Excluding notable items, Underlying* third quarter 2018 net income of $450 million increased $102 million, or 29%, and earnings per diluted common share of $0.93 increased $0.25, or 37%, from third quarter 2017. Third quarter 2018 net income increased $25 million, or 6%, and earnings per diluted common share increased $0.05, or 6%, from second quarter 2018. ROTCE* of 13.5% improved from 10.1% in third quarter 2017 and 12.9% in second quarter 2018.

“We are highly pleased that we continue to execute well and deliver strong top-line growth and positive operating leverage, which has powered underlying year-on-year EPS growth of 37% and ROTCE improvement to 13.5%,” said Chairman and Chief Executive Officer Bruce Van Saun. “We are doing a good job with balance sheet management, as we remain highly prudent and selective on where we deploy capital to support loan growth, and we are building new deposit-gathering capabilities, such as Citizens Access. In addition, we continue to invest in broadening and building our fee-based capabilities, highlighted by the closing of the Franklin American Mortgage Company acquisition, and in the development of robust technology offerings, including strong digital and data capabilities.”

Citizens also announced today that its board of directors declared a fourth quarter 2018 cash dividend of $0.27 per common share. The dividend is payable on November 14, 2018 to stockholders of record at the close of business on October 31, 2018.

* Please see important information on Key Performance Metrics and Non-GAAP Financial Measures, as applicable, at the end of this release for an explanation of our use of these metrics and non-GAAP financial measures and their reconciliations to GAAP financial measures. “Underlying” results exclude the impact of notable items. Where there is a reference to Underlying results in a paragraph, all measures that follow these references are on the same basis, when applicable. References to Underlying results excluding FAMC adjust for the impact of the August 1, 2018 FAMC acquisition. Additional information regarding the impact of the FAMC acquisition and notable items may be found in the Discussion of Results portion of this release. Throughout this release, references to consolidated and/or commercial loans and loan growth include leases. Loans held for sale are also referred to as LHFS. Current reporting-period regulatory capital ratios are preliminary. Select totals may not foot due to rounding.

Third Quarter 2018 vs. Second Quarter 2018

Key Highlights

• Third quarter highlights include 2% growth in net interest income, reflecting higher loan yields, and 7% growth in noninterest income, driven by growth in mortgage banking fees, service charges and fees, trust and investment services fees, other income and card fees. Mortgage banking fees increased $22 million, driven by the FAMC acquisition.
• Efficiency ratio of 58.2% remained relatively stable, despite the 1.25% increase tied to the FAMC acquisition. Excluding the impact of FAMC, the Underlying efficiency ratio* improved by 100 basis points to 57.0%, given expense discipline, and positive operating leverage was 1.8%.
• ROTCE improved to 13.3% from 12.9%; 13.5% on an Underlying basis.*
• Tangible book value per common share of $27.66 remained relatively stable. Fully diluted average common shares outstanding decreased 8.5 million shares, or 2%.

Results

• Total revenue of $1.6 billion increased 4%, reflecting strength in net interest income and noninterest income.
  • Net interest income of $1.1 billion increased $27 million, or 2%, driven by higher loan yields, loan growth and the benefit of day count.
  • Net interest margin of 3.19% reflects two basis points of net interest margin expansion, largely tied to higher loan yields, partially offset by a one basis point reduction tied to the FAMC acquisition. Net interest margin, excluding the impact of FAMC,* improved two basis points to 3.20%.
  • Noninterest income of $416 million increased $28 million, or 7%, driven by the $24 million impact of the FAMC acquisition, largely in mortgage banking fees, as well as higher service charges and fees and trust and investment services fees. Noninterest income, excluding the impact of FAMC,* of $392 million increased $4 million, or 1%.
  • Noninterest expense of $910 million increased $35 million, or 4%, driven by the $34 million impact of the FAMC acquisition and notable items.* Underlying* noninterest expense, excluding the impact of FAMC, of $876 million was stable, reflecting continued execution against our efficiency initiatives.
• Provision for credit losses of $78 million decreased $7 million, or 8%, given a decrease in reserves tied to improvements in credit quality in retail real estate-secured products.

Balance Sheet

• Average interest-earning assets increased $1.6 billion, or 1%, which includes a $790 million increase tied to the FAMC acquisition, largely in loans held for sale. Results also reflect loan growth of 1% with particular strength in retail including residential mortgage, unsecured and education as well as growth in selective commercial categories and commercial real estate.
• Average deposits grew $1.9 billion, or 2%, with strength in most categories. Results include a $442 million increase tied to the FAMC acquisition and $551 million tied to Citizens Access(TM).
• Nonperforming loans and leases (“NPLs”) to total loans and leases ratio of 0.73% decreased from 0.75%, and the allowance coverage of NPL ratio improved to 149% from 148%.
• Net charge-offs increased modestly to 30 basis points from 27 basis points, driven by seasonally higher retail auto net
  charge-offs, as well as a modest increase in commercial.
• Capital strength remains robust, with a common equity tier 1 (“CET1”) risk-based capital ratio of 10.8%, which includes an approximately 18 basis point reduction tied to the FAMC acquisition.
• Repurchased $400 million of common stock at a weighted-average effective price of $39.83, and including common dividends, returned $529 million to stockholders.

Third Quarter 2018 vs. Third Quarter 2017

Key Highlights

• Third quarter results reflect a 28% increase in net income available to common stockholders, driven by 8% revenue growth, with 8% growth in net interest income and 9% growth in noninterest income. Underlying* net income available to common stockholders increased 30%, while revenue, excluding the impact of FAMC,* increased 7%.
• Continued focus on top-line growth and expense management helped deliver 2.2% operating leverage and a 121 basis point improvement in the efficiency ratio to 58.2%. Underlying* operating leverage, excluding the impact of FAMC, was 4.4%, with a 246 basis point improvement in the efficiency ratio to 57.0%.
• ROTCE of 13.3% improved 3.2% from 10.1%. Underlying ROTCE of 13.5% improved 3.4%.*
• Tangible book value per common share improved to $27.66, up 2%. Fully-diluted average common shares outstanding decreased 24.6 million shares, or 5%.

Results

• Total revenue of $1.6 billion increased $121 million, or 8%, driven by strength in net interest income and noninterest income. Total revenue, excluding the impact of FAMC,* of $1.5 billion, increased $95 million, or 7%.
  • Net interest income increased $86 million, or 8%, driven by a 14 basis point improvement in net interest margin and 4% average loan growth. Net interest margin, excluding the impact of FAMC, improved 15 basis points
    to 3.20%.
  • Noninterest income of $416 million increased $35 million, or 9%, driven by strength in mortgage banking and trust and investment services fees. Noninterest income, excluding the impact of FAMC,* of $392 million, increased
    $11 million, or 3%, reflecting higher trust and investment services fees, foreign exchange and interest rate products fees and card fees.
  • Noninterest expense increased $52 million, or 6%, driven by the $34 million impact of the FAMC acquisition and notable items.* Underlying* noninterest expense, excluding the impact of FAMC,* increased $18 million, or 2%, driven by higher salary and employee benefits tied to higher revenue-based compensation and the impact of our strategic-growth initiatives.
• Provision for credit losses of $78 million increased $6 million, or 8%, reflecting higher commercial net charge-offs from third quarter 2017 levels that included higher recoveries in the prior period and higher retail net charge-offs tied to expected seasoning in unsecured products.

Balance Sheet

• Average interest-earning assets increased $4.7 billion, or 3%, driven by 4% loan growth, reflecting a 6% increase in commercial loans and a 2% increase in retail loans, partially offset by a $423 million, or 2% reduction in investments. The FAMC acquisition added $790 million in average interest-earning assets. Interest-earning assets, excluding the impact of FAMC,* increased 3%.
• Average deposits increased $4.1 billion, or 4%, driven by strength in term, demand and savings.
• NPL ratio of 0.73% improved from 0.85%, reflecting improvement in commercial NPLs. Allowance coverage of NPLs of 149% improved from 131%.
• Net charge-offs of 30 basis points increased 6 basis points, given higher net charge-offs in commercial from third quarter 2017 levels that included higher recoveries in the prior period, as well as seasoning in retail growth portfolios.

Year-Over-Year Update on Plan Execution

Consumer Banking segment

• Continued balance sheet momentum, with 3% average loan growth, highlighted by improving mix toward more attractive risk-adjusted return categories and 4% average deposit growth.
• Successful launch of Citizens Access™, a nationwide, digital-deposit platform with approximately $1.0billion raised through third quarter 2018. All key metrics tracking favorable to, or on, plan.
• Closed the previously announced FAMC transaction, which is expected to expand origination capabilities, help drive scale in servicing and generate increased fee income. The FAMC transaction added a $612 million mortgage servicing rights portfolio; conforming mix improved to 74%.
• Continued progress in Wealth with 18% fee growth; managed money revenue up 23%, assets under management up 15% and number of financial advisors up 5%.

Commercial Banking segment

• Continued strong balance sheet performance with average loan growth of 7%, driven by our geographic-expansion strategies and our focus on Industry Verticals as well as by strength in Private Equity and in Commercial Real Estate. Average deposits up 2% with solid growth in savings and demand deposits.
• Continue to benefit from investments to drive fee income, highlighted by a 30% increase in foreign exchange and interest rate products and an 18% increase in Commercial card fees. Capital Markets’ pipeline remains robust.

Efficiency and balance sheet optimization initiatives

• Launched TOP V Program, which includes efficiency and revenue initiatives, targeting pre-tax benefit of approximately $90 — $100 million by end of 2019. TOP IV Program initiatives are largely complete; on track to deliver end of 2018 run-rate pre-tax benefit of approximately $105 — $110 million.
• Continued progress on Balance Sheet Optimization (“BSO”) designed to improve the loan portfolio mix toward
  higher-return categories and help manage deposit costs. BSO delivered approximately 4 basis points of the 14 basis point net interest margin improvement year over year, or 5 basis points excluding the impact of FAMC.*