Citizens Financial Group, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Citizens Financial Group, Inc. is a bank holding company providing consumer, commercial, private banking, lending, deposit, wealth management, capital markets and related services. The filing covers the quarter ended March 31, 2024. Assets were $220.4 billion at period-end. The company operates through Consumer Banking, Commercial Banking and Non-Core segments.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Total revenue | $1.959 billion | $2.128 billion; down 8% |
| Net interest income | $1.442 billion | $1.643 billion; down 12% |
| Noninterest income | $517 million | $485 million; up 7% |
| Provision for credit losses | $171 million | $168 million |
| Noninterest expense | $1.358 billion | $1.296 billion; up 5% |
| Net income | $334 million | $511 million |
| Net income available to common stockholders | $304 million | $488 million |
| Diluted EPS | $0.65 | $1.00 |
| Underlying diluted EPS | $0.79 | $1.10 |
| Net interest margin, FTE | 2.91% | 3.30% |
| Efficiency ratio | 69.3% | 60.9% |
| Underlying efficiency ratio | 65.1% | 57.8% |
| ROTCE | 8.9% | 14.4% |
| Underlying ROTCE | 10.6% | 15.8% |
| Tangible book value per common share | $30.19 | Down 2% from December 31, 2023 |
Balance sheet, credit quality and liquidity
- Total loans and leases were $143.2 billion, down 2% from December 31, 2023. Commercial loans declined 2% to $72.8 billion, while retail loans declined 2% to $70.4 billion.
- Deposits were $176.4 billion, down from $177.3 billion at year-end. Estimated insured or secured deposits represented 70% of total deposits.
- Total borrowed funds were approximately $13.8 billion, compared with $14.0 billion at December 31, 2023. Long-term borrowed funds increased to $13.8 billion.
- The allowance for credit losses was $2.3 billion, or 1.61% of loans and leases, compared with 1.59% at year-end.
- Net charge-offs increased to $181 million from $133 million, and the annualized net charge-off ratio increased to 0.50% from 0.34%.
- Nonaccrual loans increased 8% to $1.469 billion, or 1.02% of total loans and leases. Commercial real estate nonaccrual loans rose 25% to $597 million.
- Commercial criticized assets totaled $8.7 billion, including $5.4 billion of commercial real estate criticized balances. Approximately 97% of commercial real estate loans were current.
- Reported CFG capital ratios remained above required minimums: CET1 10.6%, Tier 1 11.8%, total capital 13.8% and Tier 1 leverage 9.3%.
- Total available liquidity was approximately $81.0 billion, consisting of $60.6 billion of contingent liquidity and $20.4 billion of available Federal Reserve discount-window capacity. The period-end loans-to-deposits ratio, excluding loans held for sale, was 81.2%.
- Cash and cash equivalents ended the quarter at $11.6 billion. Operating, investing and financing activities produced a net decrease of $29 million in cash during the quarter.
Material changes versus the prior comparable period
- Profitability weakened primarily because net interest income fell $201 million. The FTE net interest margin contracted 39 basis points as deposit and other funding costs increased, despite higher asset yields.
- Average interest-earning assets declined 1%, driven by lower loan balances, while average deposits increased 1%. Average interest-bearing deposits increased 9%, and their average cost rose to 2.85% from 1.74%.
- Noninterest income improved through higher capital markets, card and trust and investment services fees. Mortgage banking and foreign exchange and derivative products revenue declined.
- Net interest income increased in Consumer Banking but declined in Commercial Banking and Non-Core. Commercial Banking net income fell to $259 million from $319 million, while Consumer Banking net income increased to $272 million from $257 million.
- Credit costs remained elevated. Commercial real estate, particularly the general office portfolio, drove much of the increase in commercial charge-offs and reserve needs.
- Cash flow from operating activities declined to $554 million from $1.154 billion. Financing activities used $1.622 billion, including deposit reductions, debt repayments, $300 million of share repurchases and $197 million of common dividends.
Guidance, outlook, commentary and unusual items
- The filing does not provide a clear full-year earnings or revenue guidance figure. Management’s base interest-rate scenario assumes two 25-basis-point Federal Funds rate reductions beginning in the second half of 2024, with a year-end 2024 rate of 5.00%.
- Management expects the balance sheet to remain broadly neutral to interest-rate changes. A gradual 200-basis-point rate decline was estimated to reduce next-12-month net interest income by 2.2%; a gradual 200-basis-point increase was estimated to increase it by 0.5%.
- Reported results included $61 million of notable items, net of tax benefit, including $35 million of FDIC special-assessment expense, $47 million of TOP and other costs, and $3 million of integration-related costs, partly offset by related tax benefits and $3 million of notable noninterest income.
- The company issued $1.25 billion of senior notes during the quarter and, on April 25, 2024, issued an additional $750 million of senior notes due 2035.
- The company declared a $0.42-per-share common dividend and repurchased $300 million of common stock during the quarter. Future dividends and repurchases remain subject to capital, regulatory, market and performance considerations.
- The ACL economic forecast assumes a mild recession over the two-year reasonable-and-supportable period. A more adverse hypothetical scenario would increase the modeled ACL estimate by approximately $370 million, although management stated this sensitivity does not represent an expectation.
- Key risks include interest-rate and funding-cost changes, deposit migration, commercial real estate and office-sector deterioration, economic weakness, liquidity and capital requirements, credit ratings, regulatory developments, litigation, cybersecurity and operational failures, geopolitical conditions and climate-related risks.
- Management concluded that goodwill was not impaired as of March 31, 2024. The filing states that litigation and regulatory matters are ongoing, but management does not expect aggregate potential liabilities to materially adversely affect the interim financial statements based on currently available information.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize or continue to pressure net interest margin.
- Trends in commercial real estate criticized, nonaccrual and charge-off balances, particularly office and multifamily exposures.
- Whether loan balances continue to decline because of planned Non-Core runoff, balance-sheet optimization or weaker client demand.
- The effect of the anticipated 2024 stress-capital-buffer determination and other proposed regulatory capital and liquidity changes.
- The sustainability of capital markets fee growth and the outlook for mortgage banking, foreign exchange and derivative products revenue.
- Whether the $2.3 billion ACL remains adequate under changing unemployment, GDP, interest-rate and real estate assumptions.
- The impact of approximately $938 million of estimated pre-tax cash-flow-hedge losses expected to be reclassified into net interest income over the next 12 months.
- The company’s capacity to maintain dividends and repurchases while preserving capital and liquidity above regulatory requirements.