Citizens Financial Group Inc
Q3 2023 Earnings
Did CFG Beat Earnings? Q3 2023 Results
Citizens Financial Group posted third-quarter 2023 earnings that underscored the mounting pressure of a higher-rate environment on bank margins, with GAAP net income sliding to $430.00 million from $636.00 million a year ago as the company absorbed the dual drag of its newly launched Private Bank and an accelerating Non-Core portfolio wind-down. Diluted EPS came in at $0.89 on revenue of $2.01 billion, with those two strategic initiatives alone shaving $0.19 off underlying per-share earnings. The central culprit was net interest margin compression, as NIM narrowed to 3.03%, down 14 basis points sequentially, driven by funding costs that climbed faster than asset yields could keep pace with. Nonaccrual loans edged higher to 0.87% of total loans, reflecting gradual credit normalization concentrated in commercial real estate. Looking ahead, management guided fourth-quarter NII down roughly 2% while projecting noninterest income growth of 3-4%, and outlined a path toward flat 2024 expenses through its TOP 9 efficiency program, with the Private Bank targeted to reach breakeven in the second half of 2024.
- Net interest margin compressed 14 bps QoQ to 3.03% due to higher funding costs
- Non-Core portfolio ran down $1.4 billion in Q3
- Private Bank start-up investment of $35 million in expenses during Q3
- Capital markets deal slippage into Q4 reduced noninterest income
- Mortgage banking fees increased driven by higher MSR valuation
- Loan yields increased 14 bps QoQ to 5.66%
- Balance sheet optimization actions drove commercial loan decline
- GAAP efficiency ratio deteriorated to 64.21% from 57.02% a year ago
- Non-Core segment NIM of -1.24% creating negative carry drag
- Total net charge-offs of $153 million, up $79 million YoY driven by CRE and retail normalization
- Commercial provision for loan losses of $146 million, up $88 million YoY
“We continue to post solid results through a dynamic environment. Our spot deposit levels were up slightly relative to Q2 and broadly stable with a year ago, and our NII and NIM were in line with expectations. We increased our CET1 ratio to 10.4% while continuing to repurchase a modest amount of stock. The ramp of the Citizens Private Bank is making good progress, with several launch events over the next few weeks, and the Non-Core rundown is on track. Successful execution of these initiatives will meaningfully bolster EPS and returns. We will continue to play strong defense given the external environment, while advancing important strategic initiatives.”
Citizens Financial Group CEO, on the earnings call
Forward Guidance & Outlook
For Q4 2023 vs. Q3 2023, Citizens guided: NII down ~2%; noninterest income up 3-4% (market dependent); noninterest expense broadly stable (excluding anticipated FDIC special assessment); net charge-offs in the mid-40 basis point range with ACL continuing to benefit from Non-Core loan run-off; CET1 ratio ~10.5%; tax rate ~22%. The company is targeting flat 2024 underlying expenses through TOP 9 program initiatives including process reengineering, automation and AI, organization structure simplification, and procurement efficiencies. The Private Bank is expected to reach breakeven in the second half of 2024 and achieve ~5% EPS accretion in 2025. The Non-Core portfolio is targeting ~$9 billion of rundown by year-end 2025.
CFG YoY Financials
CFG Revenue by Segment
Figures from SEC filings and company reports. Not investment advice.