Citizens Financial Group’s NIM Drivers and Expense Growth Signals Clash in 2025 Earnings Call

Date of Call: Jan 21, 2026

Financials Results

• EPS: Q4: $1.13, up 8% sequentially and 36% YOY. Full year: $3.86, up 19% YOY.

Guidance:

• NII growth of 10%-12% in 2026.
• Net interest margin expected to expand 4-5 bps per quarter toward 3.25%.
• Loan growth: spot loans up 3%-5%, average loans up 2.5%-3.5%.
• Non-interest income up 6%-8%.
• Expenses up 4.5%.
• Operating leverage in excess of 500 basis points.
• Net charge-offs in the mid-to-high 30s bps.
• CET1 ratio maintained at 10.5%-10.6%.
• Share repurchases of $700M-$850M.

Business Commentary:

Financial Performance and Strategic Growth:

• Citizens Financial Group reported an EPS of $3.86 for 2025, up 19% year-over-year, with a notable 36% year-on-year increase in Q4.
• The growth was driven by net interest margin expansion, strong wealth and capital markets fees, and favorable credit trends.

Private Bank Expansion:

• The private bank concluded the year with $14.5 billion in deposits, $10 billion in client assets, and $7.2 billion in loans.
• This expansion was part of a strategic initiative to enhance earnings contribution and achieve a high ROE, supported by strong deposit and loan growth.

Loan and Deposit Growth:

• Average loans increased by 1%, with a significant reduction in non-core assets from $6.9 billion to $2.5 billion.
• The growth in loans was driven by private bank and corporate banking expansions, while deposit growth was supported by a focus on low-cost, stable retail deposits.

Reimagine the Bank Initiative:

• The Reimagine the Bank program aims to deliver $450 million in pre-tax run rate benefits by the end of 2028, with an initial one-time cost of $50 million in 2026.
• This initiative is expected to enhance customer experience and drive revenue benefits alongside targeted expense efficiency improvements.

Capital Management and Shareholder Returns:

• Citizens returned $1.4 billion, or 80% of 2025 earnings, to shareholders through dividends and share repurchases.
• The company plans to continue returning capital, with an expectation of repurchasing $700 million-$850 million in shares in 2026, supported by strong earnings growth.

Sentiment Analysis:

Overall Tone: Positive

• We were pleased to finish the year with another strong quarter... Our strategy rests on a transformed consumer bank, the best-positioned superregional commercial bank... We are feeling very good about our positioning for the future.

Q&A:

• Question from Ryan Nash (Goldman Sachs): Talk about how much of Reimagine the Bank benefits hit the bottom line versus get reinvested, and does this increase confidence in the high-end ROTC target?
  Response: Management has not yet decided the flow-through; it will depend on future investment needs, but historically significant flow-through is expected. The program's benefits are additive to the 16%-18% ROTC target.

• Question from Ryan Nash (Goldman Sachs): Why did the deposit beta guidance drop from low-to-mid 50s to high 40s, and what offsets allow for higher NIM?
  Response: The market has become less aggressive in pricing; confidence in non-interest-bearing deposit growth, slight asset sensitivity, and attractive hedging actions offset the lower beta.

• Question from Erica Najarian (UBS): What drives the strong loan growth guide, and how do you balance optimizing CRE versus refinancing opportunities?
  Response: Confidence stems from strong performance in private bank, commercial bank expansion, and consumer HELOC; non-core runoff is minimal, and CRE optimization is improving.

• Question from Manan Gosalia (Morgan Stanley): Are the fee growth assumptions conservative given strong performance and pipeline?
  Response: The guide is cautious, acknowledging a strong capital markets pipeline and record wealth performance, but includes uncertainty like tariff impacts.

• Question from Manan Gosalia (Morgan Stanley): How important is the stress test for capital management and buyback comfort?
  Response: Optimistic about potential Fed changes to lower SCB; the high CET1 range is maintained due to uncertainty, but migration down is possible later.

• Question from John Pancari (Evercore ISI): What loan categories in the private bank are driving growth, and how will the loan-to-deposit ratio trend?
  Response: Growth is balanced across C&I, multifamily, CRE, and residential; LDR is expected to remain stable and potentially tighten to 80% over the medium term.

• Question from Matt O’Connor (Deutsche Bank): What drives the higher earning asset growth versus loan growth in the outlook?
  Response: Mix of deposit composition and some liquidity build; private bank deposits have lower lendability than consumer deposits.

• Question from Ebrahim Poonawala (Bank of America): What spread should be assumed for new balance sheet growth, and why is the private bank office count not larger?
  Response: Spreads are higher in private and consumer banks; office expansion is disciplined to maintain quality and connectivity.

• Question from David Chiaverini (Jefferies): What drives the efficiency ratio outlook to the mid-50s?
  Response: NIM expansion, benefit from terminated swaps, and positive operating leverage drive the efficiency ratio down.

• Question from David Chiaverini (Jefferies): What are the AI use cases and spend outlook?
  Response: Foundational investments were made in 2025; 2026 will see deployment in call centers, engineering productivity, and credit/fraud analytics.

• Question from Gerard Cassidy (RBC): How much of the private bank client asset growth comes from existing vs. new customers, and what's the bull market impact?
  Response: Growth comes from converting existing teams' books, adding new teams, and referrals; the bull market contributes about a third of revenue uplift.

• Question from Gerard Cassidy (RBC): Given strong organic growth, what is the view on potential acquisitions?
  Response: Focus remains on organic growth initiatives; inorganic opportunities like small business line adds are possible but not the priority.

• Question from Chris McGratty (KBW): What gets the ROE into the 16%-18% range, and where are reserves relative to CECL Day One?
  Response: Strong revenue growth, expense control, and NIM expansion drive ROE; reserves are around 110% of CECL Day One, showing conservatism.

• Question from Ken Usdin (Autonomous Research): Will private bank expense growth moderation allow for investment in other areas?
  Response: Robust revenue growth supports continued investment in private bank and commercial expansion while delivering strong operating leverage.

Contradiction Point 1

Net Interest Margin (NIM) Trajectory and Drivers

Contradiction on primary driver for NIM in 2027 and sensitivity to interest rates.

Confirm if the 340-350 bps NIM target for the medium term (around 2027) is correct and the spread on new balance sheet growth? - Ebrahim Poonawala (Bank of America)

2025Q4: Yes, the NIM is targeted in the 3.30%-3.50% range for 2027. The spread on new growth varies: Private Bank and Consumer Bank spreads are relatively higher, while Commercial Bank spreads are lower... - Bruce Van Saun(CEO)

Why was the NIM target range unchanged despite the lower Fed funds range, and what is its sensitivity to Fed funds? - David Rochester (Cantor Fitzgerald & Co.)

2025Q3: The confidence in sustaining the 3.25%-3.50% NIM cone has solidified, even at lower Fed funds rates... The time-based benefits remain the predominant driver. - Bruce Van Saun(CEO)

Contradiction Point 2

Expense Growth Outlook

Contradiction on the trajectory and discipline of expense growth in 2026.

Will the Private Bank’s expense growth slow after 2026, or will it continue to invest? - Ken Usdin (Autonomous Research)

2025Q4: There is still more build-out planned for the Private Bank. The overall expense growth (4.5% in 2026) is prudent given robust revenue growth (~10%), enabling strong positive operating leverage. - Bruce Van Saun(CEO)

How will ongoing expense investments impact expense growth pace and positive operating leverage by 2026? - John Pancari (Evercore ISI Institutional Equities)

2025Q3: The bank has already returned to positive operating leverage. NIM expansion drives revenue growth with minimal added expense. Expense growth in 2026 is not expected to deviate significantly from 2025, but revenue growth should be higher, leading to more positive operating leverage. - Bruce Van Saun(CEO)

Contradiction Point 3

Flow-Through of "Reimagine the Bank" Benefits to Bottom Line

Contradiction on whether benefits are largely passed to the bottom line or primarily reinvested.

For the "Reimagine the Bank" initiative, how much of the benefits contribute to the bottom line versus reinvestment, what are the key reinvestment areas, and does the program increase confidence in achieving the high end of the 16%-18% ROTC target or act as a hedge? - Ryan Nash (Goldman Sachs)

2025Q4: The full run-rate benefit will flow through to the bottom line, but the exact flow-through percentage depends on future investment needs... Historically, significant flow-through is expected. - Bruce Van Saun(CEO) and Brendan Coughlin(President)

Does the "Reimagining the Bank" initiative cover client experience, cost, and risk, and can it be funded without increasing expenses? - Steven A. Alexopoulos (TD Cowen)

2025Q2: The goal is to sequence investments for quick wins and self-funding, with benefits extending 3-5 years. - Brendan Coughlin(President)

Contradiction Point 4

Capital Return Strategy and Regulatory Environment

Different outlooks on timing and conditions for increasing buybacks.

How significant is the SCB reduction in lowering CET1 and boosting buybacks, and how quickly can the 10%-10.5% CET1 target be achieved? - Manan Gosalia (Morgan Stanley)

2025Q4: Once conditions are more favorable, the ratio could be managed lower... enabling more capital returns. - Anoue Banerjee(CFO)

What are the trends in line utilization regarding loan demand and balance sheet growth, and how would weaker loan growth in a softer economy affect buyback caution or step-up decisions? - John Pancari (Evercore ISI)

2025Q1: If RWA is lower, they may increase buybacks, as capital is strong... - [Capital Management]

Contradiction Point 5

Private Bank Deposit Growth Outlook

Contradiction on the expected trajectory and drivers of private bank deposit growth.

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2025Q4: Non-interest-bearing deposit growth has been steady... The LDR is currently in the 60%-70% range, supported by deposit growth. Over the medium term, if rates fall further, the LDR could tighten toward 80%, but deposits and loans are expected to grow in balance for now. - Brendan Coughlin(President) and Bruce Van Saun(CEO)

What was the loan growth in the quarter, Private Bank and other segment dynamics, and borrower sentiment for the remainder of the year? - Ryan Matthew Nash (Goldman Sachs)

2025Q2: Private Bank added $1.2B in loans... with strong deposit mix (36% noninterest-bearing). To meet full-year targets, average quarterly loan growth needs to be ~$1.1B. - Brendan Coughlin(President)