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Text: Brendan Coughlin, Head of Consumer Banking; and Don McCree, Head of Commercial Banking are also here to provide additional color.
We also reference non-GAAP financial measures.
With that, I will hand over to Bruce.
We are pleased with the financial performance that we delivered for the fourth quarter and for the full year as we proved adaptable and resilient given the unprecedented challenges of 2020.
We continue to demonstrate the diversification and resilience of our business model as our Mortgage and Capital Markets businesses delivered strong fourth quarter performance.
We remained highly focused on taking care of customers with our retail branches opened and our teams working on the next round of PPP loans.
We feel we're managing our risk well and we continue to make progress on our strategic initiatives, which will position us well for future growth and for franchise value.
I'll comment briefly on a few of the financial headlines and then I'll let John take you through the details.
Our underlying Q4 earnings per share was $1.04, our ROTCE was 12.9%.
Both are up from a year ago quarter, and we delivered 2% operating leverage year-on-year.
Note that the full-year operating leverage was 4% and our PPNR growth was 12%.
Q4 credit provision was $124 million versus $110 million a year ago on a pre-CECL basis as the normalization of provision to more front book origination levels helped drive our strong returns.
On the capital front, we maintained a strong ACL ratio of 2.24%, ex-PPP loans and our CET1 ratio was 10%.
This strong capital and reserve position gives us a great deal of capital management flexibility in 2021.
We announced a $750 million share purchase authorization today and we will commence activity during the quarter.
We also will look to put our capital and ample liquidity position to work in finding attractive opportunities for loan growth.
Our credit metrics all are trending favorable with NCOs, NPAs and criticized assets all lower in the quarter and a further drop in customers in forbearance.
We continue to allocate additional reserves to the industry segments most affected by the pandemic and lockdowns and we feel that our coverage overall is very strong.
With respect to our guidance for 2021, we assume a steadily improving economy and GDP growth of around 5%.
Relative to current consensus, we see slightly higher revenue, expenses and PPNR as well as much better performance on credit.
We see NCOs at 50 basis points to 65 basis points for 2021 which is relative to 56 basis points in 2020.
Provision will be less than charge-offs, so how big the reserve release will be is dependent on the path of economic recovery.
Big picture, we will transition to slightly lower PPNR in 2021 given our outperformance in mortgage in 2020, but this will be more than made up for by lower credit costs, as our earnings and returns bounce back toward pre-COVID levels.
So all in all, a very strong year of execution and delivery for all stakeholders by Citizens in 2020 and we feel we are well positioned to do well in 2021 and continue our journey toward becoming a top performing bank.
We know we can count on you again in the new year.
Let's start with a brief overview of our headlines for the quarter.
This was an outstanding quarter for Citizens with strong fee income, good expense discipline and prudent credit and continued steady execution against our strategic initiatives.
For the full year, we delivered record underlying PPNR, up 12% against the challenging backdrop, driven by record fee income, up 24% with record results across mortgage, capital markets and wealth.
We achieved the ambitious TOP6 goal to deliver approximately $225 million of run rate expense savings, including approximately $140 million of in year benefits which supported our ongoing investments in strategic initiatives and financial performance targets.
To this end, we improved our efficiency ratio over 200 basis points to 56% by delivering 4% positive operating leverage for the year.
We expect further expense benefit of approximately $205 million to $225 million in 2021, which puts the program on track to deliver our total pre-tax run-rate benefit of $400 million to $425 million by the end of 2021.
Strong loan growth of around 6% reflects increased demand in education and point-of-sale financing as well as PPP loans.
Average deposits grew even faster at 13%, a result of government stimulus impact on consumers and commercial clients building liquidity.
ROTCE for the full year was 7.5%, which includes a negative 5.4% impact associated with our reserve build under CECL.
Our ACL at year-end 2020 more than doubled compared with last year, but our year-end CET1 ratio of 10% was unchanged on the year.
Strong PPNR funded the ACL bill 6% loan growth and stable dividends.
And finally, our tangible book value per share was $32.72 at quarter end, up 2% compared with a year ago.
Next, I'll refer to just a couple of slides and give you some key takeaways for the fourth quarter and then outline our outlook for 2021 and the first quarter.
We reported underlying net income of $480 million, earnings per share of $1.04 and revenue of $1.7 billion.
Our underlying ROTCE was 12.9%, up around 400 basis points as a result of our strong revenue performance, expense discipline and improvements in credit as the economy recovers.
Net interest income on Slide 6 was down only 1% linked quarter due to lower commercial loan balances and lower NIM.
However, despite the challenging rate backdrop, our margin held up well with the 8 basis point decline in linked quarter, driven by 9 basis point impact from elevated cash balances and strong deposit flows.
Lower asset yields were offset by our improved funding mix as we grew low-cost deposits with DDA up 4% and we continue to lower interest bearing deposit costs down 8 basis points to 27 basis points.
Given the recent stimulus, we expect continued strong deposit flows in the first quarter.
So elevated cash will continue to impact margin in the near term.
We will remain proactive in pricing down deposits and pursuing attractive loan growth opportunities in areas like point-of-sale finance and education as well as in attractive commercial segments.
On Slide 7 and 8, we delivered solid fee results again this quarter reflecting our ongoing efforts to invest in and diversify our revenue streams.
Mortgage fees were down approximately 30% this quarter due to declines in margins and volumes from exceptional levels last quarter.
However, mortgage fees were nevertheless more than double the levels from a year ago, which continues to provide good revenue diversification benefit in this low rate environment.
Capital market fees hit record levels, up 52% linked quarter and 33% year-on-year, driven by strong results from M&A advisory and accelerating activity in loan syndications.
Foreign exchange and interest rate products revenue is also strong, up 30% linked-quarter with higher customer activity levels tied to increased variable rate loan originations.
We delivered positive operating leverage of 2% year-over-year and improved our efficiency ratio to 56.8% as expenses were well controlled.
Average core loans on Slide 10 were down 1% linked quarter reflecting commercial payoffs and decline in loan yields -- line utilization to about 32% versus a historical average of roughly 37%.
This was partially offset by growth in retail and in our education mortgage and point-of-sale finance portfolios.
Looking at year-over-year trends core loans were up approximately 4% due to PPP education and mortgage.
On Slide 11 deposit flows have been elevated especially in low-cost categories and our liquidity ratios remained strong.
Average deposits were up 3% linked quarter and 16% year-over-year as consumers and small businesses benefited from government stimulus and clients built liquidity.
We are very pleased with our progress on deposit costs, which declined 24% or 6 basis points to 19 basis points during the quarter.
Interest-bearing deposit costs were down 8 basis points to 27 basis points.
We continue to drive a shift toward lower-cost categories with average DDA growth of 4% on a linked quarter basis and 42% year-over-year.
We expect to drive interest bearing deposit costs down to the low to mid-teens by the end of the year as we execute our deposit playbook to manage costs down across all channels, while improving our overall funding mix.
Moving on to credit on Slide 12.
Our metrics were positive this quarter.
Net charge-offs were down 9 basis points to 61 basis points linked quarter.
This is at the lower end of our guidance given better than expected improvement in commercial.
Commercial charge-offs this quarter primarily from segments most impacted by COVID-19 such as retail, casual dining and energy.
Nonaccrual loans decreased 20% linked quarter with a $302 million decrease in commercial driven by charge offs, returns to accrual and repayment activity.
In addition, our commercial criticized loans decreased 18% from $5.7 billion in 3Q to $4.6 billion in 4Q.
Given the performance of the portfolio and improvement in the macroeconomic outlook, our reserves came down slightly, but remain robust ending the quarter at 2.24% excluding PPP loans compared with 2.29% at the end of the third quarter.
This primarily reflects net charge-offs exceeding reserving needs for new loan originations.
We have some detailed credit slides in the appendix for your reference.
But I'll note that our reserve coverage for commercial excluding PPP was 2.5% at the end of the year, slightly up from the third quarter.
And within that our coverage for identified sectors of concern increased to a prudent 8.2% at the end of the year from 7.7% at the end of the third quarter.
The benefit to reserves from an improving macroeconomic backdrop offset qualitative overlays and further built reserves on these areas of concern.
We maintained excellent balance sheet strength as shown on Slide 13.
Increasing our CET1 ratio from 9.8% in 3Q to 10% at the end of the year, which is at the top of our target operating range.
Given positive credit trends in capital strength, our Board of Directors has authorized the company to repurchase up to $750 million of common stock beginning in first quarter of 2021.
Before I move on to our outlook, let me highlight some exciting things that are happening across the company on Slide 15.
On the consumer side, we are focused on national expansion the Citizens Access integrating some of our lending businesses to further develop our national value proposition.
We recently announced the expansion of our national point-of-sale offering for merchants through our Citizens Pay offering and we are continuing to add new merchants to our point-of-sale platform as we expand into new verticals.
We are very excited about an announced expected next week with a major retailer to provide payment options for their customers who wanted transparent and predictable way to finance purchases through a fully digital experience.
In addition, we are making great strides in our digital transformation having launched our new mobile app on Android in the fourth quarter and iOS just this month.
We've seen our Active Mobile Households increased 15% year-over-year and the majority of our deposit transactions, continue to be executed outside of the branch.
In commercial, we have built out a robust corporate finance advisory model and we continue to rank near the top of our peers in customer satisfaction as we help our customers navigate this challenging environment.
And now for some high level commentary on the outlook for 2021 on Slide 16.
We expect NII will be down slightly given NIM expected to be down in the high single digits compared to 2020, which should be largely offset by loan growth.
Loans should be up mid to high single-digits on a spot basis with acceleration in the back half of the year with average loans, up approximately 2%.
Overall, interest earning assets should be up about 1.5% to 2%.
This assumes elevated cash levels come down gradually over the course of 2021.
Fee income is expected to be down high single-digits off the record 2020 level reflecting lower mortgage banking fees from 2020 record levels.
At the same time, we expect good performance in Capital Markets, Wealth and other categories that were impacted by COVID-19 last year.
Non-interest expense is expected to be up just 1.5% to 2% given benefits from our TOP program, partly offset by higher volume related expenses in mortgage and reinvestment in strategic initiatives.
We expect net charge-offs will be in the range of 50 basis points to 65 basis points of average loans with a meaningful reserve release to provision.
Now let's cover the outlook for the first quarter on Slide 17.
We expect NII to be down slightly due to day count.
Both earning assets and NIM are expected to be broadly stable.
Fee income is expected to be down high single digits reflecting lower mortgage banking fees as margins continue to tighten as far as seasonal impacts.
Non-interest expense is expected to be up 2% to 3%, reflecting seasonality and compensation.
We expect net charge-offs to be in the range of 50 basis points to 60 basis points of average loans.
We also expect another quarter with provisions less than charge-offs, based on expected loan growth levels and macroeconomic trends.
To wrap up, this was a strong quarter for Citizens and a good finish to the year as we continue to navigate successfully through the COVID-19 crisis and demonstrate the resilience of our franchise.
We are well positioned to have another strong year in 2021.
With that, I'll hand it back over to Bruce.
And operator, let's open it up to some Q&A.

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board of directors approves $750 million common stock repurchase program.
qtrly net interest income of $1.1 billion decreased 1%.
qtrly provision for credit losses of $124 million compares with $110 million in fourth quarter 2019.

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