12	16	7
Specific Risk VaR	Specific Risk VaR	—	—	—	—	—	—	—	—	Specific Risk VaR	—	—	—	—	—	—	—	—
Total VaR	Total VaR	$14	$12	$17	$9	$12	$11	$13	$9	Total VaR	$3	$10	$17	$3	$14	$12	$16	$7
Stressed General VaR	Stressed General VaR	$16	$16	$19	$13	$14	$13	$15	$11	Stressed General VaR	$15	$13	$19	$4	$18	$15	$19	$9
Stressed Specific Risk VaR	Stressed Specific Risk VaR	—	—	—	—	—	—	—	—	Stressed Specific Risk VaR	—	—	—	—	—	—	—	—
Total Stressed VaR	Total Stressed VaR	$16	$16	$19	$13	$14	$13	$15	$11	Total Stressed VaR	$15	$13	$19	$4	$18	$15	$19	$9
Market Risk Regulatory Capital	Market Risk Regulatory Capital	$89				$73				Market Risk Regulatory Capital	$67				$82
Specific Risk Not Modeled Add-on	Specific Risk Not Modeled Add-on	19				13				Specific Risk Not Modeled Add-on	25				15

Total Market Risk Regulatory Capital	Total Market Risk Regulatory Capital	$108				$86				Total Market Risk Regulatory Capital	$92				$97
Market Risk-Weighted Assets	Market Risk-Weighted Assets	$1,350				$1,078				Market Risk-Weighted Assets	$1,154				$1,216

VaR Backtesting

Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. We perform sub-portfolio backtesting as required under the Market Risk Rule, using models approved by our banking regulators, for interest rate, credit spread ~~commodity,~~ and foreign exchange positions.

Citizens Financial Group, Inc. | 4531

The following graph shows our daily net trading revenue and total internal, modeled VaR for the twelve months ended ~~June 30, 2021.~~March 31, 2022.

Daily VaR Backtesting

Citizens Financial Group, Inc. | 4632

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

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

Table 33: Reconciliations of Non-GAAP Measures
As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,
(in millions, except share, per share and ratio data) Ref. 2021 2020 2021 2020
Total revenue, Underlying:
Total revenue (GAAP) A $1,609 $1,750 $3,268 $3,407
Less: Notable items — — — —
Total revenue, Underlying (non-GAAP) B $1,609 $1,750 $3,268 $3,407
Noninterest expense, Underlying:
Noninterest expense (GAAP) C $991 $979 $2,009 $1,991
Less: Notable items 11 19 31 52
Noninterest expense, Underlying (non-GAAP) D $980 $960 $1,978 $1,939
Pre-provision profit:
Total revenue (GAAP) A $1,609 $1,750 $3,268 $3,407
Less: Noninterest expense (GAAP) C 991 979 2,009 1,991
Pre-provision profit (GAAP) $618 $771 $1,259 $1,416
Pre-provision profit, Underlying
Total revenue, Underlying (non-GAAP) B $1,609 $1,750 $3,268 $3,407
Less: Noninterest expense, Underlying (non-GAAP) D 980 960 1,978 1,939
Pre-provision profit, Underlying (non-GAAP) $629 $790 $1,290 $1,468
Income before income tax expense, Underlying:
Income before income tax expense (GAAP) E $831 $307 $1,612 $352
Less: Income (loss) before income tax expense (benefit) related to notable items (11) (19) (31) (52)
Income before income tax expense, Underlying (non-GAAP) F $842 $326 $1,643 $404
Income tax expense and effective income tax rate, Underlying:
Income tax expense (GAAP) G $183 $54 $353 $65
Less: Income tax expense (benefit) related to notable items (3) (9) (8) (17)
Income tax expense, Underlying (non-GAAP) H $186 $54 $361 $82
Effective income tax rate (GAAP) G/E 21.96 % 17.69 % 21.86 % 18.51 %
Effective income tax rate, Underlying (non-GAAP) H/F 22.01 19.36 21.93 20.36
Net income, Underlying:
Net income (GAAP) I $648 $253 $1,259 $287
Add: Notable items, net of income tax benefit 8 10 23 35
Net income, Underlying (non-GAAP) J $656 $253 $1,282 $322
Net income available to common stockholders, Underlying:
Net income available to common stockholders (GAAP) K 616 225 $1,204 $237
Add: Notable items, net of income tax benefit 8 10 23 35
Net income available to common stockholders, Underlying (non-GAAP) L $624 $235 $1,227 $272
Return on average common equity and return on average common equity, Underlying:
Average common equity (GAAP) M $20,833 $20,446 $20,723 $20,335
Return on average common equity K/M 11.85 % 4.44 % 11.71 % 2.35 %
Return on average common equity, Underlying (non-GAAP)
L/M 12.02 4.63 11.93 2.69


Table 25: Reconciliations of Non-GAAP Measures
		As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)	Ref.		2022		2021









Total revenue, Underlying:
Total revenue (GAAP)	A		$1,645		$1,659
Less: Notable items			—		—
Total revenue, Underlying (non-GAAP)	B		$1,645		$1,659
Noninterest expense, Underlying:
Noninterest expense (GAAP)	C		$1,106		$1,018
Less: Notable items			48		20
Noninterest expense, Underlying (non-GAAP)	D		$1,058		$998
Pre-provision profit:
Total revenue (GAAP)	A		$1,645		$1,659
Less: Noninterest expense (GAAP)	C		1,106		1,018
Pre-provision profit (GAAP)			$539		$641
Pre-provision profit, Underlying
Total revenue, Underlying (non-GAAP)	B		$1,645		$1,659
Less: Noninterest expense, Underlying (non-GAAP)	D		1,058		998
Pre-provision profit, Underlying (non-GAAP)			$587		$661
Provision (benefit) for credit losses, Underlying:
Provision (benefit) for credit losses (GAAP)			$3		($140)
Less: Notable items			24		—
Provision (benefit) for credit losses, Underlying (non-GAAP)			($21)		($140)
Income before income tax expense, Underlying:
Income before income tax expense (GAAP)	E		$536		$781
Less: Income (loss) before income tax expense (benefit) related to notable items			(72)		(20)
Income before income tax expense, Underlying (non-GAAP)	F		$608		$801
Income tax expense and effective income tax rate, Underlying:
Income tax expense (GAAP)	G		$116		$170
Less: Income tax expense (benefit) related to notable items			(16)		(5)
Income tax expense, Underlying (non-GAAP)	H		$132		$175
Effective income tax rate (GAAP)	G/E		21.70	%	21.76	%
Effective income tax rate, Underlying (non-GAAP)	H/F		21.70		21.85
Net income, Underlying:
Net income (GAAP)	I		$420		$611
Add: Notable items, net of income tax benefit			56		15
Net income, Underlying (non-GAAP)	J		$476		$626
Net income available to common stockholders, Underlying:
Net income available to common stockholders (GAAP)	K		$396		$588
Add: Notable items, net of income tax benefit			56		15
Net income available to common stockholders, Underlying (non-GAAP)	L		$452		$603
Return on average common equity and return on average common equity, Underlying:
Average common equity (GAAP)	M		$20,981		$20,611
Return on average common equity	K/M		7.65	%	11.57	%
Return on average common equity, Underlying (non-GAAP)	L/M		8.75		11.85

Citizens Financial Group, Inc. | 4733

As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,
(in millions, except share, per share and ratio data) Ref. 2021 2020 2021 2020
Return on average tangible common equity and return on average tangible common equity, Underlying:
Average common equity (GAAP) M $20,833 $20,446 $20,723 $20,335
Less: Average goodwill (GAAP) 7,050 7,050 7,050 7,048
Less: Average other intangibles (GAAP) 53 65 55 66
Add: Average deferred tax liabilities related to goodwill (GAAP) 381 375 380 374
Average tangible common equity N $14,111 $13,706 $13,998 $13,595
Return on average tangible common equity K/N 17.50 % 6.62 % 17.34 % 3.51 %
Return on average tangible common equity, Underlying (non-GAAP) L/N 17.74 6.90 17.67 4.03
Return on average total assets and return on average total assets, Underlying:
Average total assets (GAAP) O $184,456 $179,793 $183,518 $173,485
Return on average total assets I/O 1.41 % 0.57 % 1.38 % 0.33 %
Return on average total assets, Underlying (non-GAAP) J/O 1.43 0.59 1.41 0.37
Return on average total tangible assets and return on average total tangible assets, Underlying:
Average total assets (GAAP) O $184,456 $179,793 $183,518 $173,485
Less: Average goodwill (GAAP) 7,050 7,050 7,050 7,048
Less: Average other intangibles (GAAP) 53 65 55 66
Add: Average deferred tax liabilities related to goodwill (GAAP) 381 375 380 374
Average tangible assets P $177,734 $173,053 $176,793 $166,745
Return on average total tangible assets I/P 1.46 % 0.59 % 1.44 % 0.35 %
Return on average total tangible assets, Underlying (non-GAAP) J/P 1.48 0.61 1.46 0.39
Efficiency ratio and efficiency ratio, Underlying:
Efficiency ratio C/A 61.63 % 55.91 % 61.49 % 58.43 %
Efficiency ratio, Underlying (non-GAAP) D/B 60.92 54.85 60.55 56.91
Operating leverage and operating leverage, Underlying:
(Decrease) increase in total revenue (8.00) % 7.49 % (4.08) % 5.94 %
Increase in noninterest expense 1.42 2.89 0.94 5.46
Operating leverage (9.42) % 4.60 % (5.02 %) 0.48 %
(Decrease) increase in total revenue, Underlying (non-GAAP) (8.00) % 7.49 % (4.08) % 5.94 %
Increase in noninterest expense, Underlying (non-GAAP) 2.18 1.62 2.05 5.46
Operating leverage, Underlying (non-GAAP) (10.18) % 5.87 % (6.13 %) 2.60 %
Tangible book value per common share:
Common shares - at period end (GAAP) Q 426,083,143 426,824,594 426,083,143 426,824,594
Common stockholders' equity (GAAP) $21,185 $20,453 $21,185 $20,453
Less: Goodwill (GAAP) 7,050 7,050 7,050 7,050
Less: Other intangible assets (GAAP) 52 63 52 63
Add: Deferred tax liabilities related to goodwill (GAAP) 383 376 383 376
Tangible common equity R $14,466 $13,716 $14,466 $13,716
Tangible book value per common share R/Q $33.95 $32.13 $33.95 $32.13
Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:
Average common shares outstanding - basic (GAAP) S 425,948,706 426,613,053 425,951,197 427,165,737
Average common shares outstanding - diluted (GAAP) T 427,561,572 427,566,920 427,668,242 428,292,580
Net income per average common share - basic (GAAP) K/S $1.45 $0.53 $2.83 $0.56
Net income per average common share - diluted (GAAP) K/T 1.44 0.53 2.81 0.55
Net income per average common share - basic, Underlying (non-GAAP) L/S 1.47 0.55 2.88 0.64
Net income per average common share - diluted, Underlying (non-GAAP) L/T 1.46 0.55 2.87 0.64
Dividend payout ratio and dividend payout ratio, Underlying:
Cash dividends declared and paid per common share U $0.39 $0.39 $0.78 $0.78
Dividend payout ratio U/(K/S) 27 % 74 % 28 % 140 %
Dividend payout ratio, Underlying (non-GAAP) U/(L/S) 27 71 27 122


		As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)	Ref.		2022		2021
Return on average tangible common equity and return on average tangible common equity, Underlying:
Average common equity (GAAP)	M		$20,981		$20,611
Less: Average goodwill (GAAP)			7,156		7,050
Less: Average other intangibles (GAAP)			80		57
Add: Average deferred tax liabilities related to goodwill (GAAP)			383		379
Average tangible common equity	N		$14,128		$13,883
Return on average tangible common equity	K/N		11.36	%	17.17	%
Return on average tangible common equity, Underlying (non-GAAP)	L/N		12.99		17.59
Return on average total assets and return on average total assets, Underlying:
Average total assets (GAAP)	O		$188,317		$182,569
Return on average total assets	I/O		0.90	%	1.36	%
Return on average total assets, Underlying (non-GAAP)	J/O		1.03		1.39
Return on average total tangible assets and return on average total tangible assets, Underlying:
Average total assets (GAAP)	O		$188,317		$182,569
Less: Average goodwill (GAAP)			7,156		7,050
Less: Average other intangibles (GAAP)			80		57
Add: Average deferred tax liabilities related to goodwill (GAAP)			383		379
Average tangible assets	P		$181,464		$175,841
Return on average total tangible assets	I/P		0.94	%	1.41	%
Return on average total tangible assets, Underlying (non-GAAP)	J/P		1.06		1.44
Efficiency ratio and efficiency ratio, Underlying:
Efficiency ratio	C/A		67.23	%	61.35	%
Efficiency ratio, Underlying (non-GAAP)	D/B		64.28		60.19
Operating leverage and operating leverage, Underlying:
(Decrease) increase in total revenue			(0.85)	%	0.07	%
Increase in noninterest expense			8.65		0.48
Operating leverage			(9.50	%)	(0.41)	%
(Decrease) increase in total revenue, Underlying (non-GAAP)			(0.85)	%	0.07	%
Increase in noninterest expense, Underlying (non-GAAP)			5.89		1.94
Operating leverage, Underlying (non-GAAP)			(6.74	%)	(1.87)	%
Tangible book value per common share:
Common shares - at period end (GAAP)	Q		423,031,985		425,930,159
Common stockholders' equity (GAAP)			$20,060		$20,688
Less: Goodwill (GAAP)			7,232		7,050
Less: Other intangible assets (GAAP)			115		54
Add: Deferred tax liabilities related to goodwill (GAAP)			387		380
Tangible common equity	R		$13,100		$13,964
Tangible book value per common share	R/Q		$30.97		$32.79
Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:
Average common shares outstanding - basic (GAAP)	S		422,401,747		425,953,716
Average common shares outstanding - diluted (GAAP)	T		424,670,871		427,880,530
Net income per average common share - basic (GAAP)	K/S		$0.94		$1.38
Net income per average common share - diluted (GAAP)	K/T		0.93		1.37
Net income per average common share - basic, Underlying (non-GAAP)	L/S		1.07		1.41
Net income per average common share - diluted, Underlying (non-GAAP)	L/T		1.07		1.41
Dividend payout ratio and dividend payout ratio, Underlying:
Cash dividends declared and paid per common share	U		$0.39		$0.39
Dividend payout ratio	U/(K/S)		41	%	28	%
Dividend payout ratio, Underlying (non-GAAP)	U/(L/S)		36		28

Citizens Financial Group, Inc. | 48

~~The following table presents computations of non-GAAP financial measures representing certain metrics excluding the impact of PPP loans used throughout the MD&A:~~

Table 34: Reconciliations of Non-GAAP Measures - Excluding PPP
(in millions, except share, per share and ratio data) Ref. June 30, 2021 December 31, 2020
Allowance for credit losses to total loans and leases, excluding the impact of PPP loans:
Total loans and leases (GAAP) A $122,581 $123,090
Less: PPP loans 3,479 4,155
Total loans and leases, excluding the impact of PPP loans (non-GAAP) B $119,102 $118,935
Allowance for credit losses (GAAP) C $2,081 $2,670
Allowance for credit losses to total loans and leases (GAAP) C/A 1.70 % 2.17 %
Allowance for credit losses to total loans and leases, excluding the impact of PPP loans (non-GAAP) C/B 1.75 % 2.24 %

~~The following table presents computations of non-GAAP financial measures representing certain metrics~~

~~excluding the impact of elevated cash levels used in “—Net Interest Income”:~~

Table 35: Reconciliations of Non-GAAP Measures - Excluding Elevated Cash
As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,
(in millions, except ratio data) Ref. 2021 2020 2021 2020
Net interest income, FTE, excluding the impact of elevated cash:
Net interest income, FTE (GAAP) A $1,126 $1,163 $2,246 $2,327
Less: Net interest income associated with elevated cash — — — —
Net interest income, FTE, excluding the impact of elevated cash (non-GAAP) B $1,126 $1,163 $2,246 $2,327
Average interest-earning assets, excluding the impact of elevated cash:
Total interest-earning assets (GAAP) C $166,333 $162,390 $165,433 $156,668
Less: Elevated cash 9,363 3,416 9,175 1,707
Total average interest-earning assets, excluding the impact of elevated cash (non-GAAP) D $156,970 $158,974 $156,258 $154,961
Day count E 91 91 181 182
Day count (year) F 365 366 365 366
Ratios:
Net interest margin, FTE (GAAP) A / C / E * F 2.72 % 2.88 % 2.74 % 2.99 %
Net interest margin, FTE, excluding the impact of elevated cash (non-GAAP) B / D / E * F 2.88 % 2.94 % 2.90 % 3.02 %

~~Citizens Financial Group, Inc. | 49~~34

ITEM 1. FINANCIAL STATEMENTS


						Page
Consolidated Balance Sheets (unaudited)						5136
Consolidated Statements of Operations (unaudited)						5237
Consolidated Statements of Comprehensive Income (unaudited)						5338
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)						5439
Consolidated Statements of Cash Flows (unaudited)						5640
Notes to Consolidated Financial Statements (unaudited)						5741
Note 1 - Basis of Presentation						5741
N ote 2 - Acquisitions						41
Note 23 - Securities						5742
Note 34 - Loans and Leases						6045
Note 45 - Allowance for Credit Losses, ~~Nonaccruing~~Nonaccrual Loans and Leases, and Concentrations of Credit Risk						6145
Note 56 - Mortgage Banking and Other						7053


Note 67 - Variable Interest Entities						7254
Note 78 - Borrowed Funds						7255
Note 89 - Derivatives						7456
Note 910 - Accumulated Other Comprehensive Income (Loss)						7759

Note 1011 - Stockholders’ Equity						7860
Note 1112 - Commitments and Contingencies						7960
Note 1213 - Fair Value Measurements						8062
Note 1314 - Noninterest Income						8666

Note 1415 - Other Operating Expense						8666

Note 1516 - Earnings Per Share						8767

Note 1617 - Business Operating Segments						8767
~~Note 17~~N ote 18 - ~~Subsequent~~Su bsequent Events						8968

Citizens Financial Group, Inc. | 5035

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data)	(in millions, except share data)	June 30, 2021	December 31, 2020	(in millions, except share data)	March 31, 2022	December 31, 2021
ASSETS:	ASSETS:			ASSETS:
Cash and due from banks	Cash and due from banks	$1,035	$1,037	Cash and due from banks	$1,223	$1,155
Interest-bearing cash and due from banks	Interest-bearing cash and due from banks	11,606	11,696	Interest-bearing cash and due from banks	8,713	8,003
Interest-bearing deposits in banks	Interest-bearing deposits in banks	401	306	Interest-bearing deposits in banks	685	316
Debt securities available for sale, at fair value (including $568 and $549 pledged to creditors, respectively)(1)		24,583	22,942
Debt securities held to maturity (fair value of $2,790 and $3,357 respectively, and including $124 and $144 pledged to creditors, respectively)(1)		2,711	3,235
Debt securities available for sale, at fair value (including $865 and $640 pledged to creditors, respectively)(1)				Debt securities available for sale, at fair value (including $865 and $640 pledged to creditors, respectively)(1)	25,319	26,067
Debt securities held to maturity (fair value of $2,011 and $2,289 respectively, and including $70 and $77 pledged to creditors, respectively)(1)				Debt securities held to maturity (fair value of $2,011 and $2,289 respectively, and including $70 and $77 pledged to creditors, respectively)(1)	2,056	2,242
Loans held for sale, at fair value	Loans held for sale, at fair value	3,616	3,564	Loans held for sale, at fair value	1,717	2,733
Other loans held for sale	Other loans held for sale	82	439	Other loans held for sale	99	735
Loans and leases	Loans and leases	122,581	123,090	Loans and leases	131,305	128,163
Less: Allowance for loan and lease losses	Less: Allowance for loan and lease losses	(1,947)	(2,443)	Less: Allowance for loan and lease losses	(1,720)	(1,758)
Net loans and leases	Net loans and leases	120,634	120,647	Net loans and leases	129,585	126,405
Derivative assets	Derivative assets	1,655	1,915	Derivative assets	1,675	1,216
Premises and equipment, net	Premises and equipment, net	735	759	Premises and equipment, net	793	768
Bank-owned life insurance	Bank-owned life insurance	2,268	1,756	Bank-owned life insurance	2,960	2,843
Goodwill	Goodwill	7,050	7,050	Goodwill	7,232	7,116
Other assets	Other assets	8,728	8,003	Other assets	10,040	8,810
TOTAL ASSETS	TOTAL ASSETS	$185,104	$183,349	TOTAL ASSETS	$192,097	$188,409
LIABILITIES AND STOCKHOLDERS’ EQUITY:	LIABILITIES AND STOCKHOLDERS’ EQUITY:			LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:	LIABILITIES:			LIABILITIES:
Deposits:	Deposits:			Deposits:
Noninterest-bearing	Noninterest-bearing	$47,480	$43,831	Noninterest-bearing	$50,113	$49,443
Interest-bearing	Interest-bearing	103,156	103,333	Interest-bearing	108,663	104,918
Total deposits	Total deposits	150,636	147,164	Total deposits	158,776	154,361
Short-term borrowed funds	Short-term borrowed funds	62	243	Short-term borrowed funds	25	74
Derivative liabilities	Derivative liabilities	144	128	Derivative liabilities	635	197
Deferred taxes, net		720	629
Long-term borrowed funds	Long-term borrowed funds	6,957	8,346	Long-term borrowed funds	5,894	6,932
Other liabilities	Other liabilities	3,386	4,166	Other liabilities	4,693	3,425
TOTAL LIABILITIES	TOTAL LIABILITIES	161,905	160,676	TOTAL LIABILITIES	170,023	164,989
Contingencies (refer to Note 11)		0	0
Commitments and Contingencies (refer to Note 12)				Commitments and Contingencies (refer to Note 12)	0	0
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:			STOCKHOLDERS’ EQUITY:
Preferred stock:	Preferred stock:			Preferred stock:
$25.00 par value,100,000,000 shares authorized; 2,050,000 and 2,000,000 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		2,014	1,965
$25.00 par value,100,000,000 shares authorized; 2,050,000 shares issued and outstanding at March 31, 2022 and December 31, 2021				$25.00 par value,100,000,000 shares authorized; 2,050,000 shares issued and outstanding at March 31, 2022 and December 31, 2021	2,014	2,014
Common stock:	Common stock:			Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 570,994,369 shares issued and 426,083,143 shares outstanding at June 30, 2021 and 569,876,133 shares issued and 427,209,831 shares outstanding at December 31, 2020		6	6
$0.01 par value, 1,000,000,000 shares authorized; 572,153,923 shares issued and 423,031,985 shares outstanding at March 31, 2022 and 571,259,135 shares issued and 422,137,197 shares outstanding at December 31, 2021				$0.01 par value, 1,000,000,000 shares authorized; 572,153,923 shares issued and 423,031,985 shares outstanding at March 31, 2022 and 571,259,135 shares issued and 422,137,197 shares outstanding at December 31, 2021	6	6
Additional paid-in capital	Additional paid-in capital	18,964	18,940	Additional paid-in capital	19,021	19,005
Retained earnings	Retained earnings	7,314	6,445	Retained earnings	8,209	7,978
Treasury stock, at cost, 144,911,226 and 142,666,302 shares at June 30, 2021 and December 31, 2020, respectively		(4,718)	(4,623)
Treasury stock, at cost, 149,121,938 shares at March 31, 2022 and December 31, 2021				Treasury stock, at cost, 149,121,938 shares at March 31, 2022 and December 31, 2021	(4,918)	(4,918)
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(381)	(60)	Accumulated other comprehensive income (loss)	(2,258)	(665)
TOTAL STOCKHOLDERS’ EQUITY	TOTAL STOCKHOLDERS’ EQUITY	$23,199	$22,673	TOTAL STOCKHOLDERS’ EQUITY	$22,074	$23,420
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$185,104	$183,349	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$192,097	$188,409

(1) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

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

Citizens Financial Group, Inc. | 5136

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions, except share and per share data)	(in millions, except share and per share data)	2021	2020	2021	2020	(in millions, except share and per share data)		2022	2021
INTEREST INCOME:	INTEREST INCOME:					INTEREST INCOME:
Interest and fees on loans and leases	Interest and fees on loans and leases	$1,058	$1,192	$2,119	$2,494	Interest and fees on loans and leases		$1,048	$1,061
Interest and fees on loans held for sale, at fair value		24	20	42	35
Interest and fees on loans held for sale						Interest and fees on loans held for sale		16	18
Interest and fees on other loans held for sale	Interest and fees on other loans held for sale	2	7	8	16	Interest and fees on other loans held for sale		7	6
Investment securities	Investment securities	124	130	252	277	Investment securities		138	128
Interest-bearing deposits in banks	Interest-bearing deposits in banks	3	1	6	6	Interest-bearing deposits in banks		4	3
Total interest income	Total interest income	1,211	1,350	2,427	2,828	Total interest income		1,213	1,216
INTEREST EXPENSE:	INTEREST EXPENSE:					INTEREST EXPENSE:
Deposits	Deposits	42	124	92	351	Deposits		25	50
Short-term borrowed funds		0	0	0	1

Long-term borrowed funds	Long-term borrowed funds	45	66	94	156	Long-term borrowed funds		41	49
Total interest expense	Total interest expense	87	190	186	508	Total interest expense		66	99
Net interest income	Net interest income	1,124	1,160	2,241	2,320	Net interest income		1,147	1,117
Provision for credit losses		(213)	464	(353)	1,064
Net interest income after provision for credit losses		1,337	696	2,594	1,256
Provision (benefit) for credit losses						Provision (benefit) for credit losses		3	(140)
Net interest income after provision (benefit) for credit losses						Net interest income after provision (benefit) for credit losses		1,144	1,257
NONINTEREST INCOME:	NONINTEREST INCOME:					NONINTEREST INCOME:
Capital markets fees						Capital markets fees		93	81
Service charges and fees						Service charges and fees		98	99
Mortgage banking fees	Mortgage banking fees	85	276	250	435	Mortgage banking fees		69	165
Service charges and fees		100	84	199	202
Capital markets fees		91	61	172	104
Card fees	Card fees	64	48	119	104	Card fees		60	55
Trust and investment services fees	Trust and investment services fees	60	45	118	98	Trust and investment services fees		61	58
Letter of credit and loan fees	Letter of credit and loan fees	38	31	76	65	Letter of credit and loan fees		38	38
Foreign exchange and interest rate products		28	34	56	58
Foreign exchange and derivative products						Foreign exchange and derivative products		51	28
Securities gains, net	Securities gains, net	3	3	6	3	Securities gains, net		4	3

Other income	Other income	16	8	31	18	Other income		24	15
Total noninterest income	Total noninterest income	485	590	1,027	1,087	Total noninterest income		498	542
NONINTEREST EXPENSE:	NONINTEREST EXPENSE:					NONINTEREST EXPENSE:
Salaries and employee benefits	Salaries and employee benefits	524	513	1,072	1,062	Salaries and employee benefits		594	548
Equipment and software	Equipment and software	155	142	307	275	Equipment and software		150	152
Outside services	Outside services	137	131	276	266	Outside services		169	139
Occupancy	Occupancy	82	82	170	166	Occupancy		83	88
Other operating expense	Other operating expense	93	111	184	222	Other operating expense		110	91
Total noninterest expense	Total noninterest expense	991	979	2,009	1,991	Total noninterest expense		1,106	1,018
Income before income tax expense	Income before income tax expense	831	307	1,612	352	Income before income tax expense		536	781
Income tax expense	Income tax expense	183	54	353	65	Income tax expense		116	170
NET INCOME	NET INCOME	$648	$253	$1,259	$287	NET INCOME		$420	$611
Net income available to common stockholders	Net income available to common stockholders	$616	$225	$1,204	$237	Net income available to common stockholders		$396	$588
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:					Weighted-average common shares outstanding:
Basic	Basic	425,948,706	426,613,053	425,951,197	427,165,737	Basic		422,401,747	425,953,716
Diluted	Diluted	427,561,572	427,566,920	427,668,242	428,292,580	Diluted		424,670,871	427,880,530
Per common share information:	Per common share information:					Per common share information:
Basic earnings	Basic earnings	$1.45	$0.53	$2.83	$0.56	Basic earnings		$0.94	$1.38
Diluted earnings	Diluted earnings	1.44	0.53	2.81	0.55	Diluted earnings		0.93	1.37

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

Citizens Financial Group, Inc. | 5237

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Net income	Net income	$648	$253	$1,259	$287	Net income		$420	$611
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of $16, $(3), $9 and $30, respectively		46	(8)	25	88
Reclassification of net derivative (gains) losses included in net income, net of income taxes of $(10), $(11), $(19) and $(12), respectively		(27)	(34)	(52)	(37)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of $3, $16, $(97) and $145, respectively		10	49	(297)	449
Reclassification of net debt securities (gains) losses to net income, net of income taxes of $0, $(1), $(1) and $(1), respectively		(3)	(2)	(5)	(2)
Amortization of actuarial loss, net of income taxes of $1, $0, $1 and $1, respectively		4	4	8	7
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of ($170) and ($7), respectively						Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of ($170) and ($7), respectively		(491)	(21)
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of ($8) and ($9), respectively						Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of ($8) and ($9), respectively		(24)	(25)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of ($357) and ($100), respectively						Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of ($357) and ($100), respectively		(1,077)	(307)
Reclassification of net debt securities (gains) losses to net income, net of income taxes of ($1) and ($1), respectively						Reclassification of net debt securities (gains) losses to net income, net of income taxes of ($1) and ($1), respectively		(3)	(2)
Reclassification of actuarial loss to net income, net of income taxes of $1 and $0, respectively						Reclassification of actuarial loss to net income, net of income taxes of $1 and $0, respectively		2	4
Total other comprehensive income (loss), net of income taxes	Total other comprehensive income (loss), net of income taxes	30	9	(321)	505	Total other comprehensive income (loss), net of income taxes		(1,593)	(351)
Total comprehensive income (loss)	Total comprehensive income (loss)	$678	$262	$938	$792	Total comprehensive income (loss)		($1,173)	$260

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

Citizens Financial Group, Inc. | 5338

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)~~

Preferred
Stock Common
Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Income (Loss) Total
(in millions) Shares Amount Shares Amount
Balance at April 1, 2020 2 $1,570 427 $6 $18,901 $6,011 ($4,623) $85 $21,950
Dividends to common stockholders — — — — — (168) — — (168)
Dividends to preferred stockholders — — — — — (28) — — (28)
Preferred stock issued — 395 — — — — — — 395
Treasury stock purchased — — — — — — — — 0
Share-based compensation plans — — — — 1 — — — 1
Employee stock purchase plan purchased — — — — 6 — — — 6
Total comprehensive income (loss):
Net income — — — — — 253 — — 253
Other comprehensive income (loss) — — — — — — — 9 9
Total comprehensive income (loss) — — — — — 253 — 9 262
Balance at June 30, 2020 2 $1,965 427 $6 $18,908 $6,068 ($4,623) $94 $22,418
Balance at April 1, 2021 2 $1,965 426 $6 $18,945 $6,866 ($4,718) ($411) $22,653
Dividends to common stockholders — — — — — (168) — — (168)
Dividends to preferred stockholders — — — — — (32) — — (32)
Preferred stock issued — 296 — — — — — — 296
Preferred stock called — (247) — — — — — — (247)
Share-based compensation plans — — — — 13 — — — 13
Employee stock purchase plan purchased — — — — 6 — — — 6
Total comprehensive income (loss):
Net income — — — — — 648 — — 648
Other comprehensive income (loss) — — — — — — — 30 30
Total comprehensive income (loss) — — — — — 648 — 30 678
Balance at Balance at June 30, 2021 2 $2,014 426 $6 $18,964 $7,314 ($4,718) ($381) $23,199

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

~~Citizens Financial Group, Inc. | 54~~

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)


		Preferred Stock		Common Stock		Additional Paid-in Capital	Retained Earnings	Treasury Stock, at Cost	Accumulated Other Comprehensive Income (Loss)	Total		Preferred Stock		Common Stock		Additional Paid-in Capital	Retained Earnings	Treasury Stock, at Cost	Accumulated Other Comprehensive Income (Loss)	Total
(in millions)	(in millions)	Shares	Amount	Shares	Amount						(in millions)	Shares	Amount	Shares	Amount
Balance at January 1, 2020		2	1,570	433	6	18,891	6,498	(4,353)	(411)	22,201
Dividends to common stockholders		—	—	—	—	—	(336)	—	—	(336)
Dividends to preferred stockholders		—	—	—	—	—	(50)	—	—	(50)
Preferred stock issued		—	395	—	—	—	—	—	—	395
Treasury stock purchased		—	—	(7)	—	—	—	(270)	—	(270)
Share-based compensation plans		—	—	1	—	7	—	0	—	7
Employee stock purchase plan purchased		—	—	—	—	10	—	—	—	10
Cumulative effect of change in accounting principle		—	—	—	—	—	(331)	—	—	(331)
Total comprehensive income (loss):
Net income		—	—	—	—	—	287	—	—	287
Other comprehensive income (loss)		—	—	—	—	—	—	—	505	505
Total comprehensive income (loss)		—	—	—	—	—	287	—	505	792
Balance at June 30, 2020		2	1,965	427	6	18,908	6,068	(4,623)	94	22,418
Balance at January 1, 2021	Balance at January 1, 2021	2	$1,965	427	$6	$18,940	$6,445	($4,623)	($60)	$22,673	Balance at January 1, 2021	2	$1,965	427	$6	$18,940	$6,445	($4,623)	($60)	$22,673
Dividends to common stockholders	Dividends to common stockholders	—	—	—	—	—	(335)	—	—	(335)	Dividends to common stockholders	—	—	—	—	—	(167)	—	—	(167)
Dividends to preferred stockholders	Dividends to preferred stockholders	—	—	—	—	—	(55)	—	—	(55)	Dividends to preferred stockholders	—	—	—	—	—	(23)	—	—	(23)
Preferred stock issued		—	296	—	—	—	—	—	—	296
Preferred stock called		—	(247)	—	—	—	—	—	—	(247)

Treasury stock purchased	Treasury stock purchased	—	—	(2)	—	—	—	(95)	—	(95)	Treasury stock purchased	—	—	(2)	—	—	—	(95)	—	(95)
Share-based compensation plans	Share-based compensation plans	—	—	1	—	13	—	0	—	13	Share-based compensation plans	—	—	1	—	—	—	—	—	—
Employee stock purchase plan purchased		—	—	—	—	11	—	—	—	11
Employee stock purchase plan											Employee stock purchase plan	—	—	—	—	5	—	—	—	5

Total comprehensive income (loss):	Total comprehensive income (loss):										Total comprehensive income (loss):
Net income	Net income	—	—	—	—	—	1,259	—	—	1,259	Net income	—	—	—	—	—	611	—	—	611
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—	—	—	—	—	—	(321)	(321)	Other comprehensive income (loss)	—	—	—	—	—	—	—	(351)	(351)
Total comprehensive income (loss)	Total comprehensive income (loss)	—	—	—	—	—	1,259	—	(321)	938	Total comprehensive income (loss)	—	—	—	—	—	611	—	(351)	260
Balance at June 30, 2021		2	$2,014	426	$6	$18,964	$7,314	($4,718)	($381)	$23,199
Balance at March 31, 2021											Balance at March 31, 2021	2	$1,965	426	$6	$18,945	$6,866	($4,718)	($411)	$22,653
Balance at January 1, 2022											Balance at January 1, 2022	2	$2,014	422	$6	$19,005	$7,978	($4,918)	($665)	$23,420
Dividends to common stockholders											Dividends to common stockholders	—	—	—	—	—	(165)	—	—	(165)
Dividends to preferred stockholders											Dividends to preferred stockholders	—	—	—	—	—	(24)	—	—	(24)

Share-based compensation plans											Share-based compensation plans	—	—	1	—	10	—	—	—	10
Employee stock purchase plan											Employee stock purchase plan	—	—	—	—	6	—	—	—	6

Total comprehensive income (loss):											Total comprehensive income (loss):
Net income											Net income	—	—	—	—	—	420	—	—	420
Other comprehensive income (loss)											Other comprehensive income (loss)	—	—	—	—	—	—	—	(1,593)	(1,593)
Total comprehensive income (loss)											Total comprehensive income (loss)	—	—	—	—	—	420	—	(1,593)	(1,173)
Balance at March 31, 2022											Balance at March 31, 2022	2	$2,014	423	$6	$19,021	$8,209	($4,918)	($2,258)	$22,074

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

Citizens Financial Group, Inc. | 5539

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,
(in millions) 2021 2020
OPERATING ACTIVITIES
Net income $1,259 $287
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision for credit losses (353) 1,064
Net change in loans held for sale 322 (737)
Depreciation, amortization and accretion 317 316
Deferred income taxes 199 (208)
Share-based compensation 35 23
Net gain on sales of:
Debt securities (6) (3)
Premises and equipment (1) 0
Net (increase) decrease in other assets (2,129) (2,454)
Net increase (decrease) in other liabilities 247 299
Net change due to operating activities (110) (1,413)
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale (6,413) (3,308)
Proceeds from maturities and paydowns of debt securities available for sale 4,321 2,521
Proceeds from sales of debt securities available for sale 104 0
Proceeds from maturities and paydowns of debt securities held to maturity 530 349
Net (increase) decrease in interest-bearing deposits in banks (95) (178)
Acquisitions, net of cash acquired 0 (3)
Net (increase) decrease in loans and leases 497 (7,014)
Capital expenditures, net (32) (53)
Purchase of bank-owned life insurance (500) 0
Other (115) 87
Net change due to investing activities (1,703) (7,599)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,472 18,305
Net increase (decrease) in short-term borrowed funds (183) (18)
Proceeds from issuance of long-term borrowed funds 0 8,309
Repayments of long-term borrowed funds (1,357) (13,253)
Treasury stock purchased (95) (270)
Net proceeds from issuance of preferred stock 296 395
Dividends paid to common stockholders (335) (336)
Dividends paid to preferred stockholders (55) (45)
Premium paid to exchange subordinated debt (1) 0
Payments of employee tax withholding for share-based compensation (21) (15)
Net change due to financing activities 1,721 13,072
Net change in cash and cash equivalents (1)
(92) 4,060
Cash and cash equivalents at beginning of period (1)
12,733 3,386
Cash and cash equivalents at end of period (1)
$12,641 $7,446


	Three Months Ended March 31,
(in millions)	2022	2021
OPERATING ACTIVITIES
Net income	$420	$611
Adjustments to reconcile net income to net change in cash due to operating activities:
Provision (benefit) for credit losses	3	(140)
Net change in loans held for sale	898	(622)
Depreciation, amortization and accretion	67	152
Deferred income taxes	(47)	80
Share-based compensation	33	22
Net gain on sales of assets	(4)	(3)
Net (increase) decrease in other assets	(1,216)	(773)
Net increase (decrease) in other liabilities	1,400	(17)
Net change due to operating activities	1,554	(690)
INVESTING ACTIVITIES
Investment securities:
Purchases of debt securities available for sale	(2,656)	(4,256)
Proceeds from maturities and paydowns of debt securities available for sale	1,203	2,281
Proceeds from sales of debt securities available for sale	704	54

Proceeds from maturities and paydowns of debt securities held to maturity	190	241

Net (increase) decrease in interest-bearing deposits in banks	(369)	(2)

Acquisitions, net of cash acquired	(143)	—
Purchases of loans	(718)	(478)
Sales of loans	305	326
Net (increase) decrease in loans and leases	(2,196)	1,194
Capital expenditures, net	(51)	(10)
Purchase of bank-owned life insurance	(100)	(375)
Other	(83)	(47)
Net change due to investing activities	(3,914)	(1,072)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	4,415	4,185
Net increase (decrease) in short-term borrowed funds	(52)	(176)

Repayments of long-term borrowed funds	(1,004)	(4)
Treasury stock purchased	—	(95)


Dividends declared and paid to common stockholders	(165)	(167)
Dividends declared and paid to preferred stockholders	(33)	(32)
Premium paid to exchange debt	—	(1)
Payments of employee tax withholding for share-based compensation	(23)	(21)
Net change due to financing activities	3,138	3,689
Net change in cash and cash equivalents(1)	778	1,927
Cash and cash equivalents at beginning of period(1)	9,158	12,733
Cash and cash equivalents at end of period(1)	$9,936	$14,660

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

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

Citizens Financial Group, Inc. | 5640

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

Basis of Presentation

The unaudited interim Consolidated Financial Statements, including the Notes presented in this document, ~~of Citizens Financial Group, Inc.,~~ have been prepared in accordance with GAAP interim reporting requirements and, therefore, do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. ~~These~~The unaudited interim Consolidated Financial Statements and Notes presented in this document should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s ~~2020~~2021 Form 10-K. The Company’s principal business activity is banking, conducted through its banking subsidiary CBNA.

The unaudited interim Consolidated Financial Statements include the accounts of ~~the Company~~Citizens and subsidiaries in which ~~the Company~~Citizens has a controlling financial interest. All intercompany transactions and balances have been eliminated. The Company has evaluated its unconsolidated entities and does not believe that any entity in which it has an interest, but does not currently consolidate, meets the requirements to be consolidated as a variable interest entity. The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the ACL.

Significant Accounting Policies

For further information regarding the Company’s significant accounting policies, see Note 1 in the Company’s ~~2020~~2021 Form 10-K.

NOTE 2 - ACQUISITIONS

Acquisition of HSBC

On February 18, 2022, CBNA closed on its previously announced HSBC transaction, which included 66 locations in the New York City metropolitan area, 9 locations in the Mid-Atlantic/Washington D.C. area, and 5 locations in Southeast Florida. The acquired liabilities and assets included approximately $6.3 billion in deposits and $1.5 billion in loans. The transaction resulted in an estimated increase to goodwill of approximately $120 million, which was allocated to the Consumer business segment as of March 31, 2022.

The results of HSBC’s operations are included in the Company’s consolidated statement of operations for the three months ended March 31, 2022 from the closing date of the HSBC transaction. The impact of these results, along with supplemental pro forma information as if the HSBC transaction had occurred on January 1, 2021, are not material to the Company’s Consolidated Statements of Operations.

The HSBC transaction has been accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from HSBC were recorded at fair value as of the transaction date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. Fair value estimates related to the assets acquired and liabilities assumed from HSBC are subject to adjustment for up to one year after the closing date. Valuations subject to adjustment include, but are not limited to, loans, deposits, certain other assets and the core deposit intangible, although any such adjustments are not expected to be material. The fair value of the assets acquired and liabilities assumed from HSBC are not material to the Company’s Consolidated Balance Sheet as of March 31, 2022.

Citizens Financial Group, Inc. | 41

Acquisition of Investors

On April 6, 2022, Citizens completed its previously announced merger with Investors pursuant to an agreement and plan on merger entered into on July 28, 2021. Pursuant to the terms of the agreement, Investors merged with Citizens, with Citizens as the surviving corporation, and Investors Bank, a New Jersey state-chartered bank and wholly-owned subsidiary of Investors, merged with CBNA, with CBNA as the surviving bank. The acquisition of Investors builds our 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. On March 31, 2022, Investors’ Consolidated Balance Sheet had approximately $23 billion of loans and $20 billion of deposits.

Upon closing of the merger, each share of Investors common stock was converted into 0.297 of a share of the Company’s common stock. In addition, outstanding restricted shares and stock options previously granted pursuant to Investors equity compensation plans were converted into Company restricted shares and stock options subject to their original terms and conditions. As a result, the transaction resulted in an increase of approximately 73.6 million basic and diluted shares. The Company also paid $355 million to shareholders of Investors, who received $1.46 in cash for each share of Investors they owned.

The Investors transaction will be accounted for as a business combination. Accordingly, the purchase price will be allocated to the assets acquired and liabilities assumed based on their fair values as of the merger effective date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. Given the close proximity between the transaction closing date and the filing of the Company’s Quarterly Report on Form 10-Q, the preliminary purchase price allocation is not yet complete. Management expects to complete the initial accounting for its merger with Investors, including the purchase price allocation, later in the second quarter of 2022. As a result, the estimated fair values of the assets acquired and liabilities assumed, the valuation techniques and inputs used to measure and develop the fair values, and any goodwill recorded will be disclosed in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, along with supplemental pro forma financial information as if the merger with Investors had occurred as of January 1, 2021.

NOTE 3 - SECURITIES

The following table presents the major components of securities at amortized cost and fair value:

June 30, 2021 December 31, 2020
(in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
U.S. Treasury and other $11 $0 $0 $11 $11 $0 $0 $11
State and political subdivisions 3 0 0 3 3 0 0 3
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities 23,960 354 (202) 24,112 21,954 571 (19) 22,506
Other/non-agency 267 13 0 280 396 26 0 422
Total mortgage-backed securities, at fair value 24,227 367 (202) 24,392 22,350 597 (19) 22,928
Collateralized loan obligations, at fair value 177 0 0 177 0 0 0 0
Total debt securities available for sale, at fair value $24,418 $367 ($202) $24,583 $22,364 $597 ($19) $22,942
Federal agencies and U.S. government sponsored entities $1,887 $77 $0 $1,964 $2,342 $122 $0 $2,464
Total mortgage-backed securities, at cost 1,887 77 0 1,964 2,342 122 0 2,464
Asset-backed securities, at cost 824 2 0 826 893 0 0 893
Total debt securities held to maturity $2,711 $79 $0 $2,790 $3,235 $122 $0 $3,357
Equity securities, at cost $602 $— $— $602 $604 $— $— $604
Equity securities, at fair value 80 — — 80 66 — — 66

~~Citizens Financial Group, Inc. | 57~~


	March 31, 2022				December 31, 2021
(in millions)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
U.S. Treasury and other	$158	$—	($4)	$154	$11	$—	$—	$11
State and political subdivisions	2	—	—	2	2	—	—	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	25,074	4	(1,580)	23,498	24,607	210	(375)	24,442
Other/non-agency	412	2	(13)	401	397	9	(1)	405
Total mortgage-backed securities	25,486	6	(1,593)	23,899	25,004	219	(376)	24,847
Collateralized loan obligations	1,276	—	(12)	1,264	1,208	—	(1)	1,207
Total debt securities available for sale, at fair value	$26,922	$6	($1,609)	$25,319	$26,225	$219	($377)	$26,067
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	$1,370	$3	($18)	$1,355	$1,505	$52	$—	$1,557
Total mortgage-backed securities	1,370	3	(18)	1,355	1,505	52	—	1,557
Asset-backed securities	686	—	(30)	656	737	2	(7)	732
Total debt securities held to maturity	$2,056	$3	($48)	$2,011	$2,242	$54	($7)	$2,289
Equity securities, at cost	$611	$—	$—	$611	$624	$—	$—	$624
Equity securities, at fair value	130	—	—	130	109	—	—	109

Accrued interest receivable on debt securities totaled ~~$54~~$59 million and ~~$55~~$56 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and is included in other assets in the Consolidated Balance Sheets.

Citizens Financial Group, Inc. | 42

The following table presents the amortized cost and fair value of debt securities by contractual maturity as of ~~June 30, 2021.~~March 31, 2022. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.

June 30, 2021
Distribution of Maturities
(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 $11 $0 $0 $0 $11
State and political subdivisions 0 0 0 3 3
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 6 42 1,861 22,051 23,960
Other/non-agency 0 0 0 267 267
Collateralized loan obligations 0 0 0 177 177
Total debt securities available for sale 17 42 1,861 22,498 24,418
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 0 0 0 1,887 1,887
Asset-backed securities 0 0 824 0 824
Total debt securities held to maturity 0 0 824 1,887 2,711
Total amortized cost of debt securities $17 $42 $2,685 $24,385 $27,129
Fair value:
U.S. Treasury and other $11 $0 $0 $0 $11
State and political subdivisions 0 0 0 3 3
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 6 44 1,916 22,146 24,112
Other/non-agency 0 0 0 280 280
Collateralized loan obligations 0 0 0 177 177
Total debt securities available for sale 17 44 1,916 22,606 24,583
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 0 0 0 1,964 1,964
Asset-backed securities 0 0 826 0 826
Total debt securities held to maturity 0 0 826 1,964 2,790
Total fair value of debt securities $17 $44 $2,742 $24,570 $27,373


	Distribution of Maturities
(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	$11	$49	$98	$—	$158
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4	63	1,902	23,105	25,074
Other/non-agency	—	—	—	412	412
Collateralized loan obligations	—	—	25	1,251	1,276
Total debt securities available for sale	15	112	2,025	24,770	26,922
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	1,370	1,370
Asset-backed securities	—	—	686	—	686
Total debt securities held to maturity	—	—	686	1,370	2,056
Total amortized cost of debt securities	$15	$112	$2,711	$26,140	$28,978

Fair value:
U.S. Treasury and other	$11	$48	$95	$—	$154
State and political subdivisions	—	—	—	2	2
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	4	62	1,866	21,566	23,498
Other/non-agency	—	—	—	401	401
Collateralized loan obligations	—	—	24	1,240	1,264
Total debt securities available for sale	15	110	1,985	23,209	25,319
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—	—	—	1,355	1,355
Asset-backed securities	—	—	656	—	656
Total debt securities held to maturity	—	—	656	1,355	2,011
Total fair value of debt securities	$15	$110	$2,641	$24,564	$27,330

Taxable interest income from investment securities as presented in the Consolidated Statements of Operations was ~~$124~~$138 million and ~~$130~~$128 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $252 million and $277 million for the six months ended June 30, 2021 and 2020,~~ respectively.

The following table presents realized gains and losses on securities:

Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Gains on sale of debt securities $3 $3 $6 $3
Losses on sale of debt securities 0 0 0 0
Debt securities gains, net $3 $3 $6 $3

~~Citizens Financial Group, Inc. | 58~~


	Three Months Ended March 31,
(in millions)		2022	2021
Gains on sale of securities		$7	$3
Losses on sale of securities		(3)	—
Securities gains, net		$4	$3

The following table presents the amortized cost and fair value of debt securities pledged:

June 30, 2021 December 31, 2020
(in millions) Amortized Cost Fair Value Amortized Cost Fair Value
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law $4,996 $5,028 $3,818 $3,937
Pledged against FHLB borrowed funds 266 280 394 423
Pledged against repurchase agreements 49 52 224 231


	March 31, 2022		December 31, 2021
(in millions)	Amortized Cost	Fair Value	Amortized Cost	Fair Value
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	$4,733	$4,415	$4,816	$4,782
Pledged as collateral for FHLB borrowing capacity	430	420	325	333
Pledged against repurchase agreements	—	—	1	1

The Company regularly enters into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. These repurchase agreements are typically short-term in nature and are accounted for as secured borrowed funds in the Company’s Consolidated Balance Sheets. The Company

Citizens Financial Group, Inc. | 43

recognized 0no offsetting of short-term receivables or payables as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. The Company offsets certain derivative assets and derivative liabilities in the Consolidated Balance Sheets. For further information see Note 8.9.

~~Securitizations of mortgage loans retained in the investment portfolio were $82 million and $163 million for the three and six months ended June 30, 2021, respectively.~~ There were 0no securitizations of mortgage loans retained in the investment portfolio for the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2022, and $81 million for the three months ended March 31, 2021. These securitizations include a substantive guarantee by a third party. In 2021, the guarantors were FNMA, FHLMC and GNMA. The debt securities received from the guarantors are classified as AFS.

Impairment

AsThe Company evaluated its existing HTM portfolio as of ~~June 30, 2021, the Company~~March 31, 2022 and concluded that ~~70%~~67% of HTM securities met the zero expected credit loss criteria; therefore, no ACL was recognized. ~~For the remaining 30%, the lifetime~~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 ~~security.~~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 ~~June 30, 2021.~~March 31, 2022.

The following tables present AFS ~~mortgage-backed~~ debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:


		June 30, 2021							March 31, 2022
		Less than 12 Months		12 Months or Longer		Total			Less than 12 Months		12 Months or Longer		Total
(dollars in millions)	(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
U.S. Treasury and other								U.S. Treasury and other	$154	($4)	$—	$—	$154	($4)
Mortgage-backed securities:								Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	Federal agencies and U.S. government sponsored entities	$10,916	($200)	$92	($2)	$11,008	($202)	Federal agencies and U.S. government sponsored entities	16,512	(883)	6,265	(697)	22,777	(1,580)

Other/non-agency								Other/non-agency	268	(13)	—	—	268	(13)
Total mortgage-backed securities								Total mortgage-backed securities	16,780	(896)	6,265	(697)	23,045	(1,593)
Collateralized loan obligations								Collateralized loan obligations	1,237	(12)	—	—	1,237	(12)
Total								Total	$18,171	($912)	$6,265	($697)	$24,436	($1,609)


		December 31, 2020							December 31, 2021
		Less than 12 Months		12 Months or Longer		Total			Less than 12 Months		12 Months or Longer		Total
(dollars in millions)	(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	(dollars in millions)	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses
Mortgage-backed securities:								Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	Federal agencies and U.S. government sponsored entities	$1,991	($19)	$0	$0	$1,991	($19)	Federal agencies and U.S. government sponsored entities	$14,131	($320)	$1,236	($55)	$15,367	($375)

Other/non-agency								Other/non-agency	123	(1)	—	—	123	(1)
Total mortgage-backed securities								Total mortgage-backed securities	14,254	(321)	1,236	(55)	15,490	(376)
Collateralized loan obligations								Collateralized loan obligations	736	(1)	—	—	736	(1)
Total								Total	$14,990	($322)	$1,236	($55)	$16,226	($377)

Citizens does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. Citizens has determined that credit losses are not expected to be incurred on the U.S. Treasury securities, agency ~~and~~MBS, non-agency MBS, and CLOs identified with unrealized losses as of ~~June 30, 2021.~~March 31, 2022. The unrealized losses on these debt securities reflect non-credit-related factors driven by changes in interest rates. Therefore, the Company has determined that these debt securities are not impaired.

Citizens Financial Group, Inc. | 5944

NOTE 34 - LOANS AND LEASES

Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans.

The following table presents loans and leases, excluding ~~LHFS.~~LHFS:


(in millions)	(in millions)	June 30, 2021	December 31, 2020	(in millions)	March 31, 2022	December 31, 2021
Commercial and industrial ~~(1)~~	Commercial and industrial ~~(1)~~	$42,842	$44,173	Commercial and industrial ~~(1)~~	$45,724	$44,500
Commercial real estate	Commercial real estate	14,412	14,652	Commercial real estate	14,268	14,264
Leases	Leases	1,829	1,968	Leases	1,529	1,586
Total commercial	Total commercial	59,083	60,793	Total commercial	61,521	60,350
Residential mortgages ~~(2)~~	Residential mortgages ~~(2)~~	20,538	19,539	Residential mortgages ~~(2)~~	24,211	22,822
Home equity	Home equity	11,841	12,149	Home equity	12,264	12,015
Automobile	Automobile	12,780	12,153	Automobile	14,439	14,549
Education	Education	12,800	12,308	Education	13,306	12,997
Other retail	Other retail	5,539	6,148	Other retail	5,564	5,430
Total retail	Total retail	63,498	62,297	Total retail	69,784	67,813
Total loans and leases	Total loans and leases	$122,581	$123,090	Total loans and leases	$131,305	$128,163

~~(1)~~ ~~Includes $3.5 billion and $4.2 billion of PPP loans fully guaranteed by the SBA as of June 30, 2021 and December 31, 2020, respectively.~~

~~Included in other assets is accrued~~Accrued interest receivable on loans and leases held for investment ~~totaling $467~~totaled $452 million and ~~$449~~$450 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, respectively.~~

~~During the three months ended June 30,~~ 2021, respectively, and ~~2020, the Company purchased $351 million and $691 million of education loans, and $176 million and $255 million of~~is included in other retail loans. During the six months ended June 30, 2021 and 2020, the Company purchased $652 million and $909 million of education loans, and $353 million and $527 million of other retail loans, respectively.

During the three months ended June 30, 2021 and 2020, the Company sold $237 million and $71 million of commercial loans, respectively. During the six months ended June 30, 2021 and 2020, the Company sold $563 million and $262 million of commercial loans, respectively. During the six months ended June 30, 2020, the company sold $1.5 billion of residential mortgage loans as compared to NaNassets in the ~~same period of 2021.~~Consolidated Balance Sheets.

Loans pledged as collateral for FHLB ~~borrowed funds,~~borrowing capacity, primarily residential mortgages and home equity products, totaled ~~$24.7~~$27.5 billion and ~~$25.5~~$26.1 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of education, automobile, commercial and industrial, and commercial real estate loans, and totaled ~~$39.7~~$36.0 billion and ~~$40.0~~$35.8 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Interest income on direct financing and sales-type leases was ~~$12~~$11 million and ~~$19~~$13 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations. ~~For the six months ended June 30, 2021 and 2020, this interest income was $25 million and $37 million, respectively.~~

The following table presents the composition of ~~LHFS.~~LHFS:


		June 30, 2021			December 31, 2020				March 31, 2022					December 31, 2021
(in millions)	(in millions)	Residential Mortgages(1)	Commercial(2)	Total		Residential Mortgages(1)	Commercial(2)	Total		(in millions)	Residential Mortgages(1)	Commercial(2)	Total		Residential Mortgages(1)	Commercial(2)	Total
Loans held for sale at fair value	Loans held for sale at fair value	$3,499	$117	$3,616		$3,416	$148	$3,564		Loans held for sale at fair value	$1,595	$122	$1,717		$2,657	$76	$2,733
Other loans held for sale	Other loans held for sale	0	82	82		0	439	439		Other loans held for sale	—	99	99		—	735	735

(1) Residential mortgage LHFS are originated for sale.

(2) Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other commercial LHFS generally consist of loans associated with the Company’s syndication business.

~~Citizens Financial Group, Inc. | 60~~

NOTE 45 - ALLOWANCE FOR CREDIT LOSSES, ~~NONACCRUING~~NONACCRUAL LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses

Recorded in the ACL is management’s estimate of expected credit losses in the Company’s loan and lease portfolios. See Note 56 in the Company’s ~~2020~~2021 Form 10-K for a detailed discussion of the ACL reserve methodology and estimation techniques as of December 31, ~~2020.~~2021. There were no significant changes to the ACL reserve methodology ~~in the six months ended June 30, 2021.~~

~~The following table presents a summary of changes in the ALLL and the allowance for unfunded lending commitments for~~during the three months ended ~~and six months ended June 30, 2021:~~

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
(in millions) Commercial Retail Total Commercial Retail Total
Allowance for loan and lease losses, beginning of period $1,146 $1,048 $2,194 $1,233 $1,210 $2,443
Charge-offs (45) (80) (125) (179) (173) (352)
Recoveries 4 43 47 34 82 116
Net charge-offs (41) (37) (78) (145) (91) (236)
Provision charged to income (152) (17) (169) (135) (125) (260)
Allowance for loan and lease losses, end of period $953 $994 $1,947 $953 $994 $1,947
Allowance for unfunded lending commitments, beginning of period $165 $13 $178 $186 $41 $227
Provision for unfunded lending commitments (44) 0 (44) (65) (28) (93)
Allowance for unfunded lending commitments, end of period $121 $13 $134 $121 $13 $134

~~Overall, an ending ACL balance of $2.1 billion at June 30, 2021 compared to $2.7 billion at December~~March 31, 2020. The difference in ACL as of June 30, 2021 as compared to December 31, 2020 was due to net charge-offs of $236 million, as detailed below, coupled with a credit provision benefit of $353 million. This reflected strong credit performance across the retail and commercial loan portfolios, and improvement in the macroeconomic outlook.

The increase in commercial net charge-offs of $30 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was driven by COVID-19-related charge-offs in CRE. Retail net charge-offs were down $78 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 as a result of government stimulus and forbearance programs as well as strong collateral values in automobile and residential real estate.

To determine the ACL as of June 30, 2021, Citizens utilized an economic forecast that generally reflects real GDP growth of approximately 5.7% over 2021. The forecast also projects the unemployment rate to be in the range of 5.9% to 6.6% throughout 2021. This forecast reflects an overall improved macroeconomic outlook as compared to December 31, 2020. In addition to judgment applied to the commercial portfolio as a whole, Citizens continued to apply management judgment to adjust the modeled reserves in the commercial industry sectors most impacted by the COVID-19 pandemic and associated lockdowns, including CRE retail and hospitality and casual dining.

2022.

Citizens Financial Group, Inc. | 6145

The following table presents a summary of changes in the ~~ALLL and the allowance for unfunded lending commitments~~ACL for the three months ~~and six~~ended March 31, 2022:


	Three Months Ended March 31, 2022
(in millions)		Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period		$821	$937	$1,758


Charge-offs		(14)	(87)	(101)
Recoveries		3	39	42
Net charge-offs		(11)	(48)	(59)
Provision expense (benefit) for loans and leases		(32)	53	21
Allowance for loan and lease losses, end of period		778	942	1,720
Allowance for unfunded lending commitments, beginning of period		153	23	176


Provision expense (benefit) for unfunded lending commitments		(6)	(12)	(18)
Allowance for unfunded lending commitments, end of period		147	11	158
Total allowance for credit losses, end of period		$925	$953	$1,878

During the three months ended ~~June 30, 2020:~~March 31, 2022 net charge-offs of $59 million and a credit provision of $3 million resulted in a reduction of $56 million to the ACL. The $3 million credit provision includes the “double count” of the $24 million day-one CECL provision expense tied to the HSBC transaction.

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
(in millions) Commercial Retail Total Commercial Retail Total
Allowance for loan and lease losses, beginning of period $752 $1,419 $2,171 $674 $578 $1,252
Cumulative effect of change in accounting principle 0 0 0 (176) 629 453
Allowance for loan and lease losses, beginning of period, adjusted 752 1,419 2,171 498 1,207 1,705
Charge-offs (74) (106) (180) (121) (233) (354)
Recoveries 3 30 33 6 64 70
Net charge-offs (71) (76) (147) (115) (169) (284)
Provision charged to income 554 (130) 424 852 175 1,027
Allowance for loan and lease losses, end of period $1,235 $1,213 $2,448 $1,235 $1,213 $2,448
Allowance for unfunded lending commitments, beginning of period $38 $1 $39 $44 $0 $44
Cumulative effect of change in accounting principle 0 0 0 (3) 1 (2)
Allowance for unfunded lending commitments, beginning of period, adjusted 38 1 39 41 1 42
Provision for unfunded lending commitments 31 9 40 28 9 37
Allowance for unfunded lending commitments, end of period $69 $10 $79 $69 $10 $79
The decrease in commercial net charge-offs of $93 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 reflects the strong economic growth that began in the fourth quarter of 2020 and continued solid credit performance. Retail net charge-offs were down $6 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 as consumers continue to benefit from the fiscal support provided during the pandemic, the rapid growth in jobs, and elevated residential mortgage and auto loan collateral values.

To determine the ACL as of March 31, 2022, the Company utilized an economic forecast that generally reflects real GDP growth on an annual average basis of 2.5% and an average unemployment rate of 5.2% in 2022. This forecast reflects a positive overall macroeconomic outlook, generally in-line with December 31, 2021, which reflected real GDP growth on an annual average basis of 2.8% and an average unemployment rate of 6% in 2022. While the U.S. economy has remained strong, uncertainty remains. The Company continues to utilize a qualitative allowance framework to reassess and adjust ACL reserve levels. Macroeconomic forecast risk, driven by uncertainty around and volatility of key macroeconomic variables, is one of the primary factors influencing the qualitative reserve.

The Company’s March 2022 qualitative consideration for macroeconomic risk reflects the strength of the overall economy weighed against the headwinds of tightening monetary and fiscal policies, impacts of elevated inflation, including the gap between wage gains and inflation rate, labor shortages, continuing supply-chain challenges, and possible consequences from Russia’s invasion of Ukraine. The Company expects the combination of these items to likely create volatility in key macroeconomic variables. While COVID has reemerged in certain areas of the world, the impact to the US economy has been limited to date given vaccination rates and material reductions in hospitalizations and deaths, reductions in consumer concerns about the pandemic, and a strong labor market with over 11 million open jobs as of February 2022.

The following table presents a summary of changes in the ACL for the three months ended March 31, 2021:


	Three Months Ended March 31, 2021
(in millions)		Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period		$1,233	$1,210	$2,443


Charge-offs		(134)	(93)	(227)
Recoveries		30	39	69
Net charge-offs		(104)	(54)	(158)
Provision expense (benefit) for loans and leases		17	(108)	(91)
Allowance for loan and lease losses, end of period		1,146	1,048	2,194
Allowance for unfunded lending commitments, beginning of period		186	41	227


Provision expense (benefit) for unfunded lending commitments		(21)	(28)	(49)
Allowance for unfunded lending commitments, end of period		165	13	178
Total allowance for credit losses, end of period		$1,311	$1,061	$2,372

Citizens Financial Group, Inc. | 46

Credit Quality Indicators

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date. Loans modified in a TDR are considered a continuation of the original loan and vintage date corresponds with the most recent credit decision.

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. The assignment of regulatory classification ratings occurs at loan origination and are periodically re-evaluated by Citizens utilizing a risk-based approach, including any time management becomes aware of information affecting the borrowers' ability to fulfill their obligations. The review process considers both quantitative and qualitative factors. Loans with a “pass” rating are those that the Company believes will fully repay in accordance with the contractual loan terms. Commercial loans and leases identified as “criticized” have some weakness or potential weakness that indicate an increased probability of future loss. Citizens groups “criticized” loans into three categories, “special mention,” “substandard,” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristic that the possibility of loss is high and collection of the full amount of the loan is improbable.

~~Citizens Financial Group, Inc. | 62~~

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of ~~June 30, 2021:~~March 31, 2022:


		Term Loans by Origination Year						Revolving Loans				Term Loans by Origination Year						Revolving Loans
(in millions)	(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total	(in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Commercial and industrial	Commercial and industrial										Commercial and industrial
Pass(1)		$5,146	$5,140	$5,260	$3,623	$1,975	$2,797	$15,853	$151	$39,945
Pass											Pass	$1,944	$9,819	$3,007	$2,908	$2,094	$2,975	$20,729	$118	$43,594
Special Mention	Special Mention	3	41	196	196	74	181	454	0	1,145	Special Mention	1	74	58	107	105	114	385	1	845
Substandard	Substandard	32	125	263	267	114	226	583	21	1,631	Substandard	—	89	89	222	78	195	419	17	1,109
Doubtful	Doubtful	27	16	16	22	12	18	7	3	121	Doubtful	7	12	19	4	10	25	96	3	176
Total commercial and industrial	Total commercial and industrial	5,208	5,322	5,735	4,108	2,175	3,222	16,897	175	42,842	Total commercial and industrial	1,952	9,994	3,173	3,241	2,287	3,309	21,629	139	45,724
Commercial real estate	Commercial real estate										Commercial real estate
Pass	Pass	462	2,572	3,726	3,013	1,026	1,507	809	0	13,115	Pass	784	2,667	2,420	2,889	1,465	1,587	1,458	3	13,273
Special Mention	Special Mention	73	7	193	102	155	122	14	0	666	Special Mention	—	54	48	228	93	79	10	—	512
Substandard	Substandard	1	39	210	135	146	73	0	0	604	Substandard	—	1	—	84	243	141	3	—	472
Doubtful	Doubtful	0	9	16	0	0	2	0	0	27	Doubtful	—	1	9	—	—	1	—	—	11
Total commercial real estate	Total commercial real estate	536	2,627	4,145	3,250	1,327	1,704	823	0	14,412	Total commercial real estate	784	2,723	2,477	3,201	1,801	1,808	1,471	3	14,268
Leases	Leases										Leases
Pass	Pass	269	368	216	203	98	622	0	0	1,776	Pass	68	406	275	126	141	493	—	—	1,509
Special Mention	Special Mention	1	2	1	2	5	18	0	0	29	Special Mention	—	2	2	—	3	1	—	—	8
Substandard	Substandard	0	16	5	1	0	1	0	0	23	Substandard	—	1	3	5	2	—	—	—	11
Doubtful	Doubtful	0	0	0	0	0	1	0	0	1	Doubtful	—	—	—	—	—	1	—	—	1
Total leases	Total leases	270	386	222	206	103	642	0	0	1,829	Total leases	68	409	280	131	146	495	—	—	1,529
Total commercial	Total commercial										Total commercial
Pass(1)	Pass(1)	5,877	8,080	9,202	6,839	3,099	4,926	16,662	151	54,836	Pass(1)	2,796	12,892	5,702	5,923	3,700	5,055	22,187	121	58,376
Special Mention	Special Mention	77	50	390	300	234	321	468	0	1,840	Special Mention	1	130	108	335	201	194	395	1	1,365
Substandard	Substandard	33	180	478	403	260	300	583	21	2,258	Substandard	—	91	92	311	323	336	422	17	1,592
Doubtful	Doubtful	27	25	32	22	12	21	7	3	149	Doubtful	7	13	28	4	10	27	96	3	188
Total commercial	Total commercial	$6,014	$8,335	$10,102	$7,564	$3,605	$5,568	$17,720	$175	$59,083	Total commercial	$2,804	$13,126	$5,930	$6,573	$4,234	$5,612	$23,100	$142	$61,521

~~(1)~~ ~~Includes $3.5 billion of PPP loans designated as pass that are fully guaranteed by the SBA originating in 2021 and 2020.~~

Citizens Financial Group, Inc. | 6347

The following table presents the amortized cost basis of commercial loans and leases, by vintage date and regulatory classification rating, as of December 31, ~~2020:~~2021:

Term Loans by Origination Year Revolving Loans
(in millions) 2020 2019 2018 2017 2016 Prior to 2016 Within the Revolving Period Converted to Term Total
Commercial and industrial
Pass(1)
$8,036 $5,730 $4,180 $2,174 $1,157 $1,980 $17,281 $340 $40,878
Special Mention 34 264 163 84 60 173 771 34 1,583
Substandard 91 195 248�� 100 81 127 600 22 1,464
Doubtful 65 10 34 38 3 31 63 4 248
Total commercial and industrial 8,226 6,199 4,625 2,396 1,301 2,311 18,715 400 44,173
Commercial real estate
Pass 1,848 2,836 2,810 1,106 566 919 3,271 0 13,356
Special Mention 19 130 121 92 94 48 300 0 804
Substandard 116 2 65 5 53 26 149 0 416
Doubtful 16 26 8 0 0 2 24 0 76
Total commercial real estate 1,999 2,994 3,004 1,203 713 995 3,744 0 14,652
Leases
Pass 455 246 229 139 180 673 0 0 1,922
Special Mention 3 4 2 4 2 18 0 0 33
Substandard 0 2 2 4 4 0 0 0 12
Doubtful 0 0 0 0 0 1 0 0 1
Total leases 458 252 233 147 186 692 0 0 1,968
Total commercial
Pass(1)
10,339 8,812 7,219 3,419 1,903 3,572 20,552 340 56,156
Special Mention 56 398 286 180 156 239 1,071 34 2,420
Substandard 207 199 315 109 138 153 749 22 1,892
Doubtful 81 36 42 38 3 34 87 4 325
Total commercial $10,683 $9,445 $7,862 $3,746 $2,200 $3,998 $22,459 $400 $60,793

~~(1)~~ ~~Includes $4.2 billion PPP loans designated as pass that are fully guaranteed by the SBA originating in 2020.~~


	Term Loans by Origination Year						Revolving Loans
(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total
Commercial and industrial
Pass	$10,218	$3,336	$3,599	$2,284	$1,426	$1,863	$19,406	$122	$42,254
Special Mention	47	71	155	114	41	64	316	1	809
Substandard	97	112	215	81	50	201	521	17	1,294
Doubtful	1	9	9	22	10	16	74	2	143
Total commercial and industrial	10,363	3,528	3,978	2,501	1,527	2,144	20,317	142	44,500
Commercial real estate
Pass	2,766	2,417	3,181	1,756	626	1,119	1,451	3	13,319
Special Mention	45	42	113	100	27	79	—	—	406
Substandard	27	—	88	267	78	59	9	—	528
Doubtful	1	9	—	—	—	1	—	—	11
Total commercial real estate	2,839	2,468	3,382	2,123	731	1,258	1,460	3	14,264
Leases
Pass	447	262	134	144	66	459	—	—	1,512
Special Mention	10	15	—	5	3	16	—	—	49
Substandard	1	16	5	2	—	—	—	—	24
Doubtful	—	—	—	—	—	1	—	—	1
Total leases	458	293	139	151	69	476	—	—	1,586
Total commercial
Pass(1)	13,431	6,015	6,914	4,184	2,118	3,441	20,857	125	57,085
Special Mention	102	128	268	219	71	159	316	1	1,264
Substandard	125	128	308	350	128	260	530	17	1,846
Doubtful	2	18	9	22	10	18	74	2	155
Total commercial	$13,660	$6,289	$7,499	$4,775	$2,327	$3,878	$21,777	$145	$60,350

For retail loans, Citizens 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.

Citizens Financial Group, Inc. | 6448

The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of ~~June 30, 2021:~~March 31, 2022:


		Term Loans by Origination Year						Revolving Loans				Term Loans by Origination Year						Revolving Loans
(in millions)	(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total	(in millions)	2022	2021	2020	2019	2018	Prior to 2018	Within the Revolving Period	Converted to Term	Total
Residential mortgages	Residential mortgages										Residential mortgages
800+	800+	$851	$3,079	$1,574	$454	$897	$2,697	$0	$0	$9,552	800+	$351	$3,332	$3,066	$1,184	$322	$2,868	$—	$—	$11,123
740-799	740-799	1,619	2,261	890	311	448	1,335	0	0	6,864	740-799	866	3,423	1,690	673	240	1,429	—	—	8,321
680-739	680-739	377	653	360	178	169	660	0	0	2,397	680-739	192	968	540	275	145	800	—	—	2,920
620-679	620-679	42	112	180	103	117	328	0	0	882	620-679	18	127	114	170	93	399	—	—	921
<620	<620	2	49	153	162	167	293	0	0	826	<620	—	45	82	171	158	435	—	—	891
No FICO available(1)	No FICO available(1)	2	3	1	0	0	11	0	0	17	No FICO available(1)	—	5	3	4	5	18	—	—	35
Total residential mortgages	Total residential mortgages	2,893	6,157	3,158	1,208	1,798	5,324	0	0	20,538	Total residential mortgages	1,427	7,900	5,495	2,477	963	5,949	—	—	24,211
Home equity	Home equity										Home equity
800+	800+	1	2	6	6	5	170	4,292	318	4,800	800+	—	1	1	4	5	122	4,492	310	4,935
740-799	740-799	0	1	5	6	6	146	3,333	306	3,803	740-799	—	—	1	4	6	110	3,564	296	3,981
680-739	680-739	0	1	8	13	18	162	1,608	274	2,084	680-739	—	—	1	8	13	140	1,774	258	2,194
620-679	620-679	0	3	13	24	20	133	336	182	711	620-679	—	—	2	9	19	118	399	168	715
<620	<620	0	3	20	25	23	106	79	187	443	<620	—	—	2	16	20	103	114	184	439
No FICO available(1)		0	0	0	0	0	0	0	0	0

Total home equity	Total home equity	1	10	52	74	72	717	9,648	1,267	11,841	Total home equity	—	1	7	41	63	593	10,343	1,216	12,264
Automobile	Automobile										Automobile
800+	800+	756	951	681	333	223	122	0	0	3,066	800+	369	1,662	780	481	210	154	—	—	3,656
740-799	740-799	1,096	1,320	813	401	242	122	0	0	3,994	740-799	487	2,203	915	531	238	157	—	—	4,531
680-739	680-739	969	1,109	690	335	190	98	0	0	3,391	680-739	423	1,751	701	414	190	124	—	—	3,603
620-679	620-679	458	506	345	184	108	63	0	0	1,664	620-679	223	919	317	218	109	77	—	—	1,863
<620	<620	59	138	180	133	90	61	0	0	661	<620	32	291	149	145	91	75	—	—	783
No FICO available(1)	No FICO available(1)	3	0	0	0	0	1	0	0	4	No FICO available(1)	2	1	—	—	—	—	—	—	3
Total automobile	Total automobile	3,341	4,024	2,709	1,386	853	467	0	0	12,780	Total automobile	1,536	6,827	2,862	1,789	838	587	—	—	14,439
Education	Education										Education
800+	800+	564	1,843	1,103	662	590	1,066	0	—	5,828	800+	213	1,641	1,687	792	479	1,261	—	—	6,073
740-799	740-799	759	1,831	892	480	338	614	0	0	4,914	740-799	311	1,600	1,391	587	325	739	—	—	4,953
680-739	680-739	204	536	289	172	123	300	0	0	1,624	680-739	161	513	425	209	126	354	—	—	1,788
620-679	620-679	14	54	45	37	29	110	0	0	289	620-679	10	73	64	41	30	121	—	—	339
<620	<620	1	6	10	12	10	49	0	0	88	<620	1	9	14	12	12	52	—	—	100
No FICO available(1)	No FICO available(1)	2	0	0	0	0	55	0	0	57	No FICO available(1)	2	1	—	—	—	50	—	—	53
Total education	Total education	1,544	4,270	2,339	1,363	1,090	2,194	0	0	12,800	Total education	698	3,837	3,581	1,641	972	2,577	—	—	13,306
Other retail	Other retail										Other retail
800+	800+	107	343	209	100	48	42	357	0	1,206	800+	42	229	184	102	52	51	414	—	1,074
740-799	740-799	169	479	285	128	58	36	662	2	1,819	740-799	62	294	245	140	66	49	813	2	1,671
680-739	680-739	150	372	190	85	37	18	593	5	1,450	680-739	54	225	202	103	45	28	810	4	1,471
620-679	620-679	94	181	65	28	10	6	208	6	598	620-679	37	129	99	36	16	9	349	5	680
<620	<620	11	39	23	13	4	2	66	7	165	<620	5	38	36	15	8	4	129	6	241
No FICO available(1)	No FICO available(1)	6	8	0	0	0	0	285	2	301	No FICO available(1)	37	3	5	—	—	—	381	1	427
Total other retail	Total other retail	537	1,422	772	354	157	104	2,171	22	5,539	Total other retail	237	918	771	396	187	141	2,896	18	5,564
Total retail	Total retail										Total retail
800+	800+	2,279	6,218	3,573	1,555	1,763	4,097	4,649	318	24,452	800+	975	6,865	5,718	2,563	1,068	4,456	4,906	310	26,861
740-799	740-799	3,643	5,892	2,885	1,326	1,092	2,253	3,995	308	21,394	740-799	1,726	7,520	4,242	1,935	875	2,484	4,377	298	23,457
680-739	680-739	1,700	2,671	1,537	783	537	1,238	2,201	279	10,946	680-739	830	3,457	1,869	1,009	519	1,446	2,584	262	11,976
620-679	620-679	608	856	648	376	284	640	544	188	4,144	620-679	288	1,248	596	474	267	724	748	173	4,518
<620	<620	73	235	386	345	294	511	145	194	2,183	<620	38	383	283	359	289	669	243	190	2,454
No FICO available(1)	No FICO available(1)	13	11	1	0	0	67	285	2	379	No FICO available(1)	41	10	8	4	5	68	381	1	518
Total retail	Total retail	$8,316	$15,883	$9,030	$4,385	$3,970	$8,806	$11,819	$1,289	$63,498	Total retail	$3,898	$19,483	$12,716	$6,344	$3,023	$9,847	$13,239	$1,234	$69,784

(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).

Citizens Financial Group, Inc. | 6549

The following table presents the amortized cost basis of retail loans, by vintage date and FICO scores, as of December 31, ~~2020:~~2021:


		Term Loans by Origination Year						Revolving Loans				Term Loans by Origination Year						Revolving Loans
(in millions)	(in millions)	2020	2019	2018	2017	2016	Prior to 2016	Within the Revolving Period	Converted to Term	Total	(in millions)	2021	2020	2019	2018	2017	Prior to 2017	Within the Revolving Period	Converted to Term	Total
Residential mortgages	Residential mortgages										Residential mortgages
800+	800+	$2,687	$1,885	$638	$1,129	$1,615	$1,755	$0	$0	$9,709	800+	$2,431	$3,017	$1,230	$342	$672	$2,139	$—	$—	$9,831
740-799	740-799	2,931	1,133	398	527	743	904	0	0	6,636	740-799	4,015	1,876	746	246	360	1,086	—	—	8,329
680-739	680-739	784	351	162	172	295	458	0	0	2,222	680-739	1,116	572	335	152	172	585	—	—	2,932
620-679	620-679	97	94	44	56	66	223	0	0	580	620-679	111	130	161	93	107	276	—	—	878
<620	<620	12	28	35	58	50	185	0	0	368	<620	24	66	164	162	157	257	—	—	830
No FICO available(1)	No FICO available(1)	1	2	1	5	1	14	0	0	24	No FICO available(1)	3	8	1	—	—	10	—	—	22
Total residential mortgages	Total residential mortgages	6,512	3,493	1,278	1,947	2,770	3,539	0	0	19,539	Total residential mortgages	7,700	5,669	2,637	995	1,468	4,353	—	—	22,822
Home equity	Home equity										Home equity
800+	800+	2	8	10	7	5	216	4,319	344	4,911	800+	—	2	5	5	3	134	4,394	281	4,824
740-799	740-799	2	6	7	6	5	180	3,234	331	3,771	740-799	—	1	4	5	7	122	3,514	278	3,931
680-739	680-739	1	6	10	15	8	179	1,632	284	2,135	680-739	—	1	7	14	16	134	1,738	243	2,153
620-679	620-679	0	10	18	21	14	136	402	195	796	620-679	—	3	11	19	17	112	363	167	692
<620	<620	1	17	30	29	18	122	105	214	536	<620	—	2	16	23	20	87	91	176	415

Total home equity	Total home equity	6	47	75	78	50	833	9,692	1,368	12,149	Total home equity	—	9	43	66	63	589	10,100	1,145	12,015
Automobile	Automobile										Automobile
800+	800+	1,056	812	424	312	169	62	0	0	2,835	800+	1,887	829	538	244	148	57	—	—	3,703
740-799	740-799	1,514	1,022	531	344	172	59	0	0	3,642	740-799	2,418	1,051	615	288	156	58	—	—	4,586
680-739	680-739	1,347	889	461	282	138	47	0	0	3,164	680-739	1,968	827	500	234	123	48	—	—	3,700
620-679	620-679	669	484	259	157	84	32	0	0	1,685	620-679	1,029	378	257	131	72	32	—	—	1,899
<620	<620	140	242	189	137	79	34	0	0	821	<620	164	142	155	103	62	32	—	—	658
No FICO available(1)	No FICO available(1)	2	0	0	0	0	4	0	0	6	No FICO available(1)	3	—	—	—	—	—	—	—	3
Total automobile	Total automobile	4,728	3,449	1,864	1,232	642	238	0	0	12,153	Total automobile	7,469	3,227	2,065	1,000	561	227	—	—	14,549
Education	Education										Education
800+	800+	1,817	1,363	849	781	578	777	0	0	6,165	800+	1,361	1,771	840	514	470	880	—	—	5,836
740-799	740-799	1,797	1,009	541	387	251	423	0	0	4,408	740-799	1,555	1,577	672	371	275	514	—	—	4,964
680-739	680-739	450	294	173	127	90	221	0	0	1,355	680-739	512	474	229	140	107	262	—	—	1,724
620-679	620-679	26	35	33	28	25	95	0	0	242	620-679	50	66	45	34	28	99	—	—	322
<620	<620	2	5	10	10	8	41	0	0	76	<620	5	11	12	12	10	45	—	—	95
No FICO available(1)	No FICO available(1)	2	0	0	0	0	60	0	0	62	No FICO available(1)	4	—	—	—	—	52	—	—	56
Total education	Total education	4,094	2,706	1,606	1,333	952	1,617	0	0	12,308	Total education	3,487	3,899	1,798	1,071	890	1,852	—	—	12,997
Other retail	Other retail										Other retail
800+	800+	461	380	163	77	15	44	341	0	1,481	800+	233	214	122	65	30	29	386	—	1,079
740-799	740-799	620	460	184	81	19	31	638	2	2,035	740-799	323	296	173	84��	38	26	764	2	1,706
680-739	680-739	495	302	111	48	10	13	561	5	1,545	680-739	246	240	122	56	23	12	709	5	1,413
620-679	620-679	248	104	37	14	3	5	174	7	592	620-679	149	119	43	19	7	4	299	5	645
<620	<620	24	30	17	6	1	3	77	8	166	<620	32	37	17	10	3	2	100	6	207
No FICO available(1)	No FICO available(1)	54	1	0	0	0	0	272	2	329	No FICO available(1)	44	5	—	—	—	—	330	1	380
Total other retail	Total other retail	1,902	1,277	512	226	48	96	2,063	24	6,148	Total other retail	1,027	911	477	234	101	73	2,588	19	5,430
Total retail	Total retail										Total retail
800+	800+	6,023	4,448	2,084	2,306	2,382	2,854	4,660	344	25,101	800+	5,912	5,833	2,735	1,170	1,323	3,239	4,780	281	25,273
740-799	740-799	6,864	3,630	1,661	1,345	1,190	1,597	3,872	333	20,492	740-799	8,311	4,801	2,210	994	836	1,806	4,278	280	23,516
680-739	680-739	3,077	1,842	917	644	541	918	2,193	289	10,421	680-739	3,842	2,114	1,193	596	441	1,041	2,447	248	11,922
620-679	620-679	1,040	727	391	276	192	491	576	202	3,895	620-679	1,339	696	517	296	231	523	662	172	4,436
<620	<620	179	322	281	240	156	385	182	222	1,967	<620	225	258	364	310	252	423	191	182	2,205
No FICO available(1)	No FICO available(1)	59	3	1	5	1	78	272	2	421	No FICO available(1)	54	13	1	—	—	62	330	1	461
Total retail	Total retail	$17,242	$10,972	$5,335	$4,816	$4,462	$6,323	$11,755	$1,392	$62,297	Total retail	$19,683	$13,715	$7,020	$3,366	$3,083	$7,094	$12,688	$1,164	$67,813

(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).

Citizens Financial Group, Inc. | 6650

Nonaccrual and Past Due Assets

The following ~~table presents nonaccrual~~tables present an aging analysis of accruing loans and leases, and nonaccrual loans ~~accruing~~ and ~~90 days or more past due:~~leases:


									March 31, 2022
		As of June 30, 2021			As of December 31, 2020					Days Past Due and Accruing
(in millions)	(in millions)	Nonaccrual loans and leases	90+ days past due and accruing	Nonaccrual with no related ACL	Nonaccrual loans and leases	90+ days past due and accruing	Nonaccrual with no related ACL	(in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	Commercial and industrial	$163	$0	$40	$280	$20	$56	Commercial and industrial	$45,477	$18	$16	$13	$200	$45,724	$31
Commercial real estate	Commercial real estate	102	0	37	176	0	2	Commercial real estate	14,256	—	1	—	11	14,268	1
Leases	Leases	1	1	0	2	1	0	Leases	1,478	45	—	5	1	1,529	—
Total commercial	Total commercial	266	1	77	458	21	58	Total commercial	61,211	63	17	18	212	61,521	32
Residential mortgages(1)	Residential mortgages(1)	174	270	138	167	30	96	Residential mortgages(1)	23,077	57	42	792	243	24,211	179
Home equity	Home equity	234	0	189	276	0	207	Home equity	11,969	42	14	—	239	12,264	188
Automobile	Automobile	62	0	34	72	0	17	Automobile	14,236	120	31	—	52	14,439	10
Education	Education	21	2	2	18	2	2	Education	13,244	26	11	2	23	13,306	3
Other retail	Other retail	22	7	2	28	9	0	Other retail	5,447	61	22	14	20	5,564	1
Total retail	Total retail	513	279	365	561	41	322	Total retail	67,973	306	120	808	577	69,784	381
Total loans and leases		$779	$280	$442	$1,019	$62	$380
Total								Total	$129,184	$369	$137	$826	$789	$131,305	$413


	December 31, 2021
		Days Past Due and Accruing
(in millions)	Current	30-59	60-89	90+	Nonaccrual	Total	Nonaccrual with no related ACL
Commercial and industrial	$44,247	$47	$26	$9	$171	$44,500	$36
Commercial real estate	14,247	6	—	—	11	14,264	1
Leases	1,570	14	1	—	1	1,586	—
Total commercial	60,064	67	27	9	183	60,350	37
Residential mortgages(1)	21,918	102	52	549	201	22,822	137
Home equity	11,745	38	12	—	220	12,015	186
Automobile	14,324	131	39	—	55	14,549	22
Education	12,926	34	13	1	23	12,997	2
Other retail	5,331	40	23	16	20	5,430	2
Total retail	66,244	345	139	566	519	67,813	349
Total	$126,308	$412	$166	$575	$702	$128,163	$386

(1) 90+ days past due and accruing includes ~~$266~~$792 million and ~~$21~~$544 million of loans fully or partially guaranteed by the FHA, VA, and USDA ~~for June 30, 2021~~at March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Interest income is generally not recognized for loans and leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying the loan or lease as nonaccrual.

~~The following table presents an analysis of the age of both accruing and nonaccruing loan and lease past due amounts:~~

June 30, 2021 December 31, 2020
Days Past Due Days Past Due
(in millions) Current-29 30-59 60-89 90+ Total Current-29 30-59 60-89 90+ Total
Commercial and industrial $42,769 $24 $7 $42 $42,842 $43,817 $223 $16 $117 $44,173
Commercial real estate 14,310 1 0 101 14,412 14,531 1 85 35 14,652
Leases 1,827 0 0 2 1,829 1,956 9 0 3 1,968
Total commercial 58,906 25 7 145 59,083 60,304 233 101 155 60,793
Residential mortgages(1)
19,885 176 61 416 20,538 19,291 59 21 168 19,539
Home equity 11,607 32 17 185 11,841 11,848 61 28 212 12,149
Automobile 12,613 114 43 10 12,780 11,901 170 65 17 12,153
Education 12,747 29 13 11 12,800 12,255 33 13 7 12,308
Other retail 5,454 37 20 28 5,539 6,047 38 29 34 6,148
Total retail 62,306 388 154 650 63,498 61,342 361 156 438 62,297
Total $121,212 $413 $161 $795 $122,581 $121,646 $594 $257 $593 $123,090

~~(1)~~ ~~90+ days past due includes $266 million and $44 million of loans fully or partially guaranteed by the FHA, VA, and USDA at June 30, 2021~~At March 31, 2022 and December 31, ~~2020, respectively.~~

~~At June 30,~~ 2021, ~~and December 31, 2020,~~ the Company had collateral-dependent residential mortgage and home equity loans totaling ~~$554~~$579 million and ~~$552~~$542 million, respectively. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had collateral-dependent commercial loans totaling ~~$66~~$21 million and ~~$206~~$103 million, respectively.

The amortized cost basis of mortgage loans collateralized by residential real estate for which formal foreclosure proceedings were in process was ~~$152~~$189 million and ~~$119~~$142 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~Citizens Financial Group, Inc. | 67~~

Troubled Debt Restructurings

The following tables summarize loans modified during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~2021. The balances represent the post-modification outstanding amortized cost basis and may include loans that became TDRs during the period and were subsequently paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.

Three Months Ended June 30, 2021
Amortized Cost Basis
(dollars in millions) Number of Contracts
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
Total
Commercial and industrial 15 $0 $3 $54 $57
Commercial real estate 0 0 0 0 0
Total commercial 15 0 3 54 57
Residential mortgages 671 8 120 44 172
Home equity 102 1 3 3 7
Automobile 379 1 0 5 6
Education 265 0 0 9 9
Other retail 585 1 0 0 1
Total retail 2,002 11 123 61 195
Total 2,017 $11 $126 $115 $252

Three Months Ended June 30, 2020
Amortized Cost Basis
(dollars in millions) Number of Contracts
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
Total
Commercial and industrial 19 $0 $3 $53 $56
Commercial real estate 0 0 0 0 0
Total commercial 19 0 3 53 56
Residential mortgages 145 11 14 3 28
Home equity 266 2 4 11 17
Automobile 947 0 0 15 15
Education 142 0 0 4 4
Other retail 710 3 0 1 4
Total retail 2,210 16 18 34 68
Total 2,229 $16 $21 $87 $124

Six Months Ended June 30, 2021
Amortized Cost Basis
(dollars in millions) Number of Contracts
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
Total
Commercial and industrial 22 $0 $6 $54 $60
Commercial real estate 0 0 0 0 0
Total commercial 22 0 6 54 60
Residential mortgages 713 12 126 47 185
Home equity 249 3 8 7 18
Automobile 1,048 1 0 13 14
Education 412 0 0 13 13
Other retail 1,215 4 0 1 5
Total retail 3,637 20 134 81 235
Total 3,659 $20 $140 $135 $295

Citizens Financial Group, Inc. | 6851

Six Months Ended June 30, 2020
Amortized Cost Basis
(dollars in millions) Number of Contracts
Interest Rate Reduction(1)
Maturity Extension(2)
Other(3)
Total
Commercial and industrial 38 $0 $3 $94 $97
Commercial real estate 0 0 0 0 0
Total commercial 38 0 3 94 97
Residential mortgages 241 17 21 7 45
Home equity 389 6 4 15 25
Automobile 1,177 1 0 17 18
Education 233 0 0 6 6
Other retail 1,683 7 0 2 9
Total retail 3,723 31 25 47 103
Total 3,761 $31 $28 $141 $200


		Three Months Ended March 31, 2022
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	10	$—	$24	$7	$31

Total commercial	10	—	24	7	31
Residential mortgages	1,181	22	14	214	250
Home equity	178	2	—	9	11
Automobile	165	1	—	1	2
Education	143	—	—	6	6
Other retail	521	2	—	—	2
Total retail	2,188	27	14	230	271
Total	2,198	$27	$38	$237	$302


		Three Months Ended March 31, 2021
		Amortized Cost Basis
(dollars in millions)	Number of Contracts	Interest Rate Reduction(1)	Maturity Extension(2)	Other(3)	Total
Commercial and industrial	7	$—	$3	$—	$3

Total commercial	7	—	3	—	3
Residential mortgages	42	4	6	3	13
Home equity	147	2	5	4	11
Automobile	669	—	—	8	8
Education	147	—	—	4	4
Other retail	630	3	—	1	4
Total retail	1,635	9	11	20	40
Total	1,642	$9	$14	$20	$43

(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post-modification balances being higher than pre-modification.

Modified TDRs resulted in charge-offs of $2$1 million and $4$2 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively. Citizens recorded $4 million and $6 million of charge-offs related to TDRs for each of the six months ended June 30, 2021 and 2020,~~ respectively.

Unfunded commitments related to TDRs were ~~$45~~$76 million and ~~$49~~$56 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~A payment default refers to~~The following table provides a ~~loan~~summary of TDRs that ~~becomes~~defaulted (became 90 days or more past due under the modified terms. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to June 30, 2021 and 2020. For commercial loans, recorded investment in TDRs that defaulteddue) within 12 months of their modification ~~date~~date:


	Three Months Ended March 31,
(dollars in millions)		2022	2021
Commercial TDRs		$—	$22
Retail TDRs(1)		15	15
Total		$15	$37

(1) Includes $10 million and $2 million of loans fully or partially government guaranteed by the FHA, VA, and USDA for the three months ended ~~June 30,~~March 31, 2022 and 2021, were $1 million and there were $26 million for the three months ended June 30, 2020. The amortized cost basis of commercial TDRs that defaulted within 12 months of their modification date was $23 millionand $39 million in the six months ended June 30, 2021 and 2020, respectively. For retail loans, there were $14 million and $14 million of loans which defaulted within their restructuring date for the three months ended June 30, 2021 and 2020, respectively. There were $29 million and $25 million of loans which defaulted within 12 months of their restructuring date for the six months ended June 30, 2021 and 2020, respectively.

Citizens Financial Group, Inc. | 52

Concentrations of Credit Risk

Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial ~~loan~~ or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted ~~based~~ on the basis of the financial strength of the applicant and ~~the~~ facts surrounding the transaction.

~~Citizens Financial Group, Inc. | 69~~

Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only residential mortgages, and loans with low introductory rates. The following tables present balances of loans with these characteristics:

June 30, 2021
(in millions) Residential Mortgages Home Equity Other Retail Education Total
High loan-to-value $235 $27 $0 $0 $262
Interest-only 3,143 0 0 1 3,144
Low introductory rate 0 0 135 0 135
Total $3,378 $27 $135 $1 $3,541

December 31, 2020
(in millions) Residential Mortgages Home Equity Other Retail Education Total
High loan-to-value $289 $64 $0 $0 $353
Interest-only 2,801 0 0 0 2,801
Low introductory rate 0 0 170 0 170
Total $3,090 $64 $170 $1 $3,324

NOTE 56 - MORTGAGE BANKING AND OTHER

The Company sells residential mortgages ~~to GSEs and other parties, who may issue securities backed by pools of such loans.~~into the secondary market. The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. The Company ismay 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.

The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Cash proceeds from residential mortgage loans sold with servicing retained	Cash proceeds from residential mortgage loans sold with servicing retained	$10,540	$8,797	$19,577	$14,164	Cash proceeds from residential mortgage loans sold with servicing retained		$6,582	$9,038
Gain on sales (1)		85	283	225	426
Contractually specified servicing, late and other ancillary fees (1)		60	55	118	113
Repurchased residential mortgages(1)						Repurchased residential mortgages(1)		87	—
Gain on sales(2)						Gain on sales(2)		30	140
Contractually specified servicing, late and other ancillary fees(2)						Contractually specified servicing, late and other ancillary fees(2)		67	58

(1) Includes government insured or guaranteed loans eligible for repurchase through the exercise of our removal of account provision option.

(2) Reported in mortgage banking fees in the Consolidated Statements of Operations.

The unpaid principal balance of ~~the related~~ residential mortgage loans related to our MSR was ~~$84.6~~$92.8 billion and ~~$81.2~~$90.2 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The Company manages an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio, which includes the purchase of freestanding derivatives.

~~Citizens Financial Group, Inc. | 70~~

The following table summarizes changes in MSRs recorded using the fair value method:


		As of and for the Three Months Ended June 30,		As of and for the Six Months Ended June 30,			As of and for the Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Fair value as of beginning of the period	Fair value as of beginning of the period	$893	$577	$658	$642	Fair value as of beginning of the period		$1,029	$658
Transfers upon election of fair value method (1)		0	0	0	190
Fair value as of beginning of the period, adjusted		893	577	658	832

Amounts capitalized	Amounts capitalized	122	86	209	153	Amounts capitalized		95	87
Changes in unpaid principal balance during the period ~~(2)~~(1)	Changes in unpaid principal balance during the period ~~(2)~~(1)	(47)	(46)	(105)	(86)	Changes in unpaid principal balance during the period ~~(2)~~(1)		(39)	(58)
Changes in fair value during the period ~~(3)~~(2)	Changes in fair value during the period ~~(3)~~(2)	(66)	(49)	140	(331)	Changes in fair value during the period ~~(3)~~(2)		156	206
Fair value at end of the period	Fair value at end of the period	$902	$568	$902	$568	Fair value at end of the period		$1,241	$893

(1) ~~Effective January 1, 2020, the Company elected to account for all MSRs previously accounted for under the amortization method under the fair value method.~~

~~(2)~~ Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial

paydowns, and ii) loans that paid off during the period.

~~(3)~~(2) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.

Citizens Financial Group, Inc. | 53

The sensitivity analysis below presents the impact to the current MSR fair value of an immediate ~~50 basis point~~10% and ~~100 basis point~~20% adverse change in key economic ~~assumptions and the decline in fair value if the respective adverse change was realized.~~assumptions. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.

June 30, 2021

December 31, 2020

Actual

Decline in fair value due to

Actual

Decline in fair value due to

(dollars in millions)

March 31, 2022

December 31, 2021

Fair value

$902

50 bps adverse change

100 bps adverse change

$658

50 bps adverse change

100 bps adverse change

Fair value

td,241

td,029

Weighted average life (in years)

5.7

4.2

Weighted average constant prepayment rate (1)

11.9%

$129

$273

17.3%

$122

$202

Weighted average life (years)

7.8

6.4

Weighted average constant prepayment rate

8.8%

10.7%

Decline in fair value from 10% adverse change

$40

$45

Decline in fair value from 20% adverse change

$78

$87

Weighted average option adjusted spread

581 bps

595 bps

Weighted average option adjusted spread

621 bps

596 bps

Decline in fair value from 10% adverse change

$33

$25

Decline in fair value from 20% adverse change

$66

$50

~~(1)~~ ~~Estimated adverse change~~The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the ~~weighted average constant prepayment rate based on an adverse change in market interest rates~~.definition of a derivative. Refer to Note 9 for additional information.

Other Serviced Loans

From time to time, Citizens engages in other servicing relationships. The following table presents the unpaid principal balance of other serviced loans:

(in millions)

June 30, 2021

December 31, 2020

(in millions)

March 31, 2022

December 31, 2021

Education

$867

$974

Education

$699

$761

Commercial (1)

Commercial and industrial(1)

(1) Represents the government guaranteed portion of SBA loans sold to outside investors.

~~Citizens Financial Group, Inc. | 71~~

NOTE 67 - VARIABLE INTEREST ENTITIES

Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects or asset-backed securities, and lending to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its investment in equity and asset-backed securities, unfunded commitments, and outstanding principal balance of loans to special purpose entities. The Company does not consolidate any of its investments in these entities. These investments are included in other assets in the Consolidated Balance Sheets. For more details see Note 1011 in the ~~2020~~Company’s 2021 Form 10-K.

A summary of these investments is presented below:


(in millions)	(in millions)	June 30, 2021	December 31, 2020	(in millions)	March 31, 2022	December 31, 2021
Lending to special purpose entities included in loans and leases	Lending to special purpose entities included in loans and leases	$1,520	$1,295	Lending to special purpose entities included in loans and leases	$2,602	$2,646
LIHTC investment included in other assets	LIHTC investment included in other assets	1,926	1,687	LIHTC investment included in other assets	2,130	1,978
LIHTC unfunded commitments included in other liabilities	LIHTC unfunded commitments included in other liabilities	974	875	LIHTC unfunded commitments included in other liabilities	1,050	927
Investment in asset-backed securities included in HTM securities	Investment in asset-backed securities included in HTM securities	826	893	Investment in asset-backed securities included in HTM securities	686	737
Renewable energy investments included in other assets	Renewable energy investments included in other assets	448	403	Renewable energy investments included in other assets	417	429

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the lending facilities had aggregate unpaid principal balances of ~~$1.5~~$2.6 billion, ~~and $1.3 billion, respectively,~~ and undrawn commitments to extend credit of ~~$1.7~~$2.1 billion and ~~$1.5~~$1.9 billion, respectively.

Citizens Financial Group, Inc. | 54

Low Income Housing Tax Credit Partnerships

The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital.

The following table presents other information related to the Company’s affordable housing tax credit investments:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Tax credits included in income tax expense	Tax credits included in income tax expense	$51	$39	$102	$80	Tax credits included in income tax expense		$61	$51
Other tax benefits included in income tax expense	Other tax benefits included in income tax expense	13	10	25	20	Other tax benefits included in income tax expense		15	12
Total tax benefits included in income tax expense	Total tax benefits included in income tax expense	64	49	127	100	Total tax benefits included in income tax expense		76	63
Less: Amortization included in income tax expense	Less: Amortization included in income tax expense	53	42	106	85	Less: Amortization included in income tax expense		64	53
Net benefits from affordable housing tax credit investments included in income tax expense		$11	$7	$21	$15
Net benefit from affordable housing tax credit investments included in income tax expense						Net benefit from affordable housing tax credit investments included in income tax expense		$12	$10

~~NaN~~No LIHTC investment impairment losses were recognized during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020, respectively.~~

2021.

NOTE 78 - BORROWED FUNDS

Short-term borrowed funds

Short-term borrowed funds were ~~$62~~$25 million and ~~$243~~$74 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~Citizens Financial Group, Inc. | 72~~

Long-term borrowed funds

The following table presents a summary of the Company’s long-term borrowed funds:

(in millions) June 30, 2021 December 31, 2020
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021 (1)
$0 $350
4.150% fixed-rate subordinated debt, due September 2022 (2)
168 182
3.750% fixed-rate subordinated debt, due July 2024 (2)
90 159
4.023% fixed-rate subordinated debt, due October 2024 (2)
17 25
4.350% fixed-rate subordinated debt, due August 2025 (2)
133 193
4.300% fixed-rate subordinated debt, due December 2025 (2)
336 450
2.850% fixed-rate senior unsecured notes, due July 2026 497 497
2.500% fixed-rate senior unsecured notes, due February 2030 298 297
3.250% fixed-rate senior unsecured notes, due April 2030 745 745
3.750% fixed-rate reset subordinated debt, due February 2031 (2)
69 0
4.300% fixed-rate reset subordinated debt, due February 2031 (2)
135 0
4.350% fixed-rate reset subordinated debt, due February 2031 (2)
60 0
2.638% fixed-rate subordinated debt, due September 2032 547 543
CBNA’s Global Note Program:
2.550% senior unsecured notes, due May 2021 0 1,003
3.250% senior unsecured notes, due February 2022 708 716
0.874% floating-rate senior unsecured notes, due February 2022 (3)
300 299
0.951% floating-rate senior unsecured notes, due May 2022 (3)
250 250
2.650% senior unsecured notes, due May 2022 507 510
3.700% senior unsecured notes, due March 2023 520 527
1.096% floating-rate senior unsecured notes, due March 2023 (3)
250 249
2.250% senior unsecured notes, due April 2025 746 746
3.750% senior unsecured notes, due February 2026 536 551
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 0.909% weighted average rate, due through 2038 18 19
Other 27 35
Total long-term borrowed funds $6,957 $8,346


(in millions)	March 31, 2022	December 31, 2021
Parent Company:
4.150% fixed-rate subordinated debt, due September 2022	$168	$168
3.750% fixed-rate subordinated debt, due July 2024	90	90
4.023% fixed-rate subordinated debt, due October 2024	17	17
4.350% fixed-rate subordinated debt, due August 2025	133	133
4.300% fixed-rate subordinated debt, due December 2025	337	336
2.850% fixed-rate senior unsecured notes, due July 2026	498	498
2.500% fixed-rate senior unsecured notes, due February 2030	298	298
3.250% fixed-rate senior unsecured notes, due April 2030	745	745
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
2.638% fixed-rate subordinated debt, due September 2032	551	550
CBNA’s Global Note Program:
3.250% senior unsecured notes, due February 2022(1)	—	700
0.845% floating-rate senior unsecured notes, due February 2022(1)(2)	—	300
1.318% floating-rate senior unsecured notes, due May 2022(2)	250	250
2.650% senior unsecured notes, due May 2022	500	503
3.700% senior unsecured notes, due March 2023	504	512
1.933% floating-rate senior unsecured notes, due March 2023(2)	250	250
2.250% senior unsecured notes, due April 2025	747	746
3.750% senior unsecured notes, due February 2026	498	524
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 0.774% weighted average rate, due through 2041	20	19
Other	24	29
Total long-term borrowed funds	$5,894	$6,932

(1) Notes were redeemed on ~~June 28, 2021.~~January 14, 2022.

(2)June 30, 2021 balances reflect the February 2021 completion of $265 million in private exchange offers for 5 series of outstanding subordinated notes whereby participants received newly issued 3.750%, 4.300%, and 4.350% fixed-rate reset subordinated notes due 2031 which are redeemable by the Company five years prior to their maturity.

~~(3)~~ Rate disclosed reflects the floating rate as of ~~June 30, 2021.~~March 31, 2022, or final floating rate as applicable.

Citizens Financial Group, Inc. | 55

The Parent Company’s long-term borrowed funds as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 included principal balances of $3.2 billion, ~~and $3.5 billion, respectively,~~ and unamortized deferred issuance costs and/or discounts of ~~$84~~$78 million and ~~$90~~$80 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 included principal balances of ~~$3.8~~$2.8 billion and ~~$4.8~~$3.8 billion, respectively, with unamortized deferred issuance costs and/or discounts of $9$6 million and ~~$11~~$7 million, respectively, and hedging basis adjustments of ~~$76~~$5 million and ~~$112~~$42 million, respectively. See Note 89 for further information about the Company’s hedging of certain long-term borrowed funds.

Advances, lines of credit and letters of credit from the FHLB are collateralized primarily by residential mortgages and home equity products at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was ~~$2.5~~$2.8 billion and ~~$3.2~~$2.3 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The Company’s available FHLB borrowing capacity was ~~$14.4~~$16.4 billion and ~~$13.9~~$15.9 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At ~~June 30, 2021,~~March 31, 2022, the Company’s unused secured borrowing capacity was approximately ~~$64.3~~$63.2 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

~~Citizens Financial Group, Inc. | 73~~

The following table presents a summary of maturities for the Company’s long-term borrowed funds at ~~June 30, 2021:~~March 31, 2022:


(in millions)	(in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated	(in millions)	Parent Company	CBNA and Other Subsidiaries	Consolidated
Year	Year				Year
2021		$0	$4	$4
2022	2022	168	1,771	1,939	2022	$168	$755	$923
2023	2023	0	771	771	2023	—	758	758
2024	2024	107	0	107	2024	107	1	108
2025	2025	469	760	1,229	2025	469	760	1,229
2026 and thereafter		2,351	556	2,907
2026					2026	498	499	997
2027 and thereafter					2027 and thereafter	1,859	20	1,879
Total	Total	$3,095	$3,862	$6,957	Total	$3,101	$2,793	$5,894

NOTE 89 - DERIVATIVES

In the normal course of business, Citizens enters into a variety of derivative transactions to meet the financing and hedging needs of its customers and to 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. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 1920 in the Company’s ~~2020~~2021 Form 10-K.

Citizens Financial Group, Inc. | 56

The following table presents derivative instruments included in the Consolidated Balance Sheets:


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
(in millions)	(in millions)	Notional Amount(1)	Derivative Assets	Derivative Liabilities	Notional Amount(1)	Derivative Assets	Derivative Liabilities	(in millions)	Notional Amount(1)	Derivative Assets	Derivative Liabilities	Notional Amount(1)	Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:							Derivatives designated as hedging instruments:
Interest rate contracts	Interest rate contracts	$25,300	$16	$7	$22,300	$1	$3	Interest rate contracts	$17,250	$1	$1	$23,450	$12	$2
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate contracts	Interest rate contracts	144,982	1,118	190	149,021	1,565	214	Interest rate contracts	158,286	172	445	142,987	680	174
Foreign exchange contracts	Foreign exchange contracts	20,289	273	209	16,789	320	291	Foreign exchange contracts	22,809	378	349	21,336	263	231
Commodities contracts	Commodities contracts	431	424	427	246	62	61	Commodities contracts	694	1,501	1,496	514	508	505
TBA contracts	TBA contracts	10,924	5	28	11,149	8	65	TBA contracts	7,650	102	22	7,776	8	8
Other contracts	Other contracts	6,717	89	0	8,051	197	0	Other contracts	3,081	9	30	3,555	38	2
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		1,909	854		2,152	631	Total derivatives not designated as hedging instruments		2,162	2,342		1,497	920
Gross derivative fair values	Gross derivative fair values		1,925	861		2,153	634	Gross derivative fair values		2,163	2,343		1,509	922
Less: Gross amounts offset in the Consolidated Balance Sheets (2)	Less: Gross amounts offset in the Consolidated Balance Sheets (2)		(207)	(207)		(182)	(182)	Less: Gross amounts offset in the Consolidated Balance Sheets(2)		(312)	(312)		(235)	(235)
Less: Cash collateral applied (2)	Less: Cash collateral applied (2)		(63)	(510)		(56)	(324)	Less: Cash collateral applied(2)		(176)	(1,396)		(58)	(490)
Total net derivative fair values presented in the Consolidated Balance Sheets	Total net derivative fair values presented in the Consolidated Balance Sheets		$1,655	$144		$1,915	$128	Total net derivative fair values presented in the Consolidated Balance Sheets		$1,675	$635		$1,216	$197

(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate contracts, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they do not measure the true economic risk of these contracts.

(2) 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 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. The Company formally documents at inception all hedging relationships, as well as risk management objectives and strategies for undertaking various accounting

~~Citizens Financial Group, Inc. | 74~~

hedges. Additionally, the Company monitors the effectiveness of its hedge relationships during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on the hedge relationship and the Company monitors each relationship to ensure that management’s initial intent continues to be satisfied. The Company discontinues hedge accounting treatment when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge and subsequently reflects changes in the fair value of the derivative in earnings after termination of the hedge relationship.

Fair Value Hedges

Citizens has outstanding interest rate swap agreements utilized to manage the interest rate exposure on its long-term borrowings and AFS debt securities. Certain fair value hedges have been designated as a last-of-layer hedge, which affords the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item.

Citizens Financial Group, Inc. | 57

The following table presents the change in fair value of interest rate contracts designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Operations:

Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020 Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging borrowed funds ($10) $5 ($38) $98 Interest expense - long-term borrowed funds
Hedged long-term debt attributable to the risk being hedged 9 (3) 37 (95) Interest expense - long-term borrowed funds
Interest rate swaps hedging fixed rate loans 0 0 0 17 Interest and fees on loans and leases
Hedged fixed rate loans attributable to the risk being hedged 0 0 0 (17) Interest and fees on loans and leases
Interest rate swaps hedging debt securities available for sale 4 (14) 32 (121) Interest income - investment securities
Hedged debt securities available for sale attributable to risk being hedged (4) 14 (32) 121 Interest income - investment securities


	Three Months Ended March 31,
(in millions)		2022	2021	Affected Line Item in the Consolidated Statements of Operations
Interest rate swaps hedging borrowed funds		($37)	($28)	Interest expense - long-term borrowed funds
Hedged long-term debt attributable to the risk being hedged		37	28	Interest expense - long-term borrowed funds


Interest rate swaps hedging debt securities available for sale		29	28	Interest income - investment securities
Hedged debt securities available for sale attributable to risk being hedged		(29)	(28)	Interest income - investment securities

The following table reflects amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
(in millions)	(in millions)	Debt securities available for sale(1)	Long-term borrowed funds	Debt securities available for sale(1)	Long-term borrowed funds	(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	Carrying amount of hedged assets	$8,287	$0	$10,869	$0	Carrying amount of hedged assets	$—	$—	$6,042	$—
Carrying amount of hedged liabilities	Carrying amount of hedged liabilities	0	2,272	0	3,307	Carrying amount of hedged liabilities	—	1,503	—	2,239
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	64	76	96	112	Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	—	5	29	42

(1) The Company designated $2.0 billion as the hedged amount (from a closed portfolio of prepayable financial assets with an amortized cost basis of ~~$8.3 billion and $10.9~~$6.0 billion as of ~~June 30, 2021 and~~ December 31, ~~2020, respectively)~~2021) in a last-of-layer hedging relationship, which commenced in the third quarter of ~~2019.~~2019 and was terminated in the first quarter of 2022.

Cash Flow Hedges

Citizens has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating-rate assets and liabilities. All of these swaps have been deemed highly effective cash flow hedges. During the next 12 months, there are ~~$86~~$141 million in pre-tax net ~~gains~~losses on derivative instruments included in OCI expected to be reclassified to net interest income in the Consolidated Statements of Operations. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to ~~June 30, 2021.~~March 31, 2022.

The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income ~~relating~~related to derivative instruments designated as cash flow hedges:

~~Citizens Financial Group, Inc. | 75~~

Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Amount of pre-tax net gains (losses) recognized in OCI $62 ($11) $34 $118
Amount of pre-tax net gains (losses) reclassified from OCI into interest income 49 55 95 60
Amount of pre-tax net gains (losses) reclassified from OCI into interest expense (12) (10) (24) (11)


	Three Months Ended March 31,
(in millions)		2022	2021
Amount of pre-tax net gains (losses) recognized in OCI		($661)	($28)
Amount of pre-tax net gains (losses) reclassified from OCI into interest income		37	46
Amount of pre-tax net gains (losses) reclassified from OCI into interest expense		(5)	(12)

Derivatives Not Designated As Hedging Instruments

Economic Hedges

The Company’s economic hedges include those related to offsetting customer derivatives, residential mortgage loan derivatives (including interest rate lock commitments and forward sales commitments) and derivatives to hedge its residential MSR portfolio. Customer derivatives include interest rate, foreign exchange and commodity derivative contracts designed to meet the hedging and financing needs of the Company’s customers, and are economically hedged by the Company to offset its market exposure. Interest rate lock commitments on residential mortgage loans that will be held for sale are considered derivative instruments, and are economically hedged by entering into forward sale commitments to manage changes in fair value due to interest rate risk. Residential MSR portfolio derivatives are entered to hedge the risk of changes in the fair value of the Company’s MSRs.

Citizens Financial Group, Inc. | 58

The following table presents the effect of economic hedges on noninterest income:

Amounts Recognized in
Noninterest Income for the
Three Months Ended June 30, Six Months Ended June 30, Affected Line Item in the Consolidated Statements of Operations
(in millions) 2021 2020 2021 2020
Economic hedge type:
Customer interest rate contracts $133 $180 ($215) $1,269 Foreign exchange and interest rate products
Derivatives hedging interest rate risk (129) (161) 227 (1,246) Foreign exchange and interest rate products
Customer foreign exchange contracts 19 23 (97) (7) Foreign exchange and interest rate products
Derivatives hedging foreign exchange risk (11) (50) 139 49 Foreign exchange and interest rate products
Customer commodity contracts 319 7 413 (56) Foreign exchange and interest rate products
Derivatives hedging commodity price risk (317) (7) (409) 57 Foreign exchange and interest rate products
Residential loan commitments 67 14 (171) 154 Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value (141) 110 134 (19) Mortgage banking fees
Derivative contracts used to hedge residential MSRs 53 62 (129) 333 Mortgage banking fees
Total ($7) $178 ($108) $534


		Amounts Recognized in Noninterest Income for the
	Three Months Ended March 31,		Affected Line Item in the Consolidated Statements of Operations
(in millions)		2022			2021
Economic hedge type:
Customer interest rate contracts		($767)		($348)	Foreign exchange and derivative products
Derivatives hedging interest rate risk		793		356	Foreign exchange and derivative products
Customer foreign exchange contracts		26		(116)	Foreign exchange and derivative products
Derivatives hedging foreign exchange risk		3		150	Foreign exchange and derivative products
Customer commodity contracts		1,152		94	Foreign exchange and derivative products
Derivatives hedging commodity price risk		(1,148)		(92)	Foreign exchange and derivative products
Residential loan commitments		(161)		(238)	Mortgage banking fees
Derivatives hedging residential loan commitments and mortgage loans held for sale, at fair value		271		275	Mortgage banking fees
Derivative contracts used to hedge residential MSRs		(146)		(182)	Mortgage banking fees
Total		$23		($101)

~~Citizens Financial Group, Inc. | 76~~

NOTE 910 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in the balances, net of income taxes, of each component of AOCI:

As of and for the Three Months Ended June 30,
(in millions) Net Unrealized Gains (Losses) on Derivatives Net Unrealized Gains (Losses) on Debt Securities Employee Benefit Plans Total AOCI
Balance at April 1, 2020 $96 $401 ($412) $85
Other comprehensive income (loss) before reclassifications (8) 49 0 41
Amounts reclassified to the Consolidated Statements of Operations (34) (2) 4 (32)
Net other comprehensive income (loss) (42) 47 4 9
Balance at June 30, 2020 $54 $448 ($408) $94
Balance at April 1, 2021 ($57) $71 ($425) ($411)
Other comprehensive income (loss) before reclassifications 46 10 0 56
Amounts reclassified to the Consolidated Statements of Operations (27) (3) 4 (26)
Net other comprehensive income (loss) 19 7 4 30
Balance at June 30, 2021 ($38) $78 ($421) ($381)
Primary location of amounts reclassified to the Consolidated Statements of Operations Net interest income Securities gains, net Other operating expense


		As of and for the Six Months Ended June 30,					As of and for the Three Months Ended March 31,
(in millions)	(in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI	(in millions)	Net Unrealized Gains (Losses) on Derivatives	Net Unrealized Gains (Losses) on Debt Securities	Employee Benefit Plans	Total AOCI
Balance at January 1, 2020		$3	$1	($415)	($411)
Other comprehensive income (loss) before reclassifications		88	449	0	537

Amounts reclassified to the Consolidated Statements of Operations		(37)	(2)	7	(32)
Net other comprehensive income (loss)		51	447	7	505

Balance at June 30, 2020		$54	$448	($408)	$94
Balance at January 1, 2021	Balance at January 1, 2021	($11)	$380	($429)	($60)	Balance at January 1, 2021	($11)	$380	($429)	($60)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	25	(297)	0	(272)	Other comprehensive income (loss) before reclassifications	(21)	(307)	—	(328)

Amounts reclassified to the Consolidated Statements of Operations	Amounts reclassified to the Consolidated Statements of Operations	(52)	(5)	8	(49)	Amounts reclassified to the Consolidated Statements of Operations	(25)	(2)	4	(23)
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(27)	(302)	8	(321)	Net other comprehensive income (loss)	(46)	(309)	4	(351)

Balance at June 30, 2021		($38)	$78	($421)	($381)
Primary location of amounts reclassified to the Consolidated Statements of Operations		Net interest income	Securities gains, net	Other operating expense
Balance at March 31, 2021						Balance at March 31, 2021	($57)	$71	($425)	($411)
Balance at January 1, 2022						Balance at January 1, 2022	($161)	($156)	($348)	($665)
Other comprehensive income (loss) before reclassifications						Other comprehensive income (loss) before reclassifications	(491)	(1,077)	—	(1,568)

Amounts reclassified to the Consolidated Statements of Operations						Amounts reclassified to the Consolidated Statements of Operations	(24)	(3)	2	(25)
Net other comprehensive income (loss)						Net other comprehensive income (loss)	(515)	(1,080)	2	(1,593)

Balance at March 31, 2022						Balance at March 31, 2022	($676)	($1,236)	($346)	($2,258)
Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI						Primary location in the Consolidated Statements of Operations of amounts reclassified from AOCI	Net interest income	Securities gains, net	Other operating expense

Citizens Financial Group, Inc. | 7759

NOTE 1011 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes the Company’s preferred stock:


				June 30, 2021			December 31, 2020					March 31, 2022			December 31, 2021
(in millions, except per share and share data)	(in millions, except per share and share data)	Liquidation value per share		Preferred Shares		Carrying Amount	Preferred Shares	Carrying Amount	(in millions, except per share and share data)	Liquidation value per share		Preferred Shares		Carrying Amount	Preferred Shares	Carrying Amount
Authorized ($25 par value per share)	Authorized ($25 par value per share)			100,000,000			100,000,000		Authorized ($25 par value per share)			100,000,000			100,000,000
Issued and outstanding:	Issued and outstanding:								Issued and outstanding:
Series A		$1,000		0		$0	250,000	$247
Series B	Series B	1,000		300,000		296	300,000	296	Series B	$1,000		300,000		$296	300,000	$296
Series C	Series C	1,000		300,000		297	300,000	297	Series C	1,000		300,000		297	300,000	297
Series D	Series D	1,000	(1)	300,000	(2)	293	300,000	293	Series D	1,000	(1)	300,000	(2)	293	300,000	293
Series E	Series E	1,000	(1)	450,000	(3)	437	450,000	437	Series E	1,000	(1)	450,000	(3)	437	450,000	437
Series F	Series F	1,000		400,000		395	400,000	395	Series F	1,000		400,000		395	400,000	395
Series G	Series G	1,000		300,000		296	0	0	Series G	1,000		300,000		296	300,000	296
Total	Total			2,050,000		$2,014	2,000,000	$1,965	Total			2,050,000		$2,014	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.

In June 2021, the Company provided notice of its intent to redeem all outstanding shares of the 5.500% fixed-to-floating non-cumulative perpetual Series A Preferred Stock (the “Series A Preferred Stock”) on July 6, 2021. Prior to the settlement, the Company reclassified the Series A Preferred Stock from shareholders’ equity to other liabilities in the Consolidated Balance Sheets. On July 6, 2021, the Company redeemed all outstanding shares of the Series A Preferred Stock.

On June 11, 2021, the Company issued $300 million, or 300,000 shares, of 4.000% fixed-rate reset non-cumulative perpetual Series G Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (the “Series G Preferred Stock”). As a result of this issuance, the Company received net proceeds of $296 million after the underwriting discount and other expenses. The Series G Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate equal to 4.000% from the date of issuance to, but excluding, October 6, 2026, and from and including October 6, 2026, for each dividend reset period, at a rate equal to the five-year U.S. treasury rate as of the most recent reset dividend determination date, plus 3.215% per annum. The Series G Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after October 6, 2026 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 G Preferred Stock without obtaining the prior approval of the FRB if then required under applicable capital guidelines. Except in certain limited circumstances, the Series G Preferred Stock does not have any voting rights.

For further detail regarding the terms and conditions of the Company’s preferred stock, see Note ~~16 to~~17 in the Company’s ~~Consolidated Financial Statements in the 2020~~2021 Form 10-K.

Dividends

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
(in millions, except per share data) Dividends Declared per Share Dividends Declared Dividends Paid Dividends Declared per Share Dividends Declared Dividends Paid
Common stock $0.39 $168 $168 $0.39 $168 $168
Preferred stock
Series A $10.50 $2 $2 $13.48 $3 $7
Series B 30.00 9 0 30.00 9 0
Series C 15.94 5 5 15.94 5 5
Series D 15.88 4 4 15.88 5 5
Series E 12.50 6 6 12.50 6 5
Series F 14.13 6 6 0 0 0
Total preferred stock $32 $23 $28 $22

~~Citizens Financial Group, Inc. | 78~~

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
(in millions, except per share data) Dividends Declared per Share Dividends Declared Dividends Paid Dividends Declared per Share Dividends Declared Dividends Paid
Common stock $0.78 $335 $335 $0.78 $336 $336
Preferred stock
Series A $20.99 $5 $5 $40.98 $10 $7
Series B 30.00 9 9 30.00 9 9
Series C 31.88 10 10 31.88 10 10
Series D 31.75 9 9 31.75 10 10
Series E 25.00 11 11 25.00 11 9
Series F 28.25 11 11 0 0 0
Total preferred stock $55 $55 $50 $45

~~Treasury Stock~~

~~During the six months ended June 30, 2021, the Company repurchased $95 million, or 2,244,924 shares, of its outstanding common stock, which are held in treasury stock.~~


	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
(in millions, except per share data)	Dividends Declared per Share	Dividends Declared	Dividends Paid	Dividends Declared per Share	Dividends Declared	Dividends Paid
Common stock	$0.39	$165	$165	$0.39	$167	$167
Preferred stock
Series A	$—	$—	$—	$10.49	$3	$3
Series B	—	—	9	—	—	9
Series C	15.94	5	5	15.94	5	5
Series D	15.88	5	5	15.88	5	5
Series E	12.50	5	5	12.50	5	5
Series F	14.13	6	6	14.13	5	5
Series G	10.00	3	3	—	—	—
Total preferred stock		$24	$33		$23	$32

NOTE 1112 - COMMITMENTS AND CONTINGENCIES

A summary of outstanding off-balance sheet arrangements is presented below. For more information on these arrangements, see Note 1819 in the Company’s ~~2020~~2021 Form 10-K.


(in millions)	(in millions)	June 30, 2021	December 31, 2020	(in millions)	March 31, 2022	December 31, 2021
Commitments to extend credit	Commitments to extend credit	$76,761	$74,160	Commitments to extend credit	$87,127	$84,206
Letters of credit	Letters of credit	1,926	2,239	Letters of credit	1,977	1,998
Risk participation agreements	Risk participation agreements	68	98	Risk participation agreements	17	39
Loans sold with recourse	Loans sold with recourse	64	54	Loans sold with recourse	85	82
Marketing rights	Marketing rights	26	29	Marketing rights	24	26
Total	Total	$78,845	$76,580	Total	$89,230	$86,351

Citizens Financial Group, Inc. | 60

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments 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.

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. Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of allowances for unfunded commitments. Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.

Other Commitments

Citizens has additional off-balance sheet arrangements that are summarized below:

•Marketing Rights - During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.

•Loans sold with recourse - Citizens 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

~~Citizens Financial Group, Inc. | 79~~

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 ~~June 30, 2021,~~March 31, 2022, the remaining terms on these RPAs ranged from less than one year to eight 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, and mis-selling of certain products.~~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.

Citizens Financial Group, Inc. | 61

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 unaudited interim Consolidated Financial Statements.

NOTE 1213 - FAIR VALUE MEASUREMENTS

Citizens 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. Additionally, fair value is 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. Citizens also applies the fair value measurement guidance 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.

~~Citizens Financial Group, Inc. | 80~~

Fair Value Option

Citizens elected to account for residential mortgage LHFS and certain commercial and industrial, and commercial real estate LHFS at fair value. The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
(in millions)	(in millions)	Aggregate Fair Value	Aggregate Unpaid Principal	Aggregate Fair Value Greater (Less) Aggregate Unpaid Principal	Aggregate Fair Value	Aggregate Unpaid Principal	Aggregate Fair Value Greater (Less) Aggregate Unpaid Principal	(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, at fair value	Residential mortgage loans held for sale, at fair value	$3,499	$3,388	$111	$3,416	$3,260	$156	Residential mortgage loans held for sale, at fair value	$1,595	$1,610	($15)	$2,657	$2,591	$66
Commercial and industrial, and commercial real estate loans held for sale, at fair value	Commercial and industrial, and commercial real estate loans held for sale, at fair value	117	119	(2)	148	153	(5)	Commercial and industrial, and commercial real estate loans held for sale, at fair value	122	127	(5)	76	79	(3)

For more information on the election of the fair value option for these assets see Note 1920 in the Company’s ~~2020~~2021 Form 10-K.

Recurring Fair Value Measurements

Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis. For more information on the valuation techniques utilized to measure recurring fair value see Note 1920 in the Company’s ~~2020~~2021 Form 10-K.

~~Collateralized Loan Obligations~~

The fair value of CLOs is estimated using observable inputs, including prices of similar securities that trade in the market. The Company classifies these securities in Level 2 of the fair value hierarchy using these observable inputs.

~~Derivatives - Commodities Contracts~~

The fair value of commodity derivatives uses the mid-point of market observable quoted prices as an input into the fair value model. The model uses the observed market prices combined with other market observed inputs to derive the fair value of the instrument, which generally classifies it as Level 2 instrument. This type of derivative is exposed to counterparty risk; therefore, the Company adjusts the fair value of the contract by the credit valuation adjustment.

Citizens Financial Group, Inc. | 8162

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at ~~June 30, 2021:~~March 31, 2022:


(in millions)	(in millions)	Total	Level 1	Level 2	Level 3	(in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:	Debt securities available for sale:					Debt securities available for sale:
Mortgage-backed securities	Mortgage-backed securities	$24,392	$0	$24,392	$0	Mortgage-backed securities	$23,899	$—	$23,899	$—

Collateralized loan obligations	Collateralized loan obligations	177	0	177	0	Collateralized loan obligations	1,264	—	1,264	—
State and political subdivisions	State and political subdivisions	3	0	3	0	State and political subdivisions	2	—	2	—
U.S. Treasury and other	U.S. Treasury and other	11	11	0	0	U.S. Treasury and other	154	154	—	—
Total debt securities available for sale	Total debt securities available for sale	24,583	11	24,572	0	Total debt securities available for sale	25,319	154	25,165	—
Loans held for sale, at fair value:	Loans held for sale, at fair value:					Loans held for sale, at fair value:
Residential loans held for sale	Residential loans held for sale	3,499	0	3,499	0	Residential loans held for sale	1,595	—	1,595	—
Commercial loans held for sale	Commercial loans held for sale	117	0	117	0	Commercial loans held for sale	122	—	122	—
Total loans held for sale, at fair value	Total loans held for sale, at fair value	3,616	0	3,616	0	Total loans held for sale, at fair value	1,717	—	1,717	—
Mortgage servicing rights	Mortgage servicing rights	902	0	0	902	Mortgage servicing rights	1,241	—	—	1,241
Derivative assets:	Derivative assets:					Derivative assets:
Interest rate contracts	Interest rate contracts	1,134	0	1,134	0	Interest rate contracts	173	—	173	—
Foreign exchange contracts	Foreign exchange contracts	273	0	273	0	Foreign exchange contracts	378	—	378	—
Commodities contracts	Commodities contracts	424	0	424	0	Commodities contracts	1,501	—	1,501	—
TBA contracts	TBA contracts	5	0	5	0	TBA contracts	102	—	102	—
Other contracts	Other contracts	89	0	0	89	Other contracts	9	—	—	9
Total derivative assets	Total derivative assets	1,925	0	1,836	89	Total derivative assets	2,163	—	2,154	9
Equity securities, at fair value(1)	Equity securities, at fair value(1)	80	80	0	0	Equity securities, at fair value(1)	108	101	7	—
Total assets	Total assets	$31,106	$91	$30,024	$991	Total assets	$30,548	$255	$29,043	$1,250
Derivative liabilities:	Derivative liabilities:					Derivative liabilities:
Interest rate contracts	Interest rate contracts	$197	$0	$197	$0	Interest rate contracts	$446	$—	$446	$—
Foreign exchange contracts	Foreign exchange contracts	209	0	209	0	Foreign exchange contracts	349	—	349	—
Commodities contracts	Commodities contracts	427	0	427	0	Commodities contracts	1,496	—	1,496	—
TBA contracts	TBA contracts	28	0	28	0	TBA contracts	22	—	22	—

Other contracts						Other contracts	30	—	—	30
Total derivative liabilities	Total derivative liabilities	861	0	861	0	Total derivative liabilities	2,343	—	2,313	30
Total liabilities	Total liabilities	$861	$0	$861	$0	Total liabilities	$2,343	$—	$2,313	$30

(1) Excludes investments of $22 million that are measured at fair value using the net asset value per share (or its equivalent) practical expedient.

Citizens Financial Group, Inc. | 8263

The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities, on a recurring basis at December 31, ~~2020:~~2021:


(in millions)	(in millions)	Total	Level 1	Level 2	Level 3	(in millions)	Total	Level 1	Level 2	Level 3
Debt securities available for sale:	Debt securities available for sale:					Debt securities available for sale:
Mortgage-backed securities	Mortgage-backed securities	$22,928	$0	$22,928	$0	Mortgage-backed securities	$24,847	$—	$24,847	$—
Collateralized loan obligations						Collateralized loan obligations	1,207	—	1,207	—
State and political subdivisions	State and political subdivisions	3	0	3	0	State and political subdivisions	2	—	2	—
U.S. Treasury and other	U.S. Treasury and other	11	11	0	0	U.S. Treasury and other	11	11	—	—
Total debt securities available for sale	Total debt securities available for sale	22,942	11	22,931	0	Total debt securities available for sale	26,067	11	26,056	—
Loans held for sale, at fair value:	Loans held for sale, at fair value:					Loans held for sale, at fair value:
Residential loans held for sale	Residential loans held for sale	3,416	0	3,416	0	Residential loans held for sale	2,657	—	2,657	—
Commercial loans held for sale	Commercial loans held for sale	148	0	148	0	Commercial loans held for sale	76	—	76	—
Total loans held for sale, at fair value	Total loans held for sale, at fair value	3,564	0	3,564	0	Total loans held for sale, at fair value	2,733	—	2,733	—
Mortgage servicing rights	Mortgage servicing rights	658	0	0	658	Mortgage servicing rights	1,029	—	—	1,029
Derivative assets:	Derivative assets:					Derivative assets:
Interest rate contracts	Interest rate contracts	1,566	0	1,566	0	Interest rate contracts	692	—	692	—
Foreign exchange contracts	Foreign exchange contracts	320	0	320	0	Foreign exchange contracts	263	—	263	—
Commodities contracts	Commodities contracts	62	0	62	0	Commodities contracts	508	—	508	—
TBA contracts	TBA contracts	8	0	8	0	TBA contracts	8	—	8	—
Other contracts	Other contracts	197	0	0	197	Other contracts	38	—	—	38
Total derivative assets	Total derivative assets	2,153	0	1,956	197	Total derivative assets	1,509	—	1,471	38
Equity securities, at fair value		66	66	0	0
Equity securities, at fair value(1)						Equity securities, at fair value(1)	102	95	7	—
Total assets	Total assets	$29,383	$77	$28,451	$855	Total assets	$31,440	$106	$30,267	$1,067
Derivative liabilities:	Derivative liabilities:					Derivative liabilities:
Interest rate contracts	Interest rate contracts	$217	$0	$217	$0	Interest rate contracts	$176	$—	$176	$—
Foreign exchange contracts	Foreign exchange contracts	291	0	291	0	Foreign exchange contracts	231	—	231	—
Commodities contracts	Commodities contracts	61	0	61	0	Commodities contracts	505	—	505	—
TBA contracts	TBA contracts	65	0	65	0	TBA contracts	8	—	8	—

Other contracts						Other contracts	2	—	2	—
Total derivative liabilities	Total derivative liabilities	634	0	634	0	Total derivative liabilities	922	—	922	—
Total liabilities	Total liabilities	$634	$0	$634	$0	Total liabilities	$922	$—	$922	$—

~~Citizens Financial Group, Inc. | 83~~

(1)

Excludes investments of $7 million that are measured at fair value using the net asset value per share (or its equivalent) practical expedient.

The following tables present a roll forward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3:

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
(in millions) Mortgage Servicing Rights Other Derivative Contracts Mortgage Servicing Rights Other Derivative Contracts
Beginning balance $893 $38 $658 $197
Issuances 122 81 209 243
Settlements (2)
(47) (97) (105) (180)
Changes in fair value during the period recognized in earnings (3)
(66) 67 140 (171)
Ending balance $902 $89 $902 $89

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
(in millions) Mortgage Servicing Rights Other Derivative Contracts Mortgage Servicing Rights Other Derivative Contracts
Beginning balance $577 $143 $642 $19
Transfers upon election of fair value method (1)
0 0 190 0
Beginning balance, adjusted 577 143 832 19
Issuances 86 234 153 405
Settlements (2)
(46) (344) (86) (420)
Changes in fair value during the period recognized in earnings (3)
(49) 140 (331) 169
Ending balance $568 $173 $568 $173


	Three Months Ended March 31, 2022
(in millions)		Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance		$1,029	$38
Issuances		95	41
Settlements(1)		(39)	61
Changes in fair value during the period recognized in earnings(2)		156	(161)
Ending balance		$1,241	($21)


	Three Months Ended March 31, 2021
(in millions)		Mortgage Servicing Rights	Other Derivative Contracts
Beginning balance		$658	$197



Issuances		87	162
Settlements(1)		(58)	(83)
Changes in fair value during the period recognized in earnings(2)		206	(238)
Ending balance		$893	$38

(1) ~~Effective January 1, 2020, the Company elected to account for all MSRs previously accounted for under the amortization method under the fair value method.~~

~~(2)~~ Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial

paydowns, and ii) loans that paid off during the period.

~~(3)~~(2) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

Citizens Financial Group, Inc. | 64

The following table presents quantitative information about the Company’s Level 3 assets, including the range and weighted-average of the significant unobservable inputs used to fair value these assets, as well as valuation techniques used.

As of ~~June 30, 2021~~March 31, 2022

Valuation Technique

Unobservable Input

Range (Weighted Average)

Mortgage servicing rights

Discounted Cash Flow

Constant prepayment rate

~~10.56-29.54%~~7.74-22.35% CPR ~~(11.9%~~(8.8% CPR)

Option adjusted spread

~~(1490)-1,060~~400-1,060 bps ~~(581~~(621 bps)

Other derivative contracts

Internal Model

Pull through rate

~~10.38-99.90% (81.66%~~18.62-100.06% (82.66%)

MSR value

~~(0.21)-154.76~~4.37-177.45 bps ~~(99.01~~(100.00 bps)

Nonrecurring Fair Value Measurements

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 1920 in the Company’s ~~2020~~2021 Form 10-K.

The following table presents losses on assets measured at fair value on a nonrecurring basis and recorded in earnings:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Collateral-dependent loans	Collateral-dependent loans	$0	($22)	($19)	($44)	Collateral-dependent loans		($2)	($19)

~~Citizens Financial Group, Inc. | 84~~

The following table presents assets measured at fair value on a nonrecurring basis:

June 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

(in millions)

Total

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

(in millions)

Total

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Collateral-dependent loans

$620

$758

Collateral-dependent loans

$600

$—

$600

$—

$645

$—

$645

$—

Fair Value of Financial Instruments

The following tables present the estimated fair value for financial instruments not recorded at fair value in the unaudited interim Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:

June 30, 2021
Total Level 1 Level 2 Level 3
(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 $2,711 $2,790 $0 $0 $1,887 $1,964 $824 $826
Other loans held for sale 82 82 0 0 0 0 82 82
Loans and leases 122,581 123,022 0 0 620 620 121,961 122,402
Other assets 602 602 0 0 594 594 8 8
Financial liabilities:
Deposits 150,636 150,658 0 0 150,636 150,658 0 0
Short-term borrowed funds 62 62 0 0 62 62 0 0
Long-term borrowed funds 6,957 7,307 0 0 6,957 7,307 0 0


		December 31, 2020									March 31, 2022
		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3
(in millions)	(in millions)	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	(in millions)	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial assets:	Financial assets:									Financial assets:
Debt securities held to maturity	Debt securities held to maturity	$3,235	$3,357	$0	$0	$2,342	$2,464	$893	$893	Debt securities held to maturity	$2,056	$2,011	$—	$—	$1,370	$1,355	$686	$656
Other loans held for sale	Other loans held for sale	439	439	0	0	0	0	439	439	Other loans held for sale	99	98	—	—	—	—	99	98
Loans and leases	Loans and leases	123,090	123,678	0	0	758	758	122,332	122,920	Loans and leases	131,305	129,134	—	—	600	600	130,705	128,534
Other assets	Other assets	604	604	0	0	596	596	8	8	Other assets	611	611	—	—	595	595	16	16
Financial liabilities:	Financial liabilities:									Financial liabilities:
Deposits	Deposits	147,164	147,223	0	0	147,164	147,223	0	0	Deposits	158,776	158,746	—	—	158,776	158,746	—	—
Short-term borrowed funds	Short-term borrowed funds	243	243	0	0	243	243	0	0	Short-term borrowed funds	25	25	—	—	25	25	—	—
Long-term borrowed funds	Long-term borrowed funds	8,346	8,850	0	0	8,346	8,850	0	0	Long-term borrowed funds	5,894	5,853	—	—	5,894	5,853	—	—

Citizens Financial Group, Inc. | 8565


	December 31, 2021
	Total		Level 1		Level 2		Level 3
(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	$2,242	$2,289	$—	$—	$1,505	$1,557	$737	$732
Other loans held for sale	735	735	—	—	—	—	735	735
Loans and leases	128,163	128,156	—	—	645	645	127,518	127,511
Other assets	624	624	—	—	609	609	15	15
Financial liabilities:
Deposits	154,361	154,366	—	—	154,361	154,366	—	—
Short-term borrowed funds	74	74	—	—	74	74	—	—
Long-term borrowed funds	6,932	7,188	—	—	6,932	7,188	—	—

NOTE 1314 - NONINTEREST INCOME

Revenues from Contracts with Customers

The following table presents the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
(in millions) Consumer Banking Commercial Banking Other Consolidated Consumer Banking Commercial Banking Other
Consolidated
Service charges and fees $74 $26 $0 $100 $59 $25 $0 $84
Card fees 56 8 0 64 42 7 0 49
Capital markets fees 0 84 0 84 0 48 0 48
Trust and investment services fees 60 0 0 60 45 0 0 45
Other banking fees 0 2 0 2 0 1 0 1
Total revenue from contracts with customers $190 $120 $0 $310 $146 $81 $0 $227
Total revenue from other sources(1)
93 58 24 175 282 63 18 363
Total noninterest income $283 $178 $24 $485 $428 $144 $18 $590


		Six Months Ended June 30, 2021				Six Months Ended June 30, 2020					Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
(in millions)	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	Consumer Banking	Commercial Banking	Other	Consolidated
Service charges and fees	Service charges and fees	$148	$51	$0	$199	$151	$51	$0	$202	Service charges and fees	$69	$27	$1	$97	$74	$25	$—	$99
Card fees	Card fees	103	15	0	118	87	17	0	104	Card fees	50	10	—	60	47	7	—	54
Capital markets fees	Capital markets fees	0	156	0	156	0	113	0	113	Capital markets fees	—	78	—	78	—	72	—	72
Trust and investment services fees	Trust and investment services fees	118	0	0	118	98	0	0	98	Trust and investment services fees	61	—	—	61	58	—	—	58
Other banking fees	Other banking fees	0	4	0	4	0	4	0	4	Other banking fees	1	2	1	4	—	2	—	2
Total revenue from contracts with customers	Total revenue from contracts with customers	$369	$226	$0	$595	$336	$185	$0	$521	Total revenue from contracts with customers	$181	$117	$2	$300	$179	$106	$—	$285
Total revenue from other sources(1)	Total revenue from other sources(1)	265	122	45	432	449	84	33	566	Total revenue from other sources(1)	76	96	26	198	172	64	21	257
Total noninterest income	Total noninterest income	$634	$348	$45	$1,027	$785	$269	$33	$1,087	Total noninterest income	$257	$213	$28	$498	$351	$170	$21	$542

(1)~~Revenue from other sources includes~~ Includes bank-owned life insurance income of ~~$16~~$21 million and $14 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $30 million and $28 million for the six months ended June 30, 2021 and 2020,~~ respectively. ~~Bank-owned life insurance income is included in other income in the consolidated statements of operations.~~

The Company recognized trailing commissions of $4 million ~~and $3 million~~ for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020, respectively, and $8 million and $7 million for the six months ended June 30, 2021 and 2020, respectively,~~ related to ongoing commissions from previous investment sales.

NOTE 1415 - OTHER OPERATING EXPENSE

The following table presents the details of other operating expense:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions)	(in millions)	2021	2020	2021	2020	(in millions)		2022	2021
Marketing	Marketing	$31	$27	$50	$51	Marketing		$26	$19
Deposit Insurance						Deposit Insurance		20	15
Other	Other	62	84	134	171	Other		64	57
Other operating expense	Other operating expense	$93	$111	$184	$222	Other operating expense		$110	$91

Citizens Financial Group, Inc. | 8666

NOTE 1516 - EARNINGS PER SHARE


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
(in millions, except share and per share data)	(in millions, except share and per share data)	2021	2020	2021	2020	(in millions, except share and per share data)		2022	2021
Numerator (basic and diluted):	Numerator (basic and diluted):					Numerator (basic and diluted):
Net income	Net income	$648	$253	$1,259	$287	Net income		$420	$611
Less: Preferred stock dividends	Less: Preferred stock dividends	32	28	55	50	Less: Preferred stock dividends		24	23
Net income available to common stockholders	Net income available to common stockholders	$616	$225	$1,204	$237	Net income available to common stockholders		$396	$588
Denominator:	Denominator:					Denominator:
Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic	425,948,706	426,613,053	425,951,197	427,165,737	Weighted-average common shares outstanding - basic		422,401,747	425,953,716
Dilutive common shares: share-based awards	Dilutive common shares: share-based awards	1,612,866	953,867	1,717,045	1,126,843	Dilutive common shares: share-based awards		2,269,124	1,926,814
Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted	427,561,572	427,566,920	427,668,242	428,292,580	Weighted-average common shares outstanding - diluted		424,670,871	427,880,530
Earnings per common share:	Earnings per common share:					Earnings per common share:
Basic	Basic	$1.45	$0.53	$2.83	$0.56	Basic		$0.94	$1.38
Diluted (1)	Diluted (1)	1.44	0.53	2.81	0.55	Diluted(1)		0.93	1.37

(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 ~~76,984~~2,222 and ~~1,579,361~~305,210 for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and 43,877 and 1,211,751 for the six months ended June 30, 2021 and 2020,~~ respectively.

NOTE 1617 - BUSINESS OPERATING SEGMENTS

Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s 2 business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a segment head who reports directly to the Chief Executive Officer. The Chief Executive Officer has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer. For more information on the Company’s business operating segments, as well as Other non-segment operations, see Note 2526 in the Company’s ~~2020~~2021 Form 10-K.


		As of and for the Three Months Ended June 30, 2021					As of and for the Three Months Ended March 31, 2022
(in millions)	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	Net interest income	$897	$419	($192)	$1,124	Net interest income	$857	$416	($126)	$1,147
Noninterest income	Noninterest income	283	178	24	485	Noninterest income	257	213	28	498
Total revenue	Total revenue	1,180	597	(168)	1,609	Total revenue	1,114	629	(98)	1,645
Noninterest expense	Noninterest expense	751	226	14	991	Noninterest expense	784	272	50	1,106
Profit (loss) before provision for credit losses		429	371	(182)	618
Provision for credit losses		45	34	(292)	(213)
Profit (loss) before provision (benefit) for credit losses						Profit (loss) before provision (benefit) for credit losses	330	357	(148)	539
Provision (benefit) for credit losses						Provision (benefit) for credit losses	49	12	(58)	3
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	384	337	110	831	Income (loss) before income tax expense (benefit)	281	345	(90)	536
Income tax expense (benefit)	Income tax expense (benefit)	98	72	13	183	Income tax expense (benefit)	72	74	(30)	116
Net income (loss)	Net income (loss)	$286	$265	$97	$648	Net income (loss)	$209	$271	($60)	$420
Total average assets	Total average assets	$75,600	$57,527	$51,329	$184,456	Total average assets	$77,551	$61,118	$49,648	$188,317


		As of and for the Three Months Ended June 30, 2020					As of and for the Three Months Ended March 31, 2021
(in millions)	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated	(in millions)	Consumer Banking	Commercial Banking	Other	Consolidated
Net interest income	Net interest income	$814	$419	($73)	$1,160	Net interest income	$863	$421	($167)	$1,117
Noninterest income	Noninterest income	428	144	18	590	Noninterest income	351	170	21	542
Total revenue	Total revenue	1,242	563	(55)	1,750	Total revenue	1,214	591	(146)	1,659
Noninterest expense	Noninterest expense	735	213	31	979	Noninterest expense	750	227	41	1,018
Profit (loss) before provision for credit losses		507	350	(86)	771
Provision for credit losses		80	70	314	464
Profit (loss) before provision (benefit) for credit losses						Profit (loss) before provision (benefit) for credit losses	464	364	(187)	641
Provision (benefit) for credit losses						Provision (benefit) for credit losses	59	101	(300)	(140)
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	427	280	(400)	307	Income (loss) before income tax expense (benefit)	405	263	113	781
Income tax expense (benefit)	Income tax expense (benefit)	107	59	(112)	54	Income tax expense (benefit)	103	52	15	170
Net income (loss)	Net income (loss)	$320	$221	($288)	$253	Net income (loss)	$302	$211	$98	$611
Total average assets	Total average assets	$71,634	$65,280	$42,879	$179,793	Total average assets	$75,283	$57,738	$49,548	$182,569

Citizens Financial Group, Inc. | 8767

As of and for the Six Months Ended June 30, 2021
(in millions) Consumer Banking Commercial Banking Other Consolidated
Net interest income $1,760 $840 ($359) $2,241
Noninterest income 634 348 45 1,027
Total revenue 2,394 1,188 (314) 3,268
Noninterest expense 1,501 453 55 2,009
Profit (loss) before provision for credit losses 893 735 (369) 1,259
Provision for credit losses 104 135 (592) (353)
Income (loss) before income tax expense (benefit) 789 600 223 1,612
Income tax expense (benefit) 201 124 28 353
Net income (loss) $588 $476 $195 $1,259
Total average assets $75,443 $57,632 $50,443 $183,518
Citizens utilizes an FTP system to eliminate the effect of interest rate risk from the segments’ net interest income. This risk is centrally managed within the Treasury function and reported in the Other segment. The FTP methodology provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The sum of the interest income/expense and FTP charges/credits for each segment is its designated net interest income. The offset to these FTP charges and credits is recorded in the Other segment.

As of and for the Six Months Ended June 30, 2020
(in millions) Consumer Banking Commercial Banking Other Consolidated
Net interest income $1,607 $784 ($71) $2,320
Noninterest income 785 269 33 1,087
Total revenue 2,392 1,053 (38) 3,407
Noninterest expense 1,473 434 84 1,991
Profit (loss) before provision for credit losses 919 619 (122) 1,416
Provision for credit losses 177 113 774 1,064
Income (loss) before income tax expense (benefit) 742 506 (896) 352
Income tax expense (benefit) 186 106 (227) 65
Net income (loss) $556 $400 ($669) $287
Total average assets $70,024 $62,142 $41,319 $173,485
Effective January 1, 2022, the Company refined its FTP credit methodology for deposits provided by each business segment. The rationale for this FTP refinement is to better estimate the net interest income resulting from the strong growth in deposits caused by the COVID-19 government stimulus. This resulted in lower net interest income, primarily in Consumer, offset by an increase in Other. Prior periods have not been restated.

There have been no other significant changes in the management accounting practices utilized by the Company regarding the basis of presentation for segment results as discussed in Note 2526 in the Company’s ~~2020~~2021 Form 10-K.

~~Citizens Financial Group, Inc. | 88~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 1718 - SUBSEQUENT EVENTS

On ~~July 28, 2021~~April 6, 2022, Citizens ~~entered into~~completed the ~~Investors~~ acquisition ~~agreement under which Citizens will acquire Investors for approximately $3.5 billion, with~~of Investors. For additional information regarding the transaction value based on Citizen’s closing price of $44.32 per common share as of July 27, 2021. Upon closing of the transaction, Investors’ stockholders will receive a combination of stock and cash, specifically 0.297 of a share of the Company’s common stock and $1.46 in cash for each share of Investors common stock they own. The Investors acquisition agreement provides that at the closing Investors will merge with and into Citizens, with Citizens surviving, and its subsidiary bank, Investors Bank, will merge with and into CBNA, with CBNA surviving. Following completion of the transaction, Investors’ stockholders are expected to own approximately 14% of the combined company’s outstanding shares.

In a press release dated July 28, 2021, Investors preliminarily reported total assets of $26.8 billion, including $21.1 billion of loans receivable, net, and $19.4 billion of deposits as of June 30, 2021. The Investors acquisition agreement has been unanimously approved by the boards of directors of each company and is expected to close in the first or second quarter of 2022, subject to approval by the shareholders of Investors, regulatory approvals, and other customary closing conditions.

see Note 2.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information presented in the “Market Risk” section of Part I, Item 2 is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this item is presented in Note ~~11,~~12, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the ~~risks~~risk below and other information set forth in this Report, you should consider the risks described under the caption “Risk Factors” in the Company’s ~~2020~~2021 Form 10-K.

Citizens Financial Group, Inc. | 68

The risk factors set forth in our ~~2020~~2021 Form 10-K are updated by the following ~~risks:~~

risk:

Risks Related to our ~~Pending Acquisitions~~Business

Russia’s invasion of Ukraine may adversely affect us and create significant risks and uncertainties for our business, with the ultimate impact dependent on future developments, which are highly uncertain and unpredictable.

~~Failure~~Russia’s invasion of Ukraine has negatively impacted the global and U.S. economies including supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign currency exchange rates, rising interest rates and heightened cybersecurity risks. The extent to ~~complete our proposed acquisition of Investors or proposed acquisition of HSBC branches could negatively impact~~which the invasion adversely affects our business, financial condition and results of operations, as well as our liquidity and ~~stock price.~~

~~Citizens Financial Group, Inc. | 89~~

~~If for any reason~~regulatory capital ratios, will depend on future developments, which are highly uncertain and unpredictable, including the ~~acquisition of Investors or the proposed acquisition of HSBC branches are not completed, our ongoing business may be adversely impacted~~extent and we will be subject to a number of risks, including: the financial markets may react negatively, resulting in negative impacts on our stock price and other adverse impacts; we may experience negative reactions from our customers, vendors, and employees; we will have incurred substantial expenses and will be required to pay certain costs relating to the acquisitions, whether or not the acquisitions are completed, such as legal, accounting, investment banking, and other professional and administrative fees; and matters relating to the acquisitions may require substantial commitments of time and resources by our management, which could otherwise have been devoted to other opportunities that may have benefited us.

~~Our ability to complete the proposed acquisition of Investors and/or the acquisition of HSBC branches is subject to the receipt of approval from various regulatory agencies.~~

~~Prior to the transactions contemplated in the Investors acquisition agreement being consummated, the Company and Investors must obtain certain regulatory approvals, including approvals~~duration of the ~~Board of Governors of the Federal Reserve System~~invasion and economic sanctions imposed on Russia, and the ~~Office of~~immeasurable humanitarian toll inflicted on Ukraine. If the Comptroller of the Currency. Similarly, prior to the consummation of the HSBC transaction, the Company and HSBC must obtain certain regulatory approvals. The terms and conditions of the approvals that are grantedinvasion adversely affects us, it may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the Company or its business following the acquisitions, or require changes to the terms of the transactions completed by the Investors acquisition agreement and HSBC branch acquisition agreement. There can be no assurance that the regulations will not impose any such conditions, obligations or restrictions, and that such conditions, limitations, obligations or restrictions will notalso have the effect of delaying or preventing completion of any of the transactions contemplated by the Investors acquisition agreement or HSBC branch acquisition agreement, as applicable, imposing additional material costs on or materially limiting the revenues of the Company following the acquisitions or otherwise reduce the anticipated benefits of the acquisitions if the acquisitions were consummated successfully within the expected timeframe, any of which might have an adverse effect on the Company following the acquisitions.

~~We face~~heightening other risks ~~and uncertainties~~ related to our ~~proposed acquisitions of Investors and HSBC branches.~~

Uncertainty about the effect of the proposed acquisitions on personnel and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain, and motivate key personnel until the acquisitions are consummated and for a period of time thereafter, and could cause customers and others that deal with us to seek to change their existing business relationships with us. Employee retention may be particularly challenging during the pendency of the acquisitions, as employees may experience uncertainty about their roles with the Company following the acquisitions. The Investors and HSBC branches to be acquired by the Company have respectively operated and, until the completion of the acquisitions, will continue to operate independently. The ultimate success of the acquisitions, including anticipated benefits and cost savings, among other things, will depend, in part, on our ability to successfully combine and integrate our and Investors’ businesses and the HSBC’s branches in a manner that facilitates growth opportunities and realizes anticipated cost savings. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of the companies' ongoing business, unexpected integration issues, higher than expected integration costs, and an integration process that takes longer than originally anticipated. Also, if the Company experiences difficulties or delays with the integration process, the anticipated benefits of the acquisitions may not be realized fully, or at all.

~~Citizens Financial Group, Inc. | 90~~

~~The definitive agreements between the Company and Investors and HSBC, respectively, may be terminated in accordance with its terms.~~

The Investors acquisition agreement with Investors and the HSBC branch acquisition agreement with HSBC are each subject to a number of conditions which need to be fulfilled in order to consummate the proposed acquisitions. With respect to the Investors acquisition agreement, these conditions include, among other things, the approval of Investors’ stockholders, the receipt of all required regulatory approvals, the absence of any order, injunction, or other legal restraint, subject to certain exceptions, the accuracy of representations and warranties under the Investors acquisition agreement, our and Investors’ performance of our and their respective obligations under the Investors acquisition agreement in all material aspects, and each of our and Investors’ receipt of a tax opinion to the effect that the acquisition will be treated as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The HSBC branch acquisition agreement is also subject to customary closing terms and conditions, including the receipt of all required regulatory approvals.

The conditions to the closing of the acquisitions may not be fulfilled in a timely manner or at all, and accordingly, the acquisitions may be delayed or may not be completed. With respect to the Investors acquisition agreement, we and Investors may opt to terminate the Investors acquisition agreement under certain circumstances. Among other situations, if the acquisition is not completed by July 28, 2022, either we or Investors may choose not to proceed with the acquisition (provided that such date may be extended to October 28, 2022 by us or Investors if all other condition precedents other than receipt of all requisite regulatory approvals have been satisfied or waived). We and Investors can also mutually decide to terminate the Investors acquisition agreement at any time. The HSBC branch acquisition agreement may also be terminated by the parties thereto under certain circumstances.

~~Shareholder litigation could prevent or delay the closing of the proposed acquisition of Investors or otherwise negatively impact our business and operations.~~

Lawsuits may be filed against us, Investors, or the directors and officers of either company relating to the proposed acquisition Litigation filed against us, our Board of Directors, or Investors and its Board of Directors could prevent or delay the completion of the acquisition, cause us to incur additional costs, or result in the payment of damages following completion of the acquisition. The defense or settlement of any lawsuit or claim that remains unresolved at the effective time of the acquisition may adversely affect the combined company's business, financial condition, results of operation, cash flows, and market price.

business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

3.1 Amended and Restated Certificate of Incorporation of the Registrant as in effect on the date hereof,, as filed with the Secretary of State of t ~~he State~~ the State of Delaware and effective ~~and effectiv~~April 2 ~~e July~~ 8, ~~2021~~202 *2 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K , filed April 29, 2022 )

~~3.2 Amended~~3 .2 A mended and Restated Bylaws of the Registrant (as amended and restated on April ~~23, 2020)~~2 8 , 202 2 ) (incorporated herein by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed April ~~24, 2020)~~

~~10.1~~2 9 Citizens Financial Group Inc. Non-Employee Directors Compensation Policy, amended and effective April 22, 2021†*

~~10.2~~, 202 2 Addendum to Amended and Restated Executive Employment Agreement, dated as of June 25,2021 between the Registrant and Bruce Van Saun†*)

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1 Certification of Chief ~~Financial~~Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

~~Citizens Financial Group, Inc. | 91~~

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101 The following materials from the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements*

104 Cover page interactive data file in inline XBRL format, included in Exhibit 101 to this report*

~~† Indicates management contract or compensatory plan or arrangement.~~

* Filed herewith.

Citizens Financial Group, Inc. | 9269

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~August 3, 2021.~~May 4, 2022.


CITIZENS FINANCIAL GROUP, INC.
(Registrant)

By:			/s/ C. Jack Read
			Name: C. Jack Read
			Title: Executive Vice President, Chief Accounting Officer and Controller
			(Principal Accounting Officer and Authorized Officer)

Citizens Financial Group, Inc. | 9370


Table 2: Notable Items
	Six Months Ended June 30,
	2021			2020
(in millions)	Noninterest expense	Income tax expense	Net Income		Noninterest expense	Income tax expense	Net Income
Reported results (GAAP)	$2,009	$353	$1,259		$1,991	$65	$287
Less notable items:
Total integration costs	2	(1)	(1)		6	(2)	(4)
Other notable items (1)	29	(7)	(22)		46	(15)	(31)
Total notable items	31	(8)	(23)		52	(17)	(35)
Underlying results (non-GAAP)	$1,978	$361	$1,282		$1,939	$82	$322


Table 8: Noninterest Expense
	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2021	2020	Change	Percent		2021	2020	Change	Percent
Salaries and employee benefits	$524	$513	$11	2	%	$1,072	$1,062	$10	1	%
Equipment and software	155	142	13	9		307	275	32	12
Outside services	137	131	6	5		276	266	10	4
Occupancy	82	82	—	—		170	166	4	2
Other operating expense	93	111	(18)	(16)		184	222	(38)	(17)
Noninterest expense	$991	$979	$12	1	%	$2,009	$1,991	$18	1	%


	Three Months Ended June 30, 2021			Six Months Ended June 30, 2021
(in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$1,146	$1,048	$2,194	$1,233	$1,210	$2,443


Charge-offs	(45)	(80)	(125)	(179)	(173)	(352)
Recoveries	4	43	47	34	82	116
Net charge-offs	(41)	(37)	(78)	(145)	(91)	(236)

Provision charged to income	(152)	(17)	(169)	(135)	(125)	(260)
Allowance for loan and lease losses, end of period	$953	$994	$1,947	$953	$994	$1,947

Allowance for unfunded lending commitments, beginning of period	$165	$13	$178	$186	$41	$227


Provision for unfunded lending commitments	(44)	0	(44)	(65)	(28)	(93)
Allowance for unfunded lending commitments, end of period	$121	$13	$134	$121	$13	$134


	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
(in millions)	Commercial	Retail	Total	Commercial	Retail	Total
Allowance for loan and lease losses, beginning of period	$752	$1,419	$2,171	$674	$578	$1,252
Cumulative effect of change in accounting principle	0	0	0	(176)	629	453
Allowance for loan and lease losses, beginning of period, adjusted	752	1,419	2,171	498	1,207	1,705
Charge-offs	(74)	(106)	(180)	(121)	(233)	(354)
Recoveries	3	30	33	6	64	70
Net charge-offs	(71)	(76)	(147)	(115)	(169)	(284)

Provision charged to income	554	(130)	424	852	175	1,027
Allowance for loan and lease losses, end of period	$1,235	$1,213	$2,448	$1,235	$1,213	$2,448

Allowance for unfunded lending commitments, beginning of period	$38	$1	$39	$44	$0	$44
Cumulative effect of change in accounting principle	0	0	0	(3)	1	(2)
Allowance for unfunded lending commitments, beginning of period, adjusted	38	1	39	41	1	42
Provision for unfunded lending commitments	31	9	40	28	9	37
Allowance for unfunded lending commitments, end of period	$69	$10	$79	$69	$10	$79