Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Debt Investor Presentation (December 2020)
67 slides from Citizens Financial's debt investor presentation, December 2020
Slide 1: Fixed Income Investor Presentation
Fixed Income Investor Presentation December 2020
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: Key Messages
Key Messages Value and power of franchise ─ Results demonstrate diversity, strength and resiliency of franchise, along with continued strong execution ─ Multi-year investments in fee-generation capabilities yielding positive results Key performance drivers: ─ Strong and experienced board and leaders
Slide 4: Strong franchise with leading positions in attractive markets
Strong franchise with leading positions in attractive markets Attractive footprint with large mass-affluent and Franchise highlights affluent segments Footprint GDP above national average − Personal consumption 43% higher than the national average − Higher percentage of households with income of $10
Slide 5: Seek to deliver attractive and sustainable long-term financial performance
Seek to deliver attractive and sustainable long-term financial performance Enterprise-wide initiatives Success will be driven by what Continued investments in our drive improvement in got us here today future performance Strong and experienced board Successful series of TOP Growth mindset: innovatin
Slide 6: Continue to make progress despite COVID disruption
Continue to make progress despite COVID disruption YTD 3Q20 vs. YTD 3Q19 Expense control(2) Positive operating leverage(1) Efficiency improvement(1) (Noninterest expense change) (Operating leverage) (Efficiency ratio change) vs Peers vs Peers vs Peers 4.75% 4.8% CFG Peer average 66 bps 695 bps 383 b
Slide 7: Strength and resiliency of franchise, along with continued strong execution
Strength and resiliency of franchise, along with continued strong execution YTD 3Q20 vs. YTD 3Q19 Seeking to come out of the crisis with positive momentum Strong PPNR(1,2) Strong revenue growth(2) Robust fee income(2) (Pre-provision profit) (Total revenue growth) (Noninterest income growth) vs Peers
Slide 8: Significant progress in building a stronger and more diversified business model
Significant progress in building a stronger and more diversified business model $s in billions Underlying PPNR performance has Key messages strengthened(1,2) Strong PPNR performance reflects an increasingly $2.7 $2.6 diversified business model $2.3 $2.3 $1.9 ─ Multi-year investments in fee-generatio
Slide 9: Building a stronger and more diversified business model
Building a stronger and more diversified business model 1st regional bank Innovating for Created innovative merchant finance to market with attractive growth partnership platform with exceptional national digital Consumer Banking customer experience platform Have taken mortgage Top-15 bank-owned mor
Slide 10: 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 11: 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 12: Loan and deposit growth, BSO, NIM management
Loan and deposit growth, BSO, NIM management Select examples of BSO actions since IPO Protecting NII through BSO, NIM management Assets: BSO Growing attractive risk-adjusted categories: Education and Enhancing asset and liability management to benefit NIM and Merchant finance, strategic reduction in
Slide 13: Consumer Banking – strategic priorities
Consumer Banking – strategic priorities Consumer Banking priorities to drive future growth Digital-first Zero-based restructuring of customer journeys from E2E marketing through fulfillment front to back digital re-imagination Accelerating the repositioning of the distribution network transformation
Slide 14: Commercial Banking initiatives help drive enterprise performance
Commercial Banking initiatives help drive enterprise performance Positioning for further growth with TOP 6 Program & other revenue initiatives Broadening advisory capabilities via organic Continued expansion into growth markets investments and selective acquisitions ─ Continuing to expand corporate
Slide 15: 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 $s in millions Consumer Other income $654 Expect continued strength in mortgage given refi Securities gains, net opportunity – excellent natural
Slide 16: Further fee growth
Further fee growth Fee growth to be driven by ongoing investment in capabilities Fee area Current environment Expectations and opportunities Expect continued strength in refi volumes at today’s rates, despite market forecast for lower originations in 4Q and 2021 − Expect margins to remain elevated a
Slide 17: Expansion of TOP efficiency initiatives
Expansion of TOP efficiency initiatives 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 Select examples: New efficiency initiatives to Digitization and automation of wor
Slide 18: Investing in strategic priorities
Investing in strategic priorities Expanding and accelerating digitization efforts with a comprehensive end-to-end program; sharpening overall investment focus Consumer Commercial Enterprise-wide payments Launching E2E digital transformation to Deploying enhanced coverage model Organizing new Enterpr
Slide 19: Looking forward
Looking forward Positioned to leave crisis with positive momentum Managing 3Q20 YTD results demonstrate strength, diversity and resiliency of franchise, along with continued strong execution disruption from a position of Underlying PPNR up 22% in 3Q20 YoY(1) strength and Strong capital and reserve p
Slide 20: Balance sheet/capital/funding and liquidity
Balance sheet/capital/funding and liquidity 19
Slide 21: Strong, clean balance sheet funded largely by robust deposit franchise
Strong, clean balance sheet funded largely by robust deposit franchise Well capitalized with a common equity tier 1 capital ratio of 9.8% Prudent ACL/loans ratio of 2.21%, 2.29% excluding PPP loans(1) Robust deposit franchise with ~$125 billion of average core deposits(2), with ~67% Consumer Strong
Slide 22: High-quality investment portfolio
High-quality investment portfolio Investment portfolio Highlights $s in billions $25.5 96% U.S. Agency MBS $24.6 Total HTM $3.4 $2.7 2% AAA-rated non-agency $0.8 $0.5 16% of total earning assets, below peer bank $8.7 $9.8 average of ~20%. Total Primary goal is to provide a source of high-quality AFS
Slide 23: Stable high-quality deposit mix
Stable high-quality deposit mix $s in billions Deposit mix (9/30/2020) $143 billion Wealth 3% Other Small 4% Consumer Banking Business Commercial Banking 14% $94.2 $43.1 $85.1 17% $32.5 22% 16% 10% CWI CWI 3% 18% 31% Term Term 27% 34% 22% 6% DDA Retail incl CAX Commercial 33% DDA Savings 44% 45% 49%
Slide 24: Asset Sensitivity
Asset Sensitivity Interest rate sensitivity trend Highlights Asset sensitivity against a 200 basis point gradual 8.4% 7.1% increase in rates was 8.4% at 3Q20, compared with 3.2% at 4Q19 4.8% 2.7% 3.2% 5.9% ─ Asset sensitivity elevated relative to core 4.5% sensitivity profile due to meaningful incre
Slide 25: Well-positioned to manage through current downturn
Well-positioned to manage through current downturn Capital Stack comparison(1) Highlights Maintain strong capital position PNC 11.7% 1.1% 2.4% 15.2% ─ CET1 ratio of 9.8%, up ~40 bps from 9.4% in 1Q20, in line with CFG’s internal target of 9.75-10.0% FITB 10.1% 1.5% 3.3% 14.9% Continue to execute on
Slide 26: Targeting a more peer-like funding structure
Targeting a more peer-like funding structure 3Q20 Total Borrowings/Total Liabilities(1) 11.7% 11.1% 10.7% 10.1% 9.1% 8.9% 8.6% 7.8% 6.6% 4.6% 3.9% USB TFC PNC FITB KEY HBAN Peer Avg CMA CFG MTB RF Senior debt/other Subordinated notes and debentures Trading liabilities Commercial paper Fed funds purc
Slide 27: Rating agency credit ratings
Rating agency credit ratings S&P Fitch S&P Moody's Fitch Citizens Financial Group, Inc. Citizens Bank, N.A. Long-term Credit Rating BBB+ BBB+ Long-term Issuer Rating A- Baa1 BBB+ Short-Term Credit Rating A-2 F1 Short-Term Issuer Rating A-2 - F1 Subordinated debt BBB BBB Long-term Deposit Rating - A1
Slide 28: Citizens is a frequent issuer of senior debt, sub debt, and preferred stock
Citizens is a frequent issuer of senior debt, sub debt, and preferred stock $s in millions Diversified funding platforms and balanced maturity profile Historical Citizens fixed income issuance # of Issuances Per Year 4 3 3 3 4 4 $400 $750 $621 $250 $350 $3,250 $500 $1,000 $1,050 $600 $1,750 $1,500 $
Slide 29: Credit
Credit 3* Citizens Financial Group, Inc.” 28
Slide 30: 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 31: Proactive credit portfolio management during pandemic
Proactive credit portfolio management during pandemic 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, regional,
Slide 32: Credit quality – monitoring as forbearance programs wind down
Credit quality – monitoring as forbearance programs wind down Retail forbearance(1,2) Retail delinquency Total retail Current- 90 or 30-59 60-89 loans 29 More 6.0% 3/31/2020 98.51 % 0.64 % 0.27 % 0.58 % 9/30/2020 98.62 % 0.52 % 0.21 % 0.65 % 2.8% Retail forbearance trending down from 6.0% at June 30
Slide 33: Credit quality – prudently reserved
Credit quality – prudently reserved Allowance for credit losses Reserve coverage $s in millions $2,736 Retail 2.10% $2,527 Commercial ex. PPP (2) 2.50% $2,210 Areas of continued concern within: Expect 4Q20 2.29% >CRE: Retail & hospitality $1,308 $1,296 reserve 2.09% >Accommodation & food services re
Slide 34: Credit quality – provisions declining, NCOs stabilizing
Credit quality – provisions declining, NCOs stabilizing Provision for credit losses, net charge-offs $s in millions $600 4Q20 $464 Provision $428 0.70% 0.46% 0.46% 4Q20 NCOs 0.38% 0.41% $219 60-80 bps $137 $147 $101 $113 $110 $122 3Q19 4Q19 1Q20 2Q20 3Q20 Provision for credit losses Total net c/os N
Slide 35: 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 $1,213 4Q20 $990 $737 $703 $780 1.03% 0.63% 0.79% 0.59% 0.61% 3Q19 4Q19 1Q20 2Q20 3Q20 10/31/2020 Nonaccrual loans Nonaccrual loans to total loans Nonaccrual loans increased $287 million QoQ given
Slide 36: Credit quality – criticized overall is stabilizing
Credit quality – criticized overall is stabilizing Criticized Classified vs. peers $s in millions 8.17% 9.06% 8.72% 4.35% $5,306 $5,650 $5,354 3.69% 5.28% 5.67% 4.07% 4.99% $3,743 4.71% 4.30% 2.57% 3.64% $2,833 $3,036 4.48% 2.37% 2.52% 3.40% 3.01% 3.09% 3.69% 4.35% 4.41% 2.27% 1.99% 2.19% 2.27% 2.19
Slide 37: Highly disciplined on credit
Highly disciplined on credit Commercial portfolio Retail portfolio $s in billions 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
Slide 38: Summary
Summary 3* Citizens Financial Group, Inc.” 37
Slide 39: Key messages
Key messages Citizens 3Q20 results demonstrate strength and resiliency of franchise, along with continued strong execution Underlying results reflect the benefit of Citizens diversified business model ─ Record PPNR up 22% YoY, up 6% QoQ(1) ─ Record fee income driven by record results in mortgage ban
Slide 40: Appendix I - Analysis of selected loan portfolios
Appendix I - Analysis of selected loan portfolios 39
Slide 41: Analysis of selected loan portfolios
Analysis of selected loan portfolios Commercial Page Commercial - diversified portfolio with prudent credit discipline 41 CRE: Retail & Hospitality 42 Accommodation and food services 43 Retail trade 44 Energy and related 45 Arts, entertainment and recreation 46 Retail Page Retail credit - diversifie
Slide 42: Commercial credit – diversified portfolio with prudent credit discipline
Commercial credit – diversified portfolio with prudent credit discipline 2Q20 3Q20 Current view Areas Continued Highlights Industry sectors % of % of $s in billions Balance Total CFG Balance Total CFG Stabilizing Concern Overall Real Estate and Rental and Leasing $13.8 11 % $14.1 11 % 2.5 2 2.5 2 2.
Slide 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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 49: 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 50: 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 51: 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 52: 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 53: 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 54: DFAST company-run stress results compare favorably to peers
DFAST company-run stress results compare favorably to peers Bank Holding Company-run severely adverse credit loss rate historically in-line or better than peer average Company-run severely adverse stress loss rates Observations 2014-2020(1) Maintaining strong capital and credit reserve levels ─ $2.7
Slide 55: Allocation of allowance for credit losses by product type
Allocation of allowance for credit losses by product type 4Q19 Probable January 1, 2020 March 31, 2020 June 30, 2020 September 30, 2020 Incurred Losses CECL Adoption CECL CECL CECL % of Loans % of Loans % of Loans % of Loans % of Loans % of Loans and leases % of Loans and leases Allowance for credit
Slide 56: Appendix II: Footnotes, GAAP/Underlying financial summaries and Non-GAAP Reconciliations
Appendix II: Footnotes, GAAP/Underlying financial summaries and Non-GAAP Financial Measures and Reconciliations 55
Slide 57: 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 58: Notes
Notes Notes on slide 23 – Asset Sensitivity 1. Data as of 3Q20. Peer banks include BBT, CMA, FITB, KEY, MTB, PNC, RF, STI and USB. Peer estimates based on the public disclosures as of the most recent quarter available and utilizes a 200 basis point gradual increase above 12-month forward curve excep
Slide 59: Notes
Notes Notes on slide 45 – Energy and related 1. Includes Downstream, Integrated and Midstream sub-categories. 2. All regulated utilities, fuel dealers, propane dealers that are related to energy but not oil and gas price sensitivity directly. 3. Portfolio balances, risk rating and industry sector st
Slide 60: 3Q20 GAAP financial summary
3Q20 GAAP financial summary Q/Q Y/Y $s in millions 3Q20 2Q20 3Q19 $/bps % $/bps % Net interest income $ 1,137 $ 1,160 $ 1,145 $ (23) (2)% $ (8) (1)% Noninterest income 654 590 493 64 11 161 33 Total revenue 1,791 1,750 1,638 41 2 153 9 Noninterest expense 988 979 973 9 1 15 2 Pre-provision profit 80
Slide 61: 3Q20 Underlying financial summary
3Q20 Underlying financial summary(1) Underlying, as applicable Q/Q Y/Y $s in millions 3Q20 2Q20 3Q19 %/bps Net interest income $1,137 $1,160 $1,145 (2) % (1) % Noninterest income 654 590 493 11 33 Total revenue 1,791 1,750 1,638 2 9 Noninterest expense 957 960 954 — — Pre-provision profit 834 790 68
Slide 62: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data
Slide 63: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 62
Slide 64: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 63
Slide 65: Non-GAAP financial measures and reconciliations
Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data 64
Slide 66: Non-GAAP financial measures and reconciliations - excluding the impact of PPP loans
Non-GAAP financial measures and reconciliations - excluding the impact of PPP loans 65
Slide 67: Citizens Financial Group, Inc.
3* Citizens Financial Group, Inc.”
Citizens Financial Group — Debt Investor Presentation (December 2020) on 6ix