Why did Citizens' earnings decline in the third quarter of 2024?

Underlying EPS fell to $0.79 from $0.82 sequentially and $0.89 a year earlier. The main drivers were lower net interest income from a 10 bp NIM decline tied to forward-starting swaps, seasonally weaker capital markets fees, and a higher provision and nonaccrual balance, partly offset by lower expenses.

Is the company's credit quality deteriorating?

Some metrics are moving the wrong way. Net charge-offs rose to 0.54% from 0.52%, mainly from seasonal auto losses, and nonaccrual loans rose 10% quarter over quarter, mostly in CRE General Office. Management points to a reserve of 12.1% on that General Office book and a 1.61% total ACL ratio, but coverage of nonaccrual loans fell to 136% from 151%.

What does the outlook suggest for the fourth quarter and beyond?

Management expects a stronger fourth quarter, with NII up 1.5–2.5% on a NIM increase of about 5 bps, fee growth in the mid-to-high single digits, and expenses up about 2%. Over the medium term, it targets a 3.25–3.40% NIM and roughly 16–18% ROTCE, supported by swap run-off and Non-Core shrinkage. Those targets depend on the Fed path and execution, so investors should weigh them accordingly.

How strong is the capital and liquidity position?

Capital and liquidity are solid. The CET1 ratio was 10.6% (9.2% adjusted for removal of the AOCI opt-out), tangible book value per share rose to $33.54, and the pro forma LCR was 122%. FHLB advances were cut to $553 million, and the company repurchased $325 million of stock in the quarter while paying a $0.42 dividend.

Are the 'underlying' results comparable to GAAP results?

Underlying figures exclude notable items, which in 3Q24 totaled a $13 million pre-tax charge ($0.02 per share), mainly TOP and other items plus integration costs. These are non-GAAP measures, and the company's reconciliations to GAAP are included in the financial supplement. Investors should consider both GAAP and underlying results.

CFG 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 16, 2024. Cited figures are marked; the original filing is the authoritative source.

Citizens Financial Group (CFG) reported third quarter 2024 GAAP net income of $382 million^a, or $0.77 diluted EPS, and underlying net income of $392 million, or $0.79 underlying EPS, versus $0.82 in the prior quarter and $0.89 a year earlier.

Underlying ROTCE was 9.7%, and underlying pre-provision profit was $655 million^b, down 6% sequentially. The sequential decline was driven mainly by a 2.9% drop in net interest income to $1.37 billion, reflecting a 10 basis point NIM compression to 2.77% from forward-starting swaps, along with seasonally lower capital markets fees (down $40 million). Management noted that several M&A fees slipped into the fourth quarter and that underlying expenses fell 1.3% sequentially.

Credit quality showed modest pressure. Net charge-offs rose to 54 bps from 52 bps, driven largely by seasonal auto losses, and nonaccrual loans climbed 10% quarter over quarter to $1.7 billion^c (1.19% of loans), led by commercial real estate General Office exposure. The allowance for credit losses ratio eased to 1.61%, and coverage of nonaccrual loans fell to 136%.

Balance sheet and funding metrics strengthened: the CET1 ratio was 10.6%, tangible book value per share rose 9.6% to $33.54^d on an AOCI benefit from lower rates, FHLB advances were reduced to $553 million, and the Private Bank grew deposits to $5.6 billion. The board declared a $0.42 quarterly dividend, and the company repurchased $325 million of stock in the quarter. Management guided to a stronger fourth quarter, with underlying NII up 1.5% to 2.5%, noninterest income up in the mid-to-high single digits, and expenses up about 2%.

Management also reiterated a medium-term ROTCE target of roughly 16% to 18% and a NIM target of 3.25% to 3.40%, supported by the rolloff of legacy swaps and Non-Core run-off. This filing is an 8-K furnishing earnings materials under Items 2.02 and 7.01, so the information is not deemed filed for Section 18 purposes.

02—Key points

Key Highlights

Underlying EPS of $0.79 (GAAP $0.77) and underlying ROTCE of 9.7%, down from $0.82 and 11.1% in 2Q24 and from $0.89 and 12.5% in 3Q23.
Net interest income fell 2.9% sequentially to $1.37 billion, with NIM down 10 bps to 2.77% due to forward-starting swap drag (9 bps).
Underlying noninterest income of $534 million fell 2.7% sequentially on seasonally lower capital markets fees, though it rose 9% year over year.
Underlying noninterest expense fell 1.3% sequentially to $1.25 billion, and the underlying efficiency ratio was 65.6%.
Net charge-offs rose to 54 bps and nonaccrual loans increased 10% to $1.7 billion, driven by CRE General Office; ACL coverage eased to 1.61%.
Capital and liquidity stayed strong: CET1 of 10.6%, spot LDR of 80.8%, pro forma LCR of 122%, and TBV per share up 9.6% to $33.54.
4Q24 outlook calls for underlying NII up 1.5–2.5%, fee growth in the mid-to-high single digits, and expenses up about 2%; the $0.42 quarterly dividend was declared.

03—Questions

Frequently Asked Questions

Why did Citizens' earnings decline in the third quarter of 2024?
Underlying EPS fell to $0.79 from $0.82 sequentially and $0.89 a year earlier. The main drivers were lower net interest income from a 10 bp NIM decline tied to forward-starting swaps, seasonally weaker capital markets fees, and a higher provision and nonaccrual balance, partly offset by lower expenses.
Is the company's credit quality deteriorating?
Some metrics are moving the wrong way. Net charge-offs rose to 0.54% from 0.52%, mainly from seasonal auto losses, and nonaccrual loans rose 10% quarter over quarter, mostly in CRE General Office. Management points to a reserve of 12.1% on that General Office book and a 1.61% total ACL ratio, but coverage of nonaccrual loans fell to 136% from 151%.
What does the outlook suggest for the fourth quarter and beyond?
Management expects a stronger fourth quarter, with NII up 1.5–2.5% on a NIM increase of about 5 bps, fee growth in the mid-to-high single digits, and expenses up about 2%. Over the medium term, it targets a 3.25–3.40% NIM and roughly 16–18% ROTCE, supported by swap run-off and Non-Core shrinkage. Those targets depend on the Fed path and execution, so investors should weigh them accordingly.
How strong is the capital and liquidity position?
Capital and liquidity are solid. The CET1 ratio was 10.6% (9.2% adjusted for removal of the AOCI opt-out), tangible book value per share rose to $33.54, and the pro forma LCR was 122%. FHLB advances were cut to $553 million, and the company repurchased $325 million of stock in the quarter while paying a $0.42 dividend.
Are the 'underlying' results comparable to GAAP results?
Underlying figures exclude notable items, which in 3Q24 totaled a $13 million pre-tax charge ($0.02 per share), mainly TOP and other items plus integration costs. These are non-GAAP measures, and the company's reconciliations to GAAP are included in the financial supplement. Investors should consider both GAAP and underlying results.

04—Continue

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