Citizens Financial Group Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Peter Winter - D.A. Davidson & Co., Research Division - Analyst : Morning. Can you provide an update on the loan outlook in the second half of the year and maybe just talk about customer sentiment, what it's going to take to kind of move them off the sideline?

Question: Peter Winter - D.A. Davidson & Co., Research Division - Analyst : That's great color. Thank you. And just on a separate question, just the stress capital buffer came in higher than I was expecting, I'm sure it's higher than what you were expected. Are there any plans to kind of reassess any of the businesses to help drive lower SVB? Bruce, you mentioned some plans over the medium term to reduce the CRE exposure?

Question: Peter Winter - D.A. Davidson & Co., Research Division - Analyst : Got it. Thanks, Bruce.

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Hi. Good morning. The first question is for John. John, I think you were at a conference in June, and you talked very positively about an exit rate for the fourth quarter of 2024 and the net interest margin. I'm wondering if you could readdress that again and maybe put it in context of you know, you noted that the swap costs were peaking in the third quarter. If you can give that in context on how you expect your asset yields to traject as we think about that September and December rate cut. And obviously, the 3 basis points improvement in interest-bearing deposit costs are notable starting the trajectory from here, whether it's in context of the rate cuts and runout?

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : That does. As you lay out the path inside the third quarter from a rising cost for the net interest margin from what you mentioned as a 3Q '24 trough. I'm wondering about the size of the balance sheet? Do you feel like your mix is optimized? In other words, as your investors think about a normalizing NIM and multiply that by your balance sheet, is your balance sheet growth going to be in line with business growth? Or will there be some moves that you're making in terms of, you know, wholesale funding or whatever else that could move balance sheet growth sort of underneath business growth or above business growth?

Question: Erika Najarian - UBS Investment Bank, Research Division - Analyst : Well said guys, thank you.

Question: Scott Siefers - Piper Sandler & Co., Research Division - Analyst : All right. Thanks for taking the question. Maybe we could pivot to the fee store for a moment. That's been a pretty solid story was this quarter end. Don, so it sounded like we'll see maybe some seasonal Capital Markets weakness in the third quarter, but it feels like it's on a good trajectory. So just maybe some thoughts on the overall investment banking pipeline, how it looks? And then just broader thoughts on the main drivers as you see them for the fee-based outlook.

Question: Scott Siefers - Piper Sandler & Co., Research Division - Analyst : Terrific. Thank you for that color. And then wanted to ask a little bit about the reserve and specifically the Office reserve. I think we're up at 11.1% now, which is, of course, very, very high. I guess I'm curious about the factors, as you might think about that would allow you to start sort of absorbing losses with that existing reserve. In other words, what sort of allows that Office reserve to start to come down rather than to continue to tick up. I think when you talk about the reserve more broadly, you've pointed to non-core run-off as being the thing that might allow the reserve to benefit. But just curious about how Office sits in there in particular?

Question: Scott Siefers - Piper Sandler & Co., Research Division - Analyst : Perfect. All right. Thank you all very much.

Question: Kenneth Usdin - Jefferies LLC, Research Division` - Analyst : Okay, great. Good morning. Hey, John, and Bruce, on the cost side, so you guys are doing a really job keeping costs flat. You mentioned earlier you're hiring some bankers. You obviously have the wealth management people. I'm just wondering if you can help us understand like the growth that you have there and like where the top and extra cost program are in terms of the offsets to be able to kind of still hold the line. I know that it's kind of in line with your full year guidance, but just the puts and takes of kind of where we are at this point of the year, in terms of, if there's more to come on top, you know, to offset those. And that was those hires and the growth and the strong investment banking results, et cetera? Thanks.

Question: Kenneth Usdin - Jefferies LLC, Research Division` - Analyst : Okay, great. Alright, second question, I know that you issued $400 million preferred and redeemed $300 million at in early July and I think with that, you're still kind of in the one, two; one, three zone. Only one, three preferred to RWAs, as you contemplate the buyback. As you think about without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:00PM, CFG.N - Q2 2024 Citizens Financial Group Inc Earnings Call the SCB and all that, like, how do you just think about the overall capital stack in terms of like what your ultimate goals are for optimization of your capital position?

Question: Kenneth Usdin - Jefferies LLC, Research Division` - Analyst : Okay, great. And sorry, just one just wanted to follow up on that last one, just the -- So the RWAs have been coming down and your average earning assets have been kind of flat. And I know you talked a little bit about this earlier, but is kind of flattish on total balance sheet size, average earning assets. Is that the right way to think about things going forward, given all the moving parts on both sides of the balance sheet?

Question: Kenneth Usdin - Jefferies LLC, Research Division` - Analyst : Got it. Thank you.

Question: Manan Gosalia - Morgan Stanley, Research Division - Analyst : Hey, good morning. If I tried to back into the 4Q NII number using your full year guide and the 3Q guide, it implies a 3% to 4% quarter on quarter increase in NII in 4Q. My question there is what you need to see that uptick in NII. I mean, I know there's some benefit from the swaps front, but do you also need to see loan growth? Do you need to see deposit costs continuing to come down? Do you need any help from rates? Can you help us frame that.

Question: Manan Gosalia - Morgan Stanley, Research Division - Analyst : That's really helpful. And then as a follow-up on the commercial middle market side, you outlined several positive drivers for lines picking up in the back half. Does that come with higher utilization, or do you need to see a lower rate for utilization to pick up and maybe how does the uncertainty around the election? How is that factoring into your conversations with clients?

Question: Manan Gosalia - Morgan Stanley, Research Division - Analyst : Great. Thank you.

Question: John Pancari - Evercore ISI Institutional Equities, Research Division - Analyst : Morning, Bruce, I think you talked about the expectation, medium-term plan to shrink the CRE exposure incrementally from here. Just wanted to get an idea of where you think that could settle out. I mean, right now, your commercial real estate loans are about 130% of your risk-based capital plus reserves? Where do you think it goes from that perspective post this expected runoff?

Question: John Pancari - Evercore ISI Institutional Equities, Research Division - Analyst : Right. Okay. Thank you for that. That's helpful. And related to that, my second one is on the private banking side. First of all, on the deposit side, the $4 billion in deposits, I know 81% of that is commercial, 36% is that is DDA. How much of those deposits are deposits with venture capital and private equity firms or related to that industry? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:00PM, CFG.N - Q2 2024 Citizens Financial Group Inc Earnings Call

Question: John Pancari - Evercore ISI Institutional Equities, Research Division - Analyst : Okay, thank you. Then one last one. The if you could just maybe update us on the likelihood of additional team hires on the private banking side and then the two wealth AUM going up to about $3.6 billion there. I know you acknowledged that might be tougher log. And but it looks like towards the end of the quarter, you had that big jump in AUM. Just curious if you could give a little bit of color around what's driving that recent upturn?

Question: John Pancari - Evercore ISI Institutional Equities, Research Division - Analyst : Great. Thanks, Brendan.

Question: Gerard Sean Cassidy - RBC Capital Markets, Research Division - Analyst : Thank you, good morning Bruce, good morning Jhon you talked in give us good detail about the office portfolio, commercial real estate and I think you said that some of your assumptions in the bottom left-hand corner of slide 14, you show that this downturn is far worse than historical downturns. Can you share with us two ideas or two answers. First is when you look back, I think you guys have been aggressively attacking this portfolio for just over a year now, when you look back at those early workouts in the second quarter of '23, how it how in the assumptions that you're using and compare to today? And then second, on what Bruce said maybe this office problem doesn't resolve itself until sometime next year. What are you seeing incrementally in terms of valuations or losses is still deteriorating in office or has it just stabilized and we just got to work through these portfolios.

Question: Gerard Sean Cassidy - RBC Capital Markets, Research Division - Analyst : Brendan is it fair to say that the second derivative is the rate of deterioration that you guys are seeing? Is it slowing in their office or?

Question: Gerard Sean Cassidy - RBC Capital Markets, Research Division - Analyst : Okay. And then as a follow-up, you guys talked a lot about private equity. And you have in your slide 17, you show some great numbers. Obviously, number one and the sponsor business and your capital markets business is benefiting from that. So the question I have is and it's not on the capital call or subscription lines, but it seems over the years for banks to win in this capital markets business with sponsors, you have to use your balance sheet to win this business. You've got to lend money to the sponsors. So can you share with us your exposure to, I guess one of the line items in one of the regulatory reports, non-depository financial lenders that you lending to them. Can you share with us your exposure there, how you manage that risk because it seems like banking industry has been derisked, but maybe it's in the private credit side and the indirect exposure for the industry could run through that channel. Can you give us some color there, please ?

Question: Gerard Sean Cassidy - RBC Capital Markets, Research Division - Analyst : Thank you.

Question: Matt O'Connor - Georgia Bank. - Analyst : Thanks and good morning. Can you guys talk about how you think deposits will reprice down, I guess the first kind of call it two or three Fed cuts versus a more sustained reduction?

Question: Matt O'Connor - Georgia Bank. - Analyst : Okay. And then thoughts on on deposit growth pick up a bit for the industry, and you've got some specific initiatives, obviously. But do you see some pickup and kind of broader deposit trends as well with some Fed cuts?

Question: Matt O'Connor - Georgia Bank. - Analyst : Okay. Thank you.