Citizens Financial Group, Inc.

views updated May 18 2018

Citizens Financial Group, Inc.

19TH-CENTURY BEGINNINGS AS HIGH STREET BANK AND CITIZENS SAVINGS BANK

1981–92: EMERGENCE OF CITIZENS AS UNIT OF THE ROYAL BANK OF SCOTLAND

DOUBLING IN SIZE UNDER LAWRENCE K. FISH: 1992–95

1996–2000: ACCELERATING THE PACE OF GROWTH

2001–03: EXPANDING INTO THE MID-ATLANTIC REGION VIA MELLON DEAL

2004: INTO THE MIDWEST THROUGH TAKEOVER OF CHARTER ONE

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

19TH-CENTURY BEGINNINGS AS HIGH STREET BANK AND CITIZENS SAVINGS BANK

High Street Bank, which was chartered as a commercial bank, was founded in 1828 in Providence, Rhode Island’s Hoyle Square, at the time one of the city’s busiest intersections for travelers from the nearby manufacturing towns and from the countryside. Hoyle Square was named after the Hoyle Tavern, a very popular locale in the city, while the bank took its name from its offices, which were located in two rooms of a residence on High Street.

With Rhode Island serving as one of the main industrial areas of New England in the mid-19th century, competition was fierce in the commercial banking sector. Eventually, as the need for banks serving ordinary citizens increased, the directors of High Street Bank decided to branch out. In 1871 they obtained a second charter from the Rhode Island legislature that established Citizens Savings Bank, a mutual savings bank. Jessie Grant, the daughter of the bank’s vice-president, made the first deposit into the bank on April 19 of that year, and by the end of the year the new bank had deposits of $52,000. The next 50 years consisted of a period of slow growth for both Citizens Savings and the Hoyle Square neighborhood as Providence’s position as an industrial center and seaport deteriorated. By the early 1920s, the bank’s future seemed more promising, so the bank built a new headquarters on the site of Hoyle Tavern, which had been torn down in 1890.

The Great Depression of the 1930s hit New England hard, with Rhode Island suffering particularly from the ongoing decline of its important textile industries. Citizens Savings saw its deposits decline and had to contend with increased numbers of defaulted mortgages, but because the bank’s lending practices were fairly prudent, its travails were not as severe as those of many other financial institutions.

Recovery and change came during the 1940s. In 1943 Citizens Savings gained the ability to acquire stock in High Street Bank because of a change in Rhode Island investment law. Citizens quickly gained full control of its former parent, foiling an attempt by a High Street stockholder to take control of High Street Bank. In 1947 High Street Bank relocated its offices to those of Citizens Savings. One year later, High Street Bank was renamed Citizens Trust Company.

Citizens began developing a branch network in 1947, when it opened an office in Cranston, Rhode Island. Three years later the bank became a member of the Federal Deposit Insurance Corporation (FDIC). It was the first mutual savings bank to do so. Expansion continued in 1954 with the acquisition of Greenville Trust Company. This added two more branches as well as assets of more than $8 million. Growth continued throughout the 1960s and 1970s. By 1971 Citizens Savings was the 80th largest mutual savings bank in the United States. Ten years later, the bank was operating 29 branches throughout Rhode Island, and assets totaled $971 million.

1981–92: EMERGENCE OF CITIZENS AS UNIT OF THE ROYAL BANK OF SCOTLAND

Also in 1981, George Graboys was named CEO of the bank. Graboys had practiced law before joining his family’s asset-based lending company, U.S. Finance Corp., in the mid-1960s. After Citizens acquired U.S. Finance in 1969, Graboys began working within the commercial bank unit, then was elected president of Citizens Savings in 1975. It was during Graboys’ tenure as CEO of Citizens that the bank would be transformed into a more modern financial institution as well as trade its independence for the security of a deep-pocketed parent.

Citizens avoided the fate of other savings and loan institutions during the disastrous and criminal savings and loan crisis of the 1980s by sticking to its conservative business and lending practices. Graboys did, however, respond surely to the key events of the decade for financial institutions: the deregulation of interest rates, the removal of interstate barriers, and increased competition. He sought to expand his bank’s loan and retail banking businesses outside of Rhode Island and to engage in all aspects of retail banking and middle-market corporate lending. In 1983 the bank opened its first commercial loan office outside of Rhode Island, locating it in Boston. To prepare to convert from a mutual savings bank to a stock savings bank, Citizens Bank became a federal savings bank in October 1984. Then in mid-1985, Citizens Financial Group, Inc., was created as a bank holding company for both Citizens Bank and Citizens Trust. Citizens Financial then sold 4.3 million shares of common stock at $23 per share in an initial public offering. The new holding company began its existence with assets of $1.6 billion. The holding company structure enabled the group to move into other financial services businesses and into other geographic markets.

COMPANY PERSPECTIVES

We have significantly expanded the products and services that we provide to our customers, including the growth in our corporate banking capabilities. Our expanding interrelationship with RBS provides more opportunities and expertise for our customers in what is fast becoming a global business world. Our Credo’s Three C’s—customers, colleagues and community—give us strength and are key to our continued success.

Graboys began using the proceeds from the stock offering to fund acquisitions. In 1986 the group acquired Gulf States Mortgage Company, an Atlanta-based residential mortgage origination and service firm with a loan portfolio of just over $1 billion. The new subsidiary was later renamed Citizens Mortgage Corporation. In July 1988 Citizens Financial completed its first acquisition of a retail bank located outside Rhode Island by spending $39 million for Fairhaven Savings Bank, which was based in Fairhaven, Massachusetts, and had five branches in the southeastern portion of that state and $288 million in assets. Fairhaven Savings became the initial building block for Citizens Bank of Massachusetts, which would eventually become the group’s largest retail banking unit.

KEY DATES

1828:: High Street Bank is chartered as a commercial bank based in Providence, Rhode Island.
1871:: Directors of High Street Bank obtain a second charter for Citizens Savings Bank, a mutual savings bank.
1943:: Citizens Savings gains control of High Street Bank, its former parent.
1947:: Citizens begins developing a branch network.
1948:: High Street Bank is renamed Citizens Trust Company.
1950:: Citizens joins the Federal Deposit Insurance Corporation (FDIC), becoming the first mutual savings bank to do so.
1981:: Citizens is operating 29 branches throughout Rhode Island and has assets of $971 million; George Graboys takes over as CEO.
1985:: Citizens Financial Group, Inc., is created as a bank holding company for both Citizens Bank and Citizens Trust; Citizens Financial is then taken public.
1988:: Fairhaven Savings Bank is acquired and becomes base for Citizens Bank of Massachusetts; The Royal Bank of Scotland Group plc acquires Citizens Financial, which begins operating as a wholly owned subsidiary.
1990:: Citizens acquires Old Colony, the Rhode Island subsidiary of Bank of New England.
1992:: Lawrence K. Fish is named chairman and CEO.
1993:: Citizens enters the Connecticut market with the purchase of New England Savings, which becomes the base for Citizens Bank of Connecticut; Boston Five Bancorp, operating in the Boston area, is acquired.
1994:: Neworld Bancorp and Old Stone Federal Savings Bank are acquired.
1996:: Citizens Financial merges with First NH Bank (owned by Bank of Ireland), which is renamed Citizens Bank New Hampshire; Bank of Ireland now holds 23.5 percent stake in Citizens Financial, Royal Bank holds 76.5 percent stake.
1998:: Royal Bank of Scotland pays Bank of Ireland $750 million to regain full control of Citizens Financial.
1999:: Citizens acquires the retail banking unit of Boston-based State Street Corporation.
2000:: Boston-based UST Corporation is acquired.
2001:: Citizens acquires the regional banking business of Mellon Financial Corporation, including 345 branches in Pennsylvania, Delaware, and New Jersey, for $2.1 billion.
2004:: Citizens moves into the Midwest via a $10.5 billion takeover of Charter One Financial, Inc.
2007:: Stephen D. Steinour is named CEO of Citizens Financial, succeeding Fish, who remains chairman.

By 1988 Citizens Financial was the fifth largest bank in New England but was far smaller than the top four at the time: Bank of Boston, Fleet Financial Group, Bank of New England, and Shawmut National. Graboys believed that Citizens needed to ally itself with a larger company if it were to have any chance of competing against its much larger rivals. At the same time, however, Graboys wished to keep his bank at least semi-independent. The solution to this dilemma was for Citizens to be acquired by a foreign bank that would allow it to operate as a separate U.S. bank. That bank turned out to be the Edinburgh-based Royal Bank of Scotland Group plc, which at the time was the sixth largest U.K. bank with assets of more than $36 billion. The Royal Bank paid about $440 million for Citizens in a transaction that was completed in December 1988. Citizens would be able to tap into the deep pockets of its new parent to fund further growth, while The Royal Bank gained a platform for U.S. expansion.

The well-run Royal Bank also helped Citizens survive a turbulent period for New England banking in the late 1980s and early 1990s, following the collapse of the New England real estate market and the resulting wave of loan defaults. Both Bank of New England and Bank of Boston fell into serious financial difficulties in the early 1990s; the former failed and was taken over by Fleet in 1991.

Citizens Financial began the 1990s by moving into a new 13-story headquarters called One Citizens Plaza. The building was located in downtown Providence at the confluence of the Moshassuck and Woonasquatucket rivers. Citizens’ desire for growth through acquisition was initially stymied by the crisis in New England banking. A number of acquisition targets were dropped from consideration because of the level of nonperforming loans in their portfolios. In fact, Citizens reached an agreement to acquire BankWorcester Corporation of Worcester, Massachusetts, for $149 million in early 1990, only to pull out of the deal later in the year because of the growing size of Bank Worcester’s nonperforming assets. Graboys nevertheless completed one acquisition in late 1990, that of Old Colony, the Rhode Island subsidiary of the troubled Bank of New England. Citizens thereby added 22 branches to its Rhode Island network of 30 branches, giving it the largest branch network in the state. Adding Old Colony’s $1.2 billion in assets moved Citizens from fourth to second place in size among the state’s banks. Old Colony was founded in 1803 as Newport Bank, which was the 12th bank founded in the United States.

DOUBLING IN SIZE UNDER LAWRENCE K. FISH: 1992–95

By 1992 Graboys had accomplished a quadrupling of the bank’s assets during little more than a decade of leadership, to $4 billion. That year, Lawrence K. Fish succeeded Graboys as chairman and CEO. A banking veteran, Fish was a former executive at Bank of Boston who received accolades for his efforts to revive the failing Bank of New England during his brief tenure from 1990 to 1991 as chairman and CEO of the Boston-based bank. The Royal Bank of Scotland handed Fish the mission of taking a more aggressive approach to expanding its U.S. subsidiary.

Fish quickly delivered for his new bosses, completing seven acquisitions from September 1992 through January 1995, in the process increasing Citizen’s assets to more than $10 billion. A number of the deals were for failed banks and savings and loans that were being liquidated by the FDIC or the Resolution Trust Corporation (RTC), a U.S. government agency set up to sell insolvent financial institutions. This was the case with the bank acquired in September 1992, Plymouth Five Cents Savings Bank, which was acquired from the FDIC and whose eight branches doubled the size of Citizens Bank of Massachusetts. Also bought from the FDIC was New England Savings Bank, acquired in May 1993. Citizens gained its first presence in Connecticut through the purchase of New London, Connecticut-based New England Savings, which became the base for Citizens Bank of Connecticut. New England Savings had 21 branches and $695 million in assets. Later in 1993, Citizens Financial completed its largest acquisition to date, the purchase of The Boston Five Bancorp and its 22 metropolitan Boston branches for $95 million. Boston Five, which boasted assets of $1.65 billion, also had an extensive New England mortgage operation, which was added to Citizens Mortgage, doubling that subsidiary’s mortgage portfolio to more than $8 billion.

During 1994 Citizens Financial completed three more acquisitions: Neworld Bancorp, Coastal Federal Savings Bank, and Old Stone Federal Savings Bank. Boston-based Neworld had 14 branches in Boston and another eight on Cape Cod, bringing Citizens Bank of Massachusetts’ branch total to 55. Purchased for $144.3 million, Neworld had assets of $1.1 billion. Coastal was another failed thrift and was purchased from the RTC for $10.7 million. This added nine branches and $100 million in assets to Citizens Bank of Connecticut. Also acquired from the RTC for $133.6 million was Old Stone, which was the fourth largest bank in Rhode Island with 28 branches and assets totaling $501 million. Citizens held 29 percent of the bank deposits in its home state, second only to Fleet’s 34 percent. Also in 1994, Citizens Financial became one of the last large banks to begin selling mutual funds through its branches. It formed alliances with two major Boston-based fund managers, Fidelity Investments and Putnam Cos., to sell 30 of their stock and bond funds.

In early 1995 Citizens further entrenched itself in the Massachusetts market by acquiring Quincy Savings Bank for $141 million. Quincy operated 14 branches in Boston’s suburban South Shore and had assets of $813 million. This latest acquisition increased the assets of Citizens Financial to $10.3 billion, more than double the figure when Fish took over. During the same period earnings tripled to $52.7 million as Fish found success with a strategy of positioning Citizens as a service-oriented, “supercommunity” banking franchise catering to the needs of working-class customers. This approach involved more of the old-fashioned human contact than the high-tech electronic services, such as ATMs and online banking, that rivals were rapidly adopting as the wave of the future. This focus on community banking also led Citizens to open its first supermarket banking branches in 1995 through a deal with Shaw’s Supermarkets. Later deals placed Citizens branches within such supermarkets as Stop & Shop, Star, Victory, Shop’n’Save, and Wal-Mart.

1996–2000: ACCELERATING THE PACE OF GROWTH

In April 1996 Citizens Financial merged with First NH Bank. Based in Manchester, New Hampshire, First NH was the largest financial services firm in the state, and was owned by Bank of Ireland. The Royal Bank of Scotland paid $245 million in cash and notes to Bank of Ireland, which also gained a 23.5 percent stake in Citizens. The Royal Bank retained 76.5 percent ownership of Citizens. First NH was recast as Citizens Bank New Hampshire, bringing to Citizens Financial 73 bank branches, 12 supermarket banks, and 153 ATMs. The addition of $4 billion in assets made Citizens the third largest bank in New England, trailing Fleet (which had acquired Shawmut in 1995) and Bank of Boston. Citizens also leaped into the top 50 among U.S. banks.

The newly enlarged bank completed two more significant acquisitions within the next 12 months. In November 1996 Farmers & Mechanics Bank, based in Middletown, Connecticut, was acquired for $53.2 million in cash. The purchase expanded Citizens Bank of Connecticut by 12 branches and $569 million in assets. Citizens Bank of Massachusetts grew through the March 1997 buyout of Grove Bank, which was headquartered in Chestnut Hill, Massachusetts, and had ten branches in the lucrative suburban markets west of Boston. Purchased for $87 million, Grove Bank had assets of $747 million. Also in late 1996 and early 1997, Citizens Financial exited from the mortgage servicing market, believing that its Atlanta-based mortgage servicing unit was too small to compete with large national mortgage servicers. Citizens Mortgage continued to originate and process mortgages from the bank’s New England branches. In late 1996 Citizens Capital, Inc., was formed as a Boston-based subsidiary specializing in investment financing for middle-market businesses needing capital for management buyouts, expansions, and mergers. In yet another development around this same time, Citizens in January 1997 launched a four-state marketing campaign featuring the slogan “Not Your Typical Bank.” The campaign was designed to emphasize the bank’s strategy of being a supercommunity bank offering the personal service of a smaller, neighborhood bank in contrast to the impersonal reputations of its much larger rivals.

Continuing to fill in geographic gaps in its New England base, Citizens spent $57.2 million for Bank of New Haven in August 1997. The $350 million in assets bank operated 11 branches in Connecticut, bringing Citizens’ network in that state to 41. In August 1998 Citizens Bank of Massachusetts expanded into Boston’s northern suburbs with the purchase of Woburn National Bank and its five branches and $165 million in assets. One month later, The Royal Bank of Scotland regained full control of Citizens Financial by paying Bank of Ireland $750 million for its 23.5 percent stake. In October 1998 Citizens Bank of Connecticut added four branches of Branford Savings Bank, expanding its presence in the greater New Haven area. Later that same year, Citizens sold its Visa credit-card portfolio to Bank-card Services of MBNA, one of the giants of the credit card industry. Citizens continued to offer credit cards to its customers, but the cards would be serviced by MBNA instead of the bank.

While continuing to emphasize personal, branch-based banking, Citizens in 1999 also launched Citizens Bank Online, a full-service electronic banking and bill payment service. The year was also significant because of the merger of Fleet and BankBoston that created Fleet-Boston Financial Corporation, a $190 billion financial giant that ranked as the eighth largest bank in the United States. Citizens Financial thereby gained the number two spot among New England banks but with just $18 billion in assets was dwarfed by its much larger rival. This increased the pressure on Citizens to complete more acquisitions, and it did just that. In October 1999 the bank paid $350 million to acquire State Street Corp.’s retail bank, which included four branches in Boston and Quincy, Massachusetts, and a commercial loan portfolio totaling $2.2 billion. The deal was particularly significant for its bulking up of Citizens’ commercial portfolio by nearly 50 percent, to $7 billion, or one-third of its total assets of $21 billion. Citizens was well-positioned to be a major player in New England in middle-market loans to corporations, small businesses, and nonprofits.

In January 2000 Citizens Financial completed its largest acquisition to date, the $1.4 billion purchase of Boston-based UST Corporation. This deal doubled the size of Citizens Bank of Massachusetts to $14 billion in assets, adding 87 more branches to that unit. It also increased Citizens Financial’s commercial loan portfolio by another $4.4 billion. Citizens also gained United States Trust Company of Boston, UST’s asset management unit, which had more than $3.5 billion under management for individual and institutional investors; and Brewer & Lord, a full-service insurance agency. Overall, the State Street and UST deals helped increase Citizens Financial’s assets to nearly $31 billion by the end of 2000, making the bank one of the 30 largest banks in the nation. Meanwhile, Citizens’ parent had also bulked itself up during 2000, acquiring National Westminster Bank Plc for $33 billion and becoming one of the top three banks in the United Kingdom, with total assets of nearly $500 billion. For Citizens, having a larger Royal Bank of Scotland as a parent appeared likely to open up even more avenues for growth because the U.S. unit would generate a much smaller proportion of The Royal Bank’s operating earnings.

2001–03: EXPANDING INTO THE MID-ATLANTIC REGION VIA MELLON DEAL

This soon proved to be the case as Citizens Financial announced in July 2001 that it would purchase the retail banking operations of Pittsburgh-based Mellon Financial Corporation for about $2.1 billion. The deal, completed that December, was Citizens’ largest yet and also its first foray outside its New England base. Included in the purchase were 345 branches in Pennsylvania, Delaware, and southern New Jersey and $13.4 billion in consumer and commercial deposits, as well as $6.1 billion in loans, mainly to small and middle-market banking customers. In addition, Citizens gained another insurance agency, Norristown, Pennsylvania-based Clair Odell Group (later renamed Citizens Clair Insurance Group). Citizens instantly became the third largest bank in Pennsylvania and with more than $53 billion in total assets was one of the 20 largest commercial banks in the United States.

The integration of the Mellon operations went remarkably smoothly. Part of the reason for this was that Citizens retained nearly the entire workforce it inherited and did not embark on the round of branch closings that had become so typical of bank mergers. Citizens worked diligently to establish the Citizens name in the new territories it was entering, and it prevented large-scale defections by Mellon customers through such bold moves as lowering fees and deposit thresholds. As a result, Citizens made a strong entrance into the Mid-Atlantic region, despite the presence of entrenched competitors, including Pittsburgh-based PNC Bank and Philadelphia-based Sovereign Bancorp, Inc.

In the 24 months following the consummation of the Mellon deal, Citizens completed a series of smaller acquisitions that served to fill in gaps in its existing territories, particularly in Massachusetts and Pennsylvania. In the fall of 2002 the group spent $273 million for Medford Bancorp Inc., which operated 19 branches and had $1.4 billion in assets. Based in Medford, Massachusetts, the acquired bank had more than 100,000 accounts centering on the high-income area of Middlesex County, just northwest of Boston.

In January 2003 Citizens strengthened its presence in the greater Philadelphia market and gained its first foothold in the Reading, Pennsylvania, region by acquiring Commonwealth Bancorp of Norristown, Pennsylvania, for $450 million. Commonwealth operated 60 branches and 61 ATMs in southeastern Pennsylvania and had $1.8 billion in assets and deposits of $1.5 billion. Next, Citizens bought its third insurance agency, the Feitelberg Company, which was headquartered in Fall River, Massachusetts, and ranked as one of the largest insurance agencies in southeastern New England. In its next two deals, Citizens further strengthened its position in Massachusetts. In July 2003 the group laid out $285 million for Port Financial Corp., parent of CambridgePort Bank, which operated 11 branches and 15 ATMs and had $1.5 billion in assets. Late in the year, Citizens acquired another Middlesex County bank, Community Bancorp, in a $116 million deal. Based in Hudson, Massachusetts, Community operated ten branches and had assets of $457 million. Citizens Financial finished 2003 with total assets of nearly $77 billion.

2004: INTO THE MIDWEST THROUGH TAKEOVER OF CHARTER ONE

The group remained on the prowl for acquisitions in 2004. Citizens began the year by completing a $136 million acquisition of Thistle Group Holdings Co., parent of Roxborough Manayunk Bank, which ran 15 branches in the Philadelphia area (including one in Delaware) and had assets of $914 million. In March Citizens acquired the Bridgeport, Connecticut-based credit card business of People’s Bank for $2.7 billion. About a year later, this unit, which had a loan portfolio of more than $2 billion, began operating as RBS National Bank, a subsidiary of Citizens Financial. In September 2004, meanwhile, Citizens expanded its credit card products operations by acquiring Atlanta-based Lynk Systems, Inc., an electronic payment processing firm, for $515 million. Lynk was later renamed RBS Lynk, Incorporated. In April 2004 the Philadelphia Phillies moved into their new ballpark, which was named Citizens Bank Park as a result of a $95 million naming rights deal between Citizens and the major league baseball team.

In August 2004, in the midst of a year in which its main rival, FleetBoston, was swallowed by Bank of America Corporation in a $48 billion deal, Citizens made a major move into the Midwest—and strengthened its position in New England and the Mid-Atlantic region—via its biggest acquisition yet, a $10.5 billion takeover of Charter One Financial, Inc. Cleveland-based Charter One had been founded in 1934 as First Federal Savings and Loan Association, which was one of the nation’s first S&Ls to open following passage of the Home Owners Loan Act of 1933. Over the next 50 years the thrift expanded into the suburbs of Cleveland, then in 1982 was converted from a mutual to a public company and adopted the Charter One name. In the 1990s Charter One completed a string of acquisitions of other Midwestern thrift franchises, with the most significant being the 1995 merger with FirstFed Michigan Corp. and the 1999 buyout of St. Paul Bancorp Inc., the latter of which provided the thrift entrée into the lucrative Chicago market. In May 2002 Charter One converted itself from a thrift into a nationally chartered bank.

By the time of its takeover by Citizens Financial, Charter had assets of $41.3 billion and a workforce of 8,400 and was operating 616 branches in Ohio, Michigan, Illinois, Indiana, New York, Massachusetts, Vermont, Connecticut, and Pennsylvania. In the Midwestern states of Ohio, Michigan, Illinois, and Indiana, the acquired branches continued to operate under the Charter One name; they were managed out of a midwestern headquarters in Cleveland. The branches in the other states were converted to the Citizens Bank banner. The Charter One acquisition boosted Citizens Financial’s asset base to $131 billion, making it the 12th largest commercial bank holding company in the United States, and increased its retail network to more than 1,530 branches and approximately 2,700 ATMs. It ranked as the ninth largest bank based on its deposits of more than $88 billion.

During 2005, when integration of Charter One took center stage, Citizens trimmed its workforce by about 1,100 as part of a cost-cutting initiative aiming to eventually generate $185 million in annual savings. That year, Citizens paid a $3 million civil fine to the State of Massachusetts after regulators uncovered what they called “unethical and dishonest conduct” in the sale of variable annuities to elderly investors. Securities regulators claimed that members of the bank’s brokerage arm, CCO Investment Services Corp., had engaged in a pattern of targeting elderly bank depositors with sales pitches that misled them about the risks of buying variable annuities. The following year, regulators in Rhode Island fined Citizens $800,000 for engaging in the same practices in that state. Later in 2006, the National Association of Securities Dealers imposed $850,000 in fines on CCO for various violations of regulatory requirements following an investigation not related to the Massachusetts and Rhode Island cases. Citizens implemented a number of changes designed to correct the problems that had cropped up at CCO.

Also in 2006, The Royal Bank of Scotland combined its U.S.-based RBS Lombard business with the asset finance businesses of Citizens Bank and Charter One Bank, creating RBS Asset Finance, Inc., which began operating as a subsidiary of Citizens Financial. RBS Asset Finance focused mainly on equipment financing. Citizens Financial also sold its insurance brokerage business in the spring of 2006. Brewer & Lord, Citizens Clair, and the Feitelberg Co. were sold to Chicago-based Hub International Limited for around $83 million. At the same time, Citizens entered into an alliance with Hub, whereby Citizens began offering Hub insurance products to its customers at all of the branches in its 13-state network. Overall growth at Citizens Financial slowed considerably in 2006, with its earnings of $2.92 billion representing just a 2 percent increase over the previous year. Like many other U.S. banks, Citizens had been hurt by a narrowing spread between long- and short-term interest rates because this flattening yield curve cut into the money banks were able to make by lending at long-term rates while paying interest on short-term rate deposit accounts.

Having finally finished absorbing its monster purchase of Charter One, Citizens Financial began seeking bolt-on acquisitions once again. In February 2007 the group spent $180 million for GreatBanc, Inc., a Chicago-area bank with ten branches and $1.2 billion in assets. Citizens intended to seek additional acquisitions of this nature throughout the 13-state area in which it operated. The GreatBanc deal, however, turned out to be the last of Fish’s tenure as CEO. In March 2007 The Royal Bank reorganized its North American operations, creating a new unit called RBS America to oversee both Citizens Financial and The Royal Bank’s U.S. capital-markets business. Fish was named chairman of RBS America, and he also remained chairman of Citizens Financial. Ellen Alemany, a former executive at Citigroup Inc., was named CEO of RBS America, while the president of Citizens Financial, Stephen D. Steinour, was promoted to CEO. Largely through acquisitions, Fish had dramatically transformed Citizens Financial from the fifth largest bank in Rhode Island to the ninth largest in the country during his 15 years at the group, while maintaining a winning formula coupling customer service with a local, conservative approach to lending. Steinour, who in his previous roles at Citizens had been deeply involved in bank acquisitions and integrations, had the unenviable task of following up on this legendary performance.

David E. Salamie

PRINCIPAL SUBSIDIARIES

Citizens Bank of Rhode Island; Citizens Bank of Massachusetts; Citizens Bank New Hampshire; Citizens Bank of Connecticut; Citizens Bank of Pennsylvania; Citizens Bank (Delaware); Citizens Bank, N.A.; Charter One Bank, N.A.; Citizens Automobile Finance, Inc.; Citizens Capital, Inc.; CCO Investment Services Corp.; CCO Mortgage Corp.; RBS Business Capital; RBS National Bank; RBS Lynk, Incorporated; RBS Asset Finance, Inc.

PRINCIPAL COMPETITORS

Bank of America Corporation; Sovereign Bancorp, Inc.; The PNC Financial Services Group, Inc.; JPMorgan Chase & Co.; KeyCorp; Fifth Third Bancorp; Huntington Bancshares Incorporated; Commerce Bancorp, Inc.; National City Corporation; Citigroup Inc.; HSBC USA Inc.; TD Banknorth Inc.; LaSalle Bank Corporation.

Citizens Financial Group, Inc.

views updated May 29 2018

Citizens Financial Group, Inc.

One Citizens Plaza
Providence, Rhode Island 02903-1339
U.S.A.
Telephone: (401) 456-7000
Fax: (401) 456-7819
Web site: http://www.citizensbank.com

Wholly Owned Subsidiary of The Royal Bank of Scotland Group plc
Incorporated: 1871 as Citizens Savings Bank
Employees: 12,000
Total Assets: $32.4 billion (2001)
NAIC: 551111 Offices of Bank Holding Companies; 522110 Commercial Banking; 522120 Savings Institutions

Citizens Financial Group, Inc. is the second largest commercial bank holding company in New England, behind only the much larger FleetBoston Financial Corporation, and was one of the top 30 commercial banks in the United States as of mid-2001. Wholly owned by The Royal Bank of Scotland Group plc, Citizens Financial owned retail banks in four states as of mid-2001: Rhode Island, where it had 66 branches and $7.4 billion in assets; Massachusetts, 140 branches and $16.8 billion in assets; Connecticut, 43 branches and $2.4 billion in assets; and New Hampshire, 80 branches and $5.7 billion in assets. In July 2001 Citizens reached an agreement to acquire the regional banking business of Mellon Financial Corporation, a deal that, if completed, would add to Citizens’ holdings 345 branches in Pennsylvania, Delaware, and New Jersey, along with $16.4 billion in assets. This deal would catapult Citizens into a position as one of the top 20 banks in the United States, with nearly $50 billion in assets.

The group, which traces its origins back to the founding of High Street Bank in 1828, had assets of only about $1.5 billion when it went public in 1985. After being acquired by the Royal Bank of Scotland in 1988, Citizens began a period of spectacularly rapid growth through acquisition following the appointment of Lawrence K. Fish as chairman and CEO in 1992.

19th-Century Beginnings As High Street Bank and Citizens Savings Bank

Citizens began developing a branch network in 1947, when it opened an office in Cranston. Three years later the bank became a member of the Federal Deposit Insurance Corporation (FDIC). It was the first mutual savings bank to do so. Expansion continued in 1954 with the acquisition of Greenville Trust Company. This added two more branches as well as assets of more than $8 million. Growth continued throughout the 1960s and 1970s. By 1971 Citizens Savings was the 80th largest mutual savings bank in the United States. Ten years later, the bank was operating 29 branches throughout Rhode Island, and assets totaled $971 million.

1981–92: Emergence of Citizens As Unit of Royal Bank

Citizens avoided the fate of other savings and loan institutions during the disastrous and criminal savings and loan crisis of the 1980s by sticking to its conservative business and lending practices. Graboys did, however, respond surely to the key events of the decade for financial institutions: the deregulation of interest rates, the removal of interstate barriers, and increased competition. He sought to expand his bank’s loan and retail banking businesses outside of Rhode Island and to engage in all aspects of retail banking and middle-market corporate lending. In 1983 the bank opened its first commercial loan office outside of Rhode Island, locating it in Boston. To prepare to convert from a mutual savings bank to a stock savings bank, Citizens Bank became a federal savings bank in October 1984. Then in mid-1985, Citizens Financial Group, Inc. was created as a bank holding company for both Citizens Bank and Citizens Trust. Citizens Financial then sold 4.3 million shares of common stock at $23 per share in an initial public offering. The new holding company began its existence with assets of $1.6 billion. The holding company structure enabled the group to move into other financial services businesses and into other geographic markets.

Graboys began using the proceeds from the stock offering to fund acquisitions. In 1986 the group acquired Gulf States Mortgage Company, an Atlanta-based residential mortgage origination and service firm with a loan portfolio of just over $1 billion. The new subsidiary was later renamed Citizens Mortgage Corporation. In July 1988 Citizens Financial completed its first acquisition of a retail bank located outside Rhode Island by spending $39 million for Fairhaven Savings Bank, which was based in Fairhaven, Massachusetts, and had five branches in the southeastern portion of that state and $266 million in assets. Fairhaven Savings became the initial building block for Citizens Bank of Massachusetts, which would eventually become the group’s largest retail banking unit.

By 1988 Citizens Financial was the fifth largest bank in New England but was far smaller than the top four at the time: Bank of Boston, Fleet Financial Group, Bank of New England, and Shaw-mut National. Graboys believed that Citizens needed to ally itself with a larger company if it were to have any chance of competing against its much larger rivals. At the same time, however, Graboys wished to keep his bank at least semi-independent. The solution to this dilemma was for Citizens to be acquired by a foreign bank that would allow it to operate as a separate U.S. bank. That bank turned out to be the Edinburgh-based Royal Bank of Scotland Group plc, which at the time was the sixth largest U.K. bank with assets of more than $36 billion. Royal Bank paid about $440 million for Citizens in a transaction that was completed in December 1988. Citizens would now be able to tap into the deep pockets of its new parent to fund further growth, while Royal Bank gained a platform for U.S. expansion.

Company Perspectives:

We will build a great company where every employee shares a deep commitment to our customers. We will provide exceptional service to and earn the long-term loyalty of those customers who choose Citizens as their primary bank. We will be the absolute leader in commitment to our employees, communities, and to the highest ethical standards. We will remain the leading New England super-community bank, and be one of the best financial performers nationally in banking .

Citizens Financial began the 1990s by moving into a new 13-story headquarters called One Citizens Plaza. The building was located in downtown Providence at the confluence of the Moshassuck and Woonasquatucket Rivers. Citizens’ desire for growth through acquisition was initially stymied by the crisis in New England banking. A number of acquisition targets were dropped from consideration because of the level of nonperforming loans in their portfolios. In fact, Citizens reached an agreement to acquire BankWorcester Corporation of Worcester, Massachusetts, for $149 million in early 1990, only to pull out of the deal later in the year because of the growing size of BankWorcester’s nonperforming assets. Graboys nevertheless completed one acquisition in late 1990, that of Old Colony, the Rhode Island subsidiary of the troubled Bank of New England. Citizens thereby added 22 branches to its Rhode Island network of 30 branches, giving it the largest branch network in the state. Adding Old Colony’s $1.2 billion in assets moved Citizens from fourth to second place in size among the state’s banks. Old Colony was founded in 1803 as Newport Bank, which was the 12th bank founded in the United States.

Doubling in Size Under Lawrence K. Fish: 1992–95

Fish quickly delivered for his new bosses, completing seven acquisitions from September 1992 through January 1995, in the process increasing Citizen’s assets to more than $10 billion. A number of the deals were for failed banks and savings and loans that were being liquidated by the FDIC or the Resolution Trust Corporation (RTC), a U.S. government agency set up to sell insolvent financial institutions. This was the case with the bank acquired in September 1992, Plymouth Five Cents Savings Bank, which was acquired from the FDIC and whose eight branches doubled the size of Citizens Bank of Massachusetts. Also bought from the FDIC was New England Savings Bank, acquired in May 1993. Citizens gained its first presence in Connecticut through the purchase of New London, Connecticut-based New England Savings, which became the base for Citizens Bank of Connecticut. New England Savings had 21 branches and $695 million in assets. Later in 1993, Citizens Financial completed its largest acquisition to date, the purchase of The Boston Five Bancorp and its 22 metropolitan Boston branches for $95 million. Boston Five, which boasted assets of $1.63 billion, also had an extensive New England mortgage operation, which was added to Citizens Mortgage, doubling that subsidiary’s mortgage portfolio to more than $8 billion.

During 1994 Citizens Financial completed three more acquisitions: Neworld Bancorp, Coastal Federal Savings Bank, and Old Stone Federal Savings Bank. Boston-based Neworld had 14 branches in Boston and another eight on Cape Cod, bringing Citizens Bank of Massachusetts’ branch total to 55. Purchased for $144.3 million, Neworld had assets of $1.1 billion. Coastal was another failed thrift and was purchased from the RTC for $10.7 million. This added nine branches and $100 million in assets to Citizens Bank of Connecticut. Also acquired from the RTC for $133.6 million was Old Stone, which was the fourth largest bank in Rhode Island with 28 branches and assets totaling $501 million. Citizens now held 29 percent of the bank deposits in its home state, second only to Fleet’s 34 percent. Also in 1994, Citizens Financial became one of the last large banks to begin selling mutual funds through its branches. It formed alliances with two major Boston-based fund managers, Fidelity Investments and Putnam Cos., to sell 30 of their stock and bond funds.

Key Dates:

1828:: High Street Bank is chartered as a commercial bank based in Providence, Rhode Island.
1871:: Directors of High Street Bank obtain a second charter for Citizens Savings Bank, a mutual savings bank.
1943:: Citizens Savings gains control of High Street Bank, its former parent.
1947:: Citizens begins developing a branch network.
1948:: High Street Bank is renamed Citizens Trust Company.
1950:: Citizens joins the Federal Deposit Insurance Corporation (FDIC), becoming the first mutual savings bank to do so.
1954:: Acquisition of Greenville Trust Company adds two more branches.
1981:: Citizens is operating 29 branches throughout Rhode Island and has assets of $971 million; George Graboys takes over as CEO.
1985:: Citizens Financial Group, Inc. is created as a bank holding company for both Citizens Bank and Citizens Trust; Citizens Financial is then taken public.
1988:: Fairhaven Savings Bank is acquired and becomes base for Citizens Bank of Massachusetts; Royal Bank of Scotland Group plc acquires Citizens Financial, which begins operating as a wholly owned subsidiary.
1990:: Citizens acquires Old Colony, the Rhode Island subsidiary of Bank of New England.
1992:: Lawrence K. Fish is named chairman and CEO.
1993:: Citizens enters the Connecticut market with the purchase of New England Savings, which becomes the base for Citizens Bank of Connecticut; Boston Five Bancorp, operating in the Boston area, is acquired.
1994:: Neworld Bancorp, Coastal Federal Savings Bank, and Old Stone Federal Savings Bank are all acquired.
1995:: Quincy Savings Bank is acquired.
1996:: Citizens Financial merges with First NH Bank (owned by Bank of Ireland), which is renamed Citizens Bank of New Hampshire; Bank of Ireland now holds 23.5 percent stake in Citizens Financial, Royal Bank holds 76.5 percent stake; Farmers & Mechanics Bank (CT) is acquired.
1997:: Grove Bank and Bank of New Haven are acquired.
1998:: Royal Bank of Scotland pays Bank of Ireland $750 million to regain full control of Citizens Financial.
1999:: Citizens acquires the retail banking unit of Boston-based State Street Corporation.
2000:: Boston-based UST Corporation is acquired.
2001:: Citizens reaches an agreement to acquire the regional banking business of Mellon Financial Corporation, including 345 branches in Pennsylvania, Delaware, and New Jersey, for $2.1 billion.

1996 and Beyond: Accelerating the Pace of Growth

In April 1996 Citizens Financial merged with First NH Bank, which was based in Manchester, New Hampshire, was the largest financial services firm in the state, and was owned by Bank of Ireland. Royal Bank of Scotland paid $245 million in cash and notes to Bank of Ireland, which also gained a 23.5 percent stake in Citizens. Royal Bank retained 76.5 percent ownership of Citizens. First NH was recast as Citizens Bank of New Hampshire, bringing to Citizens Financial 73 bank branches, 12 supermarket banks, and 153 ATMs. The addition of $4 billion in assets made Citizens the third largest bank in New England, trailing Fleet (which had acquired Shawmut in 1995) and Bank of Boston. Citizens also leaped into the top 50 among U.S. banks.

The newly enlarged bank completed two more significant acquisitions within the next 12 months. In November 1996 Farmers & Mechanics Bank, based in Middletown, Connecticut, was acquired for $53.2 million in cash. The purchase expanded Citizens Bank of Connecticut by 12 branches and $569 million in assets. Citizens Bank of Massachusetts grew through the March 1997 buyout of Grove Bank, which was headquartered in Chestnut Hill, Massachusetts, and had ten branches in the lucrative suburban markets west of Boston. Purchased for $87 million, Grove Bank had assets of $747 million. Also in late 1996 and early 1997, Citizens Financial exited from the mortgage servicing market, believing that its Atlanta-based mortgage servicing unit was too small to compete with large national mortgage servicers. Citizens Mortgage continued to originate and process mortgages from the bank’s New England branches. In late 1996 Citizens Capital, Inc. was formed as a Boston-based subsidiary specializing in making loans to small and medium-sized businesses. In keeping with the bank’s traditional conservative lending practices, the loans would range from $1 million to $50 million, with the vast majority consisting of loans of less than $10 million. In yet another development around this same time, Citizens in January 1997 launched a four-state marketing campaign featuring the slogan “Not Your Typical Bank.” The campaign was designed to emphasize the bank’s strategy of being a supercommunity bank offering the personal service of a smaller, neighborhood bank in contrast to the impersonal reputations of its much larger rivals.

Bank and its five branches and $165 million in assets. One month later, Royal Bank of Scotland regained full control of Citizens Financial by paying Bank of Ireland $750 million for its 23.5 percent stake. In October 1998 Citizens Bank of Connecticut added four branches of Branford Savings Bank, expanding its presence in the greater New Haven area. Later that same year, Citizens sold its Visa credit-card portfolio to Bankcard Services of MBNA, one of the giants of the credit card industry. Citizens continued to offer credit cards to its customers, but the cards would now be serviced by MBNA instead of the bank.

While continuing to emphasize personal, branch-based banking, Citizens in 1999 also launched Citizens Bank Online, a full-service electronic banking and bill payment service. The year was also significant because of the merger of Fleet and BankBoston that created FleetBoston Financial Corporation, a $190 billion financial giant that ranked as the eighth largest bank in the United States. Citizens Financial thereby gained the number two spot among New England banks but with just $18 billion in assets was now dwarfed by its much larger rival. This increased the pressure on Citizens to complete more acquisitions, and it did just that. In October 1999 the bank paid $350 million to acquire State Street Corp.’s retail bank, which included four branches in Boston and Quincy, Massachusetts, and a commercial loan portfolio totaling $2.2 billion. The deal was particularly significant for its bulking up of Citizens’ commercial portfolio by nearly 50 percent, to $7 billion, or one-third of its total assets of $21 billion. Citizens was now well-positioned to be a major player in New England in middle-market loans to corporations, small businesses, and nonprofits.

In January 2000 Citizens Financial completed its largest acquisition yet, the $1.4 billion purchase of Boston-based UST Corporation. This deal doubled the size of Citizens Bank of Massachusetts to $14 billion in assets, adding 87 more branches to that unit. It also increased Citizens Financial’s commercial loan portfolio by another $4.4 billion. Citizens also gained United States Trust Company of Boston, UST’s asset management unit, which had more than $3.5 billion under management for individual and institutional investors; and Brewer & Lord, a full-service insurance agency. Overall, the State Street and UST deals helped increase Citizens Financial’s assets to nearly $31 billion by the end of 2000, making the bank one of the 30 largest banks in the nation. Meanwhile, Citizens’ parent had also bulked itself up during 2000, acquiring National Westminster Bank Plc for $33 billion and becoming one of the top three banks in the United Kingdom, with total assets of nearly $500 billion. For Citizens, having a larger Royal Bank of Scotland as a parent appeared likely to open up even more avenues for growth because the U.S. unit would now generate a much smaller proportion of Royal Bank’s operating earnings.

This soon proved to be the case as Citizens Financial announced in July 2001 that it would purchase the retail banking operations of Pittsburgh-based Mellon Financial Corporation for about $2.1 billion. If completed, the deal would be not only Citizens’ largest in history but also its first foray outside its New England base. Included in the purchase would be 345 branches in Pennsylvania, Delaware, and southern New Jersey and $13.4 billion in consumer and commercial deposits, as well as $6.1 billion in loans, mainly to small and middle-market banking customers. Citizens would instantly become the third largest bank in Pennsylvania and with nearly $50 billion in total assets become one of the 20 largest commercial banks in the United States. It appeared quite likely that additional acquisitions would follow the Mellon deal, with speculation centering on gaps in Citizens’ geographic coverage, such as in northern New Jersey and New York state, and on further expansion of Citizens’ territorial extent, such as moving west into Ohio. Regardless of future deals, however, Citizens seemed certain to maintain its winning formula of a focus on customer service coupled with a local, conservative approach to lending.

Principal Subsidiaries

Citizens Bank of Rhode Island; Citizens Bank of Connecticut; Citizens Bank of Massachusetts; Citizens Bank of New Hampshire; Citizens Business Credit; Citizens Capital, Inc.; Citizens Ventures, Inc.; Citizens eBusiness; Citizens Financial Services, Inc.; Citizens Leasing Corporation; Citizens Mortgage Corporation; Brewer & Lord; Firestone Financial; United States Trust Company of Boston.