Citizens Financial Group, Inc. Reports Third Quarter Net Income of $297 Million; Diluted EPS of $0.56

Results include a $19 million after-tax benefit, or $0.04 per diluted share, from notable items

Adjusted net income up 26% and Adjusted diluted EPS up 30% from third quarter 2015*

ROTCE of 8.6% and Adjusted ROTCE of 8.0% in third quarter 2016*

Positive operating leverage year over year of 5.5% and 4.5% on an Adjusted basis*

PROVIDENCE, R.I.--()--Citizens Financial Group, Inc. (NYSE: CFG or “Citizens”) today reported third quarter net income of $297 million, or $0.56 per diluted common share, up 35% and 40%, respectively, from $220 million and $0.40 per diluted common share in third quarter 2015. Compared with second quarter 2016, net income increased 22% from $243 million and earnings per diluted common share increased 22% from $0.46. Third quarter 2016 results include a $19 million after-tax benefit from notable items, reflecting a gain on the sale of a Troubled Debt Restructuring portfolio (“TDR Transaction”) partially offset by other items largely associated with our efficiency and balance sheet optimization initiatives.

                                   
 
 
3Q16 notable items(1)      

  After tax  

EPS impact
 
Gain on mortgage/home equity TDR Transaction $ 45 $ 0.09
Home equity operational items         (5 )   (0.01 )
TDR gain after impact of home equity operational items $ 40 $ 0.08
 
Asset Finance repositioning (10 ) (0.02 )
Top III efficiency initiatives (11 ) (0.02 )
           
Total 3Q16 notable items       $ 19   $ 0.04  

1) See pg. 7 for additional detail.

 

Excluding notable items, third quarter 2016 Adjusted net income totaled $278 million, or $0.52 per diluted common share. Adjusted EPS was up 13% from second quarter 2016 and 30% from third quarter 2015. Third quarter 2016 Return on Average Common Equity (“ROTCE”) of 8.6% and Adjusted ROTCE of 8.0% improved from 7.3% in second quarter 2016 and 6.6% in third quarter 2015.*

“We are pleased to report another very strong quarter of improved financial performance with good revenue growth, robust positive operating leverage and further progress across all of our key strategic initiatives,” said Chairman and CEO Bruce Van Saun. “Our team continues their great work towards running the bank better and delivering for all of our stakeholders, including customers, colleagues, communities and shareholders.”

Van Saun continued, “I’m also pleased to announce that as part of our 2016 capital plan we launched our first open-market share-repurchase program since becoming a fully independent company. During the quarter we repurchased 11 million shares of common stock, returning $313 million to shareholders including common dividends. We remain focused on continuing to enhance shareholder returns.”

CFG’s Board of Directors declared a quarterly common stock dividend of $0.12 per common share payable on November 16, 2016 to shareholders of record at the close of business on November 2, 2016. Third quarter 2016 net income available to common stockholders was reduced by $7 million, or $0.01 per share, related to preferred stock dividends, which are paid semi-annually and were not declared in second quarter 2016.

Third Quarter 2016 vs. Second Quarter 2016

Key Highlights

  • Third quarter highlights include net income to common stockholders growth of 19%, driven by 8% revenue growth with 2% net interest income growth, 23% noninterest income growth, and 5% noninterest expense growth. These GAAP results reflect the impact of the TDR Transaction gain and other third quarter notable items. Results reflect positive operating leverage of 3%, a 2% improvement in the efficiency ratio and ROTCE of 8.6%.*
  • Adjusted results reflect 12% growth in net income available to common stockholders with 3% revenue growth highlighted by continued loan and deposit growth, a stable net interest margin, 4% noninterest income growth and a modest increase in noninterest expense. Adjusted results also reflect positive operating leverage of 2% and the repurchase of $250 million of common shares, which led to a 72 basis point improvement in Adjusted ROTCE to 8.0%.*
  • Tangible book value per common share increased to $26.20 and common shares outstanding decreased by 11 million, or 2%.

Results

  • Total revenue of $1.4 billion was up $102 million, or 8%, driven by the impact of the TDR Transaction. Adjusted total revenue of $1.3 billion was up $35 million, or 3%, on 2% net interest income growth and 4% noninterest income growth.*
    • Net interest income of $945 million was up $22 million, driven by 1% average loan growth and the benefit of an additional day during the quarter.
    • Net interest margin of 2.84% remained stable, as the benefit of improved loan yields was offset by lower investment portfolio yields and an increase in deposit costs.
    • Noninterest income of $435 million increased $80 million, or 23%, reflecting the impact of notable items in other noninterest income. Adjusted noninterest income* of $368 million increased $13 million, or 4%, reflecting particular strength in mortgage banking fees, service charges and fees, other income and foreign exchange and letter of credit fees, partially offset by lower securities gains. Capital markets fees were relatively flat compared to record second quarter levels.
  • Noninterest expense of $867 million increased $40 million, or 5%, driven by the impact of notable items, largely in salaries and employee benefits, outside services and other expense. Adjusted noninterest expense* of $831 million increased $4 million, reflecting a reduction in salaries and employee benefits from higher second quarter 2016 levels, which was more than offset by an increase in outside services largely related to professional services and marketing expense, higher FDIC insurance expense and small increases across other expense categories.
  • Efficiency ratio of 63%; Adjusted efficiency ratio* of 63% improved 140 basis points.
  • Provision for credit losses of $86 million decreased $4 million, as the impact of a $17 million increase in commercial net charge-offs, driven largely by previously reserved for losses in the energy portfolio, was more than offset by continued improvement in underlying credit quality.

Balance Sheet

  • Average interest-earning assets increased $2.2 billion, or 2%, driven by continued loan growth. Period-end loans increased 2%.
  • Average deposits increased $2.7 billion, or 3%, driven by growth in money market and checking with interest deposits with particular strength in the Commercial business. Period-end deposits increased 2%.
  • Nonperforming loans and leases (“NPLs”) to total loans and leases ratio of 1.05% increased slightly from 1.01%, largely reflecting energy- and commodity-related increases in commercial NPLs. The balance of the portfolio broadly reflects stable to improving trends. Allowance coverage of NPLs was 112% compared with 119%.
  • Net charge-offs of 32 basis points increased seven basis points from relatively low second quarter levels, driven by higher charge-offs in the commercial energy portfolio.
  • Capital strength remained robust with a common equity tier 1 (“CET1”) risk-based capital ratio of 11.3%.
  • Repurchased 11.1 million shares of common stock, returning $250 million to shareholders.

Third Quarter 2016 vs. Third Quarter 2015

Key Highlights

  • Third quarter highlights include net income to common stockholders growth of 36%, given strong revenue growth led by a 23% increase in noninterest income and a 9% increase in noninterest expense driven by notable items. Results reflect positive operating leverage of 5.5%, a 3% improvement in the efficiency ratio and ROTCE of 8.6% compared to 6.6% in third quarter 2015.*
  • Adjusted results reflect net income to common stockholders growth of 27%, highlighted by revenue growth of 9%, with strength in both net interest income and fee income and continued noninterest expense discipline. Adjusted results reflect positive operating leverage of 4.5% and almost 3% improvement in the efficiency ratio. Adjusted ROTCE of 8.0% compares with 6.6% in third quarter 2015.*

Results

  • Total revenue of $1.4 billion increased $171 million, or 14%, reflecting net interest income growth and the impact of notable items. Adjusted total revenue* increased 9%, driven by strong loan growth and net interest margin improvement as well as growth in mortgage banking, capital markets and service charges and fees.
    • Net interest income increased $89 million, or 10%, reflecting the benefit of loan growth and an eight basis point improvement in the net interest margin.
    • Net interest margin of 2.84% reflects the benefits of improved loan yields given continued pricing and portfolio optimization initiatives, as well as higher short-term rates. These benefits were partially offset by a reduction in investment portfolio yields, which includes a reduction in Federal Reserve Bank stock dividends, as well as increased borrowing costs.
    • Noninterest income of $435 million increased $82 million driven by the $72 million TDR Transaction gain. Adjusted noninterest income* of $368 million increased $15 million from third quarter 2015 levels. Strength in mortgage banking fees, capital markets fees and service charges and fees was partially offset by the card reward accounting change impact, lower trust and investment services fees and other income.
  • Noninterest expense of $867 million increased $69 million, driven by the effect of third quarter notable items largely in salaries and employee benefits, outside services and other expense. Adjusted noninterest expense* of $831 million increased $33 million, driven by a $17 million increase in salaries and employee benefits, largely reflecting merit increases and higher incentive payments.
  • Provision for credit losses of $86 million increased $10 million, largely reflecting an $8 million increase in net charge-offs.
  • ROTCE of 8.6%; Adjusted ROTCE of 8.0% improved 142 basis points.*

Balance Sheet

  • Average interest-earning assets increased $8.7 billion, or 7%, driven by strong loan growth.
  • Average deposits increased $5.7 billion, or 6%, on strength in checking with interest, money market and DDA products.
  • NPLs to total loans and leases ratio of 1.05% remained stable, as underlying improvement in retail nonperforming loans as well as the impact of the TDR Transaction more than offset an increase in commercial nonperforming loans, largely commodities-related borrowers. Allowance coverage of NPLs of 112% compares with 116%.
  • Net charge-offs of 32 basis points of loans remained relatively stable with third quarter 2015 levels as an increase in commercial was largely offset by continued improvement in retail.

Update on Plan Execution

  • Continued progress on initiatives to drive growth and enhance efficiency.
  • Consumer Banking – Performance paced by solid deposit and loan growth, improvement in conforming mortgage volume and strong salesforce expansion, with a record 47 net mortgage loan officer hires during the quarter as well as 11 financial consultants, resulting in nearly 500 mortgage originators and 350 financial consultants at quarter end. Our needs-based approach for serving retail customers, Citizens Checkup, has resulted in approximately 275,000 scheduled appointments year to date with high levels of customer satisfaction.
  • Commercial Banking — Delivered strong results in Capital Markets, foreign exchange and interest rate products. Generated 11% average loan growth from the year-ago quarter, reflecting continued progress in Mid-corporate and Industry Verticals, Commercial Real Estate and Franchise Finance. Treasury Solutions fee income up 10% from third quarter 2015.
  • Continue to deliver on efficiency and balance sheet optimization strategies.
    • Tapping Our Potential (“TOP”) initiatives remain on track; TOP II is delivering $95 million to $100 million of pre-tax benefits in 2016, while TOP III continues to project pre-tax revenue and expense benefits of $73 million to $90 million and $10 million to $15 million of tax benefits by the end of 2017.
    • Initiatives to shift loan portfolio mix to higher-return categories continue to progress well; extracting capital from TDR and aircraft lease portfolios; managing deposit pricing to minimize cost while achieving growth objectives.

*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. “Adjusted” results exclude restructuring charges, special items and notable items, as applicable. Where there is a reference to an “Adjusted” result in a paragraph, all measures that follow that “Adjusted” result are also “Adjusted” when applicable.

                           
Earnings highlights 3Q16 change from
($s in millions, except per share data)     3Q16       2Q16       3Q15 2Q16 3Q15
Earnings $ % $ %
Net interest income $ 945 $ 923 $ 856 $ 22 2 % $ 89 10 %
Noninterest income 435 355 353 80 23 82 23
Total revenue 1,380 1,278 1,209 102 8 171 14
Noninterest expense 867 827 798 40 5 69 9
Pre-provision profit 513 451 411 62 14 102 25
Provision for credit losses       86         90         76   (4 ) (4 )   10   13
Net income 297 243 220 54 22 77 35
Preferred dividends 7 7 7 100
Net income available to common stockholders 290 243 213 47 19 77 36
After-tax restructuring charges, special items and notable Items       19                   19   100   19   100
Adjusted net income available to common stockholders*     $ 271       $ 243       $ 213 $ 28   12 % $ 58   27 %
Average common shares outstanding
Basic (in millions) 519.5 529.0 531.0 (9.5 ) (2 ) % (11.5 ) (2 ) %
Diluted (in millions) 521.1 530.4 533.4 (9.2 ) (2 ) % (12.3 ) (2 ) %
Diluted earnings per share $ 0.56 $ 0.46 $ 0.40 $ 0.10 22 % $ 0.16 40 %
Adjusted diluted earnings per share*     $ 0.52       $ 0.46       $ 0.40 $ 0.06   13 % $ 0.12   30 %
Key performance metrics*
Net interest margin 2.84 % 2.84 % 2.76 % bps 8 bps
Effective income tax rate 30.5 32.6 34.1 (215 ) bps (366 ) bps
Efficiency ratio 63 65 66 (183 ) bps (314 ) bps
Adjusted efficiency ratio* 63 65 66 (140 ) bps (271 ) bps
Return on average common equity 5.8 4.9 4.4 88 bps 142 bps
Return on average tangible common equity 8.6 7.3 6.6 128 bps 198 bps
Adjusted return on average tangible common equity* 8.0 7.3 6.6 72 bps 142 bps
Return on average total assets 0.8 0.7 0.7 13 bps 17 bps
Return on average total tangible assets       0.9 %       0.7 %       0.7 % 14 bps 18 bps
Capital adequacy(1,2)
Common equity tier 1 capital ratio 11.3 % 11.5 % 11.8 %
Total capital ratio 14.2 14.9 15.4
Tier 1 leverage ratio       10.1 %       10.3 %       10.4 %
Asset quality(2)
Total nonperforming loans and leases as a % of total loans and leases 1.05 % 1.01 % 1.06 % 4 bps (1 ) bps
Allowance for loan and lease losses as a % of loans and leases 1.18 1.20 1.23 (2 ) bps (5 ) bps
Allowance for loan and lease losses as a % of nonperforming loans and leases 112 119 116 (724 ) bps (409 ) bps
Net charge-offs as a % of average loans and leases       0.32 %       0.25 %       0.31 % 7 bps 1 bps

1) Current reporting-period regulatory capital ratios are preliminary. Basel III ratios assume that certain definitions impacting qualifying Basel III capital will phase in through 2019.

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

 

Discussion of Results:

Third quarter 2016 results benefited from $31 million pre-tax, or $19 million after-tax, of notable items detailed in the table below.

             
 
 
3Q16 notable items     Pre tax After tax EPS impact
 
Gain on mortgage/home equity TDR Transaction $ 72 $ 45 $ 0.09
Home equity operational items       (8 )   (5 )   (0.01 )
TDR gain after impact of home equity operational items $ 64 $ 40 $ 0.08
 
Asset Finance repositioning(1) (16 ) (10 ) (0.02 )
TOP III efficiency initiatives(2) (17 ) (11 ) (0.02 )
           
Total 3Q16 notable items     $ 31   $ 19   $ 0.04  

1) Pre-tax reflects $(5) million noninterest income impact and $11 million of other expense related to lease-residual impairment tied to legacy RBS aircraft leasing borrowers moved to runoff in non-core.

2) Pre-tax expense reflects $11 million in salaries and benefits and $6 million in outside services associated with TOP III efficiency initiatives.

 

During third quarter 2016, we completed the previously announced TDR Transaction sale of $310 million of consumer real estate-secured loans classified as troubled debt restructurings that resulted in a pre-tax gain of approximately $72 million, which was partially offset by $8 million of home equity systems and operational items identified as part of a broader review in conjunction with the transaction. Additionally, the company utilized approximately $33 million of the gain to fund costs associated with efficiency and balance sheet optimization initiatives.

Third quarter 2016 net income of $297 million was up $54 million, or 22%, from second quarter 2016 as the benefit of 8% revenue growth and a decrease in provision for credit losses exceeded noninterest expense growth of 5%. Third quarter 2016 diluted EPS of $0.56 grew 22% from second quarter 2016, reflecting net income growth and the benefit of a 9.2 million reduction in average fully diluted shares outstanding, partially offset by the impact of a $7 million, or $0.01 per diluted common share, preferred dividend in third quarter 2016.

Compared with third quarter 2015 levels, net income improved $77 million as revenue growth of $171 million was partially offset by a $69 million increase in noninterest expense and a $10 million increase in provision for credit losses. Third quarter 2016 diluted EPS growth increased 40% year over year and included the benefit of a 12.3 million reduction in average fully diluted shares outstanding.

                       
Adjusted results* 3Q16 Notable 3Q16 Adjusted 3Q16* change from
($s in millions, except per share data)       Reported         Items         Adjusted* Reported Reported
2Q16 3Q15
Net interest income

$

945

     

$

-

       

$

945

2 % 10 %
Noninterest income 435 (67 ) 368 4 4
Total revenue 1,380         (67 )         1,313 3 9
Noninterest expense 867 (36 ) 831 4
Net income available to common stockholders

$

290

$

(19

)

$

271

12 % 27 %
 
Key performance metrics*                  
ROTCE 8.6 % (56 ) bps 8.0 % 72 bps 142 bps
Efficiency ratio 62.9 % 43 bps 63.3 % (140 ) bps (271 ) bps
Diluted EPS    

$

0.56

$

(0.04

)

$

0.52

13   %   30   %
 

Excluding the impact of notable items, Adjusted third quarter 2016 net income increased $35 million from second quarter 2016 as a $35 million increase in Adjusted total revenue and a $4 million decrease in provision for credit losses were partially offset by a $4 million increase in noninterest expense. Adjusted third quarter 2016 diluted earnings per share of $0.52 were up 13% from second quarter 2016, reflecting a 12% increase in net income available to common stockholders and a 2% reduction in fully diluted shares outstanding.*

Compared with third quarter 2015, Adjusted net income increased $58 million, or 26%. Adjusted results reflect a $104 million increase in total revenue driven by net interest income, partially offset by a $33 million increase in noninterest expense. Adjusted third quarter 2016 diluted earnings per share of $0.52 were up 30% from third quarter 2015, reflecting a 27% increase in net income available to common stockholders and a 2% reduction in fully diluted shares outstanding.*

                       
Net interest income 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
$     % $     %
Interest income:
Interest and fees on loans and leases and loans held for sale $ 931 $ 903 $ 818 $ 28 3 % $ 113 14 %
Investment securities 146 141 154 5 4 (8 ) (5 )
Interest-bearing deposits in banks       2       2       2        
Total interest income     $ 1,079     $ 1,046     $ 974 $ 33   3 % $ 105   11 %
Interest expense:
Deposits $ 71 $ 63 $ 65 $ 8 13 % $ 6 9 %
Federal funds purchased and securities sold under agreements to repurchase 1 4 1 100 (3 ) (75 )
Other short-term borrowed funds 10 12 17 (2 ) (17 ) (7 ) (41 )
Long-term borrowed funds       52       48       32   4   8   20   63
Total interest expense     $ 134     $ 123     $ 118 $ 11   9 % $ 16   14 %
Net interest income     $ 945     $ 923     $ 856 $ 22   2 % $ 89   10 %
Net interest margin       2.84 %   2.84 %   2.76 %     bps   8   bps
 

Net interest income of $945 million increased $22 million from second quarter 2016, reflecting a 1% increase in average loans, stable net interest margin and one additional day in the quarter. Net interest margin of 2.84% reflects the benefit of improved commercial and consumer loan yields, including the benefit of an increase in LIBOR, offset by an increase in deposit costs and a reduction in investment portfolio yields.

Compared to third quarter 2015, net interest income increased $89 million, or 10%, largely reflecting 7% average loan growth and an eight basis point improvement in net interest margin. Results were driven by improved loan yields given continued pricing and portfolio optimization initiatives and higher short-term interest rates, partially offset by a reduction in investment portfolio yield driven by lower long-term rates and a decrease in Federal Reserve Bank stock dividends, as well as increased borrowing costs related to senior bank-debt issuance.

                             
Noninterest Income 3Q16 change from
($s in millions)     3Q16       2Q16     3Q15 2Q16 3Q15
$     % $     %
Service charges and fees $ 152 $ 150 $ 145 $ 2 1 % $ 7 5 %
Card fees 52 51 60 1 2 (8 ) (13 )
Trust and investment services fees 37 38 41 (1 ) (3 ) (4 ) (10 )
Mortgage banking fees 33 25 18 8 32 15 83
Capital markets fees 34 35 21 (1 ) (3 ) 13 62
Foreign exchange and letter of credit fees 23 21 22 2 10 1 5
Securities gains, net 4 2 (4 ) (100 ) (2 ) (100 )
Other income(1)       104         31       44   73   235   60   136
Noninterest income     $ 435       $ 355     $ 353 $ 80   23 % $ 82   23 %

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

 

Noninterest income of $435 million increased $80 million from second quarter 2016, driven by the $72 million TDR Transaction gain recorded in other income. Adjusted noninterest income* of $368 million increased $13 million, or 4%, from second quarter 2016, largely reflecting higher mortgage banking fees, other income and service charges and fees. Mortgage banking fees increased $8 million, reflecting the benefit of higher application and origination volumes with improved secondary mix, and increased loan sales and spreads, partially offset by a modest decrease in mortgage servicing rights (“MSR”) valuations. Adjusted other income* increased $6 million from second quarter levels, which included an other-than-temporary impairment charge of $6 million on the securities portfolio tied to a new model implementation. Service charges and fees increased $2 million, reflecting improved volume and an additional day in the quarter. Capital markets fees of $34 million were in line with record second quarter levels and reflected continued strong loan syndication fees. Results also reflect modest growth in foreign exchange and letter of credit fees as well as relatively stable card fees and trust and investment services fees. There were no securities gains in third quarter 2016, compared with $4 million in second quarter 2016.

Noninterest income increased $82 million from third quarter 2015 levels, driven by the $72 million TDR Transaction gain recorded in other income. Adjusted noninterest income* of $368 million increased $15 million, or 4%, from third quarter 2015 levels that included a $16 million benefit from a branch sale gain and the card reward accounting change impact. Mortgage banking fees increased $15 million, driven by higher origination volumes and an increase in loan sales and spreads. Capital markets fees increased $13 million, reflecting strong loan syndication volumes and the broadening of our capabilities. Service charges and fees increased $7 million, driven by improved pricing in retail and commercial products as well as higher volume. Card fees decreased $8 million, reflecting the impact of the card reward accounting change. Adjusted other income* decreased $7 million from third quarter 2015 levels that included an $8 million branch real estate sale gain. Trust and investment services fees decreased $4 million, reflecting a change in the mix of product sales.

                         
Noninterest expense 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
$ % $ %
Salaries and benefits $ 432 $ 432 $ 404 $ % $ 28 7 %
Occupancy 78 76 75 2 3 3 4
Equipment expense 65 64 62 1 2 3 5
Outside services 102 86 89 16 19 13 15
Amortization of software 46 41 35 5 12 11 31
Other expense       144       128       133   16   13   11   8
Reported noninterest expense     $ 867     $ 827     $ 798 $ 40   5 % $ 69   9 %
 
Adjusted salaries and benefits* $ 421 $ 432 $ 404 $ (11 ) (3 ) % $ 17 4 %
Occupancy 78 76 75 2 3 3 4
Equipment expense 65 64 62 1 2 3 5
Adjusted outside services* 94 86 89 8 9 5 6
Adjusted amortization of software* 43 41 35 2 5 8 23
Adjusted other expense*       130       128       133   2   2   (3 ) (2 )
Adjusted noninterest expense*     $ 831     $ 827     $ 798 $ 4   % $ 33   4 %
 

Noninterest expense of $867 million increased $40 million from second quarter 2016 and $69 million from third quarter 2015 driven by the impact of $36 million of notable items, largely in salaries and employee benefits, outside services and other expense. Adjusted noninterest expense* increased $4 million as an $11 million decrease in salaries and employee benefits, from higher second quarter levels, which included higher payroll taxes and benefits related to incentive payments, was more than offset by increases in other categories. These other categories include higher outside services expense, reflecting higher technology outsourcing expense and costs related to consumer loan product growth, increased regulatory and FDIC insurance expense and higher amortization of software and occupancy expense.

Compared with third quarter 2015, Adjusted noninterest expense* of $831 million increased $33 million, driven by a $17 million increase in Adjusted salaries and employee benefits, largely reflecting merit increases and higher incentive expense given strong revenue and income performance. Adjusted results also reflect higher software amortization, outside services expense, and equipment and occupancy expense, partially offset by the card reward accounting change impact.

The effective tax rate improved to 30.5% compared to 32.6% in second quarter 2016 and 34.1% in third quarter 2015, driven by benefits from TOP III initiatives.

                                 
Consolidated balance sheet review(1) 3Q16 change from
($s in millions)     3Q16       2Q16       3Q15 2Q16 3Q15
$     % $     %
Total assets $ 147,015 $ 145,183 $ 135,447 $ 1,832 1 % $ 11,568 9 %
Loans and leases and loans held for sale 105,993 104,401 97,851 1,592 2 8,142 8
Deposits 108,327 106,257 101,866 2,070 2 6,461 6
Average interest-earning assets (quarterly) 131,669 129,492 123,017 2,177 2 8,652 7
Stockholders' equity 20,181 20,226 19,600 (45 ) 581 3
Stockholders' common equity 19,934 19,979 19,353 (45 ) 581 3
Tangible common equity $ 13,576 $ 13,608 $ 12,939 $ (32 ) % $ 637 5 %
Loan-to-deposit ratio (period-end)(2) 97.9 % 98.3 % 96.1 % (40 ) bps 179 bps
Common equity tier 1 capital ratio(3) 11.3 11.5 11.8
Total capital ratio(3)       14.2 %       14.9 %       15.4 %                          

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 qualifying Basel III capital will phase in through 2019.

 

Total assets of $147.0 billion increased $1.8 billion, or 1%, from June 30, 2016, driven by continued loan growth, including a $1.1 billion increase in retail loans and leases and an $832 million increase in commercial loans as well as a $620 million increase in investment portfolio assets. Compared with September 30, 2015, total assets increased $11.6 billion, or 9%, primarily reflecting an $8.0 billion increase in loans and leases with $5.1 billion in commercial and $2.9 billion in retail, as well as a $3.0 billion increase in investment portfolio assets.

Average interest-earning assets of $131.7 billion in third quarter 2016 increased $2.2 billion, or 2%, from the prior quarter, driven by a $1.1 billion increase in investment portfolio assets, a $789 million increase in retail loans and a $570 million increase in commercial loans and leases. Compared to third quarter 2015, average interest-earning assets increased $8.7 billion, or 7%, driven by commercial loan growth of $4.5 billion, retail loan growth of $2.7 billion and a $1.3 billion increase in investment portfolio assets, largely interest-bearing cash.

                           
Interest-earning assets 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
Period-end interest-earning assets $ % $ %
Investments and interest-bearing deposits $ 28,424 $ 27,804 $ 25,406 $ 620 2 % $ 3,018 12 %
Commercial loans and leases 50,389 49,557 45,269 832 2 5,120 11
Retail loans 55,078 53,994 52,162 1,084 2 2,916 6
Total loans and leases 105,467 103,551 97,431 1,916 2 8,036 8
Loans held for sale, at fair value 526 478 369 48 10 157 43
Other loans held for sale 372 51 (372 ) (100 ) (51 ) (100 )
Total loans and leases and loans held for sale       105,993       104,401       97,851   1,592   2   8,142   8
Total period-end interest-earning assets     $ 134,417     $ 132,205     $ 123,257 $ 2,212   2 % $ 11,160   9 %
Average interest-earning assets
Investments and interest-bearing deposits $ 27,090 $ 26,007 $ 25,771 $ 1,083 4 % $ 1,319 5 %
Commercial loans and leases 49,704 49,134 45,174 570 1 4,530 10
Retail loans 54,332 53,543 51,617 789 1 2,715 5
Total loans and leases 104,036 102,677 96,791 1,359 1 7,245 7
Loans held for sale, at fair value 474 368 327 106 29 147 45
Other loans held for sale 69 440 128 (371 ) NM (59 ) (46 )
Total loans and leases and loans held for sale       104,579       103,485       97,246   1,094   1   7,333   8
Total average interest-earning assets     $ 131,669     $ 129,492     $ 123,017 $ 2,177   2 % $ 8,652   7 %
 

Investments and interest-bearing deposits of $28.4 billion as of September 30, 2016 increased $620 million, or 2%, compared with June 30, 2016 and reflected an increase in securities, partially offset by lower cash positions. Compared with September 30, 2015, investments and interest-bearing deposits increased $3.0 billion, or 12%. At the end of third quarter 2016, the average effective duration of the securities portfolio increased to 2.7 years, compared with 2.4 years at June 30, 2016 and 3.3 years at September 30, 2015, largely reflecting the continued low level of longer-term interest rates, which has increased estimated prepayment speeds.

Period-end loans and leases of $105.5 billion at September 30, 2016 increased $1.9 billion, or 2%, from $103.6 billion at June 30, 2016 and increased $8.0 billion, or 8%, from $97.4 billion at September 30, 2015. The linked-quarter change was driven by a $1.1 billion increase in retail loans and an $832 million increase in commercial loans. Compared with September 30, 2015, the period-end loans and leases increase reflects a $5.1 billion increase in commercial loans and leases and a $2.9 billion increase in retail loans.

Average loans and leases of $104.0 billion increased $1.4 billion from second quarter 2016, driven by a $789 million increase in retail and a $570 million increase in commercial loans. Retail loan growth was primarily driven by mortgage, student and unsecured retail loans, partially offset by lower home equity outstandings, including continued runoff in the non-core portfolio. Commercial loan and lease growth was driven by strength in Commercial Real Estate, Mid-corporate and Industry Verticals and Franchise Finance.

Compared with third quarter 2015, average loans and leases increased $7.2 billion, or 7%, reflecting a $4.5 billion increase in commercial and a $2.7 billion increase in retail loans. Commercial loan growth was driven by strength in Commercial Real Estate, Mid-corporate and Industry Verticals and Franchise Finance, partially offset by lower Asset Finance loan balances. Retail loan growth was driven by strength in student, residential mortgages, unsecured retail loans and auto, partially offset by lower home equity balances.

                           
Deposits 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
Period-end deposits $     % $     %
Demand deposits $ 27,292 $ 27,108 $ 27,373 $ 184 1 % $ (81 ) %
Checking with interest 20,573 19,838 18,350 735 4 2,223 12
Savings 8,797 8,841 8,011 (44 ) 786 10
Money market accounts 38,258 37,503 35,539 755 2 2,719 8
Term deposits       13,407       12,967       12,593   440   3   814   6
Total period-end deposits     $ 108,327     $ 106,257     $ 101,866 $ 2,070   2 % $ 6,461   6 %
Average deposits
Demand deposits $ 27,467 $ 27,448 $ 26,754 $ 19 1 % $ 713 3 %
Checking with interest 19,997 19,003 16,934 994 5 3,063 18
Savings 8,807 8,762 8,044 45 1 763 9
Money market accounts 37,569 36,187 36,528 1,382 1,041 3
Term deposits       12,806       12,581       12,730   225   2   76   1
Total average deposits     $ 106,646     $ 103,981     $ 100,990 $ 2,665   3 % $ 5,656   6 %
 

Period-end total deposits at September 30, 2016 of $108.3 billion increased $2.1 billion, or 2%, from June 30, 2016 as growth in money markets, checking with interest and term deposits was partially offset by a decrease in savings. Compared with September 30, 2015, period-end total deposits increased $6.5 billion, or 6%, driven largely by growth in money market and checking with interest deposits.

Third quarter 2016 average deposits of $106.6 billion increased $2.7 billion, or 3%, from second quarter 2016, driven by growth in all categories. Compared with third quarter 2015, average deposits increased $5.7 billion, or 6%, driven by growth in all categories.

                           
Borrowed funds 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
Period-end borrowed funds $     % $     %
Federal funds purchased and securities sold under agreements to repurchase $ 900 $ 717 $ 1,293 $ 183 26 % $ (393 ) (30 ) %
Other short-term borrowed funds 2,512 2,770 5,861 (258 ) (9 ) (3,349 ) (57 )
Long-term borrowed funds       11,902       11,810       4,153   92   1   7,749   187
Total borrowed funds     $ 15,314     $ 15,297     $ 11,307 $ 17   % $ 4,007   35 %
 
Average borrowed funds     $ 14,379     $ 15,038     $ 12,001 $ (659 ) (4 ) % $ 2,378   20 %
 

Total borrowed funds of $15.3 billion at September 30, 2016 increased $17 million from June 30, 2016, reflecting an increase of $92 million in long-term funding and a decrease of $75 million in short-term funding. Compared with September 30, 2015, total borrowed funds increased $4.0 billion, primarily reflecting an increase in long-term borrowings. Average borrowed funds of $14.4 billion decreased $659 million from second quarter 2016 as growth in deposits reduced our reliance on short-term borrowings. Average borrowed funds increased $2.4 billion from third quarter 2015, reflecting a $2.8 billion increase in senior debt partially offset by subordinated debt redemptions and a further decline in short-term borrowings. We continue to improve the strength of our funding profile, including reducing our reliance on short-term wholesale borrowings.

                           
Capital 3Q16 change from
($s and shares in millions)     3Q16       2Q16       3Q15 2Q16 3Q15
Period-end capital $     % $     %
Stockholders' equity $ 20,181 $ 20,226 $ 19,600 $ (45 ) % $ 581 3 %
Stockholders' common equity 19,934 19,979 19,353 (45 ) 581 3
Tangible common equity 13,576 13,608 12,939 (32 ) 637 5
Tangible book value per common share $ 26.20 $ 25.72 $ 24.52 $ 0.48 2 1.68 7
Common shares - at end of period 518.1 529.1 527.6 (10.9 ) (2 ) (9.5 ) (2 )
Common shares - average (diluted) 521.1 530.4 533.4 (9.2 ) (2 ) % (12.3 ) (2 ) %
Common equity tier 1 capital ratio(1,2) 11.3 % 11.5 % 11.8 %
Total capital ratio(1,2) 14.2 14.9 15.4
Tier 1 leverage ratio(1,2)       10.1 %       10.3 %       10.4 %                

1) Current reporting-period regulatory capital ratios are preliminary

2) Basel III ratios assume that certain definitions impacting qualifying Basel III capital will phase in through 2019.

 

On September 30, 2016, our Basel III capital ratios on a transitional basis remained well in excess of applicable regulatory requirements with a CET1 capital ratio of 11.3% and a total capital ratio of 14.2%. Our capital ratios continue to reflect progress against our objective of realigning our capital profile to be more consistent with that of peer regional banks, while maintaining a strong capital base to support our growth aspirations, strategy and risk appetite.

As part of the CFG’s 2016 Capital Plan (the “Plan”), during the third quarter the company repurchased 11.1 million shares at an average price of $22.60 per share. Tangible book value per common share of $26.20 increased 2% versus second quarter 2016 and 7% versus third quarter 2015. The Plan includes the repurchase of up to $690 million of Citizens’ outstanding common stock beginning in third quarter 2016 through second quarter 2017. The Plan also provides for proposed quarterly dividends of $0.12 per share through the end of 2016 and the potential to raise the quarterly dividend to $0.14 per share in 2017. Proposed capital actions are subject to consideration and approval by CFG’s Board of Directors.

                           
Credit quality review 3Q16 change from
($s in millions)     3Q16       2Q16       3Q15 2Q16 3Q15
$     % $     %
Nonperforming loans and leases $ 1,107 $ 1,044 $ 1,034 $ 63 6 % $ 73 7 %
Net charge-offs 83 65 75 18 28 8 11
Provision for credit losses 86 90 76 (4 ) (4 ) 10 13
Allowance for loan and lease losses $ 1,240 $ 1,246 $ 1,201 $ (6 ) % $ 39 3 %
Total nonperforming loans and leases

as a % of total loans and leases

1.05 % 1.01 % 1.06 % 4 bps (1 ) bps
Net charge-offs as % of total loans and leases 0.32 0.25 0.31 7 bps 1 bps
Allowance for loan and lease losses as a % of total loans and leases 1.18 % 1.20 % 1.23 % (2 ) bps (5 ) bps
Allowance for loan and lease losses as a % of nonperforming loans and leases       112.03 %       119.27 %       116.12 %   (724 ) bps       (409 ) bps
 

Overall credit quality remained strong and broadly stable. Nonperforming loans and net charge-offs both increased during the quarter, largely tied to commercial energy and commodity-related borrowers. Nonperforming loans and leases of $1.1 billion at September 30, 2016 increased $63 million from June 30, 2016 and $73 million from September 30, 2015. The nonperforming loans and leases to total loans and leases ratio of 1.05% at September 30, 2016 compares with 1.01% at June 30, 2016 and 1.06% at September 30, 2015.

Net charge-offs of $83 million increased $18 million from relatively low second quarter 2016 levels, driven by a $17 million increase in commercial that included $14 million tied to the energy portfolio. Retail net charge-offs of $64 million remained broadly stable with relatively low second quarter 2016 levels, largely as a seasonal increase in the auto portfolio and an increase in deposit-account losses were largely offset by improvement in real estate-secured categories. Compared with third quarter 2015, net charge offs increased $8 million as a $14 million increase in commercial, largely related to the energy portfolio, was partially offset by a $6 million decrease in retail given declines in consumer real-estate secured. Third quarter 2016 net charge-offs of 32 basis points of average loans and leases compares with 25 basis points in second quarter 2016 and 31 basis points in third quarter 2015.

Allowance for loan and lease losses of $1.2 billion was relatively stable compared to second quarter 2016 and increased $39 million, or 3%, from third quarter 2015, largely reflecting continued loan growth.

Allowance for loan and lease losses to total loans and leases was 1.18% as of September 30, 2016, relatively stable compared with 1.20% as of June 30, 2016 and 1.23% as of September 30, 2015. Allowance for loan and lease losses to the nonperforming loans and leases ratio decreased to 112% as of September 30, 2016 from 119% as of June 30, 2016 and 116% as of September 30, 2015, given the higher level of nonperforming loans and leases.

Additional Segment Detail:

                           
Consumer Banking Segment 3Q16 change from
($s in millions)     3Q16       2Q16       3Q15 2Q16 3Q15
$     % $     %
Net interest income $ 621 $ 602 $ 556 $ 19 3 % $ 65 12 %
Noninterest income       229         219         235   10   5   (6 ) (3 )
Total revenue 850 821 791 29 4 59 7
Noninterest expense       650         632         623   18   3   27   4
Pre-provision profit 200 189 168 11 6 32 19
Provision for credit losses       57         49         64   8   16   (7 ) (11 )
Income before income tax expense 143 140 104 3 2 39 38
Income tax expense       51         50         36   1   2   15   42
Net income     $ 92       $ 90       $ 68 $ 2   2 % $ 24   35 %
 
Average balances                          
Total loans and leases (1) $ 55,376 $ 54,353 $ 51,886 $ 1,023 2 % $ 3,490 7 %
Total deposits       72,141         71,863         70,527   278   %   1,614   2 %
 
Key performance metrics*              
ROTCE (2) 7.0 % 7.1 % 5.7 % (5 ) bps 137 bps
Efficiency ratio 76 % 77 % 79 % (52 ) bps (226 ) bps
Loan-to-deposit ratio (period-end)(1)   77.2 %   76.1 %   74.4 %   116   bps   286   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 $92 million in third quarter 2016 increased $2 million, or 2%, compared to second quarter 2016, reflecting a $29 million increase in total revenue offset by an $18 million increase in noninterest expense and $8 million increase in provision for credit losses. Net interest income increased $19 million, or 3%, from second quarter 2016, reflecting the benefit of a $916 million increase in average loans led by higher mortgage and student balances and improved loan yields. Noninterest income increased $10 million, or 5%, from second quarter 2016, driven by $8 million in higher mortgage banking fees, which reflects the benefit of higher application and origination volumes with improved secondary mix and increased loan sales and spreads, partially offset by a slight decrease in MSR valuations. Results also include higher service charges and fees, reflecting an additional day in the quarter and improved pricing and volumes. Noninterest expense increased $18 million, or 3%, from second quarter 2016, as a decrease in salaries and benefits was more than offset by $7 million of home equity systems and operational costs included in notable items, as well as higher other operational costs. Provision for credit losses of $57 million increased $8 million from lower second quarter 2016 levels, driven by higher net charge-offs in auto.

Compared with third quarter 2015, net income increased $24 million, or 35%, as revenue growth and lower provision for credit losses were partially offset by an increase in noninterest expense. Net interest income increased $65 million, or 12%, driven by a $3.4 billion increase in average loans, reflecting growth in student, mortgage, consumer unsecured and auto loans as well as improved loan and deposit spreads. Noninterest income decreased $6 million, or 3%, from higher third quarter 2015 levels, which were $16 million higher due to the card reward accounting change and a branch sale gain. Underlying results reflect growth in mortgage banking fees and service charges and fees. Noninterest expense increased $27 million, or 4%, driven by higher salaries and benefits given continued investments to drive growth. Results also reflect an increase in outside services, driven by continued product extension and the impact of systems and operational notable items, as well as increased fraud costs and software amortization expense. Provision for credit losses declined $7 million from third quarter 2015, driven by lower net charge-offs in home equity.

                           
Commercial Banking Segment 3Q16 change from
($s in millions)     3Q16       2Q16       3Q15 2Q16 3Q15
$     % $     %
Net interest income $ 327 $ 314 $ 299 $ 13 4 % $ 28 9 %
Noninterest income       123         122           100   1   1   23   23
Total revenue 450 436 399 14 3 51 13
Noninterest expense       181         186           175   (5 ) (3 )   6   3
Pre-provision profit 269 250 224 19 8 45 20
Provision for credit losses       19         (1 )         3   20   NM   16   NM
Income before income tax expense 250 251 221 (1 ) (0 ) 29 13
Income tax expense       88         87           76   1   1   12   16
Net income     $ 162       $ 164         $ 145 $ (2 ) (1 ) % $ 17   12 %
 
Average balances                          
Total loans and leases (1) $ 46,611 $ 46,073 $ 41,993 $ 538 1 % $ 4,618 11 %
Total deposits       27,847         25,113           24,604   2,734   11 %   3,243   13 %
 
Key performance metrics*              
ROTCE (2) 12.5 % 13.0 % 12.2 % (54 ) bps 26 bps
Efficiency ratio 40 % 43 % 44 % (267 ) bps (354 ) bps
Loan-to-deposit ratio (period-end)(1)       161.4 %   172.6   %   166.0 %   (1,120 ) bps   (457 ) 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 for common equity tier 1 and then allocate that approximation to the segments based on economic capital.

 

Commercial Banking net income of $162 million in third quarter 2016 remained relatively stable with second quarter 2016, as a 3% increase in revenue and a 3% decrease in noninterest expense was more than offset by a $20 million increase in provision expense. Net interest income of $327 million increased $13 million compared to second quarter 2016, driven by higher deposit and loan balances. Average loans and leases, excluding loans held for sale, increased $618 million led by Franchise Finance, Commercial Real Estate and Mid-corporate and Industry Verticals. Noninterest income remained relatively stable, as modest growth in service charges and fees, interest rate products and foreign exchange fees was offset by a slight decrease in capital markets fees from record second quarter levels, and lower leasing income. Noninterest expense decreased $5 million, reflecting seasonally lower salaries and benefits and the benefit of efficiency initiatives and lower regulatory costs, partially offset by higher FDIC insurance costs. Provision for credit losses increased $20 million from second quarter levels, driven largely by higher net charge-offs related to the energy portfolio.

Compared to third quarter 2015, net income increased $17 million, or 12%, as a $51 million increase in total revenue was partially offset by higher noninterest expense and provision for credit losses. Net interest income increased $28 million, or 9%, from third quarter 2015, reflecting the benefit of a $4.7 billion increase in average loans and leases, improved deposit spreads and a $3.2 billion increase in average deposits. Average loan and lease growth was driven by strength in Mid-corporate and Industry Verticals, Commercial Real Estate and Franchise Finance. Noninterest income increased $23 million from third quarter 2015 levels, reflecting strength in capital markets, service charges and fees and interest rate products. Noninterest expense increased $6 million from third quarter 2015, largely reflecting an increase in salaries and employee benefits, FDIC insurance costs and amortization of software, partially offset by lower outside services expense. Provision for credit losses increased $16 million from third quarter 2015 levels, largely reflecting higher net charge-offs in the energy portfolio.

                           
Other(1) 3Q16 change from
($s in millions)     3Q16     2Q16     3Q15 2Q16 3Q15
$   % $   %
Net interest income $ (3 ) $ 7 $ 1 $ (10 ) (143 ) % $ (4 ) NM
Noninterest income       83         14         18   69   NM   65   NM
Total revenue 80 21 19 59 NM 61 NM
Noninterest expense       36         9           27   NM   36   100
Pre-provision profit (loss) 44 12 19 32 NM 25 132
Provision for credit losses       10         42         9   (32 ) (76 )   1   11
Income (loss) before income tax expense (benefit) 34 (30 ) 10 64 NM 24 NM
Income tax expense (benefit)       (9 )       (19 )       3   10   53   (12 ) NM
Net income (loss)     $ 43       $ (11 )     $ 7 $ 54   NM $ 36   NM
 
Average balances                      
Total loans and leases (2) $ 2,592 $ 3,059 $ 3,367 $ (467 ) (15 ) % $ (775 ) (23 ) %
Total deposits       6,658         7,005         5,859   (347 ) (5 ) %   799   14 %

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, revenues, provision for credit losses and expenses not attributed to our Consumer Banking or Commercial Banking segments.

2) Includes held for sale.

 

Other recorded net income of $43 million in third quarter 2016 compared to a net loss of $11 million in second quarter 2016. The increase was largely driven by the net impact of $15 million in notable items and a $32 million reduction in provision for credit losses. Net interest income of negative $3 million decreased $10 million from second quarter 2016, reflecting higher borrowing costs related to term-debt issuance and lower residual funds transfer pricing. Noninterest income of $83 million increased $69 million from second quarter 2016, largely reflecting the TDR Transaction gain. Noninterest expense increased $27 million, driven by the impact of other notable items. Provision for credit losses of $10 million in third quarter 2016 decreased $32 million from second quarter 2016 and reflected a $3 million reserve build compared with a $25 million reserve build in second quarter 2016. Provision expense also reflects continued reduction in non-core charge-offs.

Other net income in third quarter 2016 increased $36 million from third quarter 2015, driven by the net impact of notable items and an income tax benefit.

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: 8:30 am ET
 
Dial-in: (800) 230 1059, conference ID 398961
 
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 10:30 am ET on October 21 through November 21, 2016. Please dial (800) 475-6701 and enter access code 398961. 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 $147.0 billion in assets as of September 30, 2016. 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. In Consumer Banking, Citizens helps its retail customers “bank better” with mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,200 ATMs and approximately 1,200 Citizens Bank branches in 11 states in the New England, Mid-Atlantic and Midwest regions. Citizens also provides wealth management, mortgage lending, auto lending, student lending and commercial banking services in select markets nationwide. 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 hedging, leasing and asset finance, specialty finance and trade finance. Citizens operates through its subsidiaries Citizens Bank, N.A. and Citizens Bank of Pennsylvania as Citizens Bank, Citizens Commercial Banking and Citizens One. Additional information about Citizens and its full line of products and services can be found at www.citizensbank.com.

Key Performance Metrics and Non-GAAP Financial Measures

Key Performance Metrics:

Our management team uses certain 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. In connection with our path to becoming an independent public company, we established the following financial targets, in addition to others, as KPMs. These KPMs 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 Registration Statements on Form S-1 and 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 (Basel III 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” results. We believe that these “Adjusted” results, which exclude restructuring charges, special items and/or notable items, as applicable, provide the best representation of our underlying financial progress toward these goals as they exclude items that our management does not consider indicative of our on-going financial performance. We have consistently shown these metrics on this basis to investors since our initial public offering in September of 2014. Adjusted KPMs are considered non-GAAP financial measures.

Non-GAAP Financial Measures:

This document contains non-GAAP financial measures. The tables below present reconciliations of certain non-GAAP measures. These reconciliations exclude restructuring charges, special items and/or notable items, which are included, where applicable, in the financial results presented in accordance with GAAP. Restructuring charges and special items include expenses related to our efforts to improve processes and enhance efficiencies, as well as rebranding, separation from RBS and regulatory expenses. Notable items include certain revenue or expense items that may occur in a reporting period, which management does not consider indicative of on-going financial performance.

The non-GAAP measures presented below include “noninterest income”, “total revenue”, “noninterest expense”, “pre-provision profit”, “income before income tax expense”, “income tax expense”, “net income”, “net income available to common stockholders”, “other income”, “salaries and employee benefits”, “outside services”, “occupancy”, “equipment expense”, “other operating expense”, and “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 restructuring charges, special items and/or notable items in any period do not reflect the operational performance of the business in that period and, accordingly, it is useful to consider these line items with and without restructuring charges, special items and/or notable items. 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
(Adjusted excluding restructuring charges, special items and/or notable items)
($s in millions, except per share data)

 
QUARTERLY TRENDS FOR THE NINE MONTHS ENDED SEPT 30,
3Q16 Change 2016 Change  
3Q16 2Q16 1Q16 4Q15 3Q15 2Q16 3Q15 2016 2015 2015
$ % $ % $ %
Noninterest income, adjusted:
Noninterest income (GAAP) $435 $355 $330 $362 $353 $80 23 % $82 23 % $1,120 $1,060 $60 6 %
Less: Special items
Less: Notable items 67   67   100 67   100 67     67   100
Noninterest income, adjusted (non-GAAP) $368   $355 $330 $362 $353 $13   4 % $15   4 % $1,053   $1,060   ($7 ) (1 %)
Total revenue, adjusted:
Total revenue (GAAP) A $1,380 $1,278 $1,234 $1,232 $1,209 $102 8 % $171 14 % $3,892 $3,592 $300 8 %
Less: Special items
Less: Notable items 67   67   100 67   100 67     67   100
Total revenue, adjusted (non-GAAP) B $1,313   $1,278 $1,234 $1,232 $1,209 $35   3 % $104   9 % $3,825   $3,592   $233   6 %
Noninterest expense, adjusted:
Noninterest expense (GAAP) C $867 $827 $811 $810 $798 $40 5 % $69 9 % $2,505 $2,449 $56 2 %
Less: Restructuring charges and special items 50 (50 ) (100 )
Less: Notable items 36   36   100 36   100 36     36   100
Noninterest expense, adjusted (non-GAAP) D $831   $827 $811 $810 $798 $4   % $33   4 % $2,469   $2,399   $70   3 %
Pre-provision profit, adjusted:
Total revenue, adjusted (non-GAAP) $1,313 $1,278 $1,234 $1,232 $1,209 $35 3 % $104 9 % $3,825 $3,592 $233 6 %
Less: Noninterest expense, adjusted (non-GAAP) 831   827 811 810 798 4   33   4 2,469   2,399   70   3
Pre-provision profit, adjusted (non-GAAP) $482   $451 $423 $422 $411 $31   7 % $71   17 % $1,356   $1,193   $163   14 %
Income before income tax expense, adjusted:
Income before income tax expense (GAAP) $427 $361 $332 $331 $335 $66 18 % $92 27 % $1,120 $932 $188 20 %

Less: Income before income tax expense (benefit) related to restructuring
charges and special items

(50 ) 50 100
Less: Income before income tax expense (benefit) related to notable items 31   31   100 31   100 31     31   100
Income before income tax expense, adjusted (non-GAAP) $396   $361 $332 $331 $335 $35   10 % $61   18 % $1,089   $982   $107   11 %
Income tax expense, adjusted:
Income tax expense (GAAP) $130 $118 $109 $110 $115 $12 10 % $15 13 % $357 $313 $44 14 %

Less: Income tax expense (benefit) related to restructuring charges and
special items

(19 ) 19 100
Less: Income tax expense (benefit) related to notable items 12   12   100 12   100 12     12   100
Income tax expense, adjusted (non-GAAP) $118   $118 $109 $110 $115 $—   % $3   3 % $345   $332   $13   4 %
Net income, adjusted:
Net income (GAAP) E $297 $243 $223 $221 $220 $54 22 % $77 35 % $763 $619 $144 23 %
Add: Restructuring charges and special items, net of income tax expense (benefit) 31 (31 ) (100 )
Add: Notable items, net of income tax expense (benefit) (19 ) (19 ) 100 (19 ) 100 (19 )   (19 ) 100
Net income, adjusted (non-GAAP) F $278   $243 $223 $221 $220 $35   14 % $58   26 % $744   $650   $94   14 %
Net income available to common stockholders, adjusted:
Net income available to common stockholders (GAAP) G $290 $243 $216 $221 $213 $47 19 % $77 36 % $749 $612 $137 22 %

Add: Restructuring charges and special items, net of income tax expense
(benefit)

31 (31 ) (100 )

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

(19 ) (19 ) 100 (19 ) 100 (19 )   (19 ) 100
Net income available to common stockholders, adjusted (non-GAAP) H $271   $243 $216 $221 $213 $28   12 % $58   27 % $730   $643   $87   14 %
 
   

Key performance metrics, non-GAAP financial measures and reconciliations
(Adjusted excluding restructuring charges, special items and/or notable items)
($s in millions, except per share data)

 

                               
QUARTERLY TRENDS FOR THE NINE MONTHS ENDED SEPT 30,
        3Q16 Change         2016 Change
3Q16 2Q16 1Q16 4Q15 3Q15 2Q16 3Q15 2016 2015 2015
$/bps % $/bps % $/bps     %
Operating leverage:
Total revenue (GAAP) A $1,380 $1,278 $1,234 $1,232 $1,209 $102 7.98 % $171 14.14 % $3,892 $3,592 $300 8.35 %
Less: Noninterest expense (GAAP) C 867 827 811 810 798 40 4.84   69 8.65   2,505 2,449 56 2.29  
Operating leverage 3.14 % 5.49 % 6.06 %
Operating leverage, adjusted:
Total revenue, adjusted (non-GAAP) B $1,313 $1,278 $1,234 $1,232 $1,209 $35 2.74 % $104 8.60 % $3,825 $3,592 $233 6.49 %
Less: Noninterest expense, adjusted (non-GAAP) D 831 827 811 810 798 4 0.48   33 4.14   2,469 2,399 70 2.92  
Operating leverage, adjusted (non-GAAP) 2.26 % 4.46 % 3.57 %
Return on average common equity and return on average common equity, adjusted:
Average common equity (GAAP) I $19,810 $19,768 $19,567 $19,359 $19,261 $42 % $549 3 % $19,715 $19,352 $363 2 %
Return on average common equity G/I 5.82 % 4.94 % 4.45 % 4.51 % 4.40 % 88 bps 142 bps 5.08 % 4.23 % 85 bps
Return on average common equity, adjusted (non-GAAP) H/I 5.44 4.94 4.45 4.51 4.40 50 bps 104 bps 4.95 4.45 50 bps
Return on average tangible common equity and return on average tangible common equity, adjusted:
Average common equity (GAAP) I $19,810 $19,768 $19,567 $19,359 $19,261 $42 % $549 3 % $19,715 $19,352 $363 2 %
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876 6,876 6,876
Less: Average other intangibles (GAAP) 1 2 3 3 4 (1 ) (50 ) (3 ) (75 ) 2 5 (3 ) (60 )
Add: Average deferred tax liabilities related to goodwill (GAAP) 509   496   481   468   453   13   3 56   12 495     438   57   13
Average tangible common equity J $13,442   $13,386   $13,169   $12,948   $12,834   $56   % $608   5 % $13,332   $12,909   $423   3 %
Return on average tangible common equity G/J 8.58 % 7.30 % 6.61 % 6.75 % 6.60 % 128 bps 198 bps 7.51 % 6.34 % 117 bps
Return on average tangible common equity, adjusted (non-GAAP) H/J 8.02 7.30 6.61 6.75 6.60 72 bps 142 bps 7.32 6.67 65 bps
Return on average total assets and return on average total assets, adjusted:
Average total assets (GAAP) K $144,399 $142,179 $138,780 $136,298 $135,103 $2,220 2 % $9,296 7 % $141,795 $134,655 $7,140 5 %
Return on average total assets E/K 0.82 % 0.69 % 0.65 % 0.64 % 0.65 % 13 bps 17 bps 0.72 % 0.62 % 10 bps
Return on average total assets, adjusted (non-GAAP) F/K 0.77 0.69 0.65 0.64 0.65 8 bps 12 bps 0.70 0.65 5 bps
Return on average total tangible assets and return on average total tangible assets, adjusted:
Average total assets (GAAP) K $144,399 $142,179 $138,780 $136,298 $135,103 $2,220 2 % $9,296 7 % $141,795 $134,655 $7,140 5 %
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876 6,876 6,876
Less: Average other intangibles (GAAP) 1 2 3 3 4 (1 ) (50 ) (3 ) (75 ) 2 5 (3 ) (60 )
Add: Average deferred tax liabilities related to goodwill (GAAP) 509   496   481   468   453   13   3 56   12 495   438   57   13
Average tangible assets L $138,031   $135,797   $132,382   $129,887   $128,676   $2,234   2 % $9,355   7 % $135,412   $128,212   $7,200   6 %
Return on average total tangible assets E/L 0.86 % 0.72 % 0.68 % 0.67 % 0.68 % 14 bps 18 bps 0.75 % 0.65 % 10 bps
Return on average total tangible assets, adjusted (non-GAAP) F/L 0.80 0.72 0.68 0.67 0.68 8 bps 12 bps 0.73 0.68 5 bps
 
   

Key performance metrics, non-GAAP financial measures and reconciliations
(Adjusted excluding restructuring charges, special items and/or notable items)
($s in millions, except per share data)

       
QUARTERLY TRENDS FOR THE NINE MONTHS ENDED SEPT 30,
                    3Q16 Change         2016 Change
3Q16 2Q16 1Q16 4Q15 3Q15 2Q16     3Q15 2016 2015 2015
$/bps     % $/bps     % $/bps     %
Efficiency ratio and efficiency ratio, adjusted:
Efficiency ratio C/A 62.88 % 64.71 % 65.66 % 65.76 % 66.02 % (183 ) bps (314 ) bps 64.36 % 68.17 % (381 ) bps
Efficiency ratio, adjusted (non-GAAP) D/B 63.31 64.71 65.66 65.76 66.02 (140 ) bps (271 ) bps 64.54 66.78 (224 ) bps
Tangible book value per common share:
Common shares - at end of period (GAAP) M 518,148,345 529,094,976 528,933,727 527,774,428 527,636,510 (10,946,631 ) (2 %) (9,488,165 ) (2 %) 518,148,345 527,636,510 (9,488,165 ) (2 %)
Common stockholders' equity (GAAP) $19,934 $19,979 $19,718 $19,399 $19,353 ($45 ) $581 3 $19,934 $19,353 $581 3
Less: Goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876 6,876 6,876
Less: Other intangible assets (GAAP) 1 2 3 3 3 (1 ) (50 ) (2 ) (67 ) 1 3 (2 ) (67 )
Add: Deferred tax liabilities related to goodwill (GAAP) 519   507   494   480   465   12   2 54   12 519   465   54   12
Tangible common equity N $13,576   $13,608   $13,333   $13,000   $12,939   ($32 ) % $637   5 % $13,576   $12,939   $637   5 %
Tangible book value per common share N/M $26.20 $25.72 $25.21 $24.63 $24.52 $0.48 2 % $1.68 7 % $26.20 $24.52 $1.68 7 %
Net income per average common share - basic and diluted, adjusted:
Average common shares outstanding - basic (GAAP) O 519,458,976 528,968,330 528,070,648 527,648,630 530,985,255 (9,509,354 ) (2 %) (11,526,279 ) (2 %) 525,477,273 538,279,222 (12,801,949 ) (2 %)
Average common shares outstanding - diluted (GAAP) P 521,122,466 530,365,203 530,446,188 530,275,673 533,398,158 (9,242,737 ) (2 ) (12,275,692 ) (2 ) 527,261,384 540,926,361 (13,664,977 ) (3 )
Net income available to common stockholders (GAAP) G $290 $243 $216 $221 $213 $47 19 $77 36 $749 $612 $137 22
Net income per average common share - basic (GAAP) G/O 0.56 0.46 0.41 0.42 0.40 0.10 22 0.16 40 1.43 1.14 0.29 25
Net income per average common share - diluted (GAAP) G/P 0.56 0.46 0.41 0.42 0.40 0.10 22 0.16 40 1.42 1.13 0.29 26
Net income available to common stockholders, adjusted (non-GAAP) H 271 243 216 221 213 28 12 58 27 730 643 87 14
Net income per average common share - basic, adjusted (non-GAAP) H/O 0.52 0.46 0.41 0.42 0.40 0.06 13 0.12 30 1.39 1.20 0.19 16
Net income per average common share - diluted, adjusted (non-GAAP) H/P 0.52 0.46 0.41 0.42 0.40 0.06 13 0.12 30 1.39 1.19 0.20 17
Pro forma Basel III fully phased-in common equity tier 1 capital ratio1:
Common equity tier 1 (regulatory) $13,763 $13,768 $13,570 $13,389 $13,200
Less: Change in DTA and other threshold deductions (GAAP)   1   1   2   2  
Pro forma Basel III fully phased-in common equity tier 1 Q $13,763   $13,767   $13,569   $13,387   $13,198  
Risk-weighted assets (regulatory general risk weight approach) $121,612 $119,492 $116,591 $114,084 $112,277
Add: Net change in credit and other risk-weighted assets (regulatory) 228   228   232   244   243  
Pro forma Basel III standardized approach risk-weighted assets R $121,840   $119,720   $116,823   $114,328   $112,520  
Pro forma Basel III fully phased-in common equity tier 1 capital ratio1 Q/R 11.3 % 11.5 % 11.6 % 11.7 % 11.7 %
 
1) Basel III ratios assume certain definitions impacting qualifying Basel III capital, which otherwise will phase in through 2019, are fully phased-in. Ratios also reflect the required US Standardized methodology for calculating RWAs, effective January 1, 2015.
 

Key performance metrics, non-GAAP financial measures and reconciliations
(Adjusted excluding restructuring charges, special items and/or notable items)
($s in millions, except per share data)

                               
QUARTERLY TRENDS FOR THE NINE MONTHS ENDED SEPT 30,
        3Q16 Change         2016 Change
3Q16     2Q16     1Q16     4Q15     3Q15 2Q16 3Q15 2016 2015     2015
$ % $ % $     %
Other income, adjusted
Other income (GAAP) $90 $18 $16 $23 $30 $72 NM $60 200 % $124 $71 $53 75 %
Less: Special items
Less: Notable items 67   67   100 67   100 67 67   100
Other income, adjusted (non-GAAP) $23 $18 $16 $23   $30 $5   28 % ($7 ) (23 %) $57 $71 ($14 ) (20 %)
Salaries and employee benefits, adjusted:
Salaries and employee benefits (GAAP) $432 $432 $425 $402 $404 $— % $28 7 % $1,289 $1,234 $55 4 %
Less: Restructuring charges and special items (2 ) 5 (5 ) (100 )
Less: Notable items 11   11   100 11   100 11 11   100
Salaries and employee benefits, adjusted (non-GAAP) $421 $432 $425 $404   $404 ($11 ) (3 %) $17   4 % $1,278 $1,229 $49   4 %
Outside services, adjusted:
Outside services (GAAP) $102 $86 $91 $104 $89 $16 19 % $13 15 % $279 $267 $12 4 %
Less: Restructuring charges and special items 2 24 (24 ) (100 )
Less: Notable items 8   8   100 8   100 8 8   100
Outside services, adjusted (non-GAAP) $94 $86 $91 $102   $89 $8   9 % $5   6 % $271 $243 $28   12 %
Occupancy, adjusted:
Occupancy (GAAP) $78 $76 $76 $74 $75 $2 3 % $3 4 % $230 $245 ($15 ) (6 %)
Less: Restructuring charges and special items 17 (17 ) (100 )
Less: Notable items        
Occupancy, adjusted (non-GAAP) $78 $76 $76 $74   $75 $2   3 % $3   4 % $230 $228 $2   1 %
Equipment expense, adjusted:
Equipment expense (GAAP) $65 $64 $65 $67 $62 $1 2 % $3 5 % $194 $190 $4 2 %
Less: Restructuring charges and special items 1 (1 ) (100 )
Less: Notable items        
Equipment expense, adjusted (non-GAAP) $65 $64 $65 $67   $62 $1   2 % $3   5 % $194 $189 $5   3 %
Amortization of software, adjusted:
Amortization of software (GAAP) $46 $41 $39 $38 $35 $5 12 % $11 31 % $126 $108 $18 17 %
Less: Restructuring charges and special items
Less: Notable items 3   3   100 3   100 3 3   100
Amortization of software, adjusted (non-GAAP) $43 $41 $39 $38   $35 $2   5 % $8   23 % $123 $108 $15   14 %
Other operating expense, adjusted:
Other operating expense (GAAP) $144 $128 $115 $125 $133 $16 13 % $11 8 % $387 $405 ($18 ) (4 %)
Less: Restructuring charges and special items 3 (3 ) (100 )
Less: Notable items 14   14   100 14   100 14 14   100
Other operating expense, adjusted (non-GAAP) $130 $128 $115 $125   $133 $2   2 % ($3 ) (2 %) $373 $402 ($29 ) (7 %)
Restructuring charges, special expense items and notable expense items include:
Restructuring charges $— $— $— $— $— $— % $— % $— $26 ($26 ) (100 )%
Special items 24 (24 ) (100 )
Notable items 36   36   100 36   100 36 36   100
Restructuring charges, special expense items and notable expense items $36 $— $— $—   $— $36   100 % $36   100 % $36 $50 ($14 ) (28 %)
 
         

Key performance metrics, non-GAAP financial measures and reconciliations – segments
($s in millions)

                                       
THREE MONTHS ENDED SEPT 30, THREE MONTHS ENDED JUNE 30,
2016 2016

Consumer
Banking

Commercial
Banking

Other Consolidated

Consumer
Banking

Commercial
Banking

Other Consolidated
Net income available to common stockholders:
Net income (GAAP) A $92 $162 $43 $297 $90 $164 ($11 ) $243
Less: Preferred stock dividends     7   7          
Net income available to common stockholders B $92   $162   $36   $290   $90   $164   ($11 ) $243  
Return on average tangible common equity:
Average common equity (GAAP) $5,190 $5,172 $9,448 $19,810 $5,110 $5,040 $9,618 $19,768
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 1 1 2 2
Add: Average deferred tax liabilities related to goodwill (GAAP)     509   509       496   496  
Average tangible common equity C $5,190   $5,172   $3,080   $13,442   $5,110   $5,040   $3,236   $13,386  
Return on average tangible common equity B/C 7.04 % 12.50 % NM 8.58 % 7.09 % 13.04 % NM 7.30 %
Return on average total tangible assets:
Average total assets (GAAP) $56,689 $47,902 $39,808 $144,399 $55,660 $47,388 $39,131 $142,179
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 1 1 2 2
Add: Average deferred tax liabilities related to goodwill (GAAP)     509   509       496   496  
Average tangible assets D $56,689   $47,902   $33,440   $138,031   $55,660   $47,388   $32,749   $135,797  
Return on average total tangible assets A/D 0.64 % 1.35 % NM 0.86 % 0.65 % 1.39 % NM 0.72 %
Efficiency ratio:
Noninterest expense (GAAP) E $650 $181 $36 $867 $632 $186 $9 $827
Net interest income (GAAP) 621 327 (3 ) 945 602 314 7 923
Noninterest income (GAAP) 229   123   83   435   219   122   14   355  
Total revenue (GAAP) F $850   $450   $80   $1,380   $821   $436   $21   $1,278  
Efficiency ratio E/F 76.46 % 40.21 % NM 62.88 % 76.98 % 42.88 % NM 64.71 %
 
THREE MONTHS ENDED MAR 31, THREE MONTHS ENDED DEC 31,
2016 2015

Consumer
Banking

Commercial
Banking

Other

Consolidated

Consumer
Banking

Commercial
Banking

Other Consolidated
Net income available to common stockholders:
Net income (loss) (GAAP) A $71 $133 $19 $223 $67 $152 $2 $221
Less: Preferred stock dividends     7   7          
Net income available to common stockholders B $71   $133   $12   $216   $67   $152   $2   $221  
Return on average tangible common equity:
Average common equity (GAAP) $5,089 $4,790 $9,688 $19,567 $4,831 $4,787 $9,741 $19,359
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 3 3 3 3
Add: Average deferred tax liabilities related to goodwill (GAAP)     481   481       468   468  
Average tangible common equity C $5,089   $4,790   $3,290   $13,169   $4,831   $4,787   $3,330   $12,948  
Return on average tangible common equity B/C 5.59 % 11.19 % NM 6.61 % 5.50 % 12.57 % NM 6.75 %
Return on average total tangible assets:
Average total assets (GAAP) $55,116 $45,304 $38,360 $138,780 $54,065 $43,835 $38,398 $136,298
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 3 3 3 3
Add: Average deferred tax liabilities related to goodwill (GAAP)     481   481       468   468  
Average tangible assets D $55,116   $45,304   $31,962   $132,382   $54,065   $43,835   $31,987   $129,887  
Return on average total tangible assets A/D 0.52 % 1.18 % NM 0.68 % 0.49 % 1.37 % NM 0.67 %
Efficiency ratio:
Noninterest expense (GAAP) E $616 $187 $8 $811 $624 $180 $6 $810
Net interest income (GAAP) 581 300 23 904 565 301 4 870
Noninterest income (GAAP) 208   99   23   330   226   107   29   362  
Total revenue (GAAP) F $789   $399   $46   $1,234   $791   $408   $33   $1,232  
Efficiency ratio E/F 78.08 % 46.74 % NM 65.66 % 78.85 % 44.02 % NM 65.76 %
 
THREE MONTHS ENDED SEPT 30,
2015

Consumer
Banking

Commercial
Banking

Other

Consolidated
Net income available to common stockholders:
Net income (loss) (GAAP) A $68 $145 $7 $220
Less: Preferred stock dividends     7   7  
Net income available to common stockholders B $68   $145   $—   $213  
Return on average tangible common equity:
Average common equity (GAAP) $4,791 $4,722 $9,748 $19,261
Less: Average goodwill (GAAP) 6,876 6,876
Average other intangibles (GAAP) 4 4
Add: Average deferred tax liabilities related to goodwill (GAAP)     453   453  
Average tangible common equity C $4,791   $4,722   $3,321   $12,834  
Return on average tangible common equity B/C 5.67 % 12.24 % NM 6.60 %
Return on average total tangible assets:
Average total assets (GAAP) $53,206 $43,113 $38,784 $135,103
Less: Average goodwill (GAAP) 6,876 6,876
Average other intangibles (GAAP) 4 4
Add: Average deferred tax liabilities related to goodwill (GAAP)     453   453  
Average tangible assets D $53,206   $43,113   $32,357   $128,676  
Return on average total tangible assets A/D 0.51 % 1.34 % NM 0.68 %
Efficiency ratio:
Noninterest expense (GAAP) E $623 $175 $— $798
Net interest income (GAAP) 556 299 1 856
Noninterest income (GAAP) 235   100   18   353  
Total revenue (GAAP) F $791   $399   $19   $1,209  
Efficiency ratio E/F 78.72 % 43.75 % NM 66.02 %
 
 

Key performance metrics, non-GAAP financial measures and reconciliations – segments
($s in millions)

                                   
FOR THE NINE MONTHS ENDED SEPT 30,
2016 2015

Consumer
Banking

Commercial
Banking

Other

Consolidated

Consumer
Banking

Commercial
Banking

Other Consolidated
Net income available to common stockholders:
Net income (loss) (GAAP) A $253 $459 $51 $763 $195 $427 ($3 ) $619
Less: Preferred stock dividends     14 14       7   7  
Net income available to common stockholders B $253   $459   $37 $749   $195   $427   ($10 ) $612  
Return on average tangible common equity:
Average common equity (GAAP) $5,130 $5,001 $9,584 $19,715 $4,708 $4,625 $10,019 $19,352
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 2 2 5 5
Add: Average deferred tax liabilities related to goodwill (GAAP)     495 495       438   438  
Average tangible common equity C $5,130   $5,001   $3,201 $13,332   $4,708   $4,625   $3,576   $12,909  
Return on average tangible common equity B/C 6.58 % 12.27 % NM 7.51 % 5.55 % 12.35 % NM 6.34 %
Return on average total tangible assets:
Average total assets (GAAP) $55,825 $46,869 $39,101 $141,795 $52,438 $42,451 $39,766 $134,655
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 2 2 5 5
Add: Average deferred tax liabilities related to goodwill (GAAP)     495 495       438   438  
Average tangible assets D $55,825   $46,869   $32,718 $135,412   $52,438   $42,451   $33,323   $128,212  
Return on average total tangible assets A/D 0.60 % 1.31 % NM 0.75 % 0.50 % 1.35 % NM 0.65 %
Efficiency ratio:
Noninterest expense (GAAP) E $1,898 $554 $53 $2,505 $1,832 $529 $88 $2,449
Net interest income (GAAP) 1,804 941 27 2,772 1,633 861 38 2,532
Noninterest income (GAAP) 656   344   120 1,120   684   308   68   1,060  
Total revenue (GAAP) F $2,460   $1,285   $147 $3,892   $2,317   $1,169   $106   $3,592  
Efficiency ratio E/F 77.15 % 43.15 % NM 64.36 % 79.07 % 45.26 % NM 68.17 %
 

Forward-Looking Statements

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

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

  • negative economic 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;
  • our ability to implement our strategic plan, including the cost savings and efficiency components, and achieve our indicative performance targets;
  • our ability to remedy regulatory deficiencies and meet 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 Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;
  • the effect of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;
  • changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;
  • the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
  • financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;
  • a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks; and
  • management’s ability to identify and manage these and other risks.

In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or share repurchases will depend on our financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of our subsidiaries), and any other factors that our board of directors deems relevant in making such a determination. Therefore, there can be no assurance that we will pay any dividends to holders of our common stock, or as to the amount of any such dividends.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found under “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the United States Securities and Exchange Commission on February 26, 2016.

Note: Percentage changes, per share amounts and ratios presented in this document are calculated using whole dollars.

CFG-IR

Contacts

Citizens Financial Group, Inc.
Media:
Peter Lucht, 781-655-2289
or
Investors:
Ellen A. Taylor, 203-900-6854

Release Summary

Citizens Financial Group, Inc. Reports Third Quarter Net Income of $297 Million; Diluted EPS of $0.56

Contacts

Citizens Financial Group, Inc.
Media:
Peter Lucht, 781-655-2289
or
Investors:
Ellen A. Taylor, 203-900-6854