Citizens Financial Group, Inc. · NYSE:CFG
Citizens Financial — Q4 2018 Earnings Presentation
47 slides from Citizens Financial's earnings presentation, Jan 18, 2019
Slide 1: 4Q18 and 2018 Financial Results
4Q18 and 2018 Financial Results January 18, 2019
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. Statements regarding potential future share repurchases and future dividends are forward-lookin
Slide 3: Table of contents
Table of contents page 4Q18 Highlights 4 Notable items detail 5 4Q18 Underlying financial summary 7 2018 Underlying financial summary 9 Underlying 2018 performance vs. guidance 19 FY2019 Outlook 20 1Q19 Outlook 21 New medium-term financial targets 24 Key Messages 25 Appendix 26 3
Slide 4: 4Q18 highlights
4Q18 highlights Net income of $465 million; diluted EPS of $0.96. Results reflect a net $9 million after-tax reduction, or $0.02 per share, from notable items in 4Q18 compared with a 4Q17 net $317 million after-tax benefit, or $0.64 per share, from notable items ─ Underlying net income(1) of $474 mi
Slide 5: Notable Items
Notable Items(1) Several items have been excluded from reported results to better reflect Underlying operating results.(1) Fourth quarter 2018 reported results include the impact of a further benefit resulting from December 2017 Tax Legislation partially offset by other notable items, primarily asso
Slide 6: 4Q18 GAAP financial summary
4Q18 GAAP financial summary YoY Highlights 4Q18 change from YoY Underlying $s in millions 4Q18 3Q18 4Q17 3Q18 4Q17 Underlying(1) excluding Linked quarter: FAMC(1) $ % $ % Net income available to common stockholders up Net interest income $1,172 $1,148 $1,080 $ 24 2% $ 92 9% 9% 8% $14 million, or 3%,
Slide 7: 4Q18 Underlying financial summary
4Q18 Underlying financial summary(1) Highlights 4Q18 change from YoY Underlying Linked quarter: 4Q18 3Q18 4Q17 3Q18 4Q17 excluding $s in millions Underlying (1) Underlying (1) Underlying (1) Underlying (1) Underlying (1) Underlying net income available to common stockholders FAMC(1) up 4%, and EPS o
Slide 8: 2018 GAAP financial summary
2018 GAAP financial summary $s in millions 2018 2017 2018 change from 2017 YoY YoY $ % Underlying Underlying(1) Net interest income $ 4,532 $ 4,173 $ 359 9% excluding Highlights Noninterest income 1,596 1,534 62 4 FAMC(1) Total revenue 6,128 5,707 421 7 8% 6% 2018 vs 2017 Net income available to com
Slide 9: Underlying 2018 financial summary
Underlying 2018 financial summary(1) 2018 2017 YoY (1) (1) 2018 change from 2017 Underlying $s in millions Underlying Underlying excluding FAMC(1) Highlights $ % Net interest income $ 4,532 $ 4,173 $ 359 9% 8% 2018 vs 2017: (1) Underlying Noninterest income 1,601 1,528 73 5 1% Underlying net income
Slide 10: Net interest income
Net interest income $s in millions, except earning assets Net interest income Highlights Linked quarter: $140.5B $142.2B $143.8B NII up $24 million, or 2% $138.4B $138.7B ─ Reflects 2% average loan growth and improved NIM NIM of 3.22% up from 3.19% ─ Reflects higher loan yields tied to higher rates,
Slide 11: Noninterest income
Noninterest income Reported 4Q18 change from Highlights $s in millions 4Q18 3Q18 4Q17 3Q18 4Q17 $ % $ % Linked quarter: Service charges and fees $ 131 $ 131 $ 131 $— — % $— — % Noninterest income up $5 million, or 1%, including a $9 million impact Card fees 62 61 56 1 2 6 11 of the FAMC acquisition;
Slide 12: Noninterest expense
Noninterest expense $s in millions 4Q18 change from Highlights 4Q18 3Q18 4Q17 3Q18 4Q17 $ % $ % Linked quarter: Salaries and benefits $ 483 $ 474 $ 450 $ 9 2% $ 33 7% Noninterest expense up $41 million, or 5%, including Occupancy 92 81 80 11 14 12 15 a $46 million impact of notable items and FAMC Eq
Slide 13: Average loans and leases
Average loans and leases Average core loans and leases YoY Loan Growth Highlights $112.2B $114.2B Total Core Linked quarter: $109.2B $111.0B $108.4B 5% Average core loans and leases up $2.0 billion, or 2% ─ Core commercial loans up $1.1 billion, or 2%, with growth in C&I and commercial real estate,
Slide 14: Average funding and cost of funds
Average funding and cost of funds $s in billions Average interest-bearing liabilities and DDA Highlights $132.7B $134.5B Linked quarter: $128.6B $129.1B $130.7B Total average deposits up $727 million, or 1% $12.8 $14.1 Total long-term borrowings $11.7 $13.5 $13.4 ─ Largely reflects growth in savings
Slide 15: Strong credit-quality trends continue
Strong credit-quality trends continue $s in millions Highlights Overall credit quality remains strong, reflecting growth in lower-risk retail portfolios and a Nonperforming loans stable risk profile in commercial NPLs to total loans and leases ratio of 0.68% improved from 0.73% in 3Q18 and 0.79% $87
Slide 16: Capital and liquidity remain strong
Capital and liquidity remain strong as of Highlights $s in billions (period-end) 4Q17 1Q18 2Q18 3Q18 4Q18 Capital levels remain at the higher end of the range for (1) Basel III basis regional peers Common equity tier 1 capital $ 14.3 $ 14.4 $ 14.6 $ 14.4 $ 14.5 Risk-weighted assets $ 127.7 $ 129.1 $
Slide 17: Strategic initiatives update
Strategic initiatives update(1) NIM up 17 bps YoY; ~5 bps of this is from our BSO efforts Strategic & business highlights Balance Sheet Optimization Core Education, personal unsecured and merchant Group Grow more attractive financing up 24% YoY; average retail non-core loans #145 ranking on Forbes 5
Slide 18: Making consistent progress against our financial targets
Making consistent progress against our financial targets Jan 2018 Key Indicators Medium-term targets Adjusted/ 12.9%13.5%14.1% Underlying 9.0% 9.6% 10.1%10.4%11.7% 4.3% 5.2% 5.2% 6.3% 6.2% 6.8% 6.7% 6.7% 6.6% 6.8% 6.6% 7.3% 8.0% 8.4% ~13 – 15% ROTCE(1) 13.3% 13.8% 68% 68% 69% 70% 68% 67% 68% 67% 66%
Slide 19: Underlying FY2018 performance vs. guidance
Underlying FY2018 performance vs. guidance(1)(2) Results reflect strong execution against targets Underlying FY2018 guidance vs. Underlying 2017(1)(2) Underlying 2018 results Ex-FAMC vs. Underlying 2017(1) Net interest Net interest income growth of 7-9% Net interest income growth of 8.5% income, net
Slide 20: FY2019 outlook
FY2019 outlook Underlying 2018(1) – includes FAMC 2019 expectations vs. Underlying 2018(1) Net interest income growth of ~5-6.5% Net interest $4,532 million net interest income NIM up low- to mid-single digit bps, reflecting benefit of income, NIM 3.19% NIM balance sheet optimization Noninterest ~11
Slide 21: 1Q19 outlook
1Q19 outlook 1Q19 Underlying outlook 4Q18 Underlying results(1) (excludes expected notable items) Net interest $115.9 billion average loans Average loan growth up ~1% income, net 3.22% NIM NIM broadly stable interest margin Day count impact of ~$(20) million Noninterest $426 million Relatively stabl
Slide 22: Next phase: Aiming for Excellence
Next phase: Aiming for Excellence Mission To help our customers, colleagues and communities reach their potential Objective is to be a top-performing bank that delivers well for Strengthening all stakeholders our franchise while Committed to excellence in every dimension delivering Focused on long-t
Slide 23: Looking forward
Looking forward Confident that we can continue to perform well and drive toward becoming a top performing regional bank that delivers well for its stakeholders Strong and experienced board and leadership team, best-in-class talent Success will be Commitment to excellence in every dimension driven by
Slide 24: New medium-term financial targets
New medium-term financial targets Medium-term financial targets ROTCE Efficiency Ratio CET1 Dividend payout ratio ~14-16% ~54% ~10% ~35-40% Economic assumptions Operating assumptions Real GDP growth: ~2% annually Loan growth target range of ~nominal GDP- No Fed Funds rate increases projected nominal
Slide 25: Key messages
Key messages Citizens continues to execute well and deliver for stakeholders ─ Strong 4Q18 results with Underlying ROTCE of 14.1% up from 4.3% in 3Q13(1) ─ Strong Underlying EPS growth of 38%, with operating leverage excluding FAMC of 5.0% YoY(1) ─ Underlying efficiency ratio of 56.7%(1) ─ Tangible
Slide 26: Appendix
Appendix 3* Citizens Financial Group, Inc.” 26
Slide 27: Substantial progress prudently releveraging the balance sheet
Substantial progress prudently releveraging the balance sheet $s in billions Net charge-off rates in line with peers over Good loan growth with rising yields(1) past decade 5.8% $113 CAGR(2) 2.5% $103 $109 $89 $96 2.0% $85 4.39% 1.5% 3.87% 3.50% 3.37% 3.32% 3.51% 1.0% 0.5% 0.0% 2013 2014 2015 2016 2
Slide 28: Highly disciplined on credit: diversified and granular core loan mix
Highly disciplined on credit: diversified and granular core loan mix $s in billions Core retail portfolio refreshed Core commercial portfolio risk-ratings FICOs improved YoY(1) improved YoY(1) $57.4 $59.0 $56.0 <640 6% $51.2 3% 6% 5% 640-679 6% B- and lower 3% 14% 19% 18% 14% 680-739 B+ to B 740-799
Slide 29: Citizens vs peer group by total CRE loans – 3Q18
Citizens vs peer group by total CRE loans – 3Q18 $s in billions Total CRE Total CRE loans/ Total CRE loans/ Total Total loans Total CRE Total CRE/ loans/ total total risk based total commercial assets and leases loans total assets loans capital loans CFG $159.0 $115.9 $11.8 7.4 % 10.2 % 66.2 % 20.7
Slide 30: Building fee capabilities organically and through targeted acquisitions
Building fee capabilities organically and through targeted acquisitions Significant opportunity to improve fee income relative to peers (0.8% of assets vs 1.3% for peers) Consumer Commercial Investments in personnel plus sales, technology platforms and products with Broaden capabilities in DCM, M&A,
Slide 31: Continuously streamlining expense base to self-fund required investments
Continuously streamlining expense base to self-fund required investments $s in millions Focus on top-line growth and expense discipline drives positive operating leverage 2018 (1)(2) Underlying results 2014 2015 2016 2017 ex-FAMC CAGR Total revenue $ 4,691 $ 4,824 $ 5,188 $ 5,701 $ 6,071 7% Noninter
Slide 32: 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 $692 $116.7 1.83% 10% $110.6 5% ↓ 61 bps $609 14% 28 bps $642 $586 1.24% 1.22% 0.96% 4Q17 4Q18 4Q17 4Q18 4Q17 4Q18 Net income available to Period-end deposits Return on
Slide 33: Linked-quarter results
Linked-quarter results Pre-provision profit Period-end loans Return on average total $s in millions $s in billions tangible assets $692 $114.7 $116.7 4 bps $663 ↓ 2% 2% 1.20% 1.24% 4 bps $654 4% $642 1.18% 1.22% 3Q18 4Q18 3Q18 4Q18 3Q18 4Q18 Net income available to Period-end deposits Return on aver
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 12% 5% 1 bps $2,568 $116.7 $110.6 1.15% 1.17% 26 bps $2,282 13% $2,509 1.16% $2,233 0.91% 2017 2018 2017 2018 2017 2018 Net income available to Period-end deposits Return on
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: 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 36
Slide 37: 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 37
Slide 38: 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 38
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 39
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 40
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 41
Slide 42: Non-GAAP reconciliations – Underlying excluding FAMC
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding FAMC $s in millions, except share, per share and ratio data 42
Slide 43: Non-GAAP reconciliations – Underlying excluding FAMC
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding FAMC $s in millions, except share, per share and ratio data 43
Slide 44: Non-GAAP reconciliations – Underlying excluding FAMC
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding FAMC $s in millions, except share, per share and ratio data 44
Slide 45: Non-GAAP reconciliations – Underlying excluding FAMC
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding FAMC $s in millions, except share, per share and ratio data 45
Slide 46: Non-GAAP reconciliations – Underlying excluding FAMC
Key performance metrics, Non-GAAP financial measures and reconciliations – Underlying excluding FAMC $s in millions, except share, per share and ratio data 46
Slide 47: Citizens Financial Group, Inc.
3* Citizens Financial Group, Inc.”
Citizens Financial Group — Q4 2018 Earnings Presentation on 6ix