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0.250.00220.00060.0250.025250.010.0050.010.00533000000003300000000false--12-31Q120200000759944CITIZENS FINANCIAL GROUP INC/RI00000.010.01100000000010000000005668198635681250654660079844439135254000000120000000.023750.028500.03750.040230.04150.0430.04350.0220.02250.02250.02450.0250.02550.02650.028950.03250.037000.037500.026780.027140.029540.030540.0242536300000023300000012000000300000040410000003362000000400000070000006000000150000001400000025000000140000005300000050000001300000050000001400000020000001000000020000001300000074900000073400000010000003500000040000001300000002000000030000003000000600000010000003000000200000050000009000000310000003400000013900000013000000165000000010000001000000000.055000.060000.063750.0635025.0025.00250000300000300000030000024700000029600000029700000002470000002960000002970000002930000000.06090.0325100811879124211540RI00.010.011000000000100000000056823873056925283543312108342658653340000000.023750.0250.02850.03750.040230.04150.0430.04350.0220.02250.02250.024240.02550.02650.03250.037000.037500.026780.022170.024570.023251.43980.99700.6620.18010.87210.77980.00563590000002490000004910000002040000004510000000P15YP7YP5YP2YP10YP7Y5000000059000000000324200000032190000001140000001300000033000000500000010000002000000020000001000000800000001290000002530000000025.0025.001600000160000033700000016.980.37373.50.10875.850.21000.04400.0585135117647142666302 0000759944 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel3Member 2019-12-31
     
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
September 30, 2019March 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
(Not Applicable)
Commission File Number 001-36636
image1-logo.jpg
(Exact name of the registrant as specified in its charter)
Delaware 05-0412693
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
One Citizens Plaza, Providence, RI 02903
(Address of principal executive offices, including zip code)
(401) 456-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareCFGNew York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 6.350% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D
CFG PrDNew York Stock Exchange
Depositary Shares, each representing a 1/40th interest in a share of 5.000% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series E
CFG PrENew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
  Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
There were 434,718,941426,619,057 shares of Registrant’s common stock ($0.01 par value) outstanding on October 30, 2019.May 1, 2020.


     
 
image1-logo.jpg
  
  Table of Contents  
     
    
 
Glossary of Acronyms and Terms
 3
 
    
 
Part I. Financial Information
 5
 
    
 
Item 1. Financial Statements
4940
 
    
 
Consolidated Balance Sheets as of September 30, 2019March 31, 2020 (unaudited) and December 31, 20182019 (unaudited)
5041
 
 
Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
5142
 
 
Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
5243
 
 
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
5344
 
 
Consolidated Statements of Cash Flows (unaudited) for the NineThree Months Ended September 30,March 31, 2020 and 2019 and 2018
5545
 
 
Notes to the Consolidated Financial Statements (unaudited)
5646
 
    
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 5
 
    
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
9679
 
    
 
Item 4. Controls and Procedures
9679
 
    
    
 
Part II. Other Information
9680
 
    
 
Item 1. Legal Proceedings
9680
 
 
Item 1A. Risk Factors
9680
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
9681
 
 
Item 6. Exhibits
9781
 
    
    
 
Signature
9882
 
    
    
    

CITIZENS FINANCIAL GROUP, INC.


GLOSSARY OF ACRONYMS AND TERMS
The following is a list of common acronyms and terms we regularly use in our financial reporting:
AACLAdjusted Allowance for Credit Losses
ACL Allowance for Credit Losses
AcquisitionsRefers to acquisitions after second quarter 2018, including Franklin American Mortgage Company, Clarfeld Financial Advisors, LLCLosses: Allowance for Loan and Bowstring Advisors LLCLease Losses plus Reserve for Unfunded Lending Commitments
AFS Available for Sale
ALLL Allowance for Loan and Lease Losses
ALM Asset and Liability Management
AOCI Accumulated Other Comprehensive Income (Loss)
ATM Automated Teller Machine
Board or Board of Directors The Board of Directors of Citizens Financial Group, Inc.
bps Basis Points
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CBNA Citizens Bank, National Association
CCAR Comprehensive Capital Analysis and Review
CCB Capital Conservation Buffer
CCMI Citizens Capital Markets, Inc.
CECLCurrent Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)
CET1 Common Equity Tier 1
CET1 capital ratio Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
CFPBConsumer Financial Protection Bureau
Citizens, CFG, the Company, we, us, or our Citizens Financial Group, Inc. and its Subsidiaries
CLTV Combined Loan to ValueLoan-to-Value
Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EADExposure at Default
EGRRCPA Economic Growth, Regulatory Relief and Consumer Protection Act
EPS Earnings Per Share
Exchange Act The Securities Exchange Act of 1934
FAMCFranklin American Mortgage Company
FAMC acquisitionThe August 1, 2018 acquisition of Franklin American Mortgage Company
Fannie Mae (FNMA) Federal National Mortgage Association
FDIC Federal Deposit Insurance Corporation
FHLB Federal Home Loan Bank
FICO Fair Isaac Corporation (credit rating)
FRB or Federal Reserve Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC) Federal Home Loan Mortgage Corporation
FTE Fully Taxable Equivalent
FTPFunds Transfer Pricing
GAAP Accounting Principles Generally Accepted in the United States of America
GDPGross Domestic Product
Ginnie Mae (GNMA) Government National Mortgage Association
GSE Government Sponsored Entity
HTM Held To Maturity
Last-of-LayerLast-of-layer is a fair value hedge of the interest rate risk of a portfolio of similar assets by using the last dollar amount within that portfolio of prepayable assets as the hedged item
LCR Liquidity Coverage Ratio
LGDLoss Given Default
LHFS Loans Held for Sale
LIBOR London Interbank Offered Rate
LIHTC Low Income Housing Tax Credit
LTV Loan to Value
MBSMortgage-Backed Securities
CITIZENS FINANCIAL GROUP, INC.



MBSMortgage-Backed Securities
Mid-Atlantic District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest Illinois, Indiana, Michigan, and Ohio
MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations
Modified CECL TransitionThe Day-1 CECL adoption entry booked to retained earnings plus 25% of subsequent CECL ACL reserve build
Modified AACL TransitionThe Day-1 CECL adoption entry booked to ACL plus 25% of subsequent CECL ACL reserve build
MSRs Mortgage Servicing Rights
New England Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont
NM Not meaningful
OCC Office of the Comptroller of the Currency
OCI Other Comprehensive Income (Loss)
Parent Company Citizens Financial Group, Inc. (the Parent Company of Citizens Bank, National Association and other subsidiaries)
PDProbability of Default
ROTCE Return on Average Tangible Common Equity
RPA Risk Participation Agreement
SBA Small Business Administration
SEC United States Securities and Exchange Commission
SVaR Stressed Value at Risk
TBAsTo-Be-Announced Mortgage Securities
TDR Troubled Debt Restructuring
Tier 1 capital ratio Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Tier 1 leverage ratio Tier 1 capital, which includes Common Equity Tier 1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by quarterly adjusted average assets as defined under the U.S. Basel III Standardized approach
Total capital ratio Total capital, which includes Common Equity Tier 1 capital, tier 1 capital and allowance for credit losses and qualifying subordinated debt that qualifies as tier 2 capital, divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
VaR Value at Risk
VIE Variable Interest Entities



CITIZENS FINANCIAL GROUP, INC.


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

  Page
Forward-Looking Statements 
 6
Introduction
 
 7
Financial Performance
 
 8
Selected Consolidated Financial Data 
1210
Results of Operations 
1412
Net Interest Income
 
1412
Noninterest Income
 
1814
Noninterest Expense
 
1915
Provision for Credit Losses
 
2016
Income Tax Expense
 
2116
Business Operating Segments
 
2217
Analysis of Financial Condition 
2718
Securities
 
2718
Loans and Leases
 
2819
Allowance for Credit Losses and Nonperforming AssetsNonaccruing Loans and Leases
 
2819
Deposits
 
3122
Borrowed Funds
 
3222
Capital and Regulatory Matters
 
3323
Liquidity
 
3727
Off-Balance Sheet Arrangements
 
4030
Critical Accounting Estimates
 
4030
Risk Governance
 
4132
Market Risk
 
4132
Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations
 
4537

CITIZENS FINANCIAL GROUP, INC.
FORWARD-LOOKING STATEMENTS



FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends as well as the potential effects of the COVID-19 pandemic on our business, operations, financial performance and prospects, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
•
Negative economic and political conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense;
•
The rate of growth in the economy and employment levels, as well as general business and economic conditions, and changes in the competitive environment;
•
Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals;
•
The COVID-19 pandemic and its effects on the economic and business environments in which we operate;
•
Our ability to meet heightened supervisory requirements and expectations;
•
Liabilities and business restrictions resulting from litigation and regulatory investigations;
•
Our capital and liquidity requirements (including under regulatory capital standards, such as the U.S. Basel III capital rules) and our ability to generate capital internally or raise capital on favorable terms;
•
The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;
•
Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;
•
The effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
•
Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;businesses;
•
A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks; and
•
Management’s ability to identify and manage these and other risks.
In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares from or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends. Further, statements about the effects of the COVID-19 pandemic on our business, operations, financial performance and prospects may constitute what is

reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the “Risk Factors” section in Part II, Item 1A of this Report and Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with $164.4176.7 billion in assets as of September 30, 2019.March 31, 2020. Our mission is to help our customers, colleagues and communities each reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center as well as the convenience of approximately 2,9002,800 ATMs and approximately 1,1001,000 branches in 11 states in the New England, Mid-Atlantic, and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer corporate, institutional and not-for-profit clients a full range of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. More information is available at www.citizensbank.com.
The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1, of this Form 10-Q, as well as other information contained in this document and our Annual Report on2019 Form 10-K for the year ended December 31, 2018.10-K.
Key Performance Metrics Used by Management and Non-GAAP Financial Measures
As a banking institution, we manage and evaluate various aspects of our results of operations and our financial condition. We evaluatecondition including the levels and trends of the line items included in our balance sheet and statement of operations, as well asused in calculating various financial ratios that arekey performance metrics commonly used in our industry. We analyze these ratioskey performance metrics and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable banking institutions in our region and nationally.
The primary line items we use in ourWe consider the following key performance metrics to manage and evaluate our statement of operations include net interest income, noninterest income, total revenue, provision for credit losses, noninterest expense, net income and net income available to common stockholders. The primary line items we use in our key performance metrics to manage and evaluate our balance sheet data include loans and leases, securities, allowance for credit losses, deposits, borrowed funds and derivatives.
We consider various measures when evaluating our performance and making day-to-day operating decisions, as well as evaluating capital utilization and adequacy, including:
Return on average common equity, which we define as annualized net income available to common stockholders divided by average common equity;
Return on average tangible common equity, which we define as annualized net income available to common stockholders divided by average common equity excluding average goodwill (net of related deferred tax liability) and average other intangibles;
Return on average total assets, which we define as annualized net income divided by average total assets;
Return on average total tangible assets, which we define as annualized net income divided by average total assets excluding average goodwill (net of related deferred tax liability) and average other intangibles;
Efficiency ratio, which we define as the ratio of our total noninterest expense to the sum of net interest income and total noninterest income. We measure ourThe efficiency ratio helps us to evaluate the efficiency of our operations as it helps us monitor how costs are changing compared to our income. A decrease in ourthe efficiency ratio represents improvement;
Operating leverage, which we define as the percent change in total revenue, less the percent change in noninterest expense;
Net interest margin, which we calculate by dividing annualized net interest income for the period by average total interest-earning assets, is a key measure that we use to evaluate our net interest income; and
CET1 capital ratio, which represents CET1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach.

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

This document contains non-GAAP financial measures denoted as “Underlying” results. Underlying results for any given reporting period exclude certain items that may occur in that period which Management does not consider indicative of the Company’sour on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by our Management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results in any given reporting period reflect our on-going financial performance and increase comparability of period-to-period results, and accordingly, are useful to consider in addition to our GAAP financial results.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.
Non-GAAP measures are denoted throughout theour MD&A by the use of the term Underlying and/or are followed by an asterisk (*). For additional information regarding our non-GAAP financial measures and reconciliations, see “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations”.
FINANCIAL PERFORMANCE
Third Quarter 2019 compared with Third Quarter 2018 - Key Highlights
Third quarter 2019 net income of $449 million increased 1% from $443 million in third quarter 2018, with earnings per diluted common share of $0.97, up 7% from $0.91 per diluted common share in third quarter 2018. Third quarter 2019 ROTCE of 12.4% compared to 13.3% in third quarter 2018.
There were $4 million after-tax, or $0.01 per diluted common share, of notable items recorded in third quarter 2019 tied to integration costs associated with Acquisitions as well as costs related to strategic initiatives. In third quarter 2018 there were $7 million after-tax, or $0.02 per diluted common share, of notable items tied to integration costs associated with the FAMC acquisition.
 Three Months Ended September 30,
 2019 2018
(in millions)Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP):
$973
 
$115
 
$449
 
$910
 
$133
 
$443
Less notable items:           
Total integration costs4
 (1) (3) 9
 (2) (7)
Other notable items(1)
15
 (14) (1) —
 —
 —
Total notable items19
 (15) (4) 9
 (2) (7)
Underlying results* (non-GAAP)
$954
 
$130
 
$453
 
$901
 
$135
 
$450
(1) Other notable items include noninterest expense of $15 million related to our TOP programs and other efficiency initiatives and an income tax benefit of $10 million related to an operational restructure.
* Wherewhere there is a reference to “Underlying”Underlying results in a paragraph, all measures that follow these referencesthis reference are on the same basis when applicable. For more information on the computation of key performance metrics and non-GAAP financial measures, see “—Introduction — Key Performance Metrics Used By Management and Non-GAAP Financial Measures” and “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations.”
•
Net income available to common stockholders of $432 milliondecreased $4 million, or 1%, compared to $436 million in third quarter2018.
FINANCIAL PERFORMANCE
Net income of $34 million decreased 92% from the first quarter of 2019, with earnings per diluted common share of $0.03, down $0.89 from $0.92 per diluted common share in the first quarter of 2019. ROTCE of 0.4% declined from 13.0% in the first quarter of 2019. Net income available to common stockholders of $12 million decreased $412 million, or 97%, compared to $424 million in the first quarter of 2019.
First quarter 2020 results reflected a $25 million, or $0.06 per diluted common share, after-tax reduction from notable items, largely tied to TOP 6 transformational and revenue and efficiency initiatives. In the first quarter of 2019, there were $4 million after-tax of notable items, or $0.01 per diluted common share, tied to integration costs associated with acquisitions. On an Underlying basis, which excludes notable items, first quarter 2020 net income available to common stockholders of $37 million compared with $428 million in the first quarter of 2019. Underlying EPS of $0.09 per share compares with $0.93 in the first quarter of 2019. Underlying first quarter 2020 ROTCE of 1.1% compared with 13.1% in the first quarter of 2019. Tangible book value per common share of $31.97 increased 8% from the first quarter of 2019.
In the first quarter of 2020, we adopted the CECL accounting standard and recorded first quarter 2020 provision for credit losses of $600 million pre-tax, or $1.10 per share after-tax, including a reserve build of $463 million pre-tax, or $0.85 per share after-tax, tied to COVID-19 pandemic impacts.
 Three Months Ended March 31,
 2020 2019
(in millions)Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP)
$1,012
 
$11
 
$34
 
$937
 
$127
 
$439
Less notable items:       ��   
Total integration costs4
 (1) (3) 5
 (1) (4)
Other notable items(1)
29
 (7) (22) —
 —
 —
Total notable items33
 (8) (25) 5
 (1) 
($4)
Underlying results* (non-GAAP)
$979
 
$19
 
$59
 
$932
 
$128
 
$443
(1) Other notable items include noninterest expense of $29 million related to our TOP programs and other efficiency initiatives.

◦
On an Underlying basis,* net income available to common stockholders of $436 milliondecreased $7 million, or 2%, from third quarter2018.
•
Total revenue of $1.61.7 billion increased $7469 million, or 5%4%, from the thirdfirst quarter of 20182019, reflecting strength in noninterest income and relatively stable net interest income.
◦
Net interest income of $1.11.2 billion was relatively stable, compared toreflecting third quarter4%2018, driven by growth in interest earningaverage interest-earning assets offset by the impact of 3%.the lower rate and challenging yield-curve environment.
◦
Net interest margin of 3.10%3.09% decreased 1014 basis points compared tofrom 3.20%3.23% in the thirdfirst quarter of 20182019, drivenreflecting the impact of lower interest rates, which was partially offset by higherlower funding costs tied to modestly higher short-term rates and growth,improved deposit mix as well as higher securities premium amortization tied to significantly lower long-term rates. These results were only partially offsetthe continued mix shift towards better-returning assets.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

by the benefit of higher interest-earning asset yields, given continued mix shift toward more attractive risk-adjusted return portfolios and modestly higher short-term rates.
–
Net interest margin on a fully taxable-equivalent basis of 3.12%3.10% decreased by 1015 basis points, compared to 3.22%3.25% in the thirdfirst quarter of 20182019.
–
Average loans and leases of $117.3121.1 billion increased $3.33.4 billion, or 3%, from $114.0117.6 billion in the thirdfirst quarter of 20182019, reflecting a $1.71.8 billion increase in commercial loans and leases driven by the impact of higher COVID-19 related line utilization and a $1.6 billion increase in retail loans.

–
Period-end loan growth of $8.4 billion, or 7%, from the fourth quarter of 2019, reflected 15% growth in total commercial loans and leases, which included the estimated $7.2 billion impact of higher line of credit utilization tied to COVID-19 disruption. As of April 30, 2020, estimated COVID-19-related credit utilization fell to approximately $6.4 billion.
–
Average deposits of $123.9126.6 billion increased $6.96.2 billion, or 6%5%, from $117.0120.4 billion in the thirdfirst quarter of 20182019, reflecting growth in money market accounts, savings, term deposits, checking with interest and money market accounts,demand deposits, partially offset by a declinedecrease in demandterm deposits.
–
Period-end deposit growth of $8.2 billion, or 7%, from the fourth quarter of 2019, kept pace with loan growth as most commercial customers left their funds from line draws on deposit with us.
◦
Noninterest income of $493497 million increased $7769 million, or 19%16%, from the thirdfirst quarter of 20182019, driven by strongrecord results in mortgage banking and card fees and growth in trust and investment services fees, partially offset by COVID-19 impacts that resulted in lower service charges and fees, card fees, capital market fees and foreign exchange and interest rate products. Noninterest income in third quarter 2019 also included $7 million associated with a lease restructuring transaction.products revenue.
•
Noninterest expense of $973 million1.0 billion increased $6375 million, or 7%8%, compared tofrom $910937 million in the thirdfirst quarter of 20182019, driven by higher salaries and employee benefits, which included the impact of annual merit increases, investments in growth initiatives and higher revenue-based incentives, outside services, and equipment and software expense.
◦
On an Underlying basis,* noninterest expense increased $53 millionincrease, ord 6%5%, from the thirdfirst quarter of 20182019, reflecting continued investments in growth initiatives as well as $10 million associated with a lease restructuring transaction..
•
The efficiency ratio of 59.4%61.1% compared to 58.2%59.0% infor the thirdfirst quarter of 20182019, and ROTCE of 0.4% compared to 13.0%.
◦
On an Underlying basis,* operating leverage was (0.7%), the efficiency ratio of 58.2%59.1% compared to 57.6%58.7% infor the thirdfirst quarter of 20182019. and ROTCE of 1.1%compared to13.1%, reflecting the challenging environment presented by COVID-19, in particular the CECL provision impact.
•
Provision for credit losses of $101600 million increased $23515 million, or 29%, from $7885 million infor the thirdfirst quarter of 20182019, reflectingdriven by a small number of uncorrelated losses in commercial and continued seasoning in retail growth portfolios. Key credit metrics continued$463 million CECL reserve build tied to reflect overall strong credit quality. Provision for credit losses in third quarter 2019 also included $5 million associated with a lease restructuring transaction.
•
ROTCE of 12.4% compared to 13.3% in third quarter2018.
◦
On an Underlying basis,* ROTCE of 12.6% compared to 13.5% in third quarter2018 and reflected an approximately 75 basis point drag from higher tangible equity value, given the positive impact of lower long-term rates on securities valuations.COVID-19 impacts.
•
Tangible book value per common share of $31.4831.97 increased 14%8% from the thirdfirst quarter of 20182019. Fully diluted average common shares outstanding decreased 30.533.1 million shares, or 6%, over the same period.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

First Nine Months 2019 compared with First Nine Months 2018 - Key Highlights
Net income of $1.3 billion increased 7% from the first nine months of 2018, with earnings per diluted common share of $2.83, up 10% from $2.57 per diluted common share over the first nine months of 2018. ROTCE of 12.7% improved from 12.6% in the first nine months of 2018.
There were $13 million after-tax, or $0.03 per diluted common share, of notable items in the first nine months of 2019 tied to integration costs related to Acquisitions as well as costs related to strategic initiatives. In the first nine months of 2018 there were $7 million after-tax, or $0.01 per diluted common share, of notable items tied to integration costs associated with the FAMC acquisition.
 Nine Months Ended September 30,
 2019 2018
(in millions)Noninterest expense Income tax expense Net Income Noninterest expense Income tax expense Net Income
Reported results (GAAP)
$2,861
 
$369
 
$1,341
 
$2,668
 
$370
 
$1,256
Less notable items:           
Total integration costs16
 (4) (12) 9
 (2) (7)
Other notable items(1)
15
 (14) (1) —
 —
 —
Total notable items31
 (18) (13) 9
 (2) 
($7)
Underlying results* (non-GAAP)
$2,830
 
$387
 
$1,354
 
$2,659
 
$372
 
$1,263
(1) Other notable items include noninterest expense of $15 million related to our TOP programs and other efficiency initiatives and an income tax benefit of $10 million related to an operational restructure.
* Where there is a reference to “Underlying” results in a paragraph, all measures that follow these references are on the same basis when applicable. For more information on the computation of key performance metrics and non-GAAP financial measures, see “—Introduction — Key Performance Metrics Used By Management and Non-GAAP Financial Measures” and “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations.”
•
Net income available to common stockholders of $1.3 billionincreased $49 million, or 4%, compared to $1.2 billion in the first nine months of 2018. Earnings per diluted common share increased $0.26, or 10%, from the first nine months of 2018.
◦
On an Underlying basis,* net income available to common stockholders of $1.3 billionincreased by 4%, led by 7% revenue growth with 3% growth in net interest income.
◦
On an Underlying basis,* earnings per diluted common share of $2.86increased $0.28, or 11%, from $2.58 for the first nine months of 2018.
•
Total revenue of $4.9 billionincreased $319 million, or 7%, from the first nine months of 2018, driven by strong net interest and noninterest income growth.
◦
Net interest income of $3.5 billionincreased $111 million, or 3%, compared to $3.4 billion in the first nine months of 2018, given 4% growth in average interest-earning assets, which offset the impacts of lower net interest margin, reflecting the impacts of a challenging rate and yield-curve environment.
◦
Net interest margin of 3.18%decreased 2 basis points from 3.20% in the first nine months of 2018, driven by higher funding costs tied to modestly higher short-term rates and growth, as well as higher securities premium amortization tied to significantly lower long-term rates. These results were partially offset by the benefit of higher interest-earning asset yields, given continued mix shift toward more attractive risk-adjusted return portfolios and modestly higher short-term rates.
–
Net interest margin on a fully taxable-equivalent basis of 3.19%decreased by 2 basis points, compared to 3.21% in the first nine months of 2018.
–
Average loans and leases of $117.6 billionincreased $4.9 billion, or 4%, from $112.7 billion in the first nine months of 2018, reflecting a $3.4 billionincrease in commercial loans and leases and a $1.5 billionincrease in retail loans.
–
Average deposits of $122.5 billionincreased $7.3 billion, or 6%, from $115.2 billion in the first nine months of 2018, reflecting growth in term deposits, savings and checking with interest, partially offset by declines in money market accounts and demand deposits.
◦
Noninterest income of $1.4 billionincreased $208 million, or 18%, from the first nine months of 2018, driven by strength in capital markets fees, foreign exchange and interest rate products, card fees and leasing income, as well as higher mortgage banking fees and higher trust and investment services fees driven by Acquisitions.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

•
Noninterest expense of $2.9 billionincreased $193 million, or 7%, from $2.7 billion in the first nine months of 2018, reflecting higher salaries and employee benefits, outside services, and equipment and software expense, driven by the impact of Acquisitions, partially offset by lower other operating expense largely tied to a reduction in FDIC insurance.
◦
On an Underlying basis,* noninterest expense increased 6% from the first nine months of 2018.
•
The efficiency ratio of 58.9% compared to 58.8% for the first nine months of 2018, and ROTCE of 12.7% compared to 12.6%.
◦
On an Underlying basis,* operating leverage was 1%, the efficiency ratio of 58.3% compared to 58.6% for the first nine months of 2018 and ROTCE of 12.9%compared to12.7%.
•
Provision for credit losses of $283 millionincreased $42 million, or 17%, from $241 million for the first nine months of 2018, reflecting 4% average loan growth as well as a small number of uncorrelated losses in commercial and continued seasoning in retail growth portfolios and $5 million associated with a lease restructuring transaction, partially offset by stable credit quality.
•
Tangible book value per common share of $31.48 increased 14% from the first nine months of 2018. Fully diluted average common shares outstanding decreased 28.0 million shares, or 6%, over the same period.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED CONSOLIDATED FINANCIAL DATA
The summary Consolidated Operating Data for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 and the summary Consolidated Balance Sheet data as of September 30, 2019March 31, 2020 and December 31, 20182019 are derived from our unaudited interim Consolidated Financial Statements, included in Part I, Item 1 — Financial Statements of this Report.1. Our historical results are not necessarily indicative of the results expected for any future period.
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(dollars in millions, except per share amounts)  2019
   2018
 2019 20182020 2019
OPERATING DATA:          
Net interest income
$1,145
 
$1,148
 
$3,471
 
$3,360

$1,160
 
$1,160
Noninterest income493
 416
 1,383
 1,175
497
 428
Total revenue1,638
 1,564
 4,854
 4,535
1,657
 1,588
Provision for credit losses101
 78
 283
 241
600
 85
Noninterest expense973
 910
 2,861
 2,668
1,012
 937
Income before income tax expense564
 576
 1,710
 1,626
45
 566
Income tax expense115
 133
 369
 370
11
 127
Net income
$449
 
$443
 
$1,341
 
$1,256

$34
 
$439
Net income available to common stockholders
$432
 
$436
 
$1,291
 
$1,242

$12
 
$424
Net income per common share - basic
$0.97
 
$0.92
 
$2.84
 
$2.57

$0.03
 
$0.92
Net income per common share - diluted
$0.97
 
$0.91
 
$2.83
 
$2.57

$0.03
 
$0.92
OTHER OPERATING DATA(1):
          
Return on average common equity8.35 % 8.82% 8.50 % 8.44%0.24 % 8.62%
Return on average tangible common equity12.44
 13.29
 12.72
 12.64
0.36
 13.00
Return on average total assets1.10
 1.13
 1.11
 1.09
0.08
 1.11
Return on average total tangible assets1.15
 1.18
 1.16
 1.14
0.09
 1.16
Efficiency ratio59.40
 58.20
 58.94
 58.84
61.10
 59.00
Operating leverage(2)
(2.16) 2.21
 (0.18) 3.79
(3.71) 2.57
Net interest margin, FTE(3)
3.12
 3.22
 3.19
 3.21
3.10
 3.25
Effective income tax rate20.46
 23.16
 21.58
 22.77
24.13
 22.42
(1) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.
(2) “Operating leverage” represents the period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense.
(3) Net interest margin is presented on a fully taxable-equivalent (“FTE”)an FTE basis using the federal statutory tax rate of 21%.



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


(dollars in millions)September 30,
2019		 December 31,
2018		March 31,
2020		 December 31,
2019
BALANCE SHEET DATA:      
Total assets
$164,362
 
$160,518

$176,719
 
$165,733
Loans held for sale, at fair value1,993
 1,219
2,911
 1,946
Other loans held for sale22
 101
350
 1,384
Loans and leases117,880
 116,660
127,528
 119,088
Allowance for loan and lease losses(1,263) (1,242)(2,171) (1,252)
Total securities25,602
 25,075
26,352
 24,669
Goodwill7,044
 6,923
7,050
 7,044
Total liabilities142,511
 139,701
154,769
 143,532
Total deposits124,714
 119,575
133,475
 125,313
Federal funds purchased and securities sold under agreements to repurchase867
 1,156
Other short-term borrowed funds210
 161
Short-term borrowed funds(1)
1,059
 274
Long-term borrowed funds12,806
 15,925
16,437
 14,047
Total stockholders’ equity21,851
 20,817
21,950
 22,201
OTHER BALANCE SHEET DATA:      
Asset Quality Ratios:      
Allowance for loan and lease losses as a percentage of loans and leases1.07% 1.06%
Allowance for loan and lease losses as a percentage of nonperforming loans and leases159.32
 155.99
Nonperforming loans and leases as a percentage of loans and leases0.67
 0.68
Allowance for credit losses as a percentage of loans and leases1.73% 1.09%
Allowance for credit losses as a percentage of nonaccruing loans and leases283.48
 184.31
Nonaccruing loans and leases as a percentage of loans and leases0.61
 0.59
Capital Ratios:      
CET1 capital ratio(1)
10.3% 10.6%
CET1 capital ratio(2)
9.4% 10.0%
Tier 1 capital ratio11.1
 11.3
10.5
 11.1
Total capital ratio13.0
 13.3
12.5
 13.0
Tier 1 leverage ratio9.9
 10.0
9.6
 10.0
(1) In the first quarter of 2020, we reclassified federal funds purchased and securities sold under agreement to repurchase and other short-term borrowed funds to short-term borrowed funds. Prior periods have been adjusted to conform with the current period presentation.
(2) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.




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

RESULTS OF OPERATIONS
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to “—Market Risk — Non-Trading Risk,” included in this Report and “—Risk Governance” as described in our 20182019 Form 10-K.
chart-0997fd863e4f5587a23.jpgchart-f2f157a7904f569c90b.jpg

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


The following table presents the major components of net interest income and net interest margin:
Three Months Ended September 30,  Three Months Ended March 31,  
2019 2018 Change2020 2019 Change
(dollars in millions)Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Yields/
Rates (bps)		Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Yields/
Rates (bps)
Assets        
Assets:        
Interest-bearing cash and due from banks and deposits in banks
$1,474

$8
2.09% 
$1,604

$7
1.85% 
($130)24 bps
$1,859

$5
1.12% 
$1,497

$8
2.19% 
$362
(107) bps
Taxable investment securities25,635
153
2.38
 25,225
167
2.65
 410
(27)25,339
147
2.32
 25,136
166
2.64
 203
(32)
Non-taxable investment securities5
—
2.60
 6
—
2.60
 (1)—
4
—
2.60
 5
—
2.60
 (1)—
Total investment securities25,640
153
2.38
 25,231
167
2.65
 409
(27)25,343
147
2.32
 25,141
166
2.64
 202
(32)
Commercial41,476
442
4.17
 39,592
419
4.14
 1,884
3
43,152
417
3.82
 41,562
460
4.43
 1,590
(61)
Commercial real estate12,892
155
4.70
 12,656
147
4.56
 236
14
13,876
139
3.96
 13,272
165
4.98
 604
(102)
Leases2,615
19
2.85
 3,028
21
2.74
 (413)11
2,482
18
2.83
 2,873
21
2.85
 (391)(2)
Total commercial loans and leases56,983
616
4.23
 55,276
587
4.16
 1,707
7
59,510
574
3.81
 57,707
646
4.48
 1,803
(67)
Residential mortgages19,405
171
3.53
 18,147
164
3.62
 1,258
(9)18,866
164
3.47
 19,094
175
3.67
 (228)(20)
Home equity loans906
14
6.21
 1,168
18
5.93
 (262)28
Home equity lines of credit12,182
156
5.08
 12,925
152
4.66
 (743)42
Home equity loans serviced by others330
7
8.48
 444
8
7.45
 (114)103
Home equity lines of credit serviced by others83
1
4.56
 118
2
4.89
 (35)(33)
Home equity13,042
152
4.69
 14,075
183
5.27
 (1,033)(58)
Automobile12,036
129
4.25
 12,379
117
3.74
 (343)51
12,173
131
4.34
 12,070
120
4.04
 103
30
Education9,459
141
5.89
 8,481
124
5.78
 978
11
10,610
149
5.64
 9,069
134
5.99
 1,541
(35)
Credit cards2,103
53
9.93
 1,909
52
10.77
 194
(84)
Other retail3,770
68
7.25
 3,124
63
8.10
 646
(85)6,854
132
7.77
 5,634
123
8.87
 1,220
(110)
Total retail loans60,274
740
4.88
 58,695
700
4.73
 1,579
15
61,545
728
4.75
 59,942
735
4.96
 1,603
(21)
Total loans and leases117,257
1,356
4.56
 113,971
1,287
4.46
 3,286
10
121,055
1,302
4.29
 117,649
1,381
4.72
 3,406
(43)
Loans held for sale, at fair value1,970
19
3.71
 1,228
14
4.49
 742
(78)1,890
15
3.28
 1,035
11
4.35
 855
(107)
Other loans held for sale134
2
6.42
 129
2
6.44
 5
(2)799
9
4.31
 191
4
7.03
 608
(272)
Interest-earning assets146,475
1,538
4.15
 142,163
1,477
4.11
 4,312
4
150,946
1,478
3.91
 145,513
1,570
4.34
 5,433
(43)
Allowance for loan and lease losses(1,226)   (1,255)   29
 (1,708)   (1,243)   (465) 
Goodwill7,044
   6,926
   118
 7,046
   7,018
   28
 
Other noninterest-earning assets9,817
   7,790
   2,027
 10,893
   9,127
   1,766
 
Total assets
$162,110
   
$155,624
   
$6,486
 
$167,177
   
$160,415


  
$6,762
 
Liabilities and Stockholders’ Equity        
Liabilities and Stockholders’ Equity:        
Checking with interest
$23,422

$52
0.88% 
$21,780

$36
0.67% 
$1,642
21
$24,612

$37
0.60% 
$22,987

$52
0.91% 
$1,625
(31)
Money market accounts37,161
116
1.24
 36,593
95
1.03
 568
2139,839
93
0.94
 35,209
110
1.26
 4,630
(32)
Regular savings13,442
20
0.59
 10,198
3
0.12
 3,244
4714,201
18
0.51
 12,626
17
0.56
 1,575
(5)
Term deposits20,951
109
2.05
 18,764
80
1.68
 2,187
3718,616
79
1.70
 21,127
108
2.08
 (2,511)(38)
Total interest-bearing deposits94,976
297
1.24
 87,335
214
0.98
 7,641
2697,268
227
0.94
 91,949
287
1.27
 5,319
(33)
Federal funds purchased and securities sold under agreements to repurchase (1)
487
2
1.19
 643
2
0.93
 (156)26
Other short-term borrowed funds113
—
2.46
 748
4
2.27
 (635)19
Short-term borrowed funds (1)
644
1
0.76
 698
2
1.37
 (54)(61)
Long-term borrowed funds12,134
94
3.07
 14,284
109
3.01
 (2,150)614,057
90
2.56
 14,736
121
3.27
 (679)(71)
Total borrowed funds12,734
96
3.00
 15,675
115
2.90
 (2,941)1014,701
91
2.48
 15,434
123
3.18
 (733)(70)
Total interest-bearing liabilities107,710
393
1.45
 103,010
329
1.27
 4,700
18111,969
318
1.14
 107,383
410
1.54
 4,586
(40)
Demand deposits28,945
   29,703
   (758) 29,362
   28,465
   897

Other liabilities3,789
   2,769
   1,020
 4,053
   3,584
   469

Total liabilities140,444
   135,482
   4,962
 145,384
   139,432
   5,952

Stockholders’ equity21,666
   20,142
   1,524
 21,793
   20,983
   810

Total liabilities and stockholders’ equity
$162,110
   
$155,624
   
$6,486
 
$167,177
   
$160,415
   
$6,762

Interest rate spread 2.70%  2.84%  (14) 2.77%  2.80%  (3)
Net interest income and net interest margin 
$1,145
3.10%  
$1,148
3.20%  (10) 
$1,160
3.09%  
$1,160
3.23%  (14)
Net interest income and net interest margin, FTE(2)
 
$1,150
3.12%  
$1,154
3.22%  (10) 
$1,164
3.10%  
$1,166
3.25%  (15)
Memo: Total deposits (interest-bearing and demand)
$123,921

$297
0.95% 
$117,038

$214
0.73% 
$6,883
22 bps
$126,630

$227
0.72% 
$120,414

$287
0.97% 
$6,216
(25) bps
(1) Balances are netIn the first quarter of certain2020, we reclassified federal funds purchased and securities sold under agreement to repurchase and other short-term receivables associatedborrowed funds to short-term borrowed funds. Prior periods have been adjusted to conform with reverse repurchase agreements, as applicable. Interest expense includes the full cost of the repurchase agreements and certain hedging costs.current period presentation.
(2) Net interest income and net interest margin is presented on a fully taxable-equivalent (“FTE”)an FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial loans for the periods presented.
    
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS


Quarterly Results:Net interest income of $1.1$1.2 billion was stable with thirdfirst quarter 2018,2019, despite the lower rate and challenging yield-curve environment, given 3%4% growth in interest-earning assets and a 10 basis point decrease in net interest margin.assets.
Net interest margin of 3.10%3.09% decreased 1014 basis points compared to 3.20%3.23% in thirdthe first quarter 2018,of 2019, as an increase in funding costs tied to modestly higher short-term rates and growth, as well as higher securities premium amortization tied to significantlythe impact of lower long-terminterest rates was partially offset by the benefit of higher interest-earning asset yields, givenlower funding costs and improved deposit mix, as well as continued mix shift toward more attractive risk-adjusted return portfolios and higher short-term rates.towards better-returning assets. Net interest margin on an FTE basis of 3.12% declined 103.10% decreased 15 basis points from 3.22%compared to 3.25% in thirdthe first quarter 2018.of 2019. Average interest-earning asset yields of 4.15% increased 43.91% decreased 43 basis points from 4.11% in third quarter 2018, and average interest-bearing liability costs of 1.45% increased 18 basis points from 1.27% in third quarter 2018.
Average interest-earning assets of $146.5 billion in third quarter 2019 increased $4.3 billion, or 3%, from third quarter 2018, driven by a $3.3 billion increase in loans and leases and a $742 million increase in loans held for sale, primarily driven by the impact of the FAMC acquisition. Commercial loans and leases increased $1.7 billion, or 3%, while retail loans increased $1.6 billion, or 3%. Total commercial loan and leases results reflected strength in commercial loans, driven by geographic, product and client-focused expansion strategies as well as strength in commercial real estate, partially offset by planned reductions in commercial leases. Retail loan growth was driven by mortgage, unsecured and education finance, partially offset by a planned reduction in auto and lower home equity.
Third quarter 2019 average deposits of $123.9 billion increased $6.9 billion, or 6%, from third quarter 2018, reflecting growth in term, savings, money market accounts and checking with interest. These results were partially offset by a decline in demand deposits.
Average borrowed funds of $12.7 billion decreased $2.9 billion, or 19%, from third quarter 2018, driven by a $2.2 billion decrease in long-term borrowings, a $635 million decrease in other short-term borrowed funds and a $156 million decrease in federal funds purchased and repurchase agreements, reflecting improved funding mix from deposit growth, partially offset by an increase in senior debt. Total borrowed funds costs of $96 million decreased $19 million from third quarter 2018. The total borrowed funds cost of 3.00% increased 10 basis points from 2.90% in third quarter 2018 due to an increase in short-term rates and a mix shift to long-term senior debt.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table presents the major components of net interest income and net interest margin:
 Nine Months Ended September 30,  
2019 2018 Change
(dollars in millions)Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Income/
Expense		Yields/
Rates		 Average
Balances		Yields/
Rates (bps)
Assets:          
Interest-bearing cash and due from banks and deposits in banks
$1,400

$23
2.15% 
$1,616

$21
1.75% 
($216)40 bps
Taxable investment securities25,466
483
2.53
 25,284
500
2.64
 182
(11)
Non-taxable investment securities5
—
2.60
 6
—
2.60
 (1)—
Total investment securities25,471
483
2.53
 25,290
500
2.64
 181
(11)
Commercial41,597
1,373
4.35
 38,990
1,181
3.99
 2,607
36
Commercial real estate13,179
486
4.86
 12,096
400
4.36
 1,083
50
Leases2,744
59
2.86
 3,071
62
2.68
 (327)18
Total commercial loans and leases57,520
1,918
4.40
 54,157
1,643
4.00
 3,363
40
Residential mortgages19,245
522
3.61
 17,603
473
3.58
 1,642
3
Home equity loans971
44
6.09
 1,253
55
5.86
 (282)23
Home equity lines of credit12,354
473
5.12
 13,129
434
4.42
 (775)70
Home equity loans serviced by others358
21
7.95
 481
26
7.33
 (123)62
Home equity lines of credit serviced by others91
3
4.94
 130
4
4.14
 (39)80
Automobile12,030
374
4.16
 12,681
342
3.60
 (651)56
Education9,256
412
5.94
 8,380
357
5.69
 876
25
Credit cards2,048
158
10.31
 1,864
150
10.74
 184
(43)
Other retail3,688
204
7.39
 2,980
179
8.06
 708
(67)
Total retail loans60,041
2,211
4.92
 58,501
2,020
4.61
 1,540
31
Total loans and leases117,561
4,129
4.67
 112,658
3,663
4.32
 4,903
35
Loans held for sale, at fair value1,514
45
3.92
 709
23
4.27
 805
(35)
Other loans held for sale161
8
6.41
 193
9
6.32
 (32)9
Interest-earning assets146,107
4,688
4.26
 140,466
4,216
3.99
 5,641
27
Allowance for loan and lease losses(1,239)   (1,246)   7
 
Goodwill7,034
   6,900
   134
 
Other noninterest-earning assets9,442
   7,362
   2,080
 
Total assets
$161,344
   
$153,482


  
$7,862
 
Liabilities and Stockholders’ Equity:          
Checking with interest
$23,444

$161
0.92% 
$21,877

$96
0.59% 
$1,567
33
Money market accounts35,873
340
1.27
 36,689
239
0.87
 (816)40
Regular savings13,134
58
0.59
 9,907
5
0.07
 3,227
52
Term deposits21,456
333
2.07
 17,710
200
1.51
 3,746
56
Total interest-bearing deposits93,907
892
1.27
 86,183
540
0.84
 7,724
43
Federal funds purchased and securities sold under agreements to repurchase (1)
648
7
1.45
 598
4
0.78
 50
67
Other short-term borrowed funds72
1
2.58
 509
7
2.00
 (437)58
Long-term borrowed funds13,076
317
3.22
 14,535
305
2.78
 (1,459)44
Total borrowed funds13,796
325
3.13
 15,642
316
2.68
 (1,846)45
Total interest-bearing liabilities107,703
1,217
1.51
 101,825
856
1.12
 5,878
39
Demand deposits28,601
   29,031
   (430)
Other liabilities3,637
   2,551
   1,086

Total liabilities139,941
   133,407
   6,534

Stockholders’ equity21,403
   20,075
   1,328

Total liabilities and stockholders’ equity
$161,344
   
$153,482
   
$7,862

Interest rate spread  2.75%   2.87%  (12)
Net interest income and net interest margin 
$3,471
3.18%  
$3,360
3.20%  (2)
Net interest income and net interest margin, FTE(2)
 
$3,488
3.19%  
$3,377
3.21%  (2)
Memo: Total deposits (interest-bearing and demand)
$122,508

$892
0.97% 
$115,214

$540
0.63% 
$7,294
34 bps
(1) Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable. Interest expense includes the full cost of the repurchase agreements and certain hedging costs.
(2) Net interest income and net interest margin is presented on a fully taxable-equivalent (“FTE”) basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial loans for the periods presented.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Year-To-Date Results: Net interest income of $3.5 billion increased $111 million, reflecting 4% average interest-earning asset growth partially offset by a 2 basis point decrease in net interest margin.
Net interest margin of 3.18% decreased 2 basis points compared to 3.20%4.34% in the first nine monthsquarter of 2018, driven by higher funding costs tied to modestly higher short-term rates and growth, as well as higher securities premium amortization tied to significantly lower long-term rates. These results were partially offset by the benefit of higher interest-earning asset yields, given continued mix shift toward more attractive risk-adjusted return portfolios and modestly higher short-term rates. Net interest margin on an FTE basis of 3.19% also decreased 2 basis points compared to 3.21% in the first nine months of 2018. Average interest-earning asset yields of 4.26% increased 27 basis points from 3.99% in the first nine months of 2018,2019, while average interest-bearing liability costs of 1.51% increased 391.14% decreased 40 basis points from 1.12%1.54% in the first nine monthsquarter of 2018.2019.
Average interest-earning assets of $146.1$150.9 billion increased $5.6$5.4 billion, or 4%, from the first nine monthsquarter of 2018,2019, driven by a $3.44.9 billion, or 4%, increase in average loans and leases and LHFS. Results reflected a $1.8 billion increase in average commercial loans and leases and a $1.5$1.6 billion increase in average retail loans. Commercial loan growth reflected strength in commercial and industrial loans partially offset by a $35 million decrease in average total investment securities and interest-bearing cashcommercial real estate, and due from banks and deposits in banks. Total commercial loan and lease growth was driven by commercial and commercial real estate.the impact of higher COVID-19-related line of credit utilization. Retail loan growth was driven by residential mortgage, education credit cards and other retail.retail, partially offset by lower home equity.
Average deposits of $122.5$126.6 billion increased $7.3$6.2 billion, or 5%, from the first nine monthsquarter of 2018,2019, reflecting growth in term deposits, checking with interest, money market accounts, savings and savings,demand deposits, partially offset by a decline in money market accounts and demandterm deposits. Total interest-bearing deposit costs of $892 million increased $352 million, or 65%, from $540 million in the first nine months of 2018, primarily due to rising short-term rates and average deposit growth.
Average total borrowed funds of $13.8$14.7 billion decreased $1.8 billion$733 million from the first nine monthsquarter of 2018,2019, reflecting a decrease in otherlong-term and short-term borrowed funds and a decrease in long-term borrowed funds, partially offset by an increase in federal funds purchased and repurchase agreements.funds. Total borrowed funds costs of $325$91 million increased $9decreased $32 million from the first nine monthsquarter of 2018.2019. The total borrowed funds cost of 3.13% increased 452.48% decreased 70 basis points from 2.68%3.18% in the first nine monthsquarter of 20182019 due to an increase in short-term rates and a mix shift tolower interest cost on long-term senior debt.debt and FHLB borrowings.
Noninterest Income
chart-ee710c04a0f759b39bd.jpg
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

chart-3ab6a79ecc4c5e1b918.jpg
The following table presents the significant components of our noninterest income:
Three Months Ended September 30,     Nine Months Ended September 30,    Three Months Ended March 31,    
(in millions)2019
 2018
 Change
 Percent
 2019
 2018
 Change
 Percent
2020
 2019
 Change
 Percent
Service charges and fees
$128
 
$131
 
($3) (2%) 
$377
 
$382
 
($5) (1%)
$118
 
$123
 
($5) (4%)
Mortgage banking fees159
 43
 116
 NM
Card fees67
 61
 6
 10
 190
 182
 8
 4
56
 59
 (3) (5)
Capital markets fees39
 47
 (8) (17) 150
 134
 16
 12
43
 54
 (11) (20)
Trust and investment services fees50
 45
 5
 11
 150
 128
 22
 17
53
 47
 6
 13
Mortgage banking fees117
 49
 68
 139
 222
 101
 121
 120
Foreign exchange and interest rate products24
 36
 (12) (33)
Letter of credit and loan fees34
 32
 2
 6
 100
 94
 6
 6
34
 33
 1
 3
Foreign exchange and interest rate products35
 31
 4
 13
 106
 92
 14
 15
Securities gains, net3
 3
 —
 —
 15
 13
 2
 15
—
 8
 (8) (100)
Other income (1)
20
 17
 3
 18
 73
 49
 24
 49
10
 25
 (15) (60)
Noninterest income
$493
 
$416
 
$77
 19% 
$1,383
 
$1,175
 
$208
 18%
$497
 
$428
 
$69
 16%
(1) Includes net impairment losses recognized in earnings on available for sale debt securities, bank-owned life insurance income and other income.

Quarterly Results:Noninterest income increased $77$69 million from thirdthe first quarter 2018, driven by higherof 2019, as record results in mortgage banking fees, reflecting higher origination volumes that drove an increase in production revenue, card fees, driven by the benefit of higher purchase volumes,and trust and investment services fees were partially offset by COVID-19 impacts on service charges and fees, card fees, capital markets and foreign exchange and interest rate products. Other income included $7 Mortgage banking fees of $159

million associated with a lease restructuring transaction.
Year-To-Date Results: Noninterest incomereflected increased $208 million from the first nine months of 2018, driven byorigination volumes and improved gain on sale margins, as well as higher mortgage bankingservicing rights hedging gains. Capital markets fees and higher trust and investment services fees driven by Acquisitions. Strengthof $43 million decreased $11 million, as market disruption in capital market fees, and foreignMarch resulted in a $21 million unrealized loss on trading assets. Foreign exchange and interest rate products reflectedrevenue of $24 million declined by $12 million, driven by a $10 million decrease in net credit valuation adjustments given the benefit of investmentsfall in rates. Other income decreased from first quarter 2019 levels that included higher gains related to broaden and enhance our capabilities. Results also reflected increased higher other income due to increased leasing income, including $7 million associated with a lease restructuring transaction, and asset dispositions tied to balance sheet optimization and efficiency initiatives.
Noninterest Expense
chart-b9e578e43f015166b29.jpgchart-a7d6a5b871de51eebf4.jpg
The following table presents the significant components of our noninterest expense:
Three Months Ended September 30,     Nine Months Ended September 30,    Three Months Ended March 31,    
(in millions)2019
 2018
 Change
 Percent
 2019
 2018
 Change
 Percent
2020
 2019
 Change
 Percent
Salaries and employee benefits
$508
 
$474
 
$34
 7% 
$1,524
 
$1,397
 
$127
 9%
$549
 
$509
 
$40
 8%
Equipment and software expense130
 117
 13
 11
 381
 340
 41
 12
133
 125
 8
 6
Outside services128
 107
 21
 20
 356
 312
 44
 14
135
 110
 25
 23
Occupancy80
 81
 (1) (1) 245
 241
 4
 2
84
 83
 1
 1
Other operating expense127
 131
 (4) (3) 355
 378
 (23) (6)111
 110
 1
 1
Noninterest expense
$973
 
$910
 
$63
 7% 
$2,861
 
$2,668
 
$193
 7%
$1,012
 
$937
 
$75
 8%


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

Quarterly Results:Noninterest expense increased $63$75 million, or 8%, from thirdthe first quarter 2018, driven byof 2019, largely reflecting higher salaries and employee benefits which includedgiven the impact of annual merit increases investments in growth initiatives and higher revenue-based incentives, outside services, and equipment and software expense. Other operating expense included $10 million associated with a lease restructuring transaction. Underlying noninterest expense*compensation tied to increased $53 million, or 6%, reflecting continued investments in growth initiatives.
Year-To-Date Results: Noninterest expense increased $193 million, or 7%, from the first nine months of 2018, reflectingmortgage originations. Results also reflect higher salaries and employee benefits, outside services, and equipment and software expense driven by the impactgiven continued investments in technology as well as higher outside services largely tied to growth initiatives. Underlying noninterest expense of Acquisitions,$979 million increased $47 million, or 5%. These results were partially offset by lower other operating expense largely tied to a reduction in FDIC insurance. Underlying noninterest expense* increased $171 million, or 6%, reflecting continued investments in growth initiatives.occupancy.

Provision for Credit Losses
chart-33999bbf9e815002991.jpgchart-875f96cc3bbd53d18b1.jpg
The provision for loan and leasecredit losses is the result of a detailed analysis performed to estimate an appropriate and adequate ACL. The total provision for credit losses includes the provision for loan and lease losses as well asand the provision for unfunded commitments. Refer to “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets”Nonaccruing Loans and Leases” for more information.
Quarterly Results:The provision for credit losses increased $23of $600 million from thirdincludes a $463 million reserve build associated with COVID-19 and compared with $85 million in first quarter 2018, due to a small number of uncorrelated losses in commercial and continued seasoning in retail growth portfolios. Third quarter 2019 net2019. Net charge-offs of $113$137 million were $27 million higher than third quarter 2018 due to a small number of uncorrelated losses in commercial and expected seasoning in the retail growth portfolios and $5 million associated with a lease restructuring transaction.
Year-To-Date Results: The provision for credit losses increased $42$48 million from the first nine months of 2018, due to the factors described above. For the first nine monthsquarter of 2019, results reflecteddriven by a $25$20 million ACL release, compared toincrease in commercial loan and lease net charge-offs, reflecting several uncorrelated commercial losses, and a $9$28 million ACL buildincrease in the first nine months of 2018. Net charge-offs for the first nine months of 2019 of $308 million were $76 million higher than the first nine months of 2018.    retail, largely reflecting expected seasoning in growth portfolios.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Income Tax Expense
chart-fcc149a7ae825dbfa58.jpgchart-6bad6979fbdc5af78d3.jpg
Quarterly Results:Income tax expense decreased $18$116 million from thirdthe first quarter 2018.of 2019. The effective income tax rate increased to 24.1% from 22.4% in thirdthe first quarter of 2019, decreased 270 basis points to 20.5% from third quarter 2018, largely driven by the discrete negative impact of stock-based compensation on lower pre-tax income, partially offset by the increased benefit of an operational restructuring, resulting in the release of a valuation allowance on state net operating losses, and a reduction in non-deductible expenses.tax advantaged investments. The Underlying effective income tax rate* decreased 91rate increased 208 basis points to 22.3% from third quarter 2018.
Year-To-Date Results: Income tax expense decreased $1 million24.5% from the first nine monthsquarter of 2018. The effective income tax rate in the first nine months of 2019 decreased to 21.6% from 22.8% in the first nine months of 2018, largely driven by the benefit of an operational restructuring and a reduction in non-deductible expenses. The Underlying effective income tax rate* decreased 58 basis points to 22.2% from the first nine months of 2018.2019.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Business Operating Segments
We have two business operating segments: Consumer Banking and Commercial Banking. Segment results are derived by specifically attributing managed assets, liabilities, capital and related revenues, provision for credit losses and expenses. Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets not directly allocated to a business operating segment, community development, non-core assets (including legacy Royal Bank of Scotland Group plc aircraft loan and leasing), and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense. In addition, Other includes goodwill not directly allocated to a business operating segment and any associated goodwill impairment charges. For impairment testing purposes, we allocate all goodwill to our Consumer Banking and/or Commercial Banking reporting units. There have been no significant changes in our methodologies used to allocate items to our business operating segments as described in “—Results of Operations — Business Operating Segments” in our 20182019 Form 10-K.
The following tables presenttable presents certain financial data of our business operating segments,segments. Total business operating segment financial results differ from total consolidated net income. These differences are reflected in Other and consolidated:non-segment operations. See Note 17 in Item 1 for further information.
Consumer Banking Commercial Banking
As of and for the Three Months Ended September 30, 2019Three Months Ended March 31, Three Months Ended March 31,
(dollars in millions)Consumer Banking Commercial Banking 
Other(3)

 Consolidated
2020
 2019
 2020
 2019
Net interest income
$799
 
$360
 
($14) 
$1,145

$793
 
$788
 
$365
 
$372
Noninterest income336
 133
 24
 493
357
 247
 125
 150
Total revenue1,135
 493
 10
 1,638
1,150
 1,035
 490
 522
Noninterest expense718
 213
 42
 973
738
 700
 221
 209
Profit (loss) before provision for credit losses417
 280
 (32) 665
Profit before provision for credit losses412
 335
 269
 313
Provision for credit losses83
 27
 (9) 101
97
 67
 43
 21
Income (loss) before income tax expense (benefit)334
 253
 (23) 564
Income tax expense (benefit)83
 57
 (25) 115
Income before income tax expense315
 268
 226
 292
Income tax expense79
 66
 47
 65
Net income
$251
 
$196
 
$2
 
$449

$236
 
$202
 
$179
 
$227
Average Balances:              
Total assets
$66,365
 
$55,614
 
$40,131
 
$162,110

$68,415
 
$65,007
 
$59,005
 
$55,630
Total loans and leases(1)
63,553
 53,814
 1,994
 119,361
65,343
 62,163
 56,555
 54,436
Deposits85,595
 31,491
 6,835
 123,921
85,228
 82,569
 33,545
 29,823
Interest-earning assets63,605
 54,087
 28,783
 146,475
65,393
 62,216
 57,016
 54,724
Key Performance Metrics:       
Net interest margin(2)
4.99% 2.64% NM
 3.10%
Efficiency ratio63.28
 43.35
 NM
 59.40
Loans-to-deposits ratio (average balances)72.11
 170.01
 NM
 94.62
Return on average total tangible assets(2)
1.50
 1.40
 NM
 1.15
(1) Includes LHFS.
(2) Ratios for the three months ended September 30, 2019 and 2018 are presented on an annualized basis.
(3) Includes the financial impact not attributed to our Consumer Banking or Commercial Banking segments.

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

 As of and for the Three Months Ended September 30, 2018
(dollars in millions)Consumer Banking Commercial Banking 
Other(3)

 Consolidated
Net interest income
$776
 
$380
 
($8) 
$1,148
Noninterest income258
 140
 18
 416
Total revenue1,034
 520
 10
 1,564
Noninterest expense686
 202
 22
 910
Profit (loss) before provision for credit losses348
 318
 (12) 654
Provision for credit losses71
 14
 (7) 78
Income (loss) before income tax expense (benefit)277
 304
 (5) 576
Income tax expense (benefit)70
 70
 (7) 133
Net income
$207
 
$234
 
$2
 
$443
Average Balances:       
Total assets
$62,974
 
$52,871
 
$39,779
 
$155,624
Total loans and leases(1)
61,045
 51,881
 2,402
 115,328
Deposits78,128
 31,224
 7,686
 117,038
Interest-earning assets61,097
 52,137
 28,929
 142,163
Key Performance Metrics:       
Net interest margin(2)
5.04% 2.89% NM
 3.20%
Efficiency ratio66.29
 38.83
 NM
 58.20
Loans-to-deposits ratio (average balances)76.79
 165.17
 NM
 97.38
Return on average total tangible assets(2)
1.31
 1.75
 NM
 1.18
(1) Includes LHFS.
(2) Ratios for the three months ended September 30, 2019 and 2018 are presented on an annualized basis.
(3) Includes the financial impact not attributed to our Consumer Banking or Commercial Banking segments.

 As of and for the Nine Months Ended September 30, 2019
(dollars in millions)Consumer Banking Commercial Banking 
Other(3)

 Consolidated
Net interest income
$2,386
 
$1,103
 
($18) 
$3,471
Noninterest income860
 432
 91
 1,383
Total revenue3,246
 1,535
 73
 4,854
Noninterest expense2,133
 639
 89
 2,861
Profit (loss) before provision for credit losses1,113
 896
 (16) 1,993
Provision for credit losses228
 73
 (18) 283
Income before income tax expense (benefit)885
 823
 2
 1,710
Income tax expense (benefit)219
 184
 (34) 369
Net income
$666
 
$639
 
$36
 
$1,341
Average Balances:       
Total assets
$65,624
 
$55,793
 
$39,927
 
$161,344
Total loans and leases(1)
62,803
 54,299
 2,134
 119,236
Deposits84,619
 30,535
 7,354
 122,508
Interest-earning assets62,856
 54,585
 28,666
 146,107
Key Performance Metrics:       
Net interest margin(2)
5.08% 2.70% NM
 3.18%
Efficiency ratio65.71
 41.65
 NM
 58.94
Loans-to-deposits ratio (average balances)72.62
 176.75
 NM
 95.96
Return on average total tangible assets(2)
1.36
 1.53
 NM
 1.16
(1) Includes LHFS.
(2) Ratios for the nine months ended September 30, 2019 and 2018 are presented on an annualized basis.
(3) Includes the financial impact not attributed to our Consumer Banking or Commercial Banking segments.



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

 As of and for the Nine Months Ended September 30, 2018
(dollars in millions)Consumer Banking Commercial Banking 
Other(3)

 Consolidated
Net interest income
$2,268
 
$1,113
 
($21) 
$3,360
Noninterest income708
 405
 62
 1,175
Total revenue2,976
 1,518
 41
 4,535
Noninterest expense2,000
 610
 58
 2,668
Profit (loss) before provision for credit losses976
 908
 (17) 1,867
Provision for credit losses209
 19
 13
 241
Income (loss) before income tax expense (benefit)767
 889
 (30) 1,626
Income tax expense (benefit)193
 203
 (26) 370
Net income (loss)
$574
 
$686
 
($4) 
$1,256
Average Balances:       
Total assets
$61,857
 
$51,820
 
$39,805
 
$153,482
Total loans and leases(1)
60,277
 50,799
 2,484
 113,560
Deposits76,992
 30,736
 7,486
 115,214
Interest-earning assets60,328
 51,016
 29,122
 140,466
Key Performance Metrics       
Net interest margin(2)
5.03% 2.92% NM
 3.20%
Efficiency ratio67.20
 40.16
 NM
 58.84
Loans-to-deposits ratio (average balances)77.59
 164.08
 NM
 97.78
Return on average total tangible assets(2)
1.24
 1.77
 NM
 1.14
(1) Includes LHFS.
(2) Ratios for the nine months ended September 30, 2019 and 2018 are presented on an annualized basis.
(3) Includes the financial impact not attributed to our Consumer Banking or Commercial Banking segments.

Consumer Banking
 As of and for the Three Months Ended September 30,     As of and for the Nine Months Ended September 30,    
(dollars in millions)2019
 2018
 Change Percent
 2019

2018
              Change
Percent
Net interest income
$799
 
$776
 
$23
 3% 
$2,386


$2,268


$118

5%
Noninterest income336
 258
 78
 30
 860

708

152

21
Total revenue1,135
 1,034
 101
 10
 3,246

2,976

270

9
Noninterest expense718
 686
 32
 5
 2,133

2,000

133

7
Profit before provision for credit losses417
 348
 69
 20
 1,113

976

137

14
Provision for credit losses83
 71
 12
 17
 228

209

19

9
Income before income tax expense334
 277
 57
 21
 885

767

118

15
Income tax expense83
 70
 13
 19
 219

193

26

13
Net income
$251
 
$207
 
$44
 21
 
$666


$574


$92

16
Average Balances:      

    
 


Total assets
$66,365
 
$62,974
 
$3,391
 5% 
$65,624


$61,857


$3,767

6%
Total loans and leases(1)
63,553
 61,045
 2,508
 4
 62,803

60,277

2,526

4
Deposits85,595
 78,128
 7,467
 10
 84,619

76,992

7,627

10
Interest-earning assets63,605
 61,097
 2,508
 4
 62,856

60,328

2,528

4
Key Performance Metrics:         
 



 
Net interest margin(2)
4.99% 5.04% (5) bps   5.08%
5.03%
5  bps
 
Efficiency ratio63.28
 66.29
 (301) bps   65.71

67.20

(149) bps
 
Loans-to-deposits ratio (average balances)72.11
 76.79
 (468) bps   72.62

77.59

(497) bps
 
Return on average total tangible assets(2)
1.50
 1.31
 19  bps   1.36

1.24

12  bps
 
(1)  Includes LHFS.
(2) Ratios for the three and nine months ended September 30, 2019 and 2018 are presented on an annualized basis.



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

Quarterly Results: Consumer Banking netNet interest income increased $23$5 million, or 3%1%, from thirdthe first quarter 2018,of 2019, driven by the benefit of a $2.5$3.2 billion increase in average loans led by residential mortgage,growth in education and unsecured personal and education loans, partially offset by run-off in home equity portfolios.loans. Noninterest income increased $78$110 million, or 45%, from thirdthe first quarter 2018,of 2019, driven by higher mortgage banking fees, partially offset by lower service charges and the impact of Acquisitions.fees. Noninterest expense increased $32$38 million, or 5%, from thirdthe first quarter 2018,of 2019, reflecting higher salaries and benefits, and outside services including the impact of Acquisitions.services. Provision for credit losses of $83$97 million increased $12$30 million, or 17%45%, reflecting the impact of higher net charge-offs due to seasoning in growth portfolios.
Year-To-Date Results: Consumer Banking net interest income increased$118 million, or 5%, from the first nine months of 2018, driven by the benefit of a $2.5 billion increase in average loans led by residential, education and unsecured personal loans. Noninterest income increased $152 million from the first nine months of 2018, driven by higher mortgage banking fees and higher trust and investment services fees, including the impact of Acquisitions and card fees. Noninterest expense increased $133 million, or 7%, from the first nine months of 2018, reflecting higher salaries and benefits and outside services including the impact of Acquisitions. Provision for credit losses of $228 million increased$19 million, or 9%, reflecting higher net charge-offs due to seasoning in growth portfolios.
Commercial Banking
 As of and for the Three Months Ended September 30,     As of and for the Nine Months Ended September 30,    
(dollars in millions)2019
 2018
 Change Percent
 2019
 2018
 Change Percent
Net interest income
$360
 
$380
 
($20) (5%) 
$1,103
 
$1,113
 
($10) (1%)
Noninterest income133
 140
 (7) (5) 432
 405
 27
 7
Total revenue493
 520
 (27) (5) 1,535
 1,518
 17
 1
Noninterest expense213
 202
 11
 5
 639
 610
 29
 5
Profit before provision for credit losses280
 318
 (38) (12) 896
 908
 (12) (1)
Provision for credit losses27
 14
 13
 93
 73
 19
 54
 NM
Income before income tax expense253
 304
 (51) (17) 823
 889
 (66) (7)
Income tax expense57
 70
 (13) (19) 184
 203
 (19) (9)
Net income
$196
 
$234
 
($38) (16) 
$639
 
$686
 
($47) (7)
Average Balances:    

 

       

Total assets
$55,614
 
$52,871
 
$2,743
 5% 
$55,793
 
$51,820
 
$3,973
 8%
Total loans and leases(1)
53,814
 51,881
 1,933
 4
 54,299
 50,799
 3,500
 7
Deposits31,491
 31,224
 267
 1
 30,535
 30,736
 (201) (1)
Interest-earning assets54,087
 52,137
 1,950
 4
 54,585
 51,016
 3,569
 7
Key Performance Metrics:    

          
Net interest margin(2)
2.64% 2.89% (25) bps   2.70% 2.92% (22) bps  
Efficiency ratio43.35
 38.83
 452  bps   41.65
 40.16
 149  bps  
Loans-to-deposits ratio (average balances)170.01
 165.17
 484  bps   176.75
 164.08
 1,267  bps  
Return on average total tangible assets(2)
1.40
 1.75
 (35) bps   1.53
 1.77
 (24) bps  
(1)  Includes LHFS.
(2) Ratios for the three and nine months ended September 30, 2019 and 2018 are presented on an annualized basis.

Quarterly Results:Commercial Banking netNet interest income of $360 million decreased $20 million, or 5%, from $380 million in third quarter 2018, driven by a combination of lower loan yield and higher deposit costs and mix, partially offset by higher loan volumes. Noninterest income of $133$365 million decreased $7 million, or 5%2%, from $140$372 million in thirdthe first quarter 2018, reflectingof 2019, primarily due to lower interest rates. Noninterest income of $125 million decreased $25 million, or 17%, from $150 million in the first quarter of 2019, driven by a decrease in capital markets fees.market fees and foreign exchange and interest rate products. Noninterest expense of$213 million $221 million increased$11 $12 million, or 5%6%, from $202209 million in thirdthe first quarter 2018, largely dof riven by the impact of investment in growth initiatives, the Bowstring Advisors, LLC acquisition and higher indirect expenses. Provision for credit losses increased $13 million from third quarter 2018 due to higher net charge-offs from a small number of uncorrelated losses.     
Year-To-Date Results:Commercial Banking net interest income of $1.1 billion decreased $10 million, or 1%, from $1.1 billion in the first nine months of 2018 primarily due to net interest margin compression, partially offset by higher loan volumes. Noninterest income of $432 million increased $27 million, or 7%, from $405 million in the first nine months of 2018, reflecting higher capital market and foreign exchange fees. Noninterest expense
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

of $639 millionincreased $29 million, from $610 million in the first nine months of 2018,2019, driven by higher salaries and employee benefit expense.benefits expenses. Provision for credit losses of $73$43 million increased $54 $22 million from the first nine monthsquarter of 2018, driven by2019, reflecting the impact of higher net charge-offs from a small number ofseveral uncorrelated losses.
Other
 As of and for the Three Months Ended September 30,     As of and for the Nine Months Ended September 30,    
(in millions)2019
 2018
 Change
 Percent
 2019
 2018
 Change
 Percent
Net interest income
($14) 
($8) 
($6) (75%) 
($18) 
($21) 
$3
 14%
Noninterest income24
 18
 6
 33
 91
 62
 29
 47
Total revenue10
 10
 —
 0
 73
 41
 32
 78
Noninterest expense42
 22
 20
 91
 89
 58
 31
 53
Loss before provision for credit losses(32) (12) (20) (167) (16) (17) 1
 6
Provision for credit losses(9) (7) (2) (29) (18) 13
 (31) NM
(Loss) income before income tax benefit(23) (5) (18) NM
 2
 (30) 32
 NM
Income tax benefit(25) (7) (18) NM
 (34) (26) (8) (31)
Net income (loss)
$2
 
$2
 
$—
 0
 
$36
 
($4) 
$40
 NM
Average Balances:      

     

 

Total assets
$40,131
 
$39,779
 
$352
 1% 
$39,927
 
$39,805
 
$122
 —%
Total loans and leases(1)
1,994
 2,402
 (408) (17) 2,134
 2,484
 (350) (14)
Deposits6,835
 7,686
 (851) (11) 7,354
 7,486
 (132) (2)
Interest-earning assets28,783
 28,929
 (146) (1) 28,666
 29,122
 (456) (2)
(1) Includes LHFS.

Quarterly Results:Other net interest incomedecreased $6 million from third quarter 2018 driven by lower investment income and non-core run-off, partially offset by lower funding costs. Noninterest income was up $6 million, primarily due to higher leasing income from the non-core portfolio. Noninterest expense increased $20 million due to the impact of notable items and higher expenses from the non-core leasing portfolio. The income tax benefit included a notable item related to an operational restructure, which reduced income tax expense.
Year-To-Date Results:Other net interest income increased $3 million from the first nine months of 2018 driven by FTP, partially offset by higher funding and swap costs, lower investment income and non-core run-off. Results also reflected an ACL release of $25 million in the first nine months of 2019, compared to an ACL build of $9 million in the first nine months of 2018.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION
Securities
Our securities portfolio is managed to maintain prudent levels of liquidity, credit quality and market risk while achieving appropriate returns that align with our overall portfolio management strategy. The following table presents our securities AFS and HTM:
September 30, 2019 December 31, 2018  March 31, 2020 December 31, 2019
(in millions)
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value Change in Fair Value
Amortized
Cost
��Fair Value 
Amortized
Cost
 Fair Value
U.S. Treasury and other
$120
 
$120
 
$24
 
$24
 
$96
 NM

$41
 
$41
 
$71
 
$71
State and political subdivisions5
 5
 5
 5
 —
 —
4
 4
 5
 5
Mortgage-backed securities, at fair value:                  
Federal agencies and U.S. government sponsored entities20,434
 20,520
 20,211
 19,634
 886
 5
21,029
 21,651
 19,803
 19,875
Other/non-agency827
 857
 236
 232
 625
 NM
612
 611
 638
 662
Total mortgage-backed securities21,261
 21,377
 20,447
 19,866
 1,511
 8
21,641
 22,262
 20,441
 20,537
Total debt securities available for sale, at fair value
$21,386
 
$21,502
 
$20,476
 
$19,895
 
$1,607
 8%
$21,686
 
$22,307
 
$20,517
 
$20,613
Mortgage-backed securities, at cost:                  
Federal agencies and U.S. government sponsored entities
$3,319
 
$3,362
 
$3,425
 
$3,293
 
$69
 2%
$3,071
 
$3,219
 
$3,202
 
$3,242
Other/non-agency—
 —
 740
 748
 (748) (100)
Total mortgage-backed securities3,319
 3,362
 4,165
 4,041
 (679) (17)
Total debt securities held to maturity
$3,319
 
$3,362
 
$4,165
 
$4,041
 
($679) (17%)
Total debt securities held to maturity, at cost
$3,071
 
$3,219
 
$3,202
 
$3,242
Total debt securities available for sale and held to maturity
$24,705
 
$24,864
 
$24,641
 
$23,936
 
$928
 4%
$24,757
 
$25,526
 
$23,719
 
$23,855
Equity securities, at fair value
$47
 
$47
 
$181
 
$181
 
($134) (74%)
$47
 
$47
 
$47
 
$47
Equity securities, at cost734
 734
 834
 834
 (100) (12)927
 927
 807
 807
Total equity securities
$781
 
$781
 
$1,015
 
$1,015
 
($234) (23%)
$974
 
$974
 
$854
 
$854
 
The fair value of the AFS debt securities portfolio of $21.5$22.3 billion at September 30, 2019March 31, 2020 increased $1.6$1.7 billion from $19.9$20.6 billion at December 31, 20182019 due to an increase of $1.2 billion related to reinvestment timing and a $500 million increase in value due to lower long-term rates and securities transferred from HTM to AFS upon the adoption of ASU 2017–12, Targeted Improvements to Accounting for Hedging Activities.rates. The decline in the fair value of the HTM debt portfolio of $679$23 million was primarily attributable to non-agency securities transferred from HTM to AFS upon the adoptionportfolio runoff of ASU 2017–12,$131 million, partially offset by transfer of $192 million of agency securities from AFSan increase in fair value due to HTM.lower long-term rates. For further information, see Note 1.

As of September 30, 2019,March 31, 2020, the portfolio’s average effective duration was 3.22.1 years compared with 4.43.7 years as of December 31, 2018,2019, as lower long-term rates drove an increase in both actual and projected securities prepayment speeds. We manage our securities portfolio duration and convexity risk through asset selection and securities structure, and maintain duration levels within risk appetite in the context of the broader interest rate risk in the banking book framework and limits.

The securities portfolio includes high-quality, highly-liquidhigh quality, highly liquid investments reflecting our ongoing commitment to maintaining appropriate contingent liquidity levels and pledging capacity. U.S. government-guaranteed notes and GSE-issued mortgage-backed securities represent 97%98% of the fair value of the debt securities portfolio holdings. Holdings backed by mortgages dominate our portfolio and facilitate our ability to pledge them to the FHLB for collateral purposes. For further discussion of the liquidity coverage ratios, see “Regulation and Supervision — Liquidity Standards” in our 20182019 Form 10-K.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Loans and Leases
OurThe following table presents our loans and leases are disclosed in portfolio segments and classes as reflected below.classes:
(in millions)September 30, 2019 December 31, 2018 Change  PercentMarch 31, 2020 December 31, 2019 Change  Percent
Commercial
$41,356
 
$40,857
 
$499
 1 %
$49,092
 
$41,479
 
$7,613
 18 %
Commercial real estate12,820
 13,023
 (203) (2)14,502
 13,522
 980
 7
Leases2,557
 2,903
 (346) (12)2,438
 2,537
 (99) (4)
Total commercial loans and leases56,733
 56,783
 (50) —
66,032
 57,538
 8,494
 15
Residential mortgages19,699
 18,978
 721
 4
18,721
 19,083
 (362) (2)
Home equity loans876
 1,073
 (197) (18)
Home equity lines of credit12,148
 12,710
 (562) (4)
Home equity loans serviced by others318
 399
 (81) (20)
Home equity lines of credit serviced by others81
 104
 (23) (22)
Home equity(1)
12,992
 13,154
 (162) (1)
Automobile12,070
 12,106
 (36) —
12,157
 12,120
 37
 —
Education9,729
 8,900
 829
 9
10,887
 10,347
 540
 5
Credit cards2,133
 1,991
 142
 7
Other retail4,093
 3,616
 477
 13
Other retail(2)
6,739
 6,846
 (107) (2)
Total retail loans61,147
 59,877
 1,270
 2
61,496
 61,550
 (54) —
Total loans and leases(1)

$117,880
 
$116,660
 
$1,220
 1%
Total loans and leases(3)

$127,528
 
$119,088
 
$8,440
 7%
(1) In the first quarter of 2020, home equity loans, home equity lines of credit, home equity loans serviced by others and home equity lines of credit serviced by others are included in home equity. Prior periods have been adjusted to conform with current period presentation.
(2) In the first quarter of 2020, credit card and other retail are included in other retail. Prior periods have been adjusted to conform with current period presentation.
(3)LHFS totaling $2.0 billion and $1.3$3.3 billion at September 30, 2019both March 31, 2020 and December 31, 2018, respectively,2019 are not included above.
Total loans and leases increased $1.2$8.4 billion from $116.7$119.1 billion as of December 31, 2018, driven by strength2019, largely due to an $8.5 billion increase in retail loans. Growth in education, residential mortgages, other retail and credit cards were partially offset by planned reductions in auto and run-off in the home equity portfolio. Total commercial loans and leases, were relatively stable,which included the estimated $7.2 billion impact of higher line of credit utilization tied to COVID-19 disruption. As of April 30, 2020, estimated COVID-19-related credit utilization fell to approximately $6.4 billion.
As of April 30, 2020, under our COVID-19-related forbearance and other customer accommodation programs that are guided by the CARES Act as growthwell as banking regulator interagency guidance, we have deferred payments on approximately 6%, or $4.1 billion, of our retail and business banking loans (business banking loans are reflected in commercial in the table above). Of this, $1.1 billion, or 6%, of our residential mortgage portfolio is in forbearance. Further, we have worked proactively with approximately 950 commercial customers seeking flexibility on loan terms and conditions, of which approximately 33% are requesting covenant waivers to allow for Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) application. None of these retail deferrals or commercial modifications are classified as TDRs.
Under the PPP, which provides loans was offset by a decreaseto small businesses to keep their employees on payroll and make other eligible payments, we have registered approximately 45,000 loan applications with $4.8 billion in commercial real estate and planned reduction in leases.commitments with the SBA as of May 5, 2020,with additional applications still entering the pipeline, of which approximately 34,000 loans totaling $4.0 billion are funded.
Allowance for Credit Losses and Nonperforming AssetsNonaccruing Loans and Leases
The ACL which consists of an ALLL and a reserve for unfunded lending commitments, is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb future estimated credit losses in accordance with GAAP. For further information on our processes to determine our ACL, see “—Critical Accounting Estimates — Allowance for Credit Losses” as well as Note 5 and Note 4 in our 2018 Form 10-K.Losses.”
The ACL totaledof $2.2 billion as of March 31, 2020 included impacts from the adoption of CECL on January 1, 2020. This compared with the ACL of $1.3 billionat September 30, 2019 and as of December 31, 2018. While the overall ACL decreased by $25 million from December 31, 2018, the ALLL increased by $21 million. The change in ACL was primarily driven by a decline in reserves on unfunded commitments attributable to a draw on an unfunded commitment and a reduction in qualitative reserves on commercial loans reflecting improved credit quality. The increase in ALLL was driven by a $329 million provision, partially offset by $308 million in net charge-offs.2019. For further information, see Note 4.
The ALLLACL represented 1.07%1.73% of total loans and leases and 159%283% of nonperformingnonaccrual loans and leases as of September 30, 2019,March 31, 2020 compared with 1.06%1.09% and 156%184%, as of December 31, 2018, respectively. As2019, respectively, and reflected the impact of September 30, 2019, there were no material changes in assumptions or estimation techniques compared with prior periods that impactedCECL implementation and the determinationprovision impact of the current period’s reserves.COVID-19 disruption.
Overall credit quality has remained strong in the first nine months of 2019. NonperformingNonaccruing loans and leases of $793$780 million as of September 30, 2019 decreased $4March 31, 2020 increased $77 million, or 11%, from December 31, 2018,2019, reflecting an $84 million decrease in retail nonperforming loans, driven by real estate secured loans, partially offset by an $80a $69 million increase in commercial nonperforming loans. Thirdnonaccruing loans and an $8 million increase in retail. First quarter 2019of 2020 net charge-offs of $113$137 million increased $27$48 million or 31%, from $86 million in third quarter 2018. Thirdfirst quarter 2019, with a $28 million increase in retail net charge-offs, given expected seasoning in growth portfolios, and a $20 million increase in commercial net charge-offs, reflecting several uncorrelated commercial losses.
First quarter 2020 annualized net charge-offs of 38 basis points0.46% of average loans and leases were up 8 basis points from thirdcompared with 0.31% in first quarter 2018. First nine months2019.

We continue to assess the impact of 2019 net charge-offsthe COVID-19 pandemic and have instituted a variety of $308 million increased $76 million, or 33%, from $232 million in the first nine monthsmeasures to identify and monitor areas of 2018. First nine monthspotential risk, including direct outreach to commercial clients and close monitoring of 2019 annualized net charge-offs of 35 basis points of average loans and leases was up 8 basis points from the first nine months of 2018.retail credit metrics.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Commercial Loan Asset Quality
Our commercial loan and lease portfolio consists of traditional commercial loans, commercial leases and commercial real estate loans. The portfolio is predominantly focused on customers in our footprint and adjacent states in which we have a physical presence where our local delivery model provides for strong client connectivity. Additionally, we also do business in certain specialized industry sectors on a national basis.
As of March 31, 2020, nonaccruing commercial loans and leases of $314 million increased $69 million from $245 million as of December 31, 2019. Total commercial nonaccruing loans and leases were 0.5% and 0.4% of the total commercial loan and lease portfolio as of March 31, 2020 and December 31, 2019, respectively. Total commercial loan and lease net charge-offs of $44 million for first quarter 2020 compared to net charge-offs of $24 million for first quarter of 2019. The commercial loan and lease portfolio’s annualized net charge-off rate of 0.30% for first quarter 2020 compared to a net charge-off rate of 0.17% for first quarter 2019.
For commercial loans and leases, we utilize regulatory classification ratings to monitor credit quality. For more information on regulatory classification ratings, see “—Allowance for Credit Losses and Nonperforming AssetsNonaccruing Loans and Leases — Commercial Loan Asset Quality” and Note 5 in our 20182019 Form 10-K .
As of September 30, 2019, nonperforming commercial loans and leases of $281 million increased $80 million from $201 million as of December 31, 2018. Total commercial nonperforming loans and leases were 0.5% and 0.4% of the total commercial loan and lease portfolio as of September 30, 2019 and December 31, 2018, respectively. Total commercial loan and lease net charge-offs of $32 million and $89 million for third quarter and the first nine months of 2019, respectively, compared to net charge-offs of $16 million and $25 million for the third quarter and first nine months of 2018, respectively. Due to a small number of uncorrelated losses in commercial, the commercial loan and lease portfolio’s annualized net charge-off rate of 22 and 21 basis points for the third quarter and the first nine months of 2019, respectively, compared to a net charge-off rate of 12 and 6 basis points for the third quarter and the first nine months of 2018, respectively.10-K.
The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:
September 30, 2019March 31, 2020
 Criticized  Criticized 
(in millions)Pass
Special MentionSubstandard
Doubtful
Total
Pass
Special MentionSubstandard
Doubtful
Total
Commercial
$38,997

$1,369

$761

$229

$41,356

$46,225

$1,500

$1,062

$305

$49,092
Commercial real estate12,437
297
36
50
12,820
13,745
725
24
8
14,502
Leases2,466
39
49
3
2,557
2,319
19
99
1
2,438
Total commercial loans and leases
$53,900

$1,705

$846

$282

$56,733

$62,289

$2,244

$1,185

$314

$66,032

December 31, 2018December 31, 2019
 Criticized  Criticized 
(in millions)Pass
Special MentionSubstandard
Doubtful
Total
Pass
Special MentionSubstandard
Doubtful
Total
Commercial
$38,600

$1,231

$828

$198

$40,857

$38,950

$1,351

$934

$244

$41,479
Commercial real estate12,523
412
82
6
13,023
13,169
318
33
2
13,522
Leases2,823
39
41
—
2,903
2,383
109
42
3
2,537
Total commercial loans and leases
$53,946

$1,682

$951

$204

$56,783

$54,502

$1,778

$1,009

$249

$57,538

Total commercial criticized loans and leases of $2.8$3.7 billion, or 5.0%5.7% of total commercial loans and leases, at September 30, 2019 were stable compared toMarch 31, 2020 increased $707 million, or 23%, from December 31, 2018.2019, largely due to some deterioration in the Commercial Real Estate retail focused borrowers and across several other non-correlated industries. Commercial real estate criticized balances of $383loans totaled $757 million, or 3.0%5.2%, of the commercial real estate portfolio decreasedand increased from $500$353 million, or 3.8%2.6%, as of December 31, 2018.2019, due to migration to criticized of a few sizeable borrowers. Commercial real estate accounted for 13.5%20% of total criticized loans as of September 30, 2019,March 31, 2020, compared to 17.6%12% as of December 31, 2018.2019.
Retail Loan Asset Quality
For retail loans, we primarily utilize credit scores provided by FICO which are generally refreshed on a quarterly basis and the loan’s payment and delinquency status to regularly review and monitor credit quality trends. Historical experience indicates thatquality. FICO credit scores are considered the longer astrongest indicator of credit losses over the contractual life of the loan is past due,as the greaterscores are based on current and historical national industry-wide consumer level credit performance data, and assist management in predicting the likelihood ofborrower’s future credit loss.payment performance. The largest portion of the retail portfolio is represented by borrowers

located in the New England, Mid-Atlantic and Midwest regions, although we have continued to lend selectively in areas outside the footprint primarily in the auto finance, education lending and unsecured portfolios.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

The following tables present asset quality metrics for the retail loan portfolio:
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Average refreshed FICO for total portfolio764
 763
763
 764
CLTV ratio for secured real estate(1)
59% 58%59% 59%
Nonperforming retail loans as a percentage of total retail0.84
 1.00
Nonaccruing retail loans as a percentage of total retail0.76
 0.74
(1) The real estate secured portfolio CLTV is calculated as the mortgage and second lien loan balance divided by the most recently available value of the property.
 Three Months Ended September 30,     Nine Months Ended September 30,    
(dollars in millions)2019
 2018
 Change
 Percent
 2019
 2018
 Change Percent
Net charge-offs
$81
 
$70
 
$11
 16% 
$219
 
$207
 
$12
 6%
Annualized net charge-off rate0.53% 0.47% 6 bps  0.49% 0.47% 2 bps 
The retail annualized net charge-off rate increased to 0.53% for third quarter 2019, an increase of 6 basis points from third quarter 2018, and 2 basis points for the nine months ended September 30, 2019 from the nine months ended September 30, 2018, both driven by continued seasoning from growth in the unsecured portfolios.
 Three Months Ended March 31,    
(dollars in millions)2020
 2019
 Change Percent
Net charge-offs
$93
 
$65
 
$28
 43%
Annualized net charge-off rate0.61% 0.44% 17 bps  
Troubled Debt Restructurings
TDR isIn the first quarter of 2020, we adopted the CARES Act and interagency guidance issued by the bank regulatory agencies which provides that COVID-19 related modifications to consumer and commercial loans that met certain eligibility criteria are exempt from classification given toas a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that we would not otherwise make. TDRs typically result from our loss mitigation effortsTDR.  Payment deferrals and are undertaken in order to improveforbearance plans entered into towards the likelihood of recovery and continuityend of the relationship. Our loan modifications are handled onquarter as a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet our borrower’s financial needs. The types of concessions include interest rate reductions, term extensions, principal forgiveness and other modifications to the structureresult of the loan that fall outside our lending policy. Depending on the specific facts and circumstances of the customer, restructuring can involve loans moving to nonaccrual, remaining on nonaccrual, or remaining on accrual status.COVID-19 pandemic were generally not considered TDRs.
As of September 30, 2019, $675March 31, 2020, $664 million of retail loans were classified as TDRs, compared with $723$667 million as of December 31, 2018.2019. As of September 30, 2019,March 31, 2020, $145 million of retail TDRs were in nonaccrual status with 43%38% current with payments compared to $181$143 million in nonaccrual status with 49%38% current on payments at December 31, 2018.2019. TDRs generally return to accrual status once repayment capacity and appropriate payment history can be established. TDRs are individually evaluated for impairment and loans, once classified as TDRs, remain classified as TDRs until paid off, sold or refinanced at market terms.
For additional information regarding TDRs see “—Critical Accounting Estimates — Allowance for Credit Losses,” as well as Note 5 in our 20182019 Form 10-K.
The following tables present retail TDRs by loan class, including delinquency status for accruing TDRs and TDRs in nonaccrual:
 September 30, 2019
   As a % of Accruing Retail TDRs    
(dollars in millions)Accruing 30-89 Days
Past Due		 90+ Days Past Due Nonaccruing Total
Residential mortgages
$104
 0.8% 1.8% 
$43
 
$147
Home equity loans72
 0.3
 —
 20
 92
Home equity lines of credit149
 0.5
 —
 53
 202
Home equity loans serviced by others26
 0.2
 —
 8
 34
Home equity lines of credit serviced by others4
 —
 —
 3
 7
Automobile12
 0.1
 —
 9
 21
Education132
 0.7
 0.4
 7
 139
Credit cards26
 0.6
 —
 2
 28
Other retail5
 0.1
 —
 —
 5
Total
$530
 3.3% 2.2% 
$145
 
$675
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

 March 31, 2020
   As a % of Accruing Retail TDRs    
(dollars in millions)Accruing 30-89 Days
Past Due		 90+ Days Past Due Nonaccruing Total
Residential mortgages
$126
 4.3% 1.8% 
$41
 
$167
Home equity236
 2.2
 —
 82
 318
Automobile3
 0.1
 —
 12
 15
Education124
 0.8
 0.3
 7
 131
Other retail30
 0.6
 —
 3
 33
Total
$519
 8.0% 2.1% 
$145
 
$664
December 31, 2018December 31, 2019
  As a % of Accruing Retail TDRs      As a % of Accruing Retail TDRs    
(dollars in millions)Accruing 30-89 Days
Past Due		 90+ Days Past Due Nonaccruing TotalAccruing 30-89 Days
Past Due		 90+ Days Past Due Nonaccruing Total
Residential mortgages
$111
 3.0% 1.6% 
$44
 
$155

$113
 3.8% 2.1% 
$41
 
$154
Home equity loans85
 0.7
 —
 25
 110
Home equity lines of credit138
 0.9
 —
 64
 202
Home equity loans serviced by others31
 0.3
 —
 10
 41
Home equity lines of credit serviced by others3
 —
 —
 5
 8
Home equity240
 1.9
 —
 84
 324
Automobile13
 0.2
 —
 10
 23
13
 0.2
 —
 8
 21
Education131
 0.9
 0.3
 22
 153
127
 0.9
 0.3
 7
 134
Credit cards24
 0.4
 —
 1
 25
Other retail6
 —
 —
 —
 6
31
 0.6
 —
 3
 34
Total
$542
 6.4% 1.9% 
$181
 
$723

$524
 7.4% 2.4% 
$143
 
$667


Non-Core Assets    
(in millions)September 30, 2019 December 31, 2018 Change Percent
Commercial
$7
 
$72
 
($65) (90%)
Commercial real estate11
 14
 (3) (21)
Leases506
 670
 (164) (24)
Total commercial loans and leases524
 756
 (232) (31)
Residential mortgages96
 110
 (14) (13)
Home equity loans25
 31
 (6) (19)
Home equity lines of credit16
 21
 (5) (24)
Home equity loans serviced by others318
 399
 (81) (20)
Home equity lines of credit serviced by others81
 104
 (23) (22)
Education182
 210
 (28) (13)
Total retail loans718
 875
 (157) (18)
Total non-core loans and leases1,242
 1,631
 (389) (24)
Other assets66
 96
 (30) (31)
Total non-core assets
$1,308
 
$1,727
 
($419) (24%)

(in millions)March 31, 2020 December 31, 2019 Change Percent
Commercial
$12
 
$6
 
$6
 100%
Commercial real estate10
 11
 (1) (9)
Leases432
 444
 (12) (3)
Total commercial loans and leases454
 461
 (7) (2)
Residential mortgages86
 91
 (5) (5)
Home equity368
 400
 (32) (8)
Education159
 166
 (7) (4)
Total retail loans613
 657
 (44) (7)
Total non-core loans and leases1,067
 1,118
 (51) (5)
Other assets119
 122
 (3) (2)
Total non-core assets
$1,186
 
$1,240
 
($54) (4%)
Non-core assets are primarily liquidating loan and lease portfolios inconsistent with our strategic priorities, generally as a result of geographic location, industry, product type or risk level and are included in Other.
Deposits
The following table below presents the major components of our deposits:
(in millions)September 30, 2019 December 31, 2018 Change
 Percent
March 31, 2020 December 31, 2019 Change
 Percent
Demand
$29,939
 
$29,458
 
$481
 2%
$32,398
 
$29,233
 
$3,165
 11%
Checking with interest24,403
 23,067
 1,336
 6
25,358
 24,840
 518
 2
Regular savings13,479
 12,007
 1,472
 12
14,702
 13,779
 923
 7
Money market accounts36,826
 35,701
 1,125
 3
42,972
 38,725
 4,247
 11
Term deposits20,067
 19,342
 725
 4
18,045
 18,736
 (691) (4)
Total deposits
$124,714
 
$119,575
 
$5,139
 4%
$133,475
 
$125,313
 
$8,162
 7%
    
Total deposits as of September 30, 2019March 31, 2020 increased $5.1$8.2 billion, or 4%7%, to $124.7$133.5 billion, from $119.6$125.3 billion as of December 31, 2018.2019 as commercial customers placed deposits related to credit facility draws with us. Citizens Access®, our digital platform, attracted $5.6ended the quarter with $6.1 billion of deposits, through third quarter 2019, up from $3.0$5.8 billion as of December 31, 2018.2019.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Borrowed Funds
Total borrowed funds as of September 30, 2019 decreased $3.4March 31, 2020 increased $3.2 billion from December 31, 2018, reflecting a $4.5 billion decrease in long-term FHLB advances given improved funding mix, partially offset2019, driven by a net $1.4$785 million and $2.4 billion increase in senior debt.short-term and long-term borrowed funds, respectively.
Short-term borrowed funds
A summary of our short-termShort-term borrowed funds is presented below:
(in millions)September 30, 2019 December 31, 2018 Change
 Percent
Federal funds purchased
$600
 
$820
 
($220) (27%)
Securities sold under agreements to repurchase267
 336
 (69) (21)
Other short-term borrowed funds210
 161
 49
 30
Total short-term borrowed funds
$1,077
 
$1,317
 
($240) (18%)
The net increase in other short-term borrowed fundsas of $49March 31, 2020 increased $785 million resulted from December 31, 2019 driven by an increase in short-term FHLB advances.
Our advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and securities at least sufficientfederal funds purchased used to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $8.4 billion and $13.0 billion at September 30, 2019 and December 31, 2018, respectively. Our remaining available FHLB borrowing capacity was $9.3 billion and $4.8 billion at September 30, 2019 and December 31, 2018, respectively. We can also borrow from the FRB discount window to meetmanage short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At September 30, 2019, our unused secured borrowing capacity was approximately $42.8 billion, which included unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
Key data related to short-term borrowed funds is presented below:
 As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30, As of and for the Year Ended December 31,
(dollars in millions)2019
 2018
 2019
 2018
 2018
Weighted-average interest rate at period-end:(1)
         
Federal funds purchased and securities sold under agreements to repurchase1.47% —% 1.47% —% 1.72%
Other short-term borrowed funds2.15
 2.43
 2.15
 2.43
 2.73
Maximum amount outstanding at any month-end during the period:         
Federal funds purchased and securities sold under agreements to repurchase(2)

$867
 
$382
 
$1,499
 
$1,045
 
$1,282
Other short-term borrowed funds338
 1,010
 511
 1,110
 1,110
Average amount outstanding during the period:         
Federal funds purchased and securities sold under agreements to repurchase(2)

$487
 
$643
 
$648
 
$598
 
$654
Other short-term borrowed funds113
 748
 72
 509
 467
Weighted-average interest rate during the period:(1)
         
Federal funds purchased and securities sold under agreements to repurchase1.19% 0.91% 1.45% 0.76% 0.92%
Other short-term borrowed funds2.46
 2.27
 2.58
 2.00
 2.10
(1) Rates exclude certain hedging costs.
(2) Balances are net of certain short-term receivables associated with reverse repurchase agreements,needs as applicable.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
commercial line draws increased during the quarter.



Long-term borrowed funds
AThe following table presents a summary of our long-term borrowed funds is presented below:funds:
(in millions)September 30, 2019 December 31, 2018
Parent Company:   
2.375% fixed-rate senior unsecured debt, due July 2021
$349
 
$349
4.150% fixed-rate subordinated debt, due September 2022348
 348
3.750% fixed-rate subordinated debt, due July 2024250
 250
4.023% fixed-rate subordinated debt, due October 202442
 42
4.350% fixed-rate subordinated debt, due August 2025249
 249
4.300% fixed-rate subordinated debt, due December 2025750
 749
2.850% fixed-rate senior unsecured notes, due July 2026496
 —
Banking and Other Subsidiaries:   
2.500% senior unsecured notes, due March 2019 (1)
—
 748
2.450% senior unsecured notes, due December 2019 (1)
749
 744
2.250% senior unsecured notes, due March 2020 (1)
699
 691
2.678% floating-rate senior unsecured notes, due March 2020 (1) (2)
300
 300
2.714% floating-rate senior unsecured notes, due May 2020 (1) (2)
250
 250
2.200% senior unsecured notes, due May 2020 (1)
500
 499
2.250% senior unsecured notes, due October 2020 (1)
749
 738
2.550% senior unsecured notes, due May 2021 (1)
990
 964
3.250% senior unsecured notes, due February 2022 (1)
713
 —
2.895% floating-rate senior unsecured notes, due February 2022 (1) (2)
299
 —
2.954% floating-rate senior unsecured notes, due May 2022 (1) (2)
250
 249
2.650% senior unsecured notes, due May 2022 (1)
502
 487
3.700% senior unsecured notes, due March 2023 (1) 
518
 502
3.054% floating-rate senior unsecured notes, due March 2023 (1) (2)
250
 249
3.750% senior unsecured notes, due February 2026 (1)
529
 —
Federal Home Loan Bank advances, 2.425% weighted average rate, due through 20383,007
 7,508
Other17
 9
Total long-term borrowed funds
$12,806
 
$15,925
(in millions)March 31, 2020 December 31, 2019
Parent Company:   
2.375% fixed-rate senior unsecured debt, due July 2021
$350
 
$349
4.150% fixed-rate subordinated debt, due September 2022348
 348
3.750% fixed-rate subordinated debt, due July 2024250
 250
4.023% fixed-rate subordinated debt, due October 202442
 42
4.350% fixed-rate subordinated debt, due August 2025249
 249
4.300% fixed-rate subordinated debt, due December 2025750
 750
2.850% fixed-rate senior unsecured notes, due July 2026496
 496
2.500% fixed-rate senior unsecured notes, due February 2030298
 —
CBNA’s Global Note Program:   
2.250% senior unsecured notes, due March 2020—
 700
2.678% floating-rate senior unsecured notes, due March 2020 (1)
—
 300
2.217% floating-rate senior unsecured notes, due May 2020 (1)
250
 250
2.200% senior unsecured notes, due May 2020500
 500
2.250% senior unsecured notes, due October 2020753
 750
2.550% senior unsecured notes, due May 20211,005
 991
3.250% senior unsecured notes, due February 2022724
 711
2.424% floating-rate senior unsecured notes, due February 2022 (1)
299
 299
2.457% floating-rate senior unsecured notes, due May 2022 (1)
250
 250
2.650% senior unsecured notes, due May 2022514
 501
3.700% senior unsecured notes, due March 2023532
 515
2.325% floating-rate senior unsecured notes, due March 2023 (1)
249
 249
3.750% senior unsecured notes, due February 2026555
 521
Additional Borrowings by CBNA and Other Subsidiaries:   
Federal Home Loan Bank advances, 0.56% weighted average rate, due through 20388,007
 5,008
Other16
 18
Total long-term borrowed funds
$16,437
 
$14,047
(1)Issued under CBNA’s Global Bank Note Program.
(2) Rate disclosed reflects the floating rate as of September 30, 2019.March 31, 2020 or final floating rate, as applicable.
Long-term borrowed funds as of September 30, 2019 decreased $3.1March 31, 2020 increased $2.4 billion fromfrom December 31, 2018,2019, reflecting a decreasean increase of $4.5$3.0 billion in long-term FHLB borrowings, partially offset by seniora $1.0 billion reduction in CBNA unsecured notes issued by CBNAmaturing during the first half of 2019.quarter.
The Parent Company’s long-term borrowed funds as of September 30, 2019March 31, 2020 and December 31, 20182019 included principal balances of $2.5$2.8 billion and $2.0$2.5 billion respectively, and unamortized deferred issuance costs and/or discounts of ($7)9) million and ($5)8) million, respectively. The bankingCBNA and other subsidiaries’ long-term borrowed funds as of September 30, 2019March 31, 2020 and December 31, 20182019 included principal balances of $10.3$13.5 billion and $14.0$11.5 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($15)10) million and ($14)13) million, respectively, and hedging basis adjustments of $62$141 million and ($66)$50 million, respectively. See Note 9 for further information about our hedging of certain long-term borrowed funds. For information regarding our liquidity and available borrowing capacity, see “—Liquidity” and Note 8.
CAPITAL AND REGULATORY MATTERS
As a bank holding company and a financial holding company, we are subject to regulation and supervision by the FRB. Our banking subsidiary, CBNA, is a national banking association whose primary federal regulator is the OCC. Our regulation and supervision continues to evolve as the legal and regulatory frameworks governing our operations continue to change. The current operating environment reflects heightened regulatory expectations around consumer compliance, the Bank Secrecy Act, anti-money laundering compliance, and increased internal audit activities, among other areas.factors. For more information, see the “Regulation and Supervision” in our 20182019 Form 10-K.

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

Dodd-Frank Act
The Dodd-Frank Act regulates many aspectsTailoring of the financial services industry and addresses among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, derivatives and securities markets, restrictions on an insured bank’s transactions with its affiliates, lending limits and mortgage lending practices.
In light of the EGRRCPA amendments to the Dodd Frank Act and subsequent tailoring Notices of Proposed Rulemaking, the FRB provided us relief in a February 5, 2019 letter from all regulatory requirements, including disclosure requirements, related to supervisory stress testing and company-run stress testing for the 2019 stress test cycle and provided related relief from certain capital planning and regulatory reporting requirements that would otherwise apply in the 2019 stress test cycle. In addition, we were not required to submit a capital plan to the FRB for 2019 or participate in the 2019 CCAR. We remain subject to the requirement to develop and maintain an annual capital plan that is reviewed and approved by our Board of Directors (or one of its committees) and the FRB has not objected to our maximum planned capital actions for the period beginning July 1, 2019 and ending June 30, 2020. For this four-quarter period ending June 30, 2020, the FRB has not objected to capital distributions up to the amount that would have allowed us to remain above all minimum capital requirements in 2018 CCAR, adjusted for any changes in our regulatory capital ratios since the FRB acted on our 2018 capital plan. On June 27, 2019, our Board of Directors authorized common share repurchases of up to $1.275 billion over the four-quarter period beginning July 1, 2019. The timing and exact amount of future share repurchases will depend on various factors, including capital position, financial performance and market conditions.Prudential Requirements
In October 2019, the FRB and the other banking regulators finalized rules (the “October 2019 Final Rules”) that establish a revised framework for applyingtailor the application of the enhanced prudential standards to large U.S. banking organizations based on risk, consistent withbank holding companies and depository institutions to implement the ongoing effortsEGRRCPA amendments to tailor the regulatory framework in a manner consistent with the EGRRCPA.Dodd-Frank Act (“Tailoring Rules”). Concurrently, the FRB jointly with the OCC and the FDIC,other banking regulators finalized the regulatory capital, liquidity and resolution plan requirements to firms with more than $100 billion in total assets. Category IV firms with $100 billion to $250 billion in total assets, such as us, will be subject to biennial supervisory stress-testing and will be exempt from the Dodd-Frank Act company-run stress testing and related disclosure requirements. The FRB will continue to supervise Category IV firms on an ongoing basis, including evaluation of the capital adequacy and capital planning processes during off-cycle years.
Section 165(d) of the Dodd-Frank Act and the November 2011 resolution plan rule require certain financial companies to report periodically a resolution plan to the FRB and FDIC providing for the company’s strategy for rapid and orderly resolution in the event of its material financial distress or failure. EGRRCPA revised the resolution planning requirement, whereby it raised the $50 billion minimum asset threshold for general application of the resolution planning requirement to $250 billion in total consolidated assets, and provided the FRB with the discretion to apply the resolution planning requirement to firms with $100 billion or more and less than $250 billion in total consolidated assets. In accordance with the October 2019 Final Rules, Category IV institutions, such as us,firms are also no longer required to submit resolution plans. For more information, see the “Tailoring of Prudential Requirements” and “Resolution Planning” in our 2019 Form 10-K.
In light of the Tailoring Rules, the FRB provided us relief in February 2019 from certain regulatory requirements related to supervisory stress testing, company-run stress testing, and related disclosure requirements for the 2019 stress test cycle. As a 165(d) Resolution Plan.
Underresult, we were not required to participate in the Federal Deposit Insurance Act, the FDIC has separately implemented a resolution planning rule that currently requires insured depository institutionssupervisory stress test of $50 billionCCAR, conduct company-run stress tests, or more in total assets, such as CBNA, to periodically submit a resolution plan. CBNA submitted its most recent resolutioncapital plan to the FDICFRB for 2019. We remain subject to the requirement to develop and maintain an annual capital plan that is reviewed and approved by our Board of Directors (or one of its committees), as well as FR Y-14 reporting requirements. The FRB has not objected to our maximum planned capital actions for the period beginning July 1, 2019 and ending June 30, 2020, which are largely based on the results for our 2018 supervisory stress test, adjusted for any changes in our regulatory capital ratios since the FRB acted on our 2018 capital plan. On June 27, 2019, our Board of Directors authorized common share repurchases of up to $1.275 billion over the four-quarter period beginning July 2018. 1, 2019. On April 22,17, 2020, we announced that in order to ensure capital remains strong to meet further loan demand during the COVID-19 crisis, we would cease stock repurchases through December 31, 2020. On April 6, 2020, we submitted our 2020 capital plan to the FRB.
On March 4, 2020, the FRB finalized a rule that simplifies capital rules for large banks and establishes a stress capital buffer (“SCB”) requirement. The final rule integrates regulatory capital requirements with the results of the FRB’s supervisory stress tests by replacing the capital conservation buffer, which is currently 2.5%, with the SCB. The SCB will be determined as the higher of either 2.5%, or the difference between the starting and the minimum projected CET1 capital ratio under the severely adverse scenario as modeled by the FRB as part of the supervisory stress testing framework. The SCB will include four quarters of planned dividends for each bank on top of the FRB-modeled losses. Under the SCB framework, the FRB will no longer object to capital plans on quantitative grounds and each firm will be required to maintain capital ratios above the sum of its minimum requirements and the SCB requirements to avoid restrictions on capital distributions and discretionary bonus payments. The SCB will be re-calibrated with each CCAR supervisory stress test (annually for Category I, II and III firms, and every other year for Category IV firms, such as us) and will be effective on October 1 of each year through September 30 of the following year. The first SCB requirement goes into effect on October 1, 2020 and will apply to our capital actions over the four-quarter period beginning October 1, 2020 through September 30, 2021. Capital actions for the transition quarter beginning July 1 through September 30, 2020 may not exceed the four-quarter average of capital distributions authorized by the FRB for the 2019 the FDIC published an Advance Notice of Proposed Rulemaking concerning how to tailor and improve its rule requiring certain insured depository institutions to submit resolution plans.capital plan cycle.
Many of the provisions of the EGRRCPA and other laws are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. The ultimate effects of EGRRCPA and the Tailoring Rules on us and our activities will be subject to any additional rule making issued by the FRB and other federal regulators. We will continue to evaluate the impact of any changes in law and any new regulations promulgated, including changes in regulatory costs and fees, modifications to consumer products or disclosures required by the CFPB and the requirements of the enhanced supervision provisions, among others.
For additional discussion of the Dodd-Frank ActEGRRCPA and EGRRCPA requirements and their related application,the Tailoring Rules, see “Regulation and Supervision” and “—Capital and Regulatory Matters” in our 20182019 Form 10-K.
Capital Framework
Under the current U.S. Basel III capital framework, we and our banking subsidiary must meet the following specific minimum requirements: CET1 capital ratio of 4.5%, tier 1 capital ratio of 6.0%, total capital ratio of 8.0%, and tier 1 leverage ratio of 4.0%. A capital conservation buffer (“CCB”) of 2.5% is imposed on top of the three minimum risk-based capital ratios listed above.
In July 2019, the FRB and the other federal banking regulators issued a final rule to simplify regulatory capital treatment for MSRs, certain deferred tax assets arising from temporary differences (“DTAs”)DTAs and significant investments in the capital of unconsolidated financial institutions, pursuant to EGRRCPA. Effective for us on April 1, 2020, the final rule will result in a change to the individual CET1

deduction threshold for these assets from 10% to 25%, elimination ofeliminate the aggregate deduction threshold for these assets of 15%, assignment ofassign a 250% risk weight for any MSRs or DTAs not deducted from CET1 capital, and assignment ofassign an exposure category risk weight for investments in the capital of unconsolidated financial institutions not deducted from CET1 capital.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

AOn March 31, 2020, in response to the COVID-19 pandemic, the FRB and the other federal banking regulators issued an interim final rule relative to regulatory capital conservation buffer (“CCB”) is imposedtreatment of ACL under CECL. This rule allowed banking organizations to delay the estimated impact of CECL on topregulatory capital for a two-year period ending January 1, 2022, followed by a three-year transition period ending January 1, 2025 to phase-in the aggregate amount of the following three minimum risk-based capital ratios: CET1 capital, tier 1 capital and total capital. As of January 1, 2019,benefit provided during the CCB reached its fully phased-in level of 2.5%. On April 10, 2018, the FRB issued a proposal designed to create a single, integrated capital requirement by combining the quantitative assessment of firms’ capital plans with the CCB requirement. If adopted, the proposal would change the way in which the minimum risk capital ratios are calculated by replacing the current static 2.5% CCB with a stress capital buffer requirement.initial two-year delay.
For additional discussion of the U.S. Basel III capital framework and its related application, see “RegulationRegulation and Supervision” in our 20182019 Form 10-K. The table below presents our actual regulatory capital ratios under the U.S. Basel III Standardized rules:
Actual
Required Minimum plus Required CCB for Non-Leverage Ratios(1)(2)
March 31, 2020 December 31, 2019
Required Minimum plus Required CCB for Non-Leverage Ratios(1)
(in millions, except ratio data)AmountRatioAmountRatio AmountRatio
September 30, 2019
CET1 capital
$14,416
10.3%7.0%
$14,007
9.4% 
$14,304
10.0%7.0%
Tier 1 capital15,549
11.1
8.5
15,577
10.5
 15,874
11.1
8.5
Total capital18,237
13.0
10.5
18,592
12.5
 18,542
13.0
10.5
Tier 1 leverage15,549
9.9
4.0
15,577
9.6
 15,874
10.0
4.0
Risk-weighted assets140,136
 148,946
  142,915
 
Quarterly adjusted average assets156,355
 161,715
  158,782
 
December 31, 2018
CET1 capital
$14,485
10.6%6.4%
Tier 1 capital15,325
11.3
7.9
Total capital18,157
13.3
9.9
Tier 1 leverage15,325
10.0
4.0
Risk-weighted assets136,202
 
Quarterly adjusted average assets153,026
 
(1) Required “Minimum Capital ratio” for 2019 and 2018ratios” are: Common equity tier 1CET1 capital of 4.5%; Tier 1 capital of 6.0%; Total capital of 8.0%; and Tier 1 leverage of 4.0%.
(2) “Minimum “Minimum Capital ratio” includesratios” also include a capital conservation buffer of 2.500% for 2019 and 1.875% for 2018;2.5%; N/A to Tier 1 leverage.

At September 30, 2019,March 31, 2020, our CET1 capital, tier 1 capital and total capital ratios were 10.3%9.4%, 11.1%10.5% and 13.0%12.5%, respectively, as compared with 10.6%10.0%, 11.3%11.1%, and 13.3%13.0%, respectively, as of December 31, 2018.2019. The CET1 capital ratio decreased as $3.9$6.0 billion of risk-weighted asset (“RWA”) growth and the impact of the capital actions described in “—Capital Transactions” below and an increase in goodwill and intangibles related to Acquisitions, were partially offset by net income for the ninethree months ended September 30, 2019.March 31, 2020 and 25% of the increase in AACL subsequent to CECL adoption. The tier 1 capital ratio decreased as thedue to changes in the CET1 capital ratio were partially offset by the issuance of preferred stock as described further in “—Capital Transactions” below.CET1. The total capital ratio decreased due to the changes in CET1 partially offset by the net change in AACL attributable to CECL adoption and tier 1 capital ratios and an increase in non-qualifying subordinated debt.the modified transition amount. At September 30, 2019,March 31, 2020, our CET1 capital, tier 1 capital and total capital ratios were 330approximately 240 basis points, 260200 basis points and 250200 basis points, respectively, above their regulatory minimums plus the capital conservation buffer. All ratios remained well above the U.S. Basel III minima.
Regulatory Capital Ratios and Capital Composition
CET1 capital under U.S. Basel III Standardized rules totaled $14.4$14.0 billion at September 30, 2019, and decreased $69March 31, 2020, a decrease of $297 million from $14.5$14.3 billion at December 31, 2018, due to2019, largely driven by common share repurchases dividends and an increase in goodwill and intangibles related to Acquisitionsdividends, partially offset by net income for the ninethree months ended September 30, 2019.March 31, 2020 and 25% of the increase in AACL subsequent to CECL adoption. Tier 1 capital at September 30, 2019March 31, 2020 totaled $15.5$15.6 billion, reflecting a $224$297 million increasedecrease from $15.3$15.9 billion at December 31, 2018,2019, driven by the changes in CET1 capital. Total capital of $18.6 billion at March 31, 2020, increased $50 million from December 31, 2019, driven by the changes in CET1 capital, which was more than offset by the net change in AACL attributable to the adoption of CECL adoption and the issuance of preferred stock. At September 30, 2019, we had $1.1 billion of fixed-to-floating non-cumulative perpetual preferred stock issued and outstanding, an increase of $293 million from $840 million at December 31, 2018, given the first quarter 2019 issuance of 300,000 shares of Series D Preferred Stock that qualified as additional tier 1 capital. Total capital of $18.2modified transition amount.
RWA totaled $148.9 billion at September 30, 2019, increased $80 million from DecemberMarch 31, 2018, driven by the changes in CET1 and tier 1 capital and an increase in non-qualifying subordinated debt.
RWA totaled $140.1 billion at September 30, 2019,2020, based on U.S. Basel III Standardized rules, up $3.9$6.0 billion from December 31, 2018. The2019. This increase was driven by growth in retail loans, including education, residential mortgages, and loans held for salethe net impact of higher commercial commitment utilization as well asa result of the COVID-19 pandemic, higher derivative valuations, the creation of a right-of-use asset in conjunction with the adoption of ASU 2016-02, Leases (Topic 842), commercial commitments,education loans and growth in multi-family loans. The increase in RWA was also driven by market risk RWA, as we met the reporting threshold prescribed
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

by Market Risk Capital Guidelines. The increases were partiallyCRE loans, offset by a decrease in commercial loans and run-off in the home equity portfolio.lower HVCRE loans.
As of September 30, 2019,March 31, 2020, the tier 1 leverage ratio was 9.9%9.6%, reflecting a decrease of seven basis pointsdecreasing from 10.0% at December 31, 2018. The decrease was2019 driven by the change in tier 1 capital level noted above, which was more than offset by a $3.3$2.9 billion increase in quarterly adjusted average assets.assets and lower tier 1 capital.

The following table presents our capital composition under the U.S. Basel III capital framework:
(in millions)September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Total common stockholders’ equity
$20,718
 
$19,977
Total common shareholders' equity20,380
 20,631
Exclusions:(1)
      
Net unrealized losses recorded in accumulated other comprehensive income, net of tax:   
Modified CECL transitional amount453
 —
Net unrealized (gains)/losses recorded in accumulated other comprehensive income (loss), net of tax:   
Debt and equity securities(14) 490
(401) (1)
Derivatives—
 143
(96) (3)
Unamortized net periodic benefit costs454
 463
412
 415
Deductions:      
Goodwill(7,044) (6,923)(7,050) (7,044)
Deferred tax liability associated with goodwill373
 366
375
 374
Other intangible assets(71) (31)(66) (68)
Total common equity tier 114,416
 14,485
14,007
 14,304
Qualifying preferred stock1,133
 840
1,570
 1,570
Total tier 1 capital15,549
 15,325
15,577
 15,874
Qualifying subordinated debt(2)
1,380
 1,499
Allowance for loan and lease losses1,263
 1,242
Allowance for credit losses for off-balance sheet exposure45
 91
Qualifying subordinated debt(1)
1,372
 1,372
Allowance for credit losses2,210
 1,296
Exclusions from tier 2 capital:   
Modified AACL transitional amount(567) —
Adjusted allowance for credit losses(2)
1,643
 1,296
Total capital
$18,237
 
$18,157

$18,592
 
$18,542
(1)As a U.S. Basel III Standardized approach institution, we selected the one-time election to opt-out of the requirements to include all the components of AOCI.
(2) As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the amount of non-qualifying subordinated debt excluded from regulatory capital was $258 million$267 million.
(2) Excludes allowances on purchased credit-deteriorated assets and $139 million, respectively.AFS debt securities.
Capital Adequacy Process
Our assessment of capital adequacy begins with our risk appetite and risk management framework. This framework provides for the identification, measurement and management of material risks. There have been no significant changes to our capital adequacy risk appetite and risk management framework as described in “—Capital and Regulatory Matters” in our 20182019 Form 10-K.
Capital Transactions
TheWe completed the following capital actions were completed by the Company during the ninethree months ended September 30, 2019:March 31, 2020:
•
Issued $300 million, or 300,000 shares, of 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock (the “Series D Preferred Stock”), par value of $25.00 per share with a liquidation preference of $1,000 per share, with net proceeds of $293 million;
•
Declared and paid quarterly common stock dividends of $0.32$0.39 per share for first and second quarters and $0.36 per share for third quarter of 2019,2020, aggregating to $459168 million;
•
Declared a semi-annual dividend of $27.50$27.50 per share on the 5.500% fixed-to-floating rate non-cumulative perpetual Series A Preferred Stock, aggregating to $14 million;
•
Declared a semi-annual dividend of $30.00 per share on the 6.000% fixed-to-floating rate non-cumulative perpetual Series B Preferred Stock, aggregating to $97 million;
•
Declared quarterly dividends of $15.94$15.94 per share for the first second, and third quartersquarter of 20192020 on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to $145 million;
•
Declared quarterly dividends of $11.82$15.88 per share for the first quarter of 2019 and $15.882020 per share for the second and third quarters of 2019 on the 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, aggregating to $135 million;
•
Declared quarterly dividends of $12.50 per share for first quarter of 2020 on the 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, aggregating to $5 million; and
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

•
Repurchased $820270 million of our outstanding common stock.



Banking SubsidiarySubsidiary’s Capital
The following table presents our banking subsidiary’sCBNA’s capital ratios under U.S. Basel III Standardized rules:
 September 30, 2019 December 31, 2018
(dollars in millions, except ratio data)Amount
Ratio
 Amount
Ratio
Citizens Bank, National Association     
CET1 capital
$15,357
11.0% 
$11,994
10.6%
Tier 1 capital15,357
11.0
 11,994
10.6
Total capital17,696
12.7
 14,252
12.5
Tier 1 leverage15,357
9.8
 11,994
9.9
Risk-weighted assets139,849
  113,610
 
Quarterly adjusted average assets155,988
  121,686
 

 March 31, 2020 December 31, 2019
(dollars in millions, except ratio data)Amount
Ratio
 Amount
Ratio
CET1 capital
$15,472
10.4% 
$15,610
11.0%
Tier 1 capital15,472
10.4
 15,610
11.0
Total capital18,102
12.2
 17,937
12.6
Tier 1 leverage15,472
9.6
 15,610
9.9
Risk-weighted assets148,603
  142,555
 
Quarterly adjusted average assets161,288
  158,391
 
CBNA’s CET1 capital totaled $15.4$15.5 billion at September 30, 2019, up $3.4 billionMarch 31, 2020, down $138 million from $12.0$15.6 billion at December 31, 2018.2019. The increasedecrease was primarily driven by dividends paid to the net impact of the merger of Citizens Bank of Pennsylvania (“CBPA”) into CBNA effective January 2, 2019, andParent Company partially offset by net income for the ninethree months ended September 30, 2019. The increase was partially offset by dividend payments toMarch 31, 2020 and 25% of the Parent Company and an increase in goodwill and intangibles relatedAACL subsequent to Acquisitions.CECL adoption. Total capital was $17.7$18.1 billion at September 30, 2019,March 31, 2020, an increase of $3.4 billion$165 million from $14.3$17.9 billion at December 31, 2018,2019, driven by the change in CET1 capital an increase in ACL, primarily attributable to the merger and slightly offset by an increase in non-qualifying subordinated debt.debt, which was more than offset by the net change in AACL attributable to the adoption of CECL adoption and the modified transition amount.
CBNA’s RWA totaled $139.8$148.6 billion at September 30, 2019, an increase of $26.2March 31, 2020, up $6.0 billion from December 31, 2018,2019, driven by approximately $22 billion resulting from the mergernet impact of CBPA into CBNA. In addition,higher commercial commitment utilization as a result of the increase in RWA was driven by growth in retail loans, including education, residential mortgages, and loans held for sale as well asCOVID-19 pandemic, higher derivative valuations, the creation of a right-of-use asset in conjunction with the adoption of ASU 2016-02, Leases (Topic 842), commercial commitments,education loans and growth in multi-family loans. The increase in RWA was also driven by market risk RWA, as we met the reporting threshold prescribed by Market Risk Capital Guidelines. The increases were partiallyCRE loans, offset by a decrease in commercial loans and run-off in the home equity portfolio.lower HVCRE loans.
As of September 30, 2019,March 31, 2020, CBNA’s tier 1 leverage ratio decreased one basis point to 9.8%9.6% from 9.9% at December 31, 2018, primarily2019, driven by a $34.3the $2.9 billion increase in quarterly adjusted average assets that drove a 243 basis point decline in the ratio, partially offset by a $3.4 billion increase inand lower tier 1 capital that drove a 242 basis point increase in the ratio. These movements were primarily attributable to the merger of CBPA into CBNA.capital.
LIQUIDITY
Liquidity is defined as our ability to meet our cash-flow and collateral obligations in a timely manner, at a reasonable cost. An institution must maintain operating liquidity to meet its expected daily and forecasted cash-flow requirements, as well as contingent liquidity to meet unexpected (stress scenario) funding requirements. As noted earlier, reflecting the importance of meeting all unexpected and stress-scenario funding requirements, we identify and manage contingent liquidity (consisting of cash balances at the FRB, unencumbered high-quality and liquid securities, and unused FHLB borrowing capacity). Separately, we also identify and manage asset liquidity as a subset of contingent liquidity (consisting of cash balances at the FRB and unencumbered high-quality securities). We consider the effective and prudent management of liquidity to be fundamental to our health and strength. We manage liquidity at the consolidated enterprise level and at each material legal entity, including at the Parent Company and CBNA level.
Parent Company Liquidity
Our Parent Company’s primary sources of cash are (i) dividends and interest received from CBNA as a result of investing in bank equity and subordinated debt and (ii) externally issued preferred stock as well as senior and subordinated debt. Uses of cash include the following: (i) routine cash flow requirements as a bank holding company, including periodic share repurchases and payments of dividends, interest and expenses; (ii)the needs of subsidiaries, including CBNA, for additional equity and, as required, its need for debt financing; and (iii)the support for extraordinary funding requirements when necessary. To the extent that the Parent Company has relied on wholesale borrowings, uses also include payments of related principal and interest.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

On April 30, 2020, the Parent Company issued $750 million in ten-year 3.25% fixed-rate senior notes.
On January 29, 2019,February 6, 2020, the Parent Company issued $300 million or 12,000,000 depositary shares, each representing a 1/40th interest in a share of its 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). For further information, see Note 11.
On July 25, 2019, the Parent Company issued $500 million in seven-year 2.850%ten-year 2.500% fixed-rate senior notes.
On October 28, 2019, the Parent Company issued $450 million, or 18,000,000 depositary shares, each representing a 1/40th interest in a share of its 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). For further information, see Note 11.
During the three months ended September 30,March 31, 2020 and 2019, and 2018, the Parent Company declared dividends on common stock of $162$168 million and $129$149 million, respectively, and declared dividends on preferred stock of $17$22 million and $7$15 million, respectively. During the nine months ended September 30, 2019 and 2018, the Parent Company declared dividends on common stock of $459 million and $344 million, respectively, and declared dividends on preferred stock of $50 million and $14 million, respectively.
During the three months ended September 30, 2019 and 2018, the Parent Company repurchased $500 million and $400 million of its outstanding common stock, respectively. During the nine months ended September 30, 2019 and 2018, the Parent Company repurchased $820 million and $725 million of its outstanding common stock, respectively.
Our Parent Company’s cash and cash equivalents represent a source of liquidity that can be used to meet various needs and totaled $1.3$1.5 billion as of September 30, 2019March 31, 2020 compared with $911 million$1.4 billion as of December 31, 2018.2019. The Parent Company’s double-leverage ratio (the combined equity investment in Parent Company subsidiaries divided

by Parent Company equity) is a measure of reliance on equity cash flows from subsidiaries to fund Parent Company obligations. At September 30, 2019,March 31, 2020, the Parent Company’s double-leverage ratio was 99.7%100.1%.
CBNA Liquidity
In the ordinary course of business, the liquidity of CBNA is managed by matching sources and uses of cash. The primary sources of bank liquidity include (i) deposits from our consumer and commercial customers; (ii) payments of principal and interest on loans and debt securities; and (iii) wholesale borrowings, as needed, and as described under “—Liquidity Risk Management and Governance.” The primary uses of bank liquidity include (i) withdrawals and maturities of deposits; (ii) payment of interest on deposits; (iii) funding of loans and related commitments; and (iv) funding of securities purchases. To the extent that CBNA has relied on wholesale borrowings, uses also include payments of related principal and interest. For further information on CBNA’s outstanding debt, see Note 8.
As CBNA’s major businesses involveprimary business involves taking deposits and making loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay wholesale borrowings, pay operating expenses and support extraordinary funding requirements when necessary.
On February 14, 2019,April 30, 2020, CBNA issued $1.5 billion in senior notes, consisting of $700$750 million in three-year 3.25%ten-year 2.25% fixed-rate notes, $300 million in three-year floating-rate notes, and $500 million in seven-year 3.75% fixed-ratesenior notes.
Liquidity Risk
We define liquidity risk as the risk that an entity will be unable to meet its payment obligations in a timely manner, at a reasonable cost. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.
Contingent liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.
Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity risk may be idiosyncratic or systemic, reflecting impediments to operations and/or damaged market confidence.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Factors Affecting Liquidity
Given the composition of assets and borrowing sources, contingent liquidity risk at CBNA would be materially affected by such events as deterioration of financing markets for high-quality securities (e.g., mortgage-backed securities and other instruments issued by the GNMA, FNMA and the FHLMC), by any inability of the FHLBs to provide collateralized advances and/or by a refusal of the FRB to act as lender of last resort in systemic stress.
Similarly, given the structure of its balance sheet, the funding liquidity risk of CBNA would be materially affected by an adverse idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or a combination of both. Consequently, and despite ongoing exposure to a variety of idiosyncratic and systemic events, we view our contingent liquidity risk and our funding liquidity risk to be relatively modest.

An additional variable affecting our access to unsecured wholesale market funds and to large denomination (i.e., uninsured) customer deposits is the credit ratings assigned by such agencies as Moody’s, Standard & Poor’s and Fitch. The following table presents our credit ratings:
  September 30, 2019March 31, 2020
  
Moody’s  
 
Standard and
Poor’s
 
Fitch  
 
 Citizens Financial Group, Inc.:     
 Long-term issuerNR BBB+ BBB+
 Short-term issuerNR A-2 F1
 Subordinated debtNR BBB BBB
 Preferred StockNR BB+ BB-
 Citizens Bank, National Association:     
 Long-term issuerBaa1 A- BBB+
 Short-term issuerNR A-2 F1
 Long-term depositsA1 NR A-
 Short-term depositsP-1 NR F1
 
 NR = Not rated
     
Changes in our public credit ratings could affect both the cost and availability of our wholesale funding. As a result, and in order to maintain a conservative funding profile, our banking subsidiaryCBNA continues to minimize reliance on unsecured wholesale funding. At September 30, 2019,March 31, 2020, our wholesale funding consisted primarily of secured borrowings from the FHLBs collateralized by high-quality residential mortgages, and term debt issued by the Parent Company and CBNA.
Existing and evolving regulatory liquidity requirements represent another key driver of systemic liquidity conditions and liquidity management practices. The FRB, the OCC, and the FDIC regularly evaluate our liquidity as part of the overall supervisory process. In addition we are subject to existing and evolving regulatory liquidity requirements, some of which are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. For further discussion, see “Regulation and Supervision — Financial Regulatory Reform”Tailoring of Prudential Requirements” and “—Liquidity Requirements” in our 20182019 Form 10-K.
The LCR was developed by the U.S. federal banking regulators to ensure banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. As of September 30, 2019, we remained fully compliant with the current LCR rule as a modified LCR financial institution. In accordance with the October 2019 Final Rules, Category IV institutions, such as us, will no longer be subject to the requirements of the LCR rule as of December 31, 2019.
Liquidity Risk Management and Governance
Liquidity risk is measured and managed by the Funding and Liquidity unit within our Treasury unit in accordance with policy guidelines promulgated by our Board and the Asset Liability Committee. In managing liquidity risk, the Funding and Liquidity unit delivers regular and comprehensive reporting, including current levels versus threshold limits for a broad set of liquidity metrics and early warning indicators, explanatory commentary relating to emerging risk trends and, as appropriate, recommended remedial strategies.
Our Funding and Liquidity unit’s primary goal is to deliver and otherwise maintain prudent levels of operating liquidity (to support expected and projected funding requirements), and contingent liquidity (to support unexpected
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

funding requirements resulting from idiosyncratic, systemic, and combination stress events, and regulatory liquidity requirements) in a timely manner from stable and cost-efficient funding sources.
We seek to accomplish this goal by funding loans with stable deposits; by prudently controlling dependence on wholesale funding, particularly short-term unsecured funding; and by maintaining ample available liquidity, including a contingent liquidity buffer of unencumbered high-quality loans and securities. As of September 30, 2019:March 31, 2020 total available liquidity was $39.6 billion, comprised of:
$2.7 billion in cash (defined as cash balance held at the FRB);
•
Core deposits continued to be our primary source of funding and our consolidated period end loan-to-deposit ratio, which excludes loans held for sale, was 94.5%;
•
Our cash position (which is defined as cash balance held at the FRB) totaled $2.020.7 billion;
•
Contingent liquidity was $31.8 billion, consisting of in unencumbered high-quality liquid securities of $20.5 billion, unused FHLB capacity of $9.3 billion, and our cash position of $2.0 billion. Asset liquidity (a component of contingent liquidity) was $22.5 billion consisting of our cash position of $2.0 billion and unencumbered high-quality liquid securities of $20.5 billion;securities;
•
Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured by non-mortgage commercial and retail loans and totaled $13.0 billion. Use of this borrowing capacity would be considered only during exigent circumstances; and
$4.0 billion in unused FHLB capacity; and
$12.2 billion in available discount window capacity (defined as available total borrowing capacity from the FRB based on identified non-mortgage commercial and retail loans collateral).
Core deposits continued to be our primary source of funding and our consolidated period end loans-to-deposits ratio, which excludes LHFS, was 95.5%.
For a summary of our sources and uses of cash by type of activity for the three months ended March 31, 2020 and 2019, see the Consolidated Statements of Cash Flows.

As of April 30, 2020, we increased total available liquidity to $58.7 billion, consisting of $4.5 billion in cash, $20.7 billion in unencumbered high-quality liquid securities, $9.3 billion in unused FHLB capacity, and $24.2 billion in available discount window capacity.
•
For a summary of our sources and uses of cash by type of activity for the nine months ended September 30, 2019 and 2018, see the Consolidated Statements of Cash Flows in Part I, Item 1 — Financial Statements, included in this Report.
The Funding and Liquidity unit monitors a variety of liquidity and funding metrics and early warning indicators and metrics, including specific risk thresholds limits. These monitoring tools are broadly classified as follows:
Current liquidity sources and capacities, including cash at the FRBs, free and liquid securities and available and secured FHLB borrowing capacity;
Liquidity stress sources, including idiosyncratic, systemic and combined stresses, in addition to evolving regulatory requirements; and
Current and prospective exposures, including secured and unsecured wholesale funding and spot and cumulative cash-flow gaps across a variety of horizons.
Further, certain of these metrics are monitored individually for CBNA and for our consolidated enterprise on a daily basis, including cash position, unencumbered securities, asset liquidity, and available FHLB borrowing capacity. In order to identify emerging trends and risks and inform funding decisions, specific metrics are also forecasted over a one-year horizon.
OFF-BALANCE SHEET ARRANGEMENTS
The following table presents our outstanding off-balance sheet arrangements. For further information, see Note 12.
(in millions)September 30, 2019 December 31, 2018 Change
 Percent
March 31, 2020 December 31, 2019 Change
 Percent
Commitments to extend credit
$70,825
 
$69,553
 
$1,272
 2%
$64,827
 
$72,743
 
($7,916) (11%)
Letters of credit2,148
 2,125
 23
 1
2,064
 2,190
 (126) (6)
Marketing rights33
 37
 (4) (11)
Risk participation agreements47
 19
 28
 147
106
 37
 69
 186
Loans sold with recourse32
 5
 27
 NM
49
 37
 12
 32
Marketing rights31
 33
 (2) (6)
Total
$73,085
 
$71,739
 
$1,346
 2%
$67,077
 
$75,040
 
($7,963) (11%)
CRITICAL ACCOUNTING ESTIMATES
Our unaudited interim Consolidated Financial Statements, which are included in this Report, are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish accounting policies and make estimates that affect amounts reported in our audited Consolidated Financial Statements.
An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on our unaudited interim Consolidated Financial Statements. Estimates are made using facts and
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. Our most significant accounting estimates relate to the determination of the ACL and the fair value of MSRs. For additional information regarding these accounting estimates and their related application,the fair value of MSRs, see “—Critical Accounting Estimates” in our 20182019 Form 10-K. No material
Allowance for Credit Losses
We reserve for expected credit losses on our loan and lease portfolio through the ALLL and for expected credit losses in our unfunded lending commitments through other liabilities. Collectively, the ALLL and reserves for expected credit losses in unfunded lending commitments are referred to as the ACL.
Changes in the ACL are reflected in net income through provision for credit losses. Changes in the credit risk profile of our loans and leases result in changes in provision expense with a resulting change, net of charge-offs and recoveries, in the ACL balance.
The ACL is often the most critical of all the accounting estimates for banking institutions like us. The ACL is maintained at a level we believe to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolios and on the unfunded lending commitments. Our determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments that are not

unconditionally cancelable considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information.
Key assumptions used in our ACL measurement process include the use of a two-year reasonable and supportable economic forecast period followed by a one-year period during which the expected credit losses revert to long-term historical macroeconomic inputs.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are grouped generally by product type (e.g., commercial, commercial real estate, residential mortgage, etc.), and significant loan portfolios are assessed for credit losses using econometric models. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to change, sometimes materially and rapidly.
The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast and is primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current PD, LGD and EAD (for commercial loans and leases), timing and amount of expected draws (for unfunded lending commitments), mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amounts and timing of expected future cash flows, and factors particular to a specific commercial credit such as competition, business and management performance. Forward-looking economic assumptions include real gross domestic product, unemployment rate, interest rate curve, and changes in collateral values. This data is aggregated to estimate expected credit losses over the contractual life of the loans and leases, adjusted for expected prepayments. In highly volatile economic environments historical information, such as commercial customer financial statements or consumer credit ratings, may not be as important to estimating future expected losses as forecasted inputs to the models.
The ACL may also be affected materially by a variety of qualitative factors that we consider to reflect our current judgment of various events and risks that are not measured in our statistical procedures including uncertainty related to the economic forecasts used in the modeled credit loss estimates, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The qualitative allowance for economic forecast risk is further informed by multiple alternative scenarios to arrive at a composite scenario supporting the period-end ACL balance. We recognize that this approach may not be suitable in certain economic environments and differing analysis may be requested at management’s discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events could lead to revision of reserves to reflect management’s best estimate of expected credit losses.
The measurement process results in specific or pooled allowances for loans, leases and unfunded lending commitments, and qualitative allowances that are judgmentally determined and applied across the portfolio.
There are certain loan portfolios that may not need an econometric model to enable us to calculate management’s best estimate of the expected credit losses. Less data intensive, non-modeled approaches to estimating losses are considered more efficient and practical for portfolios that have lower levels of outstanding balances (e.g., runoff or closed portfolios, new products or products that are not significant to our overall credit risk exposure).
The ACL is established in accordance with our credit reserve policies, as approved by the Audit Committee of the Board of Directors. The Chief Financial Officer and Chief Risk Officer review the adequacy of the ACL each quarter, together with our risk management team. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the ACL.    
The significant increase in our estimated ACL as of March 31, 2020 as compared to our January 1, 2020 estimate was driven by the COVID-19 pandemic and the resulting economic impacts, with a total reserve build of $463 million and an ending balance of $2.2 billion.
To determine our ACL as of March 31, 2020, we utilized the Moody’s March 27th Baseline forecast to integrate the effects of COVID-19 in our loss estimates. Estimated Losses were madeadjusted for the expected benefit of COVID-19-related fiscal and monetary stimulus measures and the expected beneficial impacts of our own customer assistance actions. These actions include forbearance and other customer accommodation efforts encouraged by the CARES Act and regulatory interagency guidance that we believe will stabilize credit profiles in both our commercial and consumer portfolios.

The economic forecast risk component of our qualitative reserve was informed by a composite economic scenario approach utilizing the Moody’s March 27th Baseline scenario as the most likely outcome and two less likely outcomes - an alternate Moody’s pandemic scenario and an internally generated pandemic scenario. All scenarios assumed a deep recession in the second quarter 2020 with significantly declining GDP and elevated unemployment followed by a strong recovery in the second half of 2020. We continue to these critical accounting policiesmonitor the impact of the COVID-19 pandemic and related policy measures on the economy and, if the depth of the recession or estimates duringpace and vigor of the nine months ended September 30, 2019.expected recovery is worse than expected, further meaningful provisions could be required.
To provide context regarding the potential for other more pessimistic scenarios, our ACL balance of $2.2 billion represents 55% of the losses projected in the Federal Reserve’s 2018 DFAST Supervisory Adverse scenario which forecasted more protracted unemployment and GDP declines than what we assumed as of March 31, 2020. In addition, the ACL represents 33% of the $6.8 billion of projected losses in the 2018 DFAST Supervisory Severely Adverse scenario which forecasted even deeper and more protracted unemployment and GDP declines. Note that neither DFAST scenario considered impacts from company forbearance and customer accommodation efforts, or government fiscal and monetary stimulus measures. Finally, compared to our more recent April 2020 CCAR submission, our ACL balance represents approximately 45% of the nine-quarter projected losses under the 2020 Federal Reserve Severely Adverse scenario. Similar to the 2018 DFAST results, this scenario does not consider the positive impacts from government stimulus programs or company forbearance and customer accommodation efforts.
For additional information regarding the ALLL and reserve for unfunded lending commitments, see Note 1 and Note 4 in Item 1.
RISK GOVERNANCE
We are committed to maintaining a strong, integrated, and proactive approach to the management of all risks to which we are exposed in pursuit of our business objectives. A key aspect of our Board’s responsibility as the main decision making body is setting our risk appetite to ensure that the levels of risk that we are willing to accept in the attainment of our strategic business and financial objectives are clearly understood.
To enable our Board to carry out its objectives, it has delegated authority for risk management activities, as well as governance and oversight of those activities, to a number of Board and executive management level risk committees. The Executive Risk Committee (“ERC”), chaired by the Chief Risk Officer, is responsible for oversight of risk across the enterprise and actively considers our inherent material risks, analyzes our overall risk profile and seeks confirmation that the risks are being appropriately identified, assessed and mitigated. Reporting to the ERC are the following additional committees covering specific areas of risk: Compliance and Operational Risk Committee, Model Risk Committee, Credit Policy Committee, Asset Liability Committee, Business Initiatives Review Committee, and the Conduct and Ethics Committee.
There have been no significant changes in our risk governance practices, risk framework, risk appetite, or credit risk as described in “—Risk Governance” in our 20182019 Form 10-K.
MARKET RISK
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and/or other relevant market rates or prices. Modest market risk arises from trading activities that serve customer needs, including hedging of interest rate and foreign exchange risk. As described below, more material market risk arises from our non-trading banking activities, such as loan origination and deposit-gathering. We have established enterprise-wide policies and methodologies to identify, measure, monitor and report market risk. We actively manage market risk for both non-trading and trading and non-trading market risks.activities.
Non-Trading Risk
We are exposed to market risk as a result of non-trading banking activities. This market risk is substantially composed of interest rate risk, as we have no commodity risk and de minimis direct currency and equity risk. We also have market risk related to capital markets loan originations, as well as the valuation of our MSRs. There have been no significant changes in our sources of interest rate risk, interest rate risk practices, risk framework, metrics or assumptions as described in “—Market Risk — Non-Trading Risk” in our 20182019 Form 10-K.
The table below reports net interest income exposures against a variety of interest rate scenarios. Our policies involve measuring exposures as a percentage change in net interest income over the next year due to either instantaneous or gradual parallel changes in rates relative to the market implied forward yield curve. As the following table illustrates, our balance sheet is asset sensitive; net interest income would benefit from an increase in interest rates, while exposure to a decline in interest rates is within limit. While an instantaneousnet interest income sensitivity limits. This analysis

would typically include 100 basis point shock and severe shift ingradual decreases; however, the table has been changed to 25 basis points due to the current low interest rates was used in this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

rate environment.
The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve:
Estimated % Change in Net Interest Income over 12 MonthsEstimated % Change in Net Interest Income over 12 Months
Basis points
September 30,
 2019
 December 31, 2018March 31, 2020 December 31, 2019
Instantaneous Change in Interest Rates      
+2006.8 % 9.5 %10.3 % 6.9 %
+1003.7
 4.8
5.8
 3.6
-100(3.9) (4.5)
-25(1.6) (1.3)
Gradual Change in Interest Rates      
+2002.7
 4.9
4.8
 3.2
+1001.3
 2.5
2.4
 1.5
-100(1.9) (1.1)
-25(0.6) (0.5)
Given broad expectations that the FRB would cut interest rates, we continue to reduce asset sensitivity to mitigate the potential impact of declining rates. Asset sensitivity against a 200 basis point gradual increase in rates was 2.7%4.8% at September 30, 2019, a decrease from 4.9%March 31, 2020, compared with 3.2% at December 31, 2018.2019. Additionally, we have reduced our short-termapproximately 75% to 80% of this asset sensitivity is tied to long-term interest rate exposure (six months and under) to approximately 20% to 25%, with the remainder in the intermediate to long tenors of the curve.(greater than six months). The risk position can be affected by changes in interest rates which impact the repricing sensitivity or beta of the deposit base as well as the cash flows on assets that allow for early payoff without a penalty. The risk position is managed within our risk limits, and long term view of interest rates through occasional adjustments to securities investments, interest rate swaps and mix of funding.
We use a valuation measure of exposure to structural interest rate risk, Economic Value of Equity (“EVE”), as a supplement to net interest income simulations. EVE complements net interest income simulation analysis as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. The change in value is expressed as a percentage of regulatory capital.
We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating-rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances.issuances and AFS securities. The table below summarizes the related hedging activities.
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
 Weighted Average  Weighted Average Weighted Average  Weighted Average
(dollars in millions)Notional AmountFair ValueMaturity (Years)Receive RatePay Rate Notional AmountFair ValueMaturity (Years)Receive RatePay RateNotional AmountFair ValueMaturity (Years)Receive RatePay Rate Notional AmountFair ValueMaturity (Years)Receive RatePay Rate
Cash flow - receive-fixed/pay-variable - conventional ALM(1)

$19,350

($5)1.81.8%2.0% 
$8,100

$3
2.2
1.7%2.5%
$19,350

($1)1.31.7%0.9% 
$19,350

($2)1.5
1.7%1.7%
Fair value - receive-fixed/pay-variable - conventional debt4,650
—
2.32.0
2.2
 3,450
2
2.4
1.8
2.7
3,950
—
2.12.0
1.7
 4,650
(1)2.0
2.0
1.9
Cash flow - pay-fixed/receive-variable - conventional ALM(2)4,750
2
4.20
2.0
1.7
 500
—
—
2.4
1.3
4,750
4
4.3
0.7
1.4
 3,000
2
4.5
1.7
1.7
Fair value - pay-fixed/receive-variable - conventional ALM(2)(3)
2,846
—
4.80
2.1
1.8
 —
—
—
—
—
2,000
2
4.5
0.8
1.5
 2,846
2
4.5
1.8
1.8
Total portfolio swaps
$31,596

($3)2.51.9%2.0% 
$12,050

$5
2.2
1.8%2.5%
$30,050

$5
2.11.5%1.1% 
$29,846

$1
2.2
1.8%1.8%
Floors - conventional ALM
$—

$—
—
—
—
 
$7,000

$—
0.5
 

(1) In September 2019, we reduced asset sensitivity over the December 2019 to December 2021 period with the addition of $2.0Includes $1.8 billion of December 2019 forward starting receive-fixed interest rate swaps as part of an ongoing program to manage interest rate risk.swaps.
(2)Includes $1.8 billion of forward starting pay-fixed interest rate swaps.
(3) In the third quarter of 2019, Citizenswe executed a last-of-layer hedge utilizing pay-fixed interest rate swap agreements to manage the interest rate exposure on mortgage-backed securities
held in itsour available for sale debt securities portfolio. TheAs of March 31, 2020, the notional and fair value of these hedges werewas $2.0 billion and $1$2 million, respectively.

Capital Markets
A key component of our capital markets activities is the underwriting and distribution of corporate credit facilities to partially finance mergers and acquisitions transactions for our clients. We have a rigorous risk management process around these activities, including a limit structure capping our underwriting risk, our potential
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

loss, and sub limits for specific asset classes. Further, the ability to approve underwriting exposure is delegated

only to senior level individuals in the credit risk management and capital markets organizations with each transaction adjudicated in the Loan Underwriting Approval Committee.
Mortgage Servicing Rights    
We have market risk associated with the value of residential MSRs, which are impacted by various types of inherent risks, including risks related to duration, basis, convexity, volatility and yield curve. We haveEffective January 1, 2020, we elected to account for theall MSRs acquired from FAMC or originated after December 31, 2018 atunder the fair value while maintaining a lower of cost or market approach on our non-FAMC MSRs originated before December 31, 2018.method.
As part of our overall risk management strategy relative to the fair market value of the MSRs, acquired from FAMC or originated after December 31, 2018, we enter into various free-standing derivatives, such as interest rate swaps, interest rate swaptions, interest rate futures, and forward contracts to purchase mortgage-backed securities to economically hedge the changes in fair value. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the fair value of these MSRs was $510$577 million and $600$642 million, respectively, and the total notional amount of related derivative contracts was $19.5$19.2 billion and $4.6$8.6 billion, respectively. Gains and losses on MSRs and the related derivatives used for hedging are included in mortgage banking fees on the Consolidated Statements of Operations.
As of September 30, 2019 and December 31, 2018, our non-FAMC MSRs originated on or before December 31, 2018 had a book value of $177 million and $221 million, respectively, and were carried at the lower of cost or market. As of September 30, 2019 and December 31, 2018, these MSRs had a fair value of $178 million and $243 million, respectively, which exceeded the carrying value at those dates. Depending on the interest rate environment, economic hedges may be used to protect the market value of these MSRs.
As with our traded market risk based activities, earnings at-risk excludes the impact of MSRs. MSRs are captured under our single price risk management framework that is used for calculating a management value at risk that is consistent with the definition used by banking regulators, as defined below.
Trading Risk
We are exposed to market risk primarily through client facilitation activities including derivatives and foreign exchange products as well as underwriting and market making activities. Exposure is created as a result of changes in interest rates and related basis spreads and volatility, foreign exchange rates, and credit spreads on a select range of interest rates, foreign exchange, commodities, corporate bonds and secondary loan instruments. These trading activities are conducted through CBNA and CCMI. There have been no significant changes in our market risk governance, market risk measurement, or market risk practices including VaR, stressed VaR, sensitivity analysis, stress testing, or VaR model review and validation as described in “—Market Risk — Trading Risk” in our 20182019 Form 10-K.
Market Risk Regulatory Capital
The U.S. banking regulators’ “Market Risk Rule” covers the calculation of market risk capital and substantially modified the determination of market risk-weighted assets and implemented a more risk sensitive methodology for the risk inherent in certain trading positions categorized as “covered positions.”capital. For the purposes of the Market Risk Rule, all of our client facing trades and associated hedges need to maintain a net low risk, profile to qualify, and do qualify, as “covered positions.” For the three months ended March 31, 2020, we were subject to the reporting threshold under the Market Risk Rule, which resulted in the inclusion of $774 million of calculated risk-weighted assets. However, for the three months ended March 31, 2019, we were not subject to the reporting threshold. As a result, $685 million of calculated market risk-weighted assets as of March 31, 2019 was not included in our risk-weighted assets and our covered trading activities were risk-weighted under U.S. Basel III Standardized credit risk rules. The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR.
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS


The following table presents the results of our modeled and non-modeled measures for regulatory capital calculations:
(in millions) For the Three Months Ended September 30, 2019 For the Three Months Ended September 30, 2018 For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019
Market Risk Category
 Period End 
Average 
 High Low Period End Average High Low Period End 
Average 
 High Low Period End Average High Low
Interest Rate 
$1
 
$1
 
$1
 
$—
 
$2
 
$2
 
$2
 
$2
 
$1
 
$1
 
$4
 
$—
 
$—
 
$—
 
$—
 
$—
Foreign Exchange Currency Rate —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Credit Spread 4
 4
 5
 3
 2
 3
 3
 2
 14
 5
 14
 4
 4
 4
 6
 4
Commodity —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
General VaR 4
 4
 5
 3
 3
 3
 4
 3
 13
 5
 14
 4
 4
 4
 5
 3
Specific Risk VaR —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Total VaR 
$4
 
$4
 
$5
 
$3
 
$3
 
$3
 
$4
 
$3
 
$13
 
$5
 
$14
 
$4
 
$4
 
$4
 
$5
 
$3
Stressed General VaR 
$11
 
$9
 
$12
 
$6
 
$10
 
$12
 
$14
 
$10
 
$15
 
$11
 
$15
 
$9
 
$9
 
$10
 
$13
 
$8
Stressed Specific Risk VaR —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Total Stressed VaR 
$11
 
$9
 
$12
 
$6
 
$10
 
$12
 
$14
 
$10
 
$15
 
$11
 
$15
 
$9
 
$9
 
$10
 
$13
 
$8
Market Risk Regulatory Capital 
$39
       
$47
       
$50
       
$43
      
Specific Risk Not Modeled Add-on 14
       14
       12
       12
      
de Minimis Exposure Add-on —
       —
       —
       —
      
Total Market Risk Regulatory Capital 
$53
       
$61
       
$62
       
$55
      
Market Risk-Weighted Assets 
$662
       760
       
$774
       685
      
Market Risk-Weighted Assets (included in our FR Y-9C regulatory filing) 
$662
       
$—
       
$774
       
$—
      
VaR Backtesting
Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. We perform sub-portfolio backtesting as required under the Market Risk Rule, using models approved by our banking regulators, for interest rate, credit spread, and foreign exchange positions.
The magnitude of the financial markets sudden dislocation caused by the COVID-19 pandemic resulted in several backtesting exceptions during first quarter 2020. The following graph shows our daily net trading revenue and total internal, modeled VaR for the twelve months ended September 30, 2019.March 31, 2020.

Daily VaR Backtesting
graphq319v4.jpgvargrapha09.jpg
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS

KEY PERFORMANCE METRICS, NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
For more information on the computation of key performance metrics and non-GAAP financial measures, see “—Introduction — Key Performance Metrics Used by Management and Non-GAAP Financial Measures,” included in this Report. The following table presentstables present key components and computations of key performance metrics as well as computations of non-GAAP financial measures representing our Underlying results used throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

  As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,
(in millions, except share, per share and ratio data)Ref.2019
 2018
 2019
 2018
Total revenue (GAAP)A
$1,638
 
$1,564
 
$4,854
 
$4,535
Noninterest expense (GAAP)B973
 910
 2,861
 2,668
Net income (GAAP)C449
 443
 1,341
 1,256
Net income available to common stockholders (GAAP)D432
 436
 1,291
 1,242
Return on average common equity:        
Average common equity (GAAP)E
$20,533
 
$19,599
 
$20,300
 
$19,687
Return on average common equityD/E8.35 % 8.82% 8.50 % 8.44%
Return on average tangible common equity:        
Average common equity (GAAP)E
$20,533
 
$19,599
 
$20,300
 
$19,687
Less: Average goodwill (GAAP) 7,044
 6,926
 7,034
 6,900
Less: Average other intangibles (GAAP) 73
 22
 71
 9
Add: Average deferred tax liabilities related to goodwill (GAAP) 372
 360
 371
 358
Average tangible common equityF
$13,788
 
$13,011
 
$13,566
 
$13,136
Return on average tangible common equityD/F12.44 % 13.29% 12.72 % 12.64%
Return on average total assets:        
Average total assets (GAAP)G
$162,110
 
$155,624
 
$161,344
 
$153,482
Return on average total assetsC/G1.10 % 1.13% 1.11 % 1.09%
Return on average total tangible assets:        
Average total assets (GAAP)G
$162,110
 
$155,624
 
$161,344
 
$153,482
Less: Average goodwill (GAAP) 7,044
 6,926
 7,034
 6,900
Less: Average other intangibles (GAAP) 73
 22
 71
 9
Add: Average deferred tax liabilities related to goodwill (GAAP) 372
 360
 371
 358
Average tangible assetsH
$155,365
 
$149,036
 
$154,610
 
$146,931
Return on average total tangible assetsC/H1.15 % 1.18% 1.16 % 1.14%
Efficiency ratio:        
Efficiency ratioB/A59.40 % 58.20% 58.94 % 58.84%
Operating leverage:        
Increase in total revenue 4.72 % 8.44% 7.03 % 7.40%
Increase in noninterest expense 6.88
 6.23
 7.21
 3.61
Operating leverage (2.16)% 2.21% (0.18)% 3.79%
Effective income tax rate:        
Income before income tax expenseI
$564
 
$576
 
$1,710
 
$1,626
Income tax expenseJ115
 133
 369
 370
Effective income tax rateJ/I20.46 % 23.16% 21.58 % 22.77%
Net income per average common share - basic and diluted:        
Average common shares outstanding - basic (GAAP)K445,703,987
 475,957,526
 454,802,186
 482,691,884
Average common shares outstanding - diluted (GAAP)L447,134,595
 477,599,917
 456,218,755
 484,250,843
Net income per average common share - basic (GAAP)D/K
$0.97
 
$0.92
 
$2.84
 
$2.57
Net income per average common share - diluted (GAAP)D/L0.97
 0.91
 2.83
 2.57
Dividend payout ratio:        
Cash dividends declared and paid per common shareM
$0.36
 
$0.27
 
$1.00
 
$0.71
Dividend payout ratioM/(D/K)37 % 29% 35 % 28%

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
  As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)Ref.2020
 2019
Total revenue, Underlying:    
Total revenue (GAAP)A
$1,657
 
$1,588
Less: Notable items —
 —
Total revenue, Underlying (non-GAAP)B
$1,657
 
$1,588
Noninterest expense, Underlying:    
Noninterest expense (GAAP)C
$1,012
 
$937
Less: Notable items 33
 5
Noninterest expense, Underlying (non-GAAP)D
$979
 
$932
Pre-provision profit:    
Total revenue (GAAP)A
$1,657
 
$1,588
Less: Noninterest expense (GAAP)B1,012
 937
Pre-provision profit (GAAP) 
$645
 
$651
Pre-provision profit, Underlying    
Total revenue, Underlying (non-GAAP)B
$1,657
 
$1,588
Less: Noninterest expense, Underlying (non-GAAP)D979
 932
Pre-provision profit, Underlying (non-GAAP) 
$678
 
$656
Income before income tax expense, Underlying:    
Income before income tax expense (GAAP)E
$45
 
$566
Less: Expense before income tax benefit related to notable items (33) (5)
Income before income tax expense, Underlying (non-GAAP)F
$78
 
$571
Income tax expense and effective income tax rate, Underlying:    
Income tax expense (GAAP)G
$11
 
$127
Less: Income tax benefit related to notable items (8) (1)
Income tax expense, Underlying (non-GAAP)H
$19
 
$128
Effective income tax rate (GAAP)G/E24.13% 22.42%
Effective income tax rate, Underlying (non-GAAP)H/F24.52
 22.44
Net income, Underlying:    
Net income (GAAP)I
$34
 
$439
Add: Notable items, net of income tax benefit 25
 4
Net income, Underlying (non-GAAP)J
$59
 
$443
Net income available to common stockholders, Underlying:    
Net income available to common stockholders (GAAP)K
$12
 
$424
Add: Notable items, net of income tax benefit 25
 4
Net income available to common stockholders, Underlying (non-GAAP)L
$37
 
$428
Return on average common equity and return on average common equity, Underlying:    
Average common equity (GAAP)M
$20,223
 
$19,942
Return on average common equityK/M0.24% 8.62%
Return on average common equity, Underlying (non-GAAP)
L/M0.74
 8.71
     
     



  As of and for the Three Months Ended September 30,
  2019
2018
(in millions, except ratio data)Ref.Consumer
Banking		Commercial
Banking		OtherConsolidated
Consumer
Banking		Commercial
Banking		OtherConsolidated
Net income (loss) available to common stockholders:

















Net income (GAAP)N
$251

$196

$2

$449


$207

$234

$2

$443
Less: Preferred stock dividends
—
—
17
17

—
—
7
7
Net income (loss) available to common stockholdersO
$251

$196

($15)
$432


$207

$234

($5)
$436
Efficiency ratio:















Total revenue (GAAP)P
$1,135

$493

$10

$1,638


$1,034

$520

$10

$1,564
Noninterest expense (GAAP)Q718
213
42
973

686
202
22
910
Efficiency ratioQ/P63.28%43.35%NM
59.40%
66.29%38.83%NM
58.20%
Return on average total tangible assets:









Average total assets (GAAP)

$66,365

$55,614

$40,131

$162,110


$62,974

$52,871

$39,779

$155,624
Less: Average goodwill (GAAP)
122
46
6,876
7,044

39
11
6,876
6,926
Less: Average other intangibles (GAAP)
66
7
—
73

20
2
—
22
Add: Average deferred tax liabilities related to goodwill (GAAP)
1
1
370
372

—
—
360
360
Average total tangible assetsR
$66,178

$55,562

$33,625

$155,365


$62,915

$52,858

$33,263

$149,036
Return on average total tangible assetsN/R1.50%1.40%NM
1.15%
1.31%1.75%NM
1.18%


  As of and for the Nine Months Ended September 30,
  2019 2018
(in millions, except ratio data)Ref.Consumer
Banking		Commercial
Banking		OtherConsolidated Consumer
Banking		Commercial
Banking		OtherConsolidated
Net income (loss) available to common stockholders:          
Net income (loss) (GAAP)N
$666

$639

$36

$1,341
 
$574

$686

($4)
$1,256
Less: Preferred stock dividends —
—
50
50
 —
—
14
14
Net income (loss) available to common stockholdersO
$666

$639

($14)
$1,291
 
$574

$686

($18)
$1,242
Efficiency ratio: 
   
 
 
 
Total revenue (GAAP)P
$3,246

$1,535

$73

$4,854
 
$2,976

$1,518

$41

$4,535
Noninterest expense (GAAP)Q2,133
639
89
2,861
 2,000
610
58
2,668
Efficiency ratioQ/P65.71%41.65%NM
58.94% 67.20%40.16%NM
58.84%
Return on average total tangible assets:          
Average total assets (GAAP) 
$65,624

$55,793

$39,927

$161,344
 
$61,857

$51,820

$39,805

$153,482
Less: Average goodwill (GAAP) 120
38
6,876
7,034
 13
11
6,876
6,900
Less: Average other intangibles (GAAP) 65
6
—
71
 7
2
—
9
Add: Average deferred tax liabilities related to goodwill (GAAP) 1
—
370
371
 —
—
358
358
Average total tangible assetsR
$65,440

$55,749

$33,421

$154,610
 
$61,837

$51,807

$33,287

$146,931
Return on average total tangible assetsN/R1.36%1.53%NM
1.16% 1.24%1.77%NM
1.14%
  As of and for the Three Months Ended March 31,
(in millions, except share, per share and ratio data)Ref.2020
 2019
Return on average tangible common equity and return on average tangible common equity, Underlying:    
Average common equity (GAAP)M
$20,223
 
$19,942
Less: Average goodwill (GAAP) 7,046
 7,018
Less: Average other intangibles (GAAP) 67
 59
Add: Average deferred tax liabilities related to goodwill (GAAP) 374
 368
Average tangible common equityN
$13,484
 
$13,233
Return on average tangible common equityK/N0.36 % 13.00%
Return on average tangible common equity, Underlying (non-GAAP)L/N1.10
 13.12
Return on average total assets and return on average total assets, Underlying:    
Average total assets (GAAP)O
$167,177
 
$160,415
Return on average total assetsI/O0.08 % 1.11%
Return on average total assets, Underlying (non-GAAP)J/O0.14
 1.12
Return on average total tangible assets and return on average total tangible assets, Underlying:    
Average total assets (GAAP)O
$167,177
 
$160,415
Less: Average goodwill (GAAP) 7,046
 7,018
Less: Average other intangibles (GAAP) 67
 59
Add: Average deferred tax liabilities related to goodwill (GAAP) 374
 368
Average tangible assetsP
$160,438
 
$153,706
Return on average total tangible assetsI/P0.09 % 1.16%
Return on average total tangible assets, Underlying (non-GAAP)J/P0.15
 1.17
Efficiency ratio and efficiency ratio, Underlying:    
Efficiency ratioC/A61.10 % 59.00%
Efficiency ratio, Underlying (non-GAAP)D/B59.08
 58.67
Operating leverage and operating leverage, Underlying:    
Increase in total revenue 4.35 % 8.72%
Increase in noninterest expense 8.06
 6.15
Operating leverage (3.71%) 2.57%
Increase in total revenue, Underlying (non-GAAP) 4.35 % 8.72%
Increase in noninterest expense, Underlying (non-GAAP) 5.09
 5.54
Operating leverage, Underlying (non-GAAP) (0.74%) 3.18%
Tangible book value per common share:    
Common shares - at period end (GAAP)Q426,586,533
 461,116,723
Common stockholders' equity (GAAP) 
$20,380
 
$20,399
Less: Goodwill (GAAP) 7,050
 7,040
Less: Other intangible assets (GAAP) 66
 80
Add: Deferred tax liabilities related to goodwill (GAAP) 375
 370
Tangible common equityR
$13,639
 
$13,649
Tangible book value per common shareR/Q
$31.97
 
$29.60
Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:    
Average common shares outstanding - basic (GAAP)S427,718,421
 460,713,172
Average common shares outstanding - diluted (GAAP)T429,388,855
 462,520,680
Net income per average common share - basic (GAAP)K/S
$0.03
 
$0.92
Net income per average common share - diluted (GAAP)K/T0.03
 0.92
Net income per average common share - basic, Underlying (non-GAAP)L/S0.09
 0.93
Net income per average common share - diluted, Underlying (non-GAAP)L/T0.09
 0.93
Dividend payout ratio and dividend payout ratio, Underlying:    
Cash dividends declared and paid per common shareU
$0.39
 
$0.32
Dividend payout ratioU/(K/S)1,398 % 35%
Dividend payout ratio, Underlying (non-GAAP)U/(L/S)451
 34


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

The following table presents computations of non-GAAP financial measures representing our Underlying results used throughout “Management's Discussion and Analysis of Financial Condition and Results of Operations”:
  As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,
(in millions, except share, per share and ratio data)Ref.2019
 2018
 2019
 2018
Total revenue, Underlying:        
Total revenue (GAAP)A
$1,638
 
$1,564
 
$4,854
 
$4,535
Less: Notable items —
 —
 —
 —
Total revenue, Underlying (non-GAAP)S
$1,638
 
$1,564
 
$4,854
 
$4,535
Noninterest expense, Underlying:        
Noninterest expense (GAAP)B
$973
 
$910
 
$2,861
 
$2,668
Less: Notable items 19
 9
 31
 9
Noninterest expense, Underlying (non-GAAP)T
$954
 
$901
 
$2,830
 
$2,659
Pre-provision profit:        
Total revenue (GAAP)A
$1,638
 
$1,564
 
$4,854
 
$4,535
Less: Noninterest expense (GAAP)B973
 910
 2,861
 2,668
Pre-provision profit (GAAP) 
$665
 
$654
 
$1,993
 
$1,867
Pre-provision profit, Underlying        
Total revenue, Underlying (non-GAAP)S
$1,638
 
$1,564
 
$4,854
 
$4,535
Less: Noninterest expense, Underlying (non-GAAP)T954
 901
 2,830
 2,659
Pre-provision profit, Underlying (non-GAAP) 
$684
 
$663
 
$2,024
 
$1,876
Income before income tax expense, Underlying:        
Income before tax expense (GAAP)I
$564
 
$576
 
$1,710
 
$1,626
Less: Notable items (19) (9) (31) (9)
Income before income tax expense, Underlying (non-GAAP)U
$583
 
$585
 
$1,741
 
$1,635
Income tax expense and effective income tax rate, Underlying:        
Income tax expense (GAAP)J
$115
 
$133
 
$369
 
$370
Less: Notable items (15) (2) (18) (2)
Income tax expense, Underlying (non-GAAP)V
$130
 
$135
 
$387
 
$372
Effective income tax rate (GAAP)J/I20.46 % 23.16% 21.58 % 22.77%
Effective income tax rate, Underlying (non-GAAP)V/U22.29
 23.20
 22.20
 22.78
Net income, Underlying:        
Net income (GAAP)C
$449
 
$443
 
$1,341
 
$1,256
Add: Notable items, net of tax expense 4
 7
 13
 7
Net income, Underlying (non-GAAP)W
$453
 
$450
 
$1,354
 
$1,263
         
CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
  As of and for the Three Months Ended March 31,
  2020 2019
(in millions, except ratio data)Ref.Consumer
Banking		Commercial
Banking		OtherConsolidated Consumer
Banking		Commercial
Banking		OtherConsolidated
Net income (loss) available to common stockholders:          
Net income (loss) (GAAP)V
$236

$179

($381)
$34
 
$202

$227

$10

$439
Less: Preferred stock dividends —
—
22
22
 —
—
15
15
Net income (loss) available to common stockholdersW
$236

$179

($403)
$12
 
$202

$227

($5)
$424
Efficiency ratio: 
   
 
 
 
Total revenue (GAAP)X
$1,150

$490

$17

$1,657
 
$1,035

$522

$31

$1,588
Noninterest expense (GAAP)Y738
221
53
1,012
 700
209
28
937
Efficiency ratioY/X64.16%45.06%NM
61.10% 67.62%40.11%NM
59.00%
Return on average total tangible assets:          
Average total assets (GAAP) 
$68,415

$59,005

$39,757

$167,177
 
$65,007

$55,630

$39,778

$160,415
Less: Average goodwill (GAAP) 122
48
6,876
7,046
 119
23
6,876
7,018
Less: Average other intangibles (GAAP) 43
6
18
67
 55
4
—
59
Add: Average deferred tax liabilities related to goodwill (GAAP) 1
1
372
374
 —
—
368
368
Average total tangible assetsZ
$68,251

$58,952

$33,235

$160,438
 
$64,833

$55,603

$33,270

$153,706
Return on average total tangible assetsV/Z1.39%1.22%NM
0.09% 1.26%1.66%NM
1.16%

  As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,
(in millions, except share, per share and ratio data)Ref.2019
 2018
 2019
 2018
Net income available to common stockholders, Underlying:        
Net income available to common stockholders (GAAP)D
$432
 
$436
 
$1,291
 
$1,242
Add: Notable items, net of tax expense 4
 7
 13
 7
Net income available to common stockholders, Underlying (non-GAAP)X
$436
 
$443
 
$1,304
 
$1,249
Return on average common equity and return on average common equity, Underlying:        
Average common equity (GAAP)E
$20,533
 
$19,599
 
$20,300
 
$19,687
Return on average common equityD/E8.35 % 8.82% 8.50 % 8.44%
Return on average common equity, Underlying (non-GAAP)
X/E8.45
 8.96
 8.59
 8.48
Return on average tangible common equity and return on average tangible common equity, Underlying:        
Average common equity (GAAP)E
$20,533
 
$19,599
 
$20,300
 
$19,687
Less: Average goodwill (GAAP) 7,044
 6,926
 7,034
 6,900
Less: Average other intangibles (GAAP) 73
 22
 71
 9
Add: Average deferred tax liabilities related to goodwill (GAAP) 372
 360
 371
 358
Average tangible common equityF
$13,788
 
$13,011
 
$13,566
 
$13,136
Return on average tangible common equityD/F12.44 % 13.29% 12.72 % 12.64%
Return on average tangible common equity, Underlying (non-GAAP)X/F12.58
 13.50
 12.86
 12.71
Return on average total assets and return on average total assets, Underlying:        
Average total assets (GAAP)G
$162,110
 
$155,624
 
$161,344
 
$153,482
Return on average total assetsC/G1.10 % 1.13% 1.11 % 1.09%
Return on average total assets, Underlying (non-GAAP)W/G1.11
 1.15
 1.12
 1.10
Return on average total tangible assets and return on average total tangible assets, Underlying:        
Average total assets (GAAP)G
$162,110
 
$155,624
 
$161,344
 
$153,482
Less: Average goodwill (GAAP) 7,044
 6,926
 7,034
 6,900
Less: Average other intangibles (GAAP) 73
 22
 71
 9
Add: Average deferred tax liabilities related to goodwill (GAAP) 372
 360
 371
 358
Average tangible assetsH
$155,365
 
$149,036
 
$154,610
 
$146,931
Return on average total tangible assetsC/H1.15 % 1.18% 1.16 % 1.14%
Return on average total tangible assets, Underlying (non-GAAP)W/H1.16
 1.20
 1.17
 1.15
Efficiency ratio and efficiency ratio, Underlying:        
Efficiency ratioB/A59.40 % 58.20% 58.94 % 58.84%
Efficiency ratio, Underlying (non-GAAP)T/S58.22
 57.62
 58.30
 58.64
Operating leverage and operating leverage, Underlying:        
Increase in total revenue 4.72 % 8.44% 7.03 % 7.40%
Increase in noninterest expense 6.88
 6.23
 7.21
 3.61
Operating leverage (2.16)% 2.21% (0.18)% 3.79%
Increase in total revenue, Underlying (non-GAAP) 4.70 % 8.46% 7.03 % 7.12%
Increase in noninterest expense, Underlying (non-GAAP) 5.78
 5.20
 6.41
 3.88
Operating leverage, Underlying (non-GAAP) (1.08)% 3.26% 0.62 % 3.24%
Net income per average common share - basic and diluted and net income per average common share - basic and diluted, Underlying:        
Average common shares outstanding - basic (GAAP)K445,703,987
 475,957,526
 454,802,186
 482,691,884
Average common shares outstanding - diluted (GAAP)L447,134,595
 477,599,917
 456,218,755
 484,250,843
Net income per average common share - basic (GAAP)D/K
$0.97
 
$0.92
 
$2.84
 
$2.57
Net income per average common share - diluted (GAAP)D/L0.97
 0.91
 2.83
 2.57
Net income per average common share - basic, Underlying (non-GAAP)X/K0.98
 0.93
 2.87
 2.59
Net income per average common share - diluted, Underlying (non-GAAP)X/L0.98
 0.93
 2.86
 2.58


CITIZENS FINANCIAL GROUP, INC.
FINANCIAL STATEMENTS


ITEM 1. FINANCIAL STATEMENTS

  Page
Consolidated Balance Sheets as of September 30, 2019March 31, 2020 (unaudited) and December 31, 20182019 (unaudited)
 
5041
Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
 
5142
Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
 
5243
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30,March 31, 2020 and 2019 and 2018
 
5344
Consolidated Statements of Cash Flows (unaudited) for the NineThree Months Ended September 30,March 31, 2020 and 2019 and 2018
 
5545
Notes to Consolidated Financial Statements (unaudited)
 
5646
Note 1 - Basis of Presentation
 
5646
Note 2 - Securities
 
5948
Note 3 - Loans and Leases
 
6251
Note 4 - Allowance for Credit Losses, Nonperforming Assets,Nonaccruing Loans and Leases, and Concentrations of Credit Risk
 
6452
Note 5 - Mortgage Banking
 
7361
Note 6 - LeasesGoodwill and Intangible Assets
 
7562
Note 7 - Variable Interest Entities
 
7764
Note 8 - Borrowed Funds
 
7865
Note 9 - Derivatives
 
8067
Note 10 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
 
8370
Note 11 - Stockholders’ Equity
 
8571
Note 12 - Commitments and Contingencies
 
8771
Note 13 - Fair Value Measurements
 
8873
Note 14 - Noninterest Income
 
9378
Note 15 - Other Operating Expense
 
9378
Note 16 - Earnings Per Share
 
9478
Note 17 - Business Operating Segments
 
9479

CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)September 30, 2019 December 31, 2018
ASSETS:   
Cash and due from banks
$1,638
 
$1,081
Interest-bearing cash and due from banks2,204
 2,993
Interest-bearing deposits in banks158
 148
Debt securities available for sale, at fair value (including $233 and $363 pledged to creditors, respectively)(1)
21,502
 19,895
Debt securities held to maturity (fair value of $3,362 and $4,041, respectively)3,319
 4,165
Equity securities, at fair value47
 181
Equity securities, at cost734
 834
Loans held for sale, at fair value1,993
 1,219
Other loans held for sale22
 101
Loans and leases117,880
 116,660
Less: Allowance for loan and lease losses(1,263) (1,242)
Net loans and leases116,617
 115,418
Derivative assets1,027
 317
Premises and equipment, net747
 791
Bank-owned life insurance1,720
 1,698
Goodwill7,044
 6,923
Due from broker257
 —
Other assets5,333
 4,754
TOTAL ASSETS
$164,362
 
$160,518
LIABILITIES AND STOCKHOLDERS’ EQUITY:   
LIABILITIES:   
Deposits:   
Noninterest-bearing
$29,939
 
$29,458
Interest-bearing94,775
 90,117
          Total deposits124,714
 119,575
Federal funds purchased and securities sold under agreements to repurchase867
 1,156
Other short-term borrowed funds210
 161
Derivative liabilities161
 292
Deferred taxes, net752
 573
Long-term borrowed funds12,806
 15,925
Due to broker206
 —
Other liabilities2,795
 2,019
TOTAL LIABILITIES142,511
 139,701
Contingencies (refer to Note 12)


 


STOCKHOLDERS’ EQUITY:   
Preferred stock, $25.00 par value, 100,000,000 shares authorized1,133
 840
Common stock:   
$0.01 par value, 1,000,000,000 shares authorized; 568,125,065 shares issued and 443,913,525 shares outstanding at September 30, 2019 and 566,819,863 shares issued and 466,007,984 shares outstanding at December 31, 20186
 6
Additional paid-in capital18,876
 18,815
Retained earnings6,229
 5,385
Treasury stock, at cost, 124,211,540 and 100,811,879 shares at September 30, 2019 and December 31, 2018, respectively(3,953) (3,133)
Accumulated other comprehensive loss(440) (1,096)
TOTAL STOCKHOLDERS’ EQUITY
$21,851
 
$20,817
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$164,362
 
$160,518

(in millions, except share data)March 31, 2020 December 31, 2019
ASSETS:   
Cash and due from banks
$1,155
 
$1,175
Interest-bearing cash and due from banks2,903
 2,211
Interest-bearing deposits in banks280
 297
Debt securities available for sale, at fair value (including $491 and $359 pledged to creditors, respectively)(1)
22,307
 20,613
Debt securities held to maturity (fair value of $3,219 and $3,242 respectively, and including $204 and $249 pledged to creditors, respectively) (1)
3,071
 3,202
Equity investment securities, at fair value47
 47
Equity investment securities, at cost927
 807
Loans held for sale, at fair value2,911
 1,946
Other loans held for sale350
 1,384
Loans and leases127,528
 119,088
Less: Allowance for loan and lease losses(2,171) (1,252)
Net loans and leases125,357
 117,836
Derivative assets1,968
 807
Premises and equipment, net746
 761
Bank-owned life insurance1,736
 1,725
Goodwill7,050
 7,044
Other assets5,911
 5,878
TOTAL ASSETS
$176,719
 
$165,733
LIABILITIES AND STOCKHOLDERS’ EQUITY:   
LIABILITIES:   
Deposits:   
Noninterest-bearing
$32,398
 
$29,233
Interest-bearing101,077
 96,080
          Total deposits133,475
 125,313
Short-term borrowed funds1,059
 274
Derivative liabilities234
 120
Deferred taxes, net782
 866
Long-term borrowed funds16,437
 14,047
Other liabilities2,782
 2,912
TOTAL LIABILITIES154,769
 143,532
Contingencies (refer to Note 12)


 


STOCKHOLDERS’ EQUITY:   
$25.00 par value,100,000,000 shares authorized; 1,600,000 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively1,570
 1,570
Common stock:   
$0.01 par value, 1,000,000,000 shares authorized; 569,252,835 shares issued and 426,586,533 shares outstanding at March 31, 2020 and 568,238,730 shares issued and 433,121,083 shares outstanding at December 31, 20196
 6
Additional paid-in capital18,901
 18,891
Retained earnings6,011
 6,498
Treasury stock, at cost, 142,666,302 and 135,117,647 shares at March 31, 2020 and December 31, 2019, respectively(4,623) (4,353)
Accumulated other comprehensive income (loss)85
 (411)
TOTAL STOCKHOLDERS’ EQUITY
$21,950
 
$22,201
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$176,719
 
$165,733
(1)Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions, except share and per share data)2019
 2018
 2019
 2018
2020
 2019
INTEREST INCOME:          
Interest and fees on loans and leases
$1,356
 
$1,287
 
$4,129
 
$3,663

$1,302
 
$1,381
Interest and fees on loans held for sale, at fair value19
 14
 45
 23
15
 11
Interest and fees on other loans held for sale2
 2
 8
 9
9
 4
Investment securities153
 167
 483
 500
147
 166
Interest-bearing deposits in banks8
 7
 23
 21
5
 8
Total interest income1,538
 1,477
 4,688
 4,216
1,478
 1,570
INTEREST EXPENSE:          
Deposits297
 214
 892
 540
227
 287
Federal funds purchased and securities sold under agreements to repurchase2
 2
 7
 4
Other short-term borrowed funds—
 4
 1
 7
Short-term borrowed funds1
 2
Long-term borrowed funds94
 109
 317
 305
90
 121
Total interest expense393
 329
 1,217
 856
318
 410
Net interest income1,145
 1,148
 3,471
 3,360
1,160
 1,160
Provision for credit losses101
 78
 283
 241
600
 85
Net interest income after provision for credit losses1,044
 1,070
 3,188
 3,119
560
 1,075
NONINTEREST INCOME:          
Service charges and fees128
 131
 377
 382
118
 123
Mortgage banking fees159
 43
Card fees67
 61
 190
 182
56
 59
Capital markets fees39
 47
 150
 134
43
 54
Trust and investment services fees50
 45
 150
 128
53
 47
Mortgage banking fees117
 49
 222
 101
Foreign exchange and interest rate products24
 36
Letter of credit and loan fees34
 32
 100
 94
34
 33
Foreign exchange and interest rate products35
 31
 106
 92
Securities gains, net3
 3
 15
 13
—
 8
Net impairment losses recognized in earnings on debt securities(1) (1) (2) (3)—
 (1)
Other income21
 18
 75
 52
10
 26
Total noninterest income493
 416
 1,383
 1,175
497
 428
NONINTEREST EXPENSE:          
Salaries and employee benefits508
 474
 1,524
 1,397
549
 509
Equipment and software expense130
 117
 381
 340
133
 125
Outside services128
 107
 356
 312
135
 110
Occupancy80
 81
 245
 241
84
 83
Other operating expense127
 131
 355
 378
111
 110
Total noninterest expense973
 910
 2,861
 2,668
1,012
 937
Income before income tax expense564
 576
 1,710
 1,626
45
 566
Income tax expense115
 133
 369
 370
11
 127
NET INCOME
$449
 
$443
 
$1,341
 
$1,256

$34
 
$439
Net income available to common stockholders
$432
 
$436
 
$1,291
 
$1,242

$12
 
$424
Weighted-average common shares outstanding:          
Basic445,703,987
 475,957,526
 454,802,186
 482,691,884
427,718,421
 460,713,172
Diluted447,134,595
 477,599,917
 456,218,755
 484,250,843
429,388,855
 462,520,680
Per common share information:          
Basic earnings
$0.97
 
$0.92
 
$2.84
 
$2.57

$0.03
 
$0.92
Diluted earnings0.97
 0.91
 2.83
 2.57
0.03
 0.92

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2019
 2018
 2019
 2018
Net income
$449
 
$443
 
$1,341
 
$1,256
Other comprehensive income (loss):       
Net unrealized derivative instruments (losses) gains arising during the periods, net of income taxes of ($1), ($9), $35 and ($31), respectively(4) (26) 103
 (91)
Reclassification adjustment for net derivative losses included in net income, net of income taxes of $4, $3, $13 and $6, respectively10
 11
 40
 19
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of $13, ($34), $165 and ($139), respectively42
 (95) 509
 (427)
Other-than-temporary impairment not recognized in earnings on debt securities, net of income taxes of $0, ($1), $0 and ($1), respectively(1) —
 —
 (1)
Reclassification of net debt securities gains to net income, net of income taxes of $0, $0, ($3) and ($2), respectively(2) (2) (10) (8)
Amortization of actuarial loss, net of income taxes of $2, $1, $5 and $3, respectively3
 4
 9
 10
Total other comprehensive income (loss), net of income taxes48
 (108) 651
 (498)
Total comprehensive income
$497
 
$335
 
$1,992
 
$758
 Three Months Ended March 31,
(in millions)2020
 2019
Net income
$34
 
$439
Other comprehensive income (loss):   
Net unrealized derivative instruments gains arising during the periods, net of income taxes of $33 and $13, respectively96
 39
Reclassification adjustment for net derivative (gains) losses included in net income, net of income taxes of ($1) and $5, respectively(3) 15
Net unrealized debt securities gains arising during the periods, net of income taxes of $129 and $80, respectively400
 246
Reclassification of net debt securities gains to net income, net of income taxes of $0 and ($2), respectively—
 (5)
Amortization of actuarial loss, net of income taxes of $1 and $2, respectively3
 3
Total other comprehensive income, net of income taxes496
 298
Total comprehensive income
$530
 
$737

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
 
Preferred
 Stock
 
Common
 Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock, at CostAccumulated Other Comprehensive LossTotal
(in millions)SharesAmount SharesAmount
Balance at July 1, 20181

$543
 484

$6

$18,806

$4,755

($2,433)
($1,210)
$20,467
Dividends to common stockholders—
—
 —
—
—
(129)—
—
(129)
Dividends to preferred stockholders—
—
 —
—
—
(7)—
—
(7)
Treasury stock purchased—
—
 (10)—
—
—
(400)—
(400)
Share-based compensation plans—
—
 —
—
6
—
—
—
6
Employee stock purchase plan shares purchased—
—
 —
—
4
—
—
—
4
Total comprehensive income:          
Net income—
—
 —
—
—
443
—
—
443
Other comprehensive loss—
—
 —
—
—
—
—
(108)(108)
Total comprehensive income—
—
 —
—
—
443
—
(108)335
Balance at September 30, 20181

$543
 474

$6

$18,816

$5,062

($2,833)
($1,318)
$20,276
Balance at July 1, 20191

$1,133
 458

$6

$18,860

$5,959

($3,453)
($488)
$22,017
Dividends to common stockholders—
—
 —
—
—
(162)—
—
(162)
Dividends to preferred stockholders—
—
 —
—
—
(17)—
—
(17)
Treasury stock purchased—
—
 (14)—
—
—
(500)—
(500)
Share-based compensation plans—
—
 —
—
11
—
—
—
11
Employee stock purchase plan shares purchased—
—
 —
—
5
—
—
—
5
Total comprehensive income:          
Net income—
—
 —
—
—
449
—
—
449
Other comprehensive income—
—
 —
—
—
—
—
48
48
Total comprehensive income—
—
 —
—
—
449
—
48
497
Balance at September 30, 20191

$1,133
 444

$6

$18,876

$6,229

($3,953)
($440)
$21,851

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.


























CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Preferred
 Stock
 
Common
 Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock, at CostAccumulated Other Comprehensive LossTotal
Preferred
 Stock
 
Common
 Stock
Additional Paid-in CapitalRetained EarningsTreasury Stock, at CostAccumulated Other Comprehensive Income (Loss)Total
(in millions)SharesAmount SharesAmountSharesAmount SharesAmount
Balance at January 1, 2018—

$247
 491

$6

$18,781

$4,164

($2,108)
($820)
$20,270
Dividends to common stockholders—
—
 —
—
—
(344)—
—
(344)
Dividends to preferred stockholders—
—
 —
—
—
(14)—
—
(14)
Preferred stock issued1
296
 —
—
—
—
—
—
296
Treasury stock purchased—
—
 (18)—
—
—
(725)—
(725)
Share-based compensation plans—
—
 1
—
24
—
—
—
24
Employee stock purchase plan shares purchased—
—
 —
—
11
—
—
—
11
Total comprehensive income:     
Net income—
—
 —
—
—
1,256
—
—
1,256
Other comprehensive loss—
—
 —
—
—
—
—
(498)(498)
Total comprehensive income—
—
 —
—
—
1,256
—
(498)758
Balance at September 30, 20181

$543
 474

$6

$18,816

$5,062

($2,833)
($1,318)
$20,276
Balance at January 1, 20191

$840
 466

$6

$18,815

$5,385

($3,133)
($1,096)
$20,817
1

$840
 466

$6

$18,815

$5,385

($3,133)
($1,096)
$20,817
Dividends to common stockholders—
—
 —
—
—
(459)—
—
(459)—
—
 —
—
—
(149)—
—
(149)
Dividends to preferred stockholders—
—
 —
—
—
(50)—
—
(50)—
—
 —
—
—
(15)—
—
(15)
Preferred stock issued—
293
 —
—
—
—
—
—
293
—
292
 —
—
—
—
—
—
292
Treasury stock purchased—
—
 (23)—
—
—
(820)—
(820)—
—
 (6)—
—
—
(200)—
(200)
Share-based compensation plans—
—
 1
—
48
—


—
48
—
—
 1
—
28
—
—
—
28
Employee stock purchase plan shares purchased—
—
 —
—
13
—
—
—
13
—
—
 —
—
4
—
—
—
4
Cumulative effect of change in accounting standards—
—
 —
—
—
12
—
5
17
Cumulative effect of change in accounting principle—
—
 —
—
—
12
—
5
17
Total comprehensive income:          
Net income—
—
 —
—
—
1,341
—
—
1,341
—
—
 —
—
—
439
—
—
439
Other comprehensive income—
—
 —
—
—
—
—
651
651
—
—
 —
—
—
—
—
298
298
Total comprehensive income—
—
 —
—
—
1,341
—
651
1,992
—
—
 —
—
—
439
—
298
737
Balance at September 30, 20191

$1,133
 444

$6

$18,876

$6,229

($3,953)
($440)
$21,851
Balance at March 31, 20191

$1,132
 461

$6

$18,847

$5,672

($3,333)
($793)
$21,531
Balance at January 1, 20202

$1,570
 433

$6

$18,891

$6,498

($4,353)
($411)
$22,201
Dividends to common stockholders—
—
 —
—
—
(168)—
—
(168)
Dividends to preferred stockholders—
—
 —
—
—
(22)—
—
(22)
Treasury stock purchased—
—
 (7)—
—
—
(270)—
(270)
Share-based compensation plans—
—
 1
—
6
—
—
—
6
Employee stock purchase plan shares purchased—
—
 —
—
4
—
—
—
4
Cumulative effect of change in accounting principle—
—
 —
—
—
(331)—
—
(331)
Total comprehensive income:     
Net income—
—
 —
—
—
34
—
—
34
Other comprehensive income—
—
 —
—
—
—
—
496
496
Total comprehensive income—
—
 —
—
—
34
—
496
530
Balance at March 31, 20202

$1,570
 427

$6

$18,901

$6,011

($4,623)
$85

$21,950

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.

CITIZENS FINANCIAL GROUP, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
2020
 2019
OPERATING ACTIVITIES      
Net income
$1,341
 
$1,256

$34
 
$439
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for credit losses283
 241
600
 85
Originations of mortgage loans held for sale(14,047) (4,384)
Proceeds from sales of mortgage loans held for sale13,265
 4,259
Purchases of commercial loans held for sale(1,507) (1,450)
Proceeds from sales of commercial loans held for sale1,592
 1,457
Net change in loans held for sale(860) 116
Depreciation, amortization and accretion440
 357
201
 132
Mortgage servicing rights valuation charge-off (recovery)15
 (3)
Debt securities impairment2
 3
Amortization of intangibles3
 2
Deferred income taxes(41) 23
(134) (1)
Share-based compensation44
 40
21
 20
Net gain on sales of:      
Debt securities(21) (13)—
 (8)
Premises and equipment(6) —
—
 (6)
Increase in other assets(523) (918)(1,022) (96)
Increase in other liabilities133
 339
Net cash provided by operating activities970
 1,207
Decrease in other liabilities(170) (211)
Net cash (used in) provided by operating activities(1,327) 472
INVESTING ACTIVITIES      
Investment securities:      
Purchases of debt securities available for sale(4,633) (3,084)(2,102) (2,047)
Proceeds from maturities and paydowns of debt securities available for sale2,728
 2,512
1,010
 695
Proceeds from sales of debt securities available for sale1,495
 405
—
 821
Proceeds from maturities and paydowns of debt securities held to maturity280
 402
131
 80
Other, net136
 (6)
Purchases of equity securities, at cost(328) (568)
Proceeds from sales of equity securities, at cost428
 416
Net (increase) decrease in interest-bearing deposits in banks(10) 50
Purchases of mortgage servicing rights—
 (16)
Net increase in equity securities, at fair value—
 (17)
Net (increase) decrease in equity securities, at cost(120) 230
Net decrease (increase) in interest-bearing deposits in banks17
 (19)
Acquisitions, net of cash acquired(129) (533)(3) (129)
Net increase in loans and leases(1,534) (4,278)(7,630) (1,047)
Net increase in bank-owned life insurance(22) (31)
Premises and equipment:   
Purchases(78) (157)
Proceeds from sales31
 —
Capitalization of software(150) (175)
Capital expenditures, net(16) 15
Other(55) (53)
Net cash used in investing activities(1,786) (5,063)(8,768) (1,471)
FINANCING ACTIVITIES      
Net increase in deposits5,139
 1,986
8,162
 4,341
Net decrease in federal funds purchased and securities sold under agreements to repurchase(289) (441)
Net increase (decrease) in other short-term borrowed funds45
 (3,107)
Net increase (decrease) in short-term borrowed funds780
 (638)
Proceeds from issuance of long-term borrowed funds7,300
 17,503
6,800
 2,750
Repayments of long-term borrowed funds(10,556) (10,333)(4,500) (7,002)
Treasury stock purchased(820) (725)(270) (200)
Net proceeds from issuance of preferred stock293
 296
—
 292
Dividends declared and paid to common stockholders(459) (344)(168) (149)
Dividends declared and paid to preferred stockholders(48) (7)(23) (15)
Payments of employee tax withholding for share-based compensation(21) (13)(14) (18)
Net cash provided by financing activities584
 4,815
(Decrease) increase in cash and cash equivalents (1)
(232) 959
Net cash provided by (used in) financing activities10,767
 (639)
Increase (decrease) in cash and cash equivalents (1)
672
 (1,638)
Cash and cash equivalents at beginning of period (1)
4,074
 3,032
3,386
 4,074
Cash and cash equivalents at end of period (1)

$3,842
 
$3,991

$4,058
 
$2,436

(1) Cash and cash equivalents includes cash and due from banks and interest-bearing cash and due from banks as reflected on the Consolidated Balance Sheets.

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
CITIZENS FINANCIAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Basis of Presentation
The unaudited interim Consolidated Financial Statements, including the Notes theretopresented in this document of Citizens Financial Group, Inc., have been prepared in accordance with GAAP interim reporting requirements, and therefore do not include all information and Notes included in the audited Consolidated Financial Statements in conformity with GAAP. These unaudited interim Consolidated Financial Statements and Notes theretopresented in this document should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s 20182019 Form 10-K. The Company’s principal business activity is banking, conducted through its banking subsidiary, Citizens Bank, National Association.
The unaudited interim Consolidated Financial Statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. The Company has evaluated its unconsolidated entities and does not believe that any entity in which it has an interest, but does not currently consolidate, meets the requirements to be consolidated as a variable interest entity. The unaudited interim Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the ACL and the fair value of MSRs.
Certain prior period balances on the Consolidated Balance Sheets, amounts reported on the Consolidated Statements of Operations, and certain loan classes have been reclassified to conform to the current period presentation:
Federal funds purchased and securities sold under agreement to repurchase, and other short-term borrowed funds have been reclassified to short-term borrowed funds
Home equity loans, home equity lines of credit, home equity loans serviced for others, and home equity lines of credit serviced for others have been reclassified into home equity
Credit card and other retail have been reclassified into other retail

These changes had no effect on net income, total comprehensive income, total assets, or total stockholders’ equity as previously reported.

Significant Accounting Policies
For further information regarding the Company’s significant accounting policies, see Note 1 in the Company’s 20182019 Form 10-K.


Accounting Pronouncements Adopted in 2019
2020
PronouncementSummary of GuidanceEffects on Financial Statements
Derivatives and Hedging

Issued August 2017
•
Reduces the complexity and operational burdens of the current hedge accounting model and portrays more clearly the effects of hedge accounting in the financial statements.

•
Modifies current requirements to facilitate the application of hedge accounting to partial-term hedges, hedges of prepayable financial instruments, and other strategies. Adoption of these optional changes would occur on a prospective basis.

•
Requires the effects of fair value hedges to be classified in the same income statement line as the earnings effect of the hedged item. Adoption of this change will occur on a prospective basis.

•
Requires all effects of cash flow hedges to be deferred in other comprehensive income until the hedged cash flows affect earnings. Periodic hedge ineffectiveness will no longer be recognized in earnings. Adoption of this change will occur on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.
•
The Company adopted the new standard on January 1, 2019 under the modified retrospective method.

•
Adoption did not have a material impact on the Company’s Consolidated Financial Statements.

•
Required disclosures are included in Note 9.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


PronouncementSummary of GuidanceEffects on Financial Statements
Leases

Issued February 2016


•
Requires lessees to recognize a right-of-use asset and corresponding lease liability for all leases with a lease term of greater than one year.

•
Requires lessees and lessors to classify most leases using principles similar to existing lease accounting, but eliminates the “bright line” classification tests.

•
Requires that for finance leases, a lessee recognize interest expense on the lease liability separately from the amortization of the right-of-use asset in the Consolidated Statements of Operations, while for operating leases, such amounts should be recognized as a combined expense.

•
Requires expanded disclosures about the nature and terms of lease agreements.

•
Provides the option to adopt using either a modified cumulative-effect approach wherein the guidance is applied to all periods presented, or through a cumulative-effect adjustment beginning in the period of adoption.

•
Requires companies with land easements to assess whether the easement meets the definition of a lease before applying other accounting guidance.
•
The Company adopted the new standard under the modified retrospective approach on January 1, 2019, which is applicable to both its leasing finance business as well as property and equipment leases in which Citizens is lessee.

•
Adoption resulted in a cumulative-effect adjustment of $12 million, net of taxes, to retained earnings related to leases in which Citizens is lessee.

•
Adoption resulted in the recognition of a right-of-use asset and corresponding lease liability of $734 million and $749 million, respectively in its Consolidated Balance Sheet for non-cancelable operating lease agreements.

•
Required lessor disclosures are included in Note 3 and required lessee disclosures are included in Note 6.
Implementation Costs Incurred in a Cloud Computing Arrangement

Issued August 2018
•
Requires implementation costs incurred in a cloud computing arrangement that is a service contract be deferred and recognized over the term of the arrangement if those costs would be capitalized in a software licensing arrangement.

•
Requires amortization expense be presented in the same income statement line item as the related hosting service arrangement expense.

•
Permits adoption prospectively for all implementation costs incurred after adoption or retrospectively through a cumulative-effect adjustment as of the beginning of the first period presented.

•
The Company prospectively adopted the new standard on January 1, 2019.

•
Adoption did not have a material impact on the Company’s Consolidated Financial Statements.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Accounting Pronouncements Pending Adoption
PronouncementSummary of GuidanceEffects on Financial Statements
Financial Instruments - Credit Losses

Issued June 2016

•
Required effective date: January 1, 2020.

•
Replaces existing incurred loss impairment guidance and establishesEstablishes a single allowance framework for financial assets carried at amortized cost (including securities HTM), which will reflectreflects management’s estimate of credit losses over the full remaining expected life of the financial assets.

•
Amends existing impairment guidance for securities AFS to incorporate an allowance, which will allowallows for reversals of impairment losses in the event that the credit of an issuer improves.

•
Requires a cumulative-effect adjustment to retained earnings, net of taxes, as of the beginning of the reporting period of adoption.

•
Requires enhanced credit quality disclosures including disaggregation of credit quality indicators by vintage.

•
The Company plans to adoptadopted the new standard on January 1, 2020.2020, retrospectively for loans and leases and HTM securities and prospectively for AFS securities. Refer to Note 4 for discussion of the significant accounting policy for the allowance for credit losses following adoption.

•
A company-wide, cross-discipline governance structure isAdoption resulted in placea cumulative-effect reduction of $337 million, net of taxes of $114 million, to implementretained earnings and a corresponding increase to the new standard.ACL of $451 million. Refer to Note 4 for the impact of the adoption to the ALLL and reserve for unfunded commitments.

•
The Company is finalizing significant accounting policies and continues to refine and test loss forecasting models, estimation techniques, data, operational processes and financial controls whichincrease in ACL upon adoption will decrease the Company’s CET1 capital ratio by 22 basis points on a fully-phased in basis. Following a two-year delay, this capital impact will be used to calculate the ACL under the standard.phased-in by 25% per year, or approximately 6 basis points, beginning on January 1, 2022 through January 1, 2025.

•
The Company completed limited parallel runs and analytical testing through the nine months ended September 30, 2019. Parallel testing will continue through adoption and we will refine our interpretations, methodology, data and operational processes based upon ongoing reviews and testing results.

•
To estimate the ACL, we will use models and other estimation techniques that are sensitive to changes in forecasted economic conditions. The estimate is expected to include a two-year reasonable and supportable forecast period, and thereafter a one year reversion to long-run average macroeconomic assumptions derived from historical information. We will also apply qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be adequately reflected in quantitatively derived results, or other relevant factors to ensure the ACL reflects our best estimate of current expected credit losses.

•
The Company expects the standard will result in earlier recognition of credit losses and an overall increase in the ACL upon adoption of approximately 30% to 35%. This estimated increase in ACL is based on forecasted economic conditions and portfolio balances at August 31, 2019, and primarily related to consumer loans, such as residential mortgage, unsecured and education, due to the requirement to estimate credit losses over the full remaining expected life of the asset. Additionally, adoptionAdoption of the new standard could produce higher volatility in the quarterly provision for credit losses than our currentthe prior incurred loss reserve process and could adversely impact the Company’s ongoing earnings. We estimate that this increase in ACL would reduce the Company’s CET1 capital ratio by approximately 22 to 25 basis points on a fully-phased in basis. This capital impact is expected to be phased in by 25% per year through January 1, 2023, which would impact 2020 by 5 to 6 basis points.

•
These current estimates of impact to the ACL at the adoption date and the CET1 capital ratio are subject to change based on continuing review and challenge of the models, assumptions, methodologies and judgments, and the final amount will depend upon the loan portfolio composition, as well as economic conditions and forecasts existing at that time.

•
Based on the credit quality of ourthe Company’s existing debt securities portfolio, the Company doesdid not expect the ACLrecognize an allowance for HTM and AFS debt securities to be significant.upon adoption.


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Goodwill

Issued January 2017

•
Requires an impairment loss to be recognized when the estimated fair value of a reporting unit falls below its carrying value.

•Eliminates the second condition in the current guidance that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value.

•
Applied prospectively to all goodwill impairment tests performed after the adoption date.
PronouncementSummary
•
The Company adopted the new standard on January 1, 2020. Refer to Note 6 for discussion of Guidance
Effectsthe significant accounting policy for goodwill impairment following adoption.

•
Adoption did not have a material impact on the Company’s Consolidated Financial StatementsStatements.


Disclosure Requirements - Fair Value Measurements

Issued August 2018
•
Amends disclosure requirements on fair value measurements.

•
The guidance eliminatesEliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial, requires new disclosures and modifies existing disclosures that are expected to enhance the usefulness of the financial statements.

•
Prospective application is required for new disclosure requirements.disclosures.

•
Retrospective application is required for all other amendments for all periods presented.

•
Required effective date:The Company adopted the new standard on January 1, 2020. Early adoption is permitted. The Company does not intend to adopt this guidance prior to the required effective date.

•
Adoption did not have a material impact on the Company’s Consolidated Financial Statements. Required fair value measurement disclosures are included in Note 13.
Simplifying the Accounting for Income Taxes

Issued December 2019
•
Simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

•
Simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

•
Clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.


• The Company adopted the new standard on January 1, 2020.

• Adoption did not have an impact on the Company’s Consolidated Financial Statements.


PronouncementSummary of GuidanceEffects on Financial Statements
Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020
•
Provides the option to apply a number of practical expedients when evaluating if a contract modification as the result of reference rate reform is considered a new contract or a continuation of an existing contract.

•
Provides optional expedients to the evaluation of, and accounting for, fair value and cash flow hedges affected by reference rate reform.

•
Provides an optional one-time election to sell or transfer debt securities classified as HTM that reference a rate affected by reference rate reform
•
The Company adopted the new standard in the first quarter of 2020 upon issuance and is effective through December 31, 2022.

•
Adoption of the new standard did not expected to have a material impact on the Company’s Consolidated Financial Statements.

NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
(in millions)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury and other
$120

$—

$—

$120
 
$24

$—

$—

$24

$41

$—

$—

$41
 
$71

$—

$—

$71
State and political subdivisions5
—
—
5
 5
—
—
5
4
—
—
4
 5
—
—
5
Mortgage-backed securities:   
Mortgage-backed securities, at fair value:   
Federal agencies and U.S. government sponsored entities20,434
166
(80)20,520
 20,211
28
(605)19,634
21,029
625
(3)21,651
 19,803
143
(71)19,875
Other/non-agency827
34
(4)857
 236
3
(7)232
612
3
(4)611
 638
24
—
662
Total mortgage-backed securities, at fair value21,261
200
(84)21,377
 20,447
31
(612)19,866
21,641
628
(7)22,262
 20,441
167
(71)20,537
Total debt securities available for sale, at fair value
$21,386

$200

($84)
$21,502
 
$20,476

$31

($612)
$19,895

$21,686

$628

($7)
$22,307
 
$20,517

$167

($71)
$20,613
Mortgage-backed securities, at cost:   
Federal agencies and U.S. government sponsored entities
$3,319

$48

($5)
$3,362
 
$3,425

$—

($132)
$3,293

$3,071

$148

$—

$3,219
 
$3,202

$45

($5)
$3,242
Other/non-agency—
—
—
—
 740
8
—
748
Total mortgage-backed securities, at cost3,319
48
(5)3,362
 4,165
8
(132)4,041
Total debt securities held to maturity
$3,319

$48

($5)
$3,362
 
$4,165

$8

($132)
$4,041
Total debt securities held to maturity, at cost
$3,071

$148

$—

$3,219
 
$3,202

$45

($5)
$3,242
Money market mutual fund investments
$47

$—

$—

$47
 
$181

$—

$—

$181

$47

$—

$—

$47
 
$47

$—

$—

$47
Total equity securities, at fair value
$47

$—

$—

$47
 
$181

$—

$—

$181

$47

$—

$—

$47
 
$47

$—

$—

$47
Federal Reserve Bank stock
$577

$—

$—

$577
 
$463

$—

$—

$463

$577

$—

$—

$577
 
$577

$—

$—

$577
Federal Home Loan Bank stock149
—
—
149
 364
—
—
364
342
—
—
342
 222
—
—
222
Other equity securities8
—
—
8
 7
—
—
7
8
—
—
8
 8
—
—
8
Total equity securities, at cost
$734

$—

$—

$734
 
$834

$—

$—

$834

$927

$—

$—

$927
 
$807

$—

$—

$807


CITIZENS FINANCIAL GROUP, INC.Accrued interest receivable on debt securities totaled $60 million and $58 million as of March 31, 2020 and December 31, 2019, respectively, is included in other assets on the Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table presents the amortized cost and fair value of debt securities by contractual maturity as of September 30, 2019 are presented below.March 31, 2020. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.
September 30, 2019March 31, 2020
Distribution of MaturitiesDistribution of Maturities
(in millions)1 Year or Less1-5 Years5-10 YearsAfter 10 YearsTotal
1 Year or Less1-5 Years5-10 YearsAfter 10 YearsTotal
Amortized cost:    
U.S. Treasury and other
$120

$—

$—

$—

$120

$41

$—

$—

$—

$41
State and political subdivisions—
—
—
5
5
—
—
—
4
4
Mortgage-backed securities:  
Federal agencies and U.S. government sponsored entities—
193
1,683
18,558
20,434
—
191
1,629
19,209
21,029
Other/non-agency4
2
—
821
827
—
—
—
612
612
Total debt securities available for sale124
195
1,683
19,384
21,386
41
191
1,629
19,825
21,686
Mortgage-backed securities:  
Federal agencies and U.S. government sponsored entities—
—
—
3,319
3,319
—
—
—
3,071
3,071
Total debt securities held to maturity—
—
—
3,319
3,319
—
—
—
3,071
3,071
Total amortized cost of debt securities
$124

$195

$1,683

$22,703

$24,705

$41

$191

$1,629

$22,896

$24,757
  
Fair value:  
U.S. Treasury and other
$120

$—

$—

$—

$120

$41

$—

$—

$—

$41
State and political subdivisions—
—
—
5
5
—
—
—
4
4
Mortgage-backed securities:  
Federal agencies and U.S. government sponsored entities—
193
1,707
18,620
20,520
—
194
1,676
19,781
21,651
Other/non-agency4
2
—
851
857
—
—
—
611
611
Total debt securities available for sale124
195
1,707
19,476
21,502
41
194
1,676
20,396
22,307
Mortgage-backed securities:  
Federal agencies and U.S. government sponsored entities—
—
—
3,362
3,362
—
—
—
3,219
3,219
Total debt securities held to maturity—
—
—
3,362
3,362
—
—
—
3,219
3,219
Total fair value of debt securities
$124

$195

$1,707

$22,838

$24,864

$41

$194

$1,676

$23,615

$25,526


Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $153$147 millionand$167 $166 millionfor thethree months ended September 30,March 31, 2020 and 2019,and 2018, respectively, and was $483 million and $500 million for the nine months ended September 30, 2019 and 2018, respectively.
RealizedThe following table presents realized gains and losses on securities are presented below:securities:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Gains on sale of debt securities(1)

$5
 
$3
 
$21
 
$13

$—
 
$8
Losses on sale of debt securities—
 —
 —
 —
—
 —
Debt securities gains, net
$5
 
$3
 
$21
 
$13

$—
 
$8

(1) For the three and nine months ended September 30, 2019, $2 million and $6 million of gains on sale of debt securities were recognized in mortgage banking fees in the Consolidated Statement of Operations, respectively, as they related to AFS securities held as economic hedges of the value of the MSR portfolio recognized using the amortization method.    
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table presents the amortized cost and fair value of debt securities pledged are presented below:pledged:
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
(in millions)Amortized CostFair Value Amortized CostFair ValueAmortized CostFair Value Amortized CostFair Value
Pledged against repurchase agreements
$265

$268
 
$344

$338

$187

$195
 
$265

$266
Pledged against FHLB borrowed funds670
701
 745
752
608
611
 638
662
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law3,281
3,282
 3,592
3,460
3,871
4,010
 3,670
3,672


Citizens regularly enters into security repurchase agreements with unrelated counterparties, which involve the transfer of a security from one party to another, and a subsequent transfer of substantially the same security

back to the original party. The Company’s repurchase agreements are typically short-term in nature and are accounted for as secured borrowed funds on the Company’s Consolidated Balance Sheets. Citizens recognized no offsetting of short-term receivables or payables as of September 30, 2019March 31, 2020 or December 31, 2018.2019. Citizens offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information, see Note 9.
SecuritizationsThere were 0 securitizations of mortgage loans retained in the investment portfolio were $28 millionand$32 millionfor the three months ended September 30, 2019March 31, 2020 and 2018, respectively, and $72 million and $87$31 million for the ninethree months ended September 30,March 31, 2019, and 2018, respectively. These securitizations include a substantive guarantee by a third party. In 2019, and 2018 the guarantors were FNMA, FHLMC, and GNMA. The debt securities received from the guarantors are classified as AFS.
Impairment
Upon purchase of HTM investment securities and each subsequent measurement period, Citizens recognizes a reserve for credit losses expected to be incurred over the life of the security, even if the risk of loss is remote. Recognition of a reserve for expected credit losses is not required if the amount the Company expects to realize is zero (commonly referred to as “zero expected credit losses”). The Company evaluated its existing HTM portfolio and concluded that all of the securities met the zero expected credit loss criteria, and therefore no CECL reserve was booked for HTM securities as of the balance sheet date.
Citizens reviews its AFS debt securities for impairment at the individual security level on a quarterly basis, or more frequently if a potential loss triggering event occurs. The initial indicator of impairment for debt securities classified as AFS is a decline in fair value below its amortized cost basis. For any security that has declined in fair value below the amortized cost basis, the Company recognizes an impairment loss in current period earnings if management has the intent to sell the security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost basis.
Estimating the recovery of the amortized cost basis of a debt security is based upon an assessment of the cash flows expected to be collected. If the present value of cash flows expected to be collected, discounted at the security’s original effective yield, is less than the amortized cost basis, impairment equal to the shortfall in cash flows has occurred. Citizens evaluates whether any portion of the impairment is attributable to credit-related factors or various other market factors affecting the fair value of the security (e.g., interest rates, spread levels, liquidity in the sector, etc.), and the public credit rating of the security. If credit-related factors exist, credit-related impairment has occurred regardless of the Company’s intent to hold the security until it recovers.
The credit-related portion of impairment is recognized in current period earnings as provision expense through the establishment of an allowance for AFS securities, to the extent the allowance does not reduce the value of the AFS security below its current fair value. The remaining non-credit related portion of impairment is recognized in OCI. Improvement in credit losses in subsequent periods results in a reversal of the allowance for AFS securities and a corresponding decrease to provision expense, to the extent the allowance does not become negative. Accrued interest receivable on AFS debt securities is excluded from the balances used to calculate the allowance for AFS securities. All accrued and uncollected interest is immediately reversed against interest income when it is deemed uncollectible. The Company has evaluated any AFS securities in an unrealized loss position at March 31, 2020 and concluded that all unrealized losses are due to non-credit related factors. As such, the Company does not have an allowance for AFS securities as of March 31, 2020.
The following tables presenttable presents AFS mortgage-backed debt securities whosewith fair values are below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:
September 30, 2019March 31, 2020
Less than 12 Months 12 Months or Longer TotalLess than 12 Months 12 Months or Longer Total
(dollars in millions)Number of IssuesFair ValueGross Unrealized Losses Number of IssuesFair ValueGross Unrealized Losses Number of IssuesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses Fair ValueGross Unrealized Losses Fair ValueGross Unrealized Losses
Federal agencies and U.S. government sponsored entities156

$3,180

($16) 175

$4,907

($69) 331

$8,087

($85)
$456

($3) 
$—

$—
 
$456

($3)
Other/non-agency—
—
—
 5
32
(4) 5
32
(4)349
(4) —
—
 349
(4)
Total156

$3,180

($16) 180

$4,939

($73) 336

$8,119

($89)
$805

($7) 
$—

$—
 
$805

($7)


 December 31, 2018
 Less than 12 Months 12 Months or Longer Total
(dollars in millions)Number of IssuesFair ValueGross Unrealized Losses Number of IssuesFair ValueGross Unrealized Losses Number of IssuesFair ValueGross Unrealized Losses
Federal agencies and U.S. government sponsored entities166

$4,881

($89) 429

$15,124

($648) 595

$20,005

($737)
Other/non-agency10
139
(1) 11
72
(6) 21
211
(7)
Total176

$5,020

($90) 440

$15,196

($654) 616

$20,216

($744)
The following table present AFS and HTM mortgage-backed debt securities with fair values below their respective carrying values, separated by the duration the securities have been in a continuous unrealized loss position:
 December 31, 2019
 Less than 12 Months 12 Months or Longer Total
(dollars in millions)Fair ValueGross Unrealized Losses Fair ValueGross Unrealized Losses Fair ValueGross Unrealized Losses
Federal agencies and U.S. government sponsored entities
$5,135

($24) 
$3,748

($52) 
$8,883

($76)


Citizens does not currently have the intent to sell these impaired debt securities, and it is not more likely than not that the Company will be required to sell these debt securities prior to recovery of their amortized cost bases. Citizens has determined that credit losses are not expected to be incurred on the remaining agency and non-agency MBS identified with unrealized losses as of September 30, 2019.March 31, 2020. The unrealized losses on these debt securities reflect non-credit-related factors such as changing interest rates and market liquidity. Therefore, Citizens has determined that these debt securities are not other-than-temporarily impaired. Any subsequent increases in the valuation of impaired debt securities will not impact their recorded cost bases.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The following table presents the cumulative credit-related losses recognized in earnings on the Company’s debt securities:
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2019
 2018
 2019
 2018
Cumulative balance at beginning of period
$57
 
$81
 
$81
 
$80
Credit impairments recognized in earnings on debt securities that have been previously impaired1
 1
 2
 3
Reductions due to increases in cash flow expectations on impaired debt securities(1)
—
 (1) —
 (2)
Reductions for securities sold or matured during the period(1) —
 (26) —
Cumulative balance at end of period
$57
 
$81
 
$57
 
$81

(1) Reported in interest income from investment securities on the Consolidated Statements of Operations.

Cumulative credit losses recognized in earnings for impaired AFS debt securities held as of September 30, 2019 and September 30, 2018 were $57 million and $81 million respectively. There were 0 credit losses recognized in earnings for the Company’s HTM portfolio as of September 30, 2019 and 2018. For the three months ended September 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million. For the nine months ended September 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $2 million and $3 million, respectively.
NOTE 3 - LOANS AND LEASES
The Company’s loansLoans held for investment are reported at the amount of their outstanding principal, net of charge-offs, unearned income, deferred loan origination fees and costs, and unamortized premiums or discounts on purchased loans.
Loans and leases are disclosed in portfolio segments and classes. The Company’s loan and lease portfolio segments are commercial and retail. The classes as reflected below.of loans and leases are: commercial, commercial real estate, leases, residential mortgages, home equity, automobile, education and other retail.
The following table presents the Company’s loans and leases disclosed in portfolio segments and classes:
(in millions)September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Commercial(1)

$41,356
 
$40,857

$49,092
 
$41,479
Commercial real estate12,820
 13,023
14,502
 13,522
Leases2,557
 2,903
2,438
 2,537
Total commercial loans and leases56,733
 56,783
66,032
 57,538
Residential mortgages19,699
 18,978
18,721
 19,083
Home equity loans876
 1,073
Home equity lines of credit12,148
 12,710
Home equity loans serviced by others318
 399
Home equity lines of credit serviced by others81
 104
Home equity12,992
 13,154
Automobile12,070
 12,106
12,157
 12,120
Education9,729
 8,900
10,887
 10,347
Credit cards2,133
 1,991
Other retail4,093
 3,616
6,739
 6,846
Total retail loans(2)
61,147
 59,877
61,496
 61,550
Total loans and leases(3)

$117,880
 
$116,660

$127,528
 
$119,088

(1) SBA loans we serviceserviced for others of $27$43 million and $33 million at March 31, 2020 and December 31, 2019, respectively, are not included above. These loans represent the government guaranteed portion of SBA loans sold to outside investors as of September 30, 2019. There were 0 SBA loans serviced for others as of December 31, 2018.investors.
(2) Mortgage loans we serviceserviced for others of $74.6$79.2 billion and $69.6$77.5 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, are not included above.
(3)  LHFS totaling $2.0 billion and $1.3$3.3 billion at September 30, 2019both March 31, 2020 and December 31, 2018, respectively,2019 are not included above.

CITIZENS FINANCIAL GROUP, INC.Accrued interest receivable on loans and leases held for investment totaled $507 million and $495 million as of March 31, 2020 and December 31, 2019, respectively, and is included in other assets in the Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table showspresents the composition of LHFS.
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
(in millions)
Residential Mortgages(1)
Commercial(2)
Total 
Residential Mortgages(1)
Commercial(2)
Total
Residential Mortgages(1)
Commercial(2)
Total 
Residential Mortgages(1)
Commercial(2)
Total
Loans held for sale at fair value
$1,824

$169

$1,993
 
$967

$252

$1,219

$2,708

$203

$2,911
 
$1,778

$168

$1,946
Other loans held for sale—
22
22
 —
101
101
—
350
350
 1,101
283
1,384
(1) OriginatedResidential mortgage LHFS at fair value are originated for sale.
(2) LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other LHFS generally consist of commercial loans associated with the Company’s syndication business.
Loans pledged as collateral for FHLB borrowed funds, primarily residential mortgages and home equity loans, totaled $25.3 billion and $25.6 billion at September 30, 2019March 31, 2020 and December 31, 2018, respectively.2019. Loans pledged as collateral to support the contingent ability to borrow at the FRB discount window, if necessary, were primarily comprised of auto, commercial and commercial real estate loans, and totaled $18.0$17.3 billion and $16.8$17.4 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
During the three months ended September 30, 2019,March 31, 2020, the Company purchased $164$218 million of education loans and $66$272 million of other retail loans. During the three months ended September 30, 2018, the Company purchased $98 million of education loans. During the nine months ended September 30,March 31, 2019, the Company purchased $464 million of education loans and $66 million of other retail loans. During the nine months ended September 30, 2018, the Company purchased $321$201 million of education loans.
The Company sold $109 million of commercial loans duringDuring the three months ended September 30, 2019. During the nine months ended September 30, 2019,March 31, 2020, the Company sold $291$191 million of commercial loans and $628 million$1.5 billion of retail loans, including $22 million of TDR sales.loans. During the three months ended September 30, 2018,March 31, 2019 the Company did not have loan portfolio sales. During the nine months ended September 30, 2018 the Company had $553sold $182 million of commercial loan sales.loans and $22 million of retail TDRs.
Citizens is engaged in the leasing of equipment for commercial use, primarily focused on Fortune 1000 companies for large capital equipment acquisitions including aircraft and railcars, among other equipment. The Company determines if an arrangement is a lease and the related lease classification at inception. Lease terms predominantly range from three years to seven years and may include options to terminate the lease early or purchase the leased property prior to the end of the lease term. Certain lease agreements include rental payments based on an index or are adjusted periodically for inflation. The Company does not have lease agreements which contain lease and nonlease components.
A lessee is evaluated from a credit perspective using the same underwriting standards and procedures as for a loan borrower. A lessee is expected to make rental payments based on its cash flows and the viability of its operations. Leases are usually not evaluated as collateral-based transactions, and therefore the lessee’s overall financial strength is the most important credit evaluation factor.
The components of the net investment in direct finance leases, before ALLL, are presented below:
(in millions)September 30, 2019
Total future minimum lease rentals
$1,670
Estimated residual value of leased equipment (non-guaranteed)1,072
Initial direct costs10
Unearned income(232)
Total leases
$2,520

Interest income on direct financing and sales-type leases for the three months and nine months ended September 30,March 31, 2020 and 2019 was $18 million and $58$20 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


A maturity analysis of direct financing lease receivables at September 30, 2019 is presented below:
(in millions) 
2019
$123
2020460
2021343
2022265
2023188
Thereafter291
Total undiscounted future minimum lease rentals
$1,670

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS,NONACCRUING LOANS AND LEASES, AND CONCENTRATIONS OF CREDIT RISK
The ACL consistsAllowance for Credit Losses
Management’s estimate of expected credit losses in the Company’s loan and lease portfolios is recorded in the ALLL and the reserve for unfunded commitments. It is adjusted through a provision for credit losses that is charged to earnings, based onlending commitments (collectively the Company’s quarterly evaluation of the loan and lease portfolio and related commitments, and is reduced by net charge-offs and the ALLL associated with sold loans.ACL). See Note 5 in the Company’s 20182019 Form 10-K for a detailed discussion of the ALLLACL reserve methodology and estimation techniques.techniques as of December 31, 2019. Upon adoption of CECL effective January 1, 2020, the Company’s ACL reserve methodology changed to estimate expected credit losses over the contractual life of the loans and leases.
OnThe ACL is maintained at a quarterly basis,level the Company reviewsbelieves to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and refineslease portfolios and on the unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments that are not unconditionally cancelable considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information.
Key assumptions used in the ACL measurement process include the use of a two-year reasonable and supportable economic forecast period followed by a one-year period during which the expected credit losses revert to long-term historical macroeconomic inputs.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. Loans are grouped generally by product type (e.g., commercial, commercial real estate, residential mortgage, etc.), and significant loan portfolios are assessed for credit losses using econometric models.
The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast and is primarily based on econometric models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current PD, LGD and EAD (for commercial loans and leases), timing and amount of expected draws (for unfunded lending commitments), mix and level of loan balances, delinquency levels, assigned risk ratings, previous loss experience, current business conditions, amounts and timing of expected future cash flows, and factors particular to a specific commercial credit such as

competition, business and management performance. Forward-looking economic assumptions include real gross domestic product, unemployment rate, interest rate curve, and changes in collateral values. This data is aggregated to estimate expected credit losses over the contractual life of the loans and leases, adjusted for expected prepayments. In highly volatile economic environments historical information, such as commercial customer financial statements or consumer credit ratings, may not be as important to estimating future expected losses as forecasted inputs to the models.
The ACL may also be affected materially by a variety of qualitative factors that the Company considers to reflect current judgment of various events and risks that are not measured in the statistical procedures including uncertainty related to the economic forecasts used in the modeled credit loss estimates, loan growth, back testing results, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons. The qualitative allowance for economic forecast risk is further informed by multiple alternative scenarios to arrive at a composite scenario supporting the period-end ACL balance.
The measurement process results in specific or pooled allowances for loans, leases and unfunded lending commitments, and qualitative allowances that are judgmentally determined and applied across the portfolio.
There are certain loan portfolios that may not need an econometric model to enable the Company to calculate management’s best estimate of the expected credit losses. Less data intensive, non-modeled approaches to estimating losses are considered more efficient and practical for portfolios that have lower levels of outstanding balances (e.g., runoff or closed portfolios, new products or products that are not significant to the Company’s overall credit risk exposure).
Loans and leases that do not share similar risk characteristics are individually assessed for expected credit losses. Nonaccruing commercial and commercial real estate loans with an outstanding balance of $5 million or greater and all commercial and commercial real estate TDRs (regardless of size) are assessed on an individual loan level basis. Generally, the measurement of ACL on individual loans and leases is the present value of its future cash flows or the fair value of its underlying collateral, if the loan or lease is collateral dependent. Loans that are deemed to be collateral dependent are written down to the fair value, less costs to sell, if sale of the collateral is expected as of the evaluation date and are reassessed each subsequent period to determine if a change to the ACL is required. Subsequent evaluations may result in an increase or decrease to the ACL, based on a corresponding change in the fair value of the collateral during the period. Any subsequent decrease to the ACL (because of an increase to the collateral-dependent loan’s fair value) is limited to the total amount previously written off for that loan. For retail TDRs that are not collateral dependent, the ACL is developed using the present value of expected future cash flows compared to the amortized cost basis in the loans. Expected re-default factors are considered in this analysis. Retail TDRs that are deemed collateral dependent are written down to fair market value less cost to sell.
Expected recoveries are considered in management’s estimate of the ACL taking into consideration changesand may result in portfolio sizea negative adjustment (i.e., reduction) to the ACL balance. A loan is collateral dependent if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty as of the evaluation date. Generally, repayment would be expected to be provided substantially by the sale or continued operation of the underlying collateral if cash flows to repay the loan from all other available sources (including guarantors) are expected to be no more than nominal. If repayment is dependent only on the operation of the collateral, the fair value of the collateral would not be adjusted for estimated costs to sell. If a loan is considered collateral dependent, the ACL is calculated as the difference between the fair value of collateral (adjusted for the costs to sell if the sale of the collateral is expected) and composition,the amortized cost basis as of the evaluation date. It is possible to have a negative ACL for a collateral dependent loan if the fair value of the collateral increases in a subsequent reporting period. The negative ACL cannot exceed the total amount previously charged off.
Accrued interest receivable on loans and leases is excluded from asset balances used to calculate the ACL. All accrued and uncollected interest is immediately reversed against interest income when a loan or lease is placed on nonaccrual status. Uncollectible interest is written off timely in accordance with regulatory guidelines. Generally, loans and leases are placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection is insufficient to warrant further accrual. Residential mortgages are placed on nonaccrual status when contractually past due 120 days or more, or sooner if deemed collateral-dependent, unless guaranteed by the Federal Housing Administration. The amount of accrued interest receivable reversed against interest income for the three months ended March 31, 2020 was $1 million and $5 million for commercial and retail, respectively.

The Company estimates expected credit losses associated with off-balance sheet financial instruments such as standby letters of credit, financial guarantees and unfunded loan commitments that are not unconditionally cancelable. Off-balance sheet financial instruments are subject to individual reviews and are analyzed and segregated by risk according to the Company’s internal risk rating scale. These risk classifications, in conjunction with historical loss experience, internal risk ratings, current and future economic conditions, industrytiming and amount of expected draws, and performance trends and other pertinent information. As of September 30, 2019, there were no material changeswithin specific portfolio segments, result in assumptions or estimation techniques compared with prior periods that impacted the determinationestimate of the current period’sreserve for unfunded lending commitments. The Company does not recognize a reserve for future draws from credit lines that are unconditionally cancelable (e.g., credit cards).
The ALLL and the reserve for unfunded lending commitments.commitments are reported on the Consolidated Balance Sheets in the allowance for loan and lease losses and in other liabilities, respectively. Provision for credit losses related to the loans and leases portfolio and the unfunded lending commitments are reported in the Consolidated Statements of Operations as provision for credit losses.
AThe following table presents a summary of changes in the ACL is presented below:ALLL and the reserve for unfunded lending commitments:
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(in millions)Commercial
Retail
Total
 Commercial
Retail
Total
Allowance for loan and lease losses, beginning of period
$680

$547

$1,227
 
$690

$552

$1,242
Charge-offs(35)(124)(159) (106)(347)(453)
Recoveries3
43
46
 17
128
145
Net charge-offs(32)(81)(113) (89)(219)(308)
Provision charged to income64
85
149
 111
218
329
Allowance for loan and lease losses, end of period712
551
1,263
 712
551
1,263
Reserve for unfunded lending commitments, beginning of period93
—
93
 91
—
91
Provision for unfunded lending commitments(48)—
(48) (46)—
(46)
Reserve for unfunded lending commitments, end of period45
—
45
 45
—
45
Total allowance for credit losses, end of period
$757

$551

$1,308
 
$757

$551

$1,308


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018Three Months Ended March 31, 2020
(in millions)Commercial
Retail
Total
 Commercial
Retail
Total
Commercial
Retail
Total
Allowance for loan and lease losses, beginning of period
$715

$538

$1,253
 
$685

$551

$1,236

$674

$578

$1,252
Cumulative effect of change in accounting principle(176)629
453
Allowance for loan and lease losses, beginning of period, adjusted498
1,207
1,705
Charge-offs(18)(109)(127) (35)(328)(363)(47)(127)(174)
Recoveries2
39
41
 10
121
131
3
34
37
Net charge-offs(16)(70)(86) (25)(207)(232)(44)(93)(137)
Provision charged to income8
67
75
 47
191
238
298
305
603
Allowance for loan and lease losses, end of period707
535
1,242
 707
535
1,242

$752

$1,419

$2,171






Reserve for unfunded lending commitments, beginning of period88
—
88
 88
—
88

$44

$—

$44
Cumulative effective of change in accounting principle(3)1
(2)
Reserve for unfunded lending commitments, beginning of period, adjusted41
1
42
Provision for unfunded lending commitments3
—
3
 3
—
3
(3)—
(3)
Reserve for unfunded lending commitments, end of period91
—
91
 91
—
91

$38

$1

$39
Total allowance for credit losses, end of period
$798

$535

$1,333
 
$798

$535

$1,333



The recorded investment in loans and leases basedfollowing table provides additional detail on the Company’s evaluation methodology is presented below:cumulative effect of change in accounting principle on the ACL:
September 30, 2019 December 31, 2018December 31, 2019 January 1, 2020 March 31, 2020
(in millions)Commercial
Retail
Total
 Commercial
Retail
Total
Amortized Cost BasisACL BalanceCoverage Impact of Adoption of CECLACL BalanceCoverage Amortized Cost BasisACL BalanceCoverage
Individually evaluated
$387

$675

$1,062
 
$391

$723

$1,114
Formula-based evaluation56,346
60,472
116,818
 56,392
59,154
115,546
Commercial
$41,479

$575
1.4% 
($199)
$376
0.9% 
$49,092

$613
1.2%
Commercial real estate13,522
124
0.9
 (57)67
0.5
 14,502
74
0.5
Leases2,537
19
0.7
 77
96
3.8
 2,438
103
4.2
Total commercial loans and leases57,538
718
1.2
 (179)539
0.9
 66,032
790
1.2
Residential19,083
35
0.2
 95
130
0.7
 18,721
153
0.8
Home equity13,154
83
0.6
 73
156
1.2
 12,992
169
1.3
Automobile12,120
123
1.0
 83
206
1.7
 12,157
278
2.3
Education10,347
116
1.1
 298
414
4.0
 10,887
473
4.3
Other retail6,846
221
3.2
 81
302
4.4
 6,739
347
5.1
Total retail loans61,550
578
0.9
 630
1,208
2.0
 61,496
1,420
2.3
Total loans and leases
$56,733

$61,147

$117,880
 
$56,783

$59,877

$116,660

$119,088

$1,296
1.1% 
$451

$1,747
1.5% 
$127,528

$2,210
1.7%


In addition to the adoption of CECL, macroeconomic assumptions shifted as the COVID-19 pandemic and related economic impacts surfaced during the quarter ended March 31, 2020, resulting in a significant impact to the ACL. The significant increase in the ACL as of March 31, 2020 as compared to the January 1, 2020 ACL was driven
A
by the COVID-19 pandemic and the resulting economic impacts, with a total reserve build of $463 million and an ending balance of $2.2 billion.
To determine the ACL as of March 31, 2020, the Company utilized the Moody’s March 27th Baseline forecast to integrate the effects of COVID-19 in the loss estimates. Estimated Losses were adjusted for the expected benefit of COVID-19-related fiscal and monetary stimulus measures and the expected beneficial impacts of customer assistance actions. These actions include company forbearance and other customer accommodation efforts encouraged by the CARES Act and regulatory interagency guidance that the Company believes will stabilize credit profiles in both the commercial and consumer portfolios.
The economic forecast risk component of the qualitative reserve was informed by a composite economic scenario approach utilizing the Moody’s March 27th Baseline scenario as the most likely outcome and two less likely outcomes - an alternate Moody’s pandemic scenario and an internally generated pandemic scenario. All scenarios assumed a deep recession in the second quarter 2020 with significantly declining GDP and elevated unemployment followed by a strong recovery in the second half of 2020.
The following table presents a summary of changes in the ACL by evaluation methodology is presented below:ALLL and the reserve for unfunded lending commitments:
 September 30, 2019 December 31, 2018
(in millions)Commercial
Retail
Total
 Commercial
Retail
Total
Individually evaluated
$74

$25

$99
 
$38

$26

$64
Formula-based evaluation683
526
1,209
 743
526
1,269
Allowance for credit losses
$757

$551

$1,308
 
$781

$552

$1,333
 Three Months Ended March 31, 2019
(in millions)Commercial
Retail
Total
Allowance for loan and lease losses, beginning of period
$690

$552

$1,242
Charge-offs(26)(112)(138)
Recoveries2
47
49
Net charge-offs(24)(65)(89)
Provision charged to income25
67
92
Allowance for loan and lease losses, end of period
$691

$554

$1,245
    
Reserve for unfunded lending commitments, beginning of period
$91

$—

$91
Provision for unfunded lending commitments(7)—
(7)
Reserve for unfunded lending commitments, end of period
$84

$—

$84


Credit Quality Indicators
Loan and lease portfolio segments and classes, excluding LHFS, are presented by credit quality indicator and vintage year. Citizens defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. In general, renewals are categorized as new credit decisions and reflect the renewal date as the vintage date. Loans modified in a TDR are considered to be a continuation of the original loan and vintage date corresponds with the initial loan origination date.
For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. For additional information on regulatory classification ratings, see Note 5Loans with a “pass” rating are those that the Company believes will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness or potential weakness that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s 2018 Form 10-K.credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable.

The recorded investment infollowing table presents the amortized cost basis of commercial loans and leases, based onby vintage date and regulatory classification ratings is presented below:rating, as of March 31, 2020:
September 30, 2019
 Criticized Term Loans by Origination Year Revolving Loans  
(in millions)Pass
Special MentionSubstandard
Doubtful
Total
2020 2019 2018 2017 2016 Prior to 2016 Within the Revolving PeriodConverted to Term Total
Commercial
$38,997

$1,369

$761

$229

$41,356
               
Pass
$1,480
 
$7,457
 
$5,444
 
$3,079
 
$1,901
 
$3,035
 
$23,655

$174
 
$46,225
Special Mention—
 126
 264
 88
 75
 177
 766
4
 1,500
Substandard2
 60
 150
 136
 99
 104
 493
18
 1,062
Doubtful—
 27
 9
 23
 10
 87
 145
4
 305
Total commercial1,482
 7,670
 5,867
 3,326
 2,085
 3,403
 25,059
200
 49,092
Commercial real estate12,437
297
36
50
12,820
              
Pass898
 3,322
 3,750
 1,937
 1,187
 1,257
 1,394
—
 13,745
Special Mention48
 72
 181
 78
 56
 93
 197
—
 725
Substandard—
 —
 19
 2
 —
 3
 —
—
 24
Doubtful—
 —
 1
 5
 —
 2
 —
—
 8
Total commercial real estate946
 3,394
 3,951
 2,022
 1,243
 1,355
 1,591
—
 14,502
Leases2,466
39
49
3
2,557
              
Pass90
 370
 291
 200
 261
 1,107
 —
—
 2,319
Special Mention—
 2
 6
 5
 4
 2
 —
—
 19
Substandard—
 6
 33
 6
 21
 33
 —
—
 99
Doubtful—
 —
 —
 —
 —
 1
 —
—
 1
Total leases90
 378
 330
 211
 286
 1,143
 —
—
 2,438
Total commercial loans and leases
$53,900

$1,705

$846

$282

$56,733
               
Pass2,468
 11,149
 9,485
 5,216
 3,349
 5,399
 25,049
174
 62,289
Special Mention48
 200
 451
 171
 135
 272
 963
4
 2,244
Substandard2
 66
 202
 144
 120
 140
 493
18
 1,185
Doubtful—
 27
 10
 28
 10
 90
 145
4
 314
Total commercial loans and leases
$2,518
 
$11,442
 
$10,148
 
$5,559
 
$3,614
 
$5,901
 
$26,650

$200
 
$66,032

For retail loans, Citizens utilizes credit scores provided by FICO which are generally refreshed on a quarterly basis and the loan’s payment and delinquency status to monitor credit quality. FICO credit scores are considered the strongest indicator of credit losses over the contractual life of the loan as the scores are based on current and historical national industry-wide consumer level credit performance data, and assist management in predicting the borrower’s future payment performance.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 December 31, 2018
  Criticized 
(in millions)Pass
Special MentionSubstandard
Doubtful
Total
Commercial
$38,600

$1,231

$828

$198

$40,857
Commercial real estate12,523
412
82
6
13,023
Leases2,823
39
41
—
2,903
Total commercial loans and leases
$53,946

$1,682

$951

$204

$56,783



The recorded investment in classesfollowing table presents the amortized cost basis of retail loans, categorized by delinquency status is presented below:
 September 30, 2019
  Days Past Due
(in millions)Current
1-2930-5960-8990 or MoreTotal
Residential mortgages
$19,375

$129

$28

$78

$89

$19,699
Home equity loans772
62
10
25
7
876
Home equity lines of credit11,593
331
52
27
145
12,148
Home equity loans serviced by others275
23
5
3
12
318
Home equity lines of credit serviced by others56
11
2
1
11
81
Automobile10,849
932
194
71
24
12,070
Education9,513
162
27
16
11
9,729
Credit cards2,028
53
20
11
21
2,133
Other retail3,942
80
30
21
20
4,093
Total retail loans
$58,403

$1,783

$368

$253

$340

$61,147


vintage date and FICO scores, as of March 31, 2020:
 December 31, 2018
  Days Past Due
(in millions)Current
1-2930-5960-8990 or MoreTotal
Residential mortgages
$18,664

$131

$37

$13

$133

$18,978
Home equity loans945
75
12
3
38
1,073
Home equity lines of credit12,042
386
65
22
195
12,710
Home equity loans serviced by others355
21
7
3
13
399
Home equity lines of credit serviced by others79
15
2
1
7
104
Automobile10,729
1,039
207
59
72
12,106
Education8,694
159
23
13
11
8,900
Credit cards1,894
53
14
10
20
1,991
Other retail3,481
76
26
18
15
3,616
Total retail loans
$56,883

$1,955

$393

$142

$504

$59,877
 Term Loans by Origination Year Revolving Loans  
(in millions)2020 2019 2018 2017 2016 Prior to 2016 Within the Revolving PeriodConverted to Term Total
Residential mortgages                
800+
$328
 
$1,694
 
$950
 
$1,541
 
$2,001
 
$2,459
 
$—

$—
 
$8,973
740-799634
 2,026
 647
 828
 1,017
 1,220
 —
—
 6,372
680-739192
 687
 280
 294
 367
 614
 —
—
 2,434
620-67912
 102
 44
 56
 79
 237
 —
—
 530
<6204
 16
 35
 46
 44
 251
 —
—
 396
No FICO available(1)
2
 2
 —
 —
 —
 12
 —
—
 16
Total residential mortgages1,172
 4,527
 1,956
 2,765
 3,508
 4,793
 —
—
 18,721
Home equity                
800+1
 10
 15
 9
 6
 288
 4,314
339
 4,982
740-7991
 7
 8
 7
 4
 238
 3,423
302
 3,990
680-739—
 3
 8
 9
 6
 224
 1,915
272
 2,437
620-679—
 1
 6
 15
 9
 160
 570
174
 935
<620—
 3
 10
 33
 21
 166
 207
207
 647
No FICO available(1)
—
 —
 —
 —
 —
 1
 —
—
 1
Total home equity2
 24
 47
 73
 46
 1,077
 10,429
1,294
 12,992
Automobile                
800+302
 935
 541
 441
 289
 175
 —
—
 2,683
740-799393
 1,304
 738
 529
 312
 174
 —
—
 3,450
680-739355
 1,233
 676
 441
 252
 135
 —
—
 3,092
620-679191
 758
 391
 248
 145
 84
 —
—
 1,817
<62026
 314
 277
 227
 151
 99
 —
—
 1,094
No FICO available(1)
2
 1
 —
 —
 —
 18
 —
—
 21
Total automobile1,269
 4,545
 2,623
 1,886
 1,149
 685
 —
—
 12,157
Education                
800+221
 1,159
 880
 853
 669
 848
 —
—
 4,630
740-799294
 1,364
 793
 567
 397
 562
 —
—
 3,977
680-739105
 553
 321
 222
 156
 298
 —
—
 1,655
620-6795
 86
 69
 55
 45
 130
 —
—
 390
<620—
 12
 23
 25
 22
 86
 —
—
 168
No FICO available(1)
—
 —
 —
 —
 —
 67
 —
—
 67
Total education625
 3,174
 2,086
 1,722
 1,289
 1,991
 —
—
 10,887
Other retail                
800+138
 574
 234
 90
 21
 58
 300
—
 1,415
740-799223
 849
 318
 130
 32
 41
 664
—
 2,257
680-739162
 609
 216
 84
 19
 22
 648
—
 1,760
620-67978
 272
 84
 28
 6
 8
 229
—
 705
<6206
 75
 44
 16
 3
 5
 117
—
 266
No FICO available(1)
19
 3
 —
 —
 —
 —
 314
—
 336
Total other retail626
 2,382
 896
 348
 81
 134
 2,272
—
 6,739
Retail                
800+990
 4,372
 2,620
 2,934
 2,986
 3,828
 4,614
339
 22,683
740-7991,545
 5,550
 2,504
 2,061
 1,762
 2,235
 4,087
302
 20,046
680-739814
 3,085
 1,501
 1,050
 800
 1,293
 2,563
272
 11,378
620-679286
 1,219
 594
 402
 284
 619
 799
174
 4,377
<62036
 420
 389
 347
 241
 607
 324
207
 2,571
No FICO available(1)
23
 6
 —
 —
 —
 98
 314
—
 441
Total retail
$3,694
 
$14,652
 
$7,608
 
$6,794
 
$6,073
 
$8,680
 
$12,701

$1,294
 
$61,496

(1) Represents loans for which an updated FICO score was unavailable (e.g., due to recent profile changes).
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NonperformingNonaccrual and Past Due Assets
The following table presents nonperformingnonaccrual loans and leases and loans accruing and 90 days or more past due:
Nonperforming Accruing and 90 days or more past dueAs of December 31, 2019 As of March 31, 2020
(in millions)September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018Nonaccrual loans and leases Nonaccrual loans and leases90+ days past due and accruingNonaccrual with no related ACL
Commercial
$228
 
$194
 
$1
 
$1

$240
 
$305

$—

$46
Commercial real estate49
 7
 —
 —
2
 8
—
6
Leases4
 —
 1
 —
3
 1
—
—
Total commercial loans and leases281
 201
 2
 1
245
 314
—
52
Residential mortgages (2)
147
 136
 15
 15
93
 101
14
55
Home equity loans36
 50
 —
 —
Home equity lines of credit184
 231
 —
 —
Home equity loans serviced by others14
 17
 —
 —
Home equity lines of credit serviced by others13
 15
 —
 —
Home equity246
 242
—
90
Automobile69
 81
 —
 —
67
 69
—
30
Education17
 38
 3
 2
18
 21
2
4
Credit card21
 20
 —
 —
Other retail11
 8
 10
 7
34
 33
11
1
Total retail loans512
 596
 28
 24
Total
$793
 
$797
 
$30
 
$25
Total retail458
 466
27
180
Total loans and leases
$703
 
$780

$27

$232

(1) Nonperforming balances exclude first lien residential mortgageInterest income is generally not recognized for loans whichand leases that are on nonaccrual status. The Company reverses accrued interest receivable with a charge to interest income upon classifying the loan or lease as nonaccrual.
The following table presents an analysis of the age of both accruing and 90 days or more past due that are 100% guaranteed by the Federal Housing Administration. These loans totaled $12 million as of September 30, 2019 and December 31, 2018.
(2) Nonperforming balances exclude guaranteed residential mortgage loans sold to GNMA for which the Company has the right, but not the obligation, to repurchase. These loans totaled $195 million and $133 million as of September 30, 2019 and December 31, 2018, respectively, and are included in the Company’s Consolidated Balance Sheets.

Other nonperforming assets primarily consist of other real estate owned and are presented in other assets on the Consolidated Balance Sheets. Other real estate owned, net of valuation allowance, was $40 million and $34 million as of September 30, 2019 and December 31, 2018, respectively.
A summary of nonperformingnonaccruing loan and lease key performance indicators is presented below:past due amounts:
 September 30, 2019 December 31, 2018
Nonperforming commercial loans and leases as a percentage of total loans and leases0.24% 0.17%
Nonperforming retail loans as a percentage of total loans and leases0.43
 0.51
Nonperforming loans and leases as a percentage of total loans and leases0.67% 0.68%
    
Nonperforming commercial assets as a percentage of total assets0.17% 0.13%
Nonperforming retail assets as a percentage of total assets0.34
 0.39
Nonperforming assets as a percentage of total assets0.51% 0.52%
 March 31, 2020 December 31, 2019
 Days Past Due Days Past Due
(in millions)Current-2930-5960-89 90 or More Total
 Current-2930-5960-89 90 or More Total
Commercial
$48,909

$97

$28

$58

$49,092
 
$41,340

$45

$27

$67

$41,479
Commercial real estate14,494
1
6
1
14,502
 13,520
1
1
—
13,522
Leases2,431
6
—
1
2,438
 2,498
37
—
2
2,537
Total commercial loans and leases65,834
104
34
60
66,032
 57,358
83
28
69
57,538
Residential mortgages18,586
25
16
94
18,721
 18,947
35
17
84
19,083
Home equity12,681
92
34
185
12,992

12,834
91
40
189
13,154
Automobile11,856
206
72
23
12,157
 11,788
227
81
24
12,120
Education10,835
24
13
15
10,887
 10,290
30
15
12
10,347
Other retail6,622
46
29
42
6,739

6,729
45
31
41
6,846
Total retail loans60,580
393
164
359
61,496
 60,588
428
184
350
61,550
Total
$126,414

$497

$198

$419

$127,528
 
$117,946

$511

$212

$419

$119,088

The recorded investment inCompany estimates expected credit losses based on the fair value of collateral for collateralized loans that management believes will not be paid under the terms of the original loan contract. These loans are considered to be collateral dependent, and the estimated credit loss is calculated as the difference between the loan’s amortized cost basis and the fair value of the collateral as of each evaluation date.
Collateral values for residential mortgage and home equity loans are based on refreshed valuations which are updated at least every 90 days less estimated costs to sell. At March 31, 2020 and December 31, 2019, the Company had collateral-dependent residential mortgage and home equity loans totaling $271 million and $227 million, respectively.
For collateral-dependent commercial loans, the ACL is individually assessed based on the fair value of the collateral. Various types of collateral are used, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. For commercial real estate loans, collateral values are generally based on

appraisals which are updated based on management judgment under the specific circumstances on a case-by-case basis. At March 31, 2020 and December 31, 2019, the Company had collateral-dependent commercial loans totaling $155 million and $85 million, respectively.
The amortized cost basis of mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $164$144 million and $172$152 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The aging of both accruing and nonaccruing loan and lease past due amounts is presented below:
 September 30, 2019 December 31, 2018
 Days Past Due Days Past Due
(in millions)30-5960-89 90 or More Total
 30-5960-89 90 or More Total
Commercial
$17

$4

$76

$97
 
$85

$3

$78

$166
Commercial real estate7
16
1
24
 8
32
5
45
Leases—
—
1
1
 7
—
—
7
Total commercial loans and leases24
20
78
122
 100
35
83
218
Residential mortgages28
78
89
195
 37
13
133
183
Home equity loans10
25
7
42
 12
3
38
53
Home equity lines of credit52
27
145
224
 65
22
195
282
Home equity loans serviced by others5
3
12
20
 7
3
13
23
Home equity lines of credit serviced by others2
1
11
14
 2
1
7
10
Automobile194
71
24
289
 207
59
72
338
Education27
16
11
54
 23
13
11
47
Credit cards20
11
21
52
 14
10
20
44
Other retail30
21
20
71
 26
18
15
59
Total retail loans368
253
340
961
 393
142
504
1,039
Total
$392

$273

$418

$1,083
 
$493

$177

$587

$1,257


Impaired Loans
Impaired loans include nonaccruing larger balance (greater than $3 million carrying value), non-homogeneous commercial and commercial real estate loans, and restructured loans that are deemed TDRs. A summary of impaired loans by class is presented below:
 September 30, 2019
(in millions)Impaired Loans With a Related AllowanceAllowance on Impaired LoansImpaired Loans Without a Related AllowanceUnpaid Contractual BalanceTotal Recorded Investment in Impaired Loans
Commercial
$194

$62

$127

$376

$321
Commercial real estate47
12
19
76
66
Total commercial loans241
74
146
452
387
Residential mortgages25
2
122
191
147
Home equity loans23
1
69
126
92
Home equity lines of credit26
2
176
243
202
Home equity loans serviced by others18
1
16
44
34
Home equity lines of credit serviced by others1
—
6
10
7
Automobile1
—
20
30
21
Education117
9
22
139
139
Credit cards27
9
1
29
28
Other retail3
1
2
7
5
Total retail loans241
25
434
819
675
Total
$482

$99

$580

$1,271

$1,062


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 December 31, 2018
(in millions)Impaired Loans With a Related AllowanceAllowance on Impaired LoansImpaired Loans Without a Related AllowanceUnpaid Contractual BalanceTotal Recorded Investment in Impaired Loans
Commercial
$186

$31

$167

$450

$353
Commercial real estate32
7
6
38
38
Total commercial loans218
38
173
488
391
Residential mortgages28
2
127
201
155
Home equity loans34
3
76
148
110
Home equity lines of credit21
1
181
244
202
Home equity loans serviced by others22
1
19
54
41
Home equity lines of credit serviced by others1
—
7
11
8
Automobile1
—
22
31
23
Education130
11
23
153
153
Credit cards24
7
1
25
25
Other retail4
1
2
8
6
Total retail loans265
26
458
875
723
Total
$483

$64

$631

$1,363

$1,114


Additional information on impaired loans is presented below:
 Three Months Ended September 30,
 2019 2018
(in millions)Interest Income RecognizedAverage Recorded Investment Interest Income RecognizedAverage Recorded Investment
Commercial
$2

$293
 
$3

$334
Commercial real estate—
35
 —
34
Total commercial loans2
328
 3
368
Residential mortgages1
145
 1
154
Home equity loans1
94
 1
107
Home equity lines of credit2
199
 2
202
Home equity loans serviced by others1
34
 1
43
Home equity lines of credit serviced by others—
7
 —
9
Automobile1
21
 —
23
Education2
141
 3
160
Credit cards—
26
 —
24
Other retail—
5
 —
7
Total retail loans8
672
 8
729
Total
$10

$1,000
 
$11

$1,097
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 Nine Months Ended September 30,
 2019 2018
(in millions)Interest Income RecognizedAverage Recorded Investment Interest Income RecognizedAverage Recorded Investment
Commercial
$7

$300
 
$7

$318
Commercial real estate1
30
 —
33
Total commercial loans8
330
 7
351
Residential mortgages4
128
 4
148
Home equity loans4
86
 4
107
Home equity lines of credit6
173
 6
189
Home equity loans serviced by others2
31
 2
44
Home equity lines of credit serviced by others—
6
 —
9
Automobile1
18
 —
21
Education6
128
 7
159
Credit cards1
21
 1
22
Other retail—
5
 —
7
Total retail loans24
596
 24
706
Total
$32

$926
 
$31

$1,057

Troubled Debt Restructurings
TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that wethe Company would not otherwise make. The CARES Act and bank regulatory agencies issued guidance during the first quarter of 2020 stating certain loan modifications to borrowers experiencing financial distress as a result of COVID-19 may not be accounted for as TDRs under U.S. GAAP. For additional information onCOVID-19 related loan modifications which occurred from March 1, 2020 through March 31,2020, and met the loan modification criteria under either the CARES Act or the guidance issued by the bank regulatory classification ratings, see Note 5 inagencies, Citizens elected to suspend TDR accounting for such loan modifications; therefore, while not material, modified loans that met the Company’s 2018 Form 10-K.
required guidelines for relief are not considered TDRs and are excluded from the disclosures below. The following table below summarizes TDRs by class and total unfunded commitments:
(in millions)September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Commercial
$235
 
$304

$283
 
$297
Retail675
 723
664
 667
Unfunded commitments related to TDRs35
 30
30
 42

The tablefollowing tables below summarizessummarize how loans were modified during the three months ended March 31, 2020 and nine months ended September 30, 2019 and 2018.2019. The reported balances represent the post-modification outstanding recorded investmentamortized cost basis and can include loans that became TDRs during the period and were paid off in full, charged off, or sold prior to period end. Pre-modification balances for modified loans approximate the post-modification balances shown.
Three Months Ended September 30, 2019Three Months Ended March 31, 2020
Primary Modification TypesPrimary Modification Types
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
(dollars in millions)Number of ContractsRecorded Investment Number of ContractsRecorded Investment Number of ContractsRecorded InvestmentNumber of ContractsAmortized Cost Number of ContractsAmortized Cost Number of ContractsAmortized Cost
Commercial2

$—
 6

$1
 6

$15
—

$—
 2

$—
 17

$41
Commercial real estate—
—
 —
—
 —
—
—
—
 —
—
 —
—
Total commercial loans2
—
 6
1
 6
15
—
—
 2
—
 17
41
Residential mortgages12
2
 8
2
 25
4
38
6
 37
7
 21
4
Home equity loans11
—
 —
—
 19
1
Home equity lines of credit51
6
 16
1
 95
5
Home equity loans serviced by others1
—
 —
—
 4
—
Home equity lines of credit serviced by others—
—
 —
—
 2
—
Home equity46
4
 6
—
 71
4
Automobile46
1
 4
—
 309
4
47
1
 —
—
 183
2
Education—
—
 —
—
 131
2
—
—
 —
—
 91
2
Credit cards805
5
 —
—
 163
—
Other retail—
—
 —
—
 55
—
861
4
 —
—
 112
1
Total retail loans926
14
 28
3
 803
16
992
15
 43
7
 478
13
Total928

$14
 34

$4
 809

$31
992

$15
 45

$7
 495

$54
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



 Three Months Ended September 30, 2018
 Primary Modification Types
 
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
(dollars in millions)Number of ContractsRecorded Investment Number of ContractsRecorded Investment Number of ContractsRecorded Investment
Commercial1

$—
 13

$1
 1

$—
Commercial real estate—
—
 —
—
 —
—
Total commercial loans1
—
 13
1
 1
—
Residential mortgages9
1
 17
2
 31
3
Home equity loans10
1
 —
—
 40
2
Home equity lines of credit27
3
 58
10
 104
7
Home equity loans serviced by others2
—
 —
—
 5
1
Home equity lines of credit serviced by others1
—
 —
—
 8
—
Automobile45
—
 9
—
 315
4
Education—
—
 —
—
 45
1
Credit cards623
4
 —
—
 —
—
Other retail—
—
 —
—
 —
—
Total retail loans717
9
 84
12
 548
18
Total718

$9
 97

$13
 549

$18
 Nine Months Ended September 30, 2019
 Primary Modification Types
 
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
(dollars in millions)Number of ContractsRecorded Investment Number of ContractsRecorded Investment Number of ContractsRecorded Investment
Commercial3

$—
 18

$2
 24

$102
Commercial real estate—
—
 1
—
 —
—
Total commercial loans3
—
 19
2
 24
102
Residential mortgages25
6
 29
5
 87
13
Home equity loans24
1
 —
—
 64
3
Home equity lines of credit123
14
 66
10
 277
17
Home equity loans serviced by others1
—
 —
—
 11
1
Home equity lines of credit serviced by others—
—
 —
—
 6
—
Automobile111
2
 16
—
 933
13
Education—
—
 —
—
 211
5
Credit cards2,362
14
 —
—
 304
—
Other retail—
—
 —
—
 58
—
Total retail loans2,646
37
 111
15
 1,951
52
Total2,649

$37
 130

$17
 1,975

$154
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Nine Months Ended September 30, 2018Three Months Ended March 31, 2019
Primary Modification TypesPrimary Modification Types
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
Interest Rate Reduction(1)
 
Maturity Extension(2)
 
Other(3)
(dollars in millions)Number of ContractsRecorded Investment Number of ContractsRecorded Investment Number of ContractsRecorded InvestmentNumber of ContractsAmortized Cost Number of ContractsAmortized Cost Number of ContractsAmortized Cost
Commercial6

$1
 23

$2
 40

$156
—

$—
 5

$1
 12

$40
Commercial real estate—
—
 1
—
 2
31
—
—
 —
—
 —
—
Total commercial loans6
1
 24
2
 42
187
—
—
 5
1
 12
40
Residential mortgages32
4
 47
6
 117
14
4
2
 11
2
 30
4
Home equity loans32
3
 1
—
 106
5
Home equity lines of credit55
5
 147
21
 310
21
Home equity loans serviced by others3
—
 —
—
 20
1
Home equity lines of credit serviced by others5
—
 1
—
 13
—
Home equity36
4
 35
6
 138
9
Automobile122
2
 42
1
 893
13
25
—
 5
—
 289
4
Education—
—
 —
—
 296
5
—
—
 —
—
 67
2
Credit cards1,776
10
 —
—
 —
—
Other retail1
—
 —
—
 4
—
616
4
 —
—
 1
—
Total retail loans2,026
24
 238
28
 1,759
59
681
10
 51
8
 525
19
Total2,032

$25
 262

$30
 1,801

$246
681

$10
 56

$9
 537

$59
(1) Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.
(2) Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).
(3) Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forgiveness, and capitalizing arrearages. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.
The net change to ALLL resulting from modifications of loans for the three months ended September 30,March 31, 2020 and 2019 and 2018 was $3$4 million and $1 million, respectively. The net change to ALLL resulting from modifications of loans for the nine months ended September 30, 2019 and 2018 was $7 million and $3$2 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded $2 million and $1 million and $2 million of charge-offs resulting from the modification of loans infor the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $3 million for the nine months ended September 30, 2019 and 2018.respectively.
A payment default refers to a loan that becomes 90 days or more past due under the modified terms. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to September 30, 2019March 31, 2020 and 2018. For commercial loans, recorded investment in TDRs that defaulted within 12 months of their modification date for the three months ended September 30, 2018was $32 million. There were NaN for the three months ended September 30, 2019. There were $1$13 million and $52 million of TDRs that defaulted within 12 months of their modification date for commercial loans during the ninethree months ended September 30, 2019March 31, 2020 and 2018, respectively.0 TDRs that defaulted within 12 months of modification for commercial loans during the three months ended March 31, 2019. For retail loans, there were $9$11 million and $10$9 million of loans which defaulted within 12 months of their restructuring date for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and there were $28 million and $30 million of loans which defaulted within 12 months of their restructuring date for the nine months ended September 30, 2019 and 2018, respectively.
Concentrations of Credit Risk
Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics. The following tables present balances of loans with these characteristics:
September 30, 2019March 31, 2020
(in millions)Residential MortgagesHome Equity Loans and Lines of CreditHome Equity Products Serviced by OthersCredit Cards
Total
Residential Mortgages
Home Equity
Other Retail
Total
High loan-to-value
$421

$68

$107

$—

$596

$412

$131

$—

$543
Interest-only/negative amortization1,862
—
—
—
1,862
2,126
—
—
2,126
Low introductory rate—
—
—
224
224
—
—
245
245
Multiple characteristics and other3
—
—
—
3
Total
$2,286

$68

$107

$224

$2,685

$2,538

$131

$245

$2,914

December 31, 2018December 31, 2019
(in millions)Residential MortgagesHome Equity Loans and Lines of CreditHome Equity Products Serviced by OthersCredit Cards
Education
Total
Residential Mortgages
Home Equity
Other Retail
Total
High loan-to-value
$318

$87

$148

$—

$—

$553

$402

$151

$—

$553
Interest-only/negative amortization1,794
—
—
—
1
1,795
2,043
—
—
2,043
Low introductory rate—
—
—
217
—
217
—
—
235
235
Multiple characteristics and other1
—
—
—
—
1
Total
$2,113

$87

$148

$217

$1

$2,566

$2,445

$151

$235

$2,831


NOTE 5 - MORTGAGE BANKING
The Company sells residential mortgages to GSEs and other parties, who may issue securities backed by pools of such loans. The Company retains no beneficial interests in these sales, but may retain the servicing rights for the loans sold. The Company is obligated to subsequently repurchase a loan if the purchaser discovers a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud that should have been identified in a loan file review.
The Company recognizes the right to service residential mortgage loans for others, or MSRs, as separate assets, which are presented in other assets on the Consolidated Balance Sheets, when purchased or when servicing is contractually separated from the underlying mortgage loans by sale with servicing rights retained. The following table summarizes activity related to residential mortgage loans sold with servicing rights retained:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Residential mortgage loans sold with servicing retained
$6,117
 
$1,848
 
$13,265
 
$3,173

$5,272
 
$2,919
Gain on sales (1)
88
 29
 180
 59
143
 37
Contractually specified servicing, late and other ancillary fees (1)
53
 38
 152
 69
58
 48
(1) Reported in mortgage banking fees on the Consolidated Statements of Operations.
In connection with the AugustEffective January 1, 2018 acquisition of FAMC,2020, the Company began maintaining two separate classes ofelected to account for all MSRs which, at the time of initial capitalization, were differentiated by how the risk associated with valuation changes of the MSRs was being managed. The acquired FAMC portfolio is accounted for under the fair value method while the Company’s MSR portfolio held before the FAMC acquisition ispreviously accounted for under the amortization method. Beginning January 1, 2019, all of the Company’s newly originated MSRs are accounted formethod under the fair value method. Upon election, the Company recognized a cumulative effect adjustment to retained earnings of $6 million, net of taxes, equal to the difference between the carrying value of the MSRs and the fair value. Under the fair value method, the MSRs are recorded at fair value at each reporting date with any changes in fair value during the period recorded in mortgage banking fees in the Consolidated Statements of Operations. The unpaid principal balance of the related residential mortgage loans was $79.2 billion and $77.5 billion as of March 31, 2020 and December 31, 2019, respectively. The Company implementedmanages an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio accounted for under the fair value method, which includes the purchase of freestanding derivatives. Depending on the interest rate environment, economic hedges may be used to protect the
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


market value of MSRs accounted for under the amortization method. Any changes in fair value during the period for MSRs carried under the fair value method, as well as amortization and impairment of MSRs under the amortization method, are recorded in mortgage banking fees in the Consolidated Statements of Operations.
The following table summarizes changes in MSRs recorded using the amortization method:
 As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,
(in millions)2019
 2018
 2019
 2018
Mortgage servicing rights:       
Balance as of beginning of period
$203
 
$217
 
$221
 
$201
Amount capitalized—
 11
 —
 26
Purchases—
 —
 —
 16
Amortization(11) (9) (29) (24)
Carrying amount before valuation allowance192
 219
 192
 219
Valuation allowance for servicing assets:       
Balance as of beginning of period14
 —
 —
 3
Valuation charge-offs (recoveries)1
 —
 15
 (3)
Balance at end of period15
 —
 15
 —
Net carrying value of MSRs
$177
 
$219
 
$177
 
$219

The following table summarizes changes in MSRs recorded using the fair value method:
As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,As of and for the Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Fair value as of beginning of the period
$531
 
$—
 
$600
 
$—

$642
 
$600
Acquired MSRs—
 590
 —
 590
Transfers upon election of fair value method190
 —
Fair value as of beginning of the period, adjusted832
 600
Amounts capitalized78
 29
 170
 29
67
 35
Changes in unpaid principal balance during the period (1)
(31) (12) (88) (12)(40) (26)
Changes in fair value during the period (2)
(68) 5
 (172) 5
(282) (46)
Fair value at end of the period
$510
 
$612
 
$510
 
$612

$577
 
$563
(1) Represents changes in value due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial paydowns, and ii)
loans that paid off during the period.
(2) Represents changes in value primarily due to market driven changes in interest rates and prepayment speeds.


The fair value of MSRs is estimated by using the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, contractual servicing fee income, servicing costs, default rates, ancillary income, and other economic factors, which are determined

based on current market interest rates. The valuation does not attempt to forecast or predict the future direction of interest rates.
The sensitivity analysesanalysis below presentpresents the impact to current fair value of an immediate 50 basis point and 100 basis point adverse change in key economic assumptions and the decline in fair value if the respective adverse change was realized. These sensitivities are hypothetical, with the effect of a variation in a particular assumption on the fair value of the MSRs calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., changes in interest rates, which drive changes in prepayment rates, could result in changes in the discount rates), which may amplify or counteract the sensitivities. The primary risk inherent in the Company’s MSRs is an increase in prepayments of the underlying mortgage loans serviced, which is largely dependent upon movements in market interest rates.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For MSRs under the amortization method, key economic assumptions used to estimate the fair value are presented below:
 September 30, 2019 December 31, 2018
 ActualDecline in fair value due to ActualDecline in fair value due to
(dollars in millions) 
Fair value$17850 bps adverse change100 bps adverse change $24350 bps adverse change100 bps adverse change
Weighted average life (in years)5.6 6.5
Weighted average constant prepayment rate11.6%$25$45 8.5%$24$56
Weighted average discount rate9.3%36 9.3%59

For MSRs under the fair value method, key economic assumptions used to estimate the fair value are presented below:
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
ActualDecline in fair value due to ActualDecline in fair value due toActualDecline in fair value due to ActualDecline in fair value due to
(dollars in millions)  
Fair value$51050 bps adverse change100 bps adverse change $60050 bps adverse change100 bps adverse change$57750 bps adverse change100 bps adverse change $64250 bps adverse change100 bps adverse change
Weighted average life (in years)4.8 8.03.7 5.5
Weighted average constant prepayment rate17.6%$133$263 8.2%$68$14821.0%$116$161 13.9%$116$222
Weighted average option adjusted spread325 bps919 609 bps1326585 bps918 440 bps1225

Citizens accounts for derivatives in its mortgage banking operations at fair value on the Consolidated Balance Sheets as derivative assets or derivative liabilities, depending on whether the derivative had a positive (asset) or negative (liability) fair value as of the balance sheet date. The Company’s mortgage banking derivatives include commitments to originate mortgages held for sale, certain loan sale agreements, and other financial instruments that meet the definition of a derivative. Refer to Note 9 for additional information.
NOTE 6 - LEASESGOODWILL AND INTANGIBLE ASSETS
The Company determines if an arrangementGoodwill is the purchase premium associated with the acquisition of a business and is assigned to the Company’s reporting units at the acquisition date. A reporting unit is a lease at inceptionbusiness operating segment or a component of a business operating segment. Citizens has identified and recordsassigned goodwill to 2 reporting units - Consumer Banking and Commercial Banking - based upon reviews of the structure of the Company’s executive team and supporting functions, resource allocations and financial reporting processes. Once goodwill has been assigned to reporting units, it no longer retains its association with a right-of-use assetparticular acquisition, and all of the activities within a corresponding lease liability. A right-of-use asset representsreporting unit, whether acquired or organically grown, are available to support the value of the Company’s contractual rightgoodwill.
Goodwill is not amortized, but is subject to use an underlying leased assetannual impairment tests. Citizens reviews goodwill for impairment annually as of October 31st and a lease liability represents the Company’s contractual obligation to make payments on the same underlying leased asset. Operating and finance lease right-of-use assets and liabilities are recognized at commencement date based on the present value of the lease payments over the non-cancelable lease term. As most of the Company’s leases do not specify an implicit rate, the Company uses an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairmentin interim periods when events or changes in circumstances indicate the carrying value of one or more reporting units may not be recoverable. The Company has the option of performing a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of each reporting unit is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, Citizens must perform a quantitative assessment of goodwill.
Citizens may elect to bypass the qualitative assessment and perform a quantitative assessment. The quantitative assessment, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value inclusive of goodwill, applicable goodwill is deemed to be not impaired. If the carrying value of the asset mayreporting unit inclusive of goodwill exceeds its fair value, an impairment charge is recorded for the excess. The impairment loss recognized cannot exceed the amount of goodwill assigned to the reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not be recoverable.permitted.
Under the quantitative impairment assessment, the fair values of the Company’s reporting units are determined using a combination of income and market-based approaches. Citizens relies on the income approach (discounted cash flow method) for determining fair value. Market and transaction approaches are used as benchmarks only to corroborate the value determined by the discounted cash flow method. Citizens relies on several assumptions when estimating the fair value of its reporting units using the discounted cash flow method. These assumptions include the discount rate, as well as projected loan loss, income tax and capital retention rates.
Discount rates are estimated based on the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, beta, and size premium adjustments specific to a particular reporting unit. The discount rates are also calibrated on the assessment of the risks related to the projected cash flows of each reporting unit.

Cash flow projections include estimates for projected loan loss, income tax and capital retention rates. Multi-year financial forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives, customer retention standards, market share changes, anticipated loan and deposit growth, forward interest rates, historical performance, and industry and economic trends, among other considerations. The long-term growth rate used in determining the terminal value of each reporting unit is estimated based on management’s assessment of the minimum expected terminal growth rate of each reporting unit, as well as broader economic considerations such as GDP and inflation.
In the first quarter of 2020, economic conditions deteriorated significantly with the spread of the COVID-19 pandemic. The outbreak resulted in social distancing requirements throughout the world, severely restricting the economy. In response to the crisis, the Federal Reserve lowered the Federal Funds rate in March 2020 to close to zero. Additionally, the U.S. government initiated numerous measures to support the economy, including the CARES Act. Given the current macroeconomic environment, Citizens assessed whether it was more likely than not that the fair value of its normal coursereporting units was less than carrying value as of business,March 31, 2020. Impairment indicators evaluated included economic conditions, including projections of the duration of current conditions and timing of a potential recovery; industry and market considerations; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock; and other relevant events. Citizens further considered the amount by which fair value exceeded book value for each unit in the most recent quantitative analysis and sensitivities performed. At the conclusion of the assessment, the Company leases both equipmentdetermined that it was more likely than not that the fair value of each reporting unit exceeded its carrying value as of March 31, 2020.
The interim assessment of goodwill impairment included evaluation of various factors that continue to rapidly evolve and real estate,for which significant uncertainty remains, including officefuture growth rates and branch space. Lease terms predominantly range from one year to ten years and may include options to extendoperating margins, the lease, terminate the lease, or purchase the underlying asset at the endimpact of the lease. Certain lease agreements include rental payments based on an indexCOVID-19 pandemic to the economy and ongoing government intervention to mitigate that impact. Further weakening in the economic environment, such as continued decline in the performance of the reporting units or other factors, could cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting in a goodwill impairment charge. Any impairment charge would not affect the Company’s regulatory capital ratios, tangible common equity ratio or liquidity position.
On March 4, 2020, the Company expanded its capital markets and financial advisory position through the acquisition of Trinity Capital, a Los Angeles-based advisory firm that delivers a range of financial services to commercial clients. The change in the carrying value of goodwill for the three months ended March 31, 2020 is presented below:
(in millions)Consumer Banking Commercial Banking Total
Balance at December 31, 2019
$2,258
 
$4,786
 
$7,044
Business acquisitions—
 6
 6
Balance at March 31, 2020
$2,258
 
$4,792
 
$7,050


Accumulated impairment losses related to the Consumer Banking reporting unit totaled $5.9 billion at March 31, 2020 and December 31, 2019. The accumulated impairment losses related to the Commercial Banking reporting unit totaled $50 million at March 31, 2020 and December 31, 2019. NaN impairment was recorded for the three months ended March 31, 2020 or 2019.
Other Intangibles
Other intangible assets are adjusted periodically for inflation. The Company has lease agreements that contain lease and non-lease components and for certain real estate leases, these components are accounted forrecognized separately from goodwill if the asset arises as a single lease component.
Leases with an initial termresult of 12 monthscontractual rights or lessif the asset is capable of being separated and sold, transferred or exchanged. Intangible assets are not recorded in other assets on the Company’s Consolidated Balance Sheets and are recognized in occupancy expense in the Company’s Consolidated Statements of Operationsamortized on a straight-line basis over the remaining lease term. The Company may also enter into subleases with third parties for certain leased real estate properties thatbasis. Intangible assets are no longer occupied.

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The components of operating lease cost are presented below:
(in millions)Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease cost
$42
 
$123
Short-term lease cost2
 8
Variable lease cost2
 6
Sublease income(1) (3)
Total
$45
 
$134

Operating lease costsubject to an annual impairment evaluation. Amortization expense is recognized on a straight line basis over the lease term and recorded in occupancy expense onother expenses in the Consolidated Statements of Operations.
Supplemental Consolidated Balance Sheet information related to
A summary of the Company’s operating lease arrangementscarrying value of intangible assets is presented below:below.
(in millions)September 30, 2019Affected Line Item in Consolidated Balance Sheets
Operating lease right-of-use assets
$712
Other assets
Operating lease liabilities733
Other liabilities
  March 31, 2020 December 31, 2019
(in millions)Amortizable Lives (years)GrossAccumulated AmortizationNet GrossAccumulated AmortizationNet
Acquired technology7
$21

$5

$16
 
$21

$4

$17
Acquired relationships5 - 1538
6
32
 37
5
32
Naming rights1011
1
10
 11
1
10
Other2 - 713
5
8
 13
4
9
Total 
$83

$17

$66
 
$82

$14

$68

Supplemental information related to    As of March 31, 2020, all of the Company’s operating lease arrangementsintangible assets were being amortized. Amortization expense recognized on intangible assets was $3 million and $2 million for the three months ended March 31, 2020 and 2019, respectively. The Company’s projection of amortization expense is presented below:based on balances as of March 31, 2020, and future amortization expense may vary from these projections.
Estimated intangible asset amortization expense for the remainder of 2020 through 2024 is as follows:
(in millions)Nine Months Ended September 30, 2019
Cash paid for amounts included in measurement of liabilities:
        Operating cash flows from operating leases
$122
Right-of-use assets in exchange for new operating lease liabilities91
(in millions)Total
Remainder of 2020
$8
202110
20229
20239
20248

The weighted average remaining lease term and weighted average discount rate for operating leases is seven years and 3.20%, respectively.
At September 30, 2019, lease liabilities maturing under non-cancelable operating leases are presented below for the years ended December 31:
(in millions)Operating Leases
2019
$29
2020162
2021146
2022121
202396
Thereafter269
Total lease payments823
Less: Interest90
Present value of lease liabilities
$733


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 7 - VARIABLE INTEREST ENTITIES
Citizens is involved in various entities that are considered VIEs, including investments in limited partnerships that sponsor affordable housing projects, limited liability companies that sponsor renewable energy projects and lending to special purpose entities. Citizens’ maximum exposure to loss as a result of its involvement with these entities is limited to the balance sheet carrying amount of its equity investment and outstanding principal balance of loans to special purpose entities. A summary of these investments is presented below:
(in millions)September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Lending to special purpose entities included in loans and leases
$1,824
 
$1,101
LIHTC investment included in other assets
$1,324
 
$1,236
1,441
 1,401
LIHTC unfunded commitments included in other liabilities664
 673
742
 716
Lending to special purpose entities included in loans and leases1,058
 613
Renewable energy investments included in other assets308
 319
423
 355

Lending to Special Purpose Entities
Citizens provides lending facilities to third-party sponsored special purpose entities. Because the sponsor for each respective entity has the power to direct how proceeds from the Company are utilized, as well as maintains responsibility for any associated servicing commitments, Citizens is not the primary beneficiary of these entities. Accordingly, Citizens does not consolidate these VIEs on the Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, the lending facilities had aggregate unpaid principal balances of $1.8 billion and $1.1 billion, respectively, and undrawn commitments to extend credit of $751 million and $1.2 billion, respectively.
Low Income Housing Tax Credit Partnerships
The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Citizens is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
Citizens applies the proportional amortization method to account for its LIHTC investments. Under the proportional amortization method, the Company applies a practical expedient and amortizes the initial cost of the investment in proportion to the tax credits received in the current period as compared to the total tax credits expected to be received over the life of the investment. The amortization and tax benefits are included as a

component of income tax expense. The tax credits received are reported as a reduction of income tax expense (or an increase to income tax benefit) related to these transactions.
The following table presents other information related to the Company’s affordable housing tax credit investments:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Tax credits included in income tax expense
$30
 
$28
 
$99
 
$79

$41
 
$35
Amortization expense included in income tax expense33
 31
 105
 86
43
 37
Other tax benefits included in income tax expense8
 7
 24
 19
10
 8

NaN LIHTC investment impairment losses were recognized during the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
Lending to Special Purpose Entities
Citizens provides lending facilities to third-party sponsored special purpose entities. Because the sponsor for each respective entity has the power to direct how proceeds from the Company are utilized, as well as maintains responsibility for any associated servicing commitments, Citizens is not the primary beneficiary of these entities. Accordingly, Citizens does not consolidate these VIEs on the Consolidated Balance Sheets. As of September 30, 2019 and December 31, 2018, the lending facilities had aggregate unpaid principal balances of $1.1 billion and $613 million, respectively, and undrawn commitments to extend credit of $889 million and $584 million, respectively.
Renewable Energy Entities
The Company’s investments in renewable energy entities provide benefits from a return generated by government incentives plus other tax attributes that are associated with tax ownership (e.g., tax depreciation). As a tax equity investor, Citizens does not have the power to direct the activities which most significantly affect the performance of these entities and therefore is not the primary beneficiary of any renewable energy entities. Accordingly, Citizens does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 8 - BORROWED FUNDS
A summary of the Company’s short-termShort-term borrowed funds
Short-term borrowed funds is presented below:
(in millions)September 30, 2019 December 31, 2018
Federal funds purchased
$600
 
$820
Securities sold under agreements to repurchase267
 336
Other short-term borrowed funds210
 161
Total short-term borrowed funds
$1,077
 
$1,317

were $1.1 billion and $274 million as of March 31, 2020 and December 31, 2019, respectively.


Key data related to short-termLong-term borrowed funds is presented below:
 As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30, As of and for the Year Ended December 31,
(dollars in millions)2019
 2018
 2019
 2018
 2018
Weighted-average interest rate at period-end:(1)
         
Federal funds purchased and securities sold under agreements to repurchase1.47% —% 1.47% —% 1.72%
Other short-term borrowed funds2.15
 2.43
 2.15
 2.43
 2.73
Maximum amount outstanding at any month-end during the period:         
Federal funds purchased and securities sold under agreements to repurchase(2)

$867
 
$382
 
$1,499
 
$1,045
 
$1,282
Other short-term borrowed funds338
 1,010
 511
 1,110
 1,110
Average amount outstanding during the period:         
Federal funds purchased and securities sold under agreements to repurchase(2)

$487
 
$643
 
$648
 
$598
 
$654
Other short-term borrowed funds113
 748
 72
 509
 467
Weighted-average interest rate during the period:(1)
         
Federal funds purchased and securities sold under agreements to repurchase1.19% 0.91% 1.45% 0.76% 0.92%
Other short-term borrowed funds2.46
 2.27
 2.58
 2.00
 2.10

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

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


AThe following table presents a summary of the Company’s long-term borrowed funds is presented below:funds:
(in millions)September 30, 2019 December 31, 2018
Parent Company:   
2.375% fixed-rate senior unsecured debt, due July 2021
$349
 
$349
4.150% fixed-rate subordinated debt, due September 2022348
 348
3.750% fixed-rate subordinated debt, due July 2024250
 250
4.023% fixed-rate subordinated debt, due October 202442
 42
4.350% fixed-rate subordinated debt, due August 2025249
 249
4.300% fixed-rate subordinated debt, due December 2025750
 749
2.850% fixed-rate senior unsecured notes, due July 2026496
 —
Banking and Other Subsidiaries:   
2.500% senior unsecured notes, due March 2019 (1)
—
 748
2.450% senior unsecured notes, due December 2019 (1)
749
 744
2.250% senior unsecured notes, due March 2020 (1)
699
 691
2.678% floating-rate senior unsecured notes, due March 2020 (1) (2)
300
 300
2.714% floating-rate senior unsecured notes, due May 2020 (1) (2)
250
 250
2.200% senior unsecured notes, due May 2020 (1)
500
 499
2.250% senior unsecured notes, due October 2020 (1)
749
 738
2.550% senior unsecured notes, due May 2021 (1)
990
 964
3.250% senior unsecured notes, due February 2022 (1)
713
 —
2.895% floating-rate senior unsecured notes, due February 2022 (1) (2)
299
 —
2.954% floating-rate senior unsecured notes, due May 2022 (1) (2)
250
 249
2.650% senior unsecured notes, due May 2022 (1)
502
 487
3.700% senior unsecured notes, due March 2023 (1) 
518
 502
3.054% floating-rate senior unsecured notes, due March 2023 (1) (2)
250
 249
3.750% senior unsecured notes, due February 2026 (1)
529
 —
Federal Home Loan Bank advances, 2.425% weighted average rate, due through 20383,007
 7,508
Other17
 9
Total long-term borrowed funds
$12,806
 
$15,925
(in millions)March 31, 2020 December 31, 2019
Parent Company:   
2.375% fixed-rate senior unsecured debt, due July 2021
$350
 
$349
4.150% fixed-rate subordinated debt, due September 2022348
 348
3.750% fixed-rate subordinated debt, due July 2024250
 250
4.023% fixed-rate subordinated debt, due October 202442
 42
4.350% fixed-rate subordinated debt, due August 2025249
 249
4.300% fixed-rate subordinated debt, due December 2025750
 750
2.850% fixed-rate senior unsecured notes, due July 2026496
 496
2.500% fixed-rate senior unsecured notes, due February 2030298
 —
CBNA’s Global Note Program:   
2.250% senior unsecured notes, due March 2020—
 700
2.678% floating-rate senior unsecured notes, due March 2020 (1)
—
 300
2.217% floating-rate senior unsecured notes, due May 2020 (1)
250
 250
2.200% senior unsecured notes, due May 2020500
 500
2.250% senior unsecured notes, due October 2020753
 750
2.550% senior unsecured notes, due May 20211,005
 991
3.250% senior unsecured notes, due February 2022724
 711
2.424% floating-rate senior unsecured notes, due February 2022 (1)
299
 299
2.457% floating-rate senior unsecured notes, due May 2022 (1)
250
 250
2.650% senior unsecured notes, due May 2022514
 501
3.700% senior unsecured notes, due March 2023532
 515
2.325% floating-rate senior unsecured notes, due March 2023 (1)
249
 249
3.750% senior unsecured notes, due February 2026555
 521
Additional Borrowings by CBNA and Other Subsidiaries:

   
Federal Home Loan Bank advances, 0.56% weighted average rate, due through 20388,007
 5,008
Other16
 18
Total long-term borrowed funds
$16,437
 
$14,047

(1)Issued under CBNA’s Global Bank Note Program.
(2) Rate disclosed reflects the floating rate as of September 30, 2019.March 31, 2020 or final rate, as applicable.

The Parent Company’s long-term borrowed funds as of September 30, 2019March 31, 2020 and December 31, 20182019 included principal balances of $2.5$2.8 billion and $2.0$2.5 billion, respectively, and unamortized deferred issuance costs and/or discounts of ($7)9) million and ($5)8) million, respectively. The bankingCBNA and other subsidiaries’ long-term borrowed funds as of September 30, 2019March 31, 2020 and December 31, 20182019 included principal balances of $10.3$13.5 billion and $14.0$11.5 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($15)10) million and ($14)13) million, respectively, and hedging basis adjustments of $62$141 million and ($66)$50 million, respectively. See Note 9 for further information about the Company’s hedging of certain long-term borrowed funds.
Advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and pledged securities at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $8.4$12.9 billion and $13.0$9.8 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The Company’s available FHLB borrowing capacity was $9.3$4.0 billion and $4.8$7.2 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At September 30, 2019,March 31, 2020, the Company’s unused secured borrowing capacity was approximately $42.8$37.0 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


AThe following table presents a summary of maturities for the Company’s long-term borrowed funds at September 30, 2019 is presented below:March 31, 2020:
(in millions)Parent CompanyBanking and Other SubsidiariesConsolidated
Parent CompanyCBNA and Other SubsidiariesConsolidated
Year  
2019
$—

$749

$749
2020—
3,201
3,201

$—

$1,508

$1,508
2021349
3,295
3,644
349
9,010
9,359
2022348
1,771
2,119
349
1,793
2,142
2023—
769
769
—
782
782
2024 and thereafter1,787
537
2,324
2024292
—
292
2025 and thereafter1,793
561
2,354
Total
$2,484

$10,322

$12,806

$2,783

$13,654

$16,437

NOTE 9 - DERIVATIVES
In the normal course of business, Citizens enters into a variety of derivative transactions in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates and foreign currency exchange rates. These transactions include interest rate swap contracts, interest rate options, foreign exchange contracts, residential loan commitment rate locks, interest rate future contracts, swaptions, forward commitments to sell to-be-announced mortgage securities (“TBAs”),TBAs, forward sale contracts and purchase options. During the three months ended September 30, 2019, Citizens executed a last-of-layer hedge utilizing pay-fixed interest rate swap agreements to manage the interest rate exposure on mortgage-backed securities held in its available for sale debt securities. The Company monitors the results of each transaction to ensure that management’s intent is satisfied. The Company does not use derivatives for speculative purposes.
The Company’s derivative instruments are recognized on the Consolidated Balance Sheets in derivative assets and derivative liabilities at fair value. Information regarding the valuation methodology and inputs used to estimate the fair value of the Company’s derivative instruments is described in Note 13 in the Company’s Form 10-Q for the period ended March 31, 2019 and Note 19 in the Company’s 20182019 Form 10-K.
Derivative assets and derivative liabilities are netted by counterparty on the Consolidated Balance Sheets if a “right of setoff” has been established in a master netting agreement between the Company and the counterparty. This netted derivative asset or liability position is also netted against the fair value of any cash collateral that has been pledged or received in accordance with a master netting agreement.
The following table presents derivative instruments included on the Consolidated Balance Sheets in derivative assets and derivative liabilities:Sheets:
September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
(in millions)
Notional Amount(1)
Derivative AssetsDerivative Liabilities 
Notional Amount(1)
Derivative AssetsDerivative Liabilities
Notional Amount(1)
Derivative AssetsDerivative Liabilities 
Notional Amount(1)
Derivative AssetsDerivative Liabilities
Derivatives designated as hedging instruments:      
Interest rate contracts
$31,596

$—

$3
 
$12,050

$5

$—

$30,050

$9

$4
 
$29,846

$1

$—
Derivatives not designated as hedging instruments:      
Interest rate contracts140,652
993
172
 117,076
301
277
146,035
1,790
205
 142,386
772
133
Foreign exchange contracts12,905
224
195
 9,866
129
113
15,974
413
361
 15,101
174
166
TBA contracts14,568
42
202
 —
—
—
Other contracts9,382
49
24
 3,555
14
25
6,706
232
88
 6,868
37
23
Total derivatives not designated as hedging instruments 1,266
391
  444
415
 2,477
856
  983
322
Gross derivative fair values 1,266
394
  449
415
 2,486
860
  984
322
Less: Gross amounts offset in the Consolidated Balance Sheets (2)
 (122)(122)  (87)(87) (286)(286)  (107)(107)
Less: Cash collateral applied (2)
 (117)(111)  (45)(36) (232)(340)  (70)(95)
Total net derivative fair values presented in the Consolidated Balance Sheets 
$1,027

$161
  
$317

$292
 
$1,968

$234
  
$807

$120
(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate contracts, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they do not measure the true economic risk of these contracts.
(2) Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions.

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The Company’s derivative transactions are internally divided into three sub-groups: institutional, customer and residential loan. Citizens has certainCertain derivative transactions whichwithin these sub-groups are designated as fair value or cash flow hedges, as described as follows:below:
Derivatives Designated As Hedging Instruments
The Company’s institutional derivatives portfolio qualifiesqualify for hedge accounting treatment. This includesThe net interest accruals on interest rate swaps that are designated as highly effectivein a fair value andor cash flow hedging relationships.hedge relationship are treated as an adjustment to interest income or interest expense of the item being hedged. The Company formally documents at inception all hedging relationships, as well as risk management objectives and strategies for undertaking various accounting hedges. Additionally, Citizensthe Company monitors the effectiveness of its hedge relationships during the duration of the hedge period. The methods utilized to assess hedge effectiveness vary based on hedge relationship and the type of item being hedged.Company monitors each relationship to ensure that management’s initial intent continues to be satisfied. The Company discontinues hedge accounting treatment when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge and thensubsequently reflects changes in the fair value of the derivative in earnings after termination of the hedge relationship.
Fair Value Hedges
In a fair value hedge, changes in the fair value of both the derivative instrument and the hedged asset or liability attributable to the risk being hedged are recognized in the same income statement line item in the Consolidated Statements of Operations when the changes in fair value occur.
Citizens has outstanding interest rate swap agreements utilized to manage the interest rate exposure on its medium-termlong-term borrowings and AFS debt securities. In March 2020 the fair value hedge of certain fixed rate residential mortgages and debt securities available for sale. The changes in the fair value of the derivative instrument and changes in the fair valuewas terminated due to a portion of the hedged asset or liability attributableitem being sold. Certain fair value hedges have been designated as a last-of-layer hedge, which affords the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar pre-payable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged risk are recorded in the same income statement line in the Consolidated Statements of Operations.     item.
The following table reflectspresents the change in fair value of interest rate contracts, designated as fair value hedges, as well as the change in fair value of the related hedged items attributable to the risk being hedged, included in the Consolidated Statements of Operations:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 
(in millions)2019
 2018
 2019
 2018
Affected Line Item in the Consolidated Statements of Operations2020
 2019
Affected Line Item in the Consolidated Statements of Operations
Change in fair value of interest rate swaps hedging borrowed funds
$18
 
($6) 
$122
 
($32)Interest expense - borrowed funds
$93
 
$39
Interest expense - borrowed funds
Change in fair value of hedged long-term debt attributable to the risk being hedged(18) 7
 (121) 31
Interest expense - borrowed funds(92) (39)Interest expense - borrowed funds
Change in fair value of interest rate swaps hedging fixed rate loans(10) —
 (26) —
Interest and fees on loans and leases17
 —
Interest and fees on loans and leases
Change in fair value of hedged fixed rate loans attributable to the risk being hedged10
 —
 26
 —
Interest and fees on loans and leases(17) —
Interest and fees on loans and leases
Change in fair value of interest rate swaps hedging debt securities available for sale(13) —
 (13) —
Interest income - investment securities(107) —
Interest income - investment securities
Change in fair value of hedged debt securities available for sale attributable to risk being hedged13
 —
 13
 —
Interest income - investment securities107
 —
Interest income - investment securities


The following table reflects amounts recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:    
September 30, 2019March 31, 2020 December 31, 2019
(in millions)
Debt securities available for sale(2)
Residential mortgagesLong-term borrowed funds
Debt securities available for sale(1)
Long-term borrowed funds 
Debt securities available for sale(1)
Residential mortgagesLong-term borrowed funds
Carrying amount of the hedged assets
$19,872

$985

$—
Carrying amount of the hedged liabilities(1)
—
—
5,450
Carrying amount of hedged assets
$14,995

$—
 
$15,798

$976

$—
Carrying amount of hedged liabilities—
4,083
 —
—
4,689
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items13
26
62
100
142
 (8)17
50
(1)The balance reported for long-term borrowed funds includes ($1) million of cumulative hedging adjustments recorded on discontinued fair value hedging relationships.
(2)The Company designated $2.0 billion as the hedged amount (from a closed portfolio of prepayable financial assets with a carrying value of $20$15.0 billion as of September 30, 2019)March 31, 2020) in a last-of-layer hedging relationship, which commenced in the third quarter of 2019.

Cash Flow Hedges
In a cash flow hedge, the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings (interest income or interest expense) in the same period that the hedged item affects earnings.
Citizens has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating rate assets and liabilities. All of these swaps have been deemed as highly effective cash flow hedges. The entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is recorded in
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


OCI and reclassified from OCI to current period earnings (interest income or interest expense) in the same period that the hedged item affects earnings. During the next 12 months, there are $10$4 million in pre-tax net lossesgains on derivative instruments included in OCI expected to be reclassified to net interest income in the Consolidated Statements of Operations. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2019.March 31, 2020.
During the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, there were no gains or losses reclassified from OCI to current period earnings (other income) associated withrelated to the discontinuance of the Company’sa cash flow hedges becausehedge where it wasbecame probable that the original forecasted transaction would no longer occur by the end of the originally specified time period.
The following table presents the pre-tax net gains (losses) recorded in the Consolidated Statements of Operations and in the Consolidated Statements of Comprehensive Income relating to derivative instruments designated as cash flow hedges:
 Three Months Ended March 31,
(in millions)2020 2019
Amount of pre-tax net gains recognized in OCI
$129
 
$51
Amount of pre-tax net gains (losses) reclassified from OCI into interest income5
 (20)
Amount of pre-tax net losses reclassified from OCI into interest expense(1) —
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2019 
2018(1)
 2019 
2018(1)
Amount of pre-tax net (losses) gains recognized in OCI
($5) 
($35) 
$138
 
($122)
Amount of pre-tax net losses reclassified from OCI into interest income(22) (17) (62) (36)
Amount of pre-tax net gains reclassified from OCI into interest expense8
 3
 9
 11
(1) For the three and nine months ended September 30, 2018, the amount of pre-tax net gains (losses) recognized in OCI represented the effective portion of the cumulative gains or losses on cash flow hedges and ineffectiveness was reported within noninterest income.

Derivatives Not Designated As Hedging Instruments
Economic Hedges
The Company’s economic hedges include those related to offsetting customer derivatives, are recorded on the Consolidated Balance Sheets at fair value. Theseresidential mortgage loan derivatives (including interest rate lock commitments and forward sales commitments) and derivatives to hedge its residential MSR portfolio. Customer derivatives include interest rate and foreign exchange derivative contracts that are designed to meet the hedging and financing needs of the Company’s customers. The mark-to-market gainscustomers, and losses associated withare economically hedged by the customerCompany to offset its market exposure. Interest rate lock commitments on residential mortgage loans that will be held for sale are considered derivative instruments, and are economically hedged by entering into forward sale commitments to manage changes in fair value due to interest rate risk. Residential MSR portfolio derivatives are mitigated by mark-to-market gains and losses on interest rate and foreign exchange derivative contracts transacted.
The Company’s residential loan derivatives (including residential loan commitments and forward sales contracts) are recorded on the Consolidated Balance Sheets at fair value. Citizens also uses derivativesentered to hedge the risk of changes in the fair value of its residentialthe Company’s MSR portfolio. Certain residential MSRs are accounted for at fair value with changes in the fair value influenced primarily by changes in interest rates. Derivatives used to hedge the value of residential MSRs include TBAs, interest rate swaptions, interest rate futures and interest rate swaps.asset.

The following table presents the effect of economic hedges on noninterest income:
Amounts Recognized in
Noninterest Income for the
 
Amounts Recognized in
Noninterest Income for the
 
Three Months Ended September 30, Nine Months Ended September 30,Affected Line Item in the Consolidated Statements of OperationsThree Months Ended March 31,Affected Line Item in the Consolidated Statements of Operations
(in millions)2019
 2018
 2019
 2018
2020
 2019
Economic hedge type:            
Customer interest rate contracts
$196
 
($84) 
$850
 
($363)Foreign exchange and interest rate products
$1,026
 
$229
Foreign exchange and interest rate products
Customer foreign exchange contracts(81) 30
 (162) (27)Foreign exchange and interest rate products(30) (34)Foreign exchange and interest rate products
Derivatives transactions to hedge interest rate risk(182) 97
 (809) 403
Foreign exchange and interest rate products(1,021) (217)Foreign exchange and interest rate products
Derivatives transactions to hedge foreign exchange risk130
 24
 224
 99
Foreign exchange and interest rate products99
 40
Foreign exchange and interest rate products
Residential loan commitments6
 6
 22
 6
Mortgage banking fees140
 5
Mortgage banking fees
Forward sale contracts29
 (13) 24
 (15)Mortgage banking fees(129) 4
Mortgage banking fees
Interest rate derivative contracts used to hedge residential MSRs92
 (3) 208
 (3)Mortgage banking fees
Derivative contracts used to hedge residential MSRs271
 45
Mortgage banking fees
Total
$190
 
$57
 
$357
 
$100
 
$356
 
$72
 

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 10 - RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables presenttable presents the changes in the balances, net of income taxes, of each component of AOCI:
  As of and for the Three Months Ended September 30,
(in millions)Net Unrealized (Losses) Gains on Derivatives Net Unrealized (Losses) Gains on Debt Securities Employee Benefit Plans Total AOCI
Balance at July 1, 2018
($200) 
($575) 
($435) 
($1,210)
Other comprehensive loss before reclassifications(26) (95) —
 (121)
Other-than-temporary impairment not recognized in earnings on debt securities—
 —
 —
 —
Amounts reclassified to the Consolidated Statements of Operations11
 (2) 4
 13
Net other comprehensive (loss) income(15) (97) 4
 (108)
Balance at September 30, 2018
($215) 
($672) 
($431) 
($1,318)
Balance at July 1, 2019
($6) 
($25) 
($457) 
($488)
Other comprehensive (loss) income before reclassifications(4) 42
 —
 38
Other-than-temporary impairment not recognized in earnings on debt securities—
 (1) —
 (1)
Amounts reclassified to the Consolidated Statements of Operations10
 (2) 3
 11
Net other comprehensive income6
 39
 3
 48
Balance at September 30, 2019
$—
 
$14
 
($454) 
($440)

  As of and for the Nine Months Ended September 30,
(in millions)Net Unrealized (Losses) Gains on Derivatives Net Unrealized (Losses) Gains on Debt Securities Employee Benefit Plans Total AOCI
Balance at January 1, 2018
($143) 
($236) 
($441) 
($820)
Other comprehensive loss before reclassifications(91) (427) —
 (518)
Other-than-temporary impairment not recognized in earnings on debt securities—
 (1) —
 (1)
Amounts reclassified to the Consolidated Statements of Operations19
 (8) 10
 21
Net other comprehensive (loss) income(72) (436) 10
 (498)
Balance at September 30, 2018
($215) 
($672) 
($431) 
($1,318)
Balance at January 1, 2019
($143) 
($490) 
($463) 
($1,096)
Other comprehensive income before reclassifications103
 509
 —
 612
Other-than-temporary impairment not recognized in earnings on debt securities—
 —
 —
 —
Amounts reclassified to the Consolidated Statements of Operations40
 (10) 9
 39
Net other comprehensive income143
 499
 9
 651
Cumulative effect of change in accounting standards—
 5
 —
 5
Balance at September 30, 2019
$—
 
$14
 
($454) 
($440)

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The following table presents the amounts reclassified out of each component of AOCI and into the Consolidated Statements of Operations:
 Three Months Ended September 30, Nine Months Ended September 30, 
(in millions)2019
 2018
 2019
 2018
 
Details about AOCI Components       Affected Line Item in the Consolidated Statements of Operations
Reclassification adjustment for net derivative losses included in net income:
($22) 
($17) 
($62) 
($36)Interest income
 8
 3
 9
 11
Interest expense
 (14) (14) (53) (25)Income before income tax expense
 (4) (3) (13) (6)Income tax expense
 
($10) 
($11) 
($40) 
($19)Net income
Reclassification of net debt securities gains to net income:
$3
 
$3
 
$15
 
$13
Securities gains, net
 (1) (1) (2) (3)Net debt securities impairment losses recognized in earnings
 2
 2
 13
 10
Income before income tax expense
 —
 —
 3
 2
Income tax expense
 
$2
 
$2
 
$10
 
$8
Net income
Reclassification of changes related to the employee benefit plan:
($5) 
($5) 
($14) 
($13)Other operating expense
 (5) (5) (14) (13)Income before income tax expense
 (2) (1) (5) (3)Income tax expense
 
($3) 
($4) 
($9) 
($10)Net income
Total reclassification losses
($11) 
($13) 
($39) 
($21)Net income

The following table presents the effects on net income of the amounts reclassified out of AOCI:
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2019
 2018
 2019
 2018
Net interest income (includes ($14),($14), ($53) and ($25) of AOCI reclassifications, respectively)
$1,145
 
$1,148
 
$3,471
 
$3,360
Provision for credit losses101
 78
 283
 241
Noninterest income (includes $2, $2, $13 and $10 of AOCI reclassifications, respectively)493
 416
 1,383
 1,175
Noninterest expense (includes $5, $5, $14 and $13 of AOCI reclassifications, respectively)973
 910
 2,861
 2,668
Income before income tax expense564
 576
 1,710
 1,626
Income tax expense (includes ($6), ($4), ($15) and ($7) income tax net expense from reclassification items, respectively)115
 133
 369
 370
Net income
$449
 
$443
 
$1,341
 
$1,256
  As of and for the Three Months Ended March 31,
(in millions)Net Unrealized (Losses) Gains on Derivatives Net Unrealized (Losses) Gains on Debt Securities Employee Benefit Plans Total AOCI
Balance at January 1, 2019
($143) 
($490) 
($463) 
($1,096)
Other comprehensive income before reclassifications39
 246
 —
 285
Amounts reclassified to the Consolidated Statements of Operations15
 (5) 3
 13
Net other comprehensive income54
 241
 3
 298
Cumulative effect of change in accounting principle—
 5
 —
 5
Balance at March 31, 2019
($89) 
($244) 
($460) 
($793)
Balance at January 1, 2020
$3
 
$1
 
($415) 
($411)
Other comprehensive income before reclassifications96
 400
 —
 496
Amounts reclassified to the Consolidated Statements of Operations(3) —
 3
 —
Net other comprehensive income93
 400
 3
 496
Balance at March 31, 2020
$96
 
$401
 
($412) 
$85
Primary location of amounts reclassified to the Consolidated Statements of OperationsNet interest income Securities gain, net Other operating expense  

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 11 - STOCKHOLDERS’ EQUITY
Preferred Stock
The following table summarizes the Company’s preferred stock:
  September 30, 2019 December 31, 2018  March 31, 2020 December 31, 2019
(in millions, except per share and share data)Liquidation value per share Preferred Shares Carrying Amount Preferred Shares Carrying AmountLiquidation value per share Preferred Shares Carrying Amount Preferred Shares Carrying Amount
Authorized ($25 par value)  100,000,000
   100,000,000
    100,000,000
   100,000,000
  
Issued and outstanding:                  
Series A$1,000 250,000
 $247 250,000
 $247$1,000 250,000
 $247 250,000
 $247
Series B1,000
 300,000 296
 300,000
 296
1,000
 300,000 296
 300,000
 296
Series C1,000
 300,000
 297
 300,000
 297
1,000
 300,000
 297
 300,000
 297
Series D1,000
(1) 
300,000
(2) 
293
 —
 —
1,000
(1) 
300,000
(2) 
293
 300,000
 293
Series E1,000
(1) 
450,000
(3) 
437
 450,000
 437
Total  1,150,000
 $1,133 850,000
 $840  1,600,000
 $1,570 1,600,000
 $1,570
(1)Equivalent to $25 per depositary share.
(2)Represented by 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.
The following table provides information related to the Company’s preferred stock outstanding as of September 30, 2019:
(in millions, except share data)
Preferred Stock(1)
Issue DateNumber of Shares Outstanding
Dividend Dates(2)
Annual Per Share Dividend Rate
Optional Redemption Date(3)
Series AApril 6, 2015250,000Semi-annually beginning October 6, 2015 until April 6, 20205.500% until April 6, 2020April 6, 2020
Quarterly beginning July 6, 20203 Mo. LIBOR plus 3.960% beginning April 6, 2020
Series BMay 24, 2018300,000Semi-annually beginning January 6, 2019 until July 6, 20236.000% until July 6, 2023July 6, 2023
Quarterly beginning October 6, 20233 Mo. LIBOR plus 3.003% beginning July 6, 2023
Series COctober 25, 2018300,000Quarterly beginning January 6, 2019 until April 6, 20246.375% until April 6, 2024April 6, 2024
Quarterly beginning July 6, 20243 Mo. LIBOR plus 3.157% beginning April 6, 2024
Series DJanuary 29, 2019
300,000(4)
Quarterly beginning April 6, 2019 until April 6, 20246.350% until April 6, 2024April 6, 2024
Quarterly beginning July 6, 20243 Mo. LIBOR plus 3.642% beginning April 6, 2024
(1) All outstanding series are non-cumulative fixed-to-floating rate perpetual preferred stock. Except in limited circumstances, the preferred stock does not have voting rights.
(2) Dividends are payable when, and if, declared by the Company’s Board of Directors or an authorized committee thereof.    
(3) Redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after the date stated, or in whole but not in part, at any time within 90 days following a regulatory capital treatment event a as defined in the applicable certificate of designations, in each case at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share for the Series D Preferred Stock), plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Under current rules, any redemption is subject to approval by the FRB.
(4) Represented by 12,000,00018,000,000 depositary shares each representing a 1/40th interest in the Series DE Preferred Stock.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


On October 28, 2019,For further detail regarding the Company issued $450 million, or 18,000,000 depositary shares, each representing a 1/40th interest in a share of its 5.000% fixed-rate non-cumulative perpetual Series E Preferred Stock, liquidation preference of $1,000 per share (equivalent to $25 per depositary share) (the “Series E Preferred Stock”). The Company received net proceeds of $437 million after the underwriting discountterms and other expenses. The Series E Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligationconditions of the Company. Dividends, if declared, will accrue and be payable quarterly, in arrears, beginning January 6, 2020, at a rate equalCompany’s preferred stock see Note 16 to 5.000% per annum. The Series E Preferred Stock is redeemable at the Company’s option,Consolidated Financial Statements in whole or in part, on any dividend payment date, on or after January 6, 2025, or in whole but not in part, at any time within the 90 days following a regulatory capital treatment event, in each case at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends. The Company may not redeem shares of the Series E Preferred Stock without obtaining the prior approval of the FRB if then required under applicable capital guidelines. Except in certain limited circumstances, the Series E Preferred Stock does not have any voting rights.

2019 Form 10-K.
Dividends
The following table provides information related to dividends per share and in the aggregate, declared and paid, for each type of stock issued and outstanding:
  Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
(in millions, except per share data) Dividends Declared per ShareDividends DeclaredDividends Paid Dividends Declared per ShareDividends DeclaredDividends Paid
Common stock 
$0.36

$162

$162
 
$0.27

$129

$129
Preferred stock        
   Series A 
$27.50

$7

$—
 
$27.50

$7

$—
   Series B —
—
9
 —
—
—
   Series C 15.94
5
4
 —
—
—
Series D 15.88
5
5
 —
—
—
Total preferred stock  
$17

$18
  
$7

$—

 Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
(in millions, except per share data) Dividends Declared per ShareDividends DeclaredDividends Paid Dividends Declared per ShareDividends DeclaredDividends Paid
(in millions, except per share and share data) Dividends Declared per ShareDividends DeclaredDividends Paid Dividends Declared per ShareDividends DeclaredDividends Paid
Common stock 
$1.00

$459

$459
 
$0.71

$344

$344
 
$0.39

$168

$168
 
$0.32

$149

$149
Preferred stock        
Series A 
$55.00

$14

$7
 
$55.00

$14

$7
 
$27.50

$7

$—
 
$27.50

$7

$—
Series B 30.00
9
20
 —
—
—
 —
—
9
 —
—
11
Series C 47.81
14
13
 —
—
—
 15.94
5
5
 15.94
5
4
Series D 43.57
13
8
 —
—
—
 15.88
5
5
 11.82
3
—
Series E 12.50
5
4
 —
—
—
Total preferred stock  
$50

$48
  
$14

$7
  
$22

$23
  
$15

$15

Treasury Stock
During the ninethree months ended September 30, 2019,March 31, 2020, the Company repurchased $820$270 million, or 23,399,6617,548,655 shares, of its outstanding common stock, which are held in treasury stock.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 12 - COMMITMENTS AND CONTINGENCIES
A summary of outstanding off-balance sheet arrangements is presented below. For more information on these arrangements, see Note 18 in the Company’s 20182019 Form 10-K.
(in millions)September 30, 2019 December 31, 2018March 31, 2020 December 31, 2019
Commitments to extend credit
$70,825
 
$69,553

$64,827
 
$72,743
Letters of credit2,148
 2,125
2,064
 2,190
Marketing rights33
 37
Risk participation agreements47
 19
106
 37
Loans sold with recourse32
 5
49
 37
Marketing rights31
 33
Total
$73,085
 
$71,739

$67,077
 
$75,040


Commitments to Extend Credit
Commitments to extend credit are agreements to lend to customers in accordance with conditions contractually agreed upon in advance. Generally, the commitments have fixed expiration dates or termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
The Company’s commercial loan trading desk provides ongoing secondary market support and liquidity to its clients. Unsettled loan trades (i.e.(e.g., loan purchase contracts) represent firm commitments to purchase or sell loans from / to a third party at an agreed-upon price. Principal amounts associated with unsettled commercial loan trades are off-balance sheet commitments until delivery of the loans has taken place. The principal balances of unsettled commercial loan trade purchases and sales were $121$79 million and $196$168 million, respectively, at September 30, 2019March 31, 2020 and $68$183 million and $161$236 million, respectively, at December 31, 2018.2019.
Letters of Credit
Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Standby letters of credit, both financial and performance, are issued by the Company for its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). The Company’s exposure to credit loss in the event of counterparty nonperformance in connection with the above instruments is represented by the contractual amount of those instruments, net of the value of collateral held. Generally, letters of credit are collateralized by cash, accounts receivable, inventory or investment securities. Credit risk associated with letters of credit is considered in determining the appropriate amounts of reserves for unfunded commitments. Standby letters of credit and commercial letters of credit are issued for terms of up to ten years and one year, respectively.
Other Commitments
Citizens has additional off-balance sheet arrangements that are summarized below:
•
Marketing Rights - During 2003, Citizens entered into a 25-year agreement to acquire the naming and marketing rights of a baseball stadium in Pennsylvania.
Loans sold with recourse - Citizens is an originator and servicer of residential mortgages and routinely sells such mortgage loans in the secondary market and to GSEs. In the context of such sales, the Company makes certain representations and warranties regarding the characteristics of the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties against losses for certain breaches of those representations and warranties. The Company also sells the government guaranteed portion of certain SBA loans to outside investors, for which it retains the servicing rights.
•
Risk Participation Agreements - RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. The current amount of credit exposure is spread out over 8885 counterparties. RPAs generally have terms ranging from one year to five years; however, certain outstanding agreements have terms as long as ten years.
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Contingencies
The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations, which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, mortgage-related issues, and mis-selling of certain products. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result in investigatory or other action being taken. Litigation and regulatory matters may result in settlements, damages, fines, penalties, public or private censure, increased costs, required remediation, restrictions on business activities, or other impacts on the Company.
In these disputes and proceedings, the Company contests liability and the amount of damages as appropriate. Given their complex nature, and based on the Company's experience, it may be years before some of these matters are finally resolved. Moreover, before liability can be reasonably estimated for a claim, numerous legal and factual issues may need to be examined, including through potentially lengthy discovery and determination of important

factual matters, and by addressing novel or unsettled legal issues relevant to the proceedings in question. The Company cannot predict with certainty if, how, or when such claims will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages. The Company recognizes a provision for a claim when, in the opinion of management after seeking legal advice, it is probable that a liability exists and the amount of loss can be reasonably estimated. In many proceedings, however, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.
Based on information currently available, the advice of legal counsel and other advisers, and established reserves, management believes that the aggregate liabilities, if any, potentially arising from these proceedings will not have a materially adverse effect on the Company’s unaudited interim Consolidated Financial Statements.
NOTE 13 - FAIR VALUE MEASUREMENTS
Citizens measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities for which fair value is the required or elected measurement basis of accounting. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or for disclosure purposes. Nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Citizens also applies the fair value measurement guidance to determine amounts reported for certain disclosures in this Note for assets and liabilities that are not required to be reported at fair value in the financial statements.
Fair Value Option
Citizens elected to account for residential mortgage LHFS and certain commercial and commercial real estate LHFS at fair value. For these LHFS, the aggregate fair value approximates the aggregate unpaid principal balance.
 March 31, 2020 December 31, 2019
(in millions)Aggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Less Aggregate Unpaid Principal Aggregate Fair ValueAggregate Unpaid PrincipalAggregate Fair Value Less Aggregate Unpaid Principal
Residential mortgage loans held for sale, at fair value
$2,708

$2,570

$138
 
$1,778

$1,727

$51
Commercial and commercial real estate loans held for sale, at fair value203
232
(29) 168
175
(7)

For more information on the election of the fair value option for these assets see Note 19 in the Company’s 20182019 Form 10-K.
The following table presents the changes in fair value for assets where the Company has elected the fair value option:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 
(in millions)2019 2018 2019 2018Affected Line Item in the Consolidated Statements of Operations2020 2019Affected Line Item in the Consolidated Statements of Operations
Residential mortgage loans held for sale, at fair value
($4) 
($8) 
$5
 
($7)Mortgage banking fees
$58
 
($1)Mortgage banking fees
Commercial and commercial real estate loans held for sale, at fair value—
 1
 4
 1
Other income(20) 3
Capital market fees


Recurring Fair Value Measurements
Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis.
Forward commitments to sell to-be-announced mortgage securities
The fair value of TBAs is estimated using observable prices of similar loan pools that transact in the marketplace, as well as sector curves and benchmarking techniques. Therefore, the Company classifies TBAs in Level 2 of the fair value hierarchy given the observable market inputs.

For more information on the valuation techniques utilized to measure recurring fair value see Note
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


13 in the Company’s Form 10-Q for the three months ended March 31, 2019 and Note 19 in the Company’s 20182019 Form 10-K.
The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities on a recurring basis at September 30, 2019:March 31, 2020:
(in millions)Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Debt securities available for sale:  
Mortgage-backed securities
$21,377

$—

$21,377

$—

$22,262

$—

$22,262

$—
State and political subdivisions5
—
5
—
4
—
4
—
U.S. Treasury and other120
120
—
—
41
41
—
—
Total debt securities available for sale
21,502
120
21,382
—
22,307
41
22,266
—
Loans held for sale, at fair value:  
Residential loans held for sale1,824
—
1,824
—
2,708
—
2,708
—
Commercial loans held for sale169
—
169
—
203
—
203
—
Total loans held for sale, at fair value1,993
—
1,993
—
2,911
—
2,911
—
Mortgage servicing rights510
—
—
510
577
—
—
577
Derivative assets:  
Interest rate contracts993
—
993
—
1,799
—
1,799
—
Foreign exchange contracts224
—
224
—
413
—
413
—
TBA contracts42
—
42
—
Other contracts49
—
23
26
232
—
89
143
Total derivative assets1,266
—
1,240
26
2,486
—
2,343
143
Equity securities, at fair value:  
Money market mutual fund investments47
47
—
—
47
47
—
—
Total equity securities, at fair value47
47
—
—
47
47
—
—
Total assets
$25,318

$167

$24,615

$536

$28,328

$88

$27,520

$720
Derivative liabilities:  
Interest rate contracts
$175

$—

$175

$—

$209

$—

$209

$—
Foreign exchange contracts195
—
195
—
361
—
361
—
TBA contracts202
—
202
—
Other contracts24
—
24
—
88
—
88
—
Total derivative liabilities394
—
394
—
860
—
860
—
Total liabilities
$394

$—

$394

$—

$860

$—

$860

$—


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table presents assets and liabilities measured at fair value, including gross derivative assets and liabilities on a recurring basis at December 31, 2018:2019:
(in millions)Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Debt securities available for sale:  
Mortgage-backed securities
$19,866

$—

$19,866

$—

$20,537

$—

$20,537

$—
State and political subdivisions5
—
5
—
5
—
5
—
U.S. Treasury and other24
24
—
—
71
71
—
—
Total debt securities available for sale19,895
24
19,871
—
20,613
71
20,542
—
Loans held for sale, at fair value:  
Residential loans held for sale967
—
967
—
1,778
—
1,778
—
Commercial loans held for sale252
—
252
—
168
—
168
—
Total loans held for sale, at fair value1,219
—
1,219
—
1,946
—
1,946
—
Mortgage servicing rights600
—
—
600
642
—
—
642
Derivative assets:  
Interest rate contracts306
—
306
—
773
—
773
—
Foreign exchange contracts129
—
129
—
174
—
174
—
Other contracts14
—
14
—
37
—
18
19
Total derivative assets449
—
449
—
984
—
965
19
Equity securities, at fair value:  
Money market mutual fund investments181
181
—
—
47
47
—
—
Total equity securities, at fair value181
181
—
—
47
47
—
—
Total assets
$22,344

$205

$21,539

$600

$24,232

$118

$23,453

$661
Derivative liabilities:  
Interest rate contracts
$277

$—

$277

$—

$133

$—

$133

$—
Foreign exchange contracts113
—
113
—
166
—
166
—
Other contracts25
—
25
—
23
—
23
—
Total derivative liabilities415
—
415
—
322
—
322
—
Total liabilities
$415

$—

$415

$—

$322

$—

$322

$—

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following tables present a rollforwardroll forward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3:
 Three Months Ended March 31, 2020
(in millions)Mortgage Servicing Rights Other Derivative Contracts
Beginning balance
$642
 
$19
Transfers upon election of fair value method (1)
190
 —
Beginning balance, adjusted832
 19
Purchases—
 —
Issuances67
 171
Settlements (2)
(40) (76)
Changes in fair value during the period recognized in earnings (3)
(282) 29
Ending balance
$577
 
$143

 
Three Months Ended
September 30, 2019
 
Nine Months Ended
 September 30, 2019
(in millions)Mortgage Servicing Rights Other Derivative Contracts Mortgage Servicing Rights Other Derivative Contracts
Beginning balance
$531
 
$25
 
$600
 
$—
Issuances78
 61
 170
 104
Settlements (1)
(31) (64) (88) (107)
Changes in fair value during the period recognized in earnings (2)
(68) 4
 (172) 11
Transfers from Level 2 to Level 3(3)
—
 —
 —
 18
Ending balance
$510
 
$26
 
$510
 
$26

 Three Months Ended March 31, 2019
(in millions)Mortgage Servicing Rights Other Derivative Contracts
Beginning balance
$600
 
$—
Issuances35
 —
Settlements (2)
(26) —
Changes in fair value during the period recognized in earnings (3)
(46) —
Transfers from Level 2 to Level 3 (4)
—
 18
Ending balance
$563
 
$18
 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
(in millions)Mortgage Servicing Rights Mortgage Servicing Rights
Beginning balance
$—
 
$—
Acquired MSRs590
 590
Issuances29
 29
Settlements (1)
(12) (12)
Change in fair value during the period recognized in earnings (2)
5
 5
Ending balance
$612
 
$612

(1) Effective January 1, 2020, the Company elected to account for all MSRs previously accounted for under the amortization method under the fair value method.
(2) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial
paydowns, and ii) loans that paid off during the period.
(2)(3) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.
(3)(4) Reflects changes in the significance of unobservable inputs on derivative contracts associated with mortgage origination activities.
The following table presents quantitative information about the Company’s Level 3 assets, including the range and weighted-average of the significant unobservable inputs used to fair value these assets, as well as valuation techniques used.
As of March 31, 2020
Valuation TechniqueUnobservable InputRange (Weighted Average)
Mortgage servicing rightsDiscounted Cash FlowConstant prepayment rate10.87-37.37% CPR (21.0% CPR)
Option adjusted spread350-1,698 bps (585 bps)
Other derivative contractsInternal ModelPull through rate18.01-99.70% (77.98%)
MSR value(66.20)-143.98 bps (87.21 bps)

Nonrecurring Fair Value Measurements
Fair value is also used on a nonrecurring basis to evaluate certain assetscollateral-dependent loans for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include MSRs accounted for by the amortization method and loan impairments for certain loans and leases. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 19 in the Company’s 20182019 Form 10-K.

The following table presents gains (losses)losses on assets and liabilities measured at fair value on a nonrecurring basis and recorded in earnings:
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2019
 2018
 2019
 2018
Impaired collateral-dependent loans
($8) 
($3) 
($36) 
($9)
MSRs(1) —
 (15) 3
 Three Months Ended March 31,
(in millions)2020
 2019
Collateral-dependent loans
($34) 
($4)


CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table presents assets and liabilities measured at fair value on a nonrecurring basis:
 September 30, 2019 December 31, 2018
(in millions)Total
Level 1
Level 2
Level 3
 Total
Level 1
Level 2
Level 3
Impaired collateral-dependent loans
$332

$—

$332

$—
 
$338

$—

$338

$—
MSRs178
—
—
178
 243
—
—
243
 March 31, 2020 December 31, 2019
(in millions)Total
Level 1
Level 2
Level 3
 Total
Level 1
Level 2
Level 3
Collateral-dependent loans
$426

$—

$426

$—
 
$312

$—

$312

$—

The following table presents the estimated fair value for financial instruments not recorded at fair value in the unaudited interim Consolidated Financial Statements. The carrying amounts are recorded in the Consolidated Balance Sheets under the indicated captions:
September 30, 2019March 31, 2020
Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
(in millions)Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value
Financial assets:              
Securities held to maturity
$3,319

$3,362
 
$—

$—
 
$3,319

$3,362
 
$—

$—

$3,071

$3,219
 
$—

$—
 
$3,071

$3,219
 
$—

$—
Equity securities, at cost734
734
 —
—
 734
734
 —
—
927
927
 —
—
 927
927
 —
—
Other loans held for sale22
22
 —
—
 —
—
 22
22
350
350
 —
—
 —
—
 350
350
Loans and leases117,880
118,961
 —
—
 332
332
 117,548
118,629
127,528
127,366
 —
—
 426
426
 127,102
126,940
Financial liabilities:              
Deposits124,714
124,852
 —
—
 124,714
124,852
 —
—
133,475
133,554
 —
—
 133,475
133,554
 —
—
Federal funds purchased and securities sold under agreements to repurchase867
867
 —
—
 867
867
 —
—
1,049
1,049
 —
—
 1,049
1,049
 —
—
Other short-term borrowed funds210
210
 —
—
 210
210
 —
—
10
10
 —
—
 10
10
 —
—
Long-term borrowed funds12,806
12,952
 —
—
 12,806
12,952
 —
—
16,437
16,150
 —
—
 16,437
16,150
 —
—
December 31, 2018December 31, 2019
Total Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3
(in millions)Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value Carrying ValueEstimated Fair Value
Financial assets:              
Securities held to maturity
$4,165

$4,041
 
$—

$—
 
$4,165

$4,041
 
$—

$—

$3,202

$3,242
 
$—

$—
 
$3,202

$3,242
 
$—

$—
Equity securities, at cost834
834
 —
—
 834
834
 —
—
807
807
 —
—
 807
807
 —
—
Other loans held for sale101
101
 —
—
 —
—
 101
101
1,384
1,384
 —
—
 —
—
 1,384
1,384
Loans and leases116,660
116,627
 —
—
 338
338
 116,322
116,289
119,088
119,792
 —
—
 312
312
 118,776
119,480
Financial liabilities:              
Deposits119,575
119,503
 —
—
 119,575
119,503
 —
—
125,313
125,340
 —
—
 125,313
125,340
 —
—
Federal funds purchased and securities sold under agreements to repurchase1,156
1,156
 —
—
 1,156
1,156
 —
—
265
265
 —
—
 265
265
 —
—
Other short-term borrowed funds161
161
 —
—
 161
161
 —
—
9
9
 —
—
 9
9
 —
—
Long-term borrowed funds15,925
15,877
 —
—
 15,925
15,877
 —
—
14,047
14,228
 —
—
 14,047
14,228
 —
—

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 14 - NONINTEREST INCOME
Revenues from Contracts with Customers
The following table presents the components of revenue from contracts with customers disaggregated by revenue stream and business operating segment:
 Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
(in millions)Consumer BankingCommercial Banking
Consolidated (1)
 Consumer BankingCommercial Banking
Consolidated (1)
Service charges and fees
$102

$25

$127
 
$105

$26

$131
Card fees57
10
67
 51
10
61
Capital markets fees—
38
38
 —
46
46
Trust and investment services fees50
—
50
 45
—
45
Other banking fees1
2
3
 —
2
2
Total revenue from contracts with customers
$210

$75

$285
 
$201

$84

$285
Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
(in millions)Consumer BankingCommercial Banking
Consolidated (1)
 Consumer BankingCommercial Banking
Consolidated (1)
Consumer BankingCommercial Banking
Consolidated (1)
 Consumer BankingCommercial Banking
Consolidated (1)
Service charges and fees
$298

$77

$375
 
$303

$79

$382

$92

$26

$118
 
$97

$26

$123
Card fees162
28
190
 154
28
182
45
10
55
 50
9
59
Capital markets fees—
140
140
 —
134
134
—
65
65
 —
49
49
Trust and investment services fees150
—
150
 128
—
128
53
—
53
 47
—
47
Other banking fees1
7
8
 —
7
7
—
3
3
 —
2
2
Total revenue from contracts with customers
$611

$252

$863
 
$585

$248

$833

$190

$104

$294
 
$194

$86

$280
(1) There is no revenue from contracts with customers included in Other non-segment operations.
The Company recognized trailing commissions of $4 million for the three months ended September 30,March 31, 2020 and 2019, and 2018 and $11 million and $12 million for the nine months ended September 30, 2019 and 2018, respectively, related to services provided in previous reporting periods. Fees from other investment services are recognized at a point in time upon completion of the service.
Revenue from Other Sources
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Bank-owned life insurance
$14
 
$14
 
$41
 
$42

$14
 
$14

NOTE 15 - OTHER OPERATING EXPENSE
The following table presents the details of other operating expense:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions)2019
 2018
 2019
 2018
2020
 2019
Deposit insurance
$14
 
$29
 
$46
 
$88
Promotional expense31
 36
 86
 95

$24
 
$27
Settlements and operating losses10
 11
 30
 35
Other72
 55
 193
 160
87
 83
Other operating expense
$127
 
$131
 
$355
 
$378

$111
 
$110

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 16 - EARNINGS PER SHARE
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
(in millions, except share and per share data)2019
 2018
 2019
 2018
2020
 2019
Numerator (basic and diluted):          
Net income
$449
 
$443
 
$1,341
 
$1,256

$34
 
$439
Less: Preferred stock dividends17
 7
 50
 14
22
 15
Net income available to common stockholders
$432
 
$436
 
$1,291
 
$1,242

$12
 
$424
Denominator:          
Weighted-average common shares outstanding - basic445,703,987
 475,957,526
 454,802,186
 482,691,884
427,718,421
 460,713,172
Dilutive common shares: share-based awards1,430,608
 1,642,391
 1,416,569
 1,558,959
1,670,434
 1,807,508
Weighted-average common shares outstanding - diluted447,134,595
 477,599,917
 456,218,755
 484,250,843
429,388,855
 462,520,680
Earnings per common share:          
Basic
$0.97
 
$0.92
 
$2.84
 
$2.57

$0.03
 
$0.92
Diluted (1)
0.97
 0.91
 2.83
 2.57
0.03
 0.92


(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted average antidilutive shares totaling 7721,670,434 and 359,952939,698 for the three and nine months ended September 30,March 31, 2020 and 2019, respectively. There were 0 weighted average antidilutive shares for the three and nine months ended September 30, 2018 .

NOTE 17 - BUSINESS OPERATING SEGMENTS
Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s 2 business operating segments are Consumer Banking and Commercial Banking. The business segments are determined based on the products and services provided, or the type of customer served. Each segment has a segment head who reports directly to the Chief Executive Officer. The Chief Executive Officer has final authority over resource allocation decisions and performance assessment. The business segments reflect this management structure and the manner in which financial information is currently evaluated by the Chief Executive Officer. For more information on ourthe Company’s business operating segments, as well as Other non-segment operations, see Note 25 in the Company’s 20182019 Form 10-K.
 As of and for the Three Months Ended September 30, 2019
(in millions)Consumer Banking Commercial Banking Other Consolidated
Net interest income
$799
 
$360
 
($14) 
$1,145
Noninterest income336
 133
 24
 493
Total revenue1,135
 493
 10
 1,638
Noninterest expense718
 213
 42
 973
Profit (loss) before provision for credit losses417
 280
 (32) 665
Provision for credit losses83
 27
 (9) 101
Income (loss) before income tax expense (benefit)334
 253
 (23) 564
Income tax expense (benefit)83
 57
 (25) 115
Net income
$251
 
$196
 
$2
 
$449
Total average assets
$66,365
 
$55,614
 
$40,131
 
$162,110

 As of and for the Three Months Ended March 31, 2020
(in millions)Consumer Banking Commercial Banking Other Consolidated
Net interest income
$793
 
$365
 
$2
 
$1,160
Noninterest income357
 125
 15
 497
Total revenue1,150
 490
 17
 1,657
Noninterest expense738
 221
 53
 1,012
Profit (loss) before provision for credit losses412
 269
 (36) 645
Provision for credit losses97
 43
 460
 600
Income (loss) before income tax expense (benefit)315
 226
 (496) 45
Income tax expense (benefit)79
 47
 (115) 11
Net income (loss)
$236
 
$179
 
($381) 
$34
Total average assets
$68,415
 
$59,005
 
$39,757
 
$167,177
 As of and for the Three Months Ended September 30, 2018
(in millions)Consumer Banking Commercial Banking Other Consolidated
Net interest income
$776
 
$380
 
($8) 
$1,148
Noninterest income258
 140
 18
 416
Total revenue1,034
 520
 10
 1,564
Noninterest expense686
 202
 22
 910
Profit (loss) before provision for credit losses348
 318
 (12) 654
Provision for credit losses71
 14
 (7) 78
Income (loss) before income tax expense (benefit)277
 304
 (5) 576
Income tax expense (benefit)70
 70
 (7) 133
Net income
$207
 
$234
 
$2
 
$443
Total average assets
$62,974
 
$52,871
 
$39,779
 
$155,624
CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 As of and for the Nine Months Ended September 30, 2019
(in millions)Consumer Banking Commercial Banking Other Consolidated
Net interest income
$2,386
 
$1,103
 
($18) 
$3,471
Noninterest income860
 432
 91
 1,383
Total revenue3,246
 1,535
 73
 4,854
Noninterest expense2,133
 639
 89
 2,861
Profit (loss) before provision for credit losses1,113
 896
 (16) 1,993
Provision for credit losses228
 73
 (18) 283
Income before income tax expense (benefit)885
 823
 2
 1,710
Income tax expense (benefit)219
 184
 (34) 369
Net income
$666
 
$639
 
$36
 
$1,341
Total average assets
$65,624
 
$55,793
 
$39,927
 
$161,344
As of and for the Nine Months Ended September 30, 2018As of and for the Three Months Ended March 31, 2019
(in millions)Consumer Banking Commercial Banking Other ConsolidatedConsumer Banking Commercial Banking Other Consolidated
Net interest income
$2,268
 
$1,113
 
($21) 
$3,360

$788
 
$372
 
$—
 
$1,160
Noninterest income708
 405
 62
 1,175
247
 150
 31
 428
Total revenue2,976
 1,518
 41
 4,535
1,035
 522
 31
 1,588
Noninterest expense2,000
 610
 58
 2,668
700
 209
 28
 937
Profit (loss) before provision for credit losses976
 908
 (17) 1,867
Profit before provision for credit losses335
 313
 3
 651
Provision for credit losses209
 19
 13
 241
67
 21
 (3) 85
Income (loss) before income tax expense (benefit)767
 889
 (30) 1,626
Income before income tax expense (benefit)268
 292
 6
 566
Income tax expense (benefit)193
 203
 (26) 370
66
 65
 (4) 127
Net income (loss)
$574
 
$686
 
($4) 
$1,256
Net income
$202
 
$227
 
$10
 
$439
Total average assets
$61,857
 
$51,820
 
$39,805
 
$153,482

$65,007
 
$55,630
 
$39,778
 
$160,415

There have been no significant changes in the management accounting practices utilized by the Company regarding the basis of presentation for segment results as discussed in Note 25 in the Company’s 20182019 Form 10-K.
CITIZENS FINANCIAL GROUP, INC.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information presented in the “Market Risk” section of Part I, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls

and procedures, as of the end of the period covered by this quarterly report, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting: During the first quarter of 2020, the Company implemented controls related to the adoption of Current Expected Credit Losses (ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments) and the related financial statement reporting. Changes to the control environment specific to the Allowance for Credit Loss process include the enhancement of data validation procedures, tailoring of governance routines and verification of information provided for disclosures. There were no other changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this quarterly report on Form 10-Q that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this item is set forthpresented in Note 12, of this Report, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the risks below and other information set forthpresented in this Report, you should consider the risks described under the captionin Item 1A. “Risk Factors” in the Company’s 20182019 Form 10-K.

Additional Risks Related to our Business

The COVID-19 pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted.
The COVID-19 pandemic has negatively affected the global and U.S. economies, increased unemployment levels, disrupted supply chains and businesses in many industries, lowered equity market valuations, decreased liquidity in fixed income markets, and created significant volatility and disruption in financial markets. This has resulted, and could continue to result, in higher and more volatile provisions for credit losses, and is also expected to result in increased charge offs, particularly as more customers experience credit deterioration and as customers need to draw on their committed credit lines to help finance their businesses and activities. The pandemic’s negative economic impact and its effect on customer needs and behaviors could adversely affect our liquidity and also continue to adversely affect our capital profile. Moreover, governmental actions in response to the pandemic are meaningfully influencing the interest-rate environment, which has, and is likely to continue to, reduce our net interest margin. The effects of the pandemic have also resulted in lower service charges and fees, card fees, capital markets fees, and foreign exchange and interest rate products revenue, which have, and are likely to continue to, negatively affect our noninterest income.
In addition, our reliance on work-from-home capabilities and the potential inability to maintain critical staff in our operational facilities present risks associated with our local infrastructure, restrictive stay-at-home orders across jurisdictions, illness, quarantines and the sustainability of a work-from-home environment, as well as heightened cybersecurity, information security and operational risks. Many of our service providers have been, and may further be, affected by similar factors that increase their risks of business disruptions or that may otherwise affect their ability to perform under the terms of any agreements with us or provide essential services. Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result in losses or increased operational costs, regulatory fines, penalties or other sanctions, or harm to our reputation. We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and the actions of governmental authorities in response to those conditions.

The federal banking regulators have issued interagency guidance to clarify supervisory expectations regarding loan modifications due to COVID-19-related non-payment and the regulatory capital transition for the current expected credit loss accounting standard. Further, the Federal Reserve has announced a program for lending directly to U.S. businesses. In addition, the President Trump has signed into law three economic stimulus packages, including the $2 trillion CARES Act, the Families First Coronavirus Response Act, and the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. In response to the pandemic, we have (i) assisted our retail and small business customers through loan forbearances and modifications, (ii) extended loans under the Small Business Administration’s Paycheck Protection Program, and (iii) committed funding for community support with a particular emphasis on small businesses and non-profit partners. These government programs are complex and our participation may lead to governmental and regulatory scrutiny, negative publicity and damage to our reputation. On April 17, 2020, we announced that we would temporarily suspend our stock repurchase program through December 31, 2020 to support the efforts of the Federal Reserve and other banks to moderate the impact of the pandemic by making additional capital and liquidity available to our customers, including corporates, small businesses and individuals. The pandemic may cause us to further limit capital distributions.
The extent to which the pandemic adversely affects our business, financial condition and results of operations, as well as our liquidity and regulatory capital ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements and staffing levels in operational facilities, actions taken by governmental authorities and other third parties in response to the pandemic and the direct and indirect impact of the pandemic on us, our clients and customers, our service providers and other market participants. To the extent the pandemic adversely affects us, it may also have the effect of heightening many of the other risks described in Item 1A, Risk Factors in our 2019 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Details of the repurchases of the Company’s common stock during the three months ended September 30, 2019March 31, 2020 are included below:
PeriodTotal Number of Shares RepurchasedWeighted Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Dollar Amount of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs (1)
July 1, 2019 - July 31, 201910,817,308$35.4310,817,308$891,734,124
August 1, 2019 - August 31, 20192,018,648$35.432,018,648$820,211,810
September 1, 2019 - September 30, 20191,276,061$35.431,276,061$775,000,000
PeriodTotal Number of Shares RepurchasedWeighted Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Dollar Amount of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs (1)
January 1, 2020 - January 31, 20204,588,957$35.774,588,957$210,862,186
February 1, 2020 - February 29, 20201,097,722$35.771,097,722$171,598,866
March 1, 2020 - March 31, 20201,861,976$35.771,861,976$105,000,000
(1) On June 27, 2019, the Company announced that its Board of Directors has authorized share repurchases of CFG common stock of up to $1.275 billion for the four-quarter period ending with the second quarter of 2020. This share repurchase plan allowed for share repurchases that may be executed in the open market or in privately negotiated transactions, including under Rule 10b5-1 plans. Shares repurchased by the Company during the thirdfirst quarter were executed pursuant to an accelerated share repurchase transaction and open market repurchases, which were completed by September 30, 2019.March 31, 2020. On April 17, 2020, the Company announced that it will suspend share repurchases through December 31, 2020. The timing and exact amount of future share repurchases will be subject to various factors, including the Company’s capital position, financial performance and market conditions.

CITIZENS FINANCIAL GROUP, INC.


ITEM 6. EXHIBITS

3.1 Amended and Restated Certificate of Incorporation of the Registrant as in effect on the date hereof (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q, filed May 8, 2015)

3.2 Certificate of Designations of the Registrant with respect to the Series B Preferred Stock, dated May 22, 2018, filed with the Secretary of State of the State of Delaware and effective May 22, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed MayApril 24, 2018)2020)

3.3 Certificate of Designations of the Registrant with respect to the Series C Preferred Stock, dated October 24, 2018, filed with the Secretary of State of the State of Delaware3.2 Amended and effective October 24, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 25, 2018)

3.4 Certificate of Designations of the Registrant with respect to the Series D Preferred Stock, dated January 23, 2019, filed with the Secretary of State of the State of Delaware and effective January 23, 2019 (incorporated herein by reference to Exhibit 3.4 to the Registration Statement on Form 8-A, filed January 29, 2019)

3.5 Certificate of Designations of the Registrant with respect to the Series E Preferred Stock, dated October 22, 2019, filed with the Secretary of State of the State of Delaware and effective October 22, 2019 (incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form 8-A, filed October 25, 2019)

3.6Restated Bylaws of the Registrant (as amended and restated on June 20, 2019)April 23, 2020) (incorporated herein by reference to Exhibit 3.13.2 of the Current Report on Form 8-K, filed June 21, 2019)April 24, 2020)

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101
The following materials from the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements*

104Cover page interactive data file in inline XBRL format, included in Exhibit 101 to this report*

* Filed herewith.
CITIZENS FINANCIAL GROUP, INC.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 6, 2019.May 7, 2020.

CITIZENS FINANCIAL GROUP, INC.
(Registrant)
  
By:/s/ C. Jack Read
 Name: C. Jack Read
 Title: Executive Vice President, Chief Accounting Officer and Controller
 (Principal Accounting Officer and Authorized Officer)


98Citizens Financial Group, Inc. | 82