Company Quick10K Filing
Quick10K
Citizens Financial Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$35.82 461 $16,520
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
8-K 2019-07-19 Earnings, Regulation FD, Exhibits
8-K 2019-06-27 Regulation FD, Exhibits
8-K 2019-06-20 Amend Bylaw, Exhibits
8-K 2019-06-11 Regulation FD, Exhibits
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-14 Regulation FD, Exhibits
8-K 2019-04-25 Shareholder Vote
8-K 2019-04-18 Earnings, Regulation FD, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2019-01-22 Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2019-01-18 Earnings, Exhibits
8-K 2018-12-13 Officers, Exhibits
8-K 2018-12-04 Regulation FD, Exhibits
8-K 2018-11-08 Regulation FD, Exhibits
8-K 2018-10-25 Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2018-10-22 Other Events, Exhibits
8-K 2018-10-19 Earnings, Exhibits
8-K 2018-09-27 Officers, Exhibits
8-K 2018-09-12 Regulation FD, Exhibits
8-K 2018-07-20 Earnings, Exhibits
8-K 2018-06-28 Regulation FD, Exhibits
8-K 2018-06-18 Officers
8-K 2018-06-12 Regulation FD, Exhibits
8-K 2018-06-04 Other Events
8-K 2018-05-31 Regulation FD, Exhibits
8-K 2018-05-29 Regulation FD, Exhibits
8-K 2018-05-21 Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2018-05-14 Regulation FD, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-04-20 Earnings, Exhibits
8-K 2018-02-14 Regulation FD, Exhibits
8-K 2018-01-19 Earnings, Exhibits
GILD Gilead Sciences 84,090
TJX TJX Companies 65,400
M Macy's 7,000
GNW Genworth Financial 1,850
EFII Electronics For Imaging 1,590
DVAX Dynavax Technologies 500
DFP Delphi Financial Group 454
EGLE Eagle Bulk Shipping 388
HLM Hillman Companies 0
AEI25 AEI Income & Growth Fund 25 0
CFG 2019-03-31
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Securities
Note 3 - Loans and Leases
Note 4 - Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk
Note 5 - Mortgage Banking
Note 6 - Leases
Note 7 - Variable Interest Entities
Note 8 - Borrowed Funds
Note 9 - Derivatives
Note 10 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Note 11 - Stockholders' Equity
Note 12 - Commitments and Contingencies
Note 13 - Fair Value Measurements
Note 14 - Noninterest Income
Note 15 - Other Operating Expense
Note 16 - Earnings per Share
Note 17 - Business Operating Segments
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 exhibit31_1.htm
EX-31.2 exhibit31_2.htm
EX-32.1 exhibit32_1.htm
EX-32.2 exhibit32_2.htm

Citizens Financial Group Earnings 2019-03-31

CFG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 citizens10-qx1q2019.htm 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended
March 31, 2019

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
(Not Applicable)
Commission File Number 001-36636
image1-logo.jpg
(Exact name of the registrant as specified in its charter)
Delaware
 
05-0412693
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
One Citizens Plaza, Providence, RI 02903
(Address of principal executive offices, including zip code)
(401) 456-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
[ü] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
[ü] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
[ü]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
Smaller reporting company
[ ]
 
 
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. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ü] No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
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
There were 458,355,574 shares of Registrant’s common stock ($0.01 par value) outstanding on May 1, 2019.



 
 
 
 
 
 
image1-logo.jpg
 
 
 
 
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

CITIZENS FINANCIAL GROUP, INC.

 

GLOSSARY OF ACRONYMS AND TERMS
The following listing provides a comprehensive reference of common acronyms and terms we regularly use in our financial reporting:
ACL
 
Allowance for Credit Losses
Acquisitions
 
Refers to acquisitions after second quarter 2018, including Franklin American Mortgage Company, Clarfeld Financial Advisors, LLC and Bowstring Advisors LLC
AFS
 
Available for Sale
ALLL
 
Allowance for Loan and Lease Losses
ALM
 
Asset and Liability Management
AOCI
 
Accumulated Other Comprehensive Income (Loss)
ATM
 
Automated Teller Machine
Board of Directors
 
The Board of Directors of Citizens Financial Group, Inc.
bps
 
Basis Points
Capital Plan Rule
 
Federal Reserve’s Regulation Y Capital Plan Rule
CBNA
 
Citizens Bank, National Association
CCAR
 
Comprehensive Capital Analysis and Review
CCB
 
Capital Conservation Buffer
CET1
 
Common Equity Tier 1
CET1 capital ratio
 
Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Citizens, CFG, the Company, we, us, or our
 
Citizens Financial Group, Inc. and its Subsidiaries
CLTV
 
Combined Loan to Value
CMO
 
Collateralized Mortgage Obligation
DFAST
 
Dodd-Frank Act Stress Test
Dodd-Frank Act
 
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EGRRCPA
 
Economic Growth, Regulatory Relief and Consumer Protection Act
EPS
 
Earnings Per Share
Exchange Act
 
The Securities Exchange Act of 1934
FAMC
 
Franklin American Mortgage Company
FAMC acquisition
 
The August 1, 2018 acquisition of Franklin American Mortgage Company
Fannie Mae (FNMA)
 
Federal National Mortgage Association
FDIC
 
Federal Deposit Insurance Corporation
FHLB
 
Federal Home Loan Bank
FICO
 
Fair Isaac Corporation (credit rating)
FRB
 
Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)

Freddie Mac (FHLMC)
 
Federal Home Loan Mortgage Corporation
FTP
 
Funds Transfer Pricing
GAAP
 
Accounting Principles Generally Accepted in the United States of America
Ginnie Mae (GNMA)
 
Government National Mortgage Association
GSE
 
Government Sponsored Entity
HELOC
 
Home Equity Line of Credit
HTM
 
Held To Maturity
LCR
 
Liquidity Coverage Ratio
LHFS
 
Loans Held for Sale
LIBOR
 
London Interbank Offered Rate
LIHTC
 
Low Income Housing Tax Credit
LTV
 
Loan to Value
MBS
 
Mortgage-Backed Securities

3

CITIZENS FINANCIAL GROUP, INC.

 

Mid-Atlantic
 
District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest
 
Illinois, Indiana, Michigan, and Ohio
MD&A
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MSRs
 
Mortgage Servicing Rights
New England
 
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NM
 
Not meaningful
NSFR
 
Net Stable Funding Ratio
OCC
 
Office of the Comptroller of the Currency
OCI
 
Other Comprehensive Income (Loss)
Parent Company
 
Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
ROTCE
 
Return on Average Tangible Common Equity
RPA
 
Risk Participation Agreement
SBA
 
Small Business Administration
SBO
 
Serviced by Others portfolio
SEC
 
United States Securities and Exchange Commission
SVaR
 
Stressed Value at Risk
TDR
 
Troubled Debt Restructuring
Tier 1 capital ratio
 
Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Tier 1 leverage ratio
 
Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by quarterly adjusted average assets as defined under the U.S. Basel III Standardized approach
Total capital ratio
 
Total capital, which includes Common Equity Tier 1 capital, tier 1 capital and allowance for credit losses and qualifying subordinated debt that qualifies as tier 2 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
VaR
 
Value at Risk
VIE
 
Variable Interest Entities




4

CITIZENS FINANCIAL GROUP, INC.

 

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



5

CITIZENS FINANCIAL GROUP, INC.
FORWARD-LOOKING STATEMENTS



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;
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 in the “Risk Factors” section in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2018.

6

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with $161.3 billion in assets as of March 31, 2019. Our mission is to help our customers, colleagues and communities reach their potential. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. We help our 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, we provide 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, we offer 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. More information is available at www.citizensbank.com.
The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Item 1 of this Form 10-Q, as well as other information contained in this document and our Annual Report on Form 10-K for the year ended December 31, 2018.
Key Performance Metrics Used by Management and Non-GAAP Financial Measures
As a banking institution, we manage and evaluate various aspects of our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our balance sheet and statement of operations, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable banking institutions in our region and nationally.
The primary line items we use in our key performance metrics to manage and evaluate our statement of operations include net interest income, noninterest income, total revenue, provision for credit losses, noninterest expense, net income and net income available to common stockholders. The primary line items we use in our key performance metrics to manage and evaluate our balance sheet data include loans and leases, securities, allowance for credit losses, deposits, borrowed funds and derivatives.
We consider various measures when evaluating our performance and making day-to-day operating decisions, as well as evaluating capital utilization and adequacy, including:
Return on average common equity, which we define as annualized net income available to common stockholders divided by average common equity;
Return on average tangible common equity, which we define as annualized net income available to common stockholders divided by average common equity excluding average goodwill (net of related deferred tax liability) and average other intangibles;
Return on average total assets, which we define as annualized net income divided by average total assets;
Return on average total tangible assets, which we define as annualized net income divided by average total assets excluding average goodwill (net of related deferred tax liability) and average other intangibles;
Efficiency ratio, which we define as the ratio of our total noninterest expense to the sum of net interest income and total noninterest income. We measure our efficiency ratio to evaluate the efficiency of our operations as it helps us monitor how costs are changing compared to our income. A decrease in our efficiency ratio represents improvement;
Operating leverage, which we define as the percent change in total revenue, less the percent change in noninterest expense;
Net interest margin, which we calculate by dividing annualized net interest income for the period by average total interest-earning assets, is a key measure that we use to evaluate our net interest income; and
Common equity tier 1 capital ratio, which represents CET1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach.


7

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

This document contains non-GAAP financial measures denoted as “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 and increase comparability of period-to-period results, and accordingly, are useful to consider in addition to our GAAP financial results.
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.
Non-GAAP measures are denoted throughout the MD&A by the use of the term “Underlying” and/or are followed by an asterisk (*). For additional information regarding our non-GAAP financial measures and reconciliations, see “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” included in this Report.


8

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL PERFORMANCE
First Quarter 2019 compared with First Quarter 2018 - Key Highlights
First quarter 2019 net income of $439 million increased 13% from $388 million in first quarter 2018, with earnings per diluted common share of $0.92, up 18% from $0.78 per diluted common share in first quarter 2018. First quarter 2019 ROTCE of 13.0% improved from 11.7% in first quarter 2018.
There were $4 million after-tax, or $0.01 per diluted common share, of notable items recorded in first quarter 2019 tied to integration costs associated with Acquisitions. There were no notable items recorded in first quarter 2018.
 
Three Months Ended March 31,
 
2019
 
2018
(in millions)
Noninterest expense
 
Income tax expense
 
Net Income
 
Noninterest expense
 
Income tax expense
 
Net Income
Reported results (GAAP):

$937

 

$127

 

$439

 

$883

 

$113

 

$388

Less notable items:
 
 
 
 
 
 
 
 
 
 
 
Total integration costs
5

 
(1
)
 
(4
)
 

 

 

Underlying results* (non-GAAP)

$932

 

$128

 

$443

 

$883

 

$113

 

$388

* Where there is a reference to “Underlying” results in a paragraph, all measures that follow these references are on the same basis when applicable. For more information on the computation of key performance metrics and non-GAAP financial measures, see “—Introduction — Key Performance Metrics Used By Management and Non-GAAP Financial Measures” and “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations.”

Net income available to common stockholders of $424 million increased $43 million, or 11%, compared to $381 million in first quarter 2018, driven by 9% revenue growth, with 6% growth in net interest income and 15% growth in noninterest income.
On an Underlying basis,* net income available to common stockholders increased $47 million, or 12%, to $428 million from first quarter 2018.
Total revenue of $1.6 billion increased $126 million, or 9%, from first quarter 2018, driven by strength in net interest income and noninterest income.
Net interest income of $1.2 billion increased $69 million, or 6%, compared to $1.1 billion in first quarter 2018, driven by improvement in net interest margin and 6% average loan growth.
Net interest margin of 3.23% increased by four basis points, compared to 3.19% in first quarter 2018, reflecting the benefit of higher short-term interest rates and continued mix shift towards higher-yielding assets, partially offset by an increase in funding costs and the impact of lower long-term rates on securities premium amortization.
Net interest margin on a fully taxable-equivalent basis of 3.25% increased by four basis points, compared to 3.21% in first quarter 2018.
Average loans and leases of $117.6 billion increased $6.5 billion, or 6%, from $111.1 billion in first quarter 2018, reflecting a $5.1 billion increase in commercial loans and leases and a $1.5 billion increase in retail loans.
Average deposits of $120.4 billion increased $7.0 billion, or 6%, from $113.4 billion in first quarter 2018, reflecting strength in term, savings and checking with interest.
Noninterest income of $428 million increased $57 million, or 15%, from first quarter 2018, driven by increased capital markets and foreign exchange and interest rate products revenues, reflecting the benefit of investments to broaden and enhance our capabilities. Results also reflected increased mortgage banking, trust and investment services fees, and letter of credit and loan fees. Higher other income reflected asset dispositions tied to balance sheet optimization and efficiency initiatives.
Noninterest expense of $937 million increased $54 million, or 6%, compared to $883 million in first quarter 2018, reflecting increased salaries and employee benefits, which included the impact of annual merit increases, revenue driven incentives and strategic growth initiatives. First quarter 2019 results also included an increase in equipment and software expense reflecting the impact of growth initiatives. These increases were partially offset by lower other operating expense, largely tied to a reduction in FDIC insurance premiums.
On an Underlying basis,* noninterest expense increased $49 million, or 6%, from first quarter 2018.

9

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Continued focus on top-line growth and expense management helped deliver positive operating leverage of 2.6% from first quarter 2018, and a 143 basis point improvement in the efficiency ratio to 59.0%.
On an Underlying basis,* operating leverage was 3.2% (which included a 179 basis point reduction related to Acquisitions) and the efficiency ratio improved 176 basis points to 58.7% from first quarter 2018.
ROTCE of 13.0% improved 129 basis points from 11.7% in first quarter 2018.
On an Underlying basis,* ROTCE improved 141 basis points in first quarter 2019 to 13.1%.
Tangible book value per common share improved to $29.60, up 9%, from first quarter 2018. Fully diluted average common shares outstanding decreased 5%, or 26.7 million shares over the same period.
Provision for credit losses of $85 million increased $7 million, or 9%, from $78 million in first quarter 2018, reflecting expected increases in commercial from a net recovery position in first quarter 2018, expected seasoning in retail unsecured and the impact of loan growth.
Net charge-offs of $89 million increased $19 million, or 27%, from $70 million in first quarter 2018. The ALLL of $1.2 billion remained stable compared to December 31, 2018.
ALLL to loans and leases ratio of 1.06% as of March 31, 2019 compared with 1.06% as of December 31, 2018.
ALLL to nonperforming loans and leases ratio of 160% as of March 31, 2019, compared with 156% as of December 31, 2018.
The effective income tax rate decreased to 22.4% from 22.5% in first quarter 2018, primarily driven by a reduction in non-deductible FDIC premiums, partially offset by a reduction in excess tax benefits for equity-based compensation.



10

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED CONSOLIDATED FINANCIAL DATA
The summary Consolidated Operating Data for the three months ended March 31, 2019 and 2018 and the summary Consolidated Balance Sheet data as of March 31, 2019 and December 31, 2018 are derived from our unaudited interim Consolidated Financial Statements, included in Part I, Item 1 — Financial Statements of this Report. Our historical results are not necessarily indicative of the results expected for any future period.

 
Three Months Ended March 31,
(dollars in millions, except per share amounts)
2019
 
2018
OPERATING DATA:
 
 
 
Net interest income

$1,160

 

$1,091

Noninterest income
428

 
371

Total revenue
1,588

 
1,462

Provision for credit losses
85

 
78

Noninterest expense
937

 
883

Income before income tax expense
566

 
501

Income tax expense
127

 
113

Net income

$439

 

$388

Net income available to common stockholders

$424

 

$381

Net income per common share - basic

$0.92

 

$0.78

Net income per common share - diluted

$0.92

 

$0.78

OTHER OPERATING DATA(1):
 
 
 
Return on average common equity
8.62
%
 
7.83
%
Return on average tangible common equity
13.00

 
11.71

Return on average total assets
1.11

 
1.04

Return on average total tangible assets
1.16

 
1.08

Efficiency ratio
59.00

 
60.43

Operating leverage(2)
2.57

 
2.14

Net interest margin(3)
3.23

 
3.19

Effective income tax rate
22.42

 
22.52

(1) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.
(2) “Operating leverage” represents the period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of
days in the period, divided by average total interest-earning assets. Prior periods have been adjusted to conform with the current period presentation.





11

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

(dollars in millions)
March 31,
2019
 
December 31,
2018
BALANCE SHEET DATA:
 
 
 
Total assets

$161,342

 

$160,518

Loans held for sale, at fair value
1,186

 
1,219

Other loans held for sale
66

 
101

Loans and leases
117,615

 
116,660

Allowance for loan and lease losses
(1,245
)
 
(1,242
)
Total securities
25,651

 
25,075

Goodwill
7,040

 
6,923

Total liabilities
139,811

 
139,701

Total deposits
123,916

 
119,575

Federal funds purchased and securities sold under agreements to repurchase
668

 
1,156

Other short-term borrowed funds(1)
11

 
161

Long-term borrowed funds(1)
11,725

 
15,925

Total stockholders’ equity
21,531

 
20,817

OTHER BALANCE SHEET DATA:
 
 
 
Asset Quality Ratios:
 
 
 
Allowance for loan and lease losses as a percentage of loans and leases
1.06
%
 
1.06
%
Allowance for loan and lease losses as a percentage of nonperforming loans and leases
159.68

 
155.99

Nonperforming loans and leases as a percentage of loans and leases
0.66

 
0.68

Capital Ratios:
 
 
 
CET1 capital ratio(2)
10.5
%
 
10.6
%
Tier 1 capital ratio
11.3

 
11.3

Total capital ratio
13.4

 
13.3

Tier 1 leverage ratio
10.0

 
10.0

(1) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
(2) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.





12

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS
 
Net Income
The following table presents the significant components of our net income:
 
Three Months Ended March 31,
 
 
 
 
(dollars in millions)
2019

 
2018

 
Change
 
Percent

Net interest income

$1,160

 

$1,091

 

$69

 
6
%
Noninterest income
428

 
371

 
57

 
15

Total revenue
1,588

 
1,462

 
126

 
9

Provision for credit losses
85

 
78

 
7

 
9

Noninterest expense
937

 
883

 
54

 
6

Income before income tax expense
566

 
501

 
65

 
13

Income tax expense
127

 
113

 
14

 
12

Net income

$439

 

$388

 

$51

 
13

Net income available to common stockholders

$424

 

$381

 

$43

 
11
%
Return on average common equity
8.62
%
 
7.83
%
 
79
 bps
 
 
Return on average tangible common equity(1)
13.00
%
 
11.71
%
 
129
 bps
 
 
(1) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to “—Market Risk — Non-Trading Risk,” included in this Report and “—Risk Governance” as described in our Annual Report on Form 10-K for the year ended December 31, 2018.
image2-nii.jpg

13

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table presents the major components of net interest income and net interest margin:
 
Three Months Ended March 31,
 
 
2019
 
2018
 
Change
(dollars in millions)
Average
Balances
Income/
Expense
Yields/
Rates
 
Average
Balances
Income/
Expense
Yields/
Rates
 
Average
Balances
Yields/
Rates
Assets:
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and due from banks and deposits in banks

$1,497


$8

2.19
%
 

$1,442


$6

1.61
%
 

$55

58 bps
Taxable investment securities
25,136

166

2.64

 
25,433

168

2.64

 
(297
)

Non-taxable investment securities
5


2.60

 
6


2.60

 
(1
)

Total investment securities
25,141

166

2.64

 
25,439

168

2.64

 
(298
)

Commercial
41,562

460

4.43

 
37,960

357

3.77

 
3,602

66

Commercial real estate
13,272

165

4.98

 
11,549

119

4.11

 
1,723

87

Leases
2,873

21

2.85

 
3,114

20

2.61

 
(241
)
24

Total commercial loans and leases
57,707

646

4.48

 
52,623

496

3.77

 
5,084

71

Residential mortgages
19,094

175

3.67

 
17,162

153

3.56

 
1,932

11

Home equity loans
1,039

16

6.05

 
1,342

19

5.76

 
(303
)
29

Home equity lines of credit
12,552

159

5.13

 
13,353

138

4.20

 
(801
)
93

Home equity loans serviced by others
385

7

7.75

 
520

9

7.31

 
(135
)
44

Home equity lines of credit serviced by others
99

1

4.97

 
142

1

3.98

 
(43
)
99

Automobile
12,070

120

4.04

 
13,015

112

3.47

 
(945
)
57

Education
9,069

134

5.99

 
8,283

114

5.58

 
786

41

Credit cards
1,998

53

10.76

 
1,828

48

10.70

 
170

6

Other retail
3,636

70

7.83

 
2,847

56

7.97

 
789

(14
)
Total retail loans
59,942

735

4.96

 
58,492

650

4.49

 
1,450

47

Total loans and leases
117,649

1,381

4.72

 
111,115

1,146

4.15

 
6,534

57

Loans held for sale, at fair value
1,035

11

4.35

 
420

4

3.84

 
615

51

Other loans held for sale
191

4

7.03

 
255

4

6.21

 
(64
)
82

Interest-earning assets
145,513

1,570

4.34

 
138,671

1,328

3.85

 
6,842

49

Allowance for loan and lease losses
(1,243
)
 
 
 
(1,236
)
 
 
 
(7
)
 
Goodwill
7,018

 
 
 
6,887

 
 
 
131

 
Other noninterest-earning assets
9,127

 
 
 
7,201

 
 
 
1,926

 
Total assets

$160,415

 
 
 

$151,523



 
 

$8,892

 
Liabilities and Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
 
Checking with interest

$22,987


$52

0.91
%
 

$21,665


$26

0.48
%
 

$1,322

43 bps
Money market accounts
35,209

110

1.26

 
37,084

65

0.71

 
(1,875
)
55
Regular savings
12,626

17

0.56

 
9,627

1

0.05

 
2,999

51
Term deposits
21,127

108

2.08

 
16,503

53

1.30

 
4,624

78
Total interest-bearing deposits
91,949

287

1.27

 
84,879

145

0.69

 
7,070

58
Federal funds purchased and securities sold under agreements to repurchase (1)
640

2

1.24

 
645

1

0.68

 
(5
)
56
Other short-term borrowed funds (2)
58


2.75

 
588

2

1.67

 
(530
)
108
Long-term borrowed funds (2)
14,736

121

3.27

 
14,442

89

2.46

 
294

81
Total borrowed funds
15,434

123

3.18

 
15,675

92

2.36

 
(241
)
82
Total interest-bearing liabilities
107,383

410

1.54

 
100,554

237

0.95

 
6,829

59
Demand deposits
28,465

 
 
 
28,544

 
 
 
(79
)

Other liabilities
3,584

 
 
 
2,446

 
 
 
1,138


Total liabilities
139,432

 
 
 
131,544

 
 
 
7,888


Stockholders’ equity
20,983

 
 
 
19,979

 
 
 
1,004


Total liabilities and stockholders’ equity

$160,415

 
 
 

$151,523

 
 
 

$8,892


Interest rate spread
 
 
2.80
%
 
 
 
2.90
%
 
 
(10)
Net interest income and net interest margin(3)
 

$1,160

3.23
%
 
 

$1,091

3.19
%
 
 
4 bps
Net interest income and net interest margin, FTE(4)
 

$1,166

3.25
%
 
 

$1,096

3.21
%
 
 
4 bps
Memo: Total deposits (interest-bearing and demand)

$120,414


$287

0.97
%
 

$113,423


$145

0.52
%
 

$6,991

45 bps
(1) Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable. Interest expense includes the full cost of the repurchase agreements and certain hedging costs. See “—Analysis of Financial Condition — Derivatives” for further information.
(2) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of
days in the period, divided by average total interest-earning assets. Prior periods have been adjusted to conform with the current period presentation.
(4) Net interest income and net interest margin is presented on a fully taxable-equivalent ("FTE") basis using the federal statutory tax rate of 21%. In the fully taxable-equivalent presentation of net interest income and net interest margin, interest income on tax-exempt assets is increased to make it fully equivalent to interest income earned on taxable assets. The FTE impact is predominantly attributable to commercial loans for the periods presented.

    

14

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Net interest margin of 3.23% increased four basis points compared to 3.19% in first quarter 2018, driven by higher interest-earning asset yields given higher interest rates and continued mix shift toward more attractive risk-adjusted return portfolios. These results were partially offset by higher funding costs and the impact of lower long-term rates on securities premium amortization. Net interest margin on an FTE basis of 3.25% also increased four basis points compared to 3.21% in first quarter 2018. Average interest-earning asset yields of 4.34% increased 49 basis points from 3.85% in first quarter 2018, while average interest-bearing liability costs of 1.54% increased 59 basis points from 0.95% in first quarter 2018.
Average interest-earning assets of $145.5 billion increased $6.8 billion, or 5%, from first quarter 2018, driven by a $5.1 billion increase in average commercial loans and leases and a $1.5 billion increase in average retail loans, partially offset by a $243 million decrease in average investments and interest-bearing cash and due from banks and deposits in banks. Commercial loan growth was driven by commercial and commercial real estate. Retail loan growth was driven by residential mortgage, education, credit cards and other retail.
Average deposits of $120.4 billion increased $7.0 billion from first quarter 2018, reflecting growth in term deposits, checking with interest, and savings. Total interest-bearing deposit costs of $287 million increased $142 million, or 98%, from $145 million in first quarter 2018, primarily due to rising rates.
Average total borrowed funds of $15.4 billion decreased $241 million from first quarter 2018, reflecting a decrease in other short-term borrowed funds and a decrease in federal funds purchased and repurchase agreements, partially offset by an increase in long-term borrowed funds, primarily senior debt. Total borrowed funds costs of $123 million increased $31 million from first quarter 2018. The total borrowed funds cost of 3.18% increased 82 basis points from 2.36% in first quarter 2018 due to an increase in long-term rates and a mix shift to long-term senior debt.
Noninterest Income
image3-noi.jpg
The following table presents the significant components of our noninterest income:
 
Three Months Ended March 31,
 
 
 
 
(in millions)
2019

 
2018

 
Change

 
Percent

Service charges and fees

$123

 

$124

 

($1
)
 
(1
%)
Card fees
59

 
61

 
(2
)
 
(3
)
Capital markets fees
54

 
39

 
15

 
38

Trust and investment services fees
47

 
40

 
7

 
18

Mortgage banking fees
43

 
25

 
18

 
72

Letter of credit and loan fees
33

 
30

 
3

 
10

Foreign exchange and interest rate products
36

 
27

 
9

 
33

Securities gains, net
8

 
8

 

 

Other income (1)
25

 
17

 
8

 
47

Noninterest income

$428

 

$371

 

$57

 
15
%
(1) Includes net impairment losses recognized in earnings on available for sale debt securities, bank-owned life insurance income and other income.

15

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS


Noninterest income increased $57 million from first quarter 2018 driven by increased capital markets and foreign exchange and interest rate products revenues, reflecting the benefit of investments to broaden and enhance our capabilities. Results also reflected increased mortgage banking, trust and investment services fees, and letter of credit and loan fees. Higher other income reflected asset dispositions tied to balance sheet optimization and efficiency initiatives.
Provision for Credit Losses            
image6-pcl.jpg
The provision for credit losses of $85 million increased $7 million compared to $78 million in first quarter 2018, reflecting moderately higher losses. First quarter 2019 results reflected a $4 million ACL release, compared to an $8 million ACL build in first quarter 2018. Net charge-offs for first quarter 2019 of $89 million were $19 million higher than first quarter 2018 due to an increase in commercial losses, which reflected the impact of a commercial real estate credit and a reduction in commercial recoveries.
The provision for loan and lease losses is the result of a detailed analysis performed to estimate an appropriate and adequate ACL. The total provision for credit losses includes the provision for loan and lease losses as well as the provision for unfunded commitments. Refer to “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets” for more information.

16

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Expense
image5-noe.jpg
The following table presents the significant components of our noninterest expense:
 
Three Months Ended March 31,
 
 
 
 
(in millions)
2019

 
2018

 
Change

 
Percent

Salaries and employee benefits

$509

 

$470

 

$39

 
8
%
Equipment and software expense(1)
125

 
113

 
12

 
11

Outside services
110

 
99

 
11

 
11

Occupancy
83

 
81

 
2

 
2

Other operating expense
110

 
120

 
(10
)
 
(8
)
Noninterest expense

$937

 

$883

 

$54

 
6
%
(1) In the first quarter of 2019, we combined our presentation of equipment expense and amortization of software into equipment and software expense. Prior periods have been adjusted to conform with the current period presentation.

Noninterest expense increased $54 million from first quarter 2018, driven by an increase in salaries and employee benefits, which included the impact of annual merit increases, revenue driven incentives and strategic growth initiatives. First quarter 2019 results included an increase in equipment and software expense, which also reflected the impact of growth initiatives. These increases were partially offset by lower other operating expense, largely tied to a reduction in FDIC insurance premiums. Underlying noninterest expense* increased $49 million, or 6%.

17

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Income Tax Expense
image4-tax.jpg
Income tax expense was $127 million and $113 million in first quarter 2019 and 2018, respectively. Our effective income tax rates in first quarter 2019 and 2018 were 22.4% and 22.5%, respectively. The decrease in the effective income tax rate was driven by a reduction in non-deductible FDIC insurance premiums, partially offset by a reduction in excess tax benefits for equity-based compensation.

18

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Business Operating Segments
The following tables present certain financial data of our business operating segments, Other and consolidated:
 
As of and for the Three Months Ended March 31, 2019
(dollars in millions)
Consumer Banking
 
Commercial Banking
 
Other(4)

 
Consolidated

Net interest income

$788

 

$372

 

$—

 

$1,160

Noninterest income
247

 
150

 
31

 
428

Total revenue
1,035

 
522

 
31

 
1,588

Noninterest expense
700

 
209

 
28

 
937

Profit before provision for credit losses
335

 
313

 
3

 
651

Provision for credit losses
67

 
21

 
(3
)
 
85

Income before income tax expense (benefit)
268

 
292

 
6

 
566

Income tax expense (benefit)
66

 
65

 
(4
)
 
127

Net income

$202

 

$227

 

$10

 

$439

Loans and leases (period-end)(1)

$62,339

 

$54,267

 

$2,261

 

$118,867

Average Balances:
 
 
 
 
 
 
 
Total assets

$65,007

 

$55,630

 

$39,778

 

$160,415

Total loans and leases(1)
62,163

 
54,436

 
2,276

 
118,875

Deposits
82,569

 
29,823

 
8,022

 
120,414

Interest-earning assets
62,216

 
54,724

 
28,573

 
145,513

Key Performance Metrics:
 
 
 
 
 
 
 
Net interest margin(2)(3)
5.14
%
 
2.76
%
 
NM

 
3.23
%
Efficiency ratio
67.62

 
40.11

 
NM

 
59.00

Loans-to-deposits ratio (average balances)
74.27

 
181.23

 
NM

 
97.70

Return on average total tangible assets(2)
1.26

 
1.66

 
NM

 
1.16

(1) Includes LHFS.
(2) Ratios for the period ended March 31, 2019 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense, not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”



19

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

 
As of and for the Three Months Ended March 31, 2018
(dollars in millions)
Consumer Banking
 
Commercial Banking
 
Other(5)

 
Consolidated
Net interest income

$733

 

$357

 

$1

 

$1,091

Noninterest income
222

 
125

 
24

 
371

Total revenue
955

 
482

 
25

 
1,462

Noninterest expense
656

 
208

 
19

 
883

Profit before provision for credit losses
299

 
274

 
6

 
579

Provision for credit losses
72

 
(4
)
 
10

 
78

Income (loss) before income tax expense (benefit)
227

 
278

 
(4
)
 
501

Income tax expense (benefit)
57

 
63

 
(7
)
 
113

Net income

$170

 

$215

 

$3

 

$388

Loans and leases (period-end)(1)

$59,795

 

$49,868

 

$2,562

 

$112,225

Average Balances:
 
 
 
 
 
 
 
Total assets

$61,348

 

$50,393

 

$39,782

 

$151,523

Total loans and leases(1)
59,942


49,285

 
2,563

 
111,790

Deposits
75,416

 
30,766

 
7,241

 
113,423

Interest-earning assets
59,994

 
49,479

 
29,198

 
138,671

Key Performance Metrics
 
 
 
 
 
 
 
Net interest margin(2)(3)
4.96
%
 
2.93
%
 
NM

 
3.19
%
Efficiency ratio
68.72

 
43.07

 
NM

 
60.43

Loans-to-deposits ratio (average balances)(4)
79.14

 
158.84

 
NM

 
97.96

Return on average total tangible assets(2)
1.12

 
1.73

 
NM

 
1.08

(1) Includes LHFS.
(2) Ratios for the period ended March 31, 2018 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.
(5) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense, not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”


We have two business operating segments: Consumer Banking and Commercial Banking. Segment results are derived by specifically attributing managed assets, liabilities, capital and related revenues, provision for credit losses and expenses. Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets not directly allocated to a business operating segment, community development, non-core assets (including legacy Royal Bank of Scotland Group plc aircraft loan and leasing), and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.” In addition, Other includes goodwill not directly allocated to a business operating segment and any associated goodwill impairment charges. For impairment testing purposes, we allocate all goodwill to our Consumer Banking and/or Commercial Banking reporting units. There have been no significant changes in our methodologies used to allocate items to our business operating segments as described in “—Results of Operations — Business Operating Segments” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
    
    

20

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Consumer Banking
 
As of and for the Three Months Ended March 31,
 
 
 
 
(dollars in millions)
2019


2018

              
Change

Percent

Net interest income

$788



$733



$55


8
%
Noninterest income
247


222


25


11

Total revenue
1,035


955


80


8

Noninterest expense
700


656


44


7

Profit before provision for credit losses
335


299


36


12

Provision for credit losses
67


72


(5
)

(7
)
Income before income tax expense
268


227


41


18

Income tax expense
66


57


9


16

Net income

$202



$170



$32


19

Loans (period-end)(1)

$62,339



$59,795



$2,544


4
%
Average Balances:
 
 
 

 



Total assets

$65,007



$61,348



$3,659


6
%
Total loans and leases(1)
62,163


59,942


2,221


4

Deposits
82,569


75,416


7,153


9

Interest-earning assets
62,216


59,994


2,222


4

Key Performance Metrics:
 

 




 
Net interest margin(2)
5.14
%

4.96
%

18
  bps

 
Efficiency ratio
67.62


68.72


(110
) bps

 
Loans-to-deposits ratio (average balances)(3)
74.27


79.14


(487
) bps

 
Return on average total tangible assets(2)
1.26


1.12


14
  bps

 
(1)  Includes LHFS.
(2) Ratios for the periods ended March 31, 2019 and 2018 are presented on an annualized basis.
(3) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.

Consumer Banking net interest income of $788 million increased $55 million, or 8%, from first quarter 2018, driven by the benefit of a $2.2 billion increase in average loans led by residential mortgage, student and unsecured retail with higher loan yields that included the benefit of higher rates and continued mix shift towards higher yielding assets, partially offset by an increase in deposit costs. Noninterest income increased $25 million from first quarter 2018, driven by higher mortgage banking fees related to FAMC, and higher trust and investment fees related to our acquisition of Clarfeld. Noninterest expense of $700 million increased $44 million, or 7%, from first quarter 2018, reflecting higher salaries and benefits, outside services and equipment costs. Provision for credit losses of $67 million decreased $5 million, or 7%, reflecting lower charge-offs net of recoveries.


21

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Commercial Banking
 
As of and for the Three Months Ended March 31,
 
 
 
 
(dollars in millions)
2019

 
2018

 
Change
 
Percent

Net interest income

$372

 

$357

 

$15

 
4
%
Noninterest income
150

 
125

 
25

 
20

Total revenue
522

 
482

 
40

 
8

Noninterest expense
209

 
208

 
1

 
0

Profit before provision for credit losses
313

 
274

 
39

 
14

Provision for credit losses
21

 
(4
)
 
25

 
NM

Income before income tax expense
292

 
278

 
14

 
5

Income tax expense
65

 
63

 
2

 
3

Net income

$227

 

$215

 

$12

 
6

Loans and leases (period-end)(1)

$54,267

 

$49,868

 

$4,399

 
9
%
Average Balances:
 
 
 
 
 
 


Total assets

$55,630

 

$50,393

 

$5,237

 
10
%
Total loans and leases(1)
54,436

 
49,285

 
5,151

 
10

Deposits
29,823

 
30,766

 
(943
)
 
(3
)
Interest-earning assets
54,724

 
49,479

 
5,245

 
11

Key Performance Metrics:
 
 
 
 
 
 
 
Net interest margin(2)
2.76
%
 
2.93
%
 
(17
) bps
 
 
Efficiency ratio
40.11

 
43.07

 
(296
) bps
 
 
Loans-to-deposits ratio (average balances)(3)
181.23

 
158.84

 
2,239
  bps
 
 
Return on average total tangible assets(2)
1.66

 
1.73

 
(7
) bps
 
 
(1)  Includes LHFS.
(2) Ratios for the periods ended March 31, 2019 and 2018 are presented on an annualized basis.
(3) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.

Commercial Banking net interest income of $372 million increased $15 million, or 4%, from $357 million in first quarter 2018, reflecting a $5.2 billion increase in average loans and leases. Noninterest income of $150 million increased $25 million, or 20%, from $125 million in first quarter 2018, reflecting higher foreign exchange and interest rate products fees and capital markets fees. Noninterest expense of $209 million increased $1 million, from $208 million in first quarter 2018, driven by higher salaries and employee benefits expense. Provision for credit losses of $21 million increased $25 million from first quarter 2018, driven by higher net charge-offs in 2019, which reflected the impact of a commercial real estate credit and a reduction in recoveries.

22

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Other
 
As of and for the Three Months Ended March 31,
 
 
 
 
(in millions)
2019

 
2018

 
Change

 
Percent

Net interest income

$—

 

$1

 

($1
)
 
(100
%)
Noninterest income
31

 
24

 
7

 
29

Total revenue
31

 
25

 
6

 
24

Noninterest expense
28

 
19

 
9

 
47

Profit before provision for credit losses
3

 
6

 
(3
)
 
(50
)
Provision for credit losses
(3
)
 
10

 
(13
)
 
NM

Income (loss) before income tax benefit
6

 
(4
)
 
10

 
NM

Income tax benefit
(4
)
 
(7
)
 
3

 
43

Net income

$10

 

$3

 

$7

 
233

Loans and leases (period-end)(1)

$2,261

 

$2,562

 

($301
)
 
(12
%)
Average Balances:
 
 
 
 


 


Total assets

$39,778

 

$39,782

 

($4
)
 
0
%
Total loans and leases(1)
2,276

 
2,563

 
(287
)
 
(11
)
Deposits
8,022

 
7,241

 
781

 
11

Interest-earning assets
28,573

 
29,198

 
(625
)
 
(2
)
(1) Includes LHFS.

Other net interest income decreased $1 million due to higher funding costs, declining benefit of swaps, and non-core portfolio runoff, largely offset by residual FTP. Results also reflected an ACL release of $4 million in first quarter 2019, compared to an ACL build of $8 million in first quarter 2018.

23

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION
Securities
Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality and market risk while achieving appropriate returns. The following table presents our securities AFS and HTM:
 
March 31, 2019
 
December 31, 2018
 
 
(in millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
 
Change in Fair Value
U.S. Treasury and other

$72

 

$72

 

$24

 

$24

 

$48

 
200
%
State and political subdivisions
5

 
5

 
5

 
5

 

 

Mortgage-backed securities, at fair value:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities
20,768

 
20,497

 
20,211

 
19,634

 
863

 
4

Other/non-agency
916

 
930

 
236

 
232

 
698

 
301

Total mortgage-backed securities
21,684

 
21,427

 
20,447

 
19,866

 
1,561

 
8

   Total debt securities available for sale, at fair value

$21,761

 

$21,504

 

$20,476

 

$19,895

 

$1,609

 
8
%
Mortgage-backed securities, at cost:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies and U.S. government sponsored entities

$3,345

 

$3,267

 

$3,425

 

$3,293

 

($26
)
 
(1
%)
Other/non-agency

 

 
740

 
748

 
(748
)
 
(100
)
Total mortgage-backed securities
3,345