Citizens Financial Group on Tuesday presented a 2023 earnings outlook that was buoyed by a relatively upbeat economic forecast.
Executives at the $226.7 billion-asset bank believe that an economic downturn following last year's volatility will be "relatively manageable," CEO Bruce Van Saun said.
At this point, any potential recession appears likely to be "subdued," Van Saun said during an interview after the Providence, Rhode Island, bank's fourth-quarter earnings presentation.
Inflation should settle down to around 3%, and unemployment should only rise slightly to 4%, Citizens said in a presentation. The Federal Reserve is likely to raise interest rates by 50 basis points early in the year, but also to make a cut by December, Citizens predicted.
The positive economic outlook on Tuesday contrasted with Van Saun's
During 2023, Citizens expects its net interest income, which grew 33% last year, to increase at a more modest pace of between 11% and 14%, though the bank continues to benefit from last year's Fed rate hikes.
"The full-year effect of what happened in 2022 is going to carry into this year's results," Van Saun explained. "The rates at the margin don't have as big an impact this year as the rate hikes that have already happened."
For the fourth quarter, Citizens reported $1.7 billion of net interest income, a 50% increase from the same period last year. Its net interest margin expanded by 63 basis points during the same period.
The parent company of Citizens Bank also expects that its total average loans, which rose by 21% last year, will increase by 4% to 5% this year.
"Being a little cautious always serves you well," Van Saun said. "If we're optimistic about anything, it would be our ability to deal with the challenges that are ahead of us."
Meanwhile, Citizens is projecting a turnaround in noninterest income, which declined by 6% last year. In 2023, the bank expects the metric to rise by 7%-9%, driven by a rebound in its capital markets business.
Citizens reported fourth-quarter noninterest income of $505 million, which was down 15% from the same period last year. The decline was driven partly by a 29% drop in mortgage banking fees.
Also during the quarter, deposits rose by 17% from the same period a year earlier to $180.7 billion. Net charge-offs climbed 65% to $76 million.
Rate-sensitive assets, including residential and commercial real estate, will be "an area of particular focus" for signs of stress throughout the year, Van Saun said.
Nonetheless, he indicated that the bank's customers are by and large on strong footing.
"We see a pretty solid underpinning to the economy," Van Saun said. "Generally speaking, if your broad set of customers are in pretty good shape, it's hard to see how you'd have a significant downturn."
Citizens' net income of $653 million was up 23% from the fourth quarter last year. Net revenue grew 28% to $2.2 billion, while noninterest expenses rose 17% to $1.2 billion.
The bank reported earnings per share of $1.25, which fell below the average estimate of $1.31 from analysts surveyed by FactSet Research Systems.
