Citizens Financial Group Inc (CFG) November 5, 2026 Conference Transcript

All right, good afternoon to you all.

I'm going to start off with a quick update.

Last year on the stage, your colleague, Mr. Kaufman, was here, and my trivia revealed that there were 215 banks operating in the United States with the word citizen in their name. Given the slowdown in this reconsolidation, it's no surprise that the number of citizens' banks fell by just five over the past year to 210. Here with us again is the largest of that group, though. Citizens Financial, which has a $28 billion market cap, is $234 billion in assets and is headquartered right here in New England. I will reiterate what I said last year in my intro. Citizens is a bank on the move. Since Royal Bank of Scotland fully sold out of the bank 11 years ago, Citizens has undergone significant operational improvement, added a lot of talent, and launched a number of growth initiatives, one of the latest being the build-out of the private bank. I think the leadership of this bank and the improved quality of the franchise remain underappreciated. Simply look at beta, the one-year beta of citizen stock is greater than all the 25 largest banks ranked by market cap in the country except for Citigroup and Capital One. Joining us here today is EVP and CFO, Anoy Banerjee. Welcome.

Thank you. Thank you, John.

And just one note, we will leave plenty of time for questions, and I will start off with the questions. Anoy, you've crossed the one-year mark with citizens last month. As you look at the competitive landscape today, how do you feel about citizens' current positioning?

Yeah, thanks, Joe. Thanks for the invite, and thanks for having me here. Look, I had the good fortune of joining Citizens a year ago, and I was one of those new hires which came in, and I've been spending a lot of time with the team, so whether it's our commercial bankers, whether it's our private banking teams, our ops people, our tech folks, the branch colleagues, and what I am really impressed and optimistic about the franchise we have, And I'm really optimistic about where we are heading as well and about our position today. So as we think about our triangle strategy, and what excites me is the vectors of growth that we have and the momentum that we are actually having in that. So first on our transformed consumer bank, if you think of it, we bank a lot of affluent and mass affluent customers. We have a long track record of growing low-cost deposits, and we are the number one HELOC originator in the country, and that's an important relationship product as it brings attractive clients to citizens. And we feel that it's a great opportunity for us to cross-sell wealth products and services, and this helps in deeper penetration of our households. In the consumer bank, we are investing in digital. We are investing in client experience and data, and I'm sure you guys have heard about Next, and we'll talk a little bit about it. It's a very deliberate approach to accelerate deposit and household growth within our existing footprint. New York metro is a great example of that, where you see that we have been growing. It's one of our fastest-growing regions of our household deposits, and we still see that there is a considerable opportunity for us to gain there. I think the second leg of this tool is our commercial bank, and we have developed a strong super regional franchise with national reach and deep sector expertise and a product set that competes with the best of the industry. So we have built the capabilities in markets and treasury solutions, corporate advisory, private capital, and as transaction activity picks up, we should see those benefits flowing into our results. And then the private bank, you spoke a little bit about, John, I think last three years ago we started the private bank, and today it's a meaningful contributor to our bottom line. And we brought in an exceptional team, and we are attracting high-quality talents, and if you think about it, we are providing the white glove service, which can be compared to anyone in the industry. The business itself is now $18 billion of deposits, $12 billion of loans, $12.4 billion of client assets, and it's a meaningful contributor to our bottom line at 11% of our EPS. And then if you take a step back, I'm really excited about Reimagine the Bank program, and this is the program that is using technology. It's using agentic AI, and we are really rethinking about how work gets done at Citizens and how we can serve our clients even better. And if you take even zoom out a little bit more, even if you think about what many of these capabilities are bringing in, is really about one citizen, and that's just organizational constructs, et cetera. So really a growth mindset for us where we can really put the client in the center and bring all of our capabilities to bear. So my enthusiasm comes from, like, we are not just relying on one initiative or one business or one favorable market conditions. We have multiple growth vectors, and we are executing with precision.

If we could dig into the first subject you touched on, the private bank and wealth. Leap of faith, launching that back in 23, and it appears to be working out very well. As you mentioned, the business contributed 11 percent of third quarter earnings. Can it continue to grow at this pace, and what does the future look like there?

Yeah, as you said, it was a big leap of faith, but I would describe our private bank journey as both ambitious, but also very measured and deliberate. So I think the fundamental premise which we started with three years ago worked, like the clients followed their bankers as well as their wealth teams with the strength of the relationships, but also the quality of the experience that we were providing. But at the same time, we are also focused in building the business, building the technology, building the control environment, and creating the service model so that we make it a sustainable business. So not only is it contributing 11% of our bottom line, it also has above 25% Roxy in this business. So we are not only growing, but we are also growing sustainably and growing profitably. So we have made excellent progress in California. If you think of it, that's where a lot of the teams came from. We are building out the footprint in Florida, in Northeast, and including our offices in New York City, in Palm Beach, and West Palm. And we have added highly regarded private wealth teams across the country in Florida, in California, in New York, New Jersey. We just announced another private wealth team in late October for Newport Beach in Southern California. We have 10 full-service private bank offices across the country. We call them PBOs, and we are opening seven next year, and over time that could grow up to 30 in very attractive markets across the company. And then if you think about our balance sheet around this business, $18 billion of deposits, good DDAs. It's more than 30% of the deposits are non-interest generating. So we are winning the operating accounts with our clients. On the lending side, we are seeing loan growth pick up, and we are seeing a variety of asset classes in those loan growth. But we are very disciplined. We want to ensure that the loan-to-deposit ratio in this business will not cross 70%, but that additional scale will give us additional NIM, additional NII as we grow. And then on the wealth side, we have a compelling opportunity with, As clients bring their wealth products, their AUMs, with us, and that's around $12.4 billion today. And we expect that in the medium term to be more than $30 billion in client assets. So, look, it's a great business. We are on this journey, but strong growth that we talked about. But we are not pursuing growth for growth's sake. We are very mindful in building a high-quality franchise with strong financial discipline, and which will sustain over time.

Shifting over to commercial bank and associated capital markets. The company's done a lot since the IPO and investments and capabilities. What's the strategy to continue to grow that business? Are you missing it? Do you have any missing? And how much could capital markets contribute in a positive environment?

Yeah, if I may say so, I think we are probably one of the best positions commercial bank in our asset class. And I think the foundation of the commercial bank still remains the middle market banking. So this is where you serve companies that have revenues between 25 to 500 million. We have a strong regional coverage model. I just spent a day with the team of bankers there. Our bankers really know their clients well and understands the local markets. And we've also expanded into the mid-corporate segment, and this is where you serve companies with 500 million to 3 billion. They're more public. They have more needs, and it's just not about giving balance sheet capacity. This is where you think about the expertise that you get in, whether you have the industry expertise or you have capital market expertise. And over the last few years, we have been building those expertise, and we are very clear on where we have the right to win. So, for example, in digital infrastructure, in 22, we bought DH Capital, which was one of the leading advisory business in this sector. And if you think about where compute and data centers have gone, I think we would say that was a timely acquisition. Similarly, there are other sectors like online gaming, defense, aerospace. We have very, very good vertical expertise. The other thing we had done very early on, we recognized that sponsors are going to have an increasing share in the middle market complex. So, we bank roughly 4,500 middle market companies, and if you think about a portion of them, they'll always transact. So, we build the sponsored coverage, we build the products, and that has created a natural opportunity for us as for giving broader advice and facilitating transaction. We bought JMP a few years ago, and that gives us some equity capabilities, and highly complementary to the private bank because of its West Coast heritage, as well as the tech activities there. So as the IPO market improves, that should give us another growth level. So we feel good about our products and capabilities. And to your question on where it could go from now, Now, if you think about the current environment, the momentum is encouraging. If you look at our performance this year, first quarter was a record quarter, second quarter was a record quarter, third quarter we had a very strong quarter, and we have a good outlook for the fourth quarter. And our M&A pipelines are strong, it's at record levels, and we have substantial backlog going into 2027. I think the debt activity, there was some timing between Q3 and Q4, But the equity backlog is also strong, though some large transactions need to clear the market. There will be always seasonality in this business, if you think of it. But in a constructive environment, we would think that this business could generate roughly $125 million to $175 million a quarter, and maybe potentially more in a good environment. So the point is that we have made the investments. We have been at it for the last few years, and as the environment improves, we think that the revenues will show up in our results.

All right. In consumer banking, three-plus months ago, you unveiled the Network Evolution and Experience Transformation Initiative, which you've called NEXT. What are you trying to accomplish, and what are the... The near and long-term implications of this.

Yeah, we love our acronyms. So next is we are very excited about it. If you think about, if you take a step back, look, if you think about some banks are moving outside of their core regions, some banks are pursuing acquisitions to obtain those deposits. But we believe, and we strongly believe, that we can achieve at a lower cost and a substantially lower risk by investing in our core northeast footprint. So there are three pillars to next. I think the first is about the physical presence that we have. So we have roughly 100 to 120 of remaining in-store branches and we want to close them down and use the savings to really put up 50 to 60 traditional branches. And we have considerable experience doing this kind of repositioning. So this traditional Additional locations will actually help better serve our clientele that we have, some of the business banking and wealth clients, etc. We'll also selectively relocate or refresh some of the branches and create this more advisory-oriented and business-ready formats for these branches. But the sequencing will be deliberate, we will protect the customer experience, we'll support our communities, and we'll continue to build the citizen's brand. Second pillar is the people, more specialized banker in the branches, so they are at the front line. So we have approximately 450 wealth advisors in our branch network, and we are adding roughly 10 a quarter. So we are also expanding our private client teams, as well as small business coverage teams. And in the regions that we have piloted this thing, the, the, the, the, we have seen very, very encouraging results. And thirdly, part of it is about adding some de novo branches and the existing footprint, especially in the New York metro area as, as a, as a focus. But this is a long-term strategy. This is about 10 years, and it's about building an efficient lead density in our network in the most attractive parts of our footprint. So we're not looking for an acquisition to create that density. We expect that our total branch ground will remain the same until 2035. And financially, as you have known from citizens, we are very disciplined. So over the 18 to 24 months, you will see more of it come through our results. But the savings from the exit of this in-store branches will offset any expense of putting this new traditional branches. And this in-store exits are more front-loaded, and while some of the de novo bills will be over a longer period. But over the long term, I would say this solidifies our long-term and medium-term performance, and it's not a hindrance to our 16 to 18% Roxy target for 20-cell.

All right. I mentioned before we started that that sad Coldplay song that was on before was more fitting for NASDAQ than this bank conference today. But can you just talk about macro view a bit and how you think about the economy and interest rates?

Yeah, look, in our view, the underlying economic fundamentals are positive, and although there is a lot of uncertainty and volatility, it's going to remain elevated. That's the name of the game. I think GDP growth will be probably at least 2%, if not closer to 2.5% over the next four or five quarters. The Fed decided to hold rates steady in the October meeting. We'll see what happens later on in the quarter. The third quarter, GDP was strong at 3.4%, and consumer spending remains quite resilient. So the economy is still growing. Unemployment remains range-bound 4%, and inflation is being affected by the higher energy prices and the tariffs and geopolitical conflicts. And ultimately, I think the Federal Reserve should be able to bring down the inflation down, particularly if there is more progress towards some of the conflict resolution around the world. We do expect a few additional rate increases. The question is how many? How many are required? How quickly they will occur? And what's the economic conditions surrounding them? But if the economy remains healthy, the customer confidence holds up, and the market has reasonable clarity around the Fed's intention, a couple of rate hikes should be okay for a business environment. I think the labor market is an important source of support for the consumer. So as long as the unemployment remains around the current levels, I think consumer spending should be resilient in that way. From our clients' perspective, we see commercial clients are still investing. There is some, they're still playing offense, but there is some uncertainty, but there is a little bit of conservatism. But they're borrowing, they're investing, and they are still executing on their strategic plans. And on the consumer side, look, higher-income households continue to benefit from the strong equity markets As well as resilient home values, and a lot of our retail customers are actually homeowners. So, and further down the income spectrum, you would see some people making some tradeoffs on their spending, but we don't see any broad areas of concern. But, so, the environment remains constructive, but it's not without risk.

I mean, the election, obviously, has just occurred, so I don't know how much discussion there's been internally, But do you think that could impact the growth outlook?

Yeah, look, I think with the change of control in the Congress and the Senate, I think there will be probably increased oversight over the executive branch. But if you think about the tax policy benefits are largely embedded. If you think about the regulatory environment and the pro-business agenda, they should be still supportive. So, we feel that there is still a lot of growth to be garnered from here.

I mean, I think we're halfway through. It'd be good to open up for questions. I have a lot. That way we make sure we get to as many people. And we're just going to bring a mic up.

Thanks.

Hey, Ryan Kenney with Morgan Stanley.

Given the volatility and the interest rate environment that we've seen over the last few weeks and

volatility in specific sectors

of the stock market, notably technology, are you seeing any risk to the capital markets pipeline in any pieces of your business, sponsor activity, or equity capital markets, and any risk to the 4Q fee income guidance up 4 to 5%?

Look, I think volatility has been the name of the game the entire year. So if you go back to the first quarter, if you go back to March, if you go back to the second and third quarter, there has always been volatility. But our clients are transacting. We have a very, very strong pipeline, and our pipeline has even grown from where we started the quarter, and we are seeing like we are getting hired each and every day across our capital markets franchise. Now, the question will be, like, how does those deals get closed in certain times and that? So there might be some timing impact. To your question on how are we seeing on the outlook, our overall outlook, we just started the quarter one month in. We still have two months to go. October, there was definitely some red volatility around, but we also had some deals that got moved from Q3 to Q4. So we had those deals come in. So overall, we still feel good about the quarter for the guidance that we gave during earnings.

Great, thank you.

While we wait for the next one, I guess along the lines of the rate volatility, we've seen that impact some banks' share repurchase behavior or expectations. I guess, how does that impact citizens and capital management?

Yeah, look, if you think about our primary ratio, our regulatory capital ratio, we are at CET1, and under the current regulatory framework, and we are running at 10.5, which is at the higher end of our operating range, and we guided to a 10.6 to 10.7 at the end of the year, which is slightly higher than the operating range. Obviously, you saw the AOCI adjusted ratio, which was at 8.7 at the end of the quarter. But since then, if you think about rates that have come back, especially the long-term rates, so that, that will, that will move around. And, and if you add from the Basel III framework, like from the RWA benefits that we would get, that roughly adds another 110 basis points. So that 8.7 on, on, on that basis is closer to 9.8 to 10. And so I think, so if you think from that perspective, like. So as we, as we think of this, looks all the, and even the TCE ratios. As we think of all these things, we take into account all these things as we monitor this. We also look at our, where is RWA heading? What's the regulatory environment? What's the rates outlook? And how much capital, organic capital, that we are generating each and every quarter? So we, so we evaluate all these things and for, on repurchases, there's not a single mechanical trigger. We look at all these things and we take a holistic view and, and we look at, we'd also look at the share price where there it is. So, and the flexibility of the repurchase program actually lets us adjust to the pace and the capacity that, that we can do. So we do expect to continue to return capital through common dividends as well as share repurchases. While we'll maintain the capacity to deliver for our clients and invest in the company and preserve a strong capital position, which we have always done.

Any other questions?

Scott Sieper is with TD Cowan. When do you start to worry about rate-seeking behavior on the deposit side? Over the last decade or so, it's been such a favorable change in terms of citizens versus itself a decade ago. The betas have been great. Overall, things have been pretty benign. When do you start worrying about what higher rates end up doing to you?

Yeah, but Scott, that's a great question. I would say, look, I think what we are trying to do at Citizens across the three businesses is really to get the operating accounts and really have the clients have multiple products of which deposits is one, and how do we ensure that that is the mainstay of our relationship? So, if you look at our, we put this chart in our earnings call always, if you think about our low cost deposits as well as DDAs, that's roughly 42% of our deposit base. And that has remained pretty consistent over time, right, as you see that. You see the private bank, like the $18 billion of deposits, which has been growing over quite nicely every quarter, We have maintained a DDA percentage over 30%. It was 33% at the end of 3Q. So that shows me that we are actually winning the operating mandates each and every. And look, there's a lot which goes on to those relationships. There's lending. There's operating cash. There is always clients are trying to optimize their thing. There is wealth. There is like the other transaction fees, how can you provide the real services, payment services, etc. So what we want to be is truly be the operating bank for both our consumer clients as well as our commercial clients. So that's the aspect of it. Obviously every day, every quarter, people will start to optimize for rates that they see. But if you can bring your holistic bank, if you If you bring the total value for that to that client, the client will see the value and then probably not always try to nitpick you on five basis point of rate. But that's the purpose and that's where we are heading as a bank.

Hey, Ryan. How are you doing? When you think about the Reimagine the Bank initiative, just given how the pace of change from AI has accelerated, outside of the financial change that you made at earnings, maybe just talk about how this is influencing your plans for the program. Are you accelerating any of it, and does it change the end goal at all? Thank you.

Yeah, look, I'm really excited about Reimagine the Bank. And this is a continuation of our technology journey that we have been on for several years. If you think about it, we are probably one of the few banks that are on the cloud fully. And that gives us a lot of flexibility about how we think about our processes, how we think about how to reimagine some of those processes that we work on both. So under Brendan's leadership and with Bruce's guidance, we have been at it for the last one year or so, right? And when we started this, we really thought about and looked at all our processes. So whether it's our compliance testing, whether it's our client onboarding, whether it's our fraud processes, even if our internal processes like finance and HR processes, et cetera, we looked at everything. And the question that we asked is, with the advent of the new technology, what can we do to really materially change the client experience and also have a material impact to our efficiency? And that's why there are like this, like there are 50 initiatives that really came up, and, and we have been implementing them over, over, over the last, last month or so. And we are seeing some very good results. I'll give you a few examples, and, and we had, we spent the last three days with, with our reimagine the bank team, and roughly 500 people are actually involved in, in, in reimagining this, at this view. So one of the things I would say is like, look, if you think about our, our applications, we, this year alone, we have rationalized 35 applications year to date. And it's just not about the applications, things about how much simplicity that you can create in the environment, your controls becomes better, your costs has to come down, come down. We are also going through and using AI and thinking about in our credit cards, how do you think about complaints? And how can you put your complaints in a bunch and ensure that you can find out the recurring themes and you can actually serve our customers better. Similarly, in the commercial bank, we are looking at our credit processes and how you can get your credit memos done faster. You can think about client prospecting. You can think about your annual reviews with your clients. So, all of those things are really, really getting a lot more productive as we go through. And these are some of the things that has happened this year alone, right? I think so. We are incredibly excited about it. And if you think about just to make sure that we still have the financials, we are, you know that we run these programs with a very, very tight discipline. And this is no different. And so we up the financials, as Ryan said, to 200, a little by $25 million in, in 27. This year, we are exiting at $100 million exit run rate on the savings. And the, and the program is net neutral on an expense basis this year. So that's, that is quite an accomplished, I would say, in the first year of a massive transformation program. And in 2028, we exited $450 million run rate, with two-thirds of those savings are in the expense line, which if you do the math, it's like 5% of our expense base, of our 2025 expense base. So we are focused. We are running this with a lot of discipline, and we are quite excited about not only just the financial aspect of it, But how what it means for the bank and how we are really reinventing our processes.

Just shifting to asset quality, strong for you across the industry. Given everything that's happening that we touched on before, but what areas are receiving the most attention right now and anything worrying in the bank?

Yeah, no, overall, John, we feel good about credit. We are not seeing any meaningful hotspot in CNI if I start with commercial. Not any signs of any stress in that book. In CRE, as you know, we continue to work through our office portfolio, and a large part of that is behind us. And the portfolio is considerably smaller. And we probably have a few more quarters before it's fully behind us. But we don't see any broad-based changes within the CNI. But we obviously monitor companies with exposures to consumer discretionary spending or more towards any consumer and markets. And on the consumer side, we don't see, again, anything broadly concerning. Our consumer base skews more towards mass affluent and affluent households, and most of our retail customers, as I said, are homeowners. So resilient home values and equity markets provide meaningful support on these households. But we are also watching the lower income cohorts closely, but there is not a large part of our portfolio, but there is no broad-based change that we are seeing. And as you see, our charge-off rates are coming down. It's in the high to mid-30s, and we expect that it will get lower as we finish working through that office portfolio. So we are not at all complacent. We are monitoring each and every day, but today, as issues appear, they are pretty boxed and manageable versus any widespread or system-wide issues.

What about the topic? Getting more attention is just the AI boom and beneficiaries and how much maybe that's propping up local areas. But I guess there's obviously the direct exposure, but the indirect exposure, you know, electricians, HVAC suppliers, hotels. I guess if the pace does slow, how do you assess and manage the credit risk amongst the indirect exposure?

Yeah, that's a great question. I would say, look, the AI infrastructure is clearly creating a strong demand, right? And in the data center ecosystem and helping the US GDP growth. But what gives me confidence is in our lending book, if you think about is the quality of the team. We have a tremendous amount of experience in CRE project finance or experience in evaluating and managing construction risk. I mentioned DH Capital, which we bought about a few years ago. We have those expertise. We have expertise in DCM and ECM and ABS for that market. And we have very sector-dedicated in-house credit underwriting teams. We have portfolio management teams. So we have built a very strong intellectual capital position in this sector, I would say. And of course, this is then combined with very disciplined risk management and in the digital infrastructure ecosystem. So our direct exposure to data centers is modest. It's roughly 1% of our loans, roughly around $1.5 billion as of the last quarter. And even on data centers, our focus is really on experienced operators with strong track records and diversified portfolios. So when we do the underwriting, we are looking for long-term reasons, 12 to 15 years, we have power providers that are connected, the developers own the land, and our portfolio is largely geared towards the five largest hyper-grade hyperscalers and development companies. So there's not much of speculation here, so our underwriting makes sure that we mitigate those risks. On your question on the ancillary sectors, as you rightly said, there is a boom that is happening, and it is a net positive, I would say. With respect to the other sectors, we are seeing that in the benefit, but we believe that our exposure to those sectors are relatively modest. And if you think about nationally, yes, AI has got a lot of GDP growth and consumption, but it's not as dramatic in our core Northeast markets because data center bills are not happening in this area. But it is benefiting the companies and obviously when at some point in time, the AI wave will slow down. But I think those companies are pretty resilient and there shouldn't be a credit problem as such, but our exposures are not substantial.

Any other questions? I guess this is all related to the entire discussion, but when thinking about returns, ROTCE, 15.1% in the third quarter, the target is 16 to 18%. By the end of next year, how do you bridge the gap, and what could returns look past that?

Yeah, so look, we are quite confident of our 16 to 18% goal of, of, at the end of 27. I'm not going to give out a new target today, but, but I think our, the way citizens has always operated is we definitely want to print the target, we want to reach it, and we'll talk about the next target after that. But the opportunity is, is, is increasingly visible. So if you start with the 15% of return that we did in the third quarter, roughly another 110 basis point comes from the NIM expansion. So part of it is our terminated swap, parts of it is the front book, back book, but that gets you above 16% already. And then from that you see another 135 to 150 basis point of potential There's a potential improvement throughout our business processes. As we said, we delivered 600 basis points of operating leverage this quarter. The private bank is growing nicely. It's at a 25% ROC. We see capital market fees growing. So all this business execution should add another 135 to 150 basis points. And then as the credit, we talked a little bit about credit as the office portfolio rolls off as the NCOs come down, the charge of rates come down. And that should add another 15 to 25 basis points. And if you take them all together, you are well within the range of this. And remember, this does not include re-imagined the bank benefits, which are additive to this. Now, obviously, rate volatility and AOCI will move sometime. It may get you towards the higher end of the ratio or may get you to the middle of the pack. But I think that's just more over time that will dissipate. And I think what we have, we also have share buybacks that should also get the TC in the right place. So that doesn't impact the direction. I think it will probably impact marginally where we land in. But we are incredibly confident about this 16 to 18%. And we have a clear bridge and we have to just execute consistently as we go through the fourth quarter as well as the quarters of 27.

We've got time for one more question. I think we're all set. We really appreciate your company coming again this year and look forward to returning next year.

Thank you, John. Thanks very much.

It's great to see all of you.