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Rating Action:

Moody's affirms Citizens Bank, N.A. (Baa1 senior unsecured) ratings, outlook stable

22 Mar 2021

New York, March 22, 2021 -- Moody's Investors Service ("Moody's") has affirmed Citizens Bank, N.A.'s ("Citizens") Baa1 senior unsecured rating and A1/Prime-1 long- and short-term deposit ratings together with its a3 baseline credit assessment (BCA). The rating outlook for Citizens remains stable.

The following ratings and assessments have been affirmed:

Issuer: Citizens Bank, N.A.

.... Baseline Credit Assessment, affirmed a3

.... Adjusted Baseline Credit Assessment, affirmed a3

.... Long-term deposit rating, affirmed A1, stable

.... Short-term deposit rating, affirmed P-1

.... Long-term Counterparty Risk Assessment, affirmed A2(cr)

.... Short-term Counterparty Risk Assessment, affirmed P-1(cr)

.... Long-term Counterparty Risk Rating, affirmed A3

.... Short-term Counterparty Risk Rating, affirmed P-2

.... Long-term issuer rating, affirmed Baa1, stable

.... Senior unsecured debt rating, affirmed Baa1, stable

.... Senior unsecured bank note program, affirmed (P)Baa1

.... Subordinate bank note program, affirmed (P)Baa1

.... Short-term bank note program, affirmed (P)P-2

.. Outlook Actions:

.... Outlook, Remains Stable

RATINGS RATIONALE

The ratings affirmation reflects Citizens' sustainable regional banking franchise that enables it to source good core funding and consistent revenue supporting its creditworthiness. The stable outlook reflects Moody's view that Citizens will maintain good financial performance over the next 12-18 months.

In Moody's view, Citizens' asset risk benefits from the diversification of its loan portfolio and the absence of any major concentrations. Its loan portfolio is split roughly evenly between consumer and commercial loans, with each being well diversified by product in the consumer portfolio and industry in its commercial portfolio. While Citizens' net charge-offs were elevated in the second half of 2020, Moody's expects any additional fallout from the coronavirus to be manageable. Citizens identified 4.6% of its loan portfolio as being commercial loans in areas of concern impacted by the pandemic. As of year-end 2020, these loans carried an 8.22% allowance for credit losses.

Citizens' profitability was dampened by sizeable provisions for credit losses in 2020. Provisions for credit losses ate through 55% of its pre-provision income resulting in a net income to tangible assets ratio of 0.58%, a drop from 1.18% in 2019. Low interest rates have also pressured Citizens' profitability, evidenced by the decline in its net interest margin to 2.75% in fourth-quarter 2020, down from 3.04% in fourth-quarter 2019. However, Citizens managed to grow its core profitability in 2020 with pre-provision income up 10% from 2019 thanks to strong growth in noninterest income. A notable driver of the bank's strong revenue was its mortgage business, which it acquired in 2018, as part of its efforts to diversify its revenues by adding fee generating businesses. Citizens' strategy, which included acquiring the aforementioned mortgage business, a wealth management firm, and mergers and acquisitions firms, has improved its fee revenue generation to 34% of net revenue in 2020, compared to 29% and 26% in 2019 and 2018, respectively. The increasing contribution from fee revenue was largely driven by outsized mortgage revenue, which we was 39% of noninterest income in 2020, compared to 16% and 10% in 2019 and 2018, respectively. As a result, its earnings mix between net interest income and non-interest income is now more in line with its large Moody's-rated regional bank peers. Furthermore, Citizens managed to generate operating leverage in 2020 by growing its revenue more than expenses.

Moody's views Citizens' capitalization as adequate relative to its risk profile with Common Equity Tier 1 (CET1) at 10.0% as of year-end 2020, the high end of its operating range of 9.75%-10%. Its CET1 ratio is in line with the median of its large Moody's-rated regional bank peers.

Citizens' funding profile benefits from ample core deposit funding, which, like many of its peers, grew at a solid clip in 2020 despite run-off of higher-cost term deposits. The bank's deposit costs are modestly higher compared to peers, 19 bps versus 7 bps median of large Moody's-rated regional banks in the fourth quarter of 2020. Even so, Moody's expects Citizens deposit funding profile to remain a strength of the bank.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward rating pressure could emerge if Citizens meaningfully improved its capital position and profitability profile while maintaining a strong asset risk profile, including its diverse loan mix, and strong core deposit funding.

Evidence of a weakening risk profile or lower capitalization could result in negative rating pressure on Citizens' ratings.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Megan Fox
AVP - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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