Citizens Financial Group, Inc. (NYSE:CFG) Q2 2023 Earnings Call Transcript

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And we’re seeing back into the loan book, spreads on our front book originations are higher than they were. And for example in C&I, spreads are up 50 basis points over the last year, year-over-year. So that’s also a tailwind and all those things are the things that are going to help us manage the fact that – manage the rate environment and the other items that we have —

Bruce Van Saun: So I think what John described, Erika, is a number of tailwinds that should be positive. So if the Fed is cutting next year, that potentially is a negative, but we have these positive things to offset that, which gives us kind of that stable view on the NIM into ’24.

Erika Najarian: Got it. And just to wrap it up, just because I got a few emails to clarify and I’ll step aside. It sounds like you’re sensitivity hasn’t changed or whatever that fourth quarter number is, which is stable to the third quarter, that down 1.2% on down 100 is still valid, but then the balance sheet optimization will get you closer to stable despite Fed cuts.

John Woods: Yes, agree. So balance sheet optimization plus the fact that when if rates were – rates begin to fall, if they do, we don’t have that happening in the fourth quarter by the way. We have that happening in ’24. We have the Fed on-hold for the rest of the year and we have the Fed just based on the forward curve, right, having the Fed ending around 4% in ’24. So it’s really until ’24, where you see those down rate scenarios. And in the down rate scenario, I mean, that’s where deposit betas start working for you rather than against you. And so, then you start getting some of that coming in as well as the fixed loan portfolio that creates a buffer when rates start to fall and so I would just add those two things to all the other tailwinds I already articulated as to why we feel like we could hold the stable NIM.

Bruce Van Saun: Yes, I’ll just close and you got an extended period of time here, Erika, and we’re very interested in NII and NIM, which I’m sure is on a lot of investors’ minds. But, kind of bigger picture is, we’re kind of transitioning the loan book to things that are more strategic and offer better returns on capital and better opportunities for cross-selling deepening with customers. And so we’re kind of working through a transition period this year and even into next year. It’s a little hard to give you full guidance at this point, given a lot of uncertainty still in the market. We’re giving you our best instincts at this point on that. But I feel quite confident that as we kind of emerge through ’24 and then even look out to ’25, that – kind of, with the lift-off of this Private Bank effort and the kind of run-down of these less strategic portfolios that we’re going to get a lot of benefit from this and we’re really poised to do quite well, I think looking out into kind of back-half of ’24 into ’25.

Erika Najarian: Yes, Bruce that Private Bank lift-out is a bold move. I think everybody just wanted to figure out what that run rate look like and I think this conversation we just had, clarified that run rate. So, thank you.

Bruce Van Saun: Sure.

Operator: Your next question will come from the line of Matt O’Connor with Deutsche Bank. Go ahead.

Nathan Stein: Hi, good morning. This is Nate Stein on behalf of Matt O’Connor. Just one question from me. So the capital build was good this quarter with the CET1 rising to 10.3% from 10% and guidance calls for this increase again in 3Q. Just wanted to ask how high are you willing to let the ratio get to?

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