Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q2 2016 Earnings Presentation
41 slides from Citizens Financial's earnings presentation, Jul 21, 2016
Slide 1: 2Q16 Financial Results
2Q16 Financial Results July 21, 2016
Slide 2: Forward-looking statements
Forward-looking statements This document contains forward-looking statements within the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward- looking statement. These statements often include the words “believes,” “expects,”
Slide 3: 2Q16 highlights
2Q16 highlights GAAP diluted EPS of $0.46 up 31% from 2Q15 and up 15% from Adjusted(1) diluted EPS in 2Q15 Improving Revenue up 7% with Adjusted(1) operating leverage of over 3% YoY profitability and Adjusted(1) efficiency ratio improved ~2% YoY to 65% returns ROTCE of 7.3% increased from 5.
Slide 4: Financial summary — GAAP
Financial summary — GAAP Highlights Linked quarter: 2Q16 change from GAAP net income improved 9% and diluted EPS was up 12% $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 NII up $19 million, reflecting 2% average loan growth $ % $ % Noninterest income increased $25 million, or 8%, largely reflecting
Slide 5: Adjusted financial summary — excluding restructuring charges and special items
Adjusted financial summary — excluding restructuring charges and special items(1) Highlights Linked quarter: 2Q16 change from Net income increased $20 million, or 9% $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 ─ Diluted EPS increased 12% $ % $ % NII increased $19 million driven by 2% average loan gr
Slide 6: Net interest income
Net interest income $s in millions, except earning Net interest income Highlights assets $126B $129B Linked quarter: $123B $123B $124B NII up $19 million, or 2% ─ Reflects 2% average loan growth driven by commercial and student loans NIM of 2.84% remained relatively stable, down 2 bps $904 $923
Slide 7: Net interest margin
Net interest margin NIM walk 1Q16 to 2Q16 0.03% (0.02)% (0.01)% (0.02)% 2.86% 2.84% 1Q16 NIM% Loan Investment Deposit Borrowing 2Q16 NIM% yields portfolio costs costs/other yield NIM walk 2Q15 to 2Q16 0.14% (0.01)% 0.00% (0.01)% 2.84% 2.72% 2Q15 NIM% Loan Investment Deposit Borrowing 2Q16 NIM% yield
Slide 8: Noninterest income
Noninterest income $s in millions 2Q16 change from Highlights 2Q16 1Q16 2Q15 1Q16 2Q15 Linked quarter: $ % $ % Noninterest income increased $25 million, or 8%, driven by Service charges and fees $ 150 $ 144 $ 139 $ 6 4 % $ 11 8 % strength in nearly every category Card fees 51 50 60 1 2 (9) (15) Tr
Slide 9: Adjusted noninterest expense — excluding restructuring charges and special items
Adjusted noninterest expense — excluding .restructuring charges and special items(1) Highlights 2Q16 change from $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 Linked quarter: $ % $ % Noninterest expense increased $16 million, or 2% Adjusted salaries and benefits (1) $ 432 $ 425 $ 405 $ 7 2 % $ 27 7 %
Slide 10: Consolidated average balance sheet
Consolidated average balance sheet 2Q16 change from Highlights $s in billions 2Q16 1Q16 2Q15 1Q16 2Q15 $ % $ % Linked quarter: Investments and interest bearing Total earning assets up $3.3 billion, or 3%, with loan deposits $ 26.0 $ 25.5 $ 27.1 $ 0.5 2 % $ (1.1) (4) % growth of $2.4 billion, or 2%
Slide 11: Consumer Banking average loans and leases
Consumer Banking average loans and leases $s in billions Average loans and leases Highlights $52.5B $53.5B $54.0B Linked quarter: $50.7B $51.6B $2.5 Average loans increased $538 million, or 1%, largely reflecting $2.5 $2.4 $2.6 growth in higher yielding student and mortgage loans partially $2.3 $3
Slide 12: Commercial Banking average loans and leases
Commercial Banking average loans and leases $s in billions Average loans and leases Highlights $45.9B Linked quarter: $43.8B $41.8B $42.5B Average loans up $2.1 billion, or 5%, with strong growth in Mid- $41.3B $3.5 corporate and Industry Verticals, Commercial Real Estate, $3.2 $3.0 $3.0 Corporate
Slide 13: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $119.0B Linked quarter: $113.3B $114.0B $115.9B $113.0B $10.3 Total average deposits up $2.0 billion $3.9 $4.1 $6.0 $9.9 $5.1 $3.7 ─ Largely growth in lower-cost checking with interest, $6.5 $5
Slide 14: Strong credit quality trends continue
Strong credit quality trends continue $s in millions Net charge-offs (recoveries) Highlights $83 $78 $75 $77 Overall credit quality improved during the quarter with a decrease in both charge- $3 $7 $7 offs and NPLs $4 $65 $68 $67 Net charge-offs of $65 million, or 0.25% of average loans and leas
Slide 15: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 2Q15 3Q15 4Q15 1Q16 2Q16 Capital levels remain above regional peers (1,2) Basel III transitional basis Common equity tier 1 capital $ 13.3 $ 13.2 $ 13.4 $ 13.6 $ 13.8 2Q16 Basel III common equity tier 1 ratio (trans
Slide 16: Summary of progress on strategic initiatives
Summary of progress on strategic initiatives 2Q16 Initiative Commentary Status Retail checking HHs up QoQ and YoY with new checking HH first year attrition improvements. Deposits up 3% Reenergize household growth and services charges up 5% YoY. Application and origination volumes up 20% and 42% QoQ
Slide 17: Citizens continues to deliver positive operating leverage
Citizens continues to deliver positive operating leverage $s in millions 1H15 2H15 1H16 Highlights Adjusted Revenue(1) $ 2,383 $ 2,441 $ 2,512 Citizens operating leverage has been highly Adjusted Expense (1) $ 1,601 $ 1,608 $ 1,638 consistent: we’ve delivered positive YoY results in the past 8 con
Slide 18: Citizens’ ROTCE levels primarily reflect sub-par revenue achievement
Citizens’ ROTCE levels primarily reflect sub-par revenue achievement Relatively low-fee revenue capture is being addressed through growth initiatives Other contributing factors to low ROTCE include excess capital position and high tax rate, also being addressed Revenue-capture opportunity Expens
Slide 19: TOP II has delivered well across revenues and expenses
TOP II has delivered well across revenues and expenses Current estimate is to deliver $95-100 million benefit in 2016 2016 targeted pre-tax benefit Category Name Description Revenue Expense Progress to date Operations Refine operating model to simplify $25-$30 • Executed operating model changes in 2
Slide 20: TOP III is taking shape, greater emphasis on expenses
TOP III is taking shape, greater emphasis on expenses $s in millions Targeted annual run-rate benefit end 2017 re Name Description Revenue Expense Consumer Reducing staff in non-revenue areas and driving further efficiencies in the distribution network – $33-35 Commercial Streamlining end-to-end loa
Slide 21: Committed to delivering positive operating leverage
Committed to delivering positive operating leverage Forward curve currently projects very low probability of Fed rate increase over 2016/2017; current curve has flattened, with the long end significantly lower While this creates some headwind, we have been delivering solid operating leverage, EP
Slide 22: We achieved a successful CCAR/DFAST outcome
We achieved a successful CCAR/DFAST outcome $s in millions 2015 CCAR 2015 CCAR 2016 CCAR Highlights 5 Quarters 4-Quarter 4 Quarters Authorization Pro forma Strong capital position permits aggressive loan growth and shareholder return of capital, while Dividends $ 285 $ 228 $ 280 maintaining peer-l
Slide 23: TDR transaction highlights
TDR transaction highlights $s in millions TDR transaction detail Highlights Held for sale Transfers Paydowns Sold Sold $310 million of TDR assets on July 19th and Home recorded a 3Q16 ~$70 million gain on sale through Mortgage Equity Total Total Total Total other income Performing $ 222 $ 54 $ 276
Slide 24: 3Q16 outlook
3Q16 outlook(1) 3Q16 expectations vs. 2Q16(1) Net interest income, ~1.5% Loan growth net interest margin Slight decline in net interest margin Noninterest Low-single digit growth income Relatively stable Noninterest expense Committed to YoY operating leverage goals Broad credit trends re
Slide 25: Key messages
Key messages Citizens once again delivered strong results in 2Q16 ─ Financial results continue to improve and meet expectations ─ Delivering against strategic initiatives with strong growth in Capital Markets and improving results in Mortgage Banking ─ Continued execution on balance sheet optimiza
Slide 26: Appendix
Appendix 3% Citizens Financial Group, Inc.” 26
Slide 27: Quarter-over-quarter results
Quarter-over-quarter results Adjusted pre-provision profit (1) Period-end loans (2) Adjusted return on average $s in millions $s in billions tangible assets (1) $451 13% $103.6 $103.6 7% 5 bps $96.5 0.72% 0.67% $399 2Q15 2Q16 2Q15 2Q16 2Q15 2Q16 Adjusted net income (1) Period-end deposits Adju
Slide 28: Linked-quarter results
Linked-quarter results Pre-provision profit Period-end loans (1) Return on average tangible assets (2) $s in millions $s in billions $451 7% $103.6 $103.6 3% 4 bps $101.0 $101.0 0.72% $423 0.68% 1Q16 2Q16 1Q16 2Q16 1Q16 2Q16 Net income Period-end deposits Return on average tangible (2) $s in m
Slide 29: Consumer Banking segment
Consumer Banking segment 2Q16 change from Highlights $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 Linked quarter: $ % $ % Net income up $19 million, or 27% Net interest income $ 602 $ 581 $ 544 $ 21 4 % $ 58 11 % Net interest income up $21 million, driven by higher loan Noninterest income 219 208 230
Slide 30: Commercial Banking segment
Commercial Banking segment 2Q16 change from Highlights $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 Linked quarter: $ % $ % Commercial Banking net income increased $31 million, or 23% Net interest income $ 314 $ 300 $ 286 $ 14 5 % $ 28 10 % Total revenue increased $37 million with solid improvement i
Slide 31: Other
Other 2Q16 change from Highlights $s in millions 2Q16 1Q16 2Q15 1Q16 2Q15 Linked quarter: $ % $ % Other recorded a net loss of $11 million versus net income of $19 Net interest income $ 7 $ 23 $ 10 $ (16) (70) % $ (3) (30) % million. This decrease was largely driven by lower revenue and Noninteres
Slide 32: Oil & Gas portfolio overview
Oil & Gas portfolio overview 2Q16 Oil & Gas outstandings Highlights Well-diversified portfolio with ~100 clients Tota l Uti l i zed Cri ti ci zed Nona ccrua l $s i n mi l l i ons O/S % % s ta tus Includes $335 million of corporate aircraft leases arising from (1) Les s pri ce-s ens i ti ve tota
Slide 33: Restructuring charges and special items
Restructuring charges and special items $s in millions, except per share data GAAP results included restructuring charges and special items related to enhancing efficiencies and improving processes across the organization and separation from The Royal Bank of Scotland Group plc (“RBS”). Restructurin
Slide 34: Non-GAAP financial measures
Non-GAAP financial measures This document contains non-GAAP financial measures. The table below presents reconciliations of certain non-GAAP measures. These reconciliations exclude restructuring charges and/or special items, which are included, where applicable, in the financial results presented in
Slide 35: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations (Excluding restructuring charges and special items) $s in millions, except per share data FOR THE SIX MONTHS FOR THE YEAR QUARTERLY TRENDS ENDED JUNE 30, ENDED DECEMBER 31, 2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015 2015 2014 Noninterest income, excluding spec
Slide 36: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations (Excluding restructuring charges and special items) $s in millions, except per share data FOR THE SIX MONTHS FOR THE YEAR QUARTERLY TRENDS ENDED JUNE 30, ENDED DECEMBER 31, 2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015 2015 2014 Return on average total assets, ex
Slide 37: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations (Excluding restructuring charges and special items) $s in millions, except per share data FOR THE SIX MONTHS QUARTERLY TRENDS ENDED JUNE 30, 2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015 Pro forma Basel III fully phased-in common equity tier 1 capital ratio1: Com
Slide 38: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations (Excluding restructuring charges and special items) $s in millions FOR THE SIX MONTHS QUARTERLY TRENDS ENDED JUNE 30, 2Q16 vs 1Q16 2Q16 vs 2Q15 2Q16 1Q16 4Q15 3Q15 2Q15 2016 2015 % Change % Change Operating leverage: Total revenue (GAAP) A $1,278 $1,23
Slide 39: Non-GAAP financial measures and reconciliations – segments
Non-GAAP financial measures and reconciliations – segments $s in millions THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED DECEMBER 31, 2016 2016 2015 Consumer Commercial Consumer Commercial Consumer Commercial Banking Banking Other Consolidated Banking Banking Other Conso
Slide 40: Non-GAAP financial measures and reconciliations – segments
Non-GAAP financial measures and reconciliations – segments $s in millions FOR SIX MONTHS ENDED JUNE 30, 2016 2015 Consumer Commercial Consumer Commercial Banking Banking Other Consolidated Banking Banking Other Consolidated Net income available to common stockholders: Net income (loss) (GAAP) A $161
Slide 41: Citizens Financial Group, Inc.
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