Citizens Financial Group, Inc. 2023 Form 10-K Summary
Business context and reporting period
Citizens Financial Group, Inc. is a bank holding company headquartered in Providence, Rhode Island. It provides consumer and commercial banking, lending, wealth management, capital markets, treasury, foreign exchange and related services through more than 1,100 branches in 14 states and the District of Columbia, plus national businesses. The filing covers the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021. The filing is an audited annual report, not a standalone fourth-quarter filing.
Management reported three operating segments: Consumer Banking, Commercial Banking and Non-Core. In 2023, indirect auto and certain purchased consumer loan portfolios were moved into Non-Core as part of a balance-sheet optimization strategy. Citizens also launched Citizens Private Bank and completed integration of the Investors acquisition and the HSBC branch and deposit transaction.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total assets | $222.0 billion at year-end | $226.7 billion | Down $4.8 billion |
| Total deposits | $177.3 billion at year-end | $180.7 billion | Down $3.4 billion |
| Total stockholders’ equity | $24.3 billion | $23.7 billion | Up $0.7 billion |
| Total revenue | $8.224 billion | $8.021 billion | Up 2.5% |
| Net interest income | $6.241 billion | $6.012 billion | Up 4% |
| Noninterest income | $1.983 billion | $2.009 billion | Down 1% |
| Provision for credit losses | $687 million | $474 million | Up $213 million |
| Noninterest expense | $5.507 billion | $4.892 billion | Up 13% |
| Net income | $1.608 billion | $2.073 billion | Down $465 million |
| Net income available to common stockholders | $1.491 billion | $1.960 billion | Down $469 million |
| Diluted EPS | $3.13 | $4.10 | Down $0.97 |
| Effective tax rate | 20.8% | 21.9% | Down 1.1 percentage points |
| Efficiency ratio | 67.0% | 61.0% | Higher by 6.0 points |
| ROTCE | 10.9% | 13.9% | Down 3.0 points |
Net interest margin on a fully taxable equivalent basis was 3.10%, essentially unchanged from 2022. Average interest-earning assets increased 4% to $201.7 billion, but higher deposit and borrowing costs offset much of the benefit from higher asset yields. Average total deposits increased 2% for the year, while the year-end deposit balance declined as part of balance-sheet optimization and customers migrated from lower-cost deposits to higher-yielding products.
Loans and leases declined 7% to $146.0 billion at year-end. Commercial and industrial loans declined 15% to $43.8 billion, while commercial real estate loans increased 2% to $29.5 billion. Retail loans declined 4% to $71.5 billion, including a 33% decline in automobile loans. Mortgage and home-equity balances increased 5% and 7%, respectively.
Cash provided by operating activities was $3.0 billion, compared with $4.1 billion in 2022. Investing activities provided $5.2 billion, primarily reflecting a $7.2 billion net decrease in loans and leases and $2.8 billion of loan sales. Financing activities used $7.1 billion, including a $3.4 billion decline in deposits, $2.4 billion of net long-term debt repayments, $906 million of common-stock repurchases and $928 million of common and preferred dividends. Cash and cash equivalents ended at $11.6 billion.
Total borrowed funds were $14.0 billion at year-end, including $13.5 billion of long-term borrowed funds. Long-term borrowed funds declined from $15.9 billion in 2022, primarily because of lower Federal Home Loan Bank advances, partly offset by $2.7 billion of secured borrowings collateralized by auto loans.
Credit performance weakened. Net charge-offs increased to $609 million from $270 million, and the net charge-off ratio increased to 0.40% from 0.18%. Nonaccrual loans and leases increased 44% to $1.36 billion, or 0.93% of loans and leases, compared with 0.60% in 2022. Commercial real estate office exposure was the principal area of concern, reflecting higher interest rates and return-to-office dynamics. Criticized commercial balances increased to $8.4 billion, including $5.0 billion of criticized commercial real estate balances.
The allowance for credit losses increased to $2.3 billion from $2.2 billion, with total coverage of loans and leases increasing to 1.59% from 1.43%. Management’s base economic forecast assumed a mild recession, approximately 5% peak unemployment and a 0.4% peak-to-trough GDP decline. A more adverse modeled scenario would increase the modeled ACL by approximately $233 million, excluding qualitative adjustments.
Regulatory capital remained above applicable requirements. At December 31, 2023, CFG reported a CET1 ratio of 10.6%, Tier 1 capital ratio of 11.8%, total capital ratio of 13.7% and Tier 1 leverage ratio of 9.3%. CBNA reported corresponding ratios of 11.3%, 11.3%, 13.0% and 8.9%. The Company’s stress capital buffer was 4.0% through September 30, 2024. Including the impact of AOCI, CFG’s pro forma CET1 ratio was 9.0%.
Liquidity remained substantial. Total available liquidity was approximately $78.8 billion, consisting of $57.1 billion of contingent liquidity and $21.7 billion of available Federal Reserve discount-window capacity. Contingent liquidity included $31.4 billion of unencumbered high-quality securities, $15.9 billion of unused FHLB capacity and $9.8 billion of Federal Reserve cash balances. The consolidated loans-to-deposits ratio, excluding loans held for sale, was 82.3%, and estimated insured or secured deposits represented 71% of total deposits.
Material changes versus the prior comparable period
- Net income and diluted EPS declined materially despite higher revenue, mainly because of higher credit costs, operating expenses and one-time items.
- Net interest income increased 4%, but the interest-rate benefit was substantially offset by deposit repricing, increased term deposits and higher wholesale funding costs.
- Noninterest income declined modestly. Capital markets and mortgage banking fees fell, partly offset by higher card and trust and investment services fees.
- Noninterest expense increased $615 million. Drivers included the Citizens Private Bank start-up investment, technology and software costs, advertising and fraud losses, higher pension costs, and higher FDIC insurance expense.
- Citizens recorded a $225 million FDIC special assessment related to the 2023 bank failures. The assessment is subject to change if the FDIC’s ultimate Deposit Insurance Fund loss differs from its estimate.
- Credit deterioration was concentrated in commercial real estate, particularly office, and in normalization of consumer credit losses from unusually low pandemic-era levels.
- Year-end deposits decreased, while the mix shifted toward higher-cost money-market and term products. Noninterest-bearing deposits represented approximately 21% of total deposits.
- The Company repurchased $906 million of common stock and declared $808 million of common dividends, or $1.68 per share. The balance of the authorized repurchase capacity at year-end was approximately $1.094 billion.
- Accumulated other comprehensive loss improved to $3.8 billion from $4.6 billion of loss, primarily because of gains in debt securities and derivatives.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide explicit full-year 2024 earnings or revenue guidance. Management’s interest-rate base case assumed the Federal Funds rate would decline to 4.25% by the end of 2024, reflecting five 25-basis-point reductions beginning in the second quarter. The balance sheet was described as marginally asset-sensitive but more neutral than in 2022; under the filing’s scenarios, a gradual 100-basis-point rate increase would increase projected 12-month net interest income by 0.5%, while a gradual 100-basis-point decline would reduce it by 1.0%.
Management completed the TOP 8 efficiency program in 2023 and launched TOP 9 to continue funding investments through efficiency improvements. Strategic priorities include balance-sheet optimization, growth in relationship banking, digital and technology modernization, expansion of wealth and capital-markets capabilities, and integration of the Private Bank.
Reported results included $357 million, or $0.75 per diluted common share, of notable items net of tax benefit. These consisted principally of $104 million of integration costs, $177 million of TOP and other costs, and the $225 million FDIC special assessment. On an underlying basis, net income available to common stockholders was $1.848 billion, underlying diluted EPS was $3.88, the efficiency ratio was 60.8% and ROTCE was 13.5%.
Key risks include economic recession, inflation, interest-rate and yield-curve changes, deposit migration and funding costs, commercial real estate stress, consumer credit deterioration, liquidity and credit-rating risk, regulatory capital changes, litigation and regulatory investigations, cybersecurity and third-party technology risk, competition from banks and FinTech companies, geopolitical instability, and climate-related physical and transition risks.
Regulatory proposals could materially affect future capital and funding requirements. The Basel III Endgame proposal could remove the Company’s AOCI opt-out, modestly increase risk-weighted assets and introduce additional capital requirements. Proposed long-term debt rules could require eligible debt equal to the greater of 6% of risk-weighted assets, 3.5% of average assets or 2.5% of total leverage exposure. The filing states that the full effects remain under evaluation.
The Company reported no material unresolved SEC staff comments, and management and Deloitte & Touche LLP concluded that internal control over financial reporting was effective. The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Critical audit matters were the allowance for credit losses and goodwill impairment.
Important facts for investors to verify
- Whether commercial real estate office criticized balances, nonaccrual loans and net charge-offs continue to rise or stabilize.
- The pace and profitability impact of deposit migration into money-market and term products as interest rates change.
- Whether net interest margin and net interest income perform in line with the filing’s rate sensitivity assumptions.
- The ultimate FDIC special assessment and any additional deposit-insurance expense.
- The final scope and implementation timing of Basel III Endgame, AOCI treatment and long-term debt requirements.
- Whether the Private Bank, TOP 9 and balance-sheet optimization initiatives generate the expected revenue, expense and capital benefits.
- The sustainability of common dividends and share repurchases given capital requirements, regulatory approval and future credit costs.
- The effect of the $914 million of estimated pre-tax cash-flow hedge losses expected to be reclassified into net interest income over the next 12 months.
- The sensitivity of the $8.2 billion goodwill balance, particularly Commercial Banking goodwill, to lower forecasts, market multiples, stock price declines or higher discount rates.
- Potential losses or restrictions arising from litigation, regulatory matters, cybersecurity events and approximately $96.3 billion of off-balance-sheet commitments.