Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q4 2019 Earnings Presentation
39 slides from Citizens Financial's earnings presentation, Jan 17, 2020
Slide 1: 4Q19 and 2019 Financial Results
4Q19 and 2019 Financial Results January 17, 2020
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 meaning of Private Securities Litigation Reform Act of 1995. Statements regarding potential future share repurchases and future dividends are for
Slide 3: 4Q19 and Full Year 2019 GAAP financial summary
4Q19 and Full Year 2019 GAAP financial summary Full Year Reported 4Q19 change from 2019 Change $s in millions 4Q19 3Q19 4Q18 3Q19 4Q18 2019 2018 2018 $/bps % $/bps % $/bps % Net interest income $ 1,143 $ 1,145 $1,172 $ (2) —% $ (29) (2)% $ 4,614 $4,532 $ 82 2% Noninterest income 494 493 421 1 — 73 1
Slide 4: Table of contents
Table of contents page 4Q19 Highlights 5 4Q19 Underlying financial summary 6 2019 Underlying financial summary 7 Net interest income 8 Noninterest income and expense 9-10 Average loans and funding 11-12 Credit quality and capital 13-14 CECL standard implementation 15 Update: TOP 6 Program transforma
Slide 5: 4Q19 highlights
4Q19 highlights Underlying net income available to common of $431 million, with EPS of $0.99(1) − Results reflect the build out of fee businesses and continued operating discipline in the face of challenging rate environment − Underlying ROTCE of 12.5%(1) compares with 14.1% in 4Q18 and 12.6% in 3
Slide 6: 4Q19 Underlying financial summary
4Q19 Underlying financial summary(1) $s in millions Highlights 4Q19 change from Underlying, as applicable 4Q19 3Q19 4Q18 3Q19 4Q18 Linked quarter: %/bps %/bps Underlying net income available to common down slightly, with EPS of Net interest income $ 1,143 $ 1,145 $ 1,172 — % (2) % $0.99 up 1%; TBV
Slide 7: 2019 Underlying financial summary
2019 Underlying financial summary(1) $s in millions Underlying, as applicable 2019 2018 2019 change from 2018 Highlights $/bps % 2019 vs 2018: Net interest income $ 4,614 $ 4,532 $ 82 2% Underlying net income available to common stockholders up Noninterest income 1,877 1,601 276 17 $27 million, or
Slide 8: Net interest income
Net interest income $s in millions, except earning assets Net interest income Highlights Linked quarter: NII relatively stable as the benefit of 2% interest-earning asset $143.8B $145.5B $146.3B $146.5B $148.9B growth was offset by the impact of the challenging rate environment on NIM NIM of 3.0
Slide 9: Noninterest income
Noninterest income $s in millions Highlights 4Q19 change from Underlying, as applicable 4Q19 3Q19 4Q18 3Q19 4Q18 Linked quarter: $ % $ % Service charges and fees $ 128 $ 128 $ 131 — — % (3) (2) % Record noninterest income of $494 million reflects record results in capital Mortgage banking fees 80
Slide 10: Noninterest expense
Noninterest expense $s in millions Highlights 4Q19 change from Underlying, as applicable 4Q19 3Q19 4Q18 3Q19 4Q18 Linked quarter: $ % $ % Underlying noninterest expense decreased $5 million from Salaries & employee benefits $ 496 $ 503 $ 477 $ (7) (1)% $ 19 4% higher 3Q19 levels that included $10
Slide 11: Average loans and leases
Average loans and leases $s in billions Average core loans and leases YoY loan growth Highlights $116.1B $116.3B $116.0B $117.7B $114.2B Total core Linked quarter: 3% Core loans and leases up $1.7 billion, or 1.5%; up 1.8% before the impact of 4Q19 loan sales activity tied to our balance sheet o
Slide 12: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $136.4B $136.7B $139.0B Linked quarter: $134.5B $135.8B Fed funds, repo, $0.5 $0.7 $0.9 $0.6 Total deposits up $1.7 billion, or 1% ST borrowed funds $1.2 $12.8 $14.7 $12.4 $12.1 $15.6 ─ Growth
Slide 13: Credit quality remains strong
Credit quality remains strong(1) $s in millions Highlights Overall credit quality remains strong across retail and commercial Nonperforming loans NPLs to total loans and leases ratio of 0.59% improved from 0.63% in 3Q19 and 0.66% in 4Q18 ─ NPLs of $703 million decreased $34 million, or 5%, QoQ,
Slide 14: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 4Q18 1Q19 2Q19 3Q19 4Q19 Capital levels remain at the higher end of the range for (1) Basel III basis regional peers Common equity tier 1 capital $ 14.5 $ 14.4 $ 14.6 $ 14.4 $ 14.3 4Q19 CET1 ratio of 10.0% decreased
Slide 15: Current Expected Credit Loss (CECL) standard implementation
Current Expected Credit Loss (“CECL”) standard implementation Estimated 1/1/2020 Day-1 cumulative impact of CECL CECL methodology and key variables implementation: Adjusted Moody’s consensus forecast Net increase to allowance for credit losses of ~30%-35%;~22-25 bp Macroeconomic Market-based f
Slide 16: Strategic initiatives update
4Q19 YoY Strategic initiatives update Strategic & business highlights Strong mortgage banking fees; originations up 95% and gain on Enhance mortgage platform Consumer sale margins improved 15 bps Strength in trust and investment services fees, up 21%; Expand wealth Managed money revenue up 18%
Slide 17: Update: TOP 6 Program transformation initiatives
Update: TOP 6 Program transformation initiatives $s in millions TOP 6 Program well underway; no change to expected benefits of ~$300-$325 million in pre-tax run-rate impact by YE2021 > With ~$175-$225 million by YE2020 > ‘Notable’ pre-tax cost estimate of ~$75 million in 2020, will seek further offs
Slide 18: Update: Strategic revenue initiatives
Update: Strategic revenue initiatives Launching current wave of strategic revenue initiatives designed to add new capabilities and customers and position the bank well for future top-line growth Planned initial investment of ~$40 million pre-tax in 2020, with ~70% capex/30% opex − Will be funded b
Slide 19: Key performance drivers into 2020 and beyond
Key performance drivers into 2020 and beyond Confident that we can continue to perform well and drive toward becoming a top performing regional bank that delivers well for its stakeholders Customer-focused culture Success will be Strong and experienced board and leadership team, best-in-class ta
Slide 20: Underlying FY2019 performance vs. guidance
Underlying FY2019 performance vs. guidance(1)(2) Results reflect strong execution against targets through a challenging yield curve environment Underlying FY2019 guidance vs. Underlying 2018 Underlying 2019 results vs. Underlying 2018 Net interest Net interest income growth of ~5-6.5% Net intere
Slide 21: FY2020 outlook
FY2020 outlook Underlying 2019(1) 2020 expectations vs. Underlying 2019(1) Net interest income growth of ~1-2% Net interest $4,614 million net interest income NIM decline broadly consistent with 2019; stable/modestly up income, NIM 3.16% NIM; down 6 bps vs. prior year over course of 2020 fro
Slide 22: 1Q20 outlook
1Q20 outlook (1) 1Q20 Underlying outlook(1) 4Q19 Underlying results (includes the impact of acquisitions and excludes expected notable items) Net interest Up slightly given loan growth and stable/slightly up $1,143 million NIM, partially offset by day count impact of $10 million income Nonintere
Slide 23: Key messages
Key messages Citizens continues to execute well and deliver for stakeholders 4Q19 results reflect the benefit of diversified business model ─ Record fee income reflects the build out of fee businesses ─ Average loan growth of 3% YoY, up 4% before loan sales activity ─ Deposits up 7% YoY; deposit
Slide 24: Appendix
Appendix ** Citizens Financial Group, Inc.” 24
Slide 25: Medium-term financial targets
Medium-term financial targets(1) Medium-term financial targets ROTCE Efficiency Ratio CET1 Dividend payout ratio ~14-16% ~54% ~9.75-10.00% ~35-40% Economic assumptions Real GDP growth: ~2.0% annually No Fed Funds rate changes in 2020; bias towards modest upward Fed moves in 2021/22. Expect modes
Slide 26: Year-over-Year Underlying results
Year-over-Year Underlying results(1) Pre‐provision profit Average loans Return on average total $s in millions $s in billions tangible assets $692 $688 $115.9 $118.9 1.24% 1% 3% 1.14% 10 bps 4Q18 4Q19 4Q18 4Q19 4Q18 4Q19 Net income available to Average deposits Return on average tangible commo
Slide 27: Linked-quarter Underlying results
Linked-quarter Underlying results(1) Pre‐provision profit Average loans Return on average total $s in millions $s in billions tangible assets $684 $688 $117.3 $118.9 1% 1% 2 bps 1.16% 1.14% 3Q19 4Q19 3Q19 4Q19 3Q19 4Q19 Net income available to Average deposits Return on average tangible common
Slide 28: Full year Underlying results
Full year Underlying results(1) Pre‐provision profit Average loans Return on average total $s in millions $s in billions tangible assets 6% 4% 1 bps $2,712 $113.5 $117.9 $2,568 1.17% 1.16% 2018 2019 2018 2019 2018 2019 Net income available to Average deposits Return on average tangible common
Slide 29: Notable Items
Notable Items(1) 2019 quarterly and fourth quarter 2018 results reflect notable items related to integration costs primarily tied to the August 1, 2018 Franklin American Mortgage Company (“FAMC”) acquisition. Fourth quarter and full year 2019 and 2018 results also reflect costs related to strategic
Slide 30: GAAP noninterest income and noninterest expense summary
GAAP noninterest income and noninterest expense summary $s in millions GAAP 4Q19 change from Noninterest Income 4Q19 3Q19 4Q18 3Q19 4Q18 $ % $ % Service charges and fees $ 128 $ 128 $ 131 — — % (3) (2) % Mortgage banking fees 80 117 51 (37) (32) 29 57 Card fees 64 67 62 (3) (4) 2 3 Capital markets f
Slide 31: 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 31
Slide 32: 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 32
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 33
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 34
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 35
Slide 36: Non-GAAP reconciliations – Underlying excluding Acquisitions
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding Acquisitions $s in millions, except share, per share and ratio data 36
Slide 37: Notes
Notes Notes on Key Performance Metrics and Non-GAAP Financial Measures See important information on Key Performance Metrics and 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
Slide 38: Notes continued
Notes continued Notes on slide 21 – FY2020 outlook 1) See above note on key performance metrics and non-GAAP financial measures. 2) Includes an impact of approximately 10 basis points to the CET1 ratio related to the increase in risk weighting on mortgage servicing assets to 250% from 100% based on
Slide 39: 3« Citizens
3« Citizens Financial Group, Inc.”
Citizens Financial Group — Q4 2019 Earnings Presentation on 6ix