Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q4 2022 Earnings Presentation
45 slides from Citizens Financial's earnings presentation, Jan 17, 2023
Slide 1: 4Q22 and 2022 Financial Results
4Q22 and 2022 Financial Results January 17, 2023
Slide 2: Forward-looking statements and use of non-GAAP financial measures
Forward-looking statements and use of non-GAAP financial measures This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement. These state
Slide 3: 4Q22 and Full Year 2022 GAAP financial summary
4Q22 and Full Year 2022 GAAP financial summary Full Year Q/Q Y/Y 2022 vs. 2021 $s in millions 4Q22 3Q22 4Q21 $/bps % $/bps % 2022 2021 $/bps % Net interest income $ 1,695 $ 1,665 $ 1,126 $ 30 2 % $ 569 51 % $ 6,012 $ 4,512 $ 1,500 33 % Noninterest income 505 512 594 (7) (1) (89) (15) 2,009 2,135 (12
Slide 4: 4Q22 and Full Year 2022 Underlying financial summary
4Q22 and Full Year 2022 Underlying financial summary(1) Full Year Q/Q Y/Y 2022 vs. 2021 $s in millions 4Q22 $/bps % $/bps % 2022 2021 $/bps % Net interest income $ 1,695 $ 30 2% $ 569 51% $ 6,012 $ 4,512 $ 1,500 33% Noninterest income 505 (7) (1) (89) (15) 2,040 2,135 (95) (4) Total revenue 2,200 23
Slide 5: Overview
Overview(1) Strong full-year 2022 results – Underlying net income of $2.4 billion, with EPS of $4.84 – Underlying PPNR of $3.4 billion, up 28% – Strong positive operating leverage of 5%; Underlying efficiency ratio improved 231 bps to 57.5% – Underlying ROTCE of 16.4% compares with 16.0% for 2021 4Q
Slide 6: Net interest income
Net interest income NII and NIM continue to benefit from rising rates and well-controlled deposit betas NII and NIM Linked Quarter $s in millions, except earning assets $203.6B $204.5B ■ NII up 2% given higher net interest margin $198.7B – NIM of 3.30% increased 5 bps reflecting higher $168.0B $169.
Slide 7: Noninterest income
Noninterest income(1) Stable fee income performance in a challenging market environment $ Underlying, as applicable Linked Quarter $s in millions 4Q22 3Q22 4Q21 Q/Q Y/Y ■ Underlying noninterest income decreased 1% Service charges and fees $ 105 $ 109 $ 100 $ (4) $ 5 – Service charges and fees decrea
Slide 8: Noninterest expense
Noninterest expense(1) Well-controlled expenses drive 1% positive operating leverage and a 54.4% efficiency ratio Underlying, as applicable $ Linked Quarter $s in millions 4Q22 3Q22 4Q21 Q/Q Y/Y ■ Underlying noninterest expense broadly stable Salaries & employee benefits $ 618 $ 622 $ 546 $ (4) $ 72
Slide 9: Loans and leases
Loans and leases(1) Loans up slightly QoQ led by Commercial Average loans and leases(2) Linked Quarter $s in billions ■ Average loans broadly stable; up 1% ex-auto run off $153.8 $156.9 $157.1 – Commercial up 1%, reflecting growth in C&I and in CRE $129.2 primarily reflecting line draws and slower p
Slide 10: Average funding and cost of funds
Average funding and cost of funds(1) Period-end and average deposits up 1% QoQ 4Q22 Average deposits Linked Quarter $s in billions $176.4 $177.6 $179.0 ■ Average deposits up $1.4 billion, or 1%, with growth in $153.0 $155.1 money market accounts, term and savings, partly offset by 1.23% decreases in
Slide 11: Credit quality overview
Credit quality overview Credit provision expense (benefit); net Highlights charge-offs $s in millions ■ NCOs of $88 million, or 22 bps of average loans and leases, up 3 bps QoQ 0.14% 0.19% 0.19% 0.22% ■ Nonaccrual loans increased 5 bps QoQ to 60 bps of total 0.13% loans driven by commercial, primari
Slide 12: Allowance for credit losses
Allowance for credit losses Allowance for credit losses Commentary $s in millions $2,196 $63 $2,240 ■ The increase in the ACL reserve coverage to 1.43% $(19) primarily reflects higher reserves against CRE exposures ■ The key macroeconomic assumptions reflect a moderate recession over the two-year re
Slide 13: Capital remains strong
Capital remains strong $s in billions (period-end) 4Q21 1Q22 2Q22 3Q22 4Q22 Highlights (1)(2) Basel III basis ■ 4Q22 CET1 ratio of 10.0% compares with 9.8% in 3Q22 Common equity tier 1 capital $ 15.7 $ 15.6 $ 17.9 $ 18.3 $ 18.6 ■ TBV/share of $27.88, up 4.7% QoQ; tangible common Risk-weighted assets
Slide 14: Consumer Banking - differentiated growth opportunities
Consumer Banking - differentiated growth opportunities 1 NYC/NJ 2 Wealth Encouraged by early success with HSBC branches; repositioning Strong momentum in Wealth reflecting a reorientation retail model across ISBC franchise in Spring 2023 towards financial planning-led advice 8% ~1.5x 4% $21B AUM Ret
Slide 15: Consumer Banking - differentiated growth opportunities
Consumer Banking - differentiated growth opportunities 3 National digital expansion 4 Citizens Pay/HELOC Development of our modern cloud-based digital platform Innovation is driving distinctive ways to grow customers creates unique opportunities Prudently finding ways to selectively grow super prime
Slide 16: Commercial Banking acquisitions add capabilities and drive strong performance
Commercial Banking acquisitions add capabilities and drive strong performance Commercial acquisitions fully integrated and delivering results 2Q19 - Atlanta M&A advisory firm (Services focus) 3Q21 - Chicago, Atlanta, Portland (Valuation services) 2Q17 - Cleveland 4Q21 - San Francisco M&A advisory fi
Slide 17: Citizens Commercial Banking delivers a full-service suite of capabilities
Citizens Commercial Banking delivers a full-service suite of capabilities Broad capabilities and strong execution Expertise in attractive verticals Financial Technology Services Business Industrials Services Consumer Food Healthcare & Restaurants Transportation Gaming, Lodging and Logistics and Leis
Slide 18: TOP programs drive improving financial performance
TOP programs drive improving financial performance Transforming how we operate and deliver for customers and colleagues TOP program benefits Launched new TOP 8 program Select examples $s in millions Enterprise and business initiatives ■ Mature agile delivery model and strengthen end-to- ~$425 end cu
Slide 19: FY2023 Outlook vs. 2022
FY2023 Outlook vs. 2022 2022 2023 Underlying(1) Underlying outlook Net interest income $6,012MM Up 11-14% NIM 3.10% Gradual rise from 3.30% in 4Q22 towards ~3.40% by 4Q23 $149.3B average loans Up 4-5% Loans $156.7B spot loans Target Auto run-off of ~$3B spot; spot growth of ~2% ex-auto run off Earni
Slide 20: 1Q23 outlook vs. 4Q22
1Q23 outlook vs.4Q22 4Q22 1Q23 Underlying(1) Underlying outlook Net interest income $1,695MM Down ~2% reflecting day count impact NIM 3.30% Up low to mid single digits Loans $157.1B average loans Stable; up ~1% ex-auto run off Noninterest income $505MM Down 2-4% reflecting seasonality Up 3-4% given
Slide 21: Medium-term financial targets
Medium-term financial targets(1) Dividend ROTCE ~16-18% ~35-40% payout ratio Efficiency CET1 ~9.50-10.00% <55% Ratio Commentary ■ Committed to generating strong and stable returns, positive operating leverage and prudent capital management – Expect to see a recovery in loan and deposit growth over t
Slide 22: Positive outlook for Citizens
Positive outlook for Citizens Managing prudently while playing offense, executing on strategic initiatives Strong defense to manage the risks of a dynamic environment – Tightened risk appetite and selective in growing loans, emphasizing attractive relationship-oriented commercial loan growth – Prude
Slide 23: Appendix
Appendix
Slide 24: Underlying FY2022 performance vs. guidance
Underlying FY2022 performance vs. guidance(1) Underlying FY22 guidance Underlying FY22 results (April 2022) Total CFG Total CFG Up 27-30% or Up 33.2% or Net interest income ~$5.7-$5.9B $6.0B Balance sheet Avg. Loans Up 20-22% 20.9% Avg. Earning Assets Up 14-16% 16.6% Up 3-7% or (4.0)% or Noninterest
Slide 25: Linked-quarter Underlying results
Linked-quarter Underlying results(1) Average loans Average deposits Return on average total $s in billions $s in billions tangible assets é3 bps é0.1% $177.6 $179.0 é1% $156.9 $157.1 1.22% 1.25% 3Q22 4Q22 3Q22 4Q22 3Q22 4Q22 Pre-provision profit Net income available to Return on average tangible $s
Slide 26: Year-over-year Underlying results
Year-over-year Underlying results(1) Average loans Average deposits Return on average total $s in billions $s in billions tangible assets é25% é17% — bps $179.0 $157.1 1.25% 1.25% $153.0 $125.2 4Q21 4Q22 4Q21 4Q22 4Q21 4Q22 Net income available to Return on average tangible Pre-provision profit $s i
Slide 27: Full year underlying results
Full year underlying results(1) Average loans Average deposits Return on average total $s in billions $s in billions tangible assets é14% ê17 bp é21% $172.1 1.34% $149.3 $150.5 1.17% $123.6 FY2021 FY2022 FY2021 FY2022 FY2021 FY2022 Net income available to Return on average tangible Pre-provision pro
Slide 28: Investors integration update
Investors integration update Rigorous coordination across businesses, operations and technology to drive smooth conversion Investors conversion Commentary ■ Transition of accounts and services to Citizens’ systems and 4Q22 1Q23 branch conversion on target for mid-February Completed early conversion
Slide 29: New York Metro go-to-market strategy
New York Metro go-to-market strategy Building significant momentum with a focus on taking market share in NY Metro Introducing Citizens brand to New York Metro ■ Broad-based marketing initiated in September 2022 – Engaging in multi-channel marketing to build our brand with local businesses and consu
Slide 30: Stabilizing and protecting NII and NIM
Stabilizing and protecting NII and NIM Cash flow hedges are the primary tool to manage interest rate exposure Receive fixed cash flow swaps - average notional balances $ billions at 12/31/22 $30.2 Pre-2022 executions $3.9 $27.0 1Q22-3Q22 executions $4.5 4Q22 executions $19.1 $16.3 $19.2 $15.4 $2.0 $
Slide 31: $82.2B Commercial credit portfolio
$82.2B Commercial credit portfolio Diverse and granular portfolio Commercial portfolio risk ratings(3) $s in billions Outstanding % of ($ in billions) balance total CFG $57.5 $81.1 $82.2 C&I B- and lower 3% 3% 4% Finance and Insurance 14% 14% B+ to B 14% Capital call facilities $ 6.8 4% Other Financ
Slide 32: Commercial Real Estate
Commercial Real Estate by Geography $28.9B CRE portfolio ■ Migrated CRE portfolio toward larger, well-capitalized institutional and upper- Midwest middle market borrowers Other 4% ■ Strong client selection including institutional and private developers with CA 7% long-term Citizens relationships TX
Slide 33: $74.5B Retail credit portfolio
$74.5B Retail credit portfolio Retail loans(1) High quality, diverse portfolio Other retail ■ Mortgage – FICO ~785 – Weighted-average LTV of ~54% Education - 7% Residential refinance ■ Home equity – FICO ~765 13% mortgages – ~45% secured by 1st lien Education - 40% – ~98% CLTV less than 80% in schoo
Slide 34: Delinquency by product type
Delinquency by product type September 30, 2022 (%) December 31, 2022 (%) Days Past Due and Accruing Days Past Due and Accruing Current 30-59 60-89 90+ Nonaccrual Current 30-59 60-89 90+ Nonaccrual Commercial and industrial 99.30 % 0.14 % 0.07 % 0.03 % 0.46 % 99.14 % 0.29 % 0.05 % 0.04 % 0.48 % Comme
Slide 35: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type September 30, 2022 December 31, 2022 Loans and Allowance Coverage Loans and Allowance Coverage $s in millions Leases Leases Allowance for Loans and Lease Losses Commercial and industrial(1) $50,989 $582 1.14 % $51,836 $581 1.12 % Commercial r
Slide 36: Notable items
Notable items(1) Quarterly results for third and fourth quarter 2022 and fourth quarter 2021 reflect notable items primarily related to integration costs associated with the acquisitions of HSBC, ISBC and JMP Group LLC, as well as TOP revenue and efficiency initiatives. In addition, full year 2022 r
Slide 37: Notes
Notes Notes on Non-GAAP Financial Measures See important information on our use of Non-GAAP Financial Measures at the beginning this presentation and reconciliations to GAAP financial measures at the end of this presentation. Non-GAAP measures are herein defined as Underlying results, excluding HSBC
Slide 38: Notes continued
Notes continued Notes on slide 19 - FY2023 Outlook vs. 2022 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 20 - 1Q23 outlook vs.4Q22 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 21 - Medium-term financial targets 1) See note o
Slide 39: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q22 Change 2022 Change 4Q22 3Q22 4Q21 3Q22 4Q21 2022 2021 2021 $ % $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $505 $512 $594 ($7) (1%) ($89) (15
Slide 40: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q22 Change 2022 Change 4Q22 3Q22 4Q21 3Q22 4Q21 2022 2021 2021 $/bps % $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $2,200 $2,177 $1,720 $23 1.05% $480 27.
Slide 41: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q22 Change 2022 Change 4Q22 3Q22 4Q21 3Q22 4Q21 2022 2021 2021 $/bps % $/bps % $/bps % Return on average total tangible assets and return on average total tangible asset
Slide 42: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q22 Change 2022 Change 4Q22 3Q22 4Q21 3Q22 4Q21 2022 2021 2021 $/bps % $/bps % $/bps % Other income, Underlying Other income (GAAP) $36 $34 $32 $2 6% $4 13% $82 $89 ($7)
Slide 43: Non-GAAP reconciliations - excluding HSBC, ISBC and Commercial fee-based acquisitions
Non-GAAP financial measures and reconciliations - excluding the impact of HSBC, ISBC, and Commercial fee-based acquisitions closed after 2Q21 $s in millions, except ratio data QUARTERLY TRENDS 4Q22 Change 4Q22 3Q22 4Q21 3Q22 4Q21 $/bps % $/bps % Noninterest expense, Underlying excluding HSBC, ISBC,
Slide 44: Non-GAAP reconciliations - excluding HSBC & ISBC Acquisitions
Non-GAAP financial measures and reconciliations - excluding the impact of HSBC & ISBC Acquisitions $s in millions, except ratio data QUARTERLY TRENDS 4Q22 Change 4Q22 3Q22 4Q21 3Q22 4Q21 Total Loans, excluding HSBC & ISBC Total Loans (GAAP) C $156,662 $156,140 $128,163 $522 —% $28,499 22% Less: HSBC
Slide 45: Citizens Financial Group, Inc.
3< Citizens Financial Group, Inc.”
Citizens Financial Group — Q4 2022 Earnings Presentation on 6ix