Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q3 2020 Earnings Presentation
36 slides from Citizens Financial's earnings presentation, Oct 16, 2020
Slide 1: 3Q20 Financial Results
3Q20 Financial Results October 16, 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: 3Q20 GAAP financial summary
3Q20 GAAP financial summary Q/Q Y/Y $s in millions 3Q20 2Q20 3Q19 $/bps % $/bps % Net interest income $ 1,137 $ 1,160 $ 1,145 $ (23) (2)% $ (8) (1)% Noninterest income 654 590 493 64 11 161 33 Total revenue 1,791 1,750 1,638 41 2 153 9 Noninterest expense 988 979 973 9 1 15 2 Pre‐provision profit 80
Slide 4: 3Q20 Underlying financial summary
3Q20 Underlying financial summary(1) Underlying, as applicable Q/Q Y/Y $s in millions 3Q20 2Q20 3Q19 %/bps Net interest income $1,137 $1,160 $1,145 (2) % (1) % Noninterest income 654 590 493 11 33 Total revenue 1,791 1,750 1,638 2 9 Noninterest expense 957 960 954 — — Pre‐provision profit 834 790 68
Slide 5: Executive summary
Executive summary Underlying net income available to common of $313 million; EPS of $0.73(1) compares with $0.98 in third quarter 2019 and $0.55 in second quarter 2020 Record revenue of $1.8 billion, up 9% YoY and up 2.4% QoQ, demonstrating our diversification and resilience Solid NII down 1%
Slide 6: Net interest income
Net interest income Disciplined deposit pricing and improved funding mix help moderate margin pressure NII and NIM Highlights $s in millions, except earning assets $162.4B Linked Quarter $160.2B $146.5B $148.9B $150.9B NII down 2% ─ Reflects impact of lower rates and 1% decrease in interest-earnin
Slide 7: Noninterest income
Noninterest income Record revenue with noninterest income up 33% YoY, paced by record results in Mortgage and strength in Capital Markets $ $s in millions 3Q20 2Q20 3Q19 Q/Q Y/Y Highlights Service charges and fees $ 97 $ 84 $128 $ 13 $ (31) Linked Quarter Mortgage banking fees 287 276 117 11 170 Car
Slide 8: Mortgage banking fees
Mortgage banking fees Record mortgage banking fees continue counterbalancing market rate impacts on NII; significant refi opportunity for the industry expected to continue well into 2021 Mortgage banking fee growth Highlights Highlights $s in millions Mortgage banking business built out over last
Slide 9: Noninterest expense
Noninterest expense(1) Continued expense discipline contributes to Underlying positive operating leverage of 9.0% YoY and 2.6% QoQ(1) (1) Underlying, as applicable $ Highlights $s in millions 3Q20 2Q20 3Q19 Q/Q Y/Y Salaries & employee benefits $ 511 $ 509 $ 503 $ 2 $ 8 Linked Quarter Equipment & sof
Slide 10: Average loans and leases
Average loans and leases Core loans up 7% YoY with commercial up 12% and retail up 2%; down 3% QoQ Average core loans and leases(1) Highlights $s in billions $120.0 $127.7 $123.9 Linked Quarter $116.0 $117.7 Core loans down $3.8 billion, or 3%; up very slightly ex. $67.0 $63.4 PPP, commercial line
Slide 11: Average funding and cost of funds
Average funding and cost of funds Average deposits up 14% YoY and broadly stable QoQ with improved mix and deposit pricing actions contributing to driving total cost of funds down 76 bps YoY and 12 bps QoQ Growing lower-cost deposits(1) Highlights $s in billions $80 $84 Linked Quarter $66 $67 $68
Slide 12: CECL provision reflects impact from COVID-19 disruption
CECL provision reflects impact from COVID-19 disruption CECL methodology & key variables Highlights Utilized a macroeconomic scenario that 3Q20 provision expense of $428 million, including a reserve generally reflects GDP growth of 4.5% over build of $209 million 2021, returning to 4Q19 real GDP
Slide 13: Forbearance update
Forbearance update Highlights Working proactively with Commercial Banking customers seeking flexibility on loan terms and conditions − Commercial deferrals trending down from 5.2% at June 30, 2020 to 1.4% at September 30, 2020 and 1.2% at October 13, 2020 − Fewer C&I clients seeking second deferra
Slide 14: Credit quality
Credit quality(1) Nonaccrual loans Highlights $s in millions $1,277 Nonaccrual loans increased $287 million QoQ given a $254 million increase in commercial, largely driven by two credits $990 to mall REITs $737 $703 $780 1.03% NCOs increased $72 million QoQ and $106 million YoY 0.63% 0.59% 0.61%
Slide 15: Capital and liquidity remain strong
Capital and liquidity remain strong Strong capital position with CET1 increasing to 9.8%(1) as of $s in billions (period-end) 3Q19 4Q19 1Q20 2Q20 3Q20 Highlights (1)(2) Basel III basis 3Q20 CET1 ratio of 9.8%(1), up 20 bps QoQ Common equity tier 1 capital $ 14.4 $ 14.3 $ 14.0 $ 14.2 $ 14.3 $140.1
Slide 16: Expansion of TOP efficiency initiatives
Expansion of TOP efficiency initiatives TOP 6 Program expected to achieve FY2020 pre-tax run-rate target of $225 million; on track for expected benefit of ~$300-$325 million by YE2021 Launching new transformation initiatives to upscale program > Expect to deliver at least $100 million in pre-tax run
Slide 17: Investing in strategic priorities
Investing in strategic priorities Expanding and accelerating digitization efforts with a comprehensive end-to-end program; sharpening overall investment focus Consumer Commercial Enterprise-wide payments Launching E2E digital transformation to Deploying enhanced coverage model Organizing new E
Slide 18: Strategic initiatives update
3Q20 YoY Strategic initiatives update Strategic & business highlights Record mortgage banking fees; originations up 42% and gain Consumer Enhance mortgage platform on sale margins improved to 3.04% Group Resilient trust and investment services fees up 6% to record Expand wealth Fee growth le
Slide 19: 4Q20 outlook vs. 3Q20
4Q20 outlook vs. 3Q20 We offer commentary on factors influencing key categories (1) (1) 3Q20 Underlying results 4Q20 Underlying outlook NII broadly stable; no PPP forgiveness benefit assumed for the fourth quarter Net interest $1,137 million NIM down low/mid-single digits income Loans stable
Slide 20: Key messages
Key messages Citizens 3Q20 results demonstrate strength and resiliency of franchise, along with continued strong execution Underlying results reflect the benefit of Citizens diversified business model ─ Record PPNR up 22% YoY, up 6% QoQ(1) ─ Record fee income driven by record results in mortgage
Slide 21: Appendix
Appendix ** Citizens Financial Group, Inc.” 1
Slide 22: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type 4Q19 Probable January 1, 2020 March 31, 2020 June 30, 2020 September 30, 2020 Incurred Losses CECL Adoption CECL CECL CECL % of Loans % of Loans % of Loans % of Loans % of Loans % of Loans and leases % of Loans and leases Allowance for credit
Slide 23: Commercial credit – diversified portfolio with prudent credit discipline
Commercial credit – diversified portfolio with prudent credit discipline 2Q20 3Q20 Current view Areas Continued Highlights Industry sectors % of % of $s in billions Balance Total CFG Balance Total CFG Stabilizing Concern Overall Real Estate and Rental and Leasing $13.8 11 % $14.1 11 % 2.5 2 2.5 2 2.
Slide 24: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline 2Q20 3Q20 Nonaccrual Nonaccrual Retail portfolio % of WA % of WA $in billions Balance total CFG FICO $ % Balance total CFG FICO $ % Residential mortgage $19.2 15 % ~785 $0.11 0.58 % $19.6 16 % ~785 $ 0.13 0.67 % Home equity 12.5 10
Slide 25: Notable Items
Notable Items(1) Third and second quarter 2020 and third quarter 2019 results reflect notable items primarily related to TOP 6 transformational and revenue and efficiency initiatives. Third and second quarter 2020 and third quarter 2019 results also reflect notable items related to integration costs
Slide 26: GAAP noninterest income and noninterest expense summary
GAAP noninterest income and noninterest expense summary Noninterest income Q/Q Y/Y $s in millions 3Q20 2Q20 3Q19 $ % $ % Service charges and fees $ 97 $ 84 $ 128 $ 13 15 % $ (31) (24) % Mortgage banking fees 287 276 117 11 4 170 145 Card fees 57 48 67 9 19 (10) (15) Capital markets fees 58 61 39 (3)
Slide 27: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 27
Slide 28: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 28
Slide 29: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 29
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 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 33
Slide 34: Notes
Notes Notes on Non-GAAP Financial Measures See important information on 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. “Unde
Slide 35: Notes continued
Notes continued Notes on slide 19 – 4Q20 outlook vs. 3Q20 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 e). Notes on slide 22 – Allocation of allowance by product type 1) Includes commerc
Slide 36: Citizens Financial Group, Inc.
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Citizens Financial Group — Q3 2020 Earnings Presentation on 6ix