Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q4 2023 Earnings Presentation
58 slides from Citizens Financial's earnings presentation, Jan 17, 2024
Slide 1: 4Q23 and 2023 Financial Results
4Q23 and 2023 Financial Results January 17, 2024
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. Any statement that does not describe historical or current facts is a forward-looking statement. These state
Slide 3: 4Q23 and FY2023 GAAP summary
4Q23 and FY2023 GAAP summary Full Year Q/Q Y/Y 2023 vs. 2022 $s in millions 4Q23 3Q23 4Q22 $/bps % $/bps % 2023 2022 $/bps % Net interest income $ 1,488 $ 1,522 $ 1,695 $ (34) (2) % $ (207) (12) % $ 6,241 $ 6,012 $ 229 4 % Noninterest income 500 492 505 8 2 (5) (1) 1,983 2,009 (26) (1) Total revenue
Slide 4: 4Q23 and FY23 Underlying financial summary
4Q23 and FY23 Underlying financial summary(1) Full Year Q/Q Y/Y 2023 vs. 2022 $s in millions 4Q23 $/bps % $/bps % 2023 2022 $/bps % Net interest income $ 1,488 $ (34) (2)% $ (207) (12)% $ 6,241 $ 6,012 $ 229 4% Noninterest income 500 8 2 (5) (1) 1,983 2,040 (57) (3) Total revenue 1,988 (26) (1) (212
Slide 5: 4Q23 Underlying financial performance detail
4Q23 Underlying financial performance detail(1) (A) (B) (C) = (A) + (B) (D) (E) = (C) + (D) $s in millions Legacy Core(2) Private Bank Core Non-Core(3) Total CFG Net interest income $1,528 $4.8 $1,533 $(45) $1,488 Noninterest income 500 0.4 500 — 500 Total revenue 2,028 5.2 2,033 (45) 1,988 Noninter
Slide 6: 2023 Underlying financial performance detail
2023 Underlying financial performance detail(1) (A) (B) (C) = (A) + (B) (D) (E) = (C) + (D) $s in millions Legacy Core(2) Private Bank Core Non-Core(3) Total CFG Net interest income $6,365 $5.1 $6,370 $(129) $6,241 Noninterest income 1,983 0.5 1,983 — 1,983 Total revenue 8,347 5.5 8,353 (129) 8,224
Slide 7: Overview
Overview(1) Solid 2023 full-year results – Underlying net income of $2.0 billion, with EPS of $3.88 and ROTCE of 13.5%; includes $(0.11) for the Private Bank start-up investment and $(0.51) impact from the Non-Core portfolio 4Q23: Quarter highlights – Underlying EPS of $0.85 and ROTCE of 11.8%; incl
Slide 8: Net interest income
Net interest income NII and NIM Linked Quarter $s in millions, except earning assets ■ NII down 2%, reflecting lower NIM, partially offset by a $204.5B $202.6B $201.5B $203.1B 2% increase in average interest-earning assets, as $199.6B higher cash and securities were partially offset by lower loans $
Slide 9: Noninterest income
Noninterest income Fees up 2% QoQ reflecting improvement in Capital Markets and Wealth Linked Quarter $ $s in millions 4Q23 3Q23 4Q22 Q/Q Y/Y ■ Noninterest income increased 2% – Capital markets fees increased $20 million given increased bond Service charges and fees $ 104 $ 105 $ 105 $ (1) $ (1) and
Slide 10: Noninterest expense
Noninterest expense(1) Down slightly QoQ; remain highly disciplined on expenses Linked Quarter $ ■ Underlying noninterest expense of $1.27 billion, decreased $s in millions 4Q23 3Q23 4Q22 Q/Q Y/Y $4 million; broadly stable including the Private Bank start-up Salaries & employee benefits $ 635 $ 654
Slide 11: Loans and leases
Loans and leases Loans down modestly reflecting continued balance sheet optimization Average loans and leases Linked Quarter $s in billions ■ Average loans down $2.8 billion, or 2%, driven by planned Non- $157.1 $156.5 $153.7 Core portfolio run off $150.8 $148.0 $16.7 $15.6 $14.4 $13.0 $11.7 ~10% Qo
Slide 12: Deposit performance and cost of funds
Deposit performance and cost of funds Deposits broadly stable QoQ 4Q23 Period-end deposits Linked Quarter $s in billions $180.7 ■ Period-end deposits broadly stable, with lower Commercial $172.2 $177.7 $178.2 $177.3 offset by an increase in Consumer, driven by the Private Bank – Efforts to optimize
Slide 13: Highly diversified and retail-oriented deposit base
Highly diversified and retail-oriented deposit base $177B Period-end deposits Business mix (As of 12/31/23) Product mix Wealth 1% Business Citizens Banking Term Access 12% 15% NIB Commercial 21% 6% 26% Savings 10% Citizens Access Savings Money Market Treasury/ 6% Checking 30% Branch Other With Inter
Slide 14: Credit quality overview
Credit quality overview Credit provision expense; Highlights $s in millions net charge-offs ■ NCOs of $171 million, or 46 bps of average loans and leases 0.40% 0.40% 0.46% 0.34% ■ Nonaccrual loans increased 5% QoQ to 93 bps of total loans 0.22% primarily driven by an increase in C&I and a modest inc
Slide 15: Allowance for credit losses
Allowance for credit losses Allowance for credit losses Commentary $s in millions ■ The increase in the ACL reserve coverage to 1.59% 3Q23 4Q23 primarily reflects the decrease in loan balances and % % includes higher reserves for CRE exposures, primarily ACL Coverage ACL Coverage General Office Reta
Slide 16: Capital position continues to strengthen
Capital position continues to strengthen Highlights $s in billions (period-end) 4Q22 1Q23 2Q23 3Q23 4Q23 (1)(2) ■ 4Q23 CET1 ratio of 10.6%(1) compares with 10.4% in 3Q23 Basel III basis – 9.0% CET1 ratio adjusted for AOCI opt-out removal Common equity tier 1 capital $ 18.6 $ 18.4 $ 18.4 $ 18.4 $ 18.
Slide 17: Citizens Private Bank update
Citizens Private Bank update Strong momentum into 2024 Positioning for continued success Deposit growth Strategic focus areas ■ ~75% of deposits are $1.2B ■ Deliver a world-class service model Commercial Term DDA CWI ■ DDA/CWI is 38% of 4% ■ Market and expand the brand 33% 5% deposit mix ■ Hire and
Slide 18: Business initiatives update
Business initiatives update Building a leading NY/NJ Bank Capturing the Private Capital Opportunity Enhanced sponsor coverage model to drive Private Capital Gaining scale strategy, seeing positive results; hired coverage bankers and strengthened industry teams HSBC retail households per branch now A
Slide 19: TOP programs key to restoring positive operating leverage
TOP programs key to restoring positive operating leverage Transforming how we operate and deliver for customers and colleagues TOP program benefits TOP program/ expense $s in millions management ■ Launched TOP 9; areas of focus include ~$425 – Re-imagine operations with process reengineering, automa
Slide 20: Balance sheet optimization - loans
Balance sheet optimization - loans 1 Focusing on relationship-based lending with attractive risk-adjusted returns Non-Core and Consumer portfolios Commercial BSO ■ Non-Core portfolio of $11.1 billion retail loans at ■ Originations in 2023 were highly selective, with a 12/31/23 focus on generating a
Slide 21: FY2024 Outlook vs. 2023
FY2024 Outlook vs. 2023 2023 2024 Underlying(1) Underlying outlook Net interest income $6,241 Down 6-9%; net swaps impact of ~4-5% NIM 3.10%; 4Q23 2.91% FY2024 average 2.80-2.85%; 4Q24 exit NIM ~2.85% $152.2B average loans Average loans down 2-3% reflecting Non-Core run off and the 2023 decline Loan
Slide 22: Underlying expense outlook
Underlying expense outlook(1) Underlying expenses in $s in millions CFG ex Private Bank Total CFG Down ~1.3-1.5% $4,925 Up ~ $85 ~$4,855 ~$25-$35 ~1.0-1.5% ~ $(185) ~$5,063 $5,075 $5,001 CFG ex Private Bank TOP/ Other Strategic Compensation/ CFG ex Private Bank FY23 efficiencies investments Other FY
Slide 23: Significant NII contribution from Non-Core and swaps in 2025 and beyond
Significant NII contribution from Non-Core and swaps in 2025 and beyond Expected incremental quarterly NII & NIM contribution $250 from Non-Core and swaps portfolio relative to 4Q23* $s in millions $225 $225 ~$205 ~$210 4Q23 NII contribution $200 $200 $s in millions $175 $175 $150 $150 Active swaps
Slide 24: Medium-term financial targets
Medium-term financial targets(1) Medium-term financial targets ROTCE(1) ~16-18% CET1 ~10.0-10.5% Dividend ~35-40% Payout Ratio Efficiency Ratio(1) Mid-50's % Key economic assumptions ■ Real GDP growth of ~1-2% for 2024; trending toward ~3% annually over the medium term ■ Unemployment rate of ~4% by
Slide 25: Path to medium-term ROTCE target
Path to medium-term ROTCE target(1) ROTCE Medium-term improvement drivers ROTCE ■ NII tailwind given swap portfolio run off ■ Positive operating leverage ~15-17% Legacy Core ■ Significant share repurchases ■ Prudent credit risk appetite (~35-40 bps NCOs) ■ Successful execution against business plan
Slide 26: 1Q24 outlook vs. 4Q23
1Q24 outlook vs. 4Q23 4Q23 1Q24 Underlying(1) Underlying outlook Net interest income $1,488MM ■ Down ~3%; reflects day count impact of ~$12MM Noninterest income $500MM ■ Up mid-single digits Noninterest expense $1,267MM ■ Up 1-2% reflecting seasonal factors Net charge-offs 46 bps ■ ~50 bps; ACL will
Slide 27: Investment thesis
Investment thesis Citizens continues to have a series of unique initiatives that will lead to relative medium-term outperformance – Citizens Private Bank successfully launched and gathering momentum into 2024 – Well positioned in NYC metro to gain market share; performance tracking well – All other
Slide 28: Appendix
Appendix ■ Financial Performance ■ Balance Sheet Optimization ■ Interest Rate Risk Management ■ Credit
Slide 29: 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 ê2% $176.5 $177.1 stable ê6 bps $150.8 $148.0 1.08% 1.02% 0.84% 0.78% 3Q23 4Q23 3Q23 4Q23 3Q23 4Q23 Pre-provision profit Net income available to Return on average
Slide 30: 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 ê6% ê1% 1.40% ê47 bps $179.0 $177.1 $157.1 $148.0 1.25% 1.02% 0.78% 4Q22 4Q23 4Q22 4Q23 4Q22 4Q23 Net income available to Return on average tangible Pre-provision
Slide 31: Full year underlying results
Full year underlying results(1) Average loans Average deposits Return on average total $s in billions $s in billions tangible assets é2% é2% ê25 bp $172.1 $175.3 1.21% $149.3 $152.2 1.13% 1.17% 0.92% FY2022 FY2023 FY2022 FY2023 FY2022 FY2023 Net income available to Return on average tangible Pre-pro
Slide 32: 4Q23 Scorecard
4Q23 Scorecard 4Q23 4Q23 Underlying outlook(1) Underlying results Net interest Down ~2% Down ~2% income Noninterest Up 3-4%, market dependent Up 2% income Noninterest Broadly stable* Flat expense Mid-40s; ACL will continue to Net charge-offs benefit from Non-Core loan 46 bps run off CET1 ratio(2) ~1
Slide 33: Balance Sheet Optimization - Overview
Balance Sheet Optimization - Overview 1 Loans (slide 20) 2 Deposits and wholesale funding (slide 34) 3 Securities portfolio (slide 35) 4 Capital (slide 36-37) Driving enhanced risk profile and returns 33
Slide 34: Balance sheet optimization - deposits and wholesale funding
Balance sheet optimization - deposits and wholesale funding 2 $s in billions Solid deposit performance in 2023 Commentary +1.5% QoQ ■ Improvements in deposit franchise 3Q23 YTD deposits -1.4%, deposit growth demonstrated with better core deposit outperforming H8* at -3.6% ex BSO actions performance
Slide 35: Balance sheet optimization - securities portfolio
Balance sheet optimization - securities portfolio 4 Securities portfolio - high quality, low-risk store of liquidity; enhanced hedging to protect capital Maintaining strong liquidity, ...and improving securities yields $s in billions while shortening duration... relative to peer median... 3.25% $47
Slide 36: Balance sheet optimization - capital
Balance sheet optimization - capital 5A Capital ratios remain near top of peer group ■ Strong capital position and BSO activities have facilitated significant capital return to shareholders – ~95% shareholder payout ratio in 2023 on an Underlying basis reflects ~$808 million in dividends and ~$906 m
Slide 37: Balance sheet optimization - capital
Balance sheet optimization - capital 5B Capital will benefit from projected AOCI accretion Projected accretion based on forward curve at 12/31/2023(1) Accretes to CET1* TCE CET1* 12/31/2023 $(1.1) $(0.3) $(2.3) $(3.7) $(2.7) 12/31/2024 $(0.5) $(0.3) $(1.8) $(2.7) $(2.2) 12/31/2025 $(0.1) $(0.3) $(1.
Slide 38: Interest rate risk management - swaps
Interest rate risk management - swaps Protecting NII from adverse outcomes while reducing earnings volatility through economic cycles ■ Maintaining significant protection to downside in rates well into 2026 with receive-fixed swap portfolio Receive-fixed cash flow swaps (avg. notional in $ billions
Slide 39: $74.4B Commercial credit portfolio
$74.4B Commercial credit portfolio Diverse and granular portfolio Commercial portfolio risk ratings(2) $s in billions % of Balances total CFG ($ in billions) C&I $57.5 $77.5 $74.4 Finance and Insurance B- and lower 3% 7% 7% B+ to B 14% Capital call facilities $ 5.8 4% 17% 19% Other Finance and Insur
Slide 40: Commercial Real Estate - $5.9B Office portfolio: well diversified
Commercial Real Estate - $5.9B Office portfolio: well diversified Property type $3.6B General Office class & location Life Sciences $0.9B 15% CBD Class A Suburban Class B 14% 26% Credit Tenant 24% CBD Class B $1.4B 12% Suburban Class A 42% General Office 61% $3.6B Suburban Class C 2% CBD Class C 4%
Slide 41: $71.5B Retail credit portfolio
$71.5B Retail credit portfolio Retail loans(1) High quality, diverse portfolio Other retail ■ Mortgage – FICO ~785 Education - 7% Residential – Weighted-average LTV of ~53% refinance mortgage ■ Home equity – FICO ~765 13% – ~37% secured by 1st lien Education - in school 4% 43% – ~98% CLTV less than
Slide 42: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type September 30, 2023 December 31, 2023 Loans and Loans and Allowance Coverage Allowance Coverage $s in millions Leases Leases Commercial and industrial(1) $ 46,753 $707 1.51 % $ 43,826 $666 1.52 % Commercial real estate 29,486 692 2.35 29,471 7
Slide 43: Delinquency by product type
Delinquency by product type September 30, 2023 (%) December 31, 2023 (%) 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 99.40 % 0.05 % 0.02 % 0.01 % 0.52 % 99.14 % 0.14 % 0.04 % 0.01 % 0.67 % Comme
Slide 44: Notable items
Notable items(1) Quarterly and full-year results reflect notable items primarily related to integration costs associated with recent acquisitions, as well as TOP revenue and efficiency initiatives and other expense reduction actions. In addition, fourth quarter 2023 includes a notable item for the F
Slide 45: 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. Where there is
Slide 46: Notes continued
Notes continued Notes on slide 21 - FY 2024 Outlook vs. 2023 1) See note on non-GAAP financial measures. 2) See general note d). Notes on slide 22 - Underlying expense outlook 1) See note on non-GAAP financial measures. Notes on slide 24 - Medium-term financial targets 1) See note on non-GAAP financ
Slide 47: Notes continued
Notes continued Notes on slide 56 - Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core 1) Consumer Banking excludes Private Bank. 2) Legacy Core consists of Commercial, Consumer excluding Private Bank and Non-Core, and Other. 3) At December 31, 2023, the Non-Core segme
Slide 48: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations QUARTERLY TRENDS FULL YEAR $s in millions, except share, per share and ratio data 4Q23 Change 2023 Change 4Q23 3Q23 4Q22 3Q23 4Q22 2023 2022 2022 $ % $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $500 $492 $505 $8 2% ($5) (1%) $1,
Slide 49: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q23 Change 2023 Change 4Q23 3Q23 4Q22 3Q23 4Q22 2023 2022 2022 $/bps % $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $1,988 $2,014 $2,200 ($26) (1.39%) ($21
Slide 50: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations QUARTERLY TRENDS FULL YEAR $s in millions, except share, per share and ratio data 4Q23 Change 2023 Change 4Q23 3Q23 4Q22 3Q23 4Q22 2023 2022 2022 $/bps % $/bps % $/bps % Return on average total tangible assets and return on average total tangible asset
Slide 51: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q23 Change 2023 Change 4Q23 3Q23 4Q22 3Q23 4Q22 2023 2022 2022 $/bps % $/bps % $/bps % Other income, Underlying Other income (GAAP) $20 $18 $36 $2 11% ($16) (44%) $78 $8
Slide 52: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q23 1Q23 Noninterest income, Underlying: Noninterest income (GAAP) A $506 $485 Less: Notable items — — Noninterest income, Underlying (non-GAAP) B $506 $485 Total revenue, Underly
Slide 53: Non-GAAP financial measures and reconciliations - CET1 adjusted for AOCI opt-out removal
Non-GAAP financial measures and reconciliations - CET1 adjusted for AOCI opt-out removal $s in millions, except share, per share and ratio data 4Q23 3Q23 CET1 Ratio adjusted for AOCI opt-out removal CET1 capital $ 18,358 $ 18,360 Less: AFS securities - AOCI 1,511 2,341 HTM securities - AOCI(1) 827 8
Slide 54: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q23 3Q23 4Q22 2023 2022 Net income available to common stockholders, Underlying: Net income available to common stockholders (GAAP) $15
Slide 55: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL YEAR 4Q23 3Q23 4Q22 2023 2022 Return on average total tangible assets and return on average total tangible assets, Underlying: Average total
Slide 56: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core* 4Q 2023 (GAAP) 4Q 2023 Notables 4Q 2023 (Non-GAAP) Commercial Consumer Legacy Private (3) Private Legacy Private Other Non-Core Legacy Non-Core Non-Core Total $s in millions Banking Banking(1) Core(2) Bank Bank Core B
Slide 57: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core* 4Q 2023 YTD (GAAP) 4Q 2023 YTD Notables 4Q 2023 YTD (Non-GAAP) Commercial Consumer Legacy Private (3) Private Legacy Private Other Non-Core Legacy Non-Core Non-Core Total $s in millions Banking Banking(1) Core(2) Bank
Slide 58: Citizens Financial Group, Inc.
3< Citizens Financial Group, Inc.”
Citizens Financial Group — Q4 2023 Earnings Presentation on 6ix