Release Date: October 16, 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 progress in its Private Bank, with deposits increasing to $5.6 billion from $4 billion in the previous quarter.
- The company achieved a breakeven point in its Private Bank by mid-third quarter and expects it to be profitable in Q4.
- CFG's commercial bank ranked number one in sponsor leveraged loan arrangements over the past 12 months.
- The company executed well on its TOP 9 initiative, achieving a Q4 run rate benefit of $135 million, and is finalizing TOP 10, expected to deliver over $100 million by the end of 2025.
- CFG maintained a strong capital position with a CET1 ratio of 10.6% and repurchased $325 million in stock during the quarter.
Negative Points
- Net interest income (NII) was down 2.9% quarter-over-quarter, primarily due to lower net interest margin (NIM) and slightly lower interest-earning assets.
- Capital markets fees decreased by 30% due to seasonal trends and some M&A deals being pushed into the fourth quarter.
- Nonaccrual loans increased by 10% quarter-over-quarter, primarily due to an increase in commercial real estate general office loans.
- CFG experienced a decline in commercial loans by about $580 million, reflecting paydowns and generally lower client loan demand.
- The company's P&L was impacted by the drag from forward starting swaps and some fees being pushed out to Q4.
Q & A Highlights
Q: Can you explain the factors contributing to the expected 5 basis points of margin expansion into the fourth quarter?
A: John Woods, CFO, explained that the margin expansion is driven by several factors, including noncore contributions, active balance sheet management, fixed asset repricing, and front book back book dynamics. Additionally, deposit migration is expected to become neutral or slightly positive, aided by attractive deposit growth in the Private Bank and seasonal upticks in demand deposits.
Q: What are the reasons for the net interest income coming in weaker than expected, and what are the positive trends moving forward?
A: John Woods noted that the weaker net interest income was due to a larger-than-expected rate cut and slightly less loan growth. However, positive trends include a flip in deposit migration to neutral or positive and anticipated loan growth in the Private Bank and commercial bank as rates decrease.
Q: How do you view operating leverage in the medium term, and what are the expectations for 2025?
A: John Woods stated that there is significant opportunity for operating leverage, driven by net interest margin reflation and consistent fee growth. The NIM reflation is expected to provide significant tailwinds, and more details will be provided in January regarding expectations for 2025.
Q: What gives you confidence in the inflection of loan demand and modest growth in the fourth quarter?
A: Bruce Van Saun, CEO, expressed confidence due to the largest quarterly increase in the Private Bank and a positive pipeline. He noted that as rates come down, borrowing activity is expected to increase, particularly in the Private Bank and commercial bank, with private equity activity picking up.
Q: Can you discuss the confidence in NPAs peaking and stable charge-offs in the fourth quarter?
A: Bruce Van Saun mentioned that the general office portfolio is being actively managed with heavy reserves, and the problem loan population is stable. Don McCree added that there have been no surprises in the credit book, and criticized and classified loans have been stable for four quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
