Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q2 2022 Earnings Presentation
41 slides from Citizens Financial's earnings presentation, Jul 19, 2022
Slide 1: 2Q22 Financial Results
2Q22 Financial Results July 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: 2Q22 GAAP financial summary
2Q22 GAAP financial summary Q/Q Y/Y $s in millions 2Q22 1Q22 2Q21 $/bps % $/bps % Net interest income $ 1,505 $ 1,147 $ 1,124 $ 358 31 % $ 381 34 % Noninterest income 494 498 485 (4) (1) 9 2 Total revenue 1,999 1,645 1,609 354 22 390 24 Noninterest Expense 1,305 1,106 991 199 18 314 32 Pre-provision
Slide 4: Overview
Overview(1) Results reflect our diversified business model – Underlying EPS of $1.14 and ROTCE of 15.5% – Underlying PPNR of $850 million, up 45% QoQ, includes ~$150 million contribution from the HSBC and ISBC transactions – NII up 31% QoQ, or 9% excluding the HSBC/ISBC impacts, given improved net i
Slide 5: 2Q22 Underlying financial summary
2Q22 Underlying financial summary(1) Q/Q Y/Y $s in millions 2Q22 $/bps % $/bps % 2Q22 HSBC/ISBC contributions ■ Net Interest Income: ~$265MM Net interest income $1,505 $358 31% $381 34% Noninterest income 525 27 5 40 8 ■ Noninterest Income: ~$15MM Total revenue 2,030 385 23 421 26 ■ Noninterest Expe
Slide 6: Net interest income
Net interest income Robust commercial loan growth and improved rate environment benefiting NII NII and NIM Linked Quarter $s in millions, except earning assets $198.7B ■ NII up 31% given higher net interest margin and 17% growth in interest-earning assets, including the HSBC and ISBC transactions $1
Slide 7: Benefiting from higher rates while positioning well for medium-term
Benefiting from higher rates while positioning well for medium-term NII sensitivity Interest rate risk management update Asset sensitivity vs. forward curve ■ Remain asset sensitive at ~2.5%(1); lower than 1Q22 driven by Gradual +200 bps Instant +/- 25 bps – ISBC NII base effect and liability sensit
Slide 8: Noninterest income
Noninterest income(1) Underlying fees up 5% QoQ demonstrating diversity of fee income $ Underlying, as applicable Linked Quarter $s in millions 2Q22 1Q22 2Q21 Q/Q Y/Y ■ Underlying noninterest income increased 5% Capital markets fees $ 88 $ 93 $ 91 $ (5) $ (3) – Capital markets fees declined reflecti
Slide 9: Noninterest expense
Noninterest expense(1) Continued expense discipline and efficiency initiatives keep expenses well controlled Underlying, as applicable $ Linked Quarter $s in millions 2Q22 1Q22 2Q21 Q/Q Y/Y ■ Underlying noninterest expense up 12%, which Salaries & employee benefits $ 611 $ 588 $ 524 $ 23 $ 87 includ
Slide 10: Loans and leases
Loans and leases(1) Strong Commercial loan growth led by C&I Average loans and leases(2) Linked Quarter $s in billions ■ Average loans up $24.7 billion, or 19%; excluding HSBC/ISBC, up 3% $153.8 $129.2 – Commercial up 5%, primarily reflecting higher C&I line $123.5 $122.6 $125.2 $21.8 utilization $0
Slide 11: Average funding and cost of funds
Average funding and cost of funds(1) Period-end deposits up slightly QoQ excluding acquisition impacts; deposit costs well controlled 2Q22 Average deposits Linked Quarter $s in billions $176.4 ■ Period-end deposits up $20.1 billion, or 13%, including $150.3 $151.9 $153.0 $155.1 $19.8 billion related
Slide 12: Credit quality overview
Credit quality overview Credit provision expense (benefit); net Highlights charge-offs $s in millions ■ NCOs of $49 million, or 13 bps of average loans and leases, down 6 bps QoQ 0.25% ■ Nonaccrual loans decreased 6 bps to 54 bps of total loans QoQ, 0.14% 0.14% 0.19% 0.13% largely tied to a decline
Slide 13: Allowance for credit losses
Allowance for credit losses Allowance for credit losses $s in millions $125 $(54) $(49) $2,147 $247 $1,878 ■ $102MM PCD ■ $145MM Non-PCD (Day-1 CECL double count) 1Q22 ISBC Integration New Loan Portfolio, Economic/ Net Charge-offs 2Q22 Originations Qualitative Changes Commentary ACL coverage ratio ■
Slide 14: Capital remains strong
Capital remains strong $s in billions (period-end) 2Q21 3Q21 4Q21 1Q22 2Q22 Highlights (1)(2) Basel III basis ■ 2Q22 CET1 ratio of 9.6%, compares with 9.7% in 1Q22 Common equity tier 1 capital $ 15.3 $ 15.6 $ 15.7 $ 15.6 $ 17.9 ■ Paid $195 million in common dividends to shareholders Risk-weighted as
Slide 15: Business highlights
Business highlights Citizens well positioned to continue positive trajectory and support our communities • Completed Investors Bancorp acquisition; welcomed more than 1,600 new colleagues and Best Innovation for completed mortgage origination conversion as first phase of technology and operations co
Slide 16: 3Q22 outlook vs. 2Q22
3Q22 outlook vs. 2Q22 2Q22 3Q22 Underlying(1) Underlying outlook Net interest income $1,505MM Up 5.5%-7% Broadly stable with upside if market Noninterest income $525MM volatility subsides Noninterest expense $1,180MM Up ~1% Net charge-off ratio 13 bps ~20 bps CET1 ratio(2) 9.6% ~9.75% Tax rate 23.7%
Slide 17: Positive outlook for Citizens
Positive outlook for Citizens Strong performance, positioning and momentum NII benefiting from strong loan growth and higher rate environment – Emphasizing relationship-orientated commercial loan growth with attractive risk-adjusted returns – Managing to a more predictable and stable outlook for NII
Slide 18: Appendix
Appendix
Slide 19: Underlying 2Q22 performance vs. guidance ex HSBC/ISBC
Underlying 2Q22 performance vs. guidance ex HSBC/ISBC(1) 2Q22 Underlying performance ex. HSBC/ISBC Results Guidance $ % Up 6-8% reflecting the Net interest income $1,243MM 9% benefit of higher rates Balance sheet Average Loans Up 1-2% $132.0B 3% Average Earning Assets Up slightly $168.4B 1% Up 3-5%
Slide 20: Building a leading New York Metro bank
Building a leading New York Metro bank Sizable upside: Substantial revenue growth potential Enterprise: Introducing Citizen's brand to New York Metro ■ Closed and converted HSBC branches; closed ISBC on April 6th ■ Introducing Citizens' brand with a local flavor – Engaging in multi-channel marketing
Slide 21: ISBC acquisition - financial impacts
ISBC acquisition - financial impacts Transaction summary Related balance sheet actions ■ Closed: April 6, 2022 ■ $2.1 billion of non-strategic ISBC loans; classified as ■ Purchase price: $3.4B held-for-sale effective April 6, 2022 – ~72.4MM shares issued (~68MM average impact in – Recorded $31 milli
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 Receive fixed cash flow swaps - average notional balances $ billions at 6/30/22 $20.7 $21.3 $20.1 Pre-2022 executions $17.2 2022 YTD execution $10.6 $11.3 $10.1 $5.8 $13.6 $8.8 $11.4 $4.9 $1
Slide 24: Credit portfolio quality continues to improve
Credit portfolio quality continues to improve Retail portfolio FICOs(1) Commercial portfolio risk ratings(1) $s in billions $s in billions $61.6 $74.7 $57.5 $81.4 6% 5% B- and lower 3% 4% <640 5% 5% 14% 12% 640-679 18% 17% B+ to B 20% 25% 680-739 35% BB+ to BB- 33% 740-799 58% 64% 800+ 38% 38% AAA+
Slide 25: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type March 31, 2022 June 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) $45,724 $525 1.15 % $51,801 $608 1.17 % Commercial real esta
Slide 26: 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 é19% é14% é6 bps $176.4 $153.9 $155.1 1.12% 1.06% $129.2 1Q22 2Q22 1Q22 2Q22 1Q22 2Q22 Pre-provision profit Net income available to Return on average tangible $s
Slide 27: 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 é25% é17% ê36 bps $176.4 $153.9 $150.3 1.48% $123.5 1.12% 2Q21 2Q22 2Q21 2Q22 2Q21 2Q22 Net income available to Return on average tangible Pre-provision profit $s
Slide 28: Notable items
Notable items(1) Quarterly results for first and second quarter 2022 and second 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, first and second
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 16 - 3Q22 outlook vs. 2Q22 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 19 - Underlying 2Q22 performance vs. guidance ex HSBC/ISBC 1) See note on non-GAAP financial measures. Notes on slide 20 - Building a leading New York Metro ba
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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $494 $498 $485 ($4) (1%) $9 2% Less: Notable items (31) — — (31) (100) (31)
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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $1,999 $1,645 $1,609 $354 21.59% $390 24.24% Less: Noninterest expense (GAAP) E 1,30
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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Return on average total tangible assets and return on average total tangible assets, Underlying: Average total assets (GAAP) R
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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Other income, Underlying Other income (GAAP) ($12) $24 $16 ($36) NM ($28) NM Less: Notable items (31) — — (31) (100) (31) (100)
Slide 35: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 4Q21 3Q21 Noninterest income, Underlying: Noninterest income (GAAP) A $594 $514 Less: Notable items — — Noninterest income, Underlying (non-GAAP) $594 $514 Total revenue, Underlyin
Slide 36: 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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Average Commercial Loans, excluding HSBC, ISBC, and PPP Average Commercial Loans (GAAP) A $79,684 $60,5
Slide 37: Non-GAAP reconciliations - excluding HSBC, ISBC and 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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Noninterest expense, Underlying excluding HSBC, ISBC,
Slide 38: 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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Total Deposits, excluding HSBC & ISBC: Total Deposits (GAAP) A $178,925 $158,776 $150,636 $20,149
Slide 39: 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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Total Average Loans, excluding HSBC & ISBC Average Loans (GAAP) K $153,854 $129,154 $123,490 $24,
Slide 40: 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 2Q22 Change 2Q22 1Q22 2Q21 1Q22 2Q21 $/bps % $/bps % Net interest Income, excluding HSBC & ISBC: Net interest Income (GAAP) $1,505 $1,147 $1,124 $358
Slide 41: Citizens Financial Group, Inc.
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Citizens Financial Group — Q2 2022 Earnings Presentation on 6ix