Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q2 2017 Earnings Presentation
42 slides from Citizens Financial's earnings presentation, Jul 21, 2017
Slide 1: 2Q17 Financial Results
2Q17 Financial Results July 21, 2017
Slide 2: Forward-looking statements and use of key performance metrics 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: 2Q17 highlights
2Q17 highlights Net income of $318 million, up 31% vs. 2Q16 and stable vs. 1Q17; diluted EPS of $0.63, up 37% vs. 2Q16 and up 3% vs. 1Q17 ─ Continued progress with ROTCE of 9.6%, compared to 7.3% in 2Q16, and 9.7% in 1Q17, 9.0% on an Underlying basis,(1) which excludes a 1Q17 $0.04 diluted EPS ben
Slide 4: GAAP financial summary
GAAP financial summary YoY excluding Highlights lease 2Q17 change from impairments(1) Linked quarter: $s in millions 2Q17 1Q17 2Q16 1Q17 2Q16 Net income available to common up 2% and EPS up 3% from 1Q17 $ % $ % ─ 2Q17 results include a $26 million pre-tax impact related to Net interest income $ 1,
Slide 5: Net interest income
Net interest income $s in millions, except earning assets Net interest income Highlights $136B $138B Linked quarter: $132B $135B $129B NII up $21 million, or 2% ─ Reflects 1% average loan growth; 1.1% before the $124 million average impact of $596 million of commercial loan and lease sales in conn
Slide 6: Net interest margin
Net interest margin NIM walk 1Q17 to 2Q17 0.09% (0.03)% (0.04)% (0.01)% 2.96% 2.97% 1Q17 NIM% Loan Borrowing Deposit Investment 2Q17 NIM% yields costs/other costs portfolio yield/growth NIM walk 2Q16 to 2Q17 0.26% 0.02% (0.03)% (0.10)% (0.02)% 2.84% 2.97% 2Q16 NIM% Loan Balance Borrowing Deposit Inv
Slide 7: Noninterest income
Noninterest income $s in millions 2Q17 change from Highlights 2Q17 1Q17 2Q16 1Q17 2Q16 Linked quarter: $ % $ % Noninterest income decreased $9 million Service charges and fees $ 129 $ 125 $ 130 $ 4 3 % $ (1) (1) % ─ 2Q17 results include an $11 million impact from finance Card fees 59 60 51 (1) (2)
Slide 8: Noninterest expense
Noninterest expense $s in millions 2Q17 change from Highlights 2Q17 1Q17 2Q16 1Q17 2Q16 Linked quarter: $ % $ % Noninterest expense increased $10 million, or 1%; decreased Salaries and benefits $ 432 $ 444 $ 432 $ (12) (3) % $ — — % by $5 million before the $15 million impact from operating lease
Slide 9: Consolidated average balance sheet
Consolidated average balance sheet 2Q17 change from Highlights $s in billions 2Q17 1Q17 2Q16 1Q17 2Q16 Linked quarter: $ % $ % Total earning assets up $1.2 billion, or 1%, with loan Investments and interest bearing growth of $1.1 billion, or 1% deposits $ 27.8 $ 27.8 $ 26.0 $ 0.1 0 % $ 1.8 7 % ─ A
Slide 10: Consumer Banking average loans and leases
Consumer Banking average loans and leases $s in billions Average loans and leases Highlights $56.2B $56.9B $57.6B Linked quarter: $54.0B $55.0B $3.1 $3.4 Average loans increased $687 million, or 1%, reflecting growth $2.6 $3.0 Other(1) $2.5 $2.9 $2.8 in education, residential mortgages and consume
Slide 11: Commercial Banking average loans and leases
Commercial Banking average loans and leases $s in billions Average loans and leases Highlights $48.0B $48.5B Linked quarter: $45.9B $46.5B $46.9B $2.3 $2.5 Average loans up $550 million, or 1%, with continued strength in Other (1) $1.8 $1.7 $2.2 Commercial Real Estate, Middle Market and Franchise
Slide 12: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $126.3B $127.5B Linked quarter: $124.3B $119.0B $121.0B Total average deposits up $836 million, or 1% $11.0 $12.4 $13.6 Total long-term borrowings $10.3 $10.9 ─ Largely reflects strong growth i
Slide 13: Strong credit-quality trends continue
Strong credit-quality trends continue $s in millions Provision for credit losses, net charge-offs (recoveries) Highlights $104 $102 $96 Overall credit quality continues to improve, reflecting growth in higher quality, lower risk $90 $11 retail loans and broadly stable risk appetite in commercial $
Slide 14: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 2Q16 3Q16 4Q16 1Q17 2Q17 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 $ 13.8 $ 13.8 $ 13.9 $ 14.1 Risk-weighted assets $
Slide 15: Summary of progress on strategic initiatives
Summary of progress on strategic initiatives 2Q17 Initiative Commentary Status Primary households up ~7,000 YoY and added ~9,000 primary HHs with a loan or investment. Continue to build Grow and deepen relationships out Mass Affluent and Affluent value propositions. Leveraging data and analytics cap
Slide 16: Self-funding necessary investments through our efficiency initiatives
Self-funding necessary investments through our efficiency initiatives Tapping Our Potential (TOP) programs remain on track TOP III Program Launched mid 2016 — expected pre-tax benefit of ~$110 million in 2017 Program actions are largely complete Revenue initiatives Target ~$25 million Commercial A
Slide 17: TOP IV launch demonstrates our continuous improvement mindset
TOP IV launch demonstrates our continuous improvement mindset Tapping Our Potential (TOP) programs remain on track TOP IV Program Targeting run-rate pre-tax benefit of ~$90-$105 million by end of 2018 Revenue Initiatives Target ~$45 million New Channels: Using digital as a sales engine, building o
Slide 18: Making consistent progress against our financial goals
Making consistent progress against our financial goals Goal is to deliver a 10%+ run-rate ROTCE in the medium term Key Indicators Medium-term 9.0% 9.6% targets 8.0% 8.4% 6.8% 6.7% 6.7% 6.6% 6.8% 6.6% 7.3% 6.3% 6.2% Adjusted 4.3% 5.2% 5.2% ROTCE(1) 10%+ Adjusted return 0.85% 0.89% 0.68% 0.66% 0.69% 0
Slide 19: 3Q17 outlook
3Q17 outlook 2Q17 3Q17 expectations vs. 2Q17 ~1.5% spot loan growth Net interest $109.1 billion average loans ~1.0% average loan growth, which reflects impact of late income, net 2.97% NIM 2Q17 loan sales interest margin Expect ~3 basis point NIM improvement Noninterest $370 million Up
Slide 20: Our vision and credo guide us: The destination
Our vision and credo guide us: The destination Mission To help our customers, colleagues and communities reach their potential To be a top-performing bank distinguished by its customer-centric culture, mindset Vision of continuous improvement and excellent capabilities We perform our best every day
Slide 21: The roadmap: How we will stand out from the competition
The roadmap: How we will stand out from the competition Customer centricity — Expertise and deep knowledge of customers — Tailored advice, reinforced by insights from data and analytics Strong culture Team-oriented Agile and innovative Invested in our leaders and colleagues Selective in ho
Slide 22: We continue on the path to driving enhanced shareholder returns
We continue on the path to driving enhanced shareholder returns Since 3Q13, delivered ~530 basis points of improvement in Adjusted ROTCE to 9.6%(1) Lever Further Opportunities Continued balance sheet optimization to drive better NIM and risk adjusted returns — Deliver growth in higher-returning as
Slide 23: Key messages
Key messages Citizens 2Q17 results highlight continued momentum ─ Strong revenue, net income and EPS growth ─ Exceptional Underlying(1) operating leverage of 7%, improving efficiency ratio and active capital management ─ ROTCE of 9.6%(1) Robust balance sheet position ─ 11.2% CET1 ratio permits s
Slide 24: Appendix
Appendix 3% Citizens Financial Group, Inc.” 4
Slide 25: Impairments on aircraft lease assets
Impairments on aircraft lease assets 2Q17 results reflect a $26 million pre-tax impact related to impairments on $152 million of corporate aircraft lease assets, predominately in the non-core portfolio, which relate to the period of RBS ownership and are in runoff — Finance lease impairments reduc
Slide 26: At Citizens, we continue to smartly grow our balance sheet
At Citizens, we continue to smartly grow our balance sheet $ billions Total loans(1) $109 23% $96 $103 $89 Good loan growth with rising yields 3.80% 3.37% 3.32% 3.51% 2014 2015 2016 2Q17 Loan yield 9% 22% 24% 22% 21% (2) Return on loan book regulatory capital improving 2014 2015 2016 2Q17 5.
Slide 27: Year-over-year results
Year-over-year results Pre-provision profit Period-end loans (1) Return on average total $s in millions $s in billions tangible assets $s in billions $558 18% $109.0 5% 0.89% 17 bps $103.6 $451 $532 Underlying 0.72% 24% 2Q16 2Q17 2Q16 2Q17 2Q16 2Q17 GAAP results Underlying results(2) Net inco
Slide 28: Linked-quarter results
Linked-quarter results Pre-provision profit Period-end loans (1) Return on average total $s in millions $s in billions tangible assets $s in billions $530 $558 0.4% $108.1 $109.0 0.9% 2 bps 0.91% 0.89% $532 Underlying 5% 1Q17 2Q17 1Q17 2Q17 1Q17 2Q17 Net income and EPS Period-end deposits Re
Slide 29: We remain positioned for rising rates…
We remain positioned for rising rates… …but also see continued opportunity to enhance performance by executing well on our initiatives Interest rate sensitivity ranking 10.0% (200 bps gradual increase) Net interest income positioned to continue to benefit from rising rates 6.5% ─ Our asset sensiti
Slide 30: Consumer Banking segment
Consumer Banking segment 2Q17 change from Highlights $s in millions 2Q17 1Q17 2Q16 1Q17 2Q16 Linked quarter: $ % $ % Net income increased $23 million, or 24% Net interest income $ 657 $ 638 $ 602 $ 19 3 % $ 55 9 % Net interest income increased $19 million, reflecting improved loan yields, higher
Slide 31: Commercial Banking segment
Commercial Banking segment Highlights 2Q17 change from Linked quarter: $s in millions 2Q17 1Q17 2Q16 1Q17 2Q16 Commercial Banking net income increased $7 million, or 4% $ % $ % Net interest income of $344 million decreased modestly as the Net interest income $ 344 $ 346 $ 314 $ (2) (1) % $ 30 10
Slide 32: Other
Other Highlights 2Q17 change from Linked quarter: $s in millions 2Q17 1Q17 2Q16 1Q17 2Q16 Other recorded net income of $13 million, down $32 million vs. $ % $ % 1Q17, which included a $23 million benefit related to Net interest income $ 25 $ 21 $ 7 $ 4 19 % $ 18 NM % settlement of certain state ta
Slide 33: 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 2Q17 Change 2Q17 1Q17 4Q16 3Q16 2Q16 1Q17 2Q16 $ % $ % Noninterest incom e, Adjusted: Noninterest income (GAAP) $370 $379 $377 $435 $355 ($9) (2)% $15 4% L
Slide 34: 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 2Q17 Change 2Q17 1Q17 4Q16 3Q16 2Q16 1Q17 2Q16 $/bps % $/bps % Operating leverage: Total revenue (GAAP) A $1,396 $1,384 $1,363 $1,380 $1,278 $12 0.87 % $11
Slide 35: 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 2Q17 Change 2Q17 1Q17 4Q16 3Q16 2Q16 1Q17 2Q16 $/bps % $/bps % Tangible book value per c ommon share: Common shares - at end of period (GAAP) M 505,880,851
Slide 36: 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 2Q17 Change 2Q17 1Q17 4Q16 3Q16 2Q16 1Q17 2Q16 $ % $ % Other inc ome, Adjusted Other income (GAAP) $2 $24 $25 $87 $15 ($22) (92%) ($13) (87%) Less: Notable
Slide 37: Key performance metrics, Non-GAAP financial measures and reconciliations – segment
Key performance metrics, Non-GAAP financial measures and reconciliations – segment $s in millions, except share, per share and ratio data THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED MAR 31, THREE MONTHS ENDED DEC 31, 2017 2017 2016 Consumer Commerc ial Consumer Commerc ial Consumer Commerc ial Ba
Slide 38: Non-GAAP reconciliations – Underlying
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q17 Change 2Q17 1Q17 2Q16 1Q17 2Q16 $/bps % $/bps % Noninterest inc ome, Underly ing: Noninterest income (GAAP) $370 $379 $355 ($9) (2%) $15
Slide 39: Non-GAAP reconciliations – Underlying
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q17 Change 2Q17 1Q17 2Q16 1Q17 2Q16 $/bps % $/bps % Operating leverage: Total revenue (GAAP) A $1,396 $1,384 $1,278 $12 0.87 % $118 9.23 % Le
Slide 40: Non-GAAP reconciliations – Underlying
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying $s in millions, except share, per share and ratio data QUARTERLY TRENDS 2Q17 Change 2Q17 1Q17 2Q16 1Q17 2Q16 $/bps % $/bps % Return on average total tangible assets and return on average total tangible assets, Unde
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 FOR THE THREE MONTHS ENDED JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, 2
Slide 42: Citizens Financial Group, Inc.
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Citizens Financial Group — Q2 2017 Earnings Presentation on 6ix