Did Citizens beat or miss expectations, and is it on track for full-year 2024?

The filing does not include consensus estimates, so a beat or miss cannot be determined from it. Management said PPNR is tracking broadly in line with the January guidance range, with revenues broadly in line and NII trending toward the upper end of the range. It reaffirmed full-year guidance and medium-term targets, including ~16-18% ROTCE over the medium term.

Why did net interest income decline, and when could it recover?

NII fell 2% QoQ to $1.41 billion, mainly because NIM dropped 4 bps to 2.87%. Swaps cost 6 bps and higher funding costs cost 3 bps, partly offset by 4 bps of improved asset yields and 2 bps from Non-Core run-off. Management expects NII and NIM to rebound in 4Q24 and cited significant NII tailwinds from swap roll-off and Non-Core run-off in 2025-2027, with the medium-term NIM target at 3.25%-3.40%.

Is credit quality deteriorating?

Modestly. Net charge-offs were 52 bps versus 50 bps in 1Q24 and 40 bps a year ago, and nonaccrual loans rose to 1.08% of loans from 0.79% a year ago, primarily in General Office CRE. Management called credit trends in line with expectations and noted the General Office reserve coverage is 11.1%. Management expects net charge-offs to decline modestly in 3Q24.

What is the difference between GAAP and underlying results, and why does it matter?

Underlying results exclude notable items such as integration costs from recent acquisitions, TOP efficiency-program costs, and the FDIC special assessment. In 2Q24, notable items reduced pre-tax income by $32 million, or $0.04 per share. GAAP EPS was $0.78 and underlying EPS was $0.82. Investors should weigh both measures, since underlying figures are non-GAAP and may not be comparable to other companies' adjusted metrics.

How strong is the capital and liquidity position, and what are the capital return plans?

Capital and liquidity are strong. The CET1 ratio was 10.7% (9.0% adjusted for AOCI opt-out removal), and the Company expects both ratios to converge to 10.0%-10.5% over the medium term. Liquidity is solid, with a 80.4% period-end loan-to-deposit ratio and a 119% pro forma LCR. For 3Q24, management plans to hold CET1 near 10.5% while repurchasing about $250-$300 million of shares, and it declared a $0.42 quarterly dividend.

CFG 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed July 17, 2024. Cited figures are marked; the original filing is the authoritative source.

Citizens Financial Group (CFG) reported second quarter 2024 GAAP net income of $392 million^a, or $0.78 diluted EPS, versus $334 million and $0.65 in 1Q24 and $478 million and $0.92 in 2Q23.

Excluding notable items (integration costs, TOP efficiency program costs, and an FDIC special assessment), underlying net income was $408 million^b and underlying EPS was $0.82, up 4% sequentially but down 21% year over year. Underlying pre-provision profit rose 2% quarter over quarter to $694 million, driven by a 7% sequential increase in fee income (record Wealth and Card fees, and Capital Markets fees up 14%) and a 1% decline in underlying expenses, which offset a 2% decline in net interest income. Underlying ROTCE improved to 11.1% from 10.6% in 1Q24, though it remains well below the 13.9% reported a year earlier.

The quarter's main headwind was net interest margin, which fell 4 basis points to 2.87%^c on swap costs and higher funding costs. Management expects NII and NIM to rebound in 4Q24 and has targeted a medium-term NIM of 3.25%-3.40%, supported by roll-off of the Non-Core portfolio and receive-fixed swaps. Credit quality showed modest deterioration: net charge-offs rose to 52 basis points, nonaccrual loans rose 4% sequentially to 1.08% of loans (largely General Office CRE), and the allowance coverage ratio edged up to 1.63%.

Balance sheet metrics strengthened, with CET1 at 10.7%, a loan-to-deposit ratio of 80.4%, and FHLB advances cut to $553 million^d. Management reaffirmed full-year guidance and medium-term targets, and declared a $0.42 quarterly dividend, payable August 14, 2024. For the third quarter, management guided to NII down roughly 1-2%, noninterest income up slightly, noninterest expense stable, and net charge-offs down modestly, with a CET1 ratio of about 10.5% and roughly $250-$300 million in share repurchases.

02—Key points

Key Highlights

Underlying EPS of $0.82 (GAAP $0.78), up 4% QoQ but down 21% YoY; underlying ROTCE of 11.1%, up 44 bps QoQ.
Underlying pre-provision profit of $694 million rose 2% QoQ, while underlying noninterest income grew 7% QoQ to $549 million, with record Wealth and Card fees.
Net interest margin fell 4 bps QoQ to 2.87% (down 30 bps YoY) due to swap and funding costs; management targets a medium-term NIM of 3.25%-3.40%.
Net charge-offs rose to 52 bps (up 2 bps QoQ) and nonaccrual loans increased 4% QoQ to 1.08% of loans, driven by General Office CRE; ACL coverage rose to 1.63%.
Capital and liquidity remained strong: CET1 of 10.7% (9.0% adjusted for AOCI opt-out removal), TCE ratio of 6.5%, TBV per share of $30.61 (up 1.4% QoQ), and a pro forma LCR of 119%.
Private Bank period-end deposits reached $4.0 billion, with management expecting the Private Bank to reach breakeven in 4Q24.
Quarterly dividend of $0.42 declared; the Board raised the share repurchase authorization to $1.25 billion, and the Company repurchased $200 million of stock in 2Q24.

03—Questions

Frequently Asked Questions

Did Citizens beat or miss expectations, and is it on track for full-year 2024?
The filing does not include consensus estimates, so a beat or miss cannot be determined from it. Management said PPNR is tracking broadly in line with the January guidance range, with revenues broadly in line and NII trending toward the upper end of the range. It reaffirmed full-year guidance and medium-term targets, including ~16-18% ROTCE over the medium term.
Why did net interest income decline, and when could it recover?
NII fell 2% QoQ to $1.41 billion, mainly because NIM dropped 4 bps to 2.87%. Swaps cost 6 bps and higher funding costs cost 3 bps, partly offset by 4 bps of improved asset yields and 2 bps from Non-Core run-off. Management expects NII and NIM to rebound in 4Q24 and cited significant NII tailwinds from swap roll-off and Non-Core run-off in 2025-2027, with the medium-term NIM target at 3.25%-3.40%.
Is credit quality deteriorating?
Modestly. Net charge-offs were 52 bps versus 50 bps in 1Q24 and 40 bps a year ago, and nonaccrual loans rose to 1.08% of loans from 0.79% a year ago, primarily in General Office CRE. Management called credit trends in line with expectations and noted the General Office reserve coverage is 11.1%. Management expects net charge-offs to decline modestly in 3Q24.
What is the difference between GAAP and underlying results, and why does it matter?
Underlying results exclude notable items such as integration costs from recent acquisitions, TOP efficiency-program costs, and the FDIC special assessment. In 2Q24, notable items reduced pre-tax income by $32 million, or $0.04 per share. GAAP EPS was $0.78 and underlying EPS was $0.82. Investors should weigh both measures, since underlying figures are non-GAAP and may not be comparable to other companies' adjusted metrics.
How strong is the capital and liquidity position, and what are the capital return plans?
Capital and liquidity are strong. The CET1 ratio was 10.7% (9.0% adjusted for AOCI opt-out removal), and the Company expects both ratios to converge to 10.0%-10.5% over the medium term. Liquidity is solid, with a 80.4% period-end loan-to-deposit ratio and a 119% pro forma LCR. For 3Q24, management plans to hold CET1 near 10.5% while repurchasing about $250-$300 million of shares, and it declared a $0.42 quarterly dividend.

04—Continue

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