Citizens Bank reduced its workforce by 3.5% in the fourth quarter

Michael Nagle/Bloomberg

Citizens Financial Group reduced its workforce by 3.5% in the fourth quarter, and the severance-related costs associated with that decision cut into the Providence, Rhode Island, company's earnings.

Citizens eliminated 650 positions through a combination of layoffs and attrition, company officials said Wednesday. The reduction in head count — combined with lingering integration-related costs, a special Federal Deposit Insurance Corp. fee and other expenses tied to certain efficiency initiatives — led net income to tumble to $189 million.

That was down 71% from the fourth quarter of 2022, when Citizens' net income totaled $653 million. Earnings per share in the most recent quarter totaled 34 cents, far below the average estimate of 60 cents from analysts surveyed by FactSet Research Systems.

Areas such as risk and audit were among those that were "spared" from layoffs, Citizens Chairman and CEO Bruce Van Saun said Wednesday during the bank's fourth-quarter earnings call. In response to an analyst's question about how the company is making sure it's not cutting too much, Van Saun said Citizens has gone through an exercise "to make sure that we won't be caught short in any areas."

"I think we have been very, very diligent in … looking at staffing levels across all the different activities in the bank and seeking efficiencies" to get to a "relatively modest" number, Van Saun said. "I think we're kind of lean and mean and in good fighting shape as we enter into 2024."

In addition to downsizing its workforce, Citizens, which totaled 17,570 at the end of the fourth quarter, exited wholesale mortgage lending as planned during the quarter. 

Citizens executives said Wednesday that they remain committed to the more relationship-based retail mortgage lending business. The exit from wholesale mortgage lending comes six months after the bank got out of indirect auto lending. 

The layoffs at the $222 billion-asset Citizens are the latest example of U.S. banks paring down their workforces to shed expenses and become more efficient in a high-interest-rate environment. PNC Financial Services Group in Pittsburgh has announced plans to trim its workforce by 4%, while head count at Zions Bancorp. in Salt Lake City was set to fall by 3% by the start of 2024. Last summer, Wells Fargo, Morgan Stanley, BMO Financial Group and USAA all reported layoffs as the banking industry grew more cautious about its growth prospects. 

Citigroup, meanwhile, said last week that it is planning to ax 20,000 jobs by the end of 2026. The job cuts are part of Citi's broader efforts to simplify itself and drive better returns.

The efforts to slim down are especially evident at banks with more than $100 million of assets, since they are gearing up for stricter capital requirements. Some banks have sold riskier, less profitable businesses, while others are selling certain loan portfolios.

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The special assessment by the FDIC, which totaled $225 million at Citizens, was the largest "notable item" to impact the company's fourth-quarter profits. In November, the FDIC said that an estimated 114 banks would be subject to the fee, as the agency seeks to recover losses suffered by the Deposit Insurance Fund following last year's failures of Silicon Valley Bank, Signature Bank and First Republic Bank.

Also in the fourth quarter, Citizens recorded $115 million in costs related to severance and other efficiency measures. Finally, it incurred $5 million of integration costs related to two acquisitions in 2022: its purchase of 80 HSBC retail branches and its purchase of Investors Bancorp in Short Hills, New Jersey.

Excluding those items, the bank's net income was $426 million, down 37.8% year over year.

Some analysts said that the bank's fourth-quarter expenses were well controlled. David Chiaverini, an analyst at Wedbush Securities, wrote in a research note that core noninterest expenses, which totaled $1.6 billion for the quarter, came in "better than expected."

The bank said it achieved a pretax run-rate savings of $115 million by the end of 2023 and has already set out on a similar initiative to achieve a pretax run-rate savings of $135 million by the end of this year.

Citizens continues to build out its nationwide private bank, which launched in late October. The private bank team pulled in $1.2 billion of deposits during its first quarter in operation, 30% of which are non-interest-bearing, the company said Wednesday. About 75% of the $1.2 billion is from commercial clients, executives added.