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Citizens Financial sees room for more deposit cost cuts as loan yields stabilize

Citizens Financial Group Inc. sees pressure on loan yields stabilizing in the first quarter of 2020 even as it expects deposit prices to continue to fall through the first half of the year, executives said on a call to discuss fourth-quarter 2019 results.

The Providence, R.I.-based bank forecast that its net interest margin will be stable to up from the fourth quarter of 2019 in both the first quarter of 2020 and for the full year. With continued growth in interest-earning assets, Citizens Financial also projected that net interest income will increase about 1% to 2% in 2020 compared with 2019.

The bank's net interest margin fell 6 basis points from the linked quarter to 3.04% in the fourth quarter of 2019, while its net interest income was about flat at $1.14 billion.

The projections are based on the expectation that the Federal Reserve will remain on hold, but executives underscored the potential for movements in interest rates that would boost earnings.

"There's probably more of an upside breakout bias" in rates in 2020, Chairman, President and CEO Bruce Van Saun said, citing reductions in "macro overhangs" including reduced trade tensions. Citizens Financial remains asset sensitive.

Van Saun added that the yield curve has historically steepened when the Fed pauses, which would "create a little kick" to net interest income. Vice Chairman and CFO John Woods said the bank had repositioned its balance sheet to benefit from steepening.

Citizens Financial posted a linked-quarter drop of 15 basis points in its cost of interest-bearing deposits, to 1.09% in the fourth quarter, delivering on its prediction that the decline in its deposit costs would accelerate.

Further declines could dissipate late in 2020 if market rates hold steady, Woods said, but the bank could continue to benefit from maturing high-cost time deposits throughout the year.