BUSINESS OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2019

NOTE 25 - BUSINESS OPERATING SEGMENTS

Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s two business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a segment head who reports directly to the Chief Executive Officer. The Chief Executive Officer 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.

Reportable Segments

Segment results are determined based upon the Company’s management reporting system, which assigns balance sheet and statement of operations items to each of the business segments. The process is designed around the Company’s organizational and management structure and accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions. A description of each reportable segment and table of financial results is presented below:

Consumer Banking

The Consumer Banking segment focuses on retail customers and small businesses with annual revenues of up to $25 million. It offers traditional banking products and services, including checking, savings, home loans, education loans, credit cards, business loans, and unsecured product finance and personal loans in addition to financial management services. It also operates an indirect auto financing business, providing financing for both new and used vehicles through auto dealerships. The segment’s distribution channels include a branch network, ATMs and a work force of experienced specialists ranging from financial consultants, mortgage loan officers and business banking officers to private bankers. The Company’s Consumer Banking value proposition is based on providing simple, easy to understand product offerings and a convenient banking experience with a more personalized approach.

Commercial Banking

The Commercial Banking segment primarily targets companies with annual revenues from $25 million to $2.5 billion and provides a full complement of financial products and solutions, including loans, leases, trade financing, deposits, cash management, commercial cards, foreign exchange, interest rate risk management, corporate finance and capital markets advisory capabilities. It focuses on middle-market companies, large corporations and institutions and has dedicated teams with industry expertise in government banking, not-for-profit, healthcare, technology, professionals, oil and gas, asset finance, franchise finance, asset-based lending, commercial real estate, private equity and sponsor finance. While the segment’s business development efforts are predominantly focused in the Company’s footprint, some of its specialized industry businesses also operate selectively on a national basis (such as healthcare, asset finance and franchise finance). A key component of Commercial Banking’s growth strategy is to bring ideas to clients that help their businesses thrive, and in doing so, expand the loan portfolio and ancillary product sales.

Non-segment Operations

Other

Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets, community development, non-core assets, and other unallocated assets, liabilities, capital, revenues, provision for credit losses, and expenses including income tax expense. In addition to non-segment operations, Other includes goodwill and any associated goodwill impairment

charges. For impairment testing purposes, the Company assigns goodwill to its Consumer Banking and Commercial Banking reporting units.



	As of and for the Year Ended December 31, 2019
(in millions)	Consumer Banking		Commercial Banking		Other			Consolidated
Net interest income		$3,182		$1,466		($34	)		$4,614
Noninterest income	1,156		607		114			1,877
Total revenue	4,338		2,073		80			6,491
Noninterest expense	2,851		858		138			3,847
Profit before provision for credit losses	1,487		1,215		(58		)	2,644
Provision for credit losses	325		97		(29		)	393
Income (loss) before income tax expense (benefit)	1,162		1,118		(29		)	2,251
Income tax expense (benefit)	287		248		(75		)	460
Net income		$875		$870		$46			$1,791
Total average assets		$66,240		$55,947		$39,989			$162,176



	As of and for the Year Ended December 31, 2018
(in millions)	Consumer Banking		Commercial Banking		Other			Consolidated
Net interest income		$3,064		$1,497		($29	)		$4,532
Noninterest income	973		545		78			1,596
Total revenue	4,037		2,042		49			6,128
Noninterest expense	2,723		813		83			3,619
Profit before provision for credit losses	1,314		1,229		(34		)	2,509
Provision for credit losses	289		26		11			326
Income (loss) before income tax expense (benefit)	1,025		1,203		(45		)	2,183
Income tax expense (benefit)	258		276		(72		)	462
Net income		$767		$927		$27			$1,721
Total average assets		$62,444		$52,362		$39,747			$154,553



	As of and for the Year Ended December 31, 2017
(in millions)	Consumer Banking		Commercial Banking		Other			Consolidated
Net interest income		$2,651		$1,411		$111			$4,173
Noninterest income	905		538		91			1,534
Total revenue	3,556		1,949		202			5,707
Noninterest expense	2,593		772		109			3,474
Profit before provision for credit losses	963		1,177		93			2,233
Provision for credit losses	265		19		37			321
Income before income tax expense (benefit)	698		1,158		56			1,912
Income tax expense (benefit)	246		384		(370		)	260
Net income		$452		$774		$426			$1,652
Total average assets		$59,714		$49,747		$40,492			$149,953

Management accounting practices utilized by the Company as the basis of presentation for segment results include the following:

FTP adjustments

Citizens utilizes an FTP system to eliminate the effect of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury function. The FTP system credits (or charges) the segments with the economic value of the funds created (or used) by the segments. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The sum of the interest income/expense and FTP charges/credits for each segment is its designated net interest income. The variance between the Company’s cumulative FTP charges and cumulative FTP credits is offset in Other. Citizens periodically evaluates and refines its methodologies used to measure financial performance of its business operating segments.

Provision for credit losses allocations

Provision for credit losses is allocated to each business segment based on actual net charge-offs recognized by the business segment. The difference between the consolidated provision for credit losses and the business segments’ net charge-offs is reflected in Other.

Income tax allocations

Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Other.

Expense allocations

Noninterest expenses incurred by centrally managed operations or business lines that directly support another business line’s operations are charged to the applicable business line based on its utilization of those services.

Goodwill

For impairment testing purposes, the Company assigns goodwill to its Consumer Banking and Commercial Banking reporting units. For management reporting purposes, the Company presents the goodwill balance (and any related impairment charges) in Other.

Substantially all revenues generated and long-lived assets held by the Company’s business segments are derived from clients that reside in the United States. Neither business segment earns revenue from a single external customer that represents ten percent or more of the Company’s total revenues.