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Operating throughout New England and the central parts of the U.S., the bank chain owns over 1,000 locations and 3,000 ATMs in 11 states.

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With a banking business serving customers primarily in the Northeast, Citizens operates 1,000 branches and 2,800 ATMs. Citizens held $176.7 biliion in assets as of March 31, 2020.

This year's Fortune 500 marks the 65th running of the list.

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One of the oldest financial institutions in the U.S., Citizens Financial Group was founded in 1828 and now provides a variety of retail and commercial banking products and services, operating through its consumer banking and commercial banking segments. The consumer banking segment offers products including mortgages and credit cards and services like wealth management, while the commercial banking segment provides services such as lending and leasing, foreign exchange, and deposit management to companies in various sectors. Formerly called RBS Citizens Financial Group, the company became Citizens Financial Group in 2014.

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Citizens Financial Group (CFG): Company Profile, Stock Price, News, Rankings

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Citizens Financial Group

citizens financial group

Good morning, everyone, and welcome to the Citizens Financial Group Second Quarter twenty twenty five Earnings Conference Call. My name is Denise, and I will be your operator today. Currently, all participants are in a listen only mode. Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded.

Now I will turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin.

Thank you, Denise. Good morning, everyone, and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Sorn and CFO, John Woods, will provide an overview of our second quarter results. Brendan Coughlin, Head of Consumer Banking and Don McCree, Head of Commercial Banking are also here to provide additional color. We will be referencing our second quarter presentation located on our Investor Relations website.

After the presentation, we will be happy to take questions. Our comments today will include forward looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I'll hand over to Bruce.

Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We announced strong financial results today that exceeded expectations notwithstanding tremendous uncertainty in the macro environment during the quarter. Highlights include strong NII growth of 3.3% sequential quarter paced by NIM expansion of five basis points and the resumption of net loan growth across consumer, private bank and commercial good fee growth of 10% which was paced by wealth, card and mortgage good expense discipline with expenses broadly flat resulting in 500 basis points of operating leverage and credit trends remaining favorable and continued meaningful share repurchases. It's worth noting that capital markets still managed to have a pretty good quarter notwithstanding the uncertainty in the environment.

Our diversity helped as strength in equity underwriting and loan syndications offset weaker debt capital markets and a delay in the completion of several significant M and A deals. We expect that we will record over $30,000,000 in fees on these deals in July and our pipelines remain strong setting us up well for the second half. Our balance sheet remains rock solid across capital, liquidity, funding and our credit reserve position. We continue to execute well on our strategic initiatives. The Private Bank had strong growth in loans and AUM with average deposits up nicely, but spot deposits impacted somewhat by the timing of inflows and outflows.

We remain on track to hit all full year targets. The business is on track to deliver in excess of 5% accretion to Citizens bottom line and a 20% plus ROE in 2025. In addition, efforts across New York City Metro, private capital, payments and BSO are all tracking well. We've commenced work on a project we are calling Reimagining the Bank, which will be led by Brendan and other top leaders. The objective is to redesign how we serve customers and run the bank, taking advantage of new technologies like GenAI and AgenTeq AI.

This requires changes to our organizational model, our underlying technology and data architecture and imparting new skills to our colleague base. It will be multi year in nature and ultimately serve as our next top program. Stay tuned for more details later in the year. With respect to the second half, we believe that economic conditions and markets are trending favorable, though further machinations around tariffs continue to present a degree of uncertainty. Unfortunately, the fundamentals to drive higher deal activity and a pickup in loan demand remain intact and we feel well positioned to capture the opportunity and to deliver good results.

We remain comfortable with the full year guide for 2025 we gave back in January and we're well positioned to sustain that momentum into the medium term. In short, we feel good about our positioning overall from a strategic business and financial standpoint. We will stay focused on execution and the things we can control as we continue our efforts towards building a distinctive great bank. With that, let me turn it over to John.

Thanks Bruce and good morning everyone. As Bruce mentioned, we delivered strong second quarter results with really good revenue performance and disciplined expense management resulting in positive sequential operating leverage of about 5%. We saw lending begin to pick up during the quarter with net growth across commercial, consumer and private bank more than offsetting our non core run down. Referencing slides five and six, we delivered EPS of $0.92 for the second quarter, a $0.15 or 19% improvement over Q1. Net interest income for the quarter was up 3.3% driven by margin expansion and interest earning asset growth.

Fees were up significantly linked quarter. Wealth and card fees were a record for the quarter and capital markets showed modest growth despite market uncertainty, which resulted in several meaningful M and A deals pushing into July. Mortgage also increased largely due to an improvement in MSR valuation. Expenses were well managed and net charge offs came in as expected. With respect to our balance sheet, we continue to maintain robust capital, strong liquidity levels and a healthy credit reserve.

We ended the quarter with CET1 at 10.6%, while also executing $200,000,000 in stock buybacks during the quarter. And importantly, we are executing well against our key strategic initiatives, paced by continued momentum in our Private Bank and Private Wealth build out. The Private Bank continues to steadily grow its profitability contributing $06 to EPS this quarter, up from $04 in the prior quarter and we delivered our strongest quarter of loan growth so far adding $1,200,000,000 in loans. Also, we continue to make good progress in New York Metro and our TOP 10 program is on target and progressing well with work commencing on a multi year transformational TOP program to reimagine how the bank operates. Next, I'll talk through the second quarter results in more detail starting with net interest income on slide seven.

Net interest income increased 3.3% linked quarter driven by continued expansion of our net interest margin and modestly higher interest earning assets. As you can see from the NIM walk at the bottom of the slide, our margin improved five basis points to 2.95% given the time based benefits of non core runoff and reduced drag from terminated swaps as well as favorable fixed asset repricing. In addition, we continue to optimize our funding and execute well in our down rate deposit playbook as our interest bearing deposit costs decreased two basis points. Moving to slide eight, fees are up 10% linked quarter. Capital markets improved modestly driven by higher equity underwriting and loan syndication fees.

Bond underwriting fees were lower due to a tariff driven pause in activity for part of the quarter. Similarly, M and

A advisory fees were lower with some sizable deals pushing into July given the market uncertainty during the quarter. We expect that we will record over $30,000,000 in fees on these deals in July. We continue to perform well in middle market sponsored book runner deals ranking third by deal volume in the second quarter. And our deal pipelines across M and A and DCM remained strong in terms of the number and value of transactions given pent up demand. Our wealth business delivered a record quarter with increased transaction activity and higher advisory fees from continued positive momentum in fee based AUM growth in private bank.

Our card business also delivered a record quarter driven by a seasonal improvement in purchase volumes. Importantly, in consumer, we recently launched a new suite of Mastercard credit cards designed to address the distinct financial needs and preferences of our customers, which should help us accelerate growth in this business. Mortgage revenue growth reflects an improvement in MSR valuation as well as seasonal growth in production. Lastly, other income was a bit higher than usual this quarter as we had a few things break our way. This line can move around a little from quarter to quarter.

On slide nine, expenses are broadly stable linked quarter, helping to drive positive operating leverage of about 5% and improve our efficiency ratio to below 65%. Our latest TOP program is progressing well and is on target to deliver a $100,000,000 pretax run rate benefit by the end of the year. We've undertaken an effort to develop a much broader program to use new technologies to better serve customers and run the bank. We'll give you more on that later in the year. On slide 10, period end loans were up 1%.

This includes non core portfolio runoff of roughly $700,000,000 in the quarter. Excluding non core, loans were up approximately 2% on a spot basis. The Private Bank delivered its strongest loan growth quarter so far with period end loans up about $1,200,000,000 to $4,900,000,000 Commercial loans were up slightly given some new money lending growth and a pickup in line utilization. We are past the peak in terms of client BSO exits, which is also creating less drag to growth. And core retail loans grew driven by home equity and mortgage.

Next on Slides eleven and twelve, we continue to do a good job on deposits, improving the mix with an increase in noninterest bearing to 22% of the book and lowering our overall deposit costs. Average deposits were up 1%, driven by increases in lower cost categories across consumer and the private bank. We continue to focus on optimizing our deposit funding with a further reduction of higher cost treasury broker deposits this quarter and a decline in retail CDs. We delivered strong retail CD retention rates even as we reduced yields. This was a meaningful driver of our improving deposit costs this quarter as our deposit franchise continues to perform well in a competitive environment.

Our interest bearing deposit costs are down two basis points this quarter, translating to a 54% cumulative down beta. And importantly, stable retail deposits are 67% of our total deposits, which compares to a peer average of about 55%. Moving to credit on slide 13. Net charge offs of 48 basis points are down from 51 basis points in the prior quarter after adjusting for the seven basis point impact of the non core education loan sale in Q1. Retail net charge offs improved across both core and non core, down about 10 basis points after adjusting for the non core education loan sale.

This was partly offset by a modest increase in commercial net charge offs, primarily driven by an increase in C and I relating to several small idiosyncratic credits. Of note, non accrual loans continued to trend favorably and were down 4% linked quarter, reflecting a decline in C and I. Retail nonaccrual loans also decreased with a reduction in other retail and continued runoff of the noncore auto portfolio. As we look across the portfolio, we believe that credit trends are showing signs of improvement and that non accrual loans for this cycle likely peaked in the 2024 and net charge offs peaked in the first quarter of twenty twenty five. Turning to the allowance for credit losses on slide 14.

The allowance was down slightly to 1.59% this quarter as the portfolio mix continues to improve due to non core runoff, reduction in the CRE portfolio and lower loss content front book originations across C and I and retail real estate secured. The economic forecast supporting the allowance reflects a mild recession and macro impacts from tariffs similar to last quarter. The general office balance of $2,700,000,000 continued to decline modestly in the second quarter driven by paydowns and charge offs. The reserve for the general office portfolio is $322,000,000 which represents 11.8% coverage. It's worth noting that this is the first quarter since the general office concerns began that our ACL coverage level declined.

We allowed the reserve coverage to come down slightly, utilizing the reserve as we make progress with the workout backlog and the rest of the book remain stable. Note that the cumulative charge offs plus the current reserve translates to a total expected loss rate of about 20% against the March 2023 general office loan balance, consistent with our view at the end of Q1. Moving to slide 15, we have maintained excellent balance sheet strength. Our CET1 ratio was 10.6. Adjusting for the AOCI opt out removal, our CET1 ratio was stable at 9.1%.

Given our strong capital position, we repurchased $200,000,000 in common shares at a weighted average price of $39 and including dividends, we returned a total of $385,000,000 to shareholders in the second quarter. Our share repurchase program was also increased to $1,500,000,000 by the Board of Directors in June. Moving to slide 16. We are well positioned to drive strong performance over the medium term with our overall three part strategy: a transformed consumer bank, the best positioned commercial bank among our regional peers, and our aspiration to build the premier bank owned private bank and private wealth franchise. In support of these businesses, we've commenced work on a broad reimagining the bank initiative benefits by revisiting how we operate front to back and leveraging new technologies like AI to serve customers in new ways and run the bank better.

This will become a multiyear transformational TOP program, and we will have more to say about this as the planning progresses later in the year. Moving to slide 17, our Private Bank continued to make excellent progress. We delivered our strongest loan growth quarter so far, adding $1,200,000,000 of loans to end the second quarter at $4,900,000,000 This reflects growth in commercial as line utilization has picked up given increasing client activity as well as growth in mortgage. Average deposits were up $966,000,000 for the quarter and stable on a spot basis given a temporary surge in deposits at the end of the first quarter and some outflows at the end of the Q2. We've seen good deposit gathering momentum early in the third quarter with deposit levels over $9,500,000,000 in mid July.

The overall mix continues to be very attractive with about 36% in non interest bearing at the end of the quarter. We added three more strong wealth teams this quarter, one each in Northern New Jersey, New York City and Los Angeles. We ended the quarter with $6,500,000,000 in AUM, up $1,300,000,000 for the quarter. With a $06 contribution to EPS from the Private Bank in the second quarter, we are tracking well against our targeted 5% plus accretion to Citizens bottom line in 2025 and to deliver a 20% to 24% return on equity for the year and over the medium term. Moving to slide 18, we provide our guide for the third quarter, which contemplates a 25 basis point rate cut in September.

We expect net interest income to be up approximately 3% to 4%, driven by an improvement in net interest margin of approximately five basis basis points with interest earning assets up slightly. This pickup in net interest margin is primarily attributable to the time based benefits of non core runoff, reduced drag from terminated swaps and a benefit from fixed asset rate repricing. We expect noninterest income to be up low single digits led by rebounding activity in capital markets, which will be partially offset by reductions in mortgage and other income. We are projecting expenses to be up approximately 1% to 1.5%, reflecting continued private bank build out and broadly strong fee revenues. We expect to deliver positive operating leverage for the second quarter in a row.

Credit trends are expected to improve modestly from the second quarter charge off level. And we should end the third quarter with CET1 stable including share repurchases of roughly $75,000,000 which could be impacted by the amount of loan growth. Our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity in the second half of the year. Looking out to the medium term, we see a clear path to achieving our 16% to 18% ROTCE target. Expanding our net interest margin is also an important driver and we continue to project to be 3.05% to 3.1% in 4Q twenty twenty five, 3.15% to 3.3% in 4Q twenty twenty six and in the 3.25% to 3.5% range in 2027.

Slide 21 in our appendix provides some incremental details on our net interest margin progression to 2027. This combined with the impact of successful execution of our strategic initiatives and improving credit performance will drive ROTCE meaningfully higher through 2027. To wrap up, we delivered strong second quarter results that came in ahead of expectations, highlighted by growth in net interest margin, good fee performance and positive operating leverage. We ended the quarter with strong capital, liquidity and reserves, which puts us in an excellent position to support our clients and continue driving growth and progressing our strategic initiatives. With that, I'll hand it back over to Bruce.

Okay. Thank you, John. Denise, let's open it up for Q and A.

And our first question today comes from Ryan Nash with Goldman Sachs. Your line is open.

Bruce, you saw nice loan growth in the quarter. Obviously, decent amount of it was idiosyncratic given the gains that you're making in private bank. So I know there's a lot of moving pieces with loan growth, runoff in CRE, strategic runoff. But maybe can you just talk about what you're seeing in terms of growth in sort of the private bank and then everything else? And how you're feeling about settlement from borrowers for the remainder of the year? Thank you.

Sure. I'll start and then I'll take I'll pass it to Brendan and Don for more specific color. But I'd say it felt a little like an inflection point that we finally saw all three of the businesses commercial, consumer, private bank have net loan growth. And at the enterprise level we had loan growth that exceeded the kind of DSO and non core rundown actions that we're taking. And when we look into the second half, I would say, we're constructive on kind of the macro and the fact that there's been pent up demand to put money to work in the sponsor space.

We're starting to see kind of some new deal flow. We're starting to see a pickup in line utilization there and a little bit also in the pure corporate banking side. I think the private bank is finding its footing in terms of we kind of get have the operation up and running. Initial focus is attracting the relationships and gathering the deposits in the operating accounts. And I think it's been a little slower to see the loan demand pick up, but we're now starting to see that.

So some of the growth in the quarter was line utilization on some of the PEBC subscription lines we have, but also the individual consumer borrowing particularly around mortgage that's starting to pick up as well. And so we expect that now to continue. Clearly a little drop in rates if it happens in the second half would be a bit of a tailwind there. And then in consumer, we've been kind of just very steady. We have a great HELOC product.

We lead the market in HELOC market share. That continues to be a product that is in demand as well as mortgage being another area where we see consistent modest growth, but nonetheless it's growth. And then we launched a whole new card complex during the quarter and we would expect to see balances in the card space pick up a bit. So I'd say we see growth continuing really across the complex. And the other net positive is some of the BSO is starting to wind down and become less of a headwind.

So the non core reductions are smaller as we go forward. Some of the work that's been done in commercial that's smaller as we go forward. And so that will free up the overall net number to be a little bit more positive. So with that, why don't I go first to Brendan and then we'll go over to Don.

Sounds good. That was all well said. So maybe I'll just supplement that with a few numbers. In the core retail business excluding non core, we were up about 400,000,000 quarter on quarter about $1,000,000,000 year on year. So we're seeing steady high quality relationship led growth.

The HELOC progress that we're making has been substantial. And with external numbers that are available on title recordings, it appears we've been number one in The United States on originations in the last couple of quarters. And the credit quality has been very, very high, high 700s FICOs, mid-60s CLTV. So we're very pleased with the yields above 7%. So that's not when we're not playing across the country.

We're only playing in 14 or 15 space and number one nationally. So and those all come with deep deposit relationships as well given the structure of the product and our strategy. So we're very pleased with that. As Bruce mentioned, we're incredibly excited about the new credit card product launch. It will be mostly oriented around cross selling into our retail customer base versus trying to be a national issuer.

But we believe the products are very competitive. In fact, we're seeing 30% of our early sales in our higher end Mass Affluent oriented card that we're calling Summit Reserve, which is a metal black card and also comes with an annual fee. So it can reposition the profitability of the credit card business over time. And we expect balances, as purchase activity to scale in the back half of the year, start to see some modest high yielding growth there. So we feel like we're well positioned in consumer for that to continue and maybe accelerate a little bit on the yield side with card.

In the private banking space, we're seeing really an unlock on growth across the board dollars 1,200,000,000.0 in growth linked quarter, 31% of the balances are consumer. That's up a little bit from last quarter. We had a 95% growth rate linked quarter on originations on mortgage. So what we're hearing in the market is that our customers obviously were dealing with higher interest rates for a while. As we launched the business, you all saw that those metrics were heavy deposit led early on.

And they're starting to adjust to the new normal where interest rates are and business activity is starting to flow through. So the relationship started with day to day operating deposits and it's now moving into lending, which is great to see. Yields are strong six fifty five on the private bank, which is four thirty three basis points over the deposit cost. So we still have margin in this business that is NIM accretive, which is driving the obviously the ROE accretion at the top of the house. For us to deliver the rest of the year in private banking, we need an average of $1.1 a quarter versus $1,000,000,000 we just did.

So we feel pretty good that the story can continue and the pipelines are strong and demand is really increasing hopefully with volatility in the market staying in the same zone we're in now or better, we feel really positive. And then on the non core side, just as Bruce mentioned, the rundown is easing. Last year, we were running down about $1,000,000,000 a quarter. For the back half of the year, it be about $05,000,000,000 a quarter. So still a little bit of headwinds there, but that's reducing which should be net accretive and hopefully allow us to all the front book activity we're seeing in the customer businesses to start to scale up.

Yes. So I'll pick up where Brendan ended which is we've been reducing our book ex CRE by about $1,000,000,000 a quarter on our BSO agenda and that's we're basically almost done with that. So that's going to be a headwind that goes away. We'll continue to reduce CRE a little bit to the tune of $05,000,000,000 a quarter or so, but that will be a little bit of a drag. But we're I mean, what we're seeing is broad business optimism across the board. This quarter it was really led by the private complex, which everybody knows we've put a lot of resources, lot of strategic emphasis on.

So we saw a lot of great utilization in our subscription lines and our private credit lines. That was probably about 75% of our loan growth in the quarter with about 25% coming from C and I. But as I'm out talking to C and I customers, they're starting to see the uncertainty around the different policy questions abate. So you've got the budget bill passed, you've got The Middle East solved, you've got tariffs moving behind us and they're beginning to invest in their businesses again. And we're seeing quite dynamic pipeline growth across core C and I.

We're also people remember, we Bruce mentioned and John mentioned that New York Metro, we're two point five, three years into now, but we've also opened up in Florida and California in terms of middle market growth and we're seeing very nice new business generation in those markets, which is generating not only loan growth, but it's generating full wallet relationships, which we're really encouraged by. So very different from where I was six months ago. I'm very optimistic about what we see going forward. We'll see how quickly it materializes, but it seems like the environment is a good tailwind to the next couple of quarters.

I would just put one asterisk on what you said Don is that like the worst case outcomes on tariffs seem to be behind us. But it's still kind of out there as something to contend with. But I'd say most folks feel that we'll negotiate something that results in fairer trade. There'll be a higher tariff rate, but it's not something that is going to knock people off their peg.

And adjusting their business models to deal with it.

Correct. So let's hope that is the case as we go forward. But in any case, I think that has turned into something that's not as big of concern in terms of causing uncertainty. I also think besides the tax bill getting through the regulatory appointees getting confirmed and having pushing that aggressive deregulatory agenda will also be positive in the second half of the year. Okay. Okay. Ryan, anything else?

Yes. No, that was a great in-depth response. I just I feel bad that John didn't get a chance So maybe I'll just throw one out there for him. And obviously, it's been great to see the NIM expansion and you sort of reiterated all the NIM expectations over medium term.

I guess, given the potential that we could have a more dovish Fed at some point in the not so distant future, maybe just talk about what steps you are taking, if at all, to sort of try to lock in the higher end of those margin expectations? And even if we're in a more dovish environment, can we see sort of the midpoint to higher in terms of the net interest margin? Thank you. No more for me.

Yes. I appreciate that, Ryan. And so I guess what I would talk about is we have this range that we've talked about over the medium term of 3.25% to 3.5%.

And in our materials, we talked a little bit about what rate environment that range would be consistent with. That rate environment even with the Fed funds level that is frankly even below 3%, I'd say that something even in the neighborhood of 2.75, which should be a significant amount of dovishness and a significant amount of reductions from the Fed would still be consistent with the low end of that range of 3.25 And anything higher than that, what we messaged was something in the neighborhood of three fifty probably puts us in the middle of our range and at three thirty seven NIM and anything that higher for longer gets us to the high end of that range. So we're feeling very increasingly confident in that range. And what we've been doing to try to quarter over quarter to protect that downside is opportunistically putting on hedges in a forward starting way. And those hedges generally are well north of where we think the Fed will likely come out.

So they'll be stable to providing protection against that lower end. So get a little bit of hedging in the second quarter, little bit in the first quarter and we'll continue to opportunistically look for our spots given rate volatility. And that's playing out really as expected. And so feeling pretty good about that range.

Yes. I'll just add is that you don't want to spend all your powder on the down scenario. So we've left some of the out years a bit open because you could get in a situation where you have stagflation and then you want to be able to participate and get the benefit of that in a higher rate environment. So that's kind of a judgment call, but I think we have a really good buy box discipline so to speak. So we're waiting to see little spikes and then we'll put some more on.

But we're still kind of open to the possibilities that we could end up in a different scenario than what is the consensus scenario of the Fed kind of moving down.

Thank you. The next question comes from Erika Najarian with UBS. Your line is open.

Yes, hi. Good morning. I just wanted to ask about the right hand side of the balance sheet in terms of the strategy for the second half of the year. Given everything that I've heard from Brendan and Don, it sounds like it's going to be a good second half for growth. And I've noticed, John, that you did have great NIB growth in the quarter.

Total deposits were down a little bit. As we think about the second half of the year and potentially a growth year outlook, how are you thinking about sort of growth versus optimizing the mix? And or is there sort of more BSO to consider that's coming on the asset side that could help fund that growth?

Yes. I think it's a tale of both of those Erica. But well I'll start off with the deposit side. We're pretty pleased with our low cost deposit trends. So the mix improved in the second quarter compared to the first quarter on DDA and low cost overall.

And those contributions are driven predominantly by our idiosyncratic private bank growth that comes in at 36% of non interest bearing. That's accretive to top of the house. But also the core retail deposit base has just been performing exceptionally well versus peers from all that we can tell. So there's very strong momentum there. And then we have really good seasonal factors that contribute on the commercial side in the second half typically.

So all of that lines up for what we believe to be stable to improving mix on the deposit side while actually still being able to grow deposits to support our loan growth outlook.

Stable. Yes, excellent liquidity with very good LDRs, a good point there. And then of course on the left side of the balance sheet, we are still rotating capital, maybe to a declining degree, but we've done a really nice job of rotating all of that capital out of non core and deploying it into highly strategic opportunities in the front book across all three businesses, all three legs of the stool. That's been really efficient, and that front bookback book is extremely powerful and will continue for some time in the non core space. You heard Don talk about the fact that he's still rotating capital in C and I, although to a decreasing level such that we're seeing some of this growth fall to the bottom line.

Okay. I'm going to just briefly ask for a brief comment with color, so we don't chew up too much of the clock. But Brendan maybe anything to add on kind of strategies in the second half for consumer or private bank? And then Don I'll flip it to you also for a brief comment.

Yes. Just quickly to John's point. The benchmarks we see show that our low cost deposits in the retail franchise are outperforming peer averages by over 300 basis points for the year so far, which is giving us a lot of optionality on how we manage our deposit strategy. So we generally have been flattish linked quarter on interest bearing deposits, but we've actually grown retail core relationship deposits and released a little bit of interest bearing deposits on the Citizens Access side, which has given us a lot of ability to manage margin. And the total yield on the consumer business is down three basis points as a result.

So all of that is giving us the ability to rotate to a higher quality deposit book, more relationship led and given us some flexibility the yield side. We've had a lot of CD, maturities $8,000,000,000 in Q1, 6,000,000,000 in Q2. We're retaining about 87% of that, but the yields on that are down 120 basis points when we save those balances. That's also allowing us to drive costs down. And we have large maturities coming due.

It's a little bit less in the second half than the first half of the year, but we still have big maturities up. We expect that to continue to give us some cost value. And on the private bank side, won't add a lot. We've got confidence in the outlook on growth, 36% non interest bearing, 42% low cost when you add in seaweed. So the portfolio is of real high quality.

We're starting to see the consumer side starting to gear up on some growth as well. And we just expect those trends to continue through the summer and into the fall. So we're pleased with that and that should give us the ability to have idiosyncratic deposit growth. Bill?

Yes. And I'll be super brief. I'd say the two things I'm excited about on the deposit side is we are getting a nice win rate in our expansion markets which is full wallet win rates. And then we've had a couple interesting wins on the payment side, another big merchant acquiring account and a couple other embedded finance type of accounts, which is coming with some nice low cost deposit growth. So it's changing our mix a little bit.

And the liquidity team on the commercial side of the house has done a great job building a bunch of product functionality, which is away from just the core client functionality. So we see nice momentum on that front.

Yes. And just one more for you, Bruce. Just on the capital, obviously your large peers, their requirements have started to move down with this year's stress test potentially more with other types of recalibration. With Basel III Endgame potentially getting finalized, maybe the AOCI burden is just a third for near term than the 150 basis point adjustment that we have fully accounting for it today. I guess like in terms of regional bank CET1 and excess capital definition, how much of it can sort of ride with the momentum of the GSIBs versus potentially being also upheld by the ratings agency.

I know ratings agencies, I know one of your peers talked about that being a bit of a binding constraint for the regionals and I'm wondering if you had any thoughts on that?

Yes. Sure. So I would say, it's good when you come through a turbulent period like we had in the banking industry through 2023 and 2024 to build capital and run a little conservatively. And so I think you've seen all the regionals building their capital. I think the rating agencies view collectively is that profitability took a bit of a dip and needs to be kind of restored.

And then also there was this overhang of commercial real estate office that needed to work itself through. And so hold more capital until we see the flex point where profitability has rebounded and you've got through the kind of workout phase and substantially through and credit appears to be in good shape. So I'm hopeful the rating agencies start to look more out the front view mirror and don't hold on to that view for too long. But I think it's still there and it's probably on investors' minds too is let's just make sure that we're in a good environment and then potentially capital can come down a bit. So I don't think it's going to happen right away.

I think we've been running a bit above our 10% to 10.5% CET1 range. Ultimately, I think we'll be able to bring it back into that range and still probably stay a bit on the conservative side. That's been our MO really since the IPO is to run a little conservative on capital. And there's some real benefits that come from that. If you have a fortress balance sheet, the industry is going to economy is going to go through cycles.

That means the industry is going to go through cycles and there's going to be opportunities with this. When the West Coast banks failed, we were in position to go bid and ultimately to do the startup of the private bank in a tough environment. So actually running with a little more conservative in your capital structure proves to be a long term benefit. So that's where I think it is Erica.

Thank you. The next question comes from Matt O'Connor with Deutsche Bank. I'm sorry.

Thank you. I was hoping you could just elaborate a little bit on the reimagining the bank initiative. Maybe any color if there's kind of a point person running it and how it's different from the top initiatives that we've seen over the last several years?

Okay. I'll start and I think I'll flip it to Brendan who will be on point for this one. But if you go back in the annals of our TOP program, we've had 10. Number six about five years ago was a bigger more complex program that kind of took a two year time frame and had more technology investment to deliver the benefits. And so a lot of times when we focus on these annual top programs, we're going after faster wins that aren't as complex and across the enterprise and involve rolling out new technologies.

But we paused and did a two year program in TOP six. I think we're at a flex point now in what's happening with new technologies that it's worth doing something similar for the next TOP program. And I think it's kind of broader. TOP program may sound limiting. And when you say reimagining the bank, it's how you're serving your customers, what you can do for your customers, the efficiency of how you're running the bank, how you can just say things like I have all these people in the call centers, what are ways to deliver better outcomes and more cost effectively, what would it take to ultimately drive that, what has to happen from a technology standpoint, organizational standpoint, So we're taking that step back now.

We're talking with lots of outside consultants looking at scenarios across all industries, across the planet in the banking industry. What are what is kind of the cutting edge right now in terms of how these technologies are being deployed that can be kind of a seismic shift in how your bank's operating? It sounds I don't want to set expectations too high, but we are really at an exciting period now. So we basically set up Exco like mini Exco sponsorship group, is going to be led by Brendan. We have a kind of day to day lead project team from some key people across the bank that will focus on this mainly as their job now for the next few quarters.

And then we have some idea on the silos that we can go attack. So we're kind of setting up the structure and then we're going to unleash this very shortly. But with that setup maybe Brendan you could add to

Yes. I guess my thoughts here would be after going through the IPO for ten years and then through COVID I think for Citizens it's a natural reflection point on the next chapter for the bank. And what got us here might need to shift a little bit on what's going to get us to the next phase. And so good to just pull way back and have a broad lens on that. And then to Bruce's point, you combine that with the market dynamics that things are changing very, very fast.

The use cases on AI are becoming a little bit more real versus hopes and dreams. And how do we combine those two dynamics to simplify the business model, get really crisp on where we want to win and then really reimagine how the bank works to get things done in a win win fashion, faster, cheaper for the bank, better from a customer experience standpoint for our customers. So all things from operating metrics and artificial intelligence and cost to our people strategy and corporate real estate to simplifying our vendors and getting really, really focused. Everything's on the table. And so the work to be done over the next couple of months is just to hone that and get really focused on where we want to get to, which as Bruce mentioned, you'd hear from us as soon as we get more specific on what we're going to tackle.

It's been five or six years since we did the last really big top and that's probably the right time line to move from the smaller programs back to a really large one.

And I would just also add Matt that we get to some really good numbers in the medium term without this. And so we are aiming big on what the potential benefits can be, which could be quite beneficial to the overall financial metrics. Some of that is we'd like to free up the capacity to do more investment in some of our growth initiatives. So, you get that virtuous circle going. And so you create some self funding for the things that you think are going to drive the future.

So you're able to now accelerate the investment cycle and drive kind of top line growth and efficiency growth. And clearly you're not going to spend everything that you save. You're going to some of that will drop through and benefit the margin and benefit ultimately the shareholder. But then there's some longer term considerations where you can free up some investing dollars to actually accelerate the build out of things like the private bank. So we're pretty excited by it.

I don't want to oversell it at this early stage, but stay tuned. We'll be talking more about it in the next couple of calls.

That's helpful. And then just as you think about kind of some of the upfront costs for this, are you thinking you can self fund it like you've been able to offer in the past or anything that we should be mindful of in terms of notable items and things like that? Thanks.

I guess it's TBD Matt is what we've decided to do now is if there these are modest costs and they tend to repeat with each top program we're kind of not posting them separately and breaking them out. But if there were some big things that look more like an expenditure of capital and would affect the run rate, we can either call them out or we can notabilize them. But we haven't crossed that bridge at this point.

Citizens Financial Group (CFG) Q2 2025 Earnings Call Transcript

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