~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

We are subject to a number of risks potentially impacting our business, financial condition, results of operations and cash flows. As we are a financial services organization, certain elements of risk are inherent in our transactions and operations and are present in the business decisions we make. We, therefore, encounter risk as part of the normal course of our business and we design risk management processes to help manage these risks. Our success is dependent on our ability to identify, understand and manage the risks presented by our business activities so that we can appropriately balance revenue generation and profitability. These risks include, but are not limited to, credit risk, market risk, liquidity risk, operational risk, model risk, technology, regulatory and legal risk and strategic and reputational risk. We discuss our principal risk management processes and, in appropriate places, related historical performance in the ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk~~“Risk Governance” section in ~~Part II,~~ Item ~~7, included in this Report.~~7.

You should carefully consider the following risk factors that may affect our business, financial condition and results of operations. Other factors that could affect our business, financial condition and results of operation are discussed in the “Forward-Looking Statements” section above. However, there may be additional risks that are not presently material or known, and factors besides those discussed below, or in this or other reports that we file or furnish with the SEC, that could also adversely affect us.

Risks Related to Our Business

We may not be able to successfully execute our business strategy.

Our business strategy is designed to maximize the full potential of our business and drive sustainable growth and enhanced profitability, and our success rests on our ability ~~to: (i)~~to maintain a high-performing, customer-centric organization; ~~(ii)~~ develop differentiated value propositions to acquire, deepen, and retain core customer segments; ~~(iii)~~



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build excellent capabilities ~~that will allow~~designed to help us to stand out from our competitors; ~~(iv)~~ operate with financial discipline and a mindset of continuous improvement to self-fund investments; ~~(v)~~ prudently grow and optimize our balance sheet; ~~(vi)~~ modernize our technology and operational models to improve delivery, organizational agility and speed to market; and ~~(vii)~~ embed risk management within our culture and our operations. Our future success and the value of our stock will depend, in part, on our ability to effectively implement our business strategy. There are risks and uncertainties, many of which are not within our control, associated with each element of our strategy. If we are not able to successfully execute our business strategy, we may never achieve our financial performance goals and any shortfall may be material. See the “Business Strategy” section in ~~Part I,~~ Item 1 ~~— Business, included in this Report~~ for further information.

Supervisory requirements and expectations on us as a financial holding company and a bank holding company and any regulator-imposed limits on our activities could adversely affect our ability to implement our strategic plan, expand our business, continue to improve our financial performance and make capital distributions to our stockholders.

~~In recent years,~~Our operations are subject to extensive regulation, supervision and examination by the federal banking agencies (the FRB, the OCC and the FDIC), as well as the CFPB have generally taken a more stringent approach to supervising and regulating financial institutions and financial products and services over which they exercise their respective supervisory authorities. This increased supervisory stringency is a result of and in addition to legislation aimed at regulatory reform, such as the Dodd-Frank Act, and the increased capital and liquidity requirements imposed by the U.S. implementation of the Basel III framework. We and CBNA and our products and services are all subject to greater supervisory scrutiny and enhanced supervisory requirements and expectations. We expect to continue to face this heightened level of supervisory scrutiny and enhanced supervisory requirements in the foreseeable future.

~~In addition, as~~CFPB. As part of the supervisory and examination process, if we are unsuccessful in meeting the supervisory requirements and expectations that apply to us, ~~and CBNA,~~ regulatory agencies may from time to time take supervisory actions against us that may not be publicly disclosed. Such actions may include restrictions on our activities or the activities of our subsidiaries, informal (nonpublic) or formal (public) supervisory actions or public enforcement actions, including the payment of civil money penalties, which could increase our costs and limit our ability to implement our strategic plans and expand our business, and as a result could have a material adverse effect on our business, financial condition or results of operations.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

See the “Regulation and Supervision” section in Item 1 for further information.

Changes in interest rates may have an adverse effect on our profitability.

Net interest income historically has been, and ~~in the near-to-medium term~~ we anticipate that it will remain, a significant component of our total revenue. This is due to the fact that a high percentage of our assets and liabilities have been and will likely continue to be in the form of interest-bearing or interest-related instruments. Changes in interest rates can have a material effect on many areas of our business, including net interest income, deposit costs, loan volume and delinquency, and the value of our mortgage servicing rights. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits and the fair value of our financial assets and liabilities. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest earning assets, our net interest income may decline and, with it, a decline in our earnings may occur. Our net interest income and our earnings would be similarly affected if the interest rates on our interest earning assets declined at a faster pace than the interest rates on our interest-bearing liabilities.

We cannot control or predict with certainty changes in interest rates. Global, national, regional and local economic conditions, competitive pressures and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense. Although we have policies and procedures designed to manage the risks associated with changes in market interest rates, as further discussed under ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk~~the “Risk Governance” section in ~~Part II,~~ Item 7, ~~included in this Report,~~ changes in interest rates still may have an adverse effect on our profitability.

If our ongoing assumptions regarding borrower or depositor behavior ~~are wrong~~ or overall economic conditions are significantly different than we anticipate, then our risk mitigation may be insufficient to protect against interest rate risk and our net income would be adversely affected.

Changes in the method pursuant to which the LIBOR and other benchmark rates are calculated and their potential discontinuance could adversely impact our business operations and financial results.

~~Our floating-rate funding, certain hedging~~Many of our lending products, securities, derivatives, and other financial transactions and certain of the products that we offer, such as floating-rate loans, financing transactions and derivatives in connection with our customer accommodation trading activities, determine the applicable interest rate or payment amount by reference toutilize a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to another financial metric. In the event any such benchmark rate or other referenced financial metric is significantly changed, replaced or discontinued, or ceases to be recognized as an acceptable market benchmark rate or financial metric, there may be uncertainty or differences in the calculation ofdetermine the applicable interest rate or payment ~~amount depending on the terms of the governing instrument, and there may be significant work required to transition to any new benchmark rate or other financial metric.~~

amount. In response to concerns regarding the reliability and robustness of commonly used reference rates, in particular LIBOR, the Financial Stability Oversight Council and Financial Stability Board called for the development of alternative interest rate benchmarks. In 2014, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) in order to identify best practices for alternative reference rates, identify best practices for contract robustness, develop an adoption plan, and create an implementation plan with metrics of success and a timeline. In June 2017, the ARRC identified the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative to U.S. dollar LIBOR for use in certain new U.S. dollar derivatives and other financial instruments. Furthermore, in July 2017, the Chief Executive of the U.K. Financial Conduct Authority (“FCA”) announced that the FCA intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. This announcement indicates that the continuation of LIBOR ~~on the current basis~~ cannot and will not be guaranteed after 2021. In late 2018,

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~~RISK FACTORS~~



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~~Despite progress made~~

we formed a LIBOR Transition Program designed to ~~date by regulators and industry participants to prepare for~~guide the ~~anticipated~~organization through the potential discontinuation of LIBOR, significant uncertainties still remain. Such uncertainties relate to, for example, whether LIBOR will continue to be viewed as an acceptable market benchmark rate, what rate or rates may become accepted alternatives to LIBOR, whether different benchmark rates may become accepted alternatives to LIBOR for different types of transactions and financial instruments, how the terms of any transaction or financial instrument will be adjusted to account for differences between LIBOR and any alternative rate selected (for example, if SOFR is used as an alternative, various adjustments, including a credit spread adjustment, may be necessary to reflect that SOFR is a secured overnight rate and LIBOR is a term unsecured rate), how any replacement would be implemented across the industry, and the effect of any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.LIBOR.

The discontinuation of a benchmark rate, ~~or other financial metric,~~ changes in a benchmark rate, ~~or other financial metric,~~ or changes in market perceptions of the acceptability of a benchmark rate, ~~or other financial metric,~~ including LIBOR, could, among other things, adversely affect the value of and return on certain of our financial instruments or products, result in changes to our risk exposures, or require renegotiation of previous transactions. In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with customer disclosures and contract negotiations. The transition to using a new rate could also expose us to risks associated with disputes with customers and other market participants in connection with interpreting and implementing LIBOR fallback provisions.

Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. Despite progress made to date by regulators and industry participants, such as us, to prepare for the anticipated discontinuation of LIBOR, significant uncertainties still remain. Such uncertainties relate to, for example, whether replacement benchmark rates may become accepted alternatives to LIBOR for different types of transactions and financial instruments, how the terms of any transaction or financial instrument may be adjusted to account for differences between LIBOR and any alternative rate selected, how any replacement would be implemented across the industry, and the effect any changes in industry views or movement to alternative benchmarks would have on the markets for LIBOR-linked financial instruments.

We could fail to attract, retain or motivate highly skilled and qualified personnel, including our senior management, other key employees or members of our Board, which could impair our ability to successfully execute our strategic plan and otherwise adversely affect our business.

A cornerstone of our strategic plan involves the hiring of highly skilled and qualified personnel. Accordingly, our ability to implement our strategic plan and our future success depends on our ability to attract, retain and motivate highly skilled and qualified personnel, including our senior management and other key employees and ~~directors, competitive with our peers.~~directors. The marketplace for skilled personnel is becoming more competitive, which means the cost of hiring, incentivizing and retaining skilled personnel may continue to increase. The failure to attract or retain, including as a result of an untimely death or illness of key personnel, or replace a sufficient number of appropriately skilled and key personnel could place us at a significant competitive disadvantage and prevent us from successfully implementing our strategy, which could impair our ability to implement our strategic plan successfully, achieve our performance targets and otherwise have a material adverse effect on our business, financial condition and results of operations.

Limitations on the manner in which regulated financial institutions, such as ~~Citizens,~~us, can compensate their officers and employees, including those contained in pending rule proposals implementing requirements of Section 956 of the Dodd-Frank Act, may make it more difficult for such institutions to compete for talent with financial institutions and other companies not subject to these or similar limitations. If ~~Citizens is~~we are unable to compete effectively, our business, financial condition and results of operations could be adversely affected, perhaps materially.

Our ability to meet our obligations, and the cost of funds to do so, depend on our ability to access identified sources of liquidity at a reasonable cost.

Liquidity risk is the risk that we will not be able to meet our obligations, including funding commitments, as they come due. This risk is inherent in our operations and can be heightened by a number of factors, including an over-reliance on a particular source of funding (including, for example, secured FHLB advances), changes in credit ratings or market-wide phenomena such as market dislocation and major disasters. Like many banking groups, our reliance on customer deposits to meet a considerable portion of our funding has grown over recent years, and we continue to seek to increase the proportion of our funding represented by customer deposits. However, these deposits are subject to fluctuation due to certain factors outside our control, such as increasing competitive pressures for retail or corporate customer deposits, changes in interest rates and returns on other investment classes, or a loss of confidence by customers in us or in the banking sector generally which could result in a significant outflow of deposits within a short period of time. To the extent there is heightened competition among U.S. banks for retail customer deposits, this competition may increase the cost of procuring new deposits and/or retaining existing deposits, and otherwise negatively affect our ability to grow our deposit base. An inability to grow, or any material decrease in, our deposits could have a material adverse effect on our ability to satisfy our liquidity needs.

Maintaining a diverse and appropriate funding strategy for our assets consistent with our wider strategic risk appetite and plan remains challenging, and any tightening of credit markets could have a material adverse

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impact on us. In particular, there is a risk that corporate and financial institution counterparties may seek to reduce their credit exposures to banks and other financial institutions (for example, reductions in unsecured deposits supplied by these counterparties), which may cause funding from these sources to no longer be available. Under these circumstances, we may need to seek funds from alternative sources, potentially at higher costs than has previously been the case, or may be required to consider disposals of other assets not previously identified for disposal, in order to reduce our funding commitments.

A reduction in our credit ratings, which are based on a number of factors, could have a material adverse effect on our business, financial condition and results of operations.

Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings are based on a number of factors, including our financial strength. Other factors considered by rating agencies include conditions affecting the financial services industry generally. Any downgrade in our ratings would likely increase our borrowing costs, could limit our access to capital markets, and otherwise adversely affect our business. For example, a ratings downgrade could adversely affect our ability to sell or market certain of our securities, including long-term debt, engage in certain longer-term derivatives transactions and retain our customers, particularly corporate customers who may require a minimum rating threshold in order to place funds with us. In addition, under the terms of certain of our derivatives contracts, we may be required to maintain a minimum credit rating or have to post additional collateral or terminate such contracts. Any of these results of a rating downgrade could increase our cost of funding, reduce our liquidity and have adverse effects on our business, financial condition and results of operations.

Our financial performance may be adversely affected by deterioration in borrower credit quality, particularly in the New England, Mid-Atlantic and Midwest regions, where our operations are concentrated.

We have exposure to many different industries and risks arising from actual or perceived changes in credit quality and uncertainty over the recoverability of amounts due from borrowers is inherent in our businesses. Our exposure may be exacerbated by the geographic concentration of our operations, which are predominately located in the New England, Mid-Atlantic and Midwest regions. The credit quality of our borrowers may deteriorate for a number of reasons that are outside our control, including as a result of prevailing economic and market conditions and asset valuation. The trends and risks affecting borrower credit quality, particularly in the New England, Mid-Atlantic and Midwest regions, have caused, and in the future may cause, us to experience impairment charges, increased repurchase demands, higher costs, additional write-downs and losses and an inability to engage in routine funding transactions, which could have a material adverse effect on our business, financial condition and results of operations.

Our framework for managing risks may not be effective in mitigating risk and loss.

Our risk management framework is made up of various processes and strategies to manage our risk exposure. The framework to manage risk, including the framework’s underlying assumptions, may not be effective under all conditions and circumstances. If the risk management framework proves ineffective, we could suffer unexpected losses and could be materially adversely affected.

One of the main types of risks inherent in our business is credit risk. An important feature of our credit risk management system is to employ an internal credit risk control system through which we identify, measure, monitor and mitigate existing and emerging credit risk of our customers. As this process involves detailed analyses of the customer or credit risk, taking into account both quantitative and qualitative factors, it is subject to human error. In exercising their judgment, our employees may not always be able to assign an accurate credit rating to a customer or credit risk, which may result in our exposure to higher credit risks than indicated by our risk rating system.

In addition, we have undertaken certain actions to enhance our credit policies and guidelines to address potential risks associated with particular industries or types of customers, as discussed in more detail under ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk~~the “Risk Governance” and ~~“— Market~~“Market Risk” sections in ~~Part II,~~ Item ~~7, included in this Report.~~7. However, we may not be able to effectively implement these initiatives, or consistently follow and refine our credit risk management system. If any of the foregoing were to occur, it may result in an increase in the level of nonperforming loans and a higher risk exposure for us, which could have a material adverse effect on us.

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Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

From time to time, the FASB and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be operationally complex to implement and can materially impact how we record and report our financial condition and results of operations. For example, in June 2016, the FASB issued Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments (“~~ASU 2016-13”~~CECL”), that, ~~will,~~ effective January 1, 2020, substantially ~~change~~changed the accounting for credit losses on loans and other financial assets held by banks, financial institutions and other organizations. The standard replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost. Upon adoption of ~~ASU 2016-13,~~CECL, companies must recognize credit losses on these assets equal to management’s estimate of credit losses over the full remaining expected life. Companies must consider all relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. In December 2018, the Federal Reserve, OCC and FDIC released a final rule to revise their regulatory capital rules to address this upcoming change to the treatment of credit expense and allowances. The final rule provides an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard. ~~The impact of this final rule~~We adopted the standard on ~~Citizens~~January 1, 2020, and ~~CBNA will depend on whether we elect~~elected to phase in the impact of the standard over a three-year period. The standard ~~is likely to have~~could introduce heightened volatility in provision for credit losses, given uncertainty in the accuracy of macroeconomic forecasts over longer time horizons, variances in the rate and composition of loan growth, changes in overall loan portfolio size and mix. As a ~~negative impact, potentially materially, to the allowance and capital at~~result, following adoption, ~~in 2020; however, Citizens~~it is ~~still evaluating the impact. It is also~~ possible that ~~Citizens’~~our ongoing reported earnings and lending activity ~~will~~could be negatively ~~impacted~~impacted. For more information regarding CECL, see Note 1 in ~~periods following adoption.~~Item 8.

Our financial and accounting estimates and risk management framework rely on analytical forecasting and models.

The processes we use to estimate our inherent loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. Some of our tools and metrics for managing risk are based upon our use of observed historical market behavior. We rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy and calculating regulatory capital levels, as well as estimating the value of financial instruments and balance sheet items. Poorly designed or implemented models present the risk that our business decisions based on information incorporating such models will be adversely affected due to the inadequacy of that information. Moreover, our models may fail to predict future risk exposures if the information used in the model is incorrect, obsolete or not sufficiently comparable to actual events as they occur. We seek to incorporate appropriate historical data in our models, but the range of market values and behaviors reflected in any period of historical data is not at all times predictive of future developments in any particular period and the period of data we incorporate into our models may turn out to be inappropriate for the future period being modeled. In such case, our ability to manage risk would be limited and our risk exposure and losses could be significantly greater than our models indicated. In addition, if existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits. Finally, information we provide to our regulators based on poorly designed or implemented models could also be inaccurate or misleading. Some of the decisions that our regulators make, including those related to capital distributions to our stockholders, could be affected adversely due to their perception that the quality of the models used to generate the relevant information is insufficient.

The preparation of our financial statements requires the use of estimates that may vary from actual results. Particularly, various factors may cause our ALLL to increase.

The preparation of audited Consolidated Financial Statements in conformity with GAAP requires management to make significant estimates that affect the financial statements. Our most critical accounting estimate is the ALLL. The ALLL is a reserve established through a provision for loan and lease losses charged to expense and represents our estimate of incurred but unrealized losses within the existing portfolio of loans. The ALLL is necessary to reserve for estimated loan and lease losses and risks inherent in the loan portfolio. The level of the ALLL reflects our ongoing evaluation of industry concentrations, specific credit risks, loan and lease loss experience, current loan portfolio quality, present economic, political and regulatory conditions and incurred losses inherent in the current loan portfolio.

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The determination of the appropriate level of the ALLL inherently involves a degree of subjectivity and requires that we make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, the stagnation of certain economic indicators that we are more susceptible to, such as unemployment and real estate values, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside our control, may require an increase in the ALLL. In addition, bank regulatory agencies periodically review our ALLL and may require an increase in the ALLL or the recognition of further loan charge-offs, based on judgments that can differ from those of our own management. In addition, if charge-offs in future periods exceed the ALLL—that is, if the ALLL is inadequate—we will need additional loan and lease loss provisions to increase the ALLL. Should such additional provisions become necessary, they would result in a decrease in net income and capital and may have a material adverse effect on us. For more information regarding our use of estimates in preparation of financial statements, see Note 1 in Item 8 and the “Critical Accounting Estimates” section in Item 7.

Operational risks are inherent in our businesses.

Our operations depend on our ability to process a very large number of transactions efficiently and accurately while complying with applicable laws and regulations. Operational risk and losses can result from internal and external fraud; improper conduct or errors by employees or third parties; failure to document transactions properly or to obtain proper authorization; failure to comply with applicable regulatory requirements and conduct of business rules; equipment failures, including those caused by natural disasters or by electrical, telecommunications or other essential utility outages; business continuity and data security system failures, including those caused by computer viruses, cyber-attacks or unforeseen problems encountered while implementing major new computer systems or upgrades to existing systems; or the inadequacy or failure of systems and controls, including those of our suppliers or counterparties. Although we have implemented risk controls and loss mitigation actions, and substantial resources are devoted to developing efficient procedures, identifying and rectifying weaknesses in existing procedures and training staff, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks faced by us. Any weakness in these systems or controls, or any breaches or alleged breaches of such laws or regulations, could result in increased regulatory supervision, enforcement actions and other disciplinary action, and have an adverse impact on our business, applicable authorizations and licenses, reputation and results of operations.

The financial services industry, including the banking sector, is undergoing rapid technological changes as a result of competition and changes in the legal and regulatory framework, and we may not be able to compete effectively as a result of these changes.

The financial services industry, including the banking sector, is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. In addition, new, unexpected technological changes could have a disruptive effect on the way banks offer products and services. We believe our success depends, to a great extent, on our ability to address customer needs by using technology to offer products and services that provide convenience to customers and to create additional efficiencies in our operations. However, we may not be able to, among other things, keep up with the rapid pace of technological changes, effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. As a result, our ability to compete effectively to attract or retain new business may be impaired, and our business, financial condition or results of operations may be adversely affected.

In addition, changes in the legal and regulatory framework under which we operate require us to update our information systems to ensure compliance. Our need to review and evaluate the impact of ongoing rule proposals, final rules and implementation guidance from regulators further complicates the development and implementation of new information systems for our business. Also, recent regulatory guidance has focused on the need for financial institutions to perform increased due diligence and ongoing monitoring of third-party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from our relationships with third-party technology providers. Given the significant number of ongoing regulatory reform initiatives, it is possible that we incur higher than expected information technology costs in order to comply with current and impending regulations. See “—Supervisory requirements and expectations on us as a financial holding company and a bank holding company and any regulator-imposed limits on our activities could adversely affect our ability to implement our strategic plan, expand our business, continue to improve our financial performance and make capital distributions to our stockholders.”

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We are subject to a variety of cybersecurity risks that, if realized, could adversely affect how we conduct our business.

Information security risks for large financial institutions such as ~~CFG~~us have increased significantly in recent years in part because of the proliferation of new technologies, such as Internet and mobile banking to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, activists and other external parties. Third parties with whom we or our customers do business also present operational and information security risks to us, including security breaches or failures of their own systems. The possibility of employee error, failure to follow security procedures, or malfeasance also presents these risks. Our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. In addition, to access our products and services, our customers may use personal computers, smartphones, tablets, and other mobile devices that are beyond our control environment. Although we believe that we have appropriate information security procedures and controls, our technologies, systems, networks and our customers’ devices may be the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of the confidential, and/or proprietary information of CFG, our customers, our vendors, our counterparties, or our employees. We are under continuous threat of loss due to cyber-attacks, especially as we continue to expand customer capabilities to utilize the Internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals extract funds directly from customers’ or our accounts using fraudulent schemes that may include Internet-based funds transfers. We have been subject to a number of e-fraud incidents historically. We have also been subject to attempts to steal sensitive customer data, such as account numbers and social security numbers, through unauthorized access to our computer systems including computer hacking. Such attacks are less frequent but could present significant reputational, legal and regulatory costs to us if successful. We have implemented certain technology protections such as Customer Profiling and Set-Up Authentication to be in compliance with the FFIEC Authentication in Internet Banking Environment (“AIBE”) guidelines.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate and remediate any information security vulnerabilities. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues. In addition, addressing certain information security vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors.

Despite our efforts to prevent a cyber-attack, a successful cyber-attack could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the cybersecurity incident and the extent, amount and type of information compromised. During the course of an investigation, we may not necessarily know the full effects of the incident or how to remediate it, and actions and decisions that are taken or made in an effort to mitigate risk may further increase the costs and other negative consequences of the incident.

The techniques used by cyber criminals change frequently, may not be recognized until launched and can be initiated from a variety of sources, including terrorist organizations and hostile foreign governments. These actors may attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to data or our systems. In the event that a cyber-attack is successful, our business, financial condition or results of operations may be adversely affected. For a discussion of the guidance that federal banking regulators have released regarding cybersecurity and cyber risk management standards, see the “Regulation and Supervision” ~~in Part I,~~section of Item ~~1 — Business, included in this Report.~~1.

We rely heavily on communications and information systems to conduct our business.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems, including due to hacking or other similar attempts to breach information technology security protocols, could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. Although we have established policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that these policies and procedures will be successful and that any such failure, interruption or

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security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption or security breach of our information systems could require us to devote substantial resources (including management time and attention) to recovery and response efforts, damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability. Although we maintain insurance coverage for information security events, we may incur losses as a result of such events that are not insured against or not fully covered by our insurance.

We rely on third parties for the performance of a significant portion of our information technology.

We rely on third parties for the performance of a significant portion of our information technology functions and the provision of information technology and business process services. For example, (i) unaffiliated third parties operate data communications networks on which certain components and services relating to our online banking system rely, (ii) third parties host or maintain many of our applications, including our Commercial Loan System, which is hosted and maintained by Automated Financial Systems, Inc., (iii) Fidelity National Information Services, Inc. maintains our core deposits system, and (iv) IBM Corporation provides us with a wide range of information technology support services, including end user, data center, ~~network,~~ mainframe, storage and database services. The success of our business depends in part on the continuing ability of these (and other) third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively monitor or mitigate fourth-party risk, in particular as it relates to the use of common suppliers or vendors by the third parties that perform functions and services for us. If we experience a disruption in the provision of any functions or services performed by third parties, we may have difficulty in finding alternate providers on terms favorable to us and in reasonable ~~timeframes.~~time frames. If these services are not performed in a satisfactory manner, we would not be able to serve our customers well. In either situation, our business could incur significant costs and be adversely affected.

We are exposed to reputational risk and the risk of damage to our brands and the brands of our affiliates.

Our success and results depend, in part, on our reputation and the strength of our brands. We are vulnerable to adverse market perception as we operate in an industry where integrity, customer trust and confidence are paramount. We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory or other investigations or actions, press speculation and negative publicity, among other factors, could damage our brands or reputation. Our brands and reputation could also be harmed if we sell products or services that do not perform as expected or customers’ expectations for the product are not satisfied.

We may be adversely affected by unpredictable catastrophic events or terrorist attacks and our business continuity and disaster recovery plans may not adequately protect us from serious disaster.

The occurrence of catastrophic events such as hurricanes, tropical storms, tornadoes and other large-scale catastrophes and terrorist attacks could adversely affect our business, financial condition or results of operations if a catastrophe rendered both our production data center in Rhode Island and our recovery data center in North Carolina unusable. Although we enhanced our disaster recovery capabilities in 2016 through the completion of the new, out-of-region backup data center in North Carolina, there can be no assurance that our current disaster recovery plans and capabilities will adequately protect us from serious disaster.

Risks Related to Our Industry

Any deterioration in national economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Our business is affected by national economic conditions, as well as perceptions of those conditions and future economic prospects. Changes in such economic conditions are not predictable and cannot be controlled. Adverse economic conditions could require us to charge off a higher percentage of loans and increase the provision for credit losses, which would reduce our net income and otherwise have a material adverse effect on our business, financial condition and results of operations. For example, our business was significantly affected by the global economic and financial crisis that began in 2008. The falling home prices, increased rate of foreclosure and high levels of unemployment in the United States triggered significant write-downs by us and other financial institutions. These write-downs adversely impacted our financial results in material respects. Although the U.S. economy has

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~



		Citizens Financial Group, Inc. \| 26

~~continues to recover,~~

made a significant recovery, an interruption or reversal of this recovery would adversely affect the financial services industry and banking sector.

We operate in an industry that is highly competitive, which could result in losing business or margin declines and have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive industry. The industry could become even more competitive as a result of reform of the financial services industry resulting from the Dodd-Frank Act and other legislative, regulatory and technological changes, as well as continued consolidation. We face aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services, including non-banking financial institutions that are not subject to the same regulatory restrictions as banks and bank holding companies, securities firms and insurance companies, and competitors that may have greater financial resources.

With respect to non-banking financial institutions, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Some of our non-bank competitors are not subject to the same extensive regulations we are and, therefore, may have greater flexibility in competing for business. As a result of these and other sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect our ~~profitability and business.~~profitability.

The conditions of other financial institutions or of the financial services industry could adversely affect our operations and financial conditions.

Financial services institutions are typically interconnected as a result of trading, investment, liquidity management, clearing, counterparty and other relationships. Within the financial services industry, the default by any one institution could lead to defaults by other institutions. Concerns about, or a default by, one institution could lead to significant liquidity problems and losses or defaults by other institutions, as the commercial and financial soundness of many financial institutions are closely related as a result of these credit, trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks and exchanges with which we interact on a daily basis, or key funding providers such as the FHLBs, any of which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Regulations Governing Our Industry

As a financial holding company and a bank holding company, we are subject to comprehensive regulation that could have a material adverse effect on our business and results of operations.

As a financial holding company and a bank holding company, we are subject to comprehensive regulation, supervision and examination by the FRB. In addition, CBNA is subject to comprehensive regulation, supervision and examination by the OCC. Our regulators supervise us through regular examinations and other means that allow the regulators to gauge management’s ability to identify, assess and control risk in all areas of operations in a safe and sound manner and to ensure compliance with laws and regulations. In the course of their supervision and examinations, our regulators may require improvements in various areas. If we are unable to implement and maintain any required actions in a timely and effective manner, we could become subject to informal (non-public) or formal (public) supervisory actions and public enforcement orders that could lead to significant restrictions on our existing business or on our ability to engage in any new business. Such forms of supervisory action could include, without limitation, written agreements, cease and desist orders, and consent orders and may, among other things, result in restrictions on our ability to pay dividends, requirements to increase capital, restrictions on our activities, the imposition of civil monetary penalties, and enforcement of such actions through injunctions or restraining orders. We could also be required to dispose of certain assets and liabilities within a prescribed period. The terms of any such supervisory or enforcement action could have a material adverse effect on our business, financial condition and results of operations.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~



		Citizens Financial Group, Inc. \| 27

We are a bank holding company that has elected to become a financial holding company pursuant to the Bank Holding Company Act. Financial holding companies are allowed to engage in certain financial activities in which a bank holding company is not otherwise permitted to engage. However, to maintain financial holding company status, a bank holding company (and all of its depository institution subsidiaries) must be “well capitalized” and “well managed.” If a bank holding company ceases to meet these capital and management requirements, there are many penalties it would be faced with, including ~~(i)~~ the FRB may impose limitations or conditions on the conduct of its activities, and ~~(ii)~~ it may not undertake any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the FRB. If a company does not return to compliance within 180 days, which period may be extended, the FRB may require divestiture of that company’s depository institutions. To the extent we do not meet the requirements to be a financial holding company in the future, there could be a material adverse effect on our business, financial condition and results of operations.

We may be unable to disclose some restrictions or limitations on our operations imposed by our regulators.

From time to time, bank regulatory agencies take supervisory actions that restrict or limit a financial institution’s activities and lead it to raise capital or subject it to other requirements. Directives issued to enforce such actions may be confidential and thus, in some instances, we are not permitted to publicly disclose these actions. In addition, as part of our regular examination process, our ~~and CBNA’s respective~~ regulators may advise us ~~or CBNA~~ to operate under various restrictions as a prudential matter. Any such actions or restrictions, if and in whatever manner imposed, could adversely affect our costs and revenues. Moreover, efforts to comply with any such nonpublic supervisory actions or restrictions may require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions, if and in whatever manner imposed, could have a material adverse effect on our business and results of operations; and, in certain instances, we may not be able to publicly disclose these matters.

The regulatory environment in which we operate continues to be subject to significant and evolving regulatory requirements that could have a material adverse effect on our business and earnings.

We are heavily regulated by multiple banking, consumer protection, securities and other regulatory authorities at the federal and state levels. This regulatory oversight is primarily established to protect depositors, the FDIC’s Deposit Insurance Fund, consumers of financial products, and the financial system as a whole, not our security holders. Changes to statutes, regulations, rules or policies, including the interpretation, implementation or enforcement of statutes, regulations, rules or policies, could affect us in substantial and unpredictable ways, including by, for example, subjecting us to additional costs, limiting the types of financial services and other products we may offer, limiting our ability to pursue acquisitions and increasing the ability of third parties, including non-banks, to offer competing financial services and products. In recent years, we, together with the rest of the financial services industry, have faced particularly intense scrutiny, with many new regulatory initiatives and vigorous oversight and enforcement on the part of numerous regulatory and governmental authorities. Legislatures and regulators have pursued a broad array of initiatives intended to promote the safety and soundness of financial institutions, financial market stability, the transparency and liquidity of financial markets, and consumer and investor protection. Certain regulators and law enforcement authorities have also recently required admissions of wrongdoing and, in some cases, criminal pleas as part of the resolutions of matters brought by them against financial institutions. Any such resolution of a matter involving us could lead to increased exposure to civil litigation, could adversely affect our reputation, could result in penalties or limitations on our ability to do business or engage in certain activities and could have other negative effects. In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings, including by multiple federal and state regulators and other governmental authorities.

We are also subject to laws and regulations relating to the privacy of the information of our customers, employees, counterparties and others, and any failure to comply with these laws and regulations could expose us to liability and/or reputational damage. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with those laws and regulations, as well as our potential liability for non-compliance and our reporting obligations in the case of data breaches, may significantly increase.

~~There~~While there have been significant revisions to the laws and regulations applicable to ~~Citizens~~us that have been ~~enacted or proposed~~finalized in recent ~~months. These and~~months, there are other rules to implement ~~the~~ changes that have yet to be ~~finalized, and the~~proposed or enacted by our regulators. The final timing, scope and impact of these changes to the regulatory framework applicable to financial institutions ~~remain~~remains uncertain. For more information on the regulations to which we are subject and



		Citizens Financial Group, Inc. \| 28

recent initiatives

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

to reform financial institution regulation, see the “Regulation and Supervision” section in ~~Part I,~~ Item ~~1 — Business, included in this Report.~~1.

We are subject to capital adequacy and liquidity standards, and if we fail to meet these standards our financial condition and operations would be adversely affected.

We are subject to several capital adequacy and liquidity standards. To the extent that we are unable to meet these standards, our ability to make distributions of capital will be limited and we may be subject to additional supervisory actions and limitations on our activities. See “Regulation and Supervision” in ~~Part I,~~ Item 1 ~~— Business,~~ and ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital~~the “Capital and Regulatory Requirements” and ~~“— Liquidity”~~“Liquidity” sections in ~~Part II,~~ Item 7, ~~included in this Report,~~ for further discussion of the regulations to which we are subject.

WeThe Parent Company could be required to act as a “source of strength” to CBNA, which would have a material adverse effect on our business, financial condition and results of operations.

FRB policy historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. This support may be required by the FRB at times when we might otherwise determine not to provide it or when doing so is not otherwise in the interests of CFG or our stockholders or creditors, and may include one or more of the following:

WeThe Parent Company may be compelled to contribute capital to CBNA, including by engaging in a public offering to raise such capital. Furthermore, any extensions of credit from usthe Parent Company to CBNA that are included in CBNA’s capital would be subordinate in right of payment to depositors and certain other indebtedness of CBNA.

In the event of a bank holding company’s bankruptcy, any commitment that the bank holding company had been required to make to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

In the event of impairment of the capital stock of CBNA, ~~we,~~the Parent Company, as CBNA’s stockholder, could be required to pay such deficiency.

~~We depend~~The Parent Company depends on CBNA for most of ~~our~~its revenue, and restrictions on dividends and other distributions by CBNA could affect ~~our~~its liquidity and ability to fulfill our obligations.

As a bank holding company, ~~we are~~the Parent Company is a separate and distinct legal entity from CBNA, our banking subsidiary. WeThe Parent Company typically ~~receive~~receives substantially all of our revenue from dividends from CBNA. These dividends are the principal source of funds to pay dividends on our equity and interest and principal on our debt. Various federal and/or state laws and regulations, as well as regulatory expectations, limit the amount of dividends that CBNA may pay to ~~us.~~the Parent Company. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event CBNA is unable to pay dividends to ~~us, we~~the Parent Company, it may not be able to service debt, pay obligations or pay dividends on ~~our~~its common stock. The inability to receive dividends from CBNA could have a material adverse effect on our business, financial condition and results of operations. See the “Supervision and Regulation” section in ~~Part I,~~ Item 1 ~~— Business,~~ and ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital~~the “Capital and Regulatory Matters” section in ~~Part II,~~ Item ~~7, included in this Report.~~7.

From time-to-time, we may become or are subject to regulatory actions that may have a material impact on our business.

We may become or are involved, from time to time, in reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business. These regulatory actions involve, among other matters, accounting, compliance and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief that may require changes to our business or otherwise materially impact our business.

In regulatory actions, such as those referred to above, it is inherently difficult to determine whether any loss is probable or whether it is possible to reasonably estimate the amount of any loss. We cannot predict with certainty if, how or when such proceedings will be resolved or what the eventual fine, penalty or other relief, conditions or restrictions, if any, may be, particularly for actions that are in their early stages of investigation. WeThe Parent Company may be required to make significant restitution payments to CBNA customers arising from certain compliance issues and also may be required to pay civil money penalties in connection with certain of these issues. This uncertainty makes it difficult to estimate probable losses, which, in turn, can lead to substantial disparities between the reserves

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

we may establish for such proceedings and the eventual settlements, fines, or penalties.



		Citizens Financial Group, Inc. \| 29

Adverse regulatory actions could have a material adverse effect on our business, financial condition and results of operations.

We are and may be subject to litigation that may have a material impact on our business.

Our operations are diverse and complex and we operate in legal and regulatory environments that expose us to potentially significant litigation risk. In the normal course of business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a financial services institution, including with respect to alleged unfair or deceptive business practices and mis-selling of certain products. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or in financial distress. Moreover, a number of recent judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. This could increase the amount of private litigation to which we are subject. For more information regarding ongoing significant legal proceedings in which we may be involved, see Note 18 ~~“Commitments and Contingencies” to our audited Consolidated Financial Statements included~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, included in this Report.~~8.

Compliance with anti-money laundering and anti-terrorism financing rules involve significant cost and effort.

We are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and poses significant technical challenges. Although we believe our current policies and procedures are sufficient to comply with applicable rules and regulations, we cannot guarantee that our anti-money laundering and anti-terrorism financing policies and procedures completely prevent situations of money laundering or terrorism financing. Any such failure events may have severe consequences, including sanctions, fines and reputational consequences, which could have a material adverse effect on our business, financial condition or results of operations.

~~We may become subject to more stringent regulatory requirements and activity restrictions, or have to restructure, if the FRB and FDIC jointly determine that our resolution plan is not credible.~~

Bank holding companies with more than $100 billion in assets are currently required to submit resolution plans that, in the event of material financial distress or failure, establish the rapid, orderly and systemically safe liquidation of the company under the U.S. Bankruptcy Code. Separately, insured depository institutions with more than $50 billion in assets must submit to the FDIC a resolution plan whereby they can be resolved in a manner that is orderly and that ensures that depositors will receive access to insured funds within certain required timeframes. If the FRB and the FDIC jointly determine that the resolution plan of a bank holding company is not credible, and the company fails to cure the deficiencies in a timely manner, then the FRB and the FDIC may jointly impose on the company, or on any of its subsidiaries, more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations, or require the divestment of certain assets or operations. If the FRB and the FDIC jointly determine that our resolution plan is not credible or would not facilitate our orderly resolution under the U.S. Bankruptcy Code, we could become subject to more stringent regulatory requirements or business restrictions, or have to divest certain of our assets or businesses. Any such measures could have a material adverse effect on our business, financial condition or results of operations.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

Risks Related to our Common Stock

Our stock price may be volatile, and you could lose all or part of your investment as a result.

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock could be subject to wide fluctuations in response to, among other things, the factors described in this “Risk Factors” section, and other factors, some of which are beyond our control. These factors include:

quarterly variations in our results of operations or the quarterly financial results of companies perceived to be similar to us;

changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;

fluctuations in the market valuations of companies perceived by investors to be comparable to us;

future sales of our common stock;

additions or departures of members of our senior management or other key personnel;

changes in industry conditions or perceptions; and

changes in applicable laws, rules or regulations and other dynamics.

Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.



		Citizens Financial Group, Inc. \| 30

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend and a distraction to management.

We may not repurchase shares or pay cash dividends on our common stock.

Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock. Also, as a bank holding company, our ability to repurchase shares and declare and pay dividends is dependent on certain federal regulatory considerations, including the rules of the FRB regarding capital adequacy and dividends. Additionally, we are required to submit periodic capital plans to the FRB for review, or otherwise obtain FRB authorization, before we can take certain capital actions, including repurchasing shares, declaring and paying dividends, or repurchasing or redeeming capital securities. If our capital plan or any amendment to our capital plan is objected to for any reason, our ability to repurchase shares and declare and pay dividends on our capital stock may be limited. Further, if we are unable to satisfy the capital requirements applicable to us for any reason, we may be limited in our ability to repurchase shares and declare and pay dividends on our capital stock. See the “Regulation and Supervision” section in ~~Part I,~~ Item 1, ~~— Business, included in this Report,~~ for further discussion of the regulations to which we are subject.

“Anti-takeover” provisions and the regulations to which we are subject may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders.

We are a bank holding company incorporated in the state of Delaware. Anti-takeover provisions in Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws, as well as regulatory approvals that would be required under federal law, could make it more difficult for a third party to take control of us and may prevent stockholders from receiving a premium for their shares of our common stock. These provisions could adversely affect the market price of our common stock and could reduce the amount that stockholders might get if we are sold.

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. However, these provisions apply even if the offer may be determined to be beneficial by some

~~CITIZENS FINANCIAL GROUP, INC.~~

~~RISK FACTORS~~

stockholders and could delay or prevent an acquisition that our Board determines is not in our best interest and that of our stockholders.

Furthermore, banking laws impose notice, approval and ongoing regulatory requirements on any stockholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution. These laws include the Bank Holding Company Act and the Change in Bank Control Act.

~~CITIZENS FINANCIAL GROUP, INC.~~

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

~~Our headquarters is~~We lease seven operations centers in Boston and Medford, Massachusetts; Pittsburgh, Pennsylvania; Warwick, Rhode Island; Franklin, Tennessee; Irving, Texas and Glen Allen, Virginia. We own two principal operations centers in Johnston and East Providence, Rhode Island. ~~As of~~At December 31, ~~2018, we~~2019, our subsidiaries owned and operated a total of 40 facilities and leased approximately 4.8 million square feet of office and retail branch space. Our portfolio of leased space consisted of 3.4 million square feet of retail branch space which spanned eleven states and 1.4 million square feet of non-branch space. As of December 31, 2018, we owned an additional ~~1 million square feet of office and branch space.~~1,247 facilities. We operated 76 branches in Rhode Island, 37 in Connecticut, 245 in Massachusetts, 13 in Vermont, 63 in New Hampshire, 120 in New York, 11 in New Jersey, 325 in Pennsylvania, 23 in Delaware, 100 in Ohio and 87 in Michigan. Of these branches, 1,074 were leased and the remainder were owned. These properties were used by both the Consumer Banking and Commercial Banking segments. Management believes the terms of the various leases were consistent with market standards and were derived through arm’s-length bargaining. We also believe ~~that our properties are in good operating condition and adequately serve~~ our current ~~business operations. We anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms~~facilities are adequate to meet our needs. See Note 6 and Note 8 of Item 8 for ~~future expansion.~~more information regarding our premises and equipment, and leases, respectively.

In the Summer of 2018, we completed the construction of our new campus in Johnston, Rhode Island. The three-building complex brought together approximately 3,200 colleagues from various locations to one, creating greater collaboration and efficiency.

ITEM 3. LEGAL PROCEEDINGS

Information required by this item is presented in Note 18 ~~“Commitments and Contingencies” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item 8 ~~— Financial Statements and Supplementary Data,~~ and is incorporated herein by reference.



		Citizens Financial Group, Inc. \| 31

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

~~CITIZENS FINANCIAL GROUP, INC.~~

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange under the symbol “CFG.” As of February ~~1, 2019,~~5, 2020, our common stock was owned by two holders of record (including Cede & Co.) and approximately ~~183,000~~195,000 beneficial shareholders whose shares were held in “street name” through a broker or bank. Information regarding the high and low sale prices of our common stock and cash dividends declared on such shares, as required by this item, is presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quarterly Results of Operations” in Part II, Item 7, included in this Report. Information regarding restrictions on dividends, as required by this Item, is presented in Note 24 “Regulatory Matters” and Note 26 “Parent Company Financials” to our Consolidated Financial Statements in Part II, Item 8 — Financial Statements and Supplementary Data, of this Report. Information relating to compensation plans under which our equity securities are authorized for issuance is presented in ~~“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III,~~ Item ~~12, included in this Report.~~12.

The following graph compares the cumulative total stockholder returns for our performance ~~since September 24, 2014~~during the five-year period ended December 31, 2019 relative to the performance of the Standard & Poor’s 500^® index, a commonly referenced U.S. equity benchmark consisting of leading companies from diverse economic sectors; the KBW Nasdaq Bank Index (“BKX”), composed of 24 leading national money center and regional banks and thrifts; and a group of other banks that constitute our peer regional banks ~~(BB~~(i.e., BB&T, Comerica, Fifth Third, KeyCorp, M&T, PNC, Regions, SunTrust and U.S. ~~Bancorp)~~Bancorp. Includes Truist for the period subsequent to the merger of BB&T and SunTrust). The graph assumes a $100 investment at the closing price on ~~September 24,~~December 31, 2014 in each of CFG common stock, the S&P 500 index, the BKX and the peer market-capitalization weighted average and assumes all dividends were reinvested on the date paid. The points on the graph represent the ~~date our shares first began to trade on the NYSE and~~ fiscal quarter-end amounts based on the last trading day in each subsequent fiscal quarter.



		Citizens Financial Group, Inc. \| 32

This graph shall not be deemed “soliciting material” or be filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Citizens Financial Group, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.


	9/24/2014		9/30/2014		12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2018		12/31/2017		12/31/2016		12/31/2015		12/31/2014
CFG		$100		$101		$108		$116		$161		$193		$140		$183		$129		$178		$149		$107		$100
S&P 500 Index	100		99		104		105		118		143		137		174		132		138		113		101		100
KBW BKX Index	100		98		103		103		133		157		129		172		126		153		129		100		100
Peer Regional Bank Average(1)		$100		$99		$105		$105		$137		$159		$133		$169		$127		$152		$131		$100		$100

~~CITIZENS FINANCIAL GROUP, INC.~~

⁽¹⁾ The Peer Regional Bank Average includes the impact of BB&T and SunTrust through December 6, 2019 which were replaced by the newly formed Truist Financial Corp. on December 9, 2019.

Issuer Purchase of Equity Securities

Details of the repurchases of our common stock during the fourth quarter ~~2018~~2019 are included in the following table:

Period
Total Number of Shares Repurchased⁽¹⁾
Weighted-Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾
Maximum Dollar Amount of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs ⁽¹⁾
October 1, 2018 - October 31, 2018 6,214,965 $36.38 6,214,965 $393,897,709
November 1, 2018 - November 30, 2018 — $— — $393,897,709
December 1, 2018 - December 31, 2018 2,031,256 $36.38 2,031,256 $320,000,000



Period	Total Number of Shares Repurchased⁽¹⁾	Weighted-Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Maximum Dollar Amount of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs⁽¹⁾
October 1, 2019 - October 31, 2019	9,199,134	$36.68	9,199,134	$437,606,122
November 1, 2019 - November 30, 2019	—	$—	—	$437,606,122
December 1, 2019 - December 31, 2019	1,706,973	$36.68	1,706,973	$375,000,000

⁽¹⁾On June ~~28, 2018, the Company~~27, 2019, we announced that ~~its 2018 Capital Plan, submitted as part~~our Board of ~~the CCAR process and not objected to by the FRB, included~~Directors had authorized share repurchases of CFG common stock of up to ~~$1.02~~$1.275 billion for the four-quarter period ending with the second quarter of ~~2019.~~2020. This share repurchase plan ~~which was approved by the Company’s Board of Directors at the time of the announcement,~~ allowed for share repurchases that may be executed in the open market or in privately negotiated transactions, including under Rule 10b5-1 plans. All shares repurchased by ~~the Company~~us during the fourth quarter were executed pursuant to an accelerated share repurchase transaction, which was completed by December 31, ~~2018.~~2019. The timing and exact amount of future share repurchases will be subject to various factors, including ~~the Company’s~~our capital position, financial performance and market conditions.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~SELECTED CONSOLIDATED FINANCIAL DATA~~



		Citizens Financial Group, Inc. \| 33

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected Consolidated Statements of Operations data for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016~~2017 and the selected Consolidated Balance Sheet data as of December 31, ~~2018~~2019 and ~~2017~~2018 are derived from our audited Consolidated Financial Statements in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, included in this Report.~~8. We derived the selected Consolidated Statements of Operations data for the years ended December 31, ~~2015~~2016 and ~~2014~~2015 and the selected Consolidated Balance Sheet data as of December 31, 2017, 2016, ~~2015,~~ and ~~2014~~2015 from our prior audited Consolidated Financial ~~Statements, not included herein.~~Statements. Our historical results are not necessarily indicative of the results expected for any future period.

The following selected consolidated financial data should be read in conjunction with ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,~~ Item 7 and our audited Consolidated Financial Statements and ~~the~~ Notes ~~thereto~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, both included in this Report.~~8.


	For the Year Ended December 31,															For the Year Ended December 31,
(in millions, except per-share and ratio data)	2018			2017			2016			2015			2014			2019			2018			2017			2016			2015
OPERATING DATA:
Net interest income		$4,532			$4,173			$3,758			$3,402			$3,301			$4,614			$4,532			$4,173			$3,758			$3,402
Noninterest income	1,596			1,534			1,497			1,422			1,678			1,877			1,596			1,534			1,497			1,422
Total revenue	6,128			5,707			5,255			4,824			4,979			6,491			6,128			5,707			5,255			4,824
Provision for credit losses	326			321			369			302			319			393			326			321			369			302
Noninterest expense	3,619			3,474			3,352			3,259			3,392			3,847			3,619			3,474			3,352			3,259
Income before income tax expense	2,183			1,912			1,534			1,263			1,268			2,251			2,183			1,912			1,534			1,263
Income tax expense⁽¹⁾	462			260			489			423			403			460			462			260			489			423
Net income	1,721			1,652			1,045			840			865			1,791			1,721			1,652			1,045			840
Net income available to common stockholders	1,692			1,638			1,031			833			865			1,718			1,692			1,638			1,031			833
Net income per average common share - basic ⁽²⁾	3.54			3.26			1.97			1.55			1.55			3.82			3.54			3.26			1.97			1.55
Net income per average common share - diluted ⁽²⁾	3.52			3.25			1.97			1.55			1.55			3.81			3.52			3.25			1.97			1.55
Dividends declared and paid per common share	0.98			0.64			0.46			0.40			1.43			1.36			0.98			0.64			0.46			0.40
OTHER OPERATING DATA:
Return on average common equity ⁽³⁾⁽²⁾	8.62		%	8.35		%	5.23		%	4.30		%	4.46		%	8.45		%	8.62		%	8.35		%	5.23		%	4.30		%
Return on average tangible common equity ⁽³⁾⁽²⁾	12.94			12.35			7.74			6.45			6.71			12.64			12.94			12.35			7.74			6.45
Return on average total assets ⁽³⁾⁽²⁾	1.11			1.10			0.73			0.62			0.68			1.10			1.11			1.10			0.73			0.62
Return on average total tangible assets ⁽³⁾⁽²⁾	1.16			1.15			0.76			0.65			0.71			1.15			1.16			1.15			0.76			0.65
Efficiency ratio⁽³⁾⁽²⁾	59.06			60.87			63.80			67.56			68.12			59.28			59.06			60.87			63.80			67.56
Operating leverage ^{(3) (4)}	3.19			4.98			6.08			0.81			61.99
Net interest margin ⁽³⁾	3.19			3.02			2.86			2.75			2.83
Operating leverage⁽²⁾⁽³⁾																(0.39		)	3.19			4.98			6.08			0.81
Net interest margin, FTE⁽⁴⁾																3.16			3.22			3.06			2.90			2.79
Effective income tax rate⁽¹⁾	21.16			13.62			31.88			33.52			31.80			20.43			21.16			13.62			31.88			33.52
Dividend payout ratio																36			28			20			23			26
Average equity to average assets ratio																13.27			13.02			13.25			13.93			14.46

⁽¹⁾On December 22, 2017 President Trump signed the 2017 Tax Legislation which reduced the corporate tax rate from 35% to 21%. effective January 1, 2018.

⁽²⁾~~Earnings per share information reflects a 165,582-for-1 forward stock split effective on August 22, 2014.~~

⁽³⁾See ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Introduction~~the “Introduction — Key Performance Metrics Used by Management and Non-GAAP Financial Measures” section in ~~Part II,~~ Item 7 for definitions of our key performance metrics.

⁽⁴⁾⁽³⁾“Operating leverage” represents the period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense. For the purpose of the ~~2014~~2015 calculation, ~~2013~~2014 total revenue was ~~$4.7~~$5.0 billion and noninterest expense was ~~$7.7~~$3.4 billion.

⁽⁴⁾ Net interest margin is presented on an FTE basis using the federal statutory tax rate.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~SELECTED CONSOLIDATED FINANCIAL DATA~~



		Citizens Financial Group, Inc. \| 34


	As of December 31,															As of December 31,
(in millions, except ratio data)	2018			2017			2016			2015			2014			2019			2018			2017			2016			2015
BALANCE SHEET DATA:
Total assets		$160,518			$152,336			$149,520			$138,208			$132,857			$165,733			$160,518			$152,336			$149,520			$138,208
Loans held for sale, at fair value	1,219			497			583			325			256			1,946			1,219			497			583			325
Other loans held for sale	101			221			42			40			25			1,384			101			221			42			40
Loans and leases	116,660			110,617			107,669			99,042			93,410			119,088			116,660			110,617			107,669			99,042
Allowance for loan and lease losses	(1,242		)	(1,236		)	(1,236		)	(1,216		)	(1,195		)	(1,252		)	(1,242		)	(1,236		)	(1,236		)	(1,216		)
Total securities	25,075			25,733			25,610			24,075			24,704			24,669			25,075			25,733			25,610			24,075
Goodwill	6,923			6,887			6,876			6,876			6,876			7,044			6,923			6,887			6,876			6,876
Total liabilities	139,701			132,066			129,773			118,562			113,589			143,532			139,701			132,066			129,773			118,562
Total deposits	119,575			115,089			109,804			102,539			95,707			125,313			119,575			115,089			109,804			102,539
Federal funds purchased and securities sold under agreements to repurchase	1,156			815			1,148			802			4,276			265			1,156			815			1,148			802
Other short-term borrowed funds(1)	1,653			1,856			3,211			2,630			6,253			9			161			1,111			2,461			2,630
Long-term borrowed funds	14,433			11,765			12,790			9,886			4,642
Long-term borrowed funds⁽¹⁾																14,047			15,925			12,510			13,540			9,886
Total stockholders’ equity	20,817			20,270			19,747			19,646			19,268			22,201			20,817			20,270			19,747			19,646
OTHER BALANCE SHEET DATA:
Asset Quality Ratios:
Allowance for loan and lease losses as a % of total loans and leases	1.06		%	1.12		%	1.15		%	1.23		%	1.28		%	1.05		%	1.06		%	1.12		%	1.15		%	1.23		%
Allowance for loan and lease losses as a % of nonperforming loans and leases(2)	156			142			118			115			109			178			162			142			119			120
Nonperforming loans and leases as a % of total loans and leases(2)	0.68			0.79			0.97			1.07			1.18			0.59			0.66			0.78			0.97			1.03
Capital Ratios:⁽⁵⁾⁽³⁾
CET1 capital ratio ⁽⁶⁾	10.6			11.2			11.2			11.7			12.4			10.0			10.6			11.2			11.2			11.7
Tier 1 capital ratio⁽⁷⁾	11.3			11.4			11.4			12.0			12.4			11.1			11.3			11.4			11.4			12.0
Total capital ratio ⁽⁸⁾	13.3			13.9			14.0			15.3			15.8			13.0			13.3			13.9			14.0			15.3
Tier 1 leverage ratio ⁽⁹⁾	10.0			10.0			9.9			10.5			10.6			10.0			10.0			10.0			9.9			10.5

⁽⁵⁾⁽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⁾Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which we have the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation.

⁽³⁾The capital ratios and associated components ~~as of December 31, 2018, 2017, 2016 and 2015~~ are prepared using the U.S. Basel III Standardized ~~approach. U.S. Basel III transitional rules for institutions applying the Standardized~~ approach ~~to calculating risk-weighted assets~~and became ~~effective~~fully phased-in on January 1, ~~2015. The capital ratios and associated components as of December 31, 2014 are prepared using the U.S. Basel I approach.~~2019. The December 31, 2017 capital ratios reflect the retrospective adoption of FASB ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of Operations —2017 compared with 2016 —Income Tax Expense” for additional information.~~

⁽⁶⁾~~“Common equity tier 1 capital ratio” represents CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽⁷⁾“Tier 1 capital ratio” is tier 1 capital, which includes CET1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽⁸⁾~~“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽⁹⁾~~“Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 35

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



		Page
Introduction		4237
Financial Performance		38
Results of Operations - 2019 compared with 2018		40
Net Interest Income		40
Noninterest Income		44
~~Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations~~Noninterest Expense		~~102~~45
~~Results of Operations - 2018 compared with 2017~~Provision for Credit Losses		46
~~Net~~ Income Tax Expense		46
~~Net Interest Income~~Business Operating Segments		47
~~Noninterest Income~~Results of Operations - 2018 compared with 2017		48
Analysis of Financial Condition		49
Securities		49
Loans and Leases		50
~~Provision~~Allowance for Credit Losses and Nonperforming Assets		5052
~~Noninterest Expense~~		50
~~Income Tax Expense~~		51
~~Business Operating Segments~~		51
~~Results of Operations - 2017 compared with 2016~~		56
~~Net Income~~		56
~~Net Interest Income~~		57
~~Noninterest Income~~Deposits		60
~~Provision for Credit Losses~~		60
~~Noninterest Expense~~		60
~~Income Tax Expense~~Borrowed Funds		61
~~Business Operating Segments~~Quarterly Results of Operations		62
~~Analysis of Financial Condition~~Capital and Regulatory Matters		6665
~~Securities~~		66
~~Loans and Leases~~		67
~~Allowance for Credit Losses and Nonperforming Assets~~Liquidity		69
~~Deposits~~Contractual Obligations		7772
~~Borrowed Funds~~Off-Balance Sheet Arrangements		72
Critical Accounting Estimates		72
Accounting and Reporting Developments		75
Risk Governance		76
Market Risk		78
~~Quarterly Results of Operations~~Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations		80
~~Capital and Regulatory Matters~~		82
~~Liquidity~~		86
~~Contractual Obligations~~		90
~~Off-Balance Sheet Arrangements~~		90
~~Critical Accounting Estimates~~		90
~~Risk Governance~~		93
~~Market Risk~~		9685

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 36

INTRODUCTION

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with ~~$160.5~~$165.7 billion in assets as of December 31, ~~2018.~~ 2019. Our mission is to help ~~our~~ customers, colleagues and communities each reach their ~~potential.~~potential by listening to them and understanding their needs in order to offer tailored advice, ideas and solutions. 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~~as well as the convenience of approximately ~~2,900~~ 2,700 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 Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements in ~~Part II,~~ Item 8, ~~— Financial Statements and Supplementary Data of this Form 10-K,~~ as well as other information contained in this document.

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~~condition including the levels and trends of the line items included in our balance sheet and statement of operations, ~~as well as~~used in calculating various ~~financial ratios that are~~key performance metrics 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 calculating 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 calculating 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 analyze these key performance metrics 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.

We consider ~~various measures~~the following key performance metrics 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~~The efficiency ratio helps us to evaluate the efficiency of our operations as it helps us monitor how costs are changing compared to ~~our~~ income. A decrease in ~~our~~the 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~~CET1 capital ratio, which represents CET1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach.

This document contains non-GAAP financial measures denoted as “Underlying” ~~or “Adjusted/Underlying”~~ results. ~~Underlying or Adjusted/~~Underlying results for any given reporting period exclude certain items that may

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

occur in that period which Management does not consider indicative of ~~the Company’s~~our on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by Management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying ~~or Adjusted/Underlying~~ results in any given reporting period reflect our on-going financial performance ~~in that period~~and increase comparability of period-to-period results, and, accordingly, are useful to consider in addition to our GAAP financial ~~results. We further believe the presentation of Underlying or Adjusted/Underlying results increases comparability of period-to-period~~ 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



		Citizens Financial Group, Inc. \| 37

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 ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations”~~our MD&A by the use of the term Underlying ~~or Adjusted/~~and where there is a reference to Underlying ~~and/or~~results in a paragraph, all measures that follow this reference are ~~followed by an asterisk (*).~~

on the same basis when applicable. For ~~additional~~more information ~~regarding our~~on the computation of key performance metrics and non-GAAP financial measures, ~~and reconciliations,~~ see “—Key Performance Metrics, Non-GAAP Financial Measures and ~~Reconciliations,~~Reconciliations.” ~~included in this Report.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

FINANCIAL PERFORMANCE

~~2018~~2019 compared with ~~2017~~2018 - Key Highlights

~~Full year 2018 net~~Net income of ~~$1.7~~$1.8 billionincreased ~~$69 million, or~~ 4%, from ~~2017,~~2018, with earnings per diluted common share of ~~$3.52,~~$3.81, up 8% from ~~$3.25~~$3.52 per diluted common share for ~~2017. 2018~~2018. ROTCE of 12.6% compares with 12.9% ~~improved from 12.3%~~ in ~~2017.~~2018.

~~Full year~~We recorded $17 million after-tax, or $0.03 per diluted common share, of notable items in 2019 tied to Acquisition integration costs, costs related to strategic initiatives, and income tax benefits associated with an operational restructure and legacy tax matters. In 2018 ~~results include~~we recorded $16 million after-tax, or $0.04 per diluted common share, of notable items ~~compared with $340 million after-tax, or $0.67 per diluted common share, in~~tied to Acquisition integration costs, efficiency initiatives and the impact of 2017 ~~as outlined in the tables below.~~

The following table presents selected GAAP and non-GAAP measures:*tax legislation.


	Year Ended December 31, 2018													Year Ended December 31, 2019
(in millions)	Noninterest income			Noninterest expense		Credit-related costs		Income tax expense			Net Income			Noninterest income		Noninterest expense		Income tax expense			Net Income
Reported results (GAAP)		$1,596			$3,619		$326		$462			$1,721			$1,877		$3,847		$460			$1,791
Less: Notable items
Tax Legislation DTL adjustment	—			—		—		(29		)	29
TOP efficiency initiatives and other actions	(1		)	33		—		(8		)	(26		)
FAMC integration costs	(4		)	21		—		(6		)	(19		)
Total integration costs														—		18		(4		)	(14		)
Other notable items⁽¹⁾														—		50		(47		)	(3		)
Total notable items		($5	)		$54		$—		($43	)		($16	)	—		68		(51		)	(17		)
Underlying results (non-GAAP)		$1,601			$3,565		$326		$505			$1,737			$1,877		$3,779		$511			$1,808

* Where there is a reference⁽¹⁾ Other notable items include noninterest expense of $50 million related 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~~our TOP programs and other efficiency initiatives and an income tax benefit of ~~key performance metrics~~$34 million related to an operational restructure 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.”legacy tax matters.

Year Ended December 31, 2017
(in millions) Noninterest income Noninterest expense Credit-related costs Income tax expense Net Income
Reported results (GAAP)
$1,534

$3,474

$321

$260

$1,652
Less: Notable items
Tax and tax-related notable items:
Tax Legislation DTL adjustment —
—
—
(331 ) 331
Colleague and community reinvestment —
22
—
(9 ) (13 )
Settlement of certain tax matters —
—
—
(23 ) 23
TOP efficiency initiatives —
15
—
(6 ) (9 )
Lease impairment credit-related costs (11 ) 15
(26 ) —
—
Gain on mortgage/home equity TDR Transaction 17
—
—
7
10
Home equity operational items —
3
—
(1 ) (2 )
Total notable items
$6

$55

($26 )
($363 )
$340
Underlying results (non-GAAP)
$1,528

$3,419

$347

$623

$1,312



	Year Ended December 31, 2018
(in millions)	Noninterest income			Noninterest expense		Income tax expense			Net Income
Reported results (GAAP)		$1,596			$3,619		$462			$1,721
Less: Notable items
Tax Legislation DTL adjustment	—			—		(29		)	29
TOP efficiency initiatives and other actions	(1		)	33		(8		)	(26		)
FAMC integration costs	(4		)	21		(6		)	(19		)
Total notable items	(5		)	54		(43		)	(16		)
Underlying results (non-GAAP)		$1,601			$3,565		$505			$1,737

~~Net income available to common stockholders of~~ ~~$1.7 billionincrease~~d ~~$54 million, or~~ 3%~~, compared to~~ ~~$1.6 billion~~ in ~~2017~~.


•	Net income available to common stockholders of $1.7 billionincreased $26 million, or 2%, compared to 2018. Earnings per diluted common share increased $0.29, or 8%, from 2018.


◦	On an Underlying basis,* net income available to common stockholders of $1.7 billionincreased ~~32%~~by 2% led by 6%revenue growth of 8%~~, with a~~ 9% ~~increase~~reflecting 17% growth in noninterest income and 2% growth in net interest income, ~~and a~~ 5% ~~increase in noninterest income.~~

~~Total revenue of~~ ~~$6.1 billionincrease~~d ~~$421 million, or~~ 7%~~, from~~ ~~2017, driven by strong net interest income and noninterest income growth:~~


◦	~~Net interest income of~~ ~~$4.5 billionincrease~~d ~~$359 million, or~~ 9%~~, compared to~~ ~~$4.2 billion~~ in ~~2017, driven by higher loan yields and~~ 4% ~~average loan growth.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~


◦	~~Net interest margin of~~ ~~3.19%increase~~d 17 ~~basis points, compared to~~ ~~3.02%~~ ~~in 2017, reflecting the benefit of higher interest rates and continued mix shift towards higher-yielding assets,~~ partially offset by ~~higher deposit~~6% growth in noninterest expense and ~~other funding costs.~~


–	~~Average loans and leases of~~ ~~$113.5 billion~~21% increased ~~$4.2 billion, or~~ 4%~~, from~~ ~~$109.3 billion~~ in ~~2017, reflecting a~~ ~~$2.5 billionincrease~~ ~~in commercial loans and leases and a~~ ~~$1.7 billionincrease~~ ~~in retail loans.~~


–	~~Average deposits of~~ ~~$115.9 billionincrease~~d ~~$4.0 billion, or~~ 4%~~, from~~ ~~$111.9 billion~~ ~~in 2017, reflecting strength in term, checking with interest, savings and demand deposits.~~provision for credit losses.

◦

~~Noninterest income of~~ ~~$1.6 billionincrease~~d ~~$62 million, or~~ 4%, from 2017, driven by strength in mortgage banking fees, including the $57 million impact of the FAMC acquisition, as well as foreign exchange and interest rate products, trust and investment services fees, letter of credit and loan fees and card fees, partially offset by lower capital market fees and service charges and fees.


–	~~On an Underlying basis,* noninterest income~~ ~~increase~~d ~~$73 million~~ ~~from~~ ~~$1.5 billion~~ ~~in 2017.~~

~~Noninterest expense of~~ ~~$3.6 billionincrease~~d ~~$145 million, or~~ 4%~~, compared to~~ ~~$3.5 billion~~ in 2017, reflecting higher salaries and employee benefits driven by higher revenue-based incentives and merit increases, higher outside services expense, including continued investments to drive growth, $60 million of FAMC costs, primarily in salaries and employee benefits, and $54 million of notable items. These increases were partially offset by lower other operating expenses.


◦	~~On an Underlying basis,* noninterest expense~~ ~~increase~~d 4% ~~from 2017.~~

~~Positive operating leverage was~~ ~~3.2%, the efficiency ratio improved by~~ ~~181~~ ~~basis points to~~ ~~59.1%~~ ~~compared to 2017, and ROTCE was~~ ~~12.9%~~.


◦	~~On an Underlying basis,* operating leverage was~~ ~~3.3%, the efficiency ratio improved~~ ~~183~~ ~~basis points to~~ ~~58.1%~~ ~~from~~ ~~60.0%~~ ~~in 2017 and ROTCE increased~~ ~~327~~ ~~basis points to~~ ~~13.1%~~ ~~from~~ ~~9.8%~~.

~~Return on average common equity was~~ ~~8.6%~~ ~~compared to~~ ~~8.3%~~ ~~in 2017.~~


◦	~~On an Underlying basis,* return on average common equity of~~ ~~8.7%~~ ~~improved~~ ~~207~~ ~~basis points from~~ ~~6.6%~~ ~~in 2017.~~

~~Earnings per diluted common share~~ ~~increase~~d ~~$0.27, or~~ 8%~~, from 2017.~~


◦	On an Underlying basis,* earnings per diluted common share of $3.84increased $~~0.98~~0.28, or ~~38%~~8%, from ~~2017.~~$3.56 for the year ended2018.

~~Tangible book value per common share improved~~ 5% to ~~$28.73~~ ~~from 2017. Fully diluted average common shares outstanding~~ ~~decreased by~~ ~~23.3 million~~ ~~shares from 2017.~~



		Citizens Financial Group, Inc. \| 38

~~Provision for credit losses of~~ ~~$326 millionincrease~~d ~~$5 million, or~~ 2%~~, from~~ ~~$321 million~~ ~~in 2017.~~


◦•	~~On an Underlying basis,* total credit-related costs~~ ~~decrease~~Total revenue of $6.5 billionincreased $21363 million, or 6%, from ~~$347 million~~2018, driven by a 2%increase in ~~2017, driven primarily by the $26 million impact of 2017 aircraft lease impairments.~~

~~Net charge-offs of~~ ~~$317 million~~ ~~increased~~ ~~$12 million, or~~ 4%~~, from~~ ~~$305 million~~ ~~in 2017. The ALLL of~~ ~~$1.2 billion~~ ~~increased~~ ~~$6 million~~ ~~compared to December 31, 2017.~~


◦	~~ALLL to total loans~~net interest income and ~~leases of~~ ~~1.06%~~ ~~decreased from 1.12% as of December 31, 2017.~~an 18%increase in noninterest income.


◦	~~The ALLL~~Net interest income of $4.6 billionincreased $82 million, or 2%, compared to ~~nonperforming loans and leases ratio~~$4.5 billion in 2018, as the benefit of ~~156%~~ ~~increased from 142% as~~4% growth in average interest-earning assets was partially offset by the impact of ~~December 31, 2017.~~a reduction in net interest margin, given the challenging yield-curve environment.

~~The effective income tax rate~~ ~~increased to~~ ~~21.2%~~ ~~from~~ ~~13.6%~~ ~~in 2017, primarily attributable to the revaluation of our deferred tax liability as a result of 2017 Tax Legislation.~~

◦

Net interest margin of 3.14%decreased 7 basis points from 3.21% in 2018, driven by higher 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. These results were partially offset by the benefit of higher interest-earning asset yields, given continued mix shift toward more attractive risk-adjusted return portfolios and modestly higher short-term rates.


–	Net interest margin on a fully taxable-equivalent basis of 3.16%decreased by 6 basis points, compared to 3.22% in 2018 given the challenging yield-curve environment.


–	Average loans and leases of $117.9 billionincreased $4.4 billion, or 4%, from $113.5 billion in 2018, reflecting a 5%increase in commercial loans and leases and a 3%increase in retail loans.


–	Average deposits of $123.3 billionincreased $7.4 billion, or 6%, from $115.9 billion in 2018, largely reflecting growth in savings, term deposits and checking with interest.


◦	Noninterest income of $1.9 billionincreased $281 million, or 18%, from 2018, with record results in mortgage banking, capital markets fees, and trust and investment services fees, which included the impact of Acquisitions, along with higher foreign exchange and interest rate products and card fees.


•	Noninterest expense of $3.8 billionincreased $228 million, or 6%, compared to $3.6 billion in 2018, reflecting higher salaries and employee benefits, outside services, and equipment and software expense, driven by the impact of Acquisitions, partially offset by lower other operating expense largely tied to a reduction in FDIC insurance.


◦	On an Underlying basis,* noninterest expense increased 6% from 2018.


•	The efficiency ratio of 59.3% compared to 59.1% in 2018, and ROTCE of 12.6% compared to 12.9%.


◦	The Underlying efficiency ratio of 58.2% compared to 58.1% in 2018.


◦	Underlying ROTCE of 12.8%compares with13.1% and reflected an approximate 50 basis point drag from higher tangible common equity value, given the ~~effective income tax rate decreased to~~ ~~22.5%~~positive impact of lower long-term rates on securities valuations.


•	Provision for credit losses of $393 millionincreased $67 million, or 21%, from ~~32.2%~~$326 million in ~~2017, primarily attributable to~~2018, reflecting 4% average loan growth, stable credit quality, as well as a small number of uncorrelated losses in commercial, and continued seasoning in retail growth portfolios.


•	Tangible book value per common of $32.08 increased 12% from 2018. Fully diluted average common shares outstanding decreased by 29.2 million shares, or 6% over the ~~reduction in the federal statutory tax rate from 35% to 21% under the 2017 Tax Legislation, partially offset by an increase in state and local income taxes and non-deductible FDIC premiums.~~same period.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 39

RESULTS OF OPERATIONS — ~~2018~~2019 compared with ~~2017~~2018

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 ~~following table presents~~level of net interest income is primarily a function of the ~~significant components~~difference between the effective yield on our average interest-earning assets and the effective cost of our ~~net income:~~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.

Year Ended December 31,
(dollars in millions) 2018
2017
Change Percent
Net interest income
$4,532

$4,173

$359
9 %
Noninterest income 1,596
1,534
62
4
Total revenue 6,128
5,707
421
7
Provision for credit losses 326
321
5
2
Noninterest expense 3,619
3,474
145
4
Income before income tax expense 2,183
1,912
271
14
Income tax expense 462
260
202
78
Net income
$1,721

$1,652

$69
4 %
Net income available to common stockholders
$1,692

$1,638

$54
3 %
Return on average tangible common equity 12.94 % 12.35 % 59 bps



		Citizens Financial Group, Inc. \| 40

~~Return on Equity and Assets~~

~~The following table presents our return on average total assets, return on average common equity, dividend payout ratio and average equity to average assets ratio:~~

December 31,
2018
2017
Return on average total assets 1.11 % 1.10 %
Return on average common equity 8.62
8.35
Dividend payout ratio 28
20
Average equity to average assets ratio 13.02
13.25

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Net Interest Income~~

The following table presents the major components of net interest income and net interest margin:


	Year Ended December 31,																		Year Ended December 31,
	2018							2017							Change				2019							2018							Change
(dollars in millions)	Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Yields/ Rates	Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Yields/ Rates (bps)
Assets
Interest-bearing cash and due from banks and deposits in banks		$1,579			$29	1.82	%		$1,807			$18	0.96	%		($228	)	86 bps		$1,544			$30	1.94	%		$1,579			$29	1.82	%		($35	)	12 bps
Taxable investment securities	25,233			672		2.66		25,696			625		2.43		(463		)	23	25,425			642		2.51		25,233			672		2.66		192			(15)
Non-taxable investment securities	6			—		2.60		7			—		2.60		(1		)	—	5			—		2.60		6			—		2.60		(1		)	—
Total investment securities	25,239			672		2.66		25,703			625		2.43		(464		)	23	25,430			642		2.51		25,239			672		2.66		191			(15)
Commercial	39,363			1,621		4.06		37,631			1,334		3.50		1,732			56	41,702			1,797		4.25		39,363			1,621		4.06		2,339			19
Commercial real estate	12,299			557		4.47		11,178			402		3.55		1,121			92	13,160			628		4.71		12,299			557		4.47		861			24
Leases	3,038			82		2.71		3,437			86		2.50		(399		)	21	2,694			77		2.84		3,038			82		2.71		(344		)	13
Total commercial loans and leases	54,700			2,260		4.08		52,246			1,822		3.44		2,454			64	57,556			2,502		4.29		54,700			2,260		4.08		2,856			21
Residential mortgages	17,883			644		3.60		16,017			571		3.57		1,866			3	19,308			687		3.56		17,883			644		3.60		1,425			(4)
Home equity loans	1,215			72		5.91		1,610			91		5.68		(395		)	23	939			57		6.09		1,215			72		5.91		(276		)	18
Home equity lines of credit	13,043			592		4.54		13,706			514		3.75		(663		)	79	12,276			611		4.98		13,043			592		4.54		(767		)	44
Home equity loans serviced by others	463			34		7.36		642			46		7.09		(179		)	27	343			27		7.98		463			34		7.36		(120		)	62
Home equity lines of credit serviced by others	124			5		4.23		181			7		4.07		(57		)	16	87			5		5.04		124			5		4.23		(37		)	81
Automobile	12,555			461		3.68		13,491			442		3.27		(936		)	41	12,047			506		4.20		12,555			461		3.68		(508		)	52
Education	8,486			487		5.74		7,557			403		5.33		929			41	9,415			555		5.89		8,486			487		5.74		929			15
Credit cards	1,891			202		10.68		1,725			185		10.75		166			(7)	2,083			211		10.10		1,891			202		10.68		192			(58)
Other retail	3,113			253		8.09		2,117			168		7.94		996			15	3,846			280		7.27		3,113			253		8.09		733			(82)
Total retail loans	58,773			2,750		4.68		57,046			2,427		4.25		1,727			43	60,344			2,939		4.87		58,773			2,750		4.68		1,571			19
Total loans and leases ⁽¹⁾	113,473			5,010		4.39		109,292			4,249		3.87		4,181			52	117,900			5,441		4.59		113,473			5,010		4.39		4,427			20
Loans held for sale, at fair value	844			37		4.38		490			18		3.58		354			80	1,689			63		3.74		844			37		4.38		845			(64)
Other loans held for sale	164			10		6.18		190			10		5.36		(26		)	82	251			13		5.10		164			10		6.18		87			(108)
Interest-earning assets	141,299			5,758		4.05		137,482			4,920		3.56		3,817			49	146,814			6,189		4.19		141,299			5,758		4.05		5,515			14
Allowance for loan and lease losses	(1,245		)					(1,225		)					(20		)		(1,244		)					(1,245		)					1
Goodwill	6,912							6,883							29				7,036							6,912							124
Other noninterest-earning assets	7,587							6,813							774				9,570							7,587							1,983
Total assets		$154,553							$149,953							$4,600				$162,176							$154,553							$7,623
Liabilities and Stockholders’ Equity
Checking with interest		$21,856			$138	0.63	%		$21,458			$79	0.37	%		$398		26 bps		$23,470			$203	0.87	%		$21,856			$138	0.63	%		$1,614		24 bps
Money market accounts	36,497			343		0.94		37,450			198		0.53		(953		)	41	36,613			450		1.23		36,497			343		0.94		116			29
Regular savings	10,238			15		0.15		9,384			4		0.04		854			11	13,247			75		0.57		10,238			15		0.15		3,009			42
Term deposits	18,035			289		1.61		15,448			160		1.04		2,587			57	21,035			427		2.03		18,035			289		1.61		3,000			42
Total interest-bearing deposits	86,626			785		0.91		83,740			441		0.53		2,886			38	94,365			1,155		1.22		86,626			785		0.91		7,739			31
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾	654			6		0.94		776			3		0.38		(122		)	56	599			8		1.36		654			6		0.94		(55		)	42
Other short-term borrowed funds(3)	1,808			57		3.18		2,321			31		1.32		(513		)	186	66			2		2.50		467			9		2.10		(401		)	40
Long-term borrowed funds(3)	13,455			378		2.79		12,479			272		2.17		976			62	13,014			410		3.14		14,796			426		2.86		(1,782		)	28
Total borrowed funds	15,917			441		2.76		15,576			306		1.96		341			80	13,679			420		3.06		15,917			441		2.76		(2,238		)	30
Total interest-bearing liabilities	102,543			1,226		1.19		99,316			747		0.75		3,227			44	108,044			1,575		1.46		102,543			1,226		1.19		5,501			27
Demand deposits	29,231							28,134							1,097				28,936							29,231							(295		)
Other liabilities	2,651							2,637							14				3,683							2,651							1,032
Total liabilities	134,425							130,087							4,338				140,663							134,425							6,238
Stockholders’ equity	20,128							19,866							262				21,513							20,128							1,385
Total liabilities and stockholders’ equity		$154,553							$149,953							$4,600				$162,176							$154,553							$7,623
Interest rate spread						2.86	%						2.81	%				5						2.73	%						2.86	%				(13)
Net interest income					$4,532							$4,173
Net interest margin						3.19	%						3.02	%				17 bps
Net interest income and net interest margin																							$4,614	3.14	%					$4,532	3.21	%				(7)
Net interest income and net interest margin, FTE⁽⁴⁾																							$4,635	3.16	%					$4,554	3.22	%				(6) bps
Memo: Total deposits (interest-bearing and demand)		$115,857			$785	0.68	%		$111,874			$441	0.39	%		$3,983		29 bps		$123,301			$1,155	0.94	%		$115,857			$785	0.68	%		$7,444		26 bps

⁽¹⁾Interest income and rates on loans include loan fees. Additionally, ~~$836~~$778 million and ~~$970~~$836 million of average nonaccrual loans were included in the average loan balances used to determine the average yield on loans for December 2019 and 2018, ~~and 2017,~~ respectively.

⁽²⁾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~~

⁽³⁾Beginning in the first quarter of ~~Financial Condition — Derivatives”~~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.

⁽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%. The FTE impact is predominantly attributable to commercial loans for ~~further information.~~the periods presented.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 41

Net interest income of $4.6 billion increased $82 million, reflecting 4% average interest-earning asset growth partially offset by a 7 basis point decrease in net interest margin given the challenging yield curve environment.

Net interest margin of ~~3.19% increased 17~~3.14% decreased 7 basis points compared to ~~3.02%~~3.21% in ~~the year ended 2017,~~2018, driven by higher ~~interest-earning asset yields given~~funding costs tied to modestly higher ~~interest~~short-term rates and ~~continued mix shift toward higher-yielding assets.~~higher securities premium amortization tied to significantly lower long-term rates. These results were partially offset by the ~~impact~~benefit of higher ~~deposit~~interest-earning asset yields, given continued mix shift toward more attractive risk-adjusted return portfolios and ~~other funding costs.~~modestly higher short-term rates. Net interest margin on an FTE basis of 3.16% decreased 6 basis points compared to 3.22% in 2018. Average interest-earning asset yields of ~~4.05%~~4.19% increased 4914 basis points from ~~3.56% for the year ended 2017,~~4.05% in 2018, while average interest-bearing liability costs of ~~1.19%~~1.46% increased 4427 basis points from ~~0.75% for the year ended 2017.~~1.19% in 2018.

Average interest-earning assets of ~~$141.3~~$146.8 billion increased ~~$3.8~~$5.5 billion, or 3%4%, from ~~the year ended 2017,~~2018, driven by a ~~$2.5~~$2.9 billion increase in average commercial loans and leases, ~~and~~ a ~~$1.7~~$1.6 billion increase in average retail loans, ~~partially offset by~~ a ~~$692~~$932 million ~~decrease~~increase in average ~~investments~~total loans held for sale, and a $156 million increase in total investment securities and interest-bearing cash and due from banks and deposits in banks. ~~Commercial~~Total commercial loan and lease 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 ~~$115.9~~$123.3 billion increased ~~$4.0~~$7.4 billion from ~~the year ended 2017,~~2018, reflecting growth in savings, term deposits, ~~savings, demand deposits, and~~ checking with ~~interest.~~interest, and money market accounts, partially offset by a decline in demand deposits. Total interest-bearing deposit costs of $1.2 billion increased $370 million, or 47%, from $785 million ~~increased $344 million, or 78%, from $441 million~~ in ~~2017,~~2018, primarily due to ~~rising rates.~~higher short-term rates and average deposit growth.

Average total borrowed funds of ~~$15.9~~$13.7 billion ~~increased $341 million~~decreased $2.2 billion from ~~the year ended 2017,~~2018, reflecting ~~an increase in long term borrowed funds, primarily senior debt, partially offset by~~ a decrease in other short-term borrowed funds, a decrease in long-term borrowed funds, and a decrease in federal funds purchased and repurchase agreements. Total borrowed funds costs of $420 million decreased $21 million from 2018. The total borrowed funds ~~costs~~cost of ~~2.76%~~3.06% increased 8030 basis points from ~~1.96% for the year ended 2017~~2.76% in 2018 due to an increase in ~~long-term~~short-term rates and a mix shift to long-term senior debt.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 42

The following table presents the change in interest income and interest expense due to changes in both average volume and average rate. ~~Average volume~~Volume and rate changes have been allocated ~~between the average rate and average volume variances~~ on a consistent basis using the respective percentage changes in average balances and average rates.


	Year Ended December 31,									Year Ended December 31,
	2018 Versus 2017									2019 Versus 2018
(in millions)	Average Volume			Average Rate			Net Change			Average Volume			Average Rate			Net Change
Interest Income
Interest-bearing cash and due from banks and deposits in banks		($2	)		$13			$11			($1	)		$2			$1
Taxable investment securities	(11		)	58			47			5			(35		)	(30		)
Non-taxable investment securities	—			—			—
Total investment securities	(11		)	58			47			5			(35		)	(30		)
Commercial	61			226			287			95			81			176
Commercial real estate	40			115			155			38			33			71
Leases	(10		)	6			(4		)	(9		)	4			(5		)
Total commercial loans and leases	91			347			438			124			118			242
Residential mortgages	67			6			73			51			(8		)	43
Home equity loans	(22		)	3			(19		)	(16		)	1			(15		)
Home equity lines of credit	(25		)	103			78			(35		)	54			19
Home equity loans serviced by others	(13		)	1			(12		)	(9		)	2			(7		)
Home equity lines of credit serviced by others	(2		)	—			(2		)	(2		)	2			—
Automobile	(31		)	50			19			(19		)	64			45
Education	50			34			84			53			15			68
Credit cards	18			(1		)	17			21			(12		)	9
Other retail	79			6			85			59			(32		)	27
Total retail loans	121			202			323			103			86			189
Total loans and leases	212			549			761			227			204			431
Loans held for sale, at fair value	13			6			19			37			(11		)	26
Other loans held for sale	(1		)	1			—			5			(2		)	3
Total interest income		$211			$627			$838			$273			$158			$431
Interest Expense
Checking with interest		$1			$58			$59			$10			$55			$65
Money market accounts	(5		)	150			145			1			106			107
Regular savings	—			11			11			5			55			60
Term deposits	27			102			129			48			90			138
Total interest-bearing deposits	23			321			344			64			306			370
Federal funds purchased and securities sold under agreements to repurchase	—			3			3			(1		)	3			2
Other short-term borrowed funds	(7		)	33			26			(8		)	1			(7		)
Long-term borrowed funds	21			85			106			(51		)	35			(16		)
Total borrowed funds	14			121			135			(60		)	39			(21		)
Total interest expense	37			442			479			4			345			349
Net interest income		$174			$185			$359			$269			($187	)		$82

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 43

Noninterest Income

The following table presents the significant components of our noninterest income:


	Year Ended December 31,									Year Ended December 31,
(in millions)	2018		2017		Change			Percent		2019		2018		Change			Percent
Service charges and fees		$513		$516		($3	)	(1	%)		$505		$513		($8	)	(2	%)
Mortgage banking fees										302		152		150			99
Card fees	244		233		11			5		254		244		10			4
Capital markets fees	179		194		(15		)	(8	)	216		179		37			21
Trust and investment services fees	171		158		13			8		202		171		31			18
Mortgage banking fees	152		108		44			41
Foreign exchange and interest rate products										155		126		29			23
Letter of credit and loan fees	128		121		7			6		135		128		7			5
Foreign exchange and interest rate products	126		109		17			16
Securities gains, net	19		11		8			73		19		19		—			—
Other income⁽¹⁾	64		84		(20		)	(24	)	89		64		25			39
Noninterest income⁽²⁾		$1,596		$1,534		$62		4	%		$1,877		$1,596		$281		18	%

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

⁽²⁾~~2018 noninterest income amounts reflect the adoption of ASU 2014-09,~~ ~~Revenue From Contracts With Customers (Topic 606).~~

Noninterest income ~~of $1.6 billion in~~increased $281 million, from 2018, ~~increased $62 million, or 4%, compared to $1.5 billion in 2017, driven by strength in~~reflecting record mortgage banking fees, ~~reflecting~~capital markets fees, and trust investment services fees, which included the ~~$57 million~~ impact of ~~FAMC, as well as~~Acquisitions and, along with higher foreign exchange and interest rate products ~~trust~~revenue, reflected the benefit of investments to broaden and ~~investment~~enhance our capabilities. Results also reflected increased other income due to higher leasing income, including $7 million associated with a lease restructuring transaction, and asset dispositions tied to balance sheet optimization and efficiency initiatives.



		Citizens Financial Group, Inc. \| 44

Noninterest Expense

The following table presents the significant components of our noninterest expense:



	Year Ended December 31,
(in millions)	2019		2018		Change			Percent
Salaries and employee benefits		$2,026		$1,880		$146		8	%
Equipment and software expense⁽¹⁾	514		464		50			11
Outside services	498		447		51			11
Occupancy	333		333		0			—
Other operating expense	476		495		(19		)	(4	)
Noninterest expense		$3,847		$3,619		$228		6	%

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

Noninterest expense of $3.8 billion in 2019 increased $228 million, or 6%, compared to 2018, reflecting higher salaries and employee benefits, outside services, ~~fees, card fees~~ and ~~letter~~equipment and software expense, and included the impact of ~~credit~~Acquisitions as well as continued investments to diversify our platform and ~~loan fees,~~drive future revenue growth. These results were partially offset by lower ~~capital market fees and service charges and fees. Excluding the impact of notable items and 2017 aircraft finance lease impairments,~~other operating expense largely tied to a reduction in FDIC insurance premiums. Underlying noninterest ~~income* for the year ended 2018~~expense increased ~~$73~~$214 million, or ~~5%.~~6%, due to the reasons listed above.



		Citizens Financial Group, Inc. \| 45

Provision for Credit Losses

Provision for credit losses of $326 million increased $5 million, or 2%, from $321 million in 2017, which reflected moderately lower reserve growth and partially offset slightly higher net charge-offs. Full year 2018 results reflected a $9 million reserve build, compared to a $16 million reserve build in 2017. Net charge-offs in 2018 of $317 million were $12 million higher compared to 2017. On an Underlying basis,* total credit-related costs decreased $21 million, primarily due to the impact of 2017 aircraft lease impairments.

The provision for loan and lease losses is the result of a detailed analysis performed to estimate an appropriate and adequate ~~ALLL.~~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.

~~Noninterest Expense~~

~~The following table presents the significant components~~Provision for credit losses of ~~our noninterest expense:~~

Year Ended December 31,
(in millions) 2018
2017
Change
Percent
Salaries and employee benefits⁽¹⁾

$1,880

$1,766

$114
6 %
Outside services 447
404
43
11
Occupancy 333
319
14
4
Equipment expense 275
263
12
5
Amortization of software 189
180
9
5
Other operating expense⁽¹⁾
495
542
(47 ) (9 )
Noninterest expense
$3,619

$3,474

$145
4 %

⁽¹⁾~~Salaries and employee benefits and other operating expense amounts reflect~~$393 million increased $67 million, or 21%, from $326 million in 2018, which reflected a small number of uncorrelated losses in commercial, the impact of ~~the adoption of ASU 2017-07,~~ ~~Compensation~~ — ~~Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost~~continued seasoning in retail growth portfolios and ~~Net Periodic Postretirement Benefit Cost~~.

Noninterest expense of $3.6 billion in 2018 increased $145 million, or 4%, compared to 2017, reflecting higher salaries and employee benefits driven by higher revenue-based incentives and merit increases, as well as higher outside services expense, including continued investments to driveloan growth. Full year ~~2018~~2019 results ~~also~~ reflected a $37 million ACL release, compared to $9 million ACL build in 2018. Net charge-offs in 2019 of $430 million increased $113 million compared to 2018.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

$60 million of FAMC costs, primarily in salaries and employee benefits, and $54 million of FAMC integration costs and other notable items. These increases were partially offset by lower other operating expenses. Excluding FAMC integration costs, other notable items and the impact of 2017 aircraft operating lease impairments, Underlying noninterest expense* increased $146 million, or 4%.

Income Tax Expense

Income tax expense of $460 million decreased $2 million from $462 million ~~increased $202 million, or 78%, from $260 million~~ in ~~2017.~~2018. The ~~2018~~2019 effective tax rate of 20.4% decreased from 21.2% ~~increased~~in 2018, largely reflecting legacy tax matters, a benefit from ~~13.6%~~an operational restructure, a reduction in ~~2017, primarily attributable~~non-deductible FDIC insurance premiums and an increase in benefits from tax advantaged investments, partially offset by a benefit related to ~~the revaluation of our deferred tax liability as a result of~~ 2017 Tax ~~Legislation.~~Legislation in 2018. On an Underlying basis,* the effective income tax rate decreased to 22.0% from 22.5% ~~from 32.2%~~ in ~~2017,~~2018, primarily attributable to the reduction in ~~the federal statutory tax rate from 35% to 21% under the 2017 Tax Legislation, partially offset by~~non-deductible FDIC insurance premiums and an increase in ~~state and local income taxes and non-deductible FDIC premiums.~~benefits from tax advantaged investments.

At December 31, 2018, our net deferred tax liability of $573 million compared to a $571 million liability at December 31, 2017. The increase in the net deferred tax liability was primarily attributable to the tax effect of differences in the timing of deductions and income items for financial statement purposes versus taxable income purposes almost fully offset by the tax effect of the net unrealized losses on securities and derivatives arising during the period. For further discussion, see Note 22 “Income Taxes” to our Consolidated Financial Statements in Part II, Item 8 — Financial Statements and Supplementary Data, included in this Report.



		Citizens Financial Group, Inc. \| 46

Business Operating Segments

~~The following tables present certain financial data of our business operating segments, Other and consolidated:~~

As of and for the Year Ended December 31, 2018
(dollars in millions) Consumer Banking Commercial Banking
Other ⁽⁴⁾

Consolidated
Net interest income⁽¹⁾

$3,064

$1,497

($29 )
$4,532
Noninterest income 973
545
78
1,596
Total revenue 4,037
2,042
49
6,128
Noninterest expense 2,723
813
83
3,619
Profit before provision for credit losses 1,314
1,229
(34 ) 2,509
Provision for credit losses 289
26
11
326
Income (loss) before income tax expense (benefit) 1,025
1,203
(45 ) 2,183
Income tax expense (benefit) 258
276
(72 ) 462
Net income
$767

$927

$27

$1,721
Loans and leases (period-end) ⁽²⁾

$62,250

$53,439

$2,291

$117,980
Average Balances:
Total assets
$62,444

$52,362

$39,747

$154,553
Total loans and leases ⁽²⁾
60,691
51,344
2,446
114,481
Deposits 77,542
30,704
7,611
115,857
Interest-earning assets 60,743
51,572
28,984
141,299
Key Performance Metrics:
Net interest margin 5.04 % 2.90 % NM
3.19 %
Efficiency ratio 67.47
39.80
NM
59.06
Loans-to-deposits ratio (average balances)⁽³⁾
77.42
166.09
NM
97.94
Return on average total tangible assets 1.23
1.77
NM
1.16

⁽¹⁾~~We periodically evaluate and refine our methodologies used to measure financial performance of our business operating segments. In first quarter 2018, we~~

~~enhanced our assumptions for the liquidity and deposit components within our FTP methodology which provides a credit for sources of funds and a charge for~~

~~the use of funds by each business operating segment. The enhancement largely provides increased credit for the stability of deposit composition, and an increased~~

~~charge for unused commitments under lending arrangements. Prior periods have not been adjusted for this change.~~

⁽²⁾~~Includes loans held for sale~~

⁽³⁾ ~~We revised our method of calculating the loans-to-deposits ratio in third quarter 2018 to exclude loans held for sale. Prior periods 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 — Non-Core Assets.”

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

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, income taxes 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, expenses, and residual 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 assigned to a business operating segment and any associated goodwill impairment charges. For impairment testing purposes, we ~~allocate~~assign all goodwill to our Consumer ~~Banking~~ and Commercial Banking reporting units.

Our capital levels are evaluated and managed centrally; however, capital is allocated on a risk-adjusted basis ~~considering economic and regulatory capital requirements~~ to the business operating segments to support evaluation of business performance. Because funding and asset liability management is a central function, funds transfer-pricing (“FTP”) methodologies are utilized to allocate a cost of funds used, or credit for the funds provided, to all business operating segment assets, liabilities and capital, respectively, using a matched-funding concept. The residual effect on net interest income of asset/liability management, including the residual net interest income related to the FTP process, is included in Other. We periodically evaluate and refine our methodologies used to measure financial performance of our business operating segments.

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

Noninterest income and expense are directly attributed to each business operating segment, including fees, service charges, salaries and benefits, and other direct revenues and costs and are respectively accounted for in a manner similar to our Consolidated Financial Statements. Occupancy costs are allocated based on utilization of facilities by each business operating segment. Noninterest expenses incurred by centrally managed operations or business operating segments that directly support another business operating segment’s operations are charged to the applicable business operating segment based on its utilization of those services.

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

Developing and applying methodologies used to allocate items among the business operating segments is a dynamic process. Accordingly, financial results may be revised periodically as management systems are enhanced, methods of evaluating performance or product lines are updated, or our organizational structure changes.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 47

The following table presents certain financial data of our business operating segments. Total business operating segment financial results differ from total consolidated net income. These differences are reflected in Other non-segment operations. See Note 25 in Item 8 for further information.



	As of and for the Year Ended December 31,				As of and for the Year Ended December 31,
	2019		2018		2019		2018
(dollars in millions)	Consumer Banking				Commercial Banking
Net interest income		$3,182		$3,064		$1,466		$1,497
Noninterest income	1,156		973		607		545
Total revenue	4,338		4,037		2,073		2,042
Noninterest expense	2,851		2,723		858		813
Profit before provision for credit losses	1,487		1,314		1,215		1,229
Provision for credit losses	325		289		97		26
Income before income tax expense	1,162		1,025		1,118		1,203
Income tax expense	287		258		248		276
Net income		$875		$767		$870		$927
Average Balances:
Total assets		$66,240		$62,444		$55,947		$52,362
Total loans and leases⁽¹⁾	63,396		60,691		54,355		51,344
Deposits	84,835		77,542		31,085		30,704
Interest-earning assets	63,449		60,743		54,666		51,572

⁽¹⁾Includes LHFS.

~~Consumer Banking~~

As of and for the Year Ended December 31,
(dollars in millions) 2018
2017
Change Percent
Net interest income⁽¹⁾

$3,064

$2,651

$413
16 %
Noninterest income 973
905
68
8
Total revenue 4,037
3,556
481
14
Noninterest expense 2,723
2,593
130
5
Profit before provision for credit losses 1,314
963
351
36
Provision for credit losses 289
265
24
9
Income before income tax expense 1,025
698
327
47
Income tax expense 258
246
12
5
Net income
$767

$452

$315
70
Loans (period-end) ⁽²⁾

$62,250

$60,096

$2,154
4
Average Balances:
Total assets
$62,444

$59,714

$2,730
5 %
Total loans and leases ⁽²⁾
60,691
58,371
2,320
4
Deposits 77,542
74,873
2,669
4
Interest-earning assets 60,743
58,422
2,321
4
Key Performance Metrics:
Net interest margin 5.04 % 4.54 % 50 bps
Efficiency ratio 67.47
72.93
(546 ) bps
Loans-to-deposits ratio (average balances)⁽³⁾
77.42
77.49
(7 ) bps
Return on average total tangible assets 1.23
0.76
47 bps

⁽¹⁾We periodically evaluate and refine our methodologies used to measure financial performance of our business operating segments. In first quarter 2018, we enhanced our assumptions for the liquidity and deposit components within our FTP methodology which provides a credit for sources of funds and a charge for the use of funds by each business operating segment. The enhancement largely provides increased credit for the stability of deposit composition, and an increased charge for unused commitments under lending arrangements. Prior periods have not been adjusted for this change.

⁽²⁾~~Includes loans held for sale.~~

~~Consumer Banking net interest income of $3.1 billion~~ ~~increased$413 million, or~~ ~~16%~~, from 2017, driven by the impact of an FTP methodology enhancement as well as the benefit of a $2.3 billion increase in average loans led by residential mortgage, education 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~~ ~~$68 million, or~~ 8%~~, from 2017, driven by a $57 million increase in mortgage banking fees related to FAMC, and higher trust and investment services fees. Noninterest expense of $2.7 billion~~ ~~increased~~ ~~$130 million, or~~ 5%~~, from 2017, driven by a $60 million increase related to FAMC, higher salaries and benefits, occupancy expense, outside services, and advertising. Provision for credit losses of $289 million~~ ~~increased$24 million, or~~ 9%~~, from $265 million for the year ended 2017, reflecting balance growth and seasoning in unsecured retail and education.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Commercial Banking~~

As of and for the Year Ended December 31,
(dollars in millions) 2018
2017
Change Percent
Net interest income⁽¹⁾

$1,497

$1,411

$86
6 %
Noninterest income 545
538
7
1
Total revenue 2,042
1,949
93
5
Noninterest expense 813
772
41
5
Profit before provision for credit losses 1,229
1,177
52
4
Provision for credit losses 26
19
7
37
Income before income tax expense 1,203
1,158
45
4
Income tax expense 276
384
(108 ) (28 )
Net income
$927

$774

$153
20
Loans and leases (period-end) ⁽²⁾

$53,439

$48,623

$4,816
10
Average Balances:
Total assets
$52,362

$49,747

$2,615
5 %
Total loans and leases⁽²⁾
51,344
48,655
2,689
6
Deposits 30,704
30,005
699
2
Interest-earning assets 51,572
48,802
2,770
6
Key Performance Metrics:
Net interest margin 2.90 % 2.89 % 1 bps
Efficiency ratio 39.80
39.62
18 bps
Average loans to average deposits ratio ⁽³⁾
166.09
161.15
494 bps
Return on average total tangible assets 1.77
1.56
21 bps

⁽²⁾~~Includes loans held for sale.~~

~~Commercial Banking net interest income of $1.5 billion~~ ~~increased$86 million, or~~ 6%~~, from $1.4 billion for 2017, reflecting a~~ ~~$2.7 billionincrease~~ ~~in average loans and leases and a $699 million increase in average deposits. Noninterest income of $545 million~~ ~~increased~~ ~~$7 million, or~~ 1%~~, from $538 million for 2017, reflecting strength in foreign exchange fees, card fees and letter of credit and loan fees, partially offset by decreases in capital market fees.~~ ~~Noninterest expense of$813 millionincreased~~ ~~$41 million, or~~ 5%~~, from $772 million for~~ ~~2017, largely driven by higher salaries and benefits expense and outside services. Provision for credit losses of $26 million~~ ~~increased$7 million~~ ~~from 2017, driven by higher net charge-offs in 2018.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Other~~

As of and for the Year Ended December 31,
(in millions) 2018
2017
Change
Percent
Net interest income⁽¹⁾

($29 )
$111

($140 ) (126 %)
Noninterest income 78
91
(13 ) (14 )
Total revenue 49
202
(153 ) (76 )
Noninterest expense 83
109
(26 ) (24 )
Profit before provision for credit losses (34 ) 93
(127 ) (137 )
Provision for credit losses 11
37
(26 ) (70 )
(Loss) income before income tax benefit (45 ) 56
(101 ) (180 )
Income tax benefit (72 ) (370 ) 298
81
Net income
$27

$426

($399 ) (94 )
Loans and leases (period-end)⁽²⁾

$2,291

$2,616

($325 ) (12 )
Average Balances:
Total assets
$39,747

$40,492

($745 ) (2 %)
Total loans and leases⁽²⁾
2,446
2,946
(500 ) (17 )
Deposits 7,611
6,996
615
9
Interest-earning assets 28,984
30,258
(1,274 ) (4 )

⁽¹⁾ We periodically evaluate and refine our methodologies used to measure financial performance of our business operating segments. In first quarter 2018, we enhanced our assumptions for the liquidity and deposit components within our FTP methodology which provides a credit for sources of funds and a charge for the use of funds by each business operating segment. The enhancement largely provides increased credit for the stability of deposit composition, and an increased charge for unused commitments under lending arrangements. Prior periods have not been adjusted for this change.

⁽²⁾ ~~Includes loans held for sale.~~

~~Other net income of~~ ~~$27 milliondecreased~~ from $426 million for 2017, primarily driven by a $331 million benefit attributable to the revaluation of our deferred tax liability as a result of 2017 Tax Legislation. Other net interest income decreased $140 million reflecting an FTP methodology enhancement, higher funding costs, the declining benefit of swaps and non-core portfolio runoff. Results also reflected lower net charge-offs and a reserve build of $9 million for 2018 compared to a reserve build of $16 million for 2017.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~RESULTS OF OPERATIONS — 2017 compared with 2016~~

~~Net Income~~

~~The following table presents the significant components of our net income for the periods indicated:~~

Year Ended December 31,
(dollars in millions) 2017
2016
Change Percent
Net interest income
$4,173

$3,758

$415
11 %
Noninterest income 1,534
1,497
37
2
Total revenue 5,707
5,255
452
9
Provision for credit losses 321
369
(48 ) (13 )
Noninterest expense 3,474
3,352
122
4
Income before income tax expense 1,912
1,534
378
25
Income tax expense 260
489
(229 ) (47 )
Net income
$1,652

$1,045

$607
58 %
Net income available to common stockholders
$1,638

$1,031

$607
59 %
Return on average tangible common equity 12.35 % 7.74 % 461 bps

~~Return on Equity and Assets~~

~~The following table presents our return on average total assets, return on average common equity, dividend payout ratio and average equity to average assets ratio:~~

December 31,
2017
2016
Return on average total assets 1.10 % 0.73 %
Return on average common equity 8.35
5.23
Dividend payout ratio 19.62
23.30
Average equity to average assets ratio 13.25
13.93

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Net Interest Income~~

~~The following table presents the major components of net interest income and net interest margin:~~

Year Ended December 31,
2017 2016 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
$1,807

$18
0.96 %
$1,931

$8
0.41 %
($124 ) 55 bps
Taxable investment securities 25,696
625
2.43
24,643
584
2.37
1,053
6
Non-taxable investment securities 7
—
2.60
8
—
2.60
(1 ) —
Total investment securities 25,703
625
2.43
24,651
584
2.37
1,052
6
Commercial 37,631
1,334
3.50
35,652
1,136
3.13
1,979
37
Commercial real estate 11,178
402
3.55
9,741
278
2.81
1,437
74
Leases 3,437
86
2.50
3,841
93
2.41
(404 ) 9
Total commercial loans and leases 52,246
1,822
3.44
49,234
1,507
3.01
3,012
43
Residential mortgages 16,017
571
3.57
14,005
504
3.60
2,012
(3)
Home equity loans 1,610
91
5.68
2,180
123
5.64
(570 ) 4
Home equity lines of credit 13,706
514
3.75
14,402
457
3.18
(696 ) 57
Home equity loans serviced by others 642
46
7.09
867
62
7.11
(225 ) (2)
Home equity lines of credit serviced by others 181
7
4.07
281
7
2.41
(100 ) 166
Automobile 13,491
442
3.27
13,953
411
2.94
(462 ) 33
Education 7,557
403
5.33
5,558
282
5.08
1,999
25
Credit cards 1,725
185
10.75
1,620
181
11.22
105
(47)
Other retail 2,117
168
7.94
1,288
119
9.23
829
(129)
Total retail loans 57,046
2,427
4.25
54,154
2,146
3.96
2,892
29
Total loans and leases ⁽¹⁾
109,292
4,249
3.87
103,388
3,653
3.51
5,904
36
Loans held for sale, at fair value 490
18
3.58
425
15
3.40
65
18
Other loans held for sale 190
10
5.36
141
6
4.55
49
81
Interest-earning assets 137,482
4,920
3.56
130,536
4,266
3.25
6,946
31
Allowance for loan and lease losses (1,225 ) (1,227 ) 2

Goodwill 6,883
6,876
7

Other noninterest-earning assets 6,813
6,998
(185 )
Total assets
$149,953

$143,183

$6,770

Liabilities and Stockholders’ Equity
Checking with interest
$21,458

$79
0.37 %
$19,320

$34
0.18 %
$2,138
19 bps
Money market accounts 37,450
198
0.53
37,106
133
0.36
344
17
Regular savings 9,384
4
0.04
8,691
4
0.04
693
—
Term deposits 15,448
160
1.04
12,696
99
0.78
2,752
26
Total interest-bearing deposits 83,740
441
0.53
77,813
270
0.35
5,927
18
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾
776
3
0.38
947
2
0.22
(171 ) 16
Other short-term borrowed funds 2,321
31
1.32
3,207
40
1.22
(886 ) 10
Long-term borrowed funds 12,479
272
2.17
10,472
196
1.86
2,007
31
Total borrowed funds 15,576
306
1.96
14,626
238
1.62
950
34
Total interest-bearing liabilities 99,316
747
0.75
92,439
508
0.55
6,877
20
Demand deposits 28,134
27,634
500

Other liabilities 2,637
3,165
(528 )
Total liabilities 130,087
123,238
6,849

Stockholders’ equity 19,866
19,945
(79 )
Total liabilities and stockholders’ equity
$149,953

$143,183

$6,770

Interest rate spread 2.81 % 2.70 % 11
Net interest income
$4,173

$3,758

Net interest margin 3.02 % 2.86 % 16 bps
Memo: Total deposits (interest-bearing and demand)
$111,874

$441
0.39 %
$105,447

$270
0.26 %
$6,427
13 bps

⁽¹⁾ Interest income and rates on loans include loan fees. Additionally, $970 million and $1.1 billion of average nonaccrual loans were included in the average loan balances used to determine the average yield on loans for December 2017 and 2016.

⁽²⁾Balances are net of certain short-term receivables associated with reverse repurchase agreements. Interest expense includes the full cost of the repurchase agreements and certain hedging costs. The rate on federal funds purchased is elevated due to the impact from pay-fixed interest rate swaps that ran off in 2016. See “—Analysis of Financial Condition— Derivatives” for further information.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Net interest income of $4.2 billion in the year ended 2017 increased $415 million, or 11%, compared to $3.8 billion in the year ended 2016, reflecting 6% average loan growth and a 16 basis point improvement in net interest margin.

Average interest-earning assets of $137.5 billion increased $6.9 billion, or 5%, from the year ended 2016, driven by a $3.0 billion increase in average commercial loans and leases, a $2.9 billion increase in average retail loans, and a $928 million increase in average investments and interest-bearing cash and due from banks and deposits in banks. Commercial loan growth was driven by strength in commercial and commercial real estate. Retail loan growth was driven by strength in residential mortgages, education, and other retail balances.

Average deposits of $111.9 billion increased $6.4 billion from the year ended 2016, reflecting growth in all categories with particular strength in checking with interest and term deposits. Total interest-bearing deposit costs of $441 million increased $171, or 63%, from $270 million in 2016, primarily due to the impact of rising rates and a slight shift in mix toward commercial deposits.

Average total borrowed funds of $15.6 billion increased $1.0 billion from the year ended 2016, reflecting an increase in average long-term borrowed funds driven by issuances of senior notes. Total borrowed funds costs of $306 million increased $68 million from the year ended 2016. The total borrowed funds yield of 1.96% in the year ended 2017 increased 34 basis points from 1.62% in the year ended 2016 due to an increase in long-term rates and a mix shift to long-term senior debt.

Net interest margin of 3.02% increased 16 basis points compared to 2.86% in the year ended 2016, driven by improved loan yields reflecting both higher interest rates and balance sheet optimization initiatives. These results were partially offset by the impact of investment portfolio growth and higher deposit cost and funding costs. Average interest-earning asset yields of 3.56% increased 31 basis points from 3.25% in the year ended 2016, while average interest-bearing liability costs of 0.75% increased 20 basis points from 0.55% in the year ended 2016.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The following table presents the change in interest income and interest expense due to changes in both average volume and average rate. Average volume and rate changes have been allocated between the average rate and average volume variances on a consistent basis using the respective percentage changes in average balances and average rates.

Year Ended December 31,
2017 Versus 2016
(in millions) Average Volume Average Rate Net Change
Interest Income
Interest-bearing cash and due from banks and deposits in banks
$—

$10

$10
Taxable investment securities 25
16
41
Non-taxable investment securities —
—
—
  Total investment securities 25
16
41
Commercial 62
136
198
Commercial real estate 41
83
124
Leases (10 ) 3
(7 )
     Total commercial loans and leases 93
222
315
Residential mortgages 72
(5 ) 67
Home equity loans (33 ) 1
(32 )
Home equity lines of credit (22 ) 79
57
Home equity loans serviced by others (16 ) —
(16 )
Home equity lines of credit serviced by others (3 ) 3
—
Automobile (14 ) 45
31
Education 102
19
121
Credit cards 12
(8 ) 4
Other retail 76
(27 ) 49
      Total retail loans 174
107
281
      Total loans and leases 267
329
596
Loans held for sale, at fair value 2
1
3
Other loans held for sale 2
2
4
Total interest income
$296

$358

$654
Interest Expense
Checking with interest
$4

$41

$45
Money market accounts 1
64
65
Regular savings —
—
—
Term deposits 21
40
61
Total interest-bearing deposits 26
145
171
Federal funds purchased and securities sold under agreements to repurchase —
1
1
Other short-term borrowed funds (11 ) 2
(9 )
Long-term borrowed funds 37
39
76
      Total borrowed funds 26
42
68
Total interest expense 52
187
239
Net interest income
$244

$171

$415

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Noninterest Income~~

~~The following table presents the significant components of our noninterest income:~~

Year Ended December 31,
(dollars in millions) 2017
2016
Change
Percent
Service charges and fees⁽¹⁾

$516

$522

($6 ) (1 %)
Card fees 233
203
30
15
Capital markets fees⁽¹⁾
194
136
58
43
Trust and investment services fees 158
146
12
8
Mortgage banking fees 108
112
(4 ) (4 )
Letter of credit and loan fees⁽¹⁾
121
112
9
8
Foreign exchange and interest rate products⁽¹⁾
109
103
6
6
Securities gains, net 11
16
(5 ) (31 )
Other income ⁽¹⁾
84
147
(63 ) (43 )
Noninterest income
$1,534

$1,497

$37
2 %

⁽¹⁾ In first quarter 2017, certain prior period noninterest income amounts reported in the Consolidated Statement of Operations were reclassified to enhance transparency and provide additional granularity, particularly with regard to fee income related to customer activity. These changes had no effect on net income as previously reported.

Noninterest income of $1.5 billion in 2017, increased $37 million, or 2%, compared to 2016 driven by capital market fees, card fees, trust and investment service fees, letter of credit and loan fees and foreign exchange and interest rate products, partially offset by a reduction in service charges and fees, securities gains, mortgage banking fees and other income. Capital market fees increased $58 million, reflecting underlying business momentum and the impact of building capabilities. Card fees increased $30 million from 2016 results. Service charges decreased $6 million and mortgage banking fees decreased $4 million from 2016. On an Adjusted/Underlying basis,* noninterest income increased $98 million, or 7%, compared to 2016.

~~Provision for Credit Losses~~

Provision for credit losses of $321 million decreased $48 million, or 13% from $369 million in 2016. The $48 million decrease was primarily due to continued asset quality improvement and the decline in net charge-offs when compared to 2016. The 2017 results reflected a $16 million reserve build, compared to a $34 million reserve build for the full year 2016. Net charge-offs for the full year 2017 of $305 million were $30 million lower compared to the full year 2016.

The provision for loan and lease losses is the result of a detailed analysis performed to estimate an appropriate and adequate ALLL. 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.

~~Noninterest Expense~~

~~The following table presents the significant components of our noninterest expense:~~

Year Ended December 31,
(dollars in millions) 2017
2016
Change
Percent
Salaries and employee benefits
$1,766

$1,714

$52
3 %
Outside services 404
377
27
7
Occupancy 319
307
12
4
Equipment expense 263
263
—
—
Amortization of software 180
170
10
6
Other operating expense 542
521
21
4
Noninterest expense
$3,474

$3,352

$122
4 %

Noninterest expense of $3.5 billion in 2017 increased $122 million, or 4%, compared to 2016. Salaries and benefits increased $52 million, or 3%, driven by merit increases and the impact of hiring associated with strategic growth initiatives. Outside services increased $27 million, or 7%, tied to consumer strategic growth initiatives and technology initiatives. Occupancy expense increased $12 million, or 4%, reflecting costs associated with our branch

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~strategy, rent and maintenance. Other operating expense increased $21 million, or 4%. On an Adjusted/Underlying basis,* noninterest expense increased $103 million, or 3%, compared to 2016.~~

~~Income Tax Expense~~

Income tax expense was $260 million and $489 million in 2017 and 2016, respectively. This resulted in an effective tax rate of 13.6% and 31.9% in 2017 and 2016, respectively. The decrease in the effective income tax rate from 2016 to 2017 was primarily attributable to the revaluation of our deferred tax liability as a result of 2017 Tax Legislation.

At December 31, 2017, we reported a net deferred tax liability of $571 million, compared to a $714 million liability at December 31, 2016. The decrease in the net deferred tax liability was primarily attributable to the revaluation of our deferred tax liability as a result of 2017 Tax Legislation.

On December 22, 2017, President Trump signed the 2017 Tax Legislation which included a reduction in the corporate tax rate from 35% to 21%. For Citizens, this required a revaluation of our net deferred tax liability with a corresponding adjustment to current tax expense, and resulted in a $331 million net tax benefit. Included in this net tax benefit was $145 million of expense related to the revaluation of our deferred tax assets associated with unrealized losses in AOCI. FASB standards in-place at December 31, 2017 required us to revalue all deferred taxes, including those related to balances in AOCI, through current tax expense. As a result, our unrealized loss balance in AOCI was not revalued to reflect the new corporate tax rate. This impact, commonly referred to as the “stranded tax effect”, was taken under consideration by FASB in January 2018 to address concerns primarily raised by banking institutions, including distortion of net income and regulatory capital. In February 2018, to address the “stranded tax effect”, FASB issued ASU 2018-02, ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which provides entities the election to reclassify the difference between the new and old corporate tax rates resulting from the 2017 Tax Legislation between retained earnings and AOCI for fiscal years beginning after December 15, 2018, with early adoption permitted. We have retrospectively adopted ASU 2018-02, elected to reclassify $145 million between AOCI and retained earnings, including indirect impacts from the decreased federal tax effect on future state tax benefits, and reflected this reclassification in our 2017 Consolidated Financial Statements, included in this Report.

~~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 Year Ended December 31, 2017
(dollars in millions) Consumer Banking Commercial Banking
Other ⁽³⁾

Consolidated
Net interest income
$2,651

$1,411

$111

$4,173
Noninterest income 905
538
91
1,534
Total revenue 3,556
1,949
202
5,707
Noninterest expense 2,593
772
109
3,474
Profit before provision for credit losses 963
1,177
93
2,233
Provision for credit losses 265
19
37
321
Income before income tax expense (benefit) 698
1,158
56
1,912
Income tax expense (benefit) 246
384
(370 ) 260
Net income
$452

$774

$426

$1,652
Loans and leases and loans held for sale (year-end)
$60,096

$48,623

$2,616

$111,335
Average Balances:
Total assets
$59,714

$49,747

$40,492

$149,953
Total loans and leases ⁽¹⁾
58,371
48,655
2,946
109,972
Deposits 74,873
30,005
6,996
111,874
Interest-earning assets 58,422
48,802
30,258
137,482
Key Performance Metrics:
Net interest margin 4.54 % 2.89 % NM
3.02 %
Efficiency ratio 72.93
39.62
NM
60.87
Loans-to-deposits ratio (average balances) ⁽²⁾
77.49
161.15
NM
97.69
Return on average total tangible assets 0.76
1.56
NM
1.15

⁽¹⁾~~Includes loans held for sale.~~

⁽²⁾~~We revised our method of calculating the loans-to-deposits ratio in third quarter 2018 to exclude loans held for sale. Prior periods have been adjusted to conform with the current period presentation.~~

⁽³⁾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 — Non-Core Assets.”

We operate our business through two business operating segments: Consumer Banking and Commercial Banking. Segment results are derived from our business-line profitability reporting systems by specifically attributing managed assets, liabilities, capital and their related revenues, provision for credit losses and expenses and income tax expense. Residual assets, liabilities, capital and their related revenues, provision for credit losses and expenses are attributed to Other. For further information, see “—Results of Operations — 2018 compared with 2017 — Business Operating Segments.”

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Consumer Banking

As of and for the Year Ended December 31,
(dollars in millions) 2017
2016
Change Percent
Net interest income
$2,651

$2,443

$208
9 %
Noninterest income 905
883
22
2
Total revenue 3,556
3,326
230
7
Noninterest expense 2,593
2,547
46
2
Profit before provision for credit losses 963
779
184
24
Provision for credit losses 265
243
22
9
Income before income tax expense 698
536
162
30
Income tax expense 246
191
55
29
Net income
$452

$345

$107
31
Loans (year-end)⁽¹⁾

$60,096

$57,383

$2,713
5
Average Balances:

Total assets
$59,714

$56,388

$3,326
6 %
Total loans ⁽¹⁾
58,371
55,052
3,319
6
Deposits 74,873
72,003
2,870
4
Interest-earning assets 58,422
55,101
3,321
6
Key Performance Metrics:
Net interest margin 4.54 % 4.43 % 11 bps
Efficiency ratio 72.93
76.57
(364 ) bps
Loans-to-deposits ratio (average balances) ⁽²⁾
77.49
75.97
152 bps
Return on average total tangible assets 0.76
0.61
15 bps

⁽¹⁾~~Includes loans held for sale.~~

⁽²⁾ ~~We revised our method of calculating the loans-to-deposits ratio in third quarter 2018 to exclude loans held for sale. Prior periods have been adjusted to conform with the current period presentation.~~

Consumer Banking net income of $452 million increased $107 million, or 31%, from $345 million in the year ended 2016, as the benefit of a $230 million increase in total revenue more than offset a $46 million increase in noninterest expense. Net interest income ~~of $2.7 billion~~ increased ~~$208~~ $118 million, or 9%4%, from ~~the year ended 2016,~~2018, driven by the benefit of a ~~$3.3~~$2.7 billion increase in average loans ~~driven~~led by residential, ~~mortgage,~~ education and ~~retail~~ unsecured ~~categories, partially offset by an increase in deposit costs.~~

personal loans. Noninterest income increased ~~$22~~ $183 million, or 19%, from 2018, driven by higher mortgage banking, trust and investment services fees, card fees and included the impact of Acquisitions. Noninterest expense increased $128 million, or 5%, from 2018, reflecting higher salaries and benefits and outside services and included the impact of Acquisitions. Provision for credit losses of $325 million increased $36 million, or 12%, reflecting higher net charge-offs given expected seasoning in growth portfolios.

Commercial Banking

Net interest income of $1.5 billion decreased $31 million, or 2%, from 2018, reflecting the ~~year ended 2016,~~impact of higher deposit costs, partially offset by loan growth. Noninterest income of $607 million increased $62 million, or 11%, from $545 million in 2018, driven by an increase in card fees and investment and trust fees, partially offset by lower service charges and fees and mortgage banking fees. Noninterest expense of $2.6 billion increased $46 million, or 2%, from the year ended 2016, driven by higher outside services, FDIC expense, salaries and benefits, occupancy costs and advertising expense. These results were partially offset by lower credit collection costs and software amortization. Provision for credit losses of $265 million increased $22 million, or 9%, from $243 million in the year ended 2016, largely driven by higher net charge-offs in auto.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Commercial Banking~~

As of and for the Year Ended December 31,
(dollars in millions) 2017
2016
Change Percent
Net interest income
$1,411

$1,288

$123
10 %
Noninterest income 538
466
72
15
Total revenue 1,949
1,754
195
11
Noninterest expense 772
741
31
4
Profit before provision for credit losses 1,177
1,013
164
16
Provision for credit losses 19
47
(28 ) (60 )
Income before income tax expense 1,158
966
192
20
Income tax expense 384
335
49
15
Net income
$774

$631

$143
23
Loans and leases and loans (year-end) ⁽¹⁾

$48,623

$47,629

$994
2
Average Balances:
Total assets
$49,747

$47,159

$2,588
5 %
Total loans and leases ⁽¹⁾
48,655
45,903
2,752
6
Deposits 30,005
26,811
3,194
12
Interest-earning assets 48,802
45,978
2,824
6
Key Performance Metrics:
Net interest margin 2.89 % 2.80 % 9 bps
Efficiency ratio 39.62
42.26
(264 ) bps
Loans-to-deposits ratio (average balances) ⁽²⁾
161.15
170.81
(966 ) bps
Return on average total tangible assets 1.56
1.34
22 bps

⁽¹⁾~~Includes loans held for sale.~~

⁽²⁾ ~~We revised our method of calculating the loans-to-deposits ratio in third quarter 2018 to exclude loans held for sale. Prior periods have been adjusted to conform with the current period presentation.~~

Commercial Banking net income of $774 million increased $143 million, or 23%, from $631 million in the year ended 2016, as the benefit of a $195 million increase in total revenue and a $28 million decrease in provision for credit losses was partially offset by a $31 million increase in noninterest expense. Net interest income of $1.4 billion increased $123 million, or 10%, from $1.3 billion in the year ended 2016, reflecting a $2.8 billion increase in average loans and leases, improved loan and deposit spreads, and a $3.2 billion increase in average deposits.

~~Noninterest income of $538 million increased $72 million, or 15%, from $466 million in the year ended 2016, reflecting strength in~~ capital ~~markets, letter of credit and loan fees, card fees~~market and foreign exchange and interest rate ~~products, partially offset by runoff of the Asset Finance portfolio.~~ product fees. Noninterest expense of ~~$772~~ $858 million increased ~~$31~~$45 million ~~or 4%~~, from ~~$741~~$813 million in ~~the year ended 2016, largely~~2018, driven by higher salaries and employee benefits ~~FDIC~~ expense ~~software amortization and equipment expense, partially offset by a reduction in outside services.~~. Provision for credit losses of ~~$19~~$97 million ~~decreased $28~~increased $71 million from ~~the year ended 2016,~~2018, driven by ~~lower~~higher net charge-offs from a small number of uncorrelated losses.

RESULTS OF OPERATIONS — 2018 compared with 2017

For a description of our results of operations for 2018, see the “Results of Operations — 2018 compared with 2017” section of Item 7 in ~~2016.~~our 2018 Form 10-K.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Other~~

As of and for the Year Ended December 31,
(dollars in millions) 2017
2016
Change
Percent
Net interest income
$111

$27

$84
NM
Noninterest income 91
148
(57 ) (39 )
Total revenue 202
175
27
15
Noninterest expense 109
64
45
70
Profit before provision for credit losses 93
111
(18 ) (16 )
Provision for credit losses 37
79
(42 ) (53 )
Income before income tax benefit 56
32
24
75
Income tax benefit (370 ) (37 ) (333 ) NM
Net income
$426

$69

$357
NM
Loans and leases (year-end) ⁽¹⁾

$2,616

$3,282

($666 ) (20 )
Average Balances:
Total assets
$40,492

$39,636

$856
2 %
Total loans and leases⁽¹⁾
2,946
2,999
(53 ) (2 )
Deposits 6,996
6,633
363
5
Interest-earning assets 30,258
29,457
801
3

⁽¹⁾ ~~Includes loans held for sale.~~



		Citizens Financial Group, Inc. \| 48

Other net income of $426 million increased from $69 million in the year ended 2016, primarily driven by $331 million benefit related to our deferred tax liability in connection with the December 2017 Tax Legislation. Results also reflected an increase of $84 million in net interest income and lower net charge-offs and a reserve build of $16 million in the year ended 2017, compared to a reserve build of $34 million in the year ended 2016.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

ANALYSIS OF FINANCIAL CONDITION

Securities

The following table presents our AFS and HTM securities:



	December 31, 2019				December 31, 2018				December 31, 2017				Changes in Fair Value from 2019-2018
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Changes in Fair Value from 2019-2018
U.S. Treasury and other		$71		$71		$24		$24		$12		$12		$47		196	%
State and political subdivisions	5		5		5		5		6		6		—			—
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities	19,803		19,875		20,211		19,634		20,065		19,828		241			1
Other/non-agency	638		662		236		232		311		311		430			185
Total mortgage-backed securities, at fair value	20,441		20,537		20,447		19,866		20,376		20,139		671			3
Total debt securities available for sale, at fair value		$20,517		$20,613		$20,476		$19,895		$20,394		$20,157		$718		4	%
Mortgage-backed securities, at cost:
Federal agencies and U.S. government sponsored entities		$3,202		$3,242		$3,425		$3,293		$3,853		$3,814		($51	)	(2	%)
Other/non-agency	—		—		740		748		832		854		(748		)	(100	)
Total mortgage-backed securities, at cost		$3,202		$3,242		$4,165		$4,041		$4,685		$4,668		($799	)	(20	%)
Total debt securities held to maturity		$3,202		$3,242		$4,165		$4,041		$4,685		$4,668		($799	)	(20	%)
Total debt securities available for sale and held to maturity		$23,719		$23,855		$24,641		$23,936		$25,079		$24,825		($81	)	—	%
Equity securities, at fair value		$47		$47		$181		$181		$169		$169		($134	)	(74	%)
Equity securities, at cost	807		807		834		834		722		722		(27		)	(3	)
Total equity securities		$854		$854		$1,015		$1,015		$891		$891		($161	)	(16	%)

Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality and market risk while achieving appropriate ~~returns.~~returns that align with our overall portfolio management strategy. The ~~following table presents~~portfolio includes high quality, highly liquid investments reflecting our ongoing commitment to appropriate contingent liquidity levels and pledging capacity. U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 97% of the fair value of our debt securities portfolio holdings. Holdings backed by mortgages dominate our portfolio and facilitate our ability to pledge those securities to the FHLB for collateral purposes.

The fair value of the AFS debt securities portfolio of $20.6 billion at December 31, 2019 increased $718 million from $19.9 billion at December 31, 2018 largely reflecting the impact of the transfer of a net $740 million in securities from HTM to AFS upon the adoption of ASU 2017–12, Targeted Improvements to Accounting for Hedging Activities, and ~~HTM:~~

December 31, 2018 December 31, 2017 December 31, 2016 Change in Fair Value from 2018-2017
(in millions)
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Debt Securities Available for Sale, at Fair Value:⁽¹⁾

U.S. Treasury and other
$24

$24

$12

$12

$30

$30

$12
100 %
State and political subdivisions 5
5
6
6
8
8
(1 ) (17 )
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 20,211
19,634
20,065
19,828
19,231
19,045
(194 ) (1 )
Other/non-agency 236
232
311
311
427
401
(79 ) (25 )
Total mortgage-backed securities 20,447
19,866
20,376
20,139
19,658
19,446
(273 ) (1 )
Total debt securities available for sale, at fair value 20,476
19,895
20,394
20,157
19,696
19,484
(262 ) (1 %)
Marketable equity securities —
—
—
—
5
5
—
—
Other equity securities —
—
—
—
12
12
—
—
Total equity securities —
—
—
—
17
17
—
—
Total securities available for sale, at fair value
$20,476

$19,895

$20,394

$20,157

$19,713

$19,501

($262 ) (1 )%
Debt Securities Held to Maturity:⁽¹⁾

Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities
$3,425

$3,293

$3,853

$3,814

$4,126

$4,094

($521 ) (14 %)
Other/non-agency 740
748
832
854
945
964
(106 ) (12 )
Total mortgage-backed securities
$4,165

$4,041

$4,685

$4,668

$5,071

$5,058

($627 ) (13 %)
Total debt securities held to maturity
$4,165

$4,041

$4,685

$4,668

$5,071

$5,058

($627 ) (13 %)
Total securities available for sale and held to maturity
$24,641

$23,936

$25,079

$24,825

$24,784

$24,559

($889 ) (4 %)
Equity Securities:⁽¹⁾

Equity securities, at fair value
$181

$181

$169

$169

$96

$96

$12
7 %
Equity securities, at cost 834
834
722
722
942
942
112
16
Total equity securities
$1,015

$1,015

$891

$891

$1,038

$1,038

$124
14 %

⁽¹⁾Aslower long-term rates. The fair value of ~~January~~the HTM debt securities portfolio decreased $799 million largely reflecting the net impact of the transfer discussed above. For further information, see Note 1 ~~2018, we adopted ASU 2016-01,~~ ~~Financial Instruments, Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet.~~

in Item 8.

As of December 31, 2018, the fair value of the AFS and HTM debt securities portfolio decreased $889 million to $23.9 billion, compared with $24.8 billion as of December 31, 2017, primarily driven by net sales of $438 million for liquidity management purposes.

~~As of December 31, 2018,~~2019, the portfolio’s average effective duration was ~~4.4~~3.7 years compared with ~~3.9~~4.4 years as of December 31, ~~2017,~~2018, as ~~higher~~lower long-term rates drove ~~a decrease~~an increase in both actual and projected securities prepayment speeds. We manage ~~the~~our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within our risk appetite in the context of the broader ~~Interest Rate Risk~~interest rate risk in the ~~Banking Book~~banking book framework and limits.

The securities portfolio includes high quality, highly liquid investments reflecting our ongoing commitment to maintaining appropriate contingent liquidity levels and pledging capacity. U.S. government-guaranteed notes and

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 49

government-sponsored entity-issued mortgage-backed securities represent 96% of the fair value of the debt securities portfolio holdings. The portfolio composition is also dominated by holdings backed by mortgages to facilitate our ability to pledge them to the FHLB for collateral purposes. For further discussion of the liquidity coverage ratios, see “Regulation and Supervision — Liquidity Requirements” in Part I, Item 1 — Business, included in this Report.

The following table presents an analysis of the amortized cost, remaining contractual maturities, and weighted-average yields by contractual ~~maturity.~~maturity for our debt securities portfolio. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.


	As of December 31, 2018															As of December 31, 2019
	Distribution of Maturities															Distribution of Maturities
(dollars in millions)	Due in 1 Year or Less			Due After 1 Through 5 Years			Due After 5 Through 10 Years			Due After 10 Years			Total			Due in 1 Year or Less			Due After 1 Through 5 Years			Due After 5 Through 10 Years			Due After 10 Years			Total
Amortized cost:
Debt securities available for sale:
U.S. Treasury and other		$24			$—			$—			$—			$24			$71			$—			$—			$—			$71
State and political subdivisions	—			—			—			5			5			—			—			—			5			5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—			281			1,540			18,390			20,211			—			215			1,534			18,054			19,803
Other/non-agency	1			10			—			225			236			—			—			—			638			638
Total debt securities available for sale	25			291			1,540			18,620			20,476			71			215			1,534			18,697			20,517
Debt securities held to maturity:
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—			—			—			3,425			3,425			—			—			—			3,202			3,202
Other/non-agency	—			—			—			740			740			—			—			—			—			—
Total debt securities held to maturity	—			—			—			4,165			4,165			—			—			—			3,202			3,202
Total amortized cost of debt securities ⁽¹⁾		$25			$291			$1,540			$22,785			$24,641			$71			$215			$1,534			$21,899			$23,719
Weighted-average yield ⁽²⁾	2.31		%	1.87		%	2.37		%	2.67		%	2.64		%
Weighted-average yield ⁽²⁾⁽³⁾																2.03		%	1.95		%	2.38		%	2.61		%	2.59		%

⁽¹⁾ As of December 31, ~~2018,~~2019, no ~~investments~~investment exceeded 10% of Stockholders’ Equity.

⁽²⁾Yields on tax-exempt securities are not computed on a tax-equivalent basis.

⁽³⁾Yields exclude the impact of hedging activity.

Loans and Leases

Our loans and leases are disclosed in portfolio segments and classes. Our loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial, commercial real estate, leases, residential mortgages, home equity loans, home equity lines of credit, home equity loans serviced by others, home equity lines of credit serviced by others, automobile, education, credit cards and other retail. Our SBO portfolio consists of purchased home equity loans and lines that were originally serviced by others, which we service a portion of internally.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The following table presents the composition of loans and ~~leases, including non-core loans, as of:~~leases:


	December 31,										Change from 2018-2017					December 31,										Changes from 2019-2018
(in millions)	2018		2017		2016		2015		2014		$			%		2019		2018		2017		2016		2015		$			%
Commercial		$40,857		$37,562		$37,274		$33,264		$31,431		$3,295		9	%		$41,479		$40,857		$37,562		$37,274		$33,264		$622		2	%
Commercial real estate	13,023		11,308		10,624		8,971		7,809		1,715			15		13,522		13,023		11,308		10,624		8,971		499			4
Leases	2,903		3,161		3,753		3,979		3,986		(258		)	(8	)	2,537		2,903		3,161		3,753		3,979		(366		)	(13	)
Total commercial loans and leases	56,783		52,031		51,651		46,214		43,226		4,752			9		57,538		56,783		52,031		51,651		46,214		755			1
Residential mortgages	18,978		17,045		15,115		13,318		11,832		1,933			11		19,083		18,978		17,045		15,115		13,318		105			1
Home equity loans	1,073		1,392		1,858		2,557		3,424		(319		)	(23	)	812		1,073		1,392		1,858		2,557		(261		)	(24	)
Home equity lines of credit	12,710		13,483		14,100		14,674		15,423		(773		)	(6	)	11,979		12,710		13,483		14,100		14,674		(731		)	(6	)
Home equity loans serviced by others	399		542		750		986		1,228		(143		)	(26	)	289		399		542		750		986		(110		)	(28	)
Home equity lines of credit serviced by others	104		149		219		389		550		(45		)	(30	)	74		104		149		219		389		(30		)	(29	)
Automobile	12,106		13,204		13,938		13,828		12,706		(1,098		)	(8	)	12,120		12,106		13,204		13,938		13,828		14			—
Education	8,900		8,134		6,610		4,359		2,256		766			9		10,347		8,900		8,134		6,610		4,359		1,447			16
Credit cards	1,991		1,848		1,691		1,634		1,693		143			8		2,198		1,991		1,848		1,691		1,634		207			10
Other retail	3,616		2,789		1,737		1,083		1,072		827			30		4,648		3,616		2,789		1,737		1,083		1,032			29
Total retail loans	59,877		58,586		56,018		52,828		50,184		1,291			2		61,550		59,877		58,586		56,018		52,828		1,673			3
Total loans and leases		$116,660		$110,617		$107,669		$99,042		$93,410		$6,043		5	%		$119,088		$116,660		$110,617		$107,669		$99,042		$2,428		2	%

Total loans and leases ofincreased $2.4 billion, or 2%, from $116.7 billion as of December 31, 2018, ~~increased $6.0 billion, or 5%, from $110.6 billion as of December 31, 2017, reflecting~~driven by growth in ~~commercial~~both retail and commercial. Retail loan growth was driven by education, other retail, ~~products. Total commercial~~credit cards and residential mortgages, partially offset by run off in the home equity portfolio. Commercial loans and leases ~~of $56.8 billion increased $4.8 billion, or 9%, from $52.0 billion~~growth was driven by geographic, product and client-focused expansion strategies as ~~of December 31, 2017, reflecting increases~~well as strength in ~~commercial and~~ commercial real estate, ~~loans,~~ partially offset by ~~a decrease~~planned reductions in leases. Total retail loans of $59.9 billion increased $1.3 billion, or 2%, from $58.6 billion as of December 31, 2017, largely driven by increases in residential mortgages, other retail, education and credit card loans, partially offset by lower home equity balances and run-off in auto loans.



		Citizens Financial Group, Inc. \| 50

Maturities and Sensitivities of Loans and Leases to Changes in Interest Rates

The following table ispresents a summary of loans and leases by remaining maturity or repricing date:


	December 31, 2018								December 31, 2019
(in millions)	Due in 1 Year or Less		Due After 1 Year Through 5 Years		Due After 5 Years		Total Loans and Leases		Due in 1 Year or Less		Due After 1 Year Through 5 Years		Due After 5 Years		Total Loans and Leases
Commercial(1)		$36,506		$2,757		$1,594		$40,857		$37,374		$2,471		$1,634		$41,479
Commercial real estate(1)	12,720		128		175		13,023		13,015		217		290		13,522
Leases	585		1,854		464		2,903		573		1,607		357		2,537
Total commercial loans and leases	49,811		4,739		2,233		56,783		50,962		4,295		2,281		57,538
Residential mortgages	1,046		2,206		15,726		18,978		953		2,500		15,630		19,083
Home equity loans	18		329		726		1,073		13		234		565		812
Home equity lines of credit	12,470		61		179		12,710		11,782		51		146		11,979
Home equity loans serviced by others	1		374		24		399		26		245		18		289
Home equity lines of credit serviced by others	104		—		—		104		74		—		—		74
Automobile	155		7,532		4,419		12,106		203		6,995		4,922		12,120
Education	14		799		8,087		8,900		21		860		9,466		10,347
Credit cards	1,646		345		—		1,991		1,747		451		—		2,198
Other retail	501		2,297		818		3,616		453		3,616		579		4,648
Total retail loans	15,955		13,943		29,979		59,877		15,272		14,952		31,326		61,550
Total loans and leases		$65,766		$18,682		$32,212		$116,660		$66,234		$19,247		$33,607		$119,088
Loans and leases due after one year at fixed interest rates				$15,277		$21,362		$36,639				$15,882		$21,776		$37,658
Loans and leases due after one year at variable interest rates			3,405		10,850		14,255				3,365		11,831		15,196

~~CITIZENS FINANCIAL GROUP, INC.~~⁽¹⁾On a maturity basis only, the commercial and commercial real estate loan portfolios maturing in one year or less were $7.4 billion and $2.6 billion, respectively, maturing after one year through five years were $27.8 billion and $9.8 billion, respectively, and maturing after five years were $6.3 billion and $1.1 billion, respectively, as of December 31, 2019.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Loan and Lease Concentrations

At December 31, ~~2018,~~2019, we did not identify any concentration of loans and leases exceeding 10% of total loans and leases that were not otherwise disclosed as a category of loans and leases. For further information on how we manage concentration exposures, see Note 5 ~~“Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.



		Citizens Financial Group, Inc. \| 51

Allowance for Credit Losses and Nonperforming Assets

The ACL, which consists of an ALLL and a reserve for unfunded lending commitments, is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb future estimated credit losses in accordance with GAAP. For further information on our processes to determine our ACL, see “—Critical Accounting Estimates — Allowance for Credit Losses,” and Note 5 ~~“Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.

Summary of Loan and Lease Loss Experience

The following table presents a summary of the changes to our ALLL:


	As of and for the Year Ended December 31,										As of and for the Year Ended December 31,
(dollars in millions)	2018		2017		2016		2015		2014		2019		2018		2017		2016		2015
Allowance for Loan and Lease Losses — Beginning:
Commercial		$541		$516		$376		$388		$361		$530		$541		$516		$376		$388
Commercial real estate	121		99		111		61		78		138		121		99		111		61
Leases	23		48		23		23		24		22		23		48		23		23
Qualitative⁽¹⁾	—		—		86		72		35		—		—		—		86		72
Total commercial loans and leases	685		663		596		544		498		690		685		663		596		544
Residential mortgages	44		55		46		63		104		36		44		55		46		63
Home equity loans	19		24		39		50		85		10		19		24		39		50
Home equity lines of credit	87		139		132		152		159		85		87		139		132		152
Home equity loans serviced by others	12		15		29		47		85		10		12		15		29		47
Home equity lines of credit serviced by others	4		4		3		11		18		3		4		4		3		11
Automobile	139		127		106		58		23		127		139		127		106		58
Education	120		102		96		93		83		101		120		102		96		93
Credit cards	72		74		60		68		72		83		72		74		60		68
Other retail	54		33		28		32		34		97		54		33		28		32
Qualitative⁽¹⁾	—		—		81		77		60		—		—		—		81		77
Total retail loans	551		573		620		651		723		552		551		573		620		651
Total allowance for loan and lease losses — beginning		$1,236		$1,236		$1,216		$1,195		$1,221		$1,242		$1,236		$1,236		$1,216		$1,195

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 52


	As of and for the Year Ended December 31,															As of and for the Year Ended December 31,
(dollars in millions)	2018			2017			2016			2015			2014			2019			2018			2017			2016			2015
Gross Charge-offs:
Commercial		($48	)		($62	)		($56	)		($30	)		($31	)		($87	)		($48	)		($62	)		($56	)		($30	)
Commercial real estate	(4		)	(13		)	(14		)	(6		)	(12		)	(39		)	(4		)	(13		)	(14		)	(6		)
Leases	—			—			(9		)	—			—			(14		)	—			—			(9		)	—
Total commercial loans and leases	(52		)	(75		)	(79		)	(36		)	(43		)	(140		)	(52		)	(75		)	(79		)	(36		)
Residential mortgages	(8		)	(11		)	(21		)	(22		)	(36		)	(8		)	(8		)	(11		)	(21		)	(22		)
Home equity loans	(6		)	(11		)	(16		)	(34		)	(55		)	(5		)	(6		)	(11		)	(16		)	(34		)
Home equity lines of credit	(26		)	(34		)	(43		)	(59		)	(80		)	(26		)	(26		)	(34		)	(43		)	(59		)
Home equity loans serviced by others	(9		)	(15		)	(38		)	(32		)	(55		)	(6		)	(9		)	(15		)	(38		)	(32		)
Home equity lines of credit serviced by others	(4		)	(5		)	(12		)	(14		)	(12		)	(2		)	(4		)	(5		)	(12		)	(14		)
Automobile	(158		)	(181		)	(160		)	(117		)	(41		)	(143		)	(158		)	(181		)	(160		)	(117		)
Education	(68		)	(59		)	(52		)	(51		)	(54		)	(72		)	(68		)	(59		)	(52		)	(51		)
Credit cards	(68		)	(61		)	(58		)	(59		)	(64		)	(81		)	(68		)	(61		)	(58		)	(59		)
Other retail	(95		)	(60		)	(57		)	(56		)	(53		)	(132		)	(95		)	(60		)	(57		)	(56		)
Total retail loans	(442		)	(437		)	(457		)	(444		)	(450		)	(475		)	(442		)	(437		)	(457		)	(444		)
Total gross charge-offs		($494	)		($512	)		($536	)		($480	)		($493	)		($615	)		($494	)		($512	)		($536	)		($480	)
Gross Recoveries:
Commercial		$15			$37			$21			$18			$35			$24			$15			$37			$21			$18
Commercial real estate	4			3			12			31			23			—			4			3			12			31
Leases	—			—			—			—			—			—			—			—			—			—
Total commercial loans and leases	19			40			33			49			58			24			19			40			33			49
Residential mortgages	5			6			9			12			11			9			5			6			9			12
Home equity loans	11			13			18			11			24			10			11			13			18			11
Home equity lines of credit	16			16			18			18			15			21			16			16			18			18
Home equity loans serviced by others	15			18			19			17			21			14			15			18			19			17
Home equity lines of credit serviced by others	7			7			6			8			5			4			7			7			6			8
Automobile	67			73			65			49			20			57			67			73			65			49
Education	16			15			11			12			9			16			16			15			11			12
Credit cards	8			7			8			8			7			9			8			7			8			8
Other retail	13			12			14			12			—			21			13			12			14			12
Total retail loans	158			167			168			147			112			161			158			167			168			147
Total gross recoveries		$177			$207			$201			$196			$170			$185			$177			$207			$201			$196
Net (Charge-offs)/Recoveries:
Commercial		($33	)		($25	)		($35	)		($12	)		$4			($63	)		($33	)		($25	)		($35	)		($12	)
Commercial real estate	—			(10		)	(2		)	25			11			(39		)	—			(10		)	(2		)	25
Leases	—			—			(9		)	—			—			(14		)	—			—			(9		)	—
Total commercial loans and leases	(33		)	(35		)	(46		)	13			15			(116		)	(33		)	(35		)	(46		)	13
Residential mortgages	(3		)	(5		)	(12		)	(10		)	(25		)	1			(3		)	(5		)	(12		)	(10		)
Home equity loans	5			2			2			(23		)	(31		)	5			5			2			2			(23		)
Home equity lines of credit	(10		)	(18		)	(25		)	(41		)	(65		)	(5		)	(10		)	(18		)	(25		)	(41		)
Home equity loans serviced by others	6			3			(19		)	(15		)	(34		)	8			6			3			(19		)	(15		)
Home equity lines of credit serviced by others	3			2			(6		)	(6		)	(7		)	2			3			2			(6		)	(6		)
Automobile	(91		)	(108		)	(95		)	(68		)	(21		)	(86		)	(91		)	(108		)	(95		)	(68		)
Education	(52		)	(44		)	(41		)	(39		)	(45		)	(56		)	(52		)	(44		)	(41		)	(39		)
Credit cards	(60		)	(54		)	(50		)	(51		)	(57		)	(72		)	(60		)	(54		)	(50		)	(51		)
Other retail	(82		)	(48		)	(43		)	(44		)	(53		)	(111		)	(82		)	(48		)	(43		)	(44		)
Total retail loans	(284		)	(270		)	(289		)	(297		)	(338		)	(314		)	(284		)	(270		)	(289		)	(297		)
Total net charge-offs		($317	)		($305	)		($335	)		($284	)		($323	)		($430	)		($317	)		($305	)		($335	)		($284	)
Ratio of net charge-offs to average loans and leases	(0.28		%)	(0.28		%)	(0.32		%)	(0.30		%)	(0.36		%)	(0.36		%)	(0.28		%)	(0.28		%)	(0.32		%)	(0.30		%)

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 53


	As of and for the Year Ended December 31,															As of and for the Year Ended December 31,
(dollars in millions)	2018			2017			2016			2015			2014			2019			2018			2017			2016			2015
Provision for Loan and Lease Losses⁽²⁾:
Commercial		$22			$50			$117			$—			$23			$81			$22			$50			$117			$—
Commercial real estate	17			32			(17		)	25			(28		)	8			17			32			(17		)	25
Leases	(1		)	(25		)	34			—			(1		)	11			(1		)	(25		)	34			—
Qualitative⁽¹⁾	—			—			(21		)	14			37			—			—			—			(21		)	14
Total commercial loans and leases	38			57			113			39			31			100			38			57			113			39
Residential mortgages	(5		)	(6		)	8			(7		)	(16		)	(2		)	(5		)	(6		)	8			(7		)
Home equity loans	(14		)	(7		)	(22		)	12			(4		)	(9		)	(14		)	(7		)	(22		)	12
Home equity lines of credit	8			(34		)	9			21			58			(8		)	8			(34		)	9			21
Home equity loans serviced by others	(8		)	(6		)	(1		)	(3		)	(4		)	(15		)	(8		)	(6		)	(1		)	(3		)
Home equity lines of credit serviced by others	(4		)	(2		)	6			(2		)	—			(3		)	(4		)	(2		)	6			(2		)
Automobile	79			120			99			116			56			82			79			120			99			116
Education	33			62			21			42			55			71			33			62			21			42
Credit cards	71			52			53			43			53			90			71			52			53			43
Other retail	125			69			42			40			51			134			125			69			42			40
Qualitative⁽¹⁾	—			—			27			4			17			—			—			—			27			4
Total retail loans	285			248			242			266			266			340			285			248			242			266
Total provision for loan and lease losses		$323			$305			$355			$305			$297			$440			$323			$305			$355			$305
Total Allowance for Loan and Lease Losses — Ending:
Commercial	530			541				$458			$376			$388		548			530				$541			$458			$376
Commercial real estate	138			121			92			111			61			107			138			121			92			111
Leases	22			23			48			23			23			19			22			23			48			23
Qualitative⁽¹⁾	—			—			65			86			72			—			—			—			65			86
Total commercial loans and leases	690			685			663			596			544			674			690			685			663			596
Residential mortgages	36			44			42			46			63			35			36			44			42			46
Home equity loans	10			19			19			39			50			6			10			19			19			39
Home equity lines of credit	85			87			116			132			152			72			85			87			116			132
Home equity loans serviced by others	10			12			9			29			47			3			10			12			9			29
Home equity lines of credit serviced by others	3			4			3			3			11			2			3			4			3			3
Automobile	127			139			110			106			58			123			127			139			110			106
Education	101			120			76			96			93			116			101			120			76			96
Credit cards	83			72			63			60			68			101			83			72			63			60
Other retail	97			54			27			28			32			120			97			54			27			28
Qualitative⁽¹⁾	—			—			108			81			77			—			—			—			108			81
Total retail loans	552			551			573			620			651			578			552			551			573			620
Total allowance for loan and lease losses — ending		$1,242			$1,236			$1,236			$1,216			$1,195			$1,252			$1,242			$1,236			$1,236			$1,216
Reserve for Unfunded Lending Commitments — Beginning		$88			$72			$58			$61			$39			$91			$88			$72			$58			$61
Provision for unfunded lending commitments	3			16			14			(3		)	22			(47		)	3			16			14			(3		)
Reserve for unfunded lending commitments — ending		$91			$88			$72			$58			$61			$44			$91			$88			$72			$58
Total Allowance for Credit Losses — Ending		$1,333			$1,324			$1,308			$1,274			$1,256			$1,296			$1,333			$1,324			$1,308			$1,274

⁽¹⁾As discussed in Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our Consolidated Financial Statements in Part II, Item 8 — Financial Statements and Supplementary Data, of this Report, as of December 31, 2017, we enhanced the method for assessing various qualitative risks, factors and events that may not be measured in the modeled results. The qualitative allowance iswas presented within each loan class beginning in 2017 and prior periods ~~have~~were not ~~been~~ reclassified to conform to the current presentation.

⁽²⁾During December 2016, changes to the incurred loss period were reflected as components of the provision for retail property secured products.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 54

Allocation of the Allowance for Loan and Lease Losses

The following table presents an allocation of the ALLL by class and the percent of each class of loans and leases to the total loans and leases:


	December 31,																				December 31,
(dollars in millions)	2018				2017				2016				2015				2014				2019				2018				2017				2016				2015
Commercial		$530	35	%		$541	34	%		$458	35	%		$376	34	%		$388	34	%		$548	35	%		$530	35	%		$541	34	%		$458	35	%		$376	34	%
Commercial real estate	138		11		121		10		92		10		111		9		61		8		107		11		138		11		121		10		92		10		111		9
Leases	22		3		23		3		48		3		23		4		23		4		19		2		22		3		23		3		48		3		23		4
Qualitative⁽¹⁾	—		N/A		—		N/A		65		N/A		86		N/A		72		N/A		—		N/A		—		N/A		—		N/A		65		N/A		86		N/A
Total commercial loans and leases	690		49		685		47		663		48		596		47		544		46		674		48		690		49		685		47		663		48		596		47
Residential mortgages	36		16		44		15		42		14		46		13		63		13		35		16		36		16		44		15		42		14		46		13
Home equity loans	10		1		19		1		19		2		39		3		50		4		6		1		10		1		19		1		19		2		39		3
Home equity lines of credit	85		11		87		12		116		13		132		15		152		16		72		10		85		11		87		12		116		13		132		15
Home equity loans serviced by others	10		—		12		1		9		1		29		1		47		1		3		—		10		—		12		1		9		1		29		1
Home equity lines of credit serviced by others	3		—		4		—		3		—		3		—		11		1		2		—		3		—		4		—		3		—		3		—
Automobile	127		10		139		12		110		13		106		14		58		14		123		10		127		10		139		12		110		13		106		14
Education	101		8		120		7		76		6		96		4		93		2		116		9		101		8		120		7		76		6		96		4
Credit cards	83		2		72		2		63		1		60		2		68		2		101		2		83		2		72		2		63		1		60		2
Other retail	97		3		54		3		27		2		28		1		32		1		120		4		97		3		54		3		27		2		28		1
Qualitative⁽¹⁾	—		N/A		—		N/A		108		N/A		81		N/A		77		N/A		—		N/A		—		N/A		—		N/A		108		N/A		81		N/A
Total retail loans	552		51		551		53		573		52		620		53		651		54		578		52		552		51		551		53		573		52		620		53
Total loans and leases		$1,242	100	%		$1,236	100	%		$1,236	100	%		$1,216	100	%		$1,195	100	%		$1,252	100	%		$1,242	100	%		$1,236	100	%		$1,236	100	%		$1,216	100	%

⁽¹⁾The qualitative allowance was presented within each loan class beginning in 2017 and prior periods ~~have~~were not ~~been~~ reclassified to conform to the current presentation.

~~The allowance for credit losses totaled $1.3 billion at December 31, 2018 and 2017, respectively.~~ The ALLL represented ~~1.06%~~1.05% of total loans and leases and ~~156%~~178% of nonperforming loans and leases as of December 31, ~~2018~~2019 compared with ~~1.12%~~1.06% and ~~142%~~162%, respectively, as of December 31, ~~2017.~~2018.

Overall credit quality remained strong, reflecting growth in higher-quality, lower-risk retail loans and a broadly stable risk profile in the commercial loans and leases portfolios. Nonperforming loans and leases of $797 million as of December 31, 2018 decreased $74 million from December 31, 2017, driven by a $64 million decrease in commercial nonperforming loans, mainly due to repayments and returns to accrual status, and a $10 million decrease in retail nonperforming loans, largely in home equity. Net charge-offs of $317 million increased $12 million, or 4%, from $305 million in 2017. Net charge-offs as a percentage of total average loans of 0.28% remained stable compared to 2017.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 55

Risk Elements

The following table presents ~~a summary of nonaccrual,~~nonperforming loans and leases and loans, accruing and 90 days or more past due, and restructured loans and ~~leases by class:~~leases:


	December 31,										December 31,
(in millions)	2018		2017		2016		2015		2014		2019		2018		2017		2016		2015
Nonaccrual loans and leases
Nonperforming loans and leases
Commercial		$194		$238		$322		$70		$113		$240		$194		$238		$322		$70
Commercial real estate	7		27		50		77		50		2		7		27		50		77
Leases	—		—		15		—		—		3		—		—		15		—
Total commercial loans and leases	201		265		387		147		163		245		201		265		387		147
Residential mortgages	136		128		144		331		345
Residential mortgages⁽¹⁾											93		105		125		139		295
Home equity loans	50		72		98		135		203		33		50		72		98		135
Home equity lines of credit	231		233		243		272		257		187		231		233		243		272
Home equity loans serviced by others	17		25		32		38		47		14		17		25		32		38
Home equity lines of credit serviced by others	15		18		33		32		25		12		15		18		33		32
Automobile	81		70		50		42		21		67		81		70		50		42
Education	38		38		38		35		11		18		38		38		38		35
Credit cards	20		17		16		16		16		22		20		17		16		16
Other retail	8		5		4		3		5		12		8		5		4		3
Total retail loans	596		606		658		904		930		458		565		603		653		868
Total nonaccrual loans and leases		$797		$871		$1,045		$1,051		$1,093
Total nonperforming loans and leases												$703		$766		$868		$1,040		$1,015
Loans and leases that are accruing and 90 days or more delinquent
Commercial	1		5		2		1		1		2		1		5		2		1
Commercial real estate	—		3		—		—		—		—		—		3		—		—
Leases	—		—		—		—		—		—		—		—		—		—
Total commercial loans and leases	1		8		2		1		1		2		1		8		2		1
Residential mortgages	15		16		18		—		—		13		15		16		18		—
Home equity loans	—		—		—		—		—		—		—		—		—		—
Home equity lines of credit	—		—		—		—		—		—		—		—		—		—
Home equity loans serviced by others	—		—		—		—		—		—		—		—		—		—
Home equity lines of credit serviced by others	—		—		—		—		—		—		—		—		—		—
Automobile	—		—		—		—		—		—		—		—		—		—
Education	2		3		5		6		6		2		2		3		5		6
Credit cards	—		—		—		—		1		—		—		—		—		—
Other retail	7		5		1		2		—		8		7		5		1		2
Total retail loans	24		24		24		8		7		23		24		24		24		8
Total accruing and 90 days or more delinquent	25		32		26		9		8		25		25		32		26		9
Total		$822		$903		$1,071		$1,060		$1,101		$728		$791		$900		$1,066		$1,024
Troubled debt restructurings ⁽¹⁾⁽²⁾		$723		$629		$633		$909		$955		$692		$723		$629		$633		$909

⁽¹⁾Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which we have the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation.

⁽²⁾TDR balances reported in this line item consist of only those TDRs not reported in the nonaccrual loan or accruing and 90 days or more delinquent loan categories. Thus, only those TDRs that are in compliance with their modified terms and not past due, or those TDRs that are past due 30-89 days and still accruing are included in the TDR balances listed above.

Overall credit quality remained strong across retail and commercial. Nonperforming loans and leases of $703 million as of December 31, 2019 decreased $63 million from December 31, 2018, driven by a $107 million decrease in retail, reflecting improvements in home equity, education and auto that was partially offset by $44 million increase in commercial nonperforming loans. Net charge-offs of $430 million increased $113 million, or 36%, from $317 million in 2018 reflecting a small number of uncorrelated losses in commercial and expected seasoning in the other retail loan portfolio. Net charge-offs as a percentage of total average loans of 0.36% increased 8 basis points compared to 0.28% in 2018.



		Citizens Financial Group, Inc. \| 56

Potential Problem Loans and Leases

At December 31, ~~2018,~~2019, we did not identify any potential problem loans or leases within the portfolio that were not already ~~included~~disclosed in “—Risk ~~Elements.~~Elements” and “—Commercial Loan Asset Quality.” Potential problem loans or leases consist of loans and leases where information about a borrower’s possible credit problems cause management to have serious doubts as to the ability of ~~such borrowers~~a borrower to comply with the present repayment terms.

Commercial Loan Asset Quality

Our commercial loan and lease portfolio consists of traditional commercial loans, commercial leases and commercial real estate loans. The portfolio is ~~predominantly focused on~~largely comprised of customers in our footprint and adjacent states in which we have a physical presence where our local delivery model provides for strong client connectivity. ~~Additionally, we~~We also ~~do business in certain specialized~~lend nationally to companies that fall within targeted client, industry, ~~sectors on a national basis.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

and geographic expansion strategies.

For commercial loans and leases, we utilize regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that we believe will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness or potential weakness that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of our credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable. These credit quality indicators for commercial loans are continually updated and monitored. SeeFor more information on regulatory classification ratings, see Note 5 ~~“Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~

Nonperforming commercial loans and leases decreased $64 million to $201 million as of December 31, 2018 from $265 million as of December 31, 2017, largely tied to a reduction in nonperforming commodities-related credits. As of December 31, 2018, total commercial nonperforming loans were 0.4% of the commercial loan portfolio compared to 0.5% as of December 31, 2017. Total 2018 commercial loan and lease portfolio net charge-offs of $33 million remained stable with $35 million in 2017.

8. The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:


	December 31, 2018										December 31, 2019
			Criticized										Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$38,600		$1,231		$828		$198		$40,857		$38,950		$1,351		$934		$244		$41,479
Commercial real estate	12,523		412		82		6		13,023		13,169		318		33		2		13,522
Leases	2,823		39		41		—		2,903		2,383		109		42		3		2,537
Total commercial loans and leases		$53,946		$1,682		$951		$204		$56,783		$54,502		$1,778		$1,009		$249		$57,538


	December 31, 2017										December 31, 2018
			Criticized										Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$35,430		$1,143		$785		$204		$37,562		$38,600		$1,231		$828		$198		$40,857
Commercial real estate	10,706		500		74		28		11,308		12,523		412		82		6		13,023
Leases	3,069		73		19		—		3,161		2,823		39		41		—		2,903
Total commercial loans and leases		$49,205		$1,716		$878		$232		$52,031		$53,946		$1,682		$951		$204		$56,783

Total commercial criticized loans and leases of ~~$2.8~~$3.0 billion as of December 31, ~~2018 were stable~~2019 increased $199 million compared with December 31, ~~2017.~~2018. Commercial criticized loans and leases ~~over~~as a percent of total commercial loans and leases of 5.3% at December 31, 2019 increased from 5.0% at December 31, ~~2018 improved from 5.4% at December 31, 2017, driven by loan growth.~~2018. Commercial criticized balances of ~~$2.3~~$2.5 billion, or ~~5.5%~~6.1% of the commercial loan portfolio as of December 31, ~~2018,~~2019, increased from ~~$2.1~~$2.3 billion, or ~~5.7%~~5.5%, as of December 31, ~~2017.~~2018. Commercial real estate criticized balances of ~~$500~~$353 million, or ~~3.8%~~2.6% of the commercial real estate portfolio, decreased from ~~$602~~$500 million, or ~~5.3%~~3.8%, as of December 31, ~~2017.~~2018. Commercial criticized loans represented ~~80%~~83% of total criticized loans as of December 31, ~~2018~~2019 compared to ~~75%~~80% as of December 31, ~~2017.~~2018. Commercial real estate accounted for ~~18%~~12% of total criticized loans as of December 31, ~~2018~~2019 compared to ~~21%~~18% as of December 31, ~~2017.~~2018.

Nonperforming commercial loans and leases increased $44 million to $245 million as of December 31, 2019 from $201 million as of December 31, 2018. As of December 31, 2019, total commercial nonperforming loans were 0.4% of the commercial loans and leases portfolio and remained stable to December 31, 2018. Total 2019 commercial loan and lease portfolio net charge-offs of $116 million increased from $33 million in 2018. For the year ended December 31, 2019, the commercial loan and lease portfolio annualized net charge-off ratio of 0.20% increased from 0.06% for the year ended December 31, 2018, reflecting the impact of several uncorrelated losses.

Retail Loan Asset Quality

For retail loans, we primarily utilize payment and delinquency status to regularly review and monitor credit quality trends. Historical experience indicates that the longer a loan is past due, the greater the likelihood of future credit loss. The largest portion of the retail portfolio is represented by borrowers located in the New England, ~~Mid-Atlantic~~Mid-



		Citizens Financial Group, Inc. \| 57

Atlantic and Midwest regions, although we ~~have continued to grow~~lend selectively in areas outside the footprint primarily in the auto finance, education lending and unsecured portfolios.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The following tables present asset quality metrics for the retail loan portfolio:


	December 31, 2018		December 31, 2017		December 31, 2019		December 31, 2018
Average refreshed FICO for total portfolio	763		762		764		763
CLTV ratio for secured real estate⁽¹⁾	58		59		59	%	58	%
Nonperforming retail loans as a percentage of total retail(2)	1.00	%	1.03	%	0.74	%	0.94	%

⁽¹⁾ The real estate secured portfolio CLTV is calculated as the mortgage and second lien loan balance divided by the most recently available value of the property.


	Year Ended December 31,										Year Ended December 31,
(dollars in millions)	2018			2017			Change		Percent		2019			2018			Change		Percent
Net charge-offs		$284			$270			$14	5	%		$314			$284			$30	11	%
Annualized net charge-off rate	0.48		%	0.47		%	1 bps				0.52		%	0.48		%	4 bps

Retail asset quality ~~remains~~remained relatively stable with aDecember 31, 2018. The net charge-off rate of ~~0.48%~~0.52% for the year ended December 31, ~~2018,~~2019 reflected an increase of ~~one~~4 basis ~~point~~points from the year ended December 31, ~~2017,~~2018, driven by ~~growth in credit cards as well as continued~~ expected seasoning in ~~our~~retail growth portfolios including personal ~~loan~~ and education refinance ~~loan portfolios.~~

~~HELOC Payment Shock~~

Payment shock in the HELOC portfolio occurs when the 10-year interest only draw period ends, and the payment converts to a fully amortizing principal and interest payment. We monitor the risk associated with the payment increase and have a comprehensive program designed to provide heightened customer outreach to inform, educate and assist customers through the reset process as well as to offer alternative financing and forbearance options. Results of this program indicate that our efforts to assist customers at risk of default have successfully reduced delinquency and charge-off rates compared to our original expectations.

The table below outlines the population expected to mature between January 1, 2019 and December 31, 2021, compared to the overall HELOC population, reflecting a similar credit profile for each population:

(dollars in millions) Balance % Secured by First Lien FICO LTV
Total HELOCs as of December 31, 2018
$12,814
51 % 766
57 %
HELOCs scheduled to reset 1/1/19 - 12/31/21 1,598
54
758
51

The performance of our historical vintages that have entered repayment remains stable. The following table presents the asset quality metrics as of December 31, 2018, for the HELOCs reset at each year ending:

(dollars in millions) 2014/2015
2016
2017
Balance reset
$1,688

$738

$730
Percent refinanced, paid off, or current 93 % 95 % 94 %
Percent past due 3
3
4
Percent charged-off 4
2
2

Factors that affect our future expectations for continued relatively low charge-off risk in the face of rising interest rates for the portion of our HELOC portfolio subject to reset in future periods include a relatively high level of first lien collateral positions, improved loan-to-value ratios resulting from continued home price appreciation, relatively stable portfolio credit score profiles and continued robust loss mitigation efforts.loans.

Troubled Debt Restructurings

TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that we would not otherwise make. TDRs typically result from our loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet our borrower’s financial needs. The types of concessions include interest rate reductions, term extensions, principal forgiveness and other modifications to the structure of the loan that fall outside our lending policy. Depending on the specific facts and circumstances of the customer, restructuring can involve loans moving to nonaccrual, remaining on nonaccrual, or remaining on accrual status.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

As of December 31, ~~2018, $723~~2019, $667 million of retail loans were classified as TDRs, compared with ~~$761~~$723 million as of December 31, ~~2017. The decrease was in part, attributable to both loan repayments and the increasing amortization of balances as more seasoned accounts age.~~2018. As of December 31, ~~2018, $181~~2019, $143 million of retail TDRs were in nonaccrual status with ~~49%~~38% current onwith payments, ~~stable~~ compared ~~with $211~~to $181 million in nonaccrual status with ~~51%~~49% current on payments at December 31, ~~2017.~~2018. TDRs generally return to accrual status once repayment capacity and appropriate payment history can be established. TDRs are individually evaluated for impairment and loans, once classified as TDRs, remain classified as TDRs until paid off, sold or refinanced at market terms.

For additional information regarding TDRs, see “—Critical Accounting Estimates — Allowance for Credit Losses” and Note 5 ~~“Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.



		Citizens Financial Group, Inc. \| 58

The following tables present retail TDRs by loan class, including delinquency status for accruing TDRs and TDRs in nonaccrual:


	December 31, 2018										December 31, 2019
			As a % of Accruing Retail TDRs										As a % of Accruing Retail TDRs
(dollars in millions)	Accruing		30-89 Days Past Due		90+ Days Past Due		Nonaccruing		Total		Accruing		30-89 Days Past Due		90+ Days Past Due		Nonaccruing		Total
Residential mortgages		$111	3.0	%	1.6	%		$44		$155		$113	3.8	%	2.1	%		$41		$154
Home equity loans	85		0.7		—		25		110		68		0.7		—		19		87
Home equity lines of credit	138		0.9		—		64		202		147		0.9		—		53		200
Home equity loans serviced by others	31		0.3		—		10		41		22		0.3		—		9		31
Home equity lines of credit serviced by others	3		—		—		5		8		3		—		—		3		6
Automobile	13		0.2		—		10		23		13		0.2		—		8		21
Education	131		0.9		0.3		22		153		127		0.9		0.3		7		134
Credit cards	24		0.4		—		1		25		26		0.6		—		2		28
Other retail	6		—		—		—		6		5		—		—		1		6
Total		$542	6.4	%	1.9	%		$181		$723		$524	7.4	%	2.4	%		$143		$667


	December 31, 2017										December 31, 2018
			As a % of Accruing Retail TDRs										As a % of Accruing Retail TDRs
(dollars in millions)	Accruing		30-89 Days Past Due		90+ Days Past Due		Nonaccruing		Total		Accruing		30-89 Days Past Due		90+ Days Past Due		Nonaccruing		Total
Residential mortgages		$98	2.7	%	2.0	%		$53		$151		$111	3.0	%	1.6	%		$44		$155
Home equity loans	86		0.7		—		35		121		85		0.7		—		25		110
Home equity lines of credit	128		1.1		—		69		197		138		0.9		—		64		202
Home equity loans serviced by others	38		0.4		—		13		51		31		0.3		—		10		41
Home equity lines of credit serviced by others	4		—		—		5		9		3		—		—		5		8
Automobile	12		0.2		—		11		23		13		0.2		—		10		23
Education	152		1.3		0.5		23		175		131		0.9		0.3		22		153
Credit cards	24		0.4		—		1		25		24		0.4		—		1		25
Other retail	8		—		—		1		9		6		—		—		—		6
Total		$550	6.7	%	2.5	%		$211		$761		$542	6.4	%	1.9	%		$181		$723

Impact of Nonperforming Loans and Leases on Interest Income

The following table presents the gross interest income for both nonaccrual and restructured loans that would have been recognized if those loans had been current in accordance with their original contractual terms, and had been outstanding throughout the year, or since origination if held for only part of the year. The table also presents the interest income related to these loans that was actually recognized for the year.



(in millions)	For the Year Ended December 31, ~~2018~~2019
Gross amount of interest income that would have been recorded ⁽¹⁾		$~~125~~122
Interest income actually recognized	712
Total interest income foregone		$~~118~~110

⁽¹⁾Based on the contractual rate that was being charged at the time the loan was restructured or placed on nonaccrual status.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Cross-Border Outstandings

Cross-border outstandings can include loans, receivables, interest-bearing deposits with other banks, other interest-bearing investments and other monetary assets that are denominated in either dollars or ~~other~~ non-local currency. As of December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, there were no aggregate cross-border outstandings from borrowers or counterparties in any country that exceeded 1%, or were between 0.75% and 1% of consolidated total assets.



		Citizens Financial Group, Inc. \| 59

Non-Core Assets

The table below presents the composition of our non-core assets:


	December 31,									December 31,
(in millions)	2018		2017		Change			Percent		2019		2018		Change			Percent
Commercial		$72		$56		$16		29	%		$6		$72		($66	)	(92	%)
Commercial real estate	14		19		(5		)	(26	)	11		14		(3		)	(21	)
Leases	670		752		(82		)	(11	)	444		670		(226		)	(34	)
Total commercial loans and leases	756		827		(71		)	(9	)	461		756		(295		)	(39	)
Residential mortgages	110		136		(26		)	(19	)	91		110		(19		)	(17	)
Home equity loans	31		40		(9		)	(23	)	23		31		(8		)	(26	)
Home equity lines of credit	21		30		(9		)	(30	)	14		21		(7		)	(33	)
Home equity loans serviced by others	399		542		(143		)	(26	)	289		399		(110		)	(28	)
Home equity lines of credit serviced by others	104		149		(45		)	(30	)	74		104		(30		)	(29	)
Education	210		254		(44		)	(17	)	166		210		(44		)	(21	)
Total retail loans	875		1,151		(276		)	(24	)	657		875		(218		)	(25	)
Total non-core loans	1,631		1,978		(347		)	(18	)	1,118		1,631		(513		)	(31	)
Other assets	96		112		(16		)	(14	)	122		96		26			27
Total non-core assets		$1,727		$2,090		($363	)	(17	%)		$1,240		$1,727		($487	)	(28	%)

Non-core assets are primarily liquidating loan and lease portfolios inconsistent with our strategic priorities, generally as a result of geographic location, industry, product type or risk level and are included in Other. ~~Non-core assets of $1.7 billion as of December 31, 2018 decreased $363 million, or 17%, from December 31, 2017.~~

Retail non-core loan balances of $875 million decreased $276 million, or 24%, compared to December 31, 2017. The largest component of our retail non-core portfolio is the home equity SBO portfolio, a $503 million portfolio of home equity loans and lines of credit purchased between 2003 and 2007 that were initially serviced by other institutions, but now about 45% is serviced internally. The credit profile of this portfolio is stable, and losses have remained in a net recovery position in 2017 and 2018.

Commercial non-core loan and lease balances of $756 million decreased $71 million, or 9%, from $827 million as of December 31, 2017. The largest component of our commercial non-core portfolio is an aircraft-related loan and lease portfolio tied to legacy-Royal Bank of Scotland Group plc aircraft leasing borrowers, which totaled $670 million and $752 million as of December 31, 2018 and 2017, respectively.

Deposits

The following table ~~below~~ presents the major components of our deposits:


	December 31,									December 31,
(in millions)	2018		2017		Change			Percent		2019		2018		Change			Percent
Demand		$29,458		$29,279		$179		1	%		$29,233		$29,458		($225	)	(1	%)
Checking with interest	23,067		22,229		838			4		24,840		23,067		1,773			8
Regular savings	12,007		9,518		2,489			26		13,779		12,007		1,772			15
Money market accounts	35,701		37,454		(1,753		)	(5	)	38,725		35,701		3,024			8
Term deposits	19,342		16,609		2,733			16		18,736		19,342		(606		)	(3	)
Total deposits		$119,575		$115,089		$4,486		4	%		$125,313		$119,575		$5,738		5	%

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Total deposits as of December 31, ~~2018,~~2019, increased ~~$4.5~~$5.7 billion, or 4%5%, to $125.3 billion compared to $119.6 billion, ~~compared to $115.1 billion~~driven by growth in money market accounts, checking with interest and ~~reflected particular strength~~savings, partially offset by a decrease in ~~regular savings,~~ term deposits and ~~checking with interest products.~~demand deposits. Citizens Access^®, our national digital platform, attracted $5.8 billion of deposits through December 31, 2019, up from $3.0 billion as of December 31, 2018.

The following table presents the average balances and average interest rates paid for deposits.


	For the Year Ended December 31,												For the Year Ended December 31,
	2018				2017				2016				2019				2018				2017
(dollars in millions)	Average Balances		Yields/ Rates		Average Balances		Yields/ Rates		Average Balances		Yields/ Rates		Average Balances		Yields/ Rates		Average Balances		Yields/ Rates		Average Balances		Yields/ Rates
Noninterest-bearing demand deposits ⁽¹⁾		$29,231	—			$28,134	—			$27,634	—			$28,936	—			$29,231	—			$28,134	—
Checking with interest		$21,856	0.63	%		$21,458	0.37	%		$19,320	0.18	%		$23,470	0.87	%		$21,856	0.63	%		$21,458	0.37	%
Money market accounts	36,497		0.94		37,450		0.53		37,106		0.36		36,613		1.23		36,497		0.94		37,450		0.53
Regular savings	10,238		0.15		9,384		0.04		8,691		0.04		13,247		0.57		10,238		0.15		9,384		0.04
Term deposits	18,035		1.61		15,448		1.04		12,696		0.78		21,035		2.03		18,035		1.61		15,448		1.04
Total interest-bearing deposits ⁽¹⁾		$86,626	0.91	%		$83,740	0.53	%		$77,813	0.35	%		$94,365	1.22	%		$86,626	0.91	%		$83,740	0.53	%

⁽¹⁾The aggregate amount of deposits by foreign depositors in domestic offices was $1.7 billion, $1.2 billion ~~$1.0 billion~~ and ~~$1.4~~$1.0 billion as of December 31, 2019, 2018 and 2017, ~~and 2016.~~respectively.



		Citizens Financial Group, Inc. \| 60

Borrowed Funds

Short-term borrowed funds

AThe following table presents a summary of our short-term borrowed ~~funds is presented below:~~funds:


	December 31,									December 31,
(in millions)	2018		2017		Change			Percent		2019		2018		Change			Percent
Securities sold under agreements to repurchase											$265		$336		($71	)	(21	%)
Federal funds purchased		$820		$460		$360		78	%	—		820			($820	)	(100	%)
Securities sold under agreements to repurchase	336		355		(19		)	(5	)
Other short-term borrowed funds⁽¹⁾	1,653		1,856		(203		)	(11	)	9		161		(152		)	(94	)
Total short-term borrowed funds		$2,809		$2,671		$138		5	%		$274		$1,317		($1,043	)	(79	%)

⁽¹⁾ ~~December 31, 2018 includes $1.5 billion~~Beginning in the first quarter of ~~debt issued under CBNA’s Global Bank Note Program maturing within one year,~~2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with unamortized deferred issuance costs and/or discounts of ($1) million and other basis adjustments of ($8) million. December 31, 2017 includes $750 million of debt issued under CBNA’s Global Bank Note Program maturing within one year, with unamortized deferred issuance costs and/or discounts of ($1) million and other basis adjustments of ($4) million.the current period presentation.

The net decrease in other short-term borrowed funds of ~~$203~~$152 million resulted primarily from a ~~reduction of $951 million~~decrease in short-term FHLB ~~advances partially offset by an increase of $746 million in senior bank debt, issued under CBNA’s Global Note Program, with a remaining maturity within one year.~~advances.

Our advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and securities at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was ~~$13.0~~$9.8 billion and ~~$9.4~~$13.0 billion at December 31, 2019 and 2018, ~~and 2017, respectively, and our~~respectively. Our remaining available FHLB borrowing capacity was ~~$4.8~~$7.2 billion and ~~$8.0~~$4.8 billion at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. We can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At December 31, ~~2018,~~2019, our unused secured borrowing capacity was approximately ~~$36.2~~$38.9 billion, which included unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Key~~The following table presents key data related to our short-term borrowed ~~funds is presented in the following table:~~funds:


	As of and for the Year Ended December 31,									As of and for the Year Ended December 31,
(dollars in millions)	2018			2017			2016			2019			2018			2017
Weighted-average interest rate at year-end: ⁽¹⁾
Federal funds purchased and securities sold under agreements to repurchase	1.72		%	0.74		%	0.26		%	0.41		%	1.72		%	0.74		%
Other short-term borrowed funds	2.50			1.72			0.94			3.85			2.73			1.33
Maximum amount outstanding at any month-end during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾		$1,282			$1,174			$1,522			$1,499			$1,282			$1,174
Other short-term borrowed funds	2,509			3,508			5,461			511			1,110			2,759
Average amount outstanding during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾		$654			$776			$947			$599			$654			$776
Other short-term borrowed funds	1,808			2,321			3,207			66			467			1,571
Weighted-average interest rate during the year: ⁽¹⁾
Federal funds purchased and securities sold under agreements to repurchase	0.92		%	0.36		%	0.09		%	1.36		%	0.92		%	0.36		%
Other short-term borrowed funds	2.42			1.32			0.64			2.50			2.10			1.09

⁽¹⁾Rates exclude certain hedging costs.

⁽²⁾ Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable.



		Citizens Financial Group, Inc. \| 61

Long-term borrowed funds

AThe following table presents a summary of our long-term borrowed ~~funds is presented below:~~funds:

December 31,
(in millions) 2018
2017
Parent Company:
2.375% fixed-rate senior unsecured debt, due 2021
$349

$349
4.150% fixed-rate subordinated debt, due 2022 348
348
5.158% fixed-to-floating rate callable subordinated debt, due 2023 ⁽¹⁾
—
333
3.750% fixed-rate subordinated debt, due 2024 250
250
4.023% fixed-rate subordinated debt, due 2024 42
42
4.350% fixed-rate subordinated debt, due 2025 249
249
4.300% fixed-rate subordinated debt, due 2025 749
749
Banking Subsidiaries:
2.450% senior unsecured notes, due 2019 ⁽²⁾⁽³⁾
—
743
2.500% senior unsecured notes, due 2019 ⁽²⁾⁽³⁾
—
741
2.250% senior unsecured notes, due 2020 ⁽²⁾
691
692
3.278% floating-rate senior unsecured notes, due 2020 ^{(2) (4)}
300
299
3.247% floating-rate senior unsecured notes, due 2020 ^{(2) (4)}
250
249
2.200% senior unsecured notes, due 2020 ⁽²⁾
499
498
2.250% senior unsecured notes, due 2020 ⁽²⁾
738
742
2.550% senior unsecured notes, due 2021 ⁽²⁾
964
964
3.487% floating-rate senior unsecured notes, due 2022 ^{(2) (4)}
249
249
2.650% senior unsecured notes, due 2022 ⁽²⁾
487
491
3.700% senior unsecured notes, due 2023 ⁽²⁾
502
—
3.753% floating-rate senior unsecured notes, due 2023 ^{(2) (4)}
249
—
Federal Home Loan Bank advances, 2.725% weighted average rate, due through 2038 7,508
3,761
Other 9
16
Total long-term borrowed funds
$14,433

$11,765



	December 31,
(in millions)	2019		2018
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021		$349		$349
4.150% fixed-rate subordinated debt, due September 2022	348		348
3.750% fixed-rate subordinated debt, due July 2024	250		250
4.023% fixed-rate subordinated debt, due October 2024	42		42
4.350% fixed-rate subordinated debt, due August 2025	249		249
4.300% fixed-rate subordinated debt, due December 2025	750		749
2.850% fixed-rate senior unsecured notes, due July 2026	496		—
CBNA’s Global Note Program:
2.500% senior unsecured notes, due March 2019		$—		$748
2.450% senior unsecured notes, due December 2019	—		744
2.250% senior unsecured notes, due March 2020	700		691
2.447% floating-rate senior unsecured notes, due March 2020 ⁽¹⁾	300		300
2.487% floating-rate senior unsecured notes, due May 2020 ⁽¹⁾	250		250
2.200% senior unsecured notes, due May 2020	500		499
2.250% senior unsecured notes, due October 2020	750		738
2.550% senior unsecured notes, due May 2021	991		964
3.250% senior unsecured notes, due February 2022	711		—
2.629% floating-rate senior unsecured notes, due February 2022 ⁽¹⁾	299		—
2.727% floating-rate senior unsecured notes, due May 2022⁽¹⁾	250		249
2.650% senior unsecured notes, due May 2022	501		487
3.700% senior unsecured notes, due March 2023	515		502
2.911% floating-rate senior unsecured notes, due March 2023 ⁽¹⁾	249		249
3.750% senior unsecured notes, due February 2026	521		—
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 2.006% weighted average rate, due through 2038	5,008		7,508
Other	18		9
Total long-term borrowed funds⁽²⁾		$14,047		$15,925

⁽¹⁾~~Redeemed on June 29, 2018.~~

⁽²⁾~~Issued under CBNA’s Global Bank Note Program.~~

⁽³⁾~~Reclassified to short-term borrowed funds.~~

⁽⁴⁾Rate disclosed reflects the floating rate as of December 31, ~~2018.~~2019.

⁽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.

Long-term borrowed funds of ~~$14.4~~$14.0 billion as of December 31, ~~2018 increased $2.7~~2019 decreased $1.9 billion from December 31, ~~2017,~~2018, reflecting ~~an increase~~a decrease of ~~$3.7~~$2.5 billion in ~~long-term~~ FHLB borrowings, partially offset by ~~the redemption~~an increase of

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~$333~~ $613 million ~~of Parent Company~~in subordinated debt and ~~a net decrease of $739 million in Banking Subsidiaries senior~~ unsecured ~~notes with a remaining maturity greater than one year.~~notes.

The Parent Company’s long-term borrowed funds as of December 31, ~~2018~~2019 and ~~2017~~2018 included principal balances of $2.5 billion and $2.0 billion, ~~and $2.3 billion~~respectively, and unamortized deferred issuance costs and/or discounts of ($8) million and ($5) million, ~~for each period. The banking~~respectively. CBNA and other subsidiaries’ long-term borrowed funds as of December 31, 2019 and 2018 ~~and 2017 include~~included principal balances of ~~$12.5~~$11.5 billion and ~~$9.5~~$14.0 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($~~14)~~13) million and ($~~19)~~14) million, respectively, and hedging basis adjustments of ~~($58)~~$50 million and ($~~63)~~66) million, respectively. See Note 13 ~~“Derivatives” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item 8 ~~— Financial Statements and Supplementary Data, of this Report~~ for further information about our hedging of certain long-term borrowed funds.

QUARTERLY RESULTS OF OPERATIONS

The following table presents unaudited quarterly Consolidated Statements of Operations data and Consolidated Balance Sheet data as of and for the four quarters of ~~2018~~2019 and ~~2017,~~2018, respectively. We have prepared the Consolidated Statements of Operations data and Balance Sheet data on the same basis as our Consolidated Financial Statements in ~~Part II,~~ Item 8 ~~— Financial Statements and Supplementary Data, included in this Report~~ and, in the opinion of management, each Consolidated Statement of Operations and Balance Sheet includes



		Citizens Financial Group, Inc. \| 62

all adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the results of operations and balance sheet data as of and for these periods. This information should be read in conjunction with our Consolidated Financial Statements and ~~the related notes, of this Report.~~Notes in Item 8.

Supplementary Summary Consolidated Financial and Other Data (unaudited)


	For the Three Months Ended																								For the Three Months Ended
(dollars in millions, except per share amounts)	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
Operating Data:
Net interest income		$1,172			$1,148			$1,121			$1,091			$1,080			$1,062			$1,026			$1,005			$1,143			$1,145			$1,166			$1,160			$1,172			$1,148			$1,121			$1,091
Noninterest income ^{(1) (6) (7)}	421			416			388			371			404			381			370			379
Noninterest income ⁽⁷⁾																									494			493			462			428			421			416			388			371
Total revenue	1,593			1,564			1,509			1,462			1,484			1,443			1,396			1,384			1,637			1,638			1,628			1,588			1,593			1,564			1,509			1,462
Provision for credit losses	85			78			85			78			83			72			70			96			110			101			97			85			85			78			85			78
Noninterest expense ^{(2) (5) (6) (7)}	951			910			875			883			898			858			864			854
Noninterest expense ^{(1) (4) (5) (6) (7) (8)}																									986			973			951			937			951			910			875			883
Income before income tax expense (benefit)	557			576			549			501			503			513			462			434			541			564			580			566			557			576			549			501
Income tax expense (benefit) ^{(3) (5) (6) (8)}	92			133			124			113			(163		)	165			144			114
Net income ^{(4) (5) (6) (8)}		$465			$443			$425			$388			$666			$348			$318			$320
Net income available to common stockholders ⁽⁴⁾⁽⁵⁾⁽⁶⁾⁽⁸⁾		$450			$436			$425			$381			$666			$341			$318			$313
Net income per average common share- basic^{(6) (8)}		$0.96			$0.92			$0.88			$0.78			$1.35			$0.68			$0.63			$0.61
Net income per average common share- diluted⁽⁶⁾⁽⁸⁾	0.96			0.91			0.88			0.78			1.35			0.68			0.63			0.61
Income tax expense ^{(2) (4) (5) (6) (7) (8)}																									91			115			127			127			92			133			124			113
Net income ^{(3) (4) (5) (6) (7) (8)}																										$450			$449			$453			$439			$465			$443			$425			$388
Net income available to common stockholders ^{(3) (4)}⁽⁵⁾^{(6) (7)}⁽⁸⁾																										$427			$432			$435			$424			$450			$436			$425			$381
Net income per average common share- basic^{(3) (4) (5) (6) (7) (8)}																										$0.98			$0.97			$0.95			$0.92			$0.96			$0.92			$0.88			$0.78
Net income per average common share- diluted^{(4) (5) (6) (7)}⁽⁸⁾																									0.98			0.97			0.95			0.92			0.96			0.91			0.88			0.78
Other Operating Data:
Return on average common equity ⁽⁹⁾	9.16		%	8.82		%	8.65		%	7.83		%	13.46		%	6.87		%	6.48		%	6.52		%	8.30		%	8.35		%	8.54		%	8.62		%	9.16		%	8.82		%	8.65		%	7.83		%
Return on average tangible common equity ⁽⁹⁾	13.85			13.29			12.93			11.71			19.92			10.13			9.57			9.68			12.39			12.44			12.75			13.00			13.85			13.29			12.93			11.71
Return on average total assets ⁽⁹⁾	1.17			1.13			1.11			1.04			1.75			0.92			0.85			0.87			1.08			1.10			1.13			1.11			1.17			1.13			1.11			1.04
Return on average total tangible assets ⁽⁹⁾	1.22			1.18			1.16			1.08			1.83			0.96			0.89			0.91			1.13			1.15			1.17			1.16			1.22			1.18			1.16			1.08
Efficiency ratio ⁽⁹⁾	59.69			58.20			57.95			60.43			60.52			59.41			61.94			61.68			60.28			59.40			58.41			59.00			59.69			58.20			57.95			60.43
Net interest margin ⁽⁹⁾	3.22			3.19			3.18			3.16			3.08			3.05			2.97			2.96
Net interest margin ^{(9) (10)}																									3.04			3.10			3.20			3.23			3.23			3.20			3.20			3.19
Net interest margin, FTE ^{(9) (11)}																									3.06			3.12			3.21			3.25			3.25			3.22			3.22			3.21
Share Data:
Cash dividends declared and paid per common share		$0.27			$0.27			$0.22			$0.22			$0.18			$0.18			$0.14			$0.14			$0.36			$0.36			$0.32			$0.32			$0.27			$0.27			$0.22			$0.22
Dividend payout ratio	28		%	29		%	25		%	28		%	13		%	26		%	22		%	23		%	37		%	37		%	34		%	35		%	28		%	29		%	25		%	28		%

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 63


	As of																								As of
(dollars in millions)	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2019			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018
Balance Sheet Data:
Total assets		$160,518			$158,598			$155,431			$153,453			$152,336			$151,356			$151,407			$150,285			$165,733			$164,362			$162,749			$161,342			$160,518			$158,598			$155,431			$153,453
Loans and leases ⁽¹⁰⁾	116,660			114,720			113,407			111,425			110,617			110,151			109,046			108,111
Loans and leases ⁽¹²⁾																									119,088			117,880			116,838			117,615			116,660			114,720			113,407			111,425
Allowance for loan and lease losses	1,242			1,242			1,253			1,246			1,236			1,224			1,219			1,224			1,252			1,263			1,227			1,245			1,242			1,242			1,253			1,246
Total securities	25,075			25,485			25,513			25,433			25,733			25,742			25,115			25,996			24,669			25,602			25,898			25,651			25,075			25,485			25,513			25,433
Goodwill	6,923			6,946			6,887			6,887			6,887			6,887			6,887			6,876			7,044			7,044			7,040			7,040			6,923			6,946			6,887			6,887
Total liabilities	139,701			138,322			134,964			133,394			132,066			131,247			131,343			130,438			143,532			142,511			140,732			139,811			139,701			138,322			134,964			133,394
Deposits	119,575			117,075			117,073			115,730			115,089			113,235			113,613			112,112			125,313			124,714			124,004			123,916			119,575			117,075			117,073			115,730
Federal funds purchased and securities sold under agreements to repurchase	1,156			374			326			315			815			453			429			1,093			265			867			1,132			668			1,156			374			326			315
Other short-term borrowed funds	1,653			2,006			1,499			1,494			1,856			1,505			2,004			2,762
Long-term borrowed funds	14,433			15,639			13,641			13,486			11,765			13,400			13,154			11,780
Other short-term borrowed funds⁽¹³⁾																									9			210			309			11			161			512			10			10
Long-term borrowed funds ⁽¹³⁾																									14,047			12,806			11,538			11,725			15,925			17,133			15,130			14,970
Total stockholders’ equity	20,817			20,276			20,467			20,059			20,270			20,109			20,064			19,847			22,201			21,851			22,017			21,531			20,817			20,276			20,467			20,059
Other Balance Sheet Data:
Asset Quality Ratios:
Allowance for loan and lease losses as a percentage of total loans and leases	1.06		%	1.08		%	1.10		%	1.12		%	1.12		%	1.11		%	1.12		%	1.13		%	1.05		%	1.07		%	1.05		%	1.06		%	1.06		%	1.08		%	1.10		%	1.12		%
Allowance for loan and lease losses as a percentage of nonperforming loans and leases	156			149			148			144			142			131			119			117
Nonperforming loans and leases as a percentage of total loans and leases	0.68			0.73			0.75			0.78			0.79			0.85			0.94			0.97
Capital ratios:⁽¹¹⁾
CET1 capital ratio ⁽¹²⁾	10.6			10.8			11.2			11.2			11.2			11.1			11.2			11.2
Tier 1 capital ratio ⁽¹³⁾	11.3			11.2			11.6			11.4			11.4			11.3			11.4			11.4
Total capital ratio ⁽¹⁴⁾	13.3			13.4			13.8			13.9			13.9			13.8			14.0			14.0
Tier 1 leverage ratio ⁽¹⁵⁾	10.0			9.9			10.2			10.0			10.0			9.9			9.9			9.9
Allowance for loan and lease losses as a percentage of nonperforming loans and leases ⁽¹⁴⁾																									178			171			169			167			162			154			149			144
Nonperforming loans and leases as a percentage of total loans and leases⁽¹⁴⁾																									0.59			0.63			0.62			0.63			0.66			0.70			0.74			0.79
Capital ratios:⁽¹⁵⁾
CET1 capital ratio																									10.0			10.3			10.5			10.5			10.6			10.8			11.2			11.2
Tier 1 capital ratio																									11.1			11.1			11.3			11.3			11.3			11.2			11.6			11.4
Total capital ratio																									13.0			13.0			13.4			13.4			13.3			13.4			13.8			13.9
Tier 1 leverage ratio																									10.0			9.9			10.1			10.0			10.0			9.9			10.2			10.0

⁽¹⁾Fourth quarter 2019 noninterest expense included $37 million of pre-tax notable items consisting of $35 million in other notable items ($35 million in TOP programs and other efficiency initiatives) and $2 million of integration costs associated with acquisitions.

⁽²⁾Fourth quarter 2019 income tax expense included $33 million of benefits associated with other notable items ($24 million largely tied to legacy tax matters and $9 million in TOP programs and other efficiency initiatives).

⁽³⁾Fourth quarter 2019 net income included $4 million of after-tax notable items consisting of $2 million in total integration costs associated with acquisitions and $2 million in other notable items (including $24 million largely tied to legacy tax matters offset by $26 million in after-tax TOP programs and other efficiency initiatives).

⁽⁴⁾Third quarter 2019 noninterest expense included $19 million of pre-tax notable items consisting of $15 million in other notable items ($15 million in TOP programs and other efficiency initiatives) and $4 million of integration costs associated with acquisitions. Income tax expense included $15 million of benefits associated with notable items ($14 million in other notable items, consisting of $10 million related to an operational restructure and $4 million in TOP programs and other efficiency initiatives, and $1 million for integration costs associated with acquisitions). Net income included $4 million of after-tax notable items consisting of $3 million of total integration costs associated with acquisitions and $1 million in other notable items (including $10 million related to an operational restructure offset by $11 million in after-tax TOP programs and other efficiency initiatives).

⁽⁵⁾Second quarter 2019 noninterest expense included $7 million of pre-tax notable items for total integration costs associated with acquisitions. Income tax expense and net income included $2 million and $5 million, respectively, related these notable items.

⁽⁶⁾First quarter 2019 noninterest expense included $5 million of pre-tax notable items for total integration costs associated with acquisitions. Income tax expense and net income included $1 million and $4 million, respectively, related to these notable items.

⁽⁷⁾Fourth quarter 2018 noninterest income included $5 million of pre-tax notable items ($4 million in FAMC integration costs and $1 million in other pre-tax notable items).

⁽²⁾~~Fourth quarter 2018 noninterest~~ Noninterest expense included $45 million of pre-tax notable items consisting of $33 million in other notable items ($33 million in TOP efficiency initiatives) and $12 million of FAMC integration costs.

⁽³⁾~~Fourth quarter 2018 income~~ Income tax expense included $41 million of benefit associated with notable items ($37 million in other notable items consisting of $8 million in TOP efficiency initiatives and $29 million of net deferred tax liability adjustment) and $4 million in FAMC integration costs.

⁽⁴⁾~~Fourth quarter 2018 net~~ Net income included $9 million of after-tax notable items consisting of $12 million of FAMC integration costs offset by $3 million other notable items (including $29 million of net deferred tax liability adjustment offset by $25 million in after-tax TOP efficiency initiatives and $1 million of noninterest income notable items).

⁽⁵⁾⁽⁸⁾Third quarter 2018 noninterest expense included $9 million of pre-tax notable items for FAMC integration costs. Income tax expense included $2 million of benefits associated with notable items for FAMC integration costs and net income included $7 million of after-tax notable items for FAMC integration costs.

⁽⁶⁾Fourth quarter 2017 noninterest income included $17 million of pre-tax notable items related to a gain on mortgage/home equity TDR Transaction. Noninterest expense included $40 million of pre-tax notable items consisting of $22 million of 2017 Tax Legislation-related notable items (colleague and community investment) and $18 million related to other notable items ($15 million in TOP efficiency initiatives and $3 million of home equity operational items); income tax expense included $340 million of benefit associated with notable items driven by the 2017 Tax Legislation of $331 million of net deferred tax liability adjustment and $9 million of tax benefit related to colleague and community investment; net income included $317 million of after-tax notable items consisting of a $318 million benefit related the December 2017 Tax Legislation ($331 million of net deferred tax liability adjustment partially offset by $13 million of after-tax colleague and community investment), $10 million of after-tax gain on mortgage/home equity TDR Transaction offset by $11 million of after-tax other notable items ($9 million in after-tax TOP efficiency initiatives and $2 million of after-tax home equity operational items); and net income per average common share, basic and diluted, included $0.64 related to notable items, primarily driven by the 2017 Tax Legislation.

⁽⁷⁾~~Second quarter 2017 noninterest income included $11 million of lease impairment credit-related costs and noninterest expense included $15 million of lease impairment credit-related costs.~~

⁽⁸⁾First quarter 2017 income tax expense and net income included a $23 million benefit related to the settlement of certain tax matters and net income per average common share, basic and diluted, included $0.04 benefit related to the settlement of certain tax matters.

⁽⁹⁾ Ratios for the periods above are presented on an annualized basis.

⁽¹⁰⁾Beginning 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⁾ Net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%.

⁽¹²⁾ Excludes ~~loans held for sale~~LHFS of $3.3 billion, $2.0 billion, $2.2 billion, $1.3 billion, $1.3 billion, $1.3 billion, $710 million, ~~$800 million, $718 million, $1.2 billion, $707 million,~~ and ~~$669~~$800 million as of December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, ~~December 31, 2017, September 30, 2017, June 30, 2017~~respectively.

⁽¹³⁾Beginning in the first quarter of 2019, borrowed funds balances and ~~March 31, 2017, respectively.~~the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.

^(11)(14)Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which we have the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation.

⁽¹⁵⁾The capital ratios and associated components are prepared using the U.S. Basel III Standardized transitional approach. ~~The December 31, 2017 capital ratios reflect the retrospective adoption of FASB ASU 2018-02,~~ ~~Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ ~~See “—Results of Operations — 2017 compared with 2016 — Income Tax Expense” for additional information.~~

⁽¹²⁾~~“Common equity tier 1 capital ratio” represents CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽¹³⁾“Tier 1 capital ratio” is tier 1 capital, which includes CET1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽¹⁴⁾~~“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽¹⁵⁾~~“Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 64

CAPITAL AND REGULATORY MATTERS

As a bank holding company and a financial holding company, we are subject to regulation and supervision by the FRB. ~~As of December 31, 2018, our primary subsidiaries were~~Our banking subsidiary, CBNA, is a national banking association whose primary federal regulator is the OCC, and CBPA, a Pennsylvania-chartered savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC as its primary federal regulator. On January 2, 2019, we consolidated our banking subsidiaries via a merger of CBPA into CBNA in order to streamline governance and enterprise risk management, improve CBNA’s risk profile and gain operational efficiencies. CBNA is now our primary subsidiary and our sole banking subsidiary.

OCC. Our regulation and supervision continues to evolve as the legal and regulatory frameworks governing our operations continue to change. The current operating environment reflects heightened regulatory expectations around ~~many regulations including~~ consumer compliance, the Bank Secrecy Act, anti-money laundering compliance, and increased internal audit ~~activities.~~activities, among other factors. For more information, see the “Regulation and Supervision” section in ~~Part I,~~ Item ~~1 — Business, included in this Report.~~1.

Dodd-Frank Act

The Dodd-Frank Act regulates many aspects of the financial services industry and ~~Economic Growth, Regulatory Relief~~addresses among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, derivatives and ~~Consumer Protection Act~~securities markets, restrictions on an insured bank’s transactions with its affiliates, lending limits and mortgage lending practices.

~~Under~~ In October 2019, the FRB and the other banking regulators finalized rules that tailor the application of the enhanced prudential standards to bank holding companies and depository institutions to implement the EGRRCPA amendments to the Dodd-Frank Act ~~until~~(“Tailoring Rules”). Concurrently, the FRB and other banking regulators finalized the regulatory capital, liquidity and resolution plan requirements to firms with more than $100 billion in total assets. Category IV firms with $100 billion to $250 billion in total assets, such as us, will, among other things, be subject to biennial supervisory stress-testing and will be exempt from company-run stress testing ~~amendments~~and related disclosure requirements. The FRB will continue to supervise Category IV firms on an ongoing basis, including evaluation of ~~EGRRCPA take effect, we~~the capital adequacy and capital planning processes during off-cycle years. Category IV firms are also no longer required to submit ~~our annual capital plan~~resolution plans. For more information, see the “Tailoring of Prudential Requirements” and “Resolution Planning” sections in Item 1.

In light of the ~~results of our annual~~Tailoring Rules, the FRB provided us relief in February 2019 from certain regulatory requirements related to supervisory stress testing, company-run stress ~~tests to the FRB by April 5th of each year~~testing, and disclose certain results within 15 days after the FRB discloses the results of its supervisory-run tests. EGRRCPA amended the Dodd-Frank Act by, among other things, effective November 24, 2019, removing therelated disclosure requirements for ~~firms with between $100 billion or more but less than $250 billion, such as Citizens,~~the 2019 stress test cycle. As a result, we were not required to participate in the supervisory stress test of CCAR, conduct company-run stress tests, and to be subject to supervisory stress testing (although the FRB retains discretion to subject such firms to these requirements). In light of these amendments, the FRB has exempted Citizens from supervisory and company-run stress testing requirements for the 2019 cycle and proposed to conduct supervisory stress tests onor submit a biennial basis and to eliminate company-run stress testing requirements for certain BHCs, including Citizens. We publish estimated DFAST results under the supervisory severely adverse scenario on our regulatory filings and disclosures page on our Investor Relations website at http://investor.citizensbank.com. On April 5, 2018, we submitted our 2018 Capital Plan, Capital Policy and annual stress test resultscapital plan to the FRB for 2019. We remain subject to the requirement to develop and maintain an annual capital plan that is reviewed and approved by our Board of Directors (or one of its committees), as ~~part of the 2018 CCAR process. On June 28, 2018, the~~well as FR Y-14 reporting requirements. The FRB ~~announced that it did~~has not ~~object~~objected to our ~~2018 Capital Plan including our proposed~~maximum planned capital actions for the period beginning July 1, ~~2018~~2019 and ending June 30, ~~2019. Our~~2020, which are largely based on the results for our 2018 ~~Capital Plan includes quarterly common dividends~~supervisory stress test, adjusted for any changes in our regulatory capital ratios since the FRB acted on our 2018 capital plan. On June 27, 2019, our Board of ~~$0.27 per share in third and fourth quarter 2018, increasing to $0.32 per share in first and second quarter 2019, and~~Directors authorized common share repurchases of up to ~~$1.02~~$1.275 billion ~~through second quarter~~over the four-quarter period beginning July 1, 2019. ~~While the regulatory landscape~~The timing and exact amount of future share repurchases will depend on various factors, including capital ~~planning~~position, financial performance and ~~stress testing continues to evolve, we maintain a robust inventory of potential actions that could be taken to restore capital, liquidity or both in the event of~~ market ~~or idiosyncratic financial stress. We continue to comply with all regulatory requirements for capital planning and stress testing as well as internal policy governing capital actions.~~conditions.

The Dodd-Frank Act also required our bank subsidiary to conduct stress tests on an annual basis and to disclose the stress test results. Under EGRRCPA, effective November 2019, banks with total consolidated assets between $100 billion and $250 billion, such as CBNA, will not be required to conduct annual company-run stress tests. In December 2018, the OCC proposed to implement this change and, if enacted as proposed, we believe that CBNA will not be required to conduct its annual company-run stress tests during 2019. CBNA submitted its 2018 annual stress tests to the OCC on April 5, 2018 and published, on our Investor Relations website referenced above, a summary of those results along with the stress test results of the Parent Company on June 21, 2018.

~~Similarly, we are required to submit the results of our mid-cycle company-run DFAST stress tests by October 5~~^th ~~of each year to the FRB and disclose the summary results of our internally developed stress tests under the internally developed severely adverse scenario between October 5~~^th ~~and November 4~~^th. We submitted the results of our 2018 mid-cycle stress test to the FRB and disclosed a summary of the results on October 5, 2018. We publish these company-run estimated impacts of stress on our Investor Relations website referenced above. The FRB has proposed to eliminate mid-cycle company-run DFAST stress tests, effective with the 2020 capital planning and stress testing cycle and, as with the other capital planning and stress testing requirements for the 2019 cycle, has exempted Citizens from this requirement for the 2019 cycle.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 65

Capital Framework

Under the current U.S. Basel III capital framework, we and our banking ~~subsidiaries~~subsidiary must meet the following specific minimum ~~requirements for the following ratios: common equity~~requirements: CET1 capital ratio of 4.5%, tier 1 capital ~~tier 1~~ratio of 6.0%, total capital ~~total capital,~~ratio of 8.0%, and tier 1 ~~leverage.~~ leverage ratio of 4.0%. A capital conservation buffer (“CCB”) of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above.

In July 2019, the FRB and the other federal banking regulators issued a final rule to simplify regulatory capital treatment for MSRs, certain DTAs and significant investments in the capital of unconsolidated financial institutions, pursuant to EGRRCPA. Effective for us on April 1, 2020, the final rule will change the individual CET1 deduction threshold for these assets from 10% to 25%, eliminate the aggregate deduction threshold for these assets of 15%, assign a 250% risk weight for any MSRs or DTAs not deducted from CET1 capital, and assign an exposure category risk weight for investments in the capital of unconsolidated financial institutions not deducted from CET1 capital.

The table below presents our actual regulatory capital ratios under the U.S. Basel III Standardized rules:


	Actual				Required Minimum plus Required CCB for Non-Leverage Ratios⁽⁵⁾⁽⁶⁾		Actual				Required Minimum plus Required CCB for Non-Leverage Ratios⁽¹⁾⁽²⁾
(in millions, except ratio data)	Amount		Ratio				Amount		Ratio
December 31, 2018
Common equity tier 1 capital⁽¹⁾		$14,485	10.6	%	6.4
December 31, 2019							December 31, 2019
CET1 capital								$14,304	10.0	%	7.0
Tier 1 capital⁽²⁾	15,325		11.3		7.9		15,874		11.1		8.5
Total capital⁽³⁾	18,157		13.3		9.9		18,542		13.0		10.5
Tier 1 leverage⁽⁴⁾	15,325		10.0		4.0		15,874		10.0		4.0
Risk-weighted assets	136,202						142,915
Quarterly adjusted average assets	153,026						158,782
December 31, 2017
Common equity tier 1 capital⁽¹⁾		$14,309	11.2	%	5.8	%
December 31, 2018							December 31, 2018
CET1 capital								$14,485	10.6	%	6.4	%
Tier 1 capital⁽²⁾	14,556		11.4		7.3		15,325		11.3		7.9
Total capital⁽³⁾	17,781		13.9		9.3		18,157		13.3		9.9
Tier 1 leverage⁽⁴⁾	14,556		10.0		4.0		15,325		10.0		4.0
Risk-weighted assets	127,692						136,202
Quarterly adjusted average assets	145,601						153,026

⁽¹⁾~~“Common equity tier 1 capital ratio” is CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽²⁾“Tier 1 capital ratio” is tier 1 capital, which includes CET1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽³⁾~~“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽⁴⁾ ~~“Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.~~

⁽⁵⁾Required “Minimum Capital ratio” for ~~2018~~2019 and ~~2017~~2018 are: Common equity tier 1 capital of 4.5%; Tier 1 capital of 6.0%; Total capital of 8.0%; and Tier 1 leverage of 4.0%.

⁽⁶⁾⁽²⁾ ~~“Minimum~~“Minimum Capital ratio” includes capital conservation buffer of 2.500% for ~~Transitional Basel III of~~2019 and 1.875% for ~~2018 and 1.250% for 2017;~~2018; N/A to Tier 1 leverage.

At December 31, ~~2018,~~2019, our CET1 capital, tier 1 capital and total capital ratios were 10.0%, 11.1% and 13.0%, respectively, as compared with 10.6%, 11.3% and 13.3%, respectively, as ~~compared with 11.2%, 11.4% and 13.9%, respectively, as~~ of December 31, ~~2017.~~2018. The CET1 capital ratio decreased as ~~$8.5~~$6.7 billion of risk-weighted asset (“RWA”) growth, ~~including $1.5 billion from FAMC,~~the impact of the capital actions described in “—Capital Transactions” below, and an increase in goodwill and ~~intangible growth attributable~~intangibles related to ~~the FAMC acquisition, and Capital Plan actions that included common dividends of $471 million, preferred dividends of $29 million and repurchase of $1.025 billion of our outstanding common stock,~~Acquisitions, were partially offset by net income for the year ended December 31, ~~2018.~~2019. The tier 1 capital ratio decreased ~~due to~~as the changes in the CET1 capital ratio were partially offset by the issuance of preferred ~~stock.~~stock as described further in “—Capital Transactions” below. The total capital ratio decreased due to the changes in CET1 and tier 1 capital ratios ~~as well as the June 2018 redemption of subordinated debt~~ and an increase in non-qualifying subordinated debt. At December 31, ~~2018,~~2019, our CET1 capital, tier 1 capital and total capital ratios were approximately ~~363~~300 basis points, ~~275~~260 basis points and ~~283~~250 basis points, respectively, above their regulatory ~~minima~~minimums plus the ~~fully phased-in~~ capital conservation buffer. All ratios remained well above the U.S. Basel III minima.

Regulatory Capital Ratios and Capital Composition

CET1 capital under U.S. Basel III Standardized rules totaled $14.3 billion at December 31, 2019, and decreased $181 million from $14.5 billion at December 31, 2018, ~~and increased $176 million from $14.3 billion at December 31, 2017,~~ as ~~net income for the year ended December 31, 2018 was partially offset by the impact of~~ common share repurchases, dividends and an increase in goodwill and intangibles related to Acquisitions were partially offset by net income for the ~~FAMC acquisition.~~year ended December 31, 2019. Tier 1 capital at December 31, ~~2018~~2019 totaled ~~$15.3~~$15.9 billion, reflecting a ~~$769~~$549 million increase from ~~$14.6~~$15.3 billion at December 31, ~~2017,~~2018, driven by the changes in CET1 capital and the issuance of preferred stock. At December 31, ~~2018,~~2019, we had ~~$840 million~~$1.6 billion of ~~fixed-to-floating~~ non-cumulative perpetual preferred stock issued and outstanding, an increase of ~~$593~~$730 million from ~~$247~~$840 million at December 31, ~~2017. The increase is attributable to~~2018, given the ~~second~~first quarter ~~2018~~2019 issuance of 300,000 shares of Series BD Preferred Stock and the fourth quarter ~~2018~~2019 issuance of ~~300,000~~450,000 shares of Series CE Preferred



		Citizens Financial Group, Inc. \| 66

Stock ~~both of which~~that qualified as additional tier 1 capital. Total capital of ~~$18.2~~$18.5 billion at December 31, ~~2018,~~2019, increased ~~$376~~$385 million from December 31, ~~2017,~~2018, driven by the changes in CET1 and tier 1 capital ~~partially offset by the June 2018 redemption of subordinated debt~~ and an increase in non-qualifying subordinated debt.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~Risk-weighted assets (“RWA”)~~RWA totaled ~~$136.2~~$142.9 billion at December 31, ~~2018,~~2019, based on U.S. Basel III Standardized rules, up ~~$8.5~~$6.7 billion from December 31, ~~2017.~~2018. This increase was driven by growth in retail loans, including education, residential mortgages and unsecured retail portfolios, as well as higher commercial loans and commitments, ~~as well as growth in retail loans including residential mortgages, education~~higher derivative valuations and ~~unsecured retail portfolios.~~multi-family loans. The increase in RWA was also driven by the ~~acquisition~~creation of ~~FAMC mortgage servicing rights.~~a right-of-use asset in conjunction with the adoption of ASU 2016-02, Leases (Topic 842) and market risk RWA, as we met the reporting threshold prescribed by Market Risk Capital Guidelines. These increases were partially offset by run-off in the ~~auto and~~ home equity ~~portfolios.~~portfolio and lower investment securities.

As of December 31, ~~2018,~~2019, the tier 1 leverage ratio was 10.0% and was stable with December 31, ~~2017~~2018 as the ~~$7.4~~$5.8 billion increase in quarterly adjusted average assets was offset by the increase in tier 1 capital.

The following table presents our capital composition under the U.S. Basel III capital framework:


(in millions)	December 31, 2018			December 31, 2017			December 31, 2019			December 31, 2018
Total common stockholders’ equity		$19,977			$20,023			$20,631			$19,977
Exclusions:⁽¹⁾
Net unrealized losses recorded in accumulated other comprehensive income, net of tax:
Debt and equity securities	490			236			(1		)	490
Derivatives	143			143			(3		)	143
Unamortized net periodic benefit costs	463			441			415			463
Deductions:
Goodwill	(6,923		)	(6,887		)	(7,044		)	(6,923		)
Deferred tax liability associated with goodwill	366			355			374			366
Other intangible assets	(31		)	(2		)	(68		)	(31		)
Total common equity tier 1	14,485			14,309			14,304			14,485
Qualifying preferred stock	840			247			1,570			840
Total tier 1 capital	15,325			14,556			15,874			15,325
Qualifying subordinated debt⁽²⁾	1,499			1,901			1,372			1,499
Allowance for loan and lease losses	1,242			1,236			1,252			1,242
Allowance for credit losses for off-balance sheet exposure	91			88			44			91
Total capital		$18,157			$17,781			$18,542			$18,157

⁽¹⁾As a U.S. Basel III Standardized approach institution, we selected the one-time election to opt-out of the requirements to include all the components of AOCI.

⁽²⁾ As of December 31, ~~2018~~2019 and ~~2017,~~2018, the amount of non-qualifying subordinated debt excluded from regulatory capital was $267 million and $139 million, ~~and $70 million,~~ respectively.

Capital Adequacy Process

Our assessment of capital adequacy begins with our risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. Capital requirements are determined for actual and forecasted risk portfolios using applicable regulatory capital methodologies. The assessment also considers the possible impacts of approved and proposed changes to regulatory capital requirements. Key analytical frameworks, including stress testing, which enable the assessment of capital adequacy versus unexpected loss under a variety of stress scenarios, supplement our base line forecast. A governance framework supports our capital planning process, including capital management policies and procedures that document capital adequacy metrics and limits, as well as our Capital Contingency Plan and the active engagement of both the legal-entity boards and senior management in oversight and decision-making.

Forward-looking assessments of capital adequacy feed development of a single capital plan covering us and our banking subsidiary that is periodically submitted to the FRB. We prepare this plan in full compliance with the FRB’s Capital Plan Rule and we participate annually in the FRB’s horizontal capital review, which is the FRB’s assessment of specific capital planning areas as part of their normal supervisory process.

All distributions proposed under our Capital Plan are subject to consideration and approval by our Board of Directors prior to execution. The timing and exact amount of future dividends and share repurchases will depend on various factors, including our capital position, financial performance and market conditions.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 67

Capital Transactions

~~The~~We completed the following capital actions ~~were completed by the Company~~ during ~~2018:~~2019:

~~Declared and paid quarterly common stock dividends of~~ ~~$0.22~~ ~~per share for the first and second quarters of~~ ~~2018, and~~ ~~$0.27~~ ~~per share for the third and fourth quarters of~~ ~~2018, aggregating to common stock dividend payments of~~ ~~$471 million~~;

~~Declared semi-annual dividends of~~ ~~$27.50~~


•	Declared quarterly common stock dividends of $0.32 per share for the first and second quarters of 2019, and $0.36 per share for the third and fourth quarters of 2019, aggregating to $617 million;


•	Declared semi-annual dividends of $27.50 per share on the 5.500% fixed-to-floating rate non-cumulative perpetual Series A Preferred Stock, aggregating to $14 million;


•	Declared semi-annual dividends of $30.00 per share on the 6.000% fixed-to-floating rate non-cumulative perpetual Series B Preferred Stock, aggregating to $18 million;


•	Declared quarterly dividends of $15.94 per share on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to $19 million;

Issued $300 million, or 12,000,000 depository shares, of 6.350% fixed-to-floating rate non-cumulative perpetual Series ~~A Preferred Stock, aggregating to $14 million;~~

~~Issued $300 million, or 300,000 shares, of 6.000% fixed-to-floating rate non-cumulative perpetual Series B~~D Preferred Stock (the “Series BD Preferred Stock”), par value of $25.00 per share with a liquidation preference of $1,000 per share, ~~and received~~with net proceeds of ~~$296~~$293 million;


•	Declared quarterly dividends of $11.82 per share in the first quarter of 2019 and $15.88 per share in the second, third, and fourth quarters of 2019 on the Series D Preferred Stock, aggregating to $18 million;

~~Declared semi-annual dividends~~Issued $450 million, or 18,000,000 depository shares, of ~~$37.00 per share on the 6.000% fixed-to-floating rate~~5.000% fixed-rate non-cumulative perpetual Series ~~B Preferred Stock, aggregating to $11 million;~~

~~Issued $300 million, or 300,000 shares, of 6.375% fixed-to-floating rate non-cumulative perpetual Series C~~E Preferred Stock (the “Series CE Preferred Stock”), par value of $25.00 per share with a liquidation preference of $1,000 per share, ~~and received~~with net proceeds of ~~$297~~$437 million;

~~Declared quarterly dividends of $12.57 per share on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to $4~~


•	Declared a quarterly dividend of $9.44 per share in fourth quarter 2019 on the Series E Preferred Stock, aggregating to $4 million; and

Repurchased ~~$1.025~~$1.2 billion of our outstanding common ~~stock; and~~

~~Redeemed $333 million of our 5.158% fixed-to-floating rate callable subordinated debt due June 29, 2023.~~stock

Banking ~~Subsidiaries’~~Subsidiary’s Capital

The following table presents ~~our banking subsidiaries’~~CBNA’s capital ratios under U.S. Basel III Standardized rules:

December 31, 2018 December 31, 2017
(dollars in millions) Amount
Ratio Amount
Ratio
Citizens Bank, National Association
Common equity tier 1 capital ⁽¹⁾

$11,994
10.6 %
$11,917
11.4 %
Tier 1 capital⁽²⁾
11,994
10.6
11,917
11.4
Total capital⁽³⁾
14,252
12.5
14,127
13.5
Tier 1 leverage⁽⁴⁾
11,994
9.9
11,917
10.3
Risk-weighted assets 113,610

104,767

Quarterly adjusted average assets 121,686

115,291

Citizens Bank of Pennsylvania ⁽⁵⁾

Common equity tier 1 capital ⁽¹⁾

$3,026
13.2 %
$3,045
12.9 %
Tier 1 capital⁽²⁾
3,026
13.2
3,045
12.9
Total capital⁽³⁾
3,226
14.1
3,284
13.9
Tier 1 leverage⁽⁴⁾
3,026
9.0
3,045
8.7
Risk-weighted assets 22,922

23,659

Quarterly adjusted average assets 33,462

34,821

⁽¹⁾~~“Common equity tier 1 capital ratio” is CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽³⁾~~“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽⁴⁾ ~~“Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.~~

⁽⁵⁾ ~~On January 2, 2019, we consolidated our banking subsidiaries via a merger of CBPA into CBNA.~~



	December 31, 2019				December 31, 2018
(dollars in millions, except ratio data)	Amount		Ratio		Amount		Ratio
CET1 capital		$15,610	11.0	%		$11,994	10.6	%
Tier 1 capital	15,610		11.0		11,994		10.6
Total capital	17,937		12.6		14,252		12.5
Tier 1 leverage	15,610		9.9		11,994		9.9
Risk-weighted assets	142,555				113,610
Quarterly adjusted average assets	158,391				121,686

CBNA CET1 capital totaled $15.6 billion at December 31, 2019, up $3.6 billion from $12.0 billion at December 31, ~~2018, up $77 million from $11.9 billion at December 31, 2017 reflecting~~2018. The increase was primarily driven by the net impact of the merger of CBPA into CBNA effective January 2, 2019, and net income for the year ended December 31, ~~2018,~~2019. The increase was partially offset by dividend payments to the Parent Company and an increase in goodwill and intangibles related ~~to the FAMC acquisition. At December 31, 2018, CBNA held minimal additional tier 1 capital.~~Acquisitions. Total capital was ~~$14.3~~$17.9 billion at December 31, ~~2018,~~2019, an increase of ~~$125 million~~$3.7 billion from December 31, ~~2017,~~2018, driven by the ~~increase~~change in CET1 capital, ~~and~~ an increase in the ~~ACL.~~ACL, primarily attributable to the merger and slightly offset by an increase in non-qualifying subordinated debt.

CBNA had RWA of ~~$113.6~~$142.6 billion at December 31, ~~2018,~~2019, an increase of ~~$8.8~~$28.9 billion from December 31, ~~2017~~2018 driven primarily by the merger of CBPA into CBNA, in addition to growth in retail loans, commercial loans and commitments ~~as well as growth in retail loans including residential~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~mortgages, education~~ and ~~unsecured retail portfolios. The increase in~~higher derivative valuations. RWA was also ~~driven~~increased by ~~FAMC, which resulted~~the creation of a right-of-use asset in ~~higher mortgage servicing rights.~~conjunction with the adoption of ASU 2016-02, Leases (Topic 842) and market risk RWA, as we met the reporting threshold prescribed by Market Risk Capital Guidelines. These increases were partially offset by run-off in the ~~auto and~~ home equity ~~portfolios.~~portfolio and certain sales of investment securities.

As of December 31, ~~2018,~~2019, the CBNA tier 1 leverage ratio ~~decreased 48 basis points to~~was 9.9% ~~from 10.3% as of~~and was stable with December 31, ~~2017, primarily driven by a $6.4~~2018 as the $36.7 billion increase in quarterly adjusted average assets ~~that drove a 54 basis point decline in the ratio.~~

~~CBPA CET1 capital totaled $3.0 billion at December 31, 2018, a decrease of $19 million at December 31, 2017, as dividend payments exceeded net income. Total capital~~ was ~~$3.2 billion at December 31, 2018, a decrease of $58 million from December 31, 2017, driven~~offset by the ~~decrease in CET1 capital and a decrease in the ACL.~~

CBPA had RWA of $22.9 billion at December 31, 2018, a decrease of $737 million from December 31, 2017, driven by decreases in the auto, education, residential mortgage and home equity portfolios. These decreases were partially offset by an increase in ~~commercial loans.~~

~~As of December 31, 2018, the CBPA~~ tier 1 ~~leverage ratio was 9.0%, an increase of 30 basis points fromDecember 31, 2017, primarily driven by a $1.4 billion decrease in quarterly adjusted average assets that drove a 35 basis point increase in the ratio.~~capital.



		Citizens Financial Group, Inc. \| 68

LIQUIDITY

Liquidity is defined as our ability to meet our ~~cash-flow~~cash flow and collateral obligations in a timely manner, at a reasonable cost. An institution must maintain operating liquidity to meet its expected daily and forecasted ~~cash-flow~~cash flow requirements, as well as contingent liquidity to meet unexpected (stress scenario) funding requirements. As noted earlier, reflecting the importance of meeting all unexpected and ~~stress-scenario~~stress scenario funding requirements, we identify and manage contingent ~~liquidity (consisting~~liquidity; consisting of cash balances at the FRB, unencumbered high-quality and liquid securities, and unused FHLB borrowing ~~capacity).~~capacity. Separately, we also identify and manage asset liquidity (cash balances at the FRB and unencumbered securities) as a subset of contingent liquidity ~~(consisting of cash balances at the FRB~~(asset liquidity and ~~unencumbered high-quality securities)~~undrawn FHLB capacity). We consider the effective and prudent management of liquidity to be fundamental to our financial health and strength.

We manage liquidity at the consolidated enterprise level and at each material legal entity, including at the Parent Company and ~~CBNA.~~CBNA level.

Parent Company Liquidity

Our Parent Company’s primary sources of cash are ~~(i)~~ dividends and interest received from CBNA as a result of investing in bank equity and subordinated debt and ~~(ii)~~ externally issued preferred stock ~~and~~as well as senior and subordinated debt. Uses of cash include the ~~following: (i)~~ routine cash flow requirements as a bank holding company, including periodic share repurchases and payments of dividends, interest and expenses; ~~(ii)~~the needs of subsidiaries, including CBNA, for additional equity and, as required, its need for debt financing; and ~~(iii)~~the support for extraordinary funding requirements when necessary. To the extent ~~that~~ the Parent Company has relied on wholesale borrowings, uses also include payments of related principal and interest.

On January 29, 2019, the Parent Company issued $300 million, or 12,000,000 depositary shares, each representing a 1/40th interest in a share of its 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). For further ~~discussion,~~information, see Note 16 ~~“Stockholders’ Equity”~~in Item 8.

On July 25, 2019, the Parent Company issued $500 million in seven-year 2.850% fixed-rate senior notes.

On October 28, 2019, the Parent Company issued $450 million, or 18,000,000 depositary shares, each representing a 1/40th interest in a share of its 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (equivalent to ~~our Consolidated Financial Statements~~$25 per depositary share). For further information, see Note 16 in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.

On February 6, 2020, the Parent Company issued $300 million in ten-year 2.500% fixed-rate senior notes.

For further information on outstanding debt and preferred stock, see Note 12 ~~“Borrowed Funds”~~ and Note 16 ~~“Stockholders’ Equity” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.

During the years ended December 31, ~~2018~~2019and ~~2017,~~2018, the Parent Company declared and paid dividends on common stock of ~~$471~~$617 million and ~~$322~~$471 million, respectively, and declared dividends on preferred stock of $73 million and $29 million, ~~and $14 million,~~ respectively. ~~During the years ended December 31, 2018 and 2017,~~In addition, the Parent Company repurchased ~~$1.025~~$1.220 billion and ~~$820 million~~$1.025 billion of its outstanding common stock, respectively.

Our Parent Company’s cash and cash equivalents represent a source of liquidity that can be used to meet various needs and totaled $1.4 billion as of December 31, 2019 compared with $911 million as of December 31, ~~2018 compared with $443 million as of December 31, 2017.~~2018. The Parent Company’s double-leverage ratio (the combined equity investment in Parent Company subsidiaries

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

divided by Parent Company equity) is a measure of reliance on equity cash flows from subsidiaries to fund Parent Company obligations. At December 31, ~~2018,~~2019, the Parent Company’s double-leverage ratio was 99%.

CBNA Liquidity

In the ordinary course of business, the liquidity of CBNA is managed by matching sources and uses of cash. The primary sources of bank liquidity include ~~(i)~~ deposits from our consumer and commercial customers; ~~(ii)~~ payments of principal and interest on loans and debt securities; and ~~(iii)~~ wholesale borrowings, as needed, and as described under “—Liquidity Risk Management and Governance.” The primary uses of bank liquidity include ~~(i)~~ withdrawals and maturities of deposits; ~~(ii)~~ payment of interest on deposits; ~~(iii)~~ funding of loans and related commitments; and ~~(iv)~~ funding of securities purchases. To the extent that CBNA has relied on wholesale borrowings, uses also include payments of related principal and interest. For further information on CBNA’s outstanding debt, see Note 12 ~~“Borrowed Funds” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 —Financial Statements and Supplementary Data, of this Report.~~8.

As CBNA’s major businesses involve taking deposits and making ~~loans. Hence,~~loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves



		Citizens Financial Group, Inc. \| 69

maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary.

On February 14, 2019, CBNA issued $1.5 billion in senior notes, consisting of $700 million in three-year 3.250% fixed-rate notes, $300 million in three-year floating-rate notes, and $500 million in seven-year 3.750% fixed-rate notes.

Liquidity Risk

We define liquidity risk as the risk that an entity will be unable to meet its payment obligations in a timely manner, at a reasonable cost. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.

Contingent liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.

Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity risk may be idiosyncratic or systemic, reflecting impediments to operations and/or damaged market confidence.

Factors Affecting Liquidity

Given the composition of ~~its~~ assets and borrowing sources, contingent liquidity risk at CBNA would be materially affected by events such ~~events~~ as deterioration of financing markets for high-quality securities (e.g., mortgage-backed securities and other instruments issued by the GNMA, FNMA and the FHLMC), by any inability of the FHLBs to provide collateralized advances and/or by a refusal of the FRB to act as a lender of last resort in systemic stress.

Similarly, given the structure of its balance sheet, the funding liquidity risk of CBNA would be materially affected by an adverse idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or a combination of ~~both (e.g., the financial crisis of 2008-2010). However, during the financial crisis, CBNA reduced its dependence on unsecured wholesale funding to virtually zero.~~both. Consequently, and despite ongoing exposure to a variety of idiosyncratic and systemic events, we view our contingent liquidity risk and our funding liquidity risk to be relatively modest.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

An additional variable affecting our access ~~and the access of CBNA,~~ to unsecured wholesale market funds and to large denomination (i.e., uninsured) customer deposits is the credit ratings assigned by such agencies as Moody’s, Standard & Poor’s and Fitch. The following table presents our credit ratings:



	December 31, ~~2018~~2019
	Moody’s	Standard and Poor’s	Fitch
	Moody’s	Standard and Poor’s	Fitch
Citizens Financial Group, Inc.:
Long-term issuer	NR	BBB+	BBB+
Short-term issuer	NR	A-2	F2F1
Subordinated debt	NR	BBB	BBB
Preferred Stock	NR	BB+	BB-
Citizens Bank, National Association:
Long-term issuer	Baa1	A-	BBB+
Short-term issuer	NR	A-2	F2F1
Long-term deposits	A1	NR	A-
Short-term deposits	P-1	NR	F2F1

NR = Not Rated

Changes in our public credit ratings could affect both the cost and availability of our wholesale funding. As a result and in order to maintain a conservative funding profile, CBNA continues to minimize reliance on unsecured wholesale funding. At December 31, ~~2018,~~2019, our wholesale funding consisted primarily of secured borrowings from the FHLBs collateralized by high-quality residential mortgages and term debt issued by the Parent Company and CBNA.

Existing and evolving regulatory liquidity requirements represent another key driver of systemic liquidity conditions and liquidity management practices. The FRB, the OCC and the ~~OCC~~FDIC regularly evaluate our liquidity as part of the overall supervisory process. In addition we are subject to existing and evolving regulatory liquidity requirements, some of which are subject to further rulemaking, guidance and interpretation by the applicable



		Citizens Financial Group, Inc. \| 70

federal regulators. For further discussion, see the “Regulation and Supervision — Financial Regulatory Reform” and “—Liquidity Requirements” sections in ~~Part I,~~ Item ~~1 — Business, included~~1.

The LCR was developed by the U.S. federal banking regulators to ensure banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. In accordance with the October 2019 Final Rules, Category IV institutions with less than $50 billion in ~~this Report.~~weighted short-term wholesale funding, such as us, are no longer subject to the requirements of the LCR rule as of December 31, 2019.

Liquidity Risk Management and Governance

Liquidity risk is measured and managed by the Funding and Liquidity unit within our Treasury unit in accordance with policy guidelines promulgated by our Board and the Asset Liability Committee. In managing liquidity risk, the Funding and Liquidity unit delivers regular and comprehensive reporting, including current levels versus threshold limits, for a broad set of liquidity metrics and early warning indicators, explanatory commentary relating to emerging risk trends and, as appropriate, recommended remedial strategies.

~~The mission of our~~Our Funding and Liquidity ~~unit~~unit’s primary goal is to deliver and otherwise maintain prudent levels of operating liquidity (to support expected and projected funding requirements), and contingent liquidity (to support unexpected funding requirements resulting from idiosyncratic, systemic, and combination stress events, and regulatory liquidity requirements)~~. Additionally, we will deliver this liquidity from stable funding sources,~~ in a timely manner from stable and ~~at a reasonable cost, without significant adverse consequences.~~cost-efficient funding sources.

We seek to accomplish this ~~mission~~goal by funding loans with stable deposits; by prudently controlling dependence on wholesale funding, particularly short-term unsecured funding; and by maintaining ample available liquidity, including a contingent liquidity buffer of unencumbered high-quality loans and securities. As of December 31, ~~2018:~~2019:

~~Core deposits continued to be our primary source of funding and our consolidated year-end loan-to-deposit ratio was~~ ~~97.6%~~;

~~Our cash position (which is defined as cash balance held at the FRB) totaled~~ ~~$3.0 billion~~;

~~Contingent liquidity was~~ ~~$26.9 billion, consisting of unencumbered high-quality liquid assets of~~ ~~$19.1 billion, unused FHLB capacity of~~ ~~$4.8 billion, and our cash position (defined above) of~~ ~~$3.0 billion. Asset liquidity (a component of contingent liquidity) was~~ ~~$22.1 billion~~


•	Core deposits continued to be our primary source of funding and our consolidated year-end loans-to-deposits ratio, which excludes LHFS, was 95.0%;


•	Our cash position (which is defined as cash balance held at the FRB) totaled $2.1 billion;


•	Contingent liquidity was $28.5 billion, consisting of unencumbered high-quality liquid securities of $19.2 billion, unused FHLB capacity of $7.2 billion, and our cash position of $2.1 billion. Asset liquidity (a component of contingent liquidity) was $21.3 billion, consisting of our cash position of $2.1 billion and unencumbered high-quality liquid securities of $19.2 billion;


•	Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured by non-mortgage commercial and retail loans and totaled $12.4 billion. Use of this borrowing capacity would be considered only during exigent circumstances; and

For a summary of our sources and uses of cash ~~position~~by type of ~~$3.0 billion~~activity for the years ended December 31, 2019 and ~~unencumbered high-quality and liquid securities~~2018, see the Consolidated Statements of ~~$19.1 billion; and~~

~~Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured by non-mortgage commercial and retail loans and totaled~~ ~~$12.3 billion. Use of this borrowing capacity would be considered only during exigent circumstances.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Cash Flows in Item 8.

The Funding and Liquidity unit monitors a variety of liquidity and funding metrics and early warning indicators and metrics, including specific risk thresholds limits. These monitoring tools are broadly classified as follows:

Current liquidity sources and capacities, including cash at the FRBs, free and liquid securities and available and secured FHLB borrowing capacity;

Liquidity stress sources, including idiosyncratic, systemic and combined stresses, in addition to evolving regulatory ~~requirements such as the LCR and the NSFR;~~requirements; and

Current and prospective exposures, including secured and unsecured wholesale funding and spot and cumulative cash-flow gaps across a variety of horizons.

Further, certain of these metrics are monitored individually for CBNA, and for our consolidated enterprise on a daily basis, including cash position, unencumbered securities, asset liquidity, and available FHLB borrowing capacity. In order to identify emerging trends and risks and inform funding decisions, specific metrics are also forecasted over a one-year horizon.

Cash flows from operating activities contributed $1.8 billion in 2018, led by net income of $1.7 billion, proceeds from sales of mortgage loans held for sale of $8.1 billion and proceeds from sales of commercial loans held for sale of $1.9 billion, partially offset by originations of mortgage loans held for sale of $8.0 billion and purchases of commercial loans held for sale of $1.9 billion. Net cash used by investing activities was $7.1 billion, primarily reflecting a net increase in loans and leases of $6.4 billion, purchases of debt securities available for sale of $4.3 billion and the acquisition of FAMC, partially offset by proceeds from maturities, paydowns and sales of securities available for sale of $4.3 billion. Cash provided by financing activities was $6.4 billion, driven by proceeds from issuance of long-term borrowed funds of $22.5 billion, a net increase in deposits of $4.5 billion and net proceeds from issuance of preferred stock of $593 million, partially offset by repayments of long-term FHLB advances of $14.5 billion and a net decrease in other short-term borrowed funds of $5.2 billion. The $22.5 billion proceeds included $21.8 billion in FHLB advances and $750 million from issuances of medium term debt. These activities represented a cumulative increase in cash and cash equivalents of $1.0 billion, which, when added to the cash and cash equivalents balance of $3.0 billion at the beginning of the year, resulted in an ending balance of cash and cash equivalents of $4.1 billion as of December 31, 2018.

Cash flows from operating activities contributed $1.9 billion in 2017, led by net income of $1.7 billion, proceeds from sales of mortgage loans held for sale of $3.2 billion and proceeds from sales of commercial loans held for sale of $2.0 billion, partially offset by originations of mortgage loans held for sale of $2.9 billion and purchases of commercial loans held for sale of $2.1 billion. Net cash used by investing activities was $4.0 billion, primarily reflecting a net increase in loans and leases of $3.6 billion and securities available for sale portfolio purchases of $5.4 billion, partially offset by proceeds from maturities, paydowns and sales of securities available for sale of $4.7 billion. Cash provided by financing activities was $1.4 billion, driven by proceeds from issuance of long-term borrowed funds of $15.4 billion and a net increase in deposits of $5.3 billion, partially offset by repayments of long-term borrowed funds of $12.8 billion and a net decrease in other short-term borrowed funds of $5.0 billion. The $15.4 billion proceeds included $3.3 billion from issuances of medium term debt and $12.1 billion in FHLB advances. The $12.8 billion of repayments were all related to FHLB advances. These activities represented a cumulative decrease in cash and cash equivalents of $672 million, which, when added to the cash and cash equivalents balance of $3.7 billion at the beginning of the year, resulted in an ending balance of cash and cash equivalents of $3.0 billion as of December 31, 2017.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 71

CONTRACTUAL OBLIGATIONS

The following table presents our outstanding contractual obligations as of December 31, ~~2018:~~2019:


(in millions)	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Deposits with a stated maturity of less than one year ^{(1) (2)}		$100,233		$100,233		$—		$—		$—		$106,577		$106,577		$—		$—		$—
Term deposits ⁽¹⁾	19,342		15,889		3,168		280		5		18,736		16,151		2,311		270		4
Long-term borrowed funds ^{(1) (3)}	14,433		—		11,298		1,838		1,297		14,047		2,504		8,462		1,058		2,023
Contractual interest payments ⁽⁴⁾	1,105		418		397		176		114		895		324		329		155		87
Operating lease obligations	895		165		289		194		247
Lease liabilities maturing under non-cancelable operating leases											806		150		275		182		199
Purchase obligations ⁽⁵⁾	725		408		203		88		26		822		317		320		148		37
Total outstanding contractual obligations		$136,733		$117,113		$15,355		$2,576		$1,689		$141,883		$126,023		$11,697		$1,813		$2,350

⁽¹⁾Deposits and long-term borrowed funds exclude interest.

⁽²⁾Includes demand, checking with interest, regular savings, and money market account deposits. See “—Deposits” for further information.

⁽³⁾ Includes obligations under capital leases.

⁽⁴⁾ Includes accrued interest and future contractual interest obligations related to long-term borrowed funds.

⁽⁵⁾ Includes purchase obligations for goods and services covered by non-cancelable contracts and contracts including cancellation fees.

OFF-BALANCE SHEET ARRANGEMENTS

The following table presents our outstanding off-balance sheet arrangements. ~~See~~For further information, see Note 18 ~~“Commitments and Contingencies” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report:~~8:


	December 31,									December 31,
(in millions)	2018		2017		Change			Percent		2019		2018		Change			Percent
Undrawn commitments to extend credit		$69,553		$62,959		$6,594		10	%
Commitments to extend credit											$72,743		$69,553		$3,190		5	%
Letters of credit	2,125		2,136		(11		)	(1	)	2,190		2,125		65			3
Risk participation agreements										37		19		18			95
Loans sold with recourse										37		5		32			NM
Marketing rights	37		41		(4		)	(10	)	33		37		(4		)	(11	)
Risk participation agreements	19		16		3			19
Residential mortgage loans sold with recourse	5		7		(2		)	(29	)
Total		$71,739		$65,159		$6,580		10	%		$75,040		$71,739		$3,301		5	%

CRITICAL ACCOUNTING ESTIMATES

Our audited Consolidated Financial Statements, which are included in this Report, are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our audited Consolidated Financial Statements.

An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on our audited Consolidated Financial Statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. ~~The~~Our most significant accounting policies and estimates and their related application are discussed below.

See Note 1 ~~“Basis of Presentation” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item 8, ~~— Financial Statements and Supplementary Data, of this Report,~~ for further discussion of our significant accounting policies.

Allowance for Credit Losses

Management’s estimate of probable losses in our loan and lease portfolios including unfunded lending commitments is recorded in the ALLL and the reserve for unfunded lending commitments, at levels that we believe to be appropriate as of the balance sheet date. The reserve for unfunded lending commitments is reported as a component of other liabilities in the Consolidated Balance Sheets. Our determination of such estimates is based on a periodic evaluation of the loan and lease portfolios and unfunded credit facilities, as well as other relevant factors. This evaluation is inherently subjective and requires significant estimates and judgments of underlying factors, all of which are susceptible to change.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The ALLL and reserve for unfunded lending commitments could be affected by a variety of internal and external factors. Internal factors include portfolio performance such as delinquency levels, assigned risk ratings, the mix and level of loan balances, differing economic risks associated with each loan category and the financial condition of specific borrowers. External factors include fluctuations in the general economy, unemployment rates, bankruptcy filings, developments within a particular industry, changes in collateral values and factors particular to



		Citizens Financial Group, Inc. \| 72

a specific commercial credit such as competition, business and management performance. The ALLL may be adjusted to reflect our current assessment of various qualitative risks, factors and events that may not be measured in our statistical procedures. There is no certainty that the ALLL and reserve for unfunded lending commitments will be appropriate over time to cover losses because of unanticipated adverse changes in any of these internal, external or qualitative factors. There were no material changes in assumptions or estimation techniques compared with prior years that impacted the determination of the current year’s ALLL and the reserve for unfunded lending commitments.

The evaluation of the adequacy of the commercial, commercial real estate, and lease ALLL and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default (“PD”), loss given default (“LGD”) and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors are included in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses and forward loss curve ratios.

For nonaccruing commercial and commercial real estate loans with an outstanding balance of $3 million or greater and for all commercial and commercial real estate TDRs (regardless of size), we conduct specific analysis on a loan level basis to determine the probable amount of credit loss. If appropriate, a specific ALLL is established for the loan through a charge to the provision for credit losses. For all classes of impaired loans, individual loan measures of impairment may result in a charge-off to the ALLL, if deemed appropriate. In such cases, the provision for credit losses is not affected when a specific reserve for at least that amount already exists. Techniques utilized include comparing the loan’s carrying amount to the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. The technique applied to each impaired loan is based on the workout officer’s opinion of the most probable workout scenario. Historically, this has generally led to the use of the estimated present value of future cash flows approach. The fair value of underlying collateral will be used if the loan is deemed collateral dependent. For loans that use the fair value of underlying collateral approach, a charge-off assessment is performed quarterly to write the loans down for declines in value to fair value less cost to sell.

For most non-impaired retail loan portfolio types, the ALLL is based upon the incurred loss model utilizing the PD, LGD and exposure at default on an individual loan basis. When developing these factors, we may consider the loan product and collateral type, delinquency status, LTV ratio, lien position, borrower’s credit, time outstanding, geographic location and incurred loss period. Incurred loss periods are reviewed and updated at least annually, and potentially more frequently when economic situations change rapidly, as they tend to fluctuate with economic cycles. Incurred loss periods are generally longer in good economic times and shorter in bad times. Certain retail portfolios, including education, unsecured personal loans, SBO home equity loans and credit card receivables utilize roll rate or vintage models to estimate the ALLL.

For home equity lines and loans, a number of factors impact the PD. Specifically, the borrower’s current FICO score, the utilization rate, delinquency statistics, borrower income, current CLTV ratio and months on books are all used to assess the borrower’s creditworthiness. Similarly, LGD is also impacted by various factors, including the utilization rate, the CLTV ratio, the lien position, the Housing Price Index change for the location (as measured by the Case-Shiller index), age of the loan and current loan balance.

When we are not in a first lien position, we use delinquency information on the first lien exposures obtained from third-party credit information providers in the credit assessment. For all first liens, whether owned by a third party or by us, an additional assessment is performed on a quarterly basis. In this assessment, the most recent three months’ performance of the senior liens is reviewed for delinquency (90 days or more past due), modification, foreclosure and/or bankruptcy statuses. If any derogatory status is present, the junior lien will be placed on nonaccrual status regardless of its delinquency status on our books. This subsequent change to nonaccrual status will alter the treatment in the PD model, thus affecting the reserve calculation.

In addition, the first lien exposure is combined with the second lien exposure to generate a CLTV. The CLTV is a more accurate reflection of the leverage of the borrower against the property value, as compared to the LTV from just the junior lien(s). The CLTV is used for modeling both the junior lien PD and LGD. This also impacts the ALLL rates for the junior lien HELOCs.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The above measures are all used to assess the PD and LGD for HELOC borrowers for whom we originated the loans.

For retail TDRs that are not collateral-dependent, allowances are developed using the present value of expected future cash flows, compared to the recorded investment in the loans. Expected re-default factors are considered in this analysis. Retail TDRs that are deemed collateral-dependent are written down to the fair market



		Citizens Financial Group, Inc. \| 73

value of the collateral less costs to sell. The fair value of collateral is periodically monitored subsequent to the modification.

Changes in the levels of estimated losses can significantly affect management’s determination of an appropriate ALLL. For retail loans, losses are affected by such factors as loss severity, collateral values, economic conditions, and other factors. A one basis point and five basis point increase in the estimated loss rate for retail loans at December 31, ~~2018~~2019 would have increased the ALLL by $6 million and ~~$30~~$31 million, respectively. The ALLL for our Commercial Banking segment is sensitive to assigned credit risk ratings and inherent loss rates. If 10% and 20% of the December 31, ~~2018~~2019 year end loan balances (including unfunded commitments) within each risk rating category of our Commercial Banking segment had experienced downgrades of two risk categories, the ALLL would have increased by ~~$99~~$66 million and ~~$194~~$126 million, respectively.

Commercial loans and leases are charged off to the ALLL when there is little prospect of collecting either principal or interest. Charge-offs of commercial loans and leases usually involve receipt of borrower-specific adverse information. For commercial collateral-dependent loans, an appraisal or other valuation is used to quantify a shortfall between the fair value of the collateral less costs to sell and the recorded investment in the commercial loan. Retail loan charge-offs are generally based on established delinquency thresholds rather than borrower-specific adverse information. When a loan is collateral-dependent, any shortfalls between the fair value of the collateral less costs to sell and the recorded investment is promptly charged off. Placing any loan or lease on nonaccrual status does not by itself require a partial or total charge-off; however, any identified losses are charged off at that time.

For additional information regarding the ALLL and reserve for unfunded lending commitments, see Note 1 ~~“Basis of Presentation”~~ and Note 5 ~~“Allowance for Credit Losses, Nonperforming Assets and Concentrations of Credit Risk” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.

Fair Value

We measure fair value using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices in an active market, where available. If quoted prices are not available, observable market-based inputs or independently sourced parameters are used to develop fair value, whenever possible. Such inputs may include prices of similar assets or liabilities, yield curves, interest rates, prepayment speeds and foreign exchange rates.

We classify our assets and liabilities that are carried at fair value in accordance with the three-level valuation hierarchy:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by market data for substantially the full term of the asset or liability; and

Level 3. Unobservable inputs that are supported by little or no market information and that are significant to the fair value measurement.

Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Level 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data.

We review and update the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on year-end balances. We also verify the accuracy of the pricing provided by our primary external pricing service on a quarterly basis. This process involves using a secondary external vendor to provide valuations for our securities portfolio for comparison purposes. Any securities with discrepancies beyond a certain threshold are researched and, if necessary, valued by an independent outside broker.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments for certain loans and goodwill.



		Citizens Financial Group, Inc. \| 74

derived from the underlying lease agreement. As market data for similar assets and lease agreements is available and used in the valuation, these assets are classified as Level 2.

MSRs do not trade in an active market with readily observable prices. MSRs are classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. The fair value was calculated using a discounted cash flow model which used assumptions, including weighted-average life, prepayment assumptions and weighted-average option adjusted spread. It is important to note that changes in our assumptions may not be independent of each other. Changes in one assumption may result in changes to another (e.g., changes in interest rates, which are inversely correlated to changes in prepayment rates, may result in changes to discount rates), which could impact sensitivities. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio, and comparisons to market transactions. In addition, the MSR Policy is approved by the Asset Liability Committee.

For additional information regarding our fair value measurements, see Note 1, ~~“Basis of Presentation,”~~ Note 3, ~~“Securities,”~~ Note 8, ~~“Mortgage Banking,”~~ Note 13, ~~“Derivatives,”~~ and Note 19 ~~“Fair Value Measurements” to our Consolidated Financial Statements~~ in ~~Part II,~~ Item ~~8 — Financial Statements and Supplementary Data, of this Report.~~8.

ACCOUNTING AND REPORTING DEVELOPMENTS

Accounting standards issued but not adopted as of December 31, 2019



Pronouncement	Summary of Guidance	Effects on Financial Statements
Simplifying the Accounting for Income Taxes Issued December 2019	• The guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. • Simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. • Clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.	• Required effective date: January 1, 2021. Early adoption is permitted. The Company adopted this guidance effective January 1, 2020. • Adoption did not have an impact on our Consolidated Financial Statements.
Disclosure Requirements - Fair Value Measurements Issued August 2018	• Amends disclosure requirements on fair value measurements. • The guidance eliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial, requires new disclosures and modifies existing disclosures that are expected to enhance the usefulness of the financial statements. • Prospective application is required for new disclosure requirements. • Retrospective application is required for all other amendments for all periods presented.	• Required effective date: January 1, 2020. Early adoption is permitted. We did not adopt this guidance prior to the required effective date. • Adoption is not expected to have a material impact on our Consolidated Financial Statements.



		Citizens Financial Group, Inc. \| 75

RISK GOVERNANCE

We are committed to maintaining a strong, integrated and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision making body is setting our risk appetite to ensure that the levels of risk that we are willing to accept in the attainment of our strategic business and financial objectives are clearly understood.

To enable our Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The Executive Risk Committee (“ERC”), chaired by the Chief Risk Officer, is responsible for oversight of risk across the enterprise and actively considers our inherent material risks, analyzes our overall risk profile and seeks confirmation that the risks are being appropriately identified, assessed and mitigated. Reporting to the ERC are the following additional committees, covering specific areas of risk: Compliance and Operational Risk Committee, Model Risk Committee, Credit Policy Committee, Asset Liability Committee, Business Initiatives Review Committee, and the Conduct and Ethics ~~Oversight~~ Committee.

Risk Framework

Our risk management framework is embedded in our business through a “Three Lines of Defense” model which defines responsibilities and accountabilities for risk management activities.

First Line of Defense

The business lines (including their associated support functions) are the first line of defense and are accountable for identifying, assessing, managing, and controlling the risks associated with the products and services they provide. The business lines are responsible for performing regular risk assessments to identify and assess the material risks that arise in their area of responsibility, complying with relevant risk policies, testing and certifying the adequacy and effectiveness of their operational and financial reporting controls on a regular basis, establishing and documenting operating procedures and establishing and owning a governance structure for identifying and managing risk.

Second Line of Defense

The second line of defense includes independent monitoring and control functions accountable for developing and ensuring implementation of risk and control frameworks and related policies. This centralized risk function is appropriately independent from the business and is accountable for overseeing and challenging our business lines on the effective management of their risks, including credit, market, operational, regulatory, reputational, interest rate, liquidity and strategic risks.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Third Line of Defense

Our Internal Audit function is the third line of defense providing independent assurance with a view of the effectiveness of ~~Citizens’~~our internal controls, governance practices, and culture so that risk is managed appropriately for the size, complexity, and risk profile of the organization. Internal Audit has complete and unrestricted access to any and all ~~Bank~~of our records, physical properties and personnel. Internal Audit issues a report following each internal review and provides an audit opinion to ~~Citizens’~~the Board’s Audit Committee on a quarterly basis.

Credit Quality Assurance reports to the Chief Audit Executive and provides the legal-entity boards, senior management and other stakeholders with independent assurance on the quality of credit portfolios and adherence to agreed Credit Risk Appetite and Credit Policies and processes. In line with its procedures and regulatory expectations, the Credit Quality Assurance function undertakes a program of portfolio testing, assessing and reporting through four Risk Pillars of Asset Quality, Rating and Data Integrity, Risk Management and Credit Risk Appetite.

Risk Appetite

Risk appetite is a strategic business and risk management tool. We define our risk appetite as the maximum limit of acceptable risk beyond which we could be unable to achieve our strategic objectives and capital adequacy obligations.

Our principal non-market risks include credit, operational, regulatory, reputational, liquidity and strategic risks. We are also subject to certain market risks which include potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Market risk in our business arises from trading activities that serve customer needs, including hedging of interest rates, foreign exchange risk and non-trading activities within capital markets. We have established enterprise-wide policies



		Citizens Financial Group, Inc. \| 76

and methodologies to identify, measure, monitor and report on market risk. We actively manage both trading and non-trading market risks. See “—Market Risk” for further information. Our risk appetite is reviewed and approved annually by the Board Risk Committee.

Credit Risk

Overview

Credit risk represents the potential for loss arising from a customer, counterparty, or issuer failing to perform in accordance with the contractual terms of the obligation. While the majority of our credit risk is associated with lending activities, we do engage with other financial counterparties for a variety of purposes including investing, asset and liability management, and trading activities. Given the financial impact of credit risk on our earnings and balance sheet, the assessment, approval and management of credit risk represents a major part of our overall risk-management responsibility.

Objective

The independent Credit Risk Function is responsible for reviewing and approving credit risk appetite across all lines of business and credit products, approving larger and higher risk credit transactions, monitoring portfolio performance, identifying problem credit exposures, and ensuring remedial management.

Organizational Structure

Management and oversight of credit risk is the responsibility of both the business line and the second line of defense. The second line of defense, the independent Credit Risk Function, is led by the Chief Credit Officer who oversees all of our credit risk. The Chief Credit Officer reports to the Chief Risk Officer. The Chief Credit Officer, acting in a manner consistent with Board policies, has responsibility for, among other things, the governance process around policies, procedures, risk acceptance criteria, credit risk appetite, limits and authority delegation. The Chief Credit Officer and team also have responsibility for credit approvals for larger and higher risk transactions and oversight of line of business credit risk activities. Reporting to the Chief Credit Officer are the heads of the second line of defense credit functions specializing in: Consumer Banking, Commercial Banking, Citizens Restructuring Management, Portfolio and Corporate Reporting, ALLL Analytics, Current Expected Credit Loss, and Credit Policy and Administration. Each team under these leaders is composed of highly experienced credit professionals.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Governance

The primary mechanisms used to govern our credit risk function are our consumer and commercial credit policies. These policies outline the minimum acceptable lending standards that align with our desired risk appetite. Material changes in our business model and strategies that identify a need to change our risk appetite or highlight a risk not previously contemplated are identified by the individual committees and presented to the Credit Policy Committee, Executive Risk Committee and the Board Risk Committee for approval, as appropriate.

Key Management Processes

We employ a comprehensive and integrated risk control program to proactively ~~(i)~~ identify, ~~(ii)~~ measure, ~~(iii)~~ monitor, and ~~(iv)~~ mitigate existing and emerging credit risks across the credit ~~lifecycle~~life cycle (origination, account management/portfolio management, and loss mitigation and recovery).

Consumer

On the ~~consumer banking~~Consumer Banking side of credit risk, our teams use models to evaluate consumer loans across the ~~lifecycle~~life cycle of the loan. Starting at origination, credit scoring models are used to forecast the probability of default of an applicant. When approving customers for a new loan or extension of an existing credit line, credit scores are used in conjunction with other credit risk variables such as affordability, length of term, collateral value, collateral type, and lien subordination.

To ensure proper oversight of the underwriting teams, lending authority is granted by the second line of defense credit risk function to each underwriter. The amount of delegated authority depends on the experience of the individual. We periodically evaluate the performance of each underwriter and annually reauthorize their delegated authority. Only senior members of the second line of defense credit risk team are authorized to approve significant exceptions to credit policies. It is not uncommon to make exceptions to established policies when compensating factors are present. There are exception limits which, when reached, trigger a comprehensive analysis.



		Citizens Financial Group, Inc. \| 77

Once an account is established, credit scores and collateral values are refreshed at regular intervals to allow for proactive identification of increasing or decreasing levels of credit risk. Our approach to managing credit risk is highly analytical and, where appropriate, is automated, to ensure consistency and efficiency.

Commercial

On the ~~commercial banking~~Commercial Banking side of credit risk, the structure is broken into C&I loans and leases and CRE. Within C&I loans and leases there are separate verticals established for certain specialty products (e.g., asset-based lending, leasing, franchise finance, health care, and technology, mid-corporate). A “specialty vertical” is a stand-alone team of industry or product specialists. Substantially all activity that falls under the ambit of the defined industry or product is managed through a specialty vertical when one exists. CRE also operates as a specialty vertical.

Commercial credit risk management begins with defined credit products and policies.

Commercial transactions are subject to individual analysis and approval at origination and, with few exceptions, are subject to a formal annual review requirement. The underwriting process includes the establishment and approval of credit grades that confirm the PD and LGD. All material transactions then require the approval of both a business line approver and an independent credit approver with the requisite level of delegated authority. The approval level of a particular credit facility is determined by the size of the credit relationship as well as the PD. The checks and balances in the credit process and the independence of the credit approver function are designed to appropriately assess and sanction the level of credit risk being accepted, facilitate the early recognition of credit problems when they occur, and to provide for effective problem asset management and resolution. All authority to grant credit is delegated through the independent Credit Risk function and is closely monitored and regularly updated.

The primary factors considered in commercial credit approvals are the financial strength of the borrower, assessment of the borrower’s management capabilities, cash flows from operations, industry sector trends, type and sufficiency of collateral, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. In addition to the credit analysis conducted during the approval process at origination and annual review, our Credit Quality Assurance group performs testing to provide an independent review and assessment of the quality of the portfolio and new originations. This group conducts portfolio reviews on a risk-based cycle to evaluate individual loans, and validate risk ratings, as well as test the consistency of the credit processes and the effectiveness of credit risk management.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The maximum level of credit exposure to individual credit borrowers is limited by policy guidelines based on the perceived risk of each borrower or related group of borrowers. Concentration risk is managed through limits on industry asset class and loan quality factors. We focus predominantly on extending credit to commercial customers with existing or expandable relationships within our primary markets (for this purpose defined as our 11 state footprint plus contiguous states), although we do engage in lending opportunities outside our primary markets if we believe that the associated risks are acceptable and aligned with strategic initiatives.

Substantially all loans categorized as Classified are managed by a specialized group of credit professionals.

MARKET RISK

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit-gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage market risk for both trading and non-trading ~~market risks.~~activities.

Non-Trading Risk

We are exposed to market risk as a result of non-trading banking activities. This market risk is substantially composed of interest rate risk, as we have no ~~direct currency or~~ commodity risk and de minimis direct currency and equity risk. We also have market risk related to capital markets loan originations, as well as the valuation of our ~~mortgage servicing rights.~~MSRs.

Interest Rate Risk

Interest rate risk emerges from the balance sheet after the aggregation of our assets, liabilities and equity. We refer to this non-trading risk embedded in the balance sheet as “structural interest rate risk” or “interest rate risk in the banking book.”



		Citizens Financial Group, Inc. \| 78

A major source of structural interest rate risk is a difference in the repricing of assets ~~on the one hand, and~~relative to liabilities and ~~equity, on the other. First, there~~equity. There are differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities. For example, the rate earned on a commercial loan may reprice monthly with changes in LIBOR, while the rate paid on debt or certificates of deposit may be fixed for a longer period. There ~~are~~may also be differences in the drivers of rate ~~changes as well.~~changes. Loans may be tied to a specific index rate such as LIBOR or Prime, while deposits may be only loosely correlated with LIBOR and ~~depend on~~dependent upon competitive demand. Due to these basis differences, net interest income is sensitive to changes in spreads between certain indices or repricing rates.

Another important source of structural interest rate risk relates to the potential exercise of explicit or embedded options. For example, most consumer loans can be prepaid without ~~penalty;~~penalty and most consumer deposits can also be withdrawn without penalty. The exercise of such options by customers can exacerbate the timing differences discussed above.

A primary source of our structural interest rate risk relates to faster repricing of ~~floating rate~~floating-rate loans relative to ~~the~~ retail deposit funding. This source of asset sensitivity is more biased totoward the short end of the yield curve. ~~For the past few years, the FRB has been~~After a period of slowly raising short-term rates to a more neutral stance, ~~and during that time~~ the ~~risk of rising~~FRB adjusted their policy stance with a mid-cycle adjustment, reducing short term rates ~~seemed biased~~by 75 basis points in 2019. As this shift occurred, we reduced our asset sensitivity to a more moderate level to account for the ~~upside and thus we maintained an asset sensitive risk position. As interest rates rose, the risk position became more symmetrical given the possibility of falling rates in the future.~~less certain outlook for policy rates.

The secondary source of our interest rate risk is driven by longer term rates comprising the rollover or reinvestment risk on ~~fixed rate~~fixed-rate loans, as well as ~~the~~ prepayment risk on ~~mortgage related~~mortgage-related loans and securities funded by non-rate sensitive deposits and equity.

The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by ~~the~~our Board. These limits and guidelines reflect our tolerance for interest rate risk over both short-term and long-term horizons. To ensure that exposure to interest rate risk is managed within ~~this~~our risk appetite, we must ~~both~~ measure the exposure and hedge it, as ~~necessary, hedge it.~~necessary. The Treasury Asset and Liability Management team is responsible for measuring, monitoring and reporting on ~~the~~our structural interest rate risk position. These exposures are reported on a monthly basis to the Asset Liability Committee and at Board meetings.

We measure structural interest rate risk through a variety of metrics intended to quantify both short-term and long-term exposures. The primary method ~~that~~ we use to quantify interest rate risk is simulation analysis in

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

which we model net interest income from assets, liabilities and hedge derivative positions under various interest rate scenarios over a three-year horizon. Exposure to interest rate risk is reflected in the variation of forecasted net interest income across the scenarios.

Key assumptions in this simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit clients in different rate environments. The most material of these behavioral assumptions relate to the repricing characteristics and balance fluctuations of deposits with indeterminate (i.e., non-contractual) maturities, as well as the pace of mortgage prepayments. Assessments are periodically made by running sensitivity ~~analysis of~~analyses to determine the impact of key assumptions. The results of these analyses are reported to the Asset Liability Committee.

As the future path of interest rates cannot be known in advance, we use simulation analysis to project net interest income under various interest rate scenarios including a “most likely” (implied forward) scenario, as well as a variety of deliberately extreme and perhaps unlikely scenarios. These scenarios may assume gradual ramping of the overall level of interest rates, immediate shocks to the level of rates and various yield curve twists in which movements in short- or long-term rates predominate. Generally, projected net interest income in any interest rate scenario is compared to net interest income in a base case where market forward rates are realized.

The table below reports net interest income exposures against a variety of interest rate scenarios. Our policies involve measuring exposures as a percentage change in net interest income over the next year due to either instantaneous or gradual parallel changes in rates relative to the market implied forward yield curve. ~~With rates rising from historically low levels due to Federal Open Market Committee rate increases, exposure to falling rates has increased.~~ As the following table illustrates, our balance sheet is ~~asset-sensitive:~~asset-sensitive; net interest income would benefit from an increase in interest ~~rates. Exposure~~rates, while exposure to a decline in interest rates is within limit. While an instantaneous and severe shift in interest rates was used in this analysis, we believe that any actual shift in interest rates would likely be more gradual and ~~would~~ therefore have a more modest ~~impact as demonstrated in the following table.~~impact.



		Citizens Financial Group, Inc. \| 79

The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve:



	Estimated % Change in Net Interest Income over 12 Months
	December 31,
Basis points	2019		2018
Instantaneous Change in Interest Rates
+200	6.9	%	9.5	%
+100	3.6		4.8
-100	(3.8	)	(4.5	)
Gradual Change in Interest Rates
+200	3.2	%	4.9	%
+100	1.5		2.5
-100	(1.9	)	(1.1	)

Estimated % Change in
Net Interest Income over 12 Months
December 31,
Basis points 2018
2017
Instantaneous Change in Interest Rates
+200 9.5 % 9.6 %
+100 4.8
4.9
-100 (4.5 ) (5.9 )
Gradual Change in Interest Rates
+200 4.9
5.1
+100 2.5
2.7
-100 (1.1 ) (1.8 )

Given broad expectations that the FRB will maintain its current policy stance, we continue to manage asset sensitivity within the scope of our policy and changing market conditions. Asset sensitivity against a 200 basis point gradual increase in rates was 3.2% at December 31, 2019, compared with 4.9% at December 31, ~~2018, a slight decrease from 5.1% at December 31, 2017. As the FRB continues~~2018. Additionally, approximately 75% to ~~normalize rates, given improved economic growth and data, the upward trend in rates has benefited our net interest income and net interest margin as a result~~80% of this asset ~~sensitivity.~~sensitivity is tied to long-term interest rate exposure (greater than six months). The risk position can be affected by changes in interest rates which impact the repricing sensitivity or beta of the deposit base as well as the cash flows on ~~prepayable assets.~~assets that allow for early payoff without a penalty. The risk position is managed within our risk limits, and long term view of interest rates through occasional adjustments to securities investments, interest rate swaps and mix of funding.

We use a valuation measure of exposure to structural interest rate risk, Economic Value of Equity (“EVE”), as a supplement to net interest income simulations. EVE complements net interest income simulation analysis, as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. The change in value is expressed as a percentage of regulatory capital.

We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating-rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances. The table below summarizes the related hedging activities.



	December 31, 2019										December 31, 2018
						Weighted Average									Weighted Average
(dollars in millions)	Notional Amount		Fair Value			Maturity (Years)	Receive Rate		Pay Rate		Notional Amount		Fair Value		Maturity (Years)	Receive Rate		Pay Rate
Cash flow - receive-fixed/pay-variable - conventional ALM⁽¹⁾		$19,350		($2	)	1.5	1.7	%	1.7	%		$8,100		$3	2.2	1.7	%	2.5	%
Fair value - receive-fixed/pay-variable - conventional debt	4,650		(1		)	2.0	2.0		1.9		3,450		2		2.4	1.8		2.7
Cash flow - pay-fixed/receive-variable - conventional ALM	3,000		2			4.5	1.7		1.7		500		—		—	2.4		1.3
Fair value - pay-fixed/receive-variable - conventional ALM⁽²⁾	2,846		2			4.5	1.8		1.8		—		—		—	—		—
Total portfolio swaps		$29,846		$1		2.2	1.8	%	1.8	%		$12,050		$5	2.2	1.8	%	2.5	%
Floors - conventional ALM		$—		$—		—	—		—			$7,000		$—	0.5

⁽¹⁾ In 2019, we reduced asset sensitivity over the December 2019 to December 2021 period with the addition of $1.8 billion of December 2019 forward starting

receive-fixed interest rate swaps as part of an ongoing program to manage interest rate risk.

⁽²⁾ In 2019, we executed a last-of-layer hedge utilizing pay-fixed interest rate swap agreements to manage the interest rate exposure on mortgage-backed

securities held in our available for sale debt securities portfolio. As of December 31, 2019, the notional and fair value of these hedges was $2.0 billion and

$2 million, respectively.



		Citizens Financial Group, Inc. \| 80

Capital Markets

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

A key component of our capital markets activities is the underwriting and distribution of corporate credit facilities to partially finance mergers and acquisitions transactions for our clients. We have a rigorous risk management process around these activities, including a limit structure capping our underwriting risk, our potential loss, and ~~sub limits~~sub-limits for specific asset classes. Further, the ability to approve underwriting exposure is delegated only to senior level individuals in the credit risk management and capital markets organizations with each transaction adjudicated in ~~a formal committee meeting.~~the Loan Underwriting Approval Committee.

Mortgage Servicing Rights

We have market risk associated with the value of residential ~~mortgage servicing right assets (“MSRs”),~~MSRs, which are impacted by various types of inherent risks, including risks related to duration, basis, convexity, volatility and yield curve. ~~We have~~Through December 31, 2019, we had elected to account for the MSRs acquired from FAMC at fair value while maintaining a lower of cost or market approach on our MSRs held before the FAMC ~~acquisition because the~~acquisition. On January 1, 2020, we elected to change our accounting treatment such that all MSRs ~~acquired from FAMC are a separate class of MSRs.~~will be accounted for at fair value.

As part of our overall risk management strategy relative to the fair market value of the MSRs ~~acquired from FAMC,~~ we enter into various free-standing derivatives, such as interest rate swaps, interest rate swaptions, interest rate futures, and forward contracts to purchase mortgage-backed securities to economically hedge the changes in fair value. As of December 31, 2019 and 2018, the fair value of the FAMC MSRs ~~acquired from FAMC~~ was $642 million and $600 million, respectively, and the total notional amount of related derivative contracts was $8.6 billion and $4.6 ~~billion.~~billion, respectively. Gains and losses on MSRs and the related derivatives used for hedging are included in mortgage banking fees on the Consolidated Statements of Operations.

As of December 31, ~~2018~~2019 and ~~2017,~~2018, our MSRs held before the FAMC acquisition had a book value of ~~$221~~$182 million and ~~$198~~$221 million, respectively, and were carried at the lower of cost or market. As of December 31, ~~2018~~2019 and ~~2017,~~2018, these MSRs had a fair value of ~~$243~~$193 million and ~~$218~~$243 million, respectively, which exceeded the carrying value at those dates. ~~Depending on the interest rate environment, hedges may be used to protect the market value of these MSRs.~~

As with our traded market ~~risk based~~risk-based activities, earnings at risk excludes the impact of MSRs. MSRs are captured under our single price risk management framework that is used for calculating a management value at risk that is consistent with the definition used by banking regulators, as defined below.

Trading Risk

We are exposed to market risk primarily through client facilitation activities including derivatives and foreign exchange products, as well as underwriting and market making activities. Exposure is created as a result of changes in interest rates and related basis spreads and volatility, foreign exchange rates, and credit spreads on a select range of interest rates, foreign exchange, commodities, corporate bonds and secondary loan instruments. These trading activities are conducted through ~~our two banking subsidiaries,~~ CBNA and ~~CBPA.~~CCMI.

Client facilitation activities consist primarily of interest rate derivatives, financially settled commodity derivatives and foreign exchange contracts where we enter into offsetting trades with a separate counterparty or exchange to manage our market risk exposure. In addition to the aforementioned activities, we operate a secondary loan trading desk with the objective to meet secondary liquidity needs of our issuing clients’ transactions and investor clients. We do not engage in any trading activities with the intent to benefit from ~~short term~~short-term price differences.

We record ~~said~~these rate derivatives and foreign exchange contracts as derivative assets and liabilities on our Consolidated Balance Sheets. Trading assets and liabilities are carried at fair value with income earned related to these activities included in net interest income. Changes in fair value of trading assets and liabilities are reflected in other income, a component of noninterest income on the Consolidated Statements of Operations.

Market Risk Governance

The market risk limit setting process is established ~~in line~~in-line with the formal enterprise risk appetite process and policy. This appetite reflects the strategic and enterprise level articulation of opportunities for creating franchise value set to the boundaries of how much market risk to ~~take.~~assume. Dealing authorities represent the key control tool in the management of market risk that allows the cascading of the risk appetite throughout the enterprise. A dealing authority sets the operational scope and tolerances within which a business and/or trading desk is permitted to operate, ~~and this~~which is reviewed at least annually. Dealing authorities are structured to accommodate ~~the~~ client facing trades and hedges needed to manage the risk profile. Primary responsibility for keeping within established tolerances



		Citizens Financial Group, Inc. \| 81

resides with the business. Key risk indicators, including VaR, open foreign currency positions and single name risk, are monitored on a daily basis and reported against tolerances consistent with our risk appetite and business strategy to relevant business line management and risk counterparts.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Market Risk Measurement

We use VaR as a statistical measure for estimating potential exposure of our traded market risk in normal market conditions. Our VaR framework for risk management and regulatory reporting is the same. Risk management VaR is based on a one day holding period to a 99% confidence level, whereas regulatory VaR is based on a ten day holding period to the same confidence level. ~~Additional~~In addition to VaR, non-statistical measurements for measuring risk are employed, such as sensitivity analysis, market value and stress testing.

Our market risk platform and associated market risk and valuation models ~~for our foreign exchange, interest rate products, and traded loans~~ capture correlation effects across all our “covered positions” and allow for aggregation of market risk across products, risk types, business lines and legal entities. We measure, monitor and report market risk for both management and regulatory capital purposes.

VaR Overview

The market risk measurement model is based on historical simulation. The VaR measure estimates the extent of any fair value losses on trading positions that may occur due to broad market movements (General VaR) such as changes in the level of interest rates, foreign exchange rates, equity prices and commodity prices. It is calculated on the basis that current positions remain broadly unaltered over the course of a given holding period. It is assumed that markets are sufficiently liquid to allow the business to close its positions, if required, within this holding period. VaR’s benefit is that it captures the historic correlations of a portfolio. Based on the composition of our “covered positions,” we also use a standardized add-on approach for the loan trading desk’s Specific Risk capital which estimates the extent of any losses that may occur from factors other than broad market movements. The General VaR approach is expressed in terms of a confidence level over the past 500 trading days. The internal VaR measure (used as the basis of the main VaR trading limits) is a 99% confidence level with a one day holding period, meaning that a loss greater than the VaR is expected to occur, on average, on only one day in 100 trading days (i.e., 1% of the time). Theoretically, there should be a loss event greater than VaR two to three times per year. The regulatory measure of VaR is done at a 99% confidence level with a ten-day holding period. The historical market data applied to calculate the VaR is updated on a two business day lag. Refer to “Market Risk Regulatory Capital” below for details of our ten-day VaR metrics for the quarters ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively, including high, low, average and period end VaR for interest rate and foreign exchange rate risks, as well as total VaR.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 82

Market Risk Regulatory Capital

The U.S. banking regulators’ “Market Risk Rule” covers the calculation of market risk capital and substantially modified the determination of market risk-weighted assets and implemented a more risk sensitive methodology for the risk inherent in certain trading positions categorized as “covered positions.”capital. For the purposes of the Market Risk Rule, all of our client facing trades and associated hedges ~~need to~~ maintain a net low risk ~~profile to qualify,~~ and do qualify, as “covered positions.” For the three months ended December 31, ~~2018 and 2017,~~2019 we were ~~not~~ subject to the reporting threshold under the Market Risk ~~Rule.~~Rule, which resulted in the inclusion of $695 million of calculated risk-weighted assets. However, for the three months ended December 31, 2018, we were not subject to the reporting threshold. As a result, ~~the~~ $785 ~~million and $555~~ million of calculated market risk-weighted assets as of December 31, 2018 ~~and 2017, respectively, were~~was not included in our risk-weighted ~~assets. As such,~~assets and our covered trading activities were risk-weighted under U.S. Basel III Standardized credit risk rules. ~~While not subject to the determination requirements of market risk-weighted assets, we nevertheless comply with the Market Risk Rule’s other requirements.~~ The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR. The following table presents the results of our modeled and non-modeled measures for regulatory capital calculations:


(in millions)	For the Three Months Ended December 31, 2018								For the Three Months Ended December 31, 2017								For the Three Months Ended December 31, 2019								For the Three Months Ended December 31, 2018
Market Risk Category	Period End		Average		High		Low		Period End		Average		High		Low		Period End		Average		High		Low		Period End		Average		High		Low
Interest Rate		$—		$1		$2		$—		$2		$1		$2		$1		$1		$—		$1		$—		$—		$1		$2		$—
Foreign Exchange Currency Rate	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Credit Spread	5		2		5		2		2		2		2		1		5		4		5		3		5		2		5		2
Commodity	—		—		—		—		N/A		N/A		N/A		N/A		—		—		—		—		—		—		—		—
General VaR	5		3		5		1		3		2		3		1		5		4		5		3		5		3		5		1
Specific Risk VaR	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total VaR		$5		$3		$5		$1		$3		$2		$3		$1		$5		$4		$5		$3		$5		$3		$5		$1
Stressed General VaR		$13		$13		$15		$10		$11		$9		$12		$7		$13		$10		$13		$7		$13		$13		$15		$10
Stressed Specific Risk VaR	—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total Stressed VaR		$13		$13		$15		$10		$11		$9		$12		$7		$13		$10		$13		$7		$13		$13		$15		$10
Market Risk Regulatory Capital		$47								$34								$42								$47
Specific Risk Not Modeled Add-on	16								10								14								16
de Minimis Exposure Add-on	—								—								—								—
Total Market Risk Regulatory Capital		$63								$44								$56								$63
Market Risk-Weighted Assets (calculated)		$785								$555								$695								$785
Market Risk-Weighted Assets (included in our FR Y-9C regulatory filing) ⁽¹⁾		$—								$—								$695								$—

⁽¹⁾ For the three months ended December 31, 2018 ~~and 2017,~~ we did not meet the reporting threshold prescribed by Market Risk ~~Capital Guidelines.~~Rule.

Stressed VaR

SVaR is an extension of VaR, but uses a longer historical look-back horizon that is fixed from January 3, 2005. This is done not only to identify headline risks from more volatile periods, but also to provide a counter-balance to VaR which may be low during periods of low volatility. The holding period for profit and loss determination is ten days. In addition to risk management purposes, SVaR is also a component of market risk regulatory capital. We calculate SVaR daily under its own dynamic window regime. In a dynamic window regime, values of the ten-day, 99% VaR are calculated over all possible 260-day periods that can be obtained from the complete historical data set. Refer to “Market Risk Regulatory Capital” above for details of SVaR metrics, including high, low, average and period end SVaR for the combined portfolio.

Sensitivity Analysis

Sensitivity analysis is the measure of exposure to a single risk factor, such as a one basis point change in rates or credit spread. We conduct and monitor sensitivity on interest rates, basis spreads, foreign exchange exposures, option prices and credit spreads. Whereas VaR is based on previous moves in market risk factors over recent periods, it may not be an accurate predictor of future market moves. Sensitivity analysis complements VaR as it provides an indication of risk relative to each factor irrespective of historical market moves, and is an effective tool in evaluating the appropriateness of hedging strategies and concentrations.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 83

Stress Testing

Conducting a stress test of a portfolio consists of running risk models with the inclusion of key variables that simulate various historical or hypothetical scenarios. For historical stress tests, profit and loss results are simulated for selected time periods corresponding to the most volatile underlying returns while hypothetical stress tests aim to consider concentration risk, illiquidity under stressed market conditions and risk arising from our trading activities that may not be fully captured by our other models. Hypothetical scenarios also assume that market moves happen simultaneously and no repositioning or hedging activity takes place to mitigate losses as market events unfold. We generate stress tests of our trading positions on a daily basis. For example, we currently include a stress test that simulates a “Lehman-type” crisis scenario by taking the worst 20-trading day peak to trough moves for the various risk factors that go into VaR from that period, and assumes they occurred simultaneously.

VaR Model Review and Validation

Market risk measurement models used are independently reviewed and subject to ongoing performance analysis by the model ~~owner.~~owners. The independent review and validation focuses on the model methodology, market data, and performance. Independent review of market risk measurement models is the responsibility of Citizens’ Model Risk Management and Validation team. Aspects covered include challenging the assumptions used, the quantitative techniques employed and the theoretical justification underpinning them and an assessment of the soundness of the required data over time. Where possible, the quantitative impact of the major underlying modeling assumptions will be estimated (e.g., through developing alternative models). Results of such reviews are shared with ~~the~~our U.S. banking regulators. The market risk models may be periodically enhanced due to changes in market price levels and price action regime behavior. The Market Risk Management and Validation team will conduct internal validation before a new or changed model element is implemented and before a change is made to a market data mapping.

VaR Backtesting

Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. We perform sub-portfolio backtesting as required under the Market Risk Rule, ~~and as~~using models approved by our banking regulators, for interest rate, credit spread, and foreign exchange positions.

The following graph shows our daily net trading revenue and total internal, modeled VaR for the ~~twelve months~~year ended December 31, ~~2018.~~2019.

Daily VaR Backtesting

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 84

KEY PERFORMANCE METRICS, NON-GAAP FINANCIAL MEASURES AND RECONCILATIONS

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,” included in this Report. The following ~~table presents~~tables present key components and computations of key performance metrics ~~used throughout “Management’s Discussion and Analysis~~as well as computations of ~~Financial Condition and Results of Operations”:~~

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2018 2017 2016
Total revenue (GAAP) A
$6,128

$5,707

$5,255
Noninterest expense (GAAP) B 3,619
3,474
3,352
Net income (GAAP) C 1,721
1,652
1,045
Net income available to common stockholders (GAAP) D 1,692
1,638
1,031
Return on average common equity:
Average common equity (GAAP) E
$19,645

$19,618

$19,698
Return on average common equity D/E 8.62 % 8.35 % 5.23 %
Return on average tangible common equity:
Average common equity (GAAP) E
$19,645

$19,618

$19,698
Less: Average goodwill (GAAP) 6,912
6,883
6,876
Less: Average other intangibles (GAAP) 14
2
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 359
534
502
Average tangible common equity F
$13,078

$13,267

$13,322
Return on average tangible common equity D/F 12.94 % 12.35 % 7.74 %
Return on average total assets:
Average total assets (GAAP) G
$154,553

$149,953

$143,183
Return on average total assets C/G 1.11 % 1.10 % 0.73 %
Return on average total tangible assets:
Average total assets (GAAP) G
$154,553

$149,953

$143,183
Less: Average goodwill (GAAP) 6,912
6,883
6,876
Less: Average other intangibles (GAAP) 14
2
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 359
534
502
Average tangible assets H
$147,986

$143,602

$136,807
Return on average total tangible assets C/H 1.16 % 1.15 % 0.76 %
Efficiency ratio:
Efficiency ratio B/A 59.06 % 60.87 % 63.80 %
Operating leverage:
Increase in total revenue 7.37 % 8.61 % 8.93 %
Increase in noninterest expense 4.18
3.63
2.85
Operating leverage 3.19 % 4.98 % 6.08 %
Effective income tax rate:
Income before income tax expense I
$2,183

$1,912

$1,534
Income tax expense J 462
260
489
Effective income tax rate J/I 21.16 % 13.62 % 31.88 %
Net income per average common share - basic and diluted:
Average common shares outstanding - basic (GAAP) K 478,822,072
502,157,440
522,093,545
Average common shares outstanding - diluted (GAAP) L 480,430,741
503,685,091
523,930,718
Net income per average common share - basic (GAAP) D/K
$3.54

$3.26

$1.97
Net income per average common share - diluted (GAAP) D/L 3.52
3.25
1.97
Dividend payout ratio:
Cash dividends declared and paid per common share M
$0.98

$0.64

$0.46
Dividend payout ratio M/(D/K) 28 % 20 % 23 %

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

As of and for the Year Ended December 31,
2018 2017 2016
(in millions, except ratio data) Ref. Consumer
Banking Commercial
Banking Other Consolidated Consumer
Banking Commercial
Banking Other Consolidated Consumer
Banking
Commercial
Banking ⁽¹⁾
Other Consolidated
Net income (loss) available to common stockholders:
Net income N
$767

$927

$27

$1,721

$452

$774

$426

$1,652

$345

$631

$69

$1,045
Less: Preferred stock dividends —
—
29
29
—
—
14
14
—
—
14
14
Net income (loss) available to common stockholders O
$767

$927

($2 )
$1,692

$452

$774

$412

$1,638

$345

$631

$55

$1,031
Efficiency ratio:

Total revenue (GAAP) P
$4,037

$2,042

$49

$6,128

$3,556

$1,949

$202

$5,707

$3,326

$1,754

$175

$5,255
Noninterest expense (GAAP) Q 2,723
813
83
3,619
2,593
772
109
3,474
2,547
741
64
3,352
Efficiency ratio Q/P 67.47 % 39.80 % NM
59.06 % 72.93 % 39.62 % NM
60.87 % 76.57 % 42.26 % NM
63.80 %
Return on average total tangible assets:
Average total assets (GAAP)
$62,444

$52,362

$39,747

$154,553

$59,714

$49,747

$40,492

$149,953

$56,388

$47,159

$39,636

$143,183
Less: Average goodwill (GAAP) —
—
6,912
6,912
—
—
6,883
6,883
—
—
6,876
6,876
Less: Average other intangibles (GAAP) —
—
14
14
—
—
2
2
—
—
2
2
Add: Average deferred tax liabilities related to goodwill (GAAP) —
—
359
359
—
—
534
534
—
—
502
502
Average total tangible assets R
$62,444

$52,362

$33,180

$147,986

$59,714

$49,747

$34,141

$143,602

$56,388

$47,159

$33,260

$136,807
Return on average total tangible assets N/R 1.23 % 1.77 % NM
1.16 % 0.76 % 1.56 % NM
1.15 % 0.61 % 1.34 % NM
0.76 %

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

~~The following table presents computations for~~ non-GAAP financial measures representing our “Underlying” results used throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:


		Year Ended December 31,							Year Ended December 31,
(in millions, except share, per-share and ratio data)	Ref.	2018			2017			Ref.	2019			2018
Noninterest income, Underlying:
Noninterest income (GAAP)			$1,596			$1,534				$1,877			$1,596
Less: Notable items									—			(5		)
FAMC integration costs		(4		)	—
Gain on mortgage/home equity TDR Transaction		—			17
TOP efficiency initiatives and other actions		(1		)	—
Lease impairment credit-related costs		—			(11		)
Noninterest income, Underlying (non-GAAP)			$1,601			$1,528				$1,877			$1,601
Total revenue, Underlying:
Total revenue (GAAP)	A		$6,128			$5,707		A		$6,491			$6,128
Less: Notable items									—			(5		)
FAMC integration costs		(4		)	—
Gain on mortgage/home equity TDR Transaction		—			17
TOP efficiency initiatives and other actions		(1		)	—
Lease impairment credit-related costs		—			(11		)
Total revenue, Underlying (non-GAAP)	S		$6,133			$5,701		B		$6,491			$6,133
Noninterest expense, Underlying:
Noninterest expense (GAAP)	B		$3,619			$3,474		C		$3,847			$3,619
Less: Notable items									68			54
FAMC integration costs		21			—
Tax and tax-related notable items:
Colleague and community reinvestment		—			22
Home equity operational items		—			3
TOP efficiency initiatives and other actions		33			15
Lease impairment credit-related costs		—			15
Noninterest expense, Underlying (non-GAAP)	T		$3,565			$3,419		D		$3,779			$3,565
Pre-provision profit:
Total revenue (GAAP)	A	6,128				$5,707		A	6,491				$6,128
Less: Noninterest expense (GAAP)	B	3,619			3,474			C	3,847			3,619
Pre-provision profit (GAAP)		2,509				$2,233			2,644				$2,509
Pre-provision profit, Underlying:
Total revenue, Underlying (non-GAAP)	S		$6,133			$5,701		B		$6,491			$6,133
Less: Noninterest expense, Underlying (non-GAAP)	T	3,565			3,419			D	3,779			3,565
Pre-provision profit, Underlying (non-GAAP)			$2,568			$2,282				$2,712			$2,568
Total credit-related costs, Underlying:
Provision for credit losses (GAAP)			$326			$321
Add: Lease impairment credit-related costs		—			26
Total credit-related costs, Underlying (non-GAAP)			$326			$347
Income before income tax expense, Underlying:
Income before income tax expense (GAAP)								E		$2,251			$2,183
Less: Income (expense) before income tax expense (benefit) related to notable items									(68		)	(59		)
Income before income tax expense, Underlying (non-GAAP)								F		$2,319			$2,242
Income tax expense and effective income tax rate, Underlying:
Income tax expense (GAAP)								G		$460			$462
Less: Income tax expense (benefit) related to notable items									(51		)	(43		)
Income tax expense, Underlying (non-GAAP)								H		$511			$505
Effective income tax rate (GAAP)								G/E	20.43		%	21.16		%
Effective income tax rate, Underlying (non-GAAP)								H/F	22.03			22.55
Net income, Underlying:
Net income (GAAP)								I		$1,791			$1,721
Add: Notable items, net of income tax expense (benefit)									17			16
Net income, Underlying (non-GAAP)								J		$1,808			$1,737
Net income available to common stockholders, Underlying:
Net income available to common stockholders (GAAP)								K		$1,718			$1,692
Add: Notable items, net of income tax expense (benefit)									17			16
Net income available to common stockholders, Underlying (non-GAAP)								L		$1,735			$1,708

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 85

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2018 2017
Income before income tax expense, Underlying:
Income before income tax expense (GAAP) I
$2,183

$1,912
Less: Notable items
FAMC integration costs (25 ) —
Tax and tax-related notable items:
Colleague and community reinvestment —
(22 )
Gain on mortgage/home equity TDR Transaction —
17
Home equity operational items —
(3 )
TOP efficiency initiatives and other actions (34 ) (15 )
Income before income tax expense, Underlying (non-GAAP) U
$2,242

$1,935
Income tax expense and effective income tax rate, Underlying:
Income tax expense (GAAP) J
$462

$260
Less: Notable items
FAMC integration costs (6 ) —
Tax and tax-related notable items:
Tax Legislation DTL adjustment (29 ) (331 )
Colleague and community reinvestment —
(9 )
Settlement of certain tax matters —
(23 )
Gain on mortgage/home equity TDR Transaction —
7
Home equity operational items —
(1 )
TOP efficiency initiatives and other actions (8 ) (6 )
Income tax expense, Underlying (non-GAAP) V
$505

$623
Effective income tax rate (GAAP) J/I 21.16 % 13.62 %
Effective income tax rate, Underlying (non-GAAP) V/U 22.55
32.20
Net income, Underlying:
Net income (GAAP) C
$1,721

$1,652
Add: Notable items, net of tax expense
FAMC integration costs 19
—
Tax and tax-related notable items:
Tax Legislation DTL adjustment (29 ) (331 )
Colleague and community reinvestment —
13
Settlement of certain tax matters —
(23 )
Gain on mortgage/home equity TDR Transaction —
(10 )
Home equity operational items —
2
TOP efficiency initiatives and other actions 26
9
Net income, Underlying (non-GAAP) W
$1,737

$1,312



		Year Ended December 31,
(in millions, except share, per-share and ratio data)	Ref.	2019			2018
Return on average common equity and return on average common equity, Underlying:
Average common equity (GAAP)	M		$20,325			$19,645
Return on average common equity	K/M	8.45		%	8.62		%
Return on average common equity, Underlying (non-GAAP)	L/M	8.53			8.69
Return on average tangible common equity and return on average tangible common equity, Underlying:
Average common equity (GAAP)	M		$20,325			$19,645
Less: Average goodwill (GAAP)		7,036			6,912
Less: Average other intangibles (GAAP)		71			14
Add: Average deferred tax liabilities related to goodwill (GAAP)		371			359
Average tangible common equity	N		$13,589			$13,078
Return on average tangible common equity	K/N	12.64		%	12.94		%
Return on average tangible common equity, Underlying (non-GAAP)	L/N	12.76			13.06
Return on average total assets and return on average total assets, Underlying:
Average total assets (GAAP)	O		$162,176			$154,553
Return on average total assets	I/O	1.10		%	1.11		%
Return on average total assets, Underlying (non-GAAP)	J/O	1.11			1.12
Return on average total tangible assets and return on average total tangible assets, Underlying:
Average total assets (GAAP)	O		$162,176			$154,553
Less: Average goodwill (GAAP)		7,036			6,912
Less: Average other intangibles (GAAP)		71			14
Add: Average deferred tax liabilities related to goodwill (GAAP)		371			359
Average tangible assets	P		$155,440			$147,986
Return on average total tangible assets	I/P	1.15		%	1.16		%
Return on average total tangible assets, Underlying (non-GAAP)	J/P	1.16			1.17
Efficiency ratio and efficiency ratio, Underlying:
Efficiency ratio	C/A	59.28		%	59.06		%
Efficiency ratio, Underlying (non-GAAP)	D/B	58.23			58.13
Operating leverage and operating leverage, Underlying:
Increase in total revenue		5.91		%	7.37		%
Increase in noninterest expense		6.30			4.18
Operating Leverage		(0.39		)%	3.19		%
Increase in total revenue, Underlying (non-GAAP)		5.83		%	7.58		%
Increase in noninterest expense, Underlying (non-GAAP)		6.00			4.30
Operating Leverage, Underlying (non-GAAP)		(0.17		)%	3.28		%


Net income per average common share - basic and diluted, Underlying:
Average common shares outstanding - basic (GAAP)	Q	449,731,453			478,822,072
Average common shares outstanding - diluted (GAAP)	R	451,213,701			480,430,741
Net income per average common share - basic (GAAP)	K/Q		$3.82			$3.54
Net income per average common share - diluted (GAAP)	K/R	3.81			3.52
Net income per average common share-basic, Underlying (non-GAAP)	L/Q	3.86			3.57
Net income per average common share-diluted, Underlying (non-GAAP)	L/R	3.84			3.56
Dividend payout ratio and dividend payout ratio, Underlying:
Cash dividends declared and paid per common share	S		$1.36			$0.98
Dividend payout ratio	S/(K/Q)	36		%	28		%
Dividend payout ratio, Underlying (non-GAAP)	S/(L/Q)	35			27

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~



		Citizens Financial Group, Inc. \| 86

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2018 2017
Net income available to common stockholders, Underlying:
Net income available to common stockholders (GAAP) D
$1,692

$1,638
Add: Notable items, net of tax expense
FAMC integration costs 19
—
Tax and tax-related notable items:
Tax Legislation DTL adjustment (29 ) (331 )
Colleague and community reinvestment —
13
Settlement of certain tax matters —
(23 )
Gain on mortgage/home equity TDR Transaction —
(10 )
Home equity operational items —
2
TOP efficiency initiatives and other actions 26
9
Net income available to common stockholders, Underlying (non-GAAP) X
$1,708

$1,298
Return on average common equity and return on average common equity, Underlying:
Average common equity (GAAP) E
$19,645

$19,618
Return on average common equity D/E 8.62 % 8.35 %
Return on average common equity, Underlying (non-GAAP) X/E 8.69
6.62
Return on average tangible common equity and return on average tangible common equity, Underlying:
Average common equity (GAAP) E
$19,645

$19,618
Less: Average goodwill (GAAP) 6,912
6,883
Less: Average other intangibles (GAAP) 14
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 359
534
Average tangible common equity F
$13,078

$13,267
Return on average tangible common equity D/F 12.94 % 12.35 %
Return on average tangible common equity, Underlying (non-GAAP) X/F 13.06
9.79
Return on average total assets and return on average total assets, Underlying:
Average total assets (GAAP) G
$154,553

$149,953
Return on average total assets C/G 1.11 % 1.10 %
Return on average total assets, Underlying (non-GAAP) W/G 1.12
0.88
Return on average total tangible assets and return on average total tangible assets, Underlying:
Average total assets (GAAP) G
$154,553

$149,953
Less: Average goodwill (GAAP) 6,912
6,883
Less: Average other intangibles (GAAP) 14
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 359
534
Average tangible assets H
$147,986

$143,602
Return on average total tangible assets C/H 1.16 % 1.15 %
Return on average total tangible assets, Underlying (non-GAAP) W/H 1.17
0.91
Efficiency ratio and efficiency ratio, Underlying:
Efficiency ratio B/A 59.06 % 60.87 %
Efficiency ratio, Underlying (non-GAAP) T/S 58.13
59.96
Operating leverage and operating leverage, Underlying:
Increase in total revenue 7.37 % 8.61 %
Increase in noninterest expense 4.18
3.63
Operating Leverage 3.19 % 4.98 %
Increase in total revenue, Underlying (non-GAAP) 7.58 % 9.90 %
Increase in noninterest expense, Underlying (non-GAAP) 4.30
3.10
Operating Leverage, Underlying (non-GAAP) 3.28 % 6.80 %



		As of and for the Year Ended December 31,
		2019												2018
(in millions, except ratio data)	Ref.	Consumer Banking			Commercial Banking			Other			Consolidated			Consumer Banking			Commercial Banking			Other			Consolidated
Net income (loss) available to common stockholders:
Net income (GAAP)	T		$875			$870			$46			$1,791			$767			$927			$27			$1,721
Less: Preferred stock dividends		—			—			73			73			—			—			29			29
Net income (loss) available to common stockholders	U		$875			$870			($27	)		$1,718			$767			$927			($2	)		$1,692
Efficiency ratio:
Total revenue (GAAP)	V		$4,338			$2,073			$80			$6,491			$4,037			$2,042			$49			$6,128
Noninterest expense (GAAP)	W	2,851			858			138			3,847			2,723			813			83			3,619
Efficiency ratio	W/V	65.72		%	41.38		%	NM			59.28		%	67.47		%	39.80		%	NM			59.06		%
Return on average total tangible assets:
Average total assets (GAAP)			$66,240			$55,947			$39,989			$162,176			$62,444			$52,362			$39,747			$154,553
Less: Average goodwill (GAAP)		120			40			6,876			7,036			25			11			6,876			6,912
Less: Average other intangibles (GAAP)		65			6			—			71			12			2			—			14
Add: Average deferred tax liabilities related to goodwill (GAAP)		—			—			371			371			—			—			359			359
Average total tangible assets	X		$66,055			$55,901			$33,484			$155,440			$62,407			$52,349			$33,230			$147,986
Return on average total tangible assets	T/X	1.32		%	1.56		%	NM			1.15		%	1.23		%	1.77		%	NM			1.16		%

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2018 2017
Net income per average common share - basic and diluted, Underlying:
Average common shares outstanding - basic (GAAP) K 478,822,072
502,157,440
Average common shares outstanding - diluted (GAAP) L 480,430,741
503,685,091
Net income per average common share - basic (GAAP) D/K
$3.54

$3.26
Net income per average common share - diluted (GAAP) D/L 3.52
3.25
Net income per average common share-basic, Underlying (non-GAAP) X/K 3.57
2.59
Net income per average common share-diluted, Underlying (non-GAAP) X/L 3.56
2.58
Dividend payout ratio and dividend payout ratio, Underlying:
Cash dividends declared and paid per common share M
$0.98

$0.64
Dividend payout ratio M/(D/K) 28 % 20 %
Dividend payout ratio, Underlying (non-GAAP) M/(X/K) 27
25
Impact of Underlying items on net income per average common share - basic:
Notable items:
FAMC integration costs
($0.04 )
$—
Tax and tax-related notable items:
Tax Legislation DTL adjustment 0.06
0.66
Colleague and community reinvestment —
(0.03 )
Settlement of certain tax matters —
0.04
Gain on mortgage/home equity TDR Transaction —
0.02
Home equity operational items —
—
TOP efficiency initiatives and other actions (0.05 ) (0.02 )
Impact of Underlying items on net income per average common share - basic
($0.03 )
$0.67
Impact of Underlying items on net income per average common share - diluted:
Notable items:
FAMC integration costs
($0.05 )
$—
Tax and tax-related notable items:
Tax Legislation DTL adjustment 0.06
0.66
Colleague and community reinvestment —
(0.03 )
Settlement of certain tax matters —
0.04
Gain on mortgage/home equity TDR Transaction —
0.02
Home equity operational items —
—
TOP efficiency initiatives and other actions (0.05 ) (0.02 )
Impact of Underlying items on net income per average common share - diluted
($0.04 )
$0.67

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

The following table presents computations for non-GAAP financial measures representing our “Adjusted/Underlying” results used throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2017 2016
Noninterest income, Adjusted/Underlying:
Noninterest income (GAAP)
$1,534

$1,497
Less: Notable items
Gain on mortgage/home equity TDR Transaction 17
72
Lease impairment credit-related costs (11 ) —
Asset Finance repositioning —
(5 )
Noninterest income, Adjusted/Underlying (non-GAAP)
$1,528

$1,430
Total revenue, Adjusted/Underlying:
Total revenue (GAAP) A
$5,707

$5,255
Less: Notable items
Gain on mortgage/home equity TDR Transaction 17
72
Lease impairment credit-related costs (11 ) —
Asset Finance repositioning —
(5 )
Total revenue, Adjusted/Underlying (non-GAAP) S
$5,701

$5,188
Noninterest expense, Adjusted/Underlying:
Noninterest expense (GAAP) B
$3,474

$3,352
Less: Notable items
Tax and tax-related notable items:
Colleague and community reinvestment 22
—
Home equity operational items 3
8
TOP efficiency initiatives 15
17
Lease impairment credit-related costs 15
—
Asset Finance repositioning —
11
Noninterest expense, Adjusted/Underlying (non-GAAP) T
$3,419

$3,316
Pre-provision profit:
Total revenue (GAAP) A
$5,707

$5,255
Less: Noninterest expense (GAAP) B 3,474
3,352
Pre-provision profit (GAAP)
$2,233

$1,903
Pre-provision profit, Adjusted/Underlying:
Total revenue, Adjusted/Underlying (non-GAAP) S
$5,701

$5,188
Less: Noninterest expense, Adjusted/Underlying (non-GAAP) T 3,419
3,316
Pre-provision profit, Adjusted/Underlying (non-GAAP)

$2,282

$1,872
Total credit-related costs, Adjusted/Underlying:
Provision for credit losses (GAAP)
$321

$369
Add: Lease impairment credit-related costs 26
—
Total credit-related costs, Adjusted/Underlying (non-GAAP)
$347

$369
Income before income tax expense, Adjusted/Underlying:
Income before income tax expense (GAAP) I
$1,912

$1,534
Less: Notable items
Tax and tax-related notable items:
Colleague and community reinvestment (22 ) —
Gain on mortgage/home equity TDR Transaction 17
72
Home equity operational items (3 ) (8 )
TOP efficiency initiatives (15 ) (17 )
Asset Finance repositioning —
(16 )
Income before income tax expense, Adjusted/Underlying (non-GAAP) U
$1,935

$1,503

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2017 2016
Income tax expense and effective income tax rate, Adjusted/Underlying:
Income tax expense (GAAP) J
$260

$489
Less: Notable items
Tax and tax-related notable items:
Tax Legislation DTL adjustment (331 ) —
Colleague and community reinvestment (9 ) —
Settlement of certain tax matters (23 ) —
Gain on mortgage/home equity TDR Transaction 7
27
Home equity operational items (1 ) (3 )
TOP efficiency initiatives (6 ) (6 )
Asset Finance repositioning —
(6 )
Income tax expense, Adjusted/Underlying (non-GAAP) V
$623

$477
Effective income tax rate (GAAP) J/I 13.62 % 31.88 %
Effective income tax rate, Adjusted/Underlying (non-GAAP) V/U 32.20
31.74
Net income, Adjusted/Underlying:
Net income (GAAP) C
$1,652

$1,045
Add: Notable items, net of tax expense
Tax and tax-related notable items:
Tax Legislation DTL adjustment (331 ) —
Colleague and community reinvestment 13
—
Settlement of certain tax matters (23 ) —
Gain on mortgage/home equity TDR Transaction (10 ) (45 )
Home equity operational items 2
5
TOP efficiency initiatives 9
11
Asset Finance repositioning —
10
Net income, Adjusted/Underlying (non-GAAP) W
$1,312

$1,026
Net income available to common stockholders, Adjusted/Underlying:
Net income available to common stockholders (GAAP) D
$1,638

$1,031
Add: Notable items, net of tax expense
Tax and tax-related notable items:
Tax Legislation DTL adjustment (331 ) —
Colleague and community reinvestment 13
—
Settlement of certain tax matters (23 ) —
Gain on mortgage/home equity TDR Transaction (10 ) (45 )
Home equity operational items 2
5
TOP efficiency initiatives 9
11
Asset Finance repositioning —
10
Net income available to common stockholders, Adjusted/Underlying (non-GAAP) X
$1,298

$1,012
Return on average common equity and return on average common equity, Adjusted/Underlying:
Average common equity (GAAP) E
$19,618

$19,698
Return on average common equity D/E 8.35 % 5.23 %
Return on average common equity, Adjusted/Underlying (non-GAAP) X/E 6.62
5.14
Return on average tangible common equity and return on average tangible common equity, Adjusted/Underlying:
Average common equity (GAAP) E
$19,618

$19,698
Less: Average goodwill (GAAP) 6,883
6,876
Less: Average other intangibles (GAAP) 2
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 534
502
Average tangible common equity F
$13,267

$13,322
Return on average tangible common equity D/F 12.35 % 7.74 %
Return on average tangible common equity, Adjusted/Underlying (non-GAAP) X/F 9.79
7.60
Return on average total assets and return on average total assets, Adjusted/Underlying:
Average total assets (GAAP) G
$149,953

$143,183
Return on average total assets C/G 1.10 % 0.73 %
Return on average total assets, Adjusted/Underlying (non-GAAP) W/G 0.88
0.72

~~CITIZENS FINANCIAL GROUP, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Year Ended December 31,
(in millions, except share, per-share and ratio data) Ref. 2017 2016
Return on average total tangible assets and return on average total tangible assets, Adjusted/Underlying:
Average total assets (GAAP) G
$149,953

$143,183
Less: Average goodwill (GAAP) 6,883
6,876
Less: Average other intangibles (GAAP) 2
2
Add: Average deferred tax liabilities related to goodwill (GAAP) 534
502
Average tangible assets H
$143,602

$136,807
Return on average total tangible assets C/H 1.15 % 0.76 %
Return on average total tangible assets, Adjusted/Underlying (non-GAAP) W/H 0.91
0.75
Efficiency ratio and efficiency ratio, Adjusted/Underlying:
Efficiency ratio B/A 60.87 % 63.80 %
Efficiency ratio, Adjusted/Underlying (non-GAAP) T/S 59.96
63.92
Operating leverage and operating leverage, Adjusted/Underlying:
Increase in total revenue 8.61 % 8.93 %
Increase in noninterest expense 3.63
2.85
Operating Leverage 4.98 % 6.08 %
Increase in total revenue, Adjusted/Underlying (non-GAAP) 9.90 % 7.55 %
Increase in noninterest expense, Adjusted/Underlying (non-GAAP) 3.10
3.33
Operating Leverage, Underlying (non-GAAP) 6.80 % 4.22 %
Net income per average common share - basic and diluted, Adjusted/Underlying:
Average common shares outstanding - basic (GAAP) K 502,157,440
522,093,545
Average common shares outstanding - diluted (GAAP) L 503,685,091
523,930,718
Net income per average common share - basic (GAAP) D/K
$3.26

$1.97
Net income per average common share - diluted (GAAP) D/L 3.25
1.97
Net income per average common share-basic, Adjusted/Underlying (non-GAAP) X/K 2.59
1.94
Net income per average common share-diluted, Adjusted/Underlying (non-GAAP) X/L 2.58
1.93
Dividend payout ratio and dividend payout ratio, Adjusted/Underlying:
Cash dividends declared and paid per common share M
$0.64

$0.46
Dividend payout ratio M/(D/K) 20 % 23 %
Dividend payout ratio, Adjusted/Underlying (non-GAAP) M/(X/K) 25
24
Impact of Adjusted/Underlying items on net income per average common share - basic:
Notable items:
Tax and tax-related notable items:
Tax Legislation DTL adjustment
$0.66

$—
Colleague and community reinvestment (0.03 ) —
Settlement of certain tax matters 0.04
—
Gain on mortgage/home equity TDR Transaction 0.02
0.08
Home equity operational items —
(0.01 )
TOP efficiency initiatives (0.02 ) (0.02 )
Asset Finance repositioning —
(0.02 )
Impact of Adjusted/Underlying items on net income per average common share - basic
$0.67

$0.03
Impact of Adjusted/Underlying items on net income per average common share - diluted:
Notable items:
Tax and tax-related notable items:
Tax Legislation DTL adjustment
$0.66

$—
Colleague and community reinvestment (0.03 ) —
Settlement of certain tax matters 0.04
—
Gain on mortgage/home equity TDR Transaction 0.02
0.09
Home equity operational items —
(0.01 )
TOP efficiency initiatives (0.02 ) (0.02 )
Asset Finance repositioning —
(0.02 )
Impact of Adjusted/Underlying items on net income per average common share - diluted
$0.67

$0.04

~~CITIZENS FINANCIAL GROUP, INC.~~

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are presented in the “Market Risk” section of Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~



		Citizens Financial Group, Inc. \| 87

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



		Page
Report of Management on Internal Control Over Financial Reporting		~~113~~89
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		~~114~~90
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		~~115~~93
Consolidated Balance Sheets as of December 31, ~~2018~~2019 and ~~2017~~2018		~~116~~94
Consolidated Statements of Operations for the Years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016~~2017		~~117~~95
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018, ~~2017,~~ and ~~2016~~2017		~~118~~96
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018, ~~2017,~~ and ~~2016~~2017		~~119~~97
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, ~~2017,~~ and ~~2016~~2017		~~120~~98
Notes to Consolidated Financial Statements		~~122~~100
Note 1 - Basis of Presentation		~~122~~100
Note 2 - Cash and Due from Banks		~~127~~102
Note 3 - Securities		~~127~~103
Note 4 - Loans and Leases		~~132~~107
Note 5 - Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk		~~134~~109
Note 6 - Premises, Equipment and Software		~~148~~120
Note 7 - ~~Lease Commitments~~Mortgage Banking		~~149~~121
Note 8 - ~~Mortgage Banking~~Leases		~~149~~124
Note 9 - Goodwill and Intangible Assets		~~152~~125
Note 10 - Variable Interest Entities		~~153~~127
Note 11 - Deposits		~~155~~129
Note 12 - Borrowed Funds		~~155~~130
Note 13 - Derivatives		~~157~~132
Note 14 - Employee Benefits		~~160~~135
Note 15 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss)		~~166~~137
Note 16 - Stockholders’ Equity		~~167~~138
Note 17 - Share-Based Compensation		~~169~~139
Note 18 - Commitments and Contingencies		~~170~~140
Note 19 - Fair Value Measurements		~~172~~142
Note 20 - Noninterest Income		~~178~~148
Note 21 - Other Operating Expense		~~180~~150
Note 22 - Income Taxes		~~180~~150
Note 23 - Earnings Per Share		~~183~~153
Note 24 - Regulatory Matters		~~183~~154
Note 25 - Business Operating Segments		~~185~~155
Note 26 - Parent Company Financials		~~188~~158

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 88

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s system of internal control over financial reporting is designed, under the supervision of the Chief Executive Officer and the Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31, ~~2018~~2019 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, ~~2018,~~2019, the Company’s internal control over financial reporting is effective.

The Company’s internal control over financial reporting as of December 31, ~~2018~~2019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their accompanying report, appearing on page ~~115,~~93, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 89

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Citizens Financial Group, Inc.

Providence, Rhode Island

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Citizens Financial Group, Inc. and its subsidiaries (the "Company") as of December 31, ~~2018~~2019 and ~~2017,~~2018, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, ~~2018,~~2019, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2018~~2019 and ~~2017,~~2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2018,~~2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, ~~2018,~~2019, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February ~~21, 2019,~~24, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.



		Citizens Financial Group, Inc. \| 90

ALLL - Commercial Loan Portfolio - Refer to Note 5 to the consolidated financial statements

Critical Audit Matter Description

Management’s estimate of probable losses in the Company’s loan and lease portfolios is recorded in the allowance ALLL and the reserve for unfunded lending commitments. On a quarterly basis, the Company evaluates the adequacy of the ALLL and the reserve for unfunded lending commitments by performing reviews of certain individual loans and leases, analyzing changes in the composition, size and delinquency of the portfolio, reviewing previous loss experience and considering current and anticipated economic factors.

The evaluation of the adequacy of the commercial, commercial real estate, and lease (collectively “commercial loan portfolio”) ALLL and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default (“PD”), loss given default (“LGD”) and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors may be included in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses.

The ALLL and the reserve for unfunded commitments is adjusted to reflect Management’s current assessment of various qualitative risks, factors and events that may not be measured in the statistical analysis (“qualitative component”). Such factors include trends in economic conditions, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The Company’s methodology for determining the qualitative component includes a statistical analysis of prior charge-off rates and a qualitative assessment of factors affecting the determination of incurred losses in the loan and lease portfolio.

Given the size and nature of the commercial loan portfolio and the subjective nature of estimating the ALLL and reserve for unfunded commitments, auditing the ALLL and reserve for unfunded commitments for the commercial loan portfolio involved a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the commercial loan portfolio ALLL and reserve for unfunded commitments included the following, among others:

We tested the effectiveness of controls over the (i) PD risk rating models, (ii) reviews of individual loans and the assignment of PD and LGD ratings, (iii) estimation of additional overlays and the qualitative component and (iv) the overall calculation of the commercial loan ALLL and reserve for unfunded commitments.

We used our credit specialists to assist us in evaluating the reasonableness of the PD risk rating models.

We evaluated the relevance of the historical loss rates and data used in the determination of the ALLL and reserve for unfunded commitments.

We evaluated the accuracy of the PD and LGD ratings assigned to a sample of individual loans within the commercial portfolio.

We evaluated the appropriateness and relevance of the qualitative factors and related quantitative measures included in the qualitative component.

We tested the accuracy and evaluated the relevance of the historical loss data in the statistical analysis of prior charge-off rates used in determining the qualitative component.

We evaluated the reasonableness of the Company’s assessment and determination of the qualitative factors and related impact on the estimation of the qualitative component.

We tested the arithmetic accuracy of the calculation of the qualitative component.

We tested the arithmetic accuracy of the calculation of the commercial loan ALLL and reserve for unfunded commitments.

We evaluated the reasonableness of the Company’s commercial ALLL and reserve for unfunded commitments methodology and models by comparing actual loan losses to those amounts previously estimated by the Company.



		Citizens Financial Group, Inc. \| 91

Current Expected Credit Losses (ASC 326) Adoption -Refer to Note 1 to the consolidated financial statements

Critical Audit Matter Description

The Company will adopt ASC 326 on January 1, 2020, retrospectively for loans and leases and HTM securities and prospectively for AFS securities.

To estimate the ACL under CECL, Citizens uses models and other estimation techniques that are sensitive to changes in forecasted economic conditions. The Company applies qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be adequately reflected in quantitatively derived results, or other relevant factors to ensure the ACL reflects the Company’s best estimate of current expected credit losses.

The Company expects to recognize an increase in the ACL upon adoption of approximately $450 million, based on a two-year reasonable and supportable forecast period, and a one-year reversion to long-term historical macroeconomic variables. The increase in ACL is primarily related to consumer loans, such as residential mortgage, unsecured and education, due to the requirement to estimate credit losses over the full remaining expected life of the asset.

Given the subjective nature of estimating the losses under ASC 326 for the purpose of disclosing the estimated impact of the adoption of ASC 326, auditing the disclosure of the expected impact of adoption of ASC 326 on January 1, 2020 involved a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the expected impact of the adoption of ASC 326 disclosure included the following, among others:

We tested the effectiveness of management’s controls covering the disclosure of the expected impact of the adoption of ASC 326, including controls covering accounting policy decisions, key assumptions and judgments, loss estimation modeling methodologies and the calculation of the expected credit losses.

We evaluated the appropriateness of the accounting policy decisions and disclosure of the estimated impact of the ASC 326 adoption.

We, with the assistance of our credit specialists, evaluated the reasonableness of the key assumptions and judgments, losses estimation modeling methodologies and calculated expected credit losses.

We tested the arithmetic accuracy of the calculation of the expected credit losses.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February ~~21, 2019~~

24, 2020

We have served as the Company's auditor since 2000.

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 92

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Citizens Financial Group, Inc.

Providence, Rhode Island

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Citizens Financial Group, Inc. and its subsidiaries (the “Company”) as of December 31, ~~2018,~~2019, based on criteria established in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2018,~~2019, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, ~~2018,~~2019, of the Company and our report dated February ~~21, 2019,~~24, 2020, expressed an unqualified opinion on those ~~consolidated~~ financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of ~~Management~~Management’s on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of ~~consolidated~~ financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ~~consolidated~~ financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the ~~consolidated~~ financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February ~~21, 2019~~24, 2020

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 93

CONSOLIDATED BALANCE SHEETS


(in millions, except share data)	December 31, 2018			December 31, 2017			December 31, 2019			December 31, 2018
ASSETS:
Cash and due from banks		$1,081			$987			$1,175			$1,081
Interest-bearing cash and due from banks	2,993			2,045			2,211			2,993
Interest-bearing deposits in banks	148			192			297			148
Debt securities available for sale, at fair value (including $363 and $91 pledged to creditors, respectively) ⁽¹⁾	19,895			20,157
Debt securities held to maturity (fair value of $4,041 and $4,668, respectively)	4,165			4,685
Other investment securities, at fair value	181			169
Other investment securities, at cost	834			722
Debt securities available for sale, at fair value (including $359 and $363 pledged to creditors, respectively) ⁽¹⁾							20,613			19,895
Debt securities held to maturity (fair value of $3,242 and $4,041, respectively, and including $249 and $0 pledged to creditors, respectively) ⁽¹⁾							3,202			4,165
Equity investment securities, at fair value							47			181
Equity investment securities, at cost							807			834
Loans held for sale, at fair value	1,219			497			1,946			1,219
Other loans held for sale	101			221			1,384			101
Loans and leases	116,660			110,617			119,088			116,660
Less: Allowance for loan and lease losses	(1,242		)	(1,236		)	(1,252		)	(1,242		)
Net loans and leases	115,418			109,381			117,836			115,418
Derivative assets	317			617			807			317
Premises and equipment, net	791			685			761			791
Bank-owned life insurance	1,698			1,656			1,725			1,698
Goodwill	6,923			6,887			7,044			6,923
Due from broker	—			6
Other assets	4,754			3,429			5,878			4,754
TOTAL ASSETS		$160,518			$152,336			$165,733			$160,518
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits:
Noninterest-bearing		$29,458			$29,279			$29,233			$29,458
Interest-bearing	90,117			85,810			96,080			90,117
Total deposits	119,575			115,089			125,313			119,575
Federal funds purchased and securities sold under agreements to repurchase	1,156			815			265			1,156
Other short-term borrowed funds	1,653			1,856			9			161
Derivative liabilities	292			310			120			292
Deferred taxes, net	573			571			866			573
Long-term borrowed funds	14,433			11,765			14,047			15,925
Other liabilities	2,019			1,660			2,912			2,019
TOTAL LIABILITIES	139,701			132,066			143,532			139,701
Contingencies (refer to Note 18)
STOCKHOLDERS’ EQUITY:
Preferred stock, $25.00 par value, authorized 100,000,000 shares	840			247
Preferred Stock:
$25.00 par value,100,000,000 shares authorized; 1,600,000 shares issued and outstanding at December 31, 2019 and 850,000 shares issued and outstanding at December 31, 2018							1,570			840
Common stock:
$0.01 par value, 1,000,000,000 shares authorized; 566,819,863 shares issued and 466,007,984 shares outstanding at December 31, 2018 and 565,850,984 shares issued and 490,812,912 shares outstanding at December 31, 2017	6			6
$0.01 par value, 1,000,000,000 shares authorized; 568,238,730 shares issued and 433,121,083 shares outstanding at December 31, 2019 and 566,819,863 shares issued and 466,007,984 shares outstanding at December 31, 2018							6			6
Additional paid-in capital	18,815			18,781			18,891			18,815
Retained earnings	5,385			4,164			6,498			5,385
Treasury stock, at cost, 100,811,879 and 75,038,072 shares at December 31, 2018 and December 31, 2017, respectively	(3,133		)	(2,108		)
Treasury stock, at cost, 135,117,647 and 100,811,879 shares at December 31, 2019 and December 31, 2018, respectively							(4,353		)	(3,133		)
Accumulated other comprehensive loss	(1,096		)	(820		)	(411		)	(1,096		)
TOTAL STOCKHOLDERS’ EQUITY	20,817			20,270			22,201			20,817
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$160,518			$152,336			$165,733			$160,518

⁽¹⁾ Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

~~The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

Year Ended December 31,
(in millions, except share and per-share data) 2018 2017 2016
INTEREST INCOME:
Interest and fees on loans and leases
$5,010

$4,249

$3,653
Interest and fees on loans held for sale, at fair value 37
18
15
Interest and fees on other loans held for sale 10
10
6
Investment securities 672
625
584
Interest-bearing deposits in banks 29
18
8
Total interest income 5,758
4,920
4,266
INTEREST EXPENSE:
Deposits 785
441
270
Federal funds purchased and securities sold under agreements to repurchase 6
3
2
Other short-term borrowed funds 57
31
40
Long-term borrowed funds 378
272
196
Total interest expense 1,226
747
508
Net interest income 4,532
4,173
3,758
Provision for credit losses 326
321
369
Net interest income after provision for credit losses 4,206
3,852
3,389
NONINTEREST INCOME:
Service charges and fees 513
516
522
Card fees 244
233
203
Capital markets fees 179
194
136
Trust and investment services fees 171
158
146
Mortgage banking fees 152
108
112
Letter of credit and loan fees 128
121
112
Foreign exchange and interest rate products 126
109
103
Securities gains, net 19
11
16
Net securities impairment losses recognized in earnings (3 ) (7 ) (12 )
Other income 67
91
159
Total noninterest income 1,596
1,534
1,497
NONINTEREST EXPENSE:
Salaries and employee benefits 1,880
1,766
1,714
Outside services 447
404
377
Occupancy 333
319
307
Equipment expense 275
263
263
Amortization of software 189
180
170
Other operating expense 495
542
521
Total noninterest expense 3,619
3,474
3,352
Income before income tax expense 2,183
1,912
1,534
Income tax expense 462
260
489
NET INCOME
$1,721

$1,652

$1,045
Net income available to common stockholders $1,692 $1,638
$1,031
Weighted-average common shares outstanding:
Basic 478,822,072
502,157,440
522,093,545
Diluted 480,430,741
503,685,091
523,930,718
Per common share information:
Basic earnings
$3.54

$3.26

$1.97
Diluted earnings 3.52
3.25
1.97

~~The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

Year Ended December 31,
(in millions) 2018 2017 2016
Net income
$1,721

$1,652

$1,045
Other comprehensive loss:
Net unrealized derivative instrument losses arising during the periods, net of income taxes of ($11), ($9) and ($38), respectively (33 ) (14 ) (62 )
Reclassification adjustment for net derivative losses (gains) included in net income, net of income taxes of $10, ($9) and ($22), respectively 33
(16 ) (36 )
Net unrealized debt securities losses arising during the periods, net of income taxes of ($79), ($4) and ($82), respectively (239 ) (6 ) (139 )
Other-than-temporary impairment not recognized in earnings on debt securities, net of income taxes of ($1), $0 and ($10), respectively (3 ) —
(17 )
Reclassification of net debt securities gains to net income, net of income taxes of ($4), ($2) and ($2), respectively (12 ) (2 ) (2 )
Employee benefit plans:
Actuarial (loss) gain, net of income taxes of ($14), $12 and ($20), respectively (35 ) 19
(34 )
Amortization of actuarial loss, net of income taxes of $3, $5 and $6, respectively 14
13
10
Amortization of prior service cost, net of income taxes of $0, $0 and $0, respectively (1 ) (1 ) (1 )
Total other comprehensive loss, net of income taxes (276 ) (7 ) (281 )
Total comprehensive income
$1,445

$1,645

$764

~~The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Loss Total
(in millions) Shares Amount Shares Amount
Balance at January 1, 2016 —

$247
528

$6

$18,725

$1,913

($858 )
($387 )
$19,646
Dividends to common stockholders —
—
—
—
—
(241 ) —
—
(241 )
Dividend to preferred stockholders —
—
—
—
—
(14 ) —
—
(14 )
Treasury stock purchased —
—
(17 ) —
(25 ) —
(405 ) —
(430 )
Share-based compensation plans —
—
1
—
12
—
—
—
12
Employee stock purchase plan shares purchased —
—
—
—
10
—
—
—
10
Total comprehensive income:

Net income —
—
—
—
—
1,045
—
—
1,045
Other comprehensive loss —
—
—
—
—
—
—
(281 ) (281 )
Total comprehensive income —
—
—
—
—
1,045
—
(281 ) 764
Balance at December 31, 2016 —

$247
512

$6

$18,722

$2,703

($1,263 )
($668 )
$19,747
Dividends to common stockholders —
—
—
—
—
(322 ) —
—
(322 )
Dividend to preferred stockholders —
—
—
—
—
(14 ) —
—
(14 )
Treasury stock purchased —
—
(22 ) —
25
—
(845 ) —
(820 )
Share-based compensation plans —
—
1
—
22
—
—
—
22
Employee stock purchase plan shares purchased —
—
—
—
12
—
—
—
12
Total comprehensive income:
Net income —
—
—
—
—
1,652
—
—
1,652
Other comprehensive loss —
—
—
—
—
—
—
(7 ) (7 )
Total comprehensive income —
—
—
—
—
1,652
—
(7 ) 1,645
Reclassification of tax effects resulting from the 2017 Tax Legislation —
—
—
—
—
145
—
(145 ) —
Balance at December 31, 2017 —

$247
491

$6

$18,781

$4,164

($2,108 )
($820 )
$20,270
Dividends to common stockholders —
—
—
—
—
(471 ) —
—
(471 )
Dividends to preferred stockholders —
—
—
—
—
(29 ) —
—
(29 )
Issuance of preferred stock 1
593
—
—
—
—
—
—
593
Treasury stock purchased —
—
(26 ) —
—
—
(1,025 ) —
(1,025 )
Share-based compensation plans —
—
1
—
20
—

—
20
Employee stock purchase plan shares purchased —
—
—
—
14
—
—
—
14
Total comprehensive income:

Net income —
—
—
—
—
1,721
—
—
1,721
Other comprehensive loss —
—
—
—
—
—
—
(276 ) (276 )
Total comprehensive income —
—
—
—
—
1,721
—
(276 ) 1,445
Balance at December 31, 2018 1

$840

466

$6

$18,815

$5,385

($3,133 )
($1,096 )
$20,817

~~The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Year Ended December 31,
(in millions) 2018 2017 2016
OPERATING ACTIVITIES
Net income
$1,721

$1,652

$1,045
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 326
321
369
Originations of mortgage loans held for sale (8,036 ) (2,911 ) (2,829 )
Proceeds from sales of mortgage loans held for sale 8,149
3,161
2,652
Purchases of commercial loans held for sale (1,944 ) (2,057 ) (1,355 )
Proceeds from sales of commercial loans held for sale 1,857
1,963
1,335
Depreciation, amortization and accretion 489
487
515
Mortgage servicing rights valuation recovery (3 ) (2 ) (4 )
Debt securities impairment 3
7
12
Deferred income taxes 97
(136 ) 153
Share-based compensation 41
48
23
Net gain on sales of:
Debt securities (19 ) (11 ) (16 )
Equity securities —
(1 ) (3 )
Premises and equipment —
—
(2 )
Other loans held for sale —
(17 ) (72 )
Increase in other assets (1,217 ) (502 ) (274 )
Increase (decrease) in other liabilities 303
(119 ) (59 )
Net cash provided by operating activities 1,767
1,883
1,490
INVESTING ACTIVITIES
Investment securities:
Purchases of securities available for sale (4,270 ) (5,394 ) (7,664 )
Proceeds from maturities and paydowns of debt securities available for sale 3,258
3,470
3,785
Proceeds from sales of debt securities available for sale 998
1,257
1,966
Purchases of debt securities held to maturity —
(171 ) (523 )
Proceeds from maturities and paydowns of debt securities held to maturity 522
561
720
Purchases of equity securities, at fair value (162 ) (326 ) (246 )
Proceeds from sales of equity securities, at fair value 150
253
220
Purchases of equity securities, at cost (754 ) (400 ) (166 )
Proceeds from sales of equity securities, at cost 642
637
87
Net decrease (increase) in interest-bearing deposits in banks 44
247
(83 )
Purchases of mortgage servicing rights (16 ) (28 ) —
Acquisition, net of cash acquired (533 ) —
—
Net increase in loans and leases (6,445 ) (3,634 ) (9,074 )
Net increase in bank-owned life insurance (42 ) (44 ) (48 )
Premises and equipment:
Purchases (232 ) (253 ) (138 )
Proceeds from sales —
—
3
Capitalization of software (237 ) (159 ) (165 )
Net cash used in investing activities (7,077 ) (3,984 ) (11,326 )

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 94

CONSOLIDATED STATEMENTS OF OPERATIONS



	Year Ended December 31,
(in millions, except share and per-share data)	2019			2018			2017
INTEREST INCOME:
Interest and fees on loans and leases		$5,441			$5,010			$4,249
Interest and fees on loans held for sale, at fair value	63			37			18
Interest and fees on other loans held for sale	13			10			10
Investment securities	642			672			625
Interest-bearing deposits in banks	30			29			18
Total interest income	6,189			5,758			4,920
INTEREST EXPENSE:
Deposits	1,155			785			441
Federal funds purchased and securities sold under agreements to repurchase	8			6			3
Other short-term borrowed funds	2			9			17
Long-term borrowed funds	410			426			286
Total interest expense	1,575			1,226			747
Net interest income	4,614			4,532			4,173
Provision for credit losses	393			326			321
Net interest income after provision for credit losses	4,221			4,206			3,852
NONINTEREST INCOME:
Service charges and fees	505			513			516
Mortgage banking fees	302			152			108
Card fees	254			244			233
Capital markets fees	216			179			194
Trust and investment services fees	202			171			158
Foreign exchange and interest rate products	155			126			109
Letter of credit and loan fees	135			128			121
Securities gains, net	19			19			11
Net securities impairment losses recognized in earnings on debt securities	(2		)	(3		)	(7		)
Other income	91			67			91
Total noninterest income	1,877			1,596			1,534
NONINTEREST EXPENSE:
Salaries and employee benefits	2,026			1,880			1,766
Equipment and software expense	514			464			443
Outside services	498			447			404
Occupancy	333			333			319
Other operating expense	476			495			542
Total noninterest expense	3,847			3,619			3,474
Income before income tax expense	2,251			2,183			1,912
Income tax expense	460			462			260
NET INCOME		$1,791			$1,721			$1,652
Net income available to common stockholders	$1,718			$1,692				$1,638
Weighted-average common shares outstanding:
Basic	449,731,453			478,822,072			502,157,440
Diluted	451,213,701			480,430,741			503,685,091
Per common share information:
Basic earnings		$3.82			$3.54			$3.26
Diluted earnings	3.81			3.52			3.25

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



		Citizens Financial Group, Inc. \| 95

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Year Ended December 31,
(in millions)	2019			2018			2017
Net income		$1,791			$1,721			$1,652
Other comprehensive income (loss):
Net unrealized derivative instruments gains (losses) arising during the periods, net of income taxes of $35, ($11) and ($9), respectively	103			(33		)	(14		)
Reclassification adjustment for net derivative losses (gains) included in net income, net of income taxes of $14, $10 and ($9), respectively	43			33			(16		)
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of $165, ($79) and ($4), respectively	501			(239		)	(6		)
Other-than-temporary impairment not recognized in earnings on debt securities, net of income taxes of $0, ($1) and $0, respectively	—			(3		)	—
Reclassification of net debt securities gains to net income, net of income taxes of ($8), ($4) and ($2), respectively	(15		)	(12		)	(2		)
Employee benefit plans:
Actuarial gain (loss), net of income taxes of $12, ($14) and $12, respectively	36			(35		)	19
Amortization of actuarial loss, net of income taxes of $6, $3 and $5, respectively	13			14			13
Amortization of prior service cost, net of income taxes of $0, $0 and $0, respectively	(1		)	(1		)	(1		)
Total other comprehensive income (loss), net of income taxes	680			(276		)	(7		)
Total comprehensive income		$2,471			$1,445			$1,645

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



		Citizens Financial Group, Inc. \| 96

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



	Preferred Stock				Common Stock				Additional Paid-in Capital		Retained Earnings			Treasury Stock, at Cost			Accumulated Other Comprehensive Loss			Total
(in millions)	Shares	Amount			Shares		Amount
Balance at January 1, 2017	—		$247		512			$6		$18,722		$2,703			($1,263	)		($668	)		$19,747
Dividends to common stockholders	—	—			—		—		—		(322		)	—			—			(322		)
Dividend to preferred stockholders	—	—			—		—		—		(14		)	—			—			(14		)
Treasury stock purchased	—	—			(22	)	—		25		—			(845		)	—			(820		)
Share-based compensation plans	—	—			1		—		22		—			—			—			22
Employee stock purchase plan shares purchased	—	—			—		—		12		—			—			—			12
Total comprehensive income:				��
Net income	—	—			—		—		—		1,652			—			—			1,652
Other comprehensive loss	—	—			—		—		—		—			—			(7		)	(7		)
Total comprehensive income	—	—			—		—		—		1,652			—			(7		)	1,645
Reclassification of tax effects resulting from the 2017 Tax Legislation	—	—			—		—		—		145			—			(145		)	—
Balance at December 31, 2017	—		$247		491			$6		$18,781		$4,164			($2,108	)		($820	)		$20,270
Dividends to common stockholders	—	—			—		—		—		(471		)	—			—			(471		)
Dividend to preferred stockholders	—	—			—		—		—		(29		)	—			—			(29		)
Preferred stock issued	1	593			—		—		—		—			—			—			593
Treasury stock purchased	—	—			(26	)	—		—		—			(1,025		)	—			(1,025		)
Share-based compensation plans	—	—			1		—		20		—			—			—			20
Employee stock purchase plan shares purchased	—	—			—		—		14		—			—			—			14
Total comprehensive income:
Net income	—	—			—		—		—		1,721			—			—			1,721
Other comprehensive loss	—	—			—		—		—		—			—			(276		)	(276		)
Total comprehensive income	—	—			—		—		—		1,721			—			(276		)	1,445
Balance at December 31, 2018	1		$840		466			$6		$18,815		$5,385			($3,133	)		($1,096	)		$20,817
Dividends to common stockholders	—	—			—		—		—		(617		)	—			—			(617		)
Dividends to preferred stockholders	—	—			—		—		—		(73		)	—			—			(73		)
Preferred stock issued	1	730			—		—		—		—			—			—			730
Treasury stock purchased	—	—			(34	)	—		—		—			(1,220		)	—			(1,220		)
Share-based compensation plans	—	—			1		—		59		—			—			—			59
Employee stock purchase plan shares purchased	—	—			—		—		17		—			—			—			17
Cumulative effect of change in accounting standards	—	—			—		—		—		12			—			5			17
Total comprehensive income:
Net income	—	—			—		—		—		1,791			—			—			1,791
Other comprehensive income	—	—			—		—		—		—			—			680			680
Total comprehensive income	—	—			—		—		—		1,791			—			680			2,471
Balance at December 31, 2019	2		$1,570		433			$6		$18,891		$6,498			($4,353	)		($411	)		$22,201

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



		Citizens Financial Group, Inc. \| 97

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Year Ended December 31,
(in millions)	2019			2018			2017
OPERATING ACTIVITIES
Net income		$1,791			$1,721			$1,652
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	393			326			321
Originations of mortgage loans held for sale	(21,188		)	(8,036		)	(2,911		)
Proceeds from sales of mortgage loans held for sale	20,430			8,149			3,161
Purchases of commercial loans held for sale	(1,979		)	(1,944		)	(2,057		)
Proceeds from sales of commercial loans held for sale	2,065			1,857			1,963
Depreciation, amortization and accretion	633			489			487
Mortgage servicing rights valuation charge-off (recovery)	1			(3		)	(2		)
Debt securities impairment	2			3			7
Deferred income taxes	64			97			(136		)
Share-based compensation	41			41			48
Net gain on sales of:
Debt securities	(25		)	(19		)	(11		)
Equity securities	—			—			(1		)
Premises and equipment	(6		)	—			—
Other loans held for sale	—			—			(17		)
Increase in other assets	(856		)	(1,217		)	(502		)
Increase (decrease) in other liabilities	331			303			(119		)
Net cash provided by operating activities	1,697			1,767			1,883
INVESTING ACTIVITIES
Investment securities:
Purchases of securities available for sale	(8,422		)	(4,270		)	(5,394		)
Proceeds from maturities and paydowns of debt securities available for sale	3,946			3,258			3,470
Proceeds from sales of debt securities available for sale	5,016			998			1,257
Purchases of debt securities held to maturity	—			—			(171		)
Proceeds from maturities and paydowns of debt securities held to maturity	398			522			561
Purchases of equity securities, at fair value	(717		)	(162		)	(326		)
Proceeds from sales of equity securities, at fair value	851			150			253
Purchases of equity securities, at cost	(511		)	(754		)	(400		)
Proceeds from sales of equity securities, at cost	538			642			637
Net (increase) decrease in interest-bearing deposits in banks	(149		)	44			247
Purchases of mortgage servicing rights	—			(16		)	(28		)
Acquisitions, net of cash acquired	(129		)	(533		)	—
Net increase in loans and leases	(4,334		)	(6,445		)	(3,634		)
Net increase in bank-owned life insurance	(27		)	(42		)	(44		)
Premises and equipment:
Purchases	(126		)	(232		)	(253		)
Proceeds from sales	31			—			—
Capitalization of software	(240		)	(237		)	(159		)
Net cash used in investing activities	(3,875		)	(7,077		)	(3,984		)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



		Citizens Financial Group, Inc. \| 98

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


	Year Ended December 31,									Year Ended December 31,
(in millions)	2018			2017			2016			2019			2018			2017
FINANCING ACTIVITIES
Net increase in deposits	4,486			5,285			7,265			5,738			4,486			5,285
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	341			(333		)	346
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase										(891		)	341			(333		)
Net decrease in other short-term borrowed funds	(5,211		)	(4,959		)	(3,186		)	(157		)	(5,211		)	(4,959		)
Proceeds from issuance of long-term borrowed funds	22,503			15,363			15,144			12,850			22,503			15,363
Repayments of long-term borrowed funds	(14,837		)	(12,751		)	(8,429		)	(14,857		)	(14,837		)	(12,751		)
Treasury stock purchased	(1,025		)	(820		)	(430		)	(1,220		)	(1,025		)	(820		)
Net proceeds from issuance of preferred stock	593			—			—			730			593			—
Dividends declared and paid to common stockholders	(471		)	(322		)	(241		)	(617		)	(471		)	(322		)
Dividends declared and paid to preferred stockholders	(14		)	(14		)	(14		)	(65		)	(14		)	(14		)
Payments of employee tax withholding for share-based compensation	(13		)	(20		)	—			(21		)	(13		)	(20		)
Net cash provided by financing activities	6,352			1,429			10,455			1,490			6,352			1,429
Increase (decrease) in cash and cash equivalents^(a)	1,042			(672		)	619
(Decrease) increase in cash and cash equivalents^(a)										(688		)	1,042			(672		)
Cash and cash equivalents at beginning of period^(a)	3,032			3,704			3,085			4,074			3,032			3,704
Cash and cash equivalents at end of period^(a)		$4,074			$3,032			$3,704			$3,386			$4,074			$3,032

Supplemental disclosures:
Interest paid		$1,184			$716			$505			$1,560			$1,184			$716
Income taxes paid	241			371			94			326			241			371
Non-cash items:
Transfer of securities from available for sale to held to maturity											$192			$—			$—
Transfer of securities from held to maturity to available for sale										734			—			—
Loans securitized and transferred to securities available for sale		$142			$134			$68		150			142			134
Stock issued for share-based compensation plans	20			22			12			59			20			22
Stock issued for Employee Stock Purchase Plan	14			12			10			17			14			12
Due from broker for securities sold but not settled	—			6			—			—			—			6

^(a) Cash and cash equivalents include cash and due from banks and interest-bearing cash and due from banks as reflected on the Consolidated Balance Sheets.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accounting and reporting policies of Citizens Financial Group, Inc. conform to GAAP. The Company’s principal business activity is banking, conducted through its ~~subsidiaries~~banking subsidiary Citizens Bank, National ~~Association~~Association. The Company also provides M&A, capital raising and ~~Citizens Bank~~other financial advisory services to middle market companies across a focused set of Pennsylvania. On January 2, 2019, we consolidated our banking subsidiaries via a merger of CBPA into CBNA in order to streamline governance and enterprise risk management, improve CBNA’s risk profile and gain operational efficiencies. CBNA is now our primary subsidiary and our sole banking subsidiary.

~~Basis of Presentation~~industry verticals through its broker-dealer CCMI.

The Consolidated Financial Statements include the accounts of Citizens and subsidiaries in which Citizens has a controlling financial interest. All intercompany transactions and balances have been eliminated. The Company has evaluated its unconsolidated entities and does not believe that any entity in which it has an interest, but does not currently consolidate, meets the requirements to be consolidated as a variable interest entity.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the ~~allowance for credit losses~~ACL and the fair value of MSRs.

Significant Accounting Policies

~~Interest Income Recognition~~

Interest income on loans and securities classified as AFS or HTM is determined using the effective interest method. This method calculates periodic interest income at a constant effective yield on the net investment in the loan or security, to provide a constant rate of return over the terms of the financial assets.

~~Transfer of Financial Assets~~

A transfer of financial assets is accounted for as a sale when control over the assets transferred is surrendered. Assets transferred that satisfy the conditions of a sale are derecognized, and all assets obtained and liabilities incurred in a purchase are recognized and measured at fair value. Servicing rights retained in the transfer of financial assets are initially recognized at fair value. Subsequent to the initial recognition date, servicing rights are accounted for either at the lower of cost or market or fair value. For servicing rights accounted for at the lower of cost or market, Citizens recognizes periodic amortization expense of servicing rights and assesses servicing rights for impairment.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table identifies the Company’s significant accounting policies and the Note and Page where a detailed description of each policy can be found.



	Note	Page
Cash and Due From Banks	Note 2	~~127~~102
Securities	Note 3	~~127~~103
Loans and Leases	Note 4	~~132~~107
Allowance for Credit Losses	Note 5	~~134~~109
Premises, Equipment and Software	Note 6	~~148~~
~~Operating Lease Assets~~	~~Note 6~~	~~148~~120
Mortgage Servicing Rights	Note 87	~~149~~121
Leases	Note 8	124
Goodwill	Note 9	~~152~~125
Variable Interest Entities	Note 10	~~153~~127
Derivative Instruments	Note 13	~~157~~132
Employee Benefits	Note 14	~~160~~135
Treasury Stock	Note 16	~~167~~138
Employee Share-Based Compensation	Note 17	~~169~~139
Fair Value Measurement	Note 19	~~172~~142
Revenue Recognition	Note 20	~~178~~148
Income Taxes	Note 22	~~180~~150
Earnings Per Share	Note 23	~~183~~153

~~Acquisition~~Acquisitions

On ~~August~~January 1, ~~2018,~~2019, the Company acquired Clarfeld Financial Advisors, LLC (“Clarfeld”), a Tarrytown, New York-based boutique wealth management and financial advisory firm, for total consideration of $110 million. As part of this transaction, the Company expanded its wealth management position with the addition of a robust client base. The Company recognized goodwill of $83 million and other intangibles of $21 million related to the transaction.

On March 1, 2019, the Company acquired certain assets and assumed certain liabilities of ~~Franklin American Mortgage Company~~Bowstring Advisors, LLC (“~~FAMC”~~Bowstring”), ~~a Franklin, Tennessee-based national mortgage servicing~~an Atlanta, Georgia-based mergers and ~~origination~~acquisitions advisory and capital raising firm, for ~~total~~the consideration of ~~$582~~$40 million. As part of this transaction, the Company expanded its ~~mortgage servicing~~mergers and acquisitions advisory position with the addition of ~~an MSR portfolio which had an acquisition date fair value of $590 million. Refer to Note 8 “Mortgage Banking” for more information.~~a referral network and experienced staff. The Company ~~initially~~ recognized goodwill of ~~$59~~$35 million and other intangibles of ~~$32~~$6 million related to the transaction.

As of December 31, 2018, the Company recognized goodwill of $36 million, after a $23 million purchase price allocation adjustment given higher value attributed to purchased net assets, and other intangibles of $30 million, net of $2 million of amortization expense. Refer to Note 9 “Goodwill and Intangible Assets” for more information. The Company expects that some adjustments of the fair values assigned to the assets acquired and liabilities assumed at August 1, 2018 may subsequently be recorded, although any adjustments are not expected to be material.

~~Accounting Pronouncements Adopted in 2018~~



~~Pronouncement~~	~~Summary of Guidance~~	~~Effects on~~Citizens Financial ~~Statements~~
~~Disclosure Requirements - Defined Benefit Plan~~ ~~Issued August 2018~~	• ~~Amends disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement defined benefit plans.~~ • The guidance eliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial and requires new disclosures that are expected to enhance the usefulness of the financial statements. • ~~Retrospective application is required for all periods presented.~~	• ~~Citizens adopted the new standard on December 31, 2018.~~ • ~~Adoption did not have a material impact on the Company’s Consolidated Financial Statements.~~ Group, Inc. \| 100

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



~~Revenue Recognition: Revenue from Contracts with Customers~~ ~~Issued May 2014~~	• ~~Requires that revenue from contracts with customers be recognized upon transfer of control of a good or service in the amount of consideration expected to be received.~~ • ~~Changes the accounting for certain contract costs including whether they may be offset against revenues in the Consolidated Statements of Operations.~~ • ~~Requires new qualitative and quantitative disclosures, including information about disaggregation of revenue and performance obligations.~~ • May be adopted using a full retrospective approach or a modified cumulative effect approach wherein the guidance is applied only to existing contracts as of the date of initial adoption and to new contracts transacted after that date.	• Citizens adopted the new standard on January 1, 2018 under the modified retrospective method. Net interest income on financial assets and liabilities is explicitly excluded from the scope of the pronouncement. • Adoption of the new standard did not result in a change in the timing or amount of revenue recognized from contracts with customers. Citizens did not recognize a cumulative adjustment to Retained Earnings upon adoption. • Effective January 1, 2018, underwriting fees are presented on a gross basis in capital market fees, while underwriting costs are presented in other operating expense. Prior to adoption, such costs were presented net of the related underwriting fees.
~~Stock Compensation~~ ~~Issued May 2017~~	• ~~Requires modification accounting unless the fair value, vesting conditions, and classification of the modified award are the same as the original award immediately before the modification.~~ • ~~Applied prospectively to all modifications of share-based awards after the adoption date.~~	• ~~Citizens adopted the new standard as of January 1, 2018.~~ • ~~Adoption did not have an impact on the Company’s Consolidated Financial Statements.~~
~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ ~~Issued March 2017~~	• Requires the service cost component of net periodic pension and postretirement benefit cost to be reported separately in the Consolidated Statements of Operations from the other components (e.g., expected return on assets, interest costs, amortization of gains/losses and prior service costs). • Requires presentation in the Consolidated Statements of Operations of the service cost component in the same line item as other employee compensation costs and presentation of the other components in a different line item from the service cost component. • ~~Retrospective application is required for all periods presented.~~	• ~~Citizens retrospectively adopted the new standard as of January 1, 2018.~~ • ~~Adoption did not have an impact on the Company’s net income.~~ • Citizens reclassified prior period amounts in the Consolidated Statements of Operations, which resulted in an immaterial increase in salaries and employee benefits and a corresponding decrease in other operating expense.
~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~Issued January 2016~~	• ~~Requires equity securities with readily determinable fair values to be measured at fair value on the balance sheet, with changes in the fair value recognized through earnings.~~ • ~~Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or in the notes to the financial statements.~~ • Makes several other targeted amendments to the existing accounting and disclosure requirements for financial instruments, including revised guidance related to valuation allowance assessments when recognizing deferred tax assets on unrealized losses on debt securities available for sale.	• ~~Citizens adopted the new standard as of January 1, 2018.~~ • ~~Adoption had an immaterial impact on the Company’s Consolidated Financial Statements.~~
~~Classification of Certain Cash Receipts and Cash Payments~~ ~~Issued August 2016~~	• ~~Amends guidance on specific cashflows to determine the appropriate classification as operating, investing or financing activities which has required significant judgment.~~ • ~~The application of judgment has resulted in diversity in how certain cash receipts and cash payments are classified.~~	• ~~Citizens adopted the new standard as of January 1, 2018.~~ • ~~Adoption did not have an impact on the Company’s Consolidated Financial Statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Accounting Pronouncements ~~Pending Adoption~~

Adopted in2019



Pronouncement	Summary of Guidance	Effects on Financial Statements
Derivatives and Hedging Issued August 2017	• Reduces the complexity and operational burdens of the current hedge accounting model and portrays more clearly the effects of hedge accounting in the financial statements. • Modifies current requirements to facilitate the application of hedge accounting to partial-term hedges, hedges of prepayable financial instruments, and other strategies. Adoption of these optional changes would occur on a prospective basis. • Requires the effects of fair value hedges to be classified in the same income statement line as the earnings effect of the hedged item. Adoption of this change will occur on a prospective basis. • Requires all effects of cash flow hedges to be deferred in other comprehensive income until the hedged cash flows affect earnings. Periodic hedge ineffectiveness will no longer be recognized in earnings. Adoption of this change will occur on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.	• ~~Required effective date:~~The Company adopted the new standard on January 1, ~~2019. Early adoption is permitted. The Company will not adopt~~2019 under the ~~guidance prior to the required effective date.~~modified retrospective method. • Upon adoption, the Company elected to transfer $755 million of securities eligible to be hedged under the last-of-layer method from the HTM portfolio to the AFS portfolio. At the time of the transfer, $15 million of unrealized losses were recognized in OCI. The remaining transition entries required upon adoption areAdoption did not ~~expected to~~ have a material impact on the Company’s Consolidated Financial Statements. • Required disclosures are included in Note 13.
Leases Issued February 2016	• Requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with a lease term of greater than one year. • Requires lessees and lessors to classify most leases using principles similar to existing lease accounting, but eliminates the “bright line” classification tests. • Requires that for finance leases, a lessee recognize interest expense on the lease liability separately from the amortization of the right-of-use asset in the Consolidated Statements of Operations, while for operating leases, such amounts should be recognized as a combined expense. • Requires expanded disclosures about the nature and terms of lease agreements. • Provides the option to adopt using either a modified cumulative-effect approach wherein the guidance is applied to all periods presented, or through a cumulative-effect adjustment beginning in the period of adoption. • Requires companies with land easements to assess whether the easement meets the definition of a lease before applying other accounting guidance.	• ~~Required effective date:~~The Company adopted the new standard under the modified retrospective approach on January 1, ~~2019. Early adoption~~2019, which is ~~permitted. The Company will not adopt the guidance prior~~applicable to ~~the effective date.~~both its leasing finance business as well as property and equipment leases in which Citizens is lessee. • ~~The Company occupies certain banking offices and equipment under non-cancelable operating lease agreements, which currently are not reflected on its Consolidated Balance Sheets.~~ • ~~The Company will adopt the guidance through~~Adoption resulted in a cumulative-effect adjustment of $12 million, net of taxes, to retained earnings ~~on January 1, 2019. Periods prior~~related to ~~January 1, 2019 will not be adjusted.~~leases in which Citizens is lessee. • ~~Upon adoption,~~Adoption resulted in the ~~Company will recognize~~recognition of a right-of-use asset and corresponding lease liability of ~~approximately $750~~$734 million and $749 million, respectively in its Consolidated Balance ~~Sheets~~Sheet for non-cancelable operating lease agreements. • ~~Adoption~~Required lessor disclosures are included in Note 4 and required lessee disclosures are included in Note 8.
Implementation Costs Incurred in a Cloud Computing Arrangement Issued August 2018	• Requires implementation costs incurred in a cloud computing arrangement that is a service contract be deferred and recognized over the term of the ~~guidance will not result~~arrangement if those costs would be capitalized in a software licensing arrangement. • Requires amortization expense be presented in the same income statement line item as the related hosting service arrangement expense. • Permits adoption prospectively for all implementation costs incurred after adoption or retrospectively through a cumulative-effect adjustment as of the beginning of the first period presented.	• The Company prospectively adopted the new standard on January 1, 2019. • Adoption did not have a material ~~change to the timing of expense recognition~~impact on the Company’s Consolidated ~~Statements of Operations.~~Financial Statements.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 101

Accounting Pronouncements Pending Adoption



Pronouncement	Summary of Guidance	Effects on Financial Statements
Financial Instruments - Credit Losses Issued June 2016	• Required effective date: January 1, 2020. • Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost (including securities HTM), which will reflect management’s estimate of credit losses over the full remaining expected life of the financial assets. • Amends existing impairment guidance for securities AFS to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves. • Requires a cumulative-effect adjustment to retained earnings, net of taxes, as of the beginning of the reporting period of adoption. • Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage.	• ~~Required effective date: January 1, 2020. Early adoption permitted~~The Company adopted the new standard on January 1, ~~2019.~~2020, retrospectively for loans and leases and HTM securities and prospectively for AFS securities. • To estimate the ACL under CECL, Citizens uses models and other estimation techniques that are sensitive to changes in forecasted economic conditions. The Company ~~will~~applies qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not ~~adopt~~be adequately reflected in quantitatively derived results, or other relevant factors to ensure the ~~guidance prior to~~ACL reflects the ~~required effective date.~~Company’s best estimate of current expected credit losses. • ~~A company-wide, cross-discipline governance structure to implement the new standard has been in place for more than 18 months.~~ The Company is currently identifying and researching key interpretive issues, revising policies and procedures and completing the development and configuration of most loss forecasting models to meet the requirements of the new guidance. The implementation team is alsorecognized an increase in the ~~process~~ACL upon adoption of ~~assessing forecast accuracy, how the~~approximately $450 million, based on a two-year reasonable and supportable forecast period, ~~will be determined~~ and ~~documented as well as the impacts of that decision in different parts of the credit cycle, and expects~~a one-year reversion to ~~begin parallel testing in the second half of 2019.~~ • long-term historical macroeconomic variables. The ~~Company expects the standard will result in earlier recognition of credit losses and an~~ increase in ACL is primarily related to consumer loans, such as residential mortgage, unsecured and education, due to the ~~ACL, as it will cover estimated~~requirement to estimate credit losses over the full remaining expected life of ~~loans and commitments and will consider future reasonable and supportable changes in macroeconomic conditions. Since~~ the ~~magnitude~~asset. • Adoption of the ~~increase~~new standard could produce higher volatility in the ~~Company’s ACL will be impacted by economic conditions, forecasted economic conditions,~~quarterly provision for credit ~~quality~~losses than our current reserve process and ~~trends in~~could adversely impact the Company’s ~~portfolio at the time of adoption, the quantitative impact cannot yet be reasonably estimated.~~ongoing earnings.
~~Implementation Costs Incurred in a Cloud Computing Arrangement~~ ~~Issued August 2018~~	• Requires implementation costs incurred in a cloud computing arrangement that is a service contract be deferred and recognized over the term of the arrangement if those costs would be capitalized in a software licensing arrangement. • ~~Requires amortization expense~~The increase in ACL upon adoption reduced the Company’s CET1 capital ratio by 24 basis points on a fully-phased in basis. This capital impact will be ~~presented~~phased in ~~the same income statement line item as the related hosting service arrangement expense.~~by 25% per year through January 1, 2023, which will impact 2020 by 6 basis points. • ~~Permits adoption prospectively for all implementation costs incurred after adoption or retrospectively through a cumulative-effect adjustment as of the beginning of the first period presented.~~	• ~~Required effective date: January 1, 2020. Early adoption is permitted. The Company is evaluating whether it will adopt this guidance prior to the required effective date.~~ • ~~Adoption is not expected to have a material impact~~Based on the ~~Company’s Consolidated Financial Statements.~~
~~Disclosure Requirements - Fair Value Measurements~~credit quality of our existing debt securities portfolio, the Company did not recognize an ACL for HTM and AFS debt securities upon adoption. ~~Issued August 2018~~	• ~~Amends disclosure requirements on fair value measurements.~~ • The guidance eliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial, requires new disclosures and modifies existing disclosures that are expected to enhance the usefulness of the financial statements. • ~~Prospective application is required for new disclosure requirements.~~ • ~~Retrospective application is required for all other amendments for all periods presented.~~	• ~~Required effective date: January 1, 2020. Early adoption is permitted. The Company does not intend to adopt this guidance prior to the required effective date.~~ • ~~Adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

NOTE 2 - CASH AND DUE FROM BANKS

For the purposes of reporting cash flows, cash and cash equivalents have original maturities of three months or less and include cash and due from banks and interest-bearing cash and due from banks, primarily at the FRB.

~~The Company’s subsidiary banks maintain~~Citizens maintains certain average reserve balances and compensating balances for check clearing and other services with the FRB. At December 31, ~~2018~~2019 and ~~2017,~~2018, the balance of deposits at the FRB amounted to ~~$3.0~~$2.1 billion and ~~$2.0~~$3.0 billion, respectively. Average balances maintained with the FRB during the years ended December 31, ~~2018, 2017,~~2019 and ~~2016~~2018 exceeded amounts required by law for the FRB’s requirements. All amounts, both required and excess reserves, held at the FRB currently earn interest at a fixed rate of ~~240~~155 basis points. Citizens recorded interest income on FRB deposits of $28 million, ~~$16~~$28 million, and $7$16 million for the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, respectively, in interest-bearing deposits in banks in the Consolidated Statements of Operations.



		Citizens Financial Group, Inc. \| 102

NOTE 3 - SECURITIES

Investments include debt and ~~marketable~~ equity securities and other investment securities. Citizens classifies debt securities as AFS, HTM, or trading based on management’s intent to hold to maturity at the time of ~~purchase, and marketable equity~~purchase. Equity securities ~~as trading.~~are recorded at fair value or at cost if there is not a readily determinable fair value.

~~Securities~~Debt securities that will be held for indefinite periods of time and may be sold in response to changes in interest rates, changes in prepayment risk, or other factors considered in managing the Company’s asset/liability strategy are classified as AFS and reported at fair value, with unrealized gains and losses reported in OCI, net of taxes, as a separate component of stockholders’ ~~equity, net of taxes.~~equity. Gains and losses on the sales of securities are recognized in noninterest income and are computed using the specific identification method.

Debt securities for which the Company has the ability and intent to hold to maturity are classified as ~~HTM. The securities are~~HTM and reported at amortized cost. Transfers of debt securities to the HTM classification are recognized at fair value at the date of transfer.

For debt securities classified as AFS or HTM, interest income is recorded on the accrual basis including the amortization of premiums and the accretion of discounts. Premiums and discounts on debt securities are amortized or accreted using the effective interest method over the estimated lives of the individual securities. Citizens uses actual prepayment experience and estimates of future prepayments to determine the constant effective yield necessary to apply the effective interest method of income recognition. Estimates of future prepayments are based on the underlying collateral characteristics of each security and are derived from market sources. Judgment is involved in making determinations about prepayment expectations and in changing those expectations in response to changes in interest rates and macroeconomic conditions. The amortization of premiums and discounts associated with mortgage-backed securities may be significantly impacted by changes in prepayment assumptions.

Securities classified as trading are bought and held principally for selling them in the near term and carried at fair value, with changes in fair value recognized in earnings. When applicable, realized and unrealized gains and losses on such assets are reported in noninterest income in the Consolidated Statements of Operations.

~~Other investment~~Equity securities are primarily composed of FHLB stock and FRB stock (which are carried at cost) and money market mutual fund investments held by the Company’s broker-dealers (which are carried at fair value, with changes in fair value recognized in noninterest income). ~~Other investment~~Equity securities that are carried at cost are reviewed at least annually for impairment, with valuation adjustments recognized in noninterest income.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 103

The following table presents the major components of securities at amortized cost and fair value:



	December 31, 2019									December 31, 2018
(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and other		$71		$—		$—			$71		$24		$—		$—			$24
State and political subdivisions	5		—		—			5		5		—		—			5
Mortgage-backed securities, at fair value:
Federal agencies and U.S. government sponsored entities	19,803		143		(71		)	19,875		20,211		28		(605		)	19,634
Other/non-agency	638		24		—			662		236		3		(7		)	232
Total mortgage-backed securities, at fair value	20,441		167		(71		)	20,537		20,447		31		(612		)	19,866
Total debt securities available for sale, at fair value		$20,517		$167		($71	)		$20,613		$20,476		$31		($612	)		$19,895
Federal agencies and U.S. government sponsored entities		$3,202		$45		($5	)		$3,242		$3,425		$—		($132	)		$3,293
Other/non-agency	—		—		—			—		740		8		—			748
Total mortgage-backed securities, at cost	3,202		45		(5		)	3,242		4,165		8		(132		)	4,041
Total debt securities held to maturity		$3,202		$45		($5	)		$3,242		$4,165		$8		($132	)		$4,041
Money market mutual fund investments		$47		$—		$—			$47		$181		$—		$—			$181
Total equity securities, at fair value		$47		$—		$—			$47		$181		$—		$—			$181
Federal Reserve Bank stock		$577		$—		$—			$577		$463		$—		$—			$463
Federal Home Loan Bank stock	222		—		—			222		364		—		—			364
Other equity securities	8		—		—			8		7		—		—			7
Total equity securities, at cost		$807		$—		$—			$807		$834		$—		$—			$834

December 31, 2018 December 31, 2017
(in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Debt Securities Available for Sale, at Fair Value
U.S. Treasury and other
$24

$—

$—

$24

$12

$—

$—

$12
State and political subdivisions 5
—
—
5
6
—
—
6
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities 20,211
28
(605 ) 19,634
20,065
40
(277 ) 19,828
Other/non-agency 236
3
(7 ) 232
311
7
(7 ) 311
Total mortgage-backed
securities
20,447
31
(612 ) 19,866
20,376
47
(284 ) 20,139
Total debt securities available for sale, at fair value
$20,476

$31

($612 )
$19,895

$20,394

$47

($284 )
$20,157
Debt Securities Held to Maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities
$3,425

$—

($132 )
$3,293

$3,853

$7

($46 )
$3,814
Other/non-agency 740
8
—
748
832
22
—
854
Total mortgage-backed
securities
4,165
8
(132 ) 4,041
4,685
29
(46 ) 4,668
Total debt securities held to maturity
$4,165

$8

($132 )
$4,041

$4,685

$29

($46 )
$4,668
Equity Securities, at Fair Value
Money market mutual fund investments
$181

$—

$—

$181

$165

$—

$—

$165
Other investments —
—
—
—
4
—
—
4
Total equity securities, at fair value
$181

$—

$—

$181

$169

$—

$—

$169
Equity Securities, at Cost
Federal Reserve Bank stock
$463

$—

$—

$463

$463

$—

$—

$463
Federal Home Loan Bank stock 364
—
—
364
252
—
—
252
Other equity securities 7
—
—
7
7
—
—
7
Total equity securities, at cost
$834

$—

$—

$834

$722

$—

$—

$722



		Citizens Financial Group, Inc. \| 104

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the amortized cost and fair value of debt securities by contractual maturity ~~are presented below.~~as of December 31, 2019. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.



	Distribution of Maturities
(in millions)	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized cost:
U.S. Treasury and other		$71		$—		$—		$—		$71
State and political subdivisions	—		—		—		5		5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		215		1,534		18,054		19,803
Other/non-agency	—		—		—		638		638
Total debt securities available for sale	71		215		1,534		18,697		20,517
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,202		3,202
Other/non-agency	—		—		—		—		—
Total debt securities held to maturity	—		—		—		3,202		3,202
Total amortized cost of debt securities		$71		$215		$1,534		$21,899		$23,719

Fair value:
U.S. Treasury and other		$71		$—		$—		$—		$71
State and political subdivisions	—		—		—		5		5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		217		1,553		18,105		19,875
Other/non-agency	—		—		—		662		662
Total debt securities available for sale	71		217		1,553		18,772		20,613
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	—		—		—		3,242		3,242
Total debt securities held to maturity	—		—		—		3,242		3,242
Total fair value of debt securities		$71		$217		$1,553		$22,014		$23,855

Distribution of Maturities
(in millions) 1 Year or Less 1-5 Years 5-10 Years After 10 Years Total
Amortized Cost:
Debt securities available for sale
U.S. Treasury and other
$24

$—

$—

$—

$24
State and political subdivisions —
—
—
5
5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities —
281
1,540
18,390
20,211
Other/non-agency 1
10
—
225
236
Total debt securities available for sale 25
291
1,540
18,620
20,476
Debt securities held to maturity:
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities —
—
—
3,425
3,425
Other/non-agency —
—
—
740
740
Total debt securities held to maturity —
—
—
4,165
4,165
Total amortized cost of debt securities
$25

$291

$1,540

$22,785

$24,641

Fair Value:
Debt securities available for sale
U.S. Treasury and other
$24

$—

$—

$—

$24
State and political subdivisions —
—
—
5
5
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities —
274
1,505
17,855
19,634
Other/non-agency 1
10
—
221
232
Total debt securities available for sale 25
284
1,505
18,081
19,895
Debt securities held to maturity
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities —
—
—
3,293
3,293
Other/non-agency —
—
—
748
748
Total debt securities held to maturity —
—
—
4,041
4,041
Total fair value of debt securities
$25

$284

$1,505

$22,122

$23,936

Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $642 million, $672 million ~~$625 million~~ and ~~$584~~$625 million for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively.

~~Realized~~The following table presents realized gains and losses on securities:



	Year Ended December 31,
(in millions)	2019			2018		2017
Gains on sale of debt securities⁽¹⁾		$41			$19		$11
Losses on sale of debt securities	(16		)	—		—
Debt securities gains, net		$25			$19		$11
Equity securities gains		$—			$—		$1

⁽¹⁾ For the year ended December 31, 2019, $6 million of gains on sale of debt securities ~~are presented below:~~were recognized in mortgage banking fees in the Consolidated Statements of Operations, as they related to AFS securities held as economic hedges of the value of the MSR portfolio recognized using the amortization method.

Year Ended December 31,
(in millions) 2018
2017
2016
Gains on sale of debt securities
$19

$11

$18
Losses on sale of debt securities —
—
(2 )
Debt securities gains, net
$19

$11

$16
Equity securities gains
$—

$1

$3



		Citizens Financial Group, Inc. \| 105

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the amortized cost and fair value of debt securities ~~pledged are presented below:~~pledged:



	December 31, 2019				December 31, 2018
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Pledged against repurchase agreements		$265		$266		$344		$338
Pledged against FHLB borrowed funds	638		662		745		752
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law	3,670		3,672		3,592		3,460

December 31, 2018 December 31, 2017
(in millions) Amortized Cost Fair Value
Amortized Cost Fair Value
Pledged against repurchase agreements
$344

$338

$358

$357
Pledged against FHLB borrowed funds 745
752
839
861
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law 3,592
3,460
3,113
3,082

Citizens regularly enters into security repurchase agreements with unrelated ~~counterparties. Repurchase agreements are financial transactions that~~counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security back to the original party. The Company’s repurchase agreements are typically short-term ~~transactions~~in nature and are accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. ~~When permitted by GAAP, the Company offsets short-term receivables associated with its reverse repurchase agreements against short-term payables associated with its repurchase agreements.~~ Citizens recognized no offsetting of short-term receivables or payables as of December 31, ~~2018~~2019 or ~~2017.~~2018. Citizens offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note ~~13 “Derivatives.”~~13.

Securitizations of mortgage loans retained in the investment portfolio for the years ended December 31, 2019, 2018 and 2017, ~~and 2016,~~ were $150 million, $142 million ~~$134 million~~ and ~~$68~~$134 million, respectively. These securitizations include a substantive guarantee by a third party. In 2019, 2018 and 2017 the guarantors were FNMA, FHLMC, ~~and GNMA. In 2016, the guarantors were FNMA~~ and GNMA. The debt securities received from the guarantors are classified as AFS.

Impairment

Citizens reviews its securities for other-than-temporary impairment on a quarterly basis or more frequently if a potential loss triggering event occurs. The initial indicator of other-than-temporary impairment for both debt and equity securities is a decline in fair value below its recorded investment amount, as well as the severity and duration of the decline. For a security ~~of which there~~that has ~~been a decline~~declined in fair value below the cost basis, the Company recognizes other-than-temporary impairment if ~~(i)~~ management has the intent to sell the security, ~~(ii)~~ it is more likely than not itthe Company will be required to sell the security before recovery of its amortized cost basis, or ~~(iii)~~ the Company does not expect to recover the entire cost basis of the security.

Estimating the recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of cash flows expected to be collected, discounted at the security’s original effective yield, exceeds the amortized cost, no credit impairment has occurred. If this amount is less than the amortized cost, other-than-temporary impairment is considered to have occurred. In addition to these cash flow projections, several other characteristics of each debt security are reviewed when determining whether a credit loss exists and the period over which the debt security is expected to recover. These characteristics include: (i) the type of investment, (ii) various market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), (iii) the length and severity of impairment, and (iv) the public credit rating of the instrument.

Citizens estimates the portion of loss attributable to credit using a collateral loss model and integrated cash flow engine. The model calculates prepayment, default and loss severity assumptions using collateral performance data. These assumptions are used to produce cash flows that generate loss projections. These loss projections are reviewed on a quarterly basis by a cross-functional governance committee to determine whether security impairments are other-than-temporary.

If the Company intends to sell an impaired security, or if it is more likely than not itCitizens will be required to sell the security before recovery, the impairment loss recognized in current period earnings equals the difference between the amortized cost basis and the fair value of the security. If the Company does not intend to sell the impaired security, and it is not likely that the Company will be required to sell the impaired security, the other-than-temporary impairment write-down is separated into an amount representing the credit loss, which is recognized in current period earnings and the amount related to all other factors, which is recognized in OCI.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 106

The following table presents the net securities impairment losses recognized in earnings:



	Year Ended December 31,
(in millions)	2019			2018			2017
Other-than-temporary impairment:
Total other-than-temporary impairment losses		($2	)		($7	)		($7	)
Portions of loss recognized in other comprehensive income (before taxes)	—			4			—
Net securities impairment losses recognized in earnings on debt securities		($2	)		($3	)		($7	)

Year Ended December 31,
(in millions) 2018
2017
2016
Other-than-temporary impairment:
Total other-than-temporary impairment losses
($7 )
($7 )
($39 )
Portions of loss recognized in other comprehensive income (before taxes) 4
—
27
Net securities impairment losses recognized in earnings
($3 )
($7 )
($12 )

The following tables present mortgage-backed debt securities ~~whose~~with fair values ~~are~~ below their respective carrying values, ~~segregated~~separated by ~~those that~~the duration the securities have been in a continuous unrealized loss ~~position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer:~~position:


	December 31, 2018																		December 31, 2019
	Less than 12 Months						12 Months or Longer						Total						Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities	166		$4,881		($89	)	429		$15,124		($648	)	595		$20,005		($737	)	106		$5,135		($24	)	120		$3,748		($52	)	226		$8,883		($76	)
Other/non-agency	10	139		(1		)	11	72		(6		)	21	211		(7		)	—	—		—			—	—		—			—	—		—
Total	176		$5,020		($90	)	440		$15,196		($654	)	616		$20,216		($744	)	106		$5,135		($24	)	120		$3,748		($52	)	226		$8,883		($76	)



	December 31, 2018
	Less than 12 Months						12 Months or Longer						Total
(dollars in millions)	Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses			Number of Issues	Fair Value		Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities	166		$4,881		($89	)	429		$15,124		($648	)	595		$20,005		($737	)
Other/non-agency	10	139		(1		)	11	72		(6		)	21	211		(7		)
Total	176		$5,020		($90	)	440		$15,196		($654	)	616		$20,216		($744	)

December 31, 2017
Less than 12 Months 12 Months or Longer Total
(dollars in millions) Number of Issues Fair Value Gross Unrealized Losses Number of Issues Fair Value Gross Unrealized Losses Number of Issues Fair Value Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities 294

$10,163

($97 ) 152

$8,061

($226 ) 446

$18,224

($323 )
Other/non-agency 6
55
(1 ) 10
84
(6 ) 16
139
(7 )
Total 300

$10,218

($98 ) 162

$8,145

($232 ) 462

$18,363

($330 )

~~The following table presents the cumulative credit-related losses recognized in earnings on debt securities held by the Company:~~

Year Ended December 31,
(in millions) 2018
2017
2016
Cumulative balance at beginning of period
$80

$75

$66
Credit impairments recognized in earnings on debt securities that have been previously impaired 3
7
12
Reductions due to increases in cash flow expectations on impaired debt securities ⁽¹⁾
(2 ) (2 ) (3 )
Cumulative balance at end of period
$81

$80

$75

⁽¹⁾~~Reported in interest income from investment securities on the Consolidated Statements of Operations.~~

Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of December 31, 2018, 2017 and 2016 were $81 million, $80 million and $75 million, respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of December 31, 2018, 2017 and 2016. For the years ended December 31, 2018, 2017 and 2016, Citizens incurred non-agency MBS credit related other-than-temporary impairment losses in earnings of $3 million, $7 million and $12 million, respectively.

There were no credit-impaired debt securities sold during the years ended December 31, 2018, 2017 and 2016, respectively. Citizens does not currently have the intent to sell these impaired debt securities, and it is not

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases.~~

Citizens has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of December 31, 2018. The unrealized losses on these debt securities reflect non-credit-related factors such as changing interest rates and market liquidity. Therefore, Citizens has determined that these debt securities are not other-than-temporarily impaired because the Company does not currently have the intent to sell these debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to the recovery of their amortized cost bases. Any subsequent increases in the valuation of impaired debt securities do not impact their recorded cost bases. Additionally, as of December 31, 2018 and 2016, there were $4 million and $27 million pre-tax non-credit related losses deferred in AOCI, respectively, and there was no pre-tax non-credit related losses deferred in AOCI for the year ended December 31, 2017.

NOTE 4 - LOANS AND LEASES

Loans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans. Deferred loan origination fees and costs and purchase premiums and discounts are amortized as an adjustment of yield over the life of the loan, using the effective interest method. Unamortized amounts remaining upon prepayment or sale are recorded as interest income or gain (loss) on sale, respectively. Credit card receivables include billed and uncollected interest and fees.

Interest income on loans is determined using the effective interest method. This method calculates periodic interest income at a constant effective yield on the net investment in the loan, to provide a constant rate of return over the term. Loans accounted for using the fair value option are measured at fair value with corresponding changes recognized in noninterest income.

Loan commitment fees for loans that are likely to be drawn down, and other credit related fees, are deferred (together with any incremental costs) and recognized as an adjustment to the effective interest rate over the loan term. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognized over the commitment period on a straight-line basis.

Leases are classified at the inception of the lease. Direct financing lease receivables are reported at the aggregate of minimum lease payments receivable plus the estimated residual value of the leased property, less unearned and deferred income, including unamortized investment credits. Leveraged leases, which are a form of direct financing leases, are recorded net of related non-recourse debt. Lease residual values are reviewed at least annually for other-than-temporary impairment; with valuation adjustments recognized currently against other income for direct financing and leveraged leases. Unearned income is recognized as a constant percentage of outstanding lease financing balances over the lease term in interest income.

Loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail. The classes of loans and leases are: commercial, commercial real estate, leases, residential mortgages, home equity loans, home equity lines of credit, home equity loans serviced by others, home equity lines of credit serviced by others, automobile, education, credit cards and other retail.



		Citizens Financial Group, Inc. \| 107

The ~~Company’s SBO portfolio consists~~following table presents the composition of ~~purchased home equity~~ loans and ~~lines that were originally serviced by others, which~~leases:



	December 31,
(in millions)	2019		2018
Commercial⁽¹⁾		$41,479		$40,857
Commercial real estate	13,522		13,023
Leases	2,537		2,903
Total commercial loans and leases	57,538		56,783
Residential mortgages⁽²⁾	19,083		18,978
Home equity loans	812		1,073
Home equity lines of credit	11,979		12,710
Home equity loans serviced by others	289		399
Home equity lines of credit serviced by others	74		104
Automobile	12,120		12,106
Education	10,347		8,900
Credit cards	2,198		1,991
Other retail	4,648		3,616
Total retail loans	61,550		59,877
Total loans and leases ⁽³⁾		$119,088		$116,660

⁽¹⁾ SBA loans the Company ~~now~~ services afor others of $33 million are not included above. These loans represent the government guaranteed portion of ~~internally.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~A summary of the~~SBA loans ~~and leases portfolio is presented below:~~

December 31,
(in millions) 2018
2017
Commercial
$40,857

$37,562
Commercial real estate 13,023
11,308
Leases 2,903
3,161
Total commercial loans and leases 56,783
52,031
Residential mortgages 18,978
17,045
Home equity loans 1,073
1,392
Home equity lines of credit 12,710
13,483
Home equity loans serviced by others 399
542
Home equity lines of credit serviced by others 104
149
Automobile 12,106
13,204
Education 8,900
8,134
Credit cards 1,991
1,848
Other retail 3,616
2,789
Total retail loans 59,877
58,586
Total loans and leases ⁽¹⁾⁽²⁾

$116,660

$110,617

⁽¹⁾ ~~Excluded from the table above are loans held for sale totaling $1.3 billion and $718 million~~sold to outside investors as of December 31, ~~2018 and 2017, respectively.~~

⁽²⁾~~Mortgage~~2019. There were 0 SBA loans serviced for others byas of December 31, 2018.

⁽²⁾ Mortgage loans the ~~Company’s subsidiaries are not included above, and amounted to $69.6~~Company services for others of $77.5 billion and ~~$20.3~~$69.6 billion at December 31, 2019 and 2018, respectively, are not included above.

⁽³⁾LHFS totaling $3.3 billion and ~~2017, respectively.~~$1.3 billion at December 31, 2019 and 2018, respectively, are not included above.

~~Loans are classified upon origination or acquisition as either held-for-investment or held-for-sale. This classification is based on management’s initial intent and ability to hold~~The following table presents the ~~loans for the foreseeable future. Loans held for sale are carried~~composition of LHFS.



	December 31, 2019						December 31, 2018
(in millions)	Residential Mortgages		Commercial		Total		Residential Mortgages		Commercial		Total
Loans held for sale at fair value⁽¹⁾		$1,778		$168		$1,946		$967		$252		$1,219
Other loans held for sale⁽²⁾	1,101		283		1,384		—		101		101

⁽¹⁾ Residential mortgage LHFS at ~~the lower of cost or~~ fair value ~~with any write-downs or subsequent recoveries charged~~are originated for sale. Commercial LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk.

⁽²⁾Residential mortgages other LHFS of $1.1 billion as of December 31, 2019 comprised of two loan portfolio pools of $524 million and $575 million representing loan sales expected to settle in first quarter 2020. Commercial other ~~income. Citizens accounts for certain loans held for sale, including those~~LHFS generally consist of commercial loans associated with ~~its mortgage banking business~~the Company’s syndication business.

During the year ended December 31, 2019 the Company purchased $1.1 billion of education loans and ~~secondary loan trading desk, under the fair value option at fair value. Refer to Note 19, “Fair Value Measurements” for additional discussion.~~

$530 million of other loans. During the year ended December 31, 2018, the Company purchased $457 million of education loans.

During the year ended December 31, ~~2017, Citizens purchased $862~~2019, the Company sold $454 million of ~~education~~commercial loans and ~~$153~~$628 million of ~~automobile loans.~~

retail loans, including $22 million of TDR sales. During the year ended December 31, 2018, the Company sold $553 million of commercial loans. During the year ended December 31, 2017, the Company sold $603 million of commercial loans, $254 million of residential mortgage loans and $29 million of home equity loans. Also during the year ended December 31, 2017, Citizens sold $78 million~~of TDRs, including $49 millionof residential mortgages and $29 millionof home equity loans, which resulted in a pre-tax gain of $17 millionreported in other income on the Consolidated Statements of Operations.~~

Loans held for sale at fair value totaled $1.2 billion and $497 million at December 31, 2018 and 2017, respectively. The December 31, 2018 balance consisted of residential mortgages originated for sale of $967 million and loans in the commercial trading portfolio of $252 million. The December 31, 2017 balance consisted of residential mortgages originated for sale of $326 million and loans in the commercial trading portfolio of $171 million. Other loans held for sale totaled $101 million and $221 million as of December 31, 2018 and 2017, respectively, and consisted of loans associated with the Company’s syndication business.

Loans pledged as collateral for FHLB borrowed funds, primarily residential mortgages and home equity loans, totaled ~~$25.6~~$25.3 billion and ~~$24.9~~$25.6 billion at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, ~~was~~were primarily comprised of auto, commercial and commercial real estate loans, and totaled ~~$16.8~~$17.4 billion and ~~$18.1~~$16.8 billion at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

Citizens is engaged in the leasing of equipment for commercial use, ~~with primary lease concentrations to Fortune 1000 companies~~primarily focused on middle market and mid-corporate clients for large capital equipment ~~acquisitions.~~ acquisitions including aircraft and railcars, among other equipment. The Company determines if an arrangement is a lease and the related lease classification at inception. Lease terms predominantly range from three years to seven years and may include options to terminate the lease early or purchase the leased property prior to the end of the lease term. The Company does not have lease agreements which contain lease and nonlease components.

A lessee is evaluated from a credit perspective using the same underwriting standards and procedures as for a loan borrower. A lessee is expected to make rental payments based on its cash flows and the viability of its



		Citizens Financial Group, Inc. \| 108

operations. Leases are usually not evaluated as collateral-based transactions, and therefore the lessee’s overall financial strength is the most important credit evaluation factor.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~A summary of the investment in leases, before the ALLL, is presented below:~~

December 31,
(in millions) 2018
2017
Direct financing leases
$2,863

$3,122
Leveraged leases 40
39
Total leases
$2,903

$3,161

The components of the net investment in direct finance and sales-type leases, before ~~the~~ ALLL, are presented below:

December 31,
(in millions) 2018
2017
Total future minimum lease rentals
$2,075

$2,347
Estimated residual value of leased equipment (non-guaranteed) 1,091
1,072
Initial direct costs 13
15
Unearned income on minimum lease rentals and estimated residual value of leased equipment (276 ) (273 )
Total leases
$2,903

$3,161

~~The~~



(in millions)	December 31, 2019
Total future minimum lease rentals		$1,739
Estimated residual value of leased equipment (non-guaranteed)	1,013
Initial direct costs	10
Unearned income	(225		)
Total leases		$2,537

Interest income on direct financing and ~~leveraged~~sales-type leases for the year ended December 31, 2019 was $77 million and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.

A maturity analysis of direct financing and sales-type lease receivables at December 31, ~~2018 are~~2019 is presented below:



(in millions)
2020		$496
2021	385
2022	288
2023	220
2024	145
Thereafter	205
Total undiscounted future minimum lease rentals		$1,739

Year (in millions)
2019
$589
2020 461
2021 340
2022 258
2023 180
Thereafter 247
Total
$2,075

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK

Allowance for Credit Losses

Management’s estimate of probable losses in the Company’s loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending ~~commitments.~~commitments, collectively the ACL. On a quarterly basis, Citizens evaluates the adequacy of the ALLL by performing reviews of certain individual loans and leases, analyzing changes in the composition, size and delinquency of the portfolio, reviewing previous loss experience and considering current and anticipated economic factors. The ALLL is established in accordance with the Company’s credit reserve policies, as approved by the Audit Committee of the Board of Directors. The Chief Financial Officer and Chief Risk Officer review the adequacy of the ALLL each quarter, together with risk management. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. The ALLL is maintained at a level that management considers reflective of probable losses, and is established through charges to earnings in the form of a provision for credit losses. The ~~ALLL may be adjusted to reflect~~Company’s methodology for determining the ~~Company’s current~~qualitative component includes a statistical analysis of prior charge-off rates and a qualitative assessment of ~~various qualitative risks,~~ factors ~~and events that may not be measured~~affecting the determination of incurred losses in the ~~statistical analysis.~~loan and lease portfolio. Such factors include trends in economic conditions, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. Amounts determined to be uncollectible are deducted from the ALLL and subsequent recoveries, if any, are added to the ALLL. While management uses available information to estimate loan and lease losses, future additions to the ALLL may be necessary based on changes in economic conditions. There were no material changes in assumptions or estimation techniques compared with prior years that impacted the determination of the current year’s ALLL and the reserve for unfunded lending commitments.

The evaluation of the adequacy of the commercial, commercial real estate, and ~~lease~~leases ALLL and reserve for unfunded lending commitments is primarily based on risk rating models that assess probability of default, loss given default and exposure at default on an individual loan basis. The models are primarily driven by individual customer financial characteristics and are validated against historical experience. Additionally, qualitative factors are included

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

in the risk rating models. After the aggregation of individual borrower incurred loss, additional overlays can be made based on back-testing against historical losses.



		Citizens Financial Group, Inc. \| 109

For non-impaired retail loans, the ALLL is based upon an incurred loss model utilizing the probability of default, loss given default and exposure at default on an individual loan basis. When developing these factors, the Company may consider the loan product and collateral type, delinquency status, LTV ratio, lien position, borrower’s credit, age of the loan, geographic location and incurred loss period. Certain retail portfolios, including education, unsecured personal loans, SBO home equity loans and commercial credit card receivables utilize roll rate or vintage models to estimate the ALLL.

For nonaccruing commercial and commercial real estate loans with an outstanding balance of $3 million or greater and for all commercial and commercial real estate TDRs (regardless of size), the Company conducts further analysis to determine the probable amount of loss and establishes a specific allowance for the loan, if appropriate. Citizens estimates the impairment amount by comparing the loan’s carrying amount to the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. For collateral-dependent impaired commercial and commercial real estate loans, the excess of the Company’s recorded investment in the loan over the fair value of the collateral, less cost to sell, is charged off to the ALLL.

For retail TDRs that are not collateral-dependent, allowances are developed using the present value of expected future cash flows compared to the recorded investment in the loans. Expected re-default factors are considered in this analysis. Retail TDRs that are deemed collateral-dependent are written down to fair market value less cost to sell. The fair value of collateral is periodically monitored subsequent to the modification.

In addition to the ALLL, the Company also estimates probable credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and binding unfunded loan commitments. Off-balance sheet financial instruments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with historical loss experience, economic conditions and performance trends within specific portfolio segments, result in the estimate of the reserve for unfunded lending commitments.

The ALLL and the reserve for unfunded lending commitments are reported on the Consolidated Balance Sheets in the allowance for loan and lease losses and in other liabilities, respectively. Provision for credit losses related to the loans and leases portfolio and the unfunded lending commitments are reported in the Consolidated Statements of Operations as provision for credit losses.

Loan Charge-Offs

Commercial loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off involves many factors, including the prioritization of the Company’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.

Retail loans are generally fully charged-off or written down to the net realizable value of the underlying collateral, with an offset to the ALLL, upon reaching specified stages of delinquency in accordance with standards established by the FFIEC. Residential real estate loans, credit card loans and unsecured open end loans are generally charged off in the month in which the account becomes 180 days past due. Auto loans, education loans and unsecured closed end loans are generally charged off in the month in which the account becomes 120 days past due. Certain retail loans will be charged off or charged down to their net realizable value earlier than the FFIEC charge-off standards in the following circumstances:

~~A charge-off is recognized when a loan is~~Loans modified in a TDR ~~if the loan is~~that are determined to be collateral-dependent. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.

Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain are subject to accelerated charge-off standards. Residential real estate and auto loans are charged down to the net realizable value when the loan becomes 60 days past due, or sooner if the loan is determined to be collateral-dependent. Credit card loans are fully charged off within 60 days of receiving notification of the bankruptcy filing or other event. certain.


◦	Residential real estate and auto loans are charged down to the net realizable value within 60 days of receiving notification of the bankruptcy filing, or when the loan becomes 60 days past due if repayment is likely to occur.


◦	Credit card loans are fully charged off within 60 days of receiving notification of the bankruptcy filing or other event.


◦	Education loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.



		Citizens Financial Group, Inc. \| 110

Auto loans are written down to net realizable value upon repossession of the collateral.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

AThe following tables present a summary of changes in the ~~ACL is presented below:~~ACL:



	Year Ended December 31, 2019
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$690			$552			$1,242
Charge-offs	(140		)	(475		)	(615		)
Recoveries	24			161			185
Net charge-offs	(116		)	(314		)	(430		)
Provision charged to income	100			340			440
Allowance for loan and lease losses, end of period	674			578			1,252
Reserve for unfunded lending commitments, beginning of period	91			—			91
Provision for unfunded lending commitments	(47		)	—			(47		)
Reserve for unfunded lending commitments, end of period	44			—			44
Total allowance for credit losses, end of period		$718			$578			$1,296



	Year Ended December 31, 2018
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$685			$551			$1,236
Charge-offs	(52		)	(442		)	(494		)
Recoveries	19			158			177
Net charge-offs	(33		)	(284		)	(317		)
Provision charged to income	38			285			323
Allowance for loan and lease losses, end of period	690			552			1,242
Reserve for unfunded lending commitments, beginning of period	88			—			88
Provision for unfunded lending commitments	3			—			3
Reserve for unfunded lending commitments, end of period	91			—			91
Total allowance for credit losses, end of period		$781			$552			$1,333



	Year Ended December 31, 2017
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$663			$573			$1,236
Charge-offs	(75		)	(437		)	(512		)
Recoveries	40			167			207
Net charge-offs	(35		)	(270		)	(305		)
Provision charged to income⁽¹⁾	57			248			305
Allowance for loan and lease losses, end of period	685			551			1,236
Reserve for unfunded lending commitments, beginning of period	72			—			72
Provision for unfunded lending commitments	16			—			16
Reserve for unfunded lending commitments, end of period	88			—			88
Total allowance for credit losses, end of period		$773			$551			$1,324

Year Ended December 31, 2017
(in millions) Commercial
Retail
Total
Allowance for loan and lease losses, beginning of period
$663

$573

$1,236
Charge-offs (75 ) (437 ) (512 )
Recoveries 40
167
207
Net charge-offs (35 ) (270 ) (305 )
Provision charged to income⁽¹⁾
57
248
305
Allowance for loan and lease losses, end of period 685
551
1,236
Reserve for unfunded lending commitments, beginning of period 72
—
72
Provision for unfunded lending commitments 16
—
16
Reserve for unfunded lending commitments, end of period 88
—
88
Total allowance for credit losses, end of period
$773

$551

$1,324

⁽¹⁾ Includes an increase of approximately $50 million to commercial and corresponding decrease to retail for the impact of the enhancement to the assessment of qualitative risks, factors and events that may not be measured in the modeled results.

Year Ended December 31, 2016
(in millions) Commercial
Retail
Total
Allowance for loan and lease losses, beginning of period
$596

$620

$1,216
Charge-offs (79 ) (457 ) (536 )
Recoveries 33
168
201
Net charge-offs (46 ) (289 ) (335 )
Provision charged to income 113
242
355
Allowance for loan and lease losses, end of period 663
573
1,236
Reserve for unfunded lending commitments, beginning of period 58
—
58
Provision for unfunded lending commitments 14
—
14
Reserve for unfunded lending commitments, end of period 72
—
72
Total allowance for credit losses, end of period
$735

$573

$1,308



		Citizens Financial Group, Inc. \| 111

The following table presents the recorded investment in loans and leases based on the Company’s evaluation ~~methodology is presented below:~~methodology:



	December 31, 2019						December 31, 2018
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$399		$667		$1,066		$391		$723		$1,114
Formula-based evaluation	57,139		60,883		118,022		56,392		59,154		115,546
Total loans and leases		$57,538		$61,550		$119,088		$56,783		$59,877		$116,660

December 31, 2018 December 31, 2017
(in millions) Commercial
Retail
Total
Commercial
Retail
Total
Individually evaluated
$391

$723

$1,114

$370

$761

$1,131
Formula-based evaluation 56,392
59,154
115,546
51,661
57,825
109,486
Total loans and leases
$56,783

$59,877

$116,660

$52,031

$58,586

$110,617

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

AThe following table presents a summary of the ACL by evaluation ~~method is presented below:~~methodology:



	December 31, 2019						December 31, 2018
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$85		$25		$110		$38		$26		$64
Formula-based evaluation	633		553		1,186		743		526		1,269
Allowance for credit losses		$718		$578		$1,296		$781		$552		$1,333

December 31, 2018 December 31, 2017
(in millions) Commercial
Retail
Total
Commercial
Retail
Total
Individually evaluated
$38

$26

$64

$47

$34

$81
Formula-based evaluation 743
526
1,269
726
517
1,243
Allowance for credit losses
$781

$552

$1,333

$773

$551

$1,324

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that the Company believes will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness, or potential weakness, that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable. For retail loans, the Company primarily uses the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators for both commercial and retail loans are continually updated and monitored.

The following tables present the recorded investment in commercial loans and leases based on regulatory classification ~~ratings is presented below:~~ratings:



	December 31, 2019
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$38,950		$1,351		$934		$244		$41,479
Commercial real estate	13,169		318		33		2		13,522
Leases	2,383		109		42		3		2,537
Total commercial loans and leases		$54,502		$1,778		$1,009		$249		$57,538



	December 31, 2018
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$38,600		$1,231		$828		$198		$40,857
Commercial real estate	12,523		412		82		6		13,023
Leases	2,823		39		41		—		2,903
Total commercial loans and leases		$53,946		$1,682		$951		$204		$56,783

December 31, 2017
Criticized
(in millions) Pass
Special Mention
Substandard
Doubtful
Total
Commercial
$35,430

$1,143

$785

$204

$37,562
Commercial real estate 10,706
500
74
28
11,308
Leases 3,069
73
19
—
3,161
Total commercial loans and leases

$49,205

$1,716

$878

$232

$52,031



		Citizens Financial Group, Inc. \| 112

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following tables present the recorded investment in classes of retail loans, categorized by delinquency ~~status is presented below:~~status:



	December 31, 2019
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$18,818		$129		$35		$17		$84		$19,083
Home equity loans	713		64		10		4		21		812
Home equity lines of credit	11,383		346		72		32		146		11,979
Home equity loans serviced by others	244		23		7		3		12		289
Home equity lines of credit serviced by others	50		11		2		1		10		74
Automobile	10,787		1,001		227		81		24		12,120
Education	10,088		202		30		15		12		10,347
Credit cards	2,076		74		15		11		22		2,198
Other retail	4,492		87		30		20		19		4,648
Total retail loans		$58,651		$1,937		$428		$184		$350		$61,550



	December 31, 2018
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$18,664		$131		$37		$13		$133		$18,978
Home equity loans	945		75		12		3		38		1,073
Home equity lines of credit	12,042		386		65		22		195		12,710
Home equity loans serviced by others	355		21		7		3		13		399
Home equity lines of credit serviced by others	79		15		2		1		7		104
Automobile	10,729		1,039		207		59		72		12,106
Education	8,694		159		23		13		11		8,900
Credit cards	1,894		53		14		10		20		1,991
Other retail	3,481		76		26		18		15		3,616
Total retail loans		$56,883		$1,955		$393		$142		$504		$59,877

December 31, 2017
Days Past Due
(in millions) Current
1-29 30-59 60-89 90 or More Total
Residential mortgages
$16,714

$147

$46

$18

$120

$17,045
Home equity loans 1,212
102
20
4
54
1,392
Home equity lines of credit 12,756
438
78
23
188
13,483
Home equity loans serviced by others 477
29
10
4
22
542
Home equity lines of credit serviced by others 116
21
4
1
7
149
Automobile 11,596
1,273
220
55
60
13,204
Education 7,898
160
23
12
41
8,134
Credit cards 1,747
63
12
9
17
1,848
Other retail 2,679
68
20
12
10
2,789
Total retail loans

$55,195

$2,301

$433

$138

$519

$58,586

Nonperforming Assets

Nonperforming loans and leases are those on which accrual of interest has been suspended. Loans (other than certain retail loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt, unless the loan is both well secured and in the process of collection.

When the Company places a loan on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income and amortization of any net deferred fees is suspended. Interest collections on nonaccruing loans and leases for which the ultimate collectability of principal is uncertain are generally applied to first reduce the carrying value of the ~~loan.~~asset. Otherwise, interest income may be recognized to the extent of the cash received. A loan or lease may be returned to accrual status if (i) principal and interest payments have been brought current, and the Company expects repayment of the remaining contractual principal and interest, (ii) the loan or lease has otherwise become well-secured and in the process of collection, or (iii) the borrower has been making regularly scheduled payments in full for the prior six months and the Company is reasonably assured that the loan or lease will be brought fully current within a reasonable period.

Commercial loans, commercial real estate loans, and leases are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Some of these loans and leases may remain on accrual status when contractually past due 90 days or more if management considers the loan collectible.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Residential mortgages are generally placed on nonaccrual status when past due 120 days, or sooner if determined to be collateral-dependent, unless repayment of the loan is guaranteed by the Federal Housing



		Citizens Financial Group, Inc. \| 113

Administration. Credit card balances are placed on nonaccrual status when past due 90 days or more and are restored to accruing status if they subsequently become less than 90 days past due. All other retail loans are generally placed on nonaccrual status when past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Loans less than 90 days past due may be placed on nonaccrual status upon the death of the borrower, fraud or bankruptcy.

The following table presents nonperforming loans and leases and loans accruing and 90 days or more past due:



	Nonperforming ⁽¹⁾⁽²⁾				Accruing and 90 days or more past due
(in millions)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Commercial		$240		$194		$2		$1
Commercial real estate	2		7		—		—
Leases	3		—		—		—
Total commercial loans and leases	245		201		2		1
Residential mortgages	93		105		13		15
Home equity loans	33		50		—		—
Home equity lines of credit	187		231		—		—
Home equity loans serviced by others	14		17		—		—
Home equity lines of credit serviced by others	12		15		—		—
Automobile	67		81		—		—
Education	18		38		2		2
Credit card	22		20		—		—
Other retail	12		8		8		7
Total retail loans	458		565		23		24
Total		$703		$766		$25		$25

Nonperforming ⁽¹⁾
Accruing and 90 days or more past due
(in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Commercial
$194

$238

$1

$5
Commercial real estate 7
27
—
3
Leases —
—
—
—
Total commercial loans and leases 201
265
1
8
Residential mortgages⁽¹⁾
136
128
15
16
Home equity loans 50
72
—
—
Home equity lines of credit 231
233
—
—
Home equity loans serviced by others 17
25
—
—
Home equity lines of credit serviced by others 15
18
—
—
Automobile 81
70
—
—
Education 38
38
2
3
Credit card 20
17
—
—
Other retail 8
5
7
5
Total retail loans 596
606
24
24
Total
$797

$871

$25

$32

⁽¹⁾ Nonperforming balances exclude first lien residential mortgage loans that are 100% guaranteed by the Federal Housing Administration. These loans ~~which~~ are ~~accruing~~included in the Company’s Consolidated Balance Sheets.

⁽²⁾Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and ~~90 days or more past due, totaled $12 million and $15 million as of December 31, 2018 and 2017, respectively. Nonperforming balances also exclude~~partially guaranteed residential mortgage loans sold to ~~GNMA~~Ginnie Mae for which the Company has the right, but not the obligation, to repurchase. ~~These loans totaled $133 million and $30 million as of December 31, 2018 and 2017, respectively.~~Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation. These loans are included in the Company’s Consolidated Balance Sheets.

Other nonperforming assets ~~consisted~~ primarily consist of other real estate owned and ~~was~~are presented in other assets on the Consolidated Balance Sheets. Other real estate owned, net of valuation allowance, was ~~$34~~$45 million and ~~$36~~$34 million as of December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

AThe following table presents a summary of nonperforming loan and lease key performance ~~indicators is presented below:~~indicators:



	December 31,
	2019		2018
Nonperforming commercial loans and leases as a percentage of total loans and leases	0.21	%	0.17	%
Nonperforming retail loans as a percentage of total loans and leases	0.38		0.49
Total nonperforming loans and leases as a percentage of total loans and leases ⁽¹⁾	0.59	%	0.66	%

Nonperforming commercial assets as a percentage of total assets	0.15	%	0.13	%
Nonperforming retail assets as a percentage of total assets	0.30		0.37
Total nonperforming assets as a percentage of total assets	0.45	%	0.50	%

December 31,
2018
2017
Nonperforming commercial loans and leases as a percentage of total loans and leases 0.17 % 0.24 %
Nonperforming retail loans as a percentage of total loans and leases 0.51
0.55
Total nonperforming loans and leases as a percentage of total loans and leases 0.68 % 0.79 %

Nonperforming commercial assets as a percentage of total assets 0.13 % 0.17 %
Nonperforming retail assets as a percentage of total assets 0.39
0.43
Total nonperforming assets as a percentage of total assets 0.52 % 0.60 %

⁽¹⁾Beginning in the fourth quarter of 2019, nonperforming balances exclude both fully and partially guaranteed residential mortgage loans sold to Ginnie Mae for which the Company has the right, but not the obligation, to repurchase. Prior periods have been adjusted to exclude partially guaranteed amounts to conform with the current period presentation. These loans are included in the Company’s Consolidated Balance Sheets.

The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings ~~are~~were in-process was ~~$172~~$152 million and ~~$181~~$172 million as of December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 114

~~An analysis of~~The following table presents the ~~age~~aging of both accruing and nonaccruing loan and lease past due ~~amounts is presented below:~~amounts:



	December 31, 2019								December 31, 2018
	Days Past Due								Days Past Due
(in millions)	30-59		60-89		90 or More		Total		30-59		60-89		90 or More		Total
Commercial		$45		$27		$67		$139		$85		$3		$78		$166
Commercial real estate	1		1		—		2		8		32		5		45
Leases	37		—		2		39		7		—		—		7
Total commercial loans and leases	83		28		69		180		100		35		83		218
Residential mortgages	35		17		84		136		37		13		133		183
Home equity loans	10		4		21		35		12		3		38		53
Home equity lines of credit	72		32		146		250		65		22		195		282
Home equity loans serviced by others	7		3		12		22		7		3		13		23
Home equity lines of credit serviced by others	2		1		10		13		2		1		7		10
Automobile	227		81		24		332		207		59		72		338
Education	30		15		12		57		23		13		11		47
Credit cards	15		11		22		48		14		10		20		44
Other retail	30		20		19		69		26		18		15		59
Total retail loans	428		184		350		962		393		142		504		1,039
Total		$511		$212		$419		$1,142		$493		$177		$587		$1,257

December 31, 2018 December 31, 2017
Days Past Due Days Past Due
(in millions) 30-59 60-89 90 or More Total 30-59 60-89 90 or More Total
Commercial
$85

$3

$78

$166

$26

$4

$243

$273
Commercial real estate 8
32
5
45
38
20
30
88
Leases 7
—
—
7
4
1
—
5
Total commercial loans and leases 100
35
83
218
68
25
273
366
Residential mortgages 37
13
133
183
46
18
120
184
Home equity loans 12
3
38
53
20
4
54
78
Home equity lines of credit 65
22
195
282
78
23
188
289
Home equity loans serviced by others 7
3
13
23
10
4
22
36
Home equity lines of credit serviced by others 2
1
7
10
4
1
7
12
Automobile 207
59
72
338
220
55
60
335
Education 23
13
11
47
23
12
41
76
Credit cards 14
10
20
44
12
9
17
38
Other retail 26
18
15
59
20
12
10
42
Total retail loans 393
142
504
1,039
433
138
519
1,090
Total
$493

$177

$587

$1,257

$501

$163

$792

$1,456

Impaired Loans

A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all of the contractual interest and principal payments as scheduled in the loan agreement. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. Impaired loans include nonaccruing larger balance (greater than $3 million carrying value), non-homogeneous commercial and commercial real estate loans, and restructured loans that are deemed TDRs.

When a loan is identified as impaired, the impairment is measured on an individual loan level as the difference between the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount) and the present value of expected future cash flows, discounted at the loan’s effective interest rate. When collateral is the sole source of repayment for the impaired loan, rather than the borrower’s income or other sources of repayment, the Company charges down the loan to its net realizable value.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 115

AThe following tables present a summary of impaired loans by ~~class is presented below:~~class:


	December 31, 2018										December 31, 2019
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans		Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$186		$31		$167		$450		$353		$243		$85		$137		$458		$380
Commercial real estate	32		7		6		38		38		—		—		19		19		19
Leases	—		—		—		—		—
Total commercial loans and leases	218		38		173		488		391
Total commercial loans											243		85		156		477		399
Residential mortgages	28		2		127		201		155		29		2		125		196		154
Home equity loans	34		3		76		148		110		22		1		65		121		87
Home equity lines of credit	21		1		181		244		202		27		2		173		242		200
Home equity loans serviced by others	22		1		19		54		41		15		1		16		41		31
Home equity lines of credit serviced by others	1		—		7		11		8		1		—		5		9		6
Automobile	1		—		22		31		23		1		—		20		30		21
Education	130		11		23		153		153		112		9		22		135		134
Credit cards	24		7		1		25		25		27		9		1		29		28
Other retail	4		1		2		8		6		3		1		3		8		6
Total retail loans	265		26		458		875		723		237		25		430		811		667
Total		$483		$64		$631		$1,363		$1,114		$480		$110		$586		$1,288		$1,066


	December 31, 2017										December 31, 2018
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans		Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$183		$42		$159		$403		$342		$186		$31		$167		$450		$353
Commercial real estate	25		5		3		40		28		32		7		6		38		38
Leases	—		—		—		—		—
Total commercial loans and leases	208		47		162		443		370
Total commercial loans											218		38		173		488		391
Residential mortgages	25		2		126		197		151		28		2		127		201		155
Home equity loans	41		4		80		162		121		34		3		76		148		110
Home equity lines of credit	16		1		181		241		197		21		1		181		244		202
Home equity loans serviced by others	29		2		22		67		51		22		1		19		54		41
Home equity lines of credit serviced by others	2		—		7		14		9		1		—		7		11		8
Automobile	2		—		21		30		23		1		—		22		31		23
Education	154		17		21		175		175		130		11		23		153		153
Credit cards	24		7		1		25		25		24		7		1		25		25
Other retail	5		1		4		10		9		4		1		2		8		6
Total retail loans	298		34		463		921		761		265		26		458		875		723
Total		$506		$81		$625		$1,364		$1,131		$483		$64		$631		$1,363		$1,114

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 116

~~Additional~~The following table presents additional information on impaired ~~loans is presented below:~~loans:



	Year Ended December 31,
	2019				2018				2017
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$11		$311		$9		$312		$4		$380
Commercial real estate	1		39		1		32		—		37
Total commercial loans	12		350		10		344		4		417
Residential mortgages	5		126		5		146		4		136
Home equity loans	5		84		6		107		6		121
Home equity lines of credit	7		172		7		181		6		176
Home equity loans serviced by others	2		30		3		42		3		49
Home equity lines of credit serviced by others	—		6		—		9		—		9
Automobile	1		17		1		20		1		18
Education	8		125		8		154		9		173
Credit cards	2		21		1		21		2		22
Other retail	—		5		—		7		—		9
Total retail loans	30		586		31		687		31		713
Total		$42		$936		$41		$1,031		$35		$1,130

Year Ended December 31,
2018 2017 2016
(in millions) Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment
Commercial
$9

$312

$4

$380

$5

$295
Commercial real estate 1
32
—
37
—
53
Leases —
—
—
—
—
3
Total commercial loans and leases 10
344
4
417
5
351
Residential mortgages 5
146
4
136
4
161
Home equity loans 6
107
6
121
7
144
Home equity lines of credit 7
181
6
176
6
178
Home equity loans serviced by others 3
42
3
49
3
60
Home equity lines of credit serviced by others —
9
—
9
—
9
Automobile 1
20
1
18
—
14
Education 8
154
9
173
7
150
Credit cards 1
21
2
22
2
23
Other retail —
7
—
9
1
12
Total retail loans 31
687
31
713
30
751
Total
$41

$1,031

$35

$1,130

$35

$1,102

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs typically result from the Company’s loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship with the borrower. The Company’s loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Concessions granted in TDRs for all classes of loans may include lowering the interest rate, forgiving a portion of principal, extending the loan term, lowering scheduled payments for a specified period of time, waiving or delaying a scheduled payment of principal or interest for other than an insignificant time period, or capitalizing past due amounts. A rate increase can be a concession if the increased rate is lower than a market rate for debt with risk similar to that of the restructured loan. TDRs for commercial loans ~~and leases~~ may also involve creating a multiple note structure, accepting non-cash assets, accepting an equity interest, or receiving a performance-based fee. In some cases, a TDR may involve multiple concessions. The financial effects of TDRs for all loan classes may include lower income (either due to a lower interest rate or a delay in the timing of cash flows), larger loan loss provisions, and accelerated charge-offs if the modification renders the loan collateral-dependent. In some cases, interest income throughout the term of the loan may increase if, for example, the loan is extended or the interest rate is increased as a result of the restructuring.

Retail and commercial loans whose contractual terms have been modified in a TDR and are current at the time of restructuring may remain on accrual status if there is demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Retail loans that were discharged in bankruptcy and not reaffirmed by the borrower are deemed to be collateral-dependent TDRs and are generally charged off to the fair value of the collateral, less cost to sell, and less amounts recoverable under a government guarantee (if any). Cash receipts on nonaccruing impaired loans, including nonaccruing loans involved in TDRs, are generally applied to reduce the unpaid principal balance. Certain TDRs that are current in payment status are classified as nonaccrual in accordance with regulatory guidance. Income on these loans ~~is generally~~may be recognized on a cash basis if management believes that the remaining book value of the loan is realizable. Nonaccruing TDRs that meet the guidelines above for accrual status can be returned to accruing if supported by a well-documented evaluation of the borrowers’ financial condition, and if they have been current for at least six months.

Because TDRs are impaired loans, Citizens measures impairment by comparing the present value of expected future cash flows, or when appropriate, the fair value of collateral less costs to sell, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

included in the ALLL. Any portion of the loan’s recorded investment the Company does not expect to collect as a result of the modification is charged off at the time of modification. For retail TDR accounts where the expected



		Citizens Financial Group, Inc. \| 117

value of cash flows is utilized, any recorded investment in excess of the present value of expected cash flows is recognized by increasing the ALLL. For retail TDR accounts assessed based on the fair value of collateral, any portion of the loan’s recorded investment in excess of the collateral value less costs to sell is charged off at the time of modification or at the time of subsequent and regularly recurring valuations.

The following table ~~below~~ summarizes TDRs by class and total unfunded commitments:



	December 31,
(in millions)	2019		2018
Commercial		$297		$304
Retail	667		723
Unfunded commitments related to TDRs	42		30

December 31,
(in millions) 2018
2017
Commercial
$304

$129
Retail 723
761
Unfunded commitments related to TDRs 30
39

The ~~table below summarizes~~following tables summarize how loans were modified during the ~~year~~years ended December 31, 2019, 2018 ~~the charge-offs related to the modifications,~~ and ~~the impact on the ALLL.~~2017. The reported balances represent the post-modification outstanding recorded investment and can include loans that became TDRs during ~~2018~~the period and were paid off in full, charged off, or sold prior to ~~December 31, 2018.~~period end. Pre-modification balances for modified loans approximate the post-modification balances shown.


											December 31, 2019
	Primary Modification Types										Primary Modification Types
	Interest Rate Reduction ⁽¹⁾					Maturity Extension ⁽²⁾					Interest Rate Reduction⁽¹⁾				Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Recorded Investment			Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	7		$1		$1	49		$23		$22	3		$—		26		$5	56		$210
Commercial real estate	—	—		—		3	31		31		—	—			1	—		—	—
Total commercial loans	7	1		1		52	54		53		3	—			27	5		56	210
Residential mortgages	35	4		4		61	8		8		60	12			62	10		120	17
Home equity loans	43	3		4		1	—		—		31	2			—	—		82	4
Home equity lines of credit	76	6		7		178	25		26		163	18		��	72	11		350	22
Home equity loans serviced by others	4	—		—		—	—		—		2	—			—	—		14	—
Home equity lines of credit serviced by others	5	—		—		1	—		—		—	—			—	—		8	—
Automobile	158	4		3		46	1		1		160	3			21	—		1,250	17
Education	—	—		—		—	—		—		—	—			—	—		272	7
Credit cards	2,312	13		13		—	—		—		3,259	18			—	—		304	1
Other retail	1	—		—		—	—		—		—	—			—	—		176	1
Total retail loans	2,634	30		31		287	34		35		3,675	53			155	21		2,576	69
Total	2,641		$31		$32	339		$88		$88	3,678		$53		182		$26	2,632		$279

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 118


											December 31, 2018
	Primary Modification Types										Primary Modification Types
	Other ⁽³⁾										Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	53		$202		$200		$—			$—	7		$1	49		$22	53		$200
Commercial real estate	2	31		31		—			—		—	—		3	31		2	31
Total commercial loans	55	233		231		—			—		7	1		52	53		55	231
Residential mortgages	142	17		17		(1		)	—		35	4		61	8		142	17
Home equity loans	134	5		5		—			—		43	4		1	—		134	5
Home equity lines of credit	413	29		29		—			1		76	7		178	26		413	29
Home equity loans serviced by others	23	1		1		—			—		4	—		—	—		23	1
Home equity lines of credit serviced by others	14	1		1		—			—		5	—		1	—		14	1
Automobile	1,189	21		17		—			4		158	3		46	1		1,189	17
Education	355	7		7		1			—		—	—		—	—		355	7
Credit cards	—	—		—		4			—		2,312	13		—	—		—	—
Other retail	9	—		—		(1		)	—		1	—		—	—		9	—
Total retail loans	2,279	81		77		3			5		2,634	31		287	35		2,279	77
Total	2,334		$314		$308		$3			$5	2,641		$32	339		$88	2,334		$308



	December 31, 2017
	Primary Modification Types
	Interest Rate Reduction⁽¹⁾			Maturity Extension⁽²⁾			Other⁽³⁾
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial	7		$1	45		$22	15		$71
Commercial real estate	—	—		1	—		1	—
Total commercial loans	7	1		46	22		16	71
Residential mortgages	71	10		73	13		171	19
Home equity loans	82	6		1	—		232	13
Home equity lines of credit	50	3		235	30		395	27
Home equity loans serviced by others	15	1		—	—		52	2
Home equity lines of credit serviced by others	5	—		2	—		26	2
Automobile	130	2		29	1		1,336	20
Education	—	—		—	—		329	7
Credit cards	2,363	13		—	—		—	—
Other retail	1	—		—	—		5	—
Total retail loans	2,717	35		340	44		2,546	90
Total	2,724		$36	386		$66	2,562		$161

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

⁽³⁾ Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The ~~table below summarizes how~~net change to ALLL resulting from modifications of loans ~~were modified during~~for the years ended December 31, 2019, 2018 and 2017 was $9 million, $3 million and $1 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded charge-offs resulting from the modification of loans of $7 million for the year ended December 31, ~~2017,~~2019 and $5 million for the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2017 and were paid off in full, charged off, or sold prior to December 31, 2017.

Primary Modification Types

Interest Rate Reduction ⁽¹⁾

Maturity Extension ⁽²⁾
(dollars in millions) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial 7

$1

$1
45

$22

$22
Commercial real estate —
—
—
1
—
—
Total commercial loans 7
1
1
46
22
22
Residential mortgages 71
9
10
73
12
13
Home equity loans 82
5
6
1
—
—
Home equity lines of credit 50
3
3
235
30
30
Home equity loans serviced by others 15
1
1
—
—
—
Home equity lines of credit serviced by others 5
—
—
2
—
—
Automobile 130
2
2
29
1
1
Education —
—
—
—
—
—
Credit cards 2,363
13
13
—
—
—
Other retail 1
—
—
—
—
—
Total retail loans 2,717
33
35
340
43
44
Total 2,724

$34

$36
386

$65

$66

Primary Modification Types

Other ⁽³⁾

(dollars in millions) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Net Change to ALLL Resulting from Modification Charge-offs Resulting from Modification
Commercial 15

$70

$71

($1 )
$—
Commercial real estate 1
—
—
—
—
Total commercial loans 16
70
71
(1 ) —
Residential mortgages 171
19
19
(1 ) —
Home equity loans 232
13
13
—
—
Home equity lines of credit 395
27
27
—
1
Home equity loans serviced by others 52
2
2
—
—
Home equity lines of credit serviced by others 26
2
2
—
—
Automobile 1,336
24
20
—
4
Education 329
7
7
2
—
Credit cards —
—
—
3
—
Other retail 5
—
—
(2 ) —
Total retail loans 2,546
94
90
2
5
Total 2,562

$164

$161

$1

$5

⁽¹⁾ ~~Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.~~

⁽²⁾ ~~Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The table below summarizes how loans were modified during the year~~years ended December 31, ~~2016, the charge-offs related to the modifications,~~2018 and ~~the impact on the ALLL. The reported balances can include loans that became TDRs during 2016 and were paid off in full, charged off, or sold prior to December 31, 2016.~~2017.

Primary Modification Types

Interest Rate Reduction ⁽¹⁾

Maturity Extension ⁽²⁾
(dollars in millions) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial 12

$1

$1
81

$20

$21
Commercial real estate 1
—
—
1
5
5
Total commercial loans 13
1
1
82
25
26
Residential mortgages 71
10
10
60
10
10
Home equity loans 97
6
6
39
4
5
Home equity lines of credit 49
4
4
121
13
12
Home equity loans serviced by others 18
1
1
—
—
—
Home equity lines of credit serviced by others 8
—
—
5
1
1
Automobile 138
3
3
41
1
1
Education —
—
—
—
—
—
Credit cards 2,187
12
12
—
—
—
Other retail 4
—
—
—
—
—
Total retail loans 2,572
36
36
266
29
29
Total 2,585

$37

$37
348

$54

$55

Primary Modification Types

Other ⁽³⁾

(dollars in millions) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Net Change to ALLL Resulting from Modification Charge-offs Resulting from Modification
Commercial 14

$48

$48

$3

$—
Commercial real estate —
—
—
—
—
Total commercial loans 14
48
48
3
—
Residential mortgages 247
26
26
(1 ) —
Home equity loans 279
18
17
(1 ) —
Home equity lines of credit 304
23
22
—
1
Home equity loans serviced by others 60
2
2
—
—
Home equity lines of credit serviced by others 24
1
1
—
—
Automobile 1,081
20
18
—
3
Education 479
12
12
4
—
Credit cards —
—
—
3
—
Other retail 13
—
—
—
—
Total retail loans 2,487
102
98
5
4
Total 2,501

$150

$146

$8

$4

⁽¹⁾ ~~Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.~~

⁽²⁾ ~~Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).~~

⁽³⁾ Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post-modification balances being higher than pre-modification.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The table below summarizes TDRs that defaulted within 12 months of their modification date during 2018, 2017 and 2016. For purposes of this table, a~~ A payment default refers to a loan that becomes 90 days or more past due under the modified terms. ~~Amounts represent the loan’s recorded investment at the time of payment default.~~ Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to December 31, 2019, 2018 and 2017. ~~If a TDR~~For commercial loans, recorded investment in TDRs that defaulted within 12 months of ~~any loan type becomes 90 days past due after being modified,~~their modification date for the ~~loan is written down to~~years ended December 31, 2019, 2018 and 2017were $1 million, $63 million and $9 million, respectively. For retail loans, there were $37 million, $40 million and $41 million of loans which defaulted within 12 months of their restructuring date for the ~~fair value of collateral less cost to sell. The amount written off is charged to the ALLL.~~years ended December 31, 2019, 2018 and 2017, respectively.

Year Ended December 31,
2018 2017 2016
(dollars in millions) Number of Contracts Balance Defaulted Number of Contracts Balance Defaulted Number of Contracts Balance Defaulted
Commercial 28

$63
8

$5
22

$13
Commercial real estate 1
—
1
4
1
—
Total commercial loans 29
63
9
9
23
13
Residential mortgages 128
15
152
19
187
24
Home equity loans 31
2
43
2
50
3
Home equity lines of credit 238
18
200
14
155
13
Home equity loans serviced by others 15
—
23
—
37
1
Home equity lines of credit serviced by others 6
—
10
1
17
—
Automobile 167
2
140
1
110
2
Education 23
1
44
1
59
1
Credit cards 465
2
491
3
433
3
Other retail 1
—
4
—
3
—
Total retail loans 1,074
40
1,107
41
1,051
47
Total 1,103

$103
1,116

$50
1,074

$60



		Citizens Financial Group, Inc. \| 119

Concentrations of Credit Risk

Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of December 31, ~~2018~~2019 and ~~2017,~~2018, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.

Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics. The following tables present balances of loans with these characteristics:


	December 31, 2018												December 31, 2019
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total		Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Total
High loan-to-value		$318		$87		$148		$—		$—		$553		$402		$61		$90		$—		$553
Interest only/negative amortization	1,794		—		—		—		1		1,795		2,043		—		—		—		2,043
Low introductory rate	—		—		—		217		—		217		—		—		—		235		235
Multiple characteristics and other	1		—		—		—		—		1		—		—		—		—		—
Total		$2,113		$87		$148		$217		$1		$2,566		$2,445		$61		$90		$235		$2,831

~~CITIZENS FINANCIAL GROUP, INC.~~



	December 31, 2018
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total
High loan-to-value		$318		$87		$148		$—		$—		$553
Interest only/negative amortization	1,794		—		—		—		1		1,795
Low introductory rate	—		—		—		217		—		217
Multiple characteristics and other	1		—		—		—		—		1
Total		$2,113		$87		$148		$217		$1		$2,566

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

December 31, 2017
(in millions) Residential Mortgages Home Equity Loans and Lines of Credit Home Equity Products Serviced by Others Credit Cards Education
Total
High loan-to-value
$366

$166

$264

$—

$—

$796
Interest only/negative amortization 1,763
—
—
—
1
1,764
Low introductory rate —
—
—
197
—
197
Multiple characteristics and other 1
—
—
—
—
1
Total
$2,130

$166

$264

$197

$1

$2,758

NOTE 6 - PREMISES, EQUIPMENT AND SOFTWARE

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization have been computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the life of the lease (including renewal options if exercise of those options is reasonably assured) or their estimated useful life, whichever is shorter.

Additions to premises and equipment are recorded at cost. The cost of major additions, improvements and betterments is capitalized. Normal repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. Citizens evaluates premises and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.



		Citizens Financial Group, Inc. \| 120

A summary of the carrying value of premises and equipment is presented below:



		December 31,
(dollars in millions)	Useful Lives (years)	2019			2018
Land and land improvements	10 - 75		$102			$112
Buildings and leasehold improvements	5 - 60	848			852
Furniture, fixtures and equipment	5 - 20	535			1,019
Construction in progress		368			292
Total premises and equipment, gross		1,853			2,275
Accumulated depreciation		(1,092		)	(1,484		)
Total premises and equipment, net			$761			$791

December 31,
(dollars in millions) Useful Lives (years) 2018
2017
Land and land improvements 10 - 75
$112

$47
Buildings and leasehold improvements 5 - 60 852
719
Furniture, fixtures and equipment 5 - 20 1,019
1,465
Construction in progress 292
359
Total premises and equipment, gross 2,275
2,590
Accumulated depreciation (1,484 ) (1,905 )
Total premises and equipment, net
$791

$685

Depreciation charged to noninterest expense totaled $116 million, $117 million, ~~$124 million,~~ and ~~$130~~$124 million for the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, respectively, and is presented in the Consolidated Statements of Operations in both occupancy and equipment expense.

Software

Costs related to computer software developed or obtained for internal use are capitalized if the projects improve functionality and provide long-term future operational benefits. Capitalized costs are amortized using the straight-line method over the asset’s expected useful life, based upon the basic pattern of consumption and economic benefits provided by the asset. Citizens begins to amortize the software when the asset (or identifiable component of the asset) is substantially complete and ready for its intended use. All other costs incurred in connection with an internal-use software project are expensed as incurred. Capitalized software is included in other assets on the Consolidated Balance Sheets.

Citizens had capitalized software assets of ~~$1.8~~$2.0 billion and ~~$1.7~~$1.8 billion and related accumulated amortization of ~~$948 million~~$1.1 billion and ~~$869~~$948 million as of December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Amortization expense was $194 million, $189 million, ~~$180 million,~~ and ~~$170~~$180 million for the years ended December 31, 2019, 2018, and 2017, ~~and 2016,~~ respectively.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The estimated future amortization expense for capitalized software assets is presented below:


Year	(in millions)		(in millions)
2019		$186
2020	155			$175
2021	116		136
2022	80		102
2023	48		73
2024			46
Thereafter	72		62
Total ⁽¹⁾		$657		$594

⁽¹⁾ Excluded from this balance is ~~$188~~$296 million of in-process software at December 31, ~~2018.~~2019.

~~Operating Lease Assets~~

Other assets on the Consolidated Balance Sheets included assets subject to operating leases, where Citizens was the lessor, of $92 million and $112 million as of December 31, 2018 and 2017, respectively. Operating lease rental income for leased assets is recognized in other income on a straight-line basis over the lease term. Related depreciation expense is recorded on a straight-line basis over the estimated useful life, considering the estimated residual value of the leased asset and is included in other operating expense in the Consolidated Statements of Operations. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized in other operating expense if the carrying amount of the leased assets exceeds fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the asset.

NOTE 7 - ~~LEASE COMMITMENTS~~

Citizens is committed under long-term leases for the rental of premises and equipment. These leases have varying renewal options and in certain instances, require the payment of insurance, real estate taxes and other operating expenses.

At December 31, 2018, the aggregate minimum rental commitments under these non-cancelable operating leases and capital leases, exclusive of renewals, are presented below for the years ended December 31:

(in millions) Operating Leases Capital Leases
2019
$165

$3
2020 153
2
2021 136
2
2022 109
1
2023 85
—
Thereafter 247
8
Total minimum lease payments
$895

$16
Amounts representing interest —
(8 )
Present value of net minimum lease
$895

$8

Occupancy and equipment expense including rental expense for non-cancelable operating leases and capital leases totaled $212 million, $211 million, and $208 million for the years ended December 31, 2018, 2017, and 2016, respectively.

~~NOTE 8 -~~ MORTGAGE BANKING

~~In its mortgage banking business, Citizens~~The Company sells residential mortgages to ~~government-sponsored entities~~GSEs and other parties, who may issue securities backed by pools of such loans. ~~Citizens~~The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. ~~Citizens~~The Company is obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud, that should have been identified in a loan file review.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Mortgage loans held for sale are accounted for at fair value on an individual loan basis. Changes in the fair value, and realized gains and losses on the sales of mortgage loans, are reported in mortgage banking ~~fees.~~income.



		Citizens Financial Group, Inc. \| 121

The following table summarizes activity related to the Company’s residential mortgage loan sales and the Company's mortgage banking activity:


	Year Ended December 31,						Year Ended December 31,
(in millions)	2018		2017		2016		2019		2018		2017
Residential mortgage loan sold with servicing retained		$8,149		$3,161		$2,652		$20,430		$8,149		$3,161
Gain on sales⁽¹⁾	89		35		69		251		89		35
Contractually specified servicing, late and other ancillary fees⁽¹⁾	118		53		51		208		118		53

⁽¹⁾Reported in mortgage banking fees in the Consolidated Statements of Operations.

The Company recognizes the right to service residential mortgage loans for others, or MSRs, as separate assets, which are presented in other assets on the Consolidated Balance Sheets, when purchased, or when servicing is contractually separated from the underlying mortgage loans by sale with servicing rights retained. MSRs are initially recorded at fair value. Subsequent to the initial recognition, MSRs are measured using either the fair value method or the amortization method. MSRs accounted for under the amortization method are subsequently accounted for at lower of cost or fair value, net of accumulated amortization, which is recorded in proportion to, and over the period of, net servicing income. The unpaid principal balance of the related residential mortgage loans was $77.5 billion and $69.6 billion as of December 31, 2019 and 2018, respectively.

~~Citizens maintains~~In connection with the August 1, 2018 acquisition of FAMC, the Company began maintaining two separate classes of MSRs which, at the time of initial capitalization, ~~are~~were differentiated by how the risk associated with valuation changes of the MSRs iswas being managed. The acquired FAMC portfolio ~~acquired on August 1, 2018,~~ is accounted for under the fair value method while the Company’s MSR portfolio held before the FAMC acquisition is accounted for under the amortization method. ~~Citizens~~Beginning January 1, 2019, all of the Company’s newly originated MSRs are accounted for under the fair value method. The Company implemented an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio accounted for under the fair value method, which includes the purchase of freestanding derivatives. Depending on the interest rate environment, economic hedges may be used to protect the market value of MSRs accounted for under the amortization method. Any ~~change~~changes in fair value during the period for MSRs carried under the fair value method, as well as amortization and impairment of MSRs under the amortization method, isare recorded in mortgage banking fees in the Consolidated Statements of Operations.

The following ~~tables summarize~~table summarizes changes in MSRs recorded using the amortization ~~method and the fair value~~ method:



	As of and for the Year Ended December 31,
(in millions)	2019			2018
Mortgage servicing rights:
Balance as of beginning of period		$221			$201
Amount capitalized	—			36
Purchases	—			16
Amortization	(38		)	(32		)
Carrying amount before valuation allowance	183			221
Valuation allowance for servicing assets:
Balance as of beginning of period	—			3
Valuation charge-offs (recoveries)	1			(3		)
Balance at end of period	1			—
Net carrying value of MSRs		$182			$221

~~Amortization Method~~

As of and for the Year Ended December 31,
(in millions) 2018
2017
MSRs:
Balance as of beginning of period
$201

$167
Amount capitalized 36
37
Purchases 16
28
Amortization (32 ) (31 )
Carrying amount before valuation allowance 221
201
Valuation allowance for servicing assets:
Balance as of beginning of period 3
5
Valuation recoveries (3 ) (2 )
Balance at end of period —
3
Net carrying value of MSRs
$221

$198

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Fair Value Method~~



	~~As of and for the Year Ended December 31, 2018~~
~~(in millions)~~
~~MSRs:~~
~~Fair value as of beginning of the period~~		$—
~~Acquired MSRs~~	~~590~~
~~Amounts capitalized~~	73
~~Changes in unpaid principal balance during the period~~ ⁽¹⁾	~~(32~~		)
~~Changes in fair value during the period~~ ⁽²⁾	~~(31~~		)
~~Fair value at end of the period~~		~~$600~~	Citizens Financial Group, Inc. \| 122

The following table summarizes changes in MSRs recorded using the fair value method:



	As of and for the Year Ended December 31,
(in millions)	2019			2018
Fair value as of beginning of the period		$600			$—
Acquired MSRs	—			590
Amounts capitalized	270			73
Changes in unpaid principal balance during the period ⁽¹⁾	(119		)	(32		)
Changes in fair value during the period ⁽²⁾	(109		)	(31		)
Fair value at end of the period		$642			$600

⁽¹⁾ Represents changes in value due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial paydowns, and ~~ii)~~

loans that paid off during the period.

⁽²⁾ Represents changes in value primarily due to market driven changes in interest rates and prepayment speeds.

The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.

The sensitivity ~~analysis~~analyses below ~~presents~~present the impact to current fair value of an immediate 50 basis point and 100 basis point adverse change in ~~the~~ key economic assumptions and ~~presents~~ the decline in fair value ~~that would occur~~ if the respective adverse change ~~were~~was realized. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the ~~mortgage servicing rights~~MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is dependent upon movements in market interest rates.

For MSRs under the amortization method, the key economic assumptions used to estimate the fair value are presented below:

December 31, 2018

December 31, 2017

December 31, 2019

December 31, 2018

Actual

Decline in fair value due to

Actual

Decline in fair value due to

Actual

Decline in fair value due to

Actual

Decline in fair value due to

(dollars in millions)

Fair value

td43

50 bps adverse change

100 bps adverse change

td18

50 bps adverse change

100 bps adverse change

td93

50 bps adverse change

100 bps adverse change

td43

50 bps adverse change

100 bps adverse change

Weighted average life (in years)

6.5

5.9

6.4

6.5

Weighted average constant prepayment rate

8.5%

$24

$56

10.0%

$22

$46

8.9%

$28

$53

8.5%

$24

$56

Weighted average discount rate

9.3%

9.9%

9.4%

9.3%

For MSRs under the fair value method, the key economic assumptions used to estimate the fair value are presented below:



	December 31, 2019			December 31, 2018
	Actual	Decline in fair value due to		Actual	Decline in fair value due to
(dollars in millions)	Actual	Decline in fair value due to		Actual	Decline in fair value due to
Fair value	$642	50 bps adverse change	100 bps adverse change	$600	50 bps adverse change	100 bps adverse change
Weighted average life (in years)	5.5	50 bps adverse change	100 bps adverse change	8.0	50 bps adverse change	100 bps adverse change
Weighted average constant prepayment rate	13.9%	$116	$222	8.2%	$68	$148
Weighted average option adjusted spread	440 bps	12	25	609 bps	13	26

December 31, 2018
Actual Decline in fair value due to
(dollars in millions)
Fair value $600 50 bps adverse change 100 bps adverse change
Weighted average life (in years) 8.0
Weighted average constant prepayment rate 8.2% $68 $148
Weighted average option adjusted spread 609 bps 13 26

Citizens accounts for derivatives in its mortgage banking operations at fair value on the ~~balance sheet~~Consolidated Balance Sheets as derivative assets or derivative liabilities, depending on whether the derivative had a positive (asset) or negative (liability) fair value as of the balance sheet date. The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 13 ~~“Derivatives”~~ for additional information.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 123

NOTE 8 - LEASES

Citizens as Lessee

The Company determines if an arrangement is a lease at inception and records a right-of-use asset and a corresponding lease liability. A right-of-use asset represents the value of the Company’s contractual right to use an underlying leased asset and a lease liability represents the Company’s contractual obligation to make payments on the same underlying leased asset. Operating and finance lease right-of-use assets and liabilities are recognized at commencement date based on the present value of the lease payments over the non-cancelable lease term. As most of the Company’s leases do not specify an implicit rate, the Company uses an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

In its normal course of business, the Company leases both equipment and real estate, including office and branch space. Lease terms predominantly range from one year to ten years and may include options to extend the lease, terminate the lease, or purchase the underlying asset at the end of the lease. Certain lease agreements include rental payments based on an index or are adjusted periodically for inflation. The Company has lease agreements that contain lease and non-lease components and for certain real estate leases, these components are accounted for as a single lease component.

Leases with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance Sheets and are recognized in occupancy expense in the Company’s Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company may also enter into subleases with third parties for certain leased real estate properties that are no longer occupied.

The components of operating lease cost are presented below:



(in millions)	Year Ended December 31, 2019
Operating lease cost		$165
Short-term lease cost	10
Variable lease cost	7
Sublease income	(3		)
Total		$179

Operating lease cost is recognized on a straight line basis over the lease term and recorded in occupancy expense on the Consolidated Statements of Operations.

Supplemental Consolidated Balance Sheet information related to the Company’s operating lease arrangements is presented below:



(in millions)	December 31, 2019		Affected Line Item in Consolidated Balance Sheets
Operating lease right-of-use assets		$699	Other assets
Operating lease liabilities	721		Other liabilities

Supplemental information related to the Company’s operating lease arrangements is presented below:



(in millions)	Year Ended December 31, 2019
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases		$164
Right-of-use assets in exchange for new operating lease liabilities	117

The weighted average remaining lease term and weighted average discount rate for operating leases as of December 31, 2019 is seven years and 3.15%, respectively.



		Citizens Financial Group, Inc. \| 124

At December 31, 2019, lease liabilities maturing under non-cancelable operating leases are presented below for the years ended December 31:



(in millions)	Operating Leases
2020	150
2021	150
2022	125
2023	100
Thereafter	281
Total lease payments	806
Less: Interest	85
Present value of lease liabilities		$721

Citizens as Lessor

Operating lease assets where Citizens was the lessor totaled $57 million and $92 million as of December 31, 2019 and 2018, respectively. Operating lease rental income for leased assets where Citizens is the lessor is recognized in other income on a straight-line basis over the lease term.

Depreciation expense associated with operating lease assets is recorded on a straight-line basis over the estimated useful life, considering the estimated residual value of the leased asset and is included in other operating expense in the Consolidated Statements of Operations. On a periodic basis, operating lease assets are reviewed for impairment. Impairment loss is recognized in other operating expense if the carrying amount of the leased assets exceeds fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the asset.

For discussion of direct finance and sales-type leases where Citizens is lessor, refer to Note 4.

NOTE 9 - GOODWILL AND INTANGIBLE ASSETS

Goodwill is the purchase premium associated with the acquisition of a business and is assigned to the Company’s reporting units at the acquisition date. A reporting unit is a business operating segment or a component of a business operating segment. Citizens has identified and assigned goodwill to 2 reporting units - Consumer Banking and Commercial Banking - based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill. Citizens has identified and allocated goodwill to two reporting units - Consumer Banking and Commercial Banking - based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes.

Goodwill is not amortized, but is subject to annual impairment tests. Citizens reviews goodwill for impairment annually as of October 31^st and in interim periods when events or changes indicate the carrying value of one or more reporting units may not be recoverable. The Company has the option of performing a qualitative assessment of goodwill ~~impairment analysis~~to determine whether it is more likely than not that the fair value of each reporting unit is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, Citizens must perform a two-step ~~test.~~quantitative assessment of goodwill.

Citizens may elect to bypass the qualitative assessment and perform a two-step quantitative assessment. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is deemed to be not impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment.

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangible. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss that is recognized cannot



		Citizens Financial Group, Inc. \| 125

exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

~~Citizens reviews goodwill for~~Under the quantitative impairment ~~annually as of October 31~~^st ~~or more often if events or circumstances indicate that it is more likely than not that~~assessment, the ~~fair value of one or more reporting units is below its carrying value. The~~ fair values of the Company’s reporting units are determined using a combination of income and market-based approaches. Citizens relies on the income approach (discounted cash flow method) for determining fair value. Market and transaction approaches are used as benchmarks only to corroborate the value determined by the discounted cash flow method. Citizens relies on several assumptions when estimating the fair value of its reporting units using the discounted cash flow method. These assumptions include the discount rate, as well as projected loan loss, income tax and capital retention rates.

Discount rates are estimated based on the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta, and size premium adjustments specific to a particular reporting unit. The discount rates are also calibrated on the assessment of the risks related to the projected cash flows of each reporting unit. Cash flow projections include estimates for projected loan loss, income tax and capital retention rates. Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives, customer retention standards, market share changes, anticipated loan and deposit growth, forward interest rates, historical performance, and industry and economic trends, among other considerations. The long-term growth rate used in determining the terminal value of each reporting unit is estimated based on management’s assessment of the minimum expected terminal growth rate of each reporting unit, as well as broader economic considerations such as GDP and inflation.

Citizens bases its fair value estimates on assumptions it believes to be representative of assumptions that a market participant would use in valuing the reporting unit but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for its reporting units. There can be no assurances that future estimates and assumptions made for purposes of goodwill testing will prove accurate predictions of the future. If the assumptions regarding business plans, competitive environments or anticipated growth rates are not achieved, Citizens may be required to record goodwill impairment charges in future periods.

~~CITIZENS FINANCIAL GROUP, INC.~~For the year ended December 31, 2019, Citizens elected to perform a qualitative analysis to determine whether it was more likely than not that the fair value of either of its reporting units was less than the respective reporting unit’s carrying value. As a result of this qualitative assessment, the Company determined that it was not necessary to perform a quantitative impairment test and concluded that there was 0 impairment to the carrying value of the Company's goodwill.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Since 1988, Citizens has completed more than 25 acquisitions of banks or assets of banks. In August 2018, Citizens~~The Company acquired ~~certain assets~~Clarfeld in January 2019 and ~~assumed certain liabilities of FAMC,~~Bowstring in March 2019, which resulted in ~~an increase~~increases to goodwill of ~~$36~~$83 million ~~as of December 31, 2018.~~and $35 million, respectively. Changes in the carrying value of goodwill for the years ended December 31, ~~2018~~2019 and ~~2017~~2018 are presented below:



(in millions)	Consumer Banking			Commercial Banking		Total
Balance at December 31, 2017		$2,136			$4,751		$6,887
Business acquisition	59			—		59
Adjustments ⁽¹⁾	(23		)	—		(23		)
Balance at December 31, 2018		$2,172			$4,751		$6,923
Business acquisitions	83			35		118
Adjustments	3			—		3
Balance at December 31, 2019		$2,258			$4,786		$7,044

(in millions) Consumer Banking Commercial Banking Total
Balance at December 31, 2016
$2,136

$4,740

$6,876
Business acquisition —
11
11
Balance at December 31, 2017
$2,136

$4,751

$6,887
Business acquisition 59
—
59
Adjustments ⁽¹⁾
(23 ) —
(23 )
Balance at December 31, 2018
$2,172

$4,751

$6,923

⁽¹⁾Adjustments to goodwill are the result of an update to the purchase price allocation for the FAMC acquisition, given higher value attributed to purchased net assets.

Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at December 31, ~~2018~~2019 and ~~2017.~~2018. The accumulated impairment losses related to the Commercial Banking reporting unit totaled $50 million at December 31, ~~2018~~2019 and ~~2017. No~~2018. NaN impairment was recorded for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016.~~2017.



		Citizens Financial Group, Inc. \| 126

Other Intangibles

Other intangible assets are recognized separately from goodwill if the asset arises as a result of contractual rights or if the asset is capable of being separated and sold, transferred or exchanged. Intangible assets are recorded in other assets on the Consolidated Balance ~~Sheets and~~Sheets. Intangible assets are amortized on a straight-line ~~basis. Intangible assets are~~basis and subject to an annual impairment evaluation. Amortization expense is recorded in other expenses in our Consolidated Statements of Operations.

A summary of the carrying value of intangible assets is presented below. Included in the carrying value at December 31, ~~2018 are $30~~2019 was $19 million and $5 millionin other intangibles ~~net of $2 million of amortization expense,~~ related to the ~~FAMC acquisition.~~Clarfeld and Bowstring acquisitions, respectively. Additionally, included in the carrying value at December 31, 2019 was $18 million related to the March 2019 purchase of naming rights for a theater in Boston, Massachusetts, and a sponsorship and promotion arrangement.



		December 31, 2019						December 31, 2018
(in millions)	Amortizable Lives (years)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Acquired technology	7		$21		$4		$17		$20		$1		$19
Acquired relationships	5 - 15	37		5		32		11		1		10
Naming Rights	10	11		1		10		—		—		—
Other	2 - 7	13		4		9		3		1		2
Total			$82		$14		$68		$34		$3		$31

December 31, 2018 December 31, 2017
(in millions) Amortizable Lives (years) Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Acquired technology 7
$20

$1

$19

$—

$—

$—
Acquired relationships 5 - 15 11
1
10
2
—
2
Other 2 - 3 3
1
2
—
—
—
Total
$34

$3

$31

$2

$—

$2

As of December 31, ~~2018,~~2019, all of the Company’s intangible assets were being amortized. Amortization expense recognized on intangible assets was $11 million and $3 million for the year ended December 31, ~~2018.~~2019 and 2018, respectively. There was no0 amortization expense recognized on intangible assets for the ~~years~~year ended December 31, ~~2017 and 2016.~~2017. The Company’s projection of amortization expense is based on balances as of December 31, ~~2018,~~2019, and future amortization expense may vary from these projections.

Estimated intangible asset amortization expense for the next five years is as follows:



(in millions)	Total
2020		$11
2021	10
2022	9
2023	9
2024	8

(in millions) Total
2019
$5
2020 5
2021 4
2022 3
2023 3

NOTE 10 - VARIABLE INTEREST ENTITIES

Citizens makes equity investments in various entities that are considered VIEs, as defined by GAAP. A VIE typically does not have sufficient equity at risk to finance its activities without additional subordinated financial

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

support from other parties. The Company’s variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity's net assets. Citizens consolidates a VIE if it is the primary beneficiary of the entity. Citizens is the primary beneficiary of a VIE if its variable interest provides it with the power to direct the activities that most significantly impact the VIE and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to the VIE. To determine whether or not a variable interest held could potentially be significant to the VIE, the company considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE. Citizens assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.

~~The Company’s~~Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects and lending to special purpose entities. ~~The Company’s~~Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its equity investment and outstanding principal balance of loans to special purpose entities.



		Citizens Financial Group, Inc. \| 127

A summary of these investments is presented below:



	December 31,
(in millions)	2019		2018
LIHTC investment included in other assets		$1,401		$1,236
LIHTC unfunded commitments included in other liabilities	716		673
Lending to special purpose entities included in loans and leases	1,101		613
Renewable energy investments included in other assets	355		319

December 31,
(in millions) 2018
2017
LIHTC investment included in other assets
$1,236

$951
LIHTC unfunded commitments included in other liabilities 673
491
Renewable energy investments included in other assets 319
335
Lending to special purpose entities included in loans and leases 613
—

Low Income Housing Tax Credit Partnerships

The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Citizens is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, ~~the Company~~Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.

Citizens applies the proportional amortization method to account for its LIHTC investments. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of the investment in proportion to the tax credits received in the current period as compared to the total tax credits expected to be received over the life of the investment. The amortization and tax benefits are included as a component of income tax expense. The tax credits received are reported as a reduction of income tax expense (or an increase to income tax benefit) related to these transactions.

The following table presents other information related to the Company’s affordable housing tax credit investments:



	Year Ended December 31,
(in millions)	2019		2018		2017
Tax credits included in income tax expense		$128		$101		$83
Amortization expense included in income tax expense	137		110		94
Other tax benefits included in income tax expense	32		25		31

Year Ended December 31,
(in millions) 2018
2017
2016
Tax credits included in income tax expense
$101

$83

$59
Amortization expense included in income tax expense 110
94
59
Other tax benefits included in income tax expense 25
31
21

NoNaN LIHTC investment impairment losses were recognized during the years ended December 31, 2019, 2018, and 2017.

~~Renewable Energy Entities~~

The Company’s investments in renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation). As a tax equity investor, Citizens does not have the power to direct the activities which most significantly affect the performance of these entities and therefore is not the primary beneficiary of any renewable energy entities. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Lending to Special Purpose Entities

Citizens provides lending facilities to third-party sponsored special purpose entities. Because the sponsor for each respective entity has the power to direct how proceeds from the Company are utilized, as well as maintains responsibility for any associated servicing commitments, Citizens is not the primary beneficiary of these entities. Accordingly, Citizens does not consolidate these VIEs on the Consolidated Balance Sheets. As of December 31, 2019 and 2018, the lending facilities had aggregate unpaid principal balances of $1.1 billion and $613 million, respectively, and undrawn commitments to extend credit of $1.2 billion and $584 ~~million.~~million, respectively.

Renewable Energy Entities

The Company’s investments in renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation). As a tax equity investor, Citizens ~~did~~does not ~~provide~~have the power to direct the activities which most significantly affect the performance of these ~~lending facilities as~~entities and therefore is not the primary beneficiary of ~~December 31, 2017.~~any renewable energy entities. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.



		Citizens Financial Group, Inc. \| 128

NOTE 11 - DEPOSITS

Interest-bearing deposits in banks are carried at cost and include deposits that mature within one year.

The following table presents the major components of ~~deposits are presented below:~~deposits:



	December 31,
(in millions)	2019		2018
Demand		$29,233		$29,458
Checking with interest	24,840		23,067
Regular savings	13,779		12,007
Money market accounts	38,725		35,701
Term deposits	18,736		19,342
Total deposits		$125,313		$119,575

December 31,
(in millions) 2018 2017
Demand
$29,458

$29,279
Checking with interest 23,067
22,229
Regular savings 12,007
9,518
Money market accounts 35,701
37,454
Term deposits 19,342
16,609
Total deposits
$119,575

$115,089

The following table presents the maturity distribution by year of term deposits as of December 31, ~~2018 is presented below:~~2019:



(in millions)
2020		$16,151
2021	1,995
2022	316
2023	144
2024	126
2025 and thereafter	4
Total		$18,736

Year (in millions)
2019
$15,889
2020 2,519
2021 649
2022 174
2023 106
2024 and thereafter 5
Total
$19,342

Of these deposits, the amount of term deposits with a denomination of $100,000 or more was ~~$13.8~~$13.4 billion at December 31, ~~2018.~~2019. The following table presents the remaining maturities of these ~~deposits are presented below:~~deposits:



(in millions)
Three months or less		$~~5,388~~6,987
After three months through six months	~~2,676~~3,224
After six months through twelve months	~~3,844~~2,015
After twelve months	~~1,936~~1,206
Total term deposits		$~~13,844~~13,432



		Citizens Financial Group, Inc. \| 129

NOTE 12 - BORROWED FUNDS

AThe following table presents a summary of the Company’s short-term borrowed ~~funds is presented below:~~funds:



	December 31,
(in millions)	2019		2018
Securities sold under agreements to repurchase		$265		$336
Federal funds purchased	—		820
Other short-term borrowed funds	9		161
Total short-term borrowed funds		$274		$1,317

December 31,
(in millions) 2018
2017
Federal funds purchased
$820

$460
Securities sold under agreements to repurchase 336
355
Other short-term borrowed funds ⁽¹⁾
1,653
1,856
Total short-term borrowed funds
$2,809

$2,671

⁽¹⁾ December 31, 2018 includes $1.5 billion of debt issued under CBNA’s Global Bank Note Program maturing within one year, with unamortized deferred issuance costs and/or discounts of ($1) million and other basis adjustments of ($8) million. December 31, 2017 includes $750 million of debt issued under CBNA’s Global Bank Note Program maturing within one year, with unamortized deferred issuance costs and/or discounts of ($1) million and other basis adjustments of ($4) million.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Key~~The following table presents key data related to the Company’s short-term borrowed ~~funds is presented in the following table:~~funds:



	As of and for the Year Ended December 31,
(dollars in millions, except ratio data)	2019			2018			2017
Weighted-average interest rate at year-end: ⁽¹⁾
Federal funds purchased and securities sold under agreements to repurchase	0.41		%	1.72		%	0.74		%
Other short-term borrowed funds	3.85			2.73			1.33
Maximum amount outstanding at any month-end during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾		$1,499			$1,282			$1,174
Other short-term borrowed funds	511			1,110			2,759
Average amount outstanding during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾		$599			$654			$776
Other short-term borrowed funds	66			467			1,571
Weighted-average interest rate during the year: ⁽¹⁾
Federal funds purchased and securities sold under agreements to repurchase	1.36		%	0.92		%	0.36		%
Other short-term borrowed funds	2.50			2.10			1.09

As of and for the Year Ended December 31,
(dollars in millions, except ratio data) 2018
2017 2016
Weighted-average interest rate at year-end: ⁽¹⁾

Federal funds purchased and securities sold under agreements to repurchase 1.72 % 0.74 % 0.26 %
Other short-term borrowed funds 2.50
1.72
0.94
Maximum amount outstanding at any month-end during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾

$1,282

$1,174

$1,522
Other short-term borrowed funds 2,509
3,508
5,461
Average amount outstanding during the year:
Federal funds purchased and securities sold under agreements to repurchase ⁽²⁾

$654

$776

$947
Other short-term borrowed funds 1,808
2,321
3,207
Weighted-average interest rate during the year: ⁽¹⁾

Federal funds purchased and securities sold under agreements to repurchase 0.92 % 0.36 % 0.09 %
Other short-term borrowed funds 2.42
1.32
0.64

⁽¹⁾Rates exclude certain hedging costs.

⁽²⁾Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable.



		Citizens Financial Group, Inc. \| 130

The following table presents a summary of the Company’s long-term borrowed ~~funds is presented below:~~funds:



	December 31,
(in millions)	2019		2018
Parent Company:
2.375% fixed-rate senior unsecured debt, due July 2021		$349		$349
4.150% fixed-rate subordinated debt, due September 2022	348		348
3.750% fixed-rate subordinated debt, due July 2024	250		250
4.023% fixed-rate subordinated debt, due October 2024	42		42
4.350% fixed-rate subordinated debt, due August 2025	249		249
4.300% fixed-rate subordinated debt, due December 2025	750		749
2.850% fixed-rate senior unsecured notes, due July 2026	496		—
CBNA’s Global Note Program:
2.500% senior unsecured notes, due March 2019	—		748
2.450% senior unsecured notes, due December 2019	—		744
2.250% senior unsecured notes, due March 2020	700		691
2.447% floating-rate senior unsecured notes, due March 2020 ⁽¹⁾	300		300
2.487% floating-rate senior unsecured notes, due May 2020 ⁽¹⁾	250		250
2.200% senior unsecured notes, due May 2020	500		499
2.250% senior unsecured notes, due October 2020	750		738
2.550% senior unsecured notes, due May 2021	991		964
3.250% senior unsecured notes, due February 2022	711		—
2.629% floating-rate senior unsecured notes, due February 2022 ⁽¹⁾	299		—
2.727% floating-rate senior unsecured notes, due May 2022⁽¹⁾	250		249
2.650% senior unsecured notes, due May 2022	501		487
3.700% senior unsecured notes, due March 2023	515		502
2.911% floating-rate senior unsecured notes, due March 2023 ⁽¹⁾	249		249
3.750% senior unsecured notes, due February 2026	521		—
Additional Borrowings by CBNA and Other Subsidiaries:
Federal Home Loan Bank advances, 2.006% weighted average rate, due through 2038	5,008		7,508
Other	18		9
Total long-term borrowed funds		$14,047		$15,925

December 31,
(in millions) 2018
2017
Parent Company:
2.375% fixed-rate senior unsecured debt, due 2021
$349

$349
4.150% fixed-rate subordinated debt, due 2022 348
348
5.158% fixed-to-floating rate callable subordinated debt, due 2023 ⁽¹⁾
—
333
3.750% fixed-rate subordinated debt, due 2024 250
250
4.023% fixed-rate subordinated debt, due 2024 42
42
4.350% fixed-rate subordinated debt, due 2025 249
249
4.300% fixed-rate subordinated debt, due 2025 749
749
Banking Subsidiaries:
2.450% senior unsecured notes, due 2019 ^{(2) (3)}
—
743
2.500% senior unsecured notes, due 2019 ^{(2) (3)}
—
741
2.250% senior unsecured notes, due 2020 ⁽²⁾
691
692
3.278% floating-rate senior unsecured notes, due 2020 ^{(2) (4)}
300
299
3.247% floating-rate senior unsecured notes, due 2020 ^{(2) (4)}
250
249
2.200% senior unsecured notes, due 2020 ⁽²⁾
499
498
2.250% senior unsecured notes, due 2020 ⁽²⁾
738
742
2.550% senior unsecured notes, due 2021⁽²⁾
964
964
3.487% floating-rate senior unsecured notes, due 2022 ^{(2) (4)}
249
249
2.650% senior unsecured notes, due 2022 ⁽²⁾
487
491
3.700% senior unsecured notes, due 2023 ⁽²⁾
502
—
3.753% floating-rate senior unsecured notes, due 2023 ^{(2) (4)}
249
—
Federal Home Loan Bank advances, 2.725% weighted average rate, due through 2038 7,508
3,761
Other 9
16
Total long-term borrowed funds
$14,433

$11,765

⁽¹⁾ ~~Redeemed on June 29, 2018.~~

⁽²⁾ ~~Issued under CBNA’s Global Bank Note Program.~~

⁽³⁾~~Reclassified to short-term borrowed funds.~~

⁽⁴⁾ Rate disclosed reflects the floating rate as of December 31, ~~2018.~~2019.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Parent Company’s long-term borrowed funds as of December 31, ~~2018~~2019 and ~~2017~~2018 included principal balances of ~~$2.0~~$2.5 billion and ~~$2.3~~$2.0 billion, respectively, and unamortized deferred issuance costs and/or discounts of ($8) million and ($5) million, ~~for each period. The banking~~respectively. CBNA and other subsidiaries’ long-term borrowed funds as of December 31, 2019 and 2018 ~~and 2017 include~~included principal balances of ~~$12.5~~$11.5 billion and ~~$9.5~~$14.0 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($~~14)~~13) million and ($~~19)~~14) million, respectively, and hedging basis adjustments of ~~($58)~~$50 million and ($~~63)~~66) million, respectively. See Note 13 ~~“Derivatives”~~ for further information about the Company’s hedging of certain long-term borrowed funds.

Advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and pledged securities at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was ~~$13.0~~$9.8 billion and ~~$9.4~~$13.0 billion at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company’s available FHLB borrowing capacity was ~~$4.8~~$7.2 billion and ~~$8.0~~$4.8 billion at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At December 31, ~~2018,~~2019, the Company’s unused secured borrowing capacity was approximately ~~$36.2~~$38.9 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.



		Citizens Financial Group, Inc. \| 131

The following table presents a summary of maturities for the Company’s long-term borrowed funds at December 31, ~~2018 is presented below:~~2019:



(in millions)	Parent Company		CBNA and Other Subsidiaries		Consolidated
Year
2020		$—		$2,504		$2,504
2021	349		5,998		6,347
2022	348		1,767		2,115
2023	—		765		765
2024	292		1		293
2025 and thereafter	1,495		528		2,023
Total		$2,484		$11,563		$14,047

(in millions) Parent Company Banking Subsidiaries Consolidated
Year
2019
$—

$—

$—
2020 —
9,982
9,982
2021 349
967
1,316
2022 348
739
1,087
2023 —
751
751
2024 and thereafter 1,290
7
1,297
Total
$1,987

$12,446

$14,433

NOTE 13 - DERIVATIVES

In the normal course of business, Citizens enters into a variety of derivative transactions ~~in order~~ to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, forward commitments to sell to-be-announced mortgage securities (“TBAs”), forward sale contracts and purchase options. The Company ~~monitors the results of each transaction to ensure that management’s intent is satisfied.The Company~~ does not use derivatives for speculative purposes.

The Company’s derivative instruments are recognized on the Consolidated Balance Sheets in derivative assets and derivative liabilities at fair value. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note ~~19 “Fair Value Measurements.”~~19.

Derivative assets and derivative liabilities are netted by counterparty on the ~~balance sheet~~Consolidated Balance Sheets if a “right of setoff” has been established in a master netting agreement between the Company and the counterparty. This netted derivative asset or liability position is also netted against the fair value of any cash collateral that has been pledged or received in accordance with a ~~Credit Support Annex.~~master netting agreement.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 132

The following table presents derivative instruments included on the Consolidated Balance ~~Sheets in derivative assets and derivative liabilities:~~Sheets:


	December 31, 2018								December 31, 2017								December 31, 2019								December 31, 2018
(in millions)	Notional Amount ⁽¹⁾		Derivative Assets			Derivative Liabilities			Notional Amount ⁽¹⁾		Derivative Assets			Derivative Liabilities			Notional Amount ⁽¹⁾		Derivative Assets			Derivative Liabilities			Notional Amount ⁽¹⁾		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate contracts		$12,050		$5			$—			$13,300		$—			$—			$29,846		$1			$—			$12,050		$5			$—
Derivatives not designated as hedging instruments:
Interest rate contracts	117,076		301			277			80,180		538			379			142,386		772			133			117,076		301			277
Foreign exchange contracts	9,866		129			113			9,882		148			149			15,101		174			166			9,866		129			113
Other contracts	3,555		14			25			1,039		7			5			6,868		37			23			3,555		14			25
Total derivatives not designated as hedging instruments			444			415					693			533					983			322					444			415
Gross derivative fair values			449			415					693			533					984			322					449			415
Less: Gross amounts offset in the Consolidated Balance Sheets ⁽²⁾			(87		)	(87		)			(72		)	(72		)			(107		)	(107		)			(87		)	(87		)
Less: Cash collateral applied ⁽²⁾			(45		)	(36		)			(4		)	(151		)			(70		)	(95		)			(45		)	(36		)
Total net derivative fair values presented in the Consolidated Balance Sheets				$317			$292					$617			$310					$807			$120					$317			$292

⁽¹⁾The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate contracts, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they do not measure the true economic risk of these contracts.

⁽²⁾ Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions as well as collateral paid and received.

The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer and residential loan. Certain derivative transactions within these sub-groups are designated as fair value or cash flow hedges, as described below:

~~Institutional derivatives~~Derivatives Designated As Hedging Instruments

The Company’s institutional derivatives ~~portfolio primarily consists of~~qualify for hedge accounting treatment. The net interest ~~rate swap agreements that are used to hedge the interest rate risk associated with the Company’s loans and financing liabilities (i.e., borrowed funds, deposits, etc.).~~

~~Citizens enters into certain interest rate swap agreements to hedge the risk associated with floating rate loans. By entering into receive-fixed/pay-floating~~accruals on interest rate swaps ~~the Company is able to minimize the variability~~designated in ~~the~~a fair value or cash flows of these assets due to changes in interest rates. Citizens also uses receive-fixed/pay-floating interest rate swaps to manage the interest rate exposure on its medium term borrowings by effectively converting a portion of the fixed rate debt to floating. Citizens has outstanding interest rate swap agreements designed toflow hedge a portion of the Company’s borrowed funds and deposit liabilities. By entering into a pay-fixed/receive-floating interest rate swap, a portion of these liabilities has been effectively converted to a fixed rate liability for the term of the interest rate swap agreement. The goal of the Company’s interest rate hedging activity is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect net interest income. For derivatives designated for hedging purposes, net interest accrualsrelationship are treated as an adjustment ofto interest income or interest expense of the item being hedged.

~~Customer derivatives~~

The customer derivatives portfolio consists of interest rate swap agreements and option contracts that are transacted to meet the financing needs of the Company’s customers. Swap agreements and interest rate option agreements are transacted to effectively minimize the Company’s market risk associated with the customer derivative products. The customer derivatives portfolio also includes foreign exchange contracts that are entered into on behalf of customers for the purpose of hedging exposure related to cash orders and loans and deposits denominated in foreign currencies. The primary risks associated with these transactions arise from exposure to changes in foreign currency exchange rates and the ability of the counterparties to meet the terms of the contract. To manage this market risk, Citizens enters into offsetting foreign exchange contracts.

~~Residential loan derivatives~~

Citizens enters into residential loan commitments that allow residential mortgage customers to lock in the interest rate on a residential mortgage while the loan undergoes the underwriting process. Citizens also uses forward

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

sales contracts to protect the value of residential mortgage loans and loan commitments that are being underwritten for future sale to investors in the secondary market. Citizens also hedges the fair market value movements of certain mortgage servicing rights using various interest rate derivative contracts.

~~Citizens has certain derivative transactions which are designated as fair value or cash flow hedges, described as follows:~~

~~Derivatives designated as hedging instruments~~

The Company’s institutional derivatives portfolio qualifies for hedge accounting treatment. This includes interest rate swaps that are designated as highly effective fair value and cash flow hedging relationships. CitizensCompany formally documents at inception all hedging relationships, as well as risk management objectives and strategies for undertaking various accounting hedges. Additionally, ~~Citizens uses dollar offset or regression analysis at~~ the ~~hedge’s inception, and monthly thereafter,~~Company monitors the effectiveness of its hedge relationships during the duration of the hedge period. The methods utilized to assess ~~whether~~hedge effectiveness vary based on the ~~derivatives are expected~~hedge relationship and the Company monitors each relationship to ensure that management’s initial intent continues to be ~~or have been, highly effective in offsetting changes in the hedged item’s expected cash flows.~~satisfied. The Company discontinues hedge accounting treatment when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge and ~~then~~subsequently reflects changes in the fair value of the derivative in earnings after termination of the hedge relationship.

Fair ~~value hedges~~Value Hedges

~~If a derivative is designated as~~In a fair value hedge, ~~gains~~changes in the fair value of both the derivative instrument and the hedged asset or ~~losses~~liability attributable to the ~~change in fair value of the derivative instrument, as well as the gains and losses attributable to the change in fair value of the~~risk being hedged ~~item,~~ are recognized in ~~other~~the same income statement line item in the ~~period in which the change in fair value occurs. Hedge ineffectiveness is recognized as other income to the extent~~Consolidated Statements of Operations when the changes in fair value ~~of the derivative do not offset the changes in fair value of the hedged item. Changes in the fair value of derivatives that do not qualify as hedges are recognized immediately in other income.~~occur.

Citizens has ~~entered into~~outstanding interest rate swap agreements utilized to manage the interest rate exposure on its ~~medium term borrowings. The change in value of~~long-term borrowings, certain fixed rate residential mortgages and AFS debt securities. Certain fair value hedges have been designated as a last-of-layer hedge, which affords the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item.



		Citizens Financial Group, Inc. \| 133

The following table presents the change in fair value of interest rate contracts designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the ~~extent that~~risk being hedged, included in the Consolidated Statements of Operations:



	Year Ended December 31,
(in millions)	2019			2018			2017			Affected Line Item in the Consolidated Statements of Operations
Change in fair value of interest rate swaps hedging borrowed funds		$107			$8			($26	)	Interest expense - long-term borrowed funds
Change in fair value of hedged long-term debt attributable to the risk being hedged	(107		)	(9		)	27			Interest expense - long-term borrowed funds
Change in fair value of interest rate swaps hedging fixed rate loans	(17		)	—			—			Interest and fees on loans and leases
Change in fair value of hedged fixed rate loans attributable to the risk being hedged	17			—			—			Interest and fees on loans and leases
Change in fair value of interest rate swaps hedging debt securities available for sale	8			—			—			Interest income - investment securities
Change in fair value of hedged debt securities available for sale attributable to risk being hedged	(8		)	—			—			Interest income - investment securities

The following table reflects amounts recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:



	December 31, 2019
(in millions)	Debt securities available for sale⁽¹⁾			Residential mortgages		Long-term borrowed funds
Carrying amount of hedged assets		$15,798			$976		$—
Carrying amount of hedged liabilities	—			—		4,689
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items	(8		)	17		50

⁽¹⁾The Company designated $2.0 billion as the hedged amount (from a closed portfolio of prepayable financial assets with a carrying value of $15.8 billion as of December 31, 2019) in a last-of-layer hedging relationship, ~~is effective, is recorded through other income and offset against~~which commenced in the third quarter of 2019.

Cash Flow Hedges

In a cash flow hedge, the entire change in the fair value of the ~~hedged item.~~

~~The following table presents the effect on other income of fair value hedges, specifically hedges of~~ interest rate ~~risk on borrowings using~~swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings (interest income or interest ~~rate swaps, described above,~~expense) in ~~millions:~~

Amounts Recognized in Other Income for the Year Ended December 31,
2018 2017 2016
Derivative Hedged Item Hedge Ineffectiveness Derivative Hedged Item Hedge Ineffectiveness Derivative Hedged Item Hedge Ineffectiveness

$8

($9 )
($1 )
($26 )
$27

$1

($6 )
$5

($1 )

~~Cash flow hedges~~the same period that the hedged item affects earnings.

Citizens has outstanding interest rate swap agreements designed to hedge a portion of the Company’s ~~floating rate~~floating-rate assets, and ~~financing liabilities (including its borrowed funds).~~liabilities. All of these swaps have been deemed as highly effective cash flow hedges. The effective portion of the hedging gains and losses associated with these hedges are recorded in OCI; the ineffective portion of the hedging gains and losses is recorded in earnings (other income). Hedging gains and losses on derivative contracts reclassified from OCI to current period earnings are included in the line item in the accompanying Consolidated Statements of Operations in which the hedged item is recorded and in the same period that the hedged item affects earnings. During the next 12 months, there are ~~$15~~$4 million in pre-tax net ~~losses~~gains on derivative instruments included in OCI expected to be reclassified to net interest income in the Consolidated Statements of Operations. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to December 31, 2019.

~~Hedging~~During the years ended December 31, 2019, 2018 and 2017, there were no gains ~~and~~or losses ~~associated with the Company’s cash flow hedges are immediately~~ reclassified from OCI to current period earnings (other income) ifrelated to the discontinuance of a cash flow hedge where it ~~becomes~~became probable that the ~~hedged~~original forecasted ~~transactions will not~~transaction would no longer occur ~~during~~by the end of the originally specified time period.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 134

The following table presents the ~~effect~~pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow ~~hedges on net income and stockholders’ equity:~~hedges:



	Amounts Recognized for the Year Ended December 31,
(in millions)	2019			2018			2017
Amount of pre-tax net gains (losses) recognized in OCI		$138			($44	)		($23	)
Amount of pre-tax net losses reclassified from OCI into interest income	(68		)	(55		)	25
Amount of pre-tax net gains reclassified from OCI into interest expense	11			12			—

Amounts Recognized for the Year Ended December 31,
(in millions) 2018
2017
2016
Effective portion of loss recognized in OCI ⁽¹⁾

($44 )
($23 )
($100 )
Amount of net (loss) gain reclassified from OCI to interest income ⁽²⁾
(55 ) 25
90
Amount of net gain (loss) reclassified from OCI to interest expense ⁽²⁾
12
—
(27 )
Amounts reclassified from OCI to other income ⁽³⁾
—
—
(5 )

⁽¹⁾~~The cumulative effective gains and losses on the Company’s cash flow hedging activities are included on the accumulated other comprehensive loss line item on the Consolidated Balance Sheets.~~

⁽²⁾This amount includes both (i) the amortization of effective gains and losses associated with the Company’s terminated cash flow hedges and (ii) the current reporting period’s interest settlements realized on the Company’s active cash flow hedges. Both (i) and (ii) were previously included on the accumulated other comprehensive loss line item on the Consolidated Balance Sheets and were subsequently recorded as adjustments to the interest income or expense of the underlying hedged item.

⁽³⁾~~This includes gains and losses attributable to previously hedged cash flows where the likelihood occurrence of those cash flows is no longer probable.~~

Derivatives not designated as hedging instruments

Economic ~~hedges~~Hedges

The Company’s economic hedges include those related to offsetting customer derivatives, ~~are recorded on the Consolidated Balance Sheets at fair value. These~~residential mortgage loan derivatives (including interest rate lock commitments and forward sales commitments) and derivatives to hedge its residential MSR portfolio. Customer derivatives include interest rate and foreign exchange derivative contracts ~~that are~~ designed to meet the hedging and financing needs of the Company’s ~~customers. The mark-to-market gains~~customers, and ~~losses associated with~~are economically hedged by the ~~customer~~Company to offset its market exposure. Interest rate lock commitments on residential mortgage loans that will be held for sale are considered derivative instruments, and are economically hedged by entering into forward sale commitments to manage changes in fair value due to interest rate risk. Residential MSR portfolio derivatives are mitigated by mark-to-market gains and losses on interest rate and foreign exchange derivative contracts transacted. Citizens also purchases interest rate floors primarily to hedge the exposure related to customer deposit products that have embedded minimum interest rate guarantees. Citizens utilizes interest rate floors in non-qualifying hedging relationships.

The Company’s residential loan derivatives (including residential loan commitments and forward sales contracts) are recorded on the Consolidated Balance Sheets at fair value. Citizens also uses derivativesentered to hedge the risk of changes in the fair value of ~~its residential~~the Company’s MSR portfolio measured at fair value. Certain residential MSRs are accounted for at fair value with changes in the fair value influenced primarily by changes in interest rates. Derivatives used to hedge the fair value of residential MSRs include TBAs, interest rate swaptions, interest rate futures and interest rate swaps.asset.

The following table presents the effect of economic hedges on noninterest income:



	Amounts Recognized in Noninterest Income for the Year Ended December 31,									Affected Line Item in the Consolidated Statements of Operations
(in millions)	2019			2018			2017
Economic hedge type:
Customer interest rate contracts		$687			$5			$5		Foreign exchange and interest rate products
Customer foreign exchange contracts	(166		)	(54		)	172			Foreign exchange and interest rate products
Derivatives transactions to hedge interest rate risk	(620		)	43			46			Foreign exchange and interest rate products
Derivatives transactions to hedge foreign exchange risk	200			158			(151		)	Foreign exchange and interest rate products
Residential loan commitments	8			(3		)	2			Mortgage banking fees
Forward sale contracts	20			21			(8		)	Mortgage banking fees
Interest rate derivative contracts used to hedge residential MSRs⁽¹⁾	134			35			—			Mortgage banking fees
Total		$263			$205			$66

Affected Line Item in the Consolidated Statements of Operations Amounts Recognized in Noninterest Income for the Year Ended December 31,
(in millions) 2018
2017
2016
Economic Hedge Type
Customer interest rate contracts Foreign exchange and interest rate products
$5

$5

($23 )
Customer foreign exchange contracts Foreign exchange and interest rate products (54 ) 172
(81 )
Derivatives transactions to hedge interest rate risk Foreign exchange and interest rate products 43
46
70
Derivatives transactions to hedge foreign exchange risk Foreign exchange and interest rate products 158
(151 ) 95
Residential loan commitments Mortgage banking fees (3 ) 2
(2 )
Forward sale contracts Mortgage banking fees 21
(8 ) 6
Interest rate derivative contracts used to hedge residential MSRs Mortgage banking fees 35
—
—
Total
$205

$66

$65
⁽¹⁾Includes ($5) million related to interest rate derivative contracts used to hedge residential MSRs valued at LOCOM for the year ended December 31, 2019.

NOTE 14 - EMPLOYEE BENEFITS

Pension Plans

Citizens maintains a non-contributory pension plan (the ~~“Plan” or “qualified plan”~~“Qualified Plan”) that was closed to new hires and re-hires effective January 1, 2009, and frozen to all participants effective December 31, 2012. Benefits under the Qualified Plan are based on employees’ years of service and highest ~~five-year~~5-year average of eligible compensation. The Qualified Plan is funded on a current basis, in compliance with the requirements of ERISA. Citizens also provides an

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

unfunded, non-qualified supplemental retirement plan (the ~~“non-qualified plan”~~“Non-Qualified Plan”), which was closed and frozen effective December 31, 2012. The Company’s Qualified Plan and Non-Qualified Plan are collectively referred to as the Company’s “Pension Plans”. The Pension Plans’ investments include equity-oriented and fixed income-oriented investments, including but not limited to government obligations, corporate bonds, and common and collective equity and fixed income funds.

~~The qualified plan’s allocation by asset category is presented below:~~

Target Asset Allocation Actual Asset Allocation
Asset Category 2018 2018 2017
Equity securities 53% 51.3 % 54.0 %
Debt securities 46% 47.6 % 45.0 %
Other 1% 1.1 % 1.0 %
Total 100.0 % 100.0 %

The written Pension Plan Investment Policy, set forth by the CFG Retirement Committee, formulates investment principles and guidelines that are appropriate for the needs and objectives of the Plan, and defines the management, structure, and monitoring procedures adopted for the ongoing operation of the aggregate funds of the Plan. Stated goals and objectives are:

Achieve a total return, consistent with prudent investment management, that together with any new contributions from the Employer, will be sufficient to meet the benefits which the Plan seeks to provide.

~~The nominal return target for the overall Plan is to meet or exceed the Plan’s Policy Index;~~

~~Total portfolio risk exposure should generally rank in the mid-range of comparable funds. Risk-adjusted returns are expected to consistently rank in the top-half of comparable funds; and~~

~~Investment managers shall meet or exceed the return of the designated benchmark index and rank in the top-half of the appropriate asset class and style universe.~~

The CFG Retirement Committee reviews, at least annually, the assets and net cash flow of the Plan, discusses the current economic outlook and the Plan’s investment strategy with the investment managers, reviews the current asset mix and its compliance with the Policy, and receives and considers statistics on the investment performance of the Plan and its managers.

The equity investment mandates follow a global equity approach. Investments are made in broadly diversified portfolios that contain investments in U.S. and non-U.S. developed and developing economies. The fixed income investment mandates are US investment grade mandates and follow a long duration investment approach. Investment in high-yield bonds are not allowed unless an investment grade bond is downgraded to a non-investment grade category.

~~The assets of the qualified plan may be invested in any or all of the following asset categories:~~

~~Equity-oriented investments:~~



◦	~~domestic and foreign common and preferred stocks, and related rights, warrants, convertible debentures, and other common share equivalents~~	Citizens Financial Group, Inc. \| 135

~~Fixed income-oriented investments:~~


◦	~~domestic and foreign bonds, debentures and notes~~


◦	~~mortgages~~


◦	~~mortgage-backed securities~~


◦	~~asset-backed securities~~


◦	~~bank loans~~


◦	~~money market securities or cash~~


◦	~~financial futures and options on financial futures~~


◦	~~forward contracts~~

~~In addition, derivatives may be employed under the guidelines established for individual managers in order to manage risk exposures and/or to increase the efficiency of strategies.~~

The ~~extent to which derivatives are utilized will be specified in the investment guidelines for each manager. The Plan will not be exposed to losses through derivatives that exceed the capital invested.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In selecting the expected long-term rate of return on assets, the Company considers the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of this Plan. This includes considering the trust’s asset allocation and the expected returns likely to be earned over the life of the Plan. This basis is consistent with the prior year.

~~Changes~~following table presents changes in the fair value of ~~defined benefit pension plan~~the Company’s Pension Plans’ assets, projected benefit obligation, funded status, and accumulated benefit ~~obligation are presented below:~~obligation:



	Year Ended December 31,
	Qualified Plan						Non-Qualified Plan
(in millions)	2019			2018			2019			2018
Fair value of plan assets as of January 1		$1,050			$1,139			$—			$—
Actual return on plan assets	259			(81		)	—			—
Employer contributions	—			50			8			8
Benefits and administrative expenses paid	(63		)	(58		)	(8		)	(8		)
Fair value of plan assets as of December 31	1,246			1,050			—			—
Projected benefit obligation	1,075			972			102			95
Pension asset (obligation)		$171			$78			($102	)		($95	)
Accumulated benefit obligation		$1,075			$972			$102			$95

Year Ended December 31,
Qualified Plan Non-Qualified Plan
(in millions) 2018
2017
2018
2017
Fair value of plan assets as of January 1
$1,139

$1,015

$—

$—
Actual return on plan assets (81 ) 185
—
—
Employer contributions 50
—
8
8
Benefits and administrative expenses paid (58 ) (61 ) (8 ) (8 )
Fair value of plan assets as of December 31 1,050
1,139
—
—
Projected benefit obligation 972
1,089
95
106
Pension asset (obligation)
$78

$50

($95 )
($106 )
Accumulated benefit obligation
$972

$1,089

$95

$106

The ~~defined~~Company’s projected benefit obligation ~~experienced gains~~increased for the year ending December 31, ~~2018~~2019, due to the ~~increase~~decrease in the discount rate assumption, ~~and due to the change in future~~partially offset by updated mortality ~~improvement projection scale to Scale MP-2018 from Scale MP-2017.~~assumptions. Citizens recognized actuarial gains and losses ~~(for~~on the ~~qualified and non-qualified plans)~~Pension Plans in AOCI resulting in an ending balance of ~~$618~~$551 million and ~~$585~~$618 million at December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

NaN contributions were made to the Qualified Plan in 2019 and 0 contribution is planned for 2020. Citizens contributed $50 million to the qualified plan in 2018. Citizens contributed $8 million to the Non-Qualified Plan in 2019 and expects to contribute $8 million in 2020.

~~Other~~The following table presents other changes in plan assets and benefit obligations recognized in OCI ~~(for~~for the ~~qualified, non-qualified and postretirement plans) are presented below:~~Company’s Pension Plans:



	Year Ended December 31,
(in millions)	2019			2018			2017
Net periodic pension income		($5	)		($16	)		($2	)
Net actuarial (gain) loss	(49		)	49			(31		)
Amortization of prior service credit	—			1			1
Amortization of net actuarial loss	(19		)	(17		)	(18		)
Total (loss) gain recognized in other comprehensive loss	(68		)	33			(48		)
Total (loss) gain recognized in net periodic pension (income) cost and other comprehensive loss		($73	)		$17			($50	)

Year Ended December 31,
(in millions) 2018
2017
2016
Net periodic pension income
($16 )
($2 )
($1 )
Net actuarial loss (gain) 49
(31 ) 54
Amortization of prior service credit 1
1
1
Amortization of net actuarial loss (17 ) (18 ) (16 )
Total recognized in other comprehensive income (loss) 33
(48 ) 39
Total recognized in net periodic pension cost and other comprehensive income (loss)
$17

($50 )
$38

Costs under the Company’s Pension ~~costs under defined benefit plans~~Plans are actuarially computed and include current service costs and amortization of prior service costs over the participants’ average future working lifetime. The actuarial cost method used in determining the net periodic pension cost is the projected unit method.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the components of net periodic pension (income) cost for the Company’s ~~qualified and non-qualified plans are presented below:~~Pension Plans:



	Year Ended December 31,
	Qualified Plan									Non-Qualified Plan						Total
(in millions)	2019			2018			2017			2019		2018		2017		2019			2018			2017
Service cost		$3			$3			$3			$—		$—		$—		$3			$3			$3
Interest cost	41			39			42			4		4		4		45			43			46
Expected return on plan assets	(72		)	(79		)	(69		)	—		—		—		(72		)	(79		)	(69		)
Amortization of actuarial loss	17			15			16			2		2		2		19			17			18
Net periodic pension (income) cost⁽¹⁾		($11	)		($22	)		($8	)		$6		$6		$6		($5	)		($16	)		($2	)

Year Ended December 31,
Qualified Plan Non-Qualified Plan Total
(in millions) 2018
2017
2016
2018
2017
2016
2018
2017
2016
Service cost
$3

$3

$3

$—

$—

$—

$3

$3

$3
Interest cost 39
42
44
4
4
4
43
46
48
Expected return on plan assets (79 ) (69 ) (68 ) —
—
—
(79 ) (69 ) (68 )
Amortization of actuarial loss 15
16
14
2
2
2
17
18
16
Net periodic pension (income) cost⁽¹⁾

($22 )
($8 )
($7 )
$6

$6

$6

($16 )
($2 )
($1 )

⁽¹⁾In the Consolidated Statements of Operations, service cost is presented in salaries and employee benefits, and all other components of net periodic pension (income) ~~costs~~cost are presented in other operating expense.

~~Weighted-average rates assumed in determining the actuarial present value of benefit obligations and net periodic benefit cost are presented below:~~

As of and for the Year Ended December 31,
2018
2017
2016
Assumptions for benefit obligations
Discount rate-qualified plan 4.330 % 3.670 % 4.190 %
Discount rate-non-qualified plan 4.240 % 3.530 % 4.050 %
Expected long-term rate of return on plan assets 7.000 % 7.000 % 7.500 %
Assumptions for net periodic pension cost
Discount rate-qualified plan 3.670 % 4.190 % 4.640 %
Discount rate-non-qualified plan 3.530 % 4.050 % 4.540 %
Expected long-term rate of return on plan assets 7.000 % 7.000 % 7.500 %

~~On September 12, 2018, Citizens made a contribution of $50 million to~~



		Citizens Financial Group, Inc. \| 136

The following table presents the qualified plan. No contribution was made to the qualified plan in 2017. Citizens expects to contribute approximately $9 million to the non-qualified plan in 2019. No contribution to the qualified plan is planned in 2019.

~~Expected~~expected future benefit payments for the ~~qualified and non-qualified plans are presented below:~~Company’s Pension Plans:



	(in millions)
Expected benefit payments by fiscal year ending:
December 31, ~~2019~~2020		$6467
~~December 31, 2020~~	64
December 31, 2021	6568
December 31, 2022	6668
December 31, 2023	6768
December 31, 2024 ~~- 2028~~	~~340~~69

~~Fair Value Measurements~~

~~The following valuation techniques are used to measure the qualified pension plan assets at fair value:~~

~~Cash and money market funds and U.S government obligations:~~

Cash and money market funds represent instruments that generally mature in one year or less and are valued at cost, which approximates fair value. U.S. government obligations are valued at quoted prices in active markets for identical assets. These investments are classified as Level 1.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Non-U.S government obligations, municipal obligations, corporate bonds, bank loans, and asset-backed securities:~~

Non-U.S. government obligations, municipal obligations, corporate bonds, bank loans, and asset-backed securities are valued at the quoted market prices determined in the active markets in which the securities are traded. If quoted market prices are not available, the fair value for the security is estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. These investments are classified as Level 2, because they currently trade in active markets for similar securities and the inputs to the valuations are observable.

~~The following table presents qualified pension plan assets measured at fair value within the fair value hierarchy:~~

Fair Value Measurements as of December 31, 2018
(in millions) Total
Level 1
Level 2
Level 3
Assets:
Cash and money market funds
$12

$12

$—

$—
Managed portfolio assets:
U.S. government obligations 5
5
—
—
Non-U.S. government obligations 1
—
1
—
Municipal obligations 1
—
1
—
Corporate bonds 99
—
99
—
Bank loans 1
—
1
—
Total assets in the fair value hierarchy 119
17
102
—
Investments measured at net asset value ⁽¹⁾
931

Assets at fair value at measurement date of December 31, 2018
$1,050

$17

$102

$—

⁽¹⁾~~Certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.~~

~~The following table presents qualified pension plan assets measured at fair value within the fair value hierarchy:~~

Fair Value Measurements as of December 31, 2017
(in millions) Total
Level 1
Level 2
Level 3
Assets:
Managed portfolio assets
U.S. government obligations
$8

$—

$8

$—
Non-U.S. government obligations 2
—
2
—
Municipal obligations 1
—
1
—
Corporate bonds 102
—
102
—
Asset-backed securities 1
—
1
—
Total assets in the fair value hierarchy 114
—
114
—
Investments measured at net asset value ⁽¹⁾
1,024

Assets at fair value at measurement date of December 31, 2017
$1,138

$—

$114

$—

⁽¹⁾~~Certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.~~

~~There were no transfers among Levels 2 or 3 during the years ended December 31, 2018and 2017. The fair values of participation units held in the common and collective funds and limited partnerships are based on NAV.~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table presents the unfunded commitments, redemption frequency and redemption notice period for Plan investments that utilize net asset value to determine fair value:~~

Fair Value Estimated Using Net Asset Value per Share December 31,
Unfunded Redemption Redemption Redemption
Investment (dollars in millions) 2018
2017
Commitment Frequency Restrictions Notice Period
Liquid Cash Fund
$—

$11
$— Daily None Same day before 5:30pm ET
Common and Collective Funds:
     Global equities funds 399
472
— Daily None 3 days
     Balanced funds 221
214
— Daily None 2 days
     Fixed income fund 139
150
— Daily None 3 days
Managed Portfolio - Fixed Income Mutual Fund ⁽¹⁾
32
35
— Daily None 1 days
Limited Partnerships:
     Global equity fund 140
142
— Monthly None 3 days
Total
$931

$1,024
$—

⁽¹⁾ ~~The managed portfolio fixed income mutual fund seeks to outperform the Barclay’s U.S. Long Credit Index or similar benchmark.~~

~~Postretirement Benefits~~

Citizens provides health care insurance benefits to eligible retirees and their spouses, domestic partners and eligible dependents through age 65, at which time Medicare becomes the primary coverage provider. Employees enrolled in medical coverage immediately prior to retirement and meeting eligibility requirements can elect retiree medical coverage. Coverage must be elected at the time of retirement and cannot be elected at a future date. Spouses, domestic partners and eligible dependents may be covered only if covered at the time of the employee’s retirement. Citizens reviews coverage on an annual basis and reserves the right to modify or cancel coverage at any renewal date. Effective July 1, 2014, the Company utilizes a private health care exchange to provide medical and dental benefits to current and future Medicare-eligible plan participants. Citizens provides a fixed subsidy to a small, closed group of eligible participants based on the subsidy levels prior to July 1, 2014; eligible participants pay the cost of benefits in excess of the fixed subsidy. The cost of postretirement benefits other than pensions is recognized on an accrual basis during the periods employees provide services to earn those benefits.

~~Expected future benefit payments for the postretirement benefit plan are presented below:~~



	~~(in millions)~~
~~Expected benefit payments by fiscal year ending:~~
December 31, ~~2019~~2025 - 2029	348	$1
~~December 31, 2020~~	1
~~December 31, 2021~~	1
~~December 31, 2022~~	1
~~December 31, 2023~~	1
~~December 31, 2024 - 2028~~	5

~~Citizens expects to contribute approximately $1 million to the postretirement benefit plan during 2019.~~

The discount rate assumed in determining the actuarial present value of benefit obligations was 3.98% as of December 31, 2018 compared with 3.20% as of December 31, 2017. For measurement purposes, the assumed annual rate of increase in the per capita cost of covered health care benefits was 6.5% in December 31, 2018 and is expected to decrease gradually to 5.0% by 2025. On December 31, 2017 the assumed annual rate of increase in the per capita cost of covered health care benefits was 7.0% and was expected to decrease gradually to 5.0% by 2022. Weighted-average rates assumed in determining the net periodic benefit cost of the postretirement benefits plan are as follows:

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

For the Year Ended December 31,
(dollars in millions) 2018
2017
Discount rate 3.200 % 3.530 %
Rate of compensation increase N/A
N/A

401(k) Plan

Citizens sponsors a 401(k) ~~plan~~Plan under which employee tax-deferred/Roth after-tax contributions to the ~~plan~~401(k) Plan are matched by the Company after completion of one year of service. ~~Effective January 1, 2015, contributions were~~Contributions are matched at 100% up to an overall limitation of 4% on a pay period basis. Substantially all employees will receive an additional 2% of earnings after completion of one year of service, subject to limits set by the Internal Revenue Service. Amounts contributed and expensed by the Company were $72 million in 2019 compared to $68 million in 2018 ~~compared to~~and $61 million in ~~2017 and $55 million in 2016.~~2017.

NOTE 15 - ~~RECLASSIFICATIONS OUT OF~~ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in the balances, net of income taxes, of each component of AOCI:



(in millions)	Net Unrealized (Losses) Gains on Derivatives			Net Unrealized (Losses) Gains on Securities			Employee Benefit Plans			Total AOCI
Balance at January 1, 2017		($88	)		($186	)		($394	)		($668	)
Other comprehensive loss before reclassifications	(14		)	(6		)	—			(20		)
Amounts reclassified to the Consolidated Statements of Operations	(16		)	(2		)	31			13
Net other comprehensive (loss) income	(30		)	(8		)	31			(7		)
Reclassification of tax effects resulting from the 2017 Tax Legislation ⁽¹⁾		($25	)		($42	)		($78	)		($145	)
Balance at December 31, 2017		($143	)		($236	)		($441	)		($820	)
Other comprehensive loss before reclassifications	(33		)	(239		)	—			(272		)
Other-than-temporary impairment not recognized in earnings on securities	—			(3		)	—			(3		)
Amounts reclassified to the Consolidated Statements of Operations	33			(12		)	(22		)	(1		)
Net other comprehensive loss	—			(254		)	(22		)	(276		)
Balance at December 31, 2018		($143	)		($490	)		($463	)		($1,096	)
Other comprehensive income before reclassifications	103			501			—			604
Amounts reclassified to the Consolidated Statements of Operations	43			(15		)	48			76
Net other comprehensive income	146			486			48			680
Cumulative effect of change in accounting standards	—			5			—			5
Balance at December 31, 2019		$3			$1			($415	)		($411	)
Primary income statement location of amounts reclassified from AOCI	Net interest income			Securities gains, net			Other operating expense

(in millions) Net Unrealized (Losses) Gains on Derivatives Net Unrealized (Losses) Gains on Securities Employee Benefit Plans Total AOCI
Balance at January 1, 2016
$10

($28 )
($369 )
($387 )
Other comprehensive loss before reclassifications (62 ) (139 ) —
(201 )
Other-than-temporary impairment not recognized in earnings on debt securities —
(17 ) —
(17 )
Amounts reclassified to the Consolidated Statements of Operations (36 ) (2 ) (25 ) (63 )
Net other comprehensive loss (98 ) (158 ) (25 ) (281 )
Balance at December 31, 2016
($88 )
($186 )
($394 )
($668 )
Other comprehensive loss before reclassifications (14 ) (6 ) —
(20 )
Amounts reclassified to the Consolidated Statements of Operations (16 ) (2 ) 31
13
Net other comprehensive loss (30 ) (8 ) 31
(7 )
Reclassification of tax effects resulting from the 2017 Tax Legislation ⁽¹⁾

($25 )
($42 )
($78 )
($145 )
Balance at December 31, 2017
($143 )
($236 )
($441 )
($820 )
Other comprehensive loss before reclassifications (33 ) (239 ) —
(272 )
Other-than-temporary impairment not recognized in earnings on debt securities —
(3 ) —
(3 )
Amounts reclassified to the Consolidated Statements of Operations 33
(12 ) (22 ) (1 )
Net other comprehensive loss —
(254 ) (22 ) (276 )
Balance at December 31, 2018
($143 )
($490 )
($463 )
($1,096 )

⁽¹⁾ As of December 31, 2017, the balance of AOCI reflects the retrospective adoption of FASB ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ~~For further discussion, see Note 22 “Income Taxes.”~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table presents the amounts reclassified out of each component of AOCI and into the Consolidated Statements of Operations:~~

Year Ended December 31,
(in millions) 2018
2017
2016

Details about AOCI Components Affected Line Item in the Consolidated Statements of Operations
Reclassification adjustment for net derivative (losses) gains included in net income:
($55 )
$25

$90
Interest income
12
—
(27 ) Interest expense
—
—
(5 ) Other income
(43 ) 25
58
Income before income tax expense
(10 ) 9
22
Income tax expense

($33 )
$16

$36
Net income
Reclassification of net securities gains (losses) to net income:
$19

$11

$16
Securities gains, net
(3 ) (7 ) (12 ) Net debt securities impairment losses recognized in earnings
16
4
4
Income before income tax expense
4
2
2
Income tax expense

$12

$2

$2
Net income
Reclassification of changes related to the employee benefit plan:
$33

($48 )
$39
Salaries and employee benefits
33
(48 ) 39
Income before income tax expense
11
(17 ) 14
Income tax expense

$22

($31 )
$25
Net income
Total reclassification gains (losses)
$1

($13 )
$63
Net income

~~The following table presents the effects on net income of the amounts reclassified out of AOCI:~~



		Citizens Financial Group, Inc. \| 137

Year Ended December 31,
(in millions) 2018
2017
2016
Net interest income (includes ($43), $25 and $63 of AOCI reclassifications, respectively)
$4,532

$4,173

$3,758
Provision for credit losses 326
321
369
Noninterest income (includes $16, $4 and ($1) of AOCI reclassifications, respectively) 1,596
1,534
1,497
Noninterest expense (includes ($33), $48 and ($39) of AOCI reclassifications, respectively) 3,619
3,474
3,352
Income before income tax expense 2,183
1,912
1,534
Income tax expense (includes $5, ($6) and $38 income tax net expense from reclassification items, respectively) 462
260
489
Net income
$1,721

$1,652

$1,045

NOTE 16 - STOCKHOLDERS’ EQUITY

Preferred Stock

The following table provides the number of authorized preferred shares, the number of issued and outstanding, the liquidation value per share and the carrying amount as of December 31:


		2018		2017				2019			2018
(in millions, except per share and share data)	Liquidation value per share	Preferred Shares	Carrying Amount	Preferred Shares	Carrying Amount	Liquidation value per share		Preferred Shares		Carrying Amount	Preferred Shares	Carrying Amount
Authorized ($25 par value)		100,000,000		100,000,000				100,000,000			100,000,000
Issued and outstanding
Series A	$1,000	250,000	$247	250,000	$247	$1,000		250,000		$247	250,000	$247
Series B	1,000	300,000	296	—	—	1,000		300,000		296	300,000	296
Series C	1,000	300,000	297	—	—	1,000		300,000		297	300,000	297
Series D						1,000	⁽¹⁾	300,000	⁽²⁾	293	—	—
Series E						1,000	⁽¹⁾	450,000	⁽³⁾	437	—	—
Total issued and outstanding		850,000	$840	250,000	$247			1,600,000		$1,570	850,000	$840

~~CITIZENS FINANCIAL GROUP, INC.~~⁽¹⁾ Equivalent to $25 per depositary share.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~⁽²⁾ Represented by 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.

⁽³⁾Represented by 18,000,000 depositary shares each representing a 1/40th interest in the Series E Preferred Stock.

The following table provides information related to the Company’s preferred stock outstanding as of December 31, ~~2018:~~2019:



(in millions, except per share and share data)
Preferred Stock⁽¹⁾	Issue Date	Number of Shares Issued	Dividend Dates⁽²⁾⁽³⁾	Annual Per Share Dividend Rate	Optional Redemption Date⁽³⁾⁽⁴⁾
Series A⁽¹⁾	April 6, 2015	250,000	Semi-annually beginning October 6, 2015 until April 6, 2020	5.500% until April 6, 2020	April 6, 2020
			Quarterly beginning July 6, 2020	3 Mo. LIBOR plus 3.960% beginning April 6, 2020
Series B⁽¹⁾	May 24, 2018	300,000	Semi-annually beginning January 6, 2019 until July 6, 2023	6.000% until July 6, 2023	July 6, 2023
			Quarterly beginning October 6, 2023	3 Mo. LIBOR plus 3.003% beginning July 6, 2023
Series C⁽¹⁾	October 25, 2018	300,000	Quarterly beginning January 6, 2019 until April 6, 2024	6.375% until April 6, 2024	April 6, 2024
			Quarterly beginning July 6, 2024	3 Mo. LIBOR plus 3.157% beginning April 6, 2024
Series D⁽¹⁾	January 29, 2019	300,000⁽⁵⁾	Quarterly beginning April 6, 2019 until April 6, 2024	6.350% until April 6, 2024	April 6, 2024
			Quarterly beginning July 6, 2024	3 Mo. LIBOR plus 3.642% beginning April 6, 2024
Series E⁽²⁾	October 28, 2019	450,000⁽⁶⁾	Quarterly beginning January 6, 2020	5.000%	January 6, 2025

⁽¹⁾ ~~All outstanding series~~ Series are non-cumulative fixed-to-floating rate perpetual preferred stock. Except in limited circumstances, the preferred stock does not have voting rights.

⁽²⁾ Series are non-cumulative fixed rate perpetual preferred stock. Except in limited circumstances, the preferred stock does not have voting rights.

⁽³⁾ Dividends are payable when, and if, declared by the Company’s Board of Directors or an authorized committee thereof.

⁽³⁾⁽⁴⁾ Redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after the date stated, or in whole but not in part, at any time within 90 days following a regulatory capital treatment event a as defined in the applicable certificate of designations, in each case at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Under current rules, any redemption is subject to approval by the FRB.

~~On January 29, 2019, the Company issued $300 million, or~~⁽⁵⁾ Represented by 12,000,000 depositary shares each representing a 1/40th interest in a share of its 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, liquidation preference of $1,000 per share (equivalent to $25 per depositary share) (the “Series D Preferred Stock”). The Company received net proceeds of $293 million after the underwriting discount and other expenses. The Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, at a rate equal to 6.350% per annum from the date of issuance to, but excluding, April 6, 2024, and thereafter at a floating rate per annum equal to three-month LIBOR plus 3.642%, payable quarterly, in arrears, beginning July 6, 2024. The Series D Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date, on or after April 6, 2024, or in whole but not in part, at any time within the 90 days following a regulatory capital treatment event, in each case at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends. The Company may not redeem shares of the Series D Preferred ~~Stock without obtaining the prior approval of the FRB if then required under applicable capital guidelines. Except~~Stock.

⁽⁶⁾ Represented by 18,000,000 depositary shares each representing a 1/40th interest in ~~certain limited circumstances,~~ the Series DE Preferred ~~Stock does not have any voting rights.~~Stock.



		Citizens Financial Group, Inc. \| 138

Dividends

The following table provides information related to dividends per share and in the aggregate, declared and paid, for each type of stock issued and outstanding for the year ended December 31:



	2019						2018						2017
(in millions, except per share and share data)	Dividends per Share		Dividends Declared		Dividends Paid		Dividends per Share		Dividends Declared		Dividends Paid		Dividends per Share		Dividends Declared		Dividends Paid
Common stock		$1.36		$617		$617		$0.98		$471		$471		$0.64		$322		$322
Preferred stock
Series A		$55.00		$14		$14		$55.00		$14		$14		$55.00		$14		$14
Series B	60.00		18		20		37.00		11		—		—		—		—
Series C	63.75		19		18		12.57		4		—		—		—		—
Series D	59.45		18		13		—		—		—		—		—		—
Series E	9.44		4		—		—		—		—		—		—		—
Total preferred stock				$73		$65				$29		$14				$14		$14

2018 2017 2016
(in millions, except per share and share data) Dividends per Share Dividends Declared Dividends Paid Dividends per Share Dividends Declared Dividends Paid Dividends per Share Dividends Declared Dividends Paid
Common stock
$0.98

$471

$471

$0.64

$322

$322

$0.46

$241

$241
Preferred stock
   Series A
$55.00

$14

$14

$55.00

$14

$14

$55.00

$14

$14
   Series B 37.00
11
—
—
—
—
—
—
—
   Series C 12.57
4
—
—
—
—
—
—
—
Total preferred stock
$29

$14

$14

$14

$14

$14

Treasury Stock

The purchase of the Company’s common stock is recorded at cost. At the date of retirement or subsequent reissuance, treasury stock is reduced by the cost of such stock on a first-in, first-out basis with differences recorded in additional paid-in capital or retained earnings, as applicable.

During the year ended December 31, ~~2018,~~2019, the Company paid ~~$1.025~~$1.220 billion to repurchase ~~25,773,807~~34,305,768 common shares at a weighted-average price of ~~$39.77; $1.025 billion was recorded in treasury stock. The repurchased~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~shares are held in treasury stock.~~$35.56. During the year ended December 31, ~~2018,~~2019, the Company recorded no0 shares of treasury stock associated with share-based compensation plan activity.

During the year ended December 31, ~~2017,~~2018, the Company paid ~~$820 million~~$1.025 billion to repurchase ~~22,362,401~~25,773,807 common shares at an average price of ~~$36.67; $845 million was recorded in treasury stock and $25 million was recorded in additional paid in capital. The repurchased shares are held in treasury stock.~~$39.77. During the year ended December 31, ~~2017,~~2018, the Company recorded no0 shares of treasury stock associated with share-based compensation plan activity.

NOTE 17 - SHARE-BASED COMPENSATION

Citizens has share-based employee compensation plans as outlined below, pursuant to which stock awards are granted to employees and non-employee directors.

Employees of the Company hold time-based restricted stock units and performance-based restricted stock units. A restricted stock unit is the right to receive shares of stock on a future date, which may be subject to time-based vesting conditions and/or performance-based vesting conditions. If a dividend is paid on shares underlying the awards prior to the date such shares are distributed, those dividends will be distributed following vesting in the same form as the dividend that has been paid to common stockholders generally.

Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan. Certain employees of the Company hold time-based restricted stock units and performance-based restricted stock units granted under this plan. Time-based restricted stock units granted generally become vested ratably over a ~~three-year~~3-year period and performance-based restricted stock units granted generally become vested in a single installment at the end of a ~~three-year~~3-year performance period, depending on the level of performance achieved during such period.

Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan. Non-employee directors receive grants of time-based restricted stock units under this plan as compensation for their services pursuant to the Citizens Financial Group, Inc. Directors Compensation Policy. Restricted stock units granted to directors are fully vested on the grant date, with settlement of the awards deferred until a director’s cessation of service.

Citizens Financial Group, Inc. 2014 Employee Stock Purchase Plan. Citizens also maintains the Citizens Financial Group, Inc. Employee Stock Purchase Plan (the “ESPP”), which provides eligible employees an opportunity to purchase its common stock at a 10% discount, through accumulated payroll deductions. Eligible employees may contribute up to 10% of eligible compensation to the ESPP, up to a maximum purchase of $25,000 worth of stock in any calendar year. Offering periods under the ESPP are quarterly. Shares of CFG common stock are purchased for a participant on the last day of each quarter at a 10% discount from the fair market value (fair market value under the plan is defined as the closing price on the day of purchase). Prior to the date the shares are purchased, participants do not have any rights or privileges as a stockholder with respect to shares to be purchased at the end of the offering period.



		Citizens Financial Group, Inc. \| 139

Summary of Share-Based Plans Activity

The following table presents the activity related to the Company’s share-based plans (excluding the ESPP) for the year ended December 31, ~~2018:~~2019:



	Shares Underlying Awards		Weighted-Average Grant Price
Outstanding, January 1	2,893,281			$34.04
Granted	1,677,167		36.21
Vested & Distributed	(1,518,836	)	32.21
Forfeited	(51,388	)	38.29
Outstanding, December 31	3,000,224			$36.71

Shares
Underlying Awards Weighted-Average Grant Price
Outstanding, January 1 2,621,514

$33.30
Granted 1,174,501
39.54
Vested & Distributed (877,111 ) 30.50
Forfeited (25,623 ) 35.88
Outstanding, December 31 2,893,281

$34.04

During the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, the following number of CFG share awards were granted: ~~2018: (1,174,501~~2019 (1,677,167 granted with a weighted-average grant price of $36.21); 2018 (1,174,501 granted with weighted-average grant price of $39.54); and 2017 (1,256,816 granted with weighted-average grant price of $39.09)~~; and 2016 (1,552,416 granted with weighted-average grant price of $24.53)~~.

In addition, the following number of CFG share awards became vested and distributed: ~~2018 (877,111~~2019 (1,518,836 vested and distributed with a weighted-average grant price of $32.21); 2018 (877,111 vested with weighted-average grant price of $30.50); and 2017 (1,426,850 vested with weighted-average grant price of $21.91)~~; and 2016 (1,762,655 vested with weighted-average grant price of $22.14)~~.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

There are ~~49,742,766~~48,116,987 shares of Company common stock available for awards to be granted under the Omnibus Plan and Directors Plan. In addition, there are ~~6,255,128~~5,782,877 shares available for awards under the ESPP. Upon settlement of share-based awards, the Company generally issues new shares, but may also issue shares from treasury stock.

~~Compensation Expense~~

Citizens measures compensation expense related to stock awards based upon the fair value of the awards on the grant date. Compensation expense is adjusted for forfeitures as they occur. The related expense is charged to earnings on a straight-line basis over the requisite service period (e.g., vesting period) of the award. With respect to performance-based stock awards, compensation expense is adjusted upward or downward based upon the probability of achievement of performance. Awards that continue to vest after retirement are expensed over the shorter of the period of time from grant date to the final vesting date or from the grant date to the date when an employee is retirement eligible. Awards granted to employees who are retirement eligible at the grant date are generally expensed immediately upon grant.

~~Compensation~~Share-based compensation expense ~~related to the share plans~~ (including ~~the~~ ESPP) was $55 million, $41 million, and $39 ~~million, and $23~~ million for the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, respectively. At December 31, ~~2018,~~2019, the total unrecognized compensation expense for nonvested equity awards granted was ~~$41~~$47 million. This expense is expected to be recognized over a weighted-average period of approximately two years. No share-based compensation costs were capitalized during the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016.~~2017.

The income tax benefit recognized in earnings based on the compensation expense recognized for all share-based compensation arrangements amounted to $1 million, $3 million ~~$9 million~~ and $8$9 million for the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, respectively.

NOTE 18 - COMMITMENTS AND CONTINGENCIES

A summary of outstanding off-balance sheet arrangements is presented below:



	December 31,
(in millions)	2019		2018
Commitments to extend credit		$72,743		$69,553
Letters of credit	2,190		2,125
Risk participation agreements	37		19
Loans sold with recourse	37		5
Marketing rights	33		37
Total		$75,040		$71,739

December 31,
(in millions) 2018
2017
Undrawn commitments to extend credit
$69,553

$62,959
Letters of credit 2,125
2,136
Marketing rights 37
41
Risk participation agreements 19
16
Residential mortgage loans sold with recourse 5
7
Total
$71,739

$65,159



		Citizens Financial Group, Inc. \| 140

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.

The Company’s commercial loan trading desk provides ongoing secondary market support and liquidity to its clients. Unsettled loan trades (i.e., loan purchase contracts) represent firm commitments to purchase loans from a third party at an agreed-upon price. Principal amounts associated with unsettled commercial loan trades are off-balance sheet commitments until delivery of the loans has taken place. The principal balances of unsettled commercial loan trade purchases and sales were $183 million and $236 million, respectively, at December 31, 2019 and $68 million and $161 million, respectively, at December 31, 2018.

Letters of Credit

Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Standby letters of credit, both financial and performance, are issued by the Company for its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). ~~Commercial letters of credit are used to facilitate the import of goods. The commercial letter of credit is used as the method of payment to the Company’s customers’ suppliers.~~ The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments, net of the value of collateral held. ~~Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.~~

Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of reserves for unfunded commitments.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Citizens recognizes a liability on the Consolidated Balance Sheets representing its obligation to stand ready to perform over the term of the standby~~ Standby letters of credit ~~in the event that the specified triggering events occur. The liability~~and commercial letters of credit are issued for ~~these guarantees was $3 million at December 31, 2018 and 2017.~~

~~Marketing Rights~~

During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania. The Company paid $4 million and $3 million for the years ended December 31, 2018 and 2017, respectively, and is obligated to pay $37 million over the remainder of the contract.

~~Risk Participation Agreements~~

~~RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the~~ terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that anyup to ten years and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment.

RPAs where the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer. The Company’s estimate of the credit exposure associated with its risk participations-in as of December 31, 2018 and 2017 is $19 million and $16 million, respectively. The current amount of credit exposure is spread out over 84 counterparties. RPAs generally have terms ranging from one ~~to five years; however, certain outstanding agreements have terms as long as ten years.~~year, respectively.

~~Residential Loans Sold with Recourse~~

Citizens is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to government-sponsored entities. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties.

Other Commitments

~~The Company’s commercial loan trading desk provides ongoing~~Citizens has additional off-balance sheet arrangements that are summarized below:


•	Marketing Rights - During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.

Loans sold with recourse - Citizens is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market ~~support~~ and ~~liquidity~~ to its clients. Unsettled loan trades (i.e., loan purchase contracts) represent firm commitments to purchase loans from a third party at an agreed-upon price. Principal amounts associated with unsettled commercial loan trades are off-balance sheet commitments until deliveryGSEs. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans ~~has taken place. Fair value adjustments associated with each unsettled loan trade are recognized on~~and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. The Company also sells the ~~Consolidated Balance Sheets and classified within other assets or other liabilities, depending on whether~~government guaranteed portion of certain SBA loans to outside investors, for which it retains the fair value of the unsettled trade represents an unrealized gain or unrealized loss. The principal balances of unsettled commercial loan trade purchases and sales were $68 million and $161 million, respectively, at December 31, 2018 and $65 million and $132 million, respectively, at December 31, 2017. Settled loans purchased by the trading desk are classified as loans held for sale, at fair value on the Consolidated Balance Sheets. Refer to Note 19 “Fair Value Measurements” for further information.servicing rights.

•

Risk Participation Agreements - RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. The current amount of credit exposure is spread out over 89 counterparties. RPAs generally have terms ranging from one year to five years; however, certain outstanding agreements have terms as long as ten years.

Contingencies

The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations, which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, mortgage-related issues, and mis-selling of certain products. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.

In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, and based on the Company's experience, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important



		Citizens Financial Group, Inc. \| 141

factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question.

The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.

Based on information currently available, the advice of legal counsel and other advisers, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s Consolidated Financial Statements.

NOTE 19 - FAIR VALUE MEASUREMENTS

Citizens measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Citizens also applies the fair value measurement guidance to determine amounts reported for certain disclosures in this Note for assets and liabilities that are not required to be reported at fair value in the financial statements.

Fair Value Option

Citizens elected to account for residential mortgage ~~loans held for sale~~LHFS and certain commercial and commercial real estate ~~loans held for sale~~LHFS at fair value. The election of the fair value option for financial assets and financial liabilities is optional and irrevocable. Applying fair value accounting to the residential mortgage ~~loans held for sale~~LHFS better aligns the reported results of the economic changes in the value of these loans and their related economic hedge instruments. Certain commercial and commercial real estate held for sale loans are managed by a commercial secondary loan desk that provides liquidity to banks, finance companies and institutional investors. Applying fair value accounting to this portfolio is appropriate because the Company holds these loans with the intent to sell within the near-term periods.

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of LHFS measured at fair value:



	December 31, 2019							December 31, 2018
(in millions)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal			Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value		$1,778		$1,727		$51			$967		$967		$—
Commercial and commercial real estate loans held for sale, at fair value	168		175		(7		)	252		252		—

Residential Mortgage Loans Held for Sale

The fair value of residential mortgage ~~loans held for sale~~LHFS is derived from observable mortgage security prices and includes adjustments for loan servicing value, agency guarantee fees, and other loan level attributes which are mostly observable in the marketplace. Credit risk does not significantly impact the valuation since these loans are sold shortly after origination. Therefore, the Company classifies the residential mortgage ~~loans held for sale~~LHFS in Level 2 of the fair value hierarchy.

~~The election of the fair value option for financial assets and financial liabilities is optional and irrevocable.~~ The residential mortgage loans accounted for under the fair value option are initially measured at fair value (i.e., acquisition cost) when the financial asset is acquired. Subsequent changes in fair value are recognized in mortgage banking fees on the Consolidated Statements of Operations. The Company recognized changes in fair value in mortgage banking income of $6 million ~~$6 million, and ($5) million~~ for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016, respectively.~~2017.

Interest income on residential mortgage loans held for sale is calculated based on the contractual interest rate of the loan and is recorded in interest income.



		Citizens Financial Group, Inc. \| 142

Commercial and Commercial Real Estate Loans Held for Sale

The fair value of commercial and commercial real estate ~~loans held for sale~~LHFS is estimated using observable prices of similar loans that transact in the marketplace. In addition, Citizens uses external pricing services that provide estimates of fair values based on quotes from various dealers transacting in the market, sector curves or

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

benchmarking techniques. Therefore, the Company classifies the commercial and commercial real estate loans managed by the commercial secondary loan desk in Level 2 of the fair value hierarchy given the observable market inputs.

There were no loans in this portfolio that were 90 days or more past due or nonaccruing as of December 31, ~~2018.~~2019. The loans accounted for under the fair value option are initially measured at fair value when the financial asset is recognized. Subsequent changes in fair value are recognized in other noninterest income on the Consolidated Statements of Operations. Since all loans in the Company’s commercial trading portfolio consist of floating rate obligations, all changes in fair value are due to changes in credit risk. Such credit-related fair value changes may include observed changes in overall credit spreads and/or changes to the creditworthiness of an individual borrower. Unsettled trades within the commercial trading portfolio are not recognized on the Consolidated Balance Sheets and represent off-balance sheet commitments. Refer to Note 18 ~~“Commitments and Contingencies”~~ for further information.

Interest income on commercial and commercial real estate loans held for sale is calculated based on the contractual interest rate of the loan and is recorded in interest income. Citizens recognized $5 million, ($2) ~~million, $4~~ million and $4 million for the years ended December 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively, in other noninterest income related to its commercial trading portfolio.

~~The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale measured at fair value:~~

December 31, 2018 December 31, 2017
(in millions) Aggregate Fair Value Aggregate Unpaid Principal Aggregate Fair Value Less Aggregate Unpaid Principal Aggregate Fair Value Aggregate Unpaid Principal Aggregate Fair Value Less Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value
$967

$967

$—

$326

$326

$—
Commercial and commercial real estate loans held for sale, at fair value 252
252
—
171
171
—

Recurring Fair Value Measurements

Citizens measures fair value using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices in an active market, where available. If quoted prices are not available, observable market-based inputs or independently sourced parameters are used to develop fair value, whenever possible. Such inputs may include prices of similar assets or liabilities, yield curves, interest rates, prepayment speeds, and foreign exchange rates.

A portion of the Company’s assets and liabilities isare carried at fair value, including securities available for sale, derivative instruments and other investment securities. In addition, the Company elects to account for its loans associated with its mortgage banking business and secondary loan trading desk at fair value. Citizens classifies its assets and liabilities that are carried at fair value in accordance with the three-level valuation hierarchy:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by market data for substantially the full term of the asset or liability.

Level 3. Unobservable inputs that are supported by little or no market information and that are significant to the fair value measurement.

Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Levels 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Citizens reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on period-end balances.



		Citizens Financial Group, Inc. \| 143

Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value. The valuation methodologies used for significant assets and liabilities carried on the balance sheet at fair value on a recurring basis are presented below:

Debt securities available for sale

The fair value of debt securities classified as AFS is based upon quoted prices, if available. Where observable quoted prices are available in an active market, the security is classified as Level 1 in the fair value hierarchy. Classes of instruments that are valued using this market approach include debt securities issued by the U.S. Treasury. If quoted market prices are not available, the fair value for the security is estimated under the market or income approach using pricing models. These instruments are classified as Level 2 because they currently trade in active markets and the inputs to the valuations are observable. The pricing models used to value securities generally begin with market prices (or rates) for similar instruments and make adjustments based on the characteristics of the instrument being valued. These adjustments reflect assumptions made regarding the sensitivity of each security’s value to changes in interest rates and prepayment speeds. Classes of instruments that are valued using this market approach include specified pool mortgage “pass-through” securities and other debt securities issued by U.S. government-sponsored entities and state and political subdivisions. The pricing models used to value securities under the income approach generally begin with the contractual cash flows of each security and make adjustments based on forecasted prepayment speeds, default rates, and other market-observable information. The adjusted cash flows are then discounted at a rate derived from observed rates of return for comparable assets or liabilities that are traded in the market. Classes of instruments that are valued using this market approach include residential and commercial CMOs.

A significant majority of the Company’s Level 1 and 2 debt securities are priced using an external pricing service. Citizens verifies the accuracy of the pricing provided by its primary outside pricing service on a quarterly basis. This process involves using a secondary external vendor to provide valuations for the Company’s securities portfolio for comparison purposes. Any valuation discrepancies beyond a certain threshold are researched and, if necessary, corroborated by an independent outside broker.

In certain cases where there is limited activity or less transparency around inputs to the valuation model, securities are classified as Level 3.

~~Residential loans held for sale~~

~~See the~~ “~~Fair Value Option, Residential Mortgage Loans Held for Sale” discussion above.~~

~~Commercial loans held for sale~~

~~See the~~ “~~Fair Value Option, Commercial and Commercial Real Estate Loans Held for Sale” discussion above.~~

Mortgage Servicing Rights — Fair Value Method

MSRs do not trade in an active market with readily observable prices. MSRs are classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. The fair value was calculated using a discounted cash flow model which used assumptions, including weighted-average life, prepayment assumptions and weighted-average option adjusted spread. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio, and comparisons to market transactions. In addition, the MSR Policy is approved by the Asset Liability Committee. Refer to Note ~~8 “Mortgage Banking”~~7 for more information.

Derivatives

The vast majority of the Company’s derivatives portfolio is composed of “plain vanilla” interest rate swaps, which are traded in over-the-counter markets where quoted market prices are not readily available. For these interest rate derivatives, fair value is determined utilizing models that primarily use market observable inputs, such as swap rates and yield curves. The pricing models used to value interest rate swaps calculate the sum of each instrument’s fixed and variable cash flows, which are then discounted using an appropriate yield curve (i.e., LIBOR or Overnight Index Swap curve) to arrive at the fair value of each swap. The pricing models do not contain a high level of subjectivity as the methodologies used do not require significant judgment. Citizens also considers certain

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

adjustments to the modeled price that market participants would make when pricing each instrument, including a credit valuation adjustment that reflects the credit quality of the swap counterparty. Citizens incorporates the effect of exposure to a particular counterparty’s credit by netting its derivative contracts with the available collateral and calculating a credit valuation adjustment on the basis of the net position with the counterparty where permitted. The determination of this adjustment requires judgment on behalf of Company management; however, the total amount of this portfolio-level adjustment is not material to the total fair value of the interest rate swaps in their entirety. Therefore, interest rate swaps are classified as Level 2 in the valuation hierarchy.

The Company’s other derivatives include foreign exchange contracts. The fair value of foreign exchange derivatives uses the mid-point of daily quoted currency spot prices. A valuation model estimates fair value based



		Citizens Financial Group, Inc. \| 144

on the quoted spot rates together with interest rate yield curves and forward currency rates. Since all of these inputs are observable in the market, foreign exchange derivatives are classified as Level 2 in the fair value hierarchy.

Money Market Mutual Fund Investments

Fair value is determined based upon unadjusted quoted market prices and is considered a Level 1 fair value measurement.

~~Other equity securities~~

The ~~fair values of the Company’s other equity securities are based on security prices in markets that are not active; therefore, these investments are classified as Level 2 in the~~following table presents assets and liabilities measured at fair value, ~~hierarchy.~~including gross derivative assets and liabilities on a recurring basis at December 31, 2019:



(in millions)	Total		Level 1		Level 2		Level 3
Debt securities available for sale:
Mortgage-backed securities		$20,537		$—		$20,537		$—
State and political subdivisions	5		—		5		—
U.S. Treasury and other	71		71		—		—
Total debt securities available for sale	20,613		71		20,542		—
Loans held for sale, at fair value:
Residential loans held for sale	1,778		—		1,778		—
Commercial loans held for sale	168		—		168		—
Total loans held for sale, at fair value	1,946		—		1,946		—
Mortgage servicing rights	642		—		—		642
Derivative assets:
Interest rate contracts	773		—		773		—
Foreign exchange contracts	174		—		174		—
Other contracts	37		—		18		19
Total derivative assets	984		—		965		19
Equity securities, at fair value:
Money market mutual fund investments	47		47		—		—
Total equity securities, at fair value	47		47		—		—
Total assets		$24,232		$118		$23,453		$661
Derivative liabilities:
Interest rate contracts		$133		$—		$133		$—
Foreign exchange contracts	166		—		166		—
Other contracts	23		—		23		—
Total derivative liabilities	322		—		322		—
Total liabilities		$322		$—		$322		$—



		Citizens Financial Group, Inc. \| 145

The following table presents assets and liabilities measured at fair value including gross derivative assets and liabilities on a recurring basis at December 31, 2018:



(in millions)	Total		Level 1		Level 2		Level 3
Debt securities available for sale:
Mortgage-backed securities		$19,866		$—		$19,866		$—
State and political subdivisions	5		—		5		—
U.S. Treasury and other	24		24		—		—
Total debt securities available for sale	19,895		24		19,871		—
Loans held for sale, at fair value:
Residential loans held for sale	967		—		967		—
Commercial loans held for sale	252		—		252		—
Total loans held for sale, at fair value	1,219		—		1,219		—
Mortgage servicing rights	600		—		—		600
Derivative assets:
Interest rate contracts	306		—		306		—
Foreign exchange contracts	129		—		129		—
Other contracts	14		—		14		—
Total derivative assets	449		—		449		—
Equity securities, at fair value:
Money market mutual fund investments	181		181		—		—
Total equity securities, at fair value	181		181		—		—
Total assets		$22,344		$205		$21,539		$600
Derivative liabilities:
Interest rate contracts		$277		$—		$277		$—
Foreign exchange contracts	113		—		113		—
Other contracts	25		—		25		—
Total derivative liabilities	415		—		415		—
Total liabilities		$415		$—		$415		$—

(in millions) Total
Level 1
Level 2
Level 3
Debt securities available for sale:
Mortgage-backed securities
$19,866

$—

$19,866

$—
State and political subdivisions 5
—
5
—
U.S. Treasury and other 24
24
—
—
Total debt securities available for sale 19,895
24
19,871
—
Loans held for sale, at fair value:
Residential loans held for sale 967
—
967
—
Commercial loans held for sale 252
—
252
—
Total loans held for sale, at fair value 1,219
—
1,219
—
Mortgage servicing rights 600
—
—
600
Derivative assets
Interest rate contracts 306
—
306
—
Foreign exchange contracts 129
—
129
—
Other contracts 14
—
14
—
Total derivative assets 449
—
449
—
Equity securities, at fair value:
Money market mutual fund investments 181
181
—
—
Other investments —
—
—
—
Total equity securities, at fair value 181
181
—
—
Total assets
$22,344

$205

$21,539

$600
Derivative liabilities
Interest rate contracts
$277

$—

$277

$—
Foreign exchange contracts 113
—
113
—
Other contracts 25
—
25
—
Total derivative liabilities 415
—
415
—
Total liabilities
$415

$—

$415

$—

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table presents assets and liabilities measured at fair value including gross derivative assets and liabilities on a recurring basis at December 31, 2017:~~

(in millions) Total
Level 1
Level 2
Level 3
Debt securities available for sale:
Mortgage-backed securities
$20,139

$—

$20,139

$—
State and political subdivisions 6
—
6
—
U.S. Treasury and other 12
12
—
—
Total debt securities available for sale 20,157
12
20,145
—
Loans held for sale, at fair value:
Residential loans held for sale 326
—
326
—
Commercial loans held for sale 171
—
171
—
Total loans held for sale, at fair value 497
—
497
—
Derivative assets
Interest rate contracts 538
—
538
—
Foreign exchange contracts 148
—
148
—
Other contracts 7
—
7
—
Total derivative assets 693
—
693
—
Equity securities, at fair value:
Money market mutual fund investments 165
165
—
—
Other investments 4
—
4
—
Total equity securities, at fair value 169
165
4
—
Total assets
$21,516

$177

$21,339

$—
Derivative liabilities
Interest rate contracts
$379

$—

$379

$—
Foreign exchange contracts 149
—
149
—
Other contracts 5
—
5
—
Total derivative liabilities 533
—
533
—
Total liabilities
$533

$—

$533

$—

The following table present a rollforward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3 for the year ended December 31, ~~2018.~~2019. There were no ~~assets~~other derivative contracts measured at fair value on a recurring basis and classified as Level 3 for the year ended December 31, ~~2017.~~2018.



	~~For the Year Ended December 31,~~
~~(in millions)~~	~~Mortgage Servicing Rights~~
~~Balance at January 1, 2018~~		$—
~~Acquired MSRs~~	~~590~~
~~Amount capitalized~~	73
~~Change in unpaid principal balance during the period~~ ⁽¹⁾	~~(32~~		)
~~Change in fair value during the period~~ ⁽²⁾	~~(31~~		)
~~Balance at December 31, 2018~~		~~$600~~



	For the Year Ended December 31,
	2019						2018
(in millions)	Mortgage Servicing Rights			Other Derivative Contracts			Mortgage Servicing Rights
Beginning balance		$600			$—			$—
Acquired MSRs	—			—			590
Issuances	270			144			73
Settlements ⁽¹⁾	(119		)	(161		)	(32		)
Changes in fair value during the period recognized in earnings⁽²⁾	(109		)	17			(31		)
Transfers from Level 2 to Level 3⁽³⁾	—			18			—
Ending balance		$642			$19			$600

⁽¹⁾ Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial

paydowns, and ii) loans that paid off during the period.

⁽²⁾ Represents changes in value primarily ~~due to~~driven by market ~~driven~~conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.

⁽³⁾Reflects changes in ~~interest rates and prepayment speeds.~~the significance of unobservable inputs on derivative contracts associated with mortgage origination costs.

Nonrecurring Fair Value Measurements

Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include MSRs accounted for by the amortization method and loan impairments for certain loans and leases.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 146

The following valuation techniques are utilized to measure significant assets for which the Company utilizes fair value on a nonrecurring basis:

Impaired Loans

The carrying amount of collateral-dependent impaired loans is compared to the appraised value of the collateral less costs to dispose and is classified as Level 2. Any excess of carrying amount over the appraised value is charged to the ALLL.

Mortgage Servicing Rights — Amortization Method

~~Foreclosed assets~~

Foreclosed assets consist primarily of residential properties. Foreclosed assets are carried at the lower of cost or fair value less costs to sell. Fair value is based upon independent market prices or appraised values of the collateral and is classified as Level 2.

Leased assets

The fair value of assets under operating leases is determined using collateral specific pricing digests, external appraisals, broker opinions, recent sales data from industry equipment dealers, and discounted cash flows derived from the underlying lease agreement. As market data for similar assets and lease agreements is available and used in the valuation, these assets are classified as Level 2 fair value measurement.

The following table presents gains (losses) on assets and liabilities measured at fair value on a nonrecurring basis and recorded in earnings:



	Year Ended December 31,
(in millions)	2019			2018			2017
Impaired collateral-dependent loans		($34	)		($13	)		($35	)
MSRs	(1		)	3			2
Leased assets	(12		)	(7		)	(15		)

Year Ended December 31,
(in millions) 2018
2017
2016
Impaired collateral-dependent loans
($13 )
($35 )
($33 )
MSRs 3
(2 ) (4 )
Foreclosed assets (2 ) (3 ) (3 )
Leased assets (7 ) (15 ) 11

The following table presents assets and liabilities measured at fair value on a nonrecurring basis:



	December 31, 2019								December 31, 2018
(in millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Impaired collateral-dependent loans		$312		$—		$312		$—		$338		$—		$338		$—
MSRs	193		—		—		193		243		—		—		243
Leased assets	57		—		57		—		92		—		92		—

December 31, 2018 December 31, 2017
(in millions) Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Impaired collateral-dependent loans
$338

$—

$338

$—

$393

$—

$393

$—
MSRs 243
—
—
243
218
—
—
218
Foreclosed assets 29
—
29
—
31
—
31
—
Leased assets 92
—
92
—
112
—
112
—



		Citizens Financial Group, Inc. \| 147

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Disclosures about Fair Value of Financial Instruments

The following table presents the estimated fair value for financial instruments not recorded at fair value in the Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:


	December 31, 2018																December 31, 2019
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
(in millions)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Financial assets:
Securities held to maturity		$4,165		$4,041		$—		$—		$4,165		$4,041		$—		$—		$3,202		$3,242		$—		$—		$3,202		$3,242		$—		$—
Equity securities, at cost	834		834		—		—		834		834		—		—		807		807		—		—		807		807		—		—
Other loans held for sale	101		101		—		—		—		—		101		101		1,384		1,384		—		—		—		—		1,384		1,384
Loans and leases	116,660		116,627		—		—		338		338		116,322		116,289		119,088		119,792		—		—		312		312		118,776		119,480
Financial Liabilities:
Financial liabilities:
Deposits	119,575		119,503		—		—		119,575		119,503		—		—		125,313		125,340		—		—		125,313		125,340		—		—
Federal funds purchased and securities sold under agreements to repurchase	1,156		1,156		—		—		1,156		1,156		—		—		265		265		—		—		265		265		—		—
Other short-term borrowed funds	1,653		1,653		—		—		1,653		1,653		—		—		9		9		—		—		9		9		—		—
Long-term borrowed funds	14,433		14,390		—		—		14,433		14,390		—		—		14,047		14,228		—		—		14,047		14,228		—		—



	December 31, 2018
	Total				Level 1				Level 2				Level 3
(in millions)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Securities held to maturity		$4,165		$4,041		$—		$—		$4,165		$4,041		$—		$—
Equity securities, at cost	834		834		—		—		834		834		—		—
Other loans held for sale	101		101		—		—		—		—		101		101
Loans and leases	116,660		116,627		—		—		338		338		116,322		116,289
Financial liabilities:
Deposits	119,575		119,503		—		—		119,575		119,503		—		—
Federal funds purchased and securities sold under agreements to repurchase	1,156		1,156		—		—		1,156		1,156		—		—
Other short-term borrowed funds	161		161		—		—		161		161		—		—
Long-term borrowed funds	15,925		15,877		—		—		15,925		15,877		—		—

December 31, 2017
Total Level 1 Level 2 Level 3
(in millions) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Financial Assets:
Securities held to maturity
$4,685

$4,668

$—

$—

$4,685

$4,668

$—

$—
Equity securities, at cost 722
722
—
—
722
722
—
—
Other loans held for sale 221
221
—
—
—
—
221
221
Loans and leases 110,617
111,168
—
—
393
393
110,224
110,775
Financial Liabilities:
Deposits 115,089
115,039
—
—
115,089
115,039
—
—
Federal funds purchased and securities sold under agreements to repurchase 815
815
—
—
815
815
—
—
Other short-term borrowed funds 1,856
1,856
—
—
1,856
1,856
—
—
Long-term borrowed funds 11,765
11,891
—
—
11,765
11,891
—
—

NOTE 20 - NONINTEREST INCOME

The following table presents noninterest income, segregated between revenue from contracts with customers and revenue from other sources:



	December 31,
(in millions)	2019		2018
Revenue from contracts with customers		$1,172		$1,119
Revenue from other sources	705		477
Noninterest income		$1,877		$1,596



~~(in millions)~~	~~Year Ended December 31, 2018~~
~~Revenue from contracts with customers~~		~~$1,119~~
~~Revenue from other sources~~	~~477~~
~~Noninterest income~~		~~$1,596~~

Revenues from Contracts with Customers

Citizens recognizes revenue from contracts with customers in the amount of consideration it expects to receive upon the transfer of control of a good or service. The timing of recognition is dependent on whether the Company satisfies a performance obligation by transferring control of the product or service to a customer over

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 148

time or at a point in time. Judgments are made in the recognition of income including the timing of satisfaction of performance obligations and determination of the transaction price.

The following table presents the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:


	Year Ended December 31, 2018						Year Ended December 31, 2019						Year Ended December 31, 2018
(in millions)	Consumer Banking		Commercial Banking		Consolidated⁽¹⁾		Consumer Banking		Commercial Banking		Consolidated⁽¹⁾		Consumer Banking		Commercial Banking		Consolidated⁽¹⁾
Service charges and fees		$408		$105		$513		$400		$103		$503		$408		$105		$513
Card fees	207		37		244		215		39		254		207		37		244
Capital markets fees	—		181		181		—		202		202		—		181		181
Trust and investment services fees	171		—		171		202		—		202		171		—		171
Other banking fees	—		10		10		1		10		11		—		10		10
Total revenue from contracts with customers		$786		$333		$1,119		$818		$354		$1,172		$786		$333		$1,119

⁽¹⁾There is no revenue from contracts with customers included in Other non-segment operations.

Citizens does not have any material contract assets, liabilities, or other receivables recorded on its Consolidated Balance Sheets related to revenues from contracts with customers as of December 31, ~~2018.~~2019. Citizens has elected the practical expedient to exclude disclosure of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognized revenue at the amount to which the Company has the right to invoice for services performed. A description of the above components of revenue from contracts with customers is presented below:

Service Charges and Fees

Service charges and fees include fees earned from deposit products in lieu of compensating balances, service charges for transactions performed upon depositors’ request, as well as fees earned from performing cash management activities. Service charges on deposit products are recognized over the period in which the related service is provided, typically monthly. Service fees are recognized at a point in time upon completion of the requested service transaction. Fees on cash management products are recognized over time (typically monthly) as services are provided.

Card Fees

Card fees include interchange income from credit and debit card transactions and are recognized at a point in time upon settlement by the association network. Interchange rates are generally set by the association network based on purchase volume and other factors. Other card-related fees are recognized at a point in time upon completion of the transaction. Costs related to card rewards programs are recognized in current earnings as the rewards are earned by the customer and are presented as a reduction to card fees on the Consolidated Statements of Operations.

Capital Markets Fees

Capital markets fees include fees received from leading or participating in loan syndications, underwriting services and advisory fees. Loan syndication and underwriting fees are recognized as revenue at a point in time when the Company has rendered all services to, and is entitled to collect the fee from, the borrower or the issuer, and there are no other contingencies associated with the fee. Underwriting expenses passed through from the lead underwriter are recognized within other operating expense on the Consolidated Statements of Operations. Advisory fees for merger and acquisitions are recognized over time, while valuation services and fairness opinions are recognized at a point in time upon completion of the advisory service.

Trust and Investment Services Fees

Trust and investment services fees include fees from investment management services and brokerage services. Fees from investment management services are based on asset market values and are recognized over the period in which the related service is provided. Brokerage services include custody fees, commission income, trailing commissions and other investment securities. Custody fees are recognized on a monthly basis for customers that are assessed custody fees. Commission income is recognized at a point in time on trade date. Trailing commissions such as 12b-1 fees, insurance renewal income, and income based on asset or investment levels in future periods are recognized at a point in time when the asset balance is known, or the renewal occurs and the income is no longer constrained. For the ~~year~~years ended December 31, 2019 and 2018, the Company recognized trailing commissions ~~of $16~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 149

of $15 million and $16 million, respectively, related to services provided in previous reporting periods. Fees from other investment services are recognized at a point in time upon completion of the service.

Other Banking Fees

Other banking fees include fees for various transactional banking activities such as letter of credit fees, foreign wire transfers and other transactional services. These fees are recognized in a manner that reflects the timing of when transactions occur and as services are provided.

Revenue from Other Sources

Letter of Credit and Loan Fees

Letter of credit and loan fees primarily includes fees received related to letter of credit agreements as well as loan fees received from lending activities that are not deferrable. These fees are generally recognized upon execution of the contract.

Foreign Exchange and Interest Rate Products

Foreign exchange and interest rate products primarily includes the fees received from foreign exchange and interest rate derivative contracts executed with customers to meet their hedging and financing needs. These fees are generally recognized upon execution of the contracts. Foreign exchange and interest rate products also include the mark-to-market gains and losses recognized on (i) these customer contracts and (ii) offsetting derivative contracts that are executed with external counterparties to hedge the foreign exchange and interest rate risk associated with the customer contracts.

Mortgage Banking Fees

Mortgage banking fees primarily include gains on sales of residential mortgages originated with the intent to sell and servicing fees on mortgages where the Company is the servicer. Mortgage banking fees also include valuation adjustments for mortgage loans held-for-sale that are measured at the lower of cost or fair value, as well as mortgage loans originated with the intent to sell that are measured at fair value under the fair value option. Changes in the value of MSRs are reported in mortgage fees and related income. For a further discussion of MSRs, see Note ~~8 “Mortgage Banking.”~~8. Net interest income from mortgage loans is recorded in interest income.

Other Income

Bank-owned life insurance is stated at its cash surrender value. Citizens is the beneficiary of the life insurance policies on current and former officers and selected employees of the Company. Net changes in the carrying amount of the cash surrender value are an adjustment of premiums paid in determining the expense or income to be recognized under the life insurance policy for the period.



	Year Ended December 31,
(in millions)	2019		2018		2017
Bank-owned life insurance		$55		$56		$54

Year Ended December 31,
(in millions) 2018
2017
2016
Bank-owned life insurance
$56

$54

$54

NOTE 21 - OTHER OPERATING EXPENSE

The following table presents the details of other operating expense:



	Year Ended December 31,
(in millions)	2019		2018		2017
Promotional expense		$112		$129		$105
Deposit insurance	62		104		137
Other	302		262		300
Other operating expense		$476		$495		$542

Year Ended December 31,
(in millions) 2018
2017
2016
Deposit insurance
$104

$137

$120
Promotional expense 129
105
98
Settlements and operating losses 47
54
62
Other 215
246
241
Other operating expense
$495

$542

$521

NOTE 22 - INCOME TAXES

Citizens uses an asset and liability (balance sheet) approach for financial accounting and reporting of income ~~taxes. This results~~taxes, resulting in two components of income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in gross deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~decreases or increases~~ changes in taxes expected to be paid in the future ~~because of future~~due to reversals of temporary differences inbetween the bases of



		Citizens Financial Group, Inc. \| 150

the assets and liabilities as measured byunder tax laws, and their bases as reported in the Consolidated Financial ~~Statements.~~Statements as measured under GAAP.

Citizens also assesses the probability that the positions taken, or expected to be taken, in its income tax returns will be sustained by taxing authorities. A “more likely than not” (more than 50 percent) recognition threshold must be met before a tax benefit can be recognized. Tax positions that are more likely than not to be sustained are reflected in the Company’s Consolidated Financial Statements.

~~Total~~The following table presents total income tax ~~expense is presented below:~~expense:



	Year Ended December 31,
(in millions)	2019		2018			2017
Income tax expense		$460		$462			$260
Tax effect of changes in OCI	225		(96		)	(7		)
Total comprehensive income tax expense		$685		$366			$253

Year Ended December 31,
(in millions) 2018
2017
2016
Income tax expense
$462

$260

$489
Tax effect of changes in OCI (96 ) (7 ) (168 )
Total comprehensive income tax expense
$366

$253

$321

~~Components~~The following table presents the components of income tax ~~expense are presented below:~~expense:



(in millions)	Current		Deferred			Total
Year Ended December 31, 2019
U.S. federal		$323		$64			$387
State and local	73		—			73
Total		$396		$64			$460
Year Ended December 31, 2018
U.S. federal		$271		$90			$361
State and local	94		7			101
Total		$365		$97			$462
Year Ended December 31, 2017
U.S. federal		$376		($142	)		$234
State and local	20		6			26
Total		$396		($136	)		$260

(in millions) Current
Deferred
Total
Year Ended December 31, 2018
U.S. federal
$271

$90

$361
State and local 94
7
101
Total
$365

$97

$462
Year Ended December 31, 2017
U.S. federal
$376

($142 )
$234
State and local 20
6
26
Total
$396

($136 )
$260
Year Ended December 31, 2016
U.S. federal
$292

$159

$451
State and local 44
(6 ) 38
Total
$336

$153

$489



		Citizens Financial Group, Inc. \| 151

The ~~effective income tax rate differed from~~following table presents a reconciliation between the U.S. federal income tax rate ~~of 21% for~~and the ~~year ended December 31, 2018, and 35% for the years ended December 31, 2017 and 2016, as presented below:~~Company’s effective income tax rate:



	Year Ended December 31,
	2019					2018					2017
(in millions, except ratio data)	Amount			Rate		Amount			Rate		Amount			Rate
U.S. federal income tax expense and tax rate		$473		21.0	%		$459		21.0	%		$669		35.0	%
Increase (decrease) resulting from:
Federal rate change	—			—		(34		)	(1.6	)	(331		)	(17.3	)
State and local income taxes (net of federal benefit)	73			3.2		89			4.1		46			2.4
Bank-owned life insurance	(12		)	(0.5	)	(12		)	(0.5	)	(19		)	(1.0	)
Tax-exempt interest	(15		)	(0.7	)	(15		)	(0.7	)	(21		)	(1.1	)
Tax advantaged investments (including related credits)	(50		)	(2.3	)	(44		)	(2.0	)	(51		)	(2.7	)
Other tax credits	(10		)	(0.4	)	(8		)	(0.4	)	(3		)	(0.1	)
Adjustments for uncertain tax positions	—			—		1			0.1		(23		)	(1.2	)
Non-deductible FDIC premiums	13			0.6		21			1.0		—			—
Legacy tax matters	(19		)	(0.8	)	—			—		—			—
Other	7			0.3		5			0.2		(7		)	(0.4	)
Total income tax expense and tax rate		$460		20.4	%		$462		21.2	%		$260		13.6	%

Year Ended December 31,
2018 2017 2016
(in millions, except ratio data) Amount
Rate Amount
Rate Amount
Rate
U.S. Federal income tax expense and tax rate
$459
21.0 %
$669
35.0 %
$537
35.0 %
Increase (decrease) resulting from:
Federal rate change (34 ) (1.6 ) (331 ) (17.3 ) —
—
State and local income taxes (net of federal benefit) 89
4.1
46
2.4
38
2.5
Bank-owned life insurance (12 ) (0.5 ) (19 ) (1.0 ) (19 ) (1.2 )
Tax-exempt interest (15 ) (0.7 ) (21 ) (1.1 ) (19 ) (1.3 )
Tax advantaged investments (including related credits) (44 ) (2.0 ) (51 ) (2.7 ) (31 ) (2.0 )
Other tax credits (8 ) (0.4 ) (3 ) (0.1 ) (14 ) (0.9 )
Adjustments for uncertain tax positions 1
0.1
(23 ) (1.2 ) —
—
Non-deductible FDIC premiums 21
1.0

—
—

—
—
Other 5
0.2
(7 ) (0.4 ) (3 ) (0.2 )
Total income tax expense and tax rate
$462
21.2 %
$260
13.6 %
$489
31.9 %

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and ~~liabilities are presented below:~~liabilities:



	December 31,
(in millions)	2019			2018
Deferred tax assets:
Other comprehensive income		$141			$366
Allowance for credit losses	315			308
State net operating loss carryforwards	62			90
Accrued expenses not currently deductible	24			36
Investment and other tax credit carryforwards	89			74
Fair value adjustments	—			28
Total deferred tax assets	631			902
Valuation allowance	(79		)	(110		)
Deferred tax assets, net of valuation allowance	552			792
Deferred tax liabilities:
Leasing transactions	513			527
Amortization of intangibles	370			364
Depreciation	186			195
Pension and other employee compensation plans	124			127
Partnerships	71			51
Deferred Income	79			50
MSRs	75			51
Total deferred tax liabilities	1,418			1,365
Net deferred tax liability		$866			$573

December 31,
(in millions) 2018
2017
Deferred tax assets:
Other comprehensive income
$366

$271
Allowance for credit losses 308
310
State net operating loss carryforwards 90
88
Accrued expenses not currently deductible 36
40
Investment and other tax credit carryforwards 74
65
Fair value adjustments 28
27
Total deferred tax assets 902
801
Valuation allowance (110 ) (105 )
Deferred tax assets, net of valuation allowance 792
696
Deferred tax liabilities:
Leasing transactions 527
525
Amortization of intangibles 364
352
Depreciation 195
182
Pension and other employee compensation plans 127
110
Partnerships 51
37
Deferred Income 50
27
MSRs 51
34
Total deferred tax liabilities 1,365
1,267
Net deferred tax liability
$573

$571

Deferred tax assets are recognized for net operating loss carryforwards and tax credit carryforwards. Valuation allowances are recorded as necessary to reduce deferred tax assets to the amounts that management concludes are more likely than not to be realized.

At December 31, ~~2018,~~2019, the Company had state tax net operating loss carryforwards of ~~$1.4~~$1.1 billion. Limitations on the ability to realize these carryforwards are reflected in the associated valuation allowance.

At December 31, ~~2018,~~2019, the Company had a valuation allowance of ~~$110~~$79 million against various deferred tax assets related to state net operating losses and state tax credits, as it is management’s current assessment that it is more likely than not that



		Citizens Financial Group, Inc. \| 152

the Company will not recognize a portion of the deferred tax assets related to these items. The valuation allowance ~~increased $5~~decreased $31 million during the year ended December 31, ~~2018.~~2019.

Effective with the fiscal year ended September 30, 1997, the reserve method for bad debts was no longer permitted for tax purposes. The repeal of the reserve method required the recapture of the reserve balance in excess of certain base year reserve amounts attributable to years ended prior to 1988. At December 31, ~~2018,~~2019, the Company’s base year loan loss reserves attributable to years ended prior to 1988, for which no deferred income taxes have been provided, was $557 million. This base year reserve may become taxable if certain distributions are made with respect to the stock of the Company or if the Company ceases to qualify as a bank for tax purposes. No actions are planned that would cause this reserve to become wholly or partially taxable.

Citizens files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by major tax authorities for years before ~~2015.~~2016.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

AThe following table presents a reconciliation of the beginning and ending amount of unrecognized tax ~~benefits is presented below:~~benefits:



	December 31,
(in millions)	2019			2018		2017
Balance at the beginning of the year		$8			$5		$42
Gross increase for tax positions related to current year	—			3		—
Gross decrease for tax positions related to prior years	(2		)	—		(27		)
Decrease for tax positions as a result of the lapse of the statutes of limitations	(1		)	—		(1		)
Decrease for tax positions related to settlements with taxing authorities	—			—		(9		)
Balance at end of year		$5			$8		$5

December 31,
(in millions) 2018
2017
2016
Balance at the beginning of the year
$5

$42

$62
Gross increase for tax positions related to current year 3
—
—
Gross decrease for tax positions related to prior years —
(27 ) (19 )
Gross increase for tax positions related to prior years —
—
1
Decreases for tax positions as a result of the lapse of the statutes of limitations —
(1 ) (2 )
Decreases for tax positions related to settlements with taxing authorities —
(9 ) —
Balance at end of year
$8

$5

$42

Tax positions are measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit.

Included in the total amount of unrecognized tax benefits at December 31, ~~2018,~~2019, are potential benefits of $6$5 million that, if recognized, would impact the effective tax rate.

Citizens classifies interest and penalties related to unrecognized tax benefits as a component of income ~~taxes.~~tax expense. There was no0 interest accrued through income tax expense ~~accrued as of~~during the years ended December 31, 2019 and 2018. The Company released $8 million ~~and~~of accrued ~~$8 million of~~ interest through income tax expense ~~for~~during the ~~years~~year ended December 31, ~~2017 and 2016, respectively.~~2017. Citizens had approximately $1 million, $2 million, ~~$1 million,~~ and ~~$22~~$1 million accrued for the payment of interest at December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, respectively. There were no0 amounts accrued for penalties as of December 31, 2019, 2018, ~~2017,~~ and ~~2016,~~2017, and there were no0 penalties recognized during the years ended December 31, 2019, 2018, ~~2017,~~ and ~~2016.~~2017.

NOTE 23 - EARNINGS PER SHARE

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period. Net income available to common stockholders represents net income after preferred stock dividends, accretion of the discount on preferred stock issuances, and gains or losses from any repurchases of preferred stock. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period, plus potential dilutive shares such as share-based payment awards and warrants using the treasury stock method.

Year Ended December 31,
(in millions, except share and per-share data) 2018
2017
2016
Numerator (basic and diluted):
Net income
$1,721

$1,652

$1,045
Less: Preferred stock dividends 29
14
14
Net income available to common stockholders
$1,692

$1,638

$1,031
Denominator:
Weighted-average common shares outstanding - basic 478,822,072
502,157,440
522,093,545
Dilutive common shares: share-based awards 1,608,669
1,527,651
1,837,173
Weighted-average common shares outstanding - diluted 480,430,741
503,685,091
523,930,718
Earnings per common share:
Basic
$3.54

$3.26

$1.97
Diluted 3.52
3.25
1.97



		Citizens Financial Group, Inc. \| 153



	Year Ended December 31,
(in millions, except share and per-share data)	2019		2018		2017
Numerator (basic and diluted):
Net income		$1,791		$1,721		$1,652
Less: Preferred stock dividends	73		29		14
Net income available to common stockholders		$1,718		$1,692		$1,638
Denominator:
Weighted-average common shares outstanding - basic	449,731,453		478,822,072		502,157,440
Dilutive common shares: share-based awards	1,482,248		1,608,669		1,527,651
Weighted-average common shares outstanding - diluted	451,213,701		480,430,741		503,685,091
Earnings per common share:
Basic		$3.82		$3.54		$3.26
Diluted⁽¹⁾	3.81		3.52		3.25

⁽¹⁾Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. ~~The~~Excluded from the computation of diluted EPS ~~computation~~were weighted average antidilutive shares totaling 783 and 533 for the years ended December 31, 2019 and 2017. There were 0 potentially dilutive shares to exclude from the calculation for the year ended December 31, 2018 and 2016 did not have any antidilutive shares. The diluted EPS computation for the year ended December 31, 2017 excluded 533 average share-based awards because their inclusion would have been antidilutive.2018.

NOTE 24 - REGULATORY MATTERS

As a bank holding company, ~~the Company~~Citizens is subject to regulation and supervision by the FRB. ~~As of December 31, 2018, the Company’s primary subsidiaries were~~Our banking subsidiary, CBNA, is a national banking association whose primary federal

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

regulator is the OCC, and CBPA, a Pennsylvania-chartered savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC as its primary federal regulator. On January 2, 2019, the Company consolidated its banking subsidiaries via a merger of CBPA into CBNA in order to streamline governance and enterprise risk management, improve CBNA’s risk profile and gain operational efficiencies. CBNA is now the Company’s primary subsidiary and sole banking subsidiary.OCC.

Under the U.S. Basel III capital framework, the Company and CBNA must meet the following specific minimum ~~requirements for the following ratios: common equity~~requirements: CET1 capital ratio of 4.5%, tier 1 capital ~~tier 1~~ratio of 6.0%, total capital ~~total capital,~~ratio of 8.0%, and tier 1 ~~leverage.~~leverage ratio of 4.0%. A CCB of 2.5% is imposed on top of each of the three minimum risk-weighted capital ratios listed above. In addition, the Company must not be subject to a written agreement, order or capital directive with any of its regulators. Failure to meet minimum capital requirements can result in the initiation of certain actions that, if undertaken, could have a material effect on the Company’s Consolidated Financial Statements.

The following table presents the Company’s capital and capital ratios under U.S. Basel III Standardized rules. The Company has declared itself as an “AOCI opt-out” institution, which means the Company is not required to recognize in regulatory capital the impacts of net unrealized gains and losses included within AOCI for debt securities that are available for sale or held to maturity, accumulated net gains and losses on ~~cash-flow~~cash flow hedges and certain defined benefit pension plan assets.



	Actual				Minimum Capital Adequacy
(in millions, except ratio data)	Amount		Ratio		Amount		Ratio⁽¹⁾
As of December 31, 2019
CET1 capital		$14,304	10.0			$10,004	7.000	%
Tier 1 capital	15,874		11.1		12,148		8.500
Total capital	18,542		13.0		15,006		10.500
Tier 1 leverage	15,874		10.0		6,351		4.000
As of December 31, 2018
CET1 capital		$14,485	10.6	%		$8,683	6.375	%
Tier 1 capital	15,325		11.3		10,726		7.875
Total capital	18,157		13.3		13,450		9.875
Tier 1 leverage	15,325		10.0		6,121		4.000

Actual Minimum Capital Adequacy
(in millions, except ratio data) Amount
Ratio
Amount
Ratio⁽⁵⁾

As of December 31, 2018
Common equity tier 1 capital ⁽¹⁾

$14,485
10.6

$8,683
6.375 %
Tier 1 capital ⁽²⁾
15,325
11.3
10,726
7.875
Total capital ⁽³⁾
18,157
13.3
13,450
9.875
Tier 1 leverage ⁽⁴⁾
15,325
10.0
6,121
4.000
As of December 31, 2017
Common equity tier 1 capital ⁽¹⁾

$14,309
11.2 %
$7,342
5.750 %
Tier 1 capital ⁽²⁾
14,556
11.4
9,258
7.250
Total capital ⁽³⁾
17,781
13.9
11,812
9.250
Tier 1 leverage ⁽⁴⁾
14,556
10.0
5,824
4.000

⁽¹⁾“~~Common equity tier 1 capital ratio” represents CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽³⁾~~“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.~~

⁽⁴⁾ ~~“Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.~~

⁽⁵⁾“Minimum Capital ratio” includes capital conservation buffer of 2.500% for 2019 and 1.875% for ~~2018 and 1.25% for 2017;~~2018; N/A to Tier 1 leverage.

Under the FRB’s Capital Plan Rule, the Company may only make capital distributions, including payment of dividends and share repurchases, in accordance with a capital plan that has been reviewed by the FRB with no objection or as otherwise authorized by the FRB.

On April 5, 2018, the Company submitted its 2018 Capital Plan, Capital Policy and annual stress test results to the FRB as part of the 2018 CCAR process. On June 28, 2018, the FRB did not object to the Company’s 2018 Capital Plan including its proposed capital actions for the period beginning July 1, 2018 and ending June 30, 2019. The Company’s 2018 Capital Plan includes quarterly common dividends of $0.27 per share in third and fourth quarter 2018, increasing to $0.32 per share in first and second quarter 2019, and common share repurchases of up to $1.02 billion through the second quarter of 2019. The timing and exact amount of future dividends and share repurchases will depend on various factors, including the Company’s capital position, financial performance and market conditions. All future capital distributions are subject to consideration and approval by the Board of Directors prior to execution.

~~For~~ See Note 16 for more information regarding the ~~year ended December 31, 2018, the Company redeemed $333 million of its 5.158% fixed-to-floating callable subordinated debt due 2023, issued Series B and Series C~~Company’s preferred stock ~~for $296 million~~issuances, common stock repurchases, and ~~$297 million, respectively and repurchased outstanding common shares for $1.025 billion compared to $820 million for the year ended December 31, 2017.~~dividends.

For the year ended December 31, 2018, the Company declared and paid common dividends of $471 million, declared and paid semi-annual Series A preferred dividends of $14 million, and declared semi-annual Series B and quarterly Series C preferred dividends of $11 million and $4 million, respectively. This compared to $322 million of

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 154

~~common dividends declared and paid and $14million of semi-annual Series A preferred dividend declared and paid for the year ended December 31, 2017.~~

Dividends payable by CBNA, as a national bank subsidiary, are limited to the lesser of the amount calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years, less any required transfers to surplus, unless the national bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of the entity’s “undivided profits” (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus). Federal bank regulatory agencies have issued policy statements which provide that FDIC-insured depository institutions and their holding companies should generally pay dividends only out of their current operating earnings.

NOTE 25 - BUSINESS OPERATING SEGMENTS

Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s ~~two~~2 business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has ~~one or more~~a segment ~~heads~~head who ~~report~~reports directly to the Chief Executive Officer. The Chief Executive Officer has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer.

Reportable Segments

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

Consumer Banking

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

Commercial Banking

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

Non-segment Operations

Other

Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets, community development, non-core assets, ~~(including legacy Royal Bank of Scotland Group plc aircraft loans and leases placed in runoff in the third quarter of~~

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~2016),~~ and other unallocated assets, liabilities, capital, revenues, provision for credit losses, and expenses including income tax expense. In addition to non-segment operations, Other includes goodwill and any associated goodwill impairment



		Citizens Financial Group, Inc. \| 155

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



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



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



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

As of and for the Year Ended December 31, 2017
(in millions) Consumer Banking Commercial Banking Other
Consolidated
Net interest income
$2,651

$1,411

$111

$4,173
Noninterest income 905
538
91
1,534
Total revenue 3,556
1,949
202
5,707
Noninterest expense 2,593
772
109
3,474
Profit before provision for credit losses 963
1,177
93
2,233
Provision for credit losses 265
19
37
321
Income before income tax expense (benefit) 698
1,158
56
1,912
Income tax expense (benefit) 246
384
(370 ) 260
Net income
$452

$774

$426

$1,652
Total average assets
$59,714

$49,747

$40,492

$149,953



		Citizens Financial Group, Inc. \| 156

As of and for the Year Ended December 31, 2016
(in millions) Consumer Banking Commercial Banking Other
Consolidated
Net interest income
$2,443

$1,288

$27

$3,758
Noninterest income 883
466
148
1,497
Total revenue 3,326
1,754
175
5,255
Noninterest expense 2,547
741
64
3,352
Profit before provision for credit losses 779
1,013
111
1,903
Provision for credit losses 243
47
79
369
Income before income tax expense (benefit) 536
966
32
1,534
Income tax expense (benefit) 191
335
(37 ) 489
Net income
$345

$631

$69

$1,045
Total average assets
$56,388

$47,159

$39,636

$143,183

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

FTP adjustments

Citizens utilizes an FTP system to eliminate the effect of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury function. The FTP system credits (or charges) the segments with the economic value of the funds created (or used) by the segments. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The sum of the interest income/expense and FTP charges/credits for each segment is its designated net interest income. The variance between the Company’s cumulative FTP charges and cumulative FTP credits is offset in Other. Citizens periodically evaluates and refines its methodologies used to measure financial performance of its business operating segments. In the first quarter of 2018, Citizens enhanced its assumptions for the liquidity and deposit component within its FTP methodology. The enhancement largely provides increased credit for the stability of deposit composition, and an increased charge for unused commitments under lending arrangements. Prior periods have not been adjusted for this change.

Provision for credit losses allocations

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

Income tax allocations

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

Expense allocations

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

Goodwill

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

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

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 157

NOTE 26 - PARENT COMPANY FINANCIALS

Condensed Statements of Operations



	Year Ended December 31,
(in millions)	2019			2018			2017
OPERATING INCOME:
Income from consolidated subsidiaries and excluding equity in undistributed earnings:
Dividends from banking subsidiaries		$1,130			$1,650			$1,055
Interest	48			46			43
Management and service fees	42			22			31
Income from nonbank subsidiaries and excluding equity in undistributed earnings:
Dividends from nonbank subsidiaries	8			5			4
Interest	4			2			1
Equity securities gains	—			—			1
All other operating income	1			1			1
Total operating income	1,233			1,726			1,136
OPERATING EXPENSE:
Salaries and employee benefits	35			25			40
Interest expense	87			89			97
All other expenses	27			23			22
Total operating expense	149			137			159
Income before taxes and undistributed income	1,084			1,589			977
Income taxes	(10		)	(13		)	(10		)
Income before undistributed earnings of subsidiaries	1,094			1,602			987
Equity in undistributed earnings of subsidiaries:
Bank	682			109			655
Nonbank	15			10			10
Net income		$1,791			$1,721			$1,652
Other comprehensive income (loss), net of income taxes:
Net pension plan activity arising during the period		($5	)		$5			($1	)
Net unrealized derivative instrument gains arising during the period	2			2			1
Other comprehensive (loss) income activity of the Parent Company, net of income taxes	(3		)	7			—
Other comprehensive income (loss) activity of Bank subsidiaries, net of income taxes	683			(283		)	(7		)
Total other comprehensive income (loss), net of income taxes	680			(276		)	(7		)
Total comprehensive income		$2,471			$1,445			$1,645

Year Ended December 31,
(in millions) 2018 2017 2016
OPERATING INCOME:
Income from consolidated subsidiaries and excluding equity in undistributed earnings:
       Dividends from banking subsidiaries
$1,650

$1,055

$555
       Interest 46
43
53
       Management and service fees 22
31
26
Income from nonbank subsidiaries and excluding equity in undistributed earnings:
       Dividends from nonbank subsidiaries 5
4
—
       Interest 2
1
—
  Equity securities gains —
1
3
  All other operating income 1
1
7
  Total operating income 1,726
1,136
644
OPERATING EXPENSE:
  Salaries and employee benefits 25
40
37
  Interest expense 89
97
99
  All other expenses 23
22
15
  Total operating expense 137
159
151
Income before taxes and undistributed income 1,589
977
493
  Income taxes (13 ) (10 ) (26 )
Income before undistributed earnings of subsidiaries 1,602
987
519
Equity in undistributed earnings of subsidiaries:
  Bank 109
655
522
  Nonbank 10
10
4
Net income
$1,721

$1,652

$1,045
Other comprehensive income (loss), net of income taxes:
Net pension plan activity arising during the period
$5

($1 )
($2 )
Net unrealized derivative instrument gains (losses) arising during the period 2
1
(8 )
Other comprehensive income (loss) activity of the Parent Company, net of income taxes 7
—
(10 )
Other comprehensive loss activity of Bank subsidiaries, net of income taxes (283 ) (7 ) (271 )
Total other comprehensive loss, net of income taxes (276 ) (7 ) (281 )
Total comprehensive income
$1,445

$1,645

$764

In accordance with federal and state banking regulations, dividends paid by ~~the Company’s banking subsidiaries~~CBNA to the Company are ~~generally limited~~subject to certain limitations, see Note 24 for more information. Additionally, see Note 16 for more information regarding the ~~retained earnings of the respective banking subsidiaries unless specifically approved by the appropriate bank regulator. Citizens declared~~Company’s common and ~~paid total common stock dividends of $471 million, $322 million and $241 million for the years ended December 31, 2018~~, ~~2017 and 2016, respectively. Citizens also declared and paid~~ preferred stock ~~dividends of $14 million for the years ended December 31, 2018~~, ~~2017 and 2016.~~dividends.

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



		Citizens Financial Group, Inc. \| 158

Condensed Balance Sheets



(in millions)	December 31, 2019		December 31, 2018
ASSETS:
Cash and due from banks		$1,418		$961
Loans and advances to:
Bank subsidiaries	1,146		1,158
Nonbank subsidiaries	120		70
Investments in subsidiaries:
Bank subsidiaries	21,973		20,590
Nonbank subsidiaries	99		83
Other assets	127		117
TOTAL ASSETS		$24,883		$22,979
LIABILITIES:
Long-term borrowed funds due to unaffiliated companies		$2,485		$1,987
Other liabilities	197		175
TOTAL LIABILITIES	2,682		2,162
TOTAL STOCKHOLDERS’ EQUITY	22,201		20,817
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$24,883		$22,979

(in millions) December 31, 2018 December 31, 2017
ASSETS:
  Cash and due from banks
$961

$563
  Loans and advances to:
Bank subsidiaries 1,158
1,160
Nonbank subsidiaries 70
70
  Investments in subsidiaries:
Bank subsidiaries 20,590
20,765
Nonbank subsidiaries 83
73
  Other assets 117
125
TOTAL ASSETS
$22,979

$22,756
LIABILITIES:
  Long-term borrowed funds due to:
Unaffiliated companies
$1,987

$2,320
  Other liabilities 175
166
TOTAL LIABILITIES 2,162
2,486
TOTAL STOCKHOLDERS’ EQUITY 20,817
20,270
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$22,979

$22,756

~~CITIZENS FINANCIAL GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Condensed Cash Flow Statements



	Year Ended December 31,
(in millions)	2019			2018			2017
OPERATING ACTIVITIES
Net income		$1,791			$1,721			$1,652
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	(8		)	17			(11		)
Gain on sales of assets	—			—			(1		)
Equity in undistributed earnings of subsidiaries	(697		)	(120		)	(665		)
Increase in other liabilities	50			11			99
Decrease (increase) in other assets	7			(7		)	5
Other operating, net	58			40			(1		)
Net cash provided by operating activities	1,201			1,662			1,078
INVESTING ACTIVITIES
Investments in and advances to subsidiaries	(105		)	—			(230		)
Repayment of investments in and advances to subsidiaries	55			—			167
Other investing, net	(1		)	(1		)	(1		)
Net cash used by investing activities	(51		)	(1		)	(64		)
FINANCING ACTIVITIES
Proceeds from issuance of long-term borrowed funds	500			—			—
Repayments of long-term borrowed funds	—			(333		)	—
Proceeds from issuance of common stock	—			—			34
Treasury stock purchased	(1,220		)	(1,025		)	(820		)
Net proceeds from issuance of preferred stock	730			593			—
Dividends declared and paid to common stockholders	(617		)	(471		)	(322		)
Dividends declared and paid to preferred stockholders	(65		)	(14		)	(14		)
Other financing, net	(21		)	(13		)	—
Net cash used by financing activities	(693		)	(1,263		)	(1,122		)
Increase (decrease) in cash and due from banks	457			398			(108		)
Cash and due from banks at beginning of year	961			563			671
Cash and due from banks at end of year		$1,418			$961			$563

Year Ended December 31,
(in millions) 2018
2017
2016
OPERATING ACTIVITIES
Net income
$1,721

$1,652

$1,045
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes 17
(11 ) 5
Gain on sales of assets —
(1 ) (3 )
Equity in undistributed earnings of subsidiaries (120 ) (665 ) (526 )
Increase (decrease) in other liabilities 11
99
(19 )
(Increase) decrease in other assets (7 ) 5
35
Other operating, net 40
(1 ) (4 )
Total adjustments (59 ) (574 ) (512 )
Net cash provided by operating activities 1,662
1,078
533
INVESTING ACTIVITIES
Investments in and advances to subsidiaries —
(230 ) (40 )
Repayment of investments in and advances to subsidiaries —
167
588
Other investing, net (1 ) (1 ) (2 )
Net cash (used) provided by investing activities (1 ) (64 ) 546
FINANCING ACTIVITIES
Proceeds from issuance of long-term borrowed funds —
—
349
Repayments of long-term borrowed funds (333 ) —
(625 )
Proceeds from issuance of common stock —
34
22
Treasury stock purchased (1,025 ) (820 ) (430 )
Net proceeds from issuance of preferred stock 593
—
—
Dividends declared and paid to common stockholders (471 ) (322 ) (241 )
Dividends declared and paid to preferred stockholders (14 ) (14 ) (14 )
Other financing, net (13 ) —
—
Net cash used by financing activities (1,263 ) (1,122 ) (939 )
Increase (decrease) in cash and due from banks 398
(108 ) 140
Cash and due from banks at beginning of year 563
671
531
Cash and due from banks at end of year
$961

$563

$671



		Citizens Financial Group, Inc. \| 159

~~CITIZENS FINANCIAL GROUP, INC.~~

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting, the Report of the Independent Registered Public Accounting Firm on the Consolidated Financial Statements, and the Report of the Independent Registered Public Accounting Firm on Internal Control over Financial Reporting are included in Item ~~8 — Financial Statements and Supplementary Data, included in this Report.~~8.

ITEM 9B. OTHER INFORMATION

None.

~~CITIZENS FINANCIAL GROUP, INC.~~

PART III

We refer in Part III of this Report to relevant sections of our ~~2019~~2020 Proxy Statement for the ~~2019~~2020 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days of the close of our ~~2018~~2019 fiscal year. Portions of our ~~2019~~2020 Proxy Statement, including the sections we refer to in this Report, are incorporated by reference into this Report.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item is presented under the captions “Corporate ~~Governance”~~Governance Matters” — “Election of Directors” — “Nominees” and “Board Governance and Oversight” — Corporate Governance Guidelines, Committee Charters and ~~“Section 16(a) Beneficial Ownership Reporting Compliance”~~Code of Business and Ethics” of our ~~2019~~2020 Proxy Statement, which is incorporated by reference into this item.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is presented under the captions “Compensation Matters” — “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation,” “Termination of Employment and Change of Control,” “Director Compensation,” ~~“Compensation~~“Role of Risk ~~Assessment,~~Management in Compensation,” and “CEO Pay Ratio” of our ~~2019~~2020 Proxy Statement, which is incorporated by reference into this item.



		Citizens Financial Group, Inc. \| 160

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

~~Information~~The information required by this item regarding security ownership of certain beneficial owners and management is presented under the ~~captions “Compensation Matters” — “Equity Compensation Plans” and~~caption “Security Ownership of Certain Beneficial Owners and Management” ofin our ~~2019~~2020 Proxy Statement ~~which~~and is incorporated herein by ~~reference into this item. Additional information relating to~~reference.

Information regarding our compensation plans under which ~~our~~CFG equity securities are authorized for issuance is ~~presented~~included in the table below. Additional information regarding these plans is included in Note 17 ~~“Share-Based Compensation” to our Consolidated~~in Item 8.

Equity Compensation Plan Information

At December 31, 2019



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)⁽¹⁾	Weighted-average exercise price of outstanding options, warrants and rights ($)⁽²⁾	Number of securities remaining available (excluding securities reflected in first column) (#)⁽³⁾
Equity compensation plans approved by security holders	3,000,224	—	53,899,864
Equity compensation plans not approved by security holders	—	—	—
Total	3,000,224	—	53,899,864

⁽¹⁾Represents the number of shares of common stock associated with outstanding time-based and performance-based restricted stock units.

⁽²⁾ We had no outstanding options.

⁽³⁾ Represents the number of shares remaining available for future issuance under the Citizens Financial ~~Statements in Part II, Item 8 —~~Group, Inc. 2014 Omnibus Incentive Plan (46,659,259 shares), the Citizens Financial ~~Statements~~Group, Inc. 2014 Employee Stock Repurchase Plan (5,782,877 shares), and ~~Supplementary Data, included in this Report.~~the Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan (1,457,728 shares).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this item is set forth under the captions “Corporate ~~Governance”~~Governance Matters” — “Board Governance and Oversight — Director Independence” and “Related Person Transactions” of our ~~2019~~2020 Proxy Statement, which is incorporated by reference into this item.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is presented under the captions “Audit Matters” — “Pre-approval of Independent Auditor Services” and “Independent Registered Public Accounting Firm Fees” of our ~~2019~~2020 Proxy Statement, which is incorporated by reference into this item.

~~CITIZENS FINANCIAL GROUP, INC.~~

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements of Citizens Financial Group, Inc., included in this Report:

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements;

~~Consolidated Balance Sheets as of~~ ~~December 31, 2018~~ ~~and~~ ~~2017~~;

~~Consolidated Statements of Operations for the Years Ended~~ ~~December 31, 2018~~, ~~2017~~ ~~and~~ ~~2016~~;

~~Consolidated Statements of Comprehensive Income for the Years Ended~~ ~~December 31, 2018~~, ~~2017~~ ~~and~~ ~~2016~~;

~~Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended~~ ~~December 31, 2018~~, ~~2017~~ ~~and~~ ~~2016~~;

~~Consolidated Statements of Cash Flows for the Years Ended~~ ~~December 31, 2018~~, ~~2017~~ ~~and~~ ~~2016; and~~


•	Consolidated Balance Sheets as of December 31, 2019 and 2018;


•	Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017;


•	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017;


•	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017;


•	Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017; and

Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All financial statement schedules for the Registrant have been included in the audited Consolidated Financial Statements or the related footnotes in ~~Part II,~~ Item 8, ~~— Financial Statements and Supplementary Data, included in this Report,~~ or are either inapplicable or not required.



		Citizens Financial Group, Inc. \| 161

(a)(3) Exhibits

3.1 Amended and Restated Certificate of Incorporation of the Registrant as in effect on the date hereof (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q, filed May 8, 2015)

3.2 Certificate of Designations of the Registrant with respect to the Series B Preferred Stock, dated May 22, 2018, filed with the Secretary of State of the State of Delaware and effective May 22, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed May 24, 2018)

3.3 Certificate of Designations of the Registrant with respect to the Series C Preferred Stock, dated October 24, 2018, filed with the Secretary of State of the State of Delaware and effective October 24, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 25, 2018)

3.4 Certificate of Designations of the Registrant with respect to the Series D Preferred Stock, dated January 23, 2019, filed with the Secretary of State of the State of Delaware and effective January 23, 2019 (incorporated herein by reference to Exhibit 3.4 of the Registration Statement on Form 8-A, filed January 29, 2019)

3.5 Certificate of Designations of the Registrant with respect to the Series E Preferred Stock, dated October 22, 2019, filed with the Secretary of State of the State of Delaware and effective October 22, 2019 (incorporated herein by reference to Exhibit 3.5 of the Registration Statement on Form 8-A, filed October 25, 2019)

3.6 Bylaws of the Registrant (as amended and restated on October 20, 2016) (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 24, 2016)

4.1 Senior Debt Indenture between the Company and The Bank of New York Mellon dated as of October 28, 2015 (incorporated herein by reference to Exhibit 4.1 of Registration Statement on Form S-3, filed October 29, 2015)

4.2 Subordinated Indenture between the Company and The Bank of New York Mellon dated as of September 28, 2012 (incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form S-1, filed July 28, 2015)

4.3 Form of Certificate representing the Series A Preferred Stock (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K, filed April 6, 2015)

4.4 Form of Certificate representing the Series B Preferred Stock (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K, filed May 24, 2018)

~~CITIZENS FINANCIAL GROUP, INC.~~

4.5 ~~Certificate~~Form of Designations of the Registrant with respect to the Series D Preferred Stock, dated January 23, 2019, filed with the Secretary of State of the State of Delaware and effective January 23, 2019 (incorporated herein by reference to Exhibit 3.4 of the Registration Statement on Form 8-A, filed January 29, 2019)

~~4.6~~ Deposit Agreement, ~~dated January 29, 2019, between~~by and among the ~~Corporation,~~Company, Computershare Inc., and Computershare Trust Company, N.A., jointly as depositary, and the holders from time to time of the ~~Depositary Receipts representing interests in the Series D preferred stock~~depositary receipts described therein (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form 8-A, filed ~~January 29,~~October 25, 2019)

~~4.7~~4.6 Form of Depository Receipt (incorporated herein by reference as Exhibit A to Exhibit 4.2 of the Current Report on Form 8-K, filed January 29, 2019)

~~4.8~~4.7 Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and consolidated subsidiaries*

10.1 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.11 of the Quarterly Report on Form 10-Q, filed November 14, 2014)†

10.2 Amended and Restated Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan as of June 23, 2016 (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed August 5, 2016)†



		Citizens Financial Group, Inc. \| 162

10.3 Amended and Restated Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan ~~Form~~as of ~~Restricted Stock Unit Agreement for 2015 Awards~~June 20, 2019 (incorporated herein by reference to Exhibit ~~10.10~~10.2 of the ~~Annual~~Quarterly Report on Form ~~10-K,~~10-Q, filed ~~March 3, 2015)~~August 6, 2019)†

10.4 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Restricted Stock Unit Award Agreement for 2016 Awards (incorporated herein by reference to Exhibit 10.11 of the Annual Report on Form 10-K, filed February 26, 2016)†

10.5 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Restricted Stock Unit Award Agreement for 2017 Award (incorporated herein by reference to Exhibit 10.10 of the Annual Report on Form 10-K, Filed February 24, 2017)†

10.6 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Restricted Stock Unit Award Agreement for 2018 Award (incorporated herein by reference to Exhibit 10.11 of the Annual Report on Form 10-K, filed February 22, 2018)†

10.7 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Restricted Stock Unit Award Agreement†*Agreement (incorporated herein by reference to Exhibit 10.7 of the Annual Report on Form 10-K, filed February 24, 2019)†

10.8 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement for Bruce Van Saun Relating to Annual Awards (incorporated herein by reference to Exhibit 10.11 of the Annual Report on Form 10-K, Filed February 24, 2017)†

10.9 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Performance Share Unit Award Agreement for 2015 Awards (incorporated herein by reference to Exhibit 10.11 of the Annual Report on Form 10-K, filed March 3, 2015)†

~~10.10~~ Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Performance Share Award Agreement for 2016 Awards (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed May 9, 2016)†

~~10.11~~10.10 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Performance Stock Award Agreement for 2017 Awards (incorporated herein by reference to Exhibit 10.14 of the Annual Report on Form 10-K, Filed February 24, 2017)†

~~CITIZENS FINANCIAL GROUP, INC.~~

~~10.12~~10.11 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Amendment to Form of Performance Stock Award Agreement (incorporated herein by reference to Exhibit 10.3 of the ~~Annual~~Quarterly Report on Form 10-Q, Filed August 3, 2017)†

~~10.13~~10.12 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Performance Stock Award Agreement for 2018 Awards (incorporated herein by reference to Exhibit 10.17 of the Annual Report on Form 10-K, filed February 22, 2018)†

~~10.14~~10.13 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Form of Performance Stock Unit Award Agreement†*Agreement (incorporated herein by reference to Exhibit 10.14 of the Annual Report on Form 10-K, filed February 24, 2019)†

~~10.15~~10.14 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Performance Stock Unit Award Agreement for Bruce Van Saun Relating to Annual Awards (incorporated herein by reference to Exhibit 10.15 of the Annual Report on Form 10-K, Filed February 24, 2017)†

~~10.16~~10.15 Citizens Financial Group, Inc. Amendment to Performance Share Unit Award Agreement/Restricted Stock Unit Agreement/Deferred Cash Agreement Terms and Conditions (incorporated herein by reference to Exhibit 10.14 of the Annual Report on Form 10-K, filed February 26, 2016)†

~~10.17~~10.16 Citizens Financial Group, Inc. 2014 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 99.3 of the Registration Statement on Form S-8, filed September 26, 2014)†

10.18 Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy original adopted as of September 29, 2014 and amended on June 25, 2015 (incorporated herein by reference to Exhibit 10.14 of Registration Statement on Form S-1, filed July 21, 2015)†

10.19 Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy, as amended June 22, 2017, to be effective as of August 1, 2017 (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed August 3, 2017)†

~~10.20~~10.17 Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy, Amended and Effective as of April 26, 2018 (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed May 9, 2018)†



		Citizens Financial Group, Inc. \| 163

~~10.21~~10.18 Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy, as amended April 25, 2019 (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed August 6, 2019)†

10.19 Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan (incorporated herein by reference to Exhibit 99.2 of the Registration Statement on Form S-8, filed September 26, 2014)†

~~10.22~~10.20 Amended and Restated Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan as of June 23, 2016 (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed August 5, 2016)†

~~10.23~~10.21 Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan Form of Restricted Stock Unit Award Agreement (incorporated herein by reference to Exhibit 10.19 of the Annual Report on Form 10-K, filed February 26, 2016)†

~~10.24~~10.22 Citizens Financial Group, Inc. 2014 Non-Employee Directors Compensation Plan Form of Restricted Stock Unit Award Agreement (incorporated herein by reference to Exhibit 10.2 of the ~~Annual~~Quarterly Report on Form 10-Q, Filed August 3, 2017)†

~~10.25~~10.23 Amended and Restated Deferred Compensation Plan for Directors of Citizens Financial Group, Inc., effective January 1, 2009 (incorporated herein by reference to Exhibit 10.19 of Amendment No. 2 to Registration Statement on Form S-1, filed August 15, 2014)†

~~10.26~~10.24 Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.5 of Amendment No. 3 to Registration Statement on Form S-1, filed September 8, 2014)†

~~10.27~~10.25 Amended and Restated CFG Voluntary Executive Deferred Compensation Plan, effective January 1, 2009 and amended and restated on September 1, 2014 (incorporated herein by reference to Exhibit 10.21 of the Annual Report on Form 10-K, filed March 3, 2015)†

~~CITIZENS FINANCIAL GROUP, INC.~~

10.26 First Amendment to the CFG Voluntary Executive Deferred Compensation Plan dated March 1, 2019†*

10.27 Second Amendment to the CFG Voluntary Executive Deferred Compensation Plan dated December 9, 2019†*

10.28 Amended and Restated Citizens Financial Group, Inc. Deferred Compensation Plan, effective January 1, 2009 (incorporated herein by reference to Exhibit 10.20 of Amendment No. 2 to Registration Statement on Form S-1, filed August 15, 2014)†

10.29 ~~Citizens Financial Group, Inc. Form of Deferred Cash Award Agreement for 2015 Awards (incorporated herein by reference to Exhibit 10.23 of the Annual Report on Form 10-K, filed March 3, 2015)†~~

~~10.30~~ Citizens Financial Group, Inc. Form of Deferred Cash Award Agreement for 2016 Awards (incorporated herein by reference to Exhibit 10.28 of the Annual Report on Form 10-K, filed February 26, 2016)†

~~10.31~~10.30 Citizens Financial Group, Inc. Form of Deferred Cash Award Agreement for 2017 and 2018 Awards (incorporated herein by reference to Exhibit 10.35 of the Annual Report on Form 10-K, filed February 22, 2018)†

~~10.32~~10.31 Citizens Financial Group, Inc. Form of Deferred Cash Award Agreement†*Agreement (incorporated herein by reference to Exhibit 10.32 of the Annual Report on Form 10-K, filed February 24, 2019)†

~~10.33~~10.32 Citizens Financial Group, Inc. Executive Severance Practice (incorporated herein by reference to Exhibit 10.21 of Amendment No. 2 to Registration Statement on Form S-1, filed August 15, 2014)†

~~10.34~~10.33 Citizens Financial Group, Inc. Performance Formula and Incentive Plan (incorporated herein by reference to Exhibit 10.28 of Annual Report on Form 10-K, filed March 3, 2015)†

~~10.35~~10.34 Amended and Restated Executive Employment Agreement, dated May 5, 2016, between the Registrant and Bruce Van Saun (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form S-1, filed May 9, 2016)†



		Citizens Financial Group, Inc. \| 164

~~10.36~~10.35 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement between the Registrant and Bruce Van Saun relating to the May 2016 Grant (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed May 9, 2016)†

~~10.37~~10.36 Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan Performance Share Unit Award Agreement between the Registrant and Bruce Van Saun for the May 2016 Grant (incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q filed May 9, 2016)†

~~10.38~~10.37 Executive Employment Agreement, dated March 23, 2015, between the Registrant and Donald H. McCree III and subsequent addendum dated August 2, 2017 (incorporated herein by reference to Exhibit 10.7 of the Quarterly Report on Form 10-Q, filed August 3, 2017)†

~~10.39~~10.38 Offer Letter, dated May 23, 2008, as amended on August 6, 2014, between the Registrant and Brad Conner and subsequent addendums dated August 6, 2014 and August 2, 2017 (incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q, filed August 3, 2017)†

10.40 Executive Employment Agreement, dated July 1, 2014, between the Registrant and Stephen Gannon and subsequent addendum dated August 2, 2017 (incorporated herein by reference to Exhibit 10.6 of the Quarterly Report on Form 10-Q, filed August 3, 2017)†

~~10.41~~10.39 Executive Employment Agreement, dated September 6, 2014, between the Registrant and Malcolm Griggs and subsequent addendum dated August 14, 2017†*

~~10.42 Executive Employment Agreement, dated June 18, 2018, between the Registrant and C. Jack Read~~2017 (incorporated herein by reference to Exhibit ~~10.1~~10.41 of the ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K, filed ~~August 6, 2018)~~February 24, 2019)†

~~10.43~~10.40 Executive Employment Agreement, dated December 13, 2016, between the Registrant and John F. Woods and subsequent addendum dated August 2, 2017 (incorporated herein by reference to Exhibit 10.8 of the Quarterly Report on Form 10-Q, filed August 3, 2017)†

~~CITIZENS FINANCIAL GROUP, INC.~~

~~10.44~~10.41 Supplemental Retirement Agreement, dated October 31, 1995, as amended, between Charter One Financial, Inc. and, Charles J. Koch (incorporated herein by reference to Exhibit 10.37 of Amendment No. 3 to Registration Statement on Form S-1, filed September 8, 2014)†

21.1 Subsidiaries of Registrant*

23.1 Consent of Independent Registered Public Accounting Firm*

24.1 Power of Attorney (contained herein on signature pages)

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


104	Cover page interactive data file in inline XBRL format, included in Exhibit 101 to this report*

† Indicates management contract or compensatory plan or arrangement.

* Filed herewith.

ITEM 16. FORM 10-K SUMMARY

Not applicable.



		Citizens Financial Group, Inc. \| 165

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on February ~~21, 2019.~~24, 2020.



CITIZENS FINANCIAL GROUP, INC.
(Registrant)

By:	/s/ Bruce Van Saun
	Name: Bruce Van Saun
	Title: Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

~~CITIZENS FINANCIAL GROUP, INC.~~



		Citizens Financial Group, Inc. \| 166

SIGNATURES

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned, being a director or officer of Citizens Financial Group, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Bruce Van Saun, John F. Woods, Stephen T. Gannon, and C. Jack Read, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign one or more Annual Reports for the Company's fiscal year ended December 31, ~~2018~~2019 on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.



Signature	Title	Date

/s/ Bruce Van Saun
Bruce Van Saun	Chairman of the Board and Chief Executive Officer	February ~~21, 2019~~24, 2020
	(Principal Executive Officer and Director)
/s/ John F. Woods
John F. Woods	Vice Chairman and Chief Financial Officer	February ~~21, 2019~~24, 2020
	(Principal Financial Officer)
/s/ C. Jack Read
C. Jack Read	Executive Vice President, Chief Accounting Officer and Controller	February ~~21, 2019~~24, 2020
	(Principal Accounting Officer)

/s/ Mark Casady
Mark Casady	Director	February ~~21, 2019~~24, 2020

/s/ Christine M. Cumming
Christine M. Cumming	Director	February ~~21, 2019~~

~~/s/ Anthony Di Iorio~~
~~Anthony Di Iorio~~	~~Director~~	~~February 21, 2019~~24, 2020

/s/ William P. Hankowsky
William P. Hankowsky	Director	February ~~21, 2019~~24, 2020

/s/ Howard W. Hanna, III
Howard W. Hanna, III	Director	February ~~21, 2019~~24, 2020

/s/ Leo I. Higdon, Jr.
Leo I. Higdon, Jr.	Director	February ~~21, 2019~~24, 2020

/s/ Edward J. Kelley III
Edward J. Kelly III	Director	February 24, 2020

/s/ Charles J. Koch
Charles J. Koch	Director	February ~~21, 2019~~24, 2020

/s/ Terrance J. Lillis
Terrance J. Lillis	Director

~~/s/ Arthur F. Ryan~~
~~Arthur F. Ryan~~	~~Director~~	February ~~21, 2019~~24, 2020

/s/ Shivan S. Subramaniam
Shivan S. Subramaniam	Director	February ~~21, 2019~~24, 2020

/s/ Wendy A. Watson
Wendy A. Watson	Director	February ~~21, 2019~~24, 2020

/s/ Marita Zuraitis
Marita Zuraitis	Director	February ~~21, 2019~~24, 2020

~~198~~



		Citizens Financial Group, Inc. \| 167



Delaware		05-0412693
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)



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 1/40^th40th interest in a share of 6.350% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D	CFG PrD	New York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 5.000% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series E	CFG PrE	New York Stock Exchange



Large accelerated filer	[ü] ☑	Accelerated filer	~~[ ]~~☐
Non-accelerated filer	~~[ ]~~☐	Smaller reporting company	~~[ ]~~☐
		Emerging growth company	~~[ ]~~☐





		Table of Contents

			Page
	Glossary of Acronyms and Terms		2
	Forward-looking Statements		45

	Part I.

	Item 1. Business		56
	Item 1A. Risk Factors		2219
	Item 1B. Unresolved Staff Comments		3631
	Item 2. Properties		3631
	Item 3. Legal Proceedings		3631
	Item 4. Mine Safety Disclosures		3632

	Part II.
	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		3732
	Item 6. Selected Consolidated Financial Data		3934
	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations		4136
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk		~~111~~87
	Item 8. Financial Statements and Supplementary Data		~~112~~88

	Consolidated Balance Sheets as of December 31, ~~2018~~2019 and ~~2017~~2018		~~116~~94
	Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 ~~2017~~ and ~~2016~~2017		~~117~~95
	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 ~~2017~~ and ~~2016~~2017		~~118~~96
	Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018 ~~2017~~ and ~~2016~~2017		~~119~~97
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 ~~2017~~ and ~~2016~~2017		~~120~~98
	Notes to the Consolidated Financial Statements		~~122~~100
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		~~191~~160
	Item 9A. Controls and Procedures		~~191~~160
	Item 9B. Other Information		~~191~~160

	Part III.

	Item 10. Directors, Executive Officers and Corporate Governance		~~192~~160
	Item 11. Executive Compensation		~~192~~160
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~192~~161
	Item 13. Certain Relationships and Related Transactions, and Director Independence		~~192~~161
	Item 14. Principal Accountant Fees and Services		~~192~~161

	Part IV.

	Item 15. Exhibits and Financial Statement Schedules		~~193~~161
	Item 16. Form 10-K Summary		~~197~~165
��
	Signatures		~~197~~166



FDIA		Federal Deposit Insurance Act
FDIC		Federal Deposit Insurance Corporation
FFIEC		Federal Financial Institutions Examination Council
FHLB		Federal Home Loan Bank
FICO		Fair Isaac Corporation (credit rating)
FINRA		Financial Industry Regulation Authority



2017 Tax Legislation		An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act)
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)
ASU		Accounting Standards Update
ATM		Automated Teller Machine
Bank Holding Company Act		The Bank Holding Company Act of 1956
Board or Board of Directors		The Board of Directors of Citizens Financial Group, Inc.
bps		Basis Points
~~C&I~~		~~Commercial and Industrial~~
Capital Plan Rule		Federal ~~Reserve’s~~Reserve Regulation Y Capital Plan Rule
CBNA		Citizens Bank, National Association
CBPA		Citizens Bank of Pennsylvania
CCAR		Comprehensive Capital Analysis and Review
CCB		Capital Conservation Buffer
CCMI		Citizens Capital Markets, Inc.
CECL		Current Expected Credit Losses (ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
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
CFPB		Consumer Financial Protection Bureau
CFTC		Commodity Futures Trading Commission
Citizens or CFG or the Company, we, us, or our		Citizens Financial Group, Inc. and its Subsidiaries
CLTV		Combined Loan-to-Value
CLO		Collateralized Loan Obligation
CMO		Collateralized Mortgage Obligation
CRA		Community Reinvestment Act
CRE		Commercial Real Estate
~~DFAST~~		~~Dodd-Frank Act Stress Test~~
DIF		Deposit Insurance Fund
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
ESPP		Employee Stock Purchase Program
ERISA		Employee Retirement Income Security Act of 1974
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
FASB		Financial Accounting Standards Board



FRB		Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC)		Federal Home Loan Mortgage Corporation
FTE		Fully Taxable Equivalent
FTP		Funds Transfer Pricing
GAAP		Accounting Principles Generally Accepted in the United States of America
GDP		Gross Domestic Product
GLBA		Gramm-Leach-Bliley Act of 1999
Ginnie Mae (GNMA)		Government National Mortgage Association
GSE		Government-Sponsored Enterprise
HELOC		Home Equity Line of Credit
HTM		Held To Maturity
Last-of-Layer		Last-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar prepayable assets whereby the last dollar amount within the portfolio of assets is identified as the hedged item
LCR		Liquidity Coverage Ratio
LHFS		Loans Held for Sale
LGD		Loss Given Default
LIBOR		London Interbank Offered Rate
LIHTC		Low Income Housing Tax Credit
LTV		Loan-to-Value
MBS		Mortgage-Backed Securities
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Mid-Atlantic		District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest		Illinois, Indiana, Michigan, and Ohio
MSA		Metropolitan Statistical Area
~~MSR~~MSRs		Mortgage Servicing ~~Right~~Rights
New England		Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NM		Not meaningful
~~NPR~~		~~Notice of Proposed Rulemaking~~
NSFR		Net Stable Funding Ratio
~~NYSE~~		~~New York Stock Exchange~~
OCC		Office of the Comptroller of the Currency
OCI		Other Comprehensive Income
OFAC		Office of Foreign Assets Control
Parent Company		Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, ~~of Pennsylvania, Citizens Bank,~~ National Association and other subsidiaries)
PD		Probability of Default
peers or peer regional banks		BB&T, Comerica, Fifth Third, KeyCorp, M&T, PNC, Regions, SunTrust and U.S. ~~Bancorp~~Bancorp. Includes Truist for the period subsequent to the merger of BB&T and SunTrust
REITs		Real Estate Investment Trusts
ROTCE		Return on Average Tangible Common Equity
RPA		Risk Participation Agreement



SBA		Small Business Administration
SBO		Serviced by Others loan 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


•	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;


•	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.


(dollars in billions)		Total		Deposit		Total		Deposit
MSA	Total Branches	Deposits	Deposit Rank	Market Share	Total Branches	Deposits	Deposit Rank	Market Share
Boston, MA	202	$22.1	2	14.0%	202	$22.0	2	13.4%
Philadelphia, PA	171	15.0	4	11.0	169	14.8	4	10.1
Pittsburgh, PA	118	8.7	2	16.2	112	8.2	2	13.7
Providence, RI	93	8.6	1	26.0	93	8.8	1	24.9
Detroit, MI	81	5.5	6	7.0	81	5.5	7	6.5
Cleveland, OH	51	3.9	4	10.1	50	3.9	4	7.9
Manchester, NH	20	2.5	1	30.2	19	2.5	2	27.9
Buffalo, NY	41	1.9	4	8.9	40	1.9	5	8.3
Albany, NY	22	1.9	3	12.3	21	1.9	4	9.8
Rochester, NY	25	1.7	5	9.6	25	1.7	5	9.4


i.	are no longer subject to any LCR requirement (or in certain cases, are subject to reduced requirements),


iii.	remain eligible to opt-out of the requirement to recognize most elements of Accumulated Other Comprehensive Income in regulatory capital,


i.	the arrangements should provide employees with incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk;


ii.	the arrangements should be compatible with effective controls and risk management; and


iii.	the arrangements should be supported by strong corporate governance.


i.	restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and



	Year Ended December 31,
	2017 Versus 2016
(in millions)	Average Volume			Average Rate			Net Change
Interest Income
Interest-bearing cash and due from banks and deposits in banks		$—			$10			$10
Taxable investment securities	25			16			41
Non-taxable investment securities	—			—			—
Total investment securities	25			16			41
Commercial	62			136			198
Commercial real estate	41			83			124
Leases	(10		)	3			(7		)
Total commercial loans and leases	93			222			315
Residential mortgages	72			(5		)	67
Home equity loans	(33		)	1			(32		)
Home equity lines of credit	(22		)	79			57
Home equity loans serviced by others	(16		)	—			(16		)
Home equity lines of credit serviced by others	(3		)	3			—
Automobile	(14		)	45			31
Education	102			19			121
Credit cards	12			(8		)	4
Other retail	76			(27		)	49
Total retail loans	174			107			281
Total loans and leases	267			329			596
Loans held for sale, at fair value	2			1			3
Other loans held for sale	2			2			4
Total interest income		$296			$358			$654
Interest Expense
Checking with interest		$4			$41			$45
Money market accounts	1			64			65
Regular savings	—			—			—
Term deposits	21			40			61
Total interest-bearing deposits	26			145			171
Federal funds purchased and securities sold under agreements to repurchase	—			1			1
Other short-term borrowed funds	(11		)	2			(9		)
Long-term borrowed funds	37			39			76
Total borrowed funds	26			42			68
Total interest expense	52			187			239
Net interest income		$244			$171			$415



	December 31, 2018				December 31, 2017				December 31, 2016				Change in Fair Value from 2018-2017
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Change in Fair Value from 2018-2017
Debt Securities Available for Sale, at Fair Value:⁽¹⁾
U.S. Treasury and other		$24		$24		$12		$12		$30		$30		$12		100	%
State and political subdivisions	5		5		6		6		8		8		(1		)	(17	)
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities	20,211		19,634		20,065		19,828		19,231		19,045		(194		)	(1	)
Other/non-agency	236		232		311		311		427		401		(79		)	(25	)
Total mortgage-backed securities	20,447		19,866		20,376		20,139		19,658		19,446		(273		)	(1	)
Total debt securities available for sale, at fair value	20,476		19,895		20,394		20,157		19,696		19,484		(262		)	(1	%)
Marketable equity securities	—		—		—		—		5		5		—			—
Other equity securities	—		—		—		—		12		12		—			—
Total equity securities	—		—		—		—		17		17		—			—
Total securities available for sale, at fair value		$20,476		$19,895		$20,394		$20,157		$19,713		$19,501		($262	)	(1	)%
Debt Securities Held to Maturity:⁽¹⁾
Mortgage-backed securities:
Federal agencies and U.S. government sponsored entities		$3,425		$3,293		$3,853		$3,814		$4,126		$4,094		($521	)	(14	%)
Other/non-agency	740		748		832		854		945		964		(106		)	(12	)
Total mortgage-backed securities		$4,165		$4,041		$4,685		$4,668		$5,071		$5,058		($627	)	(13	%)
Total debt securities held to maturity		$4,165		$4,041		$4,685		$4,668		$5,071		$5,058		($627	)	(13	%)
Total securities available for sale and held to maturity		$24,641		$23,936		$25,079		$24,825		$24,784		$24,559		($889	)	(4	%)
Equity Securities:⁽¹⁾
Equity securities, at fair value		$181		$181		$169		$169		$96		$96		$12		7	%
Equity securities, at cost	834		834		722		722		942		942		112			16
Total equity securities		$1,015		$1,015		$891		$891		$1,038		$1,038		$124		14	%



(dollars in millions)	Balance		% Secured by First Lien		FICO	LTV
Total HELOCs as of December 31, 2018		$12,814	51	%	766	57	%
HELOCs scheduled to reset 1/1/19 - 12/31/21	1,598		54		758	51



(dollars in millions)	2014/2015			2016			2017
Balance reset		$1,688			$738			$730
Percent refinanced, paid off, or current	93		%	95		%	94		%
Percent past due	3			3			4
Percent charged-off	4			2			2



	Year Ended December 31, 2016
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$596			$620			$1,216
Charge-offs	(79		)	(457		)	(536		)
Recoveries	33			168			201
Net charge-offs	(46		)	(289		)	(335		)
Provision charged to income	113			242			355
Allowance for loan and lease losses, end of period	663			573			1,236
Reserve for unfunded lending commitments, beginning of period	58			—			58
Provision for unfunded lending commitments	14			—			14
Reserve for unfunded lending commitments, end of period	72			—			72
Total allowance for credit losses, end of period		$735			$573			$1,308



	Nonperforming ⁽¹⁾				Accruing and 90 days or more past due
(in millions)	December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
Commercial		$194		$238		$1		$5
Commercial real estate	7		27		—		3
Leases	—		—		—		—
Total commercial loans and leases	201		265		1		8
Residential mortgages⁽¹⁾	136		128		15		16
Home equity loans	50		72		—		—
Home equity lines of credit	231		233		—		—
Home equity loans serviced by others	17		25		—		—
Home equity lines of credit serviced by others	15		18		—		—
Automobile	81		70		—		—
Education	38		38		2		3
Credit card	20		17		—		—
Other retail	8		5		7		5
Total retail loans	596		606		24		24
Total		$797		$871		$25		$32



(in millions)	Operating Leases		Capital Leases
2019		$165		$3
2020	153		2
2021	136		2
2022	109		1
2023	85		—
Thereafter	247		8
Total minimum lease payments		$895		$16
Amounts representing interest	—		(8		)
Present value of net minimum lease		$895		$8



(in millions)	Parent Company		Banking Subsidiaries		Consolidated
Year
2019		$—		$—		$—
2020	—		9,982		9,982
2021	349		967		1,316
2022	348		739		1,087
2023	—		751		751
2024 and thereafter	1,290		7		1,297
Total		$1,987		$12,446		$14,433