Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — BancAnalysts Association of Boston, Inc. conference (November 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
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 2
Slide 4: Solid financial performance notwithstanding COVID-19 disruption
Solid financial performance notwithstanding COVID-19 disruption 3Q20 Highlights of Underlying results(1) Results demonstrate strength and resiliency of franchise, $338 million 9.0% along with continued strong execution Net income ROTCE – impact of reserve build Our diversified business model has del
Slide 5: Achieving EPS and ROTCE growth in a ZIRP environment
Achieving EPS and ROTCE growth in a ZIRP environment Rate impact on floating-rate assets now fully reflected in 3Q20 NIM; run off of fixed-rate Absorbing ZIRP assets and hedges will continue to impact margin in 2021/22 environment impacts NIM stabilizing, currently projected to bottom in 2022 at 2.7
Slide 6: Absorbing ZIRP environment impacts
Absorbing ZIRP environment impacts Rate environment impacts 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 NIM stabilizing, currently projected to bottom Earning assets 50% fixed rate/50% variable rate in 2022 at 2.70%
Slide 7: NII will benefit from deposit pricing, loan growth, BSO
NII will benefit from deposit pricing, loan growth, BSO Deposit costs and mix significantly improving, opportunities to improve NIM and returns through BSO Growing lower cost deposits(1) Prudent loan growth and BSO $s in billions $80 $84 NIM $66 $67 $68 Targeting mid-teen interest-bearing deposit co
Slide 8: Expect further strength in fee businesses…
Expect further strength in fee businesses… Strong PPNR performance reflects benefit of investments, diversity of revenues Noninterest Income Areas of focus Other income $654 Consumer Securities gains, net Expect continued strength in mortgage given refi Letter of credit and loan fees $493 opportunit
Slide 9: ...And further expense opportunity
...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 New efficiency initiatives to Select examples: upsize program Digitization and automat
Slide 10: Credit overview
Credit overview Cautiously optimistic on credit trends, reserving 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
Slide 11: Enhanced monitoring for proactive credit portfolio management
Enhanced monitoring for proactive credit portfolio management Downturn playbook Actions taken Internal indicators External indicators Quarterly, bottoms up cash burn analysis for ~1,900 commercial customers representing ~70% of loan balances Downgrade and watch list trends; credit reviews, Macro, re
Slide 12: Credit quality – monitoring as forbearance programs wind down
Credit quality – monitoring as forbearance programs wind down Retail forbearance(1,2) Retail delinquency Current- 90 or 30-59 60-89 Total retail loans 29 More 6.0% 3/31/2020 98.51 % 0.64 % 0.27 % 0.58 % 9/30/2020 98.61 % 0.52 % 0.21 % 0.65 % 2.8% Retail forbearance trending down from 6.0% at June 30
Slide 13: Credit quality – prudently reserved
Credit quality – prudently reserved Allowance for credit losses Reserve coverage $s in millions Retail $2,736 2.10% $2,527 Commercial ex. PPP(2) 2.50% $2,210 Expect 4Q20 Areas of continued concern within: reserve release 2.29% >CRE: Retail & hospitality $1,308 $1,296 2.09% >Accommodation & food serv
Slide 14: Credit quality – provisions declining, NCOs stabilizing
Credit quality – provisions declining, NCOs stabilizing Provision for credit losses, net charge-offs $s in millions $600 4Q20 Provision $464 $428 0.70% 0.46% 0.46% 4Q20 NCOs 0.38% 0.41% 60-80 bps $219 $137 $147 $101 $113 $110 $122 3Q19 4Q19 1Q20 2Q20 3Q20 Provision for credit losses Total net c/os N
Slide 15: Credit quality – nonaccrual loans expected to decline in 4Q20
Credit quality – nonaccrual loans expected to decline in 4Q20 Nonaccrual loans(1) $s in millions $1,277 $1,215 4Q20 $990 $737 $780 $703 1.03% 0.63% 0.79% 0.59% 0.61% 3Q19 4Q19 1Q20 2Q20 3Q20 10/31/2020 Preliminary Nonaccrual loans Nonaccrual loans to total loans Nonaccrual loans increased $287 milli
Slide 16: Credit quality – criticized overall is stabilizing
Credit quality – criticized overall is stabilizing Criticized Classified vs. peers $s in millions 3.64% 8.17% 9.06% 8.65% 2.57% 2.52% 3.69% $5,650 2.31% 2.37% 5.67% $5,306 $5,351 4.99% 5.28% $3,743 4.71% 4.27% 2.19% 2.27% $2,833 $3,036 4.48% 1.88% 1.99% 3.40% 3.01% 3.09% 3.69% 4.35% 4.38% 1.99% 2.19
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 dive
Slide 18: Appendix
Appendix 3* Citizens Financial Group, Inc.”
Slide 19: Hedging activities
Hedging activities We use interest rate swap contracts to manage the interest rate exposure to variability in the interest cash flows on our floating-rate assets and floating- rate wholesale funding, and to hedge market risk on fixed-rate capital markets debt issuances and AFS securities. The table
Slide 20: Highly disciplined on credit
Highly disciplined on credit Commercial portfolio Retail portfolio Highly granular and diversified portfolio in terms of Super prime/prime-focused; refreshed FICOs geography, industry and asset class improved YoY(1,2) Automotive All Others (3) $61.1 $61.7 Consumer Products Mfg 4% Real Estate and Ren
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 2Q20 3Q20 Current view Areas Continued Commentary Industry sectors % of % of $s in billions Balance Total CFG Balance Total CFG Stabilizing Concern Real Estate and Rental and Leasing $13.8 11 % $14.1 11 % Early stages of economic
Slide 23: CRE: Retail and Hospitality
CRE: Retail and Hospitality Property type 3Q20 % of Commentary Overall CRE portfolio $in millions ex. PPP commercial Portfolio focused on larger, well-capitalized institutional and Office $ 5,137 8% upper middle market sponsors and owners well known to us; Multi-family 2,887 5 regions with strong gr
Slide 24: Accommodation and food services
Accommodation and food services Accommodation and food services 3Q20 % of Commentary $in millions ex.PPP commercial Food services have performed well McDonalds franchisee $ 1,200 2 % − ~75% of food services is fast food and fast casual; ~44% Fast food 619 1 McDonald’s franchisees Fast casual 241 NM
Slide 25: Retail trade
Retail trade Retail trade 3Q20 % of Commentary $in millions ex. PPP commercial 65% is lower risk gas stations, convenience stores and other Gas stations, convenience stores, grocery essential services that either remained open during the crisis and other essential retail businesses $ 1,630 3 % or ar
Slide 26: Energy and related
Energy and related Energy and related 3Q20 % % of Commentary $in millions ex. PPP Utilized commercial (1) Less price-sensitive - Oil & Gas $ 1,142 64 % 2 % Price stabilization from volatility in first half 2020 has been (2) Less price-sensitive - Energy other 458 45 1 beneficial Less price-sensitive
Slide 27: Arts, entertainment and recreation
Arts, entertainment and recreation Arts, entertainment and recreation 3Q20 % of Commentary $in millions ex. PPP commercial ~60% of portfolio exposure to sports teams and stadiums Performing arts, spectator sports, and assisted by resumption of major professional sports and related industries $ 792 1
Slide 28: Retail credit - diversified portfolio with prudent credit discipline
Retail credit - diversified portfolio with prudent credit discipline 2Q20 3Q20 Nonaccrual Nonaccrual Retail portfolio % of WA % of WA $in billions Balance total CFG FICO $ % Balance total CFG FICO $ % Residential mortgage $19.2 15 % ~785 $0.11 0.58 % $19.6 16 % ~785 $ 0.13 0.67 % Home equity 12.5 10
Slide 29: Mortgage portfolio overview
Mortgage portfolio overview Highlights 3Q20 $19.6 billion mortgage portfolio Jumbo mortgages originated primarily within the Bank’s lending by Refreshed CLTV(1) footprint 90-100% Weighted-average refreshed FICO score of ~785 and CLTV of ~63% 80-89% 2% 10% Risk mitigants: ─ Greater use of mortgage in
Slide 30: Home equity portfolio
Home equity portfolio(1) Highlights 3Q20 $12.3 billion HELOC portfolio ~50% of the HELOC portfolio is secured by 1st lien by Lien position (2) Weighted-average FICO of ~765 ~95% of the HELOC portfolio has an LTV of less than 80% Risk mitigants: ─ Increased FICO floors on originations 1st 50% 50% 2nd
Slide 31: Auto
Auto Highlights 3Q20 $12.0 billion auto portfolio Auto finance portfolio – purchase only, no leasing, weighted-average FICO by Refreshed FICO score (1,2) score of ~735 ~80% of the portfolio has a FICO score equal to or greater than 680, ~50% ≤ % new-car < 620 72 months and ~50% are new car loans ~50
Slide 32: Education
Education 3Q20 $11.6 billion education finance portfolio Highlights $s in billions 2016 2017 2018 2019 3Q20 Education finance portfolio Period-end loans Borrowers at origination weighted-average FICO score of ~785 and $6.6 $8.1 $8.9 $10.3 $11.6 co-sign rate of ~70% Average loans $5.6 $7.6 $8.5 $9.4
Slide 33: Unsecured
Unsecured Highlights 3Q20 $3.9 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 $4.2 $3.9 tightening higher-risk areas and enhancing pricing segmentation 44% 43% 40% 37% Point-of-s
Slide 34: Notes
Notes 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. “Unde
Slide 35: Notes
Notes Notes on slide 26 – Arts, entertainment and recreation 1. 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 1. See above general note b). Notes
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.”