Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q1 2020 Earnings Presentation
48 slides from Citizens Financial's earnings presentation, Apr 17, 2020
Slide 1: 1Q20 Financial Results
1Q20 Financial Results April 17, 2020 Exhibit 99.2
Slide 2: Forward-looking statements and use of key performance metrics and non-GAAP financial measures
Forward-looking statements and use of key performance metrics and non-GAAP financial measures Forward-Looking Statements. This document contains forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases
Slide 3: 1Q20 GAAP financial summary
1Q20 GAAP financial summary See pages 46-47 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 described on page 38.
Slide 4: Current situation – Executive summary
Driving progress on strategic initiatives to emerge well-positioned TOP 6 Program progressing well - no change to expected pre-tax run-rate benefits of ~$300 - $325 million by YE2021 Strategic revenue initiatives designed to add new capabilities also progressing Assessing new opportunities arising f
Slide 5: Supporting customers and clients in need while prudently managing risk
Supporting customers and clients in need while prudently managing risk Commentary Loan forbearance requests Consumer requests driven by Mortgage, Business Banking, Auto and Education $s in billions See pages 46-47 for notes and important information on Key Performance Metrics and Non-GAAP Financial
Slide 6: CECL impacted by COVID-19 disruption
CECL impacted by COVID-19 disruption Highlights 1Q20 provision expense of $600 million Includes CECL-related reserve build tied to COVID-19 impacts of $463 million, or $0.85 per share Allowance for credit losses of $2.2 billion breaks down as follows: Estimate assumes V-shaped recovery, with sharp d
Slide 7: Financials – Executive summary
Financials – Executive summary Prudently managing credit Nonaccrual loans of 0.61% of loans compares with 0.59% in 4Q19 and 0.63% in 1Q19 Nonaccrual loan coverage ratio of 283% reflects CECL Day-1 implementation and provision impact from COVID-19 disruption; compares with 184% in 4Q19 and 179% in 1Q
Slide 8: 1Q20 Underlying financial summary
Highlights 1Q20 Underlying financial summary(1) Linked quarter: Underlying net income available to common of $37 million, with EPS of $0.09. TBV/share relatively stable at $31.97 and includes $1.16 per share for OCI Provision for credit losses of $600 million reflects $463 million, or $0.85 CECL COV
Slide 9: Net interest income
Highlights Net interest income Linked quarter: NII increased 1% Positively impacted by loan growth and lower funding costs, partially offset by lower loan yields and day count NIM of 3.10% increased 4 bps Positively impacted by improved loan spreads, reflecting wider LIBOR/OIS spreads, and mix as we
Slide 10: Noninterest income
Noninterest income Highlights Linked quarter: Noninterest income was up 1%, as record results in mortgage banking and trust and investment services were partially offset by COVID-19 impacts on service charges and fees, card fees, capital markets and FX & IRP fees Record mortgage banking fees of $159
Slide 11: Noninterest expense
$s in millions Noninterest expense Highlights Linked quarter: Underlying noninterest expense increased $30 million, or 3%, largely reflecting seasonality and higher revenue-based compensation Underlying salaries and employee benefits increased $43 million, or 9%, reflecting seasonally higher payroll
Slide 12: Average loans and leases
Average loans and leases Highlights YoY loan growth á 3% á 3% á 4% Total core Total core retail Total core commercial Total core commercial loans and leases Total core retail loans (2) Linked quarter: Core loans and leases increase of $2.3 billion, or 2%, reflects the impact of higher commercial lin
Slide 13: Deposits
Linked quarter: Total deposits up $978 million, or 1% Growth in checking with interest, money market and savings largely offset by lower term and demand deposits Citizens Access® raised $6.1 billion through quarter end Period-end deposit growth of $8.2 billion, or 7%, kept pace with loan growth Tota
Slide 14: Credit quality and COVID-19 assessment
Citizens continues to assess the impact of the COVID-19 pandemic and has instituted a variety of measures to identify and monitor areas of potential risk, including direct outreach to commercial clients and close monitoring of retail credit metrics Nonaccrual loans to total loans ratio of 0.61% comp
Slide 15: We have been highly disciplined on credit, with prudent risk appetite
We have been highly disciplined on credit, with prudent risk appetite Weighted-average FICO score of ~760 ~70% collateralized ~80% of real estate portfolio is 1st lien Core mortgage – FICO ~785; CLTV of ~60% Core home equity – FICO ~765 51% 1st lien, CLTV of ~55% Highly granular and diversified port
Slide 16: DFAST company-run stress results compare favorably to peers
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 See pages 46-47
Slide 17: Commercial credit – diversified portfolio with prudent credit discipline
Commercial credit – diversified portfolio with prudent credit discipline Overall Highly granular and diversified portfolio in terms of geography, industry and asset class Experienced leadership team focused on portfolios most heavily impacted by COVID-19 and low energy prices Robust client-level cas
Slide 18: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline Home Equity Indirect Auto Residential Mortgage Education Refi Credit Cards Other Non-Core Education InSchool $X.X billion 1Q20 retail portfolio(1) Highlights ~70% of the retail portfolio is secured Mortgage average LTV of 62% with
Slide 19: Capital levels remain at the higher end of the range for regional peers
Capital levels remain at the higher end of the range for regional peers 1Q20 CET1 ratio of 9.4%(3) decreased 61 bps from 4Q19 Net income: 2 bp increase RWA growth, including higher commercial line of credit utilization : 41 bp decrease Common share repurchase: 19 bp decrease Dividends and other: 3 b
Slide 20: Strategic initiatives update
1Q20 YoY Strategic initiatives update Fee growth Consumer Enhance mortgage platform Record mortgage banking fees; originations up 105% and gain on sale margins improved 108 bps Expand wealth Record trust and investment services fees; Managed money revenue up 37%; Households up 5% Commercial Expand C
Slide 21: FY2020 outlook vs. FY2019
FY2020 outlook vs. FY2019 See pages 46-47 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 described on page 38. Net interest income Up modestly vs.
Slide 22: 2Q20 outlook vs. 1Q20
2Q20 outlook vs. 1Q20 See pages 46-47 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 described on page 38. We offer commentary on factors influenci
Slide 23: Key messages
Key messages Citizens is delivering well for all stakeholders through challenging times Underlying financial results were solid before the CECL reserve build Good diversification of business model delivered strong PPNR performance Excellent performance on loans, deposits, hedging, liquidity, funding
Slide 24: Appendix
Appendix Xx Citizens nancial Group,
Slide 25: Underlying results pre and post CECL reserve build
Underlying results pre and post CECL reserve build(1) See pages 46-47 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 described on page 38. See page
Slide 26: Allocation of Allowance by Product Type
Allocation of Allowance by Product Type
Slide 27: Analysis of selected loan portfolios
Analysis of selected loan portfolios page CRE: Retail & Hospitality 28 Accommodation & Food Services 29 Retail Trade 30 Energy & Related 31 Arts, Entertainment & Recreation 32 Core mortgage portfolio overview 33 Core home equity portfolio 34 Auto 35 Education 36 Unsecured 37
Slide 28: CRE: Retail & Hospitality
CRE: Retail & Hospitality Portfolio focused on larger, well-capitalized institutional and upper middle market sponsors and owners well known to us Focus on regions with strong growth with an eye to geographic diversity 78% of the CRE portfolio is project-secured, 60% represented by income-producing
Slide 29: Accommodation & Food Services
In 1Q18 did a deep dive on the restaurant portfolio and repositioned the business model in response to sector concerns ~74% of food services is fast food and fast casual; ~42% McDonald’s franchisee Better positioned to manage social distancing through take out and drive-through capabilities Franchis
Slide 30: Retail Trade
Retail Trade Highlights *All Other includes: Furniture and Home Furnishing, Electronics and Appliance and Miscellaneous ~60% tied to lower risk essential retail services not materially impacted by COVID-19 pandemic ~25% asset-based lending with an average loan balance ~$25 million (2) Need to get av
Slide 31: Energy & Related
Energy & Related ~$1.1 billion more sensitive to declining oil prices Midstream Integrated Downstream RBL Upstream, Non-RBL Oil Field Services Energy & Related portfolio by Sub-sector(3) (1) $s in millions B- and lower AAA to BBB- BB+ to BB- B+ to B 65% investment grade Energy & Related portfolio by
Slide 32: Arts, Entertainment & Recreation
What we are monitoring Arts, Entertainment & Recreation ~50% to sports teams and stadiums Low historic loss rates given contractual revenue streams from cable broadcasters and structural protection Other represents a broadly diverse set of industries with no more than 20% concentration in any one se
Slide 33: Core mortgage portfolio overview
Core mortgage portfolio overview Highlights Jumbo mortgages originated primarily within the Bank’s lending footprint Weighted-average refreshed FICO score of ~785 and CLTV of ~60% Risk mitigants: Greater use of mortgage insurance at higher LTV's Enhanced policies to reduce refi cash-out volume Stron
Slide 34: Core home equity portfolio
Highlights Core home equity portfolio(1) 50% of the HELOC portfolio is secured by 1st lien Weighted-average FICO of ~765 93% of the HELOC portfolio has an LTV of less than 80% $s in billions 2016 2017 2018 2019 1Q20 Period-end loans $15.9 $14.9 $13.7 $12.8 $12.6 Average loans $16.5 $15.2 $14.2 $13.2
Slide 35: Auto
Auto Highlights(1) by Refreshed FICO score ≤ 48 49-60 76-84 61-66 67-72 73-75 (1,2) 1Q20 $12.2 billion auto portfolio % new-car ~55% by Term (months) Auto finance portfolio – purchase only, no leasing, weighted-average FICO score of ~725 ~74% of the portfolio has a FICO score equal to or greater tha
Slide 36: Core Education
Core Education Core education finance portfolio weighted-average FICO score of ~780 and co-sign rate of ~50% $3.0 billion InSchool portfolio – FICO ~775 Underwriting includes use of custom scoring and risk-based income verification 95% co- sign Education Refinance Education refinance portfolio borro
Slide 37: Unsecured
Risk mitigants: Prudent tightening of PERL credit policy Significantly restricted non-branch originations Raised FICO, lowered DTI, lowered loan limits and further enhanced employment and income verification Measured approach to growth & loan limits Continue to improve our analytical suite of tools;
Slide 38: Notable Items
Notable Items(1) First quarter 2020 and fourth quarter 2019 results reflect notable items primarily related to TOP 6 transformational and revenue and efficiency initiatives. First quarter 2020 and 2019 results also reflect notable items related to integration costs primarily tied to the August 1, 20
Slide 39: GAAP noninterest income and noninterest expense summary
GAAP noninterest income and noninterest expense summary $s in millions
Slide 40: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data
Slide 41: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data
Slide 42: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data
Slide 43: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data
Slide 44: Key performance metrics, Non-GAAP financial measures and reconciliations
$s in millions, except share, per share and ratio data Key performance metrics, Non-GAAP financial measures and reconciliations
Slide 45: Underlying excluding the impact of COVID-19 on provision for credit losses
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding the impact of COVID-19 on provision for credit losses $s in millions, except share, per share and ratio data
Slide 46: Notes on Key Performance Metrics and Non-GAAP Financial Measures
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
Slide 47: Notes on slides
Notes on slide 16 – DFAST company-run stress results compare favorably to peers 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
Slide 48: Citizens Financial Group, Inc.
3* Citizens Financial Group, Inc.”
Citizens Financial Group — Q1 2020 Earnings Presentation on 6ix