DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Citizens Financial Group, Inc. (Citizens or the Company), including the Company's Long-Term Issuer Rating of A (low).

At the same time, Morningstar DBRS confirmed the credit ratings of its primary banking subsidiary, Citizens Bank, National Association (the Bank). The trend for all credit ratings is Stable. The Intrinsic Assessment (IA) for the Bank is 'A', while its Support Assessment remains SA1. The Company's Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS

Citizens' credit ratings reflect its strong franchise in the attractive New England, Mid-Atlantic and Mid-West regions that was augmented by the 2022 acquisitions of both Investors Bancorp (Investors) and the East Coast branches of HSBC. The credit ratings also considers Citizens' asset quality metrics which have continued to normalize, while remaining at manageable levels. The Company's solid funding profile is also taken into account, as its deposits tend to be more sticky given the skew to retail (68% at 1Q24). The credit ratings also capture the Company's sound capital position, along with its somewhat modest capital buffers relative to regulatory capital requirements.

The Stable trend reflects Morningstar DBRS's view that the Company's credit fundamentals, earnings, funding and liquidity levels will remain sound despite the operating environment.

CREDIT RATING DRIVERS

Citizens' credit ratings would be upgraded if it continues to progress on its strategic priorities while maintaining a conservative risk profile and sound capital management.

Conversely, missteps in implementation of strategy, or sustained deterioration in asset quality or earnings would result in a credit ratings downgrade. A significant reduction in capital levels would also result in a credit ratings downgrade.

CREDIT RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Strong/ Good

Headquartered in Providence, Rhode Island, Citizens is a regional banking company (total assets of $220 billion at 1Q24) that operates in affluent regions of New England, the Mid-Atlantic, and parts of the Midwest. The acquisition and integration of HSBC branches and Investors strengthened the Company's franchise, especially in the NYC metro area. Additionally, continued investments in its digital banking platform (Citizens Access) provides another channel for deposit gathering and avenue for further national growth. Citizens also continues to build out its private banking business, largely through the hiring of teams, which was officially launched nationally last year. Morningstar DBRS views the overall franchise as well-positioned to defend or expand its market shares.

Earnings Combined Building Block (BB) Assessment: Strong/ Good

Citizens continues to invest in strategic priorities to drive earnings growth, such as through the buildout of its private bank and ongoing continuous improvement initiatives (TOP 9 program). Although the Company has made numerous acquisitions related to improving its capital market/wealth capabilities over the years (in an effort to build out a more robust fee franchise), net interest income still remains a substantial portion of total revenues (75% LTM 1Q24). Nonetheless, we view the Company's performance as resilient, benefiting from a manageable level of CRE exposure, stickier deposits mainly from consumers, and a culture of cost control and innovation.

Risk Combined Building Block (BB) Assessment: Good

Citizens is experiencing some of the expected normalization in credit losses, which in Morningstar DBRS's view remains manageable. There continues to be a heightened focus on increasing risks in general office CRE, though that is mitigated by the smaller size of this exposure (at 2.4% of total loans) and limited central business district weaker property exposures. Overall, Citizens' allowance for credit losses totaled 161 basis points (bps) at 1Q24, which Morningstar DBRS considers appropriate given its risk profile. At present, the Company's market risk exposure is modest, but will likely grow with increased capital market activities, while interest rate risk is well-managed through hedging and securities portfolio management.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong/ Good

Citizens' funding and liquidity remains solid, supported by its high level of insured deposits (70% of total deposits) given the largely consumer sourced deposit base (68% of total deposits). The Company has reduced its FHLB borrowings, which is now at $2 billion (15% of total long-term borrowings at 1Q24), versus $12 billion at 1Q23. Morningstar DBRS views the Company as having sufficient on balance sheet and access to liquidity should there be a potential decline in deposits, with its current loan to deposit ratio (81%) remaining below historical averages.

Capitalization Combined Building Block (BB) Assessment: Good

Citizens' capital levels remain sound. The Company's CET1 ratio was at 10.6% at 1Q24 (up from 10.0% at 1Q23), above its target range of 10.0-10.5% and current regulatory minimum of 8.5%. Positively, Citizens would currently meet minimum capital requirements if AOCI was incorporated into CET1. Nonetheless, the current CET1 cushion remains relatively smaller compared to some of its peers due to the Company's 4.0% stress capital buffer (SCB) requirement, which remains higher than the peer average.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/435255.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024) at https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:

All figures are in U.S. Dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Global Methodology for Rating Banks and Banking Organisations https://dbrs.morningstar.com/research/431155/global-methodology-for-rating-banks-and-banking-organisations (April 15, 2024). In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

The primary sources of information used for this credit rating include Morningstar, Inc. and company documents, Morningstar DBRS considers the information available to it for the purposes of providing this credit rating was of satisfactory quality.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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