Citizens Financial (CFG) - 2025 Q2 - Quarterly Report

Part I. Financial Information Financial Statements (unaudited) This section presents the unaudited interim consolidated financial statements for Citizens Financial Group, Inc. as of June 30, 2025, covering balance sheets, operations, comprehensive income, equity, cash flows, and notes Consolidated Balance Sheets Total assets increased slightly to $218.3 billion as of June 30, 2025, supported by growth in stockholders' equity to $25.2 billion, driven by retained earnings and improved AOCI Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $218,310 | $217,521 | | Net Loans and Leases | $137,296 | $137,142 | | Goodwill | $8,187 | $8,187 | | Total Liabilities | $193,076 | $193,267 | | Total Deposits | $175,086 | $174,776 | | Total Stockholders' Equity | $25,234 | $24,254 | Consolidated Statements of Operations Net income for Q2 and H1 2025 increased to $436 million and $809 million respectively, driven by higher net interest income and lower provision for credit losses Key Performance Indicators (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $1,437 | $1,410 | $2,828 | $2,852 | | Provision for Credit Losses | $164 | $182 | $317 | $353 | | Noninterest Income | $600 | $553 | $1,144 | $1,070 | | Noninterest Expense | $1,319 | $1,301 | $2,633 | $2,659 | | Net Income | $436 | $392 | $809 | $726 | | Diluted EPS | $0.92 | $0.78 | $1.69 | $1.44 | Notes to Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, securities, loans, credit quality, derivatives, capital, and business segment performance, including ACL methodology and fair value measurements - The company's economic forecast used for the ACL calculation as of June 30, 2025, assumes a shallow two-quarter economic contraction, with peak unemployment projected at approximately 5.2% and a real GDP decline of about 0.5%[200] - The company utilizes various derivative instruments, primarily interest rate swaps, for hedging purposes. As of June 30, 2025, derivatives designated as hedging instruments had a notional amount of $72.8 million[248] - The company has three reportable business segments: Consumer Banking, Commercial Banking, and Non-Core. The Chief Executive Officer, as the Chief Operating Decision Maker (CODM), evaluates performance and allocates resources based on segment pretax profit or loss[294] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operating results for Q2 and H1 2025, covering performance, strategic initiatives, balance sheet, segments, risk, and capital Executive Summary The executive summary highlights increased net income and EPS for Q2 and H1 2025, alongside strategic actions like the sale of education loans and an increased share repurchase authorization Key Financial Highlights | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $436 | $392 | $809 | $726 | | Diluted EPS | $0.92 | $0.78 | $1.69 | $1.44 | | ROTCE | 11.05% | 10.61% | 10.35% | 9.73% | | Efficiency Ratio | 64.76% | 66.27% | 66.29% | 67.79% | - The company entered an agreement to sell $1.9 billion of Non-Core education loans in Q1 2025, with approximately $800 million settled to date and the remainder expected to settle in the second half of 2025[19] - The Board of Directors increased the common share repurchase program capacity to $1.5 billion. The company repurchased $200 million and $400 million of common stock during the three and six months ended June 30, 2025, respectively[20] Results of Operations Q2 2025 saw a 2% YoY increase in net interest income and an 8% rise in noninterest income, while noninterest expense increased by 1% and provision for credit losses decreased - Net interest income increased by 2% YoY in Q2 2025, driven by an 8 basis point expansion in net interest margin (FTE basis) to 2.95%[31][32] - Noninterest income increased 8% YoY in Q2 2025, primarily due to higher mortgage banking fees (up 35%) and wealth fees (up 17%), partially offset by a 22% decline in capital markets fees[36][37] - Noninterest expense increased 1% YoY in Q2 2025, driven by a 6% rise in salaries and employee benefits from hiring for the Private Bank and Private Wealth build-out. This was largely offset by an 11% decrease in other operating expense, reflecting lower FDIC deposit insurance costs[38][43] - Provision for credit losses decreased to $164 million in Q2 2025 from $182 million in Q2 2024, reflecting the runoff of the Non-Core portfolio and an improving loan mix[41] Analysis of Financial Condition Total loans and leases remained stable at $139.3 billion, with commercial growth offsetting retail runoff, while credit quality improved and total deposits were stable at $175.1 billion - The securities portfolio, primarily consisting of U.S. Treasuries and agency mortgage-backed securities, had an average effective duration of 3.7 years as of June 30, 2025[47] - Total loans and leases were stable at $139.3 billion. Commercial loans grew by $1.9 billion driven by line utilization, while retail loans decreased by $1.8 billion, largely due to the sale of $1.9 billion in education loans and auto portfolio runoff[49] Credit Quality Metrics | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Allowance for Credit Losses (ACL) (Millions) | $2,209 | $2,259 | | ACL to Total Loans Ratio (%) | 1.59 | 1.62 | | Nonaccrual Loans (Millions) | $1,524 | $1,664 | | Nonaccrual Loans to Total Loans (%) | 1.09 | 1.20 | - Total deposits increased slightly to $175.1 billion. Estimated insured/secured deposits represented 66% of the total deposit base[62][63] Business Segments Consumer Banking net income increased, Commercial Banking net income decreased, and the Non-Core segment's net loss narrowed in the first half of 2025 - Consumer Banking: Net income for the first six months of 2025 increased by $144 million YoY, driven by higher net interest margin and growth in mortgage banking and wealth fees, particularly from the Private Bank initiative[69][70] - Commercial Banking: Net income for the first six months of 2025 decreased by $116 million YoY, primarily due to lower net interest margin and reduced M&A and bond underwriting fees[73][74] - Non-Core: The net loss for the first six months of 2025 narrowed by $45 million YoY, reflecting the benefits of portfolio runoff. The period included a $25 million charge-off from the sale of education loans[76][77] Risk Management The company maintains a slightly asset-sensitive balance sheet with strong available liquidity of $82.8 billion, covering 140% of uninsured deposits, and no significant changes to its risk framework - The company's balance sheet is slightly asset sensitive, with a gradual 100 bps increase in interest rates estimated to increase net interest income by 1.1% over 12 months[87][89] - Total available liquidity was approximately $82.8 billion as of June 30, 2025, comprising $66.9 billion in contingent liquidity (cash, unencumbered securities, FHLB capacity) and $15.9 billion in available discount window capacity[113] - The Parent Company held $2.9 billion in cash and cash equivalents as of June 30, 2025, providing ample liquidity for dividends, share repurchases, and other corporate needs[115] Capital The company's capital position remains strong with a CET1 ratio of 10.6% as of June 30, 2025, well above regulatory minimums, despite slight decreases due to dividends and share repurchases Regulatory Capital Ratios (CFG) | Capital Ratio | June 30, 2025 | Dec 31, 2024 | Required Minimum | | :--- | :--- | :--- | :--- | | CET1 Capital Ratio | 10.6% | 10.8% | 9.0% | | Tier 1 Capital Ratio | 11.9% | 12.1% | 10.5% | | Total Capital Ratio | 13.8% | 14.0% | 12.5% | | Tier 1 Leverage Ratio | 9.4% | 9.4% | 4.0% | - During the first six months of 2025, the company repurchased $400 million of common stock and paid $371 million in common dividends and $67 million in preferred dividends[149] - The company calculates non-GAAP capital ratios including the impact of AOCI from securities and pension. Including this impact, the CET1 ratio would be 9.1% as of June 30, 2025[148][150] Quantitative and Qualitative Disclosures about Market Risk This section incorporates by reference the detailed disclosures about market risk from the Management's Discussion and Analysis section of this report - Disclosures about market risk are provided in the 'Market Risk' section of the MD&A[300] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[302] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[303] Part II. Other Information Legal Proceedings Information on legal proceedings is incorporated from Note 11 of the financial statements, with management not expecting a materially adverse effect on the company's financial condition - Details on legal proceedings are provided in Note 11 to the financial statements[304] - Management believes that the aggregate liabilities, if any, from current legal proceedings will not have a materially adverse effect on the company's financial condition[276] Risk Factors This section refers readers to the comprehensive discussion of potential risks detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The report directs investors to consider the risk factors detailed in the company's 2024 Form 10-K[305] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased approximately 5.1 million common shares, and the Board increased the share repurchase program authorization to $1.5 billion - On June 13, 2025, the Board increased the common share repurchase program capacity to $1.5 billion[306] Share Repurchases for Q2 2025 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 4,022,009 | $39.00 | | May 2025 | 95 | $36.89 | | June 2025 | 1,106,966 | $39.00 |