The operator introduces the Citizens Financial Group Second Quarter Earnings Conference Call and hands it over to Kristin Silberberg, Executive Vice President, Investor Relations. CEO Bruce Van Saun and CFO John Woods provide an overview of the second quarter results, with additional commentary from Head of Consumer Banking Brendan Coughlin and Head of Commercial Banking Don McCree. The presentation includes forward-looking statements and non-GAAP financial measures, and the company has shown solid results with strong fee performance, good deposit cost management, tight expense control, and expected credit metrics. The balance sheet remains strong with a CET1 ratio of 10.7%, a loan to deposit ratio of 80%, and an ACL ratio of 1.63%. Federal Home Loan Bank advances have decreased to below $600 million.

In the second quarter, the company saw an increase in revenues and underlying PPNR and net income. They also repurchased shares and saw a decrease in share count. Fee growth was strong in various areas, including capital markets, wealth, and card fees. The private bank and commercial bank both had successful quarters, with the private bank reaching $4 billion in deposits and the commercial bank hiring new leaders. The company is executing well on strategic initiatives and has made progress in reducing non-core assets and refocusing on deep relationships in commercial C&I.

In the third paragraph, the speaker highlights the strong performance of credit metrics outside of General Office, where they are currently working on improving the situation. They also mention that a majority of their office exposure is in suburban areas, which have lower loss given defaults compared to central business districts. The speaker expresses confidence in their ability to navigate any challenges that may arise in the future and maintains a positive outlook for the company. They also mention their focus on executing their strategic initiatives and maintaining a strong balance sheet. The paragraph concludes by summarizing the highlights of the second quarter financial results, including strong fee performance, stable deposit balances, and healthy credit reserve and capital levels.

In the second quarter, we achieved strong financial results, including $408 million in underlying net income, EPS of $0.82, and ROTCE of 11.1%. We maintained a strong balance sheet position with CET1 at 10.7% and a pro forma LCR of 119%. Our period end LDR improved to 80.4% and we reduced our FHLB borrowings. We also successfully issued $750 million in senior debt and added $1 billion in auto-backed borrowings. Credit losses were in line with expectations and our ACL coverage ratio increased by 2 basis points. Our private bank and investments in the private capital and capital market space are performing well.

The company is optimistic about their top of house initiatives, such as BSO and TOP, as well as data and technology-related initiatives. In the second quarter, net interest income was down 2% due to lower net interest margin and loan balances. However, fees were up 7% due to strong results in capital markets and record card and wealth results. The company's capital markets business improved 14% and they are holding the number one middle market sponsor book runner position for the second quarter in a row. M&A advisory fees were slightly down, but the company expects positive momentum in the second half of the year due to strong deal pipelines. This reflects the success of investments made since the IPO and the diversification of the business.

In the sixth paragraph, the article discusses the record card fees for the company, driven by the transition to a new debit card platform and higher purchase volume. Wealth results were also strong due to increased sales activity and higher asset management fees. Mortgage banking fees saw a modest increase thanks to MSR valuation and servicing P&L improvements. Expenses were down slightly and the company is making progress on their strategic initiatives, including their TOP 9 program. Loan balances were down 1% due to the runoff of the Non-Core portfolio, but core loans remained stable. The company also saw strong deposit growth in the private bank despite a competitive market.

Despite a slowing migration from lower-cost to higher-cost deposit accounts and a stable percentage of non-interest bearing deposits, the bank's deposit franchise remains diversified and efficient. Credit-wise, net charge-offs increased slightly due to stable charge-offs and lower average loans. Non-accrual loans increased, mainly in CRE General Office and multifamily, resulting in a 2 basis point increase in the overall coverage ratio. The reserve for the General Office portfolio has also increased since the first quarter, with the bank absorbing $319 million in cumulative losses since 2023.

The paragraph discusses the cumulative losses and reserves outstanding for the General Office portfolio, which represents a 17% loss rate. The loss has been concentrated in central business district properties, with suburban properties experiencing a lower loss rate. The company has maintained a strong balance sheet with a CET1 ratio of 10.7%. They have also repurchased $200 million in common shares and returned a total of $394 million to shareholders in the second quarter. The company's strategy is focused on a transformed consumer bank, a strong commercial bank, and building a premier bank-owned private bank and wealth franchise.

The bank has improved its deposit raising capabilities and is performing better than its peers. It has a strong lending platform and is focused on building relationships with customers and scaling its wealth business. The bank is also well-positioned to serve the private capital ecosystem and is seeing a more positive capital markets environment. It is also making progress in building a premier private bank and has recently opened new offices and added talent to its wealth management business.

In the second quarter, the company added two asset management teams and saw a 68% increase in private bank revenue. They are on track to reach their $10 billion AUM target by 2025. For the third quarter, they expect NII to be down 1-2%, noninterest income to increase slightly, and expenses to remain stable. They also anticipate a decrease in net charge-offs and an increase in CET1 ratio. For the full year, they expect PPNR to be in line with their previous guidance, with NII and NIM rebounding in the fourth quarter. Net charge-offs are also expected to meet their original expectations.

The company expects to end the year with a target CET1 ratio of 10.5% and share repurchases will depend on external factors and loan growth. The quarter was strong with good momentum in capital markets, record results in wealth and card, and expected credit performance. Capital levels are strong and the company is maintaining robust liquidity and funding. Strategic initiatives are progressing well and the consumer and commercial banking businesses are expected to drive strong performance. The company remains confident in their ability to hit their medium-term return target. In the second half of the year, loan growth is expected to be positive, driven by growth in the private bank and customer sentiment.

The bank is seeing increased customer activity in the commercial space, particularly in M&A and advisory-related finance, as well as in subscription lines and fund finance. In the retail sector, there are opportunities in HELOC and mortgage. The bank's loan growth expectation for the second half of the year is being driven by a pick up in new money activity, as well as a more positive economic outlook. On the consumer and private banking side, the non-core run down is affecting overall loan growth, but the core loan business is growing, led by residential lending and HELOCs. The bank's strong position in the HELOC market is benefiting from higher interest rates and customers' strong home equity.

The company is experiencing strong growth in its HELOC portfolio despite challenges in the mortgage market. The private bank is also seeing diversification in its loan book, with a shift towards consumer loans. The stress capital buffer came in higher than expected, but the company believes it has sufficient capital and is frustrated with the Fed's modeling of PPNR.

The speaker, John, discusses the expected changes to the company's business model and balance sheet optimization. He mentions a focus on deeper relationships and shifting away from CRE lending. He also addresses questions about the net interest margin and interest rates, stating that they expect an improvement in the NIM and a decrease in interest bearing deposit costs.

The company's financial trends are looking positive, with loans coming in lower than expected but offset by better net interest margin and lower interest-bearing deposit costs. The company expects interest-bearing deposit costs to have peaked in the first quarter and to provide a tailwind in the second half of the year. The company anticipates generating positive net interest margin from all other sources outside of swaps in the fourth quarter, with non-core assets running off and the private bank initiatives contributing. Overall, the company expects to see a rise in net interest margin in the fourth quarter due to these factors.

The speaker believes that getting the first Fed cut in late September would be helpful and address pricing pressures on deposits. They also mention a rising net interest margin and optimizing their balance sheet mix. They may use excess liquidity to increase lending in the second half of 2024 to drive net interest margin.

The speaker believes that there is potential for the balance sheet to grow in the medium term, driven by a combination of net interest margin and the launch of the private bank. They anticipate some seasonal weakness in the third quarter but overall, the fee story is on a positive trajectory.

John Woods, CEO of a bank, discusses the investment banking pipeline and the main drivers for fee-based outlook. He mentions the bank's strong performance in the second quarter and their number one middle market sponsor position. He expects the third quarter to be seasonally down but with a higher floor due to investments. The bank's diversification in wealth management is also driving wealth fees and there are opportunities in hedging against rate exposure. Other categories such as service charges and mortgage banking are also expected to contribute to the bank's performance in the third quarter.

The market is currently favorable with a lot of liquidity, leading to a lot of refinancing activity. However, there has not been much new money activity until recently, with private equity deals starting to pick up. M&A deals in the middle market are doing well, but larger deals are facing regulatory scrutiny. There has been an increase in IPOs, but some companies are hesitant due to recent IPO performance.

The speaker discusses the potential for growth in the equity markets and a strong pipeline in the convert and follow-on side. They also mention a positive outlook for the second half of the year and 2025, with all the necessary pieces in place to take advantage of the market. Another speaker adds that the consumer side has seen durable and predictable fee revenue, with potential for growth in areas such as mortgage and wealth management. They also mention crossover activity from private banking clients. Lastly, the speaker addresses the high reserve and potential factors that could allow for absorbing losses in the future.

The speaker discusses the uncertainty surrounding the office reserve and how they are playing it conservatively by maintaining a large reserve. They anticipate a slow recovery and will continue to work through the properties and borrower relationships. They expect to see a positive shift in the future, possibly in 2025, which will allow them to draw down on the reserve and see a significant benefit.

The company is confident in their balance sheet strength and believes that any uncertainties will be covered by their reserves and capital. They are also working to reduce their exposure and have had success with repayments and paydowns. They have been able to negotiate better terms with borrowers and are seeing positive trends in consumer and commercial metrics. As a result, they expect to see a decrease in charge-offs and an increase in reserve drawdowns in the future.

The speaker, John Woods, is responding to a question about the company's cost management strategies. He mentions their TOP and TOP 10 programs, which have helped keep costs flat and generate run rate benefits. They have also been able to invest in other initiatives without needing to sell fund. They are currently working on the next TOP program, which includes expanding data and analytics and launching analysis in the generative AI space.

The company is converging its technology platforms and making investments in the TOP program. They are confident in their ability to self-fund these investments. The company recently issued and redeemed preferred stocks and is comfortable with their current capital position, aiming for a range of 1.25% to 1.50% of RWAs. They may look to refinance in the future to lower their preferred coupon. The company's RWAs have been decreasing while their average earning assets have remained steady.

In response to a question about the expected increase in net interest income in the fourth quarter, John Woods explains that the majority of the increase will come from a rebound in net interest margin. This will be driven by positive tailwinds from various factors such as noncore, front book, and back book dynamics. Loan growth and deposit costs may also contribute to the increase, but the main driver will be net interest margin.

The company expects loan growth to contribute to their net interest margin in the second half, with all three business segments playing a role. They also anticipate a better funding mix with increased deposits and less wholesale funding. The company is well-balanced in terms of the potential impact of a Fed rate cut on their asset sensitivity and deposit migration. They are confident in a rebound in NII and a strong fourth quarter, thanks to various initiatives and factors such as seasonally strong fees, expense discipline, improving credit, and share repurchases. The commercial middle market segment is expected to see positive drivers for loan growth in the second half.

Don McCree, CEO of a financial company, discusses the company's utilization growth and how it is largely driven by capital call and subscription lines. He also mentions that middle-market companies have been taking their leverage levels down due to economic uncertainty, but as the economy stabilizes, they may become more aggressive in investing in their businesses. He does not anticipate a significant impact from the election on the company's trends. The company is also seeing strong client acquisition in California and Florida, following the same successful playbook used in New York. Another tailwind for the company will be the gradual shrinkage of CRE exposure in the medium-term, as discussed by CEO Bruce Van Saun.

The speaker asks for an estimate of how much the company's commercial real estate loans will decrease in the near future. The CEO responds that they plan to decrease the commercial book by at least 25% and make more room for C&I growth. He also mentions that the majority of the $4 billion in deposits are from private equity and venture firms, but they are primarily operating deposits which are stable and lendable.

The private bank's loan-to-deposit ratio is low and they have a lot of liquidity to continue driving loan growth. The loan book is diversifying to consumers and the deposit book is still mostly split between consumers and businesses. Over time, they expect the split to become more even. The private bank is also opening new offices to attract high net worth individuals. They want to show that they can run the private bank profitably and have set goals for the year, including hitting breakeven in the fourth quarter.

The company is expecting significant growth in the next year, with $9 billion in loans, $10 billion in AUM, and $11 billion in deposits. This will result in a 5% increase in bottom line profits. The company is focused on building the business and improving service levels, but may consider unique opportunities in important locations. They have also been successful in expanding their wealth management capabilities by bringing in new teams, with more teams interested in joining. These additions have not negatively impacted financials and have the potential to quickly become profitable.

The speaker discusses the bank's strategy in expanding its wealth and banking divisions, emphasizing the importance of being selective and only attracting high-quality teams. They also mention the positive outlook for the private wealth sector and their success in attracting top talent. The speaker then addresses a question about the bank's commercial real estate portfolio and provides detailed information on its performance.

The speaker discusses the assumptions and outlook for the current economic downturn and how it compares to historical downturns. They mention that reserve levels have increased over the past year and that their forecasts for valuations and NOI have evolved. They also mention that the reserve level of 11.1% reflects the growth in property valuations over the past year.

The speaker acknowledges that there is still uncertainty in the market, but is hopeful that it will decrease as they work through their maturities and extract additional collateral. The Fed's decision to lower rates may also help improve the situation. The rate of deterioration in the office sector is slowing down. The bank's success in the private equity market is benefiting their capital markets business, and the speaker notes that banks often have to use their balance sheet to win business in this sector.

Don McCree shares with Gerard the bank's exposure to non-depository financial lenders and how they manage the risk. The bank has capital call and subscription lines, financing lines to private credit organizations, and lending to underlying leverage buyouts. These businesses are relatively safe and the bank's strategy is to have large holds and a diversified portfolio. However, the overall non-bank financial exposure also includes insurance companies and other risks. The bank's leveraged credit book is shrinking due to lack of market activity.

The speaker discusses the company's diversification and their decision not to invest in leveraged loans. They also mention their expectations for deposit repricing and growth in light of potential Fed rate cuts.

The company expects deposit growth in the second half of the year from all three of their businesses, with a particular focus on private bank deposits. They have a strong track record of outperforming in DDA low-cost deposits and anticipate this trend to continue. A potential interest rate cut in September could also contribute to deposit growth, but it is not necessary. Overall, the company expects a positive funding mix and a tailwind for NII and NIM in the second half.

The speaker believes that the deposit strategy of the company is stable and grounded in the health of their DDA base. They expect to outperform peers in any market conditions and have been successful in doing so for a long time. This year has been particularly strong for the company. The call has now ended.

This summary was generated with AI and may contain some inaccuracies.