Citizens Financial Group, Inc.

Good morning, everyone, and welcome to the Citizens Financial Group fourth quarter and full year 2021 earnings conference call. My name is Alan, 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. As a reminder, this event is being recorded. Now, I'll turn the call over to Kristen Silberberg, Executive Vice President of Investor Relations. Kristen, you may begin.

Thank you, Alan. Good morning, everyone, and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Saan, and CFO, John Woods, will provide an overview of our fourth quarter results. Brendan Coughlin, Head of Consumer Banking, and Don McCree, Head of Commercial Banking, are also here and will discuss some of the exciting strategic initiatives that we have underway. We will be referencing our fourth quarter and full year earnings presentation located on our investor relations website. After the presentation, we'll be happy to take questions. Our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review on page two of the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results on page three of the presentation and the reconciliations in the appendix. With that, I'll hand over to you, Bruce.

Thanks, Kristen. Good morning, everyone, and thanks for joining our call. We are pleased with the financial performance we delivered for the fourth quarter and the full year, and we feel well-positioned to continue our momentum through 2022. The investments that we've made to transform and reposition citizens since our IPO are really bearing fruit. Our customer-centric approach, backed by a full range of product offerings and strong digital data and technology capabilities, has allowed us to gain market share and deepen relationships with customers, and develop sustainable growth opportunities. We've navigated the pandemic environment well, shifting to offense over the course of 2021 to accelerate our strategy, including five acquisitions, as we strive to build a unique and special top performing bank. I'll comment briefly on a few of the financial headlines and let John take you through the details. For the quarter, our underlying earnings per share was $1.26, and our return on tangible common equity was 14.6%. Sequential operating leverage was 1.5%. That's 1.8% X acquisitions, and sequential growth in PPNR was a strong 6%. VCR Performance was an unbelievably strong quarter in our capital markets business, led by M&A and loan syndications. We built a great business through hiring top talent in combination with several acquisitions, and our approach to market is really clicking. For the quarter, we were number one in the league table for middle market-sponsored transactions and number four for overall middle markets. We only had JMP results for six weeks of the quarter, but we're very excited about how they'll augment what we've already assembled. Our highlights for the quarter include strong sequential loan growth of 4% on a spot basis, 5% XPPP, while average growth was 2%, and that's 3% XPPP. Commercial growth and a pickup in line utilization were bright spots, and we entered 2022 with a good jump-off point. We did a nice job on expenses, pulling across our top efficiency saves to help offset higher incentive comp tied to revenues. And credit remains pristine, as good as it gets. Our capital position remains strong, with set one ratio of 9.9%, giving us a great deal of capital management flexibility in 2022. We have the capital and liquidity to fund the attractive loan growth we expect to see in 2022, while looking for selective acquisitions and ensuring strong returns of capital to shareholders. With respect to our guidance for 2022, we assume solid economic growth of around 4%, several Fed rate hikes, and improvement in loan demand. Our top six and top seven programs should allow us to keep expense growth ex-acquisitions below 3%, and we're targeting 2% positive operating leverage, including the bank deal scheduled to close soon, and almost 5% ex-PPP impact. Credit is expected to continue to be highly favorable. And I'd expect our return on tangible common equity to move over 14% in the second half of the year, potentially reaching 15% in Q4. So all in all, a very strong year of execution and delivery for all stakeholders by citizens in 2021. And we feel we are well positioned to do well in 2022 and continue our journey towards becoming a top performing bank. I'd like to end my remarks by thanking our colleagues for rising to the occasion and delivering a great effort in 2021. We know we can count on you again in the new year. So with that, I'll turn it over to John.

Thanks, Bruce, and good morning, everyone. First, I'll start with the headlines for the quarter. We reported underlying net income of $569 million and EPS of $1.26 million. Our underlying RASI for the quarter was 14.6%, which included the impact of a credit provision benefit. Revenue of $1.7 billion was up 4% linked quarter, giving strong growth in fee income. Tax loans are up a solid 3% in the quarter before the impact of PPP forgiveness led by retail, which is up by 4%, and 3% growth in commercial. Overall spot loan growth of 5% for the quarter, excluding PPP, provides good underlying momentum for loan growth this year. Blank quarter fee growth was 16%, or 10% before acquisitions, including outstanding results in capital markets, driven by record M&A fees and loan syndications, as we've executed well and gained market share. And excluding the impact of the two commercial fee-based acquisitions we closed in the second half, we delivered underlying positive sequential operating leverage of approximately 2% this quarter with well-controlled expenses. We recorded a credit provision benefit of $25 million, which reflects strong credit performance and the improving economy. Our year-end ACL ratio stands at 1.51%, above our day-one CECL level of 1.47%. We continue to have a very strong capital position. It set one at 9.9% after returning $360 million to shareholders in dividends and share repurchases during the quarter. Next, I'll provide some key takeaways for the fourth quarter while referring to the presentation slides. Net interest income on slide six was down 2% given lower net interest margins, partially offset by strong loan growth. The net interest margin was 2.66%, down six basis points, reflecting a reduced benefit from PPP forgiveness and lower earning asset yields given changes in loan mix and spread compression, partially offset by the impact of lower cash balances as we redeploy some of our excess liquidity into loan growth. We also made continued progress lowering our interest-vary deposit costs, which are down one basis point to 13 basis points. On the bottom left side of the page, you can see we remain highly asset sensitive at the end of the quarter, with an overall sensitivity of 10.1% to a gradual 200 basis point rise in rates. At the end of the year, about 60% of our sensitivity is geared towards the short end, so we are well positioned to benefit when the Fed begins to tighten. Referring to slide 7, we delivered terrific fee results this quarter, demonstrating the strength and diversity of our businesses with outstanding results in capital markets, reflecting our long-term investments in the business and solid performance across other fee categories. We set a new record for quarterly capital markets fees with exceptional strength in M&A advisory and loan syndication fees amid a backdrop of good market activity.