From: http://www.bizjournals.com/

After Citizens Financial Group announced its second-quarter earnings Tuesday morning, headlines focused on a drop in income and former parent Royal Bank of Scotland’s continued sell-off of its stake in the Providence-based institution.

What received less attention was the bank’s moving of the goalposts on a key profitability target, and a new plan to generate revenue and cut costs that includes changing the way it prices services such as cash collection and payroll support.

As part of his multiyear blueprint for turning around Citizens (NYSE: CFG), CEO Bruce Van Saun had set a goal of reaching a 10 percent return on average tangible common equity by the end of 2016. But Van Saun acknowledged in a conference call Tuesday that it was “highly likely” the bank would not accomplish that goal on deadline. The bank’s rate of return was around 6 percent in the second quarter.

The Federal Reserve has been slower to raise interest rates than Citizens expected when it established the goal, he said. Citizens has also brought in less in fees than it had hoped, as it’s had a tougher time than anticipated hiring mortgage loan officers and wealth managers.

During the call, Citizens executives unveiled a $90 million-to-$115 million revenue and efficiency initiative, on top of a $200 million cost savings goal it had previously set.

The bank hopes to bring in an additional $20 million-to-$25 million by improving its commercial-lending pricing. Unlike many of its peers, Citizens hasn’t raised cash-management prices in more than five years, Van Saun said, and has granted volume-based waivers to customers without adequately checking to make sure they’re meeting those volume commitments.

For instance, for those customers who aren’t meeting their volume commitments, Citizens may issue an ultimatum: hit that commitment or face a price increase. Either way, the bank profits, according to Van Saun. “We don’t really see much of a risk of customer pushback because frankly they’ve been getting a good deal for too long,” he said.

The revenue goals will be a challenge for Citizens in such a competitive banking environment, according to Keefe Bruyette & Woods analyst Brian Klock.

“A lot of big banks are going after the same customers, and now you’re saying we want you to pay a little more for the same service we offered you before,” he said.

A Wells Fargo analyst raised a similar point during the conference call, noting that other banks are bulking up their cash management businesses. Van Saun replied that he expected little customer attrition because of the pricing changes, which are about “bringing the book back to … a fair and average market pricing relative to peers.”

The new plans also envisions a revenue bump of $30 million-to-$40 million through initiatives to increase cross-selling to customers and setting up more face-to-face meetings with customers in branches, among other things. In addition, it calls for up to $50 million in savings through operations improvements and continued consolidation of vendors. Klock said the cost savings should be easier to achieve that the revenue increases.

Overall, Citizens had a well-executed quarter, Klock said, with loan growth that bested many peers and impressive asset quality. Citizens’ loans and leases portfolio grew by 9 percent in the quarter compared to the previous year.