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CFG posts steady Q4 results; NII and NIM under pressure

AInvestWednesday, Jan 17, 2024 9:49 am ET
2min read

Citizens Financial Group (CFG), a leading regional bank holding company, recently announced its fourth-quarter (Q4) 2023 earnings results, surpassing analyst expectations for earnings per share and in line revenue figures. 

The company reported earnings per share of $0.85, surpassing analyst expectations by $0.25, despite a 9.2% year-over-year decline in revenue to $2 billion, in line with expectations.

Robust Underlying Pre-Provision Net Revenue (PPNR) and Growth in Fees: 

CFG achieved an underlying PPNR of $721 million, highlighting its solid core operations. Net interest income (NII) decreased by 2% quarter-over-quarter (QoQ) due to lower net interest margin (NIM). The company managed to counterbalance this decline with a modest increase in interest-earning assets. 

PPNR stands for Pre-Provision Net Revenue. In the banking industry, PPNR is a key metric used to evaluate a bank's financial health and operational efficiency. It represents the net revenue (income from interest and fees, minus expenses) that a bank earns before accounting for loan loss provisions.

The company reported less pressure on deposit costs and NIM, with fees beginning to rebound and expenses remaining well controlled. Credit costs are in line with expectations. 

Fees experienced a 2% QoQ growth, driven by improved performance in Capital Markets and Wealth, although Mortgage Banking suffered some setbacks. The stability of expenses, including investments in the Private Bank startup, contributed to CFG's positive underlying PPNR. 

Provision for Credit Losses and Loan Portfolio Optimization: 

CFG reported provisions for credit losses amounting to $171 million in Q4, resulting in a 4 basis points QoQ increase in the Allowance for Credit Losses (ACL)/loans ratio to 1.59%. The company's proactive approach to credit risk management is evident in the stable allowance for credit losses and the gradual runoff of the Non-Core portfolio, contributing to balance sheet optimization. 

Period-end loans decreased by 3% and average loans by 2% QoQ, including the strategic reduction of the Non-Core portfolio. 

Stable Deposits and Controlled Deposit Costs: 

CFG experienced stability in both period-end and average deposits. Although there was a 16 basis points QoQ increase in total deposit costs, the company mitigated the pressure by adhering to Category 1 bank LCR requirements and reducing FHLB advances to $3.8 billion. By effectively managing deposit costs and net interest margin, CFG aims to maintain profitability and optimize financial returns. 

Outlook and Strategic Initiatives: 

CFG expects its FY24 net interest income to decline by 6-9%, primarily due to the net swaps impact of approximately 4-5%. The bank projects a positive outlook for non-interest income, with a growth estimate of 6-9% that is subject to market conditions. 

CFG remains focused on strategic initiatives, such as the Private Bank, NYC Metro, TOP 9, and Non-Core portfolio, which are all progressing well. These initiatives position CFG for medium-term growth and enhanced returns, demonstrating a commitment to long-term success. 

Conclusion: 

In conclusion, Citizens Financial Group's Q4 2023 earnings report showcases the company's resilience and continued progress in achieving its strategic initiatives. The bank's performance surpassed analyst estimates, and the management remains optimistic about the company's future growth prospects. Investors can expect to see the benefits of the strategic initiatives, as well as the company's focus on improving net interest income and non-interest income.

$CFG(CFG)


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