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ACQUISITIONS | 12 Months Ended
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Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS | NOTE 2 - ACQUISITIONS Acquisition of HSBC On February 18, 2022, CBNA closed on its previously announced HSBC transaction, which included 66 branches in the New York City metropolitan area, 9 branches in the Mid-Atlantic/Washington D.C. area, and 5 branches in Southeast Florida. The acquired liabilities and assets included approximately $6.3 billion in deposits and $1.5 billion in loans. The transaction resulted in an increase to goodwill of $120 million, which was allocated to the Consumer business segment as of December 31, 2022. The impact of the HSBC transaction, along with supplemental pro forma information as if the HSBC transaction had occurred on January 1, 2021, are not material to the Company’s Consolidated Statements of Operations. The HSBC transaction was accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from HSBC were recorded at fair value as of the transaction date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. The fair value of the assets acquired and liabilities assumed from HSBC were deemed final as of June 30, 2022 and are not material to the Company’s Consolidated Balance Sheet. Investors Acquisition On April 6, 2022, Citizens completed its previously announced Investors acquisition pursuant to an agreement and plan of merger entered into on July 28, 2021. Pursuant to the terms of the agreement, Investors merged with Citizens, with Citizens as the surviving corporation, and Investors Bank, a New Jersey state-chartered bank and wholly-owned subsidiary of Investors, merged with CBNA, with CBNA as the surviving bank. The Investors acquisition builds Citizens’ physical presence in the Mid-Atlantic region with the addition of 154 branches located in the greater New York City and Philadelphia metropolitan areas and across New Jersey. Upon closing of the acquisition, each share of Investors common stock was converted into 0.297 of a share of the Company’s common stock. This conversion, coupled with the conversion of equity awards noted below under “Share-Based Compensation Activity”, resulted in an increase of approximately 73.6 million basic and diluted shares. The Company also paid $1.46 in cash to shareholders of Investors for each share they owned. The Investors acquisition was accounted for as a business combination. Accordingly, the assets acquired and liabilities assumed from Investors were recorded at fair value as of the closing date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and are subject to change. Fair value estimates related to the assets acquired and liabilities assumed from Investors are subject to adjustment for up to one year after the closing date if new information is obtained about facts and circumstances that existed as of the closing date that, if known, would have affected the measurement of the amounts recognized as of that date. Citizens considers its valuation of certain other assets and other liabilities to be preliminary as of December 31, 2022. While the Company believes the information available as of April 6, 2022 provides a reasonable basis for estimating fair value, additional information may become available that could result in adjustments to the fair values presented, although any such adjustments are not expected to be material. Any adjustments identified during the one year period subsequent to the closing date will be recognized in the corresponding reporting period. Share-Based Compensation Activity Under the terms of the merger agreement with Investors, stock options and restricted shares granted by Investors that were outstanding as of April 6, 2022 were converted into CFG awards and remain subject to their original terms and conditions. Citizens issued 1,151,301 stock options and 259,316 restricted shares in connection with the transaction. The following table includes a preliminary allocation of the consideration paid for the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed from Investors:
(in millions, except share and per share data) | April 6, 2022
Consideration |
CFG common shares issued | 72,148,855 |
CFG share price on April 6, 2022 | $42.08 |
Fair value of consideration for outstanding common stock | $3,036 |
Cash paid | 355 |
Consideration related to equity awards | 19 |
Fair value of merger consideration | 3,410 |
Assets acquired |
Cash and equivalents | 287 |
Investment securities | 3,826 |
Loans held for sale | 2,162 |
Net loans and leases | 20,139 |
Premises and equipment | 62 |
Core deposit intangible and other intangible assets | 119 |
Other assets | 924 |
Total assets acquired | 27,519 |
Liabilities assumed |
Deposits | 20,217 |
Borrowed funds | 4,097 |
Other liabilities | 668 |
Total liabilities assumed | 24,982 |
Less: Net assets | 2,537 |
Goodwill | $873 |
Preliminary goodwill of $873 million recorded in connection with the acquisition resulted from the expected synergies, operational efficiencies and expertise of Investors. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition, and represents the excess purchase price over the estimated fair value of the net assets acquired from Investors. The goodwill was allocated to the Company’s two business operating segments on a preliminary basis and is not deductible for income tax purposes. Intangible assets from the Investors acquisition consist of core deposits and naming rights. For additional information on these intangibles and goodwill see Note 10. The following table includes the fair value and unpaid principal balance of the loans acquired from Investors:
| April 6, 2022
(in millions) | Unpaid Principal Balance | Fair Value
Commercial and industrial | $3,021 |  | $2,899 |
Commercial real estate | 13,310 |  | 13,065 |
Leases | 9 |  | 9 |
Total commercial | 16,340 |  | 15,973 |
Residential mortgages | 3,949 |  | 3,889 |
Home equity | 267 |  | 273 |
Other retail | 4 |  | 4 |
Total retail | 4,220 |  | 4,166 |
Net loans and leases | $20,560 |  | $20,139 |
Fair value is estimated as of April 6, 2022 and reflects a credit mark of $101 million on PCD funded loans recorded through purchase accounting, and an accretable discount of $320 million comprised of $179 million in interest rate mark and $141 million in non-PCD credit mark. The following is a description of the methods used to determine the fair value of significant assets and liabilities: Cash and Equivalents The carrying amount of cash and cash equivalents is a reasonable estimate of fair value based on the short-term nature of these assets. Investment Securities Fair value estimates for AFS securities were determined by third-party pricing vendors. The third-party vendors use a variety of methods when pricing securities that incorporate relevant market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These methods include the use of quoted prices for an identical or similar security and an alternative market-based or income approach like the discounted cash flow pricing model. Substantially all of the investment securities acquired in connection with the Investors acquisition were sold subsequent to closing to align with Citizens’ portfolio management strategy. Loans held for sale Loans held for sale are valued based on quoted market prices, where available, prices for other traded loans with similar characteristics, and purchase commitments and bid information from market participants. The prices are adjusted as necessary to take into consideration the specific characteristics of certain loans that are priced based on the pricing of similar loans. Loans and Leases Fair values for loans and leases are based on a discounted cash flow methodology that considered factors including type of loan and lease and related collateral, fixed or variable interest rate, term, amortization status, credit loss and prepayment expectations, market interest rates and other market factors (e.g., liquidity) from the perspective of a market participant. Loans and leases were grouped together according to similar characteristics when applying various valuation techniques. The discount rates used are based on current market rates for new originations of comparable loans and leases and include adjustments for liquidity. The probability of default, loss given default, exposure at default and prepayment assumptions are the key factors driving credit losses which are embedded into the estimated cash flows. Premises and Equipment Fair value of premises is based on a market approach using third-party appraisals and broker opinions of value for land, office and branch space. Core Deposit Intangible Fair value of core deposit intangible represents the value of certain client deposit relationships, estimated utilizing the favorable source of funds method. Appropriate consideration was given to deposit costs including servicing costs, client retention and alternative funding source costs at the time of acquisition. The discount rate used was derived taking into account the estimated cost of equity, risk-free return rate and risk premium for the market, and specific risk related to the asset’s cash flows. The core deposit intangible is being amortized over 10 years using an accelerated depreciation methodology. Deposits Fair value of time deposits was estimated by discounting contractual cash flows using current market rates for instruments with similar maturities. For deposits with no defined maturity, carrying value approximates fair value. Borrowed Funds The fair value of borrowed funds was estimated by using a discounted cash flow methodology based on current incremental borrowing rates for similar types of instruments. The following table presents the financial results of Investors included in the Consolidated Statements of Operations from the date of acquisition through December 31, 2022:
(in millions) | April 6, 2022 through December 31, 2022
Net interest income | $627 |
Noninterest income | 37 |
Net income | 287 |
The following table presents unaudited supplemental pro forma financial information as if the Investors acquisition had occurred on January 1, 2021 and includes the impact of (i) amortizing and accreting fair value adjustments associated with loans and leases, (ii) the amortization of recognized intangible assets and the elimination of Investors’ historical amortization of these assets, (iii) the elimination of Investors’ historical accretion and amortization of deferred fees and costs on loans and leases, (iv) the elimination of Investors’ historical accretion and amortization of discounts and premiums on loans and leases, debt securities and long-term borrowed funds and (v) the related estimated income tax effects. The pro forma financial information does not necessarily reflect the results that would have occurred had Citizens acquired Investors on January 1, 2021.
| Year Ended December 31,
(in millions) | 2022 | 2021
Net interest income | $6,226 |  | $5,342 |
Noninterest income | 2,055 |  | 2,168 |
Net income(1) | 2,408 |  | 2,376 |
(1) Excludes the acceleration of one-time executive compensation and Employee Stock Ownership Plan expenses of $122 million incurred by Investors in the first quarter of 2022. In addition, the supplemental pro forma financial information includes non-recurring acquisition-related costs of $335 million incurred during the year ended December 31, 2022, as summarized in the following table. These costs, along with the $13 million incurred during 2021, are included in the first quarter of 2021 for the purpose of reporting supplemental pro forma financial information presented above.
(in millions) | Year Ended December 31, 2022
Provision for credit losses(1) | $145 |
Salaries and employee benefits(2) | 83 |
Outside services(3) | 61 |
Mark-to-market losses on LHFS portfolio(4) | 31 |
Other operating expense | 15 |
Total acquisition-related costs | $335 |
(1) Represents the initial provision for credit losses also recognized through a fair value mark as required by purchase accounting. (2) Comprised primarily of severance and employee retention costs. (3) Comprised primarily of technology, legal, advisory, and other professional related fees. (4) Represents mark-to-market losses on loans acquired from Investors classified as LHFS. Under CECL, Citizens is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination. Citizens considers a variety of factors in connection with the identification of more-than-insignificant deterioration in credit quality including, but not limited to, nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors. Citizens initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan's purchase price. The initial ALLL for PCD loans of $101 million was established through an adjustment to the Investors loan balance and related purchase accounting mark. Non-PCD loans and PCD loans had a fair value of $15.6 billion and $4.5 billion at the acquisition date and unpaid principal balance of $15.9 billion and $4.7 billion, respectively. In accordance with U.S. GAAP there was no carryover of the ACL that had been previously recorded by Investors. Subsequent to the acquisition, Citizens recorded an ACL on non-PCD loans of $145 million through provision expense for credit losses. The following table presents PCD loan activity at the date of acquisition:
(in millions) | April 6, 2022
Principal balance | $4,685 |
ALLL at acquisition | (101) |
Non-credit discount | (72) |
Purchase price | $4,512 |
Acquisition of DH Capital On June 8, 2022, Citizens completed the acquisition of DH Capital, a private investment banking firm serving companies in the internet infrastructure, software, IT services and communications sectors. The fair value of the assets acquired and liabilities assumed in connection with this acquisition were deemed final as of December 31, 2022 and are not material to the Company’s Consolidated Balance Sheet. The impact of the DH Capital acquisition, along with supplemental pro forma information as if the DH Capital acquisition had occurred on January 1, 2021, are not material to the Company’s Consolidated Statements of Operations.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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