Citizens Financial Group Inc (CFG) May 6, 2026 Conference Transcript

financial um which has been a pretty big supporter of this event you know ever since uh they've gone public maybe now 2014 2014 a little bit ways ago um from the company very pleased have bruce van son who's chairman um and ceo bruce welcome back thanks jason um you know bruce and maybe the best place to start um you know i just think back to 2014 until today and just how far citizens has come since it's gone public, maybe just as you look at the competitive landscape today, how are you feeling about citizens' current positioning and maybe what opportunities are you most excited about?

I mean, I look back over that whole transformation journey since 2014 and just feel really good about how we went about it, putting the right foundation in place with a strong board and leadership team, getting the right talent in, getting the right culture, investing in our people programs, our risk management, our technology, we basically built things brick by brick and then really focused on getting our businesses oriented around areas in the market where we could be distinctive and where we had a right to win. So what I really like about where we are today is we like to describe our strategy around a triangle of businesses. But the consumer bank is really a foundation block because well-run banks need to have stable, low-cost deposits, and that's what the consumer bank provides for us. And we've done a lot of work over the years to segment the marketplace and try to move more upmarket and serve mass affluent and affluent customers, and that brings bigger non-interest-bearing deposit balances and more needs on the part of the customer for wealth advice and other services. And so, you know, consumer banks still has a lot of opportunity, I think, to grow. And one of the big moves that we made about four or five years ago was to recognize we, as a strong northeastern bank, we were going to have to get into the New York metro region. We bought HSBC's East Coast branches. We bought Investors Bank. We paired that together into about a 200-branch system across New York and New Jersey. And it's been our fastest growing region in terms of households and deposits and there's still I think a lot of juice left to squeeze out of the lemon there. So anyway, that's consumer and then commercial bank is something that we basically built up from being more of a regional player focused on traditional bank products that are sold to treasurers to actually having the full range of capital markets capabilities M&A equities capability debt markets capabilities securitizations, etc. So through either acquisition or hiring teams We've built up a full set of product capabilities, and then we focused the sales force the coverage bankers on both middle market and we went up market into mid corporates who have more needs and require us to be very strong in terms of industry knowledge, so we've set up industry verticals. We also saw that the sponsors were going to increasingly own more and more of middle market America, so we've built out capabilities to serve private equity, private capital more broadly. And so I think we're exceptionally well positioned. I like to say we're the best positioned super regional bank in the U.S. in the commercial space. And then the third kind of leg of the triangle was more recent. We always had a desire to get into kind of high-end private banking and wealth management. We had made an acquisition five years ago of a company called Klarfeld, which was a very respected registered investment advisor. It really wasn't at the scale to kind of balance out the triangle. So when First Republic failed, we made the bold move to try to buy it, and JPM ended up buying it, but a lot of the talent didn't want to go onto that platform, and so we signed up 150 people one day in June, which was a big bet in a turbulent time to take on all the expenses before the revenues were going to show up, but we had confidence that we We could scale it up and kind of even recreate a model that was better than how First Republic was running it. And we had ability to surround that and work as one citizens with our corporate bank, working with the private bankers. And that's been very effective. So we look at it today and we're filling that void in the market that the demise of First Republic created. We have over $16 billion in deposits, about 7 and a half in loans, 10 plus in wealth client assets. And the nice thing is it's growing very nicely, and it's growing at a very good ROE. So we're making it over 25% in ROE on the business. So anyway, those are the things. We're a good size, so we like to say we're big enough to matter, but small enough to we can go toe-to-toe with the big guys in certain spaces but we can't spread across the waterfront so we have to really focus on those areas where we have a right to win a lot in there i'd love to unpack that a little bit maybe delve more into each one of those three um legs of the stool i guess maybe just following up on the private bank i think now it's what 10 of pre-tax income um you know from very little number not that long ago um just broke even for the first time in the third quarter of 25 right 24 and so then we said it would be 5% accretive last year it was 7% it's already 10% in the first quarter I guess maybe just looking further out it's on a nice trajectory after you know how much more hiring do you plan on doing you know how big do you think this could get yeah well right now we're calling kind of medium term that we get into the mid-teens and so So we still see very strong growth. We've started out with six major markets, Boston, New York, Florida, and then Northern California, a concentration, three big teams in Northern California. We've since moved into SoCal. So we have LA presence, San Diego, Orange County. And we're continuing to reinvest and bring in complementary people like private wealth teams. We're doing a bunch of lift outs so we can have the bankers situated in a co-location format with these wealth managers. And then the other thing that we're doing is we're opening up PBOs, private bank locations, at kind of ground level retail, which has great billboard value, but it also is good for brand visibility in general and ability to provide services to customers. So I would say California is running fast. That was the epicenter for First Republic. So we've got a significant set of new PBOs and talent there. The next market that I want to keep building out is Florida. So we have a flag planted in Palm Beach, which is a really critical market. We're opening this month in West Palm Beach, which sounds like what's the difference between Palm Beach and West Palm Beach? But they're actually different markets and so we we want to thicken in Florida doing it in a controlled way But there's other Cities we want to get to in Florida and then just kind of continuing to leverage the opportunities in core markets like New York and Boston We're going to open a PBO in Greenwich We're looking at converting one of our high-end retail branches in a Boston suburb to a PBO, and then we're looking at Philly eventually as another market where we could see a lot of opportunity.

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

So, again, I think we're very well positioned with the private equity side of private capital. And, you know, there hasn't been the kind of, you know, velocity of exits and investing over the last three or four years that we would have expected to see. We started to see that logjam break a little bit in the second half of last year. And, you know, we have a war and some uncertainty. But I still think there's pent-up demand there, and pipelines are looking pretty good. And so I feel good about how we're positioned there. A lot of those firms broadened out to be more considered asset managers or alt managers. And so since we had an in on the private equity side, as they opened up their private credit arms, we were there to help facilitate the build out and the growth and do it with the kind of clients that we know really well, and we kind of aren't taking marginal opportunities. We're staying with the riding the horses that we already know very well, which is important in banking. So I think the distribution of what we have in terms of private credit looks fine. Most of it's investment-grade lending. It's very well-structured. We have people with deep expertise. And so I know there's noise around it, And the funds that took exposure to retail investors that now have these semi-liquid products and people heading for the exits, there's some challenges to work through there. And there's maybe some funds went a little long on software industry paper. But when we look about the portfolio that we have, the discipline that we have, I don't feel there's credit issues there. And I think it's sometimes good when that when a segment of the market grows really rapidly, to have a bit of a challenge period or a little stumble forces you to go back and rethink the business model and tighten things up a little bit. So I think private credit is here to stay, but I think it'll go through kind of a consolidation phase for a little while.

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

Yeah, so what I mentioned a moment ago, that having strong retail deposit funding is very important. You're seeing different regionals in the US go about that in different ways. Some are deciding to open branches in other geographies in their natural core geography, or they're doing acquisitions to try to go to those other regions with a jump start. I sit down with our team and we say, actually, we have very good brand recognition inside our footprint, and we should think about optimizing the network to get more growth from it because when you go out of region you have to elevate your top of funnel brand image people don't know who you are and so you're spending a lot of money on those marketing dollars if we if we do a better job of kind of assessing market by market do we have the optimized branch footprint for example we used to have a high percentage like a maybe 30% of our our branches were in store with supermarket branches. And we've been whittling that down over time. That's become kind of less effective as a way to grow and capture that deposit share. So should we look and tighten up those relationships even further and then open more de novos? We're doing that in certain markets already in the footprint to good results. So that's what we're looking at. And I just wanted to mention that I do think, since we're doing so well in New York, that was kind of proof of concept. Could we go in there and challenge all the big competitors there and gain market share and be effective? And I think the answer we got is yes, that's happening. So you then start to think, well, how much more branch presence do we need and kind of where would it be? Would it be right in the center of New York City Or would it be in outer boroughs? Would it be in Long Island or New Jersey? And so we're just going through that work, thinking that Obviously, we're already investing a lot in the private bank, and we have to maintain expense discipline. So I think this plays out over time. But I would love to see an acceleration of our deposit growth in retail. That's really valuable. And part of that isn't just the configuration of the branches. It's investing in the people. So do you put another two people in a branch that has a lot of potential, but you're under punching your weight in small business, or you're not getting enough wealth cross-sell. And so part of the analysis is looking at the staffing models to try to optimize and squeeze more out of the footprint.

Makes sense. You know, one area I got questions about is, you know, what you've, I guess, termed reimagined the bank. It's kind of the AI initiative. You talked about $450 million of P&L benefit by 2028. Just maybe delve into kind of what you're doing there, any early wins, and just how we see that playing out.

So some of you may not know our story, but I think we got quite good since the IPO of having an annual top program. It was called Tapping Our Potential, where we tried to figure out ways to deploy some new approaches to how we're running the bank and serving customers. And some of that was technology oriented. Some of it was organizational redesign or consolidation of vendors and things like that. So we were typically getting about $100 million a year of benefit from these programs. When we got to the middle of the year and we were looking at 2026 and beyond, it really became apparent that we needed something more than just a top program that had some quick wins to it, that we needed to take advantage of some of all of the technology innovation that we're seeing and lever these tools and step back and look at everything the bank does. How do we onboard a new customer? How do we service a complaint or handle a fraud matter on someone's card? Lay that out the way it happens today, and then reimagine the future. Go three years out and say, if I had a whiteboard and I could create human bot forces or I could change my technology around to make it a much better customer experience, have less human interaction, more self-service, et cetera, how would I do that? So we took probably 25 people offline in the summer, and we mapped out all those processes and basically constructed a program that has kind of 11 major building blocks, and it has about 50 initiatives in it. And we've mapped that out, and we have owners for that. And some of this, because it involves reconfiguring your technology and introducing these new tools, it takes longer than what a typical top payback program would look like. That's why it's a three-year program. What we didn't want to do was kind of, I think the market might have been a little nervous that we would incur all this one-time cost to get the program off the ground. And so we front-loaded some of the 2026 initiatives that will have quicker paybacks, things like vendor reconfiguration and consolidation. We have a bunch of that. We have some scattered offices that opened up during COVID that we're going to kind of refocus and consolidate. So there's a number of things in the short run that'll get us, I think, to about $100 million right by the end of the year. But keeping those bigger initiatives on track, there's things like the call center investments that we have is introducing more AI and more bots into the call center. that should already make a lot of progress this year and starting to be paying some dividends by late in the year i guess maybe before we kind of shift gears to the financials because you know i'm going to do that um you know despite kind of geopolitical tensions and certainly in macro you know results have actually been pretty solid um particularly the first quarter which is seasonally soft maybe just talk to kind of what you're hearing seeing from your customers Yeah, it's kind of surprising that you look at the headlines and all the worry beads that people have. You know, they had the kind of noise around tariffs, now you have a war going on. It really hasn't weakened the economy to a material degree. So I think we're still, we thought coming into the year we'd have 2% to 2.5% GDP growth in the US. I think we might head a little to the lower side of that, but still be in the range. We'll see how long the higher energy prices last and if that has a further impact. But consumers generally are still getting on with their lives and spending money. There's kind of a two-tiered economy where the more well-off people are benefiting from still strong stock markets, strong housing values, and not even batting an eye at what they're seeing in the headlines. And then I say the folks that are less fortunate are still catching up to the inflation that we had. So their kind of real wages took a dip, and now salary increases are catching up, but they're not all the way caught up. So I think they're being a little more cautious still at this point. But we look at the credit stats on the consumer, even in that kind of lower-end customer, and they look okay. We don't see increases in delinquencies and things at this point, so just probably a little more discipline and caution. And then when I look at the corporate book, we've had, I think, very clean performance. Most of our companies got – they've basically had to do two things. They've had to be resilient and adaptable, given everything that's happened over the last five years, So they got through COVID. They got through the high inflation and high rates. They got through Liberation Day. And basically, they're good at kind of scenario analysis and trying to figure out if this happens and kind of what am I going to do. So they're still investing. They still want to grow their businesses. They're still kind of maybe one foot on the brake and one foot on the gas. But anyway, it still feels good. And we have no credit issues there either, really, on the corporate side. And Cree feels like, you know, the office sector that basically suffered the most from the pandemic, those problem credits across the industry and for us are being worked out. And multifamily has stayed strong. And you're seeing in some markets like New York City, new construction for offices in high demand. They're getting record rent. So I think, you know, there, again, we're going to be very cautious in kind of what we do in Cree. I'd rather be growing the C&I book and growing some quality private bank and consumer assets. But I feel from a credit standpoint, we like where we're at on Cree.

I guess maybe following up, I guess, you know, obviously you talked about actual clouding being very stable. I guess any areas, one or two, three, that you're maybe paying particular attention to?

Nothing really pops up, Jason.

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

So one of the idiosyncratic drivers that's unique to us is the private bank. And so as the private bankers bring on business business and previous relationships and they start lending money, that's just kind of market share gains for us that is kind of separate from what's going on in our traditional consumer growth and our traditional commercial growth. So we have that kind of driver that I think, you know, should generate maybe a billion a quarter of loan growth, which is very positive. And then we're seeing good, healthy demand on the corporate side, so CNI and then NDFI, another one of the latest kind of hand-wringing phrases that we feel very, very good about. But there's opportunities there to either see corporates getting a little more aggressive, pulling down their lines a little bit. But I think there'll be more new money deal flow as the M&A cycle heats up once we get through this war uncertainty. And that'll also benefit on kind of subscription lines, more line utilization. So I feel quite confident that we're going to get very good commercial growth this year. And then in consumer, we have kind of two very steady eddies. One is mortgage. We're continuing to grow in mortgage. and then HELOCs. Like we are the biggest HELOC originator last year in 2025 in the whole US for a bank our size. We only originate in 14 states. We originated more than any other bank, including the mega banks. So we've kind of mastered the art of making a complex process to originate and close one of these HELOCs, a very powerful, positive experience for the customer. So something that usually takes 45 days and has a lot of document gathering, we have that down to like 14 to 20 days. And as a result, people refer their friends, if you want to get a home equity line of credit, go to Citizens Bank. They do a great job. So anyway, so we have growth there. We'd like to see a little pickup in card growth. But anyway, what's nice is that all three of those segments are contributing to the growth. And for the last three years, as we were running down non-core indirect auto book, that was masking the underlying book, but that's small enough now that the drag of what's left to run down in non-core is not offsetting the combined growth in the other three segments.

Got it. And then we just shift gears to the other side of the balance sheet. I guess the positive trends for the industry is kind of mixed in the first quarter. Let me just talk to, you know, as the environment where loan growth is getting better, the Fed's probably on hold, just your outlook for both, you know, deposits and kind of what happens with deposit pricing.

Yeah. So there again, excuse me, I got a little frog here, sorry. There again, having the unique private bank that's growing rapidly, the impact from the private bank is very positive to our deposit funding. So as I said, $16 billion that we have delivered, we've only had the thing up for maybe 10 quarters. And so the composition of that is very attractive. So about a third of that is not interest-bearing, which is accretive to our overall non-interest-bearing mix. So again, that's an idiosyncratic driver for citizens to see that nice, consistent deposit growth coming in from the private bank. And then I'd say in consumer, we're still expecting to see growth overall, as New York is contributing to the growth. And then in commercial, we have some initiatives like expansion into middle market in California and Florida, and so that's contributing to some of our deposit growth on the commercial side. So I think realistically, if the Fed holds for the rest of the year, the ability to drive down your deposit costs is not going to be as high as you thought coming into the year. But there's also the flip side of that is then the yield compression on the loans will be less, and we're slightly asset sensitive. So anyway, I think I feel really, really good about the NIM trajectory that we laid out and our ability to achieve that and deliver that.

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

Well, a high percentage of the NIM expansion is, we like to call it, time-based benefits. So when we tore up the swaps, we saw rates were going higher a few years back. You cauterize your loss, but then you have to, from an accounting standpoint, amortize that loss over the remaining life of the swap. so we don't even have to get out of bed and a certain amount of that is going to drop off every quarter so we've i think shown that very transparently so that's a positive and then the non-core when we got the cash in from selling a non-core asset we were paying off our higher cost funding a lot of that's already flowed in but there's still a little more for that as well so so you have that underpinning of time-based benefits that's really powerful uh and then And, you know, the rest comes down to how we're growing our balance sheet, how we're managing deposits, keeping the mix consistent, et cetera, which we feel good about. We feel good about our ability to deliver that.

I guess maybe shifting to the fee income side, I guess kind of down sequentially in the first quarter as capital markets revenues came down, albeit still a high level. Record first quarter. Record for a first quarter. Just maybe talk to maybe just the outlook for the key, you know, feed drivers, maybe start with cap markets, just giving, you know, your success there.

I feel really, really positive about the capital markets outlook for the year. So the folks who lead that business say, you know, pipelines are excellent and conversations are really strong and consistent. And so people may pull back on timing a little bit based on some of the external events, but there's a confidence that things will get done over the course of the year. So we feel good. And as I mentioned, I think we're the best positioned super regional commercial bank to benefit on the capital markets line. As activity levels pick up, I think the power of what we built will manifest itself more, And we'll start to gap, maybe, versus some of our peers in terms of the revenue capture there. At EnWealth, we've been putting record quarter after record quarter for probably the last six or seven quarters. So I think we've found a way to unlock the cross-sell opportunity in the branches, which has taken years to get the right people and the right approach in place and have the data to go after the best opportunities. And now that's been really nice to see that we're getting consistent growth and improving the penetration of the deposit customers who also have wealth accounts and consider us their wealth advisor, not just their bank. And then these lift outs on the private wealth side, they bring teams that have assets and And then we can feed the growth from referrals coming in from the private bank and the corporate bank. And we're really staying at the tippy top end of quality. We want to make sure that we really have great people. They do fit our culture. And they work well with other people around the bank. And so far, we're very pleased with what we've been able to attract.

And I guess maybe on the expense side, I think 4.5% growth last year, targeting 4.5% growth this year, or is that how to think about the company longer term and just how you weigh investments?

I mean, I know the market likes stories where I'm grinding down on my expenses and I'm keeping it to 2% and I can get 4% revenue growth. You, I think, have pointed this out in your research. It's like a bank that had 8% revenue growth and 6% expense growth is going to have far more positive operating leverage, just the way the math works. So we're not going crazy. Don't think I just was opening the door to 6% expense growth. But I think at 4.5%, we basically are running the core bank at 3%. And then the investing that we're doing in the private bank adds another 1.5% to 2% to that 2.5% to 3% for the core bank. So we're still maintaining that discipline in the core bank and looking for efficiencies. And these numbers are before any benefits from RTB. So anyway, but when the growth opportunity is there to invest in, when you can really invest in the private bank and capture that white space, that void that First Republic left, when you can have people beating on our doors to get onto the capital markets platform, when you can select really good people and keep building out that business, you've got to go for it. And then the technology needs that we have, we're the first super regional bank to migrate all of our infrastructure to the cloud, and now we have things in Reimagine the Bank around deploying AI, deploying agents. There's a lot of things to spend money on, and you have to stay disciplined and to try to find ways to self-fund that. And I think we've demonstrated over the years that we're pretty good at that. The only other thing I'd say there, too, is if you look at street estimates for our revenue growth this year, it's like 10%. So you grow your expenses 4 and 1 half, your revenue growth is 10%, 550 basis points positive operating leverage. There's no wonder that the consensus EPS estimates were up or up 30% for the year. So anyway, I think having a guardrail that forces us to set priorities and pace things out is good. But you could easily spend more. And I think it would probably be productive spend. But anyway, we're going to keep for now at that limit.

Makes sense.

I guess maybe on capital reform, the revised standardized approach as a 10% reduction in RWA the new your BA model is maybe even more than that your SCB should certainly come down at next year just maybe just talk about how you're thinking about capital deployment and kind of overall capital targets yeah so the regulatory reforms are very positive they're more accurate And they'll, I think, drive bank participation in different asset categories that maybe were held back a little bit by the blunt kind of weight of how the risk rates were assigned before. So I think it's a good thing for the banking industry. I think it's a good thing for the economy. we we said that if we if we look at the proposal that we gained maybe 110 basis points of rwa relief and then if you have the aoc i if it if you took that off today that's about 110 basis point drag so you're you're kind of net neutral but if you go out if it's phased in over five years a lot of that AOC is burning off because those securities are maturing, the swaps are maturing. So you probably end up with still a 30 to 50 basis point net after the AOC impacts. So that's something to think about, what to do with that. And I think a smart person on the analyst call said, do you think you have kind of the same risk on your balance sheet? will what will the rating agencies look at and will the tce to ta ratio come back into vogue even though it's not a regulatory ratio so there's a lot of things to play out on that but you're in a position of strength because now you have a higher set one ratio coming down the pike our scb has been a frustratingly high number which has no basis in accurate methodology But I think that's going to change. I think we're very hopeful that we go through this round. And even if they don't change the SCB by the way they set it up this year, everybody will see that the SCB is a lot lower, and it's more back in line with peers. So that's another positive. So anyway, we'll wait and see. I like to run with a little bit of a conservative mindset set around our capital position. I think the strong banks operate that way. And then when you get into choppy waters, you can be opportunistic, just like we had a chance to bid on Silicon Valley and on First Republic because people knew we had strong balance sheet positioning, strong funding, strong capital, et cetera, et cetera. So we'll kind of work that all through, Jason. But it's a good problem to have. It's a good situation to be in. All right.

We've got two minutes left, or four minutes left, and two questions. So be succinct is how you're telling me. So obviously, you've got to cover M&A. There's a window here that banks seem to be able to consolidate. Maybe just talk to your thoughts on scaling the industry, is citizens, thoughts on citizens expanding further through acquisition, both on the banking side and then maybe on the non-bank side.

I've been pretty consistent that with the amount of organic growth that we have and the initiatives that we have in motion, that the bank M&A right now is a lower priority. It's not something that we're actively focused on because, in effect, we did our M&A was the startup of the private bank. And you look at 10% accretion to your bottom line within two and a half years, You can't really find a deal that delivers that. And you'd have to spend a huge amount of capital to deliver that. So we found a capital light way to get into a new business and have huge benefit to the bottom line. And making sure that that is sustainable and maturing on the right trajectory has to be our highest priority. And then RTB is also another initiative that is capital light. You take some one-time costs. But if you can deliver $450 million improvement to PPNR, that's also really, really big. So making sure that gets off the ground, and we manage that and execute that well is important. So I'm less concerned about scale. Some of the folks in our peer group are buying banks at $30 to $75 billion. I don't think that game changes your scale a whole lot. You've got to do what I said in the beginning, is build out your business strategy and focus on areas where you have a right to win and you have real strength and distinctiveness, and that's what we're doing.

Makes sense. Let me just bring it all together. You know, you talked about getting the 16% to 18% RTC target by the end of next year. Kind of everything you said so far feels like you're on track. But when you made that target, RTB wasn't something you had talked about. We didn't know about this, you know, bottle three end game reduction in risk-weight assets. I guess how should we still think about it? Is that still the right ROTC number?

I remember when we did the IPO, and people made me promise that I could get to 10% within three years when we were starting at five. And then when we got to nine, people were saying, well, you should raise it. I said, I'm not even there yet. Let me get there first. So that's my mindset now is don't keep stretching. Don't over promise. Just kind of get the returns into that level, and then make sure that it's something that we think is pretty sustainable. And when markets go through inevitable cycles, we want to have much lower tail risk. I think we have that the way we have more diversification in our revenue streams. And we have tightened up our lending criteria to have, I think, a much better. It was always good, but I think it's much better now in terms of our credit risk profile. So anyway, I think we can deliver that, manage to deliver returns. and then we'll see how much growth we want to achieve any growth that should be accretive to that if we can continue to grow the private bank and continue to execute on our strategy i do think down the road there could be upside to the 16 to 18 for sure perfect let's go to the place to leave it please join me in thanking bruce for his time today