Citizens Financial (CFG) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported underlying EPS of $3.24 for 2024, with a full-year ROTCE of 10.5%, which was 12% excluding non-core items [19][20] - Net interest income (NII) decreased by 9.7% year-over-year, with a full-year margin of 2.85% [20] - The company achieved a net interest margin (NIM) of 2.87% in Q4, reflecting a 10 basis point increase linked quarter [27] Business Line Data and Key Metrics Changes - The private bank reported$ 7 billion in deposits and $3.1 billion in loans, becoming profitable in Q4 [13][24] - Fees increased by 9% for the full year, driven by capital markets, card, and wealth fees [20] - Average loans were down slightly, with period-end loans down 1.7% linked quarter, reflecting a decline in commercial loans [31] Market Data and Key Metrics Changes - The company experienced subdued loan demand but compensated with a 10 basis point NIM expansion, leading to a 3% sequential growth in NII [7] - Period-end deposits remained stable, with growth in retail and the private bank offset by the paydown of higher-cost treasury and commercial deposits [32] - Non-interest-bearing deposits increased by about$ 940 million linked quarter, driven by the private bank and seasonal flows in commercial [33] Company Strategy and Development Direction - The company aims to transform into a premier bank-owned private bank and private wealth franchise, with a focus on a transformed consumer bank and a well-positioned commercial bank [17][40] - The company plans to step up investments in operating and capital expenditures to support key growth initiatives, anticipating positive operating leverage of around 1.5% for the full year [15][45] - The company is targeting a medium-term ROTCE of 16% to 18% by 2027, with expectations for NIM to reach around 3% [49][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in credit trends improving and projected credit costs to decrease in 2025 [9][46] - The company expects solid growth in NII and fees in 2025, driven by capital markets and wealth management [14][44] - Management noted that the deposit franchise is performing well in a competitive environment, with a focus on maintaining low-cost deposits [22][80] Other Important Information - The company repurchased $225 million in shares during the quarter, totaling$ 1.05 billion for the year, representing about 6% of the beginning of year outstanding shares [10][39] - The allowance for credit losses (ACL) to loan ratio increased slightly to 1.62%, reflecting a stable macroeconomic outlook and improving loan mix [26][37] Q&A Session Summary Question: Can you provide context on the medium-term margin outlook? - Management indicated that the confidence to raise the upper end of the margin range is due to the outlook on rates and performance in Q4, with expectations for NIM to potentially reach 3.50% [57][61] Question: What is the outlook for costs and investments in the private bank? - Management acknowledged higher costs due to investments in the private bank and commercial banking, but expressed confidence in maintaining firm costs moving forward [62][66] Question: How does the company view deposit growth and mix? - Management highlighted strong performance in low-cost deposits and expected continued growth in both quantity and quality, particularly in the private bank [73][80] Question: What is the company's perspective on regulatory changes with the new administration? - Management expressed hope for a more favorable regulatory environment that allows banks to operate with flexibility and supports economic growth [112][118] Question: What is the current status of the commercial real estate portfolio? - Management indicated that they are in the middle innings of working through the commercial real estate challenges, with no new inflows into the workout team and a reduction in criticized assets [122][131]