Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q2 2020 Earnings Presentation
40 slides from Citizens Financial's earnings presentation, Jul 17, 2020
Slide 1: 2Q20 Financial Results
2Q20 Financial Results July 17, 2020
Slide 2: Forward-looking statements and use of non-GAAP financial measures
Forward-looking statements and use of 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 and future dividends, as wel
Slide 3: 2Q20 GAAP financial summary
2Q20 GAAP financial summary Reported 2Q20 change from $s in millions 2Q20 1Q20 2Q19 1Q20 2Q19 $/bps % $/bps % Net interest income $ 1,160 $ 1,160 $ 1,166 $ — —% $ (6) (1)% Noninterest income 590 497 462 93 19 128 28 Total revenue 1,750 1,657 1,628 93 6 122 7 Noninterest expense 979 1,012 951 (33) (3
Slide 4: Executive summary
Executive summary Underlying net income available to common of $235 million, with EPS of $0.55(1) compares with $0.96 in second quarter 2019 and $0.09 in first quarter 2020 − Results include COVID-19-driven provision expense impact of $0.59 per share; Underlying EPS of $1.14 before COVID-19-driven r
Slide 5: 2Q20 Underlying financial summary
2Q20 Underlying financial summary(1) $s in millions Highlights 2Q20 change from Linked quarter: Underlying, as applicable 2Q20 1Q20 2Q19 1Q20 2Q19 Underlying net income available to common of $235 million, with EPS %/bps %/bps of $0.55; TBV/share of $32.13 up 1% Net interest income $ 1,160 $ 1,160 $
Slide 6: Net interest income
Net interest income $s in millions, except earning assets Net interest income Highlights Linked quarter: NII was stable ─ Positively impacted by interest-earning asset growth and $162.4B improved funding mix, offset by the impact of lower $146.3B $146.5B $148.9B $150.9B interest rates NIM of 2.88% d
Slide 7: Noninterest income
Noninterest income $s in millions 2Q20 change from Highlights Underlying, as applicable 2Q20 1Q20 2Q19 1Q20 2Q19 $ % $ % Linked quarter: Service charges and fees $ 84 $ 118 $ 126 (34) (29) % (42) (33) % Mortgage banking fees 276 159 62 117 74 214 NM Record noninterest income, up 19%, reflecting reco
Slide 8: Noninterest expense
Noninterest expense $s in millions 2Q20 change from Highlights Underlying, as applicable 2Q20 1Q20 2Q19 1Q20 2Q19 Linked quarter: $ % $ % Salaries & employee benefits $ 509 $ 539 $ 505 $ (30) (6)% $ 4 1 % Underlying noninterest expense decreased $19 million, or 2%, reflecting seasonally lower salari
Slide 9: Average loans and leases
Average loans and leases $s in billions YoY loan Average core loans and leases(1) growth Highlights $127.7 Total core Linked quarter: 10% $117.7 $120.0 Core loans and leases up $7.7 billion, or 6%, largely reflecting $116.3 $116.0 higher commercial line of credit utilization tied to COVID-19 disrupt
Slide 10: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA(1) Highlights $153.6 Linked quarter: $0.2 $141.3 Total deposits up $15.0 billion, or 12% $139.0 $11.8 $136.4 $136.7 $0.6 ST borrowed funds $0.5 ─ Growth in demand deposits, money market accounts, $0.9 $0.6
Slide 11: Credit quality
Credit quality(1) $s in millions Highlights Nonaccrual loans to total loans ratio of 0.79% compares with 0.61% in 1Q20 and 0.62% in 2Q19 Nonaccrual loans ─ Nonaccrual loans of $990 million increased $210 million, or 27%, QoQ, reflecting a $192 million increase in commercial and an $18 million increa
Slide 12: Supporting customers and clients in need while prudently managing risk
Supporting customers and clients in need while prudently managing risk $s in billions Forbearance summary PPP lending Pace of new forbearance requests has slowed dramatically across all $4.7 billion PPP loan balance at June 30, 2020 consumer loan categories and early trends are encouraging: Customer
Slide 13: CECL provision reflects impact from COVID-19 disruption
CECL provision reflects impact from COVID-19 disruption CECL methodology and key variables Highlights Utilized May 13 Moody’s Baseline scenario, which 2Q20 provision expense of $464 million reflects 2Q20 GDP down ~33%, with peak unemployment of ~15%, followed by a gradual ─ Includes CECL-related res
Slide 14: Capital and liquidity remain strong
Capital and liquidity remain strong Highlights as of 2Q20 CET1 ratio of 9.6%(3) increased 20 bps from 1Q20 while $s in billions (period-end) 2Q19 3Q19 4Q19 1Q20 2Q20 incorporating CECL reserve build of $317 million Basel III basis(1) ─ Net income: 17 bp increase Common equity tier 1 capital $ 14.6 $
Slide 15: Strong reserve, capital & PPNR relative to stress losses
Strong reserve, capital & PPNR relative to stress losses $s in billions Strong capital and allowance level plus PPNR generation provides substantial coverage of severe loss scenarios 2020 Severely adverse loss coverage Observations capacity before PPNR Maintaining strong capital and credit reserve l
Slide 16: Commentary: Fed severely adverse stress test results
Commentary: Fed severely adverse stress test results 2020 DFAST severely adverse PPNR as % of average assets Observations Peer Average CFG CFG CFG (1) Fed CCAR/DFAST results illustrate strong capital position and Fed-run Fed-run Company-run 1H20 further improvements to balance sheet and business mod
Slide 17: Strategic initiatives update
2Q20 YoY Strategic initiatives update Record mortgage banking fees; originations up 87% and gain Strategic & business highlights Consumer Enhance mortgage platform on sale margins improved 196 bps to 3.09% Resilient trust and investment services fees; Managed money Expand wealth Group Fee growth rev
Slide 18: FY2020 outlook vs. FY2019
FY2020 outlook vs. FY2019 We offer commentary on factors influencing FY2020 outlook for key categories Net interest income Broadly stable vs. FY19 including the benefit of PPP program ‒ Expect strong loan growth to offset meaningful decrease in NIM due to rates Noninterest income Up meaningfully vs.
Slide 19: 3Q20 outlook vs. 2Q20
3Q20 outlook vs. 2Q20 We offer commentary on factors influencing key categories (1) (1) 3Q20 Underlying outlook 2Q20 Underlying results (includes the impact of acquisitions and excludes notable items) Up modestly reflecting PPP benefit on NIM Net interest $1,160 million Loans down modestly due to de
Slide 20: Key messages
Key messages Citizens 2Q20 results demonstrate strength and resiliency of franchise, along with continued strong execution Underlying results reflect the benefit of Citizens diversified business model ─ Record fee income driven by record results in mortgage banking ─ Continuing excellent performance
Slide 21: Appendix
Appendix 3* Citizens Financial Group, Inc.” 21
Slide 22: Underlying results pre and post CECL reserve build
Underlying results pre and post CECL reserve build(1) $s in millions 2Q20 Income Statement and EPS Results using NCO's Results post- Impact of CECL reserve build on EPS pre-reserve build reserve build Net interest income $ 1,160 $ 1,160 Noninterest Income 590 590 Total Revenue 1,750 1,750 Noninteres
Slide 23: Allocation of allowance by product type
Allocation of allowance by product type $s in millions 4Q19 Probable Incurred January 1, 2020 March 31, 2020 June 30, 2020 Losses CECL Adoption CECL CECL % of Loans and % of Loans % of Loans % of Loans % of Loans leases and leases and leases and leases and leases outstanding Allowance for loan and l
Slide 24: Commercial credit – diversified portfolio with prudent credit discipline
Commercial credit – diversified portfolio with prudent credit discipline $s in billions 1Q20 2Q20 Highlights % of % of Industry sectors Balance Total CFG Balance Total CFG Overall Real Estate and Rental and Leasing $13.8 11 % $13.8 11 % Highly granular and diversified portfolio in terms of geography
Slide 25: Commercial credit – update on industries of market concern
Commercial credit – update on industries of market concern $s in billions Working proactively with clients and remain ready to support our clients’ needs 2Q20 % of Non-accrual Balance total Industry sectors ex-PPP CFG $ % Commentary Focused on larger, well-capitalized institutional and upper middle
Slide 26: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline $s in billions 1Q20 2Q20 Highlights % of % of WA ~70% of the retail portfolio is secured Retail portfolio Balance total CFG Balance total CFG FICO Mortgage weighted-average LTV of 62% with ~3% of the Residential mortgage $18.7 15 %
Slide 27: Retail credit – portfolio and forbearance detail
Retail credit – portfolio and forbearance detail $s in billions Retail performance reflects Citizens strong underlying credit quality and prudent underwriting discipline and we remain ready to assist our customers through navigating these challenges 2Q20 % of total Nonaccrual In forbearance Portfoli
Slide 28: Notable Items
Notable Items(1) First and second quarter 2020 results reflect notable items primarily related to TOP 6 transformational and revenue and efficiency initiatives. First and second quarter 2020 and second quarter 2019 results also reflect notable items related to integration costs primarily tied to the
Slide 29: GAAP noninterest income and noninterest expense summary
GAAP noninterest income and noninterest expense summary $s in millions GAAP 2Q20 change from Noninterest expense 2Q20 1Q20 2Q19 1Q20 2Q19 $ % $ % Service charges and fees $ 84 $ 118 $ 126 (34) (29) % (42) (33) % Mortgage banking fees 276 159 62 117 74 214 NM Card fees 48 56 64 (8) (14) (16) (25) Cap
Slide 30: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 30
Slide 31: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 31
Slide 32: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 32
Slide 33: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 33
Slide 34: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 34
Slide 35: Non-GAAP reconciliations – Underlying excluding the reserve build
Non-GAAP financial measures and reconciliations – Underlying excluding the reserve build $s in millions, except share, per share and ratio data 35
Slide 36: Non-GAAP reconciliations – Underlying excluding the reserve build
Non-GAAP financial measures and reconciliations – Underlying excluding the reserve build $s in millions, except share, per share and ratio data 36
Slide 37: Non-GAAP reconciliations – Underlying excluding the impact of PPP Loans
Non-GAAP financial measures and reconciliations – Underlying excluding the impact of PPP Loans $s in millions, except share, per share and ratio data 37
Slide 38: Notes
Notes Notes on Non-GAAP Financial Measures See important information on Non-GAAP Financial Measures at the beginning and end of this presentation for an explanation of our use of these non-GAAP financial measures and their reconciliations to GAAP financial measures. “Underlying” or “Adjusted” result
Slide 39: Notes continued
Notes continued Notes on slide 19 – 3Q20 vs. 2Q20 outlook 1) See above note on non-GAAP financial measures. Notes on slide 20 – Key messages 1) See above note on non-GAAP financial measures. 2) See above general note f). Notes on slide 22 – Underlying results per and post CECL reserve build 1) See a
Slide 40: Citizens Financial Group, Inc.
3* Citizens Financial Group, Inc.”
Citizens Financial Group — Q2 2020 Earnings Presentation on 6ix