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Citizens Financial Group Incri (CFG) SEC Filing 10-Q Quarterly Report for the period ending Wednesday, March 31, 2021

SEC Filings

Citizens Financial Group Incri

CIK: 759944 Ticker: CFG




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Citizens Financial Group, Inc. Reports First Quarter 2021 Net Income of
$611 million and EPS of $1.37
Underlying Net Income of $626 million and EPS of $1.41*

Key Financial Data1Q214Q201Q20
First Quarter 2021 Key Highlights
Income
Statement
($s in millions)
Underlying ROTCE of 17.6% and underlying EPS of $1.41 reflects strength across our fee businesses and strong credit results
Underlying PPNR of $661 million down from record levels
Reflects lower mortgage revenue given tightening gain-on-sale margins
Strength in Capital Markets, record results in Wealth, and well-controlled expenses
Net interest margin of 2.76% up slightly QoQ
Interest-bearing deposit costs of 20 bps, down 7 bps QoQ
Negative provision for credit losses of $140 million reflects strong credit results and improving macroeconomic outlook
Returned $262 million to shareholders, including share repurchases and common dividends
LDR improved to 80.7%, down 290 bps QoQ
Strong capital position with CET1 at 10.1%
TBV/share of $32.79 increased 3% YoY
Total revenue$1,659 $1,707 $1,657 
Pre-provision profit641 695 645 
Underlying pre-provision profit661 737 678 
Provision for credit losses(140)124 600 
Net income611 456 34 
Underlying net income626 480 59 
Balance Sheet
&
Credit Quality
($s in billions)
Period end loans and leases$122.2 $123.1 $127.5 
Average loans and leases122.8 123.5 121.1 
Period-end deposits151.3 147.2 133.5 
Average deposits146.6 145.3 126.6 
Period-end loans-to-deposit ratio80.7 %83.6 %95.5 %
ACL to loans ratio1.94 2.17 1.73 
ACL to loans ratio, ex. PPP2.03 2.24 1.73 
NCO ratio0.52 %0.61 %0.46 %
Financial MetricsDiluted EPS$1.37 $0.99 $0.03 
Underlying EPS1.41 1.04 0.09 
ROTCE17.2 %12.2 %0.4 %
Underlying ROTCE17.6 12.9 1.1 
Net interest margin, FTE2.76 2.75 3.10 
Efficiency ratio61 59 61 
Underlying efficiency ratio60 57 59 
CET110.1 %10.0 %9.4 %
TBV/Share$32.79 $32.72 $31.97 
Comments from Chairman and CEO Bruce Van Saun
“We are pleased to get off to strong start to 2021, with strength in our fee businesses, good balance sheet management and excellent performance on credit,” said Chairman and CEO Bruce Van Saun. “We are making good strides in our digital and next generation technology initiatives, and maintain a confident outlook for the balance of the year. While we increasingly see positive signs that the economy is improving rapidly and that life is returning to normal, we remain focused on continuing to assist those companies and individuals most impacted by the pandemic and lockdowns.”

Citizens also announced today that its board of directors declared a second quarter 2021 common stock dividend of $0.39 per share. The dividend is payable on May 13, 2021 to shareholders of record at the close of business on April 29, 2021.



*References in this release to “Underlying” results exclude notable items and are Non-GAAP Financial Measures. Where there is a reference to “Underlying” or “excluding elevated cash” results in a paragraph, all measures that follow these references are on the same basis. Additional information regarding the impact of notable items, elevated cash balances and Acquisitions on our results is described in this release. Please see the end of this release for important information on our use of Non-GAAP Financial Measures, and their reconciliation to GAAP financial measures. References in this release to balance sheet items are on an average basis and loans exclude loans held for sale (“LHFS”) unless otherwise noted. References to net interest margin are on a fully taxable equivalent (“FTE”) basis and all references to earnings per share represent fully diluted per common share.  References to consolidated and/or commercial loans, loan growth, nonaccrual loans and allowance for loan losses include leases. The "Company" refers to Citizens. Current reporting-period regulatory capital ratios are preliminary. Select totals may not sum due to rounding.

The following information was filed by Citizens Financial Group Incri (CFG) on Friday, April 16, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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
March 31, 2021
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
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(Exact name of the registrant as specified in its charter)
Delaware05-0412693
(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
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per share
CFGNew 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 PrDNew 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 PrENew 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 425,930,159 shares of Registrant’s common stock ($0.01 par value) outstanding on April 23, 2021.



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Table of Contents
 3
Part I. Financial Information
 5
Item 1. Financial Statements
Notes to the Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signature

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GLOSSARY OF ACRONYMS AND TERMS
    The following is a list of common acronyms and terms we regularly use in our financial reporting:
2020 Form 10-KAnnual Report on Form 10-K for the year ended December 31, 2020
AACLAdjusted Allowance for Credit Losses
ACLAllowance for Credit Losses: Allowance for Loan and Lease Losses plus Allowance for Unfunded Lending Commitments
AFSAvailable for Sale
ALLLAllowance for Loan and Lease Losses
ALMAsset and Liability Management
AOCIAccumulated Other Comprehensive Income (Loss)
ARRCAlternative Reference Rate Committee
ASUAccounting Standards Update
ATMAutomated Teller Machine
Board or Board of DirectorsThe Board of Directors of Citizens Financial Group, Inc.
bpsBasis Points
Capital Plan RuleFederal Reserve’s Regulation Y Capital Plan Rule
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CBNACitizens Bank, National Association
CCARComprehensive Capital Analysis and Review
CCBCapital Conservation Buffer
CCMICitizens Capital Markets, Inc.
CECLCurrent Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1Common Equity Tier 1
CET1 capital ratioCommon 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 ourCitizens Financial Group, Inc. and its Subsidiaries
CLTVCombined Loan-to-Value
COVID-19 pandemicCoronavirus Disease 2019 Pandemic
CRECommercial Real Estate
Dodd-Frank ActThe Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EGRRCPAEconomic Growth, Regulatory Relief and Consumer Protection Act
Elevated cashCash above targeted operating levels
EPSEarnings Per Share
Exchange ActThe Securities Exchange Act of 1934
Fannie Mae (FNMA)Federal National Mortgage Association
FDICFederal Deposit Insurance Corporation
FHLBFederal Home Loan Bank
FICOFair Isaac Corporation (credit rating)
FRB or Federal ReserveBoard of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)Federal Home Loan Mortgage Corporation
FTEFully Taxable Equivalent
GAAPAccounting Principles Generally Accepted in the United States of America
GDPGross Domestic Product
Ginnie Mae (GNMA)Government National Mortgage Association
GSEGovernment Sponsored Entity
HTMHeld To Maturity
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Last-of-LayerLast-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
LHFSLoans Held for Sale
LIBORLondon Interbank Offered Rate
LIHTCLow Income Housing Tax Credit
LTVLoan to Value
MBSMortgage-Backed Securities
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-AtlanticDistrict of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
MidwestIllinois, Indiana, Michigan, and Ohio
Modified CECL TransitionThe Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
Modified AACL TransitionThe Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
MSRsMortgage Servicing Rights
NCOsNet charge-offs
New EnglandConnecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NPLsNonaccrual loans and leases
OCCOffice of the Comptroller of the Currency
OCIOther Comprehensive Income (Loss)
OTCOver the Counter
Parent CompanyCitizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
PPPPaycheck Protection Program
ROTCEReturn on Average Tangible Common Equity
RPARisk Participation Agreement
RWARisk-Weighted Assets
SBAUnited States Small Business Administration
SCBStress Capital Buffer
SECUnited States Securities and Exchange Commission
SOFRSecured Overnight Financing Rate
SVaRStressed Value at Risk
Tailoring RulesRules 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
TBAsTo-Be-Announced Mortgage Securities
TDRTroubled Debt Restructuring
Tier 1 capital ratioTier 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 ratioTier 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
Total capital ratioTotal 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
VaRValue at Risk
VIEVariable Interest Entities
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


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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 and associated lockdowns 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 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;
The COVID-19 pandemic and associated lockdowns and their effects on the economic and business environments in which we operate;
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; 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 and associated lockdowns on our business, operations,
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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, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic 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.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
INTRODUCTION
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with $187.2 billion in assets as of March 31, 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. 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. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center as well as the convenience of approximately 2,900 ATMs and 1,000 branches in 11 states in the New England, Mid-Atlantic, and Midwest regions. 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 of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. More information is available at www.citizensbank.com.
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 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. 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 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 accordingly, 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 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.”
Citizens Financial Group, Inc. | 7


FINANCIAL PERFORMANCE
Quarter to Date and Period End Key Highlights
Net income of $611 million increased $577 million from the first quarter of 2020, with earnings per diluted common share of $1.37, up $1.34 from $0.03 per diluted common share in the first quarter of 2020. ROTCE of 17.2% increased from 0.4% in the first quarter of 2020. Improved results primarily reflect the impact of the COVID-19 pandemic and associated lockdowns in the first quarter of 2020, resulting in a significant ACL reserve build in the first quarter of 2020.
In the first quarter of 2021, results reflected $15 million of expenses, net of tax benefit, or $0.04 per diluted common share, from notable items, largely tied to TOP 6 transformational and revenue and efficiency initiatives. In the first quarter of 2020, there were $25 million of expenses, net of tax benefit, or $0.06 per diluted common share, from notable items, largely tied to TOP 6 transformational and revenue and efficiency initiatives.
Table 1: Notable Items
Three Months Ended March 31,
20212020
(in millions)Noninterest expenseIncome tax expenseNet IncomeNoninterest expenseIncome tax expenseNet Income
Reported results (GAAP)$1,018 $170 $611 $1,012 $11 $34 
Less notable items:
Total integration costs— — — (1)(3)
Other notable items (1)
20 (5)(15)29 (7)(22)
Total notable items20 (5)(15)33 (8)(25)
Underlying results* (non-GAAP)$998 $175 $626 $979 $19 $59 
(1) For the three months ended March 31, 2021 and 2020, Other notable items include noninterest expense of $20 million and $29 million, respectively, related to our TOP 6 transformational and revenue and efficiency initiatives.
Net income available to common stockholders of $588 million increased $576 million, compared to $12 million in the first quarter of 2020.
On an Underlying basis, which excludes notable items, first quarter 2021 net income available to common stockholders of $603 million compared with $37 million in the first quarter of 2020.
On an Underlying basis, EPS of $1.41 per share compared to $0.09 in the first quarter of 2020.
Total revenue of $1.7 billion was stable with the first quarter of 2020, driven by a 9% increase in noninterest income, partially offset by a 4% decrease in net interest income.
Net interest income of $1.1 billion decreased 4%, reflecting 9% growth in average interest-earning assets, including the addition of PPP loans, which was more than offset by lower net interest margin.
Net interest margin of 2.75% decreased 34 basis points from 3.09% in the first 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 FTE basis of 2.76% decreased by 34 basis points, compared to 3.10% in the first quarter of 2020.
Average loans and leases of $122.8 billion increased $1.8 billion, or 1%, from $121.1 billion in the first quarter of 2020, reflecting a $1.4 billion increase in commercial driven by PPP loans, partially offset by line of credit repayments and net payoffs, as well as a $425 million increase in retail driven by growth in education and residential mortgage, partially offset by decreases in home equity and other retail given run off of personal unsecured installment loans.
Period-end loans declined $895 million, or 1%, from the fourth quarter of 2020, reflecting a 1% decline in both commercial and retail.
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Average deposits of $146.6 billion increased $20.0 billion, or 16%, from $126.6 billion in the first 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.
Period-end deposit growth of $4.2 billion, or 3%, from the fourth quarter of 2020, reflecting growth in money market accounts, demand deposits, and savings given strong deposit flows from consumer-oriented government stimulus, partially offset by a decline in term deposits and checking with interest.
Noninterest income of $542 million increased $45 million, or 9%, from the first quarter of 2020, driven by growth in mortgage banking fees, strong capital markets fees and record trust and investment services fees, partially offset by a decrease in service charges and fees, reflecting COVID-19 impacts on overdraft fees.
Noninterest expense of $1.0 billion was stable compared to the first quarter of 2020.
On an Underlying basis, noninterest expense increased 2% from the first quarter of 2020, reflecting increases in outside services largely tied to growth initiatives, equipment and software driven by increased technology spend, and salaries and employee benefits as a result of higher revenue-based compensation, partially offset by a decrease in other operating expense driven by lower travel and advertising costs.
The efficiency ratio of 61.4% compared to 61.1% for the first quarter of 2020, and ROTCE of 17.2% compared to 0.4%.
On an Underlying basis, the efficiency ratio of 60.2% compared to 59.1% for the first quarter of 2020, and ROTCE of 17.6% compared to 1.1%.
Negative provision for credit losses of $140 million compares with a $600 million provision for the first quarter of 2020, reflecting strong credit performance across the consumer and commercial loan portfolios and improvement in the macroeconomic outlook.
Tangible book value per common share of $32.79 increased 3% from the first quarter of 2020. Fully diluted average common shares outstanding decreased 1.5 million shares over the same period.
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SELECTED CONSOLIDATED FINANCIAL DATA
The summary of the Consolidated Operating Data for the three months ended March 31, 2021 and 2020 and the summary Consolidated Balance Sheet data as of March 31, 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 2: Summary of Consolidated Operating Data
Three Months Ended March 31,
(dollars in millions, except per share amounts)20212020
OPERATING DATA:
Net interest income$1,117 $1,160 
Noninterest income542 497 
Total revenue1,659 1,657 
Provision for credit losses(140)600 
Noninterest expense1,018 1,012 
Income before income tax expense781 45 
Income tax expense170 11 
Net income$611 $34 
Net income available to common stockholders$588 $12 
Net income per common share - basic $1.38 $0.03 
Net income per common share - diluted $1.37 $0.03 
OTHER OPERATING DATA:
Return on average common equity11.57 %0.24 %
Return on average tangible common equity17.17 0.36 
Return on average total assets1.36 0.08 
Return on average total tangible assets1.41 0.09 
Efficiency ratio61.35 61.10 
Operating leverage(1)
(0.41)(3.71)
Net interest margin, FTE(2)
2.76 3.10 
Effective income tax rate21.76 24.13 
(1) “Operating leverage” represents the period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense.
(2) Net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%.
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Table 3: Summary of Consolidated Balance Sheet data
(dollars in millions)March 31, 2021December 31, 2020
BALANCE SHEET DATA:
Total assets$187,217 $183,349 
Loans held for sale, at fair value4,304 3,564 
Other loans held for sale75 439 
Loans and leases122,195 123,090 
Allowance for loan and lease losses(2,194)(2,443)
Total securities28,138 26,847 
Goodwill7,050 7,050 
Total liabilities164,564 160,676 
Total deposits151,349 147,164 
Short-term borrowed funds70 243 
Long-term borrowed funds8,316 8,346 
Total stockholders’ equity22,653 22,673 
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses to loans and leases1.80 %1.98 %
Allowance for credit losses to loans and leases1.94 2.17 
Allowance for credit losses to loans and leases, excluding the impact of PPP loans(1)
2.03 2.24 
Allowance for loan and lease losses to nonaccruing loans and leases218 240 
Allowance for credit losses to nonaccruing loans and leases235 262 
Nonaccruing loans and leases to loans and leases0.82 0.83 
Capital Ratios:
CET1 capital ratio10.1 %10.0 %
Tier 1 capital ratio11.4 11.3 
Total capital ratio13.4 13.4 
Tier 1 leverage ratio9.5 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.”


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RESULTS OF OPERATIONS
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed 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 Form 10-K.
The following table presents a five quarter trend of our Net interest margin, FTE and Net interest income:
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First quarter 2021 versus fourth quarter 2020: Net interest income of $1.1 billion was down 1% given the impact of lower day count, with broadly stable net interest margin and loans. Net interest margin on a FTE basis of 2.76% was up 1 basis point, reflecting improving funding mix and deposit pricing and a steepening yield curve, largely offset by lower earning-asset yields. Interest-bearing deposits costs of 0.20% decreased 7 basis points.
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Table 4: Major Components of Net Interest Income
Three Months Ended March 31,
20212020
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$10,861 $3 0.11 %$1,859 $5 1.12 %$9,002 (101) bps
Taxable investment securities27,031 128 1.89 25,339 147 2.32 1,692 (43)
Non-taxable investment securities— 2.60 — 2.60 (1)
Total investment securities27,034 128 1.89 25,343 147 2.32 1,691 (43)
Commercial and industrial44,287 347 3.12 43,152 417 3.82 1,135 (70)
Commercial real estate14,675 94 2.57 13,876 139 3.96 799 (139)
Leases1,915 13 2.69 2,482 18 2.83 (567)(14)
Total commercial loans and leases60,877 454 2.98 59,510 574 3.81 1,367 (83)
Residential mortgages19,388 148 3.05 18,866 164 3.47 522 (42)
Home equity12,001 95 3.20 13,042 152 4.69 (1,041)(149)
Automobile12,229 125 4.14 12,173 131 4.34 56 (20)
Education12,436 134 4.38 10,610 149 5.64 1,826 (126)
Other retail 5,916 105 7.25 6,854 132 7.77 (938)(52)
Total retail loans61,970 607 3.96 61,545 728 4.75 425 (79)
Total loans and leases122,847 1,061 3.47 121,055 1,302 4.29 1,792 (82)
Loans held for sale, at fair value3,254 18 2.27 1,890 15 3.28 1,364 (101)
Other loans held for sale385 6.30 799 4.31 (414)199
Interest-earning assets164,381 1,216 2.97 150,946 1,478 3.91 13,435 (94)
Allowance for loan and lease losses
(2,439)(1,708)(731)
Goodwill7,050 7,046 
Other noninterest-earning assets13,577 10,893 2,684 
Total assets$182,569 $167,177 $15,392 
Liabilities and Stockholders’ Equity:
Checking with interest$26,116 $6 0.09 %$24,612 $37 0.60 %$1,504 (51)
Money market accounts49,536 22 0.18 39,839 93 0.94 9,697 (76)
Regular savings18,611 0.11 14,201 18 0.51 4,410 (40)
Term deposits8,572 17 0.83 18,616 79 1.70 (10,044)(87)
Total interest-bearing deposits102,835 50 0.20 97,268 227 0.94 5,567 (74)
Short-term borrowed funds150 — 0.46 644 0.76 (494)(30)
Long-term borrowed funds8,336 49 2.35 14,057 90 2.56 (5,721)(21)
Total borrowed funds8,486 49 2.32 14,701 91 2.48 (6,215)(16)
Total interest-bearing liabilities111,321 99 0.36 111,969 318 1.14 (648)(78)
Demand deposits43,814 29,362 14,452 
Other liabilities4,858 4,053 805 
Total liabilities159,993 145,384 14,609 
Stockholders’ equity22,576 21,793 783 
Total liabilities and stockholders’ equity$182,569 $167,177 $15,392 
Interest rate spread2.62 %2.77 %(15)
Net interest income and net interest margin$1,117 2.75 %$1,160 3.09 %(34)
Net interest income and net interest margin, FTE(1)
$1,120 2.76 %$1,164 3.10 %(34)
Memo: Total deposits (interest-bearing and demand)$146,649 $50 0.14 %$126,630 $227 0.72 %$20,019 (58) 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.
First quarter 2021 versus first quarter 2020: Net interest income of $1.1 billion decreased 4% from first quarter 2020, with 9% growth in interest-earning assets, including the addition of PPP loans, which was more than offset by lower net interest margin.
Net interest margin on a FTE basis of 2.76% decreased 34 basis points compared to 3.10% in the first quarter of 2020, primarily reflecting the impact of a lower rate environment, lower interest-earning asset yields, and elevated cash balances (16 basis points) given strong deposit flows, partially offset by improved funding mix and deposit pricing. Average interest-earning asset yields of 2.97% decreased 94 basis points from 3.91% in the first quarter of 2020, while average interest-bearing liability costs of 0.36% decreased 78 basis points from 1.14% in the first quarter of 2020.
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Average interest-earning assets of $164.4 billion increased $13.4 billion, or 9%, from the first quarter of 2020, as increased liquidity allowed for a $6.2 billion, or 42%, decrease in borrowed funds, and drove a $9.0 billion increase in cash held in interest-bearing deposits, and a $1.7 billion, or 7%, increase in investments. Results also reflected a $2.7 billion, or 2%, increase in average loans and leases and LHFS with a $1.4 billion increase in average commercial loans and leases driven by $4.8 billion of PPP loans, largely offset by line of credit repayments and net payoffs. Furthermore, average retail loans increased $425 million, driven by growth in education and residential mortgage, partially offset by decreases in home equity and other retail given run off of personal unsecured installment loans.
Average deposits of $146.6 billion increased $20.0 billion, or 16%, from the first quarter of 2020, reflecting growth in demand deposits, money market accounts, savings and checking with interest, partially offset by a decline in term deposits. Average total borrowed funds of $8.5 billion decreased $6.2 billion from the first quarter of 2020, as strong customer deposit inflows allowed for significantly lower levels of FHLB advances. Results also reflect the paydown of senior debt and short-term borrowings. Total borrowed funds costs of $49 million decreased $42 million from the first quarter of 2020. The total borrowed funds cost of 2.32% decreased 16 basis points from 2.48% in the first quarter of 2020.
Noninterest Income

The following table presents a five quarter trend of our noninterest income:
cfg-20210331_g3.jpg
First quarter 2021 versus fourth quarter 2020: Noninterest income of $542 million was down 6%, reflecting lower mortgage banking fees, capital markets fees, foreign exchange and interest rate products and service charges and fees. These decreases were partially offset by improved trust and investment services fees and net securities gains.
Table 5: Noninterest Income
Three Months Ended March 31,
(in millions)20212020ChangePercent
Mortgage banking fees$165 $159 $6 %
Service charges and fees99 118 (19)(16 %)
Capital markets fees81 43 38 88 
Card fees55 56 (1)(2)
Trust and investment services fees58 53 
Letter of credit and loan fees38 34 12 
Foreign exchange and interest rate products28 24 17 
Securities gains, net— 100 
Other income (1)
15 10 50 
Noninterest income$542 $497 $45 %
(1) Includes bank-owned life insurance income and other income for all periods presented.

First quarter 2021 versus first quarter 2020: Noninterest income increased $45 million, or 9%, from the first quarter of 2020. Results reflected strong capital markets fees, growth in mortgage banking fees, and
Citizens Financial Group, Inc. | 14


higher trust and investment services fees, offset by lower service charges and fees. Capital markets fees increased from the first quarter of 2020 driven by higher underwriting revenue and mergers and acquisitions advisory fees, as well as the impact of a mark-to-market loss on loan trading assets in the first quarter of 2020. Mortgage banking fees reflected higher production volumes and favorable MSR hedging results, partially offset by lower servicing income given higher amortization expense. Trust and investment services fees increased reflecting an increase in assets under management from strong net inflows and higher equity market levels. Service charges and fees decreased from the first quarter of 2020 as a result of COVID-19 impacts on overdraft fees.
Noninterest Expense
    The following table presents a five quarter trend of our noninterest expense:
cfg-20210331_g4.jpg
First quarter 2021 versus fourth quarter 2020: Noninterest expense of $1.0 billion was broadly stable and included the impact of notable items. On an Underlying basis, noninterest expense of $998 million was up 3%, reflecting seasonally higher salaries and employee benefits. These increases were partially offset by lower other operating expense which reflected lower advertising costs.
Table 6: Noninterest Expense
Three Months Ended March 31,
(in millions)20212020ChangePercent
Salaries and employee benefits$548 $549 ($1)%
Equipment and software152 133 19 14 
Outside services139 135 
Occupancy88 84 
Other operating expense91 111 (20)(18)
Noninterest expense$1,018 $1,012 $6 %
First quarter 2021 versus first quarter 2020: Noninterest expense increased $6 million, or 1%, from the first quarter of 2020, largely reflecting higher equipment and software driven by increased technology spend as well as higher outside services tied to growth initiatives. These results were partially offset by a decrease in other operating expense related mainly to lower travel and advertising costs. Underlying noninterest expense of $998 million increased $19 million, or 2%, as a result of the items stated above as well as higher salaries and employee benefits tied to higher revenue-based compensation.
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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:
            
cfg-20210331_g5.jpg
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 Loans and Leases” for more information.
First quarter 2021 versus fourth quarter 2020: In the first quarter of 2021, strong credit performance across the retail and commercial loan portfolios and improvement in the macroeconomic outlook resulted in a negative provision for credit losses of $140 million. This compared to a provision of $124 million in the fourth quarter of 2020.
First quarter 2021 versus first quarter 2020: As described above, the negative provision for credit losses was $140 million in the first quarter of 2021. This compared to provision for credit losses of $600 million in the first quarter of 2020, which reflected the adverse impacts from the COVID-19 pandemic and associated lockdowns.
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Income Tax Expense
The following table presents a five quarter trend of our income tax expense and effective income tax rate:
cfg-20210331_g6.jpg
First quarter 2021 versus first quarter 2020: Income tax expense increased $159 million from the first quarter of 2020 due to increased taxable income. The effective income tax rate decreased to 21.8% from 24.1% in the first quarter of 2020. The first quarter 2020 rate was elevated due to the negative tax impact of stock-based compensation on lower 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. Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets not directly allocated to a business operating segment, community development, non-core assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense. In addition, Other includes goodwill not directly allocated to a business operating segment and any associated goodwill impairment charges. For impairment testing purposes, we allocate all goodwill to our Consumer Banking and/or 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 Form 10-K.
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 for further information.
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Table 7: Selected Financial Data for Business Operating Segments
Consumer BankingCommercial Banking
Three Months Ended March 31,Three Months Ended March 31,
(dollars in millions)2021202020212020
Net interest income$863 $793 $421 $365 
Noninterest income351 357 170 125 
Total revenue1,214 1,150 591 490 
Noninterest expense750 738 227 221 
Profit before credit losses464 412 364 269 
Net charge-offs59 97 101 43 
Income before income tax expense405 315 263 226 
Income tax expense103 79 52 47 
Net income$302 $236 $211 $179 
Average Balances:
Total assets$75,283 $68,415 $57,738 $59,005 
Total loans and leases(1)(2)
70,188 65,343 54,813 56,555 
Deposits97,180 85,228 43,974 33,545 
Interest-earning assets71,135 65,393 55,175 57,016 
(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 $863 million increased $70 million, or 9%, from the first quarter of 2020, driven by the benefit of loan and deposit growth, partially offset by lower deposit margins given lower rates. Average loans grew $4.8 billion led by education and residential mortgage, as well as the impact of the PPP loan program. Deposits grew $12 billion, or 14%, driven by government stimulus. Noninterest income decreased $6 million, or 2%, from the first quarter of 2020, driven by lower service charges and fees reflecting COVID-19 impacts on overdraft fees, partially offset by higher mortgage banking and trust and investment services fees which reflected an increase in assets under management from strong equity market levels and net inflows. Noninterest expense increased $12 million, or 2%, from the first quarter of 2020, reflecting higher salaries and employee benefits tied to higher revenue-based compensation, equipment and software, as a result of increased technology spend, and outside services, largely tied to growth initiatives, partially offset by lower other operating expense related to lower travel and advertising costs. Net charge-offs of $59 million decreased $38 million, or 39%, reflecting the impact of U.S. Government stimulus programs and forbearance.
Commercial Banking
Net interest income of $421 million increased $56 million, or 15%, from $365 million in the first quarter of 2020, primarily driven by higher loan and deposit volumes that were partially offset by improved funding mix and deposit pricing. Noninterest income of $170 million increased $45 million, or 36%, from $125 million in the first quarter of 2020, driven by strength in capital markets fees due to higher underwriting revenue and mergers and acquisition advisory fees, as well as the impact of a mark-to-market loss on loan trading assets in the first quarter of 2020. Noninterest expense of $227 million increased $6 million, or 3%, from $221 million in the first quarter of 2020, driven by higher salaries and employee benefits, and higher equipment and software due to increased technology spend. Net charge-offs of $101 million increased $58 million from the first quarter of 2020, driven by finance and insurance, including one large charge-off related to a financial sponsor, and commercial real estate as a result of COVID-19 impacts.

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ANALYSIS OF FINANCIAL CONDITION
Securities
Table 8: Amortized Cost and Fair Value of AFS and HTM Securities
March 31, 2021December 31, 2020
(in millions)Amortized
Cost
Fair Value Amortized
Cost
Fair Value
U.S. Treasury and other$11 $11 $11 $11 
State and political subdivisions
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities23,966 24,113 21,954 22,506 
Other/non-agency324 340 396 422 
Total mortgage-backed securities, at fair value24,290 24,453 22,350 22,928 
   Total debt securities available for sale, at fair value $24,304 $24,467 $22,364 $22,942 
Mortgage-backed securities, at cost:
Federal agencies and U.S. government sponsored entities$2,139 $2,223 $2,342 $2,464 
Total mortgage-backed securities, at cost2,139 2,223 2,342 2,464 
Asset-backed securities, at cost856 854 893 893 
   Total debt securities held to maturity$2,995 $3,077 $3,235 $3,357 
   Total debt securities available for sale and held to maturity
$27,299 $27,544 $25,599 $26,299 
Equity securities, at fair value$73 $73 $66 $66 
Equity securities, at cost603 603 604 604 
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 contingent liquidity levels and pledging capacity. U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 96% 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 Form 10-K.
The fair value of the AFS debt securities portfolio of $24.5 billion at March 31, 2021 increased $1.5 billion from $22.9 billion at December 31, 2020, including $1.9 billion in new investments, offset by a $414 million reduction in unrealized gains driven by the steepening yield curve. The decline in the fair value of the HTM debt portfolio of $280 million was primarily attributable to portfolio run off. For further information, see Note 2.
As of March 31, 2021, the portfolio’s average effective duration was 4.1 years compared with 2.7 years as of December 31, 2020, 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.
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Loans and Leases    
Table 9: Composition of Loans and Leases, Excluding LHFS
(in millions)March 31, 2021December 31, 2020Change Percent
Commercial and industrial (1)
$44,058 $44,173 ($115)— %
Commercial real estate14,553 14,652 (99)(1)
Leases1,802 1,968 (166)(8)
Total commercial60,413 60,793 (380)(1)
Residential mortgages19,202 19,539 (337)(2)
Home equity11,854 12,149 (295)(2)
Automobile12,344 12,153 191 
Education12,691 12,308 383 
Other retail5,691 6,148 (457)(7)
Total retail61,782 62,297 (515)(1)
Total loans and leases$122,195 $123,090 ($895)(1 %)
(1) Includes PPP loans fully guaranteed by the SBA of $5.1 billion at March 31, 2021 and $4.2 billion at December 31, 2020.
Total loans and leases decreased $895 million, or 1%, from $123.1 billion as of December 31, 2020, reflecting a $380 million decrease in commercial and a $515 million decrease in retail.
Allowance for Credit Losses and Nonaccruing Loans and Leases
The ACL is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb future estimated credit losses in accordance with GAAP. For further information on our processes to determine our ACL, see “—Critical Accounting Estimates — Allowance for Credit Losses.”
The ACL of $2.4 billion as of March 31, 2021 compared with the ACL of $2.7 billion as of December 31, 2020, reflecting a reserve release of $298 million. For further information, see Note 4.
Table 10: ACL and Related Coverage Ratios by Portfolio
March 31, 2021December 31, 2020
(in millions)Loans and LeasesAllowanceCoverageLoans and LeasesAllowanceCoverage
Allowance for Loan and Lease Losses
Commercial and industrial$44,058 $742 1.68 %$44,173 $821 1.86 %
Commercial real estate14,553 353 2.43 14,652 360 2.46 
Leases1,802 51 2.82 1,968 52 2.67 
Total commercial60,413 1,146 1.90 60,793 1,233 2.03 
Residential mortgages19,202 125 0.65 19,539 141 0.72 
Home equity11,854 102 0.86 12,149 134 1.10 
Automobile12,344 175 1.41 12,153 200 1.65 
Education12,691 342 2.70 12,308 361 2.93 
Other retail5,691 304 5.34 6,148 374 6.07 
Total retail loans61,782 1,048 1.70 62,297 1,210 1.94 
Total loans and leases$122,195 $2,194 1.80 %$123,090 $2,443 1.98 %
Allowance for Unfunded Lending Commitments(1)
Commercial$165 2.17 %$186 2.33 %
Retail13 1.72 41 2.01 
     Total allowance for unfunded lending commitments178 227 
Allowance for credit losses(2)
$122,195 $2,372 1.94 %$123,090 $2,670 2.17 %
(1) Commercial and Retail coverages ratios calculated for allowance for unfunded lending commitments include the allowance for loan and lease losses and allowance for unfunded lending commitments in the numerator and total loans and leases in the denominator.
(2) Excluding the impact of PPP loans, the ACL Coverage Ratio would have been 2.03% and 2.24% for March 31, 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.”
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Table 11: Nonaccrual Loans and Leases
(dollars in millions)March 31, 2021December 31, 2020Change Percent
Commercial and industrial$281 $280 $1 — %
Commercial real estate100 176 (76)(43 %)
Leases(1)(50)
Total commercial loans and leases382 458 (76)(17)
Residential mortgages237 167 70 42 
Home equity269 276 (7)(3)
Automobile70 72 (2)(3)
Education22 18 22 
Other retail28 28 — — 
Total retail loans626 561 65 12 
Nonaccrual loans and leases$1,008 $1,019 ($11)(1 %)
Nonaccrual loans and leases to total loans and leases0.82 %0.83 %(1  bp)
Allowance for loan and lease losses to nonaccruing loans and leases218 240 (22 %)
Allowance for credit losses to nonaccruing loans and leases235 262 (27 %)
NPLs of $1.0 billion as of March 31, 2021 decreased $11 million, or 1%, from December 31, 2020, reflecting a $76 million decrease in commercial and a $65 million increase in retail. The decrease in commercial NPLs was primarily driven by the resolution of one large CRE loan, partially offset by higher nonaccrual designation for mortgage loans after exiting forbearance.
Table 12: Net Charge-offs and Charge-Off Ratios
Three Months Ended March 31,Three Months Ended March 31,
(dollars in millions)20212020Change20212020Change
Commercial and industrial$77 $44 $33 0.70 %0.41 %29  bps
Commercial real estate26 — 26 0.73 — 73 
Leases— 0.26 0.07 19 
Total commercial 104 44 60 0.69 0.30 39 
Residential mortgages(1)— (1)(0.01)0.01 (2)
Home equity(7)(3)(4)(0.25)(0.10)(15)
Automobile11 27 (16)0.35 0.88 (53)
Education14 (7)0.24 0.55 (31)
Other retail44 55 (11)3.00 3.21 (21)
Total retail loans54 93 (39)0.35 0.61 (26)
Total net charge-offs$158 $137 $21 0.52 %0.46 % bps
First quarter of 2021 NCOs of $158 million increased $21 million, or 15%, from $137 million in the first quarter of 2020, driven by an increase in commercial of $60 million partially offset by a decrease in retail of $39 million. First quarter of 2021 annualized net charge-offs of 0.52% of average loans and leases were up 6 basis points from first quarter of 2020.
The increase in commercial NCOs in the first quarter of 2021 as compared to the first quarter of 2020 were primarily driven by a charge-off related to a financial sponsor, described below, as well as COVID-related charge-offs in CRE. Retail NCOs were down in the first quarter of 2021 as compared to the first quarter of 2020 primarily due to U.S. Government stimulus programs, as well as forbearance.
In the first quarter of 2021, we charged-off our full exposure of approximately $54 million associated with a private equity sponsor client. This impact has been incorporated into our most recent full-year 2021 net charge-off guidance of 35-45 basis points of average loans. We recently filed a lawsuit in Federal court against this sponsor client alleging breach of contract and fraud. The Company has completed a full portfolio review and believes this incident is an isolated matter.

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.
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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 of March 31, 2021, commercial NPLs of $382 million decreased $76 million from $458 million as of December 31, 2020, representing 0.6% and 0.8% of the commercial loan and lease portfolio as of March 31, 2021 and December 31, 2020, respectively.
For commercial loans and leases, we utilize regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that we believe will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness, or potential weakness, that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of our credit position at some future date. Substandard loans are inadequately protected loans which 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 characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable.
Table 13: Commercial Loans and Leases by Regulatory Classification
March 31, 2021
Criticized
(in millions)PassSpecial MentionSubstandardDoubtfulTotal
Commercial and industrial(1)
$40,922 $1,282 $1,609 $245 $44,058 
Commercial real estate13,631 489 408 25 14,553 
Leases1,751 34 16 1,802 
Total commercial$56,304 $1,805 $2,033 $271 $60,413 

December 31, 2020
Criticized
(in millions)PassSpecial MentionSubstandardDoubtfulTotal
Commercial and industrial(1)
$40,878 $1,583 $1,464 $248 $44,173 
Commercial real estate13,356 804 416 76 14,652 
Leases1,922 33 12 1,968 
Total commercial$56,156 $2,420 $1,892 $325 $60,793 
(1) Includes $5.1 billion and $4.2 billion of PPP loans designated as pass that are fully guaranteed by the SBA as of March 31, 2021 and December 31, 2020, respectively.
Total commercial criticized balances of $4.1 billion as of March 31, 2021 decreased $528 million compared with December 31, 2020. Commercial criticized as a percent of total commercial of 6.8% at March 31, 2021 decreased from 7.6% at December 31, 2020.
Commercial and industrial criticized balances of $3.1 billion, or 7.1% of the total commercial and industrial loan portfolio as of March 31, 2021, decreased from $3.3 billion, or 7.5%, as of December 31, 2020. The decrease was primarily driven by net repayments and charge-offs. Commercial and industrial criticized loans represented 76% of total criticized loans as of March 31, 2021 compared to 71% as of December 31, 2020.
Commercial real estate criticized balances of $922 million, or 6.3% of the commercial real estate portfolio, decreased from $1.3 billion, or 8.8%, as of December 31, 2020. The decrease was primarily driven by credit upgrades and net charge-offs. Commercial real estate accounted for 22% of total criticized loans as of March 31, 2021 compared to 28% as of December 31, 2020.
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Table 14: Commercial Loans and Leases by Industry Sector
March 31, 2021December 31, 2020
(dollars in millions)Balance% of
Total Loans
Balance% of
Total Loans
Finance and insurance$6,297 %$6,481 %
Health, pharma, and social assistance3,147 3,243 
Accommodation and food services3,251 3,206 
Professional, scientific, and technical services2,753 2,804 
Other manufacturing2,366 2,403 
Information2,223 2,378 
Retail trade2,381 2,336 
Energy and related2,044 2,237 
Wholesale trade2,006 1,904 
Metals and mining1,533 1,646 
Arts, entertainment, and recreation1,250 1,382 
Other services1,368 1,370 
Administrative and waste management services1,241 1,320 
Computer, electrical equipment, appliance, and component manufacturing1,213 1,174 
Transportation and warehousing1,216 1,169 
Consumer products manufacturing1,131 1,112 
Automotive990 1,051 
Educational services803 844 
Chemicals771 — 736 — 
Real estate and rental and leasing744 — 732 — 
All other (1)
182 — 490 — 
Total commercial and industrial38,910 32 40,018 32 
Real estate and rental and leasing13,116 11 13,169 11 
Accommodation and food services789 749 
Finance and insurance469 — 498 — 
All other (1)
179 — 236 — 
Total commercial real estate14,553 12 14,652 12 
Total leases1,802 1,968 
Total commercial (2)
$55,265 45 %$56,638 46 %
(1) Deferred fees and costs are reported in All other.
(2) Excludes PPP loans of $5.1 billion and $4.2 billion as of March 31, 2021 and December 31, 2020, respectively.
Retail Loan Asset Quality
For retail loans, we utilize credit scores provided by FICO which are generally refreshed on a quarterly basis and the 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 the 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 the auto, education and point-of-sale financing.
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Table 15: Aging of Retail Loans as a Percentage of Loan Class
March 31, 2021December 31, 2020
Days Past DueDays Past Due
Current-2930-5960-89 90 or MoreCurrent-2930-5960-89 90 or More
Residential mortgages98.69 %0.29 %0.06 %0.96 %98.73 %0.30 %0.11 %0.86 %
Home equity97.85 0.39 0.16 1.60 97.53 0.50 0.23 1.74 
Automobile98.64 0.95 0.33 0.08 97.93 1.40 0.53 0.14 
Education99.58 0.23 0.10 0.09 99.56 0.27 0.11 0.06 
Other retail98.44 0.54 0.42 0.60 98.36 0.62 0.47 0.55 
Total retail98.68 %0.45 %0.17 %0.70 %98.47 %0.58 %0.25 %0.70 %
For more information on the aging of accruing and nonaccruing retail loans, see Note 4.
Table 16: Retail Asset Quality Metrics
March 31, 2021December 31, 2020
Average refreshed FICO for total portfolio769 771 
CLTV ratio for secured real estate(1)
58 %60 %
Nonaccruing retail loans to total retail1.01 0.90 
(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 March 31,
(dollars in millions)20212020ChangePercent
Net charge-offs$54 $93 ($39)(42 %)
Annualized net charge-off rate0.35 %0.61 %(26) bps
Retail asset quality continues to reflect a stronger economic outlook. The net charge-off rate of 0.35% for the quarter ended March 31, 2021 reflected a decrease of 26 basis points from the quarter ended March 31, 2020, driven by the forbearance and stimulus activity stemming from the COVID-19 pandemic and associated lockdowns.
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. Payment deferrals and forbearance plans entered into as a result of the COVID-19 pandemic were generally not considered TDRs.
As of March 31, 2021, $714 million of retail loans were classified as TDRs, compared with $718 million as of December 31, 2020. As of March 31, 2021, $188 million of retail TDRs were in nonaccrual status with 33% of those current on payments compared to $171 million in nonaccrual status with 38% of those current on payments at December 31, 2020. TDRs that are current on payments generally return to accrual status once repayment capacity and appropriate payment history has been established. TDRs are individually evaluated to estimate ACL, and loans, once classified as TDRs, remain classified as TDRs until paid off, sold, or refinanced at market terms. For additional information regarding TDRs, see Note 5 in our 2020 Form 10-K.
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Table 17: Accruing and Nonaccruing Retail Troubled Debt Restructurings
March 31, 2021
As a % of Accruing Retail TDRs
(dollars in millions)Accruing30-89 Days
Past Due
90+ Days Past DueNonaccruingTotal
Residential mortgages$174 2.0 %2.6 %$46 $220 
Home equity213 0.9 — 85 298 
Automobile0.1 — 43 46 
Education112 0.6 0.3 12 124 
Other retail24 0.3 — 26 
Total$526 3.9 %2.9 %$188 $714 
December 31, 2020
As a % of Accruing Retail TDRs
(dollars in millions)Accruing30-89 Days
Past Due
90+ Days Past DueNonaccruingTotal
Residential mortgages$172 2.7 %2.6 %$43 $215 
Home equity221 1.3 — 83 304 
Automobile13 0.5 — 33 46 
Education116 0.6 0.3 10 126 
Other retail25 0.3 — 27 
Total$547 5.4 %2.9 %$171 $718 
Deposits
Table 18: Composition of Deposits
(in millions)March 31, 2021December 31, 2020ChangePercent
Demand$46,067 $43,831 $2,236 %
Checking with interest26,883 27,204 (321)(1)
Regular savings19,634 18,044 1,590 
Money market accounts51,074 48,569 2,505 
Term deposits7,691 9,516 (1,825)(19)
Total deposits$151,349 $147,164 $4,185 %
    
Total deposits as of March 31, 2021 increased $4.2 billion, or 3%, to $151.3 billion, from $147.2 billion as of December 31, 2020, reflecting strong deposit flows from consumer-oriented government stimulus. Citizens Access®, our digital platform, ended the quarter with $5.3 billion of deposits, down from $5.9 billion as of December 31, 2020, primarily due to rate reduction strategies that resulted in a decrease in term deposits.
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Borrowed Funds
Total borrowed funds as of March 31, 2021 decreased $203 million from December 31, 2020, driven by a $173 million and $30 million decrease in short-term and long-term borrowed funds, respectively.
    Long-term borrowed funds
Table 19: Summary of Long-Term Borrowed Funds
(in millions)March 31, 2021December 31, 2020
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021
$350 $350 
4.150% fixed-rate subordinated debt, due September 2022 (1)
168 182 
3.750% fixed-rate subordinated debt, due July 2024 (1)
90 159 
4.023% fixed-rate subordinated debt, due October 2024 (1)
17 25 
4.350% fixed-rate subordinated debt, due August 2025 (1)
133 193 
4.300% fixed-rate subordinated debt, due December 2025 (1)
336 450 
2.850% fixed-rate senior unsecured notes, due July 2026
497 497 
2.500% fixed-rate senior unsecured notes, due February 2030
297 297 
3.250% fixed-rate senior unsecured notes, due April 2030
745 745 
3.750% fixed-rate reset subordinated debt, due February 2031 (1)
69 — 
4.300% fixed-rate reset subordinated debt, due February 2031 (1)
135 — 
4.350% fixed-rate reset subordinated debt, due February 2031 (1)
60 — 
2.638% fixed-rate subordinated debt, due September 2032
545 543 
CBNA’s Global Note Program:
2.550% senior unsecured notes, due May 2021
1,000 1,003 
3.250% senior unsecured notes, due February 2022
712 716 
0.918% floating-rate senior unsecured notes, due February 2022 (2)
300 299 
1.000% floating-rate senior unsecured notes, due May 2022 (2)
250 250 
2.650% senior unsecured notes, due May 2022
508 510 
3.700% senior unsecured notes, due March 2023
523 527 
1.143% floating-rate senior unsecured notes, due March 2023 (2)
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, 0.920% weighted average rate, due through 2038
19 19 
Other30 35 
Total long-term borrowed funds$8,316 $8,346 
(1) The March 31, 2021 balances reflect 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.
(2) Rate disclosed reflects the floating rate as of March 31, 2021 or final floating rate, as applicable.    
The Parent Company’s long-term borrowed funds as of March 31, 2021 and December 31, 2020 included principal balances of $3.5 billion and unamortized deferred issuance costs and/or discounts of $87 million and $90 million, respectively. CBNA and other subsidiaries’ long-term borrowed funds as of March 31, 2021 and December 31, 2020 included principal balances of $4.8 billion with unamortized deferred issuance costs and/or discounts of $10 million and $11 million, respectively, and hedging basis adjustments of $85 million and $112 million, respectively. See Note 8 for further information about our hedging of certain long-term borrowed funds. For information regarding our liquidity and available borrowing capacity, see “—Liquidity” and Note 7.
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 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 Form 10-K.
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Tailoring of Prudential Requirements
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 an annual capital plan for review and approval by our board of directors (or one of its committees), as well as FR Y-14 reporting requirements. On April 2, 2021, we submitted our 2021 Capital Plan to the FRB under the FRB’s 2021 CCAR process. For more information, see the “Tailoring of Prudential Requirements” section in item 1 of our 2020 Form 10-K.
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. For Category IV firms, like us, the FRB has stated that the SCB will be re-calibrated with each biennial supervisory stress test and updated annually to reflect our planned common stock dividends. 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 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, effective April 5, 2021, Category IV firms, like us, have the ability to 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 therefore our SCB is expected to remain at 3.4% for 2021. 

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. Our 2020 Capital Plan includes maintaining quarterly common dividends of $0.39 per common share through the SCB window period ending third quarter 2021. In March 2021, the FRB announced that the current capital distribution limitations will end on 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. All future capital distributions are subject to consideration and approval by the board of directors prior to execution.

Regulations relating to capital planning, regulatory reporting, and SCB requirements applicable to firms like us are subject to ongoing rulemaking 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 “Regulation and Supervision” and “—Capital and Regulatory Matters” in our 2020 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 March 31, 2021, we did not meet the threshold for these additional capital deductions. MSRs or deferred tax assets not deducted from CET1 capital
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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 March 31, 2021, $493 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 20: Regulatory Capital Ratios Under the U.S. Basel III Standardized Rules
March 31, 2021December 31, 2020
Required Minimum plus Required CCB for Non-Leverage Ratios(1)
(in millions, except ratio data)AmountRatioAmountRatio
   CET1 capital$14,867 10.1 %$14,607 10.0 %7.9 %
   Tier 1 capital16,832 11.4 16,572 11.3 9.4 
   Total capital19,879 13.4 19,602 13.4 11.4 
   Tier 1 leverage16,832 9.5 16,572 9.4 4.0 
   Risk-weighted assets147,817 146,781 
   Quarterly adjusted average assets176,890 175,370 
(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 March 31, 2021, our CET1 capital, tier 1 capital and total capital ratios were 10.1%, 11.4% and 13.4%, 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 three months ended March 31, 2021 was partially offset by $1.0 billion of risk-weighted asset (“RWA”) growth, the impact of the capital actions described in “—Capital Transactions” below 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. The total capital ratio was constant as the changes in the CET1 capital ratio 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 March 31, 2021, our CET1 capital, tier 1 capital and total capital ratios were approximately 220 basis points, 200 basis points and 200 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
CET1 capital under U.S. Basel III Standardized rules totaled $14.9 billion at March 31, 2021, an increase of $260 million from $14.6 billion at December 31, 2020, largely driven by net income for the three months ended March 31, 2021 partially offset by dividends, common share repurchases and a decrease in the modified CECL transitional amount. Tier 1 capital at March 31, 2021 totaled $16.8 billion, reflecting a $260 million increase from $16.6 billion at December 31, 2020, driven by the changes in CET1 capital. Total capital of $19.9 billion at March 31, 2021, increased $277 million from December 31, 2020, driven by the changes in CET1 capital and a decrease in non-qualifying subordinated debt partially offset by the reduction in the net AACL impact.
RWA totaled $147.8 billion at March 31, 2021, based on U.S. Basel III Standardized rules, up $1.0 billion from December 31, 2020. This increase in RWA was driven by higher MSRs, agency securities, commercial commitments, bank-owned life insurance, education loans and unsettled trades. These RWA increases wer