ITEM 1A. RISK FACTORS
We are subject to a number of risks potentially impacting our business, financial condition, results of operations, and cash flows. As a financial services organization, certain elements of risk are inherent in what we do and the decisions we make. Therefore, we encounter risk as part of the normal course of our business and design risk management processes to help manage these risks. See the “Risk Management” section in Item 7 for a discussion of our risk management framework and the primary risks we face.
You should carefully consider the following risk factors that may affect our business, financial condition, results of operations, or cash flows. However, the risk factors described below are not the only ones we face and should not be considered a complete list of risks that we may encounter. Additional risks not presently known to us or that we believe to be immaterial may also adversely affect our business. See the “Forward-Looking Statements” section above for other factors that could affect us.
Risks Related to Our Business
We may not be able to successfully execute our business strategy.
Our future success and the value of our stock depends, in part, on our ability to effectively implement our business strategy and achieve our financial performance goals across our Consumer and Commercial businesses, including our Private Bank. Risks and uncertainties associated with each element of our strategy exist, many of which are not within our control. If we are not able to successfully execute our business strategy, we may not achieve our financial performance goals and any shortfall may be material. See the “Business Strategy” section in Item 1 for further information.
Supervisory requirements and expectations on us as a financial holding company and a bank holding company and any regulator-imposed limits on our activities could adversely affect our ability to implement our strategic plan, expand our business, continue to improve our financial performance, and make capital distributions to our stockholders.
Our operations are subject to regulation, supervision, and examination by the federal banking regulators, as well as the CFPB. As part of the supervisory and examination process, if we are unsuccessful in meeting the regulatory requirements and supervisory expectations that apply to us, regulatory agencies may from time to time take supervisory actions against us, including actions that may not be publicly disclosed. Such actions may include restrictions on our activities or the activities of our subsidiaries, informal (nonpublic) or formal (public) supervisory actions, or public enforcement actions, including the payment of civil money penalties, which could increase our costs and limit our ability to implement our strategic plans and expand our business and, as a result, could have a material adverse effect on our business, financial condition, or results of operations. See the “Regulation and Supervision” section in Item 1 for further information.
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Inflationary pressures could have an adverse effect on our business, financial position, and results of operations.
Volatility and uncertainty related to inflation and its associated effects may enhance or contribute to certain risks that we face by negatively impacting our funding costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention. Inflation may also negatively impact consumer demand and client purchasing power for our products and services, as well as the ability of our borrowers to repay their obligations. These inflationary pressures would likely have an adverse impact on our business, financial position, and results of operations.
Our ability to meet our obligations, and the cost of funds to do so, depend on our ability to access identified sources of liquidity at a reasonable cost.
Liquidity risk is the risk arising from the inability to meet our obligations when they come due. We must maintain adequate funding to meet current and future obligations, including customer loan requests, deposit maturities and withdrawals, debt service, leases, and other cash commitments, under both normal operating conditions and periods of company-specific and/or market stress.
We rely on customer deposits to be our primary stable and low-cost source of funding. Our other funding sources are dependent on our ability to securitize loans in secondary markets, raise funds in the debt and equity capital markets, pledge loans and/or securities for borrowing from the FHLB, pledge securities as collateral for borrowing under repurchase agreements, and sell AFS securities.
Our ability to meet our obligations and support our operations could be materially affected by a variety of conditions, including market-wide illiquidity or disruption, a general loss of market or customer confidence in the financial services industry or in the Company specifically, or reductions in one or more of our credit ratings. These conditions could limit our ability to retain deposits, securitize or sell assets, access debt and equity capital markets, or otherwise borrow money at a reasonable cost. If these conditions, among others, are severe enough they could also create unanticipated material outflows of cash due to, among other factors, draws on unfunded commitments or deposit attrition, which could have a significant adverse impact on our liquidity. In addition, changes to the FHLB’s or the FRB’s underwriting guidelines for wholesale borrowings or lending policies may limit or restrict our ability to borrow and could have a significant adverse impact on our liquidity as a result.
Changes in interest rates may have an adverse effect on our liquidity and profitability.
Changes in interest rates can have a material impact on the value of our securities portfolio, the primary objective of which is to provide a readily available source of liquidity. An increase in rates could lower the collateral value of these securities, reducing the amount we could borrow and leading to losses in the event of their sale.
Since our earning assets are primarily in the form of loans and debt securities, changes in interest rates can have a material impact on our net interest income, net interest margin, fee income, and credit costs. Our asset yields and funding costs may not rise or fall in parallel in response to changes in interest rates, causing our net interest income to increase or decrease and our net interest margin to expand or contract. If our funding costs rise faster than our asset yields, or if our asset yields fall faster than our funding costs, our net interest income could decrease and our net interest margin could contract.
An increase in interest rates could weaken demand for loans by customers, reducing our net interest income due to lower loan balances and origination-related fee income due to lower production volume. An increase in rates could also have an adverse impact on our credit costs, as borrowers may have difficulty in making higher interest payments, as well as on our AFS securities portfolio, which could trigger the recognition of losses in the event the securities need to be sold.
Similarly, a decrease in interest rates could reduce our net interest income, net interest margin, and fee income. A prolonged period of low interest rates may result in us holding lower yielding loans and securities should rates rise rapidly after such a period.
Changes in the spread between short-term and long-term interest rates (i.e., the yield curve) can also have a material impact on our net interest income and net interest margin. The yield curve, typically upward sloping with short-term rates lower than long-term rates, could cause our net interest income and net interest margin to decline if it were to flatten or invert, as the cost of our short-term funding is likely to increase relative to the yield we can earn on our long-term assets.
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Interest rates and the yield curve are highly sensitive to many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory agencies, most notably the Federal Open Market Committee. Although we have policies and procedures designed to manage our interest rate risk as discussed in the “Risk Management” section in Item 7, there can be no assurance that these policies and procedures will be effective in preventing material adverse effects on our profitability.
We could fail to attract, retain, or motivate highly-skilled and qualified personnel, including our senior management, other key employees, or members of our Board, which could impair our ability to successfully execute our strategic plan and otherwise adversely affect our business.
Our ability to implement our strategic plan and our future success depends on our ability to attract, retain, and motivate highly-skilled and qualified personnel, including senior management, other key employees, and directors. The marketplace for skilled personnel continues to be competitive, which means the cost of hiring, incentivizing, and retaining skilled personnel may continue to rise. The failure to attract and retain highly-skilled and qualified personnel could place us at a significant competitive disadvantage and impair our ability to implement our strategic plan successfully and achieve our performance targets, which could have a material adverse effect on our business, financial condition, and results of operations.
Limitations on the manner in which regulated financial institutions, such as us, can compensate their officers and employees may make it more difficult for such institutions to compete for talent with financial institutions and other companies not subject to these or similar limitations. If we are unable to compete effectively, our business, financial condition, and results of operations could be adversely affected, perhaps materially.
A reduction in our credit ratings could have a material adverse effect on our business, financial condition, and results of operations.
Credit ratings affect the cost and associated terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, with their ratings based on a number of factors, including our financial strength and conditions affecting the financial services industry generally. Any downgrade in our ratings would likely increase our borrowing costs and could limit our access to capital markets, which would adversely affect our business. For example, a ratings downgrade could adversely affect our ability to sell or market our securities, including long-term debt, engage in certain longer-term derivative transactions, and retain customers, who may require a minimum credit rating in order to place funds with us. In addition, under the terms of our derivatives contracts, we may be required to post additional collateral or terminate such contracts if we don’t maintain a minimum credit rating. Any of these impacts of a ratings downgrade could increase our cost of funding, reduce our liquidity, and have adverse effects on our business, financial condition, and results of operations. For more information regarding our credit ratings, see the “Liquidity Risk” section in Item 7.
Our financial performance may be adversely affected by deterioration in borrower credit quality.
Risks arising from actual or perceived changes in credit quality and uncertainty over the recoverability of amounts due from borrowers is inherent in our businesses. If the economic environment were to deteriorate, our borrowers may have difficulty in repaying their loans which could result in higher credit losses and increased loan loss provision expense. Further, our credit risk and credit losses may increase to the extent our loans are concentrated by loan type, industry segment, collateral type, borrower type, or location of the collateral or borrower.
A significant portion of our earning assets are in the form of loans to borrowers across the U.S., primarily for residential, commercial and industrial, commercial real estate, education, and other retail purposes. A deterioration in economic conditions or changes in consumer or business behavior that negatively impact home or commercial property values could, in event of the borrower’s default, result in materially higher credit losses. Similarly, elevated unemployment levels and higher interest rates can adversely affect our customers’ ability to repay their loans, which can negatively impact our credit performance.
The credit quality of our borrowers may deteriorate for a number of reasons that are outside our control, including prevailing economic and market conditions and collateral valuations. The trends and risks affecting borrower credit quality have caused, and in the future may cause, us to experience credit losses, impairment charges, increased repurchase demands, higher recovery costs, and an inability to engage in routine funding transactions, which could have a material adverse effect on our business, financial condition, and results of operations.
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Our framework for managing risks may not be effective in mitigating risk and loss.
Our risk management framework is made up of various processes and strategies to manage our risk exposure and may not be effective under all conditions and circumstances. If our risk management framework proves ineffective, we could suffer unexpected losses and could be materially adversely affected.
One of the main types of risks inherent in our business is credit risk. An important feature of our credit risk management system is to employ an internal credit risk control system through which we identify, measure, monitor, and mitigate the existing and emerging credit risk of our customers. This process involves a detailed analysis of the customer or credit risk, taking into account both quantitative and qualitative factors, and is inherently subject to human error. In exercising their judgment, our employees may not always be able to assign an accurate credit rating to a customer or credit risk, which may result in our exposure to higher credit risks than indicated by our risk rating system.
In addition, we have undertaken certain actions to enhance our credit policies and guidelines to address potential risks associated with particular industries or types of customers. However, we may not be able to effectively implement these initiatives, or consistently follow and refine our credit risk management system, which may result in an increase in the level of nonaccrual loans and a higher risk exposure for us, which could have a material adverse effect on us.
Changes in our accounting policies or standards could materially affect how we report our financial results and condition.
The FASB and SEC periodically change financial accounting and reporting standards that govern accounting for our financial results and preparation of our consolidated financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the recasting of our prior period financial statements.
Our financial and accounting estimates and risk management framework rely on analytical forecasting and models.
The processes we use to estimate loan losses, measure the fair value of financial instruments, and estimate the effects of changing interest rates and other market measures on our financial condition and results of operations are reliant upon the use of analytical and forecasting models. Some of our tools and metrics for managing risk are based on observed historical market behavior, and we rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in processes such as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy, and calculating regulatory capital levels, as well as estimating the value of financial instruments and balance sheet items, including goodwill. Poorly designed or implemented models could adversely affect our business decisions if the information is inadequate. In addition, our models may fail to predict future risk exposures if the information used is inaccurate, obsolete, or not sufficiently comparable to actual events as they occur. We seek to incorporate appropriate historical data in our models, but the range of market values and behaviors reflected in any period of historical data is not always predictive of future developments in any particular period and the period of data we incorporate into our models may turn out to be inappropriate for the future period being modeled. In these instances, our ability to manage risk would be limited and our risk exposure and losses could be significantly greater than our models indicated, which could harm our reputation and adversely affect our revenues and profits. Finally, information provided to our regulators based on poorly designed or implemented models could be inaccurate or insufficient, which could adversely affect some of the decisions that our regulators make, including those related to capital distributions to our stockholders, and subject us to supervisory criticism and costs related to remediation.
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The preparation of our financial statements requires us to make subjective determinations and use estimates that may vary from actual results and materially impact our financial condition and results of operations.
The preparation of consolidated financial statements in conformity with GAAP requires management to make significant estimates that affect the financial statements. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations and, at times, require management to exercise judgment in their application so as to report our financial condition and results of operations in the most appropriate manner. Certain accounting policies are critical because they require management to make difficult, subjective, or complex judgments about matters that are inherently uncertain and the likelihood that materially different estimates would result under different conditions or through the utilization of different assumptions. Our critical accounting estimates include the ACL, fair value measurements, and the evaluation and measurement of goodwill for impairment. If our estimates are inaccurate or need to be adjusted periodically, our financial condition and results of operations could be materially impacted. For more information regarding our use of estimates in the preparation of our consolidated financial statements, see Note 1 in Item 8 and the “Critical Accounting Estimates” section in Item 7.
Operational risks are inherent in our businesses.
Our operations depend on our ability to process a very large number of transactions efficiently and accurately while complying with applicable laws and regulations. Operational risk and losses can result from internal and external fraud; improper conduct or errors by employees or third parties; failure to document transactions properly or to obtain proper authorization; failure to comply with applicable legal and regulatory requirements and business conduct rules; equipment failures, including those caused by natural disasters or by electrical, telecommunications, or other essential utility outages; business continuity and data security system failures, including those caused by computer viruses, cyber-attacks against us or our vendors, coding errors, or unforeseen problems encountered while implementing new computer systems or upgrades to existing systems; or the inadequacy or failure of systems and controls, including those of our suppliers or counterparties. Although we implement risk controls and loss mitigation actions and devote substantial resources to developing efficient procedures, identifying and rectifying weaknesses in existing procedures and training staff, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks we face. Any weakness in these systems or controls, or any breaches or alleged breaches of such laws or regulations, could result in increased regulatory supervision, enforcement actions, and other disciplinary action, especially in light of heightened regulatory expectations around information security, and have an adverse impact on our business, applicable authorizations and licenses, reputation, and results of operations.
The financial services industry, including the banking sector, continues to make technological enhancements to meet customer preferences, as well as meet legal and regulatory requirements, and we may not be able to compete effectively as a result of these changes.
Technology within the financial services industry continues to evolve and new, unexpected technological changes, including those related to artificial intelligence, could have a transformative effect on the way banks offer products and services. We believe our success depends, to a great extent, on our ability to utilize technology to offer products and services that address the needs of our customers and to create efficiencies in our operations. However, we may not be able to, among other things, keep up with the rapid pace of technological changes, effectively implement new technology-driven products and services, or be successful in marketing these products and services to our customers. As a result, our ability to compete effectively to attract or retain business may be impaired, and our business, financial condition, or results of operations may be adversely affected.
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In addition, changes in the legal and regulatory framework under which we operate require us to update our information systems to ensure compliance. Our need to review and evaluate the impact of ongoing rule proposals, final rules, and implementation guidance from regulators further complicates the development and implementation of new information systems for our business. Regulatory guidance continues to be focused on the need for financial institutions to perform appropriate due diligence and ongoing monitoring of third-party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from our relationships with third-party technology providers. Given the significant number of ongoing regulatory reform initiatives, it is possible that we may incur higher than expected information technology costs in order to comply with current and impending regulations. Also, see “Supervisory requirements and expectations on us as a financial holding company and a bank holding company and any regulator-imposed limits on our activities could adversely affect our ability to implement our strategic plan, expand our business, continue to improve our financial performance, and make capital distributions to our stockholders.”
We are subject to a variety of cybersecurity risks that, if realized, could adversely affect how we conduct our business.
Evolving technologies, including the introduction of Generative Artificial Intelligence and Large Language Models, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, activists, and other external parties present a significant information security risk to large financial institutions such as us. Third parties with whom we or our customers do business also present operational and information security risks to us, including security breaches or failures of their own systems. Risks related to cyberattacks on our vendors and other third parties, including supply chain attacks affecting our software and information technology service providers, are on the rise as such attacks become more frequent and severe. Employee error, failure to follow security procedures, or malfeasance also present these risks. Our operations rely on the secure processing, transmission, and storage of confidential information in our computer systems and networks as well as in the third-party computer systems and networks used to provide products and services on our behalf. Although we believe that we have appropriate information security procedures and controls based on our adherence to applicable laws and regulations and industry standards, our technologies, systems, and networks may be the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, theft, sale, or loss or destruction of the confidential and/or proprietary information of CFG, and our customers, vendors, counterparties, or employees. We and our third-party vendors are under continuous threat of loss or network degradation due to cyberattacks, such as computer viruses, malicious or destructive code, phishing attacks, ransomware, and Distributed Denial of Service attacks (collectively, “fraudulent schemes”). Also, our customers are routinely the target of fraudulent schemes as we continue to expand customer capabilities to utilize the Internet and other remote channels to transact business. Two of the most significant cyberattack risks that we face as a result of these fraudulent schemes are potential loss of funds resulting from customers falling victim to cybercriminal communications directed to them or unauthorized access to sensitive customer data. Cybercriminals can use fraudulent schemes directly targeting our customers or our own systems to compromise and directly extract funds from a customer’s account or access sensitive customer data. Certain technology protections such as Customer Profiling and Step-Up Authentications have been implemented, but there can be no assurance that these protections will be effective.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense, to investigate and remediate any information security vulnerabilities internally, to assess and mitigate issues associated with customers that have fallen victim to fraudulent schemes, and perform additional due diligence with respect to our third-party vendors. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of system disruptions and security issues. In addition, addressing certain information security vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. Cyberattacks against the patches themselves have also proven to be a significant risk that companies will have to address going forward.
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Despite our efforts to prevent a cyberattack, a successful one could persist for an extended period of time before being detected, and, following detection, could take considerable time for us to obtain full and reliable information about the cybersecurity incident and the extent, amount, and type of information compromised. During the course of an investigation, we may not necessarily know the full effects of the incident or how to remediate it, and actions and decisions that are taken or made in an effort to mitigate risk may further increase the costs and other negative consequences of the incident. Moreover, existing regulations may require us to disclose information about a cybersecurity event before it has been resolved or fully investigated.
The techniques used by cyber criminals change frequently, may not be recognized until launched, and can be initiated from a variety of sources, including terrorist organizations and hostile foreign governments. These actors may attempt to fraudulently induce employees, customers, or other third-party users of our systems to disclose sensitive information in order to gain access to data or our systems. In the event that a cyberattack is successful, our business, financial condition, or results of operations may be adversely affected.
We rely heavily on communications and information systems to conduct our business.
Any failure, interruption, or breach in the security of our communication and information system due to, among other things, cyberattacks or our failure to adequately maintain and manage our systems or implement system changes and upgrades, could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. Although our policies and procedures are designed to prevent or limit the effect of the possible failure, interruption, or security breach of our information systems, there can be no assurance that these policies and procedures will be successful and that any such failure, interruption, or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption, or security breach of our information systems could require us to devote substantial resources to recovery and response efforts, damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability. Although we maintain insurance coverage for information security events, we may incur losses as a result of such events that are not insured against or not fully covered by our insurance.
We rely on third parties for the performance of a significant portion of our information technology.
Third parties perform a significant portion of our information technology functions and the provision of information technology and business process services including, but not limited to, the operation of our data communications networks, hosted services, and a wide range of other support services. The success of our business depends in part on the continuing ability of third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively monitor or mitigate third or fourth-party risk, in particular as it relates to the use of common suppliers or vendors by the third parties that perform functions and services for us. If we experience a disruption in the provision of any functions or services performed by third parties, we may have difficulty in finding alternate providers on terms favorable to us and in reasonable time frames. If these services are not performed in a satisfactory manner, we would not be able to adequately serve our customers. In either situation, our business could incur significant costs and be adversely affected.
We are exposed to reputational risk and the risk of damage to our brands and the brands of our affiliates.
Our success and results depend on our reputation and the strength of our brands. We are vulnerable to adverse market perception as we operate in an industry where integrity, customer trust, and confidence are paramount. We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory or other investigations or actions, press speculation and negative publicity, and perception of our sustainability and governance practices and disclosures, among other factors, could damage our brands or reputation. Our brands and reputation could also be harmed if we sell products or services that do not perform as expected or customers’ expectations for the product are not satisfied.
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Unpredictable catastrophic events could have an adverse effect on our business, financial position, and results of operations.
The occurrence of catastrophic events, including pandemics, terrorists attacks, extreme weather events, such as hurricanes, tropical storms, or tornadoes, and other large-scale catastrophes could adversely affect our business, financial condition, or results of operations. Such events could affect the stability of our deposit base, impair the ability of our borrowers to repay outstanding loans, impair the value of collateral securing loans, and cause significant property damage or operational disruptions, resulting in loss of revenue or causing us to incur additional expenses.
Furthermore, although we maintain both business continuity and disaster recovery plans, if a catastrophic event rendered our production and recovery data unusable, there can be no assurance that these plans and related capabilities will adequately protect us from such an event, and our business, financial condition, or results of operations could be adversely affected.
The effects of geopolitical instability may adversely affect us and create significant risks and uncertainties for our business, with the ultimate impact dependent on future developments, which are highly uncertain and unpredictable.
Ongoing geopolitical instability, such as the wars in Ukraine and the Middle East, has negatively impacted, and could in the future negatively impact, the global and U.S. economies, including by causing supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign currency exchange rates, rising interest rates, and heightened cybersecurity risks. The extent to which such geopolitical instability adversely affects our business, financial condition, and results of operations, as well as our liquidity and capital profile, will depend on future developments, which are highly uncertain and unpredictable, including the extent and duration of the wars and the associated immeasurable humanitarian toll inflicted as a result. If geopolitical instability adversely affects us, it may also have the effect of heightening other risks related to our business.
Any deterioration in national economic and political conditions could have a material adverse effect on our business, financial condition, and results of operations.
Our business is affected by national economic and political conditions, as well as perceptions of those conditions and future economic prospects, with changes in such conditions neither predictable or controllable. Adverse economic and political conditions, such as global trade policies, inflationary pressures, and government shutdowns could have a material adverse effect on our business, financial condition, and results of operations.
U.S. global trade policies, including the imposition of tariffs and uncertainty surrounding the resolution of trade disputes, or renewal of trade agreements, with various countries, may cause inflation to rise and ultimately affect interest rates. In addition, the risk of government shutdowns could cause volatility in the financial markets by adversely impacting consumer and investor confidence. Unfavorable changes related to these national economic and political conditions may also result in increased delinquencies and defaults among borrowers in light of economic uncertainty, which could require us to charge off a higher percentage of loans and increase the provision for credit losses, ultimately reducing our net income.
Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers.
There is global concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include discrete events, such as flooding and wildfires, and longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged droughts. Such events could disrupt our operations or those of our clients, customers, or service providers, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
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We are also exposed to risks associated with the transition to a lower-carbon economy in response to concerns around climate change. Such risks may result from changes in policies, laws and regulations, technologies, or market preferences that are intended to address climate change. These changes could adversely impact our or our customers’ business, results of operations, financial condition, and reputation. This could occur as a result of our or our customers’ involvement in, or decision not to participate in, certain industries or projects associated with exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations related to climate change. For example, a number of states in which we operate have enacted or proposed statutes and regulations addressing climate change and sustainability issues, while certain other states have enacted, or have proposed to enact, divergent or sometimes conflicting statutes, regulations, or policies. Uncertainties and changes in legislation, regulations, and/or global standards related to climate risk management and practices may result in higher regulatory, compliance, credit, and/or reputational risks and costs.
Risks Related to Our Industry
We operate in an industry that is highly competitive, which could result in losing business or margin declines and have a material adverse effect on our business, financial condition, and results of operations.
We operate in a highly competitive industry, which could become even more competitive as a result of legislative, regulatory, and technological changes, as well as continued consolidation. We face aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services, including non-banking financial institutions that are not subject to the same regulatory restrictions as banks and BHCs, securities firms and insurance companies, and competitors that may have greater financial resources.
With respect to non-banking financial institutions, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds and can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. In addition, the emergence, adoption, and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in automation, artificial intelligence, and robotics, could significantly affect the competition for financial services. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Some of our non-bank competitors are not subject to the same regulations that we are and, therefore, may have greater flexibility in competing for business. As a result of these and other sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect our profitability.
The conditions of other financial institutions or of the financial services industry could adversely affect our operations and financial condition.
Financial services institutions are typically interconnected as a result of trading, investment, liquidity, clearing, counterparty, and other relationships. Within the financial services industry, the default by any one institution could lead to defaults by other institutions. Concerns about, or a default by, one institution could lead to significant market and customer perception of the risk of similar problems at other institutions. This perception of risk could, in and of itself, lead to adverse impacts on liquidity, as the financial soundness of financial institutions is closely related as a result of the aforementioned relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks, and exchanges with which we interact on a daily basis, or key funding providers such as the FHLBs, any of which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on our business, financial condition, and results of operations.
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Risks Related to Regulations Governing Our Industry
As a financial holding company and a bank holding company, we are subject to regulation that could have a material adverse effect on our business and results of operations.
As a FHC and a BHC, we are subject to regulation, supervision, and examination by the FRB. In addition, CBNA is subject to regulation, supervision, and examination by the OCC. Our regulators supervise us through examinations and other means that allow them to gauge management’s ability to identify, assess, and control risk in all areas of operations in a safe and sound manner and to ensure compliance with laws and regulations. In the course of their supervision and examinations, our regulators may require improvements in various areas. We may be required to devote substantial resources to meet supervisory expectations or remediate supervisory findings. In addition, the failure to meet supervisory expectations can result in practical limitations on the ability of a bank, BHC, or FHC to engage in new activities, pursue growth opportunities, engage in acquisitions, return capital to shareholders through repurchases or dividends, or continue to conduct existing activities. If we are unable to implement and maintain any required actions in a timely and effective manner, we could become subject to informal (nonpublic) or formal (public) supervisory actions and public enforcement orders that could lead to significant restrictions on our existing business or on our ability to engage in any new business. Such forms of supervisory action could include, without limitation, written agreements, cease and desist orders, and consent orders and may, among other things, result in restrictions on our ability to pay dividends, requirements to increase capital, restrictions on our activities, the imposition of civil monetary penalties, and enforcement of such actions through injunctions or restraining orders. We could also be required to dispose of certain assets and liabilities within a prescribed period. The terms of any such supervisory or enforcement action could have a material adverse effect on our business, financial condition, and results of operations.
We are a BHC that has elected to become a FHC pursuant to the Bank Holding Company Act. FHCs are allowed to engage in certain financial activities in which a BHC is not otherwise permitted to engage. However, to maintain FHC status, a BHC and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” If a BHC ceases to meet these capital and management requirements, there are many penalties it would be faced with, including the imposition of limitations or conditions on the conduct of its activities by the FRB, as well as the inability to undertake any of the broader financial activities permissible for FHCs or to acquire a company engaged in such financial activities without prior approval of the FRB. If a company does not return to compliance within 180 days, which period may be extended, the FRB may require divestiture of the company’s depository institutions. If we fail to meet FHC requirements and remediate deficiencies in a timely manner, there could be a material adverse effect on our business, financial condition, and results of operations.
Our regulators may impose restrictions or limitations on our operations.
From time to time, bank regulatory agencies take supervisory actions that restrict or limit a financial institution’s activities and lead it to raise capital or subject it to other requirements. In addition, as part of our examination process, our regulators may advise us to conduct significant remediation activities or operate under various restrictions as a prudential matter. Any such actions or restrictions, if and in whatever manner imposed, could adversely affect our costs and revenues. Moreover, efforts to comply with any such nonpublic supervisory actions or restrictions may require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions, if and in whatever manner imposed, could have a material adverse effect on our business and results of operations.
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The regulatory environment in which we operate continues to be subject to evolving regulatory requirements that could have a material adverse effect on our business and earnings.
We are regulated by multiple banking, consumer protection, securities, and other regulatory authorities at the federal and state levels. This regulatory oversight is primarily established to protect depositors, the DIF, consumers of financial products, and the financial system as a whole, not for the protection of shareholders or other investors. Changes to statutes, regulations, rules, or policies, including their interpretation, implementation, or enforcement, could affect us in substantial and unpredictable ways, including by, for example, subjecting us to additional costs, limiting the types of financial services and other products we may offer, limiting our ability to pursue acquisitions, and increasing the ability of third parties, including non-banks, to offer competing financial services and products. Certain regulators and law enforcement authorities have required admissions of wrongdoing and, in some cases, criminal pleas as part of the resolutions of matters brought by them against financial institutions. Any such resolution of a matter involving us could lead to increased exposure to civil litigation, could adversely affect our reputation, could result in penalties or limitations on our ability to do business or engage in certain activities, and could have other negative effects. In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings, including by multiple federal and state regulators and other governmental authorities.
We are also subject to laws and regulations relating to the privacy of the information of our customers, employees, counterparties, and others, and any failure to comply with these laws and regulations could expose us to liability and/or reputational damage. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with those laws and regulations, as well as our potential liability for non-compliance and our reporting obligations in the case of data breaches, may significantly increase.
Uncertainty exists with respect to the enactment of new laws and regulations, or changes in the interpretation or enforcement of existing laws and regulations, including potential deregulation in some areas. In addition, litigation challenging actions or regulations by federal or state authorities could, depending on the outcome, significantly affect the regulatory and supervisory framework affecting our operations. For more information on regulations to which we are subject, see the “Regulation and Supervision” section in Item 1.
We are subject to capital adequacy and liquidity standards, and if we fail to meet these standards our financial condition and operations would be adversely affected.
We are subject to several capital adequacy and liquidity standards. To the extent that we are unable to meet these standards, our ability to make distributions of capital will be limited and we may be subject to additional supervisory actions and limitations on our activities. See “Regulation and Supervision” in Item 1 for further discussion of the regulations to which we are subject.
The Parent Company could be required to act as a “source of strength” to CBNA, which would have a material adverse effect on our business, financial condition, and results of operations.
FRB policy historically required BHCs to act as a source of financial and managerial strength to their subsidiary banks. This support may be required by the FRB at times when we might otherwise determine not to provide it or when doing so is not otherwise in the interests of CFG or our stockholders or creditors, and may include one or more of the following:
•The Parent Company may be compelled to contribute capital to CBNA, including by engaging in a public offering to raise such capital. Furthermore, any extensions of credit from the Parent Company to CBNA that are included in CBNA’s capital would be subordinate in right of payment to depositors and certain other indebtedness of CBNA;
•In the event of a BHC’s bankruptcy, any commitment that the BHC had been required to make by a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment; and
•In the event of impairment of the capital stock of CBNA, the Parent Company, as CBNA’s stockholder, could be assessed for the deficiency and required to pay that amount to CBNA.
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The Parent Company depends on CBNA for substantially all of its revenue, and restrictions on dividends and other distributions by CBNA could affect its liquidity and ability to fulfill its obligations.
As a BHC, the Parent Company is a separate and distinct legal entity from CBNA, our banking subsidiary. The Parent Company typically receives substantially all of its revenue from dividends from CBNA and are the principal source of funds utilized to pay dividends on our equity and interest and principal on our debt. Various federal and/or state laws and regulations, as well as regulatory expectations, limit the amount of dividends that CBNA may pay to the Parent Company. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event CBNA is unable to pay dividends to the Parent Company, it may not be able to make debt service payments, pay obligations, or pay dividends on its common stock. The inability to receive dividends from CBNA could have a material adverse effect on our business, financial condition, and results of operations. See the “Regulation and Supervision” section in Item 1 for further discussion of dividends payable by CBNA as a national bank subsidiary.
From time-to-time, we may become or are subject to regulatory actions that may have a material impact on our business.
We may become or are involved, from time to time, in reviews, investigations, and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. These regulatory actions involve accounting, compliance, and operational matters, among others, some of which may result in adverse judgments, settlements, fines, penalties, injunctions, or other relief that may require changes to our business or otherwise materially impact our business.
In regulatory actions, such as those referred to above, it is inherently difficult to determine whether any loss is probable or whether it is possible to reasonably estimate the amount of any loss. We cannot predict with certainty if, how, or when such proceedings will be resolved or what the eventual fine, penalty, or other relief, conditions, or restrictions, if any, may be, particularly for actions that are in their early stages of investigation. We may be required to make significant restitution payments to CBNA customers arising from certain compliance issues and also may be required to pay civil money penalties in connection with certain of these issues. This uncertainty makes it difficult to estimate probable losses which, in turn, can lead to substantial disparities between the reserves we may establish for such proceedings and the eventual settlements, fines, or penalties. Adverse regulatory actions could have a material adverse effect on our business, financial condition, and results of operations.
We are and may be subject to litigation that may have a material impact on our business.
Our operations are diverse and complex and we operate in legal and regulatory environments that expose us to potentially significant litigation risk. In the normal course of business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation. These actions arise in connection with our activities as a financial services institution, including with respect to alleged unfair or deceptive business practices, mis-selling of certain products, violations of contract or intellectual property rights, and other compliance or operational failures. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or in financial distress. Moreover, a number of recent judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. This could increase the amount of private litigation to which we are subject. For more information regarding ongoing significant legal proceedings in which we may be involved, see Note 17 in Item 8.
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Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and effort.
We are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and poses significant technical challenges. Although we believe our current policies and procedures are sufficient to comply with applicable rules and regulations, we cannot guarantee that our anti-money laundering and anti-terrorism financing policies and procedures completely prevent situations of money laundering or terrorism financing. Any such failure events may have severe consequences, including sanctions, fines, and reputational consequences, which could have a material adverse effect on our business, financial condition, or results of operations.
Risks Related to our Common Stock
Our stock price may be volatile, and you could lose all or part of your investment as a result.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock could be subject to wide fluctuations in response to, among other things, the factors described in this “Risk Factors” section, and other factors, some of which are beyond our control. These factors include, but are not limited to, the following:
•quarterly variations in our results of operations or the quarterly financial results of companies perceived to be similar to us;
•changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
•our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions, or strategic investments;
•fluctuations in the market valuations of companies perceived by investors to be comparable to us;
•failures of financial institutions perceived to be similar to us;
•future sales of our common stock;
•additions or departures of members of our senior management or other key personnel;
•changes in industry conditions or perceptions; and
•changes in applicable laws, rules, or regulations and other dynamics.
Furthermore, stock markets experience price and volume fluctuations that affect the market price of equity securities of many companies. These fluctuations can be unrelated or disproportionate to the operating performance of these companies. Broad market fluctuations, as well as general economic, systemic, political, and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our common stock.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend and a distraction to management.
We may not repurchase shares or pay cash dividends on our common stock.
Holders of our common stock are only entitled to receive dividends declared by our Board out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future, which could adversely affect the market price of our common stock. Also, as a BHC, our ability to repurchase shares and declare and pay dividends is dependent on certain federal regulatory considerations, including the rules of the FRB regarding capital adequacy and dividends. We are also generally required to receive the FRB’s approval for any dividends, share repurchases, or redemption of capital securities if we are required to resubmit our capital plan. Further, if we are unable to satisfy the capital requirements applicable to us for any reason, we may be limited in our ability to repurchase shares and declare and pay dividends on our capital stock. See the “Regulation and Supervision” section in Item 1 for further discussion of the regulations to which we are subject.
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“Anti-takeover” provisions and the regulations to which we are subject may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders.
We are a BHC incorporated in the state of Delaware. Anti-takeover provisions in Delaware law and our restated certificate of incorporation and amended and restated bylaws, as well as regulatory approvals that would be required under federal law, could make it more difficult for a third party to take control of us and may prevent stockholders from receiving a premium for their shares of our common stock. These provisions could adversely affect the market price of our common stock and could reduce the amount that stockholders might get if we are sold.
Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution. These laws include the Bank Holding Company Act and the Change in Bank Control Act.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
The Company’s Cybersecurity Program (“CSP”) drives an end-to-end, continuous process that protects our customers, colleagues, assets, premises, systems, and information (electronic and non-electronic), and is designed to ensure compliance with current and emerging federal and state laws and regulations. The CSP is designed to ensure the effective implementation of the Corporate Security and Resilience Operating Model across all business lines of the Company and is under the supervision of the Chief Security Officer (“CSO”).
Operational Risk Management coordinates the development, maintenance, and day-to-day oversight of the Company’s Enterprise Risk Management Governance Framework (“the Framework”), which defines an integrated enterprise-wide approach to risk management. This centrally managed program is designed to ensure that all business lines play a role in the successful implementation of the CSP. The CSP aligns with the Framework, enabling the CSO to provide risk oversight to and drive accountability from the business lines.
The CSP is designed to assess and mitigate threats and risks to the Company. New and emerging threats are assessed through an intelligence lifecycle, which includes threat modeling. In addition, risk assessment processes drive risk identification and measurement related to security. Once risks are identified and measured, the Framework is leveraged to track and mitigate them. Control testing is utilized to demonstrate that risks are managed effectively, identify gaps in expected control operation, and develop appropriate remediation plans, in order to manage risk to the Company within tolerable limits.
As part of the Company’s Third Party Risk Management Program and in support of the CSP, reviews for cybersecurity, business continuity, fraud, and other policy-related topics are performed for the onboarding of new vendors and ongoing monitoring of existing vendors. Ratings assigned to a vendor determine review frequency and scope. Results are reported to key stakeholders and identified issues are tracked and monitored.
The Company regularly reviews the nature of its business activities and modifies the CSP as appropriate. Many of the elements of the CSP are related to cyber defense and are in place to reduce our risk to a wide range of potential cyber threats that may target our assets and information daily. The effectiveness of the CSP is assessed and measured periodically by various lines of defense within the Company and is conducted primarily through risk assessments, assurance testing, and an independent audit. External organizations are also routinely engaged to assess our CSP and test our perimeter defenses. The effectiveness of the CSP is reported periodically to the appropriate governance committees.
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Governance
Under the guidance of our CSO, we maintain a comprehensive CSP designed to protect our employees, customers, assets, premises, systems, and information against unauthorized access, misuse, alteration, or destruction that could result in substantial harm or inconvenience to our customers, and loss or reputational damage. The CSP incorporates all of our security policies and covers the core elements of access control, infrastructure security, cybersecurity event and incident management, data protection, third-party vendor cyber risk oversight, and training and awareness. Independent assessment and benchmarking of the CSP are regularly completed, and the CSP is reviewed and assessed by federal regulators. While we look to numerous frameworks to ensure the CSP is maintained in line with regulatory expectations and industry best practices, the National Institute of Standards and Technology cybersecurity framework is the primary standard against which we benchmark ourselves.
Both the Risk and Audit Committees of our Board have oversight of the management of our cybersecurity risk. The Audit Committee is responsible for overseeing the CSP under its risk oversight responsibilities as it relates to financial controls. The Risk Committee is responsible for oversight of the management of cybersecurity risk consistent with the Framework.
The CSP is presented by the CSO to the Risk Committee annually for approval in conjunction with an annual cybersecurity briefing. This briefing provides an overall assessment of the effectiveness of the CSP and an outlook for the upcoming year. In addition to the annual cybersecurity briefing, the CSO provides updates on cybersecurity to the Risk Committee at each of its meetings. The Audit Committee and Board also receive regular cybersecurity updates as part of the reporting provided by the Technology/Cyber Oversight Committee, a management committee chaired by the CEO which provides executive oversight, guidance, and transparency to key transformative initiatives designed to enhance our technology stability, cyber defenses, and risk management capabilities. Further, to ensure the Board maintains the appropriate knowledge for providing effective oversight, it is provided with relevant cybersecurity training on an annual basis, with any additional training provided as requested.
ITEM 2. PROPERTIES
We lease five operations centers in Boston, Medford, and Westwood, Massachusetts; Pittsburgh, Pennsylvania; and Glen Allen, Virginia. We own two principal operations centers in Johnston and East Providence, Rhode Island. At December 31, 2025, our subsidiaries owned and operated a total of 59 facilities and leased an additional 1,032 facilities. We believe our current facilities are adequate to meet our needs. See Note 5 and Note 7 in Item 8 for more information regarding our premises and equipment, and leases, respectively.
ITEM 3. LEGAL PROCEEDINGS
Information required by this item is presented in Note 17 in Item 8 and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange under the symbol “CFG.” As of February 4, 2026, our common stock was owned by 6,410 holders of record (including Cede & Co.) and approximately 723,000 beneficial shareholders whose shares were held in “street name” through a broker or bank. Information relating to compensation plans under which our equity securities are authorized for issuance is presented in Item 12.
The following graph shows the cumulative total shareholder return on our common stock during the five-year period ended December 31, 2025 compared to (i) the Standard & Poor’s 500® index; (ii) the KBW Nasdaq Bank Index (“BKX”), composed of 24 banking stocks representing large U.S. national money centers, regional banks and thrift institutions; and (iii) a group of other regional banks that constitute our peers. The graph assumes an initial investment of $100 at the closing price on December 31, 2020 and that all dividends were reinvested. The points on the graph represent the cumulative total return on the last trading day of the fiscal year indicated.
This graph shall not be deemed soliciting material or be filed with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Citizens Financial Group, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
December 31,
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Issuer Purchase of Equity Securities
Details of the repurchases of the Company’s common stock during the three months ended December 31, 2025 are included below:
(1) Includes shares repurchased to satisfy applicable tax withholding obligations in connection with an employee share-based compensation plan and the forfeiture of unvested restricted stock awards.
(2) On June 13, 2025, the Company announced that its Board of Directors increased the capacity under its common share repurchase program to $1.5 billion, an increase of $1.2 billion above the $300 million of capacity remaining under the prior June 2024 authorization.
Common stock share repurchases may be executed in the open market or in privately negotiated transactions, including under Rule 10b5-1 plans and accelerated share repurchase and other structured transactions. The timing and exact amount of future share repurchases will be subject to various factors, including the Company’s capital position, financial performance, balance sheet growth, market conditions, and regulatory considerations.
ITEM 6. RESERVED
Not applicable.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
Introduction 38
Executive Summary 38
Consolidated Statement of Operations Analysis - 2025 compared with 2024 40
Consolidated Statement of Operations Analysis - 2024 compared with 2023 44
Consolidated Balance Sheet Analysis 45
Business Segments 48
Risk Management 50
Credit Risk 51
Market Risk 61
Liquidity Risk 67
Operational Risk 70
Compliance Risk 70
Critical Accounting Estimates 73
Accounting and Reporting Developments 76
Non-GAAP Financial Measures 77
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INTRODUCTION
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $226.4 billion in assets as of December 31, 2025. Headquartered in Providence, Rhode Island, we offer a broad range of retail, private banking, wealth management, and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations, and institutions. We help our customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas, and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a full-service customer contact center, and the convenience of approximately 3,100 ATMs and approximately 1,000 branches in 14 states and the District of Columbia. Consumer Banking products and services include a full range of banking, lending, savings, wealth management, and small business offerings. Consumer Banking includes Citizens Private Bank and Private Wealth, which integrates banking services and wealth management solutions to serve high- and ultra-high-net-worth individuals and families, as well as investors, entrepreneurs, and businesses. In Commercial Banking, we offer a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities.
The following MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in Item 8, as well as other information contained in this document.
EXECUTIVE SUMMARY
This summary highlights select financial information of the Company as well as information regarding certain significant events and transactions occurring during the year ended December 31, 2025. This summary should be read in conjunction with this entire document for a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting policies and estimates. Each of these items, taken individually or collectively, could have an impact on the Company’s financial condition, results of operations, and cash flows. For additional information regarding our financial performance and condition, see “Consolidated Statement of Operations Analysis – 2025 compared with 2024” and “Consolidated Balance Sheet Analysis.”
Key Financial Highlights
•Net income of $1.8 billion increased $322 million, with earnings per diluted common share up $0.83 to $3.86 compared to 2024.
•Net interest income of $5.9 billion increased $220 million and net interest margin of 2.97% increased 13 basis points compared to 2024. The increase in net interest income is driven by higher net interest margin which reflects lower funding costs, including the reduction of higher-cost funding given the auto loan portfolio runoff and education loan sale, lower terminated swap impacts, and fixed-rate asset repricing benefits, partially offset by lower asset yields.
•Noninterest income of $2.4 billion increased $218 million compared to 2024, reflecting growth across a number of fee categories, primarily wealth and capital markets fees.
•Noninterest expense of $5.3 billion increased $77 million compared to 2024, driven by salaries and employee benefits reflecting hiring related to the Private Bank and Private Wealth build-out, strong capital markets fee performance, and increased medical benefit costs, partially offset by a decline in other operating expense primarily driven by lower FDIC deposit insurance costs.
•Provision expense of $608 million decreased $79 million compared to 2024, reflecting improving loan mix and reduced CRE.
•The efficiency ratio of 64.40% compared to 67.03%in 2024.
•ROTCE of 11.20% compared to 9.81% in 2024.
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•Tangible book value per common share of $38.07 increased 18% from 2024, driven by a decrease in common shares outstanding of eleven million and a net increase in tangible common equity of $2.1 billion. The increase in tangible common equity is primarily attributable to increases in AOCI of $1.6 billion and retained earnings of $933 million, including net income of $1.8 billion for the year ended December 31, 2025.
See “Non-GAAP Financial Measures” for more information regarding the ROTCE and tangible book value per common share non-GAAP financial measures presented herein.
Sale of Education Loans
During the first quarter of 2025, we entered into an agreement to sell $1.9 billion of education loans and subsequently reclassified these loans to LHFS. Upon reclassification to LHFS, a charge-off of $25 million was recognized, which was covered by existing reserves. This transaction settled ratably each quarter throughout 2025.
Share Repurchases
On June 13, 2025, we announced that our Board of Directors increased the capacity of our common share repurchase program to $1.5 billion, an increase of $1.2 billion above the $300 million of capacity remaining under the prior June 2024 authorization. During 2025, the Parent Company repurchased $600 million of its outstanding common stock, with remaining capacity of $1.3 billion as of December 31, 2025. See Note 15 and Item 5 for additional information on share repurchase activity.
Preferred Stock
On July 31, 2025, we issued $400 million, or 400,000 shares, of 6.500% fixed-rate reset non-cumulative perpetual Series I Preferred Stock, par value of $25 per share with a liquidation preference of $1,000 per share. Holders of Series I Preferred Stock will be entitled to receive dividend payments only when, as, and if declared by our Board of Directors. Dividends are payable quarterly in arrears on January 6, April 6, July 6, and October 6 of each year.
The net proceeds from the issuance of the Series I Preferred Stock were used to redeem all of the outstanding shares of our 5.650% fixed-rate reset non-cumulative perpetual Series F Preferred Stock on October 6, 2025.
For more information regarding our Series I Preferred Stock issuance and Series F Preferred Stock redemption, see Note 15.
Common Stock Dividend
On October 15, 2025, we announced that our Board of Directors declared a quarterly common stock dividend of $0.46 per share, a $0.04, or 9.5%, increase compared to the prior quarter. The dividend was paid on November 12, 2025 to shareholders of record at the close of business on October 29, 2025.
Other Developments
On July 4, 2025, H.R. 1, entitled the One Big Beautiful Bill Act, was signed into law. This bill includes a broad range of tax reform provisions affecting individuals and businesses, including extending and modifying certain key Tax Cuts & Jobs Act provisions, extending certain Inflation Reduction Act energy incentives while accelerating the phase-out of others, and implementing various other tax cuts and spending measures. We have completed our evaluation of the bill and do not expect it to have a material impact on our Consolidated Financial Statements.
See “Regulation and Supervision” in Item 1 for 2025 developments related to regulations to which we are subject.
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CONSOLIDATED STATEMENT OF OPERATIONS ANALYSIS – 2025 compared with 2024
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 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. Factors that influence our net interest income include, but are not limited to, the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as economic conditions, competition for loans and deposits, the monetary policy of the FRB, and market interest rates. For further discussion, refer to the “Market Risk” section of this report.
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The following table presents the major components of our net interest income. Average balance represents amortized cost, excluding the unamortized basis adjustments related to the transfer of certain HTM securities from AFS. The yield/rate is based on annualized interest income or expense for the periods presented and includes the impact of hedging activities associated with the respective asset and liability categories.
Table 1: Major Components of Net Interest Income
Year Ended December 31,
Assets
Non-taxable investment securities 1 — 2.60 1 — 2.60 — —
Liabilities and Stockholders’ Equity
(1) Net interest income and net interest margin on an FTE basis are non-GAAP financial measures. See “Non-GAAP Financial Measures” for more information.
Net interest income increased $220 million, or 4%, and net interest margin increased 13 basis points compared to 2024. The increase in net interest income is driven by higher net interest margin which reflects lower funding costs, including the reduction of higher-cost funding given the auto loan portfolio runoff and education loan sale, lower terminated swap impacts, and fixed-rate asset repricing benefits, partially offset by lower asset yields.
Average interest-earning assets decreased $1.0 billion compared to 2024, driven by a decline in total loans and leases and cash held in interest-bearing deposits, partially offset by an increase in investment securities and loans held for sale.
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Average deposits increased $1.2 billion compared to 2024, driven primarily by growth in the Private Bank, partially offset by a reduction in higher-cost brokered deposits.
Average total borrowed funds decreased $1.8 billion compared to 2024, driven by a decline in auto collateralized borrowings, given runoff of the auto loan portfolio, and FHLB advances.
The following table presents changes in net interest income attributable to volume and rate changes for each major interest-earning asset and interest-bearing liability category:
Table 2: Changes in Net Interest Income Due to Average Volume and Average Rate
Year Ended December 31,
(dollars in millions) Average Volume(1) Average Rate(1) Net Change
Interest Income
Taxable investment securities 68 (13) 55
Total investment securities 68 (13) 55
Commercial and industrial 84 (167) (83)
Other retail (65) — (65)
Total interest income ($77) ($446) ($523)
Interest Expense
Checking with interest $22 ($11) $11
Total interest-bearing deposits (44) (587) (631)
Short-term borrowed funds 20 (13) 7
Long-term borrowed funds (119) — (119)
Total borrowed funds (99) (13) (112)
(1) Volume and rate changes are allocated on a consistent basis using the respective percentage changes in average balances and average rates.
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Noninterest Income
The following table presents the components of noninterest income:
Table 3: Noninterest Income
Year Ended December 31,
(dollars in millions) 2025 2024 Change Percent
Foreign exchange and derivative products 156 146 10 7
(1) Includes bank-owned life insurance income and other income for all periods presented.
The primary drivers for the change in noninterest income for the year ended December 31, 2025, compared to 2024, are described below:
•Wealth fees increased reflecting growth in assets under management, primarily driven by net inflows as well as market appreciation;
•Capital markets fees increased driven by higher loan syndication and equity underwriting fees, partially offset by lower M&A fees;
•Mortgage banking fees increased driven by higher MSR valuation results, net of hedging; and
•Service charges and fees increased driven primarily by higher overdraft and cash management fees.
Noninterest Expense
The following table presents the components of noninterest expense:
Table 4: Noninterest Expense
Year Ended December 31,
(dollars in millions) 2025 2024 Change Percent
The primary drivers for the change in noninterest expense for the year ended December 31, 2025, compared to 2024, are described below:
•Salaries and employee benefits increased reflecting hiring related to the Private Bank and Private Wealth build-out, strong capital markets fee performance, and increased medical benefit costs; and
•Other operating expense declined driven primarily by lower FDIC deposit insurance costs, partially offset by higher operating costs.
For more information regarding CBNA’s special assessment, see “Regulation and Supervision - Deposit Insurance” in Item 1.
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Provision for Credit Losses
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 “Risk Management – Credit Risk” for more information.
Provision expense of $608 million compared with a provision of $687 million for 2024, reflecting improving loan mix and reduced CRE.
Income Tax Expense
Income tax expense of $497 million increased $118 million, and our effective income tax rate of 21.3% increased from 20.1% compared to 2024. These increases were driven by a reduced benefit from tax-advantaged investments on higher pre-tax income.
CONSOLIDATED STATEMENT OF OPERATIONS ANALYSIS – 2024 compared with 2023
For a description of our results of operations for 2024, see the “Results of Operations – 2024 compared with 2023” section of Item 7 in our 2024 Form 10-K.
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CONSOLIDATED BALANCE SHEET ANALYSIS
Securities
The following table presents the major components of securities at amortized cost and fair value:
Table 5: Amortized Cost and Fair Value of Securities
December 31,
(dollars in millions) Amortized Cost(1) Fair Value Amortized Cost(1) Fair Value
State and political subdivisions 1 1 1 1
Mortgage-backed securities:
Mortgage-backed securities:
(1) Excludes portfolio level basis adjustments of $17 million and $(75) million, respectively, for securities designated in active fair value hedge relationships under the portfolio layer method at December 31, 2025 and 2024.
(2) Included in Other assets in the Consolidated Balance Sheets.
The primary objective of our securities portfolio is to provide a readily available source of liquidity. The portfolio primarily includes high-quality and highly liquid investments that reflect our ongoing commitment to maintain strong contingent liquidity levels and pledging capacity.
As of December 31, 2025, U.S. Treasuries and mortgage-backed securities issued by GNMA and GSEs represented 98% of the fair value of our debt securities portfolio, with approximately $39.1 billion of unencumbered high-quality liquid securities serving as potential collateral for borrowings from the FHLB, FRB discount window, and the Fixed Income Clearing Corporation bilateral repurchase agreement market.
For further discussion of the use of our securities as liquidity collateral and liquidity requirements, see the “Liquidity Risk” and “Regulation and Supervision – Liquidity Requirements” sections in this document.
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 our broader interest rate risk framework and limits. As of December 31, 2025, the portfolio’s average effective duration, including hedging actions to reduce duration, was 3.8 years compared with 3.7 years as of December 31, 2024.
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The following table presents the amortized cost and weighted-average yield of our securities portfolio by contractual maturity:
Distribution of Maturities(1)
Amortized cost:
State and political subdivisions — — — — — — 1 2.60 1 2.60
Mortgage-backed securities:
Collateralized loan obligations — — — — 89 5.44 — — 89 5.44
Mortgage-backed securities:
(1) Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
(2) The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security and considers the contractual
coupon, amortization of premiums, and accretion of discounts. Yields exclude the impact of related hedging derivatives.
Loans and Leases
The following table presents loans and leases, excluding LHFS:
Table 7: Composition of Loans and Leases, Excluding LHFS
December 31,
(dollars in millions) 2025 2024 Change Percent
The increase in total loans and leases as of December 31, 2025 compared to December 31, 2024 reflects a $4.0 billion increase in commercial driven by net new money originations in corporate banking and higher line of credit utilization, partially offset by CRE paydowns. Retail reflects a $547 million decrease driven by an agreement entered into during the first quarter to sell $1.9 billion of education loans, as well as runoff of the auto loan portfolio, largely offset by growth in home equity and mortgage, including the Private Bank.
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The following table presents the maturity of our loans and leases portfolio by fixed and variable rate:
Table 8: Fixed and Variable Rate Loans and Leases by Maturity
Fixed rate:
Variable rate:
Fixed rate:
Variable rate:
Automobile — — — — —
(1) Maturity is based on scheduled principal repayment date.
(2) Includes floating-rate commercial loans hedged to fixed rate to manage our exposure to the variability in interest cash flows. See “Market Risk” for additional information regarding our use of interest rate derivatives to hedge our loan portfolio.
Deposits
The following table presents the composition of deposits:
Table 9: Composition of Deposits
Total deposits as of December 31, 2025 increased compared to December 31, 2024, reflecting growth in the Private Bank and commercial, partially offset by a reduction in higher-cost Treasury brokered deposits.
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The following table presents an analysis of estimated insured/secured deposits as a percentage of total deposits:
Table 10: Uninsured and Insured/Secured Deposits
December 31,
Less: Uninsured affiliate deposits eliminated in consolidation 11,555 12,705
Insured/secured deposits to total deposits 63 % 67 %
(1) As reported on CBNA’s Call Report.
(2) Represents uninsured deposits of states and political subdivisions that are secured or collateralized as required under state law.
Insured/secured deposit balances continue to be broadly stable as of December 31, 2025. The decrease in the insured/secured deposits percentage during 2025 reflects growth in the private bank business, primarily corporate operating accounts which are generally more stable, and a decrease in insured Treasury brokered deposits as we continued to optimize our deposit mix.
The following table presents time deposits in excess of the FDIC insurance limit by remaining maturity:
(dollars in millions) December 31, 2025
Three months or less $1,859
After three months through six months 795
After six months through twelve months 508
After twelve months 20
Total time deposits(1) $3,182
(1) Includes time deposits per account in excess of $250,000.
Borrowed Funds
Total borrowed funds of $11.3 billion as of December 31, 2025 decreased $1.1 billion compared to December 31, 2024, driven by a decline in secured borrowings collateralized by loans and senior debt, partially offset by an increase in FHLB advances. For more information regarding our borrowed funds, see “Liquidity Risk” and Note 11.
BUSINESS SEGMENTS
We have two reportable business segments: Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each business segment has a segment head that reports directly to the Chief Executive Officer, who has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer.
See Note 1 for information regarding segment changes made during the fourth quarter of 2025 and Note 24 for more information regarding our business segments.
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The following table presents certain financial data of our reportable business segments. Total business segment financial results differ from total consolidated financial results. These differences are reflected in Other non-segment operations, consisting primarily of treasury and community development, and include assets, liabilities, capital, revenues, provision (benefit) for credit losses, expenses, and income tax expense (benefit) not attributed to the Company’s reportable business segments.
Table 12: Selected Financial Data for Business Segments
Consumer Banking Commercial Banking
Year Ended December 31, Year Ended December 31,
Average Balances:
(1) Includes LHFS.
Consumer Banking
Net interest income increased $408 million compared to 2024, driven by higher net interest margin and growth in average interest-earning assets.
Noninterest income increased $121 million compared to 2024, driven by wealth fees, mortgage banking fees, and service charges and fees, reflecting growth in assets under management, primarily driven by net inflows as well as market appreciation, higher MSR valuation results, net of hedging, and higher overdraft and cash management fees.
Noninterest expense increased $203 million compared to 2024, driven primarily by salaries and benefits reflecting hiring related to the Private Bank and Private Wealth build-out, as well as an increase in medical benefit costs, and outside services given investments across the enterprise.
Net charge-offs were stable compared to 2024.
Commercial Banking
Net interest income decreased $172 million compared to 2024, driven by lower net interest margin and a decline in average interest-earning assets.
Noninterest income increased $87 million compared to 2024, driven by capital markets fees reflecting higher loan syndication and equity underwriting fees, partially offset by lower M&A fees.
Noninterest expense increased$93 million compared to 2024, driven primarily by salaries and benefits given strong capital markets fee performance and increased medical benefit costs, and outside services given investments across the enterprise.
Net charge-offs decreased $44 million compared to 2024, driven by CRE, partially offset by an increase in commercial and industrial.
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RISK MANAGEMENT
We are committed to maintaining a strong, integrated, and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision-making body is setting our risk appetite to ensure that the level of risk that we are willing to accept in the attainment of our strategic business and financial objectives is clearly understood.
To enable our Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The Executive Risk Committee, chaired by the Chief Risk Officer, is responsible for oversight of risk across the enterprise and actively considers our inherent material risks, analyzes our overall risk profile, and seeks confirmation that the risks are being appropriately identified, assessed, and mitigated. Reporting to the Executive Risk Committee are the following committees covering specific areas of risk: Compliance and Operational Risk, Model Risk, Credit Policy, Asset Liability, Business Initiatives Review, and Conduct and Ethics.
Risk Framework
Our risk management framework is embedded in our business through a “Three Lines of Defense” model that defines responsibilities for risk management activities.
First Line of Defense
The business lines, including their associated support functions, are the first line of defense and are responsible for identifying, assessing, managing, and controlling the risks associated with the products and services they provide. The business lines are responsible for performing regular risk assessments to identify and assess the material risks that arise in their area of responsibility, complying with relevant risk policies, testing and certifying the adequacy and effectiveness of operational and financial reporting controls on a regular basis, establishing and documenting operating procedures, and establishing a governance structure for identifying and managing risk.
Second Line of Defense
The second line of defense includes independent monitoring and control functions responsible for the development and implementation of risk and control frameworks, along with related policies. This centralized risk function is independent from the business and is responsible for overseeing and challenging our business lines on the effective management of their risks including, but not limited to, credit, market, operational, regulatory, reputational, interest rate, liquidity, legal, and strategic risks.
Third Line of Defense
Our Internal Audit function is the third line of defense and provides independent assurance of the effectiveness of our internal controls and governance practices so that risk is managed appropriately for the size, complexity, and risk profile of the organization. Internal Audit has complete and unrestricted access to all of our records, physical properties and personnel. Internal Audit issues a report following each internal review and provides an audit opinion to the Board’s Audit Committee on a quarterly basis.
Credit Review reports to the Chief Risk Officer and provides the Board, senior management, and other stakeholders with independent assurance on the quality of credit portfolios and adherence to agreed Credit Risk Appetite and Credit Policies and processes. In line with its procedures and regulatory expectations, the Credit Review function undertakes a program of portfolio testing, assessing and reporting through four Risk Pillars of Asset Quality, Rating and Data Integrity, Risk Management, and Credit Risk Appetite.
Risk Appetite
Risk appetite is a strategic business and risk management tool that we define as the maximum limit of acceptable risk beyond which we could be unable to achieve our strategic objectives and capital adequacy obligations.
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Our principal non-market risks include credit, operational, regulatory, reputational, liquidity, and strategic risks. We are also subject to certain market risks which include potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices, and/or other relevant market rates or prices. Market risk in our business arises from trading activities that serve customer needs, including interest rate hedging, foreign exchange risk, and non-trading activities within capital markets. We have established enterprise-wide policies and methodologies to identify, measure, monitor, and report on market risk, actively managing both trading and non-trading market risks. See “Market Risk” for further information. Our risk appetite is reviewed and approved annually by the Board Risk Committee.
Credit Risk
Credit risk represents the potential for loss arising from the failure of a customer, counterparty, or issuer to perform in accordance with the contractual terms of an obligation. While the majority of our credit risk is associated with lending activities, we do engage with other financial counterparties for a variety of purposes including investing, asset and liability management, and trading activities. Given the financial impact of credit risk on our earnings and balance sheet, the assessment, approval, and management of credit risk represents a significant part of our overall risk-management responsibility.
Our independent Credit Risk Function is responsible for reviewing and approving the credit risk appetite across all lines of business and credit products, approving larger and higher-risk credit transactions, monitoring portfolio performance, identifying problem credit exposures, and ensuring remedial management. Credit Risk actively monitors and manages concentrations of loan limits, loan types, industries, and geographies to ensure that our risk appetite is well balanced to achieve our goals.
Management and oversight of credit risk is the responsibility of each respective business line and the second line of defense. Our second line of defense, the independent Credit Risk Function, is led by the Chief Credit Officer who oversees all credit risk and reports to the Chief Risk Officer. The Chief Credit Officer, acting in a manner consistent with Board policies, has responsibility for, among other things, the governance process around policies, procedures, risk acceptance criteria, credit risk appetite, limits and authority delegation. The Chief Credit Officer and team also have responsibility for credit approvals for larger and higher-risk transactions and oversight of line of business credit risk activities. Reporting to the Chief Credit Officer are the heads of the second line of defense credit functions specializing in: Consumer Banking, Commercial Banking, Private Banking, Citizens Restructuring Management, Portfolio and Corporate Reporting, ACL Analytics, Current Expected Credit Loss, and Credit Policy and Administration. Each team under these leaders is composed of experienced credit professionals.
The primary mechanisms that govern our risk management include, but are not limited to, credit assessments, models, scorecards, credit limits, exposure management, concentration limits, balance sheet diversification, portfolio management, collateral requirements and individual credit policies tailored for Consumer and Commercial lending. Our policies outline the minimum acceptable lending standards and their alignment with our desired risk appetite. Material changes in our business model and strategies that identify a need to change our risk appetite or highlight a risk not previously contemplated are identified by the individual committees and presented to the Credit Policy Committee, Executive Risk Committee and the Board Risk Committee for approval, as appropriate.
We employ a comprehensive and integrated risk control program to proactively identify, measure, monitor, and mitigate existing and emerging credit risks across the credit life cycle including origination, account/portfolio management, and loss mitigation and recovery.
Consumer
We utilize several distinct business processes and channels to originate consumer credit, including traditional branch lending and mobile and online banking. Each distinct underwriting and origination activity includes unique credit risk characteristics, with loan pricing commensurate with the differing risk profiles. Consumer credit approvals are typically based on the financial strength and payment history of the borrower, type of exposure, and transaction structure, among other factors.
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Lending authority is granted to each first line approver by the second line of defense credit risk function to ensure proper oversight of the underwriting teams. We periodically evaluate the performance of each first line approver and annually reauthorize their delegated authority. Only senior members of the second line of defense credit risk function are authorized to approve significant exceptions to credit policies, which are not uncommon when compensating factors are present. Established exception limits, when reached or exceeded, trigger a comprehensive analysis.
For Consumer Banking, our teams use models to evaluate consumer loans across their life cycle. Credit scoring models are used to forecast the probability of default of an applicant prior to origination. When approving customers for a new loan or extension of an existing credit line, credit scores are used in conjunction with other credit risk variables such as affordability, length of term, collateral value, collateral type, and lien subordination.
Our consumer banking portfolio is comprised of five retail categories of loans: residential mortgages, home equity, education, automobile, and other retail.
Residential Mortgages and Home Equity
Residential mortgages are loans to consumers to purchase or refinance 1-4 family residential properties and are generally structured with repayment terms ranging from 15 to 30 years. We originate both fixed- and adjustable-rate (traditional and interest-only) residential mortgages, with the properties securing such mortgages primarily located within our geographic footprint. We do not originate residential mortgages that allow negative amortization or multiple payment options. Residential mortgage applications are underwritten using consistent credit policies and processes, with a focus on higher-quality borrowers.
Residential mortgages are originated based on an appraisal completed during the credit underwriting process, with borrower performance tracked monthly by segmenting the mortgage portfolio into pools based on product type. The portfolio is also segmented based upon delinquency, nonperforming status, modification and bankruptcy status, FICO scores, LTV, and geographic concentrations as part of our overall risk management analysis and monitoring.
Home equity loans primarily include lines of credit secured by a first- or second-lien on the borrower’s residence, which enable the customer to borrow against the equity in their home or refinance existing mortgage debt. The product is a variable-rate, interest-only line of credit that allows the borrower to draw against the available line with no required principal payments during an initial 10-year revolving period. At the end of the revolving period, the home equity line of credit converts into a 15-year amortizing structure.
Home equity applications are underwritten using full income and credit standards with underwriting criteria based on minimum credit scores, debt-to-income ratios, and combined LTV ratios utilizing current collateral valuations. The underwriting for variable-rate lines of credit also incorporates a stress analysis for rising interest rates. We actively manage lines of credit and adjust their lending limit when we believe it is necessary based on a borrower’s FICO score and any associated credit deterioration.
Borrower performance of the home equity portfolio is tracked on a monthly basis for internal reporting and risk management purposes by segmenting the portfolio into pools, which are typically based on origination vintage tranches. For home equity loans where we hold a subordinated lien position the performance of any related mortgage loans is also tracked regardless of whether we hold a lien on such loans. A third-party service provider is utilized to obtain updated loan information, including lien and collateral data that is aggregated from both public and private sources.
LTV information on our outstanding residential mortgages and home equity portfolios is updated quarterly based on a combination of automated valuation model updates and relevant home price indices. LTV is the ratio of the loan’s outstanding principal balance to the current property value estimate. For home equity and second mortgages, CLTV is the ratio of the first mortgage original principal balance and the second lien outstanding principal balance combined to the current property value estimate.
Property values for both residential mortgages and home equity loans are refreshed quarterly after an account is established to allow for proactive identification of changing levels of credit risk and to facilitate our portfolio management, including workout and loss mitigation functions. Our approach to managing credit risk is highly analytical and, where appropriate, is automated to ensure consistency and efficiency.
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Education
The education portfolio is primarily comprised of two products, in-school loans and education refinance loans. An in-school loan is generally financed over a 5, 10, or 15-year term and provides for fixed or variable rate financing to students while enrolled in school, with the option to pay while in school or to defer payment until after graduation. An education refinance loan provides a refinancing option on an existing education loan for students and parents, with 5 to 20-year terms and fixed or variable rates.
The performance of the education portfolio is measured monthly, including updated FICO, or equivalent, scores. We analyze the portfolio by product channel and type, and regularly evaluate default and delinquency experience for internal reporting and risk management purposes.
Automobile
The automobile portfolio consists of loans originated primarily through independent franchised dealers, including some located in select states outside of our primary geographic footprint. This portfolio is in runoff as we discontinued the origination of automobile loans in 2023.
The performance of the automobile loan portfolio is measured monthly, including updated collateral values and FICO, or equivalent, scores. We analyze the portfolio by product channel and type and regularly evaluate default and delinquency experience for internal reporting and risk management purposes.
Other Retail
Other retail loans primarily consist of unsecured consumer lending products, including credit cards and point-of-sale loans originated through partnerships with third-party companies. These loans are underwritten in accordance with our established credit policies and guidelines. Certain point-of-sale loans originated with third-party companies include credit loss protection agreements provided by those companies, which mitigate our risk of loss. Given the variable nature of the credit card portfolio, we actively monitor interest rate impacts and portfolio performance to ensure alignment with our risk tolerance.
The following table presents certain asset quality metrics for our retail loan portfolio:
Table 13: Retail Asset Quality Metrics
December 31,
Average refreshed FICO for total portfolio 777 775
CLTV ratio for secured real estate(1) 50 % 50 %
(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.
Commercial
Our commercial banking portfolio consists of traditional commercial and industrial loans, commercial leases, and commercial real estate loans.
For Commercial Banking, risk management includes defined credit products and policies and is separated into commercial and industrial loans, CRE, and leases. Separate verticals are established within commercial and industrial loans and leases for certain specialty products. Substantially all activity that falls under a defined industry or product is managed through a specialty vertical and a stand-alone team of industry, product, and credit risk specialists. CRE also operates as a specialty vertical.
Commercial transactions are subject to individual analysis and approval before origination and, with few exceptions, are subject to a formal annual review requirement. The underwriting process includes the establishment and approval of credit grades that establish the probability of default and loss given default. Material transactions require both a business line approver and an independent credit approver with the requisite level of delegated authority as determined by the size of the credit relationship as well as the probability of default. Checks and balances in the credit process and the independence of the credit approver function are designed to appropriately assess and sanction the level of credit risk being accepted, actively monitor the portfolio to facilitate the early recognition of credit problems, and provide for effective problem asset management and resolution. Authority to grant credit is delegated through the independent Credit Risk Function and is closely monitored and updated annually, at a minimum.
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The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, geography, transaction structure including loan covenants, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. In addition to the credit analysis conducted during the approval process before origination and during an annual review, our Credit Review group performs testing to provide an independent review and assessment of the quality of the portfolio and new originations. This group conducts portfolio reviews on a risk-based cycle to evaluate individual loans and validate risk ratings, as well as tests the consistency of the credit processes and the effectiveness of credit risk management.
Credit exposure to individual borrowers is managed by policy guidelines based on the perceived risk of each borrower, or related group of borrowers, with concentration risk managed through limits on industry sectors, asset classes, and loan quality factors.
We utilize internal risk ratings to monitor credit quality for commercial loans and leases, with ratings assigned at loan origination considering both quantitative and qualitative factors that directly correlate to loan quality and likelihood of repayment. These ratings are reevaluated utilizing a risk-based approach annually, at a minimum, or when management becomes aware of information affecting a borrower’s ability to fulfill their obligations.
Substantially all loans with an internal risk rating of Substandard Accrual or Nonaccrual, or loans categorized as Classified, are managed by Citizens Restructuring Management, a specialized group of credit professionals that handle the day-to-day management of loan workouts, commercial recoveries, and problem loan sales to reduce losses and maximize recoveries. Their responsibilities include developing and implementing action plans, assessing risk ratings, and determining the adequacy of the ACL, accrual status, and ultimate collectability of the Classified loan portfolio.
Criticized balances include loans with an internal risk rating of Special Mention, Substandard Accrual, or Nonaccrual. Total commercial criticized balances of $6.3 billion compared to $7.1 billion at December 31, 2024. For more information on internal risk ratings and the distribution of commercial loans and leases by vintage date and internal risk rating, see Note 4. In addition, see discussion of criticized balances below for our commercial and industrial and CRE portfolios.
Commercial and Industrial
The commercial and industrial portfolio includes both loans and leases made to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, capital call facilities, or other projects/acquisitions. The loans and leases are generally underwritten individually to assess the quality of multiple sources of repayment including cash flow for debt service, collateral, and any guarantees from the business owner. Although real estate exists as collateral for these loans, the operation, sale, rental, or refinancing of the real estate is not considered the primary repayment source.
The risks inherent in the commercial and industrial portfolio are managed through origination policies, a defined loan concentration policy with established limits, ongoing loan- and portfolio-level reviews, recourse requirements, and continuous portfolio risk management activities. Our origination policies for the commercial and industrial portfolio include policies specific to loan product type, such as LTV and debt service coverage ratios, as applicable.
Commercial and industrial criticized balances of $2.6 billion at December 31, 2025 remained stable compared to December 31, 2024.
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The following table presents our commercial and industrial loan portfolio by industry sector:
Table 14: Commercial and Industrial Loans by Industry Sector
December 31,
Industry sector
Finance and insurance
Health, pharma, and social assistance 2,368 2 2,322 2
Professional, scientific, and technical services 2,407 2 2,313 2
Arts, entertainment, and recreation 1,683 1 1,509 1
Administrative and waste management 1,486 1 1,352 1
Consumer products manufacturing 717 1 710 1
Commercial Real Estate
The CRE portfolio consists of both commercial property and construction loans that support a wide range of property development and investment activities including, but not limited to, multifamily, office spaces, industrial facilities, and retail shopping centers. These loans are typically repaid through cash flows generated from the operation, sale, or refinancing of the property. Risk on these loans is mitigated by requiring collateral values that exceed the loan amount and underwriting the loan with projected cash flow in excess of the debt service requirement.
Our CRE construction portfolio primarily consists of multifamily, warehouse, office, and data center property types. Loans in this portfolio are generally for construction projects that have been pre-sold or pre-leased, have secured permanent financing, or are made to real estate companies with significant equity invested in the project. Portfolio Management, CRE Loan Operations, and Collateral Risk Services are responsible for this portfolio and actively monitor the construction phase and manage the loan disbursements according to the predetermined construction schedule. Construction loans, which are generally short term in nature, are utilized to fund the development or renovation of real estate, with repayment often tied to the successful completion and stabilization of the property.
Risks inherent in this portfolio are managed by focusing on the financial strength and experience of the developer, market conditions, and other specific attributes associated with each project. We limit our loan amounts based on appraised values, minimum equity investments by our borrowers, and adequate cash flows to support the debt.
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Both macro- and loan-level stress-test scenarios based on existing and forecasted market conditions are part of the ongoing portfolio management process for the CRE portfolio. Ongoing portfolio-level reviews are performed that generate action plans based on occupancy levels or leasing revenues associated with the projects being reviewed. This highly individualized process requires working closely with all of our borrowers, as well as an in-depth knowledge of CRE project lending and the current market environment.
Property-type concentrations and both geographic and property-type performance metrics are actively monitored for all CRE loan types, with a focus on loans identified as higher risk based on our risk rating methodology. The portfolio is diversified by property type and loan size, representing a significant portion of the credit risk management strategies employed for this portfolio. Subsequent to origination, the Credit Review group provides an independent review and assessment of the quality of the underwriting and risk from new loan originations.
Appraisal values are obtained in conjunction with all originations and renewals, and on an as-needed basis, to comply with regulatory requirements and to ensure appropriate decisions regarding the ongoing management of the portfolio with respect to changing market conditions. Appraisals are obtained from approved vendors and are reviewed by an internal appraisal review group, which is composed of certified appraisers to ensure the quality of the valuation used in the underwriting process.
Commercial real estate criticized balances of $3.7 billion at December 31, 2025 decreased from $4.5 billion at December 31, 2024, attributable to office, multifamily, and industrial loan upgrades driven by improved leasing and operating performance, credit-enhanced extensions, sales, and refinancing activity, along with net charge-offs in the general office portfolio. Approximately 96% of commercial real estate loans remain current on payments as of December 31, 2025.
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The following table presents our commercial real estate loan portfolio by property type and state:
Table 15: Commercial Real Estate by Property Type and State
December 31,
Property type
Office
Credit tenant lease and life sciences(1) 2,043 1 2,135 2
State
(1) Credit tenant lease includes loans to nationally recognized tenants with high credit ratings and life sciences includes loans to provide lab and office space for tenants involved in the study and development of scientific discoveries.
(2) Includes Georgia, Maryland, North Carolina, South Carolina and Virginia.
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Loan Asset Quality
Delinquency
We utilize credit scores provided by FICO and payment and delinquency status, among other data points, to monitor credit quality for retail loans. FICO credit scores represent current and historical national industry-wide consumer level credit performance data, which management believes are the strongest indicator of potential credit losses over the contractual life of the loan and a good predictor of a borrower’s future payment performance. A loan’s past due status is determined based on its contractual repayment terms or, if modified, based on its restructured terms.
The following table presents an aging analysis of accruing and nonaccrual loans for our retail loan portfolio:
Table 16: Retail Loan Portfolio Analysis
Days Past Due and Accruing Days Past Due and Accruing
Loans that are 90 days or more past due and accruing are not placed on nonaccrual status and continue to accrue interest if they are (i) adequately secured by collateral, in the process of collection, and reasonably expected to be restored to current status, (ii) managed in homogeneous portfolios with specified charge-off timeframes adhering to regulatory guidelines, or (iii) insured or guaranteed by a U.S. government agency.
For more information on the aging of accruing and nonaccrual retail loans and the distribution of retail loans by vintage date and FICO score, see Note 4.
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Nonaccrual Loans and Leases
Nonaccrual loans and leases are those on which the accrual of interest is suspended and excludes LHFS, loans insured or guaranteed by a U.S. government agency, and loans accounted for at fair value. For more information on nonaccrual loans and leases, see Note 4.
The following table presents nonaccrual loans and leases:
Table 17: Nonaccrual Loans and Leases
December 31,
(dollars in millions) 2025 2024 Change Percent
Nonaccrual loans and leases to total loans and leases 1.05 % 1.20 % (15 bps)
Allowance for loan and lease losses to nonaccrual loans and leases 129 124 5 %
Allowance for credit losses to nonaccrual loans and leases 145 136 9 %
The decline in nonaccrual loans and leases as of December 31, 2025 compared to December 31, 2024 reflects a decrease in commercial primarily driven by the general office segment of CRE, and a decrease in retail driven by the sale of education loans and continued runoff of the auto portfolio. See “ Executive Summary” for more information regarding the sale of education loans.
Other real estate owned represents property acquired through foreclosure or other proceedings and totaled $19 million and $11 million as of December 31, 2025 and 2024, respectively.
Allowance for Credit Losses
The ACL is comprised of the ALLL and the allowance for unfunded lending commitments. As described in Note 4, the ACL is maintained at a level the Company believes to be appropriate to absorb expected lifetime credit losses over the contractual life of a loan or lease and on unfunded lending commitments, inclusive of recoveries. We consider extensive historical loss experience, including the impact of loss mitigation and restructuring programs that we offer to borrowers experiencing financial difficulty, as well as projected loss severity as a result of loan default.
Management evaluates the appropriateness of the ACL on a quarterly basis. The evaluation of both quantitative and qualitative information is performed by assessing groups of assets that share similar risk characteristics as well as certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are generally grouped by product type and are assessed for credit losses using econometric models.
The quantitative ACL utilizes economic forecasts primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current PD, LGD, and EAD for commercial loans, timing and amount of expected draws for unfunded lending commitments, and FICO, LTV, and term for retail loans. The mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amount and timing of expected future cash flows, and factors specific to commercial credits such as competition, business, and management performance are also considered. Forward-looking economic assumptions include real GDP, unemployment rate, interest rate curve, and changes in collateral values. Historical information, such as financial statements for commercial customers or consumer credit ratings, may not be as relevant in estimating future expected credit losses as forecasted inputs to the models during volatile economic time periods.
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Qualitative factors are also considered by management in determining the adequacy of the ACL, with qualitative adjustments utilized to capture characteristics in the loans and leases portfolio that impact expected credit losses but are not fully reflected within our expected credit loss models. These factors include, but are not limited to: model imprecision, uncertainty in economic scenario assumptions, and emerging risks related to either changes in the economic environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance, credit underwriting policy exceptions, and results of internal audit and quality control reviews. The consideration of these qualitative items results in adjustments to amounts included in our ACL for each loan portfolio. The qualitative component of the ACL as of December 31, 2025 did not change significantly from December 31, 2024.
Loans and leases that do not share similar risk characteristics are individually assessed for expected credit losses. Nonaccrual commercial and industrial and commercial real estate loans with an outstanding balance of $5 million or greater are assessed on an individual basis. Generally, measurement of the ACL on an individual loan or lease is based on the present value of its future cash flows or the fair value of its underlying collateral, if the loan or lease is collateral dependent.
The Company estimates expected credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees, and unfunded loan commitments that are not unconditionally cancellable. Off-balance sheet financial instruments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with historical loss experience, current and future economic conditions, timing and amount of expected draws, and performance trends within specific portfolio segments, are considered to estimate the allowance for unfunded lending commitments. The Company does not recognize a reserve for future draws from credit lines that are unconditionally cancellable (e.g., credit cards).
For additional information regarding the ACL, see “Critical Accounting Estimates – Allowance for Credit Losses” and Note 4.
The following table presents the ACL and associated coverage ratio for our loan and lease portfolios:
Table 18: Allocation of the ACL and Related Coverage Ratios by Portfolio
December 31,
Allowance for Loan and Lease Losses
Allowance for Unfunded Lending Commitments
Total allowance for unfunded lending commitments 240 198
(1) Represents the percentage of each loan category to total loans and leases.
(2) Coverage ratio includes total commercial allowance for unfunded lending commitments and total commercial allowance for loan and lease losses in the numerator and total commercial loans and leases in the denominator.
(3) Coverage ratio includes total retail allowance for unfunded lending commitments and total retail allowance for loan losses in the numerator and total retail loans in the denominator.
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The ACL as of December 31, 2025 compared to December 31, 2024 decreased $76 million, driven by a $33 million decrease in retail, given the benefit of auto loan portfolio runoff and improving loan mix, and a $43 million decrease in commercial.
The following table presents the net charge-off ratio for our loan and lease portfolios:
Table 19: Ratio of Net Charge-Offs to Average Loans and Leases
Year Ended December 31,
For the year ended December 31, 2025, net charge-offs decreased $62 million and the net charge-off ratio decreased 3 basis points compared to 2024. The year-ended period December 31, 2025 includes a $25 million charge-off resulting from the sale of education loans. See “ Executive Summary” for more information regarding the sale of education loans.
Market Risk
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices, and/or other relevant market rates or prices. Modest market risk arises from trading activities that serve customer needs, including the hedging of interest rate and foreign exchange risks. As described below, the market risk arising from our non-trading banking activities, such as the origination of loans and deposit gathering, is more significant. We have established enterprise-wide policies and methodologies to identify, measure, monitor, and report market risk. We actively manage market risk for both non-trading and trading activities.
Non-Trading Risk
Our non-trading banking activities expose us to market risk. This market risk is composed of interest rate risk, as we have no commodity risk and de minimis direct currency and equity risk. We also have market risk related to capital markets loan originations, as well as the valuation of our MSRs.
Interest Rate Risk
Interest rate risk emerges from the balance sheet after the aggregation of our assets, liabilities, and equity. We refer to this non-trading risk embedded in the balance sheet as “structural interest rate risk” or “interest rate risk in the banking book.”
A major source of structural interest rate risk is a difference in the repricing of assets relative to liabilities and equity. There are differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities. There may also be differences in the drivers of rate changes, as loans may be tied to a specific index rate such as SOFR or Prime, while deposits may not be as correlated with such rates and more dependent upon competitive demand. Due to these basis differences, net interest income is sensitive to changes in spreads between certain indices or repricing rates.
A primary source of our structural interest rate risk relates to faster repricing of floating-rate loans relative to core deposit funding. This source of asset sensitivity is more biased toward the short end of the yield curve. The secondary source of our interest rate risk is driven by longer term rates comprising the rollover or reinvestment risk on fixed-rate loans, as well as prepayment risk on mortgage-related loans and securities funded by non-rate sensitive deposits and equity.
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Another important source of structural interest rate risk relates to the potential exercise of explicit or embedded options. For example, most consumer loans can be prepaid without penalty and most consumer deposits can be withdrawn without penalty. The exercise of such options by customers can exacerbate the timing differences discussed above.
The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by our Board. These limits and guidelines reflect our tolerance for interest rate risk over both short- and long-term horizons. To ensure that exposure to interest rate risk is managed within our risk appetite, we measure the exposure and hedge it, as necessary. The Treasury Asset and Liability Management team is responsible for measuring, monitoring, and reporting on our structural interest rate risk position. These exposures are reported on a monthly basis to the Asset Liability Committee and at Board meetings.
We measure structural interest rate risk through a variety of metrics intended to quantify both short- and long-term exposures. The primary method we use to quantify interest rate risk is simulation analysis in which we model net interest income from assets, liabilities, and hedge derivative positions under various interest rate scenarios over a three-year horizon. Exposure to interest rate risk is reflected in the variation of forecasted net interest income across these scenarios.
Key assumptions in this simulation analysis relate to the behavior of interest rates and spreads, changes in product balances, and the behavior of our loan and deposit customers in different rate environments. Repricing characteristics and balance fluctuations of deposits with indeterminate (i.e., non-contractual) maturities, as well as the pace of mortgage prepayments are the most significant behavioral assumptions. We utilize product level models that consider specific product characteristics and composition of the deposit portfolio, along with current and forward-looking market dynamics, to project deposit rates. Similarly, we employ dynamic prepayment and mortgage rate models to project prepayment behaviors specific to each of our product offerings. These models are developed based on internal performance data over prior interest rate cycles and calibrated to our experience and outlook for rates across a diverse set of market environments. We assess our models and assumptions periodically by running sensitivity analyses to determine the impact of changes to inputs or assumptions on our risk results, which are reported to the Asset Liability Committee.
Since we cannot predict the future path of interest rates, we use simulation analysis to project net interest income under various interest rate scenarios including a “most likely” (implied forward) scenario, as well as a variety of extreme and unlikely scenarios. These scenarios may assume gradual ramping of the overall level of interest rates, immediate shocks to the level of rates, and various yield curve twists in which movements in short- or long-term rates predominate. Generally, projected net interest income in any interest rate scenario is compared to net interest income in a base case where market-forward rates are realized.
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The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve. Our policies involve measuring exposures as a percentage change in net interest income over the next year due to either instantaneous or gradual parallel changes in rates relative to the market implied forward yield curve. As the following table illustrates, our balance sheet is slightly asset sensitive; net interest income would benefit from an increase in interest rates, while exposure to a decline in interest rates is within limits established and monitored by senior management. While an instantaneous and severe shift in interest rates is included in this analysis, we believe that any actual shift in interest rates would be more gradual and, therefore, have a more modest impact.
Table 20: Sensitivity of Net Interest Income
Estimated % Change inNet Interest Income over 12 Months
December 31,
Gradual Change in Interest Rates
Instantaneous Change in Interest Rates
We continue to manage asset sensitivity within the scope of our policy, changing market conditions, and changes in our balance sheet. The Company’s base case net interest income assumes the forward-rate path implied by the period-end yield curve is realized. The rate risk exposure is then measured based on assumed changes from that base case rate path.
Our risk position is slightly asset sensitive to a gradual change in rates as of December 31, 2025, consistent with our position as of December 31, 2024. Our interest rate sensitivity incorporates the impact of changes in our balance sheet mix, including securities, loans, deposits, borrowed funds, and hedge activity. Receive-fixed swaps that offset our naturally asset-sensitive balance sheet represent the primary hedging tool utilized to manage overall asset sensitivity. Pay-fixed swaps against our securities portfolio are also utilized to protect capital by reducing AOCI volatility.
We use a valuation measure of exposure to structural interest rate risk, EVE, as a supplement to net interest income simulations. EVE complements net interest income simulation analysis as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities, and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. We employ sophisticated models for prepayments and deposit pricing and attrition, which provide a granular view of cash flows based on the unique characteristics of the underlying products and customer segments. The change in value is expressed as a percentage of regulatory capital.
We use interest rate derivative contracts as part of our ALM strategy to manage exposure to the variability in the interest cash flows on our floating-rate assets and wholesale funding, the variability in the fair value of AFS securities, and to hedge market risk on fixed-rate capital markets debt issuances.
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The following table presents interest rate derivative contracts that we have entered into as of December 31, 2025 and 2024:
Table 21: Interest Rate Hedges Used to Manage Non-Trading Interest Rate Exposure
Weighted Average Weighted Average
Fair value hedges:
Asset conversion swaps:
AFS securities:
Liability conversion swaps:
Long-term borrowed funds:
Receive fixed/pay SOFR — — — — 500 0.9 2.6 4.8
Cash flow hedges:
Asset conversion swaps:
Loans:
Swaps
Basis swaps
Included in AOCI are net losses from terminated swaps of $273 million that will reduce net interest income by $230 million in 2026 and $43 million thereafter.
Capital Markets
A key component of our capital markets activities is the underwriting and distribution of corporate credit facilities to finance M&A transactions or other corporate purposes for our clients. We have a rigorous risk management process around these activities, including a limit structure capping our underwriting risk, potential loss, and sub-limits for specific asset classes. Further, the ability to approve underwriting exposure is delegated only to senior level individuals in the credit risk management and capital markets organizations with each transaction, at a minimum, requiring approval of one business approver and one credit approver. Such approvals are frequently handled in the context of a committee meeting forum known as the Loan Underwriting Approval Committee.
Mortgage Servicing Rights
We have market risk associated with the value of residential MSRs, which are impacted by various types of inherent risks, including duration, basis, convexity, volatility, and yield curve.
As part of our overall risk management strategy we enter into various freestanding derivatives, such as interest rate swaps, interest rate swaptions, interest rate futures, and forward contracts to purchase mortgage-backed securities to economically hedge the changes in fair value of our MSRs. For more information regarding the fair value of our MSRs and associated derivatives see Note 6 and Note 12.
As with our traded market risk-based activities, earnings at risk excludes the impact of MSRs. MSRs are captured under our single price risk management framework that is used for calculating a management VaR consistent with the definition used by banking regulators.
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Trading Risk
We are exposed to market risk primarily through client facilitation activities from certain derivative and foreign exchange products as well as underwriting and market making activities. Market risk exposure arises from fluctuations in interest rates, basis spreads, volatility, foreign exchange rates, equity prices, and credit spreads across various financial instruments.
Client facilitation activities consist primarily of interest rate derivatives, financially settled commodity derivatives, and foreign exchange contracts where we enter into offsetting trades with a separate counterparty or exchange to manage our market risk exposure. In addition, we operate trading desks covering secondary loans, corporate bonds, and equity securities, with the objective of meeting secondary liquidity needs of our clients. We do not engage in any trading activities to benefit from short-term price differences.
Market Risk Governance
The process of setting our market risk limit is established in accordance with the formal enterprise risk appetite process and policy, which reflects the strategic and enterprise level articulation of opportunities for creating franchise value set to the boundaries of how much market risk to assume. Dealing authorities represent the key control tool in the management of market risk that allows the cascading of the risk appetite throughout the enterprise. A dealing authority sets the operational scope and tolerances within which a business and/or trading desk is permitted to operate, which is reviewed annually at a minimum. Dealing authorities are structured to accommodate client facing trades and hedges needed to manage the risk profile, with responsibility for remaining within established tolerances residing with the business. Key risk indicators, including VaR, open foreign currency positions, and single name risk are monitored daily and reported against tolerances consistent with our risk appetite and business strategy to the appropriate business line management and risk counterparts.
Market Risk Measurement
We use VaR as a statistical measure for estimating the potential exposure of our traded market risk in normal market conditions, with our VaR framework identical for both risk management and regulatory reporting purposes. Risk management VaR is based on a one-day holding period to a 99% confidence level and regulatory VaR is based on a ten-day holding period to the same confidence level. In addition to VaR, non-statistical measurements for measuring risk such as sensitivity analysis, market value, and stress testing are employed.
Our market risk platform and associated market risk and valuation models capture correlation effects across all our “covered positions” and allow for aggregation of market risk across products, risk types, business lines, and legal entities. We measure, monitor, and report market risk for management and regulatory capital purposes.
VaR Overview
The market risk measurement model is based on historical simulation. The VaR measure estimates the extent of any fair value losses on trading positions that may occur due to broad market movements (General VaR) such as changes in the level of interest rates, foreign exchange rates, equity prices, and commodity prices. It is calculated on the basis that current positions remain relatively unaltered over the course of a given holding period with the assumption that markets are sufficiently liquid to allow the business to close its positions, if required, within this holding period. Based on the composition of our “covered positions,” we also use a standardized add-on approach for the loan trading and high yield bond desks’ Specific Risk capital, which estimates the extent of any losses that may occur from factors other than broad market movements. The General VaR approach is expressed in terms of a confidence level over the past 500 trading days. The internal VaR measure, used as the basis of the main VaR trading limits, is a 99% confidence level with a one-day holding period, indicating that a loss greater than the VaR is expected to occur, on average, on only one day in 100 trading days (i.e., 1% of the time). Theoretically, there should be a loss event greater than VaR two to three times per year. The regulatory measure of VaR is a 99% confidence level with a ten-day holding period. The historical market data applied to calculate the VaR is updated on a two-business day lag. Refer to “Market Risk Regulatory Capital” below for details of our ten-day VaR metrics for the quarters ended December 31, 2025 and 2024.
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Market Risk Regulatory Capital
The U.S. banking regulators’ “Market Risk Rule” covers the calculation of market risk capital. Under this rule, all of our client facing trades and associated hedges maintain a low net risk and qualify as “covered positions.” The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR.
Market Risk Category Period End Average High Low Period End Average High Low
Foreign Exchange Currency Rate — — 4 — — — — —
Commodity — — — — — — — —
Specific Risk VaR — — — — — — — —
Stressed Specific Risk VaR — — — — — — — —
Market Risk Regulatory Capital $21 $28
Specific Risk Not Modeled Add-on 27 25
de Minimis Exposure Add-on 2 —
Total Market Risk Regulatory Capital $50 $53
Market Risk-Weighted Assets $621 $665
Stressed VaR
SVaR is an extension of VaR and utilizes a longer historical look-back horizon, fixed from January 3, 2005, to identify headline risks from more volatile periods and to provide a counterbalance to VaR, which may be low during periods of low volatility. The holding period for profit and loss determination is ten days. In addition to its utilization for risk management purposes, SVaR is a component of market risk regulatory capital. We calculate SVaR daily under its own dynamic window regime whereby values of the ten-day, 99% VaR are calculated over all 260-day periods that can be obtained from the complete historical data set. Refer to “Market Risk Regulatory Capital” above for SVaR metrics.
Sensitivity Analysis
Sensitivity analysis is the measure of exposure to a single risk factor, such as a one basis point change in rates or credit spread. We conduct and monitor sensitivity on interest rates, basis spreads, foreign exchange exposures, option prices, and credit spreads. Since VaR is based on previous moves in market risk factors over recent periods, it may not be an accurate predictor of future market moves. Sensitivity analysis complements VaR as it provides an indication of risk relative to each factor irrespective of historical market moves and is an effective tool in evaluating the appropriateness of hedging strategies and concentrations.
Stress Testing
Conducting a stress test of a portfolio consists of running risk models with the inclusion of key variables that simulate various historical or hypothetical scenarios. For historical stress tests, profit and loss results are simulated for select time periods corresponding to the most volatile underlying returns, while hypothetical stress tests aim to consider concentration risk, illiquidity under stressed market conditions, and risk arising from our trading activities that may not be fully captured by our other risk-measurement methodologies. Hypothetical scenarios also assume that market moves occur simultaneously and no repositioning or hedging activity takes place to mitigate losses as market events unfold. Stress tests of our trading positions are generated daily.
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VaR Model Review and Validation
Our market risk measurement models are independently reviewed and subject to ongoing performance analysis by the model owners. This independent review and validation focuses on model methodology, market data, and performance and is the responsibility of Citizens’ Model Risk Management and Validation team. This team challenges the assumptions used and quantitative techniques employed, including the theoretical justification supporting them, and performs an assessment of the soundness of the required data over time. The quantitative impact of the major underlying modeling assumptions is estimated (e.g., through developing alternative models), if possible. The market risk models may be periodically enhanced due to changes in market price levels and price action regime behavior. The Market Risk Management and Validation team conducts internal validation before a new or changed model element is implemented and before a change is made to market data mapping.
VaR Backtesting
Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual, aggregated net trading revenue (excluding fees, commissions, reserves, intra-day trading, and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the combined portfolio’s VaR number is taken as an exception. The number of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. The multiplication factor, which increases from a minimum of three to a maximum of four, depending on the number of exceptions, did not change during 2025 based on the Company’s three observed exceptions during the year. Further, we perform sub-portfolio backtesting as required under the Market Risk Rule, using models approved by our banking regulators for interest rate, credit spread, commodity, and foreign exchange positions.
Liquidity Risk