Citizens Financial Group, Inc. (CFG) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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%.
Key Financial Performance
EPS growth $0.13 sequential quarter or 14%, driven by strong NII growth of 3.5% sequentially, NIM expansion of 5 basis points, and net loan growth across Consumer, Private Bank, and Commercial.
Net Interest Income (NII) Increased 3.5% linked quarter due to net interest margin expansion of 5 basis points to 3% and a 1% increase in average interest-earning assets.
Fee growth 5% versus Q2, driven by a strong quarter in Capital Markets (second highest ever) and continued growth in wealth fees.
Operating leverage Sequential positive operating leverage of 3% as expense growth was held to just 1%.
CET1 ratio Increased 10 basis points to 10.7%, reflecting robust capital and liquidity levels.
Private Bank deposits Spot growth of $3.8 billion to $12.5 billion, surpassing the year-end $12 billion target.
PPNR (Pre-Provision Net Revenue) Up 9% sequentially and 20% year-over-year, driven by strong revenue performance and disciplined expense management.
Capital Markets performance Record third quarter and second-best quarterly performance ever, driven by increased market activity, strong M&A results, and a meaningful pickup in debt underwriting.
Net charge-offs 46 basis points, down from 48 basis points in the prior quarter, driven by a decrease in C&I.
Allowance for credit losses Down slightly to 1.56%, reflecting portfolio mix improvements and lower loss content in new originations.
Shareholder returns $259 million returned to shareholders, including $184 million in common dividends and $75 million in share repurchases.
Private Bank earnings contribution Added $0.08 to EPS this quarter, up from $0.06 in the prior quarter, achieving cumulative breakeven since its 2023 launch.
Deposit growth Average deposits up 1%, with spot deposits increasing approximately $5 billion to $180 billion.
Loan growth Period-end loans up 1%, with Private Bank loans growing by $1 billion to $5.9 billion.
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Operating Highlights
Private Bank: Achieved $12.5 billion in deposits, surpassing the year-end target of $12 billion. Loans and AUM are tracking well. Added 8 wealth lift-outs to the private wealth platform and expanded the team to around 500 people since its 2023 start-up.
Capital Markets: Delivered the second-highest quarterly performance ever, driven by strong M&A results, debt underwriting, and loan syndication fees. Ranked fourth in deal volume for middle market sponsored loan syndications over the last 12 months.
Reimagine the Bank initiative: Focused on technology and AI-enabled ideas to improve operations and customer experience. Includes vendor reduction, corporate facilities optimization, and branch network rationalization. Expected to deliver net benefits starting in 2027, with fully phased-in run rate benefits exceeding $400 million.
Efficiency improvements: Achieved 3% sequential positive operating leverage and 5% year-over-year. Expenses were well managed, with a 170 basis point improvement in the efficiency ratio to 63%.
Leadership transition: Announced leadership changes, including the retirement of Don McCree in March 2026 and the arrival of Aunoy Banerjee as the new CFO. Transitioning to a refreshed leadership team for the next decade.
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Risk or Challenges
Macroeconomic Uncertainty: The macro environment remains positive but is subject to continuing uncertainty with respect to fiscal and monetary policies, which could impact the bank's performance.
Competitive Pressures: The pace of change in the banking industry is accelerating, and competition is fierce, requiring the bank to innovate and adapt quickly to maintain its market position.
Credit Risk: Although credit trends are currently favorable, there is ongoing exposure to commercial real estate (CRE) and general office portfolios, which have seen reductions but still pose risks.
Operational Costs: The bank is investing heavily in strategic initiatives like the Private Bank and Reimagine the Bank program, which could lead to increased expenses and one-time costs in 2026 before benefits materialize in 2027 and beyond.
Regulatory and Economic Risks: Potential rate cuts and regulatory changes could impact net interest income and overall financial performance.
Supply Chain and Vendor Management: Efforts to reduce the number of vendors and rationalize their services could face challenges, potentially impacting operational efficiency.
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Guidance & Outlook
Reimagine the Bank initiative: The initiative aims to leverage technology and AI to improve operations and customer experience. It includes reducing vendor numbers, optimizing corporate facilities, and rationalizing the branch network. Full details will be shared in the year-end earnings call. Expected net benefits will begin in 2027 and accelerate into 2028, with fully phased-in run rate benefits exceeding $400 million.
Private Bank and Private Wealth Build-out: The Private Bank achieved $12.5 billion in deposits, surpassing the year-end target. Loans grew to $5.9 billion, and AUM reached $7.6 billion. The bank added 8 wealth teams with more in the pipeline. The Private Bank is expected to contribute 7% to Citizens' bottom line in 2025, with ROE in the 20%-25% range over the medium term.
Q4 2025 Financial Guidance: Net interest income is expected to grow by 2.5%-3%, driven by a 5 basis point improvement in net interest margin and slight growth in interest-earning assets. Noninterest income is projected to remain stable, and expenses are expected to be stable to slightly up. Sequential positive operating leverage is anticipated for the third consecutive quarter. Credit charge-offs are expected to trend in the low 40s basis points, and the CET1 ratio is projected to remain stable at 10.7%.
Medium-term Financial Outlook: The company aims to achieve a 16%-18% ROTCE target. Key drivers include net interest margin expansion, successful execution of strategic initiatives, and improving credit performance. The Private Bank is expected to maintain a high level of profitability with ROE in the 20%-25% range in 2025 and beyond.
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Shareholder Return Plan
Quarterly Dividend: The Board of Directors declared a quarterly dividend of $0.46, which is a $0.04 or a 9.5% increase.
Share Repurchase: Executed $75 million in stock buybacks during the quarter.
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Key Q&A
Q:What is the expected margin trajectory for the near term and medium term?
A:The fourth quarter margin is forecasted to be around 3.05%, which is at the lower end of the previously discussed range. For the medium term, the target is 3.25% to 3.50%. This is driven by time-based benefits, front book back book contributions, and mix pricing adjustments. However, factors like a lower 10-year yield and tighter commercial loan pricing spreads have impacted the trajectory.
Q:What are the updated thoughts on the role of M&A in Citizens' strategy over the next few years?
A:Citizens is focused on organic growth and executing well on initiatives like the private bank, New York Metro growth, and commercial bank investments. While they remain alert for opportunities, the bar for inorganic growth remains high.
Q:What is the outlook for the Private Bank in terms of loan deposit targets and AUM?
A:Deposits are already at the year-end target level, with modest growth expected. Loans are tracking well, and AUM growth depends on the timing of lift-outs in the pipeline. The bank is confident in achieving its targets, though some lift-outs may spill into Q1 of the next year.
Q:What is the sensitivity of the margin range to changes in Fed funds rates?
A:The margin range of 3.25% to 3.50% is sustainable even if Fed funds rates drop to 2.75%. This is due to hedges and a balanced view on interest rate risk management.
Q:What is the impact of the 10-year yield on the medium-term margin outlook?
A:The 10-year yield has been adjusted to a range of 4% to 4.5%. While the bank is more sensitive to short-term rates, a drop below 4% in the 10-year yield would have a minimal impact, costing only a few basis points.
Q:What are the cost-saving opportunities tied to the 'Reimagine the Bank' initiative?
A:Cost-saving opportunities include vendor simplification, workforce reevaluation, corporate facilities optimization, and repositioning the branch network. The initiative also involves tech and AI-enabled projects, which require higher technology investment but are expected to be accretive over time.
Q:What is the outlook for capital markets and the pipeline for Q4 and beyond?
A:Capital markets had a strong quarter across syndicated lending, bonds, equities, and M&A. The pipeline remains strong, with private equity activity expected to pick up, providing additional opportunities.
Q:What is the exposure to private credit, and are there any risks?
A:The exposure to private credit is $3.3 billion, primarily through high-quality securitization structures with diversified collateral pools. There have been no losses, and the structures are holding up well.
Q:What is the expected pace of expense growth and positive operating leverage for 2026?
A:Expense growth is expected to be similar to the current year, with more positive operating leverage due to higher revenue growth and disciplined expense management.
Q:What are the drivers of loan growth going forward?
A:Loan growth is driven by consumer (mortgage and HELOCs), commercial (middle market and expansion regions), and private bank activities. Noncore reductions and balance sheet optimization are expected to have less of an offsetting impact.
Q:Are there any signs of credit weakness in the consumer or commercial borrowing base?
A:There are no significant signs of credit weakness. Consumer credit is stable, with some stress in lower-income segments, which are not a major part of the bank's portfolio. Commercial credit is stable, with no deterioration in C&I or CRE, except for managed reductions in CRE office exposure.
Q:What is the outlook for the mortgage business and HELOC activity?
A:The mortgage business is focused on relationship customers and conforming loans, with less reliance on wholesale. HELOC activity is strong, driven by high homeowner equity and competitive positioning.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the financial impact of the 'Reimagine the Bank' initiative, stating that more information would be shared in January. Additionally, while confident in achieving the $400 million run-rate benefit, they did not elaborate on the timeline or specific measures to achieve this target.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI idea
AUM conversion
AUM inflow
Bank Commercial
Bank banner
Bank contribution
Bank deposit
Bank hire
Bank initiative
Bank level
Bank milestone
Bank outlook
CD rate
CET basis
CFO Emerson
CI
CRE balance
Capital Markets
Citizens
Interim CFO
Markets record
Slide term
build Private
date
decade
discipline
leader
leverage row
lift out
loan spot
market activity
noninterest
opportunity bank
platform
point loan
program run
rate benefit
reduction
row Credit
run rate
wealth lift
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.
Citizens Financial Group, Inc. (CFG) Presents at Goldman Sachs 2025 U.S. Financial Services Conference Transcript
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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%.
CFG Slides
CFG Report
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