CITIZENS FINANCIAL GROUP INC/RI Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Performance: Finished the quarter strong with NIM expansion, capital markets fees, positive operating leverage, favorable credit trends, and a robust balance sheet. Repurchased $225 million in shares during the quarter.
• Private Bank Progress: The private bank business is ramping up, with growth in customer base, reaching financial targets, and adding teams in Southern California and South Florida.
• 2024 Results: Hit most line items in the beginning-of-year guide except balance sheet volume, and repurchased more shares due to subdued loan demand.
• 2025 Outlook: Anticipates NII growth driven by NIM expansion and modest net loan growth, fee growth paced by capital markets and wealth, positive operating leverage around 1.5%, improving credit costs with reserve releases, and managing CET1 ratio above 10% to 10.5% range. Continues with regular share repurchases.
• Strategy: Focuses on a transformed consumer bank, best-positioned commercial bank, and premier private bank and wealth franchise.

Segment Performance

• Net Interest Income (NII): Up 3.1% linked quarter, driven by a 10 basis points NIM expansion.
• Fees: Up 5.6% linked quarter, primarily driven by improvement in capital markets, with mortgage banking fees reflecting higher MSR valuation and wealth business showing momentum.
• Expenses: Up 3.5% linked quarter, paced by hiring in private bank, private wealth, and commercial middle market.
• Credit Trends: NPAs down sequentially, criticized assets trending down, charge-offs stable. ACL-to-loan ratio increased to 1.62%.
• Private Bank: Reached $7 billion in deposits, $3.1 billion in loans, $4.7 billion in AUM in 2024, profitable in Q4. Targets for 2025 revised with deposits bumped to $12 billion, AUM to $11 billion, and loans to $7 billion.

Guidance

• 2025 NII: Expected growth due to NIM expansion and modest net loan growth.
• Fees: Projected growth paced by capital markets and wealth.
• Operating Leverage: Anticipate around 1.5% positive operating leverage for the full year.
• Credit Costs: Projected to improve with reserve releases expected throughout the year.
• CET1 Ratio: Aim to manage CET1 ratio above the 10% to 10.5% range.
• Private Bank Targets: Revised deposits to $12 billion, AUM to $11 billion, and loans to $7 billion for 2025, with confidence in achieving 5% accretion to the bottom line.

Risks

• Regulatory Changes: Uncertainty around new regulatory leaders and potential changes in capital, liquidity, and funding frameworks.
• Commercial Real Estate: Ongoing workout of the office portfolio, still in the mid-inning of resolving issues with limited new inflows.
• Interest Rate Movements: Impact on asset and liability repricing, potential effects on deposit betas and loan growth, with considerations of the belly of the curve impact.

Question and Answer

Q: About medium-term margin outlook?

A: John Woods mentioned confidence in bumping up the upper end of the NIM range due to higher Fed rate expectations and asset sensitivity.

Q: Higher fourth quarter costs?

A: Bruce Van Saun and John Woods discussed investments in the private bank and commercial expansion, with expectation of controlled costs after the initial lift.

Q: Deposit growth and repricing?

A: Brendan Coughlin and John Woods talked about a strong deposit franchise, low-cost deposit growth, and positive deposit betas.

Q: ROTCE targets and operating leverage?

A: Bruce Van Saun mentioned a medium-term ROTCE target of 16%-18% by 2027, with operating leverage accelerating in 2026.

Q: Commercial real estate office outlook?

A: Bruce Van Saun and Don McCree discussed ongoing workout, near midpoint of resolution, and improving liquidity in the real estate market.

Q: Belly of the curve impact?

A: John Woods explained asset sensitivity and the net positive impact of a higher belly of the curve on NIM.

Q: Loan growth catalyst?

A: Bruce Van Saun and John Woods mentioned the private bank as a key driver, with commercial and consumer contributing, expecting mid-single-digit ex-non-core loan growth.