By Saeed Azhar and Lananh Nguyen
NEW YORK (Reuters) – Citizens Financial Group will probably raise its return on tangible equity (ROTE) target for the medium term after exceeding its goal in the third quarter, the company’s chief executive told Reuters.
The Providence, Rhode Island-based bank is “probably going to reassess the medium-term ROTE target and take it higher” in January, Citizens’ CEO Bruce Van Saun said in an interview on Wednesday.
ROTE climbed to 18% in the third quarter and is expected to exceed 16% this year, surpassing a current target of 14% to 16% Van Saun said. The company reported a 20% jump in net income to $636 million in the third quarter as it earned more from interest payments.
Regional lenders like Citizens are less reliant on volatile investment banking and trading income than their larger competitors. As the Federal Reserve tightens monetary policy, banks have benefited from a surge in income from collecting higher interest payments.
Citizens’ net interest margin, the amount it earned in interest paid on loans versus the interest it paid out to depositors, rose to 3.24% in the third quarter from 2.72% in the same period a year earlier.
The bank expects higher margins in the near term, but has also been hedging for a potential drop in rates in the future, which will help keep its net interest margins at current levels, Van Saun said.
He expects loan growth to slow, after growing at an annualized rate of 8%, as the risk of recession rises. That has prompted the bank to be more selective on lending.
The bank sees more opportunities in commercial lending and home equity loans, and has turned more cautious on mortgages and auto lending, Van Saun said.
“We’ve been seeing prices starting to fall in the markets that got most overheated,” he said, referring to home prices.
Earlier this year, the bank acquired 200 branches in the New York and Philadelphia metropolitan areas, as well as locations across New Jersey. It expected those sites to perform as well as its existing branches in three or four years, Van Saun said.
(Reporting by Saeed Azhar and Lananh Nguyen; Editing by Chris Reese)