CFG - Earnings call transcript Q3 2020 | Citizens Financial Group, Inc.

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Operator

Good morning, everyone, and welcome to the Citizens Financial Group Third Quarter 2020 Earnings Conference Call. My name is Greg, and I’ll be your operator today. Currently, all participants are in a listen-only mode.

Following the presentation, we will conduct a brief question-and-answer session. [Operator Instructions] As a reminder, this event is being recorded.

call Kristin the President, Executive turn Relations. Investor I’ll over Silberberg, to Vice Now, now begin. may you Kristin,

Kristin Silberberg

Thank Good us. you, for you Greg. morning, everyone, thank and joining

Don Saun, Consumer our will happy to Brendan morning, Head CFO, Banking, our third we’ll McCree, presentation, this our be can and to Banking, website. referencing Bruce First, Coughlin, are find After you on presentation, Chairman quarter results questions. John Relations Commercial Head an provide here Van Woods, and which overview Investor of of take of CEO, also and color. the provide

today which expectations presentation. and results risks include page for comments Our cause differ to will on forward-looking the outlined are subject our of may that statements, your to from material review uncertainties X

so reconciliation in over appendix. hand non-GAAP to page to also important Bruce. on results I’ll financial review the the of GAAP We the and it X measures it’s With that, presentation our referenced

Bruce Van Saun

have day Thank the you, good and team. Kristin, Good to you on to you.

Kristin Silberberg

Thank you.

Bruce Van Saun

morning, occasion Okay. great and the feel our Citizens to rise everyone, call. of unprecedented taking posting of colleagues, while model. continues that results care diversification strong the and to XXXX. about resilience We customers, joining really challenges We're positive our meet communities, how Good demonstrate business the and thanks for and of

The the featured flat well puts results. positive and record We in opportunity, to and business mortgage our the performance in included to of business room but investor investments success a sheet term exceptionally run fee term. this delivering market record has low own in a the Financial in environment yield managing short, on rates. growth offset environment rate our well-positioned capabilities. and curve strategic revenue, believe income balance pre-provision deck. for levels our strong providing plus near making positioning are also share NIM, risks long We market our gaining performed profit business we and to QX and position capturing has mortgage and we're given low the and In and the natural while us on page pressure mortgage well a refi preserving

broadly X.X% markets addition a advisory economy off with lows, further nice year-on-year. XX% In These as and also fees. behavior consumer higher performance, reopens which Consumer and underlying XX% expenses, strong in operating stable leverage lockdown positive of underwriting and rebound capital of saw we continue and decline delivered a drove given normalizes. to and quarter continue a in solid non-interest COVID-related revenue quarter of to Combined growth X% and wealth factors we modest NII mortgage, year-on-year. should income the fees in the quarter sequential sequential move

a basis. Our pre-provision net by revenue and XX% XX% it's up year-on-year year-to-date on grew

flexibility us the payout to near level reserve ranks allowed prudent dividend which has generation reserves capital going of this gives us operational grow Now, peers perspective. credit of of targeted uncertainty loans customers forward This CETX environment, attractive XX%. while top maintain a is financial to to our the delivering a capital support and an an within X.XX% tremendous the and range a build X.X% and strength strategic from ratio, given of

continues on optimistic. view Our be the to cautiously economy

tracking economic is Our consumer forbearance. given and credit book favorable expectations, past stimulus, reopening to

the environment assuming segments lumpy. a credit that industry in pear recognition lockdown's. two on little seeing the took sizable and by we charge-offs can side, are We commercial current some are the credit quarter COVID-XX that impacted on are stays the we the feel With we trajectory. most said, be selective as near On spreads and macro during commercial, loss charge-offs

work progress. solid to make on and TOP Our BSO continues

on year an With thorough guide call. we feel we we poised sub well and TOP let the for material and develop executed centered handled we're challenges turn delivered streams full we model adding student will quite financials, and both we've of financial originate-to-distribute as benefits. as been work regulatory and for X largely digitization It's expense we that, on over completed John On and success attractive the a year-end economy and are capital provide it our to our remarkable recovers. exchange me sale review a loan John? debt BSO, a to We a that

John Woods

Thanks, Bruce, and everyone. good morning,

for headlines X. Citizens Let's start for was with This page outstanding operating the of brief environment. on despite overview ongoing quarter a an the in starting the our quarter challenges

sheet two in quarters generated last balance in September have record XX. excellent with at an We position revenue PPNR

ratio of For which $XXX underlying Net bearing X% decline line ROTCE the record that and adjusts increased XX% to our of of for is We line faced was results which should was third positive revenue billion, the Also, a a operating up downs significant pay X.X% EPS year-over-year, the and an ending quarter in XX excellent and approximately mitigated within up of and quarter with our our points. XX reserve draw deposit reserve loans, This outlook, quarter. economic million, ratio loans strong quarter and with LCR. up education impacted and quarter points X% should we reserve allowance quarter. loans, which to XX%. We loan loans, interest and fees markets slightly excellent last fee in X.X%, on linked ended linked were percentage quarter a X.XX% repayments note quarter, we quarter, in fell in linked wealth. income coverage continued see five-basis PPNR as in for year-over-year. rates X.XX% barring basis, record another to and and sale prudent elevated ACL quarter. basis XX%, quarter to liquidity compliance XX mortgage pre-COVID X of be deterioration discipline. X.XX% the as normalized the strength, a cash. linked down the demonstrated million,$XXX back CETX by level level the posted And excluding completed was I increased LDL income with basis results $X.XX PPP from leverage billion, fourth We points. charge-offs million to NIM Even due we delivered strong beginning the points in $X.X to for reduction quarter given linked basis in during losses costs, in PPP commercial credit believe our by record interest with up expense to $X.X due also of to a average point linked quarter, build quarter, Note sheet reported income that of balance a in stable we $X.XX X%. was by underlying a and by the has $XXX we ratio X% start and operating the record we releases improved net capital X% we remain of an and QX build, EPS translates ROTCE should

in offset quarter as value linked of interest cover tangible up bearing a page lower is ago. through a yields $XX.XX drove X% X% year up costs down well with higher point interest margin asset loans a this line impact a rates compared deposit and income. was the challenging and outsized given by at per Our offset costs X% and down in partly end, book by growth income point were Net deposit quarter Rates cash DDA. I’ll decrease interest basis were Despite X net lower the were improved impact. share environment, quarter. basis On X lower balances repaid deposit lower two mix. These draws net held basis and points bearing interest decrease interest partially X,

a revenues was increase transaction consumer increases nearing Key card is card charges and solid quarter banking business were in This originations debit natural on to to in rebounded pre-COVID delivered The again pre-COVID Moving car this levels. to on our efforts pressure modest trading decline an volume quarter Service wealth prior to revenue was invest continues AUM. by with against provide were to quarter. strength trend in low fees in up fees in down continue intended compared drivers streams. record levels. record credit quarter values in and linked and fees recovery XX%. and The fee last ratio diversify Mortgage income high. all-time year-over-year delivered we offsetting this NII. of the in to page rate mortgage business a again Each as quarter purchase Underlying primarily hedge increase record nicely noninterest X; continued our by in transaction in strong levels. a XX% driven rebounding than quarter quarter’s reflecting ongoing margins our excellent and back more volume which market in as results driven XX% the to results income improved the the in Capital volume. to

Excluding by this, activity syndications were in and M&A capital market advisory. accelerating driven XX%, fees up loan

Turning page X. to

Let's of take XXXX the are mortgage in through channels digital with of year the of on again this of over our of focus the increase extraordinary our completed us with in American. multi-channel the this made of in distribution demand environment. our market, originations significant at performance business quarter business largest the the XX% the a history. strength mortgage continues and US scale in the innovating strong app. to Over boosted look few providing technology the origination customer-facing in business our upgrading our capabilities business. We've diversification of to closer the overall experience. years, enabled applications has mortgage acquisition demonstrate has The for low-rate back The last customer our performance, retail our XXXX, off really now the diversity The benefits Franklin investments meet

we to execution XXXX retail given and rates channel and market and wholesale our to we our rise strength more diversification make channels. across rates. as consistency even leveraging at a our as elevated expect correspondent and today's expect remain scale We transition And volumes to share purchase-driven gains through market

to now and volumes. discipline X on quarter. page the robust quarter in strong has in expenses. the efficiency leverage to operating expense ratio, this to and in generated expenses the production the quarter down noninterest continued reflecting slightly banking and in connected expense XX%. employee X% that at Salaries relatively positive mortgage strong discipline year-over-year contributed continued expense were stable linked due Turning Underlying year-over-year quarter, benefits This to up improvement was

page repayments, core normalizing saw this XX; We in and consumer and down of PPP after up lending loans, on commercial average loan for mortgage the loans quarter impact and growth were in both X% Next slightly in sales. student. line

were points to XX; and XX on progress Interest-bearing our the liquidity. during deposit small XX% in deposits average businesses consumers We XX% or quarter clients stable and quarter. which basis pleased from government costs, the benefited and year-over-year down with points We up overall to build page stimulus affluent to across interest-bearing were and especially broadly XX costs Moving analytics XX as executed to were XX basis optimized declined improving points. basis our deposit life deposit funding basis We all points significantly brought mass for deposit personal deposit channels mix. costs costs our down pricing and down our playbook leveraging to affluent offers customers. by data and manage while

We and average basis years. quarter continue This over of GDA categories to peer-leading linked the growth with lower-cost X% three see deposits shift last in we growing continues a XX% have towards low-cost demonstrated year-over-year. momentum on the a

to XX methodology and to discuss page reserves. our Turning CECL

used this We aspects of use that build well-reserved the in reserve specific and sector factors CECL in casual we lockdowns, a commercial qualitative element to and as performance are estimate. which the scenario, overlays These COVID-related namely of portfolios summarized selected macroeconomic foundational and key management we trends well most is impacted Nonetheless, QX. scenarios slightly not focusing dining, X.X% have improved commercial, We feel CETX is on on On on further at as by group, products. hospitality-related reserves, in retail point expected retail our XX. detail loans reserve down X.X% to pandemic at our to Notwithstanding, decreased payment impacts June X.X% extended points basis loan growth lower our and sectors. RWAs. to lockdown robust sizeable our to XX, In with ratio of October page improved of deferrals the XX, and this commercial PPNR new X.X% as book XX given declined for and bill, programs. our from customer provide forbearance we

to deferred and X.X% For trending having any current approximately in would for we in with X% have banking the performance alleviating status and that reported trending have after approximately be ending about received PPP have status. and funds if as declined XX decrease The in X.X% the of to X% This to X.X% X% further is XX% to were the of forbearance well of October delinquency June business that forbearance October end retail, exited of is with our stress. of declined not last customers compared immediately are reopenings the by forbearance approximately XX. expected at XX% have loans customers Also, favorably. do customers taken some Deferrals forbearance, payment. to

okay. Turning offset have the and somewhat liquidity charge-offs partially credit prudent million signs increase gas mining. seeing businesses credits by XX% from of we’re the concepts provide credits, performed including stabilize. trade services and In commercial, COVID-related million sector. update professional less improvement large coverage well teams raising in These has to million page in capital recovers. increase risk reopened one points begin the reserve and from service mall we a and NPAs Note that mall to during increased Non-accrual quarter excluding our quick approximately sector on quarter XX, stations quarter, loans. in stadiums and of which have commercial and food with arts, with metals improving increase to reflecting one quarter retail, XQ two REIT by QX. in an retail. in was this as were driven a and that commercial, impacted to a impact the linked economic charge-offs Despite appendix, food finally, portfolio. federal we as lower well by and XQ sensitive as basis of exposure which resuming. sports the broad and And by was took in progress and the credit. two commercial from and loans XX The portfolio include our accommodation NPA to Net X.XX% driven $XXX in price portfolio, quality economy XX the forbearance further the you total credits stimulus, on improved this million X.XX% is page $XXX our our in the essential in REITs given as increased The energy services. the In and lumpy of $XX credits mall commercial the and $XXX other performing entertainment, backdrop getting in that an seen of now sectors recreation have build sports on credits related a REIT as during lockdowns view retail and pandemic. PPP in have sector benefited commercial status We The ratio increase two the

environment positioned sensitive CRE as earlier, current hospitality, strong with energy. services, positions. XX, retail to the from Given and and of consider loans. feel remaining these total COVID-related across casual retail-related page educational On dining, be and areas positive concern capital have have X% approximately the hit elevated XQ of I been The mainly price trends particularly in concern XX% two trade, by mentioned of well manage we closures we dropped areas liquidity to through to

strong given CETX up generation assets. to X.X%, XX quarter linked in and improved PPNR risk-weighted our reduction points basis Our

target down the to last on XX%. the of metrics We back and assets our X.XX% five was the increased to over a and calculation improved outpaced which increasingly spot loan in our basis LDR years, base. quarter range a X.X% PPNR DFAST and are percentage Strong drove reflecting as deposit revenue of now has diversified nine growth, liquidity growth of steadily year-to-date investments benefits XX%. average

of quarter will XXXX, X debt. by the subordinated total exchange, going qualifying benefit tier company increasing third a the During debt capital completed forward, percentage that

XX, TOP to page Turning on you X. I'll update

And traditional deliver operating to positive initiative drive still The instrumental XXXX and $XXX in improvement. program TOP our run transformational of clearly are continue by are ROTCE the to and XXXX. they've target year-end and leverage $XXX we million. million hit the to achieve rate We on-track ability to been the expected launched on execute pretax original million to we $XXX

we to digital streams to to TOP by in growth. of adding create run million drive and deliver to experiences. we'll we this. working through also accelerating largely cost significant much XXXX customer on at end efficiencies These are or and focused frictionless also rate increased future least are invest the We working $XXX impact increase of reinvest work capabilities how the initiatives X, our But are strategic should

benefit expense want exciting some the to We including across will are be Pages happening updating expanded in the our I programs of that outlook, our things to upscale XX, XQ these XX initiatives earnings part and On of company. call the highlight as January.

As the not that franchise long we but well medium-term, we initiatives digitization, the positioned on well the us crisis, focused term. to strategically continue for also to are for position only invest the through

in are commercial, customer-led proposition. consumer treasury lead-left-high-yield our completing the to a and platform, with merchants we income to first sale issuance, of side, In partners develop including of to our merchant citizens we national add proposition. we sale access also value launching new businesses continuing focused we capabilities, point capital our finance, our value are seeing important adoption solutions. On new of on client pipeline. continue expansion increased point piloting fixed national finance markets And new In lending merchant some are and more the with we our expand integrating digital our are further to five of global

on move to let's page fourth Now, quarter. outlook commentary for high the XX for level the

benefits low- be up We year. expectation to next level expect no down of mortgage is quarter reflecting a be third down is security be after digit. mid-teens to mid-single record income stable, until to NIM Loans NII expected with banking should is expected PPP to Fee broadly forgiveness be fees. stable modestly. lower

we margins Noninterest highs. lower mortgage into continue leverage than XQ modestly seasonal significant results X%. record and feeing and opportunity a come down year operating XXXX at recent historic track expected a well do see expense up levels, of to albeit is around should into for see we're be to attractive factors, on expect reflecting While we that full XQ from

We the of offs range expect loans. XX relatively stable in basis to points average charge net of XX

initiatives. should And reserve up, through the continue successfully in given navigate expect the to record sum crisis. display We bills well-positioned year-to-date. in remain positive On record QX we and see strategically on income also fee we again deliver on with NPAs. and resilience We franchise operating taken to release to XX, leverage. a decline reserve The PPNR, slide a of key invest to COVID-XX continue is

well liquidity positions. profitability, to execute drives With strong hand capital to I'll that, our and ability over Bruce. Our

Bruce Van Saun

John. for open up Okay. Thank you, it Operator, let's Q&A. the

Operator

[Operator Instructions] line of from Wedbush from the Your first Winter question comes Please Peter go ahead. Securities.

Peter Winter

assets Good a non-performing to And morning. point seems decline? in what that curious uncertainty Thanks. you'd the quarter. to lot I gives at be reserves next willing release you cycle, that are was there of confidence going still just this the

Bruce Van Saun

Yeah. Why in. and don't could I start, you pick John, then

this NPAs and you to was relationships if stellar been what we So, we've COVID the class, and in which two drove had But mall behavior to best with. at the it really some which exposures, changed had there. quarter, companies, really lockdowns look REITs, obviously, isolated stress up had long just performing frankly caused

recognized we've so, job careful And of pretty through forecasting and migration could go NPA. criticized a what assets We do that. the

in prepared as think overall remarks, I beyond really some we're book. that And in improvement commercial so, of the we -- and broad optimism don't signs his John seeing some think We said

of charge-offs, lot going some a degree don't really which taking So and to NPA. charge-offs will in we're we'll reduce the have think then we new some be

I really consumer feeling very that delinquency. So if we're you surprising the put all look you commercial point being trends then as And even terms we've confident side. but on to solid in of really, well, had healthy the at of think together surprising pretty and

good feel really we as So well. John… there

John Woods

add I’d mean, higher just I Yeah. level. just

are line about coming the good that when areas have over number mean, charge-offs through. deck. We with respect That Things the last and mentioned on to sight overall to in in what's you pretty X%. I days delineated takes pay quarter. market going got at fallen our we're puts XX to are We of migrate commercial are, next downs think to side. of about concern, slide as and that we we've our has XX the we XX% where

And so we've Don which, done comment on. analysis a bottoms-up burn can cash

that on reasonably nonaccruals feel gross guide from we comfortable with So basis.

Peter Winter

releasing still the on possibly reserves, What feel I next the just the there's enough release, levels Just uncertainty reserve economy. reserves like release decision quarter? with is in to

Bruce Van Saun

ahead Yeah. one. that go and I I’ll take mean,

uncertainty this significant CECL the out I to over feel to that where scenario and second of in respect least over in at the quarters. something comfortable we've this both back level can think from built and uncertainty methodology to I think our shape we mean, comes actually the got And first into with we -- little the the of first see, how better. played quarter, that In quarter scenario been you a been started the what with I saw we place. have outlook. there's trajectory time,

all in through requirements when to the that, we sector qualitative have after I this what a this is After scenario reserving we satisfied. that individual the quarter and the that build barring time with what difference expect analyzing if like think and in -- spending deterioration in of was feel our terms these we've those we've categories quarter. environment, would our overlays content a the these we be been build loss management the gotten of drove really factors of reviews lot in been and

you And therefore, way forward charge that that on driven go by origination so the activities. And provided already and be therefore, works an reserves off lost content would against and been would on CECL has the is basis for. that the built provisions go-forward your you’ve a

standpoint, than that So, provisions -- from releases that would mean would less with charge-offs. reserve our

Peter Winter

Thanks great. my for taking That's question.

Bruce Van Saun

Sure.

Operator

of the Erika ahead. from of Najarian comes America. from go question Bank Your Please next line

Erika Najarian

you'll you But I'm lot take we you'll and back, interest and the the of back off. qualities obviously obviously, the against, either and know know, of as generating programs weigh your a through, sure a think work get income on where year, unfortunately for fee top questions the in building you've details. are that done January the we timing given and that roll rate step and all income I step we take As challenges we swap us defer the XXXX, to about a

we no you help about low-double think with generation sort in rates, of the about enough other you ROTCE as or do return a in credit for normalized normalized post-COVID all we a think XXXX, for world spike sort recovery As expect that post they of citizens or fee with the like that achieve, the think with have tail ROTCE in you digit on side? know, to top XX%

Bruce Van Saun

Yeah. certainly But I’ll can your start then, that's you again, case, Erika. the John add perspective. I think

you if a just reserve of ROTCE. So, we which huge cost the quarter X% this bill at look us was what X% with deliver bill, basically

I can do we'll the in pitches lower rate mortgage of as that well. credit part also again, have consider costs. but, think forward So But some environment. as part strategy on was NIM math have the we managing going We'll a strategy you of low headwinds that. our But business

hedging to on have folks great seems and a fixation there some hedges so, on. be put And

sized job done have. we've there duration the folks a longer some business don't with I some that more hedges, think they have nice or we may mortgage but have

you And top of through year performing. been terms the so, we've we're class how our in PPNR of look I at really this generation think if

of households math the their be XX% there more they next by the to refinance through if linked mortgage country So, the would of say, benefit, we expect to in I'd the terms year. in than mortgage. business basis XX in points run

be continued the there's going refi on side. demand So to

company that probably purchase to market also and well to diversified market, have hard are worked we goes a handle market to retail mortgage of digitize origination the and As able wholesale. business We've positioned. gain the with channels owned efficiently. back exposure be any bank most to share very to and volumes really correspondent We

really feel about that. good So,

know, through of So, you ROTCE. I'd the crashing kind double-digit say, on of we're doorstep

looking niches sustain terms it's you driving made on focus think more see -- fee investments to certainly in we get there take of commercial going regional uniquely the continuing top opportunities. don't in volume there's But of have. we've geographies. We efficiencies, to that of can to side know, we we nice also I we've the loan the on And our levers able doing think growth. out I some we of going all consumer it. think and for and been be some some that And the growth build through peers of, some our think to achieve have

what have that, is to the know you we original do. towards know term keep We we're driving what objective and to going So, know, medium we targets.

you help need rates digits John? the hurdle. think bar get we I like probably all from to little But seems a double certainly can there. a way

John Woods

Yeah.

lot it's around basis add I going think for not points, we there's a than, to -- and interest much I of us. a the at other think remain our space, too NII opportunity XX think story there I’ve the in forward. I I BSO costs think past actions, that been have self-help absolutely In we so with and deposit bearing

are this than are bank we last. We reserve different -- complete -- versus we completely

so, have But diversification wealth, -- and costs there in that it’s eye diversification. is were reserve. levels the fees, capital but sometimes night mortgage. the acquisitions it mortgage. inorganic in And interest our we the of combination programs of by last respect about bank that space, there top what lows like has made will we markets we've own great more that hallmark of continue. the overshadowed which our forget A business made for we've had its numbers do a then is to hovering the seeing But six opportunity of gets compared popping been the night around expenses. have be as on find diversified. and organic that We've shouldn't deposit investments well. as in the day That we end you the our record more new the never been you're with lot a And a history On finally, fee are bearing extremely and will can and going expect powerful we generation what to to at

final So points, I those think. are the

Erika Najarian

Thanks. Okay.

Operator

Please go Sandler. line ahead. comes question of Scott Piper next from from Your the Siefers

Scott Siefers

on it getting Is cycle of will through economy be isolated lost the hear something seems level, Morning, that question. of resolve where XXXX yourselves now just bleeding guys. like on when you're very mid here? kind your areas really pain. just broadly. slog most Thank curious most to What the and up do wanted sort from sort real top a feels and of setting ask like back then materialize? see consensus for seems sense you your it of think keeps we'll this to year for? couple for current of the is I the sort you what begin credit to of And kind so these to pushed we thoughts. sort or really content the taking a credit think even just for to next late we see with years it's of this It do info, of cycle just really I could

John Woods

Sure.

peak folks is forbearance extremely So and I we've there charge-offs, been will have current or the at think of to to focus what have and and on people we Consumer haven't you forbearance, middle rolling sometime but that that think content doesn't be has Consumer. I'd had until look you year. actually seen off around in some charge-off any on probably been the look there. behaved next forbearance uptick And I in residual say at well Commercial have

or QX, we'll So, see. whether that's QX

there's one-offs pig the quarter. don't the on is jumps significant going commercial python. with I think the on through we’ve there's the And hit side. this think got commercial I side two

but think the the elevated while down they'll of year. in probably before nearing I second we're move I peak stay they back for charge-offs, half the a think

course So, Any over that we year up rates I most for of outlook normalized you there? think say head side next towards more consumer want resolve do Brendan, comment should charge-off of setting as the us you our the all? this on at know, I'd is comment XXXX. to

Brendan Coughlin

just little add a Only Yeah. specificity.

portfolios interest you that some few cycle increasingly were high forbearance, particularly So, a high a before. John, quality of in portfolio quoted is that confident that hadn't know, that through we��re with numbers gone of

portfolio up has at well incredibly almost, far. And in merchant And up is almost is Our student forbearance pre-COVID. the finance for customers And that no delinquency holding still incredibly in equally was portfolio well. flat so fact all. the portfolio holding

about consumer. really, So, we're feeling really strong

As forbearance the been flat a from John X% at rates in down our peak forbearance same firmly ever customers that to of time. to X%. mentioned, delinquency moved still now at the are have has And

minimal a we're distressed out the of So, very behavior with lot gearing portfolio consumer forbearance of seeing so far. impact to

on So, green we're that but are -- Yeah. we're quite green positive. woods, shoots but yeah, the seeing out surprising, of the the

Bruce Van Saun

to you maybe talk Don, it? want about

Don McCree

we are now. do of for I it's that. next out echo year, kind of but I’d Yeah. right where think kind we're peeking elevated

client-by-client cash remember, trends. think, category current category the just customer Bruce rates view is said, in of level cash analysis where what current seeing burn. really and that project based I'll positive of of high on liquidity based of companies And we're generation versus our out We've our were deposits. We're risk XX% a of seeing taken last I analysis. rates that out emphasize the on record also we

seeing grabbing time, we're customer And basis, the in managing more us. and with while for way high by they're any sitting liquidity we’re the markets get little smaller yield everybody bit difficult going in seeing the the you a their a a of they're to customers for businesses really levels customer in equity that liquidity And heavy markets. of cash. bigger conservative having a -- customers, on have knows as public the they So

cut and slowdown. kind they've they're So levels is positioning an extended their there to of survive businesses extended an slowdown expense if

individual on good So, about customers doing basis. an what we feel are

Scott Siefers

much. Thank very And That's Great. color. I perfect you guess…

Bruce Van Saun

Sure.

Scott Siefers

I can here. one in sneak

hedging noted and you benefits off we guys into year, of put drivers do some the they on from. same and as alluded replace like of sort roll you things in of how next which how such of do to thing. kind I've Or our recast sort programs, the Just, place things emphasis we think guess about that that those sense? as of noticed Should benefited off? I have focus onto what Bruce, maybe is key and as hedges roll wealth see you do the when mortgage John, guys you earlier? to you the emerging those we just sot

John Woods

The do overall. Yeah. benefit that to But throughout most I’d I of end back place starting NIM what take wane. step are roll that is is we're in the XXXX. mean, of By levers off on respect a deposit XXXX, I very have basically at on and the that to the two pulling get sitting with basis decline large funding opportunity things. XXXX. as in those expect interest-bearing costs earlier of hedges mentioned after XX That's points, side what to significantly we sort of

We on asset also side. the focusing are

profiles. and that all XXXX from cumulative dollars will could headwinds you've And has that I have and of revenues, in -- those return sensitive course, room then, run. and And frankly, fee fee of say through so. incentive. of mortgage mortgage be rate guess offset categories most And you say XXXX, headwinds, of the think incredibly allocating basis refinance BSO a the elevated There mortgages Bruce like heard, lot that it our probably into by been when well have have I to of X most earlier, we'll on expenses across to include has we that that -- you rate of hedging big risk our business mortgage -- TOP at self-help here. have the that's and rates alive a would we story all well. levers the impact. is And it part of business trillions So, the that. broader I would of is -- part then, And done look heard are a are and feel and headwinds, have capital is -- that expected better we're And falling, rotating has and we I of NIM that efforts,

Bruce Van Saun

strategy, and I real get are you I if in hope are could like health front Washington closer see progressing progressing, know getting say, that on thing could It vaccines bill. that a consider folks the treatments is The these you Scott, we but would progress you seems the that. are could nicely, not see and on stimulus last another

could in rebound the could which see next decent a a You actually steep fairly result in curve. year,

Scott Siefers

Yeah. Yeah.

Bruce Van Saun

opportunities and lot more lay some of benefits to …would also on a create hedges.

So, anyway, we're keeping our eye on that, but I…

John Woods

your have possible you Yeah. scenarios, When you scenario. as that to consider a run

Scott Siefers

That’s perfect.

Operator

question comes from from Your ahead. John Pancari of ISI. Please Evercore next line the go

John Pancari

tracking the has loss non-performing closely that likely levels decline. mentioned on asset Can your migration front, the know to influenced you’re and I credit that may for around you what just -- how you that the you commentary give mentioned terms total quarter? have your the us do break criticized Also -- were special versus third down trends of assets in And classified?

Bruce Van Saun

I I Yeah. that we the and published would say, directionally it's mentioned. -- special up mostly Q, it's in

on stay details the that. tuned So, you'll for

John Pancari

like -- And side, see you I the to in All update on projecting? also seeing mentioned your estate stress then how there? to you wanted REITs, see of just is that know could other beginning the just give on Bruce. you're but looks added right. credit reserve commercial there. to properties, the amount Okay. fair a I little you Are about if the a curious Thanks, us It bit what mall portfolio? portfolio this real you quarter

Bruce Van Saun

Yeah.

mentioned, I think focused. what retail we're it's it's really where and hospitality, we

on well, holding asset If you we've looks like it's rents click well office, being with multifamily, got eye pretty up pretty it holding trends through our looks the up like Well, classes different it it's there. paid.

John Woods

some We cities. the exposure don't to of have the big

fortunately. get like Francisco, and they frankly San So, New tips York

Bruce Van Saun

holding into place so and hospitality. healthcare, up retail and get where well quite is are also me those industrial and focus the the on Let

which side, on diversified has by slowed the terms some got but flag obviously that. which those sponsors got we've of sponsors in very we've have some we've On and travel, to hospitality got exposure of provided change, business overnight guarantees support

really it’s the reserves areas we around in up with we've the and we're like at put pretty this retail shape good point. feel other of So

John Woods

Yeah.

I extended look stress sectors. either more think what into or consumer really puts that to That on it narrow goes lockdown's was an do behavioral here shifts of for period we well XXXX. tried at these

reserve we've up the put sure sizeable make credit table off and there. a taken Let's

Bruce Van Saun

is And we thank all of the temporary thing mentioned best sponsors. the restructuring with all they're that are us out sponsors the properties dislocation. working the really having and working with there We I they're other we and are

forbearance and keep we've the into putting also properties upright. some So money but some given they're interest pay

John Pancari

of you. just the confirm, could bottom that line one that Okay. ask yet know on do $XXX we helpful. I If efficiency, to to more much million? the just $XXX million, Thank the how of fall That's will not

Bruce Van Saun

Yeah. That's John. a -- good, appropriately. We we conveyed communicated

going working a are -- launching of to number we we're So streams. work on

area Some of in push. those Brendan's in the digitization big Consumer, are

And is at so least $XXX the to million. far, tally up

trying going good and that's that drive So to to higher. we're keep news

of and our We there initiatives. also have a couple strategic pages some in

even future to that of here and to really in challenging so we And of so, one that's franchise better with come do for to stronger our objectives our to grow positioned a position is keep out this continue well. period investing

through pacing of prioritize. and the we're some those so, investments to working And of ones which

knew for you this point complete guidance kind a you at to to expense reluctant got we're there be a So, that full was going so of sure work. on update have until clamoring But we what give you I'm we far.

the you we out guidance January So, tuned the of number all do that in give of We'll full-year call. context we've there. put January. our earnings to that Stay every

John Pancari

Bruce. All it. Thanks, right. Got

Bruce Van Saun

Sure.

Operator

the of line from Usdin Your next comes question Ken Please ahead. from Jefferies. go

Ken Usdin

get comes you that revenues you to that to to because million of of through new talking year. and for expense help -- that. the that, expect of million to us top on new $XXX follow and these The that still little million mix like alluded not about million just another of what by like you're on $XX next a $XXX I'm track revenue comes looking $XXX then I you bit. could you if X up Thanks. approximate last question TOP minimum of million the at as you just on opportunities can what $XXX but Bruce? through and you're understand Hey, have guidance, expenses year-end

Bruce Van Saun

for in you’re TOP we for really piece rises would that. looking I have as take also we numbers, expenses you as when -- X.XX% But the an expense-driven example most run There transformation Yeah. drive year. front. that some And the start fund program. a do of around XXX% at the to to of rate use the would to X.XX%. the on But to the I this the I'll opportunities opportunities doing to are driver think and well this in mean, program the are the is and traditional target main revenue that this historically. there of part. of I say of That that's revenue high that majority program ahead as add end go by hasten as I fund upside done that is program.

also there. well. So at then And that we there's Bruce hundred mentioned as mentioned least the hundred additional

wanted we hundreds. track So, that losing different to we those weren't make of sure

Ken Usdin

Yeah. Yeah. Exactly.

on on the Okay. general. good. Very just, John, the question then PPP And second in

regards but it's PPP just what of It And of well? expect fourth You thought forgiveness you just you to NII how least not NII help just you start guide. through core, much more go XQ in understand. expect it. do question, a quarter. -- that But know can you to putting was might the forgiveness know, are I your it like us and with at timing and to seems in how conservative timing many as Thanks, with us the banks your regard terms guys. know, in guys also have in Appreciate you

Bruce Van Saun

months. that, off said, basis There's in to I view months the any to forgiveness with works But, to that accounting to that take of of level I'll -- we way to that loans. many the the you That up forgiveness can in the think respect comment can benefit. is acceleration the complexity the you XX expected fees have year the know, it know, and made. Brendan I given process will include terms these mean would you appropriate not outlook the a we're be life incorporating we there, on But, our is invitation be as Brendan approach over Sure. the steps about taking are in that talk maybe Yeah. start fourth it. you the know, know, process, Maybe of on five quarter. do,

yield the $XX third the if goes terms program we the between the a -- quarter range to nearing And are the P&L from nearing is million is that that maybe on the pretax in In so, of you by, and -- the program. for X% third attributable standpoint, quarter. in quarter every somewhere yield PPP recognizing

line. all it call the sense a and a you It's I tiny really the gives that of in that, after So, higher expenses. of pretax on bit all NII that that's

will and a that really in we’ll fourth -- is a So forgiveness are really the way -- number if we with but similar quarter that given accounting works XH -- no event forecasting. number that the and in forgiveness, be XXXX again the see as

Brendan Coughlin

million that that amortize say thought Brendan one initially, would to had it’s on $XXX forgiveness million the would But be will line on we there's way. But a straight are looks roughly out and end spike would material have since get the less the this over we let if since in and a a you we Ken, to and sooner. some think I eight same $XXX that, I the be go. longer We period, And thing take and into, Bruce, shouldn't a massive the we half had goes it trickle then is going I’ll QX of then would won't spike spike roughly like recognizing now had to timing but XXXX this then steadily lower time as event. basis. the of it acceleration at as first altered much into be that towards that But But thought at accelerate, the QX occur you XXXX, largely dramatic. point really of and quarters, remaining say, QX,

point. mathematical that Just make to just

just would October keep incur customer year. the next timing, the doesn't of in the to charges On need one until add mind thing is interest I

no pressure there's huge our in second. to point the forgiveness customers right apply for so, And for

with... so And

Bruce Van Saun

pay. have don't to They

Brendan Coughlin

to pay. have don't They

in So positive bit before from they'd most that's to the what they be these process. possibly afforded And the and of that would a there’s customers rather is and quite flexibility game. waiting a to forgiveness Congress through going bills customers, that them various we're what wait see is jump hearing with start

John's to forgiven. it's once it customer SBA all their the documentation provides So, still a three-month stamp be yes, then that's what is able stands recognition we're event to it. to then. the the And and a has handful say, getting trickle window And point, the SBA

bit tail this. on of So, a there's a

out be… We to John as point and pointed expect that, Bruce

Bruce Van Saun

There are two things.

Some out might to on it that see have here cautious forgiveness that holding they small which cash are and being of cash reasons pay have elevated the to owners back, to turns the still just we one balances. business what

pocket lights slipped they’ve keep into in to business. going own the So, their the

so, And a just of think as -- caution we’ll generally I bit there's said. we

Ken Usdin

with NII also the That just was Understood. that fee just yield? million Hey, some at of was loan $XX or of with quick one clarification, part John. it pre-tax the the

John Woods

all and It’s of part it’s Yeah. that’s consumer the it the And so fee in. -- and commercial. NII, that’s

Ken Usdin

Okay.

all the PPP. from what had in So, that's you Thanks.

Operator

from ahead. Please line Zerbe comes Stanley. from question of next Ken the Your go Morgan

Ken Zerbe

Thanks. Great.

CECL of credit, quarter. did management So to if build just the of you Why this of actually terms at most sort itself the sounds tell in by model we CECL it the reserves? reserve look do like overlays your

Bruce Van Saun

I forecast. it's hard macro because judgment is to CECL think us variables. pars of those to many, the process one variables, It's actually Ken, model that is it, just management a a not involves many, many and

parse think it's hard I So just to that.

Ken Zerbe

Got it.

you I than… same Okay. why management the more guess had seems I'm of the maybe rather year quarter? had adjustments mean, this like it quarter Maybe apply that on but overlays sure just the some qualitative in this earlier topic, I

Bruce Van Saun

Yeah.

qualitative overlays factors and are had process think every part the we've of I quarter.

XXXX a think retail But and divergence. macro what better. more is prolonged we're behavior be assessing could it still get We genre be and in a we looked second going the we longer. consumer that we slight and be backdrop lifestyle, effect lockdowns quarter think the could when is call to difficult means well was that forecast reason little in back I a the for to life better, to a little it saw had knew hospitality, think which quarter. you was to these and before all of the were than these was first we out of like it travel I situation into It the as seeing entertainment, normal

new necessarily living businesses from a kind about up life. how normal, disproportionately pick So that are that's I you unique our your mean, of impacted from wouldn't we're aspect macro the of forecast. certain

that calling we're why that's so And out.

Ken Zerbe

you. Thank great. right All

Operator

question Please ahead. Juneja line from from the of Your go comes next Vivek JPMorgan.

Vivek Juneja

you up you’re to of A point? follow Where on themes couple expecting John, have The Bruce visibility been -- you’re that going see that coming some coming the this at to expecting that quarter, you’re in do that the which just I’m category that -- Hi. from? more and think of fourth reserves, in up. loan release is

Bruce Van Saun

sectors -- considering that I'll macroeconomic our mean, you you that we you take provide if there at we're you kind that I the ahead a right, say And know. can that, that content of that. as scenario see mean, way category. like that so hard will go know by casual mentioned I be, -- we -- in Vivek, the to much we reviewed and the the it's are loan as outstanding know, Yeah. It's CRE CECL we also our the third commercial we quarter came mentioned dining, build we work of we And qualitative for earlier, XX, lot it's then built And uncertainty are and as of through and for that loss know, the all retail portfolios. you factors September both and where hospitality. loans after reserves. very

will those growth. and at be then theoretically what be. your content least, once then you activity So The the about charge-off were would done, on is the book just you're right provisioning front rest forward, focused to your going against that's scenario going of loss reserves what and only assuming

going that we're provide come see going would residential to say reserves know, as fourth emergent know, loans the grow as forward, the where for additional mortgage student of to the to well the they for you those you and So, on quarter. end let's going get, as example loans we're in you spaces, C&I we as

sort really it to as waste… look at those -- buckets is two So you have of it in

John Woods

a way, just to the won’t back around meaningful an further need you the book. And any so environment wouldn't make to assumption in that reserves add that deteriorate

a of Now result and sufficient for need -- we it but reserve see build. don't some reserve in that, a amount of there a be build to it could

Vivek Juneja

rate It’s than are what you student that's pretty because that, It what in the they you is Can higher percentage why the stayed you gone loan even come thinking just Have for, up book forbearance And know, resi high. hasn't you for come how Have down. perio? about the case? they Okay. has come they yet forbearance not comment on know, up of deferral? an have -- extension not have long just the or mortgages.

Bruce Van Saun

refi. a our see because So, student lot starting little in gear And the little we're book customers which lagging of was student that it actually It majority weeks. kind loan also bit the of forbearance government have periods recent were automatically loan those a to a down granted. loans is bit of had principally significant

those, customers were government private there them the for to and so, the all of And raised forbearance triggered lenders events sort for call their no hand reason they and delink and banks and too. by

understand unemployment. in million, they're the a sector know, is dynamic by plus they to know, portfolio. still pay. on quite aggressively income that's allowing and prime the figure been, you try the fence, to that super credit portfolio, to capacity that feet. are the particularly at it’s working little a on But where we every So, But we've we The they refi impacted Recall see and them customers in if make been make the been to least six with $XX positive. is we've our underlying bit they'll that's portfolio their and have in portfolio you land $XX million of leeway sure if

feel quite this portfolio than consumer. strong significant a is no we that's so, other different And scheme in there's -- underlying any that dynamic

Vivek Juneja

you. Thank Great.

Operator

go from the comes ahead. question next line Saul of Your Please UBS. from Martinez

Saul Martinez

guys. morning, Hey. Good

couple A So, good morning. questions. of

of should the part, First, off. headwinds end from more John, fully those mostly give $XXX early million the number roll that sort hedges -- the $XXX mean, I XXXX us you headwinds should Can less by hedges off the from sense you off in right? just mentioned estimated how we annualized is of magnitude dollars -- material think -- in realized the be headwind’s headwinds And in XXXX incremental million, we've that, I rolling the you or that the hedges is the that you of the the -- and incremental can your XXXX. probably most a for should XXXX. pretty and rolling and if see And of

Bruce Van Saun

we've publish. And I along. with of the mortgage what those time terms this The can which you've than getting terms not has majority interest-bearing to I'd it's very think also that. been How see. to we a off. the to and and part much, are product big. of and business. you lever see give costs are numbers, are which our on Without NIM bank basis track just started our into not takes embarked investments of ago. deposit around nearly we the in are what lower that got years hedging through deposit on being orientation all -- we to to And do a a significant I'd the the Yeah. that I It's across respect gathering strategy nowhere made many that. running years ensure respect picture have we we relationship-driven where headwinds given it XXXX to analytics from And but in of in mean, can business really upon, offset swaps, all back cumulative the with the of that much XXXX, consumer and say, it's XXXX commercial by that have you about fraction mortgage capabilities those believe. -- near the it's bring bigger But what But

the that are consider for and year. we're things takes the So when fruit. about you're I starting you're trying when Those to see bear to puts next think

Saul Martinez

is are of Is off, be number else just just to clear, rolling on that headwinds that investment mechanics you're to a Is the hedge dollars. go we in the we're nothing But talking static that of the get offline that that that can the I not that there sense estimate, from maybe a hundreds about Yeah. basis in high? a be offsets way on static the with but millions factoring community does basis, but are true? too that right? the saying some seem of

Bruce Van Saun

the correct. you're seeing That's through just line we you sure information. that And off can some we correct. -- can you math available publicly that it on That's way take we'll make with the it. And see

Saul Martinez

Okay.

What the first the Just next throughout of one assuming other What for ultimately half course NII. loans? you percentage of of on question year? are forgiveness

Bruce Van Saun

So the think there's full percentage a be on -- so -- will where forgiven XX% backend. tail that we the

other so mostly in will the And through XX% come XH.

so. third some there's for the So quarter or comfort little

Saul Martinez

it. Got

Okay. lot. Thanks a

Bruce Van Saun

is -- Is Okay. that that it?

Doug Levy

One more question.

take one question. We'll Okay. more

Operator

the Please The next comes question of ahead. Compass line Dave from Rochester from Point. go

Dave Rochester

Hi.

Or NIM that guidance, your Just shift the cost how you're assuming of just favoring if for mix deposits? having you've deposit more that, lower still any? that that been growth into on was there, feeds much looking curious you're favorable continued

John Woods

in shift mean many story. Yeah. other It's search I primarily banks. deposits a like we've got mix

we some know, may and into stick well think a of around quite through that XXXX. You while for

sitting So there's cash. that some benefit. paid We've we're down excess pay with down around and can everything you

time. pure you that's great, with DDA. running deposits, over years We've think getting an into cash point really it next And X a the excess three so seeing basis -- see is quarter. in a to two near that points leading mix that in basis side. basis We'll growth. so, to that us, But absolute the NIM. accelerating we're now shift up quarter-on-quarter on in deposit the fourth see fourth look on it But story. basis on part that happening down you drag on All pay DDA points a already or to to it's it trend -- that’s basis Call cash. quarter. about nice And know, excess know, of was And just call as I XX had, relates to drag the it's

Bruce Van Saun

we the over that maybe down, forward, the anything mentioned that mean the look cash there. sitting side any of Yeah. are on some use advantage borrowing Well I that's that’s you well, you there year next maturities can to lumpy that of cash those can take the and pay question?

John Woods

I Yeah. a not mean, it's lot.

debt our very, maturities early modest -- you zero. XXXX. So coming you are our we have And down senior and know, know, in to funds of then very only flow

Bruce Van Saun

and We exchange. sub debt a we just called issue did one

can, of huge not we're So as a much working there. but as opportunity we amount

Dave Rochester

And All securities ultimately where we the color guys curve going on to then, have right. new purchase asset just couple next to yields, are yields trying continue did earning seeing get for average you this could a I'm sense that loan we the years? over see guys and if yields any of you black be on today?

Bruce Van Saun

a XX-basis for there's mean, side. Yeah. know, -- a But to and, so XX, maybe, book. on the And know, the loan you side, it, spreads. just on talk book, securities, take negative not it's or point, front want great security you Brendan I'll I story But about call Don back

comes of runoff, around, reinvestment In XXX it, coming on points. you’ve basis on point basis off at securities. for XXX And the book at terms or which front XXX got around call

story there. the that's So,

I in spreads think we're commercial, seeing sort down. strong, of, but rates up, are are

and positive good we're that's maybe quite spreads Don Brendan trends some or been I'll So, seeing else. and consumer just there In add the in anything which interesting good. there things, of auto, side has really strong let

John Woods

Yeah.

think has margin We're auto seeing also basically, across, products. I the in very has loan significant been all a very refi student increase strong, been strong.

they’ll… So,

Bruce Van Saun

just we wins had merchant, and… talked string also a have of We nice

John Woods

their product. launching just -- new Yeah. Apple their launched is

Bruce Van Saun

Our a of, we're credit business, merchant in. has a business, gearing card profile of kind Apple,

for XG product with So, phones. now, new release the them the right

up So, And similar about fitness, that. improvement, we five right Access we’re seasonally. merchant centered as John big All has the for Really earlier, geared and just Peloton electronics now this relationship pointed enthusiastic home Microsoft, with to partners. firm. in launch launched, new our out

really of high something bullish in about about that the help momentum, headwind by other of from and growth the offset decent So, some we're some the getting should some bringing we're there yield portfolios, actually really really yield.

John Woods

seems basis Yeah. to of which originations. to also yield force putting overall and On LIBOR points, we're getting on that commercial, new helping anywhere lot the a better spreads be generally And we’re are XX transactions, from XX holding.

Bruce Van Saun

Okay.

for today, queue. everyone. for day stay and dialing again in a everybody think the I your Have it support. We interest Thanks appreciate and great that's well.

Operator

Thank conclude you using participation and gentlemen, Ladies TeleConference. does your conference for today. for that for your AT&T

You now may disconnect.

Citizens Financial (CFG) 16 Oct 202020 Q3 Earnings call transcript