Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q3 2023 Earnings Presentation
45 slides from Citizens Financial's earnings presentation, Oct 18, 2023
Slide 1: 3Q23 Financial Results
3Q23 Financial Results October 18, 2023
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: 3Q23 GAAP financial summary
3Q23 GAAP financial summary Q/Q Y/Y $s in millions 3Q23 2Q23 3Q22 $/bps % $/bps % Net interest income $ 1,522 $ 1,588 $ 1,665 $ (66) (4) % $ (143) (9) % Noninterest income 492 506 512 (14) (3) (20) (4) Total revenue 2,014 2,094 2,177 (80) (4) (163) (7) Noninterest Expense 1,293 1,306 1,241 (13) (1)
Slide 4: 3Q23 Underlying financial summary
3Q23 Underlying financial summary(1) Q/Q Y/Y $s in millions 3Q23 $/bps % $/bps % Net interest income $ 1,522 $ (66) (4)% $ (143) (9)% Noninterest income 492 (14) (3) (20) (4) Total revenue 2,014 (80) (4) (163) (7) Noninterest expense 1,271 38 3 76 6 Pre-provision profit 743 (118) (14) (239) (24) Pro
Slide 5: 3Q23 Underlying financial performance detail
3Q23 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 $1,563 $0.3 $1,563 $(41) $1,522 Noninterest income 492 — 492 — 492 Total revenue 2,055 0.3 2,055 (41) 2,014 Noninteres
Slide 6: Overview
Overview(1) 3Q23: Quarter highlights – Underlying EPS of $0.89 and ROTCE of 12.5%; includes $(0.05) for the Private Bank start-up investment and $(0.14) impact from the Non- Core portfolio – Underlying PPNR of $743 million, with lower NII and fees, and expenses up slightly including the Private Bank
Slide 7: Net interest income
Net interest income NII and NIM Linked Quarter $s in millions, except earning assets ■ NII down 4%, as expected, given lower NIM and slightly $203.6B $204.5B $202.6B $201.5B lower interest-earning assets, partly offset by higher $199.6B day count $1,695 – NIM of 3.03% decreased 14 bps, primarily dri
Slide 8: Noninterest income
Noninterest income Fees down 3% QoQ reflecting a challenging market environment Linked Quarter $ ■ Noninterest income decreased 3% $s in millions 3Q23 2Q23 3Q22 Q/Q Y/Y – Service charges and fees increased $4 million reflecting lower Service charges and fees $ 105 $ 101 $ 109 $ 4 $ (4) consumer cash
Slide 9: Noninterest expense
Noninterest expense(1) Broadly stable excluding Private Bank start-up investment; remain highly disciplined on expenses Linked Quarter $ $s in millions 3Q23 2Q23 3Q22 Q/Q Y/Y ■ Underlying noninterest expense up $38 million QoQ; broadly stable excluding $35 million in expense Salaries & employee bene
Slide 10: Loans and leases
Loans and leases Loans down slightly reflecting balance sheet optimization Average loans and leases Linked Quarter $s in billions ■ Average loans down $2.9 billion, or 2%, driven by planned Non- $156.9 $157.1 $156.5 $153.7 Core portfolio run off $150.8 $17.9 $16.7 $15.6 $14.4 $13.0 ~10% QoQ – Core l
Slide 11: Deposit performance and cost of funds
Deposit performance and cost of funds Spot deposit increase of $530 million QoQ across Consumer and Commercial 3Q23 Period-end deposits Linked Quarter $s in billions $180.7 ■ Period-end deposits up slightly, $530 million, driven by $178.6 $172.2 $177.7 $178.2 Commercial ■ Average deposits up $3.2 bi
Slide 12: Highly diversified and retail-oriented deposit base
Highly diversified and retail-oriented deposit base $178B Period-end deposits Business mix (As of 9/30/23) Product mix Wealth 1% Business Citizens Banking Term Access 13% 13% NIB 6% Commercial 22% 27% Savings 10% Citizens Access Savings 6% Money Market Treasury/ Checking 30% Branch Other With Intere
Slide 13: Credit quality overview
Credit quality overview Credit provision expense; Highlights $s in millions net charge-offs ■ NCOs of $153 million, or 40 bps of average loans and 0.34% 0.40% 0.40% leases, stable QoQ 0.19% 0.22% ■ Nonaccrual loans increased 9% QoQ to 87 bps of total $168 $176 $172 loans primarily driven by an incre
Slide 14: Allowance for credit losses
Allowance for credit losses Allowance for credit losses Commentary $s in millions 2Q23 3Q23 ■ The increase in the ACL reserve coverage to 1.55% % % primarily reflects higher reserves against CRE ACL Coverage ACL Coverage exposures Retail $ 929 1.27 % $ 893 1.23 % ■ The key macroeconomic assumptions
Slide 15: Capital remains strong
Capital remains strong Highlights $s in billions (period-end) 3Q22 4Q22 1Q23 2Q23 3Q23 (1)(2) ■ 3Q23 CET1 ratio of 10.4%(1) compares with 10.3% in 2Q23 Basel III basis – 8.3% CET1 ratio adjusted for AOCI opt-out removal Common equity tier 1 capital $ 18.3 $ 18.6 $ 18.4 $ 18.4 $ 18.4 ■ TBV/share of $
Slide 16: Business initiatives to drive improving performance
Business initiatives to drive improving performance Consumer Banking Commercial Banking Building a Leading NY/NJ Bank Capturing the Private Capital Opportunity For the past 10 years, Citizens has been cultivating distinctive +12% new HSBC and ISBC retail checking households YTD capabilities to serve
Slide 17: Enterprise-wide initiatives
Enterprise-wide initiatives Balance sheet optimization TOP program/ expense management ■ Non-core portfolio of $12.3 billion at 9/30/23 ■ TOP 8 tracking well to ~$115 million pre-tax run-rate – ~4.2% WA loan yield (~95% fixed rate); ~5.4% WA benefit by YE2023 funding cost ■ TOP 9 in process of launc
Slide 18: 4Q23 outlook vs. 3Q23
4Q23 outlook vs. 3Q23 3Q23 4Q23 Underlying(1) Underlying outlook Net interest income $1,522MM Down ~2% Noninterest income $492MM Up 3-4%, market dependent Noninterest expense $1,271MM Broadly stable* Net charge-offs 40 bps Mid-40s; ACL will continue to benefit from Non-Core loan run off CET1 ratio(2
Slide 19: Investment thesis
Investment thesis Citizens has a robust capital, liquidity and funding position – Committed to strengthening even further with balance sheet optimization, including Non-Core strategy – Relative strength allows Citizens to take advantage of opportunities – Focused on deploying capital to best relatio
Slide 20: Appendix
Appendix
Slide 21: 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% $173.2 $176.5 é2% ê15 bps $153.7 $150.8 1.18% 1.08% 0.99% 0.84% 2Q23 3Q23 2Q23 3Q23 2Q23 3Q23 Pre-provision profit Net income available to Return on average t
Slide 22: 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 ê4% ê1% ê38 bps $177.6 $176.5 1.30% $156.9 $150.8 1.08% 1.22% 0.84% 3Q22 3Q23 3Q22 3Q23 3Q22 3Q23 Net income available to Return on average tangible Pre-provision
Slide 23: 3Q23 YTD Underlying financial performance detail
3Q23 YTD 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 $4,837 $0.3 $4,837 $(84) $4,753 Noninterest income 1,483 — 1,483 — 1,483 Total revenue 6,320 0.3 6,320 (84) 6,236
Slide 24: Interest rate risk management
Interest rate risk management Cash flow hedges are the primary tool to manage interest rate exposure Receive fixed cash flow swaps - average notional balances in $ billions at 9/30/23 $29.5 $30.5 $30.1 $25.8 $20.5 $21.1 $21.9 $21.9 $18.4 $16.5 $7.6 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 2023 2024 2025 2026 2
Slide 25: Projected AOCI accretion
Projected AOCI accretion Projected accretion based on forward curve $s in billions 9/30/2023 $(0.4) $(1.7) $(3.2) $(5.3) 12/31/2024 $(0.3) $(0.8) $(2.5) $(3.6) 6/30/2025 $(0.3) $(0.5) $(2.2) $(3.0) 12/31/2025 $(0.3) $(0.3) $(2.1) $(2.7) Securities Swaps* Pension ~49% burn-off by YE2025 Commentary ■
Slide 26: $77.5B Commercial credit portfolio
$77.5B 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 $78.3 $77.5 Finance and Insurance B- and lower 3% 6% 7% B+ to B 14% Capital call facilities $ 6.9 4% 16% 17% Other Finance and Insur
Slide 27: Commercial Real Estate - $6.1B Office portfolio: well diversified
Commercial Real Estate - $6.1B Office portfolio: well diversified Property type $3.7B General Office class & location Life Sciences $0.8B 14% CBD Class A Suburban Class B 15% 26% Credit Tenant 25% CBD Class B $1.5B 11% Suburban Class A 42% General Office 61% $3.7B Suburban Class C 4% CBD Class C 2%
Slide 28: $72.3B Retail credit portfolio
$72.3B Retail credit portfolio Retail loans(1) High quality, diverse portfolio Other retail ■ Mortgage – FICO ~785 Education - 7% Residential – Weighted-average LTV of ~54% refinance mortgages ■ Home equity – FICO ~765 13% – ~38% secured by 1st lien Education - in school 4% 43% – ~97% CLTV less than
Slide 29: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type June 30, 2023 September 30, 2023 Loans and Loans and Allowance Coverage Allowance Coverage $s in millions Leases Leases Commercial and industrial(1) $ 48,038 $702 1.46 % $ 46,753 $707 1.51 % Commercial real estate 28,947 637 2.20 29,486 692 2
Slide 30: Delinquency by product type
Delinquency by product type June 30, 2023 (%) September 30, 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 99.36 % 0.04 % 0.02 % —% 0.58 % 99.40 % 0.05 % 0.02 % 0.01 % 0.52 % Commercial re
Slide 31: Notable items
Notable items(1) Quarterly results reflect notable items primarily related to integration costs associated with recent acquisitions, as well as TOP revenue and efficiency initiatives. These notable items have been excluded from reported results to better reflect Underlying operating results. Notable
Slide 32: 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 33: Notes continued
Notes continued Notes on slide 21 - Linked-quarter Underlying results 1) See note on non-GAAP financial measures. Notes on slide 22 - Year-over-year Underlying results 1) See note on non-GAAP financial measures. Notes on slide 23 - 3Q23 YTD Underlying financial performance detail 1) See note on non-
Slide 34: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations QUARTERLY TRENDS $s in millions, except share, per share and ratio data 3Q23 Change 3Q23 2Q23 3Q22 2Q23 3Q22 $ % $ % Noninterest income, Underlying: Noninterest income (GAAP) A $492 $506 $512 ($14) (3%) ($20) (4%) Less: Notable items — — — — — — — Noni
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 3Q23 Change 3Q23 2Q23 3Q22 2Q23 3Q22 $/bps % $/bps % Operating leverage: Total revenue (GAAP) C $2,014 $2,094 $2,177 ($80) (3.84%) ($163) (7.47%) Less: Noninterest expense (GAAP) E
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 3Q23 Change 3Q23 2Q23 3Q22 2Q23 3Q22 $/bps % $/bps % Return on average total tangible assets and return on average total tangible assets, Underlying: Average total assets (GAAP) Q
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 3Q23 Change 3Q23 2Q23 3Q22 2Q23 3Q22 $/bps % $/bps % Salaries and employee benefits, Underlying: Salaries and employee benefits (GAAP) $659 $615 $639 $44 7% $20 3% Less: Notable it
Slide 38: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS 1Q23 4Q22 Noninterest income, Underlying: Noninterest income (GAAP) A $485 $505 Less: Notable items — — Noninterest income, Underlying (non-GAAP) B $485 $505 Total revenue, Underly
Slide 39: 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 3Q23 CET1 Ratio adjusted for AOCI opt-out removal CET1 capital $ 18,360 Less: AFS securities - AOCI 2,341 (1) HTM securities - AOCI 854 DTA for AFS/HTM secu
Slide 40: Non-GAAP financial measures and reconciliations - excluding the impact of Private Bank
Non-GAAP financial measures and reconciliations - excluding the impact of Private Bank $s in millions, except ratio data 3Q23 Total revenue, Underlying excluding Private Bank: Total revenue (GAAP) $2,014 Less: Notable items — Less: Private Bank Total revenue (GAAP) — Total revenue, Underlying exclud
Slide 41: 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 3Q23 2Q23 3Q22 Net income available to common stockholders, Underlying: Net income available to common stockholders (GAAP) $400 $444 $611 Add: Not
Slide 42: 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 3Q23 2Q23 3Q22 Return on average total tangible assets and return on average total tangible assets, Underlying: Average total assets (GAAP) $220,1
Slide 43: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core* 3Q 2023 (GAAP) 3Q 2023 Notables 3Q 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 44: Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core
Non-GAAP financial measures and reconciliations excluding Private Bank & Non-Core* 3Q 2023 YTD (GAAP) 3Q 2023 YTD Notables 3Q 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 45: Citizens Financial Group, Inc.
3< Citizens Financial Group, Inc.”
Citizens Financial Group — Q3 2023 Earnings Presentation on 6ix