Citizens Financial Group Inc ($CFG) Q3 2025 Earnings Call

Good morning everyone and welcome to the Citizens Financial Group third quarter 2025 earnings conference call. My name is Denise and I'll be your operator today. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded. Now, I'll turn the call over to Kristen Silverberg, head of investor relations. Kristen, you may begin.

Thank you, Denise. Good morning everyone and thank you for joining us. First this morning, our chairman and CEO Bruce Van Saun and interim CFO Chris Emerson will provide an overview of our third quarter results. Brendan Coughlin, president and Don McCree, chair of commercial banking are also here to provide additional color. We will be referencing our third 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. And with that, I will hand over to Bruce.

Thanks Bruce. Good morning, everyone. As Bruce mentioned, we delivered a strong revenue performance with disciplined expense management in the quarter, driving both sequential and year-over-year positive operating leverage of about three and 5% respectively. We saw good growth in deposits with the private bank hitting 12.5 billion in deposits for the third quarter, up $3.8 billion. Lending continued to pick up during the quarter with growth led by increasing sponsor activity in commercial and the private bank. Given our strong outlook, the board of directors declared a quarterly dividend of 46 cents, which is a 4 cent or 9.5% increase. Referencing slides five and six, we delivered EPS of $1.15 for the third quarter, an increase of 13 cents or 14% over the second quarter. PPNR was up 9% sequentially and 20% year-over-year. Capital markets delivered a record third quarter and our best performance since the all-time high fourth quarter of 2021. Performance was strong across all categories, demonstrating the power of our capabilities as market activity picks up. Net interest margin continues to steadily expand, up five basis points to 3% and average loan volume was up 1%. Which combined delivered 3.5% NII growth. Expenses were well-managed and we had 3% positive operating leverage. Credit trends continued to be favorable and net charge-offs were lower. As expected, we continued to maintain robust capital, strong liquidity levels, and a healthy credit reserve. We ended the quarter with our CET1 ratio at 10.7% while executing 75 million in stock buybacks during the quarter. And importantly, we are executing well against our key strategic initiatives with very strong momentum in our private bank and private wealth buildout. The private bank continues to steadily grow its earnings contribution, adding 8 cents to EPS this quarter, up from 6 cents in the prior quarter. With this, the private bank hit an important milestone this quarter, achieving cumulative break-even with the EPS contribution since the launch in 2023, completely covering our investments and then some in about two years. Next, I'll talk through the third quarter results in more detail, starting with net interest income on slide seven. Net interest income increased 3.5% linked quarter driven by continued expansion of our net interest margin and a 1% increase in average interest earning assets. The margin expansion of five basis points was driven by the time-based benefits of non-core runoff and reduced impact from terminated swaps as well as fixed rate asset repricing. We continued to do a good job optimizing deposits in a competitive environment. Interest-bearing deposit costs were stable while total deposit costs were down slightly. Our cumulative interest-bearing deposit beta was 53% through the third quarter. Moving to slide eight, fees are up 5% linked quarter and up 18% year-over-year. As I mentioned earlier, capital markets delivered a record third quarter and our second best ever quarterly performance. An increase in market activity drove strong M&A results even before including the deals that were delayed from the prior quarter. We saw a meaningful pickup in debt underwriting primarily driven by refinance activity and we delivered a solid performance across loan syndication fees and equity underwriting. We continued to perform well in the league tables ranking fourth for the last 12 months on deal volume for middle market sponsor loan syndications and our deal pipelines across M&A, debt and equity capital markets remain strong. Our wealth business delivered a record quarter with higher advisory fees from continued positive momentum in fee-based AUM growth given strong inflows from the conversion of private wealth liftouts as well as market appreciation. As expected, mortgage and other income came down from elevated levels in the prior quarter. On slide nine, expenses are up 1% reflecting continued investment in the buildout of private bank and private wealth and strong capital markets performance. Disciplined expense management and strong revenues resulted in approximately 170 basis points of improvements in our efficiency ratio to 63%. Our top 10 program is progressing well and is on target to deliver a hundred million dollar pre-tax run rate benefit by the end of this year. I'll provide an update on our reimagine the bank initiative in just a few minutes. On slide 10, period-end loans were up 1%. This includes non-core portfolio runoff of roughly 600 million in the quarter and excluding non-core loans were up approximately 2% on a spot basis. The private bank delivered a solid loan growth again this quarter with period end loans up about a billion dollars to 5.9 billion reflecting a pickup in commercial line utilization and growth in retail mortgage. Commercial loans were up slightly on a spot basis given increased line utilization tied to sponsor activity. We continued to reduce CRA balances which were down about 3% this quarter and 6% year-to-date. And core retail loans grew by about a billion driven by home equity and mortgage. Next on slides 11 and 12, we continue to do a good job on deposits with non-interest bearing balances increasing by about 1.5 billion or 4% maintaining a steady mix at 22% of the book as our overall spot deposits increased approximately 5 billion to 180 billion. Average deposits were up 1% driven by increases in the private bank and commercial with spot up 3% including some larger transactional flows towards the end of the quarter. We continue to focus on optimizing our deposit funding costs with a further reduction of higher cost treasury broker deposits this quarter and a decline in retail CD rates. Our interest bearing deposit costs are stable linked quarter translating to a 53% cumulative down beta. And importantly, stable retail deposits are 66% of our total deposits, which compares to a peer average of about 56%. Moving to credit on slide 13, net charge offs of 46 basis points are down from 48 basis points in the prior quarter, driven primarily by a decrease in CNI. Credit trends continue to trend favorably with non-accrual loans down slightly linked quarter driven by CNI and CRA with criticized balances also declining. Turning to the allowance for credit losses on slide 14. The allowance was down slightly to 1.56% this quarter as the portfolio mix continues to improve due to non-core runoff, the reduction in the CRA portfolio and lower loss content frontbook originations across CNI and retail real estate secured. The economic forecast supporting the allowance is relatively stable to the prior quarter. The general office balance of 2.5 billion continued to decline modestly in the third quarter driven by paydowns and charge offs. This is down by 1.6 billion since March of 2023, roughly 40%. The reserve for the general office portfolio is $314 million, which represents a robust 12.4% coverage. Moving to slide 15, we maintain excellent balance sheet strength. Our CET1 ratio increased to 10.7%. And adjusting for the AOCI opt-out removal, our CET1 ratio is 9.4%. We returned a total of $259 million to shareholders in the third quarter with $184 million in common dividends and $75 million of share repurchases. Moving to slide 16 and 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. The private bank continued to make excellent progress, as you can see on slides 18 and 19. The private bank delivered its strongest quarter of deposit growth so far with end of period deposits up 3.8 billion to 12.5 billion and average deposits up 2.2 billion to 10.7 billion. The overall deposit mix continues to be very attractive with about 34% in non-interest bearing at the end of the quarter. We also delivered strong loan growth this quarter, adding roughly $1 billion of loans to end the quarter at 5.9 billion. This reflects growth in subscription finance as line utilization rose with increased client transaction activity as well as good growth in mortgage. So far, we've added eight wealth teams to our platform with more in the pipeline. We ended the quarter with 7.66 billion in AUM up 1.1 billion linked quarter reflecting the continued strong conversion rates of the wealth liftouts. And with year-to-date earnings of 18 cents we are tracking to approximately 7% earnings contribution which is above our target of 5% plus accretion to Citizens bottom line in 2025. We continue to remain focused on sustaining strong growth in the private bank while maintaining a high level of profitability with ROE in the 20 to 25% range in 2025 and over the medium term. Moving to slide 20. Our reimagine the bank initiative continues to take shape. We feel very good about how we are currently positioned. However, the pace of change is accelerating and competition is fierce. So, we are taking the opportunity to think boldly about what will be needed to take the bank to the next level. We have a team of executives from across the bank working on cultivating technology and AI enabled ideas that will empower our colleagues to run the bank better. And we are looking at all our key customer touch points to simplify and improve the customer experience. Aside from technology, we're looking at areas like reducing the number of vendors we use and rationalizing how they serve us across the bank. We are also looking at how we use our corporate facilities and how best to optimize our branch network to build our market share in key markets. We will have more details on the contours of the program for you on our year-end earnings call, but suffice to say, we will be running the program with our usual financial discipline with an eye toward minimizing the impact of one-time costs and capital investments in 26 by executing initiatives with faster paybacks. The program will drive positive net benefits in 2027 that we expect will accelerate into 2028. With this program, we aspire to deliver fully phased in run rate benefits greater than top six, which was in excess of $400 million. On slide 21, we provide our guide for the fourth quarter, which contemplates two 25 basis point rate cuts, one in October and another in December. We expect net interest income to be up approximately 2.5 to 3% driven by an improvement in net interest margin of approximately five basis points and interest earning assets up slightly maintaining a fairly consistent spot LDR to the third quarter. We expect non-interest income to be stable with capital markets holding steady to the third quarter and some puts and takes across other categories. We are projecting expenses to be stable to up slightly and we expect to deliver sequential positive operating leverage for the third quarter in a row and for the full year. Credit is expected to continue to trend favorably with charge offs in the low 40s basis points. And we should end the fourth quarter with a CET1 ratio stable at 10.7% including share repurchases of roughly $125 million which depending on the amount of loan growth could be revised. The fourth quarter tax rate should be approximately 22.5%. Moving to slide 22, looking out to the medium-term, we see a clear path to achieving our 16 to 18% ROI target. Expanding our net interest margin is an important driver along with the impact of the successful execution of our strategic initiatives and improving credit performance. To wrap up, our strong third quarter results demonstrate the quality and potential of our fee businesses as well as the consistent improvement in our net interest margin. Coupled with our continued expense discipline, we achieved positive operating leverage for the second quarter in a row. Credit trends continue to improve and with our strong reserves and capital, we are in an excellent position to continue navigating a dynamic environment while supporting our clients and continuing to progress our strategic initiatives. And with that, I'll hand it back over to Bruce.

Thank you. We will now begin a question and answer session. If you would like to ask a question, please press star one. To withdraw your question, press star two. Our first question today comes from Scott Siefers with Piper Sandler. Your line is open.

Morning everyone. Thanks for taking the question. Maybe Chris, I was hoping you could spend just a moment discussing the expected margin trajectory sort of both near-term and then toward the 325 to 350 medium-term target. I know the fourth quarter margin should come in around 305 which is up but sort of toward the lower end of the range you all had discussed previously. So maybe just thoughts on how things are trending versus your expectations and then sort of the puts and takes as we go out beyond the fourth quarter in your mind.

Yeah, thank you for the question, Scott. As you mentioned, we're forecasting that 305 into the fourth quarter and as you know that's on the back of a lot of the time-based activity, the non-core runoff, the terminated swap benefit, fixed asset repricing and although we're slightly asset sensitive, we believe that positives on active swaps that are mixed will overcome the asset sensitivity and allow us to hit 305 into the fourth quarter. And as we project out across the medium term to our 325 to 350 range we really look at that in a couple of buckets. We've got our time-based benefits which is the majority of everything that you're going to see there. As well as the front book back book which is adding a couple of basis points each quarter to round it out and then the net of our mix pricing should take us the rest of the way into that range.

Perfect. That's good color and thank you. And then Bruce, maybe it is sort of a broader top level question. The ground seems to be shifting a little in the large regional space. I think since last quarter where it looks like we're going to create a new category 4 name with one merger and then move another category 4 bank up to category 3 eventually. Any updated thoughts on the role M&A might play in the Citizens story over the next couple years or is it still that you've got just plenty of organic runway that you'd rather sort of maintain that organic momentum?

Thank you. Your next question comes from Dave Rochester with Canaccord Genuity. Your line is open.

Hey, good morning guys. Nice quarter. Just real quick on the private bank outlook. You reiterated the levels you talked about before in terms of loan deposit targets, AUM. You're already there on deposits. So it'd be great to just hear your outlook there over the next quarter, the next year. And then in terms of AUM, it looks like there may be a little bit of a gap. You can just talk to your confidence in hitting that target by the end of the year. That'd be great. Thanks.

Yeah, thanks Bruce. Maybe start with a point or two on the medium-term outlook. And then you add to Bruce's comments about Q4. But we feel really confident over the next year or two that this momentum we're seeing will continue. And just kind of give you a few points here, but the original team that we brought over back in 2023, we'd estimate maybe they've got 50 to 60% of their book of business size of what they had prior to First Republic's failure. Now, we don't expect that to get back to 100% given the market we're operating in and higher rates and so on and so forth, but the capacity to continue to grow is there. Then you supplement that with the management actions we've taken since we brought that team on board. Bruce mentioned and Chris did too. We started with about 150 people. We're up to 500 people. We're slowly and surely adding scale and capacity, expanding geographies. We've added new capabilities in family office. We've added new products and partner loan program so on and so forth. And we're doubling the number of PBOs that we have between now and the end of next year. And you can see in our deck the PBOs have over 300 million, which is incredibly large for such a short time period to open a retail branch. So that should give us fuel in the tank. We also have done a really nice job connecting the franchise particularly as of late with One Citizens and so we're starting to see a lot of cross-pollination of the private bank just being in us protecting it incubating it to grow. Now it's starting to become of scale and they're working more effectively with the commercial bank with our investment bankers with our business banking team with the retail bank. So the wealth team we're seeing a lot of cross-pollination that it's not just about growing getting their clients back. It's now about cross-selling into the existing Citizens franchise in private banking. So, there's a lot of tailwinds here that we see in the future that should give you broad confidence on us sustaining this performance. And not a lot to add to Bruce's comments about Q4. I would just add on the AUM front that if a team pushes out into next year, it's got a negligible net income impact in the short term. It's basically break even in the first year. And so really it's just the headline metric and if we end up missing by a little bit and it pushes to Q1, it's not going to take us off our financial profile or outlook at all and we've got a very robust pipeline of talent that has high degrees of interest in joining our wealth platform. So anyway, we still feel good. We got a real good shot to hit our metrics and that's what I would add.

Well, it all sounded good guys. I really appreciate that. Maybe just one last quick one on slide 22. I noticed you dropped your Fed funds range here by 25 bips, but you still kept the margin range intact at 325 to 350. I know it seems like a small change, but the sensitivity of that 325 to 350 is something investors have been asking about quite a bit. So I thought this was a positive that you reduce the Fed funds but you kept the margin range. So, what kept the range the same and then, if you can give any color on the sensitivity of that range to Fed funds changes, that would be great. Thanks.

Yeah, sure. And so, over time, we've been layering in hedges to protect the kind of downside if the Fed cuts rates more aggressively. And so that's been a focal point. But again, we don't want to be wrong. We don't want to just concern ourselves with kind of the Fed cutting more aggressively because we still have a lot of inflation and we could stay sticky high. And so we haven't, we've kept kind of a balanced view as to let's put those hedges on opportunistically when we see little spikes. And so over time, if you look back over the six quarters, I think we've increasingly solidified our view that we can sustain that cone at 325 to 350 kind of at lower Fed funds rates down to 275 even I'd like to say down to 2 and a half given the direction of travel potentially with Feds. And so we're working on that. But anyway, it's good to spot that because to bring that down to 275 to 375 I think is progress in how we're trying to position ourselves from an interest rate risk management standpoint.

Great. Appreciate it. Thanks guys.

Thank you. And your next question comes from Ibrahim Poonawala. Your line is open.

Hey, good morning. Just as a follow up very quick on the sensitivity of the Fed funds to the margin. Bruce, you talked about the 10-year having come down has taken out some wind from the back book repricing. Is there a level that you're watching on the 10-year where it really begins to sort of hurt that 325 medium-term sort of margin outlook that we should be aware of?

That's helpful. And I guess just another one looking at slide 20 and I know we'll get a bigger update in January, but as we think about the one-time costs tied to this reimagining the bank and rearchitecting it, any sense of just what cost save opportunities are there that could help fund that investment as all of us think about what expense growth could look like next year? Thanks.

Sure. And so if you look back historically in terms of what were those one-time costs they tended to be either severance related or consulting to implement some of the ideas or some frictional cost in terms of vendor tear-ups or write-off of technology platforms. I wouldn't expect the kind of one-timers to vary from that bucket. And the question is like what's the pacing on how we're incurring those costs and then can we make sure we have a list of fast action actionable

Yeah. So if you bucket our ideas into two categories, I'd sort of broadly describe them as tech and AI enabled for 50% or so and the other 50% would be less so around tech and AI enabled and maybe you could categorize them as more traditional and what we would have seen in a project top in the past, but with a longer term outlook, a more strategic application of those categories. So vendor simplification, post-COVID reevaluating our workforce on where we want it to be over the next five years and cleaning up our corporate facilities where we can take out some excess seating capacity and strategically restructure to build our culture and have people co-located to move faster, more innovative ways. So there's things like that. The branch network as an example, we think it's time to position it for long-term net household growth and deposit growth. We have made strong and steady progress, but there's more work to do. Now that we can have better visibility into what post-COVID world will look like for retail banking, we still have a number of branches that are underperforming and can help fund the journey of repositioning the network and densifying in other markets to position for growth. All of those things we have analyzed and we have enough quick wins there to drop to the bottom line that it can self-fund whatever costs come along with it. When you turn your attention to the tech and AI enabled initiatives, it will require technology investment which will be a little bit higher probably than some of our other top programs just given the amount of the runway of three years multiplied by introducing new things like tech, like AI, like data and analytics into the ecosystem. So because we would capitalize that over time and get the benefits over time, those costs are, you could consider them one time as an investment, but the way you would account for them, they would be linked to the benefits over the three-year window. So it allows us to smooth it out and make sure that there's a diminishing J curve on the sweet portfolio of initiatives that we're going after and we feel pretty good that we can accomplish that. And certainly our principal objective is to deliver our 16 to 18% ROTCE target over the medium term and this should be accretive to that, not take us in the wrong direction. And so we've engineered the whole program to do just that.

That's great color. Thank you.

Thank you. And your next question comes from Anan Gossale. Your line is open with Morgan Stanley.

Hi, good morning. I wanted to check in on the capital market side. You noted it's second best quarter ever, the best third quarter. I understand some deals were pushed to 3Q from 2Q, but can you talk about the pipeline that you're seeing today, what the outlook looks like going into 4Q and going into next year?

I don't really know what I can add to that. It was pretty complete. I think the thing is I look back at the third quarter and as I look into the fourth quarter into 26, it's the diversity of the flows. So as Bruce said we're seeing it across M&A pipelines, bond pipelines, IPO pipelines, equity follow-ons and syndicated finance. The one thing that we haven't really seen which feels like it's beginning to get going right now is private equity leaning in. I mean, you've seen some big private equity mega deals be announced, but the core middle market private equity, the president and I were at one of the houses yesterday and they said finally we're starting to see the 2021 vintages begin to get refinanced. So, that is not in the pipelines in a significant way. And we think that that could be quite a big opportunity for us as we go forward. But I would just say that as I look back on second quarter, third quarter, into fourth quarter, into 26, we've just got a real diversified flow of business. Remember, we are a middle market investment bank and we basically make a lot of our money and a lot of our transactional volumes with our core clientele and with our core private equity relationships. And I don't really see it slowing down anytime in the future. And as Bruce said, I think the backdrop is better than I've seen it in three or four years just in terms of Washington sentiment, liquidity in the marketplaces, interest rates. There's a lot of positives out there that should continue to propel the capital markets.

That's very helpful. And then maybe if I can pivot over to credit. There's a lot of focus on the risks around private credit this quarter. You have a slide at the back where you show that the exposure is about 3.3 billion. Can you give us some more color on what that exposure looks like and where you see potential risks and what you're broadly seeing there?

I would just add that if you look at big categories like subscription line financing or securitizations or asset-based structures, their loss history is pretty pristine and they're all investment grade across those three categories. So, we're very diligent on who we're kind of lending money to and we're very diligent around the structures that we feel protect us. So we have a very positive view on credit in those areas.

Yeah. Great. Great. Thank you.

Okay. Thank you. Your next question comes from Chris McGrati with KBW. Your line is open.

Oh, great. Morning. Bruce, the 16 to 18% ROTCE over time, I'm trying to connect the reimagine the bank benefits to the range that you've previously given. Does this, do the benefits from this new plan, which we'll get in January, does that give you a bias to a certain part of the range or perhaps a sooner realization? I'm just trying to connect the two.

Okay. So it's additive. I guess you're not announcing this plan because you're not on track to get it. This gives you greater confidence that you get there, right? And then once you get those benefits then the question is how much will flow straight through versus do you want to reinvest and accelerate the growth rate in private bank and have the flywheel go even faster which creates positive operating leverage and more PPNR growth and so you have all those decisions but I think importantly if you're improving your cost structure and your cost base and your customer experience that puts you in a very strong position to have optionality of the things you want to do. So, that's how I would think about it, Chris.

Yeah. I think the number one is to facilitate the loan growth as it comes back which we think will continue. That's, we want to grow the business and grow the number of customers that are customers of the bank. And so you saw also we announced a dividend increase. We want to now get back on a regular cycle of dividend increases. I don't at this point see meaningful uses of capital on bolt-ons. There's, we can look for other M&A boutiques in industry verticals that we have if we don't think we have full coverage. We can look at doing some interesting tech oriented acquisitions in the payment space, again which won't use a huge amount of capital. So there's a good likelihood that we'll continue to be repurchasing our share with the excess capital we're generating and as I like to say I still think the stock is cheap. If we continue to execute, we're buyers here at the stock price.

Okay, great. Thank you so much.

Thank you. Your next question comes from John Pankari with Evercore ISI. Your line is open.

Morning. Hi. Just on the expense front, I know you cited the ongoing investment in the private bank and teams as well as in the parts of the commercial bank but also the reimagining initiative. Given all of that and given where you're running right now in terms of your expense growth, how do you think about the pace of expense growth that's reasonable as we look at 2026? And if you're unable to give us too much around that, is there a way we could think about the degree of positive operating leverage that's attainable as we look at it? Because certainly it's a pretty wide range in terms of some of the projections out there and it could be pretty meaningful as you look at the pace of your revenue growth at this point.

Okay, thanks Bruce. Appreciate that color. It's helpful. And then regarding the margin, I know earlier you cited a bit tighter commercial spreads that had impacted the margin performance and your outlook a bit here. Can you maybe elaborate a little bit where are you seeing that tightening and what areas is it, what competitors are you seeing that is driving that pressure? Is it more temporary or do you think there's a degree of permanence to this that's going to require a reaction out of you?

No, I think what if you look at the broad markets at every credit index, we're tightening across the board. And the good news is that that's reflective of lots of liquidity in the marketplace, but it's putting a little bit of pressure on refinancing. And as we think about returns in terms of the customers that we're banking, we of course focus on NIM and return on credit allocation, but we look at overall returns on relationships. And you add in what Brendan's done on the private bank, it's just another way that we can kind of interact with the clients that we're banking. So the real strategy that we've tried to build over the last 10 years has been one of broad-based financial services applications where we can make a combination of fee income and NII on the commercial side of the equation. And I think that's proven to be quite effective. If you look at our overall returns on our client relationships, they're going up quite a bit. So if we're giving a little bit back on spread here and there, we're making it up on fee income and you can see that in some of the results that we've been doing. But I don't see that equation changing a lot over the next year or two. There's a lot of liquidity and I think spreads are going to remain tight and we just got to pick our spots and make sure that we generate broad returns across the relationships that we're trying to bank.

Got it. Thanks so much, Don. Very, very helpful. Thanks.

Thank you. The next question comes from Matt O'Connor with Deutsche Bank. Your line is open.

Good morning. This is Nate Stein on behalf of Matt O'Connor. Wanted to ask a quick follow-up on the cost base. Costs were really right in line with the guidance range this quarter despite a really solid fee print. Were there any specific flexes you engaged during the quarter to keep costs relatively well managed?

Thank you. And then just following up on the reimagine the bank program, I totally appreciate we're going to get more financial details in January, but I guess just wanted to ask on your confidence in the 400 million plus total run rate benefit over time.

Thank you.

Okay. Thank you. Your next question comes from Peter Winter with DA Davidson. Your line is open.

Thanks. Good morning. So nice to see average loan growth turn positive this quarter. I was just wondering could you provide some additional color on the drivers to loan growth going forward and maybe how loan demand has changed over the last 90 days.

Got it. That's helpful. And then just one follow-up, credit continues to trend favorably, but economic growth is slowing. Job growth has been weakening. Are you seeing any signs of credit weakness in either the consumer or within the commercial borrowing base?

Yeah, I'll just start with the mix of the portfolio and our NCO rate. You should expect it to continue to go down in the consumer business in part with the non-core running down and auto has a higher loss rate than the rest of the consumer portfolio. Consumer portfolio is in the high 40s at the moment in terms of basis points per loss rate. Auto historically has been in the 70 to 80 basis point range. So as that dwindles down the denominator shrinks you should see losses come down overall inside of each category. NCOs are very stable, delinquencies are very stable. I would broadly just characterize it as fully normalized from COVID. In the card book as an example that many of our peers saw too, the 21 and 22 vintages had a little bit of a short-term blip with FICO inflation coming off of the stimulus impacts with COVID. That has generally run its course. You're seeing delinquency rates actually come down in our card book right now. It's a smaller part of the portfolio, so it doesn't show up in mass in terms of our total net delinquency rates or charge-off rates. But there's nothing I'm looking at right now that gives me any pause. When I look at the health of the actual US consumer, it's also very, very stable. You have to really de-lever it to see stress and it's on the lower end of the market in the bottom two to three deciles of the United States where you're seeing both deposit stress, you're seeing some increased overdraft occurrences and where they have credit, you're seeing modest credit stress. We just don't typically lend to those customers. So it's not in our portfolio. So there is some tail risk but that doesn't exist in our bank at scale. So we feel really good. I don't see anything right now that would suggest even really a blip in terms of consumer credit right now for us.

Yeah. I would echo that on the commercial side. I mean other than CRE office which you know our story and we're very well reserved and we're very comfortable. We've seen almost no migration on that side of the equation in the last year, year and a half. So, we're well positioned for how we work out that book of business. We're seeing really no deterioration on the CNI side at all. And I think one of the things that's been encouraging to me is that our, you hear a lot in the press about middle market companies and the impact of tariffs and the impact of employment and things like that. But these companies have been operating ever since COVID in a very difficult environment and they're running their businesses in a really professional way and they've deleveraged, they've gotten working capital efficient and we're just seeing no deterioration on the credit side at all. So we have a lot of early indicators around watch meetings and things moving into workout and everything looks stable from the six month to 12 month out forecasting. So, we feel very good about the contours of our book overall.

That's great. Thanks very much.

Thank you. Your next question comes from Gerard Cassidy from RBC Capital Markets. Your line is open.

Good morning, Bruce. Don, just to follow up on your comments about credit. Two-part question. You answered earlier about the private credit, how you're looking at the structural degradations and there really aren't any. Are there any other points that we outsiders can look to since private credit's grown rapidly as you all know that we can keep an eye on to see if there is any potential credit deterioration coming even though we recognize it's held up well, you guys don't have any real issues with it as well.

Yeah, I would say, you see a lot of the filings that all the different credit companies provide and there's a bankruptcy here and a bankruptcy there. And what I would say in terms of the way we manage the business is we have pretty strong visibility into the underlying contours of the individual portfolios and it seems okay broadly to us so far. But I would look at the 10-Ks and the regulatory filings and the BDC is going to be different than the private credit fund is going to be different than a SPAC situations fund and you know that Gerard. I mean all of the different attachment points for each of these complexes is going to be quite different from an LTV standpoint and a valuation standpoint. So it's really hard to generalize and as Bruce said before we try to pick our counterparts very carefully. They're professional investors. A lot of them are both in the equity side and the debt side of different equations. They usually don't mix those two involvements, but they're very strong analytical complexes which we have a lot of confidence in and that's the way we pick our client base. We wouldn't go in broadly and buy private credit across the board, but that's not the business we're in. So, I would pay attention to the filings and some of them are more complete than others, but we look at them all. So, that's the only advice I'd give you, Gerard.

No, I appreciate it. Thank you. And then, possibly for you, Bruce, this administration has shown that when they say something, they follow through on it. And our treasury secretary about two months ago, Scott Bessent, said that this country's got a housing emergency. And aside from the actual structure of building more houses, reducing regulations, putting that off to a side for a moment, from the financing side, mortgage rates obviously are much higher today than they were four years ago. What do you think they could do, Bruce, to lower mortgage without moving the government bond yield curve down which I don't think they can do but that spread today between mortgage rates and government bond rates is pretty wide. It's over 200 basis points. Do you have any thoughts on what they might be able to do to try to bring that down, which would then lead to refinancing activity for you guys and mortgage originations?

Yeah, just a few points. If there's any Washington intervention, I think the challenge is in the purchase market and on the supply side of generating more affordable housing. And if you look at the US homeowner right now and then apply what's our role as a lender, 74% of the country has interest rates under 5% on their mortgage. And so you'd have to believe a whole lot to have a massive refi pickup here. With rates having a six handle on it now and the long-term rates relatively stable, you'd have to really assume a very, very different rate outlook for there to be a huge boomlet of refi activity. And so then your attention turns and our mix is 17, 18% of our business is refi right now. It's predominantly purchase volume. And so to unlock that, interest rates will help a little bit, but really it's got to be the supply side and the affordability of housing and access to new housing that would drive the solve for the issue that Washington's talking about. Bruce mentioned all the other fee categories. The other thing I would just mention is I think from a lender standpoint, we're incredibly well positioned with our HELOC business. Given that dynamic of 74% of the country has rates below 5% and if you don't believe mortgage rates will drop below that anytime soon, we've got a boomlet of HELOC activity where the country has the most equity in the history of the US built up on consumers' personal balance sheets and they can tap it. And we've been number one for three or four quarters in a row, including against all the GIBs nationally in HELOC lending, both on balance sheet growth as well as new originations. And we're really only originating in 15 states. So we've got an incredible competitive advantage there to drive loan growth and high quality, massive affluent homeowner growth with high credit, low CLTVs. So, we're looking at this very holistically in terms of where we can compete to win. And our mortgage business is well positioned. We think it's in the same size now as our peers. So even though we've re-contoured the business, we haven't given up in the off event that rates do crater, we still are positioned well to capture it in line with peers. It's just structured a little bit differently than it was for us a couple years back.

Appreciate all the color guys. Thank you.

Think we have time for one more quick question. Thank you. That does come from Ken. Your line is open.

And within Research. Your line is open.

Thank you. That does conclude today's conference call. We appreciate your participation and you may disconnect. Thank you.