Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — BancAnalysts Association of Boston Conference 2020
39 slides from Citizens Financial's conference presentation, Nov 5, 2020
Slide 1: BancAnalysts Association of Boston, Inc.
BancAnalysts Association of Boston, Inc. November 5, 2020 John F. Woods Vice Chairman and Chief Financial Officer Malcolm Griggs Chief Risk Officer Exhibit 99.1
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: Presentation overview
Presentation overview Solid financial performance notwithstanding COVID-19 disruption Achieving EPS & ROTCE growth in a ZIRP environment Upsizing TOP 6 Enhanced credit monitoring for proactive portfolio management
Slide 4: Solid financial performance notwithstanding COVID-19 disruption
Solid financial performance notwithstanding COVID-19 disruption See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. $338 million Net income 9.0% ROTCE – impact of reserve build 5
Slide 5: Achieving EPS and ROTCE growth in a ZIRP environment
NII will benefit from deposit pricing, loan growth, BSO Deposit costs and mix significantly improving; further opportunities to improve NIM and returns through Balance Sheet Optimization (BSO) Achieving EPS and ROTCE growth in a ZIRP environment Absorbing ZIRP environment impacts Rate impact on floa
Slide 6: Absorbing ZIRP environment impacts
Absorbing ZIRP environment impacts $s in millions, except earning assets Average interest-earning assets Net interest income Net interest margin, FTE(1) NII and NIM More severe rate environment than 2015 ZIRP cycle with longer-term rates 150 bps lower in ~75–85 bps range near-term Earning assets 50%
Slide 7: NII will benefit from deposit pricing, loan growth, BSO
NII will benefit from deposit pricing, loan growth, BSO See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. Growing lower cost deposits(1) Demand deposits Lower-cost deposits Tot
Slide 8: Expect further strength in fee businesses
Expect further strength in fee businesses… Strong PPNR performance reflects benefit of investments, diversity of revenues Expect continuing benefits from strategic initiatives and capabilities Noninterest Income Areas of focus Consumer Expect continued strength in mortgage given refi opportunity – e
Slide 9: TOP Program upsizing and further expense opportunity
TOP 6 Program on track to achieve FY2020 pre-tax run-rate target of $225 million; projecting total benefit of ~$400-$425 million by YE2021, including recent $100 million upsizing ...And further expense opportunity New efficiency initiatives to upsize program Consumer: re-imaging front-to-back digita
Slide 10: Credit overview
Credit overview Highly disciplined credit risk appetite Retail portfolio super prime/prime-focused Granular and diversified commercial portfolio in terms of geography, industry and asset class Fed-run 2020 DFAST severely adverse credit loss rate of 5.6% in-line with peer average Proactively supporte
Slide 11: Enhanced monitoring for proactive credit portfolio management
Enhanced monitoring for proactive credit portfolio management Quarterly, bottoms up cash burn analysis for ~1,900 commercial customers representing ~70% of loan balances This allows a level of precision in forecasting and identifying customers in need of more attention Sector reviews, prioritized by
Slide 12: Credit quality – monitoring as forbearance programs wind down
Credit quality – monitoring as forbearance programs wind down Retail forbearance(1,2) *Under an alternative method where forbearance ends immediately after the last deferred payment, the forbearance rate would be ~2% on October 31, 2020 Commercial deferrals(1,2,3) Working proactively with Commercial
Slide 13: Credit quality – prudently reserved
Reserve coverage See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. Credit quality – prudently reserved Allowance for credit losses $s in millions (1) (2) 3Q20 ACL ratio of 2.21
Slide 14: Credit quality – provisions declining, NCOs stabilizing
Credit quality – provisions declining, NCOs stabilizing Provision for credit losses Total net c/os Net c/o ratio Provision for credit losses, net charge-offs $s in millions NCOs increased $72 million QoQ and $106 million YoY reflecting increases in commercial, partly offset by decreases in retail gi
Slide 15: Credit quality – nonaccrual loans expected to decline in 4Q20
See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. Credit quality – nonaccrual loans expected to decline in 4Q20 $s in millions Nonaccrual loans(1) Nonaccrual loans increased $2
Slide 16: Credit quality – criticized overall is stabilizing
Credit quality – criticized overall is stabilizing Criticized $s in millions Highly focused on targeted actions to manage assets in regulatory classified categories, i.e., substandard and doubtful Criticized overall began stabilizing in 3Q20; expect improvement in 4Q20 Special mention will fluctuate
Slide 17: Key messages
Key messages Focused on disciplined execution to achieve EPS growth and ROTCE improvement in a ZIRP environment Focused on growing NII, fees and improving risk-adjusted returns Managing down deposit costs – targeting mid-teen interest-bearing deposit costs by YE2021 Strong fee generation from divers
Slide 18: Appendix
Appendix 3% Citizens Fanci Grup re
Slide 19: Hedging activities
Hedging activities See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cas
Slide 20: Highly granular and diversified portfolio in terms of geography, industry and asset class
Highly granular and diversified portfolio in terms of geography, industry and asset class Highly disciplined on credit See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. 800+ 74
Slide 21: Analysis of selected loan portfolios
Analysis of selected loan portfolios Commercial Page Commercial - proactively managing areas of potential industry concern 21 CRE: Retail & Hospitality 22 Accommodation and food services 23 Retail trade 24 Energy and related 25 Arts, entertainment and recreation 26 Retail Page Retail credit - divers
Slide 22: Commercial - proactively managing areas of potential industry concern
Commercial - proactively managing areas of potential industry concern See pages 33-34 for notes and important information on Non-GAAP Financial Measures, including “Underlying” results. “Underlying” results exclude the impact of notable items. Industry sector of market concern Areas stabilizing Cont
Slide 23: CRE: Retail and Hospitality
CRE: Retail and Hospitality Portfolio focused on larger, well-capitalized institutional and upper middle market sponsors and owners well known to us; regions with strong growth with an eye to geographic diversity 76% of the CRE portfolio income producing and REIT Most of the CRE portfolio is perform
Slide 24: Accommodation and food services
Food services have performed well ~75% of food services is fast food and fast casual; ~44% McDonald’s franchisees Better positioned to manage social distancing through take out and drive-through capabilities Franchisees benefit from strong franchisor support with concessions and deferrals of base re
Slide 25: Retail trade
$2.5 billion retail trade by state 65% is lower risk gas stations, convenience stores and other essential services that either remained open during the crisis or are now seeing increased consumer demand 35% is non-essential businesses impacted by COVID-19 and associated closures ~20% asset-based len
Slide 26: Energy and related
Energy and related ~$1 billion more sensitive to declining oil prices Midstream Integrated Downstream RBL Upstream, Non-RBL Oil Field Services Sub-sector(3) (1) B- and lower AAA to BBB- BB+ to BB- B+ to B Investment grade-equivalent risk rating(3) Energy other(2) Other Oil & Gas Commentary Price sta
Slide 27: Arts, entertainment and recreation
~60% of portfolio exposure to sports teams and stadiums assisted by resumption of major professional sports and contractual revenues in place from cable broadcasters Low historic loss rates given contractual revenue streams from cable broadcasters and structural protection Low exposure to fitness ce
Slide 28: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline ~70% of the retail portfolio is secured Mortgage weighted-average LTV of 63% with ~97% of the portfolio with refreshed FICO scores >650 ~50% of the HELOC portfolio is secured by 1st lien ~73% of HELOC has CLTV <70; ~95% CLTV < 80 E
Slide 29: Mortgage portfolio overview
3Q20 $19.6 billion mortgage portfolio Highlights Mortgage portfolio overview Jumbo mortgages originated primarily within the Bank’s lending footprint Weighted-average refreshed FICO score of ~785 and CLTV of ~63% Risk mitigants: Greater use of mortgage insurance at higher LTV's Enhanced policies to
Slide 30: Home equity portfolio
3Q20 $12.3 billion HELOC portfolio Highlights Home equity portfolio(1) ~50% of the HELOC portfolio is secured by 1st lien Weighted-average FICO of ~765 ~95% of the HELOC portfolio has an LTV of less than 80% $s in billions 2016 2017 2018 2019 3Q20 Period-end loans $16.9 $15.6 $14.3 $13.2 $12.3 Avera
Slide 31: Auto portfolio
3Q20 $12.0 billion auto portfolio Auto by Refreshed FICO score ≤ 48 49-60 76-84 61-66 67-72 73-75 (1,2) % new-car ~50% by Term (months) Auto finance portfolio – purchase only, no leasing, weighted-average FICO score of ~735 ~80% of the portfolio has a FICO score equal to or greater than 680, ~50% ≤
Slide 32: Education finance portfolio
Highlights 3Q20 $8.9 billion education refinance portfolio 3Q20 $11.6 billion education finance portfolio Education finance portfolio Borrowers at origination weighted-average FICO score of ~785 and co-sign rate of ~70% Education In-School $2.7 billion In-School portfolio – FICO ~775 Underwriting in
Slide 33: Unsecured portfolio
Highlights What we are monitoring Risk mitigants: Significant tightening of PERL credit policy Significantly restricted non-branch originations Raised FICO, lowered DTI, lowered loan limits and further enhanced employment and income verification Measured approach to growth & loan limits Continue to
Slide 34: Notes on Non-GAAP Financial Measures
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. “Underlying
Slide 35: Notes on slides
Notes on slide 26 – Arts, entertainment and recreation All other states includes states with balances under 2 percent of arts, entertainment and recreation portfolio. Notes on slide 27– Retail credit - diversified portfolio with prudent credit discipline See above general note b). Notes on slide 28–
Slide 36: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q20 Change 3Q20 2Q20 3Q19 2Q20 3Q19 $ % $ % Total revenue, Underlying: Total revenue (GAAP) A $1,791 $1,750 $1,638 $41 2 % $153 9 % Less: Notable items — — — — — — — Total revenue
Slide 37: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q20 Change 3Q20 2Q20 3Q19 2Q20 3Q19 $/bps % $/bps % Operating leverage: Total revenue (GAAP) A $1,791 $1,750 $1,638 $41 2.36 % $153 9.29 % Less: Noninterest expense (GAAP) C 988 9
Slide 38: Non-GAAP financial measures and reconciliations – excluding the impact of PPP loans
Non-GAAP financial measures and reconciliations – excluding the impact of PPP loans $s in millions, except share, per share and ratio data QUARTERLY TRENDS 3Q20 Change 3Q20 2Q20 2Q20 $/bps % Total commercial loans, excluding the impact of PPP loans: Total commercial loans (GAAP) A $62,362 $64,930 ($
Slide 39: Citizens Financial Group, Inc.
3* Citizens Financial Group, Inc.”
Citizens Financial Group — BancAnalysts Association of Boston Conference 2020 on 6ix