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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
June 30, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From
(Not Applicable)
Commission File Number 001-36636
(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 class | Trading symbol(s) | Name of each exchange on which registered
Common stock, $0.01 par value per share | CFG | New York Stock Exchange
Depositary Shares, representing 6.350% Non-Cumulative Perpetual Preferred Stock, Series D | CFG PrD | New 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” and “smaller reporting 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 447,086,518 shares of Registrant’s common stock ($0.01 par value) outstanding on August 1, 2019.

|  | Table of Contents |  |
| Glossary of Acronyms and Terms | 3 |
| Part I. Financial Information | 5 |
| Item 1. Financial Statements | 51 |
| Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (unaudited) | 52 |
| Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 | 53 |
| Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 | 54 |
| Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 | 55 |
| Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2019 and 2018 | 57 |
| Notes to the Consolidated Financial Statements (unaudited) | 58 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 5 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 97 |
| Item 4. Controls and Procedures | 97 |
| Part II. Other Information | 97 |
| Item 1. Legal Proceedings | 97 |
| Item 1A. Risk Factors | 97 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 97 |
| Item 6. Exhibits | 98 |
| Signature | 99 |

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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:

ACL |  | Allowance for Credit Losses
Acquisitions |  | Refers to acquisitions after second quarter 2018, including Franklin American Mortgage Company, Clarfeld Financial Advisors, LLC and Bowstring Advisors LLC
AFS |  | Available for Sale
ALLL |  | Allowance for Loan and Lease Losses
ALM |  | Asset and Liability Management
AOCI |  | Accumulated Other Comprehensive Income (Loss)
ATM |  | Automated Teller Machine
Board of Directors |  | The Board of Directors of Citizens Financial Group, Inc.
bps |  | Basis Points
CBNA |  | Citizens Bank, National Association
CCAR |  | Comprehensive Capital Analysis and Review
CCB |  | Capital Conservation Buffer
CCMI |  | Citizens Capital Markets, Inc.
CET1 |  | Common Equity Tier 1
CET1 capital ratio |  | Common Equity Tier 1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach
Citizens, CFG, the Company, we, us, or our |  | Citizens Financial Group, Inc. and its Subsidiaries
CLTV |  | Combined Loan to Value
Dodd-Frank Act |  | The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EGRRCPA |  | Economic Growth, Regulatory Relief and Consumer Protection Act
EPS |  | Earnings Per Share
Exchange Act |  | The Securities Exchange Act of 1934
FAMC |  | Franklin American Mortgage Company
FAMC acquisition |  | The August 1, 2018 acquisition of Franklin American Mortgage Company
Fannie Mae (FNMA) |  | Federal National Mortgage Association
FDIC |  | Federal Deposit Insurance Corporation
FHLB |  | Federal Home Loan Bank
FICO |  | Fair Isaac Corporation (credit rating)
FRB |  | Board of Governors of the Federal Reserve System and, as applicable, Federal Reserve Bank(s)
Freddie Mac (FHLMC) |  | Federal Home Loan Mortgage Corporation
FTP |  | Funds Transfer Pricing
GAAP |  | Accounting Principles Generally Accepted in the United States of America
Ginnie Mae (GNMA) |  | Government National Mortgage Association
GSE |  | Government Sponsored Entity
HTM |  | Held To Maturity
LCR |  | Liquidity Coverage Ratio
LHFS |  | Loans Held for Sale
LIBOR |  | London Interbank Offered Rate
LIHTC |  | Low Income Housing Tax Credit
LTV |  | Loan to Value
MBS |  | Mortgage-Backed Securities
Mid-Atlantic |  | District of Columbia, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia
Midwest |  | Illinois, Indiana, Michigan, and Ohio

3

CITIZENS FINANCIAL GROUP, INC.

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

4

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

|  | Page
Forward-Looking Statements |  | 6
Introduction |  | 7
Financial Performance |  | 8
Selected Consolidated Financial Data |  | 11
Results of Operations |  | 13
Net Interest Income |  | 13
Noninterest Income |  | 17
Noninterest Expense |  | 18
Provision for Credit Losses |  | 19
Income Tax Expense |  | 20
Business Operating Segments |  | 21
Analysis of Financial Condition |  | 28
Securities |  | 28
Loans and Leases |  | 29
Allowance for Credit Losses and Nonperforming Assets |  | 29
Deposits |  | 32
Borrowed Funds |  | 33
Capital and Regulatory Matters |  | 34
Liquidity |  | 38
Off-Balance Sheet Arrangements |  | 41
Critical Accounting Estimates |  | 41
Risk Governance |  | 42
Market Risk |  | 42
Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations |  | 47

5

CITIZENS FINANCIAL GROUP, INC.
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “goals,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”
Forward-looking statements are based upon the current beliefs and expectations of management, and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:

• | Negative economic and political conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense;

• | The rate of growth in the economy and employment levels, as well as general business and economic conditions, and changes in the competitive environment;

• | Our ability to implement our business strategy, including the cost savings and efficiency components, and achieve our financial performance goals;

• | Our ability to meet heightened supervisory requirements and expectations;

• | Liabilities and business restrictions resulting from litigation and regulatory investigations;

• | Our capital and liquidity requirements (including under regulatory capital standards, such as the U.S. Basel III capital rules) and our ability to generate capital internally or raise capital on favorable terms;

• | The effect of changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;

• | Changes in interest rates and market liquidity, as well as the magnitude of such changes, which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets;

• | The effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;

• | Financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

• | A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber-attacks; and

• | Management’s ability to identify and manage these and other risks.

In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination. Therefore, there can be no assurance that we will repurchase shares or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends.
More information about factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the “Risk Factors” section in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2018.
6

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
INTRODUCTION
Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions with $162.7 billion in assets as of June 30, 2019. Our mission is to help our customers, colleagues and communities reach their potential. Headquartered in Providence, Rhode Island, we offer a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. We help our customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, we provide an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 2,900 ATMs and approximately 1,100 branches in 11 states in the New England, Mid-Atlantic, and Midwest regions. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, we offer corporate, institutional and not-for-profit clients a full range of wholesale banking products and services including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance. More information is available at www.citizensbank.com.
The following MD&A is intended to assist readers in their analysis of the accompanying unaudited interim Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes to the unaudited interim Consolidated Financial Statements in Item 1 of this Form 10-Q, as well as other information contained in this document and our Annual Report on Form 10-K for the year ended December 31, 2018.
Key Performance Metrics Used by Management and Non-GAAP Financial Measures
As a banking institution, we manage and evaluate various aspects of our results of operations and our financial condition. We evaluate the levels and trends of the line items included in our balance sheet and statement of operations, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against our own historical performance, our budgeted performance and the financial condition and performance of comparable banking institutions in our region and nationally.
The primary line items we use in our key performance metrics to manage and evaluate our statement of operations include net interest income, noninterest income, total revenue, provision for credit losses, noninterest expense, net income and net income available to common stockholders. The primary line items we use in our key performance metrics to manage and evaluate our balance sheet data include loans and leases, securities, allowance for credit losses, deposits, borrowed funds and derivatives.
We consider various measures when evaluating our performance and making day-to-day operating decisions, as well as evaluating capital utilization and adequacy, including:

• | Return on average common equity, which we define as annualized net income available to common stockholders divided by average common equity;

• | Return on average tangible common equity, which we define as annualized net income available to common stockholders divided by average common equity excluding average goodwill (net of related deferred tax liability) and average other intangibles;

• | Return on average total assets, which we define as annualized net income divided by average total assets;

• | Return on average total tangible assets, which we define as annualized net income divided by average total assets excluding average goodwill (net of related deferred tax liability) and average other intangibles;

• | Efficiency ratio, which we define as the ratio of our total noninterest expense to the sum of net interest income and total noninterest income. We measure our efficiency ratio to evaluate the efficiency of our operations as it helps us monitor how costs are changing compared to our income. A decrease in our efficiency ratio represents improvement;

• | Operating leverage, which we define as the percent change in total revenue, less the percent change in noninterest expense;

• | Net interest margin, which we calculate by dividing annualized net interest income for the period by average total interest-earning assets, is a key measure that we use to evaluate our net interest income; and

• | Common equity tier 1 capital ratio, which represents CET1 capital divided by total risk-weighted assets as defined under the U.S. Basel III Standardized approach.

7

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
This document contains non-GAAP financial measures denoted as “Underlying” results. Underlying results for any given reporting period exclude certain items that may occur in that period which Management does not consider indicative of the Company’s on-going financial performance. We believe these non-GAAP financial measures provide useful information to investors because they are used by our Management to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe our Underlying results in any given reporting period reflect our on-going financial performance and increase comparability of period-to-period results, and accordingly, are useful to consider in addition to our GAAP financial results.
Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by such companies. We caution investors not to place undue reliance on such non-GAAP financial measures, but to consider them with the most directly comparable GAAP measures. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our results reported under GAAP.
Non-GAAP measures are denoted throughout the MD&A by the use of the term Underlying and/or are followed by an asterisk (*). For additional information regarding our non-GAAP financial measures and reconciliations, see “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” included in this Report.
FINANCIAL PERFORMANCE
Second Quarter 2019 compared with Second Quarter 2018 - Key Highlights
Second quarter 2019 net income of $453 million increase d 7% from $425 million in second quarter 2018, with earnings per diluted common share of $0.95, up 8% from $0.88 per diluted common share in second quarter 2018. Second quarter 2019 ROTCE of 12.8% compared to 12.9% in second quarter 2018.
There were $5 million after-tax, or $0.01 per diluted common share, of notable items recorded in second quarter 2019 tied to integration costs associated with Acquisitions. There were no notable items recorded in second quarter 2018.

| Three Months Ended June 30,
| 2019 |  | 2018
(in millions) | Noninterest expense |  | Income tax expense |  | Net Income |  | Noninterest expense |  | Income tax expense |  | Net Income
Reported results (GAAP): |  | $951 |  |  |  | $127 |  |  |  | $453 |  |  |  | $875 |  |  |  | $124 |  |  |  | $425 |
Less notable items: |  |  |  |  |  |  |  |  |  |  |
Total integration costs | 7 |  |  | (2 | ) |  | (5 | ) |  | — |  |  | — |  |  | — |
Underlying results* (non-GAAP) |  | $944 |  |  |  | $129 |  |  |  | $458 |  |  |  | $875 |  |  |  | $124 |  |  |  | $425 |

* 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 $435 million increase d $10 million, or 2%, compared to $425 million in second quarter 2018, driven by 8% revenue growth, with 4% growth in net interest income and 19% growth in noninterest income.

◦ | On an Underlying basis,* net income available to common stockholders of $440 million increase d $15 million, or 4%, from second quarter 2018.

• | Total revenue of $1.6 billion increase d $119 million, or 8%, from second quarter 2018, reflecting strength in noninterest income and increased net interest income.

◦ | Net interest income of $1.2 billion increase d $45 million, or 4%, compared to $1.1 billion in second quarter 2018, driven by growth in interest earning assets and stable net interest margin.

◦ | Net interest margin of 3.20% remained stable compared to second quarter 2018, reflecting higher interest-earning asset yields given higher short-term interest rates and continued mix shift towards higher-yielding assets, offset by an increase in funding costs tied to higher rates and growth.

– | Net interest margin on a fully taxable-equivalent basis of 3.21% decrease d by one basis point, compared to 3.22% in second quarter 2018.

8

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

– | Average loans and leases of $117.8 billion increase d $4.9 billion, or 4%, from $112.9 billion in second quarter 2018, reflecting a $3.3 billion increase in commercial loans and leases and a $1.6 billion increase in retail loans.

– | Average deposits of $123.2 billion increase d $8.0 billion, or 7%, from $115.1 billion in second quarter 2018, reflecting growth in term deposits, savings and checking with interest, partially offset by a reduction in money market accounts and demand deposits.

◦ | Noninterest income of $462 million increase d $74 million, or 19%, from second quarter 2018, driven by growth in mortgage banking fees, capital market fees, trust and investment services fees and card fees.

• | Noninterest expense of $951 million increase d $76 million, or 9%, compared to $875 million in second quarter 2018, reflecting the impact of our investments in growth initiatives, partially offset by lower other operating expense, largely tied to a reduction in FDIC insurance and advertising expense.

◦ | On an Underlying basis,* noninterest expense increased $69 million, or 8%, from second quarter 2018.

• | The efficiency ratio increased to 58.4% from 58.0% in second quarter 2018, and operating leverage declined 1% from second quarter 2018, both primarily driven by the impact of notable items and Acquisitions.

◦ | On an Underlying basis,* the efficiency ratio of 58.0% remained stable with second quarter 2018, despite a 38 basis point drag related to Acquisitions.

◦ | On an Underlying basis,* operating leverage was stable despite a 68 basis point drag related to Acquisitions.

• | Provision for credit losses of $97 million increase d $12 million, or 14%, from $85 million in second quarter 2018, reflecting 4% average loan growth, continued seasoning in retail growth portfolios and several idiosyncratic losses in commercial, with key metrics continuing to reflect strong credit quality.

• | ROTCE of 12.8% decreased slightly from 12.9% in second quarter 2018 as an approximately 50 basis point drag from higher equity value, given the benefit on securities valuations from lower long-term rates, offset the benefit of profitability growth.

◦ | On an Underlying basis,* ROTCE of 12.9% was stable with second quarter 2018.

• | Tangible book value per common share of $30.88 increased 12% from second quarter 2018. Fully diluted average common shares outstanding decrease d 6%, or 26.8 million shares, over the same period.

First Half 2019 compared with First Half 2018 - Key Highlights
Net income of $892 million increase d 10% from $813 million in the first half of 2018, with earnings per diluted common share of $1.86, up 13% from $1.65 per diluted common share over the first half of 2018. ROTCE of 12.9% improved from 12.3% in the first half of 2018.
There were $9 million after-tax, or $0.02 per diluted common share, of notable items in the first half of 2019 tied to integration costs related to Acquisitions. There were no notable items in the first half of 2018.

| Six Months Ended June 30,
| 2019 |  | 2018
(in millions) | Noninterest expense |  | Income tax expense |  | Net Income |  | Noninterest expense |  | Income tax expense |  | Net Income
Reported results (GAAP) |  | $1,888 |  |  |  | $254 |  |  |  | $892 |  |  |  | $1,758 |  |  |  | $237 |  |  |  | $813 |
Less notable items: |  |  |  |  |  |  |  |  |  |  |
Total integration costs | 12 |  |  | (3 | ) |  | (9 | ) |  | — |  |  | — |  |  | — |
Underlying results* (non-GAAP) |  | $1,876 |  |  |  | $257 |  |  |  | $901 |  |  |  | $1,758 |  |  |  | $237 |  |  |  | $813 |

* 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 $859 million increase d $53 million, or 7%, compared to $806 million in the first half of 2018. Earnings per diluted common share increase d $0.21, or 13%, from the first half of 2018.

◦ | On an Underlying basis,* net income available to common stockholders of $868 million increase d by 8%, led by 8% revenue growth with 5% growth in net interest income.

9

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

◦ | On an Underlying basis,* earnings per diluted common share of $1.88 increase d $0.23, or 14%, from the first half of 2018.

• | Total revenue of $3.2 billion increase d $245 million, or 8%, from the first half of 2018, driven by strong net interest and noninterest income growth.

◦ | Net interest income of $2.3 billion increase d $114 million, or 5%, compared to $2.2 billion in the first half of 2018, driven by higher loan yields and 5% average loan growth.

◦ | Net interest margin of 3.22% increase d two basis points from 3.20% in the first half of 2018, driven by higher interest-earning asset yields given higher short-term interest rates and continued mix shift toward more attractive risk-adjusted return portfolios.

– | Net interest margin on a fully taxable-equivalent basis of 3.23% increase d by two basis points, compared to 3.21% in the first half of 2018.

– | Average loans and leases of $117.7 billion increase d $5.7 billion, or 5%, from $112.0 billion in the first half of 2018, reflecting a $4.2 billion increase in commercial loans and leases and a $1.5 billion increase in retail loans.

– | Average deposits of $121.8 billion increase d $7.5 billion, or 7%, from $114.3 billion in the first half of 2018, reflecting growth in term deposits, regular savings and checking with interest.

◦ | Noninterest income of $890 million increase d $131 million, or 17%, from the first half of 2018, driven by growth in mortgage banking fees, capital market fees, trust and investment services fees and foreign exchange and interest rate products fees.

• | Noninterest expense of $1.9 billion increase d $130 million, or 7%, from $1.8 billion in the first half of 2018, reflecting the impact of our investments in growth initiatives, partially offset by lower other operating expense.

◦ | On an Underlying basis,* noninterest expense increase d 7% from the first half of 2018.

• | Operating leverage for the first half of 2019 was 1%. The efficiency ratio decrease d by 47 basis points to 58.7% compared to the first half of 2018, and ROTCE improved 55 basis points to 12.9%.

◦ | On an Underlying basis,* operating leverage was 1.5%, the efficiency ratio improved 83 basis points from 59.2% in the first half of 2018 and ROTCE increased 68 basis points from 12.3%.

• | Provision for credit losses of $182 million increase d $19 million, or 12%, from $163 million for the first half of 2018, reflecting 5% average loan growth, continued seasoning in retail growth portfolios and several idiosyncratic losses in commercial.

• | Tangible book value per common share of $30.88 increased 12% from the first half of 2018. Fully diluted average common shares outstanding decrease d 6%, or 26.8 million shares, over the same period.

10

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED CONSOLIDATED FINANCIAL DATA
The summary Consolidated Operating Data for the three and six months ended June 30, 2019 and 2018 and the summary Consolidated Balance Sheet data as of June 30, 2019 and December 31, 2018 are derived from our unaudited interim Consolidated Financial Statements, included in Part I, Item 1 — Financial Statements of this Report. Our historical results are not necessarily indicative of the results expected for any future period.

| Three Months Ended June 30, |  | Six Months Ended June 30,
(dollars in millions, except per share amounts) | 2019 |  |  | 2018 |  |  | 2019 |  | 2018
OPERATING DATA: |  |  |  |  |  |  |
Net interest income |  | $1,166 |  |  |  | $1,121 |  |  |  | $2,326 |  |  |  | $2,212 |
Noninterest income | 462 |  |  | 388 |  |  | 890 |  |  | 759 |
Total revenue | 1,628 |  |  | 1,509 |  |  | 3,216 |  |  | 2,971 |
Provision for credit losses | 97 |  |  | 85 |  |  | 182 |  |  | 163 |
Noninterest expense | 951 |  |  | 875 |  |  | 1,888 |  |  | 1,758 |
Income before income tax expense | 580 |  |  | 549 |  |  | 1,146 |  |  | 1,050 |
Income tax expense | 127 |  |  | 124 |  |  | 254 |  |  | 237 |
Net income |  | $453 |  |  |  | $425 |  |  |  | $892 |  |  |  | $813 |
Net income available to common stockholders |  | $435 |  |  |  | $425 |  |  |  | $859 |  |  |  | $806 |
Net income per common share - basic |  | $0.95 |  |  |  | $0.88 |  |  |  | $1.87 |  |  |  | $1.66 |
Net income per common share - diluted |  | $0.95 |  |  |  | $0.88 |  |  |  | $1.86 |  |  |  | $1.65 |
OTHER OPERATING DATA(1): |  |  |  |  |  |  |
Return on average common equity | 8.54 | % |  | 8.65 | % |  | 8.58 | % |  | 8.24 | %
Return on average tangible common equity | 12.75 |  |  | 12.93 |  |  | 12.87 |  |  | 12.32 |
Return on average total assets | 1.13 |  |  | 1.11 |  |  | 1.12 |  |  | 1.08 |
Return on average total tangible assets | 1.17 |  |  | 1.16 |  |  | 1.17 |  |  | 1.12 |
Efficiency ratio | 58.41 |  |  | 57.95 |  |  | 58.70 |  |  | 59.17 |
Operating leverage(2) | (0.85 | ) |  | 6.96 |  |  | 0.86 |  |  | 4.56 |
Net interest margin(3) | 3.20 |  |  | 3.20 |  |  | 3.22 |  |  | 3.20 |
Effective income tax rate | 21.86 |  |  | 22.58 |  |  | 22.14 |  |  | 22.55 |

(1) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.
(2) “Operating leverage” represents the period-over-period percent change in total revenue, less the period-over-period percent change in noninterest expense.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of
days in the period, divided by average total interest-earning assets. Prior periods have been adjusted to conform with the current period presentation.
11

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

(dollars in millions) | June 30, 2019 |  | December 31, 2018
BALANCE SHEET DATA: |  |  |
Total assets |  | $162,749 |  |  |  | $160,518 |
Loans held for sale, at fair value | 1,750 |  |  | 1,219 |
Other loans held for sale | 455 |  |  | 101 |
Loans and leases | 116,838 |  |  | 116,660 |
Allowance for loan and lease losses | (1,227 | ) |  | (1,242 | )
Total securities | 25,898 |  |  | 25,075 |
Goodwill | 7,040 |  |  | 6,923 |
Total liabilities | 140,732 |  |  | 139,701 |
Total deposits | 124,004 |  |  | 119,575 |
Federal funds purchased and securities sold under agreements to repurchase | 1,132 |  |  | 1,156 |
Other short-term borrowed funds(1) | 309 |  |  | 161 |
Long-term borrowed funds(1) | 11,538 |  |  | 15,925 |
Total stockholders’ equity | 22,017 |  |  | 20,817 |
OTHER BALANCE SHEET DATA: |  |  |
Asset Quality Ratios: |  |  |
Allowance for loan and lease losses as a percentage of loans and leases | 1.05 | % |  | 1.06 | %
Allowance for loan and lease losses as a percentage of nonperforming loans and leases | 159.43 |  |  | 155.99 |
Nonperforming loans and leases as a percentage of loans and leases | 0.66 |  |  | 0.68 |
Capital Ratios: |  |  |
CET1 capital ratio(2) | 10.5 | % |  | 10.6 | %
Tier 1 capital ratio | 11.3 |  |  | 11.3 |
Total capital ratio | 13.4 |  |  | 13.3 |
Tier 1 leverage ratio | 10.1 |  |  | 10.0 |

(1) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
(2) See “—Key Performance Metrics, Non-GAAP Financial Measures and Reconciliations” for definitions of our key performance metrics.
12

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to “—Market Risk — Non-Trading Risk,” included in this Report and “—Risk Governance” as described in our Annual Report on Form 10-K for the year ended December 31, 2018.
13

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the major components of net interest income and net interest margin:

| Three Months Ended June 30, |  |
2019 |  | 2018 |  | Change
(dollars in millions) | Average Balances | Income/ Expense | Yields/ Rates |  | Average Balances | Income/ Expense | Yields/ Rates |  | Average Balances | Yields/ Rates
Assets |  |  |  |  |  |  |  |  |  |
Interest-bearing cash and due from banks and deposits in banks |  | $1,229 |  |  | $7 |  | 2.16 | % |  |  | $1,801 |  |  | $8 |  | 1.77 | % |  |  | ($572 | ) | 39 bps
Taxable investment securities | 25,620 |  | 164 |  | 2.56 |  |  | 25,197 |  | 165 |  | 2.62 |  |  | 423 |  | (6 | )
Non-taxable investment securities | 5 |  | — |  | 2.60 |  |  | 6 |  | — |  | 2.60 |  |  | (1 | ) | — |
Total investment securities | 25,625 |  | 164 |  | 2.56 |  |  | 25,203 |  | 165 |  | 2.62 |  |  | 422 |  | (6 | )
Commercial | 41,755 |  | 471 |  | 4.45 |  |  | 39,399 |  | 405 |  | 4.07 |  |  | 2,356 |  | 38 |
Commercial real estate | 13,379 |  | 166 |  | 4.91 |  |  | 12,071 |  | 134 |  | 4.39 |  |  | 1,308 |  | 52 |
Leases | 2,745 |  | 19 |  | 2.89 |  |  | 3,073 |  | 21 |  | 2.69 |  |  | (328 | ) | 20 |
Total commercial loans and leases | 57,879 |  | 656 |  | 4.48 |  |  | 54,543 |  | 560 |  | 4.06 |  |  | 3,336 |  | 42 |
Residential mortgages | 19,232 |  | 176 |  | 3.65 |  |  | 17,488 |  | 156 |  | 3.57 |  |  | 1,744 |  | 8 |
Home equity loans | 971 |  | 14 |  | 6.01 |  |  | 1,252 |  | 18 |  | 5.91 |  |  | (281 | ) | 10 |
Home equity lines of credit | 12,332 |  | 158 |  | 5.15 |  |  | 13,112 |  | 144 |  | 4.40 |  |  | (780 | ) | 75 |
Home equity loans serviced by others | 359 |  | 7 |  | 7.67 |  |  | 480 |  | 9 |  | 7.23 |  |  | (121 | ) | 44 |
Home equity lines of credit serviced by others | 92 |  | 1 |  | 5.27 |  |  | 130 |  | 1 |  | 3.62 |  |  | (38 | ) | 165 |
Automobile | 11,984 |  | 125 |  | 4.19 |  |  | 12,657 |  | 113 |  | 3.60 |  |  | (673 | ) | 59 |
Education | 9,235 |  | 137 |  | 5.97 |  |  | 8,374 |  | 119 |  | 5.71 |  |  | 861 |  | 26 |
Credit cards | 2,041 |  | 52 |  | 10.26 |  |  | 1,854 |  | 50 |  | 10.74 |  |  | 187 |  | (48 | )
Other retail | 3,658 |  | 66 |  | 7.11 |  |  | 2,966 |  | 60 |  | 8.10 |  |  | 692 |  | (99 | )
Total retail loans | 59,904 |  | 736 |  | 4.92 |  |  | 58,313 |  | 670 |  | 4.61 |  |  | 1,591 |  | 31 |
Total loans and leases | 117,783 |  | 1,392 |  | 4.71 |  |  | 112,856 |  | 1,230 |  | 4.34 |  |  | 4,927 |  | 37 |
Loans held for sale, at fair value | 1,528 |  | 15 |  | 3.93 |  |  | 470 |  | 5 |  | 4.15 |  |  | 1,058 |  | (22 | )
Other loans held for sale | 158 |  | 2 |  | 5.67 |  |  | 195 |  | 3 |  | 6.38 |  |  | (37 | ) | (71 | )
Interest-earning assets | 146,323 |  | 1,580 |  | 4.30 |  |  | 140,525 |  | 1,411 |  | 4.00 |  |  | 5,798 |  | 30 |
Allowance for loan and lease losses | (1,247 | ) |  |  |  | (1,246 | ) |  |  |  | (1 | ) |
Goodwill | 7,040 |  |  |  |  | 6,887 |  |  |  |  | 153 |  |
Other noninterest-earning assets | 9,373 |  |  |  |  | 7,087 |  |  |  |  | 2,286 |  |
Total assets |  | $161,489 |  |  |  |  |  | $153,253 |  |  |  |  |  | $8,236 |  |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |  |
Checking with interest |  | $23,919 |  |  | $57 |  | 0.96 | % |  |  | $22,185 |  |  | $34 |  | 0.61 | % |  |  | $1,734 |  | 35 bps
Money market accounts | 35,228 |  | 114 |  | 1.30 |  |  | 36,396 |  | 79 |  | 0.87 |  |  | (1,168 | ) | 43
Regular savings | 13,324 |  | 21 |  | 0.62 |  |  | 9,889 |  | 1 |  | 0.05 |  |  | 3,435 |  | 57
Term deposits | 22,292 |  | 116 |  | 2.09 |  |  | 17,838 |  | 67 |  | 1.50 |  |  | 4,454 |  | 59
Total interest-bearing deposits | 94,763 |  | 308 |  | 1.30 |  |  | 86,308 |  | 181 |  | 0.84 |  |  | 8,455 |  | 46
Federal funds purchased and securities sold under agreements to repurchase (1) | 818 |  | 3 |  | 1.76 |  |  | 504 |  | 1 |  | 0.73 |  |  | 314 |  | 103
Other short-term borrowed funds (2) | 45 |  | 1 |  | 2.66 |  |  | 191 |  | 1 |  | 1.90 |  |  | (146 | ) | 76
Long-term borrowed funds (2) | 12,386 |  | 102 |  | 3.30 |  |  | 14,880 |  | 107 |  | 2.86 |  |  | (2,494 | ) | 44
Total borrowed funds | 13,249 |  | 106 |  | 3.20 |  |  | 15,575 |  | 109 |  | 2.78 |  |  | (2,326 | ) | 42
Total interest-bearing liabilities | 108,012 |  | 414 |  | 1.54 |  |  | 101,883 |  | 290 |  | 1.14 |  |  | 6,129 |  | 40
Demand deposits | 28,389 |  |  |  |  | 28,834 |  |  |  |  | (445 | ) |
Other liabilities | 3,536 |  |  |  |  | 2,433 |  |  |  |  | 1,103 |  |
Total liabilities | 139,937 |  |  |  |  | 133,150 |  |  |  |  | 6,787 |  |
Stockholders’ equity | 21,552 |  |  |  |  | 20,103 |  |  |  |  | 1,449 |  |
Total liabilities and stockholders’ equity |  | $161,489 |  |  |  |  |  | $153,253 |  |  |  |  |  | $8,236 |  |
Interest rate spread |  |  | 2.77 | % |  |  |  | 2.87 | % |  |  | (10)
Net interest income and net interest margin(3) |  |  | $1,166 |  | 3.20 | % |  |  |  | $1,121 |  | 3.20 | % |  |  | —
Net interest income and net interest margin, FTE(4) |  |  | $1,172 |  | 3.21 | % |  |  |  | $1,127 |  | 3.22 | % |  |  | (1) bps
Memo: Total deposits (interest-bearing and demand) |  | $123,152 |  |  | $308 |  | 1.00 | % |  |  | $115,142 |  |  | $181 |  | 0.63 | % |  |  | $8,010 |  | 37 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) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of
days in the period, divided by average total interest-earning assets. Prior periods have been adjusted to conform with the current period presentation.
(4) Net interest income and net interest margin is presented on a fully taxable-equivalent (“FTE”) basis using the federal statutory tax rate of 21%. In the fully taxable-equivalent presentation of net interest income and net interest margin, interest income on tax-exempt assets is increased to make it fully equivalent to interest income earned on taxable assets. The FTE impact is predominantly attributable to commercial loans for the periods presented.
14

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarter-To-Date Results: Net interest income of $1.2 billion increase d $45 million, or 4%, from second quarter 2018, given 4% growth in interest-earning assets and stable net interest margin.
Net interest margin of 3.20% was stable with second quarter 2018, reflecting higher interest-earning asset yields given higher short-term interest rates and continued mix shift toward more attractive risk-adjusted return portfolios. These results were offset by higher funding costs and the impact of lower long-term rates on securities premium amortization. Net interest margin on an FTE basis of 3.21% was also stable compared to 3.22% in second quarter 2018. Average interest-earning asset yields of 4.30% increase d 30 basis points from 4.00% in second quarter 2018, and average interest-bearing liability costs of 1.54% increase d 40 basis points from 1.14% in second quarter 2018.
Average interest-earning assets of $146.3 billion in second quarter 2019 increase d $5.8 billion, or 4%, from second quarter 2018, driven by a $4.9 billion, or 4% increase in loans and leases. Commercial loans and leases increase d $3.3 billion, or 6%, while retail loans increase d $1.6 billion, or 3%. Results also reflected a $1.0 billion increase in loans held for sale, primarily driven by the impact of the FAMC acquisition. Commercial loan results reflected strength in commercial and industrial 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.
Second quarter 2019 average deposits of $123.2 billion increase d $8.0 billion, or 7%, from second quarter 2018, reflecting growth in term, savings and checking with interest. These results were partially offset by a decline in money market accounts and demand deposits.
Average borrowed funds of $13.2 billion decrease d $2.3 billion, or 15%, from second quarter 2018, driven by a $2.5 billion decrease in long-term borrowings reflecting improved funding mix from deposit growth, partially offset by an increase in federal funds purchased and repurchase agreements. Total borrowed funds costs of $106 million decrease d $3 million from second quarter 2018. The total borrowed funds cost of 3.20% increase d 42 basis points from 2.78% in second quarter 2018 due to an increase in short-term rates and a mix shift to long-term senior debt.
15

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the major components of net interest income and net interest margin:

| Six Months Ended June 30, |  |
2019 |  | 2018 |  | Change
(dollars in millions) | Average Balances | Income/ Expense | Yields/ Rates |  | Average Balances | Income/ Expense | Yields/ Rates |  | Average Balances | Yields/ Rates
Assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing cash and due from banks and deposits in banks |  | $1,362 |  |  | $15 |  | 2.18 | % |  |  | $1,622 |  |  | $14 |  | 1.70 | % |  |  | ($260 | ) | 48 bps
Taxable investment securities | 25,379 |  | 330 |  | 2.60 |  |  | 25,315 |  | 333 |  | 2.63 |  |  | 64 |  | (3 | )
Non-taxable investment securities | 5 |  | — |  | 2.60 |  |  | 6 |  | — |  | 2.60 |  |  | (1 | ) | — |
Total investment securities | 25,384 |  | 330 |  | 2.60 |  |  | 25,321 |  | 333 |  | 2.63 |  |  | 63 |  | (3 | )
Commercial | 41,659 |  | 931 |  | 4.44 |  |  | 38,683 |  | 762 |  | 3.92 |  |  | 2,976 |  | 52 |
Commercial real estate | 13,325 |  | 331 |  | 4.94 |  |  | 11,812 |  | 253 |  | 4.25 |  |  | 1,513 |  | 69 |
Leases | 2,809 |  | 40 |  | 2.87 |  |  | 3,093 |  | 41 |  | 2.65 |  |  | (284 | ) | 22 |
Total commercial loans and leases | 57,793 |  | 1,302 |  | 4.48 |  |  | 53,588 |  | 1,056 |  | 3.92 |  |  | 4,205 |  | 56 |
Residential mortgages | 19,163 |  | 351 |  | 3.66 |  |  | 17,326 |  | 309 |  | 3.56 |  |  | 1,837 |  | 10 |
Home equity loans | 1,005 |  | 30 |  | 6.03 |  |  | 1,297 |  | 37 |  | 5.83 |  |  | (292 | ) | 20 |
Home equity lines of credit | 12,441 |  | 317 |  | 5.14 |  |  | 13,232 |  | 282 |  | 4.30 |  |  | (791 | ) | 84 |
Home equity loans serviced by others | 372 |  | 14 |  | 7.71 |  |  | 500 |  | 18 |  | 7.28 |  |  | (128 | ) | 43 |
Home equity lines of credit serviced by others | 95 |  | 2 |  | 5.11 |  |  | 136 |  | 2 |  | 3.81 |  |  | (41 | ) | 130 |
Automobile | 12,026 |  | 245 |  | 4.12 |  |  | 12,835 |  | 225 |  | 3.53 |  |  | (809 | ) | 59 |
Education | 9,153 |  | 271 |  | 5.98 |  |  | 8,329 |  | 233 |  | 5.65 |  |  | 824 |  | 33 |
Credit cards | 2,020 |  | 105 |  | 10.51 |  |  | 1,841 |  | 98 |  | 10.72 |  |  | 179 |  | (21 | )
Other retail | 3,648 |  | 136 |  | 7.47 |  |  | 2,906 |  | 116 |  | 8.04 |  |  | 742 |  | (57 | )
Total retail loans | 59,923 |  | 1,471 |  | 4.94 |  |  | 58,402 |  | 1,320 |  | 4.55 |  |  | 1,521 |  | 39 |
Total loans and leases | 117,716 |  | 2,773 |  | 4.72 |  |  | 111,990 |  | 2,376 |  | 4.25 |  |  | 5,726 |  | 47 |
Loans held for sale, at fair value | 1,283 |  | 26 |  | 4.09 |  |  | 445 |  | 9 |  | 4.01 |  |  | 838 |  | 8 |
Other loans held for sale | 175 |  | 6 |  | 6.41 |  |  | 225 |  | 7 |  | 6.29 |  |  | (50 | ) | 12 |
Interest-earning assets | 145,920 |  | 3,150 |  | 4.32 |  |  | 139,603 |  | 2,739 |  | 3.93 |  |  | 6,317 |  | 39 |
Allowance for loan and lease losses | (1,245 | ) |  |  |  | (1,241 | ) |  |  |  | (4 | ) |
Goodwill | 7,029 |  |  |  |  | 6,887 |  |  |  |  | 142 |  |
Other noninterest-earning assets | 9,251 |  |  |  |  | 7,144 |  |  |  |  | 2,107 |  |
Total assets |  | $160,955 |  |  |  |  |  | $152,393 |  |  |  |  |  |  | $8,562 |  |
Liabilities and Stockholders’ Equity: |  |  |  |  |  |  |  |  |  |
Checking with interest |  | $23,456 |  |  | $109 |  | 0.94 | % |  |  | $21,927 |  |  | $60 |  | 0.55 | % |  |  | $1,529 |  | 39 bps
Money market accounts | 35,218 |  | 224 |  | 1.28 |  |  | 36,738 |  | 144 |  | 0.79 |  |  | (1,520 | ) | 49
Regular savings | 12,977 |  | 38 |  | 0.59 |  |  | 9,759 |  | 2 |  | 0.05 |  |  | 3,218 |  | 54
Term deposits | 21,713 |  | 224 |  | 2.08 |  |  | 17,174 |  | 120 |  | 1.41 |  |  | 4,539 |  | 67
Total interest-bearing deposits | 93,364 |  | 595 |  | 1.28 |  |  | 85,598 |  | 326 |  | 0.77 |  |  | 7,766 |  | 51
Federal funds purchased and securities sold under agreements to repurchase (1) | 729 |  | 5 |  | 1.54 |  |  | 574 |  | 2 |  | 0.70 |  |  | 155 |  | 84
Other short-term borrowed funds (2) | 52 |  | 1 |  | 2.71 |  |  | 388 |  | 3 |  | 1.73 |  |  | (336 | ) | 98
Long-term borrowed funds (2) | 13,555 |  | 223 |  | 3.28 |  |  | 14,662 |  | 196 |  | 2.66 |  |  | (1,107 | ) | 62
Total borrowed funds | 14,336 |  | 229 |  | 3.19 |  |  | 15,624 |  | 201 |  | 2.57 |  |  | (1,288 | ) | 62
Total interest-bearing liabilities | 107,700 |  | 824 |  | 1.54 |  |  | 101,222 |  | 527 |  | 1.05 |  |  | 6,478 |  | 49
Demand deposits | 28,426 |  |  |  |  | 28,690 |  |  |  |  | (264 | ) |
Other liabilities | 3,560 |  |  |  |  | 2,440 |  |  |  |  | 1,120 |  |
Total liabilities | 139,686 |  |  |  |  | 132,352 |  |  |  |  | 7,334 |  |
Stockholders’ equity | 21,269 |  |  |  |  | 20,041 |  |  |  |  | 1,228 |  |
Total liabilities and stockholders’ equity |  | $160,955 |  |  |  |  |  | $152,393 |  |  |  |  |  | $8,562 |  |
Interest rate spread |  |  | 2.78 | % |  |  |  | 2.88 | % |  |  | (10)
Net interest income and net interest margin(3) |  |  | $2,326 |  | 3.22 | % |  |  |  | $2,212 |  | 3.20 | % |  |  | 2 bps
Net interest income and net interest margin, FTE(4) |  |  | $2,338 |  | 3.23 | % |  |  |  | $2,223 |  | 3.21 | % |  |  | 2 bps
Memo: Total deposits (interest-bearing and demand) |  | $121,790 |  |  | $595 |  | 0.98 | % |  |  | $114,288 |  |  | $326 |  | 0.57 | % |  |  | $7,502 |  | 41 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) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of
days in the period, divided by average total interest-earning assets. Prior periods have been adjusted to conform with the current period presentation.
(4) Net interest income and net interest margin is presented on a fully taxable-equivalent (“FTE”) basis using the federal statutory tax rate of 21%. In the fully taxable-equivalent presentation of net interest income and net interest margin, interest income on tax-exempt assets is increased to make it fully equivalent to interest income earned on taxable assets. The FTE impact is predominantly attributable to commercial loans for the periods presented.
16

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year-To-Date Results: Net interest income of $2.3 billion increase d $114 million, reflecting 5% average interest-earning asset growth and a two basis point increase in net interest margin.
Net interest margin of 3.22% increase d two basis points compared to 3.20% in the first half of 2018, driven by higher interest-earning asset yields given higher short-term interest rates and continued mix shift toward more attractive risk-adjusted return portfolios. These results were partially offset by higher funding costs and the impact of lower long-term rates on securities premium amortization. Net interest margin on an FTE basis of 3.23% also increase d two basis points compared to 3.21% in the first half of 2018. Average interest-earning asset yields of 4.32% increase d 39 basis points from 3.93% in the first half of 2018, while average interest-bearing liability costs of 1.54% increase d 49 basis points from 1.05% in the first half of 2018.
Average interest-earning assets of $145.9 billion increase d $6.3 billion, or 5%, from the first half of 2018, driven by a $4.2 billion increase in average commercial loans and leases and a $1.5 billion increase in average retail loans, partially offset by a $197 million decrease in average investments and interest-bearing cash and due from banks and deposits in banks. Commercial loan growth was driven by commercial and commercial real estate. Retail loan growth was driven by residential mortgage, education, credit cards and other retail.
Average deposits of $121.8 billion increase d $7.5 billion from the first half of 2018, reflecting growth in term deposits, checking with interest, and savings. Total interest-bearing deposit costs of $595 million increase d $269 million, or 83%, from $326 million in the first half of 2018, primarily due to rising rates.
Average total borrowed funds of $14.3 billion decrease d $1.3 billion from the first half of 2018, reflecting a decrease in other short-term borrowed funds and a decrease in long-term borrowed funds, partially offset by an increase in federal funds purchased and repurchase agreements. Total borrowed funds costs of $229 million increase d $28 million from the first half of 2018. The total borrowed funds cost of 3.19% increase d 62 basis points from 2.57% in the first half of 2018 due to an increase in short-term rates and a mix shift to long-term senior debt.
Noninterest Income
17

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents the significant components of our noninterest income:

| Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
(in millions) | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |
Service charges and fees |  | $126 |  |  |  | $127 |  |  |  | ($1 | ) |  | (1 | %) |  |  | $249 |  |  |  | $251 |  |  |  | ($2 | ) |  | (1 | %)
Card fees | 64 |  |  | 60 |  |  | 4 |  |  | 7 |  |  | 123 |  |  | 121 |  |  | 2 |  |  | 2 |
Capital markets fees | 57 |  |  | 48 |  |  | 9 |  |  | 19 |  |  | 111 |  |  | 87 |  |  | 24 |  |  | 28 |
Trust and investment services fees | 53 |  |  | 43 |  |  | 10 |  |  | 23 |  |  | 100 |  |  | 83 |  |  | 17 |  |  | 20 |
Mortgage banking fees | 62 |  |  | 27 |  |  | 35 |  |  | 130 |  |  | 105 |  |  | 52 |  |  | 53 |  |  | 102 |
Letter of credit and loan fees | 33 |  |  | 32 |  |  | 1 |  |  | 3 |  |  | 66 |  |  | 62 |  |  | 4 |  |  | 6 |
Foreign exchange and interest rate products | 35 |  |  | 34 |  |  | 1 |  |  | 3 |  |  | 71 |  |  | 61 |  |  | 10 |  |  | 16 |
Securities gains, net | 4 |  |  | 2 |  |  | 2 |  |  | 100 |  |  | 12 |  |  | 10 |  |  | 2 |  |  | 20 |
Other income (1) | 28 |  |  | 15 |  |  | 13 |  |  | 87 |  |  | 53 |  |  | 32 |  |  | 21 |  |  | 66 |
Noninterest income |  | $462 |  |  |  | $388 |  |  |  | $74 |  |  | 19 | % |  |  | $890 |  |  |  | $759 |  |  |  | $131 |  |  | 17 | %

(1) Includes net impairment losses recognized in earnings on available for sale debt securities, bank-owned life insurance income and other income.
Quarter-To-Date Results: Noninterest income increase d $74 million from second quarter 2018, driven by increased mortgage banking fees, trust and investment fees, capital market fees, and card fees, including the impact of Acquisitions.
Year-To-Date Results: Noninterest income increase d $131 million from the first half of 2018, driven by higher mortgage banking fees and higher trust and investment services fees driven by acquisitions. Strength in capital markets fees and foreign exchange and interest rate products revenues, reflected the benefit of investments to broaden and enhance our capabilities. Other income reflected higher leasing income and asset dispositions tied to balance sheet optimization and efficiency initiatives.
Noninterest Expense
The following table presents the significant components of our noninterest expense:

| Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
(in millions) | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |
Salaries and employee benefits |  | $507 |  |  |  | $453 |  |  |  | $54 |  |  | 12 | % |  |  | $1,016 |  |  |  | $923 |  |  |  | $93 |  |  | 10 | %
Equipment and software expense(1) | 126 |  |  | 110 |  |  | 16 |  |  | 15 |  |  | 251 |  |  | 223 |  |  | 28 |  |  | 13 |
Outside services | 118 |  |  | 106 |  |  | 12 |  |  | 11 |  |  | 228 |  |  | 205 |  |  | 23 |  |  | 11 |
Occupancy | 82 |  |  | 79 |  |  | 3 |  |  | 4 |  |  | 165 |  |  | 160 |  |  | 5 |  |  | 3 |
Other operating expense | 118 |  |  | 127 |  |  | (9 | ) |  | (7 | ) |  | 228 |  |  | 247 |  |  | (19 | ) |  | (8 | )
Noninterest expense |  | $951 |  |  |  | $875 |  |  |  | $76 |  |  | 9 | % |  |  | $1,888 |  |  |  | $1,758 |  |  |  | $130 |  |  | 7 | %

(1) In the first quarter of 2019, we combined our presentation of equipment expense and amortization of software into equipment and software expense. Prior periods have been adjusted to conform with the current period presentation.
18

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarter-To-Date Results: Noninterest expense increase d $76 million from second quarter 2018, driven by an increase in salaries and employee benefits, which included the impact of annual merit increases, revenue based incentives and a severance charge, as well as an increase in equipment and software expense. These results reflected the impact of investments in growth initiatives, partially offset by lower other operating expense, largely tied to a reduction in FDIC insurance and advertising expense. Underlying noninterest expense* increase d $69 million, or 8%.
Year-To-Date Results: Noninterest expense increase d $130 million, or 7%, from the first half of 2018 reflecting an increase in salaries and employee benefits given the impact of annual merit increases, revenue-based incentives and investments in growth initiatives. First half 2019 results included an increase in equipment and software expense, which also reflected investments in growth initiatives. These increases were partially offset by a decrease in other operating expense tied to a reduction in FDIC insurance premiums. Underlying noninterest expense* increase d $118 million, or 7%.
Provision for Credit Losses
The provision for loan and lease losses is the result of a detailed analysis performed to estimate an appropriate and adequate ACL. The total provision for credit losses includes the provision for loan and lease losses as well as the provision for unfunded commitments. Refer to “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets” for more information.
Quarter-To-Date Results: The provision for credit losses increase d $12 million from second quarter 2018, due to 4% average loan growth, continued expected seasoning in retail growth portfolios and several idiosyncratic losses in commercial, with key credit metrics continuing to reflect strong credit quality and a $9 million ACL release in second quarter 2019 compared to a $9 million ACL build in second quarter 2018. Second quarter net charge-offs of $106 million were $30 million higher than second quarter 2018, reflecting a small number of idiosyncratic losses in commercial and expected seasoning in retail growth portfolios.
Year-To-Date Results: The provision for credit losses increase d $19 million from the first half of 2018, largely related to 5% average loan growth, several idiosyncratic commercial losses and expected seasoning in retail growth portfolios, partially offset by continued improvement in underlying credit quality. In the first half of 2019, results reflected a $13 million ACL release, compared to a $17 million ACL build in the first half of 2018. Net charge-offs for the first half of 2019 of $195 million were $49 million higher than the first half of 2018.
19

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income Tax Expense
Quarter-To-Date Results: Income tax expense increased $3 million from second quarter 2018. The effective income tax rate in second quarter 2019 decreased 72 basis points to 21.9% from second quarter 2018, driven by second quarter 2019 net discrete income tax benefits of $5 million.
Year-To-Date Results: Income tax expense increased $17 million from the first half of 2018. The effective income tax rate in the first half of 2019 decreased to 22.1% from 22.6% in the first half of 2018, driven by a reduction in non-deductible FDIC premiums.
20

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Business Operating Segments
The following tables present certain financial data of our business operating segments, Other and consolidated:

| As of and for the Three Months Ended June 30, 2019
(dollars in millions) | Consumer Banking |  | Commercial Banking |  | Other(4) |  |  | Consolidated |
Net interest income |  | $799 |  |  |  | $371 |  |  |  | ($4 | ) |  |  | $1,166 |
Noninterest income | 277 |  |  | 149 |  |  | 36 |  |  | 462 |
Total revenue | 1,076 |  |  | 520 |  |  | 32 |  |  | 1,628 |
Noninterest expense | 715 |  |  | 217 |  |  | 19 |  |  | 951 |
Profit before provision for credit losses | 361 |  |  | 303 |  |  | 13 |  |  | 677 |
Provision for credit losses | 78 |  |  | 25 |  |  | (6 | ) |  | 97 |
Income before income tax expense (benefit) | 283 |  |  | 278 |  |  | 19 |  |  | 580 |
Income tax expense (benefit) | 70 |  |  | 62 |  |  | (5 | ) |  | 127 |
Net income |  | $213 |  |  |  | $216 |  |  |  | $24 |  |  |  | $453 |
Loans and leases (period-end)(1) |  | $62,959 |  |  |  | $54,068 |  |  |  | $2,016 |  |  |  | $119,043 |
Average Balances: |  |  |  |  |  |  |
Total assets |  | $65,485 |  |  |  | $56,135 |  |  |  | $39,869 |  |  |  | $161,489 |
Total loans and leases(1) | 62,678 |  |  | 54,653 |  |  | 2,138 |  |  | 119,469 |
Deposits | 85,660 |  |  | 30,273 |  |  | 7,219 |  |  | 123,152 |
Interest-earning assets | 62,731 |  |  | 54,950 |  |  | 28,642 |  |  | 146,323 |
Key Performance Metrics: |  |  |  |  |  |  |
Net interest margin(2)(3) | 5.11 | % |  | 2.71 | % |  | NM |  |  | 3.20 | %
Efficiency ratio | 66.43 |  |  | 41.58 |  |  | NM |  |  | 58.41 |
Loans-to-deposits ratio (average balances) | 71.57 |  |  | 179.49 |  |  | NM |  |  | 95.64 |
Return on average total tangible assets(2) | 1.31 |  |  | 1.54 |  |  | NM |  |  | 1.17 |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense, not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”
21

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

| As of and for the Three Months Ended June 30, 2018
(dollars in millions) | Consumer Banking |  | Commercial Banking |  | Other(5) |  |  | Consolidated |
Net interest income |  | $759 |  |  |  | $376 |  |  |  | ($14 | ) |  |  | $1,121 |
Noninterest income | 228 |  |  | 140 |  |  | 20 |  |  | 388 |
Total revenue | 987 |  |  | 516 |  |  | 6 |  |  | 1,509 |
Noninterest expense | 658 |  |  | 200 |  |  | 17 |  |  | 875 |
Profit (loss) before provision for credit losses | 329 |  |  | 316 |  |  | (11 | ) |  | 634 |
Provision for credit losses | 66 |  |  | 9 |  |  | 10 |  |  | 85 |
Income (loss) before income tax expense (benefit) | 263 |  |  | 307 |  |  | (21 | ) |  | 549 |
Income tax expense (benefit) | 66 |  |  | 70 |  |  | (12 | ) |  | 124 |
Net income (loss) |  | $197 |  |  |  | $237 |  |  |  | ($9 | ) |  |  | $425 |
Loans and leases (period-end)(1) |  | $60,175 |  |  |  | $51,503 |  |  |  | $2,439 |  |  |  | $114,117 |
Average Balances: |  |  |  |  |  |  |
Total assets |  | $61,232 |  |  |  | $52,170 |  |  |  | $39,851 |  |  |  | $153,253 |
Total loans and leases(1) | 59,830 |  |  | 51,202 |  |  | 2,489 |  |  | 113,521 |
Deposits | 77,402 |  |  | 30,214 |  |  | 7,526 |  |  | 115,142 |
Interest-earning assets | 59,880 |  |  | 51,404 |  |  | 29,241 |  |  | 140,525 |
Key Performance Metrics: |  |  |  |  |  |  |
Net interest margin(2)(3) | 5.08 | % |  | 2.93 | % |  | NM |  |  | 3.20 | %
Efficiency ratio | 66.68 |  |  | 38.80 |  |  | NM |  |  | 57.95 |
Loans-to-deposits ratio (average balances)(4) | 76.92 |  |  | 168.23 |  |  | NM |  |  | 98.01 |
Return on average total tangible assets(2) | 1.29 |  |  | 1.82 |  |  | NM |  |  | 1.16 |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.
(5) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”
22

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

| As of and for the Six Months Ended June 30, 2019
(dollars in millions) | Consumer Banking |  | Commercial Banking |  | Other(4) |  |  | Consolidated |
Net interest income |  | $1,587 |  |  |  | $743 |  |  |  | ($4 | ) |  |  | $2,326 |
Noninterest income | 524 |  |  | 299 |  |  | 67 |  |  | 890 |
Total revenue | 2,111 |  |  | 1,042 |  |  | 63 |  |  | 3,216 |
Noninterest expense | 1,415 |  |  | 426 |  |  | 47 |  |  | 1,888 |
Profit before provision for credit losses | 696 |  |  | 616 |  |  | 16 |  |  | 1,328 |
Provision for credit losses | 145 |  |  | 46 |  |  | (9 | ) |  | 182 |
Income before income tax expense (benefit) | 551 |  |  | 570 |  |  | 25 |  |  | 1,146 |
Income tax expense (benefit) | 136 |  |  | 127 |  |  | (9 | ) |  | 254 |
Net income |  | $415 |  |  |  | $443 |  |  |  | $34 |  |  |  | $892 |
Loans and leases (period-end)(1) |  | $62,959 |  |  |  | $54,068 |  |  |  | $2,016 |  |  |  | $119,043 |
Average Balances: |  |  |  |  |  |  |
Total assets |  | $65,247 |  |  |  | $55,884 |  |  |  | $39,824 |  |  |  | $160,955 |
Total loans and leases(1) | 62,422 |  |  | 54,545 |  |  | 2,207 |  |  | 119,174 |
Deposits | 84,123 |  |  | 30,050 |  |  | 7,617 |  |  | 121,790 |
Interest-earning assets | 62,475 |  |  | 54,838 |  |  | 28,607 |  |  | 145,920 |
Key Performance Metrics: |  |  |  |  |  |  |
Net interest margin(2)(3) | 5.12 | % |  | 2.73 | % |  | NM |  |  | 3.22 | %
Efficiency ratio | 67.01 |  |  | 40.84 |  |  | NM |  |  | 58.70 |
Loans-to-deposits ratio (average balances) | 72.89 |  |  | 180.35 |  |  | NM |  |  | 96.65 |
Return on average total tangible assets(2) | 1.29 |  |  | 1.60 |  |  | NM |  |  | 1.17 |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”
23

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

| As of and for the Six Months Ended June 30, 2018
(dollars in millions) | Consumer Banking |  | Commercial Banking |  | Other(5) |  |  | Consolidated
Net interest income |  | $1,492 |  |  |  | $733 |  |  |  | ($13 | ) |  |  | $2,212 |
Noninterest income | 450 |  |  | 265 |  |  | 44 |  |  | 759 |
Total revenue | 1,942 |  |  | 998 |  |  | 31 |  |  | 2,971 |
Noninterest expense | 1,314 |  |  | 408 |  |  | 36 |  |  | 1,758 |
Profit (loss) before provision for credit losses | 628 |  |  | 590 |  |  | (5 | ) |  | 1,213 |
Provision for credit losses | 138 |  |  | 5 |  |  | 20 |  |  | 163 |
Income (loss) before income tax expense (benefit) | 490 |  |  | 585 |  |  | (25 | ) |  | 1,050 |
Income tax expense (benefit) | 123 |  |  | 133 |  |  | (19 | ) |  | 237 |
Net income (loss) |  | $367 |  |  |  | $452 |  |  |  | ($6 | ) |  |  | $813 |
Loans and leases (period-end)(1) |  | $60,175 |  |  |  | $51,503 |  |  |  | $2,439 |  |  |  | $114,117 |
Average Balances: |  |  |  |  |  |  |
Total assets |  | $61,290 |  |  |  | $51,286 |  |  |  | $39,817 |  |  |  | $152,393 |
Total loans and leases(1) | 59,886 |  |  | 50,249 |  |  | 2,525 |  |  | 112,660 |
Deposits | 76,414 |  |  | 30,488 |  |  | 7,386 |  |  | 114,288 |
Interest-earning assets | 59,937 |  |  | 50,447 |  |  | 29,219 |  |  | 139,603 |
Key Performance Metrics |  |  |  |  |  |  |
Net interest margin(2)(3) | 5.02 | % |  | 2.93 | % |  | NM |  |  | 3.20 | %
Efficiency ratio | 67.68 |  |  | 40.86 |  |  | NM |  |  | 59.17 |
Loans-to-deposits ratio (average balances)(4) | 78.01 |  |  | 163.52 |  |  | NM |  |  | 97.99 |
Return on average total tangible assets(2) | 1.21 |  |  | 1.78 |  |  | NM |  |  | 1.12 |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) In the first quarter of 2019, we changed the method of calculating our net interest margin to equal net interest income, annualized based on the number of days in the period, divided by average total interest-earning assets. Prior period have been adjusted to conform with the current period presentation.
(4) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.
(5) Includes the financial impact of non-core, liquidating loan portfolios and other non-core assets, our treasury activities, wholesale funding activities, securities portfolio, community development assets and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense not attributed to our Consumer Banking or Commercial Banking segments. For a description of non-core assets, see “—Analysis of Financial Condition — Allowance for Credit Losses and Nonperforming Assets — Non-Core Assets.”
We have two business operating segments: Consumer Banking and Commercial Banking. Segment results are derived by specifically attributing managed assets, liabilities, capital and related revenues, provision for credit losses and expenses. Non-segment operations are classified as Other, which includes corporate functions, the Treasury function, the securities portfolio, wholesale funding activities, intangible assets not directly allocated to a business operating segment, community development, non-core assets (including legacy Royal Bank of Scotland Group plc aircraft loan and leasing), and other unallocated assets, liabilities, capital, revenues, provision for credit losses, expenses and income tax expense. In addition, Other includes goodwill not directly allocated to a business operating segment and any associated goodwill impairment charges. For impairment testing purposes, we allocate all goodwill to our Consumer Banking and/or Commercial Banking reporting units. There have been no significant changes in our methodologies used to allocate items to our business operating segments as described in “—Results of Operations — Business Operating Segments” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
24

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

| As of and for the Three Months Ended June 30, |  |  |  |  |  | As of and for the Six Months Ended June 30, |  |  |  |
(dollars in millions) | 2019 |  |  | 2018 |  |  | Change |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  | Percent |
Net interest income |  | $799 |  |  |  | $759 |  |  |  | $40 |  |  | 5 | % |  |  | $1,587 |  |  |  | $1,492 |  |  |  | $95 |  |  | 6 | %
Noninterest income | 277 |  |  | 228 |  |  | 49 |  |  | 21 |  |  | 524 |  |  | 450 |  |  | 74 |  |  | 16 |
Total revenue | 1,076 |  |  | 987 |  |  | 89 |  |  | 9 |  |  | 2,111 |  |  | 1,942 |  |  | 169 |  |  | 9 |
Noninterest expense | 715 |  |  | 658 |  |  | 57 |  |  | 9 |  |  | 1,415 |  |  | 1,314 |  |  | 101 |  |  | 8 |
Profit before provision for credit losses | 361 |  |  | 329 |  |  | 32 |  |  | 10 |  |  | 696 |  |  | 628 |  |  | 68 |  |  | 11 |
Provision for credit losses | 78 |  |  | 66 |  |  | 12 |  |  | 18 |  |  | 145 |  |  | 138 |  |  | 7 |  |  | 5 |
Income before income tax expense | 283 |  |  | 263 |  |  | 20 |  |  | 8 |  |  | 551 |  |  | 490 |  |  | 61 |  |  | 12 |
Income tax expense | 70 |  |  | 66 |  |  | 4 |  |  | 6 |  |  | 136 |  |  | 123 |  |  | 13 |  |  | 11 |
Net income |  | $213 |  |  |  | $197 |  |  |  | $16 |  |  | 8 |  |  |  | $415 |  |  |  | $367 |  |  |  | $48 |  |  | 13 |
Loans (period-end)(1) |  | $62,959 |  |  |  | $60,175 |  |  |  | $2,784 |  |  | 5 |  |  |  | $62,959 |  |  |  | $60,175 |  |  |  | $2,784 |  |  | 5 | %
Average Balances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $65,485 |  |  |  | $61,232 |  |  |  | $4,253 |  |  | 7 | % |  |  | $65,247 |  |  |  | $61,290 |  |  |  | $3,957 |  |  | 6 | %
Total loans and leases(1) | 62,678 |  |  | 59,830 |  |  | 2,848 |  |  | 5 |  |  | 62,422 |  |  | 59,886 |  |  | 2,536 |  |  | 4 |
Deposits | 85,660 |  |  | 77,402 |  |  | 8,258 |  |  | 11 |  |  | 84,123 |  |  | 76,414 |  |  | 7,709 |  |  | 10 |
Interest-earning assets | 62,731 |  |  | 59,880 |  |  | 2,851 |  |  | 5 |  |  | 62,475 |  |  | 59,937 |  |  | 2,538 |  |  | 4 |
Key Performance Metrics: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net interest margin(2) | 5.11 | % |  | 5.08 | % |  | 3 | bps |  |  |  | 5.12 | % |  | 5.02 | % |  | 10 | bps |  |
Efficiency ratio | 66.43 |  |  | 66.68 |  |  | (25 | ) bps |  |  |  | 67.01 |  |  | 67.68 |  |  | (67 | ) bps |  |
Loans-to-deposits ratio (average balances)(3) | 71.57 |  |  | 76.92 |  |  | (535 | ) bps |  |  |  | 72.89 |  |  | 78.01 |  |  | (512 | ) bps |  |
Return on average total tangible assets(2) | 1.31 |  |  | 1.29 |  |  | 2 | bps |  |  |  | 1.29 |  |  | 1.21 |  |  | 8 | bps |  |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.
Quarter-To-Date Results: Consumer Banking net interest income increased $40 million, or 5%, from second quarter 2018, driven by the benefit of a $2.8 billion increase in average loans led by residential mortgage, unsecured personal and education loans. Noninterest income increased $49 million from second quarter 2018, driven by higher mortgage banking fees and higher trust and investment fees including the impact of Acquisitions. Noninterest expense increased $57 million, or 9%, from second quarter 2018, reflecting higher salaries and benefits and outside services including the impact of Acquisitions. Provision for credit losses of $78 million increased $12 million, or 18%, reflecting higher net charge-offs due to seasoning in growth portfolios.
Year-To-Date Results: Consumer Banking net interest income increased $95 million, or 6%, from the first half of 2018, driven by the benefit of a $2.5 billion increase in average loans led by residential mortgage, unsecured personal and education loans. Noninterest income increased $74 million from the first half of 2018, driven by higher mortgage banking fees and higher trust and investment fees including the impact of Acquisitions. Noninterest expense increased $101 million, or 8%, from the first half of 2018, reflecting higher salaries and benefits and outside services including the impact of Acquisitions. Provision for credit losses of $145 million increased $7 million, or 5%, reflecting higher net charge-offs due to seasoning in growth portfolios.
25

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

| As of and for the Three Months Ended June 30, |  |  |  |  |  | As of and for the Six Months Ended June 30, |  |  |  |
(dollars in millions) | 2019 |  |  | 2018 |  |  | Change |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  | Percent |
Net interest income |  | $371 |  |  |  | $376 |  |  |  | ($5 | ) |  | (1 | %) |  |  | $743 |  |  |  | $733 |  |  |  | $10 |  |  | 1 | %
Noninterest income | 149 |  |  | 140 |  |  | 9 |  |  | 6 |  |  | 299 |  |  | 265 |  |  | 34 |  |  | 13 |
Total revenue | 520 |  |  | 516 |  |  | 4 |  |  | 1 |  |  | 1,042 |  |  | 998 |  |  | 44 |  |  | 4 |
Noninterest expense | 217 |  |  | 200 |  |  | 17 |  |  | 9 |  |  | 426 |  |  | 408 |  |  | 18 |  |  | 4 |
Profit before provision for credit losses | 303 |  |  | 316 |  |  | (13 | ) |  | (4 | ) |  | 616 |  |  | 590 |  |  | 26 |  |  | 4 |
Provision for credit losses | 25 |  |  | 9 |  |  | 16 |  |  | 178 |  |  | 46 |  |  | 5 |  |  | 41 |  |  | NM |
Income before income tax expense | 278 |  |  | 307 |  |  | (29 | ) |  | (9 | ) |  | 570 |  |  | 585 |  |  | (15 | ) |  | (3 | )
Income tax expense | 62 |  |  | 70 |  |  | (8 | ) |  | (11 | ) |  | 127 |  |  | 133 |  |  | (6 | ) |  | (5 | )
Net income |  | $216 |  |  |  | $237 |  |  |  | ($21 | ) |  | (9 | ) |  |  | $443 |  |  |  | $452 |  |  |  | ($9 | ) |  | (2 | )
Loans and leases (period-end)(1) |  | $54,068 |  |  |  | $51,503 |  |  |  | $2,565 |  |  | 5 |  |  |  | $54,068 |  |  |  | $51,503 |  |  |  | $2,565 |  |  | 5 | %
Average Balances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $56,135 |  |  |  | $52,170 |  |  |  | $3,965 |  |  | 8 | % |  |  | $55,884 |  |  |  | $51,286 |  |  |  | $4,598 |  |  | 9 | %
Total loans and leases(1) | 54,653 |  |  | 51,202 |  |  | 3,451 |  |  | 7 |  |  | 54,545 |  |  | 50,249 |  |  | 4,296 |  |  | 9 |
Deposits | 30,273 |  |  | 30,214 |  |  | 59 |  |  | — |  |  | 30,050 |  |  | 30,488 |  |  | (438 | ) |  | (1 | )
Interest-earning assets | 54,950 |  |  | 51,404 |  |  | 3,546 |  |  | 7 |  |  | 54,838 |  |  | 50,447 |  |  | 4,391 |  |  | 9 |
Key Performance Metrics: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net interest margin(2) | 2.71 | % |  | 2.93 | % |  | (22 | ) bps |  |  |  | 2.73 | % |  | 2.93 | % |  | (20 | ) bps |  |
Efficiency ratio | 41.58 |  |  | 38.80 |  |  | 278 | bps |  |  |  | 40.84 |  |  | 40.86 |  |  | (2 | ) bps |  |
Loans-to-deposits ratio (average balances)(3) | 179.49 |  |  | 168.23 |  |  | 1,126 | bps |  |  |  | 180.35 |  |  | 163.52 |  |  | 1,683 | bps |  |
Return on average total tangible assets(2) | 1.54 |  |  | 1.82 |  |  | (28 | ) bps |  |  |  | 1.60 |  |  | 1.78 |  |  | (18 | ) bps |  |

(1) Includes LHFS.
(2) Ratios for the three and six months ended June 30, 2019 and 2018 are presented on an annualized basis.
(3) We revised our method of calculating the loans-to-deposits ratio in the third quarter of 2018 to exclude LHFS. Prior periods have been adjusted to conform with the current period presentation.
Quarter-To-Date Results: Commercial Banking net interest income of $371 million decreased $5 million, or 1%, from $376 million in second quarter 2018, driven by higher deposit costs and mix. Noninterest income of $149 million increased $9 million, or 6%, from $140 million in second quarter 2018, reflecting higher capital market fees, foreign exchange and interest rate product fees and letter of credit and loan fees. Noninterest expense of $217 million increased $17 million, or 9%, from $200 million in second quarter 2018, largely d riven by the impact of increased headcount due to strategic initiatives and higher indirect expenses. Provision for credit losses increased $16 million from second quarter 2018 due to higher net charge-offs.
Year-To-Date Results: Commercial Banking net interest income of $743 million increased $10 million, or 1%, from $733 million in the first half of 2018, reflecting a $4.3 billion increase in average loans and leases, partially offset by higher deposit costs and mix. Noninterest income of $299 million increased $34 million, or 13%, from $265 million in the first half of 2018, reflecting higher capital market, interest rate product, and capital markets fees. Noninterest expense of $426 million increased $18 million, from $408 million in the first half of 2018, driven by higher salaries and employee benefit expense. Provision for credit losses of $46 million increased $41 million from the first half of 2018, driven by higher net charge-offs.
26

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

| As of and for the Three Months Ended June 30, |  |  |  |  |  | As of and for the Six Months Ended June 30, |  |  |  |
(in millions) | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |
Net interest income |  | ($4 | ) |  |  | ($14 | ) |  |  | $10 |  |  | 71 | % |  |  | ($4 | ) |  |  | ($13 | ) |  |  | $9 |  |  | 69 | %
Noninterest income | 36 |  |  | 20 |  |  | 16 |  |  | 80 |  |  | 67 |  |  | 44 |  |  | 23 |  |  | 52 |
Total revenue | 32 |  |  | 6 |  |  | 26 |  |  | NM |  |  | 63 |  |  | 31 |  |  | 32 |  |  | 103 |
Noninterest expense | 19 |  |  | 17 |  |  | 2 |  |  | 12 |  |  | 47 |  |  | 36 |  |  | 11 |  |  | 31 |
Profit (loss) before provision for credit losses | 13 |  |  | (11 | ) |  | 24 |  |  | NM |  |  | 16 |  |  | (5 | ) |  | 21 |  |  | NM |
Provision for credit losses | (6 | ) |  | 10 |  |  | (16 | ) |  | NM |  |  | (9 | ) |  | 20 |  |  | (29 | ) |  | NM |
Income (loss) before income tax benefit | 19 |  |  | (21 | ) |  | 40 |  |  | NM |  |  | 25 |  |  | (25 | ) |  | 50 |  |  | NM |
Income tax benefit | (5 | ) |  | (12 | ) |  | 7 |  |  | 58 |  |  | (9 | ) |  | (19 | ) |  | 10 |  |  | 53 |
Net income (loss) |  | $24 |  |  |  | ($9 | ) |  |  | $33 |  |  | NM |  |  |  | $34 |  |  |  | ($6 | ) |  |  | $40 |  |  | NM |
Loans and leases (period-end)(1) |  | $2,016 |  |  |  | $2,439 |  |  |  | ($423 | ) |  | (17 | ) |  |  | $2,016 |  |  |  | $2,439 |  |  |  | ($423 | ) |  | (17 | %)
Average Balances: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $39,869 |  |  |  | $39,851 |  |  |  | $18 |  |  | — | % |  |  | $39,824 |  |  |  | $39,817 |  |  |  | $7 |  |  | — | %
Total loans and leases(1) | 2,138 |  |  | 2,489 |  |  | (351 | ) |  | (14 | ) |  | 2,207 |  |  | 2,525 |  |  | (318 | ) |  | (13 | )
Deposits | 7,219 |  |  | 7,526 |  |  | (307 | ) |  | (4 | ) |  | 7,617 |  |  | 7,386 |  |  | 231 |  |  | 3 |
Interest-earning assets | 28,642 |  |  | 29,241 |  |  | (599 | ) |  | (2 | ) |  | 28,607 |  |  | 29,219 |  |  | (612 | ) |  | (2 | )

(1) Includes LHFS.
Quarter-To-Date Results: Other net interest income increased $10 million from second quarter 2018 driven by FTP, partially offset by higher funding and swap costs and non core run-off. Noninterest income was up $16 million primarily due to higher leasing income. Results also reflected an ACL release of $9 million in second quarter 2019, compared to an ACL build of $9 million in second quarter 2018.
Year-To-Date Results: Other n et interest income increased $9 million from the first half of 2018 driven by FTP, partially offset by higher funding and swap costs and non-core run-off. Results also reflected an ACL release of $13 million in the first half of 2019, compared to an ACL build of $17 million in the first half of 2018.
27

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 returns that align with our overall portfolio management strategy. The following table presents our securities AFS and HTM:

| June 30, 2019 |  | December 31, 2018 |  |
(in millions) | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Change in Fair Value
U.S. Treasury and other |  | $90 |  |  |  | $90 |  |  |  | $24 |  |  |  | $24 |  |  |  | $66 |  |  | 275 | %
State and political subdivisions | 5 |  |  | 5 |  |  | 5 |  |  | 5 |  |  | — |  |  | — |
Mortgage-backed securities, at fair value: |  |  |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 20,688 |  |  | 20,708 |  |  | 20,211 |  |  | 19,634 |  |  | 1,074 |  |  | 5 |
Other/non-agency | 871 |  |  | 895 |  |  | 236 |  |  | 232 |  |  | 663 |  |  | 286 |
Total mortgage-backed securities | 21,559 |  |  | 21,603 |  |  | 20,447 |  |  | 19,866 |  |  | 1,737 |  |  | 9 |
Total debt securities available for sale, at fair value |  | $21,654 |  |  |  | $21,698 |  |  |  | $20,476 |  |  |  | $19,895 |  |  |  | $1,803 |  |  | 9 | %
Mortgage-backed securities, at cost: |  |  |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities |  | $3,447 |  |  |  | $3,441 |  |  |  | $3,425 |  |  |  | $3,293 |  |  |  | $148 |  |  | 4 | %
Other/non-agency | — |  |  | — |  |  | 740 |  |  | 748 |  |  | (748 | ) |  | (100 | )
Total mortgage-backed securities | 3,447 |  |  | 3,441 |  |  | 4,165 |  |  | 4,041 |  |  | (600 | ) |  | (15 | )
Total debt securities held to maturity |  | $3,447 |  |  |  | $3,441 |  |  |  | $4,165 |  |  |  | $4,041 |  |  |  | ($600 | ) |  | (15 | )%
Total debt securities available for sale and held to maturity |  | $25,101 |  |  |  | $25,139 |  |  |  | $24,641 |  |  |  | $23,936 |  |  |  | $1,203 |  |  | 5 | %
Equity securities, at fair value |  | $47 |  |  |  | $47 |  |  |  | $181 |  |  |  | $181 |  |  |  | ($134 | ) |  | (74 | %)
Equity securities, at cost | 706 |  |  | 706 |  |  | 834 |  |  | 834 |  |  | (128 | ) |  | (15 | )
Total equity securities |  | $753 |  |  |  | $753 |  |  |  | $1,015 |  |  |  | $1,015 |  |  |  | ($262 | ) |  | (26 | %)

The fair value of the AFS debt portfolio of $21.7 billion at June 30, 2019 increased $1.8 billion from $19.9 billion at December 31, 2018 due to lower period-end interest rates that decreased net unrealized losses on mortgage-backed securities by $625 million, net portfolio additions, and securities transferred from HTM to AFS upon the adoption of ASU 2017–12, Targeted Improvements to Accounting for Hedging Activities. The decline in the fair value of the HTM debt portfolio of $600 million was primarily attributable to securities transferred from HTM to AFS upon the adoption of ASU 2017–12, partially offset by a transfer of $192 million of securities from AFS to HTM. For further detail see Note 1 "Basis of Presentation" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.
As of June 30, 2019, the portfolio’s average effective duration was 3.3 years compared with 4.4 years as of December 31, 2018, 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-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 96% 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 Part I — Business, included in our Annual Report on Form 10-K for the year ended December 31, 2018.
28

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Loans and Leases
Our loans and leases are disclosed in portfolio segments and classes as reflected below.

(in millions) | June 30, 2019 |  | December 31, 2018 |  | Change |  | Percent
Commercial(1) |  | $41,156 |  |  |  | $40,857 |  |  |  | $299 |  |  | 1 | %
Commercial real estate | 13,123 |  |  | 13,023 |  |  | 100 |  |  | 1 |
Leases | 2,684 |  |  | 2,903 |  |  | (219 | ) |  | (8 | )
Total commercial loans and leases | 56,963 |  |  | 56,783 |  |  | 180 |  |  | — |
Residential mortgages | 19,192 |  |  | 18,978 |  |  | 214 |  |  | 1 |
Home equity loans | 938 |  |  | 1,073 |  |  | (135 | ) |  | (13 | )
Home equity lines of credit | 12,266 |  |  | 12,710 |  |  | (444 | ) |  | (3 | )
Home equity loans serviced by others | 348 |  |  | 399 |  |  | (51 | ) |  | (13 | )
Home equity lines of credit serviced by others | 88 |  |  | 104 |  |  | (16 | ) |  | (15 | )
Automobile | 12,000 |  |  | 12,106 |  |  | (106 | ) |  | (1 | )
Education | 9,305 |  |  | 8,900 |  |  | 405 |  |  | 5 |
Credit cards | 2,046 |  |  | 1,991 |  |  | 55 |  |  | 3 |
Other retail | 3,692 |  |  | 3,616 |  |  | 76 |  |  | 2 |
Total retail loans(2) | 59,875 |  |  | 59,877 |  |  | (2 | ) |  | — |
Total loans and leases(3) |  | $116,838 |  |  |  | $116,660 |  |  |  | $178 |  |  | — | %

(1) SBA loans we service for others of $18 million are not included above. These loans represent the government guaranteed portion of SBA loans sold to outside investors as of June 30, 2019. There were no SBA loans we serviced for others at December 31, 2018.
(2) Mortgage loans we service for others of $72.5 billion and $69.6 billion at June 30, 2019 and December 31, 2018, respectively, are not included above.
(3) LHFS totaling $2.2 billion and $1.3 billion at June 30, 2019 and December 31, 2018, respectively, are not included above.
Strength in commercial loans, driven by geographic, product and client-focused expansion strategies as well as strength in commercial real estate drove an increase in total loans and leases of $178 million from $116.7 billion as of December 31, 2018, partially offset by planned reductions in commercial leases. Retail loans were relatively stable, as growth in education, residential mortgage, other retail and credit card were offset by execution against planned reductions in auto and run-off in the home equity portfolio.
Allowance for Credit Losses and Nonperforming Assets
The ACL, which consists of an ALLL and a reserve for unfunded lending commitments, is created through charges to the provision for credit losses in order to provide appropriate reserves to absorb future estimated credit losses in accordance with GAAP. For further information on our processes to determine our ACL, see “—Critical Accounting Estimates — Allowance for Credit Losses” and Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 4 "Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.
The ACL totaled $1.3 billion at June 30, 2019 and December 31, 2018. The ALLL represented 1.05% of loans and leases and 159% of nonperforming loans and leases as of June 30, 2019, compared with 1.06% and 156%, as of December 31, 2018, respectively. As of June 30, 2019, there were no material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s reserves.
Overall credit quality has remained strong in the first half of 2019. Nonperforming loans and leases of $770 million as of June 30, 2019 decreased $27 million from December 31, 2018, reflecting a $45 million decrease in retail nonperforming loans driven by a decrease in real estate secured portfolios. Second quarter 2019 net charge-offs of $106 million increased $30 million, or 39%, from $76 million in second quarter 2018. Second quarter 2019 annualized net charge-offs of 36 basis points of average loans and leases was up nine basis points from second quarter 2018. First half of 2019 net charge-offs of $195 million increased $49 million, or 34%, from $146 million in the first half of 2018. First half of 2019 annualized net charge-offs of 33 basis points of average loans and leases was up seven basis points from the first half of 2018.
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
29

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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 Assets — Commercial Loan Asset Quality” in our Annual Report on Form 10-K for the year ended December 31, 2018. See Note 4 "Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.
As of June 30, 2019, nonperforming commercial loans and leases of $219 million increased $18 million from $201 million as of December 31, 2018. Total commercial nonperforming loans were 0.4% of the commercial loan portfolio as of June 30, 2019 and December 31, 2018. Total commercial loan and lease net charge-offs of $33 million and $57 million for second quarter and the first half of 2019, respectively, compared to net charge-offs of $12 million and $9 million for second quarter and the first half of 2018, respectively. The commercial loan and lease portfolio’s annualized net charge-off rate of 23 and 20 basis points for the three and six months ended June 30, 2019, respectively, compared to a net charge-off rate of nine and three basis points for the three and six months ended June 30, 2018.
The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:

| June 30, 2019
|  | Criticized |
(in millions) | Pass |  | Special Mention | Substandard |  | Doubtful |  | Total |
Commercial |  | $39,011 |  |  | $1,174 |  |  | $770 |  |  | $201 |  |  | $41,156 |
Commercial real estate | 12,705 |  | 377 |  | 38 |  | 3 |  | 13,123 |
Leases | 2,578 |  | 46 |  | 43 |  | 17 |  | 2,684 |
Total commercial loans and leases |  | $54,294 |  |  | $1,597 |  |  | $851 |  |  | $221 |  |  | $56,963 |

| December 31, 2018
|  | Criticized |
(in millions) | Pass |  | Special Mention | Substandard |  | Doubtful |  | Total |
Commercial |  | $38,600 |  |  | $1,231 |  |  | $828 |  |  | $198 |  |  | $40,857 |
Commercial real estate | 12,523 |  | 412 |  | 82 |  | 6 |  | 13,023 |
Leases | 2,823 |  | 39 |  | 41 |  | — |  | 2,903 |
Total commercial loans and leases |  | $53,946 |  |  | $1,682 |  |  | $951 |  |  | $204 |  |  | $56,783 |

Total commercial criticized loans and leases of $2.7 billion at June 30, 2019 were compared to $2.8 billion at December 31, 2018. Commercial real estate criticized balances of $418 million, or 3.2% of the commercial real estate portfolio, decreased from $500 million, or 3.8%, as of December 31, 2018. Commercial real estate accounted for 15.7% of total criticized loans as of June 30, 2019, compared to 17.6% as of December 31, 2018.
Retail Loan Asset Quality
For retail loans, we primarily utilize payment and delinquency status to regularly review and monitor credit quality trends. Historical experience indicates that the longer a loan is past due, the greater the likelihood of future credit loss. The largest portion of the retail portfolio is represented by borrowers located in the New England, Mid-Atlantic 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.
The following tables present asset quality metrics for the retail loan portfolio:

| June 30, 2019 |  | December 31, 2018
Average refreshed FICO for total portfolio | 765 |  |  | 763 |
CLTV ratio for secured real estate(1) | 59 | % |  | 58 | %
Nonperforming retail loans as a percentage of total retail | 0.92 |  |  | 1.00 |

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

| Three Months Ended June 30, |  |  |  |  |  | Six Months Ended June 30, |  |  |  |
(dollars in millions) | 2019 |  |  | 2018 |  |  | Change |  |  | Percent |  |  | 2019 |  |  | 2018 |  |  | Change |  | Percent |
Net charge-offs |  | $73 |  |  |  | $64 |  |  |  | $9 |  |  | 14 | % |  |  | $138 |  |  |  | $137 |  |  |  | $1 |  |  | 1 | %
Annualized net charge-off rate | 0.49 | % |  | 0.44 | % |  | 5 | bps |  |  | 0.47 | % |  | 0.47 | % |  | — |  |

Retail net charge-off rate increased to 0.49% for second quarter 2019, an increase of five basis points from second quarter 2018, driven by continued seasoning in the unsecured portfolios. Retail asset quality was stable with a net charge-off rate of 0.47% for the first half of 2019 and 2018.
Troubled Debt Restructurings
TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that we would not otherwise make. TDRs typically result from our loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship. Our loan modifications are handled on a case by case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet our borrower’s financial needs. The types of concessions include interest rate reductions, term extensions, principal forgiveness and other modifications to the structure of the loan that fall outside our lending policy. Depending on the specific facts and circumstances of the customer, restructuring can involve loans moving to nonaccrual, remaining on nonaccrual, or remaining on accrual status.
As of June 30, 2019, $686 million of retail loans were classified as TDRs, compared with $723 million as of December 31, 2018. As of June 30, 2019, $169 million of retail TDRs were in nonaccrual status with 49% current with payments, an improvement compared to $181 million in nonaccrual status with 49% current on payments at December 31, 2018. TDRs generally return to accrual status once repayment capacity and appropriate payment history can be established. TDRs are individually evaluated for impairment and loans, once classified as TDRs, remain classified as TDRs until paid off, sold or refinanced at market terms.
For additional information regarding TDRs, see “—Critical Accounting Estimates — Allowance for Credit Losses,” and Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 4 "Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.
The following tables present retail TDRs by loan class, including delinquency status for accruing TDRs and TDRs in nonaccrual:

| June 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 |  | $103 |  |  | 1.0 | % |  | 1.5 | % |  |  | $44 |  |  |  | $147 |
Home equity loans | 75 |  |  | 0.5 |  |  | — |  |  | 21 |  |  | 96 |
Home equity lines of credit | 141 |  |  | 0.7 |  |  | — |  |  | 60 |  |  | 201 |
Home equity loans serviced by others | 27 |  |  | 0.3 |  |  | — |  |  | 9 |  |  | 36 |
Home equity lines of credit serviced by others | 3 |  |  | — |  |  | — |  |  | 4 |  |  | 7 |
Automobile | 14 |  |  | 0.2 |  |  | — |  |  | 8 |  |  | 22 |
Education | 123 |  |  | 0.8 |  |  | 0.5 |  |  | 21 |  |  | 144 |
Credit cards | 25 |  |  | 0.5 |  |  | — |  |  | 2 |  |  | 27 |
Other retail | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
Total |  | $517 |  |  | 4.0 | % |  | 2.0 | % |  |  | $169 |  |  |  | $686 |

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

| December 31, 2018
|  |  | As a % of Accruing Retail TDRs |  |  |  |
(dollars in millions) | Accruing |  | 30-89 Days Past Due |  | 90+ Days Past Due |  | Nonaccruing |  | Total
Residential mortgages |  | $111 |  |  | 3.0 | % |  | 1.6 | % |  |  | $44 |  |  |  | $155 |
Home equity loans | 85 |  |  | 0.7 |  |  | — |  |  | 25 |  |  | 110 |
Home equity lines of credit | 138 |  |  | 0.9 |  |  | — |  |  | 64 |  |  | 202 |
Home equity loans serviced by others | 31 |  |  | 0.3 |  |  | — |  |  | 10 |  |  | 41 |
Home equity lines of credit serviced by others | 3 |  |  | — |  |  | — |  |  | 5 |  |  | 8 |
Automobile | 13 |  |  | 0.2 |  |  | — |  |  | 10 |  |  | 23 |
Education | 131 |  |  | 0.9 |  |  | 0.3 |  |  | 22 |  |  | 153 |
Credit cards | 24 |  |  | 0.4 |  |  | — |  |  | 1 |  |  | 25 |
Other retail | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
Total |  | $542 |  |  | 6.4 | % |  | 1.9 | % |  |  | $181 |  |  |  | $723 |

Non-Core Assets

(in millions) | June 30, 2019 |  | December 31, 2018 |  | Change |  | Percent
Commercial |  | $8 |  |  |  | $72 |  |  |  | ($64 | ) |  | (89 | %)
Commercial real estate | 12 |  |  | 14 |  |  | (2 | ) |  | (14 | )
Leases | 533 |  |  | 670 |  |  | (137 | ) |  | (20 | )
Total commercial loans and leases | 553 |  |  | 756 |  |  | (203 | ) |  | (27 | )
Residential mortgages | 101 |  |  | 110 |  |  | (9 | ) |  | (8 | )
Home equity loans | 27 |  |  | 31 |  |  | (4 | ) |  | (13 | )
Home equity lines of credit | 17 |  |  | 21 |  |  | (4 | ) |  | (19 | )
Home equity loans serviced by others | 348 |  |  | 399 |  |  | (51 | ) |  | (13 | )
Home equity lines of credit serviced by others | 88 |  |  | 104 |  |  | (16 | ) |  | (15 | )
Education | 192 |  |  | 210 |  |  | (18 | ) |  | (9 | )
Total retail loans | 773 |  |  | 875 |  |  | (102 | ) |  | (12 | )
Total non-core loans and leases | 1,326 |  |  | 1,631 |  |  | (305 | ) |  | (19 | )
Other assets | 79 |  |  | 96 |  |  | (17 | ) |  | (18 | )
Total non-core assets |  | $1,405 |  |  |  | $1,727 |  |  |  | ($322 | ) |  | (19 | %)

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 table below presents the major components of our deposits:

(in millions) | June 30, 2019 |  | December 31, 2018 |  | Change |  |  | Percent |
Demand |  | $28,192 |  |  |  | $29,458 |  |  |  | ($1,266 | ) |  | (4 | %)
Checking with interest | 25,021 |  |  | 23,067 |  |  | 1,954 |  |  | 8 |
Regular savings | 13,495 |  |  | 12,007 |  |  | 1,488 |  |  | 12 |
Money market accounts | 35,329 |  |  | 35,701 |  |  | (372 | ) |  | (1 | )
Term deposits | 21,967 |  |  | 19,342 |  |  | 2,625 |  |  | 14 |
Total deposits |  | $124,004 |  |  |  | $119,575 |  |  |  | $4,429 |  |  | 4 | %

Total deposits as of June 30, 2019 increase d $4.4 billion, or 4%, to $124.0 billion, from $119.6 billion as of December 31, 2018. Citizens Access®, our digital platform, attracted $5.4 billion of deposits through second quarter 2019, up from $3.0 billion as of December 31, 2018.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Borrowed Funds
Total borrowed funds as of June 30, 2019 decreased $4.3 billion from December 31, 2018, reflecting a $5.3 billion decrease in long-term FHLB advances given improved funding mix, partially offset by a net $856 million increase in senior debt.
Short-term borrowed funds
A summary of our short-term borrowed funds is presented below:

(in millions) | June 30, 2019 |  | December 31, 2018 |  | Change |  |  | Percent |
Federal funds purchased |  | $840 |  |  |  | $820 |  |  |  | $20 |  |  | 2 | %
Securities sold under agreements to repurchase | 292 |  |  | 336 |  |  | (44 | ) |  | (13 | )
Other short-term borrowed funds (1) | 309 |  |  | 161 |  |  | 148 |  |  | 92 |
Total short-term borrowed funds |  | $1,441 |  |  |  | $1,317 |  |  |  | $124 |  |  | 9 | %

(1) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
The net increase in other short-term borrowed funds of $148 million resulted from 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 sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $7.4 billion and $13.0 billion at June 30, 2019 and December 31, 2018, respectively. Our remaining available FHLB borrowing capacity was $9.0 billion and $4.8 billion at June 30, 2019 and December 31, 2018, respectively. We can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At June 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 June 30, |  | As of and for the Six Months Ended June 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 repurchase | 1.93 | % |  | — | % |  | 1.93 | % |  | — | % |  | 1.72 | %
Other short-term borrowed funds | 2.47 |  |  | 3.22 |  |  | 2.47 |  |  | 3.22 |  |  | 2.73 |
Maximum amount outstanding at any month-end during the period: |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase(2) |  | $1,499 |  |  |  | $1,045 |  |  |  | $1,499 |  |  |  | $1,045 |  |  |  | $1,282 |
Other short-term borrowed funds | 508 |  |  | 1,110 |  |  | 511 |  |  | 1,110 |  |  | 1,110 |
Average amount outstanding during the period: |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase(2) |  | $818 |  |  |  | $504 |  |  |  | $729 |  |  |  | $574 |  |  |  | $654 |
Other short-term borrowed funds | 45 |  |  | 191 |  |  | 52 |  |  | 388 |  |  | 467 |
Weighted-average interest rate during the period:(1) |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase | 1.76 | % |  | 0.71 | % |  | 1.54 | % |  | 0.68 | % |  | 0.92 | %
Other short-term borrowed funds | 2.66 |  |  | 1.90 |  |  | 2.71 |  |  | 1.73 |  |  | 2.10 |

(1) Rates exclude certain hedging costs.
(2) Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Long-term borrowed funds
A summary of our long-term borrowed funds is presented below:

(in millions) | June 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 2022 | 348 |  |  | 348 |
3.750% fixed-rate subordinated debt, due July 2024 | 250 |  |  | 250 |
4.023% fixed-rate subordinated debt, due October 2024 | 42 |  |  | 42 |
4.350% fixed-rate subordinated debt, due August 2025 | 249 |  |  | 249 |
4.300% fixed-rate subordinated debt, due December 2025 | 750 |  |  | 749 |
Banking and Other Subsidiaries: |  |  |
2.500% senior unsecured notes, due March 2019 (1) | — |  |  | 748 |
2.450% senior unsecured notes, due December 2019 (1) | 747 |  |  | 744 |
2.250% senior unsecured notes, due March 2020 (1) | 698 |  |  | 691 |
3.060% floating-rate senior unsecured notes, due March 2020 (1) (2) | 300 |  |  | 300 |
3.091% floating-rate senior unsecured notes, due May 2020 (1) (2) | 250 |  |  | 250 |
2.200% senior unsecured notes, due May 2020 (1) | 499 |  |  | 499 |
2.250% senior unsecured notes, due October 2020 (1) | 748 |  |  | 738 |
2.550% senior unsecured notes, due May 2021 (1) | 986 |  |  | 964 |
3.250% senior unsecured notes, due February 2022 (1) | 711 |  |  | — |
3.248% floating-rate senior unsecured notes, due February 2022 (1) (2) | 299 |  |  | — |
3.331% floating-rate senior unsecured notes, due May 2022 (1) (2) | 250 |  |  | 249 |
2.650% senior unsecured notes, due May 2022 (1) | 500 |  |  | 487 |
3.700% senior unsecured notes, due March 2023 (1) | 517 |  |  | 502 |
3.280% floating-rate senior unsecured notes, due March 2023 (1) (2) | 249 |  |  | 249 |
3.750% senior unsecured notes, due February 2026 (1) | 521 |  |  | — |
Federal Home Loan Bank advances, 2.575% weighted average rate, due through 2038 | 2,258 |  |  | 7,508 |
Other | 17 |  |  | 9 |
Total long-term borrowed funds (3) |  | $11,538 |  |  |  | $15,925 |

(1) Issued under CBNA’s Global Bank Note Program.
(2) Rate disclosed reflects the floating rate as of June 30, 2019.
(3) Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are classified based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
Long-term borrowed funds as of June 30, 2019 decrease d $4.4 billion f rom December 31, 2018, reflecting a decrease of $5.3 billion in long-term FHLB borrowings, partially offset by senior unsecured notes issued by CBNA during the first half of 2019.
The Parent Company’s long-term borrowed funds as of June 30, 2019 and December 31, 2018 included principal balances of $2.0 billion for each period, respectively, and unamortized deferred issuance costs and/or discounts of ($4) million and ($5) million, respectively. The banking and other subsidiaries’ long-term borrowed funds as of June 30, 2019 and December 31, 2018 included principal balances of $9.5 billion and $14.0 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($17) million and ($14) million, respectively, and hedging basis adjustments of $43 million and ($66) million, respectively. See Note 9 "Derivatives" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report for further information about our hedging of certain long-term borrowed funds.
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 many regulations including consumer compliance, the Bank Secrecy Act, anti-money laundering compliance,
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
and increased internal audit activities. For more information, see “Regulation and Supervision” in Part I, Item 1 — Business included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Dodd-Frank Act
The Dodd-Frank Act regulates many aspects 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 Economic Growth, Regulatory Relief and Consumer Protection Act (“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. During 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.
Under Section 165 of the Dodd-Frank Act, as amended by EGRRCPA, a bank holding company with total consolidated assets of $100 billion or more, such as us, must currently submit a periodic 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. On May 14, 2019, the FRB and the FDIC published a joint Notice of Proposed Rulemaking to modify the Resolution Plan Rule that would, among other things, adjust the scope of application, submission timeframe, and plan content requirements. Until the FRB and FDIC adopt the proposal in the form of a final rule, the current Resolution Plan Rule continues to apply, including the next submission date, which is December 31, 2019 for us. However, on July 26, 2019, the FRB and FDIC jointly announced the extension of the next resolution plan submission date for 15 domestic banks, including us, from December 31, 2019, to July 1, 2021, or such other date that may be specified when the FRB and FDIC adopt the final rule.
Under the Federal Deposit Insurance Act, the FDIC has separately implemented a resolution planning rule that currently requires insured depository institutions of $50 billion or more in total assets, such as CBNA, to periodically submit a resolution plan. CBNA submitted its most recent resolution plan to the FDIC in July 2018. On April 22, 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.
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.
For additional discussion of the Dodd-Frank Act and EGRRCPA requirements and their related application, see “Regulation and Supervision” in Part 1, Item 1 - Business and “—Capital and Regulatory Matters” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
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%.
In July 2019, the FRB and the other federal banking regulators jointly announced the finalization of a proposal to simplify regulatory capital treatment for MSRs, certain deferred tax assets arising from temporary differences (“DTAs”) and 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 of the aggregate deduction threshold for these assets of 15%, assignment of a 250% risk weight for any MSRs or DTAs not deducted from CET1 capital, and assignment of an exposure category risk weight for investments in the capital of unconsolidated financial institutions not deducted from CET1 capital.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
A capital conservation buffer (“CCB”) is imposed on top of the following three minimum risk-based capital ratios: CET1 capital, tier 1 capital and total capital. As of January 1, 2019, 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.
For additional discussion of the U.S. Basel III capital framework and its related application, see “Regulation and Supervision” in Part 1, Item 1 - Business included in our Annual Report on Form 10-K for the year ended December 31, 2018. 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)
(in millions, except ratio data) | Amount | Ratio
June 30, 2019
CET1 capital |  | $14,629 |  | 10.5 | % | 7.0 | %
Tier 1 capital | 15,762 |  | 11.3 |  | 8.5 |
Total capital | 18,582 |  | 13.4 |  | 10.5 |
Tier 1 leverage | 15,762 |  | 10.1 |  | 4.0 |
Risk-weighted assets | 138,879 |  |  |
Quarterly adjusted average assets | 155,956 |  |  |
December 31, 2018
CET1 capital |  | $14,485 |  | 10.6 | % | 6.4 | %
Tier 1 capital | 15,325 |  | 11.3 |  | 7.9 |
Total capital | 18,157 |  | 13.3 |  | 9.9 |
Tier 1 leverage | 15,325 |  | 10.0 |  | 4.0 |
Risk-weighted assets | 136,202 |  |  |
Quarterly adjusted average assets | 153,026 |  |  |

(1) Required “Minimum Capital ratio” for 2019 and 2018 are: Common equity tier 1 capital of 4.5%; Tier 1 capital of 6.0%; Total capital of 8.0%; and Tier 1 leverage of 4.0%.
(2) “Minimum Capital ratio” includes capital conservation buffer of 2.500% for 2019 and 1.875% for 2018; N/A to Tier 1 leverage.
At June 30, 2019, our CET1 capital, tier 1 capital and total capital ratios were 10.5%, 11.3% and 13.4%, respectively, as compared with 10.6%, 11.3%, and 13.3%, respectively, as of December 31, 2018. The CET1 capital ratio decreased as $2.7 billion of risk-weighted asset (“RWA”) growth, 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 six months ended June 30, 2019. The tier 1 capital ratio increased as the changes in the CET1 capital ratio were more than offset by the issuance of preferred stock as described further in “—Capital Transactions” below. The total capital ratio increased due to the changes in CET1 and tier 1 capital ratios. At June 30, 2019, our CET1 capital, tier 1 capital and total capital ratios were 353 basis points, 285 basis points and 288 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 $14.6 billion at June 30, 2019, and increased $144 million from $14.5 billion at December 31, 2018, as net income for the six months ended June 30, 2019 was partially offset by the impact of common share repurchases, dividends and an increase in goodwill and intangibles related to Acquisitions. Tier 1 capital at June 30, 2019 totaled $15.8 billion, reflecting a $437 million increase from $15.3 billion at December 31, 2018, driven by the changes in CET1 capital and the issuance of preferred stock. At June 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 $18.6 billion at June 30, 2019, increased $425 million from December 31, 2018, driven by the changes in CET1 and tier 1 capital.
RWA totaled $138.9 billion at June 30, 2019, based on U.S. Basel III Standardized rules, up $2.7 billion from December 31, 2018. The increase was driven by loans held for sale, the creation of a right-of-use asset in conjunction with the adoption of ASU 2016-02, Leases (Topic 842), higher derivative valuations, and growth in multi-family and education loans and commercial commitments. The increases were partially offset by a decrease in commercial loans and run-off in the home equity portfolio.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
As of June 30, 2019, the tier 1 leverage ratio was 10.1%, reflecting an increase of 10 basis points from 10.0% at December 31, 2018. The increase was driven by the change in tier 1 capital level noted above, partially offset by a $2.9 billion increase in quarterly adjusted average assets.
The following table presents our capital composition under the U.S. Basel III capital framework:

(in millions) | June 30, 2019 |  | December 31, 2018
Total common stockholders’ equity |  | $20,884 |  |  |  | $19,977 |
Exclusions:(1) |  |  |
Net unrealized losses recorded in accumulated other comprehensive income, net of tax: |  |  |
Debt and equity securities | 25 |  |  | 490 |
Derivatives | 6 |  |  | 143 |
Unamortized net periodic benefit costs | 457 |  |  | 463 |
Deductions: |  |  |
Goodwill | (7,040 | ) |  | (6,923 | )
Deferred tax liability associated with goodwill | 371 |  |  | 366 |
Other intangible assets | (74 | ) |  | (31 | )
Total common equity tier 1 | 14,629 |  |  | 14,485 |
Qualifying preferred stock | 1,133 |  |  | 840 |
Total tier 1 capital | 15,762 |  |  | 15,325 |
Qualifying subordinated debt(2) | 1,500 |  |  | 1,499 |
Allowance for loan and lease losses | 1,227 |  |  | 1,242 |
Allowance for credit losses for off-balance sheet exposure | 93 |  |  | 91 |
Total capital |  | $18,582 |  |  |  | $18,157 |

(1) As a U.S. Basel III Standardized approach institution, we selected the one-time election to opt-out of the requirements to include all the components of AOCI.
(2) As of June 30, 2019 and December 31, 2018, the amount of non-qualifying subordinated debt excluded from regulatory capital was $139 million.
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” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
Capital Transactions
The following capital actions were completed by the Company during the six months ended June 30, 2019:

• | 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 $292 million;

• | Declared quarterly common stock dividends of $0.32 per share for first and second quarters of 2019, aggregating to $297 million;

• | Declared a semi-annual dividend of $27.50 per share on the 5.500% fixed-to-floating rate non-cumulative perpetual Series A Preferred Stock, aggregating to $7 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 $9 million;

• | Declared quarterly dividends of $15.94 per share for the first and second quarters of 2019 on the 6.375% fixed-to-floating rate non-cumulative perpetual Series C Preferred Stock, aggregating to $9 million;

• | Declared quarterly dividends of $11.82 per share for the first quarter of 2019 and $15.88 per share for the second quarter of 2019 on the 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, aggregating to $8 million; and

• | Repurchased $320 million of our outstanding common stock.

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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Banking Subsidiary Capital
The following table presents our banking subsidiary’s capital ratios under U.S. Basel III Standardized rules:

| June 30, 2019 |  | December 31, 2018
(dollars in millions, except ratio data) | Amount |  | Ratio |  |  | Amount |  | Ratio |
Citizens Bank, National Association |  |  |  |  |
CET1 capital |  | $15,166 |  | 10.9 | % |  |  | $11,994 |  | 10.6 | %
Tier 1 capital | 15,166 |  | 10.9 |  |  | 11,994 |  | 10.6 |
Total capital | 17,611 |  | 12.7 |  |  | 14,252 |  | 12.5 |
Tier 1 leverage | 15,166 |  | 9.7 |  |  | 11,994 |  | 9.9 |
Risk-weighted assets | 138,569 |  |  |  | 113,610 |  |
Quarterly adjusted average assets | 155,590 |  |  |  | 121,686 |  |

CBNA’s CET1 capital totaled $15.2 billion at June 30, 2019, up $3.2 billion from $12.0 billion at December 31, 2018. The increase was primarily driven by the net impact of the merger of Citizens Bank of Pennsylvania (“CBPA”) into CBNA effective January 2, 2019, and net income for the six months ended June 30, 2019. The increase was partially offset by dividend payments to the Parent Company and an increase in goodwill and intangibles related to Acquisitions. Total capital was $17.6 billion at June 30, 2019, an increase of $3.4 billion from $14.3 billion at December 31, 2018, driven by the change in CET1 capital and an increase in ACL, primarily attributable to the merger.
CBNA’s RWA totaled $138.6 billion at June 30, 2019, an increase of $25.0 billion from December 31, 2018, driven by approximately $22 billion resulting from the merger of CBPA into CBNA. In addition, the increase in RWA was driven by loans held for sale, the creation of a right-of-use asset in conjunction with the adoption of ASU 2016-02, Leases (Topic 842), higher derivative valuations and growth in multifamily loans, education loans and commercial commitments. The increases were partially offset by a decrease in commercial loans and run-off in the home equity portfolio.
As of June 30, 2019, CBNA’s tier 1 leverage ratio decreased 11 basis points to 9.7% from 9.9% at December 31, 2018, primarily driven by a $33.9 billion increase in quarterly adjusted average assets that drove a 240 basis point decline in the ratio, partially offset by a $3.2 billion increase in tier 1 capital that drove a 229 basis point increase in the ratio. These movements were primarily attributable to the merger of CBPA into CBNA.
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 and 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) needs of subsidiaries, including CBNA, for additional equity and, as required, its need for debt financing; and (iii) support for extraordinary funding requirements when necessary. To the extent that the Parent Company has relied on wholesale borrowings, uses also include payments of related principal and interest.
On January 29, 2019, the Parent Company issued $300 million, or 12,000,000 depositary shares, each representing a 1/40th interest in a share of its 6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock, par value of $25.00 per share with a liquidation preference of $1,000 per share (equivalent to $25
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MANAGEMENT’S DISCUSSION AND ANALYSIS
per depositary share). For further information, see Note 11 "Stockholders’ Equity" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.
On July 25, 2019, the Parent Company issued $500 million in seven-year 2.850% fixed-rate senior notes.
During the three months ended June 30, 2019 and 2018, the Parent Company declared and paid dividends on common stock of $148 million and $107 million, respectively. During the three months ended June 30, 2019, the Parent Company declared dividends on preferred stock of $18 million. No dividends were declared on preferred stock during the three months ended June 30, 2018. During the six months ended June 30, 2019 and 2018, the Parent Company declared and paid dividends on common stock of $297 million and $215 million, respectively, and declared dividends on preferred stock of $33 million and $7 million, respectively.
During three months ended June 30, 2019 and 2018, the Parent Company repurchased $120 million and $150 million of its outstanding common stock, respectively. During six months ended June 30, 2019 and 2018, the Parent Company repurchased $320 million and $325 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 $1.2 billion as of June 30, 2019 compared with $911 million as of December 31, 2018. 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 June 30, 2019, the Parent Company’s double-leverage ratio was 97.9%.
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 "Borrowed Funds" to our Consolidated Financial Statements in Part I, Item 1— Financial Statements and Supplementary Data, of this Report.
As CBNA’s major businesses involve 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, CBNA issued $1.5 billion in senior notes, consisting of $700 million in three-year fixed-rate notes, $300 million in three-year floating-rate notes, and $500 million in seven-year fixed-rate notes.
Liquidity Risk
We define liquidity risk as the risk that an entity will be unable to meet its payment obligations in a timely manner, at a reasonable cost. Liquidity risk can arise due to contingent liquidity risk and/or funding liquidity risk.
Contingent liquidity risk is the risk that market conditions may reduce an entity’s ability to liquidate, pledge and/or finance certain assets and thereby substantially reduce the liquidity value of such assets. Drivers of contingent liquidity risk include general market disruptions as well as specific issues regarding the credit quality and/or valuation of a security or loan, issuer or borrower and/or asset class.
Funding liquidity risk is the risk that market conditions and/or entity-specific events may reduce an entity’s ability to raise funds from depositors and/or wholesale market counterparties. Drivers of funding liquidity risk may be idiosyncratic or systemic, reflecting impediments to operations and/or damaged market confidence.
Factors Affecting Liquidity
Given the composition of 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
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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:

|  | June 30, 2019
|  | Moody’s |  | Standard and Poor’s |  | Fitch
| Citizens Financial Group, Inc.: |  |  |  |  |
| Long-term issuer | NR |  | BBB+ |  | BBB+
| Short-term issuer | NR |  | A-2 |  | F2
| Subordinated debt | NR |  | BBB |  | BBB
| Preferred Stock | NR |  | BB+ |  | BB-
| Citizens Bank, National Association: |  |  |  |  |
| Long-term issuer | Baa1 |  | A- |  | BBB+
| Short-term issuer | NR |  | A-2 |  | F2
| Long-term deposits | A1 |  | NR |  | A-
| Short-term deposits | P-1 |  | NR |  | F2
| NR = Not rated |  |  |  |  |

On July 31, 2019, Fitch announced an upgrade to CFG’s short-term issuer default rating from F2 to F1, an upgrade to CBNA’s short-term issuer default rating from F2 to F1, and an upgrade to CBNA’s short-term deposit rating from F2 to F1.
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 subsidiary continues to minimize reliance on unsecured wholesale funding. At June 30, 2019, our wholesale funding consisted primarily of secured borrowings from the FHLBs collateralized by high-quality residential mortgages, and term debt issued by the Parent Company and CBNA.
Existing and evolving regulatory liquidity requirements, such as the LCR, 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” and “—Liquidity Requirements” in Part I, Item 1 — Business, of our Annual Report on Form 10-K for the year ended December 31, 2018.
The LCR was developed to ensure banks have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. We are designated as a modified LCR financial institution under the final rule published by U.S. federal banking regulators and were compliant beginning in January 2017. We remain fully compliant with the LCR as of June 30, 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 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.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 June 30, 2019:

• | 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 94.2%;

• | Our cash position (which is defined as cash balance held at the FRB) totaled $2.0 billion;

• | Contingent liquidity was $31.3 billion, consisting of unencumbered high-quality liquid securities of $20.3 billion, unused FHLB capacity of $9.0 billion, and our cash position of $2.0 billion. Asset liquidity (a component of contingent liquidity) was $22.3 billion consisting of our cash position of $2.0 billion and unencumbered high-quality liquid securities of $20.3 billion;

• | Available discount window capacity, defined as available total borrowing capacity from the FRB based on identified collateral, is secured by non-mortgage commercial and retail loans and totaled $13.5 billion. Use of this borrowing capacity would be considered only during exigent circumstances; and

• | For a summary of our sources and uses of cash by type of activity for the six months ended June 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 such as the LCR; 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. See Note 12 "Commitments and Contingencies" to our unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements, included in this Report.

(in millions) | June 30, 2019 |  | December 31, 2018 |  | Change |  |  | Percent |
Commitments to extend credit |  | $70,217 |  |  |  | $69,553 |  |  |  | $664 |  |  | 1 | %
Letters of credit | 2,252 |  |  | 2,125 |  |  | 127 |  |  | 6 |
Marketing rights | 35 |  |  | 37 |  |  | (2 | ) |  | (5 | )
Risk participation agreements | 41 |  |  | 19 |  |  | 22 |  |  | 116 |
Loans sold with recourse | 23 |  |  | 5 |  |  | 18 |  |  | NM |
Total |  | $72,568 |  |  |  | $71,739 |  |  |  | $829 |  |  | 1 | %

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 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
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MANAGEMENT’S DISCUSSION AND ANALYSIS
and the fair value of MSRs. For additional information regarding these accounting estimates and their related application, see “—Critical Accounting Estimates” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. No material changes were made to these critical accounting policies or estimates during the six months ended June 30, 2019.
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” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
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 both trading and non-trading market risks.
Non-Trading Risk
We are exposed to market risk as a result of non-trading banking activities. This market risk is substantially composed of interest rate risk, as we have no direct currency or commodity risk and de minimis 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” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
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 instantaneous and severe shift in interest rates was used in this analysis, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below presents the sensitivity of net interest income to various parallel yield curve shifts from the market implied forward yield curve:

| Estimated % Change in Net Interest Income over 12 Months
Basis points | June 30, 2019 |  | December 31, 2018
Instantaneous Change in Interest Rates |  |  |
+200 | 8.5 | % |  | 9.5 | %
+100 | 4.2 |  |  | 4.8 |
-100 | (5.4 | ) |  | (4.5 | )
Gradual Change in Interest Rates |  |  |
+200 | 2.9 |  |  | 4.9 |
+100 | 1.2 |  |  | 2.5 |
-100 | (2.3 | ) |  | (1.1 | )

Given broad expectations the FRB would cut interest rates, we reduced asset sensitivity to mitigate the potential impact of declining rates. Asset sensitivity against a 200 basis point gradual increase in rates was 2.9% at June 30, 2019, a decrease from 4.9% at December 31, 2018. Additionally, we have reduced our short-term interest rate exposure (six months and under) to approximately 25%, with the remainder in the intermediate to long tenors of the curve. The risk position can be affected by changes in interest rates which impact the repricing sensitivity or beta of the deposit base as well as the cash flows on prepayable assets. The risk position is managed within our risk limits, and long term view of interest rates through occasional adjustments to securities investments, interest rate swaps and mix of funding.
We use a valuation measure of exposure to structural interest rate risk, Economic Value of Equity (“EVE”), as a supplement to net interest income simulations. EVE complements net interest income simulation analysis as it estimates risk exposure over a long-term horizon. EVE measures the extent to which the economic value of assets, liabilities and off-balance sheet instruments may change in response to fluctuations in interest rates. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. The change in value is expressed as a percentage of regulatory capital.
We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating-rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances. The table below summarizes the related hedging activities.

| June 30, 2019 |  | December 31, 2018
|  |  | Weighted Average |  |  | Weighted Average
(dollars in millions) | Notional Amount | Fair Value | Maturity (Years) | Receive Rate | Pay Rate |  | Notional Amount | Fair Value | Maturity (Years) | Receive Rate | Pay Rate
Cash flow - receive fixed/pay variable - conventional ALM |  | $14,850 |  |  | ($3 | ) | 1.9 | 1.8 | % | 2.4 | % |  |  | $8,100 |  |  | $3 |  | 2.2 |  | 1.7 | % | 2.5 | %
Fair value - receive fixed/pay variable - conventional debt | 4,650 |  | (1 | ) | 2.5 | 2.0 |  | 2.5 |  |  | 3,450 |  | 2 |  | 2.4 |  | 1.8 |  | 2.7 |
Cash flow - pay fixed/receive variable - conventional ALM | 4,750 |  | 1 |  | 4.40 |  | 2.4 |  | 1.7 |  |  | 500 |  | — |  | — |  | 2.4 |  | 1.3 |
Fair value - pay fixed/receive variable - conventional ALM | 846 |  | — |  | 4.60 |  | 2.5 |  | 2.3 |  |  | — |  | — |  | — |  | — |  | — |
Total portfolio swaps |  | $25,096 |  |  | ($3 | ) | 2.6 | 2.0 | % | 2.3 | % |  |  | $12,050 |  |  | $5 |  | 2.2 |  | 1.8 | % | 2.5 | %
Floors - conventional ALM(1) |  | $7,000 |  |  | $— |  | — |  | — |  | — |  |  |  | $7,000 |  |  | $— |  | 0.5 |  |  |

(1) Conventional ALM floors, which matured in July 2019, do not have a receive rate or pay rate, but rather a strike price on the option.
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 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 a formal committee meeting.
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CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgage Servicing Rights
We have market risk associated with the value of MSRs, which are impacted by various types of inherent risks, including risks related to duration, basis, convexity, volatility and yield curve. We have elected to account for the MSRs acquired from FAMC or originated after December 31, 2018 at fair value while maintaining a lower of cost or market approach on our non-FAMC MSRs originated before December 31, 2018.
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 June 30, 2019, the fair value of these MSRs was $531 million and the total notional amount of related derivative contracts was $11.5 billion. 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 June 30, 2019 and December 31, 2018, our non-FAMC MSRs originated on or before December 31, 2018 had a book value of $189 million and $221 million, respectively, and were carried at the lower of cost or market. As of June 30, 2019 and December 31, 2018, these MSRs had a fair value of $193 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” to the audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018.
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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.” For the purposes of the Market Risk Rule, all of our client facing trades and associated hedges need to maintain a low risk profile to qualify, and do qualify, as “covered positions.” For the three months ended June 30, 2019 and 2018, we were not subject to the reporting threshold under the Market Risk Rule. As a result, the $634 million and $767 million of calculated market risk-weighted assets as of June 30, 2019 and 2018, respectively, were not included in our risk-weighted assets. As such, our covered trading activities were risk-weighted under U.S. Basel III Standardized credit risk rules. While not subject to the determination requirements of market risk-weighted assets, we nevertheless comply with the Market Risk Rule’s other requirements. The internal management VaR measure is calculated based on the same population of trades that is utilized for regulatory VaR. The following table presents the results of our modeled and non-modeled measures for regulatory capital calculations:

(in millions) |  | For the Three Months Ended June 30, 2019 |  | For the Three Months Ended June 30, 2018
Market Risk Category |  | Period End |  | Average |  | High |  | Low |  | Period End |  | Average |  | High |  | Low
Interest Rate |  |  | $1 |  |  |  | $— |  |  |  | $1 |  |  |  | $— |  |  |  | $2 |  |  |  | $2 |  |  |  | $2 |  |  |  | $1 |
Foreign Exchange Currency Rate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Credit Spread |  | 5 |  |  | 4 |  |  | 5 |  |  | 3 |  |  | 3 |  |  | 2 |  |  | 3 |  |  | 2 |
Commodity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
General VaR |  | 5 |  |  | 4 |  |  | 5 |  |  | 3 |  |  | 4 |  |  | 3 |  |  | 4 |  |  | 3 |
Specific Risk VaR |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total VaR |  |  | $5 |  |  |  | $4 |  |  |  | $5 |  |  |  | $3 |  |  |  | $4 |  |  |  | $3 |  |  |  | $4 |  |  |  | $3 |
Stressed General VaR |  |  | $13 |  |  |  | $9 |  |  |  | $13 |  |  |  | $7 |  |  |  | $15 |  |  |  | $13 |  |  |  | $15 |  |  |  | $10 |
Stressed Specific Risk VaR |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total Stressed VaR |  |  | $13 |  |  |  | $9 |  |  |  | $13 |  |  |  | $7 |  |  |  | $15 |  |  |  | $13 |  |  |  | $15 |  |  |  | $10 |
Market Risk Regulatory Capital |  |  | $37 |  |  |  |  |  |  |  |  |  | $47 |  |  |  |  |  |  |
Specific Risk Not Modeled Add-on |  | 14 |  |  |  |  |  |  |  |  | 14 |  |  |  |  |  |  |
de Minimis Exposure Add-on |  | — |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |
Total Market Risk Regulatory Capital |  |  | $51 |  |  |  |  |  |  |  |  |  | $61 |  |  |  |  |  |  |
Market Risk-Weighted Assets |  |  | $634 |  |  |  |  |  |  |  |  |  | $767 |  |  |  |  |  |  |
Market Risk-Weighted Assets (included in our FR Y-9C regulatory filing) |  |  | $— |  |  |  |  |  |  |  |  |  | $— |  |  |  |  |  |  |

45

CITIZENS FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
VaR Backtesting
Backtesting is one form of validation of the VaR model and is run daily. The Market Risk Rule requires a comparison of our internal VaR measure to the actual net trading revenue (excluding fees, commissions, reserves, intra-day trading and net interest income) for each day over the preceding year (the most recent 250 business days). Any observed loss in excess of the VaR number is taken as an exception. The level of exceptions determines the multiplication factor used to derive the VaR and SVaR-based capital requirement for regulatory reporting purposes, when applicable. We perform sub-portfolio backtesting as required under the Market Risk Rule, and as approved by our banking regulators, for interest rate, credit spread, and foreign exchange positions. The following graph shows our daily net trading revenue and total internal, modeled VaR for the twelve months ended June 30, 2019.
Daily VaR Backtesting
46

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 presents computations of key performance metrics used throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

|  | As of and for the Three Months Ended June 30, |  | As of and for the Six Months Ended June 30,
(in millions, except share, per share and ratio data) | Ref. | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Total revenue (GAAP) | A |  | $1,628 |  |  |  | $1,509 |  |  |  | $3,216 |  |  |  | $2,971 |
Noninterest expense (GAAP) | B | 951 |  |  | 875 |  |  | 1,888 |  |  | 1,758 |
Net income (GAAP) | C | 453 |  |  | 425 |  |  | 892 |  |  | 813 |
Net income available to common stockholders (GAAP) | D | 435 |  |  | 425 |  |  | 859 |  |  | 806 |
Return on average common equity: |  |  |  |  |  |  |  |
Average common equity (GAAP) | E |  | $20,420 |  |  |  | $19,732 |  |  |  | $20,182 |  |  |  | $19,732 |
Return on average common equity | D/E | 8.54 | % |  | 8.65 | % |  | 8.58 | % |  | 8.24 | %
Return on average tangible common equity: |  |  |  |  |  |  |  |
Average common equity (GAAP) | E |  | $20,420 |  |  |  | $19,732 |  |  |  | $20,182 |  |  |  | $19,732 |
Less: Average goodwill (GAAP) |  | 7,040 |  |  | 6,887 |  |  | 7,029 |  |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 80 |  |  | 2 |  |  | 69 |  |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | 370 |  |  | 357 |  |  | 369 |  |  | 356 |
Average tangible common equity | F |  | $13,670 |  |  |  | $13,200 |  |  |  | $13,453 |  |  |  | $13,199 |
Return on average tangible common equity | D/F | 12.75 | % |  | 12.93 | % |  | 12.87 | % |  | 12.32 | %
Return on average total assets: |  |  |  |  |  |  |  |
Average total assets (GAAP) | G |  | $161,489 |  |  |  | $153,253 |  |  |  | $160,955 |  |  |  | $152,393 |
Return on average total assets | C/G | 1.13 | % |  | 1.11 | % |  | 1.12 | % |  | 1.08 | %
Return on average total tangible assets: |  |  |  |  |  |  |  |
Average total assets (GAAP) | G |  | $161,489 |  |  |  | $153,253 |  |  |  | $160,955 |  |  |  | $152,393 |
Less: Average goodwill (GAAP) |  | 7,040 |  |  | 6,887 |  |  | 7,029 |  |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 80 |  |  | 2 |  |  | 69 |  |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | 370 |  |  | 357 |  |  | 369 |  |  | 356 |
Average tangible assets | H |  | $154,739 |  |  |  | $146,721 |  |  |  | $154,226 |  |  |  | $145,860 |
Return on average total tangible assets | C/H | 1.17 | % |  | 1.16 | % |  | 1.17 | % |  | 1.12 | %
Efficiency ratio: |  |  |  |  |  |  |  |
Efficiency ratio | B/A | 58.41 | % |  | 57.95 | % |  | 58.70 | % |  | 59.17 | %
Operating leverage: |  |  |  |  |  |  |  |
Increase in total revenue |  | 7.81 | % |  | 8.15 | % |  | 8.25 | % |  | 6.86 | %
Increase in noninterest expense |  | 8.66 |  |  | 1.19 |  |  | 7.39 |  |  | 2.30 |
Operating leverage |  | (0.85 | )% |  | 6.96 | % |  | 0.86 | % |  | 4.56 | %
Effective income tax rate: |  |  |  |  |  |  |  |
Income before income tax expense | I |  | $580 |  |  |  | $549 |  |  |  | $1,146 |  |  |  | $1,050 |
Income tax expense | J | 127 |  |  | 124 |  |  | 254 |  |  | 237 |
Effective income tax rate | J/I | 21.86 | % |  | 22.58 | % |  | 22.14 | % |  | 22.55 | %
Net income per average common share - basic and diluted: |  |  |  |  |  |  |  |
Average common shares outstanding - basic (GAAP) | K | 458,154,335 |  |  | 484,744,354 |  |  | 459,426,685 |  |  | 486,114,872 |
Average common shares outstanding - diluted (GAAP) | L | 459,304,224 |  |  | 486,141,695 |  |  | 460,857,535 |  |  | 487,683,216 |
Net income per average common share - basic (GAAP) | D/K |  | $0.95 |  |  |  | $0.88 |  |  |  | $1.87 |  |  |  | $1.66 |
Net income per average common share - diluted (GAAP) | D/L | 0.95 |  |  | 0.88 |  |  | 1.86 |  |  | 1.65 |
Dividend payout ratio: |  |  |  |  |  |  |  |
Cash dividends declared and paid per common share | M |  | $0.32 |  |  |  | $0.22 |  |  |  | $0.64 |  |  |  | $0.44 |
Dividend payout ratio | M/(D/K) | 34 | % |  | 25 | % |  | 34 | % |  | 27 | %

47

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

|  | As of and for the Three Months Ended June 30,
|  | 2019 |  | 2018
(in millions, except ratio data) | Ref. | Consumer Banking | Commercial Banking | Other | Consolidated |  | Consumer Banking | Commercial Banking | Other | Consolidated
Net income (loss) available to common stockholders: |  |  |  |  |  |  |  |  |  |
Net income (loss) (GAAP) | N |  | $213 |  |  | $216 |  |  | $24 |  |  | $453 |  |  |  | $197 |  |  | $237 |  |  | ($9 | ) |  | $425 |
Less: Preferred stock dividends |  | — |  | — |  | 18 |  | 18 |  |  | — |  | — |  | — |  | — |
Net income (loss) available to common stockholders | O |  | $213 |  |  | $216 |  |  | $6 |  |  | $435 |  |  |  | $197 |  |  | $237 |  |  | ($9 | ) |  | $425 |
Efficiency ratio: |  |  |  |  |  |  |  |  |  |
Total revenue (GAAP) | P |  | $1,076 |  |  | $520 |  |  | $32 |  |  | $1,628 |  |  |  | $987 |  |  | $516 |  |  | $6 |  |  | $1,509 |
Noninterest expense (GAAP) | Q | 715 |  | 217 |  | 19 |  | 951 |  |  | 658 |  | 200 |  | 17 |  | 875 |
Efficiency ratio | Q/P | 66.43 | % | 41.58 | % | NM |  | 58.41 | % |  | 66.68 | % | 38.80 | % | NM |  | 57.95 | %
Return on average total tangible assets: |  |  |  |  |  |  |  |  |  |
Average total assets (GAAP) |  |  | $65,485 |  |  | $56,135 |  |  | $39,869 |  |  | $161,489 |  |  |  | $61,232 |  |  | $52,170 |  |  | $39,851 |  |  | $153,253 |
Less: Average goodwill (GAAP) |  | 119 |  | 45 |  | 6,876 |  | 7,040 |  |  | — |  | 11 |  | 6,876 |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 73 |  | 7 |  | — |  | 80 |  |  | — |  | 2 |  | — |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | — |  | — |  | 370 |  | 370 |  |  | — |  | — |  | 357 |  | 357 |
Average total tangible assets | R |  | $65,293 |  |  | $56,083 |  |  | $33,363 |  |  | $154,739 |  |  |  | $61,232 |  |  | $52,157 |  |  | $33,332 |  |  | $146,721 |
Return on average total tangible assets | N/R | 1.31 | % | 1.54 | % | NM |  | 1.17 | % |  | 1.29 | % | 1.82 | % | NM |  | 1.16 | %

|  | As of and for the Six Months Ended June 30,
|  | 2019 |  | 2018
(in millions, except ratio data) | Ref. | Consumer Banking | Commercial Banking | Other | Consolidated |  | Consumer Banking | Commercial Banking | Other | Consolidated
Net income (loss) available to common stockholders: |  |  |  |  |  |  |  |  |  |
Net income (loss) (GAAP) | N |  | $415 |  |  | $443 |  |  | $34 |  |  | $892 |  |  |  | $367 |  |  | $452 |  |  | ($6 | ) |  | $813 |
Less: Preferred stock dividends |  | — |  | — |  | 33 |  | 33 |  |  | — |  | — |  | 7 |  | 7 |
Net income (loss) available to common stockholders | O |  | $415 |  |  | $443 |  |  | $1 |  |  | $859 |  |  |  | $367 |  |  | $452 |  |  | ($13 | ) |  | $806 |
Efficiency ratio: |  |  |  |  |  |  |  |  |  |  |  |
Total revenue (GAAP) | P |  | $2,111 |  |  | $1,042 |  |  | $63 |  |  | $3,216 |  |  |  | $1,942 |  |  | $998 |  |  | $31 |  |  | $2,971 |
Noninterest expense (GAAP) | Q | 1,415 |  | 426 |  | 47 |  | 1,888 |  |  | 1,314 |  | 408 |  | 36 |  | 1,758 |
Efficiency ratio | Q/P | 67.01 | % | 40.84 | % | NM |  | 58.70 | % |  | 67.68 | % | 40.86 | % | NM |  | 59.17 | %
Return on average total tangible assets: |  |  |  |  |  |  |  |  |  |
Average total assets (GAAP) |  |  | $65,247 |  |  | $55,884 |  |  | $39,824 |  |  | $160,955 |  |  |  | $61,290 |  |  | $51,286 |  |  | $39,817 |  |  | $152,393 |
Less: Average goodwill (GAAP) |  | 119 |  | 34 |  | 6,876 |  | 7,029 |  |  | — |  | 11 |  | 6,876 |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 64 |  | 5 |  | — |  | 69 |  |  | — |  | 2 |  | — |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | — |  | — |  | 369 |  | 369 |  |  | — |  | — |  | 356 |  | 356 |
Average total tangible assets | R |  | $65,064 |  |  | $55,845 |  |  | $33,317 |  |  | $154,226 |  |  |  | $61,290 |  |  | $51,273 |  |  | $33,297 |  |  | $145,860 |
Return on average total tangible assets | N/R | 1.29 | % | 1.60 | % | NM |  | 1.17 | % |  | 1.21 | % | 1.78 | % | NM |  | 1.12 | %

48

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 June 30, |  | As of and for the Six Months Ended June 30,
(in millions, except share, per share and ratio data) | Ref. | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Total revenue, Underlying: |  |  |  |  |  |  |  |
Total revenue (GAAP) | A |  | $1,628 |  |  |  | $1,509 |  |  |  | $3,216 |  |  |  | $2,971 |
Less: Notable items |  | — |  |  | — |  |  | — |  |  | — |
Total revenue, Underlying (non-GAAP) | S |  | $1,628 |  |  |  | $1,509 |  |  |  | $3,216 |  |  |  | $2,971 |
Noninterest expense, Underlying: |  |  |  |  |  |  |  |
Noninterest expense (GAAP) | B |  | $951 |  |  |  | $875 |  |  |  | $1,888 |  |  |  | $1,758 |
Less: Notable items |  | 7 |  |  | — |  |  | 12 |  |  | — |
Noninterest expense, Underlying (non-GAAP) | T |  | $944 |  |  |  | $875 |  |  |  | $1,876 |  |  |  | $1,758 |
Pre-provision profit: |  |  |  |  |  |  |  |
Total revenue (GAAP) | A |  | $1,628 |  |  |  | $1,509 |  |  |  | $3,216 |  |  |  | $2,971 |
Less: Noninterest expense (GAAP) | B | 951 |  |  | 875 |  |  | 1,888 |  |  | 1,758 |
Pre-provision profit (GAAP) |  |  | $677 |  |  |  | $634 |  |  |  | $1,328 |  |  |  | $1,213 |
Pre-provision profit, Underlying |  |  |  |  |  |  |  |
Total revenue, Underlying (non-GAAP) | S |  | $1,628 |  |  |  | $1,509 |  |  |  | $3,216 |  |  |  | $2,971 |
Less: Noninterest expense, Underlying (non-GAAP) | T | 944 |  |  | 875 |  |  | 1,876 |  |  | 1,758 |
Pre-provision profit, Underlying (non-GAAP) |  |  | $684 |  |  |  | $634 |  |  |  | $1,340 |  |  |  | $1,213 |
Income before income tax expense, Underlying: |  |  |  |  |  |  |  |
Income before tax expense (GAAP) | I |  | $580 |  |  |  | $549 |  |  |  | $1,146 |  |  |  | $1,050 |
Less: Notable items |  | (7 | ) |  | — |  |  | (12 | ) |  | — |
Income before income tax expense, Underlying (non-GAAP) | U |  | $587 |  |  |  | $549 |  |  |  | $1,158 |  |  |  | $1,050 |
Income tax expense and effective income tax rate, Underlying: |  |  |  |  |  |  |  |
Income tax expense (GAAP) | J |  | $127 |  |  |  | $124 |  |  |  | $254 |  |  |  | $237 |
Less: Notable items |  | (2 | ) |  | — |  |  | (3 | ) |  | — |
Income tax expense, Underlying (non-GAAP) | V |  | $129 |  |  |  | $124 |  |  |  | $257 |  |  |  | $237 |
Effective income tax rate (GAAP) | J/I | 21.86 | % |  | 22.58 | % |  | 22.14 | % |  | 22.55 | %
Effective income tax rate, Underlying (non-GAAP) | V/U | 21.89 |  |  | 22.58 |  |  | 22.16 |  |  | 22.55 |
Net income, Underlying: |  |  |  |  |  |  |  |
Net income (GAAP) | C |  | $453 |  |  |  | $425 |  |  |  | $892 |  |  |  | $813 |
Add: Notable items, net of tax expense |  | 5 |  |  | — |  |  | 9 |  |  | — |
Net income, Underlying (non-GAAP) | W |  | $458 |  |  |  | $425 |  |  |  | $901 |  |  |  | $813 |

49

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

|  | As of and for the Three Months Ended June 30, |  | As of and for the Six Months Ended June 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 |  | $435 |  |  |  | $425 |  |  |  | $859 |  |  |  | $806 |
Add: Notable items, net of tax expense |  | 5 |  |  | — |  |  | 9 |  |  | — |
Net income available to common stockholders, Underlying (non-GAAP) | X |  | $440 |  |  |  | $425 |  |  |  | $868 |  |  |  | $806 |
Return on average common equity and return on average common equity, Underlying: |  |  |  |  |  |  |  |
Average common equity (GAAP) | E |  | $20,420 |  |  |  | $19,732 |  |  |  | $20,182 |  |  |  | $19,732 |
Return on average common equity | D/E | 8.54 | % |  | 8.65 | % |  | 8.58 | % |  | 8.24 | %
Return on average common equity, Underlying (non-GAAP) | X/E | 8.63 |  |  | 8.65 |  |  | 8.67 |  |  | 8.24 |
Return on average tangible common equity and return on average tangible common equity, Underlying: |  |  |  |  |  |  |  |
Average common equity (GAAP) | E |  | $20,420 |  |  |  | $19,732 |  |  |  | $20,182 |  |  |  | $19,732 |
Less: Average goodwill (GAAP) |  | 7,040 |  |  | 6,887 |  |  | 7,029 |  |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 80 |  |  | 2 |  |  | 69 |  |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | 370 |  |  | 357 |  |  | 369 |  |  | 356 |
Average tangible common equity | F |  | $13,670 |  |  |  | $13,200 |  |  |  | $13,453 |  |  |  | $13,199 |
Return on average tangible common equity | D/F | 12.75 | % |  | 12.93 | % |  | 12.87 | % |  | 12.32 | %
Return on average tangible common equity, Underlying (non-GAAP) | X/F | 12.89 |  |  | 12.93 |  |  | 13.00 |  |  | 12.32 |
Return on average total assets and return on average total assets, Underlying: |  |  |  |  |  |  |  |
Average total assets (GAAP) | G |  | $161,489 |  |  |  | $153,253 |  |  |  | $160,955 |  |  |  | $152,393 |
Return on average total assets | C/G | 1.13 | % |  | 1.11 | % |  | 1.12 | % |  | 1.08 | %
Return on average total assets, Underlying (non-GAAP) | W/G | 1.14 |  |  | 1.11 |  |  | 1.13 |  |  | 1.08 |
Return on average total tangible assets and return on average total tangible assets, Underlying: |  |  |  |  |  |  |  |
Average total assets (GAAP) | G |  | $161,489 |  |  |  | $153,253 |  |  |  | $160,955 |  |  |  | $152,393 |
Less: Average goodwill (GAAP) |  | 7,040 |  |  | 6,887 |  |  | 7,029 |  |  | 6,887 |
Less: Average other intangibles (GAAP) |  | 80 |  |  | 2 |  |  | 69 |  |  | 2 |
Add: Average deferred tax liabilities related to goodwill (GAAP) |  | 370 |  |  | 357 |  |  | 369 |  |  | 356 |
Average tangible assets | H |  | $154,739 |  |  |  | $146,721 |  |  |  | $154,226 |  |  |  | $145,860 |
Return on average total tangible assets | C/H | 1.17 | % |  | 1.16 | % |  | 1.17 | % |  | 1.12 | %
Return on average total tangible assets, Underlying (non-GAAP) | W/H | 1.19 |  |  | 1.16 |  |  | 1.18 |  |  | 1.12 |
Efficiency ratio and efficiency ratio, Underlying: |  |  |  |  |  |  |  |
Efficiency ratio | B/A | 58.41 | % |  | 57.95 | % |  | 58.70 | % |  | 59.17 | %
Efficiency ratio, Underlying (non-GAAP) | T/S | 58.02 |  |  | 57.95 |  |  | 58.34 |  |  | 59.17 |
Operating leverage and operating leverage, Underlying: |  |  |  |  |  |  |  |
Increase in total revenue |  | 7.81 | % |  | 8.15 | % |  | 8.25 | % |  | 6.86 | %
Increase in noninterest expense |  | 8.66 |  |  | 1.19 |  |  | 7.39 |  |  | 2.30 |
Operating leverage |  | (0.85 | )% |  | 6.96 | % |  | 0.86 | % |  | 4.56 | %
Increase in total revenue, Underlying (non-GAAP) |  | 7.81 | % |  | 7.29 | % |  | 8.25 | % |  | 6.43 | %
Increase in noninterest expense, Underlying (non-GAAP) |  | 7.93 |  |  | 3.01 |  |  | 6.73 |  |  | 3.22 |
Operating leverage, Underlying (non-GAAP) |  | (0.12 | )% |  | 4.28 | % |  | 1.52 | % |  | 3.21 | %
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) | K | 458,154,335 |  |  | 484,744,354 |  |  | 459,426,685 |  |  | 486,114,872 |
Average common shares outstanding - diluted (GAAP) | L | 459,304,224 |  |  | 486,141,695 |  |  | 460,857,535 |  |  | 487,683,216 |
Net income per average common share - basic (GAAP) | D/K |  | $0.95 |  |  |  | $0.88 |  |  |  | $1.87 |  |  |  | $1.66 |
Net income per average common share - diluted (GAAP) | D/L | 0.95 |  |  | 0.88 |  |  | 1.86 |  |  | 1.65 |
Net income per average common share - basic, Underlying (non-GAAP) | X/K | 0.96 |  |  | 0.88 |  |  | 1.89 |  |  | 1.66 |
Net income per average common share - diluted, Underlying (non-GAAP) | X/L | 0.96 |  |  | 0.88 |  |  | 1.88 |  |  | 1.65 |

50

CITIZENS FINANCIAL GROUP, INC.
FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS

|  | Page
Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (unaudited) |  | 52
Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 |  | 53
Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 |  | 54
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 |  | 55
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2019 and 2018 |  | 57
Notes to Consolidated Financial Statements (unaudited) |  | 58
Note 1 - Basis of Presentation |  | 58
Note 2 - Securities |  | 61
Note 3 - Loans and Leases |  | 64
Note 4 - Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk |  | 66
Note 5 - Mortgage Banking |  | 75
Note 6 - Leases |  | 77
Note 7 - Variable Interest Entities |  | 79
Note 8 - Borrowed Funds |  | 80
Note 9 - Derivatives |  | 82
Note 10 - Reclassifications Out of Accumulated Other Comprehensive Income (Loss) |  | 85
Note 11 - Stockholders’ Equity |  | 87
Note 12 - Commitments and Contingencies |  | 88
Note 13 - Fair Value Measurements |  | 90
Note 14 - Noninterest Income |  | 94
Note 15 - Other Operating Expense |  | 95
Note 16 - Earnings Per Share |  | 95
Note 17 - Business Operating Segments |  | 95

51

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data) | June 30, 2019 |  | December 31, 2018
ASSETS: |  |  |
Cash and due from banks |  | $996 |  |  |  | $1,081 |
Interest-bearing cash and due from banks | 2,039 |  |  | 2,993 |
Interest-bearing deposits in banks | 186 |  |  | 148 |
Debt securities available for sale, at fair value (including $434 and $363 pledged to creditors, respectively)(1) | 21,698 |  |  | 19,895 |
Debt securities held to maturity (fair value of $3,441 and $4,041, respectively) | 3,447 |  |  | 4,165 |
Equity securities, at fair value | 47 |  |  | 181 |
Equity securities, at cost | 706 |  |  | 834 |
Loans held for sale, at fair value | 1,750 |  |  | 1,219 |
Other loans held for sale | 455 |  |  | 101 |
Loans and leases | 116,838 |  |  | 116,660 |
Less: Allowance for loan and lease losses | (1,227 | ) |  | (1,242 | )
Net loans and leases | 115,611 |  |  | 115,418 |
Derivative assets | 833 |  |  | 317 |
Premises and equipment, net | 740 |  |  | 791 |
Bank-owned life insurance | 1,711 |  |  | 1,698 |
Goodwill | 7,040 |  |  | 6,923 |
Due from broker | 249 |  |  | — |
Other assets | 5,241 |  |  | 4,754 |
TOTAL ASSETS |  | $162,749 |  |  |  | $160,518 |
LIABILITIES AND STOCKHOLDERS’ EQUITY: |  |  |
LIABILITIES: |  |  |
Deposits: |  |  |
Noninterest-bearing |  | $28,192 |  |  |  | $29,458 |
Interest-bearing | 95,812 |  |  | 90,117 |
Total deposits | 124,004 |  |  | 119,575 |
Federal funds purchased and securities sold under agreements to repurchase | 1,132 |  |  | 1,156 |
Other short-term borrowed funds | 309 |  |  | 161 |
Derivative liabilities | 106 |  |  | 292 |
Deferred taxes, net | 767 |  |  | 573 |
Long-term borrowed funds | 11,538 |  |  | 15,925 |
Due to broker | 257 |  |  | — |
Other liabilities | 2,619 |  |  | 2,019 |
TOTAL LIABILITIES | 140,732 |  |  | 139,701 |
Contingencies (refer to Note 12) |  |  |  |  |
STOCKHOLDERS’ EQUITY: |  |  |
Preferred stock, $25.00 par value, 100,000,000 shares authorized | 1,133 |  |  | 840 |
Common stock: |  |  |
$0.01 par value, 1,000,000,000 shares authorized; 568,003,349 shares issued and 457,903,826 shares outstanding at June 30, 2019 and 566,819,863 shares issued and 466,007,984 shares outstanding at December 31, 2018 | 6 |  |  | 6 |
Additional paid-in capital | 18,860 |  |  | 18,815 |
Retained earnings | 5,959 |  |  | 5,385 |
Treasury stock, at cost, 110,099,523 and 100,811,879 shares at June 30, 2019 and December 31, 2018, respectively | (3,453 | ) |  | (3,133 | )
Accumulated other comprehensive loss | (488 | ) |  | (1,096 | )
TOTAL STOCKHOLDERS’ EQUITY |  | $22,017 |  |  |  | $20,817 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |  | $162,749 |  |  |  | $160,518 |

(1) Includes only collateral pledged by the Company where counterparties have the right to sell or pledge the collateral.
The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
52

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions, except share and per share data) | 2019 |  | 2018 |  |  | 2019 |  |  | 2018 |
INTEREST INCOME: |  |  |  |  |  |
Interest and fees on loans and leases |  | $1,392 |  |  | $1,230 |  |  |  | $2,773 |  |  |  | $2,376 |
Interest and fees on loans held for sale, at fair value | 15 |  | 5 |  |  | 26 |  |  | 9 |
Interest and fees on other loans held for sale | 2 |  | 3 |  |  | 6 |  |  | 7 |
Investment securities | 164 |  | 165 |  |  | 330 |  |  | 333 |
Interest-bearing deposits in banks | 7 |  | 8 |  |  | 15 |  |  | 14 |
Total interest income | 1,580 |  | 1,411 |  |  | 3,150 |  |  | 2,739 |
INTEREST EXPENSE: |  |  |  |  |  |
Deposits | 308 |  | 181 |  |  | 595 |  |  | 326 |
Federal funds purchased and securities sold under agreements to repurchase | 3 |  | 1 |  |  | 5 |  |  | 2 |
Other short-term borrowed funds | 1 |  | 1 |  |  | 1 |  |  | 3 |
Long-term borrowed funds | 102 |  | 107 |  |  | 223 |  |  | 196 |
Total interest expense | 414 |  | 290 |  |  | 824 |  |  | 527 |
Net interest income | 1,166 |  | 1,121 |  |  | 2,326 |  |  | 2,212 |
Provision for credit losses | 97 |  | 85 |  |  | 182 |  |  | 163 |
Net interest income after provision for credit losses | 1,069 |  | 1,036 |  |  | 2,144 |  |  | 2,049 |
NONINTEREST INCOME: |  |  |  |  |  |
Service charges and fees | 126 |  | 127 |  |  | 249 |  |  | 251 |
Card fees | 64 |  | 60 |  |  | 123 |  |  | 121 |
Capital markets fees | 57 |  | 48 |  |  | 111 |  |  | 87 |
Trust and investment services fees | 53 |  | 43 |  |  | 100 |  |  | 83 |
Mortgage banking fees | 62 |  | 27 |  |  | 105 |  |  | 52 |
Letter of credit and loan fees | 33 |  | 32 |  |  | 66 |  |  | 62 |
Foreign exchange and interest rate products | 35 |  | 34 |  |  | 71 |  |  | 61 |
Securities gains, net | 4 |  | 2 |  |  | 12 |  |  | 10 |
Net impairment losses recognized in earnings on debt securities | — |  | (1 | ) |  | (1 | ) |  | (2 | )
Other income | 28 |  | 16 |  |  | 54 |  |  | 34 |
Total noninterest income | 462 |  | 388 |  |  | 890 |  |  | 759 |
NONINTEREST EXPENSE: |  |  |  |  |  |
Salaries and employee benefits | 507 |  | 453 |  |  | 1,016 |  |  | 923 |
Equipment and software expense | 126 |  | 110 |  |  | 251 |  |  | 223 |
Outside services | 118 |  | 106 |  |  | 228 |  |  | 205 |
Occupancy | 82 |  | 79 |  |  | 165 |  |  | 160 |
Other operating expense | 118 |  | 127 |  |  | 228 |  |  | 247 |
Total noninterest expense | 951 |  | 875 |  |  | 1,888 |  |  | 1,758 |
Income before income tax expense | 580 |  | 549 |  |  | 1,146 |  |  | 1,050 |
Income tax expense | 127 |  | 124 |  |  | 254 |  |  | 237 |
NET INCOME |  | $453 |  |  | $425 |  |  |  | $892 |  |  |  | $813 |
Net income available to common stockholders |  | $435 |  |  | $425 |  |  |  | $859 |  |  |  | $806 |
Weighted-average common shares outstanding: |  |  |  |  |  |
Basic | 458,154,335 |  | 484,744,354 |  |  | 459,426,685 |  |  | 486,114,872 |
Diluted | 459,304,224 |  | 486,141,695 |  |  | 460,857,535 |  |  | 487,683,216 |
Per common share information: |  |  |  |  |  |
Basic earnings |  | $0.95 |  |  | $0.88 |  |  |  | $1.87 |  |  |  | $1.66 |
Diluted earnings | 0.95 |  | 0.88 |  |  | 1.86 |  |  | 1.65 |

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
53

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018 |  |  | 2019 |  |  | 2018 |
Net income |  | $453 |  |  | $425 |  |  |  | $892 |  |  |  | $813 |
Other comprehensive income (loss): |  |  |  |  |  |
Net unrealized derivative instrument gains (losses) arising during the periods, net of income taxes of $23, ($4), $36 and ($22), respectively | 68 |  | (13 | ) |  | 107 |  |  | (65 | )
Reclassification adjustment for net derivative losses included in net income, net of income taxes of $4, $3, $9 and $3, respectively | 15 |  | 6 |  |  | 30 |  |  | 8 |
Net unrealized debt securities gains (losses) arising during the periods, net of income taxes of $72, ($19), $152 and ($105), respectively | 221 |  | (60 | ) |  | 467 |  |  | (332 | )
Other-than-temporary impairment not recognized in earnings on debt securities, net of income taxes of $0, $1, $0 and $0, respectively | 1 |  | — |  |  | 1 |  |  | (1 | )
Reclassification of net debt securities gains to net income, net of income taxes of ($1), $0, ($3) and ($2), respectively | (3 | ) | (1 | ) |  | (8 | ) |  | (6 | )
Amortization of actuarial loss, net of income taxes of $1, $1, $3 and $2, respectively | 3 |  | 3 |  |  | 6 |  |  | 6 |
Total other comprehensive income (loss), net of income taxes | 305 |  | (65 | ) |  | 603 |  |  | (390 | )
Total comprehensive income |  | $758 |  |  | $360 |  |  |  | $1,495 |  |  |  | $423 |

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
54

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

| Preferred Stock |  | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss | Total
(in millions) | Shares | Amount |  | Shares | Amount
Balance at April 1, 2018 | — |  |  | $247 |  |  | 488 |  |  | $6 |  |  | $18,797 |  |  | $4,437 |  |  | ($2,283 | ) |  | ($1,145 | ) |  | $20,059 |
Dividends to common stockholders | — |  | — |  |  | — |  | — |  | — |  | (107 | ) | — |  | — |  | (107 | )
Preferred stock issued | 1 |  | 296 |  |  | — |  | — |  | — |  | — |  | — |  | — |  | 296 |
Treasury stock purchased | — |  | — |  |  | (4 | ) | — |  | — |  | — |  | (150 | ) | — |  | (150 | )
Share-based compensation plans | — |  | — |  |  | — |  | — |  | 5 |  | — |  | — |  | — |  | 5 |
Employee stock purchase plan shares purchased | — |  | — |  |  | — |  | — |  | 4 |  | — |  | — |  | — |  | 4 |
Total comprehensive income: |  |  |  |  |  |  |  |  |  |
Net income | — |  | — |  |  | — |  | — |  | — |  | 425 |  | — |  | — |  | 425 |
Other comprehensive loss | — |  | — |  |  | — |  | — |  | — |  | — |  | — |  | (65 | ) | (65 | )
Total comprehensive income | — |  | — |  |  | — |  | — |  | — |  | 425 |  | — |  | (65 | ) | 360 |
Balance at June 30, 2018 | 1 |  |  | $543 |  |  | 484 |  |  | $6 |  |  | $18,806 |  |  | $4,755 |  |  | ($2,433 | ) |  | ($1,210 | ) |  | $20,467 |
Balance at April 1, 2019 | 1 |  |  | $1,132 |  |  | 461 |  |  | $6 |  |  | $18,847 |  |  | $5,672 |  |  | ($3,333 | ) |  | ($793 | ) |  | $21,531 |
Dividends to common stockholders | — |  | — |  |  | — |  | — |  | — |  | (148 | ) | — |  | — |  | (148 | )
Dividends to preferred stockholders | — |  | — |  |  | — |  | — |  | — |  | (18 | ) | — |  | — |  | (18 | )
Preferred stock issued | — |  | 1 |  |  | — |  | — |  | — |  | — |  | — |  | — |  | 1 |
Treasury stock purchased | — |  | — |  |  | (3 | ) | — |  | — |  | — |  | (120 | ) | — |  | (120 | )
Share-based compensation plans | — |  | — |  |  | — |  | — |  | 9 |  | — |  | — |  | — |  | 9 |
Employee stock purchase plan shares purchased | — |  | — |  |  | — |  | — |  | 4 |  | — |  | — |  | — |  | 4 |
Total comprehensive income: |  |  |  |  |  |  |  |  |  |
Net income | — |  | — |  |  | — |  | — |  | — |  | 453 |  | — |  | — |  | 453 |
Other comprehensive income | — |  | — |  |  | — |  | — |  | — |  | — |  | — |  | 305 |  | 305 |
Total comprehensive income | — |  | — |  |  | — |  | — |  | — |  | 453 |  | — |  | 305 |  | 758 |
Balance at June 30, 2019 | 1 |  |  | $1,133 |  |  | 458 |  |  | $6 |  |  | $18,860 |  |  | $5,959 |  |  | ($3,453 | ) |  | ($488 | ) |  | $22,017 |

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
55

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

| Preferred Stock |  | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock, at Cost | Accumulated Other Comprehensive Loss | Total
(in millions) | Shares | Amount |  | Shares | Amount
Balance at January 1, 2018 | — |  |  | $247 |  |  | 491 |  |  | $6 |  |  | $18,781 |  |  | $4,164 |  |  | ($2,108 | ) |  | ($820 | ) |  | $20,270 |
Dividends to common stockholders | — |  | — |  |  | — |  | — |  | — |  | (215 | ) | — |  | — |  | (215 | )
Dividends to preferred stockholders | — |  | — |  | — |  | — |  | — |  | — |  | (7 | ) | — |  | — |  | (7 | )
Preferred stock issued | 1 |  | 296 |  |  | — |  | — |  | — |  | — |  | — |  | — |  | 296 |
Treasury stock purchased | — |  | — |  |  | (8 | ) | — |  | — |  | — |  | (325 | ) | — |  | (325 | )
Share-based compensation plans | — |  | — |  |  | 1 |  | — |  | 18 |  | — |  | — |  | — |  | 18 |
Employee stock purchase plan shares purchased | — |  | — |  |  | — |  | — |  | 7 |  | — |  | — |  | — |  | 7 |
Total comprehensive income: |  |  |  |  |  |  |  |  |  |
Net income | — |  | — |  |  | — |  | — |  | — |  | 813 |  | — |  | — |  | 813 |
Other comprehensive loss | — |  | — |  |  | — |  | — |  | — |  | — |  | — |  | (390 | ) | (390 | )
Total comprehensive income | — |  | — |  |  | — |  | — |  | — |  | 813 |  | — |  | (390 | ) | 423 |
Balance at June 30, 2018 | 1 |  |  | $543 |  |  | 484 |  |  | $6 |  |  | $18,806 |  |  | $4,755 |  |  | ($2,433 | ) |  | ($1,210 | ) |  | $20,467 |
Balance at January 1, 2019 | 1 |  |  | $840 |  |  | 466 |  |  | $6 |  |  | $18,815 |  |  | $5,385 |  |  | ($3,133 | ) |  | ($1,096 | ) |  | $20,817 |
Dividends to common stockholders | — |  | — |  |  | — |  | — |  | — |  | (297 | ) | — |  | — |  | (297 | )
Dividends to preferred stockholders | — |  | — |  |  | — |  | — |  | — |  | (33 | ) | — |  | — |  | (33 | )
Preferred stock issued | — |  | 293 |  |  | — |  | — |  | — |  | — |  | — |  | — |  | 293 |
Treasury stock purchased | — |  | — |  |  | (9 | ) | — |  | — |  | — |  | (320 | ) | — |  | (320 | )
Share-based compensation plans | — |  | — |  |  | 1 |  | — |  | 37 |  | — |  |  |  | — |  | 37 |
Employee stock purchase plan shares purchased | — |  | — |  |  | — |  | — |  | 8 |  | — |  | — |  | — |  | 8 |
Cumulative effect of change in accounting standards | — |  | — |  |  | — |  | — |  | — |  | 12 |  | — |  | 5 |  | 17 |
Total comprehensive income: |  |  |  |  |  |  |  |  |  |
Net income | — |  | — |  |  | — |  | — |  | — |  | 892 |  | — |  | — |  | 892 |
Other comprehensive income | — |  | — |  |  | — |  | — |  | — |  | — |  | — |  | 603 |  | 603 |
Total comprehensive income | — |  | — |  |  | — |  | — |  | — |  | 892 |  | — |  | 603 |  | 1,495 |
Balance at June 30, 2019 | 1 |  |  | $1,133 |  |  | 458 |  |  | $6 |  |  | $18,860 |  |  | $5,959 |  |  | ($3,453 | ) |  | ($488 | ) |  | $22,017 |

The accompanying Notes to unaudited interim Consolidated Financial Statements are an integral part of these statements.
56

CITIZENS FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

| Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |
OPERATING ACTIVITIES |  |  |
Net income |  | $892 |  |  |  | $813 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Provision for credit losses | 182 |  |  | 163 |
Originations of mortgage loans held for sale | (7,741 | ) |  | (1,345 | )
Proceeds from sales of mortgage loans held for sale | 7,148 |  |  | 1,325 |
Purchases of commercial loans held for sale | (1,076 | ) |  | (1,024 | )
Proceeds from sales of commercial loans held for sale | 1,198 |  |  | 1,039 |
Depreciation, amortization and accretion | 275 |  |  | 243 |
Mortgage servicing rights valuation charge-off (recovery) | 14 |  |  | (3 | )
Debt securities impairment | 1 |  |  | 2 |
Deferred income taxes | (10 | ) |  | 10 |
Share-based compensation | 32 |  |  | 28 |
Net gain on sales of: |  |  |
Debt securities | (16 | ) |  | (10 | )
Premises and equipment | (7 | ) |  | — |
(Increase) decrease in other assets | (236 | ) |  | 283 |
Decrease in other liabilities | (79 | ) |  | (109 | )
Net cash provided by operating activities | 577 |  |  | 1,415 |
INVESTING ACTIVITIES |  |  |
Investment securities: |  |  |
Purchases of debt securities available for sale | (3,502 | ) |  | (2,343 | )
Proceeds from maturities and paydowns of debt securities available for sale | 1,625 |  |  | 1,636 |
Proceeds from sales of debt securities available for sale | 1,250 |  |  | 273 |
Proceeds from maturities and paydowns of debt securities held to maturity | 171 |  |  | 271 |
Purchases of equity securities, at fair value | (549 | ) |  | (80 | )
Proceeds from sales of equity securities, at fair value | 683 |  |  | 78 |
Purchases of equity securities, at cost | (258 | ) |  | (334 | )
Proceeds from sales of equity securities, at cost | 386 |  |  | 287 |
Net (increase) decrease in interest-bearing deposits in banks | (38 | ) |  | 78 |
Purchases of mortgage servicing rights | — |  |  | (16 | )
Acquisitions, net of cash acquired | (129 | ) |  | — |
Net increase in loans and leases | (806 | ) |  | (2,992 | )
Net increase in bank-owned life insurance | (13 | ) |  | (21 | )
Premises and equipment: |  |  |
Purchases | (41 | ) |  | (94 | )
Proceeds from sales | 31 |  |  | — |
Capitalization of software | (98 | ) |  | (116 | )
Net cash used in investing activities | (1,288 | ) |  | (3,373 | )
FINANCING ACTIVITIES |  |  |
Net increase in deposits | 4,429 |  |  | 1,984 |
Net decrease in federal funds purchased and securities sold under agreements to repurchase | (24 | ) |  | (489 | )
Net increase (decrease) in other short-term borrowed funds | 147 |  |  | (2,356 | )
Proceeds from issuance of long-term borrowed funds | 4,500 |  |  | 11,500 |
Repayments of long-term borrowed funds | (9,005 | ) |  | (7,584 | )
Treasury stock purchased | (320 | ) |  | (325 | )
Net proceeds from issuance of preferred stock | 293 |  |  | 296 |
Dividends declared and paid to common stockholders | (297 | ) |  | (215 | )
Dividends declared and paid to preferred stockholders | (30 | ) |  | (7 | )
Payments of employee tax withholding for share-based compensation | (21 | ) |  | (13 | )
Net cash (used in) provided by financing activities | (328 | ) |  | 2,791 |
(Decrease) increase in cash and cash equivalents (1) | (1,039 | ) |  | 833 |
Cash and cash equivalents at beginning of period (1) | 4,074 |  |  | 3,032 |
Cash and cash equivalents at end of period (1) |  | $3,035 |  |  |  | $3,865 |

(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.
57

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 thereto 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 thereto should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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.
Significant Accounting Policies
For further information regarding the Company’s significant accounting policies, see Note 1 “Basis of Presentation” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
Accounting Pronouncements Adopted in 2019

Pronouncement | Summary of Guidance | Effects on Financial Statements
Derivatives and Hedging Issued August 2017 | • Reduces the complexity and operational burdens of the current hedge accounting model and portrays more clearly the effects of hedge accounting in the financial statements. • Modifies current requirements to facilitate the application of hedge accounting to partial-term hedges, hedges of prepayable financial instruments, and other strategies. Adoption of these optional changes would occur on a prospective basis. • Requires the effects of fair value hedges to be classified in the same income statement line as the earnings effect of the hedged item. Adoption of this change will occur on a prospective basis. • Requires all effects of cash flow hedges to be deferred in other comprehensive income until the hedged cash flows affect earnings. Periodic hedge ineffectiveness will no longer be recognized in earnings. Adoption of this change will occur on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. | • 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 “Derivatives”.

58

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

Pronouncement | Summary of Guidance | Effects 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 “Loans and Leases” and required lessee disclosures are included in Note 6 “Leases”.
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.

59

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Accounting Pronouncements Pending Adoption

Pronouncement | Summary of Guidance | Effects on Financial Statements
Financial Instruments - Credit Losses Issued June 2016 | • Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost (including securities HTM), which will reflect management’s estimate of credit losses over the full remaining expected life of the financial assets. • Amends existing impairment guidance for securities AFS to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves. • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. | • Required effective date: January 1, 2020. • A company-wide, cross-discipline governance structure is in place to implement the new standard. The Company is currently finalizing key interpretive issues, revising policies, procedures and related internal controls, and completing the development, configuration and validation of loss forecasting models to meet the requirements of the new guidance. The implementation team is also in the process of assessing forecast accuracy, qualitative factors, how the reasonable and supportable forecast period will be determined and documented, as well as the impacts of that decision in different parts of the credit cycle. • Analytical testing of the models was completed and parallel testing started in the second quarter of 2019. • The Company expects the standard will result in earlier recognition of credit losses and an overall increase in the ACL, as it will cover estimated credit losses over the full remaining expected life of loans and commitments and will consider future reasonable and supportable changes in macroeconomic conditions. Since the magnitude of the increase in the Company’s ACL will be impacted by economic conditions, forecasted economic conditions, credit quality and trends in the Company’s portfolio at the time of adoption, the quantitative impact cannot yet be reasonably estimated. • Based on the credit quality of our existing debt securities portfolio, the Company does not expect the allowance for credit losses for HTM and AFS debt securities to be significant.
Disclosure Requirements - Fair Value Measurements Issued August 2018 | • Amends disclosure requirements on fair value measurements. • The guidance eliminates requirements for certain disclosures that are no longer considered relevant or cost beneficial, requires new disclosures and modifies existing disclosures that are expected to enhance the usefulness of the financial statements. • Prospective application is required for new disclosure requirements. • Retrospective application is required for all other amendments for all periods presented. | • Required effective date: January 1, 2020. Early adoption is permitted. The Company does not intend to adopt this guidance prior to the required effective date. • Adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements.

60

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2 - SECURITIES
The following table presents the major components of securities at amortized cost and fair value:

| June 30, 2019 |  | December 31, 2018
(in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |  | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
U.S. Treasury and other |  | $90 |  |  | $— |  |  | $— |  |  | $90 |  |  |  | $24 |  |  | $— |  |  | $— |  |  | $24 |
State and political subdivisions | 5 |  | — |  | — |  | 5 |  |  | 5 |  | — |  | — |  | 5 |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |
Federal agencies and U.S. government sponsored entities | 20,688 |  | 163 |  | (143 | ) | 20,708 |  |  | 20,211 |  | 28 |  | (605 | ) | 19,634 |
Other/non-agency | 871 |  | 28 |  | (4 | ) | 895 |  |  | 236 |  | 3 |  | (7 | ) | 232 |
Total mortgage-backed securities, at fair value | 21,559 |  | 191 |  | (147 | ) | 21,603 |  |  | 20,447 |  | 31 |  | (612 | ) | 19,866 |
Total debt securities available for sale, at fair value |  | $21,654 |  |  | $191 |  |  | ($147 | ) |  | $21,698 |  |  |  | $20,476 |  |  | $31 |  |  | ($612 | ) |  | $19,895 |
Federal agencies and U.S. government sponsored entities |  | $3,447 |  |  | $18 |  |  | ($24 | ) |  | $3,441 |  |  |  | $3,425 |  |  | $— |  |  | ($132 | ) |  | $3,293 |
Other/non-agency | — |  | — |  | — |  | — |  |  | 740 |  | 8 |  | — |  | 748 |
Total mortgage-backed securities, at cost | 3,447 |  | 18 |  | (24 | ) | 3,441 |  |  | 4,165 |  | 8 |  | (132 | ) | 4,041 |
Total debt securities held to maturity |  | $3,447 |  |  | $18 |  |  | ($24 | ) |  | $3,441 |  |  |  | $4,165 |  |  | $8 |  |  | ($132 | ) |  | $4,041 |
Money market mutual fund investments |  | $47 |  |  | $— |  |  | $— |  |  | $47 |  |  |  | $181 |  |  | $— |  |  | $— |  |  | $181 |
Total equity securities, at fair value |  | $47 |  |  | $— |  |  | $— |  |  | $47 |  |  |  | $181 |  |  | $— |  |  | $— |  |  | $181 |
Federal Reserve Bank stock |  | $577 |  |  | $— |  |  | $— |  |  | $577 |  |  |  | $463 |  |  | $— |  |  | $— |  |  | $463 |
Federal Home Loan Bank stock | 121 |  | — |  | — |  | 121 |  |  | 364 |  | — |  | — |  | 364 |
Other equity securities | 8 |  | — |  | — |  | 8 |  |  | 7 |  | — |  | — |  | 7 |
Total equity securities, at cost |  | $706 |  |  | $— |  |  | $— |  |  | $706 |  |  |  | $834 |  |  | $— |  |  | $— |  |  | $834 |

61

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The amortized cost and fair value of debt securities by contractual maturity as of June 30, 2019 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without incurring penalties.

| June 30, 2019
| Distribution of Maturities
(in millions) | 1 Year or Less | 1-5 Years | 5-10 Years | After 10 Years | Total |
Amortized cost: |  |  |  |  |
U.S. Treasury and other |  | $90 |  |  | $— |  |  | $— |  |  | $— |  |  | $90 |
State and political subdivisions | — |  | — |  | — |  | 5 |  | 5 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | 221 |  | 1,717 |  | 18,750 |  | 20,688 |
Other/non-agency | 5 |  | 2 |  | — |  | 864 |  | 871 |
Total debt securities available for sale | 95 |  | 223 |  | 1,717 |  | 19,619 |  | 21,654 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 3,447 |  | 3,447 |
Total debt securities held to maturity | — |  | — |  | — |  | 3,447 |  | 3,447 |
Total amortized cost of debt securities |  | $95 |  |  | $223 |  |  | $1,717 |  |  | $23,066 |  |  | $25,101 |
Fair value: |  |  |  |  |
U.S. Treasury and other |  | $90 |  |  | $— |  |  | $— |  |  | $— |  |  | $90 |
State and political subdivisions | — |  | — |  | — |  | 5 |  | 5 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | 219 |  | 1,735 |  | 18,754 |  | 20,708 |
Other/non-agency | 5 |  | 3 |  | — |  | 887 |  | 895 |
Total debt securities available for sale | 95 |  | 222 |  | 1,735 |  | 19,646 |  | 21,698 |
Mortgage-backed securities: |  |  |  |  |
Federal agencies and U.S. government sponsored entities | — |  | — |  | — |  | 3,441 |  | 3,441 |
Total debt securities held to maturity | — |  | — |  | — |  | 3,441 |  | 3,441 |
Total fair value of debt securities |  | $95 |  |  | $222 |  |  | $1,735 |  |  | $23,087 |  |  | $25,139 |

Taxable interest income from investment securities as presented on the Consolidated Statements of Operations was $164 million and $165 million for the three months ended June 30, 2019 and 2018, respectively, and was $330 million and $333 million for the six months ended June 30, 2019 and 2018, respectively.
Realized gains and losses on securities are presented below:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Gains on sale of debt securities(1) |  | $8 |  |  |  | $2 |  |  |  | $16 |  |  |  | $10 |
Losses on sale of debt securities | — |  |  | — |  |  | — |  |  | — |
Debt securities gains, net |  | $8 |  |  |  | $2 |  |  |  | $16 |  |  |  | $10 |

(1) For the three and six months ended June 30, 2019, $4 million of gains on sale of debt securities were recognized in mortgage banking fees in the Consolidated Statement of Operations as they related to AFS securities held as economic hedges of the value of the MSR portfolio recognized using the amortization method.
62

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The amortized cost and fair value of debt securities pledged are presented below:

| June 30, 2019 |  | December 31, 2018
(in millions) | Amortized Cost | Fair Value |  |  | Amortized Cost | Fair Value |
Pledged against repurchase agreements |  | $291 |  |  | $293 |  |  |  | $344 |  |  | $338 |
Pledged against FHLB borrowed funds | — |  | — |  |  | 745 |  | 752 |
Pledged against derivatives, to qualify for fiduciary powers, and to secure public and other deposits as required by law | 3,632 |  | 3,613 |  |  | 3,592 |  | 3,460 |

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 June 30, 2019 or December 31, 2018. Citizens offsets certain derivative assets and derivative liabilities on the Consolidated Balance Sheets. For further information see Note 9 "Derivatives."
Securitizations of mortgage loans retained in the investment portfolio were $13 million and $29 million for the three months ended June 30, 2019 and 2018, respectively, and $44 million and $55 million for the six months ended June 30, 2019 and 2018, respectively. These securitizations include a substantive guarantee by a third party. In 2019 the guarantors were FNMA, FHLMC, and GNMA. In 2018 the guarantors were FNMA and GNMA. The debt securities received from the guarantors are classified as AFS.
The following tables present mortgage-backed debt securities whose fair values are below carrying values, separated by the duration the securities have been in a continuous unrealized loss position:

| June 30, 2019
| Less than 12 Months |  | 12 Months or Longer |  | Total
(dollars in millions) | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities | 19 |  |  | $882 |  |  | ($1 | ) |  | 349 |  |  | $11,307 |  |  | ($166 | ) |  | 368 |  |  | $12,189 |  |  | ($167 | )
Other/non-agency | — |  | — |  | — |  |  | 7 |  | 41 |  | (4 | ) |  | 7 |  | 41 |  | (4 | )
Total | 19 |  |  | $882 |  |  | ($1 | ) |  | 356 |  |  | $11,348 |  |  | ($170 | ) |  | 375 |  |  | $12,230 |  |  | ($171 | )

| December 31, 2018
| Less than 12 Months |  | 12 Months or Longer |  | Total
(dollars in millions) | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses |  | Number of Issues | Fair Value | Gross Unrealized Losses
Federal agencies and U.S. government sponsored entities | 166 |  |  | $4,881 |  |  | ($89 | ) |  | 429 |  |  | $15,124 |  |  | ($648 | ) |  | 595 |  |  | $20,005 |  |  | ($737 | )
Other/non-agency | 10 |  | 139 |  | (1 | ) |  | 11 |  | 72 |  | (6 | ) |  | 21 |  | 211 |  | (7 | )
Total | 176 |  |  | $5,020 |  |  | ($90 | ) |  | 440 |  |  | $15,196 |  |  | ($654 | ) |  | 616 |  |  | $20,216 |  |  | ($744 | )

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 June 30, 2019. 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.
63

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 June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Cumulative balance at beginning of period |  | $78 |  |  |  | $80 |  |  |  | $81 |  |  |  | $80 |
Credit impairments recognized in earnings on debt securities that have been previously impaired | — |  |  | 1 |  |  | 1 |  |  | 2 |
Reductions due to increases in cash flow expectations on impaired debt securities(1) | — |  |  | — |  |  | — |  |  | (1 | )
Reductions for securities sold or matured during the period | (21 | ) |  | — |  |  | (25 | ) |  | — |
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 June 30, 2019 and June 30, 2018 were $57 million and $81 million respectively. There were no credit losses recognized in earnings for the Company’s HTM portfolio as of June 30, 2019 and 2018. For the three months ended June 30, 2019, the Company did no t incur any non-agency MBS credit-related other-than-temporary impairment losses in earnings. For the three months ended June 30, 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million. For the six months ended June 30, 2019 and 2018, the Company incurred non-agency MBS credit-related other-than-temporary impairment losses in earnings of $1 million and $2 million, respectively.
NOTE 3 - LOANS AND LEASES
The Company’s loans and leases are disclosed in portfolio segments and classes as reflected below.

(in millions) | June 30, 2019 |  | December 31, 2018
Commercial(1) |  | $41,156 |  |  |  | $40,857 |
Commercial real estate | 13,123 |  |  | 13,023 |
Leases | 2,684 |  |  | 2,903 |
Total commercial loans and leases | 56,963 |  |  | 56,783 |
Residential mortgages | 19,192 |  |  | 18,978 |
Home equity loans | 938 |  |  | 1,073 |
Home equity lines of credit | 12,266 |  |  | 12,710 |
Home equity loans serviced by others | 348 |  |  | 399 |
Home equity lines of credit serviced by others | 88 |  |  | 104 |
Automobile | 12,000 |  |  | 12,106 |
Education | 9,305 |  |  | 8,900 |
Credit cards | 2,046 |  |  | 1,991 |
Other retail | 3,692 |  |  | 3,616 |
Total retail loans(2) | 59,875 |  |  | 59,877 |
Total loans and leases(3) |  | $116,838 |  |  |  | $116,660 |

(1) SBA loans we service for others of $18 million are not included above. These loans represent the government guaranteed portion of SBA loans sold to outside investors as of June 30, 2019. There were no SBA loans we serviced for others at December 31, 2018.
(2) Mortgage loans we service for others of $72.5 billion and $69.6 billion at June 30, 2019 and December 31, 2018, respectively, are not included above.
(3) LHFS totaling $2.2 billion and $1.3 billion at June 30, 2019 and December 31, 2018, respectively, are not included above.
64

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table shows the composition of LHFS.

| June 30, 2019 |  | December 31, 2018
(in millions) | Residential Mortgages(1) | Commercial(2) | Total |  | Residential Mortgages(1) | Commercial(2) | Total
Loans held for sale at fair value |  | $1,615 |  |  | $135 |  |  | $1,750 |  |  |  | $967 |  |  | $252 |  |  | $1,219 |
Other loans held for sale | — |  | 455 |  | 455 |  |  | — |  | 101 |  | 101 |

(1) Originated for sale.
(2) LHFS at fair value consist of loans managed by the Company’s commercial secondary loan desk. Other LHFS 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 $24.4 billion and $25.6 billion at June 30, 2019 and December 31, 2018, respectively. 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 $18.6 billion and $16.8 billion at June 30, 2019 and December 31, 2018, respectively.
During the three months ended June 30, 2019 and 2018, the Company purchased $99 million and $223 million of education loans. During the six months ended June 30, 2019 and 2018, the Company purchased $300 million and $223 million of education loans, respectively.
The Company sold $492 million of residential mortgages during the three months ended June 30, 2019. During the six months ended June 30, 2019, the Company sold $182 million of commercial loans and $628 million of retail loans, including $22 million of TDR sales. During the three and six months ended June 30, 2018 the Company had $353 million and $553 million of commercial loan sales, respectively.
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) | June 30, 2019
Total future minimum lease rentals |  | $1,823 |
Estimated residual value of leased equipment (non-guaranteed) | 1,071 |
Initial direct costs | 12 |
Unearned income | (244 | )
Total leases |  | $2,662 |

Interest income on direct financing leases for the three months and six months ended June 30, 2019 was $20 million and $40 million, respectively, and is reported within interest and fees on loans and leases in the Consolidated Statements of Operations.
65

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A maturity analysis of direct financing lease receivables at June 30, 2019 is presented below:

(in millions) |
2019 |  | $290 |
2020 | 458 |
2021 | 345 |
2022 | 266 |
2023 | 191 |
Thereafter | 273 |
Total undiscounted future minimum lease rentals |  | $1,823 |

NOTE 4 - ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK
The ACL consists of the ALLL and the reserve for unfunded commitments. It is adjusted through a provision for credit losses that is charged to earnings, based on 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. See Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018, for a detailed discussion of the ALLL reserve methodology and estimation techniques.
On a quarterly basis, the Company reviews and refines its estimate of the ACL, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. As of June 30, 2019, there were no material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s ALLL and the reserve for unfunded lending commitments.
A summary of changes in the ACL is presented below:

| Three Months Ended June 30, 2019 |  | Six Months Ended June 30, 2019
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Allowance for loan and lease losses, beginning of period |  | $691 |  |  | $554 |  |  | $1,245 |  |  |  | $690 |  |  | $552 |  |  | $1,242 |
Charge-offs | (45 | ) | (111 | ) | (156 | ) |  | (71 | ) | (223 | ) | (294 | )
Recoveries | 12 |  | 38 |  | 50 |  |  | 14 |  | 85 |  | 99 |
Net charge-offs | (33 | ) | (73 | ) | (106 | ) |  | (57 | ) | (138 | ) | (195 | )
Provision charged to income | 22 |  | 66 |  | 88 |  |  | 47 |  | 133 |  | 180 |
Allowance for loan and lease losses, end of period | 680 |  | 547 |  | 1,227 |  |  | 680 |  | 547 |  | 1,227 |
Reserve for unfunded lending commitments, beginning of period | 84 |  | — |  | 84 |  |  | 91 |  | — |  | 91 |
Provision for unfunded lending commitments | 9 |  | — |  | 9 |  |  | 2 |  | — |  | 2 |
Reserve for unfunded lending commitments, end of period | 93 |  | — |  | 93 |  |  | 93 |  | — |  | 93 |
Total allowance for credit losses, end of period |  | $773 |  |  | $547 |  |  | $1,320 |  |  |  | $773 |  |  | $547 |  |  | $1,320 |

66

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

| Three Months Ended June 30, 2018 |  | Six Months Ended June 30, 2018
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Allowance for loan and lease losses, beginning of period |  | $711 |  |  | $535 |  |  | $1,246 |  |  |  | $685 |  |  | $551 |  |  | $1,236 |
Charge-offs | (14 | ) | (106 | ) | (120 | ) |  | (17 | ) | (219 | ) | (236 | )
Recoveries | 2 |  | 42 |  | 44 |  |  | 8 |  | 82 |  | 90 |
Net charge-offs | (12 | ) | (64 | ) | (76 | ) |  | (9 | ) | (137 | ) | (146 | )
Provision charged to income | 16 |  | 67 |  | 83 |  |  | 39 |  | 124 |  | 163 |
Allowance for loan and lease losses, end of period | 715 |  | 538 |  | 1,253 |  |  | 715 |  | 538 |  | 1,253 |
Reserve for unfunded lending commitments, beginning of period | 86 |  | — |  | 86 |  |  | 88 |  | — |  | 88 |
Provision for unfunded lending commitments | 2 |  | — |  | 2 |  |  | — |  | — |  | — |
Reserve for unfunded lending commitments, end of period | 88 |  | — |  | 88 |  |  | 88 |  | — |  | 88 |
Total allowance for credit losses, end of period |  | $803 |  |  | $538 |  |  | $1,341 |  |  |  | $803 |  |  | $538 |  |  | $1,341 |

The recorded investment in loans and leases based on the Company’s evaluation methodology is presented below:

| June 30, 2019 |  | December 31, 2018
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Individually evaluated |  | $314 |  |  | $686 |  |  | $1,000 |  |  |  | $391 |  |  | $723 |  |  | $1,114 |
Formula-based evaluation | 56,649 |  | 59,189 |  | 115,838 |  |  | 56,392 |  | 59,154 |  | 115,546 |
Total loans and leases |  | $56,963 |  |  | $59,875 |  |  | $116,838 |  |  |  | $56,783 |  |  | $59,877 |  |  | $116,660 |

A summary of the ACL by evaluation methodology is presented below:

| June 30, 2019 |  | December 31, 2018
(in millions) | Commercial |  | Retail |  | Total |  |  | Commercial |  | Retail |  | Total |
Individually evaluated |  | $34 |  |  | $25 |  |  | $59 |  |  |  | $38 |  |  | $26 |  |  | $64 |
Formula-based evaluation | 739 |  | 522 |  | 1,261 |  |  | 743 |  | 526 |  | 1,269 |
Allowance for credit losses |  | $773 |  |  | $547 |  |  | $1,320 |  |  |  | $781 |  |  | $552 |  |  | $1,333 |

For commercial loans and leases, Citizens utilizes regulatory classification ratings to monitor credit quality. For additional information on regulatory classification ratings, see Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
The recorded investment in commercial loans and leases based on regulatory classification ratings is presented below:

| June 30, 2019
|  | Criticized |
(in millions) | Pass |  | Special Mention | Substandard |  | Doubtful |  | Total |
Commercial |  | $39,011 |  |  | $1,174 |  |  | $770 |  |  | $201 |  |  | $41,156 |
Commercial real estate | 12,705 |  | 377 |  | 38 |  | 3 |  | 13,123 |
Leases | 2,578 |  | 46 |  | 43 |  | 17 |  | 2,684 |
Total commercial loans and leases |  | $54,294 |  |  | $1,597 |  |  | $851 |  |  | $221 |  |  | $56,963 |

67

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

| December 31, 2018
|  | Criticized |
(in millions) | Pass |  | Special Mention | Substandard |  | Doubtful |  | Total |
Commercial |  | $38,600 |  |  | $1,231 |  |  | $828 |  |  | $198 |  |  | $40,857 |
Commercial real estate | 12,523 |  | 412 |  | 82 |  | 6 |  | 13,023 |
Leases | 2,823 |  | 39 |  | 41 |  | — |  | 2,903 |
Total commercial loans and leases |  | $53,946 |  |  | $1,682 |  |  | $951 |  |  | $204 |  |  | $56,783 |

The recorded investment in classes of retail loans, categorized by delinquency status is presented below:

| June 30, 2019
|  | Days Past Due
(in millions) | Current |  | 1-29 | 30-59 | 60-89 | 90 or More | Total |
Residential mortgages |  | $18,882 |  |  | $129 |  |  | $32 |  |  | $15 |  |  | $134 |  |  | $19,192 |
Home equity loans | 825 |  | 73 |  | 11 |  | 5 |  | 24 |  | 938 |
Home equity lines of credit | 11,652 |  | 372 |  | 58 |  | 31 |  | 153 |  | 12,266 |
Home equity loans serviced by others | 301 |  | 26 |  | 5 |  | 3 |  | 13 |  | 348 |
Home equity lines of credit serviced by others | 60 |  | 14 |  | 2 |  | 1 |  | 11 |  | 88 |
Automobile | 10,630 |  | 1,083 |  | 201 |  | 67 |  | 19 |  | 12,000 |
Education | 9,089 |  | 166 |  | 25 |  | 13 |  | 12 |  | 9,305 |
Credit cards | 1,935 |  | 67 |  | 15 |  | 9 |  | 20 |  | 2,046 |
Other retail | 3,528 |  | 97 |  | 30 |  | 21 |  | 16 |  | 3,692 |
Total retail loans |  | $56,902 |  |  | $2,027 |  |  | $379 |  |  | $165 |  |  | $402 |  |  | $59,875 |

| December 31, 2018
|  | Days Past Due
(in millions) | Current |  | 1-29 | 30-59 | 60-89 | 90 or More | Total |
Residential mortgages |  | $18,664 |  |  | $131 |  |  | $37 |  |  | $13 |  |  | $133 |  |  | $18,978 |
Home equity loans | 945 |  | 75 |  | 12 |  | 3 |  | 38 |  | 1,073 |
Home equity lines of credit | 12,042 |  | 386 |  | 65 |  | 22 |  | 195 |  | 12,710 |
Home equity loans serviced by others | 355 |  | 21 |  | 7 |  | 3 |  | 13 |  | 399 |
Home equity lines of credit serviced by others | 79 |  | 15 |  | 2 |  | 1 |  | 7 |  | 104 |
Automobile | 10,729 |  | 1,039 |  | 207 |  | 59 |  | 72 |  | 12,106 |
Education | 8,694 |  | 159 |  | 23 |  | 13 |  | 11 |  | 8,900 |
Credit cards | 1,894 |  | 53 |  | 14 |  | 10 |  | 20 |  | 1,991 |
Other retail | 3,481 |  | 76 |  | 26 |  | 18 |  | 15 |  | 3,616 |
Total retail loans |  | $56,883 |  |  | $1,955 |  |  | $393 |  |  | $142 |  |  | $504 |  |  | $59,877 |

68

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nonperforming Assets
The following table presents nonperforming loans and leases and loans accruing and 90 days or more past due:

| Nonperforming |  | Accruing and 90 days or more past due
(in millions) | June 30, 2019 |  | December 31, 2018 |  | June 30, 2019 |  | December 31, 2018
Commercial |  | $198 |  |  |  | $194 |  |  |  | $4 |  |  |  | $1 |
Commercial real estate | 4 |  |  | 7 |  |  | — |  |  | — |
Leases | 17 |  |  | — |  |  | 1 |  |  | — |
Total commercial loans and leases | 219 |  |  | 201 |  |  | 5 |  |  | 1 |
Residential mortgages (1)(2) | 141 |  |  | 136 |  |  | 14 |  |  | 15 |
Home equity loans | 38 |  |  | 50 |  |  | — |  |  | — |
Home equity lines of credit | 210 |  |  | 231 |  |  | — |  |  | — |
Home equity loans serviced by others | 16 |  |  | 17 |  |  | — |  |  | — |
Home equity lines of credit serviced by others | 14 |  |  | 15 |  |  | — |  |  | — |
Automobile | 62 |  |  | 81 |  |  | — |  |  | — |
Education | 40 |  |  | 38 |  |  | 3 |  |  | 2 |
Credit card | 20 |  |  | 20 |  |  | — |  |  | — |
Other retail | 10 |  |  | 8 |  |  | 9 |  |  | 7 |
Total retail loans | 551 |  |  | 596 |  |  | 26 |  |  | 24 |
Total |  | $770 |  |  |  | $797 |  |  |  | $31 |  |  |  | $25 |

(1) Nonperforming balances exclude first lien residential mortgage loans which are accruing and 90 days or more past due that are 100% guaranteed by the Federal Housing Administration. These loans totaled $11 million and $12 million as of June 30, 2019 and December 31, 2018, respectively.
(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 $158 million and $133 million as of June 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 $32 million and $34 million as of June 30, 2019 and December 31, 2018, respectively.
A summary of nonperforming loan and lease key performance indicators is presented below:

| June 30, 2019 |  | December 31, 2018
Nonperforming commercial loans and leases as a percentage of total loans and leases | 0.19 | % |  | 0.17 | %
Nonperforming retail loans as a percentage of total loans and leases | 0.47 |  |  | 0.51 |
Nonperforming loans and leases as a percentage of total loans and leases | 0.66 | % |  | 0.68 | %
Nonperforming commercial assets as a percentage of total assets | 0.13 | % |  | 0.13 | %
Nonperforming retail assets as a percentage of total assets | 0.36 |  |  | 0.39 |
Nonperforming assets as a percentage of total assets | 0.49 | % |  | 0.52 | %

The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process was $174 million and $172 million as of June 30, 2019 and December 31, 2018, respectively.
69

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:

| June 30, 2019 |  | December 31, 2018
| Days Past Due |  | Days Past Due
(in millions) | 30-59 | 60-89 | 90 or More | Total |  |  | 30-59 | 60-89 | 90 or More | Total |
Commercial |  | $12 |  |  | $17 |  |  | $51 |  |  | $80 |  |  |  | $85 |  |  | $3 |  |  | $78 |  |  | $166 |
Commercial real estate | — |  | 6 |  | 2 |  | 8 |  |  | 8 |  | 32 |  | 5 |  | 45 |
Leases | 1 |  | — |  | 1 |  | 2 |  |  | 7 |  | — |  | — |  | 7 |
Total commercial loans and leases | 13 |  | 23 |  | 54 |  | 90 |  |  | 100 |  | 35 |  | 83 |  | 218 |
Residential mortgages | 32 |  | 15 |  | 134 |  | 181 |  |  | 37 |  | 13 |  | 133 |  | 183 |
Home equity loans | 11 |  | 5 |  | 24 |  | 40 |  |  | 12 |  | 3 |  | 38 |  | 53 |
Home equity lines of credit | 58 |  | 31 |  | 153 |  | 242 |  |  | 65 |  | 22 |  | 195 |  | 282 |
Home equity loans serviced by others | 5 |  | 3 |  | 13 |  | 21 |  |  | 7 |  | 3 |  | 13 |  | 23 |
Home equity lines of credit serviced by others | 2 |  | 1 |  | 11 |  | 14 |  |  | 2 |  | 1 |  | 7 |  | 10 |
Automobile | 201 |  | 67 |  | 19 |  | 287 |  |  | 207 |  | 59 |  | 72 |  | 338 |
Education | 25 |  | 13 |  | 12 |  | 50 |  |  | 23 |  | 13 |  | 11 |  | 47 |
Credit cards | 15 |  | 9 |  | 20 |  | 44 |  |  | 14 |  | 10 |  | 20 |  | 44 |
Other retail | 30 |  | 21 |  | 16 |  | 67 |  |  | 26 |  | 18 |  | 15 |  | 59 |
Total retail loans | 379 |  | 165 |  | 402 |  | 946 |  |  | 393 |  | 142 |  | 504 |  | 1,039 |
Total |  | $392 |  |  | $188 |  |  | $456 |  |  | $1,036 |  |  |  | $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:

| June 30, 2019
(in millions) | Impaired Loans With a Related Allowance | Allowance on Impaired Loans | Impaired Loans Without a Related Allowance | Unpaid Contractual Balance | Total Recorded Investment in Impaired Loans
Commercial |  | $170 |  |  | $34 |  |  | $118 |  |  | $359 |  |  | $288 |
Commercial real estate | — |  | — |  | 26 |  | 26 |  | 26 |
Total commercial loans | 170 |  | 34 |  | 144 |  | 385 |  | 314 |
Residential mortgages | 25 |  | 2 |  | 122 |  | 192 |  | 147 |
Home equity loans | 26 |  | 2 |  | 70 |  | 130 |  | 96 |
Home equity lines of credit | 23 |  | 2 |  | 178 |  | 242 |  | 201 |
Home equity loans serviced by others | 19 |  | 1 |  | 17 |  | 48 |  | 36 |
Home equity lines of credit serviced by others | 1 |  | — |  | 6 |  | 10 |  | 7 |
Automobile | 1 |  | — |  | 21 |  | 31 |  | 22 |
Education | 121 |  | 9 |  | 23 |  | 144 |  | 144 |
Credit cards | 26 |  | 8 |  | 1 |  | 27 |  | 27 |
Other retail | 3 |  | 1 |  | 3 |  | 7 |  | 6 |
Total retail loans | 245 |  | 25 |  | 441 |  | 831 |  | 686 |
Total |  | $415 |  |  | $59 |  |  | $585 |  |  | $1,216 |  |  | $1,000 |

70

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

| December 31, 2018
(in millions) | Impaired Loans With a Related Allowance | Allowance on Impaired Loans | Impaired Loans Without a Related Allowance | Unpaid Contractual Balance | Total Recorded Investment in Impaired Loans
Commercial |  | $186 |  |  | $31 |  |  | $167 |  |  | $450 |  |  | $353 |
Commercial real estate | 32 |  | 7 |  | 6 |  | 38 |  | 38 |
Total commercial loans | 218 |  | 38 |  | 173 |  | 488 |  | 391 |
Residential mortgages | 28 |  | 2 |  | 127 |  | 201 |  | 155 |
Home equity loans | 34 |  | 3 |  | 76 |  | 148 |  | 110 |
Home equity lines of credit | 21 |  | 1 |  | 181 |  | 244 |  | 202 |
Home equity loans serviced by others | 22 |  | 1 |  | 19 |  | 54 |  | 41 |
Home equity lines of credit serviced by others | 1 |  | — |  | 7 |  | 11 |  | 8 |
Automobile | 1 |  | — |  | 22 |  | 31 |  | 23 |
Education | 130 |  | 11 |  | 23 |  | 153 |  | 153 |
Credit cards | 24 |  | 7 |  | 1 |  | 25 |  | 25 |
Other retail | 4 |  | 1 |  | 2 |  | 8 |  | 6 |
Total retail loans | 265 |  | 26 |  | 458 |  | 875 |  | 723 |
Total |  | $483 |  |  | $64 |  |  | $631 |  |  | $1,363 |  |  | $1,114 |

Additional information on impaired loans is presented below:

| Three Months Ended June 30,
| 2019 |  | 2018
(in millions) | Interest Income Recognized | Average Recorded Investment |  | Interest Income Recognized | Average Recorded Investment
Commercial |  | $2 |  |  | $310 |  |  |  | $2 |  |  | $332 |
Commercial real estate | 1 |  | 27 |  |  | — |  | 36 |
Total commercial loans | 3 |  | 337 |  |  | 2 |  | 368 |
Residential mortgages | 2 |  | 145 |  |  | 2 |  | 152 |
Home equity loans | 1 |  | 97 |  |  | 1 |  | 112 |
Home equity lines of credit | 2 |  | 199 |  |  | 2 |  | 198 |
Home equity loans serviced by others | — |  | 36 |  |  | — |  | 46 |
Home equity lines of credit serviced by others | — |  | 7 |  |  | — |  | 9 |
Automobile | — |  | 22 |  |  | — |  | 22 |
Education | 2 |  | 145 |  |  | 2 |  | 165 |
Credit cards | 1 |  | 25 |  |  | 1 |  | 24 |
Other retail | — |  | 6 |  |  | — |  | 8 |
Total retail loans | 8 |  | 682 |  |  | 8 |  | 736 |
Total |  | $11 |  |  | $1,019 |  |  |  | $10 |  |  | $1,104 |

71

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

| Six Months Ended June 30,
| 2019 |  | 2018
(in millions) | Interest Income Recognized | Average Recorded Investment |  | Interest Income Recognized | Average Recorded Investment
Commercial |  | $5 |  |  | $304 |  |  |  | $4 |  |  | $311 |
Commercial real estate | 1 |  | 27 |  |  | — |  | 32 |
Total commercial loans | 6 |  | 331 |  |  | 4 |  | 343 |
Residential mortgages | 3 |  | 142 |  |  | 3 |  | 149 |
Home equity loans | 3 |  | 97 |  |  | 3 |  | 112 |
Home equity lines of credit | 4 |  | 193 |  |  | 4 |  | 192 |
Home equity loans serviced by others | 1 |  | 37 |  |  | 1 |  | 47 |
Home equity lines of credit serviced by others | — |  | 7 |  |  | — |  | 9 |
Automobile | — |  | 21 |  |  | — |  | 21 |
Education | 4 |  | 145 |  |  | 4 |  | 165 |
Credit cards | 1 |  | 24 |  |  | 1 |  | 23 |
Other retail | — |  | 6 |  |  | — |  | 8 |
Total retail loans | 16 |  | 672 |  |  | 16 |  | 726 |
Total |  | $22 |  |  | $1,003 |  |  |  | $20 |  |  | $1,069 |

Troubled Debt Restructurings
TDR is the classification given to a loan that has been restructured in a manner that grants a concession to a borrower experiencing financial hardship that we would not otherwise make. For additional information on regulatory classification ratings, see Note 5 “Allowance for Credit Losses, Nonperforming Assets, and Concentrations of Credit Risk” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
The table below summarizes TDRs by class and total unfunded commitments:

(in millions) | June 30, 2019 |  | December 31, 2018
Commercial |  | $253 |  |  |  | $304 |
Retail | 686 |  |  | 723 |
Unfunded commitments related to TDRs | 70 |  |  | 30 |

72

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The table below summarizes how loans were modified during the three months and six months ended June 30, 2019 and 2018. The reported balances represent the post-modification outstanding recorded investment 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 June 30, 2019
| Primary Modification Types
| Interest Rate Reduction 1 |  | Maturity Extension 2 |  | Other 3
(dollars in millions) | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment
Commercial | 1 |  |  | $— |  |  | 7 |  |  | $— |  |  | 6 |  |  | $47 |
Commercial real estate | — |  | — |  |  | 1 |  | — |  |  | — |  | — |
Total commercial loans | 1 |  | — |  |  | 8 |  | — |  |  | 6 |  | 47 |
Residential mortgages | 9 |  | 2 |  |  | 10 |  | 1 |  |  | 32 |  | 5 |
Home equity loans | 6 |  | 1 |  |  | — |  | — |  |  | 18 |  | 1 |
Home equity lines of credit | 43 |  | 4 |  |  | 15 |  | 3 |  |  | 77 |  | 4 |
Home equity loans serviced by others | — |  | — |  |  | — |  | — |  |  | 3 |  | 1 |
Home equity lines of credit serviced by others | — |  | — |  |  | — |  | — |  |  | 2 |  | — |
Automobile | 40 |  | 1 |  |  | 7 |  | — |  |  | 335 |  | 5 |
Education | — |  | — |  |  | — |  | — |  |  | 13 |  | 1 |
Credit cards | 941 |  | 5 |  |  | — |  | — |  |  | 141 |  | — |
Other retail | — |  | — |  |  | — |  | — |  |  | 2 |  | — |
Total retail loans | 1,039 |  | 13 |  |  | 32 |  | 4 |  |  | 623 |  | 17 |
Total | 1,040 |  |  | $13 |  |  | 40 |  |  | $4 |  |  | 629 |  |  | $64 |

| Three Months Ended June 30, 2018
| Primary Modification Types
| Interest Rate Reduction 1 |  | Maturity Extension 2 |  | Other 3
(dollars in millions) | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment
Commercial | 4 |  |  | $1 |  |  | 4 |  |  | $— |  |  | 17 |  |  | $59 |
Commercial real estate | — |  | — |  |  | — |  | — |  |  | 2 |  | 31 |
Total commercial loans | 4 |  | 1 |  |  | 4 |  | — |  |  | 19 |  | 90 |
Residential mortgages | 16 |  | 2 |  |  | 23 |  | 3 |  |  | 33 |  | 5 |
Home equity loans | 11 |  | 1 |  |  | 1 |  | — |  |  | 34 |  | 1 |
Home equity lines of credit | 13 |  | 1 |  |  | 47 |  | 6 |  |  | 113 |  | 7 |
Home equity loans serviced by others | — |  | — |  |  | — |  | — |  |  | 8 |  | — |
Home equity lines of credit serviced by others | 2 |  | — |  |  | 1 |  | — |  |  | 2 |  | — |
Automobile | 41 |  | 1 |  |  | 16 |  | — |  |  | 309 |  | 5 |
Education | — |  | — |  |  | — |  | — |  |  | 139 |  | 3 |
Credit cards | 559 |  | 3 |  |  | — |  | — |  |  | — |  | — |
Other retail | — |  | — |  |  | — |  | — |  |  | — |  | — |
Total retail loans | 642 |  | 8 |  |  | 88 |  | 9 |  |  | 638 |  | 21 |
Total | 646 |  |  | $9 |  |  | 92 |  |  | $9 |  |  | 657 |  |  | $111 |

73

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

| Six Months Ended June 30, 2019
| Primary Modification Types
| Interest Rate Reduction 1 |  | Maturity Extension 2 |  | Other 3
(dollars in millions) | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment
Commercial | 1 |  |  | $— |  |  | 12 |  |  | $1 |  |  | 18 |  |  | $87 |
Commercial real estate | — |  | — |  |  | 1 |  | — |  |  | — |  | — |
Total commercial loans | 1 |  | — |  |  | 13 |  | 1 |  |  | 18 |  | 87 |
Residential mortgages | 13 |  | 4 |  |  | 21 |  | 3 |  |  | 62 |  | 9 |
Home equity loans | 13 |  | 1 |  |  | — |  | — |  |  | 45 |  | 2 |
Home equity lines of credit | 72 |  | 8 |  |  | 50 |  | 9 |  |  | 182 |  | 12 |
Home equity loans serviced by others | — |  | — |  |  | — |  | — |  |  | 7 |  | 1 |
Home equity lines of credit serviced by others | — |  | — |  |  | — |  | — |  |  | 4 |  | — |
Automobile | 65 |  | 1 |  |  | 12 |  | — |  |  | 624 |  | 9 |
Education | — |  | — |  |  | — |  | — |  |  | 80 |  | 3 |
Credit cards | 1,557 |  | 9 |  |  | — |  | — |  |  | 141 |  | — |
Other retail | — |  | — |  |  | — |  | — |  |  | 3 |  | — |
Total retail loans | 1,720 |  | 23 |  |  | 83 |  | 12 |  |  | 1,148 |  | 36 |
Total | 1,721 |  |  | $23 |  |  | 96 |  |  | $13 |  |  | 1,166 |  |  | $123 |

| Six Months Ended June 30, 2018
| Primary Modification Types
| Interest Rate Reduction 1 |  | Maturity Extension 2 |  | Other 3
(dollars in millions) | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment |  | Number of Contracts | Recorded Investment
Commercial | 5 |  |  | $1 |  |  | 10 |  |  | $1 |  |  | 35 |  |  | $134 |
Commercial real estate | — |  | — |  |  | 1 |  | — |  |  | 2 |  | 31 |
Total commercial loans | 5 |  | 1 |  |  | 11 |  | 1 |  |  | 37 |  | 165 |
Residential mortgages | 23 |  | 3 |  |  | 30 |  | 4 |  |  | 86 |  | 11 |
Home equity loans | 22 |  | 2 |  |  | 1 |  | — |  |  | 66 |  | 3 |
Home equity lines of credit | 28 |  | 2 |  |  | 89 |  | 11 |  |  | 206 |  | 14 |
Home equity loans serviced by others | 1 |  | — |  |  | — |  | — |  |  | 15 |  | — |
Home equity lines of credit serviced by others | 4 |  | — |  |  | 1 |  | — |  |  | 5 |  | — |
Automobile | 77 |  | 2 |  |  | 33 |  | 1 |  |  | 578 |  | 9 |
Education | — |  | — |  |  | — |  | — |  |  | 251 |  | 4 |
Credit cards | 1,153 |  | 6 |  |  | — |  | — |  |  | — |  | — |
Other retail | 1 |  | — |  |  | — |  | — |  |  | 4 |  | — |
Total retail loans | 1,309 |  | 15 |  |  | 154 |  | 16 |  |  | 1,211 |  | 41 |
Total | 1,314 |  |  | $16 |  |  | 165 |  |  | $17 |  |  | 1,248 |  |  | $206 |

(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 June 30, 2019 and 2018 was $2 million and $1 million, respectively. The net change to ALLL resulting from modifications of loans for the six months ended June 30, 2019 and 2018 was $4 million and $2 million, respectively. Charge-offs may also be recorded on TDRs. Citizens recorded $1 million of charge-offs resulting from the modification of loans in the three months ended June 30, 2019 and 2018, and $2 million in the six months ended June 30, 2019 and 2018.
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 June 30, 2019 and 2018. For commercial loans, recorded investment in TDRs that defaulted within 12 months of their modification date for the three months ended June 30, 2019 and 2018 were $1 million and $17 million, respectively, and $1 million and $20 million for the six months ended June 30, 2019 and 2018, respectively. For retail loans, there were $10 million and $10 million of loans which defaulted within 12 months of their restructuring date for the three months ended June 30, 2019 and 2018, respectively, and there were $19 million of loans which defaulted within 12 months of their restructuring date for the six months ended June 30, 2019 and 2018.
74

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 June 30, 2019 and December 31, 2018, Citizens had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company’s policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.
Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics. The following tables present balances of loans with these characteristics:

| June 30, 2019
(in millions) | Residential Mortgages | Home Equity Loans and Lines of Credit | Home Equity Products Serviced by Others | Credit Cards |  | Total |
High loan-to-value |  | $441 |  |  | $78 |  |  | $125 |  |  | $— |  |  | $644 |
Interest-only/negative amortization | 1,765 |  | — |  | — |  | — |  | 1,765 |
Low introductory rate | — |  | — |  | — |  | 221 |  | 221 |
Multiple characteristics and other | 3 |  | — |  | — |  | — |  | 3 |
Total |  | $2,209 |  |  | $78 |  |  | $125 |  |  | $221 |  |  | $2,633 |

| December 31, 2018
(in millions) | Residential Mortgages | Home Equity Loans and Lines of Credit | Home Equity Products Serviced by Others | Credit Cards |  | Education |  | Total |
High loan-to-value |  | $318 |  |  | $87 |  |  | $148 |  |  | $— |  |  | $— |  |  | $553 |
Interest-only/negative amortization | 1,794 |  | — |  | — |  | — |  | 1 |  | 1,795 |
Low introductory rate | — |  | — |  | — |  | 217 |  | — |  | 217 |
Multiple characteristics and other | 1 |  | — |  | — |  | — |  | — |  | 1 |
Total |  | $2,113 |  |  | $87 |  |  | $148 |  |  | $217 |  |  | $1 |  |  | $2,566 |

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.
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CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 for the three and six months ended June 30, 2019 and 2018.

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Residential mortgage loans sold with servicing retained |  | $4,229 |  |  |  | $670 |  |  |  | $7,148 |  |  |  | $1,325 |
Gain on sales (1) | 55 |  |  | 17 |  |  | 92 |  |  | 30 |
Contractually specified servicing, late and other ancillary fees (1) | 51 |  |  | 16 |  |  | 99 |  |  | 31 |

(1) Reported in mortgage banking fees on the Consolidated Statements of Operations.
In connection with the August 1, 2018 acquisition of FAMC, the Company began maintaining two separate classes of MSRs which, at the time of initial capitalization, 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 is accounted for under the amortization method. Beginning January 1, 2019, all of the Company’s newly originated MSRs are accounted for under the fair value method. The Company implemented an active hedging strategy to manage the risk associated with changes in the value of the MSR portfolio accounted for under the fair value method, which includes the purchase of freestanding derivatives. Depending on the interest rate environment, economic hedges may be used to protect the market value of MSRs accounted for under the amortization method. Any 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 for the three and six months ended June 30, 2019 and 2018.

| As of and for the Three Months Ended June 30, |  | As of and for the Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Mortgage servicing rights: |  |  |  |  |  |  |
Balance as of beginning of period |  | $212 |  |  |  | $201 |  |  |  | $221 |  |  |  | $201 |
Amount capitalized | — |  |  | 8 |  |  | — |  |  | 15 |
Purchases | — |  |  | 16 |  |  | — |  |  | 16 |
Amortization | (9 | ) |  | (8 | ) |  | (18 | ) |  | (15 | )
Carrying amount before valuation allowance | 203 |  |  | 217 |  |  | 203 |  |  | 217 |
Valuation allowance for servicing assets: |  |  |  |  |  |  |
Balance as of beginning of period | — |  |  | — |  |  | — |  |  | 3 |
Valuation charge-offs (recoveries) | 14 |  |  | — |  |  | 14 |  |  | (3 | )
Balance at end of period | 14 |  |  | — |  |  | 14 |  |  | — |
Net carrying value of MSRs |  | $189 |  |  |  | $217 |  |  |  | $189 |  |  |  | $217 |

The following table summarizes changes in MSRs recorded using the fair value method for the three months ended June 30, 2019. There were no MSRs recorded using the fair value method for the three or six months ended June 30, 2018.

(in millions) | As of and for the Three Months Ended June 30, 2019 |  | As of and for the Six Months Ended June 30, 2019
Fair value as of beginning of the period |  | $563 |  |  |  | $600 |
Amounts capitalized | 57 |  |  | 92 |
Changes in unpaid principal balance during the period (1) | (31 | ) |  | (57 | )
Changes in fair value during the period (2) | (58 | ) |  | (104 | )
Fair value at end of the period |  | $531 |  |  |  | $531 |

(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.
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CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 analyses below present 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 dependent upon movements in market interest rates.
For MSRs under the amortization method, key economic assumptions used to estimate the fair value are presented below:

| June 30, 2019 |  | December 31, 2018
| Actual | Decline in fair value due to |  | Actual | Decline in fair value due to
(dollars in millions) |
Fair value | $193 | 50 bps adverse change | 100 bps adverse change |  | $243 | 50 bps adverse change | 100 bps adverse change
Weighted average life (in years) | 5.5 |  | 6.5
Weighted average constant prepayment rate | 11.6% | $29 | $54 |  | 8.5% | $24 | $56
Weighted average discount rate | 9.3% | 4 | 7 |  | 9.3% | 5 | 9

For MSRs under the fair value method, key economic assumptions used to estimate the fair value are presented below:

| June 30, 2019 |  | December 31, 2018
| Actual | Decline in fair value due to |  | Actual | Decline in fair value due to
(dollars in millions) |
Fair value | $531 | 50 bps adverse change | 100 bps adverse change |  | $600 | 50 bps adverse change | 100 bps adverse change
Weighted average life (in years) | 5.5 |  | 8.0
Weighted average constant prepayment rate | 13.8% | $117 | $241 |  | 8.2% | $68 | $148
Weighted average option adjusted spread | 434 bps | 10 | 21 |  | 609 bps | 13 | 26

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 "Derivatives" for additional information.
NOTE 6 - LEASES
The Company determines if an arrangement is a lease at inception and records a right-of-use asset and a corresponding lease liability. A right-of-use asset represents the value of the Company’s contractual right to use an underlying leased asset and a lease liability represents the Company’s contractual obligation to make payments on the same underlying leased asset. Operating and finance lease right-of-use assets and liabilities are recognized at commencement date based on the present value of the lease payments over the non-cancelable lease term. As most of the Company’s leases do not specify an implicit rate, the Company uses an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
In its normal course of business, the Company leases both equipment and real estate, including office and branch space. Lease terms predominantly range from one year to ten years and may include options to extend the lease, terminate the lease, or purchase the underlying asset at the end of the lease. Certain lease agreements include rental payments based on an index or are adjusted periodically for inflation. The Company has lease
77

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
agreements that contain lease and non-lease components and for certain real estate leases, these components are accounted for as a single lease component.
Leases with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance Sheets and are recognized in occupancy expense in the Company’s Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company may also enter into subleases with third parties for certain leased real estate properties that are no longer occupied.
The components of operating lease cost are presented below:

(in millions) | Three Months Ended June 30, 2019 |  | Six Months Ended June 30, 2019
Operating lease cost |  | $41 |  |  |  | $81 |
Short-term lease cost | 3 |  |  | 6 |
Variable lease cost | 2 |  |  | 4 |
Sublease income | (1 | ) |  | (2 | )
Total |  | $45 |  |  |  | $89 |

Operating lease cost is recognized on a straight line basis over the lease term and recorded in occupancy expense on the Consolidated Statements of Operations.
Supplemental Consolidated Balance Sheet information related to the Company’s operating lease arrangements is presented below:

(in millions) | June 30, 2019 | Affected Line Item in Consolidated Balance Sheets
Operating lease right-of-use assets |  | $732 |  | Other assets
Operating lease liabilities | 750 |  | Other liabilities

Supplemental information related to the Company’s operating lease arrangements is presented below:

(in millions) | Six Months Ended June 30, 2019
Cash paid for amounts included in measurement of liabilities: |
Operating cash flows from operating leases |  | $80 |
Right-of-use assets in exchange for new operating lease liabilities | 72 |

The weighted average remaining lease term and weighted average discount rate for operating leases is seven years and 3.23%, respectively.
At June 30, 2019, lease liabilities maturing under non-cancelable operating leases are presented below for the years ended December 31:

(in millions | Operating Leases
2019 |  | $69 |
2020 | 160 |
2021 | 143 |
2022 | 118 |
2023 | 93 |
Thereafter | 262 |
Total lease payments | 845 |
Less interest | 95 |
Present value of lease liabilities |  | $750 |

78

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) | June 30, 2019 |  | December 31, 2018
LIHTC investment included in other assets |  | $1,303 |  |  |  | $1,236 |
LIHTC unfunded commitments included in other liabilities | 659 |  |  | 673 |
Renewable energy investments included in other assets | 311 |  |  | 319 |
Lending to special purpose entities included in loans and leases | 848 |  |  | 613 |

Low Income Housing Tax Credit Partnerships
The purpose of the Company’s equity investments is to assist in achieving the goals of the Community Reinvestment Act and to earn an adequate return of capital. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. Citizens is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, 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 information related to the Company’s affordable housing tax credit investments:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Tax credits included in income tax expense |  | $34 |  |  |  | $26 |  |  |  | $69 |  |  |  | $51 |
Amortization expense included in income tax expense | 35 |  |  | 28 |  |  | 72 |  |  | 55 |
Other tax benefits included in income tax expense | 8 |  |  | 6 |  |  | 16 |  |  | 12 |

No LIHTC investment impairment losses were recognized during the three and six months ended June 30, 2019 and 2018, 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.
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 June 30, 2019 and December 31, 2018, the lending facilities had aggregate unpaid principal balances of $848 million and $613 million, respectively, and undrawn commitments to extend credit of $660 million and $584 million, respectively.
79

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8 - BORROWED FUNDS
A summary of the Company’s short-term borrowed funds is presented below:

(in millions) | June 30, 2019 |  | December 31, 2018
Federal funds purchased |  | $840 |  |  |  | $820 |
Securities sold under agreements to repurchase | 292 |  |  | 336 |
Other short-term borrowed funds | 309 |  |  | 161 |
Total short-term borrowed funds |  | $1,441 |  |  |  | $1,317 |

Key data related to short-term borrowed funds is presented below:

| As of and for the Three Months Ended June 30, |  | As of and for the Six Months Ended June 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 repurchase | 1.93 | % |  | — | % |  | 1.93 | % |  | — | % |  | 1.72 | %
Other short-term borrowed funds | 2.47 |  |  | 3.22 |  |  | 2.47 |  |  | 3.22 |  |  | 2.73 |
Maximum amount outstanding at any month-end during the period: |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase(2) |  | $1,499 |  |  |  | $1,045 |  |  |  | $1,499 |  |  |  | $1,045 |  |  |  | $1,282 |
Other short-term borrowed funds | 508 |  |  | 1,110 |  |  | 511 |  |  | 1,110 |  |  | 1,110 |
Average amount outstanding during the period: |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase(2) |  | $818 |  |  |  | $504 |  |  |  | $729 |  |  |  | $574 |  |  |  | $654 |
Other short-term borrowed funds | 45 |  |  | 191 |  |  | 52 |  |  | 388 |  |  | 467 |
Weighted-average interest rate during the period:(1) |  |  |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase | 1.76 | % |  | 0.71 | % |  | 1.54 | % |  | 0.68 | % |  | 0.92 | %
Other short-term borrowed funds | 2.66 |  |  | 1.90 |  |  | 2.71 |  |  | 1.73 |  |  | 2.10 |

(1) Rates exclude certain hedging costs.
(2) Balances are net of certain short-term receivables associated with reverse repurchase agreements, as applicable.
80

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of the Company’s long-term borrowed funds is presented below:

(in millions) | June 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 2022 | 348 |  |  | 348 |
3.750% fixed-rate subordinated debt, due July 2024 | 250 |  |  | 250 |
4.023% fixed-rate subordinated debt, due October 2024 | 42 |  |  | 42 |
4.350% fixed-rate subordinated debt, due August 2025 | 249 |  |  | 249 |
4.300% fixed-rate subordinated debt, due December 2025 | 750 |  |  | 749 |
Banking and Other Subsidiaries: |  |  |
2.500% senior unsecured notes, due March 2019 (1) | — |  |  | 748 |
2.450% senior unsecured notes, due December 2019 (1) | 747 |  |  | 744 |
2.250% senior unsecured notes, due March 2020 (1) | 698 |  |  | 691 |
3.060% floating-rate senior unsecured notes, due March 2020 (1) (2) | 300 |  |  | 300 |
3.091% floating-rate senior unsecured notes, due May 2020 (1) (2) | 250 |  |  | 250 |
2.200% senior unsecured notes, due May 2020 (1) | 499 |  |  | 499 |
2.250% senior unsecured notes, due October 2020 (1) | 748 |  |  | 738 |
2.550% senior unsecured notes, due May 2021 (1) | 986 |  |  | 964 |
3.250% senior unsecured notes, due February 2022 (1) | 711 |  |  | — |
3.248% floating-rate senior unsecured notes, due February 2022 (1) (2) | 299 |  |  | — |
3.331% floating-rate senior unsecured notes, due May 2022 (1) (2) | 250 |  |  | 249 |
2.650% senior unsecured notes, due May 2022 (1) | 500 |  |  | 487 |
3.700% senior unsecured notes, due March 2023 (1) | 517 |  |  | 502 |
3.280% floating-rate senior unsecured notes, due March 2023 (1) (2) | 249 |  |  | 249 |
3.750% senior unsecured notes, due February 2026 (1) | 521 |  |  | — |
Federal Home Loan Bank advances, 2.575% weighted average rate, due through 2038 | 2,258 |  |  | 7,508 |
Other | 17 |  |  | 9 |
Total long-term borrowed funds |  | $11,538 |  |  |  | $15,925 |

(1) Issued under CBNA’s Global Bank Note Program.
(2) Rate disclosed reflects the floating rate as of June 30, 2019.
The Parent Company’s long-term borrowed funds as of June 30, 2019 and December 31, 2018 included principal balances of $2.0 billion for each period, respectively, and unamortized deferred issuance costs and/or discounts of ($4) million and ($5) million, respectively. The banking and other subsidiaries’ long-term borrowed funds as of June 30, 2019 and December 31, 2018 included principal balances of $9.5 billion and $14.0 billion, respectively, with unamortized deferred issuance costs and/or discounts of ($17) million and ($14) million, respectively, and hedging basis adjustments of $43 million and ($66) million, respectively. See Note 9 "Derivatives" for further information about the Company’s hedging of certain long-term borrowed funds.
Advances, lines of credit, and letters of credit from the FHLB are collateralized by pledged mortgages and pledged securities at least sufficient to satisfy the collateral maintenance level established by the FHLB. The utilized borrowing capacity for FHLB advances and letters of credit was $7.4 billion and $13.0 billion at June 30, 2019 and December 31, 2018, respectively. The Company’s available FHLB borrowing capacity was $9.0 billion and $4.8 billion at June 30, 2019 and December 31, 2018, respectively. Citizens can also borrow from the FRB discount window to meet short-term liquidity requirements. Collateral, including certain loans, is pledged to support this borrowing capacity. At June 30, 2019, the Company’s unused secured borrowing capacity was approximately $42.8 billion, which includes unencumbered securities, FHLB borrowing capacity, and FRB discount window capacity.
81

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of maturities for the Company’s long-term borrowed funds at June 30, 2019 is presented below:

(in millions) | Parent Company | Banking and Other Subsidiaries | Consolidated |
Year |  |  |
2019 |  | $— |  |  | $747 |  |  | $747 |
2020 | — |  | 4,748 |  | 4,748 |
2021 | 349 |  | 992 |  | 1,341 |
2022 | 348 |  | 1,766 |  | 2,114 |
2023 | — |  | 768 |  | 768 |
2024 and thereafter | 1,291 |  | 529 |  | 1,820 |
Total |  | $1,988 |  |  | $9,550 |  |  | $11,538 |

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”), forward sale contracts and purchase options. The Company monitors the results of each transaction to ensure that management’s intent is satisfied. The Company does not use derivatives for speculative purposes.
The Company’s derivative instruments are recognized on the Consolidated Balance Sheets 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 "Fair Value Measurements" to the Company’s unaudited interim Consolidated Financial Statements in the Quarterly Report on Form 10-Q for the period ended March 31, 2019 and Note 19 “Fair Value Measurements” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
The following table presents derivative instruments included on the Consolidated Balance Sheets in derivative assets and derivative liabilities:

| June 30, 2019 |  | December 31, 2018
(in millions) | Notional Amount(1) | Derivative Assets | Derivative Liabilities |  | Notional Amount(1) | Derivative Assets | Derivative Liabilities
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts |  | $25,096 |  |  | $— |  |  | $3 |  |  |  | $12,050 |  |  | $5 |  |  | $— |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate contracts | 133,570 |  | 808 |  | 127 |  |  | 117,076 |  | 301 |  | 277 |
Foreign exchange contracts | 13,431 |  | 132 |  | 116 |  |  | 9,866 |  | 129 |  | 113 |
Other contracts | 8,040 |  | 29 |  | 34 |  |  | 3,555 |  | 14 |  | 25 |
Total derivatives not designated as hedging instruments |  | 969 |  | 277 |  |  |  | 444 |  | 415 |
Gross derivative fair values |  | 969 |  | 280 |  |  |  | 449 |  | 415 |
Less: Gross amounts offset in the Consolidated Balance Sheets (2) |  | (83 | ) | (83 | ) |  |  | (87 | ) | (87 | )
Less: Cash collateral applied (2) |  | (53 | ) | (91 | ) |  |  | (45 | ) | (36 | )
Total net derivative fair values presented in the Consolidated Balance Sheets |  |  | $833 |  |  | $106 |  |  |  |  | $317 |  |  | $292 |

(1) The notional or contractual amount of interest rate derivatives and foreign exchange contracts is the amount upon which interest and other payments under the contract are based. For interest rate contracts, the notional amount is typically not exchanged. Therefore, notional amounts should not be taken as the measure of credit or market risk, as they do not measure the true economic risk of these contracts.
(2) Amounts represent the impact of enforceable master netting agreements that allow the Company to net settle positive and negative positions.
82

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 certain derivative transactions which are designated as fair value or cash flow hedges, described as follows:
Derivatives Designated As Hedging Instruments
The Company’s institutional derivatives portfolio qualifies for hedge accounting treatment. This includes interest rate swaps that are designated as highly effective fair value and cash flow hedging relationships. The Company formally documents at inception all hedging relationships, as well as risk management objectives and strategies for undertaking various accounting hedges. Additionally, Citizens monitors the effectiveness of its hedge relationships during the duration of the hedge relationship. The methods utilized to assess hedge effectiveness vary based on the type of item being hedged. The Company discontinues hedge accounting treatment when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge and then reflects changes in fair value in earnings after termination of the hedge relationship.
Fair Value Hedges
Citizens has outstanding interest rate swap agreements to manage the interest rate exposure on its medium-term borrowings as well as certain fixed rate residential mortgages. The changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded in the same income statement line in the Consolidated Statements of Operations.
The following table reflects 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 June 30, |  | Six Months Ended June 30, |
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  | 2018 | Affected Line Item in the Consolidated Statements of Operations
Change in fair value of interest rate swaps hedging borrowed funds |  | $64 |  |  |  | $12 |  |  |  | $104 |  |  |  | ($26 | ) | Interest expense - borrowed funds
Change in fair value of hedged long-term debt attributable to the risk being hedged | (64 | ) |  | (13 | ) |  | (103 | ) |  | 24 |  | Interest expense - borrowed funds
Change in fair value of interest rate swaps hedging fixed rate loans | (16 | ) |  | — |  |  | (16 | ) |  | — |  | Interest and fees on loans and leases
Change in fair value of hedged fixed rate loans attributable to the risk being hedged | 16 |  |  | — |  |  | 16 |  |  | — |  | Interest and fees on loans and leases

The following table reflects amounts recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:

| June 30, 2019
(in millions) | Residential mortgages | Long-term borrowed funds
Carrying amount of the hedged assets |  | $975 |  |  | $— |
Carrying amount of the hedged liabilities | — |  | 5,249 |
Cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged items(1) | 16 |  | 43 |

(1)The balance reported for long-term borrowed funds includes ($3) million of cumulative hedging adjustments recorded on discontinued fair value hedging relationships.
Cash Flow Hedges
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 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 $11 million in pre-tax net losses 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 June 30, 2019.
83

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the three and six months ended June 30, 2019 and 2018, there were no gains or losses reclassified from OCI to current period earnings (other income) associated with the discontinuance of the Company’s cash flow hedges because it was 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 June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  | 2018(1) |  | 2019 |  | 2018(1)
Amount of pre-tax net gains (losses) recognized in OCI |  | $91 |  |  |  | ($17 | ) |  |  | $143 |  |  |  | ($87 | )
Amount of pre-tax net losses reclassified from OCI into interest income | (20 | ) |  | (13 | ) |  | (40 | ) |  | (19 | )
Amount of pre-tax net gains reclassified from OCI into interest expense | 1 |  |  | 4 |  |  | 1 |  |  | 8 |

(1) For the three and six months ended June 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 customer derivatives are recorded on the Consolidated Balance Sheets at fair value. These include interest rate and foreign exchange derivative contracts that are designed to meet the hedging and financing needs of the Company’s customers. The mark-to-market gains and losses associated with the customer derivatives are mitigated by mark-to-market gains and losses on interest rate and foreign exchange derivative contracts transacted. Citizens also purchases interest rate floors primarily to hedge the exposure related to customer deposit products that have embedded minimum interest rate guarantees. Citizens utilizes interest rate floors in non-qualifying hedging relationships.
The Company’s residential loan derivatives (including residential loan commitments and forward sales contracts) are recorded on the Consolidated Balance Sheets at fair value. Citizens also uses derivatives to hedge the risk of changes in the fair value of its residential 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, AFS securities, interest rate swaptions, interest rate futures and interest rate swaps.
The following table presents the effect of economic hedges on noninterest income:

| Amounts Recognized in Noninterest Income for the |
| Three Months Ended June 30, |  | Six Months Ended June 30, | Affected Line Item in the Consolidated Statements of Operations
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Economic hedge type: |  |  |  |  |  |  |  |
Customer interest rate contracts |  | $425 |  |  |  | ($75 | ) |  |  | $654 |  |  |  | ($279 | ) | Foreign exchange and interest rate products
Customer foreign exchange contracts | (47 | ) |  | (68 | ) |  | (81 | ) |  | (57 | ) | Foreign exchange and interest rate products
Derivatives transactions to hedge interest rate risk | (410 | ) |  | 90 |  |  | (627 | ) |  | 306 |  | Foreign exchange and interest rate products
Derivatives transactions to hedge foreign exchange risk | 54 |  |  | 92 |  |  | 94 |  |  | 75 |  | Foreign exchange and interest rate products
Residential loan commitments | 11 |  |  | 1 |  |  | 16 |  |  | — |  | Mortgage banking fees
Forward sale contracts | (9 | ) |  | (2 | ) |  | (5 | ) |  | (2 | ) | Mortgage banking fees
Interest rate derivative contracts used to hedge residential MSRs | 71 |  |  | — |  |  | 116 |  |  | — |  | Mortgage banking fees
Total |  | $95 |  |  |  | $38 |  |  |  | $167 |  |  |  | $43 |  |

84

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 10 - RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the changes in the balances, net of income taxes, of each component of AOCI:

|  | As of and for the Three Months Ended June 30,
(in millions) | Net Unrealized (Losses) Gains on Derivatives |  | Net Unrealized (Losses) Gains on Debt Securities |  | Employee Benefit Plans |  | Total AOCI
Balance at April 1, 2018 |  | ($193 | ) |  |  | ($514 | ) |  |  | ($438 | ) |  |  | ($1,145 | )
Other comprehensive loss before reclassifications | (13 | ) |  | (60 | ) |  | — |  |  | (73 | )
Other-than-temporary impairment not recognized in earnings on debt securities | — |  |  | — |  |  | — |  |  | — |
Amounts reclassified to the Consolidated Statements of Operations | 6 |  |  | (1 | ) |  | 3 |  |  | 8 |
Net other comprehensive (loss) income | (7 | ) |  | (61 | ) |  | 3 |  |  | (65 | )
Balance at June 30, 2018 |  | ($200 | ) |  |  | ($575 | ) |  |  | ($435 | ) |  |  | ($1,210 | )
Balance at April 1, 2019 |  | ($89 | ) |  |  | ($244 | ) |  |  | ($460 | ) |  |  | ($793 | )
Other comprehensive income before reclassifications | 68 |  |  | 221 |  |  | — |  |  | 289 |
Other-than-temporary impairment not recognized in earnings on debt securities | — |  |  | 1 |  |  | — |  |  | 1 |
Amounts reclassified to the Consolidated Statements of Operations | 15 |  |  | (3 | ) |  | 3 |  |  | 15 |
Net other comprehensive income | 83 |  |  | 219 |  |  | 3 |  |  | 305 |
Balance at June 30, 2019 |  | ($6 | ) |  |  | ($25 | ) |  |  | ($457 | ) |  |  | ($488 | )

|  | As of and for the Six Months Ended June 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 | (65 | ) |  | (332 | ) |  | — |  |  | (397 | )
Other-than-temporary impairment not recognized in earnings on debt securities | — |  |  | (1 | ) |  | — |  |  | (1 | )
Amounts reclassified to the Consolidated Statements of Operations | 8 |  |  | (6 | ) |  | 6 |  |  | 8 |
Net other comprehensive (loss) income | (57 | ) |  | (339 | ) |  | 6 |  |  | (390 | )
Balance at June 30, 2018 |  | ($200 | ) |  |  | ($575 | ) |  |  | ($435 | ) |  |  | ($1,210 | )
Balance at January 1, 2019 |  | ($143 | ) |  |  | ($490 | ) |  |  | ($463 | ) |  |  | ($1,096 | )
Other comprehensive income before reclassifications | 107 |  |  | 467 |  |  | — |  |  | 574 |
Other-than-temporary impairment not recognized in earnings on debt securities | — |  |  | 1 |  |  | — |  |  | 1 |
Amounts reclassified to the Consolidated Statements of Operations | 30 |  |  | (8 | ) |  | 6 |  |  | 28 |
Net other comprehensive income | 137 |  |  | 460 |  |  | 6 |  |  | 603 |
Cumulative effect of change in accounting standards | — |  |  | 5 |  |  | — |  |  | 5 |
Balance at June 30, 2019 |  | ($6 | ) |  |  | ($25 | ) |  |  | ($457 | ) |  |  | ($488 | )

85

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 June 30, |  | Six Months Ended June 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: |  | ($20 | ) |  |  | ($13 | ) |  |  | ($40 | ) |  |  | ($19 | ) | Interest income
| 1 |  |  | 4 |  |  | 1 |  |  | 8 |  | Interest expense
| (19 | ) |  | (9 | ) |  | (39 | ) |  | (11 | ) | Income before income tax expense
| (4 | ) |  | (3 | ) |  | (9 | ) |  | (3 | ) | Income tax expense
|  | ($15 | ) |  |  | ($6 | ) |  |  | ($30 | ) |  |  | ($8 | ) | Net income
Reclassification of net debt securities gains to net income: |  | $4 |  |  |  | $2 |  |  |  | $12 |  |  |  | $10 |  | Securities gains, net
| — |  |  | (1 | ) |  | (1 | ) |  | (2 | ) | Net debt securities impairment losses recognized in earnings
| 4 |  |  | 1 |  |  | 11 |  |  | 8 |  | Income before income tax expense
| 1 |  |  | — |  |  | 3 |  |  | 2 |  | Income tax expense
|  | $3 |  |  |  | $1 |  |  |  | $8 |  |  |  | $6 |  | Net income
Reclassification of changes related to the employee benefit plan: |  | ($4 | ) |  |  | ($4 | ) |  |  | ($9 | ) |  |  | ($8 | ) | Other operating expense
| (4 | ) |  | (4 | ) |  | (9 | ) |  | (8 | ) | Income before income tax expense
| (1 | ) |  | (1 | ) |  | (3 | ) |  | (2 | ) | Income tax expense
|  | ($3 | ) |  |  | ($3 | ) |  |  | ($6 | ) |  |  | ($6 | ) | Net income
Total reclassification losses |  | ($15 | ) |  |  | ($8 | ) |  |  | ($28 | ) |  |  | ($8 | ) | Net income

The following table presents the effects on net income of the amounts reclassified out of AOCI:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net interest income (includes ($19),($9), ($39) and ($11) of AOCI reclassifications, respectively) |  | $1,166 |  |  |  | $1,121 |  |  |  | $2,326 |  |  |  | $2,212 |
Provision for credit losses | 97 |  |  | 85 |  |  | 182 |  |  | 163 |
Noninterest income (includes $4, $1, $11 and $8 of AOCI reclassifications, respectively) | 462 |  |  | 388 |  |  | 890 |  |  | 759 |
Noninterest expense (includes $4, $4, $9 and $8 of AOCI reclassifications, respectively) | 951 |  |  | 875 |  |  | 1,888 |  |  | 1,758 |
Income before income tax expense | 580 |  |  | 549 |  |  | 1,146 |  |  | 1,050 |
Income tax expense (includes ($4), ($4), ($9) and ($3) income tax net expense from reclassification items, respectively) | 127 |  |  | 124 |  |  | 254 |  |  | 237 |
Net income |  | $453 |  |  |  | $425 |  |  |  | $892 |  |  |  | $813 |

86

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:

|  |  | June 30, 2019 |  | December 31, 2018
(in millions, except per share and share data) | Liquidation value per share |  | Preferred Shares |  | Carrying Amount |  | Preferred Shares |  | Carrying Amount
Authorized ($25 par value) |  |  | 100,000,000 |  |  |  |  | 100,000,000 |  |  |
Issued and outstanding: |  |  |  |  |  |  |  |  |
Series A | $1,000 |  | 250,000 |  |  | $247 |  | 250,000 |  |  | $247
Series B | 1,000 |  |  | 300,000 |  | 296 |  |  | 300,000 |  |  | 296 |
Series C | 1,000 |  |  | 300,000 |  |  | 297 |  |  | 300,000 |  |  | 297 |
Series D | 1,000 |  | (1) | 300,000 |  | (2) | 293 |  |  | — |  |  | — |
Total |  |  | 1,150,000 |  |  | $1,133 |  | 850,000 |  |  | $840

(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 June 30, 2019:

(in millions, except share data)
Preferred Stock(1) | Issue Date | Number of Shares Outstanding | Dividend Dates(2) | Annual Per Share Dividend Rate | Optional Redemption Date(3)
Series A | April 6, 2015 | 250,000 | Semi-annually beginning October 6, 2015 until April 6, 2020 | 5.500% until April 6, 2020 | April 6, 2020
|  |  | Quarterly beginning July 6, 2020 | 3 Mo. LIBOR plus 3.960% beginning April 6, 2020 |
Series B | May 24, 2018 | 300,000 | Semi-annually beginning January 6, 2019 until July 6, 2023 | 6.000% until July 6, 2023 | July 6, 2023
|  |  | Quarterly beginning October 6, 2023 | 3 Mo. LIBOR plus 3.003% beginning July 6, 2023 |
Series C | October 25, 2018 | 300,000 | Quarterly beginning January 6, 2019 until April 6, 2024 | 6.375% until April 6, 2024 | April 6, 2024
|  |  | Quarterly beginning July 6, 2024 | 3 Mo. LIBOR plus 3.157% beginning April 6, 2024 |
Series D | January 29, 2019 | 300,000(4) | Quarterly beginning April 6, 2019 until April 6, 2024 | 6.350% until April 6, 2024 | April 6, 2024
|  |  | Quarterly beginning July 6, 2024 | 3 Mo. LIBOR plus 3.642% beginning April 6, 2024 |

(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 12,000,000 depositary shares each representing a 1/40th interest in the Series D Preferred Stock.
87

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 June 30, 2019 |  | Three Months Ended June 30, 2018
(in millions, except per share data) |  | Dividends Declared per Share | Dividends Declared | Dividends Paid |  | Dividends Declared per Share | Dividends Declared | Dividends Paid
Common stock |  |  | $0.32 |  |  | $148 |  |  | $148 |  |  |  | $0.22 |  |  | $107 |  |  | $107 |
Preferred stock |  |  |  |  |  |  |  |
Series A |  |  | $— |  |  | $— |  |  | $7 |  |  |  | $— |  |  | $— |  |  | $7 |
Series B |  | 30.00 |  | 9 |  | — |  |  | — |  | — |  | — |
Series C |  | 15.94 |  | 4 |  | 5 |  |  | — |  | — |  | — |
Series D |  | 15.88 |  | 5 |  | 3 |  |  | — |  | — |  | — |
Total preferred stock |  |  |  | $18 |  |  | $15 |  |  |  |  | $— |  |  | $7 |

|  | Six Months Ended June 30, 2019 |  | Six Months Ended June 30, 2018
(in millions, except per share data) |  | Dividends Declared per Share | Dividends Declared | Dividends Paid |  | Dividends Declared per Share | Dividends Declared | Dividends Paid
Common stock |  |  | $0.64 |  |  | $297 |  |  | $297 |  |  |  | $0.44 |  |  | $215 |  |  | $215 |
Preferred stock |  |  |  |  |  |  |  |
Series A |  |  | $27.50 |  |  | $7 |  |  | $7 |  |  |  | $27.50 |  |  | $7 |  |  | $7 |
Series B |  | 30.00 |  | 9 |  | 11 |  |  | — |  | — |  | — |
Series C |  | 31.88 |  | 9 |  | 9 |  |  | — |  | — |  | — |
Series D |  | 27.70 |  | 8 |  | 3 |  |  | — |  | — |  | — |
Total preferred stock |  |  |  | $33 |  |  | $30 |  |  |  |  | $7 |  |  | $7 |

Treasury Stock
During the six months ended June 30, 2019, the Company repurchased $320 million, or 9,287,644 shares, of its outstanding common stock, which are held in treasury stock.
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 “Commitments and Contingencies” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.

(in millions) | June 30, 2019 |  | December 31, 2018
Commitments to extend credit |  | $70,217 |  |  |  | $69,553 |
Letters of credit | 2,252 |  |  | 2,125 |
Marketing rights | 35 |  |  | 37 |
Risk participation agreements | 41 |  |  | 19 |
Loans sold with recourse | 23 |  |  | 5 |
Total |  | $72,568 |  |  |  | $71,739 |

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.
In first quarter 2019, the Company entered into an agreement to purchase education loans on a quarterly basis beginning with first quarter 2019 and ending with fourth quarter 2019. The total minimum and maximum amount of the aggregate purchase principal balance of loans under the terms of the agreement are $600 million and $1.0 billion, respectively, and the remaining maximum principal purchase commitment is $700 million as
88

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
of June 30, 2019.
The Company’s commercial loan trading desk provides ongoing secondary market support and liquidity to its clients. Unsettled loan trades (i.e., loan purchase contracts) represent firm commitments to purchase loans from a third party at an agreed-upon price. Principal amounts associated with unsettled commercial loan trades are off-balance sheet commitments until delivery of the loans has taken place. The principal balances of unsettled commercial loan trade purchases and sales were $106 million and $114 million, respectively, at June 30, 2019 and $68 million and $161 million, respectively, at December 31, 2018.
Letters of Credit
Letters of credit in the table above reflect commercial, standby financial and standby performance letters of credit. Standby letters of credit, both financial and performance, are issued by the Company for its customers. They are used as conditional guarantees of payment to a third party in the event the customer either fails to make specific payments (financial) or fails to complete a specific project (performance). 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 83 counterparties. RPAs generally have terms ranging from one year to five years; however, certain outstanding agreements have terms as long as nine years.

Contingencies
The Company operates in a legal and regulatory environment that exposes it to potentially significant risks. A certain amount of litigation ordinarily results from the nature of the Company’s banking and other businesses. The Company is a party to legal proceedings, including class actions. The Company is also the subject of investigations, reviews, subpoenas, and regulatory matters arising out of its normal business operations, which, in some instances, relate to concerns about fair lending, unfair and/or deceptive practices, mortgage-related issues, and mis-selling of certain products. In addition, the Company engages in discussions with relevant governmental and regulatory authorities on a regular and ongoing basis regarding various issues, and any issues discussed or identified may result 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
89

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. For more information on the election of the fair value option for these assets see Note 19 “Fair Value Measurements,” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
The following table presents the changes in fair value for assets where the Company has elected the fair value option:

| Three Months Ended June 30, |  | Six Months Ended June 30, |
(in millions) | 2019 |  | 2018 |  | 2019 |  | 2018 | Affected Line Item in the Consolidated Statements of Operations
Residential mortgage loans held for sale, at fair value |  | $10 |  |  |  | $4 |  |  |  | $9 |  |  |  | $1 |  | Mortgage banking fees
Commercial and commercial real estate loans held for sale, at fair value | 1 |  |  | (1 | ) |  | 4 |  |  | — |  | Other income

Recurring Fair Value Measurements
Citizens utilizes a variety of valuation techniques to measure its assets and liabilities at fair value on a recurring basis. For more information on the valuation techniques utilized to measure recurring fair value see Note 13 “Fair Value Measurements,” to the Company’s unaudited interim Consolidated Financial Statements in the Quarterly Report on Form 10-Q for the three months ended March 31, 2019.
90

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 June 30, 2019:

(in millions) | Total |  | Level 1 |  | Level 2 |  | Level 3 |
Debt securities available for sale: |  |  |  |
Mortgage-backed securities |  | $21,603 |  |  | $— |  |  | $21,603 |  |  | $— |
State and political subdivisions | 5 |  | — |  | 5 |  | — |
U.S. Treasury and other | 90 |  | 90 |  | — |  | — |
Total debt securities available for sale | 21,698 |  | 90 |  | 21,608 |  | — |
Loans held for sale, at fair value: |  |  |  |
Residential loans held for sale | 1,615 |  | — |  | 1,615 |  | — |
Commercial loans held for sale | 135 |  | — |  | 135 |  | — |
Total loans held for sale, at fair value | 1,750 |  | — |  | 1,750 |  | — |
Mortgage servicing rights | 531 |  | — |  | — |  | 531 |
Derivative assets: |  |  |  |
Interest rate contracts | 808 |  | — |  | 808 |  | — |
Foreign exchange contracts | 132 |  | — |  | 132 |  | — |
Other contracts | 29 |  | — |  | 4 |  | 25 |
Total derivative assets | 969 |  | — |  | 944 |  | 25 |
Equity securities, at fair value: |  |  |  |
Money market mutual fund investments | 47 |  | 47 |  | — |  | — |
Total equity securities, at fair value | 47 |  | 47 |  | — |  | — |
Total assets |  | $24,995 |  |  | $137 |  |  | $24,302 |  |  | $556 |
Derivative liabilities: |  |  |  |
Interest rate contracts |  | $130 |  |  | $— |  |  | $130 |  |  | $— |
Foreign exchange contracts | 116 |  | — |  | 116 |  | — |
Other contracts | 34 |  | — |  | 34 |  | — |
Total derivative liabilities | 280 |  | — |  | 280 |  | — |
Total liabilities |  | $280 |  |  | $— |  |  | $280 |  |  | $— |

91

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:

(in millions) | Total |  | Level 1 |  | Level 2 |  | Level 3 |
Debt securities available for sale: |  |  |  |
Mortgage-backed securities |  | $19,866 |  |  | $— |  |  | $19,866 |  |  | $— |
State and political subdivisions | 5 |  | — |  | 5 |  | — |
U.S. Treasury and other | 24 |  | 24 |  | — |  | — |
Total debt securities available for sale | 19,895 |  | 24 |  | 19,871 |  | — |
Loans held for sale, at fair value: |  |  |  |
Residential loans held for sale | 967 |  | — |  | 967 |  | — |
Commercial loans held for sale | 252 |  | — |  | 252 |  | — |
Total loans held for sale, at fair value | 1,219 |  | — |  | 1,219 |  | — |
Mortgage servicing rights | 600 |  | — |  | — |  | 600 |
Derivative assets: |  |  |  |
Interest rate contracts | 306 |  | — |  | 306 |  | — |
Foreign exchange contracts | 129 |  | — |  | 129 |  | — |
Other contracts | 14 |  | — |  | 14 |  | — |
Total derivative assets | 449 |  | — |  | 449 |  | — |
Equity securities, at fair value: |  |  |  |
Money market mutual fund investments | 181 |  | 181 |  | — |  | — |
Total equity securities, at fair value | 181 |  | 181 |  | — |  | — |
Total assets |  | $22,344 |  |  | $205 |  |  | $21,539 |  |  | $600 |
Derivative liabilities: |  |  |  |
Interest rate contracts |  | $277 |  |  | $— |  |  | $277 |  |  | $— |
Foreign exchange contracts | 113 |  | — |  | 113 |  | — |
Other contracts | 25 |  | — |  | 25 |  | — |
Total derivative liabilities | 415 |  | — |  | 415 |  | — |
Total liabilities |  | $415 |  |  | $— |  |  | $415 |  |  | $— |

The following tables present a rollforward of the balance sheet amounts for assets measured at fair value on a recurring basis and classified as Level 3 for the three and six months ended June 30, 2019. There were no assets measured at fair value on a recurring basis and classified as Level 3 for the three and six months ended June 30, 2018.

| Three Months Ended June 30, |  | Six Months Ended June 30, 2019
(in millions) | Mortgage Servicing Rights |  | Other Derivative Contracts |  | Mortgage Servicing Rights |  | Other Derivative Contracts
Beginning balance |  | $563 |  |  |  | $18 |  |  |  | $600 |  |  |  | $— |
Issuances | 57 |  |  | 43 |  |  | 92 |  |  | 43 |
Settlements (1) | (31 | ) |  | (43 | ) |  | (57 | ) |  | (43 | )
Changes in fair value during the period recognized in earnings (2) | (58 | ) |  | 7 |  |  | (104 | ) |  | 7 |
Transfers from Level 2 to Level 3(3) | — |  |  | — |  |  | — |  |  | 18 |
Ending balance |  | $531 |  |  |  | $25 |  |  |  | $531 |  |  |  | $25 |

(1) Represents changes in value of the MSRs due to i) passage of time including the impact from both regularly scheduled loan principal payments and partial
paydowns, and ii) loans that paid off during the period.
(2) Represents changes in value primarily driven by market conditions. These changes are recorded in mortgage banking fees in the Consolidated Statements of Operations.
(3) Reflects changes in the significance of unobservable inputs on derivative contracts associated with mortgage origination activities.
92

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nonrecurring Fair Value Measurements
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include MSRs accounted for by the amortization method and loan impairments for certain loans and leases. For more information on the valuation techniques utilized to measure nonrecurring fair value see Note 19 “Fair Value Measurements,” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
The following table presents gains (losses) on assets and liabilities measured at fair value on a nonrecurring basis and recorded in earnings:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Impaired collateral-dependent loans |  | ($24 | ) |  |  | ($4 | ) |  |  | ($28 | ) |  |  | ($6 | )
MSRs | (14 | ) |  | — |  |  | (14 | ) |  | 3 |
Foreclosed assets | (1 | ) |  | — |  |  | (1 | ) |  | (1 | )
Leased assets | — |  |  | (2 | ) |  | (3 | ) |  | (2 | )

The following table presents assets and liabilities measured at fair value on a nonrecurring basis:

| June 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 |  | $300 |  |  | $— |  |  | $300 |  |  | $— |  |  |  | $338 |  |  | $— |  |  | $338 |  |  | $— |
MSRs | 193 |  | — |  | — |  | 193 |  |  | 243 |  | — |  | — |  | 243 |
Foreclosed assets | 27 |  | — |  | 27 |  | — |  |  | 29 |  | — |  | 29 |  | — |
Leased assets | 61 |  | — |  | 61 |  | — |  |  | 92 |  | — |  | 92 |  | — |

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:

| June 30, 2019
| Total |  | Level 1 |  | Level 2 |  | Level 3
(in millions) | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |  |
Securities held to maturity |  | $3,447 |  |  | $3,441 |  |  |  | $— |  |  | $— |  |  |  | $3,447 |  |  | $3,441 |  |  |  | $— |  |  | $— |
Equity securities, at cost | 706 |  | 706 |  |  | — |  | — |  |  | 706 |  | 706 |  |  | — |  | — |
Other loans held for sale | 455 |  | 455 |  |  | — |  | — |  |  | — |  | — |  |  | 455 |  | 455 |
Loans and leases | 116,838 |  | 117,494 |  |  | — |  | — |  |  | 300 |  | 300 |  |  | 116,538 |  | 117,194 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits | 124,004 |  | 124,028 |  |  | — |  | — |  |  | 124,004 |  | 124,028 |  |  | — |  | — |
Federal funds purchased and securities sold under agreements to repurchase | 1,132 |  | 1,132 |  |  | — |  | — |  |  | 1,132 |  | 1,132 |  |  | — |  | — |
Other short-term borrowed funds | 309 |  | 309 |  |  | — |  | — |  |  | 309 |  | 309 |  |  | — |  | — |
Long-term borrowed funds | 11,538 |  | 11,639 |  |  | — |  | — |  |  | 11,538 |  | 11,639 |  |  | — |  | — |

93

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

| December 31, 2018
| Total |  | Level 1 |  | Level 2 |  | Level 3
(in millions) | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value |  | Carrying Value | Estimated Fair Value
Financial assets: |  |  |  |  |  |  |  |  |  |  |
Securities held to maturity |  | $4,165 |  |  | $4,041 |  |  |  | $— |  |  | $— |  |  |  | $4,165 |  |  | $4,041 |  |  |  | $— |  |  | $— |
Equity securities, at cost | 834 |  | 834 |  |  | — |  | — |  |  | 834 |  | 834 |  |  | — |  | — |
Other loans held for sale | 101 |  | 101 |  |  | — |  | — |  |  | — |  | — |  |  | 101 |  | 101 |
Loans and leases | 116,660 |  | 116,627 |  |  | — |  | — |  |  | 338 |  | 338 |  |  | 116,322 |  | 116,289 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Deposits | 119,575 |  | 119,503 |  |  | — |  | — |  |  | 119,575 |  | 119,503 |  |  | — |  | — |
Federal funds purchased and securities sold under agreements to repurchase | 1,156 |  | 1,156 |  |  | — |  | — |  |  | 1,156 |  | 1,156 |  |  | — |  | — |
Other short-term borrowed funds | 161 |  | 161 |  |  | — |  | — |  |  | 161 |  | 161 |  |  | — |  | — |
Long-term borrowed funds | 15,925 |  | 15,877 |  |  | — |  | — |  |  | 15,925 |  | 15,877 |  |  | — |  | — |

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 June 30, 2019 |  | Three Months Ended June 30, 2018
(in millions) | Consumer Banking | Commercial Banking | Consolidated (1) |  | Consumer Banking | Commercial Banking | Consolidated (1)
Service charges and fees |  | $99 |  |  | $26 |  |  | $125 |  |  |  | $100 |  |  | $27 |  |  | $127 |
Card fees | 55 |  | 9 |  | 64 |  |  | 51 |  | 9 |  | 60 |
Capital markets fees | — |  | 53 |  | 53 |  |  | — |  | 51 |  | 51 |
Trust and investment services fees | 53 |  | — |  | 53 |  |  | 43 |  | — |  | 43 |
Other banking fees | — |  | 3 |  | 3 |  |  | — |  | 2 |  | 2 |
Total revenue from contracts with customers |  | $207 |  |  | $91 |  |  | $298 |  |  |  | $194 |  |  | $89 |  |  | $283 |

| Six Months Ended June 30, 2019 |  | Six Months Ended June 30, 2018
(in millions) | Consumer Banking | Commercial Banking | Consolidated (1) |  | Consumer Banking | Commercial Banking | Consolidated (1)
Service charges and fees |  | $196 |  |  | $52 |  |  | $248 |  |  |  | $198 |  |  | $53 |  |  | $251 |
Card fees | 105 |  | 18 |  | 123 |  |  | 103 |  | 18 |  | 121 |
Capital markets fees | — |  | 102 |  | 102 |  |  | — |  | 88 |  | 88 |
Trust and investment services fees | 100 |  | — |  | 100 |  |  | 83 |  | — |  | 83 |
Other banking fees | — |  | 5 |  | 5 |  |  | — |  | 5 |  | 5 |
Total revenue from contracts with customers |  | $401 |  |  | $177 |  |  | $578 |  |  |  | $384 |  |  | $164 |  |  | $548 |

(1) There is no revenue from contracts with customers included in Other non-segment operations.
The Company recognized trailing commissions of $3 million and $4 million for the three months ended June 30, 2019 and 2018, respectively, and $7 million and $8 million for the six months ended June 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 June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Bank-owned life insurance |  | $13 |  |  |  | $14 |  |  |  | $27 |  |  |  | $28 |

94

CITIZENS FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 - OTHER OPERATING EXPENSE
The following table presents the details of other operating expense:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Deposit insurance |  | $16 |  |  |  | $28 |  |  |  | $32 |  |  |  | $59 |
Promotional expense | 28 |  |  | 34 |  |  | 55 |  |  | 59 |
Settlements and operating losses | 9 |  |  | 12 |  |  | 20 |  |  | 24 |
Other | 65 |  |  | 53 |  |  | 121 |  |  | 105 |
Other operating expense |  | $118 |  |  |  | $127 |  |  |  | $228 |  |  |  | $247 |

NOTE 16 - EARNINGS PER SHARE

| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions, except share and per share data) | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Numerator (basic and diluted): |  |  |  |  |  |  |
Net income |  | $453 |  |  |  | $425 |  |  |  | $892 |  |  |  | $813 |
Less: Preferred stock dividends | 18 |  |  | — |  |  | 33 |  |  | 7 |
Net income available to common stockholders |  | $435 |  |  |  | $425 |  |  |  | $859 |  |  |  | $806 |
Denominator: |  |  |  |  |  |  |
Weighted-average common shares outstanding - basic | 458,154,335 |  |  | 484,744,354 |  |  | 459,426,685 |  |  | 486,114,872 |
Dilutive common shares: share-based awards | 1,149,889 |  |  | 1,397,341 |  |  | 1,430,850 |  |  | 1,568,344 |
Weighted-average common shares outstanding - diluted | 459,304,224 |  |  | 486,141,695 |  |  | 460,857,535 |  |  | 487,683,216 |
Earnings per common share: |  |  |  |  |  |  |
Basic |  | $0.95 |  |  |  | $0.88 |  |  |  | $1.87 |  |  |  | $1.66 |
Diluted (1) | 0.95 |  |  | 0.88 |  |  | 1.86 |  |  | 1.65 |

(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 371,627 and 1,073,431 for the three and six months ended June 30, 2019, respectively. There were no weighted average antidilutive shares for the three or six months ended June 30, 2018.
NOTE 17 - BUSINESS OPERATING SEGMENTS
Citizens is managed by its Chief Executive Officer on a segment basis. The Company’s two 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 our business operating segments, as well as Other non-segment operations, see Note 25 “Business Operating Segments,” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.

| As of and for the Three Months Ended June 30, 2019
(in millions) | Consumer Banking |  | Commercial Banking |  | Other |  | Consolidated
Net interest income |  | $799 |  |  |  | $371 |  |  |  | ($4 | ) |  |  | $1,166 |
Noninterest income | 277 |  |  | 149 |  |  | 36 |  |  | 462 |
Total revenue | 1,076 |  |  | 520 |  |  | 32 |  |  | 1,628 |
Noninterest expense | 715 |  |  | 217 |  |  | 19 |  |  | 951 |
Profit before provision for credit losses | 361 |  |  | 303 |  |  | 13 |  |  | 677 |
Provision for credit losses | 78 |  |  | 25 |  |  | (6 | ) |  | 97 |
Income before income tax expense (benefit) | 283 |  |  | 278 |  |  | 19 |  |  | 580 |
Income tax expense (benefit) | 70 |  |  | 62 |  |  | (5 | ) |  | 127 |
Net income |  | $213 |  |  |  | $216 |  |  |  | $24 |  |  |  | $453 |
Total average assets |  | $65,485 |  |  |  | $56,135 |  |  |  | $39,869 |  |  |  | $161,489 |

95

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

| As of and for the Three Months Ended June 30, 2018
(in millions) | Consumer Banking |  | Commercial Banking |  | Other |  | Consolidated
Net interest income |  | $759 |  |  |  | $376 |  |  |  | ($14 | ) |  |  | $1,121 |
Noninterest income | 228 |  |  | 140 |  |  | 20 |  |  | 388 |
Total revenue | 987 |  |  | 516 |  |  | 6 |  |  | 1,509 |
Noninterest expense | 658 |  |  | 200 |  |  | 17 |  |  | 875 |
Profit (loss) before provision for credit losses | 329 |  |  | 316 |  |  | (11 | ) |  | 634 |
Provision for credit losses | 66 |  |  | 9 |  |  | 10 |  |  | 85 |
Income (loss) before income tax expense (benefit) | 263 |  |  | 307 |  |  | (21 | ) |  | 549 |
Income tax expense (benefit) | 66 |  |  | 70 |  |  | (12 | ) |  | 124 |
Net income (loss) |  | $197 |  |  |  | $237 |  |  |  | ($9 | ) |  |  | $425 |
Total average assets |  | $61,232 |  |  |  | $52,170 |  |  |  | $39,851 |  |  |  | $153,253 |

| As of and for the Six Months Ended June 30, 2019
(in millions) | Consumer Banking |  | Commercial Banking |  | Other |  | Consolidated
Net interest income |  | $1,587 |  |  |  | $743 |  |  |  | ($4 | ) |  |  | $2,326 |
Noninterest income | 524 |  |  | 299 |  |  | 67 |  |  | 890 |
Total revenue | 2,111 |  |  | 1,042 |  |  | 63 |  |  | 3,216 |
Noninterest expense | 1,415 |  |  | 426 |  |  | 47 |  |  | 1,888 |
Profit before provision for credit losses | 696 |  |  | 616 |  |  | 16 |  |  | 1,328 |
Provision for credit losses | 145 |  |  | 46 |  |  | (9 | ) |  | 182 |
Income before income tax expense (benefit) | 551 |  |  | 570 |  |  | 25 |  |  | 1,146 |
Income tax expense (benefit) | 136 |  |  | 127 |  |  | (9 | ) |  | 254 |
Net income |  | $415 |  |  |  | $443 |  |  |  | $34 |  |  |  | $892 |
Total average assets |  | $65,247 |  |  |  | $55,884 |  |  |  | $39,824 |  |  |  | $160,955 |

| As of and for the Six Months Ended June 30, 2018
(in millions) | Consumer Banking |  | Commercial Banking |  | Other |  | Consolidated
Net interest income |  | $1,492 |  |  |  | $733 |  |  |  | ($13 | ) |  |  | $2,212 |
Noninterest income | 450 |  |  | 265 |  |  | 44 |  |  | 759 |
Total revenue | 1,942 |  |  | 998 |  |  | 31 |  |  | 2,971 |
Noninterest expense | 1,314 |  |  | 408 |  |  | 36 |  |  | 1,758 |
Profit (loss) before provision for credit losses | 628 |  |  | 590 |  |  | (5 | ) |  | 1,213 |
Provision for credit losses | 138 |  |  | 5 |  |  | 20 |  |  | 163 |
Income (loss) before income tax expense (benefit) | 490 |  |  | 585 |  |  | (25 | ) |  | 1,050 |
Income tax expense (benefit) | 123 |  |  | 133 |  |  | (19 | ) |  | 237 |
Net income (loss) |  | $367 |  |  |  | $452 |  |  |  | ($6 | ) |  |  | $813 |
Total average assets |  | $61,290 |  |  |  | $51,286 |  |  |  | $39,817 |  |  |  | $152,393 |

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 “Business Operating Segments,” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
96

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.
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this 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 forth in Note 12 "Commitments and Contingencies" in the Notes to the unaudited interim Consolidated Financial Statements in Part I, Item 1 — Financial Statements of this Report, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, you should consider the risks described under the caption “Risk Factors” in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
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 June 30, 2019 are included below:

Period | Total Number of Shares Repurchased | Weighted Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Dollar Amount of Shares That May Yet Be Purchased As Part of Publicly Announced Plans or Programs (1)
April 1, 2019 - April 30, 2019 | 2,802,198 | $34.64 | 2,802,198 | $22,919,251
May 1, 2019 - May 31, 2019 | 661,555 | 34.64 | 661,555 | $—
June 1, 2019 - June 30, 2019 | — | $— | — | $—

(1) On June 28, 2018, the Company announced that its 2018 Capital Plan, submitted as part of the CCAR process and not objected to by the FRB, included share repurchases of CFG common stock of up to $1.02 billion for the four-quarter period ending with the second quarter of 2019. This share repurchase plan, which was approved by the Company’s Board of Directors at the time of the announcement, allowed for share repurchases that may be executed in the open market or in privately negotiated transactions, including under Rule 10b5-1 plans. All shares repurchased by the Company during the second quarter were executed pursuant to an accelerated share repurchase transaction, which was completed by June 30, 2019. 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.
97

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 May 24, 2018)
3.3 Certificate of Designations of the Registrant with respect to the Series C Preferred Stock, dated October 24, 2018, filed with the Secretary of State of the State of Delaware and effective October 24, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 25, 2018)
3.4 Certificate of Designations of the Registrant with respect to the Series D Preferred Stock, dated January 23, 2019, filed with the Secretary of State of the State of Delaware and effective January 23, 2019 (incorporated herein by reference to Exhibit 3.4 to the Registration Statement on Form 8-A, filed January 29, 2019)
3.5 Bylaws of the Registrant (as amended and restated on June 20, 2019) (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed June 21, 2019)
10.1 Citizens Financial Group, Inc. Non-Employee Directors Compensation Policy, amended and effective as of April 25, 2019†*
10.2 Amended and Restated Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan, as of June 20, 2019†*
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 June 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*

† Indicates management contract or compensatory plan or arrangement.
* Filed herewith.
98

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 August 6, 2019.

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)

99