Citizens Financial Group Aktie

All right. Thanks, everyone, for joining. Up next, we have Citizens Financial Group, and we're delighted to have with us today, Brendan Coughlin, President of Citizens.

Thanks for having me. Happy to be here.

Thanks so much for being here. Let's -- Brendan, let's start with the consumer bank. It's undergone quite a transition and the transformation over the last 10 years. And I think you have the stats to drive a lot of this transformation. Tell us about that journey. What did it take? And how do you feel about the overall positioning of the consumer bank today?

Well, the consumer bank is really the bedrock of Citizens Financial Group. It's transformed in its own right, but it also is an enabler for a lot of the other things that we're doing, whether it be the private bank or some of the things in the commercial organization. But within the consumer bank itself, if you rewind all the way back to when we took the bank public in 2014, it was really a bank that was made up of a whole bunch of threads and it wasn't well integrated and the profile of it was pretty subpar, high-cost deposits, low-priced loans, pretty thin margin business. So we've taken on a transformation journey over the last decade to really position it to look more like peers and then have outsized momentum in some areas than peers.

So, kind of breaking it down a little bit, I'd start with our deposit franchise that in the last up cycle in 2015, we were literally dead last in our peer group in terms of interest-bearing beta cost, total cost of funds on an absolute basis. Transforming a deposit franchise takes a long time. We think we've done that well, and that's on center stage here right now in a relatively tricky deposit environment, and we're performing exceptionally well.

So going from worst-in-class juxtaposed to now, we have been in the top quartile for 10 straight years in low-cost deposit DDA growth, basically 250 basis points on average better than peers in benchmarks that we look at. I've shared that on our earnings call, and that's been a consistent train over the last 10 years. That's really the foundation that drives a lot of our total deposit portfolio transformation.

And then on the interest-bearing side, we've gone from worst-in-class betas to in line with peers. So when you marry those 2 up, the outsized low-cost performance with our interest-bearing beta performance, you get a deposit business that now went from worst-in-class on an absolute cost basis to now top third in the U.S. So we're very proud of that. That's one marker of the transformation.

I'd say the other thing is our loan book. When we took the bank public, we leveraged our consumer lending franchise very innovatively to grow in a ZIRP environment. It was driving a lot of the early days growth of Citizens. We continue to have differentiated products. We're now pivoting that franchise to be higher returning relationship-based durable loan growth. And so you're seeing us rotate out of some lower returning low relationship assets like auto, some of the asset purchases we're doing and it's getting replaced with higher relationship things like HELOC, where we're the #1 lender in the United States and credit card to get higher returning profile.

And then lastly, I'd just say on the wealth front, a lot to be made of the Citizens Financial Group story in our Private Bank, but not to be missed is inside of our retail bank, 70% of our wealth fees come from the retail bank and our retail customers. And that has gone exceptionally well. It's a bigger part of our franchise now, and we're really pleased to see 70% of our fees coming from the retail business, which is higher margin than the private bank in terms of wealth management.

So as you think about the next 3 to 5 years, this cross-sell from the wealth side, I guess, what else are you most excited about for the consumer bank?

Well, taking a step back and looking at consumer banking post great financial crisis, post-COVID, 70% of the economics in retail banking now come from the mass affluent and higher segments in retail banking. It's really tough to make a lot of money on mass market. The good news is we're very relevant there, and we do quite well with that segment. We over skew versus our peers in mass affluent customers. So we're doubling down on that. I'd describe our strategy is oriented around that type of customer base. Of course, we serve all customers in our community front to back, but that's our target segment, and we're building a business around that.

So starting with our distribution, a continued focus on our digital capabilities and transformation. In fact, we just launched a new mobile app just last month that's gone exceptionally well. We're continuing to invest heavily in digital. Our branch channel is an area that we're making major investments to position it for a world post-COVID now that there's a lot of knowns on how consumer behavior in the U.S. is going to operate, really repositioning that for outsized market share growth long term.

And then on the balance sheet, I'd say, continued focus on differentiated low-cost deposit growth through customer household acquisition and customer experience enhancements. We feel very confident on that. And then playing the story all the way through on our lending book that we want to continue to have outsized higher risk-adjusted returns with relationship orientation. All of that should drive a stickier, more durable revenue stream for the consumer bank that should drive valuation enhancement over time for the franchise.

So when you talk about the branch network, I think part of what you've spoken about before is driving growth by building density in your current footprint versus expanding to some of the newer markets. I guess, tell us why that approach is better for Citizens? And what are the plans to densify in the New York City metro area and over what time frame?

Yes. Well, I'd start by saying if you adjust our branch count for the 2 acquisitions that we did, HSBC's U.S. franchise and Investors Bank, we would have started at the point of our IPO with about 1,400 branches. We're now down to about 1,000. And our current state is when you look at revenue generated with cost, we have about the most efficient and effective branch network in the United States with the revenue that we get in the customer side and the deposits for the cost base. And we're pleased with that. We had a lot of fat around the fringes of the franchise when we took the bank public. So we've got through that story.

Now it's about positioning for long-term differentiated market share gains and growth. To your point, I'm not particularly a fan of a bank our size going in de novo entering a new market with retail. I think it is very hard. It takes a long time. I don't particularly believe some of the metrics being shared by others in terms of earnbacks. We look at it and say our model in new markets is going to be ex retail. So private banking, commercial, business banking, you've seen us do that in California and Florida. Paybacks are much faster.

So within retail, I'd say our plan is 3-pronged, and 2 are about the branches and one is about people. Our legacy core markets, everything ex New York City and New Jersey, we have about 120 supermarket branches still. Given that we're focused on mass affluent customers, they don't really fit our model long term anymore. So we have the ability to prune those and replenish with de novo branch builds in our core markets, which allow you to leverage your fixed marketing costs, leverage your brand and really get faster returns on those new branches, but position your network for outsized growth with the target customer that we want. So there's a whole plan around that to reposition the network in our legacy footprint for long-term growth with the target customer we want.

In New York City, in New Jersey, we have -- when you add New Jersey, we call it 4% branch density, a little over 2% deposit share growth. We've grown tremendously since we did those acquisitions and got a lot of revenue synergies out of those deals but we're still undersized and under scale. So our view is that putting in over a 10-year period, organically, slowly adding onesie-twosie branches into Metro New York and Northern New Jersey can get you the right density to get outsized operating leverage long term. And again, that levers to fixed marketing expense that we're already doing. So unlike going into the Southeast where we have a whole bunch of other expenses put around it, we think we can get outsized operating leverage growth by densifying New York City and New Jersey and leveraging the assets that we already have.

And then the third pillar is really around the people. So we're looking at our specialty job families, our business bankers, our wealth managers, our mortgage loan officers and thinking about how we add staff in some of our key more affluent areas to drive deeper wallet share from mass affluent and affluent. So we're putting this whole program together. It's all organic. It's all over a 10-year window on how we want to think about this but the path really is to drive long-term outsized deposit growth over kind of market normal norms.

So you brought up de novo growth and how that's hot in new markets, and maybe I'll ask my M&A question here. What are your views on bank M&A overall and trying to inorganically grow in outside your footprint?

Well, generally, obviously, the window is open from a political and regulatory standpoint. But unique to Citizens, I look at the momentum that we have as a franchise right now whether it be the private bank growth, whether it be what we've got going, where we're finally seeing the full capabilities of the commercial bank and the scale that we've built, the momentum I just talked about in the retail bank, the Reimagine The Bank program, which I'm sure we can hit on over the conversation here. The bar is really, really high for us to make an M&A acquisition make any sense for us. And we were at 12.5% ROTCE last quarter on the way to 16% to 18%, our NIM expanding rapidly. And I see all the great things happening in the franchise and I look at what realistically we would need to do if we ended up considering an acquisition is take people off the playing field on those things to redirect them to an integration.

And it just doesn't make any sense to me right now for us to be seriously considering doing that. We're going to keep our head down. We've got an incredible amount of momentum in the franchise. The organic opportunities we have are very differentiated versus our peers. And I just don't know why we would take our eye off the ball to redirect. And then candidly, if you look at anything that you possibly could buy, I put it through the test of if they traded away tomorrow morning in the paper, would I lose any sleep? And candidly, I don't see anything that gets me so excited that we should make that trade of all the organic momentum. So suffice it to say, the management team at Citizens is completely heads down right now on our organic strategy focused on the momentum that we have and the initiatives in play.

Great. Perfect. Let's talk about the Private Bank build-out. That's been an incredibly successful strategy for Citizens. And I think that started with hiring a series of bankers from First Republic in 2023. Can you talk a little bit about how Citizens has been building out the product set and capabilities of the Private Bank? And how comfortable are you with where that is now?

Yes. I'll start with being very pleased and excited about how this is going overall. And most folks know the story well, but just a quick refresher on it is 2023, we hired 150 folks from First Republic. We took a $0.12 hit or so to EPS in 2023. And now in 2025, it was 7% of our earnings. In Q1, it was 10% of our earnings, and it's a 25% ROE business for us at the high end of our range of 20% to 25% that we had set. So we've met or exceeded most all important metrics in the build. We're now up to 650 people on the platform from the 150 we started with in 2023. So very, very pleased with the progress, $16.6 billion in deposits, $7 billion and change in loans and over $10 billion in AUM.

So it's been an incredible story for us. Most importantly for me, it's also reshaping the brand image of the company, who we are, how we're competing with high net worth, ultra-high net worth, how it's plugging into our commercial bank into the sponsor community, so on and so forth. So we're very excited how it's going. We've made a lot of investments. We're 3 years in. We've made a lot of investments, really our aspiration is to be a preeminent private bank in the United States, bringing together banking, lending and wealth management, all together in the same value proposition. We believe that the mega banks are a little too big and bureaucratic to pull that off. The smaller banks don't have the sophisticated capabilities. So we're right in the sweet spot to be able to deliver this for the customer.

We had all the capabilities, but we didn't have all the plumbing, right, to connect all of our businesses. That's what we've been up to over the last 3 years. And we've made tremendous progress. We still have a lot of work to do. We just kicked off an effort to fully technology replatform our wealth business front to back over the next 2 to 3 years. We've got a big initiative called Digital North Star to create new capabilities for the more sophisticated client, integrating wealth and banking and business banking all in the same mobile app.

Having said all that, right now, our customers are voting with their feet and with their words, and we're at a 76 Net Promoter Score in the business. So despite the work left to go, 76 by all accounts is a world-class customer experience. So we aspire for it to be in the 80s. Right now, we're almost there. And so we're pleased. So capability building is a moving target for constant needs that are changing with your clients. We'll never get to the finish line. We'll always have more work to do. But I'm very pleased that the foundation is very strong. It's working, and we're attracting top talent and top clients as a result of where we're at today and independent of what's left to be done.

And how do you think about, I guess, growing organically from here versus lifting out wealth teams from other areas?

So if you think about it, the first 150 people we brought over were all bankers. They weren't wealth managers, and they worked very closely with wealth managers. So we were lopsided in our scale when we want to bring together banking and wealth management. We had all the right bankers and needed that higher scale in wealth. We've done that. We've now got 10 wealth -- private wealth teams. It's still a little bit heavier on the banking side than the wealth side. So we still need to round out our distribution. You can continue to expect us to attract top talent. We've set an incredibly high bar, by the way, we're looking at the top 1% of wealth talent in the United States, and we're going to be incredibly disciplined that the promise of this value proposition is truly exceptional world-class service by exceptional world-class talent, and we're not going to compromise on that.

We're getting wealth people that want to be at a bank, don't just want to plant their wealth flag and do their business on their own. They've got to be bought into this integrated model. We will continue to hire talent. These wealth managers, a lot like the bankers have tremendous client followership. So typically, 90% of their clients follow from the firm that they're leaving to join us. That has happened, which is great to see. But now the flywheel is starting to go. The bankers bringing in new clients with business development. You've got the wealth managers that we're building at scale. They're connecting in our referrals between those 2 groups are up materially year-over-year. So you're starting to see the kind of the wheels turn. And importantly, it's not just about the private bank, our wealth teams that we're bringing in are also partnering with the commercial bank for the first time ever to really drive cross partnership across the piece.

So as you get that flywheel going, I think part of what you've also done is you've opened about 9 private bank offices, and there's at least, I guess, 2 more planned by the end of this year. Can you talk about the client acquisition strategy once you've added a private bank office in a given market?

Yes, sure. So we've got 9 -- to your point, 9 private banking offices open. Our distribution for private banking and wealth is concentrated in a few markets, Boston, New York, Southern Florida, Northern California, Southern California. We aspire to keep broadening out our distribution over time. To your point, 9 private banking offices going to approximately 11 by the end of the year with a medium-term aspiration to get that into the 20s. When we think about our client acquisition strategy, it's not really rocket science, but there's a very specific playbook that we have.

First of all, you have a first floor and the second floor. I mean that sort of literally but also how you think about staff and quality that you've got a retail presence on the bottom. That's a high-end retail banker doing retail banking stuff but oriented for high net worth and ultra-high net worth individuals. And on the second floor, you have the senior team, the senior lenders, the senior relationship managers, the private wealth professionals, the financial planners. So these 2 teams work together to bring service to the market. They both have tremendous client followership. I'd say that the banking team we brought over has approximately 50% of their book of business brought over from their old place. As I mentioned earlier, the wealth teams tend to have 90% conversion. That's one of the main customer acquisition vehicles is just talent and attract client followership to that talent, which when you hold that bar at the top 1% of bankers and wealth managers, you do see that as your primary acquisition funnel.

We also have marketing. We're building the brand. We're spending money in the markets. We're doing lots of client events. That has been great. And then you have this network effect that is really starting to play in now and you get client testimonials. Some of this sounds like motherhood and apple pie, but it's actually very real. And when you talk to clients, the experience that we deliver is so differentiated, truly uniquely differentiated that is it is something that they unprompted tell their friends about and say, you got to go talk to X banker, they're the best I've ever worked with. And so that is a very real thing. So the combination of best talent, first floor, second floor distribution, building the brand, ultimately leading to word of mouth with clients, that's all part of the model.

So the other part of it is the One Citizens initiative, and you've been increasingly talking about that since you launched the private bank, and that drives more synergy opportunities, particularly between the commercial bank and in the private bank. I guess where is that today? And are there some examples of success that you can share?

Yes. I realize that -- One Citizens, maybe, again, could sound like motherhood and apple pie, everybody's got to one-something, whatever your franchise is, is very real and authentic inside of the 4 walls of Citizens. And candidly, in a micro way, it is actually the business model of the private bank that -- and I'll start there, but other private banks, if you have a mortgage need or you have a business banking need, you're getting referred over to somebody else. Their model is One Citizens bring everything to the client first. We've done that inside the Private Bank, and now we're broadening it out to make sure it works across lines of business.

So the momentum that we had early days was significant and very cultural where we have assets like the JMP team out on the West Coast now firing on all cylinders. If you think of what's going on in Silicon Valley with AI and the amount of on paper net worth some of these folks have, getting our JMP team in there to think about some of these firms want to go public, how do they think about selling themselves? What's their paper net worth, marrying up with a private banker to think about their banking needs, getting -- how do you get them into a mortgage when they've got paper net worth, but not liquidity and are you there for them when they monetize it and you can get them into your financial planning and wealth management.

All that is very real. It was happening explosively at scale. And now our mindset is how do you systematize this goodwill. So we've got a whole formal program around that from building infrastructure to facilitate referrals from building compensation changes to encourage folks to have it bidirectional. So it's very real. I think we had last year, 400 or 500 major clients coming from the corporate bank into the private bank and 100 or 200 major clients that the private bank had relationships with that then got cross-sold and deepened.

So look, the examples are many, and they range from the very simple and obvious of the private bank sitting down with our middle market companies and banking their C-suite and introducing that way and having our middle market corporate banking team getting motivated and incented and score carded on the basis of bringing the full bank to the client every single day to much more sophisticated examples like I was going down the path of us actually facilitating an IPO or facilitating a capital markets transaction and having the private banking team step in and help and really sort out how we think about who's doing the credit, who's doing the deposits, how do we bring financial planning and bring the full bank to the firm.

So we still are in early innings of it, but I would tell you, inside the bank, it is definitely a cultural movement. And from a cost standpoint, think about the leverage you get there when you already have that relationship instead of having all the groups hunt in the wild for their own customers, being able to get that multiplier effect and leverage is something we're after and it's working so far.

And it sounds like you have the full product set to go to the client. Is there anything you're still looking to build?

A lot of it is actually just facilitating the connection points. Honestly, we don't really believe we have a lot of capability holes at the highest level. It's back to the way we thought about architecting the private bank and de-siloing and building the plumbing to connect all the capabilities. We now need to take it to the next level and go outside the private bank and do it across the enterprise. So if you have a relationship with the corporate bank and cash management, the private banking folks can see that, and we can think about how we want to price that and do we recognize the value that we're getting on the other side of the bank on how we bring the full bank, so you don't get into the siloism of this is my P&L or your P&L. So it's less product and more kind of building that information sharing so we can run the bank with a broader perspective.

Got it. All right. Perfect. So let's talk about Reimagine The bank. And in the past, the bank has had an annual TOP program to drive efficiencies. How is Reimagine The Bank different from those prior initiatives? And how can the bank look different over the next 3 to 5 years through Reimagine The Bank?

Yes. As you point out, it's been a hallmark for Citizens that Bruce started when we brought the bank public and we -- to have an annual efficiency and continuous improvement mindset. We called it Project Top. We had one every year since we took the bank public. Three times now in our history, we have dramatically upsized it to a more transformational program versus an annual continuous improvement program. One was the IPO itself. Second was in 2019, which was catching the digital transformation movement. And that program actually morphed quite a bit because the second we launched that we ran into COVID and had to -- it's kind of turned into an all things COVID response. So it got a little twisted. But -- and now here we are with the AI revolution and insert Reimagine The Bank as our next big upsized program.

So it's very, very different. One is that we're taking a longer-term horizon, a 3-year view versus typically our Project Top has a 2-year view and also the benefits. Our Project Top program typically generated $100 million to $150 million in benefits. We're aiming for an exit rate of $450 million in income benefits for exit rate 2028. So the aspiration is quite broader. I'm very excited about this. Naturally, the company is at a phase. We've got through the IPO. We look more like our peers. We're on this financial trajectory to get ourselves into the 16% to 18% range. We got a lot of momentum, but yet there's so much going around in the market around us that it's the right moment to say, what's the next chapter for Citizens? How do we keep the momentum going? So it's the right time idiosyncratically with Citizens combined with the market movements.

The program is structured, I'd say, to oversimplify it into non-AI-based transformation and AI-fueled transformation. The non-AI elements are equally strategic, just not as technical. So things like starting with the company's culture and our facilities footprint, how do we get -- how do we be more innovative, move faster and drive better tech and ops growth. So let's take a step back and say, colocation matters. We want people in the office. Let's assess our corporate footprint and get folks oriented into the right geographies in the same buildings. That's great from an operating culture standpoint. It also is going to squeeze out some expense.

So we've got a decent amount of excess capacity in the footprint post return to office where seats aren't being utilized. It's a win-win that I can get the right people in the right locations and save a whole bunch of money and think about it over a long-term horizon versus over a 1- to 2-year horizon, you never quite can get that done on something like that. We already closed 21 buildings as an example, and booking that to the bottom line vendor savings as well. So it's not just about simple rate term restructures. We're actually going in and saying in an AI-fueled world, who are the right horses to bet on, which big tech providers, which big suppliers, which -- a couple of years ago, we consolidated to Mastercard versus having fragmented Mastercard and Visa, really upped our strategy, got a lot of economics in the deal. Where do we see opportunities like that.

When you turn to the AI front, that's where it gets really exciting. We've got a very strict ROI-based mindset on AI, no 1,000 flowers blooming, no pet projects. This is economic value creation for our customers and for the bank. We've got a framework around how we're assessing those opportunities. A couple of big ones would be a full engineering -- reengineering of our call center, Agentic AI LLM-based replatforming. So total redo of the technology architecture, leveraging AI. By the end of this year, this is not 3 years down the road. By the end of this year, we should have 25% of our phone calls answered by a nonhuman. And by mid next year, it potentially could be as high as 50%.

Another use case for AI would be in technology, where our engineers are using -- started to use Copilot, now they're using Claude Code and other tools to get leverage on how we think about our capital. And our early days testing, we maybe got a 30% or 40% efficiency rate for engineers. In certain instances, we're now up to 5 to 6x the productivity. for an engineer. That fundamentally changes not just the effectiveness of your tech capital dollar, but also the operating model. Now you have engineers that aren't actually writing code as much, they're actually inspecting code driven by AI and QA, QC-ing it before you put it into production. So for the money we spend on tech over time, can we get a multiple effect? And can it be a leveling dynamic for scale in a bank our size to say, now you can spend the same amount and get 3, 4x the output. That's really exciting.

So those are some of the things we're working on. The $450 million in net income exit rate for 2028 is matched with not having a J-curve. So we expect it to be broadly breakeven in 2026, but it's with a lot of investment. So call it, $50 million to $60 million in benefits offset by $50 million to $60 million in investment. So we're starting the train here of driving leverage in the back end of the program, but we've been able to engineer it in such a way that you're not going to see it as a hit to our short-term financials or take us off track.

So breakeven in '26 and then benefits accelerating in ' 27.

'27 and '28, yes.

Got it. Okay. And as you think about...

Sorry, by the way, it's not -- as you hear us talk about our 16% to 18% ROTCE and our medium-term guidance, the impact of Reimagine hasn't really been contemplated in some of the metrics we've given out in the past.

And I get why because there's also the areas where you can invest that also is growing as well and as you get more returns from those investments. When you think about some of the KPIs that you're thinking through like the 25% of phone calls being done by a nonhuman, 5 to 6x productivity for engineers. Like are there any broader KPIs you're looking at across the business?

Yes. Obviously, in forums like this, we're really focused on the financials as the output. And obviously, we have those. But you mentioned a couple that I just said. Really, at its core, this needs to be an operating transformation for the bank that the financials will be the outcome of that. But we've got the team really focused on those things. So our first year attrition in our new checking account customers, we've got a full program around restacking our join the bank journey that should dramatically drive our attrition rates down, which will lead to low-cost deposits, which leads to NIM, which leads to ROE. So you can kind of see it play through.

Our customer experience, we are good, but not great in a retail bank for customer experience. We have very tangible things we're working on that will drive customer experience, including AI-fueled chatbots inside the mobile app that will help get customers done front to back operationally and straight through process. Things like fraud losses, effectiveness of fraud controls, things like credit KPIs as we think about AI deployment of analytic tools there.

In commercial, we've got a program called AI-Powered Banker that is all about enablement of productivity. So take all this external data, sift it down, put it in the hands of our middle market bankers so they can be more effective when they sit down with clients that should drive revenue throughput, turn times on loans cutting down materially. Those are the types of operating metrics that teams are working on.

Got it. All right. Perfect. So maybe staying on AI. What do you think it means for deposit customers and cash optimization, that debate has been front and center recently. How do you think this plays out?

Yes. It's obviously a hot topic. And candidly, I'm not that worried about it at the moment. We're watching it closely, but I'm not that worried about it. And here's why. If you're thinking about it from a corporate standpoint, you have professional CFOs and treasurers that are managing money today, and that's their job is to optimize their flow of financials. And so a corporate needs a specific amount of money in their operating cash management to make payroll to do all these things. It's hard to optimize that out to AI to a yield-bearing instrument when you need it to run cash. And then the money that they have in interest-bearing deposits, they're already optimizing. And we have these conversations every day with our businesses.

So I'm not that worried. I think in corporate, they're already generally optimized. In the retail bank, it's the same dynamic really. If you think about our low-cost portfolio, our average customer has $3,500 in checking, right? That's your day-to-day operating cash to manage your payment, make your mortgage payment, pay your bills, pay your grocery bills. I don't think that's going to get optimized by yield seekers.

And then when you think about interest-bearing deposits, look, direct banks have been around for 30 years, and they've consistently paid at or higher than traditional regional banks and the percentage of the U.S. deposits that have gone to direct banks has been relatively muted. It's 12% or 13%, and it's kind of flatlining-ish there. And so the idea that there's going to be this mass exodus to these AI optimizers, I just don't think when you break it down practically, the low-cost balances need to be there for operating cash management and payments reasons. The interest-bearing balances naturally are optimized.

When you think about retail customers, the high net worth, ultra-high net worth operate a little bit more like a business where they're already optimizing. There's not a lot of just money sitting around not making any yield. So we're watching it. I don't see it as a big risk. But look, we're -- obviously, from a profitability standpoint, we're coming at AI to take out some costs, too. So should there be some squeeze somewhere on the deposit cost. I think we've got -- we're forward leaning to take cost extraction out, so we'll be able to neutralize any impact. But at this point, I'm not that worried about it of the deposit cannibalization.

Got it. Very clear. So as you think about just deposit competition overall, as we get the potential for rate hikes as we go into the back half of this year, like are you seeing anything on the deposit side?

Deposits are competitive. They are now. They always have been and they always will be. And so certainly, competition is high. Higher rates by itself should signal on the margin, especially for a bank like us that's modestly asset sensitive that we should see benefit to NIM. And look, I think what's happening now with uncertainty in the rate environment is that especially on the retail bank, there's sort of this 4% yield number out there that if you just looked at the yield curve, you'd argue that that's a little heavy, but a lot of banks have stuck there, and they're not breaking through the 4% floor. So that has some pressure on deposit competition, but that's not a new thing that we've been living in the same spot for the last 12 to 18 months.

So look, I guess I would describe it as highly competitive and nothing new than we haven't been otherwise dealing with for the last 24 months. And I don't see really any material competition dynamic playing out right now that we're already not working through that's going to have any deterioration to our track.

Got it. All right. Perfect. So maybe in the last minute or 2 here, are there any updates that you'd like to share for the second quarter and the full year?

Well, we're almost through the second quarter here. And I'd say we remain incredibly confident in the guide that we have put out for the quarter and believe the quarter is playing out exactly as planned, and we're optimistic about it. And despite the challenges in the macro backdrop, it has not translated to a lot of customer behavior or volatility in our financials. So we feel very confident about the guide that we put out.

And for that matter, same with the full year. We're on track. We feel a lot of conviction to get to our 16% to 18% ROTCE range by the end of next year. We feel very convicted that we're going to land in our NIM cone of 3.30% to 3.50% and we expect substantial progress on that between now and the end of the year. And if you looked at consensus, you all are kind of projecting us into the 14, mid-14s for ROE by the end of the year. We feel like that's where we're headed that with the structural burn-off of our swaps and the noncore and continued improvement to credit and business execution between now and the end of the year, we should make substantial progress to our medium-term targets. But all in line with our guidance, we're confident about how we guided and I think we'll have a strong quarter and don't see any reason to take ourselves off full year.

And maybe to wrap up, how do you get from that 14.5% or so to the 16% to 18% ROTCE target? What are the key drivers there?

Yes. The big drivers are the business execution. So when you think about the growth we're seeing in the Private Bank, as an example, the profile continues to be 20% to 25% ROE. So that's accretive continued growth in low-cost deposits, having outperformance to drive our NIM. Our NIM will make substantial progress between now and the end of the year, but there'll be more running room into 2027. So having that continue to bend up will drive us further into the range. And having the full strength of the commercial franchise that we built in a constructive environment play out the way we're seeing it right now and have it sustained into '27 should firmly get us into that range. We feel very, very strongly that pending any unexpected external happenings that that's the path we're on, and we'll deliver it.

All right. Got it. Brendan, thanks so much for joining us and you being here.

Thanks a lot. Appreciate it.

Okay. Good morning, everyone. Welcome to the last day of the SDC. I'm Ken Usdin, the large-cap banks analyst at Autonomous. Really pleased to end our session on the bank side with Bruce Van Saun, the Chairman and CEO of Citizens Financial Group. And many of you will know that Bruce has led Citizens since 2013 on a journey of business expansion, improving growth and rising returns, which we'll talk through in our session. Before we go, you can input any questions you might have through the Pigeonhole app.

And with that, Bruce, thanks a lot for joining us today.

Sure. My pleasure, Ken.

So Bruce, we've been starting off in all these sessions just talking about the big picture because it's been 1.5 years and 5 months, what it feels like. So give us a state of just how you see it from a customer base, consumer, commercial, how is the economy holding up? And what are you seeing as you look ahead?

I guess I'm quite impressed with how resilient the economy really is. So if you said we'd have a war on and energy prices would spike and a bunch of other phenomena out there that posing challenges, that you wouldn't translate that into where the equity markets are trading, where credit spreads are trading, the unemployment rate hanging in where it is, everything, markets seem calm in light of external challenges.

And I think companies actually have -- if they've learned anything over the last 5 or 6 years, it's -- they need to be resilient and adaptable, and think through all the twists and turns that can affect their performance and make sure that they're prepared. So just like banks have had to do stress testing and identify risks in the external environment and be prepared to make sure we're hedging those rich and cognizance of those risks. I think individual companies with their supply chains, whatever, access to talent, they've actually developed strategies, coping strategies to get through.

And so most companies that we bank are having really strong performance. They've had a good year last year, notwithstanding all the Liberation Day challenges, they're notwithstanding the war, they're having good years this year. I think everybody's kind of still a little kind of circumspect about going fully on offense. They want to play offense. They're making the right investments, but they're not fully leaning in, I think, until some of the uncertainty subsides. But we don't see any credit risks on the corporate side.

And same thing with individuals. We have the more well-off people are thriving with stock markets high and real estate values high. The people kind of lower earners still, I think, are doing okay. The major support is the job market. They're employed, which is the most important thing. And they're just rejiggering what they spend money on, but still spending, which is important to the economy. So I'd say it's a pretty solid backdrop, a bit surprisingly so to operate within.

And the deal activity, too, is surprisingly resilient as well. So you're just seeing folks continuing to want to put money to work if they're pooled funds and vehicles, whether it's on the equity side or the debt side. And you're seeing strategics. There's a lot of M&A taking place. We have a relatively permissive regulatory environment around approving deals. So all of the deal pipelines are kind of at really, really strong levels.

Yes. Yes. So as I mentioned, you've -- Citizens has been on a long-term journey on every aspect of the bank, transforming the Consumer Bank, building out a better positioned Commercial Bank, the new Private Bank and the upcoming and ongoing Reimagine the Bank initiatives. And these are all going to expect to boost profitability over the course of time.

So as we kind of break those down, let's start on the consumer side. Can you talk about what are your key priorities right now, especially on the consumer side in terms of gathering deposits and building scale, as you've talked about in the past, whether it's the New York City market and repositioning the branch network?

Sure. So we have this triangle of businesses, Consumer, Commercial and then Private Bank and Wealth. And the consumers' real value in building a strong financial institution is access to secure, stable funding, low-cost funding. And so that's really the name of the game is how do we create the right approach to go to market. We've moved over time more upmarket from kind of serving the whole market to really targeting mass affluent households and affluent households, which really dominate our footprint and making sure we have a good value proposition for them.

Part of that is leading with products like HELOCs because a lot of those customers own their own homes. They have a lot of tappable equity in their home. They need advice. How do I pay for sending my kid to college, how do I start saving for my retirement. And so I think we've really done a nice job there, and we've grown the mass affluent households faster than anybody in our peer group over the last 3 years, 5 years, pick a time period. So that's been important.

Part of that is upskilling the folks that meet the customers in the branches. And so investing in what we call private client relationship managers, PCRMs, small business specialists. And so the branch has become more of an advice center with specialists there and really leaning into that trend has been important.

I think another thing that we're looking to do is take a hard look at the physical layout of the branch system. So we have about 1,000 branches. And we still have a relatively high percentage. I think it's over 100 are still in supermarkets, in stores. And so you don't get the full power of market presence with an in-store. You get efficiency, but you don't kind of generate the same deposits. And so one of the things we're looking at is in each micro market, how do we optimize that if we want to pull out of the supermarkets, where do we put the de novos, where do we convert those into traditional branches. And so we have an effort that's going on. I teased that on the first quarter call. We'll reveal a little more about that.

One of the -- I'm not sure we'll change materially the points of presence, and this will happen over a long period of time. But I do think it will accelerate our deposit gathering rate to be in the right locations with the right type of branches. I think New York is one area that we've done phenomenally well. So for those of you who don't follow the story back in '22, we bought HSBC's East Coast branches and then Investors Bank, the so-called one-two punch to get into this market, and it's been very successful. So we bring our style of banking into a heavily competed market. It's our fastest-growing market in terms of household growth and deposit growth.

But there's even more opportunity. I think, once we've proven that we can -- if you can make it here, you can make it anywhere being in New York today, that we can start to scale that a little more gradually over time and continue to really get some nice attractive deposit growth in this region. So to me, it's really for consumer about the deposit growth trajectory and then also the wealth cross-sell would be the 2 things. And then really, I think, leaning into small business where I think that's a typically underserved market, and there's a lot of opportunity there.

My real-life proof point is my daughters even noticed the Citizens' green offices in the city park here and there.

There we go.

On the lending side of consumer, can you touch on the strategy across the different lending products, HELOC, mortgage, et cetera?

Yes. So I think consistently, we'll always have growth led by HELOC just because that's a bellwether product for the strategy overall. And we're really good at it, by the way. We originated more HELOCs in the whole country than any other bank, even though we only originate in our footprint in 14 states. We've taken all the pain out of that origination process. And so we can start to finish, originate on average in 14 days and the industry average is like 45 days. So we really, I think, dominate that product.

Mortgages is always going to be an important product to offer to your customers. And so we'll get continued growth. We don't need to see big growth there. We've got to make sure we're focused on using the balance sheet for deep relationship customers. And then the other thing I'd call out is probably cards, where we launched a new card family last year, and kind of gaining more primacy with our customers. We actually have pretty good distribution, but people may be using other cards ahead of our cards. And so how do we change that equation. So we have a number of strategies to do that, and we're starting to see some green shoots on that.

Okay. Got it. So on the commercial side, where you've built out a real full-service commercial operation, where do you see the biggest opportunities, both for the lending side, but also as importantly, on the fee side? You've built this capital markets business. And where do you see that really, the potential of that over time?

Yes. So we like to kind of immodestly say we're the best positioned super-regional commercial bank. And I think that's really on the strength of the capital markets capabilities that we put in place. And so it's a combination of coverage. So where do you focus? And we have coverage of middle market in certain geographies and then mid-corporate, which are companies bigger with $500 million in revenues to $3 billion, where you have to have industry verticals and industry specialists and expertise.

And then the sponsor community, which owns increasingly probably half the middle market companies in the country are owned by sponsors. And so we got on that really early and built strong capabilities to serve the sponsor community and built relationships with the leading sponsors. And so I think we've been really astute in how we've built out the coverage and leaned into the verticals where we think there's going to be a lot of opportunity.

And then kind of brick by brick over many years, we've built out all of the product sets. So not just traditional syndicated loans and other products that banks sell to treasurers, but the debt capital markets capabilities, securitization, equities capabilities with the JMP acquisition, bought 7 M&A boutiques. So we have pretty widespread M&A capabilities across all important industries.

So anyway, I do think that we haven't seen the full relative differentiation of what we've built relative to others in the last 4, 5 years because we've been in a subdued market. So now that things are ticking up, I think we're just going to capture a lot more opportunities, and we should have faster revenue growth acceleration because our peers have quite a ways to catch up to us.

And beyond that, I think the whole payments space has been really, really interesting. And there's a lot of opportunities there. We've consistently been investing in our, what we call Treasury Solutions business. And I think our growth rate has been kind of high single digits as a result. And then I think there's more to go there. So like embedded finance, interesting, a lot of these fintechs who had partners with partnerships with smaller banks, they're outgrowing them. And then they look around and they say, where do I go to get broader capabilities and kind of the super regionals is a sweet spot, I think, for them because going to the very biggest banks, it's just take a number, we'll get to you when we get to you, but they can get a lot of attention from banks our size.

Got them. So the third piece of the triangle, the Private Bank where you aspire for it to be a teens contributor to earnings over time. And you've got a big ROE target on that, 20%, 25%. Where are you still looking to add talent and expand? And what do you think is going to be the incremental driver of the growth as you go forward?

Yes. So again, this is -- it was a big bold bet to do this in '23 and hire 150 of the top talent from First Republic to be the foundation block for getting into the business. That number now, we're over 600 people in the business. We now have 9 PBO locations. We really are pretty full in California in terms of investment in Northern Cal and Southern Cal has been pretty much built out, a few more PBOs to go and a couple more wealth teams that we'll likely add there. But that was the region that was First Republic's home region. So we had access to the talent and good name recognition out there. So that's gone very well.

Florida is another really important state for us. And given we're a bank in the Northeast and a lot of migration down to Florida or second homes down to Florida. We started there with one location in Palm Beach. We just opened a second in West Palm Beach. We have Boca geared up for next year. And so you'll start to see us, I think, emulate what we've done in California and thicken Florida over the next 3, 4 years is in the plan.

And then in our current footprint, we have a flag planted in Boston, and we have one here, which is right across the street. So if you want to look at our nice signage there, street-level PBO flagship here in New York, 52nd and 6th. But we'll continue to, I think, open some satellite offices. We have a plan to open in Greenwich, which was a very good location for First Republic. And then in Boston, we're right on Boylston Street, but we're looking at do we open straight PBOs or do we maybe convert some of our high-end retail in places like Wellesley or Chestnut Hill? Do you have both style retail and private bank or do you do a conversion? So those are some of the things we're thinking about. And then I'd say we also need to get into Philadelphia because that's also a very big market for us. So we're looking at how to do that.

Got it. Reimagine the Bank, aiming to get $450 million of efficiencies by the end of '28. How is this new plan going to change the way that Citizens operates differently organizationally? And how do you think about that balancing act between reinvestment and driving efficiencies to the bottom line?

Yes. So I would say we've had a good long track record, Project TOP, Tapping Our Potential, where, for like, we had 10 TOP programs that generated between $100 million and $200 million, generally, of benefits, but they were kind of probably a little more on the tactical side than on the strategic side. And so last year, when we thought about are we going to do a TOP 11 or are we going to do something grander. We said, let's look at all the massive technology innovation that's occurring and let's like take advantage of that to put just a more strategic program in place.

And so we took maybe 25 of our top leaders to the side in the summer of last year and said, let's look at all the things the bank does. So how do we onboard a customer, how do we service a complaint, how we deal with the fraud issue and draw the picture about people, process, underlying technology, how does it work today? And then to kind of draw like what could it be? If we start with a white canvas, how would you introduce these new tools, introduce AI agents, change the composition of the workforce. So you have human and agents working side by side and basically kind of pull that all together in a program, which has probably 50 initiatives today, kind of built around 5 or 6 main blocks.

But I think it's exceptionally exciting. And we're immersing our people. We just had an off-site for the top 130 people up in Rhode Island the last 3 days, and we spent a good 3 hours immersing everybody in kind of vibe coding and programming agents and stuff. So I want that people on the top of the house to really roll up their sleeves and know how this works so they can drive it throughout the company.

So anyway, I think the nice thing that we're offering relative maybe to some others, everybody's doing this and experimenting with it, but we have this mindset that we are good at setting up programs and executing programs and setting financial targets and delivering against those targets. And so I think that's why Reimagine the Bank stands out a little bit is that we're kind of putting the numbers out there. And when we put numbers out there, we make sure that we can deliver those numbers.

It's not -- to me, it's not just the financial benefits that come from it. I think it's a huge uplift in customer experience. And to me, with all the competition and rising levels of competition, you really have to deliver for your customers and make it a great banking experience. And so to me, that's as much of the prize as the efficiency, although finding money that flows through the bottom line is also really valuable.

So we haven't -- we have a trajectory where we get to 16% to 18% ROTCE without incorporating the benefits of Reimagine the Bank. So it's tantalizing like, well, how much is going to flow through? And could you actually move 16% to 18% if you'd say half of it flows through or 3/4 of it flows through. I'm trying to demur from answering that, just say, let us get this thing rolling and let us think it through, and let us see like what the other investment opportunities are, and kind of what overall expense growth rate we manage to. But it's nice to be in that position where we have that flexibility.

Yes. And on the AI point specifically, as you do integrate that into the efficiency improvements, productivity improvements, do you see that as also a potential add to the like long-term financial performance of the bank? There's a big conversation about like is it a net add? Is it net neutral? Does it just allow more reinvestment? Where do you stand on that?

Well, I think it's additive. I definitely think it'll make us a better competitor. It'll allow us to operate more efficiently. I'm not sure all that gets competed away at the end of the day. I think it is a boost to industry ROE.

Yes. And so on the competitive point then, more competition coming from more arenas than we've ever seen. So a couple of different pieces about that. On the banking side, from the deposit perspective, how do you see Citizens and even the industry defending against all these new deposit evolutionary products, whether it's tokenization, stablecoins, agentic AI, et cetera?

Yes. I think banks offer kind of full service. So they focus on providing balance sheet. If you need loans, we can give you loans. We take your money, we take your deposits, we offer you advice. And so being a trusted financial partner and adviser is pretty high ground that we're occupying. And so the disruptors coming in are trying to like, I'll focus on the loan origination experience or I'll focus on an alternative way to handle your deposits. But it's very hard for them to migrate more broadly and occupy that kind of higher ground that banks occupy.

So we're watching all of those developments and making sure that if stablecoins are going to take off and there's good use cases for our clients, that we'll be in a position to do that. If tokenized deposit is an industry response to stablecoins, that we'll be in the consortiums that allow us to do that. And so -- and when you talk about agents and are they going to make it sharper in terms of pressure on deposit costs because they'll look for better opportunities. I'd say we're already at the -- if you look at corporates, if you look at high-end wealth customers, you look even at the high end of retail and digital offerings like Citizens Access, there's plenty of that already where people are trying to optimize.

And then there's other players who value the total relationship and are just not going to maybe go through the effort to optimize a little bit if their balances are lower, is it really worth it to me. So I'm not sure that changes a huge amount. If it does, over the next 10 years, put a little upward pressure on deposit costs, it's one of the reasons that we have to use the benefit of AI and agents to lower our cost structure to keep our profitability in the same zone. So I'm not that worried about it. I just want to be kind of always on the front foot leading in assessing what's going on and how are we going to play it.

Yes. And speaking of other things to potentially worry about or banks are worried about, the cyber threat rising ever, costs going up to just defend against it. Do you just have to keep up with whatever is needed on that front?

Yes, you do.

Is there anything different you can do?

I mean I think those kind of things are existential potentially for any individual institution or for the industry. And so making sure that we have access to the latest tools and that we get really, really good at deploying those tools to search out vulnerabilities, to be able to automate the patching and do that in a rapid way is really, really important.

So you've got to start at the top by having really top talent in your organization. Your CISO has to be grade A. I think we have that. And the team is really strong. So it starts with people, but then the people are going to want to have all the latest tools and you just have to put that right at the top of the budget list for your CapEx every year. So that may cost a little money over time. But I actually think that these tools, people worry about them getting in the hands of the bad guys. But if the good guys get it first or kind of really are thoughtful about how they're implementing and protecting data and assets, et cetera, it should be helpful to the cyber picture in the long term, is my view.

Yes. One of the points you touched on earlier is getting into that 16%, 18% ROTCE target by the end of '27, a long way from the low single digits when the company IPO-ed. Can you remind us just the main drivers of getting there? And then what would be those different sides of the range outcomes that should be the final mile?

Well, so we're -- we just printed, I think, slightly over 12%. And if you look at consensus, we get to kind of high 14s, I think, by the end of the year. And the kind of what we refer to as time-based benefits, we have these legacy swaps, which were terminated, and therefore, they have just an accounting drag that eventually burns off. They're being amortized over the life of those swaps. And we had noncore was running down, and that was kind of at a negative yield, and that was providing a lift. So those 2 things, if you chart them out, actually continue to drive NIM higher. And so if you overlay that and pro forma that, let's say, we could all do that tomorrow, then you're already close to 15% just on the basis of that.

And then you kind of look at the business momentum that we have, the Private Bank growing, its ROE is 25%. It's already 10% of our bottom line going to mid-teens. And so at the margin, that's helpful to the ROTCE progression. I think Commercial having come out of a period of low activity levels into higher activity levels is going to throw off kind of more earnings and the strategies we talked about in Consumer to keep growing low-cost deposits. All that adds potentially another couple of percentage points.

We have credit still a little bit elevated due to CRE office, but we have that coming down from kind of where it was last year in the high 40s down towards the mid-30s, which also helps that. And then the thing going the other way a little bit is AOCI is creating a depressive effect on kind of capital, and so it's boosting returns and that kind of pulls to par over time. So that goes a little bit the other way. But in any case, the -- I think the net of all those things gives us a lot of visibility and a lot of confidence that we can get into that range.

And I would say the thing that -- the economic backdrop is always the thing that you have to think about. So do we end up in a stagflation scenario? That hasn't historically been good for banks. So if you have kind of high inflation and GDP is sluggish. And so it doesn't allow you to pull your credit cost down as much or it doesn't necessarily create the dynamism in the economy where there's a lot of deal flow, there can just be, I'd say, macro scenarios that may pull you down.

But one of the things we've been very focused on is making sure that we're chopping off tail risk because when we get into that return zone, if the macro turns against us, we want to be one of the ones who goes down the least in terms of our return. We don't want to -- I think we've been disciplined on credit. We have very strong credit risk appetite and discipline, I think on how we're thinking about hedging interest rate risk. So the things that can be more volatile, building up our fee-based businesses, trying to just make sure that we're solid and we can try to hug that range through time.

Yes. And I think as you mentioned previously, like getting to 16% to 18% doesn't necessarily mean it's the end game, but you want to kind of make sure you get there before you then see the other things...

Well, you know back from the IPO, like we said we're going to get to 10%, and you got to walk before you run. And we got to 9% and everybody said, Bruce, aren't you going to raise this 10%, how does 10% to 12% sound? I said just let me get to 10% and then I'll tell you where I'm going next, so.

Yes. Fair, fair, fair point. So as a checkpoint on progress, before we get to the rest of the topics that will flesh this out a little bit more. Any updates at all to either your second quarter or your full year '26 outlook that you've made in April?

Yes. No, I feel good about the guide that we made for the full year. I said that on the call. I still feel really good about that, and I feel good about the quarter. So the quarter is progressing the way we thought it would.

Okay. Coming back to deposits, you mentioned about growing low-cost deposits and also you've proven the ability to take deposits down with rates coming down. And so now that we might be holding here a little bit longer at either current rates maybe even going higher, competition is not getting any easier out there. What levers do you have to either hold the line or continue to ratchet down in places of whether you back book support or whatever, that you can kind of just make sure that you're hanging in there and don't have any changes to your expectations?

Yes. I'd say loan growth across the industry is a little more than people expected coming into the year. And so that means you have to fund it. So you need deposit growth. And so I do think there's a little bit more pricing competition as a result. We anticipated that. So we had, I think, a relatively robust loan growth forecast coming into the year. And so our deposit betas, we have kind of in the kind of high 40s, which we were 50%, I think, in the first quarter on the cumulative beta. So I think a little of that is built into our outlook that we anticipate a little more competition.

But there's some fundamental drivers that we have, like the Private Bank growth. We're now at over $16 billion in deposits and kind of at least consistently, we've had about 1/3 being in noninterest-bearing and low cost being in the low 40s. And so just continuing to grow that deposit base with attractive mix is more idiosyncratic to us than the things that you would see across peers.

And then I think we're quite sharp in terms of our algorithms and pricing in the Consumer Bank. I think we've gotten quite good at that. And in the Commercial Bank, we've been building out kind of new places to go fishing for deposits. And so kind of escrow services, bankruptcy services, there's things that I think allow us to expand where we gather deposits, which can also be helpful.

Yes. So with the caveat that net interest margin, NIM, is an output, you guys do have an expectation of expanding the NIM from 3.14% in the first quarter and getting it to 3.30%, 3.50% by the end of '27. And just -- what is higher for longer do to that expectation set? Does it change it at all, make it better, make it worse? Given the points you made about deposit cost, loan growth and just obviously, where the economy is headed.

Yes. Well, that forecast was predicated kind of on 2 things. One was the external rate environment. So where is the Fed funds rate, what's the shape of the yield curve. And the other thing was our own balance sheet movement or the dynamics around our balance sheet. And so I would say on the macro side, the kind of higher rates and steeper yield curve is generally a positive. We've maintained a relatively modest but still asset-sensitive position on the balance sheet. So that's positive to that.

And then the balance sheet dynamic, I think, is kind of -- within the context, it's still hugging the context of the projections that we had. And so we'll just have to see if that changes at all. But if, in fact, loan growth were higher and deposit competition were greater, that could be kind of slightly negative to NIM over time, but you would make up for it with volume. And so you'd probably take that trade. But I don't think any of those movements take you out of the cone. So I still anything that you could foresee, I still think the cone looks like the place it will end up.

Yes. Understood. I want to come back on the point you made about taking out the tail risk from credit and naturally lowering the kind of risk profile of the loan book over time. We've seen it for the last couple of quarters. Are you confident that even with what we're seeing in the macro, whether it's oil and gas or just other uncertainties, that the trend over time towards a lower natural net charge-off rate for the company can be achieved?

Yes, I do. And I'd say, again, the risk appetite around the corporate book has been very stringent. And as we do more NDFI lending, which everybody is doing, that's really investment-grade lending. And so your kind of risk of loss goes down. We've been running down CRE after we bought Investors Bank, we were bigger than we wanted to be. And so again, CRE, I think, can have higher credit losses depending on where you're playing. And so having less of that, having higher investment-grade corporate exposure is positive to risk appetite.

And then where we're playing on the consumer side is really kind of high prime and super prime is where most of our exposure is. Over 70% of our consumer exposure is real estate backed. So it's collateralized. And where it's not collateralized, it's typically to people who are homeowners and have kind of very good credit scores. So I think that over time, we've just continued to refine that. We got out of businesses like Auto that have relatively higher charge-off rates. And so the mix has really improved over time.

Yes. And even some of the challenges you had over the last couple of years post pandemic with office CRE, you guys had put up a huge reserve on it and even that...

We're just working that out, and there's really no surprises on that. So again, I don't see real trouble spots at this point that would be worth calling out in kind of certain industries or things like that. I think, as I said earlier, the companies have figured out how to cope with different shocks and they're resilient. And so nothing really to call out.

Yes. You mentioned NDFI and all the banks, including you guys put out some really good disclosure and confidence in your quality of your book. Just that, you mentioned also that you're building out the sponsor business and it's a piece of the ecosystem that you guys have been facing for a good while in the investment bank. What's your just view of how Citizens will face that in the future? And any evolutions in how the banking system faces the private markets and how that push and pull will go?

Well, I'd say, again, because of our early focus on sponsors as the sponsors, equity sponsors grew more into broader asset management complexes and they got into private capital, we were there as their partner to help them think through like how to go to market, what structures they should set up, what leverage we can introduce to help them get to their return targets. And so I think it's been a good journey for us to solidify those relationships and be selective about kind of where we want to play and who the partners are that we want to be in bed with.

And so I feel really good about kind of that strategy that we set out on, and that these are very big successful firms that have a lot of needs across their equity arms, their credit arms. They have partners who need wealth advice. They want to have lending to their partners so they can invest in their fund vehicles. There's so many touch points across what we do in the Commercial Bank, what we do in the Private Bank, that this is a real focal point for us and a huge opportunity to get that right.

We have something we call One Citizens, where we're sharing our books of relationships, and corporate bankers are bringing in private bankers and vice versa. Like last year, we had roughly 400 sources of referral back and forth. About 300 were the corporate bank bringing in private bankers and 100 went the other way, then the Private Bank and Private Wealth brought in the corporates. But if you can do that well, if you really have these deep relationships, the clients really like that and respect it that you know them so well and that you're bringing total solutions to help them be successful.

Yes. So in terms of capital, you noted on the recent call that we've seen the Basel III proposals. Looks to be a nice benefit potentially to Citizens and other regional banks. You guys mentioned potentially 10% RWA reduction. First of all, I guess, are you comfortable with the proposal as is? And do you expect any potential changes to it as we get through the comment period and finalization?

Yes. I'm comfortable the way it is. I think there's one thing that if you're not in the advanced approach, then you don't get the same risk weights on corporate credit. And so that's a comment that if you would suspect that the regionals would like to see that more equivalence there. So we'll see how that plays out.

But generally, the kind of old framework was very blunt and conservative blunt. So to actually have it more precise and really kind of be appropriate in terms of risk weights, in terms of this extra conservatism, will allow for, I think, better capital allocation for the economy. And banks will follow the lead because their economic models would tell them something different than what the regulatory model said. And now with these changes, it's bringing it more back in line. So I think fundamentally, it's a good thing.

Yes. And for Citizens specifically, it will add even more to what's an already strong capital base. Does it change anything you think about either usage or managing the company?

Well, we'll have to see. So I think we picked up 110 basis points or something of CET1 and -- but we have the same balance sheet today as we will the day that we implement it. And then you have kind of the AOCI is now going to be counted in capital. And then over time, that could wash out a portion of that, maybe half. And so you end up -- it's a good problem to have because you end up with more capital, but like, how does the market look at it is -- if you said I'm 10% to 10.5% is now your 10.5% to 11% is where the market goes because it's looking at TCE to TA ratio or the rating agencies, like, don't kind of get with the program. So I think you just have to see where it goes. But I'm happy to be in that position. I do think the bias is eventually you should be able to utilize that capital and bring it down, so.

Yes. And you guys have been doing a combination of being able to grow the balance sheet and you've also increased your buyback activity recently. You kind of have enough room right now. So that would just be gravy on top.

I mean the one thing that we're looking forward to is the CCAR stress test results because I think we haven't had much joy in that process, and we've made our vocal displeasure known. But I'm pretty optimistic that it's going to be a much better result.

Yes. On that point, because this year won't result in any formal changes to your SCB, which still remains above the 2.5% minimum by more than other regionals, this year is more just like a take it in stride assessment.

Take that scarlet letter off. But it then is indicative. But what we've said in the past is that having a higher SCB hasn't changed our -- how we're managing the capital. So now having the purported SCB be a decent amount lower shouldn't really have that change. But it does signal to the market that we're a lot more peer-like in terms of the business risk that we have on our balance sheet.

Yes. And I think the longer-term question that comes out of that is the combination of getting this Basel III benefit and over time, with the aspiration that the SCB does go back more to peer like, if you're still at 10%, 10.5% or even more, and the reg requirement goes back to 7%, isn't that a ton of capital for a bank like Citizens to hold to?

Well, there's an opportunity, I think, to bring it down. But what I would caution is that -- and investors have a hand in this, too, and say, like, you need to get more leverage in the capital structure. But then you look when the tide goes out and something happens. So when the West Coast banks failed and Signature failed, a lot of people who had levered that capital structure spent years in the penalty box kind of rebuilding their capital.

We had a conservative view on our capital. And so we were able to take advantage of that situation. We were invited in to go look at the failed banks. We were able to take a bet and do the start-up of the Private Bank. So maintaining a bit of conservatism in capital to me is always a good thing.

Yes. And other potential uses of capital would include inorganic growth or acquisitions. You guys have been on this long organic journey with the recent adds that you mentioned in the New York City area. As you've built both local scale and add it to national businesses, do you have what you need to grow? And would acquisitions be a part of any requirement or necessity to get the company to another stage?

I think we have what we need, and I've consistently said that kind of we did our big acquisition, which was the start-up of the Private Bank. And the nice thing about it is it's capital light. So we risked $100 million in start-up losses for something that's now 10% of the bottom line going, say, to 15%. And you look at these bank deals that people are printing and they're spending $3 billion, $5 billion, and they're getting 6% accretion or 7% accretion. So making sure that, that stays on the trajectory that, that business is durable, sustainable, hardens that we capture that kind of white space that First Republic used to occupy.

That's job one. And I think Reimagine the Bank and the potential benefits of that is job two, and just kind of executing our game plan. So at least in the near term, I don't really want to get distracted from that agenda. But you never say never. You're looking constantly at your footprint. Is there something that falls in your lap that could strengthen a particular geography. I'd probably say that, that's kind of potentially higher on a list if we eventually get to a list than going completely to new regions like some of our peers are doing.

Yes. Understood. Okay. Well, with that, I think we're through the topics. We covered a lot of ground. So with that, Bruce, thanks so much for joining us. Please join me in thanking Bruce Van Saun.

Financial, which has been a pretty big supporter of this event ever since they've gone public, maybe now.

2014.

2014, a little bit ways ago. From the company, very pleased to have Bruce Van Saun, who's Chairman and CEO. Bruce, welcome back.

Thanks, Jason.

Bruce, and maybe the best place to start, I just thinking back to 2014 until today and just how far Citizens has come since it's gone public. Maybe just as you look at the competitive landscape today, how are you feeling about Citizens' current positioning? And maybe what opportunities are you most excited about?

Yes. I mean I look back over that whole transformation journey since 2014 and just feel really good about how we went about it, putting the right foundation in place with a strong Board and leadership team, getting the right talent in, getting the right culture, investing in our people programs, our risk management, our technology.

We basically built things brick by brick and then really focused on getting our businesses oriented around where areas in the market where we could be distinctive and where we had a right to win. So what I really like about where we are today is we like to describe our strategy around a triangle of businesses, but the consumer bank is really a foundation block because well-run banks need to have stable, low-cost deposits, and that's what the consumer bank provides for us.

And we've done a lot of work over the years to segment the marketplace and try to move more upmarket and serve mass affluent and affluent customers, and that brings bigger noninterest-bearing deposit balances and more needs on the part of the customer for wealth advice and other services. And so Consumer Bank still has a lot of opportunity, I think, to grow.

And one of the big moves that we made about 4, 5 years ago was to recognize we -- as a strong Northeastern bank, we were going to have to get into the New York Metro region. We bought HSBC's East Coast branches. We bought Investors Bank. We paired that together into about a 200 branch system. across New York and New Jersey. And it's been our fastest-growing region in terms of households and deposits, and there's still, I think, a lot of juice left to squeeze out of the lemon there.

So anyway, that's consumer. And then commercial bank is something that we basically built up from being more of a regional player focused on traditional bank products that are sold to treasurers to actually having the full range of capital markets capabilities, M&A, equities capability, debt markets capabilities, securitizations, et cetera.

So through either acquisition or hiring teams, we've built up a full set of product capabilities. And then we focused the sales force, the coverage bankers on both middle market and we went upmarket into mid-corporates who have more needs and require us to be very strong in terms of industry knowledge. So we've set up industry verticals. We also saw that the sponsors were going to increasingly own more and more of middle market America. So we've built out capabilities to serve private equity, private capital more broadly.

And so I think we're exceptionally well positioned. I'd like to say we're the best positioned super regional bank in the U.S. in the commercial space. And then the third kind of leg of the triangle was more recent. We always had a desire to get into kind of high-end private banking and wealth management.

We had made an acquisition 5 years ago of a company called Clarfeld, which was a very respected registered investment adviser. It really wasn't at the scale to kind of balance out the triangle. So when First Republic failed, we made the bold move to try to buy it and JPM ended up buying it, but a lot of the talent didn't want to go on to that platform. And so we signed up 150 people one day in June, which was a big bet in a turbulent time to take on all the expenses before the revenues were going to show up. But we had confidence that we could scale it up and kind of even recreate a model that was better than how First Republic was running it.

And we had ability to surround that and work as One Citizens with our corporate bank working with the private bankers, and that's been very effective. So we look at it today, and we're filling that void in the market that demise of First Republic created. We have over $16 billion in deposits, about $7.5 billion in loans. $10 billion-plus in wealth client assets.

And so -- and the nice thing is it's growing very nicely, and it's growing at a very good ROE. So we're making over 25% ROE on the business. So anyway, those are the things at our -- we're a good size. So we like to say we're big enough to matter, but small enough to care. We can go toe to toe with the big guys in certain spaces, but we can't spread across the waterfront. So we have to really focus on those areas where we have a right to win.

A lot in there. I'd love to unpack that a little bit, maybe delve more into each one of those 3 legs of the stool. I guess maybe just following up on the Private Bank. Now it's 10% of pretax income, up from a very little number not that long ago?

Just broke even for the first time in the third quarter of '25, right, '24. And so then we said it would be 5% accretive last year, it was 7%. It's already 10% in the first quarter.

I guess maybe just looking further out, it's on a nice trajectory. How much more hiring do you plan on doing? How big do you think this could get?

Yes. Well, right now, we're calling kind of medium term that we get into the mid-teens. And so we still see very strong growth. We've kind of started out with 6 major markets. Boston, New York, Florida and then Northern California, a concentration, 3 big teams in Northern California. We've since moved into SoCal. So we have L.A. presence, San Diego, Orange County.

And we're continuing to reinvest and bring in complementary people like private wealth teams. We're doing a bunch of lift-outs so we can have the bankers situated in a co-location format with these wealth managers. And then the other thing that we're doing is we're opening up PBOs, private bank locations at kind of ground level retail, which has great billboard value, but it also is good for brand visibility in general and ability to provide services to customers.

So I would say California is running fast. That was the epicenter for First Republic. So we've got a significant set of new PBOs and talent there. The next market that I want to keep building out is Florida. So we have a flag planted in Palm Beach, which is a really critical market. We're opening this month in West Palm Beach, which sounds like what's the difference between Palm Beach and West Palm Beach, but they're actually different markets.

And so we want to thicken in Florida, doing it in a controlled way, but there's other cities we want to get to in Florida. And then just kind of continuing to leverage the opportunities in core markets like New York and Boston. We're going to open a PBO in Greenwich. We're looking at converting one of our high-end retail branches in the Boston suburb to a PBO. And then we're looking at Philly eventually is another market, where we could see a lot of opportunity.

Sounds good. I guess on the commercial side, you mentioned private capital, a space you've been in for a while, but now is all of a sudden receiving a lot of attention. Clearly, there's some concerns in the marketplace around certain segments. Just maybe talk about what you're seeing there? And can that continue to be a driver of growth?

Sure. So again, I think we're very well positioned with the private equity side of private capital. And there hasn't been the kind of velocity of exits and investing over the last 3 or 4 years that we would have expected to see. We started to see that logjam break a little bit in the second half of last year. And we have the war and some uncertainty. But I still think there's pent-up demand there and pipelines are looking pretty good.

And so I feel good about how we're positioned there. A lot of those firms broadened out to be more considered like asset managers or alt managers. And so since we had an in on the private equity side as they opened up their private credit arms, we were there to help facilitate the build-out and the growth and do it with the kind of clients that we know really well. And we kind of aren't taking marginal opportunities. We're staying with the riding the horses that we already know very well, which is important in banking.

So I think the distribution of what we have in terms of private credit looks fine. Most of it is investment-grade lending. It's very well structured. We have people with deep expertise. And so I know there's noise around it and the funds that took exposure to retail investors that now have these semi-liquid products and people heading for the exits. There's some challenges to work through there, and there's -- maybe some funds went a little long on software industry paper. But when we look about the portfolio that we have, the discipline that we have, I don't feel there's credit issues there.

And I think it's sometimes good when a segment of the market grows really rapidly to have a bit of a challenge period or a little stumble forces you to go back and rethink the business model and tighten things up a little bit. So I think private credit is here to stay, but I think it will go through a kind of consolidation phase for a little while.

Makes sense. And then on the consumer side, you highlighted New York City Metro expansion. In the recent earnings call, you made a comment that caught my attention. Basically you said you're in the process of analyzing existing branch footprint for net new investments and optimization within New York City. Can you maybe talk to what you kind of meant by that and what we can expect?

Yes. So what I mentioned a moment ago that like having strong retail deposit funding is very important. You're seeing different regionals in the U.S. go about that in different ways. Some are deciding to open branches in other geographies than their natural core geography or they're doing acquisitions to try to go to those other regions with a jump start.

I sit down with our team and we say, actually, we have very good brand recognition inside our footprint, and we should think about optimizing the network to get more growth from it because when you go out of region, you have to elevate your top-of-funnel brand image. People don't know who you are. And so you're spending a lot of money on those marketing dollars. If we do a better job of kind of assessing market by market, do we have to optimize branch footprint.

For example, we used to have a high percentage like maybe 30% of our branches were in-store with supermarket branches. And we've been whittling that down over time. That's become kind of less effective as a way to grow and capture that deposit share. So should we look and tighten up those relationships even further and then open more de novos. We're doing that in certain markets already in the footprint to good results.

So that's what we're looking at. And I just wanted to mention that I do think since we're doing so well in New York, that was kind of proof of concept. Could we go in there and challenge all the big competitors there and gain market share and be effective. And I think the answer we got is yes, that's happening. So you then start to think, well, how much more branch presence do we need and kind of where would it be? Would it be right in the center of New York City or would it be in outer boroughs? Would it be in Long Island or New Jersey?

And so we're just going through that work, thinking that through. Obviously, we have -- we're already investing a lot in the private bank, and we have to kind of maintain expense discipline. So I think this plays out over time. But I do -- I would love to see an acceleration of our deposit growth in retail. That's really valuable. And part of that isn't just the configuration of the branches, it's investing in the people.

So do you put another 2 people in a branch that has a lot of potential, but you're underpunching your weight in small business or you're not getting enough wealth cross-sell. And so part of the analysis is looking at the staffing models to try to optimize and squeeze more out of the footprint.

Makes sense. One area I had questions about is what you've, I guess, termined or Reimagine the Bank kind of AI initiative, you talked about $450 million of P&L benefit. by 2028. Just maybe delve into kind of what you're doing there, any early wins and just how we see that playing out?

Sure. So some of you may not know our story, but I think we got quite good since the IPO of having an annual top program. It's called tapping our potential, where we tried to figure out ways to deploy some new approaches to how we're running the bank and serving customers, and some of that was technology oriented. Some of it was organizational redesign or kind of consolidation of vendors and things like that. So we were typically getting about $100 million a year of benefit from these programs.

When we got to the middle of the year and we were looking at 2026 and beyond, it really became apparent that we needed something more than just a top program that had some quick wins to it that we needed to take advantage of some of all of the technology innovation that we're seeing and lever these tools and step back and look at everything the bank does.

How do we onboard a new customer? How do we service a complaint or handle a fraud matter on someone's card, lay that out the way it happens today and then reimagine the future, go 3 years out and say if I had a whiteboard and I could create human bot forces or I could change my technology around to make it a much better customer experience, have less human interaction, more self-service, et cetera, how would I do that?

So we took probably 25 people offline in the summer, and we mapped out all those processes and basically constructed a program that has kind of 11 major building blocks, and it has about 50 initiatives in it. And we've mapped that out, and we have owners for that. And some of this because it involves reconfiguring your technology and introducing these new tools, it takes longer than what a typical top payback program would look like. That's why it's a 3-year program.

What we didn't want to do was kind of -- I think the market might have been a little nervous that we would incur all this onetime cost to get the program off the ground. And so we've front-loaded some of the 2026 initiatives that will have quicker paybacks, things like vendor reconfiguration and consolidation. We have a bunch of that. We have some scattered offices that opened up during COVID that we're going to kind of refocus and consolidate.

So there's a number of things in the short run that will get us, I think, to about $100 million run rate by the end of the year. But keeping those bigger initiatives on track. There's things like the call center investments that we have is introducing more AI and more bots into the call center, that should already make a lot of progress this year and starting to be paying some dividends by late in the year.

I guess maybe before we kind of shift gears to the financials because you know I'm going to do that. Despite kind of geopolitical tensions, uncertainty in the macro, results have actually been pretty solid, particularly in the first quarter, which is seasonally soft. Maybe just talk to kind of what you're hearing and seeing from your customers?

Yes. It's kind of surprising that you look at the headlines and all the worry beats that people have. They had the kind of noise around tariffs and I have a war going on. It really hasn't weakened the economy to a material degree. So I think we're still -- we thought coming into the year, we'd had 2% to 2.5% GDP growth in the U.S.

I think we might head a little to the lower side of that,0 but still be in the range. We'll see how long the higher energy prices last and if that has a further impact. But consumers generally are still getting on with their lives and spending money. There's kind of a 2-tiered economy, where the more well-off people are benefiting from still strong stock markets, strong housing values and not even batting an eye what they're seeing in the headlines.

And then I'd say the folks that are less fortunate are still catching up to the inflation that we had. So their kind of real wages took a dip. And now salary increases are catching up, but they're not all the way caught up. So I think they're being a little more cautious still at this point. But we look at the credit stats on the consumer even in that kind of lower-end customer, and they look okay. We don't see increases in delinquencies and things at this point.

So just probably a little more discipline and cautioned. And then when I look at the corporate book, we've had, I think, very clean performance. Most of our companies got -- they basically had to do 2 things. They've had to be resilient and adaptable given everything that's happened over the last 5 years. So they got through COVID. They got through the high inflation and high rates. They got through liberation Day.

And basically, they're good at kind of scenario analysis and trying to figure out if this happens and kind of what am I going to do? So they're still investing. They still want to grow their businesses. They're still kind of maybe one foot on the brake and one foot on the gas. But anyway, it still feels good, and we have no credit issues there either really on the corporate side.

And CRE feels like the office sector that basically suffered the most from the pandemic, those problem credits across the industry and for us are being worked out and multifamily has stayed strong. And you're seeing in some markets like New York City, new construction for office is in high demand. They're getting record rents. So I think there, again, we're going to be very cautious in kind of what we do in CRE. I'd rather be growing the C&I book and growing some quality private bank and consumer assets. But I feel from a credit standpoint, we like where we're at on CRE.

I guess maybe following up, I guess, just thinking -- obviously, you talked about asset quality being very stable. I guess any areas, 1 or 2 or 3 that you're maybe paying particular attention to?

Nothing really pops up, Jason.

All right. And then you kind of touched on loan growth. We've actually seen 4 consecutive quarters of sequential growth. Maybe just talk to kind of what have been the drivers there and kind of as we look out to the end of the year, loan growth...

Sure. So one of the idiosyncratic drivers that's unique to us is the private bank. And so as the private bankers bring on businesses -- business and previous relationships and they start lending money, that's just kind of market share gains for us that is kind of separate from what's going on in our traditional consumer growth and our traditional commercial growth.

So we have that kind of driver that I think should generate maybe $1 billion a quarter of loan growth, which is very positive. And then we're seeing good healthy demand on the corporate side. So C&I and then NDFI, another one of the latest kind of handwringing phrases that we feel very, very good about. But there's opportunities there to either see corporates getting a little more aggressive, pulling down their lines a little bit.

I think there'll be more new money deal flow as the M&A cycle heats up once we get through this war uncertainty. And that will also benefit on kind of subscription lines, more line utilization. So I feel quite confident that we're going to get very good commercial growth this year. And then in consumer, we have kind of 2 very Steady Eddies. One is mortgage that we're continuing to grow in mortgage and then HELOCs, like we are the biggest HELOC originator last year in 2025 in the whole U.S. for a bank our size. We only originate in 14 states. We originated more than any other bank, including the mega banks.

So we've kind of mastered the art of making a complex process to originate and close one of these HELOCs, a very powerful positive experience for the customer. So something that usually takes 45 days and has a lot of document gathering. We have that down to like 14 to 20 days. And as a result, people refer their friends, if you want to get a home equity line of credit, go to Citizens Bank, they do a great job.

So anyway so we have growth there. We'd like to see a little pickup in card growth. But anyway, what's nice is that all 3 of those segments are contributing to the growth. And for the last 3 years, as we were running down noncore our indirect auto book, that was masking the underlying book, but that's small enough now that the drag of what's left to run down in noncore is not offsetting the combined growth in the other 3 segments.

Got it. And maybe just shift gears to the other side of the balance sheet. I guess deposit trends for the industry is kind of mixed in the first quarter. Maybe just talk to as the environment where loan growth is getting better, the Fed is probably on hold, just your outlook for both deposits and kind of what happens to deposit pricing?

Yes. So there, again, a little frog here, sorry. There, again, the -- having the unique private bank that's growing rapidly, the impact from the Private Bank is very positive to our deposit funding. So as I said, $16 billion that we have delivered, we've only had the thing up for maybe 10 quarters. And so -- and the composition of that is very attractive. So about 1/3 of that is noninterest-bearing, which is accretive to our overall noninterest-bearing mix.

So again, that's an idiosyncratic driver for Citizens to see that nice consistent deposit growth coming in from the Private Bank. And then I'd say in consumer, we're still expecting to see growth overall as New York is contributing to the growth. And then in commercial, we have some initiatives like expansion into middle market in California and Florida. And so that's contributing to some of our deposit growth on the commercial side.

So I think realistically, if the Fed holds for the rest of the year, the ability to drive down your deposit cost is not going to be as high as you thought coming into the year. But there's also the flip side of that is then the yield compression on the loans will be less, and we're slightly asset sensitive. So anyway, I think I feel really, really good about the NIM trajectory that we laid out and our ability to achieve that and deliver that.

I guess on that NIM trajectory, it's probably one of the more or the higher rate of expansions among peers. Part of that is kind of some of these hedges are the drag of hedges rolling off. I guess just how confident are you in the outlook? And obviously, the interest rate environment has been somewhat fluid. Are there any kind of backdrops that kind of make you more nervous?

Well, a high percentage of the NIM expansion is, we like to call it time-based benefits. So when we tore up the swaps, we saw rates were going higher a few years back, you [ cauterize ] your loss, but then you have to, from an accounting standpoint, amortize that loss over the remaining life of the swap. So we don't even have to get out of bed and a certain amount of that is going to drop off every quarter. So we've, I think, shown that very transparently. So that's a positive.

And then the noncore, when we got the cash in from selling a noncore asset, we were paying off our higher cost funding. A lot of that's already flowed in, but there's still a little more for that as well. So -- so you have that underpinning of time-based benefits that's really powerful. And then the rest comes down to how we're growing our balance sheet, how we're managing deposits, keeping the mix consistent, et cetera, which we feel good about. We feel good about our ability to deliver that.

I guess maybe shifting to the fee income side. I guess kind of down sequentially in the first quarter as capital markets revenues came down, albeit still a high level.

Record first quarter.

Record for a first quarter. Just maybe talk to maybe just the outlook for the key drivers, let me start with cap markets, just given your success there.

I feel really, really positive about the capital markets outlook for the year. So the folks who lead that business, say pipelines are excellent and conversations are really strong and consistent. And so people may pull back on timing a little bit based on some of the external events, but there's a confidence that things will get done over the course of the year. So we feel good.

And as I mentioned, I think we're the best positioned super regional commercial bank to benefit on the capital markets line. As activity levels pick up, I think the power of what we've built will manifest itself more and we'll start to gap maybe versus some of our peers in terms of the revenue capture there.

And in wealth, we've been putting record quarter after record quarter for probably the last 6 or 7 quarters. So I think we've found a way to unlock the cross-sell opportunity in the branches, which has taken years to get the right people and the right approach in place and have the data to go after the best opportunities. And now that's been really nice to see that we're getting consistent growth and improving the penetration of the deposit customers who also have wealth accounts and consider us their wealth adviser, not just their bank.

And then these lift-outs on the private wealth side, they bring teams that have assets and then we can feed the growth from referrals coming in from the private bank and the corporate bank. And we're really staying at the tippy top end of quality. We want to make sure that we really have great people. They do -- they fit our culture and they work well with other people around the bank. And so far, we're very pleased with what we've been able to attract.

And I guess maybe on the expense side, I think 4.5%-ish growth last year, targeting 4.5% growth this year. Is that how to think about the company longer term and just how you're weighing that?

I mean, I know the market likes stories where I'm grinding down on my expenses and I'm keeping it to 2%, and I can get 4% revenue growth. You, I think, have pointed this out in your research, like a bank that had 8% revenue growth and 6% expense growth is going to have far more positive operating leverage. Just the way the math works.

So we're not going crazy. Don't think I just was opening the door to a 6% expense growth. But I think at 4.5%, we basically are running the core bank at 3%. And then the investing that we're doing in the Private Bank adds another 1.5% to 2% to that 2.5% to 3% for the core bank. So we're still maintaining that discipline in the core bank and looking for efficiencies.

And these numbers are before any benefits from RTB. So anyway, but when the growth opportunity is there to invest in, when you can really invest in the private bank and capture that white space that [ void ] that First Republic left, when you can have -- we have people beating on our doors to get on to the capital markets platform, when you can select really good people and keep building out that business, you got to go for it.

And then the technology needs that we have to -- so we're the first super regional bank to migrate all of our infrastructure to the cloud. And now we have things in Reimagine the Bank around deploying AI, deploying agents. There's a lot of things to spend money on, and you have to stay disciplined to try to find ways to self-fund that. And I think we've demonstrated over the years that we're pretty good at that.

The only other thing I'd say there, too, is like if you look at Street estimates for our revenue growth this year, it's like 10%. So you grow your expenses 4.5%, your revenue growth is 10%, 550 basis points positive operating leverage. There's no wonder that the consensus EPS estimates for up or up 30% for the year.

So anyway, I think having a guardrail that forces us to set priorities and pace things out is good, but you could easily spend more. And I think it would probably be productive spend. But anyway, we're going to keep kind of for now at that limit.

Makes sense. I guess maybe on capital reform, the revised standardized approach is a 10% reduction in RWA. The new [ BAA ] model is maybe even more than that. Your SCB should certainly come down next year. So maybe just talk about how you're thinking about capital deployment and kind of overall capital targets?

Yes. So the regulatory reforms are very positive. They're more accurate and they'll, I think, drive bank participation in different asset categories that maybe were held back a little bit by the blunt kind of weight of how the risk rates were assigned before. So I think it's a good thing for the banking industry. I think it's a good thing for the economy.

We said that if we look at the proposal that we gained maybe 110 basis points of RWA relief. And then if you have the AOCI, if you took that off today, that's about 110 basis point drag. So you're kind of net neutral. But if you go out, if it's phased in over 5 years, a lot of that AOCI is burning off because those securities are maturing, the swaps are maturing. So you probably end up with still a 30 to 50 basis point net after the AOCI impacts.

So that's something to think about what to do with that. And I think a smart person on the analyst call said, do you think you have kind of the same risk on your balance sheet, what will the rating agencies look at? And will the TCE to TA ratio come back into vogue even though it's not a regulatory ratio.

So there's a lot of things to play out on that, but you're in a position of strength because now you have a higher CET1 ratio coming down the pike. Our SCB has been a frustratingly high number, which has no basis and accurate methodology. But I think that's going to change. I think we're very hopeful that we go through this round. And even if they don't change the SCB by the way they set it up this year, everybody will see that the SCB is a lot lower, and it's more back in line with peers. So that's another positive.

So anyway, I -- we'll wait and see. I like to run with a little bit of a conservative mindset around our capital position. I think the strong banks operate that way. And then when you get into choppy waters, you can be opportunistic just like we had a chance to bid on Silicon Valley and on First Republic because people knew we had strong balance sheet positioning, strong funding, strong capital, et cetera, et cetera. So we'll kind of work that all through, Jason, but it's a good problem to have. It's a good situation to be in.

All right. We got 2 minutes left -- 4 minutes left in 2 questions.

So these are the same [indiscernible].

So first obviously, you got to cover M&A. There's a window here that banks seem to be able to consolidate. Maybe just talk to your thoughts on scaling the industry, Citizens -- thoughts on Citizens expanding further through acquisition, both on the banking side and then maybe on the nonbank side?

Yes. I've been pretty consistent that with the amount of organic growth that we have and the initiatives that we have in motion that the bank M&A right now is a lower priority. It's not something that we're actively focused on because in effect, we did our M&A was the start-up of the Private Bank. And you look at 10% accretion to your bottom line within 2.5 years. You can't really find a deal that delivers that, and you'd have to spend a huge amount of capital to deliver that.

So we found a capital-light way to get into a new business and have huge benefit to the bottom line. And making sure that, that is sustainable and maturing on the right trajectory has to be our highest priority. And then RTB is also another initiative that is capital light. You take some onetime costs. But if you can deliver $450 million improvement to PPNR, that's also really, really big.

So making sure that gets off the ground and we manage that and execute that well is important. So I'm less concerned about scale. If you -- some of the folks in our peer group are buying banks at $30 billion to $75 billion. I don't think that game changes your scale a whole lot. You got to do what I said in the beginning is build out your business strategy and focus on areas where you have a right to win and you have real strength and distinctiveness, and that's what we're doing.

Makes sense. And maybe just bringing it all together, you talked about getting the 16% to 18% ROTCE target by the end of next year, kind of everything you said so far feels like you're on track. But when you made that target, ROTCE wasn't something you had talked about. We didn't know about this Basel III Endgame reduction in risk-weighted assets. I guess how should we still think about -- is that still the right way...

I remember when we did the IPO, and people made me promise that I could get to 10% within 3 years when we were starting at 5%. And then when we got to 9%, people were saying, well, you should raise it. I said, I'm not even there yet, but let me get there first. So that's my mindset now is don't keep stretching, don't overpromise, just kind of get the returns into that level and then make sure that it's something that we think is pretty sustainable. And when markets go through inevitable cycles, we want to have much lower tail risk.

I think we have that the way we have more diversification in our revenue streams, and we have tightened up our lending criteria to have kind of, I think, a much better -- it was always good, but I think it's much better now in terms of our credit risk profile. So anyway, I think we can deliver that, manage to deliver returns, and then we'll see how much growth we want to achieve. Any growth should be accretive to that if we can continue to grow the Private Bank and continue to execute on our strategy. I do think down the road, there could be upside to the 16% to 18% for sure.

Perfect. That's a good place to leave it. Please join me in thanking Bruce for his time today.

[indiscernible] everyone, and welcome to the Citizens Financial Group First Quarter 2026 Earnings Conference Call. My name is Ivy and I will be your operator today. [Operator Instructions] As a reminder, this event is being recorded. Now I will turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin.

Thanks, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee, will provide an overview of our first quarter results. Brendan Coughlin, President; and Ted Swimmer, 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.

And with that, I will hand it over to Bruce.

Okay. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We're pleased to start the year off strong, notwithstanding geopolitical tensions and uncertainty in the macro environment. We delivered good financial performance in a seasonally soft quarter with year-over-year EPS growth of 47%, positive operating leverage of 7% and NIM expansion of 24 basis points.

Our balance sheet position continues to be robust with CET1 at 10.5% and our allowance for loan losses at 1.52%. Credit trends continue to be favorable across our portfolios, and we continue our loan mix shift towards deeper relationships with lower credit risk. Execution on our strategic initiatives continues to track well. The Private Bank and Wealth business showed further growth in customers, balance sheet and profitability, now accounting for roughly 10% of our pretax income while delivering an ROE in excess of 25%.

During the quarter, we opened 3 more PBOs, bringing the total to 9. Reimagine the bank is off to a solid start, and we reaffirm our $450 million P&L target by the end of 2028. We estimate about $100 million in 2026 exit run rate benefits at this point. Our positioning with private capital continues to be excellent.

We anticipate a strong year for private equity sponsor activity, which should provide a balance sheet and fee opportunities for us. We've reviewed all of our lending to private credit vehicles at a granular level and we feel good about our credit exposure. The New York City Metro initiative also continues to show further progress. We are growing across retail, small business and middle market. We are in the process of analyzing Citizens' existing branch footprint for net new investment and optimization with New York City likely to see growth in branches in coming years. We should have more details to share with you on this midyear.

We're also focused on an initiative we call One Citizens, which is systematically finding ways to work across the enterprise to deliver valuable solutions to our customers. Now that we have stood up the private bank and continued the build-out of our corporate bank, we have the capacity to provide both personal and corporate services to successful business owners investors and entrepreneurs. We will report more on this as the year progresses, but we're already gaining real traction.

As we look ahead to the second quarter and the full year, we remain cautiously optimistic that we'll be able to navigate through external challenges and still deliver the strong results we projected coming into this year. So far, markets have behaved rationally despite the war with equity markets holding in and credit spreads only slightly wider. We intend to stay on our investment plan for the year unless the macro takes a meaningful turn for the worst.

We're pleased with the regulatory changes we see coming from Washington, D.C., and we look forward to the upcoming CCAR stress test results, which we're hopeful will give a more accurate result for citizens than what we've seen in the past. So to sum up, a good start, well positioned with a great strategy and a great team and optimistic for a strong 2026.

With that, I'll turn it over to Aunoy for the financial details. Aunoy?

Thanks, Bruce. Good morning, everyone. As Bruce mentioned, Citizens has started the year well. Referencing Slides 3 and 4, we delivered EPS of $1.13 for the first quarter with ROTCE of 12.2%. Results were paced by strong NII, reflecting both continued net interest margin expansion and solid loan growth. We also deferred our best-ever first quarter fee result, led by strong performance in our commercial bank. With solid revenue performance and expense discipline drove more than 700 basis points of positive operating leverage year-over-year notwithstanding continued investment in the private bank and our other strategic priorities, along with ramping up our [indiscernible] bank program. The Private Bank continued to grow its profitability, contributing $0.11 to EPS, up from $0.10 in the prior quarter as the business delivered another very strong quarter of deposit growth.

Now let me walk through the first quarter results in more detail, starting with net interest income on Slide 5. Net interest income was up 1.6% linked quarter, driven by the benefit of an expanded net interest margin and higher interest-earning assets, including strong loan growth which more than offset the day count impact of about $22 million.

As you see from the NIM back at the bottom of the slide, our margin improved 7 basis points to 3.14%, driven primarily by the benefits of the reduced drag from terminated swaps and noncore runoff with a 5 basis point of combined impact. The fixed rate asset repricing benefit of 1 basis point. And lastly, the net impact of 1 basis point related to improved funding cost and mix, largely offset by lower acetyls.

We continue to do a good job optimizing deposits in a competitive environment. Our interest-bearing deposit costs were down 16 basis points and total deposit costs were down 12 basis points. The cumulative interest-bearing deposit beta improved to 50% as we benefited from the repricing after the last rate cut. Even with the Fed now expected to hold steady in '26, we are still projecting a high 40s beta for the cycle.

Moving to Slide 6. Noninterest income is up 11% year-over-year but down 2% linked quarter. As I mentioned, this was our strongest first quarter fee result ever, notwithstanding heightened geopolitical tensions and an increase in market volatility. Capital markets performance demonstrated the strength and diversity of the franchise with fees up 34% year-over-year and down 4% compared with the strong fourth quarter.

M&A delivered a good result in the quarter with our pipeline is strong and continues to build. Bond underwriting was up nicely from the prior quarter. Our equity underwriting performance was stable linked quarter and up significantly year-over-year. Loan syndications were lower given the market volatility. We continue to maintain strong market share ranking fourth in the middle market sponsors book runner deals by volume. This is for both the first quarter and over the last 12 months.

Our deal pipelines across M&A, debt and equity capital markets continue to build notwithstanding the unsettled environment. Our Global Markets business was up $10 million linked quarter with increased client hedging activity in interest rate products and energy-related commodities. Our wealth business continues to build with progress in the private bank and strength in our retail network. Wealth fees are up 2% linked quarter and 23% year-over-year. These results reflect higher advisory fees with continued positive momentum in fee-based AUM growth year-over-year.

The fourth quarter results reflect positive net inflows partially offset by market impacts on AUM. Mortgage was down 19% linked quarter given a lower MSR valuation, partially offset by slightly higher production and servicing fees.

On Slide 7, Expenses were managed tightly, up 2.6% linked quarter, largely reflecting the usual seasonality in salaries and benefits as well as about $6 million of implementation costs to ramp up the reimagined the bank program.

On Slide 8, average and period-end loans were up 1% linked quarter. We saw solid loan growth across each of the businesses. Commercial loans, excluding the private bank, were up 1% on a spot basis. This was driven by net new money originations at higher commercial line utilization. This was partially offset by CRE paydowns. We continue to reduce commercial banking CRE balances, which were down about 4% this quarter and 16% year-over-year.

The Private Bank delivered good loan growth again this quarter with period-end lows up about $600 million, driven by growth in multifamily and residential mortgage. Growth in retail loans ex noncore on a spot basis was about $300 million, led by real estate secured categories. This was offset by noncore auto portfolio run-up of roughly $500 million for the quarter.

Next, on Slides 9 and 10, we continue to do a good job on deposits. with average deposits up 1% or $1.5 billion quarter-on-quarter, primarily driven by the growth in the Private Bank, which reached $16.6 billion at the end of the quarter. This was partially offset by seasonal impacts in commercial. Year-over-year, average balances are up $8.6 billion or 5%, reflecting combined growth in the private bank and commercial of $11.2 billion, partially offset by roughly $2 billion of reduction in higher-cost treasury brokered deposits. On a spot basis, noninterest-bearing balances are up $1.3 billion or 3% quarter-on-quarter and up $4.1 billion or 11% year-over-year, improving the overall mix to 23% of the book. Our total noninterest-bearing and low-cost deposit mix was steady at 43%, and our consumer deposits are 64% of our total deposits. This compares to a peer average of about 56%.

Moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 39 basis points, down from 43 basis points in the prior quarter. Nonaccrual loans are down modestly linked quarter, reflecting a decrease in commercial, largely driven by C&I, which was partially offset by an increase in market.

Turning to Slide 12. The allowance was essentially stable this quarter with ACL coverage ratios of 1.52%. This reflects the continued improvement in our portfolio mix with noncore runoff, the reduction in CRE and strong originations of lower loss content C&I, residential real estate secured and private loans. The economic forecast supporting the allowance contemplates a mild recession with a slight deterioration compared with the last quarter, reflecting the potential impact of higher energy prices. As we look broadly across the portfolio, the credit outlook remains positive though we continue to carefully monitor the macroeconomic environment.

Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.5%. We returned about $500 million to shareholders in the first quarter with $198 million in common dividends and $300 million of share repurchases.

Moving to Slide 14. The private bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $16.6 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding about $600 million of loan at a healthy spread of 4% over deposit costs to end the quarter at $7.7 billion of loans.

We ended the quarter with $10.1 billion of total client assets with modest net inflows partially offset by market impacts. We have more runway here as we plan to continue adding top quality teams in key geographies. We opened offices in Malmo Park and Laurel Village in the first quarter, and we expect to open at least 2 more offices this year in Weston Beach, Florida and Greenwich, Connecticut.

Moving to Slide 15. Our reimagined the bank program is off to a great start. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model. which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. The program is well underway with work commencing on several key work streams.

For example, on the technology front, we are leveraging AI to assist in writing code and expect to have material productivity improvements in software development, cutting down cycle times. We are also using AI to improve our interactions with customers, which we expect will materially cut call volumes and improve the overall customer experience. We expect to exist 2026 with an annualized run rate of about $100 million of pretax benefit.

Now moving to Slide 16. We provide our outlook for the second quarter. We expect net interest income to be up in the range of 3% to 4%, driven by continued expansion in net interest margin and earning asset growth. Noninterest income is expected to be up 3% to 5%, led by capital markets with some risk if market volatility moves higher. Other fee categories such as FX and derivatives, wealth and card should also provide lift for the quarter.

We are projecting expenses to be stable to up 1% and incorporating a step-up in implementation costs associated with reimagine the Bank and continued investment in other key business initiatives. We expect expense saves from reimagine the bank to benefit second half expenses. The charge-off level is expected to be stable to down slightly. And we should end the second quarter with CET1 in the range of 10.5% to 10.6%, including share repurchases of about $225 million.

In addition, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity over the course of the year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of pending our net interest margin is an important driver, and we continue to project NIM to be in the range of [ 322% to 328% ] in 4Q '26. And in the range of [ 330% to 350% ] in 4Q '27.

Slide 17 provides incremental details on our net interest margin progression to the end of '27. This combined with the impact of successful execution of our strategic initiatives and normalizing credit should drive ROI to our target range. To wrap up, we're off to a good start to with results highlighted by strong growth, net interest income and good fee results in a seasonally soft quarter.

Our balance sheet is strong and continue to drive forward our strategic initiatives with strong momentum in growing the private bank and in our reimagine the bank program. With that, I will hand it back over to Bruce.

Okay. Thank you, Aunoy. Operator, let's open it up for Q&A.

[Operator Instructions] Our first question comes from Scott Siefers from Piper Sandler.

Maybe I was hoping you could maybe start by speaking to kind of the capital markets dynamics. Obviously, I see the numbers in the first quarter, but curious how you thought the first quarter actually performed given that you had sort of the interplay between one, the environment played out a lot differently than we all figured it might. But two, I know you all had some deals that were pushed from the fourth quarter into the first quarter. So maybe just sort of results versus expectations then if you could speak to the forward look, things like pipelines, confidence and pull-through, et cetera.

Yes. Scott, let me -- it's Bruce. I'll take it first and then hand over to Ted to provide more color. But I would say all things considered. We're pleased with the performance of the capital markets franchise in an environment that had increased volatility and lots of uncertainty, particularly in March once the war kicked in. But we have good diversification across our different services in capital markets. So we have M&A, we have bond underwriting, equity underwriting and syndicated loans. I think that diversity helped us print a good quarter. There was some leakage, I would say, from March that's geared up to go in April, which now that we have more optimistic tone to the market. We're actually starting to see that come through. So we may be in a situation where our pipelines are very well. We're very optimistic given kind of the strength of the franchise the likelihood that people want to transact. But if there's this external volatility ebbs and flows, you could see people pull to the sidelines, wait for the opportune time, for example, to go to market. And hopefully that cleans up. We're certainly not taking our numbers down for the year. In fact, we feel quite good about that given the level of activity that we see and the pipeline strength that we have. So Ted, over to you.

Building on what Bruce just said, we've seen -- we took a couple of transactions in March that we would have launched into the market and pushed them into April, just given the volatility in the overall markets. But during that whole period of time, we continue to sign up new transactions. And I think what's really exciting about the transactions that we're signing up based on the investments we made in Corporate Finance and industry specialization we now are doing more complex transactions and getting signed up on more complex transactions than we ever had before and feel very good about what that pipe -- what those transactions are and how the pipeline is building. And to more to what Bruce just said, the deals that got postponed in March, especially this week, we've seen them back into the market. We are launching several transactions and part of several transactions that were postponed in March that are getting very good [indiscernible] now in April. So we continue to feel very optimistic about the pipeline, especially on the M&A side. And during this whole period of turmoil, we really actually saw a pickup in new mandates, especially on the M&A side of the business.

Yes. And I'd just close by saying it was a record first quarter for us in capital markets fees, that shouldn't go unnoted.

Okay. Perfect. That's very helpful. And then I was hoping you all would maybe speak to the private credit portfolio as well. I know there's a lot of good detail in the appendix. Just curious sort of not only for an update on credit quality dynamics, but also given your build-out of the team over many years, I know it's been a focus area and just sort of your appetite to continue to grow the portfolio given sort of certain current sort of industry circumstances?

Yes, I'll start again and flip to Ted. But I would say we've been very disciplined in terms of the kind of counterparties that we select usually they're often a private equity sponsor that's migrated to a broader kind of business model that picks up private credit, and they're moving to be more of an alternative asset manager. And so we've helped them grow and get into this business and provide leverage to many of those names. So client selection is always key and then making sure we have the right structures in place so that we're structurally protected from any issues that could arise in the portfolios. And so we've gone through and looked at kind of our exposure and kind of the broad portfolio, looking at all the underlying factors who has liquidity gates for retail investors who's got software exposure at the end of the day, feel very, very confident that we're structurally well protected from a credit loss standpoint. And I think even though this is in the headlines and there's concerns about private credit, the asset class, if you want to call it that, is here to stay, and they provide a certain amount of leverage and deal structures that exceeds what banks have historically been willing to play, and there's certainly a lot of institutional demand folks or private credit managers are continuing to raise new money. So I think we'll just grow selectively with the market. as we have in the past, but we don't see this turning around and being something that starts to shrink. It's just going to grow. And I think every player in the market will be more selective, and we'll continue to be selective, but we would expect this to be an area that we stay committed to. Ted?

Just adding on to what Bruce said in a number of conversations we've had with private credit since this -- the noise has really started. We really haven't seen a decrease in appetite. In fact, in a lot of the conversations and the deals we're getting ready to launch. We're getting inbound calls from the private credit side of the business. So technology and software is certainly something that they're not all that interested in investing in right now. But for the most part, the majority of their portfolio, they're still very hungry and there's a lot of demand out there.

We'll go to the line of Manan Gosalia from Morgan Stanley.

Maybe to start on NII. I know you broadly reiterated the guide for the year, including the NII guide and the exit NIM. But you have noted that Citizens SKU is slightly asset sensitive. In a scenario where rates stay higher for longer, we don't get any rate cuts until the end of the year. Where do you think the NII and NIM is trending? And what's the most likely outcome here?

Yes. So we feel really good about our ability to deliver the kind of NII and the NIM that we gave in the beginning of the year guide. So -- but as you say, the environment is going to have an impact to some degree and a bit of a pause by the Fed. So a little higher rate scenario that we came into the year given asset sensitivity is modestly positive for us. And then a little slightly steeper yield curve, we had assumed 425 to 450 is the 10-year, and we're kind of in that zone. But -- to the extent there's -- that moves up and there's a little more steepening, that's also potentially positive to the outlook. But I wouldn't say it's a game changer. These are kind of marginal benefits that give us even more conviction that we can deliver to the numbers or slightly ahead of the numbers. With that, Aunoy, I'll turn it over to you if you want to add any color?

Yes. I think Manan, to Bruce's point, we are very confident on getting to the NIM and the NII outlook that we gave I think on the NIM side of it, as you saw from our walk in 1Q, a lot of the benefit is coming from the terminated swaps and the noncore runoffs, which is which is not rate dependent, and that's another 12 basis points for the rest of the year. The front bank -- bank book book dynamic as Bruce strategies would be helpful in this environment. So we remain confident on getting there. And as you saw, we have some good loan, but we have good correction and pipeline on that. So we feel confident of getting there.

Perfect. And then maybe to pivot over to capital given the new proposals that we got a few weeks ago, if you could give us your initial thoughts on what the magnitude of the benefit is for risk-weighted assets given your specific business mix? And maybe if you have any thoughts on whether citizens would adopt the ERPA.

Okay. Sure. So it's still early days, and we're going through a comment period. But based on what we see now, this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points, call it, 110 basis points or so of CET1 improvement. -- the AOCI phase-in, if it happened right today, it would basically mitigate that. But as it phases in over time, some of that drag will dissipate. And so we would expect to be kind of at least 30 basis points to the good net-net, even with AOCI, maybe as much as 50. So we'll just have to see how the rate curve plays out from here. But anyway, it's a good problem to have, and it's probably early days to say kind of what we'll plan to do with that. There'll be a lot of considerations what is stakeholders' expectations, the market, the rating agencies, the regulators, et cetera. But anyway, it's a good issue for us to think about. The other thing is on this ERBA. There's a modest improvement even over the revised standard approach but there's a lot of work that goes into that. So you'd have to step back and decide do you want to do it? One of the things that sticks out as a difference between the 2 approaches is kind of the lesser risk weights under [indiscernible] for investment-grade credit. And we'll have to see if that gets imported into the revised standard approach, so there's no difference or whether there is a difference that might pull you towards wanting to move over and do ERPA approach. So Aunoy, anything to add?

Yes. I think as Bruce said, Manan, we are going through all the advocacy on some of these things that Bruce mentioned. We are also looking at all the work that needs to be done on ERBA, which says versus standardized for what's there and now with a lot of new technology, things could be really different in some ways. So there's a lot to do here still. But we are -- as Bruce said, we are -- it's in the right direction, and we feel good about it.

We'll go to the line of Ryan Nash from Goldman Sachs.

So Bruce, you've had 4 straight quarters of sequential loan growth. If I look at the drivers of growth, clearly, private capital call, private credit have all been contributors. So maybe you could just talk about your confidence in loan growth here and what you see as the key drivers. And then second, I know you referenced higher utilization. What's driving that? I know you're expecting to see more of this.

Yes, I'd say that the really impressive thing, Ryan, is that we're getting the growth in each of the 3 main business areas. So private bank being kind of that start-up phase is growing their book nicely and consistently. And I think that leans a little bit more on the consumer side and multifamily side, that should continue. We had actually low line utilization with their client base, which should bounce back. And so we see private bank contributing. I think in commercial as well, we have the growth in NBFI, but also starting to see a little deal activity pick up across the corporate book, and we have our expansion [indiscernible] don't forget. So we brought banking teams into Florida and California and beefed up our New York Metro team. So that's contributing a bit. And then in the consumer bank, we've been kind of a rock star and HELOCs and also consistent growth in mortgage. So it's nice to see it's pretty broad-based. And then some of the drags of the things that we've had in the past, such as kind of the rundown of noncore, some of the commercial BSO thin relationship exits and things like that, the CRE kind of getting back to par where we want to be on commercial CRE after the investors acquisition all that is starting to abate a little bit, which allows the inherent growth to shine through. I think I'll ask maybe go to Brendan first for some color on Consumer and Private Bank. And then Ted, I'll ask you for some color on commercial.

Yes. Thanks, Bruce. Thanks, Ryan. Adding on Bruce, just give you a little more color and data on the retail side of the business. We're up about 4% year-on-year on core loans, heavily driven by HELOC and mortgage Bruce mentioned, you just got the league tables in from 2025. We're the #1 originator in the United States at home equity lending with an incredibly strong risk profile, low LTVs, strong FICO scores, all depository relationship customers. So we're very proud about that, and we expect that to continue. Mortgage originations in this rate environment has obviously been challenged, but prepay speeds slowed too. So we're seeing net positive growth in mortgage and the balance sheet rotating into higher relationship-based lending fueled by the private bank and the retail bank. With our launch of a new credit card products, we're seeing a 50%-plus growth in new credit card originations. It takes a little bit of time for that to translate into the balance sheet as pain activity gets through, but we should see some modest script in credit card as we hit the back half of the year, too. So broadly in retail, we expect the the growth rate that we're seeing to project forward with a lot of confidence and the mixing of the balance is to get strong with higher return and deeper relationships. The private banking side, we've generally been in the range of about $1 billion in net growth each quarter. We were a little bit lighter than that this quarter with some lower utilization rates on the private equity side. But we that to be temporal. And the underlying originations activity is quite strong. We're very confident we'll end the year in the range that we gave of $11 billion to $13 billion, which projects back to about that $1 billion in that growth per quarter returning in the private bank. So both retail and private banking, I would just broadly describe as continued steady momentum with what you've seen over the last few quarters. Ted?

Yes. Thanks, Brendan and Bruce. On the middle market side, we have seen a pickup in utilization over the last 3 months. I think customers are getting -- our customers are getting more comfortable in the economy and overall spending money on CapEx, which has led to a slight increase there on the mid-corporate -- adding on that, what we built out in Florida, New York and California, we're starting to see some real success there with increased loan demand and some increased customer count, which has resulted in higher growth there. On the mid-corporate side, we've reorganized the division a little bit to be more industry focused, less geographic focus. That has resulted in a nice pickup of new opportunities for us on the mid-corporate side of the business, and that was really [indiscernible] in the first quarter for us with significant growth there. NDFI continues to grow somewhere in the range of 5% a year. There's still good opportunities both on the capital call line, the securitization business and on the lending to the direct funds, and we expect that to continue to go around 5%. And then finally, we have really not seen much pickup in the private equity side of the business. The sponsor business has still been, I would say, flattish year-over-year. So most of our growth has been the traditional mid-corporate and middle market space.

Got it. And maybe just as my follow-up, Bruce. In the slides, you highlighted some of the things that you're doing with reimagine the bank, including corporate and the LLMs and a handful of things. I guess, given the pace of change we're seeing in the markets in areas like AI, are there opportunities to accelerate any of these initiatives or adjust the timing given, again, just the rapid pace of change that we're seeing?

Yes. I'll start and put it to Brendan who's sponsoring and leading that program. But I think that's a really good call out, Ryan, is that the adoption curve, the innovation curve that we're seeing in AI is really -- it's almost mind boggling. It's very significant. And so I think what we did when we set up the program was we took a very systematic approach to say like here's how we do things today, how would we like to do them in the future, embracing the technology as we have it today, recognizing though that over a 2- to 3-year time frame, there's going to be a lot more innovation and a lot of chance to embrace even better tools. And so maybe that creates a higher level of benefit, maybe that creates an acceleration and maybe it just creates new work streams that we haven't even thought or possible. So it's really a living, breathing program it's dynamic. It will incorporate. We'll have our telescope out looking at all the new things that are coming down the pike and figuring out how we can incorporate those in. But I'd say one thing to leave you with, though, is that we've been -- we've demonstrated over the years an ability to take innovation and take new approaches to how we're running the bank and put them into a program and deliver real financial benefits. So we won't create a lot of science fair projects and kind of use some of this new technology in ways that actually don't deliver real benefits. That's kind of our mindset as we go through this. So Brendan?

Yes. Thanks, Ryan. Your question is principally AI, but one point on the non-AI front, you saw from us in the quarter. the remain the bank initiative was principally self-funded by quick wins that were non-AI based. And so we've already got over $30 million in projected vendor saves for the year in the box with an expectation that, that number goes up. We've closed corporate facilities, smaller facilities that's driving savings. So that has offset the investment already. So you're seeing real tangible impact in the program already this early in the year. On the AI front, to say two things. One is, you're right to point out the risk of speed of execution also is the speed of obsolescence as we put these in place, the idea that the best answer could be different in a quarter is very much front of our mind. So we're architecting all the things that we're building to be even more nimble than you might expect from a tech standpoint in the past. So as new models come up, we can easily plug and play and make sure we're taking advantage of the latest and greatest. So that's very much front of our mind. We very much have real AI use cases in market today. in the call center, as an example, we've told you we expect to get 50% of the calls out by the end of the period. It's already in pilot. In fact, we expect inside of this calendar year, by the end of the year, we should have 25% of our calls answered by non-humans with the expectation that will ramp in 27% to 50%. That really should hit in the summer and into the early fall. So this is very real. This isn't a back-loaded program all coming in 2028. And the tech space, as an example, we've deployed [indiscernible] to our engineers. We're already seeing a very material productivity improvement and leverage we're getting on our capital investment and deployment ranging from 30% improvement in productivity that in some tests we've done, it's been a 5 to 10x improvement in productivity. So now we're working on scaling it and engineering it for real scale. So we are moving very, very fast. We're keeping up with the pace and it's live and in production and our confidence is building.

[indiscernible] UBS.

Just a few follow-up questions for me, please. So given everything that you've said about a record first quarter in cap markets and very full pipelines, picking up new mandates while some of these deals were pushed into closing in the second quarter or launching in the second quarter, it sounds like we should still subscribe to the 6% to 8% fee outlook growth for '26?

Yes. We're not coming off any of those ranges the full year guide at this point, Erika.

Perfect. And then my follow-up question is, thank you for the expansive answer on NIM and NII relative to the current forward curve. I guess this is a 2-part question. First is, I think, Aunoy, you talked about the noninterest-bearing growth in a seasonally tough quarter for that, maybe where that noninterest-bearing growth is coming from? And to that end, if we do have a scenario where we have no rate cuts can Citizens, keep deposit costs stable in light of more robust growth from you guys on both the consumer and corporate.

Erika, it's Aunoy here. We were quite pleased with our deposit performance this quarter. And as we saw actually good noninterest-bearing deposit growth Obviously, we have a couple of strategic initiatives. One is being the private bank where you saw the good DDA growth that the DDA percentage in the private bank is 30%. So we continue to see that coming. And as you saw the balanced growth we are seeing the DDAs grow along with it. So that's the, that's 1 thing that's really driving the DDA growth. But even as Brendan mentioned, even on the consumer side, there is a lot of growth that we are seeing in the low-cost NTT as we really build the relationships with our clients. So we are seeing a lot of good traction there. And to your second question about where we go deposits from here. Obviously, deposit volume is going to depend on the overall economy, how the GDP goes, how the loan formation goes in the economy. But with some of the strategic initiatives, we believe that we can maintain in the competitive range about where deposits are going to go from here. And as you saw, our deposit betas our 50% this quarter and we have -- we expect it to be in the high 40s, which is in line with the competition. With that, maybe, Brendan, I'll pass it on to you to see if you have any comments.

I'll add a little color on each consumer and private, but out of the $118 billion or so of deposits that sit in the consumer bank, 52% of them are what we call low cost, which is either DDA or checking with interest. And in the retail bank checking with interest is sort of a sub-10 basis point type of cost. So for all intents and purposes, it's very similar to DDA. The COVID period of all those operating balances reducing is firmly behind us, and we're now seeing net growth. So we're up 130 basis points year-over-year and our low-cost deposit categories. That's versus a peer average of about 50 basis points. So we are very firmly in the top quartile in terms of low-cost growth. for the consumer bank, and we project that to continue with confidence in the outlook, which will really help control interest-bearing. Total cost of deposits when you include the interest-bearing side. And then no pointed this up. But in the private bank, we ended the quarter with very strong spot numbers. It's actually 40% DDA over 50% when you add in the checking with interest in the private bank itself as well. So we're expecting that to be in that sort of range in the same range that we've seen in the past. So we're getting this really strong growth in the private bank without breaking the quality metrics and this far in, that's a real positive to see. And broadly, we expect that to continue looking forward.

We'll go to the line of John Pancari from Evercore ISI.

Just on the private bank side, just what -- see if you can give us just a bit more color in terms of what are you seeing in terms of the mix of loan growth? How much momentum are you seeing on the mortgage side versus the commercial capital call type of loan generation. And then if you could maybe give us breakout of like where new money yields are that you're bringing on loans in the private bank, maybe on the mortgage side as well as on the other type of lending capital calls included.

Yes. On the loan side, it has -- the longer-term trend line, it's been pretty evenly mixed between mortgage, multifamily, commercial real estate and private equity capital call lines the utilization rates this quarter on the PE lines were down a little bit, so it sort of artificially suppressed the linked quarter growth was more driven by mortgage and multifamily CRE, which is pretty evenly split between those categories. both of those asset classes where we use the balance sheet comes with deep, deep relationship-based banking. And so the net returns on the customers are actually quite high. When you look at our overall loan yields versus our deposit costs, we remain in the range of north of 400, 425 basis points of net spread between our loan yields and our deposit costs, and that has been consistent since we launched. And so the growth that we're seeing is actually deep relationship based, but even just asset asset yields minus deposit costs, it's net accretive to our NIM position. So the return profile of the business overall remains in the mid-20s because of that with high profitability on the balance sheet, and we see nothing that will take us off that trajectory.

Got it. And then on the capital front, Bruce, maybe if you could kind of I think you talked about your capital allocation priorities from organic versus buyback and then maybe on the M&A interest side.[indiscernible] I know you've been historically uninterested in whole bank M&A. Just curious if that's changed for any reason at this point.

Yes. Thanks. I would say the capital and priorities are really unchanged. They've been stable. So we always look to make sure that we have a good dividend on the stock and that we can raise our dividend as earnings grow, which be an objective for this year. The second place objective is to make sure we have capital supporting our clients and supporting the growth of the bank. So organic growth is kind of next up. And then the residual, you can look to do potentially some selective acquisitions. For example, in the first quarter, we bought very small but high-quality M&A boutique to, as Ted indicated, we go deeper into these industry verticals. Do we have everything we need to really serve those clients well. And in some instances, rather than hire people. It's faster just to go out and buy an M&A boutique that doesn't use a lot of capital, but we'll certainly look for things like that or maybe some things in the payment space that can accelerate our growth a little bit, but these are generally going to be small. And then whatever we have as the residual, really goes to buying back our stock. And I still think the stock is very attractive here, as you would expect me to say. But in any case, we're -- we bought a lot of stock in, in the first quarter, $300 million. And we gave in our guide that we're looking to buy $225 million here in the second quarter. So we'll have -- if we keep growing our overall results and our earnings will have lots of flexibility to both grow the bank organically plus buyback stock.

We'll go [indiscernible] from [indiscernible]

Back on capital, you mentioned the stress tests coming up and the potential to get some relief there. your buffer is 4.5%, it seems like you could see some pretty significant relief this time around. And if you do, does that at all come into play with how you think about the 10.5% level for CET1, especially in the context of seeing some of the larger banks moving their CET1 ratios lower recently?

Yes. So what I would say on that is that we've managed the capital kind of where we think it's appropriate given the environment and stakeholder expectations. And so we've been at the high side of our range of 10% to 10.5% or slightly over the 10.5% for the last several quarters. the SCB has not really been a binding constraint. And I've said in the past, it's to me, more of a scarlet letter I can't believe that we're getting that high of an SCB, which is completely outsized relative to peers. I do think that the Fed is now kind of taking a hard look at why are there some of these inaccuracies that take place. And so we'll see the models aren't really going into this round, but there's other things that I think the progression coming out of where we were in '23 to the strong balance sheet and jump-off point we have today, higher revenue levels. And then the scenario was particularly severe in the last cycle that is better this cycle. So we would expect to see the notional equivalent SCB even though it won't go into effect, we would expect to see that hopefully quite a bit lower and more in line with peers even before we see some of the model changes like the model changes of not picking up this benefit of swaps was really a big miss. But even without fixing things like that, I think we'll see improvement. So I would say we'll wait and see like how the environment shapes up. Right now, we're in a war with a lot of uncertainty and profitability is still increasing. So I think carrying a little extra capital through the course of 2026 makes sense. But certainly, there'll be opportunities to reassess that if we get a positive outcome to the war and the market conditions improve, and we continue to deliver a higher level of earnings it might be possible to start to ratchet that down, but probably that would be a '27 event and not something that you'd see us do in '26.

Okay. And then just switching to the Private Bank. You had some great deposit growth this quarter, and you mentioned some of the spread details on that incremental business, which sounded great [indiscernible] 400 to 425 spread. I was just curious what what the rough cost of those deposits were in terms of the growth coming in this quarter? And if you could just give an update on the talent pipeline in that business, that would be great.

Yes. The deposit cost, looking at now to carts 220-ish basis points. the total deposit cost when you blend in the interest-bearing plus [indiscernible] that.

Yes. So it's going to be somewhere is going to be lower than our commercial deposit funding costs but higher than pure retail is one way to think about that.

And remember, the interest-bearing side is mostly still front book. So you've got a heavy piece of DDA and then the interest-bearing side is front book. So the poly is somewhat barbelled. Over time, we can smooth that out as the business builds.

Yes. And the other thing that I would say is we opened 3 PBO offices this quarter, and we have 2 more geared up on this quarter and 1 later in the year. that will bring us up. I think we're at 9%. That brings us to 11 by the end of the year. So that's an important part of the deposit gathering strategy to have an ability to go out to successful people and walk [indiscernible] we call them 2-legged customers in addition to some of the corporate relationships that we have and we get billboard value from having those new locations opened. I would say over the next 3, 4 years, we could see that PBO count get up to 25% to 30%, if you recall, I think First Republic had maybe 80%. I don't think we're going to go near there. But I think we can get into the key markets and kind of have 25 to 30, which will also kind of keep that deposit machine cranking along. In terms of talent, the main needs we've taken the business from about 150 people at launch up to close to 600 today, including all the support dedicated support people. I think the plan for this year is to kind of continue to build out Florida is one of the things on the PB side, but then continue with the wealth lift-outs. And so we have a pretty good pipeline on private wealth lift-outs. None of them hit in the first quarter. We hopefully will catch up here where we want to be in the second quarter, but that's also a real focal point to make sure that we have the wealth professionals co-located with our private bankers so we can deliver kind of total solutions to the customer.

The only thing I would add is our talent pipeline is really robust and attracting talent to this platform. It's not been a problem we -- over the course of the last few years. held ourselves back candidly a little bit for 2 reasons. One is our commitment to the market to deliver the profitability and the results we committed and then just making sure the platform is ready. We've had a lot of investment we had to make to connect all of our products and deliver the service. Our NPS has gone up from 70 to 76. And growth is obviously really, really strong [indiscernible] we're feeling good about the foundation of the platform. So we're starting to think about how we play some more offense on bringing talent in selectively. We want to maintain a really high bar that's really important to us the banking side, we're searching for a talent and a talent only. And so that's what we're bringing in.

I would have said it [indiscernible]

I'll give you the rounding.

On the deposit side, I would just add that we are also bringing good quality deposits, the lendability of these deposits are good. So just so that we can use it in the broader franchise

[indiscernible] Bank of America.

Just 2 quick follow-ups. Maybe, Bruce, in your prepared in your remarks, you talked about looking at New York brand strategy, I guess you plan to open more branches in New York. Just talk to us, is that more private bank related? Or do you see an opportunity to just open more branches in New York and just the size of kind of what you're thinking there?

Yes, sure. I'll start and flip it to Brendan. But I think I referenced this on a prior call is that we see a real opportunity to kind of double down on our footprint. Some of our peer banks are okay, taking the view that our footprint is pretty saturated and we need to go outside footprint to different regions of the country to get more growth. That's not our strategy that we're arriving at its where we're already well known, we can make some investment in the branch system to really optimize locations, optimize the mix between in-store and stand-alone branches and try to pick up the growth rate of deposits just in our footprint. And then we don't -- we avoid all that top of funnel spend advertising in a different region where nobody knows who we are. People already know who we are. So we think that makes sense. My hope is that when we get to the end and we kind of unveil this program that we'll be spending some incremental dollars on the branch network but we'll pick up that growth rate in deposits maybe by 200, 300 basis points over what the normal GDP growth rate was -- and if you look at that over a 10-year period, that's another $20 billion to $30 billion of deposits and deposits, obviously the lifeblood of a strong bank. So this is really important to us. Stay tuned for more details probably at the middle of the year. but New York is clearly an area where proof of concept, we got in on the back of combining 2 franchises that, frankly, were from a retail standpoint in need of some TLC. We put our best people down there and brought our version of banking into a highly competitive market, and we're having great success. It is our fastest-growing region in terms of households and deposits. But we're still not at the full scale with where we would need to be to really penetrate that opportunity. So as part of that broader effort, you would expect us to open more retail branches in Manhattan in surrounding environments, and we're pretty excited by that opportunity. we probably will open another 1 or 2 PB locations in Manhattan, for example. But the focus here really is to optimize what we're going to do on the retail side. Brendan, anything to add.

I guess a sign of an incredibly aligned leadership team you took almost every word out of my mouth. The only thing I would add is just give you a [indiscernible] in New York and then on the rest of the markets. But in a world post-COVID, it's -- there are a lot of questions on the future of retail branches and the importance of them, but it's still very much truth, if you want outsized operating leverage in retail banking, you need 4% plus share of branch density and despite all of our incredible successes in New York, we're still at sort of, call it, 2.25%, 2.5% branch density. So we do think we can build on our momentum by densifying a little bit. And we'll do that thoughtfully over time. As Bruce mentioned, we'll give you more details as we get towards the middle part of the year. We also have some self-funding dynamics that still exist in the rest of the franchise. We still have lot of in-store branches that we'll be able to reposition a bit to traditional branches in the non-New York parts of the footprint that will free up some expense and capital to densify in New York. So we'll bring everybody through the plan here in short order. But really, as Bruce pointed out, the goal really is to drive sustainable market share gains and outsized deposit growth in retail to fund the rest of the franchise.

That's good color. And just a quick follow-up, Bruce, for you on the capital plans, like [indiscernible] should benefit Citizens once that gets mark-to-market. When we look at the benefit from the capital proposals, it's something we've begun to think about do you think the tangible common equity ratio then becomes something that you're more mindful for in a world where the RWA density is coming down?

Yes. That's a really thoughtful question. So I do think while that's not a regulatory ratio, it is something that bank investors have focused on over time. And so as I said, we're going to have to triage when this good news comes in, you have the triage as to what our market expectations, what are regulatory expectations, what are rating agencies' expectations. But yes, I think that could happen. I think that TCE ratio could be something that analysts and investors move up in prominence.

We'll go to Gerard Cassidy from RBC Capital Markets.

You guys have done a good job of expanding the commercial banking business. You talked about it on the call already. Can you share with us when you go into a new market like Florida or California, now clearly, you're building your national brand, but it's I don't think it's yet at Bank of America level in terms of recognition. So how do you balance when you go into these markets that could provide growth on the commercial side, how do you balance the risk with growth? And then second, are you leading your balance sheet? Or are you building out treasury products first and then lending to those customers? How do you guys approach that?

Let me start and I'll flip right to Ted. But I would say we have tried to lever an expanded presence in these new markets where we brought a private banking operation or private wealth operations and then kind of magnify that by also bringing in kind of the corporate banking teams. And what we aspire to is to bring very experienced, high-quality bankers onto the platform who kind of have a growth ambition and who are good team players. And so one of the reasons that we're successful overall in the corporate bank is we worked very collaboratively with a coverage banker who has product partners that they work together to come up with good ideas. We call it thought leadership. But at every touch point with the client, we're showing up. We understand your business. We want to get to know you. We have some ideas about how you can be more successful. And that really resonates with customers. So I think there's always room for market participants who do that well. So it's really a combination of the visibility of already being in the market. And now we have like 400 people in California over 400 people. And that kind of works together to raise our visibility and our presence and then staying committed to really high-quality people and staying committed to that 1 citizens collaborative model where we can deliver solutions to the customer. Ted?

Yes. Bruce, the one Citizens model that we've implemented throughout our bank has really gone to differentiate ourselves as we expand into these new regions. So to your question, [indiscernible] we don't necessarily lead with treasury, don't necessarily lead with credit, but we try to lead with his ideas to our customers and where we differentiate ourselves is as we pick what customers we're going to attract we really look at where do we differentiate ourselves versus our competitors. So is it an industry that we have a specialization sponsor, a private equity group that we know better. We are trying to -- and then how do we bring all the parts of the bank together to give the customer an experience that they wouldn't necessarily get from somebody else. And when you have the private bank and all the great people and all the relationships that they have and the ability to interact with people that we normally, if we were just showing up with a balance sheet, we wouldn't have the ability to address those customers, bringing the private banking and combining all those together has really been what we try to achieve as we've been building out in these markets.

And I would say that, look, kind of companies in the regions we're targeting or the industries we're targeting are very receptive to have a new player with a really strong approach that they're not exactly -- some of the bigger players aren't covering themselves in glory when it comes to how they cover middle market and mid-corporate companies. And so it feels like we're pushing on an open door to some extent when we go into these markets.

Very helpful. I appreciate it. And then pivoting over to AI, Brendan touched on it a moment ago, Bruce, and maybe it's for Brendan as well. When do you think we get to the point where you folks and your peers probably as well, are able to go out and tell investors, we just spent x millions of dollars on AI, and this is bottom line impact. Earnings per share improved 2% or the ROTCE number went up 50 basis points because of the x millions of dollars we just spent on AI. Do you think we can never get to something like that down the road? Or is that just too optimistic?

Yes. I think it's going to be hard. It's going to be a very dynamic process, and there's a lot of cross currents that go through the P&L. I think we'll try to do that with reimagine the bank. We're not kind of detailing any notable items for what the cost is of restructuring and investment and consultants and all of that. But I think will certainly delineate it so that you understand what we're expanding. And so just within that program when we get to the $450 million run rate, that's going to be a very good return on what it took to stand that up. So that might be one way that you can kind of get a sniff of how much are they spending and what benefits are resulting. But I do think it's a dynamic process and a lot of things, there'll be a lot of cross currents in the economy and other things. And so you might not have the cleanliness of connection that you're talking about that you're aspiring to.

[indiscernible] the line of [indiscernible] from Autonomous Research.

Just one here on expenses. So the first quarter and then the second quarter guide kind of get us to that 4.5-ish, 5% year-over-year cost growth I know a lot of the reimagined the bank benefit comes in the second half as long -- as well as some of the spending. So can you just help us just understand the cadence of expense growth as we kind of see that benefit. And as you balance performance related and investments against that as we move through the second half? And should we just be kind of thinking about that 4.5% overall guide that you gave us in January.

Yes. Ken, so we're not coming off the 4.5%, and there is a seasonal pattern of expense recognition that the first quarter has the FICA and associated payroll items that go with the bonus, paying the bonus. And then the second quarter tends to be where we would bring in people. And after they get bonus. And so any net adds that we want to have, it's a big period for the net adds. So overlay some reimagine the bank onetime costs in the first half of the year, you're going to kind of peak, I would say, in the upward pressures and your merit happens in the second quarter early -- second quarter. So you're kind of peaking in the first half of the year and then it wouldn't be as much net investment spending on ads in the second half of the year and then some of the benefits coming in from reimagine the bank will flow through in the second half of the year. So you could actually see expenses start to dip a bit in the second half. So we'll obviously give you that guidance as we get to the second quarter, we'll tell you what we think in the third quarter. But just to preview it we're still holding to the 4.5% for the year, and it's kind of -- the build is more front-loaded and then kind of levels off or even declines a little Yes. And Ken, I would just add, we are pleased with the expense discipline that we had in the first quarter. Really the growth quarter-on-quarter was all of our -- the seasonality that Bruce mentioned. And as Brendan mentioned, we have good line of sight to some of the savings that are coming. So we mentioned the vendor sales as well as some of the property closures. And so we feel very good about some of the some of the downtick that we will see and the benefit that's come there. And we have very disciplined returns objective on the private bank, et cetera. And I would just add, like if you should remember the 500 basis points of positive operating leverage for the year and we delivered 700 basis points this quarter. So that still remains very much true for this.

[indiscernible] go to Chris McGratty from KBW.

Bruce, you expressed confidence getting into the the 16% to 18% range for the ROTCE by the end of next year. I guess, number one, what could make it perhaps a little sooner get into the range and maybe the factors that might push it out a little bit?

Yes. I think it's hard to pull it forward a whole lot. We have some of the time-based benefits of those legacy swaps running off, which is a driver of kind of moving higher in NII and overall kind of revenue. But if we got into kind of piece dividend from the resolution of the Apron war. And then there's a lot of activity in the capital markets. I think we're as well positioned as anyone certainly amongst our peers, maybe better positioned to really capture that upside if that happens. So I think that's one driver that can maybe hope to get us there a little faster. And I'd say, in the private bank, they're on a steady as she goes by design kind of trajectory. If we did start to see more revenues, maybe we could force feed a little more investment there. And we talked a little bit about the potential for pull forward of RTB benefits if some of the new technologies kick in. So there is a case to make that potentially in a perfect scenario, you can pull it in a little bit, but I'm not promising that. And I'm really just focused on making sure we hit that by kind of the end of '27. And then I guess the converse is true, too. If the kind of environment stays volatile and the war doesn't get resolved quickly and energy prices go up and the economy slows down a bit, there's possibilities that, that could extend a little bit. But A lot of this is actually baked in. So to get kind of from 12 to 15 is really these time-based benefits and some of the trajectory we see on the NIM and then kind of getting all the way there is execution of kind of some of the rest of the initiatives, the normalization of credit cost back to the mid-30s. We had a 39 basis point this quarter. I think we're firmly on that trajectory, again, absent something happening in the economy. And then we'll just continue to buy back our stock fairly aggressively as well.

[indiscernible] question will go to David Chiaverini from Jefferies.

So I wanted to ask about loan pricing, commercial loan growth has been increasing nicely across the industry. So I was curious about how loan spreads are holding up in a competitive environment.

Yes. Let me start, David, and then I'll pass it on to Ted. As you saw that we had a diversified loan growth and even in the commercial bank, we had in the mid-corporate space, we were little bit on the subscription lines as well. And we expect -- as you think about the spreads, like it definitely came down as the rates came down. But but we are well within the pack. And the one thing I would talk about loan growth is -- and Ted mentioned this, this is not only just a credit relationships. It's a more holistic relationship. So we look at the returns of this loan on a holistic basis to think about what else are we getting, whether it's the deposit relationship or the business, other business activities, fees, et cetera, that we are getting. So there's a very disciplined process in Ted's business that we go through to ensure that we are just not looking at the spreads.

Just to build on what Aunoy Banerjee said. Overall, in the markets in the beginning of the first quarter, we saw more on the institutional side. And on the bond side, we saw some tightening of spreads that obviously widen back out with what's going on in March. As we get specific to Citizens, we are now -- we look at the relationship holistically. So we try to figure out when we make a loan, what are the ancillary business, and this was all part of our BSO that we really completed through the end of last year. We now feel like we have a very good discipline in place that we do not stretch on loans where we do not get an overall suitable return for our customers. As such, we really haven't seen much of a decline in spreads in the last couple of -- in the last quarter.

And then shifting over to private credit and NDFI. To what extent are you contemplating leaning in as other banks pull back? Or are you comfortable with your existing exposure?

Yes. I would say -- it's Bruce, and I'll let Ted add color. But we've grown that, as I mentioned earlier, that book by very -- in a very disciplined manner, call it, 5% a year, being very selective about who we want to bank and the type of vehicles that we bank and making sure we have the right structure. So I don't really see us veering off of that. That served us well to where we're positioned today. And I think that's the strategy that we'll have going forward, even if some people step back and there's opportunities to do more we'll see. But our baseline assumption is that we kind of keep to that mid-single-digit growth rate. Ted?

Yes. We're going to continue to support our customers. We look at these relationships, not just on the DFI side, but on the private equity side, on the subscription side and then what their portfolio companies are doing. So -- and if some of our customers are the winners and the survivors, we think that they're not survivors, but the winners and make acquisitions, maybe grow with them, sure. ut we're not going to specifically grow NDF. We're going to just continue to go with where our customers go.

Okay. All right. I think that gets to the end of the question queue. So I really appreciate your interest in citizens. Thanks for dialing in today. Have a great day.

That concludes today's conference. Thank you for your participation, and you may now disconnect.

Today, we have Citizens Financial Group with us, $25 billion market cap company. Total assets of about $226 billion, over 960 branches in the United States here, predominantly on the East Coast, Northeast in particular. And I'm very pleased to have 2 folks from Citizens with us. To my immediate left is Brendan Coughlin. He's the President of Citizens Financial Group. Brendan has been there for over 20 years and has been responsible for a lot of the Consumer Banking businesses as well as now the private banking and wealth management areas.

And then Aunoy Banerjee. He joined as Chief Financial Officer 5 months ago. And prior to that, he was the CFO of Barclays Bank PLC. And so thank you, gentlemen, for joining us today for the discussion about what's going on for Citizens.

Thanks for having us.

Maybe, Brendan, we'll start with you. What's your take on the current environment? When you look at the economy, we hear a lot of cross currents on what's going on with the consumer. Obviously, we have the geopolitical risks now and tariffs. So maybe from your vantage point, the K-shaped recovery and what you guys are seeing generally?

Yes. Obviously, here recently bias in the last 2 weeks, all eyes are on the Middle East and implications there, how quickly that gets resolved. Notwithstanding that, we see the economy still as broadly resilient. There's some mixed signals that you have to really pay attention to, but broadly resilient.

When you look at on the consumer side and that translates to some other -- some macroeconomic kind of worry beads, you'd look at consumer confidence still bouncing around at lows over the last couple of years. Inflation worries, that are still on folks' mind. Unemployment has ticked up a little bit. But I'd sort of describe all those as relatively range-bound, which is leading us to a level of still confidence and resiliency, presuming a Middle East resolution.

On the consumer side, yes, that's a tale of 2 cities here with the different types of customers. So we've got -- if you look at it through a deposit lens, the top 30% of the U.S. still has a material amount of excess liquidity from pre-COVID, even adjusted for inflation, call it 30%, 40% more liquidity. And when you look at the bottom 20% or 30% of the economy, they're sort of back to where they were pre-COVID where you could argue a post-inflation adjustment. They're actually in a worse spot than pre-COVID. So you're seeing some economic pressure on the bottom.

Having said all that, we don't view that has any sizable long-term economic worry for us at the moment. Number one, our business model isn't oriented that way. Just in general, it's not presenting itself in material credit risk, material liquidity risk for banks. So we're pretty relaxed about it, even though there's -- we're acknowledging some stress, and we're working with our clients that we do have down there.

And on the corporate side, obviously, they're looking overseas for the next couple of weeks, but notwithstanding that, again, we think the economy is pretty constructive. There's positive sentiment with our middle market companies. They're investing in their business. We see strong loan demand. And so we're not seeing any signs of material pullback. So assuming we get a Middle East resolution here soon, it feels like despite some mixed signals, we're still broadly set up for a couple of year run of positive business conditions.

Yes. What's interesting with Citizens is, obviously, you've got the 3-pronged strategy, the transformed consumer bank, the private wealth area, the private bank and then, of course, the regional -- super regional commercial bank. Can you kind of share with us for a moment and take us back to the IPO in 2014 and just what you guys have been able to accomplish? And many folks may not realize, but when the Citizens was hold by the Royal Bank of Scotland for years, it was primarily a savings bank. So the transformation has been pretty remarkable compared to what it looked like 20 years ago.

It's really been quite remarkable. And Aunoy and I here sit next to each other with opposite levels of tenure with us kicked off. So I've been around for the journey. And it's been remarkable what Bruce has led for this company. And we took over a bank that was 4.5%, 5% ROTCE and now have built it back to look peer like, but I would argue with outsized and differentiated momentum long term. And I won't go too far into the history books, but we invested a lot in technology. We invested a lot in bringing the capabilities of the franchise up integration of our customer experiences. We've done some smart acquisitions, whether it was HSBC and ISBC to build out the Metro New York market, whether it was a bunch of bolt-ons that we did in commercial capital markets to build what we think is the best positioned Commercial Bank and best positioned capital markets business in the super regional space and done a tremendous deposit transformation, which we can unpack a little bit here over the last decade.

But as we sit here today, I'd say, we've got a transformed foundation, well positioned for the future. We've got a restocked and reloaded management team, and we've got our strategy that has positioned us to have outsized forward-looking EPS growth, outsized forward-looking return improvement for the franchise and outsized organic growth. So when you can get strong growth, high quality that's also driving high return improvement, that's kind of where you want to be and we see that and we've got real confidence on it.

And at a high level, I'll mention each of the 3 legs of the businesses that you said, and we can unpack them as we get through the conversation. But really, the bedrock of the franchise is the Consumer business. It's 65% to 70% of our deposits. It's really the rocket fuel that allows us to make our offensive bets in other parts of the franchise. We've gone through a tremendous profitability overhaul in that business, going from the thrift roll-up that you described post RBS now to a thriving franchise that's relationship-oriented, durable, sticky revenues. We were worst-in-class in the last rate up cycle in 2014 and '15 in our deposit betas. And now we've positioned ourselves in the top third of the U.S. That's pretty remarkable for less than a decade. It takes a long time for deposit transformation. So that's a positive.

Our lending book has been totally repositioned as we repatriate capital from the rundown of the noncore business into the private bank and into things like HELOC and otherwise. So we feel great about the foundation of the Consumer business and then expansionary measures in Metro New York, which is our fastest-growing market.

The private bank and private wealth story is equally remarkable for us, and we're very excited about that. As you probably know, that business was sort of birthed in 2023 with the West Coast bank failures. We had the fortune of attracting at the time 150 of First Republic's top talent. And we really believe that while there were flaws in some of those business models that failed, there was real white space for us to enter in and create long-term profitable growth really oriented around the high net worth customer and wealth management.

And so since that time, we took a $0.11 hit in EPS in 2023. Here we are fast forward to 2025, and it was 7% of our EPS for 2025 and running between a 20% and 25% ROE profile of the business. We concluded the year with $14.5 billion in deposits. So it's been growing quite well. We see it as tremendous white space that's still open and fuel for long-term organic growth. It's really our version of M&A.

And then when you turn to the Commercial Bank, it's been a real transformation towards middle market banking. We look at our growth coming from great bankers serving the middle market. We've got outsized capabilities in private credit, which we've taken advantage of. And then we've built really a tremendous capital markets business and seeing that in some of our results, but I would argue that the full potential of that part of the franchise still hasn't totally been realized because the market has been fairly choppy. And as that settles out and hopefully, we get the positive conditions that we think will happen. You'll start to really see the full strength of that franchise pulling forward. So look, we feel great about the history of the bank, but I feel even better about how we're positioned going forward.

Great. Aunoy, you've been there again in about 5 months. Maybe you could share with us your first impressions of what you've seen and how you've been spending your time? And I know you're probably saying you get the best boss in the world now.

Yes, I'll start with that, the best boss in the world. But look, yes, 5 months in, it's been fascinating. It's been busy, but it has been extremely rewarding, I would say. The areas where I'm focused on, I would say are 4 of them following. First is really spending time with our client-facing organizations, so whether Brendan talked about the branches, our commercial teams, our capital markets teams, our contact centers, really thinking about what we do for our clients day-to-day and really thinking about why so many people have us as the #1 choice, so really understanding that.

Second, with our business and our functional heads, really understanding how capital is allocated, how resources are managed and how we, as a finance team can do better in that as well. So I think that's there.

Third, I have the great privilege of talking to our various stakeholders, so whether our investors, whether our regulators, our community advocates, our Board of Directors. I think over the last 10 years, as Brendan mentioned, how we have grown and getting their perspectives has been invaluable in many sense.

And lastly, we'll talk about transformation, like transformation is close to both our hearts here. And we believe we are absolutely committed in delivering the financial goals of our transformation, which we have done over the last 10 years. But with the advent of new technology, et cetera, how do we set the bank up for the future is really important to us.

And then on first impressions, I would offer 3. I would say, first, the strength of our culture, really like our ability to get things done for our clients, for our investors as well as for all of us together, I think all kudos to the management team led by Bruce and Brendan and Don and Ted and Susan. And it's really fascinating to see that in action.

Second, I think Brendan talked about our strategy. It's well articulated, but it's also well understood by pretty much everyone in the bank, and we are all rowing in the same direction, and we have a shared mission.

And third is the opportunity set. We definitely have fantastic businesses. We are in attractive markets. And on top of that, we have some unique growth vectors like the private bank, growing in the Metro New York area, reimagine the bank. So look, it's exciting times. I'm humbled to be part of the team and really looking forward to move the ball forward here.

Great. No, that's very helpful. Moving over to returns for a moment. Obviously, you guys put up just over a 12% ROTCE number in the fourth quarter. You've got a target of 16% to 18% in the medium term. Can you talk to us about the path to get there, the timing? How are you going to do revenue growth versus net interest margin expansion, expense leverage? And then how important to reach those numbers is the execution of the business strategies that Brendan outlined in those 3 groups?

Well, look, we are very committed. This is one -- the ROTCE growth is one thing that as a management team, we talk a lot about. And definitely, we are committing to get into 16% to 18% ROTCE by the second half of '27. I would say there are 4 vectors that we are focused on. The first is our NIM expansion. So as you know, Gerard, we -- our NIM was 3.07% last quarter, and we expect the NIM to be in the range of 3.30% to 3.50%. A lot of the benefits are coming from the time-based benefits that we have, also from the front book, back book dynamics as well as the active hedges that we have on. So these are not rate sensitive. They are not rate related, macroeconomic related, and we expect that this NIM expansion will flow to our bottom line. So that's roughly around 300 to 350 basis points of ROTCE improvement. So if you take 12.2% plus, you add around 350, you are at closing distance to 16% at that point of time.

Post that, if you think about the business execution, the private bank is a fantastic growth area for us. It's -- probably will be in mid-teens in the near future as a contribution of Citizens. And that business runs at a 20% to 25% of ROTCE. So that's really ROTCE accretive to the overall franchise.

The consumer bank, the transformed consumer bank and the low-cost deposits that we are gathering is definitely ROTCE accretive. And the capital markets franchise, we are just starting, we have built an amazing capital markets franchise. And as the environment becomes more constructive, that will be ROTCE accretive as well. That should add around 100 to 200 basis points, I would say. And obviously, positive operating leverage. We're committed to positive operating leverage that would help as well.

On top of that, I think credit, more and more as credit costs come down, and we have been over accruing for credit, and I think credit costs will come down over the near future. We have some AOCI goes the other way as that drag goes on TCE, but we'll offset with share buyback. But we are absolutely committed and confident in getting to the 16% to 18% ROTCE by second half of '27.

Can you remind us because it's so important to the ROTCE goals, the 3.30% to 3.50% margin, remind us when do you think you can get there again?

We expect to be there by 4Q of '27 again. So that's -- these are all consistent in that.

Yes. Got it. Brendan, coming back to the private bank, it was already mentioned that it's 7% of earnings, as you mentioned. Can you walk us through the strategy of building it out the priorities that you have from here? But also, how do you define your core private bank client? Is there a net worth threshold that they have to be over? Or is it business owner focused? Professionals? What are some of those characteristics?

Well, let's start there. Our target client is $5 million in net worth with $2 million or more in investable liquid assets. That's not a hard threshold. That's just our target. That's who we're marketing to. And we believe -- so when you look at how that stacks in the industry, clearly, traditional retail banks don't serve that client well.

Traditional private banks tend to have their cutoff a bit higher. And so we believe there's tremendous white space and opportunity left behind by the West Coast Bank failures to go into that market and really provide high-end white glove service to that customer base. Many of those folks are crossover business owners and personal banking relationships. So it will be a distinctive part of this model is to have a single point of contact approach to bring that all together. And that seems straightforward, almost seems motherhood and apple pie. But when you think about the money center banks, they tend to be too big and too bureaucratic to pull that off. And when you think about the smaller firms, they tend to not have the sophisticated capabilities. So there's very few banks that are actually in that sweet spot to deliver the full bank in a distinctive way.

And there honestly are very few things that are truly, truly, truly distinctive in financial services. This is one. When done right, it is a very distinctive feel and a very distinctive experience. So we're very committed and convicted that there's white space here for us to go after. But when you look at the profitability model of it, I'd say a couple of things. We were very interested to copycat pieces of Old First Republic, principally their service, culture and intensity. They are very distinct set of criteria that we'd like to change about the model. So we went in saying, look, there's a few principles here. We are going to run this at an ROE accretive profile for the bank. That's number one.

Number two, we're going to create high-quality liquidity profile that's self-funding for this franchise. That's lendable deposits, that's sticky and is not going to drag the rest of the franchise down. Number three, pristine credit profile. And number four, market-based asset pricing and more expense discipline. So when you add all that up, I get the question a lot. Well, FRB was 11% or 12% ROE, how are you guys possibly at 20% and 25%. That's the principles that we're running the business, and we've been able to drive the growth and keep returns at the same time with that target segment because of the client experience.

So as we look forward, we spent the last 2 years really building out the model, proving to ourselves and to the market that we could do that. We've been able to thread the needle of getting growth and returns and fill the space from an experience standpoint. So now we're in expansion mode. So we're opening up new private banking offices. We've got 7. We're going to go to 12 by the end of the year. We've hired new teams. We've bolted on teams in Southern California, a couple of teams in Southern California, Northern California, Boston, New York, Palm Beach, going to West Palm Beach. We've hired 10 private wealth teams so far and have aspirations to hire at least 5 or 6 more through the end of the year.

So now that we're on a foundation that we have even firmer conviction on, we're going to start to leverage our positive operating leverage and put some money back into this franchise to drive long-term growth. And as Aunoy mentioned briefly a second ago, we do believe over the medium term that our 7% EPS accretion will wind up into the mid-teens inside of our ROE kind of 16% to 18% window through 2027 and into early 2028.

Very good. And coming back to -- so you got this sweet spot that you mentioned about the $5 million, $2 million liquidity. How do you -- because, obviously, you're not the only one in that space. But how do you differentiate yourself now that you have that targeted space? Is it pricing, service, what do you bring that make you more attractive than maybe one of your direct competitors?

It's really service is the simple answer. And I know that sounds squishy, but it's actually not. And I've got lots of stories I could share with you. We launched the business, I met hundreds and hundreds of clients. And I was expecting them to come up and ask about low-price mortgages as maybe something that might be on your minds. I didn't hear that once. It was all about the talent we brought on, the absolute obsession with experience that they deliver, making banking frictionless. And then it's the integration. These folks don't want to have a banker for their business relationship and a separate banker for their financial planning and wealth and then go deal with the retail branch for their personal banking.

So having one person that knows all of that and is an expert and has the expert team, but it's the generalist manager to bring the bank. And as it relates to pricing, we look at pricing, but it's in the context of understanding the full relationship and where we can give pricing back because it's getting offset by wealth AUM, we'll do that, but it's within our profitability guardrails. And anyway, some of that sounds like motherhood and apple pie. I would very much tell you with real-lived experience, it is not. There are very, very few banks that actually are getting that done.

Yes. Aunoy will come back to Commercial Banking in a second. But Brendan, on the Consumer Banking and wealth side, when you look at that, what's the competitive advantages that you guys have in that line of business? And when you look out over the next couple of years, how are you going to drive those returns to meet that overall corporate goal of 16% to 18%?

Yes. As goes the consumer franchise, sort of as goes CFG overall, it's really the confidence, as I mentioned, the bedrock of our confidence to go larger in capital markets, go larger in private banking. So we've got a lot of focus on this. The foundation has been fully transformed. I mentioned the deposit transformation and the profitability transformation that we've undertaken. Really now, it's continued to solidify us as a bank for mass affluent. As I look at our right to win, across all of our businesses, you've got to have real clarity.

And in consumer, it's around our mass affluent business. We're going to have mass market customers, but we're likely or unlikely to outbank JPMorgan and Bank of America at scale with digital capabilities and so on and so forth in mass market. So our mass affluent customer, it's also where the profit pools are in retail banking. So with deposit fees getting regulated or competed away, mass affluent is the place to be and we've got distinct capabilities there. So we're growing our household base. We're repositioning our capital book. We're running down the noncore book, auto loans, purchased assets, replacing them with private banking loans. We're #1 in the U.S. in HELOC lending in the retail franchise. We're replacing a high-return relationship-based banking.

We've had double the growth in our wealth management franchise in retail. Much has been made about Citizens and our private wealth growth. In the retail franchise, 75% of our wealth revenues actually come from our retail franchise and the 3 million retail customers that we have, and that's growing at 2x the market. So between all of those levers and then a steady continuation of deposit growth, that's really where we see it. And the capabilities that we're looking at, we're making big investments in digital. We're about to launch a new digital app here in the coming weeks. And we've kicked off a body of work post-COVID on what's the future of retail branch banking. And I'm here to say, it's still very viable. And you're seeing our competitors invest in branch banking. We will begin doing the same thing and smartly adding branches in core locations to densify and create long-term outsized deposit growth for the retail franchise.

Aunoy, talking about the Commercial Banking side of the house. It looks like we might be on the start of the strong business cycle, C&I lending, when you look at the H.8 data is really picked up in the last 3 to 4 months. Can you walk us through and share with us how the Commercial Bank is positioned? How are they going to maximize returns? And then recently, Citizens closed on another commercial advisory acquisition. Can you share with us how that's going to play into the strategy? And could it be a meaningful contributor to the business this year?

Yes. Look, as Brendan mentioned, I think we have one of the best positioned Commercial Bank in our space. And I would say over the last 10 years under Don and Ted, we have built an amazing franchise. First of all, on the product suite, if you think of it, our product suite is second to none. We have great ECM capabilities. We have great DCM capabilities, M&A, hedging around FX rates, et cetera. So it's fantastic to see that.

Second is our coverage models, right, whether it's the middle market that was the bread and butter of the business. And then we have expanded into mid-corporate. We are also expanding geographically into Florida, into Southern California, into New York City here. So that's actually giving us some more boost in the Commercial Bank as we think through.

We're also investing in technology. We are investing in the platforms around treasury, around cash management, around payments. Those actually comes with very good deposits, gets with fees. So those actually have been ROTCE accretive in many ways. And so it's a great platform. And then obviously, we have the private credit. We have been there for a long time in private credit. It's not we just hired yesterday, and we saw this trend a long time ago. So not only we have the relationships with the sponsor community, we also have the relationships with the corporates, but we also know how to structure risk, how to price risk. So that's also important. And that has been attracting a lot of talent to our platform as we go through.

So the Matrix acquisition that as we just mentioned, it's just -- it's a small boutique advisory firm that we bought. It's in downstream energy and some retail convenience. And it's -- we are closing it this quarter. So it will be part of our contribution this year, but it was always in the guide, and it's very small compared to overall CFG space.

Yes. Brendan, coming back to you on the reimagining of the bank, can you give us some examples of what you've done there, but also how is AI playing into the reimagining of the bank? And using the baseball vernacular, are we in the first, second, third innings of this AI transformation that it will be tied, not just to yours bank, but others as well?

Right. I'll start by just from Citizens standpoint, we've had this top program going on for well over a decade. And this is the third time we've taken a step back and had it be a significantly upsized program to reposition the bank. One was our IPO. Second was right before COVID with the digital transformation that was underway. And now here with the AI potentially revolution, that's underway across the globe. But it's not all AI, just pulling back about 50% of the program, I would call AI-fueled front-to-back zero-based transformation for the franchise. The other 50% is good old fashioned. What got us here won't get us to the next level. Let's simplify the business model, reflect on the next phase of our journey and reposition the bank that way.

So from a financial standpoint, we've shared that we think this will contribute, exit rate $450 million in net income at the end of 2028. And while we do that and build that impact in 2026, it will be negligible in terms of its impact, positive or negative, won't take us off our guide. And this is really not contemplated in our long-term guidance on -- or medium-term guidance on 16% to 18% ROE. So that's kind of how I think about the framing financially.

Your point around examples. In the non-tech space, I'll give you 3 quick ones. So we're front to back simplifying our vendor lineup, but more importantly, looking at it much more strategically, which horses do we think will be the right ones for us to bet on long term and consolidate. Our facilities, we've got a decent amount of vacancy after return to office, and we've built the bank product by product. So taking a step back, reshaping our culture, getting rid of excess space, consolidating will be good for expenses, but also good for culture and innovation and speed to market long term, that will be able to fuel a lot of our investments.

And then lastly, we're making a big investment in our branch network to drive long-term sustainable low-cost deposit growth and household growth. That's embedded in the non-AI piece. Where most of the conversation and action is on the AI front, so I'll give you a couple of examples, our call center. We've got aspiration to take out 50% plus of our phone calls and have them be served by an agentic AI agent. That is already in pilot. We're working through it, preparing to scale it. It's going quite well. And we've got strong conviction that by the end of the year, we'll have made a meaningful dent in that 50% goal.

Point number two is engineering. We believe that the role of an engineer will radically change in the future. Instead of an engineer coding on their keyboard, they're going to be overseeing 10 agentic bots that's doing 80% of the code development, and they'll take it the last mile. That's going to give tremendous leverage to our CapEx. So we think our developers will be 10x -- 5 to 10x more productive in a future world. That is also in the process of being developed.

And lastly -- not lastly, we have 47 initiatives. The last one I'll highlight is just analytics. A big investment in fraud and credit analytics to leverage AI to enhance loss rates, less false positives, better credit underwriting. So those are just a few examples. But I would say, look, despite every 6 months, I feel differently about the progress and maturity of AI. It's moving so fast. I still think we're in the second or third inning. We're starting to see real use cases. It's not vaporware, but it's still really nascent. And so we want to be on the forward leaning edge here.

Sure. Maybe we could move over to credit. And outside the general downtown office, everybody knows what's going on there. But when you guys -- Aunoy and Brendan, when you look at credit, are you seeing any trends that concern you? Or is it all still very manageable and...

Yes. Let me start and obviously, Brendan can jump in. But I think we feel good about credit where we are. You mentioned the general office, that's being worked out at pace, and I think those costs will come down. We also have the noncore book running down. We also have CRE coming down. Most of our originations, as you mentioned, in C&I or on the retail side are secured, lower loss content originations. So we feel that our credit costs are in the right shape. On the retail side, most of our -- 75% of our book is secured lending. So that's really helpful. And the loan-to-book value ratios, it has gone up over time. So I think we feel good about credit as we sit here today.

I just would accentuate that. Every last detail I look in the consumer business, there's nothing I'm losing sleep on at all. We're watching it closely just given what's going on in the macro backdrop. But there's nothing we see that's of any cause for concern. And on the private bank side, we've yet to have a delinquent loan or a charge-off.

No, that's very good. Aunoy, maybe we're 2 months into the quarter, maybe you could tell us how things are shaping up relative to your guidance and share us with those kinds of thoughts.

Absolutely. Look, we are very confident about meeting the overall guidance that we gave at earnings. The first 2 months have actually been quite constructive. We have seen good balance growth. We have seen clients engaged with us. We are seeing the capital markets flywheel going. Obviously, the last couple of weeks with the Middle East conflict, there has been some uncertainty. If it's short-lived, it probably won't matter. If it drags on, we will see if it has got any impact to our -- over the long term. But we feel very confident in meeting the guide that we set out at earnings for the quarter.

Great. We're running out of time, but I do want to -- last question for both of you. Just what do you want the investors to take away? What's the core message about Citizens' future outlook? And what is that message that you're starting with?

Sure. Look, as I have commented on, as you said, 5 months, I would say we have a lot of opportunity. We are executing in a very disciplined and a targeted manner, and we have the team in place, and we are confident of meeting our medium-term goals that we set out.

I would just add, many times, the investor community will look at most of the regional banks in a bucket and have a hard time finding differentiation. I feel really confident that there is significant differentiation in the Citizens' story. And I see that both in financial outcomes and the forward outlook of 500-plus basis points of operating leverage and the return profile improvement that we're seeing. But more importantly, durable, long-standing improving right to win in all of our customer segments. We've got distinctive growth with a distinctive right to win, which even when you get past the medium-term outlook, I feel really good that we're on a path to truly be a distinctive story in regional banking. And as we've mentioned, Bruce has helped lead a reload of the leadership team. We've got reimagine the bank going. We're really pulling out all the stops here to take a real run and have this be one of the strong stories in super regional banking over the next 1 to 3 years.

Great. Please join me in a round of applause thanking Brendan and Aunoy for coming.

All right, everybody. Hello again to all of you in the room and on the webcast. So continuing on a very upbeat morning for banks, we have with us Citizens Financial Group. And with us, we have Don McCree. You all know him as the Chair of Commercial Banking; and Ted Swimmer, our new Head of Commercial Banking. Welcome, you guys.

Thanks.

Thank you.

So we usually kick off these firesides with a macro-related question. But I think your breadth and depth of the commercial bank is still a little bit underrated by investors, I do want to start there.

So Ted, as I alluded to, you're transitioning into some pretty big shoes to fill right over there as you take over the business. And for those in the audience who haven't had a chance to meet you, could you give us a sense of how you and Don have evolved the business since the IPO and how more national the scope is of your middle market-focused banking business? I do want you to touch on the private equity and capital specialty that you built out and how your acquisitions of boutique M&A firms really rounded out your offering? I know it's a lot, no pressure.

So let's start with -- I think under Don's leadership, we've built the best commercial bank in the super regional set. We have spent the last really 10 years since Don's been here, building out our products, building out our relationships and building out industry verticals that make us a dominant force in the super regional market set.

We started originally as basically just 10 years ago, 11 years ago around the time of the IPO, we basically had the ability to lend and to take in deposits and really didn't have an ability to transition with our customers. Since that time, we've built out -- we started with leveraged finance, building out leveraged finance, being able to do syndications, do bonds, things of that nature in the leveraged area and then follow that up with bringing on more and more industry talent in sectors and then had a series of M&A acquisitions buying boutiques that have made us in certain industries, the leading force in whether it be gaming, whether it be digital infrastructure, things of that nature, we've built that out.

We have also continued to really focus on building out our client relationships. So we used to be really a middle market bank focused in Mid-Atlantic, focused in New England and the Midwest. Over the last 11, 12 years, what we have done is we have hired a number of bankers to cover larger customers, and we've recently changed that from being more geographically focused to being more industry focused. We have taken our franchise in the middle market and have expanded now into Florida, California and New York City.

We were resistant to do that for a fair amount of time because we never wanted to be just a middle market bank, which didn't have a retail presence or a different reason to be than just the middle market. We've always found that if we were in a region where we didn't have other things that go with it, you inherently wind up doing the more difficult deals, you do it at the lowest prices to try to gain market share.

But since we bought, we started to take on all the First Republic bankers in California and Florida, we had a reason to exist in these places, and we've been able to build out those areas very well. And in New York City, with the investors and the HSBC branch acquisitions, we've built out a fair -- a really good coverage effort in the middle market in New York City also. So we've been able to build all of that out, expand our geographies in the middle market.

I think we were one of the earlier regional banks to accept the private capital universe as something that's growing. And starting in really 2014, 2015, we started to invest a lot of time and resources into the private equity universe, starting with just doing the natural LBOs and things of that nature and now have been involved after our acquisition of JMP in 2021' be able to cover them from an equity perspective. We've linked our subscription line businesses, our lending to the direct lending funds, investing in the BDCs. And now we're doing the equity, the bonds and financing the private capital community, which has been a very good area of growth, and it's still a large area of growth for us into the future.

We take all of that and we combine it with what we have spent a lot of time and effort doing, which is investing in our treasury solution set. So every middle market company we bank, we push very hard on getting their treasury solutions business. That has -- we've been doing that at a really good clip and continue to build out. We've been able to get to the merchant services business with the nonbank merchant services. We're, I think, the dominant bank in doing that. And we continue now to figure out how to embed our treasury solutions into the private capital community. So it's all kind of working well.

And since we bought the -- or since we inherited the Private Bank or invested into the Private Bank, we have taken on this mantra of One Citizens, which means with every middle market company, every M&A transaction we do, we're introducing our private bankers in private wealth to make sure we're getting the other ancillary business and in reverse there and introducing us to a number of customers we never had access to.

So all in all, it's working very well. The flywheel is working. We've been very successful on buying a series of M&A boutiques, whether it be DH Capital, Trinity, Western Reserve, Boostring. They've been very -- we've had a great growth and industry dominance because of them. And then JMP has introduced us to the equity market and biotech and health care. So I think we're in a really, really good position to take advantage of what we see as a very positive market over the next couple of years.

So what do you think are the big factors that will hit in 2026? But also looking forward, what are the sort of the 3- to 5-year accomplishments that you want to check off?

So most importantly, I have inherited a wonderful business through Don. And what we really want to do is step on the accelerator now. We've done all this in the last -- really since the end of 2021, we've been in a kind of sluggish to weak overall banking environment. There's been very little in the way of M&A. There's been very little new funding from banks to provide. We are starting to see a series of signs out there that will indicate that we are now on a much better trajectory than we thought -- that we've been on in the past 3 years.

So we're going to continue to invest into our industry specialties. We're going to continue to make sure that we are -- have the best corporate finance M&A bankers in the industries we choose to cover. We're going to continue to expand into Florida and California into New York, make sure we have a very good product offering in those areas. We're going to spend time on further deepening our product set. So we've -- we feel very good about what we're doing on the loan side. I think we're going to continue to spend more time investing in the bond side of our business, continuing to build out private equity coverage as that market continues to be stronger.

And then a couple of other things. We are going to be investing more into our treasury solutions product set. Although I think we've done a really good job over the last 10 years, there are so many different areas you can invest in that business, add customers that we had never seen before.

We are -- we've also spent -- and I should have said this earlier, we spent a fair amount of time reenvisioning our balance sheet. So we have continue to pivot away from our less profitable opportunities and put more money into where we can make higher returns. We had called it balance sheet optimization in the last 2 years. I think it's now more BA use business where we're going to continue to exit customers that are -- no fault of theirs or no fault of ours, we're not achieving the revenues that we'd like to achieve. but we're going to redeploy that capital into areas where we think we can have much better growth based on our industry expertise now.

And finally, as a bank, we're going to continue to leverage our AI expertise. We've been very public talking about reimagining the bank and how we think there's a lot of opportunity and a lot of cost saves by continuing to invest and leverage AI and also leverage all the processes that we've developed and simplify them. And we're going to continue to use that and focus on that in the commercial bank.

So lots to unpack there. Perhaps let's start with the private markets, which has been a big theme in general and over the past 1.5 days at this conference. So sponsors are sitting on both levels of elevated value and dry powder. So maybe question number one, where are we on the timing versus valuation sort of discussion with the sponsors?

So I would say, as last year kicked off, we felt really good about 2025 being the year, and then we all had Liberation Day, which had -- although Liberation Day and that whole trauma around that was probably 6 to 7 weeks, the impact of that went for far longer because companies, as they were getting ready to sell, there still wasn't clarity on tariffs. There wasn't clarity on what their projections were going to be, which made companies more uncomfortable about putting their companies up to sale at this point.

I think we've -- as we enter '26, we feel much better. We still -- there's always volatility in our markets, but we feel much better that companies and buyers and sellers have more consistency around where they think their earnings are going. And as such, we think that we will -- I know -- I mean our pipelines are showing and I think all the banks pipeline are showing a number of companies who are putting their -- want to now private equity and middle market companies who are ready to put their companies up to sale.

The valuation -- for top companies, for A, A- companies, the valuations have been -- we've been able to find buyers or sellers where it got more difficult was on the second level down where there was a -- the seller was like, no, this company is worth so much more, just wait and the buyer was like, well, I'll wait till see. So we had trouble transacting. I feel like that bid-ask spread is narrowing relatively significantly, and we will start seeing those transactions occur in '26.

We have to keep in mind that these processes are kicking off now. So although I think this will be a very, very good year. I don't know that it will be the best start-off point. But I think with the pipelines we're all seeing, we feel really good about what the year is going to look like by the end of it.

So Ted, you elegantly took us through the evolution of Citizens from financing LBOs to being a more complete partner. So maybe as we think about the potential monetization of these investments, how will Citizens benefit, whether it's through a continuation vehicle, a merger like you mentioned or an IPO?

So with private capital, with private equity, we have -- we look at these relationships as holistic relationships. We have moved from covering these customers on a product-by-product basis -- and we now -- we're trying to mirror what the private equity -- the private capital firms do with us. They look at us as one bank servicing them. We're trying to look at them as one fund and how do we best service that one fund.

So we have -- from the simple part of financing and trying to do the sponsor's LBOs, we also layer that with doing subscription line business. We're providing that capital will provide an ability for the sponsor to leverage their returns a little bit. And if that's important to them, we'll provide private capital. We're lending to their direct lending funds, we'll provide that kind of business to them. We will continue to look at lending to BDCs, if that capital is important.

So we're looking at the overall relationship from a holistic perspective. And we think by doing that, we're having enough this dialogue, whereas if they do a continuation vehicle and they need an underwrite on a bank deal to move from one fund to the other, we'll be able to provide that for them. We'll be able to provide the expertise on that transition. We've done it several times now in the digital infrastructure space where we can provide the expertise to a customer on transitioning.

But most importantly, continuing to give the company and the financial sponsor the right advice on what to do, when the right time to sell is. And because we have all these different avenues into that financial sponsor, we can have a fair amount of seamless dialogue with them and make sure that they're getting to hear our advice, which definitely positions us to get the revenues when they do choose to transact.

And Erica, let me just amplify something on that point is one of the things we've tried to do is be completely agnostic about executions. So if you think about what we tried to build, we can distribute and underwrite into private credit, into CLOs, into BDCs, into bank markets based on what market conditions look like and what the underlying transaction kind of dictates in terms of transaction structure. And then you broaden that out and say, you can go senior debt, you can go securities, you can go private equity, you can go family offices.

And it's really -- as we engage with clients, particularly in highly transactional clients. I mean if you think about our industry efforts, they're very transactional industries. So I think gaming and digital infrastructure, it's where the action is, and it's always changing in terms of where market appetite is. So we view our responsibility to our clients is kind of talk to them about the right execution as opposed to having a bond guy go in and a syndicated loan guy go in and an asset-based finance person go in, but really talk about given where market conditions are, what the calendar looks like away from us and on us, here's the best execution for what you're trying to accomplish. And I think we're pretty unique in the regional space of having all of that and being able to move execution to execution.

So just double-clicking on one way to execute, obviously, through M&A. It's just been such a bullish morning on advisory revenues. So maybe remind us about how your capital markets revenues break down and how you expect to contribute to the 6% to 8% total firm fee growth.

So building on what Don just said, we look at capital markets as an overall -- if a company chooses to go to the bank market versus going to the bond market, if a company chooses to do an M&A transaction or hold off on an M&A transaction 1 year and take a dividend another year, we look at the -- just being able to serve the customer in whatever they do. So we don't necessarily look at or I don't necessarily focus on each individual product as a whole.

What I do -- what we do focus on is are we providing the right advice? Are we in front of the customer when we need to be in front of them. And what I think we both feel very good about is that by the level of activity we're seeing and the discussions we're having and the mandates we're getting signed up for, we feel good about where we see capital markets revenue go in 2026.

It just feels like a very different tone in the market. We were on a transaction last week for VSE which was a great equity transaction for us, something that we would not have been able to do 4 years ago that we were able to be very much involved with this time. So as companies are looking at different things to do, whether it's going to the equity markets, going to the bank market, whether it's just, hey, we need a bigger subscription line because we want to move this from one vehicle to another. We feel like we can -- we're there, and those conversations are definitely rising in 2026.

And I think what we said on the earnings call was 6% to 8% fee growth for the company with over-indexing towards wealth and capital markets. So we would expect to do higher levels in the capital markets business.

So Don, let's sort of switch to the Private Bank and how it's contributed. Obviously, the folks that you hired have had previous experience in terms of subscription finance, very niche specific multifamily and obviously, banking and managing the wealth of the owners of these businesses. How additive have they been? And do you expect that ramp to continue?

Yes. It's been actually incredible because -- I mean, there was a little bit of consternation at the beginning because it's, oh, wow, we're going to hire these fantastic bankers from the old First Republic, and they do what we do. They do subscription lines and we do subscription lines. Once we got through about the first month, their client base is completely different than our client base. They've tended to do venture and smaller funds. We tend to do larger funds in the big complexes. So I can't remember the number, but there's probably 10 crossover clients once you cut through it.

And I would say from the digestion of these teams -- and it was several hundred people. So it was a big, big set of acquisition of talent by the company. But we digested it pretty quickly, and it was probably 3 to 4 months where we really began to work together. And as Ted said, the key on these things is you start to get some wins on the board and you start to trust each other and you start to actually -- the private bankers begin to say -- and remember, First Republic didn't have a capital markets business. They really didn't have a lending business. They didn't have M&A capabilities. They didn't have equity capabilities. So they didn't have a lot of things that we can bring to bear for their clients. So it's a whole new opportunity for them to engage with their client base.

And we had Clarfeld and a little bit of a wealth business and a little bit of a private banking business, but we had nothing to speak of. So the complementarity of the 2 units and then you add -- Kristin, I can't remember 5, 6, 10 wealth acquisitions that we put on top of it buying wealth companies. the ability to go to market with a full complement of capabilities is just extraordinary from a standing start 2 years ago. And as you know, we're generating good returns. We're growing faster than we thought we were going to own the private bank and the wealth business. We've got decent LDRs. All the metrics look as good or better than we thought they were going to. But I think the key is the way the teams are working together.

Ted and I just got off a call this morning with a private banking client who runs -- they're on their fifth fund. We've never banked them. And they wanted to talk to us about how can we do more business with them, and they've been at First Republic or we don't use that word anymore. They were banked by the First Republic bankers for years. And it was just -- the bankers weren't even on the call. They trusted Ted and I to have that conversation, and that's happening all over the place. So I think the growth trajectories across all of these businesses are going to be quite significant.

And then the question is, how quickly do we let everything grow while making sure we maintain profitability. So I think one of the things we have done well is calibrated investments with revenue generation. So we haven't gone out and gotten way ahead of us from an expense standpoint, and we've been able to bring the revenue and the returns in pretty quickly underneath. So we talk about it all the time around do we do another wealth acquisition? Do we hire 10 more capital markets bankers, but we're definitely investing across the overall platform, and I think we're just beginning to get going. I think it's going to be quite exciting.

So you built something exciting. Now is the macro exciting. So Don, you said in June that the trade movie is behind us. So do you still feel that way? And specific to U.S. middle market corporates, how are they feeling about where they are on the investment side?

Remember the football movie, any given Sunday, I feel like it's any given Monday now.

And [indiscernible] over the weekend.

Yes, exactly. So I think that a couple of -- so if I go to the real macro and you say, we got a pretty good economy. We've got a pretty good regulatory environment. We've got a pretty good trajectory on interest rates. The long end is going to stay a little bit high, but the short end is going to come down a little bit more, I think. You've got a client base, which has confidence building within it. And so when we talked about the trade, the problem was early in a lot of these announcements and you can extrapolate that into the government shutdown.

The uncertainty -- and Ted said this, the uncertainty that it presented to the client base was just -- it froze them for a while. And they just -- and if you think about a year ago, when this all began to start, it was like, oh my God. But then now the pattern is very much there's a negotiation rhythm, I think, that's going on of the administration where things get announced and then it's generally okay. So I think a lot of the client base has gotten relatively numb to some of the headlines. Whether that's right or not, we will see.

But what has happened in the client base is -- and remember, Erika, if you go back to '25 and '24, we had really robust capital markets activity. It was like 95% refinancing. So there was no new money content and new money content is where the exciting things really happen. There's been a real pivot starting probably in December to new money transactions, and that's both in private equity and in the corporate side.

So you had a lot of people -- and I think this goes all the way back to COVID, who had pulled in their range and said, I'm going to run my business very conservatively. I'm not going to over-hire. I'm not going to leverage. I'm not going to invest -- that's definitely shifted. And people see an opportunity. And I don't know if it's because they want to try to get in before the midterms, they want to try to get in before the general elections, but they want to move.

And so I think there's quite a bit of stability in the markets, notwithstanding the software and AI rotation that's going on and a lot of that. But I think the macros feel really good to me right now in terms of the backdrop that we're sailing into. So if you combine what we think we've built from a client service and a product standpoint with a pretty good environment, and we look out into '26 and '27, I just think it's a phenomenal kind of opportunity for us.

And then you're going to get bumps in the road and things get volatile and things might slow down from quarter-to-quarter. But as Ted said, our pipelines look great across all products, and we just feel like there's a real opportunity to really get to where we think potential was. And I'm not going to tell you what we think potential is, but it's higher than we are today.

I was about to get more excited. So to that end, you have participated well in the indirect lending growth. Given your comments about net new money investments and your -- the diversity of your pipeline, do you think direct lending is something that -- to the companies, right, to the middle market companies is something that they grow in '26?

It's interesting. I -- and I don't want to say this firmly, but I can't think of many places where we've lost significant business in the middle market to a direct lender, where we see them is in leveraged buyout land. And what they do -- so go back to the real macro around how we think about leveraged finance. We are a diversification institution. So I hold an average of $12 million in a leveraged buyout. So I'm not counting on leveraged lending to drive NII. That's an origination to distribution business. And so whether we're distributing to, as I said before, banks, CLOs or private credit, we still make the same kind of distribution fees.

And Ted's hired a couple of people on our syndicate desk, which do nothing but give syndicate services to private credit funds. It's a specialty kind of acquisition. And for them, it jumps off of our industry expertise because you've got to know which private credit funds like, which industries and where they want to play in size and what their metrics are. So building that distribution acronym.

So if I kind of think about the math, and we've moved from lending to a leverage buyout to lending to an underlying private credit fund and financing those portfolios, we make just about as much in terms of fees as doing a leverage buyout as we do arranging a transaction for a private credit fund, and you're trading idiosyncratic credit risk for diversified borrowing base credit risk at an entry point of $0.60 on the dollar or thereabouts where we have substitution rights. So this is kind of an investment-grade quality where we're participating in leveraged finance through an intermediary vehicle as opposed to direct. So I'll do that trade all day long.

And I think the one thing that I'm proud of is we've stayed ahead of a lot of these trends, and we could see it coming. And part of that is -- and we've never really talked about this, the level of expertise that have been through multiple set of market disruptions that are sitting on our platform is extraordinary. So they have -- they've been doing this for 10, 20, 30 years, and you can kind of see the movie as it unfolds, and I think we've positioned the company really well. So we haven't lost a beat. And in fact, we probably have achieved slightly higher loan growth than we otherwise would have by participating in the private credit complex. I don't know if you want to add anything.

Yes. The thing I would add is the acquisition of JMP in 2021, where they had such expertise in providing equity research on these type of companies has positioned us as the direct lenders have grown to be able to find fee opportunities with these lenders that we never had the ability to do prior to JMP. So when they go to the equity markets, when they go to the bond markets, now when they go -- when they want to consolidate, we now have the expertise to do any of those type of transactions for them.

So as this complex continues to grow, I think we feel really in a great position to take advantage of the growth with a whole series of different fee opportunities and balance sheet opportunities that we never had in the past. So to Don's point, we've embraced this community. We stayed ahead of where the rest of the market is, and I think we're going to see the fruits of our labor really in the next couple of years.

Are we just at the beginning of the Big Beautiful Bill impact to the CapEx cycle?

Yes, we're at the beginning. We're seeing some minor impacts on that. We're seeing slightly elevated usage of our balance sheet of our utilization on our revolver lines are slightly higher than they were. I don't know how deep it's going to go, but we are definitely seeing some impact with that with companies who for 5 years, to Don's point earlier, the concern after COVID is do I invest? Do I want to take this risk? We are starting to see some of that impact.

Hard to say whether it's a Big Beautiful Bill, hard to say whether it's just we've been 5, 6 years and we haven't made CapEx investments. It's finally start doing it. But yes, we're starting to see some pickup there, which is part of our loan growth that we expect to see in '26.

So Don, Ted earlier talked about expansion markets, Florida, California, New York City. If I missed something, please be additive. I think it's very clear what the answer is after talking to you guys for 20 minutes, but you see -- you're distinguishing yourself by being a complete solution, right? So maybe unpack that a little bit in terms of when you enter those expansion markets, how you end up winning?

Yes. So I think it's different by market. So one of the things that Ted didn't mention that is important about these expansions is we now have brand. It was very hard for Citizens to roll into Florida because it was like who's Citizens. And there's 43 different citizens that we compete with. So it's very confusing to people. So the fact that we're in these markets with the Private Bank that we're in California with -- and New York with an investment bank in the form of the old JMP, which we rebranded as Citizens, you're starting to get that Citizens brand out there, which is -- the conversation doesn't start with who are you? It starts with, oh, yes, we've seen the kind of things that you're doing.

So I'd say we're playing the different markets, and we're seeing that dynamic slightly differently. So New York, we did investors. We did HSBC, which gave us a big branch network, very big business banking growth, very big middle market growth in New York. And we were already in New York in size, not banking corporates per se, but banking the whole sponsor communities in New York. So we were all over New York, and we were in the capital markets. And so we were reasonably well known in New York.

And I think the way we've done New York City on our side of the business, we've hired outstanding bankers from the money centers, both JPMorgan and Wells and I saw all my friends from JPMorgan and Wells. So it was just they were ready to move, and we're hiring teams in Long Island and New Jersey and New York City, and the transaction is quite strong. So that's kind of a regular way middle market. And the way we play all of these markets is not only are we full service, but we pay attention to you. we really are all over these companies. And our service model and our service bundle, and that's been even more reinforced with the private bank. If you think about what First Republic was, it was all service service, service service and one-stop shop. So that's the way we play in New York.

Florida has been interesting. We have all of that. But what we're finding in Florida is there are a lot of middle market companies, which are with smaller banks who don't really want to be with the gigantic mega banks. So a lot of our wins have been companies that are outgrowing their original relationships and need a fuller service platform, whether it be trade or treasury services or capital markets access or whatever it might be. And then California, it's really a new economy play. And we're trying -- there's been a real void created in the California market with Silicon Valley Bank and First Republic and a little bit of Union Bank, not as present as they once were. So there's really a dearth of provision.

We're not going into the pre-cash flow financing arena, but we do have some partners on the private credit side that are working with it will provide some of those facilities. So working -- that's back to the private credit complex, working with those people to provide financing into some of these situations, while we can come in and provide early-stage research versus JMP, provide good tech banking, provide biotech banking, provide fintech banking. It just seems that that's the angle that we're playing in California.

And I would say that the strength of our private banking capabilities in California are unbelievable. The reach they have into the Silicon Valley, San Francisco community and the network effect that gives us in terms of just people that they know where doors open and we can have -- and I'll go back to one of the things that Ted threw out is this whole One Citizens thing. It sounds cliche and a lot of banks talk about it. It's really powerful.

And so -- and again, it comes back to do you have excellence of client interaction and excellence of execution in every touch. So if we were coming in with a mediocre set of capital markets or advisory capabilities, the private bank wouldn't swing open the doors. If they were coming in with a mediocre private banking opportunity, we wouldn't swing open the doors. But the quality of the capability set that we've put together, I think, is allowing us to leverage one another, and that's probably happening most powerfully in the private sponsor community and in the California market. So each one is a little different.

And one of the things we are really careful about is one size does not fit all, one strategy does not fit all. As Ted said, we're doing a much better job, I would say, probably 95% of the clients that we've added in the expansion markets have been full wallet treasury services clients. So we're in there saying, this is a quid pro quo that has to be part of the move of the relationship. We want everything. We want the deposits, we want the treasury services. And now that those businesses are really up to snuff against any of the competition, which they weren't 10 years ago, there's a much higher degree of likelihood that we'll win all that business is what we're seeing. So it's exciting.

And then I would just say one more thing, and Ted has driven this. We've taken everything that we're learning in the expansion markets and asking ourselves the questions, do we have an incremental opportunity in our core markets? I mean our talk track in our core markets has always been we have #2 share or #3 share. We're kind of saturated, but we actually don't think that's true anymore. So you should expect us to see some new growth in some of our core markets also.

So to wrap this in a boat, Ted, underneath the spot loan growth guide of 3% to 5% for the firm, what is the contribution from your business for this year?

We are seeing good opportunities. Again, I think I mentioned earlier, we're starting to see the middle market companies start utilizing their revolvers, which is a good sign for loan growth. On the mid-corporate side, we've been involved already with a couple of acquisitions that have required us to use our balance sheet, which we like to do to fund those acquisitions. That is going well on the sponsor side of the business, we -- with the pickup in acquisitions, we see our subscription line business going up. We see our lending to the directs, that business starting to go up, too. So we feel like the utilization in all of those businesses are doing well.

Overall, if we continue to see this M&A pickup, that will fuel a lot of our loan growth just by the natural ability to go off of our balance sheet. That, combined with, as Don just talked about, the expansion markets, we think there's plenty of opportunities to see balance sheet growth in Florida, California and New York, which we are patient -- we're not -- we -- are small percentages to our overall loan growth, but incrementally, we can see some pretty decent sized jumps in those areas. So we feel like the commercial bank is going to be a healthy part to what's going on in our overall guide.

So before I leave it to you for a key takeaway, Don, since you mentioned that there was clearly some volatility last week surrounding software valuations. I think we're way past the cockroach conversation. But generally speaking, I think that the investors are right. They're looking at sectors, right, rather than just credit overall. Are there any sectors where maybe it's flashing yellow in your minds?

No. We don't have much in the software arena. So we're watching that. And when we look through into our private credit exposures. And again, we see what they have and we see what's going on in the portfolios. We don't see anything in that, that's particularly worrisome. I mean it's low single-digit percentages of our portfolio. So it's just not a significant business for us. I'd say we're watching retail. And again, we don't have that much retail, but anything linked to the lower-end consumer with this K recovery that's going on, you got to have a little bit of an eye on.

We've had some eyes on biotech, although that seems to be coming back again. We -- our exposure there is we have a reasonably modest kind of bio real estate portfolio, labs and things like that, but those seem to be being fed and kept alive. We haven't had any losses or distress in there of any significance. Health care in general, again, it's -- we'd like to be bigger in health care. We're not. And with all the changes going on in reimbursement and what's going to go on with the restructuring of health care, you got to be focused a little bit on that sector.

And then, of course, the whole data center space where we do have exposures, but we think we've been really prudent with the way we've structured our activities there. And there's some structural degradation that's going on in certain parts of data center lending, which we haven't gone there yet. But there's going to be a lot of volatility around -- I think the macro is intact, but I think there'll be a lot of questions, whether it be across power, across water, across data center. But I think the way we've structured what we've done so far feels pretty good. So if I look out at the C&I books and the like, we've got an idiosyncratic thing here or there, but there's no major, major themes as it relates to the portfolios that we're running that worry us.

And then I think there's a little bit of a -- you just have to always keep an eye on regulatory shifts and changes that are coming out of Washington and what does it mean from -- and it's really not necessarily an industry thing per se, but it's a company-by-company kind of event. And then the leverage portfolios are holding up pretty well. So we don't see a lot that really worries us right now. So I think that just feeds that whole narrative that we think it's going to be a good backdrop to be -- not going to have -- and I think that's true of the industry. So you're not going to have a lot of banks kind of inwardly focused on problems. They're going to be focused on how do we actually get business done.

Growth has been a big theme this morning.

Yes. That's good.

So Ted, before we sign off, what is the key takeaway you'd like to leave the investor community about your business and how you could really help the firm accelerate towards that 16% to 18% ROTCE target?

Well, it's exciting, and I couldn't be happier about where we are right now. I think as we started this conversation, we positioned this bank to be -- we position our commercial bank to be in great position to take advantage of the market we are in today, which is, I think, will be dominated by larger -- more M&A, more transactional business versus the market we've been in the last 3 years, which has been -- or 4 years, which has basically been a refinancing market. So we've been investing and we've been spending our time so that when this market comes, we will be in a great position to win our fair share of transactions.

Based on our pipelines right now, I feel like we're in a great, great spot to -- and I think our strategy has gotten us to where our pipelines are. Now the most important thing we have to do this year and next year is execute as well as I think we can to prove that we belong to and we deserve to get the businesses we're getting, whether that be the best price for a company on a bank deal, the best valuation for a company on an M&A deal, the best execution in putting our treasury solutions to a company.

We have to, one, first and foremost, execute. I think with that, we'll have the ability to continue to invest in more and more industry verticals that we can distinguish ourselves into, put more resources into our expansion markets on the middle market, continue to build out our mid-corporate industry coverage, which has -- again, we've just changed that and hopefully continue to invest in the private capital community as we continue to still see that as a growth vehicle going forward.

So if we can execute, if we can make the revenues that I think we're well positioned to make, I think taking and putting our foot on the accelerator and staying ahead of where our competitors are is what our real goals are going forward.

Great. Ted and Don, thank you so much for joining us here in one of your expansion markets, Florida.

Thank you, Erika.

Thanks, Erika.

Thank you.

Welcome, and thank you for standing by. [Operator Instructions] Today's conference is being recorded.

I would now like to turn the conference over to Kristin Silberberg. Thank you. You may begin.

Thanks, Julie. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee will provide an overview of our fourth quarter and full year results. Brendan Coughlin, our President; and Don McCree, our Chair of Commercial Banking, are also here to provide additional color. We will be referencing our fourth quarter and full year 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 it over to Bruce.

Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We were pleased to finish the year with another strong quarter. Our financial results were paced by net interest margin expansion of 7 basis points, strong wealth and capital markets fees, positive operating leverage of 1.3% sequential and 5.2% year-on-year, favorable credit trends, and a robust balance sheet across capital, liquidity and funding.

We are executing well on our strategic initiatives. Our Private Bank finished the year with $14.5 billion in deposits, $10 billion in client assets, and $7.2 billion in loans. The business was 7% accretive to pretax income in 2025, ahead of our 5% target. Importantly, we manage this business to a 25% ROE for the year. We continue to grow nicely in New York City Metro and our corporate banking expansion into new geographies, verticals and sponsors is delivering good results. We made significant progress in running down noncore assets from $6.9 billion at the beginning of the year to $2.5 billion at the end, which included a sale of a student loan portfolio. Our top 10 programs hit the mark with $100 million plus run rate benefits in Q4.

For the quarter, our EPS was up 8% sequentially and 36% year-over-year. NII is up 9% year-on-year as net interest margin is up 20 basis points and spot loans grew 3%. Fees are up 8% year-on-year, paced by Capital Markets and Wealth. Provision is down $25 million year-on-year as losses reduced on CRE office and credit in general looks good. We retired 3% of our shares in 2025 and delivered an 80% return of capital to shareholders. For the full year, our EPS of $3.86 was up 19% relative to 2024. We hit most of our line items in the beginning of year guide, which is included on Slide 31.

Our expenses were up 4.6% versus the guide of 4%, given the fee performance beat and associated incentive compensation and our desire to keep building out private bank and wealth. We delivered positive operating leverage of around 1.25% for the year. We think -- as we think about 2026 our focus will continue to be strong execution of our strategic initiatives. The biggest new addition will be Reimagine The Bank, which has been launched and is creating real excitement at Citizens. We've included a couple of slides in our presentation on this program.

What I'd like to call out is that the deployment of new technologies and approaches under Reimagine The Bank will deliver meaningful enhancements to customer experience. This will drive some real revenue benefits in addition to the targeted expense efficiency improvements from the program. This program has around 50 initiatives at the outset but we will add to this over time, providing further upside.

Looking ahead, the macro environment for 2026 should be favorable. We see solid GDP growth, stable unemployment and inflation falling by the end of the year. We project two more Fed rate cuts with the yield curve steepening as the 10-year stays anchored around 4.25%. We anticipate the regulatory environment to stay positive. We will look to take some basic steps on stable coins, but we do not see a big lift off and impact in 2026. Notwithstanding several of our peers engaging on acquisitions, our focus for the foreseeable future remains on our attractive organic growth agenda.

With respect to the 2026 outlook, we expect very strong revenue performance, controlled expenses, significant positive operating leverage and lower credit costs. NII growth of 10% to 12% will be paced by strong continuing NIM expansion and solid loan growth, led by Private Bank and C&I. Fees will continue to grow off a strong year in 2025. The capital markets backdrop is highly favorable and Citizens is well positioned. Our wealth business is in a great position to grow, both with private bank customers as well as branch-based customers.

Expense growth is projected to be comparable to this year as we seek to maintain the growth rate of the private bank. We have been disciplined in ensuring that the Private Bank achieved sustainable growth with attractive returns. To reimagine the bank impact in 2026, we'll deliver onetime costs of around $50 million versus benefits of $45 million, which are incorporated in this guidance. We do not intend to break out the onetime costs as notable as we've done in the past.

Credit costs will continue to improve as the CRE office portfolio continues to be worked out. We continue to see mix improvements delivering benefits to the charge-off and provision rates over time. We will manage our CET1 ratio to 10.5% to 10.6% throughout 2026. We envision share repurchases of approximately $700 million to $850 million. We also are hopeful that the Fed modeling improvements will meaningfully lower our SCB. We've included some slides on our medium-term outlook and how the drag from our legacy swap portfolio will dissipate with time. We remain confident in our ability to achieve our medium-term 16% to 18% ROTCE target.

To sum up, we are feeling very good about our positioning for the future. Our strategy rests on a transformed consumer bank, the best positioned super regional commercial bank and the aspiration to have the premier bank-owned private bank. We continue to make steady progress, and we'll continue to execute with the financial and operating discipline that you've come to expect from us.

I'd like to end my remarks by thanking our colleagues for rising to the occasion and delivering a great effort in 2025. We know we can count on you again this year. And with that, let me turn it over to Aunoy for his debut performance. Aunoy?

Thanks, Bruce. Good morning, everyone. I am excited to be part of team Citizens and to help execute our [ well planned ] strategy. Now turning to our performance.

As Bruce indicated, we delivered strong results in 2025 that were in line with our expectations at the beginning of the year. The fourth quarter delivered continued good performance, and we are well positioned for 2026. Referencing Slides 3 to 7, I will provide some highlights for the full year and the fourth quarter.

First, spending a moment on the full year results. We delivered EPS of $3.86 for 2025, up 19% on an underlying basis and that includes a $0.28, or just over 7% contribution from the private bank. Importantly, we also achieved full year positive operating leverage of approximately 125 basis points on an underlying basis. Net interest income was up 4% as we delivered 13 basis points of margin expansion. Fees were up a strong 11% on an underlying basis, led by record results in both Wealth, up 22%, and Capital Markets, which had a nice pickup in the second half, up 9% year-over-year.

Expenses were managed well, up 4.6% on an underlying basis, reflecting the continued investment in the build-out of the Private Bank and Wealth. We also managed credit well, maintaining strong reserve coverage levels with credit losses coming in line with our expectations at the start of the year. We ended the year in a very strong balance sheet position maintaining robust capital, strong liquidity levels and a healthy credit reserve. For the fourth quarter, we generated EPS of $1.13, up 8% linked quarter and 36% year-on-year, and delivered a 12.2% proxy. The Private Bank continues to steadily grow its earnings contribution, adding $0.10 to EPS in Q4, up $0.02 linked quarter.

Now I will talk to the fourth quarter results in more detail, starting with net interest income on Slide 8. Net interest income increased 3% linked quarters, driven by a strong expansion of our net interest margin and a 1% increase in average interest-earning assets. Our net interest margin continues to steadily expand, up 7 basis points this quarter to 3.07%. 3 basis points of the margin expansion was driven by the benefits of noncore runoff and reduced impact from the terminated swaps, what we refer to as time-based benefits. The rest was a combination of fixed rate asset repricing and lower funding costs, which was partially offset by lower asset yields. We continue to do a good job optimizing deposits in a competitive environment. Interest-bearing deposit costs were down 15 basis points, while total deposit costs were down 12 basis points. Our cumulative interest-bearing deposit [ beta ] is about 48% through the end of the year.

Moving to Slide 9. Fees are down 2% linked quarter but up 10% year-over-year on an underlying basis. Our Wealth business delivered another record quarter driven by continued progress in the Private Bank and strength in the retail network, up 5% linked quarter and 31% year-over-year. These results reflected higher advisory fees with continued positive momentum in fee-based AUM growth, including strong inflow from the conversion of Private Wealth lift outs as well as market appreciation.

Capital Markets delivered its third best quarter ever, up 16% year-over-year, though down 16% compared with the exceptionally strong third quarter. Several M&A and equity deals were pushed into '26 given the impacts associated with the government shutdown. As a result, we expect roughly $20 million of related fees to be recognized in the first quarter. Despite deals pushing into '26, our equity underwriting performance was still up nicely linked quarter and up significantly year-over-year. Loan syndication fees were very strong this quarter, driven by refinance activity and bond underwriting fees were solid, although lower than the very strong third quarter. We continue to perform well in the league tables, ranking second in the fourth quarter, and fourth for the full year on both volume and number of deals for middle market sponsored loan syndications. And our deal pipeline across M&A, debt and equity Capital Markets remains strong.

On Slide 10, expenses are up 0.6% on a sequential basis, largely reflecting continued investment in the build-out of the Private Bank and Private Wealth, and higher incentive compensation. Disciplined expense management and strong revenues resulted in approximately 79 basis points of improvement in our efficiency ratio to 62%. Our TOP 10 program achieved $100 million of pretax run rate benefit exiting the year, and we have launched our Reimagine The Bank initiative, which I will discuss in more detail shortly.

On Slide 11, average and period-end loans were up 1%, or up 2% excluding the noncore portfolio run-up of roughly $500 million in the quarter. We saw solid loan growth across each of the businesses as noncore runoff and balance sheet optimization impacts lessen. The private bank delivered solid loan growth again this quarter with period-end loans up about $1.2 billion, driven by a pickup in sponsor line utilization, along with growth in multifamily and residential [indiscernible]. Commercial loans were up slightly on a spot basis driven by net new money originations in corporate banking and higher commercial line utilization, partially offset by CR pay-downs. We continued to reduce CRE balances which were down about 4% this quarter and 10% for the year, and retail loans saw some nice growth driven by home equity and mortgage.

Next, on Slides 12 and 13. We continue to do a good job on deposits with noninterest-bearing balances up 2%, maintaining a steady mix at 22% of the book, even as our total spot deposits increased approximately 2% to $183 billion. Average deposits were also up 2%, or $3.9 billion, driven by growth in the Private Bank, Commercial and Retail. Private bank deposits reached $14.5 billion at the end of the year, including some larger flows towards the end of the quarter. We continue to focus on optimizing our deposit funding costs, reducing the average rate trade across all businesses, driving interest-bearing deposit costs down 15 basis points linked quarter. This, combined with the growth in noninterest-bearing deposits helped to drive our total deposit cost down 12 basis points. And importantly, our noninterest-bearing and low-cost deposit mix increased to 43%, and our stable retail deposits are 65% of our total deposits, which compares to a peer average of about 55%.

Moving to credit on Slide 14. Credit continues to trend favorably with net charge-offs coming in at 43 basis points, down from 46 basis points in the prior quarter. Nonaccrual loans were down slightly linked quarter driven by a decrease in commercial real estate. Criticized balances also continued to decline.

Turning to the allowance for credit losses on Slide 15. The allowance was down slightly to 1.53% this quarter as the portfolio mix continues to improve due to noncore runoff, the reduction in the CRE portfolio, and lower loss content front book originations across C&I and retail real estate [ secured ]. The economic forecast supporting the allowance is relatively stable with the prior quarter. And as we look broadly across the portfolio, the credit outlook looks good. The general office portfolio continues to work out as expected, and we maintain a robust allowance of 10.8% coverage. Importantly, the cumulative charge-off, plus the current reserve, translates to a total expected lifetime loss rate of about 20% against the [ March 23 ] loan balance, and that level has been consistent with our view for the past year.

Moving to Slide 16. We maintained excellent balance sheet strength. Our CET1 ratio is 10.6%, and adjusting for the AOCI optout removal our CET1 ratio increased to 9.5%. We returned a total of $326 million to shareholders in the fourth quarter, with $201 million in common dividends, and $125 million of share repurchases. For 2025, we returned $1.4 billion, or 80% of our 2025 earnings to shareholders. We repurchased $600 million of common stock at an average price of $44.55, representing about 3% of outstanding shares at the beginning of the year. Our tangible book value per share increased to $38.07, up $1.34, or 4% sequentially, with full year growth of $5.73 per share, or 18% year-over-year.

Moving to Slide 17 through 20. We are well positioned to drive strong performance over the medium term with our overall focused strategy. A transformed consumer bank, the best positioned super regional commercial bank, and our aspiration to build the premier bank owned Private Bank and Private Wealth franchise. The Private Bank continues to make excellent progress, as you see on Slides 19 and 20. We exceeded our balance sheet targets and delivered full year earnings of $0.28, contributing a little over 7% to EPS in 2025, well ahead of our original projection of 5%.

The Private Bank delivered strong deposit growth again this quarter, ending the year at $14.5 billion. Importantly, the overall deposit mix continues to be very attractive, with about 36% in noninterest bearing at the end of the year. We also delivered strong loan growth in the quarter, adding roughly $1 billion of loans to end the year at $7.2 billion. Since the launch of the Private Bank in '23, we have added 10 wealth teams to our platform with more in the pipeline. We ended the year with $10 billion of total client assets, reflecting the continued strong conversion rates of the wealth hires. We have more runway here, and we plan to continue adding top quality teams in key geographies.

Given the investments we have made and our plans to further expand the private bank in '26, we think deposits can grow to $18 billion to $20 billion, loans in the range of $11 billion to $13 billion, and client assets, $16 billion to $20 billion. We expect this growth will help drive an increase in Private Bank's earnings contribution to mid-teens in the medium term, while maintaining a 20% to 25% ROE profile.

Moving to Slides 21 and 22. We have launched our firm-wide Reimagine The Bank initiative. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank, and simplifying our business model which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency.

Slide 21 will give you a sense for the scope of the effort which spans nearly every part of the bank. Slide 22 lays out our financial targets for the program. For 2026, we expect to minimize the EPS impact of onetime cost and capital investments by prioritizing initiatives with faster paybacks. There will be about $50 million of front-loaded onetime costs that will be effectively offset by $45 million of benefits to be realized later in the year. The program will drive positive net benefits in '27 that we expect will accelerate in '28, and we are targeting fully phased-in pretax run rate benefits of approximately $450 million as we exit 2028. Roughly 2/3 of these benefits are [indiscernible] to expense efficiencies, which equate to about 5% of our full year 2025 expense base. Importantly, we are confident that the financial benefits of Reimagine The Bank will be additive to the 16% to 18% ROTCE targets we expect to achieve in the second half of '27.

Moving to Slide 23. I will take you through our full year '26 outlook, which contemplates a forward curve with two 25 basis point Fed cuts, one in June and another in September, ending the year with Fed funds approaching 3% to 3.25%, and a 10-year treasury rate anchored around 4.25%. We expect NII to be up 10% to 12% with NIM expanding about 4 to 5 basis points a quarter towards 3.25% in 4Q '26. Loan growth is expected to pick up this year, with spot loans up 3% to 5%, average loans up 2.5% to 3.5%, and overall earning assets up 4% to 5%.

Noninterest income is expected to be up 6% to 8%, driven primarily by Wealth and Capital Markets. We are projecting expenses to be up 4.5% as we are confident in our revenue outlook, and we plan to maintain our investments in growth initiatives. This translates to our 2026 full year operating leverage in excess of 500 basis points.

We have provided a walk showing the key components of our '26 expense growth on Slide 24. Credit is projected to continue to improve through the year with our outlook for net charge-offs in the mid- to high 30s basis points. Along with these credit trends, the improving credit trends, the portfolio mix will also continue to improve. And finally, we expect to end the year with strong CET1 ratio of 10.5% to 10.6%. We expect to generate a substantial amount of capital, which will put us in an excellent position to push forward with our strategic priorities, while returning a substantial amount of capital to shareholders. Notwithstanding anticipated strong loan growth, we expect to repurchase $700 million to $850 million in shares this year.

Full year 2026 earnings incorporates, a nice lift from the continued growth of the Private Bank. On Slide 25, we provide the guide for the first quarter. Note that the first quarter has seasonal impacts on revenue with lower day count impacting net interest income. Taxes on the FICA reset and compensation payouts impacting expenses. Fees are normally softer in the first quarter, but we are expecting a strong performance from capital markets after incorporating the deals that were pushed from the fourth quarter.

Moving to Slides 26 to 28. Looking out over the medium term, we see a clear path to achieving our 16% to 18% ROTCE target in the second half of '27, with further momentum in 2028. Reimagine The Bank benefits will be additive to returns. Expanding our net interest margin is a key driver, which we project to be in the range of 3.30% to 3.50% in 2027. Along with the impact of successful execution of our strategic initiatives, improving credit performance and delivering a strong capital return to shareholders.

To wrap up, we delivered a good performance in 2025, in line with our expectations. We have a strong outlook for 2026 with significant margin expansion. Good momentum in Wealth as we continue to grow the Private Bank. And we see our ship coming in on Capital Markets given the capabilities that we have built over the years. All of this puts us in a very good position to hit our medium-term 16% to 18% ROTCE target in the second half of '27.

With that, I will hand it back over to Bruce.

Okay. Thanks, Aunoy. And I think, operator, we're ready to open it up for Q&A.

[Operator Instructions] Our first question comes from Ryan Nash with Goldman Sachs.

Bruce, I appreciate all the details on the reimagining the bank. I think you noted in the slides that this should add 2% on ROTCE. First, maybe just talk about how much of this hits the bottom line versus gets reinvested? And if it is reinvested, what are the areas that you will invest in?

And then second, the Slide 28 says that you're not incorporating any of these benefits. Does this increase your confidence in getting to the high end? Or do you think this serves more as a hedge in case other parts of the business don't perform? And I have a follow-up.

Yes. Okay. [ Garner ] the space for that follow-up, nice move. So I would say that at this point, the program has taken shape, and we have about 50 work streams, and it's all signed out into a transformation office and people that are running with the ball on those streams, and Brendan is kind of leading the overall effort, he can comment as well. So I think at this point, we have kind of quarter-by-quarter visibility into each of those work streams and how the, kind of, implementation costs flow and then how the benefits start to flow.

One thing you'll notice there is that over time, the kind of revenue benefit start to pick up as we'll see improved customer experience, resulting in less customer attrition, better usage of our products by the customer base. And we think that's really solid in terms of our ability to forecast that. So anyway, the program has taken shape. We're executing it well.

As to the question of what do we expect to flow through. I think the first thing is you got to look at the gross number, excluding the implementation cost because implementation costs really are just kind of onetime capital costs in our view. So the run rate will benefit by the full amount. And then I think it's still a bit of an open question as to how much of that flows through. And it kind of depends on kind of where we are at that point in time, and what our investment needs and priorities could be? So do we keep investing at the same pace in the Private Bank? And is it worth investing to keep on that trajectory and to generate more medium-term revenue growth?

I think that's a TBD. So at this point, we're kind of just flagging, here's the numbers. Here's what we think is possible. We have a lot of wood to chop to actually execute this program, but we'll be reporting on it all along. And then we'll have, I think, more visibility into the flow through as time goes by. If you look historically at all of our top programs, Ryan, we've had a significant flow-through. And so we tend to be very disciplined on the remaining expense base. We have this mindset of continuous improvement. If we want to invest new dollars, try to figure out where to pinch the expense base to self-fund that. So I would expect that the flow-through should be high, but we're not going to make that call at this point. We're just going to give you the contours of what the program could deliver.

Got it. And then if I look on Slide 27, your prior NIM walk had deposit [ betas ] in the low to [ mid-50s ]. I think now you're saying high [ 40s ]. Maybe just talk about what is driving the change? Is it competition or a change in your strategy? And what are some of the offsets that are allowing the NIM to still reach slightly higher levels versus the prior expectations?

Yes. So what I would say is that when the rates first started to fall, the market was very aggressive in trying to recoup some of what happened on the way up. And what's happened since then, I think, is that the market is kind of less aggressive in its pricing actions at this point. And so you could call that maybe a little more competition, or you could just say kind of a decision to share kind of some of those benefits with the customer and not be as aggressive. And so that high [ 40s ] to us is really the market. So we're not -- if we move down from mid low to [ mid-50s ] to high [ 40s ], I think that's consistent with what we're seeing in the market.

And the reason that I still think we're in a very good position to deliver on that NIM walk are several factors contributing to that. But one is our confidence in our net interest -- our noninterest-bearing balance growth. which has stayed robust in the private bank and in the Consumer Bank, in particular, and stable in the Commercial Bank. And so we, I think, score well on that dimension. You know that we're also slightly asset sensitive. And I view is that rates will come down but maybe not as much as feared initially. So I think that is a helpful fact for us as well.

And then over time, we've continued to, I think, be very disciplined in our hedging actions. And so we've been adding in hedges at attractive rates. So I think it's a combination of those three things, the kind of noninterest balances, the higher -- a little bit of asset sensitivity and a higher rate outlook, and then these attractive hedging actions that we've taken would offset that beta dropping from where it was to the [ high 40s ].

Our next question comes from Erika Najarian with UBS.

Just wanted to ask about the puts and takes on the loan growth guide. It feels like a bit of a, sort of, best-in-class relative to peers. Maybe remind us, Bruce, in terms of where you are in your balance sheet optimization journey? And as we come to a point where rates may come down, talk to us about the push pull in terms of optimizing CRE versus taking advantage of potential refinancing opportunities?

Yes. So I'd say our confidence in that loan outlook stems from actually what we're seeing and what we delivered in the second half of the year. So we had -- we have an idiosyncratic growth driver in the Private Bank as they scale up their business. That's something our peer banks don't have. And so that continues at a good clip. And then I think the focus of the Commercial Bank in terms of the middle market and our expansion markets, plus some of the, kind of, private capital and sponsor lines also has been an area of opportunity for us.

And then kind of in the consumer bank, we have the market-leading [ HELOC ] products and also mortgage. And so we've seen growth across all 3 of those areas in Q3 and in Q4, and we think that will continue. In kind of prior years, that growth was offset by the accelerated rundown of non-core. But now we have non-core, kind of, at a, kind of, almost at a stub at this point from $14 billion down to like $2.5 billion. And then we've done a lot of work already on the commercial DSO and on the commercial real estate kind of run down after the Investors acquisition. And so there's a slide in the back, Erika, which you may have seen, or may not have seen, but kind of lays down some of the reductions in the drag from those efforts, which also contributes to positive sentiment on loan growth. So those are the kind of big things.

I'll just maybe flip it over first to Don to talk a little bit about commercial, and then Brendan to talk about the Private Banking consumer.

Yes. I'll start, Erika, by just talking about the environment. I mean across the board, we're seeing positive sentiment from the client base. So Bruce mentioned the expansion markets, they're growing. So I think New York, California, Florida, they're growing extremely quickly. Those are core middle market relationships with full wallet realization. So not only is loan growth materializing, but we're also seeing it from an ROE standpoint, being a very attractive business.

We're seeing, and remember, for most of the last 2 or 3 years, the market has been really a refinancing market. I think Aunoy mentioned that. We're seeing new money demand both in our core client base, which is translating into utilization growth. And we're seeing it powerfully in the sponsor business where the sponsors finally seem to be coming alive, and that will impact not only our capital markets businesses, but also our [ NBFI ] lending as we engage with the Private Capital community, both on the [ PE ] capital call lines and private capital leveraging line. So across the board, pretty strong environment to be operating in. And that should drive higher levels of loan growth.

As we look into '26 and beyond, we were probably running close to $1 billion of C&I DSO over the last few years. That really is down to BAU. We're pretty much done with that. If it was going to be $0.5 billion, I'd be surprised. But it will be just a continuous kind of rhythm of cleaning out under returning relationships and replacing of new relationships. And then the change in real estate, we're going to continue to trim the real estate exposures. But we're beginning to turn on the origination engine, and that's both Private Bank and Commercial Bank. And we will be replacing some of the BSO that's happening with some attractive opportunities as we see them in the marketplace. So what was a pure drag in the past will be a little bit less of a drag in the future, although we'll continue to kind of trend that down. But BSO will become less of a drag in the overall loan growth.

On my side, maybe 3 points here. One, similar to Don, the headwind on non-core is reducing. So just give you some numbers around it. Yes, 6, 7 quarters ago, we were dealing with $1 billion, $1.1 billion in quarter-on-quarter rundown of non-core that exited Q4 at $0.5 billion, and that's going to continue to minimize as we look forward into 2026. So that's a real positive to see that wrap. It's through the cycle.

And we've seen really strong growth in Private Banking, point number two. And it's been really balanced across private equity, residential lending and multifamily granular, high-quality commercial real estate where we have access to full relationships with Wealth Management. One of the dynamics we were facing early in 2025 is with rates high. There was a lot of cash out in the system with this client base, and they were hesitant to go in and finance things with debt with rates as high as they were. That is starting to change. And as the rates ease a bit, we expect loan growth to pick up in the Private Bank and our run rate to improve further. So we've got confidence the pace of growth in the Private Bank will continue to accelerate as we look into 2026.

And then in consumer, as Bruce mentioned, we're getting $700 million to $800 million in quarter-on-quarter growth in [ HELOC ]. We're number 1 in net balance sheet growth in the United States, #1 in originations in the United States and HELOC and a very high credit quality book, with 95% plus of the customers coming with [ DDA ] and deep relationship-based banking. We expect that to continue. And candidly, with rates pulling back, but not so far to create through a 5% mortgage rate, at least in the forward outlook, it's really a perfect time period for HELOC, where there's not going to be a ton of mortgage refinancing activity, but huge amounts of equity built up with consumers. So very well positioned to continue to monetize the HELOC capability we've put in place.

And of course, in the second half of last year, we launched the credit card portfolio, which we expect will start to pay some dividends as we get into the 2026, first half and second half with higher yielding, higher-quality balances. So for all those reasons, I feel really good about continued pickup in net loan growth.

The other thing I'd just mention wrapping up here is, it's important to look at the net loan growth number. But under the covers, there's a quality story that you need to pay attention to of the balance sheet remixing to deep relationship-based customer lending, higher yielding, higher profitability, both on the balance sheet but also the net customers we're bringing in, moving away from single service to a really, really deep relationship-based bank. So I think we've got confidence on winning on both dimensions, quantity plus quality.

Our next question comes from Manan Gosalia with Morgan Stanley.

I wanted to start on the fee side. Can you expand a little bit on the underlying assumptions in the fees? I mean it feels like the private bank is doing well. Capital markets are doing well. Pipelines are strong. You had a survey out recently talking about M&A expanding on the middle market side. There's also been some push out from the fourth quarter into 2026.

Just given all of that, it feels like the fee guide is a little conservative. So can you help us with some of the underlying assumptions there?

Yes. So I'll start and others can chime in. But we had a very strong fee year in 2025. So we'll start with that. We were up 11%. And then to guide up next year, 6% to 8% is still kind of good growth on top of very strong growth that we had in '25.

I'd say the outlook for '26 is led by the Capital Markets where not only do we have strong pipelines, we have several things going for us. One is the carryover. So we have about $20 million of fees that carries over, that will close in the first quarter. And then in the first half of 2025, we had kind of [ soft cut ] comparisons, I would say, because of the uncertainty in Liberation Day tariffs, there's a lot of pent-up demand to do deals that started to flow again in the second half of the year. So again, I think capital markets should have a strong relative year.

And again, who knows about the uncertainty in the tariffs. And it seems like [ Groundhog Day ]. We might be in that same movie replaying but I think that's one of the reasons why overall, it's good to have a little bit of caution in that guide of 6% to 8%. You just don't know. But at this point, Capital Markets look like it will have an extremely strong year. Wealth has been having record quarter after record quarter. And that's a twofold benefit. It's not only kind of getting the teams in place of recruiting these lift-outs and then connecting them to the Private Bank relationships, and the Corporate Bank relationships, which creates its own growth dynamic. But then also in the branch-based system, we've got great leadership there, great product set. We're really hitting our stride. So I think Wealth would be other shining star.

Across the rest of the patch, we don't see significant growth in many of the other areas like service charges on deposit accounts, mortgage. Our other income was flattered. We had -- like a moon and the stars aligned for a couple of quarters that might not repeat in 2026. So I think just having a level of conservatism there seems like the way to play it.

Very helpful. And then maybe pivoting over to the capital side. It looks like your buyback guide is a little more front-end loaded. And then you spoke about the fact that you're hopeful that the SCB will come down this year. I guess the question is, how important is the stress test in terms of your comfort level in bringing the CET1 ratio closer to your medium-term targets of like 10% to 10.5%? How quickly can you do that? And where would getting into that range put you in terms of buybacks as you get into the back half of the year?

Sure. again, I'll take this one. I've been living it on this SCB frustration for years. But we are reasonably optimistic that there's some changes [ of foot ] down in Washington with the Fed. And so based on what we know, we think we'll get a better outcome. It remains to be seen, the timing of that implementation. But to me, it's less an impact directly on where we set our capital targets. It's just been, to almost a scarlet letter, that we have this outsized SCB when our business model is the same as most of our peers, and it just has been mismodeled, and I won't get into all of it, but we've made those points clear to the new folks that are going to be in charge of the stress test.

So in any case, just falling back into the pack is good for us reputationally even if it doesn't affect exactly how we're going to manage the capital. I would say the reason that we're still on the high end of that 10% to 10.5% range is just still the amount of uncertainty that's in the environment. We have an upsurge in our profitability projected but making sure that we get there and that we get the CRE worked out when we feel the environment is in a better place, and we've accomplished some of those aspects, then I think we could be in a position to start to migrate down within that range. But anyway, that's how we think about it.

Our next question comes from John Pancari with Evercore ISI.

This is [ George ] [indiscernible] on for John. Just wanted to revisit the Private Bank [indiscernible] specifically. In that $11 billion to $13 billion Private Bank related loans in 2026, can you break down what loan categories within the Private Bank, you're seeing growth? Any puts and takes there? And then longer term, how should we think about the loan-to-deposit ratio trending in the Private Bank?

Yes, it's Brendan. I can take that. It's pretty balanced growth. So about 1/3 of it, I would say, is coming from C&I private equity-based lending. We have -- about half of the balance sheet is, I'd say, residential and real estate, so mortgage and granular multifamily commercial real estate, as I mentioned before, tied into deep Wealth Management base clients. And then there's a smaller portion in sort of other consumers. So our HELOC capabilities are making their way over to these clients, some small credit cards, some specialty unsecured lending loans in the Private Banking portfolio. The [ PLP ] partner loans that we're leveraging to convert. Our private equity community into personal private banking relationships.

So it's pretty broad based, but the largest categories are C&I, granular multifamily, [ CRE ] and residential lending mortgage. We expect that to continue as rates to pull back. The traditional personal Private Banking should pick up. That would -- again, going to -- the portfolio will benefit from HELOC and continued residential lending, and as our card portfolio picks up, we have optimism that, that can be a more meaningful player in the private bank over time.

Yes, I would just add to that, that we've been in business now for a couple of years. We haven't had one -- I'm going to touch wood here when I say this, we haven't had $1 of credit losses, and that historically was the track record of these bankers when they operated on the First Republic platform. So very strong credit discipline, very deep relationships, lending to people that we know well. and getting good credit results.

You asked about the LDR too. Sorry, I didn't answer that. Our 25% ROE is certainly benefiting from a little bit wider loan-to-deposit ratio than we probably would expect in a steady state. And so -- but you can also see in our guide, we don't expect dramatic meaningful changes in the short term. We're going to expect pretty balanced growth across deposits and lending. So we expect a self-funding mechanism here where not only is the LDR [ led ] with deposits, but the lendable deposits also fully self-fund the loan growth that we're getting.

Having said that, over the medium-term outlook, I would expect the LDR to tighten maybe from in the [ 60s ] where we are today into the 80% range potentially. But that's -- if rates pull back. Right now, we still think it's -- it will be in this range of 60% to 70% for the next year to 6 quarters.

Our next question comes from Matt O'Connor with Deutsche Bank.

A bit of a follow-up to some comments you just made. I wanted to ask about the deposit growth assumption. I found it interesting. I think what's driving the higher net [indiscernible] outlook, but your earning asset growth is actually a bit above the loan growth on Slide 23. So just trying to get a sense of deposit growth assumptions. And obviously, [indiscernible] a Private Bank, which is the one piece, but just the overall assumptions there and the confidence in that level?

Yes. Well, we don't have a deposit guide here, but I think the expectation, Matt, is that the LDR will stay relatively stable over the course of the year. So we brought it down. You may recall we were operating back in '23 kind of in the high 80s. We brought it down in '24 into the low 80s. We now have it down into the high 70s, which is a place that I think we can sustain that and feel good about kind of the liquidity position there. And so that's kind of the overall forecast.

I don't know, Aunoy, if you want to add anything to that?

Yes. I think it was the only other thing to add would be probably our noninterest-bearing deposit growth has been very steady as well, both coming from the Private Bank and as well as the Consumer Bank. We expect that 22% to be in the zone as we go through.

The two points I'd add on the noninterest-bearing would be -- we've gone through a period post COVID, 3 years of consistent headwinds on spending out the excess surplus. 2025 was a year of that kind of running its course and flattening out. We started to see some very modest [ DDA ] growth and most benchmarks in the consumer bank. We were #1 in our peer set on relative DDA performance versus peer banks. We expect that relative position to continue and move from a flattening to starting to see some very modest DDA growth.

And then the private bank you can see our DDA percentage in the high 30s, but it's important to also look at checking with interest, the entirety of the personal banking deposits in the private bank are in checking with interest, which is de minimis interest. When you add that in, our actual low-cost mix is in the mid-40s, and we expect that range to continue the combination of DDA plus checking with interest. So healthy, healthy growth in the private bank and noninterest-bearing, or low interest-bearing, and continued #1 performance or top quartile performance in the consumer bank on relative DDA.

And then just on the interest earning asset growth, it's kind of 1% to 2% both loan growth and maybe deposit growth. Anything else driving that? I think we've seen more banks point to, kind of, less earning asset growth [indiscernible] loan growth and yours is the opposite. So I was just wondering if there's something else kind of driving that? I think you've expanded your [ swap ] business for customers. So I don't know if there's something with trading assets, or a rethinking of how you hedge the balance...

I would say the spot loans is 3% to 5%, and earning assets kind of 4% to 5%. So there may be a little build in liquidity, we may be adding to the securities book. Part of that is looking at the [indiscernible] deposits and the, kind of what we see as growth in the private bank deposits, which have a little lower lendability than the consumer deposits do. And so it's really probably just a little mix in where we're building a bit of our liquidity to go match what we're doing in terms of the deposit composition growth.

Our next question comes from Ebrahim Poonawala with Bank of America.

I guess just a couple of quick follow-ups. As we think about the 16% to 18% return ROTCE exiting '27, it implies the margin probably being somewhere between around that [ 340 to 350 ]. Am I thinking about that correctly?

Yes, I would say -- think of that, Ebrahim in that zone, yes.

And then -- and beyond that, as we think about the new growth that's coming on the balance sheet. On Slide 19 for Private Bank, you called out the 4.1% spread on that growth. I'm just wondering if you had to have a similar number for the entire balance sheet in terms of growth, where would you say that your growth is coming? Is it close to 4%, close to 3%? I would love any color there?

Yes. That's an interesting question. I guess I would say the spread in the Private Bank and the Consumer Bank are relatively higher, the spread in Commercial is relatively lower. Commercial, you're extending credit to build relationships and do the cross-sell to your fee-based complex. So that's a little bit of the dynamics there.

Got it. And just one more, Bruce on the private bank. 7 offices, 4 more to go. Why is that number not larger? Like is it -- is there only so much that you can do from a management bandwidth standpoint? Or do you think once you have these 10 to 15 Private Bank offices you've [indiscernible] the opportunity?

Well, I'll start and flip it to Brendan. But I'd say from a bandwidth standpoint, you want to make sure that these offices are really premium locations and premium fit out and premium high-quality people is staffing them. And so we've done a lot. And we have another big agenda for this year, but we're certainly not done when you get to exhaust the list that we have in front of us for '27. We have a couple more in the pipeline that are straddling between '26 and '27. And then we have densification of some of our East Coast locations in Florida still in front of us when we look out into '27.

So I think ultimately, you could see this number get up to something like 25 or 30, and when we've kind of reached maturity with the private banking locations that we have before we would think about potentially other geographic expansion. But Brendan, I'll flip it to you.

Yes. Our confidence is clearly increasing every quarter that gets behind us on our ability to drive sustainable growth and high quality. But if you kind of rewind the clock back to 4 quarters ago, we were very committed to make sure we deliver the profitability profile that we shared with you all before we got too far out over our [ skis ]. So we've been very thoughtful in terms of where to put these locations. It's very connected business model, I call it first floor, second floor. First floor being, kind of, retail banking for Private Banking customers. Second floor being senior RMs and Wealth teams that are not necessarily working the retail branch, but they're bringing in clients. We've got to grow that in a connected way. So and we're keeping a very, very high bar on quality. We don't want to grow so fast that we compromise on having best-in-market team.

So we've got aspirations for more sites. We'll continue to add them as we get the right teams, as we get the right locations. We're starting to think about geographic expansion. We also have to think about filling in the rest of our Citizens footprint. You've got plenty of markets that we have high net worth individuals in today where we don't yet offer the full Private Banking package. And so in addition to adding more sites, you may see a handful of very targeted either conversions or dual branded sites with retail and private banking coming online where we can offer the full service of the bank, the full [ one Citizens ] in the same market. So -- with commercial partnering as well. So a lot to do. We expect a steady [ diet ] of continued openings and opportunistically, we find talent in good locations, we'll upsize our ambition.

Our next question comes from David Chiaverini with Jefferies.

So I wanted to ask about the efficiency ratio outlook. It looks very strong. Mid-50s, medium term versus the 62% in the fourth quarter. Can you talk about what could drive the high end versus the low end of the mid-50s outlook?

Yes. Well, there's a couple of dynamics here that right off the bat, if you overlay the, kind of, termination of these swaps and look at some of the built-in kind of active swaps and fixed asset repricing that we think is pretty assured, you can get from 62% into the high 50s. And if you overlay the [ RTB ] that can further take you down into the mid-50s. And then all along, we're trying to run with positive operating leverage even if you strip out the benefit of the NIM expansion. So those are really the 3 things that are kind of driving you back down to something in the mid-50s. So I think it's a very realistic target.

And my follow-up is on AI. You've been front-footed on AI versus some of your peers. Can you talk about your AI spend and some of the use cases you're seeing?

Yes. Our AI spend has -- I would call it backwards looking in 2025, has been a combination of very small targeted pilots and learnings and building the right control infrastructure to get ourselves ready for this, including moving completely to the cloud in 2025 and big investments in data. So to actually take the AI capabilities and commercialize it, a lot of foundational things need to be true. So some of this happened in 2025. Candidly, some of this started back in 2020, 2021, where we're really getting some bigger investments in broadening our data capabilities, modernizing the tech stack to put us in a position for this.

So enabling investments has been high. Very specific kind of last mile [ AI ] investments, I think, have been very relatively modest. But as we turn the page to 2026, the dial turns a little bit. So a couple of the use cases, of course, we highlight them on Page -- I guess, it's 21 in the deck, and you can look at that, but I'll maybe highlight 2 or 3 of them.

The call center, as an example, we think that the combination of modernizing the tech stack for the call center front to back, plus introducing voice AI and other mechanisms, we can get in the range over the medium-term outlook, 50% of our call center calls out of a human answering them. That is something we're very excited about. It's not hopes and dreams. We've seen this in development and an action in smaller firms, [indiscernible] banks and otherwise. So we're leaning in heavily there.

Technology development, accelerating productivity of an engineer is a use case that we also have high confidence in that through leveraging AI, we can have a 5 to 10x of productivity with our engineers, that the AI is taking the first crack at writing the code, where developers are now [indiscernible] seeing the code, adding the last mile and then ultimately having the AI also work on the first round of testing and quality assurement of the code.

And then maybe lastly on just analytics. Fraud, credit risk. These are tried and true AI use cases that with, particularly in the consumer bank relative to fraud and credit analytics where you're underwriting and decisioning on a cohort basis. Leveraging AI to reengineer front tobacco, we think about credit analytics, portfolio monitoring, fraud detection, model enhancement. These are all very real use cases that are practical in our sites, and we've got reasonable confidence that we can go at them.

So you'll start to see in the Reimagine The Bank effort there's an overlay of tech spend in addition to our run rate tech spend we're spending on the franchise that will be principally pointed at AI deployment for reimagine the bank. So we're carving out a meaningful chunk of overlay for tech spend that will wind up in our depreciation line over time, which is incorporated in our guide relative to the net benefits of Reimagine The Bank.

Our next question comes from Gerard Cassidy with RBC.

Bruce, since going public, you've done a very good job of delivering on growing this organization that you head up and clearly, you've done it in this Wealth Management area most recently, the Private Bank. Can you guys share with us the growth that you're planning for this year, the $16 billion to $20 billion of client assets. How much is that coming existing customers of their portfolios, versus just new customers coming in with you're going to maybe hire more teams? And then I don't know if you can parse, how much of a benefit has this 3-year bull market been on this business?

Yes. I'm going to flip this to Brendan quickly. But what I would say is that what you're seeing on that Private Bank slide is simply the growth of $6 billion to $10 billion in kind of this kind of lift-out venue that's serving their Private Bank partners. And some of that comes from the continued acquisition of new teams, but the majority is going to come from just the, kind of, people that are on the platform, kind of, getting their full book converted in and then growing as they start to serve the Private Bank and private wealth. So that's part of the story.

Beyond that, not shown on this page, we have our branch-based business that is going exceptionally well. And then we have [indiscernible], which was a legacy RIA that we acquired, which is working closely with the Private Bank at this point. But when you add that all together, the kind of AUM, kind of, assets that we have in -- what we refer to as client assets, which concludes transactional balances is about $60 billion. And kind of core AUM on that is about half of that. And so that now is a number that's growing very nicely across kind of all those 3 sectors.

So we have the private bank growing. We're finding an ability to rejuvenate [ Clarfeld ] growth and then the branch business is running very, very nicely and achieving strong growth. So we're excited that, that wealth fee line can continue to hit new records kind of quarter after quarter as it did in 2025.

Brendan, you can provide more color?

Yes. Sounds good. On the privates, I'll unpack both of them very quickly. On the Private Banking side, just one strategic point to make. It's hard to totally separate the adding of new talent from the referrals coming from the banking teams that we hired, because you need them both in place for either of them to happen. And once you get the new talent in, it is true that 80% to 90% of their previous book will follow them over, and we have seen that, and we've actually seen better performance than that on most of our teams that we've lifted out. But they also have new productivity. They're bringing in their own clients on the Wealth side, but then they're referring them back to the bank. So this is a bidirectional referral model.

On the banking side, we have seen an acceleration of referrals as we've got high-quality wealth teams on through 2025. We expect that to continue into 2026 at a healthy clip. So as the business gets more granular, as we convert some of the business banking clients into personal banking, have the right wealth teams, we expect a continued acceleration of new business flow coming from that into these new Wealth teams. And we expect -- we've been doing 1 to 2 teams a quarter of new lift-outs. I would expect us to be in that range over the course of 2026 as well. So a supplement of accelerating referrals, adding new teams, new teams bringing their back books plus new teams, bringing new business and hitting the market hard.

On the mass [indiscernible] front, about 55% of our fee income, or our AUM I should say, is actually in the branch-based business. And about 60% of our fee income is from the mass [ employment ] business. So that business grew in 2025 by 15% on the AUM side, and 25% on the fee income side. And the effective rate of revenue on the mass [indiscernible] business is roughly twice that of the private bank. So you're getting significant profitability jaws by growing that business as well.

We had record referrals coming from our retail bank. We've got an overhaul of talent and our advisers that sit in the branches. We've grown that adviser base by about 50 advisers in 2025. We expect that to continue. So we're seeing sort of all boats rise with the rising tide, the wealth brand that we're building and the capabilities that we're building are coming through in all the client segments. We're getting a real strong uptick from Don's business as the commercial team has more confidence in the teams that we bring on.

Your comment about the bull market, it is true. Bull market helps. Market betas helped. About 1/3 of our Private Banking revenue uplift was driven by market betas. But you can't capture that market beta unless you acquire the customers to begin with. So there's a bit of a virtuous circle here that's happening here as we're getting outsized new customer growth, outsized talent growth, and catching the market beta as it moves from whatever firm they exited over to Citizens. So we feel really pleased with where we're at, and we expect continued positive momentum across all segments.

You have another question, Gerard?

As a follow-up, taking a step back, Bruce for a second. Obviously, you've grown the company and you've painted a very strong organic growth picture for this year, but you've grown in successfully through timely acquisitions, whether it was investors in 2022 with the HSBC branches, as well as JMP. When you kind of -- with the regulatory environment being very supportive of consolidation, can you give us your big picture view of how you think shaping up in opportunities for Citizens over the next couple of years?

Yes. I'd say -- and I said this in my opening prepared remarks that right now, we have such great organic growth opportunities that that's our focus. And so we're not going to run out a knee jerk the windows open, it might close, we should try to hunt around and find a deal to do. I think the better course of action here is make sure that the Private Bank stays on its trajectory, and we really make that a sustainable, great business. That, in effect, was our acquisition. When you look at the accretion that's coming from it. We took a risk and took -- spend some start-up capital and it's working out spectacularly well.

And then Reimagine The Bank is another big effort that is involving many of our top talent across the bank to make that work. And so just from a pure bandwidth standpoint, we want to make sure that these things are hardening and maturing and on their way to success before we kind of step back and think about anything that would be inorganic. There might still be opportunities to do. Kind of some of the little -- kind of business line adds that we've done in the past, such as an M&A boutique. We have these lift-outs that we're doing, but that's pretty much where our focus will be this year.

Our next question comes from Chris McGratty with KBW.

The 16% to 18% back half of next year ROE guide, looking at our numbers and consensus for, you call it, a little bit closer to [ 15 ]. I hear you on the SEB that maybe gets you to [ 50 ] basis points. And the combination of revenues, credit expenses probably gets you to the low end. Interested in kind of a gut check on our math and also to get firmly into the range, is it about the expense growth rate from Reimagine The Bank moderating? Or is it something else?

No. I'd say, again, we think we can get into that low end of that range kind of by the end of the year. It's not a full year forecast for '27, just to be clear. And then when we look out to the next year in '28, that's when we can fully deliver that. So -- so we're on the journey. We think we made some strides this year. I think the acceleration, again, do the math on what the EPS growth is and is very significant based on this guide. That will make another big step forward in '26 in that ROTCE performance. And then we tend to peak in the fourth quarter of every year. It tends to be a very seasonally high year. So our -- like just like this year, we were above the year average with a [ 12.2% ] exit rate in '26. We'll end up -- the fourth quarter will be a higher number than our year average, and then '27, kind of the same thing.

So we see a path to getting there. And I think it's really just driving these initiatives, having the NIM continue to expand everything that we put in our guide.

Great. And then just a quick follow-up on reserves. I hear you on the moderating credit costs. If you compare the reserves adjusted for the balance sheet optimization, I guess, where are we relative to CECL day 1?

Yes. There's a number of things. We had the noncore rundown. We had some loan sales within student. And then we did the investors acquisition. So like there's a whole series and then a lot of BSO. But I think -- no, you correct me if I'm wrong, I think it's about [ 110-ish ] would be the CECL day 1. So it actually was [ mid-40s, 45 ] or so the original CECL day 1. But the things that we talk about is really having a very disciplined risk appetite and continuing to improve the overall credit risk profile. We brought that [ 145 ] back down to about [ 110 ]. And so to have to be in the low [ 150s ] at this point, still shows a fair amount of conservatism and a very healthy level of reserves.

Our last question comes from Ken [indiscernible] with Autonomous Research.

Just one quick one. Just bringing everything together on the Private Bank, you guys continue to point out Slide 24, the impact of the Private Bank on overall expense growth. So 1.8% of the 4.5-ish this year. To your point about where growth is and where growth comes from, do we get this year and get to kind of a lower natural growth incremental rate from the Private Bank? Or do you just kind of see what the opportunity set is as you look further out and potentially then move that to other potential investments?

I think there's still more build for the private bank. And the other thing I would say, Ken, is not only do we have a very robust total revenue growth outlook for '26. We have a similarly robust outlook for '27. So when you think about -- if you're growing your top line around 10% and you grow your expenses at [ 4.5% ], you're delivering massive positive operating leverage. And the good news there is these are very prudent targeted investments in terms of building a great Private Banking franchise, continuing to strengthen and invest in the Commercial Bank in these expansion markets and how we're covering private capital. And so -- that seems appropriate to us that we can, kind of, have our cake and eat it too.

As long as this really strong revenue outlook continues, and you can deliver big positive operating leverage, big growth in EPS every year, big improvement in ROTCE and you're not shorting the pot and playing small ball, you're actually continuing to think about ways to grow your business and grow your franchises so that you have a medium term that continues to have a very positive outlook. So that's how we think about it.

Okay. All right. I think that's all the questions that we have in the queue. So thanks for dialing in today. We really appreciate your interest and your support. Go out and have a great day. Thank you.

Thank you for your participation participants. You may disconnect at this time.

All right. Great. We're going to get started here. Up next joining us for the 11th straight year, we are once again excited to have Citizens. Citizens had another outstanding year posting margin expansion, operating efficiency gains, while succeeding and building out its fast-growing Private Bank, which I'm sure we will touch upon here. All these items have made it the best-performing regional bank in our coverage that was not acquired, by over 1,000 basis points, I'm sure that makes you happy to hear, Bruce. Here to tell us more about how he's going to repeat that in 2026 is Chairman and CEO, Bruce Van Saun. Welcome, Bruce.

Good to see you.

Good to see you, too. We won't talk about football today, given the state of our team. But maybe just to kick it off. It's been a busy year for the bank. Lots of different initiatives going on. I talked about success of the Private Bank, Metro New York Private Capital and more recently, which we'll get into reimagining the bank. Maybe just talk about the bank strategy and how you feel it's positioned to succeed as we move into 2026.

So I think we've really honed our strategy around -- we'd like to refer to it as a triangle or a 3-legged stool. But ultimately, having a good source of low-cost deposits and running a -- have a well-run consumer bank that offers advice to different segments of the market and can grow and grow with attractively priced deposits and then offer advice to those customers and penetrate the wealth opportunity more. We've made big inroads in that. And I think if you look at our deposit performance, through the up cycle and now the down cycle, you can see how much progress we've really made in the consumer bank.

So I feel good about that, and I think there's more opportunity to reposition some of the branch network so that we can get even more growth and tick up that growth rate over the next -- over the medium term. The second leg of the strategy is really around the commercial bank, which we like to say, is the best positioned super regional commercial bank. We're not impartial in that, of course. But -- or we want to become the commercial bank of choice is another way we like to state it. But over time, we've invested in really great coverage bankers, and we've aligned them against the opportunities in the middle market. And then as we go into the mid-corporate space, we have industry vertical specialties that where we think there'll be a lot of activity.

So been smart about how we've deployed the human resources. And we've also been -- had a big focus on private capital. So private equity firms that have morphed broader into private credit. We've covered them for a long time. We've built out the product set. So we add a lot of value to those relationships. So what is heartening to me is when you start to see the flywheel get going and you start to see more deal activity, we can capture that. And then what we've built, the quality of what we've built you can see how much upside we had in Q3, for example, in our revenues relative to what our peers caught in terms of that upside. So you haven't really seen the full power of that model. The market has been in the doldrums for 3 years and pretty much the first half of this year. But I think increasingly, what we've built will manifest itself and be distinctive, seen as being distinctive. And then the third leg of the stool, which is somewhat opportunistic and most recent was the attempt to go after all of First Republic and not be successful.

JPMorgan got the whole business, but we got the talent, the Grade A people who put First Republic on the map and made them kind of noteworthy as the strongest premier private bank in the banking space. And so you win with great people. We took a big swing. We brought 150 people in 1 day in June of '23 which wasn't for the faint hearted because the environment was pretty choppy at that point. And basically, we said, look, we're going to start this up. We think we can leverage the platforms we have, and we can get the service levels up to white glove, which is what First Republic was offering. And it's been a great success. I'm really pleased how that's going. So we're over $12 billion in deposits and tracking well towards kind of $7 billion in loans and $10 billion in AUM. And we've expanded to now a head count of roughly 500.

We've got teams now in Southern Cal. We started out just in Northern Cal and eyeing some more expansion in Florida. So things are going very well there. And the other thing I'd say is we're running this business profitably. So there's always tension between growth and profitability, but we've achieved a 24% year-to-date return on equity in the business, while it's growing leaps and bounds, which is not an easy thing to do. The upshot of that is we thought this year, we set some markers out and we'd be 5% accretive to the bottom line. It's gone so well that this is going to be 7% accretive to our bottom line. It's not because the rest of the bank grew less. It's just because this has outperformed and grown faster. And so it's pretty rare that like M&A is now the rage in the banking space and people are spending huge amounts of capital to find 7% accretion, we basically risked about $100 million in start-up cost capital to get it off the ground. And now we're -- I think that 7% is on its way to double digits easily by next year and could double in the not-so-distant future.

Got it. A lot of great stuff in there, and then I'm sure we'll touch on a lot of them. So maybe to dig in a couple of things, Bruce. I guess, as you go out and meet with clients, what does sentiment look like out there and out there on both commercial and corporate side and how is it impacting your thinking into 2026?

I'd say most of our corporate clients have had pretty good years, pretty solid performance. And the first half of the year had an incredible uncertainty in the rollout of tariffs and things, which I think gave people pause. But if the last 5 years has proven anything, it's that companies have to be resilient and adaptable. And so their expense bases are pretty lean, their business models are more digital, their supply chain has if they're a goods business, not a service business, they've got diversification in the supply chain. So anyway, people have hung in there. And then I think as we got to the second half of the year and then the worst-case outcomes on tariffs were off the table, the big beautiful bill passed, the deregulation push passed -- is moving ahead, pro-energy policies are moving ahead, being beneficial. I think it's a new normal.

We're going to have some choppiness and some uncertainty, but there's starting to be a sense that the economy is strengthening and the outlook for '26 is pretty positive. So I would expect to see more investment. Right now, the whole investment is carried on the backs of the hyperscalers and the AI investment that's taking place, which is probably adding 0.5% to GDP, but I think that you can start to see that broaden out and companies have to figure out how much investment are they going to make in utilizing AI and the use cases. And so we would expect to see that pick up over the course of the year. And then on the consumer side, certainly, people at the higher end of the wealth spectrum are benefiting from seeing the stock price -- stock market going up consistently and housing prices very firm and strong. And so they're spending and buying second homes.

There's a lot of momentum at the high end of the market. And I'd say even though there's some concern at the lower end, people have exhausted some of the liquidity they built up through the pandemic. And they're feeling the pinch a little bit of inflation still being persistent and the labor market softening a little bit. Generally, people are in good shape. So we don't really see anything in the credit books on the consumer side that gives us pause. Now we pitch a little higher than kind of the subprime and the very bottom end. But anyway, we think the consumer is holding in, making some choices about I used to spend some money on this discretionary, I better hunker down and spend it over here and be a little more watchful about kind of what kind of groceries you buy, where we shop and things like that. So anyway, but people are adapting. I think it's okay.

Got it. So it sounds like a pretty upbeat outlook into next year. So maybe as we're looking ahead, you've obviously been targeting a 16% to 18% return. Bank posted greater than a 12% return in the most recent quarter. Maybe just talk about the path to getting from where you are today to that to 16% to 18% over time? What are the key drivers? And how do you get there over the medium term?

Sure. I think the pretty unique aspect to our story is we've put a spotlight on what we call time-based benefits, which has been the combination of terminated swaps rolling off as well and the drag from that, which just goes away with time, plus noncore rundown. We've achieved a lot of the noncore rundown. So it kind of falls more on just the swaps benefit. But that's still from where the ROE is today, at least 300 basis points positive. So we don't have to go out and execute, but we can see ourselves go from the 12% towards 15%. I think we have other positive dynamics around NII that supplement that such as front book, back book and the like.

So there's a little more to squeeze out of that. And then I look at the initiatives around the triangle that I just mentioned what we're doing in consumer and commercial and continued maturation and growth in the private bank, and that adds, you pick a number, 200 to 300 basis points, normalization of credit as the kind of losses are tied to the CRE office space come down, then we get kind of from high 40s charge-off rate down to low to mid-30s. And so there's a lot of things there that kind of you just add them up and do a waterfall and you can easily see yourself getting to the 16% to 18%. The AOCI benefit, which is a perverse benefit that kind of impact to capital will shrink over time. So that works as a bit of a counterweight, but you're offsetting to some extent with share repurchase. So anyway, we think it's quite visible. We've laid out the chart. I think investors see it and believe it.

So maybe to dig into some things on the operational side. So loan growth obviously showing signs of improvement. You guys were shrinking for a while. You've had 2 straight quarters of growth, including 3 in a row on the commercial side. I guess based on your comments from earlier, I guess, what are your expectations for loan demand on both the commercial and the consumer side? And do you think we can continue to see it improve from here? .

Yes. So you left out private bank. So there's 1 thing that we have kind of that's unique to us is that as they kind of pull over their books of business and really start to grow that, that I think there's a built-in driver of private bank loan growth, unique to us, which I think we've been able to count on every quarter this year, which will continue into next year. With respect to consumer, I think the bright spot that we've seen this year has been HELOCs where it may surprise people, but we're the biggest HELOC originator in the country, and we only originate in 14 states, but we've really carved out a niche for ourselves. It's a great product for mass affluent households, which is where we target the consumer bank and we've made huge investments in the overall experience. And we've got origination times down to like 10 to 14 days, and the industry average is like 45 days.

So anyway, if you need a HELOC, talk to Citizens. But any case, we do -- we do a great job with that. And there's other things like mortgage continues to grow a little bit, and we've launched a new card family of products, and we think we'll get some more growth out of that. But I would expect consumer to be a steady grower, but not a dramatic grower. I think where there's more upside, ultimately is in commercial, both in the traditional middle market and mid-corporate business plus the way we serve the private capital complex. I think it has picked up a bad connotation NDFI lending, but is very safe lending, and it's investment grade. And so we have subscription line demand. We have securitization demand from private credit and asset-backed finance demand. And so that should continue to grow. So you really have kind of 2 cylinders. One is the direct lending from corporate C&I borrowers. And then the other is this category of serving the sponsor community and private credit.

So last quarter, you started talking about reimagining the bank, which will get further details, I believe, in January. And it's supposed to deliver run rate benefits of more than $400 million with the benefits in '27 and I guess, accelerating in '28. And you've also talked about minimizing some of the onetime costs and the capital investment upfront. So can you maybe just expand on these thoughts, talk about what the goals initiative is? How do you foresee this making Citizens a better bank over time?

Sure. So -- so that was the tease, I guess, in the third quarter was everybody wanted to know, well, how big is the program going to be and what is it going to take you off your trajectory to the medium-term objectives and it's really in the first year, we said there's a lot of start-up costs to the program, consultant costs and investment costs and you start to see some people coming out in redundancy costs. And so the goal is that we can try to accelerate as many benefits as we can into '26 so that we have kind of a good run rate of benefits at the year-end, which kind of offsets any drag from those onetime start-up costs. And then as you get into '27 that you start to see the onetime costs fall off a little bit and the benefits really start to accelerate, and that continues into '28. So that's kind of the contour. I guess what we're looking for in the program and the reason we call it reimagined is we don't want it to be just another top program that's incremental, which has been great. I mean that's allowed us to self-fund the investments we need to get Citizens moving in the position that we needed to go.

So -- but now you're at a point in time where with the kind of innovation that we're seeing in technology, in AI, gen AI, large language models becoming more sophisticated Agentic AI, there's opportunities to just say, hey, in 3 to 5 years, like how do we want our call centers to be interacting with our customers? How do we want the fraud process to work? How do we want to be onboarding our customers? How much self-service can we offer to our customers, and they can solve their problems without handoffs from 1 department to the next. There's, I think, a lot of good work that's been done around that. So not only should there be financial benefits, but I think the customer experience is the prize here is to boost Net Promoter Scores and have happier customers and the attrition goes down and the deep relationships deepen because they're really happy to be banking here.

So anyway, that's the path that we're on. And so we've now broke that into like 50 work streams. So each business and functional area like technology has been working on this. We've taken like 25 senior people to work on this program with outside consultants since the summer. And we're getting to the point where we can really get it fully going, and we have a transformation office that will sit on top of it and make sure that all the things that have to happen so that we can deliver this are happening.

And you still feel good about the financial metrics that you teased out.

Yes.

Awesome. So we talked a little bit about the private bank before, which has obviously been a huge success. You're over 7% accretive. You talked about it doubling over the next few years with 20-plus percent returns. Maybe just talk about what has gone well, what are the challenges? And really what's left for you achieving your goals in this business in terms of seeing their earnings double from this?

So, again, I said you win with great people. So we brought in great people as the nucleus and we've expanded that out, which I feel really good about. I'd say we're still -- we're maybe in the seventh inning of getting to white glove service. So we've made a lot of investment and progress but -- and the business itself has a high Net Promoter Score. But I think there's still room to go to conclude that. And the bar always is going to go higher. But anyway, that's kind of still on the road map of things that are high on our priority list. The other thing is that we started out with the private bankers, and we had Clarfeld as the wealth -- private wealth arm, that wasn't going to be big enough and scalable enough to service all the private banking teams that came over.

So we've been in the process of doing lift-outs of teams, some from the old First Republic platform, but many from other platforms. And so we've just hit our -- announced our 10th lift out last week. And so making sure that we have wealth teams that are co-located with the banking team so that we can jointly call on our customers and have smooth interaction with the customers has been an important stage 2 after getting the bankers, let's get -- make sure we get the wealth people and keep -- make sure they're really high quality. So I'd say, again, there, we're pretty far down the track, but there's still kind of more to do. So expect to see us do a handful of additional lift-outs next year.

And rounding out on some of the initiatives, I wanted to talk a little bit about the private capital business. There's been significant growth across loans, capital markets, other things. And I guess, just given the push of private credit, which has obviously been a big focus for the industry, but it feels like you guys are well positioned to capitalize on this trend. So talk about the opportunity set for Citizens, where is your strategy positioning you to win? And what do you foresee as the competitive threat?

Yes. So as I mentioned, we've covered sponsors who focus on the middle market for over a decade. And I think we've developed the tools to help make them successful in terms of M&A flow and execution and financing -- leveraged financing capabilities and then services to the company itself, subscription lines, et cetera. So we have really thick relationships there and good dialogues across what the kind of complex itself needs and then also what their portfolio companies need. And so it's been natural as they've kind of extended the remit to be not just equity sponsors, but getting into private credit. We know how they think, we understand their strategies. And so we can help provide deal flow to them because they need to put money to work.

We can help provide additional leverage through the securitization structures. So we haven't really felt the need to commit our own capital and go competing against some of these private credit. I think that's another thing that we've seen as distinctive is if there's opportunities to go do deals and we have kind of a club of these private credit firms that we're really close to, we can effectively use their balance sheets, offer them the opportunities, which is very valuable to them. So we're staying fairly nonaligned, but close to key players in the industry, and I think that's been a good strategy.

Maybe switching to the near term. We're 2 months through the quarter, you gave guidance on a handful of items, NII up 2.5% to 3.5%, continued margin expansion, stable fees. You know all the things. Maybe just give us an update on how the quarter is progressing. Any trends that you're seeing in the market? And maybe anything that's better or worse than expected?

Yes. So I'd say, just stepping back for a second. We feel really good about the year and how we've executed through a lot of uncertainty. So we're on track to deliver our initial year guide. I take pride in that every year at the end of the year, I show here's what we guided, and then here's what we did, which most banks don't do that. But anyway, we're tracking well again this year. And I'd say the same thing about the fourth quarter is we're feeling good about delivering the guide. There's always puts and takes. And so I'd say the market is very focused on kind of NII growth and NIM is particularly for us, the story of seeing that steady 5 basis point expansion quarter in and quarter out and feel good about that.

I'd say the only slight wrinkle we have, we're having an extremely strong capital markets quarter, but we guided to a superlative quarter. And because of the government shutdown, we'll likely see a few deals push out into the first quarter, which we'll be able to offset, I think, with the other kind of puts and takes, the other benefits across NII expenses or other fee categories. But anyway, we saw that a little bit in the second quarter when because of the uncertainty we had a little push out in the Q3, and it resulted in a very strong Q3 in terms of capital markets. So whatever doesn't close in Q4 builds to a nice Q1. I'd say the important thing there is that we're still getting hired and none of the deals are evaporating.

Yes, they're Just being pushed.

And so you control the things you can control and government shutting down is something that's out of our control.

Got you. No, super helpful. Bruce, you brought up the market's focus on NII and the net interest margin. You guys have had a target of 3.25% to 3.5%, that incorporates the Fed funds going below 3%, even maybe as low as 2.5%. So given all the drivers that you've talked about, not to rehash all of them, just talk to us about, one, your confidence in reaching this 3.25% to 3.50%. How much is in the bag? And how would you assess sort of the risk and opportunities of not only getting there, but where you end up in the range?

Well, there's a number of factors that go into arriving at that destination. People immediately think about, well, where is the Fed funds rate, and it's as simple as that. But that's the 1 variable equation and so that is important, clearly. And so we've tried to make sure we've protected that cone from the Fed funds moving a bit lower or higher than where our expectations are. And I think we've been disciplined about that, and I feel good about where we sit there.

I mean the other things that matter is the progression of the balance sheet and just making sure that we're kind of growing deposits to keep up with the LDR where as loans grow, we need to keep growing deposits and make sure they're growing cost effectively and in the right mix between noninterest-bearing and interest-bearing and if you look at the progression this year, we've been able to be rock solid in terms of kind of keeping the noninterest-bearing percentage in the low 20s. And some of our peers, we've seen that continue to migrate down, but we've held that steady. Part of that is the private bank has been bringing in very attractive relationships with a good mix of noninterest-bearing deposits.

So that would be the other thing to call out as you're making assumptions around your loan growth and your deposit growth and the composition of that. But we feel really good about that. You can't -- the historical trends are not necessarily indicative of future but when we look out in our crystal ball, we think we should continue on the path that we've been on.

Just sort of building on the discussion regarding deposits. You saw more change in the last rising rate cycle than any other bank relative to the prior. You guys have had tremendous success in bringing down deposit costs as we've kind of moved through this cycle despite better performance on the way up, I would add. So what has changed to drive this success? What are your expectations for the next leg of the cycle? And just given everyone is talking about a lot of competition, how do you balance strong beta with continuing to fund what [indiscernible] loan growth?

It's really important to have that muscle. And I would say earlier in the company -- I mean the company is almost 200 years old, but I kind of think of it as like a 10-year-old company because there was a lot that we had to instill in the company. And so in the early days, we had to move away from kind of rate-led value proposition, which is what we inherited to on the consumer side to really focusing on segmenting the market and then kind of being someone's trusted adviser on their life journey and uptiering in the market, mass affluent, affluent accounts, leave bigger checking balances, et cetera. And so -- and then invest in all the analytics, like how do you make sure you're bringing in balances that are off us into Citizens and so I just think we've gotten really good at that.

We've focused on that. We have a great team that focuses on that. And then in the commercial space, we had to build out a lot of capabilities that weren't present like escrow services in places where commercial banks go hunt for deposits, we didn't have the full pallet of capability. So I'd say it's a combination of investing in the tools, the people, the talent, refining the strategy. And I think now we're quite good at that.

For many years, Citizens posted industry-leading positive operating leverage. And you've talked about improving operating leverage into next year. You've committed to deliver over the next few years, given improving revenue growth while controlling costs. We recognize we'll get formal guidance in January. But maybe just talk about the key building blocks to improving operating leverage? And how are you thinking about costs as we move into next year?

Yes. So that's been the secret of how we took a 5% ROTCE earner and my team got here. We've been as high as 16%. We kind of fell back and now we're on our way back, but making sure you're running the place with discipline, you're self-funding your investment needs to the greatest extent you can, and you're investing in areas where you have a right to win, where you can actually achieve some revenue growth. So I would say for -- up until the pandemic, we probably were growing revenues 6% or 7%, and our expense growth was maybe 3%, and there was a lot of catch-up investing that went into that. The top program has probably knocked 1% to 1.5% off the absolute growth rate. So we were self-funding that, it became more challenging when we got into the pandemic and then the Fed raising rates, but we're back.

I think last quarter, we had 3% positive operating leverage, and we'll have positive operating leverage again this quarter. And when we look out into next year, that lift in the top line, particularly around NII, should be, I think, peer-leading revenue growth is what we would anticipate next year. And then the question is how much of that do you flow through to the bottom line. I think the prescription this year was we'll try to grow the core bank expenses at 2.5% to 3% and then we want to invest in the private bank. It's such a great investment opportunity that those investments at that pace will raise the overall growth rate by 1.5% to 2%. So we kind of end up in a 4% to 4.5% expense overall position.

I see an opportunity to continue that. And eventually, we can bring it down. We won't be investing at as heavy a clip when you think out into the late 2020s in the private bank and reimagine the bank will potentially bring down that growth rate in the core bank. But I'd be -- I think we could have massive positive operating leverage and still grow the expenses smartly and prudently in that 4% to 4.5% range again next year.

Let's shift and talk a little bit about -- no, that's super helpful. Let's shift and talk about capital. You're still in a strong capital position, almost 11% reported, mid-9s adjusted. And obviously, we've started to see SCBs coming down across the industry, which I think is something, hopefully, we'll be talking about when we're sitting here next year. But...

We expect a big benefit when it starts getting done more smartly.

Absolutely. And maybe just as you look ahead, provide thoughts on capital allocation and how do you think about potentially managing the capital down over time?

So I think our priorities have been consistent over the years is you have to have a good dividend on a bank stock and so making sure we just raised the dividend in Q3 that we can have regular dividend increases to keep a good yield on the stock is important. And then the next thing is if we can find attractive organic growth. So if we're adding new customers to the bank, and we make loans to those customers, we need to provide the capital to growth. And so those would be the top 2. And then right after that, the best alternative generally is to buy back a lot of your stock. And I think we've been consistent in that. One of the things I would point out is we always ran our capital structure a little conservative. We were relatively new bank and unproven in the eyes of some. So when we got to periods like the pandemic and the S hit the fan, it was nice to have that stronger capital ratio, which effectively allowed us to go into the market and buy back our stock.

So all the bank stocks were off pretty dramatically. What you often see is that companies in good times, they announce a big buyback and they're buying back their stock high. We had that extra capital cushion, so we could buy in our stock when it was low, and it was retiring more shares. It was very efficient to do that. So anyway, we'll continue this year. We bought back a fair amount of stock. That will be in the plan for next year. And so -- and then M&A, like you look at M&A as an alternative to buying back your stock. Are there things you can do that are strategic that position the company for growth further down the track. But again, if you think your stock is good value here, which we do, then you lean in that direction.

So we're approaching the 2-minute warning, which is usually when our football team fumbles a game, but you seem to be on point today. So I'm not worried about that. But maybe just to pick up on the last comment that you made, your message has been pretty consistent in M&A. You haven't been too interested. But given all the success of the firm, the currency has finally started to improve. I'm sure you're going to tell me it's not where it should be. But we've obviously started to see improvement. And I'm just curious, given the improvement -- the activity we're seeing in the sector, more favorable regulatory backdrop, has your stance changed at all? And if not, what would cause it to change?

Yes. I'd say I've been very consistent on this all throughout the year that we did our M&A, which effectively was the start-up of the private bank, and we're getting 7% accretion from that, and it's very capital efficient, the way we went about that. And so what I often hear from investors is like really double down on that. And we doubled down on reimagining the bank, which is another capital-light way to grow your EPS faster and don't get distracted because are there really any attractive deals out there that change the dynamic for Citizens. And at this point, we are focused on organic growth. I think we have the best organic growth outlook of anyone in our peer group, and that's going to continue to be the focus.

Anything on credit that you're paying closer attention to? Obviously, losses have been coming down. You've talked about getting back into the 30s over time. What are the areas of focus? And what gets us to that more normal level?

I'd say the 1 thing that's been outsized over the last 2 years has been the losses coming through on CRE Office, which I don't know, back in March of '23, everybody thought the sky is falling. It's going to be a colossal impact to bank's capital and we never thought that would be the case that it was something we could ring fence and we could put good worked out people on it and it would take time to kind of get through that. And you can see every year, like '23, '24, '25, the amount of charge-offs that we're incurring as that portfolio shrinks and things get worked out continues to go down. And then if you look at the rest of the business, Private Bank, we haven't had $1 of credit loss in 2 years of being in business. So that's a very pristine activity.

And I think in commercial, we kind of continue to lend more to higher grade companies. And so we don't see any adverse trends there, and that should actually, over time, continue to improve in terms of credit quality and the same thing in consumer, we're pitching upmarket at superprime and high-prime customers. So anyway, I think we're on that glide path to get that down into the low to mid-30s. I think we'll make a big step in that direction next year. And again, that's all positive towards our return on equity.

And I guess we're sort of out of time here, but I guess just as we look forward to '26, any closing thoughts you want to leave us with in terms of how the bank is positioned?

We've been working really hard for a decade to build a top-performing bank, and it feels good, like I'm never complacent, but it feels like our ship is coming in, which that's a good feeling for the team and for me.

Awesome. Well, please join me in thanking Bruce.

All right. Good afternoon, and thank you, Gerard, for all that you do to put on this great industry conference. Given the mayoral election in New York City this week and the return of power to the great people of that city, I thought some trivia was in order.

Did you know that today, there are still 215 banks in the United States that have the word Citizen in their name.

Only one that matters.

Exactly. And here with us today is the largest of that group, Citizens Financial, which has a $22 billion market cap, is $223 billion in assets and is headquartered right here in New England. Citizens is a bank on the move since Royal Bank of Scotland fully sold out of the bank 10 years ago, Citizens has gone significant operational improvement, added a lot of talent and launched a number of growth initiatives, and one of the latest being the build-out of a private bank.

Citizens has strong management. That is both an opinion and a fact. Personally, I think the leadership of this bank and the improved quality of the franchise remains underappreciated. If I just simply look at market beta, the stock, which remains the highest of the super regional banks at 1.34.

Joining us here today is President, Brendan Coughlin, who oversees Consumer Banking, Private Banking and Wealth Management as well as several key enterprise functions. And just one note, we will -- as the other presentations have time for audience questions in a bit. Thanks.

Great. Thanks. Thanks for having me.

So I'll start off with the first question on consumer strategy. Citizens talks about its three-pronged strategy, best positioned commercial bank, a transformed consumer bank and building a private bank and private wealth franchise. You've been involved 5 or 6 years in these businesses. Can you walk us through where you stand now in the transformation of the consumer bank in terms of the customer base, the quality of the deposit franchise?

Yes, absolutely. I won't go too far back in the way back machine but -- and when we brought the bank public, Citizens, particularly in the retail side, very much looked like a very large thrift. A lot of acquisitions that weren't totally put together, unhealthy deposit base, interest-bearing costs that were too high, not enough operating costs -- operating deposits rather, branches that we had too many of them.

So we've gone on a 10-year journey to bring it from a very large thrift to a relationship-based, much more profitable institution. So just -- I'll talk for a second about the foundation we've built and then the jump-off point on where we're going.

Pre-COVID the business from a segment return standpoint was in the mid- to high teens. Now the business is in the mid- to high 20s on its way into the 30s, if you look at it on a segment basis. So the profitability has improved markedly.

When you look at our branches, we've done a couple of acquisitions in Metro New York, Investors, and HSBC's U.S. franchise. If you add that to the branches that we had starting our IPO period, we would have had 1,400 branches. We actually have 1,000 now. So we've done a lot of cost pruning where we've had an abundance of redundancy in the network and reinvested that back into technology. We've been innovative in consumer lending, student loan refinancing with partnership with Apple on Buy Now, Pay later.

And now as we think about the path forward, really, our principles are to create durable relationship-based revenue that is sticky and will drive a higher valuation for the franchise, and it all starts with deposits. And so the last time we had a mini up cycle in 2015, Citizens performed worse than the industry in the top 25 banks in terms of deposit beta and deposit quality.

Here we are at the end of the cycle starting to go into rate reductions, and we've performed top quartile in the industry. Really -- and with the consumer being 70% of the deposits. At Citizens, it's really a consumer story. We're top third in the U.S. in terms -- in the top 25 banks in the U.S. in terms of net deposit costs, whether you're looking at that total deposit costs or whether you're looking at that on interest-bearing deposit costs. So going from worst to top third in a 10-year period is pretty remarkable. And that's a relationship-based strategy.

I tell people a lot that customers don't wake up every morning looking to just put a bunch of noninterest-bearing money in the bank. They do that because you've surrounded them with the right customer experience. So that's been the foundation of our strategy.

Now we look to repivot our balance sheet on the lending side to higher yielding, higher returning relationship-based business. We've put a bunch of loans into runoff, noncore loans that we've purchased, the auto lending business, which was nonrelationship-based and we're rotating into things like HELOC, where we have a #1 in the U.S. market-leading position, starting to grow credit card.

So you're starting to see a franchise emerge that is valuing cross connection of products, higher returns, durable relationship-based banking, all with the foundation of a much, much, much healthier deposit franchise.

Keeping with the Consumer Private Banking, you launched the Private Bank a few years ago with the hiring of 150 former First Republic bankers. Can you walk us through the strategy for building the franchise and where you're headed?

Yes. We were self reflecting on the bank and the progress as we kind of got through the mid part of COVID. And the one area that we were really -- we had made some progress, but not enough was wealth management. And so we had a strategy that we started to formulate on making a bigger play there. And then, of course, the bank failures in 2023 happened, and it was opportunistic for us that it lined up with where we otherwise wanted to go.

And so no secret that we were part of the bidding process for First Republic. Didn't quite go our way in the end. But what was very clear was that the talent that was there really wanted a more intimate bank that could value that single point of contact. And the bigger G-SIBs just have a hard time with larger silos in the bureaucracy and it just couldn't bring together the customer model.

So we struck while the iron was hot. We brought 150 of the best folks of First Republic over to start the Private Bank. We're now up to over 500 bankers. And it's going tremendously well.

I think many of you might first react to the growth that we're seeing, but I would actually start with the quality of earnings. So we disclosed on our earnings call last quarter that this will now be 7% EPS accretive to the bank. This year, our target was 5%. So we're going to exceed that. So it's going incredibly well.

We sort of view this as our version of M&A. We didn't have to do a TBV dilutive deal. We hired a bunch of folks. We took a little bit of an EPS hit in 2023. And now the seeds that we planted are really paying strong dividends. The returns of the business between 20% and 25% are not only growth accretive, but they're ROE accretive.

So you've got EPS and returns accretion and we launched this business saying, look, there's a couple of principles that we want to go at. We want to grow at the speed of quality, not earnings growth. It's going to be fortified by high-quality deposit franchise, which we're running the business around a 60% LDR with 42% of the deposits in DDA or CV, which also is accretive from a mix standpoint. So we're growing deposits that are in accretion to Citizens overall quality position and then growing high-quality loans with very low loss content. This has then positioned us really well in the wealth business.

So while we hired bankers upfront, it's really put us on the map and so we're getting inbounds now from wealth advisers that, candidly wouldn't have returned our call in the past and now they're calling us. So we're getting some of the very top wealth advisers, the top 1% in the United States in the private wealth to come into the ecosystem to really work with us.

And our view is that the -- our right to win in this space is that the intersection of banking and wealth management that bringing it together with that single point of contact, it sounds like motherhood and apple pie. It's really, really hard to pull off to both have all the sophisticated capabilities but be nimble enough to value the customer at the intersection of their lending needs, their business needs, their personal banking needs and their wealth management needs.

And we still feel like there's tremendous white space here that we seem to be the only one really leaning in. So -- we're excited about it. We are confident in our ability to hit our metrics. We've already exceeded our deposit metric, a very ambitious deposit metric. We've exceeded our earnings accretion metric. And we think the growth will persist in the future.

Are there any key differences in your go-to-market with these folks? Obviously, First Republic was big with the jumbo mortgages, variable rate mortgages. Is there any different key go-to?

Yes. I don't often like to speak ill of the departed. But look, we're going to price our loans at market rates, and we're going to win on relationships. We're going to make sure we grow at the speed of LCR, high-quality lendable deposits and not get out over our skis. We're going to have an expense policy that is in line with Citizens appetite versus the perception of where First Republic was.

So the biggest difference from our standpoint is I want to grow a franchise that has profitability accretion, that has strong control, that the risk appetite of it is very durable. And if over time, that means we're going to grow slower than so be it. Right now, we've been able to have our cake and eat it too and grow really strongly, but the principle guardrail for us is the quality of earnings, the risk management of the balance sheet and how we're putting the business together. So yes, that's -- and I would say that in the recruiting of the teams, personally, I was very direct with them to the point of if I scared anybody off, then so be it, but this is the business that we're going to win with.

And you're seeing that in the numbers. So instead of the perception of we're leading with undercut low-priced mortgages, we're leading with high-quality operating deposits. And then the mortgages and business loans come later, which is driving an LDR of 60, which is great. So yes, there's a lot of differences here.

I mean just think about the ROE profile of FRB. I think it peaked at 11%. And we're only 2 years into this, and the business last quarter was in the mid-20s for us, just 2 years in. So the earnbacks, we've already earned through the full EPS hole we've dug. It's been profitable for, I think, 13 or 14 months in a row. And that's a better financial profile than any M&A deal we could have thought about doing.

The Private Bank has been adding clients and AUM by bringing on wealth advisers onto the platform like you mentioned. How much more runway do you have for them to bring their existing clients onto the platform?

Yes, a lot. And maybe I'll answer 2 ways. One, on the banking side and then dive into wealth for a second. So the books of business that the bankers that we originally hired, while I don't have precise numbers, they had in excess of $50 billion in deposits before their old place disappeared.

And so we're excited about the $12.5 billion we have. In other ways to think about it, we're just getting started. We've earned back some of their old relationships. But we're also starting to see clients come in that weren't on their old legacy client list. So the brand is resonating, the platform we built is resonating. But we have a tremendous amount of running room on the banking side. And we're opening up private banking offices, and we're adding new teams week-over-week.

On the wealth management side, we have a lot of running room to go. We've been on a tremendous growth journey, particularly in the last 5 years, but we remain undersized versus our peers. And so it's a story of growth, yet still massive opportunity in front of us. The overall wealth business in 2020, when I took it over, was printing about $50 million a quarter in fees. We printed $93.5 million last quarter. So it almost doubled in a couple of years' time. We've grown about twice the rate of market appreciation in terms of our fee growth. And that's been on both sides of our wealth business.

We have about 400 advisers that sit in retail branches that do mass affluent and low-end affluent wealth management that has also been growing quite rapidly. And on the private wealth side, we bought Clarfeld Advisors in New York, which provided a great RIA platform.

And now we have 9 teams that we've hired private wealth teams, in fact, in 2024. We did the biggest lift out that I'm aware of, of a team across all wealth management, including the national wires in U.S. Wealth Management, brought a team over that was almost $5 billion in AUM onto the Citizens platform and we've done 8 more of them after that.

So we're getting an attraction of clients. We're getting an 85% to 90% plus of client migration, followership to those advisers that come on board, there's still more to go. And our pipeline of talent that we have lined up to talk to us about joining the platform is really robust because they see what happened at the old First Republic model where these bankers that we've hired are such great business development officers that the wealth referrals become incredibly strong and incredibly important. They can double the size of their own personal book of AUM. So the attraction to the business is quite strong. So...

Can you just touch on the wealth referrals to bankers or vice versa?

It actually -- it goes both ways, and we've been clear to the bankers and the wealth managers that we're bringing on. We have no interest in this business being 2 ships passing at a night that every once in a while, they refer to one another. Our -- back to our durable right to win. It's at the intersection of banking and wealth management. So the wealth managers that we bring on, we make it really clear to them that the reason they're here is to partner with banking team and refer business back to the bankers. We don't really -- we don't get very excited about a single service wealth customer who want them to have their private banking with us, too.

And vice versa, if we're going to give you credit, we want you to bring your wealth management to us. And so the referrals have been very strong I'd say, in the retail network, the branch network, our referral volume is up about 100% this year. So our core of our branch network business is really starting to fire on all cylinders. Our right to win in retail banking, we think our strength is going to be in the mass affluent customer segment. So the wealth business becomes a critical piece of that pie, and that's really starting to pay off, and you're seeing that through our fee income.

And then on the private banking side, we're up 50% to 70% depending on the quarter on net wealth referrals this year from the private bankers from just last year. So now the business model, if you can imagine, we have some private equity bankers. We have some traditional personal private bankers. We have some folks that focus on real estate, particularly in the private equity banking side, the model is, first, you bank the fund. Then you go in with partner loans and you bank the GPs and LPs. Then you earn the private banking. And then you get the wealth management.

So there's a very thoughtful cycle here. So we've got the funds banked. We're starting to get the PLP partner loans in. We're starting to get personal private banking from the GPs and LPs and now you're starting to see the wealth flow through. To have it all work together, we need the wealth talent, which is what we've been rapidly working on, on these 9 teams we brought on to the platform.

New York Metro, you entered a few years back with the acquisition of HSBC's East Coast locations and then you acquired Investors Bank. Can you update on how that's going? And what it's like to compete in the New York market?

Yes, the -- going into the belly of the beast as I like to say, in New York, the most competitive financial market in the world was not for the faint of heart. But we really thought our New England franchise had a big hole in the footprint. It's hard to be -- position yourself as you want to be, a preeminent super regional bank in the U.S. with a strong Northeast focus and not have presence in New York.

So the perfect opportunity presented itself with HSBC. Rates were really low. Deposits were not something that most banks were focused on. And so we were able to acquire a very strong deposit franchise for not a lot of money.

And then the one-two punch of investors to put those 2 franchise together really, really worked for us. We ended up with about 200 branches in the Metro New York and Northern New Jersey area. Candidly, both of those firms were fixer-uppers. And so we were able to get them for relatively inexpensive prices. So the deal math worked without putting in any revenue synergies. But we're seeing revenue synergies. We've been growing deposits in the retail franchise in the high single digits for a couple of years. We've been growing our customers in the mid-single digits.

The branches that we got for HSBC, just to give you some relative metrics. We're about 50% the size of a legacy Citizens branch. The branches for investors were about 10% the size of the typical Citizens branch. Both of those numbers have dramatically improved. So HSBC branches are almost at the size of a Citizens legacy branch now and investors branches have got to about 50% of Citizen size. So we're winning. We're winning market share.

Look, the big banks are all over Manhattan in particular, but so are a lot of smaller banks. So you see us taking market share. It's not a -- the easy perception is how you're going to win against JPMorgan Chase. I think we are actually, but we're winning against a whole bunch of other banks, too. And so it's been our fastest-growing market for now 2 years going across all of our different segments, retail, commercial as well as business banking.

Health of the consumer, from your vantage point, what are you seeing with respect to the health of consumer? And how are you -- what's your view on the economy?

Yes, I'm probably not going to break any news here, but hopefully, give you some confidence on what we're seeing. It's a K-shaped economy without question. You're seeing significant stability and growth in the high end and some moderate signs of stress in the low end.

Keep in mind that Citizens business model, particularly on retail, is to participate in the mass affluent and above segment as a strategy. So we don't have a lot of exposure to near prime, sub-prime. If you were to look where any stress might be emerging, it's there. I have a view on it, but we don't really have empirical data on the Citizens portfolio that would confirm it or not.

But the things I look at, a couple of things, macro, you've got consumer sentiment that is not in the greatest spot. You've got unemployment that's still relatively contained. But it's growing a little bit 4.3%, up from 4.1% a couple of quarters ago. So generally stable but a little bit of signs of things to watch.

When you look at the business inside a Citizens, look at credit and then deposit liquidity. On the credit side, there's almost nothing I'm worried about right now on the consumer side. We were in the mid-50s for NCOs a couple of years ago. We're now in the high 40s on our way to the high 30s over the next 18 months. Some of that is our noncore rotation out of auto. But some of that is just good old credit metrics normalizing post COVID.

So the only blip that we saw was an unsecured credit, the '21 and '22 vintages, which everybody in the industry saw with the FICO inflation had modest blips. That's pretty much run its course. I see delinquency stable to coming down, NCO is stable to coming down. No individual portfolio, do I see anything that would suggest there is any cause for concern.

When I look at the deposit side of the business, and I'd like to compare back to pre-COVID a lot, just to give us relative metrics. The top 25% of our portfolio still has 25% plus more deposits than they did pre-COVID. So a lot of wealth creation, a lot of trapped liquidity through COVID. The bottom 25% is back to pre-COVID levels in terms of net deposits. In some cases, maybe even a little bit lighter. And if you adjust that for inflation, you could argue that maybe they're actually in a little bit of a worse spot than pre-COVID.

Having said that, there's not anything that I'm systemically worried about. I don't think that's going to translate to anything from a macroeconomic standpoint. It's just a watch item. We're seeing very modest elevation of things like overdraft instances, which is driving a little bit of fee improvement for the firm. But that's something to watch. But there's nothing that looks like there's a breakout happening in any way. And certainly if there was, we don't have the credit exposure for that segment on the books.

You recently announced the multiyear "Reimagine the Bank initiative," which you're leading. Can you talk a little bit about expected costs and benefits and then tie in AI, a bit to that and the broader consumer strategy?.

I'm really excited about this program. Citizens has had a long-standing program we call Project TOP, tapping our potential. Twice in our history, we've done upsized versions of this. Our first top program was when we brought the bank public. And then our TOP 6 program was in 2019, which was in response to the digital transformation but then also morphed into a COVID response program as well. Those were 3 to 4x the size of a normal TOP program for us.

And so we took a step back and said, it feels like the right time now to do that again, to have a bolder aspiration on what we want to do with the bank and take a longer-term window for benefit realization. So me and a few folks over the summer kind of locked ourselves in a room and said, what would this look like? And there's -- I'd say there's 2 reasons for why now.

One is it's been 5 or 6 years since we've taken a fresh look at it, and there's a lot of things when you take a 3- to 5-year window that you might do differently than a 1- to 2-year window. So outside of the realm of AI and technology, we're looking at things like massive vendor simplifications, strategic renegotiation with our big suppliers, a cleanup of corporate facilities, being responsive to the post-COVID, return to office dynamics. We've got vacancy in buildings that we can collapse and take some cost out, reinvest that back much more strategically. So there's a set of things like that, that are highly strategic, but they're not technology led.

Then there's a set of things that are very much technology-led and heavily AI-led. So we're looking at how to deploy Generative AI, agentic AI in a number of different spots and really 0 base our operations to have a win-win, huge Net Promoter Score accretion, huge colleague engagement accretion, risk management improvement and cost base improvement.

So we'll give a lot more details as we do earnings in January and guidance for next year. We expect the program to be $400 million in size or better in terms of run rate over a 3-year window. We also expect the 2026 impact to be negligible to our trajectory, you should be thinking about us. We've been very clear in our guidance that we're going to get to a medium-term ROTCE between 16% and 18% and a NIM between 3.25% and 3.50%. This should not, in any way, take us off that in the short or the long term.

In fact, the medium to long term, they should be accretive and icing on the cake to that guidance. And because this is an investment-led program, so that we'll take technology capital to deploy AI and so on and so forth. The expense recognition will be capitalized and will be linked to the benefits we see. So because of that, that's why you should be confident that kicking off this program is not going to have this big cost bubble in the short term that we have to get through a J-curve to see the benefit realization. We've spent a lot of time financially engineering this, and we have a lot of conviction around the long-term benefits as well as the short-term neutral impact to the franchise.

Back to deposits. Can you walk us through pricing and optimizing deposits across the different channels, digital bank, retail, Citizens Access and the Private Bank?

Yes. We have more levers than we've ever had. And I think more levers than most banks have back to when we were mostly a big thrift, we had 1 lever, and that was put a poster board on the retail branch and you get a bunch of CDs that come in and you end up with a heavy priced franchise.

Citizens Access, many of you remember, we launched a number of years ago. That was a great tool to drive deposits, gain new customers. But what it also did was it allowed me to protect the retail franchise to be relationship-oriented. If I wanted to raise deposits, I can do it in a contained way with Citizens Access. And really restructure the retail franchise to be based -- really focused on durable relationship-based, DDA banking that then when you have interest-bearing relationships, it's tied to a full relationship. So you're willing to do that versus a rotating hamster wheel of hot money that you're constantly repricing. So that gave us a real strong lever for deposit cost management.

The Private Bank gives us yet another one. I mean we're at $12.5 billion in deposits with 42% DDA and CV you can see our underlying DDA numbers getting better on an absolute basis and getting better on a relative basis versus other peers. That's a multiphase strategy with consumer getting healthier, the private bank growing and growing in a really healthy way. All of these things lead us to a lot of optionality to manage our costs, which is what's putting us in the Top 3rd in the U.S. in terms of the Top 25 banks in terms of deposit cost management success.

What also probably hasn't got as much notability is when you look at wholesale funding, we've drained down most all of our wholesale funding at the bank at the moment because we've had so much success driving high-quality relationship-based banking. So when we're lending, it's tied to real healthy deposits that we've driven. We've got a lot of dry powder from a liquidity standpoint if we ever needed it.

But that's been another benefit of having all these levers of deposit growth is to really restructure the treasury balance sheet, to have a much healthier position.

Credit cards, you recently launched a new credit card suite. Can you talk about the strategy there? And what the ambitions are in terms of size?

Yes. Our credit card business was and is undersized. We think we have running room to grow there. It's a little less than $2 billion in size today. It's modestly undersized when you look at peers in our kind of asset zone. It's obviously a very high-returning business. It's mid-20s the higher ROE business. Also drives fee income. It also importantly drives very sticky relationship-based business. When you pull your brand out of your wallet or purse, every day, that's really accretive for the franchise.

So we view it as a big opportunity. We had a very simplistic product set. We had a Cashback card and a Revolve card. We just launched a brand-new product suite, 4 new cards ranging from a card we call Amp, which is for new and emerging credit for students, all the way up to a private banking metal black card and a product we're calling Summit Reserve, which is another metal black card that compete with from a reward standpoint and a product value proposition standpoint with Chase Sapphire and AMEX Platinum.

We're really excited about it. We've got about 100% growth rate so far over our past run rate on new card sales and the activation and activity on the card is really, really strong. So we're off to a great start. Sometimes it's better to be lucky than good.

We launched the high-end product suite in the same week that JPMorgan, Sapphire and AMEX increased their annual fees into almost $1,000 range. We launched this product at $295. It will be waived if you have a strong relationship with Citizens. An equivalent sort of value proposition.

So our aspirations are to be bigger, but stay within a relationship-based framework. So could I see this business getting to $3 billion or bigger over the medium term? Yes. Do I have aspirations to go compete nationally with AMEX and JPMorgan on cards? Absolutely not. So this will be a good, strong, healthy growth vertical for us that will drive higher yields, will help us remix our balance sheet to high returning assets, and we'll stay contained into our bank customer base as we distribute it.

Home equity, you guys are big in home equity. Can you talk about the strategy and the growth opportunities there?

74% of the United States has a mortgage below 5%. Home equity has been an area Citizens has always been good at. We made a very strategic investment 3 years ago with data and analytics on a program we called FastLine, where basically, you need 4 things with home equity.

You need the property valuation, you need a clear title, you need your credit score and you need income. We can get all 4 of those things with data and not ask the customer for it, which we've done.

And so now we've taken out a ton of operating cost in terms of underwriting, but most importantly is we've created a value proposition where this is underwritten and you get money as fast as a personal loan, but it's a home secured loan. With the liquidity line at rates that are attractive. We're pricing middle of the pack versus peers, and we're #1 in the United States in originations and balance sheet growth for 7 or 8 quarters running with publicly available data, including outrunning all the money center banks.

By the way, we only originate in 14 states. They originally in all 50 states. So we are quite certainly the nation's leader in HELOC lending. Our credit [strats] are very strong. We skew first lien, 35% or so of the business is first lien. That's different from other banks.

Our average FICOs are in the high 700s. Our CLTVs are below 60, and there's de minimis tail risk in the book in terms of higher LTV lending. So we've been able to have an incredibly clean super prime first lien-oriented position and sort of dominate on the originations front for quite some time. And I think, look, the forward rate curve would not suggest mortgage rates coming below 5%. So if you take the medium-term outlook, we've got an incredible competitive advantage.

The market is likely not to get back to a refi boom. This is going to be the way U.S. consumers tap into home equity and I think it should position us for strong high-returning loan growth. Also, we don't do a home equity line without a checking account. So it's also driving low-cost deposits with a mass affluent oriented customer base. So it's really served as a strong acquisition vehicle for us for the consumer bank overall.

All right. I've got another question, but we can open it up now. We've got 9 minutes left. I don't know if we can grab the mic. He's coming...

Manan Gosalia, Morgan Stanley. You spoke about Reimagine the Bank not being a significant impact to 2026 expenses. I mean I think one of the concerns from investors has been not that you wouldn't get your ROTCE targets that you would in 2027, but there would be more of a J-curve to getting there. So a, can you confirm that that's not the case? And b, what are the offsets to the expenses that would come through for Reimagine the Bank?

Yes. I can confirm that. Look, we're looking at our expense growth rate, Bruce shared this at our earnings call, our expense growth rate for next year being kind of generally in line with our expense growth rate from 2025. That includes the assumption of the investment and Reimagine the Bank. But net-net, while we're investing in capital and we're investing some in OpEx for some of these initiatives, it's being self-funded by some very early quick wins on vendor contract restructures, exiting some facilities that we don't need anymore.

So there's a sort of 40-something initiatives that we're going at, and we've put the Mosaic together in such a way that some of these quick wins are offsetting areas where we need to invest to get the financial profile of this to be de minis, which, by the way, includes any onetime hits that we would take, whether it's investments or write-offs, we're going to net it all -- we'll be transparent about that.

But as we talk about the impact to Citizens, it's implied that all those things are included. You're not going to have some separate bucket of onetimes in addition to this. So when you look at it all together, our guidance around expenses will be in line with this year's number. It would include Reimagine the Bank. But the Reimagine the Bank piece netting those quick wins with the investments that we're making will be actually somewhat de minimis too.

All right. Next I guess, Steve raised his hands first before.

Brendan, Steve Alexopoulos. So I have 2 questions on the Private Bank. So a lot of banks studied First Republic service model. But could never get close to their client satisfaction metrics. Where are you guys today? Are you even close to where they were? That's the first question, so I'll start with that.

76 NPS. So they peaked in the '80s, 76 by all accounts is world-class. I would say we still have work to do. The platform is very strong. Obviously, the talent that we brought on board is driving a lot of that. We're making operating platform enhancements where -- we had all the product capabilities, more so than First Republic. The work to be done was integration across, connecting the plumbing. These customers that have commercial real estate needs, they've got deposit needs, they got wealth needs.

All those businesses operated somewhat independently at Citizens. So bringing it together to put these bankers in a position to deliver it all together was the work to be done. That has -- a lot of investment has happened. There's more to do. What we hear from clients just maybe simply summarize it, is this feels very familiar to us from First Republic. There's a few things that you guys need to do better.

But when I look at where you're at compared to all the other options, nobody is even remotely close. And so we feel great about the path we're on. We're not satisfied that we're at where we need to be, but 76 is not bad.

Okay. That's helpful. The other question, so when I look at the returns, 20%, 25%, I never thought First Republic could ever get close to that. The teaser rates are a portion of it, but just adjusting those rates does not get you to 20% to 25%. Can you talk about what else you've done to unlock the returns of that business?

The biggest piece of that is the deposit quality and the deposit-led nature of the business. So if you look at what drives ROE, the fact that we're at a 60% LDR, obviously, the capital intensity is lighter than a business that might be running at an 80% or 85% LDR. So the high quality of deposits with leading with deposits and wealth and not needing to put out as much capital is really one piece of it.

The margin on the business we're doing, while I don't have First Republic's balance sheet memorized. We're around a 4.5% margin, maybe 4.4%, 4.3%, something like that, we're around a 4.5% margin, something like that between the yields that we're putting on for loans and the deposit costs that we're paying. So that's NIM accretive at the top of the house to Citizens.

So when you look at less capital intensity, fee income coming from wealth, really strong balance sheet margin that should give you confidence we're not giving away credit. Even when we're deploying credit, we're not giving away credit to get the deposits, it's coming from a relationship-based strategy. That's the formula for a high-returning business.

Over a long period of time, look, I don't expect to run at a 60% LDR forever. That will tighten a little bit. But we still think that the fundamental quality metrics of the business should keep us in that range of 20% plus business.

Scott?

Brendan, Scott Siefers. Couple of questions also related to the Private Bank. So you've gone from 150 to about 500 people. As we get farther away from the First Republic like event, does it get easier to add teams because you have a reputation? Or is it harder because there's just less movement?

And then as you look at this initiative getting to potentially like double digits or more of the bank's earnings stream, is that going to be more a function of continuing to add advisers? Or is it just sort of more capabilities and seasoning within the existing adviser pool?

Yes, I'll take the last one first. It's both. So we think that the existing teams we have a lot of running room to build their own scale that should drive us. And we think we can double over the medium term that contribute. So we're at 7% EPS accretion today. Can that get into the mid-teens, 15% over the medium term? Yes, and obviously, keep in context that, that is also, given a growing Citizens overall. So percentage share bigger inside of a growing bank, we think there's a lot of running room.

Also, we plan to add teams, both on the wealth side and the banking side, you might have seen over the last 2 weeks, just yesterday, we announced the Southern California Wealth team, [$800 million team]. The week before we announced the hiring of a banking team in Southern California in Beverly Hills. So we're finding these selective opportunities to bolt-on talent.

And what was holding us back even though we went from 150 to 500 if we were held back, was a couple of things. One is I wanted to deliver to all of you and our investor base that we could build a profitable business. So the further you're continuing to invest in the J-curve, the further you push out showing that this can be profitable. So that's one lens we wanted to really decisively say this is going to be a 20% ROE business plus. We've delivered that.

Secondly is the customer experience platform, we did need to invest in it before we would add a ton of scale to it, which we've principally done. So we feel good now about growth, and we will continue to selectively add teams in the markets we're in and maybe start to branch out into new markets.

The point around distance from FRB failure, we've all been exhausted, the team that we want from the old FRB platform. Some of them is scattered, some stay at JPMorgan. If we find onesie-twosies that still we didn't we missed, maybe we'll look at them. But the talent growth strategy from here is more likely than not going to be non-X-FRB employees.

And so the talent is out there. It's available. What we are building a mindset of is how to now immerse them in the culture of service and that sort of white glove, no holds bar service model, which a lot of banks say not all banks do. And so getting the right people that know how to do that, are willing to be trained to do that is going to be the job to be done to make sure -- I've no doubt we can hire teams in scale. It's hiring teams and scale inside of the context of the culture that we're trying to build around the service model that will require a little bit of a different muscle than just recruiting all folks in that were already in that business for a long period of time.

But we're convicted that we can do it, and we're getting looks from non-FRB bankers that want to be part of this, and that's the first set of interview questions is let's talk about the customer experience standards that we're going to set here.

All right. We are out of time, but I really want to thank you again for you and your team for coming to the conference again. And they'll be at the back if anyone has any follow-up questions.

Thanks. I appreciate it.

Thanks.

Thanks, everybody.

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. [Operator Instructions] 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.

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, Kristin. Good morning, everyone, and thanks for joining our call today. We announced very strong financial results today as our momentum continues. We feel like we are firing on all cylinders.

Financial highlights include EPS growth of $0.13 sequential quarter or 14%, with strong NII growth of 3.5% sequentially and paced by NIM expansion of 5 basis points and net loan growth across consumer, private bank and commercial similar to last quarter. Fee growth was 5% versus Q2, paced by a tremendous quarter in Capital Markets, our second highest ever as well as continued nice growth in wealth fees. Sequential positive operating leverage was 3% as expense growth was held to just 1%. We continue to experience favorable credit trends and we still have a robust balance sheet. Our CET1 increased 10 basis points to 10.7%. We have an LDR of 78.3% and virtually no wholesale borrowing.

We continued the strong execution of our strategic initiatives during the quarter. The Private Bank had a banner quarter on deposits with spot growth of $3.8 billion to $12.5 billion, which is already ahead of our year-end $12 billion target. Loans and AUM continue to track well. We have now added 8 wealth lift-outs to the private wealth platform with more in the pipeline. We continue to build out our private bank team with additional hires in Southern California, and we now have around 500 people in the business, quite the ramp from a start-up in 2023. In addition, our efforts across New York City Metro, private capital and payments are all tracking well.

Our efforts around reimagine the bank continue to make good progress. We've systematically evaluated all areas of the bank to seek opportunities to improve how we are serving customers and how we are running the bank. We will give the full parameters of this effort on the January earnings call. Overall, we expect benefits to largely offset costs, including one-timers in 2026, with net benefits beginning to positively impact results in 2027 and becoming quite meaningful thereafter.

One of my priorities this year has been to commence the transition of the leadership team I assembled a decade ago to the new refresh team that can take us forward for the next decade. Most recently, we announced that Don McCree will be retiring in March 2026, having handed the range to Ted Swimmer earlier in October. Don has been a great partner and has made a big contribution towards our success. It's been a real pleasure working with him. We've been planning Don's succession for some time, and I have every confidence that Ted is the right leader to take us on the next leg of the journey. When Aunoy Banerjee arrives in 10 days as our new CFO, the team will have been largely refreshed with several younger, dynamic outstanding new leaders.

Turning back to the financials. With respect to Q4, we expect to continue to see attractive earnings growth faced by positive operating leverage, favorable credit trends and share repurchase. We remain highly focused on executing our strategic agenda, which should deliver superior organic EPS growth relative to our peers over time as well as further improvements in returns. We are positioned well to sustain our momentum into 2026. The macro environment remains positive despite continuing uncertainty with respect to fiscal and monetary policies. We will stay focused on execution and the things that we can control as we continue on our journey towards building a top-performing bank.

With that, let me turn it over to Chris Emerson, our Interim CFO. Chris?

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 3% 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 $0.46, which is a $0.04 or a 9.5% increase. Referencing Slides 5 and 6, we delivered EPS of $1.05 for the third quarter, an increase of $0.13 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 5 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 continue to be favorable and net charge-offs were lower as expected. We continue 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 build-out. The Private Bank continues to steadily grow its earnings contribution adding $0.08 to EPS this quarter, up from $0.06 in the prior quarter. With this, the Private Bank hit an important milestone this quarter, achieving cumulative breakeven with the EPS contribution since the launch in 2023, completely covering our investments and then some in about 2 years.

Next, I'll talk through the third quarter results in more detail, starting with net interest income on Slide 7. 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 5 basis points was driven by the time-based benefits of noncore runoff and reduced impact from terminated swaps as well as fixed rate asset repricing. We continue 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 8. These 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 continue to perform well on the league tables ranking fourth for the last 12 months on deal volume for middle market sponsored 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 lift outs as well as market appreciation. As expected, mortgage and other income came down from elevated levels in the prior quarter.

On Slide 9, expenses are up 1%, reflecting continued investment in the build-out of Private Bank and Private Wealth and strong capital markets performance. Disciplined expense management and strong revenues resulted in approximately 170 basis points of improvement in our efficiency ratio to 63%. Our top 10 program is progressing well and is on target to deliver a $100 million pretax 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 noncore portfolio runoff of roughly $600 million in the quarter. And excluding noncore, 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 $1 billion 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 continue to reduce CRE balances, which were down about 3% this quarter and 6% year-to-date. And core retail loans grew by about $1 billion, driven by home equity and mortgage.

Next, on Slides 11 and 12, we continue to do a good job on deposits with noninterest-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 C&I. Credit trends continue to trend favorably with nonaccrual loans down slightly linked quarter, driven by C&I and CRE 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 noncore runoff, the reduction in the CRE portfolio, and lower loss content front book originations across C&I 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 maintained 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 3-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 noninterest-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 8 wealth teams to our platform with more in the pipeline. We ended the quarter with $7.6 billion in AUM, up $1.1 billion linked quarter, reflecting the continued strong conversion rates of the wealth lift-outs.

And with year-to-date earnings of $0.18, 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 towards minimizing the impact of onetime 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 6, which was in excess of $400 million.

On Slide 21, we provide our guide for the fourth quarter, which contemplates 225 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 5 basis points and interest-earning assets up slightly, maintaining a fairly consistent spot LDR to the third quarter. We expect noninterest 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 the 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% ROTCE 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 level, 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.

Okay. Thank you, Chris. Denise, let's open it up for some Q&A.

[Operator Instructions] Our first question today comes from Scott Siefers with Piper Sandler.

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 3.25% to 3.50% medium-term target. I know the fourth quarter margin should come in around 3.05%, which is up, but sort of towards 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?

Yes. Thank you for the question. Scott, as you mentioned, we're forecasting that 3.05% into the fourth quarter. And as you know, that's on the back, a lot of the time-based activity, the noncore runoff, the terminated swap benefit, fixed asset repricing. And although we're slightly asset sensitive, we believe that positives on active swaps and a mix will overcome the asset sensitivity and allow us to hit 3.05% into the fourth quarter.

And as we project out across the medium term, to our 3.25% to 3.50% 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 and other should take us the rest of the way into that range.

Yes. I would also say, Scott, it's Bruce, that the initial several quarters back view was that we could exit 3.05% to 3.10%. I'm still happy to be at 3.05%. A couple of things have happened over the course of the year. One is that the back end of the curve has come down. So I think our original view was the 10-year would be in the 4.25% to 4.50% range. And so it's lower than that, which crimps a little bit the front book, back book benefit. It's still there, but we assumed it would be a little higher. The other thing that's happened is that commercial loan pricing spreads have come in. It's a bit tight. And so it's those 2 factors really, which have brought us in kind of still within the range but more at the lower end of that range.

Perfect. That's good color. And then, Bruce, maybe a 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 for 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 store over the next couple of years? Or is it still that you've got just plenty of organic runway that you'd rather sort of maintain that organic momentum?

Yes, I'd say that's still the case, Scott. So we have, I think, our own somewhat analogous acquisition to what other people are doing was the start-up of the private bank. And we're getting significant accretion to the bottom line and we didn't have to expend any capital to do that. We took a little risk in the start-up of the business, which is now already covered the initial investment, and it's an excellent well-positioned business that has -- we're competing that to continue to get growth while we're achieving very strong profitability levels. And so that's our focus is to make sure we execute well on that.

We set that business up to be really valuable franchise in the medium and long term. I think we're on that trajectory, which we feel good about. We have another -- a bunch of other initiatives, too, looking at New York Metro and the growth that we're achieving there, looking at some of the investments we've done in the commercial bank and how we're covering private capital. And we've been waiting for activity levels to pick up to really demonstrate the prowess of how that business is positioned. And now when you see activity level is picking up, I think you can see the power of what we've assembled.

So we have a lot of strong growth. We're always alert for opportunities. But as I said in the past, it has to be a pretty high bar for us to go down that path and look at things inorganic.

Your next question comes from Dave Rochester with Cantor Fitzgerald.

Nice quarter. Just 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 in deposits. So it would be great to just hear your outlook there. over the next quarter or the next year. And then in terms of AUM, it looks like there may be a little bit of a gap. If you could just talk to your confidence in hitting that target by the end of the year would be great.

Sure. I'll start, and then Brendan can offer color. But I'd say the path on deposits is not going to be linear. So you're going to have, I'd say, in the second quarter, we saw some outflows near the end of the quarter. And the third quarter, we saw some inflows near the end of the quarter. And so you kind of have to look at this kind of over the trajectory over several quarters, it averages out. We feel really good that we're already at the year-end level, and we would expect to see some growth. But I don't think it will be that significant. We won't have another quarter like we had in Q3 and Q4, but we should still achieve net growth from here. So that's good.

I think loans is tracking well. AUM, which you pointed out is a combination of things. So some of it is lift-outs that we've already done and how fast they're converting over their client base. Some of it is lift-outs in the pipeline and when they close and some of it is the referrals that we're getting from the private bank over to private wealth. And so I think the wildcard as to whether we hit that number or not at the end of the year is going to be a couple of the lift outs in the pipeline. Do they happen in Q4 or they spill into Q1. I'm not concerned by that. I mean, if it's just a timing-based difference. The good news is that we're continuing to see a lot of interest in the platform. We've gone around the whole circuit and we've got and 2 wealth teams paired up with each private banking team.

And so we feel good about how it's building the quality of what we're assembling. We have more in the pipeline. We'll see exactly when that timing hits. So with that, let me turn it over to Brendan.

Yes. Thanks, Bruce. Maybe start with a point or 2 on the medium-term outlook and then add to Bruce's comments about Q4. We feel really confident over the next year or 2 that this momentum we're seeing will continue. And to 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 at 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 Kristin, 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 programs, 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 -- us protecting and incubating it to grow. Now it's starting to become upscale and they're working more effectively with the commercial bank with our investment bankers, with our business banking team, with the retail bank, 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 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 breakeven 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've got a real good shot to hit our metrics, and that's all that.

Yes. I would just close with one thought here is that when we initially did the deal, we gave targets out into where we thought we'd be in '24 or the next year and then the year after that being '25. And so it's likely that we'll want to refresh kind of over the next 3-year view, where do we think we can take this business. And I think I've said publicly that the contribution to our bottom line could double theoretically within the next 3 years if we stay on this trajectory.

So we have high growth ambitions for the business. But at the same time, we want to run it profitably and sustain that ROE in the 20% to 25% range. So I think this business ultimately will occupy some of the white space that First Republic created when they went under. But we'll do it and I think the 2.0 version is going to be even better given the totality of what Citizens offers with a solid commercial bank. I think we can be in a position to really be the bank for successful people and entrepreneurs and kind of across all industry realms, PE, VC and as commercial real estate and other sector. So that's what we're aiming for, and I think we're really on the way to achieving that.

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 bps, but you still kept the range -- the margin range intact the 3.25%, 3.50%. I know it seems like a small change, but the sensitivity of that the 3.25% to 3.50% is something investors have been asking about quite a bit. So I thought this was a positive that you reduced that the Fed funds, but you kept the margin range. So what kept the range the same? And then if you could give any color on the sensitivity of that range to Fed funds changes, that would be great.

Yes, 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 6 quarters, I think we've increasingly solidified our view that we can sustain that calm at 3.25% to 3.50% kind of at lower Fed funds rates down to 2.75%. Even, I'd like to say, down to 2.5%, 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 2.75% to 3.75%, I think, is progress and how we're trying to position ourselves from an interest rate risk management standpoint.

And your next question comes from Ebrahim Poonawala.

Just as a follow-up on the -- very quick on the sensitivity of the Fed funds to the margin. Bruce, you talked about the 10-year having coming down took -- has taken out some win 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 [ 25 ] medium-term sort of margin outlook that we should be aware of?

No. like -- so one of the other changes that you may not have noted, was down in that footnote around a 10-year range. We've also moved that lower, being reflective of kind of where the 10-year is out the window. I think our view still is that we stay kind of between 4 and 4.5 and that the curve will stay steep as the Fed cuts. So that's kind of the house view.

The fact is though that we're more sensitive to the short end of the curve and what happens with Fed funds less sensitive to kind of the steepness of the curve, although it can have an impact. But even though we took down that range on a 10-year we've solidified where we are in this comp. That kind of shows you that moving that 4.25 down to 4.15 didn't have much of an impact. And so we'll see where things go. I'd be surprised if we get kind of meaningfully below 4%. But even if we did, I don't think it has a very significant impact. It can cost us a few basis points. But I think the trajectory with time-based is the predominant driver going forward. And the front book back book has been positive. It could be a little less positive, but actually not a big concern at this point.

That's helpful. And I guess just another one, looking at Slide 20, and I know we get a bigger update in January. But as we think about the onetime 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?

Sure. And so if you look back historically, in terms of what were those onetime 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 items that can start to spin up some benefits in year in '26, so we can largely neutralize that.

So what we tried to do on this slide was really just show you the contours of the exercise. So like we're turning over every rock. We're looking at customer touch points, how we're running the bank, et cetera, et cetera. But then when we bring it back to a financial framework, we're trying to make sure it scales so that ultimately, we achieved meaningful size similar to -- or better than top that we don't go backwards and have a negative impact on kind of '26. And if we do, it's quite mild. It's modest, I would say. And then that we start to already see some real benefits coming in, in '27 and that kind of really the ship comes in, in '28. So that's kind of the way we're thinking about it.

Brendan, you can add some color to that and maybe talk about a couple of the fast action ideas that we're thinking about for 2026.

Yes, sure. So if you bucket our ideas into 2 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 in 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 and where we want it to be over the next 5 years and cleaning up our corporate facilities where we can take out some excess seating capacity and strategically restructure, build our culture and have people co-located to move faster, more innovative way. 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 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 one-time 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 them the runway of 3 years multiplied by introducing new things 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 3-year window. So it allows us to smooth it out and make sure that there's the de minimis J curve on the suite, the 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% ROE 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.

And your next question comes from Manan Gosalia with Morgan Stanley.

I wanted to check in on the capital markets side. You noted its second best quarter ever, the best third quarter. I understand some deals were pushed from 3Q -- 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?

Sure. I'll start and flip it to Don. But I think we've seen strength this quarter across the board. So if you look at the major places that we're playing, our bank lending, syndicated lending business has been strong. Our bond business has been strong. The equities calendar has opened up. So that's been strong. And then M&A activity has picked up. So if you think of those are kind of the 4 big areas, we're doing well across all 4.

And I'd say, looking out the conditions that we've gotten used to the uncertainty and some of the headline risk that takes place. But market participants are saying this is the new normal and we have to get on with doing business. Having spreads really tight is good for refinancings and pull forward and in that realm. But anyway, we have strong pipelines into Q4, and we feel good about how we're positioned and we can have a sustained period of increased activity, which benefits us relative to peers based on what we've built out in the capital markets.

So I'll turn it over to Don with that.

I don't really know what I can add to that. It was pretty complete. I think the thing as 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 pipeline, 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 megadeals be announced, but the core middle market private equity, [indiscernible] were 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 pipeline 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 -- it's -- as I look back on second quarter, third quarter, in the 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 3 or 4 years just in terms of Washington sentiment liquidity in the marketplace is interest rates. There's a lot of positives out there that should continue to propel the capital markets fee lines.

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 showed 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?

Yes. Why don't I pick up on that also. So the way we lend to the private credit complex is really through securitization structures. So it's very, very high credit quality with diversified pools of collateral. I haven't looked completely, but I don't think we've had any losses in our private credit pools related to any of the big headline kind of bankruptcies that have happened in terms of the underlying.

But just think about it, we lend against 100 to 150 different collateral pools of individual credits, and we have very strong structures, very strong protections in terms of covenants collateral kickouts, visibility into the underlying structure. So we are -- and as you said, it's a very small portion of our overall book, but it's actually one of the highest quality things that we do across the entirety of the commercial bank. So I'm very comfortable with it. And the thing I always look at is are there structural degradations going on in terms of terms and conditions in terms of how people are lending into some of the private credit funds. We haven't seen it. And the structures are holding up pretty well so far. But most of these are 364-day lines. They're pretty short term, so we can adjust the book if we see anything that disturbs us pretty quickly. So...

I would just add that if you look at big categories like subscription line, financing or securitizations or asset-based structures, their kind of lost history is pretty pristine, and they're all investment grade across those 3 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 that area in those areas.

Your next question comes from Chris McGratty with KBW.

Bruce, the 16% to 18% RTC over time, does -- 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 will get in January, does that give you a bias to a certain part of the range or perhaps sooner realization? I'm just trying to connect it, too.

So we're on our way to 16% to 18%, and we're not reliant on the Reimagine the Bank today to get into that range. So to me, the question is how soon do they have meaningful impact, and that should allow us to torque those numbers up a bit. I think it's too early to do that. We're just kind of flashing you the contours of the program. But anyway, I think we'll have more specific color on that when we get to January, and we give you a more fulsome forward outlook.

Okay. So it's additive. I guess it's -- you're not announcing this plan because you're not on track to get it? This is gives you greater confidence that you're going to 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.

Okay. And my follow-up is on just use of capital. You've talked about the earnings contribution of the private bank picking up. The loan growth is picking up. Any other, I guess, near to intermediate term uses of capital, either organic or inorganic that we might need to be thinking about?

Yes. I think the number one is to facilitate the loan growth as it comes back, which we think will continue. 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 when 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 a -- 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.

Your next question comes from John Pancari with Evercore ISI.

Just on the expense front. I know you started the ongoing investments 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?

Yes. So again, if you look at this year, we're already back into positive operating leverage territory. And I think we'll continue to see that NIM expansion and NII growth, which really comes without a lot of additional expenses. So that's very accretive to the efficiency ratio improvement and positive operating leverage. Where we have been leaning in on investing expense dollars has been the buildup of the private bank.

So this year, we were running, say, 2.5 to 3 on the core business and then add another 1.5 plus to the Private Bank. And I think investors should feel really good about that. We're getting a great return on those expense dollars. So I think looking out into next year, and I don't want to get into guide because I say we're going to do it in January. But I think we'd have even more positive operating leverage because I think we'll have higher revenue growth for the full year and the expense growth shouldn't be too far off of what we're doing this year. It's just an early glimpse.

Okay. I appreciate that color. It's helpful. And then regarding the margin, I know you -- 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 return on credit allocation, but we look at overall returns on relationships and you add in what Brendan has done on the Private Bank is 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, 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 think it's -- I don't see that equation changing a lot over the next year or 2. 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.

The next question comes from Matt O'Connor with Deutsche Bank.

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?

No, I would say that you can count on us to be disciplined on expenses. And so we're still driving. We're now pivoting all the attention to reimagine the bank, but we still have our top 10 program that is gaining traction and ramping up some benefits. And so notwithstanding strong capital markets, and we put away a little more in compensation. We're still kind of trying to excise expenses through the TOP program that we can repurpose for kind of more customer-facing investments. And when we see the productivity results that we're getting that we have to put away more compensation, we can offset that with some of the things through these top efficiency programs.

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, I just wanted to ask on your confidence in the $400 million plus total run rate benefit over time?

Well, I would say if you learned anything about this leadership team over the past decade, we don't throw numbers out there that we don't think we can achieve. So we're pretty darn confident.

Your next question comes from Peter Winter with D.A. Davidson.

So nice to see average loan growth turned 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?

Yes. So I think you've now seen 2 quarters in a row where we've achieved net loan growth, meaning we've had growth in consumer. We've had growth in commercial. We've had growth in Private Bank, and that is offsetting reductions in noncore as well as some balance sheet optimization in the C&I book in CRE where we're seeing some meaningful paydown. So anyway, that's good to see.

And I think over time, the noncore is waning, so that will be less of a drag. I think the C&I will be lower going forward. We've done a lot of that balance sheet optimization. CRE, we're still managing that down to get kind of back to the playing weight that we'd like to play at. But I think there's still good dynamics around consumer, commercial and private bank that will lead to continued growth. And the amount will depend on kind of what we see in the external environment. On consumer, it's been really led by mortgage and HELOCs. HELOC has been the shining star. We have some hope in the future for card loan growth to pick up now that we've launched a whole new card family.

We might be a little more selective in mortgage and not continue to use our balance sheet as much all kind of restrict it more for important relationship customers and focus more on conforming. So anyway, that's a tactical shift that you could see going forward. Commercial, we've seen a lot of growth in the [ NBFI ] space, but we still are investing in middle market to achieve growth in some of our expansion regions. We could consider New York and expansion region, but also Florida and California, where we've added some really great talent, and we're starting to see that spin up a little bit and achieve some growth.

And Private Bank is kind of very consistent now. We have a bunch of penetration in the PE/VC space. This past quarter, we saw a pickup in line utilization. We're starting to see the individual customers come in and borrow for greater mortgages and HELOCs and some of the similar dynamics that we're seeing on the consumer side. So anyway, I think we're well positioned to capture growth across all of those 3 segments, and we'll have less of an offset coming from noncore in the future.

Got it. That's helpful. And then just one follow-up. Just 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?

I'll put that to Brendan first and Don second. So...

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 noncore 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 for loss rate. Auto historically has been in the 70 to 80 basis point range. So as that windles down, the denominator strength, so 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 to the 21 and 22 vintages had a little bit of a short-term blip with FICO inflation coming off of the stimulus impact 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 didn'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 U.S. consumer, it's also very, very stable. You have to really deaverage it to see stress in the lower end of the market in the bottom 2 to 3 deciles in 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 not -- 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.

Yes. And 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. And we've seen almost no migration on that side of the equation in the last year, 1.5 years. So we're well kind of positioned for how we work out that book of business. We're seeing really no deterioration on the C&I 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 is running their businesses in a really professional way, and they've deleveraged, they've got 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 6-month to 12-month out forecasting. So we feel very good about the contours of our book overall.

Your next question comes from Gerard Cassidy from RBC Capital Markets.

Don, just a 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 is growing rapidly as you all know, that we can keep an eye on to see if there is any credit potential credit deterioration coming, even though it's -- we recognize it's held up well, you guys don't have any real issues with it as well?

Yes. 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 funds is going to be different than a PET situations fund, and you know that throughout. I mean, all of the different kind of attachment points for each of these complex 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 2 involvements, but they're very strong analytical kind of complexes, which we have a lot of complex 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 the -- 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, no, I appreciate it. 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 2 months ago, Scott Bessent said that this country has got a housing emergency. And aside from the actual structure of building more houses, reducing regulations, putting that off to the side for a moment.

From the financing side, mortgage rates obviously are much higher today than they were 4 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, 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?

Well, I think they're thinking about this holistically that there's an affordability issue, which is at the root of why the market is tepid. And so housing prices have run up too much, and there's kind of new supply constraints in terms of regulation. So there's all of that to deal with. And then I think that spread, do they through their quantitative tightening do they -- what's the strategy around mortgages is one lever that they have to pull.

But it's kind of a thorny problem. It's nice to talk about it. I'm not -- I'll be curious to see when they unveil if this is really a national crisis that we have to deal with, what the plan is when it comes down the pike. We're not counting on ultimately a big lift in our mortgage business. We like refocused the business to use our capital to support good customers in their life journey and giving them mortgages that we have broader relationships with.

So I think the days, if you go back to in 2019 after we bought Franklin and when rates came down, and we coined all this money. It was a bit of a sugar high. It felt good. It protected capital generated capital. We didn't really get credit for it as a sustainable earnings driver. So I'd say where we are today is that, that business has been rightsized, repurposed, feel really good about how we're running it, good Net Promoter Scores, efficient, always room for improvement. But it's much more targeted than it was before. If rates come down and there are chances to catch some of the refinancing wave, sure, we'll catch some of it, but it's not going to be in the magnitude it was before. And recognize we also have exited the wholesale business over the last 3 years as well, and that was one of the drivers for why we captured so much upside.

So where we're going with the fee reliance is still capital markets. I think we've built the Cadillac among the super regional banks. And so we should continue to see strong growth there over time. We have a really good risk management business and our FX interest rate and commodities hedging business. So we have a wealth business that just hit another record high this quarter. Every quarter this year, we're hitting record highs as we build out the wealth business. The card business, we've been investing in, there can be growth in card fees. And so we're kind of pivoting to, I think, what are more durable, sustainable maybe a little less volatile fee revenue sources and a bit not as reliant on mortgage.

Brendan, if you want to add to that?

Yes, 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 U.S. 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 6 handle on it now and the long-term rate is relatively stable. You'd have to really assume a very, very different rate outlook for there to be a huge boom let of refi activity.

And so then your attention turns -- and our mix of 17%, 18% of our business is refi right out 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 is 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 U.S. built up on consumers' kind of personal balance sheets and they can tap it. And we're -- we've been #1 for 3 or 4 quarters in a row, including against all the G-SIBs 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're -- we've got an incredible competitive advantage there to drive loan growth and high-quality massive and affluent homeowner home growth with high credit and LTVs. 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 recontoured 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 of years back.

I think we have time for one more quick question.

That does come from Ken Usdin. [Technical Difficulty].

Okay. Sorry, we missed you, Ken, but do dial in and talk to Kristin or Chris later.

So I guess that's it. And thanks, everybody, for dialing in today. We certainly appreciate your interest and support. Have a good day. Take care.

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

We're very pleased to have Citizens' Financial with us. From the company, we have Bruce Van Saun, Chairman and CEO. Bruce has been a very long supporter of this conference as CFO of Bank of New York Mellon; CFO of Royal Bank of Scotland; and for many, many years, Citizens Financial Group, where he is Chairman and CEO.

So Bruce, thank you so much for joining us this morning.

Always a pleasure.

Maybe the best place to start is I remember back, this is many years ago when Royal Bank of Scotland was about to spin out Citizens breakfast at the Barclays headquarter building. And it's just -- it's amazing the progress you've undertaken to transform the franchise and is one to where it is today. Just maybe update us in terms of how you're feeling about the current positioning?

Sure. So yes, it's been quite a journey, and it's a transformation that few have been able to successfully achieve. So we feel good about the fact that we put the foundation in place and built a great team and worked on a vision for how citizens could be distinctive and really focused on areas where we have a right to win. So today, our strategy I'd like to describe as a tripod that we have a very strong consumer bank, and we've spent kind of many, many years in moving from transaction-based bank to advice based, moving to digital and investing in data and then actually kind of move more upmarket to go after mass affluent and affluent customers and transform the value proposition we offer. So I think what we started with was more rate-led collection of thrifts and savings banks. And over time, we now have kind of a very strong performing consumer bank. And ultimately, that's the kind of lifeblood of a bank is to have low-cost, attractive deposits that you can grow on a consistent basis. And so I think we've achieved that. We did make a investment in the New York Metro region. So you can see around town here, our branches. And I think that was always something we had a gleam in our eye to find a way in because if you're going to be a strong Northeastern based bank, you have to figure out how to get into New York City, but buying HSBCs, East Coast branches and Investors Bank having roughly 200 branches in this region and then kind of bringing our style of banking into an already highly competitive market, that's gone extremely well. So right now, that's our fastest-growing region, mid-single-digit household growth, high single-digit deposit growth last year. So the consumer bank, I think, is poised, and there's still a very significant wealth cross-sell. We're not fully penetrated yet. And so there's some big upside if we can keep making progress there.

The second element of the strategy really was to scale up and expand the capabilities of our commercial bank. And I think we feel really good about that. So we've covered middle market companies. We cover mid-corporate companies. We move more upmarket, mid-corporate companies, need more industry expertise. And so we've had to bring in new coverage bankers. We brought in corporate finance types and M&A specialists to really go after some of these attractive industry verticals. We saw the opportunity early on to really dig in and cover sponsors because they were eventually going to own more and more of middle market America. And then as they've broadened out and become private capital, they have private credit, they have other asset management activities we've been growing with them to help them be successful. So we now cover the full product gamut, and we have attractive coverage profile. And so what you haven't seen really over the last 3 years since we've been in a lull in capital markets activity is the full power of what we've assembled. And I think that's starting to change now that the conditions are improving. I think you're going to see the capital markets revenues really expand and start to demonstrate that we've built a great business.

And then the third aspect is really trying to figure out how to get into the high-end wealth business beyond just the branches. We had made an acquisition several years ago, Clarfeld up in Tarrytown, New York. That was a really good franchise, but not really at scale, the scale that we desired. And so we made the play for First Republic. We didn't get it, but a lot of the talent decided that this would be a good place for them to come over to Citizens, and they could build a First Republic 2.0 with even kind of, I think, more sophistication, broader product set, et cetera, and couldn't be more pleased how that's going. So we're hitting and exceeding all of our markers in terms of deposits, loans, AUM. The cultural fit has been great. We're working really hard to get service levels to the level that First Republic was at, but very excited about the potential for that business and the impact that it can have kind of on our overall valuation.

That's helpful. We're going to go up the first ARS question. We've been asking these in all the rooms. But Bruce, why they do that? Maybe we'll start big picture and then delve into a lot of what you talked about. You talked to the 16% to 18% ROTCE in the medium term. You just highlighted a lot of different strategies that could potentially maybe get us there, but you're only 11% in the second quarter. So maybe just help us bridge that gap, and if you can offer kind of any thoughts on when you think you can get back to that level?

Sure. Well, I'd say we're under-earning really the potential of the franchise now. We do have the legacy swap portfolio. We have kind of the drag from the noncore that we're running off as aggressively as we can. If you look at kind of what we refer to as time-based benefits, there's probably 4% there over time. And we don't really have to work for it. It's kind of the cake is baked on that. So that gets you up closer to 15%. And then the initiatives that we have, private bank going from start-up to being significantly profitable, making 20% to 25% return on equity, which it will do this year, by the way. And it will scale -- continue to scale and continue to sustain that level of return, plus the commercial bank investments should coming in with more activity, and what we've invested in, in the payments business. I think there's easily another 2% to 3% ROTCE improvement from the initiatives, I would say. We're still over providing on credit, given some of the CRE office book that we've been working through. But ultimately, if we're kind of slightly below 50 basis points charge-off ratio. I think that through the cycle number, as we continue to refocus on kind of safer lending areas should be 30% to 35%. And so there's a tailwind, I think, coming from credit as we work through the CRE. And I'd say, one of the offsets is you're benefiting from the drag in AOCI, which is compressing your equity. So that moves a little bit the other way, although you'll be repurchasing shares. And so anyway, we show a walk in our earnings material that lays all that out. I feel very confident in our ability to deliver that. And I think -- I don't think the market necessarily is fully bought into the out years, '26, '27 because it is a lot of growth. But if you attribute a lot of that to NII and NIM and then it's not a big leap to execute the rest of it.

Got it. And maybe just pull up for a moment and just talk to kind of what you're hearing from clients on the commercial side and just how clients -- how is clients' sentiment just given the tariffs and all the stuff we keep on reading about?

I'd say on the corporate side, our clients are in very good position. So one thing that companies got good at over the last, call it, 5 years has been to become adaptable and resilient. And so getting through COVID, the high inflation, the tariffs, I think businesses have become good at doing different scenario planning and making sure they have alternative ways to run their business in terms of supply chains and things like that. So I'd say most of our companies are having very strong years, good cash flow, but they're not fully leaning forward. So that's the thing that there's still a fair amount of uncertainty, the way the tariffs have rolled out the way they change on a fairly regular basis, I think, has people just holding their position and not fully leaning in yet, although I think there's less uncertainty now than there was at the beginning of the year, the liberation Day worst-case outcomes for quite anxiety producing. I think we'll probably not see the worst-case outcomes. We have the tax bill, which has a lot of incentive for people to get off the sidelines and start investing. You have regulatory appointments, folks are being confirmed. And there's a big deregulatory agenda, too, that's very positive. And now it's likely the Fed is going to start cutting here this month. And so there's a number of tailwinds, both on the fiscal side.

I think what we did last year is we started running ahead, and we're very disciplined, as you know. If we put targets out there, we want to hit them. So we said that we'd be breakeven in the second half of last year, but we were -- we had that kind of in the bag. So we said, what market do we want to go to next to make some investments? What's -- and so we decided Southern Cal was where we needed to be. We had a very big presence in Northern Cal. And what happens when you hire private banking teams is there's a J curve. So all the cost comes day 1 and then eventually the customers migrate over, and they start to build their book. And so we thought we had enough room to actually make that step and expand in that important market. I would say, again, we're running at a very good clip this year. So you could see us start to think about similar things. Are there -- should we densify some of the markets that we're in. One of the markets that's interesting to us is Florida. We're in Palm Beach, and I've been advised that West Palm Beach is a completely different market, even though I can look from our office and see the building they want to be in, in West Palm. But anyway, First Republic had very good presence in particular, Southeast Florida from Jupiter down to Fort Lauderdale. So we have our eye on certain things, and we'll just continue to calibrate that to scale it up, but maintain the discipline around profitability and returns. We're also hiring a number of wealth teams. So lift-outs of folks that are on either broker platforms, RIA platforms. We've now got 8 teams have come on board. And the big draw for these teams is the caliber of the private bankers and the ability to get referrals from us and then also the ability to use the balance sheet to solve client needs, which they can't get many times if they're on other platforms or pure RIA platforms without access to balance sheet. So we have a lot of inbounds of folks who like to get on our platform. And so I think we can be selective. We're trying to bring those private wealth teams in close proximity to the private banking team so we can do joint calling and actually really dominate those markets. And so those are a little different because when the team -- those teams come over, they're usually in the broker protocol, and they can bring their clients day 1. So the kind of payback on that is quicker than on a full-scale private banking team. So anyway, I'd say where do we go with this? I think we'll easily do the 5% this year. And if you play this out on the trajectory that we're on, I could see us in the not-too-distant future getting to a double-digit contribution.

Maybe the next ARS question is on your recently announced reimagining the bank initiative. I recall back at 2019 at this very conference, you announced your transformational Top 6 program. I know it's $300 million to $325 million in pretax benefits. Maybe you can indulge us again just more detail on this reimagining a bank initiative you kind of hinted at on the July earnings call. It sounds like it's a multiyear transformational top program. You kind of hinted that some AI bend to it. But just talk about maybe some of the investments needed for the program, and just how this plays into the 16% to 18% ROE objective we talked about.

So I'm extremely excited about this. So I don't think you can do kind of a major transformational top program every year. So the top programs that we've had through top 10 have mostly been more tactical finding ways to run the bank a little better or deploy some new technology, grow certain customer revenue streams, but they haven't been a huge lift in terms of rearchitecting technology or databases or things like that. And and kind of going to really dramatic change in terms of the technology capabilities that we have. I think with GenAI and Agentic AI there's fresh ways to think about how the bank operates. And can you have -- for example, in Agentic AI, can you have human and bot teams like our contact centers have human and offshore call center teams. Can you replace your offshore call centers over time? And just have bots and have your well-trained agents here in the U.S., handle the more sophisticated questions. And obviously, you want to start at the source and try to to take out as many questions as you can. So the focus is on improving customer experience and rearchitecting journeys and offering more self-service. But the kind of nomenclature reimagine the bank was to try to get the people inside the company to not just do things incrementally, but step back and say, what could -- what would we like the future to be in 3 years or 5 years and then kind of paint that vision and then work backwards and say, this is what we need to do in order to make that vision become reality. As you know, we're very financially disciplined. And so I think there might be some murmuring out there, gosh, is this going to require huge investments, are the expenses going to lead the PPNR benefits from this program. And I would say we're architecting it in such a way that, that would not be the case that we will pull benefits in, and some of it may be a little more tactical because we still have tactical things we can do in order to be able to self-fund some of the initial investments that really deliver a very strong payback when you look out 2 years, 3 years down the road. And so to me, this is from a financial sense, it's more icing on the cake. I can -- we can get to the 16% to 18%, and we will. And if we can really have a big impact from reimagining the bank, I think that can kind of be a game changer in terms of taking those numbers even higher.

Got it. And I guess, Brendan, is leading this initiative, but you hired a new CFO recently, who I know pretty well, both from State Street where he was the Chief Transformation Officer at Barclays. He co-led our investment banking simplification initiative. Just how does that impact that program?

So this fellow, Aunoy Banerjee, who's our new CFO starting October 24, that was 1 of the appeals. We had huge interest in the position. And I think what stood out was the depth of transformation experience he had in addition to ticking the boxes on all the financial stuff. And so we have a mini ExCo that works with Brendan to drive the program. So when Aunoy gets here, he'll be on that team that kind of oversees the program, and I look forward to getting his insights into some of the things that he's done at previous pit stops.

Got it. Now we're halfway markers, you know it's coming, guidance. We're going to go through it in detail, but maybe big picture.

You know what my answer is going to be.

I know, but I got to try. You have 3Q guidance out there, full year 2025 guidance out there. I know there's always some puts and takes. Maybe any kind of update you want to provide?

Yes. No, I feel really good about how we're tracking both for the quarter and for the full year. And the trajectory that we have going into '26. So if you look at the sequential quarter earnings jumps from kind of Q1 to Q2, what's in for Q2 to Q3 and then Q3 to Q4. That's kind of bringing our profitability back to levels that is really nice to see. And I think with the NII lift really driving that and fees being very robust in conditions, particularly favoring capital markets and wealth. I think we're in very good position on the revenue side of the equation, and you can count on us always to do a really good job on expenses. And I think credit is behaving as expected, so relatively benign.

Maybe -- you can kind of maybe run through some of the key drivers, starting with loan growth. But you were talking kind of low single-digit loan growth at the start of the year. Maybe talk about what areas of portfolio are most optimistic about and give us some more flavor?

Yes, I'd say 1 thing that we have going for at Citizens is this buildup of the private bank. And so as the bankers bring their back book customers over or attract new customers, that's really idiosyncratic to us that we can grow deposits and grow loans, that really isn't market reliant. And so it's just taking market share. And so that, to me, is a foundation block for the projections around spot loan growth and spot deposit growth, that will lead the way really in the second half of the year. The nice thing in the second quarter was that we actually saw consumer have net loan growth and commercial have net loan growth in addition to the private bank. And so some of the activity that we've had to kind of optimize the balance sheet in terms of -- in commercial, we've been kind of running off low-yield single product relationship where we thought we'd get more cross-sell, and we didn't or we're running down commercial real estate from the wake of the investors acquisition is let's bring ourselves back to scale in commercial real estate. We actually now are seeing that we can grow, notwithstanding the continued drag from some of that cleansing. But the good news is I think that is starting to subside. And so the growth is kicking in and the growth -- a lot of the growth is around nonbank or non-depository financial institutions, so subscription lines, securitization lines. Line utilization is going up. So we already have the lines out there, that's been helpful. And we're seeing a little bit of line utilization benefit on the corporate side and some of the new business wins that we've been able to pick up in the middle market. We've expanded teams into the New York Metro region, into Florida and California, and that's starting to pick up the growth a little bit on the corporate side. And then in consumer, steady as she goes, but we have a nice HELOC business and product offering and our mortgage business is solid and -- so those have been growing at a decent clip. We have some aspirations at our Card business could grow. We just launched 5 segmented cards last quarter, and we're seeing nice pick up on that. So again, as the noncore division, which really was consumer loans, kind of starts to wane. It's kind of dropping off, then you'll see less drag from that noncore runoff, and you'll see the consumer loan growth eclipsing that as well. So top of the house, I think we should continue to see some growth across all 3 as we look out in future quarters.

Got it. And at what point do you think we stopped talking about noncore?

Well, at the end of this year, we should be down to about $2.5 billion from [ '14, ] by the way. So that's quite a lot of progress in a relatively short period of time. And then that should be about $1 billion by the end of '26. So whether we continue to report it at the end of next year or just pulled it and collapse it, and we can make that call later next year.

Got it. Maybe turning to deposits. Maybe talk about the competitive environment for both consumer commercial deposits level mix, pricing, what you're seeing?

Yes, it's always competitive out there on deposits, but I'd say, again, the Private Bank has nice growth as they expand their book of business. That's been good to see. And I think our targeting, the way we manage deposit pricing and the offers that we make to attract deposits in consumer, I would put it right up there with anybody, so I think we're quite good at that. So I -- these are manageable pressures, they've always been there, and I think we can achieve our spot loan growth and deposit growth objectives and keep our kind of LDR relatively stable in the high 70s.

Maybe throw up the next ARS question is on NIM. But, Bruce, rate expectations, you mentioned that potentially cutting next week. Maybe just update us in terms of how you're positioned from an asset liability perspective. You've talked to this 3.25%, 3.50% NIM for 2027. Just maybe some of the drivers that kind of low end versus high end when you...

Sure. Well, again, getting into that range on the back of time-based benefits, it's not a Herculean effort to see the NIM continue to go kind of consistently higher. And so we have that working for us. I think we still have some kind of the active swap portfolio, providing some benefit. And then we have front book, back book dynamics providing some benefit. So I think the ability to achieve that 3.25% to 3.50% is, I'd say, pretty assured. I'd say there's always external factors there, but we feel confident in our ability to get there. We have hedged kind of the forward -- the path for forward rates that kind of locks in that low end of the come, 3.25% to 3.50%, provided the Fed rates stay kind of 2.75% or higher. So -- and we'll continually reevaluate. And we're kind of hedged through '26 and halfway through '27, and we'll we're hedging kind of out in '27, '28 and '29, and we have a buy box and a discipline about how we do that. So anyway, that feels good. The things away from just where rates move would be our own trajectory on deposit growth and the mix between noninterest-bearing and interest-bearing. And so there's some execution around kind of how do deposits grow, what is loan growth, et cetera, that can impact that NIM trajectory. But again, I think we've proven that we're pretty good at managing that. I'd say our beta performance this cycle in the up cycle, we were #4 of 10 in our super regional peer group. So I think we've transformed that deposit base, and we're quite good at how we price and manage balances.

I guess as we start to think about 2026, 2027, just how you're thinking about the trajectory of NII?

Yes. So I think NII is going to grow nicely based on the NIM kind of continued extension and expansion. And then I think the economy will be strong enough that the areas that I described around loan growth and then less drag from kind of runoff and balance sheet optimization should facilitate attractive NII growth. And again, I think we're -- we haven't been in a strong fee backdrop environment for some time, and we're starting to see that this year. And I think that potentially could extend well into '26 and '27 and businesses like capital markets and wealth and some of the investments we're making in payments can actually continue to sustain a relatively good level of growth in our fee businesses.

Yes. Capital markets and payments have been good, I guess, fee drivers. Mortgage is an area we haven't really talked a lot about. Rates have seemed to be coming down more recently. Can you maybe update us in terms of what you're seeing there?

Yes. So we don't have the same scale of business as we did like when we crushed it after we bought Franklin, and we work still in the wholesale business, and I think got fee revenues up to 900, only to revert back to 300 2 years later. But I think we're targeting the use of our balance sheet. A lot of these mortgage producers stay on bank platforms because they want to do nonconforming business. And we're making sure that those producers are linked into serving bank customers are bringing new customers to the bank who are going to be full wallet customers. And so I think we've ring-fenced the business a little bit to be more strategic and less just being in the mortgage business for being in the mortgage business and get going after scale. So I'd say that's not a business that I'm counting on to see significant growth. I'd rather just keep my bets on capital markets and keep it on wealth and payments.

And then on the expense side, you were talking about 4% expense growth this year, maybe closer to 3% ex to private bank build-out. Just talk to how you're approaching the 2026 budgeting process? Where you see the efficiency ratio going over time? And I think you mentioned positive operating leverage earlier, just how your thoughts around that?

Well, I think when you have an opportunity in front of you, like we do with the private bank, we can't artificially constrain the level of expense investment and then miss the opportunity because there's a void where First Republic was operating, and we want to get there and grab that. And so taking -- adding a 1.5% expense growth rate on top of like 2.5% to get to 4%, like we did this year, is, I think, very prudent. And you'll see the revenue benefit that comes from that. You're already seeing it. So I think when we look at next year, the lift on revenues is going to continue to be very significant, driven by NII and continued good fee performance. So that gives us the wherewithal to keep investing in and keep that flywheel going. You're -- we're going to be just as disciplined as always on expenses. We've got reimagine the bank, teed up to continue to get more efficient. But then you can make purposeful investments that actually drive the positioning of a very important business and drive future PPNR. So that's how we think about it.

And then maybe on credit quality. You mentioned the office portfolio earlier. So maybe update us in terms of what you're seeing there? And just any other portfolios you're kind of keeping an eye on, any other sectors of note, particularly against this evolving backdrop?

Yes. Look, we've passed the halfway mark. I don't know if we're already at the seventh inning stretch on office. But it feels like it's been a slog. And maybe we need to shorten the pitch block on this thing. But the game has been going for a while. We're working through. We're not seeing any surprises, and we're not seeing any new flow, we haven't for over a year of new credits coming in to be worked out. And so this is really just a passage of time. I think, this year, the quarterly charge-off rate on CRE is lower than last year. And next year, it will be kind of lower again. So that's 1 that I wish we didn't have it, but I feel it's contained, and it's going away, which is really good. And then outside of that, you look at C&I, C&I is clean and consumers clean in terms of our delinquency trends and NPA trends, et cetera. So feel quite positive about credit. No real flashpoints that we're really worried about.

Got it. Maybe put up the next ARS question. CET1 ex AOCI was 9.1% in the second quarter. You talked about share repurchase of $75 million for the third quarter, down from $200 million in a second. Maybe just talk to how you think about capital return given your comments on loan growth. You also haven't raised the dividend in like 10 quarters. So I'd love to hear your thoughts on that.

Yes. So our kind of first priority has been to back organic growth and loan growth. And so with the past couple of years with the kind of running off the noncore book and commercial real estate running that down a bit, we had plenty of capital, so we're still making decent profits, and we were freeing up capital. So we bought back a lot of stock, especially last year. And I look back on that, what's interesting is a lot of banks will -- or companies in general, will buy their stock when times are good and the stock price is high. We bought a lot of stock when the stock price was low, which is smart. Now that we're seeing loan growth pick back up, you shouldn't be surprised the first half loan growth was a bit subdued. So we bought back more stock. Now loan growth is picking up. So we'll buy back less stock. But in any case, I think that's a good discipline to be regularly in the market buying your stock that you can gauge it based on the need for capital to support loan growth and also where your stock is trading. On the dividend, I would say, stay tuned. I mean, we're aware that investors like to see consistent dividend increases, all banks saw their profitability drop after the Fed raised rates and impact on NII and profitability is being restored. And so we're pretty close to where we'd like to be to in terms of payout ratio to take a step there.