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MarketScreener Homepage  >  Equities  >  Nyse  >  Citizens Financial Group, Inc.    CFG

CITIZENS FINANCIAL GROUP, INC.

(CFG)
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Citizens Financial : Bank of America Merrill Lynch Future of Financials Conference Malcolm Griggs Chief Risk Officer November 5, 2019

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11/05/2019 | 04:55pm EST

Bank of America Merrill Lynch Future of Financials Conference

November 5, 2019

Malcolm Griggs

Chief Risk Officer

Forward-looking statements and use of key performance metrics and non-GAAP financial measures

This document contains forward-looking statements within the meaning of 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 perceived 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 theDodd-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 ofcyber-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 under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.

Key Performance Metrics and Non-GAAP Financial Measures and Reconciliations

Key Performance Metrics:

Our Management uses certain key performance metrics (KPMs) to gauge our progress against strategic and operational goals, as well as to compare our performance against peers. The KPMs are referred to in our Registration Statements on Form S-1 and our external financial reports filed with the Securities and Exchange Commission. The KPMs include:

  • Return on average tangible common equity (ROTCE);
  • Return on average total tangible assets (ROTA);
  • Efficiency ratio;
  • Operating leverage; and
  • Common equity tier 1 capital ratio.

Established targets for the KPMs are based on Management-reporting results which are currently referred to by the Company as "Underlying" results. In historical periods, these results may have been referred to as "Adjusted" or "Adjusted/Underlying" results. We believe that Underlying results, which exclude notable items, provide the best representation of our underlying financial progress toward the KPMs as the results exclude items that our Management does not consider indicative of our on-going financial performance. We have consistently shown investors our KPMs on a Management-reporting basis since our initial public offering in September of 2014. KPMs that reflect Underlying results are considered non-GAAP financial measures.

Non-GAAP Financial Measures:

This document contains non-GAAP financial measures denoted as Underlying results. In historical periods, these results may have been referred to as Adjusted or Adjusted/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 in that period and, accordingly, are useful to consider in addition to our GAAP financial results. We further believe the presentation of Underlying results increases comparability of period-to-period results. The appendix present reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measures.

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.

1

Summary of presentation

  • Evolution of Risk Management
    • Experienced Risk Management organization
    • Strong risk management culture driving desired outcomes
  • Risk Management priorities & achievements
    • Current benefits and future opportunities
    • Cybersecurity & retail fraud
  • Credit Risk Management
    • Enhanced monitoring for proactive credit portfolio management
    • Diversified and granular loan mix
    • Significant improvement in portfolio mix
    • Highly disciplined on credit
    • Proactively managing areas of potential industry concern
  • DFASTcompany-run stress results compare favorably to peers
  • CECL

2

Evolution of Risk Management

Building a strong risk culture and implementing practices to help drive a

competitive advantage

Reactive, manual

Significant

Building capabilities,

investments,

partnering with

approach

enhanced frameworks

businesses

2000

2014

2019

2025

Rudimentary & siloed

Significant improvement in

Utilize data & technology in a

approach

risk management capabilities

more sophisticated way

Technical credit, compliance

Development &

Transition to principles-based

& operational risk orientation

implementation of risk

risk management

Relatively outdated risk

frameworks

Focus on capital allocation to

management platforms

Strong regulatory compliance

drive enhanced returns

Overly reliant on manual

Initial investments in

Further develop teams of

processes

automation

specialized experts & well-

rounded bankers

3

Experienced Risk Management organization

Strong leadership team with an average of ~28 years of industry experience; disciplined

talent across all levels and strong succession management

Chief Risk Officer

Malcolm Griggs

30 years experience, CFG - 5 years

Chief Credit Officer

Chief Compliance Officer

Enterprise Risk Management

Rob Allen

Scott Essex

Glenna Hagopian

36 years experience, CFG - 5 years

21 years experience, CFG - 5 years

30 years experience, CFG - 30 years

Chief Information Security Officer(1)

Commercial Banking Risk(1)

Consumer Banking Risk(1)

Holly Ridgeway

Gary Aswad

Rose Gaidos

23 years experience, CFG - 2 years

35 years experience, CFG - 14 years

28 years experience, CFG - 3 years

Risk Strategy

Data Science

Market Risk

Maria Leonard

Boris Deychman

Adrien Campbell

31 years experience, CFG - 15 years

27 years experience, CFG - 7 years

21 years experience, CFG - 9 years

Risk Architecture

Risk Administration

Control Testing and Exams

Steve Boras

David Berube

Tracy Carson

31 years experience, CFG - 4 years

30 years experience, CFG - 13 years

21 years experience, CFG - 20 years

1) Indirect reporting line to Chief Risk Officer.

4

Strong risk management culture driving desired outcomes

Strong culture helps achieve long-term growth, improve returns

and create competitive advantage

Efficient & effective

New initiatives thoroughly

Well-rounded bankers with

Innovative mindset

governance processes

vetted

risk expertise

Rapid escalation & resolution

Empowering the right people

Transparency &

Anticipating new risks &

opportunities in a changing

of issues

to make decisions

constructive challenge

business environment

Driving desired outcomes

Sustainable earnings

Clear risk appetitePrudent liquidity profile Stakeholder confidence growth

High degree of linkage

Reduced volatility

Shareholders, customers,

among risk appetite

Disciplined credit

Maintain strong liquidity

regulators and colleagues

limits, capital planning,

management

and stable and low cost

know that we do what we

stress analysis & strategic

access to funding

More effective capital

commit to do

objectives

allocation

5

Enhanced use of data analytics and new technologies to drive effectiveness & efficiency

Data analytics and new technologies help reduce risk and improve performance

Current benefits

Future opportunities

  • Improved retail fraud and bankruptcy prediction capabilities
  • New sales conduct analytics and reporting platform
  • Leveraging robotics to enhanceAnti-Money Laundering operations
  • Continuous compliance monitoring on mortgage portfolio; providing over 25 million daily tests
  • Accelerated modernization of the risk data platform improving performance and response times
  • Advance modeling techniques to support product development and pricing
  • Improve speed and accuracy of credit decisions using data analytics and automation
  • Continue building and improving predictive tools to identify emerging risks
  • Expand automated compliance testing

Improved governance & risk management capabilities while simultaneously reducing expense

base by ~15% and FTE count by ~18% since 2015

6

Improved alignment of risk and strategy to drive enhanced returns

Clear alignment of risk and strategy drives better decisions and improved returns

Current benefits

Future opportunities

  • Transitioned tobest-in-class enterprise risk framework
  • Capital & risk management capabilities to help maximizerisk-adjusted returns
  • Improved governance related to strategic and new product initiatives
    • Leadership or advisory role on Strategic Transactions Committee and new business initiatives framework
  • Valued partner in key company initiatives; BSO, CECL, TOP, etc.
  • Developreal-time tools to evaluate return on capital based on deal terms
  • Improvetime-to-market by enhancing the efficiency of governance and analysis
  • Further advance partnership around strategic initiatives, M&A due diligence and integration management activities

7

Transition to principles-based risk practices

Shifting culture to encourage critical thinking approach to risk to drive improved outcomes

and customer experience

Current benefits

Future opportunities

  • Transitioned ~60% of risk polices to be principles based
    • Reduced commercial loan policy by 66% by eliminating prescriptive/procedural content
  • Improved reorientation of resources toward key and emerging risks with increased accountability
  • Improved commercial portfolio review cycle times by ~10% since 1Q18
  • Over 800 credit, portfolio management andfront-line colleagues participated in training
  • Shift focus toward portfolio vs. transaction oversight
  • Further enhance risk discipline and client selection and move away from "check the box" approach
  • Simplify and streamline credit authority administration process
  • Anticipate and manage new risks and regulatory changes through constant evaluation of the environment
  • Continuously assess and improve alignment across three lines of defense

8

Other focus areas - cybersecurity and retail fraud

Significant investments in technology and uptiered talent to improve processes and outcomes

Cybersecurity

Retail fraud

  • Led by Holly Ridgeway, former Deputy CISO for the DOJ
  • Continuously monitor threat picture and adjust defenses to prevent, detect and respond to threats
  • Continue to invest in people & technology
  • Deployed advanced capabilities to:
    • Improve systems availability
    • Increase visibility of threats
    • Provide protection beyond CFG network
    • Enhance resilience againstdenial-of-service attacks
  • Upgraded card and ATM security
  • Implemented new fraud management platform, expanded text/email capabilities
  • Re-engineeredfraud processes, reducing number of platforms and leveraging automation
  • Meaningful improvement infraud-related losses

Net card, debit & ATM fraud losses/transaction volume

0.10%

0.07%

0.06%

0.05%

2016 2017 2018 2019F

9

Enhanced monitoring for proactive credit portfolio management

Early warning indicators monitored for signs of economic and portfolio stress with

playbooks in place to anticipate and address a potential downturn

Consumer

Internal indicators

External indicators

Product level

Industry-level delinquency

delinquency trends

trends

Early and late stage roll

Account inquiries

rate trends

and openings

Delinquent customer

collectability

Collateral value indicators

(contact & payment rates)

Credit inquiry trends

Loss & recession

index monitoring

Highlights

  • Triggers and policy tightening actions established to respond to early signs of stress

Commercial

Internal indicators

External indicators

Downgrade and watch list

Macro, regional, industry,

trends; credit reviews

sector trends

Enhancing data analytics to predict deterioration

Early action in advance of a downturn through partnership between portfolio management and workout team

  • Robust watch list process with independent oversight for monitoring credits
  • Early action strategies to monitor top risk exposures, proactively manage credit exposures and allocate resources depending on the severity of the downturn

10

Credit risk management - diversified and granular loan mix

$61.1 billion

3Q19 retail portfolio

Non-Core

Other

Education InSchool

7%

2%

5%

Residential

Education Refi

32%

Mortgage

10%

Credit Cards

3%

$56.2 billion

3Q19 core commercial portfolio

by Industry Sector (1)

All Others (3)

Automotive

Real Estate and Rental

Educational Services

5%

2%

and Leasing

Consumer Products Mfg

Computer & Electrical Equip. Appl.

2%2%

21%

Arts, Entmt, and Recreation

2%

Admin and Waste Mgmt

2%

Transportation and

3%

3%3%

Warehousing

Other Services

3%

Metals & Mining

4%

10%Finance and

4%

Insurance

Information

Other Manufacturing

4%

7%Accommodation and

Indirect Auto

20%

21%

Home

Equity

4%

Food Services

7%

Retail Trade

4%5%

Health, Pharma, Social

Oil & Gas(2)

5%

5%

Assistance

Professional, Scientific, and

Wholesale Trade

Technical Services

CFG vs. Peers(4)

Retail NCO%

Retail NPL%

Commercial NCO%

Commercial NPL%

0.4%

0.4%

0.5%

0.5%

0.5%

1.1%

1.0%

1.0%

1.0%

0.3%

0.6%

0.5%

0.5%

0.5%

0.5%

0.9%

0.1%

0.2%

0.2%

0.2%

0.5%

0.4%

0.4%

0.5%

0.4%

0.4%

0.9%

0.9%

0.9%

0.5%

0.4%

0.4%

0.4%

0.9%

0.1%

0.2%

0.1%

0.1%

0.2%

0.8%

2Q18

3Q18

4Q18

1Q19

2Q19

2Q18

3Q18

4Q18

1Q19

2Q19

2Q18

3Q18

4Q18

1Q19

2Q19

2Q18

3Q18

4Q18

1Q19

2Q19

CFG

Peers

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

11

Significant improvement in portfolio mix

Overall portfolio mix and quality dramatically different than during the crisis

2009

3Q19

Loss

Loan

Loss

Core retail

Loan Mix(1)

rate

Mix(1)

rate

Core resi mortgage

17

%

0.68

%

32

%

0.02

%

Core home equity

40

0.62

22

0.05

Auto

14

0.98

20

0.74

Education

Core education refi

-

-

10

0.38

Core Inschool(2)

3

-

5

0.69

Unsecured(3)

3

2.63

9

2.57

Core all other

-

24.63

-

13.44

Total core retail

77

%

0.83

%

99

%

0.55

%

Non-core retail

Non-core resi mortgage

2

%

3.41

%

-

%

-

%

Non-core home equity

10

9.63

1

(2.60)

Non-core auto

1

3.61

-

-

Non-core education

2

6.71

0.3

5.55

Non-core unsecured(3)

2

17.15

-

-

Non-core other retail

5

2.51

0.2

(1.60)

Total non-core retail

23

%

7.33

%

1

%

(0.39) %

Total retail(4)

100

%

2.29

%

100

%

0.53

%

  • Since 2009weighted-average FICO improved ~30 points; real estate 1stlien improved to ~80% from ~55%
  • Consumernon-core portfolio down 95%

2009

3Q19

Loan

Loss

Loan

Loss

Core commercial

Mix(1)

rate

Mix(1)

rate

Commercial

59

%

1.16

%

73

%

0.16

%

Commercial real estate

23

1.29

23

0.31

Leases

8

1.32

4

-

Total core commercial

89

%

1.21

%

99

%

0.19

%

Non-core commercial

Commercial

4

%

7.24

%

-

%

-

%

Commercial real estate

6

8.68

-

-

Leases

-

-

1

3.98

Total non-core

commercial

11

%

8.10

%

1

%

3.65

%

Total commercial(4)

100

%

1.95

%

100

%

0.22

%

  • Significant improvement inbond-equivalent ratings; BBB- or better improved from ~28% to ~42% since 2009
  • Commercialnon-core portfolio down 98%

Improved loan loss rates in both retail and commercial with excellent progress

in reducing the non-core portfolio

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

12

Highly disciplined on credit

$s in billions

Overall credit quality remains strong

Super prime/prime-focused, core retail portfolio;

refreshed FICOs improved YoY(1,2)

$58.4

$60.4

<640

6%

6%

640-679

6%

6%

18%

19%

680-739

740-799

33%

33%

800+

37%

38%

3Q18

3Q19

  • Weighted-averageFICO score of ~765
  • ~75% collateralized
  • ~80% of real estate portfolio is 1stlien
  • Core mortgage - FICO ~790; CLTV of ~60%
  • Core home equity - FICO ~765
  • 51% 1st lien, CLTV of ~55%

Granular/diverse core commercial portfolio;

risk-ratings improved YoY(1)

$54.6

$56.2

B- and lower

3%

2%

B+ to B

14%

15%

41%

41%

BB+ to BB-

AAA+ to BBB-

42%

42%

3Q18

3Q19

  • Highly granular and diversified portfolio in terms of geography, industry, asset class and rating
  • Continue to gain share inmid-corporate segment with generally higher ratings
  • Underweight CRE ~3 points vs. peers
    • ~80% of the CRE portfolio isproject-secured
    • ~60% represented byincome-producing projects

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

13

Proactively managing areas of potential industry concern - Consumer unsecured

Highlights

  • ~50% of portfolio subject to merchant partner loss sharing arrangements
  • Measured approach to growth & loan limits as we develop further expertise with the product
  • Continue to improve our analytical suite of tools; focus on tighteninghigher-risk areas and enhancing pricing segmentation
    • Real-timeassessment of short-term account inquiry and opening data, not yet in credit reports
    • Enhanced data analytics focused on free cash flow, unsecured DTI, fraud and bankruptcy modeling, andmulti-layered segmentation

3Q19 $3.7 billion consumer unsecured portfolio(1)

$1.9 billion merchant partnership portfolio

by refreshed FICO score(2)

>800

< 620

WA FICO

~755

10%

20%620-679

17%

680-739

28%

25%

740-799

$1.9 billion consumer unsecured installment

by refreshed FICO score

WA FICO

>800

< 620

~760

25%

2%

620-679

5%

25%

680-739

740-79943%

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

14

Proactively managing areas of potential industry concern - Education

Highlights

  • Core education finance portfolio weighted- average FICO score of ~780 andco-sign rate of ~50%
  • Education refinance portfolio borrowers at origination have been employed ~6 years on average with:
    • ~60% having advanced degrees
    • 100% verified income
    • Total organic refinance portfolio of $4.5 billion withweighted-average FICO of ~785
    • SoFi purchased portfolio balance of $1.8 billion withweighted-average FICO of ~780
  • $3.2 billion InSchool portfolio - FICO ~775
    • Underwriting includes use of custom scoring andrisk-based income verification

3Q19 $9.5 billion core education finance portfolio

by Refreshed FICO (1)

by Segment(1)

>800 39%

< 620

Education

1%

Refinance

620-679

3%

66%

17%680-739

34%

40%

Traditional

InSchool

740-799

Origination detail

($s in millions)

$982

$792

775

776

773

774

774

$421

$435

$374

97%

91%

95%

89%

97%

39%

42%

43%

40%

39%

3Q18

4Q18

1Q19

2Q19

3Q19

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

15

Proactively managing areas of potential industry concern - Auto

Highlights(1)

  • Took proactive action in 2017 to limit national footprint to larger multi- dealers by reducing states and eliminating small dealerships
  • Limited exposure tohigher-risk,longer-duration loans
    • ~25% of portfolio 76- to 84- months; originations weighted- average FICO score of ~765
    • Faster expected averagepre-pay rate than all terms greater than 48 months
  • Use enhanced analytics, e.g., custom scores, andrisk-based pricing leveraging overall industry data

3Q19 $12.1 billion auto portfolio

by Refreshed FICOscore (1,2)

< 620

% new-car

~55%

>800

20%

10%

620-679

17%

110-119%

27%

740-799

26%

680-739

Auto net charge-offs vs. peers

0.95%

0.96%

0.95%

0.92%

0.88%

0.71%

0.95%

0.87%

0.69%

0.77%

0.69%

0.83%

0.76%

0.71% 0.77%

0.65%

0.57%

0.49%

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

CFG

Peer weighted average(3)

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

16

Proactively managing areas of potential industry concern - CRE

Highlights

  • Continued progress in uptiering portfolio to larger, more well- capitalized institutional and upper middle market borrowers
  • Proactive approach to identifying and reacting to emerging trends
  • Pulled back from Virginia, Maryland and Washington, D.C.multi-family markets due to slowing absorption rates and concessions; exposure reduced by ~45% from 4Q15 peak

3Q19 $11.7 billion Commercial Real Estate Line of Business (1)

by Facility Type

by Property Type

Land

Other CRE collateral

Hospitality

Unsecured

Construction

2%

5%4%

20%

Industrial

6% 1%

Unsecured

Healthcare

6%

36%Office

(excl. REITs)

1%

Land

2%

REIT

16%

59%

Retail - Project

12%

corporate

2%

finance

5%

Income

facilities

producing

Retail - REIT

2%

21%

Other

Non-CREMulti-family

Collateral

Bond-equivalent risk rating(2)

$s in billions

$11.7B

$12.0B

$12.3B

$12.1B

$11.7B

1%

1%

0%

0%

1%

21%

17%

19%

19%

19%

63%

67%

B- and Lower

67%

66%

66%

B+ to B

BB+ to BB-

19%

13%

13%

14%

14%

AAA to BBB-

3Q18

4Q18

1Q19

2Q19

3Q19

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

17

DFAST company-run stress results compare favorably to peers

Bank Holding Company-run severely adverse credit loss rate historically in-line or better

than peer average; 2019 loss rate of 4.1% improved 50 bps relative to 2018(1)

Company-run severely adverse stress loss rates

2014-2019

4.5%

4.6%

4.4%

4.1%

4.1%

3.9%

4.6%

4.1%

3.9%

3.9%

3.4%

3.8%

2014

2015

2016

2017

2018

2019

CFG

Peer average

Expect "normal" through-the-cycle average charge-off ratio in the mid-40 bps range;

commercial in the low-to-mid 20's & retail in the ~60 to 70 bps range

See page 22 for notes and important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, including "Underlying" results. "Underlying" results exclude the impact of notable items.

18

Current Expected Credit Loss ("CECL") standard implementation

Estimated 1/1/2020 day-1 cumulative impact of CECL implementation:

  • Net increase to allowance for credit losses of~30%-35%;~22-25 bp reduction of CET1 on a fully- phased in basis
    • Expect an increase in retail reserves tied tolonger-duration loans, partially offset by a decrease tied to generally shorter-duration commercial loans
    • Capital impact to be phased in 25% per year by 1/1/2023
  • Estimate utilizes forecast macroeconomic conditions and balances as of August 2019
    • Two-yearreasonable and supportable forecast period
    • One year reversion tolong-run average macroeconomic assumptions derived from historical data
  • Estimate subject to change based on continuing review of models and assumptions as well as changes in forecasted macroeconomic conditions and loan mix

19

Key messages

  • Strong risk culture
    • Strong Risk Management culture helps Citizens achievelong-term growth, improve returns and create competitive advantage
    • Strong leadership team with an average of ~28 years of industry experience
    • Investing in core capabilities
      • Enhance use of data analytics and leverage new technologies
      • Align risk and strategy to drive enhanced returns
      • Embraceprinciples-based risk practices
    • Maintain a highly disciplined enterprise risk appetite
  • Strong credit performance
    • Proactive management in areas of concern to the industry
    • Early warning indicators monitored for signs of economic and portfolio stress
    • Credit metrics strong and compare well with peers

20

Appendix

Notes

Notes on Key Performance Metrics and Non-GAAP Financial Measures

See important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, at the beginning and end of this presentation for an explanation of our use of these metrics and non-GAAP financial measures and their reconciliations to GAAP financial measures. "Underlying" or "Adjusted" results exclude the impact of notable items. Where there is a reference to Underlying results in a paragraph or table, all measures that follow these references are on the same basis, when applicable. References to "Underlying results before the impact of Acquisitions" exclude the impact acquisitions that occurred after second quarter 2018 and notable items, as applicable.

2Q19 and 1Q19 after-tax notable items include the $5 million and $4 million, respectively, after-tax impact of notable items primarily tied to the integration of FAMC. 4Q18 after-tax notable items include the $29 million impact of a further benefit resulting from December 2017 Tax Legislation, partially offset by other notable items primarily associated with our TOP 5 efficiency initiatives, as well as the $12 million after-tax impact of other notable items associated with the FAMC integration. 3Q18 reported results reflect the $7 million after-tax impact of notable items associated with the FAMC integration.

General Notes

  1. References to net interest margin are on a fully taxable equivalent ("FTE") basis. In 1Q19, Citizens changed its quarterly presentation of net interest income and net interest margin (NIM). Consistent with our understanding of general peer practice, the Company simplified the calculation of its reported NIM to equal net interest income, annualized based on the actual number of days in the period, divided by average total interest earning assets for the period. Under the Company's prior methodology, NIM was calculated using the difference between the annualized yield on average totalinterest-earning assets and total interest-bearing liabilities for the period. The Company also began presenting both net interest income and NIM on an FTE basis. Prior periods have been revised consistent with the current presentation.
  2. Beginning in the first quarter of 2019, borrowed funds balances and the associated interest expense are based on original maturity. Prior periods have been adjusted to conform with the current period presentation.
  3. References to "Underlying results before the impact of Acquisitions" exclude the impact of acquisitions occurring after 2Q18 and notable items, as applicable.
  4. Throughout this presentation, references to consolidated and/or commercial loans and loan growth include leases. Loans held for sale are also referred to as LHFS.
  5. Select totals may not sum due to rounding.
  6. Current period regulatory capital ratios are preliminary.
  7. Any mention of EPS refers to diluted EPS.
  8. Throughout this presentation, references to balance sheet items are on an average basis and loans exclude held for sale unless otherwise noted.

Notes on slide 11 - Credit risk management - diversified and granular loan mix

  1. By sector NAICS code.
  2. Comprises exposure to companies at risk from impact of declining oil prices.
  3. All Other stratifies over an additional 5 industry classifications with the largest portion representing no more that 1.92% of the total portfolio.
  4. Source: SNL Financial. Product view - regulatory reporting basis. Peer banks include CMA, BBT, FITB, KEY, MTB, PNC, RF, STI and USB. NPL% equals nonaccrual loans plus 90+ days past due andstill-accruing loans (excluding FDIC "covered" loans and loans guaranteed by the U.S. government) as a % of total.

Notes on slide 12 - Significant improvement in portfolio mix

  1. Shown as % of retail and commercial assets.Fiscal-year average balances.
  2. FFELP loans are included in InSchool.
  3. Unsecured includes PERL, credit card and product financing.
  4. See general note e) above.

Notes on slide 13 - Highly disciplined on credit

  1. Source: Company data. Portfolio balances and credit quality data as of September 30, 2019, as applicable. Refreshed FICO score, LTV ratio, loan term, lien position, risk rating, property type, industry sector and geographic stratifications reflects most recently available data. Risk ratings representbond-equivalent ratings of borrowers based on CFG's internal probability of default risk ratings.
  2. See general note e) above.

Notes on slide 14 - Proactively managing areas of potential industry concern - Consumer unsecured

  1. Excludes credit card and education portfolios. Portfolio balances as of September 30, 2019. Based on most current available FICO scores and collateral value. Loan term, lien position, risk rating, property type, industry sector and geographic stratifications current as of September 30, 2019, as applicable.
  2. Excludes balances 100% contractually covered byprogram-specificloss-sharing arrangements.

Notes on slide 15 - Proactively managing areas of potential industry concern - Education

1. Excludes credit card and education portfolios. Portfolio balances as of September 30, 2019. Based on most current available FICO scores and collateral value. Loan term, lien position, risk rating, property type, industry sector and geographic stratifications current as of September 30, 2019, as applicable.

Notes on slide 16 - Proactively managing areas of potential industry concern - Auto

  1. Assumes that for loans where refreshed FICO score information not available, the balance stratification is consistent with the remainder of the portfolio.
  2. Portfolio balances as of September 30, 2019. Refreshed values based on most current available FICO scores and collateral value. Loan term, lien position, risk rating, property type, industry sector and geographic stratifications current as of September 30, 2019, as applicable. LTV calculated utilizing actual invoice amount or Kelley Blue Book value.
  3. Peer weighted average includes BBT, CMA, FITB, KEY, MTB, PNC, RF, STI, and USB.

Notes on slide 17 - Proactively managing areas of potential industry concern - CRE

  1. Portfolio balances as of September 30, 2019. Based on most current available FICO scores and collateral value. Loan term, lien position, risk rating, property type, industry sector and geographic stratifications current as of September 30, 2019, as applicable.
  2. Risk ratings representbond-equivalent ratings of borrowers based on CFG's internal probability of default risk ratings.

Notes on slide 18 - DFAST company-run stress results compare favorably to peers

1. Represents Bank Holding Company-run severely adverse scenario credit loss rates. 2014-2017 peer average includes BBT, CMA, FITB, KEY, MTB, PNC, RF, STI, and USB; 2018 peer average excludes CMA. 2019 peer average includes PNC and USB only.

22

Disclaimer

Citizens Financial Group Inc. published this content on 05 November 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 November 2019 21:54:01 UTC

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