Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q2 2023 Earnings Presentation
49 slides from Citizens Financial's earnings presentation, Jul 19, 2023
Slide 1: 2Q23 Financial Results
2Q23 Financial Results July 19, 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: 2Q23 GAAP financial summary
2Q23 GAAP financial summary Q/Q Y/Y $s in millions 2Q23 1Q23 2Q22 $/bps % $/bps % Net interest income $ 1,588 $ 1,643 $ 1,505 $ (55) (3) % $ 83 6 % Noninterest income 506 485 494 21 4 12 2 Total revenue 2,094 2,128 1,999 (34) (2) 95 5 Noninterest Expense 1,306 1,296 1,305 10 1 1 — Pre-provision prof
Slide 4: 2Q23 Underlying financial summary
2Q23 Underlying financial summary(1) Q/Q Y/Y $s in millions 2Q23 $/bps % $/bps % Net interest income $ 1,588 $ (55) (3)% $ 83 6% Noninterest income 506 21 4 (19) (4) Total revenue 2,094 (34) (2) 64 3 Noninterest expense 1,233 3 — 53 4 Pre-provision profit 861 (37) (4) 11 1 Provision for credit losse
Slide 5: Overview: 2Q23 quarter highlights
Overview(1) 2Q23: Quarter highlights – Underlying EPS of $1.04 and ROTCE of 13.9% – Underlying PPNR of $861 million, with higher fees, lower NII and stable expense ◦ NII down 3% QoQ given lower NIM and slightly lower interest-earning assets ◦ Fees up 4% QoQ, positioned for continued second half grow
Slide 6: Net interest income
Net interest income Net interest income decline reflects higher funding costs NII and NIM Linked Quarter $s in millions, except earning assets $198.7B $203.6B $204.5B $202.6B $201.5B ■ NII down 3%, as expected, given lower NIM and slightly lower interest-earning assets, partly offset by higher day c
Slide 7: Noninterest income
Noninterest income(1) Fees up 4% QoQ reflecting solid performance in a challenging market environment $ Linked Quarter $s in millions 2Q23 1Q23 2Q22 Q/Q Y/Y ■ Noninterest income increased 4% Service charges and fees $ 101 $ 100 $ 108 $ 1 $ (7) – Service charges and fees relatively stable Capital mar
Slide 8: Noninterest expense
Noninterest expense(1) Disciplined on expenses while prioritizing key strategic investments $ Linked Quarter $s in millions 2Q23 1Q23 2Q22 Q/Q Y/Y ■ Underlying noninterest expense broadly stable Salaries & employee benefits $ 601 $ 642 $ 611 $ (41) $ (10) Outside services 156 149 148 7 8 – Reflects
Slide 9: Loans and leases
Loans and leases Loans down slightly reflecting balance sheet optimization Average loans and leases Linked Quarter $s in billions ■ Average loans down $2.8 billion, or 2% $156.9 $157.1 $156.5 $153.8 $153.7 – Commercial down $2.1 billion, or 3%, driven by C&I balance sheet optimization actions – Reta
Slide 10: Deposit performance and cost of funds
Deposit performance and cost of funds Spot deposit increase of $5.5 billion QoQ across Consumer and Commercial 2Q23 Period-end deposits Linked Quarter $s in billions $180.7 ■ Period-end deposits up $5.5 billion, or 3%, as the Company $178.9 $178.6 $172.2 $177.7 replenished balances following seasona
Slide 11: Highly diversified and retail-oriented deposit base
Highly diversified and retail-oriented deposit base $178B Period-end deposits Business mix (As of 6/30/23) Product mix Wealth 1% Business Term Citizens Banking 11% Access™ 13% Demand Commercial 6% 27% Savings 23% 10% Citizens Access™ Savings 6% Treasury/ Checking Other with interest Branch 7% 20% Mo
Slide 12: Credit quality overview
Credit quality overview Credit provision expense; Highlights $s in millions net charge-offs ■ NCOs of $152 million, or 40 bps of average loans and 0.34% 0.40% leases, up 6 bps QoQ 0.19% 0.22% 0.13% ■ Nonaccrual loans increased 15 bps QoQ to 79 bps of total loans driven by an increase in commercial,
Slide 13: Allowance for credit losses
Allowance for credit losses Allowance for credit losses Commentary $s in millions ■ The increase in the ACL reserve coverage to 1Q23 2Q23 1.52% primarily reflects higher reserves against CRE exposures % % ACL Coverage ACL Coverage ■ The key macroeconomic assumptions underlying the reserve reflect a
Slide 14: Strong reserve coverage of CRE General Office
Strong reserve coverage of CRE General Office General Office portfolio - ACL coverage Commentary $ in billions ■ Strong ACL coverage of General Office; continually reassessing potential loss content based on detailed loan by loan portfolio $4.0 $4.1 review as market conditions evolve $3.9 – Increase
Slide 15: Commercial Real Estate - $6.2B Office portfolio: well diversified
Commercial Real Estate - $6.2B Office portfolio: well diversified Property type $3.9B General Office class & location Life Sciences $0.8B 12% CBD Class A Suburban Class B 16% 25% Credit Tenant 25% CBD Class B $1.5B 11% Suburban Class A 42% 63% General Office Suburban Class C $3.9B 2% CBD Class C 4%
Slide 16: Capital remains strong
Capital remains strong Highlights $s in billions (period-end) 2Q22 3Q22 4Q22 1Q23 2Q23 Basel III basis(1)(2) ■ 2Q23 CET1 ratio of 10.3%(1) compares with 10.0% in 1Q23 Common equity tier 1 capital $ 17.9 $ 18.3 $ 18.6 $ 18.4 $ 18.4 ■ TBV/share of $28.72, down 2% QoQ given AOCI impacts Risk-weighted a
Slide 17: Maintaining a strong absolute and relative capital position
Maintaining a strong absolute and relative capital position(1) CET1 Ratio(2) Commentary CFG (2Q23) 10.3% ■ Citizens has further strengthened its strong capital position Peer 1 10.2% CFG (1Q23) 10.0% – CET1 ratio before and after adjustment for AOCI Peer 2 10.1% opt-out removal is near the top of the
Slide 18: Spotlight on key strategic initiatives
Spotlight on key strategic initiatives I Citizens Private Bank II Balance Sheet Optimization (BSO) III New York City Metro IV Citizens AccessTM/Citizens PayTM V Capturing the Private Capital opportunity VI TOP 8/9 We continue to invest in a series of unique initiatives that position Citizens for med
Slide 19: I. Building Private Banking capabilities
I. Building Private Banking capabilities Boosts growth plans in Wealth Management and Business Banking Private Banking coverage Fueled by a world-class in key geographies integrated operating model Added ~50 senior private bankers and ~100 related support staff in Boston, South Florida, New York, an
Slide 20: I. Building Private Banking capabilities
I. Building Private Banking capabilities Launch of Citizens Private Bank Medium-term aspirations ■ Hired ~50 senior bankers and ~100 support staff; adding 2023 is a year of investment, ~($0.08-$0.10) EPS additional talent to round out the effort impact on performance, plus ~($0.03) notables – Financ
Slide 21: II. BSO actions to further strengthen capital & liquidity, improve returns
II. BSO actions to further strengthen capital & liquidity, improve returns We have been increasingly active in balance sheet optimization (BSO) strategies – Ongoing rotation of loan capital to deepen relationships – Sale of student loans (3Q20) – Sold non-strategic loans from ISBC acquisition (2022)
Slide 22: II. BSO actions: Non-Core portfolio
II. BSO actions to further strengthen capital & liquidity, improve returns Immediately accretive to NIM, ROTCE and EPS ~$13.7 billion Non-Core portfolio $s in billions Non-Core High-cost portfolio funding ~$9.2B reduction $13.7 $13.7 expected by end of 2025; opportunistic $3.3 $11.1 sales may accele
Slide 23: II. BSO actions: Strategic remixing of the balance sheet
II. BSO actions to further strengthen capital & liquidity, improve returns Strategic remixing of the balance sheet Non-Core Redeployment through Citizens Private Bank portfolio YE2025 in Legacy Core YE2025 $s in billions $9.2 $9.2 $11.0 ~25% $9.0 ~25% ~50% Loan reduction through Funding pay-down Loa
Slide 24: III. Entry into New York Metro progressing well
III. Entry into New York Metro progressing well ~200 branches acquired, ~1 million customer accounts migrated, ~1,350 business clients Strong start with potential to scale over time Sizeable growth potential 30+ points NPS Strong branch sales 3 to 5 years of strong sales improvement +175% to close t
Slide 25: IV. Consumer Banking - differentiated growth opportunities
IV. Consumer Banking - differentiated growth opportunities Citizens AccessTM CitizensPayTM $s billions National digital expansion Top customer acquisition engine Strong source of deposit growth in the bank Period-end balance $10.6 $7.8 Existing clients Prudently adding performing well new clients 4Q
Slide 26: V. Capturing the Private Capital opportunity
V. Capturing the Private Capital opportunity A substantial and growing market Citizens serving Private Capital for 10 years Citizens has been cultivating distinctive capabilities to Over the last six years, Private Capital serve the Private Capital ecosystem fundraising has led to record deal format
Slide 27: VI. Transforming how we operate the bank and deliver for customers
VI. Transforming how we operate the bank and deliver for customers TOP program benefits TOP Update $s in millions ■ TOP 8 underway and progressing well ~$425 ■ In light of the environment, augmented the program and raised target benefit to ~$115 million from ~$100 million ■ Incremental efficiencies
Slide 28: 3Q23 outlook vs. 2Q23
3Q23 outlook vs. 2Q23 3Q23 2Q23 Underlying outlook Underlying(1) excluding impact of Private Bank Net interest income $1,588MM Down ~4% Noninterest income $506MM Up ~3% Noninterest expense $1,233MM Broadly stable Net charge-offs 40 bps Broadly stable to up slightly CET1 ratio(2) 10.3% Up modestly in
Slide 29: Investment thesis
Investment thesis Citizens has a robust capital, liquidity and funding position – Committed to strengthening even further with BSO, including Non-Core strategy – Relative strength allows Citizens to take advantage of opportunities – Focused on deploying capital to best relationship/highest risk adju
Slide 30: Appendix
Appendix
Slide 31: First half 2023 awards and recognition
First half 2023 awards and recognition Forbes America's Best Banks Newsweek Euromoney’s Awards for Excellence 2023 Overall Satisfaction Top 2 Box score of 95%, remains at all time high for Commercial clients America's Best Loyalty Programs Best Super-Regional Bank 31
Slide 32: 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 ê7 bps ê2% $174.4 $173.2 ê1% $156.5 $153.7 1.06% 0.99% 1Q23 2Q23 1Q23 2Q23 1Q23 2Q23 Pre-provision profit Net income available to Return on average tangible $s in
Slide 33: 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 0% ê2% ê13 bps $176.4 $173.2 $153.9 $153.7 1.12% 0.99% 2Q22 2Q23 2Q22 2Q23 2Q22 2Q23 Net income available to Return on average tangible Pre-provision profit $s in
Slide 34: Supplemental reporting template for planned disclosure beginning 3Q23
Supplemental reporting template for planned disclosure beginning 3Q23 (A) (B) (C) = (A) + (B) (D) (E) = (C) + (D) $s in millions Legacy Core Private Bank Core Non-Core Total CFG Net interest income $ xx $ xx $ xx $ xx $ xx Noninterest income $ xx $ xx $ xx $ xx $ xx Total revenue $ xx $ xx $ xx $ xx
Slide 35: 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 in $ billions at 6/30/23 $29.5 $30.5 $27.3 $20.5 $21.1 $21.9 $18.4 $14.4 $2.9 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 2025 2026 2027 W.A. rece
Slide 36: $78.3B Commercial credit portfolio
$78.3B Commercial credit portfolio Diverse and granular portfolio Commercial portfolio risk ratings(2) $s in billions % of Balances total CFG ($ in billions) C&I $57.5 $80.9 $78.3 Finance and Insurance B- and lower 3% 6% 6% B+ to B 14% 16% Capital call facilities $ 6.3 4% 15% Other Finance and Insur
Slide 37: $73.0B Retail credit portfolio
$73.0B Retail credit portfolio Retail loans(1) High quality, diverse portfolio Other retail ■ Mortgage – FICO ~785 Education - 7% Residential – Weighted-average LTV of ~55% refinance mortgages ■ Home equity – FICO ~765 13% – ~40% secured by 1st lien Education - 42% – ~96% CLTV less than 80% in schoo
Slide 38: Delinquency by product type
Delinquency by product type March 31, 2023 (%) June 30, 2023 (%) 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 99.12 % 0.24 % 0.01 % 0.04 % 0.59 % 99.36 % 0.04 % 0.02 % —% 0.58 % Commercial real e
Slide 39: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type March 31, 2023 June 30, 2023 Loans and Allowance Coverage Loans and Allowance Coverage Leases Leases $s in millions Allowance for Loans and Lease Losses Commercial and industrial(1) $50,450 $601 1.19 % $48,038 $586 1.22 % Commercial real esta
Slide 40: Notable items
Notable items(1) Quarterly results reflect notable items primarily related to integration costs associated with recent acquisitions, as well as TOP revenue and efficiency initiatives. Second quarter 2022 results include a notable item representing the day-one CECL provision expense ("double count")
Slide 41: 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. Where there is
Slide 42: Notes continued
Notes continued Notes on slide 26 - Capturing Private Capital opportunity 1) 2Q23 LTM by volume and deals. Notes on slide 28 - 3Q23 outlook vs. 2Q23 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 32 - Linked-quarter Underlying results 1) See note on non-GAAP finan
Slide 43: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 Change 2Q23 1Q23 2Q22 1Q23 2Q22 $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $506 $485 $494 $21 4% $12 2% Less: Notable items — — (31) — — 31 100 Nonint
Slide 44: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 Change 2Q23 1Q23 2Q22 1Q23 2Q22 $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $2,094 $2,128 $1,999 ($34) (1.55%) $95 4.77% Less: Noninterest expense (GAAP) E 1,30
Slide 45: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 Change 2Q23 1Q23 2Q22 1Q23 2Q22 $/bps % $/bps % Return on average total tangible assets and return on average total tangible assets, Underlying: Average total assets (GAAP) Q
Slide 46: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 Change 2Q23 1Q23 2Q22 1Q23 2Q22 $/bps % $/bps % Other income, Underlying Other income (GAAP) $23 $17 ($12) $6 35% $35 NM Less: Notable items — — (31) — — 31 100 Other income,
Slide 47: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 4Q22 3Q22 Noninterest income, Underlying: Noninterest income (GAAP) A $505 $512 Less: Notable items — — Noninterest income, Underlying (non-GAAP) $505 $512 Total revenue, Underlyin
Slide 48: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 1Q23 CET1 Ratio adjusted for AOCI opt-out removal CET1 capital $ 18,381 $ 18,370 Less: AFS securities - AOCI 1,763 1,516 HTM securities - AOCI 880 907 DTA for AFS/HTM securiti
Slide 49: Citizens Financial Group, Inc.
3< Citizens Financial Group, Inc.”
Citizens Financial Group — Q2 2023 Earnings Presentation on 6ix