Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q1 2020 Earnings Presentation
48 slides from Citizens Financial's earnings presentation, Apr 17, 2020
Slide 1: 1Q20 Financial Results
1Q20 Financial Results April 17, 2020
Slide 2: Forward-looking statements and use of key performance metrics and non-GAAP financial measures
Forward-looking statements and use of key performance metrics and 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
Slide 3: 1Q20 GAAP financial summary
1Q20 GAAP financial summary Reported 1Q20 change from $s in millions 1Q20 4Q19 1Q19 4Q19 1Q19 $/bps % $/bps % Net interest income $ 1,160 $ 1,143 $ 1,160 $ 17 1 % $ — —% Noninterest income 497 494 428 3 1 69 16 Total revenue 1,657 1,637 1,588 20 1 69 4 Noninterest expense 1,012 986 937 26 3 75 8 Pre
Slide 4: Current situation – Executive summary
Current situation – Executive summary Using our ample resources to provide advice and assistance to customers and communities − Funded $7.2 billion of committed commercial line draws in 1Q20 Proudly − ~70K retail customers assisted through loan forbearance supporting − ~2.4K small businesses assis
Slide 5: Supporting customers and clients in need while prudently managing risk
Supporting customers and clients in need while prudently managing risk Commentary Loan forbearance Loan forbearance requests Consumer requests driven by Mortgage, Business Banking, Auto and 03/31/20 04/15/20 Education Requests $ Volume Requests $ Volume $s in millions 03/31/20 04/15/20 (000s) (000
Slide 6: CECL impacted by COVID-19 disruption
CECL impacted by COVID-19 disruption Highlights CECL methodology and key variables 1Q20 provision expense of $600 million ▪ Used 3/27 Moody’s Baseline which integrates COVID-19 effects as our base scenario, plus ─ Includes CECL-related reserve build tied to alternate Moody's pandemic scenario and
Slide 7: Financials – Executive summary
Financials – Executive summary Underlying net income available to common of $37 million, with EPS of $0.09(1) compares with $0.93 in 1Q19 and $0.99 4Q19 − Results include COVID-19 provision expense impact of $0.85 per share; Underlying EPS of $0.94(1) before CECL COVID-19 reserve build Solid Rev
Slide 8: 1Q20 Underlying financial summary
1Q20 Underlying financial summary(1) $s in millions Highlights 1Q20 change from Linked quarter: Underlying, as applicable 1Q20 4Q19 1Q19 4Q19 1Q19 Underlying net income available to common of $37 million, with EPS of %/bps %/bps $0.09. TBV/share relatively stable at $31.97 and includes $1.16 per N
Slide 9: Net interest income
Net interest income $s in millions, except earning assets Net interest income Highlights Linked quarter: NII increased 1% $145.5B $146.3B $146.5B $148.9B $150.9B ─ Positively impacted by loan growth and lower funding costs, partially offset by lower loan yields and day count NIM of 3.10% increas
Slide 10: Noninterest income
Noninterest income $s in millions Highlights 1Q20 change from Underlying, as applicable 1Q20 4Q19 1Q19 4Q19 1Q19 Linked quarter: $ % $ % Service charges and fees $ 118 $ 128 $ 123 $ (10) (8) % $ (5) (4) % Noninterest income was up 1%, as record results in mortgage banking and trust Mortgage bankin
Slide 11: Noninterest expense
Noninterest expense $s in millions Highlights 1Q20 change from Linked quarter: Underlying, as applicable 1Q20 4Q19 1Q19 4Q19 1Q19 $ % $ % Underlying noninterest expense increased $30 million, or 3%, Salaries & employee benefits $ 539 $ 496 $ 508 $ 43 9 % $ 31 6 % largely reflecting seasonality and
Slide 12: Average loans and leases
Average loans and leases $s in billions Average core loans and leases YoY loan $120.0B growth Highlights $116.1B $116.3B $116.0B $117.7B Total core Linked quarter: 3% Core loans and leases increase of $2.3 billion, or 2%, reflects the impact of higher commercial line draws ─ Up 3% before the imp
Slide 13: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $141.3B Linked quarter: $136.4B $136.7B $139.0B ST borrowed funds $135.8B $0.6 Total deposits up $978 million, or 1% $0.6 $0.5 $0.7 $0.9 $14.1 $12.1 $12.8 ─ Growth in checking with interest, mo
Slide 14: Credit quality
Credit quality(1) $s in millions Highlights Citizens continues to assess the impact of the COVID-19 pandemic and has instituted a Nonaccrual loans variety of measures to identify and monitor areas of potential risk, including direct outreach to commercial clients and close monitoring of retail cre
Slide 15: We have been highly disciplined on credit, with prudent risk appetite
We have been highly disciplined on credit, with prudent risk appetite $s in billions Super prime/prime-focused, core retail portfolio; Granular/diverse core commercial portfolio; refreshed FICOs improved YoY(1,2) bond equivalent risk-ratings improved YoY(1,3) $59.1 $60.9 $56.9 $65.6 <640 6% 6% B- an
Slide 16: DFAST company-run stress results compare favorably to peers
DFAST company-run stress results compare favorably to peers Bank Holding Company-run severely adverse credit loss rate historically in-line or better than peer average; 2019 loss rate of 4.1% improved 50 bps relative to 2018(1) Company-run severely adverse stress loss rates 2014-2019 4.5% 4.6% 4.4%
Slide 17: Commercial credit – diversified portfolio with prudent credit discipline
Commercial credit – diversified portfolio with prudent credit discipline $s in billions % of Total Highlights Industry sectors 1Q20 CFG Overall Real Estate and Rental and Leasing $ 13.8 11 % Highly granular and diversified portfolio in terms of geography, industry and Retail and hospitality 2.5 2
Slide 18: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline $s in billions % of Total Weighted Retail portfolio 1Q20 CFG Avg. FICO Highlights Residential mortgage $ 18.7 15 % ~785 ~70% of the retail portfolio is secured Home equity 13.0 10 ~760 Mortgage average LTV of 62% with less than
Slide 19: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 1Q19 2Q19 3Q19 4Q19 1Q20 (1) Capital levels remain at the higher end of the range for Basel III basis regional peers Common equity tier 1 capital $ 14.4 $ 14.6 $ 14.4 $ 14.3 $ 14.0 1Q20 CET1 ratio of 9.4%(3) decreas
Slide 20: Foundational initiatives / Strategic initiatives update
1Q20 YoY Strategic initiatives update Record mortgage banking fees; originations up 105% and gain Strategic & business highlights Consumer Enhance mortgage platform on sale margins improved 108 bps Record trust and investment services fees; Managed money Expand wealth Group revenue up 37%; H
Slide 21: FY2020 outlook vs. FY2019
FY2020 outlook vs. FY2019 We no longer affirm FY2020 guidance given COVID-19 We offer commentary on factors influencing FY2020 outlook for key categories Net interest income Up modestly vs. FY19 including the benefit of PPP program ‒ Expect strong loan growth to offset meaningful decrease in NIM d
Slide 22: 2Q20 outlook vs. 1Q20
2Q20 outlook vs. 1Q20 We offer commentary on factors influencing key categories (1) (1) 2Q20 Underlying outlook 1Q20 Underlying results (includes the impact of acquisitions and excludes notable items) Net interest Up low-mid single digits as strong loan growth more than offsets $1,160 million inco
Slide 23: Key messages
Key messages Citizens is delivering well for all stakeholders through challenging times Underlying financial results were solid before the CECL reserve build ─ Good diversification of business model delivered strong PPNR performance ─ Excellent performance on loans, deposits, hedging, liquidity,
Slide 24: Appendix
Appendix ** Citizens Financial Group, Inc.” 24
Slide 25: Underlying results pre and post CECL reserve build
Underlying results pre and post CECL reserve build(1) $s in millions 1Q20 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 497 497 Total Revenue 1,657 1,657 Noninterest
Slide 26: Allocation of Allowance by Product Type
Allocation of Allowance by Product Type 4Q19 Probable Incurred January 1, 2020 March 31, 2020 Losses CECL Adoption CECL % of Loans % of Loans % of Loans Amount and Leases Amount and Leases Amount and Leases Allowance for credit losses Outstanding Outstanding Outstanding Residential real estate secur
Slide 27: Analysis of selected loan portfolios
Analysis of selected loan portfolios page CRE: Retail & Hospitality 28 Accommodation & Food Services 29 Retail Trade 30 Energy & Related 31 Arts, Entertainment & Recreation 32 Core mortgage portfolio overview 33 Core home equity portfolio 34 Auto 35 Education 36 Unsecured 37 27
Slide 28: CRE: Retail & Hospitality
CRE: Retail & Hospitality $s in millions Highlights % of Property type 1Q20 portfolio Overall CRE portfolio Portfolio focused on larger, well-capitalized institutional and upper middle market Office $ 5,176 38 % sponsors and owners well known to us Multi-Family 2,412 18 Focus on regions with str
Slide 29: Accommodation & Food Services
Accommodation & Food Services $s in millions % of Highlights Accommodation and Food Services 1Q20 portfolio In 1Q18 did a deep dive on the restaurant portfolio and repositioned the McDonald's franchisee $ 1,210 27 % business model in response to sector concerns Fast food 654 14 ~74% of food serv
Slide 30: Retail Trade
Retail Trade $s in millions % of Highlights Retail Trade 1Q20 portfolio Gas station, convenience stores, grocery & ~60% tied to lower risk essential retail services not materially other essential retail businesses $1,837 59 % impacted by COVID-19 pandemic All other 1,273 41 ~25% asset-based lend
Slide 31: Energy & Related
Energy & Related $s in millions Highlights % % of Well-diversified portfolio with ~145 clients Energy & Related Sector Total O/S Utilized portfolio (1) More price sensitive portfolio is 37% of the total and 34% Less price-sensitive - Oil & Gas $ 1,275 66 % 42 % (2) excluding corporate aircraft l
Slide 32: Arts, Entertainment & Recreation
Arts, Entertainment & Recreation $s in millions % of Highlights Arts, Entertainment & Recreation 1Q20 portfolio Performing arts, spectator sports, ~50% to sports teams and stadiums and related industries $ 871 51 % − Low historic loss rates given contractual revenue streams Other arts, entertainme
Slide 33: Core mortgage portfolio overview
Core mortgage portfolio overview Highlights 1Q20 $18.6 billion core mortgage portfolio Jumbo mortgages originated primarily within the Bank’s lending footprint by Refreshed CLTV(1) by Refreshed FICO(1) < 600 600-649 90-100% 2% 1% Weighted-average refreshed FICO score of ~785 and 80-89% 650-699 C
Slide 34: Core home equity portfolio
Core home equity portfolio(1) Highlights 1Q20 $11.9 billion HELOC 1Q20 $731 million HELOAN 50% of the HELOC portfolio is secured by 1st lien (2) by Lien position (2) by Lien position Weighted-average FICO of ~765 93% of the HELOC portfolio has an LTV of less than 80% 2nd 1st 40% 50% 50% 2nd 60
Slide 35: Auto
Auto Highlights(1) 1Q20 $12.2 billion auto portfolio Auto finance portfolio – purchase only, no by Refreshed FICO score (1,2) by Term (2) leasing, weighted-average FICO score (months) of ~725 % new-car < 620 ≤ 48 ~74% of the portfolio has a FICO score equal to ~55% > 800 49-60 or greater than 68
Slide 36: Education
Education 1Q20 $10.7 billion core education finance portfolio Highlights Core Education $s in billions 2016 2017 2018 2019 1Q20 Core education finance portfolio weighted-average FICO score of Period-end loans $6.3 $7.9 $8.7 $10.2 $10.7 ~780 and co-sign rate of ~50% Average loans $5.3 $7.3 $8.3 $9.
Slide 37: Unsecured
Unsecured Highlights 1Q20 $4.3 billion consumer unsecured portfolio Measured approach to growth & loan limits $s in billions Continue to improve our analytical suite of tools; focus on $3.7 $4.3 $4.3 $3.2 $3.3 tightening higher-risk areas and enhancing pricing segmentation 44% 43% Merchant por
Slide 38: Notable Items
Notable Items(1) First quarter 2020 and fourth quarter 2019 results reflect notable items primarily related to TOP 6 transformational and revenue and efficiency initiatives. First quarter 2020 and 2019 results also reflect notable items related to integration costs primarily tied to the August 1, 20
Slide 39: GAAP noninterest income and noninterest expense summary
GAAP noninterest income and noninterest expense summary $s in millions GAAP 1Q20 change from Noninterest Income 1Q20 4Q19 1Q19 4Q19 1Q19 $ % $ % Service charges and fees $ 118 $ 128 $ 123 (10) (8) % (5) (4) % Mortgage banking fees 159 80 43 79 99 116 NM Card fees 56 64 59 (8) (13) (3) (5) Capital ma
Slide 40: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 40
Slide 41: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 41
Slide 42: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 42
Slide 43: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 43
Slide 44: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 44
Slide 45: Key performance metrics, Non-GAAP reconciliations – Underlying excluding impact of COVID-19 on provision
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding the impact of COVID-19 on provision for credit losses $s in millions, except share, per share and ratio data 45
Slide 46: Notes
Notes Notes on Key Performance Metrics and Non-GAAP Financial Measures See important information on Key Performance Metrics and 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
Slide 47: Notes continued
Notes continued Notes on slide 16 – DFAST company-run stress results compare favorably to peers 1) Represents Bank Holding Company-run severely adverse scenario credit loss rates. 2014-2017 peer average includes BBT, CMA, FITB, KEY, MTB, PNC, RF, STI, and USB; 2018 peer average excludes CMA. 2019 pe
Slide 48: Citizens Financial Group, Inc.
3« Citizens Financial Group, Inc.”
Citizens Financial Group — Q1 2020 Earnings Presentation on 6ix