Earnings call: Citizens Financial Group Q3 2023 Earnings Miss Expectations, but Bank Shows Resilience

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Earnings call: Citizens Financial Group Q3 2023 Earnings Miss Expectations, but Bank Shows Resilience

Citizens Financial Group (NYSE: NYSE: CFG ) reported its third-quarter 2023 earnings, revealing an underlying net income of $448 million and EPS of $0.89. The bank missed expectations due to capital markets deals slipping into Q4. However, it maintained a strong balance sheet, growing its CET1 ratio to 10.4% and increasing liquidity by $4 billion.

Key takeaways from the call:

  • The Private Bank had a soft launch, bringing in $500 million in deposits and investments, with a complete launch expected in the coming weeks.
  • The bank expects key trends to stabilize in Q4, with NII declining less, fees bouncing back, stable expenses and credit costs, and continued stock buybacks.
  • The company is conducting a zero-based review of expenses to keep them flat in 2024.
  • Non-accrual loans increased by 9% in the previous quarter, reaching 87 basis points of total loans.
  • The allowance for credit losses also increased, with an overall coverage ratio of 1.55%.
  • The company returned $450 million to shareholders through dividends and share repurchases.
  • The balance sheet optimization program is progressing well, with the Non-Core portfolio expected to decline by $7.6 billion by the end of 2025.

During the call, the bank highlighted its strategic initiatives, including expanding in the New York City Metro area, deposit strategies, TOP programs, ESG initiatives, and payment strategy. The company also discussed its exposure to shared national credits, stating that they had more upgrades than downgrades in their portfolio.

The company is focused on managing the portfolio and minimizing losses, with a strong reserve built for the General Office portfolio, factoring in a severe decline in office values. The company plans to maintain strong capital and liquidity levels and is pursuing various business initiatives to drive growth.

The bank expects NII to be down approximately 2% in the next quarter, while noninterest income is expected to be up 3-4%. Net charge-offs are expected to rise to around mid-40s basis points. The company aims to keep underlying expenses flat in 2024 and has plans for technology modernization and ESG initiatives.

The bank's representative, Brendan Coughlin, discussed their focus on maintaining a low-cost deposit book, which was supported by stimulus measures during the pandemic. The company believes they are performing exceptionally well on the demand deposit account (DDA) side and are ranked second in DDA consumer migration among their peers. They expect competition for consumer deposits to continue in the first half of the year but feel confident in their ability to compete and outperform their peers.

The bank's executives discussed their outlook for 2024 and beyond, mentioning that the bank is experiencing a net loan shrink but expects this to turn around as the Private Bank starts granting loans. They also stated that they are not pressured to grow deposits given the loan dynamics, and they can improve the loan-to-deposit ratio by keeping loans stable or even letting them drop slightly.

The call concluded with the participants discussing the impact of rate changes on the bank's net interest income (NII), expressing optimism about a gradual decline in rates over time, which would allow the balance sheet to adjust and lead to a healthy balance sheet migration.

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