Good morning, everyone and welcome to the Citizens Financial Group First Quarter 2022 Earnings Conference Call. My name is Tony and I will be your operator today. As a reminder, this event is being recorded. Now, I will turn the call over to Kristin Silberberg, Executive Vice President, Investor Relations. Kristin, you may begin.

Thank you, Tony. Good morning, everyone and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, John Woods, will provide an overview of our first quarter results. Brendan Coughlin, Head of Consumer Banking; and Don McCree, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter earnings 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 on Page 2 of the presentation. We also referenced non-GAAP financial measures, so it’s important to review our GAAP results on Page 3 of the presentation and the reconciliations in the appendix. With that, I will hand over to you, Bruce.

Thanks, Kristin. Good morning, everyone and thanks for joining our call today. There clearly have been changes in the external environment relative to what was expected coming into the year, along with significant volatility. We feel we have executed well in this environment and are positioned to perform well over the course of 2022. Among the highlights of the quarter, we had a successful conversion of the HSBC branch and online customers, which was then followed by closing the Investors acquisition on April 6. We continue to take actions to position our balance sheet well for rising rates and we have made further progress on our strategic initiatives, including our digital agenda and TOP 7 program. With respect to our financial results, we are off to a good start with underlying EPS of $1.07 and ROTCE of 13%. This is generally our softest quarter from a seasonal standpoint given fewer days in the quarter and the impact of payroll taxes on expenses. Net interest income was up 2% sequentially, given 3% average loan growth and higher NIM, which more than offset a sizable drag from lower PPP loan forgiveness revenue and day count. We saw lower revenue in capital markets and mortgage given the environment, though high volatility benefited our Global Markets hedging business. We maintained strong deal pipelines in capital markets and remain optimistic for a significant revenue pickup if markets stabilize. We managed expenses well in the quarter and turnover has normalized somewhat. Credit metrics are all excellent and so far both our consumer and corporate customers are navigating well through the current challenges. Our balance sheet remains in great shape with a CET1 ratio of 9.7%. We have the capacity to grow loans, pursue fee-based bolt-on acquisitions, raise our dividend in the second half of the year and buyback some stock. Our loan growth has picked up on the commercial side and we plan to throttle back our growth in mortgage and auto a little, which will maintain an attractive LDR. I’d like to shift gears to emphasize a few key points that are topical for investors at the moment. First, and to be clear, we will benefit nicely from the accelerated path to higher rates. Our funding base is vastly improved from where it was entering the last rate up-cycle. We have a 7% benefit from a 200 basis point gradual rise in rates, a 10 basis point cost of interest-bearing deposits and an 83% loan-to-deposit ratio. We project roughly $300 million in higher NII given the current curve, which annualizes to much more in 2023. This will more than offset roughly $100 million in lower fee income from the environment. John will take you through this in detail in his remarks. Second, while inflation pressures are real and the possibility of recession in 2023 has increased, we feel our credit risk position is in very good shape. We have maintained a super prime to high prime risk appetite in consumer and over time we have migrated our credit exposure in commercial to bigger companies who have better credit profiles. As a result, our overall credit profile has improved over time. Our real-life and CCAR stress test results demonstrate that our credit profile is slightly better than middle of the super regional pack and we have carefully assessed investors’ credit book and loss history and remain confident in their positioning, which we will further harmonize over time. Lastly, with respect to acquisitions, I would like to highlight that our focus in 2022 is on integrating the acquisitions that we made last year and getting each of those off to a strong start, particularly our New York City Metro area initiative. We will still look for acquisitions in the wealth space, but we are a highly disciplined acquirer and have not been able to get much done as a result. With respect to Florida, we now have eight branches in the state and job one is bringing them to network performance levels. There does not appear to be much to do that’s attractive inorganically and the likely path is that we will open several more wealth centers in additional cities down the road. In short, you can count on us to maintain the strong financial discipline we have exhibited since the IPO. All-in-all, we feel very good about how we have started the year and how we are positioned to navigate the challenging environment. Given the significant move in rates and the closing of the two bank acquisitions, we have provided detailed guidance in our earnings presentation to assist analysts and investors in updating their models. We continue our journey to building a great bank that can do ever more for our stakeholders. And with that, I will turn it over to John.

Great. Thanks, Bruce. Good morning, everyone. First, I will start with our headlines for the quarter. We have reported underlying net income of $476 million and EPS of $1.07. Our underlying ROTCE for the quarter was 13%, which includes the impact of a modest credit provision benefit. Net interest income was up 2% linked quarter, driven by strong loan growth and a 9 basis point improvement in margin. Period-end loan growth was up a solid 2% linked quarter. Our retail loans are up about 3%, while commercial loans are up 2% or 3% ex-PPP impacts. Average loans are up 3% linked quarter paced by commercial, up 3% or 4% ex-PPP and retail up 3%. Fees were down 16% linked quarter, driven primarily by lower capital markets fees off a record prior quarter given market volatility, seasonal impacts and some pull-forward of transactions into the fourth quarter. On a positive note, we had our best quarter ever in interest rate and commodities revenues as we help clients manage through the volatile environment. We remain disciplined on expenses, which were up 3% sequentially, excluding acquisitions, reflecting seasonal payroll tax impacts. Year-over-year expenses were up a modest 2% excluding acquisitions. We recorded an underlying credit provision benefit of $21 million, which reflects strong credit performance across the retail and commercial portfolios. The near-term macroeconomic outlook remains positive though we are monitoring whether Fed actions to slow inflation can do so while engineering a soft landing for the economy. The underlying credit benefit for the quarter excludes $24 million for the double count of Day 1 CECL provision expense tied to the HSBC transaction. Our ACL ratio stands at 1.43%, down slightly from 1.51% at the end of 2021 and the 1.47% Day 1 CECL level. Our tangible book value per share was down 10.5% linked quarter, driven primarily by the impact of rising rates of securities and hedge valuations that impact AOCI. We continue to have a very strong capital position with CET1 at 9.7% after a 20 basis point impact from the HSBC transaction. Next, I will provide some key takeaways for the first quarter while referring to the presentation slides. Net interest income on Slide 6 was up 2%, given strong loan growth and the benefit of higher rates more than offsetting the approximately $41 million combined impact from lower day count and the reduced benefit from PPP forgiveness. The net interest margin was 2.75%, up 9 basis points, reflecting the benefit of higher rates with front book yields rising, which more than offset reduced PPP benefit. Margin is also benefiting from lower cash balances as we continue to redeploy some of our excess liquidity into loan growth. Of note, PPP spot loans were down to roughly $400 million at quarter end and forgiveness benefit headwinds are substantially behind us. We made continued progress lowering our interest-bearing deposit costs, which are now 10 basis points, an all-time low, down 3 basis points linked quarter. Moving to Slide 7, given the Fed’s recent rate hike and the expectation for Fed funds rate to end the year in the 225 to 250 basis points range, we thought it would be helpful to discuss why we are confident that we will realize meaningful benefits from rising rates as the forward curve plays out. We entered this rate cycle with a much higher level of asset sensitivity at 10% before the first rate hike in March. This is already starting to benefit NII in the first quarter and is driving the significant improvement in our full year outlook and those benefits will continue to accumulate into 2023. Importantly, our expected asset sensitivity reflects how we have completely transformed our funding base since the IPO. We are beginning the current up-cycle with a very strong liquidity profile. Our LDR is much lower. Our deposit costs are as low as they have ever been and our overall funding profile was greatly improved. Our period end demand deposits are now 32% of the book compared with 27% at the beginning of the last rate cycle. And within our interest-bearing deposits, our consumer CDs are now less than 3% of total deposits compared with about 10% at the start of the last cycle. We are also starting this cycle with a much lower level of floating wholesale funding. This improved deposit profile reflects the significant improvements we have made to our deposit franchise since the IPO with improved and expanded retail and commercial deposit offerings. We have also enhanced data analytics that allow us to attract and retain more stable deposits. With a better starting position and the improvements in our deposit mix and capabilities, we expect our interest-bearing beta to be about 35% over this rate cycle, which is meaningfully lower than the last cycle. Our overall asset sensitivity stands at 7% at the end of the first quarter. This is down modestly from 10% at the end of 4Q, with the decrease primarily driven by the denominator impact of our higher NII outlook given the benefits from the April 6 forward curve and the evolution in the balance sheet. Pro forma from the Investors acquisition, asset sensitivity is slightly over 6%. Since the path of the rate cycle is uncertain, on the bottom left side of this page, we have given you an estimate of our sensitivity to further changes in rates either up or down from the forward curve. Essentially, a 25 basis point instantaneous change in the forward curve is worth about $20 million to $25 million a quarter, with most of that coming from our exposure to the short end of the curve. This includes the pro forma impact of Investors. Moving on to Slide 8, we delivered good fee results this quarter despite headwinds for capital markets, demonstrating the strength and diversity of our businesses and we drove solid performance across other key categories. Capital markets delivered solid results despite the market volatility, seasonal impacts and some pull forward into the full fourth quarter of 2021. Given the strength of our pipelines, capital markets fees could rebound nicely as markets settle down and there is more certainty regarding the path of the economy. Demonstrating the diversity of our business, we delivered our best quarterly results ever in global markets, a 46% linked quarter as we worked with clients to manage their foreign exchange, interest rate and commodity exposures. Mortgage fees were down 9% linked quarter against a backdrop of lower industry origination volumes, given rising rates and seasonal impacts. Strong competition and excess industry capacity continue to pressure margins. Mortgage servicing income improved as higher mortgage rates resulted in slower amortization of the MSR. Card fees and service charges and fees were slightly lower linked quarter given seasonality. Debit transactions and credit card spend continued to exceed pre-pandemic levels and wealth fees also remain strong. On Slide 9, expenses were well controlled, up 3% linked quarter and just 2% year-on-year, excluding acquisitions. Our TOP 7 efficiency program is well underway, targeting $100 million of pre-tax run-rate benefits by the end of the year. Period-end loans on Slide 10 were up 2% linked quarter. We were pleased to see strong commercial loan growth again this quarter, up 2% or 3% ex-PPP. Average loans were up 3% linked quarter. Driving this was average commercial loan growth of 3% or 4% ex-PPP impacts, led by C&I with growth across almost every region, including our expansion markets. Average retail growth was also 3%. Line utilization began to rebound a bit with an increase of about 150 basis points to a little over 36% on a spot basis, primarily driven by corporate banking led by manufacturing and trade as companies look to build inventories to get ahead of supply chain issues and rising input prices and facilitate some M&A activity. On Slide 11, our period end deposits were up 3% linked quarter as we added $6.3 billion of lower cost deposits with the HSBC transaction. Excluding HSBC, period end and average deposits were down slightly, given seasonal impacts as well as continued normalization from elevated liquidity levels. Moving on to credit on Slide 12, we saw an excellent credit results again this quarter across the retail and commercial portfolios. Net charge-offs were up slightly at 19 basis points for the first quarter, with good performance across the portfolio. Non-performing loans increased by $87 million linked quarter, primarily driven by residential real estate secured loans exiting forbearance. Other credit metrics continue to look excellent across the retail and commercial portfolios and criticized loans were lower. While we are mindful of inflationary pressures and the higher possibility of recession, we feel good about the improvements in the portfolio we have made over the last few years and the overall positioning of our credit risk. In the appendix on Slide 21, you will see that the risk profile of our commercial portfolio has significantly improved given changes through the pandemic, including prudent lending and a focus on growing the bigger mid-corporate credit portfolio, which is higher rated as well as reductions in stressed sectors such as retail malls, education and casual dining. On the retail side, we continue to focus on the super prime and prime segments. Our risk profile has improved given our disciplined risk appetite and changes in our portfolio mix, including the runoff of our personal and secured product. Of note, the Investors portfolios have performed well in prior cycles and we feel good about them. Moving to Slide 13, we maintained excellent balance sheet strength. Our CET1 ratio remained strong at 9.7% at the end of the first quarter after closing the HSBC transaction, which had a 20 basis point impact. We also wanted to mention that we have widened our target CET1 operating range to 9.5% to 10% from 9.75% to 10%, reflective of the continued progress we have made in improving profitability, revenue diversity and overall risk management. Our fundamental priorities for deploying capital have not changed as you can expect us to remain extremely disciplined in how we manage the company. Shifting gears a bit, on Slide 14, you will see some examples of the progress we have made against the key strategic initiatives and other work we are doing across the bank to better serve our customers and make Citizens a great place to work. As you know, we closed the acquisition of Investors at the beginning of April, further expanding the foothold we established in the New York City Metro area through the HSBC branch transaction and significantly advancing our growth plans. In the consumer business, we were excited to complete the upgrade of Citizens Access to a fully cloud-enabled core platform, which enhances the capabilities of our national digital bank and is the first step toward our multiyear objective of convergence with our core banking platforms. We also recently announced Citizens Ever Value checking, a new overdraft-free checking account designed to meet Bank On national account standards and increase banking access for underserved communities. On the commercial side, we continue to perform well in the league tables, consistently ranking in the TOP 10 as a middle-market and sponsor book runner. On the right side of the page, we have included some digital metrics. We are very excited with how our digital first approach is increasing engagement with our customers and how this is all translating into a better experience and higher satisfaction. Given the significant change in the rate environment and the closing of our two bank acquisitions, we provided a comprehensive update to our 2022 guidance on Slide 15. The good news here is that our guide is up for our standalone business. Rates are helping NII more than offsetting the fact that we are down a little on fees. So, PPNR is higher and there is no change in our positive view on credit and we remain confident in the outlook for the bank deals. I will focus my comments on the full year outlook, including both HSBC and Investors, but we have also added the standalone outlook without the bank deals to help isolate performance. We have also included a comparison to our original guide from January to help highlight what is driving the overall improvement in the full year outlook. The rate scenario used in our outlook is based on the forward curve as of April 6, which implies a Fed Funds target of 225 to 250 basis points by the end of the year. On the long end, this rate curve implies the 10-year treasury to be about 270 basis points at the end of the year. It is also useful to keep in mind that the cumulative benefit from rates would also represent meaningful full year effect upside to NII in 2023. For 2022, we expect NII to be up 27% to 30% driven primarily by the improved rate environment and solid average loan growth of 20% to 22%. On a standalone basis, NII is about $290 million to $330 million better than our prior guidance given the higher rates. Average interest-earning assets are expected to be up 14% to 16%. Fee income is expected to be up 3% to 7%. On a standalone basis, fee revenue will be about $100 million lower than the January guide as the environment will impact mortgage revenue as well as capital markets somewhat. Non-interest expense is expected to be up 16% to 18% given the full year effect of HSBC and Investors as well as our commercial fee-based acquisitions. Credit is expected to remain excellent with net charge-offs broadly stable to down slightly for the year and we expect to end the year with a CET1 ratio of about 9.75%, which incorporates an anticipated increase in our dividends in the second half of the year. Our capital projections include the impact of our expected notable items for the year, including the integration expenses for the acquisitions and our TOP 7 costs. You can see those in the appendix on Slide 20. Importantly, we expect to deliver positive operating leverage of approximately 2% on an underlying basis for the year, excluding the acquisitions. And if you set aside the impact of PPP, that would be over 4% operating leverage. Including acquisitions, we expect operating leverage of over 4% and over 7%, excluding PPP. Overall, we expect our full year ROTCE to land solidly within our 14% to 16% medium-term target range. Moving to Slide 15, I will walk through the outlook for the second quarter. On a standalone basis, we expect NII to be up 6% to 8%, driven by the benefit of higher rates and solid loan growth. With the bank acquisitions, we expect NII to be up 27% to 29%. On a standalone basis, average loans are expected to be up 1% to 2%, led by commercial, with interest-earning assets up slightly. Fees are expected to be up 3% to 5% on a standalone basis, reflecting some improvement in capital markets and seasonal benefits. Including the acquisitions, fees are expected to be up 7% to 9%. Non-interest expense on a standalone basis is expected to be up 1% to 2% given higher revenue-based compensation. Including the acquisitions, expenses are expected to be up 12% to 13%. Net charge-offs are expected to be broadly stable, and we expect our CET1 ratio to land at around 9.75%. To sum up with Slide 17 and 18, we started 2022 with a solid quarter. We have a winning strategy and are well positioned to succeed given the strength and diversity of our businesses. We are very optimistic about the outlook for the rest of 2022 and beyond. We expect to materially benefit from a higher rate environment and strong loan growth. Our capital markets business is well-positioned as markets stabilize and we are very excited about the opportunity to grow our business in the New York Metro region as we integrate and build on HSBC and Investors. We will continue to focus on execution and building a top performing bank that delivers for all our stakeholders. With that, I will hand it back over to Bruce.

Okay. Thank you, John. Operator, let’s open it up for some Q&A.

Thank you. Your first question comes from the line of Scott Siefers with Piper Sandler. Your line is now open.

Good morning, guys. Thank you for taking the question. I was hoping maybe you could spend just a moment discussing sort of the magnitude of recovery you are assuming in the capital markets environment in the forward guide. It looks like you assume some recovery in the second quarter, but of course, moderated the full year target a bit. Just curious for some thoughts or color on how you see things trajecting from here?

Yes. I will go ahead and start off on that. I mean I think you had a number of impacts there that we are building into the guide. I’d say that we mentioned our $100 million guide over guide, which is driven primarily by mortgage. But there is some capital markets implications there as well given the fact that 1Q, we had some pull forward into the fourth quarter. If you look back at the fourth quarter, we had a record quarter, but our pipelines look excellent. And so there could be a little bit of time to build that back into delivering in the last three quarters of the year. But as markets stabilize, we really think that the momentum there is strong. And so maybe Don can cover.

Yes, I think it’s a tale of a couple of different cities. So, one thing we are seeing is quite a bit of strength in the loan market, the syndicated loan market. So, while the bond market is particularly high yield and the equity markets have been pretty much close for the last few months, we are seeing some rotation into the syndicated loan markets as the liquidity there kind of rebuild and you have seen quite a dramatic rally in the loan markets over the last couple of days actually. And that’s been quite supportive. So, I think the second quarter will be really a story about syndicated lending. And then if we get a reduction in volatility, we think we are going to begin to see the bond markets reopen a little bit and the equity markets reopen. I will say what John said, which is our pitch activity, our pipelines and our mandates are extremely strong. And so, it’s really a matter of waiting for the constructive in the markets to return and then we will begin to bring deals. And we saw three or four deals start to emerge last week, which we were on and we feel pretty good about, particularly in the back half of the year.

The other thing you didn’t mention is the M&A pipeline, which I think still looks really, really good. And again there, if the market stabilized a little bit, I think we will start to pull those deals through and it’s typically seasonal that the fourth quarter is huge, which it was for us in 2021. And then the first quarter is usually softer seasonally, pipelines look good. And I think as the year goes, we should see a nice build in M&A revenue.

Yes. I will also just amplify that, Bruce, to say a lot of our capital markets and M&A activity surrounds private equity. So, private equity is still flushed with cash and they actually are looking at quite interesting valuations in the market right now. So, it’s a matter of matching sellers’ desires and buyers’ desires and that will just take a little time to kind of work through the system.

Yes, good.

Wonderful. That’s good color. Thank you. And then, John, was something you could talk just a bit about how your rate sensitivity changes as the cycle progresses meaning effectively, how do the first few rate hikes look in your mind versus the next several?

So did you say asset sensitivity or was it just – I missed the...

In other words, how much more powerful are the first few rate hikes than the next two?

Yes. I mean, I’d say that the – we mentioned our $20 million to $25 million per instantaneous 25 basis point rate move, and that’s really an average. So you get a little more on the front and maybe a little less as you get to the end of it. And that’s really driven by deposit betas, which are going to be extremely well controlled in the first 100 basis points. And then that starts to build into the second 100 and then beyond. So yes, I think you will see possibly a bit more on the front end. One other point is that the $20 million to $25 million is an average, but it’s also a first year average. And so there is actually more upside when you get into year two, even for an instantaneous change, you still get a lag effect benefit from the asset side as assets reprice. So you might see, for example, in year two, even for an instantaneous 25 basis point change, you would see upside from there in the 15% to 20% range on top of that as you get into rolling year two.

Perfect. Alright, thank you very much.

Thank you. Your next question comes from the line of Erika Najarian with UBS. Your line is open.

Thank you so much for Slide 7. And I guess, John, maybe let me start my line of questioning here. So your current asset sensitivity from here is pro forma for Investors. I wanted to understand the comment that was made earlier about acceleration, right? So on one hand, we do expect deposit betas to accelerate as we are deeper into the rate cycle. But on the other hand, you have some drops on your portfolio today. Can you talk a bit about the interplay of both? And how should we think of this asset sensitivity as we move forward in the rate cycle? And does the swap portfolio give you a different trajectory for enhanced sensitivity later?

Thanks, Erika. I think the drivers there are that we’re entering this cycle much better positioned than the last cycle. When you think about just the starting point with interest-bearing deposit costs being at 10 basis points, an all-time low for us, we started the last cycle at 34 basis points. And the balance sheet position, the mix on the deposit side is much better with 32% noninterest-bearing. So we feel — we’re much better prepared to benefit from rising rates this time around. We still benefited from rising rates last time around, by the way, but we’re much better prepared to benefit from this cycle. On swaps, you really have to think about them in the context of the entire balance sheet. We do have a significant amount of asset sensitivity left to play out. That will decline over time as NII keeps rising, the denominator effect as we update and increase our NII will reduce the percentage of further benefit that could occur for future rate hikes. But I do think there is significant firepower left, both with respect to the balance sheet loan growth part of the story as well as much more hedging left to do before asset sensitivity gets anywhere near neutral. In terms of deposit betas, 2022, you’re going to see a lot of lag in the first 100 basis points. It will start to catch up maybe in the second 100. And then if we really do get to 300 basis points in Fed funds, you’ll see some of that catch up in 2023. And then our comment about NII being up $290 million to $330 million guide over guide is an important thing to focus on, and that’s on a gradual rate rising scenario. It could be much higher in a full year effect when you get to 2023, approaching maybe two times that.

And I would just add, Erika, that we’ve been very keen to leave the asset sensitivity high and not do significant additional swaps — we’ve done a bit — but we’re still, I think, of the view that rates could go even higher here. So we feel good about how we’re positioned right now.

Got it. And the second question is for you, Bruce. The stock is having a good start to the day, but the valuation on tangible book value is underneath your ROTCE landing point for the year, either on a standalone or a pro forma basis. I guess what do you think in your estimation that the market doesn’t understand about the improvement that the bank has made since the IPO? And wondering, I think part of that is the asset sensitivity and deposits. Wondering if you could answer that question however way you want to, but also could you give us a sense of how much checking accounts you have, for example, on the consumer side versus previous? And maybe remind us why you have to keep what seems like a 50 to 100 basis point higher capital level than a lot of your regional peers?

Yes. There is a lot in that. I’ll try to unpack that, Erika. I think partly our objective here is to continue to perform well through cycles. We’re a relatively new company with a relatively fresh management team, and when the market goes into a risk-off thought posture, some assumptions about how we are going to do — we’re not as well-known or have the historical track record of some of our peers. I think we’ve done a good job dispelling some of those worries when we went through the pandemic, and our credit performance was very good. I think there was some concern that we grew the balance sheet fairly quickly to get releveraged after the IPO and whether that was going to end badly. We’ve said all along and we’ve been very disciplined in terms of where we were lending money and how we were allocating capital, and I think that’s borne fruit. Now with an up cycle, at the beginning of the year when the environment looked like rates were going to go up gradually — the Goldilocks example — the stock performed quite well. Once it became clear that the Fed was behind the curve and was going to start to raise rates more aggressively, there was concern about deposit betas rising too fast and curtailing some of the benefit from higher rates. With all the work we’ve done and analysis we’ve provided, we’re quite confident that the liability side of this bank is much, much better than it’s ever been. We’ve done a lot of hard work on that. So whether the path is fast or more gradual, we expect to benefit significantly from higher rates. On fees, there may be concern that we’ve built up some areas that are more volatile, like capital markets and mortgage. Having said that, there is good diversity in our fees. In the pandemic when capital markets were softer, mortgage revenues were strong given low rates, and that can flip. We’ve assembled an excellent commercial bank with very strong capabilities and targeted focus on private capital and serving private capital and industries that are the engine of the economy — technology, healthcare with our JMP acquisition. We’re confident we can grow revenue sustainably. On mortgage, we’ve built out capabilities across wholesale and retail channels and can try to build market share. We plan to hire more this year. All of these aspects take time for the market to fully appreciate, and we will keep executing. With respect to non-interest-bearing deposits, DDAs as a percentage of the total deposit base is up to about 32%. When I started at the IPO that was probably in the low 20s. That’s been a dramatic improvement, focusing on total value proposition to target customer segments on the consumer side and investing in core platform and cash management on the commercial side. It’s been a gradual improvement over time as we enhanced targeting and capabilities and we’ve had nice growth as a result. On ROTCE and capital targets, we’re pleased that we can say we will be solidly in the medium-term target range this year of 14% to 16%. We did move the CET1 target range modestly to 9.5% to 10% from 9.75% to 10%. I’m a big believer in being somewhat conservative on capital, particularly as we’re a relatively new company. Over time, we’ve been converging to peers and I think ultimately, when you look at CCAR and our risk profile, there is no reason that longer term we will need to have that premium.

I’m happy to give some color — Erika, you asked about checking account counts. A couple of quick points: when we went public, we had about 2.9 million to 3.0 million customers. We now have over 7 million customers in total. Some of those are loan customers. When you unpack that to core deposit customers, that number went from about 2.9 million to about 3.5 million customers. That’s good growth, but the action is deeper: we’ve seen a quality transformation. More than 100% of the growth in the household base has come from mass affluent and affluent customers. So when you combine higher quality customers with deeper relationships, that’s driving much of the improvement in DDA and non-interest-bearing deposits, which is sustainable. That work has taken multiple quarters and years to scale. We still have running room to continue to improve the quality of the customer base. We’ve made a lot of progress catching up to peers, and momentum hasn’t slowed. Expect more of that, putting aside excess stimulus deposits — the quality story continues at scale. On betas, last up cycle we had low DDA balances and higher CDs — about $10 billion in CDs then versus $3 billion now. We look more like a larger bank in deposit composition terms, so we are less rate sensitive in how we’re driving deposits because of that quality transformation.

I’ll emphasize what Bruce said. We’ve gone through a complete reconstruction of our treasury services business. Six years ago it was in poor shape; now I would put it up against any other company’s treasury services business. That’s driving above-trend growth — 7% to 10% year-on-year — and also driving a skew toward non-interest-bearing deposits. We didn’t even have a deposit team six years ago; now we have a built-out team with strong analytics, new offerings like green deposits in the ESG agenda, and a liquidity portal. It’s a totally different place and the results show in deposit levels and the skew toward non-interest-bearing deposits.

Thank you for the complete answer.

Sure.

Thank you. Your next question comes from the line of Brian Foran of Autonomous. Your line is now open.

Hey, good morning. Maybe to follow-up on deposits, you have been very clear and convincing on the improvement in the book. So that’s appreciated and great information. As you think also about the ability to grow deposits over the next two years, I wonder — and there is a lot of moving parts. There is no one answer. But if you could just give your thoughts on the ability to grow deposits overall and maybe I’ll touch on consumer versus commercial and how that might behave as rates go up?

Great question, Brian. I think there are excellent opportunities for deposit growth over time as our product lineup on both consumer and commercial has improved. As rates rise, there is some impact on how deposits play out, but the surge deposits from the pandemic appear to be stickier than many expected. More broadly, industry deposit growth has continued across many macro scenarios, so we’re optimistic the industry and we, in particular given our expanded product capabilities, can continue to drive strong deposit growth on both consumer and commercial sides. I’ll turn to Brendan and Don for additional color.

We’ve demonstrated ability to gather deposits at scale across cycles. The question is always at what cost. We’re in a dramatically different position in this up cycle than the last. We continue to improve on the consumer side with breadth of levers like the Citizens Access platform nationally to raise deposits beyond our core book and new markets. We’re already seeing signs — we’ve had $100 million in inflow of balances in the New York market from strong execution. As we convert the Investors customer base into our platform, we expect similar opportunities in New Jersey and elsewhere. Our analytics have improved materially, allowing more targeted acquisition and retention. Combining that with the quality and engagement of our customer base, we’re confident we can grow deposits at the pace we need with a more moderate cost compared to the prior cycle.

We’ve expanded aggressively in terms of client base in expansion markets. That brings opportunities to gather deposits at reasonable costs. We feel good about it, but it’s about balancing volume versus cost and managing that against the asset side of the balance sheet and redeploying capital. We manage it carefully and expect continued expansion of the deposit base.

I appreciate all that. I will say I’m a Citizens Access customer. I am not loving the renewed beta assumptions you’re making, but I guess I’ll have to live with it.

Well, you can count on us continuing to be disciplined yet competitive.

Thank you very much. Appreciate it.

Thank you. Your next question comes from the line of Betsy Graseck with Morgan Stanley. Your line is now open.

Hi, good morning.

Good morning.

Two questions. One was just on the most recent conversation that we had on deposit growth. I was intrigued by that. Relative to Bruce, your comment about flowing residential and auto lending growth to, I don’t know if this is the right word, but keep the LDR, protect the LDR at around the 83% level. So I guess I just wanted to understand if that comment about LDR was more about the deposit growth rate that you were talking to just now? Or was that because of the just opportunities in residential and auto that you’re not seeing as much as maybe you have had over the past few quarters?

I’d say it’s a factor of a number of considerations. One is we’re already seeing very strong loan demand on the commercial side. We’re seeing line utilization tick up. So there can be somewhat of a rotation into more growth on commercial. Therefore, when we look at consumer and in a higher rate environment, some of the margins on lending in areas like auto and mortgage aren’t what they used to be. We can still achieve the loan growth assumptions we had coming into the year with that rotation to more commercial and throttling back a little on the consumer side. We could keep pushing consumer asset growth, but we don’t need to. NIM is going up and rate hikes provide a big lift. If the marginal return on incremental consumer lending for mortgage and auto isn’t hitting our hurdles, we have no problem backing off. The net result benefits the LDR versus keeping the pedal to the floor. So we think that’s a trade-off we’re taking.

Okay. And then just your underlying question is how high are you willing for LDR to go? And then I also had a quick question just on yields in general. This past quarter, you had some nice uplift in residential and the securities book, other retail loans. I’m just wondering was that a function of swap activity that drove up those yields in Q1 or was there — it didn’t look like the balances would have driven that in Q1. So just wondering how the drivers went there? Thanks.

Let me start and then John and Brendan can add on yields. Historically since the IPO we had a relatively higher LDR and worked to bring it down from the high 90s into the mid-90s. With the big influx of liquidity, we brought the LDR down to the low 80s and it’s inching up with loan growth. We should still be able to manage that in the 80s; the exact level depends on loan growth. We can take another step given our liquidity and manage conservatively with lots of liquidity. John, do you want to pick up on yields?

I’ll start on securities and Brendan can take mortgage. It’s not swap activity affecting those yields. For securities, two dynamics: front book yields on newly acquired securities are north of 3% today — in the 300 to 330 basis points range; during Q1 it was well over 2%, roughly 230 to 250 basis points, compared to 175 in Q4. That dynamic explains the pickup. The other dynamic is that premium amortization on the back book declines when rates rise, so you’re seeing a tailwind in the securities book. That’s the driver. Brendan?

On the consumer side, a good percentage of the 'other retail' book is variable linked to the market with merchant partners, so that ramps as the market changes. On the residential side, we’re a very big HELOC lender, which is essentially all variable, and we’ve had four sequential quarters of net balance sheet growth — we’re the number one originator in the U.S. in HELOC — so we’re striking while the iron is hot. That shows up in yields as rates march north. On mortgage, several factors: front book pricing — we’ve been disciplined and have sometimes been off market as capacity lags, but we’re using our balance sheet for deep relationships and pushing rates up as fast as the market. Also, a technical dynamic: in Q4 we had a one-time reserve adjustment to yields that was non-recurring and didn’t happen in Q1, so there was noise in Q4 that’s gone. We should start to see the mortgage book climb with the percentage that’s variable and continued discipline on front book pricing.

Got it. Thank you.

Thank you. Your next question comes from the line of Matt O’Connor with Deutsche Bank. Your line is now open.

Good morning. I was hoping you guys could remind us with Investors, is there any portion of the loan book or securities book that you’re looking to kind of deemphasize or runoff?

I’ll start. The securities book from Investors has a profile that we would migrate and have already been migrating to our profile, which is clean duration plus mortgage-backed and agency-type paper. We’re in the process of migrating that securities book. The loan book from Investors has performed well credit-wise; they have a nice core portfolio. Don may add anything we’ll migrate at the margin.

There are certain elements that might be a little different as we move forward, but it won’t be quick or aggressive — we’ll migrate over time. A lot of the business they do is diversifying for us; they’re in different elements of CRE than we are. A lot of the C&I business is smaller company banking and we want to grow that segment. You’ll see some adjustment at the margin, but no aggressive asset sales or out blocks.

Also, on my side we are doing roughly $1 billion to $1.2 billion of duration and balance sheet adjustments on the Citizens side, and you will see some of that as we move around low-yielding assets that we might be acquiring, but we don’t have full plans yet.

And then I guess, obviously, there are some opportunities to cross-sell. But as we think about layering Investors into the medium-term, do you think it will have any net impact on your loan growth, either a little bit less than standalone or a little bit more or roughly the same?

When we entered expansion markets in the past, like the Southeast, we have a playbook for growing those markets a little faster for a period until it converges. Once we get the engine running with integration and conversions and investments in the New York Metro, I would expect for a number of years you could see growth rates that are higher than Citizens standalone until it balances out as market share settles.

They have a limited product set on the C&I side. Bringing in our variety of products and capabilities gives opportunity to go after larger companies and serve their clients more substantially.

Same on the consumer side: our product set is significantly more diversified than both HSBC and Investors, which is great. We didn’t build revenue synergies into the deal model. We’re seeing early signs of significant sales opportunity in New York. We’re delivering on that. We’re marketing in the middle of the year. We will convert mortgage and wealth for Investors inside of 2022, and the rest of the platform will convert in 2023. It will take time, but we see an outsized opportunity for sustainable revenue growth.

We think these deals will be a big success, and it’s not just expense synergies. If successful, we cross-sell more to customers who haven’t had our broader products and services and gain market share. We have clear ideas for commercial and consumer growth. None of that has been fully built into our forward forecast yet. The goal would be that within three to five years New York could take on the look and feel of what we built in Boston and Philadelphia, which would be a home run for us.

Thank you very much.

Thank you. Your next question comes from the line of Ken Usdin with Jefferies. Your line is now open.

Hi. Thanks. Good morning. I had a question about reserving and provisions. So, just looking back at where you are — ACL is 1.43% pre-ISPC and with CECL changes — just wanted to understand where you think the reserve lands vis-à-vis a blended day one? And what does that mean for further release or provision growth relative to your expectations that you laid out for charge-offs? Thanks.

Good question. If you mean blended including Investors, their profile is actually quite good. In different cycles their loss rates are lower than not only ours but the regional bank peer set. Pound for pound they come on with a slightly lower ACL and CECL hit than CFG standalone, not by a lot, and they’re smaller so it won’t have a huge impact. CECL Day 1 was 1.47% and we are at 1.43%. We’ve cleaned out portfolios of concern since the end of 2019 when CECL was adopted, and there have been significant improvements in both commercial and retail businesses since then. You could see some opportunity for back book needs to tick down if the macro holds. Variability will come from loan growth. We’re probably not going to move a huge amount lower from here.

The wildcard is the macro path and whether the Fed can engineer a soft landing. The higher possibility of recession could change the dynamic. Right now, for 2022, we feel good on credit positioning. It’s unlikely we will have a recession in 2022; credit metrics should continue to be strong for a while. Whether we can still show net benefits on the provision line, those days are probably numbered, but there should still be good results. The ACL may tick down a little more from here, but I don’t expect a huge move lower.

Yes. And Bruce, as a follow-up, it was nice to see commercial line utilization up 150 basis points. You’re reiterating full year loan growth guidance. Just wondering if you can give some on-the-ground color about business activity, supply chain constraints, and the trade-off between loans on the balance sheet versus out the door in capital markets. How is the commercial side of the economy feeling and how does that influence your views on commercial growth? Thanks.

Some of the line utilization pickup is defensive — companies worried about supply chain and building inventories. Inventory build and inflation causing materials to cost more are big drivers. There’s still deal activity and some companies are playing offense. Private capital has amassed firepower to put to work and is looking to get deals done, so deal-related activity should continue to fuel loan growth. Don has the best color.

We’re seeing utilization trends even a bit higher as of mid-April. That trend is driven by cost of goods — inflation and some stockpiling. Broader feedback from customers is generally positive. Credit quality feels good. There is some margin pressure as companies have varying degrees of ability to pass on cost increases. These companies have been through severe stress over the last two years, cut costs, restructured, and are entering this period in a stronger position than two years ago, which gives us confidence. We’re seeing opportunistic clients, where competitors are slightly weakened, engaging in M&A in the middle market. We’re also seeing significant volume in subscription line financing for private equity and strong volume in asset-backed warehouses, so those markets are strong and contributing to loan growth.

Great. Thanks for all the color.

Thank you. Your next question comes from the line of John Pancari with Evercore. Your line is now open.

Good morning. I appreciate the color you gave in terms of the commercial drivers and the trend behind demand. Are you able to perhaps help unpack the high-single digit loan growth expectation ex the deal and ex-PPP for 2022 in terms of how you think about C&I growth and perhaps growth in your CRE portfolio as well? Thanks.

We are essentially done with PPP on the C&I side — it’s in the rearview mirror. The loan growth referenced is CFG-specific. We assumed a little growth on the Investors side but not much for the rest of 2022. Subscription lines are growing fastest, C&I second fastest, CRE modest growth. We are focused on purpose-built office, industrial, life science, and a little multifamily, but we’re off risk on hospitality and retail. The issue is paydowns were high last year and consumed origination activity; this was the first quarter where paydowns began to decline. That may be due to volatility in capital markets and loan market dynamics, but lower paydowns help net growth.

Okay. Great. That’s helpful. Separately on credit, regarding the increase in NPAs and 90-day delinquencies, I know you indicated that’s mainly mortgage coming off forbearance. Can you give a little color on confidence regarding resolution of those items? And separately, in minds of faster-than-expected credit normalization on the consumer side, perhaps in merchant partnerships or anything?

On mortgage, this is fully expected — administrative moves of customers coming off forbearance after being there for some time. We’ve done extensive analytics on loss exposure for those coming off forbearance to full repayment schedules and it’s de minimis. Especially on the mortgage side, we have significant coverage on loan-to-value. On the broader consumer book, we haven’t seen early signs of a meaningful uptick. Delinquency levels remain very strong and significantly depressed. Newer portfolios like student loans and merchant point-of-sale maintain incredible strength with no signs of uptick in early delinquencies. Consumers still show excess liquidity; check balances remain at all-time highs and haven’t moved down materially. We’re seeing velocity in spending on credit cards but not outsized outstanding balances. To see a meaningful correction in credit you’d need to see erosion of excess cash and a rebound in receivables; we haven’t seen that yet. So early indicators remain positive.

All the early warning signs are flashing green, which is great. On the consumer side, delinquency roll rates and other indicators are very good. On the commercial side, criticized/classified ratios continue to decline and few credits are in heightened monitoring. At these very low levels for charge-offs and NPAs, single items can move percentages, but overall we remain very positive on credit for the balance of the year.

Thanks.

Thank you. Your next question comes from the line of Peter Winter with Wedbush Securities. Your line is now open.

Thanks. I was just curious, are there any plans to manage the available-for-sale securities portfolio given rising rates or plans to move any of it into held-to-maturity or hedge some of this?

Good question. We were a little less than 10% held-to-maturity in Q1. I think you will see that number rise in Q2 based on a number of things we are doing. We’re putting a lot of securities to work in the standalone CFG given attractive yields north of 3%. Having closed Investors, there is about $4 billion of securities there that we are rotating into the profile we typically own. You’re likely to see the HCM percentage rise in Q2.

Okay. Thanks. And then just secondly, on HSBC acquisition, at announcement there was about $9 billion in deposits and you closed with $6.3 billion in deposits. Do you think at these levels deposits hold steady or can you grow them? Just talk about that change.

Pre-legal day one deposit rundown was principally driven by their online business and a segment of international customers who rotated into banks with more global capabilities. The good news is we didn’t pay a premium for customers we weren’t going to retain. We had modeled essentially twice the level of deposit attrition post-legal day one than normal given the customer profile at HSBC. Since legal day one, much of that attrition accelerated pre-legal day one and the portfolio looks broadly stable with good sales. We expect stability now and to get into growth mode as we ramp marketing, which could offset some shortfall in deposits from legal day one. Early signs six to seven weeks in look good.

To add, the transition pre-legal day one produced attrition and we planned conservatively. The trend post-close looks stable and we’re executing to grow through sales and marketing.

Okay. Thanks a lot.

Thank you. Your next question comes from the line of Gerard Cassidy with RBC. Your line is now open.

Good morning. Bruce, you said the focus this year is to integrate the acquisitions in Metro New York, but in the wealth space, if something was priced right you would consider it. Thinking about the Florida franchise as you build that out, if a depository came up at attractive pricing, is that something you could consider or are you going to wait until these things are fully integrated before considering a deposit deal?

I don’t see us looking at a depository in Florida anytime soon. We have enough on our plate getting New York Metro off to a great start. We have a strategy in Florida: de novo wealth centers in Palm Beach and Naples that we’re launching and getting to performance levels, plus five or six branches from HSBC in Miami — job one is to make those productive. We’ll keep exploring market opportunities where we could open more wealth centers. We’re also investing in the digital bank; we recently migrated Citizens Access to a new cloud-based core platform which unlocks broader offerings and integration on the digital platform. That can let us broaden offerings with light branch presence to complement digital. We have similar opportunities in Greater Washington where we picked up nine or ten branches from HSBC. We’ll test, learn and decide where to expand next.

Very good Bruce. And to pivot, deposits: how do you weigh CDs versus other funding? With CDs down dramatically and DDA high, when does long-term funding with low-cost CDs make sense? And Don, when do your customers start asking for higher compensating balances as rates move up? Have you seen more discussions there?

CDs can be part of the story. We would do them in a way connected to deep customer relationships rather than pseudo-wholesale funding. Last cycle CDs were ratcheted up over a longer period; this cycle may be shorter so CDs can be a tool coming off a lower base. On compensating balances for commercial customers, some migration is natural as earnings credits rise. That migration is built into deposit beta and deposit cost assumptions. Given our many ways to interact with customers, those migrations should be well controlled.

We’ve issued materials to our bankers to discuss deposit and pricing levels across our relationships. We’ve had some customers pull deposits but we haven’t had trouble backfilling and bringing in other deposits to cover outflows.

Great. Thank you for the color.

Okay. Alright. I think that’s it for the questions in the queue. And let me just close by thanking everybody again for dialing in today. We appreciate your interest and your support. Have a great day. Thank you.

That concludes today’s conference call. Thank you for your participation. You may now disconnect.