8-K 1 d779611d8k.htm 8-K 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 22, 2019

CITIZENS FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-36636   05-0412693
(State or other jurisdiction
of incorporation )
  (Commission File No.)   (IRS Employer
Identification No.)

 

One Citizens Plaza

Providence, RI

  02903
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (401) 456-7000

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Common stock, $0.01 par value per share   CFG   New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 6.350% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D   CFG PrD   New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  


Item 8.01

Other Events.

On July 19, 2019, Citizens Financial Group, Inc. (“CFG” or “Citizens”) reported second quarter net income of $453 million, up 7% from $425 million in second quarter 2018, and earnings per share of $0.95, up 8% from $0.88 per share in second quarter 2018. Second quarter 2019 results reflect a net $5 million after-tax reduction, or $(0.01) per share, from notable items compared with none in second quarter 2018 and a net $4 million after-tax reduction, or $(0.01) per share, in first quarter 2019. Second quarter 2019 Return on Average Tangible Common Equity* (“ROTCE”) of 12.8% compares with 12.9% in second quarter 2018 and 13.0% in first quarter 2019.

On an Underlying basis, which excludes notable items,* second quarter 2019 net income available to common stockholders of $440 million increased 4% from second quarter 2018 and 3% from first quarter 2019. Earnings per common share of $0.96 per share increased 9% from second quarter 2018 and 3% from first quarter 2019. Underlying second quarter 2019 ROTCE* of 12.9% compares with 12.9% in second quarter 2018 and 13.1% in first quarter 2019. Tangible book value per common share of $30.88 increased 12% from second quarter 2018 and 4% from first quarter 2019.

Citizens also announced that its board of directors declared a four cent, or 13%, increase in the quarterly common stock dividend to $0.36 per share. The dividend is payable on August 14, 2019 to shareholders of record at the close of business on July 31, 2019. The quarterly common dividend is now 33% higher than the year-ago quarter.

 

*

Please see important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, at the end of this report for an explanation of our use of these metrics and non-GAAP financial measures and their reconciliation to GAAP financial measures. Where there is a reference to “Underlying” results in a paragraph, all measures that follow these references are on the same basis, when applicable. References to “Underlying results before the impact of Acquisitions” exclude the impact of the acquisitions that occurred after second quarter 2018 and notable items, as applicable. Additional information regarding the impact of Acquisitions and notable items may be found in the Notable Items portion of this report. Throughout this report, references to balance sheet items are on an average basis and loans exclude held for sale unless otherwise noted. References to net interest margin are on a fully taxable equivalent (“FTE”) basis and all references to earnings per share represent fully diluted per common share. References to consolidated and/or commercial loans and loan growth include leases. Loans held for sale are also referred to as LHFS. Current reporting-period regulatory capital ratios are preliminary. Select totals may not sum due to rounding.


In addition, Citizens recently announced that its board of directors has authorized the Company to repurchase up to $1.275 billion of the Company’s common stock over the four-quarter period beginning July 1, 2019, which represents a 25% increase over last year’s authorization. Additionally, Citizens continues to target a medium-term dividend payout ratio in the 35 to 40 percent range.

Second quarter 2019 vs. second quarter 2018

Key highlights

 

   

Second quarter results reflect revenue growth of 8%, with a 19% increase in noninterest income and a 4% increase in net interest income.

 

   

Strong momentum in fee income with record results in mortgage banking, capital markets fees, trust and investment services fees, and card fees.

 

   

Delivered an efficiency ratio of 58.4% and ROTCE of 12.8%, with Underlying ROTCE of 12.9%.* Before the impact of notable items and Acquisitions,* operating leverage of 1% reflects continued strong focus on top-line growth and expense management, while the Underlying efficiency ratio was 58.0%.*

 

   

Further improvement in the loan-to-deposit ratio with a period-end ratio of 94.2%, down from 96.9%.

 

   

Tangible book value per common share of $30.88 increased by 12%. Fully diluted average common shares outstanding decreased by 26.8 million shares, or 6%.

Results

 

   

Total revenue increased $119 million, or 8%. Total revenue before the impact of notable items and Acquisitions,* increased $65 million, or 4.3%.

 

   

Net interest income increased 4%, given 4% growth in interest-earning assets and stable net interest margin.

 

   

Net interest margin of 3.21% was relatively stable, reflecting higher interest-earning asset yields given higher rates and continued mix shift towards higher-yielding assets, offset by an increase in funding costs tied to higher rates and growth.

 

   

Noninterest income of $462 million increased $74 million, or 19%, reflecting underlying momentum with record results in Mortgage, Wealth, Capital Markets and card fees. Before the impact of Acquisitions,* noninterest income increased 6%.

 

   

Noninterest expense increased 9% from second quarter 2018 driven by the impact of Acquisitions and notable items. Before the impact of Acquisitions and notable items,* noninterest expense increased 3.7%, reflecting higher salaries and employee benefits, given the impact of merit increases, investments in strategic growth initiatives and higher revenue-driven incentives, as well as an increase in equipment and software expense.

 

   

Provision for credit losses of $97 million increased $12 million, reflecting continued seasoning in retail growth portfolios and several idiosyncratic losses in commercial, with key credit metrics continuing to reflect strong credit quality.

 

3


   

ROTCE of 12.8% compares with 12.9% for second quarter 2018. Underlying ROTCE* of 12.9% was stable with second quarter 2018 as an approximately 50 basis point drag from higher equity value, given the benefit on securities valuations from lower long-term rates, offset the benefit of profitability growth.

Balance Sheet

 

   

Interest-earning assets increased $5.8 billion, or 4%, driven by loan growth of 4%, with a 6% increase in commercial and a 3% increase in retail.

 

   

Average deposits increased $8.0 billion, or 7%, on strength in term, savings and checking with interest, partially offset by a reduction in money market accounts and demand deposits. The average loan-to-deposit ratio improved to 95.6% from 98.0%; period-end loan-to-deposit ratio improved to 94.2% from 96.9% in second quarter 2018.

 

   

Nonperforming loans and leases (“NPLs”) to loans and leases ratio of 0.66% improved from 0.75%, reflecting decreases in both retail and commercial.

 

   

Allowance coverage of NPLs of 159% improved from 148%.

 

   

Net charge-offs of 36 basis points of loans increased nine basis points, reflecting several idiosyncratic losses in commercial and continued seasoning in retail growth portfolios.

 

   

Capital remains strong, with a preliminary common equity tier 1 (“CET1”) risk-based capital ratio of 10.5%.

 

   

Repurchased 3.5 million shares of common stock at a weighted average price of $34.64 in the quarter, and including common dividends, returned $268 million in capital to shareholders.

Year-over-year update on plan execution

Consumer Banking

 

   

Continued balance sheet momentum, with 3% loan growth, including continued growth in more attractive risk-adjusted return categories; 11% deposit growth, including 7% growth in demand deposits.

 

   

Strong momentum in fee income categories. Generated record trust and investment services fees, up 23%; record mortgage fees, up 135%; record card fees, up 9%.

 

   

Citizens Access®, our digital platform, attracted $5.4 billion of spot deposits through second quarter 2019.

Commercial Banking

 

   

Strong balance sheet performance with commercial loan growth of 7%, driven by geographic, product and client-focused expansion strategies as well as strength in commercial real estate.

 

   

Continue to benefit from investments in broadening and enhancing our capabilities, highlighted by overall record capital markets fees, up 19%, with strength in bond underwriting and M&A fees.

Efficiency and balance sheet optimization initiatives

 

   

New transformational TOP 6 Program expected to deliver significant benefits.

 

   

Continued execution on our TOP V efficiency Program, which is expected to deliver pre-tax annualized run-rate benefit of approximately $95-$105 million by end of 2019.

 

4


   

Continued progress on Balance Sheet Optimization (“BSO”) initiatives to grow more attractive risk-adjusted return portfolios and optimize deposit mix.

Second quarter 2019 vs. first quarter 2019

Key highlights

 

   

Second quarter highlights include ROTCE of 12.8%, and Underlying ROTCE* of 12.9%, which decreased from 13.1% in first quarter 2019. Underlying results* reflect an approximately 30 basis point drag from higher equity value, given the benefit from lower long-term rates on securities valuations, which offset the benefit of profitability growth.

 

   

Tangible book value per common share of $30.88 increased 4%. Fully diluted average common shares outstanding decreased by 3.2 million shares.

 

   

Second quarter 2019 results reflect a net $5 million after-tax reduction, or ($0.01) per fully diluted share, from notable items compared with a net $4 million after-tax reduction, or ($0.01) per share, in first quarter 2019.

 

   

Results reflect an efficiency ratio of 58.4%, which includes the impact of $7 million of notable expense items. On an Underlying basis,* delivered an efficiency ratio of 58.0% with higher revenues and well-controlled expenses.

Results

 

   

Total revenue of $1.6 billion increased 3%, reflecting relatively stable net interest income and strength in noninterest income.

 

   

Net interest income of $1.2 billion increased $6 million, as the benefit of day count, interest-earning asset growth and improved mix was partially offset by a modest decrease in net interest margin.

 

   

Net interest margin of 3.21% decreased four basis points, driven by the impact of lower interest rates on earning asset yields, an increase in deposit costs given growth and the impact from day count. Interest-bearing deposit costs increased by three basis points, reflecting proactive pricing discipline against the impact of higher deposit betas.

 

   

Noninterest income of $462 million increased $34 million, or 8%, with record results in Mortgage, Wealth, Capital Markets and card fees.

 

   

Noninterest expense of $951 million increased $14 million, or 1%, including the impact of notable items. On an Underlying basis,* noninterest expense of $944 million increased by $12 million, largely reflecting higher outside services and other operating expense, partially offset by seasonally lower salaries and employee benefits.

 

   

Provision expense of $97 million compares with $85 million in the prior quarter, largely related to an increase in commercial charge-offs tied to several idiosyncratic losses and expected seasoning in retail growth portfolios, partially offset by the impact of continued improvement in underlying credit quality.

Balance sheet

 

   

Average interest-earning assets increased $810 million, reflecting an increase in loans held for sale tied to higher mortgage origination volumes, as well as growth in the investment portfolio. Loans were relatively stable compared with first quarter 2019, and up 0.4% before the impact of first and second quarter 2019 loan sales tied to our balance optimization initiatives.

 

5


   

Average deposits increased $2.7 billion, or 2%, reflecting growth in term, savings and checking with interest as well as relatively stable demand deposits and money market accounts.

 

   

NPLs to loans and leases ratio was stable at 0.66%. Allowance coverage of NPLs of 159% was relatively stable.

 

   

Average loan-to-deposit ratio improved to 95.6% from 97.7% in first quarter 2019; period-end loan-to-deposit ratio improved to 94.2% from 94.9% in first quarter 2019.

 

6


Earnings highlights:

 

     Quarterly Trends  
                       2Q19 change from  

($s in millions, except per share data)

   2Q19     1Q19     2Q18     1Q19     2Q18  
Earnings                      $/bps     %     $/bps     %  

Net interest income

   $ 1,166     $ 1,160     $ 1,121     $ 6       1   $ 45       4

Noninterest income

     462       428       388       34       8       74       19  

Total revenue

     1,628       1,588       1,509       40       3       119       8  

Noninterest expense

     951       937       875       14       1       76       9  

Pre-provision profit

     677       651       634       26       4       43       7  

Provision for credit losses

     97       85       85       12       14       12       14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     453       439       425       14       3       28       7  

Preferred dividends

     18       15       —         3       20       18       100  

Net income available to common stockholders

   $ 435     $ 424     $ 425     $ 11       3   $ 10       2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

After-tax notable Items

     5       4       —         1       25       5       100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying net income*

   $ 458     $ 443     $ 425     $ 15       3   $ 33       8

Underlying net income available to common stockholders*

   $ 440     $ 428     $ 425     $ 12       3   $ 15       4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding

              

Basic (in millions)

     458.2       460.7       484.7       (2.6     (1     (26.6     (5

Diluted (in millions)

     459.3       462.5       486.1       (3.2     (1     (26.8     (6

Diluted earnings per share

   $ 0.95     $ 0.92     $ 0.88     $ 0.03       3     $ 0.07       8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying diluted earnings per share*

   $ 0.96     $ 0.93     $ 0.88     $ 0.03       3   $ 0.08       9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key performance metrics*

              

Net interest margin

     3.20     3.23     3.20     (3 ) bps        — bps    

Net interest margin, FTE

     3.21     3.25     3.22     (4       (1  

Effective income tax rate

     21.9       22.4       22.6       (56       (72  

Efficiency ratio

     58       59       58       (59       46    

Underlying efficiency ratio*

     58       59       58       (65       7    

Return on average common equity

     8.5       8.6       8.7       (8       (11  

Return on average tangible common equity

     12.8       13.0       12.9       (25       (18  

Underlying return on average tangible common equity*

     12.9       13.1       12.9       (23       (4  

Return on average total assets

     1.13       1.11       1.11       2         2    

Underlying return on average total tangible assets*

     1.19     1.17     1.16     2bps         3bps    
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Capital adequacy(1,2)

              

Common equity tier 1 capital ratio

     10.5     10.5     11.2        

Total capital ratio

     13.4       13.4       13.8          

Tier 1 leverage ratio

     10.1     10.0     10.2        
  

 

 

   

 

 

   

 

 

         

Asset quality(2)

              

Nonperforming loans and leases as a % of loans and leases

     0.66     0.66     0.75     — bps         (9 ) bps   

Allowance for loan and lease losses as a % of loans and leases

     1.05       1.06       1.10       (1       (5  

Allowance for loan and lease losses as a % of nonperforming loans and leases

     159       160       148       (25       NM    

Net charge-offs as a % of average loans and leases

     0.36     0.31     0.27     5bps         9bps    
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

1) 

Current reporting-period regulatory capital ratios are preliminary.

2) 

Capital adequacy and asset-quality ratios calculated on a period-end basis, except net charge-offs.

 

7


Notable items:

First and second quarter 2019 results reflect notable items related to integration costs primarily tied to the August 1, 2018 Franklin American Mortgage Company (“FAMC”) acquisition which have been excluded from reported results to better reflect Underlying operating results.*

Total estimated after-tax FAMC integration costs are expected to be in the $30-$45 million range, with completion targeted by year-end 2019. Cumulative after-tax integration costs related to FAMC totaled $26 million through the end of second quarter 2019.

 

Notable items*    2Q19     1Q19     Cumulative after-tax
integration costs
 

($s in millions, except per share data)

  

Pre-tax

   

After-tax

   

EPS

   

Pre-tax

   

After-tax

   

EPS

   

FAMC

   

Other

   

Total

 

Integration costs

                  

Noninterest income

   $ —       $ —       $ —       $ —       $ —       $ —       $ (3     —       $ (3

Salaries and employee benefits

     (2     (1     —         (1     (1     —         (9     —         (9

Occupancy

     —         —         —         —         —         —         (1     —         (1

Outside services

     (5     (4     (0.01     (4     (3     (0.01     (10     (2     (12

Other operating expense

     —         —         —         —         —         —         (3     —         (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense

   $ (7   $ (5   $ (0.01   $ (5   $ (4   $ (0.01   $ (23     (2   $ (25
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total notable items - integration costs

   $ (7   $ (5   $ (0.01   $ (5   $ (4   $ (0.01   $ (26   $ (2   $ (28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table provides information on Underlying results before the impact of notable items and Acquisitions.*

 

     Quarterly Trends  
Underlying results/impact of Acquisitions:*                      2Q19 change from  

($s in millions, except per share data)

   2Q19     1Q19     2Q18     1Q19     2Q18  

Net interest income

   $ 1,166     $ 1,160     $ 1,121       1     4

Noninterest income

     462       428       388       8       19  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 1,628     $ 1,588     $ 1,509       3     8

Noninterest expense

   $ 951     $ 937     $ 875       1     9

Notable items

     7       5       —         40       100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying noninterest expense*

   $ 944     $ 932     $ 875       1     8

Underlying pre-provision profit*

     684       656       634       4       8  

Provision for credit losses

     97       85       85       14       14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

     435       424       425       3       2  

Underlying net income available to common stockholders*

     440       428       425       3       4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Key performance metrics*

          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS

   $ 0.95     $ 0.92     $ 0.88       3     8

Underlying EPS*

   $ 0.96     $ 0.93     $ 0.88       3       9  

Efficiency ratio

     58     59     58     (59 ) bps      46  bps 

Underlying efficiency ratio*

     58       59       58       (65     7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating leverage

           1.0     (0.8 )% 

Underlying operating leverage*

           1.1       (0.1

Underlying operating leverage before Acquisitions*

             0.6
        

 

 

   

 

 

 

 

8


Discussion of results:                      2Q19 change from  
Net interest income    2Q19     1Q19     2Q18     1Q19     2Q18  

($s in millions)

                     $/bps     %     $/bps     %  

Interest income:

              

Interest and fees on loans and leases and loans held for sale

   $ 1,409     $ 1,396     $ 1,238     $ 13       1   $ 171       14

Investment securities

     164       166       165       (2     (1     (1     (1

Interest-bearing deposits in banks

     7       8       8       (1     (13     (1     (13
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Total interest income

   $ 1,580     $ 1,570     $ 1,411     $ 10       1   $ 169       12
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Interest expense:

              

Deposits

   $ 308     $ 287     $ 181     $ 21       7   $ 127       70

Federal funds purchased and securities sold under agreements to repurchase

     3       2       1       1       50       2       200  

Other short-term borrowed funds(1)

     1       —         1       1       100       —         —    

Long-term borrowed funds(1)

     102       121       107       (19     (16     (5     (5
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Total interest expense

   $ 414     $ 410     $ 290     $ 4       1   $ 124       43
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Net interest income

   $ 1,166     $ 1,160     $ 1,121     $ 6       1   $ 45       4
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Net interest margin, FTE

     3.21     3.25     3.22     (4 ) bps        (1 ) bps   
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

1)

Beginning in 1Q19, borrowed funds interest expense is based on original maturity and prior periods have been revised consistent with the current presentation.

Net interest income increased $45 million, or 4%, from second quarter 2018, given 4% growth in interest-earning assets and stable net interest margin. Net interest margin of 3.21% was relatively stable, reflecting higher interest-earning asset yields given the impact of improved mix shift and higher short-term rates, offset by an increase in funding costs reflecting higher short-term rates and growth.

Compared with first quarter 2019, net interest income of $1.2 billion increased $6 million, or 1%, as the benefit of day count, interest earning asset growth and improved mix was partially offset by lower net interest margin. Net interest margin of 3.21% decreased four basis points, reflecting the impact of lower interest rates on earning asset yields, an increase in deposit costs given growth and day count.

 

Noninterest Income                         2Q19 change from  

($s in millions)

   2Q19      1Q19      2Q18      1Q19     2Q18  
                          $     %     $     %  

Service charges and fees

   $ 126      $ 123      $ 127      $ 3       2   $ (1     (1 )% 

Card fees

     64        59        60        5       8       4       7  

Capital markets fees

     57        54        48        3       6       9       19  

Trust and investment services fees

     53        47        43        6       13       10       23  

Mortgage banking fees

     62        43        27        19       44       35       130  

Letter of credit and loan fees

     33        33        32        —         —         1       3  

Foreign exchange and interest rate products

     35        36        34        (1     (3     1       3  

Securities gains, net

     4        8        2        (4     (50     2       100  

Other income(1)

     28        25        15        3       12       13       87  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Noninterest income

   $ 462      $ 428      $ 388      $ 34       8   $ 74       19
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

1)

Other income includes bank-owned life insurance and other income.

Noninterest income of $462 million in second quarter 2019 increased $74 million, or 19%, from second quarter 2018, reflecting record results in mortgage banking fees, capital market fees, trust and investment services fees and card fees. Before the impact of Acquisitions,* noninterest income of $413 million increased $25 million, or 6%, driven by record results in capital market fees, trust and investment services fees and card fees. Results also reflect growth in other income reflecting higher leasing income.

 

9


Compared with first quarter 2019, noninterest income increased $34 million, or 8%, driven by record results in mortgage banking fees, capital market fees, trust and investment services fees and card fees. Results also reflect growth in service charges and fees given seasonally higher volumes.

 

Noninterest Expense                         2Q19 change from  

($s in millions)

   2Q19      1Q19      2Q18      1Q19     2Q18  
                          $     %     $     %  

Salaries and employee benefits

   $ 507      $ 509      $ 453      $ (2       $ 54       12

Equipment and software expense

     126        125        110        1       1       16       15  

Outside services

     118        110        106        8       7       12       11  

Occupancy

     82        83        79        (1     (1     3       4  

Other operating expense

     118        110        127        8       7       (9     (7
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Noninterest expense

   $ 951      $ 937      $ 875      $ 14       1   $ 76       9
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Notable items*

   $ 7      $ 5      $ —        $ 2       40   $ 7       100
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Underlying,* as applicable

                 
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and employee benefits

   $ 505      $ 508      $ 453      $ (3     (1 )%    $ 52       11

Equipment and software expense

     126        125        110        1       1       16       15  

Outside services

     113        106        106        7       7       7       7  

Occupancy

     82        83        79        (1     (1     3       4  

Other operating expense

     118        110        127        8       7       (9     (7
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Underlying noninterest expense*

   $ 944      $ 932      $ 875      $ 12       1   $ 69       8
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Second quarter 2019 noninterest expense of $951 million increased $76 million, or 9%, from second quarter 2018 driven by the $44 million impact of Acquisitions* and notable items. Underlying noninterest expense before the impact of Acquisitions* of $907 million increased $32 million, or 4%, largely reflecting an increase in salaries and employee benefits given the impact of annual merit increases, revenue-based incentives and a $3 million severance charge, as well as an increase in equipment and software expense. These results reflect the impact of our investments in growth initiatives, partially offset by lower other operating expense, largely tied to a reduction in FDIC insurance and advertising expense.

Compared with first quarter 2019, noninterest expense increased $14 million, or 1%. Underlying noninterest expense of $944 million increased $12 million, or 1%, driven by higher outside services and other expense. These results were partially offset by seasonally lower salaries and employee benefits. Results also reflect continued focus on expense discipline and the benefit of TOP efficiency initiatives.

The second quarter 2019 effective tax rate of 21.9% was broadly stable and compares to 22.6% for second quarter 2018 and 22.4% for first quarter 2019.

 

10


Consolidated balance sheet review(1)                      2Q19 change from  

($s in millions)

   2Q19     1Q19     2Q18     1Q19     2Q18  
                       $/bps     %     $/bps     %  

Total assets

   $ 162,749     $ 161,342     $ 155,431     $ 1,407       1   $ 7,318       5

Total loans and leases

     116,838       117,615       113,407       (777     (1     3,431       3  

Total loans held for sale

     2,205       1,252       710       953       76       1,495       211  

Deposits

     124,004       123,916       117,073       88       —         6,931       6  

Stockholders’ equity

     22,017       21,531       20,467       486       2       1,550       8  

Stockholders’ common equity

     20,884       20,399       19,924       485       2       960       5  

Tangible common equity

   $ 14,141     $ 13,649     $ 13,394     $ 492       4   $ 747       6

Loan-to-deposit ratio (period-end)(2)

     94.2     94.9     96.9     (70 ) bps        (265 ) bps   

Loans to deposit ratio (average)(2)

     95.6       97.7       98.0       (206 ) bps        (237 ) bps   

Common equity tier 1 capital ratio(3)

     10.5       10.5       11.2          

Total capital ratio(3)

     13.4     13.4     13.8        

1)  Represents period end unless otherwise noted.

2)  Excludes loans held for sale.

3)  Current reporting period regulatory capital ratios are preliminary.

   

   

  

   

Total assets of $162.7 billion at June 30, 2019 increased $7.3 billion, or 5%, from June 30, 2018 reflecting a $3.4 billion increase in loans and leases and a $2.0 billion increase tied to the FAMC acquisition, largely representing loans held for sale and a mortgage servicing rights portfolio in non-interest earning assets. Compared with March 31, 2019, total assets increased $1.4 billion given growth in interest-earning assets.

 

Interest-earning assets                         2Q19 change from  

($s in millions)

   2Q19      1Q19      2Q18      1Q19     2Q18  
Period-end interest-earning assets                         $     %     $     %  

Investments and interest-bearing deposits

   $ 28,123      $ 27,331      $ 28,495      $ 792       3   $ (372     (1 )% 

Commercial loans and leases

     56,963        57,689        54,888        (726     (1     2,075       4  

Retail loans

     59,875        59,926        58,519        (51     —         1,356       2  

Total loans and leases

     116,838        117,615        113,407        (777     (1     3,431       3  

Loans held for sale, at fair value

     1,750        1,186        521        564       48       1,229       236  

Other loans held for sale

     455        66        189        389       NM       266       141  

Total loans and leases and loans held for sale

     119,043        118,867        114,117        176       —         4,926       4  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total period-end interest-earning assets

   $ 147,166      $ 146,198      $ 142,612      $ 968       1   $ 4,554       3
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Average interest-earning assets

                 

Investments and interest-bearing deposits

   $ 26,854      $ 26,638      $ 27,004      $ 216       1   $ (150     (1 )% 

Commercial loans and leases

     57,879        57,707        54,543        172       —         3,336       6  

Retail loans

     59,904        59,942        58,313        (38     —         1,591       3  

Total loans and leases

     117,783        117,649        112,856        134       —         4,927       4  

Loans held for sale, at fair value

     1,528        1,035        470        493       48       1,058       225  

Other loans held for sale

     158        191        195        (33     (17     (37     (19

Total loans and leases and loans held for sale

     119,469        118,875        113,521        594       —         5,948       5  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total average interest-earning assets

   $ 146,323      $ 145,513      $ 140,525      $ 810       1   $ 5,798       4
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Period-end interest earning assets of $147.2 billion increased $4.6 billion, or 3%, from June 30, 2018, as a $4.9 billion, or 4%, increase in loans and loans held for sale was partially offset by a reduction in the investment portfolio. Compared with March 31, 2019, period-end interest earning assets increased $968 million, or 1%. Results reflect the benefit of growth in the investment portfolio, derivatives and loans held for sale, partially offset by a decrease in loans and leases, given the impact of second quarter portfolio loan sales tied to balance sheet optimization. At the end of second quarter 2019, the average effective duration of the securities portfolio decreased to 3.3 years from 3.8 years at June 30, 2018 and 4.5 years at March 31, 2019, given lower long-term rates that drove an increase in securities prepayment speeds.

Average interest-earning assets of $146.3 billion in second quarter 2019 increased $5.8 billion, or 4%, from second quarter 2018, driven by a $4.9 billion, or 4% increase in loans and leases. Commercial loans and leases increased $3.3 billion, or 6%, while retail loans increased $1.6 billion, or 3%. Results also reflect a $1.0 billion increase in loans held for sale, reflecting the impact of the FAMC acquisition.

 

11


Commercial loan results reflect strength in commercial and industrial loans, driven by geographic, product and client-focused expansion strategies as well as strength in commercial real estate, partially offset by planned reductions in commercial leases. Retail loan growth was driven by mortgage, unsecured and education finance, partially offset by a planned reduction in auto and lower home equity.

Compared with first quarter 2019, average interest-earning assets increased $810 million, or 1%, driven by a $460 million increase in loans held for sale, and a $216 million increase in the investment portfolio. Results also reflect relatively stable average loans given the impact of loan sales in the first half of 2019. Excluding the impact of portfolio sales in first and second quarter 2019, average loans increased $510 million, or 0.4%.

 

Deposits                         2Q19 change from  

($s in millions)

   2Q19      1Q19      2Q18      1Q19     2Q18  
Period-end deposits                         $     %     $     %  

Demand deposits

   $ 28,192      $ 28,383      $ 29,439      $ (191     (1 )%    $ (1,247     (4 )% 

Checking with interest

     25,021        23,482        22,775        1,539       7       2,246       10  

Savings

     13,495        13,239        9,902        256       2       3,593       36  

Money market accounts

     35,329        35,972        36,139        (643     (2     (810     (2

Term deposits

     21,967        22,840        18,818        (873     (4     3,149       17  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total period-end deposits

   $ 124,004      $ 123,916      $ 117,073      $ 88         $ 6,931       6
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Average deposits

               

Demand deposits

   $ 28,389      $ 28,465      $ 28,834      $ (76       $ (445     (2 )% 

Checking with interest

     23,919        22,987        22,185        932       4       1,734       8  

Savings

     13,324        12,626        9,889        698       6       3,435       35  

Money market accounts

     35,228        35,209        36,396        19       —         (1,168     (3

Term deposits

     22,292        21,127        17,838        1,165       6       4,454       25  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total average deposits

   $ 123,152      $ 120,414      $ 115,142      $ 2,738       2   $ 8,010       7
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total period-end deposits of $124.0 billion at June 30, 2019 increased $6.9 billion, or 6%, from June 30, 2018, driven by growth in term deposits, savings, and checking with interest, partially offset by a decrease in demand deposits and money market accounts.

Compared with March 31, 2019, period-end total deposits increased $88 million reflecting increases in checking with interest and savings, partially offset by decreases in money market accounts and term deposits. Period-end demand deposits were relatively stable. Citizens Access® deposits were $5.4 billion at the end of second quarter 2019, up from $4.6 billion at March 31, 2019.

Second quarter 2019 average deposits of $123.2 billion increased $8.0 billion, or 7%, from second quarter 2018, reflecting growth in term, savings and checking with interest. These results were partially offset by a decline in money market accounts and demand deposits.

Compared with first quarter 2019, average deposits increased $2.7 billion, or 2%, reflecting growth in term deposits, checking with interest and savings. Average demand deposits and money market accounts were relatively stable.

 

12


Borrowed Funds                         2Q19 change from  

($s in millions)

   2Q19      1Q19      2Q18      1Q19     2Q18  
Period-end borrowed funds                         $     %     $     %  

Federal funds purchased and securities sold under agreements to repurchase

   $ 1,132      $ 668      $ 326      $ 464       69   $ 806       247

Other short-term borrowed funds(1)

     309        11        10        298       NM       299       NM  

Long-term borrowed funds(1)

               

FHLB advances

     2,258        2,508        6,010        (250     (10     (3,752     (62

Senior debt

     7,624        7,558        7,470        66       1       154       2  

Subordinated debt and other debt

     1,656        1,659        1,650        (3     —         6       —    
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total borrowed funds

   $ 12,979      $ 12,404      $ 15,466      $ 575       5   $ (2,487     (16
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Average borrowed funds

                 

Federal funds purchased and securities sold
under agreements to repurchase

   $ 818      $ 640      $ 504      $ 178       28   $ 314       62

Other short-term borrowed funds(1)

     45        58        191        (13     (22     (146     (76

Long-term borrowed funds(1)

               

FHLB advances

     3,155        5,694        5,434        (2,539     (45     (2,279     (42

Senior debt

     7,573        7,391        7,470        182       2       103       1  

Subordinated debt and other debt

     1,658        1,651        1,976        7       —         (318     (16
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Total average borrowed funds

   $ 13,249      $ 15,434      $ 15,575      $ (2,185     (14 )%    $ (2,326     (15 )% 
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

1)

Beginning in 1Q19, borrowed funds balances are based on original maturity and prior periods have been revised consistent with the current presentation.

Total borrowed funds of $13.0 billion at June 30, 2019 decreased $2.5 billion, or 16%, from June 30, 2018, reflecting a $3.6 billion decrease in long-term borrowings, and a $1.1 billion increase in short-term borrowings reflecting improved funding mix from deposit growth.

Compared with March 31, 2019, total borrowed funds increased $575 million, reflecting a $762 million increase in short-term borrowed funds, partially offset by a $187 million decrease in long-term borrowings.

Average borrowed funds of $13.2 billion decreased $2.3 billion, or 15%, from second quarter 2018 driven by a $2.5 billion decrease in long-term borrowings reflecting improved funding mix from deposit growth. Average borrowed funds decreased $2.2 billion, or 14%, from first quarter 2019, reflecting a $2.4 billion decrease in long-term borrowings.

 

Capital   

 

   

 

   

 

    2Q19 change from  

($s and shares in millions except per share data)

   2Q19     1Q19     2Q18     1Q19     2Q18  
Period-end capital                      $     %     $     %  

Stockholders’ equity

   $ 22,017     $ 21,531     $ 20,467     $ 486       2   $ 1,550       8

Stockholders’ common equity

     20,884       20,399       19,924       485       2       960       5  

Tangible common equity

     14,141       13,649       13,394       492       4       747       6  

Tangible book value per common share

   $ 30.88     $ 29.60     $ 27.67     $ 1.28       4     $ 3.21       12  

Common shares - at end of period

     457.9       461.1       484.1       (3.2     (1     (26.2     (5

Common shares - average (diluted)

     459.3       462.5       486.1       (3.2     (1 )%      (26.8     (6 )% 

Common equity tier 1 capital ratio(1)

     10.5     10.5     11.2      

Total capital ratio(1)

     13.4       13.4       13.8        

Tier 1 leverage ratio(1)

     10.1     10.0     10.2      

 

1)

Current reporting-period regulatory capital ratios are preliminary.

At June 30, 2019, our Basel III capital ratios remained well in excess of applicable regulatory requirements with a CET1 capital ratio of 10.5% compared with 10.5% at March 31, 2019 and 11.2% at June 30, 2018, and a total capital ratio of 13.4% compared with total capital ratios of 13.4% as of March 31, 2019 and 13.8% as of June 30, 2018. Our capital ratios continue to reflect progress towards our objective of aligning our capital profile with that of peer regional banks, while maintaining a strong capital base to continue to drive future performance.

Tangible book value per common share of $30.88 increased 4% from first quarter 2019 and 12% from second quarter 2018.

 

13


During the second quarter 2019, the company repurchased 3.5 million shares of common stock at a weighted-average price of $34.64, and including common dividends, returned $268 million to shareholders. These results compare with $349 million returned to common shareholders in first quarter 2019 and $257 million in second quarter 2018.

Citizens’ 2019 Capital Plan includes the ability to repurchase up to $1.275 billion of Citizens’ outstanding common stock beginning in third quarter 2019 and ending in second quarter 2020. This share repurchase authorization represents a 25% increase compared to $1.02 billion under the 2018 Capital Plan. Future capital actions are subject to consideration and approval by Citizens’ Board of Directors. Citizens continues to target a medium-term dividend payout ratio in the 35 to 40 percent range.

 

Credit quality review                      2Q19 change from  

($s in millions)

   2Q19     1Q19     2Q18     1Q19     2Q18  
                       $/bps     %     $/bps     %  

Nonperforming loans and leases

   $ 770     $ 780     $ 845     $ (10     (1 )%    $ (75     (9 )% 

Net charge-offs

     106       89       76       17       19       30       39  

Provision for credit losses

     97       85       85       12       14       12       14  

Allowance for loan and lease losses

   $ 1,227     $ 1,245     $ 1,253     $ (18     (1 )%    $ (26     (2 )% 

Nonperforming loans and leases as a % of loans and leases

     0.66     0.66     0.75     —     bps        (9 ) bps   

Net charge-offs as a % of average loans and leases

     0.36       0.31       0.27       5         9    

Allowance for loan and lease losses as a % of loans and leases

     1.05       1.06       1.10       (1       (5  

Allowance for loan and lease losses as a % of nonperforming loans and leases

     159.4     159.7     148.2     (25 ) bps        NM    

Overall credit quality remains strong, reflecting growth in high quality retail loans and an improved risk profile in commercial portfolios. Nonperforming loans and leases decreased $75 million, or 9%, compared with June 30, 2018, reflecting a $61 million decrease in commercial and a $14 million decrease in retail. The nonperforming loans and leases to loans and leases ratio of 0.66% at June 30, 2019 remained stable with March 31, 2019 levels and improved nine basis points from 0.75% at June 30, 2018.

Compared to March 31, 2019, nonperforming loans and leases of $770 million decreased $10 million, or 1%.

Net charge-offs of $106 million increased $30 million from second quarter 2018, reflecting a $21 million increase in commercial driven by a small number of idiosyncratic losses. Results also reflect a $9 million increase in retail driven by expected seasoning in growth portfolios. Second quarter 2019 net charge-offs of 36 basis points of average loans and leases compares with 27 basis points in second quarter 2018 and 31 basis points in first quarter 2019.

Compared with first quarter 2019, net charge-offs of $106 million increased $17 million, driven by a $9 million increase in commercial and an $8 million increase in retail.

Allowance for loan and lease losses of $1.2 billion remained relatively stable with first quarter 2019, reflecting continued improvements in underlying credit quality, and relatively stable with second quarter 2018 levels, as underlying credit quality improvements helped offset reserves to fund loan growth.

The ratio of the allowance for loan and lease losses to loans and leases of 1.05% as of June 30, 2019, remained stable compared with 1.06% as of March 31, 2019 and decreased modestly from 1.10% as of June 30, 2018. The allowance for loan and lease losses to nonperforming loans and leases ratio of 159% as of June 30, 2019 compares to 160% as of March 31, 2019, and 148% as of June 30, 2018.

 

14


About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $162.7 billion in assets as of June 30, 2019. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its 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, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 2,900 ATMs and approximately 1,100 branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers corporate, institutional and not-for-profit clients a full range of wholesale banking products and services, including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance.

 

15


Key Performance Metrics and Non-GAAP Financial Measures and Reconciliations

(in millions, except share, per-share and ratio data)

Key Performance Metrics:

Our Management uses certain key performance metrics (KPMs) to gauge our progress against strategic and operational goals, as well as to compare our performance against peers. The KPMs are referred to in our Registration Statements on Form S-1 and our external financial reports filed with the Securities and Exchange Commission. The KPMs include:

 

   

Return on average tangible common equity (ROTCE);

 

   

Return on average total tangible assets (ROTA);

 

   

Efficiency ratio;

 

   

Operating leverage; and

 

   

Common equity tier 1 capital ratio.

Established targets for the KPMs are based on Management-reporting results which are currently referred to by the Company as “Underlying” results. In historical periods, these results may have been referred to as “Adjusted” or “Adjusted/Underlying” results. We believe that Underlying results, which exclude notable items, provide the best representation of our underlying financial progress toward the KPMs as the results exclude items that our Management does not consider indicative of our on-going financial performance. We have consistently shown investors our KPMs on a Management-reporting basis since our initial public offering in September of 2014. KPMs that reflect Underlying results are considered non-GAAP financial measures.

Non-GAAP Financial Measures:

This document contains non-GAAP financial measures denoted as Underlying results. In historical periods, these results may    have been referred to as Adjusted or Adjusted/Underlying results. Underlying results for any given reporting period exclude certain items that may occur in that period which Management does not consider indicative of the Company’s on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by our Management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results in any given reporting period reflect our on-going financial performance in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of Underlying results increases comparability of period-to-period results. The following tables present reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measures.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we    calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.

 

16


Key performance metrics, non-GAAP financial measures and reconciliations

(in millions, except share, per-share and ratio data)

 

            QUARTERLY TRENDS  
                               2Q19 Change  
            2Q19     1Q19     2Q18      1Q19     2Q18  
                               $     %     $     %  

Noninterest income, Underlying:

                  

Noninterest income (GAAP)

      $ 462     $ 428     $ 388      $ 34       8   $ 74       19

Less: Notable items

        —         —         —          —         —         —         —    
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Noninterest income, Underlying (non-GAAP)

      $ 462     $ 428     $ 388      $ 34       8   $ 74       19
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Total revenue, Underlying:

                  

Total revenue (GAAP)

     A      $ 1,628     $ 1,588     $ 1,509      $ 40       3   $ 119       8

Less: Notable items

        —         —         —          —         —         —         —    
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Total revenue, Underlying (non-GAAP)

     B      $ 1,628     $ 1,588     $ 1,509      $ 40       3   $ 119       8
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Noninterest expense, Underlying:

                  

Noninterest expense (GAAP)

     C      $ 951     $ 937     $ 875      $ 14       1   $ 76       9

Less: Notable items

        7       5       —          2       40       7       100  
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Noninterest expense, Underlying (non-GAAP)

     D      $ 944     $ 932     $ 875      $ 12       1   $ 69       8
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Pre-provision profit:

                  

Total revenue (GAAP)

     A      $ 1,628     $ 1,588     $ 1,509      $ 40       3   $ 119       8

Less: Noninterest expense (GAAP)

     C        951       937       875        14       1       76       9  
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Pre-provision profit (GAAP)

      $ 677     $ 651     $ 634      $ 26       4   $ 43       7
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Pre-provision profit, Underlying:

                  

Total revenue, Underlying (non-GAAP)

     B      $ 1,628     $ 1,588     $ 1,509      $ 40       3   $ 119       8

Less: Noninterest expense, Underlying (non-GAAP)

     D        944       932       875        12       1       69       8  
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Pre-provision profit, Underlying (non-GAAP)

      $ 684     $ 656     $ 634      $ 28       4   $ 50       8
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Income before income tax expense, Underlying:

                  

Income before income tax expense (GAAP)

     E      $ 580     $ 566     $ 549      $ 14       2   $ 31       6

Less: Income (expense) before income tax expense (benefit) related to notable items

        (7     (5     —          (2     (40     (7     (100
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Income before income tax expense, Underlying (non-GAAP)

     F      $ 587     $ 571     $ 549      $ 16       3   $ 38       7
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Income tax expense, Underlying:

                  

Income tax expense (benefit) (GAAP)

     G      $ 127     $ 127     $ 124      $ —           $ 3       2

Less: Income tax expense (benefit) related to notable items

        (2     (1     —          (1     (100     (2     (100
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Income tax expense, Underlying (non-GAAP)

     H      $ 129     $ 128     $ 124      $ 1       1   $ 5       4
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Net income, Underlying:

                  

Net income (GAAP)

     I      $ 453     $ 439     $ 425      $ 14       3   $ 28       7

Add: Notable items, net of income tax expense (benefit)

        5       4       —          1       25       5       100  
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Net income, Underlying (non-GAAP)

     J      $ 458     $ 443     $ 425      $ 15       3   $ 33       8
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Net income available to common stockholders, Underlying:

                  

Net income available to common stockholders (GAAP)

     K      $ 435     $ 424     $ 425      $ 11       3   $ 10       2

Add: Notable items, net of income tax expense (benefit)

        5       4       —          1       25       5       100  
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

Net income available to common stockholders, Underlying (non-GAAP)

     L      $ 440     $ 428     $ 425      $ 12       3   $ 15       4
     

 

 

   

 

 

   

 

 

    

 

 

     

 

 

   

 

17


Key performance metrics, non-GAAP financial measures and reconciliations (continued)

(in millions, except share, per-share and ratio data)

 

            QUARTERLY TRENDS  
                              2Q19 Change  
            2Q19     1Q19     2Q18     1Q19     2Q18  
                              $/bps     %     $/bps     %  

Operating leverage:

                 

Total revenue (GAAP)

     A      $ 1,628     $ 1,588     $ 1,509     $ 40       2.46   $ 119       7.81

Less: Noninterest expense (GAAP)

     C        951       937       875       14       1.43       76       8.66  
             

 

 

     

 

 

 

Operating leverage

                1.03       (0.85 %) 
             

 

 

     

 

 

 

Operating leverage, Underlying:

                 

Total revenue, Underlying (non-GAAP)

     B      $ 1,628     $ 1,588     $ 1,509     $ 40       2.46   $ 119       7.81

Less: Noninterest expense, Underlying (non-GAAP)

     D        944       932       875       12       1.33       69       7.93  
             

 

 

     

 

 

 

Operating leverage, Underlying (non-GAAP)

                1.13       (0.12 %) 
             

 

 

     

 

 

 

Efficiency ratio and efficiency ratio, Underlying:

                 

Efficiency ratio

     C/A        58.41     59.00     57.95     (59 ) bps        46  bps   

Efficiency ratio, Underlying (non-GAAP)

     D/B        58.02       58.67       57.95       (65 ) bps        7  bps   

Effective income tax rate and effective income tax rate, Underlying:

                 

Effective income tax rate

     G/E        21.86     22.42     22.58     (56 ) bps        (72 ) bps   

Effective income tax rate, Underlying (non-GAAP)

     H/F        21.89       22.44       22.58       (55 ) bps        (69 ) bps   

Return on average common equity and return on average common equity, Underlying:

                 

Average common equity (GAAP)

     M      $ 20,420     $ 19,942     $ 19,732     $ 478       2   $ 688       3

Return on average common equity

     K/M        8.54     8.62     8.65     (8 ) bps        (11 ) bps   

Return on average common equity, Underlying (non-GAAP)

     L/M        8.63       8.71       8.65       (8 ) bps        (2 ) bps   

Return on average tangible common equity and return on average tangible common equity, Underlying:

                 

Average common equity (GAAP)

     M      $ 20,420     $ 19,942     $ 19,732     $ 478       2   $ 688       3

Less: Average goodwill (GAAP)

        7,040       7,018       6,887       22       —         153       2  

Less: Average other intangibles (GAAP)

        80       59       2       21       36       78       NM  

Add: Average deferred tax liabilities related to goodwill (GAAP)

        370       368       357       2       1       13       4  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Average tangible common equity

     N      $ 13,670     $ 13,233     $ 13,200     $ 437       3   $ 470       4
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Return on average tangible common equity

     K/N        12.75     13.00     12.93     (25 ) bps        (18 ) bps   

Return on average tangible common equity, Underlying (non-GAAP)

     L/N        12.89       13.12       12.93       (23 ) bps        (4 ) bps   

Return on average total assets and return on average total assets, Underlying:

                 

Average total assets (GAAP)

     O      $ 161,489     $ 160,415     $ 153,253     $ 1,074       1   $ 8,236       5

Return on average total assets

     I/O        1.13     1.11     1.11     2  bps        2  bps   

Return on average total assets, Underlying (non-GAAP)

     J/O        1.14       1.12       1.11       2  bps        3  bps   

Return on average total tangible assets and return on average total tangible assets, Underlying:

                 

Average total assets (GAAP)

     O      $ 161,489     $ 160,415     $ 153,253     $ 1,074       1   $ 8,236       5

Less: Average goodwill (GAAP)

        7,040       7,018       6,887       22       —         153       2  

Less: Average other intangibles (GAAP)

        80       59       2       21       36       78       NM  

Add: Average deferred tax liabilities related to goodwill (GAAP)

        370       368       357       2       1       13       4  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Average tangible assets

     P      $ 154,739     $ 153,706     $ 146,721     $ 1,033       1   $ 8,018       5
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Return on average total tangible assets

     I/P        1.17     1.16     1.16     1  bps        1  bps   

Return on average total tangible assets, Underlying (non-GAAP)

     J/P        1.19       1.17       1.16       2  bps        3  bps   

 

18


Key performance metrics, non-GAAP financial measures and reconciliations (continued)

(in millions, except share, per-share and ratio data)

 

            QUARTERLY TRENDS  
                                 2Q19 Change  
            2Q19      1Q19      2Q18      1Q19     2Q18  
                                 $/bps     %     $/bps     %  

Tangible book value per common share:

 

                 

Common shares - at period-end (GAAP)

     Q        457,903,826        461,116,723        484,055,194        (3,212,897     (1 %)      (26,151,368     (5 %) 

Common stockholders’ equity (GAAP)

      $ 20,884      $ 20,399      $ 19,924      $ 485       2     $ 960       5  

Less: Goodwill (GAAP)

        7,040        7,040        6,887        —         —         153       2  

Less: Other intangible assets (GAAP)

        74        80        2        (6     (8     72       NM  

Add: Deferred tax liabilities related to goodwill (GAAP)

        371        370        359        1       —         12       3  
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Tangible common equity

     R      $ 14,141      $ 13,649      $ 13,394      $ 492       4   $ 747       6
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Tangible book value per common share

     R/Q      $ 30.88      $ 29.60      $ 27.67      $ 1.28       4   $ 3.21       12

Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:

                    

Average common shares outstanding - basic (GAAP)

     S        458,154,335        460,713,172        484,744,354        (2,558,837     (1 %)      (26,590,019     (5 %) 

Average common shares outstanding - diluted (GAAP)

     T        459,304,224        462,520,680        486,141,695        (3,216,456     (1     (26,837,471     (6

Net income per average common share - basic (GAAP)

     K/S      $ 0.95      $ 0.92      $ 0.88      $ 0.03       3     $ 0.07       8  

Net income per average common share - diluted (GAAP)

     K/T        0.95        0.92        0.88        0.03       3       0.07       8  

Net income per average common share - basic, Underlying (non-GAAP)

     L/S        0.96        0.93        0.88        0.03       3       0.08       9  

Net income per average common share - diluted, Underlying (non-GAAP)

     L/T        0.96        0.93        0.88        0.03       3       0.08       9  

Salaries and employee benefits, Underlying:

                    

Salaries and employee benefits (GAAP)

      $ 507      $ 509      $ 453      ($ 2       $ 54       12

Less: Notable items

        2        1        —          1       100       2       100  
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Salaries and employee benefits, Underlying (non-GAAP)

      $ 505      $ 508      $ 453      ($ 3     (1 %)    $ 52       11
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Outside services, Underlying:

                    

Outside services (GAAP)

      $ 118      $ 110      $ 106      $ 8       7   $ 12       11

Less: Notable items

        5        4        —          1       25       5       100  
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

Outside services, Underlying (non-GAAP)

      $ 113      $ 106      $ 106      $ 7       7   $ 7       7
     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

19


Key performance metrics, non-GAAP financial measures and reconciliations - Underlying excluding Acquisitions

(in millions, except share, per-share and ratio data)

 

            QUARTERLY TRENDS  
                              2Q19 Change  
            2Q19     1Q19     2Q18     1Q19     2Q18  
                              $/bps     %     $/bps     %  

Net interest income, Underlying excluding Acquisitions:

                 

Net interest income (GAAP)

      $ 1,166     $ 1,160     $ 1,121     $ 6       1   $ 45       4

Less: Acquisitions Impact

        5       2       —         3       150       5       100  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Net interest income, Underlying excluding Acquisitions (non-GAAP)

      $ 1,161     $ 1,158     $ 1,121     $ 3         $ 40       4
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Noninterest income, Underlying excluding Acquisitions:

                 

Noninterest income (GAAP)

      $ 462     $ 428     $ 388     $ 34       8   $ 74       19

Less: Acquisitions impact

        49       26       —         23       88       49       100  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Noninterest income, Underlying excluding Acquisitions (non-GAAP)

      $ 413     $ 402     $ 388     $ 11       3   $ 25       6
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Total revenue, Underlying excluding Acquisitions:

                 

Total revenue (GAAP)

     A      $ 1,628     $ 1,588     $ 1,509     $ 40       3   $ 119       8

Less: Acquisitions impact

        54       28       —         26       93       54       100  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Total revenue, Underlying excluding Acquisitions (non-GAAP)

     B      $ 1,574     $ 1,560     $ 1,509     $ 14       1   $ 65       4
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Noninterest expense, Underlying excluding Acquisitions:

                 

Noninterest expense (GAAP)

     C      $ 951     $ 937     $ 875     $ 14       1   $ 76       9

Less: Notable items

        7       5       —         2       40       7       100  

Less: Acquisitions impact

        37       33       —         4       12       37       100  
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Noninterest expense, Underlying excluding Acquisitions (non-GAAP)

     D      $ 907     $ 899     $ 875     $ 8       1   $ 32       4
     

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Operating leverage:

                 

Total revenue (GAAP)

     A      $ 1,628     $ 1,588     $ 1,509     $ 40       2.46   $ 119       7.81

Less: Noninterest expense (GAAP)

     C        951       937       875       14       1.43       76       8.66  
             

 

 

     

 

 

 

Operating leverage

                1.03       (0.85 %) 
             

 

 

     

 

 

 

Operating leverage, Underlying excluding Acquisitions:

                 

Total revenue, Underlying excluding Acquisitions (non-GAAP)

     B      $ 1,574     $ 1,560     $ 1,509     $ 14       0.92   $ 65       4.29

Less: Noninterest expense, Underlying excluding Acquisitions (non-GAAP)

     D        907       899       875       8       0.97       32       3.73  
             

 

 

     

 

 

 

Operating leverage, Underlying excluding Acquisitions (non-GAAP)

                (0.05 %)        0.56
             

 

 

     

 

 

 

Efficiency ratio and efficiency ratio, Underlying excluding Acquisitions:

                 

Efficiency ratio

     C/A        58.41     59.00     57.95     (59 ) bps        46  bps   

Efficiency ratio, Underlying excluding Acquisitions (non-GAAP)

     D/B        57.64       57.62       57.95       2  bps        (31 ) bps   

 

20


Key performance metrics, non-GAAP financial measures and reconciliations - Underlying excluding Acquisitions (continued)

(in millions, except share, per-share and ratio data)

 

     QUARTERLY TRENDS  
                          2Q19 Change  
     2Q19      1Q19      2Q18      1Q19     2Q18  
                          $/bps     %     $/bps      %  

Trust and investment services fees, Underlying excluding Acquisitions:

                  

Trust and investment services fees (GAAP)

   $ 53      $ 47      $ 43      $ 6       13   $ 10        23

Less: Acquisitions impact

     6        7        —          (1     (14     6        100  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

Trust and investment services fees, Underlying excluding Acquisitions (non-GAAP)

   $ 47      $ 40      $ 43      $ 7       18   $ 4        9
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

Salaries and employee benefits, Underlying excluding Acquisitions:

                  

Salaries and employee benefits (GAAP)

   $ 507      $ 509      $ 453      ($ 2       $ 54        12

Less: Notable items

     2        1        —          1       100       2        100  

Less: Acquisitions impact

     21        19        —          2       11       21        100  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

Salaries and employee benefits, Underlying excluding Acquisitions (non-GAAP)

   $ 484      $ 489      $ 453      ($ 5     (1 %)    $ 31        7
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

Total Consumer average demand deposits, Underlying excluding Acquisitions:

                  

Total Consumer average demand deposits (GAAP)

   $ 18,026      $ 17,326      $ 16,827      $ 700       4   $ 1,199        7

Less: Acquisition impact

     750        571        —          179       31       750        100  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

Total Consumer average demand deposits, Underlying excluding Acquisitions (non-GAAP)

   $ 17,276      $ 16,755      $ 16,827      $ 521       3   $ 449        3
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

    

 

21


Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

 

   

Negative economic and political conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense;

 

   

The rate of growth in the economy and employment levels, as well as general business and economic conditions, and changes in the competitive environment;

 

   

Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals;

 

   

Our ability to meet heightened supervisory requirements and expectations;

 

   

Liabilities and business restrictions resulting from litigation and regulatory investigations;

 

   

Our capital and liquidity requirements (including under regulatory capital standards, such as the U.S. Basel III capital rules) and our ability to generate capital internally or raise capital on favorable terms;

 

   

The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;

 

22


   

Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

 

   

The effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;

 

   

Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

 

   

A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks; and

 

   

Management’s ability to identify and manage these and other risks.

In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, capital impacts of strategic initiatives, market conditions, and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Note: Per share amounts and ratios presented in this document are calculated using whole dollars.

CFG-IR

 

23


Item 9.01

Financial Statements and Exhibits.

 

   

Exhibit Number

  

Description

(d)

  Exhibit 99.1   

Citizens Financial Group, Inc. financial supplement for second quarter 2019

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CITIZENS FINANCIAL GROUP, INC.
By:     /s/ John F. Woods
  John F. Woods
  Chief Financial Officer

Date: July 22, 2019