Citizens' private bank turns profit for the first time

Alex Kent/Bloomberg

Citizens Financial Group is starting to see the payoff from major investments in its private bank and its wealth business.

The company's private banking unit hit profitability during the fourth quarter, just over a year after it launched. Confidence in the division's performance encouraged the Providence, Rhode Island-based company to put more money into building its teams and capabilities at the end of last year, executives said Friday.

Going into 2025, the bank will continue to invest in growing that business. Citizens announced that it will add another wealth team in South Florida, along with several more teams in California. Although the private bank is one of the main drivers of Citizens' expense growth, the unit is expected to be at least 5% accretive to this year's bottom line, executives said.

Citizens launched the private bank in 2023 — in what CEO Bruce Van Saun described in an interview Friday as "a startup investment" — aiming to take advantage of market disruption from the bank failures that spring. But the private bank and wealth business isn't an expense story for Citizens, because now it's earning enough revenue to provide a return on the investment, Van Saun said.

"It's not like I'm asking anybody to wait for delayed gratification," he said. "We're saying this is a growth story. And we'll keep feeding in the expenses as long as we see the revenues coming in as we expect."

Citizens is expecting its total expenses to increase by 4% in 2025, to $5.3 billion. Investments in its private bank and wealth business are expected to make up 1.4% of total expenses.

Van Saun said that private banking teams are initially "all expenses," until they begin to transition in customers, who then use wealth products as well. Since mid-2023, the bank has brought on more than 250 private banking employees, largely from the failed First Republic Bank, Van Saun said.

Citizens acted on the progress by upping some of its expectations for the division's performance in 2025, projecting to grow deposits by $5 billion instead of $4 billion, after ending 2024 with $7 billion. Assets under management at the private bank are expected to more than double in 2025, from $4.7 billion to $11 billion, up from a previous estimate of $10 billion.

However, the bank also lowered its prediction for loan growth in its private bank by $2 billion. Across the industry, lukewarm loan growth is putting pressure on net interest income. Citizens' guidance calls for 2025 private bank loans of $7 billion, after the unit ended 2024 with $3.1 billion of loans.

Van Saun told American Banker that Citizens' private banking and wealth strategy has "reverse" priorities from First Republic. The failed San Francisco-based bank had a reputation for leading with credit, then bringing in clients' deposits and operating accounts. Citizens is taking the opposite approach, Van Saun said.

He added that the $218 billion-asset company has the bandwidth to invest more in the wealth and private banking operations, in part because of assuredness about its ability to generate revenue. In the fourth quarter, the company's net interest margin ticked up by 10 basis points due to fixed-rate asset repricing and easing deposit costs.

The bank reeled in net income of $401 million in the fourth quarter, and had earnings per share of $0.83, beating the $0.82 consensus estimate of analysts, per S&P. Citizens' stock was trading up 1.54% on Friday afternoon, at $47.52.

Keith Horowitz, an analyst at Citigroup, said in a Friday note to clients that Citizens has "the highest upside" of all the regional banks he covers, due partly to its discounted valuation compared with peers. He also pointed to what he called Citizens' strong outlook at the end of this year and heading into 2026, thanks to robust net interest margin expectations.

In 2025, fees from capital markets and wealth businesses should help boost noninterest income by 8% to 10%, Citizens said.

Piper Sandler analyst Scott Siefers wrote Friday that the bank's "multi-year profitability improvement journey remains intact."

Strategic planning

Citizens, a public company for 10 years, looks ahead to the future

After the bank's 2014 spinoff from Royal Bank of Scotland, its executives worked to shore up weaknesses. Now they're concentrating on how to close the gap with regional banking peers.

By Allissa Kline

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Van Saun told American Banker in a September interview that the bank is still "a work in progress."

"It will never be done," he said at the time. "You'll always be heading out to the next journey, but I think we're getting closer to a level of performance that is reflective of the transformation that's taking place here."

Beyond the private bank and the wealth business, the bank views the continued optimization of its deposit network and the positioning of its commercial bank to nab healthy business as key to its strategy.

Citizens has been working to reduce its office commercial real estate exposure, which has caused credit problems both for the bank and across the industry. Van Saun said Friday that issues from that portfolio should start to drop off in 2026.

"There are just still a lot of credits that we're working through, and it takes time," he said, but there are also bright points as the company charges off and restructures loans. "We haven't really seen things that surprise us … and the new stuff that was performing is not slipping."