Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q4 2017 Earnings Presentation
48 slides from Citizens Financial's earnings presentation, Jan 19, 2018
Slide 1: 4Q17 and FY2017 Financial Results
4Q17 and FY2017 Financial Results January 19, 2018
Slide 2: Forward-looking statements and non-GAAP Financial Measures
Forward-looking statements and use of key performance metrics and non-GAAP Financial Measures This document contains forward-looking statements within the Private Securities Litigation Reform Act of 1995. Any statement that does not describe historical or current facts is a forward-looking statement
Slide 3: Table of contents
Table of contents page 4Q17 highlights 4 4Q17 Underlying financial summary 7 Underlying FY2017 performance vs. guidance 23 FY2018 outlook 24 1Q18 outlook 26 New medium-term financial targets 29 Appendix 31 3
Slide 4: 4Q17 highlights
4Q17 highlights Net income of $666 million; diluted EPS of $1.35, including a net $317 million after-tax, or $0.64 per share, benefit from notable items ─ Underlying net income(1) of $349 million and diluted EPS of $0.71 up 24% and 29% YoY, respectively Improving ─ ROTCE of 19.9%; Underlying ROTCE
Slide 5: Notable Items
Notable Items(1) $s in millions Several items occurring in 4Q17 have been excluded from reported results to better reflect underlying operating results.(1) 4Q17 reported results include a gain related to the adjustment of our deferred tax liability (“DTL”) resulting from the Tax Legislation passed i
Slide 6: 4Q17 GAAP financial summary
4Q17 GAAP financial summary 4Q17 change from LQ excluding Highlights $s in millions 4Q17 3Q17 4Q16 3Q17 4Q16 notable items(1) Linked quarter: $ % $ % Net income available to common stockholders up 95% and EPS up Net interest income $1,080 $ 1,062 $ 986 $ 18 2% $ 94 10% 99% driven by a net $317 mil
Slide 7: 4Q17 Underlying financial summary
4Q17 Underlying financial summary(1) Highlights Linked quarter: 4Q17(1) change from Underlying net income available to common stockholders(1) of $349 4Q17 3Q17 4Q16 3Q17 4Q16 million increased $8 million, or 2%; diluted EPS of $0.71 $s in millions Underlying (1) Reported Reported Reported Reported
Slide 8: 2017 GAAP financial summary
2017 GAAP financial summary $s in millions 2017 2016 2017 change from 2016 $ % YoY excluding Net interest income $ 4,173 $ 3,758 $ 415 11% notable items(1) Highlights Noninterest income 1,534 1,497 37 2 Total revenue 5,707 5,255 452 9 10% Noninterest expense 3,474 3,352 122 4 FY17 vs FY16: 3% Pr
Slide 9: Adjusted/Underlying 2017 financial summary
Adjusted/Underlying 2017 financial summary(1) Highlights 2017 2016 $s in millions 2017 change from 2016 Underlying Adjusted FY17 vs FY16: $ % Adjusted/Underlying net income available to common Net interest income $ 4,173 $ 3,758 $ 415 11% stockholders(1) up $286 million, or 28%; diluted EPS of $2.
Slide 10: Net interest income
Net interest income $s in millions, except earning Net interest income Highlights assets $135B $136B $138B $137B $138B Linked quarter: NII up $18 million, or 2% ─ Reflects 1% average loan growth driven by strength in retail loans $1,062 $1,080 NIM of 3.08% improved 3 bps from 3Q17 $986 $1,005 $1
Slide 11: Net interest margin
Net interest margin NIM walk 3Q17 to 4Q17 0.05% 0.00% (0.02)% (0.00)% 3.05% 3.08% 3Q17 NIM% Loan yields/ Investment Deposit Borrowings/ 4Q17 NIM% mix portfolio costs other NIM walk 4Q16 to 4Q17 0.36% 0.02% (0.14)% (0.06)% 3.08% 2.90% 4Q16 NIM% Loan yields/ Investment Deposit Borrowings/ 4Q17 NIM% mi
Slide 12: Noninterest income
Noninterest income $s in millions 4Q17 change from Highlights 4Q17 3Q17 4Q16 3Q17 4Q16 Linked quarter: $ % $ % Noninterest income increased $23 million, which includes $17 Service charges and fees $ 131 $ 131 $ 132 $ — — % $ (1) (1) % million of 4Q17 notable items in other income Card fees 56 58 5
Slide 13: Noninterest expense
Noninterest expense $s in millions Highlights Linked quarter: 4Q17 change from Noninterest expense up $40 million, reflecting $40 million of 4Q17 3Q17 4Q16 3Q17 4Q16 notable items; stable on an Underlying basis(1) $ % $ % Salaries and benefits $ 449 $ 436 $ 420 $ 13 3% $ 29 7% Salaries and benef
Slide 14: Consolidated average balance sheet
Consolidated average balance sheet 4Q17 change from Highlights $s in billions 4Q17 3Q17 4Q16 3Q17 4Q16 $ % $ % Linked quarter: Investments and interest Total interest-earning assets up $950 million; Average bearing deposits $ 27.2 $ 27.3 $ 27.7 $ (0.0) —% $ (0.5) (2) % loans and leases up $966 mil
Slide 15: Consumer Banking average loans and leases
Consumer Banking average loans and leases $s in billions Average loans and leases Highlights YoY growth $58.3B $59.2B Linked quarter: $56.9B $57.6B 5% $56.2B $3.6 $4.1 Average loans up $894 million, or 2%, largely Other(1) $3.1 $3.4 $3.0 $2.7 reflecting growth in residential mortgage, Business B
Slide 16: Commercial Banking average loans and leases
Commercial Banking average loans and leases $s in billions Average loans and leases Highlights YoY growth Linked quarter: $48.0B $48.5B $48.4B $48.5B 3% $46.9B Average loans up $183 million, as continued $4.8 $4.6 $4.2 $4.0 strength in Mid-corporate and Private Equity and Asset Finance $4.9 the
Slide 17: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $126.2B $127.5B $127.5B $128.6B Linked quarter: $124.3B $11.7 Total average deposits up $806 million, or 1% $12.4 $13.6 $12.2 $10.8 Total long-term borrowings $3.1 ─ Largely growth in demand an
Slide 18: Strong credit-quality trends continue
Strong credit-quality trends continue $s in millions Provision for credit losses, Highlights net charge-offs (recoveries) Overall credit quality remains excellent, reflecting growth in higher-quality, lower-risk $104 $102 retail loans and broadly stable risk profile in commercial portfolios $11 $8
Slide 19: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 4Q16 1Q17 2Q17 3Q17 4Q17 Capital levels remain at the higher end of the range for Basel III transitional basis (1,2) regional peers Common equity tier 1 capital $ 13.8 $ 13.9 $ 14.1 $ 14.1 $ 14.2 Y/E CET1 ratio of 1
Slide 20: Summary of progress on strategic initiatives
Summary of progress on strategic initiatives FY17 Initiative Commentary Status Grow and deepen relationships Primary households grew YoY. Embarked on several customer journey transformations to enhance customer with primary households experience, improve primacy of customer relationships and reduce
Slide 21: Further opportunities to improve returns: TOP
Further opportunities to improve returns: TOP Continuous improvement - TOP programs Self-fund investments through efficiency, expense discipline and mindset of continuous improvement Use new technologies to deliver more effective outcomes at lower costs TOP IV program on track to deliver run-rat
Slide 22: Making consistent progress against our financial goals
Making consistent progress against our financial goals IPO-based Key Indicators medium-term 8.4% 9.0% 9.6% 10.1% 10.4% targets 7.3% 8.0% 6.3% 6.2% 6.8% 6.7% 6.7% 6.6% 6.8% 6.6% Adjusted/ 4.3% 5.2% 5.2% 10%+ Underlying ROTCE(1) 0.96% 0.96% 0.89% Adjusted/Underlying 0.80% 0.79% 0.85% return on average
Slide 23: Underlying FY2017 performance vs. guidance
Underlying FY2017 performance vs. guidance(1)(2) Results reflect strong execution against targets Underlying FY2017 guidance vs. Adjusted FY2016(1)(2) Underlying FY2017 actual results vs. Adjusted FY2016(1) Balance sheet 5.5-6.5% average earning asset growth 5.3% average earning asset growth g
Slide 24: FY2018 outlook
FY2018 outlook Underlying FY2017(1) FY2018 expectations vs. Underlying FY2017(1) $137.5 billion average earning assets 4.0-5.5% average earning asset growth Balance sheet $110.0 billion average loans 4.5-5.5% average loan growth growth $111.9 billion average deposits 4.5-6.0% average dep
Slide 25: FY2018 outlook compared with Underlying 2017
FY2018 outlook compared with Underlying 2017(1) Underlying 2017 vs. Adjusted 2016(1) FY2018 expectations vs. Underlying 2017(1) 5.3% average earning asset growth 4.0-5.5% average earning asset growth Balance sheet 5.8% average loan growth 4.5-5.5% average loan growth growth 6.1% average de
Slide 26: 1Q18 outlook
1Q18 outlook 1Q18 expectations vs. 4Q17 Net interest ~1.0% loan growth income, net Expect ~5 basis point improvement in net interest margin given recent rate rise interest margin Day count impact of ~$16 million decrease to NII Noninterest Stable/up modestly as strength in capital markets of
Slide 27: Our vision and credo guide us: The destination
Our vision and credo guide us: The destination Colleagues To help our customers, colleagues and Regulators Customers Mission Investors communities reach their potential Communities & Society To be a top-performing bank distinguished by its customer-centric culture, Vision mindset of continuous impro
Slide 28: Keys to delivering higher medium-term returns
Keys to delivering higher medium-term returns • Enterprise-wide initiatives to drive improvement in performance; ‘mindset of TOP and Balance continuous improvement’ Sheet • BSO to recycle capital into more accretive growth and relationship categories; grow Optimization higher risk-adjusted return as
Slide 29: New medium-term financial targets
New medium-term financial targets Economic assumptions Medium-term financial targets ROTCE ~13-15% Real GDP growth ~2.5–3.0% annually; no recession Efficiency Ratio ~52-56% Fed Funds Rate ~2.25 rate moves per annum (25 bps each move) CET 1 ~10.0-10.25% Unemployment rate ~3.5-4.0% Divid
Slide 30: Key messages
Key messages Citizens continues to execute well and deliver for shareholders ─ Strong 4Q17 results with Underlying ROTCE of 10.4% up from 4.3% in 3Q13(1) ─ Strong Underlying EPS growth of 29%, with operating leverage of 6.4% YoY, and efficiency ratio of 58.5%(1) ─ Tangible book value per share of
Slide 31: Appendix
Appendix %£ Citizens Financial Group, Inc” 31
Slide 32: Linked-quarter results
Linked-quarter results Pre-provision profit Period-end loans Return on average total $s in millions $s in billions tangible assets $609 $110.2 $110.6 1.83% $585 modestly modestly 87 bps $586 Underlying Underlying 4% stable 0.96% 0.96% 3Q17 4Q17 3Q17 4Q17 3Q17 4Q17 Net income available to Per
Slide 33: Year-over-Year results
Year-over-Year results Pre-provision profit Period-end loans Return on average total $s in millions $s in billions tangible assets $609 $110.6 1.83% 14% $107.7 3% 104 bps $516 $586 Underlying Underlying 18% 17 bps 0.79% 0.96% 4Q16 4Q17 4Q16 4Q17 4Q16 4Q17 Net income available to Period-end
Slide 34: Full year results
Full year results Pre-provision profit Period-end loans Return on average total $s in millions $s in billions tangible assets $2,282 17% $110.6 3% 39 bps $107.7 $1,903 Underlying 1.15% Underlying 22% 16 bps 0.76% $2,233 0.91% $1,872 0.75% 2016 2017 2016 2017 2016 2017 Net income available
Slide 35: Consumer Banking segment
Consumer Banking segment Highlights 4Q17 change from Linked quarter: $s in millions 4Q17 3Q17 4Q16 3Q17 4Q16 Net income down $5 million, or 4%, as 4Q17 results include $5 million $ % $ % after-tax of notable items included in noninterest expense associated with our strategic growth initiatives. Ex
Slide 36: Commercial Banking segment
Commercial Banking segment Highlights 4Q17 change from Linked quarter: $s in millions 4Q17 3Q17 4Q16 3Q17 4Q16 Commercial Banking net income up $5 million, or 2% $ % $ % Net interest income up $13 million, or 4%, reflecting strong deposit Net interest income $ 367 $ 354 $ 347 $ 13 4% $ 20 6% bal
Slide 37: Other
Other Highlights 4Q17 change from Linked quarter: $s in millions 4Q17 3Q17 4Q16 3Q17 4Q16 Other recorded net income of $343 million, up $318 million, $ % $ % driven primarily by the $331 million deferred tax liability benefit tied to 2017 Tax Legislation Net interest income $ 31 $ 34 $ — $ (3) (9)
Slide 38: Adjusted/underlying items
Adjusted/underlying items $s in millions, except per share data 4Q17 GAAP results reflect a net $318 million after-tax benefit for the 4Q17 adjustment of the Company’s net deferred tax liability tied to the 2017 Tax Reform law, partially offset by investments in colleagues and communities, as well a
Slide 39: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL Y EAR 4Q17 Change 2017 Change 4Q17 3Q17 2Q17 1Q17 4Q16 3Q17 4Q16 2017 2016 2016 $ % $ % $ % Noninterest inc ome, Adjusted/Underly ing: Noninterest inc
Slide 40: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL Y EAR 4Q17 Change 2017 Change 4Q17 3Q17 2Q17 1Q17 4Q16 3Q17 4Q16 2017 2016 2016 $/bps % $/bps % $/bps % Operating leverage: Total revenue (GAAP) A $1,
Slide 41: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL Y EAR 4Q17 Change 2017 Change 4Q17 3Q17 2Q17 1Q17 4Q16 3Q17 4Q16 2017 2016 2016 $/bps % $/bps % $/bps % Tangible book value per c ommon share: Common
Slide 42: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data QUARTERLY TRENDS FULL Y EAR 4Q17 Change 2017 Change 4Q17 3Q17 2Q17 1Q17 4Q16 3Q17 4Q16 2017 2016 2016 $ % $ % $ % Other inc ome, Adjusted/Underly ing Other income (GAAP) $4
Slide 43: Non-GAAP financial measures and reconciliations - Segments
Key performance metrics, Non-GAAP financial measures and reconciliations - Segments $s in millions, except ratio data FOURTH QUARTER 2017 THIRD QUARTER 2017 SECOND QUARTER 2017 Consumer Commerc ial Consumer Commerc ial Consumer Commerc ial Banking Banking Other Consolidated Banking Banking Other Con
Slide 44: Non-GAAP financial measures and reconciliations - Segments
Key performance metrics, Non-GAAP financial measures and reconciliations – Segments $s in millions, except ratio data FIRST QUARTER 2017 FOURTH QUARTER 2016 Consumer Commerc ial Consumer Commerc ial Banking Banking Other Consolidated Banking Banking Other Consolidated Net inc ome available to c ommo
Slide 45: Non-GAAP financial measures and reconciliations - Segments
Key performance metrics, Non-GAAP financial measures and reconciliations – Segments $s in millions, except ratio data FULL Y EAR 2017 2016 Consumer Commerc ial Consumer Commerc ial Banking Banking Other Consolidated Banking Banking Other Consolidated Net inc ome available to c ommon stoc kholders: N
Slide 46: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data FOR THE THREE MONTHS ENDED DEC. SEP. 30 JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, 2017 2017 2017 2017 2016 2016 2016 2016 Total revenue, Adjusted/Underly ing: T
Slide 47: Key performance metrics, Non-GAAP financial measures and reconciliations
Key performance metrics, Non-GAAP financial measures and reconciliations $s in millions, except share, per share and ratio data FOR THE THREE MONTHS ENDED DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, 2015 2015 2015 2015 2014 2014 2014 2014 2013 2013 Total
Slide 48: 3< Citizens
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Citizens Financial Group — Q4 2017 Earnings Presentation on 6ix