Q1 2025 Citizens Financial Group Inc Earnings Call
Speaker Change: [music].
Please standby the conference will begin shortly again, please standby the conference will begin shortly thank you.
[music].
Speaker Change: Good morning, everyone and welcome to the citizens Financial Group first quarter 2025 earnings conference.
Iv: Name is IV and I'll be your operator today currently all participants are in a listen only mode. 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 Silverberg head of Investor Relations Kristin you may begin.
Kristen Silverberg: Thank you Bobby good morning, everyone and thank you for joining us.
Speaker Change: This morning, our chairman and CEO, Bruce Van <unk>, and CFO, John Woods will provide an overview about first quarter results Brendan Coughlin head of consumer banking and Don Mccree head of commercial banking are also here to provide additional color will be referencing our first quarter presentation located on our Investor Relations website. After the press.
Kristen Silverberg: Patients, we will be happy to take questions.
Kristen Silverberg: 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.
Kristen Silverberg: Are outlined for you I'll 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 reconciliation in the appendix and with that I will hand over to Barry.
Barry: Thank you Christian and good morning, everyone. Thanks for joining our call today.
Barry: We announced financial results today that were in line with our expectations highlights include NIM expansion of three basis points to 290 core loan growth of 1% resilience in our feed categories. Despite some softness in capital markets given market uncertainty.
Barry: And credit trends remaining favorable.
Barry: Along with continued share repurchases.
Barry: Our balance sheet remains very strong with set one ratio of 10, 6% L. B R. A 77 quite five virtually no federal home loan bank borrowings and a strong credit allowance position.
Barry: During the quarter, we entered into an agreement to sell 1.9 billion in purchase stupid bonds, which resides in non core.
Barry: 200 million of the portfolio was sold in Q1 with the balance to be settled ratably over the next three quarters.
Barry: We used the proceeds to pay down high cost funding.
Barry: Purchase low risk weight securities and repurchase shares.
Barry: Transaction will be accretive to NIM E. P. S ROTC we.
Barry: We had already included the impact and our full year guide.
Barry: During the quarter. We also issued 750 billion 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 eight 7 billion in deposits and $5 2 billion in AUR.
Barry: We added private wealth teams in Florida, and southern California during the quarter and another one today in New Jersey.
Barry: Our New York City Metro private capital and payments initiatives also saw continued progress.
Barry: As we look forward, there's clearly been an increase in uncertainty in the macro environment, given the policy decisions and rollout emanating from Washington.
Barry: This has caused many market participants to hit pause on investments for deal activity.
Barry: On a positive note our corporate and consumer borrowers are generally in good shape and are in position to weather. These challenges.
Barry: The basis for our full year guidance had anticipated some choppiness in the first half of the year tied to the rollout of tariffs and downsizing of the federal government our.
Barry: Our view held that as the lower tax deregulation and pro energy agenda kicked in later in the year, we would see a pick up in loan demand and deal activity in the second half.
So with respect to an update to our full year guide at this point, we reaffirm our E. P. S estimate, although there could well be some puts and takes events into Q2 will help clarify whether the second half outlook will solidify as we had planned.
Barry: On our guidance slide in our presentation, we called out some risks that affect both the us and the industry at large given the environment.
Barry: We also show some potential offsets to the full year guide.
Barry: The main risk associated with connect continued economic uncertainty and a slowing economy include a push out in capital markets fees slower loan growth and higher credit provisions.
Barry: Offsets to these possible impacts include even better performance on funding costs greater share repurchases and further efforts on cost transformation.
Barry: It's worth noting that there is a significant amount of pent up demand around M&A activity.
Barry: We are working on a record number and dollar value of transactions and are hopeful that they'd get done is uncertainty subsides.
Barry: 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 and meeting our initial year guide.
Barry: And as we look to the medium term, we remain confident in our NIM trajectory, which powers, our ROTC improvement and in our ability to execute on our key strategic initiatives like the private banks.
Barry: In short we feel good about our positioning overall from a strategic business and financial standpoint.
Barry: We will stay focused on execution and the things we can control as we continue our efforts towards building a distinctive great batch.
Job: With that let me turn it over to job.
Job: Thanks, Bruce and good morning, everyone.
Job: As Bruce indicated we delivered first quarter results, which were broadly in line with our expectations and reflected typical seasonal impacts.
Job: Referencing slides five and six we delivered EPS of <unk> 77 cents for the first quarter with ROTC of nine 6%.
Job: 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 base decline of noncore and terminated swaps along with strong deposit cost performance.
Job: Fees were up nicely year over year and linked quarter performance reflects the impact of the seasonality and market uncertainty on capital markets.
Job: Wealth fees were a record for the quarter as we continue to build out the private bank.
Job: Fences were managed tightly including the usual seasonality in salaries and benefits.
Job: Credit came in as we expected and we maintained a strong reserve coverage level.
Job: During the quarter, we entered an agreement to sell approximately $1 $9 billion of noncore education loans.
Job: This acceleration in noncore runoff will be accretive to NIM EPS, an ROTC with the redeployment of the freed up capital and liquidity is the sale settles over the course of the year.
Job: We continue to execute well against our strategic initiatives, notably the private bank continued to steadily grow its profitability contributing four cents to Etfs and finishing the first quarter with $8 $7 billion of deposits.
Job: Also we continue to make good progress in New York Metro and our top 10 program is well underway.
Job: We ended the quarter in a very strong balance sheet position with set one of 10, six 4% or nine 1% adjusted for the ASC I opt out removal of pro forma category, one LCR of 122% and an ACL coverage ratio of 161%.
Job: This includes a robust 12, 3% coverage for general office.
Job: We also executed $200 million in stock buybacks during the quarter, taking advantage of our strong capital position.
Job: Next I'll talk to the first quarter results in more detail starting with net interest income on slide seven.
Job: Net interest income decreased one 5% linked quarter driven by the day count impact of about $28 million and slightly lower interest, earning assets, which was partially offset by the benefit of higher net interest margin.
Job: As you can see from the NIM walk at the bottom of the slide our margin was up three basis points to two 9% driven primarily by the time based benefits of noncore runoff and reduced drag from terminated swaps.
Job: And the benefit of improved deposit cost.
Job: The offset by the net impact of rate driven impacts on the balance sheet.
Job: We continue to execute our downrate playbook in the deposit portfolio are interest bearing deposit costs decreased 18 basis points, while maintaining the mix of noninterest bearing deposits at 21% stable with the prior quarter.
Job: Our cumulative interest bearing deposit down data improved to 53% in the first quarter.
Job: Moving to slide eight noninterest income is down three 5% linked quarter with seasonal impacts in capital markets and parties.
Job: Capital markets saw lower M&A and loan syndication activity, given seasonality and the impact of uncertain market conditions, pushing M&A deals out.
Job: Debt and equity underwriting improves coming off a slower fourth quarter.
Job: 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.
Job: Our deal pipelines across M&A and DCM remain very strong despite despite market uncertainty in fact, our M&A pipeline is at all time highs in terms of number and value of transactions given pent up demand.
Job: We are hopeful these deals get done as market uncertainty subsides.
Job: The wealth business delivered a solid quarter with increased annuity sales activity. We also continued to see positive momentum in E Bay State you and growth from the private bank.
Job: Our global markets business was up slightly this quarter with increased client hedging activity in FX and energy related commodities.
Job: On slide nine expenses were managed tightly up one 7% linked quarter, primarily reflecting seasonality and salaries and benefits.
Job: Our latest top program is underway and this gives us the capacity to self fund our growth initiatives.
Job: On slide 10 period end and average loans were down slightly.
Job: This reflects the noncore transaction of $1 $9 billion as well as auto run off of $700 million.
Job: Excluding non core loans were up approximately 1% on a period end basis.
Job: The private bank continued to make good progress with period end loans up about $550 million to $3 $7 billion at the end of the quarter.
Job: Commercial loans were up slightly with a modest increase in line utilization and some of our corporate banking clients drew down on their lines to finance inventory builds ahead of tariffs.
Job: We also saw a modest increase in capital call line usage, given M&A activity and our sponsor base.
Job: And core retail loans grew slightly driven by home equity and mortgage.
Job: Next on slides 11, and 12, we continued 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.
Job: Period end deposits were up approximately $3 billion or 2% driven primarily by low cost growth in the private bank in consumer partially offset by a seasonal decrease in commercial.
Job: The private bank continues to add customers and grow nicely with period end deposits, increasing by about $1 $7 billion to $8 7 billion at the end of the first quarter.
Job: Our retail franchise grew deposits and low cost categories. This quarter and we continued to maintain strong CD retention rates, even as we reduced yields.
Job: Stable retail deposits are 68% of our total deposits, which compares to a peer average of about 55%.
Job: This was a big driver of our improving deposit costs this quarter as our deposit franchise continues to perform well in a competitive environment.
Job: Our interest bearing deposit costs are down 18 basis points linked quarter translating to a 53% cumulative down data.
Job: We continue to maintain a robust level of liquidity with the pro forma LCR of 122% significantly above the category one bank requirement.
Job: Moving to credit on slide 13.
Job: 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.
Job: Commercial charge offs were down modestly driven by a sequential decline in general office.
Job: Retail charge offs were broadly stable, excluding the impact of the non core transaction.
Job: Of note nonaccrual loans were down 5% linked quarter, reflecting a decline in commercial as we continue to work out general office loans.
Job: Retail non accrual loans also decreased as a result of the noncore transaction and continued run off of the auto portfolio.
Job: Turning to the allowance for credit losses on slide 14.
Job: The allowance was relatively stable at 161% this quarter as portfolio mix continues to improve due to back book run off and lower loss content front book originations offset by a slightly more conservative loss for gas.
Job: The economic forecast supporting me allowance reflects a mild recession similar to last quarter and macro impacts from tariffs.
Job: The reserve for the $2 86 billion dollar General office portfolio is $351 million, which represents a coverage of 12, 3% broadly stable with the prior quarter.
Job: I looked at 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.
Job: Moving to slide 15, we have maintained excellent balance sheet strength are set one ratio was 10 six 4% adjusting for the AFC I opt out removal are set one ratio was stable at nine 1%.
Job: Given our strong capital position, we repurchased $200 million in common shares and including dividends. We returned a total of $386 million to shareholders in the first quarter.
Job: Turning to slide 16, we provide some details on the noncore portfolio.
Job: As I mentioned earlier, we took the opportunity to accelerate the rundown of the portfolio with an agreement to sell approximately $1 9 billion of education loans.
Job: We recognize that $25 million charge off associated with this portfolio that was covered by a preexisting allowance.
Job: $200 million of the sales settled in the first quarter with the remainder scheduled to settle ratably each quarter through 2025.
Job: We expect to use the proceeds to pay down high cost funding invest in low risk investment securities and repurchase shares.
Job: With this redeployment the transaction will be accretive to NIM ETS Henry Archie.
Job: Moving to slide 17.
Job: We are well positioned to drive strong performance over the medium term with our overall three part strategy a transformed consumer bank.
Job: Best positioned commercial bank, among our regional peers and our aspiration to build a premier bank owned private bank and private wealth franchise.
Job: We continue to make excellent progress on the private bank, we delivered our strongest deposit growth quarter, so far adding $1 $7 billion of deposits to end, the first quarter and $8 $7 billion and.
Job: And the mix continues to be very attractive was slightly over 40% in noninterest bearing.
Job: We also ended the quarter with $3 7 billion in loans and $5 2 billion and a U N.
Job: With a 4% first time contribution from that business in the first quarter, we are tracking well against our 5% accretion estimate to citizens bottom line in 2025 and to deliver a 20% to 24% return on equity.
Job: Moving to slide 18, we provide our guide for the second quarter.
Job: We expect net interest income to be up approximately 3% driven by an improvement in net interest margin of approximately five basis points and daycare.
Job: This pickup in net interest margin is primarily attributed attributable to the time based benefits of noncore runoff and a reduced drag from terminated swaps.
Job: Noninterest income is expected to be up mid to high single digits led by capital markets with some risk if market uncertainty persists.
Job: FX and derivatives and wealth should also provide a lift provide a lift for the quarter.
Job: We are projecting expenses to be broadly stable.
Job: Credit trends are expected to improve slightly from the first quarter charge off level, excluding the non core transaction.
Job: And we should end the second quarter with <unk> in the range of 10, five to 10, 75%, including share repurchases of approximately $200 million, which could.
Speaker Change: Kris depending on loan growth.
Speaker Change: 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.
Speaker Change: However, if the current challenges in the external environment persists, there could be select risks that impact us as well as the broader and broader industry.
Speaker Change: Persistent market volatility could impact capital markets revenue and anticipated loan growth in the second half of the year.
Speaker Change: While the assumptions incorporated into our current reserve are conservative in our corporate and consumer borrowers are broadly in good shape heightened likelihood of a deeper recession could lead to higher provision.
Speaker Change: However, if these risks arise we have potential offsets we can leverage.
Speaker Change: 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.
Speaker Change: We would also take the opportunity to manage expenses down through streamlining our operations and further cost transformation.
Speaker Change: Looking out to the medium term, we see a clear path to achieving our 16% to 18% ROTC target.
Speaker Change: Expanding our net interest margin is an important driver and we project to be 305 to $3, 10% in <unk> 25.
Speaker Change: $3, one 5% to 3.30% in the <unk> 26, and in and in the $3, 25% to 350% range in 2027.
Speaker Change: Slide 21 in our appendix provide some incremental details on our net interest margin progression to 2027.
Speaker Change: This combined with the impact of successful execution of our strategic initiatives should drive lodging meaningfully higher by 2027.
Speaker Change: To wrap up we delivered Q1 results that were in line with our expectations highlighted by growth in net interest margin.
Speaker Change: While the market uncertainty has impacted capital markets revenues.
Speaker Change: Backlogs are at all time highs.
Speaker Change: We accelerated the run off of non core with the education loan sale, which will be accretive to NIM EPS and ROTC well.
Speaker Change: 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.
Speaker Change: 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: Thank you John.
Bruce: Operator, Ivy, let's open it up for Q&A.
Speaker Change: Thank you Mr. Van Sean we're now ready for the question and answer portion of the call. At this time, if you would like to ask a question. Please on mute your phone press star one and record your name clearly when prompted.
Speaker Change: To withdraw your question at any time press Star two again Thats Star one to ask a question. Your fresh first question comes from the line of John <unk> from Evercore ISI. Please go ahead.
John: Good morning.
Speaker Change: Hi, good morning.
Speaker Change: Oh, just the on the <unk>.
Speaker Change: Balance sheet growth.
Speaker Change: Just wanted to see if you could give us a little bit more color around loan demand what you're seeing here in the in this backdrop are you seeing you know what.
Speaker Change: What are the some of the trends in line utilization are you seeing.
Speaker Change: Any weakening of the of the pipeline.
Speaker Change: Also any type of pre tariff inventory build that might have driven a little bit of the growth in the near term, but it might be more of a pull forward versus the outlook. If you can just give us some color there. Thanks.
Speaker Change: Yeah, I'll start off and and others will chime in here, but maybe just starting with commercial.
Speaker Change: We are seeing some line utilization increases we saw that up a couple percentage points at the end of the first quarter compared to the fourth quarter that was driven by a number of factors I mean, we think tariffs as part of the story, but I'd also say that our M&A and some working capital is in there as well.
Speaker Change: So and that was both in our corporate banking business as well as on the sponsor side and our utilization.
Speaker Change: Utilization in our subscription line side of the house and commercial so we are seeing some of that start trending and frankly, given the expected pickup in business activity in the second half you know, there's some expectation that we'll see that continue assuming some of this uncertainty subsides.
Speaker Change: On the consumer side of things, we're seeing good take up in the on the Reggie and HELOC side of the ledger.
Speaker Change: You know given where the rate environment is HELOC in particular, it's been a.
Speaker Change: Really strong story for us and last but not least I throw out the private bank, which continues to drive growth. So you're seeing all three of the legs of the store as you heard earlier contributing to the loan growth outlook and maybe I'll just pause there and see if there's other color to add yeah, I would I would affirm what John said it's done.
Speaker Change: I think as we talk to customers.
Speaker Change: Sure.
Speaker Change: We're hearing a little bit of expansion desire 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 in the first quarter as we've gotten disintermediation by the bond markets, we had extremely strong bond quarter and some of that came off of our balance sheet as class clients access.
Speaker Change: 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 I don't know how much of it is tariffs in terms of the line draws them I think it's just general working capital built people were running their businesses really tightly. So I don't think we've seen the tariff impact yet.
Speaker Change: And that could be a tailwind also in then.
Speaker Change: And we'll have to see on the capital call lines, that's a pretty big part of our balance sheet.
Speaker Change: Not huge but it's about a $10 billion of 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 some of the deal activity kicking in particularly in the second half that should grow nicely.
Speaker Change: Oh, Yeah, it's Brendan on the consumer side, if you put aside our noncore rundown, which as John pointed out was down about 1 billion linked quarter and look at the underlying business that we're still originating we're seeing decent grew up 1% up year over year as John pointed out heavily led by residential and secured the portfolio of 75% secured keep in mind on the.
Speaker Change: Super side with incredibly high credit strapped with high byte goes in a relatively low ltvs HELOC were 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 is a dry driven of a distinct advantage for us.
Speaker Change: We will.
Speaker Change: We will continue to take advantage of that given the high quality nature of the customer and expect that that growth level to persist throughout the year and mortgage even though you have high rates are the portfolio growth is actually decent up 3% year over year, our get high quality customers prepay speeds really low on the back book given the law.
Speaker Change: Jack or a refinance activity. So we're seeing that positive growth the other portfolio students and credit card had been flattish student given higher rates.
Speaker Change: In credit card honestly by design as we look to launch some new products here mid year, we'd expect that to see some high returning growth assuming the economy plays in our favor in the second half of the year. So we feel pretty good that underlying low loan demand is is high.
Speaker Change: But the second half of the year.
Speaker Change: And the private bank.
Speaker Change: We are as John pointed out we grew about 500 million 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 twenties about a year ago. That's a.
Speaker Change: Good sign we expect slow steady continued progression and balancing out the book end demand seems to have picked up our mortgage originations and 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.
Speaker Change: Okay.
Speaker Change: Great. Thank you for all that color I appreciate it and just quickly on my second question is just around capital I know you're sitting here at around $10 60 E. T. One you cited expectation for around $200 million buyback similar to this quarter to last quarter, but also I know you mentioned it I think Bruce you you've mentioned this in.
Speaker Change: John You mentioned as well that you know if you did see weaker loan growth and weaker macro you could see higher buybacks can you just maybe help frame that like you know if the if we do see weaker loan growth for the weaker economy would you would you Conversely, maybe be more cautious and therefore, maybe.
Speaker Change: Husband more capital versus step up buybacks can you just talk about how you view that trade off.
Speaker Change: Yeah, well I'm going to start there I mean, we.
Speaker Change: We're committed to that range that we articulated at 10 50 to $10 75, if there's that's all about.
Speaker Change: Then we would feel.
Speaker Change: Copper Tunis sickly.
Speaker Change: Oh willingness to to step up on the buyback side of things and the reason for that is is a couple of phone, but I think the starting point on capital is very strong both before and after <unk>. So you look at our Aoc I.
Speaker Change: Haircut, we're still north of 9%, which is a quite a good number we would also.
Speaker Change: I have to look at what the uncertainty would hope and if you look at our reserve position that we've already set aside we actually have a recessionary scenario.
Speaker Change: 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 upsize buybacks in the face of lower loan growth.
Speaker Change: What I would add to that is if you go back to 2024.
Speaker Change: We also had a pickup in growth that would build over the course of the year when that didn't happen.
Speaker Change: We basically use the freed up capital to buyback our shares.
Speaker Change: And we thought our shares were very attractive and I'd say given kind of the cracking bank stock prices since the macro uncertainty and the rollout of the tariffs we still feel that the stock is.
Speaker Change: Cheap relative to an inherent value and so that presents a real opportunity to offset any impact that would hit in the P&L from slower loan growth at that happened through buying back our stock and buying it back at very attractive pricing. Yeah. Just just pacing to add is as we keep growing our tangible book value.
Speaker Change: Per share.
Speaker Change: The the earn backs on buying back stock at these levels as well under a year.
Speaker Change: It's pretty attractive and so we would still get it for all those reasons stated.
Speaker Change: Great. Okay. Thank you.
Ken: Your next question comes from Ken <unk> from Autonomous Research. Please go ahead.
Ken <unk>: Thanks, Good morning, Hey.
Speaker Change: Hi, guys.
Speaker Change: I was wondering if you could talk through that push and pull on the capital markets outlook and the fee guide. So I guess first of all you know the record pipeline, what's your level of confidence in terms of closing those transactions and I guess secondly, if that that capital markets are embedded expectation doesn't pull through well how do you how do we understand like the comp.
Speaker Change: Ratio offset in the magnitude of our flex that you can have to you know keep P. P. M. P. P and are in close to in line. Thanks.
Speaker Change: Yeah, So I'll start and then maybe John or Don just a.
Speaker Change: Follow on but again you know.
Speaker Change: I think that the exciting aspect of this from our standpoint is that we've over time built out a really strong capital markets capability and a very broad M&A capability that.
Speaker Change: Covers.
Speaker Change: Middle market companies through mid corporate.
Speaker Change: 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 a industry sectors that are very active for example data centers, where we have a really strong.
Speaker Change: Group of folks are focusing there.
Speaker Change: I'd say.
Speaker Change: You know, it's it's heartening to see that we've got record numbers of engagements. 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 subsides. So so we still.
Speaker Change: Feel optimistic that things will settle down here, a little bit and that we should be able to pull that through what.
Speaker Change: What I would say if that is not the case and then things do push out a bit.
Speaker Change: There's other things to consider one is that we're broadly diversified so we've had the ability to if one.
Speaker Change: Area. It doesn't fire on all cylinders like if M&A is soft and oftentimes are financing our syndicated loan capability or our debt underwriting will pick up and provide an offset and then the FX and interest rate derivatives and commodities hedging our risk management business also is seeing it.
Speaker Change: Up tick in activity and depending on the circumstances that could provide an offset so the first line of defense is kind of diversity within the fees that could help offset any pushout on M&A volumes are and then secondly, there's obviously incentive compensation.
Would drop if the deals are adult deliver and then just broader looking at the expense base, we're constantly working on ways to streamline our businesses and a 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.
Speaker Change: 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 so.
Speaker Change: I'd say that would be the broad playbook, but maybe for color on the revenue side and you might want to add anything there yeah. No I'd just I'd just 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.
Speaker Change: So that provides us an ability to continue to transact in the market I also want to remind people that a significant part of our M&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 in a lot of that does go into private equity and the <unk>.
Speaker Change: Other thing I'd say is that you know the financing markets are generally pretty attractive. So we can get these things financed and they're not $10 billion deals 100, 200, and 300 million dollar deals. So they're they're eminently executable one of the things. That's been interesting is and you would that you would ask the question of why are these things pushing part of it's due to the <unk>.
Speaker Change: Nothing of the FTC and the SEC.
Speaker Change: Just taking longer to get these transactions done and I think the most important thing that Bruce said is.
Speaker Change: We have not lost one mandate out of the pipeline. 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 to third quarter, we'll have to see and if some of them will be volatility, but there's very little tariff dip.
Speaker Change: Tendency in any of these underlying deal so.
Speaker Change: The Big picture is we should generate the revenue and hopefully my bonuses aren't going to go down by year end, but we still do that today.
Speaker Change: But that does happen.
Speaker Change: Not anything that I would just highlight the diversity point that you made and just on the expense side. I mean, we would you know 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.
Speaker Change: And then just more broadly just feeling.
Speaker Change: The net interest income story, it's just a number of great tailwind that that are part of why we feel good about the guy for 25 as well okay.
Speaker Change: Thanks for all that.
Ken <unk>: Okay Ken.
Speaker Change: Your next question comes from Peter Winter from D. A Davidson. Please go ahead.
Peter Winter: Hi, 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 interest rate environment is for citizens and yield curve and Conversely, what type of rate environment.
Peter Winter: And it would put the NIM outlook potentially at risk and are there any plans to reduce some of the asset sensitivity.
Peter Winter: Yeah. Good questions. There I mean at the window and our asset sensitivity is plus or minus 1% to a plus or minus 100 basis point change in you know in a gradual shift in the yield curve up or down over the next 12 months. So we are slightly asset sensitive.
Peter Winter: Yeah, well, we're close to neutral.
Peter Winter: Based on just how those numbers are playing out and and I'd say that the first and foremost the net interest margin trajectory is primarily not rate dependent so you've got the time based benefits that are really driving our net interest margin.
Peter Winter: 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.
Peter Winter: 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, a time based benefit and and better our balance sheet trends. So that's why all of that drops to the bottom line and really.
Peter Winter: I get that that that momentum continues to build not only through twenty-five but out into 'twenty six 'twenty seven and you know we have an error in our slide deck and illustration of the fact that you know.
Peter Winter: By the time, you get to the fourth quarter of 2027. The cumulative time based benefit is 35 basis points. If you add that to the 290 that we that we delivered in the first quarter. We're already at the lower end of the range without having to do with interest rates and.
Peter Winter: So then from there the rest of the story that takes us into our range of $3 25 to $3 50, you.
Peter Winter: Would also look at fixed asset repricing, which really is more about long end rates and there's a lot of.
Peter Winter: Jake 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 and so there's an where pet, but we're pretty well hedged.
Peter Winter: From a from our swaps standpoint in through out through the middle of 2027. So yes, we will do a little better if rates are higher. So if rates are you know the terminal right out the window appears to be around $3 50, that's a good outcome for us.
Peter Winter: And that would put us in the middle of our range, but you know higher rates.
Peter Winter: Terminal rates like 4% would be consistent with the upper end of our range of around $3 50.
Peter Winter: 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, we feel pretty well hedged.
Peter Winter: With a slight orientation towards performing a little better are you know a couple of years out if rates are a little higher when we think about inflation and stagflationary scenarios. When we think about positioning the balance sheet that way, but but but the objective of trying to have a lot of non REIT related.
Tailwind, it's something that you need to think about when you think about a recovery in net interest margin.
John: That's great. Thanks, John.
Speaker Change: If I could ask just kind of a follow up to Ken's question.
Speaker Change: Talked about the puts and takes are with this uncertain environment, but.
Speaker Change: Could you just give an update on the positive operating leverage for the full year versus January forecast of $1 50, just I realize there's all this uncertainty, but just wondering how you're thinking about it.
Speaker Change: Yeah. We think we're you know we're reaffirming that outlook, we believe that that's very achievable.
Speaker Change: Around the 150.
Speaker Change: And a big driver of that again back to net interest margin, we see net interest margin rising by about you know rising to 305 to three <unk> 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, and and and therefore that 3% to 5%.
Speaker Change: NII is a huge driver of our positive operating leverage and we feel good about that and you know we talked earlier about the diversity.
Speaker Change: 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.
Speaker Change: If certain scenarios play out so.
Speaker Change: I would add to that that you know in 2020 for most banks, including ourselves we're very tight on expenses.
Speaker Change: And 2025 were inflating a little bit so the guide was for roughly 4% expense growth and.
Speaker Change: 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 were opening private bank offices, we're investing in a.
Speaker Change: A high and a various projects data analytics capability, there's a our payments capabilities. So there's things that we want to keep investing and to position us for that medium term growth outlook that you know in a in a tougher environment. We can throttle some of those things a little bit but our preference.
Speaker Change: As to not do that to keep investing and keep building. So just kind of putting that in context. There are some levers to pull our preference is to keep going make those investments for the future, but we can pull back a little bit if need be the other the other structural benefit that we do have as well.
Speaker Change: On the private bank and keep in mind that the.
Speaker Change: The majority of that cost base was was compensation guarantees and so it's 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 reality of everything leveraged Friday operated with leverage right there naturally versus last year, which we have yeah.
Speaker Change: A lot of confidence that over to the revenue outlook, so that should be a structural advantage for us to great great point Brendan.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Erika Najarian from UBS. Please go ahead.
Hi, Good morning, I mean, you have oh, thank you you've alluded to this and how you've responded to all the questions, particularly the P. P. N R. One, but you know as you know that.
Speaker Change: Net interest income outlook is quite important and you know as I pull up the slide from last quarter.
Speaker Change: You know it set up 3% to 5%.
Speaker Change: I think about affirming the.
Speaker Change: The exit NIM on Slide 21, and then you know 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 you know broadly in line right in terms of.
Speaker Change: What youre affirming so just wanted to confirm that in terms of the full year of law.
Speaker Change: Yeah, if you've got that right Erica Sean.
Speaker Change: That three to five feels pretty good if you just think about NIM along.
Speaker Change: That would take us to the upper end of that range, but what we indicated in the guide was that at least back in January that we might have.
Speaker Change: Interest, earning assets down about 1%, which is what put us into the middle of the range. There's some there's you know there's some flexibility there and you know 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.
Speaker Change: There are there's another lever there with respect to.
Speaker Change: Interest, earning assets in the Securities book that would would that we'll be monitoring throughout the year, but our 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.
Speaker Change: If relative value looks attractive and deposit flows continue the way they've been kind of the way they've been going so so that's the way we think about that three to five.
Speaker Change: Thank you and and switching topics on the reserve.
Speaker Change: This is a two part question number one just a broad.
Speaker Change: Question here, what unemployment rate.
Speaker Change: Is your reserve sort of looking forward to and second.
Speaker Change: John could you talk through the dynamics, that's perhaps you need just citizens about the noncore run off so you know as we think about perhaps the baseline case, if unemployment potentially getting worse or you know the company waiting the downside case more you know what is sort of the offset of you know the one.
Speaker Change: $9 billion student loan sale and you know the run off portfolio.
Speaker Change: You know the commercial real estate portfolio has been you know you know you've been resolving parts of that for some time now so walk us through those two dynamics as we think about how do you think about the provision from here as we think about perhaps a more uncertain economic backdrop, but also.
Speaker Change: So a specific optimization of your loan mix.
Speaker Change: Yeah.
Speaker Change: Yeah, I'll hit both of those no theres others may chime in here.
Speaker Change: Yeah, we have a number of scenarios that get applied to different parts of the portfolio or base baseline scenario has an unemployment rate of five 1% that covers a large portion of our book primarily in C&I and in retail, but when you get into the decree portfolio and.
Speaker Change: And also that that five 1% is paired with a with a decline in G. D. P that would imply a mild recession. So a majority of the book has a mild recession associated with it but when do you think about the Cree book overall, we have a combination of a moderate to severe recession assumption applied to Cree.
Speaker Change: And so the unemployment Ah yeah.
Speaker Change: Assumption there is higher than five one so on a weighted average basis, but you'd end up with a 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 nine 3% and then a GDP decline of four 4%. So just give.
Speaker Change: You have a sense that generally if something higher than five one 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're already we'll be monitoring it and we're keeping an eye on it and we're watching charge off trends coming down in line with our.
Speaker Change: Our expectations are so that all feels very good on the credit side.
John you've got to have the number off the top of your head, but Erika we had oh whereabouts on 61 in terms of the allowance to loans kind of the day one Cecil.
Speaker Change: Was justified so if you adjust it down first for.
Speaker Change: The investors deal and then for the actions, we're taking a non core what is that 95 to 131 25 ish.
Speaker Change:
Speaker Change: In that ballpark, so anyway, we feel that over time, we've continued to improve.
Speaker Change: Improve the focus on kind of where we want to land, we want to lend to deep relationships and commercial we've been moving more upmarket so that 80% of the C&I portfolio.
Speaker Change: Is now investment grade equivalent.
Speaker Change: And then the retail book.
Speaker Change: 95% of the book is Super Prime and high Prime 78% of the book as a retail sick.
Speaker Change: Is secured.
Speaker Change: And and Yep and in homeowners.
Speaker Change: 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, 25 and 26 the CRE.
Speaker Change: CRE portfolio, we've taken a lot of the pain there already so the pigs up and going through the Python. So to speak so we feel that we're well reserved for a different scenarios that could ensue over the course of the year.
Speaker Change: Yeah and to the to the other point of your question you had Erika we're gonna regarding non core run down I mean, I think you can kind of pair in some respects I mean, certainly the balance sheet funding fungible, but you can sort of think about noncore.
Speaker Change: And private bank in some respects together, because where 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 we have you know a yearend yearend target on the loan side.
Speaker Change: That is similar to the run down in non core that's being accelerated and twenty-five so what you're seeing is.
Speaker Change: Pulling back on a lower customer value assets in the noncore space growing high customer are attractive.
Speaker Change: W. A in private bank and in commercial and in core reached record retail so that the engine here is humming along.
Speaker Change: Really well and probably a little faster than we expected given our opportunistic transaction when we set up noncore that was roughly.
Speaker Change: Broad numbers 10 billion running down and the consumer a run off portfolio and 10 billion running up in the private bank.
Speaker Change: And by the way the.
Speaker Change: Credit quality.
Speaker Change: <unk> and 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.
Speaker Change: You can't say that will always be the case, but it's very very high.
Speaker Change: Credit quality, so that alone is going to average down the net charge off ratio through the cycle.
Speaker Change: Chip something in the low to mid thirties from something that had been kind of higher 30 to low 40. So right. Then you want to add I think just a couple of quick stats, maybe just to build on your point on.
Speaker Change: 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 asset thing to make note of on noncore, which is a seasoned now and then rundown with no new originations coming through with auto as the portfolio gets more season do you have the dynamic of.
Speaker Change: To drive the car up a lot and immediately reprice down and your upside down a little bit on LTV until Paydowns happen. The portfolio has a couple of your season 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 stay stable and we feel good about the quality.
Speaker Change: Sure and just on the retail book to everybody's points, 79% of it on the core side as residential secured on the home equity book, 99% is below 80% LTV on the mortgage book, 51% C. L. T V. So there's very very little loss content, there unless there's a significant housing market correction, which obviously were.
Speaker Change: Not seeing a high chance of that and then when you unpack the the unsecured book a while over time, we'd like to have more exposure to credit card right now, we're undersized on credit card and and and that's a good thing if there's an unemployment spike and on the student book, 98% is cosigned by the parent on in school and 40% of our student loan refinance.
Speaker Change: That's a book is with folks with advanced degrees, which are less sensitive to spikes in unemployment. So when you net all that together I feel like on a relative basis, we should be in a very strong spot. If there was a blip at unemployment.
Speaker Change: Very thorough thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Matt O'connor from Deutsche Bank. Please go ahead.
Matt O'connor: Good morning, a couple of follow ups on feedback in your categories and service charges were quite strong year over year, and you mentioned cash management, which I think is pretty straightforward and then also overdraft or just elaborate on the overdraft visit increase frequency and why do you think that is where there's some pricing changes or what what drove.
Speaker Change: That component.
Speaker Change: Yeah, most of most of the service charge numbers actually in cash management and business banking has seen really strong growth with some technology investments that we've made in the consumer business to drive stickier engage customers by the way. That's also showing up in our low cost deposit trends so that.
Speaker Change: 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, we've not made any pricing changes and while there's a you know the the mass market.
Speaker Change: <unk> 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.
Speaker Change: 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. So.
Speaker Change: 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.
Speaker Change: In a range obviously I'm sure you all saw the the court case that is a that is out there on overdraft into the house and the Senate both signed off on eliminating the rules from the CFPB. So we also take the risk that potentially existed in the back half of the year about that may be coming down as a <unk>.
Speaker Change: The minimus at this point headed to the President's desk for signature so.
Speaker Change: Anyway, overdraft as stable not growing not really decreasing in any material way.
Speaker Change: Okay. That's helpful and then in credit card and they were down obviously first for Q1 seasonal trends, but also down a little bit year over year and they were trying to grow it or is that just the cost of.
Speaker Change: Rewards in upfront sign ons or like what's driving that drop on a year over year basis.
Speaker Change: Yeah, we we have always 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 are lots of new products in 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 that the.
Speaker Change: Spending trends have been broadly stable.
Speaker Change: Bit here and so we're expecting that to get back into growth mode.
Speaker Change: You, probably remember going back 18 months some of the growth in credit card and debit card fees for structural related to the Mastercard arrangement that we did that really drove some net positive fee growth to the bottom line is 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.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Gerard Cassidy from RBC capital markets. Please go ahead.
Speaker Change: Hi, Bruce Hi, John.
Speaker Change: Sure.
Speaker Change: Guys can you show us as a follow up to your comments on the non core loan portfolio.
Speaker Change: And in view of the sale of the noncore student loans can you give us the pros and cons of selling the entire portfolio that you outlined on slide 16.
Speaker Change: Yeah, I'll take that John you can chime in but you.
Speaker Change: You know I think that the.
Speaker Change: There's relatively high predictability in terms of the run off of auto which is basically what's left and should we want to acts.
Speaker Change: To accelerate that sale, there's gonna be a liquidity cost that has to be paid. So our view is since this is short duration paper. It runs off predictably it runs off fast duration to the papers roughly two years.
Speaker Change: We're better off preserving the capital and not incurring that liquidity cost if you will so.
Speaker Change: Yeah agreed and so we've got very strong capital and liquidity. So there's no need to accelerate it beyond the accelerated rundown at I mean, if you look in the fourth quarter of 25 by the end of this year. The entire book is going to be down to $2 $6 million or one five of that is or little more than 1.5.
Speaker Change: At 1.7, or so is sitting in an auto collateralized structure anyway, and therefore, it wouldn't be able to be sold so that's sort of ring fenced and just runs down on it sounds so you're you're basically under $1 billion 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 gonna be kind of in the rearview mirror very soon.
Speaker Change: And from that standpoint, we think the transaction that we did was the accelerant.
Speaker Change: And I always thought it was a longer lived asset.
Speaker Change: The bigger tail so to move that out really helps accelerate the whole runs out and you know who knows maybe in the future there could be a clean up but it would be something that really wouldn't have much of an impact given that it's such a low profile by the end of the year anyway.
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&I portfolio and I know the numbers are not large and it could be the lure of low numbers that one or two loans going non accrual will pushed.
Speaker Change: Number up but in slide 28, you do give us that breakdown and non accruals can you give us some color on the C&I portfolio. The uptick again, if it wasn't material in nominal levels, but what are you guys seeing in the C&I, especially in view of your outlook of the uncertainty we're all confronting with this economy.
Yeah.
Speaker Change: Yeah, maybe just to start off on 28, that's the allowance is really you know when you see those numbers go up that's really us being a touch more conservative with respect to.
Speaker Change: Areas that we're seeing that it makes sense to flow additional allowance.
Speaker Change: Nonaccrual, though that is a I think I think that.
Speaker Change: You were talking about the 0.57 going up to the 0.65 right now.
Speaker Change: Correct, but it's small I understand it's small but I'm just curious yeah. 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.
Speaker Change: Nothing really to call out I think yes, Gerard I'll just jump in what we're seeing no macro deterioration C&I piece, Yeah. I go back to what I've said for a couple of years now as people really tighten their belts during COVID-19.
Speaker Change: Both from a debt standpoint, and an efficiency standpoint, and that's going to help.
Speaker Change: <unk> go through any kind of uncertainty.
Speaker Change: Half.
Speaker Change: So we see no broad trends of deterioration at all in our C&I book and and you know I would say it's more a question of are.
Speaker Change: Yeah. They are in good position and they've positioned themselves.
Speaker Change: To be resilient and adaptable to the entire but to me. The bigger question is when how much office do they want to play in the macro actually hold stepped 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.
Speaker Change: In fact, when you look at the sectors that we lend to we don't have a huge exposure to the sectors that are most exposed to tariffs. So in general we feel.
Speaker Change: Really that this is this is more an issue about how much offense comes out of the customer base as opposed to are we worried about credit deterioration.
Great. Thank you guys.
Speaker Change: Your next question comes from Ebrahim <unk> from Bank.
Speaker Change: Of America. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Just two very quick follow up questions. John maybe for you not sure if I missed when you look at your fee income guidance, you talked about the capital markets pipeline what are we assuming for copier market just from a.
Speaker Change: Fee revenue standpoint for second quarter and for the full year, if you don't mind sharing that.
Speaker Change: Yeah, we we have the right. It's a it's a driver and it's a I think I'd go back to the diversification point that we said earlier I think we've got you know in the capital markets. We've got M&A certainly as part of the story, but Theres loan syndications are some equity capital markets opportunities.
Speaker Change: And you heard Bruce earlier talk about client hedging that are all contributing.
Speaker Change: To the second quarter as well as the full year and then Don and then we're also.
Focused on the fact that on the on the consumer side of the house card and wealth are also expected to be contributing in <unk> and in 2025 as well, but we haven't broken down the details.
Speaker Change: Separately from fees.
Speaker Change: And in two cure or trying to strike.
Speaker Change: But it's a material driver to the 8% to 10% growth we had for the year.
Speaker Change: And the original your guide and then in the second.
Second quarter lift that we have and I would say the kind of level of the capital markets activity.
Speaker Change: To me is why we have a little bit wider range in the second quarter fee guidance. So we still think we'll see a nice bounce off of Q1 levels, but will you know we'll have to wait and see how that plays out but I think the broader point, John just made about diversity.
Speaker Change: And.
Speaker Change: When one thing is a little soft we have enough levers that are I think were.
Speaker Change: Pretty confident that we'll be able to find.
Speaker Change: Find offsets with capital markets, just a bit sluggish.
Speaker Change: Got it and I guess, maybe just to follow up on.
Speaker Change: On the margin outlook when you had the margin for the end of the year end of 'twenty six.
Speaker Change: But can you remind us what the fed funds rate underpinning that as I understood I appreciate the.
Speaker Change: Thanks.
Speaker Change: I've heard of their kind of sensitivity of what the name does but what's the fed funds rate.
Speaker Change: We get 100 basis points of fed funds cut, let's say between now and yet and does that create some downside risk.
Speaker Change: 25, 26 outlooks or not.
Speaker Change: Yeah, I'd say as I mentioned, we're pretty well hedged. We've got you know we've got a when you look out the window. There. There's a may we said he said sorry, starting with what we said two cuts in January.
Speaker Change: But at the window, maybe there's three but that third cut happens late in the fourth quarter number one and number two we are close to neutral from an asset sensitivity perspective, so that three or five to three times. So that feels very good and very comfortable with respect to delivering that range.
Speaker Change:
Speaker Change: The terminal rate of about $3 50, getting out into 'twenty six 'twenty seven puts us into the middle of our $3 25 to $3 15 net interest margin range.
Speaker Change: Yeah.
Speaker Change: On the slide there in the back where we articulate that.
Speaker Change: That that outlook and so.
Speaker Change: 2026 also just one other thing to add in cases, when you follow ups.
Speaker Change: Interest margin growth in 'twenty five is very comfortable and we feel good about it maybe implies about 15 basis points year over year two.
Speaker Change: 2026 is a significant amount of talent.
Speaker Change: Challenge associated with with some accelerating trends.
Speaker Change: And much of the time based benefit actually really starts to kick in in 'twenty, six and that's something to keep an eye on also.
Speaker Change: Thank you Mike.
Speaker Change: Yeah.
Speaker Change: Thank you and our final question comes from Managua, Salvia from Morgan Stanley. Please go ahead.
Managua Salvia: Hi, good morning.
Managua Salvia: Just a couple of quick follow up questions. One was on on loan growth can you talk about how much of the loan growth over the past year has come from a N D F I lawns, and how youre thinking about the credit risk of that portfolio.
Managua Salvia: Yeah, I mean, I'd also I'll start off and <unk> done that in here I mean, there. There is we do have exposure like many of our peers do into the <unk> space. It's part of our ecosystem of interacting in the private private credit space and the private capital.
Managua Salvia: Construct that we do a very good job of covering.
Managua Salvia: I would say that I'd hasten to add that the credit exposure for that the places where we play is very low and you think about.
Managua Salvia: The kind of.
Managua Salvia: Interactions that we do.
Managua Salvia: And whether its business credit intermediaries or in the private equity space that that credit profile has been very low over time, yeah, I agree with that and there the growth hasn't been massive in terms of actually adding exposure, we've seen a little bit of growth due to higher utilization. So you see that coming through in the numbers a little bit, but we very much like the structure.
Managua Salvia: First that we have in place both for the private equity complex on the private credit complex and they're both kind of investment grade like in terms of their credit profile. So very low losses, very strong structures, a b S kind of structures, particularly in private credit and we feel very good about those exposures and and the other important thing is back.
Managua Salvia: Everything we're doing in the N V F. I play space. It's a it's about a broad relationship. So we're doing multiple different things with each of the people that were lending to so it's not as if we're going out there and building a loan book, we're doing M&A with a lot of these complexes, we're actually distributing some of the private credit funds into our private.
Speaker Change: And wealth management areas now so there's a lot of different relationship orientation. Then we're very selective in terms of the underlying clients that will actually bank. Yeah, I would I would just add two other points of color.
Speaker Change: One is that the definitions for this category are changing a little bit and so some of the exposures that might not have been a considered N V. F. I R. Now are getting pushed into that a little bit. So it's hard to do a long period of time, a straight apples to.
Speaker Change: Those comparisons, but I think once we get through the reclassification prop.
Speaker Change: Process, then you'll you'll going forward.
Speaker Change: More continuity in those forecast 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.
Speaker Change: And a complementary perspective to some of the bigger funds that bonds are folks who are covering so Brendan I don't know if you want to add that but we're making capacity there for kind of P. E. N D. C funds, where we know the those firms extremely well and we wanted to be the bank to the phone call.
Speaker Change: Flex and the partners if those firms and so that's really good business that was always a really good business at first Republic and where.
Rowing that business here, yeah credit structures as Don mentioned, we believe are our well structured out with incredibly low risk it.
Speaker Change: One year subscription lines up so well.
Speaker Change: The duration of it we can if there's anything that we see that where is worse and we can move on pretty quickly. We also in the private bank well do the credit unless we have their operating cash management relationship. It so a very deep.
Speaker Change: <unk> relationship with the firm with strong underwriting and then is all over our cash flows and the whole community that we're banking. So we feel good about the exposure yeah.
Speaker Change: Very helpful. And then as my follow up just on the non card loan sale in the first quarter, how should we think about the benefit to NIM from that sale and I know that your NIM guide is relatively unchanged. So I was wondering if there's some offsets there. If there is a higher probability that you can hit the higher end of that guide.
Speaker Change: Yeah, we we had anticipated that.
Speaker Change: We would have an opportunity to accelerate in 2025. So that was included in the January guide broadly so there's a three or five to three tenants is is it's already.
Speaker Change: Incorporated the sale. So you may have you may recall that on our 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 it's not that dramatic.
Speaker Change: The lift in them, but you know, we'll pick up basis points here and there it all adds up and builds our.
Speaker Change: Path towards hitting those year end.
Speaker Change: Number so it's fourth quarter numbers.
Speaker Change: Okay. Thank you.
Speaker Change: Okay, Alright, well I think.
Speaker Change: That brings us to the end of the call. Thanks again, everyone for dialing in today.
Speaker Change: We appreciate your continued interest and support.
Speaker Change: Have a great day.
Speaker Change: That concludes the citizens financial group first quarter earnings Conference call. Thank you for your participation you may now disconnect.