• Net Interest Margin (NIM): Expanded by 10 basis points to 2.87% in Q4.
• Net Interest Income (NII): Increased by 3.1% sequentially in Q4.
• Fees: Grew by 5.6% sequentially, driven by capital markets and mortgage.
• Operating Leverage: Positive operating leverage of around 50 basis points in Q4.
• Provision for Credit Losses: Added $162 million against $189 million charge-offs.
• Allowance for Credit Losses (ACL) to Loan Ratio: Increased slightly to 1.62%.
• Share Repurchases: $225 million in Q4, totaling $1.05 billion for the full year 2024.
• Underlying EPS: $3.24 for 2024, with a $0.45 drag from noncore and a $0.05 investment in the private bank.
• Return on Tangible Common Equity (ROTCE): 10.5% for 2024, 12% excluding noncore and private bank investments.
• Loan Growth: Period-end loans down 1.7% sequentially in Q4.
• Deposit Growth: Period-end deposits stable, with private bank deposits up $1.4 billion to $7 billion.
• Credit Trends: Net charge-offs stable at 53 basis points; criticized loans decreased.
• CET1 Ratio: Strengthened to 10.8% in Q4.

• Warning! GuruFocus has detected 7 Warning Sign with CFG.

Release Date: January 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Citizens Financial Group Inc (NYSE:CFG) reported a strong fourth quarter with a 3% sequential growth in net interest income (NII) driven by a 10 basis point expansion in net interest margin (NIM).
• The company achieved a 6% sequential increase in fees, led by capital markets and mortgage activities.
• CFG's credit trends are favorable, with non-performing assets (NPAs) and criticized assets trending down, and no surprises in charge-offs.
• The Private Bank and Private Wealth segments showed significant progress, reaching profitability in the fourth quarter with $7 billion in deposits and $3.1 billion in loans.
• CFG repurchased $225 million in shares during the quarter, bringing the full-year total to $1.05 billion, demonstrating strong capital management.

Negative Points

• Loan demand remains subdued, impacting overall loan growth despite the positive NIM expansion.
• Expenses grew by 3.5% sequentially, driven by hiring in private banking and commercial middle market, which could pressure future profitability if not managed carefully.
• The noncore portfolio continues to be a drag, with a negative $0.10 impact on EPS in the fourth quarter.
• CFG's allowance for credit losses (ACL) coverage ratio increased slightly to 1.62%, indicating ongoing caution in credit risk management.
• The commercial real estate (CRE) portfolio, particularly the general office segment, remains a concern, with ongoing workout processes expected to continue into 2025.

Q & A Highlights

Q: John, can you provide additional context on what gave you the confidence to increase the top end of the medium-term margin range? A: John Woods, CFO: The main reason is the outlook on rates. Previously, the Fed's terminal rate was expected to be below 4%, but now it's closer to 4%. This change, along with our asset-sensitive balance sheet, supports a higher margin range. Additionally, our solid performance in the fourth quarter, including a 10 basis point increase in NIM, and strategic hedging have bolstered our confidence to raise the upper end to 3.50%.

Q: Can you explain the higher fourth-quarter costs and investments, particularly in the private bank? A: John Woods, CFO: We've been investing in the private bank due to its strong performance, which has given us confidence to continue and even accelerate investments. This includes team adviser lift-outs and expanding capabilities in Southern California and Florida. Despite these investments, we remained within our full-year expense guide range of 1% to 1.5%.

Q: How are you thinking about deposit growth and the mix of that growth, especially with the neutral rate around 4%? A: John Woods, CFO: Strategically, our deposit franchise is strong, with the private bank and core retail performing well. We expect deposit betas to increase, reaching low to mid-50s by the time the Fed's rate hits 4%. Our asset-sensitive position means higher rates are generally beneficial for us.

Q: What is the timing for achieving the 16% to 18% medium-term ROTCE target? A: Bruce Van Saun, CEO: We aim to achieve this target by 2027, with an upward trajectory through 2025 and 2026. While it's possible to reach it by 2026, we are confident about achieving it by 2027.

Q: Can you provide an update on the commercial real estate portfolio, specifically office space? What inning are we in regarding resolving these issues? A: Bruce Van Saun, CEO: We are likely past the midpoint, in the middle innings of resolving these issues. We expect to continue working through them in 2025, but we are seeing encouraging signs, such as liquidity returning to the market and no new significant inflows into our workout team.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.