CITIZENS FINANCIAL GROUP INC/RI Q3 FY2024 earnings call

Initiatives

• Private bank growth with new offices opened and team additions, on track to be profitable in Q4.
• Commercial bank serving private capital well, with strong league table positions.
• New York City Metro initiative showing growth in households and deposits.
• TOP 9 program achieving $135 million pretax run rate benefit, TOP 10 in progress.
• BSO actions reducing non-core by $1 billion and paying down higher cost funding.

Balance Sheet

• Strong CET1 ratio at 10.6%, repurchased $325 million in stock, spot LDR 80.8%, Federal Home Loan Bank advances low.

Financial Results

• NII down 2.9% QoQ due to lower NIM and slightly lower interest earning assets; NIM down 10 bps to 2.77% due to hedge costs from forward starting swaps.
• Fees down 2.7% QoQ with seasonality in capital markets, but capital markets fees up 40% YoY led by bond underwriting and M&A advisory.
• Wealth fees up slightly with AUM growth from private bank offset by lower transactional sales.

Credit

• Net charge-offs rose 2 bps to 54 bps, primarily seasonal auto impact; non-accrual loans up 10% QoQ, primarily CRE general office; allowance for credit losses coverage ratio 1.61%, down 2 bps from prior quarter.

Private Bank: Deposits reached $5.6 billion (up from $4 billion in Q2) and assets under management at $4.1 billion. Revenue rose 64% to $49.7 million in Q3, breakeven by mid-quarter, on track to be accretive to earnings in Q4. Commercial Bank: Number two in sponsor leveraged loan arrangements for the quarter, number one over past 12 months. Consumer Banking: New York City Metro initiative had 5% year-on-year growth in households and 7% growth in deposits.

Fourth Quarter

• Anticipates NII up 1.5%-2.5% driven by NIM improvement, non-interest income mid-to-high single digits, positive operating leverage, net charge-offs broadly stable, CET1 ratio stable with ~$200 million to $250 million share repurchases.

Medium-Term

• Projected NIM in 3.25%-3.4% range by 2027, driven by front book back book dynamics, deposit portfolio management, and strategic initiatives.

• Interest Rate Risks: Impact of forward starting swaps and deposit repricing challenges.
• Credit Risks: Uncertainty in general office portfolio workout and potential NPA movements.
• Market Risks: Volatility in capital markets deal activity and client hedging behavior.

Q: Scott Siefers from Piper Sandler on margin progression and medium-term NIM walk A: John Woods and Bruce Van Saun discussed non-core contribution (~2 bps/quarter), active balance sheet management, fixed asset repricing, front book back book, deposit migration flipping to neutral/positive, private bank deposit growth, and swap terminations contributing to NIM improvement Q: Matt O'Connor from Deutsche Bank on NII weakness and operating leverage A: John Woods and Bruce Van Saun addressed slightly asset sensitivity, deposit migration trends flipping, loan growth timing, and medium-term operating leverage potential from NIM reflation and fee growth Q: John Pancari from Evercore on loan growth inflection and credit confidence A: Bruce Van Saun, Don McCree, and Brendan Coughlin discussed loan growth building with private bank and commercial bank activity, credit NPAs peaking with stable criticized/classified loans, and auto delinquency reversion to mean with normalized consumer portfolio Q: Erika Najarian from UBS on swap terminations and NIM to 3% by 4Q '25 A: John Woods explained swap terminations to lock in benefits, accounting for amortization, and NIM achievement across rate environments Q: Manan Gosalia from Morgan Stanley on deposit beta and front book back book A: John Woods and Bruce Van Saun discussed deposit beta trajectory, front book back book impact on NIM, and no large securities repositioning plans