PROVIDENCE – Citizens Financial Group Inc. on Wednesday reported a third-quarter profit of $430 million, sinking 32.4% from its net income in the same period a year ago, in part because the amount of interest Citizens paid its depositors was four times higher.
Earnings per diluted share declined to 85 cents from $1.23 in the third quarter of 2022 and failed to meet Wall Street expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of 92 cents per share.
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“We continue to post solid results through a dynamic environment,” said Bruce Van Saun, Citizens chairman and CEO.
The bank – Rhode Island’s largest in terms of deposits within the state – recorded $2.01 billion in interest and noninterest revenue for the three months ended Sept. 30, 7.5% lower than a year earlier.
As with other banks, Citizens was stung by higher interest rates. While deposits across the bank’s entire footprint decreased slightly to $178.2 billion at the end of September – down $369 million from a year earlier – interest expense on deposits skyrocketed to $898 million for the third quarter, four times higher than the $176 million recorded in the third quarter of 2022.
That increased expense, however, was not fully offset by the bank’s interest income, which climbed by $626 million, or 31.8%, from $1.97 billion to $2.6 billion year over year.
Meanwhile, Citizens’ asset quality showed signs of deterioration, with the percentage of nonaccrual loans and leases – typically those more than 90 days overdue – climbing from 0.55% a year ago to 0.87% in the quarter ending Sept. 30. Net charge-offs – loans that the bank has determined are uncollectible minus recoveries – as a percentage of average loans and leases increased from 0.19% in the third quarter of 2022 to 0.40% in the quarter most recently completed.
The bank’s net interest margin – a key metric – continued to contract, hitting 3.03% at the end of the third quarter, down 14 basis points from the second quarter and down 22 basis points from a year ago.
At the same time, Citizens’ capital metrics showed improvement, with its common equity tier 1 capital ratio – a measurement of financial strength that compares a bank’s core capital against its risk-weighted assets – increased from 9.8% in the third quarter of 2022 to 10.4% as of Sept. 30.
“Our spot deposit levels were up slightly relative to [the second quarter] and broadly stable with a year ago, and our [net interest income] and [net interest margin] were in line with expectations,” Van Saun said. “We increased our CET1 ratio to 10.4% while continuing to repurchase a modest amount of stock.
“The ramp of the Citizens Private Bank is making good progress, with several launch events over the next few weeks, and the noncore rundown is on track. Successful execution of these initiatives will meaningfully bolster [earnings per share] and returns. We will continue to play strong defense given the external environment while advancing important strategic initiatives,” he said.
William Hamilton is PBN managing editor. He can be reached at hamilton@pbn.com.
