Citizens Financial Group, Inc. (CFG) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal a positive outlook for the bank. Financial performance is strong, with growth in private banking, deposit optimization, and a strategic focus on cost transformation. The bank's proactive measures to protect NIM and its strategic initiatives like 'reimagining the bank' are promising. Despite intense competition, the bank maintains pricing discipline. The positive sentiment is further supported by strong pipelines in capital markets and private equity. However, the lack of direct guidance on stablecoin impacts introduces some uncertainty. Overall, the sentiment is positive, with potential for a 2% to 8% stock price increase.
Key Financial Performance
Net Interest Income (NII) Increased by 3.3% sequentially, driven by margin expansion and interest-earning asset growth. This was supported by time-based benefits of noncore runoff, reduced drag from terminated swaps, and favorable fixed asset repricing.
Net Interest Margin (NIM) Expanded by 5 basis points to 2.95%, attributed to the same factors as NII growth.
Fee Income Increased by 10% sequentially, driven by record performance in wealth and card fees, modest growth in capital markets, and an improvement in MSR valuation for mortgage revenue.
Operating Leverage Positive sequential operating leverage of about 5%, achieved through disciplined expense management and revenue growth.
Earnings Per Share (EPS) $0.92 for the second quarter, a $0.15 or 19% improvement over Q1, driven by revenue growth and expense management.
Loan Growth Loans grew by 1% overall, with the Private Bank delivering its strongest quarter, adding $1.2 billion in loans. Excluding noncore portfolio runoff, loans were up approximately 2%.
Deposit Growth Average deposits increased by 1%, driven by growth in lower-cost categories across consumer and the Private Bank. Interest-bearing deposit costs decreased by 2 basis points.
Net Charge-Offs Came in at 48 basis points, down from 51 basis points in the prior quarter after adjusting for the noncore education loan sale in Q1. Retail net charge-offs improved, while commercial net charge-offs saw a modest increase.
Allowance for Credit Losses (ACL) Decreased slightly to 1.59%, reflecting portfolio mix improvements due to noncore runoff, reduction in the CRE portfolio, and lower loss content front book originations.
Capital Position (CET1 Ratio) Ended the quarter at 10.6%, stable at 9.1% after adjusting for the AOCI opt-out removal. $200 million in stock buybacks were executed during the quarter.
Private Bank Contribution to EPS Contributed $0.06 to EPS in the second quarter, up from $0.04 in the prior quarter, driven by strong loan and deposit growth.
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Operating Highlights
New Mastercard credit cards: Launched a new suite of Mastercard credit cards designed to address distinct financial needs and preferences of customers.
Private Bank and Private Wealth expansion: Strong growth in loans ($1.2 billion added) and AUM ($1.3 billion increase), with new wealth teams added in Northern New Jersey, New York City, and Los Angeles.
New York Metro expansion: Continued progress in building presence and operations.
Net interest income (NII) growth: Increased by 3.3% sequentially, driven by margin expansion and asset growth.
Fee growth: Increased by 10%, with record performance in wealth, card, and mortgage fees.
Operational efficiency: Achieved 5% positive operating leverage and improved efficiency ratio to below 65%.
Deposit optimization: Improved deposit mix with increased noninterest-bearing deposits and reduced deposit costs.
Reimagining the Bank initiative: Commenced a multiyear project leveraging technologies like Gen AI and Agentic AI to redesign customer service and bank operations.
TOP 10 program: On target to deliver $100 million pretax run rate benefit by year-end.
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Risk or Challenges
Macroeconomic Uncertainty: The company highlighted 'tremendous uncertainty in the macro environment,' which could impact financial performance and strategic execution.
Tariff-Driven Market Disruptions: Tariffs caused a pause in bond underwriting activity and delayed several significant M&A deals, pushing fees into the next quarter.
General Office Loan Portfolio: The general office loan portfolio remains a concern, with a reserve coverage of 11.8% and cumulative expected losses of about 20%.
Noncore Portfolio Runoff: The company is experiencing a runoff in its noncore portfolio, which could impact overall loan growth.
Competitive Deposit Environment: The company faces a competitive environment for deposits, which could pressure deposit costs and margins.
Credit Trends and Charge-Offs: While credit trends are improving, there are still modest increases in commercial net charge-offs and idiosyncratic credit issues.
Regulatory and Economic Risks: The economic forecast includes a mild recession and macro impacts from tariffs, which could affect credit losses and overall performance.
Execution Risks in Strategic Initiatives: The multiyear 'Reimagining the Bank' initiative involves significant changes to technology, organizational models, and skills, posing execution risks.
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Guidance & Outlook
Economic and Market Conditions: The company believes that economic conditions and markets are trending favorably for the second half of 2025, though uncertainties around tariffs persist. Fundamentals for higher deal activity and increased loan demand remain intact.
Full Year 2025 Guidance: The company remains comfortable with the full-year guidance provided in January 2025 and is well-positioned to sustain momentum into the medium term.
Net Interest Income (NII) and Margin: Net interest income is expected to grow by approximately 3% to 4% in Q3 2025, driven by a 5 basis point improvement in net interest margin and slight growth in interest-earning assets. The company projects net interest margin to reach 3.05%-3.10% in Q4 2025, 3.15%-3.30% in Q4 2026, and 3.25%-3.50% by 2027.
Noninterest Income: Noninterest income is projected to grow in the low single digits in Q3 2025, led by rebounding activity in capital markets, partially offset by reductions in mortgage and other income.
Expenses: Expenses are expected to increase by approximately 1% to 1.5% in Q3 2025, reflecting continued private bank build-out and strong fee revenues.
Credit Trends: Credit trends are expected to improve modestly from Q2 2025 levels, with net charge-offs showing signs of improvement.
Capital and Share Repurchases: The company expects CET1 to remain stable in Q3 2025, including share repurchases of approximately $75 million, which could vary depending on loan growth.
Private Bank and Wealth Management: The Private Bank is on track to deliver over 5% accretion to the company's bottom line and a 20%-24% return on equity in 2025. Loan growth and deposit gathering momentum are expected to continue.
Strategic Initiatives: The company has commenced a multiyear transformational program called 'Reimagining the Bank,' leveraging technologies like AI to improve operations and customer service. Details will be provided later in the year.
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Shareholder Return Plan
Dividends: Including dividends, Citizens Financial Group returned a total of $385 million to shareholders in the second quarter of 2025.
Share Repurchase: Citizens Financial Group executed $200 million in stock buybacks during the second quarter of 2025. The share repurchase program was also increased to $1.5 billion by the Board of Directors in June 2025.
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Key Q&A
Q:Can you discuss the loan growth observed in the quarter, particularly in the private bank, and the sentiment from borrowers for the remainder of the year?
A:Bruce Van Saun noted that all three business segments (commercial, consumer, private bank) experienced net loan growth, with enterprise-level loan growth exceeding noncore rundown actions. The private bank is gaining traction, with initial focus on relationships and deposits now translating into loan demand, particularly in mortgages. Brendan Coughlin added that core retail business grew by $400 million quarter-on-quarter and $1.4 billion year-on-year, with high-quality HELOC and credit card products contributing to growth. Donald McCree highlighted optimism in the private complex and C&I customers, with new business generation in expansion markets like Florida and California.
Q:What steps are being taken to lock in higher net interest margin (NIM) expectations, even in a potentially more dovish Fed environment?
A:John Woods explained that the bank has a medium-term NIM range of 3.25% to 3.50%, with hedges in place to protect against downside scenarios. He noted that even with a Fed funds rate below 3%, the low end of the range is achievable. Bruce Van Saun added that the bank is leaving some flexibility for higher rate environments to benefit from potential stagflation scenarios.
Q:What is the strategy for deposit growth and mix optimization in the second half of the year?
A:John Woods stated that the bank is pleased with low-cost deposit trends, with improvements in DDA and noninterest-bearing deposits driven by private bank growth and core retail performance. Seasonal factors are expected to contribute positively. Brendan Coughlin added that retail core relationship deposits are growing, and CD maturities are being retained at lower yields, improving cost structure. Donald McCree mentioned success in expansion markets and new wins in payment-related accounts contributing to low-cost deposit growth.
Q:What are the plans for the 'reimagining the bank' initiative, and how does it differ from previous TOP programs?
A:Bruce Van Saun described the initiative as a broader, more strategic effort compared to previous TOP programs, focusing on leveraging new technologies like AI to improve customer service, efficiency, and cost-effectiveness. Brendan Coughlin added that the initiative will address operating metrics, people strategy, corporate real estate, and vendor simplification, aiming for long-term impact over the next 3-5 years. The program will be led by Brendan and supported by a dedicated project team.
Q:What is the outlook for capital markets and fee income in the second half of the year?
A:Bruce Van Saun noted diversity in capital markets fees, with strength in equity markets, syndicated loans, and debt markets. M&A activity is expected to pick up as macro uncertainty decreases. Donald McCree highlighted strong pipelines in private equity and core C&I, with new money activity beginning to emerge. The bank expects capital markets to perform well in the second half.
Q:What is the progress and outlook for the private bank build-out?
A:Brendan Coughlin reported that private bank deposits are already over $9.5 billion as of mid-July, with strong momentum expected to meet the $12 billion year-end target. The platform is scaling, and new teams in markets like Southern California are contributing to growth. Bruce Van Saun emphasized the importance of maintaining financial discipline and achieving high returns, with plans to continue expanding private banking teams and offices in attractive locations.
Q:What are the competitive dynamics in lending and deposits, and how is the bank navigating them?
A:Donald McCree and Brendan Coughlin acknowledged intense competition but emphasized the bank's focus on relationship-led banking and multiproduct relationships. The bank is maintaining pricing discipline and targeting high-quality deposits and loans. John Woods noted that deposit betas are performing better than average, and the bank is leveraging its flexibility in deposit strategies to manage costs.
Q:What is the outlook for credit quality, particularly in the office sector?
A:John Woods stated that credit trends are improving, with charge-offs and nonaccruals expected to decline. Office reserves decreased by $30 million, reflecting stability in valuations and controlled probability of default. Donald McCree added that problem office properties are well-identified and undergoing restructuring, with no new properties moving into the workout group in the past year.
Q:What is the bank's stance on M&A and its potential role in industry consolidation?
A:Bruce Van Saun reiterated the focus on organic growth and improving ROTCE, with no immediate plans for M&A. He stated that any potential deal would need to meet high financial, strategic, and cultural standards, and the bank is well-positioned to execute if an attractive opportunity arises in the future.
Q:What is the bank's approach to capital allocation in capital markets and other growth areas?
A:Bruce Van Saun and Donald McCree stated that the focus is on OpEx rather than capital, with investments in coverage bankers, industry verticals, and corporate finance specialists. The bank is not capital-constrained and is maintaining prudent underwriting limits. Opportunities for growth are being targeted in areas like private equity and expansion markets.
Q:Review of Unclear Management Responses
A:Management did not directly address the question about the potential impact of stablecoin on the bank's operations and investments. Bruce Van Saun mentioned monitoring developments and customer needs but did not provide specific plans or investments in this area.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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CFG Transcript
Citizens Financial Group, Inc. (CFG) Q4 2025 Earnings Call Transcript
Positive1-21
The earnings call highlights strong financial performance with record high revenue, improved credit losses, and significant growth in advisory fees and capital markets. The Private Bank's expansion and strategic initiatives like 'Reimagine the Bank' and AI investments are poised to drive future growth. While management was vague on some details, the overall sentiment from the Q&A is optimistic, with positive guidance and stable financial health indicators. Given the absence of negative factors and strong growth prospects, a positive stock price reaction is expected.
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Citizens Financial Group, Inc. (CFG) Q3 2025 Earnings Call Transcript
Positive10-15
The earnings call summary shows strong financial performance with growth in net interest income, noninterest income, and improved credit trends. The Private Bank's contribution to EPS and shareholder returns are positive, with ongoing strategic initiatives like 'Reimagining the Bank' promising future improvements. The Q&A section supports this sentiment, highlighting stable credit conditions and a strong capital markets pipeline. The lack of specific guidance on some initiatives is a minor concern but doesn't overshadow the overall positive outlook. The positive financial metrics and optimistic guidance suggest a likely stock price increase of 2% to 8%.
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