CITIZENS FINANCIAL GROUP INC/RI false 0000759944 0000759944 2019-10-21 2019-10-21 0000759944 us-gaap:CommonStockMember 2019-10-21 2019-10-21 0000759944 us-gaap:SeriesDPreferredStockMember 2019-10-21 2019-10-21

 

 

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): October 21, 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 October 18, 2019, Citizens Financial Group, Inc. (“CFG” or “Citizens”) reported third quarter net income of $449 million, up 1% from $443 million in third quarter 2018, with earnings per share of $0.97, up 7% from $0.91 per share in third quarter 2018. Third quarter 2019 results reflect a net $4 million, or $(0.01) per share, after-tax reduction from notable items compared with a net $7 million, or $(0.02) per share, after-tax reduction in third quarter 2018 and a net $5 million, or $(0.01) per share, after-tax reduction in second quarter 2019.

On an Underlying basis, which excludes notable items,* third quarter 2019 net income available to common stockholders of $436 million decreased 2% from third quarter 2018 and 1% from second quarter 2019. Earnings per common share of $0.98 per share increased 5% from third quarter 2018 and 2% from second quarter 2019. Underlying third quarter 2019 ROTCE* of 12.6% compares with 13.5% in third quarter 2018 and 12.9% in second quarter 2019. Tangible book value per common share of $31.48 increased 14% from third quarter 2018 and 2% from second quarter 2019.

Citizens also announced that its board of directors declared a fourth quarter 2019 cash dividend of $0.36 per common share. The dividend is payable on November 13, 2019 to stockholders of record at the close of business on October 30, 2019. The quarterly common dividend is up 33% year over year.

* 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. The “Company” refers to Citizens. Current reporting-period regulatory capital ratios are preliminary. Select totals may not sum due to rounding.

2


Third quarter 2019 vs. third quarter 2018

Key highlights

  Third quarter results reflect revenue growth of 5%, with record noninterest income, up 19%, paced by strong results in mortgage banking fees, card fees and foreign exchange and interest rate products.

  Third quarter 2019 results reflect a net $4 million after-tax reduction, or $(0.01) per share, from notable items compared with a net $5 million after-tax reduction, or ($0.01) per share, in second quarter 2019. Third quarter results also include the impact of an aircraft lease restructuring, which reflects our continuing efforts to accelerate the run down of the non-core lease portfolio. This transaction decreased pre-provision net revenue $3 million, as it increased other noninterest income $7 million, noninterest expense $10 million and net charge-offs and provision expense $5 million. Underlying results, before the impact of this lease restructuring, reflect relatively stable revenue growth, stable noninterest expense and provision expense of $96 million.*

  Delivered an efficiency ratio of 59.4% and ROTCE of 12.4%; Underlying efficiency ratio of 58.2%, including an approximate 40 basis point impact from the lease restructuring, and ROTCE of 12.6%.*

  Period-end loan-to-deposit ratio of 94.5% improved from 98.0%.

  Tangible book value per common share of $31.48 increased 14%. Fully diluted average common shares outstanding decreased 30.5 million shares, or 6%.

Results

  Total revenue increased $74 million, or 5%, reflecting strength in noninterest income and relatively stable net interest income.

  Net interest income was relatively stable despite the challenging yield-curve environment, given 3% growth in interest-earning assets.

  Net interest margin of 3.12% decreased 10 basis points, as an increase in funding costs tied to modestly higher short-term rates and growth, as well as higher securities premium amortization tied to significantly lower long-term rates was only partially offset by the benefit of higher interest-earning asset yields, given continued mix shift towards better-returning assets and modestly higher short-term rates.

  Record noninterest income of $493 million increased $77 million, or 19%, driven by strong results in mortgage banking and card fees and growth in trust and investment services fees and foreign exchange and interest rate products. Noninterest income up 4% before the impact of Acquisitions and the lease restructuring.*

  Noninterest expense increased 7%. On an Underlying basis, before the impact of Acquisitions and the lease restructuring,* noninterest expense of $905 million increased 3%, reflecting higher salaries and employee benefits, equipment and software expense and outside services, given the impact of merit increases, higher revenue-driven incentives and investments in strategic growth initiatives.

  Provision expense of $101 million increased from $78 million in third quarter 2018, largely reflecting a small number of uncorrelated losses in commercial and continued seasoning in retail growth portfolios. Key credit metrics continue to reflect overall strong credit quality.

3


  ROTCE of 12.4% compares with 13.3% for third quarter 2018. Underlying ROTCE* of 12.6% compares with 13.5% for third quarter 2018 and reflects an approximate 75 basis point drag from higher tangible equity value, given the positive impact of lower long-term rates on securities valuations.

Balance Sheet

  Average interest-earning assets increased $4.3 billion, or 3%, driven by 3% loan growth in both commercial and retail.

  Average deposits increased $6.9 billion, or 6%, reflecting growth in savings, term deposits, checking with interest and money market accounts, partially offset by a decline in demand deposits. The average loan-to-deposit ratio improved to 94.6% from 97.4%; period-end loan-to-deposit ratio improved to 94.5% from 98.0% in third quarter 2018.

  Nonperforming loans and leases (“NPLs”) to loans and leases ratio of 0.67% improved from 0.73%, reflecting a decrease in retail, partially offset by an increase in commercial.

  Allowance coverage of NPLs of 159% improved from 149%.

  Net charge-offs of 38 basis points of loans increased 8 basis points, reflecting an increase in commercial tied to a small number of uncorrelated losses and expected seasoning in retail growth portfolios.

  Capital remains strong, with a common equity tier 1 (“CET1”) risk-based capital ratio of 10.3%.*

  Repurchased 14.1 million shares of common stock at a weighted average price of $35.43 in the quarter. Including common dividends, returned $662 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; 10% deposit growth, including 6% growth in demand deposits.

  Strong momentum in fee income categories. Generated record mortgage banking fees, up 139%, record card fees, up 11%, and strength in trust and investment services fees, up 12%.

  Citizens Access®, our nationwide digital platform, attracted $5.6 billion of spot deposits through third quarter 2019.

Commercial Banking

  Strong balance sheet performance with commercial loan growth of 4%, driven by geographic, product and client-focused expansion strategies.

  Continue to benefit from investments in broadening and enhancing our capabilities, such as the continued migration to our upgraded cash management platform during the quarter and the addition of foreign exchange coverage professionals to compliment geographic expansion.

Efficiency and balance sheet optimization initiatives

  Continued good execution on our TOP 5 program, which is expected to deliver pre-tax annualized run-rate benefit of approximately $105-$115 million by end of 2019, up $10 million from prior estimate.

4


  Work is underway to deliver new transformational TOP 6 program, with a target of approximately $300-$325 million in pre-tax run-rate benefit by year-end 2021.

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

Third quarter 2019 vs. second quarter 2019

Key highlights

  Third quarter highlights include modestly higher revenue despite the impact of a challenging yield-curve environment.

  ROTCE was 12.4%; Underlying ROTCE* of 12.6% compares with 12.9% in second quarter 2019. Underlying results* reflect an approximate 25 basis point drag from higher equity value, given the impact of lower long-term rates on securities valuations.

  Tangible book value per common share of $31.48 increased 2%. Fully diluted average common shares outstanding decreased 12.2 million, or 3%.

  Results reflect an efficiency ratio of 59.4%; Underlying efficiency ratio of 58.2%* compares with 58.0% in second quarter 2019, reflecting modestly higher revenue and well-controlled expenses, and includes an approximate 40 basis point increase related to the lease restructuring transaction.

Results

  Total revenue of $1.6 billion was up modestly, as strength in noninterest income was partially offset by lower net interest income.

  Net interest income of $1.1 billion decreased $21 million, as lower interest-earning asset yields, reflecting the impact of the challenging yield-curve environment and higher securities premium amortization, were only partially offset by the benefit of day count and a reduction in funding costs.

  Net interest margin of 3.12% decreased 9 basis points as a reduction in interest-earning asset yields including the impact from higher securities premium amortization, was only partially offset by the benefit of lower funding costs, given lower short-term rates. Interest-bearing deposit costs decreased 6 basis points, reflecting strong pricing discipline.

  Record noninterest income of $493 million increased $31 million, or 7%, with strong results in mortgage banking and card fees.

  Noninterest expense of $973 million increased $22 million, or 2%, including the impact of notable items. On an Underlying basis,* noninterest expense of $954 million increased $10 million, or 1%, largely reflecting a $10 million impact from the lease restructuring transaction.

  Provision expense of $101 million increased modestly from $97 million in the prior quarter, largely reflecting the impact of the lease restructuring transaction.

Balance sheet

  Average interest-earning assets increased $152 million, reflecting an increase in loans held for sale tied to higher mortgage origination volumes, as well as growth in the investment portfolio. Loans decreased modestly from second quarter 2019 and were relatively stable excluding the impact of second quarter 2019 loan sales tied to balance sheet optimization initiatives.

  Average deposits increased $769 million, reflecting growth in money market accounts, demand deposits and savings, partially offset by a reduction in term deposits and checking with interest.

5


  Average loan-to-deposit ratio improved to 94.6% from 95.6% in second quarter 2019; period-end loan-to-deposit ratio of 94.5% compares to 94.2% in second quarter 2019.

  NPLs to loans and leases ratio of 0.67% and allowance coverage of NPLs of 159% remained relatively stable.

  Net charge-offs of 38 basis points remained relatively stable as the impact of seasonally higher losses in auto and expected seasoning in other retail was partially offset by a reduction in commercial.

Earnings highlights:

 

Quarterly Trends

 

 

   

   

   

3Q19 change from

 

($s in millions, except per share data)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Earnings

 

   

   

   

$/bps

   

%

   

$/bps

   

%

 

Net interest income

  $

1,145

    $

1,166

    $

1,148

    $

(21

)    

(2

)%   $

(3

)    

—  

%

Noninterest income

   

493

     

462

     

416

     

31

     

7

     

77

     

19

 

Total revenue

   

1,638

     

1,628

     

1,564

     

10

     

1

     

74

     

5

 

Noninterest expense

   

973

     

951

     

910

     

22

     

2

     

63

     

7

 

Pre-provision profit

   

665

     

677

     

654

     

(12

)    

(2

)    

11

     

2

 

Provision for credit losses

   

101

     

97

     

78

     

4

     

4

     

23

     

29

 
                                                         

Net income

   

449

     

453

     

443

     

(4

)    

(1

)    

6

     

1

 

Preferred dividends

   

17

     

18

     

7

     

(1

)    

(6

)    

10

     

143

 

Net income available to common stockholders

  $

432

    $

435

    $

436

    $

(3

)    

(1

)%   $

(4

)    

(1

)%
                                                         

After-tax notable Items

   

4

     

5

     

7

     

(1

)    

(20

)    

(3

)    

(43

)
                                                         

Underlying net income*

  $

453

    $

458

    $

450

    $

(5

)    

(1

)%   $

3

     

1

%

Underlying net income available to common stockholders*

  $

436

    $

440

    $

443

    $

(4

)    

(1

)%   $

(7

)    

(2

)%
                                                         

Average common shares outstanding

   

     

     

     

     

     

     

 

Basic (in millions)

   

445.7

     

458.2

     

476.0

     

(12.5

)    

(3

)    

(30.3

)    

(6

)

Diluted (in millions)

   

447.1

     

459.3

     

477.6

     

(12.2

)    

(3

)    

(30.5

)    

(6

)

Diluted earnings per share

  $

0.97

    $

0.95

    $

0.91

    $

0.02

     

2

    $

0.06

     

7

 
                                                         

Underlying diluted earnings per share*

  $

0.98

    $

0.96

    $

0.93

    $

0.02

     

2

%   $

0.05

     

5

%
                                                         

Key performance metrics*

   

     

     

     

     

     

     

 

Net interest margin

   

3.10

%    

3.20

%    

3.20

%    

(10 bps

)    

     

(10 bps

)    

 

Net interest margin, FTE

   

3.12

     

3.21

     

3.22

     

(9

)    

     

(10

)    

 

Effective income tax rate

   

20.5

     

21.9

     

23.2

     

(140

)    

     

(270

)    

 

Efficiency ratio

   

59

     

58

     

58

     

99

     

     

120

     

 

Underlying efficiency ratio*

   

58

     

58

     

58

     

20

     

     

60

     

 

Return on average common equity

   

8.4

     

8.5

     

8.8

     

(19

)    

     

(47

)    

 

Return on average tangible common equity

   

12.4

     

12.8

     

13.3

     

(31

)    

     

(85

)    

 

Underlying return on average tangible common equity*

   

12.6

     

12.9

     

13.5

     

(31

)    

     

(92

)    

 

Return on average total assets

   

1.10

     

1.13

     

1.13

     

(3

)    

     

(3

)    

 

Underlying return on average total tangible assets*

   

1.16

%    

1.19

%    

1.20

%    

(3 bps

)    

     

(4 bps

)    

 
                                                         

Capital adequacy(1,2)

   

     

     

     

     

     

     

 

Common equity tier 1 capital ratio

   

10.3

%    

10.5

%    

10.8

%    

     

     

     

 

Total capital ratio

   

13.0

     

13.4

     

13.4

     

     

     

     

 

Tier 1 leverage ratio

   

9.9

%    

10.1

%    

9.9

%    

     

     

     

 
                                                         

Asset quality(2)

   

     

     

     

     

     

     

 

Nonperforming loans and leases as a % of loans and leases

   

0.67

%    

0.66

%    

0.73

%    

1

bps    

     

(6 bps

)    

 

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

   

1.07

     

1.05

     

1.08

     

2

     

     

(1

)    

 

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

   

159

     

159

     

149

     

(11

)    

     

NM

     

 

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

   

0.38

%    

0.36

%    

0.30

%    

2

bps    

     

8

bps    

 
                                                         

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.

Notable items:

2019 quarterly results reflect notable items related to integration costs primarily tied to the August 1, 2018 Franklin American Mortgage Company (“FAMC”) acquisition, as well as third quarter 2019 costs related to strategic initiatives. These notable items 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 $35-$45 million range, with the integration substantially complete by second quarter 2020. Cumulative after-tax integration costs related to FAMC totaled $29 million through the end of third quarter 2019.

6


Notable items - integration costs*

 

3Q19

   

2Q19

   

3Q18

   

Cumulative after-tax
integration costs

 

($s in millions, except per share data)

 

Pre-tax

   

After-tax

   

  EPS  

   

Pre-tax

   

After-tax

   

  EPS  

   

Pre-tax

   

After-tax

   

  EPS  

   

FAMC

   

Other

   

Total

 

Noninterest income

  $

—  

    $

—  

    $

—  

    $

—  

    $

—  

    $

—  

    $

—  

    $

—  

    $

—  

    $

(3

)   $

—  

    $

(3

)
                                                                                                 

Salaries & benefits

  $

(1

)   $

(1

)   $

—  

    $

(2

)   $

(1

)   $

—  

    $

(5

)   $

(4

)   $

(0.01

)   $

(10

)   $

—  

    $

(10

)

Occupancy

   

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

(1

)    

—  

     

(1

)

Outside services

   

(3

)    

(2

)    

(0.01

)    

(5

)    

(4

)    

(0.01

)    

(1

)    

(1

)    

—  

     

(12

)    

(2

)    

(14

)

Other expense

   

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

(3

)    

(2

)    

(0.01

)    

(3

)    

—  

     

(3

)
                                                                                                 

Noninterest expense

  $

(4

)   $

(3

)   $

(0.01

)   $

(7

)   $

(5

)   $

(0.01

)   $

(9

)   $

(7

)   $

(0.02

)   $

(26

)    

(2

)   $

(28

)
                                                                                                 

Total Integration costs

  $

(4

)   $

(3

)   $

(0.01

)   $

(7

)   $

(5

)   $

(0.01

)   $

(9

)   $

(7

)   $

(0.02

)   $

(29

)   $

(2

)   $

(31

)
                                                                                                 
                                     

Other notable items - primarily tax and TOP*

 

3Q19

   

2Q19

   

3Q18

   

   

   

 

($s in millions, except per share data)

 

Pre-tax

   

After-tax

   

EPS

   

Pre-tax

   

After-tax

   

EPS

   

Pre-tax

   

After-tax

   

EPS

   

   

   

 

Tax notable item

  $

—  

    $

10

    $

0.02

     

     

     

     

     

     

     

     

     

 
                                                                                                 

Other notable items - TOP & other actions

   

     

     

     

     

     

     

     

     

     

     

     

 
                                                                                                 

Salaries & benefits

   

(4

)    

(3

)    

(0.01

)    

     

     

     

     

     

     

     

     

 

Outside services

   

(11

)    

(8

)    

(0.02

)    

     

     

     

     

     

     

     

     

 
                                                                                                 

Noninterest expense

  $

(15

)   $

(11

)   $

(0.03

)    

     

     

     

     

     

     

     

     

 
                                                                                                 

Total other notable items

  $

(15

)   $

(1

)   $

—  

     

     

     

     

     

     

     

     

     

 
                                                                                                 

Total notable items(1)

  $

(19

)   $

(4

)   $

(0.01

)   $

(7

)   $

(5

)   $

(0.01

)   $

(9

)   $

(7

)   $

(0.02

)    

     

     

 
                                                                                                 

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

Underlying results/impact of Acquisitions:*

 

Quarterly Trends

 

 

   

   

   

3Q19 change from

 

($s in millions, except per share data)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Net interest income

  $

1,145

    $

1,166

    $

1,148

     

(2

)%    

—  

%

Noninterest income

   

493

     

462

     

416

     

7

     

19

 
                                         

Total revenue

  $

1,638

    $

1,628

    $

1,564

     

1

%    

5

%

Noninterest expense

   

973

     

951

     

910

     

2

     

7

 

Notable items

   

19

     

7

     

9

     

171

     

111

 
                                         

Underlying noninterest expense*

  $

954

    $

944

    $

901

     

1

%    

6

%

Underlying pre-provision profit*

   

684

     

684

     

663

     

—  

     

3

 

Provision for credit losses

   

101

     

97

     

78

     

4

     

29

 
                                         

Net income available to common stockholders

   

432

     

435

     

436

     

(1

)    

(1

)

Underlying net income available to common stockholders*

   

436

     

440

     

443

     

(1

)    

(2

)
                                         

Key performance metrics*

   

     

     

     

     

 

Diluted EPS

  $

0.97

    $

0.95

    $

0.91

     

2

%    

7

%

Underlying EPS*

  $

0.98

    $

0.96

    $

0.93

     

2

     

5

 

Efficiency ratio

   

59

%    

58

%    

58

%    

99

bps    

120

bps

Underlying efficiency ratio*

   

58

     

58

     

58

     

20

     

60

 
                                         

Operating leverage

   

     

     

     

(1.7

)%    

(2.2

)%

Underlying operating leverage*

   

     

     

     

(0.3

)    

(1.1

)

Underlying operating leverage before Acquisitions*

   

     

     

     

     

(3.5

)%
                                         

7


Discussion of results:

Net interest income

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

$/bps

   

%

   

$/bps

   

%

 

Interest income:

   

     

     

     

     

   

 

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

  $

1,377

    $

1,409

    $

1,303

    $

(32

)    

(2

)%   $

74

     

6

%

Investment securities

   

153

     

164

     

167

     

(11

)    

(7

)    

(14

)    

(8

)

Interest-bearing deposits in banks

   

8

     

7

     

7

     

1

     

14

     

1

     

14

 
                                                         

Total interest income

  $

1,538

    $

1,580

    $

1,477

    $

(42

)    

(3

)%   $

61

     

4

%
                                                         

Interest expense:

   

     

     

     

     

   

 

Deposits

  $

297

    $

308

    $

214

    $

(11

)    

(4

)%   $

83

     

39

%

Federal funds purchased and securities sold under agreements to repurchase

   

2

     

3

     

2

     

(1

)    

(33

)    

—  

     

—  

 

Other short-term borrowed funds(1)

   

—  

     

1

     

4

     

(1

)    

(100

)    

(4

)    

(100

)

Long-term borrowed funds(1)

   

94

     

102

     

109

     

(8

)    

(8

)    

(15

)    

(14

)
                                                         

Total interest expense

  $

393

    $

414

    $

329

    $

(21

)    

(5

)%   $

64

     

19

%
                                                         

Net interest income

  $

1,145

    $

1,166

    $

1,148

    $

(21

)    

(2

)%   $

(3

)    

—  

%
                                                         

Net interest margin, FTE

   

3.12

%    

3.21

%    

3.22

%    

(9 bps

)    

     

(10 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 remained relatively stable with third quarter 2018 levels despite the challenging yield-curve environment, given 3% growth in interest-earning assets. Net interest margin of 3.12% decreased 10 basis points, as an increase in funding costs tied to modestly higher short-term rates and growth, as well as higher securities premium amortization tied to significantly lower long-term rates was only partially offset by the benefit of higher interest-earning asset yields, given continued mix shift towards better-returning assets and modestly higher short-term rates.

Compared with second quarter 2019, net interest income of $1.1 billion decreased $21 million, or 2%, as lower interest-earning asset yields, reflecting the impact of the challenging yield-curve environment, and higher securities premium amortization were only partially offset by the benefit of day count and a reduction in funding costs. Net interest margin of 3.12% decreased 9 basis points as a reduction in interest-earning asset yields, including the impact from higher securities premium amortization, was only partially offset by the benefit of lower funding costs, given lower short-term rates. Interest-bearing deposit costs decreased 6 basis points, reflecting strong pricing discipline.

8


Noninterest Income

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

$

   

%

   

$

   

%

 

Service charges and fees

  $

128

    $

126

    $

131

    $

2

     

2

%   $

(3

)    

(2

)%

Card fees

   

67

     

64

     

61

     

3

     

5

     

6

     

10

 

Capital markets fees

   

39

     

57

     

47

     

(18

)    

(32

)    

(8

)    

(17

)

Trust and investment services fees

   

50

     

53

     

45

     

(3

)    

(6

)    

5

     

11

 

Mortgage banking fees

   

117

     

62

     

49

     

55

     

89

     

68

     

139

 

Letter of credit and loan fees

   

34

     

33

     

32

     

1

     

3

     

2

     

6

 

Foreign exchange and interest rate products

   

35

     

35

     

31

     

—  

     

—  

     

4

     

13

 

Securities gains, net

   

3

     

4

     

3

     

(1

)    

(25

)    

—  

     

—  

 

Other income(1)

   

20

     

28

     

17

     

(8

)    

(29

)    

3

     

18

 
                                                         

Noninterest income

  $

493

    $

462

    $

416

    $

31

     

7

%   $

77

     

19

%
                                                         

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

Record noninterest income of $493 million increased $77 million, or 19%, from third quarter 2018, reflecting strong mortgage banking fees driven by higher origination volumes and improved gain-on-sale margins, as well as strong card fees and growth in trust and investment services fees and foreign exchange and interest rate products. Before the impact of Acquisitions,* noninterest income of $415 million increased $23 million, or 6%, reflecting higher mortgage banking fees and card fees.

Compared with second quarter 2019, noninterest income increased $31 million, or 7%, driven by strong results in mortgage banking and card fees, as well as higher service charges and fees. These results were partially offset by a reduction in capital markets fees and trust and investment services fees from record second quarter levels, reflecting the impact of volatile market conditions and seasonality. Foreign exchange and interest rate products revenue remained near record levels. Other income reflects a $7 million benefit related to the lease restructuring, though was still lower than second quarter 2019 levels that included strong leasing income.

Noninterest Expense

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

$

   

%

   

$

   

%

 

Salaries and employee benefits

  $

508

    $

507

    $

474

    $

1

     

—  

%   $

34

     

7

%

Equipment and software expense

   

130

     

126

     

117

     

4

     

3

     

13

     

11

 

Outside services

   

128

     

118

     

107

     

10

     

8

     

21

     

20

 

Occupancy

   

80

     

82

     

81

     

(2

)    

(2

)    

(1

)    

(1

)

Other operating expense

   

127

     

118

     

131

     

9

     

8

     

(4

)    

(3

)
                                                         

Noninterest expense

  $

973

    $

951

    $

910

    $

22

     

2

%   $

63

     

7

%
                                                         

Notable items*

  $

19

    $

7

    $

9

    $

12

     

171

%   $

10

     

111

%
                                                         

Underlying,* as applicable

   

     

     

     

     

     

     

 

Salaries and employee benefits

  $

503

    $

505

    $

469

    $

(2

)    

—  

%   $

34

     

7

%

Equipment and software expense

   

130

     

126

     

117

     

4

     

3

     

13

     

11

 

Outside services

   

114

     

113

     

106

     

1

     

1

     

8

     

8

 

Occupancy

   

80

     

82

     

81

     

(2

)    

(2

)    

(1

)    

(1

)

Other operating expense

   

127

     

118

     

128

     

9

     

8

     

(1

)    

(1

)
                                                         

Underlying noninterest expense*

  $

954

    $

944

    $

901

    $

10

     

1

%   $

53

     

6

%
                                                         

Third quarter 2019 noninterest expense of $973 million increased $63 million, or 7%, from third quarter 2018. Underlying noninterest expense before the impact of Acquisitions* of $915 million increased $39 million, or 4%, largely reflecting an increase in salaries and employee benefits given the impact of annual merit increases and revenue-based incentives as well as an increase in equipment and software expense and outside services. Results reflect the impact of our continued investments in growth initiatives.

9


Compared with second quarter 2019, noninterest expense increased $22 million, or 2%. Underlying noninterest expense of $954 million* increased $10 million, largely reflecting $10 million in other operating expense related to the lease restructuring transaction. Results also reflect continued focus on expense discipline and the benefit of TOP efficiency initiatives.

The third quarter 2019 effective tax rate of 20.5% includes the impact of notable items largely tied to an operational restructure. On an Underlying basis*, the effective tax rate of 22.3% was broadly stable and compares to 23.2% for third quarter 2018 and 21.9% for second quarter 2019.

Consolidated balance sheet review(1)

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

$/bps

   

%

   

$/bps

   

%

 

Total assets

  $

164,362

    $

162,749

    $

158,598

    $

1,613

     

1

%   $

5,764

     

4

%

Total loans and leases

   

117,880

     

116,838

     

114,720

     

1,042

     

1

     

3,160

     

3

 

Total loans held for sale

   

2,015

     

2,205

     

1,330

     

(190

)    

(9

)    

685

     

52

 

Deposits

   

124,714

     

124,004

     

117,075

     

710

     

1

     

7,639

     

7

 

Stockholders’ equity

   

21,851

     

22,017

     

20,276

     

(166

)    

(1

)    

1,575

     

8

 

Stockholders’ common equity

   

20,718

     

20,884

     

19,733

     

(166

)    

(1

)    

985

     

5

 

Tangible common equity

  $

13,976

    $

14,141

    $

13,117

    $

(165

)    

(1

)%   $

859

     

7

%

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

   

94.5

%    

94.2

%    

98.0

%    

30

 bps    

     

(347 bps

)    

 

Loans to deposit ratio (average)(2)

   

94.6

     

95.6

     

97.4

     

(102

)    

     

(276

)    

 

Common equity tier 1 capital ratio(3)

   

10.3

     

10.5

     

10.8

     

     

     

     

 

Total capital ratio(3)

   

13.0

%    

13.4

%    

13.4

%    

     

     

     

 
                                                         

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 $164.4 billion at September 30, 2019 increased $5.8 billion, or 4%, from September 30, 2018, reflecting a $3.8 billion increase in loans and leases and loans held for sale as well as an $854 million increase in customer-related derivative assets, which appear in the financial supplement. Compared with June 30, 2019, total assets increased $1.6 billion driven by growth in loans, the investment portfolio and customer-related derivative assets.

Interest-earning assets

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Period-end interest-earning assets

 

   

   

   

$

   

%

   

$

   

%

 

Investments and interest-bearing deposits

  $

27,964

    $

28,123

    $

28,642

    $

(159

)    

(1

)%   $

(678

)    

(2

)%

Commercial loans and leases

   

56,733

     

56,963

     

55,405

     

(230

)    

—  

     

1,328

     

2

 

Retail loans

   

61,147

     

59,875

     

59,315

     

1,272

     

2

     

1,832

     

3

 

Total loans and leases

   

117,880

     

116,838

     

114,720

     

1,042

     

1

     

3,160

     

3

 

Loans held for sale, at fair value

   

1,993

     

1,750

     

1,303

     

243

     

14

     

690

     

53

 

Other loans held for sale

   

22

     

455

     

27

     

(433

)    

(95

)    

(5

)    

(19

)

Total loans and leases and loans held for sale

   

119,895

     

119,043

     

116,050

     

852

     

1

     

3,845

     

3

 
                                                         

Total period-end interest-earning assets

  $

147,859

    $

147,166

    $

144,692

    $

693

     

—  

%   $

3,167

     

2

%
                                                         

Average interest-earning assets

   

     

     

     

   

     

 

Investments and interest-bearing deposits

  $

27,114

    $

26,854

    $

26,835

    $

260

     

1

%   $

279

     

1

%

Commercial loans and leases

   

56,983

     

57,879

     

55,276

     

(896

)    

(2

)    

1,707

     

3

 

Retail loans

   

60,274

     

59,904

     

58,695

     

370

     

1

     

1,579

     

3

 

Total loans and leases

   

117,257

     

117,783

     

113,971

     

(526

)    

—  

     

3,286

     

3

 

Loans held for sale, at fair value

   

1,970

     

1,528

     

1,228

     

442

     

29

     

742

     

60

 

Other loans held for sale

   

134

     

158

     

129

     

(24

)    

(15

)    

5

     

4

 

Total loans and leases and loans held for sale

   

119,361

     

119,469

     

115,328

     

(108

)    

—  

     

4,033

     

3

 
                                                         

Total average interest-earning assets

  $

146,475

    $

146,323

    $

142,163

    $

152

     

—  

%   $

4,312

     

3

%
                                                         

10


Period-end interest earning assets of $147.9 billion increased $3.2 billion, or 2%, from September 30, 2018, as a $3.8 billion, or 3%, increase in loans and loans held for sale was partially offset by a reduction in the investment portfolio. Compared with June 30, 2019, period-end interest-earning assets increased $693 million as a $1 billion increase in loans and leases was partially offset by a reduction in the investment portfolio and loans held for sale. The average effective duration of the securities portfolio decreased to 3.2 years as of September 30, 2019 from 4.7 years at September 30, 2018 and 3.3 years at June 30, 2019, given lower long-term rates that drove an increase in securities prepayment speeds.

Average interest-earning assets of $146.5 billion in third quarter 2019 increased $4.3 billion, or 3%, from third quarter 2018, driven by a $3.3 billion, or 3%, increase in loans and leases. Commercial loans and leases increased $1.7 billion, or 3%, and retail loans increased $1.6 billion, or 3%. Results also reflect a $747 million increase in loans held for sale, given the impact of FAMC. 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, education finance and other retail, partially offset by lower home equity and planned reductions in auto.

Compared with second quarter 2019, average interest-earning assets were relatively stable, as a $418 million increase in loans held for sale, a $370 million increase in retail loans and a $260 million increase in the investment portfolio were partially offset by a $896 million decrease in commercial loans, as the benefit of geographic, product and client-focused strategies was more than offset by the impact of relatively high repayments and lower line of credit utilization as well as planned reductions in commercial leases. Excluding the impact of second quarter 2019 loan sales, average loans remained broadly stable.

Deposits

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Period-end deposits

 

   

   

   

$

   

  %  

   

$

   

  %  

 

Demand deposits

  $

29,939

    $

28,192

    $

29,785

    $

1,747

     

6

%   $

154

     

1

%

Checking with interest

   

24,403

     

25,021

     

22,323

     

(618

)    

(2

)    

2,080

     

9

 

Savings

   

13,479

     

13,495

     

10,523

     

(16

)    

—  

     

2,956

     

28

 

Money market accounts

   

36,826

     

35,329

     

35,613

     

1,497

     

4

     

1,213

     

3

 

Term deposits

   

20,067

     

21,967

     

18,831

     

(1,900

)    

(9

)    

1,236

     

7

 
                                                         

Total period-end deposits

  $

124,714

    $

124,004

    $

117,075

    $

710

     

1

%   $

7,639

     

7

%
                                                         

Average deposits

   

     

     

     

     

     

     

 

Demand deposits

  $

28,945

    $

28,389

    $

29,703

    $

556

     

2

%   $

(758

)    

(3

)%

Checking with interest

   

23,422

     

23,919

     

21,780

     

(497

)    

(2

)    

1,642

     

8

 

Savings

   

13,442

     

13,324

     

10,198

     

118

     

1

     

3,244

     

32

 

Money market accounts

   

37,161

     

35,228

     

36,593

     

1,933

     

5

     

568

     

2

 

Term deposits

   

20,951

     

22,292

     

18,764

     

(1,341

)    

(6

)    

2,187

     

12

 
                                                         

Total average deposits

  $

123,921

    $

123,152

    $

117,038

    $

769

     

1

%   $

6,883

     

6

%
                                                         

Total period-end deposits of $124.7 billion at September 30, 2019 increased $7.6 billion, or 7%, from September 30, 2018, driven by growth in savings, checking with interest, term deposits and money market accounts.

Compared with June 30, 2019, period-end total deposits increased $710 million reflecting growth in demand deposits and money market accounts, partially offset by a decrease in term deposits and checking with interest. Citizens Access® deposits totaled $5.6 billion at September 30, 2019, up from $5.4 billion at June 30, 2019.

Third quarter 2019 average deposits of $123.9 billion increased $6.9 billion, or 6%, from third quarter 2018, reflecting growth in savings, term deposits, checking with interest and money market accounts, partially offset by a decrease in demand deposits.

11


Compared with second quarter 2019, average deposits increased $769 million as growth in money market accounts, demand deposits and savings was partially offset by a decrease in term deposits and checking with interest.

Borrowed Funds

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Period-end borrowed funds

 

   

   

   

$

   

%

   

$

   

%

 

Federal funds purchased and securities sold under agreements to repurchase

  $

867

    $

1,132

    $

374

    $

(265

)    

(23

)%   $

493

     

132

%

Other short-term borrowed funds(1)

   

210

     

309

     

512

     

(99

)    

(32

)    

(302

)    

(59

)

Long-term borrowed funds(1)

   

     

     

     

     

     

     

 

FHLB advances

   

3,007

     

2,258

     

8,012

     

749

     

33

     

(5,005

)    

(62

)

Senior debt

   

8,143

     

7,624

     

7,471

     

519

     

7

     

672

     

9

 

Subordinated debt and other debt

   

1,656

     

1,656

     

1,650

     

—  

     

—  

     

6

     

—  

 
                                                         

Total borrowed funds

  $

13,883

    $

12,979

    $

18,019

    $

904

     

7

%   $

(4,136

)    

(23

)
                                                         

Average borrowed funds

   

     

     

     

     

     

     

 

Federal funds purchased and securities sold under agreements to repurchase

  $

487

    $

818

    $

643

    $

(331

)    

(40

)%   $

(156

)    

(24

)%

Other short-term borrowed funds(1)

   

113

     

45

     

748

     

68

     

151

     

(635

)    

(85

)

Long-term borrowed funds(1)

   

     

     

     

     

     

     

 

FHLB advances

   

2,478

     

3,155

     

5,038

     

(677

)    

(21

)    

(2,560

)    

(51

)

Senior debt

   

8,000

     

7,573

     

7,472

     

427

     

6

     

528

     

7

 

Subordinated debt and other debt

   

1,656

     

1,658

     

1,774

     

(2

)    

—  

     

(118

)    

(7

)
                                                         

Total average borrowed funds

  $

12,734

    $

13,249

    $

15,675

    $

(515

)    

(4

)%   $

(2,941

)    

(19

)%
                                                         

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 $13.9 billion at September 30, 2019 decreased $4.1 billion, or 23%, from September 30, 2018, reflecting a $4.3 billion decrease in long-term borrowings partially offset by a $191 million increase in short-term borrowings, given improved funding mix from deposit growth. Compared with June 30, 2019, total borrowed funds increased $904 million, reflecting a $1.3 billion increase in long-term borrowings partially offset by a $364 million decrease in short-term borrowed funds.

Average borrowed funds of $12.7 billion decreased $2.9 billion, or 19%, from third quarter 2018 driven by a $2.2 billion decrease in long-term borrowings and a $791 million decrease in short-term borrowings, reflecting improved funding mix from deposit growth partially offset by an increase in senior debt. Compared with June 30, 2019 average borrowed funds decreased $515 million, or 4%, reflecting a $263 million decrease in short-term borrowings and a $252 million decrease in long-term borrowings given improved funding mix from deposit growth.

Capital

 

   

   

   

3Q19 change from

 

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

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

Period-end capital

 

   

   

   

$

   

%

   

$

   

%

 

Stockholders’ equity

  $

21,851

    $

22,017

    $

20,276

    $

(166

)    

(1

)%   $

1,575

     

8

%

Stockholders’ common equity

   

20,718

     

20,884

     

19,733

     

(166

)    

(1

)    

985

     

5

 

Tangible common equity

   

13,976

     

14,141

     

13,117

     

(165

)    

(1

)    

859

     

7

 

Tangible book value per common share

  $

31.48

    $

30.88

    $

27.66

    $

0.60

     

2

    $

3.82

     

14

 

Common shares - at end of period

   

443.9

     

457.9

     

474.1

     

(14.0

)    

(3

)    

(30.2

)    

(6

)

Common shares - average (diluted)

   

447.1

     

459.3

     

477.6

     

(12.2

)    

(3

)%    

(30.5

)    

(6

)%

Common equity tier 1 capital ratio(1)

   

10.3

%    

10.5

%    

10.8

%    

     

     

     

 

Total capital ratio(1)

   

13.0

     

13.4

     

13.4

     

     

     

     

 

Tier 1 leverage ratio(1)

   

9.9

%    

10.1

%    

9.9

%    

     

     

     

 

1) Current reporting-period regulatory capital ratios are preliminary.

12


At September 30, 2019, our Basel III capital ratios remained well in excess of applicable regulatory requirements with a CET1 capital ratio of 10.3% compared with 10.5% at June 30, 2019 and 10.8% at September 30, 2018, and a total capital ratio of 13.0% compared with total capital ratios of 13.4% as of June 30, 2019 and 13.4% as of September 30, 2018.* Our capital ratios continue to reflect progress towards our objective of aligning our capital profile with peer regional banks, while maintaining a strong capital base to continue to drive future performance.

Tangible book value per common share of $31.48 increased 2% from second quarter 2019 and increased 14% from third quarter 2018.

As part of CFG’s 2019 Capital Plan (the “Plan”), the company increased its third quarter 2019 quarterly common dividend by 13% and repurchased 14.1 million shares of common stock at a weighted-average price of $35.43. Total capital returned to shareholders in third quarter 2019, including common dividends, was $662 million. These results compare with $268 million returned to common shareholders in second quarter 2019 and $529 million in third quarter 2018. 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

 

   

   

   

3Q19 change from

 

($s in millions)

 

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

$/bps

   

  %  

   

$/bps

   

  %  

 

Nonperforming loans and leases

  $

793

    $

770

    $

832

    $

23

     

3

%   $

(39

)    

(5

)%

Net charge-offs

   

113

     

106

     

86

     

7

     

7

     

27

     

31

 

Provision for credit losses

   

101

     

97

     

78

     

4

     

4

     

23

     

29

 

Allowance for loan and lease losses

  $

1,263

    $

1,227

    $

1,242

    $

36

     

3

%   $

21

     

2

%
                                                         

Nonperforming loans and leases as a % of loans and leases

   

0.67

%    

0.66

%    

0.73

%    

1

bps    

     

(6 bps

)    

 

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

   

0.38

     

0.36

     

0.30

     

2

     

     

8

     

 
                                                         

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

   

1.07

     

1.05

     

1.08

     

2

     

     

(1

)    

 

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

   

159.3

%    

159.4

%    

149.3

%    

(11bps

)    

     

NM

     

 

Overall credit quality remains strong, reflecting an improving risk profile in retail and a broadly stable risk profile in commercial. Nonperforming loans and leases decreased $39 million, or 5%, compared with September 30, 2018, reflecting a $23 million increase tied to commercial real estate and a $62 million decrease in retail driven by improvements in home equity and education. Compared to June 30, 2019, nonperforming loans and leases of $793 million increased $23 million, or 3%, reflecting a $62 million increase in commercial primarily tied to a small number of uncorrelated loans, partially offset by a $39 million decrease in retail driven by improvements in home equity and education. The nonperforming loans and leases to loans and leases ratio of 0.67% at September 30, 2019 remained stable with June 30, 2019 levels and improved 6 basis points from 0.73% at September 30, 2018.

Net charge-offs of $113 million increased $27 million from third quarter 2018, reflecting a $16 million increase in commercial driven by a small number of uncorrelated losses. Results also reflect an $11 million increase in retail driven by expected seasoning in growth portfolios. Third quarter 2019 net charge-offs of 38 basis points of average loans and leases compares to 30 basis points in third quarter 2018 and 36 basis points in second quarter 2019.

Compared with second quarter 2019, net charge-offs of $113 million increased $7 million, largely reflecting the impact of the lease restructuring transaction.

13


Allowance for loan and lease losses of $1.3 billion increased $36 million from second quarter 2019 and $21 million from third quarter 2018 levels, as the impact of loan growth and expected seasoning in retail growth portfolios was partially offset by a modest reduction in commercial, given the broadly stable risk profile of the portfolio and an overall benign credit environment.

The ratio of the allowance for loan and lease losses to loans and leases of 1.07% as of September 30, 2019, compares to 1.05% as of June 30, 2019 and 1.08% as of September 30, 2018. The allowance for loan and lease losses to nonperforming loans and leases ratio of 159% as of September 30, 2019 compares to 159% as of June 30, 2019, and 149% as of September 30, 2018.

About Citizens Financial Group, Inc .

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $164.4 billion in assets as of September 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.

14


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.

15


Key performance metrics, non-GAAP financial measures and reconciliations

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

 

   

QUARTERLY TRENDS

 

 

   

   

   

   

3Q19 Change

 

 

   

3Q19

   

2Q19

   

3Q18

   

2Q19

   

3Q18

 

 

   

   

   

   

$/bps

   

%

   

$/bps

   

%

 

Noninterest income, Underlying:

   

     

     

     

     

     

     

     

 

Noninterest income (GAAP)

   

    $

493

    $

462

    $

416

    $

31

     

7

%   $

77

     

19

%

Less: Notable items

   

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

 
                                                                 

Noninterest income, Underlying (non-GAAP)

   

    $

493

    $

462

    $

416

    $

31

     

7

%   $

77

     

19

%
                                                                 

Total revenue, Underlying:

   

     

     

     

     

     

     

     

 

Total revenue (GAAP)

   

A

    $

1,638

    $

1,628

    $

1,564

    $

10

     

1

%   $

74

     

5

%

Less: Notable items

   

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

     

—  

 
                                                                 

Total revenue, Underlying (non-GAAP)

   

B

    $

1,638

    $

1,628

    $

1,564

    $

10

     

1

%   $

74

     

5

%
                                                                 

Noninterest expense, Underlying:

   

     

     

     

     

     

     

     

 

Noninterest expense (GAAP)

   

C

    $

973

    $

951

    $

910

    $

22

     

2

%   $

63

     

7

%

Less: Notable items

   

     

19

     

7

     

9

     

12

     

171

     

10

     

111

 
                                                                 

Noninterest expense, Underlying (non-GAAP)

   

D

    $

954

    $

944

    $

901

    $

10

     

1

%   $

53

     

6

%
                                                                 

Pre-provision profit:

   

     

     

     

     

     

     

     

 

Total revenue (GAAP)

   

A

    $

1,638

    $

1,628

    $

1,564

    $

10

     

1

%   $

74

     

5

%

Less: Noninterest expense (GAAP)

   

C

     

973

     

951

     

910

     

22

     

2

     

63

     

7

 
                                                                 

Pre-provision profit (GAAP)

   

    $

665

    $

677

    $

654

    ($

12

)    

(2

%)   $

11

     

2

%
                                                                 

Pre-provision profit, Underlying:

   

         

     

                      

     

                      

     

                      

     

                    

     

         

     

                    

     

         

 

Total revenue, Underlying (non-GAAP)

   

B

    $

1,638

    $

1,628

    $

1,564

    $

10

     

1

%   $

74

     

5

%

Less: Noninterest expense, Underlying (non-GAAP)

   

D

     

954

     

944

     

901

     

10

     

1

     

53

     

6

 
                                                                 

Pre-provision profit, Underlying (non-GAAP)

   

    $

684

    $

684

    $

663

    $

—  

     

—  

%   $

21

     

3

%
                                                                 

Income before income tax expense, Underlying:

   

     

     

     

     

     

     

     

 

Income before income tax expense (GAAP)

   

E

    $

564

    $

580

    $

576

    ($

16

)    

(3

%)   ($

12

)    

(2

%)
                                                                 

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

   

     

(19

)    

(7

)    

(9

)    

(12

)    

(171

)    

(10

)    

(111

)
                                                                 

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

   

F

    $

583

    $

587

    $

585

    ($

4

)    

(1

%)   ($

2

)    

—  

%
                                                                 

Income tax expense, Underlying:

   

     

     

     

     

     

     

     

 

Income tax expense (benefit) (GAAP)

   

G

    $

115

    $

127

    $

133

    ($

12

)    

(9

%)   ($

18

)    

(14

%)

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

   

     

(15

)    

(2

)    

(2

)    

(13

)    

NM

     

(13

)    

NM