DBRS Confirms Citizens Financial Group, Inc. at AA with Stable Trend

Dominion Bond Rating Service (DBRS) has today confirmed the ratings of Citizens Financial Group, Inc. (CFG or the Company) and eight of its banking subsidiaries as indicated below. The rating action follows a detailed review of the Company’s operating results and financial fundamentals. The trend on all ratings remains Stable.

The ratings of CFG, a wholly owned subsidiary of The Royal Bank of Scotland Group plc (RBS – rated AA), are underpinned by its vital role in RBS’s North American strategy and its strong retail business, robust deposit franchise and solid asset quality. The confirmed ratings also take into account the Company’s below-peer profitability and capitalization and a franchise footprint in slower-growth markets.

For the first half of 2006, CFG’s profitability improved modestly, driven primarily by a one-time gain from the sale and leaseback of almost 200 Charter One Financial (Charter One) branches. Deposit growth slowed relative to prior years, reflecting the challenging growth environment across the Company’s branch footprint. CFG was able to achieve robust loan portfolio growth and maintain its strong asset quality.

CFG plays a central role for RBS’s North American strategy. Accounting for approximately 20% of RBS’s operating profit, CFG is the ninth largest commercial banking group in the United States and RBS’s largest investment outside of the United Kingdom. Implicit in the ratings is DBRS’s expectation that RBS has the resources and motivation to support CFG, in the unlikely event that financial support is needed.

Through multiple acquisitions and organic growth, CFG has assembled a powerful retail franchise with a large distribution network in 13 states in the New England, Mid-Atlantic and Midwest regions. The 2004 purchase of Charter One significantly expanded CFG’s regional coverage by adding more than 700 Midwest branches. While the Company’s revenue base is diversified across consumer and commercial segments, the consumer segment drives revenue growth via deposits and lending. Consumer and retail loans represented close to 70% of the total portfolio at H1 2006, up from approximately 50% in 2001.

A robust deposit franchise, low-risk balance sheet and clean asset quality characterize CFG’s business profile. The Company has the leading deposit market share in 28% of the cities where it has a branch presence and has a greater than 20% deposit share in 44% of its city markets. The Company has struggled with deposit growth in the past year like much of the industry and has introduced new products designed to retain existing customers and attract new clients. The loan portfolio is highly granular, lacks material risk concentrations and is performing well. The high asset quality maintained throughout the past several years, which included multiple acquisitions, attests to the Company’s conservative credit culture, good underwriting discipline and prudent due diligence.

Below-peer profitability and capitalization have been the result of the elevated funding costs coupled with an asset base that is dominated by lower yielding residential mortgages and mortgage-backed securities (MBS). CFG also has a concentration in consumer and retail lending that could potentially pressure earnings and capital levels in a stress scenario.

CFG is challenged in achieving sustained loan and deposit growth by virtue of its presence in slower growth markets, particularly in its Midwestern markets that it recently entered via the Charter One acquisition. Although some of these markets are fragmented, they are extremely competitive with focused local, regional and super-regional banks. CFG may overcome this challenge by continuing to take advantage of acquisition opportunities.

With its headquarters in Providence, Rhode Island, Citizens Financial Group, Inc. (CFG) is the holding company for ten bank subsidiaries, including seven under the Citizens name, Charter One Bank, N.A. and two others. Primarily through acquisitions, the Company has grown from a $10 billion asset bank in 1995 to the tenth largest bank holding company in the United States, with $164 billion in assets at June 30, 2006.

Notes:
On October 6, 2006, the short-term and senior debt ratings for CFG and the short-term ratings for all of its subsidiaries were upgraded based on the implementation of DBRS’s new support assessment methodology for banks. These upgrades were based on CFG’s SA-1 designation, which implies strong and predictable timely support from its ultimate parent, The Royal Bank of Scotland Group plc (rated AA), ranging from a guarantee to ownership and control.
All figures are in U.S. dollars unless otherwise noted.