- CET1 Ratio: 10.7%
- Loan to Deposit Ratio: 80%
- ACL Ratio: 1.63%
- Federal Home Loan Bank Advances: Below $600 million
- Underlying PPNR Growth: 2% over Q1
- Underlying Net Income Growth: $13 million or 3%
- Share Repurchases: $200 million in shares
- Sequential EPS Growth: 4%
- Private Bank Deposits: $4 billion, up from $2.4 billion in Q1
- Assets Under Management (AUM): $3.6 billion at quarter end
- Underlying Net Income: $408 million
- EPS: $0.82
- ROTCE: 11.1%
- Pro Forma LCR: 119%
- Period-End LDR: 80.4%
- FHLB Borrowings: Reduced by $1.5 billion to $553 million
- Senior Debt Issuance: $750 million
- Auto-Backed Borrowings: Added about $1 billion
- Credit Losses: Approximately $180 million
- NCO Rate: 52 basis points
- General Office Coverage: 11.1%, up from 10.6% in the prior quarter
- Net Interest Income (NII): Down 2% linked quarter
- Net Interest Margin (NIM): Down 4 basis points to 2.87%
- Interest-Bearing Deposit Beta: 51%, down from 52% in Q1
- Fees: Up 7% linked quarter
- Capital Markets Business: Improved 14% linked quarter
- Card Fees: Record levels
- Wealth Results: Record levels
- Underlying Expenses: Down slightly
- TOP 9 Program Benefit: $135 million pretax run rate by year-end
- Period-End and Average Loans: Down 1% linked quarter
- Period-End Deposits: Broadly stable linked quarter
- Noninterest-Bearing Deposits: Stable at about 21% of total deposits
- Net Charge-Offs (NCOs): 52 basis points, up 2 basis points linked quarter
- Nonaccrual Loans: Increased 4% linked quarter
- Allowance for Credit Losses (ACL): 1.63%, up 2 basis points from Q1
- General Office Portfolio: $3.3 billion with 11.1% coverage
- CET1 Ratio (Adjusted for AOCI Opt-Out Removal): 9%
- Shareholder Returns: $394 million in the second quarter
- Private Bank Revenue: Increased 68% to about $30 million
- Third Quarter NII Expectation: Down 1% to 2%
- Third Quarter Noninterest Income Expectation: Up slightly
- Third Quarter Noninterest Expense Expectation: Stable
- Third Quarter Net Charge-Offs Expectation: Down modestly
- Third Quarter CET1 Ratio Expectation: About 10.5%
- Third Quarter Share Repurchases: $250 million to $300 million planned
- Full Year 2024 NII Expectation: Upper end of down 6% to 9% range
- Full Year 2024 Fees Expectation: Modestly above 6% to 9% range
- Full Year 2024 CET1 Ratio Expectation: Approximately 10.5%
Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Citizens Financial Group Inc (CFG, Financial) reported strong fee performance, particularly in capital markets, wealth, and card fees.
- The company maintained a robust balance sheet with a CET1 ratio of 10.7% and a loan-to-deposit ratio of 80%.
- CFG repurchased $200 million in shares over the quarter, contributing to a 4% sequential EPS increase.
- The Private Bank showed significant growth, reaching $4 billion in deposits and $3.6 billion in assets under management.
- The commercial bank hired new leaders for Florida and California, indicating strategic expansion in key markets.
Negative Points
- Net interest income (NII) was down 2% linked quarter, reflecting lower net interest margin and loan balances.
- The allowance for credit losses (ACL) ratio increased to 1.63%, indicating higher credit risk.
- Commercial real estate (CRE) exposure, particularly in general office properties, remains a concern with ongoing workouts expected to take several more quarters.
- The stress capital buffer (SCB) came in higher than expected, potentially impacting capital allocation strategies.
- Non-core loan portfolios continue to run down, which could affect overall loan growth and balance sheet optimization.
Q & A Highlights
Q: Can you provide an update on the loan outlook in the second half of the year and maybe just talk about customer sentiment, what it's going to take to kind of move them off the sideline?
A: John Woods, CFO: We are seeing positive signs for loan growth in the second half, driven by the private bank, commercial space, and retail. The private bank is growing deposits, AUM, and loans. Commercial activities are picking up, particularly in M&A advisory and fund finance. Retail is seeing opportunities in HELOC and mortgage. Overall, all three segments are expected to contribute to loan growth.
Q: The stress capital buffer came in higher than expected. Are there any plans to reassess any of the businesses to help drive lower SCB?
A: Bruce Van Saun, CEO: We were disappointed with the SCB result, particularly on the PPNR modeling by the Fed. However, our strong capital position means the higher SCB isn't hindering our strategy. We will continue to optimize the balance sheet, particularly by reducing CRE exposure and focusing more on C&I growth.
Q: Can you readdress the exit rate for the fourth quarter of 2024 net interest margin and how you expect asset yields to traject with the expected rate cuts?
A: John Woods, CFO: We expect the exit NIM to be better than initially forecasted, driven by lower interest-bearing deposit costs and positive contributions from non-core run-off, asset yields, and private bank initiatives. The first Fed rate cut in September would be helpful but is not necessary for us to stay on track.
Q: Thoughts on the overall investment banking pipeline and broader fee-based outlook?
A: John Woods, CFO: Capital markets are expected to see seasonal weakness in Q3, but the floor is higher than in prior years. Wealth fees are expected to be a bigger contributor, and we see opportunities in hedging and other categories. Don McCree, Head of Commercial Banking: The market is favorable with new money activity picking up, particularly in private equity. M&A is resilient, and we have a decent pipeline in converts and follow-ons.
Q: What factors would allow the Office reserve to start to come down rather than continue to tick up?
A: Bruce Van Saun, CEO: We need to see valuations and NOI stabilize and start to improve. This is likely a multi-quarter journey, potentially into 2025. We are working through the book, reducing exposure, and extracting better collateral positions.
Q: Can you help us understand the growth in costs and the offsets from the TOP program?
A: John Woods, CFO: The TOP program is expected to generate $135 million in run-rate benefits by the end of the year. We are investing in data and analytics, fraud programs, and branch rationalization. The TOP 10 program will focus on generative AI, technology convergence, and other areas to continue self-funding investments.
Q: What is the likelihood of additional team hires on the private banking side, and what is driving the recent upturn in AUM?
A: Bruce Van Saun, CEO: We are focused on demonstrating profitability before making significant new investments. However, we are open to unique opportunities. The recent upturn in AUM is driven by new high-quality teams in San Francisco and Boston, with more expected to join.
Q: How do you think deposits will reprice down with the first few Fed cuts versus a more sustained reduction?
A: John Woods, CFO: We expect down betas of approximately 20% to 30% for the first couple of cuts. Over a longer period, the down betas could approach the up betas of around 51%, especially as CDs roll over and we adjust pricing.
Q: Do you see some pickup in broader deposit trends with Fed cuts?
A: Bruce Van Saun, CEO: We expect deposit growth in the second half, driven by all three business segments. The private bank's unique business opportunity will contribute significantly. Seasonality and strategic initiatives will also support deposit growth.
Q: Can you share your exposure to non-depository financial lenders and how you manage that risk?
A: Bruce Van Saun, CEO: We bank the private capital sector through capital call lines, financing lines to private credit organizations, and lending to leveraged buyouts. Our strategy is to underwrite to distribute, maintaining a diversified and relatively safe exposure.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
