Citizens Financial Group - Earnings Call - Q1 2025

Executive Summary

• CFG delivered Q1 2025 results in line with internal expectations: diluted EPS $0.77, total revenue $1.935B, NIM (FTE) 2.90%, and ROTCE 9.6%; expenses rose seasonally, while fee income declined on capital markets softness.
• Beat vs Wall Street EPS, inline on revenue: EPS $0.77 vs S&P Global consensus $0.75*, revenue $1.935B vs $1.934B*; beat driven by deposit cost improvement and NIM expansion despite fee headwinds; revenue essentially matched consensus.
• Strategic actions were a key catalyst: agreement to sell ~$1.9B non-core education loans (accretive to NIM/EPS/ROTCE), $200M of buybacks, and strong Private Bank growth (+$1.7B deposits to $8.7B).
• Guidance: 2Q25 outlook calls for ~3% QoQ NII increase, ~5 bps NIM uplift, mid-to-high single-digit fee growth, broadly stable expenses; FY25 guide broadly reaffirmed with CET1 targeted at 10.5–10.75%.
• Near-term stock narrative likely driven by NIM trajectory and balance sheet optimization (non-core runoff/swaps), plus capital markets pipeline execution and continued buybacks.

What Went Well and What Went Wrong

• What Went Well

  • “We were pleased with our execution in Q1…NIM expansion of 3 basis points…core loan growth of 1%…credit trends remaining favorable” — CEO Bruce Van Saun.
  • Deposit beta improvement and mix shift lowered funding costs; NIM up to 2.90% (+3 bps QoQ) as interest-bearing deposit costs fell 18 bps QoQ and total deposit costs fell 15 bps.
  • Private Bank momentum: deposits +$1.7B to $8.7B, loans $3.7B, AUM $5.2B; contributed $0.04 EPS in Q1; tracking toward ~5% EPS accretion in 2025.

• What Went Wrong

  • Fees declined 3.5% QoQ: capital markets fees -$21M on seasonality and market uncertainty pushing M&A/loan syndication; card fees -$3M on seasonal volumes.
  • Expenses up 1.7% QoQ on seasonal payroll taxes and occupancy/utilities, pressuring efficiency ratio to 67.9%.
  • Capital markets execution risk from policy-driven uncertainty; management highlighted broader macro volatility and potential near-term fee softness, though pipeline strength remains.

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Citizens Financial Group First Quarter 2025 Earnings Conference Call. My name is Ivy, 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 Kristin Silberberg, Head of Investor Relations. Kristin, you may begin.

Kristin Silberberg (Head of Investor Relations)

Thank you, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun, and CFO, John Woods, will provide an overview of our first quarter results. Brendan Coughlin, Head of Consumer Banking, and Don McCree, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter presentation located on our Investor Relations website. After the presentation, we will be happy to take questions. 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. These are outlined for your 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 reconciliations in the appendix. With that, I will hand over to Bruce.

Bruce Van Saun (Chairman and CEO)

Thank you, Kristin. Good morning, everyone. Thanks for joining our call today. We announced financial results today that were in line with our expectations. Highlights include NIM expansion of three basis points to 2.90%, Core loan growth of 1%, resilience in our fee categories despite some softness in capital markets given market uncertainty, and credit trends remaining favorable along with continued share repurchases. Our balance sheet remains very strong with a CET1 ratio of 10.6%, LDR of 77.5%, virtually no Federal Home Loan Bank borrowings, and a strong credit allowance position. During the quarter, we entered into an agreement to sell $1.9 billion in purchased student loans, which reside in Non-Core. $200 million of the portfolio was sold in Q1, with the balance to be settled ratably over the next three quarters. We will use the proceeds to pay down high-cost funding, purchase low-risk-weight securities, and repurchase shares.

The transaction will be accretive to NIM, EPS, and ROTCE. We had already included the impact in our full-year guide. During the quarter, we also issued $750 million 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 $8.7 billion in deposits and $5.2 billion in AUM. We added Private Wealth teams in Florida and Southern California during the quarter, and another one today in New Jersey. Our New York City Metro, private capital, and payments initiatives also saw continued progress. As we look forward, there has clearly been an increase in uncertainty in the macro environment given the policy decisions and rollout emanating from Washington. This has caused many market participants to hit pause on investments or deal activity.

On a positive note, our corporate and consumer borrowers are generally in good shape and are in position to weather these challenges. The basis for our full-year guide had anticipated some choppiness in the first half of the year tied to the rollout of tariffs and downsizing of the federal government. Our view held that as the lower tax, deregulation, and pro-energy agenda kicked in later in the year, we would see a pickup in loan demand and deal activity in the second half. With respect to an update to our full-year guide, at this point, we reaffirm our EPS estimate, though there could well be some puts and takes. Events in the Q2 will help clarify whether the second-half outlook will solidify as we had planned.

On our guide slide in our presentation, we call out some risks that affect both us and the industry at large given the environment, and we also show some potential offsets to the full-year guide. The main risks associated with continued economic uncertainty and a slowing economy include a push-out in capital markets fees, slower loan growth, and higher credit provision. Potential offsets to these possible impacts include even better performance on funding costs, greater share repurchases, and further efforts on cost transformation. It's worth noting that there is a significant amount of pent-up demand around M&A activity. We are working on a record number and dollar value of transactions and are hopeful that they get done as uncertainty subsides.

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 in meeting our initial year guide. As we look to the medium term, we remain confident in our NIM trajectory, which powers our ROTCE improvement, and in our ability to execute on our key strategic initiatives like the Private Bank. In short, we feel good about our positioning overall from a strategic, business, and financial standpoint. We will stay focused on execution and the things we can control as we continue our efforts towards building a distinctive great bank. With that, let me turn it over to John.

John Woods (CFO)

Thanks, Bruce. Good morning, everyone. As Bruce indicated, we delivered first-quarter results which were broadly in line with our expectations and reflected typical seasonal impacts. Referencing slides five and six, we delivered EPS of $0.77 for the first quarter with ROTCE of 9.6%. Net interest income came in at the better end of our expectations for the quarter as we performed well on our margin, which continued to benefit from the time-based decline of Non-Core and terminated swaps along with strong deposit cost performance. Fees were up nicely year-over-year, and linked quarter performance reflects the impact of seasonality and market uncertainty on capital markets. Wealth fees were record for the quarter as we continue to build out the Private Bank. Expenses were managed tightly, including the usual seasonality in salaries and benefits. Credit came in as we expected, and we maintained a strong reserve coverage level.

During the quarter, we entered an agreement to sell approximately $1.9 billion of Non-Core education loans. This acceleration in Non-Core runoff will be accretive to NIM, EPS, and ROTCE with the redeployment of the freed-up capital and liquidity as the sale settles over the course of the year. We continue to execute well against our strategic initiatives. Notably, the Private Bank continued to steadily grow its profitability, contributing $0.04 to EPS and finishing the first quarter with $8.7 billion of deposits. Also, we continue to make good progress in New York Metro and our TOP 10 program is well underway. We ended the quarter in a very strong balance sheet position with CET1 at 10.64%, or 9.1% adjusted for the AOCI opt-out removal, a pro forma Category I LCR of 122%, and an ACL coverage ratio of 1.61%. This includes a robust 12.3% coverage for General Office.

We also executed $200 million in stock buybacks during the quarter, taking advantage of our strong capital position. Next, I'll talk through the first quarter results in more detail, starting with net interest income on slide seven. Net interest income decreased 1.5% 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. As you can see from the NIM walk at the bottom of the slide, our margin was up three basis points to 2.9%, driven primarily by the time-based benefits of Non-Core runoff and reduced drag from terminated swaps and the benefit of improved deposit costs, partially offset by the net impact of rate-driven impacts on the balance sheet. We continued to execute our down-rate playbook in the deposit portfolio.

Our interest-bearing deposit costs decreased 18 basis points while maintaining the mix of non-interest-bearing deposits at 21%, stable with the prior quarter. Our cumulative interest-bearing deposit down-beta improved to 53% in the first quarter. Moving to slide eight, non-interest income is down 3.5% linked quarter with seasonal impacts in capital markets and card fees. Capital markets saw lower M&A and loan syndication activity given seasonality and the impact of uncertain market conditions pushing M&A deals out. Debt and equity underwriting improved coming off a slower fourth quarter. Even in a quarter impacted by seasonality and market volatility, we managed to perform well in middle-market-sponsored bookrunner deals, ranking number three by volume. Our deal pipelines across M&A and DCM remain very strong 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.

We are hopeful these deals get done as market uncertainty subsides. The wealth business delivered a solid quarter with increased annuity sales activity. We also continued to see positive momentum in fee-based AUM growth from the Private Bank. Our Global Markets business was up slightly this quarter with increased client hedging activity in FX and energy-related commodities. On slide nine, expenses were managed tightly, up 1.7% linked quarter, primarily reflecting seasonality in salaries and benefits. Our latest TOP program is underway, and this gives us the capacity to self-fund our growth initiatives. On slide ten, period-end and average loans were down slightly. This reflects the Non-Core transaction of $1.9 billion as well as auto runoff of $700 million. Excluding Non-Core, loans were up approximately 1% on a period end basis.

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. Commercial loans were up slightly with a modest increase in line utilization as some of our corporate banking clients drew down on their lines to finance inventory bills ahead of tariffs. We also saw a modest increase in capital call line usage given M&A activity in our sponsor base. Core retail loans grew slightly, driven by home equity and mortgage. 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. Period end deposits were up approximately $3 billion, or 2%, driven primarily by low-cost growth in the Private Bank and Consumer, partially offset by a seasonal decrease in Commercial.

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. Our retail franchise grew deposits in low-cost categories this quarter, and we continued to maintain strong CD retention rates even as we reduced yields. Stable retail deposits are 68% of our total deposits, which compares to a peer average of about 55%. This was a big driver of our improving deposit costs this quarter as our deposit franchise continues to perform well in a competitive environment. Our interest-bearing deposit costs are down 18 basis points linked quarter, translating to a 53% cumulative down beta. We continue to maintain a robust level of liquidity with a pro forma LCR of 122%, significantly above the Category I Bank requirement.

Moving to credit on slide 13, net charge-offs of 58 basis points for the quarter included a seven-basis-point impact from the Non-Core 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. Commercial charge-offs were down modestly, driven by a sequential decline in General Office. Retail charge-offs were broadly stable, excluding the impact of the Non-Core transaction. Of note, non-accrual loans were down 5% linked quarter, reflecting a decline in Commercial as we continue to work out General Office loans. Retail non-accrual loans also decreased as a result of the Non-Core transaction and continued runoff of the auto portfolio.

Turning to the allowance for credit losses on slide 14, the allowance was relatively stable at 1.61% this quarter as portfolio mix continues to improve due to back book runoff and lower loss content front book originations, offset by a slightly more conservative loss forecast. The economic forecast supporting the allowance reflects a mild recession similar to last quarter and macro impacts from tariffs. The reserve for the $2.86 billion General Office portfolio is $351 million, which represents a coverage of 12.3%, broadly stable with the prior quarter. Note that 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. Moving to slide 15, we have maintained excellent balance sheet strength. Our CET1 ratio is 10.64%. Adjusting for the AOCI opt-out removal, our CET1 ratio was stable at 9.1%.

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. Turning to slide 16, we provide some details on the Non-Core portfolio. 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. We recognize a $25 million charge-off associated with this portfolio that was covered by a pre-existing allowance. $200 million of the sale settled in the first quarter, with the remainder scheduled to settle ratably each quarter through 2025. We expect to use the proceeds to pay down high-cost funding, invest in low-risk investment securities, and repurchase shares. With this redeployment, the transaction will be accretive to NIM, EPS, and ROTCE.

Moving to slide 17, we are well-positioned to drive strong performance over the medium term with our overall three-part strategy: a transformed consumer bank, the best-positioned commercial bank among our regional peers, and our aspiration to build the premier bank-owned Private Bank and Private Wealth franchise. 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 at $8.7 billion. The mix continues to be very attractive with slightly over 40% in non-interest bearing. We also ended the quarter with $3.7 billion in loans and $5.2 billion in AUM. With a 4% contribution from the 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%-24% return on equity.

Moving to slide 18, we provide our guide for the second quarter. We expect net interest income to be up approximately 3%, driven by an improvement in net interest margin of approximately five basis points and day count. This pickup in net interest margin is primarily attributable to the time-based benefits of Non-Core runoff and reduced drag from terminated swaps. Non-interest income is expected to be up mid-to-high single digits, led by capital markets, with some risk if market uncertainty persists. FX and derivatives and wealth should also provide a lift for the quarter. We are projecting expenses to be broadly stable. Credit trends are expected to improve slightly from the first quarter charge-off level, excluding the Non-Core transaction. We should end the second quarter with CET1 in the range of 10.5%-10.75%, including share repurchases of approximately $200 million, which could increase depending on loan growth.

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. However, if the current challenges in the external environment persist, there could be select risks that impact us as well as the broader industry. Persistent market volatility could impact capital markets revenue and anticipated loan growth in the second half of the year. While the assumptions incorporated in our current reserve are conservative and our corporate and consumer borrowers are broadly in good shape, heightened likelihood of a deeper recession could lead to higher provision. However, if these risks arise, we have potential offsets we can leverage. 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.

We would also take the opportunity to manage expenses down through streamlining our operations and further cost transformation. Looking out to the medium term, we see a clear path to achieving our 16%-18% ROTCE target. Expanding our net interest margin is an important driver, and we project to be 3.05%-3.10% in 4Q 2025, 3.15%-3.30% in 4Q 2026, and in the 3.25%-3.50% range in 2027. Slide 21 in our appendix provides some incremental details on our net interest margin progression to 2027. This, combined with the impact of successful execution of our strategic initiatives, should drive ROTCE meaningfully higher by 2027. To wrap up, we delivered Q1 results that were in line with our expectations, highlighted by growth in net interest margin. While the market uncertainty has impacted capital markets revenues, deal backlogs are at all-time highs.

We accelerated the runoff of Non-Core with the education loan sale, which will be accretive to NIM, EPS, and ROTCE. We entered the quarter with strong capital, liquidity, and reserves, which puts us in an excellent position to support our clients while navigating market uncertainty. 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 Van Saun (Chairman and CEO)

Thank you, John. Operator Ivy, let's open it up for Q&A.

Operator (participant)

Thank you, Mr. Van Saun. We are now ready for the question-and-answer portion of the call. At this time, if you would like to ask a question, please unmute your phone, press star one, and record your name clearly when prompted. If you need to withdraw your question at any time, press star two. Again, that's star one to ask a question.

Your first question comes from the line of John Pancari from Evercore ISI. Please go ahead.

John Pancari (Senior Managing Director and Senior Research Analyst)

Morning.

Bruce Van Saun (Chairman and CEO)

Hi. Morning.

John Pancari (Senior Managing Director and Senior Research Analyst)

Just on the balance sheet growth, just want to see if you can give us a little bit more color around loan demand, what you're seeing here in this backdrop. Are you seeing what are some of the trends in line utilization? Are you seeing any weakening of the pipeline and also any type of pre-tariff inventory build that might have driven a little bit of the growth in the near term, but might be more of a pull forward versus the outlook? If you can just give us some color there. Thanks.

John Woods (CFO)

Yeah. I'll start off, and others will chime in here. Maybe just starting in commercial, 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 is part of the story, but I'd also say that M&A and some working capital is in there as well. That was both in our corporate banking business as well as on the sponsor side in our utilization in our subscription line side of the house in Commercial. We are seeing some of that trending. Frankly, given the expected pickup in business activity in the second half, there's some expectation that we'll see that continue, assuming some of this uncertainty subsides. On the Consumer side of things, we're seeing good take-up on the Resi and HELOC side of the ledger, given where the rate environment is.

HELOC, in particular, has been a really strong story for us. Last but not least, I throw out the Private Bank, which continues to drive growth. You are seeing all three of the legs of the stool, as you heard earlier, contributing to the loan growth outlook. Maybe I will just pause there and see if there is other color to add.

Don McCree (Head of Commercial Banking)

Yeah. I would affirm what John said, John. I think as we talk to customers, we are hearing a little bit of expansion desire. They have gone a little bit to the sidelines right now, just given what is going on with the uncertainty in the environment. The other thing, John, that has been going on really powerfully in the first quarter is we have gotten disintermediated by the bond markets.

We had an extremely strong bond quarter, and some of that came off of our balance sheet as clients accessed, particularly the high-yield market. I think that probably is going to reverse given where rates are right now. That will be a tailwind behind us in terms of loan growth. I do not know how much of it is tariffs in terms of the line draws. I think it is just general working capital build. People are running their businesses really tightly. I do not think we have seen the tariff impact yet, and that could be a tailwind also. We will have to see on the capital call lines. That is a pretty big part of our balance sheet. Not huge, but it is about a $10 billion exposure overall, of which about half is drawn, and that is running at relatively low utilization.

To the extent we get some of the deal activity kicking in, particularly in the second half, that should grow nicely.

Brendan Coughlin (Head of Consumer Banking)

It's Brendan. On the consumer side, if you put aside our Non-Core 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 growth, 1% up year-over-year, as John pointed out, heavily led by residential and secured. The portfolio is 75% secured. Keep in mind on the consumer side with incredibly high credit strats with high FICOs and relatively low LTVs. HELOC, we're actually up 9% year-over-year and believe we're right at the top of the league tables on net growth versus peers. That's through a bunch of innovative investments we've made in analytics and customer experience that has driven a real distinct advantage for us.

We'll continue to take advantage of that given the high-quality nature of the customer and expect that growth level to persist throughout the year. Mortgage, even though we have high rates, the portfolio growth is actually decent, up 3% year-over-year. Again, high-quality customers, prepay speeds really low on the back foot given the lack of a refinance activity. We're seeing net positive growth. The other portfolio, student and credit card, have been flattish. Student given higher rates and credit card, obviously by design, as we look to launch some new products here mid-year, we expect that to see some higher returning growth, assuming the economy plays in our favor in the second half of the year. We feel pretty good that underlying loan demand is high for the second half of the year.

In the Private Bank, 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 20s about a year ago. That's a good sign. We expect slow and steady continued progression and balancing out the book. Demand seems to have picked up. Our mortgage originations in the Private Bank are about double what they were same time this year despite a similar rate environment. Activity is strong, and we expect growth rates to accelerate in the back half of the year for the Private Bank.

John Pancari (Senior Managing Director and Senior Research Analyst)

Okay. Great. Thank you for all that color. I appreciate it.

Just quickly, on my second question is just around capital. I know you're sitting here around 10.6% CET1, and you cited expectation for around $200 million buybacks similar to this quarter or to last quarter. I know you mentioned, and I think Bruce, you mentioned this, and John, you mentioned as well that if you did see weaker loan growth and weaker macro, you could see higher buybacks. Can you just maybe help frame that? If we do see weaker loan growth and a weaker economy, would you conversely maybe be more cautious and therefore maybe husband more capital versus step-up buybacks? Can you just talk about how you view that trade-off? Thanks.

John Woods (CFO)

Yeah. I'll go ahead and start there. I mean, we're committed to that range that we articulated of 10.50%-10.75%.

If there's less RWA, then we would feel opportunistically a willingness to step up on the buyback side of things. The reason for that is a couple of folks. I think the starting point on capital is very strong, both before and after AOCI. You look at our AOCI haircut, we're still north of 9%, which is quite a good number. We would also have to look at what the uncertainty would hold. If you look at our reserve position that we've already set aside, we actually have a recessionary scenario already contemplated in our provision and loan loss reserve situation. 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 upside buybacks in the face of lower loan growth.

Brendan Coughlin (Head of Consumer Banking)

Yeah.

What I would add to that is if you go back to 2024, we also had a pickup in growth that would build over the course of the year. When that did not happen, we basically used the freed-up capital to buy back our shares, and we thought our shares were very attractive. I would say given kind of the crack in bank stock prices since the macro uncertainty and the rollout of the tariffs, we still feel that the stock is cheap relative to inherent value. It presents a real opportunity to offset any impact that would hit in the P&L from slower loan growth if that happened through buying back our stock and buying it back at very attractive pricing.

John Woods (CFO)

Yeah.

Just case to add, as we keep growing our tangible book value per share, the earnbacks on buying back stock at these levels is well under a year. It is pretty attractive. We would feel good for all those reasons stated.

John Pancari (Senior Managing Director and Senior Research Analyst)

Great. Okay. Thank you.

Operator (participant)

Your next question comes from Ken Usdin from Autonomous Research. Please go ahead.

Ken Usdin (Managing Director and Senior Research Analyst)

Thanks. Good morning. There you go. Guys, I wonder if you could talk through that push and pull on the capital markets outlook and the fee guide. I guess, first of all, the record pipeline, what's your level of confidence in terms of closing those transactions? I guess, secondly, if that capital markets embedded expectation doesn't pull through, how do we understand the comp ratio offset and the magnitude of flex that you can have to keep PPNR close to in line? Thanks.

Bruce Van Saun (Chairman and CEO)

Yeah.

I'll start, and then maybe John or Don can follow on. I think the exciting aspect of this from our standpoint is that we've, over time, built out really strong capital markets capability and a very broad M&A capability that covers middle market companies through mid-corporate and specializes in industry verticals that we think are going to be active. The fact that there's pent-up demand from sponsors to do deals, there's industry sectors that are very active, for example, data centers where we have a really strong group of folks focusing there. I'd say it's heartening to see that we've got record numbers of engagements. People are working very actively. On a probability assessment, none of these deals have dropped. I think we're just waiting to see some of this uncertainty subside.

We still feel optimistic that things will settle down here a little bit and that we should be able to pull that through. What I would say, if that is not the case, and then things do push out a bit, there are other things to consider. One is that we are broadly diversified. We have had the ability to, if one area does not fire on all cylinders, like if M&A is soft, then oftentimes our financing, our syndicated loan capability, our debt underwriting will pick up and provide an offset. The FX and interest rate derivatives and commodities hedging risk management business also is seeing an uptick in activity. Depending on the circumstances, that could provide an offset. The first line of defense is kind of diversity within the fees that could help offset any push out on M&A volumes.

There is obviously incentive compensation that would drop if the deals do not deliver. Just more broadly looking at the expense base, we are constantly working on ways to streamline our businesses and perfect how we are running the bank to make it more efficient. We have a TOP 10 program up and running, but we are certainly not content with that given all of the opportunities we see around new technologies like AI and ways to deploy that to run the bank better and serve our customers better. I would say that would be the broad playbook. Maybe for color on the revenues, Don, you might want to add anything there?

Don McCree (Head of Commercial Banking)

Yeah. No, I just echo a couple of things that Bruce just said. One is I am 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. That provides 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. They continue to have a really strong desire to sell and transact. A lot of those go into private equity. The other thing I'd say is that the financing markets are generally pretty attractive. We can get these things financed. They're not $10 billion deals. They're $100 million, $200 million, $300 million deals. They're eminently executable. One of the things that's been interesting is, and you would ask the question of why are these things pushing? Part of it's due to the destaffing of the FTC and the SEC.

It is just taking longer to get these transactions done. I think the most important thing that Bruce said is we have not lost one mandate out of the pipeline. It is not as if these transactions are going away. They are just taking a little bit longer to execute. I am super confident that we are going to be able to get these things across the finish line, whether it is the second quarter or the third quarter. We will have to see. Some of it will be volatility. There is very little tariff dependency in any of these underlying deals. The big picture is we should generate the revenue. Hopefully, my bonuses are not going to go down by year end. Bruce will do that to me as he has done in the past if that does happen.

Bruce Van Saun (Chairman and CEO)

John, anything to add?

John Woods (CFO)

No, I would just highlight the diversity point that you made. Just on the expense side, I mean, we would, in an environment like that, you get the direct offset that you mentioned on incentives. You take a harder look at some discretionary stuff that we also touched on before. More broadly, just feeling like the net interest income story is just a number of great tailwinds that are part of why we feel good about the guide for 2025 as well.

Bruce Van Saun (Chairman and CEO)

Okay.

Ken Usdin (Managing Director and Senior Research Analyst)

Thanks for all that.

Bruce Van Saun (Chairman and CEO)

Okay, Ken.

Operator (participant)

Your next question comes from Peter Winter from D.A. Davidson. Please go ahead.

Peter Winter (Managing Director and Senior Research Analyst)

Good morning. I was wondering, just looking at interest rates, which have been extremely volatile, it seems like the forward curve changes daily. Can you talk about what the ideal interest rate environment is for Citizens and yield curve?

Conversely, what type of rate environment kind of would put the NIM outlook potentially at risk? Are there any plans to reduce some of the asset sensitivity?

John Woods (CFO)

Yeah, good questions there. I mean, out the window, our asset sensitivity is ±1% to a ±100 basis point change and a gradual shift in the yield curve up or down over the next 12 months. We are slightly asset sensitive. Yeah, we're close to neutral based on just how those numbers are playing out. I'd say that first and foremost, the net interest margin trajectory is primarily not rate dependent. You have the time-based benefits that are really driving net interest margin, both in the near term and over time. For example, in the first quarter, we had about five basis points of time-based benefits.

Given the slight asset sensitivity and seasonally lower deposits, that is 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 are going to get about five basis points of time-based benefit and better balance sheet trends. That is why all of that drops to the bottom line. Really, you get that momentum continues to build not only through 2025, but out into 2026 and 2027. We have in our slide deck an illustration of the fact that 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 2.90% that we delivered in the first quarter, we are already at the lower end of the range without having to deal with interest rates.

From there, the rest of the story that takes us into our range of 3.25%-3.50%, you would also look at fixed asset repricing, which really is more about long-end rates. There is a lot of baked-in turnover of the balance sheet given coming out of the lower rate environment that we are in in the pandemic. You got 15 basis points-20 basis points there. Now we can talk about rates. We are pretty well hedged from a swap standpoint out through the middle of 2027. Yes, we will do a little better if rates are higher. If rates are the terminal rate out the window appears to be around 3.50%, that is a good outcome for us. That would put us in the middle of our range.

Higher rates, terminal rates like 4% would be consistent with the upper end of our range of around 3.50%. 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.% We are basically comfortable with a wide range of scenarios on rates. We feel pretty well hedged with a slight orientation towards performing a little better a couple of years out if rates are a little higher. We think about inflation and stagflationary scenarios when we think about positioning the balance sheet that way. The objective of trying to have a lot of non-rate-related tailwinds is something that you need to think about when you think about our recovery on net interest margin.

Peter Winter (Managing Director and Senior Research Analyst)

That's great. Thanks, John.

If I could ask just kind of a follow-up to Ken's question, you talked about the puts and takes with this uncertain environment. Could you just give an update on the positive operating leverage for the full year versus January's forecast of 1.50%? I realize there's all this uncertainty, just wondering how you're thinking about it.

John Woods (CFO)

Yeah, we think we're reaffirming that outlook. We believe that that's very achievable around the 1.50%. A big driver of that, again, back to net interest margin. We see net interest margin rising to 3.05%-3.10% 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. Therefore, that 3%-5% NII is a huge driver of our positive operating leverage.

We feel good about that. We talked earlier about the diversity 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 if certain scenarios play out.

Bruce Van Saun (Chairman and CEO)

I would add to that that in 2024, most banks, including ourselves, were very tight on expenses. In 2025, we're inflating a little bit. The guide was for roughly 4% expense growth. That reflects the fact that there's lots of great things for us to invest in as we build out the franchise here. Things like making sure we're adding to the Private Bank, we're adding Private Wealth teams, we're opening Private Bank offices, we're investing in AI and various projects, data analytics capability. There's our payments capability.

There are things that we want to keep investing in to position us for that medium-term growth outlook that in a tougher environment, we can throttle some of those things a little bit. Our preference is to not do that, to keep investing and keep building. Just kind of putting that in context, there are some levers to pull, preferences to keep going, make those investments for the future. We can pull back a little bit if need be.

Brendan Coughlin (Head of Consumer Banking)

The other structural benefit that we do have as well on the Private Bank, keep in mind that the majority of that cost base was compensation guarantees. As 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.

It is providing operating leverage right there naturally versus last year, which we have a lot of confidence to deliver the revenue outlook. That should be a structural advantage for us too.

Bruce Van Saun (Chairman and CEO)

Great. Great point, Brendan.

Peter Winter (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Erika Najarian from UBS. Please go ahead.

Erika Najarian (Managing Director and Equity Research Analyst)

Hi. Good morning. I mean, thank you. You have alluded to this in how you have responded to all the questions, particularly the PPNR I As you know, the net interest income outlook is quite important. As I pull up the slide from last quarter, it is at up 3%-5%. If I think about affirming the exit NIM on slide 21, and then 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%-5% is still broadly in line, right, in terms of what you're affirming. Just wanted to confirm that in terms of the full year look.

John Woods (CFO)

Yeah. You've got that right, Erika and John. That 3%-5% feels pretty good. If you just think about NIM alone, that would take us to the upper end of that range. What we indicated in the guide was that, at least back in January, we might have interest earning assets down about 1%, which is what put us into the middle of the range. There's some flexibility there.

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, there's another lever there with respect to interest earning assets in the securities book that we'll be monitoring throughout the year. 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 if relative value looks attractive and deposit flows continue the way they've been going. That's the way we think about that 3%-5%.

Erika Najarian (Managing Director and Equity Research Analyst)

Thank you. Switching topics on the reserve, this is a two-part question. Number one, just a broad question here. What unemployment rate is your reserve sort of looking forward to?

Second, John, could you talk through the dynamics that's perhaps unique to Citizens about the Non-Core runoff? As we think about perhaps the baseline case of unemployment potentially getting worse or the company weighting the downside case more, what is sort of the offset of the $1.9 billion student loan sale and the runoff portfolio? Obviously, the commercial real estate portfolio has been, you've been resolving parts of that for some time now. Walk us through those two dynamics as we think about how to think about the provision from here as we think about perhaps a more uncertain economic backdrop, but also a specific optimization of your loan mix.

John Woods (CFO)

Yeah. I'll head you all through those. Others may chime in here. We have a number of scenarios that get applied to different parts of the portfolio.

Our baseline scenario has an unemployment rate of 5.1% that covers a large portion of our book, primarily in C&I and in retail. When you get into the CRE portfolio, and also that 5.1% is paired with a decline in GDP that would imply a mild recession. A majority of the book has a mild recession associated with it. When you think about the CRE book overall, we have a combination of a moderate to severe recession assumption applied to CRE. The unemployment assumption there is higher than 5.1%. On a weighted average basis, you'd end up 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 9.3% and a GDP decline of 4.4%. Just giving you a sense that generally it's something higher than 5.1%.

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'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 expectations. That all feels very good on the credit side.

Bruce Van Saun (Chairman and CEO)

Yeah. John, you might have the number on the top of your head. But Erika, we had, we're about 1.61% in terms of the allowance to loans. Kind of the day one CECL was.

John Woods (CFO)

On the adjusted EBITDA.

Bruce Van Saun (Chairman and CEO)

If you adjust it down first for the Investors deal and then for the actions we're taking in Non-Core, what is that number?

John Woods (CFO)

1.25%-1.30%.

Bruce Van Saun (Chairman and CEO)

1.25%-ish. Yeah. In that ballpark.

Anyway, we feel that over time we've continued to improve the focus on kind of where we want to lend. We want to lend to deep relationships. In Commercial, we've been moving more up market so that 80% of the C&I portfolio is now investment-grade equivalent. In the retail book, 95% of the book is super prime and high prime. 78% of the book is retail secured. In homeowners 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. We have a bunch of those stats back on pages 24, 25, and 26. The CRE portfolio, we've taken a lot of the pain there already. The pigs have been going through the python, so to speak.

We feel that we're well reserved for different scenarios that could ensue over the course of the year.

John Woods (CFO)

Yeah. To the other point, the question you had, Erika, regarding Non-Core rundown, I mean, I think you can kind of pair in some respects. I mean, certainly the balance sheet fund is fungible, but you can sort of think about Non-Core and Private Bank in some respects together because we're taking a lot of that liquidity and capital down in the Non-Core space, but we're growing in Private Bank and in Commercial. On the Private Bank, we have a year-end target on the loan side that is similar to the rundown in Non-Core that's being accelerated in 2025.

What you're seeing is pulling back on lower customer value assets in the Non-Core space, growing high customer attractive RWA in Private Bank and in Commercial and in Core Retail. The engine here is humming along really well and probably a little faster than we expected given our opportunistic transaction.

Bruce Van Saun (Chairman and CEO)

When we set up Non-Core, that was roughly, broad numbers, $10 billion running down in the consumer runoff portfolio and $10 billion running up in the Private Bank. By the way, the credit quality in the Private Bank, I mean, the group that came over from First Republic had virtually no credit losses. So far, we've had no credit losses in that book. You can't say that'll always be the case, but it's very, very high credit quality.

That alone is going to average down the net charge-off ratio through the cycle to something in the low to mid-30% from something that had been kind of higher 30%-low 40%. Brendan, you want to add anything there?

Brendan Coughlin (Head of Consumer Banking)

Just a couple of quick stats, maybe just to build on your points. On Private Banking, we have zero customers that are in delinquency or criticized right now. To John's point, we're replacing the Non-Core rundown with that quality of asset. The other thing to make note of on Non-Core, which is seasoned now and in rundown with no new originations coming through with auto, as the portfolio gets more seasoned, you have the dynamic of you drive the car up a lot and it immediately reprices down and you're upside down a little bit on LTV until paydowns happen. The portfolio is a couple-year season now.

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. That should be stable and we feel good about the quality there. Just on the retail book, to everybody's point, 79% of it on the Core side is residential secured. On the home equity book, 99% is below 80% CLTV. On the mortgage book, 51% CLTV. There is very, very little loss content there unless there's a significant housing market correction, which obviously we're not seeing a high chance of that. When you unpack the unsecured book, while over time we'd like to have more exposure to credit card, right now we're undersized on credit card. That's a good thing if there's an unemployment spike.

On the student book, 98% is co-signed by the parent on in-school, and 40% of our student loan refinancing book is with folks with advanced degrees, which are less sensitive to spikes in unemployment. When you net all that together, I feel like on a relative basis, we should be in a very strong spot if there is a blip in unemployment.

Erika Najarian (Managing Director and Equity Research Analyst)

Very thorough. Thank you.

Operator (participant)

Your next question comes from Matt O'Connor from Deutsche Bank. Please go ahead.

Matt O'Connor (Managing Director)

Good morning. A couple of follow-ups on feedback in these categories. The service charges were quite strong year-over-year. You mentioned cash management, which I think is pretty straightforward, and then also overdraft. Just elaborate on the overdraft. Is it increased frequency and why do you think that is? Were there some pricing changes or what drove that component?

Brendan Coughlin (Head of Consumer Banking)

Yeah.

Most of the service charge numbers actually in cash management and Business Banking are seeing really strong growth with some technology investments that we've made in the Consumer business to drive stickier, engaged customers. By the way, that's also showing up in our low-cost deposit trend. 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. While the mass market population is generally back to paycheck to paycheck, they are in fact pretty stable. We're not seeing any behavior in that base. Spending trends are still strong 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. 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. Overdraft is in a range. I'm sure you all saw the court case that is out there on overdraft, and the House and the Senate both signed off on eliminating the rule from the CFPB. We also think the risk that potentially existed in the back half of the year about that may be coming down is de minimis at this point, headed to the President's desk for signature.

Anyway, overdraft is stable, not growing, not really decreasing in any material way.

Matt O'Connor (Managing Director)

Okay. That's helpful. In credit card, they were down, obviously, versus 4.2 on seasonal trends, but also down a little bit year-over-year. When they were trying to grow it, is that just the cost of kind of rewards and upfront sign-ons, or what's driving that drop on a year-over-year basis? Thanks.

Brendan Coughlin (Head of Consumer Banking)

Yeah. There's 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 launched new products in May and June. We are very, very excited about a couple of new products that are coming out late spring into the summer. The customer spending trends have been broadly stable for a bit here. We are expecting that to get back into growth mode.

As you probably remember, going back 18 months, some of the growth in credit card and debit card fees were structural related to the Mastercard arrangement that we did that really drove some net positive fee growth to the bottom line. 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.

Matt O'Connor (Managing Director)

Thank you.

Operator (participant)

Your next question comes from Gerard Cassidy from RBC Capital Markets. Please go ahead.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

Hi, Bruce. Hi, John.

Bruce Van Saun (Chairman and CEO)

Hey, Gerard.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

Guys, can you share with us as a follow-up to your comments on the Non-Core loan portfolio and in view of the sale of the Non-Core student loans, can you give us the pros and cons of selling the entire portfolio that you outlined on slide 16?

Bruce Van Saun (Chairman and CEO)

Yeah. I'll take that. John, you can chime in.

I think that there's relatively high predictability in terms of the runoff of auto, which is basically what's left. Should we want to accelerate that sale, there's going to be a liquidity cost that has to be paid. Our view is, since this is short-duration paper, it runs off predictably. It runs off fast. The duration of the paper is roughly two years, that we're better off preserving the capital and not incurring that liquidity cost, if you will.

John Woods (CFO)

Yeah. Agreed. We've got very strong capital and liquidity. There's no need to accelerate it beyond the accelerated rundown. I mean, if you look in the fourth quarter of 2025, by the end of this year, the entire book is going to be down to $2.6 billion.

A $1.5 billion of that is, or a little more than $1.5 billion, about $1.7 billion or so, is sitting in an auto-collateralized structure anyway and therefore would not be able to be sold. That is sort of ring-fenced and just runs down on its own. You are 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 on Core. This is going to be kind of in the rearview mirror very soon. From that standpoint, we think the transaction that we did was the accelerant.

Bruce Van Saun (Chairman and CEO)

That was the longer-lived asset with the bigger tail. To move that out really helps accelerate the whole rundown.

John Woods (CFO)

Who knows?

Maybe in the future, there could be a cleanup, but it would be something that really would not have much of an impact given that it is in such a low profile by the end of the year anyway.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

Great. Thank you. As a follow-up, obviously, your credit, you have 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 lore of low numbers that one or two loans going non-accrual will push the number up. In slide 28, you do give us that breakdown of non-accruals. Can you give us some color on the C&I portfolio?

The uptick, again, was not material in nominal levels, but what are you guys seeing in C&I, especially in view of your outlook of the uncertainty we are all confronting with this economy?

John Woods (CFO)

Yeah. Maybe just to start off, on 28, that is the allowance is really when you see those numbers go up, that is really us being a touch more conservative with respect to areas that we are seeing that make sense to flow additional allowance over.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

That is the non-accrual, though.

Bruce Van Saun (Chairman and CEO)

I think that you are talking about the 0.57% going up to the 0.65%, Gerard.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

Again, yeah. Correct. It is small. I understand it is small, but I am just curious.

Bruce Van Saun (Chairman and CEO)

Yeah. I think that is 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.

Nothing really to call out, I think.

Don McCree (Head of Commercial Banking)

Yeah. Gerard, I'll just jump in. We're seeing no macro deterioration in C&I. I go back to what I've said for a couple of years now is people really tighten their belts during COVID, both from a debt standpoint and an efficiency standpoint, and that's going to help them go through any kind of uncertainty that we have. We see no broad trends of deterioration at all in our C&I portfolio.

Bruce Van Saun (Chairman and CEO)

Yeah. I would say it's more a question of they're in good position, and they've positioned themselves to be resilient and adaptable to the environment. To me, the bigger question is how much offense do they want to play in the macro actually holds them back from further growth in their businesses, and that potentially affects loan demand or deal activity.

I don't really view it as any kind of material credit risk. In fact, when you look at the sectors that we lend to, we don't have huge exposure to the sectors that are most exposed to tariffs. In general, we feel really that this is more an issue about how much offense comes out of the customer base as opposed to are we worried about credit deterioration.

Gerard Cassidy (Managing Director and Head of U.S. Bank Equity Strategy)

Great. Thank you, guys.

Operator (participant)

Your next question comes from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala (Managing Director and Head of North American Banks Research)

Hey, good morning. Just two very quick follow-up questions. John, maybe for you, not sure if I missed, when we look at your fee income guidance, you talked about the capital markets pipeline. What are we assuming for capital markets just from a fee revenue standpoint for second quarter and for the full year? If you don't mind sharing that.

Brendan Coughlin (Head of Consumer Banking)

Yeah.

It's a driver, and I think I'd go back to the diversification points that we said earlier. I think we've got in the capital markets, we've got M&A certainly as part of the story, but there's loan syndications, some Equity Capital Markets opportunities. You heard Bruce earlier talk about client hedging that are all contributing to the second quarter as well as the full year. We are also focused on the fact that on the consumer side of the house, card and wealth are also expected to be contributing in 2Q and in 2025 as well. We haven't broken down the details separately from fees in 2Q or 2025.

Bruce Van Saun (Chairman and CEO)

Yeah. It's a material driver to the 8%-10% growth we had for the year in the original year guide and then in the second quarter lift that we have.

I would say the kind of level of the capital markets activity, to me, is why we have a little bit wider range in the second quarter fee guides. We still think we'll see a nice bounce off of Q1 levels, but we'll have to wait and see how that plays out. I think the broader point John just made about diversity and when one thing is a little soft, we have enough levers that I think we're pretty confident that we'll be able to find offsets if capital markets is a bit sluggish.

Ebrahim Poonawala (Managing Director and Head of North American Banks Research)

Got it. I guess maybe just to follow up on the margin outlook, when you have the margin for the end of the year, end of 2026, can you remind us what the Fed funds rate underpinning that is? I understand. Appreciate the time sensitivity of what the name does.

What's the Fed funds rate? If we get 100 basis points of Fed funds cut, let's say between now and year-end, does that create some downside risk through that 2025, 2026 outlook or not?

Don McCree (Head of Commercial Banking)

Yeah. I'd say, as I mentioned, we're pretty well hedged. When you look out the window, we said two cuts in January. Out the window, maybe there's three. That third cut happens late in the fourth quarter, number one. Number two, we are close to neutral from an asset sensitivity perspective. That 3.05%-3.10% feels very good and very comfortable with respect to delivering that range. The terminal rate of about 3.50% getting out into 2026 and 2027 puts us into the middle of our 3.25%-3.50% net interest margin range.

You'll see on the slide there in the back where we articulate that outlook. 2026, also just one other thing to add in case there's any follow-ups. The net interest margin growth in 2025 is very comfortable, and we feel good about it. It maybe implies about 15 basis points year-over-year. 2026 has a significant amount of tailwinds associated with some accelerating trends. Much of the time-based benefit actually really starts to kick in in 2026. That's something to keep an eye on also.

Ebrahim Poonawala (Managing Director and Head of North American Banks Research)

Thank you both.

Operator (participant)

Thank you. Our final question comes from Manan Gosalia from Morgan Stanley. Please go ahead.

Manan Gosalia (Head of U.S. Midcaps Banks Research)

Hi, good morning. Just a couple of quick follow-up questions. One was on loan growth.

Can you talk about how much of the loan growth over the past year has come from NBFI loans and how you're thinking about the credit risk of that portfolio?

John Woods (CFO)

Yeah. I mean, I'll start off, and Don may add in here. I mean, we do have exposure, like many of our peers do, into the NBFI space. It's part of the ecosystem of interacting in the private credit space and the private capital construct that we do a very good job of covering. I would say that I'd hasten to add that the credit exposure for the places where we play is very low. You think about the kind of interactions that we do in whether it's business credit intermediaries or in the private equity space, that credit profile has been very low over time.

Don McCree (Head of Commercial Banking)

Yeah. I agree with that.

The growth has not been massive in terms of actually adding exposure. We have seen a little bit of growth through the higher utilization. You see that coming through in the numbers a little bit. We very much like the structures that we have in place, both for the private equity complex and the private credit complex. They are both kind of investment-grade-like in terms of their credit profile. Very low losses, very strong structures, ABS kind of structures, particularly in private credit. We feel very good about those exposures. The other important thing is, back to everything we are doing in the NBFI space, it is about a broad relationship. We are doing multiple different things with each of the people that we are lending to. It is not as if we are 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 Bank and Wealth Management areas now. There is a lot of different relationship orientation, and we're very selective in terms of the underlying clients that we'll actually bank.

Bruce Van Saun (Chairman and CEO)

Yeah. I would just add two other points of color. One is that the definitions for this category are changing a little bit. Some exposures that might not have been considered NBFI are now getting pushed into that a little bit. It's hard to do long period of time straight apples-to-apples comparisons. I think once we get through the reclassification process, then you'll, going forward, have more continuity in those forecasts. The other thing is that where we are growing somewhat is in the Private Bank.

That is a little bit of a different kind of complementary perspective to some of the bigger funds that Don's folks are covering. Brendan, I do not know if you want to add that, but we are making capacity there for kind of PE and VC funds where we know those firms extremely well, and we want to be the bank to the fund complex and the partners of those firms. That is really good business. That was always really good business at First Republic, and we are growing that business here.

Brendan Coughlin (Head of Consumer Banking)

The credit structures, as Don mentioned, we believe are well-structured with incredibly low risk. One-year subscription lines. The duration of it, if there is anything that we see that is worrisome, we can move on pretty quickly. We also, in the Private Bank, will not do the credit unless we have their operating cash management relationship.

A very deep relationship with the firm with strong underwriting and then eyes all over cash flows and the whole community that we're banking. We feel good about the exposure.

Manan Gosalia (Head of U.S. Midcaps Banks Research)

Yep. Very helpful. As my follow-up, just on the Non-Core loan sale in the first quarter, how should we think about the benefit to NIM from that sale? I know the year-end NIM guide is relatively unchanged, so I was wondering if there's some offsets there or if there's a higher probability that you can hit the higher end of that guide.

John Woods (CFO)

Yeah. We had anticipated that we would have an opportunity to accelerate in 2025. That was included in the January guide broadly. The 3.05%-3.10% is already incorporated this sale.

Bruce Van Saun (Chairman and CEO)

You may recall that on the first quarter call, I hinted that we were working on acceleration.

We were pretty far down the track that we would get something done. When we had the guide, we had assumed that. It is not that dramatic of a lift to NIM, but we will pick up basis points here and there. It all adds up and builds our path towards hitting those year-end numbers, those fourth quarter numbers.

Manan Gosalia (Head of U.S. Midcaps Banks Research)

Thank you.

Bruce Van Saun (Chairman and CEO)

All right. I think that brings us to the end of the call. Thanks again, everyone, for dialing in today. We appreciate your continued interest and support. Have a great day.

Operator (participant)

That concludes the Citizens Financial Group First Quarter Earnings Conference Call. Thank you for your participation. You may now disconnect.