Citizens Financial Group Signals Strong Earnings Momentum

Citizens Financial Group ((CFG)) has held its Q4 earnings call. Read on for the main highlights of the call.

Citizens Financial Group Charts Confident Course With Strong Earnings Momentum

The overall tone of Citizens Financial Group’s latest earnings call was notably upbeat, with management highlighting broad-based momentum across core banking, wealth, and the expanding private bank franchise. Executives stressed that earnings power is building, net interest income is set to grow meaningfully, and operating leverage is firmly positive, even as they acknowledged manageable headwinds from elevated expenses, regulatory capital uncertainty, and ongoing cleanup of older portfolios. The message to investors was clear: despite pockets of volatility and legacy issues, Citizens sees a well-defined path toward materially higher returns over the next several years.

Strong EPS and Earnings Growth

Citizens delivered a solid bottom line, underscoring improving profitability. Fourth-quarter earnings per share came in at $1.13, an 8% sequential increase and a robust 36% rise from a year earlier. For the full year, EPS reached $3.86, up 19% versus 2024. Management framed this as evidence that strategic investments, balance sheet repositioning, and disciplined risk management are increasingly flowing through to shareholders in the form of stronger earnings growth.

Net Interest Income and Margin Expansion

Net interest income (NII) and margin trends were a key bright spot. The bank’s net interest margin expanded by 7 basis points in the quarter to roughly 3.07%, with NII up 9% year-over-year in the quarter and 4% for the full year, accompanied by 13 basis points of margin expansion. Management expects this traction to continue, guiding to NII growth of 10%–12% in 2026. That outlook hinges on gradually rising margins and moderate loan growth, positioning Citizens to benefit from a more favorable asset mix and improved deposit economics even in a shifting rate environment.

Wealth and Capital Markets Momentum

Fee-based businesses delivered standout performance, reinforcing Citizens’ strategy of diversifying away from purely spread-based income. Wealth management reported consecutive record quarters, with full-year underlying wealth fees up 22% and fourth-quarter underlying wealth revenue up 31% year-over-year. Capital markets posted its third-best quarter ever, with fees rising about 16% year-over-year in Q4 and a strong deal pipeline that includes roughly $20 million of fees already carried into the first quarter. These businesses are increasingly important growth engines and help smooth earnings through the rate cycle.

Private Bank Build and Contribution

The fast-growing private bank remains a centerpiece of Citizens’ long-term plan. By year-end, the franchise had amassed $14.5 billion in deposits, $7.2 billion in loans, and $10 billion in client assets. That scale translated into roughly $0.28 of EPS contribution for the full year—around 7% of total EPS—while generating an attractive return on equity of about 25%. Looking ahead, management targets private bank deposits of $18–$20 billion, loans of $11–$13 billion, and client assets of $16–$20 billion over time, with the business expected to maintain a 20%–25% ROE and become a mid-teens percentage contributor to overall earnings.

Positive Operating Leverage and Cost Programs

Citizens underscored disciplined cost control alongside its revenue growth. The bank delivered approximately 1.25% positive operating leverage for the full year, improving sequentially to about 1.3%. Its “Top 10” efficiency program generated more than $100 million of pretax run-rate benefits exiting the fourth quarter. In parallel, the “Reimagine the Bank” initiative is targeting about $450 million in pretax run-rate savings exiting 2028, equivalent to roughly 5% of the 2025 expense base. These efforts are designed to drive a structurally leaner cost profile and support a move to a mid-50s efficiency ratio over the medium term.

Improving Credit Trends and Reserves

Credit quality showed incremental improvement, easing some investor concerns around normalization after unusually benign conditions in recent years. Net charge-offs declined to 43 basis points from 46 basis points in the prior quarter, while the allowance for credit losses stood at roughly 1.53%. Commercial real estate (CRE) balances continued to move lower, down about 4% quarter-over-quarter and roughly 10% for the year, helping reduce risk in a sector that remains under scrutiny. Provisions were about $25 million lower year-over-year, and management described overall credit trends as favorable, suggesting credit costs are manageable even as they remain above pre-pandemic lows.

Capital Returns and Balance Sheet Strength

Citizens continued to lean into shareholder returns while maintaining a solid capital base. The bank returned $1.4 billion to shareholders over the year—about 80% of annual earnings—including $600 million of common share repurchases, which reduced the share count by roughly 3%. For 2026, the company plans to repurchase another $700–$850 million of stock. Capital ratios remain healthy, with a Common Equity Tier 1 (CET1) ratio around 10.6%, and tangible book value per share climbed to $38.07, up 4% quarter-over-quarter and 18% year-over-year, highlighting ongoing intrinsic value creation.

Non-Core Runoff and Balance Sheet Cleanup

Management highlighted rapid progress in shedding non-core assets that had been weighing on returns. These assets shrank from $6.9 billion at the beginning of the year to $2.5 billion at year-end, aided by the sale of a student loan portfolio. This runoff reduces earnings drag and frees capital and management bandwidth for higher-return opportunities such as the private bank, wealth management, and core commercial relationships.

Expense Growth Above Initial Guide

While efficiency programs are gaining traction, expenses ran a bit hotter than originally planned. Full-year expenses increased 4.6%, slightly above the 4% growth guidance at the start of the year. The overshoot was mainly driven by higher incentive compensation and continued investments to expand the private bank and wealth platforms—areas that are also generating strong revenue growth. For 2026, Citizens is guiding to around 4.5% expense growth, which includes one-time costs tied to transformation initiatives.

Quarterly Fee Volatility and Deal Timing

Despite strong year-over-year performance, fee income showed some quarter-to-quarter choppiness. Total fees declined 2% sequentially in the fourth quarter, as several M&A and equity deals slipped into 2026. Management expects about $20 million of related fees to land in the first quarter instead. This timing noise, especially in capital markets, led executives to take a conservative stance on 2026 fee guidance, pegging noninterest income growth at 6%–8% even though the underlying pipelines remain healthy.

One-Time Transformation Costs

The “Reimagine the Bank” program, while aimed at substantial long-term savings, will involve some near-term pain. In 2026, Citizens expects around $50 million of one-time transformation costs versus roughly $45 million of benefits in the same year, resulting in a small net drag on that year’s results. However, the bulk of the upside is back-end loaded: by 2028, the program is targeted to deliver about $450 million in pretax run-rate savings, reinforcing management’s message that 2026 is more of an investment year on the path to structurally higher profitability.

CRE and Legacy Portfolios Still Being Worked Out

The bank is not entirely out of the woods in areas tied to older exposures. While CRE balances are steadily shrinking, the general office portfolio and a legacy swap portfolio still require active management and reserving. Management noted that reserves and cumulative lifetime expected losses tied to March 2023 loan balances remain material, with cumulative expected lifetime losses around 20% against that March 2023 balance. This underscores that while risks are being contained and provisioned for, the clean-up of legacy books will continue to be an underlying theme for the next couple of years.

Regulatory and Stress-Test Capital Uncertainty

Regulatory capital requirements remain a key constraint on how aggressively Citizens can deploy capital. Management pointed to ongoing uncertainty around the Federal Reserve’s stress-test modeling and its impact on the bank’s Supervisory Capital Buffer (SCB). Elevated SCB levels effectively force the bank to hold more capital than it might under its own internal view of risk, influencing CET1 targets and the pace of share repurchases. Executives are hopeful that modeling improvements will ultimately lower the SCB, providing more flexibility over time, but for now they are planning prudently under a conservative regulatory framework.

Net Charge-Offs Still Above Historic Lows

Although credit metrics are improving, they have not reverted to the unusually low levels seen before the pandemic. Net charge-offs of about 43 basis points—down from 46 basis points in the prior quarter—remain above Citizens’ historic troughs and reflect a more normal credit environment along with the lingering impact of commercial real estate adjustments. Management framed this as a manageable normalization, backed by healthy reserves and improving underlying trends, rather than a sign of emerging stress.

Management’s Outlook and 2026 Guidance

Looking ahead, Citizens laid out an ambitious 2026 roadmap that blends strong growth with tighter efficiency. The bank projects NII growth of 10%–12%, driven by net interest margin expansion of roughly 4–5 basis points per quarter to about 3.25% by the fourth quarter of 2026. Spot loans are expected to grow 3%–5%, with average loans up 2.5%–3.5% and earning assets rising 4%–5%. Noninterest income is guided up 6%–8%, led by continued strength in wealth and capital markets. Expenses are forecast to grow about 4.5%, including around $50 million of one-time Reimagine costs offset by approximately $45 million of related benefits. Combined, this implies more than 500 basis points of positive operating leverage and a path toward a mid-50s efficiency ratio over the medium term. Credit costs are expected to improve, with net charge-offs in the mid-to-high 30s basis points, while CET1 is targeted around 10.5%–10.6%. The capital plan includes $700–$850 million in buybacks, and management reiterated medium-term goals for 2027 of 16%–18% return on tangible common equity, a 3.30%–3.50% net interest margin, and significantly larger, high-ROE contributions from the private bank.

In sum, Citizens Financial Group’s earnings call conveyed a story of a bank that has moved past much of its repositioning and is now leaning into growth and efficiency gains. Earnings, margins, and fee businesses are all moving in the right direction, the private bank is emerging as a powerful profit engine, and capital returns remain robust. While elevated expenses, regulatory capital constraints, and lingering legacy exposures still pose challenges, management’s confidence and detailed roadmap suggest a clear trajectory toward higher returns and a more valuable franchise for shareholders over the next few years.