Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q3 2022 Earnings Presentation
38 slides from Citizens Financial's earnings presentation, Oct 19, 2022
Slide 1: 3Q22 Financial Results
3Q22 Financial Results October 19, 2022
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. Statements regarding potential future share repurchases and future dividends as well as the potential effect
Slide 3: 3Q22 GAAP financial summary
3Q22 GAAP financial summary Q/Q Y/Y $s in millions 3Q22 2Q22 3Q21 $/bps % $/bps % Net interest income $ 1,665 $ 1,505 $ 1,145 $ 160 11 % $ 520 45 % Noninterest income 512 494 514 18 4 (2) — Total revenue 2,177 1,999 1,659 178 9 518 31 Noninterest Expense 1,241 1,305 1,011 (64) (5) 230 23 Pre-provisi
Slide 4: 3Q22 Underlying financial summary
3Q22 Underlying financial summary(1) Q/Q Y/Y 3Q22 Notable Items $s in millions 3Q22 $/bps % $/bps % Net interest income $1,665 $160 11% $520 45% Impacts Pre-tax EPS ($s in millions except per share data) Noninterest income 512 (13) (2) (2) — Integration related $ (37) $ (0.06) Total revenue 2,177 14
Slide 5: Overview
Overview(1) Navigating well in a dynamic environment – Underlying EPS of $1.30 and ROTCE of 17.9% – Underlying PPNR of $982 million, up 16% QoQ – NII up 11% QoQ given improved net interest margin, up 21 bps, and interest-earning asset growth – Fees down 2% QoQ with FX and derivative products revenue
Slide 6: Net interest income
Net interest income NII and NIM continue to benefit from rising rates and robust commercial loan growth NII and NIM Linked Quarter $s in millions, except earning assets $198.7B $203.6B ■ NII up 11% given higher net interest margin and 2% growth in interest-earning assets, including average loan grow
Slide 7: Continue to be well positioned for higher rates
Continue to be well positioned for higher rates Strong NIM outlook with downside rate protection ■ NIM projected to increase from 3.25% in 3Q22 to ~3.50% plus(1) by the end of 2023 ■ Cumulative loan betas expected to exceed deposit betas through the rate cycle ■ Deposit betas tracking well within ex
Slide 8: Noninterest income
Noninterest income(1) Diverse fee base performing well in a challenging market environment $ Underlying, as applicable Linked Quarter $s in millions 3Q22 2Q22 3Q21 Q/Q Y/Y ■ Underlying noninterest income decreased 2% Capital markets fees $ 89 $ 88 $ 72 $ 1 $ 17 – Capital markets fees stable reflecti
Slide 9: Noninterest expense
Noninterest expense(1) Expenses well controlled with merger-related cost synergies on track; efficiency ratio 54.9% Underlying, as applicable $ Linked Quarter $s in millions 3Q22 2Q22 3Q21 Q/Q Y/Y ■ Underlying noninterest expense broadly stable Salaries & employee benefits $ 622 $ 611 $ 522 $ 11 $ 1
Slide 10: Loans and leases
Loans and leases(1) Strong Commercial loan growth driving average loans up 2% QoQ Average loans and leases(2) Linked Quarter $s in billions ■ Average loans up $3.0 billion, or 2% $153.8 $156.9 – Commercial up 3%, reflecting growth in C&I and CRE given $125.2 $129.2 $21.8 increased line utilization a
Slide 11: Average funding and cost of funds
Average funding and cost of funds(1) Average deposits up 1% QoQ; demand deposits 30% of total deposits 3Q22 Average deposits Linked Quarter $s in billions $176.4 $177.6 ■ Average deposits up $1.3 billion, or 1%, with growth in term $151.9 $153.0 $155.1 and savings partly offset by lower money market
Slide 12: Credit quality overview
Credit quality overview Credit provision expense (benefit); net Highlights charge-offs $s in millions ■ NCOs of $74 million, or 19 bps of average loans and leases, up 6 bps QoQ 0.14% 0.19% 0.19% ■ Nonaccrual loans increased 1 bp to 55 bps of total loans 0.14% 0.13% QoQ $123 $59 $71 $49 $74 ■ Provisi
Slide 13: Allowance for credit losses
Allowance for credit losses Allowance for credit losses Commentary $s in millions ■ Reserve build reflects an increased risk of $66 $2,196 recession, partly offset by improvement in portfolio $2,147 $(17) mix ■ Day-1 CECL adoption ACL coverage ratio was 1.47% on January 1, 2020 – The pro forma for t
Slide 14: Capital remains strong
Capital remains strong $s in billions (period-end) 3Q21 4Q21 1Q22 2Q22 3Q22 Highlights (1)(2) Basel III basis ■ 3Q22 CET1 ratio of 9.8%, compares with 9.6% in 2Q22 Common equity tier 1 capital $ 15.6 $ 15.7 $ 15.6 $ 17.9 $ 18.3 ■ TBV/share of $26.62, down 8.6% QoQ; tangible common Risk-weighted asse
Slide 15: Consumer initiatives to drive outsized revenue growth
Consumer initiatives to drive outsized revenue growth Strategic priorities Progress made Focus for next 12 months Building a leading NYC ▪ HSBC conversion complete; ISBC integration on ▪ Complete ISBC integration in 1Q23 Metro / NJ bank track; completed Wealth, Mortgage origination ▪ NYC entry marke
Slide 16: Commercial Banking - broadening capabilities and strengthening execution
Commercial Banking - broadening capabilities and strengthening execution Strategic priorities Transformed business since IPO Delivering results • Significant investments in talent and capabilities Capital and Global Markets fees ◦ Strengthened corp finance, M&A advisory up 84% 2018-2021 ◦ Deepening
Slide 17: 4Q22 outlook vs. 3Q22
4Q22 outlook vs. 3Q22 3Q22 4Q22 Underlying(1) Underlying outlook Net interest income $1,665MM Up ~3% NIM 3.25% 3.30-3.35% Stable to up modestly; commercial growth Loan growth $156.9B average loans partially offset by auto rundown Noninterest income $512MM Stable to up modestly Noninterest expense $1
Slide 18: 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-orientated commercial loan growth – Pru
Slide 19: Appendix
Appendix
Slide 20: 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 é2% é1% é10 bps $176.4 $177.6 $153.9 $156.9 1.22% 1.12% 2Q22 3Q22 2Q22 3Q22 2Q22 3Q22 Pre-provision profit Net income available to Return on average tangible $s i
Slide 21: 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 é28% é17% é1 bp $177.6 $156.9 1.21% 1.22% $151.9 $122.6 3Q21 3Q22 3Q21 3Q22 3Q21 3Q22 Net income available to Return on average tangible Pre-provision profit $s i
Slide 22: Investors integration update
Investors integration update Investors timeline 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Deal Announced Phased Tech / Ops Integration Mobilization and Planning Close Complete 500+ Colleagues and contractors ~1,680 new colleagues involved in conversion on-boarded day-1 9+ integration workstreams 40+ sub wo
Slide 23: Stabilizing and protecting NII and NIM
Stabilizing and protecting NII and NIM Cash flow hedges are the primary tool to manage interest rate exposure (1) Receive fixed cash flow swaps - average notional balances $ billions at 9/30/22 $29.3 Pre-2022 executions 1H22 executions $25.5 $8.0 3Q22 executions $22.1 $5.3 $1.4 $17.2 $11.3 $14.9 $10
Slide 24: $75.0B Retail credit portfolio
$75.0B Retail credit portfolio Retail loans(1) High quality, diverse portfolio Other retail ■ Mortgage - FICO ~780 Education - Residential – Weighted-average LTV of ~56% refinance 7% mortgages ■ Home equity - FICO ~770 14% – 46% secured by 1st lien Education - 39% – ~98% CLTV less than 80% in school
Slide 25: $81.1B Commercial credit portfolio
$81.1B Commercial credit portfolio Diverse and granular portfolio(1) Commercial portfolio risk ratings(3) $s in billions Outstanding % of ($ in billions) balance total CFG $57.5 $81.4 $81.1 C&I B- and lower 3% 3% 3% Finance and insurance $ 11.5 7% B+ to B 14% 14% 14% Other manufacturing 4.7 3 25% 19
Slide 26: Delinquency by product type
Delinquency by product type June 30, 2022 (%) September 30, 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 99.44 % 0.07 % 0.02 % 0.08 % 0.39 % 99.30 % 0.14 % 0.07 % 0.03 % 0.46 % Commercia
Slide 27: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type June 30, 2022 September 30, 2022 Loans and Allowance Coverage Loans and Allowance Coverage $s in millions Leases Leases Allowance for Loans and Lease Losses Commercial and industrial(1) $51,801 $608 1.17 % $50,989 $582 1.14 % Commercial real
Slide 28: Notable items
Notable items(1) Quarterly results for second and third quarter 2022 and third 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, second quarter 20
Slide 29: 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 30: Notes continued
Notes continued Notes on slide 17 - 4Q22 outlook vs. 3Q22 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 20 - Linked-quarter Underlying results 1) See note on non-GAAP financial measures. Notes on slide 21 - Year-over-year Underlying results 1) See note on non-GAA
Slide 31: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $512 $494 $514 $18 4% ($2) —% Less: Notable items — (31) — 31 100 — — Nonin
Slide 32: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $2,177 $1,999 $1,659 $178 8.88% $518 31.19% Less: Noninterest expense (GAAP) E 1,241
Slide 33: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $/bps % $/bps % Return on average total tangible assets and return on average total tangible assets, Underlying: Average total assets (GAAP) Q
Slide 34: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $/bps % $/bps % Other income, Underlying Other income (GAAP) $34 ($12) $26 $46 NM $8 31% Less: Notable items — (31) — 31 100 — — Other income,
Slide 35: Non-GAAP reconciliations - excluding HSBC & ISBC acquisitions and PPP loans
Non-GAAP financial measures and reconciliations - excluding the impact of HBC & ISBC Acquisitions and PPP loans $s in millions QUARTERLY TRENDS 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $/bps % $/bps % Average Commercial Loans, excluding HSBC, ISBC, and PPP Average Commercial Loans (GAAP) A $82,047 $79,6
Slide 36: 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 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 $/bps % $/bps % Noninterest expense, Underlying excluding HSBC, ISBC,
Slide 37: 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 3Q22 Change 3Q22 2Q22 3Q21 2Q22 3Q21 Total Loans (GAAP) E $156,140 $156,172 $123,318 ($32) —% $32,822 27% Less: HSBC & ISBC Acquisition Impact 21,171
Slide 38: Citizens Financial Group, Inc.
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Citizens Financial Group — Q3 2022 Earnings Presentation on 6ix