Market Overview

Citizens Financial Group, Inc. Reports Fourth Quarter Net Income of $666 Million and Diluted EPS of $1.35

Share:

Results include a $317 million after-tax net benefit, or $0.64 per
diluted share, from notable items Underlying net income up 24% and
Underlying diluted EPS up 29% from fourth quarter 2016*

ROTCE of 19.9%, and Underlying ROTCE of 10.4% in fourth quarter 2017*

2017 net income of $1.7 billion and $3.25 diluted EPS

2017 Underlying net income of $1.3 billion up 28% and diluted EPS of
$2.58 up 34% from Adjusted 2016*

Positive operating leverage of 6.8% year on year on an Underlying
basis*

Citizens Financial Group, Inc. (NYSE:CFG) today reported
fourth quarter net income of $666 million, or $1.35 per diluted common
share, compared with fourth quarter 2016 net income of $282 million, or
$0.55 per diluted common share. Fourth quarter 2017 Return on Average
Tangible Common Equity* ("ROTCE") of 19.9% compares with fourth quarter
2016 of 8.4%. Full year 2017 net income available to common stockholders
of $1.64 billion and diluted EPS of $3.25 compares with 2016 net income
of $1.03 billion and diluted EPS of $1.97. 2017 ROTCE* of 12.3% compares
with 7.7% in 2016.

Fourth quarter 2017 results included a $317 million after-tax net
benefit from notable items including a benefit related to the Company's
net deferred tax liability in connection with the December 2017 Tax
Legislation, partially offset by investments in our colleagues and
communities, as well as a $17 million gain on the sale of a Troubled
Debt Restructuring Portfolio offset by other notable items largely
associated with our efficiency initiatives ("TDR Transaction II").

           
Notable items* 4Q17 FY 2017 FY 2016
($s in millions, except per share data) Pre-tax     After-tax     EPS impact Pre-tax   After-tax   EPS impact Pre-tax   After-tax   EPS impact
 
2017 Tax Legislation-related notable items*
Tax Legislation DTL adjustment $ $ 331 $ 0.67 $ $ 331 $ 0.66
Colleague & community investment   (22 )   (13 )   (0.03 )   (22 )   (13 )   (0.03 )
Net 2017 Tax Legislation-related notable items $ (22 ) $ 318 $ 0.64 $ (22 ) $ 318 $ 0.63
TDR transaction gain $ 17 $ 10 $ 0.02 $ 17 $ 10 $ 0.02 $ 64 $ 40 $ 0.08
Other notable items   (18 )   (11 )   (0.02 )   (18 )   (11 )   (0.02 )   (33 )   (21 )   (0.04 )
TDR gain net of other notable items $ (1 ) $ (1 ) $ (0.00 ) $ (1 ) $ (1 ) $ (0.00 ) $ 31 $ 19 $ 0.04
1Q17 State tax settlement 23 0.04
                   
Total notable items $ (23 ) $ 317   $ 0.64   $ (23 ) $ 340   $ 0.67   $ 31   $ 19   $ 0.04  
 

On an Underlying basis,* fourth quarter 2017 net income available to
common stockholders of $349 million, or $0.71 per diluted share,
increased 24% and 29%, respectively, from fourth quarter 2016 and
increased 2% and 4%, respectively, from third quarter 2017. Underlying
fourth quarter 2017 ROTCE* of 10.4% improved from 10.1% in third quarter
2017 and 8.4% in fourth quarter 2016. On an Adjusted/Underlying basis,*
full year 2017 net income available to common stockholders of $1.3
billion, increased 28% and diluted EPS of $2.58 increased 34% from 2016
levels. Full year 2017 ROTCE* of 12.3% compares to 7.7% in 2016. On an
Adjusted/Underlying basis,* 2017 ROTCE of 9.8% compares with 7.6% in
2016.

Citizens announced today that its board of directors declared a 22%
increase in its quarterly cash dividend to $0.22 per common share. The
dividend is payable on February 15, 2018 to shareholders of record at
the close of business on February 1, 2018.

"We are pleased to report another quarter of strong results to cap what
has been an exceptional year for Citizens," said Chairman and Chief
Executive Officer Bruce Van Saun. "We are executing well and running the
bank better and better, as evidenced by the 6.8% year on year operating
leverage, ROTCE reaching 10.4% in the fourth quarter, and consistent
progress in delivering well for our customers, colleagues and
communities. We enter 2018 with solid momentum, and are pleased to raise
our dividend today by a further 22%."

*Please see important information on Key Performance Metrics and
Non-GAAP Financial Measures at the end of this release for an
explanation of our use of these metrics and non-GAAP financial measures
and their reconciliation to GAAP financial measures. 4Q17 after-tax
notable items excluded from our "Underlying" results reflect a $10
million gain on a TDR portfolio sale offset by $11 million of other
notable items ("TDR Transaction II") and a $331 million benefit relating
to the December 2017 Tax Legislation, partially offset by $13 million of
other notable items. December 2017 Tax Legislation benefit amounts are
estimated as of December 31, 2017 and may be subject to adjustment
during 2018. "Underlying" results, as applicable, also exclude a 1Q17
$23 million benefit related to the settlement of certain state tax
matters and reclassify 2Q17 results for the pre-tax impact of $26
million of lease asset impairments to reflect their credit-related
impact. 3Q16 after-tax notable items excluded from our "Adjusted"
results reflect a $19 million gain on a TDR portfolio sale less other
notable items ("TDR Transaction"). Where there is a reference to
"Adjusted", "Underlying" or "Adjusted/Underlying" results in a
paragraph, all measures that follow these references are on the same
basis, when applicable. Current reporting-period regulatory capital
ratios are preliminary.

Fourth Quarter 2017 vs. Third Quarter 2017

Key Highlights

  • Fourth quarter highlights include ROTCE of 19.9% and Underlying ROTCE*
    of 10.4%. Underlying results* reflect revenue growth of 2% driven by
    strength in net interest income given continued loan growth and a
    three basis point improvement in net interest margin. Provision
    expense increased modestly from relatively low third quarter levels.
  • Results reflect an efficiency ratio of 61%, which includes the impact
    of $40 million of notable expense items.
    On an Underlying basis,*
    operating leverage was 1.6% and the efficiency ratio improved 91 basis
    points to 58.5%.
  • Tangible book value per common share of $27.48 increased by 2%. Fully
    diluted average common shares outstanding decreased by 8.4 million
    shares.

Results

  • Total revenue of $1.5 billion increased 3% including the $17 million
    benefit tied to notable items; on an Underlying basis,* total revenue
    of $1.5 billion increased 2%.
    • Net interest income of $1.1 billion increased $18 million,
      reflecting 1% average loan growth and a three basis point
      improvement in net interest margin to 3.08% from third quarter
      levels that included a two basis point benefit tied to higher
      commercial loan interest recoveries.
    • Net interest margin reflects improved yields on interest-earning
      assets, including the benefit of higher short-term interest rates
      and balance sheet optimization, partially offset by higher funding
      costs.
    • Noninterest income of $404 million increased $23 million, which
      includes a $17 million benefit from notable items. Underlying
      noninterest income* of $387 million increased 2%, driven by
      strength in foreign exchange and interest rate products, trust and
      investment services fees and other income.
  • Noninterest expense of $898 million increased $40 million, driven by
    the impact of notable items. On an Underlying basis,* noninterest
    expense of $858 million was stable, as lower other operating expense
    and salaries and employee benefits were offset by an increase in
    outside services, which included costs associated with our strategic
    initiatives.
  • Provision for credit losses of $83 million increased modestly from
    relatively low third quarter levels.
  • Efficiency ratio of 60.5%, 58.5% on an Underlying basis,* compares
    with 59.4% in third quarter 2017; ROTCE of 19.9%, 10.4% on an
    Underlying basis,* improved from 10.1% in the third quarter 2017.

Balance Sheet

  • Average interest-earning assets increased $950 million, driven by an
    increase in loans, with particular strength in retail.
  • Average deposits increased $806 million, driven by growth in term and
    demand, partially offset by a decrease in checking with interest.
  • Nonperforming loans and leases ("NPLs") to total loans and leases
    ratio of 0.79% improved from 0.85%, reflecting a reduction in
    commercial NPLs. Allowance coverage of NPLs increased to 142% from
    131%.
  • Net charge-offs of 28 basis points increased modestly from third
    quarter levels.
  • Capital strength remains robust, with a preliminary common equity tier
    1 ("CET1") risk-based capital ratio of 11.1%; 11.2% including a pro
    forma benefit tied to an anticipated FASB accounting standards change
    related to Tax Legislation.
  • Repurchased 8.8 million shares of common stock in the quarter, and
    including common dividends, returned $424 million in capital to
    shareholders.
  • Average loan-to-deposit ratio remained relatively stable at 97.8%;
    Period-end loan-to-deposit ratio improved to 96.7%.

Fourth Quarter 2017 vs. Fourth Quarter 2016

Key Highlights

  • Fourth quarter results reflect a 136% increase in net income available
    to common stockholders, which includes the impact of the 2017 Tax
    Legislation and other notable items. Underlying net income available
    to common stockholders* increased 24% led by revenue growth of 8%,
    with a 10% increase in net interest income and 3% increase in
    noninterest income.
  • Results, including the impact of notable items, reflect operating
    leverage of 2.9%, efficiency ratio of 61% and ROTCE of 19.9%. On an
    Underlying basis,* operating leverage of 6.4% reflects continued
    strong focus on top-line growth and expense management, with a 3.7%
    improvement in the efficiency ratio to 58.5% and a 2.0% improvement in
    ROTCE to 10.4%.*
  • Fully diluted average common shares outstanding decreased by 20.1
    million shares.

Results

  • Total revenue of $1.5 billion increased $121 million, or 9%; on an
    Underlying basis,* total revenue increased $104 million, or 8%, driven
    by strength in both net interest income and noninterest income.
    • Net interest income increased 10% given 4% growth in average loans
      and an 18 basis point improvement in net interest margin.
    • Net interest margin of 3.08% reflects improved loan yields driven
      by the continued focus on balance sheet optimization and the
      benefit of higher rates, partially offset by an increase in
      funding costs.
    • Noninterest income of $404 million increased $27 million, which
      includes a $17 million benefit tied to notable items. On an
      Underlying basis,* noninterest income increased 3% driven by
      strength in trust and investment services fees, card fees and
      capital markets fees partially offset by lower mortgage banking
      fees and other income.
  • Noninterest expense increased 6% from fourth quarter 2016 driven by
    the impact of $40 million of notable items. On an Underlying basis,*
    noninterest expense increased 1%, largely reflecting higher salaries
    and employee benefits expense and higher outside services expense,
    driven by the impact of strategic growth initiatives, partially offset
    by lower other operating expense, largely due to fraud, legal and
    regulatory costs.
  • Provision for credit losses decreased $19 million, or 19%, reflecting
    strong overall portfolio credit quality and lower net charge-offs.
  • ROTCE of 19.9% improved by 11.5%, and Underlying ROTCE of 10.4%
    improved by 2.0%, from 8.4%.*

Balance Sheet

  • Average interest-earning assets increased $3.7 billion, or 3%, driven
    by growth in loans and loans held for sale with a 5% increase in
    retail and a 3% increase in commercial.
  • Average deposits increased $4.6 billion, or 4%, on strength in term,
    checking with interest, savings and demand deposits.
  • NPLs to total loans and leases ratio of 0.79% improved from 0.97%,
    reflecting a decrease in retail driven by real estate secured
    portfolios, as well as a reduction in commercial, largely tied to
    commodities-related credits. Allowance coverage of NPLs of 142%
    improved from 118%.
  • Net charge-offs of 28 basis points of loans improved from 39 basis
    points in fourth quarter 2016, reflecting improved results in
    commercial and retail.

Full-Year 2017 vs. Full-Year 2016

  • Total revenue of $5.7 billion increased $452 million, or 9%.
    Adjusted/Underlying revenue growth* of $513 million, or 10%, was
    driven by an 11% increase in net interest income and a 7% increase in
    noninterest income. Net interest income results reflect 6% average
    loan growth and a 16 basis point improvement in net interest margin.
  • Noninterest expense of $3.5 billion increased 4% driven by the impact
    of notable items. On an Adjusted/Underlying basis,* noninterest
    expense increased 3%.
  • Efficiency ratio of 60.9% improved 293 basis points. On an
    Adjusted/Underlying basis, the efficiency ratio of 60.0% improved 396
    basis points and positive operating leverage was 6.8%.*
  • Net income available to common stockholders increased 59%.
    Adjusted/Underlying net income* was up 28%.
  • ROTCE of 12.3% improved by 4.6%. Adjusted/Underlying ROTCE of 9.8%
    increased by 2.2%.*
  • Capital strength remains robust, with a common equity tier 1 ("CET1")
    risk-based capital ratio of 11.1%.
  • Average loan-to-deposit ratio remained relatively stable at 98.3%;
    period-end loan-to-deposit ratio improved to 96.7%.
  • Tangible book value per common share of $27.48 increased by 7%.
  • Returned $1.1 billion to common shareholders including dividends and
    share repurchases, a 70% increase compared to 2016.

Update on Plan Execution

Consumer Banking

  • Performance paced by solid loan and deposit growth. Strong progress in
    data analytics and digital strategies, as well as in efforts to
    further enhance customer journeys and overall experience.
  • Wealth management business continues to build scale and add
    capabilities highlighted by the launch of SpeciFiSM, its
    new digital and investment advisory platform. Continued progress in
    migrating sales mix toward fee-based products with fee-based
    investment sales up 70% in 2017.
  • Continued progress on repositioning the mortgage business, with better
    focus on branches and progress in building out a direct-to-consumer
    product offering. Conforming mortgages reached 45% of originations in
    fourth quarter 2017.

Commercial Banking

  • Strong growth in 2017 fee income was paced by record results in
    Capital Markets, with strong performance in loan syndications, bond
    underwriting and M&A and advisory fees, and solid growth in card fees.
  • Continued balance sheet and customer growth, with full year 2017
    growth of 6% in average loans and loans held for sale compared with
    full year 2016, reflecting strength in Mid-corporate and Private
    Equity and Commercial Real Estate, as well as the impact of our
    geographic expansion strategies, partially offset by a planned
    reduction in Asset Finance.

Efficiency and balance sheet optimization
initiatives

  • TOP IV Program, which includes both efficiency and revenue
    initiatives, is underway and on track to meet end of 2018 run-rate
    pre-tax benefit of $95-$110 million.
  • Balance Sheet Optimization initiatives to shift loan portfolio mix to
    higher-return categories continue to deliver benefits, with an
    estimated benefit of approximately 8 basis points on net interest
    margin year over year.
                           
Quarterly trends Full Year  
Earnings highlights   4Q17 change from     2017 change  
($s in millions, except per share data)       4Q17     3Q17       4Q16   3Q17   4Q16   2017       2016     from 2016  
Earnings   $     $     $   $   $  
Net interest income $ 1,080 $ 1,062 $ 986 $ 18 $ 94 $ 4,173 $ 3,758 $ 415
Noninterest income 404 381 377 23 27 1,534 1,497 37
Total revenue 1,484 1,443 1,363 41 121 5,707 5,255 452
Noninterest expense 898 858 847 40 51 3,474 3,352 122
Pre-provision profit 586 585 516 1 70 2,233 1,903 330
Provision for credit losses         83         72         102     11     (19 )   321       369       (48 )
Net income 666 348 282 318 384 1,652 1,045 607
Preferred dividends 7 (7 ) 14 14
Net income available to common stockholders       $ 666       $ 341       $ 282   $ 325   $ 384   $ 1,638     $ 1,031     $ 607  
After-tax notable Items         317                     317     317     340       19       321  
Adjusted/underlying net income available to common stockholders*       $ 349       $ 341       $ 282   $ 8   $ 67   $ 1,298     $ 1,012     $ 286  
Average common shares outstanding
Basic (in millions) 492.1 500.9 512.0 (8.7 ) (19.9 ) 502.2 522.1 (19.9 )
Diluted (in millions) 493.8 502.2 513.9 (8.4 ) (20.1 ) 503.7 523.9 (20.2 )
Diluted earnings per share       $ 1.35       $ 0.68       $ 0.55   $ 0.67   $ 0.80   $ 3.25     $ 1.97     $ 1.28  
Adjusted/underlying diluted earnings per share*       $ 0.71       $ 0.68       $ 0.55   $ 0.03   $ 0.16   $ 2.58     $ 1.93     $ 0.65  
Key performance metrics*
Net interest margin 3.08 % 3.05 % 2.90 % 3

bps

18 bps 3.02 % 2.86 % 16 bps
Effective income tax rate (32.4 ) 32.2 31.9 NM NM 13.6 31.9 NM
Efficiency ratio 61 59 62 111 (166 ) 61 64 (293 )
Adjusted/underlying efficiency ratio* 59 59 62 (91 ) (368 ) 60 64 (396 )
Return on average common equity 13.5 6.9 5.7 659 776 8.3 5.2 312
Return on average tangible common equity 19.9 10.1 8.4 979 NM 12.3 7.7 461
Adjusted/underlying return on average tangible common equity* 10.4 10.1 8.4 30 200 9.8 7.6 219
Return on average total assets 1.75 0.92 0.76 83 99 1.10 0.73 37
Adjusted/Underlying return on average total tangible assets         0.96   %     0.96   %     0.79   %

bps

17 bps   0.91   %   0.75   % 16 bps
Capital adequacy(1,2)
Common equity tier 1 capital ratio 11.1 % 11.1 % 11.2

%

11.1 % 11.2 %
Total capital ratio 13.8 13.8 14.0 13.8 14.0
Tier 1 leverage ratio         9.9   %     9.9   %     9.9   %   9.9   %   9.9   %
Asset quality(2)
Total nonperforming loans and leases as a % of total loans and leases 0.79 % 0.85 % 0.97 % (6 ) bps (18 ) bps 0.79 % 0.97 % (18 ) bps
Allowance for loan and lease losses as a % of loans and leases 1.12 1.11 1.15 1 (3 ) 1.12 1.15 (3 )
Allowance for loan and lease losses as a % of nonperforming loans
and leases
142 131 118 NM NM 142 118 NM
Net charge-offs as a % of average loans and leases         0.28   %     0.24   %     0.39  

%

4

bps

(11 )

bps

  0.28   %   0.32   % (4 ) bps
 

1) Current reporting-period regulatory capital ratios are preliminary.
Basel III ratio definitions impacting risk-weighted assets and
qualifying Basel III capital fully phase in as of January 1, 2018.
2)
Capital adequacy and asset-quality ratios calculated on a period-end
basis, except net charge-offs.

Discussion of Results:

Fourth quarter 2017 results include a net $317 million, or $0.64 per
diluted share, after-tax benefit from notable items, including a $331
million after-tax benefit for the adjustment of the company's net
deferred tax liability tied to the December 2017 Tax Legislation,
partially offset by other notable items which reflect a $22.5 million
investment in our colleagues and the communities we serve. Results also
reflect a $17 million gain on the sale of a Troubled Debt Restructuring
Portfolio ("TDR Transaction II") that was offset by $18 million of other
notable items largely associated with our efficiency and strategic
growth initiatives. Fourth quarter 2017 EPS reflects an 8.4 million
reduction in fully diluted average common shares outstanding from third
quarter 2017 and a 20.1 million reduction from fourth quarter 2016.

Full year 2017 net income available to common stockholders includes a
$340 million, or $0.67 per diluted share, after-tax benefit related to
notable items compared with an after-tax benefit of $19 million in 2016.
For 2017 results, second quarter 2017 impairments on aircraft lease
assets of $26 million have been reclassified from income and expense
line items to credit-related costs. Adding these costs to provision
expense resulted in total 2017 underlying credit-related costs of $347
million. These lease impairments, which largely related to a non-core
runoff portfolio, reduced noninterest income by $11 million and
increased noninterest expense by $15 million.

All references to Adjusted/Underlying results* exclude the notable items
as outlined in the table below.

                       
Notable items*

 

($s in millions, except per share data)

4Q17

4Q17 change
from 3Q17/4Q16

2017
Underlying
Impact

 

2016
Adjusted
Impact

Adjusted/Underlying
2017 vs 2016

Notable items
2017 Tax Legislation-related notable items*
Pre-tax total noninterest expense $ (22 ) $ (22 ) $ (22 ) $ $ (22 )
After-tax total noninterest expense (13 ) (13 ) (13 ) (13 )
Deferred tax liability adjustment - Income taxes   331         331     331             331  
Total pre-tax 2017 Tax Legislation-related notable items $ (22 ) $ (22 ) $ (22 ) $ $ (22 )
Total after-tax 2017 Tax Legislation-related notable items $ 318       $ 318   $ 318       $   $ 318  
Other notable items
Pre-tax noninterest income $ 17 $ 17 $ 6 $ 67 $ (61 )
After-tax noninterest income 10 10 3 41 (38 )
Pre-tax total noninterest expense (18 ) (18 ) (33 ) (36 ) 3
After-tax total noninterest expense (11 ) (11 ) (22 ) (22 )
Provision for credit losses 26 26
After-tax lease impairment credit-related costs           18             18  
Total pre-tax other notable items $ (1 ) $ (1 ) $ (1 ) $ 31 $ (32 )
1Q17 State tax settlement - income taxes 23 23
Total after-tax other notable items $ (1 )     $ (1 ) $ 22       $ 19   $ 3  
Total pre-tax notable items $ (23 ) $ (23 ) $ (23 ) $ 31 $ (54 )
Total after-tax notable items $ 317       $ 317   $ 340       $ 19   $ 321  
Adjusted/Underlying diluted EPS* $ 0.64       $ 0.64   $ 0.67       $ 0.04   $ 0.63  
 

Fourth quarter 2017 net income available to common stockholders of $666
million increased $325 million, or 95%, from third quarter 2017 and $384
million, or 136%, from fourth quarter 2016. Diluted EPS of $1.35
increased $0.67, or 99%, from third quarter 2017 and $0.80, or 145%,
from fourth quarter 2016.

Underlying fourth quarter 2017 net income available to common
stockholders* of $349 million increased $8 million, or 2%, with
Underlying diluted EPS* of $0.71 up $0.03, or 4%, from third quarter
2017, reflecting continued revenue growth and expense discipline, which
drove 1.6% positive operating leverage, a 1% improvement in the
efficiency ratio and ROTCE* improvement to 10.4%.

Compared with fourth quarter 2016, fourth quarter 2017 Underlying net
income to common stockholders* increased $67 million, or 24%, with
diluted EPS up $0.16, or 29%, reflecting 8% revenue growth led by a 10%
increase in net interest income and a 3% increase in noninterest income,
which coupled with prudent expense management drove 6.4% operating
leverage, a 3.7% improvement in the efficiency ratio and 2.0%
improvement in ROTCE.*

Full year 2017 net income available to common stockholders of $1.6
billion increased $607 million, or 59%, from 2016, reflecting 9% revenue
growth, partially offset by 4% growth in noninterest expense. Full year
2017 diluted EPS of $3.25 increased $1.28, or 65%, and reflects a 20.2
million reduction in average fully diluted shares outstanding.

On an Adjusted/Underlying basis,* full year 2017 net income available to
common stockholders of $1.3 billion increased $286 million, or 28%,
compared with full year 2016, as 11% growth in net interest income and
7% growth in noninterest income drove a 10% increase in revenue. Our
disciplined expense management allowed us to generate operating leverage
of 6.8% and led to a 4% reduction in the efficiency ratio. On an
Adjusted/Underlying basis, full year 2017 diluted EPS of $2.58 increased
$0.65, or 34%, while ROTCE improved by 2.2% to 9.8%.*

                   
Net interest income 4Q17 change from
($s in millions)       4Q17       3Q17       4Q16 3Q17       4Q16
  $       %     $       %    
Interest income:            
Interest and fees on loans and leases and loans held for sale $ 1,130 $ 1,104 $ 968 $ 26 2 % $ 162 17   %
Investment securities 156 155 152 1 1 4 3
Interest-bearing deposits in banks         5         5         2         3   150
Total interest income       $ 1,291       $ 1,264       $ 1,122   $ 27   2 % $ 169   15 %
Interest expense:
Deposits $ 130 $ 123 $ 76 $ 7 6 % $ 54 71 %
Federal funds purchased and securities sold under agreements to
repurchase
1 1

 

 

1 NM
Other short-term borrowed funds 9 7 7 2 29 2 29
Long-term borrowed funds         71         71         53         18   34
Total interest expense       $ 211       $ 202       $ 136   $ 9   4 % $ 75   55 %
Net interest income       $ 1,080       $ 1,062       $ 986   $ 18   2 % $ 94   10 %
Net interest margin         3.08   %   3.05   %   2.90   %   3   bps   18   bps
 

Net interest income of $1.1 billion increased $18 million, or 2%, from
third quarter 2017, reflecting loan growth and a three basis point
improvement in net interest margin to 3.08% from third quarter levels
that included a two basis point benefit from higher commercial loan
interest recoveries. The improvement in net interest margin reflects
higher interest-earning asset yields tied to higher short-term interest
rates and improving loan mix toward higher-return categories, partially
offset by higher deposit and funding costs.

Compared to fourth quarter 2016, net interest income increased $94
million, or 10%, reflecting 4% growth in average loans and an 18 basis
point improvement in net interest margin. The improvement in net
interest margin reflects higher interest-earning asset yields given
balance sheet optimization initiatives and higher rates, partially
offset by a reduction in Federal Reserve Bank stock dividends and higher
deposit and funding costs.

                         
Noninterest Income 4Q17 change from
($s in millions)       4Q17       3Q17       4Q16 3Q17     4Q16
  $     %     $     %  
Service charges and fees $ 131 $ 131 $ 132 $  

 

%

 

$ (1 )   (1

)

%

Card fees 56 58 50 (2 ) (3 ) 6 12
Capital markets fees 42 53 37 (11 ) (21 ) 5 14
Trust and investment services fees 42 38 34 4 11 8 24
Letter of credit and loan fees 31 30 29 1 3 2 7
Foreign exchange and interest rate products 32 24 31 8 33 1 3
Mortgage banking fees 28 27 36 1 4 (8 ) (22 )
Securities gains, net 2 2 3 (1 ) (33 )
Other income(1)         40         18         25   22   122   15   60
Noninterest income       $ 404       $ 381       $ 377 $ 23   6

 

%

$ 27   7

 

%

Notable items*       $ 17       $       $ $ 17   100 $ 17   100
Adjusted/Underlying noninterest income*       $ 387       $ 381       $ 377 $ 6   2

 

%

$ 10   3

 

%

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

Noninterest income of $404 million increased $23 million from third
quarter 2017, which includes a $17 million benefit from notable items.
Underlying noninterest income* of $387 million increased $6 million from
third quarter as growth in foreign exchange and interest rate products,
trust and investment services fees and other income was partially offset
by lower capital markets and seasonally lower card fees. Capital Markets
fees decreased $11 million from record third quarter levels, as a
decrease in loan syndication and bond underwriting fees was partially
offset by an increase in advisory fees. Trust and investment services
fees increased $4 million, reflecting an increase in sales volume and
productivity, and growth in managed money assets. Foreign exchange and
interest rate products increased $8 million, reflecting an increase in
demand for variable rate loan hedges relative to third quarter levels
that were impacted by the timing of interest-rate moves and seasonality.
Other income increased $5 million, reflecting an increase in hedging
income and in leasing income, despite the impact of a $3 million
impairment write-down on aircraft lease assets. Securities gains were
modest and relatively stable with third quarter levels and partially
offset the aircraft lease impairment recorded in other income.

Compared to fourth quarter 2016, noninterest income increased $27
million, which includes a $17 million benefit tied to notable items. On
an Underlying basis,* noninterest income increased $10 million, or 3%,
largely reflecting strength in trust and investment services fees, card
fees, capital markets fees and letter of credit and loan fees, partially
offset by lower mortgage banking fees. Card fees increased $6 million,
reflecting the benefit of revised contract terms for processing fees and
an increase in purchase volume. Capital markets fees increased $5
million, driven by the investments made to broaden our capabilities.
Trust and investment services fees increased $8 million, reflecting
improved sales volume and productivity, an increase in managed money
assets and an increase in the number of financial consultants. Letter of
credit and loan fees increased $2 million. Mortgage banking fees
decreased $8 million from fourth quarter 2016 levels that included
improved mortgage servicing rights ("MSR") valuations and higher
origination volumes.

                         
Noninterest expense 4Q17 change from
($s in millions)       4Q17       3Q17       4Q16 3Q17       4Q16
  $     %       $     %  
Salaries and employee benefits $ 449 $ 436 $ 420 $ 13   3

 

%

$ 29   7

 

%

Outside services 118 99 98 19 19 20 20
Occupancy 80 78 77 2 3 3 4
Equipment expense 67 65 69 2 3 (2 ) (3 )
Amortization of software 46 45 44 1 2 2 5
Other operating expense         138         135         139   3   2   (1 ) (1 )
Noninterest expense       $ 898       $ 858       $ 847 $ 40   5

 

%

$ 51   6

 

%

 
Adjusted/Underlying salaries and employee benefits* $ 432 $ 436 $ 420 $ (4 ) (1

)

%

$ 12 3

 

%

Adjusted/Underlying outside services* 106 99 98 7 7 8 8
Occupancy 80 78 77 2 3 3 4
Equipment expense 67 65 69 2 3 (2 ) (3 )
Amortization of software 46 45 44 1 2 2 5
Adjusted/Underlying other operating expense*         127         135         139   (8 ) (6 )   (12 ) (9 )
Adjusted/Underlying noninterest expense*       $ 858       $ 858       $ 847 $  

 

%

$ 11   1

 

%

Noninterest expense of $898 million increased $40 million from third
quarter 2017, reflecting $40 million of notable items. Underlying
noninterest expense* remained stable compared to third quarter as
increases in outside services, occupancy and equipment expense were
offset by decreases in salaries and benefits and other expense. Salaries
and benefits expense decreased $4 million, reflecting lower incentives
and seasonally lower payroll taxes. Outside services expense increased
$7 million, driven by consumer strategic growth initiatives and
technology initiatives. Occupancy expense increased $2 million,
reflecting seasonality, and equipment expense increased $2 million
driven by higher service contract costs. Other operating expense
decreased $8 million, driven by lower legal and regulatory costs and
lower advertising expense.

Compared with fourth quarter 2016, noninterest expense increased $51
million, driven by a $40 million increase related to notable items.
Underlying noninterest expense* increased $11 million from fourth
quarter 2016 levels as improvement in other operating expense was more
than offset by increases in salaries and benefits, outside services and
occupancy expense. Salaries and benefits increased $12 million driven by
merit increases and the impact of hiring associated with strategic
growth initiatives. Outside services increased $8 million tied to
consumer strategic growth initiatives and technology initiatives.
Occupancy expense increased $3 million reflecting costs associated with
our branch strategy and maintenance. Other operating expense decreased
$12 million driven by a reduction in fraud, legal and regulatory costs.

The effective tax rate for fourth quarter 2017 was (32.4)%, which
includes a $331 million after-tax benefit for the adjustment of the
company's net deferred tax liability tied to the December 2017 Tax
Legislation. Excluding this one-time benefit, the effective tax rate for
fourth quarter 2017 was 33.7%, up from the third quarter 2017 effective
tax rate of 32.2%, given the impact from our historic tax-credit
investment program. The fourth quarter 2016 effective tax rate was 31.9%.

                         
Consolidated balance sheet review(1)       4Q17 change from
($s in millions)       4Q17         3Q17         4Q16         3Q17       4Q16  
        $       %       $       %    
Total assets $ 152,336 $ 151,356 $ 149,520 $ 980   1

 

%

 

$ 2,816   2

 

%

Loans and leases and loans held for sale 111,335 111,375 108,294 (40 ) 3,041 3
Deposits 115,089 113,235 109,804 1,854 2 5,285 5
Average interest-earning assets (quarterly) 138,429 137,479 134,758 950 1 3,671 3
Stockholders' equity 20,270 20,109 19,747 161 1 523 3
Stockholders' common equity 20,023 19,862 19,499 161 1 524 3
Tangible common equity $ 13,489 $ 13,512 $ 13,154 $ (23 )

 

%

 

 

$ 335 3

 

%

Loan-to-deposit ratio (period-end)(2) 96.7 % 98.4 % 98.6 % (162 ) bps (188 ) bps
Loans to deposits ratio (avg balances) (2) 97.8 97.6 98.1 18 bps (37 ) bps
Common equity tier 1 capital ratio(3) 11.1 11.1 11.2
Total capital ratio(3)         13.8   %       13.8   %       14.0   %                              

1) Represents period end unless otherwise noted.
2) Includes loans
held for sale.
3) Current reporting period regulatory capital
ratios are preliminary. Basel III ratios assume that certain definitions
impacting risk-weighted assets and qualifying Basel III capital fully
phase in as of January 1, 2018.

Total assets of $152.3 billion at December 31, 2017 increased $980
million, or 1%, compared with September 30, 2017. Compared with December
31, 2016, total assets increased $2.8 billion, or 2%, driven by a $3.0
billion increase in loans and leases and loans held for sale.

Average interest-earning assets of $138.4 billion in fourth quarter 2017
were up $950 million compared with third quarter 2017 driven by an
increase in loans and leases. Compared with fourth quarter 2016, average
interest-earning assets increased $3.7 billion, or 3%, given growth in
loans and leases, partially offset by a decrease in investments and
interest bearing deposits.

                         
Interest-earning assets 4Q17 change from
($s in millions)       4Q17       3Q17       4Q16 3Q17     4Q16
Period-end interest-earning assets   $         %     $       %  
Investments and interest-bearing deposits $ 27,970 $ 27,368 $ 28,798 $ 602       2

 

%

$ (828 )     (3

)

%

Commercial loans and leases 52,031 52,381 51,651 (350 ) (1 ) 380 1
Retail loans 58,586 57,770 56,018 816 1 2,568 5
Total loans and leases 110,617 110,151 107,669 466 2,948 3
Loans held for sale, at fair value 497 500 583 (3 ) (1 ) (86 ) (15 )
Other loans held for sale 221 724 42 (503 ) (69 ) 179 NM
Total loans and leases and loans held for sale         111,335         111,375         108,294   (40 )   3,041   3
Total period-end interest-earning assets       $ 139,305       $ 138,743       $ 137,092 $ 562  

 

%

$ 2,213   2

 

%

Average interest-earning assets
Investments and interest-bearing deposits $ 27,212 $ 27,258 $ 27,667 $ (46 )

 

%

$ (455 ) (2

)

%

Commercial loans and leases 52,310 52,151 51,032 159 1,278 3
Retail loans 58,140 57,333 55,502 807 1 2,638 5
Total loans and leases 110,450 109,484 106,534 966 1 3,916 4
Loans held for sale, at fair value 482 503 551 (21 ) (4 ) (69 ) (13 )
Other loans held for sale 285 234 6 51 22 279 NM
Total loans and leases and loans held for sale         111,217         110,221         107,091   996   1   4,126   4
Total average interest-earning assets       $ 138,429       $ 137,479       $ 134,758 $ 950   1

 

%

$ 3,671   3

 

%

 

Period-end investments and interest-bearing deposits of $28.0 billion as
of December 31, 2017 increased $602 million, or 2%, from September 30,
2017. Compared with December 31, 2016, investments and interest-bearing
deposits decreased $828 million, or 3%, largely reflecting a $951
million decrease in interest bearing deposits. At the end of fourth
quarter 2017, the average effective duration of the securities portfolio
increased to 3.9 years compared with 3.8 years at September 30, 2017,
given higher long-term rates that drove a decrease in securities
prepayment speeds. At December 31, 2016, the securities portfolio
duration was 4.3 years, reflecting the impact of somewhat higher
long-term rates and a steeper yield curve, which resulted in a decrease
in prepayment speeds.

Period-end loans and leases of $110.6 billion at December 31, 2017 were
relatively stable compared to September 30, 2017. Compared to December
31, 2016, period-end loans and leases increased $2.9 billion, or 3%,
from $107.7 billion, reflecting a $2.6 billion increase in retail loans
and a $380 million increase in commercial loans and leases.

Average loans and leases were up $966 million compared with third
quarter 2017 as retail loans increased $807 million and commercial loans
and leases increased $159 million. Retail loan growth reflects strength
in mortgage, education and other unsecured retail loans, partially
offset by lower home equity and auto balances. Commercial loan results
largely reflect growth in Mid-corporate and Private Equity, as well as
the impact of our geographic expansion strategies, partially offset by a
planned reduction in Asset Finance and non-core.

Compared with fourth quarter 2016, average loans and leases increased
$3.9 billion, or 4%, reflecting a $2.6 billion increase in retail loans
and a $1.3 billion increase in commercial loans and leases. Retail loan
growth was driven by education, mortgage and other unsecured retail,
partially offset by lower home equity and auto balances. Commercial loan
and lease growth was driven by strength in Mid-corporate and Private
Equity, Commercial Real Estate and Franchise Finance, as well as the
impact of our geographic expansion strategies, partially offset by a
planned reduction in Asset Finance, lower line of credit utilization and
lower non-core balances.

                         
Deposits 4Q17 change from
($s in millions)       4Q17       3Q17       4Q16 3Q17       4Q16  
Period-end deposits   $         %       $         %    
Demand deposits $ 29,279 $ 28,643 $ 28,472 $ 636       2

 

%

$ 807       3

 

%

Checking with interest 22,229 21,756 20,714 473 2 1,515 7
Savings 9,518 9,470 8,964 48 1 554 6
Money market accounts 37,454 37,070 38,176 384 1 (722 ) (2 )
Term deposits         16,609         16,296         13,478   313   2   3,131   23
Total period-end deposits       $ 115,089       $ 113,235       $ 109,804 $ 1,854   2

 

%

$ 5,285   5

 

%

Average deposits
Demand deposits $ 28,868 $ 28,041 $ 28,443 $ 827 3

 

%

$ 425 1

 

%

Checking with interest 21,459 21,909 20,268 (450 ) (2 ) 1,191 6
Savings 9,473 9,491 8,826 (18 ) 647 7
Money market accounts 37,483 37,535 38,397 (52 ) (914 ) (2 )
Term deposits         16,470         15,971         13,191   499   3   3,279   25
Total average deposits       $ 113,753       $ 112,947       $ 109,125 $ 806   1

 

%

$ 4,628   4

 

%

 

Total period-end deposits of $115.1 billion at December 31, 2017
increased $1.9 billion from September 30, 2017, reflecting an increase
in demand deposits, checking with interest, money market accounts and
term deposits. Compared with December 31, 2016, period-end total
deposits increased $5.3 billion, or 5%, driven by strong growth in term
deposits, checking with interest and demand deposits as well as savings,
partially offset by a decline in money market accounts.

Fourth quarter 2017 average deposits of $113.8 billion increased $806
million, or 1%, from third quarter 2017, reflecting strong growth in
demand and term deposits, partially offset by a decrease in checking
with interest. Compared with fourth quarter 2016, average deposits
increased $4.6 billion, or 4%, reflecting strong growth in term
deposits, checking with interest and savings and modest growth in demand
deposits, partially offset by a decline in money market accounts.

                         
Borrowed funds 4Q17 change from  
($s in millions)       4Q17       3Q17       4Q16 3Q17         4Q16  
Period-end borrowed funds   $             %       $             %    
Federal funds purchased and securities sold under agreements to
repurchase
$ 815 $ 453 $ 1,148 $ 362           80

 

%

$ (333 )           (29

)

%

Other short-term borrowed funds 1,856 1,505 3,211 351 23 (1,355 ) (42 )
Long-term borrowed funds         11,765         13,400         12,790   (1,635 ) (12 )   (1,025 ) (8 )
Total borrowed funds       $ 14,436       $ 15,358       $ 17,149 $ (922 ) (6

)

%

$ (2,713 ) (16

)

%

 
Average borrowed funds       $ 14,775       $ 14,567       $ 15,210 $ 208   1

 

%

$ (435 ) (3

)

%

Total borrowed funds of $14.4 billion at December 31, 2017 decreased
$922 million from September 30, 2017, reflecting a $1.6 billion decrease
in long-term borrowings, primarily Federal Home Loan Bank or "FHLB"
borrowings, partially offset by an increase of $713 million in
short-term borrowings, reflecting an increase of $362 million in Federal
funds purchased and repurchase agreements and an increase of $351
million in other short-term borrowings, primarily short-term FHLB
borrowings. Compared with December 31, 2016, total borrowed funds
decreased $2.7 billion, or 16%. Short-term borrowings decreased $1.7
billion reflecting a $1.4 billion decrease in other short-term
borrowings, primarily short-term FHLB borrowings, and a $333 million
decrease in Federal funds purchased and repurchase agreements. Long-term
borrowings decreased by $1.0 billion reflecting a decrease of $3.5
billion in long-term FHLB borrowings, partially offset by an increase of
$2.5 billion in long-term senior debt.

Average borrowed funds of $14.8 billion were broadly stable with prior
periods, increasing $208 million from third quarter 2017 and decreasing
$435 million compared with the fourth quarter 2016.

                         
Capital       4Q17 change from

 

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

      4Q17         3Q17         4Q16         3Q17      

4Q16

 
Period-end capital         $         %           $         %    
Stockholders' equity $ 20,270 $ 20,109 $ 19,747 $ 161       1

 

%

$ 523       3

 

%

Stockholders' common equity 20,023 19,862 19,499 161 1 524 3
Tangible common equity 13,489 13,512 13,154 (23 ) 335 3
Tangible book value per common share $ 27.48 $ 27.05 $ 25.69 $ 0.43 2 $ 1.79 7
Common shares - at end of period 490.8 499.5 512.0 (8.7 ) (2 ) (21.1 ) (4 )
Common shares - average (diluted) 493.8 502.2 513.9 (8.4 ) (2

)

%

(20.1 ) (4

)

%

Common equity tier 1 capital ratio(1,2) 11.1 % 11.1 % 11.2 %
Total capital ratio(1,2) 13.8 13.8 14.0
Tier 1 leverage ratio(1,2)         9.9   %       9.9   %       9.9   %                              

1) Current reporting-period regulatory capital ratios are preliminary.
2)
Basel III ratio definitions impacting risk-weighted assets and
qualifying Basel III capital fully phase in as of January 1, 2018.

At December 31, 2017, our Basel III capital ratios on a transitional
basis remained well in excess of applicable regulatory requirements. Our
CET1 capital ratio of 11.1% at December 31, 2017 compares
with 11.1% at September 30, 2017 and 11.2% at December 31, 2016.

Additionally, we expect to record a benefit for an anticipated FASB
accounting change related to Tax Legislation that will be applicable to
calendar 2017. The pro forma impact of this change would increase the
CET1 ratio to 11.2% from 11.1%. Our total capital ratio of 13.8% at
December 31, 2017 compares with 13.8% at September 30, 2017 and 14.0% at
December 31, 2016. Our capital ratios continue to reflect progress
against our objective of aligning our capital profile to be consistent
with that of peer regional banks, while maintaining a strong capital
base to support our growth aspirations, strategy and risk appetite.
Tangible book value per common share of $27.48 increased 2% compared
with third quarter 2017 and 7% compared with fourth quarter 2016.

During the fourth quarter 2017, the company repurchased 8.8 million
shares of common stock at a weighted-average price of $38.18, and
including common dividends, returned $424 million to shareholders. These
results compare with $315 million returned to common shareholders in
third quarter 2017 and $242 million in fourth quarter 2016.

In 2017, the company repurchased 22.4 million shares of common stock at
a weighted-average price of $36.67, and including common dividends,
returned $1.14 billion to common shareholders. Comparables for 2016 were
repurchases of 17.3 million shares of common stock at a weighted-average
price of $24.81, and including common dividends, $671 million returned
to common shareholders.

Citizens also announced today that its board of directors declared a 22%
increase in its quarterly cash dividend to $0.22 per common share.

                                 
Credit quality review 4Q17 change from
($s in millions)       4Q17         3Q17         4Q16   3Q17     4Q16
  $           %     $           %    
Nonperforming loans and leases $ 871 $ 932 $ 1,045 $ (61 )   (7

)

%

$ (174 )   (17

)

%

Net charge-offs 78 65 104 13 20 (26 ) (25 )
Provision for credit losses 83 72 102 11 15 (19 ) (19 )
Allowance for loan and lease losses $ 1,236 $ 1,224 $ 1,236 $ 12 1

 

%

$

 

%

Total nonperforming loans and leases

as a % of total loans and leases

0.79 % 0.85 % 0.97 % (6 ) bps (18 ) bps
Net charge-offs as % of total loans and leases 0.28 0.24 0.39 4 bps (11 ) bps
Allowance for loan and lease losses as a % of total loans and leases 1.12 % 1.11 % 1.15 % 1 bps (3 ) bps
Allowance for loan and lease losses as a % of nonperforming loans
and leases
        142.0   %       131.4   %       118.3   %         NM                     NM              
 

Overall credit quality remains strong, reflecting growth in high quality
retail loans and broadly stable risk profile in commercial portfolios.
Nonperforming loans and leases of $871 million decreased $61 million, or
7%, from September 30, 2017, primarily reflecting a decrease in
commercial, driven by payoffs. Compared to December 31, 2016,
nonperforming loans and leases decreased $174 million, or 17%,
reflecting a $122 million decrease in commercial, driven by a reduction
in nonperforming commodities-related credits, and a $52 million decrease
in retail, largely in real-estate secured categories. The nonperforming
loans and leases to total loans and leases ratio of 0.79% at December
31, 2017 improved six basis points from 0.85% at September 30, 2017 and
improved 18 basis points from 0.97% at December 31, 2016.

Net charge-offs of $78 million increased $13 million from third quarter
2017, reflecting an $2 million increase in commercial and an $11 million
increase in retail largely driven by seasonality in auto and education,
as well as growth in the retail unsecured portfolio. Compared with
fourth quarter 2016, net charge-offs decreased $26 million, reflecting a
$14 million decrease in commercial net charge-offs and a $12 million
decrease in retail net charge-offs. Fourth quarter 2017 net charge-offs
of 28 basis points of average loans and leases compares with 24 basis
points in third quarter 2017 and 39 basis points in fourth quarter 2016.

Allowance for loan and lease losses of $1.2 billion increased slightly
compared to third quarter 2017, primarily reflecting growth and
seasoning in the consumer unsecured portfolio. Allowance for loan and
lease losses is stable compared with fourth quarter 2016 levels,
reflecting strong overall credit quality that helped offset reserves to
fund year-over-year loan growth.

The ratio of the allowance for loan and lease losses to total loans and
leases was 1.12% as of December 31, 2017, which was stable compared with
1.11% as of September 30, 2017 and down modestly from 1.15% as of
December 31, 2016.

The allowance for loan and lease losses to nonperforming loans and
leases ratio of 142% as of December 31, 2017 compares to 131% as of
September 30, 2017, and 118% as of December 31, 2016, reflecting the
decrease in nonperforming loans.

Additional Segment Detail:

                                 
Consumer Banking Segment 4Q17 change from
($s in millions)       4Q17         3Q17         4Q16       3Q17       4Q16
        $           %       $           %    
Net interest income $ 682 $ 674 $ 639 $ 8   1

 

%

$ 43   7   %
Noninterest income         229           227           227         2   1   2   1
Total revenue 911 901 866 10 1 45 5
Noninterest expense         654           648           649         6   1   5   1
Pre-provision profit 257 253 217 4 2 40 18
Provision for credit losses         76           65           74         11   17   2   3
Income before income tax expense 181 188 143 (7 ) (4 ) 38 27
Income tax expense         64           66           51         (2 ) (3 )   13   25
Net income       $ 117         $ 122         $ 92       $ (5 ) (4

)

%

$ 25   27 %
 
Average balances                                        
Total loans and leases (1) $ 59,547 $ 58,679 $ 56,711 $ 868 1

 

%

$ 2,836 5 %
Total deposits       $ 75,154         $ 75,085         $ 73,124       $ 69  

 

%

$ 2,030   3 %
 
Key performance metrics*                                    
ROTCE (2) 8.3 % 8.7 % 7.0 % (43 ) bps 132 bps
Efficiency ratio 72 % 72 % 75 % 2 bps (300 ) bps
Loan-to-deposit ratio (period-end)(1)         79.5   %       78.6   %       77.3   %         90   bps   216   bps

1) Includes held for sale.
2) Operating segments are allocated
capital on a risk-adjusted basis considering economic and regulatory
capital requirements. We approximate that regulatory capital is
equivalent to a sustainable target level of common equity tier 1 and
then allocate that approximation to the segments based on economic
capital.

Consumer Banking net income of $117 million in fourth quarter 2017
decreased $5 million, or 4%, from third quarter 2017 reflecting
after-tax notable items of $5 million included in noninterest expense
primarily associated with our strategic growth initiatives. Excluding
these notable items, Consumer Banking net income of $122 million in
fourth quarter 2017 was stable with third quarter 2017 and increased $30
million compared with fourth quarter 2016.* Net interest income
increased $8 million, or 1%, compared with third quarter 2017 reflecting
growth in mortgage, education and unsecured retail loan balances as well
as the benefit of improved loan yields, partially offset by an increase
in deposit costs. Noninterest income increased $2 million, or 1%, as
higher trust and investment services fees were partially offset by
seasonally lower card fees. Noninterest expense increased $6 million
from third quarter 2017, given the impact of $9 million of notable items
tied to growth initiatives largely in outside services, which includes
costs tied to strategic growth initiatives.* Results also include an
increase in occupancy and other operating expense, offset by seasonally
lower marketing spend and salary and benefits expense. Excluding notable
items, noninterest expense decreased $3 million from third quarter
2017.* Provision for credit losses increased $11 million from third
quarter 2017, reflecting higher net charge-offs largely driven by
seasonality in auto and education, as well as an increase for unsecured
primarily tied to portfolio seasoning.

Compared with fourth quarter 2016, net income increased $25 million, or
27%, reflecting a $45 million increase in total revenue and a $5 million
increase in noninterest expense. Excluding notable items, Consumer
Banking net income increased $30 million compared with fourth quarter
2016.* Net interest income increased $43 million, or 7%, as improved
loan yields and a $2.8 billion increase in average loans, driven by
growth in mortgage, education and unsecured retail loan balances, were
partially offset by an increase in deposit costs. Noninterest income was
up 1% compared with fourth quarter 2016, largely reflecting higher trust
and investment fees and card fees, partially offset by lower mortgage
banking fees.

Compared to fourth quarter 2016, noninterest expense increased $5
million reflecting an increase in outside services and in salaries and
benefits associated with growth initiatives, along with higher FDIC
expense. These increases were partially offset by lower fraud and other
losses. Excluding the notable items, noninterest expense decreased $4
million compared with fourth quarter 2016.* Provision for credit losses
was stable compared with fourth quarter 2016, as higher consumer
unsecured and education net charge-offs were partially offset by lower
home equity and mortgage net charge-offs.

                                 
Commercial Banking Segment       4Q17 change from
($s in millions)       4Q17         3Q17         4Q16         3Q17     4Q16  
        $           %       $           %    
Net interest income $ 367 $ 354 $ 347 $ 13   4   % $ 20   6

 

%

Noninterest income         138             136           122           2   1   16   13
Total revenue 505 490 469 15 3 36 8
Noninterest expense         195             195           187               8   4
Pre-provision profit 310 295 282 15 5 28 10
Provision for credit losses         (1 )                     20           (1 ) NM   (21 ) (105 )
Income before income tax expense 311 295 262 16 5 49 19
Income tax expense         105             94           90           11   12   15   17
Net income       $ 206           $ 201         $ 172         $ 5   2 % $ 34   20

 

%

 
Average balances                                        
Total loans and leases (1) $ 48,938 $ 48,746 $ 47,010 $ 192 % $ 1,928 4

 

%

Total deposits       $ 31,514           $ 30,751         $ 29,410         $ 763   2 % $ 2,104   7

 

%

 
Key performance metrics*                                    
ROTCE (2) 14.1 % 14.1 % 12.9 % 9 bps 121 bps
Efficiency ratio 39 % 39 % 40 % (55 ) bps (99 ) bps
Loan-to-deposit ratio (period-end)(1)         152.8     %       160.5   %       166.3   %         (768 ) bps   NM  

1) Includes held for sale.
2) Operating segments are allocated
capital on a risk-adjusted basis considering economic and regulatory
capital requirements. We approximate that regulatory capital is
equivalent to a sustainable target level for common equity tier 1 and
then allocate that approximation to the segments based on economic
capital.

Commercial Banking net income of $206 million for fourth quarter 2017
increased $5 million, or 2%, versus third quarter 2017 driven by higher
net interest income and noninterest income. Net interest income
increased $13 million, or 4%, versus third quarter 2017, reflecting
strong deposit balance growth. Modest loan growth reflects growth in
Mid-corporate, Private Equity and the impact of geographic expansion
strategies, partially offset by planned runoff in the Asset Finance
portfolio. Noninterest income increased 1% compared with third quarter
2017 as higher foreign exchange and interest rate products, leasing fees
and letter of credit fees offset lower capital markets fees from record
levels in third quarter 2017. Noninterest expense was stable. Fourth
quarter 2017 provision for credit losses remained stable versus third
quarter 2017.

Compared with fourth quarter 2016, net income increased $34 million, or
20%, driven by a $36 million increase in total revenue and a $21 million
reduction in provision expense, partially offset by an $8 million
increase in noninterest expense. Compared to fourth quarter 2016, net
interest income increased $20 million, or 6%, as the benefit of 4%
average loan and lease growth and improved loan yields was partially
offset by higher deposit costs. Average loans and leases increased $1.9
billion, driven by strength in Mid-corporate, Private Equity, Commercial
Real Estate and Franchise Finance, as well as the impact of our
geographic expansion strategies, partially offset by planned runoff in
the Asset Finance portfolio and the impact of lower line utilization.
Compared to fourth quarter 2016, noninterest income increased $16
million, or 13%, reflecting strength in capital markets, letter of
credit and loan fees and card fees. Noninterest expense increased $8
million, or 4%, reflecting higher salaries and benefits expense and
outside services, partially offset by lower legal and regulatory
expense. Provision for credit losses decreased $21 million from higher
fourth quarter 2016 levels largely tied to commodities-related credits.

                         
Other(1)     4Q17 change from
($s in millions)       4Q17       3Q17       4Q16     3Q17       4Q16
      $         %       $         %  
Net interest income $ 31 $ 34 $ $ (3 )       (9

)

%

$ 31       NM
Noninterest income         37           18         28         19   106   9   32
Total revenue 68 52 28 16 31 40 143
Noninterest expense         49           15         11         34   NM   38   NM
Pre-provision profit (loss) 19 37 17 (18 ) (49 ) 2 12
Provision for credit losses         8           7         8         1   14    
Income (loss) before income tax expense (benefit) 11 30 9 (19 ) (63 ) 2 22
Income tax expense (benefit)         (332 )         5         (9 )   (337 ) NM   (323 ) NM
Net income (loss)       $ 343         $ 25       $ 18       $ 318   NM $ 325   NM
 
Average balances                                
Total loans and leases (2) $ 2,732 $ 2,796 $ 3,370 $ (64 ) (2

)

%

$ (638 ) (19

)

%

Total deposits       $ 7,085         $ 7,111       $ 6,591       $ (26 )

 

%

$ 494   7

 

%

1) 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 and expenses, including income tax expense, not
attributed to our Consumer Banking or Commercial Banking segments.
2)
Includes held for sale.

Other net income of $343 million in fourth quarter 2017 versus third
quarter 2017 increased by $318 million, driven primarily by the $331
million deferred tax liability benefit tied to the 2017 Tax Legislation.
Net interest income decreased $3 million, or 9%, driven by higher
funding costs. Noninterest income increased $19 million, driven
primarily by $17 million pre-tax, or $10 million after-tax, of notable
items related to the gain on the sale of the TDR Transaction II.*
Noninterest expense increased $34 million, driven primarily by $31
million of notable items, which included $12.5 million related to our
one-time colleague bonus, $10 million in charitable contributions
expense and $9 million related to our efficiency initiatives. Provision
expense increased $1 million related to non-core net charge-offs,
partially offset by a lower reserve build versus third quarter 2017.
Income tax expense included the $331 million deferred tax liability
benefit tied to the 2017 Tax Legislation and the impact of $7 million
tied to historic tax credit investment costs.

Other net income in fourth quarter 2017 increased $325 million versus
fourth quarter 2016, driven primarily by the deferred tax liability
benefit notable item tied to the 2017 Tax Legislation.* Net interest
income increased $31 million, driven by residual funds transfer pricing
and higher investment portfolio income versus fourth quarter 2016
levels, partially offset by higher funding costs, non-core portfolio
run-off and the lower benefit of swaps. Noninterest income increased $9
million and included $17 million of pre-tax notable items related to the
TDR Transaction II gain which more than offset lower leasing income and
other net gains. Noninterest expense increased $38 million, driven
primarily by notable items recorded in fourth quarter 2017. Provision
expense was stable versus fourth quarter 2016.

Corresponding Financial Tables and Information

Investors are encouraged to review the foregoing summary and discussion
of Citizens' earnings and financial condition in conjunction with the
detailed financial tables and other information available on the
Investor Relations portion of the company's website at www.citizensbank.com/about-us.

Conference Call

CFG management will host a live conference call today with details as
follows:

Time: 9:00 am ET

Dial-in: (800) 553-5275, conference ID 432751

Webcast/Presentation: The live webcast will be available at http://investor.citizensbank.com
under Events & Presentations.

Replay Information: A replay of the conference call will be available
beginning at 11:00 am ET on January 19 through

February 19, 2018. Please dial (800) 475-6701 and enter access code
432751. The webcast replay will be available at http://investor.citizensbank.com
under Events & Presentations.

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation's oldest and largest
financial institutions, with $152.3 billion in assets as of December 31,
2017. Headquartered in Providence, Rhode Island, Citizens offers a broad
range of retail and commercial banking products and services to
individuals, small businesses, middle-market companies, large
corporations and institutions. Citizens helps its customers reach their
potential by listening to them and by understanding their needs in order
to offer tailored advice, ideas and solutions. In Consumer Banking,
Citizens provides an integrated experience that includes mobile and
online banking, a 24/7 customer contact center and the convenience of
approximately 3,300 ATMs and approximately 1,150 branches in 11 states
in the New England, Mid-Atlantic and Midwest regions. Consumer Banking
products and services include a full range of banking, lending, savings,
wealth management and small business offerings. In Commercial Banking,
Citizens offers corporate, institutional and not-for-profit clients a
full range of wholesale banking products and services, including lending
and deposits, capital markets, treasury services, foreign exchange and
interest rate products, and asset finance. More information is available
at www.citizensbank.com
or visit us on Twitter,
LinkedIn
or Facebook.

Key Performance Metrics and Non-GAAP Financial
Measures and Reconciliations

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

Key Performance Metrics:

Our management team uses key performance metrics (KPMs) to gauge our
performance and progress over time in achieving our strategic and
operational goals and also in comparing our performance against our
peers. We have established the following financial targets, in addition
to others, as KPMs, which are utilized by our management in measuring
our progress against financial goals and as a tool in helping assess
performance for compensation purposes. These KPMs can largely be found
in our periodic reports which are filed with the Securities and Exchange
Commission, and are supplemented from time to time with additional
information in connection with our quarterly earnings releases.

Our key performance metrics include:

Return on average tangible common equity (ROTCE);

Return on average total tangible assets (ROTA);

Efficiency ratio;

Operating leverage; and

Common equity tier 1 capital ratio (U.S. Basel III Standardized fully
phased-in basis).

In establishing goals for these KPMs, we determined that they would be
measured on a management-reporting basis, or an operating basis, which
we refer to externally as "Adjusted" or "Underlying" results. We believe
that these "Adjusted" or "Underlying" results provide the best
representation of our financial progress toward these goals as they
exclude items that our management does not consider indicative of our
ongoing financial performance. KPMs that contain "Adjusted" or
"Underlying" results are considered non-GAAP financial measures.

Non-GAAP Financial Measures:

This document contains non-GAAP financial measures. The following tables
present reconciliations of our non-GAAP measures. These reconciliations
exclude "Adjusted" or "Underlying" items, which are included, where
applicable, in the financial results presented in accordance with GAAP.
"Adjusted" or "Underlying" results, which are non-GAAP measures, exclude
certain items, as applicable, that may occur in a reporting period which
management does not consider indicative of on-going financial
performance.

The non-GAAP measures presented in the following tables include
reconciliations to the most directly comparable GAAP measures and are:
"noninterest income", "total revenue", " noninterest expense",
"pre-provision profit", "total credit-related costs", "income before
income tax expense", "income tax expense", "effective income tax rate",
"net income", "net income available to common stockholders", "other
income", "salaries and employee benefits", "outside services",
"amortization of software expense", "other operating expense", "net
income per average common share", "return on average common equity" and
"return on average total assets".

We believe these non-GAAP measures provide useful information to
investors because these are among the measures used by our management
team to evaluate our operating performance and make day-to-day operating
decisions. In addition, we believe our "Adjusted" or "Underlying"
results in any period do not reflect our operational performance in that
period and, accordingly, it is useful to consider our GAAP results and
our "Adjusted" or "Underlying" results together. We believe this
presentation also 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 other companies. We caution investors not to
place undue reliance on such non-GAAP measures, but instead to consider
them with the most directly comparable GAAP measure. Non-GAAP financial
measures have limitations as analytical tools, and should not be
considered in isolation, or as a substitute for our results as reported
under GAAP.

 

Key performance metrics, non-GAAP financial measures and
reconciliations

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

                                                           
QUARTERLY TRENDS FULL YEAR
          4Q17 Change       2017 Change
4Q17 3Q17 2Q17 1Q17 4Q16 3Q17 4Q16 2017   2016   2016
$ % $ % $   %
Noninterest income, Adjusted/Underlying:
Noninterest income (GAAP) $404 $381 $370 $379 $377 $23 6 % $27 7 % $1,534 $1,497 $37 2 %
Less: Notable items 17   (11 )   17   100 17   100 6   67   (61 ) (91 )
Noninterest income, Adjusted/Underlying (non-GAAP) $387   $381 $381   $379   $377 $6   2 % $10   3 % $1,528   $1,430   $98   7 %
Total revenue, Adjusted/Underlying:
Total revenue (GAAP) A $1,484 $1,443 $1,396 $1,384 $1,363 $41 3 % $121 9 % $5,707 $5,255 $452 9 %
Less: Notable items 17   (11 )   17   100 17   100 6   67   (61 ) (91 )
Total revenue, Adjusted/Underlying (non-GAAP) B $1,467   $1,443 $— $1,407   $1,384   $1,363 $24   2 % $104   8 % $5,701   $5,188   $513   10 %
Noninterest expense, Adjusted/Underlying:
Noninterest expense (GAAP) C $898 $858 $864 $854 $847 $40 5 % $51 6 % $3,474 $3,352 $122 4 %
Less: Notable items 40   15     40   100 40   100 55   36   19   53
Noninterest expense, Adjusted/Underlying (non-GAAP) D $858   $858 $849   $854   $847 $—   % $11   1 % $3,419   $3,316   $103   3 %
Pre-provision profit:
Total revenue (GAAP) A $1,484 $1,443 $1,396 $1,384 $1,363 $41 3 % $121 9 % $5,707 $5,255 $452 9 %
Less: Noninterest expense (GAAP) C 898   858 864   854   847 40   5 51   6 3,474     3,352   122   4
Pre-provision profit (GAAP) $586   $585 $532   $530   $516 $1   % $70   14 % $2,233     $1,903   $330   17 %
Pre-provision profit, Adjusted/Underlying:
Total revenue, Adjusted/Underlying (non-GAAP) B $1,467 $1,443