Morningstar DBRS Confirms Citizens Financial Group, Inc.'s Long-Term Issuer Rating at A (low); Stable Trend

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, reflecting the internal support provided by the Company. The Company's Support Assessment is SA3, meaning that timely systemic support is not expected. The Company's Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
Citizen's credit ratings and Stable trend reflect its strong and well-established franchise in the attractive New England, Mid-Atlantic, and Midwest regions that was augmented by the 2022 acquisitions of both Investors Bancorp (Investors) and the East Coast branches of HSBC Bank USA, N.A. (HSBC). In addition, the credit ratings also consider Citizens' asset quality metrics, which--although continuing to normalize--remain at manageable levels. The Company's funding profile remains favorable, as its deposits tend to be stickier, given the skew to retail (68% at Q1 2025). Citizen's capital position also remains sound. Nonetheless, capital buffers continue to be somewhat modest relative to its current regulatory capital requirements.

The Company's IA has been assigned at the midpoint of the IA Range. Morningstar DBRS views Citizen's credit fundamentals and performance as commensurate with those of similarly rated peers.

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 Assessment: Strong/Good
Headquartered in Providence, Rhode Island, Citizens is a regional banking company (total assets of $220 billion at Q1 2025) that operates in affluent regions of New England, the Mid-Atlantic, and parts of the Midwest. The Company significantly expanded its franchise (especially in the New York metro area) after its acquisition of HSBC's east coast branches and Investors in 2022 and has continued to focus on deploying its capital into deeper primary relationships. Citizens also continues to build out its private banking business, largely through the hiring of teams, which was officially launched nationally in 2023. Morningstar DBRS views the overall franchise as well positioned to defend or expand its market shares.

Earnings Combined Building Block Assessment: Good
Citizens continues to invest in strategic priorities to drive earnings growth, such as through the build-out of its private bank (which Citizens is targeting more than 5% earnings accretion for F2025) and ongoing continuous improvement initiatives (TOP 10 program). Although the Company has made numerous acquisitions related to improving its capital market/wealth capabilities over the years (to build out a more robust fee franchise), net interest income remains a substantial portion of total revenues (72% last 12 months Q1 2025). Nonetheless, Morningstar DBRS views the Company's performance as resilient, benefiting from a manageable level of commercial real estate (CRE) exposure, stickier deposits mainly from consumers, and a culture of cost control and innovation.

Risk Combined Building Block Assessment: Good
Citizens continues to have a heightened focus on its general office CRE portfolio. Nonetheless, this is mitigated by the relatively small and decreasing size of this exposure (at 2.0% of total loans at Q1 2025, down 40 basis points (bps) year-over-year) and the limited exposure to central business district weaker property types. Citizens believes its net charge off ratio can sustainable be in the mid-to-low 30s bps over time as it continues to right size its CRE exposure. Overall, Citizens' allowance for credit losses totaled 161 bps at Q1 2025, which Morningstar DBRS considers appropriate given its risk profile. The Company's interest rate risk is also well managed through hedging and securities portfolio management.

Funding and Liquidity Combined Building Block Assessment: Strong/Good
Citizens' funding and liquidity remains solid, supported by its high level of insured deposits (67% of total deposits) given the largely consumer sourced deposit base (68% of total deposits). The Company has continued to reduce its Federal Home Loan Bank borrowings, which was at $42 million at Q1 2025 (or less than 1% of total long-term borrowings), versus $2 billion at Q1 2024. Morningstar DBRS views the Company as having sufficient on balance sheet and access to liquidity should there be a potential decline in deposits, especially given relatively muted loan growth. Citizens' loan-to-deposit ratio was at 79% at Q1 2025, remaining below historical averages.

Capitalization Combined Building Block Assessment: Good
Citizens' capital levels remain sound. The Company's CET1 ratio was at 10.6% at Q1 2025, above its target range of 10.0% to 10.5% and current regulatory minimum of 9.0%. Positively, Citizens would currently meet minimum capital requirements if AOCI was incorporated into CET1. Nonetheless, the current CET1 cushion remains relatively smaller compared with some of its peers due to the Company's 4.5% stress capital buffer requirement, which remains higher than the peer average.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/457004.

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 Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (May 23, 2025), https://dbrs.morningstar.com/research/454637. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025; https://dbrs.morningstar.com/research/454196) in its consideration of ESG factors.

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

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

The credit ratings were not initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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

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

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