Q4 2025 Earnings Call Transcript

Please standby, your conference will begin momentarily. Thank you for your patience. Your conference will begin momentarily. Welcome, and thank you for standing by. All participants will be on a listen-only mode until the question and answer session of today's call. 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, Annoy 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 seven 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 $4.145 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 managed 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 non-core 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 program 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 reduce 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. 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 Financial Group, Inc. 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 ten-year stays anchored around 4.25%.

We anticipate the regulatory environment to stay positive. We will look to take some basic steps on stablecoins; we do not see a big liftoff and impact in 2026. Notwithstanding several of our peers gauging 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 Financial Group, Inc. 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 achieves sustainable growth with attractive returns.

The Reimagine the Bank impact in 2026 will deliver one-time costs of around $50 million versus benefits of $45 million, which are incorporated in this guidance. We do not intend to break out the one-time costs as notables as we've done in the past. Credit costs should 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 Annoy for his debut performance. Annoy?

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 three to seven, 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 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% Roxy. 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 eight. Net interest income increased 3% linked quarter, 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 seven basis points this quarter to 307%. Three basis points of the margin expansion was driven by the benefits of non-core run-up 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 nine. 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 inflows 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 continued 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 sponsor 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 non-core portfolio run-up of roughly $500 million in the quarter.

We saw solid loan growth across each of the businesses as non-core 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 mortgage. 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 CRE paydowns. 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 twelve and thirteen. 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 paid across all businesses, driving interest-bearing deposit costs down 15 basis points linked quarter. This combined with the growth in non-interest-bearing deposits helped to drive our total deposit cost down 12 basis points.

And importantly, our non-interest-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 above 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. Non-accrual loans are 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 non-core runoff, the reduction in the CRE portfolio, and lower loss contained 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 opt-out 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 nineteen and twenty. 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 non-interest-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 2023, 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 banks' earnings contribution to mid-teens in the medium term, while maintaining a 20% to 25% ROE profile.

Moving to slides twenty-one and twenty-two. We have launched our firm-wide Reimagine the Bank initiative. The objective is to position Citizens Financial Group, Inc. 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 of 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 one-time cost and capital investments by prioritizing initiatives with faster paybacks. There will be about $50 million of front-loaded one-time cost 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 twenty-seven that we expect will accelerate in 2028. And we are targeting fully phased-in pretax run rate benefits of approximately $450 million as we exit 2028. Roughly two-thirds of these benefits are tied 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% '27. Moving to Slide 23. I will take you through our full-year 2026 outlook, which contemplates a forward curve with two twenty-five basis point Fed cuts, one in June and another in September, ending the year with Fed funds approaching 3% to 3.25% and a ten-year treasury rate anchored around 4.25%. We expect NII to be up 10% to 12% with NIM expanding about four to five basis points a quarter towards 3.25% in 4Q twenty twenty-six. 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 a 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 a 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 incorporate 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 2027, 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 330% to 350% 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 shift 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 '27. With that, I will hand it back over to Bruce.

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

Thank you. Our first question comes from Ryan Nash with Goldman Sachs. Your line is open.

Good morning, everyone. Good morning. Bruce, appreciate all the details on the reimagine 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, are the areas that you will invest in? And second, you know, the slide 28 says that you're not incorporating any of these benefits. Does this increase your confidence in getting to the high end? Do you think this serves more as a hedge in case other parts of the business don't perform?

Thank you. 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's 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 cost flow and then how the benefits start to flow. One thing you'll notice there is that over time, the kind of revenue benefits 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, you know, what do we expect to flow through, I think the first thing is you got to look at the gross number excluding the implementation costs because implementation costs really are just kind of one-time 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 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 gonna 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 prior expectations. Thank you.

Yeah. 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 the 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-fifties 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 non-interest-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 our view is that rates will come down, but maybe not as much 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. That kind of non-interest or balances the higher little bit of asset sensitivity and a higher rate outlook. And then addition, these attractive hedging actions that we've taken would offset that beta dropping from where it was to the high forties.

Thanks for the color, Bruce.

Thank you.

Our next question comes from Erika Najarian with UBS. Your line is open.

Hi, good morning. 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 you know, the push-pull in terms of optimizing CRE versus taking advantage of potential refinancing opportunities?

Yep. So I'd say our confidence in that loan outlook stems from actually what we're seeing and what we delivered the second half of the year. So we had we have an idiosyncratic growth drive 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 product and also mortgage.

And so we've seen growth across all three 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 BSO on the commercial real estate kind of run down after the investors acquisition. And so there's a slide in the back, Erica, 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.

Yep. I'll start, Erica, 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 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 from an ROE standpoint being very attractive business. We're seeing remember for most of the last two or three years, the market has been really a refinancing market.

I think Annoy 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, a pretty strong environment to be operating in. That should drive higher levels of loan growth as we look into 2026 and beyond.

We were probably running close to $1 billion of C&I BSO over the last few years. That really is down to BAU. We're pretty much done with that. If it was going to be $500 million, I'd be surprised, but it'll be just a continuous kind of rhythm of cleaning out, under-returning relationships and replacing them with 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 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 three points here. One, similar to Don, the headwind on non-core is reducing. So just give you some numbers around it. Yeah.

Six, seven quarters ago, we were dealing with a billion, a billion 1 in quarter on quarter, rundown of non-core that exited Q4 at a half a billion. 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. It was seen really strong growth in private banking at 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 demand to pick up in the private bank and our run rate to improve further. So we've got confidence there that 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 to $800 million in quarter on quarter growth in HELOC.

We're number one in net balance sheet growth in The United States, number one in originated originations in The United States and HELOC in a very high credit quality book. With 95% plus 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 crater through a 5% mortgage rate, at least in the forward outlook.

It's really a perfect time period for HELOC where there's not gonna be a ton of mortgage refinancing. Refinancing activity, but huge amounts of equity built up with consumers who are very, 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, launched a credit card portfolio, which we expect will start to pay some dividends as we get into twenty twenty-six first half and second half with higher yielding, quality balances.

So for all those reasons, I feel really good about continued pickup in net loan growth. The other thing I just mentioned 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, you know, I think we're we've got confidence on winning both dimensions, quantity plus quality.

Thank you. I'll step aside and let my peers ask questions.

Okay. Thank you.

Our next question comes from Manan Gosalia with Morgan Stanley. Your line is open.

Hey, good morning all and welcome Hanoi. 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. 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 percent is still kind of good growth on top of very strong growth that we had in 2025. I'd say the outlook for 'twenty six 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 20,000,000 of fees that carries over that will close in the first quarter. And then in the 2025, we had kind of soft 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 and 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, like capital markets look like it'll have an extremely strong year.

Wealth has been having record quarter after record quarter. And that's a twofold benefit. It's not only kinda getting the teams in place of recruiting these lift outs and then connecting them to the private bank relationships and the corporate bank 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 another 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, you know, our other income was flattered. We had a like moon and the stars aligned for a couple 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 CET one 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 SCP frustration for years. But we are reasonably optimistic that there's some changes afoot down in Washington with the Fed.

And so based on what we know, think we'll get a better outcome remains to be seen the timing of that implementation. But to me, it's less of an impact directly on where we set our capital targets just been it's almost a scarlet letter that we have this outsized SCB when our business model is the same as most of our peers and that 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 gonna 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 and a half 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 get the CRE worked out when we feel the environment is in a better place and we've accomplished some of those aspects then think we could be in a position to start to migrate down within that range. But anyway, that's how we think about it.

Great. Thank you.

Our next question comes from John Pancari with Evercore ISI. Your line is open.

Hi, this is Gerard Cassidy on for John. Want to revisit the private bank build-up specifically. In that $11 billion to $13 billion private bank related loans in 2026, can you break down what loan categories in 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? Thank you.

Yeah. It's Brenda. I can take that. If it's pretty balanced growth.

So about a third of it, I'd say, is coming from C&I equity-based lending. We have, yeah, about half of the balance sheet is, I'd say, residential and real estate. So mortgage and, granular multi-commercial real estate, as I mentioned before, tied into deep wealth management-based clients. And then there's, a smaller portion in sort of other consumer.

So our, you know, 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 with the traditional personal private banking should pick up.

That would that's, again, gonna the portfolio will benefit from HELOC and continued residential lending. And as our card portfolio picks up, we've optimism that that can be a more meaningful player in the private bank over time.

Yeah. I would just add to that that we've been in business now for a couple of years. Haven't had one I'm gonna 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 the people that we know well and getting good credit. The you asked about the LDR too. Sorry, I didn't answer that. Our 25% ROE is certainly benefiting from a you know, 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 the 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 LDR to tighten, you know, maybe from in the sixties where we are today into the 80% range, potentially.

But, you know, that if rates pull back. Right now, we're we still think it will be in this range of you know, 60 to 70% for the next, you know, year to six quarters.

Thank you. That's very helpful.

Our next question comes from Matt O'Connor Deutsche Bank. Your line is open.

Good morning. A bit of a follow-up to comments you just made. I want to ask about the deposit growth assumption. I found it interesting.

I think it's what's driving the higher net II 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 you give us a private bank which is the one piece, but just the overall assumptions there and the confidence in that level.

Yeah. Well, we don't have a deposit guide here, but I think the expectation 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 'twenty-three kind of in the high 80s. We brought it down in 2024 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, Anoye, if you wanna add anything to that. Yeah. I think the only other thing to add would be probably lower non-interest-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 non-interest bearing would be, you know, what we've gone through a period post-COVID three 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 in most benchmarks in the consumer bank. We were number one 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 thirties, but important to also look at checking with interest the entirety of the personal banking deposits in the private bank or 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 number one 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% of both loan growth and maybe deposit growth. Anything else driving that? I think you've expanded your swap business for customers. I don't know if there's something with trading assets or a rethinking of how you hedge the balance sheet?

I would say the spot loans is three to five and earning assets kind of four to five. So there may be a little build in liquidity. We may be adding to the securities books. Part of that is looking at the lended full deposits and the kind of what we see is growth in 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.

Okay. Right. Thank you.

Yep.

Our next question comes from Ebrahim Poonawala Bank of America. Your line is open.

Hey, good morning. I guess just a couple of quick follow-ups. As we think about the 16% to 18% return, raw C exiting twenty-seven, it implies the margin probably being somewhere between around that three forty to three fifty. Am I thinking about that correctly?

Yes. I would say think of that, in that zone. Yep.

And then beyond that, as we think about the new growth that's coming on the balance sheet, on Slide 19 for private bank, call 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 new growth is coming? Is it close to 4%, close to 3%? I would love any color there.

Yeah. 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 seven offices, four 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 saturated the opportunity.

Well, I'll start and flip it to Brendan. But you know, 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 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 2627 and then we have densification 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.

Yeah. Our confidence is clearly increasing every quarter that gets behind us on our ability to drive sustainable growth and high quality. But if you kinda rewind the clock back to you know, four 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 of our over our skis. So we've been very thoughtful in terms of where to put these locations.

It's a very connected business model. I call it 1st Floor, 2nd Floor. 1st Floor being kind of retail banking for private banking customers. 2nd Floor being senior RMs and wealth teams that are not necessarily working the retail branch, but they're bringing in clients. We've gotta 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 a 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 private the full private banking package. And so in addition to adding more sites, 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 our ambition.

That's great. Thank you. Okay.

Our next question comes from David Shibarini with Jefferies. Your line is open.

Hi, thanks for taking the question. 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 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 pricing that we think is pretty assured, you can get from 62 into the high 50s. And if you overlay the RGB, that can further take you down into the mid-fifties. 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 three things that are driving you back down to something in the mid-fifty. So I think it's a very target.

Thanks for that. And my follow-up is on AI. You've been front-footed on AI 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, in '20 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 of this happened in 2025. Candidly, 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 you can look at that, but I'll maybe highlight two or three of them.

The call center as an example, we think that 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 it action in smaller firms, tech banks and otherwise.

So we're leaning in heavily there. Technology development, productivity of an engineer is a use case that we also have high confidence in that through leveraging AI, we can have, you know, a five to 10 x of productivity with our engineers that the AI is taking the first crack at writing the code where developers are now QA, QC ing the code, adding the last mile and then ultimately having the AI also work on the first round of testing and quality assurance of the code. And then maybe lastly or 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 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, you know, reasonable confidence that we can we can go out 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.

Very helpful. Thank you.

Okay.

Our next question comes from Gerard Cassidy with RBC. Your line is open.

Hi, Bruce. 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 from 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 three-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 are 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 Klarfeld 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 includes transactional balances is about $60 billion and kind of core AUM of that is about half of that.

And so that now is a number that's growing very nicely across kind of all those three sectors. So we have the private bank growing, we're finding an ability to rejuvenate Klarfeld growth and then the branch business is running very, very nice 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 private, I'll unpack both of them very quickly. On the private banking side, you just want a 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 bringing in their own clients on the wealth side, but then they're referring them back to the bank. So this is a by direct 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 at the right wealth teams, we expect to continue the acceleration of new business flow coming from that into these new wealth teams. And we expect, you know, we've been doing one to two 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 affluent 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 affluent 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 affluent business is roughly twice of that of the private bank. So you're getting significant profitability jaws by growing that business well. We had record referrals coming from our retail bank. We've had an overhaul of talent in our advisors that sit in the branches.

We've grown that advisor base by above 50 advisors in 2025. We expect that to continue. So we're seeing sort of, all those rise of the rising tide, the wealth brand that we're building and the capabilities that we're building are coming through in all the client sent 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 help. About a third 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. So we feel really pleased with where we're at and we expect continued positive momentum. Across all segments. Have another question, Gerard?

Yes. 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 successfully through timely acquisitions, whether it was investors in 2022 of the HSBC branches as well as JMP, 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?

Yeah, I'd say, and I said this in my open 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 and knee jerk up 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 to make sure that, you know, the private bank stays on its trajectory and we really make that as 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 startup capital and it's working out spectacularly well. And then reimagine the bank as 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 wanna 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 ads that we've done in the past, such as an m and a boutique.

We have these lift-outs that we're doing, but that's pretty much where our focus will be this year.

Appreciate the insights. Thank you.

Our next question comes from Chris McGratty with KBW. Your line is open.

Great. Thanks for fitting me in. Good morning. The 16% to 18% back half of next year ROE guide, looking at our numbers of consensus, we're call it, a little bit closer to 15. I hear you on the 50 basis points, and I and the combination of revenues, credit expenses probably gets you to the low.

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? Thanks.

No, I'd say, again, we think we can hit 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 we're on the journey.

We think we made some strides this year. I think the acceleration again you know, do the math on what the EPS growth is and it's very significant based on this guide that'll 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 twelve two 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, see a path 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 we compare the reserves adjusted for the balance sheet optimization, I guess, are we relative to CECL day one?

Yeah. I you know, there's a number of things. We had know, the non-core 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 Annoy, correct me if I'm wrong, I think it's about one ten ish. Yeah. Would be the CECL day one.

So it actually was one mid-40s, 45 or so. The CECL day one. 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 it shows a fair amount of conservatism and a very healthy level of reserves.

Great. Very helpful. Thanks, Bruce. Okay.

Our last question comes from Ken Usdin with Autonomous Research. Your line is open.

Apologize for 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 points about where growth is and where growth comes from, do we get through 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? Thanks.

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 2026, we have a similarly robust output 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 you know, 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 ROADSY 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.

Got it. Thanks, Bruce.

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.

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