Citizens Financial (CFG) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net interest margin (NIM) expansion of three basis points to 2.90% [6][21] - Earnings per share (EPS) for Q1 was 77 cents, with a return on tangible common equity (ROTC) of 9.6% [15] - The balance sheet remains strong with a CET1 ratio of 10.6% and a loan-to-deposit ratio (LDR) of 77.5% [6][19] Business Line Data and Key Metrics Changes - The private bank saw significant growth, reaching $8.7 billion in deposits and$ 5.2 billion in assets under management (AUM) [8][40] - Core retail loans grew slightly, driven by home equity and mortgage products, with HELOC up 9% year-over-year [62][64] - Non-interest income decreased by 3.5% linked quarter, impacted by seasonal effects in capital markets [23] Market Data and Key Metrics Changes - The company experienced a favorable credit trend with net charge-offs at 58 basis points, down from 53 basis points in the prior quarter [32][34] - Non-accrual loans decreased by 5% linked quarter, indicating improved credit quality [33] - Period-end deposits increased by approximately $3 billion, or 2%, primarily in low-cost categories [29] Company Strategy and Development Direction - The company aims to build a premier bank-owned private bank and private wealth franchise, with a focus on strategic initiatives in the private banking sector [39] - The strategy includes a transformed consumer bank and a well-positioned commercial bank among regional peers [39] - The company is optimistic about a pickup in loan demand and deal activity in the second half of the year, contingent on macroeconomic stability [10][12] Management's Comments on Operating Environment and Future Outlook - Management noted increased uncertainty in the macro environment due to policy decisions, but corporate and consumer borrowers are generally in good shape [9][10] - The company reaffirmed its EPS estimate for the full year, despite potential risks from economic uncertainty [10][44] - There is a significant amount of pent-up demand for M&A activity, with a record number of transactions in the pipeline [12][80] Other Important Information - The company executed$ 200 million in stock buybacks during the quarter, taking advantage of its strong capital position [36] - An agreement was made to sell approximately $1.9 billion in non-core education loans, which is expected to be accretive to NIM, EPS, and ROTC [17][38] - The company maintains a robust liquidity position with a pro forma liquidity coverage ratio (LCR) of 122% [31] Q&A Session Summary Question: Can you provide more color around loan demand and trends in line utilization? - Management indicated an increase in line utilization, driven by factors including tariffs and M&A activity, with expectations for continued growth in the second half of the year [54][56] Question: How does the company view capital management in light of potential weaker loan growth? - The company remains committed to its capital range and is open to increasing buybacks if risk-weighted assets decrease, while also monitoring economic conditions [70][73] Question: Can you discuss the capital markets outlook and fee guidance? - Management expressed confidence in their capital markets capabilities and noted a record pipeline of transactions, although timing may be affected by market conditions [80][86] Question: What is the ideal interest rate environment for the company? - The company is slightly asset sensitive and can perform well in a range of interest rate scenarios, with a focus on non-rate-related tailwinds driving NIM [93][99] Question: What unemployment rate is the reserve based on? - The baseline scenario assumes an unemployment rate of 5.1%, with higher rates applied to specific portfolios like commercial real estate [116][118]