Executive Summary / Key Takeaways

• Strategic Transformation Driving Performance: Citizens Financial Group is executing a multi-faceted strategy focused on high-growth areas like its Private Bank and Commercial Banking, alongside disciplined balance sheet optimization and a significant "Reimagining the Bank" initiative, positioning it for sustained organic EPS growth and a Return on Average Tangible Common Equity (ROTCE) target of 16-18% by 2027.
• Robust Financial Momentum: The company delivered strong Q3 2025 results, with diluted EPS of $1.05 and a Net Interest Margin (NIM) of 3.00%, driven by expanding NIM, strong fee income from capital markets and wealth, and disciplined expense management, leading to positive operating leverage and an improved efficiency ratio of 63.03%.
• Fortress Balance Sheet and Prudent Capital Allocation: CFG maintains a strong capital position with a CET1 ratio of 10.70% and a healthy Allowance for Credit Losses (ACL) coverage. The company is committed to shareholder returns through a $1.5 billion share repurchase program and a recently increased common stock dividend, leveraging excess capital to offset potential loan growth fluctuations.
• Credit Quality Resilience: Despite macroeconomic uncertainties, CFG's credit trends are favorable, with declining nonaccrual loans and net charge-offs. Its conservative loan mix, particularly in secured retail and well-structured commercial portfolios, provides a strong buffer, with management anticipating ACL releases throughout 2025.
• Technological Reinvention as a Growth Catalyst: The "Reimagining the Bank" initiative, leveraging GenAI and Agentic AI, is a multi-year program designed to fundamentally enhance customer experience and operational efficiency, targeting over $400 million in run-rate benefits by 2028, which is expected to be accretive to long-term profitability.

Introduction & Strategic Foundation

Citizens Financial Group, Inc., founded in 1828 and headquartered in Providence, Rhode Island, stands as one of the nation's oldest and largest financial institutions, with $222.70 billion in assets as of September 30, 2025. The company's journey since its 2014 initial public offering has been marked by a deliberate strategy to build a "fortress balance sheet" and foster disciplined organic growth. This foundation has enabled CFG to navigate economic cycles and seize opportunistic growth, notably through its strategic expansion in the New York City metro area via acquisitions of HSBC (HSBC)'s East Coast branches and Investors Bank.

CFG's overarching strategy is built on three pillars: a transformed Consumer Banking segment, a best-positioned Commercial Banking segment among its regional peers, and the aspiration to build a premier bank-owned Private Bank and Private Wealth franchise. This strategic evolution is underpinned by a continuous focus on optimizing its balance sheet, including the systematic reduction of its "Non-Core" loan portfolio. A significant move in Q1 2025 involved an agreement to sell $1.9 billion in purchased student loans, a transaction designed to accelerate runoff, pay down high-cost funding, invest in low-risk securities, and repurchase shares, thereby enhancing Net Interest Margin (NIM), Earnings Per Share (EPS), and Return on Average Tangible Common Equity (ROTCE).

Technological Edge & Operational Evolution

Citizens Financial Group is not merely adapting to technological shifts; it is actively reinventing its operational core through strategic digital initiatives. The cornerstone of this evolution is the multi-year "Reimagining the Bank" initiative, launched in Q2 2025. This program is a profound commitment to redesigning customer service and internal operations by leveraging advanced technologies, particularly Generative AI (GenAI) and Agentic AI. This is not a singular product technology but a comprehensive process innovation aimed at enhancing efficiency and customer experience across the enterprise.

The initiative's stated goals are ambitious: to simplify the business model, clarify strategic priorities, and fundamentally improve how the bank operates to deliver faster, more cost-effective solutions for both the bank and its customers. This involves a holistic review of organizational models, underlying technology, data architecture, and the upskilling of its workforce. Beyond AI, the program encompasses vendor simplification, optimizing corporate facilities, and strategically enhancing the branch network for long-term household and deposit growth. Management anticipates these "tech and AI-enabled initiatives" will require a higher technology investment than previous efficiency programs, given the three-year runway and the introduction of new, complex technologies. However, these costs are expected to be capitalized over time, aligning with the realization of benefits.

The tangible benefits of this technological roadmap are expected to be substantial. The "Reimagining the Bank" initiative targets run-rate benefits exceeding $400 million by 2028, with positive net benefits commencing in 2027 and accelerating thereafter. This operational overhaul is projected to add 200 to 300 basis points to ROTCE by 2027, contributing to superior organic EPS growth and meaningful revenue expansion. This strategic investment in technology is viewed as a self-funding mechanism, freeing up capacity for further growth initiatives and accelerating the overall investment cycle.

Beyond this overarching program, CFG demonstrates its technological acumen in specific business lines. In Consumer Banking, innovative investments in analytics and customer experience have driven a "distinct advantage" in its Home Equity Line of Credit (HELOC) business, where it has been a national leader in originations. The recent launch of a new suite of Mastercard (MA) credit cards, designed to meet evolving customer needs, aims to reposition the profitability of the credit card business over time, further enabled by underlying technological capabilities. These efforts collectively underscore CFG's commitment to leveraging technology not just for efficiency, but as a core differentiator in its competitive landscape.

Competitive Landscape & Differentiated Approach

Citizens Financial Group operates in a highly competitive U.S. banking landscape, contending with both larger national players and regional peers. Against global financial powerhouses like JPMorgan Chase & Co. (JPM) and Bank of America Corporation (BAC), CFG positions itself as a more regionally focused institution, emphasizing personalized, relationship-based banking. While larger rivals often boast superior technological sophistication and broader product breadth, CFG's strength lies in its regional agility and deep customer engagement, particularly in its core markets across the Northeast and Midwest. This localized approach allows CFG to respond quickly to regional economic shifts and foster stronger customer loyalty, providing a counterpoint to the more standardized, high-volume models of its larger competitors.

Compared to other prominent regional banks such as Wells Fargo & Company (WFC) and PNC Financial Services Group, Inc. (PNC), CFG shares a similar regional emphasis but differentiates through its specific geographic footprint and strategic focus. For instance, CFG has demonstrated national leadership in HELOC originations, a testament to its innovative investments in analytics and customer experience. Its low-cost deposit performance has also outperformed peer averages by over 300 basis points, providing significant funding optionality. In Commercial Banking, CFG's "secret sauce" is its focus on multi-product relationships with mid-sized companies, offering a comprehensive suite of financial services beyond just lending and deposits. This integrated delivery model, particularly in expansion markets like New York Metro, Florida, and California, allows CFG to win "broad wallet relationships" and generate a combination of fee income and net interest income.

CFG's approach to the private credit complex further highlights its differentiated competitive strategy. Rather than broad exposure, the company acts as a banker to this complex, primarily through high-credit-quality securitization structures with diversified collateral pools. This strategy has yielded "very low losses" and "very strong structures," positioning it as one of the "highest quality things" in its commercial bank. This contrasts with some competitors who might take on more direct, higher-risk exposures.

Indirect competition from fintech companies and online banks, offering faster, more accessible digital solutions, presents a continuous challenge. However, CFG's "Reimagining the Bank" initiative is a direct response, aiming to close technological gaps and enhance its digital offerings to retain and attract customers. While CFG may lag in overall scale and the speed of pioneering all new technologies, its strategy of adopting proven, ready-made solutions and integrating them into its relationship-led model aims to maintain its competitive edge and ensure operational resilience in local markets.

Financial Performance: A Story of Momentum

Citizens Financial Group's recent financial performance underscores a clear trajectory of momentum, reflecting the successful execution of its strategic initiatives. For the three months ended September 30, 2025, the company reported net income of $494 million, translating to diluted earnings per share of $1.05. Over the nine-month period, net income reached $1.30 billion, with diluted EPS of $2.74, representing significant increases of $112 million and $195 million, respectively, compared to the same periods in 2024.

Net interest income (NII), the company's largest revenue source, rose to $1.50 billion for the third quarter and $4.30 billion for the nine months ended September 30, 2025. This growth was primarily driven by a higher net interest margin (NIM), which expanded by 23 basis points to 3.00% on an FTE basis for the quarter, and by 10 basis points to 2.95% for the nine-month period. This NIM expansion was a result of lower funding costs, the time-based benefits of the Non-Core portfolio runoff, reduced impacts from terminated swaps, and fixed-rate asset repricing.

Noninterest income also demonstrated robust growth, increasing by $98 million to $630 million for the third quarter and by $172 million to $1.80 billion for the nine-month period. This was largely fueled by strong performance in wealth management, mortgage banking, capital markets, and service charge fees. Capital markets, in particular, delivered a record third quarter, its second-highest ever, driven by strong M&A activity, debt underwriting, loan syndication, and equity underwriting fees.

Despite strategic investments, expense management remained disciplined. Noninterest expense increased by $76 million to $1.30 billion for the quarter and by $50 million to $4.00 billion for the nine-month period. The increases were primarily due to hiring for the Private Bank and Private Wealth build-out and strong capital markets performance, partially offset by lower FDIC deposit insurance costs over the nine-month period. This disciplined approach, coupled with strong revenue growth, led to a notable improvement in the efficiency ratio, which decreased to 63.03% for the third quarter and 65.16% for the nine-month period, down from 66.23% and 67.28% in the prior year periods, respectively.

Profitability metrics further highlight this positive trend. Return on Average Tangible Common Equity (ROTCE) significantly improved to 11.75% for the third quarter and 10.84% for the nine-month period, up from 9.45% and 9.63% in the corresponding 2024 periods. Tangible book value per common share increased by 14% from December 31, 2024, to $36.73, driven by a decrease in common shares outstanding and a $1.60 billion net increase in tangible common equity.

Loan growth has shown positive momentum, with total loans and leases increasing by $1.67 billion to $140.87 billion as of September 30, 2025, compared to December 31, 2024. This was led by a 10% increase in commercial and industrial loans due to higher line of credit utilization, and growth in home equity and mortgage, including the Private Bank. Average deposits increased by $1.90 billion for the three months ended September 30, 2025, primarily from Private Bank growth, demonstrating the success of targeted funding strategies.

Credit Quality: Resilience and Optimization

Citizens Financial Group's credit quality trends reflect a resilient portfolio and proactive management, even amidst a macroeconomic forecast that anticipates a shallow two-quarter contraction. As of September 30, 2025, the Allowance for Credit Losses (ACL) stood at $2.20 billion, a decrease of $58 million from December 31, 2024. This reduction was driven by an improving loan mix, reflecting the runoff of the Non-Core portfolio and lower loss-content originations, alongside a decrease in commercial credit.

Nonaccrual loans and leases declined by 9% to $1.52 billion, primarily due to decreases in commercial loans, particularly in the general office segment of Commercial Real Estate (CRE), and in retail loans, benefiting from the sale of Non-Core education loans and continued auto portfolio runoff. Net charge-offs also decreased for both the three and nine months ended September 30, 2025, with the net charge-off ratio improving by 8 basis points and 1 basis point, respectively. The nine-month period included a $25 million charge-off related to the Non-Core education loan sale, which was covered by existing reserves.

The Commercial Banking segment has seen its criticized balances decrease by $523 million, with commercial real estate criticized balances declining due to loan upgrades, credit-enhanced extensions, pending sales, refinancing activity, and net charge-offs in the general office portfolio. Approximately 97% of commercial real estate loans remain current on payments. The general office portfolio, a focal point of industry concern, has seen its balance decline by 40% since March 2023, to $2.5 billion, with a robust reserve coverage of 12.4%. Management notes that cumulative charge-offs plus the current reserve translate to a total expected loss rate of about 20% against the March 2023 general office loan balance. Furthermore, there has been "almost no migration" of office properties into the workout group in the last year, indicating that problematic assets are well-identified and progressing through restructuring.

In the retail portfolio, credit quality remains strong. The portfolio is 75% secured, with Home Equity Line of Credit (HELOC) loans boasting high FICO scores (mid-700s) and low Combined Loan-to-Value (CLTV) ratios (mid-60s). For the overall home equity book, 99% is below 80% CLTV, and for the mortgage book, the average CLTV is 51%. This significantly limits loss content unless there is a substantial housing market correction. The student loan book is also well-protected, with 98% co-signed by parents for in-school loans and 40% of refinancing loans held by individuals with advanced degrees, making them less sensitive to unemployment spikes. Management believes that "peak credit losses are behind us... for this cycle," and nonaccrual loans likely peaked in Q3 2024.

Capital Allocation & Shareholder Returns

Citizens Financial Group maintains a robust capital position, reflecting its long-standing commitment to a "fortress balance sheet." As of September 30, 2025, CFG's Common Equity Tier 1 (CET1) capital ratio stood at 10.70%, with Citizens Bank, N.A. (CBNA) at 12.40%. While CFG's CET1 ratio saw a slight decrease from December 31, 2024, due to dividends, share repurchases, and a $3.20 billion increase in Risk-Weighted Assets (RWA) from higher commercial and industrial loans, this was partially offset by net income. The company has opted out of including Accumulated Other Comprehensive Income (AOCI) components in regulatory capital, and on a non-GAAP basis including AOCI impact, its CET1 ratio was 9.40%.

The company actively manages its capital to deliver shareholder value. During the nine months ended September 30, 2025, CFG repurchased $475 million of its common stock. This commitment to returning capital was further underscored by the Board's decision on June 13, 2025, to increase the common share repurchase program capacity to $1.50 billion. Management views its stock as "cheap" relative to its intrinsic value, making share repurchases an attractive means to offset any potential impact from slower loan growth.

In addition to buybacks, Citizens demonstrated confidence in its outlook by declaring a quarterly common stock dividend of $0.46 per share on October 15, 2025, representing a 9.50% increase from the prior quarter. This reflects a commitment to regular dividend increases.

The Parent Company also strategically managed its funding, issuing $750 million of senior notes and $400 million of Series I Preferred Stock, with proceeds from the latter used to redeem Series F Preferred Stock. This proactive capital management ensures flexibility and efficiency in its funding structure.

Outlook & Growth Trajectory

Citizens Financial Group is poised for continued attractive earnings growth, driven by its strategic initiatives and favorable financial trends. For the fourth quarter of 2025, the company anticipates net interest income to increase by approximately 2.5% to 3%, supported by a further 5 basis point improvement in net interest margin and slightly higher interest-earning assets. Noninterest income is expected to remain stable, with capital markets performance holding steady. Expenses are projected to be stable to slightly up, enabling sequential positive operating leverage for the third consecutive quarter and for the full year. Credit trends are expected to remain favorable, with net charge-offs in the low 40s basis points, and the CET1 ratio is projected to remain stable at 10.7%, including approximately $125 million in share repurchases.

Looking out to the medium term, Citizens has a clear path to achieving its 16% to 18% ROTCE target by 2027. This ambitious goal is underpinned by a projected Net Interest Margin (NIM) expansion to a range of 3.25% to 3.50% by 2027. The NIM progression is expected to reach 3.05% to 3.10% in Q4 2025, and 3.15% to 3.30% in Q4 2026. This expansion is primarily driven by "time-based benefits" from non-core portfolio runoff, reduced drag from terminated swaps, and fixed-rate asset repricing, which are largely independent of interest rate movements. Management notes that these non-rate dependent tailwinds alone are expected to generate 300 to 400 basis points of ROTCE through 2027.

Strategic initiatives, particularly the Private Bank, are critical to this growth. The Private Bank is expected to double its contribution to the bottom line within the next three years, maintaining a Return on Equity (ROE) in the 20% to 25% range. The "Reimagining the Bank" initiative, with its target of over $400 million in run-rate benefits by 2028, is expected to add an additional 200 to 300 basis points to ROTCE, driving meaningful revenue growth and further improving the efficiency ratio.

For the full year 2025, CFG projects overall spot loan growth in the low-single-digits, accelerating to mid-single-digits excluding the Non-Core portfolio. Non-interest income is expected to grow by 8% to 10%, led by capital markets and wealth management. Expenses are projected to increase by approximately 4%, reflecting strategic investments in growth initiatives, but this is expected to yield attractive positive operating leverage of around 150 basis points. Credit costs are anticipated to improve year-on-year, with net charge-offs trending down to $650 million to $700 million (high 40s basis points) and further improving to the low to mid-30s basis points by 2027, reflecting an improved portfolio mix.

Risks & Mitigants

While Citizens Financial Group demonstrates strong momentum, it operates within a dynamic environment subject to several risks. Macroeconomic and geopolitical uncertainties, including inflationary pressures, potential tariffs, and global conflicts, could adversely affect the general economy, consumer confidence, and spending habits. The company's ACL economic forecast already factors in a "shallow two quarter contraction" with peak unemployment of approximately 5.20% and a real GDP decline of 0.50%, with more severe scenarios applied to the CRE general office portfolio.

Changes in interest rates pose a market risk, although CFG's balance sheet is "slightly asset sensitive" and management has been "layering in hedges to protect the kind of downside if the Fed cuts rates more aggressively." Regulatory developments, such as the ongoing litigation around the SEC's climate disclosure rule and potential changes to Basel III capital frameworks, could impact capital requirements and compliance costs. Operational risks, including human error, third-party failures, and cybersecurity threats, are continuously managed through a comprehensive Cybersecurity Program (CSP) and internal controls. Litigation and regulatory investigations also present potential liabilities and business restrictions.

Citizens mitigates these risks through proactive management and a diversified strategy. Its strong capital and liquidity positions provide a buffer against unexpected shocks. The disciplined runoff of the Non-Core portfolio and the strategic shift towards higher-quality, relationship-led lending in the Private Bank and core retail segments reduce overall credit risk. The "Reimagining the Bank" initiative is designed to enhance operational resilience and efficiency, while the diversified fee income streams from capital markets, wealth, and other services provide stability against market volatility.

Conclusion

Citizens Financial Group is in the midst of a compelling transformation, evolving into a more agile, efficient, and strategically focused regional banking powerhouse. The company's investment thesis is firmly rooted in its ability to deliver sustained organic growth and significant ROTCE expansion, driven by the successful execution of its Private Bank initiative, disciplined balance sheet optimization, and a forward-looking commitment to technological reinvention. The strong financial performance in Q3 2025, marked by expanding NIM, robust fee income, and improving credit quality, provides a solid foundation for its ambitious medium-term targets.

The "Reimagining the Bank" initiative, leveraging advanced AI and data analytics, is a critical differentiator, promising substantial operational efficiencies and enhanced customer experiences that will fuel future profitability. While macroeconomic and regulatory uncertainties persist, CFG's proactive risk management, conservative capital allocation, and diversified business model provide resilience. With a clear roadmap for NIM expansion, a commitment to shareholder returns through buybacks and dividends, and a strategic focus on high-growth, high-quality segments, Citizens Financial Group is well-positioned to unlock significant value for investors, solidifying its standing as a premier regional bank in a competitive and evolving financial landscape.