Release Date: April 16, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Citizens Financial Group Inc (CFG, Financial) reported a net interest margin (NIM) expansion of 3 basis points to 2.90%, indicating improved profitability.
- The company achieved core loan growth of 1%, demonstrating resilience in its lending operations.
- CFG maintained a strong balance sheet with a CET1 ratio of 10.6% and an LDR of 77.5%, showcasing financial stability.
- The private bank segment showed excellent growth, with deposits reaching $8.7 billion and assets under management (AUM) at $5.2 billion.
- CFG executed a strategic sale of $1.9 billion in non-core student loans, which is expected to be accretive to NIM, EPS, and ROTCE.
Negative Points
- Market uncertainty and economic challenges have led to a slowdown in capital markets activity, impacting fee income.
- There is increased uncertainty in the macroeconomic environment due to policy decisions and potential tariffs, which could affect loan demand and deal activity.
- CFG's non-interest income decreased by 3.5% linked quarter, reflecting seasonal impacts and market volatility.
- The company faces potential risks from a slowing economy, which could lead to higher credit provisions and slower loan growth.
- CFG's commercial real estate portfolio, particularly in the office sector, remains a concern, although it is being actively managed.
Q & A Highlights
Q: Can you provide more color on loan demand and trends in line utilization, especially considering the current economic backdrop?
A: John Woods, CFO, explained that they are seeing some line utilization increases, driven by factors such as tariffs, M&A, and working capital needs. This trend is expected to continue if uncertainty subsides. On the consumer side, there is strong demand in residential and HELOCs, with the private bank also contributing to growth. Donald McCree, Head of Commercial Banking, added that while some customers are cautious due to uncertainty, the bond market has been strong, which might reverse and support loan growth. Brendan Coughlin, Head of Consumer Banking, noted that despite non-core rundown, underlying business growth is decent, particularly in residential and secured portfolios.
Q: With a CET1 ratio of 10.6%, how do you view the trade-off between buybacks and maintaining capital in a weaker loan growth scenario?
A: John Woods, CFO, stated that they are committed to maintaining a CET1 range of 10.50% to 10.75%. If loan growth is weaker, they might increase buybacks, as their capital position is strong. Bruce Van Saun, CEO, added that if growth doesn't materialize, they could use freed-up capital for buybacks, especially given the attractive stock pricing.
Q: Can you discuss the capital markets outlook and the fee guide, especially regarding the record pipeline and potential offsets if expectations aren't met?
A: Bruce Van Saun, CEO, expressed optimism about the strong capital markets capability and record engagements, expecting deals to close as uncertainty subsides. If not, they have diversification within fees and potential offsets like incentive compensation adjustments and expense management. Donald McCree, Head of Commercial Banking, highlighted the diversity of the franchise and the strong desire for mid-sized company transactions, which are executable despite delays.
Q: What is the ideal interest rate environment for Citizens, and how would different scenarios impact the NIM outlook?
A: John Woods, CFO, explained that they are slightly asset-sensitive and close to neutral. The NIM trajectory is primarily driven by time-based benefits, not rate-dependent. They are comfortable with a wide range of rate scenarios, with a slight preference for higher rates, which would enhance performance.
Q: How does the current reserve account for potential economic downturns, and what are the dynamics of the non-core runoff?
A: John Woods, CFO, stated that their baseline scenario includes a 5.1% unemployment rate, with more severe assumptions for CRE. The reserve is considered conservative, with a mild recession already factored in. The non-core runoff is paired with growth in the private bank, reallocating capital to higher-value assets.
Q: Can you elaborate on the service charges and overdraft trends, and what is driving these components?
A: Brendan Coughlin, Head of Consumer Banking, noted that service charge growth is largely driven by cash management and business banking, with healthy fee creation. Overdraft fees are stable, with no recent pricing changes, and are not expected to grow significantly.
Q: What are the pros and cons of selling the entire non-core loan portfolio?
A: Bruce Van Saun, CEO, explained that the auto portfolio runs off predictably and quickly, so selling it would incur unnecessary liquidity costs. John Woods, CFO, added that the non-core portfolio will be significantly reduced by year-end, making a full sale less impactful.
Q: How are you managing credit risk in the C&I portfolio amid economic uncertainty?
A: Donald McCree, Head of Commercial Banking, stated that there is no macro deterioration in C&I, as businesses have tightened their belts during COVID, positioning them well for uncertainty. Bruce Van Saun, CEO, added that the focus is more on how much offense businesses want to play rather than credit risk.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
