Citizens Financial Group Q1 2025 Earnings Report

Citizens Financial Group EPS Results

• Actual EPS: $0.77
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Citizens Financial Group Revenue Results

• Actual Revenue: $1.94 billion
• Expected Revenue: $1.94 billion
• Beat/Miss: Missed by -$7.73 million
• YoY Revenue Growth: N/A

Citizens Financial Group Announcement Details

• Quarter: Q1 2025
• Date: 4/16/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 16, 2025
• Conference Call Time: 8:00AM ET

Citizens Financial Group (NYSE:CFG) operates as the bank holding company that provides retail and commercial banking products and services to individuals, small businesses, middle-market companies, corporations, and institutions in the United States. The company operates in two segments, Consumer Banking and Commercial Banking. The Consumer Banking segment offers deposit products, mortgage and home equity lending products, credit cards, business loans, wealth management, and investment services; and auto, education, and point-of-sale finance loans, as well as digital deposit products. This segment serves its customers through telephone service centers, as well as through its online and mobile platforms. The Commercial Banking segment provides various financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, and interest rate and commodity risk management solutions, as well as syndicated loans, corporate finance, mergers and acquisitions, and debt and equity capital markets services. This segment serves corporate banking, healthcare, technology, asset finance, franchise finance, leasing, asset-based lending, commercial real estate, mid-corporate, and private equity sponsor industries. The company was formerly known as RBS Citizens Financial Group, Inc. and changed its name to Citizens Financial Group, Inc. in April 2014. Citizens Financial Group, Inc. was founded in 1828 and is headquartered in Providence, Rhode Island.

Citizens Financial Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Citizens delivered Q1 results in line with expectations, featuring NIM expansion of 3 bps to 2.9%, 1% core loan growth, resilient fee income despite capital markets softness, favorable credit trends, and ongoing share repurchases.
• The bank agreed to sell $1.9 billion in non-core student loans, accelerating the rundown of non-core assets, with proceeds earmarked to reduce high-cost funding, buy low-risk securities, and repurchase shares, enhancing NIM, EPS, and ROTCE.
• Citizens exited the quarter with a CET1 ratio of 10.6%, a loan-to-deposit ratio of 77.5%, virtually no FHLB borrowings, strong liquidity (LCR ~122%), and robust reserve coverage, underscoring its balance sheet strength.
• The private bank business grew deposits to $8.7 billion and AUM to $5.2 billion, expanded into new markets (Florida, Southern California, New Jersey), and contributed $0.04 to EPS, tracking well toward its medium-term accretion targets.
• Management reaffirmed full-year EPS guidance while highlighting macro uncertainties (tariffs, market volatility) that could slow fees and loan growth, offset by potential improvements in funding costs, share repurchases, and cost transformation.

Presentation

[Operator]

Good morning, everyone, and welcome to the Citizens Financial Group First Quarter twenty twenty five Earnings Conference Call. My name is Ivy, and I'll be your operator today. Currently, all participants are in a listen only mode.

[Operator]

Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded. Now I'll turn the call over to Kristen Silberberg, Head of Investor Relations. Kristen, you may begin.

[Kristin Silberberg, Head Of Investor Relations at Citizens Financial Group]

Thank you, Ivy. Good morning, everyone, and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Sorn and CFO, John Woods, will provide an overview of our first quarter results. Brendan Coughlin, Head of Consumer Banking and Don McCree, Head of Commercial Banking are also here to provide additional color. We will be referencing our first quarter presentation located on our Investor Relations website.

[Kristin Silberberg, Head Of Investor Relations at Citizens Financial Group]

After the presentation, we will be happy to take questions. Our comments today will include forward looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand over to Bruce.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Thank you, Kristen, and good morning, everyone. Thanks for joining our call today. We announced financial results today that were in line with our expectations. Highlights include NIM expansion of three basis points to 2.9%, core loan growth of 1%, resilience in our fee categories despite some softness capital markets given market uncertainty and credit trends remaining favorable along with continued share repurchases. Our balance sheet remains very strong with CET1 ratio of 10.6%, LDR of 77.5%, virtually no Federal Home Loan Bank borrowings and a strong credit allowance position.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

During the quarter, we entered into an agreement to sell $1,900,000,000 in purchased student loans, which reside in non core. Dollars 200,000,000 of the portfolio was sold in Q1 with the balance to be settled ratably over the next three quarters. We will use the proceeds to pay down high cost funding, purchase low risk weight securities and repurchase shares. The transaction will be accretive to NIM, EPS and ROTCE. We had already included the impact in our full year guide.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

During the quarter, we also issued $750,000,000 in senior debt, further bolstering our funding base. We executed well on our strategic initiatives during the quarter. The private bank continued to see excellent growth, reaching $8,700,000,000 in deposits and $5,200,000,000 in AUM. We added private wealth teams in Florida and Southern California during the quarter and another one today in New Jersey. Our New York City metro, private capital and payments initiatives also saw continued progress.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

As we look forward, there has clearly been an increase in uncertainty in the macro environment given the policy decisions and rollout emanating from Washington. This has caused many market participants to hit pause on investments or deal activity. On a positive note, our corporate and consumer borrowers are generally in good shape and are in position to weather these challenges. The basis for our full year guide had anticipated some choppiness in the first half of the year tied to the rollout of tariffs and downsizing of the federal government. Our view held that as the lower tax, deregulation and pro energy agenda kicked in later in the year, we would see a pickup in loan demand and deal activity in the second half.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So with respect to an update to our full year guide, at this point, we reaffirm our EPS estimate, though there could well be some puts and takes. Events in the Q2 will help clarify whether the second half outlook will solidify as we had planned. On our guide slide in our presentation, we call out some risks that affect both us and the industry at large given the environment, and we also show some potential offsets to the full year guide. The main risk associated with continued economic uncertainty and a slowing economy include a push out in capital markets fees, slower loan growth and higher credit provision. Potential offsets to these possible impacts include even better performance on funding costs, greater share repurchases and further efforts on cost transformation.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

It's worth noting that there is a significant amount of pent up demand around M and A activity. We are working on a record number and dollar value of transactions and are hopeful that they get done as uncertainty subsides. So while it's still early to make a call as to how the environment plays out, we remain focused on pulling the levers we can to offset any macro headwinds as we did in 2024 in meeting our initial year guide. And as we look to the medium term, we remain confident in our NIM trajectory, which powers our ROADC improvement and in our ability to execute on our key strategic initiatives like the private bank. In short, we feel good about our positioning overall from a strategic business and financial standpoint.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

We will stay focused on execution and the things we can control as we continue our efforts towards building a distinctive great bank. With that, let me turn it over to John.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Thanks, Bruce, and good morning, everyone. As Bruce indicated, we delivered first quarter results, which were broadly in line with our expectations and reflected typical seasonal impacts. Referencing Slides five and six, we delivered EPS of $0.77 for the first quarter with ROTCE of 9.6%. Net interest income came in at the better end of our expectations for the quarter as we performed well in our margin, which continued to benefit from the time based decline of non core and terminated swaps along with strong deposit cost performance. Fees were up nicely year over year and linked quarter performance reflects the impact of seasonality and market uncertainty on capital markets.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Wealth fees were a record for the quarter as we continue to build out the private bank. Expenses were managed tightly, including the usual seasonality in salaries and benefits. Credit came in as we expected, and we maintained a strong reserve coverage level. During the quarter, we entered an agreement to sell approximately $1,900,000,000 of non core education loans. This acceleration in non core runoff will be accretive to NIM, EPS and ROTCE with the redeployment of the freed up capital and liquidity as the sale settles over the course of the year.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We continue to execute well against our strategic initiatives. Notably, the Private Bank continued to steadily grow its profitability, contributing $04 to EPS and finishing the first quarter with $8,700,000,000 of deposits. Also, we continue to make good progress in New York Metro, and our top 10 program is well underway. We ended the quarter in a very strong balance sheet position with CET1 at 10.64% or 9.1% adjusted for the AOCI opt out removal, a pro form a Category one LCR of 122% and an ACL coverage ratio of 1.61. This includes a robust 12.3% coverage for general office.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We also executed $200,000,000 in stock buybacks during the quarter, taking advantage of our strong capital position. Next, I'll talk through the first quarter results in more detail, starting with net interest income on slide seven. Net interest income decreased 1.5% linked quarter, driven by the day count impact of about $28,000,000 and slightly lower interest earning assets, which was partially offset by the benefit of higher net interest margin. As you can see from the NIM walk at the bottom of the slide, our margin was up three basis points to 2.9%, driven primarily by the time based benefits of non core runoff and reduced drag from terminated swaps and the benefit of improved deposit costs, partially offset by the net impact of rate driven impacts on the balance sheet. We continue to execute our down rate playbook in the deposit portfolio.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Our interest bearing deposit costs decreased 18 basis points, while maintaining the mix of non interest bearing deposits at 21%, stable with the prior quarter. Our cumulative interest bearing deposit down beta improved to 53% in the first quarter. Moving to slide eight. Non interest income is down 3.5% linked quarter with seasonal impacts in capital markets and card fees. Capital markets saw lower M and A and loan syndication activity given seasonality and the impact of uncertain market conditions pushing M and A deals out.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Debt and equity underwriting improved coming off a slower fourth quarter. Even in a quarter impacted by seasonality and market volatility, we managed to perform well in middle market sponsored book runner deals, ranking number three by volume. Our deal pipelines across M and A and DCM remain very strong despite market uncertainty. In fact, our M and A pipeline is at all time highs in terms of number and value of transactions given pent up demand. We are hopeful these deals get done as market uncertainty subsides.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

The wealth business delivered a solid quarter with increased annuity sales activity. We also continued to see positive momentum in fee based AUM growth from the private bank. Our global markets business was up slightly this quarter with increased client hedging activity in FX and energy related commodities. On Slide nine, expenses were managed tightly, up 1.7% linked quarter, primarily reflecting seasonality in salaries and benefits. Our latest TOP program is underway, and this gives us the capacity to self fund our growth initiatives.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

On Slide 10, period end and average loans were down slightly. This reflects the non core transaction of $1,900,000,000 as well as auto run off of $700,000,000 Excluding non core, loans were up approximately 1% on a period end basis. The private bank continued to make good progress with period end loans up about five fifty million dollars to $3,700,000,000 at the end of the quarter. Commercial loans were up slightly with a modest increase in line utilization as some of our corporate banking clients drew down on their lines to finance inventory builds ahead of tariffs. We also saw a modest increase in capital call line usage given M and A activity in our sponsor base.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And core retail loans grew slightly driven by home equity and mortgage. Next, on Slides eleven and twelve, we continue to do a good job on deposits growing on a spot basis, primarily in low cost categories in what is typically a seasonally down quarter. Period end deposits were up approximately $3,000,000,000 or 2%, driven primarily by low cost growth in the private bank and consumer, partially offset by a seasonal decrease in commercial. The private bank continues to add customers and grow nicely with period end deposits increasing by about $1,700,000,000 to $8,700,000,000 at the end of the first quarter. Our retail franchise grew deposits in low cost categories this quarter and we continue to maintain strong CD retention rates even as we reduced yields.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Stable retail deposits are 68% of our total deposits, which compares to a peer average of about 55%. This was a big driver of our improving deposit costs this quarter as our deposit franchise continues to perform well in a competitive environment. Our interest bearing deposit costs are down 18 basis points linked quarter translating to a 53% cumulative down beta. We continue to maintain a robust level of liquidity with a pro form a LCR of 122%, significantly above the Category one bank requirement. Moving to credit on Slide 13.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Net charge offs of 58 basis points for the quarter included a seven basis point impact from the noncore transaction. Excluding this impact, net charge offs were 51 basis points, which was down modestly from 53 basis points in the prior quarter, in line with our expectations. Commercial charge offs were down modestly driven by a sequential decline in general office. Retail charge offs were broadly stable, excluding the impact of the non core transaction. Of note, non accrual loans were down 5% linked quarter, reflecting a decline in commercial as we continue to work out general office loans.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Retail non accrual loans also decreased as a result of the non core transaction and continued runoff of the auto portfolio. Turning to the allowance for credit losses on slide 14. The allowance was relatively stable at 1.61% this quarter as portfolio mix continues to improve due to back book runoff and lower loss content, front book originations, offset by a slightly more conservative loss forecast. The economic forecast supporting the allowance reflects a mild recession similar to last quarter and macro impacts from tariffs. The reserve for the $2,860,000,000 general office portfolio is $351,000,000 which represents a coverage of 12.3%, broadly stable with the prior quarter.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Note that the cumulative charge offs plus the current reserve translates to an expected loss rate of about 20 against the March 2023 loan balance when industry losses commenced. Moving to slide 15. We have maintained excellent balance sheet strength. Our CET1 ratio is 10.64%. Adjusting for the AOCI opt out removal, our CET1 ratio was stable at 9.1%.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Given our strong capital position, we repurchased $200,000,000 in common shares and including dividends, we returned a total of $386,000,000 to shareholders in the first quarter. Turning to slide 16, we provide some details on the non core portfolio. As I mentioned earlier, we took the opportunity to accelerate the rundown of the portfolio with an agreement to sell approximately $1,900,000,000 of education loans. We recognized a $25,000,000 charge off associated with this portfolio that was covered by a pre existing allowance. Dollars 200,000,000 of the sale settled in the first quarter, with the remainder scheduled to settle ratably each quarter through 2025.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We expect to use the proceeds to pay down high cost funding, invest in low risk investment securities and repurchase shares. With this redeployment, the transaction will be accretive to NIM, EPS and ROTCE. Moving to slide 17. We are well positioned to drive strong performance over the medium term with our overall three part strategy: a transformed consumer bank, the best positioned commercial bank among our regional peers and our aspiration to build the premier bank owned private bank and private wealth franchise. We continue to make excellent progress on the private bank.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We delivered our strongest deposit growth quarter so far, adding $1,700,000,000 of deposits to end the first quarter at $8,700,000,000 And the mix continues to be very attractive with slightly over 40% in non interest bearing. We also ended the quarter with $3,700,000,000 in loans and $5,200,000,000 in AUM. With a $04 contribution from the business in the first quarter, we are tracking well against our 5% accretion estimate to Citizens bottom line in 2025 and to deliver return on equity. Moving to slide 18, we provide our guide for the second quarter. We expect net interest income to be up approximately 3%, driven by an improvement in net interest margin of approximately five basis points in Day Chem.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

This pickup in net interest margin is primarily attributable to the time based benefits of non core runoff and reduced drag from terminated swaps. Non interest income is expected to be up mid to high single digits, led by capital markets with some risk if market uncertainty persists. FX and derivatives and wealth should also provide a lift for the quarter. We are projecting expenses to be broadly stable. Credit trends are expected to improve slightly from the first quarter charge off level, excluding the noncore transaction.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And we should end the second quarter with CET1 in the range of 10.5% to 10.75%, including share repurchases of approximately $200,000,000 which could increase depending on loan growth. Currently, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity in the second half of the year. However, if the current challenges in the external environment persist, there could be select risks that impact us as well as the broader industry. Persistent market volatility could impact capital markets revenue and anticipated loan growth in the second half of the year. While the assumptions incorporated in our current reserve are conservative and our corporate and consumer borrowers are broadly in good shape, heightened likelihood of a deeper recession could lead to higher provision.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

However, if these risks arise, we have potential offsets we can leverage. Lower loan growth could facilitate additional share repurchases as well as the opportunity to further lower deposit costs as we continue executing our deposit pricing playbook. We would also take the opportunity to manage expenses down through streamlining our operations and further cost transformation. Looking out to the medium term, we see a clear path to achieving our 16% to 18% ROTCE target. Expanding our net interest margin is an important driver, and we project to be 3.05% to 3.1% in 4Q 'twenty five, '3 point '1 '5 percent to 3.3% in 4Q 'twenty six and in the 3.25% to 3.5% range in 2027.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Slide 21 in our appendix provides some incremental details on our net interest margin progression to 2027. This, combined with the impact of successful execution of our strategic initiatives, should drive ROTCE meaningfully higher by 2027. To wrap up, we delivered Q1 results that were in line with our expectations, highlighted by growth in net interest margin. While the market uncertainty has impacted capital markets revenues, deal backlogs are at all time highs. We accelerated the runoff of non core with the education loan sale, which will be accretive to NIM, EPS and ROTCE.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We ended the quarter with strong capital, liquidity and reserves, which puts us in an excellent position to support our clients while navigating market uncertainty. And we continue to drive forward our strategic initiatives with the private bank progression particularly noteworthy. With that, I'll hand it back over to Bruce.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Okay. Thank you, John. Operator, Ivy, let's open it up for Q and A.

[Operator]

Thank you, Mr. Vansan. We were now ready for the question and answer portion of the call. Your first question comes from the line of John Pancari from Evercore ISI. Please go ahead.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Good morning.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Hi.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Good

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

morning.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Just on the balance sheet growth, just wanted to if you can give us a little bit more color around loan demand, what you're seeing here in this backdrop? Are you seeing what are some of the trends in line utilization? Are you seeing any weakening of the pipeline? And also any type of pre tariff inventory build that might have driven a little bit of the growth in the near term, but might be more of a pull forward versus the outlook?

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

If you can just give us some color there. Thanks.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. I'll start off and others will chime in here. But maybe just starting in commercial. We are seeing some line utilization increases. We saw that up a couple of percentage points at the end of the first quarter compared to the fourth quarter.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

That was driven by a number of factors. I mean, we think tariffs is part of the story. But I'd also say that M and A and some working capital is in there as well. So and that was both in our Corporate Banking business as well as on the sponsor side and our utilization in our subscription line side of the house and commercial. So we are seeing some of that trending.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And frankly, given the expected pickup in business activity in the second half, there's some expectation that we'll see that continue assuming some of this uncertainty subsides. On the consumer side of things, we're seeing good take up in the on the resi and HELOC side of the ledger. Given where the rate environment is, HELOC in particular has been a really strong story for us. And last but not least, I threw out the private bank, which continues to drive growth. So you're seeing all three of the legs of the stool, as you heard earlier, contributing to the loan growth outlook.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And maybe I'll just pause there and see if there's other color to add.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

Yes. I would affirm what John said. It's Don. I think as we talk to customers, we're hearing a little bit of expansion desire.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

They've gone a little bit to the sidelines right now just given what's going on with the uncertainty in the environment. The other thing John that's been going on really powerfully in the first quarter as we've gotten disintermediated by the bond markets. We had an extremely strong bond quarter and some of that came off of our balance sheet as clients access particularly the high yield market. I think that probably is going to reverse given where rates are right now. So that'll be a tailwind behind us in terms of loan growth.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

I don't know how much of it is tariffs in terms of the line draws. I think it's just general working capital build. People are running their businesses really tightly. So I don't think we've seen the tariff impact yet and that could be a tailwind also. And then as we'll have to see on the capital call lines.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

That's a pretty big part of our balance sheet. Not huge, but it's about a 10,000,000,000 exposure overall of which about half is drawn and that's running at relatively low utilization. So to the extent we get some of the deal activity kicking in particularly in the second half that should grow nicely.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

Yes, it's Brendan.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

On the consumer side, if you put aside our non core rundown which as John pointed out was down about $1,000,000,000 linked quarter and look at the underlying business that we're still originating, we're seeing decent growth 1% up year over year. As John pointed out, heavily led by residential and secured, the portfolio is 75% secured. Keep in mind on the consumer side with incredibly high credit strats with high FICOs and relatively low LTVs. HELOC, we're actually up 9% year over year. And believe we're right at the top of the league tables on net growth versus peers and that's through a bunch of innovative investments we've made in analytics and customer experience that has driven a little distinct advantage for us.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

We'll continue to take advantage of that given the high quality nature of the customer and expect that growth level to persist throughout the year. In mortgage, even though we have high rates, the portfolio growth is actually decent up 3% year over year. Again, quality customers prepay speeds really low on the back book given the lack of a refinance activity. So we're seeing net positive growth. The other portfolio student and credit card have been flattish, student given higher rates and credit card obviously by design as we look to launch some new products here mid year.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

We expect that to see some higher returning growth assuming the economy plays in our favor in the second half of the year. So we feel pretty good that underlying loan demand is high for the second half of the year. In the private bank, we are as John pointed out, we grew about $500,000,000 linked quarter. What we're seeing there is still strong demand from that customer base as the consumer part of that portfolio builds, the mix has shifted modestly to consumer. So that's now 30% of the book where it was in the low 20s about a year ago.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

That's a good sign. We expect slow steady continued progression in balancing out the book. And demand seems to have picked up. Our mortgage originations in the private bank are about double what they were same time this year despite a similar rate environment. So activity is strong and we expect growth rates to accelerate in the back half of the year for the private bank.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Okay. Great. Thank you for that color. Appreciate it. And just quickly on my second question is just around capital.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

I know you're sitting here around 10.6% CET1 and you cited expectation for around $200,000,000 of buybacks similar to this quarter or to last quarter. But also I know you mentioned, I think Bruce you mentioned this and John you mentioned as well that if you did see weaker loan growth and weaker macro you could see higher buybacks. Can you just maybe help frame that like if we do see weaker loan growth and weaker economy, would you conversely maybe be more cautious and therefore maybe a husband more capital versus step up buybacks. Can you just talk about how you view that trade off? Thanks.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. I'll go and start there. I mean we're committed to that range that we articulated at October to $10.75 If there's less RWA then we would feel opportunistically a willingness to step up on the buyback side of things. And the reason for that is a couple of folds. I think the starting point on capital is very strong both before and after AOCI.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So you look at our AOCI haircut, we're still north of 9%, which is quite a good number. We would also have to look at what the uncertainty would hold. And if you look at our reserve position that we've already set aside, we actually have a recessionary scenario already contemplated in our provision and loan loss reserve situation. So from that standpoint, I think that we could see a number of scenarios throughout 2025 that would be consistent with continuing to be able to upside buybacks in the face of lower loan growth.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. And what I would add to that is if you go back to 2024, we also had a pickup in growth that would build over the course of the year when that didn't happen. We basically used the freed up capital to buy back our shares and we thought our shares were very attractive. And I'd say given kind of the crack in bank stock prices since the macro uncertainty and the rollout of the tariffs, we still feel that the stock is cheap relative to inherent value. And so, it presents a real opportunity to offset any impact that would hit in the P and L from slower loan growth if that happened through buying back our stock and buying it back at very attractive pricing.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. Just hasten to add, as we keep growing our tangible book value per share, the earn backs on buying back stock at these levels is well under a year.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And so it's pretty attractive. And so we would feel good for all those reasons stated.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Great. Okay. Thank you.

[Operator]

Your next question comes from Ken Usdin from Autonomous Research. Please go ahead.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Thanks. Good morning.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Hey, Ken.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Guys, wonder if you could talk through that push and pull on the capital markets outlook and the fee guide. So I guess, first of all, record pipeline, what's your level of confidence in terms of closing those transactions?

[Ken Usdin, Senior Research Analyst at Autonomous Research]

And I guess secondly, if that capital markets embedded expectation doesn't pull through, how do you how do we understand like the comp ratio offset and the magnitude of flex that you can have to keep PPNR close to in line? Thanks.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. So I'll start and then maybe John or Don can follow on. But again, I think the exciting aspect of this from our standpoint is that we've over time built out really strong capital markets capability and a very broad M and A capability that covers middle market companies through mid corporate and specializes in industry verticals that we think are going to be active. And so the fact that there's pent up demand from sponsors to do deals, there's industry sectors that are very active, for example, data centers where we have a really strong group of folks focusing there. I'd say it's heartening to see that we've got record numbers of engagements.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Our people are working very actively and on a probability assessment none of these deals have dropped and I think we're just waiting to see some of this uncertainty subside. So we still feel optimistic that things will settle down here a little bit and that we should be able to pull that through. What I would say if that is not the case and then things do push out a bit, there's other things to consider. One is that we're broadly diversified. So, we've had the ability to if one area doesn't fire on all cylinders like if M and A is soft and oftentimes our financing, syndicated loan capability, our debt underwriting will pick up and provide an offset.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

And then the FX and interest rate derivatives and commodities hedging risk management business also is seeing an uptick in activity and depending on the circumstances that could provide an offset. So the first line of defense is diversity within the fees that could help offset any push out on M and A volumes. And then secondly, there's obviously incentive compensation that would drop if the deals don't deliver. And then just broader looking at the expense base, we're constantly working on ways to streamline our businesses and perfect how we're running the bank to make it more efficiently. So we have a top 10 program up and running, but we're certainly not content with that given all of the opportunities we see around new technologies like AI and ways to deploy that just to run the bank better and serve our customers better.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So I'd say that would be the broad playbook. But maybe for color on the revenues Don you might want to add anything there?

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

Yes. No, I echo a couple of things that Bruce just said. One is, I'm really encouraged by the diversity of the franchise and the people that we continue to add. Actually, we're continuing to hire really strong talent into some of our industry teams. So that provides an ability to continue to transact in the market.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

I also want to remind people that a significant part of our M and A business in particular is mid sized companies coming out of our core franchise. And they continue to have a really strong desire to sell and transact and a lot of those go into private equity. And the other thing I'd say is that the financing markets are generally pretty attractive. So we can get these things financed and they're not $10,000,000,000 deals. They're 100,000,000 2 hundred million 3 hundred million dollars deals.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

So they're eminently executable. One of the things that's been interesting is and you would ask the question of why are these things pushing? Part of it's due to the de staffing of the FTC and the SEC. So it's just taking longer to get these transactions done. And I think the most important thing that Bruce said is we have not lost one mandate out of the pipeline.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

So it's not as if these transactions are going away. It's they're just taking a little bit longer to execute. So I'm super confident that we're going to be able to get these things across the finish line. Whether it's the second quarter or the third quarter we'll have to see and if some of it will be volatility. But there's very little tariff dependency in any of these underlying deals.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

So the big picture is we should generate the revenue. And hopefully my bonuses aren't going to go down by year end. But Chris will do that to me as he would have in the past if that does happen.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

John anything to add?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

No. I would just highlight the diversity point that you made. And just on the expense side, I mean we would in an environment like that, you get the direct offset that you mentioned on incentives. And then you take a harder look at some discretionary stuff that we also touched on before. And then just more broadly, just feeling like the net interest income story has just a number of great tailwinds that are part of why we feel good about the guide for '25 as well.

[Ken Usdin, Senior Research Analyst at Autonomous Research]

Okay. Thanks for all that.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Okay, Ken.

[Operator]

Your next question comes from Peter Winter from D. A. Davidson. Please go ahead.

[Peter Winter, Managing Director - Senior Research Analyst at D.A. Davidson]

Good morning. I was wondering just on just looking at interest rates, which have been extremely volatile, it seems like the forward curve changes daily. But can you talk about what the ideal interest rate is interest rate environment is for Citizens and yield curve? And conversely, what type of rate environment kind of would put the NIM outlook potentially at risk? And are there any plans to reduce some of the asset sensitivity?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes, good questions there. I mean, out the window, our asset sensitivity is plus or minus 1% to a plus or minus 100 basis point change in a gradual shift in the yield curve, up or down over the next twelve months. So we are slightly asset sensitive. Yes, we're close to neutral based on just how those numbers are playing out. And I'd say that the first and foremost, the net interest margin trajectory is primarily not rate dependent.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So you've got the time based benefits that are really driving net interest margin, both in the near term and over time. So for example, in the first quarter, we had about five basis points of time based benefits. And given the slight asset sensitivity and seasonally lower deposits that's why we ended up at three basis points of net interest margin growth in the first quarter. When you look out to the second quarter, again, we're going to get about five basis points of time based benefit and better balance sheet trends. So that's why all of that drops to the bottom line and really get that momentum continues to build not only through 2025 but out into 'twenty six and 'twenty seven.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And we have in slide deck an illustration of the fact that by the time you get to the fourth quarter of twenty twenty seven, the cumulative time based benefit is 35 basis points. If you add that to the two ninety that we delivered in the first quarter, we're already at the lower end of the range without having to deal with interest rates. And so then from there, the rest of the story that takes us into our range of $3.25 to $3.50, You would also look at fixed asset repricing, which really is more about long end rates and there's a lot of baked in turnover of the balance sheet given coming out of the lower rate environment that we're in coming in the pandemic. So you've got 15 to 20 basis points there. And now we can talk about rates.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And so there's we're pretty well hedged from a swaps standpoint in through out through the middle of twenty twenty seven. So yes, we will do a little better if rates are higher. So if rates are the terminal rate out the window appears to be around $350,000,000 that's a good outcome for us. That would put us in the middle of our range, but higher rates, terminal rates like 4% would be consistent with the upper end of our range of around $350,000,000 But we could tolerate as low as 3% on Fed funds or even a touch lower and still hold the low end of our range at 3.25%. So we are basically comfortable with a wide range of scenarios on rates.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

We feel pretty well hedged with a slight orientation towards performing a little better a couple of years out if rates are a little higher. And we think about inflation and stiflationary scenarios when we think about positioning the balance sheet that way. But the objective of trying to have a lot of non REIT related tailwinds is something that you need to think about when you think about our recovery on net interest margin.

[Peter Winter, Managing Director - Senior Research Analyst at D.A. Davidson]

That's great. Thanks, John. If I could ask just kind of a follow-up to Ken's question. You talked about the puts and takes with this uncertain environment. But could you just give an update on the positive operating leverage for the full year versus January's forecast of 150,000,000 Just I realize there's all this uncertainty, just wondering how you're thinking about it?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. We think we're reaffirming that outlook. We believe that that's very achievable around the $150,000,000 a big driver of that, again, back to net interest margin, we see net interest margin rising by about rising to 3.05% to 3.1% by the end of the year. That implies about a 15 basis point increase in net interest margin year over year. That's pretty powerful on the NII line.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And therefore, that 3% to 5% NII is a huge driver of our positive operating leverage and we feel good about that. And we talked earlier about the diversity on the capital markets and fee line broadly and how our pipelines are consistent with being able to deliver the guide with some levers to pull if certain scenarios play out. So I would add to that that

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

in 2024 most banks including ourselves were very tight on expenses and 2025 were inflating a little bit. So the guide was for roughly 4% expense growth and that reflects the fact that there's lots of great things for us to invest in as we build out the franchise here. So things like making sure we're adding to the private bank, we're adding private wealth teams, we're opening private bank offices, we're investing in AI and various projects data analytics capability. There's our payments capability. So there's things that we want to keep investing in to position us for that medium term growth outlook that in a tougher environment we can throttle some of those things a little bit.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

But our preference is to not do that to keep investing and keep building. So just kind of putting that in context, there are some levers to pull preferences to keep going, make those investments for the future, but we can pull back a little bit if need be.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

The other structural benefit that we do have as well on the private bank, keep in mind that the majority of that cost base was compensation guarantees. And so as the team is productive and we have confidence in hitting our revenue outlook, That revenue is gobbling up existing expenses and compensation not necessarily adding to it. So it's the I think operating leverage.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

We're providing operating leverage right there naturally versus last year, which we have a lot of confidence to deliver the revenue outlook. So that should be a structural advantage for us too.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Great point, Brendan.

[Peter Winter, Managing Director - Senior Research Analyst at D.A. Davidson]

Thank you.

[Operator]

And your next question comes from Erika Najarian from UBS. Please go ahead.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Hi, good morning. You have thank you. You've alluded to this and how you've responded to all the questions, particularly the PPNR one. But as you know, the net interest income outlook is quite important. And as I pull up the slide from last quarter, it's set up 3% to 5%.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

So if I think about affirming the exit NIM on Slide 21 and then the balance sheet seems to be fairly in line, at least average earning assets were in line this quarter. Unless we think that the balance sheet will shrink, it seems like that up 3% to 5% is still broadly in line, right, in terms of what you're affirming. So just wanted to confirm that in terms of the full year look.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. You've got that right, Erica. It's John. That 3% to five feels pretty good. If you just think about NIM alone that would take us to the upper end of that range.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

But what we indicated in the guide was that at least back in January that we might have interest earning assets down about 1%, which is what put us into the middle of the range. There's some flexibility there. When you think about relative value in the securities portfolio and what we're seeing in deposit flows, which are actually coming in a little better than we expected, there are there's another lever there with respect to interest earning assets in the securities book that would that we'll be monitoring throughout the year. But net interest margin trends exactly as expected, feeling very good about that with some levers to pull even in the securities portfolio and on interest earning assets, if relative value looks attractive and deposit flows continue the way they've going. So that's the way that we think about that 3% to 5%.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Thank you. And switching topics on the reserve. So this is a two part question. Number one, just a broad question here. What unemployment rate is your reserve sort of looking forward to?

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

And second, John, could you talk through the dynamics that's perhaps unique to Citizens about the non core runoff? So as we think about perhaps the baseline case of unemployment potentially getting worse or the company waiting the downside case more, what is sort of the offset of the $1,900,000,000 student loan sale and the runoff portfolio? And obviously, the commercial real estate portfolio has been you've been resolving parts of that for some time now. So walk us through those two dynamics as we think about how to think about the provision from here as we think about perhaps a more uncertain economic backdrop, but also a specific optimization of your loan mix?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. I'll hit both of those and others may chime in here. We have a number of scenarios that get applied to different parts of the portfolio. Our baseline scenario has an unemployment rate of 5.1% that covers a large portion of our book primarily in C and I and in retail. But when you get into the CRE portfolio and also that 5.1% is paired with a decline in GDP that would imply a mild recession.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So a majority of the book has a mild recession associated with it. But when you think about the CRE book overall, we have a combination of a moderate to severe recession assumption applied to CRE. And so the unemployment assumption there is higher than 5.1%. So on a weighted average basis, you'd end up with an unemployment rate that's above 5.1%. I mean, just as an example, our general office portfolio has a severe recessionary scenario with an unemployment rate of 9.3% and a GDP decline of 4.4%.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So just giving you a sense that generally it's something higher than 5.1%. And that's why I think what we're saying is that a lot of the uncertainty and concern about recession for 2025, we feel like it's mostly baked into our allowance. I mean we'll be monitoring it and we're keeping an eye on it. We're watching charge off trends coming down in line with our expectations. That all feels very good on the credit side.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. I would John, you

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

might have the number on the top of your head. But Erica, we had over about 161 in terms of the allowance to loans kind of the day one CECL was one and 80 If you adjust it down first for the investors deal and then for actions we're taking in non core. What is

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

that number? 25 to

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

130. One hundred 20 five ish in that ballpark. So anyway, we feel that over time we've continued to improve the focus on kind of where we want to lend. We want to lend to deep relationships. In commercial we've been moving more up market so that 80% of the C and I portfolio is now investment grade equivalent.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

And in the retail book 95% of the book is super prime and high prime, 78 of the book is retail is secured. Then homeowners are the ones that we're lending on an unsecured basis. Two thirds of the borrowers are homeowners which tend to have a better credit profile. So we have a bunch of those stats back on pages 24, 20 five and 20 six. The CRE portfolio we've taken a lot of the pain there already.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So the pigs have been going through the python so to speak. So we feel that we're well reserved for different scenarios that could ensue over the course of the year.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. And to the other point of your question you had Erica regarding non core rundown. I mean I think you can kind of pair in some respects. I mean certainly the balance is fungible, but you can sort of think about noncore and private bank in some respects together because we're taking a lot of that liquidity and capital and down in the noncore space, but we're growing in private bank and in commercial. So on the private bank, we have a year end target on the loan side that is similar to the rundown in non core that's being accelerated in 2025.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So what you're seeing is pulling back on a lower customer value assets in the non core space, growing high customer attractive RWA in private bank and in commercial and in core retail. So the engine here is humming along really well and probably a little faster than we expected given our opportunistic transaction.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

When

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

we set up non core that was roughly broad numbers $10,000,000,000 running down in the consumer runoff portfolio and $10,000,000,000 running up in the private bank. And by the way, the credit quality in the private bank, I mean, the group that came over from First Republic had virtually no credit losses. And so far, we've had no credit losses in that book. So you can't say that will always be the case, but it's very, very high credit quality. So that alone is going to average down the net charge off ratio through the cycle to something in the low to mid-30s from something that had been kind of higher 30s to low 40s.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So Brandon, want to add anything there?

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

Just a couple of quick stats maybe just to build on your points. On private banking, we have zero customers that are in delinquency or criticized right now. So to John's point, we're replacing the non core rundown with that quality of assets. The other thing to make note of on non core, which is seasoned now and then rundown with no new originations coming through with auto, As the portfolio gets more seasoned, you have the dynamic of you drive the car up a lot and immediately reprice this down and you're upside down a little bit on LTV until pay downs happen.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

The portfolio is a couple of years seasoned now. So we feel pretty good that we've got our arms around loss content. It shouldn't be hypersensitive to unemployment unless there's a really significant event in the market. So that should be stable and we feel good about the quality there. And just on the retail book to everybody's point 79% of it on the core side is residential secured.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

On the home equity book 99% is below 80% CLTV. On the mortgage book 51% CLTV. So there's very, very little lost content there unless there's a significant housing market correction, which obviously we're not seeing high chance of that. And then when you unpack the unsecured book, while over time we'd like to have more exposure to credit card right now we're undersized on credit card and that's a good thing if there's an unemployment spike. And on the student book 98% is co signed by the parent on in school and 40% of our student loan refinancing book is with folks with advanced degrees which are less sensitive to spikes unemployment.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

So when you net all that together, I feel like on a relative basis, we should be in a very strong spot if there's a blip in unemployment.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Very thorough. You.

[Operator]

Your next question comes from Matt O'Connor from Deutsche Bank. Please go ahead.

[Matthew O'Connor, Managing Director at Deutsche Bank]

Good morning. A couple of follow ups on fee revenue categories. The service charges were quite strong year over year and you mentioned cash management, which I think is pretty straightforward and then also overdraft. Just elaborate on the overdraft. Is it increased frequency and why you think that is?

[Matthew O'Connor, Managing Director at Deutsche Bank]

Were there some pricing changes or what drove that component?

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

Yes. Most of the service charge numbers actually management and business banking is seeing really strong growth with some technology investments that we've made in the consumer business to drive stickier engaged customers. By the way that's also showing up in our low cost deposit trends. So the increases that we're seeing are largely driven by healthy fee creation versus punitive which we are very, very pleased with. Our overdraft line has obviously been on a downward slide for a decade and it's now relatively stable.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

We've not made any pricing changes. And while there's the mass market population is generally back to paycheck to paycheck, they are in fact pretty stable. So we're not seeing any behavior in that base. Spending trends are still strong, but stable. We're not seeing anything in that base that would suggest a breakout of economic stress yet, which obviously would be tied to an increase in overdraft fees too.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

So we feel like that's going to be kind of range bound. Hopefully the growth that we see will be in the positive fee creation through customer advice and services that we provide largely in cash management and overdraft is in a range. Obviously, I'm sure you all saw the court case that is out there on overdraft and then the House and the Senate both signed off on eliminating the rule from the CFPB. So we also think the risk that potentially existed in the back half of the year about that may be coming down is de minimis at this point headed to the President's desk for signature. So anyway, overdraft is stable, not growing, not really decreasing in any material way.

[Matthew O'Connor, Managing Director at Deutsche Bank]

Okay. That's helpful. And then in credit card, they were down obviously versus 4Q on seasonal trends, but also down a little bit year over year. I know you're trying to grow it. Is that just the cost of rewards and upfront sign ons?

[Matthew O'Connor, Managing Director at Deutsche Bank]

Or what's driving that drop on a year over year basis? Yes.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

We have there's been a little bit of our prior expansion activity we were doing with credit card we've paused for a short period of time while we launched new products in May and June. So we're very, very excited about a couple of new products that are coming out late spring into the summer. The customer spending trends have been broadly stable for a bit here. And so we're expecting that to get back into growth mode. As you probably remember, going back eighteen months some of the growth in credit card and debit card fees were structural related to the MasterCard arrangement that we did that really drove some net positive fee growth to the bottom line as we generate more spending activity and grow the net portfolio in cards in the back half of the year we expect that line to continue to modestly grow.

[Matthew O'Connor, Managing Director at Deutsche Bank]

Thank you.

[Operator]

Your next question comes from Gerard Cassidy from RBC Capital Markets. Please go ahead.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Hi, Bruce. Hi, John.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Hi, Gerard.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Guys, can you share with us as a follow-up to your comments on the non core loan portfolio, and in view of the sale of the non core student loans, can you give us the pros and cons of selling the entire portfolio that you outlined on slide 16?

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. I'll take that. John, you can chime in. But I think that there's relatively high predictability in terms of the runoff of auto which is basically what's left. And should we want to accelerate that sale there's going to be a liquidity cost that has to be paid.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So our view is since this is short duration paper, it runs off predictably, it runs off fast duration of the papers roughly two years that we're better off preserving the capital and not incurring that liquidity cost if you will.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes, agreed. And so we've got very strong capital and liquidity. So there's no need accelerate it beyond the accelerated rundown. I mean, you look in the fourth quarter of twenty twenty five, by the end of this year, the entire book is going to be down to $2,600,000,000 1 point 5 billion dollars of that is or a little more than $1.5 about 1,700,000,000.0 or so is sitting in an auto collateralized structure anyway and therefore wouldn't be able to be sold. So that's sort of ring fenced and just runs down on its own.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

So you're basically under $1,000,000,000 by the end of the year from the round trip from the beginning of this journey in terms of running down non core and this is going to be kind of in the rearview mirror very soon. And from that standpoint we think the transaction that we did was the accelerant.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

That was a longer

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

lived asset with the bigger So to move that out really helps accelerate the whole rundown.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And who knows maybe in the future there could be a cleanup, but it will be something that really wouldn't have much of an impact given that it's in such a low profile by the end of the year anyway.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Great. Thank you. And then as a follow-up, obviously your credit you've got it under control and you talk very thoroughly about the office commercial real estate portfolio and the challenges there. I noticed in the C and I portfolio and I know the numbers are not large and it could be the lower of loan numbers that one or two loans going non accrual will push the number up. But in Slide 28, you do give us that breakdown on non accruals.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Can you give us some color on the C and I portfolio? The uptick again wasn't material in nominal levels, but what are you guys seeing in C and I especially in view of your outlook of the uncertainty we're all confronting with this economy?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. And maybe just to start off. On '28, that's the allowance is really when you see those numbers go up, that's really us being a bit a touch more conservative with respect to areas that we're seeing that makes sense to flow additional allowance over the

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

non accrual. I think that you're talking about the 0.57 going up to the 0.65

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Gerard. Correct. But it's small. I understand it's small, but I'm just curious.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. I think that's just the law of kind of small numbers in terms of, if you have one thing move into non accrual as we work through some issues, that can make modest adjustments from quarter to quarter there. But, nothing really to call out. I think

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

Yes. Gerard, I'll just jump in. We're seeing no macro deterioration C and I. I go back to what I've said for a couple of years now is people really tighten their belts during COVID, both from a debt standpoint and an efficiency standpoint, and that's going to help them go through any kind of uncertainty that we have. So we see no broad trends of deterioration at all in our C and I book.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

And I would say it's more a question of they're in good position and they've positioned themselves to be resilient and adaptable to the environment. To me the bigger question is when how much offense do they want to play and the macro actually holds them back from further growth in their businesses and that potentially affects loan demand or deal activity. But I don't really view it as any kind of material credit risk. And in fact when you look at the sectors that we lend to we don't have huge exposure to the sectors that are most exposed to tariffs. So in general, we feel really that this is more an issue about how much offense comes out of the customer base as opposed to are we worried about credit deterioration.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Great. Thank you guys.

[Operator]

Your next question comes from Ebrahim Poonawala from Bank of America. Please go ahead.

[Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch]

Hey, good morning.

[Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch]

Just two very quick follow-up questions. John, maybe for you. Not sure if I missed, when we look at your fee income guidance, you talked about the capital markets pipeline. What are we assuming for capital markets just from a fee revenue standpoint for second quarter and for the full year, if you don't mind sharing that?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. We have the it's a driver and it's I think I'd go back to the diversification points that we said earlier. I think we've got in the capital markets, we've got M and A certainly as part of the story, but there's loan syndications, some equity capital markets opportunities. And you heard Bruce earlier talk about client hedging that are all contributing to the second quarter as well as the full year. And then we're also focused on the fact that on consumer side of the house, card and wealth are also expected to be contributing in 2Q and in 2025 as well.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

But we haven't broken down the details separately from fees in 2Q or 2025.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. It's a material driver to the 8% to 10% growth we had for the year in the original year guide and then in the second quarter lift that we have. And I would say the kind of level of the capital markets activity to me is why we have a little bit wider range in the second quarter fee guides. So we still think we'll see a nice bounce off of Q1 levels. But we'll have to wait and see how that plays out.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

But I think the broader point John just made about diversity and when one thing is a little soft, we have enough levers that I think we're pretty confident that we'll be able to find offsets at Capital Markets is a bit sluggish.

[Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch]

Got it. And I guess maybe just a follow-up on the margin outlook when you have the margin for the end of the year, end of twenty twenty six. Can you remind us what the Fed funds rate underpinning that is? I understand appreciate the time sensitive the sort of the time sensitivity of what the NIM does. But what's the Fed funds rate?

[Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch]

And if we get 100 basis points of Fed funds cut, let's say, between now and year end, does that create some downside risk to that twenty twenty five, 20 20 six outlooks or not?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. I'd say, as I mentioned, we're pretty well hedged. We've got when you look out the window, there's a said sorry, starting we said two cuts in January. But out the window, maybe there's three. But that third cut happens late in the fourth quarter, number one.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

And number two, we are close to neutral from an asset sensitivity perspective. So that 3.05% to 3.1% feels very good and very comfortable with respect to delivering that range. The terminal rate of about 3.5 getting out into 2026 and 2027 puts us into the middle of our 03/25 to three fifty net interest margin range. You'll see on the slide there in the back where we articulate that outlook. And so 2026 also just one other thing to add in case there's any follow ups.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

The net interest margin growth in 2025 is very comfortable and we feel good about it. It maybe implies about 15 basis points year over year. 2026 is a significant amount of tailwinds associated with some accelerating trends. And much of the time based benefit actually really starts to kick in, in 2026 and that's something to keep an eye on also.

[Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch]

Thank you.

[Operator]

And our final question comes from Manongo Salia from Morgan Stanley. Please go ahead.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

Hi, good morning. Just a couple of quick follow-up questions. One was on loan growth. Can you talk about how much of the loan growth over the past year has come from NDFI loans and how you're thinking about the credit risk of that portfolio?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. I mean, I'll start off and Don may add in here. I mean, there is we do have exposure like many of our peers do into the NBFI space. It's part of our the ecosystem of interacting in the private credit space and the private capital construct that we do a very good job of covering. I would say that, I'd hasten to add that the credit exposure for the places where we play is very low.

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

You think about the kind of interactions that we do in whether it's business credit intermediaries or in the private equity space that credit profile has been very low over time.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

Yes. I agree with that. And the growth hasn't been massive in terms of actually adding exposure. We've seen a little bit of growth due to higher utilization.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

So you see that coming through in the numbers a little bit. But we very much like the structures that we have in place both for the private equity complex and the private credit complex. They're both kind of investment grade like in terms of their credit profile. So very low losses, very strong structures, ABS kind of structures particularly in private credit and we feel very good about those exposures. And the other important thing is back to everything we're doing in the NBFI space.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

It's about a broad relationship. So we're doing multiple different things with each of the people that we're lending to. So it's not as if we're going out there and building a loan book. We're doing M and A with a lot of these complexes. We're actually distributing some of the private credit funds into our private bank and wealth management areas now.

[Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division at Citizens Financial Group]

So there's a lot of different relationship orientation and we're very selective in terms of the underlying clients that will actually bank.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Yes. I would just add two other points of color. One is that the definitions for this category are changing a little bit. And so some exposures that might not have been considered NBFI are now getting pushed into that a little bit. So it's hard to do a long period of time straight apples to apples comparisons.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

But I think once we get through the reclassification process then you'll going forward have more continuity in those forecasts. The other thing is that where we are growing somewhat is in the private bank. And so that's a little bit of a different kind of complementary perspective to some of the bigger funds that Don's folks are covering. So Brendan, I don't know if you want to add that, but we're making capacity there for kind of PE and VC funds where we know those firms extremely well and we want to be the bank to the fund complex and the partners if those firms. And so that's really good business.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

That was always really good business at First Republic and we're growing that business here.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

Yes. Credit structures, as Don mentioned, we believe are well structured with incredibly low risk at one year subscription lines. So the duration of it, if there's anything that we see that is worrisome, we can move on pretty quickly. We also in the private bank won't do the credit unless we have their operating cash management relationship.

[Brendan Coughlin, Vice Chair & Head of Consumer Banking at Citizens Financial Group]

And so a very deep relationship with the firm with strong underwriting and then eyes all over cash flows and the whole community that we're banking. So we feel good about the exposure.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

Very helpful. And then as my follow-up, just on the non core loan sale in the first quarter, how should we think about the benefit to NIM from that sale? I know the year end NIM guide is relatively unchanged. So I was wondering if there's some offsets there, if there's a higher probability that you can hit the higher end of that guide?

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

Yes. We had anticipated that we would have an opportunity to accelerate in 2025. So that was included in the January guide broadly. So the $3.00 5,000,000 to $3.10 is already incorporated

[John Woods, Vice Chairman & CFO at Citizens Financial Group]

this sale.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

So You may recall that on the first quarter call, I hinted that we were working on acceleration. So we were pretty far down the track that we would get something done. So when we had the guide we had assumed that. So it's not that dramatic of a lift in NIM, but we'll pick up basis points here and there.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

It all adds up and builds our path towards hitting those year end numbers those fourth quarter numbers.

[Manan Gosalia, Equity Analyst at Morgan Stanley]

Perfect. Thank you.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Okay. All right. Well, I think that brings us to the end of the call. Thanks again everyone for dialing in today. We appreciate your continued interest and support.

[Bruce Van Saun, Chairman and CEO at Citizens Financial Group]

Have a great day.

[Operator]

That concludes the Citizen Financial Group first quarter earnings conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Kristin Silberberg, Head Of Investor Relations
• Bruce Van Saun, Chairman and CEO
• John Woods, Vice Chairman & CFO
• Donald McCree, Senior Vice Chairman & Head of Commercial Banking Division
• Brendan Coughlin, Vice Chair & Head of Consumer Banking

Analysts

• John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI
• Ken Usdin, Senior Research Analyst at Autonomous Research
• Peter Winter, Managing Director - Senior Research Analyst at D.A. Davidson
• Erika Najarian, Managing Director & Equity Research Analyst at UBS Group
• Matthew O'Connor, Managing Director at Deutsche Bank
• Gerard Cassidy, Managing Director at RBC Capital Markets
• Ebrahim Poonawala, Managing Director - Head of North American Banks Research at Bank of America Merrill Lynch
• Manan Gosalia, Equity Analyst at Morgan Stanley